Corpo

Chapter I INTRODUCTION 1. The Corporation as a Legal Concept 1.
1 Corporation Defined A Corporation is an artificial being created by operation of law ha!ing the right of s"ccession and the powers attrib"tes and properties e#pressly a"thori$ed by law or incident to its e#istence. %&'( A corporation is a creat"re of) * A general enabling stat"te %re+"ire,ents of the law ,"st be co,plied with(- and * The agree,ent of indi!id"als who see. to incorporate %internal contract"al arrange,ents) articles of incorporation and by/laws(. 1.' 0o"r attrib"tes of a corporation An artificial being) 1. a 1"ridical person capable of ha!ing rights and obligations w2 a personality separate and distinct fro, its ,e,bers or stoc.holders '. hence stoc.holders are not personally liable for corp. obligations and cannot be held liable to third persons who ha!e clai,s against the corp. beyond their agreed contrib"tion to the corporate capital %paid"p capital and "npaid s"bscriptions( This is .nown as the doctrine of li,ited liability.
Created by operation of law) 1. ,ere consent of the parties to for, a corp. is not s"fficient) the 3tate ,"st gi!e its consent either thro"gh a special law %in the case of a go!4t corp.( or a general law %for a pri!ate corp.( '. the general law "nder w2c a pri!ate corp. ,ay be for,ed or organi$ed is the Corporation Code 5as the right of s"ccession) 1. its contin"ed e#istence d"ring the ter, stated in its articles of incorp. cannot be affected by any change in the ,e,bers or stoc.holders '. nor is it affected by the transfer of shares by a stoc.holder to a 6rd person 5as the powers attrib"tes and properties e#pressly a"thori$ed by law or incident to its e#istence) as it is a ,ere creat"re of the law it can e#ercise only s"ch powers as the law ,ay choose to grant it either e#pressly or i,pliedly 1.6..Ad!antages of the Corporate Organi$ations 1( 3eparate 1"ridical personality 7 personality separate and distinct fro, indi!id"al stoc.holders and ,e,bers '( Li,ited liability to in!estors 7 stoc.holders are liable only to the e#tent of their contrib"tion * 8eneral r"le) 9here a corporation b"ys all the shares of another corporation this will
not operate to dissol!e the other corporation and as the two corporations still ,aintain their separate corporate entities one will not answer for the debts of the other. :Nell ! ;acific 0ar,s %1< 3CRA =1<( No!. '6 1>?<@ * A#ceptions) o If there is an e#press ass",ption of liabilitieso There is a consolidation or ,ergero If the p"rchase was in fra"d of creditorso If the p"rchaser beco,es a contin"ation of the sellero If there are "npaid s"bscriptions %stoc.holder is liable for the "npaid balance(. 6( 0ree transferability of "nits of ownership 7 stoc.holders hold their shares as personal property with rights to dispose assign or enc",ber the, as they ,ay desire %&?6( =( Centrali$ed Banage,ent 7 all corporate powers are e#ercised by the board of directors %&'6( 1.= ;artnership !s. Corporation 1. A#tent of LiabilityCpartners are personally liable for the debts of the partnershipstoc.holders cannot be ,ade to personally answer to corporate creditors '. CreationC,ere agree,ent of the parties w2c can be co,posed of 1"st ' persons
gi!es rise to the 1"ridical personality of the partnership whether or not registered w2 the 3AC %Art. 1D?E NCC(- a corp. w2 a ,ini,", of < incorporators deri!es its 1"ridical personality fro, the certificate iss"ed by the 3AC %&1>( 6. Banage,entCIn ,ost cases all the owners in a partnership acti!ely participate in ,anage,ent w2 capacity to bind it by any "s"al contract %Art. 1E1E NCC(- in a corp. ,anage,ent is centrali$ed in the board of directors w2c has e#cl"si!e power to bind the corp. %&'6( =. Nat"re of RelationshipCpartnership is based on ,"t"al tr"st and confidence %delect"s personae( so that its e#istence is precario"s beca"se of the facility w2 which it can be dissol!ed %i.e. thro"gh the death or "nilateral act of a partner(- a corp. has ,ore stability as it en1oys the right of s"ccession and is not affected by the death or insol!ency of a stoc.holder- also dissol"tion before a corp.4s ter, re+"ires a 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age = of 6<1 COR;ORATION LA9 COBBARCIAL LA9 '26rds !ote of the stoc. %3ecs. 11E and 11> Corp. Code( always s"b1ect to 3AC inter!ention <. ;owersCa corporation has only s"ch powers as are e#pressly granted to it and
s"ch as are necessary to the e#ercise of the powers so granted or fro the acco,plish,ent of its p"rpose%sec.' 6? %11( and =<(- In a partnership as long as the parties ha!e agreed to it the partnership can perfor, any act as long as it does not !iolate any law or right of others. 1.< 8o!ern,ent Reg"lation of Corporations Hy the Legislat"re Hasis) police power of the state %Northern Ry Co. !. 3tate of 9ashington 6FF U.3. 1<=( and the fact that corporations owe their e#istence to the state Banner) by a,ending or repealing the Corp. Code or any part thereof NDC ! ;hil Ieterans Han. %1>>F( ;D 1D1D ordered the rehabilitation of the Agri# 8ro"p of Co,panies to be ad,inistered by NDC. 3ec =%1( pro!ides that all ,ortgages and liens presently attached be e#ting"ished and that all accr"ed obligations shall not bear interest. A,ong those ordered e#ting"ished was a lien in fa!or of ;hil Ieterans Han. o!er prop in LH. NDC filed to foreclose the ,ortgage. 5ALD) New Agri# was created by special decree e!en if 1>D6 Consti ,andates that Hatasang ;a,bansa cannot e#cept by general law pro!ide for for,ation organi$ation and reg"lation of pri!ate corps "nless for 8OCCs. NDC was only ,andated to e#tend loan and to
,anage co,pany. New Agri# was entirely pri!ate and sho"ld ha!e been organi$ed "nder Corp Law. Hy the 3AC Hasis) 3ec. 6 ;D >F'/A and 3ec <.1%a( RAED>>. The Co,,ission shall ha!e absol"te 1"risdiction s"per!ision and control o!er all corporations partnerships or associations who are the grantees of pri,ary franchises and2or licenses or per,its granted by the go!ern,ent to operate in the ;hilippines- ### Note) Under 3ec. <.' of RAED>> 3AC4s 1"risdiction o!er all cases en",erated "nder 3ec. < ;D >F'/A was transferred to the Regional Trial Co"rt which has 1"risdiction o!er the principal office of the corporation partnership or association concerned. According to the Interi, R"les of ;roced"re for Intra/Corporate Contro!ersies %A.B. No. F1/'/F=/ 3C( which too. effect on April 1 'FF1 the Regional Trial Co"rt has 1"risdiction o!er cases in!ol!ing the following) 1. De!ices or sche,es e,ployed by or any act of the HOD b"siness associates officers or partners a,o"nting to fra"d or ,isrepresentation which ,ay be detri,ental to the interest of the p"blic and2or of the stoc.holders partners or ,e,bers of any corporation partnership or association'. Contro!ersies arising o"t of intracorporate partnership or association
relations between and a,ong stoc.holders ,e,bers or associates- and between any or all of the, and the corporation partnership or association of which they are stoc.holders ,e,bers or associates respecti!ely6. Contro!ersies in the election or appoint,ent of directors tr"stees officers or ,anagers of corporations partnerships or associations=. Deri!ati!e s"its- and <. Inspection of corporate boo.s. Borato ! CA %'FF=( ;etitioners stoc.holders of T0 Ient"res Inc. filed a petition with the 3AC against pri!ate respondents for the declaration of n"llity of stoc.holders4 and directors4 ,eetings and da,ages. They assail the !alidity of the notice and stoc.holders4 ,eeting of T0 Ient"res Inc. and the organi$ational ,eeting of the ,e,bers of the HOD. The petition was referred to the 3ec"rities In!estigation and Clearing Depart,ent %3ICD( of the 3AC for in!estigation and resol"tion. Beanwhile one of the pri!ate respondents %Bats"ra Chair,an of the HOD( wrote a letter to the A#a,iners and Appraisers Dept of the 3AC re+"esting for an e#a,ination of the basis for the capital increase of T.0. Ient"res Inc. fro, ;1F FFF FFF to ;1FF FFF FFF alleging the co,,ission of de!ices sche,es and cri,inal acts.
The letter was forwarded by the 3AC to the ;rosec"tion and Anforce,ent Dept %;AD(. ;etitioners contended that with the filing of the letter/petition with the ;AD Bats"ra resorted to for", shopping. 5ALD) Bats"ra is not g"ilty of for", shopping. There is no identity of ca"ses of action or identity of rights asserted by the parties in both cases. In this case 3AC Case is pending before the 3ICD which has e#cl"si!e 1"risdiction to in!estigate and resol!e intra/corporate disp"tes. The respondent4s letter/petition on the other hand was referred by the 3AC to the ;AD and is pending before the ;rosec"tion and Anforce,ent Depart,ent of the 3AC. 3ection E of ;.D. No. >F'/A as a,ended pro!ides) 3ACTION E. The ;rosec"tion and Anforce,ent Depart,ent shall ha!e s"b1ect to the Co,,ission4s control and s"per!ision the e#cl"si!e a"thority to in!estigate on co,plaint or ,ot" propio any act or o,ission of the Hoard of Directors2Tr"stees of corporations or of partnerships or other associations or of their stoc.holders officers or partners incl"ding any fra"d"lent de!ices sche,es or representations in !iolation of any law or r"les and reg"lations ad,inistered and enforced by the Co,,ission- to file and
prosec"te in accordance with law and r"les and reg"lations iss"ed by the Co,,ission and in appropriate cases the 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age < of 6<1 COR;ORATION LA9 COBBARCIAL LA9 corresponding cri,inal or ci!il case before the Co,,ission or the proper co"rt or body "pon pri,a facie finding of !iolation of any laws or r"les and reg"lations ad,inistered and enforced by the Co,,ission- and to perfor, s"ch other powers and f"nctions as ,ay be pro!ided by law or d"ly delegated to it by the Co,,ission. ;rosec"tion "nder this Decree or any Act Law R"les and Reg"lations enforced and ad,inistered by the Co,,ission shall be witho"t pre1"dice to any liability for !iolation of any pro!ision of the Re!ised ;enal Code. Under the said pro!ision the 3AC thro"gh the ;AD is !ested with a"thority to in!estigate either ,ot" proprio or "pon co,plaint any act or o,ission fra"d"lent sche,es de!ices or ,isrepresentations in !iolation of any law r"les or reg"lations ad,inistered and enforced by the 3AC and to file and prosec"te appropriate ci!il or cri,inal cases "pon a pri,a facie finding of !iolation of s"ch laws r"les or reg"lations. The petitioners in the 3AC case so"ght the n"llification
of the Notice for the Ann"al 3toc.holders4 Beeting the stoc.holders4 ,eeting and organi$ational ,eeting held on 3epte,ber '' 1>>D on their clai, that the holding of the sa,e was in !iolation of the Corporation Code and the Hy/Laws of the petitioner corporation. In his answer to the petition the respondent asserted the !alidity of the said ,eeting and prayed by way of co"nterclai, for the n"llification of the October 'F 1>>D ,eeting of the petitioners and for da,ages. In contrast the respondent alleged in his letterpetition in the ;AD case that the petitioners were engaged in fra"d"lent sche,es de!ices or ,isrepresentations in !iolation of the law and 3AC r"les and reg"lations. The co,plainant Bats""ra as.ed the ;AD to in!estigate the co,plaint and file the corresponding ad,inistrati!e ci!il or cri,inal cases before the 3AC the proper co"rt or body for !iolation of the laws r"les or reg"lations ad,inistered and enforced by the 3AC. The fact that the 3ICD has not yet resol!ed the 3AC case does not constit"te a bar to the resol"tion of the ;AD case. The proceedings in the said cases are independent and separate of each other and ,ay th"s proceed separately. Note that while this case was pending in the 3C RA ED>> 3ec"rities Reg"lation Code too. effect on A"g"st E 'FFF. 3ection <.' of the law pro!ides that 3AC4s 1"risdiction o!er all cases "nder 3ec < of ;D >F'/A is transferred to the RTCs.
A,ong the powers and f"nctions of the 3AC which were transferred to the RTC incl"de the following) %a( 1"risdiction and s"per!ision o!er all corporations partnerships or associations who are the grantees of pri,ary franchises and2or a license or per,it iss"ed by the 8o!ern,ent- %b( the appro!al re1ection s"spension re!ocation or re+"ire,ent for registration state,ents and registration and licensing applications- %c( the reg"lation in!estigation or s"per!ision of the acti!ities of persons to ens"re co,pliance- %d( the s"per!ision ,onitoring s"spension or ta.e o!er the acti!ities of e#changes clearing agencies and other 3ROs- %e( the i,position of sanctions for the !iolation of laws and the r"les reg"lations and orders iss"ed p"rs"ant thereto- %f( the iss"ance of cease/and/desist orders to pre!ent fra"d or in1"ry to the in!esting p"blic- %g( the co,p"lsion of the officers of any registered corporation or association to call ,eetings of stoc.holders or ,e,bers thereof "nder its s"per!ision- and %h( the e#ercise of s"ch other powers as ,ay be pro!ided by law as well as those which ,ay be i,plied fro, or which are necessary or incidental to the carrying o"t of the e#press powers granted the Co,,ission to achie!e the ob1ecti!es and p"rposes of these laws. 5owe!er 3ection E of ;.D. No. >F'/A as a,ended has already been repealed as pro!ided for in 3ection D? of RA ED>>. Th"s "nder the new law the ;AD ceased to e#ist.
5owe!er the 3AC retains 1"risdiction to contin"e with its in!estigation of the letter/petition of respondent Bats""ra. 9hen RA ED>> too. effect the 3AC case had not yet been s"b,itted for decision by the 3AC. 5ence the said case sho"ld be transferred to the RTC of Ba.ati City to be raffled to the appropriate branch thereof assigned to try s"ch cases. Despite the repeal of 3ection E of ;.D. No. >F'/A and the abolition of the ;AD the 3AC ,ay contin"e with its in!estigation of the letter/petition of respondent Bats""ra. * * The 3andiganbayan has 1"risdiction o!er presidents directors or tr"stees or ,anagers of go!ern,ent/owned or controlled corporations organi$ed and incorporated "nder the Corporation Code for p"rposes of the pro!isions of RA 6F1> otherwise .nown as the Anti/8raft and Corr"pt ;ractices Act. Hasis) 3ec = RA E'=> %;eople ! 3andiganbayan 'FF<( Union Han. !. Danilo Concepcion 8R No. 1?FD'D J"ne '? 'FFD AKCO 8ro"p of Co,panies filed a petition for s"spension of pay,ent appoint,ent of recei!er2co,,ittee and appro!al of rehabilitation plan with alternati!e prayer for li+"idation and dissol"tion of corporations. 3"spension was granted by the 3AC 5earing ;anel. Union Han. beca,e part of the
BanCo, which represented the creditor ban.s b"t later on bro.e away witho"t notifying the gro"p. It filed a slew of cases with the Ba.ati RTC and applied for preli,inary attach,ent. Union Han. filed a ,otion to dis,iss the case pending with the 3AC and when the 3AC iss"ed an order appointing reg"lar ,e,bers of the BanCo, Union Han. filed a petition for certiorari with the CA see.ing the n"llification of the 3AC Order and again assailing the 1"risdiction of the 3AC. It alleged that the 1"risdiction o!er a basic petition for s"spension of pay,ents was with the RTC "nder Act No. 1><? %Insol!ency Law(. The CA and later on the 3C r"led that the 1"risdiction is with the 3AC p"rs"ant to ;D >F'/A. The proceeding in the RTC was th"s s"spended. Concepcion was later appointed as li+"idator by the 3AC en banc and he filed a ,otion to inter!ene and set aside order of attach,ent in the said RTC case. The 3AC en banc appro!ed of the li+"idation plan that Concepcion s"b,itted b"t his ,otion to inter!ene with the RTC was denied for lac. of standing. The RTC also declared AKCO in defa"lt in the said case proceeded to recei!e 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ? of 6<1 COR;ORATION LA9 COBBARCIAL LA9 e!idence e# parte and later rendered partial 1"dg,ent ordering AKCO to pay ;=FFB to
Union Han.. Concepcion appealed the decision and was s"stained by the CA which ,odified the partial 1"dg,ent of the RTC. Union Han. now co,es to the 3C assailing the CA4s order. 5ALD) Denied. CA Order A00IRBAD. 9hat is being assailed is the !alidity of the appoint,ent of Concepcion as li+"idator and his standing to inter!ene in the RTC case. Albeit 1"risdiction o!er a petition to declare a corporation in a state of insol!ency strictly lies with reg"lar co"rts the 3AC possessed d"ring the period ,aterial a,ple power "nder ;.D. No. >F'/A as a,ended to declare a corporation insol!ent as an incident of and in contin"ation of its already ac+"ired 1"risdiction o!er the petition to be declared in the state of s"spension of pay,ents in the two instances pro!ided in 3ection <%d( thereof. 3aid 3ection <%d( !ests the 3AC with e#cl"si!e and original 1"risdiction o!er petitions for s"spension of pay,ents which ,ay either be) %a( a si,ple petition for s"spension of pay,ents based on the pro!isions of the Insol!ency Law i.e. the petitioning corporation has s"fficient assets to co!er all its debts b"t foresees the i,possibility of ,eeting the obligations as they fall d"e or %b( a si,ilar petition filed by an insol!ent corporation acco,panied by a prayer for the
creation of a ,anage,ent co,,ittee and2or rehabilitation recei!er based on the pro!isions of ;.D. No. >F'/A as a,ended by ;.D. No. 1D<E. The petition of AKCO in this case was a ,i# of both sit"ations. AKCO4s petition for s"spension for pay,ent was for all intents and p"rposes still pending with the 3AC as of J"ne 6F 'FFF. Accordingly the 3AC4s 1"risdiction thereon by the e#press ter,s of R.A. No. E>>> still s"bsists L"ntil :the s"spension of pay,ent case and its incidents are@ finally disposed.M Ii!a 0ootwear !. 3AC 8R No. 1?6'6< April 'D 'FFD ;etitioner Ii!a 0ootwear Ban"fact"ring Corporation is a do,estic corporation engaged in the ,an"fact"re of r"bber footwear. Respondents ;hilippine National Han. %;NH( and ;hilippine Han. of Co,,"nications %;HCo,( are two of petitioner4s creditors. The 3AC "pon petition by Ii!a declared the latter to be in a state of s"spension of pay,ents. The petition for rehabilitation was e!ent"ally dis,issed beca"se it was not !iable to do so as it was not financially so"nd. Ii!a now clai,s that its right to d"e process was !iolated when the 3AC referred the rehabilitation plan to the 0inancial Analysis and A"dit Di!ision witho"t notice to petitioner. 5ALD) NO BARIT. DI3BI33AD. In
ad,inistrati!e proceedings d"e process si,ply ,eans an opport"nity to see. a reconsideration of the order co,plained of- it cannot be f"lly e+"ated to d"e process in its strict 1"rispr"dential sense. It is the ad,inistrati!e order not the preli,inary report which is the basis of any f"rther re,edies the losing party in an ad,inistrati!e case ,ay p"rs"e. Th"s petitioner has no right to be notified of the preli,inary report by the 0inancial Analysis and A"dit Di!ision of the 3AC. ;etitioner4s clai, that the 3AC4s referral of the petition for rehabilitation to the said di!ision !iolated its right to d"e process deser!es no consideration. ;etitioner4s right to ad,inistrati!e d"e process only entitles it to an opport"nity to be heard and to a decision based on s"bstantial e!idence. No ,ore no less. Chapter II CLA33I0ICATION O0 ;RIIATA COR;ORATION3 1. 8eneral Classification "nder &6) 1.1 3toc. corporation * One which has a capital stoc. di!ided into shares and is a"thori$ed to distrib"te to the holders of s"ch shares di!idends or allot,ents of the s"rpl"s profits %i.e. retained earnings on the basis of the shares
held %&6( * It is organi$ed for profit. * The go!erning body of a stoc. corporation is "s"ally the Hoard of Directors %A#cept in certain instances for close corporations( 1.' Non/stoc. corporation * All other corporations are non/stoc. corporations %&6( * One where no part of the inco,e is distrib"table as di!idends to its ,e,bers tr"stees or officers s"b1ect to the pro!isions of the Code on dissol"tion. ;ro!ided that any profit which a non/stoc. corporation ,ay obtain as an incident to its operation shall whene!er necessary or proper be "sed for the f"rtherance of the p"rpose or p"rposes for which the corporation was organi$ed. %&ED( * Not organi$ed for profit. * Its go!erning body is "s"ally the Hoard of Tr"stees. CIR !s. Cl"b 0ilipino Inc de Ceb" %1>?'( Cl"b 0ilipino is a ci!ic corporation organi$ed to de!elop and c"lti!ate sport of all class and deno,ination for the healthf"l recreation and entertain,ent of its 35 and ,e,bers. Its AOI and by/laws are silent as to di!idends and their distrib"tion b"t it was pro!ided that "pon its dissol"tion the Cl"b4s re,aining assets after paying debts shall be donated to a charitable ;hil.
Instit"tion. 5ALD) Cl"b 0ilipino is a non/stoc. corporation. According to 3ection 6 of the Corporation Code there are two ele,ents for a stoc. corporation to e#ist) 1( capital stoc. di!ided into shares and '( an a"thority to distrib"te to the holders of s"ch 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age D of 6<1 COR;ORATION LA9 COBBARCIAL LA9 shares di!idends or allot,ents of the s"rpl"s profits on the basis of shares held. Nowhere in Cl"b 0ilipino4s AOI or HL co"ld be fo"nd an a"thority for the distrib"tion of its di!idends or s"rpl"s profits. '. Other .inds of corporations 1. ;"blic corporation / One for,ed or organi$ed for the go!ern,ent or a partic"lar state. Its p"rpose is for the general good and welfare. '. ;ri!ate corporation / One for,ed for so,e pri!ate p"rpose benefit ai, or end 6. Close corporation %&>?( 7 One whose Articles of Incorporation pro!ide that) a( all of the corporation4s iss"ed stoc. of all classes e#cl"si!e of treas"ry shares shall be held of record by not ,ore that a specified n",ber of persons not e#ceeding 'F b( all of the iss"ed stoc. of all classes shall be s"b1ect to one or ,ore specified restrictions on transfer per,itted by the Code c( the corporation shall not list in any stoc.
e#change or ,a.e any p"blic offering of any of its stoc. of any class d( at least '26 of its !oting stoc. ,"st not be owned or controlled by another corporation which is not a close e( ,"st not be a ,ining or oil co,pany stoc. e#change ban. ins"rance co,pany p"blic "tility ed"cational instit"tion or corporation !ested with p"blic interest =. Ad"cational corporation %&1F?( / Those corporations which are organi$ed for ed"cational p"rposes. This type of corporation is go!erned by 3ection 1F? of the Corporation Code <. Religio"s sole and aggregate %&11F 111 %'( 1'6( * A corporation sole is one for,ed for the p"rpose of ad,inistering and ,anaging as tr"stee the affairs property and te,poralities of any religio"s deno,ination sect or ch"rch by the chief archbishop bishop priest rabbi or other presiding elder of s"ch religio"s deno,ination sect or ch"rch. %&11F( * The corporation sole is an e#ception to the general r"le that at least fi!e %<( ,e,bers are re+"ired for a corporation to e#ist. 5ere there is only one %1( incorporator. This is applicable to religio"s co,,"nities the reg"lations of which pro!ide that the
co,,"nity4s properties are to be placed in the na,e of the head and ad,inistered by hi,. %&111%'(( * A corporation aggregate is a religio"s corporation incorporated by ,ore than one person. ?. Alee,osynary corporation 7 One organi$ed for a charitable p"rpose D. Do,estic corporation 7 A do,estic corporation is one for,ed organi$ed or e#isting "nder the laws of the ;hilippines E. 0oreign corporation 7 One for,ed organi$ed or e#isting "nder any laws other than those of the ;hilippines and whose law allows 0ilipino citi$ens and corporations to do b"siness in its own co"ntry and state. %&1'6( >. Corporation created by special laws or charter %&=( * Corporations which are go!erned pri,arily by the pro!isions of the special law or charter creating the, %&=( * Corporation Code is s"ppletory in so far as they are applicable %Ibid( 1F. 3"bsidiary corporation 7 one in which control "s"ally in the for, of ownership of ,a1ority of its shares is in another corporation %the parent corporation( 11. ;arent corporation 7 its control lies in its power to elect the s"bsidiary4s directors th"s controlling its ,anage,ent policies
Chapter III 0ORBATION AND OR8ANINATION O0 COR;ORATION 1. 9ho Bay 0or, a Corporation 1.1 Incorporators Any n",ber of nat"ral persons not less than fi!e %<( b"t not ,ore than fifteen %1<( all of legal age and a ,a1ority of who, are residents of the ;hilippines ,ay for, a pri!ate corporation for any lawf"l p"rpose or p"rposes. Aach of the incorporators of a stoc. corporation ,"st own or be a s"bscriber to at least one %1( share of capital stoc. of the corporation. %&1F( 1( Nat"ral persons * Corporations and partnerships cannot be incorporators b"t ,ay be stoc.holders. This pre!ents LlayeringM which ,ay harbo"r cri,inals and will ,a.e the corporation a tool for defra"ding the p"blic. * Incorporators are those stoc.holders or ,e,bers ,entioned in the articles as originally for,ing and co,posing the corporation and who are signatories thereof. * Corporators are stoc.holders or ,e,bers who 1oin the corporation after its incorporation. * Original s"bscribers are persons whose na,es are ,entioned in the Articles b"t not as incorporators. They do not sign the
Articles. '( At least fi!e incorporators b"t not ,ore than fifteen * They ,"st sign the articles of incorporation. * 8ANUINA INTARA3T) Aach incorporator ,"st own or s"bscribe to at least one share of stoc. of the corporation. 6( Ba1ority of the incorporators ,"st be residents of the ;hilippines 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age E of 6<1 COR;ORATION LA9 COBBARCIAL LA9 * 8eneral r"le) need not be a citi$en * A#ceptions) p"blic "tilities %Art OII 3ec 11. Consti( schools %Art OII 3ec =%'( Consti( ban.s %8eneral Han.ing Act( retail trade %RA 11EF( sa!ings and loan associations %RA 6D>>( in!est,ent ho"ses %3ec < ;D 1'>( and other areas of in!est,ent as congress ,ay by law pro!ide %Art OII 3ec. 1F Consti(. * A!en tho"gh there are no legal restrictions as to alien ownership where P =FG of the o"tstanding capital stoc. will be owned and controlled by aliens ,"st get written a"thori$ation fro, HOI before it can register with 3AC. %p"rpose is to enable HOI to deter,ine whether s"ch corporation wherein aliens own a s"bstantial n",ber of shares wo"ld contrib"te to the so"nd and
balanced de!elop,ent of the national econo,y( =( Incorporators ,"st be of legal age '. Conditions ;recedent for Incorporation '.1 Consent or agree,ent of at least < nat"ral persons with respect to) 1. Co,pliance with the Corp Code'. Contrib"tion2pooling of reso"rces 7 deli!ered to and held in tr"st by a designated tr"stee6. 8o!ernance of) * Contrib"tions* Distrib"tion of contrib"tions* Di!ision of profits2sharing of losses* ;"rs"it of p"rpose2ob1ecti!es* Corporate co,bination- and * Transactions with third partiesand =. Contin"ity or ter,ination of e#istence. '.' Bandatory Re+"ire,ents of the Code) * 1. A#ec"tion of constit"ti!e doc",ents %AOI Hy/laws('. ;ay,ent2deli!ery of contrib"tions 7 deli!ered to and held in tr"st by a designated tr"stee6. 3"b,ission of constit"ti!e doc",ents to 3AC for re!iew or e!al"ation- and =. 3AC action 7 iss"ance of certificate of
registration. Note that once contrib"tions are ,ade before incorporation s"ch s"bscriptions are irre!ocable for a period of ? ,onths %general r"le(. * A#ceptions) 1. 9hen all of the other s"bscribers consent to the re!ocation- or '. 9hen the incorporation fails to ,ateriali$e %3ec. ?1( 6. 3teps in the for,ation of a corporation 6.1. ;ROBOTION * The Lpro,oterM brings together persons interested in the b"siness enterprise and sets in ,otion the ,achinery that leads to the for,ation of the corporation. * L;ro,oterM is a person who acting alone or with others ta.es initiati!e in fo"nding and organi$ing the b"siness or enterprise of the iss"er and recei!es consideration therefor.1 6.'. DRA0TIN8 O0 ARTICLA3 O0 INCOR;ORATION These constit"te the charter of the corporation 1. COR;ORATA NABA * No corporate na,e ,ay be allowed by the 3AC if the proposed na,e is identical or decepti!ely or conf"singly si,ilar to that of any e#isting corporation or to any other na,e already protected by law or is patently
decepti!e conf"sing or contrary to e#isting laws. %&1E( * A corporate na,e is essential to the corporation4s ac+"isition of 1"ridical personality * Change of corporate na,e shall re+"ire the appro!al of the 3AC. 3AC will iss"e a,ended certificate of incorporation "nder the a,ended na,e %Ibid( * A change in corporate na,e in!ol!es an a,end,ent of the Articles which re+"ires a ,a1ority !ote of the board and the !ote or written assent of stoc.holders holding '26 of the o"tstanding capital stoc. %&1?( Note) Does not incl"de the non/!oting stoc.. * It is the sole ,eans of identifying the corporation fro, its ,e,bers or stoc.holders and fro, other entities and corporations * A,end,ent in a corp4s AOI changing its corporate na,e does not e#ting"ish the personality of the original corporation. The corp "pon s"ch change of its na,e is in no sense a new entity nor the s"ccessor of the original corp. it is the sa,e corp with a different na,e and its character is not changed. Conse+"ently the LnewM corp is still liable for the debts and
obligations of the LoldM corp %Rep"blic ;lanters Han. ! CA 1>>'( * This is essential beca"se thro"gh it corporation can s"e and be s"ed * 3AC ,ay allow incorporators to reser!e the na,e for a partic"lar period * To disting"ish fro, partnerships and other b"siness orgs the law re+"ires corporations to append the word LCorporationM or LIncM to its chosen na,e * A corporation sho"ld transact b"siness only thro"gh its chosen na,e ;hilips A#port HI %;AHI( ! CA %1>>'( ;AHI is a foreign corp "nder the law of Netherlands altho"gh not engaged in b"siness in the ;hils. It is the registered owner of the ;hilips trade,ar. and owns two local co,panies with the na,e ;hilips also. ;AHI as.ed the cancellation of the word ;hilips fro, 3tandard ;hilips a local ,an"fact"rer 1 3ec. 6.1F The 3ec"rities Reg"lation Code %RA ED>>( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age > of 6<1 COR;ORATION LA9 COBBARCIAL LA9 alleging infringe,ent of its e#cl"si!e right to "se the sa,e. 3AC and CA r"led for 3td ;hilips saying there was no conf"sion %"nli.e in Con!erse case(. 5eld) Corp4s right to "se its corp and trade na,e is a property right a right in re,.
8eneral R"le) Corp ,"st ha!e a na,e by which it is to s"e and be s"ed and do all legal acts. Accdg to Corp Code no corp na,e ,ay be allowed 1( if co,plainant corp ac+"ired a prior right o!er na,e and '( proposed na,e is a( identical or b( decepti!ely or conf"singly si,ilar or c( patently decepti!e conf"sing or contrary to e#isting law ;AHI4s local co,panies were incorporated '? yrs before 3td ;hilips. TA3T O0 CON0U3IN8 3IBILARITK IN COR; NABA3) 9hether si,ilarity is s"ch as to ,islead a person "sing ordinary care and discri,ination ;hilips is the do,inant word. No need to pro!e that there was act"al conf"sion as long as probable or li.ely to occ"r. 3td ;hilips4 p"rpose as per its articles of incorp also incl"des sale and ,an"fact"re of electrical prod"cts which is ;AHI4s line of b"siness. A!en if 3AC g"idelines ,andate that a corp co"ld add ' other words to proposed na,e only one word L3tdM was added. LCorpM not co"nted. Note) A prior "ser can consent to the "se of its na,e '. ;UR;O3A CLAU3A * 9here a corporation has ,ore than 1 p"rpose the AOI shall state which is the pri,ary p"rpose and which is
secondary %&1=%'(( * A non/stoc. corporation ,ay not incl"de those which contradict or change its nat"re %Ibid( * 3AC can re1ect or disappro!e the AOI if the stated p"rpose is patently "nconstit"tional illegal i,,oral contrary to go!ern,ent r"les and reg"lations.%&1D %'(( * ;"rpose cla"se confers as well as li,its the powers which a corporation ,ay e#ercise * A corporation only has s"ch powers as are e#pressly granted to it by law and by its AOI those which ,ay be incidental to s"ch conferred powers %&=<( those reasonably necessary to acco,plish its p"rposes %3ection 6? %11( and those which ,ay be incident to its e#istence %&'(. * Reasons for p"rpose cla"se) o so that a stoc.holder conte,plating an in!est,ent will .now what lines of b"siness his ,oney is to be ris.ed o so that ,anage,ent will .now what lines of b"siness it is a"thori$ed to act o so that anyone who transacts with the corporation ,ay ascertain
whether a transaction he is entering is one with the general a"thority of the ,anage,ent * Under 3ec 1=%'( a corporation can ha!e as ,any p"rposes as it wants pro!ided) o AOI specify the corporation4s pri,ary and secondary p"rposes which need not be related to each other o Corporation for which special pro!isions are ,ade can only ha!e the p"rpose pec"liar to the, o ;"rposes ,"st be lawf"l * If p"rpose is lawf"l 3AC is not a"thori$ed to in+"ire whether corporation has hidden ,oti!es and ,anda,"s will lie to co,pel it to iss"e certificate * ;D >F'/A 3ec ?%h( gi!es 3AC after cons"ltation with HOI NADA or other appropriate go!ern,ent agency the power to ref"se or deny the application for registration of any corporation if its establish,ent organi$ation operation will not be consistent with the declared national econo,ic policies * A corporation ,ay not be for,ed for the p"rpose of practicing a profession 6. ;RINCI;AL O00ICA
* B"st be within the ;hilippines %&1= %6(( * AOI ,"st specify both pro!ince or city or town where it is located * I,portant in %1( deter,ining !en"e in an action by or against the corporation %'( deter,ining the pro!ince where a chattel ,ortgage of shares sho"ld be registered %Ch"a 8an ! 3a,ahang Bagsasa.a( * The state,ent of the principal office establishes the residence of the corporation =. TARB O0 AOI3TANCA * 9hen a corporation is organi$ed the ,a#i,", life that can be stip"lated in the AOI is <F years. H"t d"ring the life of the corporation the life or ter, can be e#tended to another <F years at any one instance %&11( * H"t s"ch e#tension of the life a corporation cannot be ,ade earlier than < years before the end of its original ter,. A#ception) where there are 1"stifiable reasons for an earlier e#tension as ,ay be deter,ined by the 3AC. %Ibid( * A#ception) Condo,ini", corporations can be organi$ed for a period of 'FF years * A#tension in!ol!es an a,end,ent of
the AOI. Th"s the re+"isites "nder &1? ,"st be co,plied with. Any dissenting stoc.holder ,ay e#ercise his appraisal right %&6D(. <. INCOR;ORATOR3 AND DIRACTOR3NUBHAR AND QUALI0ICATION3 * LDirectorsM is "sed for stoc. corporations while Ltr"steesM is "sed for stoc. corporations. * 8ANARAL RULA) not less than < b"t not ,ore than 1< AOCA;TION3) 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1F of 6<1 COR;ORATION LA9 COBBARCIAL LA9 i( Non/stoc. corporations 7 articles or by/laws ,ay pro!ide for ,ore than 1< tr"stees %&>'(. * A#ception) Ad"cational nonstoc. corporations 7 tr"stees ,ay not e#ceed 1<. 5owe!er the n",ber of tr"stees shall be in ,"ltiples of < %&1FE( ii( Berger of ban.s 7 new board is allowed to ha!e s"ch n",ber of directors as is e+"i!alent to the total n",ber of directors of the ,erging ban.s tho"gh it ,ay e#ceed fifteen %8eneral Han.ing Act as a,ended(. * Incorporators and directors of a stoc.
corporation ,"st own at least one share of stoc. of the corporation. In a non/stoc. corporation a tr"stee ,"st be a ,e,ber thereof. * In nationali$ed ind"stries aliens ,ay be directors of a corporation only in s"ch n",ber as ,ay be proportional to their allowable ownership of shares ' e.g. if the articles pro!ide for 1F directors and alien ownership is li,ited to =FG of the capital then aliens ,ay occ"py a ,a#i,", of = board seats. ?. CA;ITAL 3TOCR- 3UH3CRI;TION;AKBANT Capital stoc. o Capital stoc. is the a,o"nt fi#ed in the AOI to be s"bscribed and paid in or sec"red to be paid in by the shareholders of a corporation either in ,oney or property labor or ser!ices at the organi$ation of the corporation or afterwards and "pon which is to cond"ct its operation. %0letcher( o The capital stoc. li,its the ,a#i,", a,o"nt or n",ber of shares that ,ay be iss"ed by the corporation witho"t for,al a,end,ent of the AOI. It re,ains the sa,e e!en tho"gh the act"al !al"e of the shares as deter,ined by the assets of the
corporation is di,inished or increased. A"thori$ed capital stoc. o AC3 is synony,o"s with capital stoc. where the shares of the corporation ha!e par !al"e. If the shares of stoc. ha!e no par !al"e the corporation has no AC3 b"t it has capital stoc. the a,o"nt of which is not specified in the AOI as it cannot be deter,ined "ntil all the shares ha!e been iss"ed. In this case the two ter,s are not synony,o"s %De Leon( o 3tate the a"thori$ed capital stoc. in lawf"l ,oney of the ;hilippines the n",ber of shares into which the AC3 is di!ided and the par !al"e of each par !al"e shares %&1=%E( &1<%D(( o 3toc. corporations are not re+"ired to ha!e any ,ini,", a"thori$ed capital stoc. e#cept when special laws pro!ide otherwise %&1'( 3"bscribed capital stoc. ' 3ec. '/A CA 1FE %Anti/D",,y Law( as a,ended by ;D D1?. o It is the a,o"nt of the capital stoc. s"bscribed whether f"lly paid or not. It connotes an original s"bscription contract for the ac+"isition by a s"bscriber of "niss"ed shares in a corporation %&?F ?1( o At least '<G of a"thori$ed capital stoc.
,"st be s"bscribed %&16( o 3"bscription 7 ,"t"al agree,ent of the s"bscribers to ta.e and pay for the stoc. of a corporation o ;re/incorporation s"bscription 7 a,o"nt which each incorporator or stoc.holder agrees to contrib"te to a proposed corporation O"tstanding capital stoc. o It is the portion of the capital stoc. which is iss"ed and held by persons other than the corporation itself. Under &16D it is the total shares of stoc. iss"ed "nder the binding s"bscription agree,ents to s"bscribers or stoc.holders whether or not f"lly or partially paid e#cept treas"ry shares. It is th"s broader than Ls"bscribedM capital stoc. o The ter,s Ls"bscribed capital stoc.M and Liss"edM or Lo"tstandingM capital stoc. are "sed synony,o"sly since s"bscribed capital stoc. as disting"ished fro, the certificate of stoc. can be iss"ed e!en if not f"lly paid. H"t while e!ery s"bscribed share %ass",ing there is a binding s"bscription agree,ent( is Lo"tstanding M an iss"ed share ,ay not ha!e the stat"s of o"tstanding share
%as in the case of treas"ry shares( ;aid/"p capital o '<G of s"bscribed capital stoc. ,"st be paid/"p for the p"rpose of incorporation b"t in no case shall be less than ; <FFF %&16( o ;ortion of the a"thori$ed capital stoc. which has been s"bscribed and paid. Not all f"nds or assets recei!ed by the corporation can be considered paid/"p capital for this ter, has a technical signification in corporation law. 3"ch ,"st fro, part of the a"thori$ed capital stoc. of the corporation s"bscribed and then act"ally paid/"p. :B3CI/NACU3I; Local Chapter !. National 9ages and ;rod"cti!ity Co,,ission@ o B"st be in the for, of %a( cash deposited in a ban. or %b( property which ,ay be "sed or act"ally needed by the corporation in its operations o Capital can4t consist or be in!ested in ,oney ,ar.et place,ent o Corporations with ,ore stringent capital re+"ire,ents) Ins"rance corporations 7 ,"st ha!e paid/"p capital stoc. of at least ; < B %Ins"rance Code 3ec 1EE(
Han.s 7 ,onetary board fi#es ,ini,", paid/"p capital re+"ire,ents for the different classes of ban.s %Central Han. Act and 8eneral Han.ing Act(. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 11 of 6<1 COR;ORATION LA9 COBBARCIAL LA9 Uniss"ed capital stoc. o It is that portion of the capital stoc. that is not iss"ed or s"bscribed. It does not !ote and draws no di!idends Legal capital o It is the a,o"nt e+"al to the aggregate par !ale and2or iss"ed !al"e of the o"tstanding capital stoc.. 9hen par !al"e shares are iss"ed abo!e par the pre,i", or e#cess is not to be considered as part of the legal capital %Cf&=6(. In the case of no par !al"e shares the entire consideration recei!ed for,s part of legal capital and shall not be a!ailable for distrib"tion of di!idends %&? par 6( Capital o It is "sed broadly to indicate the entire property or assets of the corporation. It incl"des the a,o"nt in!ested by the stoc.holders pl"s the "ndistrib"ted earnings less losses and e#penses. o In the strict sense it refers to that
portion of the net assets paid by the stoc.holders as consideration for the shares iss"ed to the, which is "tili$ed for the prosec"tion of the b"siness of the corporation %De Leon( D. TRAA3URAR/IN TRU3T The person elected by the s"bscribers as Treas"rer of the corporation at the ti,e of the incorporation who is na,ed as s"ch in the AOI and who has been a"thori$ed to recei!e for and in the na,e and for the benefit of the corporation all s"bscriptions fees contrib"tions or donations paid or gi!en by the s"bscribers or ,e,bers E. TRAA3URAR43 A00IDAIIT The sworn state,ent of the Treas"rer elected by the s"bscribers stating at least '<G of the a"thori$ed capital stoc. of the corporation has been s"bscribed and that at least '<G of the total s"bscription has been f"lly paid to hi, in act"al cash and2or property the fair !al"ation of which is e+"al to at least '<G of the said s"bscription s"ch paid/"p capital being not less than < FFF.FF %&1=( >. OT5AR BATTAR3 * Classes of shares as well as the preferences or restrictions on any s"ch class %&?( * Denial or restriction of pre/e,pti!e
right %&6>( * ;rohibition against transfer of stoc. which wo"ld red"ce stoc. ownership to less than the re+"ired ,ini,", in the case of a nationali$ed b"siness or acti!ity %&1<%11(( 6.6. 0ILIN8 O0 ARTICLA3 AND ;AKBANT O0 0AA3 * Corporations go!erned by special laws ha!e to s"b,it a reco,,endation fro, the appropriate go!ern,ent agency to the effect that s"ch articles are in accordance with law. a( ban.s ban.ing and +"asi/ban.ing instit"tions b( b"ilding and loan associations c( tr"st co,panies and other financial inter,ediaries d( ins"rance co,panies e( p"blic "tilities f( ed"cational instit"tions and g( other corporations go!erned by special laws %&1D( * Non/stoc. corporations that intend to solicit gifts donations and contrib"tions fro, the p"blic at large for the benefit of an indefinite n",ber of persons ,"st sec"re a Certificate of Registration fro, the Ins"rance Co,,issioner. * 0ail"re to file AOI will pre!ent d"e
incorporation of the proposed corporation and will not gi!e rise to its 1"ridical personality %&1>(. It will not e!en be a de facto corporation %&'F( 1. Unless the certificate of incorporation has been iss"ed there can be no de facto corporation %5all !s. ;iccio 1><F( '. Ca,posCthis state,ent sho"ld not be ta.en as an absol"te principle b"t in the light of the circ",stances before the co"rt. 6.= AOABINATION O0 ARTICLA3 HK 3ACA;;ROIAL OR RAJACTION * The 3AC ,ay re1ect any AOI thereto if the sa,e is not in co,pliance with the re+"ire,ents of this Code %&1D( * The 3AC shall gi!e the incorporators a reasonable ti,e within which to correct or ,odify the ob1ectionable portions of the articles or a,end,ent. %& 1D( =. 8ro"nds for disappro!ing articles of incorporation %&1D( a( AOI does not s"bstantially the for, prescribed b( ;"rpose is patently "nconstit"tional illegal i,,oral contrary to go!ern,ent r"les and reg"lations c( Treas"rer4s Affida!it concerning the a,o"nt of capital s"bscribed and or paid is false
d( ;ercentage re+"ire,ent of ownership of 0ilipino citi$ens as re+"ired by the Constit"tion not co,plied with. * After cons"lting with HOI NADA appropriate go!ern,ent agency 3AC ,ay deny registration of any corporation if its establish,ent will not be consistent with declared national policies * Certificate of a"thority re+"ired of the following) a( Ins"rance Co,panies/ Ins"rance Co,,ission b( Han.s H"ilding and Loan Associations 0inance Co,panies/ Bonetary Hoard c( Ad"cational Instit"tions/ 3ecretary of Ad"cation d( ;"blic Utilities/ Hoard of ;ower Hoard of Transportation National 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1' of 6<1 COR;ORATION LA9 COBBARCIAL LA9 Teleco,,"nication Co,,ission etc.. * Re,edy in case of re1ection of AOI) by petition for re!iew in accordance with the R"les of Co"rt %&? last par. ;D >F'/A( I33UANCA O0 CARTI0ICATA O0 INCOR;ORATION * A pri!ate corporation for,ed or organi$ed "nder this Code co,,ences to ha!e corporate e#istence and 1"ridical
personality and is dee,ed incorporated fro, the date the 3ec"rities and A#change Co,,ission iss"es a certificate of incorporation "nder its official seal %&1>( * There"pon the incorporators stoc.holders2,e,bers and their s"ccessors shall constit"te a body politic and corporate "nder the na,e stated in the articles of incorporation for the period of ti,e ,entioned therein "nless said period is e#tended or the corporation is sooner dissol!ed in accordance with law. %Ibid( * If incorporators are fo"nd g"ilty of fra"d in proc"ring Certificate of Incorporation 3AC ,ay re!o.e the sa,e after proper notice and hearing %&?%I( ;D >F'/A( * <. Defecti!e Atte,pts to Incorporate <.1 DA 0ACTO COR;ORATION3 7 a corporation where there e#ists a flaw in its incorporation Re+"isites of a de facto corporation %Hallantine as cited in Ca,pos( a( Ialid stat"te 7 there is an apparently !alid stat"e "nder which the corporation with its p"rposes ,ay be for,ed. There can be no de facto corporation "nder a stat"e s"bse+"ently declared "nconstit"tional B"nicipality of Balabang !s. Henito %1>?>( The ,"nicipality of Halabagan was created by AO 6E? of ;resident 8arcia o"t of barrios and sitios of
Balabang. The petitioners see. to n"llify the AO. They rely on the ;elae$ r"ling that the ;resident4s power to create ,"nicipalities "nder 3ec. ?E of the Ad,inistrati!e Code is "nconstit"tional. Respondents arg"e that the ;elae$ r"ling is inapplicable beca"se Halabagan is a de facto corporation. 5ALD) The B"nicipality of Halabagan was not a de facto corporation. The color of a"thority re+"isite to a de facto ,"nicipal corporation ,ay be an "nconstit"tional law !alid on its face which has either) a. Heen "pheld for a ti,e by the co"rtsor b. Not yet been declared !oid- pro!ided that a warrant for its creation can be fo"nd in so,e other !alid law or in the recognition of its potential e#istence in the general constit"tion of the state. The ,ere fact that Halabagan was organi$ed before the stat"te was in!alidated cannot ,a.e it a de facto corporation beca"se independently of the Ad,inistrati!e Code there is no other !alid stat"te to gi!e color of a"thority to its creation. This doesn4t ,ean that the acts done by Halabagan in the e#ercise of its corporate powers are a n"llity. The e#istence of AO 6E? is an Loperati!e fact which cannot be 1"stly ignored.M b( User of corporate powers 7 there has been so,e "ser of corporate powers the
transaction of b"siness in so,e way as if it were a corporation * not necessary that dealings between the parties sho"ld ha!e been on a corporate basis * election of directors and officers wo"ld not be "ser of corporate powers since these acts are 1"st indicati!e of a ,ere association * ta.ing s"bscriptions to and iss"ing shares of stoc. b"ying lot constr"cting and leasing a b"ilding on it will constit"te s"fficient "ser of corporate powers to constit"te a de facto corporation c( 3"bstantial or Colorable co,pliance / there has been colorable co,pliance with legal re+"ire,ents in 8OOD 0AIT5 * while the corporation is still in the process of incorporation it is +"ite clear that there can be no s"bstantial or colorable co,pliance and therefore it cannot be at s"ch a stage a de facto corporation * A corporation which has not yet been iss"ed a certificate of incorporation cannot clai, Lin good faithM to be a corporation. Th"s it cannot be a de facto corporation :5all !. ;iccio E? ;hil ?F6@
Co,pliance * Co,pliance with the abo!e conditions wo"ld ,a.e the corporation de facto whose incorporation cannot be attac.ed collaterally. It ,ay only be attac.ed directly by the 3tate in a +"o warranto proceeding %&'F( * De facto doctrine grew o"t of the necessity to pro,ote the sec"rity of b"siness transactions and to eli,inate +"ibbling o!er irreg"larities * The de facto doctrine is the e#ception to the general r"le that when there is no corp entity to tal. abo"t it is the nat"ral persons who are liable * 9here corporations are neither de 1"re or de facto associates ,ay be held liable as partners "nless estoppel applies %& '1( * No articles and no by/laws) no de facto corp. There4s no colorable co,pliance at all * De facto corp is li.e a de 1"re corp has all the powers and liabilities of de facto corp * T5A ONLK DI00) its incorporation can be attac.ed by 3tate in +"o warranto action Ratio) Only 3tate can gi!e it legal e#istence so only the 3tate is wronged <.' COR;ORATION HK A3TO;;AL * It is a stat"s ac+"ired by persons who ass",e to act as a corporation .nowing it to be witho"t a"thority. 3"ch persons shall be liable as general partners for all debts
liabilities and da,ages inc"rred or arising as a res"lt thereof. %&'1( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 16 of 6<1 COR;ORATION LA9 COBBARCIAL LA9 * 9hen s"ch ostensible corporation is s"ed on any transaction entered by it as a corporation or any tort co,,itted by it as s"ch it shall not be allowed to "se as a defense as lac. of corporate personality %&'1( * One who ass",es an obligation to an ostensible corporation as s"ch cannot resist perfor,ance thereof on the gro"nd that there was in fact no corporation %&'1( * Note that an "nincorporated corporation is not barred fro, transacting b"siness before the co,,ence,ent of corporate e#istence. Li,it) personal liability. Co,plication) when the corporation did not co,e abo"t * Against who, will estoppel lieS 9ho co,,itted the acti!e ,isrepresentationS * 9here a person con!inces other parties to in!est ,oney for the for,ation of a corporation b"t which has ne!er d"ly incorporated there can be no res"lting partnership a,ong the, and the ,ere passi!e in!estors cannot be held liable to share in the losses s"ffered by the b"siness enterprise %;ioneer 3"rety ! CA 1>E>( * 9hen applicable)
1. ;ersons ass",ing to act as corp are liable as gen partners'. 6rd party who had dealt with an "nincorporated association as a corp ,ay be precl"ded fro, denying its corporate e#istence on a s"it bro"ght by the alleged corp 7 person dee,ed to ha!e ad,itted the e#istence of the corp 6. alleged corp that has entered into a contract by !irt"e of which it has recei!ed ad!antages and benefits * 5owe!er if b"siness associates fra"d"lently ,isrepresent the e#istence of a corp 6rd party can s"e the, as gen partners. 6rd party is not estopped fro, asserting their liability beca"se he had recogni$ed the corporation4s e#istence. Ratio) They cannot profit by their own ,isrepresentation. * 5ence if associates did not .now of thee defecti!e incorp they can4t be personally held liable by innocent 6rd party %Cf 3al!aierra ! 8arlitos 1><E( * H"t if 6rd party .new of defects of incorp he is estopped fro, reco!ering fro, indi!id"al associates b"t ,"st reco!er only fro, corp assets Lo$ano !s. delos 3antos %1>>D( This case in!ol!ed two incorporated dri!ers4 associations that decided to "nite and elect one set
of officers to be gi!en a"thority to collect the daily d"es of the dri!ers who are ,e,bers of the consolidated association. 5ALD) Doctrine of estoppel applies when persons ass",e to for, a corporation and e#ercise corporate f"nctions and enter into b"siness relations with third persons. 9here there are no third persons in!ol!ed and the conflict arises only a,ong those ass",ing to for, a corporation who therefore .now that it has not been registered there is no corporation by estoppel. International A#press Tra!el !. CA %'FFF( The doctrine of corporation by estoppel ,ay apply to) o a third party / a 6rd party who had dealt with an "nincorporated association as a corporation ,ay be precl"ded fro, denying its corporate e#istence on a s"it bro"ght by the alleged corporation on the contract e!en if he did not .now of the defecti!e incorporation. 6rd party is considered to ha!e ad,itted the e#istence of a corporation by the fact that he dealt with it as a corporation o the alleged corporation / when a third person has entered into a contract with an association which represented itself to be a corporation the association is estopped fro, denying its corporate capacity in a s"it against it by s"ch 6rd person. It cannot allege lac. of personality to be s"ed to e!ade responsibility
on a contract it has entered into and by !irt"e of which it has recei!ed ad!antages and benefits o associates as partners / when b"siness associates fra"d"lently ,isrepresents the e#istence of a corporation and the 6rd party contacts with the association as a corporation witho"t .nowing the serio"s defects in its incorporation s"ch 6rd party ,ay s"e associates as general partners. 9here both the associates and the 6rd party were ignorant of the defecti!e incoroporation 6rd party cant hold the associates liable since they were in good faith. If 6rd party .new of defects in incorporation and still dealt with the corporation he ,"st be dee,ed to ha!e chosen to deal with the corporation as s"ch and sho"ld be li,ited in his reco!ery to the corporate assets. ?. Internal Organi$ation of the Corporation ?.1 A;;ROIAL O0 HK/LA93 1. Definition of by/laws * These are reg"lations ordinances r"les or laws adopted by an association or corporation or the li.e for its internal go!ernance. Hy/ laws define the rights and obligations of !ario"s officers persons or gro"ps within the corporate str"ct"re and pro!ide r"les for ro"tine
,atters s"ch as calling ,eetings. * A!ery corporation "nder this code shall ha!e the power and capacity) to adopt by/laws not contrary to law ,orals or p"blic policy and to a,end or repeal the sa,e in accordance with this code %&6? %<(( * These are s"bordinate to the AOI Corp Code and other stat"tes. %0leischer !s. Nolasco%1>'<(( '. 9hen to adopt by/laws %&=?( * A!ery corporation for,ed "nder this code ,"st within 1 ,onth after receipt of official notice of the iss"ance of its certificate of incorporation by the 3AC adopt a code of by/laws for its go!ern,ent not inconsistent with this code. * Bay be adopted and filed prior to incorporation in s"ch case shall be appro!ed and signed by all 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1= of 6<1 COR;ORATION LA9 COBBARCIAL LA9 incorporators s"b,itted to 3AC together with AOI 0ail"re to file Hy/laws on ti,e) Loyola 8rand Iillas 5o,eowners Assn !. CA %1>>D( The 3"pre,e Co"rt held that altho"gh the Corporation Code re+"ires the filing of by/laws
within one ,onth after the iss"ance of the Certificate of Incorporation it does not e#pressly pro!ide for the conse+"ences of non/filing within the said period. 0ail"re to file the by/laws within that period does not i,ply the Tde,iseT of the corporation. Hy/laws ,ay be re+"ired by law for an orderly go!ernance and ,anage,ent of corporations b"t they are not essential to corporate birth. Therefore fail"re to file the, within the period re+"ired by law by no ,eans tolls the a"to,atic dissol"tion of a corporation. 6. 5ow filed %&=?( * B"st be appro!ed by the affir,ati!e !ote of the stoc.holders representing the ,a1ority of the o"tstanding capital stoc. or ,a1ority of ,e,bers %if filed prior to incorporation ,"st be appro!ed and signed by all incorporators( * B"st be signed by the stoc.holders or ,e,bers !oting for it * B"st be filed with the 3AC certified by the ,a1ority of directors2tr"stees and co"ntersigned by the secretary of the corporation which shall be attached to original AOI =. 9here .ept %&=?( * B"st be .ept in the principal office of the corporation- s"b1ect to inspection of stoc.holder or ,e,ber d"ring office
ho"rs %Cf &D=( <. Affecti!ity of by/laws * In all cases the by/laws shall be effecti!e only fro, the iss"ance of 3AC of certification that bylaws are not inconsistent with the Code * Cannot bind stoc.holders or corporation pending appro!al * Hy/laws or any a,end,ent thereto of any ban. ban.ing instit"tion b"ilding and loan association tr"st co,pany ins"rance co,pany p"blic "tility ed"cational instit"tion or other special corporations go!erned by special laws ,"st be acco,panied by a certificate of the appropriate go!4t agency to the effect that s"ch by/laws are in accordance with law * Hy/laws li.e AOI are contracts of adhesion. They will bind the corporation and stoc.holders incl"ding those who !ote against as well as those who beca,e ,e,bers after appro!al * Contracts entered into witho"t strict co,pliance with by/laws ,ay be binding on the corporation d"e to long ac+"iescence and "sage %Hoard of Li+"idators !s. Ralaw %1>?D(( * Hy/laws are ,ere internal r"les a,ong stoc.holders and cannot affect or
pre1"dice 6rd persons who deal with the corporation "nless they ha!e .nowledge of the sa,e %China Han.ing Corp ! CA 1>>D( ?. Contents %&=D( * 3"b1ect to the pro!isions of the Constit"tion this Code other special laws and the articles of incorporation a pri!ate corporation ,ay pro!ide in its by/laws for) a( The ti,e place and ,anner of calling and cond"cting reg"lar or special ,eetings of the directors or tr"steesb( The ti,e and ,anner of calling and cond"cting reg"lar or special ,eetings of the stoc.holders or ,e,bersc( The re+"ired +"or", in ,eetings of stoc.holders or ,e,bers and the ,anner of !oting thereind( The for, for pro#ies of stoc.holders and ,e,bers and the ,anner of !oting the,- Hy laws ,ay not prohibit the "se of pro#ies/ ;eoples4 5o,e 3a!ings Han. !s. 3"perior Co"rt cited in Ca,pos e( The +"alifications d"ties and co,pensation of directors or tr"stees officers and e,ployees-
f( The ti,e for holding the ann"al election of directors of tr"stees and the ,ode or ,anner of gi!ing notice thereofg( The ,anner of election or appoint,ent and the ter, of office of all officers other than directors or tr"steesh( The penalties for !iolation of the by/lawsi( In the case of stoc. corporations the ,anner of iss"ing stoc. certificates- and 1( 3"ch other ,atters as ,ay be necessary for the proper or con!enient transaction of its corporate b"siness and affairs. * The contents ,ay be s"bdi!ided into two ,a1or headings) a( Banage,ent and control of the corporate entity- and b( Rights and obligations of stoc.holders D. A,end,ent or repeal %&=E( * Ba1ority !ote of the ,e,bers of the Hoard and ,a1ority !ote of the o"tstanding capital stoc. or ,a1ority of ,e,bers in a ,eeting d"ly called for the p"rpose- or * '26 of the o"tstanding capital stoc. or
,e,bers ,ay delegate to the HOD the power to a,end or repeal any by/laws or adopt new by/laws %s"ch power ,ay be re!o.ed by ,a1ority !ote only( * In all other respects the proced"re for adopting the original by/laws shall be the sa,e in a,ending or repealing bylaws or adoption of a new set of bylaws 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1< of 6<1 COR;ORATION LA9 COBBARCIAL LA9 ?.' ALACTION O0 DIRACTOR3 7 disc"ssed in Chapter III ?.6 COBBANCABANT O0 HU3INA33 D. Affects of non/"se of charter2contin"o"s inoperation %& ''( 1. Non/"ser for ' years %non/"se of charter(/ when the corporation does not for,ally organi$e and co,,ence the transaction of its b"siness or the constr"ction of its wor.s within ' years fro, the date of its incorporation its corporate powers cease and the corporation shall be dee,ed dissol!ed %a"to,atic( * 0or,al organi$ation 7 ,ay consist in the election of new board of directors or tr"stees and corporate officer * Co,,ence,ent of b"siness 7 ,ay ta.e the for, of contracting for lease or sale of properties to be "sed as b"siness site of the corporation and
other preparatory acts geared towards f"lfill,ent of the p"rpose for which the corporation was established '. Non/"ser for < years %contin"o"s inoperation(/ when the corporation has co,,enced the transaction of its b"siness b"t s"bse+"ently beco,es contin"o"sly inoperati!e for a period of at least < years. The sa,e shall be a gro"nd for the s"spension or re!ocation of its corporate franchise or Certificate of Incorporation %not a"to,atic(. Notice and hearing before 3AC is re+"ired. 6. A#ception) ca"se or non/"se or operation was d"e to ca"ses beyond the control of the corporation as deter,ined by 3AC %e#. Bineral lands to be de!eloped by the corporation as per its p"rpose are the ob1ect of co"rt litigation and a co"rt in1"nction against the corporate acti!ities has been iss"ed( ANNUAL 0INANCIAL 3TATABANT3 7 filed with 3AC ann"ally %3AC R"le No!. 'F 1>EF( Chapter II T5A COR;ORATA ANTITK 1. Doctrine of separate 1"ridical personality * A corporation has a personality separate and distinct fro, that of its stoc.holders and ,e,bers and is not affected by the personal
rights obligations and transactions of the latter. 3ince corporate property is owned by the corporation as a 1"ridical person the stoc.holders ha!e no clai, on it as owners b"t ha!e ,erely an e#pectancy or inchoate right to the sa,e sho"ld any of it re,ain "pon dissol"tion of the corporation after all corporate creditors ha!e been paid. 3"ch right is li,ited only to their e+"ity interest %doctrine of li,ited liability(. * Altho"gh stoc.holder4s interest in the corp ,ay be attached by his personal creditor corp property cannot be "sed to satisfy his clai, %9ise U Co. !s. Ban 3"n L"ng 1>=F( * 8eneral R"le) 3eparate personality is !ested to a corporate entity when it is iss"ed the certificate of incorporation by the 3AC. The e#ceptions are) a. de facto corporation b. corporation by estoppel * As a separate 1"ridical personality a corporation can be held liable for torts co,,itted by its officers for corporate p"rpose %;NH ! CA 1>DE( * It can4t be held cri,inally liable for a cri,e co,,itted by its officers %;eople ! Tan Hoon Rong 1>6F( * Corporate entities are entitled to the following constit"tional rights) d"e process e+"al protection and protection against "nreasonable
searches and sei$"res. 5owe!er a corp is not entitled to the pri!ilege against selfincri,ination %Hataan 3hipyard U Ang4g Co. ! ;C88 1>ED( * A corporation is not entitled to ,oral da,ages %LHC A#press Inc ! CA( * J"ridical personality of the corporation ends when li+"idation ends %pay,ent of debts and distrib"tion of assets( and inchoate rights or e#pectancies of stoc.holders are reali$ed. Until s"ch con!eyance is ,ade title o!er the assets re,ains with the corporation. '. ;iercing the !eil of corporate fiction '.1 Nat"re of the piercing doctrine * ;iercing the !eil of corporate entity re+"ires the co"rt to see thro"gh the protecti!e shro"d which e#e,pts its stoc.holders fro, liabilities that ordinarily they co"ld be s"b1ect to or disting"ishes one corporation fro, a see,ingly separate one were it not for the e#isting corporate fiction :Li, !. CA 'FFF@. H"t to do this the co"rt ,"st be s"re that the corporate fiction was ,is"sed to s"ch an e#tent that in1"stice fra"d or cri,e was co,,itted "pon another disregarding their his her or its 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1? of 6<1 COR;ORATION LA9 COBBARCIAL LA9 rights. It is the protection of the interests
of innocent third persons dealing with the corporate entity which the law see.s to protect by this doctrine. :Traders Royal Han. !. CA 1>>D@ * 9hether the e#istence of the corporation sho"ld be pierced depends on +"estions of facts appropriately pleaded. Bere allegation that a corporation is the alter ego of the indi!id"al stoc.holders is ins"fficient. The pres",ption is that the stoc.holders or officers are distinct entities. The b"rden of pro!ing otherwise is on the party see.ing to ha!e the co"rt pierce the !eil of corporate entity. :Ra,oso !. IA 'FFF@ * ;iercing the !eil of corporate entity is ,erely an e+"itable re,edy and ,ay be awarded only in cases when the corporate fiction is "sed to defeat p"blic con!enience 1"stify wrong protect fra"d or defend cri,e or where the corporation is a ,ere alter ego or b"siness cond"it of a person. * 9hen it co,es to applying the doctrine the first point to consider is the liability of obligation of the indi!id"al %the one who is being so"ght to be liable(. 9itho"t s"ch liability e!erything wo"ld ha!e been in co,pliance with stat"tes %U.3 !s. Bilwa".ee 1>F<- U,ali !s. CA 1>>F(. * In case of wholly/owned corporations
corporations with co,,on stoc.holders or corporations ha!ing a parent/s"bsidiary relationship the following are the Line!itable conse+"encesM) a( Control and ,anage,ent of the corporationb( Interloc.ing directorsc( Co,,on access to the "se of reso"rces ser!ices and 6rd/party pro!iders- and d( Intra/corporate dealings. In the abo!e conse+"ences there is no necessity for applying the doctrine of piercing the corporate !eil "nless there is a partic"lar act by the corporation stoc.holder or HOD that gi!es rise to a liability. If there4s a liability to spea. of s"ch conse+"ences ,ay be considered as a ,eans of e!ading s"ch th"s the need for the piercing. * In applying the doctrine deter,ine) 1. the rights and obligations of the parties. '. the possibility of non/enforce,ent of s"ch rights and obligations beca"se of the shield or !eil. 6. loo. into the circ",stances and "nderlying p"rpose of p"tting "p the corporation '.' A#tent of the legal effects of piercing * The application of the piercing doctrine to a partic"lar case does not deny the
corporation of legal personality for any and all p"rposes b"t only for the partic"lar transaction or instance for which the doctrine was applied. :Roppel ;hil. Inc. !. Katco@ %1>=?( * ;iercing is not allowed "nless the re,edy so"ght is to ,a.e the officer or another corporation pec"niarily liable for corporate debts '.6 Ill"strati!e Cases where piercing the !eil is allowed * If done to defra"d the go!ern,ent of ta#es d"e it * If done to e!ade pay,ent of ci!il liability * If done by a corporation which is ,erely a cond"it or alter ego of another corporation * If done to e!ade co,pliance with contract"al obligations * If done to e!ade financial obligation to its e,ployees '.= ;arent/s"bsidiary relationship * The ,ere fact that a corporation owns all or s"bstantially all of the stoc.s of another corporation is not s"fficient to 1"stify their being treated as one entity. If "sed to perfor, legiti,ate f"nctions the s"bsidiary4s separate e#istence ,ay be respected. 5owe!er to pre!ent ab"ses of the separate entity pri!ilege the co"rt will pierce the !eil of corporate entity and
regard the two corporations as one. * Circ",stances which if present in the proper co,bination renders the s"bsidiary an instr",entality) a( The parent corporation owns all or ,ost of the s"bsidiary4s capital stoc. b( The parent and s"bsidiary corporations ha!e co,,on directors or officers c( The parent corporation finances the s"bsidiary d( The parent corporation s"bscribes to all the capital stoc. of the s"bsidiary or otherwise ca"ses its incorporation e( The s"bsidiary has grossly inade+"ate capital f( The parent corporation pays the salaries and other e#penses or losses of the s"bsidiary g( The s"bsidiary has s"bstantially no b"siness e#cept with parent corporation or no assets e#cept those con!eyed to or by the parent corporation h( In the papers of the parent corporation or in the state,ents of its officers the s"bsidiary is described as a depart,ent or di!ision of the parent corporation or its b"siness or financial responsibility is referred to as the parent corporation4s own i( The parent corporation "ses the
property of the s"bsidiary as its own 1( The directors or e#ec"ti!es of the s"bsidiary do not act independently in the interest of the s"bsidiary b"t ta.e their orders fro, the parent corporation in the latter4s interest .( The for,al ledger re+"ire,ents of the s"bsidiary are not obser!ed %;NH ! Ritratto 8ro"p 'FF1(. * The s"bsidiary cannot be considered a ,ere instr",entality of the parent corporation 1"st by the co,bination of the 11 signs listed abo!e. 0or the !eil of corporate entity of the s"bsidiary to be pierced so that it is considered 1"st an instr",entality the act +"estioned ,"st ha!e an illegal or "nfair p"rpose which 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1D of 6<1 COR;ORATION LA9 COBBARCIAL LA9 res"lts to pre1"dice to third persons who ,ay see. redress fro, the corporate entity De Leon !s. NLRC %'FF1( 0ACT3) 0I3I contracted with 0TC for sec"rity ser!ices. 3"bse+"ently the stoc.holders of 0I3I sold all their participation in the corporation to a new set of stoc.holders which rena,ed the corporation BI3I. Afterwards 0TC preter,inated its contract of sec"rity ser!ices with BI3I ca"sing petitioner sec"rity g"ards to lose their e,ploy,ent and file UL; case against 0TC 0I3I and BI3I.
5ALD) There was AR/AA relationship between 0TC and petitioners. It was shown that 0I3I was a ,ere ad1"nct of 0TC. Records show that 0I3I and 0TC ha!e the sa,e owners and b"siness address and 0I3I pro!ided sec"rity ser!ices only to 0TC. The p"rported sale of the shares of the for,er stoc.holders to a new set of stoc.holders who changed the na,e of the corporation to BI3I appears to be part of a sche,e to ter,inate the ser!ices of 0I3IVs sec"rity g"ards posted at the pre,ises of 0TC and b"st their newly/organi$ed "nion which was then beginning to beco,e acti!e in de,anding the co,panyVs co,pliance with Labor 3tandards laws. Under these circ",stances the Co"rt cannot allow 0TC to "se its separate corporate personality to shield itself fro, liability for illegal acts co,,itted against its e,ployees. 0rancisco !s. Be1ia %'FF1( 9ith specific regard to corporate officers the general r"le is that the officer cannot be held personally liable with the corporation whether ci!illy or otherwise for the conse+"ences of his acts if he acted for and in behalf of the corporation within the scope of his a"thority and in good faith. In s"ch cases the officerVs acts are properly attrib"ted to the corporation. 5owe!er if it is pro!en that the officer has "sed the corporate fiction to defra"d a third party or that he has acted negligently ,alicio"sly or in bad faith then the corporate !eil shall be lifted and he shall be held
personally liable for the partic"lar corporate obligation in!ol!ed. 6. Nationality of the Corporation 6.1 The place of incorporation test. * The corporation is a national of the co"ntry "nder whose laws it is organi$ed or incorporated%&1'6() Do,estic corporations 7 organi$ed and go!erned "nder and by ;hilippine laws * 0oreign corporations 7 organi$ed "nder laws other than those of the ;hilippines an can operate only in the territory of the state "nder whose laws it was for,ed. 5owe!er they ,ay be licensed to do b"siness here. 6.' Nationality of the Corporation as deter,ined by the LControl TestM * A#ploitation of Nat"ral Reso"rces / 3ection ' Art. OII CON3T. Lonly 0ilipino Citi$ens or Corporations whose capital stoc. are at least ?FG owed by 0ilipinos can +"alify to e#ploit nat"ral reso"rces.M * ;"blic Utilities / 3ec. 11 Art OII CON3T. L### no franchise certificate or any other for, of a"thori$ation for the operation of a p"blic "tility shall be granted e#cept to citi$ens of the ;hilippines or to corporations or associations organi$ed "nder the laws of the ;hilippines at least ?FG of whose capital is owned by s"ch citi$ens. L
* 9ar/ti,e Test / If the controlling stoc.holders are ene,ies then the nationality of the corporation will be base on the citi$enship of the ,a1ority stoc.holders in ti,es of war %0ilipinas Co,pania de 3eg"ros ! Christian 5"enfeld 1><1( . * In!est,ent Test / 3ec. 6%a( and %b( 0oreign In!est,ents Act of 1>>1 %RADF='(. It considers for p"rpose of in!est,ent a L;hilippine NationalM as a corporation organi$ed "nder the laws of the ;hilippines of which at least ?FG of the capital stoc. o"tstanding and entitled to !ote is owned and held by citi$ens of the ;hilippines or a tr"stee of the f"nds for pension or other e,ployee retire,ent or separation benefits where the tr"stee is a ;hilippine national and at least ?FG of the f"nd will accr"e to the benefit of ;hilippine nationals. 6.6 8randfather r"le Used to deter,ine the nationality of a corporation by which the percentage of 0ilipino e+"ity in corporations engaged in nationali$ed and2or partly nationali$ed areas of acti!ities pro!ided for "nder the constit"tion and other nationali$ation laws is co,p"ted in cases where corporate shareholders are present in the sit"ation by attrib"ting the nationality of the second or e!en s"bse+"ent tier of
ownership to deter,ine the nationality of the corporate stoc.holder. %Iillan"e!a 'FF6( * 3AC for,"la) 3AC Letter Opinion L3hares belonging to corporations or partnerships at least ?FG of the capital of which is owned by 0ilipino citi$ens shall be considered as of ;hilippine nationality b"t if the percentage of 0ilipino ownership in the corporation or partnership is less than ?FG only the n",ber of shares corresponding to s"ch percentage shall be considered as of ;hilippine nationality.M 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1E of 6<1 COR;ORATION LA9 COBBARCIAL LA9 Chapter I ;ROBOTAR34 CONTRACT3 ;RIOR TO INCOR;ORATION 1. 0"nctions of ;ro,oters * Organi$e and establish corporation * 3olicit or pool capital contrib"tions * A#ercise2identify2cons",,ate opport"nities * Ba.e a!ailable capital contrib"tions2in!est,ents %"nderwrite( * Banage2control * Note) ,ay be done prior or after incorporation. Co,plications arise if perfor,ed prior to incorporation. 0or who, was the pro,oter acting in behalf ofS %no 1"ridical entity yet( '.9hat are ;ro,oter4s ContractsS * Contracts prior to e#istence of corporation th"s
the corporation co"ld not ha!e been a party to it. * 5owe!er the corporation ,ay ,a.e the contracts its own and ,ay beco,e bo"nd on s"ch contracts if after incorporation it adopts or ratifies the sa,e or accepts its benefits with .nowledge of the ter,s thereof. * Adoption or ratification need not be by e#press resol"tion of the board and ,ay be i,plied fro, the acts of responsible officers of the corporation. 6. Liability of Corporation for ;ro,oter4s Contracts R"les on the liability of the corp. on pro,oters4 contracts) 6.1 8eneral R"le Corp. is not bo"nd by the contract 7 3ince the corp. did not yet e#ist at the ti,e of the contract it co"ld not ha!e had an agent who co"ld legally bind it. 6.' A#ception) Corp. ,ay be bo"nd by the contract if it ,a.es the contract its own) 5owS a. Adoption or ratification * Hy e#press resol"tion * I,plied fro, the acts of responsible officers of the corp. W The corp. cannot adopt only the part of the contract which ,ay be beneficial to it U then discard the part that is b"rdenso,e.
