COMMERCIAL LAW 2010

Table of Contents

I. Negotiable Instruments Law ............................................................................... 2

II. Corporation Law (BP 68) ............................................................................................... 20
III. Insurance ............................................................................................................................... 50
IV. Transportation Laws
a. Common Carriers ............................................................................................... 102
b. Code of Commerce Overland Transportation .................................................. 107
c. Air Transportation ............................................................................................... 109
d. Maritime Commerce/ Water Transportation ................................................. 110
e. Carriage of Goods by Sea Act .............................................................................. 119
f. Salvage Law .............................................................................................................. 120
g. Warsaw Convention ............................................................................................... 121
h. Public Service Law ............................................................................................... 124
V. Special Commercial Laws
a. Merchants . 129
b. Joint Accounts . 131
c. Letters of credit 132
d. Trust receipts 133
e. Bulk Sales . 135
f. Warehouse receipts .. 136
g. Chattel mortgages 139
h. Extra-judicial foreclosure of real estate mortgages .. 141
i. Insolvency . 143
j. Central Bank Act . 150
k. General Banking Law .. 152
l. PDIC 156
m. Truth in Lending 157

VI. The Inside Story On the Secrecy of Bank Deposits Law 159
VII. Intellectual Property Code .............................................................................................. 161

ACKNOWLEDGEMENT
These notes were made under the supervision of Atty. Renato Rondez.
Special thanks to Atty. Aurelio Galacgac for notes and cases in Intellectual Property Code and to Atty.
Abe Dumaguing for notes and cases in Negotiable Instruments Law.

NEGOTIABLE INSTRUMENTS LAW:

Rhonella Ulip, , Jesebel Agdawi, Norilen De Jesus, Missy Maramba, and Victor Morales .
CORPORATION LAW:
Precious Cabradilla, Richenn Lacamento, Romelyn Kimayong, Analyn Quiniones, and Rodolfo
Santiago.
INSURANCE:
Erwin Lapitan, Ana Cristina Cawed, Julie Nicer, Jan Karlo Lopez, and Jovencio Robles.
TRANSPORTATION AND INTELLECTUAL PROPERTY CODE:
Myrtle Marayag, Lemwel Alapit, Aileen Bugnosen and Jason Baban.

NEGOTIABLE INSTRUMENTS LAW

 COMMERCIAL LAW

(Act No. 2031, June 2, 1911) Transferee has right of Transferee has no
recourse against right of recourse
- Written contracts for the payment of money; by intermediate parties
its form, intended as a substitute for money and
intended to pass from hand to hand, to give the
holder in due course the right to hold the same Negotiable Negotiable
and collect the sum due.(2005 BEQ) Instruments Documents of Title
Does not contain
Note: A negotiable instrument is not a legal Have requisites of Sec.
requisites of Sec. 1 of
tender. 1 of the NIL
NIL
Have right of recourse
LEGAL TENDER is that kind of money which the No secondary
against intermediate
law compels the creditor to accept in payment of liability of
parties who are
his debt. Although a NI is intended to be a intermediate parties
secondarily liable
substitute for money; it is not generally legal Holder in due course Transferee merely
tender (cf. Sec. 60, New Central Bank Act) may have rights better steps into the shoes
than transferor of the transferor
Negotiable instruments produce the effect of Subject is money Subject is goods
payment only when they have been encashed or Instrument is merely
through the fault of the creditor have been evidence of title;
impaired. (Article 1249, NCC) Instrument itself is
thing of value are the
property of value
goods mentioned in
Principal Features and Characteristics
the document
a. negotiability - right of transferee to hold
the instrument and collect the sum due
b. accumulation of secondary contracts - CHECK BOE
instrument is negotiated from person to - Always drawn upon a - May or may not be
person bank or banker drawn against a
bank
INCIDENTS IN THE LIFE OF A NEGOTIABLE - Always payable on - May be payable on
INSTRUMENT (INPADPDND) demand demand or at a
(Commercial laws of the Philippines, Vol.1, fixed or
Aguedo Agbayani, 1992 ed.) determinable
1. Issue future time
2. Negotiation - Not necessary that it be - Necessary that it
3. Presentment for acceptance, in certain presented for acceptance be presented for
kinds of bills of exchange acceptance
4. Acceptance - Drawn on a deposit - Not drawn on a
5. Dishonor for non-acceptance deposit
6. Presentment for payment - The death of a drawer of - The death of the
7. Dishonor by non-payment a check, with knowledge drawer of the
8. Notice of dishonor by the banks, revokes the ordinary bill of
9. Discharge authority of the banker exchange does not
pay
DISTINCTIONS: - Must be presented for - May be presented
(2005 BEQ) payment within a for payment within
Non-negotiable reasonable time after its a reasonable time
Negotiable issue (6 months) after its last
Instruments
Instruments negotiation.
Contains all the Does not contain all
requisites of Sec. 1 of the requisites of Sec. 1
the NIL of the NIL
Transferred by Transferred by
negotiation assignment
Transferee acquires
Holder in due course
rights only of his
may have better rights
transferor
than transferor
Prior parties merely
Prior parties warrant Bill of Exchange
warrant legality of Promissory Note
payment
title
Unconditional promise Unconditional order
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Involves 2 parties Involves 3 parties a. be in writing signed by the drawer

Maker primarily liable
Drawer only b. contains an unconditional promise or
secondarily liable order to pay a sum certain in money
Only 1 presentment - Generally 2 c. be payable on demand or at a fixed
for payment presentments - for determinable future time
acceptance and for d. be payable to order or to bearer (Sec. 1
payment NIL)

PN CHECK Requisites of a Negotiable Bill (BOE):Key:

- There are two (2) - There are three (3)
parties, the maker and parties, the drawer, the
the payee drawee bank and the
payee
- May be drawn against - Always drawn against
any person, not a bank
necessarily a bank
- May be payable on -Always payable on
demand or at a fixed or demand
determinable future
time
- A promise to pay - An order to pay
*Note: PN, BOE and Chek- definitions (2002
BEQ)
PROMISSORY NOTE - unconditional promise to pay
in writing made by one person to anther,
signed by the maker, engaging to pay on
demand or a fixed determinable future time
a sum certain in money to order or bearer.
When the note is drawn to makers own
order, it is not complete until indorse by him.
(Sec. 184 NIL)
Parties:
a. Maker one who makes a promise and
sign the instrument
b. Payee one to whom the promise is
made or the instrument is
payable.
BILL OF EXCHANGE - unconditional order in
writing addressed by one person to another,
signed by the person giving it, requiring the
person to whom it is addressed to pay on
demand or at a fixed or determinable future
time a sum certain in money to order or to
bearer. (Sec. 126 NIL)
Parties:
a. Drawer one who gives the order to pay
money to third party.
b. Payee one to whom the bill is drawn or
is payable
c. Drawee/ acceptor person to whom
the bill is addressed and who is ordered
to pay.
CHECK - bill of exchange drawn on a bank and
payable on demand. (Sec. 185 NIL)
Requisites of a Negotiable Note (PN): Key:
(SUDO)
It must:
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(SUDOC)
It must:
a. be in writing signed by the drawer
b. contains an unconditional promise or
order to pay a sum certain in money
c. be payable on demand or at a fixed
determinable future time
d. be payable to order or to bearer
e. the drawee must be named or otherwise
indicated with reasonable certainty (Sec.
1 NIL)
OTHER FORMS OF PROMISSORY NOTE
1. Due bill , An instrument whereby one person
acknowledges his indebtedness to another and
promises to pay a sum certain in money .
2. Bonds, which are in the nature of PN.
3. Certificate of Deposit issued by banks
payable to depositor or his order, or to bearer
FORMS OF BILL OF EXCHANGE
1. Trade Acceptance , A BOE drawn by seller on
the buyer for the purchase price of goods.
2. Clean Bill of Exchange , A BOE wherein no
document is attached upon presentment for
acceptance or payment.
3. Documentary Bill of Exchange, A BOE
wherein documents are attached upon
presentment for acceptance or payment .
4. Bank Acceptance , A draft drawn and
accepted by a bank.
5. Drafts, which are BOE drawn by one bank
upon another.
FORMS OF CHECK
1. Ordinary Check
2. Cashiers Check, A Check payable to
third person which is drawn by the bank
upon itself. (2003 BEQ)
3. Certified check , A personal check with
guaranteed funds to cover the payment
of the check.
4. Voucher Check
5. Travellers Check
6. Managers Check , A check drawn by the
manager of the bank. (2003 BEQ)
7. Crossed Check ( 2004, 2005 BEQ)
8. Memorandum Check.
HOWEVER, THESE ARE NON- NEGOTIABLE:
1. Treasury warrant are non-
negotiable because there is an

indication of the fund as the source of
payment of the disbursement.
(Metrobank v. CA, 194 SCRA 169)
2. Since a postal money order is
subject to restrictions and limitations
under postal laws and issued by the
Government which is not engaged in
commercial transactions, it is not
governed by NIL. (Phil. Educ. Co., Inc.
vs. Soriano, 39 SCRA 587)
3. Letters of credit
4. Warehouse receipts - Non-
Negotiable for the same as Bill of
lading it merely represents goods,
not money.
FORM OF NI: (Sec. 1) Key: (WUPOA)
1. Must be in Writing, and signed by the
maker or drawer;
2. Must contain an Unconditional promise
or order to pay a sum certain in money;
3. Must be Payable on demand, or at a fixed
or determinable future time;
4. Must be payable to Order or to bearer;
and
5. When an instrument is Addressed to a
drawee, he must be named therein with
reasonable certainty.
Factors that affect the determination of
negotiability of instruments:
a. Whole instrument;
b. What appears on the face of the
instrument;
c. Requisites enumerated in Sec.1 of NIL;
and
d. Should contain words or terms of
negotiability.
(Gopenco, Commercial law Bar Reviewer, cited in
Aquino p. 23)
In determining the negotiability of an
instrument, the instrument in its entirety
and what appears on its face must be
considered. It must comply with the
requirements of Sec.1 of NIL. ( Caltex
Phils. V. CA, 212 SCRA 448)
The acceptance of a bill of exchange is
not important in the determination of its
negotiability. The nature of acceptance is
important only on the determination of
the kind of liabilities of the parties
involved. (PBCOM v. Aruego, 102 SCRA
530)
Notes on Section 1:
- In order to be negotiable, there must be a
writing of some kind, else there would be
nothing to be negotiated or passed from
hand to hand. The writing may be in ink,
print or pencil. It may be upon
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parchment, cloth, leather or any other
substitute of paper.
- It must be signed by the maker or
drawer. It may consist of mere initials or
even numbers, but the holder must prove
that what is written is intended as a
signature of the person sought to be
charged.
- The Bill must contain an order,
something more than the mere asking of
a favor.
- Sum payable must be in money only. It
cannot be made payable in goods, wares,
or merchandise or in property.
- A drawees name may be filled in under
Section 14 of the NIL
A SUM IS CERTAIN EVEN IF IT IS TO BE PAID
(Sec. 2)
1. with interest; or
2. by stated installments; or
3. by stated installments, with acceleration
clause; or
4. with exchange; or
5. with costs of collection or an attorney's fee
ACCELERATION CLAUSErenders the whole
debt due and demandable upon failure of the
obligor to comply with certain conditions.
General Rule: The promise or order should not
depend on a contingent event. If it is
conditional, it is non-negotiable.
Exceptions:
a. Indication of particular fund from which
the acceptor disburses himself after
payment
b. Statement of the transaction which gives
rise to the instrument. (Sec. 3 NIL)
But an order or promise to pay out of a
particular fund is not unconditional
NOTES ON SECTION 3
The particular fund indicated should not be
the direct source of payment, else it becomes
unconditional and therefore non-negotiable.
The fund should only be the source of
reimbursement.
A statement of the transaction does not
destroy the negotiability of the instrument.
Exception: Where the promise to pay or
order is made subject to the terms and
conditions of the transaction stated.
Payable upon a determinable future time if:
a. There is a fixed period after sight/date
b. On or before a specified date/fixed
determinable future time

c. On or at a fixed date after the occurrence
of an event certain to happen though the
exact date is not certain (Sec. 4 NIL)
Notes on Section 4
If the instrument is payable upon a
contingency, the happening of the event does
not cure the defect (still non-negotiable)
General Rule: If some other act is required
other than the payment of money, it is
non-negotiable.
Exceptions:
a. Sale of collateral securities
b. Confession of judgment
c. Waives benefit of law
d. Gives option to the holder to require
something to be done in lieu of money
(Sec. 5 NIL)
The validity and negotiable character of a
negotiable instrument are NOT affected
by the fact that:
1. It is not dated;
2. It does not specify the place where it is
drawn or where it is payable;
3. It bears a seal;
4. It designates a particular kind of current
money in which payment is to be made
(Sec. 6)
AN INSTRUMENT IS PAYABLE ON DEMAND
(Sec. 7):
1. When expressed to be payable on demand, at
sight or on presentation
2. When no period of payment is stated
3. Where issued, accepted, or indorsed after
maturity (as to immediate parties)
Notes on Section 7
- if the time for payment is left blank (as
opposed to being omitted), it may properly
be considered as an incomplete instrument
and fall under the provisions of Sec. 14, 15,
or 16 depending on how the instrument is
delivered.
PAYABLE TO ORDER (Sec. 8)
The instrument is payable to order where it is
drawn payable to the order of a specified
person or to him or his order. It may be drawn
payable to the order of
1. A payee , who is not a maker , drawer, or
drawee; or
2. The drawer or maker : or
* If the maker is made the payee, the
instrument must be indorsed in order to
complete it. (Sec. 184)
* When the instrument is payable to the order
of the drawer, and it is accepted by the drawee,
the instrument is equivalent to a promissory
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note made by the acceptor in favor of the drawer.
( Commercial Laws of the Phils., Vol.1, Aguedo
Agbayani, 1992,ed.)
3. Two or more payees jointly ; or
4. One or more several payees ; or
5. The holder of an office for the time being
PAYABLE TO BEARER (Sec.9)
The instrument is payable to bearer when:
1. It is expressed to be so payable; or
2. It is payable to a person named therein or
bearer; or
3. It is payable to the order of a fictitious or non-
existing person, and such fact was known to the
person making it so payable; or
4. The name of the payee does not purport to be
the name of any person; or
5. The only or last indorsement is an
indorsement in blank.
The General rule is that an instrument payable
to order may be negotiated by proper
indorsement plus delivery . On the other hand ,
an instrument payable to bearer , can be
negotiated by mere delivery or if originally a
order instrument by blank indorsement plus
delivery.
An instrument originally payable to bearer can
be negotiated by mere delivery even if it is
endorsed specifically. If originally a bearer
instrument, it will always remain a bearer
instrument.
However, with regards to an original order
instrument , when specifically indorsed, it can
no longer be negotiated further by mere delivery
; it must be INDORSED.
* A check that is payable to the order of cash is
payable to bearer. Reason: The name of the payee
does not purport to be the name of any other
person. ( Ang Tek Lian v. CA, 87 Phil. 383)
Notes on Section 9
fictitious person is not limited to persons
having no legal existence. An existing person
may be considered fictitious depending on
the intention of the maker or the drawer.
fictitious person means a person who has
no right to the instrument because the maker
or drawer of it so intended. He was not
intended to be the payee.
where the instrument is drawn, made or
prepared by an agent, the knowledge or
intent of the signer of the instrument is
controlling.
Where the agent has no authority to execute
the instrument, the intent of the principal is
controlling

AMBIGUOUS INSTRUMENTS: RULES OF
CONSTRUCTION of NI (Sec. 17) (1998 Bar
Exam)
The following rules of construction apply:
1. Discrepancy between the amount in figures
and that in words- the words prevail, but if the
words are ambiguous, reference will be made to
the figures to fix the amount;
2. Payment for interest is provided for- interest
runs from the date of the instrument, if undated,
from issue thereof;
3. Instrument undated- consider date of the
issue;
4. Conflict between written and printed
provisions- written provisions prevail;
5. Where the instrument is ambiguous that there
is doubt whether it is a bill or note, the holder
may treat it as either at his election;
6. If one signs without indicating in what
capacity he has fixed his signature, he is
considered an indorser;
7. If two or more persons sign We promise to
pay, their liability is joint (each liable for his
part) but if they sign I promise to pay, the
liability is solidary (each can be compelled to
comply with the entire obligation).
PROVISIONS that do not affect the
negotiability of an instrument:
1. Sum payable includes payment of interest;
2. Payment in stated installments;
The amount of each
installment and the due date of each
installment must be indicated.
3. Sum to be paid on installments with
acceleration clause;
4. Sum to be paid with cost of collection and
attys fees;
Reasonable attys fees does
not affect negotiability but Plus costs,
charges, and attys fees affects the
negotiability since the sum is not certain.
5. Indication of a particular fund to which
reimbursement is to be paid or a particular
account to which it would be debited.
OTHER PROVISIONS not affecting the
negotiability of an instrument:
1. Statements which gave rise to the
instruments issuance;
2. Provisions of clauses in regards to sale of
securities;
3. Clause affecting confessions of judgment;
4. A waiver of benefit intended for the
obligor;
5. Giving the holder the election to require
something to be done in lieu of payment
of money;
6. Absence of date;
7. No seal, place of payment, place of
issuance;
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8. Absence of a statement of consideration
has been paid;
9. Negotiation of a particular kind of money
Provisions that affect the NEGOTIABILITY OF
THE INSTRUMENT:
1. Promise/order to do an act in addition to
the payment of money;
2. Promise/order to pay out of a particular
fund; or
3. Promise/order to pay depends on a
contingency
ANTE-DATING/POST-DATING (Sec.12)
Ante Dating is effected by :
1.Changing the date of the instrument to an
earlier date than when it was made.
2. If the instrument is undated, by placing an
earlier date than when it was actually issued.
Post - Dating is effected by :
1. Changing the date of the instrument to a later
time than when it was made.
Rule: Does not invalidate/affect the negotiability
of the instrument UNLESS used for
illegal/fraudulent purposes.
INSERTION OF A WRONG DATE (Sec.13)
Rule: If there is a date and it is changed, apply
Sec.124 on ALTERATION OF AN INSTRUMENT.
The date may be inserted in an instrument
when:
a. An instrument expressed to be payable at
a fixed period after date is issued
undated
b. Where acceptance of an instrument
payable at a fixed period after sight is
undated (Sec. 13 NIL)
Effects:
- Any holder may insert the true date of
issuance or acceptance
- The insertion of a wrong date does not
avoid the instrument in the hands of a
subsequent holder in due course
- As to the holder in due course, the date
inserted (even if it be the wrong date) is
regarded as the true date.
As to a holder in due course- the date inserted is
the true date.
Subsequent Holder in Due Course not
affected by the following deficiencies:
a. Incomplete but delivered instrument
(Sec. 14)
b. Complete but undelivered (Sec. 16)

c. Complete and delivered issued without
consideration or a consideration
consisting of a promise which was not
fulfilled (Sec 28)
Holder in Due Course Affected by
Abnormality/Deficiency:
a. Incomplete and undelivered instrument
(Sec. 15)
b. Maker/drawers signature forged (Sec. 23)
Incomplete but Delivered Instrument:
(Sec.14)
(2004 & 2005 Bar Exam)
1. Where an instrument is wanting in any
material particular:
a. Holder has prima facie authority to fill up
the blanks therein.
b. It must be filled up strictly in accordance
with the authority given and within a
reasonable time.
c. If negotiated to a holder in due course, it
is valid and effectual for all purpose as
though it was filled up strictly in
accordance with the authority given and
within reasonable time. (Sec. 14 NIL)
2. Where only a signature on a blank paper
was delivered:
a. It was delivered by the person making it
in order that it may be converted into a
negotiable instrument
b. The holder has prima facie authority to
fill it up as such for any amount. (Sec. 14
NIL)
Notes on Section 14
Rule: Sec. 14 applies if there is a signature on the
instrument for the purpose of giving effect
thereto.
Rule: If no signature, refer to Sec. 15 or 23.
Rule: Sec. 14 is merely a PERSONAL DEFENSE.
If the instrument is wanting in material
particular, mere possession of the
instrument is enough to presume prima facie
authority to fill it up.
Material particular may be an omission which
will render the instrument non-negotiable
(e.g. name of payee), an omission which will
not render the instrument non-negotiable
(e.g. date)
In the case of the signature in blank, delivery
with intent to convert it into a negotiable
instrument is required. Mere possession is
not enough.
Incomplete and Undelivered Instrument:
(Sec.15) (2000,2004 & 2006 Bar Exam)
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There are two steps in the execution of a NI:
1. The act of writing the instrument comion
of giving effect pletely and in accordance
with Sec. 1 of NIL; and
2. The delivery of the instrument with the
intentention of giving effect thereto
If Completed and negotiated without
authority, not a valid contract against a
person who has signed before delivery of
the contract against a person who has
signed before delivery of the contract
even in the hands of a HDC but
subsequent indorsers are liable.
REASON: The law does not make any distinction
between a HDC and one who is not a HDC.
Notes on Section 15
It is a real defense. It can be interposed against
a holder in due course.
Where an INCOMLETE and
UNDELIVERED instrument is in the
hands of a HDC, there is PRIMA FACIE
PRESUMPTION of delivery.
Defense of the maker is to prove non-delivery
of the incomplete instrument.
Complete but Undelivered: (Sec.16)
General Rule: Every contract on a negotiable
instrument is incomplete and revocable
until delivery for the purpose of giving
effect thereto. .
a. If between immediate parties and remote
parties not holder in due course, to be
effectual there must be authorized delivery
by the party making, drawing, accepting or
indorsing. Delivery may be shown to be
conditional or for a special purpose only
b. If the holder is a holder in due course, all
prior deliveries conclusively presumed valid
c. If instrument not in hands of drawer/maker,
valid and intentional delivery is presumed
until the contrary is proven (Sec. 16 NIL)
Rules on delivery of negotiable instruments:
1) Delivery is essential to the validity of any
negotiable instrument
2) As between immediate parties or those is
like cases, delivery must be with intention of
passing title
3) An instrument signed but not completed by
the drawer or maker and retained by him is
invalid as to him for want of delivery even in
the hands of a holder in due course
4) But there is prima facie presumption of
delivery of an instrument signed but not
completed by the drawer or maker and

retained by him if it is in the hands of a
holder in due course. This may be rebutted
by proof of non-delivery.
5) An instrument entrusted to another who
wrongfully completes it and negotiates it to a
holder in due course, delivery to the agent or
custodian is sufficient delivery to bind the
maker or drawer.
6) If an instrument is completed and is found in
the possession of another, there is prima
facie evidence of delivery and if it be a holder
in due course, there is conclusive
presumption of delivery.
7) Delivery may be conditional or for a special
purpose but such do not affect the rights of a
holder in due course.
General rule: a person whose signature does
not appear on the instrument in not
liable.
Exception:
a. One who signs in a trade or assumed
name (Sec. 18)
b. A duly authorized agent (Sec. 19)
c. A forger (Sec. 23)
LIABILITY of a person SIGNING AS AGENT:
An agent is exempt from personal liability,
provided he:
1. Acts within the scope of his authority;
2. Discloses the name of his principal; and
3. Discloses that he is acting in a representative
capacity (Sec. 20)
Notes on Section 20
General rule: an agent is not liable on the
instrument if he were duly authorized to
sign for or on behalf of a principal.
If an agent does not disclose his principal,
the agent is personally liable on the
instrument.
Per Procuration - operates as notice that the
agent has a limited authority to sign.
Effects:
- The principal in only bound if the agent
acted within the limits of the authority
given
- The person who takes the instrument is
bound to inquire into the extent and
nature of the authority given. (Sec. 21
NIL)
General rule: Infants and corporations incur no
liability by their indorsement or
assignment of an instrument. (Sec. 22
NIL)
Effects:
- No liability attached to the infant or the
corporation
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- The instrument is still valid and the
indorsee acquires title
FORGERY (Sec.23)
A. Makers Signature
(1989 BEQ)
B. Drawers Signature
(2004,2006&2009 BEQ)
C. Payees Signature
( 2008 BEQ)
D. Indorsers Signature
(2008 BEQ)
General rule: a signature, which is forged or
made without authority is wholly
inoperative. (Sec. 23)
Effects:
a. No right to retain
b. No right to give a discharge
c. No right to enforce payment can be
acquired.
Exception:
- The party against whom it is sought to be
enforced is precluded from setting up the
forgery or want of authority. (Sec.23)
Forgery refers to both a signature which has
been forged or made without authority. Thus,
Section 23 is not limited to counterfeit
signatures since it also applies to genuine ones.
* A person whose signature is forged as maker,
drawer, payee or indorsee of a note or check was
never a party to the instrument. Since his
signature does not appear in the instrument, he
cannot be held liable thereon by anyone.
(Gempsaw v. CA 218 SCRA 682)
CUT-OFF RULE:
General Rule: Parties prior to the forged
signature are cut-off from the parties after the
forgery in the sense that prior parties cannot be
held liable and can raise the defense of forgery.
The holder can only enforce the instrument
against parties who became such after forgery.
Exception: When the prior parties are precluded
from setting up the defense of forgery either
because of their warranties, representation or
negligence. (Gempsaw v. CA)
Persons PRECLUDED from setting up the
defense of forgery:
1. Those who admit/warrant the genuineness of
the signature in question: indorsers, persons
negotiating by delivery and acceptors;
2. Those who by their acts, silence, or negligence,
are estopped from claiming forgery;
3. Holder of a bearer instrument
Forged signature is not
necessary to the title of the holder.

Notes on Section 23
Section 23 applies only to forged signatures
or signatures made without authority
Alterations such as to amounts or like fall
under section 124
Forms of forgery are a) fraud in factum b)
duress amounting to fraud c) fraudulent
impersonation
Only the signature forged or made without
authority is inoperative, the instrument or
other signatures which are genuine are
affected
The instrument can be enforced by holders
to whose title the forged signature is not
necessary
drawee bank is conclusively presumed to
know the signature of its drawer
if endorsers signature is forged, loss will be
borne by the forger and parties subsequent
thereto
drawee bank is not conclusively presumed to
know the signature of the indorser. The
responsibility falls on the bank which last
guaranteed the indorsement and not the
drawee bank.
Where the payees signature is forged,
payments made by the drawee bank to
collecting bank is ineffective. No
debtor/creditor relationship is created. An
agency to collect is created between the
person depositing and the collecting bank.
Drawee bank may recover from collecting
bank who may in turn recover from the
person depositing.
Rules on liabilities of parties on a forged
instrument
In a PN
- A party whose indorsement is forged on
a note payable to order and all parties
prior to him including the maker cannot
be held liable by any holder
- A party whose indorsement is forged on
a note originally payable to bearer and all
parties prior to him including the maker
may be held liable by a holder in due
course provided that it was mechanically
complete before the forgery
- A maker whose signature was forged
cannot be held liable by any holder
In a BOE
- The drawers account cannot be charged
by the drawee where the drawee paid
- The drawer has no right to recover from
the collecting bank
- The drawee bank can recover from the
collecting bank
- The payee can recover from the drawer
- The payee can recover from the recipient
of the payment, such as the collecting
bank
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- The payee cannot collect from the
drawee bank
- The collecting bank bears the loss but
can recover from the person to whom it
paid
- If payable to bearer, the rules are the
same as in PN.
- If the drawee has accepted the bill, the
drawee bears the loss and his remedy is
to go after the forger
- If the drawee has not accepted the bill
but has paid it, the drawee cannot
recover from the drawer or the recipient
of the proceeds, absence any act of
negligence on their part.
Every negotiable instrument is deemed prima
facie to have been issued for a valuable
consideration. (Sec. 24)
Effects:
- Every person whose signature appears
thereon is a party for value
- Presumption is disputable
Where value has at any time been given for the
instrument, the holder is deemed a holder for
value in respect to all parties who become such
prior to that time. (Sec. 26)
Sec.28:- Absence or Failure of Consideration:
(1995 and 1996 Bar Exam)
Effect of want of consideration:
a. Personal defense to the prejudice of a
party and available against any person
not holder in due course.
b. Partial failure of consideration is a
defense pro tanto, whether the failure is
an asceratained and liquidated amount
otherwise. (Sec 29)
Notes on Section 28
Absence of consideration is where no
consideration was intended to pass.
Failure of consideration implies that
consideration was intended by that it failed
to pass
The defense of want of consideration is
ineffective against a holder in due course
A drawee who accepts the bill cannot allege
want of consideration against the drawer
Accommodation Accommodation is a legal
arrangement under which a person called
the accommodation party lends his name
and credit to another called the
accommodated party, without consideration.
Effect: A person to whom the instrument thus
executed is subsequently negotiated, has a right
of recourse against the accommodation party
inspite of the formers knowledge that no

consideration passed between the
accommodation and accommodated parties.
Requisites of Accommodation:
1. The accommodation party must sign as
maker, drawer, acceptor or indorser;
2. No value is received by the
accommodation party from the
accommodation party; and
3. The purpose is to lend the name.
(Crisologo-Jose v. CA, 177 SCRA 594).
Accommodation Party Is one who has signed
the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefore, and
for the purpose of lending his name to another
person. (2003 and 2005 BEQ)
A corporation cannot act as an
accommodation party. Such is an ultra vires
act. (Crisologo-Jose v CA, 117SCRA594)
Liability of the Accommodation Party:
- The accommodation party is liable on
the instrument to a holder for value
notwithstanding that such holder at the time of
taking the instrument knew him to be only an
accommodation party. It is a valid defense that
the accommodation party did not receive any
valuable consideration when he executed the
instrument. He is liable to a holder for value by
virtue of his being an accommodation party.
*An accommodation party to a
negotiable instrument, inspite of the lack of
consideration between him and the
accommodated party, is liable to any other
holder NOT to the accommodated party. (Travel-
On, Inc. v. CA, et al, 210 SCRA 351).
*An accommodation partys liability as a
solidarily party is unconditional party is
unconditional and is not affected by an extension
of payment granted by the creditor to the debtor.
HOWEVER, where the holder allowed payments
by the drawer direct to the contractor without
availing of the deed of assignment in its favor,
said holder is a bad faith holder, NOT a holder in
due course against whom an extension to pay
granted by the drawer is a defense by the
accommodation party. (Prudencio v. CA, 143
SCRA 6).
*The liability of an accommodation party
does not extend to corporate accommodation
because the act of the corporate officers is ultra
vires. However, these officers are personally
liable. (Crisologo-Jose v. CA, 177 SCRA 594).
*A promissory note, with an
accommodation co-maker, used to settle an
estafa case, has an illegality of cause, and does
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not make the accommodation co-maker liable.
(United General Industries v. Paler, 112 SCRA 404)
*A promissory note with an
accommodation maker, utilized to settle an
estafa case, has an illegal consideration, and does
not make the co-maker liable. (United Industries
v. Paler, 112 SCRA 404)
RIGHTS OF AN ACCOMMODATION PARTY
1. Against the Accommodated Party
- the accommodation party, if obliged to pay
to a holder of value, can seek reimbursement
from the accommodated party.
2. Against the Co-accommodation Partyo the
use of some other persons
- where a solidary accommodation maker
paid to the bank the balance due on a
promissory note, he may seek contribution
from the other solidary accommodation
maker, in the absence of a contrary
agreement between them. This rights springs
from an implied promise between the
accommodation makers to share equally the
burdens resulting from their execution of the
note. They are joint guarantors of the
principal debtor. (Sadaya v. Sevilla).
A solidary accommodation maker may:
a. demand from the principal debtor
reimbursement of the amount which he paid
on the promissory note and
b. demand contribution from his co-
accommodation maker, without first
directing his action against the principal
debtor, PROVIDED that:
b.1. he made the payment by virtue of a
judicial demand, or
b.2. the principal debtor is insolvent.
An instrument is negotiated when:
a. It is transferred from one person to another
b. That the transfer must be in a manner as to
constitute the transferee a holder
For a bearer instrument - by delivery
For payable to order - by indorsement
and delivery
(Sec. 30)
Indorsement to be must be:
a. Written
b. On the instrument itself or upon a piece
of paper attached (Sec. 31 NIL)
Notes on Section 31
The paper attached with the indorsement is
an allonge
An allonge must be attached so that it
becomes a part of the instrument, it cannot
be simply pinned or clipped to it.
Kinds of Indorsements:

a. Special (Sec. 34)
b. Blank (Sec. 35)
c. Restrictive (Sec. 36)
d. Qualified (Sec. 38)
e. Conditional (Sec. 39)
A. SPECIAL- specifies the person to whom
or to whose order, the instrument is to be
payable. (Sec. 34)
B. BLANK- Specifies no person to whom or
to whose order the instrument is to be
payable.
1. Instrument becomes payable to bearer
and may be negotiated by delivery (Sec.
34)
2. May be converted to a special
indorsement by writing over the
signature of the indorser in blank any
contract consistent with character of
indorsement. (Sec. 35)
C. ABSOLUTE- One by which indorser
binds himself to pay:
a. Upon No order condition than failure
of prior parties to do so; and
b. Upon due notice to him of such
failure.
D. CONDITIONAL- right of the indorsee is
made to depend on the happening of a
contingent event. Party required to pay
may disregard the conditions. (Sec. 39)
E. RESTRICTIVE- An indorsement is
restrictive, when it either:
a. Prohibits further negotiation of the
instrument; or
b. Constitutes the indorsee the agent of
the indorser; or
c. Vests the title in the indorsee in trust
for or to the use of some other
persons.
But mere absence of words implying
power to negotiate does not make an
indorsement restrictive. (Sec. 36)
EFFECT of Restrictive indorsement:
Confers upon the indorsee the right-
a. Receive payment of the instrument;
b. Bring any action thereon that the
indorser could bring;
c. To transfer his rights as such indorsee,
when the form of the instrument
authorizes him to do so.
F. QUALIFIED- Constitutes the indorser a
mere assignor of the title to the
instrument. ( Sec38)
It is made by adding to the indorsers
signature words like sans recourse,
without recourse, indorser not holder,
at the indorsers own risk, other terms
of similar import.
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* Hence, it has been held that oral testimony is
not admissible to establish that an
unqualified indorsement is in fact
qualified. ( Velasco v. Tan Liuan & Co.,
March 17,1922)
A Qualified indorser has limited liability,
i. e. he is liable for breach of warranty if
the instrument is dishonored by non-
acceptance or non- payment due to:
1. Forgery; or
2. Lack of good title on the part of the
indorser; or
3. Lack of capacity to indorse on the
part of the prior parties; or
4. The fact that at the time of the
endorsement, the instrument was
valueless or nit valid, and he knew of
the fact.
A Qualified indorsement does not impair
the negotiable character of the
instrument.
As mentioned earlier, Negotiation is the transfer
of a negotiable instrument from one person to
another as to constitute the transferee the holder
thereof.
To be valid, negotiation must involve the entire
instrument.
Effects of indorsing an instrument originally
payable to bearer:
- It may further be negotiated by delivery
- The person indorsing is liable as indorser
to such persons as to make title through
his indorsement (Sec. 40)
Notes on Section 40
Section 40 applies only to instruments
originally payable to bearer
It cannot apply where the instrument is
payable to bearer because the only or last
indorsement is in blank
A holder may strike out any indorsement which
is not necessary to his title. (Sec. 48)
Effects:
- An indorser whose indorsement is struck
out is discharged
- All indorsers subsequent to such indorser
who has been discharged are likewise
relieved
Effects of a transfer without endorsement:
- The transferee acquires such title as the
transferor had
- The transferee acquires the right to have
the indorsement of the transferor
- Negotiation takes effect as of the time the
indorsement is actually made (Sec. 49)

Rights of a holder:
- A holder may sue in his own name
- A holder may receive payment.
Effects: (Sec. 51 NIL)
- If in due course it discharges the
instrument
*Note: Holder in due Course (Secs. 52,57&59)
Personal and Real Defenses
( 2000 & 2009 BEQ)
Requisites for a Holder in Due Course (HDC):
a. Receives the instrument complete and
regular on its face
b. Became a holder before it was overdue
and had no notice that it had been
previously dishonored if such was the
fact
c. Takes the instrument for value and in
good faith
d. At time he took the instrument, no notice
of infirmity in instrument or defect in the
title of the person negotiating it (Sec. 52
NIL)
*Note: Under the "SHELTER PRINCIPLE," the
holder-in-due course, by negotiating the
instrument, to a party not a holder-in-due
course, transfers all his rights as such holder to
the latter, who thus acquires the right to enforce
the instrument as if he was a holder-in-due
course. However, this principle presupposes that
the "sheltered" holder is not a party to any fraud
or illegality impairing the validity of
the instrument. (2008 BEQ)
Notes on Section 52
Every holder is presumed to be a HDC (Sec. 59)
O proof to prove otherwise
If one of the requisites are lacking, the holder
is not HDC
An instrument is considered complete and
regular on its face if a) the omission is
immaterial b) the alteration on the instrument
was not apparent on its face
An instrument is overdue after the date of
maturity.
On the date of maturity, the instrument is not
overdue and the holder is a HDC
Acquisition of the transferee or indorsee must
be in good faith
Good faith means lack of knowledge or notice
of defect or infirmity
A holder is not a HDC where an instrument
payable on demand is negotiated at an
unreasonable length of time after its issue (Sec.
53 NIL)
Rights of a HDC:
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- Holds the instrument free from any defect of
title of prior parties
- Free from defenses available to prior parties
among themselves (personal/ equitable
defenses)
- May enforce payment of the instrument for
the full amount against all parties liable(Sec.
57 NIL)
Notes on Section 57
Personal or equitable defenses are those which
grow out of the agreement or conduct of a
particular person in regard to the instrument
which renders it inequitable for him through
legal title to enforce it. Can be set up against
holders not HDC
Legal or real defenses are those which attach
to the instrument itself and can be set up
against the whole world, including a HDC.
An instrument not in the hands of a HDC is
subject to the same defenses as if it were non-
negotiable.
Exception:
- A holder, who derives his title through a
HDC and is not a party to any fraud or
illegality affecting the instrument, has all
the rights of such HDC in respect to all
parties prior. (Sec. 58 NIL)
Rights of a holder not a HDC
- May sue in his own name
- May receive payment and if it is in due
course, the instrument is discharged
- Holds the instrument subject to the same
defenses as if it were non-negotiable
- If he derives his title through a HDC and
is not a party to any fraud or illegality
thereto, has all the rights of such HDC
General rule: every holder is deemed prima
facie to be a holder in due course.
Exception:
- Where it is shown that the title of any
person who has negotiated the
instrument is defective, the burden is on
the holder to prove that he is a HDC or
that a person under whom he claims is a
HDC (Sec. 59 NIL)
Personal Defenses Real Defenses
1. Absence or failure of
Alteration
consideration
2. Want of delivery of Want of delivery of
 COMMERCIAL LAW

complete instrument incomplete instrument The payees interest is only to see to it that the
3. Insertion of wrong note is paid according to its terms
date where payable at When two or more makers sign jointly, each is
a fixed period after individually liable for the full amount even if
Duress amounting to
date and issued one did not receive the value given
forgery
undated; or at a fixed The maker is precluded from setting up the
period after sight and defense of:
acceptance is undated a) The payee is fictional,
4. Filling up the blanks b) That the payee was insane, a minor or a
contrary to authority Fraud in factum or in corporation acting ultra vires
given or not within esse contractus
reasonable time A drawer is secondarily liable
5. Fraud in Effects of drawing the instrument, the
Minority
inducement drawer:
6. Acquisition of the a. Admits the existence of the payee,
Marriage in case of a
instrument by force, b. The capacity of such payee to indorse
wife
duress or fear c. Engages that on due presentment, the
Insanity where the instrument will be accepted or paid or
7. Acquisition of the
insane person has a both according to its tenor.
instrument by
guardian appointed by
unlawful means
the court If the instrument is dishonored, and the
Ultra vires acts of a necessary proceedings on dishonor duly
corporation where its taken
8. Acquisition of the a. The drawer will pay the amount thereof
charter or by statue, it
instrument for an to the holder
is prohibited from
illegal consideration b. Will pay to any subsequent indorser who
issuing commercial
paper may be compelled to pay it. (Sec. 61 NIL)
9. Negotiation in Want of authority of
breach of faith agent
10. Negotiation under Execution of Notes on Section 61
circumstances instrument between A drawer may insert an express stipulation to
amounting to fraud public enemies negative or limit his liability
Illegality of contract
11. Mistake An acceptor is primarily liable
made by statue
12. Intoxication Forgery By accepting the instrument, an acceptor:
13. Ultra vires acts of - Engages that he will pay according to the
corporations tenor of his acceptance
14. Want of authority - Admits the existence of the drawer, the
of the agent where he genuineness of his signature and his
has apparent authority capacity and authority to draw the
instrument
15. Illegality of
- The existence of the payee and his then
contract where form or
capacity indorse
consideration is illegal
16. Insanity where
IRREGULAR INDORSER - a person not otherwise a
there is no notice of
party to an instrument places his signature
insanity
in blank before delivery is liable as an
indorser in the following manner:
A maker is primarily liable:
a. If payable to order of a third person
Effects of making the instrument, the maker:
liable to the payee and to all subsequent
a. Engages to pay according to tenor of
parties
instrument
b. If payable to order of the maker or
b. Admits existence of payee and his
drawer liable to all parties subsequent
capacity to indorse (Sec. 60 NIL)
to the maker or drawer
Notes on Section 60 c. If payable to bearer liable to all parties
A makers liability is primarily and subsequent to the maker or drawer
unconditional d. If signs for an accommodation party
One who has signed as such is presumed to liable to all parties subsequent to the
have acted with care and to have signed with payee (Sec. 64)
full knowledge of its contents, unless fraud is *Note: Irregular Indorser v. General Indorser
proved (2005 BEQ)

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Irregular Indorser, is not a party to the
instrument but he places his signature in blank
before delivery. He is not a party but he becomes
one because of his signature in the instrument.
Because his signature he is considered an
indorser and he is liable to the parties in the
instrument. While, a General Indorser warrants
that the instrument is genuine, that he has a
good title to it, that all prior parties had capacity
to contract; that the instrument at the time of the
indorsement is valid and subsisting; and that on
due presentment, the instrument will be
accepted or paid or both accepted and paid
according to its tenor, and that if it is dishonored,
he will pay if the necessary proceedings for
dishonor are made.
Warranties where negotiating by delivery or
qualified endorsement:
a. The instrument is genuine and in all
respect what it purports to be
b. The indorser has good title to it
c. All prior parties had the capacity to
contract
d. Indorser has no knowledge of any fact
that would impair the validity or the
value of the instrument.
Limitations of warranties:
- If by delivery extends only to immediate
transferee
- Warranty of capacity to contract does not
apply to persons negotiating
public or corporate securities
(Sec. 65 NIL)
Notes on Section 65
A qualified indorser is one who indorses
without recourse or sans recourse
Recourse - resort to a person secondarily liable
after default of person primarily liable
A qualified indorser cannot raise the defense of
a) forgery b) defect of his title or that it is void
c) the incapacity of the maker, drawer or
previous indorsers.
A qualified Indorsement makes the indorser
mere assignor of title of instrument, relieves
him of general obligation to pay if instrument
is dishonored, but he is still liable for the
warranties arising from instrument only up to
warranties of general indorser
The warranty is to the capacity of prior parties
at the time the instrument was negotiated.
Subsequent incapacity does not breach the
warranty.
lack of knowledge of the indorser as to any fact
that would impair the validity or the value of
the instrument must be subsisting all
throughout
A person Negotiating by Delivery warrants
same as those of qualified indorser and
extends to immediate transferees only
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Warranties of a general indorser:
a. The instrument is genuine and in all
respect what it purports to be
b. The he has good title to it
c. All prior parties had the capacity to
contract
d. That the instrument at the time of his
indorsement was valid and subsisting
(Sec. 66)
In addition:
- Engages that the instrument will be
accepted or paid or both according to its
tenor on due presentment
- Engages to pay the amount thereof if it
be dishonored and the necessary
proceedings on dishonor are taken
Notes on Section 66
The indorser under Section 66 warrants the
solvency of a prior party
The indorser warrants that the instrument is
valid and subsisting regardless of whether he
is ignorant of that fact or not.
Warranties extend in favor of a) a HDC b)
persons who derive their title from HDC c)
immediate transferees even if not HDC
The indorser does not warrant the
genuineness of the drawers signature
General indorser is only secondarily liable
General rule: Presentment for payment is not
necessary to charge persons primarily
liable on the instrument. Presentment
for payment is necessary to charge the
drawer and indorsers. (Sec 70 NIL)
Notes on Section 70
Presentation for payment production of a
BOE to the drawee for his acceptance, or to a
drawee or acceptor for payment. Also
presentment of a PN to the party liable for
payment of the same.
Consists of a) a personal demand for payment
at a proper place b) the bill or note must be
ready to be exhibited if required and
surrendered upon payment.
Parties primarily liable persons by the terms
of the instrument are absolutely required to
pay the same. E.g maker and acceptors. They
can be sued directly.
If payable at the special place, and the person
liable is willing to pay there at maturity, such
willingness and ability is equivalent to tender
of payment.

Presentment is necessary to charge persons
secondarily liable otherwise they are
discharged
Acts needed to charge persons secondarily
liable:
a) Presentment for payment/acceptance
b) Dishonor by non-payment/non-
acceptance
c) Notice of dishonor to secondary parties
Acts needed to charge persons secondarily
liable in other cases:
a) Protest for non-payment by the drawee
b) Protest for non-payment by the acceptor
for honor
Proper presentment:
a. By the holder or an authorized person
b. At a reasonable hour on a business day
c. At a proper place
d. To the person primarily liable or if
absent to any person found at the place
where presentment is made (sec. 72 NIL)
Notes on Section 72
Only the holder or one authorized by him has
the right to make presentment for payment
Presentment cannot be made on a Sunday or
holiday
Presentment for payment is made to the
maker, or acceptor. Not to the person
secondarily liable.
If the instrument is payable on demand a) if
it is a note presentment must be made within
reasonable time after issue b) if it is a bill -
presentment must be made within reasonable
time after last negotiation.
Presentment not required to charge the drawer:
a. He has no right to expect
b. He has no right to require that the
drawee or acceptor will pay (Sec 79)
Presentment not required to charge the indorser
where:
a. The instrument was made or accepted
for his accommodation
b. He has no reason to expect that the
instrument will be paid if presented (Sec.
80)
General rule: Presentment for payment
necessary to charge persons secondarily
liable otherwise they are discharged:
Exception:
- Section 79 and 80
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Notes on Section 79 and 80
Only the drawer or indorser are not
discharged. All other parties secondarily liable
are discharged.
Presentment for payment excused if:
a. After due diligence, presentment cannot
be made
b. Presentment is waived
c. The drawee is a fictitious person (Sec
82)
Notes on Section 82
What is excused is the failure to make
presentment. There is no need to make any
presentment versus under section 81 (delay in
presentment) presentment for payment is still
required after the cause of delay has ceased.
Summary of rules as to presentment for
payment:
a. Presentment not necessary to charge
persons primarily liable
b. Necessary to charge persons secondarily
liable except:
- The drawer under Sec. 79
- The indorser under Sec. 80
- When excused under Sec. 82
- When the instrument has been
dishonored by non-acceptance under
Sec. 83
How dishonored by non-acceptance:
- The instrument was duly presented but
payment is refused or cannot be obtained
- Presentment is excused and the
instrument is overdue and unpaid (Sec.
83)
Effects of dishonor by non-payment:
- An immediate right of recourse to all
parties secondarily liable accrues to the
holder (Sec. 84)
Notes on Section 84
Parties cease to be secondarily liable and
become principal debtors.
Liability becomes the same as that of the
original obligors.
Requisites for payment in due course: (sec.
88)
a. Made at or after the maturity of the
instrument
b. To the holder
c. In good faith
d. Without notice of any defect in the
holders title
Notes on Section 88
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Payment must be made to the possessor of the a. Drawer and drawee same person
instrument b. Drawee is a fictitious/incapacitated
Possession of the note by the maker is person
presumptive evidence that it has been paid c. Drawer is the person to whom
presentment for payment is made
Notice of Dishonor may be given: d. Drawer has no right to expect that the
drawee will accept/pay the instrument
(Sec. 114 NIL)
a. By or on behalf or the holder
b. By or on behalf of any party who:
Instances when Notice Not Required to Indorser
- Is a party to the instrument and
a. Drawee was a fictitious/incapacitated
might be compelled to pay the
person and the indorser was aware of
instrument.
such at the time of indorsement
- To a holder who having taken it up would
b. Indorser is the person to whom
have a right of reimbursement from the
instrument was presented for payment
party to whom notice is given. (Sec. 90)
c. Instrument made/accepted for his
Notice:
accommodation (Sec. 115 NIL)
a. May be written or oral (Sec. 96)
b. Written notice need not be signed or may
Omission to give notice of dishonor by non-
be supplemented by verbal
acceptance doe not prejudice a HDC (Sec. 117
communication (Sec. 95)
NIL)
c. May be by personal delivery or by mail
(Sec. 96)
Protest only necessary for a foreign bill of
Notice may be waived either expressly or
exchange. Protest for other negotiable
implied:
instruments is optional. (Sec. 118 NIL)
a. Before the time of giving notice has
arrived
Causes of Discharge of the Instrument
b. After the omission to give due notice
(Sec. 109) a. Payment by the debtor
b. Payment by accommodated party
Protest may be waived: c. Intentional cancellation by holder of
instrument
Effects: d. Any other act discharging a simple
- Deemed a waiver of presentment and monetary obligation
notice of dishonor as well (Sec. 111) e. Debtor becomes holder of the instrument
at/after maturity in his own right (Sec
Notes on Section 111
119 NIL)
Where notice is waived, presentment is not
waived
NOTES ON SECTION 119
Where presentment is waived, notice is also
Discharge of the instrument discharges all the
waived
parties thereto
Where protest is waived, notice and
Payment must be in due course, and by the
presentment is waived
principal debtor or on his behalf
If payment is not made by the principal debtor,
NOTICE OF DISHONOR - given by the holder to the
payment only cancels the liability of the payor
parties secondarily liable, drawer and
and those obligated after him but does not
each indorser, that the instrument was
discharge the instrument.
dishonored by non-acceptance or non-
Payment by an accommodation party
payment by the drawee/maker
does not discharge the instrument.
General rule: Any drawer or indorser to whom
Discharge of Secondary Parties:
such notice is not given is discharged.
Exceptions: a. Any act discharging the instrument
a. Waiver (Sec. 109) b. Cancellation of indorsers signature by
b. Notice is dispensed (Sec. 112) indorsers
c. Not necessary to Drawer (Sec. 114) c. Discharge of prior party
d. Not necessary to Indorser (Sec. 115) d. Tender of payment by prior party
e. Release of principal debtor
- If notice is delayed, delay may be excused (Sec. f. Extension of payment by the
113) holder/postponement of right to enforce
without assent of secondary parties and
without reservation of right of recourse
Instances when Notice of Dishonor Not
against secondary parties (Sec 120 NIL)
Necessary to Drawer
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RIGHT OF PARTY WHO DISCHARGES
INSTRUMENT. (Sec. 121)
A party secondarily liable who pays the
instrument does not discharge it , but instead
acquires certain rights ;
1.Collect from prior parties ; or
2. Negotiate the instrument to new parties- but
not to subsequent parties.
However , Under the exceptions provided in
Sec.121, the instrument is considered discharged
when ;
1.The BOE is payable to the order of a third
person and paid by the drawer himself, or
2. Where it was made or accepted for
accommodation , and has been paid by the party
accommodated.
RENUNCIATION BY HOLDER. (Sec 122)
Renunciation- The act of giving up or
abandoning a right without transferring the right
to another.
As a Rule ,the holder may expressly renounce his
rights against any party to the instrument
before , or after its maturity. An absolute and
unconditional renunciation of his rights against
the principal debtor at or after maturity of the
instrument discharges the instrument.
However , A renunciation does not affect the
rights of a holder in due course without notice of
the renunciation.
Notes on Section 122
if renounced in favor of a party secondarily
liable, only he is exonerated from liability and
all parties subsequent to him
discharge by novation is allowed
General rule: When materially altered, without
the consent of all parties liable, the
instrument is avoided except as against:
a. The party who has made the alteration
b. The party who authorized or assented to
the alteration.
c. Subsequent indorsers
Exception:
- If in the hands of a HDC, may be enforced
according to its original tenor
SECTION 124: MATERIAL ALTERATION
- Any change in the instrument which affects or
changes the liability of the parties in any way.
There is no distinction between fraudulent and
innocent alteration
*An alteration is said to be material if it alters the
effect of the instrument. In other words, a
material alteration is one which changes the
items which are required to be stated under
Sec.1, NIL. ( PNB v. CA et al. 256 SCRA 491)
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The EFFECTS of alteration:
1. Alteration by a PARTY
Material alteration by the holder discharged the
instrument and all prior parties thereto who did
not give their consent to such alteration.
Whether the alteration made is favorable or
unfavorable to the party making the alteration,
no distinction as to the effect is made. The intent
of the law is to preserve the integrity of the
negotiable instrument.
2. Alteration by a STRANGER ( SPOLIATION )
If subsequently negotiated to a non-Holder in
Due CourseA material alteration avoids the
instrument as against any prior party who has
not assented to the alteration.
If subsequently negotiated to a Holder in Due
CourseHe may enforce payment thereof
according to its original tenor regardless of
whether the alteration was innocent or
fraudulent.
CHANGES that constitute MATERIAL
ALTERATIONS
1. The date;
2. The sum payable, either for principal or
interest;
3. The time or place of payment;
4. The number or the relations of the parties;
5. The medium or currency in which payment is
to be made;
6. Or which adds a place of payment where no
place of payment is specified; or
7. Any other change or addition which alters the
effect of the instrument in any respect. (Sec. 125)
A serial number is an item which is not
an essential requisite for negotiability
under Sec. 1 of NIL, and which does not
affect the right of the parties, hence its
alteration is not material. (PNB v. CA, 256
SCRA 491) (199 BEQ)
Instances where a BOE may be treated as a
PN:
a. Where the drawer and the drawee are
one and the same
b. Where the drawee is a fictitious person
c. Where the drawee has no capacity to
contract (Sec. 130)
The holder has the option to treat it as a BOE or a
PN
ACCEPTANCE is the signification by the drawee of
his assent to the order of the drawer. It is an
act by which a person on whom the BOE is
drawn assents to the request of the drawer
to pay it. (Sec. 132)
Acceptance may be:
a. Actual

b. Constructive
c. General (Sec. 140)
d. Qualified (Sec. 141)
Requisites of actual acceptance:
- In writing
- Signed by the drawee
- Must not express the drawee will perform
his promise by any other means than
payment of money
- Communicated or delivered to the holder
A holder has the right:
a. Require that acceptance be written on the
bill and if refused, treat it as if dishonored
(Sec. 133)
b. Refuse to accept a qualified acceptance and
may treat it as dishonored (Sec. 142)
Constructive Acceptance:
a. Where the drawee to whom the bill has
been delivered destroys it
b. The drawee refuses within 24 hrs after
such delivery or within such time as is
given, to return the bill accepted or not.
(Sec. 137)
Notes on Section 137
Drawee becomes primarily liable as an
acceptor.
Mere retention is equivalent to acceptance
When presentment for acceptance is necessary:
a. If necessary to fix the maturity of the bill
b. If it is expressly stipulated that it shall be
presented for acceptance
c. If the bill is drawn payable elsewhere
than the residence or place of business of
the drawee (Sec. 143 NIL)
Notes on Section 143
PRESENTMENT is the production of a BOE to
the drawee for his acceptance.
PRESENTMENT
For Acceptance (Sec. 143)
For Payment ( Sec. 70)
( 2000 & 2003 BEQ)
PURPOSE: To get acceptance of the drawer for
purpose of making him primarily liable as an
acceptor. Presentment is also prerequisite to
the accrual of secondary liability against the
drawer and the indorsers.
When is presentment for
acceptance MUST be made. (Sec.
143)
In the following cases:
1. Where the bill is payable after
sight; or in any other case, where
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presentment for acceptance is
necessary in order to fix the maturity
of the instrument.
2. Where the bill expressly stipulates
that it shall be presented for
acceptance.
3. Where the bill is drawn payable
elsewhere than the residence or
place of business of the drawee.
The REQUISITES of Presentment:
1. Made within reasonable time- is meant not
more than 6 months from the date of issue.
Beyond said period, it is unreasonable time
and the check becomes stale.
2. By holder or his agent
3. At a reasonable hour on a business day
4. Before bill overdue.
WHERE PRESENTMENT IS EXCUSED. (Sec.
148.)
Presentment for acceptance is excused , and a
bill may be treated as dishonored by non
acceptance , in either of the following cases:
1.Where the drawee is dead , or has absconded ,
or is a fictitious person or a person not having
capacity to contract.
2.Where, after the exercise of reasonable
diligence , presentment cannot be made.
3.Where, although presentment has been
irregular , acceptance has been refused on some
other ground.
General rule: Protest is required only for
foreign bills
Exception:
- Inland bills and notes may also be protested
if desired
Protest is required:
a. Where the foreign bill is dishonored by non
acceptance
b. Where the foreign bill is dishonored by non-
payment
c. Where the bill has been accepted for honor, it
must be protested for non-payment before it
is presented for payment to the acceptor for
honor
d. Where the bill contains a referee in case of
need, it must be protested for non payment
before presentment for payment to the
referee in case of need (Sec. 152)
NOTES ON SECTION 152
Protest - formal statement in writing made by
a notary under his seal of office at the request
of the holder, in which it is declare that the
some was presented for payment or
acceptance (as the case may be) and such was
refused.
 COMMERCIAL LAW

It means all steps or acts accompanying the e. The notarial act must be based on the
dishonor of a bill or note necessary to charge declaration made by the payor for the
an indorser honor or his agent of his intention to pay
Required when the instrument is a foreign bill the bill for honor and for whose honor he
of exchange. pays.
It must be made on the same date of dishonor,
by a notary/respectable citizen of the place in Form for payment of honor:
the presence of 2 credible witnesses so a. Payment must be attested by notarial act
recourse to secondary parties appended to the protest, or form an
extension to it.
ACCEPTANCE FOR HONOR (Sec. 161) an b. Notarial act of honor must be based on a
acceptance of a bill made by a stranger to declaration by the payer for honor
it before maturirty, where the drawee of
the bill has: BILLS IN SET - bill of exchange drawn in several
a. Refused to accept it parts, each part of the set being numbered and
b. And the bill has been protested for non- containing a reference to the other parts, the
acceptance whole of the parts just constituting one bill (Sec
c. Or where the bill has been protested for 178)
better security
Purpose: It is usually availed of in cases where a
Requisites for acceptance for honor: bill had to be sent to a distant place through
some conveyance. If each part is sent by different
conveyances, the chance that al least one part of
1. The bill must have been protested a) for
the set would reach its destination would be
non-acceptance b) or for better security
greater.
2. The acceptor for honor must be a
stranger to the bill
CHECKS
3. Bill must not be overdue
- a bill of exchange drawn on a bank payable on
4. Holder must give his consent
demand. (Sec. 185)
NOTES ON ACCEPTANCE FOR HONOR
CONCEPTS:
Purpose: to save the credit of the parties to
Certification of Checks- An agreement
the instrument or some party to it as the
whereby the bank against whom a check is
drawer, drawee, or indorser or somebody else.
drawn, undertakes to pay at any future time
Acceptor for honor is liable to the holder and
when presented for payment.
to all the parties to the bill subsequent to the
party for whose honor he has accepted (Sec.
EFFECTS:
164)
a. Equivalent to acceptance (Sec 187)
and is the operative act that makes
How acceptance for honor is made: (Sec. 162
the bank liable.
NIL)
b. Assignment of the funds of the
a. In writing and indicated that it is an
drawer in the hands of the drawee
acceptance for honor
(Sec 189)
b. Signed by the person making the
c. If obtained by the holder, discharges
acceptance
the persons secondarily liable
thereon ( Sec 188)
PAYMENT FOR HONOR - payment made by a
person, whether a party to the bill or not, after it
A check must be presented for payment within
has been protested for non-payment, for the
reasonable time after its issue or the drawer will
benefit of any party liable thereon or for the
be discharged from liability thereon to the extent
benefit of the person for whose account it was
of the loss caused by the delay. (Sec. 186)
drawn. (Secs. 171-177)
Reasonable Time: (Sec. 193)
Requisites:
a. Nature of the instrument
a. The bill has been dishonored by non-
b. Usage of business or trade
payment;
c. The facts of the particular case
b. It has been protested for non-payment;
c. Payment supra protest is made by any
CROSSED CHECK: (2004 & 2005 BEQ)
person, even by a party thereto;
d. The payment is attested by a notarial act
- A check which in addition to the usual contents
of honor which must be appended to the
of an ordinary check contains also the name of a
protest or form an extension of it;

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certain banker or business entity through whom
it must be presented for payment.
- A Crossed Check under accepted banking
practice, crossing a check is done by writing two
parallel lines diagonally on the left top portion of
the checks. The crossing is special where the
name of the bank or a business institution is
written between the two parallel lines, which
mean that the drawee should pay only with the
intervention of that company.
EFFECTS:
a. That the check may not be encashed; it
may only be deposited with the bank;
b. That the check may be negotiated only
once to a person who has an account
with the bank; and
c. That it serves as a warning to the holder
that the check has been issued for a
definite purpose. (Bataan Cigar v. CA 280
SCRA 643)
*Note: Crossed Checks vs. Cancelled Checks
(2004 BEQ)
A crossed check is one with two parallel lines
drawn diagonally across its face or across a
corner thereof. On the other hand, a cancelled
check is one marked or stamped "paid" and/or
"cancelled" by or on behalf of a drawee bank to
indicate payment thereof.
*State Investment House v IAC (GR 72764
13Jul1989), the SC considered a crossed check as
subjecting a subsequent holder thereof to the
contractual covenants of the payor and the
payee.
2 KINDS:
1. CROSSSED SPECIALLY- The same name
of a particular bank or company is
written or appears between thev. Tan
parallel lines in which case the drawee-
bank must pay the check only upon
presentment by such bank or company
(Chan Wan v. tan Kim 109 Phil 706) on
penalty of being made to pay agin by the
rightful owner should the first payment
prove to have been erroneous.
2. CROSSED GENERALLY- only the words
and Co. are written between the
parallel lines or when none at all is
written at all between said lines.
* This Court has taken judicial cognizance of the
practice that a check with 2 parallel lines in the
upper left hand corner means that it could only
be deposited and not converted into cash.
IRON CLAD RULE prohibits the
countermanding of payment of certified checks.
(Rep. v. PNB, Dec. 1, 1961)
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*Note: The holder must be a holder in due course
before the stop payment order may not be
successfully invoked against him. (Mesina v. IAC,
146 SCRA 497, 505)
TYPES OF CHECKS (Cesar Villanueva,
Commercial Law Review, 2004 ed.)
a. Cashiers Check- One drawn by the
cashier of a bank, in the name of the bank
against the bank itself payable to a third
person. It is a primary obligation of the
issuing bank and accepted in advance
upon issuance. (Tan v. CA 239 SCRA 310)
b. Managers Check- A check drawn by the
manager of a bank in the name of the
bank itself payable to a third person. It is
similar to the cashiers check as to the
effect and use.
c. Memorandum Check- A check given by
a borrower to a lender for the amount of
a short loan, with the understanding that
it is not to be presented at the bank, but
will be redeemed by the maker himself
when the loan falls due and which
understanding is evidenced by writing
the word memorandum, memo or
mem on the check.
d. Certified Check- An agreement whereby
the bank against whom a check is drawn
undertakes to pay it at any future time
when presented for payment. (Sec. 187)
e. Travelers Check- It is one upon the
holders signature must appear twice;
one to be affixed by him at the time it is
issued and the second, for counter-
signature, to be affixed by him in the
presence of the payee before it is paid,
otherwise it is incomplete.
CORPORATION LAW

BP Blg. 68
x-----------------------------------------------------------x
I. General Principles
A corporation is an artificial being created by
operation of law, having the right of succession
and the powers, attributes and properties
expressly authorized by law or incident to its
existence. (Sec. 2, BP blg. 68). It has a separate
and distinct personality from its incorporators.
(2000 Bar Examination)
Theories on Formation
1. Concession theory
Tayag v Benguet Consolidated: corporation
is creature of State and has no existence
independent of state recognition/concession
2. Enterprise entity theory
Looks at the underlying enterprise or
group, which has to exist before the
corporate fiction is granted
Just because it is a juridical entity, it is
not a creature of the State it is a
creature of its own volition and
maintains inherent rights under the law
moral individuals lie under the
corporate veil
Tri-level existence in corporate setting
1. Corporation as juridical entity State and
Corporation relationship
2. Intra-corporation:
a. Corporation and its agents
b. Corporation and its SHs
c. Among SHs
d. Between corporation and third
parties
3. Going concern business enterprise
Corporation as creature of the law
Constitution:
o Congress cannot create private
corporations except by general law
(Art XII, Sec 16)
Private corporation created
by special law nullity (NDC
v Phil Veterans Bank)
o GOCCs can be created by special
charters
2008 Bar Examination: Since February 8, 1935,
the legislature has not passed even a single law
creating a private corporation. What provision of
the Constitution precludes the passage of such a
law?
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Civil Code:
o Person of public corporations
governed by laws
creating/recognizing them
o Person of private corporations
governed by laws of general
application
Franchises of corporations
o Corporate/general franchises:
essential for franchise to exist as
corporation; granted to individuals
who compose the corporation
o Special/secondary franchises: rights
or privileges granted to existing
corporations
Distinguishing a corporation from a
partnership
As to: (a) the manner of creation a
corporation is created by law, while a
partnership is created by agreement (b) the
number of incorporators- a corporation
generally requires a minimum of 5 and a
maximum of 15 incorporators, while a
partnership requires a minimum of 2. The
exception is a corporation sole (c)
commencement of existence- a corporation
commences to have existence upon the
issuance of a certificate of incorporation,
while a partnership commences to have
existence upon agreement (d) the powers
that may be exercised- a corporation can
only exercise powers allowed by law, while
a partnership can exercise powers not
contrary to law or public policy (e)
management a corporation is managed by
a board, while a partnership is managed by
the managing partner/s (f) right of
succession- a corporation enjoys the right of
succession, while a partnership does not (g)
personal liability- as a general rule,
stockholders do not have personal liability
beyond the value of their shares, while
partners are liable beyond what they have
contributed (h) transferability of interest-
ones interest in a corporation is
transferable without consent, while that in
partnership, requires consent (i) term of
existence- a corporation can exist for terms
of no more than 50 years at any given time
but subject to extension, while a
partnership is not limited as to term (j)
dissolution- a corporation cannot be
dissolved without the consent of the state,
while a partnership can be dissolved
without need for the consent of the state.
Their similarities are: (a) both have juridical
personality (b) both can only act through its

agents (c) both are composed of an
aggregate of individuals (d) distribution of
profits is given to those who have
contributed capital (e) both can only be
organized if there is a law authorizing its
registration
A. Classification of Corporation
In Relation to the State
1. Public and Private Corporations
(Distinctions: 2004 Bar Examination)
Private Public
formed for some formed for the
private purpose, government of a
benefit or end portion of the State
for the general
good or welfare
created by special Must be organized
legislation or act of under the
Congress Corporation Code.
NOTE: The true test is for the purpose
of the corporation. If the corporation is
created for political or public purpose
connected with the administration of
government, then it is a public
corporation. If not, it is a private
corporation although the whole or
substantially the whole interest in the
corporation belongs to the State.
2. Quasi-Public Corporations
As to Place of Incorporation
1. Domestic Corporations
2. Foreign Corporations
Test To Determine Nationality Of Corporation
i. Incorporation Test determined by the
state of incorporation, regardless of the
nationality of its stockholders
ii. Domicile Test determined by the state
where it is domiciled.
iii. Control Test determined by the
nationality of the controlling
stockholders or members. This test is
applied in times of war. Also known as
the WARTIME TEST.
As to Legal Status
1. De Jure Corporation
2. Corporation de Facto (2004 Bar
Examination)
A de facto corporation is one which
actually exists for all practical purposes
as a corporation but which has no legal
right to corporate existence as against
the State. It is essential to the existence of
a de facto corporation that there be (1) a
valid law under which a corporation
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might be incorporated, (2) a bona fide
attempt to organize as a corporation
under such law, and (3) actual use or
exercise in good faith of corporate
powers conferred upon it by law.
3. Corporation by Estoppel (2004 Bar
Examination)
It exists when persons assume to act as a
corporation knowing it to be without
authority to do so. In this case, those
persons will be liable as general partners
for all debts, liabilities and damages
incurred or arising as a result of their
actions.
4. Corporation by Prescription
A body not lawfully organized as a
corporation but has been recognized by
immemorial usage as a corporation with
rights and duties maintainable by law
As to Existence of Shares of Stocks
1. Stock Corporations
2. Non-Stock Corporations
Distinctions between Stock and Non- Stock
Corporations (2004 Bar Examinations)
A stock corporation is one that has
capital stock divided into shares and is
authorized to distribute to the holders of
such shares dividends or allotments of
the surplus profits on the basis of the
shares held. All other corporations are
non-stock corporations.
B. Corporation, kinds by method of
creation:
a. by special law or charter
b. by being organized under the
corporation code
C. Corporation, how organized:
Philippine corporate entities are
organized as follows:
a. Number of incorporators: (2006
Bar Examination)
Incorporators are required to be not less
than five [5] but not more than fifteen
[15].
b. Residency requirement: (2006
Bar Examination)
Majority of the incorporators are
required to be residents of the
Philippines.
c. Qualifications:
All incorporators:

1. must be natural persons
2. must be of legal age
d. Components of a corporation
INCORPORATORS CORPORATORS
Signatory to the Stockholder or
Articles of member
Incorporation
Number is limited to No limit
5-15
e. Subscription requirement:
All incorporators must subscribe to at
least one (1) share of stock of the
corporation being organized.
D. Corporation, minimum subscription:
The law requires that the total capital
stock to be subscribed at the time of
incorporation should at least be twenty
five percent [25%] of the authorized
capital stock of the corporation being
organized.
E. Corporation, minimum paid-up
capital:
The paid-up capital of a Philippine
corporation must not be less than PhP5,
000.00. Thus, it is required that at least
twenty five percent [25%] of the
subscribed capital stock should be fully
paid up but the amount of which should
not be less than said PhP5,000.00.
F. Corporate Term: (50) years from the
date of incorporation unless sooner
dissolved or unless said period is
extended. (Sec. 11)
G. Corporation, when corporate
existence commences:
The corporate life or existence of a
Philippine corporation commences from
the time a Certificate of Incorporation is
issued in its favor by the Securities and
Exchange Commission [SEC].
H. Corporation, effect of non-use:
[a] A corporation is deemed dissolved if
the corporate charter granted in its favor
expires by non-use for a period of at least
two [2] years from issuance thereof.
[b] A corporation is deemed suspended
or its franchise revoked if it has been
duly organized but it failed to operate for
a period of five [5] years.
Other Type of Corporation: Corporation
Sole. (2004 Bar Examination)
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Section 110 of the Corporation Code
defines a corporation sole as one
formed for the purpose of administering
and managing, as trustee, the affairs,
property and temporalities of any
religious denomination, sect or church. It
is formed by the chief archbishop,
bishop, priest, minister, or other
presiding elder of such religious
denomination, sect or church.
I. RULES ON CONVERSION
From Stock to Non-stock corporation
Conversion may be made by mere
amendment of the articles of incorporation.
From Non-stock to Stock corporation
The corporation must first be dissolved.
Mere amendment of the articles of incorporation
would not suffice because the conversion would
change the corporate nature from non-profit to
one for monetary gain
x-----------------------------------------------------------x
II. Some Doctrines in Corporation
Law
1. DOCTRINE OF CORPORATE OPPORTUNITY
(2005 Bar Examination)
A director is made to account to his
corporation, gains and profits from
transactions entered into by him/another
competing corporation in which he has
substantial interest, which should have been
a transaction undertaken by the corporation.
This is a breach of fiduciary relationship.
2. DOCTRINE OF PIERCING THE VEIL OF
CORPORATE ENTITY (2006 Bar
Examination)
Under the doctrine of piercing the veil of
corporate entity, the legal fiction that a
corporation is an entity with a juridical
personality separate and distinct from its
members or stockholders may be
disregarded and the corporation will be
considered as a mere associations of
persons, such that liability will attach
directly to the officers and the stockholders
(Umali v. Court of Appeals, 189 SCRA 529,
542 [1990]). It is an equitable doctrine
developed to address situations where the
separate corporate personality of a
corporation is abused or used for wrongful
purposes
a. To what circumstances will the
doctrine apply? (2006 Bar
Examination)

The doctrine of piercing the veil of
corporate entity will apply when the
corporations separate juridical
personality is used:
1. to defeat public convenience;
2. to justify wrong, protect fraud, or
defend crime;
3. as a shield to confuse the legitimate
issue;
4. where the corporation is the mere
alter ego or business conduit of a
person; or
5. Where the corporation is so
organized and controlled and its
affairs are so conducted as to make it
merely an instrumentality, agency,
conduit or adjunct of another
corporation (Umali v. Court of
Appeals, 189 SCRA 529, 542 [1990]).
b. Tests in determining whether to
pierce veil of corporate personality.
1. Control, not mere majority or
complete stock control, but complete
domination, not only of the finances,
but of policy and business practice in
respect to the transaction attacked so
that the corporate entity as to this
transaction had at the time no
separate mind, will or existence of its
own;
2. Such control must have been used by
the defendant to commit fraud or
wrong, to perpetuate the violation of
a statutory or other positive legal
duty, or dishonest and unjust act in
contravention of plaintiffs legal
right;
3. The aforesaid control and breach of
duty must proximately prevent
piercing the corporate veil.
4. The wrong-doing must be clearly and
convincingly established. It cannot
be presumed. (Lim v. Court of
Appeals, et al., G.R. No. 124715,
prom. January 24, 2000)
3. TRUST FUND DOCTRINE
(2007 Bar Examination)
The subscribed capital stock of the
corporation is a trust fund for the payment of
debts of the corporation which the creditors
have the right to look up to satisfy their
credits. Corporations may not dissipate this
and the creditors may sue the stockholders
directly for their unpaid subscriptions Thus,
UC-BCF COLLEGE OF LAW
Dean Reynaldo U. Agranzamendez Page 24 of 228
COMMERCIAL LAW
dividends must never impair the subscribed
capital; subscription commitments cannot be
condoned or remitted; nor do the
corporation buy its own shares using the
subscribed capital as the consideration
therefore. (National Telecommunications
Commission v. Court of Appeals, et al., G.R.
No. 127937, prom. July 28, 1999)
Instances where the Doctrine was applied:
1. Where the corporation has
distributed its capital among
the stockholders without
providing for the payment of
creditors;
2. Where it had released the
subscribers to the capital stock
from their subscriptions;
3. Where it has transferred
corporate property in fraud of its
creditors; and
4. Where the corporation is
insolvent.
5. If the corporation is solvent,
the TFD extends to the capital
stock represented by the
corporation's legal capital.
6. If the corporation is insolvent,
the TFD extends to the capital
stock of the corporation and all
of its property and assets.
Exceptions to the Trust Fund Doctrine
1. Redemption of redeemable
shares (Sec. 8)
2. In a close corporation, when
there is a deadlock and the SEC
orders the payment of the
appraised value of the
stockholder's share. (Sec. 104)
4. BUSINESS JUDGEMENT RULE
Business judgment rule exists to protect
and promote the full and free exercise of
managerial power granted to directors. The
rule is a presumption that in making a
business decision, the directors of a
corporation acted on an informed basis, in good
faith and in the honest belief that the action
taken was in the best interest of the company.
(Smith v Van Gorkam)
x-----------------------------------------------------------x
III. Articles of Incorporation and By-
Laws
A. Corporation, incorporation documents:
The following incorporation documents are
required:
a. Articles of Incorporation;
b. By-laws;
 COMMERCIAL LAW

c. Treasurer's Affidavit which should state
compliance with the authorized
subscribed and paid-up capital stock
requirements.
d. Bank Certificate that the paid-up capital
portion of the authorized capital stock
has been deposited with the issuing
bank.
B. Corporation, where filed: The incorporation
documents should be filed with the
Securities and Exchange Commission [SEC]
of the Philippines.
C. Corporation, what should be stated:
a. the name of the corporation which must
not be identical or deceptively or
confusingly similar to any existing
corporation;
b. the purpose of the corporation;
c. principal office of the corporation;
d. The term or life of the corporation which
should not exceed fifty [50] years. This
corporate lifetime may, however, be
extended for another fifty [50] years but
the extension must not be effected earlier
than five [5] years before the expiration
of its term
2002 Bar Examination: You have been asked
to incorporate a new company to be called
FSB Savings & Mortgage Bank, Inc. List the
documents that you must submit to the
Securities and Exchange Commission (SEC) to
obtain a certificate of incorporation for FSB
Savings and Mortgage Bank, Inc.
A: The documents to be submitted to the
Securities and Exchange Commission (SEC) to
incorporate a new company to be called FSB
Savings & Mortgage bank, Inc., to obtain the
certificate of incorporation for said company,
are:
7. Letter authorizing the SEC or Monetary
Board or its duly authorize
representative to examine the bank
records regarding the deposit of the
paid-up capital;
8. Registration sheet;
x-----------------------------------------------------------x
IV. Corporate Management
Levels of management
There are three levels of control in the
corporate hierarchy: (a)The Board-
which determines corporate policy and
prescribes the manner of general
management of its business activities
(b)The Corporate Officers- who are
charged with the mandate to execute the
decisions of the board and who,
oftentimes, determine the best manner
by which the business is to be run (c) The
Stockholders or Members- who are
considered as having residual power
over fundamental corporate changes as
they are required by law to give their
assent by the exercise of the right to vote.
The powers that are expressly reserved
by law to stockholders or members are:
(a) removal of directors or trustees (b)
granting of compensation, other than per
diems, to directors (c) ratification of acts
of self dealing director or trustee,
interlocking director/s, disloyal
director/s (d) delegation of power to
amend by-laws (e) calling of a meeting,
upon good cause, when no person is
authorized to call it (f) when
management of a close corporation is
vested in the stockholders.

