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Commercial law
Prepared by:
ATTY. RENATO S. RONDEZ
NEGOTIABLE INSTRUMENTS LAW a. Maker – one who makes a promise and sign the
instrument
(Act No. 2031, June 2, 1911)
b. Payee – one to whom the promise is made or
the instrument is payable.
Written contracts for the payment of money; by
its form, intended as a substitute for money and intended
to pass from hand to hand, to give the holder in due FORMS OF PROMISSORY NOTE
course the right to hold the same and collect the sum due. 1. Due bill, an instrument whereby one person
acknowledges his indebtedness to another and
Negotiable instruments produce the effect of promises to pay a sum certain in money.
payment only when they have been encashed or through 2. Bonds, which are in the nature of PN.
the fault of the creditor have been impaired. (Article 3. Certificate of Deposit issued by banks payable to
1249, NCC) depositor or his order, or to bearer
the instrument was presented within a 16. Ultra vires acts of corporations where the
reasonable time from issue in the case of corporation has the power to issue
notes or from last negotiation in the case of negotiable paper but the issuance was not
bills, as these factors will show whether the authorized for the particular purpose for
last holder is a holder in due course or not; which it was issued.
and
b. when the instrument is an interest-bearing
one, to determine when the interest starts INSERTION OF DATE (Sec.13)
to run.
3. Antedating or postdating an instrument does not Rule: If there is a date and it is changed, apply Sec.124 on
affect validity or negotiability, unless done for an ALTERATION OF AN INSTRUMENT.
illegal or fraudulent purpose.
The date may be inserted in an instrument when:
REAL DEFENSES – Those that attach to the instrument a. An instrument expressed to be payable at a fixed
itself and are available against all holders, whether in due period after date is issued undated
course or not. b. Where acceptance of an instrument payable at a
(WAD FIMMU WIFE) fixed period after sight is undated (Sec. 13 NIL)
1. Want of delivery of incomplete instrument;
2. Alteration; Effects:
3. Duress amounting to forgery; - Any holder may insert the true date of issuance
4. Fraud in factum or fraud in esse contractus; or acceptance
5. Insanity where the insane person has a - The insertion of a wrong date does not avoid the
guardian appointed by the court; instrument in the hands of a subsequent holder
6. Minority; in due course
7. Marriage in the case of a wife; - As to the holder in due course, the date inserted
8. Ultra vires acts of a corporation; where the (even if it be the wrong date) is regarded as the
corporation is absolutely prohibited by its true date.
charter or statute from issuing any
commercial paper under any circumstances; As to a holder in due course- the date inserted is the true
9. Want of authority of agent; date.
10. Illegality of contract where it is the contract
or instrument itself which is expressly made Subsequent Holder in Due Course not affected by the
illegal by statute; following deficiencies:
11. Forgery; a. Incomplete but delivered instrument (Sec. 14)
12. Execution of instrument between public
b. Complete but undelivered (Sec. 16)
enemies
c. Complete and delivered issued without
PERSONAL DEFENSES/ EQUITABLE DEFENSES – Those consideration or a consideration consisting of a
which are available only against a person not a holder in promise which was not fulfilled (Sec 28)
due course or a subsequent holder who stands in privity
with him. (W2A4F2I4N2MU) Holder in Due Course Affected by
1. Want of delivery of complete instrument; Abnormality/Deficiency:
2. Want of authority of agent where he has a. Incomplete and undelivered instrument (Sec. 15)
apparent authority. b. Maker/drawer’s signature forged (Sec. 23)
3. Absence or failure of consideration, partial
or total; Incomplete but Delivered Instrument: (Sec.14)
4. Acquisition of the instrument by force, (2004 & 2005 Bar Exam)
duress or fear;
5. Acquisition of the instrument by unlawful 1. Where an instrument is wanting in any material
means; particular:
6. Acquisition of the instrument for an illegal
a. Holder has prima facie authority to fill up the
consideration;
blanks therein.
7. Filling up of blank contrary to authority
given or not within reasonable time, where b. It must be filled up strictly in accordance with
the instrument is delivered; the authority given and within a reasonable
8. Fraud in inducement; time.
9. Insertion of wrong date in an instrument, c. If negotiated to a holder in due course, it is valid
where it is payable at a fixed period after and effectual for all purpose as though it was
date and it is issued undated or where it is filled up strictly in accordance with the authority
payable at a fixed period after sight and the given and within reasonable time. (Sec. 14 NIL)
acceptance is undated;
10. Intoxication; 2. Where only a signature on a blank paper was
11. Insanity where there is no notice of insanity delivered:
on the part of the one contracting with the a. It was delivered by the person making it in order
insane person; that it may be converted into a negotiable
12. Illegality of contract where the form or instrument
consideration is illegal; b. The holder has prima facie authority to fill it up
13. Negotiation in breach of faith; as such for any amount. (Sec. 14 NIL)
14. Negotiation under circumstances that
amount to fraud;
15. Mistake;
REASON: The law does not make any distinction between 4. Interest provided for, but No starting Date was
a HDC and one who is not a HDC. specified
- starting date is the date of the instrument, in
the absence of said date, from date of issue
Notes on Section 15 5. Instrument Ambiguous
It is a real defense. It can be interposed against a - if the instrument is ambiguous such that there
holder in due course. is doubt whether it is a bill or note, the holder
Where an INCOMLETE and UNDELIVERED may treat it as a note or a bill at his option.
instrument is in the hands of a HDC, there is 6. Signature on Instrument does not Indicate Capacity
PRIMA FACIE PRESUMPTION of delivery. in Which Made
Defense of the maker is to prove non-delivery of the - Where it cannot be determined in what
incomplete instrument. capacity a person affixed his signature to a
negotiable instrument, he is deemed to have
Complete but Undelivered: (Sec.16) signed as an indorser. As indorser, his liability
General Rule: Every contract on a negotiable under the instrument is secondary, meaning that
instrument is incomplete and revocable until if the party primarily liable cannot pay, the
delivery for the purpose of giving effect thereto. . indorser can be made to pay by the holder of the
a. If between immediate parties and remote parties not instrument.
holder in due course, to be effectual there must be 7. Where Promissory Note worded “Promise to Pay” is
authorized delivery by the party making, drawing, signed by two (2) makers
accepting or indorsing. Delivery may be shown to be - Under Section 17 (g) of the NIL and Article
conditional or for a special purpose only 1216 of the Civil Code, where the promissory
b. If the holder is a holder in due course, all prior note was executed jointly and severally by two
deliveries conclusively presumed valid or more persons, the payee of the promissory
note had the right to hold any one of the two (2)
c. If instrument not in hands of drawer/maker, valid
signers of the promissory note responsible for
and intentional delivery is presumed until the
the payment of the whole amount of the note.
contrary is proven (Sec. 16 NIL)
(Philippine National Bank vs. Concepcion
Milling Co., 5 SCRA 745).
Rules on delivery of negotiable instruments:
RULE ON SIGNATURES
1) Delivery is essential to the validity of any negotiable
instrument General Rule: A person whose signature does not
2) As between immediate parties or those is like cases, appear on the instrument in not liable.
delivery must be with intention of passing title
3) An instrument signed but not completed by the Exception:
drawer or maker and retained by him is invalid as to a. One who signs in a trade or assumed name (Sec.
18)
b. A duly authorized agent (Sec. 19) instrument, he cannot be held liable thereon by anyone.
c. A forger (Sec. 23) (Gempsaw v. CA 218 SCRA 682)
Notes on Section 20 Exception: When the prior parties are precluded from
General rule: An agent is not liable on the instrument if setting up the defense of forgery either because of their
he were duly authorized to sign for or on behalf warranties, representation or negligence. (Gempsaw v.
of a principal. CA)
If an agent does not disclose his principal, the agent Persons PRECLUDED from setting up the defense of
is personally liable on the instrument. forgery:
1. Those who admit/warrant the genuineness of the
Per Procuration - operates as notice that the agent has a signature in question: indorsers, persons negotiating by
limited authority to sign. delivery and acceptors;
2. Those who by their acts, silence, or negligence, are
Effects: estopped from claiming forgery;
- The principal in only bound if the agent acted 3. Holder of a bearer instrument
within the limits of the authority given —Forged signature is not necessary to
- The person who takes the instrument is bound the title of the holder.
to inquire into the extent and nature of the
authority given. (Sec. 21 NIL) Notes on Section 23
Section 23 applies only to forged signatures or
General rule: Infants and corporations incur no liability signatures made without authority
by their indorsement or assignment of an Alterations such as to amounts or like fall under
instrument. (Sec. 22 NIL) section 124
Forms of forgery are a) fraud in factum b) duress
Effects: amounting to fraud c) fraudulent impersonation
- No liability attached to the infant or the Only the signature forged or made without authority
corporation is inoperative, the instrument or other signatures
- The instrument is still valid and the indorsee which are genuine are affected
acquires title The instrument can be enforced by holders to whose
title the forged signature is not necessary
FORGERY drawee bank is conclusively presumed to know the
signature of its drawer
A. Maker’s Signature if endorser’s signature is forged, loss will be borne by
(1989 BEQ) the forger and parties subsequent thereto
B. Drawer’s Signature drawee bank is not conclusively presumed to know
(2004,2006&2009 BEQ) the signature of the indorser. The responsibility falls
C. Payee’s Signature on the bank which last guaranteed the indorsement
( 2008 BEQ) and not the drawee bank.
D. Indorser’s Signature Where the payee’s signature is forged, payments
(2008 BEQ) made by the drawee bank to collecting bank is
ineffective. No debtor/creditor relationship is
General rule: A signature, which is forged or made created. An agency to collect is created between the
without authority is wholly inoperative. (Sec. person depositing and the collecting bank. Drawee
23) bank may recover from collecting bank who may in
Effects: turn recover from the person depositing.
a. No right to retain
b. No right to give a discharge Rules on liabilities of parties on a forged instrument:
c. No right to enforce payment can be acquired.
In a PN
Exception: - A party whose indorsement is forged on a note
- The party against whom it is sought to be payable to order and all parties prior to him
enforced is precluded from setting up the including the maker cannot be held liable by any
forgery or want of authority. (Sec.23) holder
- A party whose indorsement is forged on a note
Forgery refers to both a signature which has been forged originally payable to bearer and all parties prior
or made without authority. Thus, Section 23 is not limited to him including the maker may be held liable by
to counterfeit signatures since it also applies to genuine a holder in due course provided that it was
ones. mechanically complete before the forgery
- A maker whose signature was forged cannot be
* A person whose signature is forged as maker, drawer, held liable by any holder
payee or indorsee of a note or check was never a party to
the instrument. Since his signature does not appear in the
Limitations of warranties:
- If by delivery – extends only to immediate Notes on Section 70
transferee Presentation for payment – production of a BOE to the
- Warranty of capacity to contract does not apply to drawee for his acceptance, or to a drawee or acceptor
persons negotiating public or corporate for payment. Also presentment of a PN to the party
securities (Sec. 65 NIL) liable for payment of the same.
The signification by the drawee of his assent to the order - Where a qualified acceptance is taken –
of the drawer. It is an act by which a person on whom the THE DRAWER and INDORSERS are
Bill of Exchange is drawn assents to the request of the discharged from liability on the bill
drawer to pay it. unless they have expressly or impliedly
authorized the holder to take qualified
As a general rule, acceptance, in order to be valid must acceptance or subsequently assents
be: thereto.
1. Written;
2. Signed by the drawee; and * When the drawer or indorser receives
3. Must contain an express or implied to pay in notice of qualified acceptance – he must –
money. within a REASONABLE TIME – express his
dissent to the holder or he will be deemed
A holder of a bill has the right: to have assented thereto.
a. Require that acceptance be written on the bill and
if refused, treat it as if dishonored (Sec. 133) Time for acceptance:
b. Refuse to accept a qualified acceptance and may The drawee is allowed twenty-four hours after
treat it as dishonored presentment in which to decide whether or not he will
accept the bill; the acceptance, if given, dates as of the day
Acceptance may be: of presentation.
a. Actual
b. Constructive
c. General (Sec. 140) Rules governing acceptance:
d. Qualified (Sec. 141)
IRON CLAD RULE – prohibits the countermanding of through the SEC. (Tayag vs. Benguet Consolidated, Inc.,
payment of certified checks. (Rep. v. PNB, Dec. 1, 26 SCRA 242)
1961)
2. Theory of corporate enterprise or economic unit –
*Note: The holder must be a holder in due course the corporation is not merely an artificial being, but
before the stop payment order may not be successfully more of an aggregation of persons doing business, or
invoked against him. (Mesina v. IAC, 146 SCRA 497, an underlying business unit. (Philippine Corporate
505) Law, Cesar Villanueva, 2001 ed.)
a. Stock corporation – a corporation (1) whose A corporation has a juridical personality separate
capital stock is divided into shares and (2) and distinct from that of its stockholders or
which is authorized to distribute to members.
shareholders’ dividends or allotments of the
Used for purposes of convenience and to subserve
surplus profits on the basis of the shares held.
the ends of justice.
(Sec. 3)
b. Non-stock corporation – does not issue stocks Consequences/significance:
nor distribute dividends to their members.
1. Liability for acts or contracts – obligations
incurred by a corporation, acting through its
6. AS TO RELATIONSHIP OF CONTROL AND
authorized agents are its sole liabilities.
MANAGEMENT
(Creese vs. CA, 93 SCRA 483)
a. Holding Corporation - it is one which controls
2. Right to bring actions – may bring civil and
another as a subsidiary by the power to elect
criminal actions in its own name in the same
management. It is one that holds stocks in
manner as natural persons. (Art. 46, Civil
other companies for purposes of control
Code)
rather than for mere investment.
3. Right to acquire and possess property –
b. Subsidiary Corporation - one which is so
property conveyed to or acquired by the
related to another corporation that the
corporation is in law the property of the
majority of its directors can be elected
corporation itself as a distinct legal entity and
directly or indirectly by such other
not that of the stockholders or members. (Art.
corporation. (The Corporation Code of the
44(3), Civil Code)
Philippines Annotated, Hector de Leon, 2002
4. Acquisition of court of jurisdiction – service of
ed.)
summons may be made on the president,
c. Affiliates - company which is subject to common general manager, corporate secretary,
control of a mother holding company and treasurer or in-house counsel. (Sec. 11, Rule
operated as part of the system. 14, Rules of Court).
d. Parent and Subsidiary Corporation - separate 5. Changes in individual membership – remains
entities with power to contract with each unchanged and unaffected in its identity by
other. The board of directors of the parent changes in its individual membership. (The
company determines its representatives to Corporation Code of the Philippines Annotated,
attend and vote in the stockholder’s meeting Hector de Leon, 2002 ed.)
of its subsidiary. The stockholders of the 6. Entitlement to constitutional guaranties:
parent company demand representation in a. Due process (Albert vs. University
the board meetings of its subsidiary. Publishing, 13 SCRA 84)
b. Equal protection of the law (Smith, Bell &
7. AS TO PLACE OF INCORPORATION Co. vs. Natividad, 40 Phil. 136)
a. Domestic corporation- a corporation formed, c. Protection against unreasonable searches
organized, or existing under Philippine laws. and seizures. (Stonehill vs. Diokno, 20
b. Foreign corporation – a corporation formed, SCRA 383)
organized, or existing under any laws other A corporation is not entitled to invoke the
than those of the Philippines. (Sec. 123) right against self-incrimination. (Bataan
Shipyard vs. PCGG)
C. NATIONALITY OF CORPORATION
7. Liability for torts – a corporation is liable
whenever a tortuous act is committed by an
Test to Determine Nationality of Corporations
officer or agent under the express direction or
1. INCORPORATION TEST – determined by the
authority of the stockholders or members
state of incorporation, regardless of the
acting as a body, or, generally, from the
nationality of the stockholders.
directors as the governing body. (PNB vs. CA,
2. DOMICILE TEST – determined by the state 83 SCRA 237)
where it is domiciled. The domicile of a
8. A corporation is not entitled to moral
corporation is the place fixed by the law
damages because it has no feelings, no
creating or recognizing it; in the absence
emotions, no senses. (ABS-CBN vs. Court of
thereof, it shall be understood to be the place
Appeals)
where its legal representation is established
or where it exercise its principal functions. 9. Liability for Crimes – since a corporation is a
(Art. 51, NCC) mere legal fiction, it cannot be held liable for a
3. CONTROL TEST – determined by the crime committed by its officers, since it does
nationality of the controlling stockholders or not have the essential element of malice; in
members. This test is applied in times of war. such case the responsible officers would be
Also known as the WARTIME TEST. criminally liable. (People vs. Tan Boon Kong,
54 Phil.607)
D. CORPORATE JURIDICAL PERSONALITY
II. Doctrine of Piercing the Corporate Veil
1. Doctrine of Piercing the Corporate Veil (2006
I. Doctrine of Separate Personality
Bar Examination)
Under the doctrine of “piercing the veil of
corporate entity”, the legal fiction that a
BAR OPERATIONS 2011 Page 18
GREEN NOTES IN COMMERCIAL LAW
Prepared by: ATTY. RENATO S. RONDEZ
h. Enter into management contract with another d. Executory contracts apparently authorized but
corporation (not with an individual or a ultra vires – the principle of estoppel shall apply.
partnership-within general powers) whereby
one corporation undertakes to manage all or ULTRA VIRES ACTS AND ILLEGAL ACTS
substantially all of the business of the other
Ultra vires (“beyond powers”) refers only to an act
corporation for a period not longer than 5
outside or beyond corporate powers, including those
years for any one term.
that may ostensibly be within such powers but are, by
general or special laws, either prohibited or declared
MANAGEMENT CONTRACT: is an agreement
illegal. It is in this context that the Code has used the
whereby a corporation undertakes to manage
term.
or operate all or substantially all of the
business of another corporation, whether such
contracts are called service contracts, ULTRA VIRES ACTS ILLEGAL ACTS
operating agreements or otherwise (Sec. 44) Not necessarily Unlawful; against law,
GENERAL RULE: There shall be no unlawful, but outside morals, public policy,
management contract with another the powers of the and public order
corporation unless: corporation
Majority of BOD Can be ratified Cannot be ratified
Stockholders owning majority shares in Can bind the parties if Cannot bind the parties
BOTH managing and managed corporation wholly or partly
EXCEPT where 2/3 votes needed :if a executed
stockholder/s in both managing and
managed corporation owns more than 1/3 TEST whether or not a corporation may perform
of outstanding voting capital stock of an act: consider the logical and necessary relation
managing corporation OR majority of BOD between the act questioned and the corporate purpose
in managing corporation is also majority of expressed by law or in the charter. If the act is lawful
BOD in managed corporation in itself and not prohibited, and is done for the
The management contract must not be purpose of serving corporate ends, and reasonably
longer than 5 years contributes to the promotion of those ends in a
substantial and not in a remote and fanciful sense.
i. ULTRA VIRES ACTS are acts which are beyond (Montelibano vs. Bacolod-Murcia Milling Co., Inc., 5
the conferred powers of a corporation or the SCRA 36)
purposes or objects for which it is created as
defined by the law of its organization. REMEDIES IN CASE OF ULTRA VIRES ACTS
(Republic vs. Acoje Mining Co., Inc. 7 SCRAS 1. State
361) a. Obtain a judgment of forfeiture; or
An act done by a corporation outside of the b. The SEC may suspend or revoke the certificate
express and implied powers vested in it by its of registration
charter and by the law. (Bar Review Materials 2. Stockholders
in Commercial Law, Jorge Miravite, 2002 ed.) a. Injunction; or
b. Derivative suit
Types: (Philippine Corporate Law, Cesar Villanueva,
2001 ed.) 3. Creditors
1. Acts done beyond the powers of the a. Nullification of contract in fraud of creditors
corporation as provided in the law or its
articles of incorporation; j. DOCTRINE OF INDIVIDUALITY OF SUBSCRIPTION
2. Acts or contracts entered into in behalf of a
corporation by persons who have no The subscription in shares of stock is one, entire,
corporate authority (Note: This is technically indivisible, and whole contract, which cannot be
ultra vires acts of officers and not of the divided into portions. (SEC Opinion)
corporation); and
3. Acts or contracts, which are per se illegal as k. DOCTRINE OF EQUALITY OF SHARES
being contrary to law. Where the articles of incorporation do not provide for
any distinction of the shares of stock, all shares issued
An ultra vires act may be that of: by the corporation are presumed to be equal and enjoy
a. The corporation; the same rights and privileges and are also subject to
b. The Board of Directors; and the same liabilities. (Sec. 6)
c. The corporate officers.
l. TRUST FUND DOCTRINE (TFD)
Effects of ultra vires act on: The subscribed capital stock of the corporation is a
a. Executed contract – courts will not set aside or trust fund for the payment of debts of the corporation
interfere with such contracts; which the creditors have the right to look up to satisfy
b. Executory contracts – no enforcement even at their credits, and which the corporation may not
the suit of either party (void and unenforceable); dissipate. The creditors may sue the stockholders
c. Part executed and part executory – principle of directly for the latter’s unpaid subscription.
“no unjust enrichment at expense of another” shall
apply; and Application of the TFD:
3. Cannot exercise powers not possessed by the For 1 year or until their successors are elected and
corporation. (The Corporation Code of the qualified (Hold – over Principle)
Philippines Annotated, Hector de Leon, 2002 ed.)
3. ELECTION OF DIRECTORS OR TRUSTEES
NATURE OF POWERS OF BOARD OF a. Quorum in Meeting for Election
DIRECTORS/TRUSTEES (The Corporation Code of the Majority of the outstanding capital stock
Philippines Annotated, Hector de Leon, 2002 ed.) or member entitled to vote
Present either in person or by
a. Under the Theory of Original Power, the powers representative by WRITTEN PROXY
of the board of directors or trustees are b. How
ORIGINAL and UNDELEGATED. The Viva Voce, or
stockholders or members do not confer, nor By ballot if requested by any voting
can they revoke those powers. stockholder or member
b. They are DERIVATIVE only in the sense of being c. Stock Corporations
received from the State in the act of Methods of Voting on the Election of Directors
incorporation. g. STRAIGHT VOTING – Every stockholder
through this method, may vote such
number of shares for as many persons as
2. TENURE, QUALIFICATIONS AND there are directors.
DISQUALIFICATIONS OF DIRECTORS h. CUMULATIVE VOTING
i. Every stockholder is entitled to such
Qualifications: number of votes that his number of
1. For a stock corporation, ownership of at least 1 shares multiplied by the total number of
share capital stock of the corporation in his directors to be elected will bring. He may
own name, and if he ceases to own at least one give all such votes to one candidate
share in his own name, he automatically ceases (CUMULATIVE VOTING FOR ONE
to be a director. (Sec. 23) For a non-stock CANDIDATE) or he may distribute them
corporation, only members of the corporation among as many candidates as he sees fit
can be elected to seat in the Board of Trustees. (CUMULATIVE VOTING BY
In order to be eligible as a director, what is DISTRIBUTION). (Sec. 24)
material is the legal title to, not beneficial
ii. A minority director elected through iii. Upon previous notice to stockholders or
cumulative voting cannot be removed members
without cause. (Sec. 28) Of the intention to propose such
iii. A PROXY is a written instrument, signed removal at the meeting
by the stockholder or member (as Of the time and place of meeting
principal) and filed before the scheduled Must be given by publication or by
meeting with the corporate secretary, and written notice prescribed in the
given to another person (as agent) Code.
authorizing such person to exercise the b. If secretary refuses/ fails to call for the special
voting rights of the former. meeting or give the notice, or there is no
secretary, call may be directly addressed to
What is the period of validity of proxy? Unless stockholders or members by demanding
otherwise provided in the proxy, it should be valid stockholder or member.
only for the meeting for which it is intended. No c. Causes for Removal
proxy shall be valid and effective for a longer period 1. May be with or without cause
than five years at any one time. (Sec. 58) Cause is usually related to the 3 duties of
an officer or director –
Instances whereby Right to vote by Proxy may be a. loyalty
exercised: b. obedience
1. Election of the board of directors or trustees; c. diligence
2. Voting in case of joint ownership of stock; 2. Provided that removal without cause may not
3. Voting by trustee under voting trust be used to deprive minority stockholders or
agreement; members of their right of representation
4. Pledge or mortgage of shares; under Sec. 24.
5. As provided for in it’s by – laws.
NOTE: Removal of Board of Director or Trustee is
Stockholders or members may attend and vote in their different from removal of a corporate officer.
meeting by proxy (Sec. 58); but directors cannot do so. Stockholder’s approval is necessary only for the
Directors must always act in person. (Sec. 25) removal of the members of the Board. For the removal
of a corporate officer or employee, the vote of the
A VOTING TRUST is an agreement whereby one or Board of Directors is sufficient for the purpose. (2001
more stockholders transfer their shares of stocks to a Bar Examination)
trustee, who thereby acquires for a period of time the
voting rights (and/ or any other rights) over such 5. FILLING OV VACANCIES IN THE OFFICE OF
shares; and in return, trust certificates are given to the DIRECTOR OR TRUSTEE
stockholder/s, which are transferrable like stock a. Ground for Removal
certificates, subject however, to the trust agreement. 1. Removal by the stockholder or members or
upon expiration of term
d. Non – Stock Corporations Vacancy shall be filled by the stockholder
Members may cast as many votes as there in a regular or special meeting called for
are trustees to be elected (seats) that purpose.
But may not cast more than one vote for a 2. Other causes other than expiration or
single candidate removal by stockholders / members.