W The contract to be capable of adoption or ratification ,"st be one within the powers of the corp. to enter. b. Acceptance of benefits "nder the contract with .nowledge of the ter,s thereof =. ;ersonal Liability of ;ro,oter on ;re/Incorporation Contracts There are three possible sit"ations intended by the pro,oter and the other party in pre/incorp. contracts) 1. ;ro,oter ta.es a contin"ing O00AR on behalf of the corp which if accepted by the corp. beco,es a contract * ;ro,oter does not ass",e any personal liability whether or not the offer is accepted by the corp. '. ;ro,oter ,a.es a contract at the ti,e binding hi,self with the UNDAR3TANDIN8 that if the corp. once for,ed accepts or adopts the contract the pro,oter will be relie!ed of all responsibilities 6. ;ro,oter binds hi,self ;AR3ONALLK U ass",es the responsibility of loo.ing to the proposed corp. for rei,b"rse,ent In the absence of any e#press or i,plied agree,ent to the contrary the 6rd sit"ation will be pres",ed and the pro,oter will be considered personally liable for the contracts. Th"s the corp.4s adoption or ratification of the contract will not release the pro,oter fro, personal liability "nless a no!ation was intended. %9ells !s. 0ay U Agan
Co. 1=6 8a. D6' ED 3.A ED6 1>1<( A#ception) Q"a.er ! 5ill case. In this case Q"a.er loo.ed to the "incorporated entity when ,a.ing the contract. Th"s the pro,oter was not liable.%Q"a.er 5ill Inc. !s. ;arr 1=E Colo. =< 6?= ;. 'd 1F<? 1>?1( <. Co,pensation of ;ro,oters 8en r"le 7 the corporation is not liable to pay co,pensation beca"se this wo"ld be an i,position on innocent in!estors. %Hallantine( A#ceptions) * if after it is for,ed corporation e#pressly pro,ises to do so %Hallantine- Indianapolis Hl"e ;rint U Ban"fact"ring Co. !. Rennedy et. al. '1< Ind. =F> 1> N.A 'd <<= 1>6>( * 3er!ices done partly before and partly after incorporation and the corporation ta.es the benefits thereof The Corp. Code does not contain any pro!ision as to the co,pensation of pro,oters. H"t the 3ec"rities Act a"thori$es a pro,otion fee I0 it is pro!ided for in the registration state,ent of the sec"rities in!ol!ed. ?. 0id"ciary Relationship between Corporation U ;ro,oter The pro,oters being responsible for the financing U organi$ation of the corp. are "nder d"ty to e#ercise good faith U fairness in all their acts U transactions. A#a,ple) ;ro,oters often ha!e to ta.e options or title to property in their na,e b"t for the benefit of
the corp. In s"ch cases they sho"ld not ,a.e secret profits in passing title to the corp. If they do they wo"ld ha!e to acco"nt for all s"ch profits to the corp. when for,ed. %Old Do,inion Bining and 3,elting Corp. 'F6 Bass. 1<> E> N.A 1>6 1>F>( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1> of 6<1 COR;ORATION LA9 COBBARCIAL LA9 Chapter II COR;ORATA ;O9AR3 1. 8eneral powers of corporations %&6?( a. To s"e and be s"ed in its corporate na,eb. 3"ccession by its corporate na,e for the period of ti,e stated in the articles of incorporation and the certificate of incorporationc. To adopt and "se a corporate seald. To a,end its articles of incorporation in accordance with the pro!isions of this Codee. To adopt by/laws not contrary to law ,orals or p"blic policy and to a,end or repeal the sa,e in accordance with this Codef. In case of stoc. corporations to iss"e or sell stoc.s to s"bscribers and to sell stoc.s to s"bscribers and to sell treas"ry stoc.s in accordance with the pro!isions of this Codeand to ad,it ,e,bers to the corporation if it be a non/stoc. corporationg. To p"rchase recei!e ta.e or grant hold con!ey sell lease pledge ,ortgage and otherwise deal with s"ch real and personal
property incl"ding sec"rities and bonds of other corporations as the transaction of the lawf"l b"siness of the corporation ,ay reasonably and necessarily re+"ire s"b1ect to the li,itations prescribed by law and the Constit"tionh. To enter into ,erger or consolidation with other corporations as pro!ided in this Codei. To ,a.e reasonable donations incl"ding those for the p"blic welfare or for hospital charitable c"lt"ral scientific ci!ic or si,ilar p"rposes) ;ro!ided That no corporation do,estic or foreign shall gi!e donations in aid of any political party or candidate or for p"rposes of partisan political acti!ity1. To establish pension retire,ent and other plans for the benefit of its directors tr"stees officers and e,ployees- and .. To e#ercise s"ch other powers as ,ay be essential or necessary to carry o"t its p"rpose or p"rposes as stated in the articles of incorporation. %in the p"rpose cla"se( * 3o"rces of e#press power %Iillan"e!a( o 3ection 6? %Corp Code and other applicable stat"tes( o ;"rpose cla"se %AOI s"pple,ented by bylaws( * 3ec 6E par 11 grants s"ch power as are essential or necessary to carry o"t its p"rpose or p"rposes as stated in the AOI. A corporation is pres",ed to act within its powers and when
a contract is not on its face necessarily beyond its a"thority it will in the absence of proof to the contrary pres",ed !alid * The general powers are to be e#ercised by the HOD. 5owe!er the power to a,end AOI is to be e#ercised by the stoc.holders or ,e,bers * ' general restrictions on the power of the corporation to ac+"ire and hold properties) o that the property ,"st be reasonably and necessarily re+"ired by the transactions of its lawf"l b"siness o that the power shall be s"b1ect to the li,itations prescribed by other special laws and the constit"tion %corporation ,ay not ac+"ire ,ore than 6FG of !oting stoc.s of a ban.- corporations are restricted fro, ac+"iring p"blic lands e#cept by lease of not ,ore than 1FFF hectares( '. 3pecific ;owers / TCH ;DA IDB %DI; CAH BDT( * A#tend or shorten the corporate Ter, %& 6D( * Increase or decrease Capital stoc. %& 6E( * Inc"r create or increase Honded indebtedness %& 6E( * Deny ;ree,pti!e right %& 6>( * 3ell or otherwise Dispose of s"bstantially all its assets * Ac+"ire its own shares %& =1( * In!est in another corporation or b"siness %& ='(
* Declare di!idends %& =6( * Anter into Banage,ent contracts %& ==( 6. I,plied ;owers These i,plied powers are dee,ed to e#ist beca"se of the following pro!isions) 1. e#cept s"ch as are necessary or incidental to the e#ercise of the powers so conferred %&6?( '. s"ch powers as are essential or necessary to carry o"t its p"rpose or p"rposes as stated in the AOI 7 catch/all phrase %&=<( Re,e,ber) %Cole,an !s. 5otel de 0rance Co. '> ;hil. 6'6 1>1<( 1. A corporation is pres",ed to act within its powers. '. 9hen a contract entered into by the corporation is not on its face necessarily beyond its a"thority it will be pres",ed !alid. =. The Ultra Iires Doctrine %&=<( Definition 7 These are acts which a corporation is not e,powered to do or perfor, beca"se they are not based on the powers conferred by its AOI or by the Corporation Code on corporations in general or beca"se they are not necessary or incidental to the e#ercise of the powers so conferred. R"le 7 No Corporation "nder this Code shall possess or e#ercise any corporate powers e#cept those conferred by this Code or by its articles of incorporation and e#cept s"ch as are necessary or
incidental to the e#ercise of the powers so conferred. An "ltra !ires act if not illegal can be re,edied %by ratification( Atri", !. CA %'FF1( Atri", Banage,ent Corporation filed with RTC an action for collection of the = postdated chec.s iss"ed by the 5i/ce,ent Corporation tho"gh its signatories de Leon treas"rer and delas Alas chair,an of the corporation to a certain AT 5enry and Co which the latter endorsed to Atri", for 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'F of 6<1 COR;ORATION LA9 COBBARCIAL LA9 redisco"nting. 5ALD) The act of iss"ing was well within the a,bit of a !alid corporate act for it was for sec"ring a loan to finance the acti!ities of the corporation hence not an "ltra !ires act. An "ltra !ires act is disting"ished fro, illegal act the for,er being !oidable which ,ay be enforced by perfor,ance ratification or estoppel while the latter is !oid and cannot be !alidated. 3C howe!er held de Leon negligent. NA;OCOR ! Iera %1>E>( NA;OCOR has a pier at its coal plant in Hatangas. It did not renew its ste!edoring contract at the plant b"t instead too. o!er
the ser!ices itself. RTC J"dge iss"ed preli,inary in1"nction against NA;OCOR saying that it was not e,powered by its Charter to engage in ste!edoring and arrastre ser!ices. 5eld) Under its Charter NA;OCOR can e#ercise powers as ,ay be reasonably necessary to carry o"t its b"siness of constr"cting operating and ,aintaining power plants or which fro, ti,e to ti,e ,ay be declared by the Hoard to be necessary "sef"l incidental or a"#iliary to acco,plish said p"rpose. If act is lawf"l and not prohibited and for the p"rpose of ser!ing corporate ends and reasonably contrib"tes to the pro,otion of those ends in a s"bstantial sense it ,ay be considered within the corporation4s charter powers. 3te!edoring ser!ices are incidental and indispensable to "nload the coal ship,ents. Rep"blic of the ;hilippines !s. Aco1e Bining Co. %1>?6( Aco1e Bining re+"ested the Director of ;osts to open a post office in its ,ining ca,p for the benefit of its e,ployee and their fa,ilies. In a resol"tion Aco1e agreed to be directly responsible for the Ldishonesty carelessness or negligence of the e,ployee it assignsM. Aco1e4s e,ployee 3anche$ was designated
as the post,aster b"t he later disappeared with 16R of post office f"nds. Aco1e denied liability on the gro"nd that the resol"tion was "ltra !ires/HOD had no a"thority to act on the ,atter. 5ALD) The co,pany is estopped fro, denying liability on the gro"nd that the board resol"tion is "ltra !ires. Ass",ing arg"endo that the resol"tion is an "ltra !ires act the sa,e is not !oid for it was appro!ed not in contra!ention of law c"sto,s p"blic order and p"blic policy. The ter, "ltra !ires sho"ld be disting"ished fro, an illegal act for the for,er is ,erely !oidable which ,ay be enforced while the latter is !oid and cannot be !alidated. ;iro!ano ! De la Ra,a 3tea,ship %1><=( 3toc.s are owned by Don de la Ra,a his ' da"ghters and their AAs with no,inal shares. One of the da"ghters was ,arried to the co,pany president Anrico ;iro!ano. 9hile the b"siness grew the father distrib"ted his stoc.s a,ong his < da"ghters and his wife. NDC was also represented in the HoD beca"se the corp had a debt to it. To sec"re the debt all assets were ,ortgaged to NDC. Debt was later con!erted to stoc. s"ch that NDC now held = of > seats in HoD. 3"ch con!ersion released the ,ortgaged assets. Anrico ;iro!ano died so the HOD passed a
resol"tion con!erting ins"rance proceeds on his life to stoc.s for each of his ,inor children. Appro!ed by 35s. 5owe!er the other 35s reali$ed that they wo"ld act"ally be donating 1.== B. instead of the =FFR they intended %since the !al"e of the stoc.s increased( and that Brs. ;iro!ano wo"ld now ha!e '# !oting power as her sisters. HOD later changed donation into cash b"t wo"ld be retained by the co,pany as a loan and the interest payable to the children both a,o"nts to be paid to the children after debt to NDC paid and later when co,pany is in position to ,eet obligations. Brs. ;iro!ano for,ally accepted the donation. HOD later appro!ed release of so,e f"nds held in tr"st for Brs. ;iro!ano to b"y ho"se in NK. 35s for,ally ratified the donation. 3AC later ga!e opinion that donation was !oid bec it was beyond the scope of the corp4s powers. 35s later !oted to re!o.e the donation to the ;iro!ano children. 5eld) 1( Donation was re,"nerati!e/ for ser!ices rendered by Anrico ;iro!ano. '( Donation was already perfected. Ratified by 35s and agreed to by NDC the only creditor. 6( Donation is within scope of the AOI. It is
pro!ided that corp can in!est and deal with ,oneys not i,,ediately re+"ired in s"ch ,anner as fro, ti,e to ti,e ,ay be deter,ined and that corp can aid in any other ,anner any person of which any obligation or in which any interest is held by this corp or in the affairs of prosperity of which this corp has a lawf"l interest. Corp has gi!en donations to AAs in the past and to political ca,paigns. Ass",ing donation was "ltra !ires donation was ratified ,a.ing the act !alid and enforceable. Ultra !ires act) o"tside scope of powers granted to it by its articles of incorp. Not necessarily illegal beca"se "ltra !ires acts can beco,e !alid by ratification and estoppel. 8eneral conse+"ences of "ltra !ires acts 1. On corporation itself/Corporation Bay be dissol!ed "nder a +"o warranto proceeding b"t in ,ost cases the co"rt ,erely en1oins the 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '1 of 6<1 COR;ORATION LA9 COBBARCIAL LA9 corporation fro, co,,ission of the "ltra !ires acts %Ca,pos( /Certificate of Registration ,ay be s"spended or re!o.ed by 3AC '. On i,,ediate parties/ ;arties to the "ltra !ires contract if e#ec"tory on both sides
neither party can as. for specific perfor,ance. 9ill be left as they are if the contract has been f"lly e#ec"ted on both sides. If one party has perfor,ed his part the contract will be enforced pro!ided it is not illegal / Contract proceeding fro, an "ltra !ires act is !oidable %Rep"blic !. Aco1e Bining Co. 8R L/1EF?' 0eb. 'E 1>?6- D 3CRA 6?1( ( 6. On the rights of stoc.holders/ Any stoc.holder ,ay bring either an indi!id"al or deri!ati!e s"it to en1oin a threatened "ltra !ires act or contract. If act or contract has already been perfor,ed a deri!ati!e s"it for da,ages ,ay be filed against the directors b"t their liability will depend on whether they acted in good faith and with reasonable diligence in entering into contracts. 9hen based on tort cannot set/"p the defense of "ltra !ires against in1"red party who had no .nowledge that s"ch was "ltra !ires Bay beco,e binding by the ratification of all stoc.holders "nless third parties are pre1"diced thereby or "nless the acts are illegal %;iro!ano !. de la Ra,a 3tea,ship Co. >? ;hil. 66<- 1><=( Chapter III CONTROL AND BANA8ABANT O0 COR;ORATION3 1. Allocation of power and control
%Ca,pos( 6 le!els of control in the corporate hierarchy) 1. the Hoard of Directors or Tr"stees / responsible for corporate policies and the general ,anage,ent of the b"siness and affairs of the corporation '. the Officers / in theory e#ec"te the policies laid down by the board / in practice often ha!e wide latit"de in deter,ining the co"rse of b"siness operations 6. The stoc.holders or ,e,bers / ha!e resid"al power of f"nda,ental corporate changes NOTA) HOD can delegate its f"nction to the officers and also to co,,ittees appointed by it %A#ec"ti!e Co,,ittee & 6<( '. 9ho A#ercises Corporate ;owers '.1 HOARD O0 DIRACTOR3 1( A"thority- repository of corporate powers * The board of directors or tr"stees are responsible for corporate policies and general ,anage,ent of the b"siness affairs of the corporation * Directors ha!e a fid"ciary d"ty to the corp and to the 35s * 8eneral R"le) once elected 35s ha!e no right to interfere with the HOD. A#ceptions) re,o!al of director %&'E(
a,end,ents of AOI %&1?( f"nda,ental changes %&?( declaration of stoc. di!idends %&=6( entering into ,anage,ent contracts %&==( fi#ing of consideration of no/par shares %&?'( and fi#ing of co,pensation of directors %&6F( * Unless otherwise pro!ided in the Corp Code the Hoard of Directors control and e#ercise) o the corporate powers of corporation o all b"siness cond"cted o all property of s"ch corporation %&'6( * The board e#ercises al,ost all corporate powers lays down all b"siness policies and is responsible for the efficiency of ,anage,ent. The stoc.holders ha!e no right to interfere with the board4s e#ercise of its powers and f"nctions e#cept where the law e#pressly gi!es the, the final say li.e in cases of re,o!al of a director a,end,ent of articles of incorporation and other ,a1or changes %Cf &? =' =6(. * Li,itations on the HOD4s a"thority or powers) 1. Action by 35s in order to elect a HOD
'. Certain act of the corp that re+"ire 1oint action of the 35s and HOD * Their resol"tions on ,atters other than the e#ceptions are legally not effecti!e nor binding and ,ay be treated as ,erely ad!isory or ,ay be totally disregarded. %Ra,ire$ !. Orientalist Co. et. al. 6E ;hil. ?6=- 1>1E(- 9olfson !. Banila 3toc. A#change D' ;hil. =>'1>=1( * LUnless Otherwise ;ro!idedM 7 ,ay pertain to instances where a ,anage,ent contract is entered hence corporate powers are e#ercised by the ,anaging co,pany and not the board * A"thority of HOD can be delegated to agents2 officers2 co,,ittees %AOI stat"tes by/laws resol"tions( %KU Ch"c. ! Rong Li ;o =? ;hil ?FE(. Delegation ,ay be e#plicit i,plicit or based on e#igencies of the b"siness %cf. Hoard of Li+"idators ! Ralaw( * The HOD ,ay delegate its corporate powers to either an e#ec"ti!e co,,ittee or officials or contracted ,anagers. The delegation e#cept for the e#ec"ti!e co,,ittee ,"st be for specific p"rposes. The delegation ,a.es the officers agents of the corporation. 0or s"ch officers to be
dee,ed f"lly clothed by the corporation to e#ercise a power of the HOD the latter ,"st specially a"thori$e the, to do so. %AH3/CHN Hroadcasting Corp ! CA 1>>>( * The directors or tr"stees shall not act indi!id"ally nor separately b"t as a 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '' of 6<1 COR;ORATION LA9 COBBARCIAL LA9 body in a lawf"l ,eeting. Contracts entered into witho"t a for,al board resol"tion does not bind the corporation e#cept when ,a1ority of the board has .nowledge of the contract and the contract benefited the corporation. %ratification( * Directors owe their d"ties to corporation as a whole rather than to indi!id"al shareholders of classes of shareholders * H"siness J"dg,ent R"le / 3ec '6 e,bodies the essence of the Lb"siness 1"dg,ent r"le M that "nless otherwise pro!ided in the Code all corp powers and prerogati!es are !ested directly in the HOD. Conse+"ently the r"le has two conse+"ences) * The resol"tion contracts and transactions of the HOD cannot be o!ert"rned or set aside by the 35s
or ,e,bers and not e!en by the co"rts "nder the principle that the b"siness of the corp has been left to the hands of the HOD- and * Directors and d"ly a"thori$ed officers cannot be held personally liable for acts or contracts done with the e#ercise of their b"siness 1"dg,ent. A#ceptions) o 9hen the Corp Code e#pressly pro!ides otherwiseo 9hen the directors or officers acted with fra"d gross negligence or in bad faith- and o 9hen directors or officers act against the corp in conflict/ofinterest sit"ation 1( Re+"ire,ents * Q"alifying share %&'6(/ A!ery director ,"st own at least one %1( share of the capital stoc. of the corporation of which he is a director which share shall stand in his na,e on the boo.s of the corporation. Any director who ceases to be the owner of at least one %1( share of the capital stoc. of the corporation of which he is a director shall thereby cease to be a director. Lee !s. CA %1>>'(
3",,ons was ser!ed "pon Lee and Lacdao president and !ice president of AL0A. The two howe!er contended that they are no longer corporate officers of the corporation beca"se of the !oting tr"st agree,ent e#ec"ted to DH; hence not a"thori$ed to recei!e s",,ons. 3",,ons ,"st be ser!ed "pon DH; 5ALD) A#ec"tion of a !oting tr"st creates a dichoto,y between e+"itable or beneficial ownership of the corporate shares of a stoc.holder and legal title thereto. The change fro, the old code to the new code with respect to +"alifying shares of directors is the o,ission of the phrase Lin his own rightM pertaining to beneficial ownership of shares. In the new corpo code persons ,ay be directors if they are stoc.holders altho"gh not Lin their own rightM hence incl"des tr"stees. There is clear indication that to be a director what is ,aterial is legal title and not beneficial ownership. 9ith the e#ec"tion of the !oting tr"st agree,ent Lee and Lacdao were di!ested of their legal title to their shares hence can no longer be directors and are no longer corporate officers. Heca"se of this they are not a"thori$ed to recei!e s",,ons * Re+"ire,ents2Dis+"alifications) o Residence %&'6( / a ,a1ority of the directors or tr"stees of all corporations organi$ed "nder this Code ,"st be residents of the
;hilippines o Nationality 7 no re+"ire,ent for citi$enship of a director or tr"stee so e!en an alien ,ay be elected as s"ch e#cepts in b"siness acti!ities totally closed to aliens o Dis+"alification of directors tr"stees or officers %&'D() Con!icted by final 1"dg,ent of an offense p"nishable by i,prison,ent for a period e#ceeding si# %?( years or Iiolation of this Code co,,itted within fi!e %<( years prior to the date of his election or appoint,ent Hy/laws ,ay pro!ide for additional +"alifications2dis+"alifications as long as s"ch additional +"alifications2dis+"alifications shall not ,odify re+"ire,ents as prescribed in the corporation code or be in conflict with s"ch prescribed re+"ire,ents %&=D%<(( o Note) To sit on the HOD is not a !ested right. Ownership of shares does not a"to,atically e+"ate to a seat in the HOD
o In widely/held corporations 3AC ,andates the presence of at least ' or 'FG of its board si$e whiche!er is lesser independent directors %3ec"rities Reg"lation Code &6E and 8"idelines on the No,ination and Alection of Independent Directors Be,o Circ No. 1? 'FF'( * Ter,) Directors shall hold office for 1 year. 5owe!er inc",bent directors shall contin"e to be directors2tr"stees "ntil their s"ccessors ha!e been elected and +"alified %&'6( '( 5ow elected %&'=( * Banner of election) o There ,"st be present in person or by representati!e ,a1ority of the o"tstanding capital stoc. 2 ,e,ber o In any for,- or ,"st be by ballot when re+"ested by any !oting stoc. holder or ,e,ber o Ioting ,ay be in person or by pro#y * At all elections of directors or tr"stees there ,"st be present owners of a ,a1ority of the o"tstanding capital stoc. or if there be no capital stoc. a 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '6 of 6<1 COR;ORATION LA9 COBBARCIAL LA9 ,a1ority of the ,e,bers entitled to
!ote. * A!ery stoc.holder entitled to !ote shall ha!e the right to !ote the n",ber of shares of stoc. o"tstanding at the ti,e fi#ed in the by/laws in his own na,e on the stoc. boo.s of the corporation or where the by/laws are silent at the ti,e of the election * Ti,e to deter,ine !oting right o As per share standing in one4s na,e at the ti,e fi#ed by the Hy/ Laws o 9here Hy/laws silent at ti,e of election * C","lati!e !oting 7 A syste, of !oting designed to increase the !oting power of ,inority stoc.holders in the election of corporate directors when ,ore than one director is to be elected. o A stoc.holder shall ha!e as ,any !otes as he has n",ber of shares ti,es the n",ber of directors "p for election o C","lati!e !oting is allowed for election of ,e,bers of the Hoard in a stoc. corporation. Be,bers of the Hoard in a Non/stoc. Corporation shall not be !oted c","lati!ely "nless specifically pro!ided for in the Hy/laws.
o The total n",ber of !otes cast by a stoc.holder shall not e#ceed the n",ber of shares owned by hi, as shown in the boo.s of the corporation ,"ltiplied by the whole n",ber of directors to be elected o 8i!es the ,inority an opport"nity to elect a representati!e to the HOD. Cannot itself gi!e the ,inority control of corporate affairs b"t ,ay affect and li,it the e#tent of ,a1ority4s control o Theoretically this allows the ,inority bloc. to do,inate the election of HOD. 5owe!er the ,inority still needs the ,a1ority in order to constit"te a +"or",. o Hy/laws cannot pro!ide against c","lati!e !oting since this right is ,andated in &'= %,andatory in a stoc. corporation 7 stat"tory right of 35s( o In deter,ining how ,any shares are needed to !ote for the desired X of directors %necessary when one ca,paigns for pro#ies( the following for,"la ,ay be followed) : %o"tstanding shares( # %desired X of directors( Y 1 @ 2 : %total X of directors( Y 1 @
o Unless otherwise pro!ided in the AOI or in the by/laws ,e,bers of corporations which ha!e no capital stoc. ,ay cast as ,any !otes as there are tr"stees to be elected b"t ,ay not cast ,ore than one !ote for one candidate. * Candidates recei!ing the highest n",ber of !otes shall be declared elected. * Any ,eeting of the stoc.holders or ,e,bers called for an election ,ay ad1o"rn fro, day to day or fro, ti,e to ti,e b"t not sine die or indefinitely if) o 0or any reason no election is held or o If there are 35s not present or represented by pro#y at the ,eeting the owners of a ,a1ority of the o"tstanding capital stoc. or if there be no capital stoc. a ,a1ority of the ,e,ber entitled to !ote. * 3ince the pro!ision re+"ires presence ,eeting of stoc.holders is re+"ired 6( 5ow Re,o!ed %&'E( * Any director or tr"stee of a corporation ,ay be re,o!ed fro, office by a !ote of the stoc.holders holding or
representing '26 of the o"tstanding capital stoc. or if the corporation be a Non/stoc. Corporation by a !ote of '26 of the ,e,bers entitled to !ote %with or witho"t ca"se(. * Note) 3"ch re,o!al shall ta.e place either at a reg"lar ,eeting or at a special ,eeting called for the p"rpose of re,o!al of Directors or Tr"stees with pre!io"s notice of the ti,e and place of s"ch ,eeting as well as the intention to propose s"ch re,o!al. If the officers ref"se to call a ,eeting to consider the re,o!al of the Director it ,ay be called at the instance of any stoc.holder or ,e,ber b"t with d"e notice. * Re,o!al witho"t ca"se ,ay not be "sed to depri!e ,inority stoc.holders or ,e,bers of the right of representation to which they ,ay be entitled to "nder 3ection '= * The board cannot re,o!e a director or tr"stee as ,e,ber of the board Ro#as ! Dela Rosa %1>'?( Hinalbagan Astate Inc is engaged in the ,fg of raw s"gar fro, canes. ;ossessors of ,a1ority of shares for,ed a !oting tr"st co,posed of 6 tr"stees. Tr"stees now controlled 6 FFF o"t of < <FF shares. Ioting tr"st was able to !ote HOD witho"t
opposition fro, ,inority. Tr"stees soon wanted to re,o!e the directors they had elected e!en if their ter,s had not yet e#pired. Ioting tr"st ca"sed 3AC to iss"e notice for a special gen ,tg to elect a new HOD. 5eld) Under the law directors can only be re,o!ed by !ote of 35s representing at least '26 of the s"bscribed capital stoc. entitled to !ote. 9hen the p"rpose is to re,o!e directors it ,"st be stated in call for ,eeting. H"t !acancies in HOD can be filled by ,ere ,a1ority !ote. Tr"st does not ha!e clear '26 ,a1ority. Ioting tr"st sho"ld ha!e stated in notice that p"rpose was to re,o!e present HOD. Beeting called by tr"stees en1oined. In this case re,o!al was so"ght to be done by replacing directors HUT can4t re,o!e thr" election of new officers bec directors ha!e fi#ed ter, of office 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '= of 6<1 COR;ORATION LA9 COBBARCIAL LA9 Note) &'E need not be resorted to in all instances. If re,o!al is for ca"se %,is,anage,ent or ab"se of powers the re,edy of 35s shall be) a( Recei!ershipb( In1"nction if the act has not yet been donec( Dissol"tion if ab"se a,o"nts to a gro"nd for +"o warranto b"t 3ol 8en ref"ses to act-
d( Deri!ati!e s"it or co,plaint filed with the RTCe( Cri,inal action =( Iacancies %&'>( Iacancies in the Hoard of Directors or Tr"stees BAK be filled by a !ote of at least a ,a1ority of the re,aining directors or tr"stees- if still constit"ting a +"or", In the following cases the stoc.holders or ,e,bers shall fill the !acancy %RAAQ() a. 9hen the re,aining directors or tr"stees do not constit"te a +"or",b. If the !acancy is ca"sed by the re,o!al of a director or tr"stee c. If the !acancy is ca"sed by the e#piration of ter,- and d. In case of increase in the n",ber of directors or tr"stees as a res"lt of an a,end,ent of the articles a"thori$ing s"ch increase <( Co,pensation %&6F( * In the absence of any pro!ision in the Hy/laws fi#ing their co,pensation the directors shall not recei!e any co,pensation e#cept for reasonable per die,s. * Any s"ch co,pensation %other than per die,s( ,ay be granted to the directors by the !ote of the stoc.holders representing at least a ,a1ority of the
o"tstanding capital stoc. at a reg"lar or special stoc.holder4s ,eeting. * Li,it) In no case shall the total yearly co,pensation of directors as s"ch directors e#ceed 1FG of the net inco,e before inco,e ta# of the corporation d"ring the preceding year. * 9estern Instit"te of Technology ! 3alas %1>>D( In a ,eeting of the Hoard of Tr"stees of 9estern Instit"te of Technology a resol"tion was passed granting ,onthly co,pensation to officers respondents who are ,e,bers of the Hoard. The resol"tion is !alid. The prohibition with respect to granting co,pensation to corporate directors2tr"stees "nder 3ection 6F of the Corporation Code is not !iolated since the co,pensation is being gi!en to pri!ate respondents in their capacity as officers of 9IT and not as board ,e,bers. ?( 5ow corporate powers e#ercised 7 Hoard ,"st act as a body in a ,eeting Re+"isites of board ,eetings * Beeting of the Hoard d"ly asse,bled * A#istence of +"or", * Decision of the ,a1ority of the +"or", d"ly asse,bled %AOCA;TION) Alection of directors 7 re+"ires a !ote of ,a1ority of all the ,e,bers of the
board( 95ANS %&<6( * Reg"lar ,eetings of directors or tr"stees shall be held ,onthly "nless the by/laws pro!ide otherwise. * 3pecial ,eetings of the board of directors or tr"stees ,ay be held at any ti,e "pon the call of the president or as pro!ided in the by/laws. 95ARAS %&<6( Beetings of directors or tr"stees of corporations ,ay be held anywhere in or o"tside of the ;hilippines "nless the bylaws pro!ide otherwise. 95O BAK ATTANDS The ,e,bers of the Hoard the,sel!esdirectors in Hoard ,eetings cannot be represented or !oted by pro#ies. 95O ;RA3IDA3S %&<=( The president shall preside at all ,eetings of the directors or tr"stee "nless the bylaws pro!ide otherwise. NOTICA RAQUIRABANT3 %&<6( * Notice of reg"lar or special ,eetings stating the date ti,e and place of the ,eeting ,"st be sent to e!ery director or tr"stee at least one %1( day prior to the sched"led ,eeting "nless otherwise pro!ided by the by/laws. * A director or tr"stee ,ay wai!e this
re+"ire,ent either e#pressly or i,pliedly QUORUB RAQUIRABANT3 %&'<( Unless the articles of incorporation or the by/laws pro!ide for a greater ,a1ority a ,a1ority of the n",ber of directors or tr"stees as fi#ed in the articles of incorporation shall constit"te a +"or", for the transaction of corporate b"siness and e!ery decision of at least a ,a1ority of the directors or tr"stees present at a ,eeting at which there is a +"or", shall be !alid as a corporate act e#cept for the election of officers which shall re+"ire the !ote of a ,a1ority of all the ,e,bers of the board. 0ilipinas ;ort 3er!ices Inc. represented by stoc.holders Aliodoro C. Cr"$ !. Iictoriano 3. 8o et al. 8R No. 1?1EE? Barch 1? 'FFD Cr"$ a stoc.holder of the corporation filed a deri!ati!e s"it against the ,e,bers of the board +"estioning the creation of certain positions. Cr"$ th"s prayed that the respondent ,e,bers of the board of directors be ,ade to pay 0ilport 1ointly and se!erally the s",s of ,oney !ariedly representing the da,ages inc"rred as a res"lt of the creation of the offices2positions co,plained of and the aggregate a,o"nt of the +"estioned increased salaries.
1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '< of 6<1 COR;ORATION LA9 COBBARCIAL LA9 5ALD) The board4s creation of the positions of Assistant Iice ;residents for Corporate ;lanning Operations 0inance and Ad,inistration and those of the 3pecial Assistants to the ;resident and the Hoard Chair,an was in accordance with the reg"lar b"siness operations of 0ilport as it is a"thori$ed to do so by the corporation4s by/laws p"rs"ant to the Corporation Code. Hesides the deter,ination of the necessity for additional offices and2or positions in a corporation is a ,anage,ent prerogati!e which co"rts are not wont to re!iew in the absence of any proof that s"ch prerogati!e was e#ercised in bad faith or with ,alice. '.' COR;ORATA O00ICAR3 AND A8ANT3 1. Bini,", set of officers and Q"alification %&'<( * I,,ediately after their election the directors of a corporation ,"st for,ally organi$e the election of) a. A president who shall be a director b. A treas"rer who ,ay or ,ay not be a director %3AC opinion that the treas"rer ,"st be a resident and citi$en of the ;hil.( c. A secretary who shall be a resident and citi$en of the ;hilippines and d. 3"ch other officers as ,ay be
pro!ided for in the Hy/laws * Any two %'( or ,ore positions ,ay be held conc"rrently by the sa,e person e#cept that no one shall act as president and secretary or as president and treas"rer at the sa,e ti,e. * Additional +"alifications of officers ,ay be pro!ided for in the by/laws %&=D%<(( Ong.ingco !. NLRC %1>>D( 9here the Hy/laws of the condo,ini", corporation specifically incl"des the position of L3"perintendent2Ad,inistratorM in a roster of corporate officers then s"ch position is clearly a corporate officer position and iss"es of reinstate,ent wo"ld be within the 1"risdiction of the 3AC and not the NLRC. Taba"g !. NLRC %1>>D( 9hen the Hy/laws of the corporation pro!ide that one of the powers of the Hoard of Tr"stees is Lto appoint a Bedical Director Co,ptroller2Ad,inistration Chief of 3er!ices and s"ch other officers as it ,ay dee, necessary and prescribe their powers and d"tiesM then s"ch specifically designated positions sho"ld be considered Lcorporate officersM positionsZ. '. Dis+"alifications %&'D( No person con!icted by final 1"dg,ent of an offense p"nishable by i,prison,ent for a period e#ceeding si# %?( years or a !iolation of this Code co,,itted within fi!e
%<( years prior to the date of his election or appoint,ent shall +"alify as a director tr"stee or officer of any corporation. 6. A"thority of corporate officers * The a"thority of corporate officers to bind the corporation is "s"ally not considered inherent in their office b"t is deri!ed fro, law the corporate bylaws or by delegation fro, the HOD either e#pressly or i,pliedly by habit c"sto, or ac+"iescence in the general co"rse of b"siness * 8en r"le) A person dealing with a corporate officer is p"t on in+"iry as to the scope of the latter4s a"thority b"t an innocent person cannot be pre1"diced if he had the right to pres",e "nder the circ",stances the a"thority of the acting officers. ;eople4s Aircargo !s. CA %1>>E( Corporate ;resident ;"nsalan solicited a proposal fro, respondent 3ano for the preparation of a feasibility st"dy. 3ano prepared feasibility st"dy and was paid for it. Another proposal for the preparation of operations ,an"al was solicited fro, 3ano and was accepted by ;"nsalan. Ban"al was prepared and appro!ed by Co,,issioner of H"rea" of C"sto,s se,inar/wor.shops cond"cted b"t pay,ent was not ,ade 5ALD) Corporation is liable to 3ano for ser!ices
rendered. 8eneral r"le is that absent the a"thority fro, the Hoard of Directors no person not e!en its officers can bind the corporation. 5owe!er acts of person in behalf of the corporation ,ay be ratified. 9hen corporation pre!io"sly allowed 0irst Contract it ga!e president apparent a"thority to e#ec"te in its behalf the other contract and is estopped fro, denying s"ch a"thority. Corporation accepted operations ,an"al and the se,inars and ha!e already benefited fro, the contract. This ratifies the act of the president and ,a.es it binding "pon the corporation. ;resident is pres",ed to ha!e a"thority to act within the do,ain of the general ob1ecti!es of the corporation R"ral Han. of Bilaor !s. Ocfe,ia %'FFF( 9hen a ban. by its acts and fail"re to act has clearly clothed its ,anager with apparent a"thority to sell an ac+"ired asset in the nor,al co"rse of b"siness it is legally obliged to confir, the transaction by iss"ing a board resol"tion to enable the b"yers to register the property in their na,es. It has a d"ty to perfor, necessary and lawf"l acts to enable the other parties to en1oy all benefits of the contract which it had a"thori$ed. '.6 HOARD COBBITTAA3 %3AC opinion/re+"irin all ,e,bers ,"st be ,e,bers of the board( * The by/laws of a corporation ,ay create an e#ec"ti!e co,,ittee co,posed of not less than three ,e,bers of the board to be
appointed by the board. %&6<( * 3aid co,,ittee ,ay act by ,a1ority !ote of all its ,e,bers on s"ch specific ,atters within the co,petence of the board as ,ay be delegated to it in the by/laws or on a ,a1ority !ote of the board e#cept with respect to) o Appro!al of any action for which shareholdersV appro!al is also re+"iredo The filling of !acancies in the board1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '? of 6<1 COR;ORATION LA9 COBBARCIAL LA9 o The a,end,ent or repeal of by/laws or the adoption of new by/lawso The a,end,ent or repeal of any resol"tion of the board which by its e#press ter,s is not so a,endable or repealable- and o A distrib"tion of cash di!idends to the shareholders. * Cannot go as far as to render the HOD powerless and free fro, all responsibilities i,posed on it by law %Ca,pos( * B"st be pro!ided in the by/laws and ,"st be co,posed of not less than 6 ,e,bers of the board * Assential the e#ec"ti!e co,,ittee acts by ,a1ority !ote of all the ,e,bers '.= 3TOCR5OLDAR3 OR BABHAR3 3toc.holders action is needed in ,a1or
changes%&?( in the corporation which wo"ld affect their contract with the corporation and altho"gh s"ch action is "s"ally initiated by the board it is not s"fficient to gi!e the, effect. 3toc.holders or ,e,bers appro!al e#pressed in a ,eeting d"ly called and held for the p"rpose is still necessary. A#ception) * Corporations ,ay be bo"nd by "nani,o"s agree,ent of its stoc.holders altho"gh e#pressed elsewhere than at a ,eeting D( Re+"ire,ents of stoc.holders4 or ,e,bers ,eeting %notice and +"or",( 95ANS %&<F( Reg"lar ,eetings of stoc.holders or ,e,bers shall be held ann"ally on a date fi#ed in the by/laws or if not so fi#ed on any date in April of e!ery year as deter,ined by the board of directors or tr"stees. 95ARAS * 3toc.holderVs or ,e,berVs ,eetings whether reg"lar or special shall be held in the city or ,"nicipality where the principal office of the corporation is located and if practicable in the principal office of the corporation) ;ro!ided That Betro Banila shall for p"rposes of this section be considered a city or ,"nicipality. %&<1( * Be,bers of non/stoc. corporations
,ay pro!ide in by/laws that ,eetings ,ay be held any place e!en o"tside the place where the principal office is located pro!ided proper notice is sent and that it is within the ;hilippines %&>6( 95O BAK ATTAND AND IOTAS 3toc.holders ,ay attend and !ote in person or by pro#y. a. ;ledgors ,ortagors e#ec"tors recei!ers and ad,inistrators %&<<( * In case of pledged or ,ortgaged shares in stoc. corporations the pledgor or ,ortgagor shall ha!e the right to attend and !ote at ,eetings of stoc.holders o UNLA33 the pledgee or ,ortgagee is e#pressly gi!en by the pledgor or ,ortgagor s"ch right in writing which is recorded on the appropriate corporate boo.s. * A#ec"tors ad,inistrators recei!ers and other legal representati!es d"ly appointed by the co"rt ,ay attend and !ote in behalf of the stoc.holders or ,e,bers witho"t need of any written pro#y. b. Joint owner of stoc.s %&<?( The consent of all the co/owners shall
be necessary in order to !ote UNLA33 there is a written pro#y signed by all the co/owners a"thori$ing one or so,e of the, or any other person to !ote s"ch share or shares ;ROIIDAD That when the shares are owned in an Tand2orT capacity by the holders thereof any one of the 1oint owners can !ote said shares or appoint a pro#y therefor. c. Treas"ry shares %Cf &=1 <D. ?E( * Definition %&>() These are shares of stoc. which ha!e been iss"ed and f"lly paid for b"t s"bse+"ently re/ac+"ired by the iss"ing corporation by p"rchase rede,ption donation or thro"gh so,e other lawf"l ,eans. 3"ch shares ,ay again be disposed of for a reasonable price fi#ed by the HOD. * Treas"ry shares shall ha!e no !oting rights as long as s"ch shares re,ain in the Treas"ry. %&<D( 95O ;RA3IDA3S * The president shall preside at all ,eetings of of the stoc.holders or ,e,bers "nless the by/laws pro!ide otherwise. %& <=( * 9hen there is no person a"thori$ed to
call a ,eeting the 3AC "pon petition of a stoc.holder or ,e,ber on a showing of good ca"se therefor ,ay iss"e an order to the petitioning stoc.holder or ,e,ber directing hi, to call a ,eeting of the corporation by gi!ing proper notice re+"ired by this Code or by the by/laws. %& <F( * The petitioning stoc.holder or ,e,ber shall preside thereat "ntil at least a ,a1ority of the stoc.holders or ,e,bers present ha!e been chosen one of their n",ber as presiding officer. %&<F( NOTICA RAQUIRABANT3 %&<F( * 9ritten notice of reg"lar ,eetings shall be sent to all stoc.holders or ,e,bers of record at least two %'( wee.s prior to the ,eeting "nless a different period is re+"ired by the by/laws * 9ritten notice of special ,eetings shall be sent at least one %1( wee. prior to the ,eeting "nless otherwise pro!ided in the by/laws. * Notice of any ,eeting ,ay be wai!ed e#pressly or i,pliedly by any stoc.holder or ,e,ber * 0ail"re to gi!e notice wo"ld render a ,eeting !oidable at the instance of an absent stoc.holder who was not
1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'D of 6<1 COR;ORATION LA9 COBBARCIAL LA9 notified of the ,eeting %Hoard !. Tan 1F< ;hil. ='?%1><>(. * Attendance to a ,eeting despite want of notice will be dee,ed i,plied wai!er. %Ca,pos( * All proceedings had and any b"siness transacted at any ,eeting of the stoc.holders or ,e,bers if within the powers or a"thority of the corporation shall be !alid e!en if the ,eeting be i,properly held or called pro!ided all the stoc.holders or ,e,bers of the corporation are present or d"ly represented at the ,eeting. %&<1( QUORUB RAQUIRABANT3 %&<'( * Unless otherwise pro!ided for in the Code or in the by/laws a +"or", shall consist of the stoc.holders representing a ,a1ority of the o"tstanding capital stoc. or a ,a1ority of the ,e,bers in the case of non/stoc. corporations. * Hy/laws ,ay pro!ide for a greater or lesser +"or", %&=D%6(( * 9here +"or", is present at the start of a lawf"l ,eeting stoc.holders present cannot witho"t 1"stifiable ca"se brea. the +"or", by wal.ing o"t fro, said ,eeting so as to defeat the !alidity of
any act proposed and appro!ed by the ,a1ority %Johnston ! Johnston 1>?< CA decision( 95K ATTAND BAATIN83S * To ,a.e s"bstantial changes * To e#ercise control * To be apprised of e!ents * To elect HOD * To confir, actions re+"iring confir,ation E( Corporate Acts Re+"iring Appro!al of ALL 3toc.holders %incl"ding non/!oting shares( a. ABANDBANT O0 ARTICLA3 O0 INCOR;ORATION 7 disc"ssed in Chapter OII b. AOTAND OR 35ORTAN COR;ORATA TARB 7 disc"ssed in Chapter OII c. INCRAA3A OR DACRAA3A O0 CA;ITAL 3TOCR 7 disc"ssed in Chapter OII d. INCURRIN8 CRAATIN8 OR INCRAA3IN8 HONDAD INDAHTADNA33 7 disc"ssed in Chapter OI e. 3ALA LAA3A BORT8A8A OR OT5AR DI3;O3ITION O0 3UH3TANTIALLK ALL COR;ORATA A33AT3 7 disc"ssed in Chapter OIII f. INIA3TBANT O0 0UND3 IN ANOT5AR COR;ORATION OR HU3INA33 %&='( * A pri!ate corporation ,ay in!est its
f"nds in any other corporation or b"siness or for any p"rpose other than the pri,ary p"rpose for which it was organi$ed * Appro!al !oting and notice re+"ire,ent 1( Ba1ority of the board of directors or tr"stees and '( Ratified by the stoc.holders representing at least two/thirds %'26( of the o"tstanding capital stoc. or by at least two thirds %'26( of the ,e,bers in the case of non/stoc. corporations at a stoc.holderVs or ,e,berVs ,eeting d"ly called for the p"rpose. 6( 9ritten notice of the proposed in!est,ent and the ti,e and place of the ,eeting shall be addressed to each stoc.holder or ,e,ber at his place of residence as shown on the boo.s of the corporation and deposited to the addressee in the post office with postage prepaid or ser!ed personally * Appraisal right / any dissenting stoc.holder shall ha!e appraisal right
* 9hen 35 appro!al not necessarywhere the in!est,ent by the corporation is reasonably necessary to acco,plish its pri,ary p"rpose as stated in the AOI. R"les in case a corporation will in!est its f"nds in another corporation o If it is the sa,e p"rpose or incidental or related to its pri,ary p"rpose the board can in!est the corporate f"nd witho"t the consent of the stoc.holders. 9hat is re+"ired is only the !ote of the ,a1ority of the HOD. No appraisal right o If the in!est,ent is in another corporation of different b"siness or p"rpose the affir,ati!e !ote of ,a1ority of the board consented by '26 O3 capital stoc. is re+"ired o Apparent conflict) &6?%D( li,its corp powers to those reasonably and necessarily re+"ired. H"t &=' i,plies that can in!est in another b"siness as long as there4s '26 !ote. Ca,pos says that &=' sho"ld be s"b1ect to &6?. o Accdg to Ca,pos if articles of
incorp pro!ide that can in!est in another b"siness only '26 !ote needed. Otherwise sho"ld a,end articles first. '. ADO;TION ABANDBANT AND RA;AAL O0 HK/LA93 %&=E( * Ioting Re+"ire,ent) HOD or HOT by a ,a1ority !ote and the owners of at least a ,a1ority of the o"tstanding capital stoc. or ,a1ority of the ,e,bers of a nonstoc. corporation at a reg"lar or special ,eeting d"ly called for the p"rpose ,ay a,end or repeal any by/laws or adopt new by/laws * Delegation of power to a,end the HOD) The owners of two/thirds %'26( of the o"tstanding capital stoc. or two/thirds %'26( of the 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'E of 6<1 COR;ORATION LA9 COBBARCIAL LA9 ,e,bers in a non/stoc. corporation ,ay delegate to the board of directors or tr"stees the power to a,end or repeal any bylaws or adopt new by/laws * Re!ocation of the delegation of power to a,end) Any power delegated to the board of directors or tr"stees to a,end or repeal any
by/laws or adopt new by/laws shall be considered as re!o.ed whene!er stoc.holders owning or representing a ,a1ority of the o"tstanding capital stoc. or a ,a1ority of the ,e,bers in nonstoc. corporations shall so !ote at a reg"lar or special ,eeting * 9hene!er any a,end,ent or new by/laws are adopted s"ch a,end,ent or new by/laws shall be attached to the original by/laws in the office of the corporation and a copy thereof d"ly certified "nder oath by the corporate secretary and a ,a1ority of the directors or tr"stees shall be filed with the 3AC the sa,e to be attached to the original articles of incorporation and original by/laws. * The a,ended or new by/laws shall only be effecti!e "pon the iss"ance by the 3ec"rities and A#change Co,,ission of a certification that the sa,e are not inconsistent with this Code. 6. BAR8AR AND CON3OLIDATION 7 disc"ssed in Chapter OIII =. DI33OLUTION O0 T5A COR;ORATION 7 disc"ssed in Chapter OII
<. Other instances re+"iring stoc.holders4 action %!oting shares only( a. DACLARATION O0 3TOCR DIIIDAND3 7 disc"ssed in Chapter OIII b. BANA8ABANT CONTRACT3 %&==( 7 any contract whereby a corporation "nderta.es to ,anage or operate all or s"bstantially all of the b"siness of another corporation whether s"ch contracts are called ser!ice contracts operating agree,ents or otherwise Appro!al and Ioting Re+"ire,ent) %&==( * Appro!al by the board of directors and * Appro!al by stoc.holders owning at least the ,a1ority of the o"tstanding capital stoc. or by at least a ,a1ority of the ,e,bers of both the ,anaging and the ,anaged corporation %at ,eeting d"ly called( * '26 !ote re+"ired of the ,anaged corporation when) o 9here a stoc.holder or stoc.holders representing the sa,e interest of both the ,anaging and the ,anaged corporations own or control ,ore than one/third %126( of
the total o"tstanding capital stoc. entitled to !ote of the ,anaging corporation- or o 9here a ,a1ority of the ,e,bers of the HOD of the ,anaging corporation also constit"te a ,a1ority of the ,e,bers of the HOD of the ,anaged corporation Ter, of ,anage,ent contract) not longer than fi!e years c. 0IOIN8 CON3IDARATION O0 NO/;AR 35ARA3 %&?'( 7 The iss"ed price of nopar !al"e shares ,ay be fi#ed in the AOI or by the HOD p"rs"ant to a"thority conferred "pon it by the AOI or the by/laws or in the absence thereof by the stoc.holders at a ,eeting d"ly called for the p"rpose representing at least a ,a1ority of the o"tstanding capital stoc.. d. 0IOIN8 COB;AN3ATION O0 DIRACTOR3 %&6F( 7 Any s"ch co,pensation %other than per die,s( ,ay be granted to the directors by the !ote of the stoc.holders representing at least a ,a1ority of the o"tstanding capital stoc. at a reg"lar or special stoc.holder4s ,eeting. ?. Appraisal right
One of the ways to get o"t of the corporation. It is an e#ception to the tr"st f"nd doctrine. The other way is to sell the shares of stoc.. a. Definition %&E1( This is a re,edy a!ailable to a stoc.holder who dissented and !oted against certain e#traordinary ,atters to withdraw or get o"t of the corporation by de,anding pay,ent of the !al"e of his shares as pro!ided in the code. b. Instances of appraisal right %&E1( a( In case any a,end,ent to the articles of incorporation which has the effect of %cf &1?() / changing or restricting the rights of any stoc.holder or class of shares or / a"thori$ing preferences in any respect s"perior to those of o"tstanding shares of any class or / e#tending or shortening the ter, of corporate e#istence %cf &6D( b( In case of sale lease e#change transfer ,ortgage pledge or other disposition of all or s"bstantially all of the corporate property and assets as pro!ided in the Code %cf &=F(- and
c( In case of ,erger or consolidation d( In case of in!est,ent of corporate f"nds in another corporation or b"siness or for any other p"rpose %&='( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '> of 6<1 COR;ORATION LA9 COBBARCIAL LA9 c. 9hat are the re+"ire,ents for the s"ccessf"l e#ercise of appraisal rightS %3ection E' and E?( * Hy ,a.ing a written de,and on the corporation within thirty %6F( days after the date on which the !ote was ta.en for pay,ent of the fair !al"e of his shares o 0ail"re to ,a.e the de,and within s"ch period shall be dee,ed a wai!er of the appraisal right. * Hy s"rrendering the certificate or certificates of stoc. the corporation shall pay the fair !al"e thereof as of the day prior to the date on which the !ote was ta.en e#cl"ding any appreciation or depreciation in anticipation of s"ch corporate action %pro!ided that the proposed corp action is i,ple,ented or affected(. * If within a period of si#ty %?F( days
fro, the date the corporate action was appro!ed by the stoc.holders the withdrawing stoc.holder and the corporation cannot agree on the fair !al"e of the shares it shall be deter,ined and appraised by three %6( disinterested persons o One of who, shall be na,ed by the stoc.holder another by the corporation and the third by the two th"s chosen * The findings of the ,a1ority of the appraisers shall be final * The award shall be paid by the corporation within thirty %6F( days after s"ch award is ,ade * No pay,ent shall be ,ade to any dissenting stoc.holder "nless the corporation has "nrestricted retained earnings in its boo.s to co!er s"ch pay,ent %Cf &=1(. Ratio) to protect the creditors and the re,aining 35s * Upon pay,ent by the corporation of the agreed or awarded price the stoc.holder shall forthwith transfer his shares to the corporation. d. Affect of de,and and ter,ination of right %&E6( 0ro, the ti,e of de,and for pay,ent
of the fair !al"e of a stoc.holderVs shares "ntil either %1( the abandon,ent of the corporate action in!ol!ed or %'( the p"rchase of the said shares by the corporation all rights accr"ing to s"ch shares incl"ding !oting and di!idend rights shall be s"spended AOCA;T the right of s"ch stoc.holder to recei!e pay,ent of the fair !al"e thereof ;ROIIDAD if the dissenting stoc.holder is not paid the !al"e of his shares within 6F days after the award his !oting and di!idend rights shall i,,ediately be restored. e. 9hen right to pay,ent of fair !al"e of the shares ceases %&E=( * No de,and for pay,ent ,ay be withdrawn "nless the corporation consents thereto. * Instances when right to pay,ent ceases) 1( If s"ch de,and for pay,ent is withdrawn with the consent of the corporation '( If the proposed corporate action is abandoned or rescinded by the corporation 6( If the proposed corporate action disappro!ed by the 3AC
where s"ch appro!al is necessary =( If the 3AC deter,ines that s"ch stoc.holder is not entitled to the appraisal right * In s"ch instances his stat"s as a stoc.holder shall be restored and all di!idend distrib"tions which wo"ld ha!e accr"ed on his shares shall be paid to hi,. f. 9ho bears costs of appraisal %&E<( * 8enerally it shall be borne by the corporation * A#ception) by the 35 when the fair !al"e ascertained by the appraisers is appro#i,ately the sa,e as the price which the corporation ,ay ha!e offered to pay the 35 * In the case of an action to reco!er s"ch fair !al"e all costs and e#penses shall be assessed against the corporation "nless the ref"sal of the 35 to recei!e pay,ent was "n1"stified. g. Notation on certificates- rights of transferee %&E?( * 9ithin ten %1F( days after de,anding pay,ent for his shares a dissenting 35 shall s"b,it the certificates of stoc. representing
his shares to the corporation for notation thereon that s"ch shares are dissenting shares. * 5is fail"re to do so shall at the option of the corporation ter,inate his rights. * Affect of transfer of certificates bearing notation) 1( The rights of the transferor as a dissenting stoc.holder shall cease'( The transferee shall ha!e all the rights of a reg"lar stoc.holder- and 6( All di!idend distrib"tions which wo"ld ha!e accr"ed on s"ch shares shall be paid to the transferee. Note) right to !ote is lost only if stoc. beco,es delin+"ent %&D1( 6. De!ices Affecting Control 8eneral R"le) A#tent of control is proportional to the n",ber of shares owned by the 35 A#ceptions) pro#y de!ice !oting tr"st agree,ents pooling and !oting agree,ents c","lati!e !oting 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6F of 6<1 COR;ORATION LA9 COBBARCIAL LA9 classification of shares restriction on transfer of shares additional +"alifications for directors fo"nder4s shares ,anage,ent contracts and
"n"s"al +"or", and !oting re+"ire,ents 6.1 ;ROOK %&<E cf &'F 3ec Reg"lation Code( * 3toc.holders and ,e,bers ,ay !ote in person or by pro#y in all ,eetings of stoc.holders or ,e,bers. * Re+"ire,ents of pro#ies) a. In writing %oral pro#ies are not !alid( b. 3igned by the stoc.holder or ,e,ber c. 0iled before the sched"led ,eeting with the corporate secretary * Hy/laws can also i,pose additional re+"ire,ents %e#. B"st be notari$ed( * Unless otherwise pro!ided in the pro#y it shall be !alid only for the ,eeting for which it is intended. No pro#y shall be !alid and effecti!e for a period longer than fi!e %<( years at any one ti,e %contin"ing pro#y(. * Right of pro#y can be wai!ed only for close corporations %&E>( * 3enses of pro#y) a. ;erson d"ly a"thori$ed by stoc.holder or ,e,ber to !ote in his behalf in a 35s4 or ,e,bers4 ,eeting. ;ro#y is an agent for a special p"rpose th"s the general r"les of agency wo"ld nor,ally apply to the relationship created by pro#y b. 0or,al a"thority gi!en by the holder of the stoc. who has the right to !ote it to another to e#ercise the !oting rights of
the for,er. Instr",ent or doc",ent which e!idences the a"thority of the agent. * 0ail"re to co,ply with re+"ire,ents will render pro#y !oid and ineffecti!e. * To what e#tent does the pro#y holder e#ercise his discretionS A#tent of a"thority gi!en by the 35 * ;ro#y is re!ocable e!en when it is e#pressly pro!ided to be irre!ocable "nless it is co"pled with an interest. The 3"pre,e Co"rt has held that a pro#y in fa!or of the pledge of the shares s"b1ect of the pro#y as s"fficient interest to render s"ch pro#y irre!ocable. %Ale1andrino !s. De Leon 1>=6( * Re!ocation ,ay be ,ade orally in writing or i,plied) a. Appearance of the stoc.holder at the ,eeting will ter,inate the pro#y b. Death of the stoc.holder will also ter,inate the pro#y 6.' IOTIN8 TRU3T A8RAABANT%&<>( * Definition) An arrange,ent created by one or ,ore stoc.holders for the p"rpose of conferring "pon a tr"stee or tr"stees the right to !ote and other rights pertaining to the shares for a period not e#ceeding fi!e %<( years at any ti,e %Iillan"e!a(. The arrange,ent is e,bodied in a doc",ent
called a !oting tr"st agree,ent %ITA( * A !oting tr"st which is specifically re+"ired as a condition in a loan agree,ent ,ay be for a period e#ceeding fi!e %<( years b"t shall a"to,atically e#pire "pon f"ll pay,ent of the loan * Assence) separation of real ownership and !oting rights * Re+"ire,ents of a ITA) a. In writing b. Notari$ed c. 3hall specify the ter,s and conditions thereof d. Certified copy of s"ch agree,ent shall be filed with the corporation and with the 3AC o OT5AR9I3A said agree,ent is ineffecti!e and "nenforceable * ;roced"re) a. The certificate or certificates of stoc. co!ered by the !oting tr"st agree,ent shall be cancelled and new ones shall be iss"ed in the na,e of the tr"stee or tr"stees stating that they are iss"ed p"rs"ant to said agree,ent. b. In the boo.s of the corporation it shall be noted that the transfer in the na,e of the tr"stee or tr"stees is ,ade p"rs"ant to said !oting tr"st agree,ent.
c. The tr"stee or tr"stees shall e#ec"te and deli!er to the transferors !oting tr"st certificates which shall be transferable in the sa,e ,anner and with the sa,e effect as certificates of stoc.. * Right to inspect ITA) The !oting tr"st agree,ent filed with the corporation shall be s"b1ect to e#a,ination by any stoc.holder in the sa,e ,anner as any other corporate boo. or record. The transferor and the tr"stee or tr"stees ,ay e#ercise the right of inspection of all corporate boo.s and records in accordance with the pro!isions of this Code. * Any other stoc.holder ,ay transfer his shares to the sa,e tr"stee or tr"stees "pon the ter,s and conditions stated in the !oting tr"st agree,ent and there"pon shall be bo"nd by all the pro!isions of said agree,ent. * Restriction) No ITA shall be entered into for the p"rpose of circ",!enting the law against ,onopolies and illegal co,binations in restraint of trade or "sed for p"rposes of fra"d. * A"to,atic e#piration of rights "nder the ITA) Unless e#pressly renewed all rights granted in a !oting tr"st agree,ent shall a"to,atically e#pire at the end of the
agreed period. The !oting tr"st certificates as well as the certificates of stoc. in the na,e of the tr"stee or tr"stees shall thereby be dee,ed cancelled and new certificates of stoc. shall be reiss"ed in the na,e of the transferors. * The !oting tr"stee or tr"stees ,ay !ote by pro#y "nless the agree,ent pro!ides otherwise. * ;"rpose 7 to ,a.e possible a "nified control of the affairs of the corporation and consistent policy- to ,a.e possible for a ,a1ority gro"p of shareholders to dispose of a beneficial interest in a large proportion of their shares and still retain control of the corporation thro"gh the !oting tr"stee * Under the pre!ailing !iew a !oting tr"st sho"ld ha!e a legiti,ate b"siness p"rpose to pro,ote the best interests of the corporation or e!en to protect the legiti,ate interests of others in the corporation %Hallantine cited in Ca,pos( * No principal/agent relationship 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 61 of 6<1 COR;ORATION LA9 COBBARCIAL LA9 * The tr"stee has "nli,ited a"thority. The only li,itation is that he sho"ld act for the benefit of the 35 %fid"ciary obligation( * Ioting tr"st certificates 7 iss"ed by the tr"stees %not the corp(. These certificates
confir, %1( that a tr"stee has been constit"ted %'( the e#tent of shares and %6( the participation of the 35 in the ITA * The tr"stee can4t dispose of the bloc. of shares2 recei!e di!idends. Can only !ote * The 35 can re!o.e the ITA on the gro"nd of breach of fid"ciary obligations * 3tat"s of transferee and transferor) a. Ioting tr"stee is only a share owner !ested with apparent legal title for the sole p"rpose of !oting "pon stoc.s that he does not own b. Transferring stoc.holder retains the right of inspection of corporate boo.s which he can e#ercise conc"rrently with the !oting tr"stee * ;owers and rights of !oting tr"stees) a. Right to !ote and other rights pertaining to the shares in their na,es s"b1ect to ter,s and conditions of and for the period specified in the agree,ent b. Iote in person or by pro#y "nless agree,ent pro!ides otherwise c. Rights of inspection of corporate boo.s and records d. Legal title holder 7 +"alified to be a director The clear intent is that in order to be eligible as director what is
,aterial is the legal title to not the beneficial ownership of the stoc. as a:appearing on the boo.s of a corporation. Therefore a director who e#ec"tes a !oting tr"st agree,ent o!er all his shares re,ains only a beneficial owner and therefore is a"to,atically dis+"alified fro, his directorship. %Lee !. CA 1>>'( * Li,itations on !oting tr"st agree,ents) a. sho"ld not e#ceed < years e#cept if a condition in a loan agree,ent shall a"to,atically e#pire "pon f"ll pay,ent of the loan b. ,"st not be for p"rposes of circ",!enting the law against ,onopolies and illegal co,binations in restraint of trade c. ,"st not be "sed for p"rposes of fra"d d. ,"st be in writing notari$ed specify the ter,s and conditions thereof e. certified copy ,"st be filed with corporation and 3AC otherwise "nenforceable f. agree,ent is s"b1ect to e#a,ination by stoc.holder g. shall a"to,atically e#pire at the end of the agreed period h. !ote in person or by pro#y "nless
agree,ent pro!ides otherwise i. rights of inspection of corporate boo.s and records Distinction between pro#y and !oting tr"st ;ro#y ITA Legal title No legal title Ac+"ires legal title ;ro#y ITA Re!ocability Re!ocable "nless co"pled with interest Irre!ocable if !alidly e#ec"ted HUT 35 can re!o.e if there4s a breach of fid"ciary obligation A#tent of power Can only act at a specified stoc.holder4s or ,e,ber4s ,eeting Not li,ited to any partic"lar ,eeting 9hen to !ote Absence of the owner A!en when owner
is present Capacity to be a director Can4t be !oted as a director "nless he is also a 35 of record %owns other shares( Can be !oted as a director. Considered as the 35 of record in the boo.s of the corp 3"b1ect Batter Ioting rights 3hares Y !oting rights D"ration Us"ally shorter b"t can4t e#ceed < years Us"ally longer b"t can4t e#ceed < years e#cept in loan agree,ents Natl In!est,ent U De!4t Corp ! A+"ino %1>EE( Hat1a. a 0il/A, corp owed ,oney to ;NH. Its oil ,ills were also ,ortgaged to other ban.s. They f"rther borrowed ,oney fro, NIDC a wholly
owned s"bsidiary of ;NH to pay off the ,ortgages. In ret"rn NIDC got preferred shares con!ertible into co,,on shares. Hat1a. e#ec"ted a 1st ,ortgage on all its properties to ;NH in e#change for a credit facility etc. Ne#t a Ioting Tr"st Agree,ent was e#ec"ted in fa!or of NIDC by 35s representing ?FG of Hat1a.. ;eriod of < years irre!ocable. D"ring this ti,e all di!idends to be paid to 35s. 9hen Hat1a. beca,e insol!ent ;NH foreclosed the ,ortgaged properties. 9hen Hat1a. failed to redee, it transferred ownership to NIDC. Hat1a. later s"ed NIDC as.ing for the t"rn/o!er of all the assets and in the alternati!e as.ed for recei!ership. 5eld) WRecei!er is appointed if applicant has interest in property. H"t title of properties is now with NIDC. WHat1a. did not i,p"gn !alidity of the foreclos"re sales. Also no e!idence that prop is in danger of loss re,o!al or ,aterial in1"ry if recei!er not appointed. 9hat was assigned to NIDC was only power to !ote shares of stoc. of Hat1a.. 3"ch power incl"des a"thority to e#ec"te any agree,ent or doc necessary to e#press consent or assent to any ,atter by 35s. Ioting tr"st did not pro!ide for transfer of assets. 9hat was stip"lated to be ret"rned were only certifs of stoc.. Ioting tr"st transfers only !oting or
other rights pertaining to shares or control o!er the stoc.. 6.6 ;OOLIN8 AND IOTIN8 A8RAAABANT3 * Agree,ent between ' or ,ore stoc.holders to !ote their shares in the sa,e way * There ,"st be a !al"able consideration for each party * Us"ally relate to election of directors * ;arties often pro!ide for arbitration in case of disagree,ent. Note) arbitrator is not 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6' of 6<1 COR;ORATION LA9 COBBARCIAL LA9 li.e a tr"stee. The for,er has no !oting rights * Ialid as long as they do not li,it the discretion of the HOD in the ,anage,ent of corporate affairs or wor. any fra"d against stoc.holders not party to the contract. Th"s it is !oid if it pro!ides that directors once elected sho"ld !ote for certain persons as officers. %BcQ"ade !. 3toneha, '?6 NK 6'6 %1>6=(( AOCA;TION) Close corps ,ay pro!ide that a ITA can interfere with discretion of the HOD * Does not in!ol!e a transfer of stoc.s b"t is ,erely a pri!ate agree,ent * No transfer of ownership and !oting rights * Agree,ents by stoc.holders in close corporations %&1FF() o Agree,ents by and a,ong
stoc.holders e#ec"ted before the for,ation and organi$ation of a close corporation signed by all stoc.holders shall s"r!i!e the incorporation of s"ch corporation and shall contin"e to be !alid and binding between and a,ong s"ch stoc.holders if s"ch be their intent to the e#tent that s"ch agree,ents are not inconsistent with the articles of incorporation irrespecti!e of where the pro!isions of s"ch agree,ents are contained e#cept those re+"ired by this Title to be e,bodied in said articles of incorporation. o An agree,ent between two or ,ore stoc.holders if in writing and signed by the parties thereto ,ay pro!ide that in e#ercising any !oting rights the shares held by the, shall be !oted as therein pro!ided or as they ,ay agree or as deter,ined in accordance with a proced"re agreed "pon by the,. o No pro!ision in any written agree,ent signed by the stoc.holders relating to any phase of the corporate affairs shall be in!alidated as between the parties on the gro"nd that its effect is to ,a.e the, partners a,ong the,sel!es. o A written agree,ent a,ong so,e or all
of the stoc.holders in a close corporation shall not be in!alidated on the gro"nd that it so relates to the cond"ct of the b"siness and affairs of the corporation as to restrict or interfere with the discretion or powers of the board of directors) ;ro!ided That s"ch agree,ent shall i,pose on the stoc.holders who are parties thereto the liabilities for ,anagerial acts i,posed by this Code on directors. o To the e#tent that the stoc.holders are acti!ely engaged in the ,anage,ent or operation of the b"siness and affairs of a close corporation the stoc.holders shall be held to strict fid"ciary d"ties to each other and a,ong the,sel!es. 3aid stoc.holders shall be personally liable for corporate torts "nless the corporation has obtained reasonably ade+"ate liability ins"rance. ;ROOK TRU3TAA ;OOLIN8 AND IOTIN8 A8RAABANT3 ;rincipal 7 agent Tr"steebeneficiary Consens"al ;ro#y can4t e#ceed
delegated a"thority The only li,it to his a"thority) ,"st be for benefit of tr"stee %fid"ciary obligation( Berely an agree,ent to !ote in the sa,e way B"st be in writing B"st be in writing and notari$ed No for,alities re+"ired Copy ,"st be filed with corp sec Copy ,"st be filed with 3AC Berely a contract between 35s Transfer of legal
title to tr"stee Reg"lar !oting rights Another person e#ercises !oting rights only for a specific ,tg %"nless otherwise pro!ided( Absol"te !oting rights s"b1 only to fid"ciary d"ty Another person e#ercises !oting rights contin"o"sly Owner still e#ercises !oting rights ;ro#y cannot be director Tr"stee can be director
Re!ocable at will in any ,anner AOC if co"pled with an interest Irre!ocable as long as no ,iscond"ct or fra"d Re!ocable by consent or ,"t"al ter,ination. If "nilateral ter,ination liable for da,ages Ba# of < yrs at a ti,e Ba# of < yrs at a ti,e %"nless coter,in"s with loan( 3AC can pass on !alidity 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 66 of 6<1 COR;ORATION LA9 COBBARCIAL LA9 Chapter IIII
DUTIA3 O0 DIRACTOR3 AND CONTROLLIN8 3TOCR5OLDAR3 1. D"ties and Liabilities of Directors 1.1 D"ties In 8eneral D"ty Iiolation "nder &61 Obedience / 9illf"lly and .nowingly !ote for or assent to patently "nlawf"l acts of the corporation Diligence / 8"ilty of gross negligence or bad faith in directing the affairs of the corporation Loyalty / Ac+"ire any personal or pec"niary interest in conflict with their d"ty as s"ch directors or tr"stees * A#tent of liability) Directors or tr"stees shall be liable 1ointly and se!erally for all da,ages res"lting therefro, s"ffered by the corporation its stoc.holders or ,e,bers and other persons * Directors act as a body in for,"lating corp policies and e#ercise all powers of ,anage,ent. 5ence they are fid"ciaries of the corp. It does not ,atter who elected the,. Once elected they ,"st represent the interests of all 35s and of the corp as a whole. * Directors ,"st act only within the corp powers. If not they will be liable for
da,ages "nless they acted in 80 and with d"e diligence 1.' D"ty of diligence * 9hat are re+"ired and e#pected of directors) o To possess at least ordinary .nowledge and s.ill to enable the, to ,a.e so"nd b"siness decision o To attend directors ,eetings with reasonable reg"larity o To e#ercise reasonable care in the ,anage,ent of the corporation o To .eep the,sel!es s"fficiently infor,ed abo"t the general condition of the b"siness * The degree of care and diligence re+"ired is "s"ally that which ,en pro,pted by selfinterest generally e#ercise in their own affairs. In deter,ining whether reasonable diligence has been e#ercised the partic"lar circ",stances of each case ,"st be considered. The nat"re of the b"siness is an i,portant factor. H"siness 1"dg,ent r"le 8AN RULA) Directors cannot be held liable for ,ista.es or errors in the e#ercise of their b"siness 1"dg,ent if they acted in good faith with d"e care U pr"dence. Contracts intra !ires entered into by the board of directors are binding "pon the corp. U co"rts will not
interfere. AOCA;TION) If the contracts are so "nconscionable U oppressi!e as to a,o"nt to a wanton destr"ction of the rights of the ,inority. Hoard of Directors has a"thority to ,odify the proposed ter,s of the contracts of the corporation for the p"rpose of ,a.ing the ter,s ,ore acceptable to the other contracting partiesZThe test to be applied is whether the act in +"estion is the direct and i,,ediate f"rtherance of the corporation4s b"siness fairly incidental to the e#press powers and reasonably necessary to their e#ercise. If so the corporation has the power to do itotherwise not. :Bontelibano !. Hacolod B"rcia Billing Co. %1>?'(@ 3teinberg !s. Ielasco 3teinberg is the recei!er of 3ib"gay Trading. Ielasco %;res( and other directors appro!ed and a"thori$ed "nlawf"l p"rchases of co,pany4s stoc. fro, 8an$on et al. Accdg to 3teinberg this di!erted f"nds s"pposed to be paid to creditors. 8an$on et al resigned as directors before the HoD appro!ed the p"rchase of stoc.s fro, the, worth 6 6FF. At that ti,e corp owed 16R. The corp also declared di!idends in fa!or of 35s to be paid in install,ents so as Lnot to affect financial condition of the corp.M A2R4s
which appeared on boo.s were worthless beca"se recei!er co"ld not collect the,. 5ALD) If directors dispose of corp prop or pay away its ,oney witho"t a"thority they will be re+"ired to ,a.e good the loss o"t of their pri!ate estates. Directors are not liable for loss to corp fro, want of .nowledge or for ,ista.es of 1"dg,ent pro!ided they were honest and fairly within the scope of the powers and discretion confided to ,gt. H"t acceptance of office of director i,plies a co,petent .nowledge of the d"ties ass",ed and directors cannot e#c"se i,pr"dence bec of their ignorance or ine#perience. If they co,,it error of 1"dg,ent thro"gh ,ere rec.lessness or want of ordinary pr"dence or s.ill they ,ay be held liable for conse+"ences. Creditors of corp ha!e right to ass",e that so long as there are o"tstanding debts and liabilities HoD will not "se assets of corp to p"rchase its own stoc. and that it will not declare di!idends to 35s when corp is insol!ent. Directors held liable. * 3toc. p"rchases and di!idends were f"nded o"t of re,aining assets. H"t assets [ liabilities. * 8an$on et al were fa!ored bec they were able to get ,oney ahead of creditors
* Recipients of di!idends can be held liable by recei!er. Ratio) 35s are accessories. Re,e,ber they were the ones who chose directors. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6= of 6<1 COR;ORATION LA9 COBBARCIAL LA9 1.6 D"ty of loyalty The deter,ination as to whether in a gi!en case the d"ty of loyalty has been !iolated has "lti,ately to be decided by the co"rt on the case4s own ,erits. The ff. are ,ore co,,on sit"ations in!ol!ing s"ch conflict of interests) a. 3elf/dealing director %&6'( * A contract of the corporation with one or ,ore of its directors or tr"stees is !oidable at the option of s"ch corporation "nless all the following conditions are present) o That the presence of s"ch director or tr"stee in the board ,eeting in which the contract was appro!ed was not necessary to constit"te a +"or", for s"ch ,eetingo That the !ote of s"ch director or tr"stee was not necessary for the appro!al of the contracto That the contract is fair and reasonable "nder the circ",stances- and o That in case of an officer the
contract has been pre!io"sly a"thori$ed by the board of directors. * 9here any of the first two conditions set forth in the preceding paragraph is absent in the case of a contract with a director or tr"stee s"ch contract ,ay be ratified by the !ote of the stoc.holders representing at least twothirds %'26( of the o"tstanding capital stoc. or of at least two/thirds %'26( of the ,e,bers in a ,eeting called for the p"rpose * 0"ll disclos"re of the ad!erse interest of the directors or tr"stees in!ol!ed ,"st be ,ade at s"ch ,eeting pro!ided howe!er that the contract is fair and reasonable "nder the circ",stances * The contract is !oidable whether the corporation s"ffered da,ages or not * The b"rden of pro!ing fairness is on the director b. 0i#ing co,pensation of directors and officers %&6F( * 8eneral r"le) Directors are only entitled to per die,s which are reasonable * A#ception) 9hen AOI by/laws or an ad!ance contract pro!ides for co,pensation
* Ass",ing co,pensation is intended only 35s can fi# the a,o"nt. In fact the 35s sho"ld appro!e the granting of co,pensation beca"se this entails a red"ction of the a,o"nt that co"ld be distrib"ted to the, as di!idends 354s resol"tion to grant co,pensation can only refer to f"t"re ser!ices %Harreto ! La ;re!isora 0ilipina %1>6'(( * 9estern Instit"te of Technology !. 3alas %1>>D( The position of being chair,an and Iice/Chair,an li.e that of treas"rer and secretary are not considered directorship positions b"t officership positions that wo"ld entitle the occ"pants to co,pensation. Li.ewise the li,itation placed "nder 3ect. 6F of the Corporation Code that directors cannot recei!e co,pensation e#ceeding 1FG of the net inco,e of the corporation wo"ld not apply to the co,pensation gi!en to s"ch positions since it is being gi!en in their capacity as officers of the corporation and not a board ,e,bers. Harreto ! La ;re!isora 0ilipina %1>6'( Harreto et al. are directors of La ;re!isora 0ilipina a ,"t"al b"ilding and loan assoc. Hy/laws pro!ide co,pensation of 1G of profits to each director. Co,pensation to apply retroacti!ely. 5eld) Hy/laws do not create a legal obl to pay life grat"ity or pension o"t of its net profits \P beyond
powers of ,"t"al bldg and loan assoc. Corp Law a"thori$es co,pensation only for f"t"re ser!ices and cannot a"thori$e contin"o"s co,pensation to partic"lar directors after their e,ploy,ent has ter,inated for past ser!ices rendered grat"ito"sly by the, to the corp. H"ilding and loan associations are fo"nded on strict ,"t"ality and e+"ality of benefits and obligations. Any contract or by/law in contra!ention of a stat"te is "ltra !ires and !oid. There is an i,plied contract with ,e,bers that it shall not di!ert f"nds or powers to p"rposes other than for which it was created. All ,e,bers ,"st participate e+"ally in profits and bear losses. Any di!ersion of f"nds to "na"thori$ed p"rposes !iolates principle of ,"t"ality between ,e,bers. Also there was no !alid consideration bec the past ser!ices were rendered grat"ito"sly. c. Interloc.ing directors %&66( * A contract between two or ,ore corporations ha!ing interloc.ing directors shall not be in!alidated on that gro"nd alone e#cept cases of fra"d. * The contract is fair and reasonable "nder the circ",stances. * If the interest of the interloc.ing director in one corporation is s"bstantial and his interest in the other corporation or corporations is ,erely
no,inal he shall be s"b1ect to the pro!isions of the preceding section %&6'( insofar as the latter corporation or corporations are concerned. * 3toc.holdings e#ceeding twenty %'FG( percent of the o"tstanding capital stoc. shall be considered s"bstantial for p"rposes of interloc.ing directors. * Re+"isites of a !alid contract between the corporation and one or ,ore of its directors tr"stees or officers %&6'() 1. That the presence of s"ch director or tr"stee in the Hoard ,eeting in which the contract was appro!ed 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6< of 6<1 COR;ORATION LA9 COBBARCIAL LA9 was not necessary to constit"te a +"or", for s"ch ,eeting '. That the !ote of s"ch director or tr"stee was not necessary for the appro!al of the contract 6. That the contract is fair and reasonable "nder the circ",stances =. That in case of an officer the contract with the officer has been pre!io"sly a"thori$ed by the Hoard of Directors d. 3ei$ing corporate opport"nity- Disloyalty %&6=(
* 9here a director by !irt"e of his office ac+"ires for hi,self a b"siness opport"nity which sho"ld belong to the corporation thereby obtaining profits to the pre1"dice of s"ch corporation he ,"st acco"nt to the latter for all s"ch profits by ref"nding the sa,e %&6=( UNLA33 his act has been ratified by a !ote of the stoc.holders owning or representing at least two/thirds %'26( of the o"tstanding capital stoc.. o 5ence a ,a1ority 35 can act"ally co,pete with the corporation if he owns '26 of the OC3 o This pro!ision shall be applicable notwithstanding the fact that the director ris.ed his own f"nds in the !ent"re. o Re+"ires pre1"dice. If there4s no pre1"dice to the corporation the director or officer can still be held liable "nder &61. o &6= co!ers only directors. 5owe!er according to Ca,pos officers can be held liable "nder &61 %'nd par.(.CL9hen a director tr"stee or officer atte,pts to ac+"ire or ac+"ires in !iolation of his d"ty any interest ad!erse to the corporation in respect of any
,atter which has been reposed in hi, in confidence as to which e+"ity i,poses a liability "pon hi, to deal in his own behalf he shall be liable as a tr"stee for the corporation and ,"st acco"nt for the profits which otherwise wo"ld ha!e accr"ed to the corporation.M * The last paragraph of 3ection 61 and 3ection 6= contain the doctrine of corporate opport"nity. In case of s"ch conflict of interests and the director acts against the good of the corporation he shall be acco"ntable for the profits he obtained e!en if he had ris.ed his own f"nds. * Corporate right opport"nity or e#pectancy arises only when) %a( directors were negotiating on behalf of the corporation- %b( the corporation was in need of the partic"lar b"siness opport"nity to the .nowledge of the directors or %c( the b"siness opport"nity was sei$ed and de!eloped at the e#pense and with the facilities of the corporation. %Litwin ! Allen( e. Using inside infor,ation %Cf &6.E '6.' 'D ?1 D1.' 3ec"rities Reg"lation Code( * The fid"ciary position of insiders6 directors and officers prohibits the,
fro, "sing confidential infor,ation relating to the b"siness of the corporation to benefit the,sel!es or any co,petitor corporation in which they ,ay ha!e a ,ere s"bstantial interest. * The liability of a director or officer g"ilty of "sing inside infor,ation is to the corporation and not to any indi!id"al stoc.holder * 3ince loss and pre1"dice to the corporation is not a re+"ire,ent for liability the corporation has a ca"se of action as long as there is "nfair "se of inside infor,ation * It is inside infor,ation if it is not generally a!ailable to others and is ac+"ired beca"se of the close relationship of the director or officer of the corporation * 8eneral r"le) %Ba1ority !iew( Directors owe no fid"ciary d"ty to stoc.holders b"t they ,ay deal with the, at ar,4s length. No d"ty to disclose facts .nown to the director or officer * 3pecial facts doctrine %3trong ! Repide 1>F>( 7 Conceding the absence of a fid"ciary relationship in the ordinary case co"rts ne!ertheless hold that where special circ",stances o
facts are present which ,a.e it ine+"itable for the director to withhold infor,ation fro, the stoc.holder the d"ty to disclose arises and conceal,ent is fra"d. '. D"ties and Liabilities of Officers The pro!isions on sei$ing corporate opport"nity and disloyalty %&61]1 and &6=( shall also apply to corporate officers Note) Be,bers of the HOD who are also officers are held to a ,ore stringent liability beca"se they are in/charge of day/to/day acti!ities %Ca,pos(. 6. D"ty of controlling interest * A ,a1ority stoc.holder is s"b1ect to the d"ty of good faith when he acts by !oting at a stoc.holders4 ,eeting with respect to a ,atter in which he has a personal interest * Controlling stoc.holders ,ay dispose of their shares at any ti,e and at s"ch price as they choose pro!ided they do not per!ert these prerogati!es by transferring office to persons who are .nown as intending to raid the corporate treas"ry or otherwise i,properly benefit the,sel!es. 6 LInsiderM ,eans) %a( the iss"er- %b( a director or officer %or person perfor,ing si,ilar f"nctions( of or a person controlling the iss"er- %c( a person whose relationship or for,er relationship to the iss"er gi!es or ga!e hi, access to ,aterial infor,ation abo"t the iss"er or the sec"rity that is not generally a!ailable to the p"blic- %d( a go!ern,ent
e,ployee or director or officer of an e#change clearing agency and2or self/reg"latory organi$ation who has access to ,aterial infor,ation abo"t an iss"er or a sec"rity that is not generally a!ailable to the p"blic- or %e( a person who learns s"ch infor,ation by a co,,"nication fro, any of the foregoing insiders %&6.E 3ec Reg"lations Code( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6? of 6<1 COR;ORATION LA9 COBBARCIAL LA9 * It is fra"d"lent for a stoc.holder to b"y fro, another stoc.holder witho"t disclosing his identity * ;rincipal stoc.holders are li.ewise prohibited fro, "sing inside infor,ation in the p"rchase and sale of e+"ity sec"rity =. Re,edies of stoc.holder in case of ,is,anage,ent or ab"se of powers * Recei!ership * In1"nction if the act has not been done * Dissol"tion if the ab"se a,o"nts to a gro"nd for +"o warranto b"t the 3olicitr 8eneral ref"ses to act * Deri!ati!e s"it a co,plaint filed with the RTC Uichico et al. !s. NLRC %1>>D( The petitioners who are officers and directors of Crispa Inc. assailed the decision of the NLRC holding the, solidarily liable with Crispa for the pay,ent of separation pay and bac.wages to the pri!ate respondents. It was the contention of the petitioners that the award of separation pay and
bac.wages is a corporate obligation and ,"st therefore be ass",ed by Crispa alone. 5ALD) 9hile the general r"le is that obligations inc"rred by a corporation acting thro"gh its directors officers and e,ployees are its sole liabilities there are ti,es when solidary liabilities ,ay be inc"rred s"ch as in this case where it is "ndisp"ted that petitioners had a direct hand in the illegal dis,issal of respondent e,ployees. They were the ones who as high/ran.ing officers and directors of Crispa signed he Hoard resol"tion retrenching the pri!ate respondents on the feigned gro"nd of serio"s b"siness losses that had no basis apart fro, an "nsigned and "na"dited profit and loss state,ent which had no e!identiary !al"e whatsoe!er. This is indicati!e of bad faith on the part of petitioners for which they can be held 1ointly and se!erally liable with Crispa for all the ,oney clai,s of the illegally ter,inated respondent e,ployees. Tra,at Bercantile Inc. !s. CA %1>>=( ;ersonal liability of a corporate director tr"stee or officer along %altho"gh not necessarily( with the corporation ,ay so !alidly attach as a r"le only when) o 5e assents %a( to a patently "nlawf"l act of the corporation or %b( for bad faith or gross negligence in directing its affairs or %c( for conflict of interest res"lting in da,ages to the corporation its
stoc.holders or other personso 5e consents to the iss"ance of watered stoc.s or who ha!ing .nowledge thereof does not forthwith file with the corporate secretary his written ob1ection theretoo 5e agrees to hold hi,self personally and soidarily liable with the corporation- or o 5e is ,ade by a specific pro!ision of law to personally answer for his corporate action Reiterated in Atri", Banage,ent Corp. !. CA 'FF1 Chapter IO T5A RI85T O0 IN3;ACTION 1. Hasis of right Reason of the law for granting stoc.holders the right to inspect the records of the corporation) As the beneficial owners of the b"siness the stoc.holders ha!e the right to .now 1. The financial condition of the corporationand '. 5ow the corporate affairs are being ,anaged by their elected directors. ;UR;O3A) 3o that if they find the conditions "nsatisfactory they ,ay be able to ta.e necessary ,eas"res to protect their in!est,ent. The right of inspection is 1. ;re!enti!e 7 to a li,ited e#tent ,ay ser!e as a deterrent to an ill/intentioned
,anage,ent to .now that its acts ,ay be scr"tini$ed '. Re,edial 7 a dissatisfied stoc.holder ,ay resort to the right of inspection as a preli,inary step to see.ing ,ore direct re,edies against ab"ses co,,itted by ,anage,ent %re,o!al of directors or a deri!ati!e s"it(. The right of inspection goes hand/in/hand with the right to !ote. Thro"gh the for,er the 35 can gather infor,ation on how to !ote. '. 9hat records co!ered- records re+"ired to be .ept by corporation %&D=( * Hoo.s that record all b"siness transactions of the corporation which shall incl"de contract ,e,oranda 1o"rnals ledgers etc* Bin"te boo. for ,eetings of the 35s2,e,bers* Bin"te boo. for ,eetings of the board2tr"stees* 3toc. and transfer boo.. Bin"tes of ,eetings witho"t the signat"re of the corporate secretary ha!e no probati!e !al"e %NATU ! 3ec of Labor 1>E1( 9hat is a stoc. transfer agentS o A stoc. transfer agent is one engaged principally in the b"siness of registering transfers of stoc.s in behalf of a stoc. corporation. No stoc. transfer agent shall be allowed to operate in the ;hilippines
"nless he sec"res a license fro, the 3AC and pays a fee as ,ay be fi#ed by the Co,,ission which shall be renewable ann"ally o A stoc. corporation is not precl"ded fro, perfor,ing or ,a.ing transfer of its own stoc.s in which case all the r"les and reg"lations i,posed on stoc. transfer agents e#cept the pay,ent of a license fee herein pro!ided shall be applicable. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6D of 6<1 COR;ORATION LA9 COBBARCIAL LA9 * 0inancial state,ents %&D<( o 9ithin ten %1F( days fro, receipt of a written re+"est of any stoc.holder or ,e,ber the corporation shall f"rnish to hi, its ,ost recent financial state,ent which shall incl"de a balance sheet as of the end of the last ta#able year and a profit or loss state,ent for said ta#able year showing in reasonable detail its assets and liabilities and the res"lt of its operations o At the reg"lar ,eeting of stoc.holders or ,e,bers the HOD or HOT shall present to s"ch stoc.holders or ,e,bers a financial report of the operations of the corporation for the preceding year which shall incl"de financial state,ents d"ly signed and certified by an independent certified p"blic acco"ntant.
o 5owe!er if the paid/"p capital of the corporation is less than ;<F FFF.FF the financial state,ents ,ay be certified "nder oath by the treas"rer or any responsible officer of the corporation. Torres et al ! CA %1>>D( It is the corporate secretaryVs d"ty and obligation to register !alid transfers of stoc.s and if said corporate officer ref"ses to co,ply the transferorstoc.holder ,ay rightf"lly bring s"it to co,pel perfor,ance. 6. A#tent of and li,itations on right 6.1 Li,itations as to ti,e and place a. Only at reasonable ho"rs on b"siness days * Hy/laws cannot li,it inspection to ,erely a few days d"ring the year chosen by the directors :;ardo !s. 5erc"les L",ber, 1>'=@ * Hy/laws cannot pro!ide that the inspection shall only be "pon a"thority of the ;resident of the corporation pre!io"sly obtained in each case %Ierag"th !. Isabela 3"gar Co. 1>6'( * 5owe!er inspection sho"ld be ,ade in s"ch a ,anner as not to i,pede the efficient operations of the corporation %D"ff !. B"t"al Hrewing Co. NKLJ Oct. 6 1E>'( * Hy/laws can adopt policies with respect to right to inspect %&=D%1F(/3"ch other
,atters as ,ay be necessary for the proper or con!enient transaction of its corporate b"siness and affairs( b. Inspection shall be done in the place where the corporation .eep all its records which as en1oined by law is in the principal office * 3toc.holder cannot de,and that he be allowed to ta.e the corporate boo.s o"ts of the corporation4s principal office for the p"rpose of inspecting the, %Ierag"th 3"pra( 6.' Li,itation as to p"rpose Is the stoc.holder4s p"rpose ,aterialS 7 KA3. There is howe!er a pres",ption that his p"rpose is a proper one and the corporation cannot ref"se to grant hi, the right on its ,ere belief that his ,oti!e is i,proper. * Otherwise s"ch ref"sal ,ay open its g"ilty officers or directors to liability for da,ages UNLA33 they can s"ccessf"lly pro!e in their defense) o that the stoc.holder was not acting in good faith o that he i,properly "sed the infor,ation obtained in the past o that he "sed the infor,ation for an illegiti,ate p"rpose 8on$ales !. ;NH %1>E6( 3ection D= of the Corporation Code has been interpreted by the 3"pre,e Co"rt as no longer
allowing the "n+"alified right of inspection of stoc.holder of corporate records and that the person ,a.ing the de,and has to show that he is acting in good faith and for a legiti,ate p"rpose. * H"rden of pro!ing that the p"rpose is i,proper or illegal is on corporation and its officers. * 8ood p"rposes) to in!estigate acts of ,anage,ent- to in!estigate financial conditions- fi# !al"e of shares- ,ailing list for pro#ies- infor,ation for litigation * Not good and honest p"rposes) obtain corporate secrets %e.g. for,"la(n"isance s"it- to e,barrass the co,pany TA3T to deter,ine whether the p"rpose as pro!ed by the corporation or as ad,itted by the stoc.holder is a legiti,ate one or notS 7 A legiti,ate p"rpose is one which is ger,ane to the interests of the stoc.holder as s"ch and not contrary to the interests of the corporation %8o.ongwei !. 3AC 1>D>(. =. 9ho ,ay e#ercise right * Director tr"stee stoc.holder ,e,ber personally or thro"gh an agent o The right to inspect corporate boo.s ,ay be done with the assistance of technical ,en %e.g. lawyers and acco"ntants( and it ,ay be delegated. The right incl"des the right to copy or to ta.e notes. %9.8.