1. Articles of Incorporation
2. Treasurers Affidavit;
3. Certificate of authority from the
Monetary Board of the BSP;
4. Verification slip from the records of the
SEC whether or not the proposed name
has already been adopted by another
corporation, partnership or association;
5. Letter undertaking to change the
proposed name if already adopted by
another corporation, partnership or
association;
6. Bank certificate of deposit concerning
the paid-up capital;

ARTICLES OF INCORPORATION BY-LAWS

UC-BCF COLLEGE OF LAW
Dean Reynaldo U. Agranzamendez Page 25 of 228

Definition Basic contract document defining the charter
of the corporation
Significance Condition Precedent in the acquisition of
corporate existence
Contractual A contract between 3 parties: [1] the state
Significance and the corporation, [2] the stockholders and
the state, and [3] the corporation and its
stockholders.
Effect as to Bind a third person dealing with the
Outsiders corporation
Requisites 1. filed and registered with the SEC
for Validity 2. Banks, public utilities, insurance
companies: needs favorable
recommendation from appropriate
agency that articles are in accordance
with law.
3. SEC shall examine AOI upon filing and
upon satisfaction of all legal
requirements, issue certificate of
incorporation and only then shall
Corporation have a personality separate
and distinct from its stockholders or
members.
4. Sworn Statement of the Treasurer
regarding subscription requirement.
Basic SEC14
Content 1. The name of the corporation;
2. The specific purpose or purposes for
which the corporation is being
incorporated.
3. The place where the principal office of
the corporation is to be located, which
must be within the Philippines;
4. The term for which the corporation is to
exist;
5. The names, nationalities and residences
of the incorporators;
6. The number of directors or trustees,
which shall not be less than 5 nor more
than 15;
7. The names, nationalities and residences
of persons who shall act as directors or
trustees until the first regular directors
or trustees are duly elected and qualified
in accordance with this Code;
8. If it be a stock corporation, the amount
of its authorized capital stock in lawful
money of the Philippines, the number of
shares into which it is divided, and in
case the share are par value shares, the
par value of each, the names,
nationalities and residences of the
original subscribers, and the amount
subscribed and paid by each on his
subscription, and if some or all of the
UC-BCF COLLEGE OF LAW
Dean Reynaldo U. Agranzamendez Page 26 of 228
COMMERCIAL LAW
Meant to be an intramural document, to govern
the relationship between and among the
members of a corporate family.
Condition subsequent
Although the power of the corporation to
adopt by-laws is an inherent right, by-law
provisions cannot contravene the law
Does not bind outsiders
Requisites of VALID BY LAWS:
1. By-Law Provisions Cannot Contravene Law
2. By-Law Provisions Cannot Contravene the
Charter
3. By-Laws Must be reasonable and Cannot
Discriminate
Effectivity upon issuance of SEC of
certification that by-laws are not inconsistent
with Corporation Code
Sec47
1. The time, place and manner of calling and
conducting regular or special meetings of
the directors or trustees;
2. The time and manner of calling and
conducting regular or special meetings of
the stockholders or members;
3. The required quorum in meetings of
stockholders or members and the manner
of voting therein;
4. The form for proxies of stockholders and
members and the manner of voting them;
5. The qualifications, duties and
compensation of directors or trustees,
officers and employees;
6. The time for holding the annual election of
directors of trustees and the mode or
manner of giving notice thereof;
7. The manner of election or appointment
and the term of office of all officers other
than directors or trustees;
8. The penalties for violation of the by-laws;
9. In the case of stock corporations, the
manner of issuing stock certificates; and
10. Such other matters as may be
necessary for the proper or convenient
transaction of its corporate business and
affairs.
 COMMERCIAL LAW

shares are without par value, such fact

must be stated;
9. If it be a non-stock corporation, the
amount of its capital, the names,
nationalities and residences of the
contributors and the amount contributed
by each; and
10. Such other matters as are not
inconsistent with law and which the
incorporators may deem necessary and
convenient.

Adoption File with the Securities and Exchange 2 INSTANCES:

Commission articles of incorporation in any
of the official languages Duly signed and
acknowledged by all of the incorporators
A. Prior to Incorporation, simultaneous with
the AOI
Approved & Signed by ALL
incorporators and submitted to SEC
B. Within 1 month after receipt of official
notice of issuance of certificate of
incorporation by SEC
MAJORITY VOTE OF
OUTSTANDING CAPITAL STOCK

Amendment Majority vote of BOD / trustees AND 2 Ways:

vote or written assent of 2/3 of
outstanding capital stock, without
prejudice to the appraisal right of
dissenting stockholders
Amendments take effect upon
approval by SEC or from the date of
filing with SEC if not acted upon
within 6months from date of filing
for a cause not attributable to the
corporation.
A. Majority Vote of BOD/Trustees AND
Majority Vote of Outstanding Capital
Stock/members at a regular or special
meeting duly called for the purpose of
amending or repealing any by-laws or
adopting new by-laws.
B. By DELEGATION of 2/3 outstanding
capital stock or members.

Form File with the Securities and Exchange
Commission articles of incorporation
In any of the official languages
Duly signed and acknowledged by all of the
incorporators
Signed by the SH or Members voting for them;
A copy duly certified to by majority of directors
or trustees & counter-signed by Corporation
secretary shall be filed w/ SEC attached to
original AOI.

Grounds for SEC 17

Rejection or 1.That the articles of incorporation or any
Disapproval amendment thereto is not substantially in
accordance with the form prescribed
herein;
2.That the purpose or purposes of the
corporation are patently unconstitutional,
illegal, immoral, or contrary to
government rules and regulations;
3.That the Treasurer's Affidavit concerning
the amount of capital stock subscribed
and/or paid if false;
4.That the percentage of ownership of the
capital stock to be owned by citizens of
the Philippines has not been complied
with as required by existing laws or the
Constitution.