EXCEPT: when the AOI or by – laws provide If remaining directors constitute Quorum
otherwise – may be filled by the MAJORITY vote of
e. Adjournment of Meeting for Elections the remaining directors.
May adjourn from day to day or from time If no quorum – filled by the stockholders
to time in a regular or special meeting called for
But NOT sine die or indefinitely if quorum is that purpose.
not met (majority of stockholders or 3. Proposed amendment of Articles of
members are not present). Incorporation resulting in increase in
number of directors / trustees
NOTE: Proposed amendment to by – laws stipulating Vacancy shall be filled by the
permanent director even without election is contrary stockholders in a regular or special
to law. (Grace Christian High School vs. CA) meeting called for that purpose
Or in the same meeting authorizing
4. REMOVAL OF DIRECTORS OR TRUSTEES increase of directors or trustees if
a. How may be removed so stated in notice of the meeting
i. 2/3 vote of stockholders or members b. Director or trustee so elected shall serve
entitled to vote only the unexpired portion of the term.
ii. During a regular meeting or a special
meeting called by the secretary upon: 6. COMPENSATION
Order of the President Directors are not entitled to compensation as such
Written demand from majority of directors except that they are allowed reasonable per
stockholders or members entitled to diems. However, directors may be given
vote compensation when:
It is not essential to the ownership and/or d. The transferee must present the indorsed
existence of the share of stock. certificate to the corporate secretary who
Where the certificate of stock reflects a greater shall effect the transfer in the corporate
volume of shares than the actual number of books, issue a new stock certificate in favor of
shares issued or to be issued, the following rules the transferee and cancel the former
may be considered: certificate.
1. To the extent that there is an over issue, the
excess issuance (over the authorized capital Only absolute transfers need be registered. The
stock or the stated capital) shall be void as pledge or mortgage itself need not be recorded in the
being ultra vires. stock and transfer book, but a chattel mortgage must
2. If there is no over issue, but no payment has comply with the Chattel Mortgage Law, and a pledge
been made to cover the par or stated value of would require the shares to be placed in the
the excess shares, the latter would constitute possession of the creditor/pledgee. The agreement
“watered” stocks. must appear in a public instrument to take effect
3. If there is no over issue and watering of against third persons. (Chemphil vs. CA, 251 SCRA 257)
stocks, the corporation may be bound to
honor the certificate (if duly signed and EFFECTS OF UNREGISTERED TRANSFER OF
released by its authorized officers) in the SHARES
hands of a holder in good faith, reserving a a. It is valid and binding as between the transferor and
right of recourse that an aggrieved party may the transferee
pursue against the culpable or unjustly b. It is invalid as to the corporation except when notice
enriched party. is given to the corporation for purposes of
registration
SHARES OF STOCK c. It is invalid as against corporate creditors and the
CAPITAL STOCK
transferor is still liable to the corporation
Amount paid in or Interest or right which d. It is invalid as to the attaching or executing
secured to be paid in by the stockholder has in creditors of the transferor, as well as subsequent
the stockholders upon the management of the purchasers in good faith without notice of the
which the corporation is corporation, and its transfer.
to conduct its operation. surplus profits, and
c. ISSUANCE OF CERTIFICATE OF STOCK
It is the property of the upon a dissolution, in
corporation itself all of its assets No certificate of stock shall be issued until the full
(monetary value). remaining after amount of the subscription is paid. Basis: Doctrine of
payment of corporate Individuality of Subscription
debts.
D. PROCEDURE FOR ISSUANCE OF NEW
CERTIFICATE OF STOCK IN LIEU OF LOST, STOLEN
CERTIFICATE OF OR DESTROYED ONES (Sec. 73)
SHARES OF STOCK
STOCK 1. Filing with the corporation an affidavit in triplicate
Unit of interest in a Evidence of the by the registered owner setting forth the
corporation holder’s ownership of circumstances as to how the certificate was lost, stolen
the stock and of his or destroyed, the number of shares, serial number of
the certificate and the name of the corporation that
right as a shareholder
issued the same.
Incorporeal or Concrete and tangible
intangible property 2. Publication of notice of loss by the corporation in a
May be issued by the May be issued only if newspaper of general circulation in the place of the
corporation even if the the subscription is fully principal office, once a week for 3 consecutive weeks.
subscription is not fully paid.
3. After the lapse of 1 year from the date of the last
paid.
publication, if no contest has been presented, the
corporation shall cancel in its books the certificate of
b. Negotiability stock, which has been lost, stolen or destroyed, and
issue in lieu thereof a new certificate of stock.
REQUIREMENTS FOR TRANSFER OF STOCK
a. In case of shares covered by a certificate, the However, if the registered owner files a bond or other
indorsement of the owner or his agent securities as may be necessary to the board, the new
coupled with delivery is essential certificate of stock may be issued even before the
b. Where no certificate has been issued or for expiration of one (1) year period.
some reason it is not in the possession of the
stockholder, it may be transferred by means The prescribed procedure does not apply to a case
of a deed of assignment duly recorded in the where the certificates are in the company’s possession
books of the corporation when mislaid which thereby obligates the corporation,
c. To be valid against the corporation and third not the stockholder, to suffer the consequences. (SEC
persons, the transfer must be recorded in the Opinion)
stock and transfer book
The 3 Methods by which a Stock Corporation may management committee or rehabilitation receiver,
be voluntarily Dissolve are: (2002 Bar or based on the SEC’s own findings, the
Examination) continuance of the business of the corporation
would not be feasible or profitable nor work to the
1. Voluntary dissolution where no creditors best interest of the stockholders, parties –
are affected. This is done by a majority vote of litigants, creditors or the general public.
the directors and resolution vote of at least 2/3 8. When the corporation is guilty of fraud in
vote of the stockholders, submitted to the SEC. procuring its certificate of registration.
2. Voluntary dissolution where creditors are 9. When the corporation is guilty of serious
affected. This is done by a petition for misrepresentation as to what the corporation can
dissolution which must be filed with the SEC, do or is doing to the great prejudice of or damage
signed by a majority of the members of the to the general public.
board of directors, verified by the president or 10. Refusal of the corporation to comply or defiance of
the secretary, and upon affirmative vote of any lawful order of the SEC restraining
stockholders representing 2/3 of the commission of acts which would amount to a
outstanding capital stock grave violation of its franchise and
3. Dissolution by shortening of the corporate 11. Failure of the corporation to file required reports
term. This is done by amendment of the articles in appropriate forms as determined by the SEC
of incorporation. within the prescribed period.
directly damnify the insured is an insurable COMPARE WITH INSURABLE INTEREST IN LIFE:
interest (Sec. 13). It may consist of: 2002 BAR EXAM (N0.XVII)
the accidental fire. Can A or B collect the proceeds insurable interest or create a liability against him,
of the policy from the insurer? Explain and give may be insured against (Sec. 3).
reasons for your answer. (1952, 1959, 1980 Bar)
NOTE: IN RELATION TO THE INSURANCE SO
A: Neither A, the seller, nor B, the buyer, can collect SECURE
under the policy. A transfer of interest in property
without any transfer of interest in the insurance 1. The consent of the husband is not necessary for
suspends the latter until the interest in the property the validity of an insurance policy taken by a
and in the insurance is vested in the same person. A married woman on her life and that of her
has transferred his interest in the object of the children. Under Art. 145 of the Family Code, she
insurance (the house) to B without a transfer of his can also insure her separate property without the
interest in the insurance to B. As the interests in the consent of the husband.
object and in the insurance are in different persons at
the time of the loss, none can recover under the policy. 2. A minor may take out a contract for life, health
and accident insurance with any company
WHAT CHANGE IS CONTEMPLATED authorized to do business in the Philippines,
An absolute transfer of the property not life, provided it be taken out on his own life and the
a lease/mortgage. beneficiary named is his estate, father, mother,
husband, wife, child, brother or sister. In so doing,
EXCEPTIONS TO THE REQUIREMENTS OF the married woman/minor may exercise all the
INSURABLE INTEREST: rights or privileges under the policy.
(1) Life, health or accident insurance because they
are not contracts of indemnity and insurable But – What is the effect of the death of the original
interest is not required at the time of loss; owner of a policy, which covers the life of a minor,
(2) A change of interest after occurrence of an ahead of the minor? – all rights, title and interest in the
injury and results in loss – does not affect the policy shall automatically vest in the minor unless
right of the insured to indemnity; otherwise provided in the policy;
- After a loss, the liability of the insurer is
fixed; WHAT CANNOT BE INSURED
(3) A change of interest in one or more several An insurance for or against the drawing of any
distinct things, separately insured by one lottery or for or against any chance or ticket in a
policy, does not avoid as to the others; (Sec. lottery drawing or prize. Because gambling results
22) in profit and insurance only seeks to indemnify the
(4) A change of interest in one or more several insured against loss (Sec. 4).
distinct things, separately insured by one
policy, does not avoid the insurance as to the PARTIES TO A CONTRACT OF INSURANCE:
insured; (Sec. 23) 1. INSURER – every person, partnership, association
(5) A transfer of interest by one or several or corporation duly authorized to transact
partners, joint owners, or owners in common, insurance business as provided in the code may be
who are jointly insured – to the others, does an insurer. It is the party who agrees to indemnify
not avoid insurance even though it has been another upon the happening of specified
agreed that the insurance shall lease upon an contingency.
allocation of the thing insured;
(6) When notwithstanding a prohibition, the 2. INSURED – party to be indemnified in case of loss
consent of the insurer is obtained; and (Sec. 6). Anyone except a public enemy (a nation
(7) When the policy is so framed that it will insure at war with Philippines and every citizen subject
to the benefit of whomsoever may become the of such nation.
owner during the continuance of the risk.
BAR EXAM; 2000 (VIII - a)
CONTINUATION OF ELEMENTS: Q: May a member of the Moro Islamic Liberation
1. Insurable interest; Front ( MILF ) or it’s breakaway group, the Abu
2. The insured is subject to risk of loss through Sayaff, be insured with a company licensed to do
the destruction or impairment of that interest business under the Insurance Code of the
by the happening of the designated risk; Philippines? Explain.
3. The insurer assumes the risk of loss;
4. Such assertion is part of a general scheme to A: A member of the MILF or the Abu Sayyaf may be
distribute actual loss among a large group of insured with a company licensed to do business under
persons bearing somewhat similar risk; the Insurance Code of the Philippines. What is
5. As a consideration for the insurers promise, prohibited to be insured is a public enemy. A public
the insured makes a ratable contribution enemy is a citizen or national of a country with which
called a premium to the general insurance the Philippines is at war. Such member if the MILF or
fund; the Abu Sayyaf is not a citizen or national of another
country, but of the Philippines.
WHAT MAY BE INSURED AGAINST
Any unknown or contingent event, whether
past or future, which may damnify a person having
(4) When the description of the insured in the CAN THERE BE AGREEMENTS AS TO
policy is so general that it may comprehend PRESCRIPTION OF AN ACTION OR LIMITATIONS
any person or any class of persons, only he ON THE PERIOD OF TIME TO BRING AN ACTION
who can show that it was intended to include
Yes, provided the period agreed upon should
him can claim the benefit of the policy (Sec.
not be less than one year (Section 63). If less than
56).
one year, the agreement is void. The period so agreed
shall be considered as having commenced from the
(5) When a policy is so framed that it will inure to
time the cause of action accrues. Usually, the cause of
the benefit of whomsoever, during the
action accrues from the date of the insurers rejection
continuance of the risk may become the owner
of the claim of the beneficiary or of the insured – since
of the interest insured (Sec. 57). The proceeds
before rejection there is no necessity to bring suit.
become payable to who may be the owner at
When no period is stipulated or if the stipulation is
the time the loss or injury occurs. This is an
void, the period is within 10 years under article 1144,
exception to Sec. 20.
New Civil Code, it being a written contract (Eagle Star (1) Affirmative – those that relate to matters
vs. Chia Yu 96 Phil 696, ACCFA vs. Alpha Insurance, 24 that exist at or before the issuance of the
SCRA 151). policy;
(3) The performance becomes impossible. 2. When the insurer makes a written
acknowledgment of the receipt premium; (Sec.
78)
WARRANTY VS. REPRESENTATIONS
3. Section 77 may not apply if the parties have
WARRANTY REPRESENTATION agreed to the payment of the premium in
installments and partial payment has been made
Part of the contract Merely a collateral at the time of the loss; (Makati Tuscany
inducement thereto Condominium Corp. v. CA, 215 SCRA 462)
Expressly set forth in May be oral or written 4. If the insurer granted the insured a credit term
the policy or in another statement for the payment of the premium and loss occurs
incorporated therein before the expiration of the term, recovery
by reference should be allowed even the premium is paid after
Strictly and literally Must be substantially the loss but within the credit term;
performed true 5. Where the parties are barred by estoppel.
(6) In case of over insurance. Here the Q: Alfredo took out a policy to insure
insurance is in excess of the amount of his commercial building against fire. The broker
the insurable interest of the insured and for the insurance company agreed to give a 15-day
it is insured by several insurers, the credit within which to pay the insurance premium.
insured is entitled to a RATABLE Upon delivery of the policy on May 15, 2006,
RETURN OF PREMIUM, proportional to Alfredo issued a postdated check payable on May
the amount by which the aggregate sum 30, 2006. On May 28, 2006, a fire broke out and
insured in all the policies exceeds the destroyed the building owned by Alfredo.Reason
insurable value; briefly in (a), (b) and (c).
a. May Alfredo recover on the insurance policy?
WHEN ARE THEY NOT RECOVERABLE
A: Yes, Alfredo can recover on the insurance policy.
Premiums cannot be recovered: Although Section 77 of the Insurance Code provides
that in fire insurance, payment of premium is
(1) If the peril insured against has existed,
necessary for validity of the policy (also known as
and the insurer has been liable for any
“cash and carry” provision), nonetheless, the rule has
period, the period being entire and
been modified by the decisions of the Supreme Court
indivisible (Sec. 80).
after the promulgation of the Insurance Code. Thus, in
(2) In life insurance – (Sec. 79-b) cash
UCPB General Insurance v. Masagana Telemart, G.R.
surrender value.
No. 137172, April 4, 2001, it was held that the insured
(3) When the insured is guilty of fraud or
should be allowed to recover on losses sustained even
misrepresentation (Sec. 81).
when premium was paid after the fact of loss,
provided payment was received by the insurer during
LOSS AND NOTICE OF LOSS the credit period given to the insured. (See also South
Sea Surety v. Court of Appeals, G.R. No. 102253, June
WHAT ARE THE RULES TO DETERMINE WHETHER 2, 1995; American Home Assurance v. Chua, G.R. No.
THE INSURER IS LIABLE FOR THE LOSS OF THE 130421, June 28, 1999) where the Supreme Court
THING INSURED? ruled that is the check payment for premium was
received by the insurer prior to the loss or within the
1. Loss of which a peril insured is the proximate credit period, the insured was allowed to recover.
cause.
b. Would your answer in (a) be the same if it was
2. Loss caused by efforts to rescue the thing found that the proximate cause of the fire was an
insured from a peril insured against that explosion and that fire was but the immediate
would otherwise have caused a loss, if in the cause of loss and there is no excepted peril under
course if such rescue, the thing is exposed to the policy?
peril not insured against, which permanently Yes, recovering under an insurance contract is
deprives the insured of its possession in allowed if the cause of the loss was either the
whole or in part, or where a loss is caused by proximate or the immediate cause as long as an
efforts to rescue the thing insured from a peril expected peril was not the proximate cause of the loss.
insured against (Sec. 85). Here the principle of (Section 86, Insurance Code of the Philippines.) The
proximate cause is extended to loss incurred fire being the immediate cause for the loss of
while saving the thing insured. the commercial building, would warrant recovery
under the policy.
3. Where a peril is especially excepted in a
contract of insurance a loss, which would not c. If the fire was found to have been caused by
have occurred but for such peril, is thereby Alfredo's own negligence, can he still recover on
excepted although the immediate cause of the the policy?
loss was a peril which was not excepted (Sec. Yes, he can still recover. The doctrine of contributory
86). The immediate cause is the CAUSE OR negligence does not in any way apply to rights under a
CONDITION NEAREST THE TIME AND PLACE contract of insurance, unless it is a case of willful act.
OF THE INJURY. Here, the insurer will be (Section 87, Insurance Code of the Philippines)
liable if both the immediate cause and the
proximate cause are not excepted. If the RECOGNIZING THAT THERE ARE PROBLEMS IN
proximate cause is excepted and the DETERMINING PROXIMATE CAUSE – NOTE THE
immediate cause is not, the insurer is not FOLLOWING RULES:
liable.
(a) If there is a single cause which is an insured
4. An insurer is not liable for loss caused by the peril, clearly it is the proximate cause and
willful act or through the convenience of the there is liability;
insured; but he is not exonerated by the (b) If there are concurrent causes (those
negligence of the insured, or of the insured’s happening together) with no excluded perils,
agent or others (Sec. 87). there if liability if one of the causes is an
insured peril, the others may be ignored;
2007 BAR EXAM (IV) (c) If there are concurrent causes with an
excepted peril (insured peril operate together
to produce the loss) the claim will be outside 2. If the insurer omits to make an objection
the scope of the policy; promptly and specifically on that ground. –
(d) But if the results of the operation of the despite delay, the insurer does not object (Sec.
insured peril can be clearly separated from 91).
the effects of the excepted peril, the insurer is
liable; WHAT HAPPENS AFTER PAYMENT BY THE
(e) Where a number of causes operate one from INSURER SUBSEQUENT TO GIVING OF NOTICE OF
the other, the original cause happens to be a LOSS
peril, the insurer is liable.
In property insurance, after the insured has
received payment from the insurer of the loss covered
TRANSFER OF CLAIMS
by the policy, the insurance company is SUBROGATED
An agreement not to transfer the claim of the to the rights of the insured against the wrongdoer or
insured after the loss happens – is VOID if MADE the person who has violated the contract. The right of
BEFORE THE LOSS except as otherwise provided in subrogation accrues upon payment of the insurance
case of life insurance (Sec. 33). claim.
This means that the insured has an absolute NOTE: Subrogation takes effect by operation of law
right to transfer his claim against the insurer AFTER and does not require the consent of the wrong doer
THE LOSS occurs, what is prohibited is a transfer prior (Fireman’s Fire Insurance vs. Jamilla & Company, 70
to the loss. SCRA 323).
This is so because such stipulation after the
loss occurs shall hinder the transmission of property. THERE IS NO SUBROGATION IN:
Neither does it affect the insurer as its liability is
already fixed and what is actually assigned is the (a) Life insurance as it is not a contract of
money claim, not the contract itself. indemnity
The exception in Sec. 173 that provides that (b) When proximate cause of the loss is the
the transfer of a fire insurance policy to any person or insured himself
company who acts as an agent for or otherwise (c) When the insurer pays to the insured a loss
represents the issuing company is prohibited and is not covered by the policy;
void insofar as it affects other creditors of the insured.
DOUBLE INSURANCE
NOTICE AND PROOF OF LOSS Where the same person is insured by several
Notice of loss must be given without insurers separately in respect to the same subject or
unnecessary delay by the insured or some person interest (Sec. 91).
entitled to the benefit of the insurance. IF NOT THEN,
the insurer is exonerated (Sec. 88). 2005 BAR EXAM (N0. X – 2 -b)
Q: What is the nature of the liability of the several
WITHOUT UNNECESSARY DELAY – is within a insurers in double insurance? Explain.
reasonable time, depending on circumstances of a
peculiar case, although courts have construed the A: In double insurance, the insurers considered as co-
requirement liberally in favor of the insured. insurers. Each one is bound to contribute ratably to
the loss in proportion to the amount for which he is
PROOF OF LOSS liable under his contract. (Section 94(e), Insurance
If the policy requires Preliminary Proof of Code.
Loss (evidence given the insurer of the occurrence of
the loss, its particulars, and data necessary to enable it REQUISITES OF DOUBLE INSURANCE:
to determine liability and the amount thereof) IT IS 1. Same person is insured;
NOT NECESSARY that the insured give such proof – AS 2. There are several insurers;
MAY OR WOULD BE NECESSARY IN A COURT OF 3. Subject insured is the same;
JUSTICE WHAT IS SUFFICIENT is the BEST EVIDENCE 4. Interest insured is the same;
which he has in his power at that time (Sec. 89). 5. Risk of peril insured against is the
same;
WHEN ARE DEFECTS IN THE NOTICE OR PROOF There is prohibition TO PREVENT OVER-
LOSS DEEMED WAIVED BY THE INSURER INSURANCE, thus preventing fraud.
2008 BAR EXAM:
When the insurer fails to specify to the
insured any defect which the insured can Q: Terrazas de Patio Verde, a condominium
remedy without delay. building, has a value of P50 Million. The owner
insured the building against fire with three (3)
When the insurer denies liability on a ground insurance companies for the following amounts:
other than that defect in the notice or proof of Northern Insurance Corp. 20M,Sounthern
loss. Insurance Corp.30M, Eastern Insurance Corp.50M.
WHEN IS DELAY IN THE GIVING OF NOTICE a. Is the owner's taking of insurance for the
WAIVED building with three (3) insurers valid?
1. If it is caused by any act of the insurer. Discuss.
b. The building was totally razed by fire. If the or damage (Also known as CONTRIBUTION
owner decides to claim from Eastern CLAUSE).
Insurance Corp. only P50 Million, will the
claim prosper? Explain. TEST TO DETERMINE EXISTENCE OF DOUBLE
INSURANCE
A: (a). Taking out insurance covering the same Whether the insured, in case of happening of the risk,
property, same insurable interest and same risk with can directly benefited by recovering on both policies?
three insurance companies is “double insurance” If yes – there is double insurance.
recognized under sec 93 of ICP. However, in American
Home Assurance Corp vs. Chua June 28, 1999, the IS DOUBLE INSURANCE VALID?
court referred to the common inclusion of the other - It depends, if there is prohibition in the policy
insurance clause in the fire insurance policies then it is not valid, but if there is no prohibition,
requiring disclosure of co-insurance of the same it is valid provided it must follow the provisions
property with other insurers. of the law.
(b) Insured can recover from Eastern Inssurance Corp -
up to the extent of his loss. However, Eastern may DOUBLE
OVER INSURANCE
refuse to pay if the policy contains an “ other INSURANCE
insurance clause” stipulating that non-disclosure of There must be two or One insurer is sufficient.
double insurance will avoid the policy. (Geagonia more insurers.
v. Country Bankers Insurance, 2/6/95). As there is
The total amount of the The value must always
no indication of a contractual prohibition on double or
policies need not exceed be in excess of the
other insurance, all insurance contracts over the
the value of the insurable interest;
building are deemed valid and enforceable.
insurable interest.
The law prohibits double or over-recovery,
not double insurance. Since eastern insured the
property up 50% the total coverage, it is liable for only REINSURANCE
50% of the total actual loss. Eastern Insurance Corp, is Occurs when an insurer procures a 3RD person
liable to the extent of its coverage but may recover one to insure him against loss or liability by reason of such
half of the total indemnity from the co-insurers in the original insurance (Sec. 95).
proportion of 60% (Southern Insurance)- 40 % (
Northern Insurance) WHEN IS REINSURANCE COMPULSORY?
1. When a non-life insurer insured in any one
EFFECTS OF OVER-INSURANCE BY DOUBLE risk or hazard an amount exceeding 20% of its
INSURANCE net worth, the insurer needs reinsurance of
1. Insured, unless the policy otherwise provide, the excess over such limit (Sec. 215 (1)).
may claim payment from the insurers in such 2. When a foreign insurance company
order as he may select up to the amount for withdraws from the Philippines, it should
which the insurers are severally liable under cause its primary liabilities under policies
their respective contracts. insuring residents of the Philippines to be
2. Where the policy under which the insured reinsured by another company authorized to
claims is a valued policy, the insured must transact an insurance business in the
give credit as against the valuation for any Philippines.
sum received by him under any policy
without regard to the actual value of the DOUBLE INSURANCE VS. REINSURANCE
subject matter insured. DOUBLE INSURANCE REINSURANCE
3. Where the policy under which the insured
Insurer remains an insurer Insurer becomes the
claims is an unvalued policy, he must give
insured
credit, as against the full insurable value, for
Subject matter is property Subject matter is the
any sum received by him under the policy.
insurer’s risk or liability
4. Where the insured receives any sum in excess
Same interest and risk is Different interest and
of the valuation in case of a valued policy or
insured with another risk are insured
the insurable value in case of an unvalued
policy, he must hold such sum in trust for the
insurers, according to their right of WHAT KIND OF CONTRACT IS REINSURANCE?
contribution among them; It is presumed to be a contract of indemnity
5. In relation paragraph (4) – Each insurer is against liability, and merely against
bound, as between himself and the other damage (Sec. 97).
insurers to contribute ratably to the loss in
proportion to the amount for which it is liable As a RULE, the reinsurer is not liable to the
under his contract. ALSO REFERRED TO AS reinsured for a loss under an original policy if
THE PRINCIPLE OF CONTRIBUTION – the reinsured is not liable to the original
WHICH HAS ALREADY BEEN INCOPORATED policyholder.