;hilpotts ! ;hililppine Bfg Co. 1>1>( * The transferor of shares and the !oting tr"stee in accordance with 3ection <> * 3toc.holders of a parent corporation with respect to s"bsidiary) o If two are legally separate and independent entity no right of inspection. 5owe!er the 35 of the parent corp can loo. at the boo.s of the latter with respect to its in!est,ents to the s"bsidiary. o If they are practically one and the sa,e in so far as ,anage,ent and control is concerned and inspection is de,anded beca"se of gross ,is,anage,ent of s"bsidiary by the parent4s directors who are 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6E of 6<1 COR;ORATION LA9 COBBARCIAL LA9 also directors of s"bsidiary who are also directors of the s"bsidiary then the latter will be treated as a ,ere agent or instr",entality of the respondent parent corporation and the latter ,ay be co,pelled to open the s"bsidiary4s boo.s to its stoc.holders %8o.ongwei !. 3AC 3"pra( <. Re,edies a!ailable if inspection ref"sed * Banda,"s o The writ sho"ld be directed against the corporation b"t the secretary thereof ,ay be 1oined as party
defendant since he is c"sto,arily charged with the c"stody of all corporate records and is pres",ably the parson against who, the order of the co"rt will be ,ade affecti!e in case ,anda,"s is granted. o And e!en the president of the corp. ,ay be ,ade respondent if necessary to the effect"ation of the co"rt4s order %;hilpotts !. ;hil. Ban"fact"ring Co. 1>1>( * In1"nction * Action for da,ages 7 any officer or agent of the corporation who shall ref"se to allow any director tr"stees stoc.holder or ,e,ber of the corporation to e#a,ine and copy e#cerpts fro, its records or ,in"tes in accordance with the pro!isions of this Code shall be liable to s"ch director tr"stee stoc.holder or ,e,ber for da,ages * 0ile an action to i,pose a penal offense by fine and2or i,prison,ent o Any officer or agent of the corporation who shall ref"se to allow any director tr"stees stoc.holder or ,e,ber of the corporation to e#a,ine and copy e#cerpts fro, its records or ,in"tes in accordance with the pro!isions of this Code # # # and in addition shall be g"ilty of an offense which
shall be p"nishable "nder 3ection 1== of the Corporation Code o If s"ch ref"sal is ,ade p"rs"ant to a resol"tion or order of the board of directors or tr"stees the liability "nder this section for s"ch action shall be i,posed "pon the directors or tr"stees who !oted for s"ch ref"sal o It shall be a defense to any action that the person de,anding to e#a,ine and copy has i,properly "sed any infor,ation sec"red thro"gh any prior e#a,ination of the records or is not acting in good faith or for a legiti,ate p"rpose in ,a.ing his de,and %&D= par 6( o Other !alid gro"nds for denying access to boo.s or records) i,,ediately prior to the ann"al 35s4 ,eeting- holder of boo.s is "na!ailable- the boo.s are being a"ditedon/going in!entory co"nt- co,p"teri$ation,o!ing o"t or change of b"siness address Chapter O DARIIATIIA 3UIT3 1. Nat"re and Definition of a Deri!ati!e 3"it Definition Deri!ati!e s"it 7 s"its of stoc.holders based on wrongf"l or fra"d"lent acts of directors or other persons Nat"re and basis2disting"ish fro, other
s"its) * INDIIIDUAL s"it if wrong done is personal to 35 * CLA33 s"it if wrong done is to a gro"p of 35 * DARIIATIIA s"it if wrong done is to the corporation itself o In a deri!ati!e s"it the ca"se of action belongs to the corporation and not the stoc.holders b"t since the directors who are charged with ,is,anage,ent are the ones who will be s"ed or ,ay not be willing to s"e then the corporation is left witho"t redress hence 35 is gi!en the right to s"e on behalf of the corporation '. Re+"ire,ents relating to deri!ati!e s"it 1. The stoc.holder or ,e,ber bringing the s"it ,"st ha!e e#ha"sted his re,edies within the corporation %Angeles !. 3antos 1>6D( %e#. 5e has ,ade a de,and on the directors or tr"stees and they ha!e failed or ref"sed to act on s"ch de,and. Note) de,and is not necessary if it will be f"tile( '. The stoc.holder or ,e,ber ,"st ha!e been one at the ti,e the transaction or act co,plained of too. place or in the case of a stoc.holder the shares ,"st ha!e de!ol!ed "pon hi, since by operation of law "nless s"ch transaction or act contin"es and is in1"rio"s to the stoc.holder %;asc"al !. Oro$co
1>11( Honafide ownership by stoc.holder of stoc. in his own right s"ffices to in!est hi, with standing to bring a deri!ati!e action for the benefit of the corporation. The n",ber of shares owned by the 35 is i,,aterial since he is not s"ing in his own behalf or for the protection or !indication of his own partic"lar right or the redress of a wrong co,,itted against hi, indi!id"ally b"t in behalf and for the benefit of the corp. %3an Big"el Corp. !. Rhan 1>E>( 5eirs of a 35 can bring a deri!ati!e s"it pro!ided that the transaction too. place d"ring the lifeti,e of the 35 %Denison !. Herderger 1>=1( 6. Any benefit reco!ered by the stoc.holder or ,e,ber as a res"lt of bringing the deri!ati!e s"it whether by final 1"dg,ent by 1"dicial co,pro,ise or by e#tra/1"dicial settle,ent ,"st be acco"nted for to the corporation who is the real party in interest =. If the s"it is s"ccessf"l the plaintiff is entitled to rei,b"rse,ent fro, the corporation for the reasonable e#penses of litigation incl"ding attorney4s fees 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6> of 6<1 COR;ORATION LA9 COBBARCIAL LA9 Hitong ! CA %1>>E( In the absence of a special a"thority fro, the
board of directors to instit"te a deri!ati!e s"it for and in its behalf the ,anaging officer is dis+"alified by law to s"e in her own na,e. The power to s"e and be s"ed in any co"rt by a corporation e!en as a stoc.holder is lodged in the HOD that e#ercises its corporate powers and not in the president or officer thereof. H"t where corporate directors are g"ilty of a breach of tr"st not of ,ere error of 1"dg,ent or ab"se of discretion and intra/corporate re,edy is f"tile or "seless a 35 ,ay instit"te a deri!ati!e s"it in behalf of hi,self and other 35s and for the benefit of the corporation to bring abo"t a redress of the wrong inflicted directly "pon the corporation and indirectly "pon the stoc.holders. Li, !s. Li,/K" %'FF1( The s"it of respondent cannot be characteri$ed as deri!ati!e beca"se she was co,plaining only of the !iolation of her pree,pti!e right "nder 3ection 6> of the Corporation Code. 3he was ,erely praying that she be allowed to s"bscribe to the additional iss"ances of stoc.s in proportion to her shareholdings to enable her to preser!e her percentage of ownership in the corporation. 3he was therefore not acting for the benefit of the corporation. Q"ite the contrary she was s"ing on her own behalf o"t of a desire to protect and preser!e her pree,pti!e rights 0ilipinas ;ort 3er!ices Inc. represented by stoc.holders Aliodoro C. Cr"$ !.
Iictoriano 3. 8o et al. 8R No. 1?1EE? Barch 1? 'FFD Cr"$ a stoc.holder of the corporation filed a deri!ati!e s"it against the ,e,bers of the board +"estioning the creation of certain positions. Cr"$ th"s prayed that the respondent ,e,bers of the board of directors be ,ade to pay 0ilport 1ointly and se!erally the s",s of ,oney !ariedly representing the da,ages inc"rred as a res"lt of the creation of the offices2positions co,plained of and the aggregate a,o"nt of the +"estioned increased salaries. The RTC fo"nd in his fa!or initially b"t the CA later dis,issed the deri!ati!e s"it. 5ALD) T his is a !alid deri!ati!e s"it instit"ted by Cr"$. the action below is principally for da,ages res"lting fro, alleged ,is,anage,ent of the affairs of 0ilport by its directors2officers it being alleged that the acts of ,is,anage,ent are detri,ental to the interests of 0ilport. Th"s the in1"ry co,plained of pri,arily pertains to the corporation so that the s"it for relief sho"ld be by the corporation. Hesides the re+"isites before a deri!ati!e s"it can be filed by a stoc.holder are present in this case to wit) a( the party bringing s"it sho"ld be a shareholder as of the ti,e of the act or
transaction co,plained of the n",ber of his shares not being ,aterialb( he has tried to e#ha"st intra/corporate re,edies i.e. has ,ade a de,and on the board of directors for the appropriate relief b"t the latter has failed or ref"sed to heed his plea- and c( the ca"se of action act"ally de!ol!es on the corporation the wrongdoing or har, ha!ing been or being ca"sed to the corporation and not to the partic"lar stoc.holder bringing the s"it. 6. Re+"ire,ents "nder the Interi, R"les of ;roced"re for Intra/Corporate Contro!ersies %R"le E( 1. 5e was a stoc.holder or ,e,ber at the ti,e the acts or transactions s"b1ect of the action occ"rred and the ti,e the action was filed'. 5e e#erted all reasonable efforts and alleges the sa,e with partic"larity in the co,plaint to e#ha"st all re,edies a!ailable "nder the AOI by/laws laws or r"les go!erning the corporation or partnership to obtain the relief he desires. 6. No appraisal rights are a!ailable for the act%s( co,plained of- and =. The s"it is not a n"isance or harass,ent s"it. Deri!ati!e s"its are within the 1"risdiction of the RTC %&<.' 3ec"rities Reg"lation Code( Chapter OI
0INANCIN8 T5A COR;ORATION CA;ITAL 3TRUCTURA 1. 3o"rces of 0inancing 6 ,ain so"rces) 1. Contrib"tions by stoc.holders %A+"ity( '. Loans or ad!ances fro, creditors %Horrrowing( 6. ;rofits that the b"siness ,ay earn '. Classification of 3hares %&?( * 3hares of stoc. of stoc. corporations ,ay be di!ided into classes or series of shares or both * Aach class or series of shares ,ay ha!e rights pri!ileges restrictions stated in the AOI * No share ,ay be depri!ed of !oting rights e#cept) o ;referred or o Redee,able shares o "nless otherwise pro!ided by the Code * There shall always be a class2series of shares which ha!e a COB;LATA IOTIN8 RI85T3 * AAC5 35ARA 35ALL HA AQUAL IN ALL RA3;ACT3 TO AIARK OT5AR 35ARA e#cept as otherwise pro!ided in the AOI and as stated in the certificate of stoc. '.1 Co,,on * A stoc.holder owner of at least one co,,on share has the following rights) o right to !ote at ,eetings o right to di!idends o right to e#a,ine corporate boo.s * Bost co,,only iss"ed
1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age =F of 6<1 COR;ORATION LA9 COBBARCIAL LA9 * Antitles owner to e+"al pro/rata di!ision of profits after preference '.' ;referred * 3toc.s which are gi!en preference by the iss"ing corporation in di!idends and the distrib"tion of assets of the corporation in case of li+"idation or s"ch other preferences as ,ay be stated in the AOI which are not !iolati!e of the Corporation Code. %&?( * Li,itations on preferred shares) o ;referred shares can only be iss"ed with par !al"e o ;referred shares ,"st be) a. 3tated in the Articles of Incorporation and in the certificate of stoc. or b. Bay be fi#ed by the HOD where a"thori$ed by the AOI pro!ided) s"ch ter,s and conditions shall be effecti!e "pon filing of a certificate thereof with the 3AC. * Antitles holder to so,e preferences in di!idends distrib"tion of assets "pon li+"idation or both) o preference as to di!idends 7 di!idends are payable only when profits are earned and as a general r"le e!en if
there are e#isting profits HOD has discretion to declare di!idends or not a. ;articipating 7 after getting their fi#ed di!idend preference ahead of C3 they share with the C3 the rest of the di!idends UNLA33 e#pressly pro!ided they are non/participating b. C","lati!e 7 di!idends in arrears accr"e ,"st be paid first before co,,on stoc. di!idends are paid. c. Non c","lati!e 7 contract ,a.es di!idends depend "pon e#istence of profits for the year o as to !oting rights 7 "s"ally does not ha!e !oting rights- b"t "nless clearly withheld ;3 wo"ld ha!e right to !ote Note) e!en if depri!ed of !oting rights ;3 holders are entitled to !ote on the ,atters en",erated "nder &? o preference "pon li+"idation 7 in the absence of pro!ision participate pro rata with co,,on stoc. o not a creditor- there4s no ass"rance that yo" will get bac. in!est,ents b"t if the corporation profits yo" participate in the profits '.6 ;ar !al"e * These are shares with a stated !al"e set o"t in the AOI. This re,ains the sa,e
regardless of the profitability of the corporation. This gi!es rise to financial stability and is the reason why ban.s tr"st corporations ins"rance co,panies and b"ilding and loan associations ,"st always be organi$ed with par !al"e shares. * One in the certificate of stoc. of which appears an a,o"nt in pesos as the no,inal !al"e of the shares * Can4t be iss"ed at less than par !al"e. Otherwise it wo"ld beco,e a watered stoc. %&?< disc"ssed in Chapter OII( * ;ar !al"e is ,ini,", iss"e price of s"ch share in the AOI which ,"st be stated in the certificate '.= No/par !al"e * These are shares witho"t a stated !al"e. The Corporation "pon their iss"ance will set their !al"e which shall not be less than ;<. * 3hall be dee,ed f"lly paid and nonassessable and the holders of s"ch shares shall not be liable to the corporation or to its creditors in respect thereto %&?( * Antire consideration recei!ed by the corporation for its no/par !al"e shares shall be treated as capital and shall not be a!ailable for distrib"tion as di!idends %Ibid( * Cannot be iss"ed as ;referred 3hares %Ibid( * AOI ,"st state the fact that corp iss"es nopar shares and the n",ber of shares
* Three ways of deter,ining !al"e of no par !al"e shares %&?'() o Hy ,a1ority !ote of the o"tstanding shares %iss"ed shares( in a ,eeting called for the p"rpose o Hy HOD p"rs"ant to a"thority conferred "pon it by the AOI o Hy a,end,ent of the AOI * Corporations which cannot iss"e no/par !al"e shares %&?() o Han.s o Ins"rance Co,panies o Tr"st Co,panies o H"ilding and Loan Associations o ;"blic "tilities '.< 0o"nder^s %&D( * Those shares classified as s"ch in the AOI which are gi!en certain rights and pri!ileges not en1oyed by the owners of other stoc.s. %&D( * 9here e#cl"si!e right to !ote and be !oted for in the election of directors is granted s"ch right ,"st be for a li,ited period not to e#ceed < years s"b1ect to appro!al by 3AC. < year period shall co,,ence fro, date of appro!al by 3AC. %Ibid( '.? Redee,able * Those shares e#pressly so pro!ided in the AOI which ,ay be p"rchased or ta.en "p by the corporation "pon the e#piration of a
fi#ed period regardless of the e#istence of "nrestricted retained earnings in the boo.s of the corporation and "pon s"ch ter,s and conditions stated in the AOI and in the certificate of stoc. %&E( * Rede,ption is rep"rchase a reac+"isition of stoc. by a corporation which iss"ed the stoc. in e#change for property whether or not the ac+"ired stoc. is cancelled retired or held in the treas"ry. Assentially the corporation gets bac. so,e of its stoc. distrib"tes cash or property to the shareholder in pay,ent for the stoc. and contin"es in b"siness as before. The rede,ption of stoc. di!idends pre!io"sly iss"ed is "sed as a !eil for the constr"cti!e distrib"tion of cash di!idends. %CIR ! CA 1>>>( * 9hile redee,able shares ,ay be redee,ed regardless of the e#istence of "nrestricted retained earnings this is s"b1ect to the condition that the corporation has after s"ch rede,ption assets in its boo.s to 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age =1 of 6<1 COR;ORATION LA9 COBBARCIAL LA9 co!er debts and liabilities incl"si!e of capital stoc.. Rede,ption therefore ,ay not be ,ade where the corporation is insol!ent or if s"ch rede,ption will ca"se insol!ency or inability of the corporation to
,eet its debts as they ,at"re. %Rep"blic ;lanters Han. ! Agana 1>>D( '.D Treas"ry * These are shares of stoc. which ha!e been iss"ed and f"lly paid for b"t s"bse+"ently re/ac+"ired by the iss"ing corporation by p"rchase rede,ption donation or thro"gh so,e other lawf"l ,eans. 3"ch shares ,ay again be disposed of for a reasonable price fi#ed by the HOD. %&>( * Note) delin+"ent stoc.s which are stoc.s that ha!e not been f"lly paid ,ay beco,e treas"ry stoc.s "pon bid of the corporation in absence of other bidders %&?E( * Bay be sold at less than par regarded as corporate property * In this ,anner stoc.s can be retired grad"ally e!en those which aren4t redee,able * No li,it as to how ,any shares can be retired '.E Con!ertible A type of preferred stoc. that the holder can e#change for a predeter,ined n",ber of the corporation4s co,,on shares at a specified ti,e '.> Non/!oting shares %&?( * 3hares which ha!e generally no !oting rights- e#cept in the following circ",stances) o A,end,ent of the AOI
o Adoption and a,end,ent of by/laws o 3ale lease e#change other disposition of all or s"bstantially all of the corporate property o Inc"rring creating or increasing bonded indebtedness o Increase or decrease of capital stoc. o Berger and consolidation o In!est,ent of corporate f"nds in another corporation or b"siness o Dissol"tion of the corporation CLA33A3 O0 35ARA3 A. Co,,on No/par ;ar B"ltiple par !al"e 3ingle par !al"e H. ;referred Li+"idation Di!idends C","lati!e2non/c","lati!e ;articipating2nonparticipating C. Redee,able 9ith floating co"pon rate 9ith g"aranteed co"pon rate D. Con!ertibles A. Co,bo of HYCYD 0. 0o"nder4s shares 8. Treas"ry 3hares 6. Nat"re of 3"bscription Contract 6.1 3"bscription Contract * Any contract for the ac+"isition of "niss"ed stoc. in an e#isting or a corporation still to be for,ed shall be dee,ed a s"bscription
contract notwithstanding the fact that the parties ,ay refer to it as a p"rchase or so,e other contract. %&?F( * Transfer for consideration of treas"ry shares is a sale by the corporation %not s"bscription(. A transfer of f"lly paid shares by a stoc.holder to a third person is a sale. H"t it see,s that assign,ent by a s"bscriber of his "npaid s"bscription wo"ld re+"ire that the re+"isites for !alid release fro, s"bscription ,"st be co,plied with * 3hareholders are not creditors of the corporation with respect to their shareholdings thereto and the principle of co,pensation or set/off has no application * Not necessarily re+"ired to be in writing * Once s"bscription contract is perfected 35 beco,es the debtor of the corporation. 5e is liable to pay any "npaid portion of the s"bscription. 5e can also be ,ade personally liable to the creditors of the corporation to the e#tent of his "npaid s"bscription * 8eneral R"le) 35 is not liable to pay interest on his "npaid s"bscription. A#ception) if re+"ired by the by/laws %&??( 6.' ;re/incorporation s"bscription %&?1( * ;re/incorporation s"bscription is a s"bscription for shares of stoc. of a corporation still to be for,ed.
* It shall be irre!ocable for a period of at least si# %?( ,onths fro, the date of s"bscription. * It can only be re!o.ed when) o when all of the other s"bscribers consent to the re!ocation or o when the incorporation of the corporation fails to ,ateriali$e within si# %?( ,onths or within a longer period as ,y be stip"lated in the contract of s"bscription. * After the s"b,ission of the AOI to the 3AC no pre/incorporation s"bscription ,ay be re!o.ed. =. ;re/e,pti!e Right to 3hares %Cf &6> 1F'( =.1 Definition of pre/e,pti!e rights 7 option pri!ilege of an e#isting stoc.holder to s"bscribe to a proportionate part of shares s"bse+"ently iss"ed by the corp before the sa,e can be disposed of in 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age =' of 6<1 COR;ORATION LA9 COBBARCIAL LA9 fa!or of the others- incl"des all iss"es and disposition of shares of any class * All stoc.holders of a stoc. corporation shall en1oy pre/e,pti!e right to s"bscribe to all iss"es or disposition of shares of any class in proportion to their respecti!e shareholdings "nless s"ch right is denied by the AOI or an a,end,ent thereto
* This is to pre!ent dil"tion in shareholding * Incl"des not only new shares in p"rs"ance of an increase of capital stoc. b"t wo"ld co!er the iss"e of pre!io"sly "niss"ed shares which for, part of the e#isting capital stoc. as well as treas"ry shares * 9here the shares are iss"ed in e#change for property needed for corporate p"rposes or for debt pre!io"sly granted 35 cannot de,and his pre/e,pti!e right for right ,ay pre1"dice corporate interest %&6>( =.' Li,itation to e#ercise of pre/e,pti!e right %&6>() a. 3"ch pre/e,pti!e right shall not e#tend to shares to be iss"ed in co,pliance with laws re+"iring stoc. offerings or ,ini,", stoc. ownership by the p"blicb. Not e#tend to shares to be iss"ed in good faith with the appro!al of the stoc.holders representing two/thirds %'26( of the o"tstanding capital stoc. in e#change for property needed for corporate p"rposes or in pay,ent of a pre!io"sly contracted debt c. 3hall not ta.e effect if denied in the AOI or an a,end,ent thereto. =.6 Re,edies in case of "nwarranted denial) a. In1"nction b. Banda,"s * in any case the s"it sho"ld be indi!id"al and not deri!ati!e beca"se the wrong done
is to the stoc.holders indi!id"ally c. 3AC can cancel shares if the third party is not innocent CA;ITAL CONTRIHUTION3 %Boney Y ;roprietary rights( Y LOAN ACCOBBODATION3 COR;ORATION ;RO;ARTK2A33AT3 LIAHILITK) Obligation to pay) * ;rincipal Y Interest * 3ec"rity Interest o!er ;roperty and Assets * ;references !is/_/!is 35 AQUITK INTARA3T %3hares of 3toc. Inchoate Rights( Ret"rn of A+"ity Interest) * Di!idends * ;roceeds reali$ed fro, sale of shares * Li+"idity di!idends CONTROL ACON HANA0IT3 CLA33I0ICATION O0 35ARA3 Chapter OII CON3IDARATION 0OR I33UANCA O0 35ARA3 1. 0or, of consideration %&?'( * 3toc.s shall not be iss"ed for a consideration less than the par or iss"ed price thereof. * Consideration for the iss"ance of stoc. ,ay be any or a co,bination of any two or ,ore of the
following) a( Act"al cash paid to the corporationb( ;roperty tangible or intangible act"ally recei!ed by the corporation and necessary or con!enient for its "se and lawf"l p"rposes at a fair !al"ation e+"al to the par or iss"ed !al"e of the stoc. iss"ed o Ial"ation of consideration other than act"al cash or consists of intangible property s"ch as patents of copyrights 7 initially be deter,ined by the incorporators or the board of directors s"b1ect to appro!al by the 3AC. o Note) ;roperty sho"ld not be enc",bered. Otherwise it wo"ld i,pair the consideration c( Labor perfor,ed for or ser!ices act"ally rendered to the corporation %,"st be capable of being !al"ated(d( ;re!io"sly inc"rred indebtedness of the corporatione( A,o"nts transferred fro, "nrestricted retained earnings to stated capital %declaration of stoc. di!idends(- and Aa Aa 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age =6 of 6<1 COR;ORATION LA9 COBBARCIAL LA9 f( O"tstanding shares e#changed for stoc.s in the e!ent of reclassification or con!ersion.
* ;rohibited consideration) 3hares of stoc. shall not be iss"ed in e#change for pro,issory notes or f"t"re ser!ice %beca"se reali$ation is "ncertain( * 0"t"re ser!ice ,ay be "sed as consideration pro!ided that certificates of stoc. will be iss"ed only after the perfor,ance of s"ch ser!ices. * 3a,e consideration applies for the iss"ance of bonds by the corporation. * 0i#ing of iss"ed price of no/par !al"e shares) The iss"ed price of no/par !al"e shares ,ay be fi#ed) a( in the AOI or b( by the HOD p"rs"ant to a"thority conferred "pon it by the AOI or the by/laws or c( in the absence thereof by the 35s representing at least a ,a1ority of the o"tstanding capital stoc. at a ,eeting d"ly called for the p"rpose. * The !al"e of the consideration recei!ed ,"st be e+"al to the iss"e price of the shares of stoc.s which in no case shall be less than par '. Liability on watered stoc.s 9atered stoc. 7 shares iss"ed as f"lly paid/"p when in fact the consideration agreed to and accepted by the directors of the corporation was so,ething .nown to be ,"ch less than the par !al"e or iss"ed !al"e of the shares. 9ater in stoc. refers to the difference between the fair ,ar.et !al"e at the ti,e of the iss"ance and
the par or iss"ed !al"e of said stoc.. 3"bse+"ent increase in the !al"e of the property "sed in paying the stoc. does not do away with the water in the stoc.. The e#istence of s"ch water is deter,ined at the ti,e of iss"ance of the stoc.. * A!ils) depri!es corp of needed capital- dil"tes proportionate interest of e#isting and f"t"re 35- in1"res present and f"t"re creditors beca"se it red"ces !al"e of corp assets * Any director or officer of a corporation consenting to the iss"ance of stoc.s or who ha!ing .nowledge thereof does not forthwith e#press his ob1ection in writing and file the sa,e with the corporate secretary %&?<( o for a consideration less than its par or iss"ed !al"e or o for a consideration in any for, other than cash !al"ed in e#cess of its fair !al"e * shall be solidarily liable with the stoc.holder concerned to the corporation and its creditors for the difference between the fair !al"e recei!ed at the ti,e of iss"ance of the stoc. and the par or iss"ed !al"e of the sa,e. 6. 5ow ;ay,ent of 3hares Anforced 6.1 Delin+"ency sale a. 5ow do shares beco,e delin+"ent %&?D( * ;ay,ent of any "npaid s"bscription or any percentage thereof together with the interest accr"ed if any shall be ,ade on the date specified in the
contract of s"bscription or on the date stated in the call ,ade by the board. * 0ail"re to pay on s"ch date shall render the entire balance d"e and payable and shall ,a.e the stoc.holder liable for interest at the legal rate on s"ch balance "nless a different rate of interest is pro!ided in the by/laws co,p"ted fro, s"ch date "ntil f"ll pay,ent. * If within thirty %6F( days fro, the said date no pay,ent is ,ade all stoc.s co!ered by said s"bscription shall there"pon beco,e delin+"ent and shall be s"b1ect to sale as hereinafter pro!ided "nless the HOD orders otherwise. * Despite the fact that the s"bscription is partially paid the entire s"bscription beco,es delin+"ent * 3"bscriber is not barred fro, paying the balance pl"s the e#penses inc"rred by the corp before the date of the delin+"ency sale %&?E(. b. ;roced"re for delin+"ency sale %&?E( * The HOD ,"st ,a.e a call by resol"tion de,anding the pay,ent of the balance of the s"bscription %Tnotice of callT(. * The notice of call shall be ser!ed on
each stoc.holder either personally or by registered ,ail. At this point there is no need for p"blication. * If the stoc.holder does not pay the a,o"nt on the date designated in the notice the Hoard shall iss"e by resol"tion a Tnotice of delin+"ency.T * Notice of delin+"ency shall be ser!ed on the non/paying s"bscriber either personally or by registered ,ail ;LU3 p"blication in a newspaper of general circ"lation in the pro!ince or city where the principal office of the corporation is located once a wee. for two %'( consec"ti!e wee.s. The notice shall state the a,o"nt d"e on each s"bscription pl"s accr"ed interest and the date ti,e and place of the sale which shall not be less than 6F days nor ,ore than ?F days fro, the date the stoc.s beco,e delin+"ent. * The a,o"nt d"e in the notice ,"st incl"de all e#penses) p"blication legal etc. o Note) the notices are 1"risdictional. * In the p"blic a"ction the highest bidder is one who is willing to pay the balance of the s"bscription for the least n",ber of shares. The corporation will gi!e the highest bidder the certificate of
stoc. in the n",ber of his bid- the re,aining n",ber will be iss"ed a certificate of stoc. in fa!or of the s"bscriber as f"lly paid. If there are no bidders the corporation ,"st bid for the whole n",ber of shares regardless of how ,"ch the 35 has paid. 3"ch stoc.s will pertain to the corporation as f"lly paid treas"ry stoc.s. c. 9hen sale ,ay be +"estioned %&?>( * No action to reco!er delin+"ent stoc. sold can be s"stained "pon the gro"nd of irreg"larity or defect in the notice of 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age == of 6<1 COR;ORATION LA9 COBBARCIAL LA9 sale or in the sale itself of the delin+"ent stoc. "nless the party see.ing to ,aintain s"ch action first pays or tenders to the party holding the stoc. the s", for which the sa,e was sold with interest fro, the date of sale at the legal rate- and * No s"ch action shall be ,aintained "nless it is co,,enced by the filing of a co,plaint within si# %?( ,onths fro, the date of sale. * Iss"ance of Certificate 7 Once f"ll pay,ent for the stoc.s ha!e been tendered to the corporation in any of the !alid for,s of consideration for the iss"ance of stoc.s
the p"rchaser or the s"bscribers entitled to be iss"ed the corresponding certificate of stoc. which e!idences their ownership of shares in a partic"lar corporation %&?=( Apocada ! NLRC Apocada was e,ployed in Intans ;hil wherein he s"bscribed to 1<FF shares. 5e s"bse+"ently resigned and instit"ted a co,plaint with NLRC against corporation for pay,ent of "npaid wages COLA balance of gasoline and representation e#penses bon"s. Corporation applied what is d"e to Apocada the balance of his "npaid s"bscription. 5ALD) 3et/off is not proper. Unpaid s"bscriptions are not yet d"e and payable. They beco,e d"e and payable when a call is ,ade by the corporation. There is no s"ch call yet. 3et/off against wages is not !alid "nder labor code. 6.' Co"rt Action %&DF( 8en. R"le A !alid call is a prere+"isite to liability where co"rt action is the re,edy chosen %Da 3il!a !. Aboiti$ 1>'6(. A#ceptions) 1. the s"bscription contract specifies a date of pay,ent '. the corp. has beco,e insol!ent * all "npaid s"bscriptions are i,,ediately reco!erable in a co"rt action by the assignee in insol!ency :Ielasco !s. ;oi$at 1>1E@ As a defense to a co"rt action the 35 ,ay
contend that the s"bscription was ind"ced by fra"d"lent ,isrepresentation pro!ided he is not barred by ratification or g"ilty of laches. 3toc.holders cannot escape liability on their "npaid s"bscription on the gro"nd that these were ind"ced by an "nf"lfilled co,,it,ent of the ;resident of the ;hil. that the ;hil. go!ern,ent wo"ld in!est ;>.FF for e!ery peso s"bscribed %;NH !. Hit"lo. 3aw,ill Inc. 1>?E( =. Affect of Delin+"ency a( Any cash di!idends d"e on delin+"ent stoc. shall first be applied to the "npaid balance on the s"bscription pl"s costs and e#penses while stoc. di!idends shall be withheld fro, the delin+"ent stoc.holder "ntil his "npaid s"bscription is f"lly paid. %&=6( b( No delin+"ent stoc. shall be) o !oted for or o be entitled to !ote or to o representation at any stoc.holderVs ,eeting o nor shall the holder thereof be entitled to any of the rights of a stoc.holder %&D1( * A#cept the right to di!idends in accordance with the pro!isions of this Code * "ntil and "nless he pays the a,o"nt d"e on his s"bscription with accr"ed interest and the costs and e#penses of ad!ertise,ent if any.
* Note that the pro!ision on di!idends pertain to delin+"ent stoc. hence a call ,"st ha!e been ,ade * 3toc. di!idends on delin+"ent shares are not applied b"t are incl"ded in delin+"ency sale wherein it is li+"idated <. Rights and Obligations of 5olders of Unpaid H"t Non/Delin+"ent 3toc. * 5olders of s"bscribed shares not f"lly paid which are not delin+"ent shall ha!e ALL the rights of a stoc.holder. %&D'( * 3"bscribers for stoc. shall pay to the corporation INTARA3T on all "npaid s"bscriptions fro, the date of s"bscription if so re+"ired by and at the rate of interest fi#ed in the by/laws. If no rate of interest is fi#ed in the by/laws s"ch rate shall be dee,ed to be the legal rate. %&??( 8eneral r"le) "npaid s"bscriptions can not be charged with interest. A#ception) when re+"ired by the by/laws. * No certificate of stoc. shall be iss"ed to a s"bscriber "ntil the f"ll a,o"nt of his s"bscription together with the interest and e#penses %in case of delin+"ent shares( if any is d"e has been paid. %&?=( * No shares of stoc. against which the corporation holds any "npaid clai, shall be transferable in the boo.s of the corporation %&?6(. * Attrib"tes of a s"bscription contract)
"nconditional %obligation to pay ,"st not be s"b1ect to any contingencies( and indi!isible %as to the a,o"nt and transferabilityC0"a C"n !. 3",,ers 1>'6( ?. Iss"ance of Certificate A certificate of stoc. is the best e!idence of the rights and stat"s of a 35 %altho"gh not a condition precedent to the ac+"isition of s"ch rights( and is con!enient for the p"rposes of transfer %Ca,pos(. Contents of a certificate) / certifies that the person na,ed is a holder or owner of a stated n",ber of shares / .ind of shares iss"ed / date of iss"ance / par !al"e if par !al"e shares / signed by the proper officer of the corp. %"s"ally the pres. and the sec.( / bears the corporate seal O!er/iss"e of shares occ"rs when certificates are iss"ed for ,ore than the n",ber of shares a"thori$ed by the articles. Any share certificate w2c represents an o!er/iss"e wo"ld be !oid. No rights or liabilities can arise therefro, in fa!or or against 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age =< of 6<1 COR;ORATION LA9 COBBARCIAL LA9 the holders and bona fide p"rchasers wo"ld ha!e the right to da,ages for ,isrepresentation against the corp. b"t can4t ac+"ire the rights of stoc.holders. 8eneral r"le) entire s"bscription ,"st be paid first
before the certificates of stoc. can be iss"ed. ;artial pay,ents are to be applied pro rata to each share of stoc. s"bscribed. %Na!a ! ;eers B.tg Corp and 0"a C"n ! 3",,ers(. A#ception) in the Halta$ar ! Lingayen 8"lf Alectric ;ower Co case it was the practice of the corp to iss"e certificates of stoc. to its indi!id"al 35s for "npaid shares of stoc. and to gi!e f"ll !oting power to shares f"lly paid. D. Lost or Destroyed Certificate %&D6( ;roced"re for re/iss"ance in case of loss stolen or destroyed certificates) 1. The registered owner of certificates of stoc. or his legal representati!e shall file with the corporation an affid!it setting forth as far as possible) a( the circ",stances as to how the certificates were lost stolen or destroyedb( the n",ber of shares represented by each certificate the serial n",bers of the certificatesc( the na,e of the corp which iss"ed the sa,ed( s"ch other infor,ation and e!idence which he ,ay dee, necessary. '. The corp shall p"blish a notice in a newspaper of general circ"lation p"blished in the place where the corp has its principal office once a wee. for 6 consec"ti!e wee.s at the e#pense of the owner of the certificate of stoc. which has been lost stolen or destroyed.
6. After the e#piration of one %1( year fro, the date of the last p"blication and if no contest has been presented the corp shall cancel in its boo.s the certificate of stoc. and iss"e in lie" thereof new certificates of stoc.. The right to ,a.e s"ch contest shall be barred after the e#piration of the one/year period. =. A!en before the one year period e#pires the new certificates ,ay be iss"ed if the registered owner files a bond or other sec"rity r"nning for a period of one %1( year for a s", and in s"ch for, and with s"ch s"reties as ,ay be satisfactory to the HOD. ;ro!ided that if there is a pending contest regarding the ownership of said certificates the iss"ance of new certificates shall be s"spended "ntil the final decision of the co"rt regarding the ownership of the certificate of stoc.. o Note) A#cept in cases of fra"d bad faith or negligence on the part of the corporation and its officers no action ,ay be bro"ght against the corp which shall ha!e iss"ed certificates of stoc. in lie" of those lost stolen or destroyed p"rs"ant to the abo!e proced"re. Chapter OIII DIIIDAND3 AND ;URC5A3A O0 COR;ORATION O0 IT3 O9N 35ARA3 1. 0or, of Di!idends %&=6( 1.1 CA35 7 ,ost co,,on for,. 1.' 3TOCR 7 a distrib"tion to the stoc.holders of the co,pany4s own stoc.. The corporate profits are
transferred to capital stoc. and shares of stoc. representing the increase in capitali$ation are distrib"ted. These do not represent inco,e on the part of the 35. In!est,ent and proportional interest in the corp re,ain the sa,e Lincoln ;hil. Life ! CA %1>>E( 3toc. di!idends are in the nat"re of shares of stoc. the consideration for which is the a,o"nt of "nrestricted retained earnings con!erted into e+"ity in the corporation4s boo.s. LA stoc. di!idend of a corporation is a di!idend paid in shares of stoc. instead of cash and is properly only o"t of s"rpl"s profits. 3o a stoc. di!idend is act"ally two things) %1( a di!idend) and %'( the enforced "se of the di!idend ,oney to p"rchase additional shares of stoc. at par.M * Li,itation on the iss"e of stoc. di!idends) o there ,"st be "niss"ed shares of the corporation. If there are none there ,"st be an increase in capital stoc. first which re+"ires an a,end,ent of the AOI o there ,"st be "nrestricted retained earnings o cannot be iss"ed to non/stoc.holders e!en for ser!ices rendered %Nielson !. Lepanto Consolidated Bines 1>?E( 1.6 ;RO;ARTK 7 Altho"gh the corp. ,ay ha!e a
big a,o"nt of earnings a!ailable for di!idends they ,ay not all be in cash. '. 3o"rce of Di!idends %&=6( LUnrestricted retained earningsM %URA( %definition by the 3AC( the "ndistrib"ted earnings of the corp. w2c ha!e not been allocated for any ,anagerial contract"al or legal p"rposes and which are free for distrib"tion to the 35s as di!idends. * The only f"nd o"t of w2c di!idends can be legally paid. * 3ho"ld there be any capital deficit s"bse+"ent profits if any d"ring s"cceeding periods ,"st 1st be applied to co!er the deficit and only the profits re,aining after eli,inating the deficit can be considered as URA. Di!idends can not be declared o"t of increase in !al"ation of e#isting assets. This is s"b1ect to fl"ct"ation and is not yet reali$ed. 6. Declaration of Di!idends 6.1 5ow Di!idends are declared Appro!al U !oting re+"ire,ent) a( Appro!al of HOD b( In case of stoc. di!idend) ,"st be appro!ed by 35s representing not less than two/thirds %'26( of the o"tstanding capital stoc. at a reg"lar or special ,eeting d"ly called for the p"rpose. 6.' Di!idend Declaration Discretionary with the Hoard 8en. R"le 9ON there sho"ld be a distrib"tion of di!idends to the 35s in any gi!en year U the for,
1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age =? of 6<1 COR;ORATION LA9 COBBARCIAL LA9 of s"ch di!idends are ,atters addressed to the b"siness 1"dg,ent of the HOD A#ceptions) 1. 9hen the decision is tainted w2 bad faith fra"d or gross negligence '. If the co"rt finds "pon co,plaint of a 35 that a s"rpl"s was "nreasonably acc","lated %profits acc","lated in e#cess of 1FFG of the corp4s paid/in capital stoc.( it ,ay order the corp. to distrib"te di!idends A#ceptions to the e#ception %&=6() a. when 1"stified by definite corporate e#pansion pro1ects or progra,s appro!ed by the board of directors- or b. when the corporation is prohibited "nder any loan agree,ent with any financial instit"tion or creditor whether local or foreign fro, declaring di!idends witho"t its2his consent and s"ch consent has not yet been sec"red- or c. when it can be clearly shown that s"ch retention is necessary "nder special circ",stances obtaining in the corporation s"ch as when there is need for special reser!e for probable contingencies. 6.6 9hen Right to Di!idends Iests * 8eneral r"le) as soon as the sa,e ha!e been lawf"lly declared by the HOD beco,es a debt
owing to the 35. No re!ocation can be ,ade * A#ceptions) o not yet anno"nced or co,,"nicated to the p"blic re!ocable before anno"nce,ent to 35s o when stoc. di!idends are declared since these are not distrib"tions b"t ,erely represent changes in the capital str"ct"re ,ay be re!o.ed prior to act"al iss"ance * Rights of transferee to di!idends 7 Right to di!idends !ests "pon declaration so whoe!er owns the stoc. at ti,e or stoc.holders of record also owns the di!idend. 3"bse+"ent transfer of stoc. wo"ld not carry with it right to di!idends UNLA33 agreed "pon by the parties 6.= Liability for Illegal Di!idends Directors not personally liable * if "nintentionally declare illegal di!idends s"ch as when the directors in declaring di!idends) / rely on financial state,ents prepared by a dishonest AA who, they had no reason to s"spect / rely on ad!ice of legal co"nsel that certain proceeds or profits are a!ailable for di!idends Directors liable "nder &61* if fo"nd negligent or in bad faith to the %1( corp- or %'( its creditors if insol!ent =. ;"rchase by the Corporation of its Own 3hares %&=1(
* A stoc. corporation shall ha!e the power to p"rchase or ac+"ire its own shares for a legiti,ate corporate p"rpose or p"rposes %treas"ry shares( pro!ided that the corporation has "nrestricted retained earnings in its boo.s to co!er the shares to be p"rchased or ac+"ired * Treas"ry shares are shares of stoc.s which ha!e been iss"ed and f"lly paid for b"t s"bse+"ently reac+"ired by the iss"ing corporation by p"rchase rede,ption donation or thro"gh so,e other lawf"l ,eans %&>( * Treas"ry shares ha!e no !oting rights as long as s"ch shares re,ain in the treas"ry %&<D( * Bay be iss"ed as property di!idends pro!ided that the retained earnings has not been s"bse+"ently i,paired by losses * LTr"st 0"nd doctrineM 7 the re+"ire,ent of "nrestricted retained earnings is beca"se s"bscription to the capital of a corporation constit"te a f"nd to which creditors ha!e a right to loo. for the satisfaction of their clai,s %;hil. Tr"st Co. !. Ri!era 1>'6( * Legiti,ate p"rpose incl"des) a( To eli,inate fractional shares arising o"t of stoc. di!idendsb( To collect or co,pro,ise an indebtedness to the corporation arising o"t of "npaid s"bscription in a delin+"ency sale and to p"rchase delin+"ent shares sold d"ring said
sale- and c( To pay dissenting or withdrawing stoc.holders entitled to pay,ent for their shares "nder the pro!isions of this Code %appraisal right Cf &E1(. * I,proper p"rpose incl"des) raising of price of stoc. by ,a.ing it appear that it is being acti!ely traded %prohibited "nder 3ec '= of the 3ec"rities Reg"lations Code( and preferring so,e 35s to the pre1"dice of other 35s and creditors %,ay be !iewed as early li+"idation of the in!est,ent of so,e of the 35s( * Re,edies in case of i,proper p"rchase) a( Creditors pre1"diced by the rep"rchase can go after the selling 35s to reco!er what was paid to the, b( Directors who were negligent or in H0 for appro!ing the rep"rchase can also be held personally responsible c( ;re1"diced 35 can also go after HOD who appro!ed p"rchase %when their di!idends are red"ced re,aining assets can4t co!er debts etc( * A corporation ,"st ha!e "nrestricted retained earnings in ac+"iring own shares e#cept) a( shares are ac+"ired in the rede,ption of redee,able shares %&E( b( shares are re/ac+"ired to effect a decrease in capital stoc. appro!ed by the 3AC %&6E( shares are reac+"ired by a close corporation
p"rs"ant to the order of the 3AC acting to arbitrate a deadloc. %&1F=( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age =D of 6<1 COR;ORATION LA9 COBBARCIAL LA9 Chapter OII ABANDBANT3 O0 C5ARTAR 1. A,end,ent of the Articles of Incorporation 8enerally 1.1 ;roced"re for a,end,ent of articles of incorporation %&1?( a( The a,end,ent ,"st be for a legiti,ate p"rpose- and ,"st be appro!ed by a ,a1ority !ote of the Hoard- and !ote %in a ,eeting( or ,ere written assent %no ,eeting( of '26 of the o"tstanding stoc. or in case of a non/stoc. corporation by the ,e,bers of the corporation. * Once the a,end,ent is appro!ed dissenting stoc.holders ,ay e#ercise their rights of appraisal if it in!ol!ed di,inishing of s"bstantial rights pre!io"sly granted or creating a new set of shares with priority rights. b( The original and a,ended articles together shall contain all pro!isions re+"ired by law to be set o"t in the articles of incorporation. 3"ch articles as a,ended shall be indicated by "nderscoring the change or changes ,ade c( A copy thereof d"ly certified "nder oath by the corporate secretary and a ,a1ority of the
directors or tr"stees stating the fact that said a,end,ent or a,end,ents ha!e been d"ly appro!ed by the re+"ired !ote of the stoc.holders or ,e,bers shall be s"b,itted to the 3ec"rities and A#change Co,,ission. d( The a,end,ent of the Articles of Incorporation will be effecti!e only "pon appro!al of the 3ACb"t sho"ld no action be ta.en by the 3AC within ? ,onths fro, the date of filing then a"to,atically the a,end,ent is dee,ed effecti!e pro!ided that delay is not attrib"table to the corporation. 1.' 8ro"nds for disappro!ing a,end,ent %&1D( * The 3AC ,ay disappro!e any a,end,ent thereto if the sa,e is not in co,pliance with the re+"ire,ents of this Code * The 3AC shall gi!e the incorporators a reasonable ti,e within which to correct or ,odify the ob1ectionable portions of the articles or a,end,ent. * The following are gro"nds for s"ch disappro!al) a( A,end,ent is not s"bstantially with the for, prescribed b( ;"rpose or p"rposes is2are patently "nconstit"tional illegal i,,oral contrary to go!ern,ent r"les and reg"lations c( Treas"rer4s Affida!it concerning the a,o"nt of capital stoc. s"bscribed and2or paid is false d( ;ercentage re+"ire,ent of ownership by
0ilipino citi$ens as re+"ired by the Constit"tion not co,plied with '. 3pecial A,end,ents '.1 Increase or decrease of capital stoc. %&6E( Appro!al and Ioting Re+"ire,ent a( Appro!ed by a ,a1ority !ote of the board of directors b( Two/thirds %'26( of the o"tstanding capital stoc. shall fa!or the increase or di,in"tion of the capital stoc. at a ,eeting d"ly called for the p"rpose Certificate of 0iling * A certificate in d"plicate ,"st be signed by a ,a1ority of the directors of the corporation and co"ntersigned by the chair,an and the secretary of the stoc.holdersV ,eeting setting forth) a( That the re+"ire,ents of !oting and notice ha!e been co,plied withb( The a,o"nt of the increase or di,in"tion of the capital stoc.c( If an increase of the capital stoc. the a,o"nt of capital stoc. or n",ber of shares of no/par stoc. thereof act"ally s"bscribed the na,es nationalities and residences of the persons s"bscribing the a,o"nt of capital stoc. or n",ber of no/par stoc. s"bscribed by each and the a,o"nt paid by each
on his s"bscription in cash or property or the a,o"nt of capital stoc. or n",ber of shares of no/par stoc. allotted to each stoc./holder if s"ch increase is for the p"rpose of ,a.ing effecti!e stoc. di!idend therefor a"thori$edd( The a,o"nt of stoc. represented at the ,eeting- and e( The !ote a"thori$ing the increase or di,in"tion of the capital stoc. * One of the d"plicate certificates shall be .ept on file in the office of the corporation and the other shall be filed with the 3ec"rities and A#change Co,,ission and attached to the original articles of incorporation. Appro!al of 3AC * Any increase or decrease in the capital shall re+"ire prior appro!al of the 3ec"rities and A#change Co,,ission. * Decrease of capital stoc.) No decrease of the capital stoc. shall be appro!ed by the Co,,ission if its effect shall pre1"dice the rights of corporate creditors Affecti!ity 0ro, and after appro!al by the 3ec"rities and A#change Co,,ission and the iss"ance by the Co,,ission of its certificate of filing the capital stoc. shall stand increased or decreased
Treas"rer4s Affida!it) The 3ec"rities and A#change Co,,ission shall not accept for filing any certificate of increase of capital stoc. "nless acco,panied by the sworn state,ent of the treas"rer of the corporation lawf"lly holding office at the ti,e of the filing of the certificate showing that at least twenty/fi!e %'<G( percent of s"ch increased capital stoc. %sho"ld be "nderstood as proposed increase/Ca,pos( has been s"bscribed and that at least twenty/fi!e %'<G( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age =E of 6<1 COR;ORATION LA9 COBBARCIAL LA9 percent of the a,o"nt s"bscribed has been paid either in act"al cash to the corporation or that there has been transferred to the corporation property the !al"ation of which is e+"al to twenty/fi!e %'<G( percent of the s"bscription Appraisal right %&E1]1( Appraisal right ,ay be e#ercised where the increase in capital stoc. res"lts in the creation of shares with preferences s"perior to those of e#isting ones. Note) ;roposing a,end,ents is a way of easing o"t the ,inority stoc.holders beca"se it co,pels the, to e#ercise their appraisal rights '.' Red"ction of capit al stoc. / Altho"gh the re+"ire,ents in 3ection 6E ha!e been ,et no red"ction of capital
stoc. will be appro!ed by the 3AC if it will pre1"dice the rights of corporate creditors. / There can be no red"ction of capital stoc. which will in effect release the stoc.holders fro, the pay,ent of the balance of their s"bscription if it will ad!ersely affect the right of he creditors in collecting their clai,s %;hil. Tr"st Co. !s. Ri!era %1>'6( / Appraisal RightCAltho"gh 3ection 6E does not grant the appraisal right in case of red"ction of capital stoc. when it has the effect of altering the rights of any stoc.holder or class of stoc.holders the appraisal right ,ay be e#ercised "nder section E1 %1( %Ca,pos( / A#cept by decrease of capital stoc. and as otherwise allowed by this Coded no corporation shall distrib"te any of he assets or property e#cept "pon lawf"l dissol"tion and after pay,ent of all its debts and liabilities. %&1''( o Ca,posCIt see,s that "nder the e#ception a red"ction s"rpl"s ,ay be distrib"ted as di!idends to the stoc.holders as long as 3AC appro!al has been obtained and the rights of creditors is not pre1"diced. '.6 Change in corporate ter, %&6D( Appro!al and Ioting Re+"ire,ent a( Appro!ed by a ,a1ority !ote of the board
of directors or tr"stees and b( Ratified at a ,eeting by the stoc.holders representing at least two/thirds %'26( of the o"tstanding capital stoc. or by at least two/thirds %'26( of the ,e,bers in case of non/stoc. corporations. Conflict in the a!ailability of appraisal right KA3* only for e#tension of corporate ter, %&6D( KA3* for both shortening and e#tension %&E1( Chapter OI TRAN30AR O0 35ARA3 1. Banner and Affecti!ity of Transfer 1.' Indorse,ent and deli!ery * 3hares of stoc. ,ay be transferred as follows %&?6() a( deli!ery of the certificate or certificates and b( indorsed by the owner or his attorneyin/ fact or other person legally a"thori$ed to ,a.e the transfer R"ral Han. of 3alinas ! CA Cle,ente ;resident of R"ral Han. of 3alinas and owner of shares in said corporation e#ec"ted a 3pecial ;ower of Attorney to his wife Belania gi!ing her f"ll power to sell or otherwise dispose of shares of stoc. of the Han.. Hefore death of Cle,ente Belania p"rs"ant to said 3;A e#ec"ted deed of Assign,ent of for,er4s shares. After death of Cle,ente Belania presented to ban. deed of
assign,ent for registration which the ban. ref"sed. Banda,"s filed by Belania to co,pel ban. to register the transfer. 5ALD) Transfer before death !alid stoc. not yet part of estate. 3hares of stoc. are personal property and ,ay be transferred by deli!ery. Registration in corporate boo.s is not necessary. The transfer effected in this case is !alid. The corporation ,ay not i,pose any restriction on s"ch transfer. The right of transferee2assignee to ha!e stoc.s transferred to his na,e is inherent right d"ty of the corporation to register the transfer is ,inisterial. R"ral Han. of Lipa !. CA %'FF1( 0or the !alid transfer of stoc.s there ,"st be strict co,pliance with the ,ode of transfer prescribed by law which are) a( there ,"st be deli!ery of the stoc. certificateb( the certificate ,"st be endorsed by the owner or his attorney/in/fact or other persons legally a"thori$ed to ,a.e the transfer- and c( to be !alid against third parties the transfer ,"st be recorded in the boo.s of the corporation. Ra$on ! IAC Ch"dian was iss"ed 1 <FF shares at A Ra$on Inc with the corresponding stoc. certificate no 6. 3aid stoc. certificates were deli!ered to Anri+"e Ra$on allegedly beca"se it was the latter who paid for all the s"bscription on the shares of stoc. in defendant corporation with the "nderstanding that has was
the owner of said shares of stoc. and was to ha!e possession "ntil s"ch ti,e as he was paid by other no,inal incorporators2stoc.holders. Later on parties deli!ered it for deposit with ban. "nder the 1oint c"stody of the parties. Ad,inistrator of the estate of Ch"dian filed a co,plaint against Anri+"e Ra$on et al praying that the said stoc. certificates be deli!ered to estate of Ch"dian along with all cash and stoc. di!idends and pre/e,pti!e rights accr"ing thereto. 5ALD) Ch"dian is still owner a( 3hares of stoc. is transferred by deli!ery 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age => of 6<1 COR;ORATION LA9 COBBARCIAL LA9 and endorse,ent of the stoc. certificate b( 3"ch ,ode of transfer is not co,plied with in this case c( In the boo.s of the corporation Ch"dian is still the owner of the stoc.s. 5e was e!en elected ,e,ber of the board which pro!es that he is a stoc.holder d( One who clai,s ownership sho"ld show that the sa,e was transferred to hi, in accord with the !alid ,ode of transfer. This petitioner failed to show Andorse,ent is a ,andatory re+"ire,ent of law for an effecti!e transfer Tan ! 3AC %1>>'( Alfonso Tan is owner of =FF shares in Iisayan Ad"cational 3"pply Corp e!idenced by certificate
No. '. Alfonso transferred <F shares to Angel. Certificate No. ' was cancelled and Certificate No. ? was iss"ed to Angel and Certificate No. E was iss"ed to Alfonso. 5owe!er Alfonso did not ,a.e the proper endorse,ent and did not ,a.e deli!ery of certificate no. '. Later on Alfonso Tan elected to withdraw fro, the corporation. In e#change for his shares he recei!ed stoc.s in trade. Certificate No. E was later on cancelled d"e to abo!e. After se!eral years Alfonso Tan filed a case with Ceb" 3AC +"estioning the cancellation of his stoc. certificates despite non/endorse,ent and lac. of deli!ery 5ALD) Deli!ery and endorse,ent "nder 3ection ?6 of the corporation code is not ,andatory beca"se of the "se of the word ,ay. Deli!ery is not essential where it appears that the persons so"ght to be held as stoc.holders are officers of the corporation and ha!e c"stody of the stoc. boo. as in this case. To hold that cancellation of certificate of stoc. of Alfonso is n"ll and !oid beca"se of lac. of deli!ery and endorse,ent of ,other certificate of stoc. no. ' which was deliberately withheld is to prescribe restrictions on the transfer of stoc. in !iolation of corporation law 1.' Registration * ;"rpose of registration a( enable the transferee to e#ercise all the rights of a stoc.holder b( to infor, the corporation of any change
in share ownership so that it can ascertain the persons %a( entitled to the rights %b( s"b1ect to the liabilities of a 35 c( "ntil registration is acco,plished the transfer tho"gh !alid between the parties cannot be effecti!e against the corporation * Affect of lac. of registration) a( transferee cannot !ote b( transferee cannot be !oted for c( transferee cannot pre!ail o!er rights of a s"bse+"ent attaching creditor %Uson !. Dioso,ito 1>6<( d( transferee not entitled to di!idends e( stoc.holder on record has the right to participate in ,eetings. No registration of transfer of "npaid shares * If there is any "npaid balance on the stoc.holder4s s"bscription there can be no stoc. certificate on which indorse,ent can be ,ade. The shares are th"s not transferable on the corporate boo.s. %&?6( * 5owe!er the stoc.holder can still transfer his interest in the corporation by way of a deed of assign,ent. 3"nset Iiew Condo,ini", Corp ! Ca,pos 3"nset Iiew Condo,ini", corporation filed s"it against Ag"ilar/Hernares Realty and Li, 3i" Leng for collection of assess,ents le!ied on their
respecti!e condo,ini", "nits which they bo"ght on install,ents and had not yet f"lly paid 5ALD) Respondents not shareholders of condo,ini", corporation beca"se they are not yet f"lly paid a( 3ec < Condo,ini", Act 7 shareholding in a condo,ini", corporation will be con!eyed only in a proper case b( 3ec = of Condo,ini", Act lea!es to Baster Deed the deter,ination of when shareholding will be transferred to p"rchaser of a "nit c( Baster Deed pro!ides that only owner of "nit is a shareholder and that ownership of "nit is ac+"ired by p"rchaser s"b1ect to conditions and ter,s of the instr",ent con!eying the "nit to s"ch p"rchaser. d( Deed of Con!eyance pro!ide that ownership is con!eyed only "pon f"ll pay,ent of p"rchase price e( 3ec 1F Condo,ini", Act 7 Be,bership in Condo,ini", corporation shall not be transferable separately fro, condo,ini", "nit of which it is an app"rtenance Re,edy if registration ref"sed 7 Transferee ,ay petition the co"rt for a writ of ,anda,"s to co,pel the corporation to do so %;rice !. 3"l" De!elop,ent Corp. 1>66( Ri!era ! 0lorendo %1>E?( Ri!era is the registered owner of =E>> shares of stoc. of 0"1iya,a 5otel U Resta"rant Inc. It is
alleged that one A.asa.o is the real owner of the =E>> shares "nder Ri!era4s na,e and as s"ch owner he sold '<<F shares to Bilagros. Ri!era ref"sed to indorse the certificates to Bilagros despite the ass"rance he ga!e to Bilagros before the sale was cons",,ated. The other incorporators also sold their shares to Bilagros and one J"reidini. As regards these transfers the certificates were properly indorsed by their respecti!e owners. Bilagros and J"reidini atte,pted to ha!e all the certificates registered in their na,es b"t the corporation ref"sed to do so. 5ALD) Banda,"s will not lie where the shares of stoc. are not e!en indorsed by the registered owner Ri!era who is specifically resisting the registration thereof in the boo.s of the corp. A!en the shares of stoc. sold by the other incorporators cannot be also the s"b1ect of ,anda,"s on the strength of the ,ere indorse,ent of the s"pposed owners of said shares in the absence of e#press instr"ctions fro, the,. The right of the parties will ha!e to be threshed o"t in an ordinary action. '. Restrictions on Transfer- Close 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age <F of 6<1 COR;ORATION LA9 COBBARCIAL LA9 Corporations '.1 8eneral R"le) 0ree transferability of shares 3hares are personal property 7 3hares of stoc. so iss"ed are personal property and ,ay be
transferred %&?6( '.' A#ception) In close corporations Considering the special circ",stances attending a close corporation %e.g. for,ed by persons who .now each other well th"s they wo"ld want to choose the persons who will be allowed in their gro"p( it is 1"stifiable and e!en i,perati!e for its stoc.holders to protect the,sel!es fro, f"t"re conflicts by placing restrictions on the right of each one of the, to transfer his shares to an o"tsider %&>D U >E(. Ialidity of restrictions on transfer of shares %&>E( * Restrictions on the right to transfer shares ,"st appear in the articles of incorporation and in the by/laws as well as in the certificate of stoc.- otherwise the sa,e shall not be binding on any p"rchaser thereof in good faith. * Restrictions shall not be ,ore onero"s than granting the e#isting stoc.holders or the corporation the option to p"rchase the shares of the transferring stoc.holder with s"ch reasonable ter,s conditions or period stated therein. If "pon the e#piration of said period the e#isting stoc.holders or the corporation fails to e#ercise the option to p"rchase the transferring stoc.holder ,ay sell his shares to any third person. * ;res",ptions)
a. If the stoc. certificate CON3;ICUOU3LK shows the restriction the p"rchaser or transferee is concl"si!ely pres",ed to ha!e notice of the restriction pro!ided this appears in the AOI. 5e cannot pro!e that he acted in good faith. 9here a concl"si!e pres",ption of notice arises the corporation ,ay at its option ref"se to register the transfer "nless %1( all the stoc.holders ha!e consented to the transfer or %'( the AOI ha!e been properly a,ended to re,o!e the restriction. b. If it appears in the certificate b"t NOT CON3;ICUOU3LK then altho"gh he ,ay be pres",ed to ha!e notice of the restriction he can pro!e the contrary. 6. Una"thori$ed Transfers 6.1 certificates indorsed in blan. 7 where the stoc.holder indorses his certificate in blan. in s"ch a ,anner as to clothe whoe!er ,ay be in possession of it with apparent a"thority to deal with the shares as the latter4s own he will be estopped fro, clai,ing the shares as against a bonafide p"rchaser. This is called the theory of +"asi/negotiability %3anta,aria !. 5ong.ong U 3hanghai Han. 1><1( 6.' forged transfers 7 if the corporation sho"ld iss"e a new certificate p"rs"ant to a forged
transfer it inc"rs no liability to the person in whose fa!or it iss"ed it and ,ay de,and its ret"rn for cancellation %5odges !. Le$a,a 1>?<(. It is the d"ty of the p"rchaser to deter,ine that the indorse,ent was gen"ine. H"t with respect to a s"bse+"ent p"rchaser in good faith and for !al"e the corporation is estopped fro, denying the !alidity of the newly iss"ed certificate beca"se by iss"ing s"ch it has represented that the person na,ed therein is a stoc.holder of the corporation. A#cept where recognition of the original and new s"bscriber will res"lt to an o!eriss"e of shares. The new 35 wo"ld now ha!e right to da,ages against the corporation and the latter against those who ,ade false representation. =. Collateral Transfers * 3"b1ect to collateral transfers) 3hares of stoc. being personal property ,ay be the s"b1ect ,atter of a. pledge or b. chattel ,ortgage. * Registration in corporate boo.s not necessary) 3"ch collateral transfers are not co!ered by 3ec. ?6 of the Code since s"ch pro!ision applies only to absol"te transfer %Bonserrat !. Ceron 1>66(. Th"s the registration in the corporate boo.s of pledges and chattel ,ortgages of shares CANNOT ha!e any legal effect. *
Li, Tay ! CA %1>>E( 3y 8"io. and 3y Li, pledged their shares in 8o 0ay and Co to Li, Tay. They endorsed their respecti!e share in blan. and deli!ered the sa,e to Li, Tay. 3y 8"io. and 3y Li, failed to pay hence Li, Tay went to the corporate secretary to as. the registration of the shares in his na,e. Corporate secretary ref"sed. Li, Tay instit"ted an action for ,anda,"s at 3AC to co,pel corporate secretary to register. 5ALD) Corporate4s secretary cannot be co,pelled to record transfer. The d"ty of a corporate secretary to record transfers of stoc.s is ,inisterial. 5owe!er he cannot be co,pelled to do so when the transferees title to said shares has no pri,a facie !alidity or is "ncertain. Banda,"s will not iss"e to establish a right b"t only to enforce one already established. Li, Tay failed to establish a legal right to ha!e the shares registered in his na,e. Li, Tay failed to establish a legal right. 5e is not owner of the shares witho"t foreclos"re and p"rchase at a"ction. 5e is ,erely a pledgee. Attach,ent of shares 8arcia !s. Jo,o"ad %'FFF( 0ACT3) Dico lost a collection case and the ;roprietary Ownership Certificate %;OC( in the Ceb" Co"ntry Cl"b in his na,e was le!ied on and sched"led for p"blic a"ction. 8arcia clai,ed ownership o!er the certificate and filed the action
for in1"nction to en1oin the a"ction. Dico had e#ec"ted a Deed of Transfer in fa!or of petitioner which was f"rnished to The Cl"b b"t the transfer 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age <1 of 6<1 COR;ORATION LA9 COBBARCIAL LA9 was not recorded in the boo.s of the Cl"b beca"se petitioner failed to present proof of pay,ent of the re+"isite capital gains ta#. 5ALD) The transfer of the s"b1ect certificate ,ade by Dico to petitioner was not !alid as to the 1"dg,ent creditors as the sa,e still stood in the na,e of Dico the 1"dg,ent debtor at the ti,e of the le!y on e#ec"tion. In addition as correctly r"led by the CA the entry in the ,in"tes of the ,eeting of the Cl"bVs board of directors noting the resignation of Dico as proprietary ,e,ber thereof does not constit"te co,pliance with 3ection ?6 of the Corporation Code. 3aid pro!ision of law strictly re+"ires the recording of the transfer in the boo.s of the corporation and not elsewhere to be !alid as against third parties. Chapter OII DI33OLUTION 1. Ca"ses of Dissol"tion 1.1 A#piration of original e#tended or shortened ter, * The ter, within which the corporation is to e#ist %which cannot be ,ore than <F years( ,"st be stated in its AOI. Once s"ch period e#pires the
corporation is a"to,atically dissol!ed witho"t any other proceeding and it cannot thereafter be considered a de facto corporation. * A !ol"ntary dissol"tion ,ay be effected by a,ending the articles of incorporation to shorten the corporate ter, p"rs"ant to the pro!isions of the Code. Upon appro!al of the a,ended articles of incorporation or the e#piration of the shortened ter, as the case ,ay be the corporation shall be dee,ed dissol!ed witho"t any f"rther proceedings %&1'F( 1.' Iol"ntary dissol"tion when no creditors are affected %&11E( * Dissol"tion ,ay be effected by ,a1ority !ote of the board of directors or tr"stees and by a resol"tion d"ly adopted by the affir,ati!e !ote of the stoc.holders owning at least two/thirds %'26( of the o"tstanding capital stoc. or of at least two/thirds %'26( of the ,e,bers. * Beeting to be held "pon call of the directors or tr"stees after p"blication of the notice of ti,e place and ob1ect of the ,eeting for three %6( consec"ti!e wee.s in a newspaper p"blished in the place where the principal office of said
corporation is located- and if no newspaper is p"blished in s"ch place then in a newspaper of general circ"lation in the ;hilippines after sending s"ch notice to each stoc.holder or ,e,ber either by registered ,ail or by personal deli!ery at least thirty %6F( days prior to said ,eeting. * A copy of the resol"tion a"thori$ing the dissol"tion shall be certified by a ,a1ority of the board of directors or tr"stees and co"ntersigned by the secretary of the corporation. * The 3ec"rities and A#change Co,,ission shall there"pon iss"e the certificate of dissol"tion. Th"s e#cept for the e#piration of its ter, no dissol"tion can be effecti!e witho"t so,e act of the state %Dag"hoy Anterprises !. ;once 1><=( 1.6 Iol"ntary dissol"tion when creditors are affected %&11>( * ;etition for dissol"tion shall be filed with the 3ec"rities and A#change Co,,ission. * The petition shall be signed by a ,a1ority of its board of directors or tr"stees or other officers ha!ing the ,anage,ent of its affairs !erified by its president or secretary or one of its
directors or tr"stees and shall set forth all clai,s and de,ands against it and that its dissol"tion was resol!ed "pon by the affir,ati!e !ote of the stoc.holders representing at least twothirds %'26( of the o"tstanding capital stoc. or by at least two/thirds %'26( of the ,e,bers at a ,eeting of its stoc.holders or ,e,bers called for that p"rpose. * If the petition is s"fficient in for, and s"bstance the Co,,ission shall by an order reciting the p"rpose of the petition fi# a date on or before which ob1ections thereto ,ay be filed by any person which date shall not be less than thirty %6F( days nor ,ore than si#ty %?F( days after the entry of the order. Hefore s"ch date a copy of the order shall be p"blished at least once a wee. for three %6( consec"ti!e wee.s in a newspaper of general circ"lation p"blished in the ,"nicipality or city where the principal office of the corporation is sit"ated or if there be no s"ch newspaper then in a newspaper of general circ"lation in the ;hilippines and a si,ilar copy shall be posted for three %6( consec"ti!e wee.s in three %6( p"blic places in s"ch ,"nicipality or
city. * Upon fi!e %<( dayVs notice gi!en after the date on which the right to file ob1ections as fi#ed in the order has e#pired the Co,,ission shall proceed to hear the petition and try any iss"e ,ade by the ob1ections filed- and if no s"ch ob1ection is s"fficient and the ,aterial allegations of the petition are tr"e it shall render 1"dg,ent dissol!ing the corporation and directing s"ch disposition of its assets as 1"stice re+"ires and ,ay appoint a recei!er to collect s"ch assets and pay the debts of the corporation * In this ,ethod of dissol"tion 3AC ,ay direct the ,anner in which the li+"idation of the corporate assets sho"ld be ,ade by assigning this tas. to the corporation itself or if it dee,s proper to a recei!er appointed by it %Ca,pos(. 1.= Dissol"tion by ,inority in close corporations Iol"ntary dissol"tion when creditors are affected %&1F<( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age <' of 6<1 COR;ORATION LA9 COBBARCIAL LA9 Any stoc.holder of a close corporation ,ay by written petition to the 3ec"rities and A#change Co,,issions co,pel the
dissol"tion of s"ch corporation whene!er any of the acts of the directors officers or those in control of the corporation is illegal or fra"d"lent or dishonest or oppressi!e or "nfairly pre1"dicial to the corporation or any stoc.holder or whene!er corporate assets are being ,isapplied or wasted. 1.< 0ail"re to organi$e and co,,ence b"siness- cessation of b"siness for < years %&''( * 0ail"re to for,ally organi$e and co,,ence the transaction of its b"siness or constr"ction of its wor.s within two years* its corporate powers shall cease and the corporation is dee,ed dissol!ed o Transacting b"siness 7 i,plies a contin"ity of acts or dealings in the acco,plish,ent of the p"rpose for which the corporation was for,ed %Bentholat", !. Bangali,an 1>=?( o 0or,ally organi$e incl"des not only the adoption of the by/laws b"t also the establish,ent of the body which will ad,inister the affairs of the corporation and e#ercise its powers * Co,,enced transaction of its b"siness b"t s"bse+"ently beco,es contin"o"sly
inoperati!e for a period of at least fi!e years* gro"nd for s"spension or re!ocation of its corporate franchise or certificate of incorporation 1.? In!ol"ntary dissol"tion Re!ocation of certificate of registration by the 3AC %&1'1( * A corporation ,ay be dissol!ed by the 3ec"rities and A#change Co,,ission "pon filing of a !erified co,plaint and after proper notice and hearing on gro"nds pro!ided by e#isting laws r"les and reg"lations * 8ro"nds for re!ocation %3ec. ? par i ;D >F'/A( o 0ra"d in proc"ring its certificate of registration o 3erio"s ,isrepresentation as to what the corporation can or is doing to the great pre1"dice of or da,age to the general p"blic o Ref"sal to co,ply or defiance of any lawf"l order of the Co,,ission restraining co,,ission of acts which wo"ld a,o"nt to a gra!e !iolation of its franchise o Contin"o"s inoperation for a period of at least fi!e years o 0ail"re to file by/laws within the re+"ired period
o 0ail"re to file re+"ired reports in appropriate for,s as deter,ined by the Co,,ission within the prescribed period * Other gro"nds o 3ec. 1== H; ?E 7 Iiolation by the corporation of any pro!ision of the Corporation Code o 3ec. 1F= H; ?E 7 In case of a deadloc. in a close corporation and the 3AC dee,s it proper to order the dissol"tion of the corporation as the only practical sol"tion to the disp"te Q"o 9arranto ;roceedings %3ec. ' R"le ?? ROC( * 9hen it has offended against a pro!ision of an Act for its creation and renewal * 9hen it has forfeited its pri!ileges and franchises by non"ser * 9hen it has co,,itted or o,itted an act which a,o"nts to a s"rrender of its corporate rights pri!ileges or franchise * 9hen it has ,is"sed a right pri!ilege or franchise conferred "pon it by law or when it has e#ercised a right pri!ilege or franchise in contra!ention of law * '. Affects of Dissol"tion- 9inding/Up
and Li+"idation '.1 Loss of 1"ridical personality * Corporation loses its 1"ridical personality and can no longer lawf"lly contin"e its b"siness e#cept for the p"rpose of winding "p. 0or this p"rpose it ,ay s"e and be s"ed altho"gh "pon the e#piration of three years all pending actions by or against the dissol!ed corporation abate %National Abaca Corp. !s. ;ore 1>?1( * cannot e!en be a de facto corporation hence s"b1ect to collateral attac. %H"enaflor !s. Ca,arines 3"r Ind"stry Corp. 1>?F( * cannot enter into new contracts which wo"ld ha!e the effect of contin"ing the b"siness %Ceb" ;ort Labor Union !s. 3tates Barine Co 1><D( '.' A#ec"tory contracts * No right or re,edy in fa!or of or against any corporation its stoc.holders ,e,bers directors tr"stees or officers nor any liability inc"rred by any s"ch corporation stoc.holders ,e,bers directors tr"stees or officers shall be re,o!ed or i,paired either by the s"bse+"ent dissol"tion of said corporation or by any s"bse+"ent a,end,ent or repeal
of this Code or of any part thereof. %&1=<( * The pre!ailing !iew is that e#ec"tory contracts are not e#ting"ished. 5owe!er so,e a"thorities ,a.e an e#ception of contracts for personal ser!ices s"ch as e,ploy,ent contracts of officers and e,ployees where the dissol"tion is in!ol"ntary or the res"lt of ,erger or consolidation in which case the contracts are dee,ed ter,inated. '.6 9inding/Up and Li+"idation * Definition) The winding "p and t"rning assets of corporation into cash for distrib"tion 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age <6 of 6<1 COR;ORATION LA9 COBBARCIAL LA9 * A li+"idation proceeding is a proceeding in re, so that all other interested persons whether .nown to the parties or not ,ay be bo"nd by s"ch proceedings %Ch"a !s. NLRC 1>>F( * 0or how long ,ay the li+"idation of a corporation be "nderta.enS o A!ery corporation whose charter e#pires by its own li,itation or is ann"lled by forfeit"re or otherwise or whose corporate e#istence for other p"rposes is ter,inated in any
other ,anner shall ne!ertheless be contin"ed as a body corporate for three %6( years after the ti,e when it wo"ld ha!e been so dissol!ed o 5owe!er in case the corporate assets are con!eyed to a tr"stee or a recei!er appointed by the 3AC the three year li,itation will not apply %3",era !. Ialencia 1>6>( o Altho"gh the three year period ,ay ha!e e#pired it does not necessarily follow that a creditor who was "nable to collect his clai, before three years wo"ld lose is rights. It is still possible for hi, to s"e the tr"stee if there be one or if the circ",stances so warrant to follow the assets in the hands of the stoc.holders who nay ha!e recei!ed the sa,e as li+"idating di!idends %Tan Tiong Hio !. Co,,. of Int. Re!. 1>?'( 8elano !. CA %1>E1( A!en if no tr"stee is appointed or designated d"ring the 6/year period of the li+"idation of the corporation a s"it pending prior to the e#piration of the period ,ay still be prosec"ted with the co"nsel of record being considered as the Ltr"steeM re+"ired by law. Debtors of the corporation ,ay not ta.e
ad!antage of the fail"re of the corporation to transfer its assets to a tr"stee- otherwise it wo"ld constit"te "nd"e enrich,ent to dis,iss the case as against the defendant. * 9hat co"ld and sho"ld be done d"ring the period of li+"idationS o 0or the p"rpose of prosec"ting and defending s"its by or against it and enabling it to settle and close its affairs to dispose of and con!ey its property and to distrib"te its assets b"t not for the p"rpose of contin"ing the b"siness for which it was established. o A#cept by decrease of capital stoc. and as otherwise allowed by this Code no corporation shall distrib"te any of its assets or property e#cept "pon lawf"l dissol"tion and after pay,ent of all its debts and liabilities. * 9hat happens if an asset cannot be distrib"ted to the person entitled to itS o Upon the winding "p of the corporate affairs any asset distrib"table to any creditor or stoc.holder or ,e,ber who is "n.nown or cannot be fo"nd shall be escheated to the city or ,"nicipality where s"ch assets are
located. * 9ho ,ay "nderta.e the li+"idation of a corporate %Bethods of Li+"idation(S o Hy the corporation itself thro"gh the board of directors 7 the board of directors ser!e as tr"stees o Con!eyance of all corporate assets to tr"stees who will ta.e charge of the li+"idation. 0ro, and after any s"ch con!eyance by the corporation of its property in tr"st for the benefit of its stoc.holders ,e,bers creditors and others in interest all interest which the corporation had in the property ter,inates the legal interest !ests in the tr"stees and the beneficial interest in the stoc.holders ,e,bers creditors or other persons in interest. o Li+"idation by a recei!er who ,ay ha!e been appointed by the 3AC "pon its decreeing the dissol"tion of the corporation %&11>(. 6/year period does not apply beca"se the corporation is s"bstit"ted by the recei!er %3",era !. Ialencia 3"pra(. 5owe!er the ,ere appoint,ent of a recei!er witho"t anything ,ore does not res"lt in
the dissol"tion of the corporation nor bar it fro, the e#istence of its corporate rights %Leyte Asphalt U Bineral Oil Co. Ltd. !. Hloc. Johnston U Hreenbrawn 1>'E( * A corporation cannot distrib"te any of its assets or property e#cept "pon lawf"l dissol"tion and only after pay,ent of all its debts and liabilities after which the re,aining assets ,"st be distrib"ted to the stoc.holders in proportion to their interest in the corporation. * A#ceptions) decrease in c2s res"lting in a s"rpl"s which can then be distrib"ted to stoc.holders pro!ided no creditors are pre1"diced as otherwise allowed by the code) o Appraisal right o Deadloc. in a close corporation o 35 of a close corporation ,ay co,pel corporation to b"y his shares at fair !al"e o Corporation rep"rchases shares for any legiti,ate corporate p"rpose o Corporation !alidly distrib"tes di!idend CLABANTA AT. AL. !. CA %1>><() The ter,ination of the life of a 1"ridical entity does
not by itself ca"se the e#tinction or di,in"tion of the rights and liabilities of s"ch entity nor those of its owners and creditors. If the three/year e#tended life has e#pired witho"t a tr"stee or recei!er ha!ing been e#pressly designated by the corporation within that period the board of directors %or tr"stees( itself ,ay be per,itted to so contin"e as Ttr"steesT by legal i,plication to 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age <= of 6<1 COR;ORATION LA9 COBBARCIAL LA9 co,plete the corporate li+"idation. 3till in the absence of a board of directors or tr"stees those ha!ing any pec"niary interest in the assets incl"ding not only the shareholders b"t li.ewise the creditors of the corporation acting for and in its behalf ,ight ,a.e proper representation with the 3ec"rities and A#change Co,,ission which has pri,ary and s"fficiently broad 1"risdiction in ,atters of this nat"re for wor.ing o"t a final settle,ent of the corporate concerns. Dissol!ed corporation4s capacity to s"e) Reb"riano !s. CA 8R 1F'>?< Jan '1 1>>> Corporation a,ended its AoI to shorten its corporate e#istence while the case was pending in co"rt. 3AC appro!ed the a,end,ent b"t the trial co"rt was not notified. After the trial co"rt rendered 1"dg,ent against corporation it filed ,otion to +"ash writ of e#ec"tion beca"se the corporation lac.ed 1"ridical personality to s"e or be s"ed.