UC-BCF COLLEGE OF LAW

Dean Reynaldo U. Agranzamendez Page 27 of 228
 elected RULE: The Board of LIMIT: In either
and Directors/Trustees case, the total
qualified is the repository of yearly
corporate powers. compensation of
[Hold- Hence, all powers of
Over the directors
the corporation shall
Principle] shall not exceed
be exercised, all
C. Requiremen business conducted 10% of the net
ts for and all property of income before
such corporation income tax of
Directors
controlled and held the corporation
a) Must
by the Board of during the
own Directors or preceding year.
at Trustees. (Sec. 23)
least EXCEPTIONS: E. Requiremen
1 1. Executive ts for
share Committee duly
authorized in the Trustees
of a) Mu
x-------------------- capit by-laws;
2. Contracted st
---------------------- al manager which be
--------------x stock may be an a
V. Board of of individual, a me
Director corpo partnership
or another mb
s, ratio er
corporation.
n, of
Trustees 3. Close
whic corporations, the
, Officers h the stockholders non
shall may manage the -
A. Powers of business of the
stand sto
Board of corporation
in ck
Directors or instead of a
HIS cor
Trustees board of
name directors, if the por
1. Exerc
on articles of atio
ise
the incorporation so n
corpo provide.
corpo b) Maj
rate
rate orit
powe D. Compensati
book y of
rs of on
s Tru
all
b) Any Directors are ste
corpo
direct not entitled to es
ratio
or compensation in
ns
who as such Bo
unde
cease directors except T
r
s to that they are
Corp mu
own allowed
orati st
at reasonable per
on diems. be
least RE
Code However,
1 SID
2. Cond directors may be
share EN
uct given
shall TS
all compensation
cease F. Causes of
busin when
to be
ess Directors
a 1. There is a
3. Contr Liability:
direct provision in the
ol
or by-laws
and 1. Knowing
c) Major authorizing
hold authorization of
ity of payment of
all wrongful acts;
Direc compensation;
prop 2. Negligence;
tors or
erty and
in
B. Term of 2. By a vote of 3. Conflict of
BoD
Directors the Stockholders interest.
must
For 1 representing at When? For a
be
year, or least majority of director to be held
RESI
Until the outstanding liable for the acts of
DENT
their capital stock at a corporate officers,
S regular or
successor the following
s are special meeting. conditions must be
present :( LOWELL reasonably be have at least 2 CUMULATIV
HOIT & CO. V. DETIG perceived to, independent E VOTING-
ET. AL) materially directors or at 1. Every
The interfere with least 20% of stock
direc his exercise of board. holde
tor independent Under r is
must judgment in Section 15 of entitl
have carrying out his RA 8791, a bank ed to
parti responsibilities must have 2 such
cipat as a director. independent num
ed in He must not directors. ber
the have any of
act personal, ELECTION OF votes
comp financial, or DIRECTORS OR that
laine professional TRUSTEES his
d of; ties with the A. Quorum in num
He corporation, its Meeting for ber
must affiliates, and Election of
be subsidiaries Majority share
guilty that may of the s
of adversely affect outstandi multi
lack his ability to act ng capital plied
of objectively. stock or by
ordin Other members the
ary qualifications entitled total
and are ownership to vote num
reaso of at least one Present ber
nable share, college either in of
super graduate or has person or direc
visio been engaged by tors
n; or exposed to represent to be
and the business of ative BY elect
He the corporation WRITTE ed
must for not less than N PROXY will
be 5 years, be a B. How bring
guilty person of Viva Voce, . He
of integrity, or may
lack probity and By Ballot give
of hardworking if all
ordin Under Section requeste such
ary 38 of RA 8799, d by any votes
care when the voting to
in the corporation (a) stockhold one
selec has a class of er or candi
tion equity member date
of securities listed C. Stock (CUM
such for trading on Corporations ULAT
office an Exchange or IVE
r. (b) is a Methods Of VOTI
company with Voting On The NG
INDEPENDENT assets of at least Election Of FOR
DIRECTOR 50 million and Directors: ONE
having 200 or STRAIGHT CAN
Is a person who, more holders VOTING- DIDA
apart from his who hold at Every TE)
fees and least 100 shares stockholder or he
shareholdings, of a class of through this may
is independent stocks or (c) method, may distri
of management which has sold vote such bute
and free from a class of equity number of them
any business or securities to the shares for as amon
other public pursuant many g as
relationship to an effective persons as many
which could, or registration there are candi
could statement must directors. dates
 as he the owne Members
sees corp rship may cast
fit orate of as many
(CUM secre stock votes as
ULAT tary, ; there are
IVE and 3. Votin trustees
VOTI given g by to be
NG to trust elected
BY anot ee [seats]
DIST her unde But may
RIBU perso r not cast
TION n (as votin more
). agent g than one
(Sec. ) trust vote for a
24) auth agree single
2. A orizi ment candidate
mino ng ; EXCEPT
rity such 4. Pledg when the
direc perso e or AoI or
tor n to mort By-laws
elect exerc gage provide
ed ise of otherwis
throu the share e
gh votin s; E. Adjournment
cumu g 5. As of Meeting
lative right provi for Elections
votin s of ded May
g the for in adjourn
cann form its from day
ot be er. by- to day or
remo laws. from time
ved What is the period to time
with of validity of Stockholders or But NOT
out proxy? Unless members may Sine Die
cause otherwise provided attend and vote in or
. (Sec. in the proxy, it their meetings by Indefinite
28) should be valid only proxy (Sec. 58); But ly if
3. A for the meeting for directors cannot do quorum
PROX which it is intended. so. Directors must is not met
Y is a No proxy shall be always act in person [majority
writt valid and effective (Sec. 25). of
en for a longer period stockhold
instr than five years at A VOTING TRUST is ers or
umen any one time. (Sec. an agreement members
t, 58) whereby one or are not
signe more stockholders present]
d by Instances whereby transfer their shares
the Right to vote by of stocks to a trustee, NOTE: Proposed
stock proxy may be who thereby amendment to by-
holde exercised: acquires for a period laws stipulating
r or 1. Electi of time the voting permanent director
mem on of rights (and/or any even without
ber the other rights) over election is contrary
(as boar such shares; and in to law. (Grace
princ d of return, trust Christian High School
ipal) direc certificates are given v CA)
and tors to the stockholder/s,
filed or which are CORPORATE
befor trust transferable like OFFICERS, QUORUM
e the ees; stock certificates, A. Corporate
sche 2. Votin subject, however, to Officers
duled g in the trust agreement. President
meeti case D. Non-Stock must be
ng of Corporations a director
with joint
 Treasurer act to corporation not violate
may or be must be any statute or
may not valid sought from rule on public
be a there the statute, policy.
director must charter, by-
Secretary be a laws or in a Distinction between
shall be quor delegation of a Corporate Officer
a resident um authority and Corporate
and a and from such Employee
citizen of the officer, from CORPORATE OFFICER COR
the act the acts of the EMP
Philippin must board of Position is provided for Emp
es be directors in the by-laws or under of th
Other appro formally the Corporation Code of th
officers ved expressed or RTC has jurisdiction in NLR
provided by implied from case of LABOR in ca
in the By- majo a habit or DISPUTE
Laws rity custom of
NOTE: RTC has
B. Any 2 or of doing
jurisdiction over
more direct business.
cases involving
positions ors or
removal of
may be held trust B. When
corporate officers.
concurrently ees Corporation
except PRES Bound by the
Disqualification of
president and ENT. Act of Its
Directors, Trustees
secretary or For President
or Officers
president and election In the
1.Convictio
treasurer. of absence of a
n by final
C. When Elected Officers charter or
judgment
Immediat majority bylaw
of offense
ely after of ALL provision to
punishabl
election members the contrary,
e by
of of the the president
imprison
directors board of is presumed
ment for
D. Duties to be directors to have the
excess of
Performed by or board authority to
6years, or
Officers of act within the
2.Violation
Enjoined trustees, domain of the
of Code
on them whether general
committe
by law all objectives of
d within
Enjoined members its business
5years
by are and within
prior to
corporate present the scope of
date of
By-Laws or not. his or her
his
E. Quorum F. Directors or usual duties.
election
Board Must Trustees A party
or
Act as a Body cannot dealing with
appointm
For ATTEND or the president
ent
transacti VOTE by of a
on of proxy at corporation
Removal of
corporate board is entitled to
Directors or
business meetings. assume that
Trustees
he has the
A. How may be
majority POWERS OF authority to
removed
of CORPORATE enter, on
1.2/3 vote
number OFFICERS behalf of the
of
of A. Rule on corporation,
stockhold
directors Corporate into contracts
ers or
or Officers that are
members
trustees Power to within the
entitled
as fixed Bind the scope of the
to vote
in AoI. Corporation powers of
2.During a
For An officers said
regular
corpo power as an corporation
meeting
rate agent of the and that do
or a
 special presc cause called
meeting ribed may not for
called by in the be used that
the Code to purp
secretary deprive ose.
upon - B. If secretary minority 2.Other
Order refuses/fails stockhold Causes
from to call for the ers or than
the special members expiratio
presi meeting or of their n or
dent give the right of removal
Writt notice, or represent by SH/Ms
en there is no ation If
dema secretary under remai
nd 1.Call may sec24. ning
from be Direc
Major directly NOTE: Removal of tors
ity of addresse Board of Director/ const
stock d to Trustee is different itute
holde stockhold from removal of a Quor
rs or ers or corporate officer. um -
mem members Stockholders May
bers by approval is be
entitl demandi necessary only for filled
ed to ng the removal of the by
vote stockhold members of the the
3.Upon er or Board. For the MAJO
Previous member removal of a RITY
Notice to corporate officer or vote
stockhold C. Causes for employee, the vote of the
ers or Removal of the Board of remai
members 1.May be Directors is ning
Of with or sufficient for the direct
the without purpose. (2001 Bar ors
inten case Examination) If no
tion Caus Vacancies in the quor
to e is office of director or um -
prop usual trustee filled
ose ly A. Grounds for by
such relat Removal the
remo ed to 1.Removal stock
val at the 3 by the holde
the Dutie stockhold rs in
meeti s of er or a
ng an members regul
Of Offic or upon ar or
the er/Di expiratio speci
time recto n of term al
and r Vacan meeti
place a) cy ng
of Loyalt shall called
meeti y be for
ng b) filled that
Must Obedi by purp
be e the ose.
given nc stock 3.Proposed
by e holde amendm
publi c) rs in ent of AoI
catio Dilige a resulting
n or nc regul in
by e ar or increase
writt 2.Provided speci in
en that al number
notic removal meeti of
e without ng
 directors or assent ion ; or s best
/trustees to (Tramat interest
Vacan patently Mercantil DOCTRINE OF
cy unlawful e Inc. v CORPORATE
shall acts of CA) OPPORTUNITY
be the 6.He is Cover same subject Co
filled corporati made, by which is business w
by on a specific opportunity op
the 2.Guilty of provisio Applicable to O
stock gross n of law, directors, trustees and D
holde negligenc to officers. to
rs in e or bad personall Does not cover A
a faith in y answer Ratification. of
regul directing for his Even if 99% of the SHs se
ar or the corporate affirm the by
speci affairs of action. transactions, the re
al the (Tramat remaining minority th
meeti corporati Mercantil SHs can still oppose
ng on e Inc. v such a self-dealing
called 3.Acquire CA) transaction and file a
for any derivative suit.
that personal B. Liability for Applies to both stock A
purp or Violation of and non-stock co
ose. pecuniar Duty of corporations.
Or in y interest Diligence
the in conflict Shall be liable jointly
same with their and severally for all DUTY TO
meeti duty as damages resulting CREDITORS AND
ng director therefrom suffered by OUTSIDERS
autho or trustee the corporation, its A. Upon the
rizing 4.He stockholders or insolvency of
incre consents members and other the
ase of to the persons corporation,
direct issuance the BoD are
ors or of DUTY OF duty bound
trust watered OBEDIENCE to hold the
ees if stocks or A corporation, assets of the
so who, through its BoD, corporation
state having should act in the primarily for
d in knowledg manner and within the payment
notic e thereof, the formalities, if any, of the
e of does not prescribed by its corporations
the forthwith charter or by the liabilities
meeti file with general law. [under the
ng the Trust Fund
B. Director or corporate Since the Code still Doctrine]
Trustee so secretary adheres to the ultra B. Under Sec65
elected shall his vires doctrine, then on Liability of
serve only written the BoD or Trustees Directors for
unexpired objection of a corporation is Watered
portion of the thereto; bound to observe the Stocks, if
term (Tramat duty of obedience, director or
Mercantil which means that officer:
Liability of e Inc. v they will direct the conse
Directors, Trustees CA) affairs of the nts to
or Officers 5.He corporation only in issua
DUTY OF agrees to accordance with the nce of
DILIGENCE hold PURPOSES for which stock
A. Violations of himself it was organized. s for
Duty of personal a
Diligence ly and DUTY OF LOYALTY consi
1.Wilfully solidaril A. To act derati
and y liable according to on
knowingl with the the less
y vote for corporat corporation than
 its issuance of officer, stockholdings
par the stock and contrac exceed 20%
or its par or t has of the
issue issued value. been outstanding
d previou capital stock]
value Dealings of sly and his
conse Directors, Trustees authori interest is
nts to or Officers with the zed by merely
paym Corporation board NOMINAL,
ent in SELF-DEALINGS of contract shall
consi Contract between the directo be treated as
derati corporation and one rs under
on or more of its NOTE: If directors provisions of
other directors or trustees presence was Self-Dealings
than or officers ARE required to meet the [voidable but
cash, VOIDABLE at the quorum [1st may be
whic option of the requisite] and if his ratified],
h is corporation vote was necessary insofar as the
value BUT VALID for approval of the corporation
d in IF THE contract [2nd where he has
exces FOLLOWING requisite], the a nominal
s of ARE contract may still be interest is
its PRESENT: valid if it is RATIFIED concerned.
fair 1. Presenc by 2/3 of Note: Corporate
mark e of stockholders or officers are not
et directo members in a permitted to use
value r/trust meeting called for the their position of
havin ee in purpose. trust and
g the confidence to
know board CONTRACTS further their private
ledge meetin BETWEEN interests. The
there g which CORPORATIONS doctrine of
of approv WITH "CORPORATE
does ed INTERLOCKING OPPORTUNITY" is
not contrac DIRECTORS precisely
objec t was Contract recognition by the
t in not between 2 or courts that the
writi necessa more fiduciary standards
ng ry to corporations could not be upheld
and constit with a where the fiduciary
file ute a common was acting for two
the quoru director/s entities with
same m may be valid. competing
with 2. Vote of However, to interests.
the directo be valid, it (Gokongwei Jr. v SEC)
corpo r or must be fair
rate trustee and EXECUTIVE
secre not reasonable. COMMITTEE
tary. necessa A contract May be
C. Such director ry for between the created by
or officer approv corporations the By-Laws
shall be al of with 1) Composition
SOLIDARILY contrac interlocking 3 or
LIABLE with t directors is more
the 3. Contrac VOID if there members
stockholder t is fair is FRAUD. of the
concerned and If the interest Board of
[buyer] and reason of the Directors
its creditors able interlocking Appo
for the under director in inted by
DIFFERENCE the one the Board
between the circums corporation 2) Scope of
fair value tances is Powers
received at 4. In case SUBSTANTIA Those
time of of an L [meaning specific
 matters repea A: Yes. The Korean be harboring a
within l of national can still be a conflict of interest
the by- member of the which is harmful to
compete laws Board of Directors, if the latter.
nce of the or he has sufficient [Gokongwei,Jr. v.
BoD that adopt equity to entitle him SEC, 89 SCRA 336
the latter ion of to a seat. Since the (1979); 97 SCRA 78
may new corporation is only (1980)].
delegate by- required to be at
to the laws least 60% owned by x-------------------------
committe 4. Amen Filipino citizens, ---------------------------
e via: dmen foreigners can be -------x
t or members of the
VI. Powers
By-laws repea board of directors in
of the
l of proportion to their
Corpora
Majorit any equity which cannot
tion
y board exceed 40% (Sec.1
vote resol P.D. No. 715,
1) Corporate
of the ution amending C.A. No.
powers
Boar whic Sec. 2-A of C.A. No.
d h by 108, The Anti- 2) Power to extend
3) Valid Action expre Dummy Law) or shorten
by the ss corporate term
Executive terms 2001 Bar 3) Power in
Committee is not Examination: a by- increase or
Requires amen law provision of X decrease capital
majority dable Corporation stock, incur,
vote of all or rendering create or
the repea ineligible or if increase
members lable elected, subject to indebtedness
of the 5. Distri removal, a director
committe butio if he is also a 4) Power to deny
e n of director in a pre-emptive
4) However, cash corporation whose right
Committee divid business is in 5) Sale or other
CANNOT act ends competition with disposition of
in the to or is antagonistic assets
following share to said 6) Power to acquire
instances: holde corporation valid shares
1. Appr rs and legal? State
oval your reasons. 7) Power to invest
of 2005 Bar corporate funds
actio Examination: A A: Yes, the by-law in another
n Korean national provision is valid. It corporation or
wher joined a corporation is the right of a business or for
e which is engaged in corporation to any other
share the furniture protect itself against purpose
holde manufacturing possible harm and 8) Power to declare
rs business. He was prejudice that may dividends
appro elected to the Board be caused by its
val is of Directors. To 9) Power to enter
competitors. The
requi complement its into
position of director
red furniture management
is highly sensitive
2. Fillin manufacturing contract
and confidential. To
g of business, the say the least, to 10) Ultra Vires Act of
vacan corporation also allow a person, who the Corporation
cies engaged in the is a director in a
in the logging business. corporation whose Classification of
board With the additional business is in Corporate Powers
of logging activity, can competition with or Expressed by
direct the Korean is antagonistic to X law or by the
ors national still be a Corporation, to Corporation
3. Amen member of the become also a
dmen Board of Directors? Code and its
director in X
t or Explain. Corporation would articles of
 incorporatio existence to incidental to inherent,
n (AOI) the state, its express just like
Those while natural powers and other
necessary to persons or is reasonably
powers
partnerships necessary to
the exercise that go
do not. their being
of the carried out. into the
express or Distinguishing very
incidental express powers CORPORATE nature/e
powers from implied POWERS xtent of a
Those powers corporati
incidental to Express and 1. Sue and be sued ons
its existence Implied ACTUALLY juridical
powers can incidental
further be entity
Corporate powers Corporations
distinguishe 3. Adopt/use seal
distinguished from de facto
d as follows: 4. Acquire and
natural persons or may sue or
(a) convey property
partnerships
be sued
Express Dissolved -Incident
Distinguishe
powers deal corporation power
d from those
with main after the 5. Amend articles
exercised by
natural business, expiration of of incorporation
persons or object or 6. Adopt/amend
the three-
partnerships, purposes of by-laws
the year winding
corporations consistent with
corporation, up period
can only law/PP
while ceases to be
exercise a. ACTUALL
those Implied de jure or de
Y
expressly powers deal facto hence
with the incidenta
authorized cannot sue
means and l
by law, can or be sued
methods of 7. STOCK:
be implied or Foreign
are attaining the issue/sell stocks
object or corporation
necessary to and sell treasury
purpose (b) without
carry out its stocks; NON-
purpose/s, Express license from
STOCK: admit
such as acts powers are SEC cannot
members
in the usual determined sue in 8. Transact with
course of by the Philippine
language of real/personal
business or courts
the law and property
incidental to A
its existence its charter including
while corporation securities/bonds
because they
attach to a implied may have of other corps
corporation powers may good as lawful
upon its change reputation,
according to business of corp.
creation and if requires
said to be time, place
besmirched, 9. Merge/consolida
inherent. and
circumstance may be a te with other
Natural
s. ground for corporations
persons or
partnerships, The Test of the award of 10. Make reasonable
on the other Express moral non-political
hand can Powers is damages donations
exercise or whether they Requisite
perform any are found in (The Law on s:
act provided the words of Partnerships A
it is not the law / and Private
charter while m
contrary to Corporations
the Test of , 2005 Ed.) o
law. The
reason being Implied 2. Succession u
is that Powers is a. NOT n
corporations whether they incidenta t
owe their are purely is
l or
 r p 11. Establish prejudice
e ol pension/retirem s
a it ent plans corporat
s ic e
o al POWER TO creditors
EXTEND/SHORTEN Since this is not
n a
CORPORATE TERM
a ct an inherent
(2000 Bar
b iv Examination) power, there
le it Majority of BOD, must be strict
M y 2/3rds of capital compliance with
u ( stock requirements in
st T Extension Sec Sec 38 and
n h 37: right of Amendment
o e appraisal for provisions in Sec
t L dissenting 16
ai a stockholders No right of
d w Shortening Sec appraisal
p o 81 allows for o Increase
ol n right of would
it P appraisal, but defeat
ic a technically there very
al rt shouldnt be, purpose
p n because of raising
a e investors are capital
rt also in it for the o Decrease
r
y s short-term there
o h (there is no already
r i novation) is return
c p of part of
a POWER TO investme
s
INCREASE/DECREA nts
n a SE CAPITAL STOCK anyway
d n Majority of BOD,
i ALSO, investing
d 2/3rds of capital
d into a
P stock
at corporation
ri Needs SEC
e comes with
v approval
o expectation of
at o Increase
r possible
e there
f increase/decreas
C must be
o e of shares
o certificati
r r on of Ways of
p p subscript Increasing/Decrea
u o ion to at sing Capital Stock
r r least 1. By
p a 25% of increasing
o ti increase (decreasing)
s o d stock, the no. of
e n and at shares
s s, least authorized
o 2 25% of to be issued
f 0 that without
p 0 amount increasing/d
a 5 paid-up ecreasing the
rt E o Decrease par value
is d. wont thereof
a ) approve 2. By
n if it increasing
 (decreasing) may be The three minimu
the par value increased to practical m net
of each share about 1.5 M. reasons for a worth of
corporation
without P25 M
Two ways of to increase
increasing its capital and must
(decreasing) increasing the have
authorize capital stock are: (1)
the no. to generate been
stock of X
thereof Corporation to 1.5 M more operatin
3. By are : working g for at
increasing capital; (2) least 3
(decreasing) 1. Increase to have more
years
shares with
both the no. the UNLIKE
which to pay
of shares num for the NORMAL
authorized ber acquisition INDEBTEDNESS,
to be issued of of more which does not
and the par shar assets like require 2/3rds
value thereof es acquisitions approval:
(The fro of company o Usually
car, stocks,
Corporation m very
house,
Code of the 100, machinery or large
Phil. 000 business; amount
Annotated by to and (3) to o Usually
Hector De 150, have extra with first
Leon, 2006 000 share with lien on
Ed Page 315- shar which to importan
cover or t assets
316) es
meet the o Usually
with requirement
What are the the long
for
available methods period of
sam declaration
to replenish
e of stock time
capital?
par dividend. No right of
1) Additional
subscription to valu appraisal:
POWER TO o Would
shares of stock e of
INCUR/CREATE/IN drain
of the P10 CREASE BONDED
corporation by each financial
INDEBTEDNESS
stockholders or resource
. Corporate Bond: an
by investors; s
2. Increase obligation to pay a
2) Advances by the o Regardle
par definite sum of
stockholders to
valu money at a future ss,
the
time at a fixed rate of corporati
corporation; or e of
interest on's
3) Payment of the
unpaid SEC Opinion creditors
100,
subscription by (1987): only always
000
the stockholders covers have
shar
indebtedness of priority
2001 Bar es to
corporation over
Examination: 15
secured by M assets
Suppose X peso
over anyway
Corporation has an s
authorized capital real/personal
each
stock of P1M divided property RIGHT TO
. Majority of BOD, SELL/DISPOSE/LEA
into 100,000 shares
of stock par value of 2/3rds of capital SE/ENCUMBER
P10 each. stock SUBSTANTIALL ALL
Needs SEC assets
b. Give three Majority of BOD,
a. Give two ways approval
practical
whereby said o Corp 2/3rds of capital
reasons for a
authorized corporation to must stock
capital stock increase its Enterprise-level
have
capital stock. transaction:
 ALTHOUGH te ai dissolution, here
there is no effect c n there is none
in relationship h so SH may be
between State n s stuck in a non-
and corporation ic o performing
- its just as if al t venture
there is resetting ly h
to starting point , e POWER TO DENY
PRE-EMPTIVE
of business life t te
RIGHT
Compare: h st
o Usual r is The pre-emptive
and o i right is the option
regular u n privilege of an
course of g te existing stockholder
business h n to subscribe to a
(busines s t proportionate part
s al o Qualitati of shares
judgment e, ve test subsequently issued
doctrine) a (for all: by the corporation
o Proceeds c quantitat before same can be
of sale o ive) disposed of in favor
for r When no of the others.
conduct p ratificatory vote
of o from the Extent and
remainin r stockholders/ limitations of pre-
g members emptive right
a
business under the Code
ti needed:
The test: it just a. If it is Law includes
o all issues or
has to be n necessary
ordinary: so in the dispositions
s of shares of
the sale of all c usual and
business of a regular any class
a Where the
corporation in n course of
shares are
light of using a business
b. If the issued in
proceeds to set- l
proceeds exchange for
up anew STILL w
of the sale prop needed
NEEDS a
or other for corporate
ratification y
substantially dispositio purposes, or
s for a debt
all: if the n of such
p previously
business will be property
u contracted,
incapable of and assets
r the SH
o Continui be
s cannot
ng the appropria
u demand his
business ted for the
e pre-emptive
o Accompli conduct of
t right for
shing its the
h right may
purpose remaining
e prejudice
for business
b corporate
incorpor
u interest
ation
A si There is right of Where the
lt n appraisal: shares are
h e because unlike issued by
o s shortening of one
u s corporate life, corporation
g a where there is in exchange
h g automatic for shares in
 another have 1000 shares of the The conditions
corporation dissented same value. under which a
in pursuance but also all stock corporation
a.) Assume that can acquire its own
of a merger, subsequent
stockholder A share are: (2005
the pre- SHS presently holds Bar Examination)
emptive If all the 200 out of the
right does existing SHS 1000 original (a) That it be for a
not exist, unanimously shares. Would legitimate and
provided agree to a A have a pre- proper corporate
that the issue waiver, emptive right to purpose; and (b)
200 of the new that there shall be
is made with although for
issue of 1000 unrestricted
approval of some reason shares? Why? retained earnings to
2/3 of the no purchase the same
holders of amendment Yes, A would and its capital is not
outstanding of the have a pre- thereby impaired.
stock and is Articles of emptive right to (Sec. 41, Corporation
Incorporatio 200 of the new Code)
not made in
issue of 1000
bad faith n is made no
shares. A is a Instances when
Code allows one among stockholder of power may be
waiver or them can record holding exercised:
denial of the later 200 shares in X 1. To eliminate
pre-emptive complain Corporation.
fractional shares
right since they According to the
2. To
Corporation
provided it are all bound collect/compro
Code, each
is made in by their mise an
stockholder has
the Articles private the pre-emptive indebtedness to
of agreement. right to all issues the corporation
Incorporati But it would of shares made arising from
on either as not bind by the unpaid
an original future SHS corporation in
subscription, in a
SHS must be proportion to
provision or delinquency sale,
the number of
an given and to purchase
shares he holds
amendment reasonable on record in the the shares sold
time in corporation during said sale
Waiver of Pre- which to 3. To pay
emptive Right exercise b.) When should dissenting/with
Any prior stockholder A
their pre- drawing
waiver or exercise the pre-
emptive stockholders
denial of the emptive right?
rights. entitled to
pre-emptive
Pre-emptive payment for
right should 2001 Bar right must be their shares
appear in the Examination: exercised in when exercising
Articles of Suppose that X accordance with
Corporation has appraisal right
Incorporatio the Articles of
already issued the 4. To decrease cost
n and not Incorporation or
1000 originally of doing
merely in an the By-Laws.
authorized shares of When Articles of business, by
ordinary the corporation so Incorporation or decreasing
waiver that its Board of the By-Laws are amount of
agreement Directors and silent, the Board dividends to be
A waiver stockholders wish to may fix a paid in the
through an increase Xs reasonable time
authorized capital future
amendment within which the
stock. After 5. Other similar
to the stockholders
complying with the situations, since
Articles of may exercise the
requirements of the right. this is non-
Incorporatio law on increase of exclusive
n would capital stock, X POWER TO
need only issued an additional PURCHASE OWN
2/3 who may SHARES
POWER TO INVEST power, declared Plus costs
CORPORATE discretio and paid and
FUNDS IN n, and (2009 Bar expenses
ANOTHER Stock
purpose Examinatio
CORPORATION/BU
to obtain n: True or dividends
SINESS
best False Q; withheld
May invest in
returns 2005 Bar until
corporation/busi
for the Examinatio unpaid
ness organized
corporati n) subscriptio
for any purpose
on) 2. A corporate n is fully
apart from the
So in section 42, resolution of paid
primary purpose
investment the board of o No stock
from which the
requiring directors dividend
investing
ratificatory vote: declaring the issued
business was
when there is payment of a without
organized
management portion or all approval of
Majority of BOD
involved of the such 2/3rds
+ 2/3rds vote of
other company, earnings to shares at
stockholders
Sec 42: When and not just the regular/sp
investment is investment per stockholders ecial
reasonably se (The meeting
o If there is Corporation o Nielson v
necessary to
accomplish no Code of the Lepanto:
primary ratificato Phil. corporatio
purpose: ry vote: Annotated by n cannot
approval of ultra Hector De issue stock
stockholders not vires Leon, 2006 dividends
necessary where Ed Page 315- to pay for a
o Lies those 316) non-
under entering stockholde
business into the r
Out of o Report to
judgment contract
unrestricted SEC within
doctrine have no
retained 15 days
o THUS authority
earnings, from
whatever
POWER TO payable in cash, declaration
the
DECLARE property, or
primary DIVIDENDS stocks GENERAL RULE:
purpose DIVIDENDS: Stock corporations
o To all
of a corporate profits set cannot retain
stockholde
corporati aside, declared and surplus profits in
ordered to be paid rs, based
on, it has excess of 100% of
by the directors for on paid-up capital
a choice
distribution among outstandin stock (2001 Bar
of
shareholders at a g capital Examination),
placing fixed time. except:
stock held
funds in Forms: o HOWEVER, 1. Justified by
deposit a. Cash cash definite
accounts, b. Property corporate
dividends
money c. Stock
due on expansion
market, delinquent projects/pro
Requisites:
treasury 1. Existence of stock: grams
bills, or unrestricted Apply first approved by
even retained to unpaid BOD
stocks of earnings balance on 2. Loan
other out of which subscriptio agreement,
corporati the n where
ons (fit dividends creditor has
into may be to first
 consent requires the undertakes to The
before approval of both manage or operate management
corporation the majority of all or substantially contract must
the members of all of the business of
can declare not be longer
the board of another corporation,
dividends directors will whether such than 5 years
3. Special suffice. contracts are called
circumstance ULTRA VIRES
service contracts,
s (beyond powers)
2001 Bar operating
ACT
Examination: Are agreements or
2005 Bar 2009 Bar
there instances otherwise. (Sec 44)
Examination: Examination
when a corporation GENERAL RULE:
Distinguish An act committed
shall not be held There shall be no
dividend from outside the object
liable for not management
profit; cash for which a
declaring contract with
dividend from corporation is
dividends? another corporation
stock dividend. created as defined
unless:
by the law of its
The instances when Majority of BOD
Profits belong to the organization and
a corporation shall Stockholders
corporation, therefore beyond the
not be held liable for owning majority powers conferred
while dividends not declaring shares, in BOTH upon by law.
belong to the dividends are: 1)
stockholders managing and (Republic vs. Acoje
when justified by Mining Co., Inc. 7
when dividend is managed
definite corporate SCRA 361)
declared. expansion projects corporation
o EXCEPT, Types: (Philippine
or programs Corporate Law,
A cash dividend approved by the where
involves Villanueva, 2001 ed.)
board of directors; 2/3 votes 1. Acts done
disbursement of or (2) when the needed: beyond the
earnings to corporation is if a powers of the
stockholders, prohibited under
while stock stockhol corporation as
any loan
dividend does agreement with der/s in provided in the
not involve any any financial both laws or its AoI;
disbursement. A institution or managin 2. Acts or
cash dividend creditor, whether g and contracts
affects the local or foreign, managed entered into in
fractional from declaring
interest in corporati behalf of the
dividends without
property which on owns corporation by
its or his consent,
each share and such consent more persons who
represents, while has not been than 1/3 have no
a stock dividend secured; or (3) of total corporate
decreases the when it can be outstandi authority (ultra
fractional clearly shown that ng voting vires of
interest in such retention is
corporate capital officers and
necessary under
property which stock of NOT the
special
each share circumstances managin corporation)
represents. A obtaining in the g 3. Acts or
cash dividend corporation, such corporati contracts,
does not as when there is on OR which are per
increase the need for special majority se illegal as
legal capital, reserve for
while a stock of BOD in being contrary
probable
dividend does, as managin to law.
contingencies.
there is no cash g corp. is
outlay involved. POWER TO ENTER also
Cash dividends INTO majority
are subject to MANAGEMENT of BOD in
income tax, CONTRACT managed x-------------------------
while stock MANAGEMENT
dividends are corporati ---------------------------
CONTRACT: is an
not. Declaration on -------x
agreement whereby
of stock dividend VII. Meeting
a corporation
s
Why required an quorum
agreeme consistin Percentage of votes
Meetings nt to be g of a required
are bound majority
necessar despite of the Ordinaril
y the outstandi y a
because absence ng majority
corporat of a capital vote is
e powers meeting stock, the required
are (c) when business of
vested in the so stockhol
the Articles transacte ders or
Board or of a close d shall be members
stockhol corporati valid if in the
ders or on allows within following
members directors the instances
as a body to take powers : (a)
and not action of the election
as without a corporati of
individua meeting on. Even members
ls. It if of the
serves as Requisites of a meeting Board
protectio valid meeting is (b)
n and improper removal
assuranc A valid ly called of
e to meeting or held, directors
stockhol is one acts are or
ders or that is: still valid trustees
members (a) held if within (c)
as it at the the approval
affords proper powers of
them an place of the manage
opportun (b)held corporati ment
ity to be at the on and contracts
heard stated all (d) adopt
and to date and stockhol by
discuss time or ders or laws/am
the at a members end/or
matter at reasonab are repeal or
hand and le time present revoke
vote thereafte or duly power
thereon. r (c) represen delegate
called by ted. d to the
When not the In Board (e)
necessary proper directors fix issued
person or price of
The (d) with trustees no par
instances previous meetings value
when notice , there shares
meetings (e) being a (f) fixing
are not attended quorum, compens
necessar by a all acts ation of
y are (a) quorum. are valid. directors.
when a But if not In all
corporati Effects of action undertak other
on taken during en in a instances
amends invalid meetings duly , a 2/3
its convened vote is
articles In meeting, required.
and stockhol they are In
written der or generally determin
asset is member invalid ing
sufficient meetings but may complian
(b) when , there be ce with
there is being a ratified. the 2/3
 vote, the right are not of Deeds
non- to vote as delinque upon
voting it is nt, they presentat
shares through are non- ion of the
shall be its voting settleme
included exercise except if nt.
if it that they Section 6
involves are able applies,
the to or the
following participa shares
: (a) te in are Manner of voting
amendm manage treasury
ent of ment. shares. The right
articles The right A person to vote
(b) to vote is not a may be
adoption inherent stockhol exercised
or in stock der may in person
amendm ownershi exercise or by
ent of by p or in the right proxy
laws (c) members to vote A proxy
sale, hip. This when: is a
lease, right (a) they formal
exchange exists are authoriz
, pledge provided, pledgees ation
or other they or given by
dispositi remain mortgage the
on of all as such es and holder of
or in the are given the stock
substanti books of the right who has
ally all of the and such the right
corporat corporati is to vote ,
e on as of recorded or by a
property the date in the member,
(d) fixed in books of to
increase/ the the another
decrease notice. corporati person to
of If the on (b) exercise
corporat stock is they are the
e bonded co- executor voting
indebted owned, s, right of
ness (e) the administ former.
increase/ consent rators, The
decrease of all is receivers requisite
of capital necessar and s of a
stock (f) y except other valid
merger/c when all legal proxy are
onsolidat of them represen (a) it
ion (g) have tatives must be
investme executed appointe in
nt in a proxy. d by the writing
another If owned Court (c) and
corporati in an heirs of a signed by
on or and/or stockhol the
business, capacity, der who stockhol
and (h) any one have der or
dissoluti can vote. executed member
on All a judicial (b) filed
stockhol or extra- before
Who can vote ders can judicial the
exercise settleme schedule
Stockhol the right nt, d
ders or to vote registere meeting
Members provided d with with the
can the the corporat
exercise shares Registry e
 secretary the the SEC, voting
(c) it Corporat otherwis trust
should ion Code e it is generally
not be and upon ineffectiv is not
valid and terms e or revocabl
effective and unenforc e (c)
for a condition eable (d) proxy
period of s stated it should can only
5 years in the be act at a
at any agreeme subject specified
one time nt. to meeting
(d) it is Its examinat unless it
valid limitatio ion (e) it is
only for ns are: should continui
the (a) it automati ng, a
meeting should cally trustee is
for which not be expire at not so
it is executed the end limited
intended for a of the (d) proxy
unless period agreed can only
otherwis not period vote if
e excess of The proxy
provided. 5 years, voting giver is
except if trustee not
executed shall (a) present
Voting trust as a possess while a
agreements condition the right trustee
for a loan to vote votes
It is an nor (b) neverthel
agreeme should it exercise ess (e) a
nt in be the right proxy is
writing executed to vote in usually
whereby to person / shorter
one or circumve proxy (c) in
more nt the has the duration
stockhol law right of than a
ders against inspectio voting
transfer monopoli n (d) trust
their es and since he x-------------------------
share, to illegal is legal ---------------------------
any combinat holder -------x
person/s ions in he can be VIII. Stocks
having restraint elected and
authority of trade as a Stockhol
to act as or used director ders
a trustee for The
for the purposes distinctio DOCTRINE OF
purpose of fraud ns EQUALITY OF
of (b) must between SHARES
vesting be in a proxy Where the
in such writing, and a articles of
person notarize voting incorporation do not
voting or d trust are provide for any
other containin (a) proxy distinction of the
rights g and has no shares of stock, all
pertainin specifyin legal shares issued by the
g to the g all title, corporation are
shares terms trustor presumed to be
for a and has legal equal and enjoy the
certain condition title (b) same rights and
period s (c) a the proxy privileges and are
not certified is likewise subject to
exceedin copy generally the same liabilities.
g that must be revocabl (Sec. 6)
fixed in filed with e, while a
How are shares only the preferred existence
CLASSIFIED? payment of rate only. of
1. COMMON current The holder unrestrict
SHARES are the dividends shall not ed
basic class of but also of share in retained
stock ordinarily dividends the earnings
and usually in arrears. dividends (Sec. 8),
issued without 2. Non distributed and
extraordinary cumulative to common provided
rights and preferred shares. further
privileges. The share- a that the
owners thereof share REDEEMABLE corporatio
are entitled to a which SHARES are those n has, after
pro rata share in allows the which permit the such
the profits of the holder issuing corporation redemptio
corporation and thereof to to redeem or n,
in its assets upon the purchase its own sufficient
dissolution and, payment of shares. assets in
likewise, in the current Limitations: its books to
management of dividends i. Redeemabl absorb
its affairs only e shares corporate
without without may be debts and
preference or regards to issued only liabilities.
advantage dividends when TREASURY SHARES
whatsoever. in arrears. expressly are shares that have
2. PREFERRED 3. Participati provided been earlier issued
SHARES are ng for in the as fully paid and
those issued preferred articles of have thereafter been
with par value, share- a incorporati acquired by the
and preferences share on; corporation by
either with which ii. Terms and purchase, donation,
respect to: gives the conditions redemption or
a)assets after holder the affecting through some lawful
dissolution right to said shares means. (Sec. 9)
(PREFERRED participate must be When
SHARES AS TO with the stated both treasury
ASSETS) holders of in the shares are
b)distribution of the articles of sold below
dividends( PREF common incorporati its par or
ERRED SHARES share in on and in issued value,
AS TO the the there can be
DIVIDENDS), remaining certificates no watering
c) or both, and profits pro of stock of stock
other rata, aside representi because
preferences. from the ng such watering of
Preferred or right to shares; stock
Redeemable receive the iii. Redeemab contemplate
shares may be stipulated le shares s an original
deprived of dividends may be issuance of
voting rights at a deprived of shares.
(Sec. 6). preferred voting
rate. rights in PAR VALUE SHARES
KINDS OF 4. Non the articles are shares with a
PREFERRED participati of value fixed in the
SHARES AS ng incorporati certificates of stock
TO preferred on, unless and the articles of
DIVIDENDS share- a otherwise incorporation.
1. Cumulative share provided in NO PAR VALUE
preferred which the Code. SHARES are shares
share - a allows the iv. Redeemabl having no par value
share holder to e shares but have an issued
which receive the may be value stated in the
entitles the stipulated redeemed, certificate or articles
holder dividends regardless of incorporation.
thereof not at a of the LIMITATIONS:
 1. No par Watered between them. the
value Stock is stock issued The corporation can revocation,
shares can not in exchange for rescind or cancel the or
have an its equivalent in contract in case of The
issued cash, property, non fulfillment by the incorporatio
price of shares, stock
subscription UNLESS buyer. n fails to
less than dividends or materialize.
P5.00; services. It includes
be prejudiced and all It shall
2. The entire stock that is issued likewise be
considerati (a) without irrevocable
on for its consideration (b) Purchase of shares is after the
issuance issued as fully paid covered by the submission
constitutes when the statute of frauds in of the
capital so corporation receives cases of purchases articles of
that no a sum less than par amounting to more incorporatio
part of it or issued value than P500. ns to the SEC.
should be (c)issued for a Consequentl 2. Post
distributed consideration other y the incorporation
as than cash, the fair subscribers subscription
dividends; valuation of which is are not real 3. Conditional
3. They less than par or parties in subscription
cannot be issued value (d) interest in a 4. Absolute
issued as stock dividend case for subscription
preferred without sufficient rescission of 5. Subscription
stocks; returned earnings or the with a special
4. They surplus. subscription term.
cannot be contract of
issued by another UNDERWRITING
banks, WAYS TO BECOME subscriber AGREEMENT
trust A STOCKHOLDER because they An underwriting
companies, OF A are not agreement between
insurance CORPORATION. parties a corporation and a
companies, 1. Subscription thereto. (Ong third person, termed
public contract with Yong v. Tiu, the underwriter, by
utilities the April 6, which the latter
and corporation 2003) agrees, for a certain
building 2. Purchase or compensation, to
and loan acquisition of Kinds of purchase a
association shares from subscription stipulated amount of
; existing contract: stocks or bonds,
5. The stockholder; 1. Pre- specified in the
articles of and incorporation underwriting
incorporati 3. Purchase of subscription agreement, if such
on must treasury shares One entered into securities are not
state the from the before purchased by those
fact that it corporation incorporation. to whom they are
issued no PURCHASE OF Pre- first offered.
par value SHARES incorporation
shares as refers to issued subscription CONSIDERATION
well as the shares constitutes a OF STOCKS
number of Can only be made binding contract Valid
be formsaid
or already in when the corporation among the considerations in
shares; is already in existence subscribers. subscription
6. Once agreement:
The purchaser can
issued, Note: It shall be 1. Cash
only exercise his right
they are irrevocable for actua
as a stockholder even upon full payment of
deemed a period of at lly
the purchase price.
fully paid least 6 years recei
and non- from the date of ved;
Corporate creditor
assessable. subscription 2. Prop
may proceed against cannot proceed
(Sec. 6) unless: erty,
the subscriber for his against the purchaser
for the balance of the All of the tangi
in case the corporate purchase price , other ble
because of the lack of subscribers or
WATERED STOCK consent to intan
privity of contact
 gible ned on such date interest
neces earni shall render therein.
sary ngs the entire It is not
or to balance due essential to the
conv state and payable ownership
enien d with interest. and/ or
t for capit Thirty days existence of
its al; therefrom, if the share of
use 6. Outst still unpaid, stock.
and andin the shares
lawfu g become Issuance of
l share delinquent, Certificate Of Stock
purp s in as of the due Under the
ose; excha date, and Doctrine of
3. Labo nge subject to Individualit
r or for sale, unless y of
servi stock the board Subscriptio
ces s in declares n,
actua the otherwise. subscription
lly event If no date is is one, entire,
rend of fixed in the indivisible,
ered recla subscriptio and whole
to ssific n contract, contract
the ation the board of which cannot
corp or directors can be divided
orati conv make the into
on; ersio call for portions.
4. Previ n. payment, Thus, no
ously and specify certificate of
incur the due date. stock shall
red The notice be issued
corp of call is until the full
orate mandatory. amount of
indeb The failure to the
tedne pay on such subscription
ss; date shall is paid.
(Note render the
: the entire Lost certificates
indeb balance due The
tedne CERTIFICATE OF and payable procedur
ss STOCK AND with interest. e for the
invol TRANSFER OF Thirty days procure
ved SHARES. therefrom, if ment of
must still unpaid, lost or
be
CAPITAL STOCK SHARES OF STOCK the shares replacem
Isone
the amount paid in or Is the interest or right become ents
that to be paid in by which the stockholder delinquent,
secured certificat
is stockholders upon has in the management as of the date
the es is as
ackn the corporation is of the corporation, its of call, and
which follows:
toowle
conduct its operation. surplus profits, and subject to (a) the
Itdge
is the property of the upon dissolution, in all sale, unless registere
by
corporation itself. of its assets remaining the board d owner
the after payment of declares or legal
boar corporate debts. otherwise. represen
d.) (Sec. 67) tative
5. Amo WHEN do stocks shall file
unts become CERTIFICATE OF an
trans DELINQUENT? STOCKS affidavit
ferre If the It is the paper in
d subscriptio representation triplicate
from n contract or tangible setting
unres fixes the evidence of the forth (1)
tricte date for stock itself and circumst
d payment, of the various ances of
retai failure to pay the loss,
theft, or a bond or have been lost or n
destructi surety stolen, or g
on (2) good for destroyed. ri
number 1 year 2. Transfer made in g
of shares, satisfacto a separate h
number ry to the instrument- ts
of board. while an ;
certificat Provided, assignment may a
e and in any be valid and n
name of case, if binding between d
the contest parties despite 2. R
corporati or suit is non-compliance ig
on (3) brought/ with the h
such presente requisite t
other d, the endorsement t
matter or issuance and delivery, it o
evidence of the does not r
he may certificat necessarily make e
deem e shall be the transfer m
necessar suspende effective for the o
y (b) d until a assignee cannot v
Upon final enjoy the status e
verificati decision of a stockholder d
on of the of the until and unless ir
affidavit court or the issue of e
and determin ownership is ct
books, ation of resolved with o
the ownershi finality. r
corporati p is 3. Judicial or extra s
on shall made. judicial
cause Except in settlement of What are the
notice of case of estate- upon the LIMITATIONS on
loss to be fraud, death of the the stockholders
publishe bad faith stockholder, his RIGHT TO VOTE?
d at or administrator or 1. Where the
stockhol negligenc executor articles of
der e of the becomes vested incorporatio
expense corporati with the legal n provides
for 3 on, no title of the stock for
consecuti action until the classification
ve weeks, can be settlement and of shares
stating brought division of the pursuant to
the against it estate is made. Sec. 6, non-
specifics for voting shares
of loss issuing a WHAT ARE THE are not
and that certificat RIGHTS OF entitled to
1 year e/s STOCKHOLDERS? vote except
from pursuant 1. Managerial as provided
date of to the Rights for in the last
publicati procedur 2. Proprietary paragraph of
on, e laid Rights Sec. 6;
should down. 3. Pre-emptive 2. Preferred or
no Right redeemable
contest MODES OF STOCK 4. Remedial shares may
be TRANSFER Rights be deprived
presente 1. Indorsement and 5. Appraisal of the right
d, it will delivery of stock Rights to vote
cancel certificate and to 6. Inspection unless
and issue issue a new Rights otherwise
new certificate unless provided in
certificat the original MANAGERIAL the Code;
es, unless certificate is RIGHTS 3. Fractional
the surrendered for 1. V shares of
stockhol cancellation or is o stock cannot
der files clearly shown to ti be voted;
 4. Treasury the most there would dies
shares have recent be whic
no voting financial preemptive h are
rights as long statement/fi right as to mere
as they nancial the ly
remain in the report; remaining subsi
treasury; 8. Right to portion diary
5. Holders of recover offered for such
stock stocks subscription. as
declared unlawfully accio
delinquent sold for REMEDIAL RIGHTS n
by the board delinquent 1. Individual suit subro
of directors payment of a suit gator
for unpaid subscription. instituted by a ia
subscription shareholder for and
are not PREEMPTIVE his own behalf accio
entitled to RIGHT OF against the n
vote or to a STOCKHOLDER corporation; pauli
representati It is the 2. Representative ana.
on at any shareholders' suita suit filed
stockholder' preferential right by a shareholder Requisites for a
s meeting; to subscribe to in his behalf and valid derivative
and all issues or in behalf suit (2004 Bar
6. A transferee dispositions of likewise of other Examination):
of stock shares of any stockholders 1. Existing
cannot vote class in similarly cause of
if his transfer proportion to situated and action in
is not their present with a common favor of
registered in stockholdings. cause against the the
the stock and corporation; and corporati
transfer GENERAL 3. Derivative suit on;
book of the RULE: There is (2009, 2006, 2. Stockhol
corporation. no preemptive 2005 2004 Bar der/me
right. This is on examination) mber
the theory that a suit filed in must
PROPRIETARY when a behalf of the first
RIGHTS corporation at corporation by make a
1. Right to its inception its shareholders demand
dividends; offers its first upon a cause of upon the
2. Right to shares, it is action belonging corporati
issuance of presumed to to the on or the
stock have offered all corporation, but manage
certificate of those which not duly pursued ment to
for fully paid the corporation by it, against any sue
shares; is authorized to person or unless
3. Proportionat issue. against the such a
e EXCEPTION: directors, demand
participation When a officers and/or would be
in the corporation controlling futile;
distribution at its shareholders of 3. Stockhol
of assets in inception the corporation. der/me
liquidation; offers only a mber
4. Right to specified Credi must be
transfer of portion of tors such at
stocks in its do the time
corporate authorized not of the
books; capital file objection
5. Preemptive stock for deriv able acts
right; subscription. ative or
6. Right to If suits, transacti
inspect subsequently but ons
books and , it offers the rathe unless
records; remaining r the
7. Right to be unsubscribe have transacti
furnished of d portion, reme ons are
 continuo all of the What is an intra- of intra-
usly corporate corporate corporate,
injurious property or controversy? (2006 partnership,
; and Bar Examination) or
assets
4. Action association
3. Merger or
must be An intra- relations,
brought consolidatio between and
corporate
in the n; controversy is a among
name of 4. Investment dispute between a stockholders,
the of corporate stockholder and members or
corporati funds in the corporation of associates;
on which another which he is a and between,
must be corporation stockholder, or any or all of
alleged. between a them and the
or in a
stockholder and corporation,
NOTE: The purpose partnership,
another
stockholder is only other than stockholder of the or
a nominal party in the primary same corporation, association
a derivative suit. purpose (Sec where the subject of which
The real party in 42) of the dispute or they are
interest is the controversy arose stockholders,
corporation. GENERAL RULE: a out of such members, or
dissenting relationship associates,
APPRAISAL RIGHTS stockholder who (Sunset View respectively;
(2007 Bar demands payment of Condominium Corp. (c)
Examination) his shares is no v. Campos, Jr., 104 controversie
Appraisal right is longer allowed to SCRA 303 [1981]). s in the
the right of a withdraw from his An intra- election or
stockholder, who decision; corporate appointment
dissents from a EXCEPT WHEN: dispute is a of directors,
fundamental or 1. The civil case trustees,
extraordinary corporation involving the officers, or
corporate action, to following: managers of
consents to
demand payment of (a) devices corporations,
the
the fair value of his or schemes partnerships,
shares. It is the right withdrawal employed by, or
of a stockholder to 2. The or any act of, associations;
withdraw from the proposed the board of (d)
corporation and corporate directors, derivative
demand payment of action is business suits; and (e)
the fair value of his abandoned associates, inspection of
shares after officers or corporate
or rescinded
dissenting from partners, books (SC
certain corporate by the Adm. Memo.
amounting to
acts involving corporation fraud or No. 01-2-04
fundamental 3. The misrepresent [2001]).
changes in the proposed ation which
corporate structure corporate may be INSPECTION
namely: (ASIM) action is detrimental RIGHTS
1. An disapproved to the Corporate Books
amendment interest of and Financial
by the SEC
to the the public Records
where its
Articles of and/ or of
approval is the The following
incorporatio necessary; corporate books and
stockholders,
n that has 4. The partners, or records must be kept
the effect of Commission members of and preserved at its
determines any principal office (1)
2. Sale, that such corporation, record of all
encumbranc partnership, business
stockholder
e or other or transactions (2)
is not minutes of
dispositions association;
entitled to (b) stockholders or
of all or appraisal Board meetings,
controversie
substantially right s arising out setting forth: time
and place, how purpose. information to 117, BP 68)
authorized, notice (Sec. 74) permit an intelligent 1.
given, whether decision on whether Voluntary
regular or special, x------------------------- to permit their 2.
those --------------------------- shares to be voted as Involuntary
present/absent, -------x solicited for a
every act done or IX. STOCKH particular matter at A
ordered. Upon OLDER a forthcoming corporation
demand, the time PROTEC stockholders may be
that the a director, TION meeting. dissolved by
trustee or officer DEVICES x------------------------- the SEC upon
entered or left, the --------------------------- filing of
yeas and the nay, 1. Tender -------x verified
and any protest may Offers is a public complaint
be recorded in full offer to purchase a and after
(3) stock and specified number of proper
transfer book which shares from notice and
should contain a shareholders usually hearing on
record of all stocks, at a premium in an the grounds
names of attempt to gain provided by
stockholders, control of the issuing existing laws,
installments company. Note that rules and
paid/unpaid, in some instances, regulation.
statement of the premium is (Sec 121, BP
alienation, date payable only if the X. Merger, 68)
thereof and other offeror is able to Consolid
matters prescribed obtain the required ation, The three (3)
by the By-Laws. number of shares. methods by which
and
These records are 1.1 A Tender a stock corporation
subject to the Offer disclosure will Dissolut
may be voluntarily
inspection rights of be required if a ion
dissolved are:
the Stockholders. person (Includes a (2002 Bar
partnership, limited MERGER
Examination)
LIMITATIONS of the partnership, One or more existing
Inspection rights: syndicate, corporations are
1. Voluntary
1. Right must corporation or any absorbed by another
corporation which dissolution
be exercised other group) intends
survives (A+B =A or B) where no
during to acquire at least
reasonable thirty five percent creditors is
hours on (35%) or at least Parties called constituent affected. This is
business thirty five percent corporations done by a
days; (35%) over a period Absorbed corporation majority vote of
2. Person of twelve months dissolved without the directors,
demanding any class of equity liquidation of assets
and resolution
the right has security of a listed
vote of at least
not corporation or even
improperly if the acquisition is 2/3 vote of the
used less than thirty five Absorbing corporation stockholders,
3. any percent (35%) it acquires all assets and submitted to
information would result in assumes liabilities of the the Securities
obtained ownership of over absorbed corporation and Exchange
through any fifty one percent regardless of WON
Commission.
previous (51%). creditors consented
2. Voluntary
examination
dissolution
of the books 2. Proxy
and records Solicitations is an SHS of absorbed where creditors
of the action to secure the corporation become SHS are affected.
corporation; right to vote of so of absorbing corp. This is done by a
and much a number of petition for
4. Demand is shares to ensure the DISSOLUTION dissolution
made in approval of a When the which must be
good faith or proposed corporate corporation ceases
filed with the
for a action/s. It provides to be a juridical
legitimate shareholders with person. Securities and
appropriate METHODS: (Sec Exchange
 Commission, 2years an act parties-
signed by a from the which litigants,
majority of the date of its amounts to creditors,
incorporati a surrender or the
members of the
on, its of its general
board of corporate corporate public
directors, power rights, H. When the
verified by the ceases and privileges, corporation
president or the the or is guilty of
secretary, and corporation franchises fraud in
upon affirmative shall be F. When it has procuring
deemed misused a its
vote of
dissolved; right, certificate
stockholders B. If the privilege, of
representing 2/3 corporation or franchise registration
of the has conferred I. When the
outstanding commence upon it by corporation
capital stock. d the law, or is guilty of
3. Dissolution by transaction when it has serious
shortening of of its exercised a misreprese
business, right, ntation as
the corporate
but privilege, to what the
term. This is subsequent or franchise corporation
done by ly becomes in can do or is
amendment of continuousl contraventi doing to the
the articles of y on of law, great
incorporation. inoperative such as prejudice of
for a period commissio or damage
When corporation is of at least 5 n by the to the
deemed dissolved: years, the corporation general
Method same shall of ultra public.
Sec. 118, when no be a ground vires or J. Refusal of
creditors are affected for illegal acts. the
Sec. 119, where suspension G. When on corporation
creditors are affected or the basis of to comply
revocation findings or defiance
of its and of any
Sec. 120, dissolution
corporate recommen lawful
by shortening
franchise or dations of a order of the
corporate term
certificate duly SEC
of appointed restraining
incorporati manageme commissio
on nt n of acts
C. When the committee which
INVOLUNTARY
corporation or would
DISSOLUTION
fails to rehabilitati amount to a
Grounds for adopt and on receiver, grave
Involuntary filed a code or based on violation of
Dissolution: of by-laws the SECs its
A. If the in the own franchise
corporation manner findings, and
does not provided the K. Failure of
formally for by law continuanc the
organize D. When the e of the corporation
and corporation business of to file
commence has the required
the offended corporation reports in
transaction against a would not appropriate
of its provision of be feasible forms as
business or law for its or determined
the creation or profitable by the SEC
constructio renewal nor work to within the
n of its E. When it has the best prescribed
works committed interest of period
within or omitted the SHs,
 it was established. stockholder with membership
At any time during the obligation on and all rights
EFFECTS OF said 3 years, said the part of the said are personal
DISSOLUTION corporation is stockholder to pay and non
authorized and
The effects of the other four transferable
empowered to
dissolution are: (a) convey all of its stockholders the unless
legal title to property to trustees amount/s in provided in
corporate property for the benefit of : proportion to the the Articles
is vested in stockholders, value of the of
stockholders or members, creditors, stockholding of each. Incorporatio
members (b) and other persons in n or By-
corporation ceases interest. x------------------------- Laws. It may
as a body politic to --------------------------- be
BAR QUESTION:
continue the -------x terminated
2001 Bar
business for which it Examination in the
was organized (c) it X Corporation XI. Non- manner and
cannot be revived shortened its Stock for causes
(d) dissolution does corporate life by Corpora provided in
not by itself imply amending its articles tions the Articles
the diminution or in corporation. It has of
extinguishment of no debt but owns a Incorporatio
prime property Some
rights (e) upon significant n or By-
located in Quezon
expiration of the differences Laws. Courts
City. How would the
winding up period of property be between have no
3 years, the liquidated among stock and power to
corporation ceases, the five non-stock strip
it can no longer sue stockholders of are: (a) membership
or be sued said corporation? subject to as it
Discuss two constitutes
the Articles
CORPORATE methods of an
liquidation. of
LIQUIDATION Incorporatio unwarranted
Every and undue
n or By-
corporation whose A: The prime interference
charter expires by its Laws, the
property of X with the
own limitation or is right to vote
Corporation can be right of a
annulled by may be
liquidated among corporation
forfeiture or limited,
the five stockholders to determine
otherwise, or whose broadened
corporate existence after the property its
or denied to
for other purposes is has been conveyed membership
some extent.
terminated in any by the Corporation (c) it may
Unless so
other manner, shall to the five have any
provided,
nevertheless be stockholders, by number of
continued as a body each
dividing or trustees as
corporate for 3 years member is
partitioning it fixed in the
after the time when entitled to
among themselves Articles of
it would have been one vote. In
in any of the Incorporatio
so dissolved, for the exercising
purpose of following ways: (1) n or By-law
the right, he
prosecuting by physical division from the
may vote by
and or partition based ranks of its
proxy and
defending on the proportion of membership.
suits by or also by mail
the values of their The term of
against it or other
stockholdings; or (2) the original
enabling it to similar
selling the trustees is
settle and means as
property to a third such that
close its authorized
person and dividing 1/3 of their
affairs, by the
to dispose of the proceeds among number shall
Articles of
and convey the five stockholders serve for a
Incorporatio
its property in proportion to year, the
n or By-Laws
and their stockholdings; second 1/3
to distribute with the
or (3) after the for two years
its assets, approval of
determination of the and the third
and under
value of the 1/3 for three
BUT NOT for the conditions
property, by years.
purpose of prescribed
assigning or Trustees
continuing the by the SEC
business for which transferring the subsequently
(b)
property to one
 elected shall be subject to one corporation the
then serve or more within the furtherance
for a term of specified meaning of the of a religion
three years. restrictions on Corporation or for
Trustees transfer Code, the perpetrating
elected to fill permitted in this corporation shall the rights of
vacancies, title. Any not be deemed a the church or
shall only restriction can close for the
serve for the be put provided: corporation. administrati
unexpired (1) the on of church
portion (d) restriction must x------------------------- or religious
corporate appear in the --------------------------- work or
officers are Articles of -------x property
elected by Incorporation/B x-------------------------
the y-Laws as well as XIII. Special ---------------------------
members, the certificate of Corpora -------x
unless stock, otherwise tions
otherwise it is not binding Educational
provided by on a purchaser Corporations
Articles of in good faith (2) are stock or
Incorporatio it or they should non-stock XIV. Foreign
n or By-Laws not be more corporations Corpora
(e) meetings onerous than organized to tions
can be held that granting the provide
outside the existing facilities for A foreign
place of stockholders or teaching or corporation is one
principal the corporation instruction formed, organized or
business. the option to and are existing under any
Provided, purchase the governed by law other than those
there be shares with such special laws of the Philippines
notice of the reasonable and by and whose law allow
date, time, terms, general Filipino citizens and
and place conditions or provisions of corporation to do
but should periods stated the business in its own
always be in therein. If at the Corporation country or state (sec
the end/expiration Code. Prior 123)
Philippines. of the period, a to its
stockholder/s or incorporatio It is NOT
x------------------------- the corporation n, a favorable permitted to
--------------------------- fails to exercise recommenda transact or
-------x the option to tion must be do business
purchase, the obtained in the
XII. Close transferring from the Philippines
Corpora stockholder may Department until it has
tions sell his shares to of Education. secured a
any third person Religious license for
A close (c)the Corporations that purpose
corporation is a corporation are from SEC
corporation must not list in corporations and a
whose articles any stock incorporated certificate
provide that: (a) exchange or by one or of authority
all the make any public more from the
corporations offering of any of persons appropriate
issued stock of its stock of any classified as government
all classes, class. corporation agency.
exclusive of Notwithstanding sole or Who is a
treasury shares, , if 2/3 of its religious RESIDENT
shall be held of voting stock or society. They AGENT? An
record by not voting rights is are individual,
more than a owned or composed of who must be
specified of controlled by entirely of good
persons not to another spiritual moral
exceed 20 (b) all corporation persons and character
issued stock of which is not a which is and of sound
all classes shall close organized for financial
 standing, the conte
residing in forei mpla
the gn ting B. STATUTORY
Philippines, corp to TESTS:
or a orati some Under the
domestic on is exten Foreign
corporation main t the Investment Act
lawfully taini perfo of 1991 (R.A. No.
transacting ng or rman 7042) the
business in conti ce of following acts
the nuing acts constitute "doing
Philippines, in the or business":
designated in Phili work i. Soliciting
a written ppine s or orders,
power of s the the service
attorney by a body exerc contract
foreign or ise of opening
corporation subst some offices,
authorized ance funct whether
to do of the ions called liaison
business in busin norm offices or
the ess ally branches;
Philippines, for incid ii. Appointing
on whom whic ent representativ
any h it to es or
summons was and distributors
and other orga in domiciled in
legal nized progr the
processes or essiv Philippines or
may be whet e who in any
served in all her it prose calendar year
actions or has cutio stay in the
other legal subst n of, country for a
proceedings antial the period or
against the ly purp periods
foreign retire ose totaling 180
corporation. d and days or more;
(Sec. 127- from objec iii. Participating
128) it and t of in the
turne its management,
What is the test of d it orga supervision
DOING OR over nizati or control of
TRANSACTING anot on any domestic
BUSINESS IN THE her); 2. CONTRACT business, firm
PHILIPPINES? The and TEST or entity or
Corporation Code b. Conti Whet corporation in
does not define the nuity her the the
phrase "doing or Test contracts Philippines;
transacting entered into and
business." (2002 Whet by the iv. Any other act
Bar Examination) her foreign or acts that
A. JURISPRUD there corporation, imply a
ENTIAL is or by an continuity of
TESTS: conti agent acting commercial
1. TWIN nuity under the dealings or
CHARACTER of control and arrangements
IZATION com direction of , and
TEST merci the foreign contemplate
a. Subs al corporation, to that extent
tanc deali are the
e ngs consummate performance
Test and d in the of acts or
arran Philippines. works, or the
Whet geme exercise of
her nts, some of, the
 functions petitioner XV. Corpora enforcement is
normally when it ruled te by court action
incident to, that the very Rehabili or otherwise
and in purpose of against the
tation
progressive the law was debtor, its
prosecution circumvente Who can file? Filing guarantors, and
of, d and evaded of the VERIFIED sureties not
commercial when the POSITION with the solidarily liable
gain or of the petitioner appropriate RTC by: with the debtor
purpose of entered into a. Corpora (c) Prohibiting
the the said te the debtor from
business agreements debtor selling,
organization. despite the which encumbering,
prohibition foresees transferring, or
contained in the disposing in any
Jurisprudential the manner any of
impossi
Rules questioned its properties,
bility of
law. The meeting except in the
1. Doctrine of parties are ordinary course
its
Isolated considered of business (d)
debts
Transaction in pari Prohibiting the
when
s delicto debtor from
they
because they respecti making any
Foreign equally payment of its
vely fall
Corporations violated RA outstanding
due; or
, even 5455. liabilities as of
b. Creditor
unlicensed the date of the
s
ones, can sue filing of the
holding
or be sued petition
at least
on a 3. Estoppel (e)Prohibiting
25% of
transaction Rule the debtors
the
or series of supplies of
debtors
transactions A party is goods and
total
set apart stopped services from
liabilitie
from their from withholding
s
common questioning supplies and
business in the capacity Upon filing and
subsequent services in the
the sense of a foreign ordinary course
that there is corporation determination
by the court of business for
no intention to institute as long as the
to engage in an action in that the petition
is sufficient in debtor makes
a progressive our courts payments for
pursuit of where it had form and
substance, a the services and
purpose and obtained goods supplied
object of the benefits from stay order may
be issued. after the
business its dealings issuance of the
transaction. with such A stay order
stay order
(eriks Pte. foreign will, among
others, contain Proceedings
Ltd vs. CA, corporations may be
267 SCRA and the following:
(a)Appointment terminated in
567) thereafter case of (a)
committed a of a
rehabilitation failure of the
breach or debtor to
sought to receiver or a
management submit the
2. In Pari renege on its rehabilitation
Delicto Rule obligations. committee, who
as long is acting plan (b)
(Merrill disapproval of
In the case of Lynch vs. CA, in good faith is
immune from the plan by the
Top-Weld GR No.
suit (b) Stay court (c) failure
Manufacturi 978160, July
of enforcement of rehabilitation
ng vs. ECED, 24, 1992)
of all claims, due to failure to
SA., the
whether for achieve desired
Court denied x-------------------------
money or targets or goal
the relief ---------------------------
otherwise, and (d) failure of
prayed for by -------x
whether such debtor to
the
 perform his SC approved d. Invento 3. The
obligations (e) Interim Rules of ry of REHABILITATI
determination Procedure Aseets ON PLAN
that the plan On Corporate e. Rehabili 4. Issuance of
may no longer Rehabilitation tation STAY ORDER
be implemented (2000) Plan not later than
with its terms, 1. Filing of the f. Schedul 5days from
conditions or VERIFIED e of filing of
assumptions (f) POSITION with Paymen petition which,
upon successful the ts & among others,
implementation appropriate Disposit shall:
of the plan. RTC by: ion of a. Appoint
2006 Bar a. Corpora Assets a
Examination: What te w/in 3 rehabili
is the rationale for debtor mos. tation
the Stay Order? which precedi receiver
foresees ng filing for the
the of petition
The stay order is a
impossi Petition ing
recognition that all
bility of g. Schedul corpora
assets of a
meeting e of te
corporation under
its Cash debtor
rehabilitation are
debts Flow b. Stay all
held in trust for the
when for the actions
equal benefit of all
they last 3 for
creditors under the
respecti mos. claims
doctrine of
vely fall h. Stateme against
equality is equity.
due; or nt of the
As all creditors
b. Creditor Possible debtor,
ought to stand on
s Claims which
equal footing, not
holding i. Affidavi shall
any one of them
at least t of cover
should be paid
25% of General both
ahead of others
the Financi secured
(Ruby Industrial
debtors al &
Corp. v. Court of
total Conditi unsecur
Appeals, 284 SCRA
liabilitie on ed
445, 4460 [1998]).
s j. At least creditor
Furthermore, the
3 s or
stay order will
2. The following nomina claiman
enable the
shall be tions ts
management
ANNEXED TO for c. Set an
committee or
THE rehab. initial
rehabilitation
PETITION: receiver hearing
receiver to
a. Audited k. Certific for the
effectively exercise
Financi ate Petition
its or his powers free
al under ; and
from judicial or
Stateme oath d. Direct
extrajudicial
nts at that the
interference that
end of director creditor
might unduly hinder
its last s & SHs s &
or prevent
fiscal have other
rehabilitation of the
year irrevoca interest
corporation or
b. Interim ble ed
hinder or prevent
Financi approve parties
the rescue of the
al d/conse to file
distressed company,
Stateme nted to their
rather than to waste
nts all verified
its/his time, effort
c. Schedul actions/ comme
and resources in
e of matters nt on or
defending claims
Debts necessa oppositi
against the
and ry on to
corporation
Liabiliti under the
(Rubberworld( Phils.
es rehab. petition
), Inc. v. NLRC, 305
plan not
SCRA 721 [2000]).
 later AND/OR targets; If not Memo No. 00-11-03,
than 10 REHABILITATI approved, Petition which has
days ON RECEIVER shall be dismissed jurisdiction over the
before with the x------------------------- principal office of
the creditors and --------------------------- the corporation,
initial other -------x partnership or
hearing interested XVI. Other association
and parties, which Matters concerned (Sec. 5,
putting should take Rule 1, SC Adm.
them on place before SEC Jurisdiction: Memo. No. 02-2-4).
notice the final original and (2006 Bar
that revision of the exclusive jurisdiction Examination)
their plan prior to (1) fraudulen
failure its final t devices INTRA-CORPORATE
to do so submission to and DISPUTES
would the RTC for schemes
bar approval employed 1. For an intra-
them 9. MODIFICATIO by corporate dispute to
from N OR directors exist, there must be
particip REVISION by detrimen an intra-corporate
ating in the debtor OF tal to relationship and the
the THE public controversy must
proceed REHABILITATI interest arise from the said
ings ON PLAN. (2) intra- relationship. The
5. PUBLICATION 10. SUBMISSION corporate controversy must be
OF THE STAY OF A FINAL disputes intrinsically
ORDER in a REHABILITA and with connected with the
newspaper of TION PLAN the state regulation of the
general to the RTC for in internal affairs of the
circulation in its approval relation corporation.
the 11. The to their (Arranza vs. BF
Philippines PETITION franchise Homes, 333 SCRA
once a week SHALL BE and right 799)
for 2 DISMISSED to exist as 2. RA 8799,
consecutive [which such which became
weeks which results into (3) Controve effective on August
makes the the automatic rsies in 8, 2000, transferred
proceeding in lifting of the the the SECs
rem in nature. stay order election, jurisdiction over
6. INITIAL unless appointm intra-corporate
HEARING ON otherwise ent of disputes to courts of
PETITION not ordered by directors, general jurisdiction
earlier than 45 the RTC] if no trustees, or regional trial
days but not rehabilitation etc. courts.
later than 60 plan is (4) petition 3. A court that
days from approved by to be is not designated as
filing of the RTC after declared a special commercial
Petition 180 days in a state court is not vested
7. REFERRAL OF from the date of with jurisdiction
REHABILITATI of initial suspensi over cases
ON PLAN TO hearing on of previously
REHABILITATI 12. APPROVAL payments cognizable by the
ON RECEIVER OR NOTE: Actions SEC and does not
who shall DISAPPROVA involving intra- have the requisite
submit his L of the corporate power to order the
recommendati rehabilitation controversies are transfer of cases
on thereon to plan by the cognizable by the erroneously filed
the RTC not RTC: Regional Trial with it to another
later than 90 If approved, Court NOT by the branch of the RTC,
days from the implementation of Securities and the only action it
initial hearing the plan and Exchange could take on the
8. MEETINGS modifications in the Commission, matter is to dismiss
BETWEEN course thereof if designated by the the petition for lack
CORPORATE necessary to meet Supreme Court of jurisdiction
DEBTOR the desired business under SC Adm.
( Calleja vs. Panday, to realize profits in relationship; or (b) If (c)a person whose
483 SCRA 680) anticipation of a the other party relationship or
favorable change in selling to or buying former relationship
SECURITIES AND price. from the insider (or to Issuer gives or
THEIR 3.2 A pre-need his agent) is gave him access to a
REGULATION plan is a contract identified, the fact of special
that provides for the insider proves: (i) significance about
1. In general, performance of that he disclosed the Issuer or the
securities are future services or information to the security that is not
Shares, Participation the payment of other party, or (ii) generally available
or Interest (SPI) in a future monetary that he had reason to (d) a government
Corporation or in a considerations at the believe that the employee, or
Commercial time of actual need, other party directors, or officer
enterprise or Profit- for which plan otherwise is also in of an exchange,
making venture holders pay in cash possession of the clearing agency
(CCP) and evidenced or installment at information. and/or SRO who has
by a Certificate, stated prices, with or access to material
Contract; without interest or A purchase or sale of information about
Instrument, whether insurance coverages a security of the an Issuer or a
written or electronic and includes life, issuer make by an security that is not
in character (CCI). pension, education, insider defined in generally available
2. Securities internment, and Subsection 3.8, or to the public (e) a
Registration is other plans which such insiders person who learns
mandated to SEC shall approve. spouse or relatives such a fact from any
accomplish its by affinity or of the foregoing
objective of consanguinity insiders with
disclosure to SECURITIES within the second knowledge that the
potential MANIPULATION degree, legitimate or person from whom
investors.The 1. Manipulation common-law, shall he learns the fact is
reasons for is an artificial be presumed to have an insider.
mandating control of security been effected while 3. Information
registration are (a) prices; it is an in possession of is considered
To give adequate attempt to force material non-public material non-
protection and securities to sell at information if public if: (a) It has
reliable information prices either above transacted after such not been generally
to the investing or below those information came disclosed to the
public (b) To ensure which would exist as into existence but public and would
compliance with the a result of the prior to likely affect the
law by the issuer normal operations of dissemination of market price of the
(c)To allow only an supply and demand. such information to security after being
issuer who is The manipulator the public and the disseminated to the
solvent, of good hopes to profit by lapse of a reasonable public and the lapse
repute and character, creating fictitious time for the market of a reasonable time
and whose business prices at the expense to absorb such for the market to
is based on sound of the general information: absorb the
business principles. trading public. Provided, however, information; or (b)
That this would be considered
3. Commodity INSIDER TRADING presumption shall by a reasonable
Futures Contracts be rebutted upon a person important
and Pre-Need Plans 1. Insider showing by the under the
are also required to Trading occurs when purchaser or seller circumstances in
the registered. an insider sells or that he was not determining his
3.1 A buys a security of aware of the course of action
Commodity Futures the issuer, while in material non-public whether to buy, sell
Contract is a present possession of information at the or hold a security.
right to receive at a material information time of the purchase
future date a specific with respect to the or sale.
quantity of a given issuer or the 2. An Insider
commodity for a security that is not shall include: (a) the
fixed price. They are generally available Issuer (b) a director
commitments to buy to the public, unless: or officer of, or a
or sell commodities (a) the insider person controlling,
at a specified time proves that the controlled by, or
and place in the information was not under common
future. The object is gained from such control with Issuer
 F. Double WHAT IS A an
Insurance CONTRACT OF insur
G. Reinsurance INSURANCE ance
Contract - It is busin
H. Marine an ess;
Insurance agree
I .Losses ment Doing an insurance
J .Abandonment wher business or
K. Kinds of eby transacting an
Insurance one insurance business
L. Motor Vehicle unde is:
Insurane rtake (a) making
---------------- s for or
---------------- a proposin
----- consi g to
derat make as
WHAT LAWS ion to insurer
GOVERN inde any
INSURANCE mnif insuranc
(a) Insuranc y e
e Code anot contract;
(PD 1460 her (b) making
whose again or
affectivit st proposin
y date is loss, g to
11 June dama make as
1978) ge, or surety
(b) In liabili contract
absence ty of
of arisin suretysh
applicabl g ip as a
e from vocation
provision an and not
s, the unkn merely
Civil own incident
Code; or al to any
(c) In conti other
absence ngent legitimat
of event e
applicabl ; business
e - A or
provision cont activity
s in the ract of the
Insuranc of surety;
e Code suret (c) doing
and Civil yshi any
Code, the p business
INSURAN general shall includin
principle also
CE s on the be
g a
reinsura
PD 1460 subject deem nce
in the ed an business
PRELIMINARIES United insur ,
States ance
A. Definition of specifica
(Consta contr
Contract of lly as
ntino vs. act if
Insurance doing an
Asia Life made
B. Requisites of insuranc
Insuran by a
Insurance Contract e
ce, 87 suret
C. Concealment business
Phil y
and within
248) who
Representation the
D. Kinds of Policy or hearing
E. Warranties in whic of the
Insurance Contract h is Code;
doing
 (d) doing or 5. It is one of Gan vs. clear and
proposin PERFECT GOOD Law Union unambiguou
g to do FAITH Rock Ins. s. (Fortune
any 6. It is a contract Co. Ltd. 52 Insurance vs.
business of ADHESION OG 1982) CA, 244
in insurance SCRA 308).
substanc companies Illustrations:
e manage to a. P Bank b. Personal
equivale impose upon the obtained Accident
nt to any insured insurance policies
of the prepared against providing
foregoin contracts, which robbery, payment for
g in a the insured which loss of
manner cannot change. excluded hand. The
designed Consequently, loss by any insurance
to evade they are to criminal act policy
the construed as of the defines it as
provisio follows: insured or amputation.
ns of the (a) In case any The insured
Code there is no authorized has an
(section doubt as to representati accident
2); the terms ve. While resulting in a
of the transferring temporary
NATURE AND insurance funds from total
CHARACTERISTICS contract, it one branch disability
OF A is to be to another, but hand is
CONTRACT OF construed the insureds not
INSURANCE in its armored amputated.
plain, truck was HELD:
1. It is an ordinary, robbed. The Insurer is
ALEATORY and driver was not liable.
contract popular assigned by (Ty vs. First
2. It is a contract sense; a labor National
of INDEMNITY (b) If contractor Surety and
for Non-Life doubtful, with the Assurance
recovery is ambiguou insured, Company
commensurate s, certain, while the 17 SCRA
to the loss. It is it is to be security 364) But
an investment construed guard was In case
in life strictly assigned by where the
insurance against the an agency policy
secured by the insurer contracted provided loss
insured as a and by the of both, legs
measure of liberally in insured. by
economic favor of Both driver amputation,
security for him the and guard a claim
during his insured were found against the
lifetime and for because to be policy was
his beneficiary the latter involved. allowed for a
upon his death has no Can the loss total
except one voice in be excluded? paralysis to
secured by the the HELD: The exclude total
creditor on the selection loss is paralysis is
life of the of the excluded , contrary to
debtor; words the public policy,
3. It is a used, and driver/guar public good
PERSONAL the d although and sound
contract language assigned by morality, as
4. It is used is labor it would
EXECUTORY selected by contractors force the
and the are insured to
CONDITIONAL lawyers of authorized have his legs
on part of the the representat amputated
insurer Insurer ives. The to be able to
(Qua Chee terms are claim on the
 policy. must not GSIS policy interest.
(Panaton vs. favor the on the Generally a
Malayan 2 one who ground of person has
Court of caused the non insurable
Appeals obscurity. payment of interest in
783) Hence, the the subject
judgment for premium. matter
c. Warranty in additional HELD: The insured
a fire PHP policy when:
insurance 2,000.00 contained a - He
policy was provision has
prohibited affirmed. that the such
storage of (Del Rosario application a
oils having a vs. Equitable for relat
flash point of Insurance insurance is ion
below 300 and Casualty authority for or
Fahrenheit. Company, 8 GSIS to conn
Gasoline is SCRA 343) cause the ectio
stored. Is deduction of n
there a e. Denial of a premium with
policy claim on the from the or
violation? ground that insureds conc
HELD: The the insured salary. ern
clause is vehicle was (Landicho in,
ambiguous. a private vs. GSIS, 44 such
In ordinary type vehicle SCRA 7) subje
parlance on the ct
oils means ground that Other case matt
lubricants the policy reference: New Life er
not gasoline. issued to the Enterprises vs. CA, that
There is no insured was 207 SCRA 669 he
reason why a common will
gasoline carriers MARINE RISK NOTE deriv
could not be liability, IS NOT AN e
expressed Insurance INSURANCE POLICY pecu
clearly in the policy which Certainly it would niary
language covers a be obtuse for us to bene
public can public even to entertain the fit or
readily vehicle for idea that the adva
understand. hire. HELD: insurance contract ntag
(Qua Chee Insurer is between Malayan e
Gan) liable as it and ABB Koppel was from
was aware actually constituted its
d. An action to all along by the Marine Risk pres
recover the that the Note alone. (Malayan ervat
amount of vehicle of Insurance Co. vs. ion
PHP the insured Regis Brokerage or
2,000.00 due was a Corporation Nov. 23 will
to death by private 2007 G.R. No. suffe
drowning vehicle. 172156) r
where the (Fieldman pecu
policy Insurance vs. WHAT ARE THE niary
provided for Mercedes ELEMENTS OF AN loss
indemnity in Vargas vda INSURANCE or
the amount De Songco, CONTRACT dam
of PHP 25 SCRA 70) 1. The insured age
1,000.00 to should from
PHP f. Denial of a possess an its
3,000.00 claim for interest of destr
HELD: The benefit due some kind, uctio
interpretati to the death susceptible n,
on of the of Flaviano of pecuniary termi
obscure Landicho in estimation natio
stipulation a plane crash known as n or
in contract under the insurable injur
 y by insur ETERNAL GARDENS par
the ed MEMORIAL PARK excellence,
happ agai CORPORATION vs. any
ening nst. THE PHILIPPINE ambiguity
of the AMERICAN LIFE therein
event INSURANCE INSURANCE should be
insur CONTRACT [Loss COMPANY (G.R. No. resolved
ed covered by the 166245, April 9, against the
agai insurance policy; 2008) insurer; in
nst. Burden of proof to Philamlifes other words,
- It is prove that same] assumption of risk it should be
neces Any loss or damage of loss without construed
sary happening during approving the liberally in
beca the existence of application. - The favor of the
use abnormal conditions question arises as to insured and
its (whether physical or whether Philamlife strictly
abse otherwise) which assumed the risk of against the
nce are occasioned by or loss without insurer.
rend through in approving the Limitations
ers consequence directly application. of liability
the or indirectly, of any should be
contr of the said This question must regarded
act occurrences shall be be answered in the with extreme
void. deemed to be loss or affirmative. jealousy and
This damage which is not It must be must be
is covered by the remembered that an construed in
base insurance, except to insurance contract is such a way
d on the extent that the a contract of as to
the insured shall prove adhesion which preclude the
princ the loss or damage, must be construed insurer from
iple happened liberally in favor of noncomplian
that independently of the the insured and ce with its
insur existence of such strictly against the obligations.
ance abnormal insurer in order to In the more recent
is a conditions. safeguard the latters case of Philamcare
contr An Insurance interest. Thus, Health Systems, Inc.
act of contract, being a in Malayan v. Court of Appeals,
inde contract of adhesion, Insurance we reiterated the
mnity should be so Corporation v. Court above ruling, stating
. If interpreted as to of Appeals, this Court that:
the carry out the held that:
insur purpose for which When the
Indemnity terms of
ed the parties entered
and liability insurance
has into the contract
insurance contract
no which is to insure
policies are contain
inter against risks of loss
construed in limitations
est, or damage to the
accordance on liability,
he goods. Limitations of
with the courts
will liability should be
general rule should
not regarded with
of resolving construe
stan extreme jealousy
any them in such
d to and must be
ambiguity a way as to
suffe construed in such a
therein in preclude the
r way as to preclude
favor of the insurer from
loss the insurer from
insured, non-
or noncompliance with
where the compliance
injur its obligations. (DBP
contract or with his
y by Pool of Accredited
policy is obligation.
the Insurance
prepared by Being a
happ Companies v. Radio
the insurer. A contract of
enin Mindanao Network,
contract of adhesion, the
g of Inc. Jan. 27, 2006,
insurance, terms of an
the G.R. No. 147039)
being a insurance
even
contract of contract are
t
adhesion, to be
 construed the provisions and depends wholly or in the
strictly riders, taken and fact for education or continuance
against the interpreted together, support or in whom of life of the
party which indubitably show the he has pecuniary insured;
prepared the intention of the interest (Note article
contract, the parties to extend 195 of the Family
insurer. By earthquake shock Code specifying the WHEN MUST
reason of the coverage to the two persons obligated to INSURABLE
exclusive swimming pools support each other. INTEREST IN
control of the only. Example LIFE EXIST
insurance pecuniary interest- - Insurable
company Contract of partners, interest in
over the insurance; payment employees); life must
terms and of premium by the 3.any person exist at the
phraseology insured, an under legal time of the
of the important element obligation to him for effectivity
insurance of the contract; the payment of of the
contract, Courts finding that money, respecting policy and
ambiguity no premium property or services need not
must be payments with of which death or exist at the
strictly regard to illness might delay time of the
interpreted earthquake shock or prevent death of the
against the coverage, except on performance. insured as
insurer and the two swimming Example life
liberally in pools.- A careful Mortgagors, Debtors. insurance is
favor of the examination of the 4.Any person not a
insured, premium upon whose life, any contract of
especially to recapitulation will estate or interest indemnity. It
avoid show that it is the vested in him is meant to
forfeiture.20 clear intent of the depends (Example give
parties to extend Usufructuary X financial
GULF RESORTS, earthquake shock allows Y to receive security to
INC., vs. coverage only to the fruits of the land of the insured
PHILIPPINE two swimming the former as long as or his
CHARTER pools. Section 2(1) he is alive. Y has beneficiarie
INSURANCE of the Insurance insurable interest in s (Section
CORPORATION (G.R. Code defines a life of X, because the 19).
No. 156167 May contract of insurance death of X will However,
16, 2005) as an agreement terminate his right insurable
whereby one and cause him interest of a
Provisions of undertakes for a damage. (Section 10) creditor on
insurance policy; consideration to the life of the
no piecemeal indemnify another debtor must
construction or against loss, damage WHAT IS THE exist only at
segregation of or liability arising BASIS OF the time of
certain stipulations from an unknown or INSURABLE effectivity
allowed; all parts contingent event. INTEREST IN but also at
should be reflective Thus, an insurance LIFE the time of
of clear intent of contract exists - It exist when the death of
parties.- The policy where the elements there is the debtor
cannot be construed concur. reasonable as in this
piecemeal. Certain ground instance it is
stipulations cannot IN WHAT DOES A founded on a contract of
be segregated and PERSON HAVE the relation indemnity.
then made to INSURABLE of the His interest
control; neither do INTEREST IN (LIFE) parties, is capable
particular words or Every person either of exact
phrases necessarily has an insurable pecuniary pecuniary
determine its interest in the Life or measureme
character. Petitioner and Health of: contractual nt.
cannot focus on the 1.himself, his or by blood
earthquake shock spouse and of his or by
endorsement to the children; affinity to
exclusion of the 2.any person expect some
other provisions. All on whom he benefit from
WHAT IS THE Care Providers Inc. V. such nature - Expectancy
EXTENT OF Commissioner of that a must be
INSURABLE Internal Revenue, contemplat founded on an
INTEREST IN Jun. 12 2008 G.R. ed peril actual right to
ONES LIFE 167330) might the thing or a
- He has directly valid contract
unlimited IS THE CONSENT OF damnify for it;
interest in the insured - A carrier or
his own life THE INSURED is an depository of
or that of insurable any kind has
another REQUIRED WHEN interest insurable
person (section 13). interest in the
regardless of INSURANCE IS It may thing held by
whether or consist of: him such to
not the latter TAKEN the extent of
has (a) An his liability
insurable existing but not to
- The law
interest. interest exceed the
does not
Provided, value thereof
require the
that if the (b) An (Sections 13,
consent of
beneficiary inchoate 14, and 15);
the person
has no interest
insured and
insurable founded - But, a mere
such has
interest, on an contingent or
been
there is no existing expectant
considered
fore or bad interest interest in
as not
faith. But if anything, not
essential to
he takes out (Defined founded on
the validity
a policy on : Interest contract or
of the
the life of in real actual right
contract as
another and estate to the thing is
long as
names which is not insurable
there is
himself as not a as there is
insurable
the present no insurable
interest at
beneficiary, interest interest
the
he must but (Section 16);
beginning;
have an which
insurable may
IN WHAT DOES A
interest in ripen WHO IS BOUND BY
the life of the into a A CONTRACT OF
PERSON HAVE
insured; vested INSURANCE The
interest insurance contract
INSURABLE
INSURABLE if not between the insurer
INTEREST The barred, and the insured,
INTEREST IN
insurable interest of extingui under Article 1311
every member of shed, or of the Civil Code is
PROPERTY
petitioners health divested. binding only upon
care program in ) the parties (and
obtaining the health - A person (c) An their assigns and
care agreement is has expectan heirs) who execute
his own health. insurable cy the same.
Under the interest in coupled
agreement, property as with an INCHOATE
petitioner is bound every existing RIGHT The right to
to indemnify any interest in interest lay claim on the fun
member who incurs property, in that is dependent on the
hospital, medical or whether out of solvency of the
any other expense real or which insurer and is
asising from personal, the subject to all other
sickness, injury or or any expectan obligations of the
other stipulated relation cy company arising
contingency to the thereto, or arises; from its insurance
extent agreed upon liability in contracts. Thus, the
under the contract. respect Note: respondents
(Philippine Health thereof, of interest is merely
inchoate. Being a excess by taking out insurance
mere expectancy, it an insurance against suspends
has no attribute of all risks or WHEN MUST the
property. At this contingencies of loss INSURABLE insurance to
time, it is arising from any INTEREST IN an
nonexistent and may unsound or unsafe PROPERTY equivalent
never exist. Hence, it banking practices EXIST extent until
would be premature including unforeseen - must exist at interest in
to make the security adverse effects of the the time the the thing
deposit answerable continuing crisis insurance and interest
for CISCOs present involving the takes effect in the
obligation to Del banking and and when insurance is
Monte Motors. financial sector in the loss vested in
(Republic of the Asia. Does BD have occurs but the same
Philippines v. Del insurable interest need not person;
Monte Motors, Inc., within the meaning exits in the - No claim in
Oct.9, 2006 G.R. No. of the Insurance meantime insurance
156956) Code? (Section contract
