MNHH

UNIVERSITY OF THE CORDILLERAS BAR OPERATIONS
2011
Commercial law
Prepared by:
ATTY. RENATO S. RONDEZ
b. accumulation of
NEGOTIABLE secondary
contracts -
INSTRUMENTS instrument is
LAW negotiated from
person to person
(Act No. 2031,
June 2, 1911)
Requisites of
Negotiability
Written contracts
for the payment of
An instrument to
money; by its
be negotiable must
form, intended as
conform to
a substitute
the following
for money and
requirements:
intended to pass
a. It must
from hand to
be in writing
hand, to give the
and signed by
holder in due course
maker or drawer;
the right to
b. Must contain
hold the same and
an unconditional
collect the sum due.
promise or order to
pay a sum
certain in money;
Negotiable
c.Must be payable
instruments produce
on demand, or
the effect of
at a fixed or
payment only when
determinable future
they have been encashed
time;
or through
d. Must be payable
the fault of the
to the order or
creditor have been
to bearer;
impaired. (Article
and
1249, NCC)
e. Where the
instrument is
Principal Features
addressed to a
and Characteristics drawee, he must
a. negotiability - right be named or
of transferee to otherwise indicated
hold the instrument therein with reasonable
and collect the certainty.
sum due
GREEN NOTES IN COMMERCIAL
LAW
Prepared by: ATTY. RENATO S. RONDEZ
*For a Promissory sign the

Note to be instrument
negotiable, requisites b. Payee one
a,b,c and, d must to whom the
be met. promise is made
or
*For a bill of the
exchange to be instrument is payable.
negotiable, all the
above requisites must
be met.
FORMS OF
Purpose of PROMISSORY NOTE
Negotiability. To allow
bills and notes 1. Due bill, an
the effect instrument whereby
which money, in one person
the form of acknowledges his
government bills or indebtedness to another
notes, supplies in and
the commercial world. promises to pay a
sum certain in
money.
The validity and 2. Bonds, which
negotiable character are in the nature
of a negotiable of PN.
instrument are NOT 3. Certificate of Deposit
affected by the issued by
fact that: banks payable to
1.It is not dated; depositor or his
order, or to bearer
2.It does not specify
the place where
it is drawn B. BILL OF EXCHANGE
or where it - unconditional
is payable; order in writing
3.It bears a seal; addressed by one
4.It designates a person to another,
particular kind of signed by the person
current money in giving it,
which payment is to requiring the person
be made to whom it
(Sec. 6) is addressed
to pay on demand
Kinds of Negotiable or at a
Instruments: fixed or determinable
future time a
sum certain in
A. PROMISSORY NOTE -
money to
unconditional promise
order or to bearer.
to pay in
(Sec. 126 NIL)
a. Maker one
who makes a
promise and Parties:
LAW
a. Drawer one acceptance or

who gives the order to payment.
pay money to 4. Bank Acceptance- A
third party. draft drawn
b. Payee one to and accepted by a
whom the bill is bank.
drawn or is payable 5. Drafts, which
are BOE drawn
c. Drawee/ acceptor by one bank upon
person to another.
whom the bill is
addressed and who is C. CHECK - bill of
ordered to exchange drawn
pay. on a bank and
payable on demand.
(Sec. 185
Forms of bill NIL)
of exchange:
1. Trade Acceptance, A FORMS OF CHECK
BOE drawn
by seller on the 1. Ordinary Check
buyer for the purchase 2. Cashiers Check,
price of goods. A Check
payable to third
2. Clean Bill of person which is
Exchange, A BOE drawn by the bank
wherein no upon itself.
document is attached (2003 BEQ)
upon presentment 3. Certified check ,
for acceptance or A personal
payment. check with guaranteed
3. Documentary Bill of funds to cover the
Exchange, A BOE payment of the
wherein documents check.
are attached upon 4. Voucher Check
presentment for 5. Travelers Check
6. Managers Check ,
A check
drawn by
the
Negotiable CHECK BOE
Non-negotiable
Check
- Instruments
Always - May or may
drawn not be drawn
GREEN NOTES IN COMMERCIAL a
upon
bank
against a bank
LAW or banker
- Prepared by: ATTY.

Always - RENATO
May S. RONDEZ
be
payable payable on
b.Trade Acceptance; on demand or at
c. Bonds, which are in the
demand nature a of fixed or
a promissory notes;
determinable future
d.Drafts which are bills of exchange drawn
time
by one bank upon another;
- Not - Necessary that
All of these comply with Sec. 1 NIL.
necessary it be presented
that it for acceptance
Letters of Credit are not negotiable.
be
presented
for
DISTINCTIONS:
acceptance
(2005 BEQ)
- - Not drawn
Drawn on a deposit
on
a
deposit
Negotiable Negotiable - The - The death
Instruments Documents of death of of the drawer
Title a drawer of the ordinary
Have requisites Does not of bill of exchange
of Sec. 1 containa check, does not
of the NIL with
requisites of knowledge
Sec. 1 by the
of NILbanks,
revokes
Have right of No secondarythe
recourse liability authority
against of of the
intermediate intermediate banker pay
parties who are parties
secondarily liable - Must - May be
be presented for
Holder in due Transferee
presented payment within
course may have merely steps
for a reasonable time
rights better into the
payment
than transferor shoes after its last
within a negotiation.
of the
reasonable
transferortime*Note: after PN, BOE
its and issue
Check-
Subject is Subject is definitions (2002
money goods (6 BEQ)
Instrument is
months)
Instruments merely
evidence However, Does thesenot
Contains all
Instrument itself of title; instruments
contain all
are
the requisites
is thing of non-negotiable:
the requisites
of Sec. 1
value are of Sec. 1
of the NIL
property of the of
1. Treasury the NIL
value goods Transferred
mentioned Transferred
warrant by
are
in the by non-negotiable
assignment
document because there
negotiation is an
Holder in Transferee acquires
due course rights
may have only of
better rights transferor
than transferor his
Prior parties Prior parties
payment
warrant legality
of title
Transferee has Transferee has
right
recourse
of no
recourse
right of
LAW against
intermediate
parties Prepared by: ATTY. RENATO S. RONDEZ
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,
is
governed
NIL.
Educ.
Inc. vs. Soriano, 39 SCRA

587)
LAW
Bill of 3. Letters of credit
Promissory Note Exchange
4. Warehouse
Unconditional Unconditional receipts - Non-
promise order Negotiable for the
Involves 2 Involves 3 same as
parties parties Bill of lading
it merely
Maker primarily Drawer only represents goods,
liable secondarily not money.
liable
Only 1 Generally
presentment - 2
for payment presentments
-
for
acceptance
and
for
payment
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
The acceptance 102 SCRA
of a bill 530)
of exchange is
not important Notes
in the on
determination of
its negotiability. Section
The nature 1:
of acceptance is
important - In order to
only on the be negotiable, there
determination of must be a
the kind of writing of
liabilities of some kind, else there
the parties would be
involved. (PBCOM nothing to be
v. Aruego, negotiated or passed
LAW
from hand to depend on a

hand. The writing contingent event, it
may be in is conditional,
ink, print or pencil. and makes the
It may instrument non-negotiable.
be upon parchment,
cloth, leather or
any other substitute of The conditional nature
paper. of the promise
- It must be or order is
signed by the maker not effected by:
or drawer. a. An indication of a
It may consist particular fund
of mere from which the
initials or even acceptor reimburses
numbers, but the himself after paying
holder must prove the holder;
that what is written b. A statement of
is intended as the transaction which
a signature of gives rise to
the person the instrument.
sought to be charged.
b. CERTAINTY OF
- The Bill must contain SUM
an order, - The sum is
something more than certain if the amount
the mere asking of fixed.
a favor. - The certainty is
- Sum payable must HOWEVER NOT
be in money affected although to
only. It cannot be paid:
be made 1. with interests;
payable in goods, 2. by stated
wares, or installments;
merchandise or in 3. by stated
property. installments with
- A drawees name acceleration clause;
may be filled in 4. with exchange;
under Section 5. with cost of collection
or attorneys
14 of the fees.
NIL.
Escalation Clause
MEANING OF an agreement
PARTICULAR REQUISITES: pertaining to a
loan or increased in
the event
a. UNCONDITIONAL that the applicable
PROMISE OR ORDER maximum rate of
interest is increased
- Where the by law or
promise or order is by the Monetary
made to Board.
LAW
De-escalation Clause at sight or

an on presentation;
agreement pertaining to b. Where no period of
a loan or payment is
forbearance of money, stated;
goods or c. Where the instrument
credits may stipulate has been issued,
that the rate of accepted or indorsed
interest agreed after maturity.
upon may be reduced
in the event e. DETERMINABLE
that the FUTURE TIME
applicable maximum
- Future time is
rate of interest is
determinable in
decreased by
the following
law or by the
cases:
Monetary Board.
a. At a fixed period
c.PAYABLE IN MONEY
after date or
sight;
General Rule: If
some other act b. On or before a
besides payment of specified fixed
money is or determinable
promised or ordered, future time;
the instrument c. On or at a
becomes non-negotiable. fixed period after
the occurrence of a
Exceptions: specified event,
a. Authorizes the sale certain to
of collateral happen, although
securities on default; the
exact date is
b. Authorizes confession of not certain.
judgment on
default; f. PAYABLE TO ORDER
c. Waives the benefit of
law intended to - The instrument is
protect the payable to
debtor; order where drawn
d. Allows the creditor payable to
the option to the order of a
require something to specified person, or
be done in lieu of to him or
money. his order.
- The payee
must be named
d. PAYABLE ON or otherwise indicated
DEMAND therein with
An instrument is reasonable certainty.
payable on demand:
g. PAYABLE TO
a. Where it is BEARER
expressed to be
payable on demand,
LAW
a. Where it is instruments. These

expressed to be so are:
payable; 1. Where the
b. When payable to a instrument, its
person named acceptance,
therein or or the
bearer; instrument was
c. When payable to presented within a
the order of a reasonable time
fictitious or non-- from issue in
existing person, the case of notes or
and such fact was from last
known to the drawer negotiation in the
or maker; case of bills, as
d. When the name of these factors will
the payee is show whether the
not the name last holder is a
of a person; holder in
due course or
e. When the only and not; and
last indorsement is b. when the
an indorsement in instrument is
blank. an interest-bearing
one, to
An original bearer determine when
instrument remains the interest
to be a starts to
bearer instrument even if run.
indorsed specially 3. Antedating or
and thus can postdating an
be negotiated by instrument does not
mere delivery. affect validity
When the payee is or negotiability,
vaguely unless done for
designated, the loss an illegal or
will be borne fraudulent purpose.
by the party
who caused it REAL DEFENSES
the drawer. Those that attach
(Equitable Bank to the instrument
v. IAC, 161 itself and are available
SCRA 518). against all
holders, whether in
due course or
not.
(WAD FIMMU
RULES AS TO DATES WIFE)
1. Want of delivery of
There are several incomplete
important principles instrument;
as to dates 2. Alteration;
in negotiable 3. Duress amounting to
forgery;
LAW
4. Fraud in factum or he has apparent

fraud in esse authority.
contractus; 3. Absence or failure
5. Insanity where of consideration,
the insane person partial or
has a guardian total;
appointed by 4. Acquisition of the
the court; instrument by force,
6. Minority; duress or
7. Marriage in the fear;
case of a wife; 5. Acquisition of the
8. Ultra vires acts of a instrument by unlawful
corporation; where means;
the corporation is 6. Acquisition of the
absolutely instrument for an
prohibited by its illegal consideration;
charter or 7. Filling up of blank
statute from contrary to
issuing any authority given or
commercial paper not within
under any circumstances; reasonable time, where
the instrument is
9. Want of authority of delivered;
agent; 8. Fraud in inducement;
10. Illegality of contract 9. Insertion of wrong
where it is date in an
the contract or instrument, where it
instrument itself is payable
which is expressly at a fixed period
made illegal by after date and it
statute; is issued
11. Forgery; undated or where
12. Execution of it is payable
instrument between at a fixed
public enemies period after sight and
the acceptance is
PERSONAL DEFENSES/ undated;
EQUITABLE DEFENSES 10. Intoxication;
Those which 16. Ultra vires
are available acts of
only against a corporations
person not a holder where the
in due course corporation
or a has the power
subsequent holder to issue
who stands in negotiable
privity with him. paper but
(W2A4F2I4N2MU) the issuance
1. Want of delivery of was not
complete authorized for
instrument; the particular
2. Want of authority purpose for
of agent where which it
LAW
was issued. As to a holder

in due course-
the date inserted
is the true
date.
INSERTION OF
Subsequent Holder in
DATE (Sec.13) Due Course not
affected by the
Rule: If there is a following deficiencies:
date and it is
changed, apply
Sec.124 on
a. Incomplete but delivered
instrument (Sec.
ALTERATION OF AN
14)
INSTRUMENT.
b. Complete but
The date may be undelivered (Sec.
inserted in an 16)
instrument when: c. Complete and
a. An instrument delivered
expressed to be issued without
payable at a consideration or a
fixed period after consideration consisting of
date is issued a promise
undated which was not fulfilled
(Sec 28)
b. Where acceptance of
an instrument payable
at a fixed Holder in Due Course
period after sight is Affected by
undated (Sec. 13 Abnormality/Deficiency:
NIL)
a. Incomplete and
undelivered instrument
Effects: (Sec. 15)
- Any holder may
b. Maker/drawers signature
insert the true date of
forged
issuance or
(Sec. 23)
acceptance
- The insertion of a
wrong date Incomplete but
does not avoid the Delivered Instrument:
instrument in the (Sec.14)
hands of a (2004 & 2005 Bar
subsequent holder in Exam)
due course
- As to the holder 1. Where
in due course, an instrument is
the date inserted wanting in any
(even if it material particular:
be the wrong a. Holder has prima
date) is regarded facie authority to
as the true fill up the blanks
date.
therein.
LAW
b. It must be instrument non-negotiable

filled up strictly (e.g. name
in accordance with of payee), an
the authority given omission which
and within a will not render
reasonable time. the instrument non-
negotiable (e.g. date)
c. If negotiated to a
In the case of
holder in
the signature in
due course, it is
blank, delivery
valid and effectual
with intent
for all purpose
to convert it
as though it
into a
was filled up
negotiable instrument is
strictly in accordance
required.
with the authority
Mere possession is
given and within
not enough.
reasonable time. (Sec.
14 NIL)
2. Where Incomplete and

only a signature Undelivered Instrument:
on a blank (Sec.15)
paper was Notes
on Section There are two steps in
14 the execution of
Rule: Sec. 14 applies a NI:
if there is 1. The act of writing
a signature the instrument
on the instrument comion of giving
for the purpose of effect pletely and in
giving effect accordance with
thereto. Sec.
Rule: If no 1 of NIL;
signature, refer to and
Sec. 15 or 23. 2. The delivery
Rule: Sec. 14 is of the
merely a PERSONAL instrument
DEFENSE. with the
intention of giving
If the instrument is effect thereto
wanting in
material particular, If Completed
mere possession and negotiated
of the instrument is without authority,
enough to not a valid
presume prima contract against
facie authority to a person
fill it up. who has
Material particular signed before
may be an delivery of
omission which the contract
will render the against a person
who has
LAW
signed before negotiable

delivery of instrument is
the contract incomplete and
even in the revocable until
hands of a delivery for
HDC but the purpose of
subsequent indorsers giving
are liable. effect thereto. .
a. If between
REASON: The law immediate parties
does not make any and remote parties
distinction between not holder
a HDC and one in due course,
who is not a to be effectual
HDC. there must be
authorized delivery
by the party
Notes making, drawing,
on accepting or
indorsing. Delivery
Section may be shown
15 to be
conditional or for a
It is a real special purpose
defense. It only
can be interposed
b. If the holder is
against a holder
a holder
in due course.
in due course,
all prior deliveries
Where an
conclusively presumed
INCOMLETE and
valid
UNDELIVERED
instrument is c. If instrument not
in the hands in hands of
of a drawer/maker, valid and
HDC, there is intentional delivery is
PRIMA presumed until
FACIE PRESUMPTION the
of delivery. contrary is proven
(Sec. 16
Defense of the NIL)
maker is to
prove non-delivery him for want
of the of delivery
incomplete instrument. even in the
hands of a
Complete but holder in due
Undelivered: (Sec.16) course
4) But there is
General Rule: prima facie presumption
Every of delivery
contract on a of an instrument
LAW
signed but not - the words

completed by the prevail,
drawer or maker but if the
and retained by words are
him if it is in ambiguous, reference
the hands will be
of a holder made to
in due course. the figures to
This may be fix the
rebutted by proof of amount.
non-delivery. 2.Instrument NOT dated
5) An instrument entrusted
to another - considered
who wrongfully dated on
completes it and the date of
negotiates it to a issue
holder in
due course, delivery 3.Conflict between
to the agent Written and Printed
or custodian is Provisions
sufficient delivery - written
to bind the provisions prevail
maker or drawer.
6) If an instrument is
completed and is
4.Interest provided
found in
for, but No starting
the possession of
Date was
another, there is
specified
prima facie evidence of
- starting
delivery and if
it be a date is
holder in due course, the date of
there is the instrument, in
conclusive presumption of
delivery. the absence of
7) Delivery may be said date,
conditional or for a from date of
special purpose issue
but such do 5.Instrument Ambiguous
not affect the - if the
rights of a holder instrument is
in due course. ambiguous such
that there is
doubt whether
it is a
Rules on bill or
Interpretation of note, the holder
may treat it
Instruments: as a
note or a
1.Discrepancy between bill at his
the Amount in option.
Figures and that in 6.Signature on
Words Instrument does not
LAW
Indicate Capacity in had the right to

Which Made hold any
one of the
- Where it two (2) signers
cannot of the
be determined promissory note
in what capacity responsible for
a person the payment
affixed of the whole
his signature amount
to a of the note.
negotiable (Philippine
instrument, he is National Bank
deemed vs.
to have signed Concepcion
as an Milling Co., 5
indorser. As SCRA
indorser, his 745).
liability under b. A duly authorized
the agent (Sec. 19)
instrument is c. A forger
secondary, meaning (Sec. 23)
that if
the party LIABILITY of a
primarily liable person SIGNING
cannot AS AGENT:
pay, the indorser
can be An agent is
made to exempt from personal
pay by the liability, provided
holder of
he:
the instrument.
1. Acts within the
7.Where Promissory Note
scope of his authority;
worded Promise
to Pay is signed
2. Discloses the name
by two (2)
of his principal;
makers
and
- Under
3. Discloses that he is
Section 17
acting in a
(g) of the
representative
NIL and Article
capacity
1216 of
(Sec. 20)
the Civil Code,
where
the promissory
note was executed Notes
jointly on Section
and severally 20
by two or General rule:
more persons, An agent is
not liable
the payee
on the
of the
instrument if
promissory note
he were duly
LAW
authorized to indorsee acquires

sign for or title
on behalf of
a principal.
FORGER
Y
If an agent
does not disclose A. Makers Signature
his principal,
the agent is (1989
personally liable on BEQ)
the instrument. B. Drawers Signature
Per Procuration -
operates as (2004,2006&2009 BEQ)
notice that the agent C. Payees Signature
has a limited
authority to (
sign. 2008 BEQ)
D. Indorsers Signature
Effects: (2008
- The principal in BEQ)
only bound if
the agent acted General rule:
within the A signature,
limits of the authority which is forged
given or made
- The person who without authority is
takes the instrument is wholly
bound to inoperative. (Sec.
inquire into the extent 2
and nature 3
of the )
authority given.
(Sec.
21 NIL) E
f
General rule: f
Infants and corporations e
incur no liability by c
their indorsement t
or assignment s
of an :
instrument.
(Sec. 22 NIL)
Effects:
- No liability attached
to the infant
or the a. No right to retain
corporation
- The instrument is
still valid and the
LAW
b. No right to give a CA)

discharge
c. No right to enforce Persons
payment can PRECLUDED from setting
be acquired. up the defense
of forgery:
1.Those who admit/warrant
Exception: the genuineness
- The party of the signature
against
whom it in question:
is sought indorsers, persons
to be negotiating by delivery
enforced is and acceptors;
precluded from 2.Those who by their
setting up the acts, silence, or
forgery or want of negligence, are estopped
authority. from claiming
(Sec.23) forgery;
instrument, he 3.Holder of a bearer
cannot be held
instrument
liable thereon
Forged
by anyone.
signature is not
(Gempsaw v. CA
necessary to the
218 SCRA 682)
title of the holder.
CUT-OFF RULE:
General Rule:
Parties prior to the
Notes
forged signature are
on
cut-off from the parties
Section
after the forgery
23
in the sense
Section 23 applies only to
that prior parties
forged signatures or signatures
cannot be
made without authority
held liable and
Alterations such as to
can raise the defense
amounts or like fall
of forgery.
under section 124
The holder can
Forms of forgery are a)
only enforce the
fraud in factum b)
instrument against
duress amounting to fraud c)
parties who became
fraudulent impersonation
such after forgery.
Only the signature forged
or made without
Exception: When
authority is inoperative, the
the prior parties
instrument or other
are precluded from
signatures which are
setting up the defense
of forgery genuine are affected
The instrument can be
either because of
their warranties, enforced by holders to
representation or whose title the forged
negligence. (Gempsaw signature is not necessary
v. drawee bank is conclusively
LAW
presumed to know the charged by the

signature of its drawerdrawee where the
if endorsers signature drawee paid
forged, loss will be borne
- The drawer has
by the forger and no right to recover
parties subsequent thereto from the collecting
drawee bank is not conclusively bank
presumed to know the - The drawee bank
signature of the can
indorser. recover from
The responsibility the collecting bank
on the bank which - The payee can
guaranteed the indorsement recover from the
not the drawee bank.drawer
Where the payees - The
signature payee can
is forged, payments recover from the
made by the recipient of the
drawee bank to payment, such as
collecting bank is the collecting bank
ineffective. No - The payee cannot
debtor/creditor collect from
relationship is the drawee bank
created. An - The collecting bank
agency to collect bears the loss but
is created can recover from
between the person the person to
depositing and whom it paid
the collecting bank. - If payable to
Drawee bearer, the rules are
bank may recover the same as in
from collecting PN.
bank who may in - If the drawee
turn recover has accepted the
from the person bill, the drawee
depositing. bears the loss and
his remedy is to
Rules on liabilities go after the
of parties on a forger
forged instrument: - If the drawee
has not accepted
the bill but has
paid it, the drawee
In a PN
cannot recover
- A party whose
from the
indorsement is forged
on a note drawer or the
payable to order recipient of
and all parties the proceeds,
prior to him including absence any
the maker act of
cannot be held liable negligence on
by any In a their part.
BOE
- The drawers account
cannot be
LAW
Every negotiable liquidated amount

instrument is deemed otherwise. (Sec 29)
prima facie to
have been issued Notes
for a valuable on
consideration. (Sec. 24)
Section
Effects: 28
- Every person whose
signature appears Absence of
thereon is a consideration is
party for value where no
- Presumption is consideration was
disputable intended to pass.
Failure of
consideration implies
that consideration
Where value has was intended
at any time been by that it failed to
given for the pass
instrument, the holder The defense
is deemed a of want of
holder for value in consideration is
respect to all ineffective against a
parties who become holder in
such prior to that due course
time. A drawee
(Sec. 26) who accepts
the bill cannot
allege want of
consideration against
the drawer
Absence of
Consideration: Accommodation
(1995 and 1996 knowledge that no
Bar Exam) consideration passed
between the
Effect of want of accommodation and
consideration: accommodated parties.
a. Personal defense to
the prejudice of
a party and Requisites of
available against Accommodation:
any person not 1. The accommodation
holder in due course. party must sign
as maker, drawer,
b. Partial failure of acceptor or
consideration is a indorser;
defense pro tanto, 2. No value is
whether the received by the
failure is an accommodation party
asceratained and
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from the accommodation he executed the

party; and instrument. He is
3. The purpose is to liable to a holder
lend the name. for value by
(Crisologo-Jose virtue of
v. CA, 177 his being an
SCRA 594). accommodation party.
Accommodation Party *An accommodation

Is one party to a
who has signed negotiable instrument,
the instrument as inspite of the lack of
maker, drawer, consideration
acceptor, or indorser, between him and
without receiving the accommodated
value therefore, party, is liable to
and for the purpose any other holder
of lending NOT to the
his name to accommodated party.
another person. (Travel-On, Inc.
(2003 and 2005 v. CA, et al,
BEQ) 210 SCRA 351).
A corporation cannot *An accommodation

act as an partys liability as a
accommodation party. solidarily party
Such is an is unconditional
ultra vires act. party is
(Crisologo-Jose v unconditional and is
CA, not affected by
117SCRA594) an extension of
payment granted
Liability of the by the creditor to
Accommodation Party: the debtor.
HOWEVER, where
- The accommodation the holder allowed
party is payments by
liable on the the drawer direct
instrument to a to the
holder for value contractor without
notwithstanding that availing of the
such holder at deed of assignment
the time of taking in its favor,
the instrument said holder is a
knew him to be bad faith holder,
only an accommodation NOT a holder
party. It is in due course
a valid defense against whom
that the an extension to
accommodation party pay granted
did not receive by the drawer is
any valuable a defense
consideration when
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by the accommodation of some other

party. persons
(Prudencio v. CA, - where a
143 SCRA 6). solidary accommodation
maker paid to
*The liability of the bank the
an accommodation balance due on a
party does not extend promissory note,
to corporate he may seek
accommodation because contribution from
the act of the other solidary
the corporate officers accommodation
is ultra vires. maker, in the
However, these absence of a
officers are contrary agreement
personally liable. between them.
(Crisologo-Jose v. This rights
CA, 177 springs from an
SCRA 594). implied promise
between the
accommodation makers
to share equally
the burdens
resulting from their
execution of the
note. They are
joint
accommodation guarantors of
the principal
maker, used to settle debtor. (Sadaya v.
an estafa Sevilla).
case, has an illegality
of cause,
and does not make A solidary
the accommodation accommodation maker
co-maker liable. may:
(United General a. demand from the
Industries v. Paler, principal debtor
112 SCRA 404) reimbursement of
the amount which
*A promissory note he paid on
with an accommodation the promissory note
maker, utilized and
to settle b.
an estafa case, c. demand contribution
has an illegal from his co-
consideration, accommodation maker,
and does not make without first
the co-maker directing his action
liable. against the
2. Against the Co- principal debtor,
accommodation Party PROVIDED that:
to the use b.1. he made
the payment
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by virtue last
of a indorsement is
judicial demand, an
or indorsement
b.2. the principal in blank.
debtor is insolvent.
2.If payable to
NEGOTIATION order, it negotiated
by the indorsement of
An instrument is
negotiated when: the holder
completed by delivery.
a. It is transferred
from one person to A negotiable
another instrument payable
to the
order of a
b. That the transfer
specified person,
must be in a
or to
manner as to
him or his
constitute the
order, may be
transferee a holder
negotiated by
the payee
by indorsement
Modes of Negotiation: followed by
1.If payable to delivery of
bearer, it is the instrument
negotiated by delivery. to the
indorsee.
Negotiation of Subsequent
negotiable negotiation may
instrument may be made
be effected in this manner
by the delivery if the
alone of holder who indorses
the instrument to acquired
the the instrument
transferee in under a special
those negotiable indorsement.
instruments which
are:
-originally
The payee of
payable to
the
bearer, negotiable
or instrument acquires
no interest
-originally with respect
payable thereto
to order until its delivery
to him.
instruments (Development Bank of
where the
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Rizal v. 2. May be converted to

Sima Wei) a special
indorsement by writing
3.Another method over the
of transfer is signature of the
by assignment which indorser in blank
Notes on any contract
Section 31 consistent with character
The paper of indorsement.
attached with the (Sec. 35)
indorsement is C. ABSOLUTE- One
an allonge by which
An allonge must indorser
be attached so binds himself to
that it becomes pay:
a part of a. Upon No order
the instrument, it condition than failure
cannot be simply of prior parties
pinned or to do so;
clipped to it. and
b. Upon due notice to
Kinds of Indorsements: him of such
failure.
D. CONDITIONAL- right of
a. Special (Sec. 34) the indorsee is
b. Blank (Sec. 35) made to
c. Restrictive (Sec. depend on the
36) happening of a
d. Qualified (Sec. contingent event.
38) Party required to
e. Conditional (Sec. pay may disregard
39) the conditions. (Sec.
39)
A. SPECIAL- specifies E. RESTRICTIVE- An
the person to indorsement is
whom or to whose restrictive, when it
order, the either:
instrument is to a. Prohibits further
be payable. negotiation of the
(Sec. 34) instrument; or
b. Constitutes the indorsee
B. BLANK- Specifies the agent
no person to of the indorser; or
whom or to whose
order the c. Vests the title in
instrument is to the indorsee in
be payable. trust for or to
1. Instrument becomes the use of some
payable to bearer other persons.
and may be But mere
negotiated by delivery absence of
(Sec. 34) words implying
power to
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negotiate 1. Forgery; or
does not 2. Lack of good title
make an on the part of
indorsement the indorser; or
restrictive. (Sec. 3. Lack of capacity to
36) indorse on
the part of the
EFFECT of prior parties; or
Restrictive indorsement: 4. The fact that at
the time of the
Confers upon the endorsement, the
indorsee the right- instrument was
valueless or nit
a. Receive payment of valid, and he knew of
the instrument; the fact.
b. Bring any action A Qualified
thereon that the indorsement
indorser could bring; does not
impair the
c. To transfer his negotiable character
rights as such indorsee, of the
when the form of instrument.
the instrument
authorizes him to As mentioned earlier,
do so. Negotiation is
F. QUALIFIED- Constitutes the transfer
the indorser a of a negotiable
mere assignor of instrument from one
the title to the person to another as
instrument. ( Sec38) to constitute
the transferee the
It is made holder thereof.
by adding
to the To be
indorsers signature valid, negotiation
words must
like sans involve the
recourse, without entire instrument.
recourse,
indorser not Effects of indorsing
holder, at an instrument originally
the indorsers payable to bearer:
own risk,
other - It may further
terms of be negotiated by
similar import. delivery
- The person
instrument is indorsing is liable
dishonored by as indorser
non- to such persons
acceptance or as to make
non- payment title through his
due to: indorsement (Sec. 40)
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Notes on Section
40 Every holder is
Section 40 applies deemed prima
only to facie to be a
instruments originally holder in
payable to due course; but
bearer when it is shown
It cannot apply that the title of
where the any person
instrument is payable who has negotiated
to bearer the instrument was
because the only defective, the burden
or last indorsement is on the
is in blank holder to prove
that he or some
A holder may person under whom
strike out any he claims
indorsement which is acquired the title as
not necessary to holder in
his title. (Sec. due course. But
48) the last-mentioned
Effects: rule does not apply in
- An indorser whose favor of a
indorsement is party who became
struck out is bound on the
discharged instrument prior to
- All indorsers the acquisition of
subsequent to such such defective title.
indorser who has (Sec. 59)
been discharged are *Note: Holder in
likewise relieved due Course (Secs.
52,57&59)
Effects of a transfer
without endorsement:
Personal and
- The transferee acquires Real Defenses
such title as
the transferor had
- The transferee acquires ( 2000 &
the right to 2009 BEQ)
have the indorsement of
the transferor Requisites for a
- Negotiation takes Holder in Due Course
effect as of the (HDC):
time the indorsement is a. Receives the
actually made instrument complete
(Sec. 49) and regular on
its face
b. Became a holder
WHO IS A before it
HOLDER IN DUE was overdue and
had no notice
COURSE?
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that it had been If one of the

previously dishonored if requisites are lacking,
such was the the holder is
fact not a HDC
c. Takes the instrument An instrument is
for value and in considered complete
good faith and regular on
its face if a)
d. At time he took
the omission is
the instrument, no
immaterial b) the
notice of infirmity
alteration on the
in instrument or
instrument was not
defect in the title apparent on its
of the person face
negotiating it An instrument is
(Sec. 52 NIL) overdue after the
date of maturity.
*Note: Under the
"SHELTER PRINCIPLE," On the date of
the holder-in-due maturity, the
course, by instrument is not
negotiating the overdue and the
instrument, to a holder is a
party not a holder- HDC
in-due course, transfers Acquisition of
all his rights the transferee or
as such holder indorsee must
to the latter, be in good faith
who thus acquires Good faith means
the right to lack of
enforce the knowledge or notice
instrument as if of defect or
he was a holder- infirmity
in-due course.
However, this principle
A holder is
presupposes
not a HDC where
that the
an instrument payable
"sheltered" holder is on demand is
not a party to negotiated at an
any fraud or unreasonable length of
illegality impairing time after its issue
the validity of (Sec. 53 NIL)
the instrument. (2008 Rights of a Holder
BEQ) in Due Course:
Notes
- Holds the instrument
on Section free from any defect
52 Every of title of
holder is prior parties
- Free from defenses
presumed to
available to prior
be a HDC parties among
(Sec. 59)
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themselves (personal/ sue

equitable defenses) in
- May enforce payment
his
of the
instrument for the own
full amount against
all parties name
liable(Sec. 57 NIL)
- May receive payment
Notes and if it is
on in due course,
the instrument is
Section discharged
57 - Holds the instrument
subject to the same
Personal or defenses as if
equitable defenses it were non-
are those which negotiable
grow out of
- If he derives
the agreement or
his title through a
conduct of a
HDC and is
particular person in
not a party to
regard to
any fraud or
the instrument which
illegality thereto,
renders it
has all
inequitable for him
the rights of
through legal title to
such HDC
enforce it.
Can be set
General rule:
up against holders
Every holder is
not HDC
deemed prima
facie to be a
Legal or real holder in
defenses are those due course.
which attach
to the
Exception:
instrument itself and
- Where it is shown
can be set up
that the title
against the whole
of any person
world, including
who has negotiated
a HDC. the instrument is
Rights of defective, the burden
a is on the
holder to prove
holder that he is a
HDC or that a
not
person under whom
a he claims is
a HDC
HDC (Sec. 59 NIL)
-
May
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DEFENSES OF PRIOR it, to

PARTIES AGAINST enforce it
THE HOLDER against the
Classes of defendant.
Defenses:
1. Real or
Absolute Defenses
- a real
or absolute
defense is a
defense
which attaches
to the
instrument
irrespective of
the parties Personal Real Defenses
and is Defenses
predicated on 1.
the principle Absence or
Alteration
that the failure of
right sought to consideration
be enforced 2. Want Want of
has never of delivery delivery of
existed or of incomplete
has ceased complete instrument
to exist. instrument
3.
- A real Insertion of
defense is wrong date where
available against payable
ALL at a fixed
HOLDERS, whether period after date Duress amounting
in due and issued to forgery
course or not. undated; or
at a fixed
2. Personal or period after sight
Equitable Defenses and acceptance
- a personal is undated
or 4. Filling
equitable is a up the
defense blanks
growing out Fraud in
contrary to
of an factum or in
authority given
agreement or esse contractus
or not within
conduct of a
reasonable
particular
time
person in regard
5. Fraud Minority
to an
in inducement
instrument which
6.
renders it
Acquisition of
inequitable Marriage in
the
for him although case of a
owner of instrument by
wife
force, duress
or fear
7. Insanity where
Acquisition of the insane
the
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instrument by a. Engages to pay

unlawful according to tenor of
instrument
person b. Admits existence of
has payee and his capacity
a to indorse
guardian (Sec. 60 NIL)
circumstances between Notes

amounting to enemies on
fraud
Illegality Section
contract 60
11. Mistake
by
A makers liability
12. Forgery is primarily
Intoxication and unconditional
13. Ultra One who has
vires acts of signed as such is
corporations presumed to
14. Want have acted with care
of authority and to have signed
of with full
knowledge of its
the agent
contents, unless
where he has
fraud is proved
apparent
authority The payees
15. interest is only to
Illegality of see to it
contract that the note is
where form or paid according to
consideration is its terms
illegal When two or
16. more makers sign
Insanity where jointly, each is
there is individually liable
no notice for the full amount
of insanity even if one
did not receive
the value given
The maker is
LIABILITIES OF
precluded from
PARTIES: setting up the defense
of:
1. A maker is a) The payee is
primarily liable: fictional,
b) That the payee
Effects of making was insane, a
the instrument, minor or a
the maker: corporation acting
ultra vires
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2. A drawer is
secondarily liable 4. IRREGULAR INDORSER
Effects of - a
drawing the person not otherwise a
instrument, the party to an
drawer: a. instrument places
Admits the his signature in
existence of the blank before delivery
payee, is liable
as an indorser
b. The capacity of in the following
such payee to manner:
indorse a. If payable to
c. Engages that on order of a third
due presentment, person liable to
the instrument will the payee and to
be accepted or all subsequent
paid or both parties
according to b. If payable to
its tenor. order of the maker
or drawer
If the instrument is liable to all
dishonored, parties subsequent to
the maker or
and the
drawer
necessary proceedings
c. If payable to
on dishonor duly
bearer liable
taken
to all parties
a. The drawer will
subsequent to the
pay the amount
maker or drawer
thereof to the holder
d. If signs for
an accommodation
b. Will pay to any
party liable
subsequent indorser
to all parties
who may be
subsequent to the
compelled to pay it.
payee (Sec. 64)
(Sec. 61
*Note: Irregular Indorser
NIL)
v. General
Indorser (2005
Notes
BEQ) Irregular
on
Indorser, is not a
party to the
Section
instrument but he
61
places his signature in
blank before
A drawer may
delivery. He is
insert an express
not a party
stipulation to
but he becomes
negative or limit
one because of
his liability
his signature in
the instrument. Because
3. An acceptor is
primarily liable his signature
he is considered
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an indorser and
he is liable to Limitations of
the parties in warranties:
the instrument. While, - If by
a General delivery
Indorser warrants extends
that the instrument is only
genuine, that to
he has a good immediate
title to it, that transferee
all prior parties - Warranty of
had capacity to capacity to contract
contract; that the does not apply to
instrument at the
time of the persons
indorsement is valid negotiating
and subsisting; and public or
that on due corporate
presentment, the securities
instrument will be (Sec. 65
accepted or paid or NIL)
both accepted
and paid according to Notes
its tenor, on
and that if it is
dishonored, he Section
will pay if the 65
necessary
proceedings for dishonor A qualified indorser
are made. is one who
indorses without
5. Warranties where recourse or sans
negotiating by recourse
delivery or qualified Recourse - resort
endorsement: to a person
secondarily liable
a. The instrument is
after default of
genuine and in
person primarily
all respect what it
liable
purports to
A qualified indorser
be
cannot raise
b. The indorser has
the defense of
good title to it
a) forgery b)
c. All prior parties
defect of his
had the capacity to
title or that it is
contract
void c) the
d. Indorser has no
incapacity of the
knowledge of any
maker, drawer or
fact that would
previous
impair the validity
indorsers.
or the value
A qualified
of the
Indorsement makes
instrument.
the indorser mere
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assignor of Notes
title of instrument, on
relieves him of
general obligation to Section
pay if 66
instrument is
dishonored, but he is The indorser
still liable under Section
for the warranties 66 warrants the
arising from solvency of a
instrument only up to prior party
warranties of The indorser
general indorser warrants that the
The warranty is instrument is valid
to the capacity and subsisting
of prior parties regardless of whether
at the time he is ignorant
the instrument was of that fact or
negotiated. not.
Subsequent Warranties extend
a. The instrument is in favor of a)
genuine and in a HDC b)
all respect what it persons who derive
purports to their title from
be HDC c) immediate
b. The he has good transferees even if
title to it not HDC
c. All prior parties The indorser
had the capacity to does not warrant
contract the genuineness of
d. That the the drawers signature
instrument at
the General indorser is
time of only secondarily
his indorsement liable
was valid and
subsisting (Sec. 66)
PRESENTMENT FOR
PAYMENT
In addition:
- Engages that the General rule:
instrument will be Presentment for
accepted or paid payment is
or both according not necessary
to its tenor to charge
on due presentment persons
- Engages to pay primarily liable
the amount thereof on the
if it be instrument.
dishonored and the Presentment for
necessary proceedings payment is
on dishonor are necessary to
taken
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charge the drawer can be sued directly.

and indorsers.
(Sec 70 NIL)
Presentment is If payable at
necessary to the special place,
charge persons and the person
secondarily liable liable is willing
otherwise they are to pay there
discharged at maturity,
such willingness and
ability is
Notes equivalent to tender
on of payment.
Section
70 Acts needed to
charge persons
Presentation for secondarily liable:
payment
production of a a) Presentment for
BOE to the drawee payment/acceptance
for his b) Dishonor by non-
acceptance, or to a payment/non-acceptance
drawee or
acceptor for a. By the holder or
payment. Also an authorized
presentment of a person
PN to the party b. At a reasonable
liable for payment hour on a business
of the same. day
c. At a proper
place
Consists of d. To the person
a) a personal primarily liable or if
demand for payment absent to
at a proper any person found
place b) at the place
the bill or note where presentment is
must be ready made (sec. 72
to be NIL)
exhibited if required
and surrendered
Presentment for
upon payment. payment is made
to the maker,
Parties primarily or acceptor. Not
liable persons to the person
by the terms secondarily liable.
of the instrument
are absolutely required
to pay the
same.
E.g maker and
acceptors. They
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Notes 2.Presentment not required

on to charge
Section the indorser where:
72
Only the holder
a. The instrument was
or one
made or accepted
authorized by him
for his accommodation
has the right to
make presentment for
payment b. He has no reason
Presentment cannot to expect
be made that the instrument
on a Sunday or will be paid if
holiday presented (Sec. 80)
If the instrument is
payable on Notes
demand a) if on
it is a
Section
note presentment
79
must be
and
made within
80
reasonable time after
issue b) if it is
Only the drawer
a bill -
or indorser
presentment
are not discharged.
must be made
All other parties
within reasonable
secondarily liable
time after last are discharged.
negotiation.
Presentment for
payment is
General rule: dispensed with if:
Presentment for
payment is
a. After due diligence,
necessary to presentment cannot
charge persons be made
secondarily liable b. Presentment is waived
otherwise they
are discharged: c. The drawee is a
Exception: fictitious person
(Sec 82)
1.Presentment not required
to charge Notes
the drawer: on
a. He has no right to
Section
expect
82
b. He has no right to
require that
What is excused
the drawee or
is the failure
acceptor will pay
to make
(Sec 79)
presentment.
There is no
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need to make payment and

any presentment payment is
versus under refused or
section 81 (delay cannot be obtained;
in presentment) or
presentment for
b. presentment is
payment is still
excused and
required after the
the instrument is
cause of delay
overdue
has ceased.
and unpaid.
Other instances where Effects of dishonor
presentment for by non-payment:
payment is not - An immediate right
required: of recourse to
1. in order all parties
to charge the secondarily liable accrues
drawer, where to the holder
he has no right (Sec. 84)
to expect or - An immediate right
require that the of recourse means
drawee or acceptor that the holder,
will pay the after the
instrument; instrument is
a. Presentment not dishonored by non--
necessary to payment and notice
charge of dishonor
persons primarily given to the persons
liable secondarily liable,
b. Necessary to charge may sue any
persons of the latter without
secondarily liable suing first
except: the persons primarily
- The drawer under liable.
Sec. 79
- The indorser under Notes
Sec. 80 on
- When excused under
Sec. 82 Section
- When the instrument 84
has been dishonored
by non-acceptance Parties cease
under Sec. 83 to be secondarily
liable and become
When instrument principal debtors.
dishonored by non- Liability becomes
the same as
payment
that of the original
The instrument is obligors.
dishonored by non-
payment when:
a. it is duly
presented for
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NOTICE OF have a right of

reimbursement from
DISHONOR
the party to whom
When a
notice is given.
negotiable instrument
(Sec.
has been dishonored
90)
by non-acceptance
a. Where notice
non-payment, notice
is given
of dishonor must by or on behalf
be given of the holder,
to the drawer it inures
and to each for the benefit of
indorsers. all subsequent
holders and all prior
Any drawer or parties who have a
indorser to whom right of recourse
such notice is against the party to
not given is whom it is given.
discharged. Exceptions:
b. Where notice
a. Waiver (Sec. 109) isgiven
b. Notice is dispensed by oron behalf
(Sec. 112) ofa party
c. Not necessary to entitled to give
Drawer (Sec. 114) notice, it inures
d. Not necessary to for the benefit
Indorser (Sec. 115) of the holder
and all parties
subsequent to the
- If notice party to whom it
is delayed, is given.
delay may be excused
(Sec. 113)
Forms of notice:
Notice of Dishonor a. May be written or
may be given: oral
b. Written notice need
not be signed
a. By or on behalf or may be
or the holder supplemented by verbal
communication
b. By or on behalf
of any party c. May be by personal
who: delivery or
- Is a party by mail
to the instrument
and might be Notice may be waived
compelled to pay either expressly
the instrument. or implied:
- To a holder a. Before the time of
who having taken it giving notice has
up would arrived
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b. After the omission to A negotiable

give due notice instrument is
discharged:
a. By payment in
Dispensation with Notice:
due course by or
on behalf of
Notice of dishonor
the principal
is dispensed
debtor;
with when, after
the exercise of b. Payment by
reasonable diligence, it in
cannot be due course
given to or does by party
not reach the parties accommodated, where
sought to the instrument is
be charged. made or
accepted for
Effects of failure accommodation;
to give notice: c. Intentional
An omission to cancellation by
give notice of holder of
dishonor by instrument;
non-acceptance does
d. Any other act
not preclude the
discharging a simple
rights of a holder
contract for
in due
the payment of
course subsequent to
money;
the omission.
e. When the principal
Instances when debtor becomes the
Notice Not Required holder of the
to Indorser instrument at or
after maturity in
a. Drawee was a his own right.
fictitious/incapacitated
person and the indorser
NOTES ON SECTION
was aware of
119
such at the
time of indorsement Discharge of the
instrument discharges
b. Indorser is the all the parties
person to whom thereto
instrument was Payment must
presented for payment be in due course,
and by the
c. Instrument principal debtor or
made/accepted on his behalf
for his
accommodation If payment is
not made by
the principal debtor,
Discharge of the
Instrument c. Discharge of prior
party
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d. Tender of payment 2. Where it

by prior party was made or
e. Release of principal accepted for
debtor accommodation ,
and has been paid
f. Extension of payment
by the party
by the
accommodated.
holder/postponement of
right to enforce
without assent RENUNCIATION BY
of secondary parties HOLDER. (Sec 122)
and without
reservation of right of Renunciation- The
recourse against act of giving
secondary parties up or abandoning a
(Sec 120 NIL) right without
transferring the right to
RIGHT OF PARTY another.
WHO DISCHARGES
INSTRUMENT As a Rule ,the
(Sec. 121) holder may expressly
renounce his rights
against any
A party
party to the
secondarily
instrument before ,
liable who
or after its
pays the
maturity. An absolute
instrument does not
and unconditional
discharge it ,
renunciation of
but instead acquires
his rights against
certain rights
the principal
;
debtor at or after
1.Collect from prior
maturity of the
parties ; or
instrument discharges
2. Negotiate the the instrument.
instrument to new However , A
parties- but not to renunciation does not
affect the rights of
subsequent parties. a holder in
due course
However , Under without notice of
the exceptions the renunciation.
provided in
Sec.121, the Notes on Section
instrument is 122
considered discharged if renounced in
when ; favor of a party
1.The BOE is payable secondarily liable,
to the order of only he is
a third person exonerated from liability
and paid by and all parties
the drawer himself,
or subsequent to him
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discharge by novation negotiable instrument.

is allowed
2. Alteration by a
STRANGER (
MATERIAL SPOLIATION )
If subsequently
ALTERATION negotiated to a
non-Holder in Due
General rule: CourseA material
When alteration avoids
materially altered, the instrument as
without the against any prior party
consent of who has not
all parties assented to the
liable, the
alteration.
instrument is
avoided except
as against: If subsequently
a. The party who has negotiated to a
made the alteration Holder in Due Course
He may enforce
b. The party who
payment thereof
authorized or assented
according to its
to the
original tenor
alteration.
regardless of whether
c. Subsequent indorsers the alteration
Exception: was innocent or
- If in the fraudulent.
hands of a
HDC, may be CHANGES that
enforced according constitute MATERIAL
to its ALTERATIONS
original tenor 1.The date;
2.The sum payable,
MATERIAL ALTERATION
either for principal or
interest;
- Any change
3.The time or place of
in the instrument
which affects or payment;
changes the liability 4.The number or
of the parties the relations of
in any way. the parties;
Whether the alteration 5.The medium or
made is currency in which
favorable or payment is to
unfavorable to the be made;
party making the
alteration, no 6.Or which adds a
distinction as to place of payment
the effect is where no
made. The intent of place of payment is
the law is to specified; or
preserve the
integrity of the
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7.Any other change or his assent to

addition which the order of the
alters the effect drawer. It is
of the an act by which
instrument in any a person
respect. (Sec. 125) on whom the
Bill of Exchange is
A serial drawn assents
number is to the request
an item which of the drawer
is not to pay it.
an essential
requisite for
negotiability As a general rule,
under Sec. 1 acceptance, in
of NIL, order to be
and which valid must
does not be:
affect the 1. Written;
right of 2. Signed by the drawee;
the parties, and
hence its 3. Must contain an
alteration is express or implied
not material. to pay in
(PNB v. money.
CA, 256 SCRA
491) A holder of a
(199 BEQ) bill has the right:
Instances where a a. Require that