3C held that it was erroneo"s to contend that a dissol!ed and non/e#isting corporation co"ld no longer be represented by a lawyer and conco,itantly a lawyer co"ld not appear as co"nsel for a non/e#isting 1"dicial person. A corporation that has a pending action and which cannot be ter,inated within the three/year period after its dissol"tion is a"thori$ed "nder 3ec. DE :now &1''@ of the Corporation Law to con!ey all its property to tr"stees to enable it to prosec"te and defend s"its by or against the corporation beyond the threeyear period. Altho"gh pri!ate respondent did not appoint any tr"stee yet the co"nsel who prosec"ted and defended the interest of the corporation in the instant case and who in fact appeared in behalf of the corporation ,ay be considered a tr"stee of the corporation at least with respect to the ,atter in litigation only. Li+"idation !. Rehabilitation ;hil. Ieterans Han. !. A,ployees Union %'FF1( Li+"idation in corporation law connotes a winding "p or setting with creditors and debtors. It is the winding "p of a corporation so that assets are distrib"ted to those entitled to recei!e the,. It is the process of red"cing assets to cash discharging liabilities and di!iding s"rpl"s or loss. On the opposite end of the spectr", is rehabilitation which connotes a reopening or
reorgani$ation. Rehabilitation conte,plates a contin"ance of corporate life and acti!ities in an effort to restore and reinstate the corporation to its for,er position of s"ccessf"l operation and sol!ency. It is crystal clear that the concept of li+"idation is dia,etrically opposed or contrary to the concept of rehabilitation s"ch that both cannot be "nderta.en at the sa,e ti,e. To allow the li+"idation proceedings to contin"e wo"ld serio"sly hinder the rehabilitation of the s"b1ect ban.. Chapter OIII COR;ORATA COBHINATION 1. Berger and Consolidation 1.1 9hat is a ,erger 2 consolidationS * Berger o One of the constit"ent corporations re,ains as an e#isting 1"ridical person whereas the other corporation shall cease to e#ist. Berger is the disappearance of one of the corporations with the other corporation ac+"iring all the assets rights of action and ass",ing all the liabilities of the disappearing corporation. o Of co"rse there is an arrange,ent as to the shares of stoc.s that will be iss"ed to the for,er
stoc.holders of the two %'( corporations which were ,erged. 3aid stoc.holders are now stoc.holders of the corporation which s"r!i!es. The proportion between the two %'( corporations will be the basis of the shares of stoc.s that will be iss"ed to the stoc.holders "nder the s"r!i!ing corporation. * Consolidation o If there is consolidation there will be disappearance of both the constit"ent corporations with the e,ergence of a new corporate entity called the consolidated corporation which shall obtain all the assets of the disappearing corporations and li.ewise shall ass",e all their liabilities. o Also the n",ber of shares that will be iss"ed to each of the stoc.holders "nder the new corporation is deter,ined by the ration between the assets of the two %'( corporations. 1.' 9hat is a Lconstit"ent corporationMS A Lconsolidated corporationMS %&D?( Two or ,ore corporations ,ay ,erge into a single corporation which shall be one of
the constit"ent corporations or ,ay consolidate into a new single corporation which shall be the consolidated corporation. 1.6 9hat corporate appro!als are re+"iredS %&DD( 1. Appro!al by ,a1ority !ote of each of the board of directors or tr"stees of the constit"ent corporations of the plan of ,erger or consolidation. '. Appro!al by the stoc.holders or ,e,bers of each of s"ch corporations in separate ,eetings. The affir,ati!e !ote of stoc.holders representing at least two/thirds %'26( of the o"tstanding capital stoc. of each corporation in the case of stoc. corporations or at least two/thirds %'26( of the ,e,bers in the case of non1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age << of 6<1 COR;ORATION LA9 COBBARCIAL LA9 stoc. corporations shall be necessary for the appro!al of s"ch plan 6. Notice of s"ch ,eetings shall be gi!en to all stoc.holders or ,e,bers of the respecti!e corporations at least two %'( wee.s prior to the date of the ,eeting either personally or by registered ,ail. 3aid notice shall state the p"rpose of the ,eeting and shall incl"de a copy or a s",,ary of the
plan of ,erger or consolidation. =. Any dissenting stoc.holder in stoc. corporations ,ay e#ercise his appraisal right in accordance with the Code. ;ro!ided that if after the appro!al by the stoc.holders of s"ch plan the board of directors decides to abandon the plan the appraisal right shall be e#ting"ished. <. A,end,ent to the plan of ,erger or consolidation ,ay be ,ade by appro!ed of the ,a1ority !ote of the respecti!e boards of directors or tr"stees of all the constit"ent corporations and ratified by the affir,ati!e !ote of stoc.holders representing at least two/thirds %'26( of the o"tstanding capital stoc. or of two/thirds %'26( of the ,e,bers of each of the constit"ent corporations. 3"ch plan together with any a,end,ent shall be considered as the agree,ent of ,erger or consolidation. 1.= 9hat is a plan of ,erger or consolidationS %&D?( The board of directors or tr"stees of each corporation party to the ,erger or consolidation shall appro!e a plan of ,erger or consolidation setting forth the following)
* The na,es of the corporations proposing to ,erge or consolidate hereinafter referred to as the constit"ent corporations* The ter,s of the ,erger or consolidation and the ,ode of carrying the sa,e into effect* A state,ent of the changes if any in the articles of incorporation of the s"r!i!ing corporation in case of ,erger- and with respect to the consolidated corporation in case of consolidation all the state,ents re+"ired to be set forth in the articles of incorporation for corporations organi$ed "nder this Code- and * 3"ch other pro!isions with respect to the proposed ,erger or consolidation as are dee,ed necessary or desirable. 1.< 9hat are articles of ,erger or consolidationS %&DE( * After the appro!al by the stoc.holders or ,e,bers articles of ,erger or articles of consolidation shall be e#ec"ted by each of the constit"ent corporations) 1( to be signed by the president or !ice/president and '( certified by the secretary or assistant secretary of each
corporation * The articles of ,erger or consolidation shall set forth) 1( The plan of the ,erger or the plan of consolidation'( As to stoc. corporations the n",ber of shares o"tstanding or in the case of non/stoc. corporations the n",ber of ,e,bers- and 6( As to each corporation the n",ber of shares or ,e,bers !oting for and against s"ch plan respecti!ely. 1.? 9hen is the effecti!ity of ,erger or consolidationS %&D>( * Affecti!ity) Upon iss"ance by the 3AC of the certificate of ,erger and consolidation * If the Co,,ission is satisfied that the ,erger or consolidation of the corporations concerned is not inconsistent with the pro!isions of this Code and e#isting laws it shall iss"e a certificate of ,erger or of consolidation at which ti,e the ,erger or consolidation shall be effecti!e. * The articles of ,erger or of consolidation shall be s"b,itted to the 3ec"rities and A#change Co,,ission in +"adr"plicate for its appro!al. * In the case of ,erger or consolidation
of ban.s or ban.ing instit"tions b"ilding and loan associations tr"st co,panies ins"rance co,panies p"blic "tilities ed"cational instit"tions and other special corporations go!erned by special laws the fa!orable reco,,endation of the appropriate go!ern,ent agency shall first be obtained. * If "pon in!estigation the 3ec"rities and A#change Co,,ission has reason to belie!e that the proposed ,erger or consolidation is contrary to or inconsistent with the pro!isions of this Code or e#isting laws it shall set a hearing to gi!e the corporations concerned the opport"nity to be heard. 9ritten notice of the date ti,e and place of hearing shall be gi!en to each constit"ent corporation at least two %'( wee.s before said hearing. The Co,,ission shall thereafter proceed as pro!ided in this Code. 1.D 9hat are the effects of a ,erger or consolidationS %&EF( 1( The constit"ent corporations shall beco,e a single corporation which) * In case of ,erger shall be the s"r!i!ing corporation designated in the plan of ,erger- and
* In case of consolidation shall be the consolidated corporation designated in the plan of consolidation'( The separate e#istence of the constit"ent corporations shall cease e#cept that of the s"r!i!ing or the consolidated corporation6( The s"r!i!ing or the consolidated corporation shall possess all the rights pri!ileges i,,"nities and powers and shall be s"b1ect to all the d"ties and 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age <? of 6<1 COR;ORATION LA9 COBBARCIAL LA9 liabilities of a corporation organi$ed "nder this Code=( The s"r!i!ing or the consolidated corporation shall there"pon and thereafter possess) * all the rights pri!ileges i,,"nities and franchises of each of the constit"ent corporations- and * all property real or personal and all recei!ables d"e on whate!er acco"nt incl"ding s"bscriptions to shares and other choses in action and all and e!ery other interest of or belonging to or d"e to each constit"ent corporation * these shall be dee,ed transferred
to and !ested in s"ch s"r!i!ing or consolidated corporation witho"t f"rther act or deed- and <( The s"r!i!ing or consolidated corporation shall) * be responsible and liable for all the liabilities and obligations of each of the constit"ent corporations in the sa,e ,anner as if s"ch s"r!i!ing or consolidated corporation had itself inc"rred s"ch liabilities or obligations- and * any pending clai, action or proceeding bro"ght by or against any of s"ch constit"ent corporations ,ay be prosec"ted by or against the s"r!i!ing or consolidated corporation. * The rights of creditors or liens "pon the property of any of s"ch constit"ent corporations shall not be i,paired by s"ch ,erger or consolidation Habst !. CA %'FF1( It is settled that in the ,erger of two e#isting corporations one of the corporations s"r!i!es and contin"es the b"siness while the other is dissol!ed and all its rights properties and liabilities are ac+"ired by the s"r!i!ing corporation. A33OCIATAD HANR !. CA %1>>E(
Ordinarily in the ,erger of two or ,ore e#isting corporations one of the co,bining corporations s"r!i!es and contin"es the co,bined b"siness while the rest are dissol!ed and all their rights properties and liabilities are ac+"ired by the s"r!i!ing corporation. Altho"gh there is dissol"tion of the absorbed corporations there is no winding "p of their affairs or li+"idation of their assets beca"se the s"r!i!ing corporation a"to,atically ac+"ires all their rights pri!ileges and powers as well as their liabilities. 1.E ;roced"re for Berger or Consolidation %Iillan"e!a( 1( Hoard of each corporation shall draw "p a plan of ,erger or consolidation setting forth) * na,es of corporations in!ol!ed %constit"ent corporations( * ter,s and ,ode of carrying it o"t * state,ent of changes if any in the present articles of s"r!i!ing corporation- or the articles of the new corporation to be for,ed in case of consolidation. '( ;lan for ,erger or consolidation shall be appro!ed by ,a1ority !ote of each board of the concerned corporations at separate ,eetings. 6( The sa,e shall be s"b,itted for appro!al by the stoc.holders or
,e,bers of each s"ch corporation at separate corporate ,eetings d"ly called for the p"rpose. Notice sho"ld be gi!en to all stoc.holders or ,e,bers at least two %'( wee.s prior to date of ,eeting either personally or by registered ,ail. =( Affir,ati!e !ote of '26 of the o"tstanding capital stoc. in case of stoc. corporations or '26 of the ,e,bers of a non/stoc. corporation shall be re+"ired. <( Dissenting stoc.holders ,ay e#ercise the right of appraisal. H"t if Hoard abandons the plan to ,erge or consolidate s"ch right is e#ting"ished. ?( Any a,end,ent to the plan ,"st be appro!ed by the sa,e !otes of the board ,e,bers of tr"stees and stoc.holders or ,e,bers re+"ired for the original plan. D( After s"ch appro!al Articles of Berger or Articles of Consolidation shall be e#ec"ted by each of the constit"ent corporations signed by president or I; and certified by secretary or assistant secretary setting forth) * plan of ,erger or consolidation * in stoc. corporation the n",ber of shares o"tstanding- in non/stoc.
the n",ber of ,e,bers * as to each corporation n",ber of shares or ,e,bers !oting for and against s"ch plan respecti!ely E( 0o"r copies of the Articles of Berger or Consolidation shall be s"b,itted to the 3AC for appro!al. 3pecial corporations li.e ban.s ins"rance co,panies b"ilding and loan associations etc. need the prior appro!al of the respecti!e go!ern,ent agency concerned. >( If 3AC is satisfied that the ,erger or consolidation is legal it shall iss"e the Certificate of Berger or the Certificate of Incorporation as the case ,ay be. 1F( If the 3AC is not satisfied it shall set a hearing gi!ing d"e notice to all the corporations concerned. %&D?/D>( 1.> Li,itation on the right to ,erge 2 consolidate 1( 3ho"ld not create ,onopolies '( 3ho"ld not eli,inate free and healhty co,petition 6( Act 6<1E 3ec 'F inhibits illegal co,binations 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age <D of 6<1 COR;ORATION LA9 COBBARCIAL LA9 1.1F Appraisal right 7 any dissenting stoc.holder ,ay e#ercise his appraisal right
"nder the conditions pro!ided in the Code '. 3ale of s"bstantially all assets %&=F( '.1 Restrictions) 3"b1ect to the pro!isions of e#isting laws on illegal co,binations and ,onopolies '.' 3cope of power) To sell lease e#change ,ortgage pledge or otherwise dispose of all or s"bstantially all of its property and assets incl"ding its goodwill "pon s"ch ter,s and conditions and for s"ch consideration which ,ay be ,oney stoc.s bonds or other instr",ents for the pay,ent of ,oney or other property or consideration as its board of directors or tr"stees ,ay dee, e#pedient * Beaning of disposition of s"bstantially all of the corporate property and assets/ if thereby the corporation wo"ld be rendered incapable of contin"ing the b"siness or acco,plishing the p"rpose for which it was incorporated. '.6 Appro!al !oting and notice re+"ire,ent) * Ba1ority !ote of its board of directors or tr"stees * A"thori$ed by the !ote of the stoc.holders representing at least twothirds %'26( of the o"tstanding capital stoc. or in case of non/stoc. corporation by the !ote of at least to
two/thirds %'26( of the ,e,bers in a stoc.holderVs or ,e,berVs ,eeting d"ly called for the p"rpose. * 9ritten notice of the proposed action and of the ti,e and place of the ,eeting shall be addressed to each stoc.holder or ,e,ber at his place of residence as shown on the boo.s of the corporation and deposited to the addressee in the post office with postage prepaid or ser!ed personally o 9hen 35 appro!al not necessary / If disposition is necessary in the "s"al and reg"lar co"rse of b"siness of said corporation or if the proceeds of the sale or other disposition of s"ch property and assets be appropriated for the cond"ct of its re,aining b"siness. o In non/stoc. corporations where there are no ,e,bers with !oting rights / the !ote of at least a ,a1ority of the tr"stees in office will be s"fficient a"thori$ation for the corporation to enter into any transaction a"thori$ed by this section. '.= Appraisal right) any dissenting stoc.holder ,ay e#ercise his appraisal right "nder the conditions pro!ided in the Code
'.< Abandon,ent of the sale leaseZ / After s"ch a"thori$ation or appro!al by the stoc.holders or ,e,bers the board of directors or tr"stees ,ay ne!ertheless in its discretion abandon s"ch sale lease e#change ,ortgage pledge or other disposition of property and assets s"b1ect to the rights of third parties "nder any contract relating thereto witho"t f"rther action or appro!al by the stoc.holders or ,e,bers. '.? Co,pared to ,erger and consolidation Ad!antage of ,erger and consolidation o!er sale) / f"rnish a short c"t to the acco,plish,ent of !ario"s transactions / ,ay a!oid the diffic"lty delay and e#pense which "s"ally acco,pany dissol"tion winding "p and distrib"tion of assets to its 35 by a selling corp / a"to,atic ass",ption of liabilities of the absorbed corp %in sale there ,"st be s"fficient f"nds reser!ed by the absorbed corp to pay its liabilities otherwise the sale ,ay be attac.ed by Co,pared the creditors as a fra"d"lent con!eyance( / transfer or e#change of shares is e#e,pt fro, registration "nder 3ec"rities Act %in sale registration with 3AC re+"ired(
Ad!antage of sale of s"bstantially all assets) 9here the absorbing corp foresees proble,s in sec"ring stoc.holders4 appro!al and in granting the appraisal right of dissenters it ,ay decide that its p"rchase of the assets of the absorbed corp wo"ld be ,ore con!enient and practical than ,erger 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age <E of 6<1 COR;ORATION LA9 COBBARCIAL LA9 Chapter OIIII 0ORAI8N COR;ORATION3 1. Definition %&1'6( 0oreign corporation is one for,ed organi$ed or e#isting "nder any laws other than those of the ;hilippines and whose laws allow 0ilipino citi$ens and corporations to do b"siness in its own co"ntry or state. '. LDoing b"sinessM %3ec. 6%d( RA DF=' 0oreign In!est,ents Act of 1>>1( * 3oliciting orders * 3er!ice contracts * Appointing representati!es or distrib"tors do,iciled in the ;hilippines or who in any calendar year stay in the co"ntry for a period or periods totaling 1EF days or ,ore * Opening offices whether called liason offices or branches * Astablishing a factory wor.shop or processing plant
* Underta.ing b"ilding constr"ction or erection pro1ects * Opening a store whether wholesale or retail witho"t pre1"dice to the pro!isions of the Retail Trade Act * Baintaining or operating a wareho"se for b"siness p"rposes incl"ding the storage display or deli!ery of its own prod"cts * ;articipating in the ,anage,ent s"per!ision or control of any do,estic b"siness fir, entity or corporation in the ;hilippines * Any other act or acts that i,ply a contin"ity of co,,ercial dealings or arrange,ents and conte,plate to that e#tent perfor,ance nor,ally incident to and in progressi!e prosec"tion of co,,ercial gain or of the p"rpose and ob1ect of the b"siness organi$ation * It shall not incl"de) * Bere in!est,ent as a shareholder by a foreign entity in do,estic corporations d"ly registered to do b"siness and2or the e#ercise of s"ch rights as s"ch in!estor * 5a!ing a no,inee director or officer to represent its interests in s"ch corporations * Appointing a representati!e or distrib"tor do,iciled in the ;hilippines
which transacts b"siness in its own na,e and for its own acco"nt * The following acts by the,sel!es shall not be dee,ed doing b"siness in the ;hil) * The p"blication of a general ad!ertise,ent thro"gh newspapers broch"res or other p"blication ,edia or thro"gh radio or tele!ision * Baintaining the stoc. of goods in the ;hil solely for the p"rpose of ha!ing the sa,e processed by another entity in the ;hil. * Collecting infor,ation in the ;hil. * ;erfor,ing ser!ices a"#iliary to an e#isting contract or sale which are not on a contin"ing basis Bentholat", Co. Inc. !. Bangali,an %1>=1( No general r"le or go!erning principle can be laid down as to what constit"tes LdoingM or LengagingM in or ^transactingM b"siness. Indeed each case ,"st be 1"dged in the light of its pec"liar en!iron,ental circ",stances. The tr"e test howe!er see,s to be whether the foreign corporation is contin"ing the body or s"bstance of the b"siness or enterprise for which it was organi$ed or whether it has s"bstantially retired fro, it and t"rned it o!er to another. The ter, i,plies a contin"ity of co,,ercial dealings and arrange,ents and
conte,plates to that e#tent the perfor,ance of acts or wor.s or the e#ercise of the f"nctions nor,ally incident to and in the progressi!e prosec"tion of the p"rpose and ob1ect of its organi$ation. Necessity of obtaining a license to do b"siness) The reason for the license is to s"b1ect the foreign corporation doing b"siness in the ;hilippines to the 1"risdiction of the co"rts otherwise a foreign corporation illegally doing b"siness here ,ay s"ccessf"lly tho"gh "nfairly plead s"ch neglect or illegal act so as to a!oid ser!ice and thereby i,p"gn the 1"risdiction of the local co"rts. H Ian N"iden Hros. Ltd. I. 8TIL Ban"fact"ring 8R No. 1=D>F< Bay 'E 'FFD N"iden a foreign corporation not licensed to do b"siness in the ;hilippines filed a co,plaint for s", of ,oney with the RTC of ;arana+"e against 8TIL. The latter filed a ,otion to dis,iss on the gro"nd that petitioner has no legal capacity to s"e and this was granted. The CA s"stained the RTC r"ling that the transactions were not isolated hence not falling within the e#ception. It relied on Ari.s ;te. Ltd. I. CA where it held that what is ,aterial are the proponents to the transaction as well as the parties to be benefited and obligated by the transaction. 5ALD) To be doing or Ltransacting b"siness in the ;hilippinesM for p"rposes of 3ection 166 of the
Corporation Code the foreign corporation ,"st act"ally transact b"siness in the ;hilippines that is perfor, specific b"siness transactions within the ;hilippine territory on a contin"ing basis in its own na,e and for its own acco"nt. An essential condition to be considered as Ldoing b"sinessM in the ;hilippines is the act"al perfor,ance of specific co,,ercial acts within the territory of the ;hilippines for the plain reason that the ;hilippines has no 1"risdiction o!er co,,ercial acts perfor,ed in foreign territories. 5ere there is no showing that petitioner perfor,ed within the ;hilippine territory the specific acts of doing b"siness ,entioned in 3ection 6%d( of RA DF='. ;etitioner did not also open an office here in the ;hilippines appoint a representati!e or distrib"tor or ,anage s"per!ise or control a local b"siness. 9hile petitioner and 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age <> of 6<1 COR;ORATION LA9 COBBARCIAL LA9 respondent entered into a series of transactions i,plying a contin"ity of co,,ercial dealings the perfection and cons",,ation of these transactions were done o"tside the ;hilippines. The series of transactions between petitioner and respondent transpired and were cons",,ated in 5ong Rong. The 3C fo"nd no single acti!ity which petitioner perfor,ed here in the ;hilippines p"rs"ant to its p"rpose and ob1ect as a b"siness organi$ation. Boreo!er petitioner4s desire to do b"siness within the ;hilippines is not discernible fro, the
allegations of the co,plaint or fro, its attach,ents. Therefore there is no basis for r"ling that petitioner is doing b"siness in the ;hilippines. The 3C categorically stated its disagree,ent with the Co"rt of Appeals4 r"ling that the proponents to the transaction deter,ine whether a foreign corporation is doing b"siness in the ;hilippines regardless of the place of deli!ery or place where the transaction too. place. To accede to s"ch theory ,a.es it possible to classify for instance a series of transactions between a 0ilipino in the United 3tates and an A,erican co,pany based in the United 3tates as Ldoing b"siness in the ;hilippines M e!en when these transactions are negotiated and cons",,ated only within the United 3tates 6. Re+"ire,ents for the iss"ance of a license 6.1. Doc",entary re+"ire,ents %&1'<( * A foreign corporation applying for a license to transact b"siness in the ;hilippines shall s"b,it to the 3AC) o Copy of its articles of incorporation and by/laws certified in accordance with law o Their translation to an official lang"age of the ;hilippines if necessary. * The application shall be "nder oath
and "nless already stated in its articles of incorporation shall specifically set forth the following) o The date and ter, of incorporationo The address incl"ding the street n",ber of the principal office of the corporation in the co"ntry or state of incorporationo The na,e and address of its resident agent a"thori$ed to accept s",,ons and process in all legal proceedings and pending the establish,ent of a local office all notices affecting the corporationo The place in the ;hilippines where the corporation intends to operateo The specific p"rpose or p"rposes which the corporation intends to p"rs"e in the transaction of its b"siness in the ;hilippines) ;ro!ided That said p"rpose or p"rposes are those specifically stated in the certificate of a"thority iss"ed by the appropriate go!ern,ent agencyo The na,es and addresses of the present directors and officers of the corporationo A state,ent of its a"thori$ed capital stoc. and the aggregate
n",ber of shares which the corporation has a"thority to iss"e ite,i$ed by classes par !al"e of shares shares witho"t par !al"e and series if anyo A state,ent of its o"tstanding capital stoc. and the aggregate n",ber of shares which the corporation has iss"ed ite,i$ed by classes par !al"e of shares shares witho"t par !al"e and series if anyo A state,ent of the a,o"nt act"ally paid in- and o 3"ch additional infor,ation as ,ay be necessary or appropriate in order to enable the 3ec"rities and A#change Co,,ission to deter,ine whether s"ch corporation is entitled to a license to transact b"siness in the ;hilippines and to deter,ine and assess the fees payable. * Attached to the application for license shall be a d"ly e#ec"ted certificate "nder oath by the a"thori$ed official or officials of the 1"risdiction of its incorporation attesting to the fact that) o The laws of the co"ntry or state of the applicant allow 0ilipino citi$ens and corporations to do b"siness
therein o The applicant is an e#isting corporation in good standing. * If s"ch certificate is in a foreign lang"age a translation thereof in Anglish "nder oath of the translator shall be attached thereto. * The application shall li.ewise be acco,panied by a state,ent "nder oath of the president or any other person a"thori$ed by the corporation showing to the satisfaction of the 3AC and other go!ern,ental agency in the proper cases that the) o Applicant is sol!ent and in so"nd financial condition and o 3etting forth the assets and liabilities of the corporation as of the date not e#ceeding one %1( year i,,ediately prior to the filing of the application. * 0oreign ban.ing financial and ins"rance corporations shall in addition to the abo!e re+"ire,ents co,ply with the pro!isions of e#isting laws applicable to the,. * In the case of all other foreign corporations no application for license to transact b"siness in the ;hilippines shall be accepted by the 3AC witho"t
pre!io"s a"thority fro, the appropriate go!ern,ent agency whene!er re+"ired by law. 6.' Deposit re+"ire,ents %&1'?( * Upon iss"ance of the license s"ch foreign corporation ,ay co,,ence to transact b"siness in the ;hilippines and contin"e to do so for as long as it 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ?F of 6<1 COR;ORATION LA9 COBBARCIAL LA9 retains its a"thority to act as a corporation "nder the laws of the co"ntry or state of its incorporation "nless s"ch license is sooner s"rrendered re!o.ed s"spended or ann"lled in accordance with this Code or other special laws. * 9ithin si#ty %?F( days after the iss"ance of the license to transact b"siness in the ;hilippines the license e#cept foreign ban.ing or ins"rance corporation shall deposit with the 3AC for the benefit of present and f"t"re creditors of the licensee in the ;hilippines sec"rities satisfactory to the 3AC consisting of ) o Honds or other e!idence of indebtedness of the 8o!ern,ent of the ;hilippines its political s"bdi!isions and instr",entalities
or of go!ern,ent/owned or controlled corporations and entities o 3hares of stoc. in Tregistered enterprisesT as this ter, is defined in Rep"blic Act No. <1E? o 3hares of stoc. in do,estic corporations registered in the stoc. e#change or o 3hares of stoc. in do,estic ins"rance co,panies and ban.s or o Any co,bination of these .inds of sec"rities * 9ith an act"al ,ar.et !al"e of at least one h"ndred tho"sand %;1FF FFF.( pesos* ;ro!ided howe!er That within si# %?( ,onths after each fiscal year of the licensee the 3AC shall re+"ire the licensee to deposit additional sec"rities e+"i!alent in act"al ,ar.et !al"e to two %'G( percent of the a,o"nt by which the licenseeVs gross inco,e for that fiscal year e#ceeds fi!e ,illion %;< FFF FFF.FF( pesos. * The 3AC shall also re+"ire deposit of additional sec"rities if the act"al ,ar.et !al"e of the sec"rities on deposit has decreased by at least ten %1FG( percent of their act"al ,ar.et !al"e at the ti,e they were deposited.
* The 3AC ,ay at its discretion release part of the additional sec"rities deposited with it if the gross inco,e of the licensee has decreased or if the act"al ,ar.et !al"e of the total sec"rities on deposit has increased by ,ore than ten %1FG( percent of the act"al ,ar.et !al"e of the sec"rities at the ti,e they were deposited. * The 3AC ,ay fro, ti,e to ti,e allow the licensee to s"bstit"te other sec"rities for those already on deposit as long as the licensee is sol!ent. 3"ch licensee shall be entitled to collect the interest or di!idends on the sec"rities deposited. * In the e!ent the licensee ceases to do b"siness in the ;hilippines the sec"rities deposited as aforesaid shall be ret"rned "pon the licenseeVs application therefor and "pon proof to the satisfaction of the 3AC that the licensee has no liability to ;hilippine residents incl"ding the 8o!ern,ent of the Rep"blic of the ;hilippines. 6.6 Appoint,ent of resident agent %&1'E( * A resident agent ,ay be either an %& 1'D() o Indi!id"al residing in the ;hilippines of good ,oral character and of
so"nd financial standing o Do,estic corporation lawf"lly transacting b"siness in the ;hilippines) * The 3AC shall re+"ire as a condition precedent to the iss"ance of the license to transact b"siness in the ;hilippines by any foreign corporation that s"ch corporation file with the 3AC a written power of attorney) o Designating so,e person who ,"st be a resident of the ;hilippines on who, any s",,ons and other legal processes ,ay be ser!ed in all actions or other legal proceedings against s"ch corporation and o Consenting that ser!ice "pon s"ch resident agent shall be ad,itted and held as !alid as if ser!ed "pon the d"ly a"thori$ed officers of the foreign corporation at its ho,e office. * Any s"ch foreign corporation shall li.ewise e#ec"te and file with the 3AC an agree,ent or stip"lation e#ec"ted by the proper a"thorities of said corporation in for, and s"bstance as follows) o TThe %na,e of foreign corporation(
does hereby stip"late and agree in consideration of its being granted by the 3ec"rities and A#change Co,,ission a license to transact b"siness in the ;hilippines that if at any ti,e said corporation shall cease to transact b"siness in the ;hilippines or shall be witho"t any resident agent in the ;hilippines on who, any s",,ons or other legal processes ,ay be ser!ed then in any action or proceeding arising o"t of any b"siness or transaction which occ"rred in the ;hilippines ser!ice of any s",,ons or other legal process ,ay be ,ade "pon the 3AC and that s"ch ser!ice shall ha!e the sa,e force and effect as if ,ade "pon the d"ly/a"thori$ed officers of the corporation at its ho,e office.T * 9hene!er s"ch ser!ice of s",,ons or other process shall be ,ade "pon the 3AC the Co,,ission shall within ten %1F( days thereafter trans,it by ,ail a copy of s"ch s",,ons or other legal process to the corporation at its ho,e or principal office. * The sending of s"ch copy by the Co,,ission shall be necessary part of
and shall co,plete s"ch ser!ice. All e#penses inc"rred by the Co,,ission for s"ch ser!ice shall be paid in ad!ance by the party at whose instance the ser!ice is ,ade. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ?1 of 6<1 COR;ORATION LA9 COBBARCIAL LA9 * In case of a change of address of the resident agent it shall be his or its d"ty to i,,ediately notify in writing the 3AC of the new address. 6.= 3",,ary) Re+"isites for the Iss"ance of License * The 3AC will iss"e a license to the foreign corporation to do b"siness in the ;hilippines pro!ided the following conditions are ,et) o Appoint,ent of a Resident Agent) Aither a 0ilipino or do,estic corporation- and ;ower of Attorney to 3AC to recei!e process o B"st pro!e that the foreign corporationVs co"ntry grants reciprocal rights to 0ilipinos and ;hilippine corporation. o Astablish an office in the ;hilippines o Hring in its assets o Underta.ing that 0ilipino creditors will be preferred in the e!ent of
insol!ency o Notice of si# %?( ,onths sho"ld there be desire to ter,inate operations o 0ranchise and patents ,"st re,ain in the ;hilippine if this is possible o B"st file a bond of ;1FF FFF which ,ay be in the following for,) s"rety bond go!ern,ent sec"rities sec"rities of political s"bdi!isions shares of stoc. of registered enterprises with the 3AC shares of stoc. of any corporation being sold at the stoc. e#change o ;ro!ided that within si# %?( ,onths after each fiscal year the 3AC shall re+"ire the deposit of additional sec"rities e+"i!alent to 'G of the a,o"nt in e#cess of ;<FF FFF of the gross inco,e. :3ec. 1'< 1'? Corporation Code@ =. 9hat laws are applicable to foreign corporations licensed to transact b"siness in the ;hilippinesS %&1'>( * Any foreign corporation lawf"lly doing b"siness in the ;hilippines shall be bo"nd
by all laws r"les and reg"lations applicable to do,estic corporations of the sa,e class AOCA;T s"ch only as pro!ide for the) o Creation for,ation organi$ation or dissol"tion of corporations or o Those which fi# the relations liabilities responsibilities or d"ties of stoc.holders ,e,bers or officers of corporations to each other or to the corporation. <. 9hat are the conse+"ence of doing b"siness in the ;hilippines witho"t a licenseS %&166( * No foreign corporation transacting b"siness in the ;hilippines witho"t a license or its s"ccessors or assigns shall be per,itted to ,aintain or inter!ene in any action s"it or proceeding in any co"rt or ad,inistrati!e agency of the ;hilippines* 3"ch corporation ,ay be s"ed or proceeded against before ;hilippine co"rts or ad,inistrati!e trib"nals on any !alid ca"se of action recogni$ed "nder ;hilippine laws. * In addition 3ec. 16= ,a.es it a gro"nd for re!ocation of license when a foreign corporation transacts b"siness in the ;hilippines as agent of or acting for and in behalf of any foreign corporation or entity not d"ly licensed to do b"siness in the
;hilippines. * 3tat"s of Contracts entered into witho"t the re+"isite license o The fail"re to obtain a license by a foreign corporation doing b"siness in the ;hilippines does not affect the !alidity of contracts entered into by s"ch foreign corporation b"t ,erely re,o!es its legal standing to s"e in local trib"nals. 5owe!er the defect ,ay be c"red by s"bse+"ent registration by the foreign corporation to obtain the necessary license to do b"siness in the ;hilippines. :5o,e Ins"rance Co. !. Aastern 3hipping Lines 1'6 3CRA ='= %1>E6(@ o Altho"gh the law does not declare as !oid or in!alid the contracts entered into by a foreign corporation with a local corporation witho"t the for,er first sec"ring a license or certificate to do b"siness in the ;hilippines the parties in this case cannot obtain relief on the contracts entered into beca"se they are charged with the .nowledge of the e#isting law at the ti,e they entered into s"ch contract and at the ti,e it is to be operati!e. :Top/9eld Bfg. !. ACAD 3.A. 16E 3CRA 11E %1>E<(@
o 5owe!er in the case of Berrill Lynch 0"t"res Inc. !. CA '11 3CRA E'= %1>>'( the 3C held that altho"gh the foreign corporation has engaged in b"siness in the ;hilippines witho"t a license the dis,issal of the s"it wo"ld not be proper on the gro"nd that if the local in!estors .new that the foreign corporation had no license to do b"siness then they are estopped fro, "sing the lac. of license to a!oid their obligations. * Legal standing of foreign corporations to s"e on their corporate na,es trade na,es and trade,ar.s o A foreign corporation altho"gh not doing b"siness in the ;hilippines has a personality to s"e to oppose the registration of a trade,ar. when it is shown that its prod"cts "sing s"ch trade,ar. are being i,ported and sold in the ;hilippines p"rs"ant to the ter,s of RA 1??. :8eneral 8ar,ents !. Director of ;atents =1 3CRA <F %1>D1(@ o A foreign corporation has a right to ,aintain an action in ;hilippine co"rts 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ?' of 6<1 COR;ORATION LA9 COBBARCIAL LA9 e!en if it is not licensed to do b"siness
and is not act"ally doing b"siness on its own therein to protect its corporate and trade na,es since it is a property right in re, which it ,ay assert to protect against all the world in any of the co"rts of the world//e!en in 1"risdiction where it does not transact b"siness// 1"st the sa,e as it ,ay protect its tangible property against trespass or con!ersion. This is in consonance with the Con!ention of the Union of ;aris for the ;rotection of Ind"strial ;roperty to which the ;hils. is a party. Article E thereof pro!ides TA trade na,e shall be protected in all the co"ntries of the Union witho"t the obligation of filing or registration whether or not it for,s part of the trade,ar..T The ,andate is contained in RA 1?? or the Trade,ar. Law. :Con!erse R"bber Corp. !. Uni!ersal R"bber ;rod"cts 1=D 3CRA 1<= %1>ED(@ ?. Application to e#isting foreign corporations %&1=E( * A!ery foreign corporation which on the date of the effecti!ity of the Code is a"thori$ed to do b"siness in the ;hilippines "nder a license iss"ed to it shall contin"e to ha!e s"ch a"thority "nder the ter,s and condition of its license s"b1ect to the
pro!isions of this Code and other special laws. D. A,end,ents to articles of incorporation or by/laws of foreign corporations %&16F( * 9ithin si#ty %?F( days after the a,end,ent beco,es effecti!e file with the 3AC and in the proper cases with the appropriate go!ern,ent agency a d"ly a"thenticated copy of the articles of incorporation or by/laws as a,ended indicating clearly in capital letters or by "nderscoring the change or changes ,ade d"ly certified by the a"thori$ed official or officials of the co"ntry or state of incorporation. * The filing thereof shall not of itself enlarge or alter the p"rpose or p"rposes for which s"ch corporation is a"thori$ed to transact b"siness in the ;hilippines. E. A,ended license %&161( * A foreign corporation a"thori$ed to transact b"siness in the ;hilippines shall obtain an a,ended license in the e!ent it ) o Changes its corporate na,e or o Desires to p"rs"e in the ;hilippines other or additional p"rposes * Hy s"b,itting an application therefor to the 3AC fa!orably endorsed by the appropriate go!ern,ent agency in the proper cases.
>. Berger or consolidation in!ol!ing a foreign corporation licensed in the ;hilippines %&16'( * One or ,ore foreign corporations a"thori$ed to transact b"siness in the ;hilippines ,ay ,erge or consolidate with any do,estic corporation or corporations if ) o 3"ch is per,itted "nder ;hilippine laws and by the law of its incorporation o The re+"ire,ents on ,erger or consolidation as pro!ided in this Code are followed * 9hene!er a foreign corporation a"thori$ed to transact b"siness in the ;hilippines shall be a party to a ,erger or consolidation in its ho,e co"ntry or state as per,itted by the law of its incorporation s"ch foreign corporation shall within si#ty %?F( days after s"ch ,erger or consolidation beco,es effecti!e file with the 3AC and in go!ern,ent agency a copy of the articles of ,erger or consolidation d"ly a"thenticated by the proper official or officials of the co"ntry or state "nder the laws of which ,erger or consolidation was effected * ;ro!ided howe!er that if the absorbed corporation is the foreign corporation doing b"siness in the ;hilippines the latter shall
at the sa,e ti,e file a petition for withdrawal of its license. 1F. Re!ocation of license %&16=( * 9itho"t pre1"dice to other gro"nds pro!ided by special laws the license of a foreign corporation to transact b"siness in the ;hilippines ,ay be re!o.ed or s"spended by the 3AC "pon any of the following gro"nds) o 0ail"re to file its ann"al report or pay any fees as re+"ired by this Codeo 0ail"re to appoint and ,aintain a resident agent in the ;hilippines as re+"ired by this Titleo 0ail"re after change of its resident agent or of his address to s"b,it to the 3ec"rities and A#change Co,,ission a state,ent of s"ch change as re+"ired by this Titleo 0ail"re to s"b,it to the 3ec"rities and A#change Co,,ission an a"thenticated copy of any a,end,ent to its articles of incorporation or by/laws or of any articles of ,erger or consolidation within the ti,e prescribed by this Titleo A ,isrepresentation of any ,aterial ,atter in any application report affida!it or other doc",ent s"b,itted by s"ch corporation p"rs"ant to this Title-
o 0ail"re to pay any and all ta#es i,posts assess,ents or penalties if any lawf"lly d"e to the ;hilippine 8o!ern,ent or any of its agencies or political s"bdi!isionso Transacting b"siness in the ;hilippines o"tside of the p"rpose or p"rposes for which s"ch corporation is a"thori$ed "nder its licenseo Transacting b"siness in the ;hilippines as agent of or acting for and in behalf of any foreign corporation or entity not d"ly licensed to do b"siness in the ;hilippines- or 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ?6 of 6<1 COR;ORATION LA9 COBBARCIAL LA9 o Any other gro"nd as wo"ld render it "nfit to transact b"siness in the ;hilippines. %n( 11. Iss"ance of certificate of re!ocation %&16<( * Upon the re!ocation of any s"ch license to transact b"siness in the ;hilippines the 3ec"rities and A#change Co,,ission shall iss"e a corresponding certificate of re!ocation f"rnishing a copy thereof to the appropriate go!ern,ent agency in the proper cases. * The 3ec"rities and A#change Co,,ission shall also ,ail to the corporation at its
registered office in the ;hilippines a notice of s"ch re!ocation acco,panied by a copy of the certificate of re!ocation. 1'. 9ithdrawal by a foreign corporation %3ection 16?( * If a foreign corporation d"ly licensed to do b"siness desires to withdraw it ,"st file a petition for withdrawal and ,"st ,eet the following re+"ire,ents) o All clai,s accr"ed in the ;hilippines ,"st be settled o All ta#es ,"st be paid o ;etition ,"st be p"blished once a wee. for three %6( consec"ti!e wee.s. %&16?( Doing b"siness in the ;hilippines witho"t a license) Co,,"nications Baterials !s. CA %1>>?( In deter,ining whether a corporation does b"siness in the ;hilippines or not aside fro, their acti!ities within the for", reference ,ay be ,ade to the contract"al agree,ents entered into by it with other entities in the co"ntry. A scr"tiny of the different contracts and agree,ents entered into with !ario"s b"siness contacts in the co"ntry indicate con!incingly a p"rpose to con!ey to c"sto,ers and the general p"blic that they are dealing directly with the foreign corporation and that foreign corporation is acti!ely engaging in b"siness in the co"ntry. These agree,ents also contain pro!isions which are highly restricti!e in nat"re red"cing the local signatory to be a ,ere
e#tension or instr",ent of the foreign corporation. 5ence the foreign corporation is dee,ed to be doing b"siness in the ;hilippines witho"t a license. Nonetheless petitioner is estopped fro, raising this fact to bar the foreign corporation fro, s"ing. One who has dealt with a corporation of foreign origin as a corporate entity is estopped to deny its corporate e#istence and capacity. And the doctrine of estoppel to deny corporate e#istence applies to a foreign as well as to do,estic corporations. The principle will be applied to pre!ent a person contracting with a foreign corporation fro, later ta.ing ad!antage of its nonco,pliance with the stat"tes chiefly in cases where s"ch person has recei!ed the benefits of the contract. BR 5oldings Ltd !s. Ha1ar % 'FF'( The +"estion whether or not a foreign corporation is doing b"siness is dependent principally "pon the facts and circ",stances of each partic"lar case considered in the light of the p"rposes and lang"age of the pertinent stat"te or stat"tes in!ol!ed and of the general principles go!erning the 1"risdictional a"thority of the state o!er s"ch corporations CAH the CA categori$ed as Ldoing b"sinessM petitioner4s participation "nder the LAssign,ent Agree,entM and the LDeed of Assign,ent.M This is si,ply "ntenable. The e#pression Ldoing b"sinessM sho"ld not be gi!en s"ch a strict and literal constr"ction as to ,a.e it apply to any corporate
dealing. At this early stage and with petitioner4s acts or transactions li,ited to the assign,ent contracts it cannot be said that it had perfor,ed acts intended to contin"e the b"siness for which it was organi$ed. It ,ay not be a,iss to point o"t that the p"rpose or b"siness for which petitioner was organi$ed is not discernible in the records. No effort was e#erted by the CA to establish the ne#"s between petitioner4s b"siness and the acts s"pposed to constit"te Ldoing b"siness.M Th"s whether the assign,ent contracts were incidental to petitioner4s b"siness or were contin"ation thereof is beyond deter,ination. Chapter OIO 3;ACIAL COR;ORATION3 1. Close Corporations 1.1 9hat is a close corporationS %&>?( * A close corporation is one whose articles of incorporation pro!ide that) o All the corporationVs iss"ed stoc. of all classes e#cl"si!e of treas"ry shares shall be held of record by not ,ore than a specified n",ber of persons not e#ceeding twenty %'F(o All the iss"ed stoc. of all classes shall be s"b1ect to one or ,ore specified restrictions on transfer per,itted by this Title- and o The corporation shall not list in any
stoc. e#change or ,a.e any p"blic offering of any of its stoc. of any class. * A corporation shall not be dee,ed a close corporation when at least twothirds %'26( of its !oting stoc. or !oting rights is owned or controlled by another corporation which is not a close corporation. 1.' 9hat entities ,ay not be organi$ed as closed corporationsS * Any corporation ,ay be incorporated as a close corporation e#cept) o Bining o Oil co,panies o 3toc. e#changes o Han.s o Ins"rance co,panies o ;"blic "tilities 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ?= of 6<1 COR;ORATION LA9 COBBARCIAL LA9 o Ad"cational instit"tions o Corporations declared to be !ested with p"blic interest in accordance with the pro!isions of this Code. 1.6 Ialidity of restrictions on transfer of shares %&>E( * Restrictions on the right to transfer shares ,"st appear in the) o Articles of incorporation
o Hy/laws o Certificate of stoc. * OT5AR9I3A the sa,e shall not be binding on any p"rchaser in good faith. * 3aid restrictions shall not be ,ore onero"s than granting the e#isting stoc.holders or the corporation the option to p"rchase the shares of the transferring stoc.holder with s"ch reasonable ter,s conditions or period stated therein. * If "pon the e#piration of said period the e#isting stoc.holders or the corporation fails to e#ercise the option to p"rchase the transferring stoc.holder ,ay sell his shares to any third person. 1.= Affects of iss"ance or transfer of stoc. in breach of +"alifying conditions %&>>( * A person is concl"si!ely pres",ed to ha!e notice of the fact of ineligibility to be a stoc.holder) o If stoc. of a close corporation is iss"ed or transferred to any person who is not entitled "nder any pro!ision of the articles of incorporation to be a holder of record of its stoc. and o If the certificate for s"ch stoc. conspic"o"sly shows the
+"alifications of the persons entitled to be holders of record thereof * A person to who, stoc. is iss"ed or transferred is concl"si!ely pres",ed to ha!e notice of these facts) o If the articles of incorporation of a close corporation states the n",ber of persons not e#ceeding twenty %'F( who are entitled to be holders of record of its stoc. and o If the certificate for s"ch stoc. conspic"o"sly states s"ch n",ber and o If the iss"ance or transfer of stoc. to any person wo"ld ca"se the stoc. to be held by ,ore than s"ch n",ber of persons. * If a stoc. certificate of any close corporation conspic"o"sly shows a restriction on transfer of stoc. of the corporation the transferee of the stoc. is concl"si!ely pres",ed to ha!e notice of the fact that he has ac+"ired stoc. in !iolation of the restriction if s"ch ac+"isition !iolates the restriction. * 9hene!er any person to who, stoc. of a close corporation has been iss"ed or transferred has or is concl"si!ely pres",ed "nder this section to ha!e
notice either o That he is a person not eligible to be a holder of stoc. of the corporation or o That transfer of stoc. to hi, wo"ld ca"se the stoc. of the corporation to be held by ,ore than the n",ber of persons per,itted by its articles of incorporation to hold stoc. of the corporation or o That the transfer of stoc. is in !iolation of a restriction on transfer of stoc. the corporation ,ay at its option ref"se to register the transfer of stoc. in the na,e of the transferee. * The pro!isions of s"bsection %=( shall not be applicable if the transfer of stoc. tho"gh contrary to s"bsections %1( %'( or %6( has been consented to by all the stoc.holders of the close corporation or if the close corporation has a,ended its articles of incorporation in accordance with this Title. * The ter, TtransferT as "sed in this section is not li,ited to a transfer for !al"e. * The pro!isions of this section shall not i,pair any right which the transferee
,ay ha!e to rescind the transfer or to reco!er "nder any applicable warranty e#press or i,plied. 1.< Agree,ents by stoc.holders %3ection 1FF( 1. Agree,ents by and a,ong stoc.holders) * A#ec"ted before the for,ation and organi$ation of a close corporation * 3igned by all stoc.holders * 3hall s"r!i!e the incorporation of s"ch corporation and shall contin"e to be !alid and binding between and a,ong s"ch stoc.holders if s"ch be their intent * To the e#tent that s"ch agree,ents are not inconsistent with the articles of incorporation irrespecti!e of where the pro!isions of s"ch agree,ents are contained e#cept those re+"ired by this Title to be e,bodied in said articles of incorporation. '. An agree,ent between two or ,ore stoc.holders if in writing and signed by the parties thereto ,ay pro!ide that in e#ercising any !oting rights the shares held by the, shall be !oted as therein pro!ided or as they ,ay agree or as deter,ined in accordance with a
proced"re agreed "pon by the,. 6. No pro!ision in any written agree,ent signed by the stoc.holders relating to any phase of the corporate affairs shall be in!alidated as between the parties on the gro"nd that its effect is to ,a.e the, partners a,ong the,sel!es. =. A written agree,ent a,ong so,e or all of the stoc.holders in a close corporation shall not be in!alidated on the gro"nd that it so relates to the 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ?< of 6<1 COR;ORATION LA9 COBBARCIAL LA9 cond"ct of the b"siness and affairs of the corporation as to restrict or interfere with the discretion or powers of the board of directors) * ;ro!ided That s"ch agree,ent shall i,pose on the stoc.holders who are parties thereto the liabilities for ,anagerial acts i,posed by this Code on directors. <. To the e#tent that the stoc.holders are acti!ely engaged in the ,anage,ent or operation of the b"siness and affairs of a close corporation the stoc.holders shall be held to strict fid"ciary d"ties to each other and a,ong the,sel!es. 3aid stoc.holders shall be personally liable for corporate torts "nless the
corporation has obtained reasonably ade+"ate liability ins"rance. 1.? A,end,ent of articles of incorporation %&1F6( Any a,end,ent to the articles of incorporation which see.s to delete or re,o!e any pro!ision re+"ired by this Title to be contained in the articles of incorporation or to red"ce a +"or", or !oting re+"ire,ent stated in said articles of incorporation shall not be !alid or effecti!e "nless appro!ed by the affir,ati!e !ote of at least two/thirds %'26( of the o"tstanding capital stoc. whether with or witho"t !oting rights or of s"ch greater proportion of shares as ,ay be specifically pro!ided in the articles of incorporation for a,ending deleting or re,o!ing any of the aforesaid pro!isions at a ,eeting d"ly called for the p"rpose. 1.D Deadloc.s 1. Deadloc.s Defined) * Notwithstanding any contrary pro!isions in the articles of incorporation or by/laws or agree,ent of stoc.holders of a close corporation * The directors or stoc.holders are so di!ided respecting the ,anage,ent of the corporationVs b"siness and
affairs * The !otes re+"ired for any corporate action cannot be obtained * The conse+"ence is that the b"siness and affairs of the corporation can no longer be cond"cted to the ad!antage of the stoc.holders generally '. Resol"tion of deadloc.s * The 3AC "pon written petition by any stoc.holder shall ha!e the power to arbitrate the disp"te. * In the e#ercise of s"ch power the Co,,ission shall ha!e a"thority to ,a.e s"ch order as it dee,s appropriate incl"ding an order) o Cancelling or altering any pro!ision contained in the articles of incorporation bylaws or any stoc.holderVs agree,ento Cancelling altering or en1oining any resol"tion or act of the corporation or its board of directors stoc.holders or officerso Directing or prohibiting any act of the corporation or its board of directors stoc.holders officers or other persons part
to the actiono Re+"iring the p"rchase at their fair !al"e of shares of any stoc.holder either by the corporation regardless of the a!ailability of "nrestricted retained earnings in its boo.s or by the other stoc.holderso Appointing a pro!isional directoro Dissol!ing the corporation- or o 8ranting s"ch other relief as the circ",stances ,ay warrant. 6. ;ro!isional Director * An i,partial person who is neither a stoc.holder nor a creditor of the corporation or of any s"bsidiary or affiliate of the corporation and whose f"rther +"alifications if any ,ay be deter,ined by the Co,,ission. * A pro!isional director is not a recei!er of the corporation and does not ha!e the title and powers of a c"stodian or recei!er. * A pro!isional director shall ha!e all the rights and powers of a d"ly elected director of the corporation incl"ding the right to notice of and
to !ote at ,eetings of directors "ntil s"ch ti,e as he shall be re,o!ed by order of the Co,,ission or by all the stoc.holders. * 5is co,pensation shall be deter,ined by agree,ent between hi, and the corporation s"b1ect to appro!al of the Co,,ission which ,ay fi# his co,pensation in the absence of agree,ent or in the e!ent of disagree,ent between the pro!isional director and the corporation. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ?? of 6<1 COR;ORATION LA9 COBBARCIAL LA9 3an J"an 3tr"ct"ral and 3teel 0abricatiors !s. CA %1>>E( Botorich entered into agree,ent with 3an J"an for the transfer of a parcel of Land to latter. 3an J"an already paid downpay,ent. 9hen 3an J"an was ready to pay the balance Botorich ref"sed to sell. Botorich contend that Nenita 8r"enberg4s treas"rer of Botorich signat"re is not s"fficient to bind Botorich and that the signat"re of Reynaldo 8r"enberg president of Botorich is re+"ired. Nenita 8r"enberg is the spo"se of Reynaldo 8r"enberg and both owns >>.E??G of the shares of stoc. of the corporation. 5ALD) Botorich is not a close corporation. The
,ere ownership by a single stoc.holder or by another corporation of all or nearly all of the capital stoc. of a corporation is not of itself s"fficient gro"nd for disregarding their separate personalities. A narrow distrib"tion of ownership does not of itself ,a.e a close corporation. There are e#ceptional cases where an action by a director who is singly is the controlling stoc.holder ,ay be considered as a binding corporate act and a board action is a ,ere for,ality. 5owe!er Nenita is not the sole controlling stoc.holder. CLO3A COR;ORATION3 RA8ULAR COR;ORATION3 1. Banage,ent 2 Hoard A"thority * There can be classification of directors into one or ,ore classes each of who, ,ay be !oted for and elected solely by a partic"lar class of stoc.- and * The articles of incorporation of a close corporation ,ay pro!ide that the b"siness of the corporation shall be ,anaged by the stoc.holders of the corporation rather than by a board of directors. 3o long as this pro!ision contin"es in effect) 1. No ,eeting of stoc.holders need be called to elect directors '. Unless the conte#t clearly re+"ires otherwise the stoc.holders of the corporation shall be dee,ed to be directors for the p"rpose of applying the pro!isions of this Code
6. The stoc.holders of the corporation shall be s"b1ect to all liabilities of directors. * The articles of incorporation ,ay li.ewise pro!ide that all officers or e,ployees or that specified officers or e,ployees shall be elected or appointed by the stoc.holders instead of by the board of directors. * There are no classification of board of directors * Corporate ;owers de!ol!ed "pon board of directors whose powers are e#ec"ted by officers. Cannot pro!ide that it be ,anaged by stoc.holders * Hoard of directors ,"st be elected in a stoc.holders ,eeting * 3toc.holders of a corporation are separate and distinct fro, directors * Officers ,"st be elected by the Hoard of Directors '. Beetings * Unless the by/laws pro!ide otherwise any action by the directors of a close corporation witho"t a ,eeting shall ne!ertheless be dee,ed !alid if) 1. Hefore or after s"ch action is ta.en written consent thereto is signed by all the directors- or * The directors or tr"stees shall not act indi!id"ally nor separately b"t as a body in a lawf"l ,eeting. They will act only after disc"ssion and deliberation of ,atters before
the,. Contracts entered into witho"t a for,al board resol"tion does not bind the corporation e#cept when ratified or when ,a1ority of the board has .nowledge of the contract and the contract benefited the corporation. * Absence of a pro,pt ob1ection in writing does 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ?D of 6<1 COR;ORATION LA9 COBBARCIAL LA9 CLO3A COR;ORATION3 RA8ULAR COR;ORATION3 '. All the stoc.holders ha!e act"al or i,plied .nowledge of the action and ,a.e no pro,pt ob1ection thereto in writing- or 6. The directors are acc"sto,ed to ta.e infor,al action with the e#press or i,plied ac+"iescence of all the stoc.holders- or =. All the directors ha!e e#press or i,plied .nowledge of the action in +"estion and none of the, ,a.es pro,pt ob1ection thereto in writing. * If a directorVs ,eeting is held witho"t proper call or notice an action ta.en therein within the corporate powers is dee,ed ratified by a director who failed to attend "nless he pro,ptly files his written ob1ection with the secretary of the corporation after ha!ing .nowledge thereof. not ratify acts done by directors witho"t a !alid ,eeting. There ,"st be e#press or i,plied ratification. * A#press ratification ,ay consist of a Hoard
Resol"tion to that effect * I,plied ratification ,ay consist of acceptance of benefits fro, said "na"thori$ed act while ha!ing .nowledge of said act * 0ail"re to gi!e notice wo"ld render a ,eeting !oidable. * Attendance to a ,eeting despite want of notice will be dee,ed i,plied wai!er * All proceedings had and any b"siness transacted at any ,eeting of the stoc.holders or ,e,bers if within the powers or a"thority of the corporation shall be !alid e!en if the ,eeting be i,properly held or called pro!ided all the stoc.holders or ,e,bers of the corporation are present or d"ly represented at the ,eeting. %&<1( 6. Ioting 2 Q"or", * The AOI ,ay pro!ide for a classification of directors into one or ,ore classes each of which ,ay be !oted for and elected solely by a partic"lar class of stoc.. * The AOI ,ay pro!ide for a greater +"or", or !oting re+"ire,ents in ,eetings of stoc.holders or directors than those pro!ided in this Code. * No share ,ay be depri!ed of !oting rights e#cept ;referred or Redee,able shares "nless otherwise pro!ided by the Code * There shall always be a class2series of shares which ha!e a COB;LATA IOTIN8 RI85T3
* AAC5 35ARA 35ALL HA AQUAL IN ALL RA3;ACT3 TO AIARK OT5AR 35ARA e#cept as otherwise pro!ided in the AOI * 0or Hoard of directors the by/laws or AOI can pro!ide for a greater ,a1ority in +"or", * 0or stoc.holders the AOI can pro!ide for a different percentage in +"or", =. ;re/e,pti!e Right * The pre/e,pti!e right of stoc.holders in close corporations shall e#tend to all stoc. to be iss"ed incl"ding reiss"ance of treas"ry shares whether for ,oney property or personal ser!ices or in pay,ent of corporate debts "nless the articles of incorporation pro!ide otherwise. * Li,itations on the e#ercise of pre/e,pti!e right) a. 3"ch pre/e,pti!e right shall not e#tend to shares to be iss"ed in co,pliance with laws re+"iring stoc. offerings or ,ini,", stoc. ownership by the p"blicb. Not e#tend to shares to be iss"ed in good faith with the appro!al of the stoc.holders representing two/thirds %'26( of the o"tstanding capital stoc. in e#change for property needed for corporate p"rposes or in pay,ent of a pre!io"sly contracted debt c. 3hall not ta.e effect if denied in the Articles of Incorporation or an a,end,ent thereto. <. Transferability * Restrictions on the right to transfer shares
,"st appear in the AI and in the by/laws as well as in the certificate of stoc. otherwise the sa,e shall not be binding on any p"rchaser thereof in good faith * Restrictions on the right to transfer not allowed ?. 9ithdrawal Right 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ?E of 6<1 COR;ORATION LA9 COBBARCIAL LA9 CLO3A COR;ORATION3 RA8ULAR COR;ORATION3 * Any stoc.holder of a close corporation ,ay for any reason co,pel the said corporation to p"rchase his shares at their fair !al"e which shall not be less than their par or iss"ed !al"e when the corporation has s"fficient assets in its boo.s to co!er its debts and liabilities e#cl"si!e of capital stoc. * Any stoc.holder of a close corporation ,ay by written petition to the 3AC co,pel the dissol"tion of s"ch corporation whene!er) Any of acts of the directors officers or those in control of the corporation is illegal or fra"d"lent or dishonest or oppressi!e or "nfairly pre1"dicial to the corporation or any stoc.holder or Corporate assets are being ,isapplied or wasted. * 3toc.holders ,ay re+"ire the corporation to b"y/bac. their shares at fair !al"e when the Corporation has "nrestricted Retained Aarnings) a. In case any a,end,ent to the articles of
incorporation which has the effect of) * changing or restricting the rights of any stoc.holder or class of shares or * a"thori$ing preferences in any respect s"perior to those of o"tstanding shares of any class or * e#tending or shortening the ter, of corporate e#istence b. In case of sale lease e#change transfer ,ortgage pledge or other disposition of all or s"bstantially all of the corporate property and assets as pro!ided in the Code- and c. In case of ,erger or consolidation d. A#tension or shortening of the ter, of the corporation %&6D( e. Di!ersion of f"nds of corporation fro, pri,ary p"rpose to secondary p"rpose %&=1( * The corporation ,ay b"y/bac. shares of stoc.holders s"b1ect to the following li,itations %Treas"ry shares() a. There ,"st be "nrestricted retained earnings b. B"st be for a legiti,ate p"rpose '. Ad"cational Corporations '.1 Incorporation a. 8o!erning Laws) 3pecial Laws and the Corporation Code %&1F?( b. ;re/re+"isites to Incorporation) A#cept "pon fa!orable reco,,endation of the %Binistry of
Ad"cation and C"lt"re( the 3AC shall not accept or appro!e the articles of incorporation and bylaws of any ed"cational instit"tion %&1FD( '.' Hoard of Tr"stees %&1FE( a. Non/stoc. 1. Co,positionCnot less than < nor ,ore than 1< tr"stees b"t always in ,"ltiples of fi!e. Unless otherwise pro!ided in the articles of incorporation or the by/laws the board or tr"stees of incorporated schools colleges or other instit"tions of learning shall) a. 3o classify the,sel!es that the ter, of office of one/fifth %12<( of their n",bers shall e#pire e!ery year. b. Tr"stees thereafter elected to fill !acancies occ"rring before the e#piration of a partic"lar ter, shall hold office only for the "ne#pired period c. Tr"stees elected thereafter to fill !acancies ca"sed by e#piration of ter, shall hold office for fi!e %<( years '. Q"or",CBa1ority of the tr"stees ;owers and A"thority of tr"stees shall be defined in the by/laws b. 3toc.CThe n",ber and er, of directors shall be go!erned by the pro!isions on stoc. corporations. 6. Religio"s Corporations 6.1 Classes of Religio"s Corporations %& 1F>( a. Corporation 3ole
b. Religio"s CorporationsCgo!erned by the Corporation Code and the general pro!isions on non/stoc. corporations insofar as thye ,ay be applicable. 6.' Corporation 3ole %& 11F( a. 9ho ,ay for,CThe chief archbishop bishop priest ,inister rabbi or other presiding elder of s"ch religio"s deno,ination sect or ch"rch. %&11F( b. 0illing of Iacancies %&11=( 1. The s"ccessors in office concerned shall beco,e the corporation sole on their accession to office and shall be per,itted to transact b"siness as s"ch on the filing with the 3ec"rities and A#change Co,,ission of a copy of their co,,ission certificate of election or letters of appoint,ent d"ly certified by any notary p"blic. '. D"ring any !acancy in the office the person or persons a"thori$ed and e,powered by the r"les reg"lations or 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ?> of 6<1 COR;ORATION LA9 COBBARCIAL LA9 discipline of the religio"s deno,ination sect or ch"rch represented by the corporation sole to ad,inister the te,poralities and ,anage the affairs estate and properties of the corporation sole d"ring the !acancy shall e#ercise all
the powers and a"thority of the corporation sole d"ring s"ch !acancy. c. ;"rpose// 0or the p"rpose of ad,inistering and ,anaging as tr"stee the affairs property and te,poralities of any religio"s deno,ination sect or ch"rch. %&11F( d. The Articles of Incorporation ,"st set forth that %&111() 1. The presiding elder of s"ch religio"s deno,ination sect or ch"rch is the chief archbishop bishop priest ,inister rabbi or presiding elder of his religio"s deno,ination sect or ch"rch and that he desires to beco,e a corporation sole'. The r"les reg"lations and discipline of his religio"s deno,ination sect or ch"rch are not inconsistent with his beco,ing a corporation sole and do not forbid it6. As s"ch chief archbishop bishop priest ,inister rabbi or presiding elder he is charged with the ad,inistration of the te,poralities and the ,anage,ent of the affairs estate and properties of his religio"s deno,ination sect or ch"rch within his territorial 1"risdiction describing s"ch territorial 1"risdiction=. The ,anner in which any !acancy occ"rring in the office of chief archbishop bishop priest ,inister
rabbi of presiding elder is re+"ired to be filled according to the r"les reg"lations or discipline of the religio"s deno,ination sect or ch"rch to which he belongs- and <. The place where the principal office of the corporation sole is to be established and located which place ,"st be within the ;hilippines. The articles of incorporation ,ay incl"de any other pro!ision not contrary to law for the reg"lation of the affairs of the corporation. e. 0iling2s"b,ission of the Articles of Incorporation %&11'() 1. Ierification before filing by affida!it or affir,ation of the chief archbishop bishop priest ,inister rabbi or presiding elder as the case ,ay be '. Acco,panied by a copy of the co,,ission certificate of election or letter of appoint,ent of s"ch chief archbishop bishop priest ,inister rabbi or presiding elder d"ly certified to be correct by any notary p"blic. f. Affect of the 0iling of the Articles %&11'() 1. 3"ch chief archbishop bishop priest ,inister rabbi or presiding elder shall beco,e a corporation sole. '. All te,poralities estate and properties of the religio"s
deno,ination sect or ch"rch theretofore ad,inistered or ,anaged by hi, as s"ch chief archbishop bishop priest ,inister rabbi or presiding elder shall be held in tr"st by hi, as a corporation sole for the "se p"rpose behalf and sole benefit of his religio"s deno,ination sect or ch"rch incl"ding hospitals schools colleges orphan asyl",s parsonages and ce,eteries thereof. g. Ac+"isition and Alienation of ;roperty %&116() 1. ;"rpose for holding and p"rchasing the real and personal property or recei!ing gifts and be+"estsC0or its ch"rch charitable bene!olent or ed"cational p"rposes. '. Conditions for sale or ,ortgage of real property held by it) i. Hy obtaining an order for that p"rpose fro, the Co"rt of 0irst Instance of the pro!ince where the property is sit"ated "pon proof ,ade to the satisfaction of the co"rt that) Wnotice of the application for lea!e to sell or ,ortgage has been gi!en by p"blication or otherwise in s"ch ,anner
and for s"ch ti,e as said co"rt ,ay ha!e directed and Wthat it is to the interest of the corporation that lea!e to sell or ,ortgage sho"ld be granted. ii. The application for lea!e to sell or ,ortgage ,"st be ,ade by petition d"ly !erified by the chief archbishop bishop priest ,inister rabbi or presiding elder acting as corporation sole and ,ay be opposed by any ,e,ber of the religio"s deno,ination sect or ch"rch represented by the corporation sole) 6. 9hen the Inter!ention of the Co"rts shall not be necessaryCIn cases where the r"les reg"lations and discipline of the religio"s deno,ination sect or ch"rch religio"s society or order concerned represented by s"ch corporation sole reg"late the ,ethod of ac+"iring holding selling and ,ortgaging real estate and personal property s"ch r"les reg"lations and discipline shall control. h. Dissol"tion %&11<() 1. A corporation sole ,ay be dissol!ed and its affairs settled !ol"ntarily by
s"b,itting to the 3ec"rities and A#change Co,,ission a !erified declaration of dissol"tion. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age DF of 6<1 COR;ORATION LA9 COBBARCIAL LA9 '. The declaration of dissol"tion shall set forth) a. The na,e of the corporationb. The reason for dissol"tion and winding "pc. The a"thori$ation for the dissol"tion of the corporation by the partic"lar religio"s deno,ination sect or ch"rchd. The na,es and addresses of the persons who are to s"per!ise the winding "p of the affairs of the corporation. 6. Affect of appro!al of declaration of dissol"tion by the 3ec"rities and A#change Co,,issionCthe corporation shall cease to carry on its operations e#cept for the p"rpose of winding "p its affairs. 6.6 Religio"s 3ocieties %& 11?( a. 9ho ,ay for, a Religio"s 3ociety) Any religio"s society or religio"s order or any diocese synod or district organi$ation of any religio"s deno,ination sect or ch"rch "nless forbidden by the constit"tion r"les reg"lations
or discipline of the religio"s deno,ination sect or ch"rch of which it is a part or by co,petent a"thority. b. Internal Re+"ire,ent Upon written consent and2or by an affir,ati!e !ote at a ,eeting called for the p"rpose of at least two/thirds %'26( of its ,e,bership c. 3AC Re+"ire,ent 1. 0iling with the 3ec"rities and A#change Co,,ission articles of incorporation !erified by the affida!it of the presiding elder secretary or cler. or other ,e,ber of s"ch religio"s society or religio"s order or diocese synod or district organi$ation of the religio"s deno,ination sect or ch"rch. '. The Articles ,"st set forth the ff) a. That the religio"s society or religio"s order or diocese synod or district organi$ation is a religio"s organi$ation of a religio"s deno,ination sect or ch"rchb. That at least two/thirds %'26( of its ,e,bership ha!e gi!en their written consent or ha!e !oted to incorporate at a d"ly con!ened ,eeting of the bodyc. That the incorporation of the religio"s society or religio"s order or diocese synod or district organi$ation desiring to incorporate is not forbidden by co,petent a"thority or by the constit"tion r"les
reg"lations or discipline of the religio"s deno,ination sect or ch"rch of which it for,s a partd. That the religio"s society or religio"s order or diocese synod or district organi$ation desires to incorporate for the ad,inistration of its affairs properties and estatee. The place where the principal office of the corporation is to be established and located which place ,"st be within the ;hilippines- and f. The na,es nationalities and residences of the tr"stees elected by the religio"s society or religio"s order or the diocese synod or district organi$ation to ser!e for the first year or s"ch other period as ,ay be prescribed by the laws of the religio"s society or religio"s order or of the diocese synod or district organi$ation the board of tr"stees to be not less than fi!e %<( nor ,ore than fifteen %1<(. d. ;"rpose of incorporation 0or the ad,inistration of its te,poralities or for the ,anage,ent of its affairs properties and estate. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age D1 of 6<1 COR;ORATION LA9 COBBARCIAL LA9 b.
T5A 3ACURITIA3 RA8ULATION CODA %RA ED>>( Chapter I OIARIIA9) T5A 0INANCIAL BARRAT3 1. Capital Bar.ets The places to go if yo" want to raise new ,oney 1.1 A+"ity Capital 7 for the in!estor the stoc. ,ar.et pro!ides a !ariable ret"rn a. 3toc. Bar.et 7 3ec"rity 7 eg shares of stoc. 1.' Debt Capital 7 for the lender the ,oney or bond ,ar.et pro!ides a fi#ed ret"rn b. Boney Bar.et 7 for short ter, debts ie those nor,ally ,at"ring within 1 year fro, date of iss"ance 7 3ec"rity 7 co,,ercial paper %an "nsec"red IOU of a co,pany iss"ed on a disco"nt basis pro,ising to pay the holder the f"ll face !al"e thereof "pon rede,ption( c. Hond Bar.et 7 for long ter, debts ie those nor,ally ,at"ring after a year fro, date of iss"ance 3ec"rity 7 1"n. bonds %high yield
bonds ha!ing high interest rates and are iss"ed by lower credit rated co,panies or co,panies with no credit rating( '. Non/Capital Bar.ets The places to go if yo" want to hedge or ,itigate the ris.s attached to holding capital assets '.1 Co,,odity Bar.et 7 The instr",ents traded in this ,ar.et are not present assets li.e shares of stoc. co,,ercial papers or bonds b"t f"t"re contracts calling for deli!ery of an asset - for this reason a co,,odity ,ar.et is "s"ally referred to as a f"t"res ,ar.et. %eg agric"lt"ral prod"cts ,etals and financial instr",ents( 3ec"rity 7 a f"t"res contract %one which entitles the holder to b"y or sell a specific a,o"nt of the "nderlying co,,odity represented by the contract in a prearranged deli!erable grade at a specific date in the f"t"re at a specified price. '.' 0oreign A#change Bar.et 7 This ,ar.et is an o!er/the/co"nter ,ar.et cond"cted by international ban.s and does not ha!e a central location 3ec"rity 7 a forward e#change contract '.6 Options Bar.et 7 It enables an in!estor
to p"rchase an option gi!ing hi, the right to b"y or sell a specific n",ber of shares at a f"t"re date at a specific price. 0or this right the in!estor either pays or recei!es ,oney b"t %1"st li.e in a co,,odity ,ar.et( the ,oney in!ol!ed is only a fraction of the ,ar.et !al"e of the shares concerned. 3ec"rity 7 call or p"t options Chapter II OIARIIA9 O0 T5A LA9 1. 3tate ;olicy %3ec.'( The 3tate shall establish a socially conscio"s free ,ar.et that reg"lates itself enco"rages the widest participation of ownership in enterprises enhances the de,ocrati$ation of wealth pro,otes the de!elop,ent of the capital ,ar.et protect in!estors ens"res f"ll and fair disclos"re abo"t sec"rities ,ini,i$es if not totally eli,inates insider trading and other fra"d"lent or ,anip"lati!e de!ices and practices which create distortions in the free ,ar.et. ;3A !s. Co"rt of Appeals %1>>D( The 3ec"rities Act is designed not only to pro!ide in!estors with ade+"ate infor,ation "pon which to base their decision to b"y and sell sec"rities b"t also to protect legiti,ate b"siness see.ing o obtain capital thro"gh honest representation against co,petition fro, croo.ed pro,oters and pre!ent fra"d in
sale of sec"rities. The intended effects of the 3ec"rities Act are chiefly the following) a. ;re!ention of e#cesses and fra"d"lent transactions ,erely by re+"ire,ent that their details be re!ealedb. ;lacing the ,ar.et d"ring the early stages of the offering of sec"rity a body of infor,ation which operating indirectly thro"gh in!est,ent ser!ices and e#pert in!estors will intend to prod"ce a ,ore acc"rate appraisal of a sec"rity. The Code is self/e#ec"tory and fail"re of 3AC to iss"e r"les and reg"lations shall not in any ,anner affect its self/e#ec"troy nat"re %3ec. D'.1( '. ;owers and 0"nctions of the 3AC %3ec. <( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age D' of 6<1 COR;ORATION LA9 COBBARCIAL LA9 1. 5a!e 1"risdiction and s"per!ision o!er all corporations partnerships or associations who are the grantees of pri,ary franchises and2or a license or per,it iss"ed by the 8o!ern,ent'. 0or,"late policies and reco,,endations on iss"es concerning the sec"rities ,ar.et ad!ise Congress and other go!ern,ent agencies on all
aspects of the sec"rities ,ar.et 6. Appro!e re1ect s"spend re!o.e or re+"ire a,end,ents to registration state,ents and registration and licensing applications=. Reg"late in!estigate or s"per!ise the acti!ities of persons to ens"re co,pliance<. 3"per!ise ,onitor s"spend or ta.e o!er the acti!ities of e#changes clearing agencies and other 3ROs?. I,pose sanctions for the !iolation of laws r"les reg"lations and orders iss"ed p"rs"ant theretoD. ;repare appro!e a,end or repeal r"les reg"lations and orders and iss"e opinions and pro!ide g"idance on and s"per!ise co,pliance with s"ch r"les reg"lations and ordersE. Anlist the aid and s"pport of and2or dep"ti$e any and all enforce,ent agencies of the 8o!ern,ent ci!il or ,ilitary as well as any pri!ate instit"tion corporation fir, association or person>. Iss"e cease and desist orders to pre!ent fra"d or in1"ry to the in!esting p"blic1F. ;"nish for conte,pt of the Co,,ission both direct and indirect11. Co,pel the officers of any registered
corporation or association to call ,eetings of stoc.holders or ,e,bers1'. Iss"e s"bpoena d"ces tec", and s",,on witnesses to appear order the e#a,ination search and sei$"re of all doc",ents papers files and records ta# ret"rns and boo.s of acco"nts of any entity or person "nder in!estigation s"b1ect to the pro!isions of e#isting laws16. 3"spend or re!o.e after proper notice and hearing the franchise or certificate of registration of corporations partnerships or associations "pon any of the gro"nds pro!ided by law1=. 3"ch other powers as ,ay be pro!ided by law as well as those which ,ay be i,plied fro, or which are necessary or incidental to powers which are e#pressly granted to the Co,,ission. The Co,,ission4s 1"risdiction o!er all cases en",erated "nder 3ec < of ;D >F'/A is hereby transferred to the Co"rts of general 1"risdiction or the appropriate Regional Trial Co"rt. The Co,,ission shall retain 1"risdiction o!er pending cases in!ol!ing intra/corporate disp"tes s"b,itted for final resol"tion which sho"ld be resol!ed within 1 year fro, the enact,ent of this Code.
The Co,,ission shall retain 1"risdiction o!er pending s"spension of pay,ents2rehabilitation cases filed as of 6F J"ne 'FFF "ntil finally disposed. 6. Definition of Ter,s 6.1 3ec"rities / are shares participation or interests in a corporation or in a co,,ercial enterprise or profit/,a.ing !ent"re and e!idenced by a certificate contract instr",ent whether written or electronic in character. It incl"des) %a( 3hares of stoc. bonds debent"res notes e!idences of indebtedness asset/bac.ed sec"rities%b( In!est,ent contracts certificates of interest or participation in a profit sharing agree,ent certificates of deposit for a f"t"re s"bscription%c( 0ractional "ndi!ided interests in oil gas or other ,ineral rights%d( Deri!ati!es li.e option and warrants%e( Certificates of assign,ents certificates of participation tr"st certificates !oting tr"st certificates or si,ilar instr",ents%f( ;roprietary or non proprietary ,e,bership certificates incorporations- and %g( Other instr",ents as ,ay in the f"t"re be deter,ined by the
Co,,ission. 6.' Iss"er / the originator ,a.er obligor or creator of the sec"rity. 6.6 Hro.er / a person engaged in the b"siness of b"ying and selling sec"rities for the acco"nt of others. 6.= Dealer / any person who b"ys and sells sec"rities for his2her own acco"nt in the ordinary co"rse of b"siness. 6.< Associated person of a bro.er or dealer / an e,ployee thereof who directly e#ercises control of s"per!isory a"thority b"t does not incl"de a sales,an or an agent or a person whose f"nctions are solely clerical or ,inisterial. 6.? Clearing Agency / any person who acts as inter,ediary in ,a.ing deli!eries "pon pay,ent to effect settle,ent in sec"rities transactions. 6.D A#change / an organi$ed ,ar.etplace or facility that brings together b"yers and sellers and e#ec"tes trades of sec"rities and2or co,,odities. 6.E Insider 7 %a( the iss"er%b( a director or officer %or person perfor,ing si,ilar f"nctions( of or a person controlling the iss"er%c( a person whose relationship or for,er relationship to the iss"er gi!es or
ga!e hi, access to ,aterial infor,ation abo"t the iss"er or the sec"rity that is not generally a!ailable to the p"blic%d( a go!ern,ent e,ployee or director or officer of an e#change clearing 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age D6 of 6<1 COR;ORATION LA9 COBBARCIAL LA9 agency and2or self/reg"latory organi$ation who has access to ,aterial infor,ation abo"t an iss"er or a sec"rity that is not generally a!ailable to the p"blic- or %e( a person who learns s"ch infor,ation by a co,,"nication fro, any of the foregoing insiders. 6.> ;re/need plans 7 are contracts which pro!ide for the perfor,ance of f"t"re ser!ices or the pay,ent of f"t"re ,onetary consideration at the ti,e of act"al need for which planholders pay in cash or install,ent at stated prices with or witho"t interest or ins"rance co!erage and incl"des life pension ed"cation inter,ent and other plans which the Co,,ission ,ay fro, ti,e to ti,e appro!e. 6.1F ;ro,oter / a person who acting alone or with others ta.es initiati!e in fo"nding and organi$ing the b"siness or enterprise of the iss"er and recei!es
consideration therefor. 6.11 Registration state,ent / is the application for the registration of sec"rities re+"ired to be filed with the Co,,ission. 6.1' 3ales,an / a nat"ral person e,ployed as s"ch or as an agent by a dealer iss"er or bro.er to b"y and sell sec"rities. 6.16 Uncertified 3ec"rity 7 a sec"rity e!idenced by electronic or si,ilar records. 6.1= Underwriter / a person who g"arantees on a fir, co,,it,ent and2or declared best effort basis the distrib"tion and sale of sec"rities of any .ind by another co,pany. =. Registration of 3ec"rities 3ec"rities shall not be sold or offered for sale or distrib"tion within the ;hilippines witho"t a registration state,ent d"ly filed with and appro!ed by the Co,,ission. %3ec. E( ;3A !s. Co"rt of Appeals %1>>D( Under the policy of Mf"ll ,aterial disclos"re M all co,panies listed or applying for listing are re+"ired to di!"lge tr"thf"lly and acc"rately all ,aterial infor,ation abo"t the,sel!es and the sec"rities they sell for the protection of the in!esting p"blic and "nder the pain of ad,inistrati!e cri,inal and ci!il sanctions. A fact is dee,ed ,aterial if it tends to ind"ce or otherwise effect the sale or p"rchase or its sec"rities.
A reading of the gro"nds gi!e for re1ection or registration re!eals the intention of Congress to ,a.e the registration and iss"ance of sec"rities dependent to a certain e#tent on he ,erits of the sec"rities the,sel!es and of the iss"er to be deter,ined by the 3AC. Conse+"ently the absol"te reliance on the f"ll disclos"re ,ethod is the registration of sec"rities is therefore "ntenable. ;roced"re %3ec.1'( =.1 0iling of Registration 3tate,ent All sec"rities shall be registered thro"gh the filing by the iss"er in the ,ain office of the Co,,ission of a sworn registration state,ent. The registration state,ent shall incl"de any prospect"s re+"ired or per,itted to be deli!ered. The infor,ation re+"ired for registration shall incl"de a,ong others the effect of the sec"rities iss"e on ownership on the ,i# of ownership especially foreign and local ownership. The registration state,ent shall be signed by * the iss"er4s e#ec"ti!e officer * principal operating officer * principal financial officer * co,ptroller * principal acco"nting officer * corporate secretary or
* persons perfor,ing si,ilar f"nctions Acco,panied Hy a d"ly !erified resol"tion of the board of directors of the iss"er coporation. The written consent of the e#pert na,ed as ha!ing certified any part of the registration state,ent or any doc",ent "sed in connection therewith shall also be filed. 9here the registration state,ent incl"des shares to be sold by selling shareholders a written certification by s"ch selling shareholders as to the acc"racy of any part of the registration state,ent contrib"ted to by s"ch selling shareholders shall also be filed. =.' ;ay,ent of 0ee The iss"er shall pay to the Co,,ission a fee of not ,ore than 121F of 1G of the ,a#i,", aggregate price at which s"ch sec"rities are proposed to be offered. The Co,,ission shall prescribe by r"le di,inishing fees in in!erse proportion to the !al"e of the aggregate price of the offering. =.6 Notice of 0iling Notice of filing shall be i,,ediately p"blished by the iss"er in ' newspapers of general circ"lation in the ;hilippines once
a wee. for ' consec"ti!e wee.s or in s"ch other ,anner as the Co,,ission shall prescribe reciting that) * a registration state,ent for the sale of s"ch sec"rity has been filed * the registration state,ent as well as the papers attached thereto are open to inspection * copies shall be f"rnished to interested parties at s"ch reasonable charge as the Co,,ission ,ay prescribe. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age D= of 6<1 COR;ORATION LA9 COBBARCIAL LA9 =.= 9ithdrawal of Registration 3tate,ent A registration state,ent ,ay be withdrawn by the iss"er only with the consent of the Co,,ission. %3ec. 16( =.< A,end,ents to Registration 3tate,ent %3ec. 16( If a registration state,ent is on its face inco,plete or inacc"rate in any ,aterial respect the Co,,ission shall iss"e an order directing the a,end,ent of the registration state,ent. Upon co,pliance with s"ch order the a,ended registration state,ent shall beco,e effecti!e "pon co,pliance with the proced"re in 3ection 1'.?. An a,end,ent filed prior to the effecti!e date of the registration
state,ent shall reco,,ence the =< day period within which the Co,,ission shall act on a registration state,ent. An a,end,ent filed after the effecti!e date of the registration state,ent shall beco,e effecti!e only "pon s"ch date as deter,ined by the Co,,ission. If any change occ"rs in the facts set forth in a registration state,ent the iss"er shall file an a,end,ent thereto setting forth the change. =.? Acceptance or Re1ection by 3AC 9ithin =< days after the date of filing of the registration state,ent or by s"ch later date to which the iss"er has consented the Co,,ission shall declare the registration state,ent effecti!e or re1ected "nless the applicant is allowed to a,end the registration state,ent. a( Acceptance The Co,,ission shall declare the registration state,ent to be effecti!e if it finds that the registration state,ent together with all the other papers and doc",ents attached thereto is on its face co,plete and that the re+"ire,ents ha!e been co,plied with. b( Re1ection 2 Re!ocation %3ec. 16( The Co,,ission ,ay re1ect a
registration state,ent and ref"se registration of the sec"rity or re!o.e the effecti!ity of a registration state,ent and the registration of the sec"rity there"nder after d"e notice and hearing if it finds that) * The iss"er) o 5as been 1"dicially declared insol!ento 5as !iolated any of the pro!isions of this Code the r"les pro,"lgated p"rs"ant thereto or any order of the Co,,ission in connection with the offering for which a registration state,ent has been filedo 5as been or is engaged or is abo"t to engage in fra"d"lent transactionso 5as ,ade any false or ,isleading representation of ,aterial facts in any prospect"s concerning the iss"er or its sec"ritieso 5as failed to co,ply with any re+"ire,ent that the Co,,ission ,ay i,pose as a condition for registration * The registration state,ent is on its face inco,plete or inacc"rate in any
,aterial respect or incl"des any "ntr"e state,ent of a ,aterial fact or o,its to state a ,aterial fact re+"ired to be stated therein or necessary to ,a.e the state,ents therein not ,isleadingor * The iss"er any officer director or controlling person of the iss"er or person perfor,ing si,ilar f"nctions or any "nderwriter has been con!icted by a co,petent 1"dicial or ad,inistrati!e body "pon plea of g"ilty or otherwise of an offense in!ol!ing ,oral t"rpit"de and2or fra"d or is en1oined or restrained by the Co,,ission or other co,petent 1"dicial or ad,inistrati!e body for !iolations of sec"rities co,,odities and other related laws. * If any iss"er shall ref"se to per,it an e#a,ination to be ,ade by the Co,,ission its ref"sal shall be gro"nd for the ref"sal or re!ocation of the registration of its sec"rities. ;3A !s. Co"rt of Appeals %1>>D( The 3AC has no power o o!ert"rn the decision of the ;3A Hoard to deny listing of sec"rities. Q"estions of policy and ,anage,ent are left to the honest decision of officers an directors of a corporation and co"rts are witho"t a"thority o s"bstit"te their 1"dg,ent for
1"dg,ent of the Hoard of Directors. The Hoad is the b"siness ,anger of the corporation and as long as it acts in good faith its orders are not re!iewable by he co"rts. Also as the pri,ary ,ar.et for sec"rities the ;3A has established its na,e and goodwill and it has the right to protect s"ch goodwill by ,aintaining a reasonable standard of propriety in the entities who choose to transact thro"gh its facilities. It was reasonable for ;3A therefore to e#ercise its 1"dg,ent in the ,anner it dee,s appropriate for its b"siness identity as long as no rights are tra,pled "pon and p"blic welfare is safeg"arded. =.D Oath of Iss"er Upon effecti!ity of the registration state,ent the iss"er shall state "nder oath in e!ery prospect"s that all registration re+"ire,ents ha!e been ,et and that all infor,ation are tr"e and correct as represented by the iss"er or the one ,a.ing the state,ent. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age D< of 6<1 COR;ORATION LA9 COBBARCIAL LA9 Any "ntr"e state,ent of fact or o,ission to state a ,aterial fact re+"ired to be stated or necessary to ,a.e the state,ent therein not ,isleading shall constit"te fra"d.