A: Yes, BD 19); while it is
WHAT IS THE TEST has insurable suspended
interest in his bank COMPARE WITH because it
OR MEASURE OF deposit. In case of INSURABLE can happen
loss of said deposit, INTEREST IN LIFE: that the
INSURABLE more particularly to 2002 BAR EXAM insurable
the extent of the (N0.XVII) interest will
INTEREST IN amount in excess of be returned;
the limit covered by
PROPERTY the Philippine LIFE CHANGE OF
Deposit Insurance - not necessary INTEREST IN
Corporation Act, BD can be based on PROPERTY
- Whether consanguinity or
will be damnified. INSURED
one will affinity
He will suffer (Transfer or
derive - only at effectivity
pecuniary loss of Sale of insured
pecuniary except that taken
P400,000.00, that is, property)
benefit or by a creditor in the
his bank deposit of (1994 & 200
advantage life of the debtor
half a million pesos Bar Exams)
from its - no limit exist if
minus P100,000.00
preservatio based on debtor
which is the A
n or will
maximum amount change of
suffer
recoverable from the interest in any
pecuniary
PDIC. part of a thing
loss or
insured
damage
MUST THE IN RELATION TO unaccompanie
from its
BENEFICIARY IN d by a
destruction
PROPERTY HAVE THE NEED FOR THE corresponding
; (Section
INSURABLE change of
17)
INTEREST ON THE EXISTENCE OF interest in the
PROPERTY insurance
INSURABLE
INSURED? INSURABLE suspends the
INTEREST IN BANK
- YES, as no insurance to an
DEPOSITS
contract or INTEREST, PLEASE equivalent
policy of extent, until
2000 BAR EXAM
insurance NOTE: the interests in
(VIII - b)
on property the thing and
Q: BD has
shall be the interest in
bank deposit of half - That a
enforceable. the insurance
a million pesos.Since change in
Except for are vested in
the limit of trhe interest in
the benefit the same
insurance coverage any part of a
of some person. (Sec.
of the Philippine thing
person 20)
Deposit Insurance insured
having
Corp Act ( 3591) is accompanie
insurable
only one tenth of d by a
interest in Excepti
BDs deposit, he correspondi
the property ons: 1) change
would like some ng change in
insured; of interest
protection for the the
after the loss; the policy. A se insure
2) change of transfer of they d by
interest in one interest in are one
or more of property not policy,
several things without any contra does
separately transfer of cts of not
insured; 3) interest in the indem avoid
change of insurance nity as to
interest by will suspends the and the
or succession; latter until the insura others
and 4) transfer interest in the ble (Secti
of interest by a property and intere on
partner, joint in the st is 22);
owner, or insurance is not (4)
common vested in the requir A change of
owner, to same person. ed at intere
another A has the st in
partner, joint transferred his time one or
owner or interest in the of more
common object of the loss; severa
owner. insurance (the (2) l
house) to B A change of distin
1980 Bar without a intere ct
Exam: transfer of his st things,
interest in the after separa
insurance to B. occurr tely
A insures his As the ence insure
house for P 10, interests in the of an d by
000 object and in injury one
commencing the insurance and policy,
January 1, are in different result does
1952. On persons at the s in not
February 15, time of the loss avoid
1952, A sells loss, none can does the
the house to B recover under not insura
for P15,000 the policy. affect nce as
without the to the
endorsing or right insure
transferring of the d;
the fire policy WHAT CHANGE IS insure (Secti
to B. On April CONTEMPLAT d to on 23)
20, 1952, the ED indem (5)
house is An absolute nity; A transfer of
completely transfer of the - After intere
destroyed on property not life, a a loss, st by
account of the lease/mortgage; the one or
accidental fire. liabilit severa
Can A or B EXCEPTIONS TO y of l
collect the the partne
proceeds of the THE insure rs,
policy from the r is joint
insurer? REQUIREMENTS OF fixed owner
Explain and (3) s, or
give reasons INSURABLE A change of owner
for your intere s in
answer. (1952, INTEREST: st in comm
1959, 1980 one or on,
Bar) (1) more who
Life, health severa are
ANSWER: or l jointly
accide distin insure
Neither A, the nt ct d to
seller, nor B, insura things, the
the buyer, can nce separa others
collect under becau tely , does
 not (7) When ratable taken by a
avoid the contribution Married
insura policy called a woman on
nce is so premium to her life and
even frame the general that of her
thoug d that insurance children.
h it it will fund; Under art.
has insure 145 of the
been to the family
agree benefi WHAT MAY BE code, she
d that t of INSURED can also
the whom AGAINST insure her
insura soever - Any separate
nce may unknown or property
shall becom contingent without
lease e the event, the
upon owner whether consent of
an during past or the
allocat the future, husband;
ion of contin which may
the uance damnify a 2. A minor
thing of the person may take
insure risk; having out a
d; insurable contract
Note: interest or for life,
- Ther CONTINUATION OF create a health and
e ELEMENTS liability accident
must 1. Insurable against him, insurance
be interest; may be with any
no 2. The insured insured company
stipu is subject to against authorized
latio risk of loss (Section 3); to do
n through the business in
agai destruction Example: the
nst it or Insurance Philippines
impairment against damage, , provided
othe of that liability, it be taken
rwis interest by unknown past out on his
e it is the event (in marine own life
avoi happening insurance and the
ded; of the insurance is over beneficiary
- Tran designated the vessel named is
sfer risk; against perils of his estate,
to 3. The insurer the sea, lost or father,
stran assumes the not lost), or mother,
gers risk of loss; future event like husband,
avoi 4. Such loss or theft of wife, child,
d the assertion is the object; brother or
polic part of a sister. In so
y general - In relation doing, the
scheme to to the married
(6) When distribute insurance woman/mi
notwit actual loss so nor may
hstan among a secured, exercise all
ding a large group note: the rights
prohib of persons 1. The or
ition, bearing consent of privileges
the somewhat the under the
conse similar risk; husband is policy;
nt of 5. As a not
the consideratio necessary But What is the
insure n for the for the effect of the death of
r is insurers validity of the original owner of
obtain promise, the an a policy, which
ed; insured insurance covers the life of a
makes a policy
minor, ahead of the happening of public enemy. A over insurance and
minor all rights, specified public enemy is a adverts the
title and interest in contingency; citizen or national of perpetration of
the policy shall 2. INSURED a country with fraud. Its violation
automatically vest in party to be which the will thus avoid the
the minor unless indemnified Philippines is at war. policy. However, in
otherwise provided in case of Such member if the order to constitute a
in the policy; loss (section MILF or the Abu violation, the other
6). Anyone Sayyaf is not a insurance must be
except a citizen or national of upon the same
public another country, but subject matter, the
WHAT CANNOT BE enemy (a of the Philippines. same interest
INSURED nation at therein, and the
- An war with same risk.
insurance Philippines Double
for or and every WHO MAY INSURE insurance exists
against the citizen A MOrTGAGED where the same
drawing of subject of PROPERTY person is insured by
any lottery such nation. - Both the several insurers
or for or Reason: the mortgagor separately in respect
against any purpose of and the of the same subject
chance or war is to mortgagee and interest.
ticket in a cripple the may take out The court
lottery power and separate ruled that since the
drawing or exhaust the policies with stocks in trade
prize. resources of the same or insured with PFIC
Because the enemy, different were mortgaged
gambling and it is companies. property, separate
results in inconsistent The insurances covering
profit and to destroy its mortgagor different insurable
insurance resources to the extent interests maybe
only seeks then pay it of his obtained by the
to the value of property, the mortgagor and
indemnify what has mortgagee mortgagee. The
the insured been to the insurable interests
against loss destroyed) extent of his of a mortgagor and
(Section 4) may be credit; mortgagee are
insured; (section 8) separate and
distinct, thus no
2000 BAR EXAM INSURANCE double insurance
WHO ARE THE (VIII - a) INTEREST ON exists since the
PARTIES TO A MORTGAGED policies of PFIC do
CONTRACT OF Q: May a PROPERTY (2005 not cover the same
INSURANCE member of the BAR EXAM (N0. X - interest as that
1. INSURER MORo Islamic 2- a) covered under the
every Liberation Front policy of Country
person, ( MILF ) or its Armando Geagonia Bankers Insurance
partnership, breakawy group, the v. CA 241 SCRA 154 Corp. The non-
association Abu Sayaff, be disclosure of the
or insured with a policies with PFIC
corporation company licensed to SC RULING was not fatal to
duly do business under Condition 3 is what Armandos right to
authorized the Insurance Code is known as other recover on his policy
to transact of the Philippines? insurance clause with Country
insurance Explain? which is a valid Bankers Insurance
business as A: A member provision allowed by Corp.
provided in of the MILF or the the insurance code
the code Abu Sayyaf may be in order to prevent
may be an insured with a in an increase in the
insurer. It is company licensed to moral hazard and to
the party do business under serve as a warranty
who agrees the Insurance Code that no other
to indemnify of the Philippines. insurance exists. Its
another What is prohibited incorporation in fire
upon the to be insured is a policies prevents
 mortgagor now independent of mortgagor
may be that with the BUT if he is
WHAT ARE THE performed by mortgagor; unable to
CONSEQUENCE the mortgagee collect in
S WHERE THE with the same WHAT IS THE full from
MORTGAGOR effect if it has EFFECT OF insurer, he
INSURES THE been INSURANCE can
PROPERTY performed by PROCURED BY THE recover
MORTGAGED the mortgagor. MORTGAGEE from the
IN HIS OWN Example: If WITHOUT mortgagor;
NAME BUT notice of loss REFERENCE TO THE e. The
MAY THE LOSS is required, the RIGHT OF THE mortgagor
PAYABLE TO mortgagee MORTGAGOR is not
THE may give it; released
MORTGAGEE d. Upon the a. The from the
OR ASSIGNS occurrence of mortgagee debt
THE POLICY the loss, the may collect because
TO HIM. mortgagee is from the the insurer
entitled to insurer is
recover to the upon the subrogated
extent of his occurrence in place of
UNLESS THE credit and the of the loss the
POLICY balance if any to the mortgagee;
PROVIDES to be paid to extent of
OTHERWISE the mortgagor, his credit;
a. The insurance since such is b. Unless 3. BENEFICIARY
is still deemed for both their otherwise the person
to be upon the benefits; stated, the who receives
interest of the e. Upon recovery mortgagor the benefits of
mortgagor by the cannot an insurance
who does not mortgagee, his collect the policy upon
cease to be a credit is balance of maturity;
party to the extinguished; the
original proceeds property
contract. If on the other after the insurance
Hence, if the hand, (section 9), mortgagee yes the
policy is the insurer assents is paid; insured
cancelled, to the transfer of the c. The himself but
notice must be insurance from the insurer, cant assign the
given to the mortgagor to the after proceeds;
mortgagor; mortgagee, and at payment to
b. Any act of the the time of his the life insurance
mortgagor, assent, imposes mortgagee, not required
prior to loss, further becomes to have
which would qualifications on the subrogated insurable
otherwise assignee, making a to the interest;
avoid the new contract with rights of
policy or him, the acts of the the
insurance, will mortgagor cannot mortgagee WHO MAY BE
have the same affect the rights of against the BENEFICIARIE
effect although the assignee Note mortgagor S IN LIFE
the property is the Union Mortgage and may INSURANCE
in the hands of Clause creates the collect the - Anyone,
the mortgagee. relation of insured debt to the except who
Hence, if there and insurer between extent paid are
is a violation mortgagee and the to the prohibited
of the policy insurer independent mortgagee; by law to
by the of the contract of the d. The receive
mortgagor, the mortgagor. In such mortgagee donations
mortgagee case, any act of the after from the
cannot mortgagor can no payment insured.
recover; longer affect the cannot Note art. 739
c. Any act rights of the collect of the Civil
required to be mortgagee the anymore Code, hence
done by the insurance contract is from the the following
 cannot be accessory in willfully where the GOOD
designated bringing about the insured FAITH AND
as death of the insured; designated WITHOUT
beneficiaries in which event, the his second FRAUD OR
; nearest relative of wife as a INTENT TO
1. Those the insured shall beneficiary ENTER
made receive the proceeds was upheld INTO A
between of said insurance if as the latter WAGERING
persons not otherwise was not CONTRACT.
guilty of disqualified.Thus, aware of the
adultery the insurance first Beneficiary in life
or company must still marriage; and property
concubi pay out the proceeds - The insurance (2005
nage at of the life insurance disqualificati bar exams)
the time policy to the nearest on does not Philippine
of the qualified relative of extend to the American Life
designat the insured. children of Insurance
ion; the adultery Company v. Pineda
2. Those 3. Those or (175 SCRA 416)
guilty of made to concubinage
the same a public in view of SC Ruling:
criminal officer the express Under the law, the
offense or his recognition beneficiary
in wife, of the designated in a life
consider descend successional insurance contract
ation ants/asc rights of cannot be changed
thereof; endants illegitimate without his or her
2008 BAR EXAM by children consent because of
reasons (Art. 287, the beneficiarys
On January 1, NCC and Art. vested interest in the
2000, Antonio of his
office; 176, Family policy. In this regard,
Rivera secured a life Code); it is worth nothing
insurance from SOS that the beneficiary
Insurance Corp. for - A prior
conviction MUST THE designation
P1 Million with BENEFICIARY HAVE indorsement which
Gemma Rivera, his for
adultery/co INSURABLE forms part of the
adopted daughter, as INTEREST ON THE policy in the name of
the beneficiary. ncubinage
is not LIFE OF THE Rodolfo Dimayuga
Antonio Rivera died INSURED states that the
on March 4, 2005 required, it
can be - It is designation of the
and in the police recognized beneficiaries is
investigation, it was proven by
propondera that the irrevocable and no
ascertained that insured may right or privilege
Gemma Rivera nce of
evidence in name under the policy may
participated as an anyone he be exercised, or
accessory in the the same
action chooses agreement made
killing of Antonio except those with the insurance
Rivera. Can SOS nullifying
the disqualified company to any
Insurance Corp. to receive change in or
avoid liability by designation.
Note the donations as amendment to the
setting up as a a policy without the
defense the cases of
Insular Life beneficiary consent of the said
participation of in his life beneficiary.
Gemma Rivera in the vs. Ebrado,
80 SCRA 181, insurance, Accordingly, based
killing of Antonio even if he is on the provisions of
Rivera? Discuss with where a
common law a stranger the contract and the
reasons. (4%) and has no law applicable, it is
wife of the
Answer: Section insured who insurable only with the
12. The interest of a is married interest in consent of all the
beneficiary in a life could not be the life of beneficiaries that
insurance policy named as a the insured. any change or
shall be forfeited beneficiary The amendment to the
when the beneficiary and SSS vs. designation, policy concerning
is the principal, Davac, 17 however, the irrevocability of
accomplice, or SCRA 863, must be in beneficiaries may be
legally and validly CAN THE WHAT IS THE
effected. BENEFICIARY EXTENT OF THE 2005 BAR EXAM
BE CHANGED INTEREST OF THE (NO. IX- 2)
Insurable interest - The insured IRREVOCABLE Q: Jacob obtained a
on property shall have BENEFICIARY IN A life insurance policy
Spouses Nilo the right to LIFE INSURANCE for P1 Million
Cha v. CA Aug. 18, change the CONTRACT designating
1997 2009 bar beneficiary irrevocably Diwata, a
The
exams he friend, as his
beneficiary has a
SC RULING: designated beneficiary. Jacob,
vested right that
1. The lessor unless he however, changed
cannot be taken
cannot has his mind and wants
away without his
validly be a expressly Yob and Jojo, his
consent. In fact
waived the other friends, to be
beneficiary should the insured
right in the included as
of the fire discontinue payment
policy beneficiaries
insurance of the premium, the
(Section considering that the
policy taken beneficiary may
11); proceeds of the
continue paying.
by the - If he has policy are sufficient
Neither can the
spouses Cha. waived the for the three
insured get a loan or
It has no right, the friends.Can Jacob
obtain the cash
effect is to still add Yob and Jojo
insurable surrender value of
make the as his beneficiaries?
interest on the policy without
designation Explain. (2%)
the his consent (Nario
as
vs. Philamlife, 20 A: The insured
merchandize irrevocable.
SCRA 434). cannot add other
insured Note that
the Note: where beneficiaries as this
because it
designation the wife and minor would diminish the
remains with interest of Diwata
of the guilty children were
the spouses. who is the
spouse as named irrevocable
2. The irrevocably
irrevocable beneficiaries, wife
automatic beneficiary dies, the husband designated
assignment is revocable seeks to change the beneficiary. The
of the policy as the beneficiaries with insured can only do
to the lessor instance of the consent of the so with the consent
the innocent children. The of Diwata.
is void for
spouse in consent is not valid WHAT IS THE
being INTEREST OF AN
cases of due to minority.
contrary to (Philamlife vs. IRREVOCABLE
termination
law and of: Pineda, 170 SCRA BENEFICIARY IN AN
public policy. (1) a 416). ENDOWMENT
The subse POLICY
proceeds of quent 2005 BAR EXAM - His
the fire marri (NO. IX -1) interest is
insurance age; contingen
(2) nullifi Q: What are the t as
policy
cation effects of an benefits
rightfully of irrevocable are to be
belong to the marri paid only
designation of a
spouses cha. age; beneficiary under if the
3. The insurer (3) annul the Insurance Code? assured
cannot be ment Explain. (2%) dies
compelled to of before the
marri A: The irrevocable specified
pay the
age; beneficiary has a period. If
proceeds of the and vested interest in the the
policy to the (4) legal policy, including its insured
lessor who has separa outlives
incident such as the
no insurable tion policy loan and cash the
interest on the (Art. surrender value. period,
property 34, (4) (Grogorio v. Sun Life the
Family Assurance Company benefits
insured.
Code of Canada, 48 Phil. are paid to
53 [1925])
 the beneficiar WHAT IS THE CONCEALMENT/REPRE
insured; y dies EFFECT OF SENTATION
before the CONCEALMENT?
- Fundamenta
insured;
WHAT IS THE - Whether l
EFFECT OF intentional or characteristi
FAILURE TO WHAT HAPPENS not, it entitles c of a
DESIGNATE OR TO INTEREST OF the injured contract of
BENEFICIARY IS THE BENEFICIARY party to rescind insurance
DISQUALIFIED IN LIFE INSURANCE the contract of that it is one
WHERE HE insurance of
- The
WILLFULLY KILLS (Section 27). perfect/utm
benefits of
THE INSURED Examples: ost good
the policy
faith;
shall - If the (1) The
accrue to killing is insured
the estate willful, does not
2001 BAR EXAM
of the the disclose
(N0.XVI): A applied
insured; interest is sickness
for a non-medical
forfeited, but dies of
life insurance. The
if he is the another
WHO RECOVERS IF insured did not
principal, cause.
BENEFICIARY inform the insurer
an There is
PREDECEASES THE that one week prior
accomplic concealme
INSURED to his application for
e, or an nt because
If the insurance, he was
- accessory. it is
designati examined and
The material
on is confined at St. Lukes
nearest to a
irrevocab hospital where he
relative determina
le, the was diagnosed for
of tion of the
legal lung cancer. The
insured assumptio
represent insured soon
gets the n of risk
atives of thereafter died in a
proceeds by the
the plane crash. Is the
if not insurer;
beneficiar insurer liable
otherwis (2) The father
y may considering that the
e of the
recover fact concealed had
disqualifi insured
unless it no bearing with the
ed obtained
was cause of death of the
(Section an
stipulated insured? Why?
12). If not insurance
that the A: No. The
willful or policy
benefits concealed fact is
felonious, over his
are material to the
the daughter,
payable approval and
provision but did
only if issuance of the
does not not
living. If insurance policy. It
apply; disclose
designati is well settled that
that she
on is the insured need not
was a
CONCEALMEN die of the disease he
revocable mongoloi
T failed to disclose to
, and no d child,
change is the insurer. It is
the child
made, the sufficient that his
WHAT IS dies of
benefits non-disclosure
CONCEALMENT? influenza,
passes to misled the insurer in
the
the estate - Concealmen forming his estimate
concealme
of the t is a neglect of the risks of the
nt relieves
insured. to proposed insurance
the
The rule communicat policy or in making
insurer of
holds also e that which inquiries.
liability
if benefits a party (Grepalife
were knows and vs. CA 89 WHO MUST PROVE
payable ought to SCRA 543) KNOWLEDGE OF
only if communicat THE FACT
living or e (Section CONCEALED?
26); BASIS OF PROVISIONS
if
ON - The party
surviving
claiming
and the
 existence of material as FACT CONCERNED conceal
concealmen it will not AND THE CAUSE OF ment
t must prove affect or THE LOSS? Not requires
that there influence necessary knowled
was the party to ge of the
Concealment
knowledge enter into fact
need not be
on the part contract. conceale
material, be of facts
of the party However, in d by the
which about or
charged case of the party
contribute to or are
with reinstateme charged
connected of the
concealmen nt of a with
insureds loss. It is
t; lapsed conceal
immaterial that
policy, facts ment;
there is no causal
known after (b) Fact/s
AS OF WHAT TIME relationship
effectivity must be
MUST THE PARTY between the fact
but before materia
CHARGED WITH concealed and the
reinstateme l to the
CONCEALMENT loss sustained. It is
nt must be contract
HAVE KNOWLEDGE sufficient that the
disclosed; it must
OF THE FACT non-revelation has
be of
CONCEALED? misled the insurer in
such
forming its estimate
- Gene nature
of disadvantage of
rally, a party HOW IS THE that had
fixing the premium.
must have MATERIALITY OF the
knowledge THE insurer
of the fact CONCEALMENT OR known
Examples: Insured
concealed at REPRESENTATION of it, it
concealed kidney
the time of DETERMINED? would
disease and enlarged
the not have
Materiality is liver later he died
effectivity of accepted
determined not by of thrombosis, is the
the policy. the risk
the event, but solely insurer liable? No,
Note that or
by the probable and since the fact
even if a demand
reasonable influence concealed was
party did ed a
of the facts upon the material though the
not know of higher
party to whom the insured did not die
the premiu
communication is therefrom (Henson
existence at m;
due, in forming his vs. Philam 50 OG
the rime of (c) That the
estimate of the 73428). Insured had
application other
disadvantages of the concealed that he
but before party
proposed contract or had kidney disease.
its had no
in making his He dies in plane
effectivity, means
inquiries (Section crash. The insurer is
there is of
31); not liable (Sunlife
concealmen ascertai
vs. CA, 245 SCRA
t; ning
269);
- Infor such
mation fact/s;
acquired WHAT IS THE TEST (d) That the
WHAT FACTS MUST
after OF MATERIALITY? party
BE
effectivity is The test of COMMUNICATED? with a
not materiality is duty to
concealmen Each party to an commu
whether knowledge
t and does insurance contract is nicate
of the true facts
not bound to makes
could have influence
constitute communicate to the no
a prudent insurer in
ground to other all facts that warrant
determining
rescind the meet the following y
whether to accept
policy, as requisites: (Section
the risk or in fixing
after the the premiums; (a) Such 28) as
policy is fact that the
issued, must be existenc
information MUST THERE BE A within e of a
subsequentl CAUSAL his warrant
y acquired is CONNECTION knowle y make
no longer BETWEEN THE dge as the
 require application of (4) Those which information which
ment to the insured prove or tend the insured failed to
disclose was deemed to prove the disclose was
superflu knowledge of existence of a material and
ous but the insurer risk excluded relevant to the
an (Insular Life by a warranty, approval and
intention Assurance Co. and which are issuance of the
al vs. Feliciano, not otherwise policy. The facts
fraudule 74 Phil 468). material. concealed would
nt Insurer had have affected the
omission surveyed the insurers action on
(5) Those which
on the location and the application
relate to the
part of surrounding either by charging a
risk exempted
the one area of a higher rate of
from the
insured building that it premium or
policy, and
to is to be rejecting the same.
which are not
commun insured The insured need
otherwise
icate against fire, an not die of the
material
informat omission to disease he
(section 30).
ion on a state that concealed. It is
matter there are sufficient that his
proving neighboring SUNLIFE non-disclosure
or buildings will ASSURANC misled the insurer
tending not avoid E CO. OF in forming his
to prove policy; CANADA estimate of the risk
falsity of VS. CA, involved or in
a JUNE 22, making inquiries.
warrant (2) Those which 1995 The contract of
y entitles in the exercise (1996, insurance can be
the of ordinary 1997, and rescinded by reason
insurer care, the other 2001 Bar of concealment and
to ought to know, Exams) this has to be
rescind and of which, exercised within
(Section the former has Robert Bacani the two year
29). no reason to was issued life contestability
suppose him insurance non- period.
to be ignorant. medical policy for
The facts that P100,000.00 with
REPRESENTA
WHAT MATTER the other his mother as
TION
NEED NOT BE ought to know beneficiary. In his
COMMUNICATED? as per section application, he
32 are: concealed his
WHAT IS
confinement at the
REPRESENTATION?
Except in answer to Lung Center of the
(3) Those of
the inquiries of the Philippines for Oral or
which the
other: certain illness. He written statement of
other waives
died of a plane a fact or a condition
(1) Those which communicatio
crash. The affecting the risk
the other n. A waiver
insurance company made by the insured
knows as takes place
refused to pay for to the insurance
the insurer either, by the
breach of the company, tending to
cannot say terms of the
insurance induce the insurer to
that it has insurance or
contract.RTC and take the risk
been deceived by he neglect
CA granted the (Section 36);
or misled; to make
claim of the
inquiries as to
beneficiary because
Example: such facts WHEN MAY
the concealed facts
Insured where they REPRESENTATION
were not material
discloses that are distinctly BE MADE
or irrelevant to the
he has implied in
cause of death. Since it is an
tuberculosis to other facts of
which inducement to
he agent of the SC RULING:
information is entering a contract
insurer, who in The SC
communicate it must ordinarily be
turn omits to reversed the ruling
d (section 33). made at the same
state the same and held that the time as or before
in the
the insurance of the (b) Promis effect (section knowledge of the
policy (section 37). sory 42); principal;
Note that it can also which is
Note: There is
be made after the a
no false
issuance of the stateme
representation if
policy when the nt by the WHAT IS THE
it is true at the
purpose thereof is to insured EFFECT OF
time the contract
induce the insurer to concerni MISREPRESENTATI
takes effect
modify an existing ng what ON ON A MATERIAL
although false at
insurance contract is to POINT?
the time it is
as the provisions happen
made; If it is false
also apply to a during
modification (Same the term on material point,
with concealment) of the whether affirmative
WHEN IS A
insuranc or promissory the
REPRESENTATION
e; injured party is
SAID TO BE FALSE
HOW SHOULD entitled to rescind
REPRESENTATION When the the contract from
BE CONSTRUED facts fail to the time the
IS A correspond with its representation
The language
REPRESENTATION assertions or becomes false.
of a representation
PART OF THE stipulations (Section However, the right to
is to be interpreted
CONTRACT 44); rescind is
by the same rules as
considered waived
the language of the No, it cannot
by the acceptance of
contracts in general qualify as an express MUST THE premium payments
(section 38). Hence, provision in a INSURED despite knowledge
it need not be contract (it is a COMMUNICATE of the ground to
literally true and collateral INFORMATION OF rescind (section 45);
correct/accurate in inducement to the WHICH HE HAS NO
every respect, rather, contract but it may PERSONAL
it is sufficient if it is qualify an implied KNOWLEDGE BUT Examples:
substantially or warranty (section MERELY RECEIVES
materially true. In 40); (a) Insur
THE SAME FROM
case of a promissory er
OTHERS?
representation, it is was
sufficient if it is CAN A When a awar
substantially REPRESENTATION person has no e of
complied with; BE WITHDRAWN personal knowledge the
OR ALTERED of facts he may or lack
may not of
Yes, as long
communicate such the
as the insurance has
information to the extin
WHAT ARE THE not yet been effected
insurer. If he does guis
FORMS AND KINDS and the insurer has
communicate, he is hers
OF not yet been induced
not responsible for requi
REPRESENTATION to issue the policy. If
its truth (section red
withdrawn or
43). Hence, there can by
Representations may altered afterwards,
be no the
be Oral or Written the contract can be
misrepresentation; polic
and can either be: rescinded as the
y.
insurer has already
But
been led to issue the WHEN IS THE there
(a) Affirmat policy (section 41); INSURED is no
ive REQUIRED TO waiv
which is DISCLOSE er
an TO WHAT DATE
INFORMATION if the
affirmati DOES A
FROM A 3RD insur
on of a REPRESENTATION
PERSON er
fact REFER
When the had
existing It must be no
when information material
presumed to refer kno
the to the transaction
to the date on wled
contract was acquired by an
which the ge of
begins; agent of the insured,
contract goes into the
as knowledge of the
agent is also grou
 nd at to claim the after a date of
the proceeds that the definite issue/or
time contract is null and period, it last
of void. Section 48 was should reinstate
the held to apply only no ment;
acce when there is a longer Tan vs. CA, 174
ptan contract to rescind. be SCRA 403 during
ce of permitte the lifetime of the
It is also
the d to insured means that
qualified by 2nd
prem question the policy is no
paragraph of
ium; its longer in force if the
section 48 which
(b) Unau validity; insured dies. Facts:
provides that after a
thori (b) On part Philam issued policy
policy of life
zed of the on November 6,
insurance payable
drive insured 1973. On April 26,
on the death of the
r its 1975 the insured
insured shall have
(Stro object is died. The
been in force during
kes to give beneficiaries
the lifetime of the
vs. the claimed but the
insured for a period
Mala greatest insurer denied the
of 2 years from the
yan, possible claim on September
date of issue or its
127 assuranc 11, 1975 and
last reinstatement,
SCR e that rescinded the policy
the insurer cannot
A the on the ground of
prove that the policy
766) beneficia misrepresentation
is void ab initio or is
ries and concealment.
subject to rescission
would Held: Insurer has
HOW IS by reason of a
receive two years from date
MATERIALITY fraudulent
payment of
DETERMINED? concealment or
of the issue/reinstatement
misrepresentation of
The same as proceeds within which to
the insured or his
concealment without contest the policy
agent (known as
(Section 46) question whether or not the
the incontestability
probable and as to insured still lives
clause);
reasonable influence validity within the period;
of the facts upon the or the
party to whom the policy;
WHAT IS THE
representation is WHAT DEFENSES
THEORY AND
made in forming his ARE NOT BARRED
OBJECT BEHIND REQUISITES OF
estimate of the BY
THE INCONTESTABILIT
advantage/disadvan INCONTESTABILIT
INCONTESTABILIT Y CLAUSE
tages of the contract Y EVEN AFTER THE
Y CLAUSE
or I making The LAPSE OF 2 YEARS?
inquiries; (a) On the requisites are:
(1) non-
part of
(1) It is a life payment
the
insuranc of
WHEN IS THE insurer
e policy; premiu
RIGHT TO RESCIND an
(2) It is ms;
SUPPOSED TO BE insurer
payable (2) lack of
EXERCISED (SEC has/sho
on the insurabl
48) uld have
death of e
a
The right to the interest;
reasona
rescind must be insured; (3) that the
ble
exercised previous (3) It has cause of
opportu
to the been in death
nity to
commencement of force was
investiga
an action on the during excepted
te the
contract (section the or not
stateme
48). Note the case of lifetime covered
nts
Tan Chay Hing vs. of the by the
which
West Coast Life insured terms of
are
Insurance Co., 51 Phil for at the
made by
80, where an insurer least two policy;
the
interposed the years (4) that the
applican
defense in an action from fraud
t an that
 was of a or proof Concealment also covered
particula of death is the passive and by the rules;
r vicious was not misrepresentation is
type given; the active form of
POLICY
such as: (7) action is the same bad faith;
a. polic not
y brought DEFINE POLICY
was within CONCEALMENT
take time AND It is the
n in specified REPRESENTATION written instrument
furth in the COMPARED in which a contract
eran policy, of insurance is set
ce of which in forth (Section 49.);
a no case 1. In
sche should concealmen
me be less t the HOW IS IT
to than 1 insured CONSTRUED, WHAT
mur year as withholds IF THE INSURED
der per information DOES NOT
the section of material UNDERSTAND THE
insur 63; facts, while CONTENTS OF THE
ed; in POLICY?
b. wher representati Generally in
WHAT ARE THE on the
e the favor of the insured
EFFECTS OF insured
insur and against the
INCONTESTABILIT makes
ed insurer. The burden
Y? erroneous
subs of proving that the
titut The insurer statements; terms of the policy
ed can no longer escape 2. In have been explained
anot liability, tender the concealmen is upon the party
her policy or be allowed t and seeking to enforce it.
for to prove that the misrepresen The claim of the
the policy is void ab tation both beneficiary that
medi initio or may be give the since the insured
cal rescinded by reason insurer the was illiterate and
exam of concealment or right to spoke Chinese only,
inati misrepresentation rescind the she could not be
on; by the agent of the contract of held guilty of
c. wher insured or the insurance; concealment
e the insured; 3. The because the
bene materiality application and
ficiar of policy was in English
y concealmen (Tang vs. CA, 90
felon t and SCRA 236);
DISTINGUISH
iousl representati
CONCEALMENT
y on are
FROM
kille determined FORM OF THE
REPRESENTATION
d the by the same POLICY
insur Concealment rules;
ed; is the neglect of one 4. Whether the It shall be
(5) violation party to concealmen printed and may
of a communicate to the t or contain blank spaces
conditio other material facts. representati and any word,
n in the The information he on is phrase, clause or
policy gives in compliance intentional mark, sign, symbol,
relating with his duty to or not, the signature, or
to reveal information is injured number necessary to
military representation. party can complete it shall be
or naval Representation rescind; written in the blank
service therefore is the 5. Since spaces (Section 50).
in time communication insurance If there are riders,
of war; required to comply contracts clauses, warranties
(6) the with the prohibition are of or endorsements
necessar against concealment; utmost good purporting to be
y notice faith the part of the contract
insurer is of insurance and
which are pasted or contracts as to the determi The fortuitous event
attached to the existence of facts, ned; should be the
policy is not binding circumstances or (4) The proximate and only
on the insured conditions the property cause of the loss;
unless the truth of which are or life While the
descriptive title of essential to the insured; loss of the cargoes
the same is also validity of the (5) The was admittedly
mentioned and contract; interest caused by the
written on the blank of the typhoon Sisang, a
spaces provided in insured natural disaster,
the policy. Note: if Endorsements are in the ANCO could not
pasted or attached agreements not property escape liability to
to the original policy contained but may insured, respondent SMC.
at the time it was be written or if not the The records clearly
issued the attached to policy to absolute show the failure of
signature of the change or modify a owner; petitioners
insured is not part thereof; (6) The representatives to
necessary to make it risks exercise the
binding. If after the insured extraordinary
original policy is against; degree of diligence
issued, it must be WHAT MUST A (7) The mandated by law. To
counter-signed by POLICY SPECIFY? period be exempted from
the insured unless during responsibility, the
applied for by the A policy which natural disaster
insured; must specify: the should have been
(1) The insuranc the proximate and
No rider,
parties e is to only cause of the
clauses, or
whom continue loss. There must
warranties, or
the (Section have been no
endorsements shall
contract 51); contributory
be attached, printed
is made; negligence on the
or stamped on the
(2) The part of the common
policy unless the FGU INSURANCE
amount carrier. As held in
form of such CORPORATION vs.
to be the case of
application has been CA ( G.R. No.
insured Limpangco Sons v.
approved by the 137775.
except in Yangco Steamship
insurance March 31,
open or Co.:
commissioner; 2005)
running .
policies; Fortuitous event;
Riders are forms (3) The Definition. Caso Carelessness and
attached to the premiu fortuito or force negligence of the
policy when the m, or if majeure (which in insured or his
company finds it the law are identical agents constitute
necessary to alter or premiu insofar as they no defense on the
amend the m is to exempt an obligor part of the insurer.
applicants answer be from liability) by
to any question in determi definition, are One of the purposes
the application; ned at extraordinary events for taking out
the not foreseeable or insurance is to
terminat avoidable, events protect the insured
Clauses are forms ion of that could not be against the
containing the foreseen, or which consequences of his
additional contract, though foreseen, own negligence and
stipulations; a were inevitable. It is that of his agents.
stateme therefore not Thus, it is a basic
nt of the enough that the rule in insurance
Warranties are basis event should not that the carelessness
written and have been foreseen and negligence of
statement/stipulatio rates or anticipated, as is the insured or his
ns inserted on the upon commonly believed agents constitute no
face of the contract which but it must be one defense on the part
or incorporated by the final impossible to of the insurer.
proper words or premiu foresee or to avoid. When the
reference where m is to insureds
the insured be negligence is gross
as to constitute a release the insurer be insurer
willful act, the from liability under cancelle that the
insurer must be the insurance d by risks
exonerated.- The contract. either involved
question now is party and the
whether there is a WHAT ARE COVER upon at extensio
certain degree of NOTES? least 7 n do not
negligence on the day violate
part of the insured It is a written notice to the code;
or his agents that memorandum of the the
will deprive him the most important other
(4) Insuranc
right to recover terms of a party;
e
under the insurance preliminary contract compani
contract. We say of insurance (2) If the es may
there is. However, to intended to give other impose a
what extent such protection pending note is deposit
negligence must go investigation by the not premiu
in order to exonerate insurer of the risk or cancelle m
the insurer from until the insurance d, a equivale
liability must be of the formal policy regular nt to at
evaluated in light of (Section 52). It is policy least
the circumstances also known as must be 25% of
surrounding each binding slip or issued the
case. When evidence receipt or binder; within estimate
show that the
60 days d
insureds negligence EFFECTIVITY OF A from the premiu
or recklessness is so COVER NOTE date of m but in
gross as to be
The issue of no case
sufficient to
effectivity of a cover the less than
constitute a willful
note is 60 days as cover Php500.
act, the insurer must
within such period, a note 00;
be exonerated.
policy shall be includin
issued including in g within
The United States WHEN WILL A
its terms the its terms
Supreme Court has COVER NOTE GIVE
identical assurance the
made a distinction ADEQUATE
found under the identical
between ordinary INSURANCE
cover rate and the insuranc
negligence and gross PROTECTION?
premium therefore. e;
negligence or It gives
negligence It may however, be
extended beyond 60 adequate insurance
amounting to (3) It may
days and with the protection when it is
misconduct and its be
written approval of a preliminary
effect on the extende
the Insurance contract of present
insureds right to d with
Commissioner if he insurance and not a
recover under the the
determines that it mere agreement to
insurance contract. written
does not violate the insure a future time,
According to the approval
Insurance Code; as on acceptance of
Court, while mistake of the
the application or
and negligence of commiss
issuance/delivery of
the master or crew ioner
NOTE THE the policy. (44 CJS
are incident to but may
FOLLOWING RULES 958)
navigation and be
HAVE BEEN dispense Example:
constitute a part of
PROMULGATED BY d with
the perils that the (1) Agent
THE INSURANCE by a
insurer is obliged to issued a
COMMISSIONER: certificat
incur, such provisio
negligence or (1) A cover ion of nal
recklessness must note is the policy
not be of such gross valid for Presiden acknowl
character as to 60 days t, Vice- edging
amount to whether Presiden receipt
misconduct or or not a t or of
wrongful acts; premiu General premiu
otherwise, such m is paid Manager ms and
negligence shall but may of the stating
 that the for the issuance of a issuance of
insuranc cover note while he the cover
IS PAYMENT OF A
e shall was trying to raise note shows
PREMIUM
be funds to pay the that the
PAYMENT FOR THE
effective insurance premium. insurer
COVER NOTE
upon ALAC granted the granted a
NECESSARY TO BE
approval request. Ten days grace period.
PROTECTED
and after he received the WHOSE INTEREST
AGAINST RISK
issuance cover note, Quirico IS INSURED
INSURED AGAINST?
of the had a heart seizure
policy by Cover note and had to be (1) The
the head held to be binding hospitalized. He then insurance
office. despite the absence filed a claim on the proceeds
There is of a premium policy. shall be
no payment for its applied
a. Can
protectio issuance. No exclusively
ALAC validly
n as it is separate premiums to the
deny the
a mere are intended or proper
claim on the
acknowl required to be paid interest of
ground that
edgemen on a cover note the person
the
t of the because they do not in whose
insurance
payment contain particulars name or for
coverage, as
of of the property whose
publicly
premiu insured that would benefit it is
offered, was
ms as serve as the basis made unless
available
the for the otherwise
only to
effectivit computation of specified in
persons 50
y of the premiums such the policy
to 75 years
insuranc being the case no (Section 53).
of age? Why
e is premium can be
or why not?
expressl fixed. The cover Example
(2%)
y notes should not be :
b. Did
provided treated as a separate
ALACs (a) In the
(Lim vs. policy but should be
issuance of a case of
Sunlife, integrated in the
cover note Del Val
41 Phil regular policy
result in the vs. Del
265); subsequently issued
perfection of Val, 29
(2) In life so that premiums on
an insurance Phil
insuranc the regular policy
contract 534,
e, a should include that
between the
binding for the cover note
Quirico and designa
slip does (Pacific Timber vs.
ALAC? tion of a
not CA, 112 SCRA 199);
Explain. sister as
insure 2009 BAR EXAM (3%)
by itself a sole
(IV) benefici
as it was
Antarctica Answer: ary in
stated
that it Life Assurance a. no. life
was Corporation (ALAC) there was no insuran
subject publicly offered a concealment ce
to the specially designed on the part cannot
approval insurance policy of quirico as be
of the covering persons to his age. defeate
insurer between the ages of d by the
b. yes,
and the 50 to 75 who may be content
one of the
same afflicted with serious ion of
exception of
was and debilitating the
the cash and
subsequ illnesses. Quirico plaintiff
carry rule is
ently applied for that the
in life
disappro insurance coverage, proceed
insurance
ved stating that he was s
when the
(Grepalif already 80 years old. belong
grace period
e vs. CA, Nonetheless, ALAC to the
applies. in
89 SCRA approved his estate
the case at
546); application.Quirico of the
bar, the
then requested ALAC insured
 was court Example: In case legally liable
disrega ruled of Coquia vs. to pay in
rded as that Fieldmens respect to the
insuran H.S. Insurance death or
ce is to Reyes is Co. 26 SCRA bodily injury
be the one 179, the to any person.
governe entitled insurance A jeepney
d by to the company covered by
special proceed undertook to the insurance
law, not s indemnify any had bumped
by the because authorized Guingon and
law a policy driver who had caused
coverin of was driving his death. The
g insuran the motor insurance was
donatio ce is a vehicle held to be one
ns or separat insured. for indemnity
successi e and Coquia, while for liability to
on; indepen driving the third persons
dent insured motor (Third Party
contrac vehicle met Liability),
(b) In the
t an accident and therefore,
case of
betwee and died. His such third
Bonifac
n the heirs were person is
io Bros.
insured allowed to sue entitled to sue
vs.
and the the insurer, the insurer.
Mara,
insurer, the policy The test to
G.R. No.
and being determine
20853,
that considered in whether a 3rd
29 May
third the nature of person may
1967,
persons a contract directly sue
action
have no pour autrui the insurer
to
right to and therefore of the
recover
the the wrongdoer
cost of
proceed enforcement is: if the
repairs
s of the thereof may contract
and
insuran be demanded provides
labor to
ce. by a 3rd party indemnity
a motor
whose benefit against
vehicle
it was made; liability to 3RD
where MAY A 3RD PERSON
persons, then
the SUE THE INSURER
the latter to
policy No, in general rule
(b) The whom the
states unless there is
insurance insured is
loss is stipulation. Unless
contract liable may
payable otherwise specified
provides for directly sue
to H.S. in the policy, a 3RD
indemnity the insurer, on
Reyes, person may sue if:
against the other
the
(a) The liability to hand, if the
mortga
insurance 3RD persons. insurance if
gee of
contract for the
the
contain indemnity
vehicle Example: In the
stipulation against actual
who case of
in favor of a loss or
had no Guingon vs.
3RD person, payment
knowle Del Monte,
the latter then the 3rd
dge of 20 SCRA
though not a person cannot
the fact 1043, the
party may sue the
that insured
sue to insurer
Mara procured
enforce recourse is
had it insurance that
before the against the
repaire would
contract is insured alone.
d with indemnify
revoked by
Bonifaci him against
the parties;
o Bros., any and all
(2) If the
where sums, which
contract
the he may be
 is policy him can s it until
executed should claim the the same
with an be such benefit person
agent or as are of the becomes
trustee applicabl policy the
as the e to the (Section owner of
insured, joint or 56). both the
the fact common policy
that his interest and the
(5) When a
principal so that it thing
policy is
or may be insured
so
beneficia applicabl (Section
framed
ry is the e to the 58).
that it
real interest Note the
will
party in of his co- exceptio
inure to
interest partners ns to this
the
may be /owners rule as
benefit
indicate (Section found in
of
d by 55). sections
whomso
describi Consequ 20-24
ever,
ng the ently, the and 57;
during
insured policy
the
as the must
continua WHAT ARE KINDS
agent/tr state
nce of OF INSURANCE
ustee or that the
the risk POLICIES
by interest
may
general of all is The kinds of
become
words in insured, policies are (1)
the
the if not, it Open, (2) Valued, or
owner of
policy is only (3) Running (Section
the
(Section the 59);
interest
54). If interest
insured
not of the
(Section
indicate one An Open
57). The
d, it is as getting Policy is
proceeds
if the the one in
become
insuranc policy which the
payable
e is the that is value of
to who
taken insured; the thing
may be
out by insured is
the
the not
(4) When owner at
agent/tr agreed
the the time
ustee upon, but
descripti the loss
alone, is left to
on of the or injury
consequ be
insured occurs.
ently the ascertain
in the This is
principal ed in case
policy is an
has no of loss
so exceptio
right (Section
general n to
against 60). What
that it section
the is
may 20.
insurer; mentione
compreh
d, as the
end any
(6) The amount is
(3) If a person
mere not the
partner or any
transfer value of
or part class of
of a the
owner persons,
thing property
effects only he
insured but
insuranc who can
does not merely
e, it is show
transfer the
necessar that it
the maximum
y that was
policy limit of
the intended
but the
terms of to
suspend insurers
the include
liability.
 In case of may be insuranc
loss, the from time e is a
(1) In a
insurer to time contract
valued
only pays defined of
policy,
the actual especially indemnit
proof of
cash as to the y as long
value of
value at subjects as the
the
the time of valuatio
thing
of loss; insurance n is
after the
, by reasona
loss is
additiona ble and
A Valued not
l is
Policy is necessa
statement bonafide
one, ry. In an
s or ).
which open
indorsem
expresses policy,
ents
on its face the
(Section OPEN AND
that the insured
62). This VALUED
thing must
is also POLICIES
insured prove
known as
shall be the
a PROBLEM
valued at value of
Floating
a the
Policy Suppose A
specified thing
usually constructed a
sum insured;
issued to house in 1990
(Section (2) In a
provide at a cost of P
61). The valued
indemnit 200,000.00
valuation policy,
y for which he
of the the
property, insured
property parties
which against fire to
insured is have
cannot be the said
conclusiv conclusi
covered amount. The
e vely
by policy for P
between stipulat
specific 200,000.00
the ed that
insurance was renewed
parties. In the
because every year. In
the propert
of a 1995, when
absence y
frequent the said house
of fraud insured
change in was already P
or is
location 400,000.00,
mistake, valued
and of the house
such at a
quantity. was burned or
value will specifie
destroyed by
be paid in d sum.
fire. How
case of a Example: In an
much can he
total loss; Insurance open
recover from
procured policy,
the insurer?
by a retail the
A ANSWER:
establish value is
Running It
ment to not
Policy depends. If the
cover its agreed
(Floating policy is a
inventory but left
Policy) is valued policy,
that to be
one A can recover
fluctuates ascertai
which only P
in ned
contempl 50,000.00. If a
quantity, upon
ates policy is an
or is loss;
successiv open policy, A
located in Note:
e can recover his
several this does
insurance actual loss of P
areas; not
s and 100,000.00.
violate
which
the
provides VALUED POLICY CAN THERE BE
principle
that the DISTINGUISHED AGREEMENTS AS
that a
object of FROM AN OPEN TO PRESCRIPTION
contract
the policy POLICY OF AN ACTION OR
of
LIMITATIONS ON WHAT IS THE action upon (5) Physical
THE PERIOD OF PRESCRIPTIVE filing with changes
TIME TO BRING AN PERIOD OF MOTOR the court; in the
ACTION VEHICLE property
INSURANCE insured
CANCELLATION OF which
One year
Yes, THE POLICY the
from denial of the
provided the period result in
claim not date of
agreed upon should the
accident (Summit If policy
not be less than property
Guaranty vs. De other than life shall
one year (Section being
Guzman, 15 SCRA be cancelled by the
63). If less than one uninsura
389); insurer except upon
year, the agreement ble;
is void. The period prior notice
so agreed shall be thereof to the
WHERE IS THE (6) Determi
considered as having insured. No notice
ACTION FILED nation
commenced from of cancellation
The action shall be effective if by the
the time the cause of
may be filed in the not based on the insuranc
action accrues.
following: occurrence, after e
Usually, the cause of
effective date of commiss
action accrues from (1) Courts;
one or more ioner
the date of the (2) Insuranc
grounds: (Section that
insurers rejection of e
64) continua
the claim of the Commiss tion of
beneficiary or of the ioner, the
insured since who has
(1) Non policy
before rejection concurre
payment would
there is no necessity nt
of place the
to bring suit. When jurisdicti
premiu insurer
no period is on with
m; in
stipulated or if the courts violation
stipulation is void, for of the
the period is within claims (2) Convicti code:
10 years under not on of a
article 1144, New exceedin crime
Civil Code, it being a g arising FORM OF NOTICE
written contract Php100, out of OF CANCELLATION
(Eagle Star vs. Chia 000.00; acts
Yu 96 Phil 696, (3) POEA/D increasin
ACCFA vs. Alpha g the It must be in
OLE
Insurance, 24 SCRA hazard writing, mailed or
have the
151). If the insured insured delivered to the
power to
asks for a against name insured at the
compel a
reconsideration of address shown in
surety to
the denial, the the policy which
make (3) Discover
period is still shall state:
good on y of
counted from the a (1) The
time the claim is material
solidary represen grounds
denied at the first undertak relied
instance not tation;
ing in upon as
reconsideration - the same per
as it gives the proceedi (4) Discover section
insured a scheme or ng y of 64, and;
devise to waste time where willful or (2) That
until evidence that the reckless upon
may be considered liability acts or written
against him can be of the omission request
destroyed (Sun Life principal s of the
Office Ltd. Vs. CAR, obligor increasin named
195 SCRA 193). The is g the insured,
period does not run determi hazard the
if action is brought ned. insured insurer
against an agent of Note that the against; will
the insurer; claim furnish
becomes the facts
 on which sent and life, the named essential is what the
cancellat received insured, may renew parties intend a
ion is by the the policy upon statement to be and
based insured payment of the if so intended as a
(Section (Malaya premium due on the warranty it must be
65). n vs. effective date of the included as part of
Arnaldo, renewal, if, he has the contract;
156 not been given
Notes: Note:
SCRA notice by the
(1) A fire 762); insurer of the (1) Whe
insuranc (2) A intention not to ther
e policy insured renew or to a
is his condition renewal warr
cancelle building upon reduction of anty
d on against limits or is
October fire and elimination of cons
15, made coverages by mail titut
1981. the loss or delivery at least ed or
The payable forty five days in not
insurers to advance of the end depe
clerk mortgag of the policy; nds
allegedly ee. Upon upon
got cancellat the
notice of ion WARRANTIES inten
cancellat notice tion
ion by was sent of
mail but to the Defined the
there mortgag - It is a parti
was no ee. Held: statement es,
proof There or promise the
that it was no stated in the natu
was valid policy or re of
actually notice of incorporate the
mailed cancellat d therein by contr
and ion. The reference, act,
received. notice is whereby the or
Insurer personal insured the
relies on to the expressly or word
the insured impliedly s
presump and not (Section 67) used
tion of to any contracts as there
regularit unautho to the past, to;
y. Held: rized present or (2) In
Consider person future case
ing the (Saura (Section 68) of
strict Import existence of doub
language Export certain facts, t, the
of the vs. conditions state
law that Philippin or ment
no policy e circumstanc is
can be Internati es the pres
cancelle onal literal truth ume
d Surety of which is d to
without Co., Inc., essential to be a
prior 8 SCRA the validity repr
notice 143); of the esen
it contract; tatio
behoove n not
IS THE INSURED
d on the a
HAVE THE RIGHT FORM
insurer warr
TO RENEW HIS
to make No particular anty;
POLCY
sure that form of words is
cancellat necessary to create a WHAT ARE THE
ion was warranty (Section
Yes, in KINDS OF
actually 69). What is
insurance other than WARRANTIES
(1) Affirmat contrary should insuranc
ive intention be e
those appears, containe contract,
that the d (a) in a
relate to courts the warrant
matters will policy y is
that presume itself (b) necessar
exist at that the in ily
or warranty another inferred
before is merely instrume or
the an nt signed understo
issuance affirmati by the od. Note
of the ve insured that the
policy; warranty. and law only
(2) Promiss referred provides
ory to in the for
those (3) Express policy as implied
where a making a warranti
the stateme part of it es in
insured nt in a (Section contract
promise policy of 70). This s of
s or a matter includes marine
undertak relating a rider insuranc
es that to the it is a e. See
certain person part of section
matters or thing the 113
shall insured policy, it (seawort
exist or or to the need not hiness)
will be risk as a be signed and 126
done or fact unless (deviatio
will be (Section the rider n);
omitted 71) and was
after the where issued EFFECT OF
policy the after the VIOLATION OF A
takes assertio original WARRANTY
effect. It n or policy
is a promise took
stateme is clearly effect; The violation
nt in the set forth of a material
policy, in the warranty, or other
which policy or (4) Implied material provision of
imparts incorpor where the policy, on the
that it is ated the part of either party
intended therein assertio thereto, entitles the
to do or by n or other to rescind
not to do referenc promise (Section 74) Note
a thing e. They is not that the insured can
which can be expressl exercise the right
materiall affirmati y set also when the
y affects ve or forth in insurer violates a
the risk, promiss the warranty, like when
is a ory policy it refuses to grant a
warrant warranti but loan on the policy.
y that es; because But as far as the
such act of the insured, Note also
or general that:
An
omission tenor of
express (1) While a
shall the
warrant policy
take terms of
y made may
place the
at or declare
(Section policy or
before that a
72); from the
the violation
Note that very
executio of a
unless nature of
n of the specified
the the
policy provisio
 ns attachin Example: A expressly set forth -A
thereof g to the insured building in the policy or my
shall risk against fire. A incorporated wri
avoid it, (Section warranty stated that therein by sta
otherwi 76). no hazardous goods reference;
se the Meanin should be stored. A
breach g that stored fireworks.
of an if the The building was - Rep
immater breach is burned and the - A warranty must mu
ial without fireworks were strictly and sub
provisio fraud discovered stored in literally
n does the the area not affected performed;
- A
not policy is by the fire. The
mu
avoid the avoided insurer was not held
- A warranty is be
policy only liable as the storage
presumed
(Section from the had increased the
material;
75). time of risk (Young vs. - (mi
Meanin the Midland Textiles is
g breach it Ins. 30 Phil 617); - A breach of res
ordinari is still warranty is a con
ly a effective. breach of the
breach Consequ THE NON contract itself
of an ently, the PERFORMANCE OF
immate insured A PROMISSORY
rial is WARRANTY DOES
provisio entitled NOT AVOID THE PREMIUM
n does to a pro- POLICY WHEN
not rate BEFORE THE
avoid a return of ARRIVAL OF THE DEFINED
policy, the TIME FOR The agreed
however, premiu PERFORMANCE price for assuming
if m paid (Section 73) and carrying the
stipulate under risk;
d that section
any 79 (b) or (1) The loss
breach all insured WHEN IS THE
avoids premiu against INSURER
the ms, if the happens; ENTITLED TO A
policy, breach PREMIUM?
the occurs at (2) The
policy is the The insurer
perform is entitled to the
avoided; inceptio ance
(2) A breach n of the payment of a
becomes premium as soon as
of a contract, unlawful
warrant as such the thing insured is
at the exposed to the peril
y is void place of
without ab initio insured against.
the Notwithstanding any
fraud, and had contract;
merely never agreement to the
(3) The contrary, no policy
exonerat become perform
es an binding; or contract of
ance insurance issued by
insurer becomes
from the an insurance
Note that a causal impossib company is valid and
time it le;
connection between binding unless and
occurs,
the violation of the until the premium is
or where
warranty is not DISTINGUISHING paid except in:
it is
necessary So, even IT FROM
broken (1) In case
if the violation did REPRESENTATIONS
at its of life or
act contribute in the
inceptio industria
loss the other
n, l life (life
party may still WARRANTY REPRESENTATION
prevents insuranc
rescind.
the - A warranty is part - e policy
policy of the contract; where
from - A warranty is the
 premiu premiu TELEMART,
m is m is APRIL 24, 2001
EXCEPTIONS
payable that it is Ruling
TO SECTION
monthly conclusi . It was
77:
or ve established
oftener) evidence that UCPB had
UCPB GENERAL
wheneve of been issuing
INSURANCE CO.,
r the payment fire policies to
INC. vs.MASAGANA
grace so far Masagana and
TELAMART, INC.
period as to these policies
(G.R. No. 137172
applies make the were annually
April 4, 2001)
(Section policy renewed.
77); binding. UCPB had been
(2) When Howeve 1. In case of life or granting
the r, it is industrial life Masagana a 60
insurer conclusi insurance, to 90-day
makes a ve only when the grace credit term
written to make periods applies; within which
acknowl the (Sec. 77) to pay the
edgemen policy 2. When the premium on
t of the binding insurer makes a the renewed
receipt and not written policies. There
of for the acknowledgme was no valid
premiu purpose nt of the receipt notice of non-
m, such of premium; (Sec. renewal of the
is collectin 78) policies. The
conclusi g 3. Section 77 may premium were
ve premiu not apply if the paid within the
evidence m, and; parties have 60 to 90 day
of the (3) Where agreed to the credit term
payment the payment of the and duly
of the obligee premium in accepted by
premiu has installments UCPB. It would
m to accepted and partial be unjust and
make it the bond payment has inequitable if
binding or been made at Masagana
notwiths suretysh the time of the cannot recover
tanding ip loss. (Makati on the policies.
any contract Tuscany UCPB is
stipulati in which Condominium estopped from
on case Corp. v. CA, 215 taking refuge
therein such SCRA 462) under Section
that it bond or 4. If the insurer 77 since
shall not suretysh granted the Masagana had
be ip insured a credit relied in good
binding contract term for the faith on such
until the becomes payment of the practice.
premiu valid and premium and
m is paid enforcea loss occurs
(Section ble before the AMERICAN
78) irrespect expiration of HOME
HENCE, ive of the term, ASSURANCE
the whether recovery should CO. VS.
effect of or not be allowed even ANTONIO
an the the premium is CHUA, JUNE
acknowl premiu paid after the 28,
edgeme m has loss but within 1999
nt in a been the credit term.
policy or paid by 5. Where the SC
contract the parties are RULING:
of obligor barred by
insuranc to the estoppel. SC
e of the surety sustained/affir
receipt (Section UCPB GENERAL med the
of the 177); INSURANCE CO. decision of the
VS. MASAGANA
RTC and CA Insurance In the case at bar, the issued. Hence, the
because there Corporation. The following conditions non-fulfillment of
was a valid perfection of the were imposed by the the condition
check payment contract of insurance respondent resulted in the non-
by Chua to the between the company for the perfection of the
insurer. The deceased and perfection of the contract.
renewal respondent contract of No contract of
certificate corporation was insurance: insurance, unless
issued to Chua further conditioned (a) a policy unless the minds of
contained the upon compliance must have the parties have
acknowledgme with the following been issued; met in agreement.-
nt that requisites stated in A contract of
premium has the application form: (b) the
premiums insurance, like all
been paid. there shall other contracts,
paid; and
VIRGINIA A. PEREZ be no must be assented to
vs. CA (G.R. No. contract of (c) the policy by both parties,
112329 January insurance must have either in person or
28, 2000) unless and been through their agents
until a policy delivered to and so long as an
Only when the and accepted
applicant pays the is issued on application for
this by the insurance has not
premium and applicant
receives and application been either accepted
and that the while he is in or rejected, it is
accepts the policy good health.
while he is in good said policy merely a proposal or
health that the shall not take The condition an offer to make a
contract of effect until imposed by the contract. The
insurance is the premium corporation that the contract, to be
deemed to have has been policy must have binding from the
been perfected. paid and the been delivered to date of application,
-Insurance is a policy and accepted by the must have been a
contract whereby, delivered to applicant while he is completed contract,
for a stipulated and accepted in good health can one that leaves
consideration, one by me/us in hardly be considered nothing to be done,
party undertakes to person while as a potestative or nothing to be
compensate the I/We, facultative condition. completed, nothing
other for loss on a am/are in On the contrary, the to be passed upon,
specified subject by good health.9 health of the or determined,
specified perils.7 A The assent of private applicant at the time before it shall take
contract, on the respondent BF of the delivery of the effect. There can be
other hand, is a Lifeman Insurance policy is beyond the no contract of
meeting of the Corporation control or will of the insurance unless the
minds between two therefore was not insurance company. minds of the parties
persons whereby given when it merely Rather, the condition have met in
one binds himself, received the is a suspensive one agreement.
with respect to the application form and whereby the Delay in acting on
other to give all the requisite acquisition of rights the application not
something or to supporting papers of depends upon the unreasonable so as
render some the applicant. Its happening of an to constitute gross
service.8Under assent was given event which negligence for
Article 1318 of the when it issues a constitutes the which the
Civil Code, corresponding condition. In this insurance
policy to the case, the suspensive corporation may be
When Primitivo filed condition was the
an application for applicant. Under the penalized. -
abovementioned policy must have Respondent
insurance, paid been delivered and
P2,075.00 and provision, it is only corporation cannot
when the applicant accepted by the be held liable for
submitted the applicant while he is
results of his pays the premium gross negligence. It
and receives and in good health. should be noted that
medical There was non-
examination, his accepts the policy an application is a
while he is in good fulfillment of the mere offer which
application was condition, however,
subject to the health that the requires the overt
contract of insurance inasmuch as the act of the insurer for
acceptance of applicant was
private respondent is deemed to have it to ripen into a
been perfected. already dead at the contract. Delay in
BF Lifeman time the policy was acting on the
application does not payment by The insured o
constitute installment has been is entitled to a li
acceptance even agreed upon or is return when: c
though the insured the established y
has forwarded his practice the basic i
first premium with principles of equity (1) To the s
his application. The and fairness would whole n
corporation may not not allow the insurer premiu o
be penalized for the to collect and accept m, when t
delay in the installments and no part s
processing of the later deny liability as of the o
application papers. premiums were not interest d
Moreover, while it paid in full. (See in the e
may have taken Philippine Phoenix thing fi
some time for the Surety and Ins. vs. insured n
application papers Woodworks 20 is it
to reach the main SCRA 1270, Makati exposed e
office, in the case at Tuscany to any of ;
bar, the same was Condominium the (b) a
acted upon less than Corporation vs. CA, - perils s
a week after it was payment by insured h
received. The installment was against o
processing of agreed upon, note (Section r
applications by also Tibay vs. CA 79 A); t
respondent 257 SCRA 126 any p
corporation partial payment (2) Where e
normally takes two when there is an the r
to three weeks, the agreement that the insuranc i
longest being a policy shall not be e is o
month.12 In this case, effective pending made for d
however, the payment of full a r
requisite medical premium was in the definite a
examination was concept of deposit.) period of t
undergone by the time and e
deceased on the (
November 1, 1987; PAYMENT TO i
insured
the application INSURANCE AGENT n
surrende
papers were OR BROKER is s
rs his
forwarded to the payment to the u
policy
head office on insurance company; r
before
November 27, 1987; the a
and the policy was expiratio n
issued on December WILL PAYMENT BY c
n of the
2, 1987. Under these PROMISORY NOTE e
period,
circumstances, we OR CHECK BE i
here the
hold that the delay SUFFICIENT TO s
insured
could not be deemed MAKE THE POLICY f
only
unreasonable so as BINDING? o
recovers
to constitute gross No, art. 1249 a portion r
negligence. 2 paragraph of the
ND
of the a
Civil Code, that such policy p
produces payment premiu e
WHAT IS THE r
only when it is ms
EFFECT OF i
ENCASHED; correspo
PARTIAL o
nding
PAYMENT? d
with the
Ordinarily, WHEN IS THE unexpire o
the obligation to pay INSURED d time f
premium when due ENTITLED TO A but it l
is considered an RETURN OF THE does not e
indivisible PREMIUMS PAID? apply if: s
obligation. Hence, (a) t s
forfeiture is not 2000 BAR EXAM h t
prevented by a part (IX a) e h
payment unless, p a
n o e u
a li e r
y c d r
e y u e
a i p n
r s o d
a i n e
n n ; r
d f (c) t v
a o h a
r r e l
a c p u
t e o e
e f li ;
h o c
a r y
(3) When
s a i
the
b m s
contract
e o a
is
e n li
voidable
n t f
on
a h e
account
g t i
of fraud
r h n
or
e e s
misrepre
e i u
sentatio
d n r
n of the
t s a
insurer
o u n
or the
if r c
agent
t e e
(Section
h r p
81);
e r o
p e li
o t c (4) Where
li a y the
c i contract
y n it is
i s i voidable
s 2 s on
s 0 i account
u % n of facts,
r d the
r o i existenc
e f v e of
n t i which
d h s the
e e i insured
r p b was
e r l ignorant
d e e without
; m b his fault
E i u (Section
x u t 81);
a m h
m ) e
h (5) When by
p h any
l a a
s default
e s of the
: b a
e insured
If c other
t e a
n than
h s actual
e a h
g fraud,
p s the
r
 insurer Unless THE THING a loss, if in
never otherwise stated, INSURED? the course if
incurred they shall be such rescue,
any returned to the 1. Loss of the thing is
liability insured who paid which a peril exposed to
under them; insured is peril not
the the insured
policy; proximate against,
(Section WHEN ARE THEY cause. which
81); NOT RECOVERABLE Although a permanently
Premiums peril not deprives the
cannot be recovered: contemplate insured of its
(6) In case
d by the possession in
of over (1) If the contract may whole or in
insuranc peril have been a part, or
e. Here insured remote cause where a loss
the against but the is caused by
insuranc has insurer is not efforts to
e is in existed, liable for a rescue the
excess of and the loss of which thing insured
the insurer the peril from a peril
amount has been insured insured
of the liable for against was against
insurabl any only a (Section 85).
e period, remote Here the
interest the cause. principle of
of the period (Section 84) proximate
insured being cause is
and it is entire Proximate cause- extended to
insured and that which in natural loss incurred
by indivisib and continuous while saving
several le sequence, unbroken the thing
insurers, (Section by any efficient insured.
the 80); intervening cause,
insured
produces an injury Exam
is
(2) In life and without which ples:
entitled
insuranc the injury would not (a)
to a
e have occurred) Whe
RATABL
(Section n the
E
79-b) Example: In life thing
RETURN
cash insurance that insur
OF
surrende covers death by ed is
PREMIU
r value; accident, if the wate
M,
(3) When insured sustains an r
proporti
the accident that dama
onal to
insured renders him weak, ged
the
is guilty while in said state, due
amount
of fraud he contracts a cold to
by which
or that develops into effort
the
misrepre pneumonia. The s to
aggregat
sentatio proximate cause is put
e sum
n the accident, while out a
insured
(Section the remote cause is fire,
in all the
81); the pneumonia, the the
policies
insurer is liable; fire
exceeds
being
the LOSS AND NOT 2. Loss caused
a
insurabl ICE OF LOSS by efforts to
peril
e value; rescue the
insur
WHAT ARE THE thing insured
ed
RULES TO from a peril
again
DETERMINE insured
WHOM ARE THE st
WHETHER THE against that
PREMIUMS INSURER IS LIABLE would
RETURNED (b)
FOR THE LOSS OF otherwise
Theft
have caused
by s out, immediate the insurance
3RD while cause and company agreed to
perso remo the give a 15-day credit
ns ving proximate within which to pay
while the cause are not the insurance
the conte excepted. If premium. Upon
good nts, the delivery of the
s are they proximate policy on May 15,
brou were cause is 2006, Alfredo
ght stole excepted and issued a postdated
out n or the check payable on
in the they immediate May 30, 2006. On
cours were cause is not, May 28, 2006, a fire
e of brok the insurer is broke out and
rescu en or not liable. destroyed the
ing dama building owned by
them ged, 4. An insurer is Alfredo.Reason
from theft not liable for briefly in (a), (b)
a fire, or loss caused and (c).
whic break by the willful
h is age act or
the not through the a. May
peril being convenience Alfredo recover on
insur perils of the the insurance
ed insur insured; but policy?
again ed he is not Yes, Alfredo can
st again exonerated recover on the
BUT st; by the insurance policy.
no negligence of Although Section 77
loss 3. Where a the insured, of the Insurance
if the peril is or of the Code provides that
good especially insureds in fire insurance,
s are excepted in a agent or payment of premium
left contract of others is necessary for
out insurance a (Section 87). validity of the policy
and loss, which Consequently (also known as cash
are would not , if the and carry
lost have insured was provision),
it is occurred but merely nonetheless, the rule
now for such negligent, has been modified
due peril, is the insurer is by the decisions of
to thereby still liable as the Supreme Court
lack excepted one of the after the
of although the principal promulgation of the
reaso immediate reasons of Insurance Code.
nable cause of the procuring Thus, in UCPB
care loss was a insurance is General Insurance v.
and peril which to protect Masagana Telemart,
vigila was not himself G.R. No. 137172,
nce; excepted against the April 4, 2001, it was
(Section 86). consequence held that the insured
(C) A The s of his own should be allowed to
insur immediate negligence or recover on losses
es cause is the that of his sustained even when
the CAUSE OR agents. premium was paid
conte CONDITION after the fact of loss,
nts of NEAREST 2007 BAR EXAM provided payment
his THE TIME (IV) was received by the
hous AND PLACE insurer during the
e OF THE Alfredo credit period given
again INJURY. took out a policy to to the insured. (See
st Here, the insure also South Sea
fire. insurer will his commercial Surety v. Court of
A fire be liable if building against Appeals, G.R. No.
break both the fire. The broker for 102253, June 2,
1995; American act. (Section 87, prove the fulfillment loss) the
Home Assurance v. Insurance Code of of the condition. If it claim will be
Chua, G.R. No. the Philippines) fails to do so, no outside the
130421, June 28, right of action scope of the
1999) where the ADMISSION OF against the carrier policy;
Supreme Court ruled PRIVATE can accrue in favor
that is the check DOCUMENTS AS of the former. The (d) But if the
payment for EVIDENCE Before aforementioned results of the
premium was a private document requirement is a operation of
received by the is admitted in reasonable condition the insured
insurer prior to the evidence, it must be precedent; it does peril can be
loss or within the authenticated either not constitute a clearly
credit period, the by the person who limitation of action. separated
insured was allowed executed it, the (Philippine Charter from the
to recover. person before whom Insurance Corp. v. effects of the
its execution was Chemoil Lighterage excepted
b. Would your acknowledged, any Corp., Jun. 29, 2005 peril, the
answer in (a) be person who was G.R. No. 136888) insurer is
the same if it was present and saw liable;
found that the executed, or who RECOGNIZING THAT
proximate cause of after its execution, THERE ARE (e) Where a
the fire was an saw it and PROBLEMS IN number of
explosion and that recognized the DETERMINING causes
fire was but the signatures, or the PROXIMATE CAUSE operate one
immediate cause of person to whom the NOTE THE from the
loss and there is no parties to the FOLLOWING RULES: other, the
excepted peril instruments had original
under the policy? previously confessed (a) If there is a cause
Yes, recovering execution thereof. single cause happens to
under an insurance (sec.20 Rule 132 which is an be a peril,
contract is allowed if ROC as cited in insured the insurer
the cause of the loss Malayan Insurance peril, clearly is liable.
was either the Co., Inc. V. Philippine it is the
proximate or the Nails and Wires proximate
immediate cause as Corporation, Apr.10, cause and TRANSFER OF
long as an expected 2002 G.R. No. there is CLAIMS
peril was not the 138084) liability; An
proximate cause of agreement not to
the loss. (Section 86, transfer the claim of
Insurance Code of the insured after the
(b) If there are
the Philippines.) The ISSUANCE OF CLAIM loss happens is
concurrent
fire being the FOR LOSS; FILING VOID if MADE
causes
immediate cause for OF CLAIM WITHIN BEFORE THE LOSS
(those
the loss of THE PERIOD A except as otherwise
happening
the commercial CONDITION provided in case of
together)
building, would PRECEDENT The life insurance
with no
warrant recovery issuance of claim for (Section 33).
excluded
under the policy. loss or damages to This means
perils, there
cargo should be filed that the insured has
if liability if
c. If the fire was within 24 hours an absolute right to
one of the
found to have been from the time the transfer his claim
causes is an
caused by Alfredo's goods were received. against the insurer
insured
own negligence, The filing of a claim AFTER THE LOSS
peril, the
can he still recover with the carrier occurs, what is
others may
on the policy? within the time prohibited is a
be ignored;
Yes, he can still limitation therefore transfer prior to the
recover. The actually constitutes a loss.
(c) If there are
doctrine of condition precedent This is so
concurrent
contributory to the accrual of a because such
causes with
negligence does not right of action stipulation after the
an excepted
in any way apply to against a carrier for loss occurs shall
peril
rights under a loss of, or damage to, hinder the
(insured
contract of the goods. The transmission of
peril operate
insurance, unless it shipper or consignee property. Neither
together to
is a case of willful must allege and does it affect the
produce the
insurer as its liability PROOF OF LOSS WHEN IS DELAY IN SUBSEQUENT TO
is already fixed and If the policy THE GIVING OF GIVING OF NOTICE
what is actually requires Preliminary NOTICE OF LOSS
assigned is the Proof of Loss WAIVED
money claim, not the (evidence given the In property
contract itself. insurer of the 1. If it is caused insurance, after the
The exception in occurrence of the by any act of insured has received
section 173 that loss, its particulars, the insurer. payment from the
provides that the and data necessary insurer of the loss
transfer of a fire to enable it to 2. If the insurer covered by the
insurance policy to determine liability omits to policy, the insurance
any person or and the amount make an company is
company who acts thereof) IT IS NOT objection SUBROGATED to the
as an agent for or NECESSARY that the promptly rights of the insured
otherwise insured give such and against the
represents the proof AS MAY OR specifically wrongdoer or the
issuing company is WOULD BE on that person who has
prohibited and is NECESSARY IN A ground. violated the
void insofar as it COURT OF JUSTICE despite contract. The right of
affects other WHAT IS delay, the subrogation accrues
creditors of the SUFFICIENT is the insurer does upon payment of the
insured; BEST EVIDENCE not object insurance claim.
which he has in his (Section 91);
power at that time NOTE: Subrogation
NOTICE AND (Section 89) takes effect by
PROOF OF REQUIREMENT OF
operation of law and
LOSS CERTIFICATION OR
does not require the
Notice of loss consent of the wrong
WHEN ARE TESTIMONY OF A
DEFECTS IN THE doer (Firemans Fire
must be given THIRD PERSON
NOTICE OR PROOF Insurance vs. Jamilla
LOSS DEEMED & Company, 70 SCRA
without unnecessary In the giving 323).
WAIVED BY THE of preliminary proof
delay by the insured INSURER of loss, a THERE IS NO
certification or SUBROGATION IN:
or some person 1. When the testimony of a third
insurer fails person other than (a) Life
entitled to the to specify to the insured is insurance as
the insured required, it is it is not a
benefit of the any defect sufficient for the contract of
which the insured to use indemnity
insurance. IF NOT insured can REASONABLE (b) When
remedy DILIGENCE to proximate
THEN, the insurer is without procure it. In case of cause of the
delay; REFUSAL to give it, loss is the
exonerated (Section the insured can insured
2. When the furnish himself
88). insurer REASONABLE (c) When the
denies EVIDENCE to the insurer pays
liability on a insurer that such to the
WITHOUT ground other insured a
refusal WAS NOT
UNNECESSARY than that loss not
INDUCED BY ANY
DELAY is within a defect in the covered by
JUST GROUNDS OF
reasonable time, notice or the policy;
DISBELIEF in the
depending on proof of loss; The
facts necessary to be
circumstances of a insured
certified or testified
peculiar case, Example: is no
ONCE SHOWN or
although courts have Denial is longer to
GIVEN the
construed the based on collect
requirement may be
requirement nullity of the from the
dispensed with
liberally in favor of contract wrongdo
(Section 92).
the insured. (Section 90) er if the
WHAT HAPPENS amount
AFTER PAYMENT BY that he
THE INSURER received
 from the by same will the claim
insurer several ; prosper?
has fully insurers 5. Risk Explain.
compens separatel of (2%)
ated for y in peril
the loss; respect insur Answer:
to the ed A. Taking out
SUBROGATION same again insurance
(ART. 2207, NEW subject st is covering the
CIVIL CODE) or the same
PHILIPPINE interest same property,
AMERICAN GEN. (Section ; same
INSURANCE CO. VS. 91). There is insurable
CA & FELMAN prohibiti interest and
SHIPPING LINES, 2005 BAR EXAM on TO same risk
JUNE (N0. X 2 -b) PREVEN with three
11,1997. T OVER- insurance
Q: What is the INSURAN companies is
SC RULING: nature of the liability CE, thus double
of the several preventi insurance
It ordered insurers in double ng fraud. recognized
Felman to pay insurance? Explain. under sec 93
Phialamgen P 755, (2%) of ICP.
250.00 plus interest - However, in
pursuant to Art. A: In double 2008 BAR EXAM American
2207 0f the Civil insurance, the Home
Code which insurers considered Terrazas de Assurance
provides: as co-insurers. Each Patio Verde, a Corp vs.
one is bound to condominium Chua June
Art. 2207. If contribute ratably to building, has a value 28, 1999, the
the plaintiffs the loss in of P50 Million. The court
property has proportion to the owner insured the referred to
been insured, amount for which he building against fire the common
and he has is liable under his with three (3) inclusion of
received contract. (Section insurance the other
indemnity 94(e), Insurance companies for the insurance
from the Code. following clause in the
insurance amounts:Northern fire
company for REQUISITES OF insurance
Insurance Corp.
the injury or DOUBLE policies
20M,Sounthern
loss arising out INSURAN requiring
Insurance Corp.30M,
of the wrong CE disclosure of
Eastern Insurance
or breach of 1. Same co-insurance
Corp.50M.
contract, the perso of the same
insurance n is property
insur a. Is the
company shall owner's with other
be subrogated ed; insurers.
2. Ther taking of
to the right of insurance for
e are Answer:
the insured the building
sever B Insured
against the with three
al can recover
wrongdoer or (3) insurers
insur from Eastern
the person valid?
ers; Inssurance
who violated Discuss.
3. Subje Corp up to
the contract. (3%)
ct the extent of
insur b. The his loss.
ed is building was However,
DOUBLE
the totally razed Eastern may
INSURANCE
same by fire. If the refuse to pay
; owner if the policy
When does double decides to contains an
insurance exist? 4. Inter
est claim from other
- Where Eastern insurance
the same insur
ed is Insurance clause
person is Corp. only stipulating
insured the
P50 Million, that non-
disclosure of EFFECTS OF OVER- 4. Where the limited to its
double INSURANCE BY insured ratable
insurance DOUBLE receives any proportion
will avoid INSURANCE sum in of the loss or
the policy. 1. Insured, excess of the damage
( Geagonia v. unless the valuation in (Also known
Country policy case of a as
Bankers otherwise valued policy CONTRIBUT
Insurance )6 provide, may or the ION
February, claim insurable CLAUSE)
1995. As payment value in case
there is no from the of an
indication of insurers in unvalued TEST TO
a contractual such order policy, he DETERMINE
prohibition as he may must hold EXISTENCE OF
on double or select up to such sum in DOUBLE
other the amount trust for the INSURANCE
insurance, all for which the insurers, - Whether
insurance insurers are according to the
contracts severally their right of insured,
over the liable under contribution in case of
building are their among them; happenin
deemed valid respective g of the
and contracts. 5. In relation risk, can
enforceable. paragraph directly
The 2. Where the (4) Each benefited
law prohibits policy under insurer is by
double or which the bound, as recoverin
over- insured between g on both
recovery, not claims is a himself and policies?
double valued the other If yes
insurance. policy, the insurers to there is
Since eastern insured must contribute double
insured the give credit as ratably to insuranc
property up against the the loss in e.
50% the valuation for proportion
total any sum to the
coverage, it received by amount for IS DOUBLE
is liable for him under which it is INSURANCE
only 50% of any policy liable under VALID?
the total without his contract. - It
actual loss. regard to the ALSO depends,
Eastern actual value REFERRED if there is
Insurance of the TO AS THE prohibiti
Corp, is subject PRINCIPLE on in the
liable to the matter OF policy
extent of its insured. CONTRIBUT then it is
coverage but ION not valid,
may recover 3. Where the WHICH HAS but if
one half of policy under ALREADY there is
the total which the BEEN no
indemnity insured INCOPORAT prohibiti
from the co- claims is an ED IN on, it is
insurers in unvalued ALMOST ALL valid
the policy, he POLICIES provided
proportion must give that should it must
of 60% credit, as there be follow
( Southern against the other the
Insurance)- full insurable insurances provision
40 % value, for covering the s of the
( northern any sum same law.
Insurance) received by property, the - If there is
him under liability of an
the policy. the company OTHER
would be INSURAN
CE DISTINGUSHI 2. When a insured is
CLAUSE foreign specifically required
one NG OVER insurance to disclose to the
that INSURANC company insurer any other
prevents withdraws insurance and its
other E FROM from the particulars
insuranc DOUBLE Philippines, which he may have
e on the it should effected on the
property INSURACE cause its same subject
except DOUBLE primary matter. The parties
without INSURANCE liabilities must abide by the
the under terms of the
- there must be two
consent policies contract because
or more insurers;
of the insuring such terms
company residents of constitute the
- the total amount
THEN the measure of the
of the policies
IT WILL Philippines insurers liability
need not exceed
PREVEN to be and compliance
the value of the
T reinsured by therewith is a
insurable interest;
ENFORC another condition precedent
EMENT company to the insureds
OF THE authorized right of recovery
POLICY, to transact from the insurer.
the REINSURANCE an insurance
policy - occurs business in WHAT MUST BE
will be when an the COMMUNICATED
NULL insurer Philippines; WHEN THE
and procures ORIGINAL INSURER
VOID. If a 3RD OBTAINS
there is person to DOUBLE INSURANCE REINSURANCE?
no insure VS. REINSURANCE
Except in
OTHER him automatic
INSURAN against DOUBLE INSURANCE reinsurance
CE loss or treaties (when two
CLAUSE, liability - the insurer remains or more insurance
then by an insurer companies agree in
double reason of advance that they
insuranc such - subject matter is will reinsure a part
e is original property of any line of
allowed insuranc insurance taken by
but the e. the other. Since
provision (Section - same interest and risk such contracts are
s of 95) is insured with self-executing and
Section another the obligation
94 must
attaches
be WHEN IS automatically, the
followed REINSURANCE
DIFFERENTIATE information
because COMPULSORY?
DOUBLE required to be
property 1. When a non- INSURANCE, communicated
insuranc life insurer REINSURANCE & herein could not
e is a insured in MUTUAL influence the
contract any one risk INSURANCE (for reinsurer in
of or hazard an further deciding whether
indemnit amount discussion) or not to accept the
y. exceeding reinsurance
20% of its NEW LIFE because it is
net worth, ENTERPRISES VS. automatZ
the insurer CA , 207 SCRA 669 representations of
needs (1992) the original
reinsurance insured;all
of the excess SC RULING: information or
over such The terms of knowledge he
limit the contract are possesses whether
(Section 215 clear and previously or
(1)) unambiguous. The subsequently
acquired, which LIABILITY OF THE - The a interest
are material to the REINSURER? original and all other
risk (Section 96); insured kind of
- The
has no property and
liability
interest interests
of the
WHAT KIND OF in the therein, in
reinsure
CONTRACT IS contract respect to,
r is
REINSURANCE? of appertaining
measure
It is reinsura to or in
- d by the
presume nce connection
liability
d to be a (section with any and
of the
contract 98). all risks or
reinsure
of Hence perils of
d to the
indemnit only the navigation,
original
y against reinsure transit or
policy
liability, d can transportati
holder
and claim on or while
PROVID
merely against being
ED, it
against the assembled,
does not
damage reinsure packed,
exceed
(Section r; crated,
the
97). baled,
amount
As a compressed,
- of
RULE, or similarly
reinsura
the prepared for
nce;
reinsure shipment or
r is not while
Example: A insures awaiting
liable to
his house valued at CLASSES OF shipment or
the
1 million to X INSURANCE during any
reinsure
insurance for 1.5 delays,
d for a
Million. X storage,
loss
insurance MARINE INSU transshipme
under
reinsured with Z RANCE nt or
an
insurance for 1.2 reshipment
original
million. The house incident
policy if
burns. The liability WHAT IS MARINE thereto,
the
of Z insurance is INSURANCE? (b) Person or
reinsure
only up to 1 property in
d is not - Insurance
million, which is connection
liable to against loss
the liability of X with or
the or damage
Insurance. What if appertaining
original to:
the original to marine,
policyho
insured and island
lder.
insurance company (a) Vessels, marine,
settles for less, the craft, transit or
liability of Z aircraft, transportati
Note: The subject of Insurance is still vehicles, on
the reinsurance only up to what is goods insurance,
contract is the paid by X freight, including
insurers risk not Insurance cargoes, liability for
the property OTHERWISE, the merchandise loss or in
insured in the original insurer effects, connection
original policy profits and thus disbursemen with the
Thus, it is not violates that the ts, profits, construction,
necessary that the principle that is a moneys, repair,
insurer first pay on contract of securities, operation,
the claim on the indemnity. loses in maintenance
original policy action, , use of the
before claiming evidences of subject
WHAT IS THE debt, matter of the
from the insurer;
INTEREST OF THE valuable insurance.
ORIGINAL INSURED papers, (But not
WHAT IS THE IN THE CONTRACT bottomry or including life
EXTENT OF OF REINSURANCE? respondenti insurance, or
 surety bonds appurtena to property perils ships and
nor nt facilities at a generally fixed cargoes;
insurance for the location. But does 2. Inland
against loss control of not include normal Marine
by reason of waterways; motor vehicle Insurance
bodily injury insurance which is pertaining
to any treated separately primarily to
AND Marine
person by law; land or
Protection
arising out of overland
and
the (but
Indemnity
ownership, INSURANCE POLICY sometimes)
Insurance
maintenance [effect of failure to transportati
meaning
, use of present insurance on of
insurance
automobiles) policy] since the property
against, or
Marine insurance shipped by
against
policy was never railroads,
(c) P legal
presented in motor
recious liability of
evidence before the trucks,
stones, the insured
trial court or the airplanes,
jewels, for loss,
Court of Appeals and other
jewelry, damage or
even, there is no means of
precious expense
legal basis to transportati
metals incident to
consider such on. Includes
whether in ownership,
document in the four basic
the course of operation,
resolution of this principles
transportati chartering,
case, x x x (Malayan that are:
on or maintenan
Insurance Co. vs. (a) P
otherwise; ce, use,
Regis Brokerage r
repair, or
Corporation Nov. 23 o
constructio
(d) Bridges, 2007 G.R. No. p
n of any
tunnels or 172156) e
vessel,
other rt
craft or
instrument MARINE RISK NOTE y
instrument
alities of IS NOT AN i
ality in use
transportat INSURANCE POLICY n
in ocean or
ion and Certainly it would tr
island
communic be obtuse for us to a
waterways,
ations even to entertain the n
including
(excluding idea that the si
liability of
buildings, insurance contract t
the insured
their between Malayan
for
furniture and ABB Koppel was p
personal
and actually constituted r
injury,
furnishings by the Marine Risk o
illness or
, fixed Note alone. (Malayan v
death or
contents, Insurance Co. vs. i
for loss or
and Regis Brokerage d
damage to
supplies Corporation Nov. 23 i
the
held in 2007 G.R. No. n
property of
storage), 172156) g
another
piers, p
person
wharves, r
(section
docks, o
99). WHAT ARE THE
slips, and t
other aids DIVISIONS OF e
to TRANSPORTATION c
NOTE: That marine
navigation INSURANCE? ti
insurance is really
and o
TRANSPORTATION
transportat n
INSURANCE that is a 1. Ocean
ion t
kind of insurance Marine
including o
that is concerned Insurance
dry docks, p
with the perils of pertaining
marine r
property in (or primarily to
railways, o
incidental to) sea perils of
dams and p
transit as opposed
 e b r fi
r il s x
t it o e
y y n d
fr a p
e p l r
q r p o
u o r p
e v o e
n i p r
tl d e t
y i r y
e n t c
x g y o
p p o n
o r f si
s o o d
e t t e
d e h r
t c e e
o ti r d
l o s; a
o n (c) Fi i
s t x d
s o e s
w p d t
h e tr o
il r a t
e s n h
i o s e
n n p m
tr s o o
a w rt v
n h a e
s o ti m
p h o e
o a n n
r v p t
t e r o
fr t o f
o e p p
m m e r
o p rt o
n o y p
e r e
p a p r
l r r ty
a y o ,
c c v li
e u i k
t st d e
o o i b
a d n ri
n y g d
o o p g
t f r e
h g o s
e o t a
r; o e n
(b) B d c d
ai s ti t
le o o u
e r n n
li p t n
a e o e
 ls s, s indemnifying the
, j o insured for loss or
a e f damage to
n w t property (Par.1,
d e h Section 99) or
(d) Fl lr e liability insurance,
o y, c protecting the
at w o insured against the
e o n consequences of
r r tr legal liability for
k a loss or damage to
p s c property or for
r o t personal injury,
o f a illness or death of a
v a n person (Par.2,
i r d Section 99);
d t) n
i w e
n h e WHAT RISKS ARE
g e d INSURED AGAINST?
p n n - The
r e o basic
o v t risk
t e n insured
e r e against
c it c is
ti m e common
o a s ly
n y s known
t b a as
o e ri PERILS
p l ly OF THE
e o b SEA (all
r c e kinds of
s a i marine
o t n casualti
n e t es and
a d h damages
l s e done to
p u c the ship
r b o or goods
o j u at sea by
p e r the
e c s violent
r t e action of
t a o the
y l f winds or
( w tr waves,
s a a one that
u y n could
c s s not be
h t p foreseen
a o o and is
s t r not
p e t attribut
r r a able to
e ri ti the fault
ci t o of
o o n anybody.
u ri .
s a
st l WHAT ARE NOT
NOTE: Marine COVERED?
o li
Insurance may be
n m
in form of property
e it
insurance,
 - Generall WORTHINESS OF A Debenhams, Empire jurisprudence as an
y, perils VESSEL? as subrogee filed an exception to the
of the action for damages hypothecary nature
ship are against CSC. of maritime
not - Since b) Assume that the commerce, Abueg
covered there is vessel was not v.San Diego, 77 Phil.
losses an seaworthy as in fact 730 (1948),
that implied its hull had leaked, especially in this
result warrant causing flooding in case where the
from: y of the vessel. Will your vessel was not
(a) natu seawort answer be the same? seaworthy at the
ral hiness, Explain. (2%) time it sank.
and it A: When the vessel is
inevi becomes not seaworthy, it is
table the an exception to the
actio obligati hypothecary WHAT PERILS ARE
n of on of the principle in INSURED IN AN ALL
the cargo maritime commerce. RISK POLICY
sea; owner To limit its liability
(b) ordi or the to the amount of the
nary insured insurance proceeds, - It is to
wear to look the carrier has the be
and for a burden of proving construe
tear reliable that the d as
of common unseaworthiness of creating
the carrier, its vessel was not a special
ship; which due to its fault or insuranc
(c) negli keeps it negligence. The e and
gent vessels failure to discharge extendin
failu seawort such a heavy burden g to all
re of hy. The precludes risk
the insured application of the than are
ship may limited liability rule usually
own have no and the carrier is contemp
er to control liable to the full lated
provi on the extent of the claims and will
de vessel of the cargo owners cover all
the but has (Aboitiz Shipping v. losses
vess full New India Assurance except
el control Company, G.R. No. such
with in the 156978, 02 May that may
the choice of 2006). arise
prop common from
2008 EXAM (IX c)
er carrier; intentio
-
equi nal
2008 BAR EXAM Q:c)
pme fraud,
(IX b) Assume the facts in
nt to intentio
Q: On October 30, question (b). Can
conv nal
2007, M/V Pacific, a the heirs of the three
ey miscond
Philippine registered (3) crew members
the uct, or
vessel owned by who perished
carg that
Cebu Shipping recover from CSC?
o otherwi
Company (CSC), Explain fully. (3%)
unde se
r sank on her voyage exclude
from Hong Kong to A: Yes, because the
ordi d. It may
Manila. Empire crew members died
nary include
Assurance Company while performing
cond all
(Empire) is the their assigned
ition losses
insurer of the lost duties, aggravated
s; whether
cargoes loaded on by the failure of the
arising
board the vessel ship owner to
from a
which were ensure that the
marine
consigned to vessel is seaworthy.
WHO MUST CHECK peril or
Debenhams Workmens
ON THE SEA not to
Company. After it compensation has
include
indemnified been classified by
pilferag
 e during and chart hypo
a war avoids ered thec
(Filipino putting by ated
Merchan upon the one by
t insured who botto
Insuranc the cove mry
e Co. vs. burden nant is
CA, 179 of s to only
SCRA establis pay the
638). hing the exce
that a own ss of
loss was er its
DEFINITION OF
due to a the valu
TERMS
peril valu e
within e of over
(a) Barratry the the the
is policys vess amo
willful coverage el unt
act of , upon secu
the whether loss red
master arising but by
and from a in botto
crew in marine case mry.
pursuan peril or of (Sect
ce of not loss, ion
some provided the 101)
fraudule the risk own ;
nt or is not er is
unlawful exclude liabl
purpose d; e
without only
the for BOTTOMRY/RESPO
consent the NDENTIA
WHAT part
of the
CONSTITUTES of is a loan
owner
INSURABLE the payable
and to
INTEREST IN OCEAN loss only if the
the
MARINE whic vessel given
prejudic
INSURANCE? h the as a
e of his
insur security for
interest.
ed said loan
1. The cann arrives
Example: own ot safely at
Burning er of reco port from
of the a ver contemplat
ship or vess from ed voyage
unlawful el the (bottomry)
ly selling has chart or a loan
the insur erer. payable
cargo; able (Sect only upon
inter ion the safe
est 100) arrival in
(b) Incham in ; port of the
aree the goods given
Clause vess as a
one that el 2. The security
covers such insur (responden
any loss shall able tia).
other conti inter
than a nue est
of - this
willful even
the contracts
and if the
own are in the
fraudule vess
er of nature of a
nt act of el
a mortgage as
the has
ship the owner
insured been
borrows cour when the ship has
money for se of broken ground on
Example: A
the use, thing the intended
charters Bs
equipment s he voyage (b) if a price
vessel on
or repair of woul is to be paid for the
condition that
the vessel d carriage of goods,
A would pay B
for a have when they are
in case of loss
definite earn actually on board
the amount
term with ed or there is contract
300,000.00. A
the ship as but to put them on
has insurable
security for board AND the
interest to the
with the vessel and goods
extent of
maritime or inter are ready for
300,000.00
extraordina venti specified voyage
ry interest on of (Section 104);
on account a CONCEALMENT IN
of the risks peril MARINE
borne by insur ARE THERE
INSURANCE
the lender, ed PERSONS/PARTIES
it being agai OTHER THAN THE
stipulated nst OWNER WHO HAS - A party
that if a or INSURABLE is bound
ship be lost othe INTEREST? YES; to