BOE may be treated acceptance be written
as a PN: on the bill
a. Where the drawer and Kind of
and the drawee acceptance:
are one and the
same A. Constructive
b. Where the drawee is Acceptance:
a fictitious a. Where the drawee
person to whom the
c. Where the drawee bill has been delivered
has no capacity destroys it
to contract b. The drawee refuses
(Sec. 130) within 24
The holder has hrs after such delivery
the option to or within
treat it as a such time as is
BOE or a PN given, to return
the bill accepted or
not
ACCEPTANCE
The signification by
the drawee of
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Notes d. Qualified as to
on time
e. The acceptance
Section of some or
137 more drawees but
NOT ALL.
Drawee becomes
primarily liable as - The holder of
an acceptor. the bill has the
Mere retention is right to require
equivalent to GENERAL ACCEPTANCE
acceptance thus he
may REFUSE to
B. General take qualified
Acceptance: acceptance and if
An acceptance he DOES NOT obtain
to pay at a an unqualified
particular place is acceptance he
a general may treat the bill as
acceptance unless it DISHONORED
is expressly BY NON-ACCEPTANCE
states that the accordingly the
bill is to be holder must give notice
paid there only and of dishonor.
not elsewhere.
- Effect of taking
C. Qualified qualified acceptance:
Acceptance if
in express terms
varies the - Where a qualified
effect of the bill as acceptance is taken
drawn. THE DRAWER
and INDORSERS are
Kinds of discharged from liability
Qualified on the bill
Acceptance: unless they have expressly
a. Conditional one or impliedly
which makes payment authorized the holder
by the acceptor to take qualified
dependent on acceptance or
the fulfillment of a subsequently assents
condition therein thereto.
stated;
b. Partial an * When
acceptance to pay the drawer
part only of the or indorser
amount for which receives notice
the bill is of qualified
drawn; acceptance
c. Local an he must
acceptance to pay within
only at a particular a
place; REASONABLE
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TIME non-accepted to the

express his holder, he will be
dissent to deemed to have
the holder or accepted the same.
he will
be deemed to
have assented A bill may be
thereto. accepted before it
has been signed
When an by the drawer,
acceptance is written or while otherwise
on a paper incomplete, or
other than a when it is overdue,
bill itself, it does or after is
not bind the acceptor has been dishonored
except in by a previous
favor of a person refusal to accept,
to whom it or by non-payment.
is shown But when a
and who, on the bill payable
faith thereof, receive after sight is
the bill for dishonored by non-
value. acceptance and the
drawee subsequently
An accepts it, the
unconditional holder, in the absence
promise in writing of any different
to agreement, is
entitled to have
accept a bill before the bill accepted as
it is drawn of the date of
is deemed the first
an actual presentment.
acceptance in favor of
every person
who, upon the faith
thereof, receives
the bill for value. PRESENTMENT FOR
ACCEPTANCE
Where a drawee When presentment
to whom a for acceptance is
bill is delivered necessary:
for acceptance
destroys the same, a. If necessary to
or refuses fix the maturity of
within twenty-four hours the bill
after such delivery, b. If it is
or within expressly stipulated
such other period that it shall be
as the holder presented for
may allow, acceptance
to return the c. If the bill is
bill accepted or drawn payable
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elsewhere than the bill may be

residence or place presented for
of business acceptance on any
of the drawee day on which
(Sec. 143 NIL) negotiable instruments
may be presented
for payment. When
Notes Saturday is
on not otherwise a
holiday, presentment
Section for acceptance may
143 be made before
twelve oclock
noon, on that
PRESENTMENT is day.
the production of a
bill of exchange
to the drawee Presentment, How
for his made:
acceptance.
PRESENTMENT
For Presentment for
Acceptance acceptance must be
(Sec. made by or on
143) behalf of the holder
For at a
Payment reasonable hour, on a
( Sec. business day
70) and before the
( 2000 & bill is overdue, to
2003 BEQ) the drawee or
some person
PURPOSE: To get authorized to accept
acceptance of the or refuse
drawer for purpose acceptance on his
of making behalf; and
him primarily liable
as an (a.)
acceptor. Presentment is Where a bill is
also prerequisite addressed to two or
to the accrual more drawees
of secondary who are not partners,
liability against presentment
the drawer and must be made
the indorsers. to them all, unless
one has authority
to accept
On what days
or refuse
presentment must
acceptance for all,
be made:
in which case
presentment may be
A
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made to him alone; acceptance has been

refused on some
other ground.
(b.) Where the When bill is

drawee has been dead, dishonored by non-
presentment may be acceptance
made to his personal
representatives;
A bill is
(c.) Where dishonored by
the drawee non-acceptance:
has been adjudged a a.When it is duly
bankrupt or presented for
an insolvent, or acceptance and such
has made an an acceptance as is
instrument for the refused or
benefit of creditors, cannot be obtained;
presentment may be b.When presentment for
made to him or to acceptance is excused,
his trustee or and the
assignee.
bill is not accepted.
WHERE PRESENTMENT
IS EXCUSED. (Sec.
Duty of the holder
148.)
where bill is
not accepted.
Presentment for Where
acceptance is excused
a bill is
, and a
duly presented for
bill may be treated
acceptance and is
as dishonored
not accepted within
by non acceptance ,
the prescribed
in either of
the following time, the person
cases: presenting it must
1. Where the drawee is treat the bill
dead , or as dishonored by
has absconded , or non-acceptance or
is a fictitious he loses the
person or right of recourse
a person against the drawer
not having capacity and indorsers.
to contract.
HOW? By giving
2. Where, after the exercise NOTICE OF
of reasonable DISHONOR or by
diligence , making a
presentment cannot PROTEST when required.
be made.
3. Where, although
presentment has been
irregular ,
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Rights of holder 2. Bonds

where bill is NOT - A promise,
accepted: under
seal, to pay
An immediate money.
right of recourse - The bond
against the drawer certifies that
and indorsers accrues the issuing
to the holder company is
and NO indebted to
PRESENTMENT for payment the bondholder
is necessary. for the amount
specified
on the face
of the bond,
and contains
PROMISSORY an
NOTES AND agreement of
CHECKS the company to
pay the
Promissory Note sum at a
is an specified time in
unconditional promise the future,
in and
1. Certificate of deposit meanwhile to
pay a specified
- is a written interest
acknowledgment on the principal
by a amount at
bank of the regular
receipt of intervals, generally
money on six months
deposit which apart.
the bank They are
promises to negotiable if it
pay to the the requisites
depositor, bearer, in Section
or to
some other 1, NIL are
complied with.
person or
order. Classes of Bonds:
- It is NOT
ipso facto 1. Mortgage bonds;
negotiable it 2. Equipment Bonds;
must first 3. Collateral trust bonds;
comply with
the requirements 4. Guaranteed bonds;
5. Debentures; and
provided 6. Income bonds;
under Section 7. Convertible bonds;
1, 8. Redeemable Bonds;
NIL.
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9. Registered Bonds; hand to

and hand without
- Coupon any evidence
Bonds of titled in
those which the holder
are attached than that
a sheet which arises
of dated, form
numbered possession.
and similarly However,
printed they are
coupons which not money.
the
bondholder 11. Due Bills
may cut - is an
off when instrument whereby
due or one person
thereafter. Such
coupons may acknowledges
be served his indebtedness
and deposited to another.
in a
bank,
negotiated before
the maturity CHECKS - a
of the bill of exchange
interest they drawn on a bank
represent, and payable on
transferred just demand. (Sec. 185)
like any
commercial
CONCEPTS:
paper. They
Certification of
are negotiable if
Checks- An
it the
agreement whereby
requisites in
the bank against
Section 1,
whom a check is
NIL are complied drawn,
with. undertakes to
c. If obtained
10. Bank Notes by the holder,
- Are discharges
promissory notes of the persons
the issuing secondarily
bank payable liable thereon
to bearer ( Sec
on demand 188)
and intended
to circulate
A check must
as money.
be presented
They are
for payment within
regarded as
reasonable time
cash and
after its issue
pass from
or the drawer
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will be discharged the intervention of

from liability thereon that company.
to the extent
of the loss EFFECTS:
caused by the delay. a. That the check
(Sec. 186) may not be
encashed; it may
Reasonable Time: only be deposited
(Sec. 193) with the bank;
a. Nature of the b. That the check
instrument may be negotiated
b. Usage of business or only once to a
trade person who has an
c. The facts of the account with the
particular case bank; and
c. That it serves as
CROSSED CHECK: a warning to
(2004 & 2005 BEQ) the holder
that the check
has been issued
- A check for a definite
which in addition purpose.
to the usual (Bataan Cigar v.
contents of an CA 280
ordinary check SCRA 643)
contains also the
name of a certain *Note: Crossed Checks
banker or vs. Cancelled
business entity Checks (2004 BEQ) A
through whom it crossed check
must be is one with
presented for payment. two parallel lines
drawn diagonally across
- A Crossed its face or
Check under accepted across a corner
banking practice, thereof. On the
crossing a other hand, a
check is done by cancelled check is
writing two parallel one marked or
lines diagonally on stamped "paid"
the left top portion and/or
of the checks. "cancelled" by or
The crossing is on behalf of a
special where drawee bank to
the name of indicate payment
the bank or a thereof.
business
institution is written *State Investment House
between the v IAC (GR
two parallel lines, 72764 13Jul1989), the
which mean that SC considered a
the drawee should crossed check as
pay only with subjecting a
subsequent holder
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thereof to the stop payment order

contractual covenants of may not be
the payor successfully invoked
and the payee. against him. (Mesina
v. IAC, 146
2 KINDS: SCRA 497,
1. CROSSSED SPECIALLY- 505)
The same
name of a particular TYPES OF CHECKS
bank or company
(Cesar
is written
Villanueva, Commercial
or appears between
Law Review, 2004
thev. Tan
parallel lines in which
ed.)
case the drawee- a. Cashiers Check-
bank must pay the One drawn by
check only upon the cashier of a
presentment by such bank, in
bank or company the name of
(Chan Wan v. tan the bank against
Kim 109 Phil 706)
the bank itself payable
on penalty of
to a third
person. It is a
being made to
primary
pay agin by the
obligation of the
rightful owner should
issuing bank and accepted
the first payment
in advance
prove to
upon issuance. (Tan v.
have been erroneous.
CA
2. CROSSED GENERALLY-
239 SCRA
only the words
310)
and
Co. are written b. Managers Check- A
between
check drawn
the parallel
by the manager
of a bank in
lines or when
the name of
none at all is
the bank itself
written
payable to a
at all between
third person. It is
said
similar to
IRON CLAD RULE
the cashiers
prohibits
check as to
the countermanding of
the effect
payment of
and use.
certified checks.
c. Memorandum Check-
(Rep. v. PNB,
A check
Dec. 1,
given by a
1961)
borrower to a
lender
*Note: The holder for the amount
must be a holder of a
in due course short loan, with
before the the understanding
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that it is
not to A. CORPORATION,
be presented at DEFINED
the bank, An artificial being
but will created by
be redeemed operation of law
by the maker having the right of
himself succession, and the
when the loan
powers, attributes
falls due and
and properties
which understanding
expressly authorized
is
evidenced by by law and incident
writing the word to its
memorandum, existence. (Sec.
memo or 2). It has a
mem on separate and distinct
the check. personality from
d. Certified Check- its incorporators.
An agreement whereby (2000 Bar
the bank against Examination)
whom a
check is drawn Attributes of a
undertakes to pay it Corporation
at any future 1. It is an artificial
time when being.
presented for 2. It is created
payment. (Sec. 187) by operation of
e. Travelers Check- It law.
is one upon
3. It enjoys the
the holders
right of succession.
signature must appear
4. It has the powers,
twice; one to
be affixed attributes and
by him at the properties through
time it is issued the SEC. (Tayag
and the second, vs. Benguet
for counter- Consolidated, Inc.,
signature, to be 26 SCRA 242)
affixed by him in
the presence of
the payee before 2. Theory of
it is paid, corporate enterprise
otherwise it is or economic unit
incomplete. the corporation
is not merely
an artificial being,
but more of
CORPORATION an aggregation of
persons doing
LAW business, or an
(Batas Pambansa underlying business
Bilang 68)
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unit. (Philippine quo warranto

Corporate proceeding. (Sec. 20)
Law, Cesar Requisites:
Villanueva, 2001 ed.) 1. The existence of a
valid law under
B. CLASSIFICATION: which it
1. AS TO ORGANIZERS may be incorporated;
a. public by State 2. A bona fide

only; and attempt in good
b. private by private faith to
persons alone incorporate under
or with the such law;
State. 3. Actual use or exercise
in good
2. AS TO FUNCTIONS faith of corporate
a. public government powers; and
of a portion 4. Issuance of a
of the territory; certificate of
and incorporation by the
b. private usually SEC as a
for profit-making minimum requirement of
continued good
faith.
3. AS TO GOVERNING
The only
LAW
difference
a. public Special
between a
Laws; and
de facto
b. private Law on
corporation and a
Private Corporations
de jure
corporation is
4. AS TO LEGAL
that a de
STATUS
jure corporation
a. De jure corporation
organized in can successfully
accordance with the resist a suit
requirements of law. by a state
b. De facto brought to
corporation challenge its
organized with a existence; a
colorable compliance de facto
with the requirements corporation cannot
of a valid sustain its
law. Its right to exist.
existence cannot
be inquired
collaterally. Such c. Corporation by
inquiry may be made estoppel group
by the Solicitor of persons
General in a that assumes to
act as a
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corporation knowing it management. It is

to be without one that holds
authority to stocks in other
do so, and enters companies for
into a purposes of control
transaction with a rather than
third person on for mere investment.
the strength of
such appearance. It b. Subsidiary Corporation -
cannot be one which is
permitted to deny so related to
its existence another
in an action corporation that the
under said transaction. majority of its
(Sec. 21) directors can be
It is neither elected directly or
de jure nor indirectly by
de facto. such other
corporation. (The
Corporation Code of
a. Stock corporation a
the Philippines
corporation (1) Annotated, Hector
whose capital stock de Leon, 2002
is divided ed.)
into shares and
(2) which is c. Affiliates - company
authorized to which is
distribute to subject to common
shareholders dividends control of a
or allotments of mother holding
the surplus profits company and
operated as part of
on the basis of
the system.
the shares
d. Parent and Subsidiary
held.
Corporation -
(Sec. 3)
separate entities
b. Non-stock corporation
with power to
does not issue
contract with each
stocks nor distribute
other. The
dividends to their board of directors
members. of the parent
company determines
6. AS TO its representatives
RELATIONSHIP to attend and
OF CONTROL vote in the
AND stockholders meeting of
MANAGEMENT its subsidiary.
a. Holding Corporation - The stockholders
it is one of the parent
which controls another company demand
as a representation in
subsidiary by the
power to elect
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the board established or where

meetings of it exercise
its subsidiary. its principal
functions.
7. AS TO PLACE (Art. 51, NCC)
OF INCORPORATION
a. Domestic corporation- 3. CONTROL TEST
a corporation determined by
formed, organized, or the nationality of
existing under the controlling
Philippine laws. stockholders or A
b. Foreign corporation corporation has a
a corporation juridical personality
formed, organized, separate and distinct
or existing under from that of
any laws other its stockholders
or members.
than those of Used for purposes
the of convenience
Philippines. (Sec. and to subserve
123) the ends of
justice.
C. NATIONALITY OF
CORPORATION Consequences/significance:
1. Liability for acts
Test to Determine or contracts
Nationality of obligations incurred
Corporations by a corporation,
1. INCORPORATION TEST acting through
determined its authorized
by the state of agents are its sole
incorporation, regardless liabilities.
of the nationality of (Creese vs.
the stockholders. CA, 93 SCRA
483)
2. DOMICILE TEST 2. Right to bring
determined by actions may
the state where bring civil and criminal
it is actions in
domiciled. The domicile its own name in
of a the same
corporation is the manner as natural
place fixed by persons. (Art.
the law creating 46, Civil Code)
or recognizing it; 3. Right to acquire
in the absence and possess property
thereof, it shall property
be understood to conveyed to or
be the place acquired by the
where its legal corporation is in
representation is law the property
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of the corporation (Stonehill vs. Diokno,

itself as a distinct 20 SCRA
legal entity 383)
and not that of A corporation
the stockholders or is not entitled
members. (Art. to invoke
44(3), Civil Code) the right
4. Acquisition of court of against self-
jurisdiction incrimination. (Bataan
service of Shipyard
summons may be vs. PCGG)
made on the
7. Liability for torts
president, general
a
manager, corporate
corporation
secretary, treasurer
is liable
or in-house counsel.
whenever a
(Sec. 11,
tortuous act is
Rule
committed by an
14, Rules of
officer or agent
Court).
under the express
direction or authority
5. Changes in
of the
individual membership
stockholders or
remains
members acting
unchanged and
as a body,
unaffected in its
or, generally, from
identity by changes
the directors as
in its
the governing body.
individual membership.
(PNB vs. CA,
(The Corporation
83 SCRA 237)
Code of the
Philippines Annotated, 8. A corporation is
Hector de Leon, not entitled to
2002 ed.) moral damages because
6. Entitlement to it has no
constitutional guaranties: feelings, no
emotions, no senses.
a. Due process (ABS-CBN vs.
(Albert vs. Court of Appeals)
University 9. Liability for Crimes
Publishing, since a
13 SCRA corporation is a
84) mere legal fiction,
b. Equal protection of it cannot
the law (Smith, be held liable
Bell & for a crime
Co. vs. Natividad, committed by its
40 Phil. 136) officers, since it
c. Protection against does not have
unreasonable searches the essential element
of malice;
and seizures.
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in corporation is 3. as a shield to
an entity with a confuse the
juridical legitimate issue;
personality separate 4. where the corporation
and distinct from is the mere
its members or alter ego or business
stockholders may be conduit of a
disregarded and the person; or
corporation will be 5. where the corporation is
considered as a so organized
mere associations of
and controlled and
persons, such that
its affairs are
liability will attach
directly to so conducted as
the officers and to make it
the stockholders merely an
(Umali vs. Court instrumentality, agency,
of Appeals, 189 conduit or
SCRA 529, 542 [1990]). adjunct of another
It is corporation (Umali
an equitable doctrine vs. Court
developed to of Appeals, 189
address situations SCRA 529, 542 [1990]).
where the separate
corporate personality of
a corporation Test in Determining
is abused or Whether to
used for wrongful Pierce the Veil
purposes. of Corporate
Personality
Grounds for 1. Control, not mere
Application of majority or
the Doctrine complete stock
(2006 Bar control, but
Examination) complete domination,
The doctrine of not only of the
piercing the finances, but of
veil of policy and business
corporate entity practice in respect
will apply to the
when the
transaction attacked
corporations separate
so that the
juridical
corporate entity
personality is
used: as to this
1. to defeat public transaction had at
convenience; the time no separate
2. to justify wrong, mind, will or
protect fraud, existence of
or defend its own;
crime; 2. Such control must
have been
used by
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the defendant to subscription

commit fraud requirement
or wrong, to i. Subscription
perpetuate the violation requirement
of a All incorporators
statutory or other must
positive legal subscribe to
duty, or at least one
dishonest and unjust (1) share
act in of stock
contravention of plaintiffs of the
legal right; corporation being
3. The aforesaid control organized.
and breach of ii. Capital Stock,
duty must minimum
proximately prevent subscription The
piercing the law requires
corporate veil; that the total
4. The wrong capital stock
doing must be to be
clearly and convincingly subscribed at
established. the time of
It cannot incorporation should
be presumed. (Lim at least
vs. Court of be twenty
Appeals, et al., five percent
G.R. No. 124715, (25%)
January of the
24, 2000 authorized capital
stock
E. CAPITAL STRUCTURE of the
corporation being
1. Number and organized.
qualifications of
incorporators 3. Corporate Term
i. Number of Fifty (50)
years from
Incorporators the date
(2006 Bar of incorporation
Examination) unless sooner
dissolved or
Incorporators are unless said period
required to be is
not less extended (Sec.
b. must be of 11).
legal age
4. Classification of Shares
2. Minimum Capital i. COMMON

Stock and SHARES are
the basic
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class of stock c. or both, and other

ordinarily preferences.
and
usually Kinds of Preferred
issued without Shares as to
Dividends
extraordinary 1. Cumulative preferred
rights shares a share
and which entitles
privileges. the holder
The owners thereof not only
thereof are the payment of
entitle to current dividends
a pro rata but also of
share in the dividends in arrears.
profits of
the corporation 2. Non cumulative
and in preferred shares
its a share
assets which allows the
upon holder thereof to
dissolution the payment of
and, current dividends
likewise, only without regards
in the to dividends in
management arrears.
of 3. Participating preferred
its shares a share
affairs which gives
without the holder
preference or the right to
advantage participate with the
whatsoever. holders of the
ii. PREFERRED common share
SHARES are in the remaining
those issued profits pro rata,
with par value, aside from the right
and to receive
preferences either the stipulated
with respect dividends at a
to: preferred rate.
a. assets after 4. Non participating
dissolution (PREFERRED preferred shares
a share
SHARES AS which allows
TO ASSETS) the holder to
b. distribution of receive the
dividends (PREFERRED stipulated dividends
at a preferred
SHARES AS TO rate
DIVIDENDS)
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i. Redeemable regardless
shares may of the
be issued existence
only of
when
expressly unrestricted
provided retained
for in
the articles earnings
of
incorporation; (Sec. 8), and
ii. Terms and provided further
conditions that the
affecting corporation
said shares has, after
must such redemption,
be sufficient assets
stated both in its books
in the to absorb
articles corporate debts
of and
incorporation liabilities.
and in
the TREASURY SHARES
certificates are shares
of stock that have been
earlier issued
representing as fully paid
such shares; and have
thereafter been
iii. Redeemable acquired by the
shares may corporation by
be purchase,
deprived donation,
of voting redemption or
rights through some
in lawful means
the articles (Sec. 9). When
of treasury shares
incorporation, are sold below
unless its par or
otherwise issued value,
there can be
provided in no watering
the of stock
Code. because watering
iv. Redeemable of stock
shares contemplates an
may original issuance of
be shares. PAR
redeemed, VALUE SHARES
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are shares paid and non

with a value assessable (Sec. 6).
fixed in the
certificates of
stock and the F. INCORPORATION
articles of AND
incorporation. ORGANIZATION
1. Promoter
NO PAR VALUE c. Purchase of
SHARES are treasury shares
shares having from the
no par value corporation
but have an
issued value PURCHASE
stated in the SUBSCRIPTION
OF
certificate or SHARES
articles of Refers to Refers to
incorporation.
unissued
Limitations:
shares issued
i. No par value
shares
shares can have an
Corporation still The
issue price of less
to be form corporation
than Php 5.00;
or already is already
ii. The entire
consideration for its in existence in
issuance constitutes existence
capital so that no The subscriber The
part of it should can exercise purchaser
be distributed all his right can only
as as a exercise
dividends; stockholder his right
iii. They cannot be even before upon full
issued as preferred full payment payment
stocks; of the of the
iv. They cannot be subscription purchase
issued by banks, price
trust companies, Corporate Corporate
insurance companies, creditors may creditor
public utilities and proceed cannot proceed
building and loan against the against
association; subscriber for the
v. The articles of his unpaid purchaser
incorporation must subscription in for the
state the fact that it
case the balance
issued no
corporate of the
par value shares
asset are not purchase
as well as
the number of sufficient to price because
said shares; satisfy their of
vi. Once issued, they claims the lack
are deemed fully of privity
of
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contract Tiu, April 06, 2003)

between
them
Kinds of Subscription
Contract
a. Pre incorporation
subscription
b. Post incorporation
Subscription
Subscriber may The c. Conditional Subscription
not be corporation d. Absolute Subscription
legally released can rescind
e. Subscription with a
from the or special term
payment of cancel the
his unpaid contract 3. Pre incorporation
subscription in case Subscription
unless no of non Agreements One entered
creditors into before
would be incorporation. Pre
fulfillment
prejudiced and incorporation
by the
all the subscription constitutes a
stockholders buyer.
binding contract
agree among the
thereto subscribers.
Subscription may Purchase NOTE: It shall
be in any of shares be irrevocable for a
form, not is period of at
covered by covered least six
the statute by the (6) years
of frauds. statute from the
of frauds date of
in underwriter is
case of an agreement by
purchases which the latter
amounting agrees, for a
to more certain
than compensation, to
Php 500.00 purchase a
stipulated amount
of stocks or
Consequently, the bonds, specified
subscribers are not in the underwriting
real parties in agreement, if
interest in a such securities are
case for rescission not purchased by
of the subscription those to whom
contract of another they are first offered.
subscriber because
they are not
parties thereto. (Ong 4. Consideration of Stocks
Yung vs.
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Valid stockholders and the

considerations State, and (3) the
in corporation and its
subscription stockholders.
agreement: iv. Effects as to
a. Cash actually received; Outsiders: Bind a
third person dealing
b. Property, tangible or with the
intangible corporation
necessary or v. Requisites for Validity
convenient for its
use and lawful a. Filed and registered
purpose; with the SEC
c. Labor or services b. Banks, public utilities,
actually rendered to insurance
the corporation; companies: needs
d. Previously incurred favorable
corporate indebtedness recommendation from
(Note: the appropriate agency
indebtedness involved that articles are in
must be one that accordance with
is acknowledged law
by the board); c. SEC shall examine
e. Amounts transferred AOI upon filing and
from unrestricted upon satisfaction of
retained earnings to all legal
stated capital; requirements, issue
certificate of
f. Outstanding shares in incorporation and only
exchange for then shall Corporation
stocks in the event have a personality
of reclassification separate and distinct
or conversion. from its
stockholders or
5. Articles of members
Incorporation d. Sworn Statement of
i. Definition: Basic the Treasurer
document defining regarding subscription
the charter of requirement vi. Basic
the corporation Content (Sec. 14)
ii. Significance: Condition a. The name of
precedent in the the corporation;
acquisition of b. The specific purpose
corporate existence or purposes
iii. Contractual for which the
significance: A corporation is being
contract
between 3 parties: e. The number of
(1) the State directors or
and the trustees, which
corporation, (2) the shall not be less
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than 5 nor more contributed by each;

than 15; and
f. The names, i. Such other matters
nationalities and as are not
residences of persons inconsistent with law
who shall act and which the
as director or incorporators may deem
trustees until the necessary
first regular directors and
or trustees convenient.
are duly elected vii. Adoption and Form:
and qualified in File with the
accordance with the Securities and
Code; Exchange
g. If it be a Commission articles
stock corporation, of incorporation
the amount of in any of
its authorized capital the official
stock in languages duly
lawful money of signed and
the Philippines, the acknowledged by
number of shares all of the
into which it incorporators.
is divided, viii. Amendment
and in case the
share are par value a. Majority vote
shares, the of BOD /
par value of trustees and
each, the names, vote or written
nationalities and assent
residences of the of 2/3
original subscribers, outstanding
and the amount capital stock,
subscribed and paid without
by each on prejudice to
his subscription, the appraisal
and if some or right of
all of the dissenting
shares are without stockholders.
par value, such b. Amendments
fact must be stated; take effect
upon approval
h. If it be a by
non stock SEC or from
corporation, the amount the date of filing
of its capital, with SEC if
the names, not acted upon
nationalities and within 6 months
residences of the from date of filing
contributors and the for a cause
amount not attributable to
the corporation. ix.
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Grounds for between and among

Rejection or the members of
Disapproval (Sec. 17) a corporate
a. That the articles family
of incorporation ii. Effect as to
or any amendment Outsiders: Does not
thereto is not bind outsiders
substantially in iii. Requisites for Validity
accordance with the
from prescribed herein; a. By law
provisions cannot
b. That the purpose contravene law
or purposes of b. By law
the corporation are provisions cannot
patently contravene the charter
unconstitutional, illegal,
immoral or c. By laws must
contrary to be reasonable and
government rules and cannot
regulations; discriminate.
c. That the Treasurers iv. Basic Content
Affidavit concerning (Sec. 47)
the amount of a. The time, place
capital stock and manner of
subscribed calling and conducting
and / or regular or special
paid is meetings of
false; the directors or
d. That the percentage trustees;
of ownership of b. The time and manner
the capital stock of calling
to be owned and conducting regular
by citizens or special
of the Philippines meetings of the
has not been stockholders or
members;
complied
c. The required quorum
7. Registration and
in meetings
issuance of
of stockholders or
Certificate of members and
Incorporation the manner of
voting therein;
8. Election of directors d. The form for proxies
or trustees of stockholders
and members
9. Adoption of By and the manner of
Laws voting them;
i. Definition: Meant
to be e. The qualifications,
an intramural duties and compensation
document to of directors
govern the relationship
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or trustees, officers outstanding capital

and employees; stock or
f. The time for holding members
the annual
election of
directors or trustees G. CORPORATE
and the mode POWERS
or manner of 1. GENERAL POWERS,
giving notice THEORY
thereof; OF GENERAL
g. The manner of
election or CAPACITY (Sec.
appointment and the 36)
term of office of g. To purchase, receive,
all officers take or grant,
other than directors or hold, convey,
trustees; sell, lease,
h. The penalties for pledge, mortgage
violation of the and deal with real
by laws; and personal property,
i. In the case of securities and
stock corporations, bonds
the manner of h. To enter into
issuing stock merger or
certificates; and consolidation;
j. Such other matters i. To make
as may be reasonable donations
necessary for the for public welfare,
proper or convenient hospital,
transaction charitable, cultural,
of its scientific, civic or
corporate business similar purposes,
and affairs. provided that no
donation is given
v. Amendment to any (i)
a. Majority vote of political party,
BOD / Trustees (ii) candidate and
and majority vote (iii) partisan political
of outstanding activity.
capital stock / j. To establish pension,
members at a retirement, and
regular or special other plans for
meeting duly the benefit of
called for the purpose its directors,
of amending or trustees, officers
repealing any and employees.
by laws or k. To exercise
adopting new by other powers
laws essential
b. By delegation or necessary to
of 2/3
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carry out its if it

purposes. prejudices
corporate creditors.
2. SPECIFIC POWERS, Since this is not
THEORY OF an inherent power,
SEPECIFIC there must
CAPACITY be strict
(Sec. 37 compliance with
44) requirements in Sec.
a. Power to extend 38 and Amendment
or shorten
corporate term provisions in
(2000 Bar Sec. 16
Examination) NO right of appraisal
Majority of BOD,
2/3 of capital i. Increase would
stock defeat very
Extension Sec. purpose of raising
37: right of capital
appraisal for ii. Decrease there
dissenting stockholders already is
return of part of
Shortening Sec. investments
81 allows for ALSO, investing into a
right of appraisal, corporation comes
but technically there with expectations
shouldnt be of possible
because investors increase / decrease
are also in it of shares
for the short
term (there Ways of
is no Increasing
novation) (Decreasing) Capital
b. Increase or decrease Stock
corporate stock 1. By increasing
(decreasing) the
Majority of BOD, no. of shares
2/3 of capital authorized
stock to be issued
Needs SEC approval without
i. Increase there increasing
must be (decreasing) the
certification of par value
subscription to at thereof
least 25% of 2. By increasing
increased stock, (decreasing) the
and at least par value
25% of that amount of each
paid up share
ii. Decrease without
wont approve increasing
LAW
(decreasing) ii. Usually with first

the no. thereof lien on important
assets
3. By increasing iii. Usually long period
(decreasing) both of time
the no. of NO right of appraisal
2. Advances by the
stockholders to the i. Would drain
corporation; or financial
3. Payment of unpaid resources
subscription ii. Regardless,
by the stockholders. corporations
creditors
c. Incur, create, or always have
increase bonded priority over
indebtedness CORPORATE assets
BOND: an obligation d. Sell, dispose, lease,
to pay a definite encumber all
sum of money or substantially
at a future all of corporate
time at a assets Majority of
fixed rate of interest BOD, 2/3 capital
stock
SEC Opinion Enterprise level
(1987): transaction:
only covers Although there
indebtedness of is no effect
corporation secured in relationship between
by real State and
/ personal Corporation, its just
property as if there is
Majority of BOD, resetting to
2/3 of capital starting point of
stock business life
Needs SEC approval Compare:
Corporation must i. Usual and regular
have minimum course of business
net worth of (Business
P 25M Judgment Doctrine)
and must have ii. Proceeds
been operating of
for at least 3 sale for
years conduct
Unlike normal of
indebtedness, which remaining business
does not require
2/3 approval: The test: It just
i. Usually very large has to be
amount ordinary so the
sale of all business
of a
LAW
corporation in light of shares sold during

using said sale
proceeds to set 3. To pay dissenting /
up anew withdrawing
still needs stockholders entitled
RATIFICATION to payment for
When no their shares when
ratificatory exercising appraisal
vote from right
the stockholders 4. To decrease cost
/ members of doing
needed: business by
i. If it is decreasing amount
necessary in the of dividends to
usual and regular be paid in the
course of business future
ii. If the proceeds 5. Other similar
of the sale or situations since
other disposition of this is non -
such property and exclusive
assets be appropriated f. Invest corporate funds
for the conduct in another
of the corporation or
remaining business. business for other
There is right purpose other
of appraisal because than primary
unlike purpose
shortening of May invest in
corporate life, where corporation /
there is business organized
automatic dissolution, for any purpose
here there is apart from the primary
none so purpose from
stockholders may be which the investing
stuck in a non business was
performing venture organized
Majority of BOD +
e. Purchase or acquire 2/3 vote of
own shares stockholders
provided: Sec. 42: When
i. there is investment is
an reasonably necessary to
accomplish primary
unrestricted
purpose: approval
retained earnings
of stockholders
to purchase not necessary
the same and i. Lies under business
its subscription, judgment doctrine
in a delinquency
sale, and ii. THUS whatever the
to purchase the primary purpose of
a corporation, it
LAW
has a choice declaring the

of placing payment of a
funds in deposit portion or all
accounts, money such earnings to
market, treasury the stockholders
bills, or even stocks (The Corporation Code of
of other the Phil.
corporations (fit into Annotated by Hector
power, discretion and de Leon,
purpose to obtain 2006 ed)
best returns GENERAL RULE:
for the corporation) Stock corporation cannot
So in Sec. 42, retain surplus
investment requiring profits in
ratificatory vote: excess of 100% of
when there is paid
management involved h. Enter into management
of the other contract with
company and not another corporation
just investment per (not with an
se. individual or a
g. Power to declare partnership-within general
dividends out of powers) whereby
unrestricted retained one corporation
earnings undertakes to manage
DIVIDENDS: all or
corporate profits substantially all of
set aside, declared the business of
and ordered the other
to be paid by corporation for a
the directors for period not longer
distribution among than 5
shareholders years for any
at a fixed time. one term.
FORMS: MANAGEMENT
1. Cash CONTRACT: is
2. Property an agreement
3. Stock whereby a
corporation
REQUISITES: undertakes to
1. Existence of manage or
unrestricted retained operate all or
earnings out of substantially all
which the dividends of the
may be declared business of
and paid (2005 another corporation,
Bar Examination) whether such
2. A corporate contracts are
resolution of the called service
board of directors contracts,
LAW
operating vs. Acoje Mining

agreements or Co., Inc. 7
otherwise (Sec. SCRAS 361)
44)
An act done
GENERAL RULE:
by a
There shall
corporation
be no
outside of the
management contract
express and
with another
implied powers
corporation unless:
vested in it
by its
Majority of BOD
charter and by
Stockholders owning the law. (Bar
majority shares Review Materials
in BOTH in Commercial
managing and Law, Jorge
managed corporation Miravite, 2002
EXCEPT where ed.)
2/3 votes needed
:if a Types:
stockholder/s in both (Philippine Corporate
managing and Law, Cesar
managed corporation Villanueva,
owns more than 2001 ed.)
1/3 of outstanding 1. Acts done beyond
voting capital the powers
stock of of the
managing corporation
OR majority of corporation as
BOD in managing provided in the
corporation is also law or its articles
majority of BOD in of incorporation;
managed
corporation 2. Acts or contracts
The management entered into in
contract must behalf of a
not be longer corporation by persons
than 5 years who have
no corporate
i. ULTRA VIRES ACTS authority (Note:
are acts which This is technically
are beyond ultra vires acts
the conferred powers of officers and
of a not of the
corporation or the corporation); and
purposes or objects 3. Acts or contracts,
for which it which are per se
is created illegal as being
as defined by contrary to law.
the law of its
organization. (Republic
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An ultra vires Can be Cannot be

act may be that ratified ratified
of: Can bind the Cannot bind the
a. The corporation; parties parties
b. The Board of if
Directors; and wholly or
c. The corporate officers. partly executed
d. Executory contracts
apparently authorized TEST whether or
but not a corporation
ultra vires may
the principle of perform an act:
estoppel shall apply. consider the logical
and necessary
relation between
ULTRA VIRES ACTS the act questioned
AND ILLEGAL and the corporate
ACTS purpose expressed
Ultra vires by law or in
(beyond powers) the charter. If
refers only to an the act is lawful
act outside or in itself
beyond corporate and not prohibited,
powers, including and is done
those that may for the purpose
ostensibly be within of serving
such powers corporate ends,
but are, by general and reasonably
or special contributes to the
laws, either promotion of those
prohibited or declared ends in a
illegal. It substantial and
is in this context not in a remote
that the Code and fanciful
has used sense. (Montelibano
the term. vs. Bacolod-Murcia
Milling Co., Inc., 5
SCRA 36)
ULTRA VIRES ILLEGAL
ACTS ACTS REMEDIES IN CASE
OF ULTRA
Not Unlawful; VIRES ACTS
necessarily against 1. State
unlawful, but a.morals,
Obtain a judgment of
outside public forfeiture; or
the b. policy,
The SEC may suspend
powers of or revoke
the and public the certificate of
corporation order registration
2. Stockholders
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a. Injunction; or stock from their

b. Derivative suit subscriptions;
3. Where it has
3. Creditors transferred the
a. Nullification of contract corporate property in
in fraud of fraud of its
creditors creditors; and
4. Where the corporation is
j. DOCTRINE OF insolvent.
INDIVIDUALITY OF Coverage of
SUBSCRIPTION the TFD:
1. If the corporation is
The subscription solvent, the
in shares of TFD extends to
stock is one, entire, the capital stock
indivisible, and represented
by the corporations
whole contract, which
legal capital.
cannot be
divided into portions.
2. If the corporation
(SEC Opinion)
is insolvent, the
TFD extends to
k. DOCTRINE OF
the capital stock
EQUALITY OF SHARES
of the
corporation as well
Where the articles of
as all of its
incorporation
property and assets.
do not provide
for any distinction of
the shares of
stock, all Exceptions
shares issued by to the
the corporation are TFD:
presumed to be
equal and enjoy 1.Redemption of
the same rights redeemable shares
and privileges (Sec. 8)
and are also subject 2.In close
to the same corporation, when
liabilities. (Sec. 6) there should be a
deadlock and
the SEC orders
1. Where the corporation the payment of
has distributed its the
capital among the
appraised value of
stockholders without
the stockholders
providing for the
payment of share. (Sec.
creditors; 104)
2. Where it had released
the subscribers H. STOCKHOLDERS
to the capital AND
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MEMBERS c. Fractional shares of

stock cannot
be voted;
RIGHTS OF d. Treasury shares
STOCKHOLDERS (Pandect have no voting
of Commercial rights as long as
Law and Jurisprudence, they remain in
Justice Jose the treasury;
Vitug, 1997 ed.) e. Holders of stock
declared
delinquent by the
1. RIGHTS OF A
BOD for unpaid
STOCKHOLDER
subscription are not
a. Managerial Rights entitled to vote or
b. Proprietary Rights to a
c. Pre emptive representation at
Rights any stockholders
d. Remedial Rights meeting; and
e. Appraisal Rights f. A transferee of
f. Inspection Rights stock cannot vote if
his transfer is
2. MANAGERIAL RIGHTS not registered in
the stock
a. Voting rights; and and transfer book of
b. Right to remove the coporation.
directors
Limitations:
LIMITATIONS on the
stockholders RIGHT i. The right
TO VOTE must be
a. Where the articles of exercised
incorporation during reasonable
provides for hours on business
classification of shares days;
pursuant to ii. The person
Sec. 6, non demanding the right
voting shares are has not
not entitled to improperly used nay
vote except as information obtained
provided for in through any previous
the last paragraph of examination
Sec. 6; of the books
b. Preferred or and records of
redeemable the corporation; and
shares may iii. The demand is
be deprived of made in good faith or
the right to for a
vote unless legitimate purpose.
otherwise provided in (Sec. 74)
the Code; The right extends,
in consonance
with equity,
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good faith, and fair shares. The

dealing, to a corporate acts involves
foreign subsidiary fundamental
wholly-owned by the changes in the
corporation. corporate structure
namely:
Books required to 1. An amendment to
be kept by the the articles of
corporation: incorporation that has
1. Book of Minutes the effect of
a. minutes 2. Sale, encumbrance or

of other
stockholder dispositions of all or
or substantially
members all of the
meetings; corporate property or
and assets
b. minutes of 3. Merger or consolidation
board
4. Investment of
meetings. corporate funds
2. Book of all business in another
transactions; corporation or in a
purpose other
3. Stock and transfer than the primary
book, in case of purpose (Sec.
stock corporations. 42)
GENERAL RULE:
Corporate records A dissenting
required by the stockholder
SEC to be kept who demands
and/or registered: payment of his
shares is no longer
1. Books of Account;
allowed to
2. List of Stockholders
withdraw from his
or Members; decision EXCEPT
and when:
3. Financial Records. 1. The corporation consents
to the
e. Appraisal right withdrawal
(2007 Bar 2. The proposed
Examination) is corporate action is
the right of a abandoned or
stockholder who rescinded by the
dissents from a corporation
fundamental or 3. The proposed
extraordinary corporate
corporate action to action is
demand payment disapproved by the
of the fair SEC where its
value of his
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approval is its first shares,

necessary it is
4. The Commission presumed to have
determines offered all of
that such those which it is
stockholder is not authorized to
entitled to appraisal issue.
right.
EXCEPTION: When a
f. Right to recover corporation at
stocks unlawfully sold its inception offers
for delinquent payment only a specified
of subscription portion of
g. Preemptive right its authorized capital
is the shareholders stock for
preferential right subscription. If
to subscribe subsequently, it offers
to all issues the remaining
or If the shares unsubscribed portion,
preferentially there would be
offered to a preemptive right
stockholder are not as to the
subscribed or remaining portion
purchased by him, it thus offered for
does not follow subscription.
that said shares
shall again When pre-emptive
be re-offered on a right not
pro rata basis available:
to stockholders a. When denied by
who already the article of
exercised their incorporation
preemptive rights. b. Shares requiring stock
There is no offering or
preemptive right with minimum stock
respect to the ownership by the
share to be republic
offered. c. Shares to be issued
in good
In case additional faith with the approval
issues of of the
originally authorized stockholders representing
shares: 2/3 of the
outstanding capital
GENERAL RULE: stock, in exchange
There is no for property needed
preemptive right. for corporate
This is on the purposes
theory that when a or in payment
corporation at of a previously
its inception offers contracted debt
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by a shareholder
PRE-EMPTIVE RIGHT in his behalf
vis a - and in behalf
vis RIGHT likewise of other
OF FIRST stockholders
REFUSAL (Philippine similarly against
Corporate Law, Cesar any person or
Villanueva, against the
2001 ed.) directors, officers
and/or controlling
PRE-EMPTIVE RIGHT OF shareholders of the
RIGHT FIRST REFUSAL corporation.
Requisites:
May be Arises onlyi. An existing cause
exercised virtue of action in
even when of favor of the
there contractual corporation
is no stipulations ii. The stockholder/member
express is must first
make a demand
provision also granted
upon the corporation or
of law under
the management
the
to sue unless
provisions such a demand
Close would be
futile
Corporation iii. The stockholder/member
Pertains Exercisable must be
to against such at the time of
unsubscribed another the objectionable
portion of stockholder acts or
the the transactions unless
authorized corporation the transactions are
capital stock. his continuously injurious
A shares of
right that stock iv. The action must
may be be brought
claimed in the name of
against the the corporation
corporation
The number
of shares of
4. REMEDIAL RIGHTS the stockholder is
a. Individual suit a immaterial since
suit instituted he is not suing
by a shareholder in his own
for his own behalf behalf
against the
corporation; Note: The
b. Representative suit mere trustee of
a suit filed shares
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registered in his WHERE: In the

name cannot city or municipality
file a derivative where the
suit for he principal office
is not a of the corporation
stockholder in is located, and if
his own right.
(Bitong vs. CA, practicable, in the
292 SCRA principal office of
304) the corporation.
5. LIABILITIES OF
STOCKHOLDERS However, in the
a. Liability to case of non-stock
the corporations, the by-laws
corporation for may provide
unpaid that meetings may
subscription be held at any
b. Liability to the place even outside
corporation for interest the principal
on unpaid place of the
subscription corporation. (Sec. 93)
c. Liability to
creditors of the
corporation on the I. BOARD
unpaid subscription OF
d. Liability for watered DIRECTORS /
stock TRUSTEES
e. Liability for
dividends unlawfully
paid EXCEPTIONS:
f. Liability for failure 1. In case of an
to create Executive Committee
corporation duly authorized in
the by-laws;
6. STOCKHOLDERS OR 2. In case of a
MEMBERS MEETING contracted manager
which may be an
WHEN: individual, a
1. REGULAR - partnership, or another
held on the date corporation. Note:
fixed in the by-laws In case the
or if not contracted manager
fixed on any date in is another
April; and corporation, the special
2. SPECIAL - held at
any time deemed rule in Sec.
necessary or 44 applies.
as so provided in
the by-laws. 3. In case of close
WHERE: corporations,
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the stockholders OR
may manage the DIRECTORS/TRUSTEES
business of the
corporation instead 1. Limitations imposed
by a board of by the Constitution,
directors, if statutes, articles
the articles of of incorporation
incorporation so provide. or by-laws.
2. Cannot perform
The power to constituent or those
purchase real property involving
is vested in fundamental changes in
the board the corporation
of directors or requiring the approval
trustees. While a of stockholders
or members.
corporation may
appoint agents 3. Cannot exercise
to negotiate for powers not
the purchase of possessed by the
real property needed corporation. (The
by the Corporation Code
corporation, the final of the
say will have Philippines Annotated,
to be with the Hector de
board, whose Leon, 2002 ed.)
approval will finalize
the transaction.
A corporation NATURE OF
can only exercise POWERS OF
its powers and BOARD OF
transact its business DIRECTORS/TRUSTEES
through its (The Corporation
board of directors Code of the
and through its Philippines Annotated,
officers and agents Hector de
when Leon, 2002 ed.)
authorized by a
board resolution or a.Under the Theory of
by its by-laws. Original Power,
(Spouses Constantine the powers of
Firme vs. the board
Bukal Enterprises and of directors or
Development Corporation, trustees are
G.R. No. ORIGINAL and
146608, October, UNDELEGATED.
23, 2003) The stockholders
or members
do not confer,
LIMITATIONS ON
nor can they
POWERS
revoke those
OF BOARD
powers.
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b.They are DERIVATIVE directors/trustees.

only in the sense
of being
received from In case of
the State corporate
in the stockholders or
act of members, their
incorporation. representation in
the board
can be achieved
2. TENURE, by making
QUALIFICATIONS their individual
AND representatives
DISQUALIFICATIONS trustees of
OF DIRECTORS the shares
or membership
to make
Qualifications: them
stockholders/members
1. For a stock of record.
corporation, ownership of
at least 1 5. Other qualifications
ownership of the as may be
prescribed in the
stocks appearing on
by-laws of the
the books of
corporation.
the corporation
6. Must be of legal
2. A majority of
age
the directors/trustees
must be residents of Disqualifications
the Philippines. of
(Sec. 23) Directors, Trustees
3. He must not or Officers
have been
convicted by final 1. Conviction by final
judgment of an judgment of offenses
offense punishable punishable by
by imprisonment imprisonment for excess
for a period of 6 years,
exceeding 6 years or
or a violation
of the 2. Violation of code
Corporation Code, committed within
committed within 5 years
five years from prior to date of
the date of his his election or
election. (Sec. 27) appointment.
4. Only natural Terms of

persons can Directors
be For 1 year or
elected until their
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successors are elected cumulative

and qualified voting cannot
(Hold over Principle) be
removed without
cause.
(Sec. 28)
3. ELECTION OF iii. A PROXY
DIRECTORS OR is a written
TRUSTEES instrument,
a. Quorum in Meeting signed by
for Election the
Majority of the stockholder
outstanding capital or
stock or member member
entitled to vote (as
Present either principal) and
in person filed before
or by the
representative by scheduled meeting
WRITTEN PROXY with the
b. How corporate
Viva Voce, or secretary, and
By ballot if given to
requested by any another
voting stockholder or person
member (as
c. Stock Corporations agent)
Methods of Voting authorizing
on the such person
Election of to exercise
Directors the
g. STRAIGHT VOTING voting rights
Every of the
stockholder through former.
this method, may
vote such number What is the
of shares period of validity
for as many of proxy?
persons as there Unless otherwise
are directors. provided in the
h. CUMULATIVE VOTING proxy, it should
i. Every stockholder is be valid only
entitled to such for the meeting
number of for which it
votes that his number is intended. No
of shares proxy shall be
multiplied by the valid and effective
total number of for a longer
ii. A minority period
director elected
through
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than five years at to the

any one time. stockholder/s, which
(Sec. 58) are transferrable
like stock
Instances whereby certificates, subject
Right to vote however, to the
by Proxy may trust agreement.
be exercised:
1. Election of the d. Non Stock
board of directors or Corporations
trustees; Members may cast
2. Voting in case of as many votes
joint ownership of as there
stock; are trustees to
3. Voting by be elected (seats)
trustee under
voting trust But may not cast
agreement; more than one vote
4. Pledge or mortgage of for a single
shares; candidate
5. As provided for in EXCEPT: when
its by the AOI or by
laws. laws provide
otherwise
Stockholders or e. Adjournment of Meeting
members may attend for Elections
and vote in May adjourn from
their meeting by day to day or
proxy (Sec. 58); but from time to time
directors cannot But NOT sine die or
do so. indefinitely if
Directors must always quorum is not
act in person. met (majority of
(Sec. 25) stockholders or
members are
A VOTING TRUST not present).
is an
agreement whereby NOTE: Proposed
one or more amendment to by
stockholders transfer laws stipulating
their shares of permanent director
stocks to a trustee, even without election
who thereby is contrary to
acquires for a law. (Grace
period of time the Christian High School
vs. CA)
voting rights (and/
or any other
rights) over 4. REMOVAL
such shares; and in OF DIRECTORS
return, trust OR
certificates are given TRUSTEES
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a. How may of their right

be removed of representation
iii. Upon previous
notice to under Sec. 24.
stockholders
or NOTE: Removal of
members Board of Director
Of the intention or Trustee is
to propose such different from removal
removal at of a
the meeting corporate officer.
Of the time and Stockholders
place of meeting approval is
Must be given necessary only for
by publication or the removal of
by written notice the members of
prescribed in the Board.
the For the removal of
Code. a corporate
b. If secretary refuses/ officer or employee,
fails to call the vote of the
for the special Board of Directors is
meeting or give sufficient for
the notice, or the purpose. (2001
there is no
secretary, call may Bar Examination)
be directly
addressed to 5. FILLING OV
stockholders or VACANCIES IN
members by THE OFFICE
demanding stockholder or OF DIRECTOR
member. OR TRUSTEE
c. Causes for Removal a. Ground for
Removal
1. May be with or 1. Removal by the
without cause stockholder or
Cause is members or upon
usually related expiration of term
to the 3 Vacancy shall
duties of be filled by
an officer the stockholder in
or director a regular
a. or special
loyalty meeting
b.obedience called for
c.diligence that purpose.
2. Provided that removal
without cause 2. Other causes other
may not be than expiration
used to deprive or removal by
minority stockholders
or members
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stockholders / or trustees
members. if
so stated
remaining in
constitute notice
of the
may be meeting
filled by a. There is
the MAJORITY a provision
vote of in the
the remaining by
directors. laws
If no quorum authorizing payment
filled of compensation;
by the or
stockholders in b. By a vote
a regular of the
or special Stockholders
meeting representing at
called for least majority
that purpose.
of the
outstanding capital
3. Proposed amendment
stock
of Articles
at a regular
of Incorporation
or special
resulting in increase
meeting.
in number of
directors /
LIMIT: In either
trustees
case, the total yearly
Vacancy
compensation of
shall
the directors
be
shall not exceed
filled
10% of the net
by
income before
the
income tax of
stockholders
the corporation during
in a
the preceding
regular
year.
or
special
meeting 7. DUTY OF LOYALTY
called To Act according
for that to the corporations
purpose best interest
Or in
the same DOCTRINE OF
meeting DISLOYALTY OF
CORPORATE A
authorizing OPPORTUNITY DIRECTOR
increase
of
directors
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Cover same Cover same to directors.