<. 3"spension of Offer and 3ale %3ec. 16( * If the Co,,ission dee,s it necessary it ,ay iss"e an order s"spending the offer and sale of the sec"rities pending any in!estigation. The order shall state the gro"nds for ta.ing s"ch actions b"t s"ch order of s"spension altho"gh binding "pon persons notified thereof shall be dee,ed confidential and shall not be p"blished. * If at any ti,e the Co,,ission finds that a registration state,ent contains any false state,ent or o,its to state any fact re+"ired to be stated therein or necessary to ,a.e the state,ents therein not ,isleading the Co,,ission ,ay cond"ct an e#a,ination and after d"e notice and hearing iss"e an Order s"spending the effecti!ity of the registration state,ent. %3ec. 1=( * 0ail"re of the iss"er "nderwriter or any other person to cooperate or his obstr"ction or ref"sal to "ndergo an e#a,ination shall be a gro"nd for the iss"ance of a s"spension order. %3ec. 1=( * If at any ti,e the infor,ation contained in the registration state,ent filed is or has beco,e ,isleading
incorrect inade+"ate or inco,plete in any ,aterial respect or the sale or offering for sale of the sec"rity registered there"nder ,ay wor. or tend to wor. a fra"d the Co,,ission ,ay re+"ire fro, the iss"er s"ch f"rther infor,ation necessary to enable the Co,,ission to ascertain whether the registration of s"ch sec"rity sho"ld be re!o.ed. The Co,,ission ,ay also s"spend the right to sell and offer for sale s"ch sec"rity pending f"rther in!estigation. %3ec. 1<( * The ref"sal to f"rnish infor,ation re+"ired by the Co,,ission ,ay be a gro"nd for the iss"ance of an order of s"spension. %3ec. 1<( The order shall be dee,ed confidential and shall not be p"blished. Upon the iss"ance of the s"spension order no f"rther offer or sale of s"ch sec"rity shall be ,ade "ntil the sa,e is lifted or set aside by the Co,,ission. Otherwise s"ch sale shall be !oid. Notice of iss"ance of s"ch order shall be gi!en to the iss"er and e!ery dealer and bro.er who shall ha!e notified the Co,,ission of an intention to sell s"ch sec"rity. ?. 3ec"rities and Transactions fro,
Registration ?.1 A#e,pt 3ec"rities %3ec. >( %a( Any sec"rity iss"ed or g"aranteed by the 8o!ern,ent of the ;hilippines or by any political s"bdi!ision or agency thereof or by any person acting as an instr",entality of said 8o!ern,ent. %b( Any sec"rity iss"ed or g"aranteed by the go!ern,ent of any co"ntry with which the ;hilippines ,aintains diplo,atic relations or by any state pro!ince or political s"bdi!ision thereof on the basis of reciprocity. %c( Certificates iss"ed by a recei!er or by a tr"stee in ban.r"ptcy d"ly appro!ed by the proper ad1"dicatory body. %d( Any sec"rity or its deri!ati!es the sale or transfer of which is "nder the s"per!ision and reg"lation of the Office of the Ins"rance Co,,ission 5o"sing and Land Use Reg"latory Hoard or the H"rea" of Internal Re!en"e. %e( Any sec"rity iss"ed by a ban. e#cept its own shares of stoc.. Union Han. !s. 3AC %'FF1( Altho"gh the shares of stoc. of ban.ing instit"tions are e#e,pt fro, registration re+"ire,ents a ban. whose shares are listed in the stoc. ,ar.et is co!ered by the R3A and
the i,ple,enting r"le on the reportorial re+"ire,ents of listed co,panies. The R3A e#e,pts fro, registration the sec"rities iss"ed by ban.ing or financial instit"tions b"t nowhere does its state or e!en i,ply that ban. as a listed corporation is e#e,pt fro, co,plying with reports re+"ired by the R3 IRRs. The Co,,ission ,ay by r"le or reg"lation after p"blic hearing add to the foregoing any class of sec"rities if it finds that the enforce,ent of this Code with respect to s"ch sec"rities is not necessary in the p"blic interest and for the protection of in!estors. ?.' A#e,pt Transactions %3ec. 1F( %a( At any 1"dicial sale or sale by an e#ec"tor ad,inistrator g"ardian or recei!er or tr"stee in insol!ency or ban.r"ptcy. %b( Hy or for the acco"nt of a pledge holder or ,ortgagee or si,ilar lien holder selling or offering for sale or deli!ery in the ordinary co"rse of b"siness and not for the p"rpose of a!oiding the pro!isions of this Code to li+"idate a bona fide debt a sec"rity pledged in good faith as sec"rity for s"ch debt. %c( An isolated transaction in which any sec"rity is sold offered for sale
s"bscription or deli!ery is not being ,ade in the co"rse of repeated and s"ccessi!e transactions by the owner or his representati!e and s"ch owner or representati!e not being the "nderwriter of s"ch sec"rity. %d( The distrib"tion by a corporation to its stoc.holders or other sec"rity holders as a stoc. di!idend or other distrib"tion o"t of s"rpl"s. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age D? of 6<1 COR;ORATION LA9 COBBARCIAL LA9 %e( The sale of capital stoc. of a corporation to its own stoc.holders e#cl"si!ely where no co,,ission or other re,"neration is paid or gi!en directly or indirectly in connection with the ale of s"ch capital stoc.. %f( The iss"ance of bonds or notes sec"red by ,ortgage "pon real estate or tangible personal property where the entire ,ortgage together with all the bonds or notes sec"red thereby are sold to a single p"rchaser at a single sale. %g( The iss"e and deli!ery of any sec"rity in e#change for any other sec"rity of the sa,e iss"er p"rs"ant to a right of con!ersion) ;ro!ided That the sec"rity s"rrendered has
been registered "nder this Code or was when sold e#e,pt and that the sec"rity deli!ered in e#change if sold at the con!ersion price wo"ld at the ti,e of s"ch con!ersion fall within the class of sec"rities entitled to registration "nder this Code. Upon s"ch con!ersion the par !al"e of the sec"rity s"rrendered in s"ch e#change shall be dee,ed the price at which the sec"rities iss"ed and deli!ered in s"ch e#change are sold. %h( Hro.er4s transactions e#ec"ted "pon c"sto,er4s orders on any registered A#change or other trading ,ar.et. %i( 3"bscriptions for shares of the capital stoc. of a corporation prior to incorporation or in p"rs"ance of an increase in its a"thori$ed capital stoc. when no e#pense is inc"rred or no co,,ission co,pensation or re,"neration is paid or gi!en and only when the p"rpose for soliciting gi!ing or ta.ing of s"ch s"bscriptions is to co,ply with the re+"ire,ents of s"ch law as to the percentage of the capital stoc. which sho"ld be s"bscribed before it can be registered and d"ly incorporated or its a"thori$ed capital increased.
Nestle ;hilippines !s. Co"rt of Appeals %1>>1( The lang"age of the R3A e#e,pting fro, registration Liss"ance o additional capital stoc. M ,"st be interpreted to co!er only iss"ance of shares of stoc. as part of and in the co"rse of increasing he a"thori$ed capital stoc. of a corporation. It does not co!er iss"ances of shares fro, already a"thori$ed b"t still "niss"ed capital stoc.. %1( The e#change of sec"rities by the iss"er with its e#isting sec"rity holders e#cl"si!ely where no co,,ission or other re,"neration is paid. %.( The sale of sec"rities by an iss"er to fewer than 'F persons in the ;hilippines d"ring any twel!e/,onth period. %l( The sale of sec"rities to any of the following +"alified b"yers) * Han.* Registered in!est,ent ho"se* Ins"rance co,pany* ;ension f"nd or retire,ent plan ,aintained by the 8o!ern,ent or any political s"bdi!ision or ,anaged by a ban. or other persons a"thori$ed by the Hang.o 3entral to engage in tr"st
f"nctions* In!est,ent co,pany- or * 3"ch other person as the Co,,ission deter,ine as +"alified b"yers on the basis of s"ch factors as financial sophistication net worth .nowledge and e#perience in financial and b"siness ,atters or a,o"nt of assets "nder ,anage,ent. The Co,,ission ,ay e#e,pt other transactions if it finds that the re+"ire,ent of registration is not necessary in the p"blic interest or for the protection of the in!estors s"ch as by reason of the s,all a,o"nt in!ol!ed or the li,ited character of the p"blic offering. Any person applying for an e#e,ption of a transaction shall file with the Co,,ission a notice identifying the e#e,ption relied "pon on s"ch for, and at s"ch ti,e as the Co,,ission by r"le ,ay prescribe and with s"ch notice shall pay to the Co,,ission a fee e+"i!alent to 121F of 1G of the ,a#i,", aggregate price or iss"ed !al"e of the sec"rities. D. Tender Offer and ;ro#y 3olicitation D.1 Tender Offers %3ec. 1>(
;arties Re+"ired to ,a.e Tender Offer %a( Any person or gro"p of persons acting in concert who intends to ac+"ire at least 1<G of any class of any e+"ity sec"rity of a listed corporation or of any class of any e+"ity sec"rity of a corporation with assets of at least ;<F FFF FFF and ha!ing 'FF or ,ore stoc.holders with at least 1FF shares each or %b( who intends to ac+"ire at least 6FG of s"ch e+"ity o!er a period of 1' ,onths shall ,a.e a tender offer to stoc.holders by filing with the Co,,ission a declaration to that effect- and f"rnish the iss"er a state,ent containing s"ch of the infor,ation as the Co,,ission ,ay prescribe. 9ithdrawal of tender Offer 3ec"rities deposited p"rs"ant to a tender offer or re+"est or in!itation for tenders ,ay be withdrawn by or on behalf of the depositor at any ti,e thro"gho"t the period that the tender offer re,ains open and if the sec"rities deposited ha!e not been pre!io"sly accepted for pay,ent and
1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age DD of 6<1 COR;ORATION LA9 COBBARCIAL LA9 at any ti,e after ?F days fro, the date of the original tender offer or re+"est or in!itation e#cept as the Co,,ission ,ay otherwise prescribe. 3ec"rities offered e#ceed re+"ired +"antity 9here the sec"rities offered e#ceed that which a person or gro"p of persons is bo"nd or willing to ta.e "p and pay for the sec"rities that are s"b1ect of the tender offer shall be ta.en "p as nearly as ,ay be pro rata disregarding fractions according to the n",ber of sec"rities deposited by each depositor. The pro!isions of this s"bsection shall also apply to sec"rities deposited within 1F days after notice of an increase in the consideration offered to sec"rity holders is first p"blished or sent or gi!en to sec"rity holders. Iariations of Tender Offer 9here any person !aries the ter,s of a tender offer or re+"est or in!itation for tenders before the
e#piration thereof by increasing the consideration offered to holders of s"ch sec"rities s"ch person shall pay the increased consideration to each sec"rity holder whose sec"rities are ta.en "p and paid for whether or not s"ch sec"rities ha!e been ta.en "p by s"ch person before the !ariation of the tender offer or re+"est or in!itation. D.' ;ro#y 3olicitations %3ec. 'F( ;ro#ies ,"st be * in writing * signed by the stoc.holder or his d"ly a"thori$ed representati!e and * filed before the sched"led ,eeting with the corporate secretary. ;eriod of Ialidity Unless otherwise pro!ided in the pro#y it shall be !alid only for the ,eeting for which it is intended. No pro#y shall be !alid and effecti!e for a period longer than < years at one ti,e. No bro.er or dealer shall gi!e any pro#y consent or a"thori$ation to a person other than the c"sto,er witho"t the e#press written a"thori$ation of s"ch c"sto,er.
A bro.er or dealer who holds or ac+"ires the pro#y for at least 1FG or s"ch percentage as the Co,,ission ,ay prescribe of the o"tstanding share of the iss"er shall s"b,it a report identifying the beneficial owner within 1F days after s"ch ac+"isition for its own acco"nt or c"sto,er to the iss"er of the sec"rity to the A#change where the sec"rity is traded and to the Co,,ission. D.6 0ees for Tender Offers and Certain ;ro#y 3olicitations %3ec. '1( At the ti,e of filing with the Co,,ission of any state,ent re+"ired for any tender offer or for pro#y or consent solicitation the Co,,ission ,ay re+"ire that the person ,a.ing s"ch filing pay a fee of not ,ore than 121F of 1G of) * The proposed aggregate p"rchase price in the case of a transaction "nder 3ections 'F or D'.'- or * The proposed pay,ent in cash and the !al"e of any sec"rities or property to be transferred in the ac+"isition ,erger or consolidation or the cash and !al"e of any sec"rities proposed to be recei!ed "pon the sale or disposition of s"ch assets in the case of a solicitation "nder 3ection 'F. E. Reg"lation of Transactions of
Directors 2 Officers 2 ;rincipal 3toc.holders %3ec. '6( E.1 0iling of 3tate,ent * A!ery person who is directly or indirectly the beneficial owner of ,ore than 1FG of any class of any e+"ity sec"rity or * who is a director or an officer of the iss"er of s"ch sec"rity shall file at the ti,e either s"ch re+"ire,ent is first satisfied or within ten days after he beco,es s"ch a beneficial owner director or officer a state,ent with the Co,,ission and if s"ch sec"rity is listed for trading on an A#change also with the A#change of the a,o"nt of all e+"ity sec"rities of s"ch iss"er of which he is the beneficial owner and within ten %1F( days after the close of each calendar ,onth thereafter if there has been a change in s"ch ownership d"ring s"ch ,onth shall also file a state,ent indicating his ownership at the close of the calendar ,onth and s"ch changes as ha!e occ"rred d"ring s"ch calendar ,onth. E.' Reco!ery of Da,ages for Unfair Use of Infor,ation a. 0or the p"rpose of pre!enting the "nfair "se of infor,ation which ,ay ha!e been obtained by s"ch beneficial owner director or officer by reason of his relationship to the iss"er * any profit reali$ed by hi, fro, any
p"rchase and sale or any sale and p"rchase of any e+"ity sec"rity of s"ch iss"er within any period of less than si# %?( ,onths o "nless s"ch sec"rity was ac+"ired in good faith in connection with a debt pre!io"sly contracted * shall in"re to and be reco!erable by the iss"er irrespecti!e of any intention of holding the sec"rity p"rchased or of not rep"rchasing the sec"rity sold for a period e#ceeding ? ,onths. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age DE of 6<1 COR;ORATION LA9 COBBARCIAL LA9 b. 3"it to reco!er s"ch profit ,ay be instit"ted before the RTC by the iss"er or by the owner of any sec"rity of the iss"er in the na,e and in behalf of the iss"er if the iss"er shall fail or ref"se to bring s"ch s"it within ?F days after re+"est or shall fail diligently to prosec"te the sa,e thereafter. H"tNo s"ch s"it shall be bro"ght ,ore than t' years after the date s"ch profit was reali$ed. It shall be "nlawf"l for any beneficial owner director or officer to sell any e+"ity sec"rity of s"ch iss"er if the person selling the sec"rity or his principal) %a( Does not own the sec"rity sold- or
%b( If owning the sec"rity does not deli!er it against s"ch sale within 'F days thereafter or does not within < days after s"ch sale deposit it in the ,ails or other "s"al channels of transportationH"t no person shall be dee,ed to ha!e !iolated this s"bsection if he pro!es that notwithstanding the e#ercise of good faith he was "nable to ,a.e s"ch deli!ery or deposit within s"ch ti,e or that to do so wo"ld ca"se "nd"e incon!enience or e#pense. The pro!isions of 3"bsection '6. ' shall not apply to any p"rchase and sale or sale and p"rchase and the pro!isions of 3"bsection '6.6 shall not apply to any sale of an e+"ity sec"rity not then or thereafter held by hi, in an in!est,ent acco"nt by a dealer in the ordinary co"rse of his b"siness and incident to the establish,ent or ,aintenance by hi, of a pri,ary or secondary ,ar.et otherwise than on an A#change for s"ch sec"rity. >. ;rohibitions >.1 Banip"lation of 3ec"rity ;rices It shall be "nlawf"l for any person acting for hi,self or thro"gh a dealer or bro.er directly or indirectly) %a( To create a false or ,isleading appearance of acti!e trading in any
listed sec"rity traded in an A#change or any other trading ,ar.et) * Hy effecting any transaction in s"ch sec"rity which in!ol!es no change in the beneficial ownership thereof* Hy entering an order or orders for the p"rchase or sale of s"ch sec"rity with the .nowledge that a si,"ltaneo"s order or orders of s"bstantially the sa,e si$e ti,e and price for the sale or p"rchase of any s"ch sec"rity has or will be entered by or for the sa,e or different parties- or * Hy perfor,ing si,ilar act where there is no change in beneficial ownership. %b( To effect alone or with others a series of transactions in sec"rities that) * Raises their price to ind"ce the p"rchase of a sec"rity* Depresses their price to ind"ce the sale of a sec"rity- or * Creates acti!e trading to ind"ce s"ch a p"rchase or sale thro"gh ,anip"lati!e de!ices s"ch as ,ar.ing the close painting the tape s+"ee$ing the float hype and
d",p boiler roo, operations and s"ch other si,ilar de!ices. %c( To circ"late or disse,inate infor,ation that the price of any sec"rity listed in an A#change will or is li.ely to rise or fall beca"se of ,anip"lati!e ,ar.et operations of any one or ,ore persons cond"cted for the p"rpose of raising or depressing the price of the sec"rity for the p"rpose of ind"cing the p"rchase or sale of s"ch sec"rity. %d( To ,a.e false or ,isleading state,ent with respect to any ,aterial fact which he .new or had reasonable gro"nd to belie!e was so false or ,isleading for the p"rpose of ind"cing the p"rchase or sale of any sec"rity listed or traded in an A#change. %e( To effect any series of transactions for the p"rchase and2or sale of any sec"rity traded in an A#change for the p"rpose of pegging fi#ing or stabili$ing the price of s"ch sec"rity "nless otherwise allowed by this Code or by r"les of the Co,,ission. >.' Insider Trading ;arties co!ered ) * Insider
* insider4s spo"se or relati!es by affinity or consang"inity within the second degree legiti,ate or co,,on/law It shall be "nlawf"l for an insider to sell or b"y a sec"rity of the iss"er while in possession of ,aterial infor,ation with respect to the iss"er or the sec"rity that is not generally a!ailable to the p"blic "nless) %3ec. 'D( %a( The insider pro!es that the infor,ation was not gained fro, s"ch relationship- or %b( If the other party selling to or b"ying fro, the insider %or his agent( is identified the insider pro!es) * that he disclosed the infor,ation to the other party or * that he had reason to belie!e that the other party otherwise is also in possession of the infor,ation. ;res",ption A p"rchase or sale of a sec"rity of the iss"er shall be pres",ed to ha!e been effected while in possession of ,aterial 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age D> of 6<1 COR;ORATION LA9 COBBARCIAL LA9 non/p"blic infor,ation if transacted after s"ch infor,ation ca,e into e#istence b"t prior to disse,ination of s"ch infor,ation to the p"blic and the lapse
of a reasonable ti,e for the ,ar.et to absorb s"ch infor,ation This pres",ption shall be reb"tted "pon a showing by the p"rchaser or seller that he was not aware of the ,aterial nonp"blic infor,ation at the ti,e of the p"rchase or sale. Baterial non/p"blic infor,ation) %a( It has not been generally disclosed to the p"blic and wo"ld li.ely affect the ,ar.et price of the sec"rity after being disse,inated to the p"blic and the lapse of a reasonable ti,e for the ,ar.et to absorb the infor,ation- or %b( wo"ld be considered by a reasonable person i,portant "nder the circ",stances in deter,ining his co"rse of action whether to b"y sell or hold a sec"rity. Co,,"nication of the Infor,ation It shall be "nlawf"l for any insider to co,,"nicate ,aterial non/p"blic infor,ation abo"t the iss"er or the sec"rity to any person who by !irt"e of the co,,"nication beco,es an insider where the insider co,,"nicating the infor,ation .nows or has reason to belie!e that s"ch person will li.ely b"y or sell a sec"rity of the iss"er while in possession of s"ch infor,ation.
Insider Trading in Relation to Tender Offers a.( It shall be "nlawf"l where a tender offer has co,,enced or is abo"t to co,,ence for) * Any person %other than the tender offeror( who is in possession of ,aterial non/p"blic infor,ation relating to s"ch tender offer to b"y or sell the sec"rities of the iss"er that are so"ght or to be so"ght by s"ch tender offer if s"ch person .nows or has reason to belie!e that o the infor,ation is nonp"blic and o has been ac+"ired directly or indirectly fro, the tender offeror those acting on its behalf the iss"er of the sec"rities or any insider of s"ch iss"er- and * Any tender offeror those acting on its behalf the iss"er of the sec"rities and any insider to co,,"nicate ,aterial non/p"blic infor,ation relating to the tender offer to any other person where s"ch co,,"nication is li.ely to
res"lt in a !iolation of s"bsection 'D.=. 1F. Reg"lation of Bar.et ;rofessionals and Other Antities 1F.1 Registration of Hro.ers Dealers 3ales,en and Associated ;ersons 8eneral R"le ) o No person shall engage in the b"siness of b"ying or selling sec"rities in the ;hilippines as a bro.er or dealer or act as a sales,an or an associated person of any bro.er or dealer "nless registered as s"ch with the Co,,ission. o No registered bro.er or dealer shall e,ploy any sales,an or any associated person and no iss"er shall e,ploy any sales,an who is not registered as s"ch with the Co,,ission. o Nicolas !s CA %1>>E() The f"tility of petitionerVs action beca,e ,ore prono"nced by the fact that he traded sec"rities for the acco"nt of others witho"t the necessary license fro, the 3AC. Clearly s"ch o,ission was in !iolation of 3ection 1> of the Re!ised 3ec"rities Act.
The p"rpose of the stat"te re+"iring the registration of bro.ers selling sec"rities and the filing of data regarding sec"rities which they propose to sell is to protect the p"blic and strengthen the sec"rities ,echanis,. A,erican 1"rispr"dence e,phasi$es the principle that) Tan "nlicensed person ,ay not reco!er co,pensation for ser!ices as a bro.er where a stat"te or ordinance re+"iring a license is applicable and s"ch stat"te or ordinance is of a reg"latory nat"re was enacted in the e#ercise of the police power for the p"rpose of protecting the p"blic re+"ires a license as e!idence of +"alification and fitness and e#pressly precl"des an "nlicensed person fro, reco!ering co,pensation by s"it or at least ,anifests an intent to prohibit and render "nlawf"l the transaction of b"siness by an "nlicensed person.T 9e see no reason not to apply the sa,e r"le in o"r 1"risdiction. 3toc. ,ar.et trading a technical and highly speciali$ed instit"tion in the
;hilippines ,"st be entr"sted to indi!id"als with pro!en integrity co,petence and .nowledge who ha!e d"e regard to the re+"ire,ents of the law. A#ception) The Co,,ission ,ay conditionally or "nconditionally e#e,pt any 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age EF of 6<1 COR;ORATION LA9 COBBARCIAL LA9 bro.er dealer sales,an associated person of any bro.er or dealer or any class of the foregoing fro, registration as it dee,s consistent with the p"blic interest and the protection of in!estors. %3ec. 'E.6( ;roced"re %3ec. 'E.<() o A bro.er or dealer ,ay apply for registration by filing with the Co,,ission a written application. o Registration of a sales,an or of an associated person of a registered bro.er or dealer ,ay be ,ade "pon written application filed with the Co,,ission by s"ch sales,an or associated person. 0or p"rposes of this action sales,an shall not incl"de any e,ployee of an iss"er whose
co,pensation is not deter,ined directly or indirectly on sales of sec"rities of the iss"er. 1F.' Q"alifications of Bar.et ;rofessionals %3ec. 'E.=( The Co,,ission shall pro,"lgate r"les and reg"lations prescribing the +"alifications for registration of each category of applicant which shall a,ong other things re+"ire as a condition for registration that) %a( If a nat"ral person the applicant satisfactorily pass a written e#a,ination as to his proficiency and .nowledge in the area of acti!ity for which registration %b( In the case of a bro.er or dealer the applicant satisfy a ,ini,", net capital and pro!ide a bond or other sec"rity as the Co,,ission ,ay prescribe %c( If located o"tside of the ;hilippines the applicant files a written consent to ser!ice of process "pon the Co,,ission p"rs"ant to 3ec. ?< hereof. 1F.6 3AC Action %3ec. 'E.E( a. 9ithin 6F days after the filing of any
application the Co,,ission shall by order) %a( 8rant registration if it deter,ines that the re+"ire,ents of this 3ection and the +"alifications for registration ha!e been satisfied- or %b( Deny said registration. b. The na,es and addresses of all persons appro!ed for registration and all orders of the Co,,ission with respect thereto shall be recorded in a Register of 3ec"rities Bar.et ;rofessionals .ept in the office of the Co,,ission which shall be open to p"blic inspection. 1F.= Contin"ing Re+"ire,ents o A!ery person registered shall file with the Co,,ission infor,ation necessary to .eep the application for registration c"rrent and acc"rate . o A!ery person registered shall pay to the Co,,ission an ann"al fee. Upon notice by the Co,,ission that s"ch ann"al fee has not been paid as re+"ired the registration of s"ch person shall be s"spended "ntil pay,ent has been ,ade.
1F.< Ter,ination of Registration of 3ales,an or Associated ;erson The registration of a sales,an or associated person shall be a"to,atically ter,inated "pon the cessation of his affiliation with said registered bro.er or dealer or with an iss"er in the case of a sales,an e,ployed appointed or a"thori$ed by s"ch iss"er. The registered bro.er or dealer or iss"er as the case ,ay be shall file with the Co,,ission a notice of separation of s"ch sales,an or associated person. 1F.? Re!ocation Ref"sal or 3"spension of Registration of Hro.ers Dealers 3ales,en and Associated ;ersons %3ec. '>( If after d"e notice and hearing the Co,,ission deter,ines the applicant or registrant) %a( 5as willf"lly !iolated any pro!ision of this Code any r"le reg"lation or order ,ade here"nder or any other law ad,inistered by the Co,,ission or in the case of a registered bro.er dealer or associated person has failed to s"per!ise with a !iew to pre!enting s"ch !iolation another
person who co,,its s"ch !iolation%b( 5as willf"lly ,ade or ca"sed to be ,ade a ,aterially false or ,isleading state,ent in any application for registration or report filed with the Co,,ission or a self/reg"latory organi$ation or has willf"lly o,itted to state any ,aterial fact that is re+"ired to be stated therein%c( 5as failed to satisfy the +"alifications or re+"ire,ents for registration and the r"les and reg"lations%d( 5as been con!icted by a co,petent 1"dicial or ad,inistrati!e a"thority of an offense in!ol!ing ,oral t"rpit"de fra"d e,be$$le,ent co"nterfeiting theft estafa ,isappropriation forgery bribery false oath or per1"ry or of a 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age E1 of 6<1 COR;ORATION LA9 COBBARCIAL LA9 !iolation of sec"rities co,,odities ban.ing real estate or ins"rance laws%e( Is en1oined or restrained by a co,petent 1"dicial or
ad,inistrati!e body fro, engaging in sec"rities co,,odities ban.ing real estate or ins"rance acti!ities or fro, willf"lly !iolating laws go!erning s"ch acti!ities%f( Is s"b1ect to an order of a co,petent 1"dicial or ad,inistrati!e body ref"sing re!o.ing or s"spending any registration license or other per,it "nder this Code the r"les and reg"lations pro,"lgated there"nder any other law ad,inistered by the Co,,ission%g( Is s"b1ect to an order of a selfreg"latory organi$ation s"spending or e#pelling hi, fro, ,e,bership or participation therein or fro, association with a ,e,ber or participation thereof%h( 5as been fo"nd by a co,petent 1"dicial or ad,inistrati!e a"thority to ha!e willf"lly !iolated any pro!isions of sec"rities co,,odities ban.ing real estate or ins"rance laws or has willf"lly aided
abetted co"nseled co,,anded ind"ced or proc"red s"ch !iolation- or %i( 5as been 1"dicially declared insol!ent. '>.=. It shall be s"fficient ca"se for ref"sal re!ocation or s"spension of a bro.erVs or dealer4s registration if any associated person thereof or any 1"ridical entity controlled by s"ch associated person has co,,itted any act or o,ission or is s"b1ect to any disability en",erated earlier. Transactions and Responsibility of Hro.ers and Dealers %3ec. 6F( a. ;rohibition against dealing or otherwise selling or b"ying for its acco"nt of c"sto,ers sec"rities listed on an A#change iss"ed by any corporation where any stoc.holder director associated person or sales,an or a"thori$ed cler. of said bro.er or dealer and all the relati!es of the foregoing within the fo"rth ci!il degree o consang"inity or affinity is at the ti,e holding office in said iss"er corporation as a director president !ice/president ,anager treas"rer co,ptroller secretary or any office or tr"st and responsibility or is a controlling person of the iss"er.
b. ;rohibition against effecting any transaction in sec"rities or ind"ce or atte,pt to ind"ce the p"rchase or sale of any sec"rity e#cept in co,pliance with s"ch r"les and reg"lations as the Co,,ission shall prescribe to ens"re fair and honest dealings in sec"rities and pro!ide financial safeg"ards an other standards for the operation o bro.ers and dealers. 11. Reg"lation of A#changes 11.1 Nat"re of 3toc. A#changes Lope$ et. al !s. Co"rt of Appeals %1>EE( An e#change is a !ol"ntary association or corporation organi$ed for the p"rpose of f"rnishing to its ,e,bers a con!enient and s"itable place to transact their b"siness of pro,oting "nifor,ity in the c"sto,s and "sages of ,erchants of inc"lcating principles of 1"stice and e+"ity in trade of facilitating the speedy ad1"st,ent of b"siness disp"tes of ac+"iring and disse,ination !al"able co,,ercial and econo,ic infor,ation and generally of sec"ring to its ,e,bers the benefits of co/operation in the f"rtherance of their legiti,ate p"rs"its. Carolina Ind"stries !s. CB3 3toc. Hro.erage %1>EF( The r"les and reg"lations of the A#change for, part of the contract co!ering sec"rities
transacted within the facilities of A#change. 3ec Opinion X11 %'FF6( It is i,portant to stress that the 3ec"rities Reg"lation Code %3RC( treats e#changes as a special specie of corporation and s"b1ects the, to r"les not otherwise applicable to reg"lar corporations. The stoc. e#change perfor,s a f"nction !ital to the national econo,y a f"nction !ested with p"blic interest. It is said that the econo,y ,o!es on the basis of the rise and fall of the stoc.s traded and th"s the integrity of the e#change o!erseeing these transactions can ne!er be o!er e,phasi$ed. It is for this reason that the 3RC pro!ides for stricter r"les on e#change reg"lation. The 3RC de!otes a whole chapter on e#changes and other sec"rities trading ,ar.ets and it is replete with pro!isions designed to professionali$e the e#change enco"rage greater p"blic participation ens"re increased transparency greater responsibility and i,pro!e corporate go!ernance. These pro!isions are not fo"nd in the Corporation Code and are ,eant as additional legal re+"ire,ents applicable only to e#changes. It is th"s incorrect to arg"e that the pro!isions of the Corporation Code alone
go!ern the operation of e#changes. 9hile the Corporation Code applies to corporations in general the 3RC is a special law that pri,arily go!erns the reg"lation of e#changes. As between a specific stat"te and a general stat"te the for,er ,"st pre!ail since it e!inces the legislati!e intent ,ore clearly than a general stat"te does. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age E' of 6<1 COR;ORATION LA9 COBBARCIAL LA9 Th"s the 3AC has the power of s"per!ision o!er e#changes. 3"per!ision entails o!erseeing or the power or a"thority to see that s"bordinate s"b1ect perfor,s its d"ties. If the latter fails or neglects to f"lfill the, the for,er ,ay ta.e s"ch action or step as prescribed by law to ,a.e the, perfor, its d"ties. In this specific instance the 3AC can e!en ta.e o!er the ,anage,ent of the e#change as a"thori$ed by the 3RC. 11.' Registration ;roced"re %3ec. 66( Any A#change ,ay be registered as s"ch with the Co,,ission by filing an application for registration in s"ch for, and containing s"ch infor,ation and s"pporting doc",ents as the Co,,ission by r"le shall prescribe
incl"ding the following) %a( An "nderta.ing to co,ply and enforce co,pliance by its ,e,bers with the pro!isions of this Code its i,ple,enting r"les or reg"lations and the r"les of the A#change%b( The organi$ational charts of the A#change r"les of proced"re and a list of its officers and ,e,bers%c( Copies of the r"les of the A#change- and %d( An "nderta.ing that in the e!ent a ,e,ber fir, beco,es insol!ent or when the A#change shall ha!e fo"nd that the financial condition of its ,e,ber fir, has so deteriorated that it cannot readily ,eet the de,ands of its c"sto,ers for the deli!ery of sec"rities and2or pay,ent of sales proceeds the A#change shall ta.e o!er the operation of the insol!ent ,e,ber fir, and i,,ediately proceed to settle the ,e,ber fir,4s liabilities to its c"sto,ers. Registration of an A#change shall be granted "pon co,pliance with the following pro!isions) %a( That the applicant is organi$ed as
a stoc. corporation%b( That the applicant is engaged solely in the b"siness of operating an e#change) ;ro!ided howe!er That the Co,,ission ,ay "pon application e#e,pti an A#change organi$ed as a stoc. corporation and owned and controlled by another 1"ridical person fro, this restriction%c( 9here the A#change is organi$ed as a stoc. corporation that no person ,ay beneficially own or control directly or indirectly ,ore than <G of the !oting rights of the A#change and no ind"stry or b"siness gro"p ,ay beneficially own or control ,ore than 'FG of the !oting rights of the A#change) ;ro!ided howe!er That the Co,,ission ,ay adopt r"les reg"lations or iss"e an order "pon application e#e,pting an applicant fro, this prohibition where it finds that s"ch ownership or control will not negati!ely i,pact on the e#change4s ability to effecti!ely operate in the p"blic interest%d( The e#p"lsion s"spension or disciplining of a ,e,ber and
persons associated with a ,e,ber for cond"ct or proceeding inconsistent with 1"st and e+"itable principles of fair trade and for !iolations of pro!isions of this Code or the r"les of the A#change%e( A fair proced"re for the disciplining of ,e,bers and persons associated with ,e,bers the denial of ,e,bership to any person see.ing to be a ,e,ber the barring of any person fro, association with a ,e,ber and the prohibition or li,itation of any person fro, access to ser!ices offered by the A#change%f( That the bro.ers in the board of the A#change shall co,prise of not ,ore than =>G of s"ch board and shall proportionately represent the A#change ,e,bership in ter,s of !ol",e2!al"e of trade and paid "p capital and that any nat"ral person associated with a 1"ridical entity that is a ,e,ber shall hi,self be dee,ed to be a ,e,ber for this p"rpose%g( 0or the board of the A#change to incl"de in its co,position %i( the president of the A#change and
%ii( no less than <1G of the re,aining ,e,bers of the board to be co,prised of 6 independent directors and persons who represent the interests of iss"ers in!estors and other ,ar.et participants who are not associated with any bro.er or dealer or ,e,ber of the A#change for a period of ' years prior to his2her appoint,ent. No officer or e,ployee of a ,e,ber its s"bsidiaries or affiliates or related interests shall beco,e an independent director) ;ro!ided howe!er That the Co,,ission ,ay by r"le reg"lation or order "pon application per,it the e#change organi$ed as a stoc. corporation to "se a different go!ernance str"ct"re) ;ro!ided f"rther That the Co,,ission is satisfied that the A#change is acting in the p"blic interest and is able to effecti!ely operate as a self/reg"latory organi$ation "nder this Code. %h( The president and other ,anage,ent of the A#change to consist only of persons who are not ,e,bers and are not associated in
any capacity directly or indirectly with any bro.er or dealer or ,e,ber or listed co,pany of the A#change) ;ro!ided That the A#change ,ay only appoint and a 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age E6 of 6<1 COR;ORATION LA9 COBBARCIAL LA9 person ,ay only ser!e as an officer of the e#change if s"ch person has not been a ,e,ber or affiliated with any bro.er dealer or ,e,ber of the A#change for a period of at least ' years prior to s"ch appoint,ent%i( The transparency of transactions on the A#change%1( The e+"itable allocation of reasonable d"es fees and other charges a,ong ,e,bers and iss"ers and other persons "sing any facility or syste, which the A#change operates or controls%.( ;re!ention of fra"d"lent and ,anip"lati!e acts and practices pro,otion of 1"st and e+"itable principles of trade and in general protection of in!estors and the p"blic interest- and %l( The transparent pro,pt and acc"rate clearance and settle,ent
of transactions effected on the A#change. 11.6 3egregation and Li,itation of 0"nctions of Be,bers Hro.ers and Dealers %3ec. 6=( It shall be "nlawf"l for any ,e,berbro.er of an A#change to effect any transaction on s"ch A#change for) * its own acco"nt * the acco"nt of an associated person or * an acco"nt with respect to which it or an associated person thereof e#ercises in!est,ent discretion ;ro!ided howe!er That this section shall not ,a.e "nlawf"l 7 %a( Any transaction by a ,e,berbro.er acting in the capacity of a ,ar.et ,a.er%b( Any transaction reasonably necessary to carry on an odd/lot transactions%c( Any transaction to offset a transaction ,ade in error- and %d( Any other transaction of a si,ilar nat"re as ,ay be defined by the Co,,ission. 3ec Opinion X11 %'FF6( The abo!e/+"oted 3ec. 66.'. of the 3RC is not fo"nd in the old Re!ised 3ec"rities Act
nor in the Corporation Code. Ite,s %c( %f( and %g( thereof are all intended to enco"rage greater p"blic participation ens"re increased transparency greater responsibility and i,pro!e corporate go!ernance. 3"bsection %c( ,andates that the ownership of the stoc.s of the e#change be broadened and de,ocrati$ed thereby ens"ring greater p"blic participation. On the other hand 3"bsections %f( and %g( ,andate a board co,position where no ,ore than =>G of the seats shall be occ"pied by bro.ers and no less than <1G to be co,prised of %6( independent directors and persons representing other sectors of the ,ar.et. 9ith respect to independent directors their election in the Hoard is intended to ens"re that the Hoard will faithf"lly discharge its fid"ciary responsibilities to its stoc.holders. These pro!isions ai, for a ,ore representati!e de,ocratic independent Hoard of Directors that is a"tono,o"s fro, the control of any sector of the ,ar.et. 1'. Independent Directors Any corporation with * a class of e+"ity sec"rities listed for trading on an A#change or * with assets in e#cess of ;<F FFF FFF.FF
and ha!ing 'FF or ,ore holders at least of 'FF of which are holding at least 1FF shares of a class of its e+"ity sec"rities or which has sold a class of e+"ity sec"rities to the p"blic p"rs"ant to an effecti!e registration state,ent 3hall ha!e at least ' independent directors or s"ch independent directors shall constit"te at least 'FG of the ,e,bers of s"ch board whiche!er is the lesser. An Lindependent directorM shall ,ean a person other than an officer or e,ployee of the corporation its parent or s"bsidiaries or any other indi!id"al ha!ing a relationship with the corporation which wo"ld interfere with the e#ercise of independent 1"dg,ent in carrying o"t the responsibilities of a director. 16. 3elf/Reg"latory Organi$ations 16.1 3cope 2 Definition %3ec. 6>( The Co,,ission shall ha!e the power to register as a self/reg"latory organi$ation organi$ations whose operations are related to or connected with the sec"rities ,ar.et s"ch as b"t not li,ited to * associations of bro.ers and dealers * transfer agents * c"stodians * fiscal and paying agents * co,p"ter ser!ices * news disse,inating ser!ices
* pro#y solicitors * statistical agencies * sec"rities rating agencies and * sec"rities infor,ation processors 9hich are engaged in the b"siness of) %a( Collecting processing or preparing for distrib"tion or p"blication or assisting participating in or coordinating the distrib"tion or p"blication of infor,ation with respect to transactions in or +"otations for any sec"rity- or %b( Distrib"ting or p"blishing on a c"rrent and contin"ing basis infor,ation with respect to s"ch transactions or +"otations. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age E= of 6<1 COR;ORATION LA9 COBBARCIAL LA9 16.' Registration An association of bro.ers and dealers ,ay be registered as a sec"rities association by filing with the Co,,ission an application for registration. 3"ch association shall not be registered "nless the Co,,ission deter,ines that) %a( The association is so organi$ed and has the capacity to be able to carry o"t the p"rposes of this Code and to co,ply with and to enforce co,pliance by its ,e,bers and
persons associated with its ,e,bers with the pro!isions of this Code. %b( The r"les of the association notwithstanding anything in the Corporation Code to the contrary pro!ide that) * Any registered bro.er or dealer ,ay beco,e a ,e,ber of the association* There e#ist a fair representation of its ,e,bers to ser!e on the Hoard of Directors of the association and in the ad,inistration of its affairs and that any nat"ral person associated with a 1"ridical entity that is a ,e,ber shall hi,self be dee,ed to be a ,e,ber for this p"rpose* The Hoard of Directors of the association incl"des in its co,position) %a( The president of the association and %b( ;ersons who represent the interests of iss"ers and p"blic in!estors and are not associated with any bro.er or dealer or ,e,ber of the association-
that the president and other ,anage,ent of the association not be a ,e,ber or associated with any bro.er dealer or ,e,ber of the association* 0or the e+"itable allocation of reasonable d"es fees and other charges a,ong ,e,bers and iss"ers and other persons "sing any facility or syste, which the association operates or controls* 0or the pre!ention of fra"d"lent and ,anip"lati!e acts and practices the pro,otion of 1"st and e+"itable principles of trade and the protection of in!estors and the p"blic interest* That its ,e,bers and persons associated with its ,e,bers be appropriately disciplined for !iolation of any pro!ision of this Code* That a fair proced"re for the disciplining of ,e,bers and the denial of ,e,bership to
any person see.ing ,e,bership therein the barring of any person fro, beco,ing associated with a ,e,ber thereof and the prohibition or li,itation by the association of any person with respect to access to ser!ices offered by the association or a ,e,ber thereof. 16.6 Denial of Be,bership 2 A,ploy,ent %3ec. 6>.=( %a( A registered sec"rities association shall deny ,e,bership to any person who is not a registered bro.er or dealer. %b( A registered sec"rities association ,ay deny ,e,bership to or condition the ,e,bership of a registered bro.er or dealer if s"ch bro.er or dealer) * Does not ,eet the standards of financial responsibility operational capability training e#perience or co,petence that are prescribed by the r"les of the association- or * 5as engaged and there is a reasonable li.elihood it will
again engage in acts or practices inconsistent with 1"st and e+"itable principles of fair trade. %c( A registered sec"rities association ,ay deny ,e,bership to a registered bro.er or dealer not engaged in a type of b"siness in which the r"les of the association re+"ire ,e,bers to be engaged) ;ro!ided howe!er That no registered sec"rities association ,ay deny ,e,bership to a registered bro.er or dealer by reason of the a,o"nt of b"siness done by the bro.er or dealer. %d( A registered sec"rities association ,ay bar a sales,an or person associated with a bro.er or dealer fro, being e,ployed by a ,e,ber or set conditions for the e,ploy,ent of a sales,an or associated if s"ch person) * Does not ,eet the standards of training e#perience or co,petence that are prescribed by the r"les of the association- or * 5as engaged and there is a reasonable li.elihood he will
again engage in acts or practices inconsistent with 1"st and e+"itable principles of fair trade. 1= Bargin Trading 1=.1 Bargin Re+"ire,ents %3ec. =E( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age E< of 6<1 COR;ORATION LA9 COBBARCIAL LA9 0or the p"rpose of pre!enting the e#cessi!e "se of credit for the p"rchase or carrying of sec"rities the Co,,ission shall prescribe r"les and reg"lations with respect to the a,o"nt of credit that ,ay be e#tended on any sec"rity. 0or the e#tension of credit s"ch r"les and reg"lations shall be based "pon the following standard) An a,o"nt not greater than whiche!er is the higher of 7 %a( ?<G of the c"rrent ,ar.et price of the sec"rity- or %b( 1FFG(of the lowest ,ar.et price of the sec"rity d"ring the preceding 6? calendar ,onths b"t not ,ore than D<G of the c"rrent ,ar.et price. 1=.' ;rohibited Credit Arrange,ents %3ec. =E.'( No ,e,ber of an A#change or bro.er or
dealer shall directly or indirectly e#tend or ,aintain credit or arrange for the e#tension or ,aintenance of credit to or for any c"sto,er) %a( On any sec"rity "nless s"ch credit is e#tended and ,aintained in accordance with the r"les and reg"lations which the Co,,ission shall prescribe%b( 9itho"t collateral or on any collateral other than sec"rities e#cept * to ,aintain a credit initially e#tended in confor,ity with the r"les and reg"lations of the Co,,ission- and * in cases where the e#tension or ,aintenance of credit is not for the p"rpose of p"rchasing or carrying sec"rities or of e!ading or circ",!enting the pro!isions of par %a( of this s"bsection. 1=.6 Restrictions on Horrowings by Be,bers Hro.ers and Dealers %3ec. =>( It shall be "nlawf"l for any registered bro.er or dealer or ,e,ber of an A#change directly or indirectly) * To per,it in the ordinary co"rse of b"siness his aggregate indebtedness
incl"ding c"sto,ers4 credit balances to e#ceed s"ch percentage of the net capital %e#cl"si!e of fi#ed assets and !al"e of A#change ,e,bership( e,ployed in the b"siness b"t not e#ceeding in any case ' FFFG as the Co,,ission ,ay prescribe. * To pledge ,ortgage or otherwise enc",ber any sec"rity carried for the acco"nt of any c"sto,er "nder circ",stances) o That will per,it the co,,ingling of his sec"rities witho"t his written consent with the sec"rities of any c"sto,ero That will per,it s"ch sec"rities to be co,,ingled with the sec"rities of any person other than a bona fide c"sto,er- or o That will per,it s"ch sec"rities to be pledged ,ortgaged or enc",bered or s"b1ected to any lien or clai, of the pledgee for a s", in e#cess of the aggregate indebtedness of s"ch c"sto,ers in respect of s"ch sec"rities. * To lend or arrange for the lending of any sec"rity carried for the acco"nt of any c"sto,er witho"t the written consent of s"ch c"sto,er or in
contra!ention of s"ch r"les and reg"lations as the Co,,ission shall prescribe. 1=.= Anforce,ent of Bargin Re+"ire,ents and Restrictions on Horrowing %3ec. <F( To pre!ent indirect !iolations of the ,argin re+"ire,ents the bro.er or dealer shall re+"ire the c"sto,er in non/,argin transactions to pay the price of the sec"rity within s"ch period as the Co,,ission ,ay prescribe which shall in no case e#ceed the prescribed settle,ent date. Otherwise the bro.er shall sell the sec"rity p"rchased starting on the ne#t trading day b"t not beyond 1F trading days following the last day for the c"sto,er to pay s"ch p"rchase price "nless s"ch sale cannot be effected within said period for 1"stifiable reasons. The sale shall be witho"t pre1"dice to the right of the bro.er or dealer to reco!er any deficiency fro, the c"sto,er. To pre!ent indirect !iolation of restrictions on borrowings "nder 3ection => the bro.er shall "nless otherwise directed by the c"sto,er pay the net sales price of the sec"rities sold for a c"sto,er within the sa,e period as abo!e prescribed by the Co,,ission
;ro!ided That the c"sto,er shall be re+"ired to deli!er the instr",ents e!idencing the sec"rities as a condition for s"ch pay,ent "pon de,and by the bro.er. 1<. Ad,inistrati!e 3anctions and 3ettle,ent Offers 1<.1 Ad,inistrati!e 3anctions %3ec. <=( If after d"e notice and hearing the Co,,ission finds that) %a( There is a !iolation of this Code its r"les or its orders%b( Any registered bro.er or dealer associated person thereof has failed reasonably to s"per!ise another person s"b1ect to s"per!ision who co,,its any s"ch !iolation%c( Any registrant or other person has in a registration state,ent or in other reports applications acco"nts records or doc",ents 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age E? of 6<1 COR;ORATION LA9 COBBARCIAL LA9 ,ade any "ntr"e state,ent of a ,aterial fact or o,itted to state any ,aterial fact re+"ired to be stated therein or necessary to ,a.e the state,ents therein not ,isleading%d( or in the case of an "nderwriter
has failed to cond"ct an in+"iry with reasonable diligence to ins"re that a registration state,ent is acc"rate and co,plete in all ,aterial respects- or %e( Any person has ref"sed to per,it any lawf"l e#a,inations into its affairs The i,position of ad,inistrati!e sanctions shall be witho"t pre1"dice to the filing of cri,inal charges. 1<.' 3ettle,ent Offers %3ec. <<( At any ti,e d"ring an in!estigation or proceeding "nder this Code parties being in!estigated and2or charged ,ay propose in writing an offer of settle,ent with the Co,,ission. The Co,,ission ,ay consider the offer based on ti,ing the nat"re of the in!estigation or proceeding and the p"blic interest. The Co,,ission ,ay only agree to a settle,ent offer based on its findings that s"ch settle,ent is in the p"blic interest. Any agree,ent to settle shall ha!e no legal effect "ntil p"blicly disclosed. 3"ch decision ,ay be ,ade witho"t a deter,ination of g"ilt on the part of the person ,a.ing the offer. 1?. Ci!il Liabilities %3ec. <?(
1?.1 On Acco"nt of 0alse Registration 3tate,ent 9ho ,ay s"eS Any person * ac+"iring a sec"rity the registration state,ent of which or any part thereof contains on its effecti!ity an "ntr"e state,ent of a ,aterial fact or o,its to state a ,aterial fact re+"ired to be stated therein or necessary to ,a.e s"ch state,ents not ,isleading and * who s"ffers da,age If the person who ac+"ired the sec"rity did so after the iss"er has ,ade generally a!ailable to its sec"rity holders an inco,e state,ent co!ering a period of at least 1' ,onths then the right of reco!ery shall be conditioned on proof that s"ch person ac+"ired the sec"rity relying "pon s"ch "ntr"e state,ent. 9ho ,ay be s"edS %a( The iss"er and e!ery person who signed the registration state,ent%b( A!ery person who was a director or a partner in the iss"er at the ti,e of the filing of the registration state,ent or any part s"pple,ent or a,end,ent thereof%c( A!ery person who is na,ed in the
registration state,ent as being or abo"t to beco,e a director or a partner%d( A!ery a"ditor or a"diting fir, na,ed as ha!ing certified any financial state,ents "sed in connection with the registration state,ent or prospect"s. %e( A!ery person who with his written consent has been na,ed as ha!ing prepared or certified any part of the registration state,ent or as ha!ing prepared or certified any report or !al"ation which is "sed in connection with the registration state,ent. %f( A!ery selling shareholder who contrib"ted to and certified as to the acc"racy of a portion of the registration state,ent. %g( A!ery "nderwriter with respect to s"ch sec"rity. ;ossible Defense ) 3"ch person ,ay allege that at the ti,e of s"ch ac+"isition he .new of no s"ch "ntr"e state,ent or o,ission) 1?.' On Acco"nt of Insider Trading %3ec. ?1( 9ho ,ay be s"edS Any insider who !iolates 3"bsection 'D.1 and any person in the case of a tender
offer who !iolates 3"bsection 'D.= %a(%i( or any r"le or reg"lation there"nder by p"rchasing or selling a sec"rity while in possession of ,aterial infor,ation not generally a!ailable to the p"blic shall be liable in a s"it bro"ght by any in!estor who conte,poraneo"sly with the p"rchase or sale of sec"rities that is the s"b1ect of the !iolation p"rchased or sold sec"rities of the sa,e class "nless s"ch insider or s"ch person in the case of a tender offer pro!es that s"ch in!estor .new the infor,ation or wo"ld ha!e p"rchased or sold at the sa,e price regardless of disclos"re of the infor,ation to hi,. An insider who co,,"nicates ,aterial non/p"blic infor,ation shall be 1ointly and se!erally liable with and to the sa,e e#tent as the insider or person in the case of a tender offer. 1D. Li,itation of Actions %3ec. ?'( No action shall be ,aintained to enforce any liability created "nder 3ection <? %false registration state,ent( or <D %false prospect"s. Co,,"nications reports( "nless bro"ght within ' years after the disco!ery of the "ntr"e state,ent or the o,ission. If the action is to enforce a liability created "nder 3"bsection <D.1%a( %registration of
1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ED of 6<1 COR;ORATION LA9 COBBARCIAL LA9 sec"rities( "nless bro"ght within ' years after the !iolation "pon which it is based. In no e!ent shall any s"ch action be bro"ght to enforce a liability created "nder 3ection <? or 3"bsection <D.1 %a( ,ore than < years after the sec"rity was bona fide offered to the p"blic or "nder 3"bsection <D.1 %b( %sale based on false prospect"s co,,"nications reports( ,ore than < years after the sale. No action shall be ,aintained to enforce any liability created "nder any other pro!ision of this Code "nless bro"ght) * within ' years after the disco!ery of the facts constit"ting the ca"se of action and * within < years after s"ch ca"se of action accr"ed. 1E. Da,ages to be Awarded %3ec. ?6( 1E.1 A,o"nts 2 Rinds of Da,ages All s"its to reco!er da,ages p"rs"ant to 3ections <? %false registration state,ent( <D %false prospect"s co,,"nications reports( <E %fra"d in connection with sec"rities transactions( <> %,anip"lation of prices( ?F %co,,odity f"t"res contracts and preneed
plans( and ?1 %insider trading( shall be bro"ght before the RTC which shall ha!e e#cl"si!e 1"risdiction to hear and decide s"ch s"its. The Co"rt is hereby a"thori$ed to award da,ages in an a,o"nt not e#ceeding triple the a,o"nt of the transaction pl"s act"al da,ages. A#e,plary da,ages ,ay also be awarded in cases of bad faith fra"d ,ale!olence or wantonness in the !iolation of this Code and r"les and reg"lations pro,"lgated here"nder. The Co"rt is also a"thori$ed to award attorney4s fees not e#ceeding 6FG of the award. 1E.' ;ersons liable to pay The persons specified in 3ections <? <D <E <> ?F and ?1 hereof shall be 1ointly and se!erally liable fo he pay,ent of da,ages. 5owe!er any person who beco,es liable for the pay,ent of s"ch da,ages ,ay reco!er contrib"tion fro, any other person who if s"ed separately wo"ld ha!e been liable to ,a.e the sa,e pay,ent "nless the for,er was g"ilty of fra"d"lent representation and the latter was not. All persons incl"ding the iss"er held liable "nder the pro!isions of 3ections
<? <D <E <> ?F and ?1 shall contrib"te e+"ally to the total liability ad1"dged herein. In no case shall the principal stoc.holders directors and other officers reco!er their contrib"tion to the liability fro, the iss"er. 5owe!er the right of the iss"er to reco!er fro, the g"ilty parties the a,o"nt it has contrib"ted shall not be pre1"diced. 1>. Non/wai!er of ;ro!isions Any condition stip"lation pro!ision binding any person to wai!e co,pliance with any pro!ision of this Code or of any r"le of an A#change as well as the wai!er itself shal be !oid. 'F. ;enalties Any person who !iolates any of the pro!isions of this Code or any person who in a registration state,ent ,a.es any "ntr"e state,ent of a ,aterial fact or o,its to state any ,aterial fact re+"ired to be stated therein or necessary to ,a.e the state,ents therein not ,isleading shall "pon con!iction s"ffer * a fine of not less than ;<F FFF.FF nor ,ore than ;< FFF FFF.FF or * i,prison,ent of not less than D years nor ,ore than '1 years or * both in the discretion of the co"rt. If the offender is a corporation partnership or association or other 1"ridical entity the
penalty ,ay be i,posed "pon s"ch 1"ridical entity and "pon the officer or officers of the corporation partnership association or entity responsible for the !iolation. If s"ch officer is an alien he shall in addition to the penalties prescribed be deported. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age EE of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 Negotiable Instr",ents Law %Act No. 'F61( Chapter I. INTRODUCTION 1. The Negotiable Instr",ent * 9ritten contract for the pay,ent of ,oney by its for, intended as s"bstit"te for ,oney and intended to pass fro, hand to hand to gi!e the 5DC the right to hold the sa,e and collect the s", d"e. * Instr",ents are negotiable when they confor, to all the re+"ire,ents prescribed by the NIL %Act 'F61 F6 0ebr"ary 1>11(. * Altho"gh considered as ,edi", for pay,ent of obligations negotiable instr",ents are not legal tender %3ec. ?F New Central Han. Act R.A. D?<6(* Negotiable instr",ents shall prod"ce the effect of pay,ent only when they ha!e been encashed or when thro"gh the fa"lt of the creditor they ha!e been i,paired. %Art. 1'=> CC( HUT a C5ACR which has been cleared and
credited to the acco"nt of the creditor shall be e+"i!alent to a deli!ery to the creditor of cash. Negotiable Non/negotiable Contains all the re+"isites of 3ec. 1 of the NIL Does not contain all the re+"isites of 3ec. 1 of the NIL Transferred by negotiation Transferred by assign,ent 5DC ,ay ha!e better rights than transferor Transferee ac+"ires rights only of his transferor ;rior parties warrant pay,ent ;rior parties ,erely warrant legality of title Transferee has right of reco"rse against inter,ediate parties Transferee has no
right of reco"rse '. Negotiable Instr",ents Law o The NIL applies only to instr",ents which confor, with the re+"isites laid down by 3ec1 of the law. 3ho"ld any of said re+"isites be absent the instr",ent wo"ld not be negotiable and wo"ld therefore not be go!erned by the NIL b"t by the general law on contracts. o TI;) It is ad!ised that one ,e,ori$es the two ,ost i,portant pro!isions of the NIL ) 3ec. 1 %0or,s of negotiable instr",ents( and 3ec. <' %9hat constit"tes a holder in d"e co"rse( BIC5AAL A. O3BAÀ !. CITIHANR %'FF=( The Negotiable Instr",ents Law was enacted for the p"rpose of facilitating not hindering or ha,pering transactions in co,,ercial paper. Th"s the said stat"te sho"ld not be ta,pered with hapha$ardly or lightly. Nor sho"ld it be br"shed aside in order to ,eet the necessities in a single case 6. Life of a Negotiable Instr",ent 1. iss"e '. negotiation 6. present,ent for acceptance in certain bills =. acceptance <. dishonor by or acceptance ?. present,ent for pay,ent D. dishonor by nonpay,ent E. notice of dishonor >. protest in certain cases
1F. discharge =. Rinds of Negotiable Instr",ents =.1. ;ro,issory note / a pro,ise to pay ,oney * "nconditional pro,ise in writing ,ade by one person to another signed by the ,a.er * engaging to pay on de,and or at a fi#ed or deter,inable f"t"re ti,e a s", certain in ,oney to order or to bearer * where a note is drawn to the ,a.er4s own order not co,plete "ntil indorsed by hi, %3ec. 1E= NIL(. =.'. Hill of e#change / an order ,ade by one person to another to pay ,oney to a third person. * "nconditional order in writing addressed by one person to another signed by the person gi!ing it * re+"iring the person to who, it is addressed to pay on de,and or at a fi#ed or deter,inable f"t"re ti,e a s", certain in ,oney to order or to bearer %3ec. 1'? NIL(. * Chec.) bill of e#change drawn on a ban. payable on de,and. ;ro,issory Note Hill of A#change Unconditional pro,ise Unconditional order In!ol!es ' parties In!ol!es 6 parties Ba.er pri,arily liable
Drawer only secondarily liable Only 1 present,ent / for pay,ent 8enerally ' present,ents / for acceptance and for pay,ent <. ;arties <.1. As regards pro,issory note) 1. ;ro,issor2,a.er '. ;ayee / person to who, the pro,ise to pay is ,ade. <.'. As regards bill of e#change) 1. Drawer / person who gi!es the order to pay. '. Drawee / addressee of the order. 6. ;ayee / person to who, the pay,ent is to be ,ade. * Indorser / the payee of an instr",ent who transfers it to another by signing it at the bac. thereof NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age E> of 6<1 * Indorsee / person to who, the indorser negotiates the instr",ent who by s"ch negotiation beco,es the holder of the instr",ent. * Chapter II.
NA8OTIAHILITK 1 Re+"isites of Negotiability= 1.1. B"st be in 9riting and 3igned by the Ba.er 1. No person liable on the instr",ent whose signat"re does not appear thereon. '. One who signs in a trade or ass",ed na,e liable to sa,e e#tent as if he had signed in his own na,e. %3ec. 1E NIL( 6. 3ignat"re of party ,ay be ,ade by d"ly a"thori$ed agent- no partic"lar for, of appoint,ent necessary. %3ec. 1> NIL( =. TIn writingT / incl"des print- written or typed <. 3ignat"re binding so long it is intended or adopted as the signat"re of the signer or ,ade with his a"thority. 1.'. B"st contain an Unconditional Order or ;ro,ise to ;ay 1. LORDAR OR ;ROBI3A TO ;AKM a. ;ROBI33ORK NOTA) i. ;ROBI3A TO ;AK) sho"ld be e#press on the face of the instr",ent ii. 9ord Tpro,iseT is not absol"tely necessary. Any e#pression e+"i!alent to a pro,ise is s"fficient. iii. Bere ac.nowledg,ent of a debt ins"fficient
b. HILL3 O0 AOC5AN8A) i. Order / co,,and or i,perati!e direction- the instr",ent by its nat"re de,anding a right. ii. 9ords which are e+"i!alent to an order are s"fficient. iii. A ,ere re+"est or a"thority to pay does not constit"te an order. i!. Altho"gh the ,ere "se of polite words li.e TpleaseT does not of itself depri!e the instr",ent of its characteristics as an order its lang"age ,"st clearly indicate a de,and "pon the drawee to pay. '. LUNCONDITIONALM a. The pro,ise or order to pay to be "nconditional ,"st be "n+"alified. b. 3ec. 6 NIL) LAn "n+"alified order or pro,ise to pay is "nconditionalZtho"gh co"pled with) LAn indication of a partic"lar f"nd o"t of which rei,b"rse,ent is to be ,ade or a partic"lar acco"nt to be debited with the a,o"nt * UNCONDITIONAL) Bere indication of the partic"lar f"nd = 3"ggested Bne,onics) U; Ba3CoT43 ;a9N) Unconditional order and ;ro,ise payable in Boney 3igned by ,a.er Certainty as to Ti,e 3", and ;arties in 9riting incl"de words of Negotiability.
o"t of which rei,b"rse,ent is to be ,ade or an indication of a partic"lar acco"nt to be debited with the a,o"nt LA state,ent of the transaction which gi!es rise to the instr",ent. * UNCONDITIONAL) Bere recital of the transaction or consideration for which the instr",ent was iss"ed * 5owe!er the fact that the condition appearing on the instr",ent has been f"lfilled will not con!ert it into a negotiable one. H"t an order or pro,ise to pay o"t of a partic"lar f"nd is not "nconditional * CONDITIONAL) when reference to the f"nd clearly indicates an intention that s"ch f"nd alone sho"ld be the so"rce of pay,ent BATRO;OLITAN HANR !. CA %1>>1( The treas"ry warrants in +"estion are not NIs. They are payable fro, a partic"lar f"nd to wit 0"nd <F1. The indication of 0"nd <F1 as the so"rce of the pay,ent to be ,ade on the treas"ry warrants ,a.es the order or pro,ise to pay Tnot "nconditionalT and the warrants the,sel!es nonnegotiable. 1.6. 3", ;ayable ,"st be Certain
1. 3ec. ' NIL) The s", payable is a s", certain e!en if) a. 9ith interestb. Hy stated install,entsc. Hy stated install,ents with acceleration cla"sed. 9ith e#change whether at a fi#ed rate or at the c"rrent rate- or e. 9ith costs of collection or attorneyVs fee. '. A s", is certain if fro, the face of the instr",ent it can be ,athe,atically co,p"ted. 6. A stip"lation to pay a higher rate of interest if the note is not paid or a lower rate if it is paid on or before ,at"rity does not render the instr",ent non/negotiable. 1.=. B"st be ;ayable in Boney 1. Capable of being transfor,ed into ,oney. '. NON NA8OTIAHLA) an instr",ent which contains an order or pro,ise to do an act in addition to the pay,ent of ,oney 6. HUT If the order or pro,ise gi!es the holder an election to re+"ire so,ething to be done in lie" of pay,ent of ,oney an instr",ent otherwise negotiable wo"ld not be affected thereby. %3ec. < NIL( * H"t if the option is with the ,a.er or person pri,arily liable instr",ent is NOT negotiable.
=. Rind of c"rrent ,oney does not affect negotiability. 3ince the !al"e of the note can by a si,ple ,athe,atical co,p"tation be e#pressed in the !al"e of the lawf"l ,oney of the latter co"ntry %Incitti ! 0errante 1>66 U3 J"r( <. Obligations in foreign c"rrency ,ay be discharged in ;hilippine c"rrency based on 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age >F of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 the pre!ailing rate at the ti,e of pay,ent p"rs"ant to RA E1E6 %Asia 9orld Recr"it,ent ! NLRC 1>>>(. 1.<. Ti,e of ;ay,ent ,"st be Certain * ;"rpose) Infor,ing the holder of the instr",ent of the date when he ,ay enforce pay,ent thereof. * An instr",ent ,ay be payable) 1. on de,and %3ec. D. NIL( 1.( A#pressed to be payable on de,and or at sight or on presentation'.( No ti,e for pay,ent is e#pressed6.( 9here an instr",ent is iss"ed accepted or indorsed when o!erd"e it is as regards the person so iss"ing accepting or indorsing it payable on de,and. De,and instr",ents) 5older ,ay call for pay,ent any ti,e- ,a.er has an option to pay at any ti,e and the ref"sal of the
holder to accept pay,ent will ter,inate the r"nning of interest if any b"t the obligation to pay the note re,ains. '. at a fi#ed ti,e o Only on the stip"lated date and not before ,ay the holder de,and its pay,ent. o 3ho"ld he fail to de,and pay,ent the instr",ent beco,es o!erd"e b"t re,ains !alid and negotiable. It is ,erely con!erted to a de,and instr",ent. 6. at a deter,inable f"t"re ti,e o Deter,inable f"t"re ti,e if e#pressed to be payable %3ec. = NIL() 1.( At a fi#ed period after date of sight'.( On or before a fi#ed or deter,inable f"t"re ti,e specified therein6.( On or at a fi#ed period after the occ"rrence of a specified e!ent which is certain to happen tho"gh the ti,e of happening be "ncertain. o If payable "pon a contingency both negotiable and the happening of the e!ent does not c"re the defect. =. Affect of acceleration pro!isions o If option %absol"te or conditional( to accelerate ,at"rity is on the ,a.er still NA8OTIAHLA.
* Ba.er ,ay pay earlier than the date fi#ed b"t this option if e#ercised wo"ld be a pay,ent in ad!ance of a legal liability to pay. It is still payable on the date fi#ed and holder has no right to enforce pay,ent against the ,a.er before s"ch date. o If option to accelerate is on the holder) * If option can be e#ercised only after the happening of a specified e!ent2act o!er which he has no control %conditional( still NA8OTIAHLA. * If option is "nconditional ti,e of pay,ent is rendered "ncertain NOT negotiable. o Other instances where instr",ent still NA8OTIAHLA) * 9hen option gi!en to the holder to accelerate the ,at"rity of an install,ent note "pon fail"re of the ,a.er to pay any install,ent when d"e. * Acceleration a"to,atic "pon defa"lt. * Acceleration by operation of law. <. ;ro!isions e#tending ti,e of pay,ent o 8eneral r"le) Negotiability not
affected. Affect is si,ilar with that of an acceleration cla"se at the option of the ,a.er. * Negotiability not affected e!en if the holder is gi!en the option to e#tend ti,e of pay,ent by ,ere inaction or ind"lgence for an indefinite ti,e depending on his will beca"se with or witho"t this pro!ision the holder ,ay always choose to be ind"lgent. o A#ception) 9here a note with a fi#ed ,at"rity pro!ides that the ,a.er has the option to e#tend ti,e of pay,ent "ntil the happening of contingency instr",ent NOT negotiable. The ti,e for pay,ent ,ay ne!er co,e at all. 1.?. B"st be ;ayable to Order or to Hearer2 B"st contain 9ords of Negotiability * words of negotiability / ser!e as an e#pression of consent that the instr",ent ,ay be transferred. o H"t the instr",ent need not follow the lang"age of the law- any ter, which clearly indicates an intention to confor, with the legal re+"ire,ents is s"fficient. CALTAO I. CA %1>>'( The negotiability or non/negotiability of an instr",ent is deter,ined fro, the face of the
instr",ent itself. The d"ty of the co"rt in s"ch case is to ascertain not what the parties ,ay ha!e secretly intended b"t what is the ,eaning of the words they ha!e "sed. TRADAR3 ROKAL HANR I. CA %1>>D( The lang"age of negotiability which characteri$e a negotiable paper as a credit instr",ent is its freedo, to circ"late as a s"bstit"te for ,oney. 5ence freedo, of negotiability is the to"chtone relating to the protection of holders in d"e co"rse and the freedo, of negotiability is the fo"ndation for the protection which the law throws aro"nd a holder in d"e co"rse. * ;ostal ,oney order not negotiable beca"se it does not contain words of negotiability. * 9here words Tor bearerT printed on a chec. are cancelled by the drawer instr",ent not negotiable. NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age >1 of 6<1 * Hearer instr",ent ,ay be negotiated by ,ere deli!ery. o 9hen instr",ent is payable to bearer %3ec. > NIL() a. A#pressed to be so payable / e#) TI pro,ise to pay the bearer the s",Z.T b. ;ayable to a person na,ed therein or bearer 7 e#. T;ay to A or
bearer.T c. ;ayable to the order of a fictitio"s person or non/e#isting person and s"ch fact was .nown to the person ,a.ing it so payable / e#) T;ay to John Doe or order.T d. Na,e of payee does not p"rport to be the na,e of any person / e#) T;ay to cash-T T;ay to s"ndries.T e. Only or last indorse,ent is an indorse,ent in blan.. AN8 TAR LIAN !. CA %1><F( A chec. drawn payable to the order of cash is a chec. payable to bearer and the ban. ,ay pay it to the person presenting it for pay,ent witho"t the drawerVs indorse,ent. A chec. payable to bearer is a"thority for pay,ent to the holder. 9here the chec. is in the ordinary for, and is payable to bearer so that no indorse,ent is re+"ired a ban. to which it is presented for pay,ent need not ha!e the holder identified and is not negligent in failing to do so. * Order Instr",ent negotiation re+"ires deli!ery and indorse,ent of the transferor. o 9hen instr",ent is payable to order) Drawn payable to the order of a specified person or to hi, or his order %3ec. E NIL(. o 9itho"t the words Tto orderT or Tto the
order of T the instr",ent is payable only to the person designated therein and is therefore non/negotiable. %Ca,pos as cited in Consolidated ;lywood Ind"stries ! I0C Leasing 1>ED( 1.D. ;arties ,"st be designated with Certainty a. Ba.er and drawer * 3ign the instr",ent at the lower right/hand corner. b. ;ayee * 9hen negotiating sign at the bac.sa,e with indorsers. a. Drawee * Na,e "s"ally at the lower left/hand corner or across the top. * If instr",ent addressed to drawee he ,"st be na,ed or indicated with reasonable certainty. * If it is not clear in what capacity the person signed said person is considered an indorser ' ;ro!isions Not Affecting Negotiability %3ec. <(< 1. A"thori$es sale of collateral sec"rities'. A"thori$es confession of 1"dg,ent if instr",ent not paid at ,at"rity6. 9ai!es the benefit of any law intended for the ad!antage or protection of the obligor- or =. 8i!es holder election to re+"ire so,ething to
be done in lie" of pay,ent of ,oney. %if in addition to ,oney 7 not NI( * Negotiability affected when instr",ent contains a pro,ise or order to do any act in addition to the pay,ent of ,oney. ;NH !. BANILA OIL RA0ININ8 %1>''( In this case the note contains a pro!ision that in case that it wo"ld not be paid at ,at"rity the T,a.er a"thori$es any attorney to appear and confess 1"dg,ent thereon.T The Co"rt r"led that said 1"dg,ent note is illegal and inoperati!e as s"ch is against p"blic policy. It noted that it is in derogation of the constit"tional safeg"ards %a day in co"rt(. 3"ch 1"dg,ent note can only be !alid if gi!en e#press legislati!e sanction. In co,,on law two .inds of 1"dg,ent by confession) * J"dg,ent by cogno!it actione, * Confession relicta !erificatione 6. O,issions Not Affecting Negotiability %3ec. ?( A. Non/dating of the instr",ent H. Non/specification of !al"e gi!en or that any !al"e had been gi!en C. Non/specification of place where it is drawn or place where it is payable D. Hears a seal A. Designation of partic"lar .ind of c"rrency in
which pay,ent is to be ,ade =. R"les of Constr"ction %3ec.1D( A. 3", e#pressed in words ta.es precedence o!er s", in n",bers- HUT where words are so a,big"o"s or "ncertain reference to the fig"res sho"ld be ,ade H. 9here interest is stip"lated witho"t specification of the starting date the interest r"ns fro, the date of the instr",ent and if "ndated fro, the iss"e thereof C. An "ndated instr",ent is considered dated as of ti,e iss"ed. D. 9ritten pro!isions pre!ail o!er printed pro!isions A. 9here the instr",ent is a,big"o"s as to whether it is a note or a bill the holder ,ay treat it as either at his election 0. 9hen the capacity of signatory is not clear he is to be dee,ed an indorser < 3"ggested Bne,onic) 9AJy 3) 9ai!es gi!es holder Alection confession of J"dg,ent 3ale of 3ec"rities 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age >' of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 8. LI pro,ise to payM when signed by two or ,ore persons is dee,ed to be 1ointly and se!erally signed AIAN8ALI3TA I. BARCATOR 0INANCA %'FF6( 9here two pro,issory notes both e,ploying the ter,s LI pro,ise to payM were each signed by two
or ,ore persons a solidary %1oint and se!eral( liability on each note is created on the part of the signors. Chapter III. TRAN30AR 1. Deli!ery and Iss"ance A. Deli!ery ,eans transfer of possession of instr",ent by the ,a.er or drawer with intent to transfer title to the payee and recogni$e hi, as holder thereof. %de la Iictoria !. H"rgos( H. NI inco,plete and re!ocable "ntil deli!ery for the p"rpose of gi!ing effect thereto as between %3ec. 1? NIL() 1. i,,ediate parties '. a re,ote party other than holder in d"e co"rse C. deli!ery to be effect"al ,"st be ,ade by or "nder the a"thority of the party ,a.ing 2 drawing 2 accepting2indorsing D. deli!ery ,ay be shown to ha!e been conditional or for a special p"rpose only and not for the p"rpose of transferring the property in the instr",ent A. ;RA3UB;TION O0 DALIIARK 1. 9here the instr",ent is no longer in the possession of a party whose signat"re appears thereon a !alid and intentional deli!ery by hi, is pres",ed "ntil the contrary is pro!ed
'. if it is in the hands of a 5DC the pres",ption is concl"si!e 6. Ca,poses) 3ho"ld an "ndeli!ered instr",ent co,e into the hands of a holder in d"e co"rse the ,a.er is liable to hi, regardless of any proof of the lac. of !alid deli!ery. 0. ;RA3UB;TION A3 TO DATA 1. Date is not an essential ele,ent of negotiability '. An "ndated instr",ent is considered to be dated as of the ti,e it was iss"ed 8AB;A3A9 ! CA %1>>6( A!ery contract on a negotiable instr",ent is inco,plete and re!ocable "ntil deli!ery of the instr",ent to the payee for the p"rpose of gi!ing effect thereto. The first deli!ery of the instr",ent co,plete in for, to the payee who ta.es it as a holder is called iss"ance of the instr",ent. 9itho"t the initial deli!ery of the instr",ent fro, the drawer of the chec. to the payee there can be no !alid and binding contract and no liability on the instr",ent. '. Negotiation * 9hen an instr",ent is transferred fro, one person to another as to constit"te the transferee the holder thereof. * If payable to HAARAR negotiated by deli!ery- if payable to ORDAR negotiated by indorse,ent of holder Y deli!ery %3ec.6F NIL(
3A3HRAÒ !. CA %1>>6( A NI ,ay instead of being negotiated AL3O be assigned or transferred. A non/NI ,ay not be negotiated- b"t it ,ay be assigned or transferred absent an e#press prohibition against assign,ent or transfer written in the face of the instr",ent. 6. Indorse,ent * The indorse,ent ,"st be written on the instr",ent itself or on a paper attached thereto %allonge(. The signat"re of the indorser witho"t additional words is s"fficient indorse,ent. %3ec.61 NIL( * Indorser generally enters into two contracts %I,plied contracts by Indorser() 1. sale or transfer of instr",ent '. to pay instr",ent in case of defa"lt of ,a.er * Indorse,ent ,"st be of entire instr",ent %can4t be indorse,ent of only part of a,o"nt payable nor can it be to two or ,ore indorsees se!erally. H"t o.ay to indorse resid"e of partially paid instr",ent( %3ec. 6' NIL( 6.1. Rinds of Indorse,ents %3ec. 66( 1. as to ,anner of f"t"re ,ethod of negotiation%3ec. 6< NIL() a. special 7 specifies the person to who,2to whose order the instr",ent is to be payable- indorse,ent of s"ch indorsee is necessary to f"rther negotiation.