during the r commun
voyage or peril icate, in
within a incid 1. One who
addition
limited ent has an
to what
period, the to interest in
is
lender also the the thing
required
loses his voya from which
by
money ge. profits are
section
(Note that (Sect expected to
28 (facts
the lender ion proceed,
within
has 102) has
his
insurable Freightage are the insurable
knowled
interest to benefits derived by interest on
ge,
the extent the owner from: the profits
material
of loan); (Section
(a) chart to the
105);
ering contract,
3. The of a other
own ship; Example: Owner party
er of (b) its of a cargo has not
a empl transported on the
vess oym a vessel not means
el ent only has of
also for insurable ascertai
has the interest on the ning, as
insur carri cargo but also to which
able age on the expected party
inter of profits from a with a
est his future sale; duty to
in own commun
expe good icate
cted s or 2. The makes
freig thos charterer of no
htag e of a ship has warrant
e, othe insurable y)
whic rs interest to informati
h (Sect the extent on that
acco ion that he is he
rdin 102) liable to be possesse
g to damnified s, that
the by its loss are
IT EXIST (a) In case (Section material
ordi
of a charter party 106). to the
nary
 risk Example: If (section re
AND, to an agent fails to 109) from
state the notify principal of brea
EXACT the loss of the ch of
EFFECT OF
and cargo and the laws
CONCEALMENT
WHOLE latter, after the loss of
TRUTH but ignorant - While forei
in thereof, secured conceal gn
relation insurance lost or ment as laws
to all not lost, the a rule of
matters insurance will be entitles trad
that he void due to the e;
represent concealment; injured (d) the
s, or party to want
upon rescind, of
inquiry A party is also bound the rule nece
disclose to communicate, the must ssary
s or information belief yield to docu
assumes or expectation of a section ment
to 3rd person, in 110 as s;
disclose reference to a it does (e) the
EXCEPT material fact, is not use
those material. Note: vitiate of
that the under section 35 the false
insurer such is not required contract /sim
knows to be but ulate
or those communicated in merely d
in the ordinary insurance exonerat docu
exercise (section 108); es the ment
of insurer s
ordinary from a
care, the PRESUMPTION OF A loss
PRIOR LOSS Example:
other resulting
The vessel
ought to - Insured from the
is seized
know, in risks
due to lack
and marine conceale
of
which insuranc d as
documents,
the e is related
the insurer
former presume to:
is
has no d to (a) the
exonerated.
reason have natio
If the vessel
to knowled nal
is lost due
suppose ge, at char
to storm,
him to the time acter
the insurer
be of of
is liable
ignorant insuring the
despite
under , or insur
concealmen
Section prior, if ed;
t due to lack
30 informa (b) the
of;
(Section tion liabil
107); might ity of
possibly the
DISTINGUISHING
reached thing
NOTE: That the ORDINARY
him in insur
rules on CONCEALMENT
the ed to
concealment in FROM THAT IN
usual capt
marine insurance MARINE
mode of ure
are stricter as it is INSURANCE
transpor and
sufficient that the
tation dete
insured is in
and the ntio
POSSESSION OF THE Ordinary Insurance M
usual n;
MATERIAL FACT, - Opinion or belief
rate of (c) the -
ALTHOUGH HE IS of a 3RD person or
commun liabil
UNAWARE OF IT. own judgment of
ication ity to
seizu the insured is not
material and
 need not be (section parties l
communicated 112). (section e
(section 35); 114). n
Note that g
Example:
it is t
- A causal statement
relative h
connection as to time of
and is o
between the fact sailing,
made to f
concealed and nature of
depend ti
cause of loss is the cargo or
on the m
not necessary for amount of
circumst e,
the insurer to profits;
ances. it
rescind;
The m
WHAT ARE THE implied u
IMPLIED warranty s
WARRANTIES IN of t
MARINE seaworth b
REPRESENTATION INSURANCE? iness e
IN MARINE complied s
INSURANCE with as a e
2000 BAR EXAM general a
(IX b) rule w
- If the when it o
represe 1. In every is r
ntation contract of seawort t
is marine hy at the h
intention insurance time of y
ally false upon a ship the a
in any or freight, commen t
material freightage or cement t
respect, upon of the h
or, in anything risk e
respect which is the except: c
of any subject of (a) w o
fact on marine h m
which insurance, e m
the there is an n e
characte implied t n
r and warranty h c
nature that the e e
of the ship is sea i m
risk worthy n e
depends (section s n
, the 113); u t
insurer r o
may a f
rescind A ship is n e
(Section sea c v
111). worthy e e
But the when it is r
eventual is m y
falsity of reasona a v
a bly fit to d o
represe perform e y
ntation the f a
as to an service o g
expectati and r e
on does encount a it
not in er the s u
the ordinary p n
absence perils of e d
of fraud the ci e
avoid voyage, fi r
the contemp e t
contract lated by d a
the
 k c t n
e ri a s
s p n s
a ti i h
t o m i
t n m p
h o e p
a f d e
t t i d
ti h a m
m e t u
e; v e s
(b) w o p t
h y o b
e a r e
n g t s
t e, i e
h o n a
e r w w
i e h o
n s ic r
s t h t
u a c h
r b a y
a li s a
n s e t
c h t
e e e h
is d a e
u c c c
p u h o
o st v m
n o e m
c m s e
a o s n
r f e c
g tr l e
o, a u m
w d p e
h e, o n
ic it n t
h is w o
b r h f
y e ic e
t q h a
h u t c
e ir h h
t e e p
e d c a
r t a r
m o r ti
s b g c
o e o u
f tr is l
t a s a
h n h r
e s i v
p s p o
o h p y
li i e a
c p d g
y p o e
d e r (
e d tr s
s a a e
 c r e time it
ti i s goes out
o n e to sea
n r a it is not
1 e w seawort
1 s o hy to
5 p r encount
); e t er the
(c) w c h perils of
h t y the sea;
e t a
r o t
e t t TO WHAT DOES THE
d h h WARRANTY OF
if e e SEAWORTHINESS
f t c EXTEND TO:
e h o
r i m
e n m The
n g e warrant
t s n y of
p r c seawort
o e e hiness
r q m extends
ti u e not only
o is n to the
n it t conditio
s e o n of the
o t f structur
f o e e of the
t m a ship, but
h a c it
e k h requires
v e p that:
o t o (a) it be
y h r prop
a e ti erly
g s o lade
e h n n or
c i ( load
o p s ed
n s e with
t e c carg
e a ti o;
m w o (b) is
p o n provi
l r 1 ded
a t 1 with
t h 7 a
e y, ); com
d I pete
i w nt
Example:
n h mast
The
t ic er,
voyage
h h suffi
will pass
e c cient
thru
p a num
rivers
o s ber
then
li e of
seas
c it offic
the
y m ers
warrant
d u and
y is not
if s seam
complie
f t en;
d with if
e b (c) it
at the
must
 have there is insuranc reasonable
the no e on the suspicion
requ unreason cargo on the
isite able (section vessel
equi delay in 119). (section
pme repairing 120). This
nt the warranty
Example: A
and defect. arises only
cargo of
appu Otherwis when
wheat was
rten e the nationality
laden on a
ance insurer or the
ship which
s like is neutrality of
had a port
balla exonerat the vessel or
hole
st, ed on cargo is
insecurely
cable the ship expressly
fastened at
s, or the warranted;
the time of
anch ship
lading. The
ors, owners
port hole 3. That the
cord interest
was foot vessel shall
age, from any
above the not make
sails, liability
water line, any
food, from any
and in the improper
wate loss
course of deviation
r, arising
the voyage, from the
fuel, therefro
water intended
light m
entered the voyage;
s and (section
cargo area
othe 118).
and
r Hence, if HOW IS THE
damaged
nece loss is INTENDED VOYAGE
the wheat.
ssary not one DETERMINED
The ship
and due to
was deemed
prop the
unworthy (a) When its
er defect or
with is
store peril
reference to describe
s and was not
the cargo, d by
impl increase
hence the places of
eme d by the
insurer of beginnin
nts defect
the cargo g and
for insurer is
was not ending,
the liable;
liable (Steel the
voya
vs. Stateline voyage
ge
Also, Steamship, is the
(sect
while a cited Go course
ion
ship Tiaco vs. of
116)
may be Union sailing
;
seawort Society of fixed by
hy for Canton, 40 mercant
Note purpose Phil 40); ile usage
that s of between
when a insuranc those
ship e on it, it 2. It shall
places
becomes may by carry the
(section
unseawo reason requisite
121);
rthy of being documents
(b) When its
during unfitted to show its
is not
the to nationality
fixed by
voyage receive or
mere
it will cargo, neutrality
usage,
not be and that it
the
avoid unseawo shall not
voyage
the rthy for carry any
is the
policy the document
way
as long purpose that will
between
as of cast
the
 places master proceed to a port PROPER (SECTION
specifie nor the other than its port of 124 AND 125)
d which owner of destination? Explain.
to a the ship (4%)
master has any
2005 BAR EXAM
of control; A: A vessel can
(N0. XIV -1 - a)
ordinary Example: properly proceed to
will and An a port other than its
Q: On a clear
discretio ailment port of destination
weather, M/V Sundo,
n would strikes in the following
carrying insured
seem the crew cases:
cargo, left the port of
the most of the 1. Whe
Manila bound for
natural, vessel; n caused by Cebu. While at sea,
direct circumstance
(b) When the vessel
and
necessar s over which encountered a
advanta
y to neither the strong typhoon
geous
comply master or forcing the captain
(section
with the owner of to steer the vessel to
122);
warrant the nearest island
the ship has
y, or to where it stayed for
WHAT IS avoid a any control; seven days. The
DEVIATION peril, 2. Whe vessel ran out of
whether n necessary provisions for its
- is a
or not to comply passengers.
departu
the peril with a Consequently, the
re from
is warranty, or vessel proceeded to
the
insured Leyte to replenish its
course to avoid a
against; supplies.
of the peril,
Example: a)
voyage whether or
When Assuming
as
repairs not the peril
defined that the
are is insured cargo was
by
necessar against; damaged
section
y or to 3. Whe because of
121 and
avoid n made in such
122 or
getting deviation,
an good faith,
caught who
unreaso and upon
in a between the
nable reasonable
conflict; insurance
delay in
grounds of
pursuin (c) When company and
g the made in belief In the the owner of
voyage good necessity to the cargo
or the faith, for avoid peril; bears the
commen the 4. Whe loss? Explain.
cement purpose n made in A: The
of an of saving good faith Insurance
entirely human for the company
different life or should bear
purpose of
voyage relieving the loss.
(section another saving
Since the
123); vessel in human life or
deviation
WHEN IS distress; relieving was cured by
DEVIATION PROPER Example: another a strong
When vessel in typhoon, it
assistan distress. was caused
(a) When it ce is by
is (Section 124,
given circumstance
caused Insurance
s beyond the
by Code)
2005 BAR EXAM control of the
circumst captain, and
(N0. XIV -1- b)
ances also to avoid
*** ANY DEVIATION
over a peril
Q: Under what THAT IS NOT
which whether or
circumstances can a INCLUDED IS NOT
neither not insured
vessel properly
the
 against. (section d
Deviation is 128); e w
therefore s h
proper. t i
BURDEN OF PROOF
(Section r c
AS TO LOSS OR
145(a), u h
DAMAGE The
Insurance c
burden of proof
Code) t r
contemplated by the
i e
aforesaid provision
o n
CONSEQUENCE OF actually refers to the
n d
IMPROPER burden of evidence
e
DEVIATION (Burden of going
o r
forward). As applied
Insurer f s
in this case it refers
is not t i
to the duty of the
liable h t
insured to show that
for any e v
the loss or damage is
loss a
covered by the
happeni t l
policy. The foregoing
ng to the h u
clause
thing i e
notwithstanding, the
insured n l
burden of proof still
subsequ g e
rests upon petitioner
ent to an s
to prove that the
imprope i s
damage or loss was
r n t
caused by an
deviatio s o
excepted risk in
n u
order to escape any
(section r t
liability under the
126). e h
contract. (DBP Pool
This d e
of Accredited
applies ;
Insurance
whether b. t o
Companies v. Radio
the risk h w
Mindanao Network,
has been e n
Inc. Jan. 27, 2006,
increase e
G.R. No. 147039)
d or i r
diminish r f
ed. KINDS OF TOTAL r o
LOSSES e r
a total t t
4. That the -
loss may r h
vessel does
be actual i e
not or will
or e
not engage
construct v p
in any
ive a u
illegal
(section b r
venture;
129) l p
e o
LOSS IN MARINE s
INSURANCE l e
- Losses (1) If it is o
in an s t
marine Actual s h
insuranc Total o a
e may be Loss it f t
partial may be t h
or total caused h e
(section by: e
127). A h
loss that t e
a. t h l
is not o
total is i d
t n
partial a g i
l
 t o pala which is
; n y sufficien
c. a was t to raise
n a rend these
y t ered presum
t valu ption
o h eles depends
t e s on the
h beca circumst
e p use ances of
r o they the case;
e r bega
v t n to
If the
e o ger
vessel be
n f min
prevente
t d ate,
d, at an
w e thus
immediat
h s it no
e port,
i t long
from
c i er
completi
h n rem
ng the
a ains
voyage,
e t as
by the
f i the
perils
f o sam
insured
e n e
against,
c thin
the
t o g, it
liability
i f was
of the
v t an
marine
e h actu
insurer
l e al
on the
y total
cargo
t loss.
continue
d h (Pan
s after
e i Mal
they are
p n ayan
reshippe
r g vs.
d
i CA
(section
v i 201
133)
e n SCR
and the
s s A
liability
t u 382)
extends
h r
to
e e
damages
d An actual
,
o total loss
expense
w ( can also
s of
n s be
discharg
e e presume
ing,
r c d from
storage,
o t the
shipmen
f i continue
t, extra
t o d
freighta
h n absence
ge and
e of the
all other
1 ship
expense
p 3 without
s
o 0 being
incurred
s ) heard of
in saving
s Exa (section
the
e mple 132).
cargo
s : The
reshippe
s Whe length of
d up to
i n time
the
 amount entire the entire 75% of the
insured thing shipment, value of all
nothing insured making only 1,208 pieces of
shall (section one cause or logs, the
render 137); consideration. shipment
the The cannot be said
insurer insurance to have
(2) It is a
liable for contract sustained a
construc
an should be constructive
tive total
amount considered total loss
loss
in excess indivisible. under Section
when
of the Under the 139(a) of the
the
insured Insurance Insurance
person
value or Code, a total Code. In the
insured
if none, loss may either absence of
is given
of the be an actual either
a right
insurable loss or a actual or
to
value constructive constructive
abandon
(section total loss. The total loss, there
under
134); appellate court can be no
section
treated the recovery by
139
loss suffered Panama
Upon (section
by Panama as a against
actual 131);
constructive
total loss, ORIENTAL
total loss, and Oriental
the ASSURANCE
for the Assurance.
insured CORP., VS. CA
purpose of
is AND PANAMA
computing the 2005 BAR EXAM
entitled SAWMILL CO.,
more than (N0. X -1- a)
to INC. 200 SCRA
three-fourths Q: M/V Pearly Shells,
payment 459 (1991)
value of the a passenger and
without
logs actually cargo vessel, was
notice of SC
lost, insured for
abandon RULING:
considered the P40,000,000.00
ment
cargo in one against constructive
(section
barge as total loss. Due to a
135) and The
separate from typhoon, it sank
if the policy in
the logs in the near Palawan.
insuranc question
other. The logs Luckily, there were
e is shows that the
having been no casualties, only
confined subject matter
insured as one injured passengers.
to an insured was
inseparable The shipowner sent
actual the entire
unit, the a notice of
loss it shipment of
correct basis abandonment of his
will not apitong logs.
for interest over the
cover a The fact that
determining vessel to the
construct the logs were
the existence insurance company
ive loss, loaded on two
of constructive which then hired
but will different
total loss is the professionals to
cover barges did not
totality of the afloat the vessel for
any loss, make the
shipment of P900,000.00. When
which contract
logs. Of the re-floated, the vessel
necessar several and
entirety of needed repairs
ily divisible as to
1,208 pieces of estimated at
results the terms
logs, only 497 P2,000,000.00. The
in insured. The
pieces thereof insurance company
deprivin logs on the two
were lost or refused to pay the
g the barges were
41.45% of claim of the
insured not separately
the shipowner, stating
of valued or
entire that there was no
possessi separately
shipment. constructive total
on, at valued or
Since the cost loss.
the port separately
of those 497
of insured. Only a) Was there
pieces does
destinati one premium constructive total
not exceed
on of the was paid for loss to entitle the
shipowner to the Ship Captain and its value by more information is of
recover from the the crew, as shown than of value; doubtful character,
insurance company? by the improper the insured is
Explain. stowage of the cargo entitled to a
logs. Closer 3 .if the reasonable time to
A: There was
supervision on the thing injured is a make an inquiry
constructive total
part of the ship ship and (section 141). This
loss. When the
owner could have contemplated is to enable the
vessel sank, it was
prevented this fatal voyage cannot insurer to take
likely that it would
miscalculation. As lawfully be steps to preserve
be totally lost
such, the ship owner performed without the property;
because of the
was equally incurring either an
improbability of
negligent. It cannot expense to the
recovery. (Arnolds
escape liability by insured of more If the
Law of Marine
virtue of the limited than the value of informat
Insurance and
liability rule. the thing ion
Average, 16th ed., Vol.
(Central Shipping abandoned or a proves
II, pp. 954-955)
Company, Inc. v. risk which a incorrect
Insurance Company prudent man or thing
Suggested
of North America, would not take insured
Alternative
Sept. 20, 2004, G.R. under the is
Answer:
No. 150751) circumstances; restored
There was no
constructive total when
loss. The loss is not the
ABANDONMENT 4 .if the
more than the abandon
is the act of the insured is
value of the vessel ment
insured by which, freightage or cargo
which was insured was
after a constructive and the voyage
for P40,000,000.00. made
total loss, he desires cannot be
The cost of that
to the insurer the performed nor
refloating is there
relinquishment in another ship
P900,000.00 and the was then
its favor his interest cannot be procured
needed repairs in fact
in the thing by the master
amount no total
insured (section within a reasonable
P2,000,000.00, or a loss
138); time with
total of only the
reasonable diligence abandon
P2,900,000.00 which
to forward the ment
does not constitute A person insured
cargo without becomes
more than the by a contract of
incurring the like ineffectu
value of the vessel. marine insurance
expense or risk al
may abandon the
mentioned in item (section
thing insured, or
(c) but, freightage 142);
THE DOCTRINE OF any particular
cannot be
LIMITED LIABILITY portion thereof
abandoned unless
[when not separately valued HOW NOTICE OF
the ship is
applicable] The by the policy, or ABANDONMENT IS
abandoned
doctrine of limited otherwise MADE
(section 139);
liability under separately insured
Article 587 of the and recover a total
Code of Commerce is loss when the Abandonme - By
not applicable to the cause of loss is a nt must neither be giving
present case. This peril insured against partial nor notice,
rule does not apply if: conditional (section oral or
to situations in 140). Hence, it must written
1 .more
which the loss or the be total and notice to
than thereof in
injury is due to the absolute; the
value is actually
concurrent insurer
lost or would have
negligence of the but if
to be expended to
ship owner and the Abandonme orally
recover it form the
captain. It has nt must be made given, a
peril insured
already been within a written
against;
established that the reasonable time notice of
sinking of the M/V 2 .if it is after receipt of such
Central Bohol had injured to such reliable must be
been caused by the extent as to reduce information of the submitt
fault or negligence of loss but, where the ed
within insured, s to the
seven 2005 BAR EXAM or its date of
days (N0. X - 1- b) proceed the loss
from - s or when
giving Q: b) Was it proper salvage abando
oral for the shipowner to as if nment
notice send a notice of there is
(section abandonment to the has effective
143). insurance company? been a ly made;
The Explain. (5%) formal
notice - abando
EFFECTIVITY OF
must be A: It was proper for nment.
ABANDONMENT
explicit the shipowner to Here the
and send a notice of insurer
specify abandonment to the has (1) Abandon
the insurance company, opted to ment
particula because there was pay for becomes
r cause reliable information total effective
of the of the loss of the actual upon the
abandon vessel.(Section 141, loss acceptanc
ment but Insurance Code) notwith e of the
need standin insurer.
start g the Acceptanc
EFFECTS OF
only absence e may
ABANDONMENT
enough on either be
to show actual express or
that (1) It is abando implied
there is equivale nment; from the
probable nt to a (2) Acts conduct
cause transfer done in of the
therefore by the good insurer.
and insured faith by The mere
need not of his those silence of
be interest who the
accompa to the were insurer
nied by insurer, agents for an
proof of with all of the unreasona
interest the insured ble length
or of loss chances in of time
(section of respect after
144). recover to the notice
The y and thing shall be
require indemni insured construed
ment as ty subsequ acceptanc
the (section ent to e (section
explicitn 146) the loss 150).
ess of Note are at Once
the though, the risk accepted,
notice is if the of the it is
due to insurer insurer conclusiv
the fact pays for and for e between
that a loss as his the
abandon if it benefit parties.
ment were an (section The loss
can only actual 148). is
be total The admitted
sustaine loss, he agents of together
d upon is the with the
the entitled insured sufficienc
cause to become y of the
specifie whateve agents of abandon
d in the r may the ment
notice remain insurer. (section
(section of the This 151). It is
145); thing retroact also
 irrevocabl ge . If the accept the
e upon unless ship is abandon
acceptanc ship is subseque ment;
e and also ntly
upon its abandon repaired,
IF ABANDONMENT
being ed; and
IS NOT MADE OR
made continues
OMMITTED
unless the on to
(2) On an
ground point Y - The fact
accepted
upon the that
abandon
which is freightage abandon
ment
made due ment is
involving
proves to belongs to not
a ship,
be the made or
freightage
unfounded insurer of is
earned
(section the ship; omitted
previous
152). does not
to the loss
Thus, if prejudic
belongs to
the (3) If e the
the
insurer abandonm insured
insurer of
accepts ent is not as he
the
the accepted may
freightage,
abandon despite its neverth
that
ment, it validity, eless
subseque
cannot the recover
ntly
raise any insurer is his
earned
question liable actual
belongs to
as to upon an loss
the
insufficie actual (section
insurer of
ncy of the total loss, 155);
the ship
form deducting
(section
under from the
153). LIABILITY FOR
section amount
AVERAGES
143, time any
for giving Example: proceeds
notice The of the AVERAGE DEFINED
under contempl thing is any
section ated insured extraordinary or
141, or voyage of that may accidental expense
right to the have incurred during
abandon transport come to the voyage for the
under of cargo is the hands preservation of the
139. The from of the vessel, cargo, or
only point X to thing both and all
exception point Y. In insured damages to the
the is between, (section vessel or cargo
under a loss 154). This from the time it is
section occurs is due the loaded and the
152 when and the fact that voyage commenced
the ship is under until it ends and
ground is abandone section the cargo is
unfounde d. The 149, unloaded;
d which is freightage which
defined in already provides
section earned that if KINDS OF
142 from notice is AVERAGES
and/or as point X properly
related to until the given, it
section point of does not (a) Particula
145; loss, prejudice r or
belongs to the simple
the insured, if average
- No
insurer of the is a
abandon
the insurer damage
ment of
freightage refuses to or
freighta
expense sea until of the whole such characterize
caused it thing, or class of the jettison
to the reaches things, even though of
vessel, its it becomes entirely Romualdos
cargo, or destinati worthless, but such TV sets as an
which on insurer is liable for average? If
has not his proportion of so, what kind
inured to all general average of an
the (b) General loss assessed upon average, and
common or gross the thing insured why? If not,
benefit average (section 136); why not?
and is an (3%)
2009 BAR EXAM
profit of expense b. Again
(VII)
all or st whom
persons damage Global Transport does
interest suffered Services, Inc. (GTSI) Romualdo
ed in the delibera operates a fleet of have a cause
cargo or tely in cargo vessels plying of action for
the order to interisland routes. indemnity of
vessel. save the One of its vessels, his lost TV
This vessel or MV Dona Juana, left sets?
damage its cargo the port of Manila Explain.
or or both for Cebu laden with, (3%)
expense from among other goods,
is borne real and 10,000 television IN CASE OF
ordinari known sets consigned to GENERAL AVERAGE
ly by the risk. Romualdo, a TV LOSS
owner of Thus, all retailer in Cebu.
persons - The
the When the
having insurer
vessel or vessel was about ten
an is liable
cargo nautical miles away
interest for the
that from Manila, the
in the loss
gives ship captain heard
vessel falling
rise to on the radio that a
and upon the
the typhoon which, as
cargo or insured,
expense announced by PAG-
both at though a
s or ASA, was on its way
the contribu
suffered out of the country,
occurre tion in
the had suddenly veered
nce of respect
damage; back into Philippine
the to the
territory. The thing
average captain realized that
Example: insured
shall MV Dona Juana
Damage when
contribu would traverse the
sustaine required
te. storms path, but
d by a to be
cargo decided to proceed made by
from the Example: with the voyage. him
time it is Jettisoning True enough, the towards
loaded of cargo; vessel sailed into the a
to the storm. The captain general
time it is ordered the jettison average
unloade As a rule when it has of the 10,000 loss
d or been agreed that an television sets, along called
addition insurance upon a with some other for a
al particular thing or cargo, in order to peril
expense class of things shall lighten the vessel insured
s that be free from and make it easier to against
are particular average, a steer the vessel out but
incurred marine insurer is of the path of the liability
by the not liable for a typhoon. Eventually, is
vessel particular average the vessel, with its limited
from the loss not depriving crew intact, arrived to the
time it the insured of the safely in Cebu. proporti
puts out possession, at the a. Will on of the
to the port of destination, you contribu
 tion claim (secti ter
attachin can be on ,
g to his made 165). su
policy upon the Meani br
value insurer ng og
where if: that ati
this is the on
less than insure ta
(a) there
the d has ke
is
contribu a s
separ
ting choice pl
ation
value of of ac
of the
the recove e;
intere
thing ry on
st
insured the
liable SUBROGEE x x x
(section happe
to right to recovery
164). ning
contri derives from the
Meaning of a
bution contractual
that the gener
; subrogation as an
insured al
incident to an
can hold averag
insurance
his e loss.
Examp relationship and not
insurer They
le: from any proximate
liable for are:
When injury to it inflicted
contribut (1) E
the by the respondents x
ion up to nf
cargo x x (Malayan
the value or
liable Insurance Co. vs.
of the cin
for Regis Brokerage
policy; g
contri Corporation Nov. 23
th
bution 2007 G.R. No.
e
RIGHT OF has 172156)
co
SUBROGATION been nt
remov rib SUBROGATION
ed uti [meaning]
- When a from on Subrogation is the
person the ag substitution of one
injured vessel ai person in the place
in a
ns of another with
contract
t reference to a lawful
of (b) when int claim or right, so
marine the er that he who is
insuranc insure est substituted succeeds
e has a d ed to the rights of the
demand havin pa other in relation to a
against g the rti debt or claim,
the right es; including its
others and or remedies or
for oppor (2) C securities. The
contribut tunity lai principle covers the
ion, he to mi situation under
may enforc ng which an insurer
claim the e fro that has paid loss
whole contri m under an insurance
loss from bution th policy is entitled to
his from e all the rights and
insurer others ins remedies belonging
subrogat , has ur to the insured
ing the neglec er. against a third party
insurer ted or If with respect to any
to his waived it loss covered by the
own the be policy. It
right to exerci th contemplates full
contribu se of e substitution such
tion but the lat that it places the
no such right
party subrogated in 127897 Novembe indemnity right. The
the shoes of the r 15, 2001) from the subrogation receipt,
creditor, and he may insurance by itself, is sufficient
use all means which Common Carriers; company for to establish not only
the creditor could Failure to deliver the injury or the relationship of
employ to enforce cargo; Payment by loss arising herein private
payment. (Lorenzo insurance company out of the respondent as
Shipping Corp. v. of insurable value wrong or insurer and Caltex,
Chubb and Sons, Inc. of the goods; breach of as the assured
Et Al. Jun 8, 2004 Insurance company contract shipper of the lost
G.R. No. 147724) subrogated to the complained cargo of industrial
rights of the of, the fuel oil, but also the
SUBROGEE The assured against the insurance amount paid to
rights to which the common carrier. company settle the insurance
subrogee succeeds -The payment made shall be claim. The right of
the same as, but not by the private subrogated subrogation accrues
greater than, those respondent for the to the rights simply upon
of the person for insured value of the of the payment by the
whom he is lost cargo operates insured insurance company
substituted he as waiver of its against the of the insurance
cannot acquire any (private respondent) wrongdoer claim.
claim, security, or right to enforce the or the
remedy the subrogor term of the implied person who
MEASURE OF
did not have. In warranty against has violated
INDEMNITY IN
other words, a Caltex under the the contract.
MARINE
subrogee cannot marine insurance If the
INSURANCE
succeed to a right policy. However, the amount paid
not possessed by the same cannot be by the
subrogor. A subrogee validly interpreted insurance IF THE POLICY IS
in effect steps into as an automatic company VALUED;
the shoes of the admission of the does not
insured and can vessels fully cover
recover only if seaworthiness by the injury or 1.A
insured likewise the private loss, the valuation in the
could have respondent as to aggrieved policy of marine
recovered. foreclose recourse party shall insurance is
However against the be entitled to exclusive between
when the insurer petitioner for any recover the the parties thereto
succeeds to the liability under its deficiency in the adjustment
rights of the insured, contractual from the of either a partial
he does so only in obligation as a person or total loss, if the
relation to the debt. common carrier. The causing the insured has some
The person fact of payment loss or interest at risk and
substituted (the grants the private injury. there is no fraud on
insurer) will succeed respondent his part. If there is
to all the rights of subrogatory right fraud in valuation,
the creditor(the which enables it to Presentation of it entitles the
insured), having exercise legal marine insurance insurer to rescind
reference to the debt remedies that would policy not as it is an exception
due the latter. otherwise be necessary for as to
(Lorenzo Shipping available to Caltex as insurance company conclusiveness
Corp. v. Chubb and owner of the lost to go after the (Section 156);
Sons, Inc. Et Al. Jun cargo against the vessel-owner.- The
8, 2004 G.R. No. petitioner common presentation in
147724) carrier.8 Article 2207 evidence of the 2.If
of the New civil Code marine insurance however,
provides that: policy is not hyphotecated by
DELSAN indispensable in this the bottomry or
TRANSPORT LINES, Art. 2207. If case before the respondentia
INC. the plaintiffs insurer may recover before insurance
vs. CA and property has from the common and without
AMERICAN HOME been carrier the insured knowledge of the
ASSURANCE insured, and value of the lost person securing it
CORPORATION he has cargo in the exercise he may show the
(G.R. No. received of its subrogatory real value:
 o presumption of a the cost
f loss from the loss cannot
3.An
of the property out be
insurer is liable
t of which they were ascertai
upon a partial loss
h expected to arise, ned, its
only for such
e and the valuation Market
proportion of the
fixes their Value at
amount insured by
a amount), a the time
him as the loss
v proportion of such and
bears to the whole
e profits equivalent place of
interest of the
r to proportion of lading.
insured (section
a the value of the Adding
157). The effect is
g property lost bears the
that the insured is
e to the value of the charges
deemed a co-
whole (section incurre
insurer if the value
c 158). d in
of the insurance is
l purchas
less than the value
a ing and
of the property.
u placing
This applies even in
s (1) it on
the absence of a
e IF THE POLICY board
stipulation in the
: IS OPEN but
contract and is also
without
known as the (1) insura
referenc
average clause. nce is (a) The e to any
for value of
I loss
less the ship
T incurre
than is the
h d in
actual value at
e raising
value; the money
(2) the beginni
t for its
loss is ng of
w purchas
partia the risk,
o e or any
l includin DRAWB
g all ACK on
r
Note: That co- articles its
e
insurance exist or EXPROP
q
in Marine charges RIATION
u
Insurance: In which or
i
Fire Insurance, add to FLUCTU
s
there is no co- its ATION
i
insurance perman of the
t
unless ent market
e
expressly value or at the
s
stipulated which port of
(sections 171- are destinat
f
172). In life necessa ion or
o
insurance, ry to expense
r
there is none prepare s
also as value is it for incurre
t
fixed in the the d on the
h
policy (section voyage way or
e
183) insured; on
(b) The arrival;
a
value of
p
4.In case the
p Drawback
profits are cargo is
l government
separately insured its
i allowance
in a contract of actual
c upon duties
marine insurance cost to
a on imported
(see section 105) , the
t merchandise
the insured can insured,
i when the
recover in case of a when
o importer re-
loss (and under laden on
n exports
section 160, there board
is a conclusive where
instead of destination in of beneficiary to
selling it; a damaged recover recover on the fire or
condition, the y; property insurance
loss of the policy, it is required
(c) Value of insured is that he must have
FIRE INSURAN
freighta deemed to be insurable interest in
CE
ge is the the same the property
gross proportion of insured. In this case,
freightag the value MLQ does not have
COVERAGE IN FIRE
e, which the insurable interest in
INSURANCE
exclusiv market price the condominium
e or at that port of Insurance unit.
primage the thing so against fire
without damaged includes loss or
damage due to FIRE DEFINED
referenc bears to the
e to the market price it lightning, In
cost of would have windstorm, tornado, insurance, it is
earning brought if earthquake or other defined as the
it; sound allied risks when active principle of
(section 162). such risks are burning,
Meaning if covered by characterized by
Primage
reduction in extensions to the heat and light
compensatio
value is 1/5, fire insurance combustion.
n paid by the
then amount policy or under Combustion
shipper to the
of recovery separate policies without visible
master of the
on the (section 167). light or glow is not
vessel for his
insurance is Hence, while it is fire. Example:
care and
also 1/5. not limited to loss Damage caused by
trouble
or damage due to smoke from a lamp
bestowed on
fire, coverage as to when no ignition
the goods of
The formula other risks is not occurred outside
the shipper,
is: automatic; the lamp.
which he
retains in the To allow
absence of a 2001 BAR EXAM recovery, it must be
(a) Market
contrary (N0.XVII) the proximate of
price in
stipulation the damage or loss
sound
with the Q: JQ, owner and fire must be
state
owner of the of the condominium hostile if it:
less
vessel; unit, insured the
market a. bu
price in same against fire rn
damage with XYZ Insurance s
(d) The cost
d state Corp. and made the at
of
equals loss payable to his a
insuran
reductio brother. MLQ. In case pi
ce is in
n in of loss by fire of the ec
each
value; said condominium e
case to
(b) Reducti unit, who may w
be
on in recover on the fire he
added
value insurance policy? re
to the
divided State the reasons for it
value
by your answer? is
thus
market no
estimat
price in A: JQ can t
ed
sound recover on the fire int
(section
state insurance policy for en
161);
multipli the loss of the said de
ed with condominium unit. d
IF THE CARGO the He has the insurable to
INSURED amount interest as owner- bu
AGAINST of insured. As rn;
PARTIAL LOSS insuran beneficiary in the b. st
ce fire insurance policy, ar
equals MLQ cannot recover ts
If it arrives at the on the fire insurance as
the port of amount policy. For the a
 fri ch s constitute an
en be an alteration so as to
dl co d allow the
y m un rescission of the
fir es co contract to wit:
e HO nt
(a) The
bu ST rol
use
t IL la
or
be E bl
cond
co by e;
ition
m no -as opposed
of
es t to friendly fire one
the
ho es that burns in a
thing
sti ca place where it is
insur
le pi intended to burn
ed is
if ng and employed for
speci
it fro the ordinary
ficall
sh m purpose of lighting,
y
ou its heating, or
limit
ld pr manufacturing. But
ed or
es op the policy itself
stipu
ca er may limit or
lated
pe pl restrict coverage to
in
fro ac losses under
the
m e ordinary
polic
th bu conditions but not
y but
e t those due to extra-
unde
pl be ordinary
r
ac ca circumstances or
secti
e us abnormal
on
w e conditions like war,
170,
he of invasion, rebellion,
the
re th civil war or similar
contr
it e case. In these cases
act
is un recovery is still
of
int su possible;
insur
en ita
ance
de bl
is
d e ALTERATION
not
to m DEFINED
affec
bu at Is a change ted
rn eri in the use or by
an al condition of a thing an
d us insured from that act
be ed to which it is of
co to limited by the the
m lig policy, made insur
es ht without the ed
un it consent of the subs
co an insurer, by means eque
nt d within the control nt to
rol it of the insured, and the
la be increasing the risk, exec
bl co which entitles the ution
e; m insurer to rescind of
c. is es the contract of the
a in insurance (section polic
fri he 168); y,
en re
whic
dl ntl
h
y y -From the does
fir da foregoing not
e ng definition, the viola
w er REQUISITES must te its
hi ou be present to provi
 sions ation but the
even is unde issuance
thou with r of the
gh it out secti policy
incre the on when
ases cons 169 the risk
the ent any is
risk of alter increase
and the ation d
is insur in without
the er; the a
caus (d) The use corresp
e of alter or onding
the ation cond increase
loss; is ition in
mad of premiu
e by the m is
Example: (1) If the
mea thing paid;
insured stored
ns insur
thinner, paints and
withi ed
varnish. A fire MEASURE OF
n the from
subsequently INDEMNITY IN FIRE
insur that
occurs and there is INSURANCE
eds to
no express
contr whic - In an
prohibition as to
ol. If h is open
storage of such
the limit policy, it
items, even if the
alter ed by is the
risk is increased,
ation the expense
the insurer is still
be by polic it would
liable (Bachrach vs.
accid y, be to the
British Assurance,
ent whic insured
17 Phil 555);
or h at the
mea does time of
ns not the
(2) The policy
beyo incre commen
states that the 1st
nd ase cement
floor is
the the of the
unoccupied, it is
contr risk fire to
later occupied.
ol of does replace
There is no
the not the
alteration that
insur affec thing
entitles the insurer
ed, t the lost or
to rescind, the
the contr injured
description of the
requ act; in the
house cannot be
isite conditio
said to be a
is n in
limitation as to use BUT THERE MUST
not which it
(Hodges vs. Capital NOT BE ANY
met. was at
Insurance 60 O.G. VIOLATION OF THE
Example: The the time
2227) CONTRACT
alteration is made of the
OTHERWISE
by a tenant with injury.
(b) Ther the consent or - The - In a
e is knowledge of the basis for valued
an insured, the rescissio policy, it
alter insurer cannot n is that is the
ation rescind; payment same as
in of the in
(e) The
the premiu marine
alter
said m is insuranc
ation
use based e, the
incre
or on the valuatio
ases
cond risk as n as
the
ition; assessed agreed
risk
(c) The at the upon by
of
alter time of the
loss
 parties (3) In case of payment, - Generall
is loss, the option y, it is
conclusi provided to repair, one that
ve in the there is rebuild or covers
adjustm no change replace loss or
ent of increasin the liability
either a g the risk property arising
partial without wholly or from an
or total the partially accident
loss in consent of damaged or
the the or mishap
absence insured destroyed excludin
of fraud or fraud shall be g those
(section on the exercised. that fall
171). part of (Section exclusiv
the 172). ely
insured, within
HOW IS VALUATION
the other
MADE No
insurer types of
(1) Whenever policy of
will pay insuranc
the fire
the whole e like
insured insuranc
amount fire or
would e shall
so marine.
like to be
insured It
have a pledged,
and includes
valuation hypothe
stated in employe
stated in a cated or
the policy rs
policy transfer
is paid. If liability,
insuring a red to
it is a workme
building any
partial ns
or person,
loss, the compen
structure firm or
whole sation,
against compan
amount of public
fire, it y that
the liability,
may be acts as
partial motor
made by agent
loss is vehicle
an for or
paid. In liability,
independ otherwi
case there plate
ent se
are 2 or glass
appraiser, represe
more liability,
who is nts the
policies, burglary
paid by issuing
each shall and
the company
contribut theft,
insured , such
e pro-rata personal
and the shall be
to the accident
value may void and
total or and
be fixed of no
partial health
between effect
loss but insuranc
the insofar
the e as
insurer as it may
liability of written
and the affect
the by non-
insured; other
insurers life
(2) Subseque creditor
cannot be compani
ntly, the s of the
more es and
clause is insured
than the other
then (section
amount substant
inserted 173)
stated in ially
in the the similar
policy policy; CASUALTY INS insuranc
that said (4) Or the URANCE e
valuation parties (section
has thus may 174);
been stipulate CASUALTY
fixed; that INSURANCE
DEFINITIONS
instead of DEFINED
 not all d in the months later, he died
types of policy; of a bullet wound in
EMPLOYERS
this his head. He was
LIABILITY
insuranc playing with his
PLATE GLASS
- is e is hand gun from
insuranc underwr - is which he removed
e itten by insuranc the magazine. He
obtaine the GSIS e that pointed his gun to
d by the or the indemni his temple and fired.
employe SS. fies the The insurance
r against insured company refused to
liability against pay the beneficiary.
PUBLIC LIABILITY
to an loss Was there suicide or
employe - is caused accident?
e for insuranc by the SC Ruling:
damages e against accident 1. X was
caused liability al negligent but
or of the breakin it should not
arising insured g of
prevent the
from to pay plate
injuries damages glass, beneficiary
by for window from
reason accident s, doors recovery
of his al bodily or show because
employ injury or cases; there is
ment; damage nothing in
to
BURGLARY AND the policy
propert
WORKMENS THEFT that exempts
y arising
COMPENSATION the insurer of
from an - is
- is activity insuranc the
insuranc of the e against responsibility
e insured loss of to pay
secured defined propert
indemnity if
by an in the y
employe through the insured is
policy;
r for the burglary shown to
benefit and have
MOTOR VEHICLE
of his theft; contributed
LIABILITY
employe to his own
es and - is accident.t
PERSONAL
laborers insuranc 2. The death is
ACCIDENT
for loss e against
is accidental.
resultin loss or -
g from injury insuranc Accident
injuries, arising e against happens by
disable from the expense, chance
ment, or use of a loss of without
death motor time and intention or
through vehicle sufferin
design and
industri by its g from
accident which is
al owner
accident as s that unexpected
, opposed cause a or
casualty, loss or physical unforeseen.
or damage injury;
disease to the HEALTH
in vehicle SUN INSURANCE - is
connecti itself. OFFICE vs. CA July insuranc
on with Coverag 17, 1992 (1993 and e for
their e for 1994 Bar exams) indemni
employ both X was issued a ty for
ment. may personal accident expense
Note however insurance for s or loss
that be P200,000. Two occasion
most if containe
 ed by compani accepted fails to
sickness es) by the pay;
or obligor, (2) A surety
disease; it is is
WHAT IS THE
valid primaril
LIABILITY OF THE
despite y liable,
SURETYSHIP SURETY
non a
- It is joint payment guarant
and of the or is
DEFINITION
several premiu seconda
- An (solidar m rily
agreeme y) with (Section liable;
nt the 177); (3) A surety
whereby obligor is not
a party but entitled
called WHAT OTHER LAWS
limited to
the GOVERN A
to the exhausti
surety SURETYSHIP
amount on, a
guarant CONTRACT?
of the guarant
ees the bond -In the or is
perform and absence entitled
ance by determi of to
another ned specific exhausti
party strictly provisio on;
called by the ns, civil
the terms of code
principal NON-NECESSITY OF
the provisio
or A DEMAND ON THE
contract ns apply
obligor SURETY Demand
in in a
of an on the surety is not
relation suppleto
obligatio necessary before
to the ry
n or bringing the suit
principa characte
underta against them. On this
l r if
king in point, it may be
contract necessar
favor of worth mentioning
between y to
a 3RD that a surety is not
obligor interpre
party even entitled, as a
obligee t the
called matter of right, to be
(section contract
the given notice of the
176); provisio
obligee principals default.
ns
(section (Intra-Strata
(Section
IS A SURETYSHIP Assurance
175); 178);
CONTRACT VALID Corporation, Et Al. v.
DISTINGUISHED
AND BINDING Republic of the
WITH GUARANTY
Includes WHERE THE Philippines, Etc., Jul.
official PREMIUM HAS NOT (1) A surety 9, 2008 G.R. No.
recogniz YET BEEN PAID? assumes 156571)
ances, liability
- Generall
bonds or as a REPUBLIC vs. CA
y,
underta regular and R & B SURETY
payment
kings party to AND INSURANCE
of the
issued the COMPANY, INC.
premiu
by any agreeme (G.R. No. 103073
m is a
compan nt, a March 13, 2001)
conditio
y under guarant
n
act no. ors Surety of Sureties;
precede
536, as liability Liability of; Joint
nt.
amende depends and several with
Hence
d by act on an the obligor; Limited
the bond
no. 2206 indepen to the total amount
is not
(govern dent of the bond. -Section
valid. An
ment agreeme 176 of the Insurance
exceptio
transacti nt to pay Code provides:
n is
ons by if
when it
authoriz primary "SECTION
is issued
ed debtor 176. The
and
 liability of (b) his upon benefici
the surety of survi death aries;
sureties shall ving the face
be joint and a amount
ANNUITY
several with speci is to be
the obligor fied paid if - where
and shall be peri death the
limited to the od; occurs insured
amount of or while or a
the bond. It (c) othe payment named
is rwis is not person/
determined e, complet s is paid
strictly by conti e a sum or
the terms of ngen benefici sums
the contract tly ary acts periodic
of suretyship on face ally
in relation to the amount; during
the principal conti life or a
contract nuan certain
TERM POLICY
between the ce or period
obligor and cessa - insurer (note
the obligee, tion is liable that
(as amended of only contract
by P.D. No. life; upon s for the
1455)." death of payment
the of
COMMON KINDS
LIFE INSURAN insured endowm
CE within ent or
the annuitie
WHOLE
agreed s are
LIFE/ORDINARY
DEFINITION term or consider
LIFE/STRAIGHT
period. ed as life
- Is LIFE
If insuranc
insuranc premiu
- insured e
e on ms are survives contract
human payable the s);
lives and for life insurer
insuranc and the is not
e DISTINGUISHING
insurer liable;
appertai LIFE INSURANCE
agrees
ning FROM
to pay
thereto ENDOWMENT
the face PAYMENT OF
or value - protecti ANNUITY
connect upon the on is for
ed death of a limited
therewit the period, (1) In life
h insured; if the insuranc
(section insured e, it is
179); is still payable
LIMITED PAYMENT
alive at upon the
LIFE
WHEN IS IT the end death of
PAYABLE - insured of the the
pays period, insured,
- An premiu while in
the
insuranc ms for a annuity,
value of
e upon limited it is
the
life may period payable
policy is
be made after during
paid to
payable which the
him. If
upon: he stops lifetime
he dies
(a) deat with a of the
before
h of guarant annuita
the end
the ee by nt;
period,
pers the it is paid
on; insurer to the
or that
 (2) In life in injur whe
insuranc brin y is n the
e, the ging not insur
premiu deat the ed is
m is h of natu exec
paid in the ral uted
installm insur or for a
ents, ed; prob crim
while in able e
annuity, resul com
b. By
annuita t of mitte
polic
nt pays a the d;
y
single insur
whe
premiu eds
n it (2) Suicide,
m; volu
does if
ntar
not committ
y act
(3) In life cove ed after
(Fin
insuranc r the
man
e, there assa policy
Gene
is lump ult, has been
ral
sum mur in force
Assu
payment der for a
ranc
upon or period
e
death, injur of two
Corp
while in ies years
orati
annuity, inflic from
on
annuitie ted date of
vs.
s are inten issue or
CA,
paid tiona last
213
until lly by reinstat
SCRA
death; a 3RD ement
493)
pers unless
as
on policy
oppo
but provides
WHAT RISKS ARE sed
wher a
COVERED? to an
e the shorter
act
(1) Generall insur period
of
y - all ed is but it is
the
causes not neverth
insur
of death the eless
ed to
are inten compen
confr
covered ded sable if
ont
unless victi committ
burg
exclude m, ed in the
lars
d by law, insur state of
(Bala
by er is insanity
gtan
policy or liabl regardle
vs.
public e ss of
Insul
policy. (Cala date of
ar
noc commiss
Life
vs. ion
Examples: Assu
CA, (Section
ranc
a. By 98 180-A)
e
law Phil
Com
bene 79).
pany, IS A LIFE
ficiar Wha
44 INSURANCE POLICY
y is t
SCRA TRANSFERABLE OR
the must
58). ASSIGNABLE?
princ be
ipal, consi - Yes, it
acco dere c. By may
mpli d is publi pass by
ce or that c transfer,
acces deat polic will or
sory h or y successi
 on to unless the by
any made in measure stockholders
person, good of but by policy
whether faith; indemni holders) it
he has ty must have
insurabl (section available
IS NOTICE TO THE
e 183). cash assets
INSURER OR
interest Hence a of at least
TRANSFER OR
or not. life Php5,000,00
BEQUEST
(Section insuranc 0.00 above
REQUIRED?
181); e policy all liabilities
- Effect, - It is not has been for losses
the necessar held to reported,
person y to be a expenses,
to whom preserve valued taxes, legal
it is the policy; reserves of
transfer validity all
red may of the outstanding
BUSINESS INS
recover policy risks, and
URANCE
upon it unless the
whateve thereby contributed
r the expressl surplus fund
ORGANIZATION,
insured y equal to the
CAPITALIZATION
might required amounts
AND
have (Section required of
AUTHORIZATION
recovere 181); stock
d; corporations
IS THE CONSENT OF REQUIREMENTS (Php1,000,0
THE BENEFICIARY FOR A 00.00 if a life
Note
REQUIRED? CERTIFICATE OF insurance
while
AUTHORITY company or
there is - Yes, if he
FROM THE Php500,000.
no need designat
INSURANCE 00, if a non
for the ed as an
COMMISSION life
assignee irrevoca insurance
/transfe ble company).
ree to benefici (a) Qualified by (e) If a foreign
have ary as he Philippines insurance
insurabl has Laws to company, it
e acquired transact must appoint
interest, a vested insurance a resident
it should right; business; agent,
not be
(b) Has a name deposit
used to
WHAT IS THE that is not in securities
circumv
MEASURE OF anyway and maintain
ent the
INDEMNITY IN LIFE similar to a legal
law
INSURANCE? another reserve
prohibit
company; (Section 184-
ing - Unless
(c) If organized 193);
insuranc the
e as a stock
interest
without corporation, MARGIN OF
of a
insurabl it should SOLVENCY
person
e have a paid
insured - The margin
interest. up capital of
is of solvency is
Thus, an no less that
suscepti the excess of
assignm Php5,000,00
ble of the value of
ent 0.00;
pecunia insurance
contemp (d) If it is
ry companys
oraneous organized as
estimati admitted
with a mutual
on, the assets
issuance company
amount exclusive of
may (one whose
stated or its paid up
invalidat capital funds
specifie capital. In
e the are not
d in the case of a
policy contributed
policy is
 domestic risk and no vehicles for used
insurance dividends transportati on
company and can be on of public
the excess of declared passengers highwa
the value of (section for ys;
its admitted 195). compensatio (b) Those
assets in the n, including that
Philippines school run on
COMPULSORY
exclusive of buses) or rails
MOTOR VEHIC
security owner of a or
LE
deposits motor trucks;
over the LIABILITY IN vehicle (c) Tracto
amount of its SURANCE (actual legal r,
liabilities, owner of a trailer
unearned motor s
premiums, CONCEPT OF vehicle in (when
and COMPULSORY whose name propel
reinsurance MOTOR VEHICLE the vehicle is led or
reserves in LIABILITY registered intend
the INSURANCE with the ed to
Philippines It is to LTO) would be
(Section provide protection be propel
194); or coverage to considered led by
- The required answer for bodily as unlawfully an
margin is in injury or property operating a attach
case of life damage that may motor ment
insurance be sustained by vehicle (is to a
companies is another arising any vehicle motor
two percent from the use of as defined in vehicle
(2%) of the motor vehicle. Section (3) is
total amount Please note though RA 4136 classifi
of its that what is now which is ed as a
insurance in compulsory is propelled by motor
force as of death of bodily any power vehicle
the injury arising from other than withou
preceding motor vehicle muscular t
calendar accidents as per power using power
year on all amendment to the public high rating)
policies insurance code by ways with ,
except term PD 1814 and PD exceptions: tractio
insurance 1455 brought (a) road n
and in case about by insurance rollers engine
of non life losses due to , s of all
insurance padded claims for holley kinds
companies, property damage. cars, used
at least ten Hence, property street exclusi
percent damage is now sweep vely
(10%) of optional; ers, for
total amount sprink agricul
of its net les, tural
premium HOW IS ITS lawn purpo
during the COMPULSORY mover ses)
preceding NATURE s, Unless
calendar ENFORCED? bulldo there
year but in zers, is:
no case to be - The grader (1) po
less than compulsory s, lic
Php500,000. nature of the forklift y
00. If not insurance is s, of
met, the enforced by amphi in
insurance prescribing bian su
company is that any land trucks ra
(a) not transportati or nc
permited to on operator cranes e
take on any (owner/s or not (c
motor
 on ; (c) Compre the
tr or hensive insured.
ac insuranc Hence,
t surety bond e there is
of answers no need
in for all for the
su Compliance by the liabilitie insured
ra motor vehicle s/damag to wait
nc owner or the land es for a
e transportation arising decision
ag operator is from the of the
ai monitored as the use/ope court
ns Land ration of finding
t Transportation a motor him
pa Office shall not vehicle guilty of
ss allow registration it reckless
en or renewal of includes imprude
ge registration third nce. The
r without party occurre
or compliance with own nce of an
3R section 374 damage, injury
D
(section 376); theft for
pa and which
rt propert the
y DISTINGUISHED y insured
lia FROM OWN damage; may be
bil DAMAGE COVERAGE liable
ity AND immedia
COMPREHENSIVE WHEN DOES THE
fo tely
MOTOR VEHICLE LIABILITY OF THE
r gives
INSURANCE INSURER ACCRUE?
de rise to
at - in an insurer
h insuranc liability
or (a) Third e policy (Shafer
bo party that vs.
dy liability directly Judge,
inj answers insures 167
ur for against SCRA
y liabilitie liability, 386). In
ar s arising the fact a
isi from insurers third
ng death or liability party
fr bodily accrues can
o injury to immedia bring a
m 3RD tely claim or
m persons upon the an
ot or occurre action
or passeng nce of directly
ve ers; the against
hi (b) Own injury the
cl damage upon insurer
e insuranc which as the
ac e liability general
ci answers depends purpose
de for , and of the
nt reimbur does not statute
s); sement depend is to
or of the on the protect
(2) gu cost of recovery the
ar repairin of injured
an g the judgmen against
ty damage t by the the
in to injured insolven
ca vehicle party cy of the
sh of the against insured;
insured;
 the order (Section
policy of the 381);
NATURE OF THE
insuranc immedia
LIABILITY OF THE
e, they te
INSURER EFFECT OF CHANGE
will be confisca
IN OWNERSHIP OR
- It is not required tion of
CHANGE IN ENGINE
solidary to show license
with the proof of plates There is no
insured. a cash unless it need to issue a new
The deposit receives policy until the
liability with the a new next date of
of the commiss valid registration
insurer ioner, insuranc provided the
is based but the e/surety insurer shall agree
on authorit /proof to continue the
contract, y of the of cash policy and such
while insuranc deposit change shall be
that of e or indicated in a
the compan revival second duplicate
insured y to by which is filed the
is based engage endorse Land
on tort. in ment of Transportation
(Malaya casualty the Office;
n or cancelle
Insuranc surety d policy
e vs. CA, lines of (Section OTHER PROHIBITED
165 business 130); ACTS
SCRA shall be (b) By the (1) The
536); withdra insured motor
wn the vehicle
WHO CAN ISSUE immedia motor owner
POLICY OR SURETY tely vehicle or the
BOND? (section owner/l Land
379); and Transpo
- Those transpor rtation
authoriz tation
CANCELLATION OF Operato
ed by operator
THE POLICY r cannot
the shall require
commiss (a) By the secure a driver/s
ioner in insurer similar /employ
the list requires policy or ees to
furnishe written surety contribu
d to the notice to before te to the
Land motor the payment
Transpo vehicle cancelle of the
rtation owner/l d premiu
Office and policy/s m
(Section transpor urety (section
375). If tation ceases 385);
the operator to be (2) Any
Motor at least effective governm
Vehicle 15 days or make ent
Owner prior to a cash office or
or the intende deposit agency
Land d and file having
Transpo effective the the duty
rtation date. If same or to
Operato so proof impleme
r is canceled thereof nt the
unable , the with the provisio
to Land Land ns,
obtain Transpo Transpo official
or is rtation rtation or
unreaso Office Office employe
nably may e
denied
 thereof 377 delay, having
shall not (minimu within 6 prescrib
act as an m limits month ed;
agent in of from the
procurin coverage date of
WHAT SHALL
g the ) it is accident
INSURANCE
policy or sufficien by
COMPANY DO UPON
surety t cause giving
FILING OF THE
bond for written
CLAIM?
and in revocati notice
no case on of a setting - It shall
shall the certifica forth the forthwit
commiss te of nature, h
ion of public extent ascertai
the convenie and n the
procurin nce duration truth
g agent (section of the and
exceed 388); injuries extent of
10% of - If the as the
the violatio certified claim
premiu n is by a duly and
ms paid committ licensed make
(section ed by a physicia payment
387); corporat n within 5
ion/asso (section working
ciation 384); days
PENALTIES FOR
or after
VIOLATION
governm reaching
EFFECT OF FAILURE
- The ent an
TO FILE CLAIM
penaltie office/e agreeme
WITHIN PERIOD
s for a ntity, the nt. If no
violatio executiv - The agreeme
n by the e failure nt is
Motor officer/s to file a reached,
Vehicle who claim it must
Owner shall will be neverth
or the have deemed eless
Land knowing a waiver. pay the
Transpo ly If a no fault
rtation permitte claim is indemni
Operato d or filed but ty
r is a failed to denied, (Section
fine of prevent an 378)
not less the action without
than violatio must be prejudic
Php500. n shall brought e to a
00 nor be held within 1 further
more liable as year pursuit
than principa from of the
Php1,00 ls date of clam in
0.00 (Section denial which
and/or 389); with the case he
impriso Insuranc shall not
nment e be
PAYMENT OF
for not Commis required
CLAIMS
more sioner or
than 6 - A claim or the compell
months. for Court, ed to
If a Land payment otherwi execute
Transpo must be se the a quit
rtation filed right of claim or
Operato without action release
r any will be from
violates unneces deemed liability.
section sary as Note
 though er of 0 ,
that in third 0 t
case of party ; h
dispute without (b) t e
as to necessity h s
enforce of e e
ment of proving n a
policy fault or e r
provisio negligenc c e:
ns, the e. This is e p
adjudica payable s o
tion by the s li
shall be insurer a c
within provide r e
the d: y r
original (a) i p e
and n r p
exclusiv d o o
e e o r
jurisdict m f t
ion of n o o
the it f f
commiss y l a
ioner i o c
subject n s c
to r s i
section e u d
416, s n e
which p d n
provides e e t
for c r a
concurr t o n
ent o a d
jurisdict f t e
ion but o h it
the n t h
filing e o e
with the p s r
insuranc e u t
e r b h
commiss s s e
ioner o t d
shall n a e
preclude s n a
filing h ti t
with the a a h
court ll t c
(Section n e e
385); o t r
- t h ti
WHAT IS NO FAULT e e fi
INDEMNITY? x cl c
c a a
- A no
e i t
fault
e m e
indemni
d i a
ty claim
P s n
is a
h s d
claim
p u s
for
5 b u
payment
, m ff
for
0 it i
death or
0 t c
injury to
0 e i
a
. d e
passeng
n h insurer agai
t o only as nst
e s follows: the
v p (a) in own
i it case er of
d a of an the
e l occu vehic
n d pant le
c i of a resp
e s vehic onsi
t b le ble
o u agai for
e r nst the
s s the accid
t e insur ent
a m er of shall
b e the be
li n vehic main
s t le in taine
h i whic d;
t n h the
h r occu
INTERPRETATION
e e pant
OF THE
p s is
AUTHORIZED
a p ridin
DRIVER CLAUSE
y e g,
e c mou - The
e t nting authoriz
o o or ed
r f dism driver
m w ounti clause is
e h ng interpre
d i from ted to
i c ; refer to
c h (b) in the
a r any insured
l e othe or any
r f r person
e u case, driving
p n from on the
o d the order of
r i insur the
t s er of insured
a m the or with
n a direc his
d d tly permissi
e e offen on
v ; ding provide
i vehic d, such
d le; person
AGAINST WHOM IS
e (c) in all is
THE PAYMENT
n cases permitte
CLAIMED
c , the d to
e - a claim right operate
o under of a motor
f the no the vehicle
m fault part in
e indemni y accorda
d ty clause payi nce with
i may be ng our
c made the licensin
a against clai g laws or
l one m to regulati
o motor reco ons and
r vehicle ver who is
 not SCRA 1986
otherwi 31); BAR) ANSWER:
se (3) A
disqualif tourist No. When an
COMPULSORY
ied; with insurance policy
MOTOR VEHICLE
license insures directly
LIABILITY
but in against liability, the
INSURANCE(ThirdP
the insurers liability
artyLiability
NOTE THE country accrues immediately
Insurance)
FOLLOWING for upon the occurrence
JURISPRUDENCE more of the injury.
The purpose
(1) If than 90 No. The
of this kind of
license days, is insurer cannot be
insurance is to
is not held solidarily liable
indemnify the death
expired, authori with X because its
or injury of a third
person zed to liability is based on a
person or passenger
is not operate contract while that
from the use of the
authori a motor of X is based on
motor vehicle. The
zed to vehicle torts. (Vda. De
injured party can
operate because Maglana vs.
sue immediately and
a motor it is as if Consolacion, August
directly the
vehicle he has 6, 1992)
insurance company.
(Tarco no
This will protect the
Jr. vs. license VDA. DE
injured person
Phil (Strokes MAGLANA VS.
against the
Guarant vs. CONSOLACION
insolvency of the
y, 15 Malayan
insured. It allows
SCRA , 127 SC RULING:
the passenger to
313); SCRA
recover from the
(2) Issued a 766); Where an
insurer of the vehicle
tempor (4) A insurance policy
where he was riding.
ary drivers insures directly
operato license against liability, the
1996 BAR
rs that insurers liability
EXAM
permit bears accrues immediately
or a all the upon the occurrence
PROBLEM
tempor earmar of the injury or even
ary ks of a upon which the
1.While
vehicle duly liability depends,
driving his car, X
receipt, issued and does not depend
sideswiped A
a license upon the recovery of
causing injuries to
person is judgment by the
the latter. A sued X
is presum insured party
and the third party
authori ed against the insured.
liability insurer for
zed to genuine The underlying
the damage
operate ; reason behind the
sustained by A.
a motor (5) A third party liability
2. The
vehicle, license of the Compulsory
insurance company
but if it is not Motor Vehicle
moved to dismiss
has necessa Liability Insurance is
the complaint
expired, ry, to protect the
contending that
it is as if where injured person
theliability of X has
he has the against the
not yet been
no insured insolvency of the
determined with
license himself insured who causes
finality.
(Guitere is the such injury, and to
z vs. driver give such injured
Is the
Capital (Patern person a certain
contention of the
Insuran o vs. beneficial interest in
insurance company
ce, 130 Pyrami the proceeds of the
correct? May the
SCRA d policy. However, the
insurer be held
618, Insuran direct liability of the
solidarily liable with
PEZA vs. ce, 161 insurer under the
X
Alikpala SCRA indemnity contracts
, 160 677, against third party
liability does not immediately upon a valid highway without a
mean that the the occurrence of drivers license and license or with an
insurer can be held the accident. Any the loss of the expired license,
solidarily liable with amount awarded vehicle. To rule subjects him to
the insured and/or beyond the amount otherwise would penal sanctions
the other parties stated in the policy render car insurance under the Motor
found at fault. The is the sole practically a sham Vehicle Law but does
liability of the responsibility of the since the insurance not bar recovery
insurer is based on carrier. company can easily under the insurance
contract and the escape liability by contract. The
liability of the PERLA COMPANIA citing restrictions requirement that the
insured is DE SEGUROS, INC. which are not driver be permitted
based on tort. If the VS. COURT OF applicable or in accordance with
insurer was to be APPEALS germane to the law and regulations
held solidarily liable 208 SCRA 487 claim, thereby to drive the
with the insured (1992) reducing indemnity motor vehicle and is
under the indemnity to a shadow. not disqualified from
contract against SC RULING: driving such vehicle
third party liability, 3. by order of a Court
then this would Where a car AUTHORIZED of law or by reason
violate the principles is admittedly, as in DRIVER RULE of any enactment or
underlying solidary this case, unlawfully (1991 Bar Exams) regulation applies
obligation and and wrongfully only when the driver
insurance contracts. taken without the For purposes is driving on the
In fine, the court owners consent or of recovery, the insureds order or
concludes that the knowledge, such driver of the vehicle permission, such as
liability of AFISCO taking constitutes must be in a regular driver, a
based on the theft, and therefore possession of a valid, friend, a member of
insurance contract is it is the theft subsisting and the family, or the
direct, but not clause and professional drivers employee of a car
solidary with that of not the authorized license. But this rule service or repair
Destrajo which is driver clause that will not apply if the shop. It doe not
based on should apply. one driving the apply when the
Article 2180 of the Clearly, the risk vehicle at the time of person driving is the
Civil Code. As such, against the accident was the insured himself.
petitioners have the accident is distinct owner of the vehicle.
option either to from the risk against (Palermo v. 4. NON-FAULT
claim the 15, 000 theft. The Pyramids Ins., 161 CLAUSE IN
from AFISCO , the P authorized driver SCRA 677) COMPULSORY
5,000 had already clause in a typical MOTOR
been paid under the insurance policy is in VEHICLE
no-fault clause, and contemplation or PALERMO V. INSURANCE POLICY
the balance from anticipation of PYRAMIDS (2000 Bar
Destrajo or enforce accident in the legal INSURANCE CO., Exam)
the entire judgment sense in which it INC.,
from Destrajo should be MAY Proof of fault
subject to understood, and not 31, 1988 or negligence is not
reimbursement in contemplation or necessary for the
from AFISCO anticipation of an SC RULING: payment of any
to the extent of the event such as theft. claim for death or
insurance coverage. In the present case Since the injury to a passenger
the loss of the driver of the insured or to a third party.
2.COMPREHENSIVE insured vehicle did motor vehicle at the The maximum
MOTOR VEHICLE not result from time of the accident amount of indemnity
INSURANCE ( 1993 accident where was the is P 10, 000.00 upon
& 2000 Bar Exam) intent was insured submission of death
involved; the loss himself, he was an certificate, medical
The liability was caused by theft, authorized driver certificate and police
of the insurance the commission of under the policy. report. The
company s direct which was attended Any infraction of the purpose is in order
and solidary with by intent. It is Motor Vehicle Law to give immediate
the operator but worthy to note that which prohibits a assistance to the
only up to the there is no casual person from victim of motor
amount stated in the connection between operating a motor vehicle accidents
policy and accrues the possession of vehicle on the and/or the
dependents specially the proliferation of this compensation, and which shall be
if they are poor, such insurance PUVs are required carried out purely
regardless of the companies. Because to obtain insurance from voluntary
financial capability of the PUV policies. (Eastern contributions
of the owner of the operators Assurance and collected not
motor vehicle or complaints, the Surety Corporation regularly and or no
operator responsible LTFRB thus assessed [easco] v. Land fixed amount from
for the accident. the situation. It Transportation whomsoever may
This does not found that in order Franchising and contribute, shall be
include property to protect the Regulatory Board, known as a mutual
damage. interests of the Oct. 7, 2003 G.R. No. benefit association
riding public and to 149717) within the intent of
resolve problems this Code. Any
- The involving the society,
OTHER PROVISIONS
claim is passenger insurance association, or
collected coverage of PUVs, it corporation
from the had to issue 1.Chapter VII principally
insurer of Memorandum Mutual Benefit organized as labor
the vehicle Circular No. 2001- Associations union shall be
where the 001 accrediting (Section 390. Any governed by the
claimant is PAMI and PAIC II as society, association Labor Code
riding, the two groups or corporation, notwithstanding
allowed to without capital any mutual benefit
mounting or participate in the stock, formed or feature provisions
dismounting. program. organized not for in its charter as
In all other Memorandum profit but mainly incident to its
cases, the Circular No. 2001- for the purpose of organization.) and
claim is 001 required that paying sick trust for charitable
against the [a]ll public utility benefits to institutions (Sec.
insurer vehicles whose LTO members, or of 410. The term
of the license plate, as per furnishing "trust for
offending latest LTO Official financial support charitable uses",
vehicle. Receipt, with an to members while within the intent of
- The EVEN middle out of employment, this Code, shall
insurer who number (0, 2, 4, 6 or of paying to include, all the real
pays the and 8) shall be relatives of or personal
claim can ask insured with UCPB deceased members properties or
reimbursem insurance (PAMI) of fixed or any sum funds, as well as
ent from the while those with an of money, those acquired
offending ODD middle number irrespective of with the fruits or
vehicle. (1, 3, 5, 7 and 9) shall whether such aim income therefrom
- The be insured with or purpose is or in exchange or
recovery by Great Domestic carried out by substitution
the insured Insurance (PAIC II) x means of fixed thereof, given to or
from the x x . dues or received by any
insurer is It should be stressed assessments person,
direct and that PUVs, as collected regularly corporation,
not common carriers, from the members, association,
dependent are engaged in a or of providing, by foundation, or
on the business affected the issuance of entity, except the
recovery with public interest. certificates of National
against the Under Article 1756 insurance, Government, it
insurer by of the Civil Code, in payment of its instrumentalities
the insured cases of death or members of or political
party. injuries to accident or life subdivisions, for
passengers, common insurance benefits charitable,
NECESSITY TO carriers are out of such fixed benevolent,
REGULATE presumed to be at and regular dues educational, pious,
INSURANCE fault and are or assessments, religious, or other
COMPANIES required to but in no case shall uses for the benefit
COVERING PUBLIC compensate the include any society, of the public at
UTILITY VEHICLES victims, unless they association, or large or a
The present case observed corporation with particular portion
shows a clear public extraordinary such mutual thereof or for the
necessity to regulate diligence. To assure benefit features benefit of an
indefinite number divided among insurance company TRANSPORTA
of persons.) themselves, in is allowed to engage
(Sections 396 to proportion to their in the insurance TION LAWS
413); interest.[17] Additiona business without a
lly, mutual insurance license or a COMMON
associations, or certificate of CARRIERS
2.Chapter VIII clubs, provide three authority from the
Insurance types of coverage, Insurance (Arts. 1732-1766,
Commissioner namely, protection Commission. New Civil
(Section 414 and indemnity, war Code)
Administrative The test to
risks, and defense Common Carriers
Functions, Section determine if a
costs. A P & I Club is are persons,
415 Power to contract is an
a form of corporations, firms
impose insurance contract
insurance against or associations
fines/suspensions or not, depends on
third party liability, engaged in the
Section 415, the nature of the
where the third business of carrying
Adjudicatory promise, the act
party is anyone or transporting
Powers Note: it is required to be
other than the P & I passengers or goods
concurrent with performed, and the
Club and the or both, by land,
courts but the exact nature of the
members. By water, or air, for
filing with the agreement in the
definition then, compensation,
commissioner shall light of the
Steamship Mutual as offering their
preclude civil occurrence,
a P & I Club is a services to the
courts from taking contingency, or
mutual insurance public.
cognizance of a suit circumstances under
association engaged
over the same which the
in the marine Transportation
subject matter. performance
insurance business. defined. a contract
Decisions are becomes requisite.
The records of transportation is
appealable to the It is not by what it is
reveal Steamship one whereby a
CA within 30 days called.
Mutual is doing certain person or
by notice of appeal association of
business in the
(Section 416); persons obligate
country albeit
without the requisite themselves to
certificate of transport persons,
WHITE GOLD things, or news from
MARINE SERVICES, authority mandated
by Section 187[20] of one place to another
INC., vs. PIONEER for a fixed price
INSURANCE AND the Insurance Code.
SURETY It maintains a
resident agent in the Classification:
CORPORATION 1. As to object: (1)
AND THE Philippines to solicit
insurance and to things; (2) persons;
STEAMSHIP (3) news
MUTUAL collect payments in
its behalf. We note 2. As to place of
UNDERWRITING travel: (1) land; (2)
ASSOCIATION that Steamship
Mutual even water; (3) air
(BERMUDA) LTD., .
[G.R. No. 154514. renewed its P & I
Club cover until it Parties to contract
July 28, 2005] of transportation:
was cancelled due to
Relatedly, a non-payment of the (1) shipper or
mutual insurance calls. Thus, to consignor.
company is a continue doing (2) carrier or
cooperative business here, conductor.
enterprise where the Steamship Mutual or (3) consignee
members are both through its agent
the insurer and Pioneer, must secure Common Carrier Private Carrier
insured. In it, the a license from the As to Availability
members all Insurance Holds himself out for Contracts wi
contribute, by a Commission. all people particular
system of premiums
Since a contract indiscriminately individuals
or assessments, to
of insurance involves groups only
the creation of a
public interest, As to require Diligence
fund from which all
regulation by the Extraordinary Ordinary
losses and liabilities
State is necessary. Diligence Diligence
are paid, and where
Thus, no insurer or As to regulation
the profits are
Subject to state Not subject The to true test is discrimination by done by the
regulation state regulation whether the given common carriers.-- carrier;
Stipulation limiting liability undertaking is a part The law requires 4. all the
Parties may agree Parties may limit of the business common carriers to attendant
on limiting the the engaged
carriers in by the carry for all persons, circumstance
carriers carrier which he has
liability liability, provided either passengers or s which
except when it is not contrary held out to the property, for exactly might affect
provided by law to morals or good general public as his the same charge for the question
customs occupation rather a like or of the
Exempting circumstances than the quantity or contemporaneous reasonable
Prove extraordinary Caso forfuito,art. extent of the service in the necessity for
diligence and 1174 NCC business actually transportation of the refusal
Art.1734,NCC transacted, or the no. like kind of traffic by the
Presumption of Negligence and character of the under substantially carrier to
There is a No presumption conveyances used in similar undertake
presumption of fault of fault the
or employment (the circumstances or the
or negligence Negligence test is therefore the conditions. The law transportatio
Governing law character of the prohibits common n of this class
Law on Common Law business
on actually carriers (CC) from of
Carriers obligations carried
and on by the subjecting any merchandise.
contracts carrier. person, etc. or
locality, or any kind What is the
(2002 Bar exams)
Characteristics of of traffic, to any DILIGENCE
common carriers: undue or required by
Test for a common
(1) The common unreasonable common carriers?
carrier:
carrier undertakes prejudice or Common carriers,
1. He must be
to carry for all discrimination from the nature of
engaged in the
people indifferently; whatsoever. their business and
business of
(2) The common Exception: When the for reasons of public
carrying goods
carrier cannot actual cost of policy, are bound to
for others as a
lawfully decline to handling and observe
public
accept a particular transporting is extraordinary
employment,
class of goods for different, then diligence in the
and must hold
carriage to the different rates may vigilance over the
himself out as
prejudice of the be charged goods and for the
ready to engage
traffic in those goods Determination of safety of the
in the
justifiable refusal: passengers
transportation of
Exception : for some This involves a transported by them,
goods for
sufficient reason, consideration of the according to all the
persons
where the following: circumstances of
generally as a
discrimination in 1. suitability of each case.
business, and
such goods is the vessels of Extraordinary
not a casual
reasonable and the company diligence lasts from
occupation.
necessary for the the time the cargoes
2. He must
(substantial transportatio are loaded in the
undertake to
grounds) n of such vessel until they are
carry goods of
(3) No monopoly is products; discharged and
the kind to
favored - the 2. reasonable delivered to the
which his
Commission has the possibility of consignee.
business is
power to say what is danger or Air carriers can
confined.
a reasonable disaster, terminate services of
3. He must
compensation to the resulting pilots for serious
undertake to
utility and to make from their misconduct and
carry by the
reasonable rules and transportatio drunkenness
methods by
regulations for the n in the form because of its
which his
convenience of the and under extraordinary
business is
traveling public and the diligence.
conducted, and
to enforce them conditions in
over his
(4) Public which they LIABILITY OF
established
convenience - for the are offered COMMON
roads.
best interests of the for carriage; CARRIERS: The
4. The
public 3. the general common carrier, is
transportation
nature of the at all times,
must be for hire.
The law prohibits business required to observe
unreasonable extraordinary
diligence with carrier. The the following carrier is not
respect to transport shipper may DEFENSES: proximate in
of goods. only prove (2002 Bar exams) character, the carrier
1. To bring that the shall be responsible,
passengers goods A) That the CC although such
safely to his arrived in a encountered: liability shall be
place of damaged a. An act of mitigated.
destination. condition or God;
He is obliged that they did there b. Act of public
to carry not arrive at must have enemy in war;
passengers all. been no c. Act by a
safely as far delay on the competent public
as human LOADSTAR part of the authority;
care and SHIPPING CO., INC common d.
foresight can VS. PIONEER ASIA carrier. Acts/omissions of
provide, INSURANCE Otherwise, if the shipper or his
using the CORP.Jan 24, 2006 delayed and agent;
utmost A common carrier not for good e. The goods or
diligence of a is required to reason, then the packaging is
very cautious observe it shall be inherently defective.
person with extraordinary held liable
due regard diligence in the notwithstan Even if the loss,
for all vigilance over the ding the fact destruction, or
circumstance goods it transports. that all the deterioration of the
s. In case of subsequent goods should be
death or I. VIGILANCE OVER requisites caused by the
injury, the THE GOODS were character of the
common RULES governing present. goods, or the faulty
carriers are common carriers must be an nature of the
presumed to LIABILITY over unforeseen event packing or of the
have been at Goods: or an event containers, the
fault or General RULE: which cannot be common carrier
negligent in Common carriers avoided must exercise due
transporting are responsible for The diligence to
the the loss, destruction, carrier must forestall or lessen
passengers or deterioration of have exercised the loss.
unless they the goods, extraordinary EXEMPTING CAUSE
prove that UNLESS the same is diligence REQUISITES for
they due to any of the before, natural disaster
observed following causes during, and or calamity
extraordinar only: after the 1. The natural
y diligence. 1) Flood, storm, time of the disaster
2. To transport earthquake, accident. must have
the goods/ lightning, or other The been the
cargoes natural disaster or proximate proximate
safely to the calamity; cause must cause of the
point of 2) Act of the public not be loss
destination if enemy in war, committed 2. It must have
there is loss whether by the been the
or damage to international or civil; carrier. If the only cause of
the 3) Act or omission proximate the loss
goods/cargo of the shipper or cause of the 3. The common
es, owner of the goods; event is carrier must
immediately 4) The character of caused by have
a the goods or defects the carrier, exercised
presumption in the packing or in then he due diligence
of negligence the containers; cannot to prevent or
arises that 5) Order or act of invoke the minimize
the loss/ competent public act of God before ,
damage to authority. (Art. defense. during and
the goods/ 1734) Under the rule on after the
cargoes was Contributory natural
due to the The CC may absolve Negligence, if the disaster
negligence of itself from liability negligence 4. The common
the common by proving any of attributable to carrier has
 not of the packing consignee has been delivered at ships
negligently /containers informed of the tackle have been
incurred 2. That the arrival of the goods considered valid ,
delay in common carrier and the consignee because it was held
transporting had exercised had reasonable time that it is not
the goods due diligence to to remove the same. contrary to morals
forestall or Under maritime and public policy ;
REQUISITES for lessen the loss. laws, the said stipulation is
act of public responsibility of the clear and have been
enemy - REQUISTES for carrier ends when adopted to mitigate
1. The act of the act of public the goods were the responsibility of
public enemy authority transmitted by the the common carrier.
must have been 1. The common carrier to the (LU DO vs.
the proximate of carrier must customs arrastre BINAMIRA)
the loss prove that the operator. Recall that
2. It must have public authority before the goods are Stoppage in
been the had the power to delivered to the Transitu is the right
only cause of issue the order consignee, the state of the unpaid seller
the loss for the has the who has parted with
3. The common destruction / responsibility to the possession of the
carrier must seizure of the ensure that the goods to stop them
have goods. goods being brought in transit, when the
exercised in are in accordance buyer of goods is or
due diligence B.) Another with the law. becomes insolvent.
to prevent or defensive strategy EFFECT: The carrier
Requisites:
minimize to escape liability is would no longer be
before , to invoke that it liable. The
during and exercised succeeding 1. Seller must
after the act extraordinary relationship would be an unpaid
of public diligence to prevent be between the seller;
enemy in or minimize the loss consignee and the 2. Goods must
war. at the time the arrastre operator, be in transit;
accident occurred. the relationship 3. Buyer must
REQUSITE FOR governing them be in a state
act or omission Negligence is the would be akin to a of
of Shipper - failure to observe contract of Deposit. insolvency;
1. That the act due diligence with EFFECT: Once the
or omission respect to the There is already an right is exercised,
of the circumstances at existing Contract of the common
shipper hand. carriage when the carrier becomes a
/owner of carrier took mere
the goods Contributory possession of the warehouseman.
must have Negligence is the cargo by placing it In the event that the
been the failure to observe on a lighter or barge UNPAID Seller
proximate due diligence that an manned by its exercises its right of
cause of the ordinary or prudent authorized stoppage in transitu ,
loss man undertakes in employees. the carrier
2. That it must relation to the (COMPANIA thereafter holds the
have been negligence of MARITIMA vs. goods in the capacity
the only another. INSURANCE COMP ) of an ordinary bailee
cause of the or warehouseman
loss. When does the and shall be liable
A bill of lading that
carriers only as such , upon
was issued covering
REQUSITES for responsibility over the theory that the
certain shipment
character of the goods arise? exercise of the right
which contained a
goods , fault in The carrier shall be by the unpaid seller ,
provision that the
packing or liable the moment such terminates the
carrier does not
containers- the goods arrive in contract of carriage.
assume liability for
1. That the his possession
any loss /damage to
loss , destruction whether actual or
the goods once they A STIPULATION
or deterioration constructive, until
have been under the LIMITING
was caused by such time that the
custody of the LIABILITY IS VALID
the character of carrier delivers the
custom or other PROVIDED THAT it
the goods ; or same to the
authorities or when be: (2002 bar
the faulty nature consignee OR the
they have been Exam)
1. in writing signed 6. that the common baggage which is not The annulment of
by both parties carriers liability in his personal the agreement
2. supported by a for acts custody or in that of limiting the carriers
valuable committed by his employee. As to liability is no longer
consideration thieves, or of other baggage, the necessary ; The
other than the robbers who do rules in articles carrier cannot
service rendered not act with 1998 and 2000 to simply avail of the
by common grave or 2003 concerning the benefit /defense of
carrier irresistible responsibility of limited liability.
3. reasonable, just threat, violence hotel-keepers shall When the conditions
and not contrary or force, is be applicable. printed in the back
to public policy dispensed with of the ticket stub are
or diminished; in letters so small
Fire may not be
SOME VALID 7. that the common that they are hard to
considered as a
STIPULATIONS carrier is not read, this would not
natural disaster or
LIMITING responsible for warrant the
calamity. It does not
CARRIER'S the loss, presumption that
fall within the
LIABILITY: destruction, or the passenger were
category of act of
1. account of deterioration of aware of those
God UNLESS caused
strikes or riot; goods on conditions such that
by lighting or by
2. value of the account of the he had fairly and
natural disaster or
goods appearing defective freely agreed to
calamity. It may even
in bill of lading condition of the them . The
be caused by actual
UNLESS shipper car, vehicle, ship, passenger therefore
privy or fault of the
declares a airplane or other is not bound by such
carrier. (EASTERN
greater value; equipment used stipulations.
SHIPPING VS. IAC)
3. contract fixing in the contract of (SHEWARAN vs.
The Civil Code
the sum that carriage. PAL)
provisions on
may be
Common carrier
recovered. A stipulation that the II. SAFETY OF
shall not be applied
common carrier's PASSENGERS
when the carrier is
VOID liability is limited to DUTY: A common
not acting as such
STIPULATIONS the value of the carrier is bound to
but as a private
LIMITING goods appearing in carry the passengers
carrier. The
CARRIER'S the bill of lading, safely as far as
stipulation in the
LIABILITY (2002 unless the shipper or human care and
charter party
bar exams) owner declares a foresight can
absolving the owner
1. that the goods greater value, is provide, using the
from liability for loss
are transported binding. utmost diligence of
due to the
at the risk of the A contract fixing the very cautious
negligence of its
shipper; sum that may be persons, with a due
agent would be void
2. that the shipper recovered by the regard for all the
only if strict public
is not liable for owner or shipper for circumstances.
policy governing
any loss or the loss, destruction, RULE: The
common carriers are
destruction of or deterioration of responsibility of a
applied. Such policy
the goods; the goods is valid, if common carrier for
has no force when
3. that the common reasonable and just the safety of
the public at large is
carrier need not under the passengers as
not involved, as in
observe any circumstances, and required in articles
the case of a ship
diligence in the has been fairly and 1733 and 1755
totally chartered for
custody of the freely agreed upon. cannot be dispensed
the use of a single
goods; The law of the with or lessened by
party (HOME
4. that the common country to which the stipulation, by the
INSURANCE vs.
carrier shall goods are to be posting of notices, by
AMERICAN
exercise a degree transported governs statements on
STEAMSHIP)
of diligence less the liability of the tickets, or otherwise.
In case where the
than that of a common carrier in EXCEPTION: When
Common carrier
good father of a case of loss, a passenger is
w/o just cause-
family; destruction or carried
1. Delays the
5. that the common deterioration. gratuitously, a
transportatio
carrier shall not stipulation limiting
n of goods
be responsible the common
The provisions of 2. Changes the
for any acts of its carrier's liability for
articles 1733 to stipulated
employee; negligence is valid,
1753 shall apply to route / usual
but not for willful
the passenger's route
acts or gross while the driver is injuries to the The DUTY of the
negligence. off-duty, the carrier passengers due to PASSENGER is to
is not liable. (Recall the willful acts or observe the
The common carrier the case of Gillaco v. negligence of diligence of a good
is liable even if the Manila Railroad, the OTHER father of a family to
ticket issued to carrier was held not PASSENGERS OR OF avoid injury to
passenger provides liable when its STRANGERS? himself. The
exemption of employee, a security YES, a common contributory
common carrier guard who harbored carrier is negligence of the
from death or injury a grudge against a responsible for passenger does not
of paseenger and fellow passenger, injuries suffered by a bar recovery of
notices were posted shot and killed the passenger if the damages for his
dispensing latter. The guard common carrier's death or injuries, if
extraordinary committed the employees through the proximate cause
diligence of the killing while he was the exercise of the thereof is the
common carrier or off-duty.) diligence of a good negligence of the
even if the passenger The Common carrier father of a family common carrier, but
was given a discount is held liable could have the amount of
of his fares.(2001 because - prevented or damages shall be
Bar exams) 1. The driver , stopped the act or equitably reduced.
If the although omission.
passenger is carried stopping the The act of the Condition printed on
gratuitously, bus, passengers stabbing the back of a
stipulation limiting nevertheless another passenger in passenger ticket
CC for negligence is did not put the bus. To be commonly known as
valid but not for off the absolved, the CONTRACT OF
WILLFUL ACT OR engine. common carrier ADHESION , being
GROSS 2. He started to must prove that it drafted only by one
NEGLIGENCE. run the bus was negligent in party , usually the
A reduction of fare even before preventing the corporation , and the
does not justify any the injuries from only participation of
limitation of the conductor accident; otherwise, the other party
common carrier's gave him the it would be held (passenger ) is the
liability. signal to go liable. (Bachelor signing of his
Is the carrier and while Express vs. Ca 188 signature his
liable for the scra 216) adhesion thereto
death of or passenger calls for greater
injuries to was still EE riding on train strictness and
the unloading who stepped on vigilance on the part
passengers part of the watermelons. Held: of the court of justice
due to the baggage . ( The conduct of with the view of
negligence or LA plaintiff in protecting the
willful acts of MALLORCA undertaking to alight weaker party from
ITS vs. CA) while the train was abuses . Such
EMPLOYEES yet slightly contract if enforced
? In the case of LACAM underway was not will be subversive of
YES, although such vs. SMITH , the Court characterized by public good , thus
employees may have held that an accident imprudence and that placing the common
acted beyond the caused by defects in he was not guilty of carrier at a decided
scope of their the automobile is contributory advantage over
authority or in not a caso fortuito. negligence. those who may have
violation of the The rationale of the The circumstances legitimate claims
orders of the carriers liability is show that it was no against it. The said
common carriers. the fact that the means so risky for condition is
passenger has him to get off while therefore
Illustrative rule: Two neither the choice the train was yet unenforceable, as
passengers engage nor control over the moving. It is not contrary to public
in a fist-fight inside a carrier in the negligence per se for policy- to make the
bus terminal. An on- selection and use of a traveler to alight court accessible to
duty driver attempts the equipment and from a slowly all those who have
to pacify them but appliances in use by moving train. need of their
instead kills one. The the carrier. (Cangco vs MRR 38 services.
carrier is liable! But, Phil 768)
if the killing of the ***Is the carrier Moral damages are
passenger occurred liable for death of or not recoverable on
breach of contract r, e the two
of carriage in view beca e vehicles are
of ART.2219-20 use m jointly and
NCC . EXCEPTIONS- there p severally
1. Where the is no lo liable for
mishap privit y damages. It
results in the y e should not
death of a betw e make any
passenger; een s. difference
Because the the 2. Culpa that the
common drive aquiliana liability of
carrier r and (quasi delict) the bus
becomes the The carrier and the owner
subject to passe driver are solidarily springs from
the rule in nger. liable as joint a contract
ART.2206 (art torfeasors.(Art 2180 while that of
NCC entitles 1759, NCC) the driver
the spouse, NCC.) Defe springs from
descendants, N nse of due a quasi
ascendants o diligence in delict.(tiu vs.
to moral d the selection arriesgado)
damages for ef and 3. Culpa
mental e supervision criminal( Cri
anguish as a n of employees minal
result of the s is available. Negligence)
death of the e Exception: The
deceased. o maritime drive
2. 2.Where it is f tort resulting r is
proved that d in collision prim
carrier was u Altho arily
guilty of e ugh the liable
fraud or bad d relation of . The
faith EVEN if il passenger carri
death does ig and carrier is er is
not result. e contractual subsi
Mere carelessness n both in diaar
does not per se c origin and illy
justify an inference e nature, liable
of malice or bad faith i nevertheless, only
on the part of the n the act that if the
common carrier ; t breaks the drive
Must be GROSS h contract r is
negligence e may also be a convi
s tort.( air cted
Concurring causes el france vs. and
of action arising e Carrascoso decla
from negligent act ct 18 SCRA red
of the common io 155) insol
carrier: n In the case of vent.
1. Culpa a injury to a (art
Contractual/ n passenger 100
breach of d due to the RPC)
contract s negligence of
(2003 Bar u the driver of The principle of
Exams) p the bus on last clear chance
Only e which the would call for
the r passenger application in a suit
carri vi was riding between the owners
er is si on and of the and drivers of the
prim o driver of two colliding
arily n another vehicles. It does not
liable o vehicle, the arise where a
not f drivers as passenger demands
the t well as the responsibility from
drive h owners of the carrier to
enforce its The NCC 3. Clean Bill of yet reached the
contractual does not Lading One port where the
obligations.(Phil. expressly which does not goods are held
Rabbit Bus Lines repeal the indicate any for shipment.
vs. CA) provisions of defect in the
10. Port Bill of
the Code of goods
Lading one
CODE OF Commerce
4. Foul Bill of which is issued
COMMERCE on overland
Lading by the carrier to
OVERLAND transportatio
Contains a whom the goods
TRANSPORTATION n. Instead, it
notation have been
Nature of Contract makes such
indicating that delivered, and
Art. 349. A provisions
the goods are in the vessel to
contract of suppletory to
bad Condition. carry the goods
transportation by the
is already in the
land or waterways of provisions of 5. Spent Bill of
port where the
any kind shall be the NCC on Lading Covers
goods are held
considered common goods that have
for shipment.
commercial: carriers already been
1. When it delivered by the
involves Bill of Lading: carrier without a
ThreeFold
merchandise or any Written surrender of a
Nature of Bills
object of commerce. acknowledgem signed copy of
of Lading
2. When, no ent of receipt the Lading.
matter what its of goods and 1. A contract in
6. Through Bill
object may be, the agreement to itself and the
of Lading
carrier is a merchant transport them parties are
Issued by a
or is customarily to a specific bound by its
carrier who is
[habitually] engaged place to a terms;
obliged to use
in transportation for person named 2. A receipt; and
the facilities of
the public. or to his order
other carriers. 3. A symbol of
Requisites for a or bearer.
contract of Ambigui 7. On Board Bill the covered by it
transportation by ty is of Lading one They are
land or water to be construe in which it is also
commercial : d stated that the documen
(1) against goods have been ts of title,
transportation of the received on and if
merchandise is carrier, board the vessel negotiabl
always commercial the which is to carry e in form
(2) contract the goods. they can
transportation of being 8. Received for constitut
person or news is one of Shipment Bill e
commercial only adhesio of Lading it is negotiabl
when the CC is a n. stated that the e
merchant or is goods have been documen
habitually engaged Kinds of Bills of received for ts of title.
in transportation for Lading shipment with or Legal effect of
the public 1. Negotiable without the Issuance of
* principal Bill of Lading specifying the Bill of Lading
requirement : the CC one in which it is vessel by which
is a merchant or is Bill of
stated that the the goods are to leading
habitually engaged goods referred to be shipped.
in transportation for constitute
therein will be the legal
the public; the object 9. Custody Bill
delivered to the evidence of
carried is of little of Lading
bearer, or to the the contract
importance issued by the
order of any between the
carrier to the
person named in shipper and
Effect of Civil Code whom the goods
such document. the carrier
on the provisions of have been
the Code of 2. Non delivered for by the
Commerce on Negotiable Bill shipment but the contents of
Overland of Lading the vessel indicated which the
Transportation goods referred to in the bill of disputes
therein will be leading which is which may
delivered to a to carry the arise
specified person. goods has not regarding
 their for to public loss
execution transportation. policy of,
and (2). Limited good
Time for
performance Liability shipp
delivery of
shall be ed
goods Regardle
decided, no wher
ss of the
exception Where no e
value of
being period fixed such
the
admissible The carrier shall injur
cargo,
other than be bound to y or
the
those of forward them in loss
maximu
falsity and the first was
m
material shipment of the cause
liability
error in the same or similar d by
of the
drafting. goods, which he its
carrier
makes to the own
will be,
points where he negli
Effect of for
must deliver genc
absence of a bill example,
them. Should he e.
of lading P500.
not do so, the
This is
It does not damages caused
VOID for Recovery of
preclude by the delay
being Damages from
liability on a shall be for his
contrary carriers for
contract of account.
to public carriage of
transportatio
Where for policy. goods:
n. The
delivery of (3). Qualified
dispute shall (1) Inter-island if
goods Liability
be goods arrived in
The carrier must
determined A damaged
deliver the goods
by the legal stipulatio condition:
within the time
proofs which n in the If
fixed. For failure
the parties bill of dama
to do so, the
may present lading ge is
carriers shall pay
in support of limiting appa
the indemnity
their the rent,
stipulated in the
respective liability the
bill of lading.
claims, of the shipp
Also, damages
according to carrier to er
shall be paid if
the general a must
the carrier
provisions valuation file a
refuses to pay
established unless claim
the stipulated
in the Code the imme