subject subject The rule is a
which which a presumption
is is that in making
business business a business
opportunity opportunity decision, the
Applicable to Only directors of a
directors, applicable corporation acted
trustees on an informed
DIRECTORS basis, in
and
and not good faith and
officers
to officers in the honest
belief that the
Does not Allows action taken
cover ratification. RATIFICATION was in the
Even a best interest of
if transaction the company.
99% of the a (Smith vs. Van
self Gorkam)
stockholders dealing
affirm the director 9. DUTY OF DILIGENCE
transactions, the the
a. Violations of Duty of
remaining vote of Diligence
stockholders i. Willfully and
stockholders can representing knowingly vote for or
still 2/3 of assent to
patently
oppose
outstanding unlawful
such a self
capital stock. acts of
the corporation
dealing ii. Guilty of gross
transaction and negligence or bad
file a faith in directing
derivative the affairs of
suit the corporation
Applies to Applies iii. Acquire any personal
both only to or pecuniary
stock and non stock interest in conflict
corporations with their
stock duty as
corporations director or
trustee
8. BUSINESS JUDGMENT vi. He is made,
RULE by specific
Business judgment provision of law,
rule exists to personally
to protect and answer for
promote the full his
and free exercise corporate
of managerial action (Tramat
power granted Mercantile
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Inc. vs. the fair value

CA) received at
b. Liability for time of issuance
Violation of Duty of the stock
of Diligence and its par or
shall be liable issued value.
jointly and severally
for all damages
resulting therefrom 11. CONTRACTS
suffered by the a. By self
corporation, its dealing
stockholders or directors
members with the
and other corporation
persons. Contracts between
the corporation
10. LIABILITY FOR and one or
WATERED STOCK more of its
Under Sec. 65 directors or trustees
on Liability of or officers
Directors for Watered are VOIDABLE
Stocks, if at the option
director of officer: of the corporation
but
Consents to VALID if the
issuance of stocks following are present:
for a
consideration less than i. Presence of director
its par or issued / trustee in
value; the board
Consents to payment meeting which
in consideration approved contract
other than was not necessary to
cash, which is constitute a
valued in excess of quorum.
its fair market
value; ii. Vote of director or
Having knowledge hereof trustee not
does not object necessary for approval
in writing of contract
and file the same iii. Contract is fair
with the and reasonable under
corporate secretary. the circumstances
Such director
or officer shall
be SOLIDARILY LIABLE
with the
stockholder
concerned (buyer)
and its
creditors for the
DIFFERENCE between
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iv. In case of an (voidable but

officer, contract has may be
been previously ratified), insofar
authorized by board as the
of directors. corporation
NOTE: If directors where he
presence was required has a
to meet the nominal interest
quorum (1st is
requisite) and I concerned.
his vote was NOTE: Corporate officers
necessary for are not
approval of the permitted to use
contract (2nd their position of
requisite), the contract trust and confidence to
may still be further their
valid if it is private interests.
RATIFIED by 2/3 of The doctrine
stockholders or of CORPORATE
members in OPPORTUNITY is
a meeting called precisely recognition
for that purpose. by the courts
that the fiduciary
standards could
b. Between not be upheld
corporation where the fiduciary
with was acting for
interlocking directors two entities with
competing interest.
Contract (Gokongwei Jr. vs.
between two SEC)
or
more corporations
with a 12. EXECUTIVE COMMITTEE
common director/s
may be a. Creation
valid A body
the created by the
outstanding by-laws and
capital stock) composed of
and his some members
interest is of the board
merely which, subject
NOMINAL, to the statutory
contract shall limitations, has
be treated all the authority
as under of the board
the to the extent
provisions of provided in the
Self board resolution
Dealings or by-laws. (The
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Corporation Code
of the
Philippines
Annotated, Hector
de Leon,
2002 ed.)
Must be provided
for in the
by-laws and
composed of not
less than 3
members of the
board appointed otherwise provided in
by the board. the by-laws;
and
May act by a 2. SPECIAL - held at
majority vote of any time upon
all of its the call of the
members president.
b. Limitations on its WHERE:

powers It cannot May be held
act on the anywhere in or
following: outside of the
1. Matters needing Philippines.
stockholder approval;
CORPORATE OFFICERS,
2. Filling up of board QUORUM
vacancies; a. Corporate
3. Amendment, repeal or Officers
adoption of President
by-laws; must be a
4. Amendment or repeal director
of any Treasurer
resolution of the may or may
Board which by not be a
its express terms director
is not d. Duties to be
amendable or performed by officers
repealable; and 5.
Cash dividend Enjoined on them
declaration. by law
Enjoined by
13. MEETINGS corporate by
laws
e. Quorum board
BOARD MEETING must act as a
(Sec. 53) body
WHEN: For transaction of
1. REGULAR - held corporate business
monthly, unless majority of
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number of directors implied

or trustees from a habit or
as fixed in the custom of
AOI doing
For corporate act to business
be valid, b. When Corporation bound
there must be a by the act
quorum and the of its
act must be President.
approved by majority
of directors or
In the absence
trustees PRESENT
of a charter
or by
For election of
law provision
officers majority
to the
of ALL
contrary, the
members of the
president is
board of directors or
presumed to
board of
have the
trustees, whether
authority to
all members are
act within
present or not.
the domain
f. Director or Trustees
of the general
cannot ATTEND
objectives of
or VOTE
its business
by proxy at
and within
board meetings.
the scope
of his or
POWERS OF her usual
CORPORATE OFFICERS duties. A
a. Rule on Corporate party dealing
Officers power with the
to bind the President of a
corporation corporation is
An officers entitled to assume
power as that he has
an agent the authority
of the to enter,
corporation must on behalf
be sought of the
from the corporation, into
statute, charter, contract that are
by within the scope
laws or in a of the powers
delegation of of said
authority corporation and
from such officer, that do not
from the violate any statute
acts of the or rule on
board of public policy.
directors formally
expressed or
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Distinctions shall be void

between a as being ultra
Corporate Officer vires.
and 2. If there is
Corporate Employee no over issue,
but no payment
has been made to
CORPORATE
cover the
CORPORATE OFFICER par or stated
EMPLOYEE value of the excess
Position is Employed shares, the
provided the latter would
for in action of constitute watered
the by stocks.
managing
laws 3. officer
If there is
or of no over issue
under the and
corporation watering of
Corporation Code stocks, the corporation
may be bound
RTC has NLRC has to honor the
jurisdiction in jurisdiction certificate (if duly
case of case signed and released
LABOR labor by its authorized
officers) in the
DISPUTE dispute
hands of a holder
in good
faith, reserving a
It is not
right of recourse
essential to the
that an aggrieved
ownership and/or
party may pursue
existence of
against the culpable
the share of
or unjustly
stock.
enriched party.
Where the
certificate of
stock reflects a
greater volume CAPITAL SHARES OF
of shares STOCK STOCK
than the actual
number of Amount paid Interest or
shares issued or in or right
to be issued, secured to which
the following the
rules may be be paid in
by the stockholder has
considered:
in the
1. To the extent stockholders
that there is upon which
management of
an over issue, the corporation the
the excess is to
issuance (over corporation, and
conduct its its
the authorized capital
stock or operation. It surplus
the stated capital) is the profits, and
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property of upon a or his agent

the corporation dissolution,
itself all d. The transferee
its must present
(monetary
assets remaining the indorsed
value).
after certificate to
payment the corporate
secretary who
of
shall effect
corporate
the transfer
debts.
in the
corporate books,
issue a
SHARES OF CERTIFICATE new stock
STOCK STOCK certificate in
favor of the
Unit of Evidence transferee and
interest the cancel the former
in holders certificate.
a ownership
corporation the Only absolute
stock and transfers need
his be registered. The
right as pledge or mortgage
itself need not be
shareholder recorded in the
Incorporeal Concrete stock and transfer
or book,
tangible but a chattel
mortgage must
intangible comply with the
Chattel Mortgage
property
Law, and a pledge
May be May be
would require
issued by the issued only
the shares
corporation the to be placed
even if the subscription in the possession
subscription is fully of the
not fully paid. paid. creditor/pledgee. The
agreement must appear
b. Negotiability in a public
instrument to
REQUIREMENTS FOR take effect
TRANSFER OF STOCK against third persons.
(Chemphil
a. In case of vs. CA, 251 SCRA
shares covered 257)
by a
certificate, the EFFECTS OF
indorsement of UNREGISTERED
the owner TRANSFER OF
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SHARES ISSUANCE OF
a. It is valid and NEW
binding as between CERTIFICATE OF STOCK
the transferor IN LIEU OF
and the transferee LOST, STOLEN OR
b. It is invalid DESTROYED ONES
as to the (Sec. 73)
corporation except 1. Filing with the
when notice is corporation an affidavit
given to the in triplicate
corporation for by the registered
purposes of owner setting forth
registration the circumstances
c. It is invalid as to how
as against the certificate was
corporate creditors lost, stolen or
and the transferor is destroyed, the number
still liable to of shares,
the corporation serial number of
d. It is invalid the certificate and
as to the the name of
attaching or the corporation that
executing creditors of issued the same.
the transferor,
as well as 2. Publication of notice
subsequent purchasers of loss by
in good faith the corporation in a
without notice newspaper of
of the transfer. general circulation
in the place
of the
c. ISSUANCE principal office,
OF once a week for 3
CERTIFICATE consecutive weeks.
OF
STOCK
No certificate of
stock shall be issued
until the full
amount of the
subscription is paid.
Basis:
Doctrine of
Individuality of
Subscription
D. PROCEDURE
FOR
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3. After the lapse of than cash, the

1 year from fair valuation of
the date of the which is
last publication, if less than par or
no contest has issued value
been presented, the (d) stock
corporation shall cancel dividend without
in its books sufficient retained
the certificate of earnings or surplus.
stock, which
has been 3.
lost, stolen or COLLECTION
destroyed, and issue in OF
lieu thereof a UNPAID SUBSCRIPTION
new certificate of
stock. 1.Voluntary payment
a. Upon the date
However, if the specified in the
registered owner subscription contract
files a bond or b. Upon call by the
other securities as Board of Directors
may be necessary to
the board, 2.Involuntary payment
the new certificate a. Extra-judicial
of stock may i. Delinquency sale
be issued even ii.Application of
before the dividends
3. WATERED b. Judicial action
STOCKS Note: The
prescriptive period in
Watered stock is case of
stock issued subscription of shares
not in begins to
exchange for its run only from the
equivalent in time the board of
cash, property, directors declares
shares, stock that the balance
dividends or are due and
services. It includes payable. It does
stock that not begin to
is issued (a) run from the date of
without consideration the
(b) issued subscription. (Garcia
as fully paid when vs. Suarez, 67
the corporation Phil. 441)
receives a sum
less than par 4. SALE OF
or issued value DELINQUENT SHARES
(c) issued
for a
consideration other
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1. If the subscription the unpaid

contract fixes subscription;
the date for 2. Subjects the shares
payment, failure to to interest,
pay on such expenses and costs;
date shall render
the entire balance 3. Disenfranchises the
due and payable shares from any right
with interest. that inheres to a
Thirty days shareholder,
therefrom, if still except the right
unpaid, the shares to dividends (but
become which shall be applied
delinquent, as of to any amount
the due date, and due on said
subject to sale, shares or, in the
unless the board case of stock
declares otherwise. dividends, to be
2. If no date is withheld by the
fixed in the corporation until full
subscription contract, payment of the
the board of delinquent shares.
directors can make (Sec. 43)
the call for B.Upon the director
payment, and specify owning delinquent
the due date. shares No delinquency
The notice stock shall be voted
of call is for or be
mandatory. The failure entitled to vote or
to pay on representation at
such date shall render any stockholders
the entire meeting, nor
balance due and shall the holder
payable with interest. be entitled to
any of the rights
Thirty days
of a
therefrom, if still
stockholder except
unpaid, the shares
the right to
become dividends in
delinquent, as of accordance with the
the date of call, provisions of this
and subject to Code until and unless
sale, unless the he pays
board declares the amount due
otherwise. (Sec. 67) on his subscription
with accrued
A. Effect of interest, and the
Delinquency: cost and expenses
A. Upon the of
stockholder advertisement, if
1. Accelerates the entire any. (Sec. 71)
amount of
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PROCEDURE FOR for 2 consecutive

THE SALE OF weeks. Notice
DELINQUENT shall state the
STOCKS (Sec. amount due on
68) each subscription
Call by resolution plus accrued
demanding payment interest, and the
of the balance. date, time and
However, if place of the
the contract of sale which
subscription shall not be
prescribes the date of less than 30
payment, no days nor more
call is necessary. than 60 days
Notice of the board from the date
resolution given the stocks become
to the delinquent.
stockholders by
the corporate Sale of the
secretary, either delinquent shares at
personally or by public auction.
registered mail.
Publication of
notice of call is HIGHEST BIDDER
not required. IN A DELINQUENCY
Failure of the SALE
stockholder to
a. The person
pay within a
participating in the
grace period
delinquency sale who
of 30 days
offers to pay the
from the date
full amount of
specified in the
the balance of
contract of
the subscription together
subscription or
with the accrued
in the call, the
interest, costs of
stocks shall be
advertisement
declared delinquent
and expenses of
and shall be
sale, for the smallest
subject to sale.
number of
Notice of delinquency shares. In other
served on the words, the
subscribers either amount of the
personally or bid does not vary
registered mail and but only the number
publication in a of shares
newspaper of to be bought
general circulation changes and
in the province or determines the highest
the city where bidder.
principal office b. If there is
is located no bidder as
for once a week mentioned above,
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the corporation may submitted to

bid for the same, the SEC.
and the total 2. Voluntary dissolution
amount due shall where
be credited as creditors are
paid in full in affected. This is
the books of done by a petition
the corporation. for dissolution
Such shares shall which must be
be filed with the SEC,
considered as treasury signed by a majority
shares. of the
members of the
K. DISSOLUTION AND board of directors,
verified by the
WINDING president or the
UP secretary, and upon
(LIQUIDATION) affirmative vote
of stockholders
1. DISSOLUTION representing 2/3 of
When the the
corporation ceases outstanding capital
to be a stock
juridical person 3. Dissolution by
shortening of the
METHODS: (Sec 117) corporate term.
This is done by
1. Voluntary
amendment of the
2. Involuntary The 3
articles of
Methods incorporation.
by which a
Stock
Corporation may
When Corporation
be
is Deemed
voluntarily
Dissolved:
Dissolve
WHEN DEEMED
are: METHOD
DISSOLVED
(2002
Sec. 118, Upon
Bar
when no issuance
Examination)
creditors of
are certificate of
1. Voluntary dissolution affected
where no SEC
creditors are Sec. 119, When judgment
affected. This is where creditors is rendered
done by a majority are dissolving the
vote of the affected corporation
directors and
resolution vote of at
least 2/3 vote of
the stockholders,
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Sec. 120, Upon approval provided for by

dissolution of the the law.
by amended 4. When the corporation
shortening articles ofhas offended against
incorporation or a provision of
corporate the expiration law for its
term of the creation or renewal.
shortened
5.the
When it has
term, as
committed or omitted
case may be.
an act which
management
INVOLUNTARY
committee or
DISSOLUTION
rehabilitation receiver, or
based on
Grounds: the SECs own
1. If the corporation findings, the
does not formally continuance of the
organize and business of the
commence the corporation would
transaction of its not be feasible or
business or the profitable nor
construction of its work to the best
works within 2 interest of the
years from the date stockholders, parties
of its incorporation, litigants, creditors
its corporate or the general
power ceases and public.
the corporation shall 8. When the corporation
be deemed is guilty of
dissolved. fraud in procuring
2. If the corporation its certificate of
has commenced the registration.
transaction of its 9. When the
business; but corporation is
subsequently becomes guilty of
continuously inoperative serious
for a period of misrepresentation as to
at least 5 what the
years, the same corporation can do or
shall be a ground is doing to
for suspension or the great prejudice
revocation of of or damage
its corporate to the general
franchise or public.
certificate of 10. Refusal of the
incorporation. corporation to comply
3. When the corporation or defiance of
fails to adopt any lawful
and file a code of order of the SEC
by laws restraining commission
in the manner of acts which
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would amount to a Annotated, Hector

grave violation de Leon, 2002
of its franchise ed.
and
11. Failure of the 2. LIQUIDATION
corporation to file The process by
required reports in which all the assets
appropriate forms of the
as determined corporation are
by the SEC within converted into liquid
the prescribed assets (cash)
period. in order
to facilitate the
payment of
EFFECTS OF obligations to
DISSOLUTION creditors, and the
a. Transfer of legal remaining balance, if
title to any, is to
corporate property be distributed to
to the stockholders the stockholders or
who become members.
co-owners thereof
b. Corporation ceases Methods:
as a body politic 1. By the corporation
to continue
itself through its
the business for
board of
which it was
directors/trustees;
organized c. It
cannot be revived 2. By a trustee
d. Dissolution does not to whom the
by itself imply corporate assets
the diminution or have been conveyed;
extinguishment of and
rights 3. By a management
e. The corporation committee or
continues as a rehabilitation
body corporate for 3 receiver appointed
years for by the SEC.
purposes of winding Note: The 3-year
up period of liquidation
does not apply to
f. Cessation of
Methods 2
corporate existence
and 3 as long
for all purposes
as the trustee
upon the expiration or the receiver is
of the winding appointed within
up period of 3 the said period.
years. (The
Corporation Code The termination of
of the the life of a
Philippines juridical entity
does not by itself
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cause the
extinction or
diminution of the
rights and liabilities
of such entity
nor those
of its owners
and creditors alike
(Sec. 145).
The word trustee
as sued in the
corporation statute
must be understood in
its general
concept which
could
Winding up Contemplates
CLOSE a
process continuance
CORPORATIONof
so corporate life
GREEN NOTES IN COMMERCIAL that
may
assets in
be
an
to
effort
LAW distributed restore the

corporation to
to
Prepareditsby: ATTY. RENATO S. RONDEZ
former
those entitled
successful
OTHER operation
COPORATIONS ORDINARY
1. CLOSE STOCK
CORPORATION CORPORATION
A special kind
of stock Its articles Its articles
corporation: of must
1. whose articles incorporation contain the
of incorporation need only special
should provide contain matters
that: the general prescribed
a. the number matters by Sec.
of stockholders
97,
shall not exceed enumerated in aside from the
20; Sec.
general
b. issued stocks 14 of
are subject matters
the Code.
to in Sec.
transfer 14.
restrictions, with a Failure to do
right of preemption so
in favor of the precludes a
stockholders or the de jure
corporation; and close
c.the corporation shall corporation
not be listed status.
in the stock
Its status 2/3 of its
exchange or its
as voting
stocks should not
an ordinary stock
be publicly
offered; AND stock or
2. Whose at least voting rights
2/3 of the voting corporation is must
stocks or not not be
voting rights affected owned
should not be by the or
owned or ownership of controlled by
controlled by its another
another corporation voting stock corporation
which is not or which
a close voting rights. is not
corporation. (Sec. a
96) close corporation.
Characteristics:
1. Stockholders may act Its Its articles
as directors articles may
without need of classify its
election and cannot directors.
therefore are liable classify its
as directors; directors.
Business of Business of
the the
corporation is corporation may
managed be
by managed by
the the
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2. Stockholders who are involved

in the management of the
corporation are liable in the same
manner as directors are.
3. Quorum may be greater than mere majority;
4. Transfers of stocks to others, which
would increase the number of stockholders
to more than the maximum are invalid;
5. Corporate actuations may be binding even
without a formal board meeting, if
the stockholder had knowledge or ratified the
informal action of the others;
6. Preemptive right extends to all stock
issues;
7. Deadlocks in board are settled by the
SEC, on the written petition by any
stockholder; and
8. Stockholder may withdraw and avail of his
right of appraisal.
Note: Special rules are provided for close
corporations because it is essentially an
incorporated partnership. (The Corporation Code
of the Philippines Annotated,
Hector de Leon, 2002 ed.)
The following cannot be a close corporation:

a. mining companies;
b. oil companies;
c. stock exchanges;
d. banks;
e. insurance companies;
f. public utilities;
g. education institutions; remedy in case the
remedy in case the
1. Cancel or alter any or by the
provision in the corporation regardless
articles of of the availability
incorporation or bylaws of unrestricted retained
earnings.
2. Cancel, alter or 5. Appoint a
enjoin any resolution provisional director
of the corporation 6. Dissolve the
3. Direct or prohibit corporation
any act of the 7. Granting such
corporation other relief as
4. Require the the circumstances
purchase at their may warrant.
fair value of
shares of any 2. NON
stockholder either STOCK
by any stockholder
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CORPORATIONS
A corporation RULES ON
organized for an CONVERSION (SEC
eleemosynary purpose, Opinion)
and no part of 1. Stock to non-
whose income is,
stock corporation
during its existence,
Conversion may be
distributable as
made by mere
dividends to its
amendment of the
members, trustees,
articles of
or officers, subject
incorporation. 2. Non-
to the
stock to stock
provisions of the
corporation
Corporation Code on
dissolution. (Sec. The corporation must
87) first be
Any profit which dissolved; mere
it may obtain amendment of the
as an incident articles of
to its incorporation would
operations shall, not suffice because
whenever necessary the conversion
or proper, be would change the
used for the corporate nature
furtherance of the from non-profit to
purpose or monetary gain.
purposes for which The conversion without
it was dissolving it
organized. first would be
tantamount to
distribution of its
Eleemosynary
assets or income
purposes: charitable,
to its members
religious, educational,
inasmuch as after
professional, cultural,
its conversion,
recreational, fraternal,
the asset of
literary, scientific,
the non-stock
social, civic service,
corporation would
or similar
now be treated
purposes, like trade,
as payment to
industry,
the subscriptions
agricultural.
of the members
(Sec. 88)
who will now become
They are governed
stockholders
by the same
of the corporation.
rules established for
stock corporations,
whenever pertinent, RIGHTS OF
subject, MEMBERS
however, to a
number of special 1. To be entitled
features. to 1 vote unless
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otherwise provided vote by

in the articles proxy in the
or by-laws articles
2. To vote by proxy or by-
unless laws
otherwise provided in Officers are Officers
the articles elected may be
or by-laws directly
by
to its the Board elected by
stockholders of the
Stockholders Members Directors members
may cannot transfer unless otherwise
their provided
transfer in
their shares membership the articles
unless allowed or by-
by laws
articles
Stockholders Members
or and directors may be
laws must act allowed by
Cumulative Cumulative in a the by-
voting is voting not meeting, laws to
available in available except vote by
the unless otherwise where mail or
election of provided a other similar
directors in mere written means
the articles assent
or is
laws sufficient or
Directors Trustees a
cannot may exceed formal meeting
15
exceed 15 in number unnecessary
number
RULES FOR
The term of The term DISTRIBUTION OF
a a ASSETS IN CASE
director is trustee is OF DISSOLUTION
1 years; (SEC. 94)
year 1/3 1. All liabilities and
the obligations of the
Board shall corporation shall be
elected paid, satisfied
annually and
discharged or
Stockholders Members adequate
provision shall be
may may be
made therefor
deprived 2. Assets held by the
vote by the corporation upon a
proxy right to
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condition requiring societies, organizations

return, transfer or corporations,
or conveyance, SPECIAL
and which CORPORATIONS
condition occurs
by reason of 1. EDUCATIONAL
dissolution, shall be CORPORATION
returned, transferred A stock or
or conveyed in non-stock corporation
accordance with such organized to provide
requirements facilities for
3. Assets received and teaching or
held by the instruction.
corporation subject
to limitations A favorable
permitting their use recommendation of
only for charitable, the DECS is
religious, benevolent, essential for the
educational or similar approval of its
purposes but articles and by-laws.
not held upon a
condition It is
requiring return, primarily
transfer or governed by
conveyance by reason special
of dissolution, laws and
shall be transferred suppletorily by the
or conveyed to provisions of the
one or more Code.
corporations, societies
or organizations
engaged in activities NON-STOCK
in the EDUCATIONAL
EDUCATIONAL
Philippines substantially CORPORATION
similar to CORPORATION
those of the
dissolving corporation A A special
pursuant to a non-stock corporation
plan of distribution which may a
4. Other assets, if corporation stock or non-
any, shall be stock
distributed in Governed by Governed by
accordance with the the special laws and
provisions of the provisions on by the
articles of non-stock general
incorporation or the provisions of
by-laws corporations the
5. In any other and Corporation Code
case, assets may
suppletorily by
be distributed to
the
such persons,
provisions on
LAW
stock corporation, usually

associated with
corporations the clergy,
consisting of one
person only and
his successors, who is
The number The number incorporated
of of the by law
board of board of to give some
trustees trustees legal capacities and
may be should not be advantages; and
more than 15 less than b)5 RELIGIOUS SOCIETIES
but not more - A non-stock
than 15. corporation governed
by a board
The term The term of
but with religious
of office of the
purposes. It is
office of the board of
incorporated by an
board trustees shall
aggregate of
of be 5 persons, e.g. religious
trustees years order, diocese,
shall be 3 synod, sect,
years etc.
4. FOREIGN
CORPORATION
A corporation formed,
2. RELIGIOUS organized or
CORPORATION existing under
A corporation any law other
composed entirely than those of
of spiritual persons the Philippines, and
and which whose laws allow
is organized for Filipino citizens
the furtherance of a and corporations
religion or to do business in
for perpetuating its own country
the rights of or state.
the church or (Sec. 123) The
for the administration definition espouses
of church the incorporation
or religious work test and the
or property. It reciprocity rule and is
is different from significant for
an ordinary non- licensing purposes.
stock corporation transacting business in
organized for religious the Philippines,
purposes. designated in a
Kinds: written power
a) CORPORATION SOLE of attorney by a
- A special foreign
form of corporation authorized
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to do business in such corporation is

the Philippines, entitled to license
on whom any
summons and other
legal processes GROUNDS FOR
may be served in REVOCATION OF LICENSE
all actions
or other legal 1. Failure to file annual
proceedings reports required
against the foreign by the
corporation. (Sec. Code;
127-128) 2. Failure to appoint
and maintain a
CONTENTS FOR resident agent; 3.
APPLICATION OF Failure to inform
LICENSE the SEC of
1. Date and term of the change of
incorporation residence of the
2. The address of resident agent;
the principal office 4. Failure to submit
in the country copy of amended
of incorporation articles or by-laws
or articles
3. The name and of merger or
address of resident consolidation;
agent 5. A misrepresentation
4. The place in in
the Philippines where material
it intends matters in
to operate reports;
5. The specific purpose 6. Failure to pay taxes,
or purposes imposts and
6. The names and assessments; 7. Engage in
addresses of the business
present directors unauthorized by SEC;
and officers of 8. Acting as dummy
the corporation of a foreign
1. A statement of corporation; and
its authorized capital 9. Not licensed to
stock do business in
2. A statement of the Philippines.
its outstanding capital (Sec. 134)
stock
3. A statement of TEST OF DOING
the amount actually OR TRANSACTING
paid in BUSINESS IN
4. Such additional THE PHILIPPINES:
information as may The Corporation Code
be necessary to does not
enable the SEC to define the phrase
determine whether
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doing or transacting survives (A called

business. + B = a
A. Jurisprudential A or B) consolidated
Test (Philippine corporation (A
Corporate Law, Cesar + B
= C)
Villanueva, 2001 ed.)
1. Twin Parties called Same
characterization test constituent
a) Whether the foreign corporations
corporation is Absorbed All constituent
maintaining or corporation corporation
continuing in the dissolved are
Philippines the without dissolved
body or liquidation of without
substance of the assets liquidation of
business for which assets;
it was
organized or whether consolidated
it has corporation
substantially retired
survives
from it and
Absorbing Consolidated
turned it over
corporation corporation
another (Substance
acquires all acquires all
assets and assets
Test); and
assumes and
b) Whether there
liabilities of assumes
is continuity of
the absorbed liabilities f
commercial dealings
corporation constituent
and arrangements,
regardless WON
contemplating
to some extent corporations
creditors
the performance regardless of
consented
of acts or WON
works or the creditors
exercise of some consented
functions
normally incident Stockholders of Stockholders
to and in absorbed of
progressive corporation
prosecution of, becomes constituent
the purpose stockholders of corporations
CONSOLIDATION absorbing becomes
MERGER corporation stockholders of
One or more Union of
existing or consolidated
corporations are more corporation
absorbed by corporations
another form
a PROCEDURE:
corporation
which corporation
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a. The board of shall be the

directors or surviving corporation
trustees of each and, in the case
corporation of consolidation,
shall approve a shall be the
plan of merger consolidated corporation;
or consolidation 2. The separate
existence of the
b. The plan shall constituent corporation
be submitted for shall cease, except
approval by the that of the
stockholders or surviving corporation;
members of each 3. The surviving or
of such consolidated corporation
corporation at shall corporation, shall
separate corporate be deemed
meetings duly transferred to and
called for the vested in such
purpose surviving or
c. The articles of consolidated corporation
without further
merger or
act or deed;
consolidation shall 6. The surviving or
be executed consolidated corporation
by each of shall be responsible
for all the
the constituent liabilities and
corporations d. obligations of each
Submission to the of the constituent
corporations;
SEC for approval
7. Any claim, action
e. The SEC may or proceeding
or may not pending by or
conduct a hearing against any of
the constituent
corporations may be
f. Issuance of
prosecuted by or
certificate of merger
against the
or consolidation
surviving or
consolidated corporations;
by the SEC
and
8. The rights of
the creditors or
EFFECTS OF lien upon the property
MERGER OR of any of
CONSOLIDATION (Sec. each constituent
80) corporation shall not
1. The constituent be impaired by
corporations shall become such merger or
a single consolidation.
corporation which,
in case of merger
LAW
GENERAL RULE: would end up with

When one corporation basically its
buys all the shares remaining assets
of another being the shares
corporation, this will of stock of
not operate to the acquiring
dissolve the other corporation and may
corporation and then distribute it
as the two as liquidating
corporations still dividend to its
maintaining their separate stockholders. (Philippine
corporate entities, Corporate Law, Cesar
one will not Villanueva, 2001
answer for the ed.)
debts of the other.
MERGER and
CONSOLIDATION SALE
EXCEPTIONS AS TO OF ASSETS
NON-ASSUMPTION OF Sale of assets Merger/con
LIABILITIES: is always solidatio
1. If there is involved n
an express
is
assumption of
liabilities;
not
2. If there is a
consolidation
or merger;
always
3. If the purchase
was in fraud of
involved
creditors; and 4. If
the purchaser is
There is Purchasing
merely a continuation
automatic
of the seller.
assumption of corporatio
DE FACTO liabilities n is
MERGER
One corporation not
acquiring all or generally
substantially all of
the properties of liable
another corporation for
in exchange for the
shares of stock debts
of the acquiring and
corporation. The liabilities
acquiring corporation of
would end-up with
the business the
enterprise of the selling
selling corporation whereas
the latter corporatio
LAW
n for the debts

and liabilities
of his transferor
since there is
no privity of
contract over debt
The obligations between
the transferee and
the transferors creditors
There is continuance of corporatio

the enterprise and of then b. BUSINESS-ENTERPRISE
stockholders ordinarily
LEVEL
The transferee merely
contempla continues the
tes same business of
the transferor since
liquidation
he obtains the
earning capability
of the venture
the The transferee is
liable
enterprise for the debts
and liabilities
Title to the assets Transferof the transferor
are transferred
by operation c. EQUITY LEVEL
title The purchaser takes
control and
ownership of the
virtue business by
purchasing the
contractshareholdings of the
corporate owner.
of law What the purchaser
a. ASSETS-ONLY LEVEL actually purchased
is the ability
The purchaser is to elect the
interested only in members of the
the raw assets board of the
and properties of corporation who run
the business. He is the business
not interested in
the entity
of the corporate
owner of the assets INSURANCE
nor of the
goodwill and other CONTRACT OF
factors relating INSURANCE
to the Agreement whereby one
business itself. undertakes for a
The transferee would consideration to indemnify
not be liable another against loss,
LAW
damage, or liability It is one of

arising from an unknownPERFECT GOOD
contingent event. FAITH
(Sec. 2, par. 2) Contract of
A contract of ADHESION
suretyship shall also insurance companies
deemed an insurance manage to impose
contract if made upon the
by a surety insured prepared
which is words used,
an insurance and the
language used
business.
is selected by
the lawyers of
NATURE AND
the Insurer (Qua
CHARACTERISTICS OF A
Chee Gan vs.
Law Union
CONTRACT OF
Rock Ins. Co.
INSURANCE:
Ltd. 52 OG
1982).
ALEATORY depends
upon some contingent
ELEMENTS OF AN
event. INSURANCE CONTRACT
Contract of INDEMNITY
1. The insured
for Non-Life recovery should possess
is commensurate to an interest
loss. It is an of some
investment in kind, susceptible
life insurance of pecuniary
secured by estimation
the insured known as
as a measure insurable
of economic security interest.
for him during Generally a
his lifetime person
and for his has insurable
beneficiary upon interest in
his death the subject
except one secured matter insured
by the creditor when:
on the life - He has such a
of the debtor. relation or
PERSONAL connection with or
contract - insurer concern in, such
contracts with reference to the subject matter
character of the insured and vice that he will
versa. derive pecuniary benefit
EXECUTORY & or advantage
CONDITIONAL on from its
part of the preservation or
insurer. will suffer
LAW
pecuniary loss - Insurable

or damage from interest in
its destruction, life must
termination or injury exist at the
by the time of
happening of the the effectivity
event insured against. of the policy
and need
- It is necessary not exist at
because its absence the time of
renders the the death
contract void. of the insured
as life
insurance is
not a
IN WHAT DOES contract of
A PERSON indemnity. It
HAVE INSURABLE is meant
INTEREST IN (LIFE) to give
financial
1. Himself, his spouse security to
and of his the insured
children. or his
2. Any person on beneficiaries
whom he depends (Sec. 19).
wholly or in fact However,
for education or insurable
support or in interest of
whom he has a creditor
pecuniary interest. on the life
3. Any person under of the debtor
legal obligation must
to him for the exist only at
payment of money, the time of
respecting property effectivity but
or services also at the
of which death time of the
or illness death of
might delay or the debtor
prevent performance. as in
this instance
4. Any person upon it is a
whose life, contract of
any estate or indemnity. His
interest vested in interest is
him depends. capable of
exact
WHEN MUST pecuniary
INSURABLE INTEREST measurement.
IN LIFE EXIST
LAW
IS THE CONSENT - A carrier or

OF THE INSURED depository of
REQUIRED any kind has
WHEN INSURANCE insurable interest
IS TAKEN in the thing
held by him
- The law does
not require such to the
the consent extent of his
of the person liability but not
insured to exceed
and such has the value
been considered thereof (Sec. 13,
as not 14, and 15).
essential to
the validity - But, a mere
of the contingent or
contract as expectant
long as there interest in
is anything, not
insurable founded on
interest at contract or
the directly actual right
damnify the to the thing
insured is is not
an insurable insurable
interest (Sec. 13). It as
may consist there is no
of: insurable
interest (Sec.
(a) An existing interest 16).
(b) An inchoate interest INCHOATE RIGHT

founded on The right to
an lay claim on
existing interest the fun is
dependent on the
(c) An expectancy coupled solvency of the
with an existing insurer and is
interest in subject to all
that out other obligations of
of the company arising
which the from its
expectancy arises; insurance contracts.
Note: Thus, the respondents
- Expectancy must interest is
be founded merely inchoate. Being
on an actual a mere
right to the expectancy, it has
thing or a no attribute of
valid contract property. At this
for it; time, it is
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nonexistent and may financial sector

never exist. Hence, in Asia. Does
it would BD have
be premature to insurable interest
make the security within the
deposit answerable meaning of the
for CISCOs present Insurance Code?
obligation to
Del Monte Motors. A: Yes, BD has
(Republic of insurable interest in
the Philippines v. his bank deposit.
Del Monte Motors, In case
Inc., of loss of said
Oct.9, 2006 G.R. No. deposit, more
156956) particularly to the
extent of the amount
INSURABLE INTEREST in excess
IN BANK of the limit covered
DEPOSITS by the
BAR EXAM; 2000 Philippine Deposit
(VIII - b) Insurance Corporation
Act, BD will be
Q: BD has bank damnified. He
deposit of will suffer
half a million pecuniary loss of
pesos.Since the limit P400,000.00, that is,
of trhe insurance his bank deposit
coverage of the of half a million
Philippine Deposit pesos minus
Insurance Corp P100,000.00
Act ( 3591) which is the
is only one maximum
tenth of BDs amount recoverable
deposit, he would from the PDIC.
like some
protection for the MUST THE BENEFICIARY
excess by taking IN PROPERTY
out an HAVE
insurance against COMPARE WITH
all risks or INSURABLE INTEREST
contingencies of IN LIFE:
loss arising from 2002 BAR EXAM
any unsound (N0.XVII)
or unsafe
banking practices INSURABLE
including unforeseen INSURABLE INTEREST
adverse effects INTEREST IN
of the IN LIFE PROPERTY
continuing crisis
involving the
banking and
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Must exist Must exist The The

only at the beneficiary beneficiary
the time time the need not must have
the policy policy takes have an insurable
takes effect insurable interest
effect and interest over the
and when the over the thing insured.
need not loss occurs life of
exist at the insured
the time of if
loss the insured
Unlimited Limited himself
except in to actual secured
life value the
insurance of policy.
effected interest However, if
by creditor in property the
insured. life
on life of insurance
debtor. was obtained
by
The An the
expectation expectation beneficiary,
of benefit of a
the latter
to benefit to
must
be derived be derived
from have
from insurable
the the
continued interest
continued over
existence
existence of the life
of the
life of the
property
need not insured insured.
have any must have
legal basis a
whatever. A legal basis.
CHANGE OF
INTEREST IN
reasonable PROPERTY INSURED
probability (Transfer or Sale
is sufficient of Insured
without Property) (1994
more. &
2000 Bar Exams)
A change
of interest in
any part of a
thing insured
unaccompanied by a
corresponding
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change of interest interest in the

in the insurance suspends
insurance suspends the latter until
the insurance to the interest in
an equivalent extent, the property and in
until the interests the insurance is
in the thing vested in
and the interest the same person.
in the insurance A has
are vested in transferred his interest
the same person. in the object
(Sec. 20) of the
insurance (the house)
to B without
Exceptions: 1) a transfer
change of interest of his interest in
after the the insurance
loss; 2) change to B. As
of interest in the interests in
one or more the object and in
of several things the insurance
separately insured; are in different
3) change persons at the
of interest by time of the loss,
will or succession; none can recover
and 4) transfer under the policy.
of interest by a
partner, joint WHAT CHANGE IS
owner, or common CONTEMPLATED
owner, to another An absolute transfer
partner, the of the property
accidental fire. not life,
Can A or B a lease/mortgage.
collect the
proceeds of the EXCEPTIONS TO THE
policy from the REQUIREMENTS OF
insurer? Explain INSURABLE INTEREST:
and give
(1) Life, health or
reasons for your
accident insurance
answer. (1952,
because they are
1959, 1980 Bar) not contracts of
indemnity and
A: Neither A, insurable interest is
the seller, nor not required
B, the buyer, at the time of
can collect under loss;
the policy. (2) A change of
A transfer interest after
of interest in occurrence of an
property without injury and results in
any transfer of loss does
LAW
not affect the that it will insure

right of the insured to the benefit
to indemnity; of whomsoever
- After a may become
loss, the liability the owner during
of the insurer the continuance
is fixed; of the risk.
(3) A change of
interest in one CONTINUATION OF
or more several ELEMENTS:
distinct things, 1. Insurable interest;
separately insured 2. The insured is
by one policy, subject to risk
does not of loss through
the destruction or
avoid as to the
impairment of that
others; (Sec. 22)
interest by the
(4) A change of
happening of the
interest in one designated risk;
or more several 3. The insurer assumes
distinct things, the risk of
separately insured loss;
by one policy, 4. Such assertion is
does not avoid part of a general
the insurance scheme to
as to the insured; distribute actual
(Sec. 23) loss among a
(5) A transfer of large group of
interest by one persons bearing
or several partners, somewhat similar
joint owners, risk;
or owners in insurable interest
common, who are or create a
jointly insured liability against
to the others, him,
does not avoid may be insured
insurance even against (Sec. 3).
though it has been
agreed that NOTE: IN RELATION
the insurance shall TO THE INSURANCE
lease upon an SO
allocation of the SECURE
thing insured;
(6) When notwithstanding 1. The consent of
a the husband is
prohibition, the not necessary for
the validity of
consent of the an insurance policy
insurer taken by a
is obtained; and married woman
(7) When the policy is on her life
so framed and that of her
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children. Under WHAT CANNOT BE

Art. 145 of the INSURED
Family Code, she An insurance
can also insure for or against
her separate property the drawing of
without the any lottery or
consent of the for or against
husband. any chance or
ticket in a lottery
2. A minor may drawing or
take out a contract prize. Because
for life, health gambling results
and accident in profit and
insurance with any insurance only seeks
company authorized to indemnify
to do business the insured against
in the Philippines, loss (Sec. 4).
provided it be
taken out on his PARTIES TO A
own life and the CONTRACT OF
beneficiary named INSURANCE:
is his estate, 1. INSURER every
father, mother, person,
husband, wife, child, partnership, association
brother or or corporation duly
sister. In so doing, authorized to transact
the married insurance business
woman/minor may exercise as provided in
all the the code may
rights or be an insurer. It
privileges under is the party
the policy. who agrees to
indemnify another
But What upon the happening
is the effect of specified
of the death contingency.
of the original
owner of a policy, 2. INSURED party
which covers to be indemnified in
the life of a case of loss
minor, ahead (Sec. 6).
of the minor? Anyone except a
all rights, public enemy
title and interest (a nation
in the policy at war with
shall automatically Philippines and every
vest in the citizen subject
minor unless of such nation.
otherwise provided in
the policy;
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BAR EXAM; 2000 (2005 BAR EXAM

(VIII - a) (N0. X - 2-
Q: May a a)
member of the
Moro Islamic Armando Geagonia
Liberation Front ( v. CA 241 SCRA
MILF ) 154
or its
breakaway group, SC:
the Abu Sayaff, Condition 3
be insured with is what is
a company known as other
licensed to do insurance clause
business under which is a valid
the Insurance Code provision allowed
of the by the insurance
Philippines? Explain. code in order
to prevent in
A: A member an increase in
of the MILF or the moral hazard
the Abu Sayyaf and to serve
may be insured as a warranty
with a company that no other
licensed to do insurance exists.
business under Its incorporation
the Insurance Code in fire policies
of the prevents over
Philippines. What insurance and adverts
is WHO the perpetration
MAY INSURE A of fraud. Its
MORTGAGED violation will thus
PROPERTY avoid the policy.
Both the However, in order
mortgagor and the to constitute a
mortgagee may take violation, the
out separate policies other insurance must
with the same be upon the same
or different subject matter,
companies. The the same
mortgagor to interest therein,
the extent of and the same
his property, the risk.
mortgagee to Double
the extent of insurance exists
his credit; where the same
(Sec. 8) person is insured
by several insurers
INSURANCE INTEREST separately in
ON MORTGAGED respect of the
PROPERTY same subject and
interest.
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The court ruled

that since the stocks a. The insurance is
in trade still deemed to
insured with PFIC be upon the
were mortgaged interest of the
property, separate mortgagor who does
insurances covering not cease to
different insurable be a party to
interests may be the original contract.
obtained by the Hence, if
mortgagor and the policy is
mortgagee. The cancelled, notice
insurable interests must be given
to the mortgagor.
of a mortgagor
b. Any act of the
and mortgagee are
mortgagor, prior
separate and distinct,
to loss, which
thus no double would otherwise avoid
insurance exists the policy
since the policies or insurance, will
of PFIC do have the same
not cover the effect although the
same interest as property is in
that covered under the hands of
the policy the mortgagee. Hence,
of Country Bankers if there is
Insurance Corp. a violation
The non-disclosure of the policy
of the policies by the mortgagor,
with PFIC was the mortgagee cannot
not fatal to recover.
Armandos right to c. Any act required
recover on his to be done
policy with Country by the mortgagor
Bankers Insurance Note: Union
Corp. Mortgage Clause
creates the
relation of insured
WHAT ARE THE and insurer
CONSEQUENCES WHERE between mortgagee
THE MORTGAGOR and the insurer
INSURES THE independent of the
PROPERTY contract of the
MORTGAGED IN mortgagor. In such
HIS OWN NAME case, any
BUT MAY act of the
THE LOSS mortgagor can no
PAYABLE TO THE longer affect the
MORTGAGEE OR rights of the
ASSIGNS mortgagee the
THE POLICY TO insurance contract
HIM: is now independent
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of that with subrogated in place

the mortgagor; of the
mortgagee.
WHAT IS THE
EFFECT OF 3. BENEFICIARY
INSURANCE PROCURED the person who
BY THE receives the benefits
MORTGAGEE WITHOUT of an
REFERENCE TO insurance policy
THE RIGHT OF upon maturity.
THE MORTGAGOR
a. The mortgagee may BENEFICIARIES IN

collect from the insurer LIFE INSURANCE
upon the Anyone, except who
occurrence of the are prohibited by law to
loss to the extent receive donations
of his credit. from the insured. Note
Art. 739 of the Civil
b. Unless otherwise stated, Code, hence the
the mortgagor following cannot be
cannot collect the designated as beneficiaries.
balance of the
proceeds after Those made between
the mortgagee is persons guilty of
paid. adultery or concubinage
c. The insurer, after at the time of
payment to the designation.
the mortgagee, becomes Those guilty of the
subrogated to
same criminal offense
the rights of
in consideration thereof.
the mortgagee against
the mortgagor
BAR EXAM (2008)
and may collect
the debt to the
extent paid to the Q: On January
mortgagee. 1, 2000,
d. The mortgagee after Antonio Rivera
payment cannot secured a life
collect anymore insurance from
from the SOS Insurance Corp.
mortgagor but if for P1 Million
he is unable with Gemma
to collect in Rivera, his
full from insurer, adopted daughter,
he can recover as the beneficiary.
from the mortgagor. Antonio Rivera
e. The mortgagor is died on March
not released from 4, 2005
the debt because and in the police
the insurer is investigation,
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it was ascertained married

that Gemma could not be
Rivera participated named as a
as an beneficiary
accessory in the and SSS vs.
killing of Antonio Davac, 17
Rivera. Can SOS SCRA 863, where
Insurance Corp. the insured
avoid liability by designated
setting up as his second
a defense the wife as a
participation of beneficiary was
Gemma Rivera upheld as
in the killing the latter
of Antonio Rivera? was not aware
Discuss with of the
reasons. first marriage.
A: Sec. 12:
Beneficiary in life
The interest of a
and property
beneficiary in a
insurance (BAR
life Those
EXAMS; 2005)
made to
a public
officer or Philippine American
his wife, Life Insurance
descendants/ascendants Company v.
by reasons of Pineda (175 SCRA
his office. 416)
-A prior SC:
conviction for Under the law,
adultery/concubinage the beneficiary
is not designated in a
required, it life insurance contract
can be proven cannot be
by changed without
preponderance his or her consent
of evidence in because of
the same the beneficiarys
action vested interest in
nullifying the the policy. In
designation. Note this regard, it is
the cases worth nothing
of Insular that the
Life vs. Ebrado, beneficiary designation
80 SCRA indorsement which
181, where forms part of the
a policy in the name
common law of Rodolfo
wife of the Dimayuga states
insured who is that the designation
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of the beneficiaries insured because

is irrevocable it remains
and no right with the spouses.
or privilege under
the policy 2. The automatic
may be exercised, assignment of the
or agreement made policy to the lessor
with the is void for
insurance company being contrary to
to any change law and public
in or amendment policy. The proceeds
to the policy of the fire
without the consent insurance policy
of the said rightfully belong
beneficiary. Accordingly, to the Sps. Cha.
based on the 3. The insurer cannot
provisions of the be compelled
contract and the to pay the
law applicable, it is proceeds of the
only with the policy to the lessor
consent of all who has no
the beneficiaries insurable interest
that any change on the property
or amendment to insured.
the policy irrevocable beneficiary
concerning the is revocable as
irrevocability the instance of
of beneficiaries the innocent spouse
may be legally in cases
and validly effected. of termination of:
(1) a subsequent
marriage;
Insurable interest (2) nullification of
on property marriage;
(BAR EXAMS, 2009) (3) annulment of
marriage; and
(4) legal separation (Art.
Spouses Nilo Cha 34, (4) Family
v. CA Aug. Code
18, 1997
SC: WHAT IS THE EXTENT

1. The lessor cannot OF THE
validly be a INTEREST OF THE
beneficiary of IRREVOCABLE
the fire insurance BENEFICIARY IN A
policy taken by LIFE INSURANCE
the spouses Cha. It CONTRACT
has no The beneficiary
insurable interest has a vested
on the merchandize right that cannot
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be taken away surrender value.

without his consent. (Grogorio v. Sun
In fact should Life
the insured Assurance Company
discontinue payment of Canada, 48
of the premium, Phil. 53 [1925])
the beneficiary may
continue paying. 2005 BAR EXAM
Neither can the
(NO. IX- 2)
insured get a
loan or obtain Q: Jacob
the cash surrender obtained a life
value of the policy insurance policy
without his for P1 Million
consent (Nario designating irrevocably
vs. Philamlife, 20 Diwata, a
SCRA 434). friend, as his
Note: Where the beneficiary. Jacob,
wife and minor however, changed
children were named his mind and
irrevocable wants Yob and Jojo,
beneficiaries, wife dies, his other
the husband seeks friends, to be
to change included as
the beneficiaries beneficiaries
with the consent considering that
of the children. the proceeds of
The consent is the policy are
not valid due to sufficient for the
minority. (Philamlife three friends.Can
vs. Pineda, 170
Jacob still add Yob
SCRA 416)
and Jojo as his
beneficiaries?
BAR EXAM; 2005 Explain.
(NO. IX A: The insured
-1) cannot add other
Q: What are beneficiaries as this
the effects of would diminish the
an irrevocable interest of Diwata
designation of a who is the
beneficiary under irrevocably designated
the Insurance beneficiary. The
Code? Explain. insured can only
do so with the
A: The irrevocable consent of Diwata.
beneficiary has a
vested interest in
the policy,
including its incident WHAT IS THE
such as the INTEREST OF AN
policy loan and cash IRREVOCABLE
BENEFICIARY IN
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AN ENDOWMENT Whether intentional