IN ALMOST ALL POLICIES – that should there
be other insurances covering the same
property, the liability of the company would EXTENT OF LIABILITY OF THE REINSURER?
be limited to its ratable proportion of the loss
The liability of the reinsurer is measured by the (a) natural and inevitable action of the
liability of the reinsured to the original policy holder sea;
PROVIDED, it does not exceed the amount of (b) ordinary wear and tear of the ship;
reinsurance. (c) negligent failure of the ship owner to
provide the vessel with the proper
equipment to convey the cargo under
CLASSES OF INSURANCE
ordinary conditions.
MARINE INSURANCE 2008 BAR EXAM (IX –b)
Insurance against loss or damage to: Q: On October 30, 2007, M/V Pacific, a Philippine
registered vessel owned by Cebu Shipping
(a) Vessels, craft, aircraft, vehicles, goods freight, Company (CSC), sank on her voyage from Hong
cargoes, merchandise effects, disbursements, Kong to Manila. Empire Assurance Company
profits, moneys, securities, loses in action, (Empire) is the insurer of the lost cargoes loaded
evidences of debt, valuable papers, bottomry or on board the vessel which were consigned to
respondentia interest and all other kind of Debenhams Company. After it indemnified
property and interests therein, in respect to, Debenhams, Empire as subrogee filed an action for
appertaining to or in connection with any and damages against CSC.
all risks or perils of navigation, transit or b) Assume that the vessel was not seaworthy as in
transportation or while being assembled, fact its hull had leaked, causing flooding in the
packed, crated, baled, compressed, or similarly vessel. Will your answer be the same? Explain.
prepared for shipment or while awaiting
shipment or during any delays, storage, A: When the vessel is not seaworthy, it is an
transshipment or reshipment incident thereto; exception to the hypothecary principle in maritime
commerce. To limit its liability to the amount of the
(b) Person or property in connection with or insurance proceeds, the carrier has the burden of
appertaining to marine, island marine, transit proving that the unseaworthiness of its vessel was not
or transportation insurance, including liability due to its fault or negligence. The failure to discharge
for loss or in connection with the construction, such a heavy burden precludes application of the
repair, operation, maintenance, use of the limited liability rule and the carrier is liable to the full
subject matter of the insurance. (But not extent of the claims of the cargo owners (Aboitiz
including life insurance, or surety bonds nor Shipping v. New India Assurance Company, G.R. No.
insurance against loss by reason of bodily injury 156978, 02 May 2006).
to any person arising out of the ownership,
maintenance, use of automobiles);
2008 EXAM (IX –c)
(c) Precious stones, jewels, jewelry, precious Q:c) Assume the facts in question (b). Can the
metals whether in the course of transportation heirs of the three (3) crew members who perished
or otherwise; recover from CSC? Explain fully.
(d) Bridges, tunnels or other instrumentalities of A: Yes, because the crew members died while
transportation and communications (excluding performing their assigned duties, aggravated by the
buildings, their furniture and furnishings, fixed failure of the ship owner to ensure that the vessel is
contents, and supplies held in storage), piers, seaworthy. Workmen’s compensation has been
wharves, docks, slips, and other aids to classified by jurisprudence as an exception to the
navigation and transportation including dry hypothecary nature of maritime commerce, [Abueg
docks, marine railways, dams and appurtenant v.San Diego, 77 Phil. 730 (1948)], especially in this
facilities for the control of waterways. case where the vessel was not seaworthy at the time it
sank.
AND – “Marine Protection and Indemnity
Insurance” meaning insurance against, or WHAT PERILS ARE INSURED IN AN “ALL RISK
against legal liability of the insured for loss, POLICY”
damage or expense incident to ownership,
operation, chartering, maintenance, use, It is to be construed as creating a special
repair, or construction of any vessel, craft or insurance and extending to all risk than are usually
instrumentality in use in ocean or island contemplated and will cover all losses except such that
waterways, including liability of the insured may arise from intentional fraud, intentional
for personal injury, illness or death or for misconduct, or that otherwise excluded. It may include
loss or damage to the property of another all losses whether arising from a marine peril or not to
person (Sec. 99). include pilferage during a war (Filipino Merchant
Insurance Co. vs. CA, 179 SCRA 638).
policy’s coverage, whether arising from a marine peril information might possibly reached him in the usual
or not provided the risk is not excluded; mode of transportation and the usual rate of
communication (Sec. 109).
WHAT CONSTITUTES INSURABLE INTEREST IN
OCEAN MARINE INSURANCE? EFFECT OF CONCEALMENT
1. The owner of a vessel has insurable interest in It exonerates the insurer from a loss resulting from
the vessel such shall continue even if the the risks concealed as related to:
vessel has been chartered by one who (a) the national character of the insured;
covenants to pay the owner the value of the (b) the liability of the thing insured to
vessel upon loss but in case of loss, the owner capture and detention;
is liable only for the part of the loss which the (c) the liability to seizure from breach of
insured cannot recover from the charterer. laws of foreign laws of trade;
(Sec. 100) (d) the want of necessary documents ;
2. The insurable interest of the owner of a ship (e) the use of false/simulated documents
hypothecated by bottomry is only the excess
of its value over the amount secured by
ORDINARY CONCEALMENT vs. MARINE INSURANCE
bottomry. (Sec. 101)
3. The owner of a vessel also has insurable ORDINARY INSURANCE MARINE INSURANCE
interest in expected freightage, which
according to the ordinary course of things he Opinion or belief of a 3RD Belief or expectation of
would have earned but for the intervention of person or own judgment 3RD person in reference
a peril insured against or other peril incident of the insured is not to a material fact is
to the voyage. (Sec. 102) material and need not be material and has to be
communicated (Sec. 35) communicated;
a. total destruction of the thing owner was equally negligent. It cannot escape liability
insured; by virtue of the limited liability rule. (Central Shipping
b. the irretrievable loss of the thing Company, Inc. v. Insurance Company of North America,
which renders it valueless to the Sept. 20, 2004, G.R. No. 150751)
owner for the purpose that he
held it;
ABANDONMENT – is the act of the insured by which,
c. any other event which
after a constructive total loss, he desires to the insurer
effectively deprives the owner of
the relinquishment in its favor his interest in the thing
the possession at the port of
insured (Sec. 138).
destination of the thing insured
(Sec. 130). A person insured by a contract of marine
An actual total loss can also be presumed insurance may abandon the thing insured, or any
from the continued absence of the ship particular portion thereof separately valued by the
without being heard of (section 132). policy, or otherwise separately insured and recover a
The length of time which is sufficient total loss – when the cause of loss is a peril insured
to raise these presumption depends on against if:
the circumstances of the case;
more than ¾ thereof in value is actually lost or
would have to be expended to recover it form the
(2) It is a constructive total loss when the
peril insured against.
person insured is given a right to
abandon under Section 139 (Sec. 131). if it is injured to such extent as to reduce its value
by more than ¾ of value.
2005 BAR EXAM (N0. X -1- a)
if the thing injured is a ship and contemplated
Q: M/V Pearly Shells, a passenger and cargo vessel, voyage cannot lawfully be performed without
was insured for P40,000,000.00 against incurring either an expense to the insured of more
“constructive total loss.” Due to a typhoon, it sank than ¾ the value of the thing abandoned or a risk
near Palawan. Luckily, there were no casualties, which a prudent man would not take under the
only injured passengers. The shipowner sent a circumstances.
notice of abandonment of his interest over the
vessel to the insurance company which then hired if the insured is freightage or cargo – and the
professionals to afloat the vessel for P900,000.00. voyage cannot be performed – nor another ship
When re-floated, the vessel needed repairs cannot be procured by the master – within a
estimated at P2,000,000.00. The insurance reasonable time with reasonable diligence – to
company refused to pay the claim of the forward the cargo without incurring the like
shipowner, stating that there was “no constructive expense or risk mentioned in item (c) but,
total loss.” freightage cannot be abandoned unless the ship is
abandoned (Sec. 139).
a) Was there “constructive total loss” to entitle the
shipowner to recover from the insurance Abandonment must neither be partial nor
company? Explain. conditional (Sec. 140). Hence, it must be total and
absolute; and must be made within a reasonable time
A: There was constructive total loss. When the vessel
after receipt of reliable information of the loss but,
sank, it was likely that it would be totally lost because
where the information is of doubtful character, the
of the improbability of recovery. (Arnold’s Law of
insured is entitled to a reasonable time to make an
Marine Insurance and Average, 16th ed., Vol. II, pp. 954-
inquiry (Sec. 141).
955)
though, if the insurer pays for a loss as if it insurer subrogating the insurer to his own right to
were an actual total loss, he is entitled to contribution but no such claim can be made upon
whatever may remain of the thing insured, or the insurer if:
its proceeds or salvage as if there has been a
formal abandonment. Here the insurer has (a) There is separation of the interest liable to
opted to pay for total actual loss contribution;
notwithstanding the absence on actual
abandonment; (b) When the insured having the right and
opportunity to enforce contribution from
(2) Acts done in good faith by those who were others, has neglected or waived the exercise
agents of the insured in respect to the thing of the right (Sec. 165). Meaning that the
insured subsequent to the loss are at the risk insured has a choice of recovery on the
of the insurer and for his benefit (Sec. 148). happening of a general average loss. They are:
The agents of the insured become agents of (1) Enforcing the contribution
the insurer. This retroacts to the date of the against interested parties; or
loss when abandonment is effectively made; (2) Claiming from the insurer. If it
be the latter, subrogation takes
EFFECTIVITY OF ABANDONMENT: place;
Abandonment becomes effective upon the
acceptance of the insurer. If it is not accepted despite
MEASURE OF INDEMNITY IN MARINE INSURANCE
validity, the insured may nevertheless claim an actual
total loss. IF THE POLICY IS VALUED;
1. A valuation in the policy of marine insurance
LIABILITY FOR AVERAGES is exclusive between the parties thereto in the
adjustment of either a partial or total loss, if the
AVERAGE– is any extraordinary or accidental expense
insured has some interest at risk and there is no fraud
incurred during the voyage for the preservation of the
on his part. If there is fraud in valuation, it entitles the
vessel, cargo, or both and all damages to the vessel or
insurer to rescind as it is an exception as to
cargo from the time it is loaded and the voyage
conclusiveness (Sec. 156);
commenced until it ends and the cargo is unloaded.
2. If however, hyphotecated by the bottomry or
KINDS OF AVERAGES:
respondentia – before insurance and without
(a) Particular or simple average is a knowledge of the person securing it – he may show the
damage or expense caused to the real value;
vessel, cargo, or which has not inured to
3. An insurer is liable upon a partial loss – only
the common benefit and profit of all
for such proportion of the amount insured by him – as
persons interested in the cargo or the
the loss bears to the whole interest of the insured (Sec.
vessel. This is borne ordinarily by the
157). The effect is that the insured is deemed a co-
owner of the vessel or cargo that gives
insurer if the value of the insurance is less than the
rise to the expenses or suffered the
value of the property. This applies even in the absence
damage.
of a stipulation in the contract and is also known as the
(b) General or gross average is an expense
average clause.
or damage suffered deliberately in
order to save the vessel or its cargo or The two requisites for the application of the average
both from real and known risk. Thus, all clause:
persons having an interest in the vessel
a. insurance is for less than actual value;
and cargo or both at the occurrence of
b. the loss is partial
the average shall contribute.
(a) The value of the ship is the value at the In insurance, it is defined as the active
beginning of the risk, including all principle of burning, characterized by heat and
articles or charges which add to its light combustion. Combustion without visible light
permanent value or which are necessary or glow is not fire
to prepare it for the voyage insured;
ALTERATION DEFINED
(b) The value of the cargo is its actual cost to Is a change in the use or condition of a thing
the insured, when laden on board where insured from that to which it is limited by the policy,
the cost cannot be ascertained, its Market made without the consent of the insurer, by means
Value at the time and place of lading. within the control of the insured, and increasing the
Adding the charges incurred in risk, which entitles the insurer to rescind the contract
purchasing and placing it on board – but of insurance (Sec. 168).
without reference to any loss incurred in
HOW IS VALUATION MADE:
raising money for its purchase or any
DRAWBACK on its EXPROPRIATION or (1) Whenever the insured would like to have a
FLUCTUATION of the market at the port valuation stated in a policy insuring a
of destination or expenses incurred on building or structure against fire, it may be
the way or on arrival; made by an independent appraiser, who is
(c) Value of freightage is the gross paid by the insured and the value may be
freightage, exclusive or primage without fixed between the insurer and the insured;
reference to the cost of earning it; (2) Subsequently, the clause is then inserted in
(d) The cost of insurance is in each case to be the policy that said valuation has thus been
added to the value thus estimated (Sec. fixed;
161). (3) In case of loss, provided there is no change
increasing the risk without the consent of
the insured or fraud on the part of the
IF THE CARGO INSURED AGAINST PARTIAL LOSS
insured, the insurer will pay the whole
If it arrives at the port of destination in a amount so insured and stated in the policy
damaged condition, the loss of the insured is is paid. If it is a partial loss, the whole
deemed to be the same proportion of the value amount of the partial loss is paid. In case
which the market price at that port of the thing there are 2 or more policies, each shall
so damaged bears to the market price it would contribute pro-rata to the total or partial
have brought if sound (Sec. 162). Meaning if loss but the liability of the insurers cannot
reduction in value is 1/5, then amount of be more than the amount stated in the
recovery on the insurance is also 1/5. policy;
(4) Or the parties may stipulate that instead of
payment, the option to repair, rebuild or
FIRE INSURANCE replace the property wholly or partially
damaged or destroyed shall be exercised
Insurance against fire includes loss or
(Sec. 172).
damage due to lightning, windstorm, tornado,
earthquake or other allied risks when such
risks are covered by extensions to the fire CASUALTY INSURANCE
insurance policy or under separate
Generally, it is one that covers loss or
policies (section 167). Hence, while it is
liability arising from an accident or
not limited to loss or damage due to fire,
mishap excluding those that fall exclusively
coverage as to other risks is not automatic.
within other types of insurance like fire or
marine. It includes employer’s liability,
2001 BAR EXAM (N0.XVII) workmen’s compensation, public liability,
Q: JQ, owner of the condominium unit, insured the motor vehicle liability, plate glass liability,
same against fire with XYZ Insurance Corp. and burglary and theft, personal accident and
made the loss payable to his brother. MLQ. In case health insurance as written by non-life
of loss by fire of the said condominium unit, who companies and other
may recover on the fire insurance policy? State the
1993 and 1994 BAR EXAMS:
reasons for your answer?
Sun Insurance Office vs. CA July 17, 1992
A: JQ can recover on the fire insurance policy for the
loss of the said condominium unit. He has the X was issued a personal accident insurance for
insurable interest as owner-insured. As beneficiary in P200,000. Two months later, he died of a bullet
the fire insurance policy, MLQ cannot recover on the wound in his head. He was playing with his hand gun
fire insurance policy. For the beneficiary to recover on from which he removed the magazine. He pointed his
the fire or property insurance policy, it is required that gun to his temple and fired. The insurance company
he must have insurable interest in the property refused to pay the beneficiary. Was there suicide or
insured. In this case, MLQ does not have insurable accident?
interest in the condominium unit.
SC:
FIRE DEFINED
BAR OPERATIONS 2011 Page 57
GREEN NOTES IN COMMERCIAL LAW
Prepared by: ATTY. RENATO S. RONDEZ
1. X was negligent but it should not prevent the Is insurance on human lives and insurance
beneficiary from recovery because there is appertaining thereto or connected
nothing in the policy that exempts the insurer therewith (Sec. 179)
of the responsibility to pay indemnity if the
insured is shown to have contributed to his own WHEN IS IT PAYABLE
accident.t An insurance upon life may be made payable upon:
2. The death is accidental. Accident happens by (a) death of the person; or
chance without intention or design and which (b) his surviving a specified period; or
is unexpected or unforeseen. (c) otherwise, contingently on the
continuance or cessation of life;
SURETYSHIP
An agreement whereby a party called the COMMON KINDS:
surety guarantees the performance by WHOLE LIFE/ORDINARY LIFE/STRAIGHT LIFE:
another party called the principal or obligor premiums are payable for life and the insurer
of an obligation or undertaking in favor of agrees to pay the face value upon the death of the
a 3RD party called the obligee (Sec. 175). insured.
Includes – official recognizance’s, bonds or LIMITED PAYMENT LIFE: insured pays
undertakings issued by any company under premiums for a limited period after which he
Act No. 536, as amended by act no. 2206 stops with a guarantee by the insurer that upon
(Government transactions – by authorized death the face amount is to be paid – if death
companies) occurs while payment is not complete –
beneficiary acts face amount.
LIABILITY OF THE SURETY TERM POLICY: insurer is liable only upon death
of the insured within the agreed term or period. If
It is joint and several (solidary) with the
insured survives the insurer is not liable.
obligor but limited to the amount of the bond and
determined strictly by the terms of the contract in ENDOWMENT : protection is for a limited period,
relation to the principal contract between obligor – if the insured is still alive at the end of the period,
obligee (Sec. 176). the value of the policy is paid to him. If he dies
before the end period, it is paid to the
beneficiaries.
IS A SURETYSHIP CONTRACT VALID AND BINDING
WHERE THE PREMIUM HAS NOT YET BEEN PAID? ANNUITY: where the insured or a named
person/s is paid a sum or sums periodically
Generally, payment of the premium is a
during life or a certain period (note that contracts
condition precedent. Hence the bond is not valid. An
for the payment of endowment or annuities are
exception is when it is issued and accepted by the
considered as life insurance contracts).
obligor, it is valid despite non payment of the premium
(Sec. 177). DISTINGUISHING LIFE INSURANCE FROM
PAYMENT OF ANNUITY
SURETY vs. GUARANTY
(1) In life insurance, it is payable upon the
SURETY GUARANTY
death of the insured, while in annuity, it is
Assumes liability as a Guarantor’s liability payable during the lifetime of the
regular party to the depends on an annuitant;
agreement. independent agreement (2) In life insurance, the premium is paid in
to pay if primary debtor installments, while in annuity, annuitant
fails to pay pays a single premium;
(3) In life insurance, there is lump sum
Primarily liable. Secondarily liable.
payment upon death, while in annuity,
Not entitled to Entitled to exhaustion. annuities are paid until death;
exhaustion.
WHAT RISKS ARE COVERED?
NON-NECESSITY OF A DEMAND ON THE SURETY – (1) Generally - all causes of death are covered
Demand on the surety is not necessary before bringing unless excluded by law, by policy or
the suit against them. On this point, it may be worth public policy.
mentioning that a surety is not even entitled, as a (2) Suicide, if committed after the policy has
matter of right, to be given notice of the principal’s been in force for a period of two years
default. (Intra-Strata Assurance Corporation, Et Al. v. from date of issue or last reinstatement
Republic of the Philippines, Etc., Jul. 9, 2008 G.R. No. unless policy provides a shorter period
156571) but it is nevertheless compensable if
committed in the state of insanity
regardless of date of commission (Sec.
LIFE INSURANCE 180-A)
Holds himself out for all Contracts with The law prohibits unreasonable discrimination by
people indiscriminately particular common carriers.-- The law requires common
individuals or carriers to carry for all persons, either passengers or
groups only property, for exactly the same charge for a like or
As to require Diligence contemporaneous service in the transportation of like
Extraordinary Diligence Ordinary Diligence kind of traffic under substantially similar
circumstances or conditions. The law prohibits
As to regulation
common carriers (CC) from subjecting any person, etc.
Subject to state Not subject to state
regulation regulation
or locality, or any kind of traffic, to any undue or
Stipulation limiting liability
unreasonable prejudice or discrimination whatsoever.
Exception: When the actual cost of handling and
Parties may agree on Parties may limit the transporting is different, then different rates may be
limiting the carrier’s carrier’s liability,
charged
liability except when provided it is not
Determination of justifiable refusal: This involves a
provided by law contrary to morals or
good customs consideration of the following:
Exempting circumstances 1. suitability of the vessels of the company for
Prove extraordinary Caso forfuito, Art. the transportation of such products;
diligence and 1174 NCC 2. reasonable possibility of danger or disaster,
Art.1734,NCC resulting from their transportation in the
Presumption of Negligence form and under the conditions in which they
are offered for carriage;
There is a presumption No presumption of
3. the general nature of the business done by the
of fault or negligence fault or Negligence
carrier;
Governing law
4. all the attendant circumstances which might
Law on Common Law on obligations affect the question of the reasonable necessity
Carriers and contracts
for the refusal by the carrier to undertake the
(2002 Bar exams) transportation of this class of merchandise.
Test for a common carrier: What is the DILIGENCE required by common
1. He must be engaged in the business of carrying carriers?
goods for others as a public employment, and Common carriers, from the nature of their business
must hold himself out as ready to engage in the and for reasons of public policy, are bound to observe
transportation of goods for persons generally as a extraordinary diligence in the vigilance over the goods
business, and not a casual occupation. and for the safety of the passengers transported by
2. He must undertake to carry goods of the kind to them, according to all the circumstances of each case.
which his business is confined. Extraordinary diligence lasts from the time the
3. He must undertake to carry by the methods by cargoes are loaded in the vessel until they are
which his business is conducted, and over his discharged and delivered to the consignee.
established roads. Air carriers can terminate services of pilots for serious
4. The transportation must be for hire. misconduct and drunkenness because of its
extraordinary diligence.
The true test is whether the given undertaking is a
part of the business engaged in by the carrier which he LIABILITY OF COMMON CARRIERS: The common
has held out to the general public as his occupation carrier, is at all times, required to observe
rather than the quantity or extent of the business extraordinary diligence with respect to transport of
actually transacted, or the no. and character of the goods.
conveyances used in the employment (the test is 1. To bring passengers safely to his place of
therefore the character of the business actually carried destination. He is obliged to carry passengers
on by the carrier. safely as far as human care and foresight can
provide, using the utmost diligence of a very
Characteristics of common carriers: cautious person with due regard for all
(1) The common carrier undertakes to carry for all circumstances. In case of death or injury, the
people indifferently; common carriers are presumed to have been
(2) The common carrier cannot lawfully decline to at fault or negligent in transporting the
accept a particular class of goods for carriage to the passengers unless they prove that they
prejudice of the traffic in those goods observed extraordinary diligence.
2. To transport the goods/ cargoes safely to the
Exception : for some sufficient reason, where the point of destination if there is loss or damage
discrimination in such goods is reasonable and to the goods/cargoes, immediately a
necessary (substantial grounds) presumption of negligence arises that the
(3) No monopoly is favored - the Commission has the loss/ damage to the goods/ cargoes was due
power to say what is a reasonable compensation to the to the negligence of the common carrier. The
utility and to make reasonable rules and regulations shipper may only prove that the goods arrived
for the convenience of the traveling public and to in a damaged condition or that they did not
enforce them arrive at all.
(4) Public convenience - for the best interests of the
public
LOADSTAR SHIPPING CO., INC VS. PIONEER ASIA 3. The common carrier must have exercised due
INSURANCE CORP.Jan 24, 2006 diligence to prevent or minimize before ,
A common carrier is required to observe during and after the natural disaster
extraordinary diligence in the vigilance over the 4. The common carrier has not negligently
goods it transports. incurred delay in transporting the goods
There is already an existing Contract of carriage when act with grave or irresistible threat, violence or
the carrier took possession of the cargo by placing it force, is dispensed with or diminished;
on a lighter or barge manned by its authorized 7. that the common carrier is not responsible for the
employees. (COMPANIA MARITIMA vs. INSURANCE loss, destruction, or deterioration of goods on
COMP ) account of the defective condition of the car,
vehicle, ship, airplane or other equipment used in
the contract of carriage.
A bill of lading that was issued covering certain
shipment which contained a provision that the carrier
A stipulation that the common carrier's liability is
does not assume liability for any loss /damage to the
limited to the value of the goods appearing in the bill
goods once they have been under the custody of the
of lading, unless the shipper or owner declares a
custom or other authorities or when they have been
greater value, is binding.
delivered at ship’s tackle have been considered valid ,
A contract fixing the sum that may be recovered by the
because it was held that it is not contrary to morals
owner or shipper for the loss, destruction, or
and public policy ; said stipulation is clear and have
deterioration of the goods is valid, if reasonable and
been adopted to mitigate the responsibility of the
just under the circumstances, and has been fairly and
common carrier. (LU DO vs. BINAMIRA)
freely agreed upon.
The law of the country to which the goods are to be
Stoppage in Transitu is the right of the unpaid seller
transported governs the liability of the common
who has parted with the possession of the goods to
carrier in case of loss, destruction or deterioration.
stop them in transit, when the buyer of goods is or
becomes insolvent.
The provisions of articles 1733 to 1753 shall apply to
Requisites:
the passenger's baggage which is not in his personal
custody or in that of his employee. As to other
1. Seller must be an unpaid seller; baggage, the rules in articles 1998 and 2000 to 2003
2. Goods must be in transit; concerning the responsibility of hotel-keepers shall be
3. Buyer must be in a state of insolvency; applicable.
EFFECT: Once the right is exercised, the common
carrier becomes a mere warehouseman.
Fire may not be considered as a natural disaster or
In the event that the UNPAID Seller exercises its right calamity. It does not fall within the category of act of
of stoppage in transitu , the carrier thereafter holds God UNLESS caused by lighting or by natural disaster
the goods in the capacity of an ordinary bailee or or calamity. It may even be caused by actual privy or
warehouseman and shall be liable only as such , upon fault of the carrier. (EASTERN SHIPPING vs. IAC)
the theory that the exercise of the right by the unpaid
seller , such terminates the contract of carriage. The Civil Code provisions on Common carrier shall not
be applied when the carrier is not acting as such but as
a private carrier. The stipulation in the charter party
A STIPULATION LIMITING LIABILITY IS VALID
absolving the owner from liability for loss due to the
PROVIDED THAT it be: (2002 bar Exam)
negligence of its agent would be void only if strict
1. In writing signed by both parties
public policy governing common carriers are applied.