indemnity or is
for shipper diatel
guilty of fraud in
commercial declares y.
the fulfillment of
contracts. a higher If
his obligation.
value dama
Limitation as to and pays ge is
Right to refuse
carriers liability a higher Not
packages
(2002 Bar exams) rate of appa
Gen. Rule: a freight is rent
(1). No Liability
common carrier valid. he
cannot The Howe shoul
ordinarily refuse carrier ver, d file
to carry a will not the a
particular class be liable carri claim
of goods to the at all for er withi
prejudice of the the cann n 24
traffic in those negligent ot hour
goods. acts of its limit s
crew and its from
Exception:
employe liabili deliv
However, under
es. This ty for ery.
Art. 365, carriers
is NULL injur
are authorized to
and VOID y to, The
refuse packages
for being or filing
if they are unfit
contrary
 of a (2) Overseas independentl
claim r Where goods y of those
is a s, arrived in a not
condi if damaged delivered.
tion n condition from a (2) Under Art.
prece o foreign port to a 365, where
dent b Philippine Port the goods
for il of Entry: are rendered
recov l useless for
Upon
ery. o sale and
disch
f consumption
arge
If the la for the
of
claim d purpose for
good
is i which they
s, if
filed, n are properly
the
but g destined; or
dama
the h (3) Under Art.
ge is
carri a 371, where
appa
er s there is delay
rent
refus b through the
claim
es to e fault of the
shoul
pay: e carrier.
d be
E n Two special
filed
n is sanctions for
imme
f s the
diatel
o u enforcement by
y;
r e the carrier of
If
c d, the payment of
dama
e o expenses and
ge is
c r transportation
not
a charges.
appa
r Withi
rent, (1) Under Art.
ri n
claim 374, judicial sale
e 1
shoul of the goods
r 0
d be transported; and
s y
filed (2) Under Art.
li e
withi 375, by creating
a a
n3 a lien in favor of
b r
days the carrier on
il s,
from the goods
it if
deliv transported.
y a
ery.
i b
When may a
n il AIR
consignee of
c l TRANSPORTATION
goods abandon
o o
the goods and The nature of an
u f
recover the airlines contract of
rt la
value thereof carriage partakes of
b d
from the two types, namely: a
y i
carrier? contarct to deliver a
fi n
cargo or
li g In any of the
merchandise to its
n h following cases:
destination, and a
g a
(1) Under Art. contarct to transport
a s
363, in case passengers to their
c b
of partial destination.( british
a e
non-delivery, Airways vs. CA, 285
s e
where the scra 450)
e: n
consignee Special rules on
is
proves that liabilities:
Withi s
he cannot In case of
n u
make use of flight
6 e
the goods diversion
y d.
capable of due to bad
e
delivery weather or
 other consideratio kindness, Hence the
circumstance n, respect, airline
s beyond the particularly courtesy and company is
pilots as to their due liable if it
control, the convenience- consideratio refused to
relation amount to n and are confirm a
between the bad faith entitled to be passengers
carrier and which protected flight
the entitles the against reservation
passengers passenger to personal (Singson
continues an award of misconduct, vs.CA, GR
until the moral injurious No. 119995)
latter has damages(jap language,
been landed an Airlines indignities An airline
at the port of vs and abuses company
destination Simangon, from such which issued
and has left April 22, employees. a confirmed
the carriers 2009) ticket to a
premises. An air passenger
The carrier Even where carrier is not covering
should overbooking liable for the successive
necessarily of loss of trips on a
exercise passengers is baggage in trips on
extraordinar allowed as a an amount in different
y diligence in commercial excess of the airlines can
safeguarding practice, the limit be held liable
the comfort, airline specified in for damages
convenience company the tariff occasioned
and safety of would still which was by bumping
its stranded be guilty of filed with the off by one of
passengers bad faith and proper the
until they still be liable authorities, successive
have reached for damages such tariff airlines(Luft
their final if it did not being hansa
destination properly binding on german
( Phil inform the Airlines vs.
Airlines vs. passenger passenger CA Gr no
CA sept 15, that it could regardless of 83612)
1993) breach the the
contract of passengers
It is firmly carriage lack of MARITIME
settled that even if they knowledge COMMERCE/
moral were thereof or WATER
damages are confirmed assent TRANSPORTATION
recoverable passengers( thereto. In a Special contract of
in suits Zalamea vs. contract of maritime commerce:
predicted on CA GR air carriage, 1. Charter
breach of a 104235) a declaration party
contract of by the 2. Bill of lading
carriage Neglect or passenger of 3. Loan of
where it is malfeasance a higher bottomry/re
proved that of the value is spondentia
the carrier carriers needed to 4. contract of
was guilty of employees recover a transportatio
fraud or bad could give greater ns
faith- in ground for amount. passengers
attention to an action for 5. Marine
and lack of damages. An open insurance
care for the Passengers dated ticket
interests of have a right constitutes a VESSELS (in
its to be treated complete general)extends to
passengers by the contract everything floating
who are carriers between the in and on the water,
entitled to its employees carrier and built in the form of
utmost with passenger. vessel and used for
navigation cases i. damages A bill of lading is in
regardless of form, where arising out of the nature of a
right or motive ordinary tort; and contract of adhesion.
power. civil law j. Preferred
would mortgage DOCTRINE OF
MERCHANT not allow registered LIMITED LIABILITY
VESSELS- engaged more prior in time. (HYPOTHECARY
in the transportation than a NATURE OF
of passengers and personal MARITIME
freight from one port action A.BILL OF LADING ( COMMERCE) ART.
to another or from against 1998 and 2005 bar 587, CODE OF
one place to another. debtor. Exams) COMMERCE
2. Hypothecary- A bill of lading 1994, 1997,1999
*Are vessels real or the liability of serves two and 2000 bar
personal property? the owner of the functions: exams
PERSONAL- but they vessel is limited a. It is a receipt The liability
partake to a certain to the vessel for the goods of the ship
extent, of the nature itself. shipped; owner is
and conditions of 3. Preference of b. It is a limited to the
real property, on credits- contract by value of the
account of their Mortgage of a which three vessel. The
value and vessel properly parties, limited
importance of the registered namely the liability of
world of commerce. becomes of shipper, the the owner is
preferred carrier, and confined to
CHARACTERISTICS mortgage lien the the vessel,
OF MARITIME which shall have consignee equipment
TRANSACTIONS: priority over all undertake and freight
1. Real- similar to claims against specific or insurance,
transactions the vessel in an responsibiliti if any. If the
over real extrajudicial es and shipowner
property with foreclosure for: assume has
respect to a. credit in stipulated abandoned
effectivity favor of the obligations. the ship,
against third public equipment
persons, which treasury; A bill of lading and freight,
are done through b. judicial cost delivered and his liability is
registration. The of the accepted extinguished.
evidence of real proceedings; constitutes the If the vessel
nature is shown c. pilotage and contract of sinks the
by: tonnage carriage even liability of
the charges and though not the owner is
limitatio other sea signed, because extinguished,
n of the and port the acceptance although he
liability changes; of a paper may have
of the d. salaries of containing the other
agents to depositories terms of a properties.
the and keepers proposed If the vessel
actual of the vessel; contact generally does not
value of e. captain and constitutes an sink, the
the crew's acceptance of owner
vessel wages; the contract and May exercise
and the f. general of all of its terms the right of
freight average and conditions abandonmen
money g. salvage of which the t and the
and including acceptor has liability of
the right contract actual or the
to retain salvage; constructive shipowner is
cargo, h. maritime notice (keng limited to the
embargo liens arising hua paper value of the
and prior in time Products Inc. vessel.
detentio to the vs. CA, feb
n of the recording of 1998) EXCEPTIONS TO
vessel the preferred LIMITED LIABILITY
even in mortgage; RULE:
 1. When the his interest in the 3. All freightage and who
vessel is not vessel, except undocumented shall be obliged to
abandoned where actual fault vessels. pay the crew and
by the owner is attributable to other persons who
or shipagent the shipowner. Where Registration make up the
2. When the Thus, as an to be effected? compliment of the
vessel is exception to the - at its home port vessel?
covered by limited liability (when a coast >It depends upon
insurance doctrine, a guard district or the time of the sale.
3. Expenses for shipowner or ship station is on the If made
repair of the agent may be held same port); if while it is on a
vessel before liable for damages none, at the voyage, freightage
it sails when the sinking of nearest COAST shall pertain entirely
4. Claims of the vessel is GUARD to PURCHASER and
employees attributable to the DISTRICT OR payment of the crew
under the actual fault or STATION). and other persons
labor laws negligence of the who make up its
5. When shipowner or its OPTIONS AS TO compliment for
shipowner/s failure to ensure the SMALL BOATS: same voyage shall be
hip captain is seaworthiness of the 1.) If vessel is of for his account.
at fault or vessel. The instant domestic If made after
guilty of petitions cannot be ownership and the vessel has
negligence. spared from the 15 tons gross or arrived at the port of
a. application of the less certificate its destination,
lack exception to the of Philippine freightage shall
of doctrine of limited registry is pertain to the
prop liability in view of optional. VENDOR and other
er the unanimous Purpose: declare individuals who
and findings of the nationality of a make up its
adeq courts below that vessel complement shall be
uate both Aboitiz and the 2.) Vessel (5 tons for his account,
equip crew failed to ensure gross or less) & UNLESS the contrary
ment the seaworthiness of no certificate of is stipulated in
(insu the M/V P. Aboitiz. Philippine either case.
fficie ( Aboitiz Shipping registry
nt Corp vs CA, October certificate of FORMALITIES FOR
lifeve 17,2008) ownership is VOLUNTARY SALE
sts) optional. ABROAD:
b. PHILIPPINE COAST Privileges: right 1. Execution of the
lack GUARD (PCG) to engage in bill of sale before
of vested with Philippine consul of the
prop exclusive authority coastwise trade Philippines at
er over the registration and protection of the port where it
techn and documentation the authorities terminates its
ical of Philippine vessels, and the flag is voyage;
traini issuance of all also subject to 2. Inscription in the
ng of certificates, licenses the same registry of the
the or documents, privileges. consulate;
office necessary or 3.) Vessel (3 tons 3. Forwarding by
s and incident to gross or less) the consul of a
of the registration. not to be true copy of the
vesse VESSELS REQUIRED registered unless instrument of
l TO BE the owner shall purchase and
REGISTERED: so desire. sale to the
Monarch Ins Co.vs. 1. All vessels used registry of
Ca; Allied in Philippine PURPOSE OF vessel;
guarantee water; REGISTRATION: 4. Statement
insurance Co vs CA 2. Vessels of 3 tons Purchaser's rights whether the
& Equitable gross shall not maybe maintained vendor receives
Insurance vs. CA, be registered against a claim filed its price in whole
June 8, 2000 UNLESS the by the THIRD or in part.
As a general rule, a owner shall so PERSON.
ship owner's desire; FORMALITIES FOR
liability is merely *Who shall be SALE WHEN
co-extensive with entitled to the
VESSEL RENDERED to prevent the benefit of the case of the
USELESS: possibility of vessel latter's absence;
1. application for fraud upon 3. Indemnities in 3. contract in the
examination; creditors favor of third name of the
2. notification of through person that may owners with
the consignee/ voluntary sale. arise from the respect to
insurer; conduct of the repairs, details
3. proof of damage PARTICIPANTS IN captain in the of equipment,
and MARITIME care of goods armament, and
impossibility of COMMERCE: and safety of all that relate to
the repair of the a. ship owners and passengers the
vessel; ship agents transported. requirements of
4. order for the sale b. captains and 4. Tort or quasi- navigation;
of vessel at masters of the delict committed 4. order of new
public auction. vessel by captain voyage and make
c. officers and crew EXCEPT collision a new charter or
RULES FOR THE of the vessel with another insure the vessel
SALE OF VESSEL AT c.1 sailing (1st vessel. after obtaining
PUBLIC AUCTION: mate) 5. Damages in case authorization
1. articles of the c.2 of collision due from the ship
vessel shall be quartermaster to the fault, owners.
appraised after (2nd mate) negligence or
making an c.3 engineer want of skill of DUTY OF SHIP
inventory d. seamen captain, sailing AGENT TO
2. posting of the e. supercargoes mate or by other DISCHARGE THE
order of the member of the CAPTAIN AND
auction A. SHIP OWNERS complement. MEMBERS OF THE
3. announcement AND SHIP CREW:
4. auction shall be AGENTS SHIP AGENT'S AND - If the seamen
held on the day Ship owner - A OWNERS contract is not for a
fixed person who has LIABILITY definite period or
5. Observance of possession or LIMITED: voyage, he may
special control in the - By abandoning discharge them at
provisions, management of the the vessel with his discretion
governing the vessel and the all her - If for a definite
sale of the vessel consequent right to equipment and period, he may
while it is on the direct her navigation the freight it may not discharge
foreign country. and receive freight have earned them until after
earned and paid, during the the fulfillment of
2 METHODS OF while his possession voyage(by their contracts
SALE: continues. NECESSARY EXCEPT on the ff.
1. judicial Ship agent A IMPLICATION); grounds:
2. voluntary person entrusted limited to the a. insubordinat
with provisioning value of the ion in
*EFFECT OF and representing the vessel or its serious
REGISTRATION OF vessel in the port in insurance in matters
VOLUNTARY SALE which it may be view of the so- b. robbery
- if it take place found; also includes called REAL AND c. theft
while the vessel the ship owner HYPOTHECARY d. habitual
is on a voyage, nature of drunkenness
the preferred & LIABILITY OF SHIP maritime law. e. damage
hypothecary OWNER AND SHIP - Effect: cessation caused to the
nature of the AGENT: of the vessel or to
credit subsists 1. for the acts of responsibility of its cargo
against the the captain the owner through
vessel until after 2. contracts malice,
its return to the entered into by POWER AND manifest or
port of registry the captain to FUNCTIONS AND proven
and 3 months repair, equip, LIABILITIES OF negligence
after the and provision SHIP AGENT: EFFECT/LOSS/DES
inscription of the the vessel 1. capacity to TRUCTION OF
sale in the PROVIDED that trade; VESSEL:
registry of the amount 2. discharge duties 1. extinguishes
vessels or after claimed was of the captain in liability arising
the return, so as invested for the from the conduct
 of the captain in licensing him as 4. stay on board
the vigilance of such during the
the goods and loading and NO LIABILTY FOR
for the safety of INHERENT unloading of the THE FOLLOWING:
the passengers POWERS OF THE cargo 1. damages
and for any CAPTAIN: 5. be on deck while caused to the vessel
liability arising 1. appoint crew in leaving or by force majeure
from negligent the absence of entering the port 2. obligations
acts of the ship agent 6. seeks protest, contracted for the
captain 2. command and arrival under repair, equipment
2. extinguishes direct crew stress and in and provisioning of
liability for the 3. impose case of the vessel UNLESS
wages of the correctional shipwreck he has expressly
captain and the punishment on 7. follow bound himself
crew and for those who while instruction of personally or has
advances made on board vessel and render signed a bill of
by the ship agent fail to comply accounting to the exchange or
if the vessel is with his orders ship agent promissory note in
lost by or are wanting in 8. save the vessel his name
shipwreck or discipline lost in case of
capture 4. make contracts wreck CARGO- which
3. liability for for the charter of 9. hold in custody includes all goods,
collision vessel in the properties left by wares and
absence of ship deceased by merchandise aboard
B. CAPTAINS AND agent passengers and a ship which do not
MASTERS OF THE 5. supply, equip, crew members from part of the
VESSEL and provision 10. comply with the ship's stores.
Captain- who the vessel requirements of
govern vessels that 6. order repair of customs, health, REQUIREMENTS
navigate the high vessel to enable etc. at the port of FOR DEFENSE OF
seas or ships of large it to continue its arrival PUBLIC ENEMY:
dimensions and voyage 1. act of public
importance, LIABILITIES OF enemy in war was
although engaged in SOURCES OF FUNDS THE SHIP the proximate and
the coastwise trade TO COMPLY WITH AGENT/SHIP only cause of the loss
Masters- who THE INHERENT OWNER FOR ACTS 2. common carrier
command smaller POWERS OF THE DONE BY THE exercise due
ships engaged CAPTAIN: CAPTAIN TOWARDS diligence to prevent,
exclusively in the 1. from the PASSENGERS AND minimize loss
coastwise trade consignee of the CARGOES MAKING before, during, and
vessel THEM SOLIDARILY after occurrence of
NATURE OF 2. from the LIABLE TO THE the act of the public
POSITION: consignee of the LATTER: enemy in war
1. General agent of cargo 1. damages to
the ship owner 3. by drawing on vessel and to FORMALITIES
2. Technical the ship agent cargo due to lack REQUIRED WHERE
Director of the 4. by a loan on of skill and VESSEL HAS GONE
vessel bottomry negligence THROUGH
3. Representative 5. by sale of part of 2. theft and HURRICANE
of the the cargo robbery of the 1. Captain must
Government of crew make a protest
the country DUTIES OF THE 3. losses and fines before
under whose flag CAPTAIN: in violation of competent
he navigates 1. bring on board laws authority at the
the proper 4. damages due to first port he
QUALIFICATIONS: certificate and mutinies touches
1. Filipino citizen document and a 5. damages due to 2. Such a protest
2. Legal capacity to copy of the Code misuse of power must be made
contract of Commerce 6. deviations within 24 hours
3. Must have 2. keep a logbook, 7. arrival under following his
passed the accounting book stress arrival
required and freight book 8. damages due to 3. captain must
physical, mental 3. examine before non-observance ratify it within
examination the voyage of marine some period
required for regulations when he arrives
 at his 5. Inventory exceeding 1/5 of the
destination the rigging crew.
4. he must DUTIES: and
immediately 1. provide equipment of CLASSES OF
proceed with the himself with the vessel, if SEAMAN'S
proof of the facts maps, and laid up. CONTRACT:
charts with 1. by the voyage
FORMALITIES astronomical 3. Engineers 2. by the month
REQUIRED WHERE tables - Officers of the 3. by share of
VESSEL necessary for vessel but have profits or
SHIPWRECKED: the no authority freightage
1. captain must discharge of EXCEPT in
make a protest his duties matters to motor JUST CAUSES FOR
before the 2. keep the apparatus. When THE DISCHARGE
nearest Binnacle 2 or more are OF SEAMAN WHILE
competent book hired, one of CONTRACT
authority 3. Change the them should be SUBSISTS:
2. protest be made course of the the Chief 1. perpetration of a
within 24 hours voyage on Engineer crime
following his consultation 2. repeated
arrival with captain DUTIES: insubordination,
3. make sworn and the 1. in charge of want of
statement of the officers of motor discipline
facts the boat, apparatus, 3. repeated
4. authority/consul following the spare parts, incapacity and
abroad shall decision of and other negligence
verify said facts the captain instruments 4. habitual
5. such authority in case of pertaining to drunkenness
shall take other disagreemen the engines 5. physical
steps in carrying ts. 2. keep the incapacity
at the facts 4. Responsible engines and 6. desertion
6. such authority for all the boilers in
shall also make damages good CAUSES OF
statements of caused to the condition REVOCATION OF
what may be the vessel or to 3. not to VOYAGE:
result of the the cargo by change or 1. war
proceeding in reason of his repair the 2. blockade
the logbook and negligence engine 3. prohibition to
in that of the without receive cargo at
sailing mate 2. Second mate authority of destination
7. he shall deliver - takes command the captain 4. embargo
the original of the vessel in 4. inform the 5. inability of the
records to the case of the captain of vessel to
captain inability or any damage navigate
8. captain must disqualification to the motor
ratify the protest of the captain apparatus RULES IN CASE OF
and the sailing 5. keep an DEATH OF A
C. OFFICERS AND mate, assuming Engine book SEAMAN:The
CREW in such case 6. supervise all seaman's heirs are
their powers and personnel entitled to the
1. Sailing responsibilities maintaining payment as follows:
mate/First mate and duties the engine 1. if death is
- second chief of natural:
the vessel who DUTIES: 4. Members of the a. compens
takes the place 1. preserve the Crew ation up
of the captain in hull and Hired by the ship to time of
case of absence, rigging of the agent. Where he is death if
sickness, or vessel present and in his engaged
death and shall 2. arrange well absence, the captain on
assume all of his the cargo hires them voyage
duties, powers, 3. discipline preferring Filipinos, b. if by
and the crew and in their absence, voyage-
responsibilities 4. assign work he ,ay take in half of
to crew foreigners but not amount
members if death
 occurs crew, the sailing days and
on mates, Blockade months
voyage engineers, - a sort of b. for a
out; and stalkers and circumvallation voyage(outg
full if on other employees of place by all oing/return/
voyage in on board not foreign roundtrip)
c. if by having specific connections and
shares- designations correspondence 3. As to freightage
none if - It does not is as far as a. for a fixed
before include the human power amount for
departur passengers or can affect it to be the whole
e; full if the person cut-off cargo
after whom the vessel SUPERCARGOES b. for a fixed
departur is transported - person who amount per
e discharge ton
2. if death is due to FORMALITIES administrative c. for an
defense of REQUIRED FOR duties assigned amount per
vessel- full SEAMAN'S to him by ship month
payment AGREEMENT: agent or
3. if captured in 1. reduced to shippers,
defense of writing in keeping an a. Contract of
vessel- full Accounting Book account and Affreightmen
payment 2. signed by parties record of t- the owner
3. visaed by marine transaction as of the vessel
4. if captured due authority if required in the leases a part
to carelessness- executed in accounting book or all of the
wages up to the Philippine of the captain space of the
date of the territory/consul vessel to
capture or consular B.CHARTER PARTY carry goods
agents if - Contract by but retains
NO LIABILY UNDER executed abroad virtue of which the
THE FOLLOWING 4. read to the the owner or possession ,
CIRCUMSTANCES: seaman agent binds command
concerned and himself to and
1. If before
such fact must transport navigation of
beginning
be stated in the merchandise or the vessel.
voyage, captain
agreement persons of a The charter
attempts to
fixed price. It merely have
change it or a
may either be the use of the
naval war with
contract of space in the
the power to
Interdiction of affreightment vessel in
which was
Commerce (time and Voyage return for
destined occurs
a governmental Charter) and the payment
2. If a disease
prohibition of bareboat or of the
breaks out and
commercial demise charter. charter hire.
be officially
intercourse intended
declared an CLASSES OF
to bring about an b. Bareboat/
epidemic in the CHART
entire cessation for Demise
port of ER
the time being of all Charter
destination PARTY
trade involves the
3. If the vessel
transfer of
change owner or 1. As to extent of full
captain vessel hired
Embargo possession
- a proclamation a. total- whole and contol of
COMPLEMENT OF
or order of the of the vessel the vessel to
THE
State usually is chartered the charterer.
VESSEL
issued in time of b. partial- only The entire
- All persons on
war/ threatened part of the control and
board, from the
hostilities vessel is management
captain to the
prohibiting the chartered of the vessel
cabin boy,
necessary for the departure ships/ is given up to
goods from some 2. As to time the charterer.
management,
or all the ports of a. until a fixed The
maneuvers, and
such State until day/ for a charterer
service, thus
further order determined mans the
including the
number of
 vessel with loading/unloadi 3. To unload 2. error in
his own ng/sailing. cargo tonnage or
people. "Lay days" clandestinely flag
(2003 Bar -days allowed to placed; 3. failure to
exams) charter parties for 4. To substitute place the
loading and unlading another vessel at the
The owner of - period when vessel if load charterer's
the vessel has no vessel will be is less than disposal
more insurable delayed in port 3/5 of 4. return of the
interest on the for loading and capacity; vessel due to
vessel. In case of unloading. 5. To leave the pirates,
loss of the vessel, "Extra Lay Days" port if the enemies or
the shipowner - days which charter does bad weather
can recover the followed after not bring the 5. arrival at the
value of the vessel lay days have cargo within port for
from the elapsed the lay days repairs
charterer.(Caltex Deadfreight and extra lay B. At ship owners
vs. sulpicio line, A cargo not loaded days request
1999) is considered as allowed; 1. If the extra
deadfreight, which 6. To place in a lay days
FORMAILITIES covers the amount vessel in a terminate
REQUIRED FOR A paid by or good without
CHARTER PARTY: recoverable from the condition to cargo being
1. in writing charterer for the navigate; placed
2. drawn in portion of the ships 7. To bring alongside the
duplicate capacity the latter cargo to vessel
3. signed by the contracted for but nearest 2. Sale by the
parties failed to occupy. neutral port owner of the
4. contain in case of vessel before
stipulation GOODS war or loading
not all requisites TRANSFERRED blockade. C. Fortuitous
are essential for MAY BE: causes
the validity of 1. sold by captain B. Of the charterer 1. war
charter party to necessary 1. to pay the 2. blockade
repairs agreed 3. prohibition
Primage 2. jettisoned for the charter price to receive
- belongs to common safety 2. to pay cargo
owner/ 3. loss by reason of freightage or 4. embargo
freighters; shipwreck/stran unboarded 5. inability of
- increase of the ding cargoes the vessel to
freight rate 4. seized by 3. to pay losses navigate
- considered pirates/enemies to others for D. LOANS ON
gratuity to 5. suffer loading BOTTOMRY/
master if is deterioration/di uncontracted RESPONDENTIA
stipulated minutions cargo and (1961,1967,&
- a bonus to be 6. increase by illicit cargo 1980 bar exams)
paid to a captain natural cause 4. to wait if the These loans are
after a successful and weight or vessel needs secured by the
voyage size repair owner or captain of
Demurrage 5. to pay the vessel for the use
- sum which is RIGHTS AND expenses for of the vessel. In the
fixed by the OBLIGATIONS OF deviation case of loans on
contract of CHARTER PARTY: bottomry, the
carriage, or A. Of the ship RESCISSION OF security of the loan
which is allowed, owner or ship CHARTE is the vessel itself;
as remuneration agent R while loan on
to the owner of a 1. If the vessel PARTY respondentia, the
ship for the is chartered A. At charterer's security of the loan
detention of his wholly not to request is the cargo.
vessel beyond accept cargo 1. by The loan is in the
the number of from others; abandoning nature of insurance.
days allowed by 2. To observe the charter The loan will only be
the charter party represented and paying paid on the safe
for capacity; half of the arrival of the vessel
freightage or cargo fails to
reach the port of form and manner reimb
destination, the prescribed by the code Average Requisites of Gross
creditor loses his of commerce An extraordinary or or General average
right to recover the accidental expense
Registry of Vessels 1. Common danger
amount of the loan. Must be recorded in incurred during the that
the registry of Vessel to voyage in order to both
COMMON be binding to third preserve the cargo, the
ELEMENTS OF persons vessel or both, and ship
LOANS ON Preference all damages or and
BOTTOMRY AND Preference is extended deterioration the
RESPONDENTIA to the last lender suffered by the cargo
1. exposure of vessel from , after
security or departure to the has
marine peril When loan on port of loading to the been
2. obligation of the bottomry or consignment (art loade
debtor respondentia 806 Code of d, are
conditioned only regarded as Simple commerce) subje
upon safe arrival Loan The person ct to
of security at the whose property has the
point of 1. lender loaned an been saved must voya
destination amount larger than contribute to ge, or
HYPOTHECARY the value of the reimburse the in the
NATURE OF object due to damage caused or port
BOTTOMRY AND fraudulent means expense incurred if of
RESPONDENTIA: employed by the the situation loadi
General Rule: the borrower(art 726 constitutes general ng or
obligation of the code of commerce) average. unloa
borrower to pay is 2. Full amount of the It is classified into: ding
extinguished if the loan is not used for (1) general or gross that
goods given as the cargo or given on average or (2) the
security are the goods if all of simple or particular. dang
absolutely lost by them could not have er
reason of an been loaded, the Particular/ simple Gross/ general arise
accident of the balance will be definition s
voyage designated, considered a simple Damages or Damages or from
and if it is proven loan( art 727 Code of expenses caused to expenses the
that the goods were Commerce) the vessel or cargo deliberately caused accid
on board. 3.If the effects on that did not inure to in order to save the ents
EXCEPTIONS: which the money is the common benefit, vessel, its cargo of the
1. loss due to taken is not and borne by orboth from real sea,
inherent defect subjected to any respective owner. and known risk. dispo
2. loss due to the risk(729 Code of ( art 809) (811) sition
barratry on the commerce Liability s of
part of the Note: under existing The owner of the All persons having the
captain laws, the parties to a goods which gave an interest in the auth
3. loss due to the loan, whether rise to the expense vessel and the cargo ority
fault or malice of ordinary or or suffered the therein at the time or
the borrower maritime, may agree damage shall bear of the average shall faults
4. that the vessel is on any rate of this average.(810) contribute to satisfy of
engaged in interest (Cb circular this average(812) men,
contraband 905); provided the The insurers and provi
5. that the cargo same is not contrary lenders on ded
loaded on the to law, morals, good bottomry and that
vessel be customs, public respondentia shall the
different from order or public likewise contribute circu
that agreed upon policy.Art 1306 NCC Numbers of interests involved msta
ACCIDENTS IN Only one interest Several interests is nces
Bottomry/repondentia MARITIME involved involved prod
Marine risk COMMERCE(2000 Share in the damage/expense ucing
Duly established bar exams) 100% share In proportion to the
existence of a marine 1.averages the value of the peril
risk is necessary 2. Arrival Under owners property shoul
Form and manner stress saved d be
Must be executed in 3. collision Right to recover ascer
accordance with the 4.shipwreck taine
No reimbursement There may be
 d and Ratification disabling fault but by reason of
immi by the navigation the fault of a third
nent captain When lawful When vessel --> under 831,
or under oath. unlawfulthe owner of the
may The inability to 1. lack third of vessel causing
ratio Goods Not Covered continue voyage provisions the collision shall be
nally By General Average is due to lack of due liable
to for the losses
be Even if sacrified: provisions, well negligence and damages 6. a
said Goods carried on founded fear of to vessel
carry which is
to be deck seizure, accordingproperly
to anchored
certai 1.goods not privateers,pirates usage and and moored may
n and recorded in the or accidents of customs; collide with those
immi books or records of the sea disabling 2.risk nearby of by reason of
nent. vessel it to navigate enemies anotstorm or other
2.Deliberate 2.fuel for the vessel well-knowncause of force
Sacrifice if there is more than majeure
or manifest; --> under
Gen. rule: sufficient fuel for the 832, the vessel run
3.defect due
sacrifice is made voyage. into shall suffer its
to improper
through the jettison repair; own damages and
of the cargo or part JETTISON 4.malice,expenses
of the shipis thrown Act of throwing negligence,
overboard DURING cargo overboard in lack Nautical
of Rules to
THE VOYAGE. order to lighten the foresight,determine
Exceptions: vessel negligence :
lack of skill
a. where the ORDER OF GOODS Cases of collision : 1. When 2
sinking of a TO BE CAST 1. due to the fault, vessels are about to
vessel is OVERBOARD IN negligence or lack of enter a port, the
necessary to CASE OF JETTISON: skill of the captain, farther one must
extinguish a 1. those which are sailing mate or the allow the nearer to
fire in a port, on the deck, complement of the enter first; if they
roadsteads, preferring the vessel--under 826, collide, the fault is
creek or bay heaviest one the shipowner shall presumed to be
b. where cargo with the least be liable for the imputable to the one
is utility of value losses and damages who arrived later,
transferred 2. those which are 2. due to the fault of unless it can be
to lighten the below the upper both vessels --> proved that there
ship on deck beginning under 827, each was no fault on its
account of a with the one vessel shall suffer its part.
storm to with greatest own losses, but as 2. When 2
facilitate weight and regards the owners vessels meet, the
entry into a smallest value of the cargoes, both smaller should give
port. jettisoned goods vessels shall be the right of way to
3.Sucess are not res jointly and severally the larger one.
Pupose:to be able to nullius nor liable 3. A vessel
demand general deemed 3. where it cannot be leaving port should
contribution abandoned determined which of leave the way clear
4.Proper formalities within the the 2 vessels is at for another which
and legal steps meaning of civil fault --> under 828, may be entering the
a. procedure for law so as to be each vessel shall same port.
recovery the object of suffer its own losses, 4. The vessel
b. assembly and occupation by and both shall also which leaves later is
deliberation salvage. be solidarily presumed to have
c. resolution of the responsible for the collided against one
caption Arrival Under losses and damages who has left earlier.
d. entry of the stress caused to their 5. There is
resolution in the - arrival of a cargoes also a presumption
logbook vessel at a port 4. collision due to against the vessel
e. detailed minutes of destination on fortuitous event or which sets sail at
f. delivery of the account of lack force majeure --> night.
minutes to the of provision, under 830, each 6. The
maritimejudicial vessel shall bear its presumption also
well-founded
authority of the first own damages works against the
fear of seizure,
port, within 24hours 5. where two vessels vessel with spread
from arrival pirates, or sails which collides
accidents in sea collide with each
other without their with another which
is at anchor, and begins and the even wrong, is not shall be jointly and
cannot move, even moment when it has responsible for the severally liable.
when the crew of the become a practical result. 3. If it cannot be
latter has received necessity. determined which
word to lift anchor, vessel is at fault,
when there was not 3. the time each vessel shall
sufficient time to do between the CASES COVERED BY suffer its own loses
so or there was fear moment when COLLISION AND and both shall be
of a greater damage collission has ALLISION: solidarily liable for
or other legitimate become a practical 1. one vessel at loses or damages on
reason. certainty and the fault- such vessel the cargo.
7. The vessel moment of actual is liable for (DOCTRINE OF
which is not contact damage caused INSCRUTABLE
properly moored or to innocent FAULT)
does not observe the Effect of fault of vessel as well as 4. The vessels may
proper distances, privileged vessel damages collide with each
has the presumption during third zone : suffered by other through
against itself. owners of cargo fortuitous event or
8. The vessel If a vessel of both vessels force majeure. In
which is moored at a having a right of way 2. both vessels at which case, each
place not used for suddenly changes its fault- each vessel shall bear its own
the purpose, or course during the must bear its damage.
which is improperly third zone, in an own loss but the 5. Two vessels may
moored or does not effort to avoid an shippers of both collide without
have sufficient imminent collision vessel may go their fault but by
cables, or which has due to the fault of against the ship reason of a third
been left without another vessel, such owner who will vessel. The third
watch, has also act may be said to be be solidarily vessel shall be liable
against itself the done in extremis, liable for losses and
presumption. and even if wrong, 3. vessel at fault damages sustained.
9. The same cannot create not known- Requisite for
rule applies to those responsibility on the same as rule 2 RECOVERY arising
vessels which do not part of said vessel 4. third vessel at from collision:
have buoys to with the right of way. fault- same rule 1. Protest must be
indicate the location Thus, it has been 1 made within 24
of its anchors to held that fault on the 5. fortuitous event- hours before:
prevent damage to part of the sailing no liability, each a)
these vessels which vessel at the bear its own loss Competent authority
may approach it. moment preceding a at the point of
collission, that is, Rules governing collision or
Zones in time of during the third LIABILITIES of b) At the
collisions (3 time division of time, parties in case of first port
zones): does not absolve the COLLISION: (1995, of arrival,
steamship which has 1997,1998, &2007 if in the
1. all the suffered herself and bar exams) Philippin
time up to the a sailing vessel to get 1. Where collision is es and to
moment when the into such dangerous due to the the
risk of collision may proximity as to negligence or Philippin
have said to have cause inevitable malice of the e Consul,
begun harm and confusion, captain and/or if the
--> within and a collision other ship officers collision
this zone, no rule is results as a of one vessel, the took
applicable because consequence. The ship owner of such place
none is necessary. steamer having a far vessel shall be liable abroad.
Each vessel is free to greater fault in for all resulting
direct its course as it allowing such damages. Injuries to persons
deems best with proximity to be 2. Where collision is and damage to cargo
reference to the brought about is due to the fault of of owners not on
movements of the chargeable with all both vessels, each board on time of
other vessel. the damages vessel shall suffer collision need not be
resulting from the their respective protested.
2. the time collission; and the losses but as regards Article 835, Code of
between the act of the sailing to the owners of the Commerce: In case
moment when the vessel having been cargoes, both vessels of collision, there
risk of collission done in extremis and must be a marine
protest to recover foreign ports, the in case of delay:
collision damage; in COGSA doesn't apply If the damage is within 14 days from
such a case, the unless parties make apparent, then receipt
marine protest is a it applicable. notice must be
condition sine qua immediately given. Prescriptive period
non and not merely Q: In what The notice may the carrier
a disclaimer unlike situations does either be in writing and the
in the case of arrival COGSA primarily or orally. agent shall
under stress and apply? If the damage is not be
shipwreck. A: Where the parties apparent, notice discharged
expressly stipulate must be given within form liability
CARRIAGE OF that COGSA shall three days from such in respect of
GOODS BY SEA ACT govern their delivery. loss or
Applicable to all respective rights and damage
transportation of obligations. Failure to give notice unless suit is
goods by sea in is not a bar to the brought
foreign trade to and Q: Can the COGSA action to file within 1 year
from Philippine apply in domestic provided the filing of from:
ports AND does not shipping? the suit is made (1) in case of damaged
apply to purely A: Generally, NO. within one year from goods: from the time
domestic transport. delivery to delivery of the goods
EXCEPTION: when consignee. was made
Laws applicable to parties agree to (2) in case of non-
a contract for the make it apply. Notice delivery (i.e., lost
carriage of goods requirements: goods): from the date
by sea: Q: What application COGSA: Sec. the goods should have
does COGSA have in 3(6) been delivered
1. Distinguish - carriage of If loss or damage is
common carrier passengers? apparent - protest as Loss or damage as
(Civil Code) A: None. Applies soon as receipt of applied to the
- private only to carriage of goods COGSA contemplates
carrier goods. If not apparent -> a situation where no
2. Where is the within 3 days of delivery at all times
vessel going? What is the delivery was made by the
a. Common carrier TACKLE TO shipper of the goods
coming to the Phils. TACKLE RULE? Rationale behind the because the same
1st: Civil Code The shipper shall be 3-day notice and had perished, gone
2nd: COGSA (it's responsible for the relatively short pre- out of commerce, or
more specific than goods the moment it scriptive period: disappeared in such
Code of Commerce) passes through one - to provide a way that their
- in foreign side of the ship for carrier an opportunity existence is
trade the purpose of to look for the lost unknown or they
3rd: Code of loading until it goods cannot be recovered.
Commerce passes through the - to discover It does not include a
other side for who was at fault situation where
b. Private carrier discharging. The -in case of there was indeed a
coming to the Phils. reason for this being transshipment, to delivery but to the
in foreign trade that there are two determine, when and wrong person or a
1st: COGSA tackles involved in where damage misdelivery (Ang vs.
(because it's more this operation; one occurred. American steamship
specific) for loading, the Agencies 19 scra123)
2nd: Code of other, unloading. Code of and damage arising
Commerce The shipper is Commerce: from delay or late
3rd: Civil Code responsible for: Art. 366 delivery( Mitsui
(provisions not on Loading, Handling, apparent - protest at O.S.K line ltd vs CA
common carriers e.g. Transport, time of receipt 287 scra 366) in such
torts, contracts) Carriage, Custody, non-apparent - within instance the civil
Discharge 24 hours after receipt code rules on
c. From the Phils. WARSAW: Art. prescription shall
to a foreign country: What is the Rule 26 apply.
apply laws of such for LOSS or in case of damage of: Hence, in case
foreign country (Art. DAMAGE to the baggage - within 3 of misdelivery
1753) goods? (1992, days from receipt (delivery to
- with respect to 1995, 20000 & goods - within 7 days wrong person)
vessels destined for 2005 bar exams) or conversion
 of the goods, have abandon the value
the rules on been ment of of the
prescription exposed such vessel;
found in the to vessel or C. If no
Civil Code marine cargo claim for
shall apply (10 peril; does not the
years for C. Salvage make it vessel is
contracts; 4 services res made
years for must be nullius within 3
tortuous rendered so that months
obligations) voluntari anybody after the
ly, i.e., can claim publicati
The one year period not it. The on of the
is suspended by: arising proper advertise
a.the express from pre- procedur ment, the
agreement of the existing e must Municipa
parties(Universal duty; be l
Shipping Lines Inc D. Salvage followed. Treasure
vs. IAC 1990) effort r will sell
b.the filing of an must be III. PROCEDURE: the
action in court until successfu A. If the property
it is dismissed l. vessel is saved at
the 1yr abandon a public
period shall II. SHIPWRECK ed, salvor auction
run from AND DERELICT: must tow and the
delivery of A. Shipwre it to the reward
the last ck. A nearest and
package and shipwrec port expenses
is not k refers where it shall be
suspended to the will be deducted
by injuries delivered from the
extrajudicial suffered to the proceeds
demand. by the Municipa . The
the one year vessel l balance
period shall disabling Treasure is
run from the latter r or to deposite
delivery to for the d with
the arrasstre navigatio Collector the
operator and n. of Treasury
not to the B. Derelict. Customs ;
consignee It refers who will D. If no one
to the advertise claims
SALVAGE LAW (ACT vessel or the fact the same
2616) cargo of after 3
abandon salvage; years,
I. FOUR ed at sea B. If owner shall go
REQUISITES by those of to the
FOR SALVAGE entruste salvaged salvors
REWARD TO BE d by such vessel and the
WARRANTED: vessel or appears, other
A. There cargo. A he may half to
must be derelict take the
a valid is a possessi governm
object of vessel or on of the ent.
salvage, cargo vessel
i.e., badly and must IV. CONSIDERATIO
vessel, damaged pay a NS IN
cargo, and reward, DETERMINING
freight or abandon the THE AMOUNT
wreck of ed by the amount OF REWARD
vessel or crew to of which 1.) First case
cargo; the is not A. Value of
B. Such mercy of more the
object the sea. than property
must Mere 50% of saved;
 B. Zeal 250,000 Francs or 16,600
Power is not a place
employe Special Drawing Rights
party
(SDR) to this of
d by for personal injury; Convention. desti
those 17 SDR per kilogram for natio
who checked luggage and cargo,
Theor Warsaw n are
made the $20USD per kilogram for Convention
non- situat
salvage; signatories of the amendedto which the ed
C. Danger Montreal Protocols. Republic of withi
to the 5,000 Francs or 332 SDR the for the n the
lives of hand luggage of a traveller.
Philippines is territ
those a party and ories
who which has of
participa I. NATURE AND the force and two
ted; SCOPE OF effect of law High
D. Number WARSAW in this Contr
of CONVENTION country actin
persons applies to all g
who took SCOPE: Applies to international Parti
part; all international transportatio es
E. Services carriage of persons, n of persons, regar
rendered luggage or goods baggage or dless
; performed by goods of
F. Expenses aircraft for reward. It performed by whet
incurred applies equally to an aircraft her
gratuitous carriage gratuitously or
2.) Second case: by aircraft or for hire. not
If one vessel performed by an air there
When a
saves transport be a
contract of
another undertaking. break
carriage is a
vessel, the in the
contract of
reward going International trans
international
to the former Carriage: porta
transportatio
shall be Means any tion
n, provisions
divided as carriage in or a
of the
follows: which, according trans
Convention
A. to the to the contract ship
automaticall
ship made by the ment
y apply and
owner; parties, the place ; and
exclusively
B. to the of departure and 2.) that
govern the
captain; the place of wher
rights and
and destination, e the
liabilities of
C. to the whether or not place
the airline
crew. there be a break of
and its
in the carriage or depa
passengers.
a transhipment, rture
(American
WARSAW are situated and
Airlines vs.
CONVENTION either within the the
CA, G.R. No.
territories of two place
116044-45
Convention for the High Contracting of
March 9,
Unification of Parties, or within desti
2000)
Certain Rules the territory of a natio
Relating to single High n are
Contracting Two categories
International withi
Party, if there is of International
Transportation by n the
an agreed Transportation
Air territ
stopping place covered:
ory
The Warsaw Convention: within a 1.) that of a
mandates carriers to issue territory subject wher singl
passenger tickets; to the e the e
requires carriers to issuesovereignty,
baggage place High
checks for checked luggage;suzerainty, of Contr
creates a limitation period of 2
mandate or depa actin
years within which a claim must be
authority of rture g
brought (Article 29); andanother Power, and Party
limits a carrier's liability even
to at most:
though that the if
 there show the place carrier liable for and that the air
is an of departure and breach of carrier is not
agree the place of contract of liable for loss of
d destination to be carriage or as an baggage in an
stopp within the absolute limit of amount in
ing United States, the extent of that excess of the
place the contract liability. The limits specified
withi cannot come Warsaw in the tariff
n a within the Convention which was filed
territ purview of the declares the with the proper
ory first category of carrier liable in authorities,
subje International the enumerated such tariff being
ct to Transportation. cases and under binding on the
the The linkage certain passenger
sover of the contract to limitations. regardless of
eignt the Manila-Los However, it must his lack of
y, Angeles travel not be construed knowledge
mand tickets obtained to preclude the thereof or
ate, by the Mapas operation of the assent thereto.
or from PAL cannot Civil Code and Nevertheless,
auth bring the pertinent laws. there can be
ority arrangements (PAL vs. CA, G.R. no blind
of within the No. 119641 May reliance on
anot second category, 17, 1996) adhesion of
her where the same contracts
powe were filled-up II. SALIENT where:
r, only by the ASPECTS OF 1.) the facts
even Mapas in THE WARSAW and
thou response to the CONVENTION circumsta
gh query Your A. Provision on nces
the Complete justify
the valuation
powe Intinerary at that they
of cargo
r is the time they should be
not a claimed for their Article 22. (1) In the transportation of disregard
party lost pieces of passengers, the liability of the carrier fored; and
of the baggage. (Mapa each passenger shall be limited to the2.)sum
when the
Conv vs. CA, G.R. No. of 125,000 francs. Where in accordancebenefits of
entio 122308 July 8, with the law of the court to which the caselimited
n. 1997) is submitted, damages may be awarded liability
in
(Map the form of periodical payments, the have been
a vs. equivalent capital value of the said waived
CA, It does not payments shall not exceed 125,000 francs. when the
G.R. however Nevertheless, by special contract, the air carrier
No. preclude carrier and the passenger may agree to failed
a to
1223 operation of the higher limit of liability. raise
08 Civil Code or
timely
July other pertinent
objections
Art 25 (1) The carrier shall not be entitled
8, laws:
1997 Although the to avail himself of the provisions of during this the
) Warsaw Convention which exclude or limit trial his when
liability, if the damage is caused by his questions
Convention has
(Lhuillier vs. the force and willful misconduct or by such default onand his
part as, in accordance with the law of the answers
British Airways, effect of law in
court to which the case is submitted, regarding
is
G.R. No. 171092 this country,
considered equivalent to the actual
willful
March 15, 2010) being a treaty
misconduct. claims
commitment
and
When the assumed by the
Admittedly, damages
airline tickets Philippine
in a contract of sustained
evidencing the government, said
air carriage a by the
contract of convention does
declaration by passenger
transportation not operate as an
the passenger were
between Mapa exclusive
of a higher asked.
and TWA, which enumeration of
value is needed (British
were purchased the instances for
to recover a Airways
in Bangkok, declaring a
greater amount, vs. CA,
 G.R. No. by such default British arising from
121824 on his part as, in Airways, G.R. torts:
January accordance No. 171092 Respondent'
29, 1998) with the law of March 15, s complaint
B. Provision the court seized 2010) reveals that he
on limiting of the case, is is suing on two
liability considered to C. On (2) causes of
be equivalent to action: (a) the
limitation of
The wilful shabby and
time to file
Convention's misconduct, or humiliating
if the damage is action
provisions do treatment he
similarly caused Article 29. (1) The right to damages shall
not "regulate or received from
by any agent of be extinguished if an action is not brought
exclude the petitioner's
the carrier within two years, reckoned from the date
following areas: employees at
acting within of arrival at the destination, or from the
the San
the scope of his date on which the aircraft ought to have
1.) liability Francisco
employment. arrived, or from the date on which the
for other Airport which
carriage stopped.
breaches caused him
of Under (2) The method of calculating the extreme
period of
contract domestic law limitation shall be determined by embarrassment
the law
by the and of the court to which the case is submitted.
and social
carrier; jurisprudence humiliation;
2.) miscond (the Philippines and, (b) the
The two (2)-
uct of its being the slashing of his
year limitation
officers country of luggage and the
incorporated in
and destination), loss of his
Art. 29 as an
employe the attendance personal effects
absolute bar to
es; or of gross amounting to
suit and not to
3.) for some negligence US $5,310.00.
be made subject
particula (given the
to the various While his
r or equivalent of
tolling second cause of
exceptio fraud or bad
provisions of action an
nal type faith) holds the
the laws of the action for
of common carrier
forum. This damages arising
damage. liable for all
therefore from theft or
(Northw damages which
forecloses the damage to
est can be
application of property or
Airlines reasonably
our own rules goods is well
vs. CA, attributed,
on interruption within the
G.R. No. although
of prescriptive bounds of the
120334 unforeseen, to
periods. Article Warsaw
January the non-
29, par. (2), was Convention, his
20, performance of
intended only to first cause of
1998) the obligation,
let local laws action an
including moral
determine action for
Varying views and exemplary
whether an damages arising
as regards damages.
action had been from the
misconduct: (Sabena
commenced misconduct of
Beligian World
within the two the airline
1st View Airways vs. CA,
(2)-year period. employees and
Outside WC G.R. No.
(United the violation of
Coverage 104685 March
Airlines vs. Uy, respondent's
The Warsaw 14, 1996)
G.R. No. rights as
Convention 127768 passenger
denies to the 2nd View -
November 19, clearly is not.
carrier Tortious
1999)
availment of the conduct as Consequently
provisions ground for the , insofar as the
Prescriptio
which exclude petitioners first cause of
n of action
or limit his complaint is action is
covered by
liability, if the within the concerned,
Warsaw
damage is purview of the respondent's
convention
caused by his Warsaw failure to file his
distinguished
wilful Convention complaint
from those
misconduct or (Lhuillier vs. within the two
(2)-year with the place of which means that
limitation of the departure and the phrase "rules as
IV. Jurisdiction of
Warsaw ending with the to jurisdiction" used
Local Courts
Convention ultimate destination. in Article 32 must
does not bar his under the The use of the refer only to Article
action since Warsaw singular in the 28(1). In fact, the
petitioner Convention expression indicates last sentence of
airline may still Art. 1 (2) For the purposes ofthethis
understanding
Convention of Article 32
be held liable the parties
the expression "international carriage to the specifically deals
for breach of Convention
any carriage in which, according to the contract that with the exclusive
other made by the parties, the placeevery contract
of departure and of enumeration in
provisions of carriage
the place of destination, whether or nothasthereone Article 28(1) as
the Civil Code place of departure
be a break in the carriage or a transhipment, "jurisdictions,"
which prescribe are situated either within theand one place
territories of two of which, as such,
a different High Contracting Parties destination. An cannot be left to the
period or intermediate
territory of a single High Contracting Party,place
if will of the parties
procedure for there is an agreed stopping where
placethe carriage
within a regardless of the
instituting the territory subject to the sovereignty, suzerainty,not
may be broken is time when the
action, regarded
mandate or authority of another as aeven
Power, "place damage occurred.
specifically, Art. though that Power is not ofa partydestination."
to this xxxx
1146 thereof Convention. A carriage without(Lhuillier
such anvs. British
agreed
which In other words,
stopping place between territories subject toNo.
Airways, G.R.
prescribes four 171092 Marchor15, where the matter is
the sovereignty, suzerainty, mandate
(4) years for 2010) governed by the
authority of the same High Contracting Party is
filing an action Warsaw Convention,
not deemed to be international for the
based on torts. jurisdiction takes on
purposes of this Convention. (Emphasis
Jurisdictional
(United a dual concept.
supplied) Character of Art. 28
Airlines vs. Uy, Jurisdiction in the
Art. 17. The carrier shall be Weliable for damage
further held that international sense
G.R. No. sustained in the event of the death oforthe
127768 Article 28(1) must be established
wounding of a passenger orWarsaw any other bodily
Convention in accordance with
November 19, injury suffered by a passenger,
1999) is if the accident in
jurisdictional Article 28(1) of the
which caused the damage so sustained
character. Thus: took Warsaw Convention,
Use of delaying place on board the aircraft or in the course of following which the
tactics by the any of the operations ofA number embarkingof reasons
or jurisdiction of a
carrier wont disembarking. tends to support the
particular court
preclude characterization of
Art 28 (1) An action for damages must be must be established
enforcement Article 28(1) as a
brought at the option of the pursuant to the
of action even jurisdiction in
plaintiff, thenot
and
territory of one of the High Contracting applicable domestic
beyond the a venue Parties,
provision.
either before the court of the domicile of the of law. Only after the
prescriptive First, the wording
carrier or of his principal place of business or question of which
period: Article 32, which
where he has a place of indicates
business the through court has
places
Despite the which the contract has beenwhere made,the or action
beforefor jurisdiction is
express the court at the place of destination. determined will the
damages "must" be
mandate of Art. issue of venue be
brought,
29 of the taken up. This
Destination vs. underscores the
Warsaw second question
Agreed Stopping mandatory nature of
Convention that shall be governed by
Place Article 28(1).
an action for the law of the court
Article 1(2) Second, this
damages should to which the case is
also draws a characterization is
be filed within submitted. (Lhuillier
distinction between consistent with one
two (2) years vs. British Airways,
a "destination" and of the objectives of
from the arrival Supra.)
an "agreed stopping the Convention,
at the place of place." It is the which is to "regulate
destination, "destination" and in a uniform manner
such rule shall not an "agreed the conditions of PUBLIC SERVICE
not be applied stopping place" that international LAW
in the instant controls for transportation by
case because of purposes of air." Third, the What is a public
the delaying ascertaining Convention does not utility? (2000 bar
tactics jurisdiction under contain any exams)
employed by the Convention. provision A public utility is a
petitioner The contract prescribing rules of business or service
airline itself. is a single undivided jurisdiction other engaged in regularly
(United Airlines operation, beginning than Article 28(1), supplying the public
vs. Uy, supra)
with some unre ION h
commodity or ason 11: il
service of public able > A i
consequence such as charg franchise p
electricity, gas, es , p
water, and certificat i
transportation, poor e, or any n
telephone or ineffi other e
telegraph service. cient form of L
Apart from statutes servi authoriz a
which define the ce. ation for w
public utilities that 2. To the s
are within the prote operatio w
purview of such ct n of h
statutes, it would be and public e
difficult to construct conse utility r
a definition of a rve shall be e
public utility which inves granted a
would fit every tmen to: t
conceivable case. As ts le
its name indicates, whic - a
however, the term h Filipi st
public utility implies have n 6
a public use and alrea o 0
service to the public. dy C %
(Am. Jur. 2d V. 64, been it o
p.549.) (Albano vs made iz f
Reyes) for e t
publi n h
ORDINARY AND c s e
PRIMARY servi - c
PURPOSE OF ce, Corp a
THE PUBLIC and o p
SERVICE LAW preve r it
ORDINARY nt a al
PURPOSE: ruino ti is
To subject us o o
public services comp n w
to state control etitio s n
and regulation. n. o e
SPECIFIC r d
PURPOSES: BASIS OF THE a b
1. To LEGISLATIVE s y
secur POWER TO s Fi
e REGULATE PUBLIC o li
adeq SERVICES: ci p
uate, a i
susta POLICE ti n
ined POWER, for o o
servi the n C
ce for protection of s it
the the public as o iz
publi well as the r e
c at utilities g n
the themselves. a s.
least (Pantranco v. n -
possi P.S.C., 70 Phil iz 100
ble 221) e %
cost, d F
and CONSTITUTI u il
prote ONAL BASIS: n i
ct the 1. ARTI d p
publi CLE e i
c XII, r n
again SECT P o
st
 M In times of public Communicati
a national interest so on (DOTC)
n emergency, requires; no and the Land
a when the combination Transportati
g public in restraint on
e interest so of trade or Franchising
m requires, the unfair and
e State may competition Regulatory
n during the shall be Board
t emergency allowed (LTFRB)
and under 2. WATER
> Mass reasonable TRANSPORT
media terms, Distinguish a ATION-
and temporarily Certificate of Public Maritime
commerc take over or Convenience from a Industry
ial direct the Certificate of Public Authority
telecom operation of Convenience and (MARINA)
municati any private Necesssity 3. AIR
ons shall owned A cpc is TRANSPORT
be: public utility issued whenever the ATION- Air
- or business Commission finds Transportati
100 affected with that the operation of on Office
% public the proposed public (ATO)
F interests. service will promote headed by an
il 3. ARTI the public interests assistant
i CLE in a proper and secretary
p XII, suitable manner, for and the Civil
i SECT which a municipal or Aeronautics
n ION legislative franchise Board, which
o 18 is not necessary. On has been
C The state the other hand, cpcn placed under
a may, in the is issued upon the DOTC as
p interest of approval of any an attached
it national political subdivision agency.
al welfare or of the Philippines 4. TELECOMM
, defense, when in the UNICATIONS
a establish and judgement of the - National
n operate vital Commission, such Telecommun
d industries franchise or ications
- and upon privilege will Commission,
100 payment of properly conserve which has
% just the public interest been placed
F compensatio (Perez, under the
il n, transfer to Transportation Laws DOTC as an
i public and Public service attached
p ownership Act). agency.
i utilities and 5. ENERGY-
n other private OFFICES NOW Board of
o enterprises CHARGED WITH Energy but
m to be ENFORCEMENT OF transferred
a operated by PUBLIC SERVICE to the Energy
n the LAW Regulatory
a government. The Public Service Board (ERB)
g 4. ARTI Commission has 6. WATERWOR
e CLE been abolished. The KS- National
m XII, following replaced Water
e SECT it: Resources
n ION Council
t 19 1. LAND
2. ARTI The state TRANSPORT LIMITATIONS ON
CLE shall ATION- THE
XII, regulate or Department POWERS OF
SEC prohibit of THE
17: monopolies Transportati REGULATOR
when the on and Y BOARDS,
COMMISSIO holder any company is no
NS AND B. proprietary right or longer required to
COUNCILS: interests or secure a separate
1. General: JURISDICTIO franchise in the CPC in order to
Powers N public highways. operate a ferry boat
are limited Revocation of this for the use of its
from those General certificate deprives buses.
granted in Rule: Over him of no vested
the persons right. New and Grounds for
legislation engaged in additional burdens Revocation of
creating the public alteration of the Certificate
body. utilities, or certificate, or even 1. The holder
2. Constitu over a public revocation or violates or
tional: utility, which annulment thereof is contumaciou
Regulatio holds a reserved to the State sly refuses to
ns imposed Certificate of (Lugue v. Villegas, comply with
must not Public G.R. No. L-22545, 28 any order,
have the Convenience. November 1969). rule or
effect of Exemption: regulation of
depriving an violators of a Essentials before the
owner of his valid Granting a CPC/ commission
property regulation CPCN (Sec.16(n)of
without due promulgated 1. The granter Public
process of under the must be a Service Act)
law nor law citizen of the 2. The holder is
confiscating Distinguish Philippines a mere
or Legislative or entity dummy
appropriatin Franchise from a sixty percent 3. The operator
g private CPC of which is ceased
property A owned by operation
without just franchise is a grant such citizens. and placed
compensatio or privilege from the 2. The grantee his buses on
n. sovereign power, must have storage; or
3. Judicial: while the certificate sufficient 4. The operator
Boards, is a form of financial abandons
commissions regulation through capability to totally the
are not an administrative undertake service
judicial agency. the service (Manzanal v.
tribunals and a franchise and, Ausejo, No.
therefore is a property right 3. The service L-31056,
cannot and cannot be will promote August 4,
determine revoked or forfeited public 1988).
judicial without due process interests and
questions of law (PLDT, Co. v. convenience Unlawful Acts of
such as NTC and CELLCOM, in a proper Public Utility
validity of Inc. (Express and suitable Companies
contract. Telecommunications manner. 1. Engagement
4. Jurisdict Co.,Inc. G.R. No. in public
ion: 88404, 18 October Note: The service
Extends 1990), whereas a overriding principle business
only to CPC or a CPCN as far is a public interest, without first
persons as the interest of the necessity and securing the
engaged in State is concerned , convenience proper
public constitutes neither a (Sundiang &Aquino, certificate
utilities, or franchise nor a Reviewer on 2. Providing or
over a public contract, confers no Commercial Law). maintaining
utility, which property right, and Coverage of CPC unsafe,
holds a is a mere license or a a ferry boat improper or
Certificate of privilege. The holder service is considered inadequate
Public of said certificate as a continuation of service as
Convenience. does not acquire a the highway when determined
property right in the crossing rivers or by the
route covered lakes , which are proper
thereby. Nor does it small bodies of authority
confer upon the water; hence a land 3. Committing
transportation any act of
 unreasonabl with a first operator raised by prior
e and unjust who is rendering operator only Registered Owner
preferential sufficient, adequate on appeal. Rule
treatment to and satisfactory 7. CPC granted to The
any service, and who in the applicant is registered owner of
particular all things and a maiden a certificate of a
person, respects is franchise public convenience
corporation complying with the covering a new is liable to the public
or entity as rules and route, albeit for the injuries or
determined regulations of the overlapping damages suffered by
by the commission. The old with that of the third persons caused
proper operator must be old operator by the operation of
authority given the 8. Expiration of said vehicle, even
4. Refusing or opportunity to corporate though the same had
neglecting to improve and extend existence of been transferred to a
carry public his lines. (Batangas prior operator. third person.
mail upon Trans Co. v Orlanes, 9. Monopoly The
request 52 Phil 455) 10. Passage registered owner is
(Secs.18 BASIS OF through not allowed to
&19). THE PRIOR private escape responsibility
OPERATOR RULE subdivision by proving that a
Prior Old Operator Prevent which granted third person is the
Rule ruinous and wasteful permit to actual and real
Before competition and another owner.
permitting a new interest of public The
operator to invade will be preserved. Prior Applicant registered owner is
the territory of Rule the lawful operator
another already EXCEPTIONS TO Where there insofar as the public
established with a THE PRIOR are various and third persons
cpc, the prior OPERATOR RULE: applicants for a are concerned;
operator must first public utility over consequently, it is
be given the 1. Operator fails/ the same authority, directly and
opportunity to neglects to all conditions being primarily
extend its service in make equal, priority in the responsible for the
order to meet public improvement filing of the consequences of its
needs in the matter or effect the application for a operation. In
of transportation. It increase in certificate of public contemplation of
means that a public service when convenience law, the
utility operator given the becomes an owner/operator of
should be shielded opportunity. important factor in record I sthe
from ruinous 2. When Prior granting or refusal of employer of the
competition by operator offers a certificate of driver, the actual
affording him the to meet convenience and the operator and
opportunity to increases in Commission is employer being
improve his demand only authorized to considered as
equipment and when another determine which of merely its agent. The
service before operator the applicants can same principle
allowing a new offered to best meet the applies even if the
operator to serve in render requirements of registered of any
the same territory additional public convenience vehicle does not use
he service (delos Santos v. it for public service
covers(Mandaluyong 3. Abandonment Pasay Trans. Co.). (Equitable Leasing
Bus Co. v. Francisco). of operation Corp. v. Suyom, G. R.
The law 4. Prior Protection of No.143360,
contemplates that operators did Investment Rule September 5,
the first licensee will not oppose One of the 2002), or otherwise
be protected in his application purposes of the stated, to privately-
investment and will 5. Prior operator Public Service Act is owned vehicles.
not be subjected to a cannot satisfy to protect and
ruinous competition. needs of the conserve A sale , lease
It is not therefore public investments which or financial lease
the policy of the law 6. When have already been that is not registered
to issue a CPC to a opportunity to made for that with the LTO does
second operator to improve purpose by public not bind third
cover the same field service is service operators persons who are
and in competition
aggrieved in recognized as being to prove who C.A, 29
tortuous incidents, contrary to public the actual November
for the latter need policy and therefore owner is 1969)
only to rely on the void and inexistent (Benedicto 6. The
public registration of under Art.1409, New v. IAC G.R determining
a motor vehicle as Civil Code ( Lim v. No. 70876, factor which
conclusive evidence C.A. G.R.No. 125817, 19 July negates the
of ownership. A 16 January 2002) 1990). existence of
lease is an 3. The thrust of Kabit system
encumbrance in Effects the law in is the
contemplation of 1. The transfer, enjoining the possession of
law, which needs to sale, lease or Kabit system the franchise
be registered in assignment is to identify to operate
order for it to bind of the the person and not the
third parties (PCI privilege upon whom issuance of
Leasing Corp and granted is responsibilit one SS I.D.
Finance Inc. v. UCPB valid y may be Number for
General Insurance between the fixed with both bus line
Co., Inc. G.R. No. contracting the end in (Baliwag
162267, 4 July parties but view of Transit V.
2008). not upon the protecting C.A, 7
public or the riding January
Registered Owner third public.(Lim 1987)
had Recourse persons v. C.A. G.R.
against Vendee/ (Gelisan v. No 125817, Requisites for the
Transferee Alday No.L- 16 January Inapplicability of
A registered 30212, 30 2002) the Kabit System
owner who has September 4. Application 1. When
already sold or 1987) of Article neither of
transferred a vehicle 2. The 1412 of the the parties to
has a recourse to a registered NCC or in the
third-party owner is pari delicto pernicious
complaint, in the primarily rule. The Kabit system
same action brought liable for all registered is being held
against him to the ownercannot liable for
recover for the consequence recover from damages.
damage or injury s flowing the actual 2. When the
done, against the from the owner and case arose
vendee or transferee operations of the latter from the
of the vehicle the carrier. cannot negligence of
(Villanueva v. The public obtain another
Domingo, 438 Scra has the right transfer of vehicle using
485,2004). to assume the vehicle to the public
that the himself,both road to
Kabit System( 2005 registered being in pari which no
bar Exams) owner is the delicto. (Teja representati
It is an actual or Marketing on or
arrangement lawful owner Vs. IAC) misrepresent
whereby a person thereof. It 5. For the ation as
who has been would be better regards the
granted a certificate very difficult protection of ownership
of public and often the public, and
convenience allows impossible, both the operation of
other persons who as a registered passenger
own motor vehicles particular owner and jeepney was
to operate under matter, for the actual made.
such license, for a the public to owner are 3. When the
fee or percentage of enforce their jointly and riding public
such earnings. rights of severally was not
Although the parties action for liable with bothered of
to such agreement injuries the driver inconvenienc
are not out rightly inflicted by (Zamboang ed at the
penalized by law,the the vehicle if a very least by
kabit system is they should Transporat the illegal
invariably be required ation Co. v. arrangement
(Lim v. C.A.
 16 January certificate of Public carrier a fair the use of
2002) Convenience and return upon government
Necessity (PAL v. the value of property,
Boundary System CAB 26 March the property such as the
1. The driver 1997) employed in installation
does not performing of electric
receive a The Legislature the service; and
fixed wage has delegated to the and telephone
but gets only defunct Public 2. One which is posts and
the excess of Service Commission fair to the lines along
the receipt of and presently the public for the public
the fares LTFRB, the power of service streets
collected by fixing rates of public rendered. requiring a
him over the services. But previous
amount he nowhere under the Service of a Public franchise
pays to the provisions of law are Utility considered therefore
jeep owner. the regulatory Unlawful c. No certificate
2. The gasoline bodies, the PSC and It shall be is necessary
consumed by LTFRB alike, unlawful for any where the
the jeep is authorized to public service to service of
for the delegate that power provide or maintain utility is
account of to a common carrier ant service that is owned,
the driver. like transport unsafe, improper, or operated and
operator, or other inadequate, or managed for
These two withhold or refuse
public service (KMU a private use
features are not any service which
Labor v. Garcia, 23 or where the
sufficient to can be reasonably be
December 1984). owner is not
withdraw the demanded and
A public Utility is engaged in
relationship furnished as
entitled to public
between the owner founded and
reasonable service.
and the driver from determined by the
compensation in
that of employer and Commission in a
return for the
employee. The final order which Liability of
service it provides
jeepney owner is shall be conclusive Registered Owner
and that it may exact
subsidiarily liable as and shall effect and and Authorized
reasonable charges
employer in shall effect in Operator under the
in accordance with
accordance with accordance with this Kabit System and
the service provided
Art.103 of RPC Act, upon Appeal for Boundary System
of the rates
(Magboo v. otherwise (Sec.19 Both the
established
Bernardo, 30 April (a) Public Service registered owner
therefore. In
1963). Act) and the Authorized
computing the just
Indeed to operator of a
and reasonable rates
exempt from liability Certificate of Public common carrier
to be charged by a
the owner of public Convenience and under the Kabit
public utility, three
vehicle who operates Necessity System are jointly
major factors are to
it under the a. A certificate and severally
be considered: 1).
boundary system on of Public (solidarily) liable for
Rate of Return; 20.
the ground that he is Convenience any death or injury
The rate base, 3) the
a mere lessor would is issued to the passengers
return itself or the
be not only to abet where no and loss/damage to
computed revenue
flagrant violations of special the goods.
to be earned by the
the public service government
public utility based
law, but also to take franchise is Under the
on the rate of return
place the riding required. Boundary System
and base rate
public at the mercy b. A certificate the authorized
(Davao Light and
of reckless and of Certificate operator of a
Power Company,
irresponsible drivers of Public common carrier is
Inc., 3 April 2003)
(Spouses Henandez Convenience liable for the
v. Spouses Dolor, 30 and conduct of the
A rate is just and
July 2004) Necessity is driver, there being
reasonable if it
The Civil issued where an employer-
conforms to the
Aeronautics Board is the public employee
following
expressly authorized service relationship
requirements:
by R.A. No. 776 to would between the
1. One which
issue a temporary require in its operator and the
yields to the
operating permit of operation driver
 *(Notes of Atty. 2. Merchants limited by the nature
Renato Rondez) are, those who of the industry that
having legal capacity he would like to
MERCHANTS AND to engage in participate in and
COMMERCIAL commerce, Philippine Law that
TRANSACTIONS: habitually devote will govern the: (a)
themselves thereto. creation of the
establishment (b)
1. Commercial 2.1 By definition, mercantile
Law is that branch of only individuals may operations, and (c)
law relating to the be merchants, but it jurisdiction of our
rules that govern the must be noted that courts or the
rights, obligations foreigners and provisions of any
and relations of companies created treaty obtaining
persons engaged in abroad may engage between the
commerce or trade. in commerce in the Philippines and the
Philippines, subject country of which he
1.1 It is that to the law of their is a national (Article
branch of private country with regard 15, Code of
law which regulates to capacity to Commerce).
the juridical contract, and to the
relations arising provisions of the 3.3 Being a
from commercial Code of Commerce juridical person, it is
acts and according as regards creation required that it be
to which, the of the their organized in
questions and establishments in accordance with law.
controversies arising the Philippines If it is a foreign
therefrom are (Article 15, Code of juridical person, it
resolved. Commerce), which must obtain a license
provision shall be to transact business
1.2 Law without prejudice to in the Philippines
Merchant is the what, in particular and is subject to the
commercial law cases, may be same limitations
consisting of established by imposed on
customs, practices, treaties or individual aliens.
and usages given the agreements with
force and effect of other countries. 3.4 The
law by the courts Hence, it should following cannot
through judicial necessarily follow engage in commerce
pronouncements. It that corporations nor hold office or
is the common law engaged for business have any direct,
of commercial law. and partnerships are administrative, or
merchants from the financial
1.3 Its three time they are intervention in
principal incorporated or commercial or
characteristics are: formed. industrial
(a) universal companies: (a)
because it exists in 3. Persons shall Persons sentenced
every civilized be deemed as having to the penalty of civil
society as trade is met the required interdiction, while
necessary (b) legal capacity to they have not served
progressive as it habitually engage in their sentence or
accumulates new commerce if: have not been
ideas and keeps amnestied or
abreast with 3.1 Being an pardoned
contemporary individual: (a) Must (b)Persons who have
developments, and be 18 years of age been declared
(c) equitable since and (b) having free bankrupts, while
commercial disposal of property they have not
transactions involve obtained their
SPECIAL the exchange of 3.2 As far as an discharge, or been
values or alien is concerned, authorized by virtue
COMMERCIA consideration. his legal capacity is of an agreement
L LAWS* determined by his accepted at a general
national law but is meeting of creditors
and approved by Government. co-extensive with
judicial authority, to Persons who by the place wherein 6. Commercial
continue at the head contract administer the officer Contracts are those
of their and collect incapacitated entered into by
establishments; the temporarily or their exercises functions merchants in the
discharge being representatives are and the act is valid pursuit of their
considered in such exempted (d) Stock but there is a activities and involve
cases is limited to and commercial disciplinary articles of
that expressed in the brokers of whatever sanction. commerce. It is an
agreement; and (c) class they may be (e) agreement between
Persons who, on Those who by virtue 3.8 Acts of two or more
account of laws or of laws or special persons who are merchants, and at
special provisions, provisions, may not incapacited are times between those
may not engage in engage in commerce generally voidable as who are not,
commerce (Article in a determinate they are unable to whereby they bind
13, Code of territory. give effective themselves to give or
Commerce) consent ( Article do something in
3.6 Note further, 1390, Civil Code) commercial
3.5 Further, the the current transactions. The
following cannot prohibitions as rules to be observed
engage in the appearing in the 4. The legal in respect to
commerce, either in Constitution as to (a) presumption of commercial
person or by proxy, Members of the habitually engaging contracts are:
nor can they hold Senate and the in commerce shall
any office or have House of exist from the 6.1 As to
any direct, Representatives moment the person formalities-
administrative, or (Section 14, Article who intends to commercial
financial VI) (b) President, engage therein contracts shall be
intervention in Vice-President, announces through valid and shall give
commercial or Members of the circulars, rise to obligations
industrial Cabinet, their newspapers, and causes of action
companies, within deputies or handbills, posters in suits, whatever
the limits of the assistants (Section exhibited to the the form and
districts, provinces 13, Article VII) (c) public, or in any language in which
or towns in which Members of other manner they may be
they discharge their Constitutional whatsoever, an executed, the class to
duties: (a) Commissions establishment which which they may
Justice of the ( Section 2, Article has for its object belong, and the
Supreme Court, IX), the Revised some commercial amount they may
judges and officials Administrative Code, operation (Article 3, involve, provided
of the department of as to municipal Code of Commerce) their existence is
public prosecutors officers (Section shown by any means
in active service. 2176), the Anti Graft established by the
This provision shall and Corrupt 5. The civil law. However,
not be applicable to Practices Act, as to applicable laws to the testimony of
the municipal public officers commercial witness alone shall
mayors, judges and (Section 3 (h), RA transactions in not be sufficient to
prosecuting 3019), Civil Service hierarchical order prove the existence
attorneys, nor to Rules and are: (a) Code of of a contract which
those who by chance Regulations, as to Commerce (b) involves an amount
are temporarily public officers and Commercial exceeding 1,500
discharging the employees (Rule XIII Customs, and (c) pesetas unless
functions of judges (5), CSC) Civil Code. The listed supported by some
or prosecuting laws shall apply to other evidence
attorneys (b) the requisites, (Article 51, Code of
Administrative, 3.7 modifications, Commerce).
economic or military exceptions,
heads of districts, Distinguishing interpretations, Thus, a commercial
provinces, or posts between absolute extinction of contract exceeding
(c) Employees and relative commercial P300.00, which
engaged in the incapacity, the contracts and to the traditionally has
collection and former extends over capacity of the been accepted as the
administration of all Philippines and contracting parties approximate
funds of the State, the act is void, while (Articles 2 and 50, equivalence of 1,500
appointed by the in the latter, it is only Code of Commerce) pesetas cannot be
proven by parol consent. stipulated; but in 59, Code of
evidence only. Consequently, prior resorting to either of Commerce)
to, but never after, these two actions,
6.2 The the perfection of the the other one shall 10. In
exceptions to the contract, an offeror be annulled unless commercial
rule on formalities may withdraw his there is an contracts, time
are: (a) Contracts offer. If a period is agreement to the generally is of the
which, in accordance given to the offeree, contrary (Article 56, essence.
with this Code or but no valuable Code of Commerce). Consequently, every
with special laws, consideration is paid Note Article 1226 of debtor would be in
must be reduced to therefore, the offer the Civil Code delay without
writing or require may still be making a demand.
forms or formalities withdrawn as a 9. In When compared to
necessary for their matter of right. But, interpreting the Civil Code, the
efficacy. Examples: if the withdrawal is commercial general rule is the
Bottomry or exercised arbitrarily contracts, the mere non-
Respondentia or whimsically, an following rules shall compliance at the
(b)Contracts award for damage is be observed: designated time or
executed in a foreign warranted. (Article period would not
country in which the 19, Civil Code, 9.1 Commercial constitute default,
law requires certain Sanchez vs Rigos, 45 contracts shall be even if a date has
instruments, forms SCRA 368) executed and been fixed for the
or formalities for complied with in performance of an
their validity, 7.2 In good faith according obligation. Thus,
although Philippine commercial to the terms in demand is necessary.
law does not require contracts entered which they were
them. In either case, into by made and drafted, 10.1 The rules on
contracts which do correspondence, the without evading the computing periods
not satisfy the contract is deemed honest, proper and in commercial
circumstances perfected upon the usual meaning of contracts are: (a) In
respectively making of an answer written or spoken all computations of
required shall not accepting the offer words with arbitrary days, months and
give rise to or from the time the interpretations, nor years, it shall be
obligations or causes acceptance is limiting the effects understood that a
of action (Article 52, dropped in the which are naturally day has twenty-four
Code of Commerce) mailbox even before derived from the hours, the months as
knowledge of the manner in which the designated in the
6.3 Illicit offeror. There is contracting parties Gregorian calendar,
agreements do not intent to be bound. may have explained and the year has
give rise to This is known as the their wishes and three hundred sixty-
obligations or causes Manifestation contracted their five days (Article 60,
of action even if they Theory. In other obligations (Article Code of Commerce).
should refer to a contracts not 57, Code of Note that under
commercial covered by the Code Commerce). Article 13 of the Civil
transaction (Article of Commerce, the Code, a month is 30
53, Code of acceptance is not 9.2 In case of days, unless
Commerce). binding until it is conflict between designated by name
made known to the copies of the (b) Days of grace,
7. Contracts offeror. This is contract, and an courtesy or others
entered into by known as the agent should have which under any
correspondence Cognition Theory. intervened in its name whatsoever
shall be perfected negotiation, that defer the fulfillment
from the moment an 8. In a which appears in the of commercial
answer is made commercial contract agents book shall obligations, shall not
accepting the offer containing an prevail (Article 58, be recognized,
or the conditions by indemnification Code of Commerce) except those which
which the latter may clause against the the parties may have
be modified (Article person who fails to 9.3 In case of a previously fixed in
54, Code of comply therewith, doubt, and the rules contract or which
Commerce). the aggrieved party enunciated cannot are based on a
may take legal steps resolve the conflict, definite provision of
7.1 Generally, to demand the issues shall be law (Article 61, Code
commercial fulfillment of the decided in favor of of Commerce).
contracts are contract or the the debtor (Article Example is the grace
perfected by mere indemnity period provided for
by Section 230 of the period, the debtor is business shall have a letter of credit
Insurance Code in delay from right of action transaction means
demand. Note against him only and that the documents
10.2 A debtor in a period, as when the not against the tendered by the
commercial contract debtor desires others interested seller or beneficiary
shall be determined (Article 1182, Civil therein. The latter must strictly
to be in delay when: Code) not condition shall also have no conform to the terms
(a) On the eleventh as if the debtor right against the of the letter of credit,
day, in obligations desires (Article third person who i.e., they must
which do not have a 1180), as the latter contracted with the include all
period previously is a void obligation. manager, unless the documents required
fixed by the parties latter formally cedes by the letter of credit
or by the provisions his rights to them such as: (a) a draft
of this Code, as they (Art. 242) which is also called a
are demandable ten JOINT ACCOUNTS bill of exchange, is
days after having (e) The an order written by
been contracted if 1. A joint liquidation of the an exporter/seller
they give rise only to account or cuentas joint account shall instructing an
an ordinary action, en participacion is an be made by the importer/buyer or
or on the day arrangement among manager thereof its agent to pay a
following the next merchants who who, upon the specified amount of
day if they involve interest themselves conclusion of the money at a specified
immediate execution in the transactions of transactions, shall time (b) a bill of
(Article 62, Code of other merchants, render a verified lading, which is a
Commerce) (b) in contributing thereto account of their document issued to
contracts with a the part of the results (Art. 243) the exporter by a
day fixed for their capital they may common carrier
compliance by the agree upon, and who transporting the
will of the parties or participate in the LETTERS OF merchandise, and (c)
by law, on the day favorable or CREDIT invoices.
following their unfavorable results
maturity or in thereof in the 1. A letter of 1.2 The issuing
contracts in which proportion they may credit is basically an bank in determining
no such day is fixed, determine (Art. open letter of compliance with the
from the day on 239). request whereby one terms of the letter of
which the creditor person requests credit is required to
legally makes (b) A joint another to advance examine only the
demand upon the account may be money or give credit shipping documents
debtor or notifies formed without any to a third person for presented by the
him of the protest of formality and may a certain amount seller and is
losses and damages be privately and promises to precluded from
made against him contracted orally or repay the person determining
before a justice, in writing (Art. 240). advancing the whether the main
notary or other money. contract is actually
public official (c) A joint accomplished or not.
authorized to admit account shall not 1.1 They are This arrangement
the same. adopt a commercial intended generally assures the seller of
name common to all to facilitate the prompt payment,
10.3 In summary: the participants, nor purchase and sale of independent of any
(a) If period of shall any further goods by providing breach of the main
performance fixed, direct credit be assurance to the sales contract. This
next day in delay made use of except seller of prompt known as the
without need of that of the merchant payment upon independence
demand, debtor in who transacts and compliance with principle in a letter
delay on the day manages the specified conditions of credit transaction.
following the day business in his own or presentation of
fixed; (b) If no name and under his stipulated 2. The primary
period fixed, ten individual documents without purpose of a letter of
(10) days from responsibility (Art. the seller having to credit is to
execution of contract 241). rely upon the substitute for, and
and on eleventh day, solvency and good therefore support,
debtor is in delay (d) Those who faith of the buyer. the agreement of the
without need of contract with the This is known as the buyer-importer to
demand (c) If there merchant who rule of strict pay money under a
is a Potestative carried on the compliance in a contract or other
arrangement.This the party in another governed by the liability except to
instrument is country who is the sales contract. notify the
basically a credit creditor of the beneficiary of the
security through customer. Usually, he 3.3 It is clearly letter of credit.
availment of credit is the one selling settled in law that Before paying, it
facilities of the goods to the there are thus three shall have the right
participating banks. customer (d) The contracts which to demand the proof
Advising Bank is make up the letter of of the identity of the
3. The parties the bank in the credit transaction: person in whose
to a letter of credit country of the The contract favor the letter of
are: (a) The Buyer- beneficiary which between buyer and credit is issued.
he is the one who communicates to the seller, buyer and
procures the letter of beneficiary the issuing bank, and the 4.4 The drawer
credit and obliges notice of the credit letter of credit of a letter of credit
himself to reimburse issued by the issuing proper. These may annul it,
the issuing bank bank (e) The transactions are to informing the bearer
upon receipt of the Confirming/Corresp be maintained in a and the person to
documents of title ondent Bank- is the state of perpetual whom it is
(b) The Issuing bank that separation. addressed of such
Bank- is the bank undertakes that the revocation. The
from whom the letter of credit will waiver of the right to
letter of credit is be fully paid. Usually 4. The essential annul makes the
procured and which the confirming bank conditions of a letter letter of credit
undertakes to pay is also the advising of credit are: (a) irrevocable
the seller upon bank, otherwise it is That it be
receipt of the draft utilized to lend issued in favor of a 4.5 The bearer
and proper credence to the definite person and of a letter of credit
documents of titles letter of credit not to order; and (b) shall pay the amount
and to surrender the issued by a lesser That it be received to the
documents to the known issuing bank limited to a fixed and drawer without
buyer upon and is directly liable specified amount, or delay. Should he not
reimbursement, and to the beneficiary. to one or more do so, an action
(c) The seller- who undetermined involving execution
in compliance with 3.2 The amounts, but within may be brought to
the contract of sale relationships of the a maximum the recover it, with legal
ships the goods to parties are to be limits of which has interest and current
the buyer and governed as follows: to be stated exactly. exchange in the
deliver the (a)Issuing bank and place where
documents of title applicant/buyer/im 4.1 Hence, a payment was made
and draft to the porter Their letter of credit is not on the place where it
issuing bank to relationship is a negotiable is repaid.
recover payment. governed by the instrument because
terms of the it is required to be 4.6 A letter of
3.1. In an application and drawn in favor of a credit becomes void
international credit agreement for the definite person. if the bearer of a
transaction carried issuance of the letter letter of credit does
through a letter of of credit by the bank. 4.2 Those which not make use thereof
credit, the parties Unless the contrary do not have any of within the period
are: (a) The is provided for, the the essential agreed upon with
Customer- who is liability of the conditions shall be the drawer, or, in
the party who issuing bank is considered merely default of a period
applies to a bank in solidary with the as a letter of fixed, within 6
one country for the buyer (b) Issuing recommendation. months counted
opening of a letter of bank and from its date, in any
credit in favor of the beneficiary/seller/e 4.3 The bank or point in the
seller in another xporter Their drawer of a letter of Philippines, and
country (b) The relationship is credit shall be liable within 12 months
Issuing Bank- is the governed by the to the person on anywhere outside
bank in the country terms of the letter of whom it was issued thereof, it shall be
of the customer to credit issued by the for the amount paid void in fact and in
which the customer bank, and (c) by virtue thereof, law.
applies for the Applicant and within the maximum
issuance of a letter beneficiary Their fixed therein, while a 5. A standby
of credit (c) The relationship is notifying bank does letter of credit is a
Beneficiary- who is not incur any bank-issued option
on a loan involving which the case the soon as the opening imported or
three parties: the issuing bank bank has advised purchased.
bank issuing the disburses a specified the negotiating or
credit, the party sum to the paying bank that the 1.2 The subject
requesting for such beneficiary and drafts already drawn matter of a trust
issuance (otherwise books an equivalent by the beneficiary receipt is always
known as the loan to its customer. have been chattel. It will not
account party) and reimbursed to the apply to chattel so
the beneficiary. 6. The opening bank by the attached to land so
Under the terms of common types of buyer (b) Back to as to become part
standby letter of letters of credit are: Back Letter of thereof.
credit (SLC), the (a) Irrevocable Credit- a credit with
beneficiary has the vs. revocable An identical 2. A trust
right to trigger the irrevocable letter of documentary receipt transaction is
loan option (referred credit obligates the requirements and a transaction
to as taking down issuing bank to covering the same between an
the loan) if the honor drafts drawn merchandise as entruster and an
account party fails to in compliance with another letter of entrustee whereby
meet its the credit and can be credit, except for the the entruster, who
commitment, in neither cancelled difference in price of owns or hold
which case the nor modified the merchandise as absolute title or
issuing bank without the consent shown by the invoice security interests
disburses a specified of all parties, and draft. The over certain
sum to the including in second letter of specified goods,
beneficiary and particular the credit can only be documents or
books an equivalent beneficiary/exporter negotiated after the instruments,
loan to its customer. . A revocable letter first is negotiated. releases the same to
SLCs may support of credit can be the possession of the
nonfinancial cancelled or entrustee upon the
obligations such as amended at any time TRUST RECEIPTS latters execution
those of bidders, or before payment; it is and delivery to the
financial obligations intended to serve as 1. A trust entruster of a trust
such as those of a means of arranging receipt is a receipt wherein the
borrowers. In the payment but not as a commercial entrustee binds
latter case, the guarantee of document whereby himself to hold the
borrower purchases payment (b) the bank releases specified gods,
an SLC and names Confirmed the goods in the documents or
the lender as vs. unconfirmed A possession of the instruments in trust
beneficiary. Should letter of credit entrustee but retains for the entruster and
the borrower issued by one bank ownership thereof to sell or otherwise
default, the can be confirmed by while the entrustee dispose of the goods,
beneficiary has the another, in which shall sell the goods documents or
right to take down case both banks are and apply the instruments with the
the SLC and receive obligated to honor proceeds for the full obligation to turn
the principal balance drafts drawn in payment of the over to the entruster
from the issuing. compliance with the liability to the bank. the proceeds thereof
credit. An to the extent of the
5.1 Another unconfirmed letter 1.1 It is a amount owing to the
definition is that it is of credit is the security transaction entruster, or the
a bank-issued option obligation only of intended to aid in goods, documents or
on a loan involving the issuing bank. financing importers instruments
three parties: the Why would an and retail dealers themselves if they
bank issuing the exporter want a who do not have are unsold or not
credit, the party foreign banks letter sufficient funds or otherwise disposed
requesting for such of credit confirmed resources to finance of.
issuance (account by a domestic bank? the importation or
party) and the One reason could be purchases of 2.1 A Security