POLICY or not, it entitles
the injured
His interest is
party to rescind
contingent as
benefits are to the contract of
be paid only if insurance (Sec.
the assured dies 27).
before the specified
period. If the insured 2001 BAR EXAM
outlives the (N0.XVI)
period, the benefits Q: A applied
are paid to the for a non-medical
insured. life insurance.
WHO RECOVERS The insured did
IF BENEFICIARY not inform the
PREDECEASES insurer that one
THE INSURED week prior to
If designation is his application
irrevocable, the legal for insurance,
representatives of the he was examined
beneficiary may recover and confined at
unless it was stipulated St. Lukes
that the benefits are hospital where
payable only if he
living. was diagnosed
for lung
If revocable, and no cancer. The
change is made, insured soon
benefits passes thereafter died
the estate of in a plane
insured. The rulecrash. Is the insurer
holds also if benefits liable
were payable only considering that
living or if the fact concealed
had no bearing
surviving and the beneficiary
with the cause
dies before the
of death of
insured.
the
insured? Why?
CONCEALMENT
A: No. The
Neglect to
concealed fact is
communicate that
material to the
which a party
approval and issuance
knows
of the
and ought
insurance policy.
to communicate
It is well
(Sec. 26).
settled that the insured
need not die
EFFECT OF of the disease
CONCEALMENT he failed to
disclose to the
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insurer. It must be
is sufficient that disclosed.
his non-disclosure
misled the insurer in
HOW IS THE
forming his
MATERIALITY OF
estimate of the
THE CONCEALMENT
risks of the
OR REPRESENTATION
proposed insurance
DETERMINED?
policy or in
making inquiries. Determined not
by the event,
but solely by
WHO MUST PROVE
the probable and
KNOWLEDGE
reasonable influence
OF THE FACT
of the facts
CONCEALED?
upon the party
The party claiming to whom the
existence of communication is
concealment must prove due, in forming
that there his estimate of
was knowledge on the disadvantages
the part of of the proposed
the party charged contract or in
with concealment. making his
inquiries. (Sec. 31)
AS OF WHAT MUST THERE
TIME MUST THE BE A
PARTY CHARGED CAUSAL
WITH CONCEALMENT CONNECTION
HAVE KNOWLEDGE BETWEEN THE FACT
OF THE CONCERNED
FACT CONCEALED AND THE CAUSE
OF THE LOSS?
- Generally, at
the time
of the Not necessary. It
effectivity of is sufficient that
the policy. the non--
Note that even if revelation has misled
a party the insurer
did not know in forming its
of the estimate of
existence at disadvantage of
the crime fixing the premium.
of application
but before WHAT FACTS MUST
its effectivity,
BE
there is
COMMUNICATED?
concealment.
after effectivity but (a) Such fact within
before reinstatement his
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knowledge information on
as concealment a matter
requires proving or
knowledge of tending to
the fact prove falsity
concealed by of a
the party warranty entitles
charged with the
concealment. insurer to rescind.
(b) Fact/s material (Sec. 29)
to the
contract
1996, 1997, and
it must be
2001 BAR EXAMS
of such nature
that had Sun Life Assurance
the insurer Co. of Canada
known of it, vs. CA, June 22,
it would 1995
not have
accepted the Robert Bacani was
risk or issued life insurance
demanded a non-medical policy
higher premium. for P100,000.00
(c) That the other with his mother
party as beneficiary. In
had no means his application, he
of concealed his
ascertaining such confinement at the
fact/s. Lung Center of
(d) That the party the Philippines for
with a certain illness.
duty to He died of a
communicate plane crash.
makes no The insurance
warranty (Sec. company refused
28) as to pay for breach
the existence of the
of a insurance contract.RTC
warranty make and CA
the granted the claim
requirement to of the
disclose beneficiary because
superfluous but the concealed facts
an were not material
intentional or irrelevant to
fraudulent the cause of
omission on death.
the part of
the one insured SC:
to
communicate
The SC
LAW
reversed the ruling contract as

and held that the provisions also
the information which apply to a
the insured modification (Same
failed to disclose with concealment)
was material and
FORMS AND KINDS
relevant to the
OF
approval and
REPRESENTATION
issuance of the
policy. The facts It may be Oral
concealed would or Written and
have affected R can either be:
E P R E
(a) Affirmative
S E N T
an
A T I O
affirmation
N
of a fact
Oral or written existing when
statement of a the contract
fact or a begins.
condition affecting (b) Promissory
the risk made statement
by the insured by the insured
to the insurance concerning
company, tending what is
to induce the to happen
insurer during the
to take the risk. term of
(Sec. 36) the insurance.
WHEN MAY
REPRESENTATION BE IS A
MADE REPRESENTATION PART
OF THE
Since it is CONTRACT
an inducement
to entering a No, it cannot
contract it qualify as an express
must ordinarily be provision in a
made at the same contract (it
time as or is a collateral
before the inducement to the
insurance of the contract but it
policy (Sec. 37). may qualify an
Note that it can implied warranty.
also be made (Sec. 40)
after the issuance CAN A
of the policy REPRESENTATION BE
when the purpose WITHDRAWN OR
thereof is to ALTERED
induce the insurer
to modify an Yes, as long as
existing insurance the insurance has
LAW
not yet been effected WHAT IS THE

and the insurer EFFECT OF
has not yet MISREPRESENTATION
been induced to ON A MATERIAL
issue the policy. POINT? WHEN
If withdrawn or IS THE RIGHT
altered afterwards, TO RESCIND
the contract can SUPPOSED TO BE
be rescinded as EXERCISED
the insurer has
It is
already been led
exercised previous
to issue the policy.
to the commencement
(Sec. 41)
of an action
TO WHAT DATE on the contract
DOES A (Sec. 48). Note
REPRESENTATION REFER the case of Tan
Chay Hing vs.
West Coast Life
It must be
Insurance Co., 51
presumed to refer
Phil 80, where
to the date on
an insurer
which the contract
interposed the defense
goes into effect.
in an action
(Sec. 42)
to claim
Note: There is the proceeds that
no false the contract is
representation if null and void.
it is true at Section 48 was
the time the contract held to apply
takes effect only when there
although false is a
at the time it is contract to
made. rescind.
WHEN IS THE It is also
INSURED REQUIRED qualified by 2nd
TO DISCLOSE paragraph of Section
INFORMATION FROM 48 which
A 3RD provides that after a
PERSON policy of
When the life insurance payable
information material on the death
to the transaction of the insured
was acquired by shall have been
an agent of in force
the insured, as during the lifetime
knowledge of the of the insured
agent is also for a period
knowledge of the of 2 years
principal. from the date of
issue or its last
LAW
reinstatement, the would

insurer cannot receive
prove that the policy payment of
is void ab the proceeds
initio or is subject without
to rescission question as
by reason of a to
fraudulent validity or
concealment or the policy.
misrepresentation of
the insured or REQUISITES OF
his agent (known INCONTESTABILITY CLAUSE
as the
incontestability clause).
(1) It is a life
insurance policy;
WHAT IS THE (2) It is payable
THEORY AND on the death
OBJECT BEHIND of the insured;
THE (3) It has been in
INCONTESTABILITY CLAUSE force during the
lifetime of the
(a) On the part insured for at
of the insurer least two years
an from
insurer date of
has/should issue/or last
have a reinstatement.
reasonable
opportunity WHAT DEFENSES
to investigate ARE NOT
the statements BARRED BY
which are INCONTESTABILITY EVEN
made by AFTER THE
the applicant LAPSE OF 2
an that after YEARS?
a definite
period, it (1) non-payment of
should no premiums;
longer be (2) lack of insurable
permitted to interest;
question its (3) that the cause
validity. of death was
(b) On part of excepted or
the not covered
insured by the terms
its object of the
is to give policy;
the greatest (4) that the fraud was
possible of a particular
assurance that vicious
the beneficiaries
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type such also covered by

as: the rules.
a. policy was taken in P O L I C
furtherance of a Y
scheme to
murder the insured; It is the written
instrument in
b. where the which a contract
insured of insurance is
substituted another set forth. (Sec.
for the medical 49)
examination; WHAT MUST
c. where the beneficiary
feloniously killed A
the insured; POLICY
SPECIFY?
CONCEALMENT
A
REPRESENTATION
policy
COMPARED
must
1. In concealment
the insured specify:
withholds information
(1) The parties whom
of material facts,
the contract is
while in
made;
representation
(2) The amount to
the insured makes
be insured except
erroneous
in open or
statements;
running policies;
2. In concealment
(3) The premium, or if
and misrepresentation
the premium is
both give the insurer
to be
the right determined at the
to rescind the termination of the
contract of contract, a
insurance; statement of the
3. The materiality of basis and rates upon
concealment and which the final premium
representation are is to be
determined by the determined;
same rules; (4) The property or
4. Whether the life insured;
concealment or (5) The interest of
representation is the insured in
intentional or not, the property insured,
the injured party if not the
can rescind; absolute owner;
5. Since insurance (6) The risks insured
contracts are of against;
utmost good faith
the insurer is
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(7) The period during valid for

which the 60 days whether
insurance is or not
to continue. a premium
(Sec. 51) is paid but
may be
cancelled by
COVER NOTES
either party
upon at
It is a least 7-day
written notice
memorandum of to the other
the most party.
important terms (2) If the other
of a note is
preliminary contract not cancelled,
of a regular
insurance intended policy must
to give be issued
protection pending within
investigation 60 days from
by the the date of
insurer of the issue of
risk or until the cover
the insurance note
of the formal including within
policy its terms
(Sec. 52). It is the
also known identical
as insurance.
binding slip (3) It may be
or receipt extended with
or binder. the written
approval of
EFFECTIVITY OF A the commissioner
COVER NOTE but may
be dispensed
The effectivity of a
with by
cover note is
a certification
60 days
of the
as within such
President, Vice-
period, a policy
President or
shall be issued
General
including in
Manager of
its terms the
the insurer
identical assurance
that the
found under the
risks
cover rate and the
involved and
premium therefore.
the extension
It may
do not violate
(1) A cover
the
note is
code.
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(4) Insurance be integrated in

companies the regular policy
may impose subsequently
a deposit issued so that
premium premiums on the
equivalent to regular policy
at least should include that
25% of for the cover
the estimated note (Pacific Timber
premium but vs. CA, 112
in no case SCRA 199);
less than
BAR EXAM; 2009
Php500.00.
(IV)
IS PAYMENT OF
A PREMIUM
PAYMENT FOR
THE
COVER NOTE
NECESSARY TO BE
PROTECTED AGAINST
RISK INSURED
AGAINST?
Cover note held
to be binding
despite the absence
of a
premium payment
for its issuance.
No separate
premiums are
intended or required
to be paid
on a cover
note because they
do not contain
particulars of the
property insured
that would serve
as the basis
for the
computation of
premiums such
being the case no
premium can be
fixed. The cover
notes should not
be treated as a
separate policy
but should
LAW
Q: Antarctica Life available only

Assurance Corporation to
(ALAC) publicly persons 50
offered a to 75 years
specially designed of age?
insurance policy Why or
covering persons why not? (2%)
between the ages
of 50 to b. Yes, one of
75 who may the exception
be afflicted of the cash
with serious and and carry rule is
debilitating illnesses. in life
Quirico applied insurance when
for insurance the grace
coverage, stating period
that he was already applies. in
the case at
80 years
bar, the issuance
old. Nonetheless,
of the
ALAC approved his cover note shows
application.Quirico that the
then requested ALAC insurer granted a
for the grace
issuance of a period.
cover note while
he was trying WHOSE INTEREST
IS INSURED
to raise
funds to pay the (1) The insurance
insurance premium. proceeds shall
ALAC granted the be applied
request. Ten days exclusively to
after he the proper
received the cover interest of
note, Quirico the person in
had a heart whose
seizure and name or for
had to be whose benefit it
hospitalized. He is made
then filed a claim unless
on the policy. otherwise
specified in
the
a. Can ALAC policy (Sec.
validly deny 53).
the claim
on the MAY A 3RD
ground that PERSON SUE
the insurance THE INSURER
coverage, as No, in general
publicly rule unless there
offered, was is stipulation.
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Unless otherwise specified person cannot

in the policy, sue the insurer
a 3RD person recourse
may sue if: is against
the insured
(a) The insurance alone.
contract contain (2) If the contract
stipulation in favor is executed with
of a 3RD an agent or
person, the latter trustee as the
though not a insured, the fact
party may sue that his principal
to enforce before or beneficiary is
the contract is
the real party
revoked by
in interest may
the parties;
be indicated by
(b) The insurance
describing the insured
contract
as the
provides for
agent/trustee or by
indemnity against
general words in
liability to
the policy
3RD persons.
(Sec. 54). If not
The
indicated, it is
test to
as if the
determine
insurance is the
whether a taken out by the
3rd person agent/trustee alone,
may directly consequently the
sue the insurer principal has
of the no right against
wrongdoer is: the insurer;
if the
contract
provides (3) If a partner
indemnity against or part owner
liability to effectsinsurance, it is
3RD persons, necessary that
then the latter the terms of
to whom the policy should
the insured be such as
is liable are applicable to
may directly the joint or
sue the insurer, common interest
on the other so that it may
hand, if be applicable to
the insurance if the interest of
for the his co-partners/owners
indemnity against (Sec. 55).
actual loss Consequently, the
or payment policy must state
then the 3rd that the interest
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of all is agreed
insured, if not, it upon, but
is only the is
interest of the left to
one be
getting the ascertained
policy that is in case of
insured; loss (Sec. 60).
What is
(4) When the description mentioned, as
of the insured the amount
in the policy is not the
is so general value of
that it may the property
comprehend any person but merely
or any class the maximum
of persons, limit of the
only he who can insurers liability.
show that it was In case
intended to include of loss, the
him can claim insurer only
the benefit pays the
of the policy actual cash
(Sec. value at
the time of
(6) The mere transfer loss.
of a thing
insured does not Valued Policy
transfer the policy -
but suspends expresses on
it until the its face that
same person the thing
becomes the insured shall
owner of both be valued
the policy at a
and the thing specified sum
insured (Sec. 58). (Sec. 61).
Note the The valuation
exceptions to of the
this rule as property
found in Sec. insured
20-24 and 57. is
conclusive
KINDS OF between the
INSURANCE POLICIES: parties. In
the absence
Open Policy of fraud or
- value mistake, such
of the value will
thing insured be paid in
is not
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case of a after the loss value of

total loss. is not the
necessary. thing
Running Policy insured.
(Floating
Policy) -- Parties have Value is not
contemplates agreed
successive conclusively but left
insurances and stipulated that to be
which the
provides that property ascertained
the object insured is upon loss.
of the policy
valued
may be
at a
from time
specified
to time defined
especially sum.
as to the
subjects of CAN THERE BE
insurance, by AGREEMENTS AS
additional TO PRESCRIPTION
statements or OF AN ACTION
indorsements OR LIMITATIONS
(Sec. 62). ON THE PERIOD
This is also OF TIME TO
known as a BRING AN ACTION
Floating
Policy
usually issued Yes, provided
to provide the period agreed
indemnity for upon should
property, which not be less
than one year
cannot be covered
(Section 63). If
by specific
less than New Civil
insurance because
Code, it being a
of a
written contract
frequent change
(Eagle Star
in location
vs. Chia Yu 96
and quantity.
Phil 696, ACCFA
vs. Alpha
Insurance, 24 SCRA
VALUED POLICY 151).
vs. OPEN
POLICY
VALUED POLICY WHERE IS THE
OPEN ACTION FILED
POLICY The
Proof of Insured action
value of the must prove may be
thing the filed in
LAW
the following: of acts increasing

the hazard insured
against
(1) Courts;
(3) Discovery of material
(2) Insurance
representation;
Commissioner,
who has (4) Discovery of willful
concurrent jurisdiction or reckless
with courts for acts or omissions
claims not exceeding increasing the hazard
Php100,000.00; insured against;
(3) POEA/DOLE have the
power to compel a (5) Physical changes in
surety to the property
make good on a insured which
solidary the result in
undertaking in the property being
the same uninsurable;
proceeding where (6) Determination by
the liability the
of the principal insurance
obligor is determined. commissioner that
continuation of the
Note that the claim policy would
becomes action place the
upon filing insurer in
with the court. violation of
the code:
CANCELLATION OF
THE POLICY FORM OF NOTICE
OF CANCELLATION
If policy other
than life shall
be cancelled by It must be in
the insurer except writing, mailed
upon prior or delivered
notice thereof to the name
to the insured at the
insured. No notice address shown in
the policy
of cancellation
which shall state:
shall be
effective if not (1) The grounds relied
based on the upon as
occurrence, after per Section
effective date of 64, and;
one or more (2) That upon written
grounds: (Section request of the
64) named insured, the
insurer will furnish
(1) Non payment of
the facts on which
premium; cancellation is
(2) Conviction of a based (Sec. 65).
crime arising out
LAW
W A R R A is a
N T I E warranty that
S such act
or
It is a omission shall
statement or promise take place
stated in (Section
the policy or 72);
incorporated therein
by reference,
whereby the insured (3) Express
expressly a statement
or impliedly (Section in a policy
67) of a
(1) Affirmative matter
those relating to
that relate the person
to matters or thing
that exist insured or
at or before to the risk
the as a fact
issuance of (Section 71)
the and where
policy; the
assertion or
(2) Promissory promise is
those clearly set
where the forth in
insured the policy
promises or or incorporated
undertakes therein
that certain by reference.
matters They can
shall exist be affirmative
or will be or promissory
done or warranties;
will be omitted
after the An express
policy takes warranty made
effect. at or
It is a before the
statement in execution
the policy, of the policy
which imparts should
that it be contained
is intended (a) in the
to do or policy itself
not to do (b) in
a thing another
which instrument
materially affects signed by
the risk,
LAW
the insured insurance. See

and referred Sec.
to in 113
the policy (seaworthiness)
as making a and 126
part of (deviation).
it (Section
70). This
EFFECT OF
includes a
VIOLATION OF A
rider
WARRANTY
it is a
part of The violation
the policy, of a
it need material warranty,
not be signed or other
unless material provision
the rider was of the policy,
issued after on the part
the original of either
policy took party thereto,
effect; entitles the other
(4) Implied to rescind
where the (Sec. 74).
assertion or Note that the
promise is insured can exercise
not expressly the right also
set forth in when the insurer
the policy violates a
but because warranty, like
of the general when it refuses
tenor to grant
of the terms a loan on the
of the policy.
policy or Note that a
from the causal connection
very nature between the
of the violation of the
insurance warranty is not
contract, a necessary
warranty is So, even if
necessarily the violation
inferred or did act
understood. contribute in
Note that the loss
the law only the other
provides for party may still
implied rescind.
warranties in
contracts of (3) The
marine performance becomes
impossible.
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Notwithstanding any
agreement to the
contrary, no policy
WARRANTY REPRESENTATION
or contract
of insurance issued
Part of the Merely a by an
contract collateral insurance
inducement company is valid
thereto and binding
Expressly set May be oral unless and until
forth or the premium is
in the written in paid except
policy another in:
or statement (1) In case of
incorporated life or
therein industrial life
by reference (life
insurance policy
Strictly and Must be where
substantially true the
literally premium is
P R E Mperformed I U M
payable monthly
or oftener)
Presumed Must be whenever
material shown to be the grace
so period applies
Breach of Misrepresentation (Sec. 77);
warranty is is a (2) When the
a ground insurer makes
breach of the to a written
contract rescind the
itself contract acknowledgement
of the
WARRANTY VS. receipt of
REPRESENTATIONS premium, such
is conclusive
The agreed evidence of the
price for payment of the
assuming and carrying premium to make
the risk. it binding
WHEN IS THE notwithstanding any
INSURER ENTITLED stipulation therein
TO A PREMIUM? that it shall not
be binding until
The insurer is the premium is
entitled to paid (Sec. 78) HENCE,
the payment of a the effect
premium as of an
soon as the thing
acknowledgement in a
insured is exposed
policy or
to the peril
contract of
insured against.
LAW
insurance of the a credit

receipt of the term for the payment
premium is of the premium
that it is and loss occurs
conclusive evidence before the
of payment expiration of the
so far as to term, recovery should
make the policy be allowed
binding. However, it even the premium is
is conclusive paid after the
only to make loss but within
the policy binding the credit term;
and not for
the purpose of 5. Where the parties
collecting premium, are barred by
and; estoppel.
(3) Where the obligee
has accepted the
WHAT IS THE EFFECT
bond or suretyship
contract in which OF PARTIAL
case such bond PAYMENT?
or suretyship contract Ordinarily, the
becomes valid obligation to pay
and enforceable premium when
irrespective of whether due is considered
or not the an indivisible
premium has been obligation. Hence,
paid by the
forfeiture is not
obligor to the surety
prevented by a
(Sec.
part payment unless,
2. When the insurer
payment by
makes a written
installment has been
acknowledgment of
agreed upon or is
the receipt
the established
premium; (Sec.
practice the
78)
basic principles of
3. Section 77 may
equity and
not apply if
fairness would
the parties have
not allow the
agreed to
insurer to collect
the payment of
and accept
the premium in
installments and later
installments and partial
deny liability as
payment has
premiums were not
been made at
paid in full.
the time of the
loss; (Makati Tuscany PAYMENT TO
Condominium INSURANCE AGENT
Corp. v. CA, 215 OR BROKER ---
SCRA 462) payment to the
4. If the insurer insurance company.
granted the insured
LAW
of
WHEN IS THE less
INSURED ENTITLED than
TO A RETURN a year
OF THE PREMIUMS and
PAID? 2000 a rate
BAR EXAM (IX has been
a) agreed
to if
The
the
insured
policy
is is
entitled to a
return surrendered;
when:
(1) To the whole Example: If
premium, when the
no part of the policy is
interest in the in
thing insured is force
exposed to any for a
of the perils month
insured against the insurer
(Sec. 79 A); retains
(2) Where the insurance 20%
is made for a of the
definite period premium)
of time and has
the insured been
surrenders his agreed
policy before upon;
the expiration (c) the policy
of the period, is
here the insured a life
only recovers a insurance
portion of the policy
policy premiums it
corresponding is
with the indivisible
unexpired time but he
but it has a
does not cash
apply if: surrender
(a) the value;
policy is (3) When the contract is
not so definite; voidable on
account of fraud
(b) a short or
period misrepresentation of
rate the
(insurance insurer or the agent
is for (Sec. 81);
a period
LAW
(6) In case of cash surrender

over value.
insurance. Here(3) When the insured
the is guilty of
insurance is fraud or
in excess misrepresentation (Sec.
of the amount 81).
of the
insurable interest
L O S S
of the
A N D
insured and it
is insured N O
by several T I C E
insurers, O F
the insured L O
is entitled S S
to a
RATABLE WHAT ARE THE RULES
RETURN OF TO DETERMINE
PREMIUM, WHETHER THE
proportional INSURER IS LIABLE
to the amount FOR THE
by which LOSS OF THE
the THING INSURED?
aggregate sum
insured in 1. Loss of which a
all the policies peril insured is
exceeds the proximate
the insurable cause.
value;
2. Loss caused by
efforts to rescue
WHEN ARE THEY the thing insured
NOT RECOVERABLE from a peril
insured against
Premiums that would
cannot otherwise have caused
be a loss, if in
recovered: the course if
such rescue,
the thing is exposed
(1) If the peril insured
to peril not
against has
insured against,
existed, and the
which permanently
insurer has been
deprives the insured
liable for any period,
of its
the period
possession in whole
being entire and
or in part,
indivisible (Sec. or where a
80). loss is caused
(2) In life insurance by efforts to
(Sec. 79-b)
LAW
rescue the thing insured building against

from a peril fire. The broker
insured against for the insurance
(Sec. 85). Here the company agreed
principle of to give a 15-day
proximate cause is credit within
extended to which to
loss incurred pay the insurance
while saving premium. Upon
the thing insured. delivery of the
policy on May
15, 2006, Alfredo
3. Where a peril is issued a
especially excepted postdated check
in a contract payable on May
of insurance a 30, 2006. On
loss, which would May 28, 2006,
not have a fire broke
occurred but for out and destroyed
such peril, is the building owned
thereby excepted by
although the Alfredo.Reason briefly
immediate cause in (a), (b)
of the loss was a and (c). a.
peril which May Alfredo
was not excepted recover on the
(Sec. 86). The insurance policy?
immediate cause
is the CAUSE
OR CONDITION A: Yes, Alfredo
NEAREST THE TIME can recover on
AND PLACE OF the insurance policy.
THE INJURY. Here, Although Section
the insurer 77 of the
will be liable if Insurance Code
both the provides that in
immediate cause fire insurance,
and the proximate payment of
cause are not premium is
excepted. If the necessary for validity
proximate cause of the policy
is excepted and (also known
the immediate cause as cash
is not, the and carry
insurer is not liable. provision), nonetheless,
the rule has
been modified by
Q: Alfredo took the decisions of
out a policy the Supreme Court
to insure after the
his commercial promulgation of the
LAW
Insurance Code. that fire was but

Thus, in UCPB the immediate
General Insurance cause of loss and
v. Masagana there is no
Telemart, G.R. excepted peril
No. 137172, April under the policy?
4, 2001, it
was held that the
insured should Yes,
be allowed to recovering under
recover on losses an insurance contract
sustained even is allowed if
when premium was the cause
paid after the of the loss was
fact of loss, provided either the proximate
payment was or the immediate
received by the cause as long as
insurer during an expected peril
the credit period was not the
given to proximate cause
the insured. (See of the loss. (Section
also South Sea 86, Insurance
Surety v. Court Code of the
of Appeals, Philippines.) The fire
G.R. No. 102253, being the immediate
June 2, 1995; cause for the loss
American Home of the commercial
Assurance v. Chua, building, would
G.R. No. warrant recovery
130421, June under the policy.
28, 1999) where
the Supreme c. If the fire was
Court ruled that is found to have
the check been caused by
payment for Alfredo's own
premium was received negligence, can he
by the insurer still recover on
prior to the the policy?
loss or within Yes, he can still
the credit period, recover. The doctrine
the insured of contributory
was allowed to negligence does not in
recover. any way apply
to rights
b. Would your answer under a contract
in (a) be the of insurance, unless
same if it was it is a
found that the case of willful
proximate cause act.
of the fire was
an explosion and
LAW
(Section 87, happens is

Insurance Code of VOID if MADE
the Philippines) BEFORE THE LOSS
except as
RECOGNIZING THAT otherwise provided
THERE ARE in
PROBLEMS case of life
IN DETERMINING insurance (Sec. 33).
PROXIMATE CAUSE
NOTE THE This means
FOLLOWING RULES: that the insured
has an absolute
(a) If there is right to transfer
a single his claim
cause against the insurer
which is an AFTER THE
insured peril, LOSS occurs, what is
prohibited is a
clearly it is
transfer prior
the proximate
to the loss.
cause and to
This is
produce the
so because such
loss) the claim
stipulation after
will be
the loss occurs
outside
shall hinder
the scope the transmission
of the policy;
of property. Neither
does it
(d) But if the results affect the insurer
of the as its liability
operation of the is already fixed
insured peril can and what
be clearly is actually
separated from the assigned is the
effects of the
money claim, not
excepted peril, the the contract itself.
insurer is liable;
(e) Where a number The exception
of causes operate
in Sec. 173 that
one from the
provides that the
other, the original
transfer of a
cause happens to
be a peril, the fire insurance policy
insurer is liable. to any person
or company
TRANSFER OF CLAIMS who acts as an
agent for or
otherwise represents
An agreement
the issuing
not to transfer
company is
the claim of
prohibited and is
the insured after
void insofar as it
the loss
affects other
LAW
creditors of BE NECESSARY IN
the insured. A COURT OF
JUSTICE WHAT IS
NOTICE AND PROOF SUFFICIENT is
OF LOSS the BEST EVIDENCE
Notice of loss which he has in
must be given his power at
without unnecessary that time (Sec. 89).
delay by
the insured or WHEN ARE
some person entitled DEFECTS IN THE
to the benefit NOTICE OR PROOF
of the
insurance. IF NOT LOSS DEEMED
THEN, the insurer is WAIVED BY THE
exonerated (Sec. INSURER
88).
When the insurer
WITHOUT UNNECESSARY fails to
DELAY is specify to
within a the insured
reasonable time, any defect
depending on which the insured
circumstances of a can remedy
peculiar case, without
although courts delay.
have 2. If the insurer
construed the omits
requirement liberally in to make
favor of the an objection
insured. promptly and
specifically on
PROOF OF LOSS that ground.
despite
If the policy delay, the insurer
requires Preliminary does not
Proof of Loss object (Sec. 91).
(evidence given
the insurer of WHAT HAPPENS AFTER
the occurrence of PAYMENT BY
the loss, its THE INSURER
particulars, and data SUBSEQUENT TO
necessary to enable GIVING OF
it to NOTICE OF LOSS
determine liability
and the amount
thereof) IT IS In property
NOT NECESSARY that insurance, after
the insured has
the insured give
received payment
such proof AS
from the insurer
MAY OR WOULD
of the loss covered
LAW
by the policy, subject or

the insurance interest (Sec. 91).
company is
SUBROGATED to the 2005 BAR EXAM
rights of the insured (N0. X 2
against the -b)
wrongdoer or the Q: What is
person who has violated the nature of
the contract. the liability of
The right of
the several
subrogation accrues
insurers in double
upon payment of
the insurance claim. insurance?
Explain.
NOTE: Subrogation A: In double

takes effect by insurance, the insurers
operation of law considered as
and does not co-insurers. Each
require the consent one is bound
of the wrong to contribute ratably
doer (Firemans to the loss
Fire Insurance vs. in proportion to
Jamilla & Company, the amount for
70 which he is liable
SCRA 323). under his
contract. (Section
94(e), Insurance Code.
THERE IS NO
SUBROGATION IN:
(a) Life insurance as REQUISITES OF
it is not a DOUBLE INSURANCE:
contract of
indemnity 1. Same person is
(b) When proximate cause insured;
of the loss 2. There are several
is the insured insurers;
himself 3. Subject insured is
(c) When the insurer the same;
pays to the insured 4. Interest insured is
a loss not the same;
covered by the 5. Risk of peril insured
policy; against is
the same;
DOUBLE INSURANCE There is
prohibition TO
Where the same PREVENT OVER--
person is INSURANCE,
insured by several thus
insurers preventing
separately in respect fraud.
to the same
LAW
2008 BAR EXAM: A: (a). Taking

out insurance
Q: Terrazas de covering the same
Patio Verde, a property, same
condominium insurable interest
building, has a and same
risk with three
value of P50
insurance companies
Million. The owner
is double
insured the
insurance recognized
building against
under sec 93 of
fire with three
ICP. However, in
(3)
American Home
b. The building was
Assurance Corp
totally razed
vs. Chua June
by fire. If
28, 1999, the
the owner
court referred to
decides to claim
the common
from
inclusion of the
Eastern Insurance
other insurance clause
Corp. only
in the fire
P50 Million,
insurance policies
will the claim
requiring disclosure
prosper? of co-insurance
Explain. of the same
property with other
insurers.
(b) Insured can
recover from Eastern
Inssurance Corp
up to the extent
of his loss.
However, Eastern
may refuse to
pay if the policy
contains an
other
insurance clause
stipulating that non-
disclosure of double
insurance will
avoid the policy.
(Geagonia v.
Country Bankers
Insurance, 2/6/95).
As there is
no indication of a
contractual
prohibition on double
LAW
or other is a valued
insurance, all policy, the insured
insurance contracts must give credit
over the building as against the
are deemed valid valuation for any
and enforceable. sum received by
The law him under any
prohibits double policy without regard
or over-recovery, to the actual
not double value of
insurance. Since the subject matter
eastern insured insured.
the property up 3. Where the policy
50% the total under which the
coverage, it is insured claims
liable for only 50% is an unvalued
of the total actual policy, he must
loss. Eastern give credit, as
Insurance Corp, is against the full
liable to insurable value,
the extent of for any sum received
its coverage but by him under
may recover one the policy.
half of the total
indemnity from the 4. Where the insured
co-insurers in the receives any sum in
proportion of 60% excess of
(Southern Insurance)- the valuation in
40 % ( case of a valued
Northern Insurance) policy or
the insurable value
EFFECTS OF in case of
OVER-INSURANCE an unvalued policy,
he must hold
BY DOUBLE
such sum in trust
INSURANCE
for the insurers,
1. Insured, unless according to their
the policy right of
otherwise provide, contribution among
may claim payment them;
from the insurers 5. In relation
in such order paragraph (4)
as he may Each insurer is
select up to the bound, as between
amount for which
himself and the
the insurers
other
are severally liable
or damage
under their
(Also known
respective contracts.
as
2. Where the policy
CONTRIBUTION
under which the
CLAUSE).
insured claims
LAW
TEST TO DETERMINE him against loss

EXISTENCE or liability by
OF DOUBLE reason of such original
INSURANCE insurance (Sec.
95).
Whether the insured,
in case of
happening of the WHEN IS REINSURANCE
risk, can directly COMPULSORY?
benefited by 1. When a non-life
recovering on both insurer insured in
policies? If yes any one risk or
there is hazard an amount
double insurance. exceeding 20% of
its net worth,
IS DOUBLE the insurer needs
INSURANCE VALID? reinsurance of
the excess over
- It depends, if
such limit (Sec. 215
there is
(1)).
prohibition in
the policy 2. When a foreign
then it is insurance company
not valid, withdraws from the
but if there Philippines, it should
is no cause its
prohibition, it is primary liabilities
valid provided it under policies insuring
must follow residents of
the provisions the Philippines to
of the law. be reinsured by
- another company
DOUBLE authorized to transact
OVER an insurance
business in the
INSURANCEPhilippines.
INSURANCE
There must One insurer
be two or is sufficient. DOUBLE
more insurers. INSURANCE VS.
The total The value REINSURANCE
amount of must always DOUBLE INSURANCE
the policies be in REINSURANCE
need not excess of
Insurer remains Insurer
exceed the insurable
an insurer becomes
value of the interest;
the
insurable
insured
interest.
REINSURANCE
Subject matter Subject
Occurs when is matter is the
an insurer procures
property insurers
a 3RD person
to insure risk or
LAW
liability merchandise effects,

disbursements, profits,
Same interest Different moneys,
and risk is interest securities, loses
insured with in action,
another risk evidences of debt,
insured valuable papers,
bottomry or
respondentia interest
WHAT KIND OF and all other
CONTRACT IS kind of property
REINSURANCE? and interests therein,
in respect
It is to, appertaining
presumed to to or in
be a contract connection with any
of and all risks or
indemnity against perils of navigation,
liability, transit or transportation
and merely or while
against being assembled, packed,
damage (Sec. crated, baled,
97). compressed,
The liability of or similarly prepared
the reinsurer is for shipment
measured by the or while
liability of the awaiting shipment
reinsured to the or during any
original policy delays, storage,
holder PROVIDED, it transshipment or
does not exceed reshipment incident
the amount of thereto;
reinsurance.
(b) Person or
property in
CLASSES
connection with or
OF INSURANCE
appertaining to marine,
island marine,
M A R I transit or
N E I transportation
N S U insurance, including
R A N C liability for loss
E or in connection
with the construction,
Insurance against
repair,
loss or damage
operation, maintenance,
to:
use of the
subject matter
(a) Vessels, craft,
of the insurance.
aircraft,
(But not including
vehicles, goods
life insurance, or
freight, cargoes,
LAW
surety bonds nor of the

insurance against insured for
loss by reason loss, damage
of bodily injury or expense
to any person incident to
arising out ownership,
of the ownership, operation,
maintenance, use of chartering,
automobiles); maintenance,
use, repair,
(c)Precious stones, or construction
jewels, of any vessel,
jewelry, craft or
precious metals instrumentality
whether in in use in
the course of ocean or island
transportation or waterways,
otherwise; including liability
of the
(d) Bridges, tunnels insured for
or other personal injury,
instrumentalities of illness
transportation and or death
communications or for loss
(excluding buildings, or damage
their furniture and to the
furnishings, fixed property of
contents, and supplies another
held in (a) natural and inevitable
storage), piers, action of the
wharves, docks, sea;
slips, and other (b) ordinary wear and
aids to navigation tear of the ship;
and transportation (c) negligent failure
including dry docks, of the ship owner
marine railways, to provide
dams and the vessel with
appurtenant the proper
facilities for equipment to convey
the control the cargo
of waterways. under ordinary
conditions.
AND 2008 BAR EXAM
Marine (IX b)
Protection and Q: On October
Indemnity 30, 2007, M/V
Insurance Pacific, a
meaning Philippine registered
insurance against, vessel owned
or against by Cebu
legal liability Shipping Company
LAW
(CSC), sank The failure

on her voyage to discharge such a
from Hong Kong heavy burden
to Manila. precludes
Empire Assurance application of the
Company limited liability rule
(Empire) is the and the carrier is
insurer of the liable to
lost cargoes loaded the full extent
on board of the claims
the vessel which of the cargo
were owners (Aboitiz
consigned to Shipping v. New
Debenhams Company. India Assurance
After it Company, G.R. No.
indemnified 156978, 02 May
Debenhams, Empire 2006).
as subrogee filed
an action for
damages against 2008 EXAM (IX
CSC. c)
b) Assume that Q:c)
the vessel was Assume
not seaworthy as the facts in
question (b).
in fact its hull
Can the heirs
had leaked,
of the three
causing flooding
(3) crew
in the
members who
vessel. Will your
perished recover
answer be the
from CSC? Explain
same? Explain.
fully.
A: Yes, because
A: When the
the crew
vessel is not
members died while
seaworthy, it is
performing their
an exception to
assigned duties,
the hypothecary
aggravated by
principle in maritime
the failure of
commerce.
the ship owner
To limit its liability
to ensure that
to the amount
the vessel is
of the
seaworthy.
insurance proceeds,
Workmens compensation
the carrier has
has been
the burden of
classified by
proving that the
jurisprudence as an
unseaworthiness of
exception to the
its vessel was
hypothecary nature
not due to its
of maritime
fault or negligence.
commerce, [Abueg
LAW
v.San Diego, 77 such shall continue

Phil. 730 (1948)], even if the vessel
especially in this has been
case where the chartered by one
vessel was not who covenants to
seaworthy at the pay the owner
time it sank. the value of
the vessel upon
loss but in case
of loss, the owner
WHAT PERILS ARE
is liable
INSURED IN AN
only for the part
ALL RISK
of the loss which
POLICY
the insured
It is to cannot recover from
be construed as the charterer.
creating a special (Sec. 100)
insurance and 2. The insurable interest
extending to all of the owner
risk than are usually of a ship
contemplated hypothecated by
and will cover bottomry is only
all losses except the excess of
such that may
its value over
arise from
the amount secured
intentional
by bottomry.
fraud, intentional
misconduct, or (Sec. 101)
that otherwise 3. The owner of a
excluded. It may vessel also
include all losses has insurable interest
whether arising in expected
from a marine freightage, which
peril or not according to the
to policys ordinary course
coverage, whether of things he
arising from a marine would have earned
peril or not but for the
provided the intervention of a
risk is not peril insured against
excluded; or other
peril incident
WHAT CONSTITUTES to the voyage.
INSURABLE INTEREST (Sec. 102)
IN
OCEAN MARINE ARE THERE
INSURANCE? PERSONS/PARTIES OTHER
1. The owner of a THAN THE
vessel has OWNER WHO
insurable interest in HAS INSURABLE
the vessel INTEREST? YES;
LAW
1. One who has an matters that

interest in the he represents,
thing from which or upon inquiry
profits are expected discloses
to proceed, has or assumes
insurable interest to disclose
on the profits EXCEPT those
(Sec. 105). that the
2. The charterer of a insurer knows
ship has or those in
insurable interest the exercise
to the extent of ordinary
that he is liable care,
to be the other
damnified by its ought to know,
loss (Sec. 106). and which
the former
CONCEALMENT IN has no
MARINE INSURANCE reason to suppose
him to
be ignorant
-A party is under
bound to Section 30
communicate, (Section 107);
in addition
to what is
required by NOTE: That the
section 28 rules on concealment
(facts within in marine
his knowledge, insurance are
material to stricter as it
the contract, is sufficient that
other party the insured
has not the is in POSSESSION
means of OF THE
ascertaining, as MATERIAL FACT,
to which ALTHOUGH HE IS
party with a UNAWARE OF IT.
duty to
A party is
communicate makes
also
no
bound to
warranty)
communicate,
information that
the information
he possesses,
might possibly reached
that are material
him in the
to the
risk AND, usual mode of
to state transportation and
the EXACT the usual rate
and WHOLE of
TRUTH in relation communication (Sec.
to all 109).
LAW
A causal The
EFFECT OF connection concealment of
CONCEALMENT between the any of the
fact concealed matters
It exonerates and cause stated in
the insurer from a of loss is section 110
loss resulting not necessary merely exonerates
from
for the the insurer
the risks concealed
insurer to from loss, if
as related to:
rescind; the results
(a) the national
from the fact
character of the
insured; concealed;
(b) the liability of
the thing insured REPRESENTATION IN
to capture MARINE INSURANCE:
and detention;
(c) the liability to
If the
seizure from breach
representation
of laws of
is intentionally
foreign laws of trade;
false in
any material
(d) the want of
respect, or,
necessary documents ;
in respect
(e) the use of of any fact
false/simulated on which
documents the character
and nature
of the risk
ORDINARY depends, the
CONCEALMENT vs. insurer may
MARINE INSURANCE rescind
(Section 111).
ORDINARY MARINE But the
INSURANCE INSURANCE eventual falsity
Opinion or Belief or of a
belief of a expectation representation
3RD person 3RD person as to an
or own in reference expectation does
judgment of to a not in
the insured material the absence
is not is material of fraud
material and and has avoid the
need not be be contract (Sec.
communicated; 112).
communicated
(Sec. 35)
WHAT ARE THE
IMPLIED WARRANTIES
IN MARINE
LAW
INSURANCE? 2000 description of the

BAR EXAM (IX voyage, or
b) established custom
of trade, it is
1. In every
required to
contract of
be transshipped
marine
at an immediate
insurance upon
port in which
a ship
case each
or freight,
vessel upon which
freightage or
the cargo is
upon anything
shipped or
which is the
transshipped must be
subject of
seaworthy at the
marine
insurance, there commencement of
is an each
implied particular
warranty voyage
that the ship is (Sec.
sea worthy 115).
(Sec. 113). (c) where different portions
of the voyage
contemplated
A ship is sea in the policy
worthy when it differ in respect
is reasonably to the things
fit to perform requisite to make
the service and the ship
encounter the seaworthy, I which
ordinary perils case it must
of the voyage, be seaworthy
contemplated by at the commencement
the parties (Sec. of each
114). portion
be (Sec. 117).
seaworthy
at the
commenceme WARRANTY OF
nt of SEAWORTHINESS
every EXTENDS TO:
voyage The warranty
it of seaworthiness
undertakes extends not only
at to the condition
that of the structure
time. of the ship, but it
(b) when the insurance requires that:
is upon cargo,(a) it be properly
which by laden or loaded
the terms of with cargo;
the policy (b) is provided with a
competent master,
LAW
sufficient number seaworthy for

of officers purposes of
and seamen; insurance on it, it
(c) it must have the may by reason
requisite equipment of being
and appurtenances unfitted to receive
like cargo,
ballast, cables, be unseaworthy
anchors, for the purpose
cordage, sails, of insurance on
food, water, fuel,
the cargo (Sec.
lights and other
119).
necessary and proper
stores and
implements 2. It shall
for the voyage carry the
(Sec. 116). requisite
documents to
Note that when 3. That the vessel
a ship shall
becomes unseaworthy not make
during the any improper
voyage it deviation from
will not avoid the
the policy intended
as long as voyage.
there is no
unreasonable delay in DEVIATION:
repairing the
defect. Otherwise It is a
the insurer is departure from the
exonerated on the course of the voyage
ship or the ship as defined
owners by Section 121
interest from and 122 or an
any liability from unreasonable delay in
any loss pursuing the
arising therefrom voyage or the
(Sec. commencement of
118). Hence, if an entirely different
loss is voyage. (Sec.
not one due 123)
to the defect
or peril WHEN IS DEVIATION
was not PROPER (2005
increased by BAR)
the defect
insurer is A vessel can
liable. properly proceed
to a port other
Also, while a than its port
ship may be of destination in
LAW
the following cases: vessel ran out

of provisions for
1. When caused its passengers.
by circumstances Consequently, the
over which neither vessel proceeded
the master to Leyte
or the owner to replenish its
of the ship has supplies.
any control;
2. When necessary a) Assuming
to comply with a that the cargo
warranty, or was
to avoid a damaged
peril, whether or because of
not the peril is such deviation,
insured against; who between
3. When made the insurance
in good faith, company and
and upon the owner
reasonable grounds of the cargo
of belief In bears
the necessity to the loss?
avoid peril; Explain.
4. When made A: The
in good faith Insurance
for the purpose company should
of saving human bear the
life or loss. Since
relieving another the deviation
vessel in distress. was cured
(Sec. 124) by a strong
typhoon,
2005 BAR EXAM it was caused
(N0. XIV -1 - by
a) circumstances
Q: On a clear beyond the
weather, M/V control of the
Sundo, carrying captain, and
insured cargo, also to avoid
left the port a peril
of Manila bound whether or
for Cebu. not insured
While at sea, the against.
vessel encountered Deviation is
a strong therefore
typhoon forcing proper. (Sec. 145(a))
the captain to
steer the vessel
to the nearest
island where it CONSEQUENCE OF
stayed for seven IMPROPER DEVIATION
days. The
LAW
Insurer is not liable

for any loss (2) It is
happening to the aconstructive
thing insured total loss
subsequent to an when the
improper deviation person
(Sec. insured is
126). given a
right to
a. total destruction of abandon under
the thing insured; Section 139 (Sec.
131).
b. the irretrievable loss
of the thing which 2005 BAR EXAM
renders it (N0. X -1- a)
valueless to the
Q: M/V Pearly
owner for the purpose
Shells, a
that he
passenger and cargo
held it;
vessel, was
c. any other event
insured for
which
P40,000,000.00
effectively deprives
against
the owner of
constructive total
the possession at
loss. Due
the port of
destination of the to a typhoon, it
thing insured (Sec. sank near
130). Palawan.
An actual Luckily, there
total loss were no casualties,
can also only injured
be presumed passengers. The
from the shipowner sent
continued a notice of
absence of abandonment of
the ship his interest over
without being the vessel
heard to the insurance
of (section company which
132). The then hired
length of professionals to
time which afloat the vessel
is for P900,000.00.
sufficient to When re-floated,
raise these the vessel
presumption needed repairs
depends estimated at
on the P2,000,000.00. The
circumstances insurance company
of the case; refused to pay
the claim of
LAW
the shipowner, stating constitute more

that there than the value
was no constructive of the vessel.
total loss.
THE DOCTRINE OF
a) Was there
LIMITED LIABILITY
constructive total
[when not
loss to
applicable] The
entitle the
shipowner to doctrine of limited
recover liability under
from the Article 587
insurance of the Code of
company? Explain. Commerce is not
applicable to owner
A: There was equally
was constructive total negligent. It cannot
loss. When the escape liability
vessel sank, it by virtue
was likely that it of the limited
would be totally liability rule. (Central
lost because of Shipping
the improbability Company, Inc. v.
of recovery. Insurance Company
(Arnolds Law of of North America,
Marine Insurance and
Average, 16th ed., Sept. 20, 2004,
Vol. II, pp. 954-- G.R. No. 150751)
955)
Suggested Alternative
Answer: ABANDONMENT is
the act of
the insured by
which, after a
There was no
constructive total loss,
constructive total loss. he desires to
The loss is not the insurer the
more than the relinquishment in
value of the vessel its favor his interest
which was in the thing
insured for insured (Sec. 138).
P40,000,000.00.
The cost of A person insured
refloating is by a contract
P900,000.00 and the of marine
needed insurance may
repairs amount abandon the thing
P2,000,000.00, or a insured, or
total of only any particular portion
P2,900,000.00 which thereof
does not separately valued
by the policy,
LAW
or otherwise reasonable diligence

separately insured to forward
and recover a the cargo without
total loss when incurring the
the cause like expense or
of loss is a risk mentioned in
peril insured against item (c) but,
if: freightage cannot
be abandoned unless
more than thereof
the ship is
in value
abandoned (Sec. 139).
is actually lost
or would have Abandonment must
to be expended neither be
to recover it partial nor
form the peril insured conditional (Sec.
against. 140). Hence, it
if it is injured must be total
to such extent and absolute; and
as to reduce must be made
its value within a reasonable
by more than time after receipt
of value. of reliable
information of the
if the thing loss but, where
injured is a ship the information is
and contemplated of doubtful
voyage cannot character, the insured
lawfully be is entitled
performed without to a reasonable
incurring either time to make
an expense to an inquiry (Sec.
the insured of 141).
more than the
value of the thing
abandoned or a HOW NOTICE OF
risk which a ABANDONMENT IS
prudent man would MADE
not take under 2005 BAR EXAM
the circumstances. (N0. X - 1-
b)
if the insured
is freightage or
cargo and the
voyage cannot
be performed
nor another ship
cannot be procured
by the master
within a
reasonable time with
LAW
By giving notice,
oral or written (2) Acts done
notice to in good
the insurer but if faith by those
orally given, who were
a written agents
notice of such of the insured
must be submitted in respect
within seven days to the
from giving thing insured
oral notice (Sec. subsequent to
143). The notice the loss are
must be explicit at the risk
and specify the of the insurer
particular cause and for
of the abandonment his benefit
but need (Sec. 148).
start only enough The agents
to show that of the insured
there is probable become
cause therefore and agents of the
need not be insurer. This
accompanied by proof retroacts to
of interest the date of
or of loss (Sec. the
144). loss when
The requirement abandonment is
as the effectively made;
explicitness of the
notice is due
to the fact that EFFECTIVITY OF
though, if the ABANDONMENT:
insurer pays Abandonment
for a loss as if becomes effective
it were an upon the acceptance
actual total loss, he of the insurer. If
is entitled to it is not
whatever may remain accepted despite
of the thing validity, the insured
insured, or its may nevertheless
proceeds or salvage claim an
as if there actual total loss.
has been a
formal abandonment. LIABILITY FOR
Here the insurer AVERAGES
has opted to
pay for total actual AVERAGE is any
loss notwithstanding extraordinary or
the absence accidental expense
on actual incurred during
abandonment; the voyage for
the preservation
LAW
of the vessel, shall contribute.