2. Supported by a valuable consideration other than
Such policy has no force when the public at large is not
the service rendered by common carrier
involved, as in the case of a ship totally chartered for
3. Reasonable, just and not contrary to public policy
the use of a single party (HOME INSURANCE vs.
AMERICAN STEAMSHIP)
SOME VALID STIPULATIONS LIMITING CARRIER'S
LIABILITY:
In case where the Common carrier w/o just cause-
1. Account of strikes or riot;
1. Delays the transportation of goods
2. Value of the goods appearing in bill of lading
2. Changes the stipulated route / usual route
UNLESS shipper declares a greater value;
The annulment of the agreement limiting the carrier’s
3. Contract fixing the sum that may be recovered.
liability is no longer necessary; The carrier cannot
simply avail of the benefit /defense of limited liability.
VOID STIPULATIONS LIMITING CARRIER'S
When the conditions printed in the back of the ticket
LIABILITY (2002 bar exams)
stub are in letters so small that they are hard to read,
1. that the goods are transported at the risk of the
this would not warrant the presumption that the
shipper;
passenger were aware of those conditions such that he
2. that the shipper is not liable for any loss or
had “fairly and freely agreed” to them . The passenger
destruction of the goods;
therefore is not bound by such stipulations.
3. that the common carrier need not observe any
(SHEWARAN vs. PAL)
diligence in the custody of the goods;
4. that the common carrier shall exercise a degree of
II. SAFETY OF PASSENGERS
diligence less than that of a good father of a
DUTY: A common carrier is bound to carry the
family;
passengers safely as far as human care and foresight
5. that the common carrier shall not be responsible
can provide, using the utmost diligence of very
for any acts of its employee;
cautious persons, with a due regard for all the
6. that the common carrier’s liability for acts
circumstances.
committed by thieves, or of robbers who do not
RULE: The responsibility of a common carrier for the from accident; otherwise, it would be held liable.
safety of passengers as required in articles 1733 and (Bachelor Express vs. CA 188; SCRA 216)
1755 cannot be dispensed with or lessened by
stipulation, by the posting of notices, by statements on EE riding on train who stepped on watermelons. Held:
tickets, or otherwise. The conduct of plaintiff in undertaking to alight while
EXCEPTION: When a passenger is carried the train was yet slightly underway was not
gratuitously, a stipulation limiting the common characterized by imprudence and that he was not
carrier's liability for negligence is valid, but not for guilty of contributory negligence.
willful acts or gross negligence. The circumstances show that it was no means so risky
for him to get off while the train was yet moving. It is
The common carrier is liable even if the ticket issued not negligence per se for a traveler to alight from a
to passenger provides exemption of common carrier slowly moving train. (Cangco vs MRR 38 Phil 768)
from death or injury of paseenger and notices were
posted dispensing extraordinary diligence of the The DUTY of the PASSENGER is to observe the
common carrier or even if the passenger was given a diligence of a good father of a family to avoid injury to
discount of his fares. (2001 Bar exams) himself. The contributory negligence of the passenger
If the passenger is carried gratuitously, does not bar recovery of damages for his death or
stipulation limiting CC for negligence is valid but not injuries, if the proximate cause thereof is the
for WILLFUL ACT OR GROSS NEGLIGENCE. negligence of the common carrier, but the amount of
A reduction of fare does not justify any limitation of damages shall be equitably reduced.
the common carrier's liability.
Is the carrier liable for death of or injuries to Condition printed on the back of a passenger ticket
the passengers due to the negligence or willful commonly known as “CONTRACT OF ADHESION” ,
acts of ITS EMPLOYEES? being drafted only by one party , usually the
YES, although such employees may have acted beyond corporation , and the only participation of the other
the scope of their authority or in violation of the party (passenger ) is the signing of his signature “his
orders of the common carriers. adhesion thereto calls for greater strictness and
vigilance on the part of the court of justice with the
Illustrative rule: Two passengers engage in a fist-fight view of protecting the weaker party from abuses .
inside a bus terminal. An on-duty driver attempts to Such contract if enforced will be subversive of public
pacify them but instead kills one. The carrier is liable! good , thus placing the common carrier at a decided
But, if the killing of the passenger occurred while the advantage over those who may have legitimate claims
driver is off-duty, the carrier is not liable. (Recall the against it. The said condition is therefore
case of Gillaco v. Manila Railroad, the carrier was held unenforceable, as contrary to public policy- to make
not liable when its employee, a security guard who the court accessible to all those who have need of their
harbored a grudge against a fellow passenger, shot services.
and killed the latter. The guard committed the killing
while he was off-duty.) Moral damages are not recoverable on breach of
The Common carrier is held liable because - contract of carriage in view of ART.2219-20 NCC .
1. The driver , although stopping the bus, EXCEPTIONS-
nevertheless did not put off the engine. 1. Where the mishap results in the death of a
2. He started to run the bus even before the passenger; Because the common carrier
conductor gave him the signal to go and while becomes subject to the rule in ART.2206 NCC
the passenger was still unloading part of the entitles the spouse, descendants, ascendants
baggage . ( LA MALLORCA vs. CA) to moral damages for mental anguish as a
result of the death of the deceased.
In the case of LACAM vs. SMITH , the Court held that 2. 2.Where it is proved that carrier was guilty of
an accident caused by defects in the automobile is not fraud or bad faith EVEN if death does not
a caso fortuito. The rationale of the carrier’s liability is result.
the fact that the passenger has neither the choice nor Mere carelessness does not per se justify an inference
control over the carrier in the selection and use of the of malice or bad faith on the part of the common
equipment and appliances in use by the carrier. carrier ; Must be GROSS negligence
Q: Is the carrier liable for death of or injuries to Concurring causes of action arising from negligent
the passengers due to the willful acts or negligence act of the common carrier:
of other passengers or of strangers? 1. Culpa Contractual/breach of contract
(2003 Bar Exams)
YES, a common carrier is responsible for injuries Only the carrier is primarily liable not
suffered by a passenger if the common carrier's the driver, because there is no privity
employees through the exercise of the diligence of a between the driver and the
good father of a family could have prevented or passenger.(Art 1759, NCC.)
stopped the act or omission. No defense of due diligence
in the selection and
The act of the passengers stabbing another passenger supervision of the
in the bus. To be absolved, the common carrier must employees.
prove that it was negligent in preventing the injuries 2. Culpa aquiliana (quasi delict)
The carrier and the driver are solidarily liable as joint Bill of Lading: Written acknowledgement of
torfeasors.(Art 2180 NCC) receipt of goods and agreement to transport them
Defense of due diligence in the to a specific place to a person named or to his
selection and supervision of employees is order or bearer.
available. Exception: maritime tort resulting Ambiguity is construed against the
in collision carrier, the contract being one of
Although the relation of passenger adhesion.
and carrier is contractual both in origin and
nature, nevertheless, the act that breaks the Kinds of Bills of Lading
contract may also be a tort. (Air France vs.
1. Negotiable Bill of Lading – one in which it is
Carrascoso; 18 SCRA 155)
stated that the goods referred to therein will be
delivered to the bearer, or to the order of any
In the case of injury to a passenger due to the
person named in such document.
negligence of the driver of the bus on which
the passenger was riding on and of the driver 2. Non–Negotiable Bill of Lading – the goods
of another vehicle, the drivers as well as the referred to therein will be delivered to a specified
owners of the two vehicles are jointly and person.
severally liable for damages. It should not
3. Clean Bill of Lading – One which does not
make any difference that the liability of the
indicate any defect in the goods
bus owner springs from a contract while that
of the driver springs from a quasi delict. (Tiu 4. Foul Bill of Lading – Contains a notation
vs. Arriesgado) indicating that the goods are in bad Condition.
3. Culpa criminal( Criminal Negligence)
The driver is primarily liable. The 5. Spent Bill of Lading – Covers goods that have
carrier is subsidiarilly liable only if already been delivered by the carrier without a
the driver is convicted and declared surrender of a signed copy of the Lading.
insolvent.(art 100 RPC) 6. Through Bill of Lading – Issued by a carrier
who is obliged to use the facilities of other
The principle of last clear chance would call for carriers.
application in a suit between the owners and drivers
of the two colliding vehicles. It does not arise where a 7. On Board Bill of Lading – one in which it is
passenger demands responsibility from the carrier to stated that the goods have been received on board
enforce its contractual obligations.(Phil. Rabbit Bus the vessel which is to carry the goods.
Lines vs. CA) 8. Received for Shipment Bill of Lading – it is
stated that the goods have been received for
CODE OF COMMERCE OVERLAND shipment with or without specifying the vessel by
TRANSPORTATION which the goods are to be shipped.
Nature of Contract
9. Custody Bill of Lading – issued by the carrier
Art. 349. A contract of transportation by land
to the whom the goods have been delivered for
or waterways of any kind shall be considered
shipment but the vessel indicated in the bill of
commercial:
leading which is to carry the goods has not yet
1. When it involves merchandise or any
reached the port where the goods are held for
object of commerce.
shipment.
2. When, no matter what its object may be,
the carrier is a merchant or is customarily [habitually] 10. Port Bill of Lading – one which is issued by
engaged in transportation for the public. the carrier to whom the goods have been
Requisites for a contract of transportation by land or delivered, and the vessel to carry the goods is
water to be commercial : already in the port where the goods are held for
(1) transportation of merchandise is always shipment.
commercial
(2) transportation of person or news is
commercial only when the CC is a merchant or is Three–Fold Nature of Bills of Lading
habitually engaged in transportation for the public
1. A contract in itself and the parties are bound by
* principal requirement : the CC is a merchant
its terms;
or is habitually engaged in transportation for the
public; the object carried is of little importance 2. A receipt; and
3. A symbol of the covered by it
Effect of Civil Code on the provisions of the Code of
Commerce on Overland Transportation They are also documents of title, and if
negotiable in form they can constitute
– The NCC does not expressly repeal the negotiable documents of title.
provisions of the Code of Commerce on Legal effect of the Issuance of Bill of Lading
overland transportation. Instead, it makes
such provisions suppletory to the provisions – Bill of leading constitute the legal evidence of
of the NCC on common carriers the contract between the shipper and the
carrier by the contents of which the disputes
which may arise regarding their execution
– Regardless of the value of the cargo, the (2) Under Art. 375, by creating a lien in favor of
maximum liability of the carrier will be, the carrier on the goods transported.
for example, P500. This is VOID for being
contrary to public policy. AIR TRANSPORTATION
(3). Qualified Liability The nature of an airline’s contract of carriage partakes
– A stipulation in the bill of lading limiting of two types, namely: a contract to deliver a cargo or
the liability of the carrier to a valuation merchandise to its destination, and a contract to
unless the shipper declares a higher value transport passengers to their destination.( British
and pays a higher rate of freight is valid. Airways vs. CA, 285 SCRA 450)
However, the carrier cannot limit its
liability for injury to, or loss of, good Special rules on liabilities:
shipped where such injury or loss In case of flight diversion due to bad weather
was caused by its own negligence. or other circumstances beyond the pilot’s
control, the relation between the carrier and
the passengers continues until the latter has
Recovery of Damages from carriers for been landed at the port of destination and has
carriage of goods: left the carrier’s premises. The carrier should
necessarily exercise extraordinary diligence
in safeguarding the comfort, convenience and
safety of its stranded passengers until they VESSELS (in general)extends to everything floating in
have reached their final destination ( Phil and on the water, built in the form of vessel and used
Airlines vs. CA; Sept 15, 1993) for navigation regardless of form, right or motive
power.
It is firmly settled that moral damages are
recoverable in suits predicted on breach of a MERCHANT VESSELS- engaged in the transportation
contract of carriage where it is proved that of passengers and freight from one port to another or
the carrier was guilty of fraud or bad faith- in from one place to another.
attention to and lack of care for the interests
of its passengers who are entitled to its *Are vessels real or personal property?
utmost consideration, particularly as to their PERSONAL- but they partake to a certain extent, of the
convenience- amount to bad faith which nature and conditions of real property, on account of
entitles the passenger to an award of moral their value and importance of the world of commerce.
damages(Japan Airlines vs. Simangon, April
22, 2009) CHARACTERISTICS OF MARITIME TRANSACTIONS:
1. Real- similar to transactions over real property
Even where overbooking of passengers is with respect to effectivity against third persons,
allowed as a commercial practice, the airline which are done through registration. The evidence
company would still be guilty of bad faith and of real nature is shown by:
still be liable for damages if it did not properly the limitation of the liability of the agents
inform passenger that it could breach the to the actual value of the vessel and the
contract of carriage even if they were freight money and
confirmed passengers( Zalamea vs. CA GR the right to retain cargo, embargo and
104235) detention of the vessel even in cases
where ordinary civil law would not allow
Neglect or malfeasance of the carrier’s more than a personal action against
employees could give ground for an action for debtor.
damages. Passengers have a right to be 2. Hypothecary- the liability of the owner of the
treated by the carrier’s employees with vessel is limited to the vessel itself.
kindness, respect, courtesy and due 3. Preference of credits- Mortgage of a vessel
consideration and are entitled to be protected properly registered becomes of preferred
against personal misconduct, injurious mortgage lien which shall have priority over all
language, indignities and abuses from such claims against the vessel in an extrajudicial
employees. foreclosure for:
a. credit in favor of the public treasury;
An air carrier is not liable for the loss of b. judicial cost of the proceedings;
baggage in an amount in excess of the limit c. pilotage and tonnage charges and other sea
specified in the tariff which was filed with the and port changes;
proper authorities, such tariff being binding d. salaries of depositories and keepers of the
on the passenger regardless of the vessel;
passenger’s lack of knowledge thereof or e. captain and crew's wages;
assent thereto. In a contract of air carriage, a f. general average
declaration by the passenger of a higher value g. salvage including contract salvage;
is needed to recover a greater amount. h. maritime liens arising prior in time to the
recording of the preferred mortgage;
An open dated ticket constitutes a complete i. damages arising out of tort; and
contract between the carrier and passenger. j. Preferred mortgage registered prior in time.
Hence the airline company is liable if it
refused to confirm a passenger’s flight
reservation (Singson vs.CA, GR No. 119995) A.BILL OF LADING ( 1998 and 2005 bar Exams)
A bill of lading serves two functions:
An airline company which issued a confirmed a. It is a receipt for the goods shipped;
ticket to a passenger covering successive trips b. It is a contract by which three parties, namely
on a trips on different airlines can be held the shipper, the carrier, and the consignee
liable for damages occasioned by bumping off undertake specific responsibilities and
by one of the successive airlines(Lufthansa assume stipulated obligations.
German Airlines vs. CA; GR. No. 83612)
A bill of lading delivered and accepted constitutes
MARITIME COMMERCE/ WATER the contract of carriage even though not signed,
TRANSPORTATION because the acceptance of a paper containing the
Special contract of maritime commerce: terms of a proposed contact generally constitutes
1. Charter party an acceptance of the contract and of all of its terms
2. Bill of lading and conditions of which the acceptor has actual or
3. Loan of bottomry/respondentia constructive notice (Keng Hua Paper Products
4. contract of transportations passengers Inc. vs. CA, Feb. 1998)
5. Marine insurance
A bill of lading is in the nature of a contract of - At its home port (when a coast guard district or
adhesion. station is on the same port); if none, at the nearest
COAST GUARD DISTRICT OR STATION).
DOCTRINE OF LIMITED LIABILITY (HYPOTHECARY
NATURE OF MARITIME COMMERCE) ART. 587, CODE OPTIONS AS TO SMALL BOATS:
OF COMMERCE 1.) If vessel is of domestic ownership and 15 tons
1994, 1997,1999 and 2000 bar exams gross or less certificate of Philippine registry is
The liability of the ship owner is limited to the optional.
value of the vessel. The limited liability of the Purpose: declare nationality of a vessel
owner is confined to the vessel, equipment 2.) Vessel (5 tons gross or less) & no certificate of
and freight or insurance, if any. If the ship Philippine registry certificate of ownership is
owner has abandoned the ship, equipment optional.
and freight, his liability is extinguished. Privileges: right to engage in Philippine coastwise
If the vessel sinks the liability of the owner is trade and protection of the authorities and the flag
extinguished, although he may have other is also subject to the same privileges.
properties. 3.) Vessel (3 tons gross or less) not to be
If the vessel does not sink, the owner registered unless the owner shall so desire.
May exercise the right of abandonment and
the liability of the ship owner is limited to the PURPOSE OF REGISTRATION:
value of the vessel. Purchaser's rights maybe maintained against a claim
filed by the THIRD PERSON.
EXCEPTIONS TO LIMITED LIABILITY RULE:
1. When the vessel is not abandoned by the *Who shall be entitled to the freightage and who
owner or ship agent shall be obliged to pay the crew and other persons
2. When the vessel is covered by insurance who make up the compliment of the vessel?
3. Expenses for repair of the vessel before it sails
4. Claims of employees under the labor laws >It depends upon the time of the sale.
5. When ship owner/ship captain is at fault or If made while it is on a voyage, freightage shall
guilty of negligence. pertain entirely to PURCHASER and payment of the
a. lack of proper and adequate crew and other persons who make up its compliment
equipment(insufficient life vests) for same voyage shall be for his account.
b. lack of proper technical training of If made after the vessel has arrived at the port
the offices and of the vessel of its destination, freightage shall pertain to the
VENDOR and other individuals who make up its
Monarch Ins Co. vs. Ca; Allied Guarantee Insurance complement shall be for his account, UNLESS the
Co vs. CA & Equitable Insurance vs. CA, (June 8, contrary is stipulated in either case.
2000)
FORMALITIES FOR VOLUNTARY SALE ABROAD:
As a general rule, a ship owner's liability is merely 1. Execution of the bill of sale before consul of the
co-extensive with his interest in the vessel, except Philippines at the port where it terminates its
where actual fault is attributable to the ship voyage;
owner. Thus, as an exception to the limited liability 2. Inscription in the registry of the consulate;
doctrine, a ship owner or ship agent may be held 3. Forwarding by the consul of a true copy of the
liable for damages when the sinking of the vessel is instrument of purchase and sale to the registry of
attributable to the actual fault or negligence of the ship vessel;
owner or its failure to ensure the seaworthiness of the 4. Statement whether the vendor receives its price in
vessel. The instant petitions cannot be spared from the whole or in part.
application of the exception to the doctrine of limited
liability in view of the unanimous findings of the FORMALITIES FOR SALE WHEN VESSEL RENDERED
courts below that both Aboitiz and the crew failed to USELESS:
ensure the seaworthiness of the M/V P. Aboitiz.( 1. application for examination;
Aboitiz Shipping Corp vs CA, October 17,2008) 2. notification of the consignee/ insurer;
3. proof of damage and impossibility of the repair of
PHILIPPINE COAST GUARD (PCG) vested with the vessel;
exclusive authority over the registration and 4. order for the sale of vessel at public auction.
documentation of Philippine vessels, issuance of all
certificates, licenses or documents, necessary or RULES FOR THE SALE OF VESSEL AT PUBLIC
incident to registration. AUCTION:
1. articles of the vessel shall be appraised after
VESSELS REQUIRED TO BE REGISTERED: making an inventory
1. All vessels used in Philippine water; 2. posting of the order of the auction
2. Vessels of 3 tons gross shall not be registered 3. announcement
UNLESS the owner shall so desire; 4. auction shall be held on the day fixed
3. All undocumented vessels. 5. Observance of special provisions, governing the
sale of the vessel while it is on the foreign country.
Where Registration to be effected?
2 METHODS OF SALE:
POWER AND FUNCTIONS AND LIABILITIES OF SHIP SOURCES OF FUNDS TO COMPLY WITH THE
AGENT: INHERENT POWERS OF THE CAPTAIN:
1. capacity to trade; 1. from the consignee of the vessel
2. discharge duties of the captain in case of the 2. from the consignee of the cargo
latter's absence; 3. by drawing on the ship agent
3. contract in the name of the owners with respect to 4. by a loan on bottomry
repairs, details of equipment, armament, and all 5. by sale of part of the cargo
that relate to the requirements of navigation;
4. order of new voyage and make a new charter or DUTIES OF THE CAPTAIN:
insure the vessel after obtaining authorization 1. bring on board the proper certificate and
from the ship owners. document and a copy of the Code of Commerce
2. keep a logbook, accounting book and freight book
3. examine before the voyage 5. such authority shall take other steps in carrying at
4. stay on board during the loading and unloading of the facts
the cargo 6. such authority shall also make statements of what
5. be on deck while leaving or entering the port may be the result of the proceeding in the logbook
6. seeks protest, arrival under stress and in case of and in that of the sailing mate
shipwreck 7. he shall deliver the original records to the captain
7. follow instruction of and render accounting to the 8. captain must ratify the protest
ship agent
8. save the vessel lost in case of wreck C. OFFICERS AND CREW
9. hold in custody properties left by deceased by
passengers and crew members 1. Sailing mate/First mate
10. comply with the requirements of customs, health, - second chief of the vessel who takes the place of
etc. at the port of arrival the captain in case of absence, sickness, or death
and shall assume all of his duties, powers, and
LIABILITIES OF THE SHIP AGENT/SHIP OWNER responsibilities
FOR ACTS DONE BY THE CAPTAIN TOWARDS
PASSENGERS AND CARGOES MAKING THEM DUTIES:
SOLIDARILY LIABLE TO THE LATTER: 1. provide himself with maps, and charts with
1. damages to vessel and to cargo due to lack of skill astronomical tables necessary for the
and negligence discharge of his duties
2. theft and robbery of the crew 2. keep the Binnacle book
3. losses and fines in violation of laws 3. Change the course of the voyage on
4. damages due to mutinies consultation with captain and the officers of
5. damages due to misuse of power the boat, following the decision of the captain
6. deviations in case of disagreements.
7. arrival under stress 4. Responsible for all the damages caused to the
8. damages due to non-observance of marine vessel or to the cargo by reason of his
regulations negligence
seizure, pirates, or accidents in sea disabling when there was not sufficient time to do so or there
navigation was fear of a greater damage or other legitimate
When lawful When Who bears reason.
unlawful expenses 7. The vessel which is not properly moored or
The inability to 1. lack of The ship does not observe the proper distances has the
continue voyage is provisions owner or ship presumption against itself.
due to lack of due to agent is liable 8. The vessel which is moored at a place not
provisions, well negligence to in case of used for the purpose, or which is improperly moored
founded fear of carry unlawful or does not have sufficient cables, or which has been
seizure, according to arrival under left without watch, has also against itself the
privateers, pirates usage and stress. But presumption.
or accidents of the customs; they shall not
9. The same rule applies to those vessels
sea disabling it to 2.risk of be liable for
which do not have buoys to indicate the location of its
navigate enemies not damages
anchors to prevent damage to these vessels which may
well-known caused by a
or manifest; reason of a approach it.
3.defect due lawful arrival.
to improper Zones in time of collisions (3 time zones):
repair;
4.malice, 1. all the time up to the moment when the risk
negligence, of collision may have said to have begun
lack of --> within this zone, no rule is applicable
foresight, lack because none is necessary. Each vessel is free to direct
of skill its course as it deems best with reference to the
Cases of collision: movements of the other vessel.
1. Due to the fault, negligence or lack of skill of the
captain, sailing mate or the complement of the vessel-- 2. the time between the moment when the
under 826, the ship owner shall be liable for the losses risk of collision begins and the moment when it has
and damages become a practical necessity.
2. Due to the fault of both vessels --> under 827, each
vessel shall suffer its own losses, but as regards the 3. the time between the moment when
owners of the cargoes, both vessels shall be jointly and collision has become a practical certainty and the
severally liable moment of actual contact
3. Where it cannot be determined which of the 2 vessels
is at fault --> under 828, each vessel shall suffer its Effect of fault of privileged vessel during third
own losses, and both shall also be solidarily zone :
responsible for the losses and damages caused to their
cargoes If a vessel having a right of way suddenly
4. Collision due to fortuitous event or force majeure --> changes its course during the third zone, in an effort to
under 830, each vessel shall bear its own damages avoid an imminent collision due to the fault of another
5. Where two vessels collide with each other without vessel, such act may be said to be done in extremis,
their fault but by reason of the fault of a third vessel --> and even if wrong, cannot create responsibility on the
under 831, the owner of the third vessel causing the part of said vessel with the right of way. Thus, it has
collision shall be liable for the losses and damages 6. a been held that fault on the part of the sailing vessel at
vessel which is properly anchored and moored may the moment preceding a collision, that is, during the
collide with those nearby by reason of a storm or third division of time, does not absolve the steamship
other cause of force majeure --> under 832, the vessel which has suffered herself and a sailing vessel to get
run into shall suffer its own damages and expenses into such dangerous proximity as to cause inevitable
harm and confusion, and a collision results as a
Nautical Rules to determine negligence : consequence. The steamer having a far greater fault in
1. When 2 vessels are about to enter a port, allowing such proximity to be brought about is charge-
the farther one must allow the nearer to enter first; if able with all the damages resulting from the collision;
they collide, the fault is presumed to be imputable to and the act of the sailing vessel having been done in
the one who arrived later, unless it can be proved that extremis and even wrong, is not responsible for the
there was no fault on its part. result.