beneficiary. Under if he has doubts merchandise, and Interest means a
its terms, the who may not be able property interest in
beneficiary has the 6.1 Other types: to acquire credit, goods, documents or
right to trigger the (a) Revolving Letter except through instruments to
loan option if the of Credit-one that utilization, as secure performance
account party fails to provides for collaterals, of the of some obligations
meet its renewed credit to merchandise of the entrustee or of
commitment, in become available as some third persons
to the entruster and trust receipt take possession of of the expenses of
includes title, agreement. It is the goods, and sell re-taking, keeping
whether or not essential for a trust the same at public or and storing the
expressed to be receipt transaction private sale. goods, documents or
absolute, whenever for the bank to first instruments; (3) to
such title is in acquire ownership 4.1 The process the satisfaction of
substance taken or and possession. of taking possession the entrustees
retained for security and selling the goods indebtedness to the
only. 2.4 When a is as follows: (a) the entruster. The
Memorandum of entruster may cancel entrustee shall
2.2 A trust Agreement is the trust and take receive any surplus
receipt transaction entered between a possession of the but shall be liable to
distinguished from: debtor corporation goods, documents or the entruster for any
(a) A pledge-in a and a creditor bank instruments subject deficiency.
pledge, the person is entered into of the trust or of the
doing the financing rescheduling the proceeds realized 4.2 Cancellation
has possession of payments due from therefrom at any of the trust receipt
the property; in a the former, the trust time upon default or and repossession is
trust receipt, the receipt transaction is failure of the not essential for the
property is in the novated and entrustee to comply entruster to have a
possession of the transformed into a with any of the cause of action
person financed (b) simple loan. terms and against the
A conditional sale-in conditions of the entrustee. They are
a conditional sale, 3. The parties trust receipt or any options available to
there is a sale of the to a trust receipt other agreement the entruster and do
property from the transaction are: (a) between the not prejudice resort
seller to the buyer; The entruster- is the entruster and the to other remedies.
in a trust receipt, person holding title entrustee (b) The
there is no sale of over the goods, entruster in 5. The
the property from documents or possession of the obligations of the
the entruster to the instruments subject goods, documents or entrustee are as
entrustee (c) A to a trust receipt instruments may, on follows: (a) to hold
chattel mortgage-a transaction, and any or after default, give the goods in trust for
chattel mortgage successor in interest notice to the the entruster and to
involves the creation of such person, and entrustee of the dispose of them
of a lien upon the (b) The entrustee intention to sell, and strictly in
property; a trust is the person having may, not less than accordance with the
receipt does not or taking possession five days after terms of the trust
involve the creation of goods, documents serving or sending of receipt; This
of a lien (d) A or instruments such notice, sell the includes the
consignment-in a under a trust receipt goods, documents or authority to
consignment, the transaction, and any instruments at manufacture or
consignor retains successor in interest public or private process the goods
title to the property of such person for sale, and the with the purpose of
to secure the the purpose or entruster may, at a ultimate sale.
indebtedness due purposes specified public sale, become Provided, however,
from the consignee; in the trust receipt a purchaser. Notice that the entruster
in a trust receipt, the of the sale shall be retains title over the
seller does not 4. The rights of deemed sufficiently goods whether in its
retain title to the the entruster are: (a) given if in writing, original or
property but to be entitled to and either processed form until
transfers such title receive the proceeds personally served on the entrustee has
to the entruster, not of the sale of the the entrustee or sent complied with the
to the entrustee goods released by post-paid obligation under the
under a trust receipt ordinary mail to the receipt. It also
2.3 When a to the entrustee to entrustees last includes authority to
debtor has received the extent of the known business load, unload, ship or
the goods from a amount owing to the address (c) the transship or
supplier thereby entruster (b) to the proceeds of any such otherwise deal with
acquiring title and return of the said sale, whether public the goods in a
will after borrow goods, in case they or private, shall be manner preliminary
money from a bank could not be sold; applied (1) to the or necessary to their
to pay for the same, and (c) to cancel the payment of the sale (b)To receive
the transaction is a trust in case the expenses thereof; the proceeds of the
loan even he signs a entrustee defaults, (2) to the payment sale of the goods in
trust for the 5.2 Risk of loss by Article 315, the receipt or to
entruster and to turn shall aslso be borne Section 1(b) of the return the goods if
over the same to the by the entrustee. Revised Penal Code not sold is a public
entruster to the Hence, the loss of are: (a) The failure to nuisance to be
extent of the amount goods, documents, comply with the abated by penal
owing to the or instruments provision referring sanctions.
entruster (c) to which are the to the obligation
insure the goods for subject of a trust involving the duty to
their total value receipt, pending deliver (entregaria) BULK SALES
against loss from their disposition, the money received
fire, theft, pilferage irrespective of to the owner of the 1. A sale is
or other casualties whether or not it merchandise sold, considered as a sale
(d) to keep the was due to the fault or(b)The failure to and transfer in bulk
goods or the or negligence of the comply with the if: (a) It is a sale,
proceeds thereof, entrustee, shall not provision referring transfer, mortgage,
whether in money or extinguish his to the obligation or assignment of a
whatever form, obligation to the involving the duty to stock of goods,
separate and capable entruster for the return (devolvera) wares, merchandise,
of identification as value thereof. This is the goods to the provisions otherwise
property of the not in accordance owner if not than in the ordinary
entruster; and (e) to with the civil law disposed of in course of trade and
return the goods,to principle that it is accordance with the the regular
the entruster in case generally the owner terms of the trust prosecution of the
they could not be who must bear the receipt. business, or (b) It is
sold or upon risk of loss of the a sale or transfer of
demand of the object 7.1 There is no all or substantially
entruster. need to prove intent all, of the business or
6. A trust to defraud as the trade; or (c) It is a
5.1 receipt arrangement offense is malum sale or transfer of all,
does not involve a prohibitum. or substantially all,
Notwithstanding the simple loan of the fixtures and
security interest of transaction between 7.2 There is also equipment used in
the entruster, the a creditor and no need to prove the business.
entrustee shall be debtor-importer. damage to the
responsible as The law warrants entrustor because 1.1 A sale under
principal or as the validity of the the nature of a trust Section 40 of the
vendor under any trust receipt receipt transaction Corporation Code
sale or contract to agreement. and the damage will be covered if the
sell made by the Consequently, the caused to trade business involves
entrustee. Hence, goods covered by the circles and the the buying and
although the trust receipt cannot banking community selling of
entrustee is not the be levied upon by in case of a violation merchandise.
owner of the goods the creditors of the thereof is the basis
under a trust receipt entrustee. The for the criminal 1.2 A Merger or
(ownership is validity of offense. Consolidation
retained by the entrusters security however is not
entrustor) anyone interest as against 7.3 covered as the
who acquires the creditors-the surviving or
goods from the entrusters security Consequently, the consolidated
entrustee acquires interest in goods, law has consistently corporation assumes
good title documents, or been declared as not all the liabilities of
(ownership) over instruments violating the the constituent
the goods. Note that pursuant to the constitutional corporations
it runs counter to written terms of a proscription against
the provisions of trust receipt shall be imprisonment for 2. A sale or
Article 1505 of the valid as against all non-payment of transaction in bulk is
Civil Code, where creditors of the debt. It is a not covered by the
there is a contract of entrustee for the declaration by the Bulk Sales Law
sale, the buyer is to duration of the trust legislative authority when: (a)the
acquire only receipt agreement. that, as a matter of transaction is in the
whatever title the public policy, the ordinary course of
seller had at the time 7. The acts failure of a person to trade and the
the sale was punishable by the turn over the regular prosecution
perfected. Trust Receipts Law proceeds of the sale of the business of
as Estafa as defined of goods covered by the vendor (b) the
vendor in bulk price paid must be whether bonded or issued. This is also
produces and applied to the debt not. known as
delivers a written owing to the warehouse-keepers
waiver of the creditors. In 1.2 As far as the receipt or storage
provisions of the addition, the law effect of the New receipt.
Bulk Sales Law from also prohibits the Civil Code provisions
the creditors (c) the vendor in bulk to on documents of 3.1 While no
sale in bulk is made transfer title to the title to goods which particular form is
by executors, same without include quedans or required, it should
administrators, consideration or for warehouse receipts, however include the
receivers, assignees a nominal value. there is no conflict necessary terms
in insolvency, or between the two. stating: (a) Location
public officers acting 4.1 If the sale in The Warehouse of the warehouse (b)
under judicial bulk is not made in Receipts Law refers Date of issue (c)
process; and (d) accordance with the to and will apply to Number of receipt
sales of properties Bulk Sales Law, the warehouse receipts (d) Description of
that are exempt from sale is fraudulent issued by the goods (e)
attachment or and void. The warehouseman, Advances made (f)
execution by creditors may while the New Civil Rate of charges (g)
creditors (Sec. 13, proceed against the Code refers to and Ownership of the
Rule 39 of Rules of vendee who shall will apply to receipts goods by language
Court) hold the stock of that are not issued indicating if the
merchandise in trust by warehouseman. warehouseman is an
3. The purpose for the creditors. owner, solely or
of the law is to 2. The purpose jointly with others,
prevent the 4.2 The of the General of the goods
defrauding of provision of the law Bonded Warehouse deposited (h)
creditors by the that the sale is Act is to regulate the Signature of the
secret sale in bulk of fraudulent and business of receiving warehouseman, and
all or substantially void is not a mere commodities for (i) Person to whom
all of a merchants presumption. storage in order to goods should be
stock of goods until Therefore, the protect persons who delivered by
the creditors of the motivation of the may want to avail language indicating
sellers should have parties or whether themselves of whether the receipt
been paid in full. they are in good or warehouse facilities is negotiable or non-
bad faith is and to encourage the negotiable, that is
4. The immaterial establishment of whether the goods
protection afforded more warehouses. received will be
to creditors of the delivered to the
seller in bulk are: (a) WAREHOUSE 2.1 bearer, to a specified
requirement that the RECEIPTS: person, or to a
vendor deliver to the Distinguishing specified person or
vendee a written 1. The purpose between the 2 laws, his order
statement under of the Warehouse the Warehouse
oath of the names Receipts Law is to Receipts Law refers 3.2 A negotiable
and addresses of all regulate the status, to the rights and warehouse receipt is
creditors to whom rights and liabilities obligations of not a negotiable
said vendor is of parties. In parties in a instrument as the
indebted together particular, it warehousing same does not
with the amount of prescribes the rights contract, while the comply with the
his indebtedness (b) and duties of a General Bonded requisites of Section
requirement that at warehouseman and Warehouse Act 1, Act 2031.
least ten days before to regulate his refers to state However, ownership
the sale, the vendor relationship with (a) regulation and thereof may be
shall make a full the depositor of the supervision of transferred by
detailed inventory goods, or (b) the warehouses delivery if it states
thereof showing the holder of a that it is deliverable
quantity and the cost warehouse receipt, 3. A warehouse to bearer or a named
price of the goods or (c) the person receipt is a written person or bearer. If it
and shall notify lawfully entitled to acknowledgment by is deliverable to a
every creditor of the the possession of the a warehouseman named person or
price, terms and goods, or (d) other that he holds certain order, ownership
conditions of the persons. It also goods in store for may be transferred
sale (c) requirement covers all the person to whom by special
that the purchase warehouses, the document is endorsement and
delivery. The except: (a) terms commodity that he delivery by the
endorsement can be that are contrary to receives for storage terms of the receipt.
to bearer or to a the provisions of this (b) he must exercise If receipt is non-
specified person. Act, or (b) terms that degree of care in negotiable, delivery
which will in anyway the safekeeping of will be to the person
3.3 A negotiable impair the obligation the goods entrusted entitled to it under
warehouse receipt is to exercise due care to him which a its terms or by
not convertible to a in the safekeeping of reasonable careful written authority
non-negotiable the goods entrusted man would exercise clearly indicated
receipt. The to the in regard to similar therein or another
insertion of a warehouseman. goods of his own. document. If receipt
provision making it However, in the is negotiable, to the
non-negotiable is 4. A absence of an person named or the
void. To make a warehouseman agreement to the last indorsee.
warehouse receipt defined - is a person contrary, he shall not
non-negotiable, it lawfully engaged in be liable for any loss 5.2 A
must be written out the business of or injury to the warehouseman may
as such and to storing goods for goods which could thus legally refuse to
prevent any person profit. Under the not have been deliver goods
from supposing it to General Bonded avoided by the covered by a
be negotiable, the Warehouse Act he is exercise of such care warehouse receipt
words non- defined as a person (c) In the absence of under the following
negotiable should lawfully engaged in any lawful excuse, he instances: (a)When
be placed plainly on the business of is bound to deliver the demand is not
its face. A non- storing goods for the goods upon a accompanied by the
negotiable receipt profit. In other demand by: (1) three requirements
may only be words, he is one who holder of a receipt provided in Section
assigned. receives and stores for the goods, or (2) 8 (b)When he has a
goods owned by by the depositor, lien valid against the
3.4 The others and collects provided that the person demanding
advantages of a fees for so doing. demand be the goods, he can
negotiable accompanied by (a) refuse to deliver the
warehouse receipt 4.1 Included in an offer to satisfy the goods until the lien
over one which is the phrase the warehousemans lien is satisfied and, (c)
non-negotiable are: business of receiving (b) an offer to In cases when there
(a) goods cannot commodity for surrender the are several adverse
be garnished or storage includes receipt if it is claimants to the title
levied upon under any contract or negotiable, and (c) a or possession of the
execution unless transaction wherein: readiness and goods. The
receipt is (a) the willingness to sign warehouseman can
surrendered, or warehouseman is to acknowledgment of refuse to deliver to
impounded or its return same delivery of the goods any of the claimants
negotiation enjoined commodity if requested by the until he has had a
(Section 25, deposited or pay its warehouseman. reasonable to
Warehouse Receipts value (b) the ascertain the validity
Law) (b) In commodity is to be 5.1 A of the claims.
case of negotiation, milled for the owner warehouseman is
holder acquires the thereof, or (c) the obliged to deliver 5.3 A
direct obligation of commodity goods to: (a) person misdelivery or
the warehouseman delivered is lawfully entitled to conversion occurs
to hold possession of commingled with it. Examples: person when (a) delivery is
the goods for him the commodity determined by the made to one not
(Section 41, belonging to other court to be entitled lawfully entitled to
Warehouse Receipts persons, and the to it in an it, or (b) even if
Law), and (c) Goods warehouseman is interpleader case, delivery is made to a
are not subject to obligated to return person who person holding a
vendors lien or commodity of the purchases the goods non-negotiable or
stoppage in same kind or pay its at an auction to negotiable receipt, if
transitu (Section 49, value. satisfy a prior to delivery, he
Warehouse Receipts warehousemans lien had either been
Law) 5. The Primary or because the goods requested not to
Obligations of the are hazardous or of a make delivery by the
3.5 Other terms Warehouseman are: perishable nature person lawfully
may be included in a (a) he must issue a (b) the person who entitled to a right of
warehouse receipt, receipt for any is himself entitled to property or
possession in the possession of the
goods or had goods when goods
information that are
delivery about to be delivered(Section
made was to one not 11, Warehouse
lawfully entitled to Receipts Law) or for
possession of the the failure to take up
goods. and cancel a immaterial
negotiable receipt or
5.4 A to place upon it a
warehouseman can statement of what
protect against a goods have been
misdelivery by: (a) delivered, when
availing of a the goods are partly
reasonable time that delivered (Section
he is entitled to 12, Warehouse
within which to Receipts Law). The
ascertain the validity warehouseman shall
of an adverse claim be liable for failure
or to bring legal to deliver the goods
proceedings to force to any one who
the claimants to purchases for value
interplead or may in good faith such
actually require the receipt whether such
claimants to purchaser acquired
interplead. title to the receipt
before or after the
5.5 A delivery of the goods
warehouseman by warehouseman
cannot commingle
as he is bound to 6.1 Exception:
keep the goods of a The warehouseman
depositor separate shall not be liable for
from the goods of failure to deliver the
other depositors or goods covered by the
from the goods of receipt or be guilty
the same depositor of a crime where the
for which a separate goods (a) have been
receipt has been lawfully sold to
issued. The purpose satisfy the
of the prohibition is warehousemans
to permit inspection lien, or (b) have
and redelivery at all been lawfully sold or
times.Exceptions disposed of because
are: (a) the goods of their perishable
are fungible, as or hazardous nature
when any unit of the (Section 36,
good is from its Warehouse Receipts
nature or mercantile Law)
usage, treated as an
equivalent of any 7. An alteration
other unit (Section in a warehouse
58, Warehouse receipt is said to be:
Receipts Law) or (b) (a)Immaterial if it
it is authorized by does not change the
agreement or tenor of the
custom. warehouse receipt
(b)Material if it
6. For failure to substantially
take up and cancel a changes the tenor of
negotiable receipt, the receipt (c)
or one the Authorized if
negotiation of which it is made with the
would transfer the authority of the
right to the holder and the
warehouseman warehouseman shall
(d)Unauthorized if be liable according
it is made without to the terms of the
the authority of the receipts as originally
holder and issued even (1) to a
warehouseman. This purchaser of the
may be material or receipt for value
(e) without notice of the
Fraudulent if it is alteration, or (2) to
made with malice or the person who
bad faith by the made the alteration
holder with intent to and to any person
defraud subsequent who took it with
holders (f) notice of the
Without alteration. However,
fraudulent intent if in the latter case,
its is made without such material and
malice or bad faith fraudulent alteration
shall excuse the
7.1 The effects of warehouseman from
an alteration in a any other liability to
warehouse receipt the said persons.
are: (a)Where the except as regards the
alteration is alterer and
immaterial, the subsequent holders
warehouseman shall with notices.
be liable according
to the terms of the 8. For the non-
receipt as originally existence or
issued (b)Where the misdescription of
alteration is goods, a
immaterial, whether warehouseman shall
fraudulent or not, be liable to the
authorized or not, holder of a receipt
the warehouseman for damages caused
is liable according to by the non-existence
the terms of the of the goods or by
receipt as originally the failure of the
issued (c) goods to correspond
Where the with the description
alteration is material thereof in the receipt
and is authorized, at the time of its
the warehouseman issue.
shall be liable
according to the 8.1 Exception:
terms of the receipts No such liability
as altered (d) shall attach to the
Where the warehouseman if the
alteration is goods are described
material, in the receipt merely
unauthorized but (a) by a statement of
without fraudulent the marks or labels
intent, the upon them or upon
warehouseman shall the packages
be liable according containing them, or
to the terms of the (b) by a statement
receipts as they that the goods are of
were before the a certain kind or that
alteration (e) the packages
Where the containing the goods
alteration is contain goods of a
material, certain kind or by
unauthorized and words of similar
with fraudulent import.
intent, the
9. The could have validly
warehousemans lien pledged the same
refers to the lien of (Section 28,
that a Warehouse Receipts
warehouseman has Law). Hence, it is
on the goods enforceable against
deposited with him the depositors
or on the proceeds goods and the goods
thereof in his hands of other persons
for all lawful charges stored by depositor,
for storage and if pledge of such
preservation of the goods by him are
goods, money valid but not against
advanced by him in the true owner if the
relation to such depositor has
goods such as the neither title nor
expenses of right of possession
transportation or to the goods (Section
labor, or other 31, Warehouse
related expenses. Receipts Law; Young
v. Colyear, 201 Pac.
9.1 The basis for 623)
the lien is the
obligation of the 9.4 The
depositor to pay the warehouseman can
warehouseman for enforce his lien by
(a) Storage and the sale of the goods
preservation charges (Section 33,
(b) Money advanced Warehouse Receipts
(c) Interest (d) Law) or by an action
Insurance (e) in court (Section 35,
Transportation (f) Warehouse Receipts
Labor (g) Weighing, Law). Provided,
and (h)Coopering however, that notice
and other similar of sale of goods in
charges (Section 27, order to satisfy the
Warehouse Receipts warehousemans lien
Law) is given.
9.2 With the 9.5 The lien can
exception of storage be lost if a 10.2 The
and preservation warehouseman
charges, the other surrenders
claims must be possession of the
expressly specified goods, or by refusing
in the warehouse to deliver the goods
receipt for it to serve when a demand is
as basis for the lien made with which he
(Section 30, is bound to comply
Warehouse Receipts under the provisions
Law) of the Act (Section
29, Warehouse
9.3 The lien may Receipts Law)
be enforced against
all goods belonging 9.6 The effect of
to the person liable the sale of goods to
for the charges, as satisfy the
well as against all warehousemans lien
goods belonging to or on account of the
the others deposited goods perishable or
by the person liable hazardous nature
for the charges who under Section 36
has been entrusted shall not make the
with the possession warehouseman,
of the goods and after the sale, liable
for failure to deliver goods as the
the goods to the depositor or one to
depositor, or owner whose order the
of the goods, or to goods were to be
the holder of a delivered could
receipt given for the convey to a
goods when they purchaser in good
were deposited, even faith for value, and
if such receipt were (c) Direct
negotiable. obligation of the
warehouseman to
10. A negotiable hold the goods for
receipt is negotiated him as if the
by delivery when: warehouseman
(a) the goods are contracted with him
deliverable to bearer, directly. Hence, a
or (b) the goods are person to whom a
deliverable to a warehouse receipt
specified person and has been negotiated
the latter has by one who has
indorsed it in blank stolen the goods
or to bearer. If stated in the receipt
endorsed as cannot claim a
deliverable to a misdelivery if the
person, the bearer warehouseman
receipt is delivers the goods to
transformed into a the rightful owner,
an order receipt. who is the person
lawfully entitled to
10.1 A negotiable it.
receipt is negotiated
by indorsement 10.4 Mortgagee or
when the goods are, pledgee of a
by the terms of the warehouse receipt to
receipt, deliverable whom a negotiable
to a specified person warehouse receipt
(Section 38, has been indorsed
Warehouse Receipts does not acquire title
Law) over the goods. He
only acquires the
rights of a pledgee or
negotiation may be mortgagee, namely
made by the: (a) to foreclose the
owner or (b) the pledge or mortgage.
person to whom The intent in this
possession of the case is not the
receipt was negotiation of the
entrusted by the receipt with its
owner (Section 40, consequent transfer
Warehouse Receipts of title, but merely as
Law) security (Martinez v.
P.N.B., 93 Phil. 765);
10.3 The rights P.N.B. v. Atendido, 94
acquired by one to Phil. 254)
whom a negotiable
warehouse receipt 11. A non-
has been duly negotiable receipt is
negotiated are: (a) transferred by
Such title to the delivery
goods as the one accompanied with a
negotiating could deed of assignment
convey to a or transfer. If this is
purchaser in good indorsed, the
faith for value (b) indorsement will not
Such title to the give the transferee
any right the chattel mortgage
whatsoever (Section is recorded in the
39, Warehouse Chattel Mortgage
Receipts Law) Register; the pledge
is not, instead the
11.1 Rights movable is delivered
acquired by a person to the creditor (b) in
to whom a a chattel mortgage,
warehouse receipt the consent of the
has been transferred mortgagee to the
but not negotiated sale of the thing
are: (a) Title to the mortgaged must be
goods subject to the in writing and
terms of any annotated on the
agreement with the back of the mortgage
transferor, and instrument; in
(b)The right to pledge, the consent
notify the of the pledge need
warehouseman of not be in writing but
the transfer in his may be oral (c) in a
favor and thereby chattel mortgage, in
acquire the direct addition to other
obligation of the formal
warehouseman to requirements, the
hold the goods for mortgagor must
him (Section 42, execute an affidavit
Warehouse Receipts of good faith; in
Law). Note that pledge, there is no
pending notification, requirement that the
his rights can still be pledgor execute such
defeated by a an affidavit (d) in a
subsequent chattel mortgage, in
attaching creditor, or case of foreclosure of
levy on execution, a the thing mortgaged,
vendors lien or right the mortgagee is not thing
of stoppage in entitled to the entire
transitu. proceeds of the sale
but only to a portion
thereof sufficient to
CHATTEL pay the mortgage
MORTGAGES: debt, interest and
1. A chattel incidental expenses;
mortgage defined - in pledge, the
personal property is pledgee is entitled to
recorded in the the entire proceeds
Chattel Mortgage of the sale even if it
Register as a exceeds the amount
security for the of the debt (e) in a
performance of an chattel mortgagee,
obligation. the mortgagee is
entitled to recover
1.1 If the deficiency as a rule;
movable, instead of in pledge, the
being recorded, is pledgee is not
delivered to the entitled to recover
creditor or a third deficiency.
person, the contract
is a pledge and not a 1.3
chattel mortgage.
Distinguishing a registration of the
1.2 chattel mortgage
from a real estate
Distinguishing a mortgage: (a) in a
chattel mortgage chattel mortgage, the
from a pledge: (a) thing mortgaged
must be personal or shall be more 3
movable property; in months after
a real estate foreclosure
mortgage, the thing whichever is earlier)
mortgaged must be
real or immovable 2. The essential
property (b) an requisites of a
affidavit of good chattel mortgage
faith is required to are: (a) It must be
be executed in a constituted to secure
chattel mortgage but the fulfillment of a
not in a real estate principal obligation
mortgage (c) in a (b) The mortgagor
chattel mortgage, the must be absolute
mortgagor cannot owner of the
alienate the thing property mortgaged
mortgaged without (c) The mortgagor
the written consent must have free
of the mortgagee disposal of such
annotated on the property , or be
back of the mortgage legally authorized
instrument; in real for the purpose
estate mortgage, the (d)The property
mortgagor can involved must be
alienate the thing personal or movable,
mortgaged without and (e) Contract
the consent of the must be recorded in
mortgagee and any the Chattel Mortgage
stipulation Register
prohibiting such
alienation is void (d) 2.1 A chattel
in a chattel mortgage which
mortgage, provides that the
redemption of the security stated
mortgaged therein is for the
may be made only payment of any and
before the sale all obligations
thereof; in real therein before
estate mortgage, the contracted and
thing mortgaged which may
may be redeemed thereafter be
after it is judicially contracted, or future
sold but before debts and
judicial confirmation obligations, by the
of the sale, or if mortgagor in favor
extrajudicially sold, of the mortgagee is
within one year from void. The law
and after the date of requires parties to a
sale (except where mortgage to execute
the mortgagor is an affidavit of good
juridical person faith, that the debt is
whose property has honestly due and
been mortgaged in owing. A valid
favor of a bank, mortgage cannot be
quasi-bank or trust made to secure a
entity, in which case debt to be
the redemption shall contracted in the
be made until, but future (Jaca v. Davao
not after, the Lumber, L-25771,
March 29, 1982, 113
certificate of SCRA 107; Vide;
foreclosure sale with Lopez v. CA, 114
the applicable SCRA 671, Co v. PNB,
Register of Deeds 114 SCRA 842). An
which in no case affidavit of good
faith is a certificate tear like tires or the chattel without loan and chattel
included in the intended to be sold court intervention mortgage have been
chattel mortgage or used but with the (BPI Credit v. CA, refinanced had been
contract executed by understanding that 204 SCRA 601, constituted as the
both mortgagor and they would be Filinvest Credit attorney-in-fact of
mortgagee that the replaced with Corporation v. CA, the borrower to file
mortgage is similar properties to 248 SCRA 549) any insurance claim
constituted to secure be thereafter covering the chattel,
the specified acquired by the 3.2 Neither can and it failed to do so
obligation, and that mortgagor. An the creditor take upon a total loss of
said obligation is a Example is: Where possession and the same, will relieve
valid, just and the debtor gives as appropriate the the borrower-
subsisting obligation security the stock or chattel, since it mortgagor of his
and not one entered merchandise in his would constitute obligation (BA
into for the purpose store and it is the pactum Finance Corporation
of fraud. intention of the commissorium, v. CA, 201 SCRA 157)
parties that the referring to an act or
2.2 Although a mortgage shall cover a stipulation giving 3.5 There are
promise expressed the stock that will power to the limitations on the
in the chattel take its place in the creditor to enforcement of
mortgage to include course of the appropriate the chattel mortgages
debts that are yet to business. [Torres v. thing given as executed in relation
be contracted can be Limjap, 56 Phil. 141 , security, if the to the sale of
a binding 1931] (2) In the case principal obligation personal property in
commitment that of other properties, is not fulfilled installments, where
can be acted upon, if their inclusion is without any the remedies are: (1)
the security itself expressly stipulated formality, such as Exact
does not come into and a supplement to foreclosure fulfillment of the
existence or arise the mortgage proceedings and obligation (2)Cancel
until after a chattel specifically listing public sale. Such an the sale, should the
mortgage agreement and describing the act or stipulation is vendees failure to
covering the newly property is executed null and void (Art. pay cover two or
contracted debt is and registered in the 2088, N.C.C.). In more installments;
executed either by a chattel mortgage other words, the or (3) Foreclose the
fresh chattel register mortgagors default chattel mortgage on
mortgage deed or does not operate to the thing sold should
by amending the old 2.4 The vest in the the vendees failure
contract to conform registration in the mortgagee the to pay cover two or
to the law, chattel mortgage ownership of the more installments.
particularly the register is not mortgaged property. In this case, he shall
execution of an necessary to make it have no further
affidavit of good binding between the 3.3 Availment of action against the
faith (Acme Shoe parties. It is the remedy of purchaser to recover
etal v. CA, GR No. necessary though to bringing an action to any unpaid balance
103576, August 22, make it binding on collect a sum of of the price. Any
1996) third persons. money is a waiver or agreement to the
abandonment of the contrary shall be
2.3. The chattel chattel mortgage. void (Art. 1484,
mortgage cannot be 3. The This also N.C.C.). This
considered to remedies of a bars the recovery of remedies are
include after- creditor are: (a) a deficiency exclusive not
acquired properties Extrajudicial judgment which is alternative.
as it shall cover only Foreclosure (b) An only available when
the property action for replevin the proceeds of the
described in the (c) Judicial sale are insufficient EXTRA-JUDICIAL
deed and not any Foreclosure, and (d) to cover the debts FORECLOSURE OF
other like or Bring an pursuant to a REAL ESTATE
substituted property action for the foreclosure. The MORTGAGES:
(Section 7). payment of a sum of prescriptive period 1. The resort to
Recognized as money for which is ten (10) the process of extra-
exceptions are: (1) years. judicial foreclosure
properties that are emanates from the
perishable, like 3.1 A creditor 3.4. Note that presence of a
fruits or subject to cannot forceably when the financing stipulation that
inevitable wear and take possession of company to whom a allows the
creditor/mortgagee proportionate subsequent to the 2.6 The
to extra-judicially extinguishment of mortgage. purchaser of
foreclose and the mortgage as long foreclosed property
designating the said as the debt is not 2.3 is not automatically
party as the completely satisfied. entitled to the
attorney-in-fact of Generally, the Notwithstanding the possession thereof
the mortgagor to divisibility of the foregoing provision, during the
cause the same and principal obligation juridical persons redemption period
to sell the subject is not affected by the whose property is as he must petition
property at a indivisibility of the sold pursuant to an the Regional Trial
foreclosure sale by mortgage. extra-judicial Court of the
an insertion into or foreclosure, shall province or city
attachment to the have the right to where the property
real estate mortgage. 2. The redeem the property is situated to give
foreclosed property until, but not after, him possession
1.1 When a debt shall be redeemed the registration of thereof during the
is secured by a real within 1 year from the certificate of redemption period.
estate mortgage, the and after the date of foreclosure sale He must also put up
creditor has two the sale (Sec. 6). The which in no case a bond equivalent in
options: (a) to aforementioned date shall be more than value to the use of
foreclose, or (b) file of sale has been three (3) months the property for a
an ordinary action to construed by the after foreclosure period of 12 months
collect. If he avails of Supreme Court to whichever is earlier, to indemnify the
the option to mean the date of as provided in debtor in case it is
foreclose, he is still registration of the Section 47 of shown that the sale
allowed to bring a sheriffs certificate Republic Act. No. was made without
claim for any of foreclosure sale in 8791 (A.M. No.99- complying with the
deficiency. On the the office of the 10-05-0) requirements of Act
other hand, if he Register of Deeds No. 3135 or that
avails of the option concerned (Reyes vs. 2.4 Note the there was no
to file an ordinary Noblejas, et al., G.R. probable violation of the
action, he abandons No. L-23691, constitutional mortgage deed.
or waives his November 25, challenges that may
mortgage lien, 1967). Note that be brought against
without prejudice to the period for the quoted provision 3. In general,
his levying on the redemption may be of RA 8791 on the formal and
same property but the subject of an basis of the equal substantive defects
subject to the rights extension as may be protection clause as in the real estate
of other creditors, if agreed upon by the there is no mortgage and the
any. parties. substantive foreclosure
distinction between proceedings provide
1.2 When the 2.1 The amount a corporate and the legal and
mortgagor files a to be paid at individual debtor or equitable grounds to
criminal case for redemption is the between a bank or enjoin or eventually
violation of BP Blg Bid Price, plus 12% non-bank lender. nullify foreclosure
22 against the interest per annum. proceedings, if not
mortgage debtor, he Note again that 2.5 Further, the the real estate
is deemed to have under RA 8791, the application of the mortgage itself.
already availed redemption amount law should be
himself of the is such which is due prospective as a 3.1 The general
remedy of a under the mortgage corporate mortgagor basis would be
collection suit, and deed with interest at has acquired as Article 5, Civil Code,
following the rule on the specified rate vested right to the which provides: Acts
alternative remedies, therein. one year redemption executed against the
he is barred from period if his provisions of
subsequently 2.2 Redemption mortgage was mandatory or
resorting to an may be effected by: executed prior to RA prohibitory laws
action for (a) The debtor, or (b) 8791 as the shall be void, except,
foreclosure. His successor in controlling when the law
interest , or (c) Any consideration is the authorizes their
1.3 A mortgage judicial creditor or law on redemption validity
contract is, by judgment creditor of at the time of the
nature, indivisible. the debtor, or (d) execution of the 4. Disputes in
The debtor who has Any person having a mortgage. the amount of the
paid cannot ask for a lien on the property obligation may cause
the foreclosure to be plus a margin as to an foreclosed only to
enjoined as a bank determined by the unconscionable enforce the
may legally proceed bank. result is void. Any fulfillment of the
with foreclosure stipulation regarding obligation for whose
only when the exact 5.1 If this rate of the validity or security it was
amount of the interest is compliance of the constituted.
obligation of the unilaterally fixed by contract which is left
mortgagor is the bank for each solely to the will of 5.7 In fact,
determined in a trial interest period one of the parties is because there is a
on the merits and without the written likewise invalid. dispute on the
the mortgagor conformity of the amount of the
cannot meet the borrower, the 5.4 The floating interest legally due,
obligation following interest may be rate of interest being the Bank may legally
that determination. declared null and unilaterally fixed proceed with
void for being and determined by foreclosure or
4.1 Where the potestative and for the bank also consolidation only
debtor is not given lack of mutuality violates the when the exact
an opportunity to based on essential provision of CB amount of the
settle the debt at the equality between the Circular No. 1191 obligations of the
correct amount and parties that the interest rate Mortgagor is
without iniquitous for each re-pricing determined after
interest imposed, no 5.2 Its being a period is subject to trial on the merit
foreclosure potestative mutual agreement and the mortgagor
proceedings can be condition (one between the cannot meet the
instituted. within the sole Borrower and the obligation following
power of the one Bank. that determination.
4.2 The total obligated to
amount due on the perform), 5.5 Under 6. Issue of the
mortgage is also consequently null Article 1956 of the mortgage as security
undetermined if and void finds basis Civil Code, no for future loans. The
some of the in Article 1308 of the interest is due rule is unless a
properties are Civil Code that unless it has been continuing real
subject to the provides that the expressly stipulated estate mortgage is
coverage of the fulfillment of a in writing. The involved, a real
CARP, in which case condition cannot be floating rate being estate mortgage is
a portion of the left to the sole will of unilaterally fixed by not a valid security
mortgage one of the the Bank without the for future loans
indebtedness will be contracting parties written mutual under the so called
assumed by the agreement of the Dragnet Clause.
government up to 5.3 As held by Borrower for each
the amount the Supreme Court re-pricing of interest 6.1 This finds
equivalent to the in Almeda v. Court of is null and void basis in the fact that
landowners Appeals and under Art. 1956 of real estate mortgage
compensation. PNB,256 SCRA 293: the Civil Code, and is an accessory
Hence, until the final The binding effect of for violation of CB contract, which
valuation of the any agreement Circular No. 1191 cannot exist
lands subject to between the parties that the interest rate independently of the
CARP is determined, to contract is for each re-pricing principal obligation.
the amount of the premised on two period under the The consideration
mortgage debt is settled principles: floating rate of for the mortgage is
unliquidated (1) that any interest in subject to the consideration of
obligation arising mutual agreement. the contract of loan.
5. Issue of the from contract has Consequently, the
legality of the the force of law 5.6 amount of the loan
Floating Rate of between the parties; must be specified,
Interest, which and (2) that there Consequently, if the otherwise the
refers to the rate of must be mutuality interest is declared contract of loan, as
interest periodically between the parties null and void, the well as the accessory
fixed by a bank based on their foreclosure sale for a contract of
based on the essential equality. higher amount than mortgage, shall not
prevailing interest Any contract which what is legally due is be perfected for lack
rate in the market, appears to be likewise null and of consideration
such as the Manila heavily weighted in void because under with respect to the
Reference Rate or favor of one of the the Civil Code, a unspecified loan in
Treasury Bill Rate, parties so as to lead mortgage may be the future. The
Supreme Court has Jurisprudence as the possession of the his creditors and
held in China blanket mortgage property who is thereby relieve the
Banking Corporation clause. claiming a right debtor from the
vs. Lichuaco, 46 Phil adverse to that of the weight of his debts
460 that: a mortgage 7. Issue of PD mortgagor and that and permit him to
is an accessory 385 prohibiting the such third party is a start anew free from
contract, its issuance of an stranger to the such debts.
consideration is the injunction against foreclosure
very consideration foreclosure by any proceedings in 2. The
of the principal government which the ex-parte situations
contract, from which financial institution writ of possession contemplated by law
it derives life, and is arbitrary and was applied for. are: (a) suspension
without which it unreasonable. of payments (b)
cannot exist as an Hence, may be 8.3 As a voluntary
independent argued as being limitation on the insolvency, and (c)
contract. unconstitutional. right to possession, a involuntary
Hence, it cannot be writ of possession insolvency
6.2 Further, sustained if there is may be legally issued
under Article 2176 a clear legal ground only if the debtor is 2.1 Suspension
of the Civil Code, a to restrain in possession and no of Payments
mortgage may only foreclosure third person has contemplates a state
be foreclosed for the intervened. desired by a debtor
fulfillment of the 8. Issue of the who, possessing
obligation for whose right to take 8.4 Order sufficient property
security it was possession. The rule granting a writ of to cover all his debts,
constituted is that the purchaser possession under foresees the
still has to file a Act 3135 is a final impossibility of
6.3 Mortgages petition for the order. Hence, it is meeting them when
with a dragnet issuance of a writ of appealable. In they fall due.
clause is a contract possession to obtain expropriation, it is
of adhesion that possession. interlocutory. 2.2 Insolvency
must be strictly contemplates a state
construed as against 8.1 The 9. Grounds for where the debtor
the bank. proceedings related the proper has more obligations
thereto allow the annulment of the than assets.
6.4 To constitute mortgagor to foreclosure sale are
a real estate participate although the following: (a) 2.3 Further
mortgage as security jurisprudence there was fraud, distinguishing
for future loans, the provides that the collusion, accident, between the two:
future loans must be hearings are ex- mutual mistake, Suspension of
agreed upon and parte. However, with breach of trust or Payments is always
fixed in the the mandate of misconduct by the initiated by the
mortgage deed at Section 8 of Act purchaser (b) the debtor, while
the time of the 3135 which allow sale was not fairly Insolvency is
execution of the the mortgagor to set and regularly initiated by the
same aside foreclosure in conducted (c) price debtor when it is
the same was inadequate and voluntary, or by his
6.5 A stipulation proceedings, it is the the inadequacy was creditors or other
that the amounts better rule to so great as to shock persons when it is
named as actually allow the the conscience of the involuntary.
consideration in a mortgagors active court.
contract of mortgage participation. 2.4 Other
do not limit the distinctions are: (a)
amount for which 8.2 The INSOLVENCY: The object of
the mortgage may obligation of the a suspension of
stand as security if court to issue a writ 1. The purpose payments is the
from the four of possession in of the law is to deferment of the
corners of the favor of the provide for an payment of debts
instrument the purchaser in an orderly mechanism until such time as
intent to secure extrajudicial by which the assets the debtor, who
future and other foreclosure sale of the insolvent possesses sufficient
indebtedness can be ceases to be debtor could be property to cover all
gathered is valid and ministerial once it is converted into his debts, is able to
binding and is shown that there is a money for convert such assets
known in American third party in distribution among into cash or
otherwise acquires will result in to vote in favor of
the cash necessary preferred creditors 4.2 The action the proposed
to pay his debts. In not being able to by the creditors on agreement; or (3)
an insolvency enjoy their the debtors Fraudulent
proceeding, the preference. proposal shall have connivance of claims
object is to compel the following effects: to obtain a majority.
the presentment of (a) If the required
all debts, due or not 1.2 Jurisdiction vote has not been 5. It shall be
due, and secure a is vested in the achieved, the forbidden of a
complete discharge regular courts if proceedings are petitioner for
from such debts initiated by a natural terminated and the suspension of
(b)The amount of person. If by a creditors are at payments to dispose
debts in suspension juridical person, it is liberty to enforce of his property,
of payments is not vested with the their respective unless such
affected although designated Special rights (b) If the disposition is in the
their payment is Commercial Court. creditors approve ordinary operation
postponed. In the proposition and of his business, or
insolvency, the there is no objection make any payments
creditors receive less 2. The petition on the part of any outside of the
than what they are may be filed with the creditor, the court necessary or
entitled to. In some court of the province issues an order that legitimate expenses
cases where or city in which the the decision be of his business.
preferences are debtor has resided carried out and that
proper, some for 6 months next it shall be binding on 6. The effects of
creditors may not preceding the filing all creditors the filing of a
receive any amount of the petition. included in the petition for
at all Schedule who have suspension of
3. Upon the been properly payments on the
filing of the petition, summoned; and (c) below listed
Suspension of the court shall issue If the situations:
Payments in detail: an order calling for a creditors approve
meeting of the the proposition, but 6.1. An execution
1. A petition for creditors, which to a creditor disagrees pending against the
the suspension of be published and with or objects to debtor- Any
payments is initiated served on the the decision, the execution pending
by the debtor, creditors. court shall conduct a against the debtor
whether he is an hearing on the shall be suspended
individual, 4. objection: (1) If the before the sale of the
corporation, objection is found to property is made.
partnership or Subsequently, a be meritorious, the However, the debtor
association. meeting of creditors proceedings will must make a request
for approval or terminate and for this purpose to
1.1 When disapproval of the creditors will be at the court before
initiated by a natural debtors proposition liberty to enforce which the
person, he must is to be held. their respective proceeding for
have assets rights, or (2) If found suspension of
sufficient to settle 4.1 The meeting to be without merit, payments is
liabilities and will of the creditors on court shall proceed pending. Such
not bar enforcement the debtors as though no suspension shall
of claims by proposal requires a objection had been lapse after 3 months
creditors holding quorum and made. without the
contractual minimum vote proposed agreement
mortgages. If by a consisting of the 4.3 The grounds being accepted by
juridical entity, it presence of at least for an objection are: the creditors or as
may avail of the two thirds of the (1) Defects in soon as it is denied.
remedy even if it has creditors call for the meeting, (Section 6)
no sufficient assets representing at least in the holding
to cover debts and three-fifths of the thereof, or in 6.2. An execution
liabilities but is liabilities (Section deliberations had against a property of
under the 8[e]). This is known thereat, which the debtor specially
management of a as the two- prejudiced creditors mortgaged the
rehabilitation thirds/three-fifths rights (2) Fraudulent execution is not
receiver or rule. There is no connivance between suspended (Section
management requirement for a one or more 9)
committee and it majority to reject. creditors and debtor
6.3. An action to insolvency; while in declared insolvent, Rule 39, Rules of
be filed against the involuntary by legal mandate, Court; Art. 223, Civil
debtor for the insolvency, the makes an Code).
collection of a sum debtor is considered assignment of his
of money no insolvent upon the properties for the
creditor may sue to issuance by the benefit of 2.4 It is the
collect his claim court of an order creditors.His creditors who have
from the debtor declaring him an principal function is filed their claims
from the moment insolvent. to recover all the who are entitled to
that suspension of estate, debts and elect the assignee
payments is applied 2. The effects of the and when they
for and while the procedure for insolvent. He shall submit the name to
proceedings are voluntary insolvency thereafter as the court (Section
pending subject to is initiated by the speedily as possible 29). The court will
certain exceptions filing by the debtor convert the estate, then appoint the
such as claims for of a petition. real or personal, into person nominated
personal labor, money. The and from then on he
maintenance, 2.1 Issuance by following property will be an officer of
expenses of last the court of an order of the insolvent the court. A majority
illness and claims by declaring, among debtor shall pass to of the creditors
persons having other things, that the the assignee: (a) All concurring with
mortgages. (Sections petitioner is real and personal majority of the
6 and 9) insolvent. Note that property and effects claims will be
the filing of such (b) All deeds, books, necessary to
petition shall be an and papers (c) The properly elect the
Voluntary act of insolvency. debtors right of assignee. (Section
Insolvency in Thus, if the court action for damages 30).
detail: finds the petition to to real property
be in order, it shall (d)Right to release 2.5 The
1. Voluntary issue on the same property assignees duty is to
insolvency is the date it is filed an fraudulently convert the property
state desired by an Order of conveyed. The of the debtor to cash
insolvent debtor Adjudication that the following property and, thereafter, he
who owes debts debtor is insolvent. If shall not pass to the will declare
exceeding the sum of found to contain a assignee and shall dividends (Sec. 43)
P1, 000.00. He may falsity, the petition is remain with the to the creditors.
apply to be dismissed. debtor: (a) After Dividends are the
discharged from his acquired property, equitable
debts by filing a 2.2 Publication except its fruits and distribution of the
petition with the of order and service income. After- property to the
Regional Trial Court thereof on the acquired property is creditors. They are
of the province or creditors. Being that acquired by the the amounts paid,
city in which he has a proceeding in rem, debtor subsequent upon order of the
resided for 6 months there must be to the filing of court, to the
next preceding the publication, as many petition for creditors of an
filing of such times as the court insolvency (b)Non insolvent out of the
petition. The may deem proper, leviable assets, such capital or assets of
petition must be and all creditors as an insurance the insolvents estate
accompanied by a appearing in the policy without any for the purpose of
schedule of debts schedule shall be cash surrender value liquidating or
and an inventory of given notice. or the premium of discharging a debt.
properties. which does not Thus, the creditors
2.3 Meeting of exceed P500.00 must prove their
1.1 Voluntary creditors for election (c)An expectancy to claims twice: first,
Insolvency is of assignee in inherit (d) Right of under Sec. 29 in the
different from insolvency. An action in personal election of the
Involuntary assignee in injury cases which assignee; second,
Insolvency in the insolvency is a pertains exclusively under Sec. 43, to
following manner: In person selected in to the debtor (e) entitle them to
voluntary both voluntary and Property held in dividends. If the
insolvency, a debtor involuntary trust by debtor or creditor fails to
is deemed insolvent proceedings, either merely leased by prove his claim
upon his filing of a by the creditors or debtor (f) Property under Sec. 29, then
petition for by the court, to exempt from he is not barred
voluntary whom a debtor execution. (Sec. 12, from proving his
claim under Sec. 43 amount agreed upon not later than one the creditor had
in order to be is deposited in court, year thereafter actual knowledge or
entitled to and if the court finds (3)Debtor must not notice of the
dividends. And even settlement have committed any proceedings in
if the creditor does meritorious it shall of the acts of insolvency; and (5)
not present the best approve the same insolvency Debts owing to
proof of his claim (2) All debts are enumerated in Sec. creditors who were
under Sec. 29, he can discharged Effect 65 of Insolvency not duly notified and
still show the best shall be as if the Law, preventing had no actual
proof of his credit debtor has obtained discharge of a knowledge of the
under Sec. 43, even if a discharge, so that debtor. insolvency
the claim was all claims against proceedings.
rejected under Sec. debtor are 2.11 If after being
29. extinguished and adjudged insolvent, 2.8. Resolution of
assignee must return the debtor fails to objections to a
all properties to apply for a discharge discharge, if any.
2.6. Composition, debtor. within the required Such objections are
if agreed upon. period, he loses his to be based on any
Composition is an right to be one or more of the
agreement whereby 2.9 Discharge is discharged. following as the
the creditors of an the release of the debtor is deemed in
insolvent agree to debtor from his 2.12 The debtor bad faith and not
accept a certain debts which were or would be entitled to entitled to discharge
percentage of their might be proved in a second discharge if if:
claims in full the insolvency it takes place after 6
settlement of such proceedings such years from the first a. Debtor
claims. It is a that they are no discharge or, if takes submitted a false
method of dividing longer a charge upon place within 6 years affidavit, either in
the estate of the him. An insolvent from the first his petition,
insolvent among his debtor may apply to discharge, if the inventory or
creditors amicably. the court for a second insolvency schedule;
discharge from his proceeding is
2.7 Requisites debts any time after involuntary. b. He concealed
for Valid Offer of the expiration of 3 part of his estate or
Composition are: (a) months from the 2.13 The effect of effects;
Offer must be made adjudication of a discharge is that it
after the filing of the insolvency but not releases a debtor c. Debtor was
Schedule of the later than 1 year from all debts guilty of fraud or
debtors property from such contracted by him neglect in care of his
and the list of his adjudication, unless prior to the property;
creditors (b) Offer the property of the insolvency
must be accepted in insolvent has not proceeding, with the d. Debtor
writing by a majority been converted into exception of those procured an
of the creditors money. expressly mentioned attachment or
representing a by the law. The execution on his
majority of the 2.10 To obtain a debts that are not property during the
claims which have discharge, the discharged are: one-month period
been allowed (c) following should be (1)Taxes and prior to the
Offer must be made complied with: (1) assessments due to insolvency
only after the Debtor must have the government, proceedings;
insolvent deposits complied with national or local
the consideration to statutory (2)Debts created by e. Debtor
be paid to the requirements the fraud or destroyed or
creditors; and (d) regarding surrender embezzlement of the falsified important
Offer accepted by of his assets for the debtor (3) papers and
the creditors must benefit of creditors Debts documents;
be confirmed by the and regarding the created by the
Court. (Sec. 53). rendition of an defalcation of the f. Debtor
account of his assets debtor as a public fraudulently gave
and liabilities (2) He officer or while certain creditors
2.8 The effects of must have applied acting in a fiduciary preferences;
composition are: (1) for discharge after capacity (4)
Insolvency three months from Debts which g. Debtor failed
proceedings date of adjudication have not been to disclose that
dismissed, the of insolvency, but scheduled, unless certain claims which
had been proven determine if at least
were false or three (3) creditors
fraudulent; filed the petition for
insolvency-a creditor
h. Being a by assignment of
merchant, debtor credit made within
failed to keep proper thirty (30) days from
books of account; date of cleavage shall
be disqualified as
i. Debtor petitioning creditor
influenced the action (b) Under Section
of any creditor by 32- (1) attachment
pecuniary means; levied upon within a
period of thirty (30)
j. In days before the date
contemplation of of cleavage may be
insolvency, debtor set aside by the
made fraudulent assignee (2)
conveyances of or judgments on cases
encumbrances upon filed and decided
his properties; within thirty (30)
days prior to the
k. Debtor had date of cleavage may
been convicted of be set aside by the
any of the penal assignee
provisions of the (3)judgments on
Insolvency Law; or cases filed before
thirty (30) days from
l. In case of the date of cleavage
involuntary but decided within
insolvency, debtor said thirty (30) days
had already availed because of
of the benefits of the confession of
Insolvency Law judgment or
within the six-year declaration of
period preceding his default of debtor
application for may be set aside by
discharge. action of assignee
(4) properties
Note that if debtor is acquired after date
one who is in bad of cleavage, after
faith, the concept of discharge of debtor
after-acquired in good faith shall
properties does not not be liable for
apply. In such debts incurred prior
instance, all to date of cleavage
properties of the (5) Under Section
debtor acquired 70-fraudulent
before or after the preferences made
date of cleavage shall within thirty (30)
be liable for the days prior to the
payment of all his date of cleavage may
debts. be set aside in an
action brought by
Cleavage is the date assignee.
when the petition is
filed, from which the Note Section 70
period of thirty days pertains to
is counted forward Fraudulent
or backward in Preferences when
determining the debtor transferred
effects provided for property to any
in the Insolvency person to give him
Law, as when: (a) preference, such
Under Section 20-to transfer may be set
aside by proper rejecting a creditors
court action by the claim, in whole or in
assignee provided part, when the
that the transfer amount in dispute
took place within 30 exceeds three
days period from the hundred pesos (c)
date of cleavage. From an order
The property allowing or denying
transferred will be a claim for property
returned to the not belonging to the
insolvents estate for insolvent, presented
equitable under section forty-
distribution among eight of this Act (d)
his creditors. There From an order
is a Presumed settling an account
Fraudulent Transfer of an assignee (e)
if: (a) Not in the From an order
ordinary course of against or in favor of
business (b) setting apart
Under homestead or other
confession of property claimed as
judgment (c)Not for exempt from
valuable execution (e) From
consideration. an order granting or
refusing a discharge
Dead Persons Being o the debtor.
Under Insolvency (Section 82)
(Section 72) Dead
person may be a. Note that the
subject of insolvency Insolvency Law
proceedings. If provides that the
proceedings filed decision of the trial
and debtor dies court is final and not
before Order of appealable BUT due
Adjudication, case consideration must
must be dismissed be accorded the
and remedy of the provisions of the
creditors will be to 1997 Rules of Civil
file a claim n the Procedure regarding
testate or intestate appeals to the
proceedings. But if Supreme Court and
the debtor dies after what may be the
the Order of subject of an appeal,
Adjudication has which would tend to
issued, proceedings imply that
will continue. Insolvency is a case
that allows multiple
appeals, being a
2.9. Appeal to the special proceedings
Supreme Court in case.
certain cases: (a)
From an order
granting or refusing Involuntary
an adjudication of Insolvency is Detail
insolvency and, in
the latter case, from 1. Involuntary
the order fixing the insolvency is the
amount of costs, state of which a
expenses, damages, debtor may be
and attorneys fees placed by 3 or more
allowed the debtor of his creditors,
(b) From an order residents of the
made at the hearing Philippines, whose
of any account of an credits accrued in
assignee, allowing or the Philippines and
the amount of which defrauding his l. The debtor, debtor insolvent
credits are in the creditors; for a period of 30 (Section 24);
aggregate not less days, has failed after
than P1,000.00. The f. The debtor demand to pay any 2.7. Publication
said creditors may has confessed or moneys deposited of order and service
file a petition with offered to allow with him or received thereof on the
the Regional Trial judgment in favor or by him in a fiduciary creditors (Section
Court of the any creditor or capacity; 25)
province or city in claimant for the
which the debtor purpose of m. The debtor, 2.8. Meeting of
resides or has his hindering, delaying an execution having creditors for election
principal place of or defrauding any been issued against of assignee in
business. The creditor or claimant; him on final insolvency (section
petition must allege judgment for money, 30);
the commission by g. The debtor shall have been
the debtor of one or has willfully suffered found to be without 2.9. Conveyance
more acts of judgment to be sufficient property of debtors property
insolvency. taken against him by subject to execution to assignee in
default for the to satisfy the insolvency (Section
1.1 One or more purpose of judgment. Merchant 32);
of the following 13 hindering, delaying
acts of insolvency of defrauding his 2. The 2.10. Liquidation
must be alleged in creditors; Judicial procedure for of assets and
the petition: involuntary payment of debts
h. The debtor insolvency is as (Sections 33, et
a. The debtor is has suffered or follows: seq.);
about to depart or procured his
has departed from property to be taken 2.1. Filing of 2.11. Discharge of
the Philippines with on legal process with petition by creditors the debtor (Section
intent to defraud his intent to give a of the debtor 64);
creditors; preference to one or (Section 20);
more of his creditors 2.12. Objections to
b. The debtor, and thereby hinder, 2.2. Order by the discharge, if any
being absent from delay or defraud any court requiring the (Section 66);
the Philippines with one of his creditors; debtor to show
intent to defraud his cause why he should 2.13. Appeal to the
creditors, remains i. The debtor not be declared Supreme Court in
absent; has made any insolvent (Section certain cases
assignment, gift, 21); (Section 82).
c. The debtor sale, conveyance or
conceals himself to transfer of his estate, 2.3. Service of
avoid the service of property, rights or the order on the Effects of the filing of
process for the credits with intent to debtor and a Voluntary or
purpose of delay, defraud or publication(Section Involuntary Petition
hindering, delaying hinder his creditors; 22); of Insolvency on
or defrauding his Proceedings against
creditors; Personal j. The debtor 2.4. Filing of the debtor:
has, in answer or motion to
d. The debtor contemplation of dismiss by the 1. In general
conceals or is insolvency, made any debtor (Section 23); the civil proceedings
removing any of his payment, gift, grant, against the debtor,
property to avoid its sale, conveyance or 2.5. Trial of the upon application by
being attached or transfer of his estate, case (Section 23); the debtor himself,
taken on legal property, rights or any creditor or the
process; credits; Preference 2.6. If the court assignee, will be
finds for the debtor, stayed or suspended.
e. The debtor k. The debtor, then the proceedings
has suffered his being a merchant or shall be dismissed 2. Secured
property to remain tradesman, has (Section 23); if the claims already begun
under attachment or generally defaulted debtor defaults or actions for secured
legal process for 3 in the payment of his the court finds for claims already begun
days for the purpose current obligations the creditors, then are suspended until
of hindering, for a period of 30 the court shall issue the assignee is
delaying or days; an order adjudging elected. Upon
election of the
assignee, the action actions for secured
will be continued in claims may be begun How claims are
the same court while the insolvency resolved by the 2.1 Article 2241-
where it was filed. proceedings are Assignee: with respect to
pending with the specific movable
2.1 The permission of the In resolving the property of debtor,
remedies of a insolvency court. claims of the the following claims
secured creditor, or However, if the creditor after the are preferred: (a)
of one who holds a assignee in debtors assets have taxes (b)
real estate mortgage, insolvency has not been liquidated, claims
chattel mortgage yet been elected, the unless a composition arising from
and or a pledge are: said action will be has been agreed malversation
(a) Rely on the suspended until the upon by the debtors (c)vendors lien (d)
security then he assignee is elected. creditors, claims secured by
will not be eligible to obligations of the pledge or chattel
take part in the 4. Unsecured debtor shall be paid mortgage
insolvency claims already begun in the following (e)mechanics lien
proceedings (b) actions for order: (f) lien of
Evaluate this unsecured claims laborers for wages
security he can ask already begun are 1. Equitable over goods
this from the court, suspended except in claims enumerated manufactured
the balance of the cases where the in Section 48 of (g)salvage
loan not secured amount due the Insolvency Law- (h)tenancy (i)
may be claimed in creditor is in these are the claims carriers lien
the insolvency dispute. In such which are entitled to (j)innkeepers lien
proceedings (c) cases, the suit, by first priority in (k) crop loan
File a leave of the payment: (l)rentals for one
contingent claim insolvency court, (a)Paraphernal year; and (m)
the creditor will file may proceed to property of debtors property on deposit
a claim in the judgment for the wife (b) that has been
insolvency purpose of Property wrongfully sold.
proceedings, that in ascertaining the held by debtor under
case the proceeds amount due, but lease or usufruct or 2.2 Article 2242-
from the sale of the execution shall be on deposit or for with respect to
security is not stayed. After the administration specific real
enough to cover the election of the (c)Merchandise held property, the
loan, the deficiency assignee in by debtor on following claims
shall be recovered in insolvency, such commission, for shall be preferred:
the insolvency unsecured claims forwarding or on (a) taxes (b)
proceedings. shall be filed and consignment and unpaid price
allowed in the purchase price from realty
These three insolvency sales on (c)contractors lien
alternatives are also proceedings, not in consignment (for amounts due to
available to a debt the court where they (d)Negotiable laborers, or
secured by a chattel were originally filed. instruments sent to architects and
mortgage with the debtor for collection engineers) (d) lien
exception of those 5. Unsecured and the money of suppliers of
falling of those claims not yet begun collected thereby (e) materials (e)
under Art. 1484 of actions for Money in debtors mortgage
the Civil Code (sale unsecured claims possession for credits upon
of movables under cannot be filed remittance to others registered real estate
installments), in during the pendency (f) Merchandise mortgages
which case the of the insolvency bought on credit, if (f)reimbursable
creditors shall only proceedings but it no delivery has been expenses for
be entitled to filed, such actions made (g) improvement and
remedies (1) and will be dismissed Goods preservation of real
(2). The same is true upon motion of the wrongfully taken by estate (g)credits on
with pledge as the assignee. Such the debtor. property upon
Civil Code expressly unsecured claims which attachments
prohibits a shall then be filed or executions have
deficiency judgment and allowed in the 2. Preferred been made (h)claims
in pledge. insolvency claims under of co-heirs for
proceedings, not in Articles 2241 and warranty in the
3. Secured the court where they 2242 of the Civil partition of an
claims not yet begun were originally filed. Code immovable among
them (i) claims of those enumerated in credits with respect 1. The law was
donors for pecuniary Arts. 2241 and 2242, to this property shall enacted on June 14,
or other charges on in the order named: be preferred, and 1993 and has for its
the immovable (a)Funeral expenses paid, in the order policy the
donated; and (j) of debtor and his named, not pro rata. maintenance of a
claims of children (b) Take not of No. 14 central monetary
insurers upon Credits for which refers to authority with the
insured property, for services rendered by credits which, power: (a) function
premiums not employees and without special and operate as an
exceeding two years household help privilege, appear in a independent and
(repealed by new (c)Expenses public instrument, accountable body in
Insurance Code) incurred during last or in a final the discharge of its
illness of debtor, his judgment, if the responsibilities
2.3 Article 2241 spouse and children credits have been concerning money,
lists 13 claims or (d)Compensation the subject of banking and credit
credits that enjoy due laborers in cases litigation. These (b) enjoy fiscal and
preference with of labor accident or credits have administrative
respect to specific illness resulting preference among autonomy.
immovable property from nature of themselves in the
and real rights of the employment (e) order of priority of 1.1 A central
debtor: (1) These Debts the dates of the bank is a bank that
claims or credits are incurred by debtor instruments (more holds the cash
considered as liens for support of his specifically, the date reserves of a
or mortgages or family during the when they became countrys
pledges, respectively, year preceding public instruments, commercial banks,
of personal or real insolvency (f) i.e., the date of their performs monetary
property (Art. 2243) Support notarial services for the
(2) These claims or during insolvency acknowledgment) government, issues
credits shall be paid proceedings and for and of the bank notes, and
pro rata after the three months judgments, makes funds
payment of any thereafter (g) Fines respectively. available to
taxes, duties, fees and civil commercial banks
and assessments, as indemnifications 4. Ordinary
the case may be, due arising from crime claims under Section Conservatorship
the State or any (h)Legal and other 49 of the Insolvency
subdivision thereof expenses for Law, which are 1. The
(3) If any excess administration of claims other than appointintment by
should remain after insolvents estate the above, duly the Monetary Board
payment of the (i)Taxes due national proved and allowed of a conservator
claims or credits government (j)Taxes in the insolvency takes place
which enjoy due provincial proceedings, which whenever a bank or
preference with government (k) shall pro rata in the quasi-bank is in a
respect to specific Taxes due remainder of the state of continuing
property, real or city or municipality debtors property, inability or
personal, the same government (l) without any priority unwillingness to
shall be added to the Damages or preference. maintain a condition
free property which arising from a quasi- of liquidity deemed
the debtor may have delict or tort (m) 4.1 Common adequate to protect
for the payment of Gifts due to credits, i.e., credits of the interest of
the other credits, i.e., charitable any other kind or depositors and
those credits which institutions; and (n) class, or by any other creditors.
do not enjoy Credits right or title, not
preference with without special included in Articles 1.1 It is an
respect to the privilege appearing 2241, 2242, 2243 or attempt to save the
specific property. in a public document 2244, enjoy no bank from
or resulting from a preference (Art. bankruptcy and
final judgment. 2245). They shall be ultimate liquidation.
3. Preferred paid pro rata
claims under Article 3.2 Article 2244 regardless of dates 1.2 The
2244 of the Civil lists 14 claims or (Art. 2251[2]) appointed
Code; and credits which enjoy conservator is to
preference with take charge of the
3.1 Article 2244- respect to other CENTRAL BANK assets, liabilities,
with respect to property of the ACT and the management
property other than debtor. Claims or thereof for a period
not exceeding one liabilities as they
(1) year become due in the
ordinary course of
2. A business BUT: Shall
conservator may not include inability
take over a bank or to pay caused by
quasi-bank without extraordinary
the need of first demands induced by
declaring the bank financial panic in the
insolvent (P.D. 1937, banking community
June 27, 1984). (b) Has insufficient
Nonetheless, the realizable assets to
designation of a meet its liabilities
conservator is not a (c) Cannot continue
precondition to the in business without
designation of a involving probable
receiver (Section 30) losses to its
depositors or
2.1 A creditors; or (d) Has
conservator is the willfully violated a
person appointed to cease and desist
take over the order that has
management of a become final,
bank and shall involving acts or
assume exclusive transactions which
powers to oversee amount to fraud or a
every aspect of the dissipation of the
banks operation and assets of the
affairs.1 institution;
3. The 1.1 In which
conservatorship is cases, the Monetary
terminated when: Board may
(a) When summarily and
Monetary Board is without need for
satisfied that prior hearing, forbid
institution can the institution from
continue to operate doing business in
on its own and the the Philippines and
conservatorship is designate the PDIC
no longer necessary as receiver of the
(b)Should Monetary banking institution.
Board determine
that the continuance 1.2 There is no
in business of the requirement that a
institution would hearing be first
involve probable loss conducted before a
to its depositors or banking institution
creditors, in which may be placed under
case proceedings for receivership. The
receivership and appointment of a
liquidation shall be receiver may be
pursued. (Sec. 29). made by the
Monetary Board
Proceedings in without notice and
Receivership: hearing but its
action is subject to
1. Receivership judicial
ensues whenever the inquiry( Rural Bank
Monetary Board of Buhi v. Court of
finds that a bank or Appeals,162 SCRA
quasi-bank: (a) Is 288)
unable to pay its
1.3 The Central
1
Central Bank vs. CA, Bank, through the
208 SCRA 652
Monetary Board, is assets of the bank, it
vested with is unmistakable that
exclusive authority the assailed actions
to assess, evaluate should precede the
and determine the filing of the case.
condition of any Plainly, the
bank and if it finds legislature could not
the condition to be have intended to
one of insolvency, or authorize no prior
its continuance in notice and hearing
business would in the closure of the
involve probable loss bank and at the
to creditors and same time allow a
depositors, it can suit to annul it on
forbid the bank to do the basis of absence
business and can thereof (CB vs. CA,
designate a receiver 220 SCRA 539)
to take charge of its
assets and liabilities. 1.5 Judicial
Sec. 29 of the Central review is allowed to
Bank Act does not determine the
contemplate prior presence of
notice and hearing arbitrariness and
before a bank is bad faith in placing
placed under bank under
receivership. It is receivership.
enough that such Admittedly, the mere
action is made the filing of a case for
subject of a receivership by
subsequent judicial Central Bank can
review. Close now trigger a bank run.
and hear later The procedure
scheme under the prescribed in
Act is for the Section 29 is truly
purpose of designed to protect
protecting the the interest of all
depositors, concerned, and the
creditors, summary closure
stockholders and pales in comparison
general public to the protection
(Central Bank v. afforded public
Court of Appeals, interest. At any rate,
220 SCRA 536) the bank is given full
opportunity to prove
1.4 Prior notice arbitrariness and
and hearing is not bad faith in placing
required before the bank under
placement of bank receivership, in
under receivership. which event, the
Section 29 does not resolution may be
contemplate prior properly nullified
notice and hearing and the receivership
before a bank may lifted as the trial
be directed to stop court may
operation and determine. Until
placed under such determination
receivership. When is made, the status
paragraph 4 (now quo shall be
paragraph 5 as maintained, i.e., the
amended by E.O. bank shall continue
289) provides for to be under
the filing of a case receivership.
within ten (10) days
after the receiver
takes charge of the
1.6 Receivership statement of the institution in deposit ceases from
is equivalent to an department to be accordance with the the moment the
injunction to true (Banco Filipino rules on concurrence operation of the
restrain in the bank vs. Monetary Board, and preference of bank is completely
officers from 204 SCRA 767) credit under the Civil suspended by the
intermeddling with Code (d) Institute duly constituted
the property of the 3. The test of such actions as may authority the Central
bank in any way. insolvency laid down be necessary to Bank (Ibid,;
Thus, the in Section 29 of the collect and recover Overseas Bank vs.
appointment of a Central Bank Act accounts and assets CA, 105 SCRA 49)
receiver operates to (now Section 30 of of, or defend any
suspend the the New Central action against, the 3. The
authority of the bank Bank Act) is institution prescriptive period
and of its directors measured by to institute the
and officers over its determining Selected Issues foreclosure
property and effects whether the involving proceeding was
(Villanueva vs. CA, realizable assets, Receivership and legally interrupted
244 SCRA 395) realizable within a Liquidation: when the
reasonable time by a mortgagee-bank was
Liqui reasonably prudent 1. If the Central placed under
datio person of a bank are Bank (now Bangko receivership with
n: less than its Sentral) through its express prohibition
liabilities, not Monetary Board has from transacting
1. Liquidation considering capital promised to business, a
shall take place is stock and surplus rehabilitate the circumstance
the receiver which are not distressed bank, and considered as force
determines that the liabilities for such the stockholders on majeure (Provident
institution cannot be purpose. (Ibid) said assurance vs. CA, 222 SCRA
rehabilitated or proceeded to 125)
permitted to resume 4. Upon mortgage their real
business, the liquidation, the properties to 4. While the
Monetary Board receiver shall then: guarantee CB closure and
shall notify in (a) File ex parte with promised loan liquidation of a bank
writing the Board of Regional Trial Court, advances to said may be considered
Directors of its and without the bank, CB cannot an exercise of police
findings and direct requirement of prior renege on said power, the validity of
the receiver to notice or any other promise, under the its exercise is subject
proceed with the action, a petition for doctrine of to judicial
liquidation of the assistance in the promissory estoppel, determination, and
institution. liquidation of the and cannot insist in could be set aside, if
institution pursuant its liquidation it is capricious,
2. The to a liquidation plan (Ramos vs. CB, 41 discriminatory,
following are the adopted by PDIC (b) SCRA 565) whimsical, arbitrary,
mandatory Upon acquiring unjust or a denial of
requirements to be jurisdiction, RTC 2. Where the the due process and
complied with shall, upon motion Central Bank, in the equal protection
before a bank found by the institution, course of the clauses of the
to be insolvent can assist the rehabilitation of a Constitution (CB vs.
be ordered close: (1) enforcement of commercial bank, CA, 106 SCRA 143)
an examination shall individual liabilities extended loans and
be conducted by the of the stockholders, advances, but 5. A deposit in
appropriate CB directors and subsequently the a distressed bank
department as to the officers, and decide bank was forced by already forbidden by
condition of the on other issues as CB to close, and CB to do business
bank (2) disclosed in may be material to subsequently does not become a
the examination is implement the allowed to reopen, preferred credit
that the condition of liquidation plan interest due on said simply because
the bank is one of adopted (c)Convert loans and advances, some depositors
insolvency (3) the the assets of the cannot be collected went to court and
director shall inform institution to money, because it should be were able to secure
the Monetary Board dispose of the same deemed read into judgments against
in writing of such to creditors and every contract of the bank (CB vs.
fact, and (4) the other parties, for the deposit with a bank Morfe, 63 SCRA 114)
Monetary Board purpose of paying that the obligation to
shall find the the debts of such pay interest on a
6. Where in the authorized by the capitalization primarily by the
course of banks Monetary Board to requirement. Cooperative Code.5
distressed condition, engage in the
the Central Bank business of regularly An investment house (f) Islamic
gave financial lending funds is a company that banks-these are
assistance to restore obtained regularly earns income solely banks whose
the banks viability, from the public or primarily by business dealings
but that inspite of through the receipt holding and and activities are
these moves, the of deposits of any investing in subject to the basic
bank was closed by kind. Thus, entities securities issued by principles and
CB on August 1968, which lend funds other companies or rulings of Islamic
and allowed to obtained from the by government Sharia, such as the
reopen on January 8, public but not as agencies. Al Amanah Islamic
1981, under a new deposits but rather Investment Bank of
name, Commercial as debts for their (b) Commercial the Philippines
Bank of Manila, the own account, banks- these are which was created
obligation by the whether done ordinary or regular by the Republic Act
bank to pay interest regularly or not, and commercial banks, No. 6848; and
on the CB advances those which as distinguished
remained suspended regularly lend funds from a universal (g) Other
during the whole obtained through bank. They have a classifications of
period of its closure, the occasional lower capitalization banks as determined
following the ruling receipt of deposits, requirement than by the Monetary
in OBM vs. CA and would not be universal banks and Board.
Tapia (105 SCRA considered as banks. cannot exercise the
49). Hence, the powers of an Incorporation and
interest obligation 2.2 An entity investment house Organization of
starts to run from that is engaged in and invest in non- Banks
the date of the the business of allied enterprises.
reopening of the buying accounts 1. The
bank on January 8, receivables and is (c) Thrift banks- minimum conditions
1981 (Ramos vs. CB, funding their these are savings that a prospective
137 SCRA 685) business from bonds and mortgage banks, bank must comply
sold to the public stock savings and with before it may
from time to time is loan associations, be authorized by the
GENERAL BANKING not a bank as it does and private BSP to be organized
LAW not accept deposits, development banks as a bank are:
instead it buys which are governed
1. The policy of receivables. primarily by the 1.1 That the
the State is the Thrift Banks Act.3 entity must be
promotion and Classification of organized as a stock
maintenance of a Banks: (d) Rural banks- corporation;
stable and efficient these are mandated
banking and 1. Banks are to make needed 1.2 That its
financial system that classified under the credit available and funds must be
is globally General Banking readily accessible in obtained from the
competitive, Law as follows: the rural areas on public, i.e., 20 or
dynamic and reasonable terms more persons; and
responsive to the and which are
demands of a (a) Universal governed primarily 1.3 That the
developing economy. banks- these are by the Rural Banks minimum capital
those that used to be Act of 1992.4 requirement
2. Banks are called expanded prescribed by the
entities engaged in commercial banks (e) Cooperative Monetary Board for
the lending of funds and whose banks-these are each category of
obtained in the form operations are now banks organized banks are satisfied.
of deposits. primarily governed primarily to make
by the GBL. They can financial and credit 2. The SEC
2.1 The exercise the powers services available to cannot register the
definition under of an investment cooperative banks the articles of
Section 2 of the old house and invest in and are governed incorporation of any
General Banking non-allied bank, or any
Law:2 banks are enterprises. They amendment thereto,
entities duly have the highest unless accompanied
3
RA 7906
2
RA 337 4
RA 7353 5
RA 6938
by a certificate of stockholders or such of bank management otherwise provided
authority issued by factors as may be and afford better under existing laws.
the Monetary Board, determined by the protection to
under its seal. Such Monetary Board.6 depositors and the 4.1 The Rural
certificate shall not public in general, the Banks Act9, allows an
be issued by the Management of a Monetary Board elected or appointive
Monetary Board Bank: shall: public official to
unless it is satisfied serve as director,
from the evidence 1. The principle 3.1 prescribe, officer, consultant or
submitted to it: that since a bank is a pass upon and in any other capacity
juridical person that review the in a rural bank.
3. In organizing its powers are to be qualifications and
the bank, it can only exercised, its disqualifications of 5. A bank is
issue par value business is to be individuals elected required to have a
stocks only. conducted, and that or appointed bank board composed of 5
its properties are to directors or officers no more than 15
be held by a board as and disqualify those directors, two of
Supervision and provided for by found unfit; or whom must be
Regulation of Banks: Section 23 of the independent
Corporation Code 3.2 After due directors.10
1. The entity obtains. notice to the board
that has supervisory of directors of the 5.1 In case of a
and regulatory 2. However, an bank, the Monetary merger or
powers over banks is independent Board may consolidation
the BSP and such director, who is a disqualify, suspend between banks, the
extends to all banks, person other than an or remove any bank number of directors
quasi-banks, trust officer or employee director or officer shall not exceed 21.11
entities, and other of the bank, its who commits or
financial institutions. subsidiaries or omits an act which 5.2 Non Filipino
affiliates or related render him unfit for citizens may become
2. This power interests must be the position. members of the
of the BSP is found elected to the board. board to the extent
in Section 25 of the Note that the term 3.3 In of the foreign
BSP Law which independent determining participation in its
mandates the director is also used whether an equity.12
conduct of periodic in the Securities individual is fit and
or special Regulation Code7 to proper to hold the
examinations, to refer to a person position of a director Limitations imposed
include those of its other than an officer or officer of a bank, on Banking
subsidiaries and or employee of the regard shall be given Operations:
affiliates engaged in corporation, its to his integrity,
allied activities, but parent or experience,
such shall be subsidiaries, or any education, training, 1. Single
possible only in the other individual and competence. Borrower Limit
in the course of its having a relationship Rules13- these rules
examination of such with the 4. An elective regulate the total
bank. corporation, which or appointive public amount of loans,
would interfere with official cannot serve credit
2.1 A subsidiary the exercise of as an officer of a accommodations
corporation is one independent private bank , and guarantees that
more than 50% of judgment in carrying whether full-time or may be extended by
whose voting stock out the part-time shall at the a bank to any
is owned by the responsibilities of a same time serve as person, partnership,
bank or quasi-bank. director. officer of any private association,
bank, save in cases corporation or other
2.2 An affiliate 3. There must where such service entity.
corporation is one also be adherence to is incident to
less than 50% of the fit and proper financial assistance 1.1 The rules
whose voting stock rule8 which provided by the seek to protect a
is owned by the provides that to government or a bank from making
bank or quasi-bank maintain the quality government-owned 9
Section 5, RA 7353
or which is related or controlled 10
Section 15, GBL
or linked to such 6
Section 25, NCBA corporation to the 11
Section 17, GBL
bank or quasi-bank 7
Section 38, Par. 16.25 bank or unless 12
Section 15, Par. (2),
through common 8
Section 16, GBL, BSP GBL
Circular No. 296 13
Section 35, GBL
excessive loans to a 2.2 Related the third degree of from such bank to
single borrower by Interests shall consanguinity or others; (c) be an
prohibiting it from include the affinity; or (2) where obligor; or (d) incur
lending beyond a following: (a) the director, officer any contractual
specified ceiling. The Spouse or relative or stockholder of the liability with the
current limit is 25% within the first lending bank sits as written approval of
of the net worth of degree of a representative of the majority of all
the bank consanguinity or the bank in the the directors of the
concerned.14 affinity, or relative board of directors of bank, excluding the
by legal adoption, of such corporation: director concerned.16
1.2 The ceiling is a director, officer or Provided, That the However, the written
subject to possible stockholder of the bank representative approval shall not be
increase by an bank; (b) shall not have any required for loans,
additional 10% Partnership of which equity interest in the other credit
provided the a director, officer or borrower accommodations
additional liabilities stockholder or his corporation except and advances
of any borrower are spouse or relative for the minimum granted to officers
adequately secured within the first shares required by under a fringe
by trust receipts, degree of law, rules and benefit plan
shipping documents, consanguinity or regulations, or by approved by the BSP.
warehouse receipts affinity, or relative the by-laws of the
or other similar by legal adoption, is corporation:
documents a general partner; Provided, further, 2.4
transferring or (c) Co-owner with That the borrowing
securing title the director, officer, corporation under Consequently, any
covering readily stockholder or his (1) or (2) is not director or officer
marketable, non- spouse or relative among those who may wish to
perishable goods within the first mentioned in Items borrow from the
which must be fully degree of (e) and (f) hereof; bank must observe
covered by consanguinity or (e) Corporation, the following
insurance. affinity, or relative association or firm formalities: (a) The
by legal adoption, of of which any or a borrowing must be
the property or group of directors, in accordance with
2. DOSRI interest or right officers, the Arms Length
Rules15- these are mortgaged, pledged stockholders of the Rule, or which must
rules promulgated or assigned to secure lending bank and/or be upon terms not
by the BSP, upon the the loans or credit their spouses or less favorable to the
authority of Section accommodations, relatives within the bank than those
36 of the GBL, which except when the first degree of offered to others
regulate the amount mortgage, pledge or consanguinity or ,must be with the
of credit assignment covers affinity, or relative written approval of a
accommodations only said co-owners by legal adoption majority of the
that a bank may undivided interest; hold/own more than banks board of
extend to its (d) Corporation, twenty percent directors, excluding
directors, officers, association, or firm (20%) of the the director
stockholders and of which a director subscribed capital of concerned (b)Such
their related or officer of such such corporation, or approval must be
interests, thus the corporation, of the equity of such entered upon the
term, DOSRI. association or firm, association or firm; records of the bank,
except (1) where the (f) Corporation, i.e., the minutes of
2.1 Generally, a securities of such association of firm the board meeting in
banks credit corporation, wholly or majority- which the approval
accommodations to association or firm owned or controlled was given; and (c) A
its DOSRI must be in are listed and traded by any related entity copy of the entry of
the regular course of in the big board or or a group of related such approval shall
business and on commercial and entities mentioned be transmitted
terms not less industrial board of in Items (b), (d) and forthwith to the
favorable to the bank domestic stock (e) hereof. appropriate
than those offered to exchanges less than supervising
non-DOSRI fifty percent (50%) 2.3 A bank may department of the
borrowers. of the voting stock allow a DOSRI to: (a) BSP.
thereof is owned by borrow from the
any one person or by bank; (b) become a 2.5 The other
persons related to guarantor, indorser conditions are: (a)
14
BSP Circular No. 425 each other within or surety for loans
15
Section 36, GBL 16
Section 36, GBL
The DOSRI borrower 1. As to nature, to return the amount 3.1 The
is required to waive all kinds of deposits deposited, they have depositor expects
the secrecy of whether fixed or no obligation to the bank to treat his
his/her deposits of current are to be return or deliver the account with utmost
whatever nature in treated as loans and same money fidelity, whether
all banks in the are to be covered by deposited. Thus, such account
Philippines17 and (b) the law on loan.18 estafa will not consists only of a
The prosper.23 few hundred pesos
ceiling/limitation as 1.1 They are also or millions. This is
to loans are considered in the 1.4 A banks especially true since
followed. nature of irregular failure to honor a the bank is engaged
deposits, they are deposit is failure to in business
really loans because pay its obligation as impressed with
2.6 The amount they earn interest.19 debtor and not a public interest and it
of the borrowing is Considering a breach of trust is its duty to protect
limited to the deposit involves the arising from a in return many
amount equivalent delivery of a thing depositorys failure clients, and
to their for safekeeping with to return the subject depositors who
unencumbered the obligation to matter of deposit transact business
deposits and book return the very same with it.27
value of their paid in thing upon demand20
capital contribution, and a loan is a 2. The relation 3.2 The bank is
unless they are: (a) contract whereby created between the under obligation to
secured by assets one of the parties bank and depositor treat the accounts of
considered by the delivers to another is that of a creditor its depositors with
Monetary Board as money or other and debtor with the meticulous care
non risk (b) under a consumable thing bank as debtor and always having in
fringe benefit plan upon the condition the depositor as mind the fiduciary
approved by the BSP, that the same creditor.24 nature of their
or is (c) extended by amount of the same relationship.
a cooperative bank kind and quality 2.1 The
to its cooperative shall be paid.21 relationship is 3.3 However, the
stockholders; fiduciary in nature.25 highest degree of
1.2 Banks may The bank assumes to diligence is not
2.7 Should there use the money act as an agent for expected to be
be a violation of the deposited with them another and the exerted by banks in
DOSRI rules, after as money deposited other reposes commercial
due notice to the in banks, whether confidence in him, transactions that do
board of directors of fixed, savings and although there is no not involve their
the bank, the office current, are really written contract or fiduciary
of any bank director loans to a bank nor contract at all. relationship with
or officer who because the bank their depositors.28
violated the rules can use the same for 3. A bank
may be declared its ordinary should exercise its 3.4 In case of
vacant and the transactions and for functions and treat negligence in
director or officer banking business in the accounts of their handling the deposit
shall be subject to which it is engaged.22 clients not only with of its clients on
the penal provisions the diligence of a account of a bank
of NCBA. 1.3 In fact banks good father of a officers gross
are not obligated to family but it should negligence which
2.8 Loans, credit return exactly the do so with the causes
accommodations or money deposited in highest degree of inconvenience,
guarantees extended the same care considering the humiliation and
by a bank to DOSRI denomination as it fiduciary nature of embarrassment to a
are also termed as was deposited. their relationships depositor entitles
Insider Lending. While the banks with their the latter to an
have the obligation depositors.26 award of damages.29