* A special indorser is liable to all s"bse+"ent holders "nless the instr",ent is an originally bearer instr",ent in which case he is liable only to those who ta.e title thro"gh his indorse,ent %3ec =F NIL( b. blan. 7 specifies no indorsee instr",ent so indorsed is payable to bearer and ,ay be negotiated by deli!ery * a person who negotiates by ,ere deli!ery is liable only to his i,,ediate transferee. * the holder ,ay con!ert a blan. indorse,ent into a special indorse,ent by writing o!er the signat"re of the indorser in blan. any contract consistent with the character of the indorse,ent * An order instr",ent ,ay be con!erted into a bearer instr",ent by ,eans of a blan. indorse,ent. * H"t a bearer instr",ent re,ains as s"ch whether it has been indorsed specially or in blan.. It is the liability of the indorser which is affected. NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age >6 of 6<1 '. as to .ind of title transferred) a. restricti!e 7 s"ch indorse,ent either) 1( prohibits f"rther negotiation of
instr",ent o In this .ind of restricti!e indorse,ent the prohibition to transfer or negotiate ,"st be written in e#press words at the bac. of the instr",ent so that any s"bse+"ent party ,ay be forewarned that ceases to be negotiable. 5owe!er the restricti!e indorsee ac+"ires the right to recei!e pay,ent and bring any action thereon as any indorser b"t he can no longer transfer his rights as s"ch indorsee where the for, of the indorse,ent does not a"thori$e hi, to do so. %8e,pesaw ! CA 1>>6( '( constit"tes indorsee as agent of indorser or 6( !ests title in indorsee in tr"st for another o rights of indorsee in restricti!e ind.) a( recei!e pay,ent of inst. b( Hring any action thereon that indorser co"ld bring c( Transfer his rights as s"ch indorsee b"t all s"bse+"ent indorsees ac+"ire only title of first indorsee "nder restricti!e
indorse,ent b. non/restricti!e 6. as to .ind of liability ass",ed by indorser a. +"alified * constit"tes indorser as ,ere assignor of title %eg. Lwitho"t reco"rseM( %3ec. 6E NIL(. * H"t this does not ,ean that the transferee only has the rights of an assignee. Transfer re,ains a negotiation and transferee can still be a holder capable of ac+"iring a title free fro, defenses of prior parties. * It relie!es the +"alified indorser of his liability to pay the instr",ent sho"ld the ,a.er be "nable to pay at ,at"rity. b. "n+"alified =. as to presence2absence of e#press li,itations p"t by indorser "pon pri,ary obligor4s pri!ileges of paying the holder) a. conditional 7 additional condition anne#ed to indorser4s liability. %3ec. 6> NIL( o 9here an indorse,ent is conditional a party re+"ired to pay the instr",ent ,ay disregard the condition and ,a.e pay,ent to the indorsee or his transferee whether condition has been f"lfilled or not o Any person to who, an instr",ent so
indorsed is negotiated will hold the sa,e2proceeds s"b1ect to rights of person indorsing conditionally b. "nconditional <. other classifications) a. Absol"te 7 One by which the indorser binds hi,self to pay "pon no other condition than the fail"re of prior parties to do so and of d"e notice to hi, of s"ch fail"re b. Joint / 9here instr",ent payable to the order of two or ,ore payees or indorsees not partners all ,"st indorse "nless the one indorsing has a"thority to endorse for the others %3ec. =1 NIL( c. Irreg"lar / 9here a person not otherwise a party to the instr",ent places thereon his signat"re in blan. before deli!ery he is liable as indorser 6.'. Other R"les on Indorse,ent 1. Indorse,ent by Collecting Han. / holder deposits chec. with a ban. other than the drawee wo"ld in effect be negotiating the chec. to s"ch ban. since he wo"ld ha!e to indorse the chec. before the ban. will accept it for deposit. In ,ost cases the ban. is acting as a ,ere collecting agent. '. Negotiation by Joint or Alternati!e ;ayees or Indorsees / all ,"st indorse "nless the one indorsing has a"thority to endorse for the others
6. Unindorsed instr",ents 7 3ec => NIL 9here holder of instr",ent transfers for !al"e witho"t indorsing transfer !ests in transferee) a. s"ch title as transferor had therein s"b1ect to defenses and e+"ities a!ailable to prior parties o e#) transferee can s"e the transferor tho"gh he does not thereby a"to,atically beco,e a 5DC %0"rbee !. 0"rbee 1>6?( b. right to ha!e indorse,ent of transferor after which he beco,es a holder or possibly a 5DC o 0or p"rposes of deter,ining whether or not the transferee beco,es a 5DC after sec"ring the transferor4s indorse,ent note that 3ec. <' ,"st be ,et at the ti,e of the negotiation i.e. when indorse,ent is act"ally ,ade. H;I !s CA %'FFD( The transaction :in 3ec. => NIL@ is an e+"itable assign,ent and the transferee ac+"ires the instr",ent s"b1ect to defenses and e+"ities a!ailable a,ong prior parties. Th"s if the transferor had legal title the transferee ac+"ires s"ch title and in addition the right to ha!e the indorse,ent of the transferor and also the right as holder of the legal title to ,aintain legal action against the ,a.er or acceptor or other party liable to the transferor. The "nderlying pre,ise of this
1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age >= of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 pro!ision howe!er is that a !alid transfer of ownership of the negotiable instr",ent in +"estion has ta.en place. Transferees in this sit"ation do not en1oy the pres",ption of ownership in fa!or of holders since they are neither payees nor indorsees of s"ch instr",entsZ Th"s so,ething ,ore than ,ere possession by persons who are not payees or indorsers of the instr",ent is necessary to a"thori$e pay,ent to the, in the absence of any other facts fro, which the a"thority to recei!e pay,ent ,ay be inferred. =. Cancellation of Indorse,ents / 5older ,ay stri.e o"t indorse,ents not necessary to his title. The endorser whose endorse,ent was str"c. o"t and all endorsers s"bse+"ent to hi, are relie!ed fro, liability on the instr",ent %3ec. =E NIL( <. Indorse,ent by Agent / agent sho"ld ,a.e it plain that he is signing in behalf of a principal otherwise he ,ay be ,ade personally liable %3ec 'F NIL( o The Negotiable Instr",ents Law pro!ides that where any person is "nder obligation to indorse in a representati!e capacity he ,ay indorse in s"ch ter,s as to negati!e personal liability. An agent when so signing sho"ld indicate that he is ,erely
signing in behalf of the principal and ,"st disclose the na,e of his principalotherwise he shall be held personally liable. %0RANCI3CO ! CA 1>>F( ?. ;res",ption as to Indorse,ent o Ti,e %3ec.=< NIL( / A!ery negotiation dee,ed pri,a facie effected before instr",ent was o!erd"e e#cept where indorse,ent bears date after ,at"rity of the instr",ent. o ;lace %3ec.=? NIL( / A!ery indorse,ent is pres",ed pri,a facie ,ade at place where instr",ent is dated o 9here instr",ent drawn or indorsed to person as cashier %3ec.=' NIL( / dee,ed pri,a facie to be payable to the ban. or corporation of which he is s"ch officer- ,ay be negotiated by either the indorse,ent %1( of the ban. or corporation or %'( of the officer. D. Contin"ation of Negotiable Character / An NI altho"gh o!erd"e retains its negotiability "nless it has been paid or restricti!ely indorsed to pre!ent f"rther negotiation %3ec. =D NIL( E. Indorse,ent of bearer inst. o 9here an instr",ent payable to bearer is indorsed specially it ,ay ne!ertheless be f"rther negotiated by deli!ery o ;erson indorsing specially liable as indorser to only s"ch holders as ,a.e title thro"gh
his indorse,ent Chapter II. 5OLDAR IN DUA COUR3A 1. 5older %3ec. 1>1( * Definition) ;ayee or indorsee of a bill or note who is in possession of it or the bearer thereof. * RI85T3 O0 5OLDAR %3ec. <1 NIL( 1.s"e thereon in his own na,e '.pay,ent to hi, in d"e co"rse discharges instr",ent '. Three Rinds of DUA COUR3A 5olding a. 5DC "nder 3ec <' b. 5DC "nder 3ec <E ) A holder who deri!es title to the instr",ent thro"gh a 5DC has all the rights of the latter e!en tho"gh he hi,self satisfies none of the re+"ire,ents of d"e co"rse holding %Ca,pos U Ca,pos( c. 5DC "nder 3ec <> %pres",ption() e!ery holder is dee,ed pri,a facie to be a holder in d"e co"rse 6. Re+"isites to beco,e a holder in d"e co"rse %3ec.<'(? 3ALA3 !. CA %1>>F( The indorsee was a 5DC ha!ing ta.en the instr",ent "nder the following conditions) %1( it is co,plete and reg"lar "pon its face- %'( it beca,e the holder thereof before it was o!erd"e- %6( it too. the sa,e in good faith and for !al"e- and %=( when it was negotiated to the indorsee the latter
had no notice of any infir,ity in the instr",ent or defect in the title of the pre!io"s indorser. 5DC is one who has ta.en the instr",ent "nder the following conditions) 6.1. That it is co,plete and reg"lar "pon its face 1. COB;LATA o An instr",ent is co,plete if it contains all the re+"isites for ,a.ing it a negotiable one e!en if it ,ay ha!e blan.s as to non/essentials. o It is inco,plete when it is wanting in any ,aterial partic"lar or partic"lar proper to be inserted in a NI witho"t w2c the sa,e will not be co,plete. '. Baterial ;artic"lars o 9hat are ,aterial partic"larsS A change in the ff. is considered a ,aterial alteration %3ec. 1'< NIL() i. The date? s"ggested ,ne,onics) 8ROIN) 8ood faith and !al"e co,plete and Reg"lar not O!erd"e no notice of Infir,ity at ti,e of Negotiation- or 8ROCI) 8ood faith and !al"e Reg"lar not O!erd"e Co,plete no Infir,ity NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age >< of 6<1 ii. The s", payable either for principal or interestiii. The ti,e or place of pay,ent-
i!. The n",ber or the relations of the parties!. The ,edi", or c"rrency in which pay,ent is to be ,ade!i. Or which adds a place of pay,ent where no place of pay,ent is specified 6. Rights of 5DC of instr",ent that has been ,aterially altered o enforce pay,ent thereof according to its original tenor I0 not a party to the alteration. %3ec. 1'= NIL( 6.'. That he beca,e the holder of it before it was o!erd"e and witho"t notice that it had been pre!io"sly dishonored if s"ch was the fact 1. LOIARDUAM a. The ff. cannot be 5DCs) %3ec. <6 NIL( i. A holder who beca,e s"ch after the date of ,at"rity of the instr",ent %instr",ent is o!erd"e(ii. In case of de,and instr",ents a holder who negotiates it after an "nreasonable length of ti,e after its iss"e b. Instr",ents with fi#ed ,at"rity b"t s"b1ect to acceleration) "lti,ate date of ,at"rity is the date of ,at"rity for the
p"rpose of deter,ining whether a p"rchaser is a 5DC c. Undated instr",ents) ;ri,a facie pres",ption that it was negotiated before it was o!erd"e %3ec =<( d. NOTA) An o!erd"e instr",ent is still negotiable b"t it is s"b1ect to the defense e#isting at the ti,e of the transfer. '. DI35ONOR a. Non/acceptance i. Occ"rs when drawee ref"ses to accept the order of the drawer as stated in the bill ii. Applicable only to bills of e#change iii. Bay occ"r before the date of ,at"rity of the bill b. Non/pay,ent i. Occ"rs when the party pri,arily liable fails to pay at the date of ,at"rity ii. Date of Bat"rity 1( Lpayable after sightMCdate of present,ent '( ;ayable on the occ"rrence of a specified e!entCdate is fi#ed by happening of e!ent 6. An instr",ent is not in!alid for the reason only that it is ANTA/DATAD OR ;O3TDATAD pro!ided not done for an illegal or
fra"d"lent p"rpose. The person to who, an instr",ent so dated is deli!ered ac+"ires the title thereto as of the date of deli!ery. %3ec.1' NIL( 6.6. That he too. it in good faith AND for !al"e) 1. 5OLDAR 0OR IALUA / %a( 9here !al"e has at any ti,e been gi!en for the instr",ent the holder is dee,ed a 50I in respect to all parties who beco,e s"ch prior to that ti,e %3ec.'? NIL( and %b( 9here the holder has a lien on the instr",ent he is dee,ed a 50I to the e#tent of his lien %3ec.'D NIL(. a. ;RA3UB;TION 7 A!ery NI is dee,ed pri,a facie iss"ed for !al"able consideration- and e!ery person whose signat"re appears thereon to ha!e beco,e a party thereto for !al"e %3ec. '= NIL( i. In actions based "pon a negotiable instr",ent it is "nnecessary to a!er or pro!e consideration for consideration is i,ported and pres",ed fro, the fact that it is a negotiable instr",ent. The pres",ption e#ists whether the words T!al"e recei!edT appear on the instr",ent or not %Ong ! ;eople 'FFF(
HAKANI I3. ;AO;LA %'FF=( Under 3ection 'E of the Negotiable Instr",ents Law %NIL( absence or fail"re of consideration is a ,atter of defense only as against any person not a holder in d"e co"rse. Boreo!er 3ection '= of the NIL pro!ides the pres",ption of consideration. 3"ch pres",ption cannot be o!erco,e by the petitioner4s bare denial of receipt of the :consideration@. 1( Only e!idence of the clearest and ,ost con!incing .ind will s"ffice for that p"rpose. %Tra!el/On Inc ! CA 1>>'( b. IALUA / any consideration s"fficient to s"pport a si,ple contract. An antecedent or pre/e#isting debt constit"tes !al"e whether the instr",ent is payable on de,and or at a f"t"re ti,e. %3ec.'< NIL( BARC5ANT34 NATIONAL HANR O0 3T. ;AUL !. 3TA. BARIA 3U8AR CO. %1>1=( The ,ere disco"nting of the note and placing the a,o"nt of said disco"nt to the credit of the 50I wo"ld not then ha!e constit"ted a transfer for !al"e. H"t if the s", had s"bse+"ently been chec.ed o"t then !al"e wo"ld ha!e passed. The general r"le as to the application of pay,ents there being no special facts to interfere is that the first pay,ents apply to the oldest debts. The first debits are to be charged against the first credits. It
follows therefore "pon the facts as fo"nd that the ban. was a bona fide 50I witho"t notice and in accordance with the stip"lation 1"dg,ent sho"ld be entered for the plaintiff "pon the note. J"dg,ent re!ersed. \\ 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age >? of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 Han. credit as !al"e / 9hen the holder of a chec. deposits it with his ban. %ass",ing it is not the drawee ban.( and the ban. credits it to his acco"nt is the ban. at this stage a 50IS o Ba1ority Iiew * first ,oney in is pres",ed to be the first ,oney paid o"t o Binority Iiew * as long as the balance in the depositor4s acco"nt e+"als or e#ceeds the a,o"nt of the instr",ent deposited the latter cannot be considered as withdrawn for the p"rpose of treating the ban. as a 50I. o %3o far there has been no decision by the 3C on this iss"e.( '. 8OOD 0AIT5 a. 5older ,"st ha!e ta.en the instr",ent in good faith and that at the ti,e it was negotiated to hi, he had no notice of
any infir,ity in the instr",ent or defect in the title of the person negotiating it. b. NOT a 5older in 8OOD 0AIT5 i. 5older acted in bad faith ii. 5older had NOTICA O0 DA0ACT 1( ACTUAL RNO9LAD8A * 3AC <?. 95AT CON3TITUTA3 NOTICA O0 DA0ACTCTo constit"te notice of an infir,ity in the instr",ent or defect in the title of the person negotiating the sa,e the person to who, it is negotiated ,"st ha!e had act"al .nowledge of the infir,ity or defect or .nowledge of s"ch facts that his action in ta.ing the instr",ent a,o"nted to bad faith. * It is therefore s"fficient that the b"yer of a note had notice or .nowledge that the note was in so,e way tainted with fra"d. It is
not necessary that he sho"ld .now the partic"lars of the fra"d. '( 3U3;ICIOU3 CIRCUB3TANCA3 a. HAD 0AIT5 / does not re+"ire act"al .nowledge of the e#act fra"d that was practiced- .nowledge that there was so,ething wrong abo"t the assignor4s ac+"isition of title is s"fficient. b. The b"rden is "pon the defendant to show that notwithstanding the 3U3;ICIOU3 CIRCUB3TANCA3 it ac+"ired the chec. in act"al good faith. %De Oca,po U Co. !. 8atchalian( o ;"rchase of an instr",ent at a DI3COUNT does not of itself constit"te bad faith. 5owe!er if the instr",ent is pr"chased
at a hea!y disco"nt this fact together with other facts ,ay be ta.en into acco"nt in deciding the iss"e of p"rchase in good faith. %5a, !. Beritt( IICANTA R. DA OCAB;O U CO. !. 8ATC5ALIAN AT. AL. %1>?1( In order to show that the defendant had .nowledge of s"ch facts that his action in ta.ing the instr",ent a,o"nted to bad faith it is not necessary to pro!e that the defendant .new the e#act fra"d that was practiced "pon the plaintiff by the defendant4s assignor it being s"fficient to show that the defendant had notice that there was so,ething wrong abo"t the assignor4s ac+"isition of title altho"gh he did not ha!e notice of the partic"lar wrong that was co,,itted. ZThe fact is that it ac+"ired possession of the instr",ent "nder circ",stances that sho"ld ha!e p"t it to in+"iry as to the title of the holder who negotiated the chec. to it. The b"rden was therefore placed "pon it to show that notwithstanding the s"spicio"s circ",stances it ac+"ired the chec. in act"al good faith. One line of cases had adopted the test of the reasonably pr"dent ,an and the other that of act"al good faith. It wo"ld see, that it was the intent of the Negotiable Instr",ents Act to
har,oni$e this disagree,ent by adopting the latter test. Negligence on the part of the plaintiff or s"spicio"s circ",stances s"fficient to p"t a pr"dent ,an on in+"iry will not of the,sel!es pre!ent a reco!ery b"t are to be considered ,erely as e!idence bearing on the +"estion of bad faith. 3TATA INIA3TBANT 5OU3A !. IAC %1>E>( A chec. with ' parallel lines in the "pper left hand corner ,eans that it co"ld only be deposited and ,ay not be con!erted to cash. Conse+"ently s"ch circ",stance sho"ld p"t the payee on in+"iry and "pon hi, de!ol!es the d"ty to ascertain the holders4 title to the chec. or the nat"re of his possession. 0ailing in this respect the payee is declared g"ilty of gross negligence a,o"nting to legal absence of good faith and as s"ch the consens"s of a"thority is to the effect that the holder of the chec. is not a holder in good faith. KAN8 !. CA %'FF6( 9here Br. A obtained by fra"d fro, Br. H crossed chec.s payable to Br. C which Br. C innocently recei!es fro, Br. A for !al"e Br. C is still a holder in good faith despite the fact that the chec.s were crossed. The crossing of a chec. does not i,pair the negotiability of an instr",ent nor necessarily precl"de its holder fro, being a holder in d"e co"rse. The crossing of a chec. only ,eans that it co"ld only be deposited and ,ay not be con!erted NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age >D of 6<1
into cash. Th"s s"ch sho"ld p"t the holder on in+"iry and "pon hi, de!ol!es the d"ty to ascertain the holder4s title to the chec. or nat"re of his possession. The effects are that) 1. The chec. ,ay not be encashed b"t only deposited in the ban.. '. The chec. ,ay be negotiated only once 7 to one who has an acco"nt with a ban.. 6. The act of crossing ser!es as a warning to the holder that the chec. was iss"ed for a definite p"rpose so that he ,"st in+"ire if he has recei!ed the chec. p"rs"ant to that p"rpose. Otherwise he wo"ld not be a holder in d"e co"rse. 9here the holder Br. C as in this case did not ha!e .nowledge of Br. A4s fra"d"lent actions on Br. H and the fact that he was the payee in said chec. he was legally warranted to deposit the instr",ent in his acco"nt with the drawee ban.. Br. C was a holder in good faith. iii. 0INANCIN8 COB;ANK In install,ent sales the b"yer "s"ally iss"es a note payable to the seller to co!er the p"rchase price. Bany ti,es p"rs"ant to a pre!io"s arrange,ent with the seller a finance co,pany pays the f"ll price of the property sold and the note is indorsed to it by the seller s"brogating it to the right to collect the price fro, the b"yer. RULA * In s"ch cases the tendency of the co"rts
is to protect the b"yer against the finance co,pany in the e!ent that the goods sold t"rn o"t to be defecti!e. The finance co,pany will be s"b1ect to the defense of fail"re of consideration and cannot reco!er the p"rchase price fro, the b"yer. CON3OLIDATAD ;LK9OOD !. I0C %1>ED( A 0INANCIN8 COB;ANK that is the indorsee of a note iss"ed by a b"yer payable to the seller of goods is NOT a holder in good faith as to the b"yer. In case the goods sold t"rn o"t to be defecti!e it cannot reco!er the p"rchase price of the goods fro, the b"yer. The TA3T O0 ;ROOIBITK to the transaction was applied in this case. 9here the financing co,pany was pri!y to the initial transaction it was bo"nd with notice of the warranties attaching to the transaction. It ACTIIALK ;ARTICI;ATAD in the transaction th"s it cannot be a holder in good faith. This is the Lprotecti!e doctrineM 7 fa!oring the interests of indi!id"al dealers o!er those of financing co,panies. NOTA) The instr",ent in this case was nonnegotiable so the Lacti!e participationM disc"ssion was ,erely obiter. 3ALA3 !. Co"rt of Appeals %1>>F( 3alas defa"lted in pay,ents for ,otor !ehicle the p"rchase of which was financed by 0ilin!est. On de,and his defense was that the p"rchase was in!ested with fra"d on the seller4s part. 0ilin!est %the financing co,pany( was held to be a holder in
good faith despite pri!ity to the allegedly fra"d"lent sale. 3alas4 defenses were good only against the seller/indorser and where the note was negotiable and !alidly negotiated to 0ilin!est the latter was a holder in good faith and ,ay reco!er fro, 3alas. Note) This is the Lless protecti!eM doctrine 7 not so ,"ch fa!orable to dealers b"t as co,pared to Consolidated the r"le here was act"ally in the ratio decidendi and not ,ere obiter. 6.=. That at ti,e it was negotiated to hi, he had no notice of ) o any infir,ity in instr",ent o any defect in title of person negotiating1. title DA0ACTIIA when %3ec. << NIL() a. instr",ent 2 signat"re obtained by fra"d d"ress force or fear or other "nlawf"l ,eans OR for an illegal consideration- or b. instr",ent is negotiated in breach of faith or fra"d"lent circ",stances '. NOTICA of infir,ity or defect 7 a. act"al .nowledge of the infir,ity or defect OR .nowledge of s"ch facts that his action in ta.ing the instr",ent a,o"nted to bad faith %3ec.<? NIL( b. Notice to an A8ANT is chargeable against the principal. c. IN3U00ICIANT NOTICA
i. CON3TRUCTIIA NOTICA %e#. notice of defenses disclosed by p"blic records doctrine of lis pendens( is ins"fficient to charge a p"rchaser of a NI with notice. * J"st as a p"rchaser of a negotiable instr",ent is not p"t on in+"iry neither is he charged with notice of defenses or e+"ities disclosed by p"blic records nor is he affected by the doctrine of lis pendens. 5owe!er notice to an agent is chargeable against the principal. ii. Notice of an ACCOBODATION ;ARTK is not notice of a defect. * Th"s an acco,odation party %one who has signed the instr",ent as ,a.er drawer acceptor or endorser witho"t recei!eing !al"e therefor and for the p"rpose of lending his na,e to so,e other person( is liable on the instr",ent notwithstanding the fact that the holder .new hi, to
be an acco,odation party. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age >E of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 d. RI85T of a transferee who recei!es NOTICA of any infir,ity or defect HA0ORA he has ;AID T5A 0ULL a,o"nt for the instr",ent i. 5e will be dee,ed a 5DC only to the e#tent of the a,o"nt therefore paid by hi, %3ec.<= NIL( =. Affect of Q"alified Conditional and Restricti!e Indorse,ents A. The stat"s of a holder as a 5DC is not affected by his ta.ing "nder a +"alified indorse,ent. H. A conditional indorse,ent does not depri!e the conditional indorsee or s"bse+"ent holder of the rights of a 5DC. If he f"lfills all the re+"isites in 3ec. <' then he is i,,"ne fro, all the personal defense. C. A restricti!e indorse,ent which prohibits f"rther negotiation will not pre!ent the indorsee fro, being a 5DC. HUT if he f"rther indorses the instr",ent then the s"bse+"ent indorsee will not be a d"e co"rse holder. <. 9ho is Dee,ed 5DC %b"rden of proof( %3ec.<>( A. 8eneral R"le) ;ri,a facie pres",ption in
fa!or of holder H. A#ception) H"rden is re!ersed %b"rden on holder to pro!e that he or so,e person "nder who, he clai,s ac+"ired title as 5DC( when it is shown that the title of any person who has negotiated instr",ent was defecti!e C. A#ception to e#ception) There will be no re!ersal if the party being ,ade liable beca,e bo"nd prior to the ac+"isition of s"ch defecti!e title %i.e. where defense is not his own( 7 pres",ption in fa!or of holder ?. Rights of 5older in D"e Co"rse ?.1. Under the NILD 1. to s"e on the instr",ent in his own na,e %3ec. <1 NIL( '. to recei!e pay,ent on the instr",ent 7 discharges the instr",ent %3ec. <1 NIL( 6. holds instr",ent free of any defect of title of prior parties %3ec. <D NIL( =. free fro, defenses a!ailable to prior parties a,ong the,sel!es %3ec.<D NIL( <. ,ay enforce pay,ent of instr",ent for f"ll a,o"nt against all parties liable %3ec.<D NIL( ?.'. JUR) H;I !. AL0RAD HAR9IN U CO. Only a 5DC ,ay enforce pay,ent on the
;N. In CAH it is not clear whether A %the D 3"ggested Bne,onics) RA03) Recei!e and Anforce pay,ent 0ree fro, any defect of title and defenses 3"e payee( is still the 5DC since D %the ,a.er( belie!ed that A ,ay ha!e negotiated it. Th"s to co,pel D to pay wo"ld e#pose hi, to pay a second ti,e to the 5DC %in case A was no longer one(. In short the drawee ,ay be co,pelled to pay only to a 5OLDAR of the instr",ent. ?.6. DI3ADIANTA8A of being a NON 5DC) o The Negotiable Instr",ents Law does not pro!ide that a holder not in d"e co"rse can not reco!er on the instr",ent. The disad!antage of Z not being a holder in d"e co"rse is that the negotiable instr",ent is s"b1ect to defenses as if it were non/negotiable. One s"ch defense is absence or fail"re of consideration. %Atri", Bgt ! de Leon 'FF1( D. Rights of ;"rchaser fro, 5older in D"e Co"rse %3ec.<E( D.1. 8eneral R"le) In the hands of any holder other than a 5DC NI is s"b1ect to sa,e defenses as if it were non/negotiable. D.'. A#ception) A holder who deri!es title thro"gh a 5DC and who is NOT hi,self A ;ARTK TO ANK 0RAUD or illegality has all rights
of s"ch for,er holder in respect to all parties prior to the latter AIAN tho"gh he hi,self does not satisfy 3ec.<' E. ;res",ption in 0a!or of D"e Co"rse 5olding A. A!ery holder is dee,ed pri,a facie to be a holder in d"e co"rse1. HURDAN 35I0T3 when it is shown that the title of any person who has negotiated the instr",ent was defecti!e. 5older BU3T ;ROIA that he or so,e person "nder who, he clai,s ac+"ired the title as a holder in d"e co"rse. '. H"t the last ,entioned r"le does not apply in fa!or of a party who beca,e bo"nd on the instr",ent prior to the ac+"isition of s"ch defecti!e title. %3ec.<>. NIL( H. 5owe!er this pres",ption arises only in fa!or of a person who is a holder as defined in 3ection 1>1 of the Negotiable Instr",ents Law ,eaning a Lpayee or indorsee of a bill or note who is in possession of it or the bearer thereof.M %Kang ! CA 'FF6( NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age >> of 6<1 Chapter I. DA0AN3A3 U AQUITIA3
1. Defenses in 8eneral 1.1. RAAL defense 7 attaches to instr",ent on the principle that there was no contract at all- a!ailable against ALL holders incl"ding holders in d"e co"rse. They are those which attach to the instr",ent itself and generally disclose an absence of one of the essential ele,ents of a contract. 1.'. ;AR3ONAL defense 7 grows o"t of the agree,ent or cond"ct of a partic"lar person in regard to the instr",ent which renders it ine+"itable 0OR 5IB tho"gh holding the legal title to enforce it against the party so"ght to be ,ade liable- not a!ailable against a 5DC.can be raised only against holders not on d"e co"rse. 5ere the tr"e contract appears b"t for so,e reason the defendant is e#c"sed fro, the obligation to perfor,. 1.6. A+"ities or Clai,s of Ownership are of ' Rinds 1. Legal 7 one who has legal title to the instr",ent ,ay reco!er possession thereof e!en fro, holder in d"e co"rse '. A+"itable 7 ,ay only reco!er fro, a holder not in d"e co"rse '. Real Defenses '.1. Incapacity) RAAL defense b"t a!ailable only to the incapacitated party %e#. ,inor or corporation(- the indorse,ent or assign,ent of the instr",ent by a corp. or by an infant
passes the property therein notwithstanding that fro, want of capacity the corp. or infant ,ay inc"r no liability thereon. %3ec.'' NIL( '.'. Inco,plete Undeli!ered Instr",ent 1. Instr",ent will not if co,pleted and negotiated witho"t a"thority be a !alid contract in the hands of ANK holder as against any person whose signat"re was placed thereon before deli!ery. %3ec. 1< NIL( '. 9ho ,ay be estopped fro, raising the real defense "nder 3ec 1<S A drawee ban. whose negligent c"stody of the chec.s after partial e#ec"tion contrib"ted to its escape 6. ;ersonal Defenses 6.1. Co,plete Undeli!ered Instr",ent a. CONCLU3IIA pres",ption of a !alid deli!ery 7 where the instr",ent is in the hands of a 5DC b. ;RIBA 0ACIA pres",ption of a !alid deli!ery 7 where the instr",ent is no longer in the possession of a party whose sig appears thereon %3ec. 1? NIL( 6.'. Inco,plete Deli!ered %sec.1=( 1. This is a personal defense only beca"se pro!ision states that if any instr",ent so co,pleted is negotiated to a holder in d"e co"rse it is !alid and effect"al for all p"rposes
'. ' Rinds of 9ritings) i. 9here instr",ent is wanting in any ,aterial partic"lar) person in possession has pri,a facie a"thority to co,plete it by filing "p blan.s therein ii. 3ignat"re on blan. paper deli!ered by person ,a.ing the signat"re IN ORDAR that the paper ,ay be CONIARTAD into a NI * operates as pri,a facie a"thority to fill "p as s"ch for any a,o"nt 6. The a"thority to fill "p is li,ited by the following) a. 9hen co,pleted it ,ay be enforced "pon the parties thereto only if it was filled strictly in accordance with the a"thority gi!en b. The filling "p ,"st be within a reasonable ti,e NOTA) If the signat"re on a paper is gi!en only for a"tograph p"rposes and the sa,e is con!erted into a NI this will a,o"nt to forgery constit"ting th"s a !alid defense e!en against a 5DC =. This pro!ision conte,plates deli!ered instr",ents so the person in possesion cannot be a thief or a finder b"t a person in lawf"l possession/ one to
who, the instr",ent has been deli!ered. <. In order that any s"ch instr",ent when co,pleted ,ay be enforced against any person who beca,e a party thereto prior to its co,pletion) a. ,"st be filled "p strictly in accordance w2 AUT5ORITK gi!en b. within a RAA3ONAHLA TIBA 7 in deter,ining what is reasonable ti,e regard is to be had to the %1( nat"re of the instr",ent %'( "sage of trade or b"siness %if any( with respect to s"ch instr",ents and 6( the facts of the partic"lar case ?. HUT if negotiated to 5DC ,ay enforce it as if it had been filled "p properly D. 9hat details ,ay be filled "pS a. A,o"nt as to a signed blan. paper b. Date %3ec 16 LZ The insertion of a wrong date does not !oid the instr",ent in the hands of a s"bse+"ent holder in d"e co"rseZM( c. ;lace of pay,ent d. Na,e of payee 6.6. Lac. of Consideration%3ec. 'E( 1. AH3ANCA or fail"re of consideration is a ,atter of defense as against any person not a 5DC.
'. ;ARTIAL 0AILURA of consideration is a defense pro tanto whether the fail"re is an ascertained and li+"idated a,o"nt or otherwise . 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1FF of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 6.=. Illegality 1. In general a ;AR3ONAL defense e!en if CC1=F> pro!ides that a contract with an illegal ca"se is !oid. '. RAAL when the law e#pressly pro!ides for illegality as a real defense %3tat"tory declaration of illegality RODRI8UAN ! BARTINAN %1>F<( Ba.er cannot be relie!ed fro, the obligation of paying the holder the a,o"nt of the note alleged to ha!e been e#ec"ted for an "nlawf"l consideration. %Illegality is personal so defense only against a holder not in d"e co"rse( The holder paid the !al"e of the note to its for,er holder. 5e did so witho"t being aware of the fact that the note had an "nlawf"l origin. 5e accepted note in good faith belie!ing the note was !alid and absol"tely good. The ,a.er e!en ass"red the holder before the p"rchase that the note was good and that he wo"ld pay it at a disco"nt . 6.<. D"ress 1. In general ;AR3ONAL defense. '. RAAL if d"ress so serio"s as to gi!e
rise to a real defense for lac. of contract"al intent 6. CAB;O3) There ,ay be cases where the d"ress e,ployed is so serio"s that it will gi!e rise to a real defense beca"se of the lac. of contract"al intent . Altho"gh the signer ,ay .now what he is signing there ,ay be wanting the intent or willingness to be bo"nd. Then it beco,es a real defense. =. 3o,eti,es Real 3o,eti,es ;ersonal =.1. 0orgery %3ec. '6() ,ade witho"t a"thority of person whose signat"re it p"rports to be 1. In general a RAAL defense) Z Affect a. signat"re is wholly inoperati!e b. no right to retain instr",ent or gi!e discharge or enforce pay,ent against any party thereto can be ac+"ired thro"gh or "nder s"ch signat"re %"nless forged signat"re "nnecessary to holder4s title( c. No s"bse+"ent party can ac+"ire the right against any party thereto %prior to the forgery( to) i. Retain the instr",ent ii. 8i!e a discharge there for iii. Anforce pay,ent thereof '. ;AR3ONAL if the party against who, it
is so"ght to enforce s"ch right is ;RACLUDAD fro, setting "p forgery2want of a"thoritya. 9ho are ;RACLUDADS i. parties who ,a.e certain warranties li.e a general indorser or acceptor after forgery %3ec. ?' NIL( ii. estopped 2 negligent parties iii. parties who ratify %HUT there are conflicting !iews whether Lprecl"dedM incl"des ratification( b. One !iew holds that a forged signat"re cannot be ratified beca"se ratification in!ol!es the relation of agency and a forger does not ass",e to act for another. 6. ACCA;TANCA AND ;AKBANT of a forged instr",ent 9hen there is acceptance and pay,ent of a forged instr",ent the rights and liabilities of the parties depend on whether the forgery pertains to the drawer2,a.er4s signat"re or ,erely of an indorse,ent. a. Drawer2Ba.er4s signat"re i. ;RICA ! NAAL The drawee who had paid an accepted bill as well as a non/accepted bill
each of which was forged co"ld NOT reco!er the ,oney paid o"t on the bill. The neglect was on the part of the drawee. ;NH ! QUIB;O %1>EE( A ban. is bo"nd to .now the signat"res of its depositors. If ban. pays a forged chec. it ,"st be considered as ,a.ing the pay,ent o"t of its own f"nds and cannot charge the acco"nt of the depositor whose signat"re was forged. 3AB3UN8 CON3TRUCTION CO. INC. I3. 0AR AA3T HANR AND TRU3T CO. AND CA %'FF=( Conse+"ently if a ban. pays a forged chec. it ,"st be considered as paying o"t of its f"nds and cannot charge the a,o"nt so paid to the acco"nt of the depositor. A ban. is liable irrespecti!e of its good faith in paying a forged chec.. ii. A#tensions Of The ;rice ! Neal Doctrine) The bar to reco!ery %;rice ! Neal doctrine( is e#tended to o!erdrafts and stop pay,ent orders 1( O!erdraft occ"rs when a chec. is iss"ed for an a,o"nt ,ore than what the drawer has in deposit with the drawee ban.. RULA) The drawee who pays the holder of the bill cannot reco!er fro, the holder
what he paid "nder ,ista.e '( 3top ;ay,ent Order is one iss"ed by the drawer of NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1F1 of 6<1 a chec. co"nter,anding his first order to the drawee ban. to pay the chec.. RULA) The drawee ban. is bo"nd to follow the order pro!ided it is recei!ed prior to its certification or pay,ent of the chec. 6( 3OBA AOCA;TION3) o If the pay,ent to holder is a legiti,ate debt of the drawer which the holder in d"e co"rse co"ld ha!e reco!ered fro, the drawer anyway. o If the stop order co,es after the ban. has certified or accepted the chec. the ban. is "nder the legal d"ty to pay the holder and will not be liable to the drawer for doing so. iii. Affect Of Negligence Of Depositor / If pro#i,ate ca"se of loss the ban. %drawee( is
not liable 1( It is the d"ty of the depositor2drawer to caref"lly e#a,ine ban.4s state,ents cancelled chec.s his chec. st"bs and other pertinent records within a reasonable ti,e and to report any errors witho"t "nreasonable delay. '( If a drawer2depositor4s negligence and delay sho"ld ca"se a ban. to honor a forged chec. drawer cannot later co,plain sho"ld ban. ref"se to recredit his acco"nt. ILU3ORIO !s CA %'FF'( Tr"e it is a r"le that when a signat"re is forged or ,ade witho"t the a"thority of the person whose signat"re it p"rports to be the chec. is wholly inoperati!e. 5owe!er the r"le does pro!ide for an e#ception na,ely) L"nless the party against who, it is so"ght to enforce s"ch right is precl"ded fro, setting "p the forgery or want of a"thority.M In the instant case it is the e#ception that applies. ;etitioner is precl"ded
fro, setting "p the forgery ass",ing there is forgery d"e to his own negligence in entr"sting to his secretary his credit cards and chec.boo. incl"ding the !erification of his state,ents of acco"nt. 3AB3UN8 CON3TRUCTION CO. INC. I3. 0AR AA3T HANR AND TRU3T CO. AND CA %'FF=( The general r"le re,ains that the drawee who has paid "pon the forged signat"re bears the loss. The e#ception to this r"le arises only when negligence can be traced on the part of the drawer whose signat"re was forged and the need arises to weigh the co,parati!e negligence between the drawer and the drawee to deter,ine who sho"ld bear the b"rden of loss. 3till e!en if the ban. perfor,ed with "t,ost diligence the drawer whose signat"re was forged ,ay still reco!er fro, the ban. as long as he or she is not precl"ded fro, setting "p the defense of forgery. After all 3ection '6 of the Negotiable Instr",ents Law plainly states that no right to enforce the pay,ent of a chec. can arise o"t of a forged signat"re. 3ince the drawer 3a,s"ng Constr"ction is not precl"ded by negligence fro, setting "p the forgery the general r"le sho"ld apply. b. Indorse,ent) i. 9hen it is the signat"re of the indorser that is forged
the drawee and drawer CAN reco!er !s holder 1( The drawee can reco!er the a,o"nt paid by hi, in cases where only an indorse,ent has been forged . This is beca"se drawee ,a.es no warranty as to the gen"ineness of any indorse,ent. '( 8enerally the drawee ,ay only reco!er fro, the holder. 3ho"ld he fail to do so%for instance d"e to insol!ency( he cannot reco"p his loss by charging it to the drawer4s acco"nt 6( Altho"gh a depositor2drawer owes a d"ty to his drawee ban. to e#a,ine his cancelled chec.s he has no si,ilar d"ty as to forged indorse,ents. =( The drawer as soon as he co,es to .now of the a forged indorse,ent sho"ld pro,ptly notify the drawee ban. RA;UHLIC ! AHRADA
Drawee can reco!er. It is not s"pposed to be the d"ty of the drawee to ascertain whether the signat"res of the payee or indorsers are gen"ine or not. ii. 9hen drawee ,ay reco!er fro, DRA9AR 1( 9here the instr",ent is originally a bearer instr",ent beca"se the indorse,ent can be disregarded as being "nnecessary to the holder4s title '( Indorse,ent forged by an e,ployee or agent of the drawer 6( If d"e to the drawer4s negligence2delay the forgery is not disco!ered 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1F' of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 "ntil it is too late for the ban. to reco!er fro, the holder or the forger 8AB;A3A9 ! CA ;HC 9hile there is no d"ty resting on the drawer to loo. for forged indorse,ents on his cancelled chec.s a depositor is "nder a d"ty to set "p an acco"nting syste, and b"siness proced"re as are reasonably calc"lated to pre!ent or render
the forgery of indorse,ents diffic"lt partic"larly by the depositor4s own e,ployees. As a r"le the drawee ban. who has paid the chec. with forged indorse,ent cannot charge the drawer4s acco"nt for the a,o"nt of the said chec.. An e#ception to this r"le is where the drawer is g"ilty of s"ch negligence which ca"ses the ban. to honor the chec.. iii. 9hen drawee ,ay not reco!er fro, holder 1( 9here the instr",ent is originally a bearer instr",ent beca"se the indorse,ent can be disregarded as being "nnecessary to the holder4s title '( If drawee fails to act pro,ptly if he delays in infor,ing the holder who, he paid i!. Hetween Drawee Han. and Collecting Han. 1( Collecting ban. only liable for forged indorse,ents and not forgeries of the drawer or ,a.er4s signat"re. %;NH ! CA 1>?E( '( The collecting ban. or last
indorser generally s"ffers the loss beca"se it has the d"ty to ascertain the gen"ineness of all prior indorse,ents considering that the act of presenting the chec. for pay,ent to the drawee is an assertion that the party ,a.ing the present,ent had done its d"ty to ascertain the gen"ineness of the indorse,ents. %H;I ! CA 1>>'( 6( In presenting the chec.s for clearing the collecting agent ,ade an e#press g"arantee on the !alidity of Lall the prior endorse,entsM. % HDO ! A+"itable ban.( =( The drawee ban. is not si,ilarly sit"ated as the collecting ban. beca"se the for,er ,a.es no warranty as to the gen"ineness of any indorse,ent. The drawee ban.4s d"ty is b"t to !erify the gen"ineness of the drawer4s signat"re and
not of the indorse,ent beca"se the drawer is its client. <( 9here the negligence of the drawee ban. is the pro#i,ate ca"se of the collecting ban.4s pay,ent of a chec. with a forged indorse,ent the drawee ban. ,ay be held liable to the collecting ban. . ?( 9hen both are g"ilty of negligence the degree of negligence of each will be weighed in considering the a,o"nt of loss which each sho"ld bear. %refer to H;I ! CA 1>>'( 8RAAT AA3TARN LI0A ! 5ON8RON8 U 35AN85AI HANR %1>''( L9here a chec. is drawn payable to the order of one person and is presented to a ban. by another and p"rports "pon its face to ha!e been d"ly indorsed by the payee of the chec. it is the d"ty of the ban. to .now that the chec. was d"ly indorsed by the original payee and where the ban. pays the a,o"nt of the chec. to a 6rd person who has forged the signat"re of the payee the loss falls "pon the ban. who cashed the chec. and its re,edy is against the person to who, it paid the
,oney.M H;I ! CA %1>>'( 3ection '6 of the NIL has ' parts. The first part states the general r"le that a forged signat"re is wholly inoperati!e and pay,ent ,ade thro"gh or "nder s"ch signat"re is ineffect"al. The second part ad,its of e#ception. In this 1"risdiction the negligence of the party in!o.ing the forgery is an e#ception to the general r"le. Hoth drawee and collecting ban. were negligent in the selection and s"per!ision of their e,ployees res"lting in the encash,ent of the chec.s by the i,postor. Hoth ban.s were not able to o!erco,e the pres",ption of negligence in the selection and s"per!ision of their e,ployees Considering the co,parati!e negligence of the parties the de,ands of s"bstanti!e 1"stice are satisfied by allocating the loss and the costs on a ?F/=F ratio. A33OCIATAD HANR ! CA %1>>?( Hy reason of the stat"tory warranty of a general indorser in 3ection ?? of the Negotiable Instr",ents Law a collecting ban. which indorses a chec. bearing a forged indorse,ent and presents it to the drawee ban. g"arantees all prior indorse,ents incl"ding the forged indorse,ent. It warrants that the instr",ent is gen"ine and that it is !alid and s"bsisting at the ti,e of his indorse,ent. Heca"se the indorse,ent is a forgery the collecting ban. co,,its a breach of this
warranty and will be acco"ntable to the drawee ban.. This liability sche,e operates witho"t regard to fa"lt on the part of the collecting2presenting ban.. A!en if the latter ban. was not negligent it NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1F6 of 6<1 wo"ld still be liable to the drawee ban. beca"se of its indorse,ent. ;CIH !. CA %'FF1( Z A ban. which cashes a chec. drawn "pon another ban. witho"t re+"iring proof as to the identity of persons presenting it or ,a.ing in+"iries with regard to the, cannot hold the proceeds against the drawee when the proceeds of the chec.s were afterwards di!erted to the hands of a third party. In s"ch cases the drawee ban. has a right to belie!e that the cashing ban. %or the collecting ban.( had by the "s"al proper in!estigation satisfied itself of the a"thenticity of the negotiation of the chec.s. Th"s one who encashed a chec. which had been forged or di!erted and in t"rn recei!ed pay,ent thereon fro, the drawee is g"ilty of negligence which pro#i,ately contrib"ted to the s"ccess of the fra"d practiced on the drawee ban.. =.'. Baterial Alteration %3ec.1'=( 1. As a DA0AN3A) a. ;AR3ONAL defense when "sed to deny liability according to the tenor of the instr",ent
b. RAAL defense when relied on to deny liability according to the altered ter,s. '. 9hat constit"tes ,aterial alterationS a. 3tat"tory) Re!iew 3ec.1'< NIL i. change date ii. s", payable either for principal or interest iii. ti,e or place of pay,ent i!. n",ber2relations of parties !. ,edi",2c"rrency of pay,ent !i. adds place of pay,ent where none specified !ii. other change2addition altering effect of !iii. instr",ent in any respect b. J"rispridence i. An alteration is said to be ,aterial if it changes the effect of the instr",ent. It ,eans that an "na"thori$ed change in an instr",ent that p"rports to ,odify in any respect the obligation of a party or an "na"thori$ed addition of words or n",bers or other change to an inco,plete instr",ent relating to the obligation of a party. %;NH ! CA 1>>?( ii. A ,aterial alteration is one
which changes the ite,s which are re+"ired to be stated "nder 3ection 1 of the Negotiable Instr",ents Law. %Betroban. ! Cabil$o 'FF?( 6. IBBATARIAL ALTARATION a. Ca,pos) Any other alteration wo"ld be non/,aterial and wo"ld not affect the liability of any prior party . Note that XD is a catch/all pro!ision s"ch that sec 1'< ,ay still ha!e broad applicability. b. Alterations of the serial n",bers do not constit"te ,aterial alterations on the chec.s... :It@ is not an essential re+"isite for negotiability "nder 3ection 1 of the Negotiable Instr",ents Law. The afore,entioned alteration did not change the relations between the parties. The na,e of the drawer and the drawee were not altered. The intended payee was the sa,e. The s", of ,oney d"e to the payee re,ained the sa,e. %;NH ! CA 1>>?- Int4l Corporate Han. ! CA 'FF?( c. A00ACT) an innocent alteration %generally changes on ite,s other than those re+"ired to be stated
"nder 3ec. 1 N. I. L.( and spoliation %alterations done by a stranger( will not a!oid the instr",ent b"t the holder ,ay enforce it only according to its original tenor. %;NH ! CA citing J. Iit"g( =. A00ACT O0 BATARIAL ALTARATION a. 8eneral R"le) 9here NI ,aterially altered w2o the assent of all parties liable thereon it is AIOIDAD e#cept as against) i. party who has hi,self ,ade a"thori$ed or assented to alteration ii. s"bse+"ent indorser beca"se by indorse,ent he warrants that the instr",ent is in all respects what it p"rports to be and that it was !alid and s"bsisting at the ti,e of his indorse,ent %3ecs. ?< and ?? NIL( b. As to a 5OLDAR in DUA COUR3A i. 9hen an instr",ent that has been ,aterially altered is in the hands of a 5DC not a party to the alteration 5DC ,ay enforce pay,ent thereof according to orig. tenor
ii. Alteration ,"st NOT be apparent on the face of the instr",ent for the holder then wo"ld not be a holder in d"e co"rse iii. 9here the interest rate is altered the holder in d"e co"rse can reco!er the principal s", with the original rate of interest c. 9hen alteration is of the a,o"nt or the interest rate is altered the holder can reco!er the ORI8INAL ABOUNT2interest rate. <. DRA9AR43 NA8LI8ANCA a. The general r"le is that the drawee cannot charge against the drawer4s acco"nt the a,o"nt of an altered chec.. b. HUT the drawer4s negligence before or after the alteration ,ay 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1F= of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 estop hi, fro, setting "p alteration as a defense. c. 5owe!er the drawer is not bo"nd to so prepare the chec. that nobody else can s"ccessf"lly ta,per with it %e#. a drawer cannot be e#pected to foresee that his
cler. will "se acid to alter his chec.s Critten !. Che,ical Natl Han.( d. 9here the negligence of the drawer consists in failing to disco!er alterations pre!io"sly ,ade which he co"ld ha!e disco!ered by a co,parison of the cancelled chec.s and chec. st"bs or by diligent obser!ation of his records and co"ld th"s ha!e pre!ented the drawee ban. fro, s"bse+"ently cashing other altered chec.s the drawee can charge the s"bse+"ent chec. against the negligent drawer4s acco"nt. ?. A00ACT O0 DRA9AA43 ACCA;TANCA O0 ALTARAD C5ACR3 a. 9here the interest rate is altered the 5DC can reco!er the principal s", with the original rate of interest. i. AOCA;T) A s"bse+"ent indorser beca"se by the indorse,ent he warrants that the instr",ent is in all respects what it p"rports to be and that it was !alid and s"bsisting at the ti,e of his indorse,ent %3ec ?< and ??(
b. RACOIARK after acceptance or pay,ent by the drawee ban. i. 0ROB 5OLDAR 1( ;re!ailing !iew / Kes bec. of %1( pay,ent "nder ,ista.e %'( 3ec. 1'= and %6( 3ec.?' in relation to 3ec. 16' '( Binority !iew 7 No bec. of %1( estoppel %'( stability of transactions and %6( ban. is in a better position to sho"lder the loss. 6( 3C) a. adopted the ,inority !iew b"t on a different basisCthe Central Han. Circ"lar reg"lating clearing of chec.s and li,iting the period within which a drawee ban. ,ay ret"rn a sp"rio"s chec. b. b"t if holder is g"ilty of negligence which pro#i,ately contrib"ted to the
erroneo"s pay,ent by drawee holder liable %;CIH ! CA 'FF1( BONTINOLA ! ;NH %1><1( The insertion of the words LAgent ;hilippine National Han.M con!erted the ban. fro, a ,ere drawee to a drawer and therefore changes its liability constit"tes ,aterial alteration of the instr",ent witho"t consent of the parties liable thereon and so discharges the instr",ent. Drawee ban. is not liable. 5ON8RON8 U 35AN85AI HANR ! ;AO;LA3 HANR %1>DF(E The fail"re of the drawee ban. to call the attention of the collecting ban. as to s"ch alteration "ntil after the lapse of 'D days wo"ld negate whate!er right it ,ight ha!e had. The re,edy of the drawee ban. is against the party responsible for the forgery or alteration. RA;UHLIC HANR ! CA %1>>1( The collecting ban. is protected by the'=/ho"r clearing ho"se r"le fro, the liability to ref"nd the a,o"nt paid by the drawee ban.. :Note) A ,"ch recent Circ"lar changed the point of rec.oning for the ret"rn of the altered chec. fro, within '= ho"rs fro, the clearing to within '= ho"rs fro, the disco!ery of the alteration@ A33OCIATAD HANR ! CA %1>>?( The r"le ,andates that the chec.s be ret"rned
within twenty/fo"r ho"rs after disco!ery of the forgery b"t in no e!ent beyond the period fi#ed by law for filing a legal action. The rationale of the r"le is to gi!e the collecting ban. %which indorsed the chec.( ade+"ate opport"nity to proceed against the forger. If pro,pt notice is not gi!en the collecting ban.,aybe pre1"diced and lose the opport"nity to go after its depositor. ii. 0ROB DRA9AR) drawee has no right to see. rei,b"rse,ent fro, drawer for its erroneo"s pay,ent BATROHANR ! CAHILNO %'FF?( In addition the ban. on which the chec. is drawn .nown as the drawee ban. is "nder strict liability to pay to the order of the payee in accordance with the drawer4s instr"ctions as reflected on the face and by the ter,s of the chec.. ;ay,ent ,ade "nder ,aterially altered instr",ent is not pay,ent done in accordance with the instr"ction of the drawer. 9hen the drawee ban. pays a ,aterially altered chec. it !iolates the ter,s of the chec. as well as its d"ty to charge its client4s acco"nt only for bona fide disb"rse,ents he had ,ade. 3ince the drawee ban. in the instant case did not pay according to the original tenor of the instr",ent as directed by the drawer then it has no right to clai, rei,b"rse,ent fro, the drawer ,"ch less the right to ded"ct the erroneo"s pay,ent it ,ade
fro, the drawer4s acco"nt which it was e#pected to treat with "t,ost fidelity. H;I ! HUANAIANTURA %'FF<( E Affir,ed the ,inority !iew that drawee cannot reco!er NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1F< of 6<1 ZIt :the ban.@ sho"ld be able to detect alterations eras"res s"peri,positions or intercalations thereon for these instr",ents are prepared printed and iss"ed by itself it has control of the drawerVs acco"nt and it is s"pposed to be fa,iliar with the drawerVs signat"re. It sho"ld possess appropriate detecting de!ices for "nco!ering forgeries and2or alterations on these instr",entsZ There is nothing ine+"itable in s"ch a r"le for if in the reg"lar co"rse of b"siness the chec. co,es to the drawee ban. which ha!ing the opport"nity to ascertain its character prono"nces it to be !alid and pays it as in this case it is not only a +"estion of pay,ent "nder ,ista.e b"t pay,ent in neglect of d"ty which the co,,ercial law places "pon it and the res"lt of its negligence ,"st rest "pon it. c. RABADK) Unless a forgery or alteration is attrib"table to the fa"lt or negligence of the drawer hi,self the re,edy of the drawee ban. that negligently clears a forged and2or altered chec. for pay,ent is against the party
responsible for the forgery or alteration otherwise it bears the loss. %H;I ! H"ena!ent"ra 'FF<( =.6. 0ra"d 1. RAAL DA0AN3A a. fra"d in e#ec"tion 2 fra"d in fact",) did not .now that paper was a NI when it was signed b. not liable to ANK holder '. ;AR3ONAL DA0AN3A a. 0ra"d in ind"ce,ent) .nows it is NI b"t decei!ed as to !al"e2ter,s i. A!ailable as a defense against non/5DC b. 0ra"d in fact", acco,panied by NA8LI8ANCA of ,a.er or signer i. 9here the signor does not .now the nat"re of the instr",ent he signs b"t where by the e#ercise of ordinary care he co"ld ha!e disco!ered it. ii. Three factors are typically "sed in deter,ining the e#istence of negligence) 1( legal character of the instr",ent which the signer thin.s he is signing '( the physical condition of the signer and his ability to
read 6( whether the signer had the opport"nity at the ti,e of signing to ascertain the legal nat"re of the paper he is e#ec"ting Chapter II. LIAHILITK O0 ;ARTIA3 1. In 8eneral 1.1. ;arties pri,arily liable) 1. person who by the ter,s of the instr",ent is absol"tely re+"ired to pay the sa,e. a. Ba.er of pro,issory note b. Acceptor of bill of e#change '. "nconditionally liable- d"ty bo"nd to pay the holder at date of ,at"rity 9ON holder de,ands pay,ent fro, hi, and he is not relie!ed fro, liability e!en if the instr",ent sho"ld beco,e o!erd"e d"e to fail"re of holder to ,a.e s"ch de,and. 1.'. ;arties secondarily liable) 1. 3ACONDARK ;ARTIA3) a. Indorsers both note and bill b. Drawer of bill '. Conditionally liable- not bo"nd to pay "nless the following has been f"lfilled a. D"e present,ent or de,and fro, pri,ary party for pay,ent or acceptanceb. Dishonor by s"ch party- and c. Ta.ing of proceedings re+"ired by law
after dishonor. '. ;ri,ary ;arties '.1. ;AKBANT) ;resent,ent and Tender 1. ;resent,ent for pay,ent not necessary to charge pri,ary party '. if the instr",ent is by its ter,s payable at a special place and he is able and willing to pay it there at ,at"rity s"ch ability and willingness are e+"i!alent to a tender of pay,ent "pon his part. %3ec. DF NIL( '.'. Liability of BARAR 1. ;ro,ises to pay it according to its tenor '. Ad,its e#istence of payee and his then capacity to indorse. a. Therefore ;RACLUDAD fro, setting "p the following defenses) i. the payee is a fictitio"s person ii. the payee was insane a ,inor or a corporation acting "ltra !ires '.6. DRA9AA and ACCA;TOR 1. Drawee a. A person on who, a bill of e#change or chec. is drawn and who is ordered to pay it b. Liability of DRA9AA to) '. 5older 1( Not liable on the instr",ent "ntil he accepts it and e!en a holder in d"e co"rse cannot s"e hi, on the instr",ent before
his acceptance '( A bill2chec. of itself does not operate as an assign,ent of the f"nds in the hands of the drawee2ban. %3ec 1E> NIL( and the drawee2ban. is NOT 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1F? of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 LIAHLA on the bill "nless and UNTIL he2it ACCA;T3 %or certifies( the sa,e. %3ec. 1'D NIL( 6. Drawer 1( ;ay,ent despite 3top ;ay,ent Order a( Hefore pay,ent or certification by the ban. the drawer ,ay co"nter,and the order and pay,ent thereafter to the payee by the ban. is wrongf"l. b( 3ince a chec. is not an assign,ent of the drawer4s f"nd the ban. is liable for paying it in disregard of the co"nter,and. c( Boreo!er drawee can no longer reco!er what it !ol"ntarily paid to the
holder of the "ncertified and "naccepted instr",ent. '( Ref"sal to Accept a( Under so,e circ",stances the drawee who ref"ses to accept ,ay be ,ade liable for breach of contract or for da,ages based on a tort either to the drawer %refer to Araneta !. Han. of A,erica( or to the holder %refer to 53HC !. Catalan( ARANATA I. HANR O0 ABARICA%1>D1( This was an action by a depositor against a ban. for da,ages res"lting fro, the wrongf"l dishonor of the depositorVs chec.s. 5ALD) AranetaVs clai, for te,perate da,ages is legally 1"stified beca"se of the ad!erse reflection on the financial credit of a b"siness,an a pri$ed and !al"able asset w2c constit"tes ,aterial loss. 53HC I3. CATALAN %'FF=( 53HC is not being s"ed on the !al"e of the chec. itself b"t for how it acted in relation to Catalan4s clai, for pay,ent despite the repeated directi!es of the drawer Tho,son to recogni$e the chec. the latter iss"ed. 5er allegations in the co,plaint that the gross inaction of 53HC on Tho,son4s instr"ctions as well as its e!ident fail"re to infor, Catalan of the reason for its contin"ed inaction and non/pay,ent
of the chec.s s,ac. of inso"ciance on its part are s"fficient state,ents of clear ab"se of right for which it ,ay be held liable "nder Article 1> of the Ci!il Code for any da,ages she inc"rred res"lting therefro,. 53HANR4s actions or lac. thereof pre!ented Catalan fro, see.ing f"rther redress with Tho,son for the reco!ery of her clai, while the latter was ali!e. 6. Acceptor) Liability a. %3ec.?' NIL( Drawee is not liable "nless he accepts the bill and in doing so he engages to pay the bill according to the tenor of his acceptance and ad,its the following) i. e#istence of drawer ii. gen"ineness of his signat"re iii. his capacity and a"thority to draw the instr",ent i!. e#istence of payee and his then capacity to endorse b. Beaning of Taccording to the tenor of his acceptanceT i. Ba1ority and pre!ailing !iew) 9here alteration consists in raising the a,o"nt payable acceptor liable to 5DC only as to its original a,o"nt- if the alteration of payeeVs na,e paying ban.s cannot charge drawerVs acco"nt with the a,o"nt
of the chec. beca"se its d"ty is to pay only Laccording to the order of the drawer.M ii. Co,,on law r"le) Acceptor of altered chec. not liable to innocent holder e#cept for the original a,o"nt '.=. Acceptance 1. IN 8ANARAL) a. Definition) i. TAcceptanceT ,eans an acceptance co,pleted by deli!ery or notification %3ec. 1> NIL( ii. The signification by the drawee of his assent to the order of the drawer %3ec 16' NIL( b. RAQUI3ITA3 for a !alid acceptance %3ec 16' NIL( i. It ,"st be in writing and signed by the drawee1( Th"s there is no !alid or i,plied acceptance e#cept as pro!ided by 3ec. 16D relating to constr"cti!e acceptance ii. It ,"st not e#press that the drawee will perfor, his pro,ise by any other ,eans than the pay,ent of ,oney. iii. does not change the i,plied pro,ise of acceptor to pay only in ,oney
c. BANNAR of acceptance i. Ca,pos) Us"ally ,ade by writing the word LacceptedM and signing i,,ediately below 1( HUT drawee4s signat"re alone is s"fficient %Ca,pos citing Lawless !. Te,ple( ii. 3ec 166 NIL) The holder of a bill presenting the sa,e for acceptance ,ay re+"ire that the acceptance be written on the bill and if s"ch re+"est is denied ,ay treat the bill as dishonored 1( Affect) holder ,ay go against the party4s secondarily liableC the drawer and the indorsers iii. Acceptance of an INCOB;LATA bill %3ec 16E NIL( 1( A bill ,ay be accepted) a( before it has been signed by the drawer or NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1FD of 6<1 b( while otherwise inco,plete or c( when it is o!erd"e or d( after it has been dishonored by a pre!io"s ref"sal to accept or by non pay,ent '( H"t when a bill payable after
sight is dishonored by nonacceptance and drawee s"bse+"ently accepts it the holder in the absence of diff agree,ent is entitled to ha!e bill accepted as of date of the 1st present,ent. a( 3ec. 16E NIL allows acceptance to be ,ade while the bill is inco,plete. b( The bill ,ay be accepted e!en after it is o!erd"e or dishonored since an instr",ent DOA3 NOT LO3A IT3 NA8OTIAHILITK by the ,ere fact that its ,at"rity date has passed or the drawee4s ref"sal to accept or pay it. d. ;ARIOD within which to accept i. The drawee is allowed '= ho"rs after present,ent to decide 9ON he will accept the bill- the acceptance if gi!en dates as of the day of presentation. %3ec. 16? NIL( ii. Affect of non/acceptance within the prescribed period 1( 9here bill is d"ly presented
and is not accepted within prescribed ti,e the person presenting it ,"st treat the bill as dishonored by nonacceptance or he loses right of reco"rse against the drawer and indorsers. %3ec. 1<F NIL( '. CON3TRUCTIIA ACCA;TANCA) occ"rs in the following circ",stances a. 3AC 16D NIL) 9here the drawee i. destroys the bill or ii. ref"ses within '=hrs or s"ch other period as the holder ,ay allow to ret"rn the bill accepted or nonaccepted to the holder b. Under the clearing ho"se r"les the drawee ban.4s fail"re to ret"rn within the prescribed ti,e will be dee,ed pay,ent or acceptance of the chec.. c. If there is not de,and for the ret"rn of the bill and the drawee .eeps it "ntil after the e#piration of said period witho"t e#pressly accepting or ref"sing it- two !iews) i. Constit"tes constr"cti!e notice ii. Constit"tes dishonor beca"se 3ec.16D NIL "ses the word Tref"sesT d. Acceptance if gi!en will retroact to date of presentation. 3UBCAD !. ;ROIINCA O0 3ABAR %1><?(
There was i,plied acceptance in !iew of the circ",stances of the case %f"rnishing of photostatic copies present,ent for certification( by !ol"ntary ass",ing the obligation of holding so ,"ch deposit as wo"ld be s"fficient to co!er the a,o"nt of the chec.. 6. ACCA;TANCA ON A 3A;ARATA IN3TRUBANT e. A#trinsic acceptance / acceptance is written on a paper other than the bill itself- doesn4t bind the acceptor e#cept in fa!or of a person to who, it is shown and who on the faith thereof recei!es the bill for !al"e. %3ec. 16= NIL(- acceptance of an e#isting bill f. Iirt"al acceptance / "nconditional pro,ise in writing to accept a bill before it is drawn- dee,ed an act"al acceptance in fa!or of e!ery person who "pon the faith thereof recei!es the bill for !al"e. %3ec. 16< NIL(acceptance of f"t"re bill g. In both cases the acceptance ,"st clearly and "ne+"i!ocally identify the bill to which the acceptance refers. =. RIND3 O0 ACCA;TANCA) An acceptance is either %1( general or %'( +"alified. a. 8ANARAL / assents witho"t +"alification to the order of the drawer.
%3ec.16> NIL(- Incl"des acceptance to pay at a partic"lar place- "nless e#pressly states that bill is to be paid there only and not elsewhere. %3ec. 1=F NIL( b. QUALI0IAD / in e#press ter,s !aries the effect of the bill as drawn. %3ec. 16> NIL( i. Conditional- pay,ent by the acceptor dependent on the f"lfill,ent of a condition therein statedii. ;artial- to pay part only of the a,o"nt for which the bill is drawniii. Local- to pay only at a partic"lar placei!. Q"alified as to ti,e!. The acceptance of so,e one or ,ore of the drawees b"t not of all. %3ec. 1=1 NIL( 1( The holder ,ay ref"se to ta.e a +"alified acceptance- ,ay treat the bill as dishonored by non/acceptance. '( 9here a +"alified acceptance is ta.en the drawer and indorsers are discharged fro, liability on the bill "nless they ha!e a"thori$ed the holder to ta.e a +"alified acceptance or
s"bse+"ently assent thereto. 6( 9hen the drawer or an indorser recei!es notice of a +"alified acceptance he ,"st within a reasonable ti,e e#press his dissent to the holder or he will be dee,ed to ha!e assented thereto. %3ec. 1=' NIL( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1FE of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 c. TRADA / a draft or bill of e#change with a definite ,at"rity drawn by a seller on a b"yer for the p"rchase price of goods bearing across its face the acceptance of the b"yer- always states "pon its face the transaction fro, which it arose. d. HANRARV3 acceptance / a negotiable ti,e draft or bill of e#change drawn on and accepted by a co,,ercial ban.. '.<. C5ACR3 ) acceptance and certification 1. Definition) A chec. is an instr",ent in the for, and nat"re of a HA b"t an "nli.e an ordinary bill always payable on de,and and always drawn on a ban.. '. Rinds) a. CashierVs or ,anagerVs / drawn by a ban. on itself and its iss"ance has the effect of acceptance- since the drawer and drawee are the sa,e the holder ,ay treat
it is either a HA or ;N. b. Be,orand", chec. / where the word T,e,orand",T or T,e,oT is written across its face signifying that the drawer will pay the holder absol"tely witho"t need of present,ent. c. Tra!elerVs chec. / "pon which the holderVs signat"re ,"st appear twice // first when it is iss"ed and again when it is cashed. d. Crossed 7 when the na,e of a partic"lar ban.er or a co,pany is written between the parallel lines drawn. 3TATA INIA3TBANT 5OU3A I. IAC Crossed chec. sho"ld p"t the payee on in+"iry to ascertain the holders4 title to the chec. or the nat"re of his possession. 0ailing this the payee is declared g"ilty of gross negligence to the effect that the holder of the chec. is not a holder in good faith. Affects of a crossed chec.) %a( the chec. ,ay not be encashed b"t only deposited in the ban.%b( the chec. ,ay be negotiated only once 7 to one who has an acco"nt with the ban.- and %c( the act ser!es as a warning to the holder that the chec. has been iss"ed for a definite p"rpose so that he ,"st in+"ire if he has recei!ed the chec. p"rs"ant to that p"rpose otherwise he is not a 5DC. HATAAN CI8AR U CI8ARATTA 0ACTORK INC.
!. CA The negotiability of a chec. is not affected by its being crossed whether specially or generally. It ,ay legally be negotiated as long as the one who encashes the chec. with the drawee ban. is another ban. or if it is especially crossed by the ban. ,entioned between the parallel lines. R; !. ;NH %1>?1( De,and drafts ha!e not been presented either for acceptance or for pay,ent th"s the ban. ne!er had any chance of accepting or re1ecting the,- as s"ch these cannot be s"b1ect of escheat. CashierVs chec. is the s"bstantial e+"i!alent of a certified chec. and is th"s s"b1ect to escheat. Telegraphic transfers are li.ewise s"b1ect to escheat beca"se "pon ,a.ing pay,ent co,plete the transaction insofar as he is concerned tho"gh insofar as the re,itting ban. is concerned the contract is e#ec"tory "ntil the credit is established. ;AL I. CA %1>>F( A chec. whether a ,anagerVs chec. or ordinary chec. and an offer of a chec. in pay,ent of a debt is not a !alid tender of pay,ent and ,ay be ref"sed receipt by the obligee or creditor. The iss"ance of the chec. to a person a"thori$ed to recei!e it operates to release the 1"dg,ent debtor fro, any f"rther obligations on the 1"dg,ent. INTARNATIONAL COR;ORATA HANR ! 8UACO %'FF1( A ,anager4s chec. is one drawn by the ban.4s
,anager "pon the ban. itself. It is si,ilar to a cashier4s chec. both as to effect and "se. A cashier4s chec. is a chec. of the ban.4s cashier on his own or another chec.. In effect it is a bill of e#change drawn by the cashier of a ban. "pon the ban. itself and accepted in ad!ance by the act of its iss"ance. It is really the ban.4s own chec. and ,ay be treated as a pro,issory note with the ban. as a ,a.er. The chec. beco,es the pri,ary obligation of the ban. which iss"es it and constit"tes its written pro,ise to pay "pon de,and. The ,ere iss"ance of it is considered an acceptance thereof. If treated as pro,issory note the drawer wo"ld be the ,a.er and in which case the holder need not pro!e present,ent for pay,ent or present the bill to the drawee for acceptance A;CIH ! ON8 %'FF?( A ,anager4s chec. is an order of the ban. to pay drawn "pon itself co,,itting in effect its total reso"rces integrity and honor behind its iss"ance. Hy its pec"liar character and general "se in co,,erce a ,anager4s chec. is regarded s"bstantially to be as good as the ,oney it represents. 6. Clearing a. Clearing / chec. collection process b. Clearing ho"se / where representati!es of different ban.s ,eet e!ery afternoon of e!ery b"siness day to
recei!e the en!elopes containing chec.s drawn against the ban. he represents for e#a,ination and clearance. =. Certification a.Definition i. an agree,ent by which a ban. pro,ises to pay the chec. at any ti,e it is presented for pay,ent ii. 9hen chec. certified by ban. on which it is drawn e+"i!alent to acceptance b. Re+"isites for a Ialid Certification i. B"st be in writing ii. Bade on the chec. or another instr",ent NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1F> of 6<1 iii. Chec. ,"st be payable 1( Chec.s cannot be certified before payable c. Liability i. Han. which certifies 1( Heco,es liable as an acceptor '( RA0U3AL to certify a chec. doesn4t constit"te dishonor- the holder at that stage cannot e#ercise his right of reco"rse against the drawer and the indorsers ii. If proc"re,ent by)
1(5older a( The ban. beco,es the solidary debtor and b( The drawer and all indorsers discharged fro, all liability %!ers"s ordinary bill of e#change 7 not discharged( '( Drawer a( secondary parties not released ROBAN CAT5OLIC HI35O; I. IAC %1>>F( A certified personal chec. is not legal tender nor is it the c"rrency stip"lated and therefore cannot constit"te !alid tender of pay,ent. NA9 ;ACI0IC TIBHAR !. 3ANARI3 %1>EF( %as cited in A;CIH !. Ong 3ept. 'FF?( :3@ince the said chec. had been certified by the drawee ban. by the certification the f"nds represented by the chec. are transferred fro, the credit of the ,a.er to that of the payee or holder and for all intents and p"rposes the latter beco,es the depositor of the drawee ban. with rights and d"ties of one in s"ch sit"ation. 9here a chec. is certified by the ban. on which it is drawn the certification is e+"i!alent to acceptance. 3aid certification Li,plies that the chec. is drawn "pon s"fficient f"nds in the hands of the drawee that they ha!e been set apart for its satisfaction and that they shall be so applied whene!er the chec. is
presented for pay,ent. It is an "nderstanding that the chec. is good then and shall contin"e good and this agree,ent is as binding on the ban. as its notes circ"lation a certificate of deposit payable to the order of depositor or any other obligation it can ass",e. The ob1ect of certifying a chec. as regards both parties is to enable the holder to "se it as ,oney.M 9hen the holder proc"res the chec. to be certified Lthe chec. operates as an assign,ent of a part of the f"nds to the creditors.M 5ence the e#ception to the r"le en"nciated "nder 3ection ?6> of the Central Han. Act to the effect Lthat a chec. which has been cleared and credited to the acco"nt of the creditor shall be e+"i!alent to a deli!ery to the creditor in cash in an a,o"nt e+"al to the a,o"nt > L3AC. ?6. Legal character . 7 Chec.s representing deposit ,oney do not ha!e legal tender power and their acceptance in the pay,ent of debts both p"blic and pri!ate is at the option of the creditor) ;ro!ided howe!er that a chec. which has been cleared and credited to the acco"nt of the creditor shall be e+"i!alent to a deli!ery to the creditor of cash in an a,o"nt e+"al to the a,o"nt credited to his acco"nt. credited to his acco"ntM shall apply in this case # # #. <. 3"rrender of Chec. a. The s"rrender of the chec. by the holder to the drawee ban. "pon its pay,ent is not negotiation. Hy
paying the chec. the drawee ban. e#ting"ishes it as a negotiable instr",ent and con!erts it into a ,ere !o"cher. b. Distinction between s"rrender of chec. "pon pay,ent thereof and negotiation i. The deli!ery of the chec. by the holder to the drawee ban. "pon its pay,ent is not negotiation. Hy paying the chec. the drawee ban. e#ting"ishes it as a negotiable instr",ent and con!erts it into a ,ere !o"cher. ii. In the case of a deposit of a chec. by the holder thereof in a ban. other than the drawee ban. the signat"re at the bac. of the chec. wo"ld constit"te an indorse,ent "nless otherwise indicated. The holder in negotiating the chec. to the depositary ban. which in t"rn will collect on the chec. fro, the drawee ban. thro"gh the clearingho"se. H;I !s CA %'FFF( In depositing the chec. in his na,e pri!ate respondent did not beco,e the o"tright owner of the a,o"nt stated therein. 5e was ,erely designating petitioner as the collecting ban.. This is in consonance with the r"le that a negotiable
instr",ent s"ch as a chec. whether a ,anager4s chec. or ordinary chec. is not legal tender. As s"ch after recei!ing the deposit "nder its own r"les petitioner shall credit the a,o"nt in pri!ate respondent4s acco"nt or inf"se !al"e thereon only after the drawee ban. shall ha!e paid the a,o"nt of the chec. or the chec. has been cleared for deposit. Again this is in accordance with ordinary ban.ing practices and with this Co"rt4s prono"nce,ent that Tthe collecting ban. or last endorser generally s"ffers the loss beca"se it has the d"ty to ascertain the gen"ineness of all prior endorse,ents considering that the act of presenting the chec. for pay,ent to the drawee is an assertion that the party ,a.ing the present,ent has done its d"ty to ascertain the gen"ineness of the endorse,ents.T The r"le finds ,ore ,eaning in this case where the chec. in!ol!ed is drawn on a foreign ban. and therefore collection is ,ore diffic"lt than when the drawee ban. is a local one e!en tho"gh the chec. in +"estion is a ,anager4s chec. 6. 3econdary ;arties 6.1. Liability of DRA9AR 1. 3ec. ?1 NIL a. Ad,its e#istence of payee and his then capacity to endorse 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 11F of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 b. Angages that on d"e present,ent
instr",ent will be accepted or paid or both according to its tenor c. That if it be dishonored Y necessary proceedings on dishonor d"ly ta.en will pay the a,o"nt thereof to the holder or to a s"bse+"ent indorser who ,ay be co,pelled to pay it '. Li,iting Liability) drawer ,ay insert in the instr",ent an e#press stip"lation negati!ing 2 li,iting his own liability to holder ;NH !. ;ICORNALL %1>''( ;icornell obtained ,oney fro, ;NH Ceb" to p"rchase tobacco to be shipped to Banila. ;icornell then drew a bill of e#change drawn against his principal 5ynd,an Ta!era U Ient"ra %5TI( in fa!or of ;NH or his order. Upon presentation of the bill 5TI accepted it. 5owe!er 5TI s"bse+"ently ref"sed to pay the bill beca"se so,e of the tobacco shipped were da,aged. 5ALD) A. Liability of Acceptor %5TI( * ;NH is a holder in d"e co"rse and the partial want of consideration does not e#ist with respect to the ban. who paid f"ll !al"e for the bill of e#change. * The want of consideration between the acceptor and drawer does not affect the rights of the payee who is a re,ote party. The payee or holder gi!es !al"e to the
drawer and if he is ignorant of the e+"ities between the drawer and acceptor his is in the position of a bona fide indorsee. H. Liability of Drawer %;icornell( * As drawer of the bill he warranted that it wo"ld be accepted "pon proper present,ent U paid in d"e co"rse. As it was not paid he beca,e liable to the pay,ent of its !al"e to ;NH. * The fact that ;icornell was an agent of 5TI in the p"rchase of the tobacco does not necessarily ,a.e hi, an agent of 5TI in drawing the bill of e#change. These are ' different contracts. 5e cannot clai, e#e,ption fro, liability by in!o.ing the e#istence of agency. * Drawer recei!ed notice of protest in f"lfill,ent of the condition set by law for his liability to arise. * DrawerVs liability is only secondary as the liability of the acceptor is pri,ary. HANCO ATLANTICO ! AUDITOR 8ANARAL %1>DE( H fra"d"lently altered chec.s payable to her drawn by the A,bassy by increasing the a,o"nts. H negotiated these chec.s by indorse,ent to HA w2c paid the f"ll a,o"nt of the chec.s witho"t first clearing with the drawee ban. contrary to nor,al ban.ing practice. 5ALD) Drawer %e,bassy( not liable. HA is g"ilty of negligence in gi!ing H special
treat,ent as a pri!ileged client in disregard of ele,entary principles of pr"dence that sho"ld attend ban.ing transactions. 5ence it sho"ld s"ffer the loss. HA co"ld not ha!e been a 5DC. NOTA) The Ca,poses note that the drawer was not held liable beca"se the decision was based on &'6 on forgery instead of &1'= on ,aterial alteration. If HA had been a 5DC the A,bassy co"ld ha!e been held liable for the original a,o"nt of the chec.s 6. CRIBINAL LIAHILITK 0OR HOUNCIN8 C5ACR a. Under H; '' ;AO;LA ! NITA0AN%1>>'( Li, iss"ed a ,e,orand", chec. which was s"bse+"ently dishonored for ins"fficiency of f"nds. A ,e,orand", chec. has the sa,e effect as an ordinary chec. and within the a,bit of H; ''. 9hat the law p"nishes is the iss"ance itself of a bo"ncing chec. U not the p"rpose for which it was iss"ed nor the ter,s U conditions relating to its iss"ance. b. Astafa "nder the R;C ;AC5ACO ! CA %1>>>( The essential ele,ents in order to s"stain a con!iction "nder the abo!e paragraph are) 1. that the offender postdated or iss"ed a chec. in pay,ent of an obligation contracted at the ti,e the chec. was iss"ed'. that s"ch postdating or iss"ing a chec. was
done when the offender had no f"nds in the ban. or his f"nds deposited therein were not s"fficient to co!er the a,o"nt of the chec.6. deceit or da,age to the payee thereof. ;AO;LA ! RAKA3 %'FF<( There is no estafa thro"gh bo"ncing chec.s when it is shown that pri!ate co,plainant .new that the drawer did not ha!e s"fficient f"nds in the ban. at the ti,e the chec. was iss"ed to hi,. 3"ch .nowledge negates the ele,ent of deceit and constit"tes a defense in estafa thro"gh bo"ncing chec.s. 6.'. Liability of INDOR3AR3) 1. Indorser a. 3ec. ?6 NIL) A person placing his signat"re "pon an instr",ent other than as a ,a.er drawer or acceptor "nless he indicates by appropriate words his intention to be bo"nd in so,e other capacity i 3A;IARA !s CA %1>>>(. It is "ndisp"ted that the fo"r %=( chec.s iss"ed by de 8"$,an were signed by petitioner at the bac. witho"t any indication as to how she sho"ld be bo"nd thereby and therefore she is dee,ed to be an indorser thereof. b. 3ec. ?D NIL) A person who places his signat"re on an instr",ent negotiable by deli!ery inc"rs all the liabilities of an
indorser. c. 3ec ?= NIL) Irreg"lar Indorser i 9hen a person not otherwise a party to an instr",ent places thereon his signat"re in blan. before deli!ery he is liable as an indorser in accordance w2 these r"les) NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 111 of 6<1 1( Instr",ent payable to order of 6rd person) liable to payee and to all s"bse+"ent parties '( Instr",ent payable to the order of ,a.er2drawer or payable to bearer) liable to all parties s"bse+"ent to ,a.er2drawer 6( 3igns for acco,,odation of payee liable to all parties s"bse+"ent to payee '. 9ARRANTIA3) a. A!ery person negotiating an instr",ent by deli!ery or by a +"alified indorse,ent warrants) %3ec. ?< NIL( ii Instr",ent gen"ine in all respects what it p"rports to be iii 5e has good title to it i! All prior parties had capacity to contract
! 5e has no .nowledge of any fact w2c wo"ld i,pair !alidity of instr",ent or render it !al"eless !i in case of negotiation by deli!ery only warranty only e#tends in fa!or of i,,ediate transferee b. 8eneral or Un+"alified Indorser) A!ery person who indorses witho"t +"alification warrants to all s"bse+"ent 5DCs) %3ec. ?? NIL( i. instr",ent gen"ine good title capacity of prior parties ii. instr",ent is at ti,e of indorse,ent !alid and s"bsisting iii. eon d"e present,ent it shall be accepted or paid or both according to tenor i!. if it is dishonored and necessary proceedings on dishonor be d"ly ta.en he will pay the a,t. To holder or to any s"bse+"ent indorser who ,ay be co,pelled to pay it 6. Order of Liability a,ong Indorsers %3ec. ?E NIL() a. a,ong the,sel!es) liable pri,a facie in the order they indorse b"t proof of another agree,ent ad,issible b. b"t holder ,ay s"e any of the indorsers regardless of order of indorse,ent c. 1oint payees2indorsees dee,ed to
indorse 1ointly and se!erally TUANON ! RABO3 %'FF<( After an instr",ent is dishonored by nonpay,ent indorsers cease to be ,erely secondarily liablethey beco,e principal debtors whose liability beco,es identical to that of the original obligor. The holder of a negotiable instr",ent need not e!en proceed against the ,a.er before s"ing the indorser. 6.6. Acco,odation ;arty 1. Acco,odation ;arty) one who signed instr",ent as ,a.er2drawer2acceptor2 indorser w2o recei!ing !al"e thereof for the p"rpose of lending his na,e to so,e other person '. Liability ) Liable on the instr",ent to 50I e!en if holder .new he was only an A; BAULINI !. 3ARRANO %1>1=( In acco,,odation indorse,ent the indorser ,a.es the indorse,ent for the acco,,odation of the ,a.er. 3"ch an indorse,ent is generally for the p"rpose of better sec"ring the pay,ent of the note i.e. he lends his na,e to the ,a.er not to the holder. An acco,,odation note is one which the acco,,odation party has p"t his na,e witho"t consideration for the p"rpose of acco,,odation so,e other party who is to "se it and is e#pected to pay it. Note) Ca,pos disagrees with this r"ling referring to the case of 8ood,an ! 8a"l where an acco,,odation indorse,ent ,ay be ,ade for the
acco,,odation of the payee or holder. AN8 TION8 !. TIN8 %1>?E( It is not a !alid defense that the acco,,odation party did not recei!e any !al"able consideration when he e#ec"ted the instr",ent. Nor is it correct to say that the holder for !al"e is not a holder in d"e co"rse ,erely beca"se at the ti,e he ac+"ired the instr",ent he .new that the indorser was only an acco,,odation party. The fact that the acco,,odation party stands only as a s"rety in relation to the ,a.er is a ,atter of concern e#cl"si!ely between acco,,odation indorser U acco,,odated party. It is i,,aterial to the clai, of a holder for !al"e. The liability of the acco,,odation party re,ains pri,ary U "nconditional. 3ADAKA !. 3AIILLA %1>?D( The solidary acco,,odation ,a.er who ,ade pay,ent has the right of contrib"tion fro, his coacco,,odation ,a.er. This right springs fro, an i,plied pro,ise between the acco,,odation ,a.ers to share e+"ally the b"rdens that ,ay ens"e fro, their ha!ing consented to sta,p their signat"res on the pro,issory note. The following are the r"les on rei,b"rse,ent) 1. A solidary acco,,odation ,a.er of a note ,ay de,and fro, the principal debtor rei,b"rse,ent for the a,o"nt he paid to the payee- and '. A solidary acco,,odation ,a.er who pays on
the note ,ay directly de,and rei,b"rse,ent fro, his co/acco,,odation ,a.er witho"t first directing his action against the principal debtor pro!ided that ) %a( he ,ade the pay,ent by !irt"e of a 1"dicial de,and or %b( the principal debtor is insol!ent. TRAIAL/ON INC. !. CA Tra!el/On was entitled to the benefit of the stat"tory pres",ption that it was a 5DC that the chec.s were s"pported by !al"able consideration. The only e!idence pri!ate respondent offered was his own testi,ony that he had iss"ed the chec.s to Tra!el/On as payee to Tacco,,odateT its 8eneral Banager- this clai, was in fact a clai, that the 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 11' of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 chec.s were ,erely si,"lated that pri!ate respondent did not intend to bind hi,self thereon. Only e!idence of the clearest and ,ost con!incing .ind will s"ffice for that p"rpose. CRI3OLO8O/JO3A !. CA. 3ection '> of the NIL does not apply to corporations which are acco,,odation parties beca"se the iss"e or indorse,ent of negotiable paper by a corporation witho"t consideration is "ltra !ires. 5ence one who has ta.en the instr",ent with .nowledge of the acco,,odation cannot reco!er against a corporation / acco,,odation party AOCA;T if the officer or agent
of the corp. was specifically a"thori$ed to e#ec"te or indorse the paper for the acco,,odation of a third person. Corporate officers s"ch as the president and !icepresident ha!e no power to e#ec"te for ,ere acco,,odation a NI of the corporation for their indi!id"al debts or transactions in which the corporation has no legiti,ate concern. It is the signatories thereof that shall be personally liable therefor. A8RO CON8LOBARATA3 ! CA %'FFF( An acco,,odation party is a person who has signed the instr",ent as ,a.er acceptor or indorser witho"t recei!ing !al"e therefor and for the p"rpose of lending his na,e to so,e other person and is liable on the instr",ent to a holder for !al"e notwithstanding s"ch holder at the ti,e of ta.ing the instr",ent .new %the signatory( to be an acco,,odation party. 5e has the right after paying the holder to obtain rei,b"rse,ent fro, the party acco,,odated since the relation between the, has in effect beco,e one of principal and s"rety the acco,,odation party being the s"rety. 6.=. Liability of an A8ANT 1. A8ANCK) a. 3ignat"re of any party ,ay be ,ade by d"ly a"thori$ed agent established as in ordinary agency b. 3ignat"re per proc"ration operates as
notice that the agent has li,ited a"thority to sign and the principal is bo"nd only in case the agent in so signing acted within the act"al li,its of his a"thority '. LIAHILITK a. 8AN RULA) 9here person adds to his signat"re words indicating that he signs on behalf of a principal not liable if he was d"ly a"thori$ed b. 95AN LIAHLA) i. ,ere addition of words describing hi, as an agent witho"t disclosing his principal ii. 9here a bro.er or agent negotiates an instr",ent witho"t indorse,ent he inc"rs all liabilities in 3ec. ?< "nless he discloses na,e of principal and fact that he4s only acting as agent. %3ec. ?> NIL( IN3ULAR DRU8 !. ;NH The right of an agent to indorse co,,ercial paper will not be lightly inferred. A sales,an with a"thority to collect ,oney does not ha!e the i,plied a"thority to indorse chec.s recei!ed in pay,ent. Any person ta.ing chec.s ,ade payable to a corporation does so at his peril U ,"st abide by the conse+"ences if the agent who indorses the sa,e is witho"t a"thority. ;HC ! ARUA8O %1>E1( Ar"ego obtained a credit acco,,odation fro, ;HC.