cargo, or both and
all damages to
the vessel or
cargo from the time IN CASE OF
it is loaded GENERAL AVERAGE
and the voyage LOSS
commenced until it The insurer
ends and the cargo is liable for
is unloaded. the loss falling
KINDS OF upon the
AVERAGES: insured, though a
contribution
(a) Particular or simple in respect to
average is the thing insured
a damage or when
expense caused required to be
to the vessel, made by him
cargo, or which towards a
has not inured general average
to the common loss called for
benefit and profit a peril insured
of all persons against but
interested in the liability is limited
cargo or the vessel. to the
This is proportion of the
borne ordinarily by contribution attaching
the owner of to his policy
the vessel or value where this
cargo that gives is less than
rise to the the contributing
expenses or value of
suffered the the thing
damage. insured (Sec.
(b) General or gross 164). insurer
average is subrogating the insurer
an expense or
to his own
damage suffered
right to contribution
deliberately in order
but no such
to save
claim can
the vessel or
be made upon
its cargo or
the insurer
both from real
if:
and known risk.
Thus, all persons
having an interest (a) There is separation
in the vessel of the interest
and cargo liable to contribution;
or both at
the occurrence
of the average (b) When the insured
having the right
LAW
and opportunity to or total loss, if

enforce contribution the insured has
from others, some interest at
has neglected or risk and there is
waived the no fraud on
exercise of the his part. If there
right (Sec. is fraud in
165). Meaning that valuation, it entitles
the insured has a the insurer
choice of to rescind
as it
recovery on the
is an
happening of a
exception
general average
as to
loss. They are: conclusiveness (Sec.
(1) Enforcing 156);
the
2. If however,
hyphotecated by the
contribution bottomry or
against respondentia before
insurance and
interested without knowledge
parties; of the person
or securing it
(2) Claiming he may show the
from real value;
the 3. An insurer is
insurer. If liable upon a partial
it loss only
be for such proportion
the of the amount
latter, insured by him
subrogation as the loss
takes bears to the whole
interest of
place; the insured (Sec.
157). The effect
is that the insured
MEASURE OF is deemed a
INDEMNITY IN MARINE co-insurer if
INSURANCE the value of
IF THE POLICY the insurance is
less than the value
IS VALUED;
of the property.
1. A valuation in This applies
the policy of even in the absence
marine insurance is of a
exclusive stipulation in the
between the parties contract and is
thereto in also known as
the adjustment of the average clause.
either a partial
LAW
The two requisites voyage insured;

for the application
of the average
clause: (b) The value of
the cargo is
a. insurance is for
its actual cost
less than actual
to the insured,
value;
when laden on
b. the loss is partial
board where the
cost cannot be
ascertained, its Market
Note: That co-insurance Value at
exist in Marine the time and place
Insurance: In of lading.
Fire Insurance, there Adding the
is no co- charges incurred
insurance unless in
expressly stipulated purchasing
(Sec. 171-172). In and placing
life insurance, there it on
is none also board
as value is but without
fixed in the policy reference
(Sec. 183). to any loss
incurred in
4. In case profits
raising money
are separately
for its
insured in a
purchase or
contract of marine
any
insurance (see
DRAWBACK
Sec. 105) , the
on its
insured can recover
EXPROPRIATION
in case of a
or FLUCTUATION
loss (and under
of the
Sec. 160, there
market at
is a
the port
conclusive presumption
of destination
of a loss
or expenses
from (a) The value
incurred on
of the ship
the way
is the value
or on arrival;
at the beginning
of the risk,
(c) Value of
including all articles
freightage is
or charges
the
which add to its
gross freightage,
permanent value
exclusive or primage
or which are
without
necessary
reference to
to prepare it
the cost
for the
LAW
of earning or
it; damage due
(d) The cost of to lightning,
insurance is in windstorm, tornado,
each case to be earthquake
added to the value or other
thus estimated allied risks when
(Sec. such
161). risks are
covered by
extensions to
IF THE CARGO
the fire
INSURED AGAINST
insurance policy
PARTIAL LOSS
or under
If it arrives separate
at the port policies
of destination (section 167).
in a Hence,
damaged while it is
condition, the not limited
loss of the to loss
insured is or damage
deemed to due to fire,
be the same coverage
proportion of as to other
the value risks
which the market is not
price at that automatic.
port of the
thing so
2001 BAR EXAM
damaged bears
(N0.XVII)
to the market
Q: JQ, owner
price it would
of the condominium
have brought if
unit, insured
sound (Sec.
the same
162).
against fire with
Meaning if
XYZ
reduction in
Insurance Corp.
value is 1/5,
and made the
then amount
loss payable to
of recovery
his brother. MLQ.
on the
In case of
insurance is
loss by fire of
also 1/5.
the said condominium
unit, who
may recover on
E F I I RN S U R A N C E
the fire insurance
Insurance policy? State
against fire the
includes loss
LAW
reasons for your or structure

answer? against fire, it
may be made
A: JQ can recover by an independent
on the fire appraiser, who is
insurance policy paid by the
for the loss of insured and the
the said condominium value may be fixed
unit. He between the insurer
has the FIRE and the insured;
DEFINED
(2) Subsequently, the clause
In insurance, is then inserted
it is defined in the policy
as the active that said
principle of valuation has thus
burning, been fixed;
characterized by (3) In case of loss,
heat and light provided there is
combustion. Combustion no change
without visible increasing the risk
light or glow without the consent
is not fire of the insured
ALTERATION DEFINED or fraud
on the part of
Is a change the insured, the
in the use insurer will pay the
or condition of a whole amount so
thing insured
insured and stated
from that to which
in the policy
it is limited
by the policy, is paid.
made without If it is a
the consent partial loss, the whole
of the insurer, amount of
by means within the partial loss
the control is paid. In
of the insured, case there are 2
and increasing the or more
risk, which entitles policies, each
the insurer shall contribute pro-
to rescind the rata to the total
contract of or partial loss
insurance (Sec. 168). but the liability
HOW IS VALUATION of the insurers
MADE: cannot be more
than the amount
(1) Whenever the insured stated in the policy;
would like
to have a (4) Or the parties
valuation stated may stipulate that
in a policy instead of
insuring a building payment, the option
LAW
to repair, Sun Insurance Office

rebuild or replace vs. CA
the property wholly July 17, 1992
or partially
damaged or
destroyed shall be SC:
exercised 1. X was negligent
(Sec. 172). but it should
not prevent the
beneficiary from
C A S U A
recovery because
L T Y
there is nothing
I N S
in the policy
U R A N
that exempts the
C E
insurer of the
Generally, it responsibility to pay
is one that indemnity if the
covers insured is shown
loss or liability to have
arising contributed to his
from an own accident.t
accident or 2. The death is
mishap accidental. Accident
excluding those happens by chance
that fall without
exclusively within intention or design
other and which is
types of unexpected or
insurance like unforeseen.
fire or marine.
It includes S U R E T
employers Y S H I
liability, P
workmens
compensation, An agreement
public liability, whereby
motor vehicle a party
liability, plate called the surety
glass guarantees
liability, burglary the
and theft, performance
personal by another
accident and party called
health insurance the principal
as written or obligor
by non-life of an
companies and obligation or
other undertaking in
favor of
1993 and 1994
a 3RD party
BAR EXAMS:
called
LAW
the obligee not valid. An

(Sec. 175). exception is when
it is issued
Includes and accepted
official recognizances, by the obligor, it
bonds is valid despite
or undertakings non payment
issued of the premium
by any (Sec. 177).
company under
Act No. SURETY vs.
536, as GUARANTY
amended by SURETY GUARANTY
act no. 2206
(Government Assumes Guarantors
transactions liability as liability
by a depends on
authorized regular party an
companies) to the independent
agreement. agreement to
pay if
LIABILITY OF THE
primary
SURETY
debtor
It is joint and fails to
several (solidary) pay
with the obligor Primarily Secondarily
but limited to liable. liable.
the amount of Not Entitled to
the bond and entitled exhaustion.
determined strictly to
by the terms
exhaustion.
of the contract
in relation to
the principal contract
between obligor NON-NECESSITY OF A
obligee DEMAND ON
(Sec. 176). THE SURETY
Demand on the
surety is not
IS A SURETYSHIP
necessary before
CONTRACT VALID
bringing Is
AND BINDING
insurance on human
WHERE THE
lives and
PREMIUM HAS NOT
insurance appertaining
YET BEEN PAID?
thereto or
connected
Generally, payment therewith (Sec.
of the premium 179)
is a condition
precedent. Hence
the bond is WHEN IS IT
PAYABLE
LAW
An insurance upon within the

life may be made agreed term or period.
payable upon: If insured
survives the insurer
(a) death of the person; is not liable.
or
(b) his surviving a ENDOWMENT :
specified period; protection is for a
or limited period,
(c) otherwise, if the insured
contingently on is still alive
the at the end of
continuance the period, the
or value of the policy
cessation is paid to
of life; him. If he dies
before the end period,
COMMON KINDS: it is paid
to the beneficiaries.
WHOLE
LIFE/ORDINARY
LIFE/STRAIGHT LIFE: ANNUITY: where
premiums are the insured or a
payable for life named person/s
and the insurer is paid a
agrees to pay the sum or sums
face value upon periodically during
the death of life or a certain
the insured. period (note
that contracts for
LIMITED PAYMENT the payment of
LIFE: insured pays endowment or
premiums for a annuities are
limited period considered as life
after which insurance contracts).
he stops
with a guarantee DISTINGUISHING LIFE
by the insurer
that upon death INSURANCE
the face amount FROM
is to be PAYMENT OF
paid if death ANNUITY
occurs while(1) In life insurance,
payment is it is payable
not complete upon the death
beneficiary acts face of the insured,
amount. while in annuity, it
is payable
TERM POLICY: insurer during the
is liable lifetime of
only upon death the
of the insured annuitant;
LAW
(2) In life insurance, IS THE CONSENT

the premium is OF THE BENEFICIARY
paid in installments, REQUIRED?
while in Yes, if he
annuity, annuitant designated as an
pays a single irrevocable beneficiary
premium; as he has acquired
(3) In life insurance, a vested
there is lump right;
sum payment upon
death, while
in annuity, B U S I N
annuities are paid E S S
until death; I N S
U R A N
WHAT RISKS ARE C E
COVERED? REQUIREMENTS FOR
(1) Generally - A CERTIFICATE
all causes OF AUTHORITY
of death FROM THE
are covered INSURANCE
unless COMMISSION:
excluded by
law, by (a) Qualified by
policy or Philippines Laws
public policy. to transact
insurance business;
IS A LIFE (b) Has a name
INSURANCE POLICY that is not in
TRANSFERABLE OR anyway similar
ASSIGNABLE? Yes, to another
it may pass by company;
transfer, will or (c) If organized as a
succession to any stock
person, whether corporation, it should
he has insurable have a paid
interest or not. up capital of
(Sec. 181) no less that
Php5,000,000.00;
IS NOTICE TO (d) If it is
THE INSURER OR organized as a
TRANSFER OR mutual company (one
BEQUEST REQUIRED?
whose capital funds
It is not
are not
necessary to preserve
contributed by
the validity
of the policy stockholders but by
unless thereby policy holders) it
expressly required must have available
(Sec. 181) cash assets of
at least
Php5,000,000.00 above
LAW
all liabilities vehicle

for losses accidents as
reported, expenses, per amendment
taxes, legal to the
reserves of all insurance code
outstanding risks, and by PD 1814
the contributed surplus and PD 1455
fund equal brought about
to the amounts by
required of stock insurance losses
corporations due to
(Php1,000,000.00 if a padded claims
life insurance for property
company or damage.
Php500,000.00, if a Hence, property
non life damage is
insurance company). now optional;
(e) If a foreign
DISTINGUISHED FROM
insurance company, it
OWN
must appoint a
DAMAGE COVERAGE
resident agent,
AND
deposit
COMPREHENSIVE
securities and maintain
MOTOR VEHICLE
a legal reserve
(c) Comprehensive
(Sec. 184-193).
insurance answers
for all
liabilities/damages arising
COMPULSORY MOTOR VEHICLE LIABILITY from the
INSURANCE use/operation of a
motor vehicle it
It is to
includes third
provide
party own damage,
protection or
theft and property
coverage to
damage.
answer for
bodily injury
or property WHEN DOES THE
damage that LIABILITY OF THE
may be INSURER ACCRUE?
sustained by
another arising The occurrence
from the of an injury
use of motor for which the
vehicle. insured may be
Please note though liable immediately gives
that what rise to insurer
is now liability (Shafer
compulsory is vs. Judge, 167
death of bodily SCRA 386).
injury
arising from motor
LAW
CANCELLATION OF be filed without

THE POLICY any unnecessary
delay, within 6
(a) By the insurer month from the date
requires written of accident by
notice to giving written notice
motor vehicle setting forth
owner/land transportation the nature,
operator at extent and duration
least 15 days of the injuries
prior to intended as certified by a
effective date. duly licensed
If so canceled, physician (Sec. 384).
the Land
Transportation Office
WHAT IS NO FAULT
may order
INDEMNITY?
the immediate
confiscation of license A no fault
plates unless indemnity claim is
it receives a a claim
new valid for payment for
insurance/surety/proof death or injury
of cash deposit to a passenger
or revival by of third party without
endorsement of the necessity of
cancelled policy proving fault or
(Sec. 130); negligence. This is
(b) By the insured payable by the
the motor insurer provided:
vehicle owner/land (a) indemnity in
transportation operator respect of
shall secure a one person
similar policy shall not
or surety exceed
before the cancelled Php5,000.00;
policy/surety ceases (b) the necessary proof
to be effective of loss under
or make a oath to substantiate
cash deposit and the claim
file the same is
or proof thereof submitted
with the Land
AGAINST WHOM
Transportation IS THE PAYMENT
Office (Sec. CLAIMED
381).
A claim under
the no fault
PAYMENT OF CLAIMS indemnity clause
may be (c) in
A claim all cases, the
for payment must right of the party
LAW
paying the he has no license

claim to recover (Guttierez vs.
against the owner Capital Insurance, 130
of the vehicle SCRA 618, PEZA
responsible vs. Alikpala, 160
for the accident SCRA 31)
shall be maintained; (3) A tourist with
license but in the
country for more
INTERPRETATION OF than 90 days, is
THE AUTHORIZED not authorized
DRIVER CLAUSE to operate a
(1991 Bar Exams) motor vehicle because
The authorized driver it is as if
clause is he has no
interpreted to refer license (Strokes vs.
to the insured Malayan, 127 SCRA
or any person 766)
driving on (4) A drivers license
the order of that bears
the insured or all the earmarks
with his permission of a duly issued
provided, such license is
person is permitted presumed genuine.
to operate a (5) A license is
motor vehicle in not necessary, where
accordance with our the insured
licensing laws or himself is the
regulations and who is driver (Paterno vs.
not otherwise Pyramid Insurance,
disqualified; 161 SCRA 677,
1986 BAR)
NOTE THE FOLLOWING
JURISPRUDENCE:
BAR EXAM; 1996
(1) If license is
expired, person Q: 1.While driving
is not authorized his car, X
to operate a sideswiped A causing
motor vehicle (Tarco injuries to
Jr. vs. Phil the latter.
Guaranty, 15 SCRA A sued X
313) and the third
(2) Issued a temporary party liability insurer
operators permit for the
or a temporary damage sustained
vehicle receipt, a by A.
person is 2. The
authorized to operate insurance
a motor company
vehicle, but if it moved to
has expired, it dismiss the
is as if complaint contending
LAW
that theliability Proof of fault

of X has not or negligence is
yet been not necessary for
determined with finality. the payment of
any claim for
Is the death or injury
contention of the to a passenger
insurance company or to a third
correct? May party. The
the insurer be maximum amount
held solidarily liable of indemnity is P
with X 10, 000.00
upon submission of
A: No. When death certificate, medical
an insurance certificate and
policy insures directly police report.
against liability, The purpose is
the insurers in order
liability accrues to give immediate
immediately upon the assistance to the
occurrence of the victim of motor
injury. vehicle accidents
and/or the dependents
No. The insurer specially if they
cannot be are poor, regardless
held solidarily liable of the financial
with X because capability of the
its liability is owner of the motor
based on a vehicle or
contract while operator responsible
that of X is for the accident.
based on torts. This does not
(Vda. De Maglana include property
vs. damage.
Consolacion, August
6, 1992) awarded
beyond the NECESSITY TO
amount stated in REGULATE INSURANCE
the policy is COMPANIES
the sole COVERING PUBLIC
responsibility of the UTILITY VEHICLES
carrier.
NON-FAULT CLAUSE The present

IN COMPULSORY case shows a
MOTOR clear public
necessity to regulate
VEHICLE INSURANCE the proliferation
POLICY of such
(2000 Bar Exam) insurance companies.
Because of the
PUV operators
LAW
complaints, the LTFRB TRANSPORTATION

thus assessed
the situation. It LAWS
found that in order COMMON CARRIERS
to protect
the interests of (Arts. 1732-1766,
the riding public New Civil Code)
and to resolve
problems Common Carriers
involving the are persons,
passenger insurance corporations, firms or
coverage of PUVs, associations engaged
it had to in the business
issue Memorandum of carrying or
Circular No. 2001- transporting passengers
001 accrediting PAMI or goods or
and PAIC II as both, by land,
the two groups water, or air, for
allowed to compensation, offering
participate in the their services
program. to the public.
Memorandum Circular
No. 2001-001 required Transportation
that defined. a contract
[a]ll public utility of transportation
vehicles whose is one
LTO license whereby a certain
plate, as per latest person or
LTO Official association of persons
Receipt, with an obligate
EVEN middle number themselves to
transport persons,
(0, 2, 4,
things, or news from
6 and 8) shall
one place to
be insured with
another for a
UCPB insurance (PAMI)
fixed price
while those
(3) consignee
with an ODD
Common Carrier
middle number
(1, 3, 5,
Private
7 and 9) shall
Carrier
be insured with
Great As to Availability
Domestic Insurance
(PAIC II) x x x Holds himself Contracts
. out for with
all
people particular
indiscriminately individuals
or
LAW
groups only goods for

others as a public
employment,
and must hold himself
As to require out as ready
Diligence to engage
Extraordinary Ordinary in the transportation
Diligence Diligence of goods
As to regulation for persons
Subject to Not generally
subject as a
state to business, and not a
state casual
regulation regulation occupation.
2. He must undertake
Stipulation limiting to
liability carry goods
of the kind to
Parties may Parties may which his business is
agree on limit the confined.
limiting the carriers 3. He must
carriers liability, undertake to carry
liability provided by the
except it is methods by which
when not contrary his business
to is conducted, and
provided by morals or over his established
law good customs
roads.
4. The transportation
Exempting circumstances must be for hire.
Prove Caso
extraordinary forfuito, The true
test is
diligence whether the given
and 1174 undertaking
Art.1734,NCC NCC is a part of
Presumption of Negligence the business engaged
There is a in by the
presumption No carrier which he
presumption of of fault has held out to
negligence fault or the general public
Negligence as his
Governing law occupation rather
Law on Law on than the quantity
Common obligations or extent of
and the
contracts business actually
Carriers transacted, or
(2002 Bar exams) the no. and
character of the
Test for a conveyances used
common carrier: in the employment
1. He must be (the test is
engaged in the therefore the
business of carrying character of the
LAW
business actually etc. or locality,

carried on by or any kind
the carrier. of traffic, to
any undue or
Characteristics of unreasonable prejudice
common carriers: or discrimination
whatsoever. Exception:
(1) The common carrier When the
undertakes to actual cost of
carry for all people handling and
indifferently; transporting is
different, then
(2) The common carrier different rates
cannot lawfully may be charged
decline to Determination of
accept a particular justifiable refusal:
class of goods This involves a
for carriage to consideration of the
the for the following:
convenience of the 1. suitability of the
traveling public vessels of the
and to enforce company for the
them transportation of
(4) Public such products;
convenience - for 2. reasonable possibility
the best interests of danger or
of the public disaster, resulting
from their
The law prohibits transportation in
unreasonable the form and under
discrimination by the conditions in
common carriers.-- which they
The law requires are offered for
common carriers carriage;
to carry for 3. the general nature
all persons, either of the business
passengers or done by the
property, for exactly carrier;
the same 4. all the attendant
charge for a like circumstances which
or contemporaneous might affect
service in the the question
transportation of of the reasonable
like kind of traffic necessity for the
under refusal by the carrier
substantially similar to undertake
the
circumstances or
transportation of
conditions. The law
this class of
prohibits common
merchandise.
carriers (CC) from
subjecting any person,
LAW
What is the place of

DILIGENCE required destination. He is
by common obliged
carriers? to carry
Common carriers, passengers safely
from the nature as far
of their as human
business and for care and foresight
reasons of public can provide,
policy, are using
bound to observe the utmost
extraordinary diligence in diligence of a
the vigilance very cautious
over the goods person
and for the safety with due regard
of the for all
passengers transported circumstances. In
by them, case of
according to all death or injury,
the circumstances the common
of each case. carriers
Extraordinary diligence are presumed
lasts from the time to have been
the cargoes are at fault or
loaded in the vessel negligent in
until they are transporting the
discharged and shipper may
delivered to the only prove
consignee. that the goods
Air carriers can arrived in
terminate services a
of pilots for damaged
serious misconduct condition or
and that they did
drunkenness not arrive
because of at all.
its
extraordinary diligence. LOADSTAR SHIPPING
CO., INC VS.
LIABILITY OF PIONEER ASIA
COMMON CARRIERS: INSURANCE CORP.Jan
The common 24, 2006
carrier, is at A common
all times, required carrier is
to observe required
extraordinary diligence to observe
with respect to extraordinary
transport of goods. diligence in the
vigilance over
1. To bring the goods it
passengers safely transports.
to his
LAW
A) That the CC
I. VIGILANCE OVER encountered:
THE GOODS a. An act of
RULES governing God;
common carriers there
LIABILITY must have been
over Goods: no delay
General RULE: on the part
Common carriers of the
are responsible for common carrier.
the loss, destruction, Otherwise, if
or deterioration delayed
of the goods, and not for
UNLESS the good reason,
same is due to then it shall
any of the following be held liable
causes only:
notwithstanding
1) Flood, storm, the fact that
earthquake, lightning, all the
or other subsequent
natural disaster requisites were
or calamity; present.
2) Act of the public
enemy in must
war, whether be an unforeseen
international or civil; event or an
event which
3) Act or omission cannot be avoided
of the shipper
or owner of The
the goods; carrier must
4) The character of have exercised
the goods or extraordinary
defects in the diligence before,
packing or in during,
the containers; and after the
5) Order or act of time of the
competent public accident.
authority. (Art. The
1734) proximate
cause must
The CC may not be
absolve itself committed by the
from liability by carrier. If the
proving any of proximate cause
the following of the event
DEFENSES: is caused by
the carrier, then
(2002 Bar exams)
he cannot invoke
the act of
God defense. Under
LAW
the rule on 1. The act of public

Contributory enemy must
Negligence, if the have been
negligence attributable the proximate
to carrier is of the loss
not proximate in 2. It must have been
character, the carrier the only cause
shall be of the loss
responsible, although 3. The common carrier
such liability shall must have
be mitigated. exercised due diligence
to prevent
or minimize before
b. Act of public , during
enemy in war; and after the
c. Act by a act of public
competent public enemy in war.
authority;
d. Acts/omissions of REQUSITE FOR
the shipper or act or omission
his agent;
of Shipper -
1. That the act or
e.
The goods or omission of the
the packaging is shipper /owner
inherently defective. of the goods
1. The natural disaster must have been
must have the proximate
been the cause of the loss
proximate cause 2. That it must have
of the loss been the only cause
2. It must have been of the loss.
the only cause
of the loss REQUSITES for
3. The common carrier character of
must have goods , fault
exercised due diligence in packing
to prevent or containers-
or minimize before 1. That the loss ,
, during destruction or
and after the natural deterioration was caused
disaster by the
4. The common carrier character of the
goods ; or the
has not
faulty nature of
negligently incurred
the packing
delay in transporting
/containers
the goods 2. That the common
carrier had exercised
REQUISITES for due
act of public
enemy -
LAW
diligence to forestall over the

or lessen goods arise?
the loss. The carrier shall
be liable the
REQUISTES for moment the goods
the act of arrive in
public authority his possession whether
1. The common actual or
carrier must constructive, until such
prove that the time that the
public authority carrier delivers the
had the power same to the
to issue the consignee OR the
order for the consignee has been
destruction / informed of the
seizure of the arrival of the goods
goods.
and the
consignee had
B.) Another
reasonable time to
defensive strategy remove the same.
to escape liability
is to invoke
Under maritime laws,
that it
the responsibility
exercised extraordinary
of the carrier
diligence to
relationship governing
prevent or
them would be
minimize the loss
akin to a
at the time the
contract of
accident occurred.
Deposit.
There is already
Negligence is the
an existing Contract
failure to observe of carriage
due diligence with when the carrier
respect to the took possession of
circumstances at the cargo by
hand. placing it on a
lighter or
Contributory Negligence barge manned by
is the failure its authorized
to observe employees. (COMPANIA
due diligence that MARITIMA vs.
an ordinary or INSURANCE
prudent man COMP )
undertakes
in relation to
A bill of lading
the negligence of
that was issued
another.
covering certain
shipment which
When does the
contained a
carriers responsibility
provision that the
LAW
carrier does not assume is exercised, the

liability for common carrier
any loss /damage becomes a mere
to the goods warehouseman.
once they have
been under the
In the event
custody of the that the UNPAID
custom or other Seller exercises its
authorities or right of stoppage in
when they have transitu ,
been delivered at the carrier
ships tackle have thereafter holds
been considered valid , the goods in
because it the capacity of
was held that it an ordinary bailee
is not contrary or warehouseman
to morals and and shall be
public policy ; liable only as such ,
said stipulation is upon the theory
clear and have that the exercise
been adopted to of the right
mitigate the by the unpaid
responsibility of the seller , such
common carrier. terminates the contract
(LU DO vs. of carriage.
BINAMIRA)
A STIPULATION
Stoppage in LIMITING LIABILITY
Transitu is the IS VALID
right of the unpaid PROVIDED THAT it
seller who be: (2002
has parted with bar Exam)
the possession of 1. In writing signed
the goods to by both parties
stop them in transit,
when the 2. Supported by a
buyer of goods is valuable consideration
or becomes other
insolvent. than the service
Requisites: rendered by common
carrier
3. Reasonable, just and
1. Seller must be not contrary to
an unpaid seller; public policy
2. Goods must be in SOME VALID

transit; STIPULATIONS
3. Buyer must be in LIMITING CARRIER'S
a state of
insolvency; EFFECT: LIABILITY:
Once the right
LAW
1. Account of strikes of the goods

or riot; appearing in
2. Value of the goods the bill of lading,
appearing in unless the
bill of lading shipper or owner
UNLESS shipper declares a
declares a greater greater value, is
value; binding.
3. Contract fixing A contract fixing
the sum that may the sum that
be recovered. may be recovered
by the owner
VOID STIPULATIONS or shipper for
LIMITING the loss, destruction,
CARRIER'S or deterioration
of the goods
LIABILITY (2002 is valid, if
bar exams) reasonable and
1. that the goods just under the
are transported at circumstances, and
the risk of the has been fairly and
shipper; freely agreed upon.
6. that the common
carriers liability The law of the
for acts committed country to which
by thieves, or the goods are
of robbers who to be transported
do not act with governs the liability
grave or irresistible of the common
threat, violence or carrier in case of
force, is dispensed loss, destruction or
with or diminished; deterioration.
7. that the common
carrier is not
The provisions of
responsible for the articles 1733 to
loss, destruction, 1753 shall apply
or deterioration to the passenger's
of goods on baggage which is
account of the not in his
defective condition personal custody
of the car, vehicle, or in that of
ship, airplane his employee. As
or other to other
equipment used in baggage, the rules in
the contract of articles 1998
carriage. and 2000 to 2003
concerning the
A stipulation that responsibility of hotel-
the common carrier's keepers shall be
liability is applicable.
limited to the value
LAW
Fire may not be AMERICAN STEAMSHIP)

considered as a
natural disaster
or calamity. It In case where
does not fall within the Common carrier
the category w/o just cause-
of act of God
UNLESS caused 1. Delays the
by lighting or transportation of
by natural disaster goods
or calamity. It 2. Changes the
may even be stipulated route /
caused by actual usual route The
privy or annulment of the
fault of the carrier. agreement limiting
(EASTERN the carriers liability
SHIPPING vs. IAC) is no longer
necessary; The
The Civil Code carrier cannot simply
provisions on Common avail of the
carrier shall benefit /defense of
not be applied limited liability. When
when the carrier is the conditions
not acting printed in the
as such but as a back of the ticket
private carrier. stub are in
The stipulation in letters so small
the charter that they are hard
party absolving the to read, this would
owner from liability not warrant
for loss due to the presumption
the negligence of that the passenger
its agent would were aware of
be void only if those conditions such
strict public that he had fairly
policy and freely
governing common agreed to them .
carriers are applied. The passenger
cautious persons,
Such policy has with a due regard
no force when for all the
the public at circumstances.
large is not involved, RULE: The responsibility
as in the of a common
case of a ship carrier for
totally chartered for the safety of
the use of a passengers as required
single party (HOME in articles
INSURANCE 1733 and 1755 cannot
vs. be dispensed
with or lessened
by stipulation, by
LAW
the posting of Is the carrier

notices, by liable
statements on tickets, for death
or otherwise. of or injuries
to the
EXCEPTION: When a passengers due
passenger is to the
carried gratuitously, negligence or
a stipulation willful acts of
limiting the ITS EMPLOYEES?
common carrier's
liability for YES, although such
negligence is valid, employees may have
but not for acted beyond the
willful acts or gross scope of their
authority or in
negligence.
violation of the
orders of the common
The common carrier carriers.
is liable
even if the ticket Illustrative rule: Two
issued to passengers engage in
passenger provides a fist-fight
exemption of inside a bus terminal.
common carrier An on-duty
from death or driver attempts to
injury of paseenger pacify them but instead
and notices were kills one. The
posted carrier is liable!
dispensing But, if the killing
extraordinary diligence of the
of the common passenger occurred
carrier or even if while the driver is
the passenger was off-duty, the
given a discount carrier is not liable.
of his fares. (Recall
(2001 Bar exams) the case of Gillaco
If the v. Manila
passenger is
Railroad, the carrier
carried
was held not
gratuitously,
liable when its
stipulation limiting
CC for negligence is employee, a security
valid but not guard who
for WILLFUL ACT harbored a grudge
OR GROSS against a
NEGLIGENCE. fellow passenger, shot
A reduction of and killed the
fare does not latter. The guard
justify any limitation committed the killing
of the common while he was
carrier's liability. off-duty.)
LAW
The Common carrier that it was

is held liable negligent in
because - preventing the injuries
1. The driver , from accident;
although stopping otherwise, it would
the bus, nevertheless be held liable.
did not put
off the engine. (Bachelor Express
2. He started to vs. CA 188; SCRA
run the bus even 216)
before the
conductor gave him EE riding on
the signal to train who stepped
go and while the on watermelons.
passenger was still Held: The conduct
unloading part of of plaintiff in
the baggage . ( undertaking to
LA MALLORCA alight while the train
vs. CA) was yet slightly
underway was
In the case of not characterized
LACAM vs. SMITH by imprudence
, the Court and that he was
held that an not guilty of
accident caused contributory negligence.
by defects in The circumstances
the automobile is show that it was
not a caso fortuito. no means so
The rationale risky for him to
of the carriers get off while the
liability is the train was yet moving.
fact that the It is
passenger has neither not negligence per
the choice se for a traveler
nor control over to alight
the carrier in from a
the selection and slowly moving train.
use of the (Cangco
equipment and vs MRR 38 Phil
appliances in use 768)
by the carrier.
The DUTY of
Q: Is the carrier the PASSENGER
liable for is to observe
death of or the diligence of a
injuries to the good father
passengers due to of a family
the willful acts to avoid injury
or negligence to himself.
of other The contributory
passengers or of negligence of the
strangers? prove passenger does not
LAW
bar recovery of therefore unenforceable,

damages for his as contrary
death or injuries, if to public policy-
the proximate to make
cause thereof is the court accessible
the negligence of to all those
the common carrier, who have need of
but the amount their services.
of damages
shall be equitably Moral damages are
reduced. not recoverable
on breach of
Condition printed contract of
on the back carriage in view
of a passenger of ART.2219-20
ticket commonly known NCC .
as CONTRACT EXCEPTIONS-
OF ADHESION 1. Where the mishap
, being results in the death
drafted only by of a
one party , passenger; Because
usually the the common carrier
corporation , and becomes subject
the only participation to the rule in
of the other ART.2206 NCC
party (passenger ) entitles the spouse,
is the signing descendants,
of his ascendants to moral
signature his adhesion damages for
thereto calls mental anguish as a
for greater result of
strictness and vigilance the death of
on the part the deceased.
of the court 2. 2.Where it is
of justice with proved that carrier
the view of was guilty of
protecting the weaker fraud or bad faith
party from EVEN if death
abuses . Such does not result.
contract if enforced
will be
subversive of public
good , thus
placing the
common carrier
at a decided
advantage over those
who may have
legitimate claims
against it. The
said condition is
LAW
Mere carelessness
does not per se
justify an inference
of malice or
bad faith on the
part of the
common carrier ;
Must be GROSS
negligence
Concurring causes
of action arising
from
negligent act of
the common carrier:
1. Culpa
Contractual/breach
of contract
(2003 Bar Exams)
Only the carrier is

primarily liable
not
LAW
Bill of Lading: Writt

The carrier and the driver acknowledgement of recei
are solidarily liable as joint of goods and agre
torfeasors.(Art 2180 NCC) to transport them
LAW
3. Defense of due specific place

diligence in the selection person named
and supervision of to his order or
employees is available.
Exception: maritime tort Ambiguity is
resulting in collision construed against
Although the relation carrier, the contr
of passenger and carrier being one of
is contractual both adhesion.
in origin and nature,
nevertheless, the Kinds of Bills of Ladin
act that breaks the
1. Negotiable Bill of
contract may also
one in which
be a tort. (Air France
is stated that
vs. Carrascoso;
goods referred to there
18 SCRA 155)
will be
delivered to the beare
In the case of injury
or to the order
to a passenger
any person name
due to the negligence
in such document.
of the driver of
the bus on which 2. NonNegotiable Bill
the passenger was riding Lading the goods
on and of the referred to therein
driver of another vehicle, be delivered to a
the drivers as person.
well as the owners 3. Clean Bill of Ladin
of the two vehicles One which does
are jointly and severally indicate any defect
liable for the goods
damages. It should
not make any 4. Foul Bill of Ladin
difference that the liability Contains a notat
of the bus owner indicating that the goods
springs from a are in bad Condition.
contract while that of 5. Spent Bill of Ladin
the driver springs Covers goods
from a quasi delict. have already been delive
(Tiu vs. Arriesgado) by the carrier witho
surrender of a
Culpa criminal( Criminal
copy of the Ladin
Negligence)
The driver is 6. Through Bill of
primarily liable. Issued by
The carrier is carrier who is obliged
subsidiarilly liable use the facilities of
only if the driver carriers.
is convicted 7. On Board Bill
and declared Lading one in
insolvent.(art 100 RPC) it is stated
LAW
The principle of last clear

chance would call
for application in a suit
between the owners and
drivers of the two colliding
vehicles. It does not arise
where a passenger demands
responsibility from the carrier to the goods have been
enforce its contractual on board the
obligations.(Phil. Rabbit Bus which is to
Lines vs. CA) the goods.
8. Received for Shipm
CODE OF COMMERCE OVERLAND
Bill of Lading
TRANSPORTATION
is stated that
Custody
of

by
carrier
Nature of Contract to the whom the
Art. 349. A have been delivered
contract of transportation by shipment but the vesse
land or waterways of any indicated in the bill
kind shall be considered leading which is
commercial: carry the goods
1. When it involves merchandise not yet reached the
or any object of where the goods
commerce. held for shipment.
2. When, no matter what 10. Port Bill of Lad
its object may be, one which is
the carrier
is a m
or is
customarily [habitually]
the ca
to whom
the goods
have been
engaged in
transportation
for
the
public.
delivered,
and
the
vessel
LAW
to
carry
the
goods
is
Requisites for
a
contract
of
transportation
by
land
or
already
in
the
port
where
the
goods
are
held
for
water to be
commercial :
shipment.
(1) transportation of merchandise is always

commercial
(2) transportation of person or news is
ThreeFold Nature of Bills of Lading
commercial only when the CC is a
merchant or is
habitually
in
for
public
1.
contract
itself
the
are
by
* principal
requirement : the CC is
a merchant its
terms; or is
LAW
habitually engaged in
transportation for the
2. A receipt; and
public; the object
carried is of little
importance
3.
A symbol
of
the
covered
by
it
and performance for commercial

shall be contracts.
decided, no
exception being
Right to refuse
admissible
packages
other than those
of falsity Gen. Rule: a
and material common carrier
error in cannot
the drafting. ordinarily refuse to
carry a
particular class of
Effect of goods to the
absence of a prejudice of the
bill of lading traffic in those
It does not preclude goods.
liability Exception: However,
on a contract under Art. 365,
of carriers are
transportation. authorized to refuse
The dispute packages if
shall be they are unfit
determined by for transportation.
the legal
proofs which Time for
the parties delivery of goods
may present
in support Where no period
of their fixed
respective claims, The carrier
according shall be bound
to the general to forward
provisions them in the
established in first shipment of
the Code the same or
similar goods,
which he
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makes to the Regardless of the

points where value of the cargo,
he must deliver the maximum
them. liability of the
Should he not carrier will be, for
do so, the damages example, P500.
caused by This is VOID
the delay shall for being contrary
be for his account. to public
policy.
Where for (3). Qualified
delivery of goods Liability
A stipulation in
The carrier the bill of lading
must deliver limiting the
the goods within liability of the
the time fixed. carrier to a
For failure
valuation unless
to do so,
the shipper declares
the carriers shall
pay the a higher
indemnity stipulated in value and pays a
the bill of higher rate of freight
lading. Also, is valid.
damages shall be However, the carrier
paid if the cannot limit
carrier refuses to its
pay the (1) Inter-island if
stipulated indemnity or goods arrived
is guilty of in damaged
fraud in the condition:
fulfillment of his If
obligation. damage
Limitation as to is
carriers liability apparent,
(2002 Bar exams) the
shipper
(1). No Liability must file
a claim
The carrier will
not be liable at immediately.
all for the If
negligent acts of damage
its crew and is Not
employees. This is apparent
NULL and VOID he should
for being contrary file
to public a claim
policy within
(2). Limited 24
Liability hours from
delivery.
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The and recover

filing of the value
claim is a thereof from
the carrier?
condition
In any of the
precedent
following cases:
for recovery.
(1) Under Art. 363,
If the in case of
claim is partial non-delivery,
filed, but where
the carrier the consignee
refuses proves that he
to cannot make
pay: use of the
Enforce goods capable
carriers of delivery
liability in independently of
court those not
by filing a delivered.
case: (2) Under Art. 365,
Within 6 years, if where the goods
no bill of are
lading has been issued, rendered useless
or for sale
Within 10 years, if and consumption
a bill of for the
lading has been issued. purpose for
(2) which they are
Overseas Where properly
goods arrived destined; or
in a (3) Under Art. 371,
damaged condition where there
from a foreign is delay
port to a through the
Philippine Port of fault of the
Entry: carrier.
Upon discharge of Two special
goods, if the damage sanctions for
is apparent the enforcement
claim should be by the carrier
filed immediately; of the
If damage is payment of
not apparent, claim expenses and
should be transportation
filed within 3 charges.
days from delivery.
When may a (1) Under Art. 374,
consignee of judicial sale of
the goods
goods abandon
transported; and
the goods
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(2) Under Art. 375, and lack of

by creating a care for the interests
lien in favor of its
of the carrier passengers who
on the goods are entitled to
transported. its utmost
consideration, particularly
as to their
AIR TRANSPORTATION
convenience- amount
to bad faith which
The nature of
entitles the
an airlines
passenger to an
contract of
award of moral
carriage partakes
damages(Japan Airlines
of two types,
vs. Simangon,
namely: a
April
contract to deliver
22, 2009)
a cargo
or merchandise
Even where
to its destination,
overbooking of
and a contract
passengers is allowed
to transport
as a
passengers to their
commercial practice,
destination.(
the airline company
British
would still
Airways vs. CA,
be guilty of
285 SCRA
bad faith and still
450)
be liable for
damages if it
safety of its
did not properly
stranded
inform passenger that it
passengers until
could breach
they have reached
the contract
their
of carriage even
final destination (
if they were
Phil
confirmed
Airlines vs. passengers( Zalamea
CA; Sept 15, vs. CA GR
1993)
104235)
It is firmly
Neglect or
settled that moral
malfeasance of the
damages are
carriers employees
recoverable in suits
could give ground
predicted on breach
for an action
of a contract
for damages.
of carriage
Passengers have a
where it is proved
right to
that the carrier
be treated by
was guilty of
the carriers
fraud or bad
employees with
faith- in attention to
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kindness, respect, flight reservation

courtesy and due (Singson vs.CA,
consideration and are GR No. 119995)
entitled to be
protected against An airline company
personal misconduct, which issued
injurious a confirmed
language, indignities ticket to a
and abuses from passenger covering
such successive trips on a
employees. trips on different
airlines can
An air carrier be held liable
is not liable for damages
for the loss of occasioned by bumping
baggage in an off by one
amount in excess of the successive
of the limit airlines(Lufthansa German
specified in the Airlines vs.
tariff which was CA; GR. No.
filed with the proper 83612)
authorities, such VESSELS (in
tariff being general)extends to
binding on everything floating in
the passenger and on the
regardless of the water, built in the
passengers lack of form of vessel
knowledge thereof and used for
or assent thereto. navigation regardless
In a contract of form, right
of air carriage, or motive
a declaration power.
by the passenger of
a higher MERCHANT VESSELS-
value engaged in the
is needed to transportation of
recover a passengers and freight
greater from one port to
amount. another or
from one place to
An open dated another.
ticket
constitutes a *Are vessels real
complete contract or personal
between the carrier property?
and passenger. PERSONAL- but they
Hence the airline partake to a
company is liable certain extent, of
if it refused the nature and
to confirm a conditions of real
passengers
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property, on account to the vessel

of itself.
their value and 3. Preference of
importance of the credits- Mortgage
world of commerce. of a vessel
properly registered
CHARACTERISTICS OF becomes of
MARITIME preferred mortgage
TRANSACTIONS: lien which
1. Real- similar shall have
to transactions priority over all
over real claims against
property with the vessel in
respect to an extrajudicial
effectivity against foreclosure for:
third persons, a. credit in favor of
which are done the public treasury;
through registration.
The evidence b. judicial cost of the
of real nature proceedings;
is shown by: c. pilotage and tonnage
the limitation charges and
of the liability other sea and port
of the changes;
agents to d. salaries of
the actual depositories and keepers
value of of the vessel;
the vessel
and the e. captain and crew's
freight money wages;
and f. general average
the right g. salvage including
to retain contract salvage;
cargo, h. maritime liens arising
embargo and prior in
detention of time to the
the vessel recording of the
even in preferred mortgage;
cases where i. damages arising
ordinary out of tort; and
civil law j. Preferred mortgage
would not registered prior in
allow more time.
than a
personal action
against A.BILL OF LADING
debtor. ( 1998
2. Hypothecary- the and 2005 bar
liability of the Exams)
owner of the
vessel is limited
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A bill of lading the ship owner has

serves two abandoned the ship,
functions: equipment
a. It is a and freight, his liability
receipt for the is extinguished.
goods shipped;
b. It is a If the vessel sinks
contract by the liability of the
which three owner is extinguished,
parties, namely although he may have
the other properties.
shipper, the If the vessel does
carrier, and the not sink, the owner
consignee May exercise the right
undertake of abandonment
specific and the liability of
responsibilities the ship owner is
and assume limited to the value of
stipulated
the vessel.
obligations.
EXCEPTIONS TO
A bill of lading LIMITED LIABILITY
delivered and RULE:
accepted constitutes 1. When the vessel
the contract of is not abandoned
carriage even by the owner or
though not signed, ship agent
A bill of 2. When the vessel is
lading is in covered by
the nature of insurance
a contract of 3. Expenses for repair
adhesion. of the vessel
before it
DOCTRINE OF sails 4. Claims of
LIMITED LIABILITY employees under
(HYPOTHECARY NATURE the labor laws
OF MARITIME 5. When ship
COMMERCE) ART. owner/ship captain
587, CODE is at
OF COMMERCE fault or guilty
1994, 1997,1999 and of
2000 bar exams negligence.
The liability of the a. lack of
ship owner is limited
to the value proper
the vessel. The and
limited liability of the adequate
owner is confined to
the vessel, equipment equipment(insuffi
and freight or cient life
insurance, if any. If vests)
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b. lack of limited liability

proper technical in view of
training the unanimous findings
of of the courts
the offices below that
and of both Aboitiz and
the the crew failed to
vessel ensure the
seaworthiness of
Monarch Ins Co. the M/V P. Aboitiz.(
vs. Ca; Allied
Guarantee Insurance Aboitiz Shipping
Co vs. CA & Corp vs CA, October
Equitable Insurance 17,2008)
vs. CA, (June
8, PHILIPPINE COAST
2000) GUARD (PCG)
vested with exclusive
As a general authority over the
rule, a ship owner's registration and
liability is documentation of
merely co-extensive Philippine vessels,
with his interest issuance of all
in the vessel, certificates, licenses
except where or documents,
actual fault necessary or
is attributable incident to
to the ship registration.
owner. Thus,
as an - At its home
exception to the port (when a
limited liability coast guard
doctrine, a ship district or
owner or ship agent station is on
may be held the same port);
liable for damages if none, at
when the sinking the nearest
of the vessel COAST GUARD
is attributable to DISTRICT OR
the actual fault or STATION).
negligence of
the ship owner or OPTIONS AS TO
its failure to SMALL BOATS:
ensure the 1.) If vessel is
seaworthiness of of domestic
the vessel. The ownership and 15
instant petitions cannot tons gross or
be spared less
from the application of certificate of
the exception to Philippine registry is
the doctrine of optional.
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Purpose: declare If made

nationality of a while it is on a
vessel voyage,
2.) Vessel (5 tons freightage shall pertain
gross or less) entirely to
& no certificate PURCHASER and
of Philippine payment of the
registry crew and other
certificate of persons who make
ownership is up its
compliment for same
optional.
voyage shall
Privileges: right to
be for his account.
engage in
Philippine coastwise
If made
trade and
protection of the after the vessel
authorities and has arrived at
the flag is also the port of its
subject to the destination, freightage
same privileges. shall pertain to
3.) Vessel (3 tons the VENDOR and
gross or less) other individuals who
not to make up its
be registered unless complement shall be
the owner for his account,
shall so desire. UNLESS the
contrary is
stipulated in either
PURPOSE OF case.
REGISTRATION:
Purchaser's rights FORMALITIES FOR
maybe maintained against VOLUNTARY SALE
a claim ABROAD:
filed by the THIRD 1. Execution of the
PERSON. bill of sale before
consul of
*Who shall be the Philippines at
entitled to the the port where it
freightage and who terminates its
shall be voyage;
obliged to pay 2. Inscription in the
the crew and registry of the
other persons consulate;
who make up 3. Forwarding by the
the compliment consul of a true
copy of the
of the vessel?
instrument of purchase
and sale to
>It depends upon the registry of
the time of the vessel;
sale. 4. Statement whether
the vendor receives
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its price in prevent the

whole or in part. possibility of
fraud upon creditors
FORMALITIES FOR through
SALE WHEN VESSEL voluntary sale.
RENDERED
USELESS: PARTICIPANTS IN
1. application for MARITIME COMMERCE:
examination;
2. notification of the a. ship owners and
consignee/ insurer; ship agents
3. proof of damage b. captains and masters
and impossibility of of the vessel
the repair of
the vessel; c. officers and crew of
4. order for the sale of the vessel
vessel at c.1 sailing (1st mate)
public auction.
c.2 quartermaster
RULES FOR (2nd mate)
THE SALE OF c.3 engineer
VESSEL AT PUBLIC d. seamen
AUCTION: e. supercargoes
1. articles of the
vessel shall be A. SHIP OWNERS
appraised after AND SHIP AGENTS
1. judicial
2. voluntary Ship owner - A
person who
*EFFECT OF has possession or
REGISTRATION OF control in the
VOLUNTARY SALE management of the
- if it take place vessel and the
while the vessel consequent right to
is on a direct her navigation
voyage, the preferred and receive freight
& hypothecary earned and
nature of paid, while his
the credit subsists possession continues.
against the Ship agent
vessel until after A person
its return to entrusted with
the port of registry provisioning and
and 3 months representing the vessel
after the in the port in
inscription of the which it
may be found;
sale in the
also includes the
registry of vessels
ship owner
or after the
return, so as to
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LIABILITY OF SHIP of the vessel