2. When 2 vessels meet, the smaller should
give the right of way to the larger one.
3. A vessel leaving port should leave the way
clear for another which may be entering the same CASES COVERED BY COLLISION AND ALLISION:
port. 1. one vessel at fault- such vessel is liable for damage
4. The vessel which leaves later is presumed caused to innocent vessel as well as damages
to have collided against one who has left earlier. suffered by owners of cargo of both vessels
5. There is also a presumption against the 2. both vessels at fault- each vessel must bear its
vessel which sets sail at night. own loss but the shippers of both vessel may go
6. The presumption also works against the against the ship owner who will be solidarily
vessel with spread sails which collide with another liable
which is at anchor, and cannot move, even when the 3. vessel at fault not known- same as rule 2
crew of the latter has received word to lift anchor, 4. third vessel at fault- same rule 1
5. fortuitous event- no liability, each bear its own - with respect to vessels destined for foreign ports, the
loss COGSA doesn't apply unless parties make it applicable.
Rules governing LIABILITIES of parties in case of Q: In what situations does COGSA primarily apply?
COLLISION: (1995, 1997,1998, & 2007 Bar exams) A: Where the parties expressly stipulate that COGSA
1. Where collision is due to the negligence or malice shall govern their respective rights and obligations.
of the captain and/or other ship officers of one
vessel, the ship owner of such vessel shall be liable for Q: Can the COGSA apply in domestic shipping?
all resulting damages. A: Generally, NO.
2. Where collision is due to the fault of both vessels,
each vessel shall suffer their respective losses but as EXCEPTION: when parties agree to make it apply.
regards to the owners of the cargoes, both vessels
shall be jointly and severally liable. Q: What application does COGSA have in carriage of
3. If it cannot be determined which vessel is at passengers?
fault, each vessel shall suffer its own loses and both A: None. Applies only to carriage of goods.
shall be solidarily liable for loses or damages on the
cargo. (DOCTRINE OF INSCRUTABLE FAULT) What is the “TACKLE TO TACKLE” RULE?
4. The vessels may collide with each other through The shipper shall be responsible for the goods the
fortuitous event or force majeure. In which case, moment it passes through one side of the ship for the
each shall bear its own damage. purpose of loading until it passes through the other
5. Two vessels may collide without their fault but by side for discharging. The reason for this being that
reason of a third vessel. The third vessel shall be there are two tackles involved in this operation; one
liable for losses and damages sustained. for loading, the other, unloading.
Requisite for RECOVERY arising from collision:
1. Protest must be made within 24 hours before: The shipper is responsible for: Loading, Handling,
a) Competent authority at the point of Transport, Carriage, Custody, and Discharge
collision or
b) At the first port of arrival, if in the What is the Rule for LOSS or DAMAGE to the goods?
Philippines and to the Philippine Consul, (1992, 1995, 20000 & 2005 bar exams)
if the collision took place abroad.
If the damage is apparent, then notice must be
Injuries to persons and damage to cargo of owners not immediately given. The notice may either be in writing
on board on time of collision need not be protested. or orally.
Article 835, Code of Commerce: In case of collision, If the damage is not apparent, notice must be given
there must be a marine protest to recover collision within three days from such delivery.
damage; in such a case, the marine protest is a
condition sine qua non and not merely a disclaimer Failure to give notice is not a bar to the action to file
unlike in the case of arrival under stress and provided the filing of the suit is made within one year
shipwreck. from delivery to consignee.
the carrier and the agent shall be discharged A. If the vessel is abandoned, salvor must
form liability in respect of loss or damage tow it to the nearest port where it will be
unless suit is brought within 1 year from: delivered to the Municipal Treasurer or to
(1) in case of damaged goods: from the time delivery of the Collector of Customs who will
the goods was made advertise the fact of salvage;
(2) in case of non-delivery (i.e., lost goods): from the B. If owner of salvaged vessel appears, he
date the goods should have been delivered may take possession of the vessel and
must pay a reward, the amount of which
Loss or damage as applied to the COGSA contemplates is not more than 50% of the value of the
a situation where no delivery at all times was made by vessel;
the shipper of the goods because the same had C. If no claim for the vessel is made within 3
perished, gone out of commerce, or disappeared in months after the publication of the
such a way that their existence is unknown or they advertisement, the Municipal Treasurer
cannot be recovered. It does not include a situation will sell the property saved at a public
where there was indeed a delivery but to the wrong auction and the reward and expenses
person or a misdelivery (Ang vs. American Steamship shall be deducted from the proceeds. The
Agencies 19 scra123) and damage arising from delay or balance is deposited with the Treasury;
late delivery( Mitsui O.S.K line Ltd vs. CA 287 SCRA 366) D. If no one claims the same after 3 years, ½
in such instance the civil code rules on prescription shall go to the salvors and the other half
shall apply. to the government.
Hence, in case of misdelivery (delivery to wrong
person) or conversion of the goods, the rules on IV. CONSIDERATIONS IN DETERMINING THE
prescription found in the Civil Code shall apply AMOUNT OF REWARD
(10 years for contracts; 4 years for tortuous 1.) First case
obligations) A. Value of the property saved;
B. Zeal employed by those who made the
The one year period is suspended by: salvage;
a. The express agreement of the parties (Universal C. Danger to the lives of those who
Shipping Lines Inc vs. IAC 1990) participated;
b. The filing of an action in court until it is dismissed D. Number of persons who took part;
the 1yr period shall run from delivery of the E. Services rendered;
last package and is not suspended by F. Expenses incurred
extrajudicial demand.
the one year period shall run from delivery to 2.) Second case: If one vessel saves another
the arrasstre operator and not to the vessel, the reward going to the former shall be
consignee divided as follows:
A. ½ to the ship owner;
SALVAGE LAW (ACT 2616) B. ¼ to the captain; and
C. ¼ to the crew.
I. FOUR REQUISITES FOR SALVAGE REWARD TO
BE WARRANTED:
A. There must be a valid object of salvage, WARSAW CONVENTION
i.e., vessel, cargo, freight or wreck of
vessel or cargo; Convention for the Unification of Certain Rules
B. Such object must have been exposed to Relating to International Transportation by Air
marine peril; The Warsaw Convention:
C. Salvage services must be rendered mandates carriers to issue passenger
voluntarily, i.e., not arising from pre- tickets;
existing duty; requires carriers to issue baggage
D. Salvage effort must be successful. checks for checked luggage;
creates a limitation period of 2 years
II. SHIPWRECK AND DERELICT: within which a claim must be brought
A. Shipwreck. A shipwreck refers to the (Article 29); and
injuries suffered by the vessel disabling limits a carrier's liability to at most:
the latter for navigation. 250,000 Francs or 16,600 Special
B. Derelict. It refers to the vessel or cargo Drawing Rights (SDR) for personal
abandoned at sea by those entrusted by injury;
such vessel or cargo. A derelict is a vessel
17 SDR per kilogram for checked
or cargo badly damaged and abandoned
luggage and cargo, or $20USD per
by the crew to the mercy of the sea. Mere
kilogram for non-signatories of the
abandonment of such vessel or cargo does
amended Montreal Protocols.
not make it res nullius so that anybody
5,000 Francs or 332 SDR for the
can claim it. The proper procedure must
hand luggage of a traveler.
be followed.
III. PROCEDURE:
I. NATURE AND SCOPE OF WARSAW The linkage of the contract to the Manila-Los
CONVENTION Angeles travel tickets obtained by the Mapas from
PAL cannot bring the arrangements within the
SCOPE: Applies to all international carriage of second category, where the same were filled-up
persons, luggage or goods performed by aircraft for only by the Mapas in response to the query “Your
reward. It applies equally to gratuitous carriage by Complete Intinerary” at the time they claimed for
aircraft performed by an air transport undertaking. their lost pieces of baggage. (Mapa vs. CA, G.R. No.
122308 July 8, 1997)
International Carriage:
Means any carriage in which, according to the
contract made by the parties, the place of It does not however preclude operation of the
departure and the place of destination, whether or Civil Code or other pertinent laws:
not there be a break in the carriage or a Although the Warsaw Convention has the
transshipment, are situated either within the force and effect of law in this country, being a
territories of two High Contracting Parties, or treaty commitment assumed by the Philippine
within the territory of a single High Contracting government, said convention does not operate as
Party, if there is an agreed stopping place within a an exclusive enumeration of the instances for
territory subject to the sovereignty, suzerainty, declaring a carrier liable for breach of contract of
mandate or authority of another Power, even carriage or as an absolute limit of the extent of
though that Power is not a party to this that liability. The Warsaw Convention declares the
Convention. carrier liable in the enumerated cases and under
certain limitations. However, it must not be
The Warsaw Convention to which the Republic construed to preclude the operation of the Civil
of the Philippines is a party and which has the Code and pertinent laws. (PAL vs. CA, G.R. No.
force and effect of law in this country applies to 119641 May 17, 1996)
all international transportation of persons,
baggage or goods performed by an aircraft II. SALIENT ASPECTS OF THE WARSAW
gratuitously or for hire. CONVENTION
raise timely objections during the trial of prescriptive periods. Article 29, par. (2), was
when questions and answers regarding the intended only to let local laws determine
actual claims and damages sustained by whether an action had been commenced within
the passenger were asked. (British the two (2)-year period. (United Airlines vs. Uy,
Airways vs. CA, G.R. No. 121824 January G.R. No. 127768 November 19, 1999)
29, 1998)
Prescription of action covered by Warsaw
B. Provision on limiting liability convention distinguished from those arising
from torts:
The Convention's provisions do not "regulate or Respondent's complaint reveals that he is
exclude the following areas: suing on two (2) causes of action: (a) the shabby
and humiliating treatment he received from
1.) liability for other breaches of contract by petitioner's employees at the San Francisco
the carrier; Airport which caused him extreme
2.) misconduct of its officers and employees; embarrassment and social humiliation; and, (b)
or the slashing of his luggage and the loss of his
3.) for some particular or exceptional type of personal effects amounting to US $5,310.00.
damage. (Northwest Airlines vs. CA, G.R.
No. 120334 January 20, 1998) While his second cause of action — an action
for damages arising from theft or damage to
Varying views as regards misconduct: property or goods — is well within the bounds of
the Warsaw Convention, his first cause of action
1st View – Outside WC Coverage — an action for damages arising from the
The Warsaw Convention denies to the carrier misconduct of the airline employees and the
availment of the provisions which exclude or limit violation of respondent's rights as passenger —
his liability, if the damage is caused by his willful clearly is not.
misconduct or by such default on his part as, in Consequently, insofar as the first cause of
accordance with the law of the court seized of the action is concerned, respondent's failure to file
case, is considered to be equivalent to willful his complaint within the two (2)-year limitation
misconduct, or if the damage is similarly caused of the Warsaw Convention does not bar his
by any agent of the carrier acting within the action since petitioner airline may still be held
scope of his employment. liable for breach of other provisions of the Civil
Code which prescribe a different period or
Under domestic law and jurisprudence (the procedure for instituting the action, specifically,
Philippines being the country of destination), the Art. 1146 thereof which prescribes four (4) years
attendance of gross negligence (given the for filing an action based on torts. (United
equivalent of fraud or bad faith) holds the Airlines vs. Uy, G.R. No. 127768 November 19,
common carrier liable for all damages which can 1999)
be reasonably attributed, although unforeseen, to
Use of delaying tactics by the carrier won’t
the non-performance of the obligation, including
preclude enforcement of action even beyond
moral and exemplary damages. (Sabena
the prescriptive period:
Beligian World Airways vs. CA, G.R. No. 104685
March 14, 1996) Despite the express mandate of Art. 29 of the
Warsaw Convention that an action for damages
2nd View - Tortious conduct as ground for the should be filed within two (2) years from the
petitioner’s complaint is within the purview arrival at the place of destination, such rule shall
of the Warsaw Convention (Lhuillier vs. not be applied in the instant case because of the
British Airways, G.R. No. 171092 March 15, delaying tactics employed by petitioner airline
2010) itself. (United Airlines vs. Uy, supra)
IV. Jurisdiction of Local Courts under the Warsaw
C. On limitation of time to file action Convention
Article 29. (1) The right to damages shall be Art. 1 (2) For the purposes of this Convention the
extinguished if an action is not brought within expression "international carriage" means any
two years, reckoned from the date of arrival at carriage in which, according to the contract made
the destination, or from the date on which the by the parties, the place of departure and the place
aircraft ought to have arrived, or from the date of destination, whether or not there be a break in
on which the carriage stopped. the carriage or a transhipment, are situated either
(2) The method of calculating the period of within the territories of two High Contracting
limitation shall be determined by the law of the Parties, or within the territory of a single High
court to which the case is submitted. Contracting Party, if there is an agreed stopping
place within a territory subject to the sovereignty,
suzerainty, mandate or authority of another Power,
The two (2)-year limitation incorporated in even though that Power is not a party to this
Art. 29 as an absolute bar to suit and not to be Convention. A carriage without such an agreed
made subject to the various tolling provisions of stopping place between territories subject to the
the laws of the forum. This therefore forecloses sovereignty, suzerainty, mandate or authority of
the application of our own rules on interruption
BAR OPERATIONS 2011 Page 78
GREEN NOTES IN COMMERCIAL LAW
Prepared by: ATTY. RENATO S. RONDEZ
the same High Contracting Party is not deemed to the applicable domestic law. Only after the question of
be international for the purposes of this which court has jurisdiction is determined will the
Convention. (Emphasis supplied) issue of venue be taken up. This second question shall
Art. 17. The carrier shall be liable for damage be governed by the law of the court to which the case
sustained in the event of the death or wounding of a is submitted. (Lhuillier vs. British Airways, Supra.)
passenger or any other bodily injury suffered by a
passenger, if the accident which caused the damage PUBLIC SERVICE LAW
so sustained took place on board the aircraft or in
the course of any of the operations of embarking or What is a public utility? (2000 Bar exams)
disembarking.
Art 28 (1) An action for damages must be brought A public utility is a business or service engaged in
at the option of the plaintiff, in the territory of one regularly supplying the public with some commodity
of the High Contracting Parties, either before the or service of public consequence such as electricity,
court of the domicile of the carrier or of his gas, water, transportation, telephone or telegraph
principal place of business or where he has a place service. Apart from statutes which define the public
of business through which the contract has been utilities that are within the purview of such statutes, it
made, or before the court at the place of would be difficult to construct a definition of a public
destination. utility which would fit every conceivable case. As its
name indicates, however, the term public utility
implies a public use and service to the public. (Am. Jur.
“Destination” vs. “Agreed Stopping Place” 2d V. 64, p.549.) (Albano vs. Reyes)
Article 1(2) also draws a distinction between
a "destination" and an "agreed stopping place." It is the ORDINARY AND PRIMARY PURPOSE OF THE
"destination" and not an "agreed stopping place" that PUBLIC SERVICE LAW
controls for purposes of ascertaining jurisdiction ORDINARY PURPOSE:
under the Convention. To subject public services to state control and
The contract is a single undivided operation, regulation.
beginning with the place of departure and ending with SPECIFIC PURPOSES:
the ultimate destination. The use of the singular in the 1. To secure adequate, sustained service
expression indicates the understanding of the parties for the public at the least possible
to the Convention that every contract of carriage has cost, and protect the public against
one place of departure and one place of destination. unreasonable charges and poor
An intermediate place where the carriage may be inefficient service.
broken is not regarded as a "place of destination." 2. To protect and conserve investments
(Lhuillier vs. British Airways, G.R. No. 171092 March which have already been made for
15, 2010) public service, and prevent ruinous
Jurisdictional Character of Art. 28 competition.
We further held that Article 28(1) of the
BASIS OF THE LEGISLATIVE POWER TO REGULATE
Warsaw Convention is jurisdictional in character.
PUBLIC SERVICES:
Thus:
A number of reasons tend to support the POLICE POWER, for the protection of the
characterization of Article 28(1) as a jurisdiction and public as well as the utilities themselves.
not a venue provision. First, the wording of Article 32, (Pantranco v. P.S.C., 70 Phil 221)
which indicates the places where the action for
damages "must" be brought, underscores the CONSTITUTIONAL BASIS:
mandatory nature of Article 28(1). Second, this 1. ARTICLE XII, SECTION 11:
characterization is consistent with one of the > A franchise, certificate, or any other
objectives of the Convention, which is to "regulate in a form of authorization for the operation of
uniform manner the conditions of international public utility shall be granted to:
transportation by air." Third, the Convention does not
contain any provision prescribing rules of jurisdiction - Filipino Citizens
other than Article 28(1), which means that the phrase - Corporations or associations
"rules as to jurisdiction" used in Article 32 must refer organized under Philippine
only to Article 28(1). In fact, the last sentence of Laws where at least 60% of
Article 32 specifically deals with the exclusive the capital is owned by
enumeration in Article 28(1) as "jurisdictions," which, Filipino Citizens.
as such, cannot be left to the will of the parties - 100% Filipino Management
regardless of the time when the damage occurred.
xxxx > Mass media and commercial
telecommunications shall be:
In other words, where the matter is governed by the
- 100% Filipino Capital, and
Warsaw Convention, jurisdiction takes on a dual
- 100% Filipino management
concept. Jurisdiction in the international sense must
2. ARTICLE XII, SEC 17:
be established in accordance with Article 28(1) of the
In times of national emergency, when the
Warsaw Convention, following which the jurisdiction
public interest so requires, the State may
of a particular court must be established pursuant to
during the emergency and under reasonable
terms, temporarily take over or direct the appropriating private property without just
operation of any private owned public utility compensation.
or business affected with public interests. 3. Judicial:
3. ARTICLE XII, SECTION 18 Boards, commissions are not judicial
The state may, in the interest of national tribunals and therefore cannot determine
welfare or defense, establish and operate vital judicial questions such as validity of contract.
industries and upon payment of just 4. Jurisdiction:
compensation, transfer to public ownership Extends only to persons engaged in public
utilities and other private enterprises to be utilities, or over a public utility, which holds a
operated by the government. Certificate of Public Convenience.
4. ARTICLE XII, SECTION 19
The state shall regulate or prohibit B. JURISDICTION
monopolies when the public interest so
requires; no combination in restraint of trade General Rule: Over persons engaged in public
or unfair competition shall be allowed utilities, or over a public utility, which holds a
Certificate of Public Convenience.
Exemption: violators of a valid regulation
Distinguish a Certificate of Public Convenience promulgated under the law
from a Certificate of Public Convenience and
Necesssity Distinguish Legislative Franchise from a CPC
A CPC is issued whenever the Commission ● A franchise is a grant or privilege from the
finds that the operation of the proposed public service sovereign power, while the certificate is a form of
will promote the public interests in a proper and regulation through an administrative agency.
suitable manner, for which a municipal or legislative
franchise is not necessary. On the other hand, CPCN is ● A franchise is a property right and cannot be
issued upon approval of any political subdivision of revoked or forfeited without due process of law
the Philippines when in the judgment of the (PLDT, Co. v. NTC and CELLCOM, Inc. (Express
Commission, such franchise or privilege will properly Telecommunications Co., Inc. G.R. No. 88404, 18
conserve the public interest (Perez, Transportation October 1990), whereas a CPC or a CPCN as far as the
Laws and Public service Act). interest of the State is concerned , constitutes neither a
franchise nor a contract, confers no property right, and
OFFICES NOW CHARGED WITH ENFORCEMENT OF is a mere license or a privilege. The holder of said
PUBLIC SERVICE LAW certificate does not acquire a property right in the
route covered thereby. Nor does it confer upon the
The Public Service Commission has been abolished. holder any proprietary right or interests or franchise
The following replaced it: in the public highways. Revocation of this certificate
deprives him of no vested right. New and additional
1. LAND TRANSPORTATION- Department of burdens alteration of the certificate, or even
Transportation and Communication (DOTC) revocation or annulment thereof is reserved to the
and the Land Transportation Franchising and State (Lugue v. Villegas, G.R. No. L-22545, 28
Regulatory Board (LTFRB) November 1969).
2. WATER TRANSPORTATION- Maritime
Industry Authority (MARINA) Essentials before Granting a CPC/ CPCN
3. AIR TRANSPORTATION- Air Transportation 1. The granter must be a citizen of the
Office (ATO) headed by an assistant secretary Philippines or entity sixty percent of which is
and the Civil Aeronautics Board, which has owned by such citizens.
been placed under the DOTC as an attached 2. The grantee must have sufficient financial
agency. capability to undertake the service and,
4. TELECOMMUNICATIONS- National 3. The service will promote public interests and
Telecommunications Commission, which has convenience in a proper and suitable manner.
been placed under the DOTC as an attached
agency. Note: The overriding principle is a public interest,
5. ENERGY- Board of Energy but transferred to necessity and convenience (Sundiang & Aquino,
the Energy Regulatory Board (ERB) Reviewer on Commercial Law).
6. WATERWORKS- National Water Resources
Council Coverage of CPC
● a ferry boat service is considered as a continuation
LIMITATIONS ON THE POWERS OF THE of the highway when crossing rivers or lakes , which
REGULATORY BOARDS, COMMISSIONS AND are small bodies of water; hence a land transportation
COUNCILS: company is no longer required to secure a separate
1. General: CPC in order to operate a ferry boat for the use of its
Powers are limited from those granted in buses.
the legislation creating the body.
2. Constitutional: Grounds for Revocation of Certificate
Regulations imposed must not have the 1. The holder violates or contumaciously refuses
effect of depriving an owner of his property to comply with any order, rule or regulation of
without due process of law nor confiscating or
allows other persons who own motor vehicles to 2. The gasoline consumed by the jeep is for the
operate under such license, for a fee or percentage of account of the driver.
such earnings. Although the parties to such agreement
are not out rightly penalized by law,the kabit system is These two features are not sufficient to withdraw
invariably recognized as being contrary to public the relationship between the owner and the driver
policy and therefore void and inexistent under from that of employer and employee. The jeepney
Art.1409, New Civil Code ( Lim v. C.A. G.R.No. 125817, owner is subsidiarily liable as employer in accordance
16 January 2002) with Art.103 of RPC (Magboo v. Bernardo, 30 April
1963).
Effects
1. The transfer, sale, lease or assignment of the Indeed to exempt from liability the owner of
privilege granted is valid between the public vehicle who operates it under the boundary
contracting parties but not upon the public or system on the ground that he is a mere lessor would
third persons (Gelisan v. Alday No.L- 30212, be not only to abet flagrant violations of the public
30 September 1987) service law, but also to take place the riding public at
2. The registered owner is primarily liable for all the mercy of reckless and irresponsible drivers
the consequences flowing from the operations (Spouses Henandez v. Spouses Dolor, 30 July 2004)
of the carrier. The public has the right to
assume that the registered owner is the actual The Civil Aeronautics Board is expressly
or lawful owner thereof. It would be very authorized by R.A. No. 776 to issue a temporary
difficult and often impossible, as a particular operating permit of certificate of Public Convenience
matter, for the public to enforce their rights of and Necessity (PAL v. CAB 26 March 1997)
action for injuries inflicted by the vehicle if
they should be required to prove who the The Legislature has delegated to the defunct
actual owner is (Benedicto v. IAC G.R No. Public Service Commission and presently the LTFRB,
70876, 19 July 1990). the power of fixing rates of public services. But
3. The thrust of the law in enjoining the Kabit nowhere under the provisions of law are the
system is to identify the person upon whom regulatory bodies, the PSC and LTFRB alike,
responsibility may be fixed with the end in authorized to delegate that power to a common carrier
view of protecting the riding public.(Lim v. like transport operator, or other public service (KMU
C.A. G.R. No 125817, 16 January 2002) Labor v. Garcia, 23 December 1984).
4. Application of Article 1412 of the NCC or in
pari delicto rule. The registered owner cannot A public Utility is entitled to reasonable
recover from the actual owner and the latter compensation in return for the service it provides and
cannot obtain transfer of the vehicle to that it may exact reasonable charges in accordance
himself, both being in pari delicto. (Teja with the service provided of the rates established
Marketing Vs. IAC) therefore. In computing the just and reasonable rates
5. For the better protection of the public, both to be charged by a public utility, three major factors
the registered owner and the actual owner are are to be considered: 1). Rate of Return; 20. The rate
jointly and severally liable with the driver base, 3) the return itself or the computed revenue to
(Zamboanga Transporatation Co. v. C.A, 29 be earned by the public utility based on the rate of
November 1969) return and base rate (Davao Light and Power
6. The determining factor which negates the Company, Inc., 3 April 2003)
existence of Kabit system is the possession of
the franchise to operate and not the issuance A rate is just and reasonable if it conforms to the
of one SS I.D. Number for both bus line following requirements:
(Baliwag Transit V. C.A, 7 January 1987) 1. One which yields to the carrier a fair return
upon the value of the property employed in
Requisites for the Inapplicability of the Kabit performing the service; and
System 2. One which is fair to the public for the service
1. When neither of the parties to the pernicious rendered.
Kabit system is being held liable for damages.