0or e!ery printing of the p"blication the printer collected the cost of printing by drawing a draft against ;HC which will later be sent to Ar"ego for acceptance. ;HC see.s reco!ery on these drafts. Ar"ego in!o.es the defense that he signed the doc",ent in his capacity as ;resident of the ;hil. Ad"cation 0o"ndation U only as an acco,,odation party. 5ALD) Ar"ego is personally liable beca"se nowhere in the draft did he disclose that he was signing as a representati!e of the ;hil Ad"cation 0o"ndation. Neither did he disclose his principal. As an acco,,odation party Ar"ego is liable on the instr",ent to a holder for !al"e notwithstanding s"ch holder at the ti,e of the ta.ing of the instr",ent .new hi, to be only an acco,,odation party. Ar"ego signed as a drawee2acceptor. As drawee he is pri,arily liable for the drafts. =. ;resent,ent =.1. Definition) 1. the prod"ction of a HA to the drawee for his ACCA;TANCA or to the drawer or acceptor for ;AKBANT- or '. the prod"ction of a ;N to the party liable for pay,ent =.'. ;resent,ent for Acceptance 1. 9hen necessary %3ec. 1=6 NIL( a. bill payable after sight or in other cases where present,ent for acceptance necessary to fi# ,at"rity
b. where bill e#pressly stip"lates that it shall be presented for acceptance c. where bill is drawn payable elsewhere than at residence 2 place of b"siness of drawee d. In no other case is present,ent for acceptance necessary in order to render any party to the bill liable. '. Affect of non/present,ent :w2in reasonable ti,e@ %3ec. 1== NIL( / discharges the drawer and all indorsers. a. Reasonable Ti,e) considerations i nat"re of instr",ent ii "sage of trade or b"siness with respect to instr",ent iii facts of each case 6. 5ow ,ade %3ec. 1=< NIL( a. HK or ON HA5AL0 of the holder NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 116 of 6<1 b. AT a reasonable ho"r c. ON a b"siness day and before the bill is o!erd"e d. TO the drawee or so,e person a"thori$ed to accept or ref"se acceptance on his behalf- and i bill addressed to drawees not partners BU3T be ,ade to the, all "nless one has a"thority to accept or ref"se acceptance for all-
ii drawee is dead BAK be ,ade to his personal representati!eiii drawee has been ad1"dged a ban.r"pt or an insol!ent or has ,ade an assign,ent for the benefit of creditors BAK be ,ade) 1( to hi, or '( to his tr"stee or assignee. =. 9hen ,ade %3ec. 1=? NIL( on any day on which NIs ,ay be presented for pay,ent "nder) a. 3ec. D' NIL 7 at a reasonable ho"r on a b"siness day i Instr",ents falling d"e or beco,ing payable on 3at"rday / ne#t s"cceeding b"siness day ii AOCA;T instr",ents payable on de,and :at the option of the holder@ 7 before twel!e oVcloc. noon on 3at"rday 95AN that entire day is not a holiday. b. 3ec. E< NIL 7 i at the ti,e fi#ed therein witho"t grace. c. 9here the holder has no ti,e with the e#ercise of reasonable diligence to present the bill for acceptance before presenting it for pay,ent delay is e#c"sed and doesn4t discharge the drawers and indorsers. %3ec. 1=D
NIL( <. 9hen A#c"sed %3ec. 1=E NIL( Hill ,ay be treated as dishonored by nonacceptance) a. 9here the drawee is %1( dead %'( absconded %6( fictitio"s %=( does not ha!e capacity to contract by bill. b. 9here after the e#ercise of reasonable diligence present,ent can not be ,ade. c. 9here altho"gh present,ent has been irreg"lar acceptance has been ref"sed on so,e other gro"nd. ?. Dishonor and Affects a. Dishonor by nonacceptance) i 9hen d"ly presented for acceptance 7 acceptance is ref"sed or can not be obtained- or ii 9hen present,ent for acceptance is e#c"sed 7 bill is not accepted. %3ec. 1=> NIL( b. NON ACCA;TANCA of the bill i D"ty of holder) ,"st treat the bill as dishonored by nonacceptance or he loses the right of reco"rse against the drawer and indorsers. %3ec. 1<F NIL( ii Right of holder) i,,ediate right of reco"rse against the drawer and indorsers and no present,ent for pay,ent is necessary. %3ec. 1<1
NIL( c. NOTICA O0 DI35ONOR i Recipient/ %3ec.E> NIL( A#cept as herein otherwise pro!ided 1( to the drawer and '( to each indorser ii Affect of o,ission to gi!e notice of non/acceptance 1( any drawer or indorser to who, s"ch notice is not gi!en is discharged '( does not pre1"dice the rights of a 5DC s"bse+"ent to the o,ission. %3ec. 11D NIL( =.6. ;resent,ent for ;ay,ent 1. IN 8ANARAL a. NACA33ARK in order to charge the drawer and indorsers%3ec. DF NIL( b. NOT necessary i. to charge the person pri,arily liable on the instr",ent %3ec. DF NIL( ii. to charge the drawer where he has no right to e#pect or re+"ire that the drawee or acceptor will pay the instr",ent. %3ec. D> NIL( iii. to charge an indorser where the instr",ent was ,ade or accepted for his acco,,odation and he has no reason to e#pect that the instr",ent will be paid if presented. %3ec. EF
NIL( i!. A#c"sed) 1( 9here after the e#ercise of reasonable diligence present,ent cannot be ,ade'( 9here the drawee is a fictitio"s person6( Hy wai!er of present,ent e#press or i,plied. !. when a bill is dishonored by nonacceptance 7 i,,ediate right to reco"rse accr"es to holder %3ec. 1<1 NIL( !i. in case of wai!er of protest whether in the case of a foreign bill of e#change or other NI 7 dee,ed to be a wai!er not only of a for,al protest b"t also of present,ent and notice of dishonor. %3ec. 111 NIL( '. Date and ti,e of present,ent a. bearing fi#ed ,at"rity 2 not payable on de,and 7 on the day it falls d"e iii if day of ,at"rity falls on 3"nday or a holiday the instr",ents falling d"e or beco,ing payable on 3at"rday are to be presented for pay,ent on the ne#t s"cceeding b"siness day %3ec.E< NIL( b. payable on de,and 7 within a reasonable ti,e after its iss"e
1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 11= of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 i! at the option of the holder ,ay be presented for pay,ent before twel!e oVcloc. noon on 3at"rday when that entire day is not a holiday %3ec. E< NIL( c. de,and bill of e#change 7 within a reasonable ti,e after the last negotiation. %3ec. D1 NIL( %NOTA) tho"gh reasonable ti,e fro, last negotiation it ,ay be "nreasonable ti,e fro, iss"ance th"s holder ,ay not be 5DC "nder sec. D1( d. Chec. / ,"st be presented for pay,ent within reasonable ti,e after its iss"e or drawer will be discharged fro, liability thereon to e#tent of loss ca"sed by delay i.5ow ti,e co,p"ted. C 9hen payable at a %1( fi#ed period after date %'( after sight or %6( after that happening of a specified e!ent e#cl"de day fro, which the ti,e is to begin to r"n incl"de date of pay,ent. %3ec. E? NIL( ii.9here the day or the last day for pay,ent falls on a 3"nday or on a holiday 7 ,ay be done on the ne#t s"cceeding sec"lar or b"siness day. %3ec. 1>= NIL( ;NH !. 3AATO %1><'(
On 16 Barch 3eeto indorsed to ;NH/3"rigao a bearer chec. dated 1F Barch drawn against ;HCCeb". ;NH/3"rigao ,ailed the chec. to its Ceb" branch on 'F Barch U was presented to the drawee ban. on F> April. The chec. was dishonored for ins"fficient f"nds beca"se the delay in present,ent ca"se the e#ha"stion of the drawerVs f"nds. Indorser 3eeto as.ed that the s"it be deferred while he ,ade in+"iries. 5e ass"red ;NH that he wo"ld ref"nd the !al"e in case of dishonor. 5ALD) The indorser is discharged fro, liability by reason of the delay in the present,ent for pay,ent "nder &E=. Drawer had eno"gh f"nds when he iss"ed the chec. beca"se his s"bse+"ent chec.s drawn against the sa,e ban. had been encashed. The ass"rances of ref"nd by the indorser are the ordinary obligation of an indorser which are discharged by the "nreasonable delay in presentation of the chec.. NOTA) Ca,poses note that the discharge of the indorser sho"ld ha!e been based on && ?? U D1 on present,ent as a condition to the indorserVs liability U present,ent for pay,ent of a de,and bill ,ade within a reasonable ti,e fro, its last negotiation. ;A;A ! A.U. IALANCIA %1>>E( 8ranting that petitioner had ne!er encashed the chec. his fail"re to do so for ,ore than ten %1F( years "ndo"btedly res"lted in the i,pair,ent
of the chec. thro"gh his "nreasonable and "ne#plained delay. 9hile it is tr"e that the deli!ery of a chec. prod"ces the effect of pay,ent only when it is cashed the r"le is otherwise if the debtor is pre1"diced by the creditor4s "nreasonable delay in present,ent. The acceptance of a chec. i,plies an "nderta.ing of d"e diligence in presenting it for pay,ent and if he fro, who, it is recei!ed s"stains loss by want of s"ch diligence it will be held to operate as act"al pay,ent of the debt or obligation for which it was gi!en. It has li.ewise been held that if no present,ent is ,ade at all the drawer cannot be held liable irrespecti!e of loss or in1"ry "nless present,ent is otherwise e#c"sed. This is in har,ony with Article 1'=> of the Ci!il Code "nder which pay,ent by way of chec. or other negotiable instr",ent is conditioned on its being cashed e#cept when thro"gh the fa"lt of the creditor the instr",ent is i,paired. The payee of a chec. wo"ld be a creditor "nder this pro!ision and if its nonpay,ent is ca"sed by his negligence pay,ent will be dee,ed effected and the obligation for which the chec. was gi!en as conditional pay,ent will be discharged. 6. 9here DALAK e#c"sed / when the delay is ca"sed by circ",stances beyond the control of the holder and not i,p"table to his defa"lt ,iscond"ct or negligence- when the ca"se of
delay ceases to operate present,ent ,"st be ,ade with reasonable diligence %3ec. E1 NIL( =. Banner of ;resent,ent a. The instr",ent ,"st be e#hibited- when paid ,"st be deli!ered "p to the party paying it. %3ec. D= NIL( b. 9hat constit"tes a s"fficient present,ent. %3ec. D' NIL( i.HK 95OB) the holder or by so,e person a"thori$ed to recei!e pay,ent on his behalfC5AN 9AN !. TAN RIB%1>?F( Tan Ri, drew specially crossed chec.s payable to bearer. Chan 9an presented the chec.s for pay,ent to the drawee ban. b"t they were dishonored d"e to ins"fficient f"nds. Chan 9an see.s reco!ery on these chec.s. 5ALD) Chec.s crossed specially to China Han.ing sho"ld ha!e been presented for pay,ent by that ban. not by Chan 9an. Inas,"ch as Chan 9an presented the, for pay,ent hi,self there was no proper present,ent U the liability did not attach to the drawer. H"t there was d"e present,ent as clearance endorse,ents by China Han. can be fo"nd at the bac. of the chec.s. 5owe!er so,e of the chec.s were sta,ped acco"nt closed. As Chan 9an failed to indicate how the chec.s reached his hands the co"rt held hi, not to be a holder in d"e co"rse who can still reco!er on the
chec.s b"t s"b1ect to personal defenses s"ch as lac. of consideration. NOTA) Ca,poses note that despite the addition of the words Tnon/negotiableT on the specially crossed chec.s the Co"rt considered the chec.s as negotiable instr",ents. A chec. on its face nor,ally has all the re+"isites of negotiability and the addition of the abo!e words sho"ld not change its character as a negotiable instr",ent. A33OCIATAD HANR !. CA U RAKA3 %1>>'( Different depart,ent stores iss"ed crossed chec.s bearing Tfor payeeVs acco"nt onlyT payable to NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 11< of 6<1 BelissaVs RT9. 3ayson acting witho"t a"thority deposited U encashed the chec.s with Associated Han.. 5ALD) Citing 3tate In!t 5o"se ! IAC the effects of crossing a chec. are) 1. chec. ,ay not be encashed b"t only deposited in the ban.'. chec. ,ay be negotiated only one // to one who has an acco"nt with a ban.- and 6. the act of crossing the chec. ser!es as a warning to the holder that the chec. has been iss"ed for a definite p"rpose so that he ,"st in+"ire if he has recei!ed the chec. p"rs"ant to that p"rpose. The effects of crossing a chec. relate to the ,ode of present,ent for pay,ent.
The law i,poses a d"ty of diligence on the collecting ban. to scr"tini$e chec.s deposited with it for the p"rpose of deter,ining their gen"ineness U reg"larity. ii. TIBA) reasonable ho"r on a b"siness day1( where instr",ent payable at ban.. C ,"st be ,ade d"ring ban.ing ho"rs UNLA33 the person to ,a.e pay,ent has no f"nds there to ,eet it at any ti,e d"ring the day in which case present,ent at any ho"r before the ban. is closed on that day is s"fficient %3ec. D< NIL( iii. ;LACA) proper place as herein defined) %3ec. D6 NIL( 1( place of pay,ent specified 7 at place of pay,ent'( no place of pay,ent specified b"t address of the person to ,a.e pay,ent is gi!en in the instr",ent 7 at the address gi!en6( no place of pay,ent and no address is gi!en 7 at the "s"al place of b"siness or residence of the person to ,a.e pay,ent-
1( in any other case 7 where!er person to ,a.e pay,ent can be %1( fo"nd or if presented %'( at his last .nown place of b"siness or residence '( where principal debtor is dead and no place of pay,ent is specified 7 to his personal representati!e I0 any AND I0 he can be fo"nd with the e#ercise of reasonable diligence %3ec. D? NIL( 6( where persons pri,arily liable are partners and no place of pay,ent is specified present,ent for / to any one of the, e!en tho"gh there has been a dissol"tion of the fir,. %3ec. DD NIL( =( 1oint debtors and no place of pay,ent is specified / to the, all %3ec. DE NIL( i!. TO 95OB) %1( person pri,arily liable on the instr",ent or if he is absent or inaccessible %'( to any person fo"nd at the place where the present,ent is ,ade.
<. Dishonor by Nonpay,ent a. 3ec E6 NIL The instr",ent when) i. d"ly presented for pay,ent and pay,ent ref"sed or cannot be obtained- or ii. present,ent is e#c"sed and the instr",ent is o!erd"e and "npaid. b. Affect)) :s"b1ect to NIL pro!s@ an i,,ediate right of reco"rse to all parties secondarily liable accr"es to the holder. %3ec. E= NIL( i. Dishonor is a condition precedent to the enforce,ent of the liability of secondary parties. ii. This is conditioned "pon the gi!ing of d"e notice of dishonor iii. An indorser whose liability has beco,e fi#ed by de,and and notice is as to holder a principal debtor. <. Notice of Dishonor <.1.Definition 1. To bring either !erbally or by writing to the .nowledge of the drawer or indorser of an instr",ent the fact that a specified NI "pon proper proceedings ta.en has not been accepted or has not been paid and that the party notified is e#pected to pay it '. 8eneral r"le) BU3T be gi!en to drawer and to each indorser and any drawer or indorser to who, s"ch notice is not gi!en
is discharged <.'. 9hen necessary 1. 3ec E> NIL A#cept as herein pro!ided when a negotiable instr",ent has been dishonored by non/acceptance or nonpay,ent notice of dishonor ,"st be gi!en to the drawer and to each indorserZ '. ;arties entitled to notice) a. Drawer b. Indorser c. Acco,odation Indorsers i Joint ,a.er e#cl"ded if not an indorser 6. Acceleration Cla"se a. If cla"se is optional on holder) i The bringing of an action against the ,a.er and indorsers constit"tes a !alid e#ercise of option and a !alid notice of dishonor b. Cla"se is a"to,atic) i Notice of dishonor ,"st be gi!e, at once ii Not s"fficient to gi!e it "pon co,,ence,ent of action 8ULLA3 !. ;NH %1>6<( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 11? of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 A notice of dishonor is necessary to charge an indorser U that the right of action against hi, does not accr"e "ntil the notice is gi!en.
As a general r"le a ban. has a right of set off of the deposits in its hands for the pay,ent of any indebtedness to it on the part of a depositor. 5owe!er prior to the ,ailing of notice of dishonor U witho"t awaiting any action by 8"llas the ban. ,ade "se of the ,oney standing in his acco"nt to ,a.e good for the treas"ry warrant. 8"llas was ,erely an indorser U notice sho"ld act"ally ha!e been gi!en to hi, in order that he ,ight protect his interests. <.6. 0or, and Contents %3ec >?( 1. 0or, of Notice) a. ,ay either be in writing or oral b. Ca,pos) ,"st be in a lang"age that will infor, the addressed party that the instr",ent has been d"ly presented '. Contents 7 ,"st contain any ter,s which s"fficiently a.identify the instr",ent and b. indicate that it has been dishonored by non/acceptance or non/pay,ent6.Bode of deli!ery a. ;ersonal ser!ice i. There ,"st be act"al personal ser!ice or ii. An ordinary intelligent and diligent effort to ,a.e personal ser!ice b. Thro"gh the ,ails c. Ca,pos) Thro"gh the telephone i ;arty to be notified ,"st be f"lly
identified as the party at the recei!ing end of the line =.The ff. notice still s"fficient) %3ec. >< NIL( a. a written notice not signed b. ins"fficient written notice s"pple,ented and !alidated by !erbal co,,"nication c. instr",ent s"ffering fro, ,isdescription UNLA33 the party to who, the notice is gi!en is in fact ,isled thereby. <.=.Ti,e and ;lace 1. Notice ,ay be gi!en as soon as the instr",ent is dishonored and within the ti,e fi#ed by NIL "nless delay e#c"sed %3ec. 1F' NIL( '. NOTICA to 3UH3AQUANT ;ARTK) Aach party who recei!es a notice is gi!en the sa,e period of ti,e within which to notify prior indorsers that the last holder had. %3ec. 1FD( 6. TIBA 0IOAD HK T5A NIL) a. 9here parties reside in sa,e place %3ec. 1F6 NIL() B"st be gi!en w2in the ff. ti,es) ii If gi!en at the place of b"siness of the person to recei!e notice / before the close of b"siness ho"rs on the day following iii If gi!en at his residence / before the "s"al ho"rs of rest on the day following i! If sent by ,ail / deposited in the
post office in ti,e to reach hi, in "s"al co"rse on the day following. b. 9here parties reside in different places %3ec. 1F= NIL(.) i. If sent by ,ail / deposited in the post office in ti,e to go by ,ail the day following the day of dishonor or if there be no ,ail at a con!enient ho"r on last day by the ne#t ,ail thereafter ii. Con!enient ho"r) depends on the "s"al ho"rs of opening of b"siness ho"ses and the post/office iii. If gi!en otherwise / within the ti,e that notice wo"ld ha!e been recei!ed in d"e co"rse of ,ail if it had been deposited in the post office within the ti,e specified abo!e c. Delay %3ec. 116 NIL( i. A#c"sed) when the delay is ca"sed by circ",stances beyond the control of the holder and not i,p"table to his defa"lt ,iscond"ct or negligence ii. H"t when the ca"se of delay ceases to operate notice ,"st be gi!en with reasonable diligence. =. 3ender dee,ed to ha!e gi!en d"e notice %3ec. 1F< NIL( a. 9here notice of dishonor is d"ly addressed and deposited in the post office i. Ldeposit in post officeM C when
deposited in any branch post office or in any letter bo# "nder the control of the post/office depart,ent. %3ec. 1F? NIL( b. notwithstanding any ,iscarriage in the ,ails =. ;lace where notice ,"st be sent %3ec. 1FE NIL( a. to the address if any added by the party to his signat"re- if address not gi!en) i to the post/office nearest to his place of residence or where he is acc"sto,ed to recei!e his lettersor ii If he li!es in one place and has his place of b"siness in another to either place- or iii If he is so1o"rning in another place to the place where he is so so1o"rning. b. Notice sent to place not in accord with NIL still 3U00ICIANT NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 11D of 6<1 i 9here the notice is act"ally recei!ed by the party within the ti,e specified in this Act <.<. Hy 9ho, 8i!en 1. 3ec. >F NIL
a. Hy or on behalf of the holder or b. any party to the instr",ent who ,ay be co,pelled to pay it to the holder and who "pon ta.ing it "p wo"ld ha!e a right to rei,b"rse,ent fro, the party to who, the notice is gi!en '. Agent a. Notice of dishonor ,ay be gi!en by an agent either in his own na,e or in the na,e of any party entitled to gi!e notice whether that party be his principal or not %3ec. >1 NIL( b. 9here instr",ent has been dishonored in hands of agent he ,ay either hi,self gi!e notice to the parties liable thereon or he ,ay gi!e notice to his principal %within the sa,e ti,e as if agent were holder( %3ec. >= NIL( <.?. To who, notice BAK be gi!en 1. If gi!en by an agent a. to his principal in case of an instr",ent dishonored in the hands of an agent %3ec. >= NIL( or b. to the parties liable thereon c. e#) collecting ban. '. IN 8ANARAL %3ec. >D( a. ;arty hi,self b. Or his agent in that behalf 6. If party is dead and death .nown to the party gi!ing notice %3ec. >E NIL(
a. BU3T be gi!en to a personal representati!e if there be one and if with reasonable diligence he can be fo"ndb. If no personal representati!e 7 BAK be sent to the last residence or last place of b"siness of the deceased. =. To partners ) to any one partner e!en tho"gh there has been a dissol"tion. %3ec. >> NIL( <. To 1oint parties%3ec. 1FF NIL( a. to each of the party b. "nless one of the, has a"thority to recei!e s"ch notice for the others. ?. to ban.r"pt %3ec. 1F1 NIL( a. to the party hi,self or b. to his tr"stee or assignee <.D. In whose fa!or notice operates 1. when gi!en by2on behalf of holder) in"res to benefit of %3ec. >' NIL( a. all s"bse+"ent holders and b. all prior parties who ha!e a right of reco"rse !s. the party to who, it4s gi!en '. where notice gi!en by2on behalf of a party entitled to gi!e notice) in"res for benefit %3ec. >6 NIL( a. holder b. all parties s"bse+"ent to party to who, notice gi!en <.E. 9hen r"le re+"iring notice not applied
1. In general a. 3ec 11') notice of dishonor is dispensed with when after the e#ercise of reasonable diligence it cannot be gi!en to or does not reach the parties so"ght to be charged b. Reasonable diligence depends "pon the circ",stance of the case '. 9hen notice of non/acceptance is already gi!en a. 3ec 11?) 9here d"e notice of dishonor by non/acceptance has been gi!en notice of a s"bse+"ent debtor by non/pay,ent is not necessary "nless in the ,eanti,e the instr",ent has been accepted b. Ratio for the r"le) dishonor by nonacceptance confers "pon the holder an i,,ediate right against all secondary parties 6. 9ai!er a. 9ai!er of notice ,ay be ,ade either) i before the ti,e of gi!ing notice has arri!ed or ii after the o,ission to gi!e d"e notice- ,ay be e#pressed or i,plied. %3ec. 1F> NIL( b. ;arties affected by wai!er i. Dependent "pon where the wai!er is written ii. 9here the wai!er is e,bodied in the instr",ent itself / binding "pon all
partiesiii. where written abo!e the signat"re of an indorser / binds hi, only. %3ec. 11F NIL( <.>. 9hen Notice Not Necessary 1.9hen not necessary to charge drawer %3ec. 11= NIL( a. drawer2drawee sa,e person b. drawee fictitio"s incapacitated c. drawer is person to who, instr",ent is presented for pay,ent d. drawer has no right to e#pect2re+"ire that drawee2acceptor will honor instr",ent e. drawer co"nter,anded pay,ent 3TATA INIA3TBANT 5OU3A ! CA %1>>6( Bo"lic iss"ed ' chec.s to Iictoriano as sec"rity for pieces of 1ewelry to be sold on co,,ission. Iictoriano negotiated these chec.s to 3tate In!est,ent. As Bo"lic failed to sell the 1ewelry she ret"rned the, to Iictoriano. 5owe!er she failed to retrie!e her chec.s. Bo"lic withdrew her f"nds fro, the drawee ban.. Upon present,ent the chec.s were dishonored. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 11E of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 5ALD) 3tate In!est,ent is a holder in d"e co"rse U is not s"b1ect to the personal defense of lac. of consideration. There is no need to ser!e the drawer a notice of dishonor beca"se she was responsible for
the dishonor of her chec.s. After withdrawing her f"nds she co"ld not ha!e e#pected her chec.s to be honored. '. 9here not necessary to charge indorser %3ec. 11< NIL( a. drawee fictitio"s incapacitated and indorser aware of the fact at ti,e of indorse,ent b. indorser is person to who, instr",ent presented for pay,ent c. instr",ent ,ade2accepted for his acco,,odation D. ;rotest A. Definition) testi,ony of so,e proper person that the reg"lar legal steps to fi# the liability of drawer and indorsers ha!e been ta.en H. 9hen necessary) 1. In case of a 0ORAI8N HILL appearing on its face to be s"ch'. protest for non/acceptance if dishonored by nonacceptance U 6. protest for nonpay,ent if not pre!io"sly dishonored by nonpay,ent. =. Affect of fail"re to protest) the drawer and indorsers are discharged. %3ec. 1<' NIL( C. 0or, 1. anne#ed to the bill or ,"st contain a copy thereof and '. ,"st be "nder the hand and seal of the notary ,a.ing it-
D. Contents 1. The ti,e and place of present,ent'. The fact that present,ent was ,ade and the ,anner thereof6. The ca"se or reason for protesting the bill=. The de,and ,ade and the answer gi!en if any or the fact that the drawee or acceptor co"ld not be fo"nd. %3ec. 1<6 NIL(. A. Hy who, 1. A notary p"blic- or '. any respectable resident of the place where the bill is dishonored in the presence of two or ,ore credible witnesses. %3ec. 1<= NIL( 0. Ti,e 1. on the day of its dishonor "nless delay is e#c"sed'. when d"ly noted the protest ,ay be s"bse+"ently e#tended as of the date of the noting. %3ec. 1<< NIL(8. ;lace 1. at the place where it is dishonored '. AOCA;T bill drawn payable at the place of b"siness or residence of person other than the drawee has been dishonored by nonacceptance a. it ,"st be protested for non/pay,ent at the place where it is e#pressed to be payable and b. no f"rther present,ent for pay,ent to
or de,and on the drawee is necessary. %3ec. 1<? NIL( 5. ;rotest for better sec"rity against the drawer and indorsers C where the acceptor has been ad1"dged a ban.r"pt or an insol!ent or has ,ade an assign,ent for the benefit of creditors before the bill ,at"res %3ec. 1<E NIL( I. Delay e#c"sed 1. Re+"isites) a. when ca"sed by circ",stances beyond the control of the holder and b. not i,p"table to his defa"lt ,iscond"ct or negligence. '. 9hen the ca"se of delay ceases to operate the bill ,"st be noted or protested with reasonable diligence.J. 9hen protest dispensed with / by any circ",stances which wo"ld dispense with notice of dishonor. %3ec. 1<> NIL( R. 9ai!er of protest) dee,ed to be a wai!er not only of a for,al protest b"t also of present,ent and notice of dishonor. %3ec. 111 NIL( TAN LAONCO ! 8O INQUI%1>FD( In e#change for the abaca fro, Tan LeoncoVs plantations 8o In+"i drew a bill of e#change against Li, Uyco. Upon present,ent of the draft it was ref"sed pay,ent d"e to a stop order fro, the drawer. The bill was not
protested. 5ALD) The action is not bro"ght "pon the bill of e#change which was "sed only as e!idence of the indebtedness. Under these conditions protest U notice of nonpay,ent are "nnecessary in order to render the drawer liable. NOTA) The r"ling of the Co"rt on protest is ,erely obiter dict",. E. Acceptance or ;ay,ent for 5onor A. Acceptance 1. ;ractice of accepting for honor is obsolete '. 9hen bill ,ay be accepted for honor. C 9hen a HA has been %1( protested for dishonor by non/acceptance or protested for better sec"rity and %'( is not o!erd"e * any person not being a party already liable ,ay with the CON3ANT of the holder inter!ene and accept the bill s"pra protest for the honor of any party liable thereon or for the honor of the person for whose acco"nt the bill is drawn. 6. The acceptance for honor ,ay be for part only of the s", for which the bill is drawn=. where there has been an acceptance for honor for one party there ,ay be a f"rther acceptance by a different person for the honor of another party. %3ec. 1?1 NIL( <. Referee in case of need C person whose na,e is inserted by the drawer of a bill and
any indorser to who, the holder ,ay resort in case bill is dishonored by nonacceptance or non/pay,ent- option of the holder to resort to the referee %3ec. 161 NIL( H. ;AKBANT 0OR 5ONOR / any person ,ay inter!ene and pay bill protested for nonpay,ent s"pra protest %3ec. 1D1 NIL( NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 11> of 6<1 ?.6 IN3TRUBANT3 ;AKAHLA AT HANR 3ec ED) 9here the instr",ent is ,ade payable at a ban. it is e+"i!alent to an order to the ban. ton pay the sa,e for the acco"nt of the principal debtor therein HIN85AB;TON ;5ARBACK ! 0IR3T NATIONAL HANR %1>1<( There is a distinction between the drawer of a chec. U the ,a.er of a note payable at a ban.) Note payable at ban. Chec. ,a.er of a note is pri,arily liable on the instr",ent drawer of a chec. is only liable after dishonor Law e#c"ses
present,ent of the instr",ent re+"ires present,ent within a reasonable ti,e at the peril of discharging the drawer obligation of the ,a.er of a note is not a conditional pro,ise to pay only at a special place b"t is a pro,ise to pay generally e!en tho"gh a place of pay,ent Hreach of the d"ty of the holder of a chec. to present for pay,ent at the place where it is payable at a reasonable ti,e discharges the drawer fro, liability to the e#tent he is
da,aged by the breach. >. Hills in 3et A. co,posed of !ario"s parts being n",bered and containing a reference to the other parts all of which parts constit"te one bill of lading H. Hills in set constit"te one bill. %3ec. 1DE NIL( C. Right of 5DCs where different parts are negotiated. C the holder whose title first accr"es is the tr"e owner of the bill. H"t nothing in this section affects the right of a person who in d"e co"rse accepts or pays the parts first presented to hi,. %3ec. 1D>. NIL( D. Liability of holder who indorses two or ,ore parts of a set to different persons. C liable on e!ery s"ch part and e!ery indorser s"bse+"ent to hi, is liable on the part he has hi,self indorsed as if s"ch parts were separate bills. %3ec. 1EF NIL( A. Acceptance / ,ay be written on any part and it ,"st be written on one part only. If the drawee accepts ,ore than one part and s"ch accepted parts negotiated to different holders in d"e co"rse he is liable on e!ery s"ch part as if it were a separate bill. %3ec. 1E1 NIL( 0. ;ay,ent / 9hen the acceptor of a bill
drawn in a set pays it witho"t re+"iring the part bearing his acceptance to be deli!ered "p to hi, and the part at ,at"rity is o"tstanding in the hands of a holder in d"e co"rse he is liable to the holder thereon. %3ec. 1E' NIL( 8. Affect of discharging one of a set. C A#cept as herein otherwise pro!ided the whole bill is discharged. %3ec. 1E6 NIL( Chapter III DI3C5AR8A 1. Definition) Discharge The release of all parties whether pri,ary or secondary fro, the obligation on the instr",entrenders the instr",ent non/negotiable '. Discharge of the IN3TRUBANT '.1. 5ow discharged) %3ec 11>(1F 1. Hy ;ay,ent in d"e co"rse a. 3ec. EE) ;ay,ent is ,ade in d"e co"rse when it is ,ade) i at or after the ,at"rity of the pay,ent o if pay,ent is ,ade before ,at"rity and the note is negotiated to a 5DC the latter ,ay reco!er on the instr",ent. ii to the holder thereof o pay,ent to one of se!eral payees or indorsees in the alternati!e discharges the
instr",ent o b"t pay,ent to one of se!eral 1oint payees or 1oint indorsers is not a discharge. The party recei!ing pay,ent ,"st ha!e been a"thori$ed by others to recei!e pay,ent. iii in good faith and witho"t notice that his title is defecti!e b. Hy who, ,ade) i pay,ent in d"e co"rse by or on behalf of principal debtor ii pay,ent in d"e co"rse by party acco,,odated where party is ,ade2 accepted for acco,,odation c. 9hen chec. dee,ed paid by drawee ban. i Once the holder recei!es the cash ii If the ban. credits the a,t of the chec. to the depositor4s acco"nt iii 9here the drawee ban. charges the chec. to the acco"nt indicating intention to honor the chec. '. intentional cancellation by holder a. if "nintentional or "nder ,ista.e or witho"t a"thority of holder inoperati!eb. where instr",ent or signat"re appears to ha!e been cancelled b"rden of proof on party which alleges it was
"nintentional etc. %3ec. 1'6 NIL( 6. any other act which discharges a si,ple contract for pay,ent of ,oney 1F 3"ggested Bne,onics) ;IC. ROAD) ;ay,ent in d"e co"rse Intentional Cancellation Ren"nciation any Other Act Debtor beco,es holder. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1'F of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 a. e#. iss"ance of a renewal noteC no!ation b. Refer to Art 1'61 of the Ci!il Code =. principal debtor beco,es holder of instr",ent at or after ,at"rity in his own right <. ren"nciation of holder) %3ec. 1'' NIL( a. holder ,ay e#pressly reno"nce his rights !s. any party to the instr",ent before or after its ,at"rity b. absol"te and "nconditional ren"nciation of his rights against ;RINCI;AL DAHTOR ,ade at or after ,at"rity discharges the instr",ent c. ren"nciation does not affect rights of 5DC w2o notice. d. Ren"nciation ,"st be in writing "nless instr",ent deli!ered "p to person pri,arily liable thereon ,aterial alteration 7 re!iew 3ec. 1'< NIL) what constit"tes ,aterial alteration %3ec. 1'= NIL) ,aterial alteration w2o assent of all
parties liable a!oids instr",ent e#cept as against party to alteration and s"bse+"ent indorsers( 6. O0 3ACONDARK ;ARTIA3 %3ec. 1'F NIL(11 A. by discharge of instr",ent H. intentional cancellation of signat"re by holder C. discharge of prior party D. !alid tender of pay,ent by prior party A. release of principal debtor "nless holder4s right of reco"rse !s. 'ndary party reser!ed 0. any agree,ent binding "pon holder to e#tend ti,e of pay,ent or to postpone holder4s right to enforce instr",ent UNLA33 1. ,ade with assent of party secondarily liable or '. right of reco"rse reser!ed. 8. 0ail"re to ,a.e d"e present,ent %3ecs. DF 1== NIL( 5. fail"re to gi!e notice of dishonor I. certification of chec. at instance of holder J. reac+"isition by prior party 1. where instr",ent negotiated bac. to a prior party s"ch party ,ay reiss"e and f"rther negotiate b"t not entitled to enforce pay,ent !s. any inter!ening party to who, he was personally liable '. where instr",ent is paid by party secondarily liable it4s not discharged b"t a. the party so paying it is re,itted to his
for,er rights as regard to all prior parties b. and he ,ay stri.e o"t his own and all s"bse+"ent indorse,ents and again negotiate instr",ent e#cept i where it4s payable to order of 6rd party and has been paid by drawer ii where it4s ,ade2accepted for acco,,odation and has been paid by party acco,,odated 11 3"ggested Bne,onics) C";ID CRRA00T) intentional Cancellation ;rior ;arty and Instr",ent Discharge Certification Release Reac+"isition any Agree,ent 0ail"re to ,a.e d"e present,ent 0ail"re to gi!e notice of dishonor !alid Tender of pay,ent. Chapter IIII OT5AR 0ORB3 O0 COBBARCIAL ;A;AR 1. In 8eneral 1.1. Co,,ercial papers 7 1. also Negotiable instr",ents'. ,erely special for,s of either ;Ns or HAs6. also go!erned by the NIL 1.'. Q"asi/negotiable incl"des co,,ercial paper which tho"gh not go!erned by the NIL ha!e certain attrib"tes of negotiability. '.1. Honds 1. e!idences of indebtedness in the nat"re of a ;Ns
'. "s"ally acco,panied by a ,ortgage of the property of the iss"er 6. iss"ed by the go!ern,ent %,"nicipal U other p"blic corporations( U pri!ate corporationsa. tho"gh not to ,at"re for a long ti,e ass"re so,e reg"lar inco,e to bondholders in the for, of interestW "s"ally payable ann"ally b. bonds and interest co"pons %e!idences interest obligations(W * ,ay be negotiable in for, therefore go!erned by NIL %3ec ?<(* both are act"ally pro,issory notes c. they r"n for long periods of ti,e and are often sold to the p"blic in general d. f"nds generated by s"ch bonds are "sed to finance corporate pro1ects and p"blic wor.se. there is no warranty on the part of s"ch indorser or negotiator that prior parties had capacity to contract. The +"alified indorser U negotiator by deli!ery of a bond do not warrant therefore that the corporation which iss"ed the bonds has any 1"dicial capacity to act. A general indorser thereof howe!er wo"ld be liable for s"ch want of capacity.
'.'. Debent"res 1. si,ilar to bonds e#cept that they are "s"ally for a shorter te, and ,ay or ,ay not be acco,panied by a ,ortgage. '. they are often iss"ed on the general credit of the iss"er corporation 6. Drafts and Letters of Credit 6.1. Drafts and Letters of Credit / The draft and the letter of credit are generally "sed together to effect pay,ent in international transactions. 6.'. Draft a for, of HA generally "sed to facilitate the transactions between persons physically re,ote fro, each other. 6.6. Letters of Credit 1. one person re+"ests so,e other person to ad!ance ,oney or gi!e credit to a third '. Honds and Debent"res NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1'1 of 6<1 person and pro,ises that he will repay the sa,e to the person ,a.ing the ad!ance,ent or accept bills drawn "pon hi,self for the li.e a,o"nt. '. ,"st be iss"ed in fa!or of a definite person and not to order. 6. "nder o"r law a letter of credit cannot be a negotiable instr",ent beca"se %a( it ,ay not contain the words of negotiability- %b( ,ay be iss"ed for an "ndeter,ined a,o"nt. 3ee Art <?E Code of Co,,erce.
=. LINDA;ANDANCA ;RINCI;LAM) Credits by their nat"re are separate transactions fro, the sales or other contract%s( on which they ,ay be based and ban.s are in no way concerned with or bo"nd by s"ch contract%s( e!en if any reference whatsoe!er to s"ch contract%s( is incl"ded in the credit. Conse+"ently the "nderta.ing of a ban. to pay accept and pay draft%s( or negotiate and2or f"lfill any other obligation "nder the credit is not s"b1ect to clai,s or defenses by the applicant res"lting fro, his relationships with the iss"ing ban. or the beneficiary. A beneficiary can in no case a!ail hi,self of the contract"al relationships e#isting between the ban.s or between the applicant and the iss"ing ban.. a. Th"s the engage,ent of the iss"ing ban. is to pay the seller or beneficiary of the credit once the draft and the re+"ired doc",ents are presented to it. This principle ass"res the seller or the beneficiary of pro,pt pay,ent independent of any breach of the ,ain contract and precl"des the iss"ing ban. fro, deter,ining whether the ,ain contract is act"ally acco,plished or not. Under this principle ban.s ass",e no liability or responsibility for
the for, s"fficiency acc"racy gen"ineness falsification or legal effect of any doc",ents or for the general and2or partic"lar conditions stip"lated in the doc",ents or s"peri,posed thereon nor do they ass",e any liability or responsibility for the description +"antity weight +"ality condition pac.ing deli!ery !al"e or e#istence of the goods represented by any doc",ents or for the good faith or acts and2or o,issions sol!ency perfor,ance or standing of the consignor the carriers or the ins"rers of the goods or any other person who,soe!er. b. The independent nat"re of the letter of credit ,ay be) %a( independence in toto where the credit is independent fro, the 1"stification aspect and is a separate obligation fro, the "nderlying agree,ent li.e for instance a typical standby- or %b( independence ,ay be only as to the 1"stification aspect li.e in a co,,ercial letter of credit or repay,ent standby which is identical with the sa,e obligations "nder the "nderlying agree,ent. In both cases the pay,ent ,ay be en1oined if in the light of the p"rpose of the credit the
pay,ent of the credit wo"ld constit"te fra"d"lent ab"se of the credit. %Transfield !s. L"$on 5ydro( <. ;ertinent Code of Co,,erce pro!isions) a. Art <?D. Letters of credit / iss"ed by one ,erchant to another for the p"rpose of attending to a co,,ercial transaction. b. Art <?E. The essential conditions of letter of credit shall be) i iss"ed in fa!or of a definite person and not to order. ii li,ited to a fi#ed and specified a,o"nt or to one or ,ore "ndeter,ined a,o"nt b"t all within a ,a#i,", the li,it of which has to be stated e#actly. Note) Those which do not ha!e any of these last circ",stances shall be considered as ,ere letters of reco,,endation. c. Art <?>. The drawer of a letter of credit shall be liable to the person on who, it was iss"ed for the a,o"nt paid by !irt"e thereof within the ,a#i,", fi#ed therein. Letters of credit ,ay not be protested e!en if not be paid- bearer cannot ac+"ire any right of action by reason of non/pay,ent against the person who
iss"ed it. The person paying has right to de,and the proof of the identity of the person in whose fa!or the letter of credit was iss"ed. d. Art <DF. The drawer of a letter of credit ,ay ann"l it infor,ing the bearer and the person to who, it is addressed e. Art <D1. The bearer of a letter or credit shall pay the a,o"nt recei!ed to the drawer witho"t delay. 3ho"ld he not do so an action in!ol!ing e#ec"tion ,ay be bro"ght to reco!er it with legal interest and the c"rrent e#change in the place where it is repaid. f. Art <D'. If the bearer of a letter of credit does not ,a.e "se thereof within the %1( period agreed "pon with the drawer or in defa"lt of a period fi#ed %'( within ? ,onths co"nted fro, its date in any point in the ;hilippines and within 1' ,onths anywhere o"tside thereof it shall be !oid in fact and in law. H;I !. DA RANK 0AHRIC %1>DF( The co,pany and its officers cannot shift the b"rden of loss to the ban. beca"se of the ter,s of their Co,,ercial Letter of Credit Agree,ent with the ban. pro!ides that latter shall not be
responsible for the any difference in character or condition of the property. 0"rther,ore the ban. was able to pro!e the e#istence of a c"sto, in international ban.ing and financing circles negating any d"ty of the ban. to !erify whether what has been described in letters of credits or drafts or shipping doc",ents act"ally tallies with what was loaded aboard ship. Han.s in pro!iding financing in international b"siness transactions do not deal with the property to be e#ported or shipped to the i,porter b"t deal only with doc",ents. LAA ! CA %'FF'( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1'' of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 Bodern letters of credit are "s"ally not ,ade between nat"ral persons. They in!ol!e ban. to ban. transactions. 5istorically the letter of credit was de!eloped to facilitate the sale of goods between distant and "nfa,iliar b"yers and sellers. It was an arrange,ent "nder which a ban. whose credit was acceptable to the seller wo"ld at the instance of the b"yer agree to pay drafts drawn on it by the seller pro!ided that certain doc",ents are presented s"ch as bills of lading acco,panied the corresponding drafts. A#pansion in the "se of letters of credit was a nat"ral de!elop,ent in co,,ercial ban.ing. ;arties to a co,,ercial letter of credit incl"de) %a( the b"yer or the i,porter %b( the seller also referred to as
beneficiary %c( the opening ban. which is "s"ally the b"yer4s ban. which act"ally iss"es the letter of credit %d( the notifying ban. which is the correspondent ban. of the opening ban. thro"gh which it ad!ises the beneficiary of the letter of credit %e( negotiating ban. which is "s"ally any ban. in the city of the beneficiary. The ser!ices of the notifying ban. ,"st always be "tili$ed if the letter of credit is to be ad!ised to the beneficiary thro"gh cable %f( the paying ban. which b"ys or disco"nts the drafts conte,plated by the letter of credit if s"ch draft is to be drawn on the opening ban. or on another designated ban. not in the city of the beneficiary. As a r"le whene!er the facilities of the opening ban. are "sed the beneficiary is s"pposed to present his drafts to the notifying ban. for negotiation and %g( the confir,ing ban. which "pon the re+"est of the beneficiary confir,s the letter of credit iss"ed by the opening ban.. TRAN30IALD I3. LUNON 5KDRO %'FF=( Can the beneficiary in!o.e the independence principleS Kes. To say that the independence principle ,ay only be in!o.ed by the iss"ing ban.s wo"ld render
n"gatory the p"rpose for which the letters of credit are "sed in co,,ercial transactions. As it is the independence doctrine wor.s to the benefit of both the iss"ing ban. and the beneficiary. Certificate of 3toc. A. or share certificate is the c"sto,ary and con!enient e!idence of the holder4s interest in the corporation which iss"es it. H. not a NI b"t is incl"ded in the ter, Lsec"ritiesM bec does not contain any pro,ise or order to pay ,oneyC. described as Q"asi/Negotiable bec oftenti,es by application of the principles of estoppel and to effect"ate the ends of 1"stice and the intention of the parties the co"rts decree a better title to the transferee than act"ally e#isted in his transferor and is the sa,e as wo"ld be reached if the certificate were negotiable. D. 9hen the shareholder signs the bac. of certificates of stoc. witho"t filling in the blan.s %for the na,e of the transferee and attorneyin/ fact( and the certificate is deli!ered to another the latter appears to be the owner thereof. A bona fide p"rchaser of !al"e witho"t notice will be protected in his ac+"isition altho"gh s"ch third person has di!erted the certificate fro, the p"rpose for which he was entr"sted therewith. %;rinciple of Astoppel( A. The sa,e r"le is applicable if the certificate is
in bearer for,. 0. The r"le is applicable where the certificate is lost or stolen while signed in blan.. A!en a p"rchaser in good faith cannot ac+"ire title as against the tr"e owner. %S( 8. At co,,on law stoc. certificates are gi!en the attrib"tes of negotiability only where the owner thereof has entr"sted the wrongdoer with the possession of s"ch certificate and clothed hi, with apparent ownership thereof. 3ANTABARIA ! 5ON8RON8 U 35AN85AI HANR %1><1( ;laintiff in failing to ta.e the necessary preca"tion "pon deli!ering the certificate of stoc. to her bro.er was chargeable with negligence in the transaction which res"lted to her own pre1"dice and as s"ch she is estopped fro, asserting title to it as against the defendant ban.. A certificate of stoc. indorsed in blan. is dee,ed +"asi/negotiable and as s"ch the transferee thereof is 1"stified in belie!ing that it belongs to the holder and transferor. DA LO3 3ANTO3 Bc8RAT5 %1><<( Altho"gh a stoc. certificate is so,eti,es regarded as +"asi/negotiable in the sense that it ,ay be transferred by endorse,ent co"pled with deli!ery it is well settled that the instr",ent is nonnegotiable beca"se the holder thereof ta.es it witho"t pre1"dice to s"ch rights or defense as the registered owner or credit ,ay ha!e "nder the law
e#cept in so far as s"ch rights or defenses are s"b1ect tot eh li,itations i,posed by the principles go!erning estoppel. CA;CO !. BACA3AAT %1>>F( Certificates of stoc.s are considered as +"asinegotiable instr",ents. 9hen the owner or shareholder signs the printed for, of sale or assign,ent at the bac. of e!ery stoc. certificates witho"t filling in the blan.s pro!ided for the na,e of the transferee as well as for the na,e of the attorney/in/fact the said owner or shareholder in effect confers on another all the indicia of ownership of the said stoc. certificates. =. Negotiable Doc",ents of Title <.1. In 8eneral 1. as disting"ished fro, negotiable instr",ents refer to goods and not to ,oney- the sale of goods co!ered is effected by the transfer of said doc",ent '. not go!erned by the NIL b"t by the Ci!il Code. 6. incl"des any bill of lading doc. warrant L+"edanM or wareho"se receipt or order for the deli!ery of goods or any other doc",ent "sed in the ordinary co"rse of b"siness in the sale or transfer of goods as proof of the possession or control of the goods or a"thori$ing or p"rporting to a"thori$e the possessor of the doc",ent to NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9
1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1'6 of 6<1 transfer or recei!e either by indorse,ent or by deli!ery goods represented by s"ch doc",ent. =. Doc",ents of title negotiable when goods represented thereby are deli!erable to a specified person to order or to bearer. <. !al"able in co,,erce beca"se it facilitates the sale and deli!ery of goods. <.'. Rinds 1. 9areho"se receipts an agree,ent by a wareho"se,an to store goods and deli!er the, to a na,ed person or his order or to bearer. '. Hill of Lading a si,ilar contract by a carrier to ship goods and deli!er the, to the person na,ed therein or his order or to bearer- negotiable bill of lading is "sef"l not only as e!idence of the receipt of the goods by the carrier b"t as e!idencing title to goods co!ered by it. It also facilitates the p"rchase of goods by one person fro, another who is physically re,ote and probably "n.nown to hi,. a. LstraightM bill where the goods are to be deli!ered to a specified person it is not negotiable and is called a LstraightM bill. Otherwise it is referred to as an LorderM bill. 6. Certificate of Deposita receipt of a ban. for
certain s", of ,oney recei!ed "pon deposit- generally fra,ed in s"ch 0ORB as to constit"te a pro,issory note payable to the depositor or to the depositor or order or to bearer. a. it is ta.en when depositor does not need his ,oney for so,e e#tended period of ti,e and wants it to earn interest- ,ore of an in!est,ent paper than a co,,ercial paper beca"se it is not attendant to a co,,ercial transaction the way a chec. or a pro,issory note is. b. it is negotiable if it ,eets all the re+"ire,ents of 3ec 1 NIL <.6. Negotiation / sa,e as those "sed in NIs- to order\deli!ery Y indorse,ent to bearer \ deli!ery 1. The ,eans of negotiating a doc",ent of title are the sa,e as those "sed in negotiable instr",ents. '. If by the ter,s of the doc",ent the goods are deli!erable to the order of a specified person then it sho"ld be indorsed by s"ch person either specially or in blan.. 6. If the goods are deli!erable to bearer or the doc",ent has been indorsed in blan. then negotiation ,ay be by ,ere deli!ery. <.=. Rights of a 5older 1. 9hen free fro, personal defense a. Under Art 1<1E Ci!il Code a holder
of a negotiable doc",ent of title in good faith for !al"e and witho"t notice is placed on the sa,e le!el as a 5DC of a negotiable instr",ent 7 i.e. personal defenses en",erated in said article are not a!ailable against hi,. ;ersonal defenses incl"de) negotiation was a breach of d"ty on the part of the person ,a.ing the negotiation owner of the doc",ent was depri!ed of the possession of the sa,e by loss theft fra"d accident ,ista.e d"ress or con!ersion. b. Note Art 1<1E4s conflict with Art 1<1'. %see p >1<( '. 9hat title ac+"ired %NOTA) see Arts 1<16 1<1= and 1<1> Ci!il Code( a. A person to who, a negotiable doc",ent of title has been d"ly negotiated ac+"ires the title of the person NA8OTIATIN8 it as well as the title of the ORI8INAL HAILOR or depositor of the goods. e#. if the original bailor had no a"thority fro, s"ch owner to deposit the goods then the holder of the negotiable doc",ent e!en if the negotiation to hi, was !alid cannot ac+"ire title to the goods- AND e!en if the original bailor had a"thority if the
negotiation to the present holder4s transferor was not !alid s"ch holder e!en if in good faith and for !al"e does not ac+"ire any right to the goods. * the holder4s re,edy if any is against his transferor and2or the g"ilty party. i Th"s if the original bailor or depositor of the goods was not the owner thereof or had no a"thority fro, s"ch owner to deposit the goods then the holder of the negotiable doc",ent e!en if the negotiation to hi, was !alid cannot ac+"ire title to the goods. ii On the other hand e!en if the original bailor or depositor was the owner or had a"thority fro, the owner if the negotiation to the present holder4s transferor was not !alid s"ch holder e!en if in good faith and for !al"e does not ac+"ire any right to the goods. iii In both cases the holder4s re,edy if any is against his transferor and2or the g"ilty party. b. The person to who, the doc",ent has been negotiated ac+"ires the obligation of the bailee to ,a.e deli!ery to hi, as if they had contracted directly with each other.
i Hy iss"ing a negotiable doc",ent of title s"ch bailee had gi!en in ad!ance his consent to hold the goods for any person to who, s"ch doc",ent is negotiated. ii If doc",ent non/negotiable notice of any transfer sho"ld be gi!en to the bailee otherwise bailee or any other person other than the transferor not bo"nd iii Th"s the transferee4s rights ,ay be defeated by a le!y of attach,ent on the goods or by a notification to the bailee of a sale of the goods to another p"rchaser. i! A sale of the goods witho"t the doc",ent will not pre1"dice a s"bse+"ent p"rchaser who ta.es the doc",ent in good faith and for !al"e. ! The bailee4s deli!ery to the legal holder of the doc",ent wo"ld relie!e hi, of any f"rther responsibility for the goods. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1'= of 6<1 NA8OTIAHLA IN3TRUBANT3 LA9 COBBARCIAL LA9 <.<. Liability of Indorser 1. The indorse,ent of a negotiable doc",ent of title carries with it certain i,plied warranties by the indorser.
'. As to the doc",ent his warranty co!ers its gen"ineness his legal right to negotiate it and his lac. of .nowledge of any fact which wo"ld i,pair its !alidity. 6. As to the goods he warrants that he has the right to transfer title thereto and that they are ,erchantable. =. 5owe!er "nli.e the indorser of a NI who is liable if the pri,ary party fails to pay the indorser of a negotiable doc",ent of title is not liable for the fail"re of the bailee to f"lfill his obligation to deli!er the goods. ROBAN ! A3IA HANRIN8 COR;. %1>''( A wareho"se receipt ,"st be interpreted according to its e!ident intent and it is ob!io"s that the deposit e!idenced by the receipt in this case was intended to be ,ade s"b1ect to the order of the depositor and therefore negotiable. The indorse,ent in blan. of the receipt with its deli!ery which too. place on the date of the iss"ance of the receipt de,onstrate the intent to ,a.e the receipt negotiable. 0"rther,ore the receipt was not ,ar.ed Lnon/negotiable.M 3IK CON8 HIAN8 !. 53HC If the owner of the goods per,its another to ha!e the possession or c"stody of negotiable wareho"se receipts r"nning to the order of the latter or to bearer it is a representation of title "pon which bona fide p"rchasers for !al"e are entitled to reply despite breaches of tr"st or
!iolations of agree,ent on the part of the apparent owner. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1'< of 6<1 IN3URANCA CODA COBBARCIAL LA9 Ins"rance Code %;D 1=?F( Chapter I. INTRODUCTION 1. Laws on Ins"rance 1.1. 3o"rces of Ins"rance Law in the ;hilippines * D"ring the 3panish period all the pro!isions concerning ins"rance in the ;hilippines were fo"nd in Title D of Hoo. ' and 3ection 6 of Title 6 of Hoo. 6 of the Code of Co,,erce and in Chapters ' and = of Title 1' of Hoo. = of the old Ci!il Code of 1EE>. * 9hen Act X '='D enacted on Dece,ber 11 1>1= otherwise .nown as the Ins"rance Act too. effect on J"ly 1 1>1< d"ring the A,erican Regi,e the pro!isions of the Code of Co,,erce on ins"rance were e#pressly repealed. Ang 8io. !s. 3pringfields 0acts) Ang 8io. ins"red the contents of his wareho"se with three ins"rance co,panies for ?FR. The wareho"se and its contents were destroyed by fire while the policies were in force. The plaintiff instit"ted action in the C0I of Banila against one of the ins"rers to reco!er a proportional part of the loss co,ing to ;E 1DF. <>. 0o"r special defenses were interposed by the
ins"rer one being planted on a !iolation of warranty 0 fi#ing the a,o"nt of ha$ardo"s goods which ,ight be stored in the ins"red b"ilding. 3ec"rely pasted on the left hand ,argin of the policy reading in part as follows) LIt is agreed that d"ring the c"rrency of this policy no ha$ardo"s goods be stored in the b"ildingZe#ceeding in all 6 percent of the total !al"e of the whole ,erchandise contained in said wareho"se.M 5eld) The rider or slip containing said warranty 0 attached to the policy in +"estion and referred to therein as ,a.ing part of the two for,s pro!ided in said 3ection ?< of the Ins"rance Law. The law says that e!ery e#press warranty ,"st be Lcontained in the policy itself.M The word Lcontained M according to the dictionaries ,eans incl"ded enclosed e,braced co,prehended etc. 9hen therefore the co"rts spea. of a rider attached to the policy and th"s e,bodied therein or of a warranty incorporated into the policy it is belie!ed that the phrase Mcontained in the policy itselfM ,"st necessarily incl"de s"ch ride and warranty. As to the alternati!e relating to Lanother instr",entM as here "sed co"ld not ,ean a ,ere slip of paper li.e a rider b"t so,ething a.in to the policy itself. The word instr",ent has a well defined definition in California and as "sed in the Codes in!ariably ,eans so,e written paper or instr",ent signed
and deli!ered by one person to another transferring the title to or gi!ing a lien on property or gi!ing a right to debt or d"ty. The rider warranty 0 is contained in the policy itself beca"se by the contract agreed to by the parties is ,ade to for, part of the sa,e b"t is not another instr",ent signed by the ins"red and referred to in the policy as for,ing a part of it. The rider is therefore !alid and binding. 8ercio !s. 3"nlife 0acts) On Jan"ary 1>1F the 3"n Life ass"rance Co. of Canada iss"ed a 'F/year endow,ent policy on the life of 5ilario 8ercio. The ins"rance co,pany agreed to ins"re the life of 8ercio for ;' FFF to be paid to hi, on 0ebr"ary 1 1>6F or if the ins"red sho"ld die before said date then to his wife sho"ld she s"r!i!e hi,- otherwise to the e#ec"tors ad,inistrators or assigns of the ins"red. The policy did not incl"de any pro!ision reser!ing to the ins"red the right too change the beneficiary. 9hen the policy was iss"ed Andrea Nialcita was the lawf"l wife of 5ilario. In 1>1> she was con!icted of ad"ltery. In 1>'F a decree of di!orce was iss"ed in a ci!il case co,pletely dissol!ing the bonds of ,atri,ony between 8ercio and Nialcita. In 1>'' 0ercio for,ally notified 3"n Life that he had re!o.ed his donation in fa!or of Nialcita and that he had designated in her stead his present wife Adela 8arcia de 8ercio as the beneficiary of the policy.
8ercio re+"ested 3"n Life to eli,inate Nialcita as beneficiary. This the ins"rance co,pany has ref"se to do and still ref"ses to do. 5eld) The Code of Co,,erce the Ci!il Code or the Ins"rance Act does not contain any pro!ision either per,itting or prohibiting the ins"red to change the beneficiary. 9e ,"st perforce concl"de that whether the case be considered in the light of the Code of Co,,erce the Ci!il Code or the Ins"rance Act the deficiencies in the law will ha!e to be s"pple,ented by the general principles pre!ailing on the s"b1ect. To that end we ha!e gathered the r"les which follow fro, the best considered A,erican a"thorities. In adopting these r"les we do so with the p"rpose of ha!ing the ;hilippine Law of Ins"rance confor, as nearly as possible to the ,odern Law of Ins"rance as fo"nd in the United 3tates. The beneficiary has an absol"te !ested interest in the policy fro, the date of its iss"ance and deli!ery. 3o when a policy of life ins"rance is ta.en o"t by the h"sband in which the wife is na,ed the beneficiary she has a s"bsisting interest in the policy. * 9hen RA 6E? otherwise .nown as the Ci!il Code of the ;hilippines too. effect on A"g"st 6F 1><F those pro!isions of the old Ci!il Code on ins"rance were also e#pressly repealed. * ;residential Decree X ?1' as a,ended which ordained and instit"ted the Ins"rance Code of
the ;hilippines was pro,"lgated on Dece,ber 1E 1>D= d"ring the period of ,artial law. It repealed Act X '='D as a,ended. Hefore ;residential Decree ?1' a,end,ents to the Act were ,ade by ;Ds X ?6 1'6 61D. * ;residential Decree X 1=?F consolidated all ins"rance laws into a single code .nown as the Ins"rance Code of 1>DE. Hasically it reenacted ;residential Decree X ?1' as a,ended. It has been a,ended by ;residential Decree X 1E1= and Hatas ;a,bansa Hlg. ED=. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1'? of 6<1 IN3URANCA CODA COBBARCIAL LA9 1.'. Laws 8o!erning Ins"rance * Ins"rance Code of 1>DE The law on ins"rance is contained now in the Ins"rance Code of 1>DE %;D X 1=?F as a,ended( and special laws and partly in the pertinent pro!isions of the Ci!il Code. The Ins"rance Code pri,arily go!erns the different types of ins"rance contracts and those engaged in ins"rance b"siness in the ;hilippines. It too. effect on J"ne 11 1>DE the date of its pro,"lgation Lwitho"t pre1"dice howe!er to the effecti!ity dates of !ario"s laws decrees and e#ec"ti!e orders which ha!e so far a,ended the pro!isions of the Ins"rance Code of the ;hilippines %;D ?1'(M * Ci!il Code
The pro!isions of the Ci!il Code dealing on ins"rance are fo"nd in articles D6> and 'F1' %!oid donations( Article 'F11 %applicability of the Ci!il Code( Articles 'F'1/'F'D %life ann"ity contracts( Article '1E? %co,p"lsory ,otor !ehicle liability ins"rance( and Article ''FD %right of s"brogation(. * 3pecial laws a The Ins"rance Code of 1>DE %;D 1=?F( a The Re!ised 8o!ern,ent 3er!ice Ins"rance Act of 1>DD %;D 11=? as a,ended( with respect to ins"rance of go!ern,ent e,ployees a The 3ocial 3ec"rity Act of 1><= %RA 11?1 as a,ended( with respect to ins"rance of e,ployees in pri!ate e,ploy,ent * Others 7 insofar as the Ci!il Code is concerned the Code of Co,,erce is considered a special law a RA ?<? %as a,ended by ;D '=<( .nown as the L;roperty Ins"rance Law M dealing with go!ern,ent property a RA =E>E %as a,ended by RA <D<?( pro!iding life disability and accident ins"rance co!erage to barangay officials a AO '<F %J"ly '< 1>ED( increases
integrates and rationali$es the ins"rance benefits of barangay official s"nder RA =E>E and ,e,bers of 3angg"niang ;anlalawigan 3angg"niang ;anl"ngsod and 3angg"niang Hayan "nder ;D 11=D. The ins"rance benefits are e#tended by the 83I3. a RA 6<>1 %as a,ended( establishes the ;hilippine Deposit Ins"rance Corporation which ins"res the deposits of all ban.s which are entitled to the benefits of ins"rance "nder this Act Chapter II T5A CONTRACT O0 IN3URANCA 1. Definitions 1.1. 3ection ' Ins"rance Code 3ec. '. 9hene!er "sed in this Code the following ter,s shall ha!e the respecti!e ,eanings hereinafter set forth or indicated "nless the conte#t otherwise re+"ires) %1( A Tcontract of ins"ranceT is an agree,ent whereby one "nderta.es for a consideration to inde,nify another against loss da,age or liability arising fro, an "n.nown or contingent e!ent. A contract of s"retyship shall be dee,ed to be an ins"rance contract within the ,eaning of this Code only if ,ade by a s"rety who or which as s"ch is doing an ins"rance b"siness as hereinafter pro!ided.
%'( The ter, Tdoing an ins"rance b"sinessT or Ttransacting an ins"rance b"sinessT within the ,eaning of this Code shall incl"de %a( ,a.ing or proposing to ,a.e as ins"rer any ins"rance contract- %b( ,a.ing or proposing to ,a.e as s"rety any contract of s"retyship as a !ocation and not as ,erely incidental to any other legiti,ate b"siness or acti!ity of the s"rety- %c( doing any .ind of b"siness incl"ding a reins"rance b"siness specifically recogni$ed as constit"ting the doing of an ins"rance b"siness within the ,eaning of this Code- %d( doing or proposing to do any b"siness in s"bstance e+"i!alent to any of the foregoing in a ,anner designed to e!ade the pro!isions of this Code. In the application of the pro!isions of this Code the fact that no profit is deri!ed fro, the ,a.ing of ins"rance contracts agree,ents or transactions or that no separate or direct consideration is recei!ed therefore shall not be dee,ed concl"si!e to show that the ,a.ing thereof does not constit"te the doing or transacting of an ins"rance b"siness. %6( As "sed in this code the ter, TCo,,issionerT ,eans the TIns"rance Co,,issionerT. 1.'. LContract of Ins"ranceM * An agree,ent by which one party %ins"rer( for a consideration %pre,i",( paid by the other party %ins"red( pro,ises to pay ,oney or its e+"i!alent or to do so,e act
!al"able to the latter %or his no,inee( "pon the happening of a loss da,age liability or disability arising fro, an "n.nown or contingent e!ent. 9hite 8old Barine 3er!ices !s. ;ioneer %'FF<( An ins"rance contract is a contract is a contract of inde,nity wherein one "nderta.es for a consideration to inde,nify another against loss da,age or liability arising fro, an "n.nown or contingent e!ent. Reg"lation by the state thro"gh a license or certification of a"thority is necessary since a contract of ins"rance in!ol!es p"blic interest. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1'D of 6<1 IN3URANCA CODA COBBARCIAL LA9 1.6. LDoing an Ins"rance H"sinessM 8eneral R"le) An ins"rance b"siness consists of "nderta.ing for a consideration to inde,nify another against loss da,age or liability arising fro, an "n.nown or contingent e!ent 3"pple,entary R"le) The fact that an establish,ent is not for,ally designated as one of ins"rance does not precl"de its being dee,ed to be engaged in an ins"rance b"siness if it "nderta.es any of the following %e!en if not for profit or for any independent consideration() * Ba.ing or proposing to ,a.e as ins"rer any ins"rance contract
* Ba.ing or proposing to ,a.e as s"rety any contract of s"rety ship as a !ocation * Doing any .ing of b"siness incl"ding a reins"rance b"siness specifically recogni$ed as constit"ting the doing of an ins"rance b"siness with the ,eaning of this Code * Doing or proposing to do any b"siness in s"bstance e+"i!alent to any of the foregoing in a ,anner designed to e!ade the pro!isions of the Ins"rance Code '. Ale,ents '.1. Ins"rable interest * The ins"red has an ins"rable interest in the thing or the life of the ins"red * '.'. Ris. of Loss or Da,age 2 Designated ;eril as Ca"se * The happening of the designated e!ents either "n.nown or contingent past or f"t"re will s"b1ect s"ch interest to so,e loss whether in the for, of in1"ry da,age or liability '.6. Consideration) ;re,i", * The ins"rer "nderta.es to ass",e the ris. of s"ch a loss for a consideration called the pre,i", to be paid by the ins"red '.=. Ris. Distrib"ting 3che,e * This ass",ption of ris. is part of a general
sche,e to distrib"te the loss a,ong a large n",ber of persons e#posed to si,ilar ris.s 6. Characteristics2Nat"re of Ins"rance Contracts 6.1. Consens"al * ;erfected by the ,eeting of the ,inds of the parties * If an application for ins"rance has not been either accepted or re1ected there is no contract as yet 6.'. Iol"ntary * It is not co,p"lsory and the parties ,ay incorporate s"ch ter,s and conditions as they ,ay dee, con!enient which will be binding pro!ided they do not contra!ene any pro!ision of law and are not opposed to p"blic policy a Tho"gh generally a !ol"ntary contract the carrying of ins"rance partic"larly liability ins"rance ,ay be re+"ired by law in certain circ",stances s"ch as for ,otor !ehicles or e,ployees %Labor Code Art. 1?E/1E=( or as a condition to granting a license to cond"ct a b"siness or calling affecting p"blic safety or welfare a 3ocial ins"rance for ,e,bers of 83I3 and for e,ployees of
the pri!ate sector co!ered by the 333 is also established by law 6.6. Aleatory Art. 'F1F. Hy an aleatory contract one of the parties or both reciprocally bind the,sel!es to gi!e or to do so,ething in consideration of what the other shall gi!e or do "pon the happening of an e!ent which is "ncertain or which is to occ"r at an indeter,inate ti,e. * It depends "pon so,e contingent e!ent * Not a contract of chance altho"gh the e!ent against the occ"rrence of which it is intended to pro!ide ,ay ne!er occ"r * It ,eans one of the parties or both reciprocally bind the,sel!es to gi!e or to do so,ething in consideration of what the other shall gi!e or do "pon the happening of the e!ent which is "ncertain or which is to occ"r at an indefinite ti,e * Aach party ,"st ta.e a ris. a Ins"rer / being co,pelled "pon the happening of the contingency to pay the entire s", agreed "pon a Ins"red 7 parting with the a,o"nt re+"ired as pre,i", witho"t recei!ing anything in case the contingency does not happen e#cept what is ordinarily ter,ed LprotectionM which is itself is a
!al"able consideration 6.=. A#ec"tory %ins"rer( and e#ec"ted %ins"red( * A#ec"tory on the part of the ins"rer in the sense that it is not e#ec"ted "ntil pay,ent for a loss * It is e#ec"ted as to the ins"red after pay,ent of the pre,i", * It is a "nilateral contract i,posing legal d"ties only on the ins"rer who pro,ises to inde,nify in case of loss 6.<. Conditional * It is s"b1ect to conditions the principal one of which is the happening of the e!ent ins"red against * The contract "s"ally incl"des ,any other conditions s"ch as pay,ent of pre,i", or perfor,ance of so,e other act which ,"st be co,plied with as precedent to the right of the ins"red to clai, benefit "nder it 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1'E of 6<1 IN3URANCA CODA COBBARCIAL LA9 6.?. A contract of inde,nity %e#cept life and accident ins"rance where the res"lt is death( * The pro,ise of the ins"rer is to ,a.e good only the loss of the ins"red * Any contract that conte,plates a possible gain to the ins"red by the happening of any e!ent "pon which the liability of the ins"rer
beco,es fi#ed is contrary to the nat"re of ins"rance * No person ,ay sec"re ins"rance "pon property in which he has no interest. * If the ins"red has no ins"rable interest the contract is !oid and "nenforceable as being contrary to p"blic policy beca"se it affords a te,ptation to the ins"red to wish or bring abo"t the happening of the loss 6.D. An in!est,ent %life ins"rance( * Beas"re of econo,ic sec"rity for the ins"red d"ring life and beneficiary after death * 0inancial assistance d"ring financial crisis * Liability of ins"rer is face !al"e of the policy and not the earning capacity of the ins"red at the ti,e of death 6.E. A personal contract * Aach party ha!ing in !iew the credit character and cond"ct of another * As a r"le the ins"red cannot assign before the happening of the loss his rights "nder a property policy witho"t the consent of the ins"rer. The obligation of the ins"rer to pay does not attach or r"n with the property whether it be real property or personal a If a person whose property is ins"red sells it to another the b"yer cannot be his s"ccessor in
the contract of ins"rance "nless of co"rse the sale is with the consent of the ins"rer or "nless by e#press stip"lation of the parties the contract is ,ade to r"n with the property of the transferee a 9here the ins"rance is Lon acco"nt of the ownerM or Lfor who, it ,ay concernM or where Lthe loss is payable to bearer M the s"bse+"ent transferees or owners beco,e by the ter,s of the contract the real parties to the contract of ins"rance. * All ins"rance contracts share a co,,on trait of Lpersonal/nessM a ;ersonal ins"rance %incl"des life health accident and disability ins"rance( 7 applies only to a partic"lar indi!id"al and it is not possible for e#a,ple for the ins"red "nilaterally declaring that his health ins"rance policy shall now be dee,ed to co!er the health of so,eone else a Liability ins"rance 7 each person p"rchases co!erage for his own %or a gro"p of related persons( potential liability to others. The ins"rer prices the co!erage depending on the characteristics
and traits of the partic"lar ins"red a ;roperty ins"rance / the ins"rance is on the ins"red4s interest in the property not on the property itself. It is the da,age to the personal interest not the property that is being rei,b"rsed a Life ins"rance 7 8ANARALLK A33I8NAHLA as they are in the nat"re of property and do not represent a personal agree,ent between ins"red and ins"rer a 6.>. A contract of adhesion * ;olicy is presented to the ins"red already in its printed for, * LTa.e it or lea!e itM 6.1F. Of highest degree of good faith * Aach party is en1oined by law to deal with each other in good faith * Disclos"re or the d"ty to disclose * Iiolation of the d"ty gi!es the other party the right to rescind the contract 6.11. It is property in legal conte,plation =. Re+"isites of a !alid contract of ins"rance * A s"b1ect ,atter in which the ins"rer has an ins"rable interest * A!ent or peril ins"red against which ,ay be any %f"t"re( contingent or "n.nown
e!ent past or f"t"re %3ec. 6( and a d"ration for the ris. thereof * A pro,ise to pay or inde,nify in a fi#ed or ascertainable a,o"nt * A consideration for the pro,ise .nown as a Lpre,i",M * A ,eeting of the ,inds of the parties "pon all of the foregoing essentials * The parties ,"st be co,petent to enter into the contract * Under 3ec. ''? Lno policy of ins"rance shall be iss"ed or deli!ered within the ;hilippines "nless in the for, pre!io"sly appro!ed by the Ins"rance Co,,issionerM * The p"rpose ,"st not be contrary to law or p"blic policy 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1'> of 6<1 IN3URANCA CODA COBBARCIAL LA9 <. Contracts for Contingent 3er!ices- ;reneed ;lans and 3i,ilar Arrange,ents <.1. Contracts for Contingent ;ersonal 3er!ices * It does not necessarily follow that a contract containing the abo!e,entioned ele,ents wo"ld be an ins"rance contact * The pri,ary p"rpose of the parties ,a.ing the contract ,ay negate the e#istence of an ins"rance contract a A law fir, which enters into contracts with clients in consideration of
periodical pay,ents where it pro,ises to represent s"ch clients in all s"its for or against the, is not engaged in an ins"rance b"siness. Its contracts are si,ply for the p"rpose of rendering personal ser!ices a A contract by which a consideration of a stip"lated a,o"nt agrees at its own e#pense to defend a physician against all s"its for da,ages for ,alpractice is one of ins"rance and the corporation will be dee,ed as engaged in the b"siness of ins"rance a Unli.e the lawyer4s retainer contract the essential p"rpose of s"ch a contract is not to render personal ser!ices b"t to inde,nify against loss or da,age res"lting fro, the defense of actions for ,alpractice. a A corporation which enters into contracts with car owners and agrees to engage and pay for the ser!ices of a lawyer to handle any da,age case arising fro, collision of their cars is engaged in the ins"rance b"siness and ,"st therefore co,ply with the laws relati!e to the transaction of ins"rance b"siness and sho"ld be licensed as s"ch before it can lawf"lly transact s"ch b"siness
a 3"ch contracts do not pro!ide for the pay,ent of any s", directly to the contractee b"t it does pro!ide for the relief of the contractee fro, the e#penses of e,ploying an attorney a It wo"ld be i,,aterial that the contract states on its face that it is not a contract of ins"rance for the nat"re of the contract cannot be changed by s"ch a declaration <.'. Contracts with Contingent Incidental Henefit In the case of Attorney 8eneral e# rel Bon. !s. C.A. Osgood Co. the defendant co,pany was engaged in the b"siness of selling ho"sehold f"rnit"re on the install,ent plan. Under the contracts with its c"sto,ers altho"gh deli!ery wo"ld be ,ade at the ti,e of the contract title to the f"rnit"re wo"ld not pass "ntil all pay,ents ha!e been co,pleted. 3aid contracts also pro!ided that sho"ld the b"yer die before f"ll pay,ent of the agreed price the "npaid balance wo"ld be re,itted to the e#tent of b<FF. The Ins"rance Co,,issioner thro"gh the Atty. 8en. clai,ing that this last pro!ision ,ade it an ins"rance contract bro"ght s"it to restrain the defendant fro, p"rs"ing its b"siness witho"t first sec"ring the proper license. The Co"rt "pheld the Attorney 8eneral4s contention
and iss"ed an in1"nction holding that the contract had all the ele,ents of an ins"rance contract. 9hether this cla"se in the contract is ancillary to defendant4s chief b"siness or is ,ainly for ad!ertising ends was held irrele!ant in !iew of the prohibition against the ,a.ing of ins"rance contracts by co,panies not a"thori$ed by law. It wo"ld see, howe!er that the p"rpose of the stip"lation ta.en with its effects in case of the death of the b"yer did not warrant a holding that the f"rnit"re co,pany sho"ld first sec"re a license to engage in the ins"rance b"siness. Altho"gh all the ele,ents of an ins"rance contract ,ay see, to be present yet the f"rnit"re b"yer and2or his heirs did not "nder the circ",stances need the protection which the law ai,s to gi!e the ins"ring p"blic by the re+"ire,ent of a prior license. 0irst of all when the b"yer p"rchased the f"rnit"re he ,"st ha!e seen and e#a,ined it and ,"st ha!e belie!ed that it was worth the a,o"nt he agreed to pay for it. 3econdly the f"rnit"re was deli!ered to hi, at the ti,e of the contract and "sed by hi, thereafter. Upon his death his heirs contin"ed en1oying the "se of the f"rnit"re. Therefore the b"yer and2or his heirs stood to lose nothing by the +"estioned stip"lation and if at all stood to gain by it.