OWNER AND or its
SHIP AGENT: insurance in view of
1. for the acts of the so-called
the captain REAL AND
2. contracts entered HYPOTHECARY nature
into by the captain of maritime
to repair, law.
equip, and provision -
the vessel
PROVIDED that the
amount claimed
was invested for responsibility
the benefit of
the vessel
3. Indemnities in favor of
third person
that may arise from
the conduct of POWER AND
the captain in FUNCTIONS AND
the care of goods LIABILITIES OF SHIP
and safety of
passengers
AGENT:
transported.
1. capacity to trade;
4. Tort or quasi-delict
committed by captain
2. discharge duties
EXCEPT collision
of the captain
with another
in case of the
vessel.
DUTY OF
5. Damages in case
SHIP AGENT
of collision due
TO
to the fault,
negligence or want of DISCHARGE
skill of captain, THE CAPTAIN
sailing mate or AND MEMBERS OF
by other THE CREW:
member of the - If
complement. the seamen contract
is not for a
SHIP AGENT'S AND definite period
OWNERS LIABILITY or voyage,
LIMITED: he may discharge
- By abandoning the them at his
vessel with all discretion
her equipment and - If for a definite
the freight it period, he
may have may not
earned during discharge them until
the voyage(by after the
NECESSARY fulfillment of their
IMPLICATION); limited contracts
to the value
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EXCEPT on the ff. importance, although

grounds: engaged in the
a. insubordination in coastwise trade
serious matters Masters- who
b. robbery command smaller
c. theft ships engaged
d. habitual drunkenness
exclusively in the
e. damage caused coastwise trade
to the vessel
or to its cargo NATURE OF
through POSITION:
malice, 1. General agent of
manifest or the ship owner
proven
negligence 2. Technical Director of
EFFECT/LOSS/DESTRUCTION the vessel
OF VESSEL: 3. Representative of
1. extinguishes liability the Government of
arising from the conduct the country under
of the captain whose flag
in the
he navigates
vigilance of the
goods and for the
safety of the QUALIFICATIONS:
passengers and for 1. Filipino citizen
any liability arising 2. Legal capacity to
from negligent contract
acts of the captain 3. Must have passed
the required
2. extinguishes liability physical, mental
for the wages of examination required
the captain for licensing him
and the crew and as such
for advances made
by the ship INHERENT POWERS
agent if the vessel OF THE CAPTAIN:
is lost by 1. appoint crew in
shipwreck or capture the absence of
ship agent
3. liability for collision
2. command and direct
crew
3. impose correctional
B. CAPTAINS AND
punishment on those
MASTERS OF THE who while on
VESSEL Captain-
board vessel fail
who govern to comply with
vessels that
his orders or
navigate the high are wanting in
seas or ships
discipline
of large
4. make contracts for
dimensions and
the charter of
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vessel in the absence LIABILITIES OF THE

of ship agent SHIP AGENT/SHIP
OWNER FOR ACTS
5. supply, equip, DONE BY
and provision the THE CAPTAIN
vessel TOWARDS PASSENGERS
6. order repair of AND
vessel to enable it CARGOES MAKING
to continue THEM
its voyage SOLIDARILY LIABLE
TO THE LATTER:
SOURCES OF FUNDS 1. damages to vessel
TO COMPLY and to cargo
WITH THE due to lack of
INHERENT POWERS skill and
OF THE CAPTAIN: negligence
1. from the consignee of 2. theft and robbery
the vessel of the crew
2. from the consignee of 3. losses and fines in
the cargo violation of laws
3. examine before 4. damages due to
the voyage mutinies
4. stay on board 5. damages due to
during the loading misuse of power
and unloading of 6. deviations
the cargo 7. arrival under stress
5. be on deck while
leaving or entering 8. damages due
the port to non-
6. seeks protest, arrival observance of
under stress marine regulations
and in case
of shipwreck NO LIABILTY FOR
7. follow instruction of THE FOLLOWING:
and render 1. damages caused to
accounting to the the vessel
ship agent by force majeure
8. save the vessel 2. obligations contracted
lost in case of for the repair,
wreck equipment and
9. hold in custody provisioning of the
properties left by vessel UNLESS he
deceased by has expressly bound
passengers and crew himself
members personally or has
10. comply with the signed a bill of
requirements of customs, exchange or
health, etc. at promissory note in
the port of his name
arrival
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CARGO- which
includes all FORMALITIES
goods, REQUIRED
wares and WHERE
merchandise aboard a VESSEL
ship which 5. such authority shall
do not from part of take other steps
the ship's in carrying at
stores.
the facts
6. such authority shall
REQUIREMENTS FOR also make
DEFENSE OF PUBLIC statements of what
ENEMY: may be the result
1. act of public of the
enemy in war was proceeding in the
the proximate and logbook and in
only cause of that of the sailing
the loss mate
2. common carrier 7. he shall deliver
exercise due diligence the original records
to prevent, to the captain
minimize loss before,
during, and 8. captain must ratify
after occurrence of the protest
the act of the
public enemy in C. OFFICERS AND CREW
war
FORMALITIES
1. Sailing mate/First mate
REQUIRED WHERE
- second chief of
VESSEL HAS
the vessel who
GONE THROUGH
takes the place
HURRICANE
of the captain
1. Captain must in case of
make a protest absence, sickness,
before competent authority or death and
at the first shall assume
port he touches all of his duties,
2. Such a protest powers, and
must be made responsibilities
within 24 hours
following his arrival
DUTIES:
1. provide himself
3. captain must ratify it
with maps, and
within some
charts with astronomical
period when
tables
he arrives at
necessary for the
his destination
discharge of
4. he must
his duties
immediately proceed
2. keep the Binnacle
with the proof
book
of the facts
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3. Change the course matters to motor

of the voyage apparatus. When
on consultation 2 or more
with captain and are hired, one
the officers of of them should
the boat, following be the Chief
the decision of Engineer
the captain in
case of disagreements. DUTIES:
1. in charge of
4. Responsible for all motor apparatus, spare
the damages caused parts, and
to the vessel other instruments
or to the pertaining to the
cargo by reason engines
of his 2. keep the
negligence engines and
boilers in
2. Second mate good condition
- takes command
of the vessel 3. not to change
in case of the or repair the
inability or engine without authority
disqualification of of the captain
the captain and
the sailing mate, 4. inform the captain
assuming in of any damage
such case their to the motor
powers and apparatus
responsibilities and
5. keep an Engine
duties
book CLASSES OF
SEAMAN'S CONTRACT:
DUTIES:
1. preserve the hull
1. by the voyage
and rigging of
2. by the month
the vessel
3. by share of
2. arrange well the
profits or freightage
cargo
3. discipline the crew
JUST CAUSES FOR
4. assign work to crew
THE DISCHARGE
members
OF SEAMAN
5. Inventory the rigging
WHILE CONTRACT
and equipment
SUBSISTS:
of the vessel,
1. perpetration of a
if laid up.
crime
2. repeated insubordination,
3. Engineers
want of
- Officers of the
discipline
vessel but have
3. repeated incapacity
no authority
and negligence
EXCEPT in
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4. habitual drunkenness date of the capture
5. physical incapacity
6. desertion NO LIABILY UNDER
THE FOLLOWING
CAUSES OF
REVOCATION OF CIRCUMSTANCES:
VOYAGE:
1. If before
1. war beginning voyage,
2. blockade captain attempts
3. prohibition to receive to change it or
cargo at a naval
destination war with the power
4. embargo to which
5. inability of the was destined occurs
vessel to navigate
2. If a disease
RULES IN CASE breaks out and be
OF DEATH officially declared
OF A SEAMAN: an epidemic in
The seaman's heirs the port of
are entitled to destination
the payment as 3. If the vessel
follows: change owner or
1. if death is captain
natural:
a. compensation up to COMPLEMENT OF THE
time of death if VESSEL
engaged on - All persons on
voyage board, from the
b. if by voyage- captain to the
half of amount if cabin boy,
death occurs necessary for the
on voyage management,
out; and full if maneuvers, and
on voyage in service, thus
c. if by shares- including the crew,
none if before the sailing
departure; full if mates, engineers,
after departure stalkers and other
2. if death is employees on
due to defense of board not having
vessel- full specific
payment designations
3. if captured in - It does not
defense of vessel- include the
full payment passengers or
the person whom
4. if captured due the vessel is
to carelessness- transported
wages up to the
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FORMALITIES the accounting book of

REQUIRED the captain
FOR
SEAMAN'S B.CHARTER PARTY
AGREEMENT: a - Contract by virtue
governmental prohibition of of which
commercial the owner or
intercourse intended agent binds
to bring about himself to
an entire transport merchandise
cessation for the or persons
time being of of a fixed price.
all trade It may either
be contract
Embargo of affreightment
- a proclamation or (time and
order of the Voyage Charter)
State usually and bareboat
issued in time or demise
of war/ threatened charter.
hostilities prohibiting
the departure ships/ CLASSES OF
goods from CHARTER PARTY
some or all
the 1. As to extent of
ports of such vessel hired
State until further a. total- whole of
order the vessel is
chartered
Blockade b. partial- only part of
- a sort of the vessel is
circumvallation of chartered
place by all
foreign connections 2. As to time
and a. until a fixed day/
correspondence is for a determined
as far as human number of days
power can and months
affect it to b. for a
be cut-off voyage(outgoing/return/roundtri
SUPERCARGOES p)
- person who
discharge 3. As to freightage
administrative a. for a fixed amount
duties assigned to for the whole
him by ship cargo
agent or shippers,
b. for a fixed amount
keeping an
per ton
account and record
of transaction c. for an amount
as required in per month
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4. contain stipulation
a. Contract of not all requisites
Affreightment- are essential for
the owner the validity of
of the vessel charter party
leases
a part or Primage
all of the - belongs to
space of the owner/ freighters;
vessel to carry
goods - increase of
but retains the freight rate
the possession, - considered
command and gratuity to
navigation of master if is
the vessel. stipulated
The charter - a bonus to
merely has the be paid to a
use of the captain after a
space in the successful voyage
vessel in return Demurrage
for the - Sum which is
payment of fixed by the
the charter contract of carriage,
hire. or which is
allowed, as
b. Bareboat/ remuneration to
Demise the owner of a
Charterinvolve ship for the
the transfer detention of his
of full vessel beyond
possession and the number of
control of the days allowed
vessel to the by the charter
charterer. The party for
entire control loading/unloading/sailing.
and management
of the "Lay days"
vessel is given -days allowed to
up to charter parties
the charterer. for loading and
The charterer unlading
mans the vessel - period when
with his vessel will be
own people. delayed in port
(2003 Bar for loading and
exams) unloading.
"Extra Lay Days"
2. drawn in duplicate - days
3. signed by the parties which followed
after
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lay days 3. To unload cargo

have elapsed clandestinely
placed;
Deadfreight 4. To substitute another
A cargo vessel if
not loaded is load is less than
considered as 3/5 of capacity;
deadfreight, which 5. To leave the
covers the amount port if the charter
paid by or does not bring
recoverable from the the cargo within
charterer for the the lay days
portion of the and extra
ships capacity the lay days allowed;
latter contracted for 6. To place in a
but failed to vessel in a
occupy. good
condition to
GOODS navigate;
TRANSFERRED MAY 7. To bring cargo to
BE: nearest neutral
1. sold by captain to port in case of
necessary repairs war or
blockade.
2. jettisoned for the
common safety B. Of the charterer
3. loss by reason of 1. to pay the agreed
shipwreck/stranding charter price
2. to pay freightage or
4. seized by pirates/enemies unboarded cargoes
5. suffer 3. to pay
deterioration/diminutions losses to
6. increase by natural others for
cause and loading
weight or size 2. error in tonnage or
flag
RIGHTS AND 3. failure to place
OBLIGATIONS OF the vessel at
CHARTER PARTY: the charterer's disposal
A. Of the ship owner
or ship agent 4. return of the vessel
due to pirates,
1. If the vessel is enemies or
chartered wholly bad weather
not to accept 5. arrival at the port
cargo from for repairs
others; B. At ship owners
2. To observe request
represented capacity; 1. If the extra lay
days terminate without
LAW
cargo being
placed COMMON ELEMENTS
alongside the vessel OF LOANS
ON BOTTOMRY
2. Sale by the owner AND RESPONDENTIA
of the vessel 1. exposure of security
before loading or marine
peril
C. Fortuitous causes 2. obligation of the
1. war debtor conditioned only
2. blockade upon safe arrival of
3. prohibition to receive security at
cargo the point of
4. embargo destination
5. inability of the HYPOTHECARY
vessel to navigate NATURE OF
D. LOANS ON BOTTOMRY
BOTTOMRY/ AND
RESPONDENTIA RESPONDENTIA:
(1961,1967,& 1980 General Rule:
bar exams) the obligation of
the borrower to
These loans pay is extinguished
are secured by if the goods
the owner or given as
captain of the security are
vessel for the use absolutely lost by
of the vessel. reason of an accident
In the case of of the voyage
loans on bottomry, designated, and if
the security of it is proven
the loan is the that the goods
vessel itself; while were on board.
loan on respondentia,
the security of EXCEPTIONS:
the loan is 1. loss due to inherent
the cargo. defect
2. loss due to the
The loan is in barratry on the
the nature of part of the captain
insurance. The loan
will only be paid 3. loss due to the
on the safe arrival fault or malice of
of the vessel the borrower
or cargo 4. that the vessel is
fails to reach engaged in
the port of contraband
destination, the creditor 5. that the cargo
loses loaded on the vessel
his right to recover be different
the amount of from that agreed
the loan. upon
LAW
3. If the effects
Bottomry/repondentia on which the
Simple money is taken
loan is not subjected to
any risk(729
Marine risk Code of commerce
Duly established Not Note: under existing
existence of necessary laws, the
a marine parties to a loan,
risk is whether ordinary
necessary or maritime,
Form and manner may agree on
Must be Formal any rate of interest
executed in requisites (Cb circular
accordance with of an 905); provided the
the form ordinary same is not contrary
contract to law, morals,
and manner good customs,
prescribed public order or
by public policy. Art
1306 NCC
will
suffice ACCIDENTS IN
MARITIME COMMERCE
lender (2000 bar
exams)
1 Averages
When loan on bottomry 2.Arrival Under stress
or respondentia
regarded as 3.Collision
Simple Loan 4.Shipwreck
1. Lender loaned an Average
amount larger
An extraordinary
than the value
or accidental expense
of the object
due to fraudulent incurred during
means employed by the voyage
the borrower(art in order to
726 code of preserve the cargo,
commerce) vessel or
2. Full amount of both, and all
the loan is not damages or
used for the cargo deterioration suffered
or given by the vessel
on the goods if from departure to
all of them the port of loading
could not have been to the
loaded, the balance consignment (art 806
will be Code of commerce)
considered a simple The person
loan( art 727 whose property has
Code of Commerce) been saved must
LAW
contribute to average(812)
reimburse the damage
caused or
expense incurred if
the situation
constitutes general
average.
value of
It is classified
the owners
into: (1) general or
property
gross average
saved
or (2) simple
or particular.
Right to recover
No There may
reimbursement be
Particular/ simple
Gross/
reimbursement
general
Definition
Requisites of Gross
Damages or Damages or General
expenses expenses
average
caused 1. Common danger
to the deliberately
vessel caused in that both the ship
or order to and the cargo,
cargo that did save the
after has been
not vessel, its
loaded, are subject
inure to the cargo orboth
to the voyage,
common from
benefit, real and or in the
and known risk.(811) port of loading
borne by or unloading
respective that the danger
owner.( arises from the
art
809) accidents
Liability of the
The owner All persons sea,
of the having dispositions
goods an of the
interest authority
which gave rise the or faults
to the vessel and of
expense the cargo men,
or therein provided
suffered the that the
at
the time circumstances
damage
the
shall bear this producing
average
shall contribute the peril
average.(810) should be
to
satisfy this ascertained
LAW
and authority of the

imminent first port, within
or may 24hours from arrival
rationally
be said Ratification
to be by the
certain and captain under
imminent. oath.
2.Deliberate Sacrifice
Gen. rule: Goods Not Covered
sacrifice is made By General Average
through the Even if
jettison of the sacrified:
cargo or part of Goods carried on
the shipis deck
thrown overboard 1.goods not recorded
DURING THE in the books
VOYAGE. or records of
Exceptions: vessel 2.fuel
a. where the sinking of for the vessel
a vessel is if there is
necessary to more than sufficient
extinguish a fuel for the
fire in a port, voyage.
roadsteads, creek or
bay JETTISON
b. where cargo is Act of throwing
transferred to lighten cargo overboard in
the ship on order to lighten
account of a the vessel
storm to facilitate
entry into a port. ORDER OF GOODS
3.Sucess TO BE CAST
Pupose: To be OVERBOARD
able to demand IN CASE OF
general contribution JETTISON:
1. Those which are
4.Proper formalities on the deck,
and legal steps preferring the heaviest
a.procedure for recovery one with the
least utility of
b.assembly and value
deliberation 2. Those which are
c.resolution of the below the upper
caption deck beginning seizure,
d.entry of the pirates, or
resolution in the accidents in sea
logbook disabling navigation
e.detailed minutes When When Who
f. delivery of the lawful unlawful bears
minutes to the expenses
maritime judicial
LAW
of skill
The 1. The
inability lack ship
to owner
continue of
voyage is ship
due to provisions agent
lack of
provisions, due liable
well to
founded case
fear of negligence of
seizure, to unlawful
privateers,
pirates or carry arrival
accidents according under
of the stress.
sea to But
disabling they
it to usage shall Cases of collision:
navigate and not 1. Due to the fault,
negligence or
customs; liable lack of skill of
for the captain, sailing
2.risk of damages mate or the
complement of the
enemies caused vessel--under 826,
not by the ship owner
shall be liable
well-known reason for the losses
of and damages
or 2. Due to the fault
manifest; lawful of both vessels --
arrival. -> under 827,
3.defect each vessel shall
suffer its own losses,
due but as regards
to the owners of
the cargoes,
both vessels shall
improper be jointly and
severally liable
repair; 3. Where it cannot
4.malice, be determined which
of the 2
negligence, vessels is at
fault --> under
lack 828, each vessel
of shall suffer
its own losses,
foresight, and both shall also
lack be solidarily
LAW
responsible for the imputable to the

losses and damages one who arrived
caused to their later, unless it
cargoes can be proved
4. Collision due to that
fortuitous event there was no fault
or force majeure -- on its part.
-> under 830, 2.When 2 vessels
each vessel shall meet, the smaller
bear its own damages should
5. Where give the right of
two vessels collide way to the larger
with each one.
other without their 3.A vessel leaving
fault but by reason port should
of the fault leave the way clear
of a third vessel for another which
--> under may be entering
831, the owner the same
of the third port.
vessel causing the when there was
collision shall be not sufficient time
liable for the losses to do so or
and damages 6. there was fear of
a vessel a greater
which is properly damage or other
anchored and moored legitimate reason.
may collide
with those nearby 7. The vessel which
by reason is not properly
of a storm moored or
or other cause does not observe
of force majeure the proper
--> under distances has the
presumption against
832, the vessel
itself.
run into shall suffer
8. The vessel which
its own damages
is moored at
and expenses
a place
not used for the
Nautical Rules purpose, or which
to determine is improperly
negligence : moored or does
1.When 2 vessels not have sufficient
are about to cables, or which
enter a port, has been left
the farther one without watch,
must allow the nearer has also against
to enter itself the
first; if they collide, presumption.
the fault is 9. The same rule
presumed to be applies to those
LAW
vessels which during third

do not have zone :
buoys to indicate
the location of
its anchors to
prevent damage to
these vessels
which may
approach it.
Zones in time of
collisions (3 time
zones):
1. all the time up to

the moment
when the risk of
collision may have
said to have begun
--> within
this zone, no
rule is applicable
because none is
necessary. Each vessel
is free to
direct its
course as it deems
best with
reference to the
movements of the
other vessel.
2. the time between

the moment when
the risk of
collision begins
and the moment
when it has become
a practical
necessity.
3. the time between

the moment when
collision has
become a practical
certainty and
the moment of
actual contact
Effect of fault
of privileged vessel
LAW
If a vessel collision; and the

having a right act of the sailing
of way suddenly vessel having
changes its course been done
during the in extremis
third zone, in and even wrong,
an effort to is not
avoid an imminent responsible for the
collision due to result.
the fault of
another vessel,
such act may be
said to be done CASES COVERED
in extremis, BY COLLISION AND
and even if wrong, ALLISION:
cannot create 1. one vessel at
responsibility fault- such vessel is
on the part of liable for
said vessel with damage
the right of way. 5. fortuitous event-
Thus, it no liability, each
has been held that bear its own
fault on the part loss
of the sailing
vessel at the Rules governing
moment preceding LIABILITIES of parties
a collision, that in case
is, during the of COLLISION:
third division of (1995, 1997,1998,
time, does not & 2007
absolve the Bar exams) 1.
steamship which Where collision is
has suffered herself due to the
and a sailing negligence or malice
vessel to of the captain
get into such and/or other
dangerous proximity ship officers
as to cause of one vessel,
inevitable harm and the ship owner
confusion, and a of such vessel
collision results shall be liable
as a consequence. for all resulting
The steamer damages.
having a far greater 2. Where collision is
fault in due to the fault
allowing such of both
proximity to be vessels, each vessel
brought about shall suffer
is charge-able with their respective losses
all the damages but as regards
resulting from the to the owners
LAW
of the cargoes, and to the

both vessels Philippine Consul, if
shall be jointly the collision
and severally liable. took place abroad.
3. If it cannot
be determined Injuries to persons
which vessel is and damage to
at fault, each cargo of
vessel shall owners not on
suffer its own loses board on time of
and both shall collision need not
be solidarily liable be protested.
for loses Article 835, Code
or damages on of Commerce:
the cargo. In case of
(DOCTRINE OF collision, there
INSCRUTABLE FAULT) must be a
marine protest
4. The vessels may to recover
collide with each collision damage;
other through in such a
fortuitous event case, the
or force marine protest
majeure. In which is a condition
case, each sine qua non and
shall bear its own not merely a
damage. disclaimer unlike
5. Two vessels may in the case of
collide without their
arrival under stress
fault but
and shipwreck.
by reason of
a third vessel.
The third CARRIAGE OF GOODS
vessel shall be liable BY SEA ACT
for losses
and damages Applicable to all
sustained. transportation of
Requisite for goods by sea in
RECOVERY arising foreign trade
from collision: to and from
1. Protest must Philippine ports
be made within AND does not
24 hours apply to purely
before: domestic transport.
a) Competent authority
at the point Laws applicable
of collision or to a contract
for the carriage
b) At the first port of goods
of arrival, if by sea:
in the Philippines
LAW
1.Distinguish - common A: Generally, NO.

carrier (Civil
Code)
EXCEPTION: when
parties agree to
make it apply.
- private
carrier Q: What
2.Where is the vessel application does COGSA
going? have in carriage
a. Common of passengers?
carrier coming
to the Phils. A: None.
Applies only to
carriage of goods.
1st: Civil Code
2nd: COGSA (it's What is the

more specific than TACKLE TO
Code of TACKLE RULE?
Commerce) The shipper
shall be responsible
for the goods
- in foreign the moment it
trade passes through one
side of the ship
3rd: Code of for the purpose
Commerce - with of loading until
respect to vessels it passes
destined for through the other
foreign ports, side for
the discharging. The reason
COGSA doesn't for this being
apply unless parties that there
make it are two tackles
applicable. involved in this
operation; one for
Q: In what loading, the other,
situations does COGSA unloading.
primarily apply?
A: Where The shipper is
the parties responsible for:
expressly stipulate Loading, Handling,
that COGSA Transport, Carriage,
shall govern their Custody, and
respective rights Discharge
and obligations.
What is the Rule
Q: Can the COGSA for LOSS or
apply in DAMAGE to the
domestic shipping? goods?
LAW
(1992, 1995, -
20000 & 2005 To discover
bar exams) who
was
If the damage at
is apparent, then fault
notice must be
immediately given. -In case of
The notice may transshipment, to
either be in writing determine, when
or orally. and where damage
occurred.
If the damage is
not apparent, Code of
notice must be given Commerce: Art. 366
within three apparent - protest
days from such at time of
delivery. receipt
non-apparent -
Failure to give notice within 24 hours
is not a after receipt
bar to the action
to file provided WARSAW:
the filing of
Art. 26
the suit is made
the carrier
within one
year from delivery to and the agent
consignee. shall
be
Notice requirements: discharged form
liability in
COGSA: Sec. respect of
3(6) loss or
damage unless
If loss or damage
suit is
is apparent -
brought within
protest as
1 year
soon as receipt of
from:
goods
(1) in case of
If not apparent -
damaged goods:
> within 3
from the time delivery
days of delivery
of the goods
was made
Rationale behind
(2) in case of non-
the 3-day notice
delivery (i.e., lost
and relatively
goods): from
short
the
prescriptive period:
date the goods
- To
should have been
provide carrier
delivered
an opportunity to
look for the lost
goods
LAW
Loss or damage contracts; 4

as applied to years for tortuous
the COGSA
contemplates a obligations)
situation where
no delivery at The one year period
all times was is suspended
made by the by:
shipper of the a. The express
goods because the agreement of the
same had perished, parties (Universal
gone out Shipping Lines Inc
of commerce, or vs. IAC 1990)
disappeared in such b. The filing of an
a way that their action in court until it
existence is is dismissed
unknown or they the 1yr period
cannot be recovered. shall run
It does not from delivery
include a of the last
situation where package and
there was indeed is not
a delivery but suspended by
to the wrong extrajudicial
person or a demand.
misdelivery (Ang the one year
vs. American period shall run
Steamship Agencies from delivery
19 scra123) and to the
damage arising arrasstre
from delay or operator and
late delivery( Mitsui not to the
O.S.K line consignee
Ltd vs. CA 287
SCRA 366) in such SALVAGE LAW (ACT
instance the 2616)
civil code rules
on prescription
shall apply. I. FOUR REQUISITES
Hence, in case of FOR SALVAGE
misdelivery REWARD TO
(delivery to
BE WARRANTED:
wrong person) or
A. There must
conversion of
be a
the goods,
valid object
the rules
of
on prescription
salvage, i.e.,
found in the
vessel, cargo,
Civil Code shall
freight
apply (10 years
or wreck
for
LAW
of vessel where it
or cargo; will be
B. Such object delivered to
must the Municipal
have been Treasurer or
exposed to the
to marine Collector of
peril; Customs who
C. Salvage will
services must advertise the fact
be of salvage;
rendered B. If owner
voluntarily, of salvaged
i.e., not vessel
arising from appears, he
pre-existing may take
duty; possession
D. Salvage effort of the vessel
must be and must
successful. pay a
reward, the
II. SHIPWRECK AND amount of
DERELICT: which is
A. Shipwreck. not more than
A shipwreck 50% of
refers to the value
the injuries of the vessel;
suffered by
the vessel C. If no claim
disabling the for the
latter for vessel is
navigation. made within
B. Derelict. It 3
refers to months after
the vessel the
or cargo publication
abandoned of the
at sea by advertisement,
those the Municipal
entrusted by Treasurer will
such vessel sell the
or cargo. property saved
A derelict at a
is a public auction
vessel and the
A. If the vessel reward and
is expenses shall
abandoned, be deducted
salvor must from the
tow it proceeds. The
to the balance is
nearest port
LAW
deposited with
the Treasury;
D. If no one Convention for the
claims the Unification of Certain
same after Rules
3 years, Relating to
shall go International
to the salvors Transportation
and the by Air The
other half Warsaw Convention:
to the mandates carriers
government. to issue
passenger tickets;
IV. CONSIDERATIONS
IN DETERMINING requires carriers
THE to issue
AMOUNT OF baggage checks
REWARD for checked
1.) First case luggage;
A. Value of the property creates a
saved; limitation
B. Zeal employed by period of 2
those who made years
the salvage; within which
C. Danger to the a claim
lives of those must be
who participated; brought
D. Number of persons (Article 29);
who took part; and limits a
E. Services rendered; carrier's
F. Expenses incurred liability to at
most:
2.) Second case:
250,000
If one
vessel saves
Francs
another vessel,
or
the reward
going 16,600
to the former
shall be Special
divided as
follows: A. Drawing
to the ship
owner; Rights
B. to the captain;
and (SDR)
C. to the crew. for
personal
WARSAW CONVENTION
LAW
of a single
injury; High Contracting
Party, if there
17 SDR is an agreed
per stopping place
within a
kilogram territory subject
for to the sovereignty,
suzerainty, mandate
checked or authority
of another Power,
I. NATURE AND SCOPE even though
OF WARSAW that Power
CONVENTION is not a party
to this
SCOPE: Applies Convention.
to all
international carriage The Warsaw
of persons, luggage Convention to which
or goods the Republic
performed by aircraft of the Philippines is
for reward. It a party and
applies equally which has the force
to gratuitous and effect of
carriage by aircraft law in this country
performed by applies to
an air transport all international
undertaking. transportation of
persons, baggage
International or goods
Carriage: performed by an
Means any carriage aircraft gratuitously
in which, or for hire.
according to the
contract made When a contract
by the parties, of carriage is a
the place of contract of
departure and the international transportation,
place of provisions of
destination, whether the
or not there Convention
be a break automatically apply
in the carriage and
or a exclusively govern
transshipment, are the rights
situated either and liabilities
within the of the
territories of two airline and its
High Contracting passengers.
Parties, or within (American Airlines
the territory vs. CA,
G.R. No.
LAW
116044-45 March place within

9, a
2000) territory
subject to
Two categories of the
International sovereignty,
Transportation mandate, or
authority
covered:
of
1.) that where another
the place power, even
of though
departure the
and the power is
place of not a
destination party of
are situated the
within Convention.
the (Mapa vs.
territories CA, G.R.
of two High No.
Contracting 122308 July 8,
Parties 1997)
regardless
of whether (Lhuillier vs. British
or not Airways, G.R.
there be No. 171092
a break The linkage of
in the the contract to
transportation the Manila-Los Angeles
or a travel tickets
obtained by
transshipment; and the Mapas from
2.) that where PAL cannot bring
the the arrangements
place of within the
departure second category,
and the where the same
place of were filled-up only
destination by the Mapas in
are within response to
the the query Your
territory of Complete
a Intinerary at the
single High time they claimed
Contracting for their lost pieces
Party if of baggage.
there is (Mapa vs. CA,
an agreed G.R. No. 122308
July 8, 1997)
stopping
LAW
It does not II. SALIENT ASPECTS

however preclude OF THE WARSAW
operation of CONVENTION
the A. Provision on
Civil Code the valuation
or other of cargo
pertinent laws:
Although the Article 22. (1) In
Warsaw Convention the transportation
has the force of passengers,
and effect the liability of
of law in this the carrier
country, being for each
a treaty passenger shall
commitment be limited to
assumed by the the sum of
Philippine government, 125,000 francs.
said convention Where in
does not accordance with
operate as an the law of
exclusive enumeration the court to
of the which the case is
instances for submitted, damages
declaring a carrier may be awarded
liable for in the form of
breach of periodical
contract of payments, the
carriage or as
equivalent capital
an absolute limit
value of
of the extent
the said
of that liability.
payments shall
The Warsaw
not exceed
Convention
125,000 francs.
declares the carrier
Nevertheless, by
liable in
the enumerated cases special contract,
and under the carrier
certain limitations. and the
However, it must passenger may
not be agree to a
construed to higher limit of
preclude the liability.
operation of the
Civil Code and
Art 25 (1)
pertinent laws. The carrier
(PAL vs. CA, shall not be
G.R. No. entitled to avail
119641 May 17, himself of the
1996) provisions of
this Convention
which exclude or
LAW
limit his liability, vs. CA, G.R.

if the damage No. 121824
is caused January
by his willful 29, 1998)
misconduct or
by such default B. Provision on
on his part limiting liability
as, in
accordance with The Convention's
the law of provisions do
the court not "regulate or
to which exclude the
the case is following areas:
submitted, is
considered 1.) liability for
equivalent to other breaches
willful misconduct. of contract
by the
Admittedly, in
carrier;
a contract of
air carriage a 2.) misconduct of
declaration by its officers
the passenger and
of a higher employees; or
value is
needed to 3.) for some
particular or
recover a greater
exceptional
amount, and
type of
that the air
damage.
carrier is not
(Northwest
liable for loss
Airlines vs.
of baggage in
CA, G.R.
an amount in
No. 120334
excess of the
January
limits specified
20, 1998)
in the tariff which
was filed with
Varying views
the proper
as regards
authorities, such
misconduct:
tariff being
binding on the
passenger raise 1st View
timely objections Outside WC
during the trial Coverage
when questions The Warsaw
and answers Convention denies
regarding the actual to the carrier
claims and availment of
damages sustained the provisions
by the passenger which exclude
were asked. or limit his liability,
(British Airways if the damage
LAW
is caused March 14, 1996)

by his willful
misconduct or
by such default 2nd View -
on his part Tortious conduct
as, in as ground
accordance with for the
the law of petitioners
the court seized complaint is
of the case, within the
is considered to purview of the
be equivalent to Warsaw Convention
willful misconduct, or (Lhuillier vs.
if the damage British Airways,
is similarly G.R. No.
caused by any 171092 March
agent of the 15,
carrier acting 2010)
within the scope
of his
C. On
employment.
limitation of
time to file
Under domestic action Article
law and 29. (1) The
jurisprudence (the right to damages
Philippines being shall be
the country of extinguished if
destination), an action is
the attendance not brought
of gross within two years,
negligence (given reckoned from
the equivalent the date of
of fraud or arrival at the
bad faith) destination, or
holds the common from the date
carrier liable on which
for all damages the aircraft
which can ought to have
be reasonably arrived, or from
attributed, although the date on
unforeseen, to which the carriage
stopped.
the non-
of prescriptive
performance of
periods. Article
the obligation,
29, par. (2),
including moral
was intended
and exemplary
only to let
damages. (Sabena
local laws
Beligian World
determine
Airways vs. CA,
whether an action
G.R. No. 104685
had been
commenced within
LAW
the two (2)- within the bounds

year period. of the
(United Airlines Warsaw Convention,
vs. Uy, his first cause
G.R. No. 127768 of action
November 19, an action
1999) for damages
arising from
Prescription of the misconduct
action covered of the airline
by Warsaw employees and
convention the violation
distinguished from of respondent's
those arising rights as
from torts: passenger
clearly is not.
Respondent's Consequently,
complaint insofar as the
reveals that he first cause
is suing on of action is
two (2) causes concerned,
of action: respondent's failure
(a) the shabby to file his
and humiliating complaint within
treatment he the two (2)-
received from year limitation
petitioner's of the Warsaw
employees at Convention does
the San not bar his
Francisco Airport action since
which caused petitioner airline
him extreme may still be
embarrassment and held liable
social humiliation; for breach
and, (b) the of other
slashing of his provisions of
luggage and the the Civil Code
loss of his which prescribe
personal effects a different period
amounting to or procedure
US $5,310.00. for instituting
the action,
While his second
specifically, Art.
cause of
1146 thereof
action an
which prescribes
action for
four (4) years
damages arising
for filing
from theft
an action based
or damage to
on torts.
property or goods
(United Airlines
is well
vs. Uy, G.R.
LAW
No. 127768 parties, the place

November 19, of departure
1999) and the place
of destination,
Use of
whether or not
delaying tactics
there be a break
by the carrier
in the
wont
carriage or a
preclude
transhipment, are
enforcement of
situated either
action even
within the territories
beyond the
of two High
prescriptive period:
Contracting the same
High Contracting
Despite the Party is not
express mandate deemed to be
of Art. 29 of international
the Warsaw for the
Convention that purposes
an action for of this
damages should Convention. (Emphasis
be filed within supplied)
two (2) years Art. 17. The carrier
from the arrival shall be liable
at the place for damage
of destination, sustained in the
such rule shall event of the death
not be applied
or wounding of
in the instant
a passenger or
case because
any other
of the delaying
bodily injury suffered
tactics employed
by a
by petitioner airline
passenger, if the
itself.
accident which
(United Airlines
vs. Uy, caused the damage
supra) so sustained
took place on
IV. Jurisdiction of board the aircraft or
Local Courts in the course
under the Warsaw of any of
Convention the operations of
Art. 1 (2) For embarking or
the purposes of disembarking.
this Convention the Art 28 (1) An
expression action for damages
"international must be brought at
carriage" means the option of
any carriage in the plaintiff, in
which, according the territory of
to the contract one of the
made by the
LAW
High Contracting Parties, of destination. An

either before intermediate place
the court of where the carriage
the domicile of may be broken
the carrier or is not regarded
of his principal as a "place
place of business or of destination."
where he
has a place of (Lhuillier vs. British
business through Airways, G.R.
which the No. 171092 March
contract has been
made, or 15, 2010)
before the court
Jurisdictional
at the place
Character of Art.
of destination.
28
We further
Destination vs.
held that Article
Agreed Stopping
28(1) of the Warsaw
Place
Convention is
Article 1(2) also
jurisdictional in
draws a distinction
character. Thus:
between a
"destination" and an A number
"agreed stopping of reasons tend
place." It is the to support the
"destination" and not characterization of
an "agreed stopping Article 28(1) as a
place" that jurisdiction and
controls for not a venue
purposes of provision. First, the
ascertaining jurisdiction wording of Article
under the Convention. 32, which
The contract indicates the places
is a single where the
undivided operation, action for damages
beginning with the "must" be brought,
place of departure underscores the
and ending with mandatory nature
the ultimate of Article 28(1).
destination. The use of Second, this
the singular in characterization is
the expression consistent with one
indicates the of the objectives of
understanding of the Convention,
the parties to which is to "regulate
the Convention that in a uniform
every contract of manner the
carriage has one conditions of
place of departure international transportation
and one place by air." Third,
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the Convention A public utility

does not contain is a
any provision business or
prescribing rules of service engaged
jurisdiction other in regularly
than Article 28(1), supplying the public
which means with some
that the phrase commodity or
"rules as to service of public
jurisdiction" used in consequence
Article 32 such as electricity,
must refer only to gas, water,
Article 28(1). In transportation,
fact, the last telephone or
sentence of Article telegraph service.
32 specifically Apart from
deals with the statutes which
exclusive enumeration define the public
in Article utilities that are
28(1) as "jurisdictions," within the purview
which, as of such statutes,
such, cannot be it would be
left to the will difficult to
of the parties construct a
the applicable domestic definition of a
law. Only after public utility which
the question of would fit
which court has every conceivable case.
jurisdiction is As its name
determined will the indicates,
issue of venue however, the term
be taken up. public utility
This second question implies a
shall be public use and service
governed by the to the public.
law of the court to (Am. Jur. 2d
which the V. 64, p.549.)
case is submitted. (Albano vs.
(Lhuillier vs. British Reyes)
Airways, Supra.)
ORDINARY AND
PRIMARY PURPOSE
OF THE
PUBLIC SERVICE
PUBLIC SERVICE
LAW
LAW
ORDINARY PURPOSE:
What is a public
To subject
utility? (2000
public services to
Bar exams) state control
and regulation.
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SPECIFIC PURPOSES: > A

1. To secure franchise,
adequate, certificate,
sustained service or any other
for the form of
public at authorization
the least for the
possible cost, operation of
and public utility
protect the shall be
public granted to:
against
unreasonable - Filipino Citizens
charges - Corporations or
and associations organized
poor under Philippine
inefficient service. Laws
where
2. To protect at least
and 60%
conserve of the
investments capital
which have is
already owned
been made by
for public Filipino
service, Citizens.
and - 100% Filipino
prevent Management
ruinous during the
competition. emergency and
under reasonable
BASIS OF THE terms, temporarily
LEGISLATIVE POWER take over or
TO REGULATE direct the
PUBLIC SERVICES: operation of
any private
POLICE POWER, for owned public
the protection of utility or business
the public as affected
well as the utilities with public
themselves. interests. 3.
ARTICLE XII,
(Pantranco v. SECTION 18
P.S.C., 70 Phil The state
221) may, in the
interest of
CONSTITUTIONAL BASIS: national welfare
or defense,
1. ARTICLE XII, establish
SECTION 11: and operate
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vital industries On the other

and upon hand, CPCN is
payment of issued upon
just compensation, approval of any
transfer political subdivision
to public of the Philippines
ownership utilities when in the
and other judgment of the
private Commission, such franchise
enterprises to or privilege
be operated will properly conserve
by the the public
government. interest (Perez,
4. ARTICLE XII, Transportation
SECTION 19 Laws and Public
The state service Act).
shall regulate
or prohibit OFFICES NOW
monopolies when CHARGED WITH
the public ENFORCEMENT OF
interest PUBLIC SERVICE
so requires; LAW
no combination in
restraint of The Public Service
trade Commission
or unfair has been
competition shall abolished.
be allowed The following replaced
it:
Distinguish a 1. LAND TRANSPORTATION-

Certificate of Public Department
Convenience of Transportation
from a Certificate and Communication
of Public (DOTC) and the
Convenience and Land Transportation
Necesssity Franchising and
A CPC is issued Regulatory Board
whenever the (LTFRB)
Commission finds that 2. WATER
the operation of TRANSPORTATION-
the proposed public Maritime
service will Industry Authority
promote the public (MARINA)
interests in a 3. AIR TRANSPORTATION-
proper and Air Transportation
suitable manner,
for which a Office (ATO)
municipal or headed by
legislative franchise is an assistant
not necessary. secretary and
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the Civil 3. Judicial:

Aeronautics Board,
which
has been placed
under
the DOTC
as an
attached agency.
4. TELECOMMUNICATIONS-
National
Telecommunications
Commission, which
has been
placed under
the DOTC
as an
attached agency.
Boards,
5. ENERGY- Board commissions are
of Energy but not judicial
transferred to the tribunals and
Energy Regulatory Board therefore cannot
(ERB) determine
6. WATERWORKS- National judicial questions
Water such as validity
Resources of contract.
Council
4. Jurisdiction:
LIMITATIONS ON Extends only to
THE persons
engaged in
POWERS OF
public utilities, or
THE without
over a
due process of
public utility,
law nor which holds a
confiscating or Certificate of
appropriating private Public
property without Convenience.
just compensation.
B.
JURISDICTION
General Rule:
Over persons
engaged in
public
utilities, or
over a public
utility,
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which holds a holder of said

certificate does
Certificate of not acquire a
Public Convenience. property right
Exemption: in the route
violators of a covered thereby.
valid regulation Nor does it
promulgated under confer upon the
the law holder any proprietary
right or interests
Distinguish Legislative or franchise in
Franchise from a the public
CPC highways. Revocation
A franchise is of this certificate
a grant or deprives him of
privilege from the no vested right.
sovereign power, New and
while the certificate additional burdens
is a form alteration of the
of certificate, or even
regulation through revocation or
an administrative annulment thereof
agency. is reserved to
the State
A franchise is (Lugue v.
a property right Villegas, G.R.
and cannot be No. L-22545, 28
revoked or November 1969).
forfeited without
due process of Essentials before
law (PLDT, Co. Granting a CPC/
v. NTC and CPCN
CELLCOM, Inc. 1. The granter
(Express must be
Telecommunications Co., a citizen
Inc. G.R. No. of the
88404, 18 Philippines or entity
October 1990), sixty percent of
whereas a CPC which is
or a CPCN owned by such citizens.
as far as the
interest of the 2. The grantee must
State is concerned have
, constitutes sufficient financial
neither a capability to
franchise nor a undertake the service
contract, confers and,
no property right, 3. The service will
and is a promote public
mere license or interests and
a privilege. The convenience in a
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proper and suitable as determined by

manner. the proper authority
Note: The 3. Committing any act

overriding principle of unreasonable
is a public and unjust
interest, necessity preferential treatment
and convenience to any particular
(Sundiang & person, corporation
Aquino, or entity as
Reviewer on determined by the
Commercial Law). proper authority
4. Refusing or
Coverage of CPC neglecting to carry
a ferry boat public mail
service is upon request (Secs.18
considered as a &19).
continuation of the
highway when Prior Old Operator
crossing rivers or Rule
lakes , which Before permitting a
the commission. new operator
(Sec.16(n)of to invade the
Public Service territory of another
Act) already
2. The holder is a established with a
mere dummy. CPC, the prior
3. The operator ceased operator must
operation and first be given
placed his buses the opportunity to
on storage; or extend its service
4. The operator in order to
abandons totally meet public needs
the service. in the matter
(Manzanal v. Ausejo, of transportation.
No. L-31056, It means
August 4, that a public
1988). utility operator should
be shielded
Unlawful Acts of from ruinous
Public Utility competition by affording
Companies him the
1. Engagement in opportunity to improve
public service his equipment
business without and service before
first securing allowing a
the proper new operator to
certificate serve in the same
2. Providing or territory he
maintaining unsafe,
improper or
inadequate service
LAW
covers (Mandaluyong EXCEPTIONS TO THE

Bus Co. v. PRIOR OPERATOR
Francisco). RULE:
The law 1. Operator fails/ neglects

contemplates that the to make
first licensee will improvement or affect
be protected in the
his investment and
will not be increase in service
subjected to a when given
ruinous competition.
It is not the opportunity.
therefore the policy 2. When Prior operator
of the law offers to meet
to issue a increases in demand
CPC to a second only when
operator to another operator
cover the same offered to render
field and in additional service
competition with a
first operator who 3. Abandonment of
is rendering operation
sufficient, adequate 8. Expiration of
and satisfactory service, corporate existence of
and who in prior operator.
all things and 9. Monopoly
respects is 10. Passage through
complying with the private subdivision which
rules and regulations of granted permit
the commission. to another
The old operator
must be given Prior Applicant Rule
the opportunity Where there
to improve and are various
extend his applicants for a
lines. (Batangas Trans public utility over
Co. v the same
Orlanes, 52 Phil authority, all
455) conditions being
equal, priority in
BASIS OF THE PRIOR the filing of the
OPERATOR RULE application for a
certificate of public
Prevent ruinous convenience
and wasteful becomes an
competition and interest important factor
of public in granting or
will be preserved. refusal of a
certificate of
convenience and the
LAW
Commission is the actual and

authorized to real owner.
determine which The registered
of the applicants owner is the lawful
can best meet operator insofar
the requirements as the public
of public and third
convenience (delos persons are
Santos v. concerned; consequently,
Pasay Trans. Co.). it is
directly and
primarily responsible
Protection of for the
Investment Rule consequences of
One of the its operation. In
purposes of the contemplation of
Public Service Act law, the
is to protect owner/operator of
and conserve record is the
investments which employer of the
have already been driver, the actual
made for that operator and
purpose by public employer being
service considered as
operators merely its agent.
The same
Registered Owner principle applies
Rule even if the
The registered owner registered of any
of a vehicle does
certificate of a not use it for
public convenience public service
is liable to (Equitable Leasing
the public for Corp. v. Suyom,
the injuries or G. R. No.143360,
damages suffered September
by third 5, 2002), or
persons caused otherwise stated,
by the operation to privately-
of said vehicle, owned vehicles.
even though the
same had been A sale,
transferred to a lease or financial
third person. lease that is not
The registered registered with the
owner is not allowed LTO does not
to escape bind third
responsibility by proving persons who are
that a third aggrieved in
person is tortuous incidents,
for the latter
LAW
need only to rely Art.1409, New Civil

on the public Code ( Lim v.
registration of a C.A. G.R.No.
motor vehicle as 125817,
conclusive evidence 16 January 2002)
of ownership. A
lease is an
encumbrance in Effects
contemplation of 1. The transfer, sale,
law, which needs lease or assignment of
to be the privilege
registered in order granted is
for it to valid between the
bind third contracting parties
parties (PCI Leasing but not upon the
Corp and Finance public or third persons
Inc. v. UCPB (Gelisan v.
General Alday No.L- 30212,
Insurance Co., Inc. 30 September
G.R. No. 162267, 4 1987)
July 2008). 2. The registered owner
is primarily
Registered Owner liable for all the
had Recourse against consequences flowing
Vendee/ from the operations of
Transferee the carrier.
A registered owner The public has
who has already the right to
sold or assume that the
transferred a vehicle registered owner is
has a the actual or
recourse to a lawful owner
third-party allows thereof. It
other persons who would be very difficult
own motor vehicles and often
to operate impossible, as a
under such license, particular matter,
for a fee or for the public to
percentage of such enforce their
earnings. Although rights of action
the parties to for injuries inflicted
such agreement are by the vehicle
not out rightly if they should
penalized by law,the be required
kabit system is to prove who
invariably the actual owner
recognized as being is (Benedicto
contrary to v. IAC G.R
public policy and No. 70876, 19
therefore void and July 1990).
inexistent under
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3. The thrust of bus line (Baliwag

the law in Transit V. C.A, 7
enjoining the Kabit January 1987)
system is
to identify the
person upon whom Requisites for the
responsibility Inapplicability of
may be fixed the Kabit System
with the end in
view of protecting 1. When neither of
the riding public. the parties to
(Lim v. C.A. G.R. the pernicious Kabit
No 125817, 16 system is being
January 2002) held liable
4. Application of Article for damages.
1412 of 2. When the case arose
the NCC or in from the
pari delicto rule. negligence of another
The registered owner vehicle using
cannot recover the public
from the actual road to which
owner and no representation
the latter cannot or misrepresentation
obtain transfer as regards the
of the vehicle ownership and
to himself, operation of
both being in passenger jeepney
pari delicto. (Teja was made.
Marketing Vs. 3. When the riding
IAC) public was not
5. For the better bothered of
protection of the inconvenienced at
public, both the the very least by
registered owner the illegal
and the actual 2. The gasoline
owner are jointly consumed by
and severally liable the jeep is
with the driver for the account
(Zamboanga of the
Transporatation Co. driver.
v. C.A, 29
November 1969) These two
6. The determining features are not
factor which negates sufficient to
the existence of withdraw the
Kabit system is relationship between
the possession of the owner and
the franchise to the driver from
operate and that of employer
not the issuance of and employee. The
one SS I.D. jeepney owner
Number for both is subsidiarily liable
LAW
as employer the power

in accordance with of fixing rates
Art.103 of RPC of public
(Magboo v. services. But
Bernardo, 30 April nowhere under
1963). the provisions of
law are the
Indeed to regulatory bodies,
exempt from the PSC and LTFRB
liability the owner alike,
of public authorized to
vehicle who delegate that power
operates it under to a
the boundary common carrier
system on the like transport
ground that he operator, or other
is a mere lessor public service
would be (KMU Labor
not only to abet v. Garcia,
flagrant violations 23 December 1984).
of the public
service law, but
also to take place A public Utility
the riding is entitled
public at the mercy to reasonable
of reckless compensation in return
and irresponsible for the service
drivers (Spouses it provides
Henandez v. and that it may
Spouses Dolor, exact reasonable
30 July 2004) charges in
accordance with the
The Civil service provided
Aeronautics Board of the rates
is expressly established therefore.
authorized by R.A. In computing the
No. 776 to issue just and reasonable
a temporary rates to be
operating permit charged by a
of certificate of public utility, three
Public Convenience major
and Necessity (PAL factors are to be
v. CAB 26 March considered: 1). Rate
1997) of Return; 20.
The rate base,
The Legislature 3) the return
has delegated to itself or the
the defunct Public computed revenue
Service to be earned
Commission and by the public
presently the LTFRB, utility based on
LAW
the rate of return b. A certificate of

and base Certificate of
rate (Davao Light Public Convenience
and Power and Necessity is
Company, Inc., 3 issued where the
April 2003) public service would
require in
A rate is just its operation the
and reasonable if use of government
it conforms to property, such
the as the installation
following requirements: of electric and
telephone posts
1. One which and lines along
yields to the public streets requiring
carrier a fair a previous
return upon the franchise therefore
value of the c. No certificate is
property necessary where
employed in the service of
performing the utility is owned,
service; and operated and
2. One which managed for a
is fair to private use or where
the public the owner
for the service is not engaged in
rendered. public service.
Service of a
Public Utility
considered Unlawful Liability of
It shall be Registered Owner
unlawful for any and Authorized
public service to Operator under
provide or the Kabit System
maintain ant and Boundary
service that is System
unsafe, improper, Both the
or inadequate, registered owner
or withhold or and the Authorized
refuse any service operator of a
which can be common carrier
reasonably be under the Kabit System
demanded and are jointly
furnished as and severally
founded and (solidarily) liable
determined by the for any death or
injury to
Commission in a
the passengers and
final order which
loss/damage to the
shall be goods.
conclusive
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Under the compliance with

Boundary System specified conditions
the authorized operator or presentation
of a common of stipulated
carrier is documents without
liable for the conduct the seller having
of the driver, to rely upon
there being the solvency and
an employer- good faith of the
employee relationship buyer. This is known
between the operator as the rule
and the driver. of strict
compliance in a
letter of credit
transaction means
that the documents
tendered by the
SPECIAL seller or beneficiary
COMMERCIAL must strictly
LAWS conform to the
terms of the letter
of credit,
LETTERS OF CREDIT
i.e., they must
include all
documents required
by the letter
1. A letter of of credit such
credit is basically as: (a) a draft
an open letter
which
of request
is also called
whereby one
a bill of
person requests
another to exchange, is an
advance money order written by
or give credit an exporter/seller
to a third person instructing an
for a certain importer/buyer or
amount and its agent to
promises to repay pay a specified
the person amount of money
advancing the money. at a
specified time (b)
a bill of lading,
1.1They are intended which is
generally to a document issued
facilitate the to the
purchase and sale exporter by a
of goods by common
providing assurance carrier transporting the
to the seller merchandise, and (c)
of prompt invoices.
payment upon
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1.2The issuing bank titles and to

in determining surrender the
compliance with documents to the
the terms of buyer upon
the letter of reimbursement, and
credit is required (c) The seller-
to who in compliance
2. The primary with the contract
purpose of a of sale ships the
letter of credit goods to the buyer
is to substitute and deliver
for, and therefore the documents of
support, the title and draft
agreement of the to the issuing
buyer-importer to bank to recover
pay money under payment.
a contract
or other 3.1In an international
arrangement.This credit
instrument is transaction carried
basically a credit through a letter
security of credit,
through availment the parties are:
of credit (a) The Customer-
facilities of the who is the party
participating banks. who applies to
a bank in one
3. The parties to country for the
a letter of opening of a
credit are: (a) The letter of credit
Buyer- he is in favor of the
the one who seller in another
procures the letter country (b) The
of credit Issuing Bank-
and obliges is the bank
himself to in the country
reimburse the of the customer
issuing bank to which the
upon receipt of customer applies
the documents of for the
title (b) The issuance of a
Issuing Bank- letter of credit
is the bank (c) The Beneficiary-
from whom the who is the
letter of credit party in another
is procured and country who is
which undertakes to the creditor of
pay the seller the customer.
upon receipt of Usually, he is
the draft and proper the one selling
documents of goods to the
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customer (d) The is solidary with