2. When the case arose from the negligence of Service of a Public Utility considered Unlawful
another vehicle using the public road to which It shall be unlawful for any public service to
no representation or misrepresentation as provide or maintain ant service that is unsafe,
regards the ownership and operation of improper, or inadequate, or withhold or refuse any
passenger jeepney was made. service which can be reasonably be demanded and
3. When the riding public was not bothered of furnished as founded and determined by the
inconvenienced at the very least by the illegal Commission in a final order which shall be conclusive
arrangement (Lim v. C.A. 16 January 2002) and shall effect and shall effect in accordance with this
Act, upon Appeal for otherwise (Sec.19 (a) Public
Boundary System Service Act)
1. The driver does not receive a fixed wage but
gets only the excess of the receipt of the fares Certificate of Public Convenience and Necessity
collected by him over the amount he pays to a. A certificate of Public Convenience is issued
the jeep owner. where no special government franchise is
required.
goods, documents or instruments themselves if they between the entruster and the entrustee (b) The
are unsold or not otherwise disposed of. entruster in possession of the goods, documents or
instruments may, on or after default, give notice to the
2.1 A Security Interest means a property interest entrustee of the intention to sell, and may, not less
in goods, documents or instruments to secure than five days after serving or sending of such notice,
performance of some obligations of the entrustee or of sell the goods, documents or instruments at public or
some third persons to the entruster and includes title, private sale, and the entruster may, at a public sale,
whether or not expressed to be absolute, whenever become a purchaser. Notice of the sale shall be
such title is in substance taken or retained for security deemed sufficiently given if in writing, and either
only. personally served on the entrustee or sent by post-
paid ordinary mail to the entrustee’s last known
2.2 A trust receipt transaction distinguished business address (c) the proceeds of any such sale,
from:(a) A pledge-in a pledge, the person doing the whether public or private, shall be applied (1) to the
financing has possession of the property; in a trust payment of the expenses thereof; (2) to the payment
receipt, the property is in the possession of the person of the expenses of re-taking, keeping and storing the
financed (b) A conditional sale-in a conditional sale, goods, documents or instruments; (3) to the
there is a sale of the property from the seller to the satisfaction of the entrustee’s indebtedness to the
buyer; in a trust receipt, there is no sale of the entruster. The entrustee shall receive any surplus but
property from the entruster to the entrustee (c) A shall be liable to the entruster for any deficiency.
chattel mortgage-a chattel mortgage involves the
creation of a lien upon the property; a trust receipt 4.2 Cancellation of the trust receipt and
does not involve the creation of a lien (d) A repossession is not essential for the entruster to have
consignment-in a consignment, the consignor retains a cause of action against the entrustee. They are
title to the property to secure the indebtedness due options available to the entruster and do not prejudice
from the consignee; in a trust receipt, the seller does resort to other remedies.
not retain title to the property but transfers such title
to the entruster, not to the entrustee 5. The obligations of the entrustee are as
follows: (a) to hold the goods in trust for the entruster
2.3 When a debtor has received the goods from a and to dispose of them strictly in accordance with the
supplier thereby acquiring title and will after borrow terms of the trust receipt; This includes the authority
money from a bank to pay for the same, the to manufacture or process the goods with the purpose
transaction is a loan even he signs a trust receipt of ultimate sale. Provided, however, that the entruster
agreement. It is essential for a trust receipt transaction retains title over the goods whether in its original or
for the bank to first acquire ownership and possession. processed form until the entrustee has complied with
the obligation under the receipt. It also includes
2.4 When a Memorandum of Agreement is authority to load, unload, ship or transship or
entered between a debtor corporation and a creditor otherwise deal with the goods in a manner
bank is entered into rescheduling the payments due preliminary or necessary to their sale (b) To receive
from the former, the trust receipt transaction is the proceeds of the sale of the goods in trust for the
novated and transformed into a simple loan. entruster and to turn over the same to the entruster to
the extent of the amount owing to the entruster (c) to
3. The parties to a trust receipt transaction are: insure the goods for their total value against loss from
(a) The entruster- is the person holding title over the fire, theft, pilferage or other casualties (d) to keep the
goods, documents or instruments subject to a trust goods or the proceeds thereof, whether in money or
receipt transaction, and any successor in interest of whatever form, separate and capable of identification
such person, and (b) The entrustee – is the person as property of the entruster; and (e) to return the
having or taking possession of goods, documents or goods,to the entruster in case they could not be sold or
instruments under a trust receipt transaction, and any upon demand of the entruster.
successor in interest of such person for the purpose or
purposes specified in the trust receipt 5.1 Notwithstanding the security interest of the
entruster, the entrustee shall be responsible as
4. The rights of the entruster are: (a) to be principal or as vendor under any sale or contract to
entitled to receive the proceeds of the sale of the sell made by the entrustee. Hence, although the
goods released under a trust receipt to the entrustee entrustee is not the owner of the goods under a trust
to the extent of the amount owing to the entruster (b) receipt (ownership is retained by the entrustor)
to the return of the said goods, in case they could not anyone who acquires the goods from the entrustee
be sold; and (c) to cancel the trust in case the acquires good title (ownership) over the goods. Note
entrustee defaults, take possession of the goods, and that it runs counter to the provisions of Article 1505 of
sell the same at public or private sale. the Civil Code, where there is a contract of sale, the
buyer is to acquire only whatever title the seller had at
4.1 The process of taking possession and selling the time the sale was perfected.
the goods is as follows: (a) the entruster may cancel
the trust and take possession of the goods, documents 5.2 Risk of loss shall aslso be borne by the
or instruments subject of the trust or of the proceeds entrustee. Hence, the loss of goods, documents, or
realized therefrom at any time upon default or failure instruments which are the subject of a trust receipt,
of the entrustee to comply with any of the terms and pending their disposition, irrespective of whether or
conditions of the trust receipt or any other agreement not it was due to the fault or negligence of the
warehouseman shall be liable according to the terms have validly pledged the same (Section 28, Warehouse
of the receipt as originally issued (b)Where the Receipts Law). Hence, it is enforceable against the
alteration is immaterial, whether fraudulent or not, depositor’s goods and the goods of other persons
authorized or not, the warehouseman is liable stored by depositor, if pledge of such goods by him are
according to the terms of the receipt as originally valid but not against the true owner if the depositor
issued (c) Where the alteration is material and has neither title nor right of possession to the goods
is authorized, the warehouseman shall be liable (Section 31, Warehouse Receipts Law; Young v.
according to the terms of the receipts as altered (d) Colyear, 201 Pac. 623)
Where the alteration is material,
unauthorized but without fraudulent intent, the 9.4 The warehouseman can enforce his lien by the
warehouseman shall be liable according to the terms sale of the goods (Section 33, Warehouse Receipts
of the receipts as they were before the alteration (e) Law) or by an action in court (Section 35, Warehouse
Where the alteration is material, Receipts Law). Provided, however, that notice of sale
unauthorized and with fraudulent intent, the of goods in order to satisfy the warehouseman’s lien is
warehouseman shall be liable according to the terms given.
of the receipts as originally issued even (1) to a
purchaser of the receipt for value without notice of the 9.5 The lien can be lost if a warehouseman
alteration, or (2) to the person who made the surrenders possession of the goods, or by refusing to
alteration and to any person who took it with notice of deliver the goods when a demand is made with which
the alteration. However, in the latter case, such he is bound to comply under the provisions of the Act
material and fraudulent alteration shall excuse the (Section 29, Warehouse Receipts Law)
warehouseman from any other liability to the said
persons. Except as regards the alterer and subsequent 9.6 The effect of the sale of goods to satisfy the
holders with notices. warehouseman’s lien or on account of the goods’
perishable or hazardous nature under Section 36 shall
8. For the non-existence or misdescription of not make the warehouseman, after the sale, liable for
goods, a warehouseman shall be liable to the holder of failure to deliver the goods to the depositor, or owner
a receipt for damages caused by the non-existence of of the goods, or to the holder of a receipt given for the
the goods or by the failure of the goods to correspond goods when they were deposited, even if such receipt
with the description thereof in the receipt at the time were negotiable.
of its issue.
10. A negotiable receipt is negotiated by delivery
8.1 Exception: No such liability shall attach to the when: (a) the goods are deliverable to bearer, or (b)
warehouseman if the goods are described in the the goods are deliverable to a specified person and the
receipt merely (a) by a statement of the marks or latter has indorsed it in blank or to bearer. If endorsed
labels upon them or upon the packages containing as deliverable to a person, the bearer receipt is
them, or (b) by a statement that the goods are of a transformed into a an order receipt.
certain kind or that the packages containing the goods
contain goods of a certain kind or by words of similar 10.1 A negotiable receipt is negotiated by
import. indorsement when the goods are, by the terms of the
receipt, deliverable to a specified person (Section 38,
9. The warehouseman’s lien refers to the lien of Warehouse Receipts Law)
that a warehouseman has on the goods deposited with
him or on the proceeds thereof in his hands for all 10.2 The negotiation may be made by the: (a)
lawful charges for storage and preservation of the owner or (b) the person to whom possession of the
goods, money advanced by him in relation to such receipt was entrusted by the owner (Section 40,
goods such as the expenses of transportation or labor, Warehouse Receipts Law)
or other related expenses.
10.3 The rights acquired by one to whom a
9.1 The basis for the lien is the obligation of the negotiable warehouse receipt has been duly
depositor to pay the warehouseman for (a) Storage negotiated are: (a) Such title to the goods as the one
and preservation charges (b) Money advanced (c) negotiating could convey to a purchaser in good faith
Interest (d) Insurance (e) Transportation (f) Labor (g) for value (b) Such title to the goods as the depositor or
Weighing, and (h)Coopering and other similar charges one to whose order the goods were to be delivered
(Section 27, Warehouse Receipts Law) could convey to a purchaser in good faith for value,
and (c) Direct obligation of the warehouseman to
9.2 With the exception of storage and hold the goods for him as if the warehouseman
preservation charges, the other claims must be contracted with him directly. Hence, a person to whom
expressly specified in the warehouse receipt for it to a warehouse receipt has been negotiated by one who
serve as basis for the lien (Section 30, Warehouse has stolen the goods stated in the receipt cannot claim
Receipts Law) a misdelivery if the warehouseman delivers the goods
to the rightful owner, who is the person lawfully
9.3 The lien may be enforced against all goods entitled to it.
belonging to the person liable for the charges, as well
as against all goods belonging to the others deposited 10.4 Mortgagee or pledgee of a warehouse receipt
by the person liable for the charges who has been to whom a negotiable warehouse receipt has been
entrusted with the possession of the goods and could indorsed does not acquire title over the goods. He only
acquires the rights of a pledgee or mortgagee, namely annotated on the back of the mortgage instrument; in
to foreclose the pledge or mortgage. The intent in this real estate mortgage, the mortgagor can alienate the
case is not the negotiation of the receipt with its thing mortgaged without the consent of the mortgagee
consequent transfer of title, but merely as security and any stipulation prohibiting such alienation is void
(Martinez v. P.N.B., 93 Phil. 765); P.N.B. v. Atendido, 94 (d) in a chattel mortgage, redemption of the thing
Phil. 254) mortgaged may be made only before the sale thereof;
in real estate mortgage, the thing mortgaged may be
11. A non-negotiable receipt is transferred by redeemed after it is judicially sold but before judicial
delivery accompanied with a deed of assignment or confirmation of the sale, or if extrajudicially sold,
transfer. If this is indorsed, the indorsement will not within one year from and after the date of sale (except
give the transferee any right whatsoever (Section 39, where the mortgagor is juridical person whose
Warehouse Receipts Law) property has been mortgaged in favor of a bank, quasi-
bank or trust entity, in which case the redemption
11.1 Rights acquired by a person to whom a shall be made until, but not after, the registration of
warehouse receipt has been transferred but not the certificate of foreclosure sale with the applicable
negotiated are: (a) Title to the goods subject to Register of Deeds which in no case shall be more 3
the terms of any agreement with the transferor, and months after foreclosure whichever is earlier)
(b)The right to notify the warehouseman of the
transfer in his favor and thereby acquire the direct 2. The essential requisites of a chattel mortgage
obligation of the warehouseman to hold the goods for are: (a) It must be constituted to secure the fulfillment
him (Section 42, Warehouse Receipts Law). Note that of a principal obligation (b) The mortgagor must be
pending notification, his rights can still be defeated by absolute owner of the property mortgaged (c) The
a subsequent attaching creditor, or levy on execution, mortgagor must have free disposal of such property,
a vendor’s lien or right of stoppage in transitu. or be legally authorized for the purpose (d)The
property involved must be personal or movable, and
(e) Contract must be recorded in the Chattel
CHATTEL MORTGAGES: Mortgage Register
1. A chattel mortgage defined - personal
property is recorded in the Chattel Mortgage Register 2.1 A chattel mortgage which provides that the
as a security for the performance of an obligation. security stated therein is for the payment of any and
all obligations therein before contracted and which
1.1 If the movable, instead of being recorded, is may thereafter be contracted, or future debts and
delivered to the creditor or a third person, the obligations, by the mortgagor in favor of the
contract is a pledge and not a chattel mortgage. mortgagee is void. The law requires parties to a
mortgage to execute an affidavit of good faith, that the
1.2 Distinguishing a chattel mortgage from a debt is honestly due and owing. A valid mortgage
pledge: (a) the chattel mortgage is recorded in the cannot be made to secure a debt to be contracted in
Chattel Mortgage Register; the pledge is not, instead the future (Jaca v. Davao Lumber, L-25771, March 29,
the movable is delivered to the creditor (b) in a 1982, 113 SCRA 107; Vide; Lopez v. CA, 114 SCRA 671,
chattel mortgage, the consent of the mortgagee to the Co v. PNB, 114 SCRA 842). An affidavit of good faith is
sale of the thing mortgaged must be in writing and a certificate included in the chattel mortgage contract
annotated on the back of the mortgage instrument; in executed by both mortgagor and mortgagee that the
pledge, the consent of the pledge need not be in mortgage is constituted to secure the specified
writing but may be oral (c) in a chattel mortgage, in obligation, and that said obligation is a valid, just and
addition to other formal requirements, the mortgagor subsisting obligation and not one entered into for the
must execute an affidavit of good faith; in pledge, there purpose of fraud.
is no requirement that the pledgor execute such an
affidavit (d) in a chattel mortgage, in case of 2.2 Although a promise expressed in the chattel
foreclosure of the thing mortgaged, the mortgagee is mortgage to include debts that are yet to be contracted
not entitled to the entire proceeds of the sale but only can be a binding commitment that can be acted upon,
to a portion thereof sufficient to pay the mortgage the security itself does not come into existence or
debt, interest and incidental expenses; in pledge, the arise until after a chattel mortgage agreement
pledgee is entitled to the entire proceeds of the sale covering the newly contracted debt is executed either
even if it exceeds the amount of the debt (e) in a by a fresh chattel mortgage deed or by amending the
chattel mortgagee, the mortgagee is entitled to recover old contract to conform to the law, particularly the
deficiency as a rule; in pledge, the pledgee is not execution of an affidavit of good faith (Acme Shoe etal
entitled to recover deficiency. v. CA, GR No. 103576, August 22, 1996)
1.3 Distinguishing a chattel mortgage from a real 2.3. The chattel mortgage cannot be considered to
estate mortgage: (a) in a chattel mortgage, the thing include after-acquired properties as it shall cover only
mortgaged must be personal or movable property; in a the property described in the deed and not any other
real estate mortgage, the thing mortgaged must be real like or substituted property (Section 7). Recognized as
or immovable property (b) an affidavit of good faith is exceptions are: (1) properties that are perishable, like
required to be executed in a chattel mortgage but not fruits or subject to inevitable wear and tear like tires
in a real estate mortgage (c) in a chattel mortgage, the or intended to be sold or used but with the
mortgagor cannot alienate the thing mortgaged understanding that they would be replaced with
without the written consent of the mortgagee similar properties to be thereafter acquired by the
mortgagor. An Example is: Where the debtor gives as agreement to the contrary shall be void (Art. 1484,
security the stock or merchandise in his store and it is N.C.C.). This remedies are exclusive not alternative.
the “intention” of the parties that the mortgage shall
cover the stock that will take its place in the course of EXTRA-JUDICIAL FORECLOSURE OF REAL ESTATE
the business. [Torres v. Limjap, 56 Phil. 141 ,1931] (2) MORTGAGES:
In the case of other properties, if their inclusion is 1. The resort to the process of extra-judicial
expressly stipulated and a supplement to the mortgage foreclosure emanates from the presence of a
specifically listing and describing the property is stipulation that allows the creditor/mortgagee to
executed and registered in the chattel mortgage extra-judicially foreclose and designating the said
register party as the attorney-in-fact of the mortgagor to cause
the same and to sell the subject property at a
2.4 The registration in the chattel mortgage foreclosure sale by an insertion into or attachment to
register is not necessary to make it binding between the real estate mortgage.
the parties. It is necessary though to make it binding
on third persons. 1.1 When a debt is secured by a real estate
mortgage, the creditor has two options: (a) to
foreclose, or (b) file an ordinary action to collect. If he
3. The remedies of a creditor are: (a) avails of the option to foreclose, he is still allowed to
Extrajudicial Foreclosure (b) An action for replevin (c) bring a claim for any deficiency. On the other hand, if
Judicial Foreclosure, and (d) Bring an he avails of the option to file an ordinary action, he
action for the payment of a sum of money abandons or waives his mortgage lien, without
prejudice to his levying on the same property but
subject to the rights of other creditors, if any.
3.1 A creditor cannot forceably take possession of
the chattel without court intervention (BPI Credit v. 1.2 When the mortgagor files a criminal case for
CA, 204 SCRA 601, Filinvest Credit Corporation v. CA, violation of BP Blg 22 against the mortgage debtor, he
248 SCRA 549) is deemed to have already availed himself of the
remedy of a collection suit, and following the rule on
3.2 Neither can the creditor take possession and alternative remedies, he is barred from subsequently
appropriate the chattel, since it would constitute resorting to an action for foreclosure.
pactum commissorium, referring to an act or a
stipulation giving power to the creditor to appropriate 1.3 A mortgage contract is, by nature, indivisible.
the thing given as security, if the principal obligation is The debtor who has paid cannot ask for a
not fulfilled without any formality, such as foreclosure proportionate extinguishment of the mortgage as long
proceedings and public sale. Such an act or stipulation as the debt is not completely satisfied. Generally, the
is null and void (Art. 2088, N.C.C.). In other words, the divisibility of the principal obligation is not affected by
mortgagor’s default does not operate to vest in the the indivisibility of the mortgage.
mortgagee the ownership of the mortgaged property.
3.3 Availment of the remedy of bringing an action 2. The foreclosed property shall be redeemed
to collect a sum of money is a waiver or abandonment within 1 year from and after the date of the sale (Sec.
of the chattel mortgage. This also bars the recovery of 6). The aforementioned date of sale has been
a deficiency judgment which is only available when construed by the Supreme Court to mean the date of
the proceeds of the sale are insufficient to cover the registration of the sheriff’s certificate of foreclosure
debts pursuant to a foreclosure. The prescriptive sale in the office of the Register of Deeds concerned
period for which is ten (10) years. (Reyes vs. Noblejas, et al., G.R. No. L-23691, November
25, 1967). Note that the period for redemption may
3.4. Note that when the financing company to be the subject of an extension as may be agreed upon
whom a loan and chattel mortgage have been by the parties.
refinanced had been constituted as the attorney-in-
fact of the borrower to file any insurance claim 2.1 The amount to be paid at redemption is the
covering the chattel, and it failed to do so upon a total Bid Price, plus 12% interest per annum. Note again
loss of the same, will relieve the borrower-mortgagor that under RA 8791, the redemption amount is such
of his obligation (BA Finance Corporation v. CA, 201 which is due under the mortgage deed with interest at
SCRA 157) the specified rate therein.
3.5 There are limitations on the enforcement of 2.2 Redemption may be effected by: (a) The
chattel mortgages executed in relation to the sale of debtor, or (b) His successor in interest , or (c) Any
personal property in installments, where the remedies judicial creditor or judgment creditor of the debtor, or
are: (1) Exact fulfillment of the obligation (2)Cancel (d) Any person having a lien on the property
the sale, should the vendee’s failure to pay cover two subsequent to the mortgage.
or more installments; or (3) Foreclose the chattel
mortgage on the thing sold should the vendee’s failure 2.3 Notwithstanding the foregoing provision,
to pay cover two or more installments. In this case, he juridical persons whose property is sold pursuant to
shall have no further action against the purchaser to an extra-judicial foreclosure, shall have the right to
recover any unpaid balance of the price. Any redeem the property until, but not after, the
registration of the certificate of foreclosure sale which
in no case shall be more than three (3) months after periodically fixed by a bank based on the prevailing
foreclosure whichever is earlier, as provided in interest rate in the market, such as the Manila
Section 47 of Republic Act. No. 8791 (A.M. No.99-10- Reference Rate or Treasury Bill Rate, plus a margin as
05-0) determined by the bank.
2.4 Note the probable constitutional challenges 5.1 If this rate of interest is unilaterally fixed by
that may be brought against the quoted provision of the bank for each interest period without the written
RA 8791 on the basis of the equal protection clause as conformity of the borrower, the interest may be
there is no substantive distinction between a declared null and void for being potestative and for
corporate and individual debtor or between a bank or lack of mutuality based on essential equality between
non-bank lender. the parties
2.5 Further, the application of the law should be 5.2 Its being a potestative condition (one within
prospective as a corporate mortgagor has acquired as the sole power of the one obligated to perform),
vested right to the one year redemption period if his consequently null and void finds basis in Article 1308
mortgage was executed prior to RA 8791 as the of the Civil Code that provides that the fulfillment of a
controlling consideration is the law on redemption at condition cannot be left to the sole will of one of the
the time of the execution of the mortgage. contracting parties
2.6 The purchaser of foreclosed property is not 5.3 As held by the Supreme Court in Almeda v.
automatically entitled to the possession thereof during Court of Appeals and PNB,256 SCRA 293: The binding
the redemption period as he must petition the effect of any agreement between the parties to
Regional Trial Court of the province or city where the contract is premised on two settled principles: (1) that
property is situated to give him possession thereof any obligation arising from contract has the force of
during the redemption period. He must also put up a law between the parties; and (2) that there must be
bond equivalent in value to the use of the property for mutuality between the parties based on their essential
a period of 12 months to indemnify the debtor in case equality. Any contract which appears to be heavily
it is shown that the sale was made without complying weighted in favor of one of the parties so as to lead to
with the requirements of Act No. 3135 or that there an unconscionable result is void. Any stipulation
was no violation of the mortgage deed. regarding the validity or compliance of the contract
which is left solely to the will of one of the parties is
likewise invalid.
3. In general, formal and substantive defects in
the real estate mortgage and the foreclosure 5.4 The floating rate of interest being unilaterally
proceedings provide the legal and equitable grounds fixed and determined by the bank also violates the
to enjoin or eventually nullify foreclosure proceedings, provision of CB Circular No. 1191 that the interest rate
if not the real estate mortgage itself. for each re-pricing period is subject to mutual
agreement between the Borrower and the Bank.
3.1 The general basis would be Article 5, Civil
Code, which provides: Acts executed against the 5.5 Under Article 1956 of the Civil Code, no
provisions of mandatory or prohibitory laws shall be interest is due unless it has been expressly stipulated
void, except, when the law authorizes their validity in writing. The floating rate being unilaterally fixed by
the Bank without the written mutual agreement of the
4. Disputes in the amount of the obligation may Borrower for each re-pricing of interest is null and
cause the foreclosure to be enjoined as a bank may void under Art. 1956 of the Civil Code, and for
legally proceed with foreclosure only when the exact violation of CB Circular No. 1191 that the interest rate
amount of the obligation of the mortgagor is for each re-pricing period under the floating rate of
determined in a trial on the merits and the mortgagor interest in subject to mutual agreement.
cannot meet the obligation following that
determination. 5.6 Consequently, if the interest is declared null
and void, the foreclosure sale for a higher amount than
4.1 Where the debtor is not given an opportunity what is legally due is likewise null and void because
to settle the debt at the correct amount and without under the Civil Code, a mortgage may be foreclosed
iniquitous interest imposed, no foreclosure only to enforce the fulfillment of the obligation for
proceedings can be instituted. whose security it was constituted.
4.2 The total amount due on the mortgage is also 5.7 In fact, because there is a dispute on the
undetermined if some of the properties are subject to amount of the interest legally due, the Bank may
the coverage of the CARP, in which case a portion of legally proceed with foreclosure or consolidation only
the mortgage indebtedness will be assumed by the when the exact amount of the obligations of the
government up to the amount equivalent to the Mortgagor is determined after trial on the merit and
landowner’s compensation. Hence, until the final the mortgagor cannot meet the obligation following
valuation of the lands subject to CARP is determined, that determination.
the amount of the mortgage debt is unliquidated
6. Issue of the mortgage as security for future
5. Issue of the legality of the Floating Rate of loans. The rule is unless a continuing real estate
Interest, which refers to the rate of interest mortgage is involved, a real estate mortgage is not a
6.2 Further, under Article 2176 of the Civil Code, Central Bank Act
a mortgage may only be foreclosed for the fulfillment
of the obligation for whose security it was constituted 1. The law was enacted on June 14, 1993 and has
for its policy the maintenance of a central monetary
6.3 Mortgages with a dragnet clause is a contract authority with the power: (a) function and operate as
of adhesion that must be strictly construed as against an independent and accountable body in the discharge
the bank. of its responsibilities concerning money, banking and
credit (b) enjoy fiscal and administrative autonomy.