Bank Deposits and 18

People vs. Ong, 204
Bank Responsibility SCRA 942
to Depositors
19
BPI vs. Court of
Appeals, 232 SCRA 302
20
Article 1962, Civil Code
21
Article 1933, Civil Code
22
Tan Tiong Tick vs.
Americal Apothecaries,
17
Section 26, NCBA 65 Phil 417
26
BPI vs. Court of
23
Guingona vs. City Appeals, 326 SCRA 641
Fiscal, 128 SCRA 577 27
Citytrust Banking vs.
24
Serrano vs. Court of IAC, 232 SCRA 559
Appeals, 96 SCRA 96 28
Reyes vs. Court of
25
PBCom vs. Court of Appeals, GR No. 118492,
Appeals, 269 SCRA 695, August 15, 2001
BPI vs. IAC, 206 SCRA 29
Go vs. IAC, 197 SCRA
408 22
This demand. (b) than those of CORPORATION
notwithstanding the When a bank ordinary clerks and (PDIC)
absence of malice teller validates an employees. Banks
and bad faith as if incomplete duplicate are expected to 1. The
the negligence, deposit slip that exercise the highest Philippine Deposit
nevertheless caused lacks the name of the degree of diligence Insurance
serious anxiety, account holder.33 (c) in the selection and Corporation Act
embarrassment and When the deposit of supervision of their created the
humiliation to the PPH 31,500.00 to employees.37 Philippine Deposit
depositors.30 As long cover six postdated Insurance
as the bank has checks was not 3.7 Malice and Corporation which is
committed a serious credited to the bad faith need not be a government
mistake and the account of the proven sufficiently corporation
banks negligence depositor because of to make a bank promoting and
was a result of lack the omission of one liable for moral safeguarding the
of due care and zero in the account damages due to the interests of the
caution required of number.34 (d) The error or negligence depositing public by
managers and bank allowed an of a bank employee providing
employees of a firm impostor to as long as the bank permanent and
engaged in so negotiate treasury has committed a continuing insurance
sensitive and checks.35 (e) The serious mistake and coverage on all
demanding business new accounts teller the banks insured deposits.
as banking, it is erroneously used the negligence was a
liable for moral old account of a result of lack of due 2. It insures the
damages.31 depositor instead of care and caution deposit liability of all
the newly opened required of banks to a maximum
3.5 In view of joined account of the managers and deposit insurance
the fiduciary nature depositor and his employees of a firm coverage (MDIC) of
of the relationship of spouse, leading to engaged in so P500,000 per
banks and its clients the dishonor of two sensitive and depositor in
and because banking checks issued by the demanding business consideration of a
is imbued with depositor.36 as banking, it is premium paid by the
public interest, a liable for moral bank to the said
bank was also made 3.6 The defense damages.38 corporation.(As per
liable for damages in of diligence in the RA 9576)
the following selection and
instances: (a) Failure supervision of 4. A bank 3. The risk
to honor/pay a employees is not a cannot prohibit a insured against is
check of a valid defense to borrower from the closure of a
merchant/trader escape or at least prepaying his loan as bank.
when the deposit is mitigate a banks a borrower may at
sufficient.32 liability. A banks any time prior to the 3.1. The nature
Conversely, a bank is liability is not agreed maturity date of the coverage is
not liable for its merely vicarious but prepay, in whole or compulsory as the
refusal to pay a primary; the defense in part, the unpaid law provides that
check on account of of exercise of due balance of any bank the deposit liabilities
insufficient funds, diligence in the loan and other credit of any bank or
notwithstanding the selection and accommodation, banking institution
fact that a deposit supervision of its subject to such which is engaged in
may be made later in employees is of no reasonable terms the business of
the day. Before a moment. By the very and conditions (such receiving deposits or
depositor may nature of the work of as the payment of a which thereafter
maintain a suit to banks, the degree of prepayment fee) as may engage in the
recover a specific responsibility, care may be agreed upon business or
amount from his and trustworthiness between the bank receiving deposits,
bank, he must first expected of their and borrower. shall be insured with
show that he had on employees and PDIC.
deposit sufficient officials is far greater
deposits to meet his PHILIPPINE 3.2 Deposits that
33
Philbank vs. Court of DEPOSIT are covered are
30
BPI vs. IAC, 206 SCRA Appeals, 269 SCRA 695 INSURANCE savings accounts,
408 34
Citytrust vs. IAC, 232
SCRA 559
current account,
31
Prudential Bank vs. 37
PCIBank vs. Court of
Court of Appeals, 328 35
Go vs. IAC, 197 SCRA Appeals, 350 SCRA 446 time deposits and
SCRA 264 22 38
Prudential Bank vs. deposits in
32
Moran vs. Court of 36
BPI vs. IAC, 206 SCRA Court of Appeals, 328 acceptable foreign
Appeals, 230 SCRA 799 408 SCRA 264
currencies pursuant depositors unless lien, pledge or other 3. The
to Foreign Currency otherwise indicated claim against or for provisions of the law
Deposit Act. in the deposit the delivery of does not apply to the
document. property or money following credit
3.3 Exempted (g)purchase of transactions:
though from the acquisition of any
coverage of the law TRUTH IN LENDING credit upon security a. those that do
are trust funds as it of any obligation not involve the
was was expressly Declared Policy of arising out of any of payment of any
excluded from the the State the above (h) any finance charge by
term deposit under transaction with the debtor; and
R.A. 7400 and 1. The law, similar purpose
money market which is to be b. those in
placement as it is implemented by the 2. The which the debtor is
not included in the Monetary Board of provisions of the law the one specifying a
term deposit the Bangko Sentral apply to creditors, definite and fixed set
ng Pilipinas declares who is defined by of credit terms such
DETERMINATION that it is the policy of law as: any person as bank deposits,
OF THE AMOUNT the state to protect engaged in the insurance contracts,
DUE THE its citizens from a business of sale of bonds, etc.
DEPOSITOR lack of awareness of extending credit,
the true cost of including any person 3.1 Finance
1. Insured credit to the user by who as a regular charges (Sec. 3[3];
deposits under the assuring a full business practice Sec. 2[h], CB Circular
law means the net disclosure of such makes loans or sells 158) are the
amount due the cost with a view of or rents property or amounts to be paid
depositor for any preventing the services on a time, by the debtor
deposits in the uninformed use of credit or installment incident to the
insured bank after credit to the basis either as extension of credit
deducting any detriment of the principal or agent, such as interests,
offsets but should national economy. who requires as an discounts, collection
not exceed PHP incident to the fees, credit
500,000.00. 2. Specifically, extension of credit investigation fees
it: (a) aims to protect the payment of a and attorneys fees.
2. Hence, if a a debtor from the finance charge.
depositor has two or effects of 3.2 Non Finance
more accounts misrepresentation 2.1 The charges (Sec. 2[f], CB
maintained in the or concealment (b) application of the Circular 158) are the
same right and permits him to fully law is compulsory amounts advanced
capacity, the appreciate and for (a) banks (b) by a creditor for
coverage of PHP evaluate the real non-bank financial items normally
500,000.00 shall be cost of his intermediaries associated with the
held to apply to the borrowing (c) avoid authorized to engage ownership of
sum of all such the circumvention of in quasi-banking are property or the
accounts. usury laws required strictly to availment of the
adhere to the law. services purchased
3. A joint Coverage of the Law Banks and non-bank which are not
account (whether financial incident to the
and/or, or, and 1. As used in intermediaries extension of credit.
shall be insured the law, the term authorized to engage For example, when a
separately from any credit means: (a) in quasi-banking debtor purchases a
individual-owned loan, functions are car on credit, the
account. If held by a mortgage, deed of required to strictly creditor may
juridical person or trust; advance or adhere to the advance the
entity with a natural discount (b) provisions of the insurance premium
person, the account conditional Truth in Lending as well as the
shall be presumed to sales contract Act and shall make registration fee for
belong to the (c)contract to sell or the true and the account of the
juridical person. contract of sale of effective cost of debtor.
property or services borrowing an
3.1 Accounts (d)rental-purchase integral part of every 4. To
under joint contract (e)contract loan contract accomplish the
ownership is for hire, bailment or (Consolidated vs. CA, policy of the law to
considered equally leasing of property 246 SCRA 195) protect citizens from
shared among co- (f) option, demand, a lack of awareness
of the true cost of seller/lender an Atty. Renato S.
credit to the user by amount of P100.00 Rondez
assuring a full or double the Partner, Law Firm
disclosure of such finance charge of Rondez &
cost, a creditor or imposed, whichever Partners
lender is obliged to is greater, but not to Professor, College
provide the debtor exceed P2,000.00, of Law
or borrower with a plus attorneys fees University of the
statement in writing, and costs, and (b) a Cordilleras
before perfection of criminal action
the contract against the _________________________
containing the seller/lender who if _______
following: (a) Cash convicted may be QUESTIONS AND
price of property or imposed a fine ANSWERS ON
service to be ranging from P1,000 SECRECY OF BANK
acquired (b) to P5,000 or DEPOSITS-RA 1405
Amount imprisoned from 6 AND RELATED
credited as down months to 1 year or LAWS
payment and or both. Note that a
trade-in(c) final judgment that
1) What is the
Charges paid may be rendered in
purpose of the law?
or to be paid not any criminal
incident to the proceeding to the
The purpose
extension of credit effect that the
of the law is to
(d) Charges paid defendant has
encourage people to
or to be paid not willfully violated the
deposit their money
incident to the act shall be prima
in banks and,
extension of credit facie evidence
thereby, discourage
(e)Total amount to against such
private hoarding so
be financed (f) defendant in an
that the banks may
Finance action or proceeding
lend out the money
charge; and brought by any other
and assist in the
(g)Percentage of party against such
economic
finance charge to defendant under the
development of the
total amount to be Act as to all matters
country39.
financed. respecting which
said judgment would
2) What does the
4.1 The be estoppel as
law prohibit?
disclosure must be between the parties
made in a separate thereto.
(a) The
document, and not
examination and
one that is merely
inquiry or looking
incorporated in a
into all deposits of
document by the
whatever nature
statement that the
with banks or
transaction subjects
banking institutions
the debtor to a
in the Philippines
finance charge.
including
investments in
4.2 The failure to
bonds issued by the
comply does not
Government or its
render the principal
political
contract invalid or
subdivisions and
unenforceable, but THE INSIDE instrumentalities by
would entitle the
debtor to recover STORY any person,
government official,
any interest ON THE bureau or office40;
payment made.
SECRECY and
(b) The
4.3 A violation of OF BANK disclosure by any
the law may subject DEPOSIT official or employee
the violator to: (a) a
S LAW of any banking
civil action brought
institution to any
within one year to
recover from the 39
Sec. 1, RA 1405.
40
Sec. 2, RA 1405.
unauthorized person the subject Commission Law where
of any information matter of er of Internal banks are
concerning said litigation42; Revenue required to
deposits. e) Upon order when a report to the
of the court taxpayer files Anti-Money
Note that the or subpoena an Laundering
law is applicable to issued by the application Council any
trust accounts or an Ombudsman to transaction
account that has in cases of compromise in cash or
been set up as an unexplained his tax other
inter vivos or wealth43; liability by equivalent
testamentary trust This is reason of monetary
as Section 2 has subject to financial instrument
been held to cover the following incapacity45; in excess of
not only money that requisites: h) Upon P500,000 in
has been deposited (1) only an examination any one
but also to money in-camera made in the day47;
which has been inspection is course of a l) Also under
invested although no allowed (2) special or the Money-
creditor-debtor there must general audit Laundering
relationship is be a pending of a bank as Law, the
created between the case before a authorized Anti-Money
bank and the client.41 court of by the Laundering
The law does competent Monetary Council may
not apply to money jurisdiction Board after inquire into a
market placements (3) account being deposit or
as they are not is clearly satisfied that investment
deposits, rather, they identified (4) there is maintained
are trades in short examination reasonable with any
term negotiable is limited to ground to financial
instruments such as account believe that a institution
securities or subject of the bank fraud upon order
treasury bills. court case, or of a
and (5) bank irregularity competent
3) What personnel is being court, in
disclosures or and the committed cases of
inquiries into account and it has violation of
deposits are not holder must become the Act,
prohibited? be notified to necessary to when there
be present look into the is probable
a) Upon written during the deposit to cause that
permission inspection. establish the the deposit
of the f) Upon order same; or
depositor; of the i) Upon investment is
b) In cases of Commission examination in any way
impeachmen er of Internal of a banks related to an
t; Revenue in independent unlawful
c) Upon order respect of auditor, the activity as
of a the bank result of defined in
competent deposits of a which are for the Act or a
court in decedent for the exclusive money
cases of the purpose use of the laundering
bribery or of bank; offense
dereliction determining j) In case of under the
of duty of such suspicious Act48;
public decedents transactions m) When a
officials; gross under the director,
d) In cases estate44; Anti-Money officer,
where the g) Upon order Laundering stockholder,
money of the Law46; and related
deposited or k) Under the interest
invested is
42
Sec. 2, RA 1405. Anti-Money (DOSRI)
43
Sec. 6, RA 3019; PNB vs
Gancayco, 15 SCRA 91,
Laundering obtains a
41
Ejercito vs.
Sandiganbayan, GR Nos. Marquez vs. Disierto, 399
157294-95, November SCRA 772 45
Sec. 6, NIRC. 47
Sec. 3 (b), RA 9160.
30, 2006 44
Sec. 6, NIRC. 46
Sec. 3 (b-1) , RA 9160. 48
Sec. 1, RA 9160.
 loan from his authorized by any of leasing the deposit anti-graft cases
bank or its the exceptions to the box from the bank. extends to instances
subsidiaries, law. where such property
or with Note also, Prevailing is concealed by
related that since jurisprudence is that being held by or
controlling investigations by the the ensuing recorded in the
interests of Monetary Board and relationship name of other
more than the Bureau of between the bank persons.
5% of the Internal Revenue are renting out the
capital or confidential in safety deposit box 8) In a case where
surplus of nature, any and the client with the money
the bank, it disclosure in respect to the deposited or
shall violation of the contents of the box invested is the
constitute a confidentiality will is that of bailor- subject matter of
waiver of create liability. bailee, the bailment the litigation, could
secrecy of all being for hire and an inquiry into the
his deposits 5) Will the mutual benefit. The whereabouts of the
of whatever garnishment of a bank would be liable amount extend to
nature in all bank deposit for loss of the the deposits held in
banks in the violate the law? contents of the box if the name of
Philippines; it is guilty of fraud, persons other that
and No, negligence or delay the one
n) Under the garnishment of a or contravention of responsible?
Unclaimed bank deposit will not the tenor of the
Balances violate the law. If agreement.52 Even in cases
Law49. the existence of the not involving
o) The deposit is disclosed, NOTE: Without prosecution under
examination the same is order of a court of Anti-Graft and
of a bank considered as purely competent Corrupt Practices
account incidental to the jurisdiction, disclose Act, an inquiry into
under execution process51. to any authorized the whereabouts of
Section 10, What is to be person any the amount
Rule 57 in disclosed only is the information relative converted
relation to existence of the to the funds or necessarily extends
the deposit, particularly properties in the to whatever is
examination whether or not it is custody of the bank concealed, held or
of a party sufficient to satisfy belonging to private recorded in the
whose the garnishment. individuals, name of persons
property is Hence, a disclosure corporations, or any other than the one
attached and of the balance may other entity; responsible
persons constitute a violation Provided, that with inasmuch as the case
indebted to a of the law. respect to bank is aimed at
defendant or deposits, the recovering the
controlling 6) Is a depositor provisions of amount converted.
his with a safety existing laws shall
property.50 deposit box prevail53. 9) Are foreign
protected by the currency deposits
4) Who are law? 7) Would the covered by the law?
primarily liable for examination of the
violations of the No, the bank deposits of While the
law? deposits made by a another person in law does not cover
depositor in a safety connection with an foreign currency
The persons deposit box are not inquiry into illegally deposits, they
primarily liable for a the deposits acquired property of however are
violation of the law contemplated by the the defendant in absolutely
would be a bank law as the bank is anti-graft cases confidential and
employee or officer never in possession violate the law? cannot be disclosed
and the person, or control of the pursuant to Republic
government officer, contents of the Act No. 6426,
The
agency or office safety deposit box in otherwise known as
permitted inquiry
looking into the this instance, the the Foreign Currency
into illegally
deposit when not depositor is merely Deposit Act, the only
acquired property in
exception to
49
RA 3936. 51
China Banking Corp. vs
52
Sia vs. Court of Appeals, disclosure being
50
Onate vs. Abrogar, 230 Court of Appeals, 193 222 SCRA 24 upon the written
SCRA 181 SCRA 454 53
Sec. 55.1(b), RA 8791.
consent of the COVERAGE content with their
depositor54. Philippine-registered
-intellectual property counterparts. There is
An no claim that they
rights consists of: were adulterated in
additional
any way or mislabeled
exemption has been at least. Their
provided by the Anti a) Copyright
classification as
Money Laundering s and
"counterfeit" is based
Law when it has related
solely on the fact that
rights;
been established they were imported
b) Trademar
that there is from abroad and not
ks and
probable cause that purchased from the
service
the deposits Philippine-registered
marks;
involved are in any owner of the patent or
c) Geographi
trademark of the
way related to the c
drugs.
offense of money indication
laundering.55 s; ISSUE: May Rodriguez,
d) Industrial the proprietor of Roma
designs; Drug, be prosecuted
10) Will an
e) Patents; under the RA 8203?
unlawful
f) Layout- HELD: No. The issue
examination of a designs
bank account has been mooted with
(Topograp the passage in 2008 of
render the hies) of Republic Act No. 9502,
information Integrated also known as the
obtained Circuits; "Universally Accessible
inadmissible? and Cheaper and Quality
g) Protection Medicines Act of
There is of 2008".
Undisclos
nothing in the law Section 7 of Rep. Act
ed
that provides that an Informati No. 9502 amends
unlawful on. (Sec. Section 72 of the
examination shall 4) Intellectual Property
render the evidence Code in that the later
obtained therefrom law unequivocally
ROMA DRUG vs. RTC grants third persons
to be inadmissible. OF GUAGUA, the right to import
PAMPANGA (G.R. No. drugs or medicines
11) What is the INTELLECTU 149907, April 16, whose patent were
penalty for a 2009)
violation of the AL FACTS: NBI operatives
registered in
Philippines by the
the

law? PROPERTY and inspectors of the owner of the product.

BFAD conducted a raid
Upon CODE on Roma Drug. The
The challenged
provisions of the SLCD
conviction, a violator R.A. No. 8293 raiding team seized apparently proscribe a
may be sentenced to several imported range of
imprisonment of not INTELLECTUAL medicines. The seized constitutionally
PROPERTIES medicines, which were
more than 5 years of permissible behavior.
Those property rights manufactured by It is laudable that with
a fine of not more
which result from the SmithKline, were the passage of Rep. Act
than P200,000.00, or imported directly from
physical manifestation No. 9502, the State has
both at the abroad and not
of an original thought. reversed course and
discretion of the (Ballantines Law purchased through the allowed for a sensible
court. Dictionary) local SmithKline, the and compassionate
authorized Philippine approach with respect
Purpose: to strengthen distributor of these to the importation of
the intellectual and products. The NBI pharmaceutical drugs
industrial property subsequently filed a urgently necessary for
system in the complaint against the peoples
Philippines as Rodriguez for violation constitutionally-
mandated by the of Section 4 (in recognized right to
countrys accession to relation to Sections 3 health.
the Agreement and 5) of Republic Act
establishing the World No. 8203, also known
Trade Organization as the Special Law on STATE POLICY IN
(Mirpuri vs. CA GR no Counterfeit Drugs
114508) (SLCD). In this case, RESPECT OF
there is no doubt that
the subject seized INTELLECTUAL
54
Sec. 8, RA 6426.
55
Sec. 11, RA 9160 drugs are identical in
PROPERTY RIGHTS FOR DAMAGES v. Admi
Shall be entitled to UNDER THE IPC nistra
(IPR) benefits to the extent -No damages tive
necessary to give effect may be recovered after Comp
to any provision of four (4) years from the laints
-There is a
such convention, time the cause of for
declaration of State
treaty, or reciprocal action arose (Sec. 226) violati
Policy that, among
law, in addition to the ons of
others, the State
rights to which any JURISDICTION OVER laws
recognizes that an
owner of an DISPUTES UNDER IPC involv
effective intellectual
intellectual property A. Original ing
and industrial
right is otherwise Jurisdiction IPR
property system is
provided by law. (Sec. 1) Director where
vital to the
3) General (IPO) the
development of
-has original total
domestic and creative
jurisdiction to dama
activity, facilitates
REVERSE resolve ges
transfer of technology,
RECIPROCITY OF disputes claim
attracts foreign
FOREIGN LAWS relating to the ed is
investments and
makes terms of a not
ensures market access
reciprocally license less
for our products,
enforceable on involving the than
hence it shall protect
nationals of a foreign authors right P200,
and secure exclusive
state within Philippine to public 000.0
rights of scientists,
jurisdiction all performance 0
inventors, artists, and
conditions, or other
other gifted citizens to
restrictions, communicatio 3) Documentati
their intellectual
limitations, n of his work. on,
property and
diminutions, Information
creations. (Sec. 2)
requirements or 2) Bureau of and
penalties that may be Legal Affairs Technology
INTERNATIONAL
imposed by such -has Transfer
foreign state on a jurisdiction Bureau
CONVENTION AND
Filipino national over the ff: -has
seeking intellectual i. Oppo jurisdiction to
RECIPROCITY
property protection in sition settle disputes
that country. (Section to involving
-any person who is 231) applic technology
a national or who ations transfer
is domiciled or has TECHNOLOGY for payments
a real and effective regist 4) Regular Courts
industrial TRANSFER ration
establishment in a of B. Appellate
country which: ARRANGEMENTS marks Jurisdiction
1) is a party ; 1) Director
to any ii. Cance General
conventio -contracts or llatio -over all
n, treaty, agreements involving n of decisions
or the transfer of trade rendered by
agreemen systematic knowledge marks the ff:
t relating for the manufacture of ; Dir. of
to a product, the iii. Cance Legal
intellectu application of a llatio Affair
al process, or rendering n of s
property of a service including paten Dir. of
rights or management ts, Paten
the contracts; and the utility ts
repressio transfer, assignment or model Dir. of
n of unfair licensing of all forms of s and Trade
competiti intellectual property indus marks
on to rights, including trial Dir. of
which the licensing of computer desig the
Philippine software except ns; Docu
s is also a computer software iv. Petiti ment
party, or developed for mass on for ation,
2) extends market. (Sec. 4) comp Infor
reciprocal ulsor matio
rights to y n and
nationals licens Techn
of the PRESCRIPTIVE ing of ology
Philippine PERIOD OF ACTIONS paten Trans
s by law, ts; fer
 c) Condemnation or complaint against involving trademarks,
2) Court of seizure of respondents for unfair including charges of
Appeals products subject competition and unfair competition, are
-over of the offense; cancellation of under the exclusive
decisions of d) Forfeiture of trademark jurisdiction of civil
the Director properties used in registration. courts.
General in the the commission of
exercise of his the offense; The CA held that the Such interpretation is
appellate e) Imposition of IPO Director for Legal not supported by the
jurisdiction administrative Affairs and the IPO provisions of the
over the fines; Director General had Intellectual Property
decisions of f) Cancellation of no jurisdiction over Code. While Section
the: permit, license, the administrative 163 thereof vests in
Dir. of authority or proceedings to rule on civil courts jurisdiction
Legal registration; issue of unfair over cases of unfair
Affair g) Withholding of competition, because competition, nothing
s permit, license, Section 163 of the in the said section
Dir. of authority or Intellectual Property states that the regular
Paten registration; Code confers courts have sole
ts h) Assessment of jurisdiction over jurisdiction over unfair
Dir. of damages; particular provisions competition cases, to
Trade i) Censure; in the law on the exclusion of
marks j) Analogous trademarks on regular administrative
penalties or courts exclusively. bodies. On the
3) Secretary of sanctions (Sec. contrary, Sections 160
Trade and 10.2 [b]) ISSUES: and 170, which are
Industry 1. W/N the CA also found under Part
-over was correct in III of the Intellectual
decisions of IN-N-OUT BURGER vs. ruling that the Property Code,
the Director SEHWANI, (G .R. No. IPO Director recognize the
General on the 179127, December for Legal concurrent jurisdiction
exercise of his 24, 2008) Affairs and the of civil courts and the
appellate IPO Director IPO over unfair
jurisdiction of FACTS: On 2 June General had competition cases.
the Director of 1997, petitioner filed no jurisdiction
Documentatio trademark and service over the On the issue of unfair
n, Information mark applications with administrative competition.
and the Bureau of proceedings to
Technology Trademarks (BOT) of rule on issue The essential elements
Transfer; AND the IPO for IN-N-OUT of unfair of an action for unfair
-over and IN-N-OUT Burger competition? competition are (1)
decisions of & Arrow confusing similarity in
the Director Design. Petitioner 2. W/N there the general
General in the later found out, was an unfair appearance of the
exercise of his through the Official competition? goods and (2) intent to
original Action Papers issued deceive the public and
jurisdiction by the Intellectual HELD: The Court of defraud a
relating to the Property Office Appeals erroneously competitor. The
terms of (IPO) on 31 May 2000, reasoned that Section confusing similarity
license that 10(a) of the may or may not result
involving the respondent Sehwani, Intellectual Property from similarity in the
authors right. Incorporated had Code, conferring upon marks, but may result
already obtained the BLA-IPO from other external
ADMINISTRATIVE Trademark jurisdiction over factors
PENALTIES IMPOSED Registration for the administrative in the packaging or
FOR VIOLATIONS OF mark IN N OUT (the complaints for presentation of the
LAWS INVOLVING IPR inside of the letter O violations of goods. The intent to
-The Director formed like a star). By intellectual property deceive and defraud
for Legal Affairs may virtue of a licensing rights, is a general may be inferred from
impose the ff: agreement, provision, over which the similarity of the
a) Issuance of a cease BenitaFrites, Inc. was the specific provision appearance of the
and desist order able to use the of Section 163 of the goods as offered for
(CDO); registered mark of same Code, found sale to the
b) Acceptance of respondent Sehwani, under Part III thereof public. Actual
voluntary Incorporated. particularly governing fraudulent intent need
assurance trademarks, service not be shown.
compliance (VAC) Petitioner eventually marks, and trade
or voluntary filed on 4 June names, must prevail. MERRIAM SCHOOL
assurance of 2001 before the Proceeding therefrom, AND OFFICE
discontinuance Bureau of Legal Affairs the Court of Appeals SUPPLIES CORP vs.
(VAD); (BLA) of the IPO an incorrectly concluded CA (G.R. No. L-48413
administrative that all actions June 30, 1980)
FACTS: National Book contention that i. the inventors
Store was awarded the National Book Store, or applicants 1.)Inventiveness/Inv
right to reprint the Inc. did not exhaust its are not the entive Step
book entitled The administrative same -an invention
Head Nurse: Her remedies. ii. The contents involves an inventive
Leadership Role. This, of the step if, having regard
notwithstanding, application to prior art, it is not
Merriam School and are published obvious to a person
LAW ON PATENTS
Office Supplies in skilled in the art of the
Corporation violated accordance time of the filing date
PATENT an exclusive
National's reprinting with the or priority date of the
right acquired over an
right by printing two requirements application claiming
invention, to sell, use,
thousand copies of the of patent the invention. (Sec. 26)
and make the same
said book, and, in application
whether for commerce
concert with Webster rules. 2.)Industrial
or industry.(2005
School and Office iii. The filing Applicability
2006 bar exams)
Supplies, Inc., have date of the -an invention that can
sold and distributed prior art is be produced and used
PATENTABLE
the reprinted copies. earlier. in any industry. (Sec.
INVENTIONS
27)
-any technical
HELD: It appears that Non-
solution of a problem
National Book Store, preju NON-PATENTABLE
in any field of human
Inc. had complained to dicial INVENTIONS
activity which is
the Reprinting Discl The following shall be
(a.)NEW(NOVELTY),
Committee about the osure excluded from patent
involves an
supposed violation of s protection:
(b).INVENTIVE STEP
the Presidential -the a) Discoveries,
and is
Decree No. 285 by the disclosure of Scientific
(c).INDUSTRIALLY
Merriam and Webster information Theories and
APPLICABLE shall be
firms. contained in the Mathematical
patentable. ( Elidad
Acting on that application during Methods;
Kho s C, March
complaint, the the twelve (12) b) Schemes, rules
19,2002)The
Reprinting Committee, months preceding and methods
patentable invention
through its staff the filing date or the of performing
may be, or may relate
attorney, informed priority date of the mental acts,
to, a product, or
National bookstore, application shall not playing games
process, or an
Inc. in a letter dated prejudice the or doing
improvement of any of
October 19, 1976 that applicant on the business, and
the foregoing. (Sec. 21)
its complaint about the ground of lack of programs for
printing distribution of novelty if such computer;
the book in question disclosure was made c) Methods for
Requirements:
by the Merriam and by: treatment of
Webster firms, which (a) The inventor the human or
1.Technical solution
were not authorized (includes any person animal body
of a problem in any
by the committee, is who, at the filing by surgery or
field of human
not the conflict or date of application, therapy and
activity
claim contemplated in had the right to the diagnostic
section 4 and is patent); methods
2.Novelty that which
thereof, outside the (b) A patent office practiced on
does not form part of a
Committee's and the information the human or
prior art. (Section 23)
jurisdiction. was contained (a) in animal body;
The Reprinting another application d) Plant varieties
Prior Arts:
Committee opined that filed by the inventor or animal
a. that which has
the Merriam firm, not and should not have breeds of
been made
being awardees, did been disclosed by essentially
available to the
not have any claim or the office, or (b) in biological
public anywhere
right which was in an application filed process for
in the world
conflict with the right without the the
before the filing
of National Book Store, knowledge or production of
date or the
Inc. and which should consent of the plants or
priority date of
be adjudicated by the inventor by a third animals;
the application
Committee under party which e) Aesthetic
b. that which
section 4. obtained the creations;
forms part of an
Without prejudging information directly f) Anything which
application
Civil Case No. 109414 or indirectly from is contrary to
whether for
for injunction and the inventor; or public order
patent, utility or
damages, we hold that (c) A third party or morality
industrial
the Court of First which obtained the (Sec. 22)
design, effective
Instance has information directly
in the
jurisdiction over the or indirectly from RIGHT TO A PATENT
Philippines,
case and that there is the inventor. The right to a patent
provided that:
no merit in petitioners, (Section 25) belongs:
a) to the emplo th ss
inventor, his ymen e a
heirs, or t, the e gr
assigns paten m e
b) when 2 t shall pl e
or more belon o d
persons have g to: y ot
made the th e h
invention e r; e
separately e O r
and m R w
independentl pl T is
y to them o h e.
jointly y e Right to Priority
c) if two (2) e e -an application for
or more e m patent filed by any
persons have pl person who has
made the if o previously applied for
invention in y the same invention in
separately v e another country which
and e r by treaty, convention,
independentl nt or law affords similar
y of each io if privileges to Filipino
other to the n th citizens, shall be
person who n e considered as filed as
filed an ot in of the date of filing the
application p v foreign application
for such a e Requisites:
invention rt nt (a) The local
(FIRST TO of io application
FILE RULE) hi n expressly
d) where 2 s is claims priority;
or more re th (b) It is filed
applications g e within twelve
are filed for ul re (12) months
the same a s from the date
invention r ul the earliest
to the d t foreign
applicant ut of application was
who has the ie th filed; and,
earliest filing s e (c) A certified
date or the e p copy of the
earliest v e foreign
priority date e rf application
(FIRST TO n o together with
FILE RULE) if r an English
(Sec. 29) h m translation is
e)In case of e a filed within six
inventions u n (6) months
created s c from the date
pursuant to a e e of filing in the
commission s of Philippines.
to the th hi (Sec. 15, R.A.
person who e s No. 165a)
commissions ti re
the work m g RIGHTS ACQUIRED
UNLESS e, ul BY THE PATENTEE
agreed fa ar The patentee
otherwise. ci ly acquires the following
f) in lit a rights under his
case ie ss patent:
an s ig a. Where the
emplo a n subject matter
yee n e of a patent is a
made d d product, to
the m d restrain,
invent at ut prohibit and
ion in e ie prevent any
the ri s unauthorized
cours al u person or
e of s nl entity from
his of e making, using,
 offering for 3) Drawi n (Sec. to the
sale, selling or ngs 42); Director
importing that necessar c) Classificati of the
product; y for the on of Bureau of
b. Where the understa applicatio Patents;
subject matter nding of n and h) Publication
of a patent is a the search for of the
process, to inventio prior art grant of
restrain, n; (Sec. 43) patent in
prevent or 4) One d) Publication the IPO
prohibit any or more of patent Gazette
unauthorized claims applicatio (Sec. 52)
person or 5) An n in the
entity from abstract IPO TERM OF A PATENT,
using the (Sec. 32) Gazette UTILITY MODEL,
process, and must contain (Sec. 44); INDUSTRIAL DESIGN
from relevant e) Inspection a) Patent 20 yrs
manufacturing information as of the from the filing
, dealing in, to the identity applicatio date of
using or of the person n application,
offering for (no document without renewal
sale, or anonymous s by any b) Utility model 7
importing any person) interested yrs,
product if the party and w/out
obtained applicant is written renew
directly or not the observati al
indirectly inventor; he ons by c) Industrial design
from such must show any third 5 yrs,
process; proof of party renew
c. to assign, or authority to concernin able
transfer by seek g the twice
succession the application for patentabil Utility Models
patent, and to registration ity of the -models of
conclude invention implement or tools of
licensing UNITY OF (Sec. 44.2 any industrial product
contracts for INVENTION and 47); even if not possessed
the same (Sec. -every f) Written of the quality of
71) application for patent request by invention but which is
registration must the of practical utility
CONTENTS OF contain an application applicant,
PATENT over a single invention within 6 Industrial Design
APPLICATION or several inventions months -any
A patent application but must form part of a from the composition of lines or
shall contain: single general date of colors or any three-
1) a inventive concept publicatio dimensional form,
request n of his whether or not
for the PROCEDURE FOR patent associated with lines
grant of THE GRANT OF applicatio or colors provided that
patent; PATENT n, for the such composition or
2) a a) According substantiv form gives a special
descripti a filing e appearance to and can
on of the date to examinati serve as pattern for an
inventio the on by the industrial product or
n; applicatio IPO of his handicraft.
-the n (Sec. applicatio
disclosur 41); n. (Sec CANCELLATION OF
e of the b) Examinatio 48); PATENTS
inventio n of g) Grant of 1. Who may
n must complianc the patent file?
be in a e by (Sec. 50), a
manner applicant or refusal n
sufficient with the of the y
ly clear formal examiner p
and requireme to grant e
complete nts the patent rs
for it to specified (Sec. 51); o
be in Sec. 32, in the n
carried i.e., latter IP
out by a contents case, the O
skilled in of refusal m
the art. applicatio may be o
appealed t
 u e s u
p nt ki al
r d ll fe
o o e e
p e d s
ri s in o
o n th r
2. Grounds ot e d
a) T di a u
h sc rt e
at lo ; s
th s o 3. Where to
e e r file?
p th d) T B
at e h L
e in at A
nt v th
is e e if
in nt p in
v io at vi
al n e ol
id in nt at
(S a is io
e m c n
c. a o of
8 n nt IP
1 n ra C
); e r (a
b) T r y d
h s to m
at uf p in
w fi u is
h ci bl tr
at e ic at
is nt o iv
cl ly r e)
ai cl d R
m e e T
e a r C
d r o
a a r ot
s n m h
th d o e
e c ra r
in o lit w
v m y. is
e pl (S e
nt et e
io e c. INFRINGEMENT
n fo 6 -the making,
is r 1 using, offering for sale,
n it ) selling or importing a
ot to e) fa patented product or a
n b il product obtained
e e u directly or indirectly
w c re from a patented
o a to process or the use of a
r rr m patented process
p ie a without the
at d k authorization of the
e o e patentee. (Sec. 76)
nt ut p Test of Patent
a b a Infringement
bl y y 1) Literal
e; a m Infringement
c) T n e resort is had
h y nt to the words
at p s of the claim.
th e of 2) Doctrine of
e rs a Equivalents
p o n if two devices
at n n do the same
 work in and severally sanctioned by cannot be said that it is
substantially liable with the Memorandum Circular engaged in
the same way, infringer. No. 04-08-88; that the rebroadcasting
the same must-carry rule under Channels 2 and 23.
result, and B) File criminal the Memorandum
produce case Circular is a valid Thus, while the Rome
substantially -within 3 years exercise of police Convention gives
the same from date of power. broadcasting
result, they are commission of organizations the right
the same even the crime for ISSUES: to authorize or
though they repetition of 1. W/N PMSI prohibit the
differ in name, infringement, rebroadcasts rebroadcasting of its
form, or shape. without Channels 2 broadcast, however,
prejudice to the and 23 of ABS- this protection does
REMEDIES IN CASE right for CBN thus, not extend to cable
OF INFRINGEMENT damages(Sec. infringing the retransmission. The
A) File 84) broadcasting retransmission of ABS-
civil case for rights and CBNs signals by PMSI
the following 1995 &2004 BAR copyrights of which functions
purposes: X Corporation the latter. essentially as a cable
1. To recover commissioned W to television does not
from the paint the Mayon 2. W/N the therefore constitute
infringer such Volcano on the lobby must-carry rebroadcasting in
damages as of the new building of rule violates violation of the
the court may X Corp. for a price of the rights of formers intellectual
award P1M. Who owns the ABS-CBN property rights under
considering painting? Who owns under the IPL. the IP Code.
the the copyright of the
circumstances painting? HELD: The Director- 2.The must-carry
of the case X Corporation owns General of the IPO rule under the
provided it the painting but the correctly found that Memorandum Circular
shall not copyright belongs to W PMSI is not engaged in 04-08-88 requires all
exceed 3 times unless there is a rebroadcasting and cable television system
the amount of written stipulation to thus cannot be operators operating in
the actual the contrary. considered to have a community within
damages (Sec.178.4) infringed ABS-CBNs Grade A or B
sustained plus broadcasting rights contours to carry the
attorneys fees ABS-CBN vs. and copyright. television signals of
and other PHILIPPINE MULTI- the authorized
expenses of MEDIA SYSTEM, INC. ABS-CBN creates and television broadcast
litigation; ( G.R. Nos. 175769- transmits its own stations (Ex:
2. To secure an 70, January 19, 2009) signals; PMSI merely broadcasting
injunction for carries such signals organizations with
the protection of FACTS: PMSI is the which the viewers free-to-air signals such
his rights; operator of Dream receive in its unaltered as GMA-7, RPN-9, ABC-
3. To receive a Broadcasting System. form. PMSI does not 5, and IBC-13)
reasonable ABS-CBN contends produce, select, or
royalty, if the that PMSIs determine the The carriage of ABS-
damages are unauthorized programs to be shown CBNs signals by virtue
inadequate or rebroadcasting of in Channels 2 and of the must-carry rule
cannot be Channels 2 and 23 is 23. Likewise, it does in Memorandum
readily an infringement of its not pass itself off as Circular No. 04-08-88
ascertained with broadcasting rights the origin or author of is under the direction
reasonable and copyright under such and control of the
certainty; the Intellectual programs. Insofar as government though
4. To have the Property Code (IP Channels 2 and 23 are the NTC which is
infringing goods, Code); that the Court concerned, PMSI vested with exclusive
materials and of Appeals merely retransmits the jurisdiction to
implements interpretation of the same in accordance supervise, regulate and
predominantly must-carry rule with Memorandum control
used in the violates Section 9 of Circular 04-08- telecommunications
infringement Article IIIof the 88. With regard to its and broadcast
disposed of Constitution because it premium channels, it services/facilities in
outside the allows the taking of buys the channels from the Philippines. The
channels of property for public use content providers and imposition of the
commerce, or without payment of transmits on an as-is must-carry rule is
destroyed just compensation. basis to its within the NTCs
without viewers. Clearly, PMSI power to promulgate
compensation; Respondents, on the does not perform the rules and regulations,
5. To hold the other hand, argue that functions of a as public safety and
contributory PMSIs rebroadcasting broadcasting interest may require,
infringer jointly of Channels 2 and 23 is organization; thus, it to encourage a larger
and more effective use goods and services of the same any of its political
of communications, different enterprises manner as subdivisions, or of
radio and television which use the sign other any foreign nation,
broadcasting facilities, under the control of property or any simulation
and to maintain the registered owner rights (Sec. thereof;
effective competition of the collective mark 168.1) c) Consi
among private entities (Sec. 121.2) sts of a name,
in these activities RIGHTS CONFERRED portrait or
whenever the Trade Name the -the owner of signature
Commission finds it person (whether a registered mark shall identifying a
reasonably feasible. As natural or juridical) have the exclusive particular living
correctly observed by who does business and right to prevent all individual except
the Director-General of produces the goods or third parties not by his written
the IPO: the services is having the owners consent, or the
designated by a trade consent from using in name, signature,
Accordingly, the name. the course of trade or portrait of a
Must-Carry Rule -Under the law, there is identical or similar deceased
under NTC Circular No. no need to register signs or containers for President of the
4-08-88 falls under the trade names in order goods or services Philippines, during
foregoing category of to secure protection which are identical or the life of his
limitations on for them. similar to those in widow, if any,
copyright. respect of which the except by written
Trade Dress involves trademark is consent of the
LAW ON the total image of a registered where such window;
TRADEMARKS product, including use would result in a d) Is
such features as size, likelihood of identical with a
DEFINITIONS shape, color or color confusion. (Sec. 147) registered mark
Trademark anything combinations, texture, belonging to a
which is adopted and and/or graphics. DURATION different
used to identify the -the certificate proprietor or a
source of origin of HOW MARKS ARE of registration of a mark with an
goods, and which is ACQUIRED trademark shall be ten earlier filing or
capable of -Under RA (10) years from the priority date, in
distinguishing them 8293, the rights in a filing date of respect of:
from goods emanating mark shall be acquired application provided (i)
from a competitor through registration the registrant shall file T
made validly in a declaration of actual he
In Society Des accordance with its use within a year from sa
Products Nestle vs. provisions. (Sec. 122) the 5th anniversary of m
CA April 4, 2001, -This registration date (Sec. e
trademark is defined proposition of law, 145) go
as any word, name however, may not be -renewable for od
symbol or devise converted for it is not another 10 yrs. (Sec. s
adopted and used by a true that where there 146) or
manufacturer or is no registration, se
merchant to identify there is no protection. NON-REGISTRABLE rv
his goods and Acquisition through TRADEMARKS, ic
distinguish them from use TRADE NAMES AND es,
those manufactured Whether or SERVICE MARK or
and sold by other. not a A mark (ii)
registered cannot be registered Cl
Service Mark trademark is if it: os
distinguishes the employed, a) Consi el
services of an when a person sts of immoral, y
enterprise from the has identified deceptive or re
service of other in the mind of scandalous matter, lat
enterprises. It the public the or matter which ed
performs for services goods he may disparage or go
what a trademark does manufactures falsely suggest a od
for goods. or deals in his connection with s
business or persons, living or or
Collective Mark any services from dead, institutions, se
visible sign designated those of beliefs, or national rv
as such in the others, such a symbols, or bring ic
application for person has a them into es,
registration and property right contempt or or
capable of in the disrepute; (iii)
distinguishing the goodwill of b) Consi If
origin or any other said goods or sts of the flag or it
common services which coat of arms or ne
characteristic, will be other insignia of ar
including the quality of protected in the Philippines or ly
 re promotion of the indications that d)A
se mark; may serve in trade reproduct
m f) Is to designate the ion of the
bl identical with, or kind, quality, mark
es confusingly quantity, intended where
su similar to, or purpose, value, registratio
ch constitutes a geographical n is
a translation of a origin, time or sought;
m mark considered production of the and
ar well-known in goods or e) The list of
k accordance with rendering of the the goods
as the preceding services, or other or
to paragraph, which characteristics of services
be is registered in the the goods or for which
lik Philippines with services; the
el respect to goods k) Consi registratio
y or services which sts of shapes that n is
to are not similar to may be sought.
de those with respect necessitated by (Sec.
ce to which technical factors 127.1)
iv registration is or by the nature of
e applied for: the goods NO filing date
or provided, that use themselves or shall be
ca of the mark in factors that affect accorded until
us relation to those their intrinsic the required
e goods or services value; fee is paid
co would indicate a l) Consi (Sec. 127.2)
nf connection sts of color alone,
us between those unless defined by PROCEDURE FOR
io goods or services, a given form; or REGISTRATION
n; and the owner of m) Is a) Examinati
e) Is the registered contrary to public on to
identical with, or trademark: order or morality determine
confusingly Provided further (Sec. 123) whether
similar to, or that the interests the
constitutes a of the owner of the FILING DATE OF AN applicatio
translation of a registered mark APPLICATION n satisfies
mark which is are likely to be -The filing the
considered by the damaged by such date of an application requireme
competent use; shall be the date on nts for the
authority of the g) Is which the office grant of a
Philippines to be likely to mislead received the following filing date.
well-known the public, indications and b) Examinati
internationally particularly as to elements in English or on to
and in the the nature, quality, Filipino: determine
Philippines, characteristics or a) An express whether
whether or not it geographical or implicit the
is registered here, origin of the goods indication applicatio
as being already or services; that the n meets
the mark of a h) Consi registratio the
person other than sts exclusively of n of a requireme
the applicant for signs that are mark is nts of Sec.
registration, and generic for the sought; 124 and
used for identical goods or services b)Indications the mark
or similar goods or that they seek to sufficient is
services: provided, identify; to contact registrabl
that in i) Consi the e under
determining sts exclusively of applicant Sec. 123.
whether a mark is signs or of or his c) Denial of
well-known, indications that represent the
account shall be have become ative, if applicatio
taken of the customary or any; n or
knowledge of the usual to designate c) Indication amendme
relevant sector of the goods or s nt thereof
the public, rather services in sufficient or
than of the public everyday language to contact publicatio
at large, including or in a bonafide the n of the
knowledge in the and established applicant applicatio
Philippines which trade practice; or his n;
has been obtained j) Consi represent d) Oppositio
as a result of the sts exclusively of ative, if n to the
signs or any; applicatio
 n; notice; the of itself, services
hearing; mark; perfect a including
decision c) Regist trademar other
by ration k, for preparato
examiner; obtai what it ry steps
appeal to ned does is necessary
the fraud actual use to carry
Director ulentl Non-use is out the
of Bureau y or a ground sale of
of contr for any goods
Trademar ary to removing or
ks; appeal provis a mark services
to the IPO ions from the on or in
Director of RA register connectio
General; 8293; n with
appeal to d) Mark DOCTRINE OF which
the CA; used SECONDARY such use
e) Issuance by, or MEANING is likely to
of with -While a cause
Certificate permi generic, indicative or confusion,
of ssion descriptive mark will, or to
registratio of, as a general rule, be cause
n regist denied registration, mistake,
f) Publicatio rant; there is a circumstance or to
n in the e) Failur that will allow it to be deceive;
IPO e to registered. Under the or
Gazette of use doctrine of secondary 2) Reproduc
the fact of the meaning, when a mark e,
registratio mark has become distinctive counterfei
n withi of the applicants t, copy or
n the goods in commerce colorably
CANCELLATION OF Philip and, in the mind of the imitate a
TRADEMARK OR pines public, indicates a registered
TRADENAME for 3 single source of mark or a
1. Who may unint consumers, it may be dominant
file? errup registered. feature
- any ted thereof
perso years WHAT CONSTITUTES and apply
n who or AN INFRINGEMENT such
believ longer -Under RA reproduct
es . 8293, any person shall, ion,
that without the consent of counterfei
he is EFFECTS OF NON-USE the owner of the t, copy, or
and May be registered mark: colorable
will excused if 1) Use in imitation
be caused by commerc to labels,
dama circumsta e any signs,
ged nces reproduct prints,
by the arising ion, packages,
regist independ counterfei wrappers,
ration ently of t, copy, or receptacle
of a the will of colorable s, or
mark the imitation advertise
2. Where to trademar of a ments
file? k owner, registered intended
- BLA such as mark or to be used
3. Grounds: military the same in
a) Mark coup, or container commerc
beco political or a e upon or
mes changes dominant in
gener that feature connectio
ic for impede thereof in n with the
goods commerce connectio sale,
for Registrati n with the offering
which on is an sale, for sale,
it is administr offering distributi
regist ative act for sale, on, or
ered; declarator distributi advertisin
b) Aban y of a pre- on, g of goods
donm existing advertisin or
ent of right that g any services
does not, goods or on, or in
 connectio another disposed anoth
n with merchant. of outside er;
which 2) Fraudule the c) False
such use nt intent channels state
is likely to is not of ments
cause necessary commerce in the
confusion, in (Sec. cours
or to infringem 157.1) e of
cause ent, but f) Have the trade;
mistake, necessary infringing or
or to in UC. goods d) Any
deceive, 3) Registrat destroyed act
shall be ion of (Sec. contr
liable for trademar 157.1) ary to
infringem ks: in g) File good
ent. (Sec. infringem criminal faith
155) ent, it is a action calcul
pre- (Sec. ated
TEST OF requisite; 170); to
TRADEMARK in UC, it is h) Administr discre
INFRINGEMENT not ative dit
1) Dominan required. Sanctions anoth
cy Test 4) Class of ers
consists in goods UNFAIR goods
seeking involved: COMPETITION
out the in -any person TEST OF UNFAIR
main, infringem who shall employ COMPETITION
essential ent, the deception or any other -The test is
or goods means contrary to whether certain goods
dominant must be of good faith by which he have been clothed with
features similar shall pass off the goods an appearance likely to
of a mark. class; in manufactured by him deceive the ordinary
2) Holistic UC, the or in which he deals, or purchaser exercising
Test goods his business, or ordinary care.
takes need not services for those of
stock of be of the the one having
the other same established such REMEDIES IN CASE
features class. goodwill, or who shall OF UNFAIR
of a mark, commit any acts COMPETITION
taking infringem calculated to produce a) Damag
into ent is a said result, shall be es which may
considera form of guilty of unfair either be:
tion the unfair competition. reason
entirety of competiti able profit
the marks. on How which would
Committed have been
DIFFERENTIATED REMEDIES a) Makin realized, or
FROM UNFAIR AVAILABLE IN CASE g actual
COMPETITION OF INFRINGEMENT ones profits
1) Cause of OF A REGISTERED goods collected by
action: in MARK appea the
infringem a) Sue for r as defendant, or
ent, the damages the a
cause of (Sec. goods certain
action is 156.1); of percentage
the b) Have the anoth over the
unauthori infringing er; gross sales of
zed use of goods b) Use of defendant in
a impounde artific case of the
registered d (Sec. e or measure of
trademar 156.2); devic damages
k; in c) Ask for e to cannot be
unfair double induc readily
competiti damages e the ascertained;
on, it is (Sec. false b) Damag
the 156.3) belief es may be
passing d) Ask for that doubled in
off of injunction ones cases where
ones (156.4) goods actual intent
goods as e) Have the are to mislead
those of infringing those the public or
goods of to defraud
 the local industries and (Sec. descriptio
complaint is enterprises will all be 172.2) n (Pearl &
shown; wiped out and that Protection Dean Vs
c) Impou Filipinos will be extends shoemart
nding of sales deprived of control of only to GR
invoices and the economy. Quite the 148222
other the contrary, the expressio August
documents weaker situations of n of the 15,2003).
evidencing developing nations like idea, not
sales; the Philippines have to the idea CREATION OF A
d) Injunct been taken into itself or to WORK
ion account; thus, there any A copyright work is
e) Destru would be no basis to procedure created when the two
ction of say that in joining the , system, (2) requirements are
goods found WTO, the respondents method or met:
to be have gravely abused operation, 1) Originality
infringing, their discretion. True, concept does not
and all they have made a bold or mean novelty
paraphernali decision to steer the principle, or ingenuity,
a. ship of state into the discovery neither
yet uncharted sea of or mere uniqueness
TAADA vs. economic data. nor creativity.
ANGARA (G.R. No. liberalization. But The It simply
118295, May 2, such decision cannot copyright means that
1997) be set aside on the is distinct the work
ground of grave abuse from owes its
The Constitution did of discretion, simply property origin to the
not intend to pursue because we disagree in the author
an isolationist with it or simply material 2) Expression
policy. It did not shut because we believe object there must be
out foreign only in other economic subject to fixation. To
investments, goods policies. As earlier it. be fixed, a
and services in the stated, the Court in Copyright, work must be
development of the taking jurisdiction of in the embodied in a
Philippine this case will not pass strict medium
economy. While the upon the advantages sense, is sufficiently:
Constitution does not and disadvantages of purely permanen
encourage the trade liberalization as statutory t; or
unlimited entry of an economic policy. It right. stable
foreign goods, services will only perform its Being To permit it to be
and investments into constitutional duty of mere perceived, reproduced,
the country, it does not determining whether statutory or otherwise
prohibit them the Senate committed right are communicated for a
either. In fact, it allows grave abuse of limited to period of more than
an exchange on the discretion. what the transitory duration.
basis of equality and statute -if it is not
reciprocity, frowning confers. It required that the
only on foreign may be medium be visible as
competition that obtained long as there is a
COPYRIGHT system
is unfair. and possibility of retrieval,
of legal protection an
enjoyed then there is fixation
author enjoys in the
only with -it is fixation
form of expression of
respect to that defines the time
Moreover, GATT itself ideas(2004,2006,200
the from when copyright
has provided built-in 7,2009 bar exams)
subjects subsists. Before
protection from unfair
and by the fixation, there can be
foreign competition BASIC PRINCIPLES
persons , no infringement.
and trade practices Works are
and on
including anti- protected
terms and WORKS PROTECTED
dumping measures, by the
conditions BY COPYRIGHT
countervailing sole fact
specified
measures and of their
in the A. Original Work -
safeguards against creation,
statute. Literary and
import surges. Where irrespecti
According artistic works are
local businesses are ve of their
ly, it can original
jeopardized by unfair mode or
cover only intellectual
foreign competition, form of
works creations in the
the Philippines can expressio
falling literary and
avail of these n, as well
within the artistic domain
measures. There is as their
statutory protected from the
hardly therefore any content,
enumerati moment of their
basis for the statement quality or
on or creation,
that under the WTO, purpose
irrespective of for scholarly, illustrated
their mode or articles of scientific , or
form of manufact and embodied
expression, as well ure, artistic in a work;
as of their content, whether works 2) News of
quality and or not (Sec. 172) the day
purpose, and shall registrabl and other
include in e as an B. Derivative Works facts
particular: industrial the following having the
a) Books, design, derivative works character
pamphlet and other shall also be of mere
s, articles works of protected: items of
and other applied a) Dramatiza press
writings art. tions, informati
b) Periodical i) Illustratio translatio on;
s and ns, maps, ns, 3) Any
newspape plans, adaptatio official
rs sketches, ns, text of a
c) Lectures, charts and abridgme legislative,
sermons, three- nts, administr
addresses, dimensio arrangem ative or
dissertati nal works ents, and legal
ons relative to other nature, as
prepared geography alteration well as
for oral , s of any
delivery, topograph literary official
whether y, works translatio
or not architectu b) Collection n thereof.
reduced re or s of (Sec. 175)
in writing science literary, 4) Any work
or other j) Drawings scholarly of the
material or plastic or artistic Governme
form works of a works, nt of the
d) Letters scientific and Philippine
e) Dramatic or compilati s. (Sec.
or technical ons of 176)
dramatico character data and -
-musical k) Photograp other however,
compositi hic works materials prior
ons; including which are approval
choreogra works original of the
phic produced by reason governme
works or by a of the nt agency
entertain process selection or office
ment in analogous or wherein
dumb to coordinati the work
shows photograp on or is created
f) Musical hy; arrangem shall be
compositi lantern ent of necessary
ons, with slides their for
or l) Audiovisu contents. exploitati
without al works (Sec. 173) on of such
words and work for
g) Works of cinematog WORKS NOT profit.
drawing, raphic or PROTECTED Such
painting, any The following works agency or
architectu process are not protected: office,
re, for 1) Any idea, may,
sculpture, making procedure among
engraving, audio- , system, other
lithograph visual method or things,
y or other recording operation, impose as
works of s concept, a
art; m) Pictorial principle, condition
models or illustratio discovery the
designs ns and or mere payment
for works advertise data as of
of art ments such, even royalties
h) Original n) Computer if 5) Pleadings;
ornament programs expressed 6) Decisions
al designs o) Other , of courts
or models literary, explained,
 and in graphic 3) Right coll
tribunals. form, to ecti
-this irrespective of prese ve
pertains the ownership rvatio wor
to the of the original n of k
original or the copy integr unl
decisions which is the ity ess
not to the subject of the T exp
SCRA rental; (n) o object to ress
published 5. Public display any ly
in of the original distortion, res
volumes or copy of the mutilation erv
since work; or other ed
these are 6. Public modificati (Se
protected performance on of, or c.
under of the work; other 196
derivative and derogator )
works. 7. Other y action in PRINCIPLE OF
communicatio relation AUTOMATIC
RIGHTS OF AN n to the public to, his PROTECTION
AUTHOR of the work work Under the
(Author a natural which Berne Convention, the
person who has would be enjoyment and
created the work.) B. Moral prejudicia exercise of copyright,
A. Economic Rights l to his including moral rights,
Rights (Sec. honor or shall not be the subject
(Sec. 193) reputatio of any formality.
177) 1) Right n; and
-exclusive of 4) Right OWNERSHIP OF
right to carry attrib not to COPYRIGHT
out, authorize ution be 1. Single
or prevent the or identi creator
following acts pater fied copyright
1. Reproduction nity with belongs to the
of the work or right work author of the
substantial To of work, his heirs
portion of the requir other or assigns.
work e that s or 2. Joint creation
2. Dramatization the with copyright
, translation, autho distor belongs to the
adaptation, rship ted co-authors
abridgement, of the work. jointly as co-
arrangement works owners. But if
or other be Term the work
transformatio attrib of moral consists of
n of the work; uted right identifiable
3. The first to parts, the
public him, - author of each
distribution of in a lifetime of the part owns the
the original promi author and 50 part that he
and each copy nent years after his has created.
of the work by way death 3. Employees
sale or other on the creation
forms of copie copyright
transfer of s, and Waiver of belongs to the
ownership; with moral right employee if
4. Rental of the the 1) by a the creation is
original or a public wri not part of his
copy of an use of tten regular duties
audiovisual or the inst even if he uses
cinematograp work; rum the time,
hic work, a ent facilities and
work 2) Right (Se materials of
embodied in a of c. the employer;
sound altera 195 otherwise it
recording, a tion ) belongs to the
computer or 2) by employer
program, a non- con 4. Commissione
compilation of public trib d work the
data and other ation utio work belongs
materials or a n to to the person
musical work a commissionin
 g but the expressly Literary under the new
copyright reserves it. artistic law, BUT a
remains with (Sec. 196) works and column or
the creator Collective derivative published
unless there is Work a works of a comment will.
a written work created SINGLE The work of
stipulation to by two or CREATOR - performers
the contrary. more persons lifetime of the not
5. Cinematogra at the creator and incorporated
phic works initiative and for 50 years in
the producer under the after his death RECORDING,
has copyright direction of Joint creation PRODUCTS
for purposes another with lifetime of OF SOUND
of exhibition; the last surviving IMAGE
for all other understanding co-creator and RECORDINGS,
purposes, the that it will be for 50 years and
producer, the disclosed by after his BROADCASTS
author of the the latter death. protected for
scenario, the under his own Anonymous periods of 50
composer, the name and that or a work years, 50
film director, the under a years, and 20
the author of contributions pseudonym years,
the work are of natural not respectively,
the creators. persons will identifiable counted from
6. Anonymous not be with the true the end of the
and identified. name of the year of
pseudonymo (Sec. 171.2) creator 50 performance,
us works 8. In case of years after the recording, or
the publishers transfers, the date of their broadcasts,
shall be transferee first respectively.
deemed the shall own one publication.
representative or more or all Except where, The term of
of the author the economic before the protection
unless: rights expiration of shall be
a. the transferred said period, counted from
contr provided: the author's the first day of
ary a. the identity is January of the
appea assign revealed or is year following
rs ment, no longer in the death of
b. the if doubt, the rule the author or
pseud inter for single and of last
onym vivos, joint creation publication
s or be in shall apply (Sec. 214)
adopt writin Photographic
ed g works 50
name (Sec. years from the LIMITATIONS TO THE
leaves 180.2 publication of RIGHTS ON
no ) the work, or COPYRIGHT
doubt b. The from making 1) Private
as to assign the same term performance,
the ment is given to private and
autho be audiovisual personal use
rs filed works applicable only
identi with produced by when a work has
ty or the photography been lawfully made
c. If the Natio or analogous accessible to the
autho nal processes. public.
r Librar Work of Personal Use
disclo y Applied Art -making a
ses upon 25 years from single
his paym the date of reproduction,
identi ent of making adaptation,
ty the Newspaper arrangement or
(Sec. presc Article other
179). ribed lifetime of the transformation of
7. Collective fee. author and 50 anothers work
works the (Sec. years after his exclusively for ones
contributor is 182) death own individual use
deemed to A pure news in such cases as
have waived DURATION OF report will no personal research,
his right COPYRIGHT longer find learning or
unless he protection amusement
 Private Use Using for copyright owner, society imported
-making a instructional make a single copy not more than 3
reproduction, purposes of the work by copies per title
adaptation or other including reprographic provided they are
transformation of producing reproduction. not for sale.
it, in a single person multiple b) Copies form
as in the case of copies of 6)Reproduction part of libraries
personal use but classroom use, of Computer and personal
also for a common for Programs baggage belonging
purpose by a scholarship, -allowed on the ff. to persons or
specific circle of research and conditions: families arriving
persons only. similar a) only from foreign
purposes (Sec. one copy is made; countries and are
2) Fair Use of a 185) b) lawf not intended for
Copyrighted Work ul owner made the sale: Provided,
Fair Use - a 3) Working of copy; that such copies
privilege in persons Architecture c) purp do not exceed
other than the (Sec. 186) ose of which the three (3). (Sec.
owner of the - reproduction is 190)
copyright to use the include the made is legal like:
copyrighted right to use to which REMEDIES IN CASE
material in a control the the program is OF INFRINGEMENT
reasonable manner erection of made and for 1) Injunction to
without its consent, any building which it was prevent
notwithstanding which purchased infringement
the monopoly reproduces demand the 2) Damages
granted to the the whole or a reproduction of a assessed on
owner by the substantial copy; or the basis of
copyright. part of the the the proof
-the doctrine work either in reproduction of a alleged by the
of fair use is meant its original or copy is necessary plaintiff of
to balance the in any form to guarantee sales made by
monopolies recognizably against loss or the defendant
enjoyed by the derived from destruction (Sec. of the
copyright owner the original; 189.1) infringing
with interests of the Provided, that work minus
public and of the copyright whatever
society. in any such 5) Importation costs the
work shall not for Personal defendant
CRITERIA TO include the Purposes may be able to
DETERMINE right to prove and
WHETHER USE IS control the -the appreciated
FAIR OR NOT reconstruction importation of a by the court.
a) Purpose , or copy of a work by 3) Delivery
and the rehabilitation an individual for under oath of
character of in the same his personal all
the use style as the purposes shall be implements
b) Natur original of a permitted without employed in
e of the building to the authorization the
copyrighted which that of the author of, or production of
work copyright other owner of the infringing
c) Amou relates copyright in, the products
nt and work under the themselves
substantially of 4) Reproductio following and the
the portions n of circumstances: infringing
used Published a)Copies of the items, for
d) Effect Work work are not impounding
of the use upon -exclusively available in the or destruction
the potential for research Philippines and: as the court
market of the and private i. not more than may order.
copyrighted study. one copy at one 4) Payment of
work (Sec. 185) time is imported moral and
5)Reprographic for strict exemplary
Reproduction by individual use; damages
Libraries ii. importation is under the
THE FAIR-USES OF -any library or by authority and discretion of
PROTECTED archive whose for the use of court.
MATERIAL ARE activities are not Philippine 5) Criminal
Criticizing, for profit may, Government; or Action
commenting, without the iii. Religi
and news authorization of ous, charitable, or DESTILERIA AYALA,
reporting; the author of educational INC. vs. TAN TAY &
CO. (G.R. No. L-48793 a. The person Justices, Judges
August 6, 1943) compiling and and court
selling the attorneys of the
FACTS: By reason of decisions shall Judiciary and
shortage of bottles of provide the shall not be re-
its own, defendant Tan Supreme Court sold by the Court;
Tay & Co. in selling Library twenty e. The
wine similar to that of (20) free copies compilation shall
the plaintiff, had, prior of the compiled bear the notice
to this action, been decisions in the Compiled for
using bottles format the sale to the public
registered in the name compilation is with the
of the plaintiff but with sold to the permission of the
the word "Ayala" public; Supreme Court;
generally erased or b. If the f. These
obliterated therefrom, compilation is in conditions apply
leaving only the word printed copies, to any updating of
"Destileria" legible on the Supreme the compilation
said bottles. Court Library
Plaintiff prays that the shall have the
respondent be right to digitize
inhibited from using the
glass receptacles duly compilation for
registered by former. exclusive use for
HELD: To make the research
use of such containers purposes by
illegal, it is not Justices, Judges
essential that they be and court
used by other persons attorneys of the
with the distinctive Judiciary;
name, mark or design c. If the
engraved thereon. If compilation is in
the containers digitized format,
originally conformed the Supreme
to the description Court Library
contained in the shall have the
certificate of right to make
registration and it available the
appears that they are digitized
the same containers compilation for
being used by the exclusive use for
other persons, the use research
is illegal regardless of purposes by
whether or not their Justices, Judges
distinctive name, mark and court
or design is partly or attorneys of the
entirely erased Judiciary. The
therefrom. If the person compiling
illegality of the use shall submit to
may be removed by the Supreme
erasing or obliterating Court Library a
from the containers text-file digitized
their distinctive name, copy of the
mark or design, the compilation;
protection of the law d. The Court
would become useless. shall have the
In other words, it is the right to purchase
use of the containers copies of the
themselves - not compilation at
merely the use of the cost, that is, by
trade-mark engraved paying only the
thereon - that is cost of
prohibited by law. reproducing the
compilation, the
cost of
A.M. No. 04-7-06-SC installation, and
RE: CONDITIONS ON the cost of any
THE COMMERCIAL accompanying
EXPLOITATIONOF software license.
SUPREME COURT Such copies shall
DECISIONS be used
RESOLUTION exclusively by
 Copyright
It is that system of legal protection
an author enjoys in he form of
expression of ideas (World
Intellectual Property Organization
[WIPO].)
1. To stimulate artistic
creativity for the general
public good; and
2. To promote the progress of
science and useful arts.
1. Originality and
2. Expression
Single/Joint Creator lifetime of the
creator/last surviving co-creator and
50 years after his death
Anonymous/Pseudonym - 50 years
after date of first publication
Photographic Works - 50 years from
publication/making
Work of Applied Art - 25 years from
date of making
Newspaper Article
(Column/Published Comment)
lifetime of the author and 50 years
after his death
Work of performers not
incorporated in RECORDING,
PRODUCTS OF SOUND IMAGE
RECORDINGS, and BROADCASTS
protected for periods of 50 years, 50
years, and 20 years, respectively,
counted from the end of the year of
performance, recording, or
broadcasts
From the moment of creation
(fixation)
1. Duration /temporal- the owner is limited by the terms of their property rights.
2. Territorial /geographical- the owner is protected by the law of the country where the violation is committed.
3. For violations in another country, resort must be made to the law of the other country, subject to the principle of
reciprocity in Sec.3
Patent
Definition
Refers to either the grant of rights, or the
instrument (sometimes called letters
patent) containing the grant, giving an
inventor a monopoly on the inventors
invention for a limited period.
Purposes
1. Not only to reward the individual,
but the advancement of the arts
and sciences;
2. To add to the sum of useful
knowledge; and
3. To encourage dissemination of
information concerning
discoveries and inventions.
Requirements
Any technical solution of a problem in any
field of human activity which is:
1. New or novel
2. Insensitive; and
3. Industrially applicable (Sec.21)
Term
Patent - 20 years from the filing date of the
application (Sec.54).
Utility Model 7 years without renewal
Industrial Design 5 years renewable twice
How Created/ Acquired
First-to-file system
General limitation
Mark
Any visible sign capable of
distinguishing the goods of an
enterprise (trademark) or the services
of an enterprise (service mark), and
includes a stamped or marked container
of goods (Sec.121.1).
1. To indicate origin or ownership of
articles to which they are attached;
2. To guarantee that those articles
come up to a certain kind of quality;
3. To advertise articles they
symbolizes;
4. To assure the public that they are
producing genuine article; and
5. To protect the manufacturer against
substitution and sale of an inferior
and different article.
1. Upon application:
Must be registrable
(Sec.123.1):
a. Absolutely non-
registrable- (a-1) & (m) of
Sec.123.1
b. Qualifiedly registrable- (j),
(k), (l) of Sec.123.1;
Doctrine of Secondary
meaning (Sec.123.2).
2. Within 3 years from
application:
Declaration and evidence of
actual use (Sec.124.2).
10 years from the filing date of the
application, provided the registrant shall
file a declaration of actual use within a
year from the 5th anniversary of
registration date (Sec.145) and
renewable for another 10 years
(Sec.146).
Valid Registration