Advising Bank the buyer (b)
is the bank in Issuing bank
the country of and
the beneficiary which beneficiary/seller/exporter
communicates Their relationship
to the beneficiary is governed by
the notice of the terms of
the credit issued the letter of
by the issuing credit issued by
bank (e) The the bank, and
Confirming/Correspondent (c) Applicant and
Bank- is the bank beneficiary Their
that undertakes relationship is
that the letter governed by the
of credit will sales contract.
be fully paid. Usually
the confirming 3.3It is clearly
bank is also the settled in law that
advising bank, there are thus three
otherwise it is contracts which
utilized to lend make up
credence to the the letter of
letter of credit credit transaction: The
issued by a lesser contract between
known buyer and seller,
issuing bank buyer and issuing
and is directly bank, and the letter
liable to the of credit
beneficiary. proper. These
transactions are to
3.2The relationships be maintained in
of the parties a state of
are to be perpetual separation.
governed as
follows: (a)Issuing 4.1Hence, a letter
bank and of credit is
applicant/buyer/importer not a negotiable
Their instrument because it
relationship is is required to
governed by the be drawn in
terms of the favor of a
application and definite person.
agreement for the
issuance of the 4.2Those which do
letter of credit not have any of
by the bank. the essential
Unless the contrary conditions shall be
is provided for, considered merely
the liability of as a letter
of recommendation.
the issuing bank
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4.3The bank or drawer involving execution

of a letter may be brought
of credit to recover it,
shall be liable to with legal interest
the person and current
on whom it exchange in the
was issued for place where
the amount paid payment was made
by virtue thereof, on
within the the place where
maximum fixed therein, it is repaid.
while a
notifying bank
does not incur 4.6A letter of
any liability except credit becomes void if
to notify the bearer of
the beneficiary of a letter of
the letter of credit does
credit. Before paying, not make use
it shall have thereof within
the right to demand the period agreed
the proof upon with the
of the identity drawer, or, in
of the person default of a
in period fixed, within
6 months
whose favor the letter
counted from its
of credit is
date, in any point
issued. in the
Philippines, and within
4.4The drawer of a 12 months
letter of anywhere outside
credit may annul it, thereof, it shall
informing the be void in fact
bearer and the person and in law.
to whom it
is addressed of 5. A standby letter
such revocation. of credit
The waiver of is a bank-issued
the right to annul option on
makes the a loan involving
letter of credit three parties: the
irrevocable bank issuing the
credit, the party
4.5The bearer of a requesting for such
letter of issuance
credit shall pay the (otherwise known
amount received to as the account
the drawer party) and the
without delay. beneficiary. Under
Should he not do the terms of
so, an action standby letter
LAW
of credit (SLC), (a) Irrevocable vs.

the beneficiary revocable An
has the right to irrevocable letter
trigger the loan option of credit
(referred to obligates the
as taking down issuing bank
the loan) if to honor drafts
the account party drawn in
fails to meet its compliance with the
commitment, in which credit and can be
case the issuing neither cancelled
bank disburses nor modified
a specified sum without the
to the beneficiary consent of all
and books an parties, including
equivalent loan to in particular the
its customer. beneficiary/exporter.
SLCs may support A revocable letter
nonfinancial obligations of credit
such as those can be cancelled
of bidders, or or amended at
financial obligations any time before
such as those payment; it is
of borrowers. intended to serve
In the latter as a means
case, the borrower of arranging
purchases an SLC payment but not
and names the as a guarantee
lender as beneficiary. of payment (b)
Should the Confirmed vs.
borrower default, unconfirmed A
the beneficiary has letter of credit
the right to take issued by one bank
down the SLC and can be
receive the confirmed by
principal balance another, in which
from the issuing. case both banks
are obligated
5.1Another definition to honor drafts
is that it is drawn in
a bank-issued compliance with the
option on a loan credit. An
involving three unconfirmed letter
parties: the bank of credit is
issuing the the obligation only
credit, the party of the issuing
requesting for such bank. Why would
an exporter
6. The common want a foreign
types of letters banks letter of
of credit are: credit confirmed by
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a domestic bank? commercial document

One reason whereby the bank
could be if he releases the goods
has doubts in the
possession of the
6.1Other types: (a) entrustee but retains
Revolving Letter ownership thereof
of Credit-one that while the
provides for entrustee shall sell
renewed credit the goods and
to become apply the proceeds
available as soon for the full
as the opening payment of the
bank has advised liability to the
the negotiating bank.
or paying bank
that the drafts 1.1It is a security
already drawn transaction intended
by the to aid in
beneficiary have been financing importers
reimbursed to the and retail dealers
opening bank by who do not
the buyer (b) have sufficient funds
Back to Back Letter or resources
of to finance the
Credit- a credit importation or
purchases of
with identical
merchandise, and who
documentary requirements
may not be able
and covering
to acquire credit,
the same except through
merchandise as utilization, as
another letter collaterals, of the
of credit, except merchandise imported or
for the purchased.
difference in price
of the merchandise 1.2The subject matter
as shown of a trust
by the invoice receipt is always
and draft. The chattel. It
second letter will not apply to
of credit can chattel so
only be attached to land
negotiated after the so as to become
first is negotiated. part thereof.
TRUST RECEIPTS
1. A trust receipt
is a
LAW
2. A trust receipt the possession of

transaction is a the person financed
transaction between (b) A
an entruster conditional sale-in a
and an entrustee conditional sale,
whereby the there is a
entruster, who owns or sale of the
hold absolute property from the
title or security seller to the buyer;
interests over certain in a trust
specified goods, receipt, there
documents or is no sale
goods, documents or of the property
instruments themselves if from the entruster
they to the entrustee
are unsold or (c) A chattel
not otherwise disposed mortgage-a chattel
of. mortgage involves
the creation of a
2.1A Security Interest lien upon
means a the property; a
property interest in trust receipt does
goods, not involve the
documents or creation of a
instruments to secure lien (d) A
performance of consignment-in a
some consignment, the
obligations of the consignor retains
entrustee or of title to the property
some third persons to to secure
the entruster the indebtedness
and includes title, due from the
whether or not consignee; in a
expressed to be trust receipt, the
absolute, whenever seller does not retain
such title is in title to the
substance taken or property but transfers
retained for such title to
security only. the entruster, not to
the entrustee
2.2A trust receipt
transaction 2.3When a debtor
distinguished from:(a) A has received the
pledge-in a goods from a supplier
pledge, the person thereby
doing the acquiring title and
financing has will after borrow
possession of the money from a bank
property; in a to pay for
trust receipt, the the same, the
property is in transaction is a
LAW
loan even he or purposes

signs a trust specified in the
receipt agreement. It trust receipt
is essential
for a trust receipt 4. The rights of
transaction for the entruster are:
the bank to first (a) to be entitled
acquire ownership to receive
and possession. the proceeds of
the sale of the
2.4When a Memorandum goods released under
of Agreement a trust receipt
is entered between to the
a debtor entrustee to the
corporation and a extent of the amount
creditor bank is owing to
entered into the entruster (b) to
rescheduling the the return of
payments due from the said goods,
the former, the in case they
trust receipt could not be sold;
transaction is novated and (c) to
and transformed cancel the trust
into a simple in case the
loan. entrustee defaults,
take possession of
3. The parties to a the goods, and
trust receipt sell the same at
transaction are: (a) public or
The entruster- is private sale. between
the person holding the entruster
title over the and the entrustee
goods, documents or (b) The entruster
instruments subject in possession of
to a trust the goods,
receipt transaction, documents or
and any instruments may, on or
successor in interest after default,
of such person, give notice to
and (b) The the entrustee of
entrustee is the intention to
the person having sell, and may,
or taking not less than five
possession of goods, days after serving or
documents or sending of
instruments under a such notice, sell
trust receipt the goods,
transaction, and any documents or
successor in interest instruments at public
of such person or private
for the purpose sale, and the
LAW
entruster may, are options

at a public available to the
sale, become a entruster and do
purchaser. Notice not prejudice resort
of the sale shall to other
be deemed remedies.
sufficiently given if
in writing, 5. The obligations of
and either the entrustee are
personally served as follows: (a) to
on the entrustee hold the goods
or sent by post-- in trust for
paid ordinary mail the entruster and to
to the entrustees dispose of
last known business them strictly in
address (c) accordance with the
the proceeds of terms of the trust
any such sale, receipt; This includes
whether public the authority to
or private, manufacture or
shall be applied process the
(1) to the payment goods with the purpose
of the of ultimate
expenses thereof; sale. Provided, however,
(2) to the payment that the entruster
of the retains title
expenses of re- over the goods
taking, keeping and whether in its
storing the goods, original or
documents or processed form until
instruments; (3) to the entrustee has
the satisfaction of complied with the
the entrustees obligation under
indebtedness to the the receipt. It
entruster. The also includes
entrustee shall receive authority to load,
any surplus unload, ship
but shall be liable or transship or
to the entruster otherwise deal with
for any the goods in a
deficiency. manner
preliminary or
4.2 Cancellation necessary to their
of the trust sale (b) To receive
receipt and the proceeds
repossession is not of the sale of
essential for the the goods in
entruster to have trust for the entruster
a cause of and to turn
action against the over the same to
entrustee. They the entruster to
LAW
the extent of
the amount
owing to the entruster
(c) to insure
the goods
for their total value
against loss
from fire, theft,
pilferage or other
casualties (d) to
keep the goods
or the
proceeds thereof,
whether in money
or whatever
form, separate and
capable of
identification as property
of the
entruster; and (e)
to return the
goods,to the entruster
in case they
could not be sold or
upon demand of
the entruster.
LAW
5.1Notwithstanding the and debtor-

security interest importer. The
of the entruster, law warrants the
the entrustee shall validity of the
be responsible as trust receipt
principal or as agreement.
vendor under Consequently, the
any sale or contract goods covered by
to sell made the trust receipt
by the cannot be levied
entrustee. Hence, upon by the
although the creditors of the
entrustee is not entrustee. The validity
the owner of of entrusters
the goods under security interest
a trust receipt as against
(ownership is creditors-the entrusters
retained by the security interest
entrustor) anyone in goods,
who acquires the documents, or
goods from the instruments pursuant
entrustee acquires to the written
good title (ownership) terms of a trust
over the goods. receipt shall
Note that it runs be valid as
counter to the against all
provisions of Article creditors of the
1505 of the entrustee for the
Civil Code, where duration of the
there is a trust receipt
contract of agreement.
sale, the entrustee,
shall not extinguish 7. The acts punishable
his obligation to by the Trust Receipts
the entruster for Law as Estafa
the value thereof. as defined
This is not by Article 315,
in accordance with Section 1(b) of
the civil law principle the
that it is Revised Penal
generally the owner Code are: (a) The
who must bear failure to comply
the risk of loss of with the provision
the object referring to the
obligation involving
the duty to deliver
6. A trust receipt (entregaria)
arrangement does not the money received
involve a simple to the owner
loan transaction of the
between a creditor merchandise sold,
LAW
or(b)The failure public policy, the

to comply with failure of a person
the provision referring to turn over
to the the proceeds of
obligation involving the sale of goods
the duty to return covered by
(devolvera) the the receipt or
goods to the owner to return the
if not disposed goods if not sold
of in is a public
accordance with the nuisance to be
terms of the trust abated by penal
receipt. sanctions.
7.1There is no need to WAREHOUSE

prove intent RECEIPTS:
to defraud
as the offense is 1. The purpose of
malum the Warehouse
prohibitum. Receipts Law is to
regulate the
7.2There is also no status, rights and
need to prove liabilities of parties.
damage to the In particular, it
entrustor because prescribes the
the nature of a rights and duties
trust receipt of a warehouseman
transaction and and to regulate
the damage caused his relationship
to trade with
circles and the banking (a) the depositor of
community in the goods, or
case of a violation (b) the holder
of a
thereof is the warehouse receipt, or
basis for the criminal (c) the person
offense. lawfully entitled
to the
possession of the
7.3Consequently, the law goods, or (d) other
persons. It
has consistently
also covers all
been declared as
warehouses, whether
not violating the bonded or not.
constitutional proscription
against imprisonment
2. The purpose
for non-payment
of
of debt. It is
the
a declaration
General
by the legislative
Bonded
authority that, as a
Warehouse Act is
matter of
to regulate the
LAW
business of 3.1While no particular

receiving commodities form is required,
for storage it should
in order to however include
protect persons the necessary terms
who may want stating: (a)
to avail Location of the
themselves of warehouse (b) Date
warehouse facilities of issue
and to encourage (c) Number of
the establishment receipt (d)
of more Description of the
warehouses. goods (e) Advances
made (f) Rate of
2.1Distinguishing between charges (g)
the 2 laws, Ownership of the
the Warehouse goods by language
Receipts Law refers indicating if the
to the rights warehouseman is
and obligations an owner, solely
of parties in or jointly
a warehousing with others, of
contract, while the the goods
General Bonded deposited (h)
Warehouse Act refers Signature of the
to state warehouseman, and
regulation and (i) Person to
supervision of whom goods should
warehouses be delivered
by language
3. A warehouse indicating whether
receipt is a the receipt is
written negotiable or non-
acknowledgment negotiable, that is
by a whether the goods
warehouseman received will
that he holds be delivered to
certain the bearer, to
goods in store a specified
for the person,
person to whom or to a specified
the person or
document is his order
issued. This
is also known 3.2A negotiable
as warehouse receipt
warehouse-keepers is not a
receipt or storage negotiable instrument
receipt. as the same
does not comply
with the requisites
LAW
of Section 1, warehouse receipt

Act 2031. over one which
However, ownership is non-negotiable
thereof may be are: (a) goods
transferred by cannot be garnished
delivery if it or levied upon
states that it is under
deliverable to bearer execution unless
or a receipt is
named person or surrendered, or
bearer. If it impounded or its
is deliverable to negotiation enjoined
a named person (Section 25,
or order, Warehouse Receipts
ownership may be Law) (b) In case
transferred by of provisions of
special endorsement this Act, or (b)
and delivery. terms which will
The endorsement in anyway impair
can be to bearer the obligation
or to a to exercise due
specified person. care in the
safekeeping of the
goods entrusted to
3.3A negotiable the warehouseman.
warehouse receipt
is not convertible
to a non- 4. A warehouseman
negotiable receipt. defined
The insertion of - is a
a provision person lawfully
making it non- engaged in
negotiable is void. the business of
To make storing
a warehouse receipt goods for profit.
non-negotiable, Under
it must be written the General
out as such Bonded
and to Warehouse Act
prevent any he is defined
person from as a
supposing it to person lawfully
be negotiable, the engaged in
words non-negotiable the business of
should be placed storing
plainly on its face. A goods for profit.
non-negotiable In
receipt may only other words,
be assigned. he is one
who receives
3.4The advantages of and stores
a negotiable
LAW
goods owned entrusted to him

by others which a reasonable
and careful man would
collects fees for exercise in regard
so doing. to similar
goods of his own.
4.1Included in the However, in
phrase the business the absence of
of receiving an agreement to
commodity for the contrary, he
storage includes shall not be liable
any contract or for any loss or
transaction wherein: injury to
(a) the the goods which
warehouseman is could not
to return same have been avoided
commodity by the exercise of
deposited or pay such care (c) In
its value (b) the absence of
the commodity is any lawful
to be milled excuse, he is
for the owner bound to deliver
thereof, or (c) the goods upon
the commodity a demand
delivered is by: (1) holder of
commingled with the a receipt
commodity belonging for the goods,
to other or (2) by
persons, and the the depositor,
warehouseman is provided that the
obligated to return demand be
commodity of accompanied by (a)
the same kind an offer to satisfy
or pay its value. the
warehousemans lien
(b) an offer to
5. The Primary surrender the receipt
if it is
Obligations negotiable, and (c) a
of the readiness and
willingness to sign
Warehouseman are:(a) acknowledgment of
he must issue a delivery of the
receipt for goods if requested
any commodity that by the warehouseman.
he receives for
storage (b) he
must exercise that 5.1A warehouseman
degree of care in is obliged to
the safekeeping of deliver goods to:
the goods (a) person
LAW
lawfully entitled when (a) delivery

to it. Examples: is made to
person determined by one not lawfully
the court to entitled to it,
be entitled to or (b) even if
it in an delivery is made
interpleader case, person to a person
who purchases holding a
the goods at non-negotiable or
an auction to negotiable receipt,
satisfy a if prior to
warehousemans lien delivery, he had
or because the either been requested
goods are hazardous not to make
or of a delivery by the
perishable nature person lawfully
(b) the person entitled to a
who is himself right of property
entitled to or possession in
delivery by the the goods or
terms of the had information that
receipt. If delivery about
receipt is non- to be made
negotiable, delivery was to one not
will be to the lawfully
person entitled to entitled to
it under its possession of the
terms or by written goods.
authority clearly
indicated therein 5.4A warehouseman
or another can protect
document. If against a
receipt is misdelivery by: (a)
negotiable, to the availing of a
person named or the reasonable time
the last indorsee. that he is
entitled to within
which to
5.2A warehouseman ascertain the validity
may thus legally of an
refuse to deliver adverse claim
goods covered by or to bring
a warehouse legal proceedings to
receipt under force the claimants
the following to interplead or
instances: (a)When may actually require
the demand is the claimants to
not interplead.
5.3A misdelivery or 5.5A warehouseman

conversion occurs cannot commingle as
LAW
he is bound or for the

to keep the goods failure to take
of a up and cancel
depositor separate a
from the goods negotiable receipt
of other or to
depositors or from place upon it a
the goods of statement of
the same what goods
depositor for which have been
a separate delivered, when
receipt has been goods
issued. The are partly
purpose of the delivered (Section
prohibition is to 12,
permit inspection and Warehouse Receipts
redelivery at all Law).
times. Exceptions are: The warehouseman
(a) the goods shall be
are fungible, as liable for failure
when any unit of to deliver
the good is from the goods
its nature or to anyone
mercantile usage, who
treated as an purchases for
equivalent of any value in good
other unit (Section faith such receipt
58, Warehouse whether
Receipts Law) such purchaser
or (b) it is acquired title to
authorized by the receipt
agreement or before or
custom. after the
delivery of
6. For failure to the goods
take up by warehouseman
and cancel a
negotiable
receipt, or 6.1Exception: The
one the warehouseman shall
negotiation of not be liable
which would for failure to
transfer the deliver the goods
right to the covered by the
possession of receipt or be
the goods guilty of a crime
when goods where the
are delivered goods (a) have been
(Section 11, lawfully sold to
Warehouse Receipts satisfy the
Law) warehousemans lien,
LAW
or (b) have according to the

been lawfully sold terms of the
or disposed of receipt as
because of their originally issued
perishable or (c) Where the
hazardous nature alteration is
(Section 36, material and is
Warehouse Receipts authorized, the
Law) warehouseman shall
be liable
7. An alteration in according to the
a terms of the
warehouse receipt receipts as altered
is said to (d)
be:(a) Where the
Immaterial if it alteration is
does not material, unauthorized
change the but without
tenor of the fraudulent intent,
warehouse receipt the warehouseman
(b)Material if shall be liable
it according to the
substantially changes terms of the receipts
the tenor as they were
of the before the alteration
receipt (c) (e)
Authorized Where the
if it is made alteration is
with the material, unauthorized
authority of the and with
holder and the fraudulent intent,
warehouseman the warehouseman
(d)Unauthorized shall be liable
if it is made according to the
without the terms of the receipts
authority of the as originally
holder and issued even (1)
warehouseman. This to a purchaser of
warehouseman shall the receipt
be liable for value without
according to the notice of
terms of the the alteration, or
receipt as (2) to the person
originally issued who made
(b)Where the the alteration and to
alteration is any person
immaterial, whether who took it with
fraudulent or not, notice of the
authorized or not, alteration.
the warehouseman However, in the
is liable latter case, such
LAW
material and certain kind or

fraudulent alteration that the packages
shall excuse the containing the goods
warehouseman from contain goods
any other liability of a certain
to the said kind or by
persons. Except words of similar
as regards the import.
alterer and subsequent
holders with notices. 9. The
warehousemans
lien refers to
8. For the non- the lien of
existence or that a
misdescription warehouseman
of goods, a has on the
warehouseman goods deposited
shall be with him or
liable to the on the
holder of a proceeds thereof
receipt for damages in his
caused hands for all
by the non-
lawful charges
existence of
for storage
the goods
and preservation
or by the
failure of the of the
goods to goods, money
correspond with advanced by
the description him in relation
thereof in to such
the receipt at goods
the time of such as the
its issue. expenses of
transportation or
labor, or
8.1Exception: No such other
liability shall attach related
to the expenses.
warehouseman if
the goods are 9.1The basis for the
described in the lien is the
receipt merely obligation of the
(a) by a depositor to pay
statement of the the warehouseman
marks or labels for (a) Storage
upon them or and preservation
upon the packages charges (b) Money
containing them, advanced (c)
or (b) by a Interest (d)
statement that the Insurance (e)
goods are of a Transportation (f)
LAW
Labor (g) Weighing, (Section 35,

and (h)Coopering Warehouse Receipts
and other similar Law). Provided,
charges however, that notice
(Section 27, of sale of
Warehouse Receipts goods in order
Law) to satisfy the
warehousemans lien
9.2With the exception is given.
of storage and
preservation charges, 9.5The lien can be
the other claims lost if a
must be warehouseman
expressly specified surrenders possession
in the warehouse of the goods,
receipt for it or by refusing
to have validly to deliver the
pledged the same goods when a
(Section 28, demand is made
Warehouse Receipts with which
he is bound
Law). Hence, it
to comply under
is enforceable
the provisions
against the
of the Act
depositors goods (Section 29,
and the goods Warehouse Receipts
of other Law)
persons stored
by depositor, if
9.6The effect of
pledge of such goods
the sale of goods
by him are
to satisfy
valid but not
the warehousemans
against the true
lien or on
owner if the
account of the
depositor has
goods perishable or
neither title nor
hazardous nature
right of possession
under Section 36
to the goods
shall not make
(Section 31,
the warehouseman,
Warehouse Receipts
after the sale, liable
Law; Young v.
for failure
Colyear, 201 Pac.
to deliver the
623)
goods to the
depositor, or owner
9.4The warehouseman of the goods,
can enforce his or to the
lien by the sale holder of a receipt
of the goods given for
(Section 33, the goods when
Warehouse Receipts they were
Law) or by an deposited, even if
action in court such receipt
LAW
were negotiable. Warehouse Receipts

Law)
10. A negotiable
receipt is
negotiated by
delivery when:
(a) the
goods are
deliverable to
bearer, or
(b) the
goods are
deliverable to a
specified
person and the
latter has indorsed
it in
blank or to
bearer. If
endorsed as
deliverable to a
person,
the bearer
receipt is
transformed into a
an order receipt.
10.1 A
negotiable
receipt is
negotiated
by indorsement
when the
goods are, by the
terms of the
receipt, deliverable
to a specified
person (Section 38,
Warehouse Receipts
Law)
10.2 The negotiation

may be made
by the: (a) owner
or (b) the
person to whom
possession of the
receipt was
entrusted by the
owner (Section 40,
LAW
10.3 The rights Phil. 765); P.N.B.

acquired by one v. Atendido, 94
to whom a Phil. 254)
negotiable warehouse
receipt has been 11. A non-
duly negotiated negotiable receipt
are: (a) Such title is
to the goods transferred by
as the one delivery
negotiating could accompanied with a
convey to a deed
purchaser in good of assignment
faith for value or transfer. If
(b) Such title to this is
the goods as indorsed, the
the depositor or indorsement will
one to whose not give the
order the goods transferee any
were to be right whatsoever
delivered could (Section 39,
convey to a Warehouse Receipts
purchaser in good Law)
faith for value,
and (c) Direct 11.1 Rights acquired
obligation of by a person
the warehouseman to whom a
to hold the goods warehouse receipt
for him as has been
if the transferred but not
warehouseman negotiated are: (a)
contracted with him Title to the goods
directly. Hence, subject to
a person to the terms of
whom a warehouse any agreement with
receipt has been the transferor, and
negotiated by one (b)The right to
who acquires the notify the
rights of a warehouseman of
pledgee or the transfer in
mortgagee, namely his favor and
to foreclose the thereby acquire
pledge or mortgage. the direct
The intent in obligation of the
this case is not warehouseman to
the negotiation of hold the goods
the receipt with for him (Section
its consequent 42, Warehouse
transfer of title, Receipts Law).
but merely as Note that pending
security (Martinez notification, his rights
v. P.N.B., 93 can still be
LAW
defeated by a mortgagee to the

subsequent attaching sale of the thing
creditor, or levy mortgaged must
on execution, a be in writing
vendors lien or and annotated
right of stoppage on the back of
in transitu. the mortgage
instrument; in pledge,
the consent
of the pledge
CHATTEL MORTGAGES: need not be in
writing but may be
oral (c) in a
1. A chattel chattel mortgage,
mortgage in addition to
defined - other formal
personal requirements, the
property is recorded mortgagor must execute
in the Chattel an affidavit of
Mortgage Register good faith; in
as a security pledge, there is
for the no requirement
performance of an that the pledgor
obligation. execute such
an affidavit
1.1If the movable, (d) in a chattel
instead of being mortgage, in
recorded, is case of foreclosure
delivered to the of the thing
creditor or a mortgaged, the
third person, the mortgagee is not
contract is a entitled to the
pledge and not a entire proceeds of
chattel mortgage. the sale but only to
a portion
thereof sufficient
1.2Distinguishing a chattel to pay the
mortgage from a mortgage debt, interest
pledge: (a) and incidental
the chattel expenses; in pledge,
mortgage is the pledgee
recorded in the is entitled to
Chattel Mortgage the entire
Register; the pledge proceeds of the
is not, instead sale even if it
the movable exceeds the amount
is delivered to of the debt
the creditor (b) (e) in a chattel
in a chattel mortgagee, the
mortgage, the mortgagee is entitled
consent of the to recover
LAW
deficiency as a foreclosure sale with

rule; in pledge, the applicable Register
the pledgee is of Deeds
not entitled to which in no case
recover deficiency. shall be more 3
annotated on the
back of the months after
mortgage instrument; in foreclosure whichever is
real estate earlier)
mortgage, the
mortgagor can alienate The essential
the thing requisites of a
mortgaged without chattel mortgage are:
the consent of (a) It must be
the mortgagee and constituted to secure
any stipulation the fulfillment of
prohibiting such a principal
alienation is void obligation (b) The
(d) in a chattel mortgagor must
mortgage, be absolute owner
redemption of the of the property
thing mortgaged may mortgaged (c)
be made only The mortgagor must
before the sale thereof; have free
in real estate disposal of such
mortgage, the property, or
thing mortgaged may be legally
be redeemed after it authorized for the
is judicially purpose (d)The
sold but before property involved
judicial confirmation must be personal
of the sale, or movable, and
or if (e) Contract must
extrajudicially sold, be recorded
within one year from in the Chattel
and after the date of Mortgage Register
sale (except
where the mortgagor 2.1A chattel
is juridical person mortgage which
whose property provides that the
has been security stated
mortgaged in favor of therein is for
a bank, the payment of
quasi-bank or trust any and all
entity, in obligations therein
which case the before contracted and
redemption shall be which may thereafter
made until, but be contracted, or
not after, the future debts and
registration of the obligations, by the
certificate of mortgagor in favor
LAW
of the commitment that can

mortgagee is void. be acted upon,
The law requires the security
parties to a itself does not
mortgage to come into
execute an affidavit existence or arise
of good faith, until after a
that the debt is chattel
honestly due and mortgage agreement
owing. A valid covering the newly
mortgage cannot contracted debt is
be made to executed either
secure a debt to by a fresh
be contracted in chattel mortgage
the future (Jaca v. deed or by
Davao Lumber, amending the old
L-25771, March contract to conform
29, 1982, to the law,
113 SCRA 107; particularly the
Vide; Lopez v. execution of an
CA, 114 SCRA affidavit of good
671, Co v. PNB, faith (Acme Shoe
114 SCRA 842). etal v. CA, GR
An affidavit of No. 103576, August
good faith is a 22, 1996)
certificate included in
the chattel 2.3The chattel
mortgage contract mortgage cannot
executed by both be considered to
mortgagor and mortgagor. An Example
mortgagee that the is: Where
mortgage is the debtor gives
constituted to secure as security the
the specified stock or merchandise
obligation, and that in his store
said obligation is a and it is the
valid, just intention of the
and subsisting parties that the
obligation and not mortgage shall cover
one entered into the stock
for the purpose of that will take its
fraud. place in the course
of the
2.2Although a promise business. [Torres v.
expressed in Limjap, 56
the chattel Phil. 141 ,1931]
mortgage to include (2) In the case
debts that of other
are yet to be properties, if their
contracted can be a inclusion is
binding expressly stipulated
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and a supplement to possession and

the mortgage appropriate the chattel,
specifically listing since it
and describing the would constitute pactum
property is executed commissorium,
and registered referring to an
in the chattel act or a
mortgage register stipulation giving
power to the creditor
2.4The registration in to appropriate
the chattel the thing given
mortgage register as security, if
is not necessary the principal
to make it obligation is not
binding between fulfilled without
the parties. It is any formality, such
necessary though as foreclosure
to make it proceedings and public
binding on sale. Such an
third persons. act or stipulation is
null and void
(Art. 2088, N.C.C.).
3. The remedies In other
of a words, the mortgagors
creditor are: default does
(a) not operate to
Extrajudicial Foreclosure vest in the
(b) An action mortgagee the
for replevin (c) ownership of the
Judicial Foreclosure, mortgaged property.
and (d) Bring
an 3.3 Availment of
action for the payment the remedy of
of a sum of bringing an action
money to collect a
sum of money
is a waiver
or abandonment
3.1A creditor cannot
of the chattel
forceably take
mortgage. This
possession of the
also bars the recovery
chattel without
of a
court intervention
deficiency judgment
(BPI Credit v.
which is only
CA, 204 SCRA
available when
601, Filinvest Credit
the proceeds of
Corporation v.
the sale are
CA,
insufficient to cover
248 SCRA 549)
the debts
pursuant to a
3.2 Neither can
the creditor take
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foreclosure. The
prescriptive 1. The resort to
period for which the process of
is ten (10) extra-judicial foreclosure
years. emanates from the
presence of a
3.4. Note that stipulation that allows
when the financing the
company to whom creditor/mortgagee to
a loan and extra-judicially
chattel mortgage foreclose and
have been designating the said
refinanced had been party as the
constituted as attorney-in-fact of
the attorney-in-fact the mortgagor to
of the borrower cause the same
to file any and to sell the
insurance claim subject property
covering the chattel, at a foreclosure
and it failed sale by an
to do so insertion into or
upon a total loss of attachment to
the same, the real estate
will relieve the mortgage.
borrower-mortgagor of
his obligation (BA 1.1When a debt is
Finance Corporation secured by a
v. CA, 201 real estate
SCRA 157) mortgage, the
creditor has two
3.5 There are options: (a) to
limitations on the foreclose, or (b)
enforcement of chattel file an ordinary
mortgages action to collect.
executed in relation If he avails
to the sale of the option
of personal property to foreclose, he
in installments, is still allowed
where the to bring a claim
remedies agreement for any
to the contrary deficiency. On the
shall be void (Art. other hand, if
1484, he avails of
N.C.C.). This the option to
remedies are exclusive file an ordinary
not alternative. action, he abandons
or waives his
EXTRA-JUDICIAL mortgage lien,
FORECLOSURE OF without prejudice
REAL ESTATE to his levying
MORTGAGES:
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on the same after the date of

property but the sale (Sec. 6).
subject to the The
rights of other aforementioned date
creditors, if any. of sale has been
construed by
the Supreme Court
1.2When the mortgagor to mean
files a criminal the date of
case for violation registration of the
of BP Blg 22 sheriffs certificate
against the of foreclosure sale
mortgage debtor, in the office
he is deemed of the Register
to have of Deeds
already availed concerned (Reyes
himself of the vs. Noblejas, et
remedy of a al., G.R. No. L-
collection suit, and 23691, November
following the rule 25, 1967).
on alternative Note that the
remedies, he is period for redemption
barred from subsequently may be the subject
of an
resorting to an extension as may
action for foreclosure. be agreed upon
by the parties.
1.3A mortgage
contract is, by
nature, indivisible. 2.1The amount to
The debtor who be paid at
has paid cannot redemption is the
ask for a Bid Price, plus
proportionate 12% interest per
extinguishment of annum. Note
the mortgage as again that under
long as the debt RA 8791, the
is not completely redemption amount
satisfied. Generally, is such which
the divisibility of is due under
the principal the mortgage
obligation is not deed with interest
affected by the at the specified
indivisibility of the rate therein.
mortgage.
2.2Redemption may be
effected by: (a)
2. The foreclosed The debtor, or
property shall be (b) His successor
redeemed within in interest ,
1 year from and or (c) Any in
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no case shall be entitled to

more than three the possession thereof
(3) months after during the
foreclosure whichever redemption period
is earlier, as as he must
provided in petition the Regional
Section 47 of Trial Court of
Republic Act. No. the province or
8791 (A.M. No.99-10-05- city where
0) the property is
situated to give
2.4Note the probable him possession thereof
constitutional challenges during the
that may be brought redemption period.
against the He must also
quoted provision put up a bond
of RA 8791 on equivalent in value
the basis of the to the use of
equal protection clause the property
as there for a period of
is no substantive 12 months to
distinction between a indemnify the
corporate and debtor in case it is
individual debtor or shown that
between a the sale was made
bank or non-bank without
lender. complying with the
requirements of Act
2.5Further, the No. 3135 or
application of the that there was
law should be no violation of
prospective as a the mortgage deed.
corporate mortgagor
has acquired as
vested right to the
one year redemption
period if his 3. In general, formal
mortgage was and substantive
executed prior defects in the
to RA 8791 real estate
as the controlling mortgage and the
consideration is the foreclosure proceedings
law on redemption at provide the legal
the time of and equitable
the execution of grounds to enjoin
the mortgage. or eventually
nullify foreclosure
proceedings,
2.6The purchaser of if not the real
foreclosed property estate mortgage itself.
is not automatically
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4.2The total amount

3.1The general basis due on the
would be mortgage is also
Article 5, Civil Code, undetermined if some
which of the
provides: Acts properties are subject
executed against to the
the provisions of coverage of the
mandatory or CARP, in which
prohibitory laws shall case a portion
be of periodically fixed
void, except, when by a bank
the law based on
authorizes their validity the prevailing
interest rate in
the market, such
4. Disputes in the as the Manila
amount of the Reference Rate
obligation may cause or Treasury Bill
the foreclosure Rate, plus a margin
to be enjoined as determined
as a bank by the bank.
may legally
proceed with
foreclosure only when
5.1If this rate of
the exact
interest is
amount of
unilaterally fixed
the obligation of
the mortgagor is by the bank for
determined in a each interest period
trial on the merits without the
and the written conformity
mortgagor cannot of the borrower,
meet the the interest may
obligation be declared null
following and void for being
that potestative and
determination. for lack of
mutuality based
4.1Where the debtor on essential
is not given equality between
an opportunity to the parties
settle the debt at
the correct 5.2Its being a
amount and potestative condition
without iniquitous (one within the
interest imposed, sole power of
no foreclosure the one obligated
proceedings can be to perform),
instituted. consequently null and
void finds basis in
Article 1308 of the
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Civil Code that likewise invalid.

provides that the
fulfillment of a 5.4The floating rate
condition cannot of interest being
be left to the unilaterally fixed
sole will of one and determined by
of the the bank also
contracting parties violates the
provision of CB
5.3As held by the Circular No. 1191
Supreme Court that the interest
in Almeda v. rate for each
Court of Appeals re-pricing period
and PNB,256 SCRA is subject to
293: The mutual
binding effect agreement between
of any agreement the Borrower and
between the the Bank.
parties to contract
is premised on 5.5Under Article 1956
two settled of the Civil
principles: (1) that Code, no interest
any obligation arising is due unless
from contract it has been
has the force expressly stipulated
of law between in writing. The
the parties; and floating rate being
(2) that there unilaterally fixed
must be mutuality by the Bank
between the parties without the written
based on mutual
their essential agreement of the
equality. Any Borrower for each
contract which re-pricing of
appears to be interest is null
heavily weighted and void under
in favor of one Art. 1956 of
of the parties the Civil Code,
so as to lead and for violation
to an of CB Circular
unconscionable result No. 1191 that the
is void. interest rate for
Any stipulation each re-pricing period
regarding the under the
validity or floating rate of
compliance of the interest in subject
contract which to mutual
is left solely agreement.
to the will of
one of the parties 5.6Consequently, if the
is interest is
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declared null and loan, as well as

void, the foreclosure the accessory contract
sale for a higher of mortgage,
amount than shall not be
what is legally perfected for lack of
due is likewise consideration
null and void with respect to
because under the unspecified loan in
the Civil Code, the future.
a mortgage may The Supreme Court
be foreclosed only has held in
to enforce the China Banking
fulfillment of the Corporation vs.
obligation for whose Lichuaco, 46 Phil
security it 460 that: a
was constituted. mortgage is an
accessory contract,
5.7In fact, because its consideration is
there is a the very
dispute on the consideration of the
amount of the principal contract,
interest legally from which it
due, the Bank derives life, and
may legally without which
proceed with it cannot exist
foreclosure or as an independent
consolidation only valid contract.
security for future
loans under 6.2Further, under
the so called Article 2176 of the
Civil Code, a
Dragnet Clause. mortgage may only
be foreclosed for
6.1This finds basis the fulfillment
in the fact of the obligation
that real estate for whose security
mortgage is it was
an accessory contract, constituted
which cannot
exist independently 6.3Mortgages with a
of the principal dragnet clause is
obligation. The a contract of
consideration for the adhesion that
mortgage is the must be strictly
consideration of the construed as against
contract of loan. the bank.
Consequently, the
amount of the
loan must be 6.4To constitute a
specified, otherwise real estate
the contract of mortgage as security
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for future to restrain

loans, the future foreclosure
loans must be
agreed upon 8. Issue of the right to
and fixed in take possession.
the mortgage deed The rule is that
at the the purchaser still
time of the has to file a
execution of the petition for the
same issuance of a
writ of possession to
6.5A stipulation that obtain
the amounts named possession.
as consideration
in a contract 8.1 The proceedings
of mortgage related thereto
do not limit the allow the
amount for which mortgagor to
the mortgage participate although
may stand as jurisprudence provides
security if from that the hearings
the four corners of are ex-parte.
the instrument However, with the
the intent to mandate of Section
secure future and 8 of Act
other indebtedness 3135 which allow
can be gathered the mortgagor to
is valid and set aside
binding and is foreclosure in the
known in American same proceedings, it
Jurisprudence as the is the better
blanket mortgage rule to actually
clause. allow the
mortgagors active
7. Issue of PD 385 participation.
prohibiting the issuance
of an
injunction against 8.3As a limitation
foreclosure by on the right
any government to possession, a
financial institution writ of possession
is arbitrary and may be legally
unreasonable. Hence, issued only if the
may be argued debtor is in
as being possession and no
unconstitutional. third person has
Hence, it cannot intervened.
be sustained if
there is a clear 8.4Order granting a
legal ground writ of possession
under Act 3135 is
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a final order. 1.1 A central

Hence, it is bank is a bank
appealable. In that holds
expropriation, it is the cash reserves
interlocutory. of a countrys
commercial banks,
9. Grounds for the performs monetary
proper annulment of services for the
the foreclosure sale government, issues
are the following: bank
(a) there was notes, and makes
fraud, collusion, accident, funds available to
mutual mistake, commercial banks
breach of
trust or misconduct Conservatorship
by the purchaser
(b) the sale was 1. The appointintment
not fairly and by the Monetary
regularly conducted Board of a
(c) price was conservator takes
inadequate and the place whenever a
inadequacy was so bank or quasi-bank
great as to is in
shock the conscience of a state
the court. of continuing
inability
Central Bank or unwillingness
Act to maintain a
condition of
liquidity deemed
1. The law was adequate to protect
enacted on June the interest of
14, 1993 and has depositors and
for its policy creditors.
the maintenance
of a central 1.1It is an attempt
monetary authority to save
with the power: the bank from
(a) function and bankruptcy and ultimate
operate as an liquidation.
independent and
accountable body in 1.2The appointed
the discharge of conservator is to
its responsibilities take charge of
concerning money, the assets,
banking and liabilities, and the
credit (b) enjoy management thereof
fiscal and administrative for a period
autonomy. not exceeding one
(1) year
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2. A conservator may inability to

take over a bank or pay caused by
quasi-bank without extraordinary demands
the need induced by financial
of first declaring panic in
the bank insolvent the banking
(P.D. 1937, community (b) Has
June 27, 1984). insufficient realizable
Nonetheless, the assets to meet
designation of a its liabilities (c)
conservator is not a Cannot continue
precondition in business without
to the designation of involving probable
a receiver losses to
(Section 30) its depositors or
creditors; or (d)
2.1A conservator is Has willfully violated
the person a cease
appointed to take and desist order
over the management that has become
of a bank final,
and shall assume involving acts or
exclusive powers transactions which
to oversee amount to fraud
every aspect of or a
the banks
dissipation of the
operation and affairs.1
assets of the
institution;
to its depositors
or creditors, in
which case proceedings 1.1In which cases,
for receivership the Monetary
and liquidation shall Board may summarily
be and without need
for prior hearing,
pursued. (Sec. 29).
forbid the institution
from doing business
Proceedings in
in the
Receivership:
Philippines and
designate the PDIC
as receiver
1. Receivership ensues of the banking
whenever the institution.
Monetary
Board finds that a 1.2There is no
bank or quasi-bank: requirement that a
(a) Is unable to hearing be first
pay its liabilities conducted before
as they become a banking
due in the institution may be
ordinary course of placed under
business BUT: receivership. The
Shall not include
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appointment of a judicial review. Close

receiver may be now and hear
made by the later scheme under
Monetary Board the Act is
without notice for the purpose of
and hearing but protecting the
its action is depositors, creditors,
subject to judicial stockholders and general
inquiry( public (Central
Rural Bank of Buhi v. Bank v.
Court of Court of Appeals,
Appeals,162 SCRA 220 SCRA
288) 536)
1.3The Central Bank, 1.4Prior notice and

through the hearing is not
Monetary Board, required before
is vested with placement of bank
exclusive authority under receivership.
to assess, evaluate Section 29 does
and determine not contemplate
the condition of prior notice
any bank and if it and hearing
finds the condition before a bank may
to be one of be directed to
insolvency, or stop operation and
its continuance in placed under
business would receivership. When
involve probable paragraph 4 (now
loss to creditors paragraph 5
and depositors, it as amended by
can forbid the E.O. 289) provides
bank to do for the filing of a
business and can case within
designate a receiver ten (10) days after
to take charge the receiver takes
of its assets charge of
and liabilities. the assets of
Sec. 29 of the the bank, it
Central is under
Bank Act does receivership. Admittedly,
not contemplate the mere filing
prior notice and of a case
hearing before a for receivership
bank is placed by Central Bank
under can trigger a
receivership. It is bank run. The
enough that such procedure prescribed
action is in Section 29
made the subject is truly designed to
of a subsequent protect the
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interest of all
concerned, and the
summary closure 1. Liquidation shall take
pales in comparison place is the
to the protection receiver determines
afforded public that the institution
interest. At cannot be rehabilitated
any rate, the or permitted
bank is given to resume
full opportunity to business, the
prove arbitrariness Monetary Board
and bad faith in shall notify in
placing the bank writing the Board
under receivership, in of Directors of
which event, its findings and
the resolution direct the receiver
may be properly to proceed with
nullified and the the liquidation of
receivership lifted the institution.
as the trial court
may determine. 2. The following are
Until such determination the mandatory
is made, requirements to be
the status quo complied with before
shall be maintained, a bank found
i.e., the bank to be
shall continue to insolvent can be
be under ordered close:
receivership. (1) an examination
shall be conducted
by the appropriate
1.6 Receivership is CB department as
equivalent to to the condition
an injunction to of the bank
restrain in the (2) disclosed in
bank officers from the examination
intermeddling with the is that the
property of the condition of the
bank in any way. bank is one of
Thus, the appointment insolvency (3) the
of a receiver
director shall inform
operates to
the Monetary
suspend the authority
Board in writing
of the bank
and of its directors of such fact, and
and officers (4) the Monetary
over its property Board shall find the
and effects statement of the
(Villanueva vs. CA, department to be
244 SCRA 395) true (Banco
Filipino vs.
Liquidation: Monetary
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Board, 204 SCRA accounts and assets

767) of, or defend
any action
3. The test of against, the
insolvency laid down institution
in Section
29 of the Selected Issues
Central Bank involving
Act (now Receivership and
Section 30 of
the New Central Liquidation:
Bank Act)
is
1. If the Central
measured
Bank (now Bangko
by
determining Sentral) through
whether the its Monetary
realizable assets, Board has promised
realizable within to rehabilitate the
a reasonable time distressed bank,
by a reasonably and the stockholders
prudent person on said
of a bank are assurance proceeded
less than its to mortgage their
liabilities, not real properties to
considering capital guarantee CB
stock and surplus promised loan
which are not advances to said
liabilities for such bank, CB cannot
purpose. (Ibid) renege on said
promise, under
4. Upon liquidation, the the doctrine of
receiver shall then: promissory estoppel,
(a) File ex and cannot insist in
parte with Regional its liquidation
Trial Court, and (Ramos vs. CB,
without the 41 SCRA 565)
requirement of prior
notice or 2. Where the Central
any other action, Bank, in the course
a petition of the
for assistance in rehabilitation of a
the liquidation of commercial bank,
the institution extended loans
pursuant to a and advances, but
liquidation plan subsequently the bank
adopted by under was forced
the Civil Code by CB to close,
(d) Institute such and subsequently
actions as may allowed to
be necessary to reopen, interest
collect and recover due on said loans
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and advances, capricious, discriminatory,

cannot be collected whimsical,
because it should arbitrary, unjust or
be deemed a denial
read into every of the due process
contract of deposit and equal
with a bank protection
that the obligation to clauses of the
pay interest Constitution (CB vs.
on a deposit CA, 106 SCRA
ceases from the moment 143)
the operation of
the bank is 5. A deposit in a
completely suspended distressed bank
by the duly already
constituted authority forbidden by CB
the Central Bank to do business
(Ibid,; does not become a
Overseas Bank vs. preferred credit
CA, 105 SCRA simply because
49) some
depositors went to
3. The prescriptive period court and were able to
to institute secure
the foreclosure judgments against
proceeding was legally the
interrupted when bank (CB vs. Morfe,
the mortgagee- 63 SCRA
bank was placed 114)
under receivership
with express 6. Where in the course
prohibition from of banks
transacting business, a distressed condition,
circumstance the Central Bank
considered as force gave financial
majeure (Provident assistance to restore
vs. CA, 222 SCRA the banks
125) viability, but that
inspite of these
4. While the closure moves, the bank
and liquidation of a was closed
bank may by CB on August
be considered an 1968, and
exercise of police allowed to reopen
power, the on January
validity of its 8, 1981, under
exercise is subject a new name,
to judicial Commercial Bank of
determination, and Manila, the
could be set aside, obligation by the
if it is bank to pay interest
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on the CB account, whether

advances remained done regularly or
suspended during not, and those
the whole period which regularly lend
of its closure, funds obtained
following the through the
ruling in OBM vs. occasional receipt
CA and Tapia (105 of deposits, would
SCRA 49). Hence, not be
the interest considered as banks.
obligation starts to
financial system
that is globally 2.2An entity that
competitive, is engaged in
dynamic and the business of
responsive to the buying accounts
demands of a receivables and is
developing economy. funding their
business from bonds
2. Banks are entities sold to the
engaged public from time to
in the lending time is not a
of bank as it does
funds obtained in not accept
the form of deposits. deposits, instead
it buys receivables.
2.1The definition under Classification of Banks:

Section 2
of the old
General Banking 1. Banks are
Law:2 banks are classified under
entities duly the General
authorized by the
Monetary Board Banking Law as
to engage in follows:
the business of
regularly lending
funds obtained (a) Universal banks-
regularly from the these are those
public through the that used to be
receipt of called expanded
deposits of any commercial banks
kind. Thus, and whose
entities which operations are now
lend funds primarily governed
obtained from the by the GBL.
public but not as They can exercise
deposits but rather the powers of
as debts an investment house
for their own and invest
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in non-allied readily accessible in

enterprises. They the rural areas
have the on reasonable terms
highest capitalization and which
requirement. are governed
primarily by the
An investment house Rural Banks Act
is a of 1992.4
company that earns available to
income solely cooperative banks
or primarily and are governed
by holding and primarily by the
investing in Cooperative Code.5
securities issued
by other
companies or by Islamic banks-these
government agencies. are banks whose
business dealings
(b) Commercial banks- and activities
these are ordinary are subject to
or regular the basic
commercial banks, principles and rulings
as distinguished of Islamic
from a universal Sharia, such as
bank. They have the Al Amanah
a lower Islamic Investment Bank
capitalization requirement of the
than universal banks Philippines which
and cannot was created by
exercise the powers the Republic Act
of an No. 6848; and
investment house
and invest in
non-allied enterprises. (g) Other classifications
of banks as
(c) Thrift banks-these determined
are savings and by the Monetary
mortgage banks, Board.
stock savings and
loan associations, Incorporation and
and private Organization of Banks
development banks
which are governed
primarily by 1. The minimum
the Thrift Banks conditions that a
Act.3 prospective bank must
comply with before
(d) Rural banks-these it may be
are mandated to authorized by
make needed credit
available and
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the BSP to be Supervision and

organized as a Regulation of Banks:
bank are:
1.1 That the entity 1. The entity

must be organized that has
as a stock supervisory and
corporation; regulatory powers
over banks
1.2 That its funds is the BSP and
must be obtained such extends to
from the all banks, quasi-
banks, trust entities,
public, i.e., 20 or
and other
more persons; and
financial institutions.
1.3 That the
2. This power of
minimum
the BSP is found
capital
in Section
requirement
25 of the BSP
prescribed by the
Law which
Monetary Board
mandates the conduct
for each category of
of periodic or
banks are
special
satisfied.
examinations, to include
those of
2. The SEC cannot its subsidiaries and
register the the affiliates engaged
articles of in allied
incorporation of any activities, but such
bank, or any shall be possible
amendment thereto, only in the in
unless accompanied the course of
by a certificate of its examination of
authority issued such bank.
by the
Monetary Board,
2.1 A subsidiary
under its seal. Such
corporation is one
certificate shall not
more than
be issued by
the Monetary Board 50% of whose
unless it is voting stock is
satisfied from owned by the
the evidence bank or quasi-bank.
submitted to it:
2.2 An affiliate
3. In organizing the corporation is one
bank, it can only less than 50% of
issue par value whose voting stock
stocks only. is owned
by the bank or
quasi-
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1. The principle that carrying out the

since a bank responsibilities of a
is a juridical director.
person that its powers
are to be 3. There must also
exercised, its be adherence to
business is to the fit and proper
be conducted, and rule8
that its properties which
are to be held provides that to
by a board maintain the quality
as provided for of bank
by Section 23 management and afford
of the better
Corporation Code obtains. protection to
depositors and the
public in general,
2. However, an the
independent director, Monetary Board
who is a person shall:
other than
an officer or 3.1 prescribe, pass
employee of the upon and review
bank, its subsidiaries the
or affiliates qualifications and
or related disqualifications
interests must of individuals
be elected to elected or
the board. Note appointed bank
that the term directors
independent or officers
director is also and
used in the disqualify those
Securities Regulation found unfit; or
Code7 to refer
to a 3.2 After due notice
person other than to the
an officer or board of
employee of the directors of
corporation, its parent the bank,
or subsidiaries, the Monetary
or any other Board may
individual having disqualify,
a relationship suspend or
with the corporation, remove any
which would bank director
interfere with or officer
the exercise of who commits
independent judgment or omits
in an act which
render
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him unfit for appointive public

the position. official
to serve
3.3 In determining as director,
whether officer, consultant
an individual or in any
is fit and other capacity
proper to hold in a rural
the position bank.
of a
director or 5. A bank is
officer of a required to have
bank, regard a board
shall be given composed of 5
to his no more than 15
integrity, directors, two of
experience, whom must be
education, independent directors.10
training, and
competence. 5.1 In case of
a merger
4. An elective or or consolidation
appointive public between
official cannot serve 5.2 Non Filipino
as an officer citizens may
become
of a private
members of
bank ,
the board
whether full-time
to the extent
or part-time shall of the
at the same foreign participation
time serve as in its
officer of any private equity.12
bank, save
in cases where
such service Limitations imposed
is incident to on Banking
financial assistance Operations:
provided by the
government or a
government-owned or
1. Single Borrower Limit
controlled corporation
Rules13- these
to the bank or
rules regulate
unless otherwise
the total amount
provided
of loans,
under existing laws.
credit accommodations
and guarantees that
may be extended
4.1 The Rural by a bank
Banks Act9, to any person,
allows an partnership, association,
elected or
LAW
corporation or other bank may

entity. extend to its
directors, officers,
1.1The rules seek to stockholders and their
protect a bank related
from making interests, thus the
excessive loans to term, DOSRI.
a single
borrower by 2.1Generally, a banks
prohibiting it from credit
lending beyond a accommodations to
specified ceiling. its DOSRI must
The current be in the
limit is 25% of regular course
the net worth of of business and
the bank on terms not
concerned.14 less favorable to
the bank than those
offered to
1.2The ceiling is
non-DOSRI borrowers.
subject to possible
increase by
2.2Related Interests
an additional 10%
shall include the
provided the
following: (a) Spouse
additional liabilities of
or relative
any borrower
within the first degree
are adequately secured
of consanguinity
by trust
or affinity, or
receipts, shipping
relative by
documents, warehouse
legal adoption, of a
receipts or other
director, officer
similar
or stockholder
documents transferring or
of the bank;
securing title
(b) Partnership of
covering readily
which a director,
marketable, non-perishable
officer or stockholder or
goods which
his spouse
must be fully
or relative within
covered by
the first degree
insurance.
of consanguinity
or affinity, or
relative by
2. DOSRI Rules15- these legal adoption, is a
are rules general partner;
promulgated by the (c) Co-owner
BSP, upon the with the director,
authority of Section officer, stockholder or
36 of the his spouse or
GBL, which regulate relative within
the amount the first degree of
of credit consanguinity or
accommodations that a affinity, or
LAW
relative by legal or by the by-laws

adoption, of the of the
property or interest corporation: Provided,
or right further, That the
mortgaged, pledged or borrowing corporation
assigned to under (1) or (2)
secure the loans or is not among
credit those mentioned in
accommodations, except Items (e) and (f)
when the hereof; (e)
mortgage, pledge Corporation, association or
or assignment covers firm of which
only said co- any or a
owners undivided group of directors,
interest; (d) officers, stockholders
Corporation, association, of the lending
or firm of bank and/or
which a director or their spouses or
officer of relatives within
such corporation, the first degree of
association or firm, consanguinity or
except (1) where affinity, or
the securities of relative by legal
such corporation, adoption
association or firm hold/own more
are listed and than twenty percent
traded in the big (20%) of
board or commercial the subscribed capital
and industrial within of such
the third degree corporation, or of
of consanguinity the equity of
or affinity; or such association or
(2) where firm; (f) Corporation,
the director, officer association of firm
or stockholder wholly or majority-owned
of the lending or controlled
bank sits as a by any related
representative of entity or a group
the bank in the of related
board of directors of entities mentioned in
such corporation: Items (b),
Provided, That the (d) and (e) hereof.
bank representative
shall not have
any equity interest 2.3A bank may
in the allow a DOSRI
borrower corporation to: (a) borrow
except for the from the bank;
minimum shares (b) become a
required by law, guarantor, indorser
rules and regulations, or surety for
LAW
loans from such entered upon the

bank to others; records of the
(c) be an obligor; bank, i.e., the minutes
or (d) incur of the board
any contractual liability meeting in
with the written which the approval
approval of was given; and
the majority of (c) A copy of
all the directors of the entry of such
the bank, approval shall be
excluding the director transmitted forthwith
concerned.16 to the appropriate
However, the written supervising department of
approval shall the BSP.
not be required
for loans, other 2.5The other
credit conditions are: (a)
accommodations and The DOSRI borrower
advances granted is required to
to officers under waive the
a fringe secrecy of his/her
benefit plan deposits of
approved by the whatever nature
BSP. in all banks
in the Philippines17
and (b) The
ceiling/limitation as to
2.4Consequently, any director
loans are
or officer followed.
who may wish to
borrow from the bank
must observe
2.6The amount of
the following
the borrowing is
formalities: (a) The
limited to the amount
borrowing must
equivalent to
be in accordance
their unencumbered
with the Arms Length
deposits and book
Rule, or which
value of
must be upon
their paid in capital
terms not
contribution,
less favorable to
unless they are: (a)
the bank than
secured by assets
those offered to
considered by
others ,must be
2.7Should there be a
with the written
violation of
approval of a
the DOSRI rules,
majority of the
after due notice
banks board of
to the board
directors, excluding
of directors of
the director
the bank,
concerned (b)Such
the office of
approval must be
any bank director or
LAW
officer who loan is a

violated the rules contract whereby
may be declared one of the parties
vacant and the director delivers to
or officer another money or
shall be subject other
to the penal consumable thing upon
provisions of the condition that
NCBA. the same amount
of the same
2.8Loans, credit kind and
accommodations or quality shall be paid.21
guarantees extended
by a bank
to DOSRI are 1.2Banks may use the
also termed as money deposited with
Insider Lending. them as money
deposited in banks,
whether fixed,
Bank Deposits and savings and
Bank Responsibility to current, are really
Depositors loans to a
bank because
the bank can use
1. As to nature, the same for
all kinds of its ordinary
deposits whether transactions and for
fixed or current banking business in
are to be treated which it is
as loans engaged.22
and are to be
covered by the 1.3In fact banks
law on loan.18 are not obligated
to return exactly
the money
1.1They are also deposited in the
considered in the same denomination
nature of irregular as it was
deposits, they deposited. While
are really loans the banks have
because they the obligation to
earn interest.19 return the amount
Considering a deposit deposited, they have
involves no obligation to
the delivery of a return or deliver
thing for the same money
safekeeping with the deposited.
obligation to return Thus, estafa will
the very same not prosper.23
thing upon
demand20 and a
LAW
1.4A banks failure of their relationships

to honor a with their
deposit is depositors.26
failure to pay its
obligation as debtor 3.1The depositor expects
and not a the bank
breach of trust arising to treat his
from a account with utmost
depositorys failure fidelity, whether
to return the
such account
subject matter of
consists only of
deposit
a few hundred
pesos or
millions. This is
2. The relation created
especially true
between the
since the bank is
bank and depositor
engaged in business
is that of a
creditor and debtor impressed with
with the bank public interest and it
as debtor and is its duty
the depositor as to protect in
creditor.24 return many clients,
and depositors
2.1The relationship is who
fiduciary in transact business
nature.25 The bank with it.27
assumes to act
as an agent 3.2The bank is
for another and under obligation to
the other reposes treat the accounts of
confidence in its depositors
him, although there with meticulous care
is no always having in
written contract or mind the fiduciary
nor contract at nature of their
all. relationship.
3. A bank should 3.3However, the highest

exercise its functions degree of
and treat the diligence is not
accounts of their expected to be
clients not only with exerted by banks
the diligence of a in commercial
good father of transactions that do
a family not involve their
but it should fiduciary
do so with the relationship with their
highest degree of depositors.28
care considering
the fiduciary nature 3.4In case of
negligence in
LAW
handling the deposit following instances:

of its clients (a) Failure to
on account honor/pay a check
of a bank of a
officers gross merchant/trader when
negligence which the deposit
causes inconvenience, is sufficient.32
humiliation and Conversely, a bank
embarrassment to a is not liable
depositor entitles for its refusal
the latter to to pay a check
an award on account
of damages.29 This of insufficient funds,
notwithstanding the notwithstanding
absence of malice the fact that a
and bad faith deposit may be
as if the made later in the
negligence, nevertheless day. Before
caused a depositor may
serious anxiety, maintain a suit
embarrassment and to recover a
humiliation to the specific amount
depositors.30 As long from his bank,
as the bank has he must first show
committed a serious that he had
mistake and on deposit
the banks sufficient deposits
negligence was a to meet his
result of lack of demand. (b) When
due care and caution a bank
required of teller validates an
managers and incomplete duplicate
employees of a deposit slip that
firm engaged in lacks the name
so sensitive and of the account
demanding business holder.33 (c) When
as banking, it is the deposit
liable for of PPH 31,500.00
moral damages.31 to cover six
postdated checks
3.5In view of the was not credited
fiduciary nature to the account
of the relationship of the depositor
of banks and because of the
its clients and omission of one
because banking zero in the
is imbued with account number.34
public interest, a (d) The bank
bank was also made allowed an
liable for impostor to
damages in the negotiate treasury
LAW
checks.35 (e) The degree of

new accounts teller diligence in the
erroneously used the selection and
old account of supervision of their
a depositor instead employees.37
of the newly
opened joined 3.7Malice and bad faith
account of need not be proven
the depositor and sufficiently to
his spouse, make a bank
leading to the liable for moral
dishonor of two damages due to
checks issued by the error or
the depositor.36 negligence of a
bank employee as
3.6The defense of long as the bank
diligence in the has committed a
selection and serious mistake
supervision of and the banks
employees is not a negligence was a
valid defense result of lack of
to escape due care and caution
or at least mitigate required of
a banks managers and
liability. A banks employees of a
liability is firm engaged in
not merely so sensitive and
vicarious but primary; demanding business
the defense as banking, it is
of exercise of liable for
due diligence in moral damages.38
the selection and
supervision of its
employees is of 4. A bank cannot
no moment. By prohibit a
the very nature borrower from
of the work prepaying his loan
of banks, the as a borrower
degree of may at any time
responsibility, care and prior to the agreed
trustworthiness maturity date
expected of their prepay, in whole
employees and officials or in part,
is far greater the unpaid balance
than those of of any bank
ordinary clerks loan and other
and employees. credit accommodation,
Banks are subject to such
expected to exercise reasonable terms
the highest and conditions
(such as the
LAW
payment of a is compulsory as
prepayment fee) as engage in the
may be agreed business or
upon between the receiving deposits,
bank and borrower. shall be insured
with PDIC.
PDIC 3.2. Deposits that

are covered are
savings accounts,
1. The Philippine Deposit current account,
Insurance time deposits and
Corporation Act created deposits in
the Philippine acceptable foreign
Deposit Insurance currencies pursuant
Corporation which to Foreign
is a government Currency Deposit
corporation Act.
promoting and
safeguarding the 3.3. Exempted
interests of the though from the
depositing public coverage of the
by providing law are trust funds
permanent and as it was
continuing insurance was expressly
coverage on all excluded from the
insured deposits. term deposit under
R.A. 7400 and
money market
2. It insures the placement as
deposit liability of it is not
all banks to included in the
a maximum term
deposit insurance deposit
coverage (MDIC)
of P500,000 per DETERMINATION OF
depositor in THE
consideration of a AMOUNT DUE
premium paid by THE
the bank to DEPOSITOR
the said corporation.(As
per RA 1. Insured deposits
9576) under the law means
the net amount
3. The risk insured due the
against is the depositor for any
closure of a deposits in the
bank. insured bank
after deducting any
offsets but should
3.1. The nature
of the coverage
LAW
not exceed PHP Monetary Board

500,000.00. of the Bangko
Sentral ng
2. Hence, if a Pilipinas declares
depositor has two that it is the
or more accounts policy of the state
maintained in to protect its
the same right citizens from a
and capacity, lack of awareness
the coverage of of the true cost
PHP 500,000.00 shall of credit to
be held to apply the user by
to the sum of assuring a full
all such disclosure of such
accounts. cost with a view
of preventing the
3. A joint account uninformed use of
(whether and/or, credit to the
or, and shall detriment of the
be insured national economy.
separately from any
individual-owned account.
If held by a 2. Specifically, it: (a)
juridical person aims to protect
or entity a debtor from
with a natural the effects of
person, the account misrepresentation or
shall be concealment (b)
presumed to belong permits him to
to the juridical fully appreciate and
person. evaluate the real
cost of his
3.1 Accounts under borrowing (c) avoid
joint ownership is the circumvention
considered equally of usury
shared among laws
co-depositors
unless otherwise Coverage of the
indicated in the Law
deposit document.
1. As used in
the law, the term
TRUTH IN credit means:
LENDING any of the
above (h) any
Declared Policy of transaction with similar
the State purpose
1. The law, which 2. The provisions of

is to be the law apply
implemented by the to creditors, who is
LAW
defined by CA, 246 SCRA

law as: any person 195)
engaged in
the business of 3. The provisions of
extending credit, the law does
including any person not apply to
who as a the following credit
regular business transactions:
practice makes
loans or sells or those that do not
rents property or involve the payment
services on a of any
time, credit or finance charge
installment basis by the debtor;
either as principal and
or agent, who
requires as an those in which
incident to the the debtor is
extension of credit the one specifying a
the payment of definite and
a finance fixed set of credit
charge. terms such
as bank
2.1 The application deposits, insurance
of the law is contracts, sale of
compulsory for bonds, etc.
(a) banks (b)
non-bank financial 3.1 Finance charges
intermediaries (Sec. 3[3]; Sec.
authorized to engage 2[h], CB
in quasi-banking Circular 158) are
are required the amounts to
strictly to adhere be paid by the
to the law. Banks debtor incident to
and non-bank the extension of
financial intermediaries credit such as
authorized to interests, discounts,
engage in quasi-- collection fees, credit
banking functions investigation
are required to fees and attorneys
strictly adhere to fees.
the provisions of
the Truth in 3.2 Non Finance charges
Lending Act and (Sec. 2[f],
shall make the CB Circular 158)
true and effective are the amounts
cost of borrowing advanced by a
an integral part creditor for items
of every loan normally
contract (Consolidated associated with the
vs. ownership of property
LAW
or the paid not incident

availment of the to the extension
services purchased of
which are not incident
to the 4.2The failure to
extension of credit. comply does
For example, not render the
when a debtor principal contract
purchases a car invalid or
on credit, the unenforceable, but
creditor may advance would entitle the
the insurance debtor to recover
premium as well any interest
as the payment made.
registration fee for
the account of 4.3A violation of
the debtor. the law may subject
the violator
4. To accomplish the to: (a) a civil
policy of the law to action brought within
protect citizens one year to
from a lack recover from the
of awareness of seller/lender an
the true cost of amount of
credit to the user P100.00 or double
by assuring a the finance
full disclosure of charge imposed,
such cost, a creditor whichever is
or lender greater, but not
is obliged to to exceed
provide the debtor P2,000.00, plus
or borrower attorneys fees and
with a statement in costs, and (b) a
writing, before criminal action
perfection of against the
the contract seller/lender who if
containing the convicted may be
following: (a) Cash imposed a fine
price of ranging from P1,000
property or service to P5,000
to be acquired or imprisoned from
(b) Amount 6 months to
credited as down 1 year or both.
payment and or Note that a final
trade-in(c) Charges judgment that may
paid or to be rendered in
be paid not incident any criminal
to the proceeding to the
extension of credit effect that the
(d) Charges defendant has
paid or to be willfully violated
the act shall be
LAW
prima facie The purpose

evidence against of the law is
such defendant in to encourage people
an action or to deposit
proceeding brought their money in
by any other banks and, thereby,
party against such discourage private
defendant under hoarding so that
the Act as to the banks may
all matters lend out the
respecting which money and assist
said judgment would in the economic
be estoppel development of the
as between the country39.
parties thereto.
2)What does the
THE INSIDE law prohibit?
STORY ON (a) The

THE examination
and
SECRECY OF inquiry or
BANK looking into
all
DEPOSITS LAW deposits of
whatever nature
with banks
Atty. Renato S. or
Rondez banking
Partner, Law Firm institutions
of Rondez & in the
Partners Philippines
Professor, College including
of Law investments
University of the in bonds
Cordilleras issued by
the
________________________________ Government
or its
QUESTIONS AND political
ANSWERS ON SECRECY subdivisions
OF BANK and
DEPOSITS-RA 1405 AND instrumentalities
RELATED LAWS by any
person,
government
1)What is the official, bureau
purpose of the or
law? office40; and
(b) The
disclosure
LAW
by any matter of
official or litigation42;
employee e) Upon order of
of any the court or
banking subpoena issued
institution by the Ombudsman
to any in cases
unauthorized of unexplained
person wealth43; This is
of any information subject to the
concerning said deposits. following requisites:
creditor-debtor (1) only an in-
relationship is created camera inspection is
between the allowed (2)
bank and the client.41 there must be a
pending case
The law does before a court
not apply of competent
to money market jurisdiction (3) account
placements as is clearly
they are not identified (4)
deposits, rather, examination is limited
they are trades to account
in short term subject of the
negotiable court case, and
instruments such (5) bank
as securities or personnel and the
treasury bills. account holder
must be notified to
3)What disclosures be present
or inquiries into during the inspection.
deposits are not f) Upon order of
prohibited? the Commissioner
of Internal Revenue
a) Upon written in respect of
permission of the the bank deposits
depositor; of a
b) In cases of decedent for the
impeachment; purpose of
determining such
c) Upon order of a
decedents gross
competent court
estate44;
in cases
g) Upon order of
of bribery or the Commissioner
dereliction of Internal Revenue
of duty of public when a
officials; taxpayer files an
d) In cases where application to
the money compromise his tax
deposited or invested liability by reason
is the subject of financial
incapacity45;
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h) Upon examination deposit or

made in the course investment maintained
of a special with any financial
or general institution upon
audit of a bank order of a
as authorized competent court,
by the Monetary in cases of
Board after being violation of the
satisfied that there Act, when there
is reasonable is probable
ground to believe cause that the deposit
that a bank or investment is
fraud or irregularity in any way
is being related to an unlawful
committed and it activity as
has become defined in the
necessary to look Act or a money
into the deposit to laundering offense
establish the under the
same; Act48;
i) Upon examination m) When a director,
of a banks officer, stockholder,
independent auditor, and related interest
the result of (DOSRI) obtains
which are for the a loan from
exclusive use of his bank or
the bank; its subsidiaries,
j) In case of or with related
suspicious transactions controlling interests
under the of more than
Anti-Money 5% of the capital
Laundering Law46; or surplus
of the bank, it
k) Under the Anti-Money shall constitute a
Laundering Law where waiver of
banks are secrecy of all
required to report his deposits of
to the Anti-- whatever nature in
Money Laundering Council all banks in
any transaction in the
cash or other Philippines; and
equivalent n) Under the Unclaimed
monetary instrument in Balances Law49.
excess of o) The examination
P500,000 in any of a bank
one day47; account under
l) Also under the Section 10, Rule
Money-Laundering Law, 57 in relation
the Anti-Money to the examination
Laundering Council of a party
may inquire into a whose property is
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attached and persons is disclosed, the

indebted to a same is considered
defendant or as purely
controlling his incidental to the
property.50 execution process51.
What is to
4)Who are primarily be disclosed only is
liable for violations the existence of
of the law? the deposit,
particularly whether or
The persons not it is
primarily liable sufficient to satisfy
for a violation the garnishment.
of the law would Hence, a
be a bank disclosure of the
employee or officer balance may
and the constitute a violation
person, government of the law.
officer,
agency or office 6)Is a depositor
looking into with a safety
the deposit when deposit box
not authorized protected by the
by any of the law?
exceptions to the
law. No, the deposits
Note also, made by a
that since depositor in a
investigations by the safety deposit box
Monetary Board are not the
and the Bureau deposits contemplated
of Internal by the law
Revenue are as the bank
confidential in nature, is never in
any disclosure possession or control
in violation of the
of the confidentiality contents of the
will create safety deposit box
liability. in this instance,
the depositor is
5)Will the garnishment merely leasing the
of a bank deposit box from
deposit violate the bank.
the law?
Prevailing jurisprudence
No, garnishment is that the
of a bank ensuing relationship
deposit will not between the bank
violate the law. renting out
If the existence the safety deposit
of the deposit box and the
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client with respect extends to

to the contents instances where
of the box is such property is
that of bailor-bailee, concealed by being
the bailment held by or
being for hire and recorded in the
mutual benefit. name of other
The bank would persons.
be liable
negligence or delay 8)In a case
or contravention where the money
of the tenor deposited or
of the invested is the
agreement.52 subject matter
of the litigation,
NOTE: Without order could an inquiry
of a court into the whereabouts
of competent of the amount
jurisdiction, disclose extend to
to any authorized the deposits held
person any information in the name
relative to the of persons other
funds or properties in that the one
the custody responsible?
of the bank
belonging to private Even in cases
individuals, not involving
corporations, or any prosecution under
other entity; Anti-Graft and Corrupt
Provided, that with Practices Act,
respect to bank an inquiry into
deposits, the the whereabouts of
provisions of existing the amount
laws shall prevail53. converted necessarily
extends to
whatever is
7)Would the examination of concealed, held or
the bank deposits recorded in the
of another name of persons
person in connection other than the one
with an inquiry responsible inasmuch
into illegally acquired as the case is
property of aimed at recovering
the defendant in the
anti-graft cases amount converted.
violate the law?
9)Are foreign
The permitted inquiry currency deposits
into illegally covered by the
acquired property law?
in anti-graft cases
LAW
While the law Upon conviction, a

does not cover violator may
foreign currency be sentenced to
deposits, they however imprisonment of not
are absolutely more than 5 years
confidential and cannot of a fine of
be disclosed not more than
pursuant to Republic P200,000.00, or both at
Act No. 6426, the discretion of
otherwise known the court.
as the Foreign
Currency Deposit
Act, the only INTELLECTUAL
exception to
disclosure being PROPERTY
upon the written CODE
consent of the R.A. No. 8293
depositor54.
INTELLECTUAL
An additional PROPERTIES
exemption has been
Those property rights
provided by
which result
the Anti Money
from the physical
Laundering Law when
manifestation of
it has been
an original
established that there
thought.
is probable
(Ballantines Law
cause that the deposits
involved are in Dictionary)
any way related
to the offense Purpose: to
of money strengthen the
laundering.55 intellectual and
industrial property
10) Will an system in the
unlawful Philippines as
examination of a mandated by the
bank account render countrys accession
to the Agreement
the information
establishing the World
obtained
Trade
inadmissible?
Organization (Mirpuri
vs. CA GR no
There is nothing
114508)
in the law
that provides that
an unlawful COVERAGE -intellectual
examination shall render property rights
the evidence consists of:
obtained therefrom to
be inadmissible. a) Copyrights and related
rights;
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b) Trademarks and service to any convention,

marks; treaty, or agreement
c) Geographic indications; relating to
d) Industrial designs; intellectual property
e) Patents; rights or the
f) Layout-designs repression of unfair
(Topographies) of competition to
Integrated which the Philippines
Circuits; and is also a party,
g) Protection of or b.)
Undisclosed Information. extends reciprocal
rights to nationals
of the Philippines
Section 7 of by law, shall be
Rep. Act No. 9502 entitled to
(Universally Accessible benefits to the
Cheaper and extent necessary to
Quality Medicines give effect to
Act of 2008) any provision of
amends Section such convention, treaty,
72 of the or reciprocal
Intellectual Property law, in addition
Code in that the to the rights
latter law unequivocally to which any
grants third owner of an
persons the right intellectual property
to import drugs right is otherwise
or medicines provided by law.
whose patent were (Sec. 3)
registered in
the Philippines by
the owner of REVERSE RECIPROCITY
the product (Roma OF FOREIGN
Drug vs. RTC LAWS ADMINISTRATIVE
of Guagaua, PENALTIES
Pampanga GR IMPOSED
No. 149907) FOR
VIOLATIONS OF
INTERNATIONAL LAWS INVOLVING
CONVENTION AND IPR a) Cease
RECIPROCITY and desist
order (CDO);
b) Acceptance of
-any person voluntary assurance
who is a compliance (VAC)
national or who or voluntary
is domiciled or assurance of
has a real and discontinuance
effective industrial (VAD);
establishment in a c) Condemnation or
country which seizure of
is: a.) a party
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products subject in the

of the offense; packaging or
d) Forfeiture of presentation of the
properties used in goods. The intent
the commission of to deceive and
the offense; defraud may be
e) Imposition of inferred from the
administrative fines; similarity of the
appearance of the
f) Cancellation of goods as offered
permit, for sale to the
license, public. Actual
authority or fraudulent intent
registration; need not be shown
g) Withholding of (In-N-Out Burger
permit, vs. Sehwani
license, GR No. 179127)
authority or
registration;
h) Assessment of LAW ON PATENTS
damages;
- Must be PATENT an
recovered within exclusive right
four (4) acquired over an
years from the invention, to sell,
time the cause use, and make
of action the same whether
arose for commerce or
(Sec. 226) industry(2005
i) Censure; 2006 bar exams)
j) Analogous penalties or
sanctions (Sec. PATENTABLE INVENTIONS
10.2 [b])
-any technical
ELEMENTS OF UNFAIR solution of a
COMPETITION problem in any
(1) confusing similarity in field of human
the general activity which
appearance of is (a.)NEW(NOVELTY),
the goods; and involves an
(b).INVENTIVE STEP
(2) intent to deceive
and is
the public
(c).INDUSTRIALLY
and defraud a
APPLICABLE shall
competitor.
be patentable.
The confusing
(Elidad Kho vs.
similarity may or
CA, March
may not result
19, 2002) The
from similarity in
patentable invention
the marks, but
may be, or may
may result from
relate to, a product,
other external factors
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or process, programs for

or an improvement computer;
of any of c) Methods for
the foregoing. (Sec. treatment of
21) the human
Novelty or animal
that which does body by
not form part of a surgery or
prior art. (Section therapy and
23) diagnostic
Prior Arts: methods practiced
a. those previously available on the
to the public human or animal
body;
b. that which d) Plant varieties
forms part or animal
of an breeds of
application provided essentially
that: biological
i. the inventors or process for the
applicants are production of
not the same ii. plants or
The contents of animals;
the application e) Aesthetic
are published creations;
in f) Anything which
accordance with is contrary to
the requirements public order
of or morality
-an invention that (Sec. 22)
can be produced
and used in RIGHT TO A PATENT
any industry. (Sec.
27) The right to a
patent belongs:
NON-PATENTABLE a) to the inventor,
INVENTIONS his heirs, or
a) Discoveries, assigns
Scientific b) when 2 or more
Theories persons have
and made the
Mathematical Methods; invention jointly
to them jointly
b) Schemes, rules
and methods c) if two (2) or
of performing more persons have
mental acts, made the
playing games invention separately
or doing and independently
business, and of each other
to the person
LAW
who filed an unless

application for such agreed
invention (FIRST otherwise.
TO Right to Priority
FILE RULE) -an application for
d) where 2 or more patent filed by any
applications are filed person who has
for the same previously applied
invention to for the same
the applicant who invention in
has the earliest another country
filing date or the which by treaty,
earliest priority convention, or law
date affords similar
(FIRST TO privileges to
FILE RULE) Filipino citizens,
(Sec. 29) shall be considered
e) In case of as filed as of
inventions created the date of filing
pursuant to a the foreign
commission to application
the person who
commissions the work Requisites:
UNLESS agreed
(a) The local
otherwise.
application
f) If made by
expressly claims
an employee, the priority; (b) It
patent shall belong is filed within
to: twelve (12)
the employee months from the
if date the
invention not earliest foreign
part of application was
his regular filed; (c)
duties even A certified copy
if he of the
uses the foreign application
time, together with an
facilities and English translation
materials of is filed within
the employer; b. to restrain,
OR prevent or
The prohibit
employer any unauthorized
if the person or
invention is entity from using
the result the process, and
of the from manufacturing,
performance dealing in, using
of his or offering
regularly for sale, or
assigned duties importing any product
obtained directly
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or indirectly pattern for an

from a patented industrial product or
process; handicraft.
c. to assign, or
transfer by CANCELLATION OF
succession the patent, PATENTS
1. Who may file?
and to conclude any person
licensing IPO motu proprio
contracts for the 2. Grounds
same a) That the patent is
invalid (Sec.
UNITY OF INVENTION 81);
b) If the invention is
-every application not new or
for patent patentable;
registration must contain c) Unclear and
an application incomplete application;
over a single
invention or several d) Contrary to public
inventions but order or
must form part morality. Failure to
of a single make
general inventive payments of annual
concept fees or dues
3. Where to file?
Utility Models BLA if in
-models of violation of IPC
implement (administrative)
or tools RTC otherwise
of any
industrial product INFRINGEMENT
even if not -the making,
possessed of the using, offering for
quality of invention sale, selling or
but which is of
importing a
practical utility
patented product
or a product
obtained directly
Industrial Design
or indirectly from a
-any composition
patented process
of lines or
or the use of
colors or any three-
a patented
dimensional form,
process without
whether or not
the authorization of
associated with lines or
colors provided
the patentee. (Sec.
that such
76)
composition or form
gives a special
Test of Patent
appearance to and
Infringement
can serve as
LAW
1) Literal Infringement the contrary.

resort (Sec.178.4)
is had to the
words of the While the Rome
claim. Convention gives
2) Doctrine of broadcasting organizations
Equivalents if the right
two devices do to authorize or
the same work prohibit the
in substantially rebroadcasting of
the same its broadcast,
way and produce however, this
substantially the same protection does
result, they not extend to
are the same cable retransmission
even though they (ABS-CBN vs. PMSI
differ in name, GR Nos. 175769-70)
form, or shape.
-within 3 years LAW ON

from date of TRADEMARKS
commission of
the crime for Trademark
repetition of anything which
infringement, without is adopted and
used to identify
prejudice to the the source of
right for origin of goods,
damages. (Sec. 84) and which is
capable of
1995 & 2004 distinguishing them from
BAR goods emanating
Q - X from a competitor
Corporation commissioned -any word,
W to paint name symbol or
the Mayon Volcano devise adopted and
on the lobby used by a
of the new manufacturer or
building of X merchant to
Corp. for a price of identify his goods
P1M. Who owns
and distinguish
the painting? Who
them from those
owns the copyright of
manufactured and sold
the painting?
by other
A - X
Corporation owns the (Society des
Products
painting but the
copyright belongs Nestle vs. CA April
to W unless 4, 2001)
there is a written
stipulation to Service Mark
distinguishes
LAW
the services of combinations, texture,

an enterprise from and/or graphics.
the service of
other enterprises. HOW MARKS ARE
ACQUIRED
Collective Mark
any visible -Under
sign designated as RA 8293, the
such in the rights in a mark
application for shall be
registration and acquired through
capable of registration made
distinguishing the origin validly in accordance
or any other with its provisions.
common (Sec. 122)
characteristic,
including the -when
quality of goods a person has
and services of identified in the
different enterprises mind of the public
which use the sign the goods
under the control he manufactures
of the registered or deals in
owner of the his business or
collective mark (Sec. services from those
121.2) of others,
such a services
Trade Name which are identical
the person or similar to
(whether natural those in respect
or juridical) who of which the
does business and trademark is
produces the goods registered where
or the services such use would
is designated result in a
by a trade likelihood of
name. -there is confusion.
no need to register
(Sec. 147)
trade names
in order to
NON-REGISTRABLE
secure protection for TRADEMARKS, TRADE
them. NAMES
AND SERVICE MARK
Trade Dress involves
the total image a) Immoral, deceptive
of a product, or scandalous matter,
including such or matter
features as which may disparage
size, shape, color or falsely suggest
or color a connection
with persons, living
LAW
or dead, deceive or cause

institutions, beliefs, or confusion;
national symbols, e) Be identical with or
or bring them confusingly similar
into contempt or to an
disrepute; internationally well-
b) The flag or coat known mark, whether
of arms or or not
other insignia of registered in the
the Philippines or Philippines, provided
its political that:
subdivisions, or of i. If the
any foreign nation, internationally well-
or any known mark
simulation thereof; is not registered
c) A name, portrait in the
or signature Philippines,
identifying a the application
particular living for registration
individual except of the mark
by his written can be rejected
consent, or the only if the
name, signature, or goods or services
portrait of a specified in
deceased President of the application
the Philippines, are similar
during the life of to those
his widow, if of the
any, except by internationally well-
written consent of known mark; ii.
the window; If the
d) Is identical internationally well-
with a known mark
registered is registered in
mark belonging to the Philippines,
a different the application
proprietor or a for registration
mark with an earlier
of the mark
filing or priority
can be refused
date, in respect
of: even if the
(i) The same goods goods or services
or services, or specified in
the application
(ii)Closely related are not
goods or services, or identical or similar
to those
(iii) If it nearly of the
resembles such a internationally well-
mark as to known mark.
be likely to
LAW
f) Is likely
to mislead - any person
thepublic; who believes
g) Generic signs for that he is
goods or services; and will be
h) Customary in damaged by
everyday the registration of
language or a mark
in 2. Where to file?
established trade - BLA
practice; 3. Grounds:
i) Designate the kind, a) Mark becomes generic
quality, quantity, for goods
intended purpose, for which it is
value, geographical registered;
origin, time or b) Abandonment of the
production of the mark;
goods or services; c) Registration obtained
j) Shapes necessitated fraudulently
by technical or contrary to
factors; provisions of
k) Color alone, unless RA 8293;
defined by a d) Mark used by,
given form; or with permission
or of, registrant;
l) Is contrary to e) Non-use within
public order or the Philippines for 3
morality uninterrupted
years or longer.
FILING DATE -may be
OF AN APPLICATION excused
if
-The filing date of caused
an application by
shall be the date circumstances
on which the arising
office received the
following indications independently
and elements in of
English or Filipino: the will
of the
NO filing trademark
date shall be owner, such
accorded until as
the required military
fee is paid coup, or
(Sec. 127.2) political
changes
CANCELLATION OF that impede
TRADEMARK OR
TRADENAME commerce
1. Who may file?
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DOCTRINE OF connection with

SECONDARY MEANING which such
- When a use is likely
mark has become to cause
distinctive of confusion,
the applicants goods or to cause
in commerce mistake,
and, in the mind of or to
the public, deceive; or
indicates a single
source of
consumers, it may
be registered.
WHAT CONSTITUTES
AN INFRINGEMENT
-Under RA
8293, any person
shall, without the
consent of the
owner of the
registered mark:
1) Use in
commerce any
reproduction,
counterfeit, copy,
or
colorable
imitation of
a registered
mark or the
same container
or a
dominant
feature
thereof in
connection with
the sale,
offering for
sale, distribution,
advertising
any goods
or services
including other
preparatory
steps necessary
to carry
out the sale
of any goods
or
services on
or in
LAW
2) Reproduce, the cause of

counterfeit, copy action is the
or unauthorized use of a
colorably imitate registered
a trademark; in unfair
registered mark competition, it
or a is the passing
dominant feature off of ones
thereof goods as
and apply those of another
such reproduction, merchant.
counterfeit, 2) Fraudulent intent
copy, or is not necessary
colorable in infringement,
imitation to but necessary in
labels, signs, UC.
prints, packages, 3) Registration of
wrappers, trademarks: in
receptacles, or infringement, it
advertisements is a pre-
intended to requisite; in UC, it
be used in is not required.
commerce upon
or in 4) Class of goods
connection with involved: in
the sale, infringement, the goods
offering for must be of
sale, distribution, similar class; in
or UC, the goods
need not be of
advertising of
the same class.
goods or
services on,
infringement
or in
is a
connection with
form
which such
of
use is likely
unfair
to cause
competition
confusion,
or to cause
REMEDIES AVAILABLE
mistake,
IN CASE OF
or to
INFRINGEMENT
deceive, shall
be liable OF A REGISTERED
for infringement. MARK
(Sec. a) Sue for damages
155) (Sec. 156.1);
DIFFERENTIATED b) Have the infringing
FROM UNFAIR goods impounded
COMPETITION (Sec. 156.2);
1) Cause of action:
in infringement,
LAW
c) Ask for double belief that ones

damages (Sec. 156.3) goods are those of
another;
d) Ask for injunction c) False statements in
(156.4) the course of
e) Have the infringing trade; or
goods disposed of d) Any act contrary
outside the to good faith
channels of calculated to discredit
commerce (Sec. anothers goods
157.1)
f) Have the infringing
goods destroyed (Sec. TEST OF UNFAIR
157.1) COMPETITION
g) File criminal action -The test is
(Sec. 170); whether certain
h) Administrative goods have been clothed
Sanctions with an
appearance likely
UNFAIR COMPETITION to deceive the
ordinary purchaser
-any person exercising ordinary
care.
who shall employ
deception or any
other means contrary REMEDIES IN CASE
to good OF UNFAIR
faith by which COMPETITION
he shall pass off a.) Damages which
the goods may either
manufactured by him be:
or in which reasonable profit
he deals, or which would have
his business, or been
services for those realized, or
of the one d.) Injunction
having established such e.) Destruction of
goodwill, or who goods found
shall commit any to be
acts calculated to infringing, and
produce said result, all paraphernalia.
shall be guilty
of unfair While the Constitution
competition. does not
How Committed encourage the
a) Making ones unlimited entry
goods appear as of foreign goods,
the goods of services and
another; investments into the
b) Use of artifice country, it does
or device to not prohibit them
induce the false either. In fact,
LAW
it allows an ideas(2004,2006,2007,200
exchange on the 9 bar exams)
basis of equality Works are
and reciprocity, protected by
frowning only on the sole fact
foreign competition of their
that is unfair. creation, irrespective
of their
GATT itself has
mode or form
provided built-in
of expression,
protection from unfair
as well as
foreign
their content,
competition and trade
quality or
practices
purpose (Sec. 172.2)
including anti-
dumping measures,
Protection
countervailing
extends only to
measures and
the expression
safeguards against
of the idea,
import surges.
not to the
Where local
idea itself or
businesses are
to any
jeopardized by unfair
procedure,
foreign
system, method
competition, the
or operation,
Philippines can avail
concept or
of these
principle,
measures. There
discovery or
is hardly
mere data.
therefore any basis
The copyright
for the
is distinct from
statement that under
property in the
the WTO,
material object
local industries and
subject to it.
enterprises will all
Copyright, in
be wiped out
the strict sense,
and that Filipinos
is purely
will be deprived
statutory right.
of control of
Being mere
the economy
statutory right,
(Taada vs.
it is limited
Angara GR No. 118295)
to what the
statute confers.
LAW ON COPYRIGHT It may be
obtained and
enjoyed only with
COPYRIGHT respect to the
system of legal subjects and by
protection an the persons,
author enjoys in and on terms
the form of and conditions
expression of
LAW
specified in the a) Books, pamphlets, articles

statute. Accordingly, and other
it can cover writings
only works b) Periodicals and
falling within newspapers
the statutory c) Lectures, sermons,
enumeration or addresses, dissertations
description (Pearl prepared for
& Dean oral delivery, whether
Vs Shoemart or not reduced
GR 148222 in writing or
August 15, 2003). other material
form
d) Letters
CREATION OF A e) Dramatic or
WORK dramatico-musical
A copyright work compositions; choreographic
is created works or
when the two (2) entertainment in
requirements are dumb shows
met: f) Musical compositions,
1) Originality with or without
does not mean words
novelty or g) Works of drawing,
ingenuity, neither painting, architecture,
uniqueness nor sculpture,
creativity. It simply engraving, lithography
means that or other works
the work owes of art; models
its origin to or designs
the author for works of
2) Expression art
there must be h) Original ornamental
fixation. To be designs or models
fixed, a work for articles
must be of manufacture,
embodied in a whether or not
medium sufficiently registrable as an
permanent or industrial design,
stable, to permit and other works
it to be of applied
perceived, reproduced, art.
or otherwise i) Illustrations, maps,
communicated for plans, sketches, charts
a period of and three-
more than dimensional works
A. Original Work relative to
- Literary geography, topography,
and artistic works architecture
which include or science
in particular:
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j) Drawings or plastic or mere data as

works of a such, even if
scientific or expressed, explained,
technical character illustrated, or
k) Photographic works embodied in a
including works work;
produced by a 2) News of the day
process analogous and mere items
to photography; of press
lantern slides information;
l) Audiovisual works 3) Any official text of
and cinematographic a legislative,
or any process administrative or
for making audio- legal nature, as
visual recordings well as any official
m) Pictorial illustrations translation thereof.
and advertisements (Sec. 175)
n) Computer programs 4) Any work of
o) Other literary, the
scholarly, scientific Government of
and artistic works the
(Sec. 172) Philippines. (Sec.
176)
B. Derivative Works -this
pertains to
a) Dramatizations, the original
translations, adaptations, decisions not
abridgments, to the SCRA
arrangements, and published
other alterations of in volumes
literary works since these
b) Collections of literary, are protected
scholarly or under
artistic works, and derivative works.
compilations of data
and other
materials which RIGHTS OF AN
are original by AUTHOR
reason of the selection A. Economic Rights
or coordination (Sec. 177)
or arrangement -exclusive right
of their to carry
contents. (Sec. 173) out,
authorize or
WORKS NOT prevent the
PROTECTED following acts
1) Any idea, 1. Reproduction of the
procedure, system, work or substantial
method or portion of the
operation, concept, work
principle, discovery
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2. Dramatization, prejudicial to his

translation, adaptation, honor or reputation;
abridgement, arrangement and
or other 4) Right not to be
transformation of identified with work of
the work; others or
3. The first public with distorted work.
distribution of the
original and each Term
copy of of moral right
the work by -lifetime of
sale or other the author
forms of transfer of and 50 years
ownership; after his
4. Rental of the original death
or a copy Waiver
of an of moral
audiovisual or right
cinematographic work; 1) by a written
instrument (Sec. 195)
5. Public display of 2) by contribution
the original or to a collective
copy of the work; work unless
expressly reserved
6. Public performance of (Sec. 196)
the work;
and PRINCIPLE OF
7. Other communication AUTOMATIC PROTECTION
to the public
Under the Berne
of the work
Convention,
the enjoyment and
B. Moral Rights
exercise of
(Sec. 193)
copyright, including
1) Right to require
moral rights, shall
that the authorship
not be the subject
of the works
of any
be attributed to
formality.
him,;
2) Right of alteration or
non-publication OWNERSHIP OF
COPYRIGHT
3) Right to preservation
of integrity to 1. Single creator the
object to author of the work,
any distortion, his heirs or
mutilation or other assigns.
modification of, or
other
derogatory action in
relation to,
his work which
would be
LAW
2. Joint creation the by two or

co-authors jointly more persons
as co-owners. But if at the
the work consists initiative and
of identifiable under the direction
parts, the author of another
of each part with the
owns the part that understanding
he has created. that it will
3. Employees creation be disclosed
the employee if by the latter
the creation is under
not part of his his own name
regular duties and that
even other the contributions
purposes, the of natural
producer, the author persons
of the scenario, will not be
the composer, identified. (Sec.
the film director, 171.2)
the author of
8. In case of
the work are the
transfers, the
creators.
transferee shall own
6. Anonymous and
pseudonymous one or more
works the or all the
publishers shall economic rights
be deemed transferred provided:
the representative a. The assignment, if
of the inter vivos,
author unless: be in writing
a. the contrary
appears b. The assignment
b. the pseudonyms be filed with the
or adopted National Library
name leaves no upon payment of
doubt as to the the prescribed fee.
authors identity or
c.If the author LIMITATIONS TO

discloses his identity THE RIGHTS ON
COPYRIGHT
7. Collective works 1) Private
the contributor is performance, private
deemed to and personal
have waived his use applicable
right unless he only when a
expressly reserves it. work has been
(Sec. 196) lawfully made
Collective Work accessible to the
a public.
work created Personal Use
LAW
-making a with interests of

single reproduction, the public and of
adaptation, society.
arrangement or
other transformation CRITERIA TO
of anothers DETERMINE WHETHER
work exclusively USE IS FAIR
for ones own OR NOT
individual use Private a) Purpose and the
Use character of the
-making a use
reproduction, b) Nature of the
adaptation or other copyrighted work
transformation c) Amount and
of it, in a substantially of the
single person portions used
as in the case d) Effect of the use
of personal use upon the potential
but also for a market of the
common purpose copyrighted work (Sec.
by a specific 185)
circle of persons
only. -include the
right to
2) Fair Use of a control the
Copyrighted erection of
Work any building
Fair Use - a which reproduces
privilege in the whole
persons other or a
than the owner substantial part
of the of the work
copyright to use either
the copyrighted material in its
in a original or
reasonable manner in any form
without its consent, recognizably
notwithstanding derived
the monopoly granted from the
to original;
the owner by Provided, that
the copyright. the copyright
-the doctrine in any such
of fair use work shall not
is meant to include the
balance the right to control
monopolies enjoyed the
by the copyright reconstruction,
owner or rehabilitation
in the
same style as
LAW
the original use to

of a which the
building to program is
which that made and
copyright relates for which
it was
purchased
demand the
4) Reproduction of reproduction
Published Work of a copy;
or
- the reproduction
exclusively for of a
research and copy is
private study. necessary to
guarantee
against loss
5) Reprographic or destruction
Reproduction by (Sec. 189.1)
Libraries
-any library
or archive 7) Importation for
whose activities Personal Purposes
are not for Requisites:
profit may, a) Copies
without the of the work
authorization of are not
the author available in the
of copyright Philippines and:
owner, make i. not
a single more than one copy
copy of the at one time
work by is
reprographic imported for
reproduction. strict individual
use; ii.
6) Reproduction of importation is
Computer Programs by authority
-allowed on the ff. and for the
conditions: use
a) only one copy is of Philippine
made; Government; or
b)lawful owner iii. religious,
made charitable, or
the copy; educational
c)purpose of society imported
which the not more
reproduction is than 3 copies
made is legal per title
like: provided they are
not for sale.
LAW
b) Copies form other persons, the

part of use is illegal
libraries and regardless of whether
personal or not their
baggage distinctive name,
belonging to mark or design
persons or is partly or
families entirely erased
arriving from therefrom.
foreign countries (Destileria Ayala,
and are not Inc. vs. Tan Tay
intended for & Co. GR No. l--
sale: Provided, 48793)
that such
copies do not A.M. No. 04-7-06-SC
exceed three
(3). (Sec. 190) RE: CONDITIONS
ON THE COMMERCIAL
REMEDIES IN CASE
OF EXPLOITATION .OF
INFRINGEMENT SUPREME COURT
1) Injunction to prevent DECISIONS
infringement RESOLUTION
2) Damages assessed a. The person
on the basis compiling and selling
of the proof the decisions
alleged by the shall provide the
plaintiff of sales Supreme Court
made by Library twenty (20)
the defendant of free copies of
the infringing work the compiled decisions
minus in the format
whatever costs the the compilation is
defendant may be sold to the
able to prove public;
and appreciated by b. If the compilation
the court. is in printed
3) Delivery under copies, the Supreme
oath of Court Library shall
all have the right to
implements digitize the
compilation for
If the
exclusive use for
containers originally
research purposes
conformed to the
by Justices, Judges
description contained
and court
in the certificate
attorneys of the
of registration and it
Judiciary;
appears that
they are the same c. If the compilation
containers being is in digitized
used by the format, the Supreme
Court Library
LAW
shall have Such copies shall

the right to be used exclusively
make available the by Justices, Judges
digitized compilation and court
for exclusive use attorneys of the
for research Judiciary and shall
purposes by Justices, not be re-sold
Judges and by the Court;
court attorneys of e. The compilation shall
the Judiciary. bear the notice
The person Compiled for sale
compiling shall submit to the public
to the with the permission
Supreme Court of the
Library a text-file Supreme Court;
digitized copy of f. These conditions apply
the compilation; to any
d. The Court shall updating of the
have the right to compilation.
purchase copies of
the compilation at
cost, that is,
by paying only
the cost of
reproducing the
compilation, the cost
of installation, and
the cost of any
accompanying software
license.
*******************************************************************
THE BARRISTERS CLUB

OFFICERS:
Virgel Amor Vallejos
(Chancellor)
Seychelles June M. Doringo
(Secretary)
Janilet Mishelle R. Carillo
(Treasurer)
Art Miguel B. Sanlao and
Angelito Velasquez Jr.
(Business Managers)
Rachelle May Gallego
Atty. Reynaldo U. Agranzamendez
(PRO
)
Paul Dean Mark Pila
(SSG Representative
)
Brenda Filipinas Danganan
(Ex
-officio)
Atty. Isagani Calderon
(Adviser
)
(Dean,College of Law)

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UNIVERSITY OF THE CORDILLERAS BAR OPERATIONS

*For a Promissory sign the

a. Drawer one acceptance or

- Prepared by: ATTY.

Inc. vs. Soriano, 39 SCRA

Factors that affect the determination of

from hand to depend on a

De-escalation Clause at sight or

a. Where it is instruments. These

4. Fraud in factum or he has apparent

was issued. As to a holder

b. It must be instrument non-negotiable

2. Where Incomplete and

signed before negotiable

signed but not - the words

Indicate Capacity in had the right to

authorized to indorsee acquires

b. No right to give a CA)

presumed to know the charged by the

Every negotiable liquidated amount

from the accommodation he executed the

Accommodation Party *An accommodation

A corporation cannot *An accommodation

by the accommodation of some other

Rizal v. 2. May be converted to

that it had been If one of the

themselves (personal/ sue

DEFENSES OF PRIOR it, to

instrument by a. Engages to pay

circumstances between Notes

charge the drawer can be sued directly.

Notes 2.Presentment not required

need to make payment and

NOTICE OF have a right of

b. After the omission to A negotiable

d. Tender of payment 2. Where it

discharge by novation negotiable instrument.

7.Any other change or his assent to

Instances where a a. Require that

TIME non-accepted to the

elsewhere than the bill may be

made to him alone; acceptance has been

(b.) Where the When bill is

Rights of holder 2. Bonds

9. Registered Bonds; hand to

will be discharged the intervention of

thereof to the stop payment order

unit. (Philippine quo warranto

a. public by State 2. A bona fide

corporation knowing it management. It is

the board established or where

of the corporation (Stonehill vs. Diokno,

the defendant to subscription

2. Minimum Capital i. COMMON

class of stock c. or both, and other

are shares paid and non

contract Tiu, April 06, 2003)

Valid stockholders and the

than 5 nor more contributed by each;

Grounds for between and among

or trustees, officers outstanding capital

carry out its if it

(decreasing) ii. Usually with first