6.4 To constitute a real estate mortgage as
security for future loans, the future loans must be 1.1 A central bank is a bank that holds the cash
agreed upon and fixed in the mortgage deed at the reserves of a country’s commercial banks, performs
time of the execution of the same monetary services for the government, issues bank
notes, and makes funds available to commercial banks
6.5 A stipulation that the amounts named as
consideration in a contract of mortgage do not limit Conservatorship
the amount for which the mortgage may stand as
security if from the four corners of the instrument the 1. The appointintment by the Monetary Board of
intent to secure future and other indebtedness can be a conservator takes place whenever a bank or quasi-
gathered is valid and binding and is known in bank is in a state of continuing inability or
American Jurisprudence as the “blanket mortgage unwillingness to maintain a condition of liquidity
clause”. deemed adequate to protect the interest of depositors
and creditors.
7. Issue of PD 385 prohibiting the issuance of an
injunction against foreclosure by any government 1.1 It is an attempt to save the bank from
financial institution is arbitrary and unreasonable. bankruptcy and ultimate liquidation.
Hence, may be argued as being unconstitutional.
Hence, it cannot be sustained if there is a clear legal 1.2 The appointed conservator is to take charge of
ground to restrain foreclosure the assets, liabilities, and the management thereof for
a period not exceeding one (1) year
8. Issue of the right to take possession. The rule
is that the purchaser still has to file a petition for the 2. A conservator may take over a bank or quasi-
issuance of a writ of possession to obtain possession. bank without the need of first declaring the bank
insolvent (P.D. 1937, June 27, 1984). Nonetheless, the
8.1 The proceedings related thereto allow the designation of a conservator is not a precondition to
mortgagor to participate although jurisprudence the designation of a receiver (Section 30)
provides that the hearings are ex-parte. However, with
the mandate of Section 8 of Act 3135 which allow the 2.1 A conservator is the person appointed to take
mortgagor to set aside foreclosure in the same over the management of a bank and shall assume
proceedings, it is the better rule to actually allow the exclusive powers to oversee every aspect of the bank’s
mortgagor’s active participation. operation and affairs.1
8.2 The obligation of the court to issue a writ of 3. The conservatorship is terminated when: (a)
possession in favor of the purchaser in an extrajudicial When Monetary Board is satisfied that
foreclosure sale ceases to be ministerial once it is institution can continue to operate on its own and the
shown that there is a third party in possession of the conservatorship is no longer necessary (b)Should
property who is claiming a right adverse to that of the Monetary Board determine that the continuance in
mortgagor and that such third party is a stranger to business of the institution would involve probable loss
the foreclosure proceedings in which the ex-parte writ
of possession was applied for.
1 Central Bank vs. CA, 208 SCRA 652
to its depositors or creditors, in which case under receivership. Admittedly, the mere filing of a
proceedings for receivership and liquidation shall be case for receivership by Central Bank can trigger a
pursued. (Sec. 29). bank run. The procedure prescribed in Section 29 is
truly designed to protect the interest of all concerned,
Proceedings in Receivership: and the summary closure pales in comparison to the
protection afforded public interest. At any rate, the
1. Receivership ensues whenever the Monetary bank is given full opportunity to prove arbitrariness
Board finds that a bank or quasi-bank: (a) Is unable to and bad faith in placing the bank under receivership,
pay its liabilities as they become due in the ordinary in which event, the resolution may be properly
course of business BUT: Shall not include inability to nullified and the receivership lifted as the trial court
pay caused by extraordinary demands induced by may determine. Until such determination is made, the
financial panic in the banking community (b) Has status quo shall be maintained, i.e., the bank shall
insufficient realizable assets to meet its liabilities (c) continue to be under receivership.
Cannot continue in business without involving
probable losses to its depositors or creditors; or (d)
Has willfully violated a cease and desist order that has 1.6 Receivership is equivalent to an injunction to
become final, involving acts or transactions which restrain in the bank officers from intermeddling with
amount to fraud or a dissipation of the assets of the the property of the bank in any way. Thus, the
institution; appointment of a receiver operates to suspend the
authority of the bank and of its directors and officers
1.1 In which cases, the Monetary Board may over its property and effects (Villanueva vs. CA, 244
summarily and without need for prior hearing, forbid SCRA 395)
the institution from doing business in the Philippines
and designate the PDIC as receiver of the banking Liquidation:
institution.
1. Liquidation shall take place is the receiver
1.2 There is no requirement that a hearing be first determines that the institution cannot be rehabilitated
conducted before a banking institution may be placed or permitted to resume business, the Monetary Board
under receivership. The appointment of a receiver shall notify in writing the Board of Directors of its
may be made by the Monetary Board without notice findings and direct the receiver to proceed with the
and hearing but its action is subject to judicial inquiry( liquidation of the institution.
Rural Bank of Buhi v. Court of Appeals,162 SCRA 288)
2. The following are the mandatory
1.3 The Central Bank, through the Monetary requirements to be complied with before a bank found
Board, is vested with exclusive authority to assess, to be insolvent can be ordered close: (1) an
evaluate and determine the condition of any bank and examination shall be conducted by the appropriate CB
if it finds the condition to be one of insolvency, or its department as to the condition of the bank (2)
continuance in business would involve probable loss disclosed in the examination is that the condition of
to creditors and depositors, it can forbid the bank to the bank is one of insolvency (3) the director shall
do business and can designate a receiver to take inform the Monetary Board in writing of such fact, and
charge of its assets and liabilities. Sec. 29 of the Central (4) the Monetary Board shall find the statement of the
Bank Act does not contemplate prior notice and department to be true (Banco Filipino vs. Monetary
hearing before a bank is placed under receivership. It Board, 204 SCRA 767)
is enough that such action is made the subject of a
subsequent judicial review. “Close now and hear later” 3. The test of insolvency laid down in Section 29
scheme under the Act is for the purpose of protecting of the Central Bank Act (now Section 30 of the New
the depositors, creditors, stockholders and general Central Bank Act) is measured by determining
public (Central Bank v. Court of Appeals, 220 SCRA whether the realizable assets, realizable within a
536) reasonable time by a reasonably prudent person of a
bank are less than its liabilities, not considering capital
1.4 Prior notice and hearing is not required stock and surplus which are not liabilities for such
before placement of bank under receivership. Section purpose. (Ibid)
29 does not contemplate prior notice and hearing
before a bank may be directed to stop operation and 4. Upon liquidation, the receiver shall then: (a)
placed under receivership. When paragraph 4 (now File ex parte with Regional Trial Court, and without the
paragraph 5 as amended by E.O. 289) provides for the requirement of prior notice or any other action, a
filing of a case within ten (10) days after the receiver petition for assistance in the liquidation of the
takes charge of the assets of the bank, it is institution pursuant to a liquidation plan adopted by
unmistakable that the assailed actions should precede PDIC (b) Upon acquiring jurisdiction, RTC shall, upon
the filing of the case. Plainly, the legislature could not motion by the institution, assist the enforcement of
have intended to authorize “no prior notice and individual liabilities of the stockholders, directors and
hearing” in the closure of the bank and at the same officers, and decide on other issues as may be material
time allow a suit to annul it on the basis of absence to implement the liquidation plan adopted (c)Convert
thereof (CB vs. CA, 220 SCRA 539) the assets of the institution to money, dispose of the
same to creditors and other parties, for the purpose of
1.5 Judicial review is allowed to determine the paying the debts of such institution in accordance with
presence of arbitrariness and bad faith in placing bank the rules on concurrence and preference of credit
under the Civil Code (d) Institute such actions as may financial system that is globally competitive, dynamic
be necessary to collect and recover accounts and and responsive to the demands of a developing
assets of, or defend any action against, the institution economy.
Selected Issues involving Receivership and 2. Banks are entities engaged in the lending of
Liquidation: funds obtained in the form of deposits.
1. If the Central Bank (now Bangko Sentral) 2.1 The definition under Section 2 of the old
through its Monetary Board has promised to General Banking Law:2 banks are entities duly
rehabilitate the distressed bank, and the stockholders authorized by the Monetary Board to engage in the
on said assurance proceeded to mortgage their real business of regularly lending funds obtained regularly
properties to guarantee CB promised loan advances to from the public through the receipt of deposits of any
said bank, CB cannot renege on said promise, under kind. Thus, entities which lend funds obtained from
the doctrine of promissory estoppel, and cannot insist the public but not as deposits but rather as debts for
in its liquidation (Ramos vs. CB, 41 SCRA 565) their own account, whether done regularly or not, and
those which regularly lend funds obtained through the
2. Where the Central Bank, in the course of the occasional receipt of deposits, would not be
rehabilitation of a commercial bank, extended loans considered as banks.
and advances, but subsequently the bank was forced
by CB to close, and subsequently allowed to reopen, 2.2 An entity that is engaged in the business of
interest due on said loans and advances, cannot be buying accounts receivables and is funding their
collected because it should be deemed read into every business from bonds sold to the public from time to
contract of deposit with a bank that the obligation to time is not a bank as it does not accept deposits,
pay interest on a deposit ceases from the moment the instead it buys receivables.
operation of the bank is completely suspended by the
duly constituted authority the Central Bank (Ibid,; Classification of Banks:
Overseas Bank vs. CA, 105 SCRA 49)
1. Banks are classified under the General
3. The prescriptive period to institute the Banking Law as follows:
foreclosure proceeding was legally interrupted when
the mortgagee-bank was placed under receivership
with express prohibition from transacting business, a (a) Universal banks- these are those that used to
circumstance considered as force majeure (Provident be called expanded commercial banks and whose
vs. CA, 222 SCRA 125) operations are now primarily governed by the GBL.
They can exercise the powers of an investment house
4. While the closure and liquidation of a bank and invest in non-allied enterprises. They have the
may be considered an exercise of police power, the highest capitalization requirement.
validity of its exercise is subject to judicial
determination, and could be set aside, if it is An investment house is a company that earns income
capricious, discriminatory, whimsical, arbitrary, unjust solely or primarily by holding and investing in
or a denial of the due process and equal protection securities issued by other companies or by
clauses of the Constitution (CB vs. CA, 106 SCRA 143) government agencies.
5. A deposit in a distressed bank already (b) Commercial banks- these are ordinary or
forbidden by CB to do business does not become a regular commercial banks, as distinguished from a
preferred credit simply because some depositors went universal bank. They have a lower capitalization
to court and were able to secure judgments against the requirement than universal banks and cannot exercise
bank (CB vs. Morfe, 63 SCRA 114) the powers of an investment house and invest in non-
allied enterprises.
6. Where in the course of bank’s distressed
condition, the Central Bank gave financial assistance to (c) Thrift banks-these are savings and mortgage
restore the bank’s viability, but that inspite of these banks, stock savings and loan associations, and private
moves, the bank was closed by CB on August 1968, development banks which are governed primarily by
and allowed to reopen on January 8, 1981, under a the Thrift Banks Act.3
new name, Commercial Bank of Manila, the obligation
by the bank to pay interest on the CB advances (d) Rural banks-these are mandated to make
remained suspended during the whole period of its needed credit available and readily accessible in the
closure, following the ruling in OBM vs. CA and Tapia rural areas on reasonable terms and which are
(105 SCRA 49). Hence, the interest obligation starts to governed primarily by the Rural Banks Act of 1992. 4
run from the date of the reopening of the bank on
January 8, 1981 (Ramos vs. CB, 137 SCRA 685) (e) Cooperative banks-these are banks organized
primarily to make financial and credit services
1. The entity that has supervisory and 4. An elective or appointive public official cannot
regulatory powers over banks is the BSP and such serve as an officer of a private bank , whether full-time
extends to all banks, quasi-banks, trust entities, and or part-time shall at the same time serve as officer of
other financial institutions. any private bank, save in cases where such service is
incident to financial assistance provided by the
2. This power of the BSP is found in Section 25 government or a government-owned or controlled
of the BSP Law which mandates the conduct of corporation to the bank or unless otherwise provided
periodic or special examinations, to include those of its under existing laws.
subsidiaries and affiliates engaged in allied activities,
but such shall be possible only in the in the course of 4.1 The Rural Banks Act9, allows an elected or
its examination of such bank. appointive public official to serve as director, officer,
consultant or in any other capacity in a rural bank.
2.1 A subsidiary corporation is one more than
50% of whose voting stock is owned by the bank or 5. A bank is required to have a board composed
quasi-bank. of 5 no more than 15 directors, two of whom must be
independent directors.10
2.2 An affiliate corporation is one less than 50%
of whose voting stock is owned by the bank or quasi- 5.1 In case of a merger or consolidation between
bank or which is related or linked to such bank or banks, the number of directors shall not exceed 21. 11
quasi-bank through common stockholders or such
factors as may be determined by the Monetary Board.6
5.2 Non Filipino citizens may become members of within the third degree of consanguinity or affinity; or
the board to the extent of the foreign participation in (2) where the director, officer or stockholder of the
its equity.12 lending bank sits as a representative of the bank in the
board of directors of such corporation: Provided, That
the bank representative shall not have any equity
Limitations imposed on Banking Operations: interest in the borrower corporation except for the
minimum shares required by law, rules and
regulations, or by the by-laws of the corporation:
1. Single Borrower Limit Rules13- these rules Provided, further, That the borrowing corporation
regulate the total amount of loans, credit under (1) or (2) is not among those mentioned in
accommodations and guarantees that may be Items (e) and (f) hereof; (e) Corporation, association
extended by a bank to any person, partnership, or firm of which any or a group of directors, officers,
association, corporation or other entity. stockholders of the lending bank and/or their spouses
or relatives within the first degree of consanguinity or
1.1 The rules seek to protect a bank from making affinity, or relative by legal adoption hold/own more
excessive loans to a single borrower by prohibiting it than twenty percent (20%) of the subscribed capital of
from lending beyond a specified ceiling. The current such corporation, or of the equity of such association
limit is 25% of the net worth of the bank concerned.14 or firm; (f) Corporation, association of firm wholly or
majority-owned or controlled by any related entity or
1.2 The ceiling is subject to possible increase by a group of related entities mentioned in Items (b), (d)
an additional 10% provided the additional liabilities and (e) hereof.
of any borrower are adequately secured by trust
receipts, shipping documents, warehouse receipts or 2.3 A bank may allow a DOSRI to: (a) borrow
other similar documents transferring or securing title from the bank; (b) become a guarantor, indorser or
covering readily marketable, non-perishable goods surety for loans from such bank to others; (c) be an
which must be fully covered by insurance. obligor; or (d) incur any contractual liability with the
written approval of the majority of all the directors of
the bank, excluding the director concerned. 16
2. DOSRI Rules15- these are rules promulgated However, the written approval shall not be required
by the BSP, upon the authority of Section 36 of the for loans, other credit accommodations and advances
GBL, which regulate the amount of credit granted to officers under a fringe benefit plan
accommodations that a bank may extend to its approved by the BSP.
directors, officers, stockholders and their related
interests, thus the term, DOSRI.
2.4 Consequently, any director or officer who may
2.1 Generally, a bank’s credit accommodations to wish to borrow from the bank must observe the
its DOSRI must be in the regular course of business following formalities: (a) The borrowing must be in
and on terms not less favorable to the bank than those accordance with the Arms Length Rule, or which must
offered to non-DOSRI borrowers. be upon terms not less favorable to the bank than
those offered to others ,must be with the written
2.2 Related Interests shall include the following: approval of a majority of the bank’s board of directors,
(a) Spouse or relative within the first degree of excluding the director concerned (b)Such approval
consanguinity or affinity, or relative by legal adoption, must be entered upon the records of the bank, i.e., the
of a director, officer or stockholder of the bank; (b) minutes of the board meeting in which the approval
Partnership of which a director, officer or stockholder was given; and (c) A copy of the entry of such approval
or his spouse or relative within the first degree of shall be transmitted forthwith to the appropriate
consanguinity or affinity, or relative by legal adoption, supervising department of the BSP.
is a general partner; (c) Co-owner with the director,
officer, stockholder or his spouse or relative within the 2.5 The other conditions are: (a) The DOSRI
first degree of consanguinity or affinity, or relative by borrower is required to waive the secrecy of his/her
legal adoption, of the property or interest or right deposits of whatever nature in all banks in the
mortgaged, pledged or assigned to secure the loans or Philippines17 and (b) The ceiling/limitation as to loans
credit accommodations, except when the mortgage, are followed.
pledge or assignment covers only said co-owner’s
undivided interest; (d) Corporation, association, or
firm of which a director or officer of such corporation, 2.6 The amount of the borrowing is limited to the
association or firm, except (1) where the securities of amount equivalent to their unencumbered deposits
such corporation, association or firm are listed and and book value of their paid in capital contribution,
traded in the big board or commercial and industrial unless they are: (a) secured by assets considered by
board of domestic stock exchanges less than fifty the Monetary Board as non risk (b) under a fringe
percent (50%) of the voting stock thereof is owned by benefit plan approved by the BSP, or is (c) extended by
any one person or by persons related to each other a cooperative bank to its cooperative stockholders;
2.7 Should there be a violation of the DOSRI rules, 3. A bank should exercise its functions and treat
after due notice to the board of directors of the bank, the accounts of their clients not only with the diligence
the office of any bank director or officer who violated of a good father of a family but it should do so with the
the rules may be declared vacant and the director or highest degree of care considering the fiduciary nature
officer shall be subject to the penal provisions of of their relationships with their depositors.26
NCBA.
3.1 The depositor expects the bank to treat his
2.8 Loans, credit accommodations or guarantees account with utmost fidelity, whether such account
extended by a bank to DOSRI are also termed as consists only of a few hundred pesos or millions. This
“Insider Lending.” is especially true since the bank is engaged in business
impressed with public interest and it is its duty to
protect in return many clients, and depositors who
Bank Deposits and Bank Responsibility to Depositors transact business with it.27
1.1 They are also considered in the nature of 3.3 However, the highest degree of diligence is
irregular deposits, they are really loans because they not expected to be exerted by banks in commercial
earn interest.19 Considering a deposit involves the transactions that do not involve their fiduciary
delivery of a thing for safekeeping with the obligation relationship with their depositors.28
to return the very same thing upon demand 20 and a
loan is a contract whereby one of the parties delivers 3.4 In case of negligence in handling the deposit
to another money or other consumable thing upon the of its clients on account of a bank officer’s gross
condition that the same amount of the same kind and negligence which causes inconvenience, humiliation
quality shall be paid.21 and embarrassment to a depositor entitles the latter to
an award of damages.29 This notwithstanding the
1.2 Banks may use the money deposited with absence of malice and bad faith as if the negligence,
them as money deposited in banks, whether fixed, nevertheless caused serious anxiety, embarrassment
savings and current, are really loans to a bank because and humiliation to the depositors.30 As long as the
the bank can use the same for its ordinary transactions bank has committed a serious mistake and the bank’s
and for banking business in which it is engaged. 22 negligence was a result of lack of due care and caution
required of managers and employees of a firm
1.3 In fact banks are not obligated to return engaged in so sensitive and demanding business as
exactly the money deposited in the same banking, it is liable for moral damages.31
denomination as it was deposited. While the banks
have the obligation to return the amount deposited, 3.5 In view of the fiduciary nature of the
they have no obligation to return or deliver the same relationship of banks and its clients and because
money deposited. Thus, estafa will not prosper.23 banking is imbued with public interest, a bank was
also made liable for damages in the following
1.4 A bank’s failure to honor a deposit is failure to instances: (a) Failure to honor/pay a check of a
pay its obligation as debtor and not a breach of trust merchant/trader when the deposit is sufficient.32
arising from a depository’s failure to return the Conversely, a bank is not liable for its refusal to pay a
subject matter of deposit check on account of insufficient funds,
notwithstanding the fact that a deposit may be made
later in the day. Before a depositor may maintain a
2. The relation created between the bank and suit to recover a specific amount from his bank, he
depositor is that of a creditor and debtor with the must first show that he had on deposit sufficient
bank as debtor and the depositor as creditor. 24 deposits to meet his demand. (b) When a bank teller
validates an incomplete duplicate deposit slip that
2.1 The relationship is fiduciary in nature.25 The lacks the name of the account holder. 33 (c) When the
bank assumes to act as an agent for another and the deposit of PPH 31,500.00 to cover six postdated
other reposes confidence in him, although there is no checks was not credited to the account of the
written contract or nor contract at all. depositor because of the omission of one “zero” in the
account number.34 (d) The bank allowed an impostor
to negotiate treasury checks.35 (e) The new engage in the business or receiving deposits, shall be
accounts teller erroneously used the old account of a insured with PDIC.
depositor instead of the newly opened joined account
of the depositor and his spouse, leading to the 3.2 Deposits that are covered are savings
dishonor of two checks issued by the depositor.36 accounts, current account, time deposits and deposits
in acceptable foreign currencies pursuant to Foreign
3.6 The defense of diligence in the selection and Currency Deposit Act.
supervision of employees is not a valid defense to
escape or at least mitigate a bank’s liability. A bank’s 3.3 Exempted though from the coverage of the
liability is not merely vicarious but primary; the law are trust funds as it was was expressly excluded
defense of exercise of due diligence in the selection from the term “deposit” under R.A. 7400 and money
and supervision of its employees is of no moment. By market placement as it is not included in the term
the very nature of the work of banks, the degree of “deposit”
responsibility, care and trustworthiness expected of
their employees and officials is far greater than those DETERMINATION OF THE AMOUNT DUE THE
of ordinary clerks and employees. Banks are expected DEPOSITOR
to exercise the highest degree of diligence in the
selection and supervision of their employees.37 1. Insured deposits under the law means the net
amount due the depositor for any deposits in the
3.7 Malice and bad faith need not be proven insured bank after deducting any offsets but should
sufficiently to make a bank liable for moral damages not exceed PHP 500,000.00.
due to the error or negligence of a bank employee as
long as the bank has committed a serious mistake and 2. Hence, if a depositor has two or more
the bank’s negligence was a result of lack of due care accounts maintained in the same right and capacity,
and caution required of managers and employees of a the coverage of PHP 500,000.00 shall be held to apply
firm engaged in so sensitive and demanding business to the sum of all such accounts.
as banking, it is liable for moral damages. 38
3. A joint account (whether “and/or, “or”, “and”
shall be insured separately from any individual-owned
4. A bank cannot prohibit a borrower from account. If held by a juridical person or entity with a
prepaying his loan as a borrower may at any time natural person, the account shall be presumed to
prior to the agreed maturity date prepay, in whole or belong to the juridical person.
in part, the unpaid balance of any bank loan and other
credit accommodation, subject to such reasonable 3.1 Accounts under joint ownership is considered
terms and conditions (such as the payment of a equally shared among co-depositors unless otherwise
prepayment fee) as may be agreed upon between the indicated in the deposit document.
bank and borrower.
TRUTH IN LENDING
PDIC
Declared Policy of the State
1. The Philippine Deposit Insurance Corporation
Act created the Philippine Deposit Insurance 1. The law, which is to be implemented by the
Corporation which is a government corporation Monetary Board of the Bangko Sentral ng Pilipinas
promoting and safeguarding the interests of the declares that it is the policy of the state to protect its
depositing public by providing permanent and citizens from a lack of awareness of the true cost of
continuing insurance coverage on all insured deposits. credit to the user by assuring a full disclosure of such
cost with a view of preventing the uninformed use of
2. It insures the deposit liability of all banks to a credit to the detriment of the national economy.
maximum deposit insurance coverage (MDIC) of
P500,000 per depositor in consideration of a premium 2. Specifically, it: (a) aims to protect a debtor
paid by the bank to the said corporation.(As per RA from the effects of misrepresentation or concealment
9576) (b) permits him to fully appreciate and evaluate the
real cost of his borrowing (c) avoid the circumvention
3. The risk insured against is the closure of a of usury laws
bank.
Coverage of the Law
3.1. The nature of the coverage is compulsory as
the law provides that the deposit liabilities of any bank 1. As used in the law, the term “credit” means:
or banking institution which is engaged in the (a) loan, mortgage, deed of trust; advance or
business of receiving deposits or which thereafter may discount (b) conditional sales contract (c)contract
to sell or contract of sale of property or services
(d)rental-purchase contract (e)contract for hire,
bailment or leasing of property (f) option, demand,
35 Go vs. IAC, 197 SCRA 22 lien, pledge or other claim against or for the delivery
36 BPI vs. IAC, 206 SCRA 408 of property or money (g)purchase of acquisition of any
37 PCIBank vs. Court of Appeals, 350 SCRA 446
credit upon security of any obligation arising out of
38 Prudential Bank vs. Court of Appeals, 328 SCRA 264
b. those in which the debtor is the one specifying Atty. Renato S. Rondez
a definite and fixed set of credit terms such as bank Partner, Law Firm of Rondez & Partners
deposits, insurance contracts, sale of bonds, etc. Professor, College of Law
University of the Cordilleras
3.1 Finance charges (Sec. 3[3]; Sec. 2[h], CB
Circular 158) are the amounts to be paid by the debtor ________________________________
incident to the extension of credit such as interests, QUESTIONS AND ANSWERS ON SECRECY OF BANK
discounts, collection fees, credit investigation fees and DEPOSITS-RA 1405 AND RELATED LAWS
attorney’s fees.
3.2 Non Finance charges (Sec. 2[f], CB Circular 1) What is the purpose of the law?
158) are the amounts advanced by a creditor for items
normally associated with the ownership of property or The purpose of the law is to encourage people
the availment of the services purchased which are not to deposit their money in banks and, thereby,
incident to the extension of credit. For example, when discourage private hoarding so that the banks may
a debtor purchases a car on credit, the creditor may lend out the money and assist in the economic
advance the insurance premium as well as the development of the country39.
registration fee for the account of the debtor.
2) What does the law prohibit?
4. To accomplish the policy of the law to protect
citizens from a lack of awareness of the true cost of (a) The examination and inquiry or looking
credit to the user by assuring a full disclosure of such into all deposits of whatever nature with banks or
cost, a creditor or lender is obliged to provide the banking institutions in the Philippines including
debtor or borrower with a statement in writing, before investments in bonds issued by the Government or its
perfection of the contract containing the following: (a) political subdivisions and instrumentalities by any
Cash price of property or service to be person, government official, bureau or office40; and
acquired (b) Amount credited as down payment (b) The disclosure by any official or employee
and or trade-in(c) Charges paid or to be paid of any banking institution to any unauthorized person
not incident to the extension of credit (d) Charges of any information concerning said deposits.
paid or to be paid not incident to the extension of
credit (e)Total amount to be financed (f) Finance Note that the law is applicable to trust
charge; and (g)Percentage of finance charge to total accounts or an account that has been set up as an inter
amount to be financed. vivos or testamentary trust as Section 2 has been held
to cover not only money that has been deposited but
4.1 The disclosure must be made in a separate also to money which has been invested although no
document, and not one that is merely incorporated in
a document by the statement that the transaction
subjects the debtor to a finance charge. 39 Sec. 1, RA 1405.
40 Sec. 2, RA 1405.
creditor-debtor relationship is created between the Act, when there is probable cause that the
bank and the client.41 deposit or investment is in any way related to
The law does not apply to money market an unlawful activity as defined in the Act or a
placements as they are not deposits, rather, they are money laundering offense under the Act48;
trades in short term negotiable instruments such as m) When a director, officer, stockholder, and
securities or treasury bills. related interest (DOSRI) obtains a loan from
his bank or its subsidiaries, or with related
3) What disclosures or inquiries into deposits are controlling interests of more than 5% of the
not prohibited? capital or surplus of the bank, it shall
constitute a waiver of secrecy of all his
a) Upon written permission of the depositor; deposits of whatever nature in all banks in the
b) In cases of impeachment; Philippines; and
c) Upon order of a competent court in cases of n) Under the Unclaimed Balances Law49.
bribery or dereliction of duty of public o) The examination of a bank account under
officials; Section 10, Rule 57 in relation to the
d) In cases where the money deposited or examination of a party whose property is
invested is the subject matter of litigation42; attached and persons indebted to a defendant
e) Upon order of the court or subpoena issued or controlling his property.50
by the Ombudsman in cases of unexplained
wealth43; This is subject to the following 4) Who are primarily liable for violations of the
requisites: (1) only an in-camera inspection is law?
allowed (2) there must be a pending case
before a court of competent jurisdiction (3) The persons primarily liable for a violation of
account is clearly identified (4) examination is the law would be a bank employee or officer and the
limited to account subject of the court case, person, government officer, agency or office looking
and (5) bank personnel and the account into the deposit when not authorized by any of the
holder must be notified to be present during exceptions to the law.
the inspection. Note also, that since investigations by the
f) Upon order of the Commissioner of Internal Monetary Board and the Bureau of Internal Revenue
Revenue in respect of the bank deposit’s of a are confidential in nature, any disclosure in violation
decedent for the purpose of determining such of the confidentiality will create liability.
decedent’s gross estate44;
g) Upon order of the Commissioner of Internal 5) Will the garnishment of a bank deposit violate
Revenue when a taxpayer files an application the law?
to compromise his tax liability by reason of
financial incapacity45; No, garnishment of a bank deposit will not
h) Upon examination made in the course of a violate the law. If the existence of the deposit is
special or general audit of a bank as disclosed, the same is considered as purely incidental
authorized by the Monetary Board after being to the execution process51.
satisfied that there is reasonable ground to What is to be disclosed only is the existence of
believe that a bank fraud or irregularity is the deposit, particularly whether or not it is sufficient
being committed and it has become necessary to satisfy the garnishment. Hence, a disclosure of the
to look into the deposit to establish the same; balance may constitute a violation of the law.
i) Upon examination of a bank’s independent
auditor, the result of which are for the 6) Is a depositor with a safety deposit box
exclusive use of the bank; protected by the law?
j) In case of suspicious transactions under the
Anti-Money Laundering Law46; No, the deposits made by a depositor in a
k) Under the Anti-Money Laundering Law where safety deposit box are not the deposits contemplated
banks are required to report to the Anti- by the law as the bank is never in possession or
Money Laundering Council any transaction in control of the contents of the safety deposit box in this
cash or other equivalent monetary instrument instance, the depositor is merely leasing the deposit
in excess of P500,000 in any one day47; box from the bank.
l) Also under the Money-Laundering Law, the
Anti-Money Laundering Council may inquire Prevailing jurisprudence is that the ensuing
into a deposit or investment maintained with relationship between the bank renting out the safety
any financial institution upon order of a deposit box and the client with respect to the contents
competent court, in cases of violation of the of the box is that of bailor-bailee, the bailment being
for hire and mutual benefit. The bank would be liable
for loss of the contents of the box if it is guilty of fraud,
41 Ejercito vs. Sandiganbayan, GR Nos. 157294-95, November
30, 2006
42 Sec. 2, RA 1405.
43 Sec. 6, RA 3019; PNB vs Gancayco, 15 SCRA 91, Marquez
negligence or delay or contravention of the tenor of Upon conviction, a violator may be sentenced
the agreement.52 to imprisonment of not more than 5 years of a fine of
not more than P200,000.00, or both at the discretion
NOTE: Without order of a court of competent of the court.
jurisdiction, disclose to any authorized person any
information relative to the funds or properties in the
custody of the bank belonging to private individuals, INTELLECTUAL PROPERTY CODE
corporations, or any other entity; Provided, that with R.A. No. 8293
respect to bank deposits, the provisions of existing
laws shall prevail53. INTELLECTUAL PROPERTIES
Those property rights which result from the physical
7) Would the examination of the bank deposits of manifestation of an original thought.
another person in connection with an inquiry into (Ballantine’s Law Dictionary)
illegally acquired property of the defendant in anti-
graft cases violate the law? Purpose: to strengthen the intellectual and industrial
property system in the Philippines as mandated by the
country’s accession to the Agreement establishing the
The permitted inquiry into illegally acquired
World Trade Organization (Mirpuri vs. CA GR no
property in anti-graft cases extends to instances
114508)
where such property is concealed by being held by or
recorded in the name of other persons.
COVERAGE -intellectual property rights consists of:
8) In a case where the money deposited or
invested is the subject matter of the litigation, a) Copyrights and related rights;
could an inquiry into the whereabouts of the b) Trademarks and service marks;
amount extend to the deposits held in the name of c) Geographic indications;
persons other that the one responsible? d) Industrial designs;
e) Patents;
Even in cases not involving prosecution under f) Layout-designs (Topographies) of Integrated
Anti-Graft and Corrupt Practices Act, an inquiry into Circuits; and
the whereabouts of the amount converted necessarily g) Protection of Undisclosed Information.
extends to whatever is concealed, held or recorded in
the name of persons other than the one responsible Section 7 of Rep. Act No. 9502 (Universally Accessible
inasmuch as the case is aimed at recovering the Cheaper and Quality Medicines Act of 2008) amends
amount converted. Section 72 of the Intellectual Property Code in that the
latter law unequivocally grants third persons the right
9) Are foreign currency deposits covered by the to import drugs or medicines whose patent were
law? registered in the Philippines by the owner of the
product (Roma Drug vs. RTC of Guagaua, Pampanga GR
While the law does not cover foreign currency No. 149907)
deposits, they however are absolutely confidential and
cannot be disclosed pursuant to Republic Act No. INTERNATIONAL CONVENTION AND RECIPROCITY
6426, otherwise known as the Foreign Currency
Deposit Act, the only exception to disclosure being
upon the written consent of the depositor54. -any person who is a national or who is
domiciled or has a real and effective industrial
An additional exemption has been provided establishment in a country which is: a.) a party to any
by the Anti Money Laundering Law when it has been convention, treaty, or agreement relating to
established that there is probable cause that the intellectual property rights or the repression of unfair
deposits involved are in any way related to the offense competition to which the Philippines is also a party, or
of money laundering.55 b.) extends reciprocal rights to nationals of the
Philippines by law, shall be entitled to benefits to the
10) Will an unlawful examination of a bank extent necessary to give effect to any provision of such
account render the information obtained convention, treaty, or reciprocal law, in addition to the
inadmissible? rights to which any owner of an intellectual property
right is otherwise provided by law. (Sec. 3)
There is nothing in the law that provides that
an unlawful examination shall render the evidence
obtained therefrom to be inadmissible. REVERSE RECIPROCITY OF FOREIGN LAWS
– makes reciprocally enforceable on nationals
11) What is the penalty for a violation of the law? of a foreign state within Philippine jurisdiction all
conditions, restrictions, limitations, diminutions,
requirements or penalties that may be imposed by
such foreign state on a Filipino national seeking
intellectual property protection in that country.
52 Sia vs. Court of Appeals, 222 SCRA 24
(Section 231)
53 Sec. 55.1(b), RA 8791.
54 Sec. 8, RA 6426.
55 Sec. 11, RA 9160
ADMINISTRATIVE PENALTIES IMPOSED FOR -an invention that can be produced and used in any
VIOLATIONS OF LAWS INVOLVING IPR industry. (Sec. 27)
a) Cease and desist order (CDO);
b) Acceptance of voluntary assurance compliance NON-PATENTABLE INVENTIONS
(VAC) or voluntary assurance of discontinuance a) Discoveries, Scientific Theories and
(VAD); Mathematical Methods;
c) Condemnation or seizure of products subject of b) Schemes, rules and methods of performing
the offense; mental acts, playing games or doing business,
d) Forfeiture of properties used in the commission of and programs for computer;
the offense; c) Methods for treatment of the human or animal
e) Imposition of administrative fines; body by surgery or therapy and diagnostic
f) Cancellation of permit, license, authority or methods practiced on the human or animal
registration; body;
g) Withholding of permit, license, authority or d) Plant varieties or animal breeds of essentially
registration; biological process for the production of plants
h) Assessment of damages; or animals;
- Must be recovered within four (4) years from e) Aesthetic creations;
the time the cause of action arose (Sec. 226) f) Anything which is contrary to public order or
i) Censure; morality (Sec. 22)
j) Analogous penalties or sanctions (Sec. 10.2 [b])
RIGHT TO A PATENT
ELEMENTS OF UNFAIR COMPETITION The right to a patent belongs:
(1) confusing similarity in the general appearance a) to the inventor, his heirs, or assigns
of the goods; and b) when 2 or more persons have made the
(2) intent to deceive the public and defraud a invention jointly – to them jointly
competitor. c) if two (2) or more persons have made the
The confusing similarity may or may not result from invention separately and independently of
similarity in the marks, but may result from other each other – to the person who filed an
external factors in the packaging or presentation of the application for such invention (FIRST TO
goods. The intent to deceive and defraud may be FILE RULE)
inferred from the similarity of the appearance of the d) where 2 or more applications are filed for the
goods as offered for sale to the public. Actual same invention – to the applicant who has the
fraudulent intent need not be shown (In-N-Out Burger earliest filing date or the earliest priority date
vs. Sehwani GR No. 179127) (FIRST TO FILE RULE) (Sec. 29)
e) In case of inventions created pursuant to a
LAW ON PATENTS commission – to the person who commissions
the work UNLESS agreed otherwise.
PATENT – an exclusive right acquired over an f) If made by an employee, the patent shall belong
invention, to sell, use, and make the same whether for to:
commerce or industry(2005 2006 bar exams) the employee – if invention not part of his
regular duties even if he uses the time,
PATENTABLE INVENTIONS facilities and materials of the employer;
-any technical solution of a problem in any OR
field of human activity which is (a.)NEW(NOVELTY), The employer – if the invention is the
involves an (b).INVENTIVE STEP and is result of the performance of his regularly
(c).INDUSTRIALLY APPLICABLE shall be patentable. assigned duties unless agreed otherwise.
(Elidad Kho vs. CA, March 19, 2002) The patentable Right to Priority
invention may be, or may relate to, a product, or -an application for patent filed by any person who has
process, or an improvement of any of the foregoing. previously applied for the same invention in another
(Sec. 21) country which by treaty, convention, or law affords
Novelty – that which does not form part of a similar privileges to Filipino citizens, shall be
prior art. (Section 23) considered as filed as of the date of filing the foreign
Prior Arts: application
a. those previously available to the public Requisites:
b. that which forms part of an application (a) The local application expressly claims priority;
provided that: (b) It is filed within twelve (12) months from the
i. the inventors or applicants are not the same date the earliest foreign application was filed;
ii. The contents of the application are published (c) A certified copy of the foreign application
in accordance with the requirements of together with an English translation is filed within
patent application rules. six (6) months from the date of filing in the
iii. The filing date of the prior art is earlier. Philippines. (Sec. 15, R.A. No. 165a)
Inventiveness/Inventive Step
-that which is not obvious to a person skilled RIGHTS ACQUIRED BY THE PATENTEE
in the art of the time of the filing date or priority date a. to restrain, prohibit and prevent any
of the application claiming the invention. (Sec. 26) unauthorized person or entity from making, using,
Industrial Applicability offering for sale, selling or importing a patented
product;
services which are identical or similar to those in NO filing date shall be accorded until the
respect of which the trademark is registered where required fee is paid (Sec. 127.2)
such use would result in a likelihood of confusion.
(Sec. 147) CANCELLATION OF TRADEMARK OR TRADENAME
1. Who may file?
NON-REGISTRABLE TRADEMARKS, TRADE NAMES - any person who believes that he is and will be
AND SERVICE MARK damaged by the registration of a mark
a) Immoral, deceptive or scandalous matter, or 2. Where to file?
matter which may disparage or falsely suggest a - BLA
connection with persons, living or dead, 3. Grounds:
institutions, beliefs, or national symbols, or bring a) Mark becomes generic for goods for
them into contempt or disrepute; which it is registered;
b) The flag or coat of arms or other insignia of b) Abandonment of the mark;
the Philippines or its political subdivisions, or of c) Registration obtained fraudulently or
any foreign nation, or any simulation thereof; contrary to provisions of RA 8293;
c) A name, portrait or signature identifying a d) Mark used by, or with permission of,
particular living individual except by his written registrant;
consent, or the name, signature, or portrait of a e) Non-use within the Philippines for 3
deceased President of the Philippines, during the uninterrupted years or longer.
life of his widow, if any, except by written consent -may be excused if caused by
of the window; circumstances arising independently
d) Is identical with a registered mark of the will of the trademark owner,
belonging to a different proprietor or a mark with such as military coup, or political
an earlier filing or priority date, in respect of: changes that impede commerce
(i) The same goods or services, or
(ii)Closely related goods or services, or DOCTRINE OF SECONDARY MEANING
(iii) If it nearly resembles such a mark as - When a mark has become distinctive of the
to be likely to deceive or cause applicant’s goods in commerce and, in the mind of the
confusion; public, indicates a single source of consumers, it may
e) Be identical with or confusingly similar to an be registered.
internationally well-known mark, whether or not
registered in the Philippines, provided that: WHAT CONSTITUTES AN INFRINGEMENT
i. If the internationally well-known mark is -Under RA 8293, any person shall, without the
not registered in the Philippines, the consent of the owner of the registered mark:
application for registration of the mark can be 1) Use in commerce any reproduction,
rejected only if the goods or services specified counterfeit, copy, or colorable imitation of a
in the application are similar to those of the registered mark or the same container or a
internationally well-known mark; dominant feature thereof in connection with
ii. If the internationally well-known mark is the sale, offering for sale, distribution,
registered in the Philippines, the application advertising any goods or services including
for registration of the mark can be refused other preparatory steps necessary to carry
even if the goods or services specified in the out the sale of any goods or services on or in
application are not identical or similar to connection with which such use is likely to
those of the internationally well-known mark. cause confusion, or to cause mistake, or to
f) Is likely to mislead the public; deceive; or
g) Generic signs for goods or services; 2) Reproduce, counterfeit, copy or colorably
h) Customary in everyday language or in imitate a registered mark or a dominant
established trade practice; feature thereof and apply such reproduction,
i) Designate the kind, quality, quantity, intended counterfeit, copy, or colorable imitation to
purpose, value, geographical origin, time or labels, signs, prints, packages, wrappers,
production of the goods or services; receptacles, or advertisements intended to be
j) Shapes necessitated by technical factors; used in commerce upon or in connection with
k) Color alone, unless defined by a given form; or the sale, offering for sale, distribution, or
l) Is contrary to public order or morality advertising of goods or services on, or in
connection with which such use is likely to
FILING DATE OF AN APPLICATION cause confusion, or to cause mistake, or to
-The filing date of an application shall be the deceive, shall be liable for infringement. (Sec.
date on which the office received the following 155)
indications and elements in English or Filipino:
a) An express or implicit indication that the TEST OF TRADEMARK INFRINGEMENT
registration of a mark is sought; 1) Dominancy Test – consists in seeking out the
b) Indications sufficient to contact the main, essential or dominant features of a
applicant or his representative, if any; mark.
c) A reproduction of the mark where 2) Holistic Test – takes stock of the other
registration is sought; and features of a mark, taking into consideration
d) The list of the goods or services for which the entirety of the marks.
the registration is sought. (Sec. 127.1)
A. Original Work - Literary and artistic works -this pertains to the “original
which include in particular: decisions” not to the SCRA published in
a) Books, pamphlets, articles and other writings volumes since these are protected under
b) Periodicals and newspapers derivative works.
c) Lectures, sermons, addresses, dissertations
prepared for oral delivery, whether or not RIGHTS OF AN AUTHOR
reduced in writing or other material form A. Economic Rights (Sec. 177)
d) Letters -exclusive right to carry out, authorize or
e) Dramatic or dramatico-musical compositions; prevent the following acts
choreographic works or entertainment in 1. Reproduction of the work or substantial
dumb shows portion of the work
f) Musical compositions, with or without words 2. Dramatization, translation, adaptation,
g) Works of drawing, painting, architecture, abridgement, arrangement or other
sculpture, engraving, lithography or other transformation of the work;
works of art; models or designs for works of 3. The first public distribution of the original
art and each copy of the work by sale or other
h) Original ornamental designs or models for forms of transfer of ownership;
articles of manufacture, whether or not 4. Rental of the original or a copy of an
registrable as an industrial design, and other audiovisual or cinematographic work;
works of applied art. 5. Public display of the original or copy of the
i) Illustrations, maps, plans, sketches, charts and work;
three-dimensional works relative to 6. Public performance of the work; and
geography, topography, architecture or 7. Other communication to the public of the
science work
j) Drawings or plastic works of a scientific or
technical character B. Moral Rights (Sec. 193)
k) Photographic works including works 1) Right to require that the authorship of the
produced by a process analogous to works be attributed to him,;
photography; lantern slides 2) Right of alteration or non-publication
l) Audiovisual works and cinematographic or 3) Right to preservation of integrity to object to
any process for making audio-visual any distortion, mutilation or other
recordings modification of, or other derogatory action in
m) Pictorial illustrations and advertisements relation to, his work which would be
n) Computer programs prejudicial to his honor or reputation; and
o) Other literary, scholarly, scientific and artistic 4) Right not to be identified with work of others
works (Sec. 172) or with distorted work.
Term of moral right
B. Derivative Works – -lifetime of the author and 50 years after his
a) Dramatizations, translations, adaptations, death
abridgments, arrangements, and other Waiver of moral right
alterations of literary works 1) by a written instrument (Sec. 195)
b) Collections of literary, scholarly or artistic 2) by contribution to a collective work
works, and compilations of data and other unless expressly reserved (Sec. 196)
materials which are original by reason of the
selection or coordination or arrangement of PRINCIPLE OF AUTOMATIC PROTECTION
their contents. (Sec. 173) Under the Berne Convention, the enjoyment
and exercise of copyright, including moral rights, shall
WORKS NOT PROTECTED not be the subject of any formality.
1) Any idea, procedure, system, method or
operation, concept, principle, discovery or OWNERSHIP OF COPYRIGHT
mere data as such, even if expressed, 1. Single creator –the author of the work, his
explained, illustrated, or embodied in a work; heirs or assigns.
2) News of the day and mere items of press 2. Joint creation –the co-authors jointly as co-
information; owners. But if the work consists of identifiable
3) Any official text of a legislative, administrative parts, the author of each part owns the part
or legal nature, as well as any official that he has created.
translation thereof. (Sec. 175) 3. Employee’s creation –the employee if the
4) Any work of the Government of the creation is not part of his regular duties even
Philippines. (Sec. 176) if he uses the time, facilities and materials of
-prior approval of the government the employer; otherwise it belongs to the
agency or office wherein the work is created employer
shall be necessary for exploitation of such 4. Commissioned work –the person
work for profit. Such agency or office, may, commissioning but the copyright remains
among other things, impose as a condition the with the creator unless there is a written
payment of royalties stipulation to the contrary.
5) Pleadings; 5. Cinematographic works – the producer has
6) Decisions of courts and tribunals. copyright for purposes of exhibition; for all
other purposes, the producer, the author of -include the right to control the erection of
the scenario, the composer, the film director, any building which reproduces the whole or a
the author of the work are the creators. substantial part of the work either in its
6. Anonymous and pseudonymous works – the original or in any form recognizably derived
publishers shall be deemed the representative from the original; Provided, that the copyright
of the author unless: in any such work shall not include the right to
a. the contrary appears control the reconstruction, or rehabilitation in
b. the pseudonyms or adopted name leaves the same style as the original of a building to
no doubt as to the author’s identity or which that copyright relates
c. If the author discloses his identity
7. Collective works – the contributor is deemed
to have waived his right unless he expressly 4) Reproduction of Published Work
reserves it. (Sec. 196) -exclusively for research and private study.
Collective Work – a work created by two or
more persons at the initiative and under the 5) Reprographic Reproduction by Libraries
direction of another with the understanding -any library or archive whose activities are
that it will be disclosed by the latter under his not for profit may, without the authorization
own name and that the contributions of of the author of copyright owner, make a
natural persons will not be identified. (Sec. single copy of the work by reprographic
171.2) reproduction.
8. In case of transfers, the transferee shall own
one or more or all the economic rights 6) Reproduction of Computer Programs
transferred provided: -allowed on the ff. conditions:
a. The assignment, if inter vivos, be in writing a)only one copy is made;
b. The assignment be filed with the National b)lawful owner made the copy;
Library upon payment of the prescribed fee. c)purpose of which the reproduction is made
is legal like:
LIMITATIONS TO THE RIGHTS ON COPYRIGHT use to which the program is made
1) Private performance, private and personal and for which it was purchased demand
use – applicable only “when a work has been the reproduction of a copy; or
lawfully made accessible to the public.” the reproduction of a copy is
Personal Use necessary to guarantee against loss or
-making a single reproduction, adaptation, destruction (Sec. 189.1)
arrangement or other transformation of another’s
work exclusively for one’s own individual use 7) Importation for Personal Purposes
Private Use Requisites:
-making a reproduction, adaptation or other a) Copies of the work are not available in the
transformation of it, in a single person as in the Philippines and:
case of “personal use” but also for a common i. not more than one copy at one time is
purpose by a specific circle of persons only. imported for strict individual use;
ii. importation is by authority and for the use
2) Fair Use of a Copyrighted Work of Philippine Government; or
Fair Use - a privilege in persons other than iii. religious, charitable, or educational society
the owner of the copyright to use the copyrighted imported not more than 3 copies per title
material in a reasonable manner without its provided they are not for sale.
consent, notwithstanding the monopoly granted to b) Copies form part of libraries and personal
the owner by the copyright. baggage belonging to persons or families
-the doctrine of fair use is meant to balance arriving from foreign countries and are not
the monopolies enjoyed by the copyright owner intended for sale: Provided, that such copies
with interests of the public and of society. do not exceed three (3). (Sec. 190)
If the containers originally conformed to the attorneys of the Judiciary. The person compiling shall
description contained in the certificate of submit to the Supreme Court Library a text-file
registration and it appears that they are the same digitized copy of the compilation;
containers being used by the other persons, the use d. The Court shall have the right to purchase copies
is illegal regardless of whether or not their of the compilation at cost, that is, by paying only the
distinctive name, mark or design is partly or entirely cost of reproducing the compilation, the cost of
erased therefrom. (Destileria Ayala, Inc. vs. Tan Tay installation, and the cost of any accompanying
& Co. GR No. l-48793) software license. Such copies shall be used exclusively
by Justices, Judges and court attorneys of the Judiciary
A.M. No. 04-7-06-SC and shall not be re-sold by the Court;
RE: CONDITIONS ON THE COMMERCIAL e. The compilation shall bear the notice “Compiled
EXPLOITATION .OF SUPREME COURT DECISIONS for sale to the public with the permission of the
RESOLUTION Supreme Court”;
a. The person compiling and selling the decisions f. These conditions apply to any updating of the
shall provide the Supreme Court Library twenty (20) compilation.
free copies of the compiled decisions in the format the
compilation is sold to the public;
b. If the compilation is in printed copies, the
Supreme Court Library shall have the right to digitize
the compilation for exclusive use for research
purposes by Justices, Judges and court attorneys of
the Judiciary;
c. If the compilation is in digitized format, the
Supreme Court Library shall have the right to make
available the digitized compilation for exclusive use
for research purposes by Justices, Judges and court
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