<.6. ;re/need ;lans ;hila,care 5ealth 3yste,s !s. CA Ratio) 3ection 6 of the Ins"rance Code states that any contingent or "n.nown e!ent whether past or f"t"re which ,ay da,nify a person ha!ing an ins"rable interest against hi, ,ay be ins"red against. A!ery person has an ins"rable interest in the life and health of hi,self. 3ection 1F pro!ides) A!ery person has an ins"rable interest in the life and health %1( for hi,self of his spo"se and of his children- %'( of any person on who, he depends wholly or in part for ed"cation or s"pport or in who, he has a pec"niary interest- %6( of any person "nder a legal obligation to hi, for the pay,ent of the ,oney respecting property or ser!ice of which death or illness ,ight delay or pre!ent the perfor,ance- and %=( of any person "pon whose life any estate or interest !ested in hi, depends. In the case at bar the ins"rable interest of respondent4s h"sband in obtaining the health care agree,ent was on his own health. The health care agree,ent was in the nat"re of non/life ins"rance which is pri,arily a contract of inde,nity. Once the ,e,ber inc"rs hospital ,edical or any other e#pense arising fro, sic.ness in1"ry or other stip"lated contingent the health care pro!ider ,"st pay for the sa,e to the e#tent agreed "pon "nder the contracts. ?. Classification "nder the Code ?.1. Life / defined as a ,"t"al agree,ent by
which a party agrees to pay a gi!en s", on the happening of a partic"lar e!ent contingent on the d"ration of h",an life in consideration of the 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 16F of 6<1 IN3URANCA CODA COBBARCIAL LA9 pay,ent of a s,aller s", i,,ediately or in periodical pay,ents by the other party a( Indi!id"al life 3ec. 1D>. Life ins"rance is ins"rance on h",an li!es and ins"rance appertaining thereto or connected therewith. 3ec. 1EF. An ins"rance "pon life ,ay be ,ade payable on the death of the person or on his s"r!i!ing a specified period or otherwise contingently on the contin"ance or cessation of life. A!ery contract or pledge for the pay,ent of endow,ents or ann"ities shall be considered a life ins"rance contract for p"rpose of this Code In the absence of a 1"dicial g"ardian the father or in the latterVs absence or incapacity the ,other or any ,inor who is an ins"red or a beneficiary "nder a contract of life health or accident ins"rance ,ay e#ercise in behalf of said ,inor any right "nder the policy witho"t necessity of co"rt a"thority or the gi!ing of a bond where the interest of the ,inor in the partic"lar act in!ol!ed does not e#ceed twenty tho"sand pesos. 3"ch right ,ay incl"de b"t shall not be li,ited to obtaining a policy loan s"rrendering the policy recei!ing the proceeds of the policy and gi!ing the ,inorVs
consent to any transaction on the policy. 3ec. 1EF/A. The ins"rer in a life ins"rance contract shall be liable in case of s"icides only when it is co,,itted after the policy has been in force for a period of two years fro, the date of its iss"e or of its last reinstate,ent "nless the policy pro!ides a shorter period) ;ro!ided howe!er That s"icide co,,itted in the state of insanity shall be co,pensable regardless of the date of co,,ission. %As a,ended by Hatasang ;a,bansa Hlg. ED=( 3ec. 1E1. A policy of ins"rance "pon life or health ,ay pass by transfer will or s"ccession to any person whether he has an ins"rable interest or not and s"ch person ,ay reco!er "pon it whate!er the ins"red ,ight ha!e reco!ered. 3ec. 1E'. Notice to an ins"rer of a transfer or be+"est thereof is not necessary to preser!e the !alidity of a policy of ins"rance "pon life or health "nless thereby e#pressly re+"ired. 3ec. 1E6. Unless the interest of a person ins"red is s"sceptible of e#act pec"niary ,eas"re,ent the ,eas"re of inde,nity "nder a policy of ins"rance "pon life or health is the s", fi#ed in the policy. * Ins"rance on h",an li!es and ins"rance appertaining thereto or connected therewith * Bade payable on the death of a person or on his s"r!i!ing a specified period or otherwise contingently on the contin"ance
or cessation of life * one ins"res one4s life or that of another against death or sic.ness * Affect of s"icide of ins"red Liability of ins"rer in case of s"icide a 9hen liable) * The s"icide is co,,itted after the policy has been in force for a period of ' years fro, date of its iss"e or of its reinstate,ent* The s"icide is co,,itted after a shorter period pro!ided in the policy altho"gh within the '/year period* The s"icide is co,,itted in the state of insanity regardless of the date of co,,ission "nless s"icide is an e#cepted ris.. WNote that the policy cannot pro!ide a period longer than ' years. 3o if the policy pro!ides for a 6/year period and s"icide is co,,itted within the period b"t after ' years ins"rer is liable. a 9hen not liable) * 3"icide is not by reason of insanity and is co,,itted within the '/year period. * 3"icide is by reason of insanity b"t is not a,ong the ris.s ass",ed by the ins"rer regardless of the date
of co,,ission. * Ins"rer can show that the policy was obtained with the intention to co,,it s"icide e!en in the absence of any s"icide e#cl"sion in the policy. b( 8ro"p life 3ec. <F. The policy shall be in printed for, which ,ay contain blan. spaces- and any word phrase cla"se ,ar. sign sy,bol signat"re n",ber or word necessary to co,plete the contract of ins"rance shall be written on the blan. spaces pro!ided therein. Any rider cla"se warranty or endorse,ent p"rporting to be part of the contract of ins"rance and which is pasted or attached to said policy is not binding on the ins"red "nless the descripti!e title or na,e of the rider cla"se warranty or endorse,ent is also ,entioned and written on the blan. spaces pro!ided in the policy. Unless applied for by the ins"red or owner any rider cla"se warranty or endorse,ent iss"ed after the original policy shall be co"ntersigned by the ins"red or owner which co"ntersignat"re shall be ta.en as his agree,ent to the contents of s"ch rider cla"se warranty or endorse,ent. 8ro"p ins"rance and gro"p ann"ity policies howe!er ,ay be typewritten and need not be in printed for,. * Bay be typewritten and need not be in
printed for, * Be,bers "s"ally a cohesi!e gro"p a ;ay a "nifor, pre,i", a Us"ally no ,edical e#a,ination a Nor,ally re+"ires a specified n",ber of persons ins"red before policy is iss"ed 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 161 of 6<1 IN3URANCA CODA COBBARCIAL LA9 c( Ind"strial life 3ec. ''>. The ter, Tind"strial life ins"ranceT as "sed in this Code shall ,ean that for, of life ins"rance "nder which the pre,i",s are payable either ,onthly or oftener if the face a,o"nt of ins"rance pro!ided in any policy is not ,ore than fi!e h"ndred ti,es that of the c"rrent stat"tory ,ini,", daily wage in the City of Banila and if the words Tind"strial policyT are printed "pon the policy as part of the descripti!e ,atter. An ind"strial life policy shall not lapse for nonpay,ent of pre,i", if s"ch non/pay,ent was d"e to the fail"re of the co,pany to send its representati!e or agent to the ins"red at the residence of the ins"red or at so,e other place indicated by hi, for the p"rpose of collecting s"ch pre,i",- ;ro!ided That the pro!isions of this paragraph shall not apply when the pre,i", on the policy re,ains "npaid for a period of three ,onths or twel!e wee.s after the grace period has e#pired. * 0or, of life ins"rance "nder which the
pre,i",s are payable either ,onthly or oftener * 0ace a,o"nt of ins"rance pro!ided in any policy is not ,ore than fi!e h"ndred ti,es that of the c"rrent stat"tory ,ini,", daily wage in the City of Banila * 3hall not lapse for non/pay,ent of pre,i", if s"ch non/pay,ent was d"e to the fail"re of the co,pany to send its representati!e or agent to the ins"red at the residence of the ins"red or at so,e other place indicated by hi, for the p"rpose of collecting s"ch pre,i", a This shall not apply when the pre,i", on the policy re,ains "npaid for a period of three ,onths or twel!e wee.s after the grace period has e#pired. ?.'. Non/life 7 incl"de policies co!ering ris.s to which property ,ay be e#posed as well as those which co!er the ris. of liability to third persons. It co!ers a specified period of ti,e %not ,ore than 1 year( and has a definite period of co!erage. a( Barine 3ec. >>. Barine Ins"rance incl"des) %1( Ins"rance against loss of or da,age to) %a( Iessels craft aircraft !ehicles goods freights cargoes ,erchandise effects disb"rse,ents profits ,oneys sec"rities choses in action e!idences of debts !al"able papers botto,ry and respondentia interests and all other
.inds of property and interests therein in respect to appertaining to or in connection with any and all ris.s or perils of na!igation transit or transportation or while being asse,bled pac.ed crated baled co,pressed or si,ilarly prepared for ship,ent or while awaiting ship,ent or d"ring any delays storage tranship,ent or reship,ent incident thereto incl"ding war ris.s ,arine b"ilderVs ris.s and all personal property floater ris.s%b( ;erson or property in connection with or appertaining to a ,arine inland ,arine transit or transportation ins"rance incl"ding liability for loss of or da,age arising o"t of or in connection with the constr"ction repair operation ,aintenance or "se of the s"b1ect ,atter of s"ch ins"rance %b"t not incl"ding life ins"rance or s"rety bonds nor ins"rance against loss by reason of bodily in1"ry to any person arising o"t of ownership ,aintenance or "se of a"to,obiles(%c( ;recio"s stones 1ewels 1ewelry precio"s ,etals whether in co"rse of transportation or otherwise%d( Hridges t"nnels and other instr",entalities of transportation and co,,"nication %e#cl"ding b"ildings their f"rnit"re and f"rnishings fi#ed contents and s"pplies held in storage(- piers whar!es doc.s and slips and other aids to na!igation and transportation incl"ding dry doc.s and ,arine railways da,s and app"rtenant
facilities for the control of waterways. %'( TBarine protection and inde,nity ins"rance T ,eaning ins"rance against or against legal liability of the ins"red for loss da,age or e#pense incident to ownership operation chartering ,aintenance "se repair or constr"ction of any !essel craft or instr",entality in "se of ocean or inland waterways incl"ding liability of the ins"red for personal in1"ry illness or death or for loss of or da,age to the property of another person. * Ocean ,arine ins"rance 7 an ins"rance against ris. connected with na!igation to which a ship cargo freightage profits or other ins"rable interest in ,o!able property ,ay be e#posed d"ring a certain !oyage or a fi#ed period of ti,e * Inland ,arine ins"rance 7 it is of co,parati!ely recent origin and co!ers pri,arily the land or o!er the land transportation perils of property shipped by railroads ,otor tr"c.s airplanes and other ,eans of transportation. It also co!ers ris.s of la.e ri!er or other inland waterway transportation and other waterborne perils o"tside of those ris.s that fall definitely within the ocean ,arine category 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 16' of 6<1 IN3URANCA CODA COBBARCIAL LA9
b( 0ire 3ec. 1?D. As "sed in this Code the ter, Tfire ins"ranceT shall incl"de ins"rance against loss by fire lightning windstor, tornado or earth+"a.e and other allied ris.s when s"ch ris.s are co!ered by e#tension to fire ins"rance policies or "nder separate policies. c( Cas"alty or Liability Ins"rance 3ec. 1D=. Cas"alty ins"rance is ins"rance co!ering loss or liability arising fro, accident or ,ishap e#cl"ding certain types of loss which by law or c"sto, are considered as falling e#cl"si!ely within the scope of other types of ins"rance s"ch as fire or ,arine. It incl"des b"t is not li,ited to e,ployerVs liability ins"rance ,otor !ehicle liability ins"rance plate glass ins"rance b"rglary and theft ins"rance personal accident and health ins"rance as written by non/life ins"rance co,panies and other s"bstantially si,ilar .inds of ins"rance. d( 3"retyship 3ec. 1D<. A contract of s"retyship is an agree,ent whereby a party called the s"rety g"arantees the perfor,ance by another party called the principal or obligor of an obligation or "nderta.ing in fa!or of a third party called the obligee. It incl"des official recogni$ances stip"lations bonds or "nderta.ings iss"ed by any co,pany by !irt"e of and "nder the pro!isions of Act No. <6? as a,ended by Act No. ''F?. 3ec. 1D?. The liability of the s"rety or
s"reties shall be 1oint and se!eral with the obligor and shall be li,ited to the a,o"nt of the bond. It is deter,ined strictly by the ter,s of the contract of s"retyship in relation to the principal contract between the obligor and the obligee. %As a,ended by ;residential Decree No. 1=<<( 3ec. 1DE. ;ertinent pro!isions of the Ci!il Code of the ;hilippines shall be applied in a s"ppletory character whene!er necessary in interpreting the pro!isions of a contract of s"retyship. * A contract of s"retyship shall be dee,ed to be an ins"rance contract only if ,ade by a s"rety who or which is doing an ins"rance b"siness ?.6. Iariations in Life Ins"rance Contracts a( 9hole life plan * The ter,s of which the ins"red is re+"ired to pay a certain fi#ed pre,i", ann"ally or at ,ore fre+"ent inter!als thro"gho"t life and the beneficiary is entitled to recei!e pay,ent "nder the policy only after the death of the ins"red * The "lti,ate pay,ent of the ins"rance proceeds is as certain as death itself b( Li,ited pay,ent plan * The ter,s of which the pre,i",s are payable only d"ring a li,ited period of years "s"ally ten fifteen or twenty * 9hen the specified n",ber of pre,i",
pay,ents ha!e been ,ade the ins"rance is f"lly paid for * It is li.e whole life policies in that it is payable only at the death of the ins"red * If the ins"red sho"ld die within the specified period his beneficiary is entitled to all the proceeds of the policy witho"t any liability for the "npaid pre,i",s * Heca"se of the li,ited n",ber of pay,ents to be ,ade by the ins"red the pre,i",s are proportionately higher c( Ter, plan * One which pro!ides co!erage only of the ins"red dies d"ring a li,ited period * It is an ins"rance for a fi#ed or a specific ter, s"ch as two fi!e or ten years * If the ins"red dies within the period specified the policy is paid to the beneficiary * If he s"r!i!es the period the contract ter,inates * The pre,i", paid is le!ied d"ring the specified ter,s and increases with each renewal ter, or the a,o"nt of the co!erage declines and this is beca"se as a person ages the ris. of death increases * The pre,i", is lower than in the case of whole life policies beca"se of the possibility that the ins"rer ,ay not be obliged to pay anything in proceeds whatsoe!er if the
ins"red s"r!i!es the ter, d( ;"re endow,ent plan * Ins"red pays pre,i", for a specified period and sho"ld he s"r!i!e the period the ins"rance co,pany pays hi, the face !al"e of the policy * If he sho"ld die within the period the ins"rance co,pany is released fro, any liability and "nless pro!ided in the contract need not rei,b"rse any part of the pre,i",s paid e( Andow,ent plan * The ter,s of which the ins"rer binds hi,self to pay a fi#ed s", to the ins"red if he s"r!i!es for a specified period %,at"rity date stated in the policy( or if he dies within s"ch period to so,e other person indicated * The pre,i", is higher beca"se the cash !al"es of the policy grow ,ore rapidly. * This .ind of policy differs fro, the li,ited pay,ent life policy in that in the case of the latter the policy is paid only "pon the death of the ins"red * The ins"red stands a chance of being paid the proceeds of the policy while still ali!e * The proceeds on ,at"rity can be paid either in a l",p s", or as an ann"ity D. Constr"ction 2 Interpretation of Ins"rance Contracts
D.1. 9here there is A,big"ity or Do"bt * As a general r"le contracts of ins"rance are to be constr"ed liberally in fa!or of the ins"red and strictly against the ins"rer resol!ing all a,big"ities against the latter so as to effect its do,inant p"rpose of inde,nity or pay,ent to the ins"red especially were a forfeit"re is in!ol!ed * An ins"rance contract sho"ld be so interpreted as to carry o"t the p"rpose for which the parties entered into the contract 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 166 of 6<1 IN3URANCA CODA COBBARCIAL LA9 which is to ins"re against ris. of loss da,age or liability on the part of the ins"red * The ins"rer is "nder the d"ty to ,a.e its ,eaning clear if it desires to li,it or restrict the operation of the general pro!isions of its contract by special pro!iso e#ception or e#e,ption * A policy of ins"rance which contains e#ceptions or conditions tending to wor. a forfeit"re of the policy shall be interpreted ,ost fa!orably toward those against who, they are intended to operate and ,ost strictly against the ins"rance co,pany or the party for whose benefit they are inserted * 9here restricti!e pro!isions are open to
two interpretations that which is ,ost fa!orable to the ins"red is adopted. Li,itations of liability ,"st be constr"ed in s"ch a way as to precl"de the ins"rer fro, non co,pliance with its obligations D.'. 9here Ter,s are Clear * The cardinal principle of ins"rance law of interpreting ins"rance contracts fa!orably to the ins"red is applicable only in cases of do"bt not when the intention of the policy is clear or the lang"age is s"fficiently clear to con!ey the ,eaning of the parties * The co"rt is bo"nd to adhere to the ins"rance contract as the a"thentic e#pression of the intention of the parties and it ,"st be constr"ed and enforced according to the sense and ,eaning of the ter,s which the parties the,sel!es ha!e "sed. * If s"ch ter,s are clear and certain they ,"st be ta.en in their plain and ordinary sense * Obligations arising fro, contracts ha!e the force of law between the contracting parties and sho"ld be co,plied with in good faith D.6. Literal or 3trict Interpretation 0irst Q"e$on City Ins"rance !s. CA 0acts) Del Rosario fell off a De Dios Bari.ina Transportation Co. Inc. b"s. Del Rosario was
bro"ght to the hospital and stayed there for =F days. The cost for the hospitali$ation a,o"nted to ;?> === while "nearned salary d"e to confine,ent a,o"nted to ;D <FF. Del Rosario filed a co,plaint against DBTC and its ins"rance co,pany 0irst Q"e$on City Ins"rance Co,pany. 5eld) The ins"rance co,pany4s liability sho"ld be li,ited to ;1' FFF only. The ins"rance policy clearly placed the ,a#i,", li,it of 0irst Q"e$on City4s liability for da,ages arising fro, death or bodily at ;1' FFF per passenger and its ,a#i,", liability per accident at ;<F FFF. This ,eans that the ins"rer4s ,a#i,", liability for any single accident will not e#ceed <FR regardless of the n",ber of the passengers .illed or in1"red. Ty !s. 0irst National 0acts) Ty was a ,echanic fore,an in the Hroadway Cotton 0actory. A fire bro.e o"t which totally destroyed the factory. As Ty was fighting his way o"t of the factory he in1"red his left hand ca"sing te,porary total disability d"e to fract"res o his inde# ,iddle and fo"rth fingers. 5e filed a notice of accident and clai, to reco!er inde,nity fro, 0irst National 3"rety b ass"rance Co. Inc. p"rs"ant to his ins"rance policy which pro!ides) LZthe loss of a hand shall ,ean the loss by a,p"tation thro"gh the bones of the wristZM The ins"rance co,pany re1ected Ty4s clai, saying that since there was no se!erance
by a,p"tation of the hand the disability s"ffered by hi, was not co!ered "nder the policy. 5eld) The ins"rance co,pany is not liable to inde,nify Ty. 9e cannot go beyond the clear and e#press conditions of the ins"rance policies all of which define partial disability as loss of either hand by La,p"tation thro"gh the bones of the wristM There was no a,p"tation in this case. The agree,ent contained in the ins"rance policies is the law between the parties. An interpretation that wo"ld incl"de the ,ere fract"re or other te,porary disability not co!ered by the policies wo"ld certainly be "nwarranted. Bisa,is L",ber !s. Capital Inc. 0acts) Bisa,is L",ber Corporation ins"red its ,otor car for the a,o"nt of ;1= FFF. The ins"red car passed o!er a water whole which the dri!er did not see beca"se an onco,ing car did not di, its lights. The car was later towed and repaired by Borosi Botors at a total cost of ;6F'.'D. Capital Ins"rance ref"sed to pay for the total cost of towage and repairs. 5eld) The ins"rance co,pany is not liable for the pay,ent of the repairs in e#cess of ;1<F. The ins"rance policy stip"lated in paragraph = that if the ins"red a"thori$es the repair the liability of the ins"rer is li,ited to ;1<F. The literal ,eaning of this stip"lation ,"st control it being the act"al contract e#pressly and plainly pro!ided for in the policy. The policy is also drew
o"t not only the li,its of the ins"rer4s liability b"t also the ,echanics that the ins"red had to follow to be entitled to f"ll inde,nity of repairs. The option to "nderta.e the repairs is accorded to the ins"rance co,pany per paragraph '. The said co,pany was depri!ed of the option beca"se the ins"red too. it "pon itself to ha!e the repairs ,ade and only notified the ins"rer when the repairs were done. As a conse+"ence paragraph = which li,its the co,pany4s liability to ;1<F applies. 3"n Ins"rance !s. CA 0acts) Tan too. fro, 3"n Ins"rance a property ins"rance worth 6FFR to ins"re his interest in the electrical s"pply store of his brother ho"sed in a b"ilding in Iloilo City. 0o"r days after the b"ilding was b"rned down incl"ding the ins"red store. 9hen Tan filed a clai, with the ins"rance co,pany the sa,e was denied after which he as.ed for reconsideration which was again denied. It is stip"lated in the ins"rance policy that any action sho"ld be filed with the Ins"rance Co,,ission or any co"rt of co,petent 1"risdiction within 1' ,onths after receipt by the ins"red of a re1ection of his clai, and fail"re to do so wo"ld constit"te abandon,ent of clai, and can no longer be reco!erable. 5eld) The 1'/,onth prescripti!e period co,,enced "pon receipt by Tan of the re1ection2denial of his clai, by 3"n Ins"rance
and does not stop "pon filing of the ,otion for 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 16= of 6<1 IN3URANCA CODA COBBARCIAL LA9 reconsideration. The words of the pro!isions in the ins"rance policy is clear and free fro, any do"bt or a,big"ity whatsoe!er and th"s ,"st be ta.en and "nderstood in its plain ordinary and pop"lar sense. 0ort"ne Ins"rance !s. CA 0acts) An ar,ored car of ;rod"cers Han. while in the process of transferring cash in the s", of D'<R was robbed of the said cash. After an in!estigation by police a"thorities the dri!er and the g"ard were charged with Iiolation of ;D <6' the Anti/5ighway Robbery Law. De,ands were ,ade by the ban. "pon the ins"rance co,pany to pay the a,o"nt of D'<R b"t the latter ref"sed to pay as the loss is e#cl"ded fro, the co!erage of the ins"rance policy which reads) L The co,pany shall not be liable "nder this policy in respect of . . . any loss ca"sed by any dishonest fra"d"lent or cri,inal act of the ins"red or any officer e,ployee partner director tr"stee or a"thori$ed representati!e of the ins"red whether acting alone or in con1"nction with othersZM 5eld) The ins"rance co,pany is not liable. It is clear that insofar as 0ort"ne is concerned it was its intention to e#cl"de and e#e,pt fro, protection and co!erage losses arising fro, dishonest fra"d"lent or cri,inal acts of persons
granted or ha!ing "nrestricted access to the ban.4s ,oney or payroll. 9hen it "sed the ter, Le,ployee M it ,"st ha!e in ,ind any person who +"alifies as s"ch as generally and e+"i!ocally "nderstood or 1"rispr"dentially established in light of the deter,ination of the AR/AA relationship. It is settled that the ter,s of the policy constit"te the ,eas"re of the ins"rer4s liability. In the absence of stat"tory prohibition to the contrary ins"rance co,panies ha!e the sa,e rights as indi!id"als to li,it their liability and to i,pose whate!er conditions they dee, best "pon their obligations not inconsistent with p"blic policy D.=. Liberal Interpretation- Reasonable A#pectations 0ield,an4s Inc. !s. Ida. De 3ongco 0acts) 3ongco owned a pri!ate 1eepney. 5e was ind"ced by an agent of 0ield,en4s Ins"rance to apply for a Co,,on Carrier4s Ins"rance ;olicy which is applicable to p"blic "tility !ehicles. The policy pro!ides) Lthe co,pany will s"b1ect to the li,its of liability and "nder ter,s of this policy inde,nify the ins"red in the e!ent of accident ca"sed by or arising o"t of the "se of ,otor !ehicle against all s",s which will beco,e liable to pay in respect of death or bodily in1"ry to any fare/paying passenger.M D"ring the effecti!ity of the policy the ins"red !ehicle collided with another car .illing 3ongco4s son and
wo"nding his wife. 5eld) Doctrine of estoppel applies. After leading 3ongco to belie!e that he co"ld +"alify "nder the co,,on carrier policy and to enter into the contract of ins"rance paying the pre,i",s d"e 0ield,en4s cannot be per,itted to change its stand. Also e#cept for the fact that the !icti,s were not fare/paying passengers their stat"s as beneficiaries "nder the policy is recogni$ed. A!en ass",ing there was an a,big"ity a,big"ities or obsc"rities ,"st be strictly interpreted against the party that ca"sed the,. This rigid application of the r"le of a,big"ities has beco,e necessary in !iew of c"rrent b"siness practices. Balayan Ins. !s. CA 0acts) TRC Bar.eting Corp. was the owner2consignee of so,e 6 1E>.1D1 ,etric tons of soya bean ,eal which was loaded on board the ship BI Al Ra$ie,ah. 3aid cargo was ins"red against the ris. of loss by Balayan Ins"rance Corporation. 9hile the !essel was doc.ed in 3o"th Africa on 3epte,ber 1>E> enro"te to Banila the ci!il a"thorities arrested and detained it beca"se of a laws"it on a +"estion of ownership and possession. TRC notified the ins"rance co,pany of the arrest of the !essel and ,ade a for,al clai, for the a,o"nt of U3b>1? EE?.??. Balayan replied that the arrest of the !essel by ci!il a"thority was not a peril
co!ered by the policies. 5eld) Balayan ins"rance sho"ld be held liable for the pay,ent of the ins"rance clai,. 3ince what was also e#cl"ded in the deleted 0.C. U 3. Cla"se was TarrestT occasioned by ordinary 1"dicial process logically s"ch TarrestT wo"ld now beco,e a co!ered ris. "nder s"bsection 1.1 of 3ection 1 of the Instit"te 9ar Cla"ses regardless of whether or not said TarrestT by ci!il a"thorities occ"rred in a state of war. It has been held that a strained interpretation which is "nnat"ral and forced as to lead to an abs"rd concl"sion or to render the policy nonsensical sho"ld by all ,eans be a!oided. Li.ewise it ,"st be borne in ,ind that s"ch contracts are in!ariably prepared by the co,panies and ,"st be accepted by the ins"red in the for, in which they are written. A#ceptions to the general co!erage are constr"ed ,ost strongly against the co,pany. A!en an e#press e#ception in a policy is to be constr"ed against the "nderwriters by who, the policy is fra,ed and for whose benefit the e#ception is introd"ced. 9estern 8"aranty !s. CA 0acts) De Dios Transportation Inc. 0ig"red in an accident when it str"c. Rodrig"e$ who was crossing the pedestrian lane on Airport Road. The dri!er ignored the stop signal gi!en by a traffic enforcer. Rodrig"e$ was thrown to the gro"nd and hit her head and res"lted to her face
getting per,anently disfig"red. De Dios Transportation filed a co,plaint against 9estern 8"aranty since they were ins"red by 9estern "nder a Baster ;olicy which pro!ided protection against third party liability. 5eld) 9estern 8"aranty is liable to pay for the da,age ca"sed to the !icti, incl"ding loss of earnings ,oral da,ages and attorney4s fees. The 3ched"le of Inde,nities does not p"rport to li,it or e#ha"sti!ely en",erate the species of bodily in1"ry to the list fo"nd in the 3ched"le of Inde,nities since an accident ,ay res"lt to an in1"ry to internal organs not necessarily to a loss of li,b %a,p"tation of the leg ar, finger hand( b"t s"ch in1"ries are certainly co!ered by the Baster ;lan since they constit"ted bodily in1"ries. Also the 3ched"le of Inde,nities also does not p"rport to restrict the .ind of da,ages that ,ay be paid by the ins"rer once liability has arisen "nder the Liability to Third ;arty cla"se and does not say that the li,it is s"b1ect to the list indicated in the 3ched"le of Inde,nities. All 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 16< of 6<1 IN3URANCA CODA COBBARCIAL LA9 other types of da,ages ,ay be awarded against the ins"rer once liability is shown to ha!e arisen. A contract of ins"rance is a contract of adhesion and ,"st be constr"ed strictly against the party which prepared the contract. Q"a Chee 8an !s. Law Union
0acts) This case in!ol!ed a clai, on a fire ins"rance policy which contained a pro!ision as to the installation of fire hydrants the n",ber of which depended on the height of the e#ternal wall peri,eter of the bodega that was ins"red. 9hen it was deter,ined that the bodega sho"ld ha!e ele!en fire hydrants in the co,p"nd as re+"ired by the ter,s of the policy instead of only two that it had the clai, "nder the policy was resisted on that gro"nd. 5eld) The said de!iation fro, the ter,s of the policy did not pre!ent the clai, "nder the sa,e. 9e are in agree,ent with the trial Co"rt that the appellant is barred by wai!er %or rather estoppel( to clai, !iolation of the so called fire hydrants warranty for the reason that .nowing f"lly that the n",ber of hydrants de,anded therein ne!er e#isted fro, the !ery beginning the appellant ne!ertheless iss"ed the policies in +"estion s"b1ect to s"ch warranty and recei!ed the corresponding pre,i",s. It wo"ld be perilo"sly recei!ed the corresponding pre,i",s. It wo"ld be perilo"sly close to conni!ing at fra"d "pon the ins"red to allow the appellant to clai, now as !oid ab initio the policies that it had iss"e to the plaintiff witho"t warning of their fatal defect of which it was infor,ed and after it had ,isled the defendant into belie!ing that the policies were effecti!e. 9hen the policy contains a condition which renders it !oidable at its inception and this
res"lt is .nown to the ins"rer it will be pres",ed to ha!e intended to wai!e the conditions and to e#ec"te a binding contract rather than to ha!e decei!ed the ins"red into thin.ing he is ins"red when in fact he is not and to ha!e ta.en his ,oney witho"t consideration. The ins"rance co,pany is liable on the ins"rance contract. Del Rosario !s. A+"itable Ins"rance 0acts) The ins"rer has bo"nd itself "nder the policy to pay ;1 FFF/6 FFF as inde,nity for the death of the ins"red for bodily in1"ry the policy containing specific a,o"nts that ,ay be reco!ered. The policy howe!er does not positi!ely state any definiti!e a,o"nt that ,ay be reco!erable in case of death by drowning altho"gh it is a gro"nd for reco!ery apart fro, death for bodily in1"ry. 5eld) There is an a,big"ity in this respect in the policy which a,big"ity ,"st be interpreted in fa!or of the ins"red and strictly against the ins"rer to allow a greater inde,nity that is ;6 FFF. 8eagonia !s. CA 0acts) 8eagonia is the owner of Nor,anVs Bart located in the p"blic ,ar.et of 3an 0rancisco Ag"san del 3"r. 5e obtained fro, the pri!ate respondent Co"ntry Han.ers Ins"rance Corporation. The policy contained the following condition) LZ6. The ins"red shall gi!e notice to the Co,pany of any ins"rance or ins"rances
already effected or which ,ay s"bse+"ently be effected co!ering any of the property or properties consisting of stoc.s in tradeZM 0ire of accidental origin bro.e o"t at the p"blic ,ar.et of 3an 0rancisco Ag"san del 3"r. 8eagonia4s ins"red stoc.s/in/trade were co,pletely destroyed pro,pting hi, to file with CHIC a clai, "nder the policy. The co,pany denied the clai, and the basis of which was the petitionerVs alleged !iolation of Condition 6 of the policy. 5eld) 8eagonia is not precl"ded fro, reco!ering fro, Co"ntry Han.ers. Condition 6 of the policy is a condition which is not proscribed by law. Its incorporation in the policy is allowed by 3ection D< of the Ins"rance Code which pro!ides that T:a@ policy ,ay declare that a !iolation of specified pro!isions thereof shall a!oid it otherwise the breach of an i,,aterial pro!ision does not a!oid the policy.T Its !iolation wo"ld th"s a!oid the policy. 5owe!er in order to constit"te a !iolation the other ins"rance ,"st be "pon the sa,e s"b1ect ,atter the sa,e interest therein and the sa,e ris.. As to a ,ortgaged property the ,ortgagor and the ,ortgagee ha!e each an independent ins"rable interest therein and both interests ,ay be co!ered by one policy or each ,ay ta.e o"t a separate policy co!ering his interest either at the sa,e or at separate ti,es. . It is a cardinal principle of law that forfeit"res are not fa!ored
and that any constr"ction which wo"ld res"lt in the forfeit"re of the policy benefits for the person clai,ing will be a!oided if it is possible to constr"e the policy in a ,anner which wo"ld per,it reco!ery as for e#a,ple by finding a wai!er for s"ch forfeit"re. ;ro!isions conditions or e#ceptions in policies which tend to wor. a forfeit"re of ins"rance policies sho"ld be constr"ed ,ost strictly against those for whose benefits they are inserted and ,ost fa!orably toward those against who, they are intended to operate. 3"n Ins"rance !s. CA 0acts) 3"n Ins"rance iss"ed a ;ersonal Accident ;olicy to Li, with a face !al"e of 'FFR. Two ,onths later he was dead with a b"llet wo"nd on his head. Li,4s death was ca"sed when he was playing with his handg"n which accidentally fired. 5is wife so"ght pay,ent on the policy b"t her clai, was re1ected. The contention of 3"n Ins"rance was that Li, willf"lly e#posed hi,self to needless peril and th"s re,o!ed hi,self fro, the co!erage of the ins"rance policy. Under the e#ceptions cla"se of the policy the ins"rance co,pany shall not be liable when the ins"red person atte,pting to co,,it s"icide or willf"lly e#posing hi,self to needless peril e#cept in an atte,pt to sa!e h",an life. 5eld) The ca"se of Li,4s death was an accident within the li,its set forth in the policy and
therefore not e#e,pt fro, the liability of the ins"rer. The definition of an accident is Lan e!ent which happens witho"t any h",an agency or if happening thro"gh h",an agency an e!ent which "nder the circ",stances is "n"s"al to and not e#pected by the person to who, it happensZM Contrary to the contention of 3"n Ins"rance Li, did not intentionally e#pose hi,self to danger as testified by his secretary he re,o!ed the ,aga$ine of the g"n to ens"re that it wo"ld not fire and pointed it to his te,ple in the belief that it is safe to do so. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 16? of 6<1 IN3URANCA CODA COBBARCIAL LA9 Ri$al 3"rety !s. CA 0acts) Ri$al 3"rety iss"ed a fire ins"rance policy for Transworld Rnitting Bills. A fire bro.e o"t in the co,po"nd of Transworld ra$ing the ,iddle portion of the fo"r/span b"ilding and partly g"tting the left and right sections. It also destroyed the two/storey anne# b"ilding where f"n and a,"se,ent ,achines and spare parts were stored. Transworld filed ins"rance clai, with Ri$al b"t to no a!ail. Ri$al4s contention is that the policy co!ered only the contents of the fo"r/span b"ilding which was only partly b"rned and not the da,age ca"sed to the two/storey anne# b"ilding. 5eld) The anne# b"ilding and the contents are co!ered "nder the policy. The so called Lanne#M
for,ed an integral and inseparable part of the fo"r/span b"ilding. It was a :per,anent str"ct"re which ad1oined the =/storey b"ilding described in the policy and conse+"ently the things stored therein were co!ered by the ins"rer. Considering that the anne# was already e#isting when the ins"rance policy was contracted Ri$al sho"ld ha!e specifically e#cl"ded it fro, the co!erage of the fire ins"rance if it wanted to b"t it did not. Do"bt sho"ld be resol!ed against Ri$al who drafted the ins"rance policy contract. This is beca"se the ins"red "s"ally has no !oice in the selection or arrange,ent of the words e,ployed and that the lang"age of the contract is selected with great care and deliberation by e#perts and legal ad!isers e,ployed by and acting e#cl"si!ely in the interest of the ins"rance co,panies. 8"lf Resorts !s ;hilippine Charter Ins"rance Corporation %'FF<( Intention of parties is shown by pro!isions of contracts and the a,o"nt of pre,i", paid since pre,i", is the consideration paid for the ris. "nderta.en by the ins"rer. 9hen there is an apparent change of the wording of an ins"rance contract b"t no corresponding change in the a,o"nt of pre,i", paid it will be interpreted to ,ean that there was no intended change at all. An ass",ption of additional ris. is pres",ed to ca"se a co,,ens"rate additional pre,i",
beca"se the pre,i", not the ,ere wording of the policy is a ,ore acc"rate indication of s"ch an ass",ption of additional ris.. E. ;erfection of the Contract of Ins"rance E.1. Offer and Acceptance- consens"ality * Applicant "s"ally ,a.es the offer to the ins"rer. * 3"b,ission of application e!en w2 pay,ent is a ,ere offer on the part of the applicant it does not bind the ins"rer. * Appro!al of the application by the ins"rer is necessary to perfect contract. If ,ade) / w2 pay,ent of pre,i", 7 policy beco,es effecti!e / w2o pay,ent 7 effecti!e "pon pay,ent of pre,i", i. Delay in Acceptance- Tort Theory * 3it"ation where applicant s"b,its application for ins"rance b"t d"e to negligence of co,pany w2c ta.es an "nreasonably long ti,e before processing the application the applicant dies before the application is processed th"s the contract is not perfected. * RABADK) Ins"rer liable for da,ages %Tort Theory( in the a,o"nt of the face !al"e of the policy w2c is gi!en to the estate of the deceased applicant. %not to beneficiary beca"se contract not
perfected. Also no contract"al liability also bec. no contact( * 9hy Tort Theory / beca"se Ins"rance b"siness is affected w2 p"blic interest. It is th"s the d"ty of ins"rer w2c deri!es its a"thority to act as s"ch fro, the 3tate %when it applies to get license to be in the ins"rance b"siness( to act w2 reasonable pro,ptness in either re1ecting or accepting the application. In case of "nreasonable delay and applicant dies applicant wo"ld ha!e been depri!ed of opport"nity to sec"re ins"rance fro, another so"rce. ii. Deli!ery of the ;olicy * Deli!ery 7 the act of p"tting the ins"rance policy 7 the physical doc",ent 7 into the possession of the ins"red. * Indi!id"al life ins"rance contracts "s"ally stip"late that) a ;re,i", be paid and a ;olicy be deli!ered to the ins"red while he is ali!e and in good health. Conc"rrence of both is necessary. %see ;ere$ ! CA case( * Act"al deli!ery of the policy is not essential "nless the parties ha!e so agreed in clear lang"age. Constr"cti!e deli!ery ,ay be s"fficient. %3ee Ida.
De 3indayen case( * 9oN policy was deli!ered after its iss"ance depends not "pon ,an"al possession by the ins"red b"t rather "pon the intention of the parties as ,anifested in their acts or agree,ents. * 9ON Deli!ery to agent is deli!ery to ins"red is a +"estion o!er w2c there has been ,any conflicting opinions. * Affect of Deli!ery) a 9here deli!ery is conditional 7 Non/perfor,ance of Condition precedent pre!ents contract fro, ta.ing effect a 9here deli!ery is "nconditional 7 if corresponding ter,s of application ordinarily cons",,ates the contract and policy as deli!ered beco,es final contract between the parties. 9here parties so intend ins"rance beco,es effecti!e at the sa,e ti,e as deli!ery a 9here pre,i", still "npaid after "nconditional deli!ery 7 ;olicy will lapse if pre,i", "npaid at ti,e and ,anner specified in the policy in the absence of any clear agree,ent that ins"rer will e#tend credit. Ins"rer cannot be pres",ed to ha!e e#tended credit fro, the
,ere fact of "nconditional deli!ery of the policy w2o prepay,ent of pre,i", and e!en if s"ch pres",ption ,ay be inferred there ,"st be a clear and e#press 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 16D of 6<1 IN3URANCA CODA COBBARCIAL LA9 acceptance by ins"red of the ins"rer4s offer to e#tend credit. ;ere$ ! CA 0acts) ;ere$ already pre!io"sly ins"red with H0 Life,an Ins"rance Co. applied for additional co!erage. 5e paid pre,i", and was iss"ed a receipt by the agent of H0 Life,an. 5owe!er he died before his application papers were trans,itted to the head office of H0 Life,an. Iss"e) 9ON the ins"rance policy was perfected 5eld) No. There was no acceptance of the offer. The perfection of the contract was conditioned "pon co,pliance with the pro!ision in the application for, w2c stated that perfection only lies when the applicant pays and the pre,i", and recei!es and accepts the policy while still in good health. Th"s the assent of H0 Life was not gi!en when it ,erely recei!ed the application for, of ;ere$ in its pro!incial office. Also deli!ery to ;ere$ wo"ld be i,possible as he is already dead. 3o long as an application for ins"rance has not been accepted or re1ected by the ins"rer it is ,erely an offer or proposal to ,a.e a contract. The contract
to be binding fro, date of application ,"st ha!e been a co,pleted contract that lea!es nothing to be done passed "pon or deter,ined before it shall ta.e effect.. Ida. De 3indayen ! Ins"lar Life Ass"rance Co. 0ACT3 Dec. 1>6' Art"ro 3indayen had partially paid his agent the first pre,i", for a life ins"rance policy. Agent and 3indayen agreed that policy when and if iss"ed sho"ld be deli!ered to 3indayen4s a"nt who will co,plete the pay,ent of the first ann"al pre,i",. Jan. 1? 1>66 7 agent recei!ed appro!ed policy and deli!ered it to 3indayen4s a"nt on Jan. 1E. 5owe!er before the policy was gi!en to Art"ro hi,self he died on Jan. 1>. I33UA) 9ON Ins"lar Life ass",ed the ris. co!ered by 3indayen4s policy 5ALD) KA3. Deli!ery to the ins"red in person is not necessary and ,ay be ,ade by ,ail or d"ly constit"ted agent %in this case 3indayen4s a"nt(. Ins"rance co,pany is bo"nd by the acts of its agent. In this case the agent is not a ,ere a"to,aton and is !ested w2 so,e discretion in deciding 9ON the condition as to the health of the applicant has been co,plied with. Once he decides that it has and deli!ers the policy then in the absence of fra"d the ins"rance co,pany is estopped fro, clai,ing the policy has no effect. Anri+"e$ ! 3"n Life Ass"rance Co. 0acts) 5errer applied for ins"rance and paid the
pre,i", howe!er he died before he recei!ed the notice of acceptance %of his application( sent by 3"n Life fro, its Bontreal head office. Iss"e) 9ON the ins"rance contract was perfected w2o the notice of acceptance co,ing to the .nowledge of the applicant 5eld) NO. Under the CC Consent is shown by the conc"rrence of offer and acceptance. An acceptance shall not bind the person ,a.ing the offer e#cept fro, the ti,e it ca,e to his .nowledge. E.'. ;re,i", ;ay,ent 3ec. DD UDE- ?= 3ec. DD1' An Ins"rer is entitled to pay,ent of the pre,i", as soon as the thing ins"red is e#posed to the peril ins"red against. Notwithstanding any agree,ent to the contrary no policy or contract of ins"rance iss"ed by an ins"rance co,pany is !alid and binding "nless and "ntil the pre,i", thereof has been paid e#cept in the case of a life or an ind"strial life policy whene!er the grace period pro!ision applies. * ;re,i", 7 the agreed price for ass",ing and carrying the ris. that is the consideration paid an ins"rer for "nderta.ing to inde,nify the ins"red against the specified peril. / if only one pre,i", is paid for se!eral things not separately !al"ed or separately ins"red the contract is indi!isible
or entire not di!isible or se!erable as to ite,s ins"red. * 3IR) 9OR3T 3ACTION of the Ins"rance Code. This is the cash/and/carry pro!ision %see below for e#planation why( * 9hy it raises se!eral +"estions %Ca,pos() // Is it intended to apply to all classes of ins"rance or does the word LthingM li,it it to property ins"ranceS As to e#ception it only applies to life policies w2in the grace period w2c does not s"pport the theory that it applies only to property ins"rance. / As to grace period grace period in life ins"rance applies only to pre,i",s s"bse+"ent to the first therefore how can this be an e#ception to the r"leS / 9ith respect to non/life policies the first sentence gi!es the ins"rer the right to de,and the pay,ent of the pre,i", as soon as the Lthing ins"red is e#posed to peril ins"red againstM This ass",es the contract is binding e!en before the pay,ent of the pre,i", ,eaning the contract is perfected when the applicant4s offer is accepted by the ins"rer. This ass",ption is inconsistent w2 the ne#t sentence w2c says that no policy can be binding w2o pre,i", pay,ent. / Also 3ec. DD and DE see, contradictory. / 5owe!er 3ir says abo!e does not apply
to life ins"rance beca"se Life Ins"rance lapses "pon non/pay,ent. * ;resent pro!ision ca,e fro, 3ec D' of the old Ins"rance Code. 5owe!er 3ec. DD has o,itted the portion of 3ec. D' w2c per,itted credit e#tension of the pre,i", d"e %,eaning e#tension of period to pay the pre,i",(. Apparently the intention is to p"t the contract of ins"rance on a Lcash/andcarry basisM ,eaning the pre,i", ,"st be paid in cash as a condition precedent for a non/life ins"rance policy to be !alid and binding and an agree,ent to grant the ins"red credit e#tension of the pre,i", is !oid. 5owe!er Ba.ati T"scany ! CA and the second UC;H case says otherwise. 5ence credit e#tension agree,ents ,ay be !alid. * AOCA;TION3 to 3ec. DD) 1' This was as.ed 'FF? 1>DE and 1>DD. Note the effects of non/pay,ent of pre,i",s. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 16E of 6<1 IN3URANCA CODA COBBARCIAL LA9 a In the case of a life or an ind"strial policy whene!er the grace period pro!ision applies %3ec. DD( a Article DE %see below( a Agree,ent to grant the ins"red credit e#tension for the pay,ent of the pre,i", a 9hen there is an agree,ent allowing the
ins"red to pay pre,i", in install,ent and partial pay,ent has been ,ade at the ti,e of the loss %3ee Ba.ati T"scany ! CA( H;I !s. ;osadas <? ;hil. '1< If the pre,i",s are paid o"t of the con1"gal f"nds the proceeds are considered con1"gal. If the beneficiary is other than the ins"red4s estate the so"rce of pre,i",s wo"ld not be rele!ant. ;hilippine ;ryce Ass"rance Corp. !s. CA '6F 3CRA 1?= %1>>=( 8enerally pre,i", is also necessary in order for the contract of s"retyship or bond to be binding. 5owe!er where the oblige has accepted the bond it is binding e!en if the pre,i", has not been paid s"b1ect to the right of the ins"rer to reco!er the pre,i", fro, its principal. 3ec. DE An ac.nowledg,ent in a policy or contract of ins"rance of receipt of pre,i", is concl"si!e e!idence of its pay,ent so far as to ,a.e the policy binding notwithstanding any stip"lation therein that it shall not be binding "ntil the pre,i", is act"ally paid * Affect of ac.nowledg,ent of receipt of pre,i", in property 7 Ins"rer cannot deny the tr"th of the receipt of the pre,i", e!en if it is "npaid. * Law established a legal fiction of pay,ent %pri,a facie e!idence of pay,ent(. Th"s ins"rer pres",ed to ha!e wai!ed the condition of
prepay,ent. * 3C has decided that abo!e is an e#ception to 3ec. DD 3ec. ?= No policy of ins"rance other than life shall be cancelled by the ins"rer e#cept "pon prior notice thereof to the ins"red and no notice of cancellation shall be effecti!e "nless it is based on the occ"rrence after the effecti!e date of the policy of one or ,ore of the following) %a( non/pay,ent of pre,i",%b( con!iction of a cri,e arising o"t of acts increasing the ha$ard ins"red against%c( disco!ery of fra"d or ,aterial ,isrepresentation %d( disco!ery of willf"l or rec.less acts or o,issions increasing the ha$ard ins"red against%e( physical changes in the property ins"red which res"lt in the property beco,ing "nins"rable- or %f( a deter,ination by the Co,,issioner that the contin"ation of the policy wo"ld !iolate or wo"ld place the ins"rer in !iolation of this Code * Cancellation 7 right to rescind abandon or cancel a contract of ins"rance ter,ination of policy before its e#piration. * ;re,i", referred to in ?=%a( refers to pay,ent Lafter effecti!e date of the policyM beca"se 3ec. DD ordains that ins"rance policy is !alid and
binding "nless and "ntil pre,i", has been paid. * Conditions "nder w2c abo!e e#ercised) a ;rior notice of cancellation to ins"red a Notice ,"st be based on the occ"rrence after the effecti!e date of the policy of one or ,ore of the gro"nds ,entioned a It ,"st be in writing ,ailed or deli!ered to the na,ed ins"red at the address shown in the policy. In this regard proof of act"al receipt of the notice is necessary for it to ta.e effect- ,ere proof that the ins"rer ,ailed the notice is not s"fficient to effect the cancellation. a It ,"st state w2c of the gro"nd set forth is relied "pon. a It is the d"ty of the ins"rer "pon written re+"est of the ins"red to f"rnish the facts in which the cancellation is based. * If there was no pre,i", paid at all the action appropriate wo"ld be a declaration of n"llity based on 3ection DD which pro!ides that Lno policy or contract of ins"rance iss"ed by an ins"rance co,pany is !alid and binding "nless and "ntil the pre,i", thereof has been paidMc Tibay ! CA 0acts) 0ort"ne Life iss"ed a fire ins"rance policy in fa!or of Tibay on a bldg in Ba.ati together w2 all their personal effects therein. Iioleta paid part of the total pre,i",. ' ,os. Afer a fire co,pletely destroyed the bldg. ' days after the
fire Tibay paid the balance of the pre,i",. 0ort"ne denied Tibay4s clai, for !iolation of 3ecDD of Ins"rance Code. Iss"e) 9ON a fire ins"rance policy is already !alid binding and enforceable "pon ,ere partial pay,ent of pre,i", 5eld) NO 3ec. DD applies. 3ince acceptance of partial pay,ent is not ,entioned a,ong the e#ceptions pro!ided in 3ec DD and DE of the Ins"rance Code no policy of ins"rance can e!er pretend to be efficacio"s "ntil pre,i", has been f"lly paid. / The policy contained a condition w2c said that LThe policy incl"ding any renewal thereof is not in force "ntil the pre,i", has been f"lly paid # # #M Clearly the ;olicy pro!ides for pay,ent of pre,i", in f"ll. Dissent) %IB;T( The ins"rance co!erage sho"ld beco,e effecti!e fro, the day that the partial pay,ent is accepted by the ins"rer any stip"lation in the policy to the contrary notwithstanding. ;artial pay,ent is eno"gh to establish the 1"ridical relation between the two parties. The law does not re+"ire a specific a,o"nt of pre,i", pay,ent in order to create the 1"ridical tie. / If the contract is a"to,atically cancelled "pon the non/pay,ent in f"ll by the ins"red then the efficacy of the contract will be f"lly dependent on his will. This !iolates the principle of ,"t"ality of
contracts. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 16> of 6<1 IN3URANCA CODA COBBARCIAL LA9 Ba.ati T"scany ! CA 0acts) A,erican 5o,e Ass"rance %A5AC( iss"ed in fa!or or Ba.ati T"scany an ins"rance policy on the latter4s bldg for 1 year. It was renewed o!er the co"rse of 6 years. In 1>E' the total pre,i",s were paid in fo"r install,ents b"t in 1>E6 T"scany paid only ' install,ents and ref"sed to pay the re,aining balance. Reason for discontin"ation) policy contained a reser!ation wherein LAcceptance of pay,ent by A5AC will not wai!e any of the co,pany rights to deny liability on any clai, "nder the policy arising before s"ch pay,ents or after the e#piration of the credit cla"se of the policy and 3"b1ect to no loss prior to pre,i", pay,ent. If there be any loss s"ch is not co!ered.M A5AC filed a s"it to reco!er the re,aining balance. Ba.ati T"scany filed co"nterclai, for the total a,o"nt of pre,i",s it had paid d"ring the pre!io"s years. Iss"e) 9ON pay,ent by install,ent of pre,i",s d"e on an ins"rance policy in!alidates the contract of ins"rance 5eld) NO The policies are !alid e!en if the pre,i",s paid in install,ents beca"se the records clearly show that the two parties intended the policies to be binding and effecti!e notwithstanding the staggered pay,ent of the
pre,i",s. Te acceptance of the install,ent pay,ents o!er the period of 6 years spea. lo"dly of intention of ins"rer to honor the policies it iss"ed to Ba.ati T"scany. / 3ec DD ,erely prohibits the parties fro, stip"lating that the policy is !alid e!en if pre,i",s were not paid b"t it does not e#pressly prohibit an agree,ent granting credit e#tensions. 3ec. DE also allows the ins"rer to wai!e the condition of f"ll pay,ent by ac.nowledging in the policy that there has been receipt of pre,i", despite the fact that pre,i", is act"ally "npaid. If the Code allows a wai!er when no act"al pay,ent has been ,ade then a wai!er sho"ld also be allowed in this case where the ins"rer has already ac.nowledged receipt of partial pay,ent. NOTA) Difference with Tibay case) In Tibay there was an e#press stip"lation w2c said that pay,ent shall be ,ade in f"ll. In this case the policy was binding beca"se of the prior agree,ent to allow install,ent pay,ents hence f"ll pay,ent "nder 3ec.DD dee,ed wai!ed. UC;H 8en. Ins. ! Basagana Tele,art 0acts) Basagan Tele,art obtained ins"rance policies on its properties fro, UC;H. The policies had the effecti!ity ter, of Bay 1>>1 7 Bay 1>>'. On J"ne 1>>' Basagan4s properties were ra$ed by a fire. On the sa,e day Basagana tenedered and UC;H accepted renewal pre,i", pay,ents.
The ne#t day Basagana filed a clai, for the b"rned ins"red bldgs. UC;H re1ected the clai,s on the gro"nd that the polices e#prired on Bay 1>>' and were not renewed for another ter, and that the fire too. place before the tender of pre,i", pay,ent "nder the renewed policy. %Note) This is a ,otion for reconsideration fro, pre!io"s 3C decision declaring that there was no renewal of the policy and that UC;H not liable( Iss"e) 9ON 3ec DD of the Ins"rance Code ,"st be strictly applied despite its practice of granting a ?F/>F day credit ter, for pay,ent of pre,i", 5eld) NO There are e#ceptions to 3ec DD) a.( The first is pro!ided by 3ec. DD itself and that is in case of a life or ind"strial life policy whene!er the grace period applies b.( 3ec DE) An ac.nowledg,ent in a policy or contract of ins"rance of the receipt of pre,i", is concl"si!e e!idence of its pay,ent so far as to ,a.e the policy binding notwithstanding any stip"lation therein that it shall not be binding "ntil pre,i", is act"ally paid. c.( 3ec. DD,ay not apply if the parties ha!e agreed to the pay,ent in install,ents of the pre,i", and partial pay,ent has been ,ade at the ti,e of the loss. d.( The ins"rer ,ay grant credit e#tension for the pay,ent of the pre,i", e.( It wo"ld be "n1"st and ine+"itable if reco!ery on the policy wo"ld not be per,itted
against UC;H w2c consistently granted the ?F/>F day credit ter, for the pay,ent of the pre,i",s despite its f"ll awareness of 3ec. DD. Astoppel bars it fro, ta.ing ref"ge "nder the action since Basagana relied on good faith on s"ch a practice Dissent %Iit"g() /Astoppel cannot create a contract of ins"rance neither can it be in!o.ed to create a ;RIBARK LIAHILITK. 3o essential is the pre,i", pay,ent to the creation of the !inc"l", 1"ris that it wo"ld be do"btf"l to ha!e that pay,ent !alidly e#c"sed e!en for a fort"ito"s e!ent Dissent %;ardo() / Basagana tried to pay the o!erd"e pre,i",s before gi!ing written notice that a fire has ra$ed the property. This shows the fra"d"lent character of the clai,. 0ail"re to gi!e notice is was a ,aterial ,isrepresentation affecting the ris. ins"red against. / Astoppel cannot gi!e !alidity to an act that is prohibited by law or against p"blic policy. Act"al pay,ent of pre,i",s is a condition precedent to the !alidity of an ins"rance contract other than the ins"rance policy. Any agree,ent to the contrary is IOID as against the law and p"blic policy. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1=F of 6<1 IN3URANCA CODA COBBARCIAL LA9 E.6. ;re,i", defa"lt in life ins"rance %3ec ''D h U 1(- options- lapsed policy
3ec. ''D In the case of indi!id"al life or endow,ent ins"rance the policy shall contain in s"bstance the following conditions) # # # %h( A table showing in fig"res cash s"rrender !al"es and paid/"p options a!ailable "nder the policy each year "pon defa"lt in pre,i", pay,ents d"ring at least twenty years of the policy beginning with the year in which the !al"es and options first beco,e a!ailable together with a pro!ision that in the e!ent of the fail"re of the policy/holder to elect one of the said options within the ti,e specified in the policy one of the said options shall a"to,atically ta.e effect and no policyholder shall e!er forfeit his right to sa,e by reason of his fail"re to so elect. ############ %1(A pro!ision that the policy shall be entitled to ha!e the policy reinstated at any ti,e within 6 years fro, the date of defa"lt of pre,i", pay,ent "nless tha cash s"rrender !al"e has been d"ly paid or the e#tension period has e#pired "pon prod"ction of e!idence of ins"rablility satisfactory to the co,pany and "pon pay,ent of all o!erd"e pre,i",s and any indebtedness to the co,pany "pon said policy with interest rate not e#ceeding that which wo"ld ha!e been applicable to said pre,i",s and indebtedness in athe policy years prior to reinstate,ent # # # NON/LI0A * %Refer to 3ec.DD( 3ee,s to say that policy is in
effect as soon as the thing is e#posed to ris. e!en if the pre,i", has not been paid yet. * 9here contract co!ers a period of 1 year there wo"ld nor,ally be only one pre,i", pay,ent for the period. * If parties agreed to pay in install,ents and there is a fail"re to pay any install,ent when it falls d"e ins"rer ,ay) / cancel policy after d"e notice / co,pel the pay,ent of install,ents LI0A * Intended to be in force for a period longer than a year- in!ol!es se!eral periodical pre,i", pay,ents %ann"al se,i/ann"al etc( * Contract not binding "ntil first periodical pre,i", pay,ent. After first pay,ent ins"red "nder no legal obligation to pay s"bse+"ent pre,i",. * Ins"rance Code grants grace period within which to pay s"bse+"ent pre,i",s. If policy beco,es a clai, d"ring the grace period b"t before o!erd"e pre,i", is paid o!erd"e ,ay be ded"cted fro, proceeds of policy * 0ail"re to pay w2in grace period \ a"to,atic lapse * A#ception) Ins"red has paid three f"ll ann"al pre,i",s. Antitled to the following Options "pon defa"lt) a Cash 3"rrender Ial"e * The a,o"nt the ins"red in case of
defa"lt after the pay,ent of at least 6 f"ll ann"al pre,i",s is entitled to recei!e if he s"rrenders the policy and releases his clai,s "pon it. It is the portion of reser!e on a life policy. * Nat"re of C3I) ;re,i", is "nifor, thro"gho"t lifeti,e of policy so d"ring the earlier years of the policy the pre,i", charges will be ,ore than the act"al cost of the protection against the ris. in order to ,eet the higher cost of ris. d"ring the latter years of the policy when the ins"red is older. Reser!e Ial"e / 3"rrender Charge \ Cash 3"rrender Ial"e * The ,ore pre,i",s he has paid the greater will be the C3I b"t the !al"e is always a lesser s", than the total a,t of pre,i",s paid. * C3I is the a,o"nt co,pany holds in tr"st for ins"red deli!erable "pon de,and. 3o long as the policy re,ains in force the co,pany has practically no beneficial interest in it e#cept as its c"stodian- this is the practical tho"gh not the legal relation of the co,pany to this f"nd. * A00ACT) 3"rrender policy- ter,inates the contract of ins"rance a A#tended Ins"rance
* A00ACT) ;olicy contin"es in force fro, date of defa"lt for a period either stated or e+"al to the a,o"nt of the cash s"rrender !al"e ta.en as a single pre,i", will p"rchase- the ins"red is gi!en the right "pon defa"lt after the pay,ent of at least three f"ll ann"al pre,i",s to ha!e the policy contin"ed in force fro, the date of defa"lt for a ti,e either stated or e+"al to the a,o"nt as the net !al"e of the policy ta.en as a single pre,i", will p"rchase Also called Lter, ins"ranceM Lte,porary ins"ranceM or Lpaid/"p e#tended ins"ranceM * Depends on a!ailability of C3I. * D"ring e#tended period) If ins"red dies beneficiary can reco!er face a,o"nt of policy. Ins"red can also reinstate the policy w2in this period. * Heyond e#tended period) If he s"r!i!es No benefits. 5e cannot e!en reinstate the policy by paying past pre,i",shas to p"rchase new policy * Hetter option if ins"red not in good health or geriatric a ;aid/"p Ins"rance * A,o"nt of Ins"rance that the C3I applied as a single pre,i", can p"rchase.
* A00ACT) ;olicy contin"es in force fro, date of defa"lt for the whole period and "nder the sa,e conditions of the original contract w2o f"rther pay,ent of pre,i",s. 5owe!er in case of death of ins"red he ,ay reco!er only the Lpaid/"pM !al"e of the policy w2c is ,"ch less than the original a,o"nt agreed "pon. %In other words nared"ce y"ng original ins"rance contract to one with a lower !al"e( * Hetter option if ins"red is still yo"ng and in good health beca"se "nli.e e#tended ins"rance he ,ay later reinstate policy if he wishes. a A"to,atic ;re,i", Loan * Upon defa"lt ins"rer lends2ad!ances to the ins"red witho"t any need of application on his part a,o"nt necessary to pay o!erd"e pre,i", b"t not to e#ceed the C3I of the policy. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1=1 of 6<1 IN3URANCA CODA COBBARCIAL LA9 * Only applies if re+"ested in writing by the ins"red either in the application or at any ti,e before the e#piration of the grace period. * A00ACT) Ins"rance contin"es in force for period co!ered by the pay,ent.
After period if ins"red still does not res",e paying his pre,i",s policy lapses "nless there re,ains C3I. * If there is still C3I a"to pre,i", loan contin"es "ntil it is e#ha"sted. * Ad!antageo"s to the ins"red beca"se it helps to contin"e the contract and all its feat"res in f"ll force and effect. * Ins"red "nder no legal obligation to repay LloanM a Reinstate,ent %3ec 1( * A00ACT) Does not create a new contract ,erely RAIIIA3 the old policy. Th"s ins"rer cannot re+"ire higher pre,i", than a,o"nt stip"lated in the contract. * Re+"ired by Ins"rance Code for e!ery indi!id"al and ind"strial life policy * Not re+"ired that 6 ann"al pre,i",s ha!e been paid * RAQUI3ITA3) * e#ercised w2in 6 years fro, defa"lt * ins"red ,"st present e!idence of ins"rability satisfactory to the co,pany * pay all bac. pre,i",s and all his indebtedness to the ins"rance co,pany * C3I has not been d"ly paid nor
the e#tension period e#pired * Ins"rability 7 does not ,ean that ins"red is in good health. Other factors affect ins"rability li.e nat"re of wor. age etc. * Application for reinstate,ent ,"st be filed d"ring the ins"red4s lifeti,e. Other Affect) a 0orfeit"re 7 Absol"te forfeit"re of all ins"red rights. 8enerally not fa!ored. D"e to liberal spirit in the cond"ct of life ins"rance ins"rers instead gi!e the ins"rer the benefit of the reser!e !al"e of the policy. E.=. 0or, and contents of policy 3ec. => The written instr",ent in which a contract of ins"rance is set forth is called a policy ins"rance. 3ec. <F The policy shall be in printed for, which ,ay contain blan. spaces- and any word phrase cla"se ,ar. sign sy,bol signat"re n",ber or word necessary to co,plete the contract of ins"rance shall be written on the blan. spaces pro!ided therein. Any rider cla"se warranty or endorse,ent p"rporting to be part of the contract of ins"rance and which is pasted or attached to said policy is not binding on the ins"red "nless the descripti!e title or na,e of the rider cla"se warranty or endorse,ent is also ,entioned and written on the blac. spaces pro!ided in the policy. Unless applied for by the ins"red or owner
any rider cla"se warranty or endorse,ent iss"ed after the original policy shall be co"ntersigned by the ins"red or owner which co"ntersignat"re shall be ta.en as his agree,ent to the contents of s"ch rider cla"se warranty or endorse,ent. 8ro"p ins"rance and gro"p ann"ity policies howe!er ,ay be typewritten and need not be in printed for,. 3ec <1. A policy of ins"rance ,"st specify) %a( The parties between who, the contract is ,ade%b( The a,o"nt to be ins"red e#cept in the cases of open or r"nning policies%c( The pre,i", or if the ins"rance is of a character where the e#act pre,i", is only deter,inable "pon the ter,ination of the contract a state,ent of the basis and rates "pon which the final pre,i", is to be deter,ined%d( The property or life ins"red%e( The interest of the ins"red in property ins"red if he is not he absol"te owner thereof%f( The ris.s ins"red against- and %g( The period d"ring which the ins"rance is to contin"e * The Ins"rance Code does not re+"ire a partic"lar for, for the !alidity of the contract. 5owe!er the policy ,"st contain the en",eration in Art. <1 %see abo!e( * The policy is different fro, the contract
itself. * ;olicy / written instr",ent e,bodying the ter,s and stip"lations of a contract of ins"rance. Not essential to the !alidity of the contract as long as all the essential ele,ents for the e#istence of contract are present. %Consent ob1ect consideration co,petent parties( * Other stip"lations not re+"ired by law ,ay be incl"ded as long as they are not prohibited or inconsistent with the law. * Bissing pro!isions re+"ired does not !oid policy. Bissing pro!isions will be read into the policy and will s"bstit"te those w2c are in conflict w2 the law. * 3tip"lations not in the e#act ter,s of the stat"te if ,ore fa!orable to the ins"red will be enforced. * 3IR %on oral contracts() In so,e 1"risdictions of the U3 oral contract is !alid pro!ided that all the ter,s are agreed "pon. In o"r Ins"rance Code altho"gh written for, not re+"ired for !alidity so,e pro!isions say that a ;RINTAD ;OLICK is best e!idence of contract. 3C has not r"led categorically on this ,atter. * The following are re+"ired to appear in ins"rance policies) a The policy which ,"st be in printed for,
%e#cept gro"p ins"rance policies which ,ay be typewritten( ,ay contain blan. spaces- any word phrase cla"se ,ar. sign sy,bol signat"re n",ber or word necessary to co,plete the contract of ins"rance shall be written on the blan. spaces pro!ided. a Any rider cla"se warranty or endorse,ent ,ay only be dee,ed part of the ins"rance policy if after ha!ing been attached to the policy itself its descripti!e title or na,e is also 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1=' of 6<1 IN3URANCA CODA COBBARCIAL LA9 ,entioned and written in the blan. spaces in the policy. a Re+"ired cla"ses in the policy) * The parties between who, the contract is ,ade* The a,o"nt to be ins"red e#cept in the cases of open or r"nning policies* The pre,i", or if the ins"rance is of a character where the e#act pre,i", is only deter,inable "pon the ter,ination of the contract a state,ent of the basis and rates "pon which the final pre,i", is to be deter,ined* The property or life ins"red-
* The interest of the ins"red in property ins"red if he is not the absol"te owner thereof* The ris.s ins"red against- and * The period d"ring which the ins"rance is to contin"e. a A#press warranties ,"st also be contained in the policy or in another instr",ent signed by the ins"red and referred to in the policy as ,a.ing a part of it. i. Riders cla"ses endorse,ents * If parties wish to incl"de special stip"lations ,ay attach riders endorse,ents warranties. * Rider 7 a printed or typed stip"lation contained on a slip of paper attached to the policy and for,ing an integral part of the policy. * To be binding) /B"st be attached2pasted to the policy / Descripti!e title or na,e of the rider cla"se warranty or endorse,ent is ,entioned and written on the blan. spaces pro!ided in the policy. * Co"ntersignat"re by ins"red 8eneral R"le) Not necessary if rider attached to the policy when iss"ed. A#ception) Necessary when added A0TAR policy is iss"ed. RAA3ON) To pre!ent an ins"rer fro, adding or inserting pro!isions w2o the
consent of the ins"red. * In case of conflict between rider and printed stip"lation the rider pre!ails as being a ,ore deliberate e#pression of the agree,ent of the contracting parties. * 9arranty 7 inserted or attached to a policy to eli,inate specific potential increases of ha$ard d"ring the policy ter, owing to) 1( actions of the ins"red or '( condition of the property. * Cla"se 7 an agree,ent between the ins"rer and the ins"red on certain ,atters relating to the liability of the ins"rer in case of loss. * Andorse,ent 7 any pro!ision added to an ins"rance contract altering its scope or application. A#. Andorse,ents e#tending the perils co!ered. Bost ti,es they are ,erely typewritten additions to the contract changing its a,o"nt rate or ter,. ii. Co!er Notes or binding receipts 3ec <'. Co!er notes ,ay be iss"ed to bind ins"rance te,porarily pending the iss"ance of the policy. 9ithin si#ty days after iss"e of a co!er note a policy shall be iss"ed in lie" thereof incl"ding within its ter,s the identical ins"rance bo"nd "nder the co!er note and the pre,i", therefore. Co!er notes ,ay be e#tended or renewed beyond s"ch si#ty days with the written appro!al of
the Co,,issioner if he deter,ines that s"ch e#tension is not contrary to and is not for the p"rpose of !iolating any pro!isions of this Code. The Co,,issioner ,ay pro,"lgate r"les and reg"lations go!erning s"ch !iolation and ,ay be s"ch r"les and reg"lations dispense with the re+"ire,ent of written appro!al by hi, in the case of e#tension in co,pliance with s"ch r"les and reg"lations %n( * Co!er notes2Hinders 7 a written ,e,orand", of the ,ost i,portant ite,s of a preli,inary ocntract intended to gi!e te,porary protection %to ins"red( pending the in!estigation of the ris. by the ins"rer or "ntil the iss"e of the for,al policy pro!ided it is later deter,ined that the applicant was ins"rable at the ti,e it was gi!en. * It is a binding contract and has f"ll force and effect d"ring its d"ration. * Ins"rer not obliged to gi!e co!er notes b"t ,any do so in order to gain goodwill. * Us"ally contain only the bare essentials of an ins"rance contract) i.e. the na,e of the parties ris. ins"red against a,o"nt of ins"rance pre,i", property2life ins"red. * Iss"ance of co!er notes is ordinarily a concl"si!e e!idence of ,a.ing a contract * The iss"ance and effecti!ity of co!er notes are go!erned by the following r"les) 1( Bay be iss"ed te,porarily pending
iss"ance of policy '( Dee,ed a contract of ins"rance within ,eaning of &1:1@ 6( No co!er note ,ay be iss"ed or renewed "nless in the Code4s pre!io"sly prescribed for, =( Co!er notes are !alid and binding for a period not o!er ?F days fro, date of iss"ance whether or not pre,i", therefor has been paid b"t it ,ay only be cancelled by either party "pon at least D days notice to other party <( If it is not cancelled policy shall within ?F days after iss"ance of co!er note be iss"ed in lie" thereof. ;olicy will incl"de within its ter,s the identical ins"rance bond "nder the co!er note and the pre,i", therefor ?( Co!er note ,ay be e#tended or renewed beyond the ?F/day period with the written appro!al of the Ins"rance Co,,ission pro!ided that the written appro!al ,ay be dispensed with "pon the certificate of the ;res I; or general ,anager of the co,pany that the ris.s in!ol!ed the !al"es of s"ch ris.s and2or pre,i",s therefor ha!e not as yet been deter,ined or established and that s"ch e#tension or renewal is not contrary to and is not for the p"rpose of !iolating
any pro!isions of the Ins"rance Code or of any of the r"lings instr"ctions circ"lars 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1=6 of 6<1 IN3URANCA CODA COBBARCIAL LA9 orders or decisions of the Ins"rance Co,,issioner D( Co,panies ,ay i,pose on co!er notes a deposit pre,i", e+"i!alent to at least '<G of the esti,ated pre,i", of the intended ins"rance co!erage b"t ne!er less than <FF pesos. iii. Open and Ial"ed ;olicies %non/life( 3ec <>. A policy is either open !al"ed or r"nning. 3ec ?F. An open policy is one in which the !al"e of the thing ins"red is not agreed "pon b"t is left to be ascertained in case of loss. 3ec ?1. A !al"ed policy is one which e#presses on its face an agree,ent that the thing ins"red shall be !al"ed at a specified s",. 3ec. ?'. A r"nning policy is one which conte,plates s"ccessi!e ins"rances and which pro!ides that the ob1ect of the policy ,ay be fro, ti,e to ti,e defined especially as to the s"b1ects of ins"rance by additional state,ents or indorse,ents. E.<. Rinds of ins"rance policies) * Open or Un!al"ed ;olicy / One in which a certain agree s", is written on the face of the policy not as the !al"e of the property ins"red b"t as the ,a#i,", li,it of the
ins"rer4s liability %i.e. face !al"e( in case of destr"ction by the peril ins"red against. / Ins"rer only pays the act"al cash !al"e of the property as deter,ined at the ti,e of loss. * Ial"ed ;olicy / One in which the parties e#pressly agree on the !al"e of the s"b1ect ,atter of the ins"rance. /Two !al"es) 1( 0ace !al"e of the policy w2c is the ,a# a,t ins"rer pays in case of loss '( Ial"e of the thing ins"red / In the absence of fra"d or ,ista.e the agreed !al"e of the thing ins"red will be paid in case of total loss of the property "nless the ins"rance is for a lower a,o"nt / In case of loss parties ,ay clai, that !al"e of ins"red property is ,ore or less than agreed "pon. / The liability of the ins"rer in a life policy is ,eas"red by the face !al"e of the policy %beca"se the !al"e of a h",an life cannot be ,eas"red in act"al ,onetary ter,s(. * R"nning ;olicy / Intended to pro!ide inde,nity for property w2c cannot well be co!ered by a !al"ed policy beca"se of its fre+"ent change of location and +"antity or for property of s"ch a nat"re as not to ad,it of a gross !al"ation. Also denotes ins"rance o!er a class of property rather than any partic"lar thing. A#. Ins"rance o!er constantly changing stoc. of goods
/ In reality these are open policies. / Conte,plates s"ccessi!e ins"rances. / Ad!antages of a r"nning policy 1( Neither "nderins"red nor o!erins"red at any ti,e pre,i", being based on ,onthly !al"es reported'( A!oids cancellations otherwise necessary to .eep ins"rance ad1"sted to the thing4s !al"e at each location and for which cancellations the in"red wo"ld be charged the e#pensi!e short rate6( 3a!es tro"ble of watching the ins"rance and danger of being "nderins"red in spite of care thro"gh o!ersight or ,ista.e=( Rate is ad1"sted to 1FFG ins"rance whereas !al"ed policies re+"iring ins"rance only "p to say EFG of !al"e gi!e either a s,all if any red"ction for a,o"nts of ins"rance abo!e this fig"re. >. ;arties Assential Re+"isites for a person to be a party in an ins"rance contract) a B"st be COB;ATANT to enter %has capacity( a B"st possess IN3URAHLA INTARA3T a B"st NOT be a ;UHLIC ANABK16 >.1. Ins"rer 3ec. ?. A!ery person partnership association or corporation d"ly a"thori$ed to transact ins"rance
b"siness as elsewhere pro!ided in this Code ,ay be an ins"rer. %a( 3ec 1E= 0or p"rposes of this Code the ter, Lins"rerM or Lins"rance co,panyM shall incl"de all indi!id"als partnerships associations or corporations incl"ding go!ern,ent/owned or controlled corporations or entities engaged as principals in the ins"rance b"siness e#cepting ,"t"al benefit associations. Unless the conte#t otherwise re+"ires the ter, shall also incl"de professional reins"rers defined in 3ection 'EF. LDo,estic co,panyM shall incl"de co,panies for,ed organi$ed or e#isting "nder the laws of the ;hilippines. L0oreign co,panyM when "sed witho"t li,itation shall incl"de co,panies for,ed organi$ed or e#isting "nder any laws other than those in the ;hilippines. 3ec 1E< Corporations for,ed or organi$ed to sa!e any person or persons or other corporations har,less fro, loss da,age or liability arising fro, any "n.nown or f"t"re or contingent e!ent or to inde,nify or to co,pensate any person or persons or other corporations for any s"ch loss da,age or liability or to g"arantee the perfor,ance of or co,pliance with contract"al obligations or the pay,ent of debts or others shall be .nown as Lins"rance corporationsM The pro!isions of the Corporation Law %H; Hlg ?E( shall apply to all ins"rance corporations now or hereafter engaged in b"siness in the
;hilippines insofar as they do not conflict with the pro!isions of this Chapter. * Ins"rer 7 party who ass",es or accepts the ris. of loss and "nderta.es for a consideration to inde,nify the ins"red or to pay hi, a certain s", on the happening of a specified contingency or e!ent- This can be an 16 9ho is a p"blic ene,y and the prohibition was as.ed in 'FF'. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1== of 6<1 IN3URANCA CODA COBBARCIAL LA9 indi!id"al a corporation an association e!en the 3tate as long as it is a"thori$ed to engage in a b"siness of ins"rance. * 3",,ary of 1E= and 1E<) 1E=) 9hat ter, Lins"rerM incl"des 1E<) 9hat LIns"rance CorporationsM are reg"lated by the 3tate) To engage in the b"siness of ins"rance re+"ired to get certificate of a"thority fro, the Ins"rance Co,,issioner and ,"st possess s"fficient capital assets. %9ill not incl"de other re+"ire,ents ,edyo technical. 9e only need to .now defn of ins"rer and ins"rance corporations(- Han.ing instit"tions are not allowed to engage in ins"rance b"siness %8eneral Han.ing Act 1D6( >.'. Ins"red 3ec. D Anyone e#cept a p"blic ene,y ,"st be ins"red
3ec. <? 9hen the description of the ins"red in a policy is so general that it ,ay co,prehend any person or any class of persons only he who can show that it was intended to incl"de hi, can clai, the benefit "nder the policy. RA ?EF> / Lowered the age of ABANCI;ATION AND A8A O0 BAJORITK Art. '6=. A,ancipation ta.es place by the attain,ent of ,a1ority. Unless otherwise pro!ided ,a1ority co,,ences at the age of eighteen years. %as a,ended by RA ?EF>( Art. '6?. A,ancipation for any ca"se shall ter,inate parental a"thority o!er the person and property of the child who shall then be +"alified and responsible for all acts of ci!il life sa!e the e#ceptions established by e#isting laws in special cases. # # # %as a,ended by RA ?EF>( Art. 11F %0a,ily Code( The spo"ses retain the ownership possession ad,inistration and en1oy,ent of their e#cl"si!e properties. Aither spo"se ,ay d"ring the ,arriage transfer the ad,inistration of his or her e#cl"si!e property to the other by ,eans of a p"blic instr",ent which shall be recorded in the registry of property of the place the property is located. %16Da 1?Ea 1?>a( Art. 111 %0a,ily Code( A spo"se of age ,ay ,ortgage enc",ber alienate or otherwise dispose of his or her e#cl"si!e property witho"t the consent of the other spo"se and appear alone in
co"rt to litigate with regard to the sa,e. %n( Art. 16>F %Ci!il Code(. The following contracts are !oidable or ann"llable e!en tho"gh there ,ay ha!e been no da,age to the contracting parties) %1( Those where one of the parties is incapable of gi!ing consent to a contract%'( Those where the consent is !itiated by ,ista.e !iolence inti,idation "nd"e infl"ence or fra"d. These contracts are binding "nless they are ann"lled by a proper action in co"rt. They are s"sceptible of ratification. * Ins"red 7 the party in whose fa!or the contract is operati!e and who is inde,nified against or is to recei!e a certain s", "pon the happening of a specified contingency or e!ent. 5e is the person whose loss is the occasion for the pay,ent of the proceeds by the ins"rerH"t the proceeds need not go to hi, b"t the designated beneficiary or so,eone the ins"red assigns the proceeds to. * As in all other contracts only persons who ha!e the capacity to enter into a contract ,ay be ins"red. * ;olicy ,"st specify the parties between who, the contract is ,ade. %3ec. <1( * ;"blic ene,y 7 citi$en or s"b1ect of a nation at war with the ;hilippines. Does not incl"de robbers thie!es cri,inals. / a pri!ate corporation ,ay be dee,ed an ene,y corporation if controlled by ene,y
aliens. >.6. Heneficiaries 3ec 11 The ins"red shall ha!e the right to change the beneficiary he designated in the policy "nless he has e#pressly wai!ed this right in said policy. * Refers to the person who designated in a contract of life health or accident ins"rance as the one who is to recei!e the benefits which beco,e payable according to the ter,s of the contract "pon the death of the ins"red. * 9ords "sed in designating the beneficiaries of a life policy will not be gi!en their technical significance b"t will be constr"ed broadly. * Chosen e#cl"si!ely by ins"red who ,ay designate anyone %irrespecti!e of lac. of ins"rable interest( so long as s2he not dis+"alified by law. * ;roceeds of life ins"rance policy beco,e the e#cl"si!e property of the beneficiary "pon the death of the ins"red. * Cest"i +"e !ie / ;erson on whose life the policy was ta.en. / B"st be a ris. acceptable to the ins"rer * Rinds of beneficiaries 7 either ins"red hi,self or his personal representati!es or so,eone other than the ins"red. If others are recipients their relations to the ins"red ,ay be) a Ins"red hi,self 7 one who bo"ght the policy and paid the pre,i",s.
3"ch is an i,,ediate party to the contract and is "s"ally called the ass"red %creditor ins"res debtor4s life(. a Third person who paid a consideration / as when ins"red too. "p the policy for the benefit of the creditor or to sec"re so,e other obligation- or a Third person thro"gh ,ere bo"nty of ins"red 7 no consideration paid b"t ,ade beneficiary %,ay be the ins"red4s estate or a third party(. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1=< of 6<1 IN3URANCA CODA COBBARCIAL LA9 In the 'nd and 6rd cases beneficiary is not a party to the contract. In all 6 cases proceeds of a life ins"rance policy beco,e the e#cl"si!e property of the beneficiary "pon ins"red4s death. 3o if ins"red was 1"dicially insol!ent before he died proceeds to go to the beneficiary and not to the assignee in insol!ency. * R"les go!erning beneficiaries a 3election of the beneficiary ,"st be in good faith and witho"t intent to ,a.e the transaction a co!er for a forbidden wagering contract. 8eneral R"le) The ins"red ,ay change the designated beneficiary witho"t the consent of the latter and retain the right to recei!e the
cash !al"e of the policy to ta.e o"t loans against the cash !al"e to assign the policy or to s"rrender it witho"t the beneficiary4s consent. 5owe!er this right belongs only personally to the ins"red and cannot be e#ercised by his representati!es or assignees "pon his death. A#ception) If there has been an e#press wai!er of the right to change the beneficiary witho"t the latter4s consent the beneficiary ac+"ires an absol"te !ested interest to all benefits "nder the policy. A new beneficiary cannot be added to the original one2s beca"se s"ch wo"ld a,o"nt to the di,in"tion of the original benefits. The ins"red also loses the power to destroy the policy beca"se the beneficiary can pay the pre,i",s hi,self to ens"re the contin"ed effecti!ity of the contract. a DA LAON is inclined to belie!e that in case the beneficiary dies before the ins"red the proceeds shall go to the estate of the ins"red rather than to the estate of the beneficiary. 5e belie!es that the p"rpose of the ins"red in ta.ing o"t the policy is to pro!ide a f"nd for the benefit of those he is acc"sto,ed to s"pporting. 5e wo"ld not ha!e intended to e#tend s"ch pro!ision of f"nds to the heirs2 assignees of the beneficiary. a In designating the beneficiaries words
"sed will not be gi!en their technical significance b"t will be broadly constr"ed so that the benefit shall be recei!ed by those intended by the ins"red as the ob1ect of his bo"nty. a The interest of a beneficiary in a life ins"rance policy shall be forfeited when the beneficiary is the principal acco,plice or accessory in willf"lly bringing abo"t the death of the ins"red. In this case the nearest relati!e of the ins"red shall recei!e the proceeds of said ins"rance if not otherwise dis+"alified a The right to recei!e the proceeds of life ins"rance policies shall follow the order of intestate s"ccession in the Ci!il Code in defa"lt of any specific designation in the policy) a. Legiti,ate childrenb. 0ather and ,other if li!ingc. 8randfather and grand,other- or ascendants nearest in degree if li!ingd. Illegiti,ate childrene. 3"r!i!ing spo"se- and f. Collateral relati!es to wit) f.a. brothers and sisters of the f"ll bloodf.b. brothers and sisters of the halfbloodand f.c. nephews and nieces
g. In defa"lt of abo!e 3tate is entitled to recei!e the proceeds a 8eneral R"le) The person designated in the policy as the ins"red or the beneficiary shall be the only one entitled to reco!er the proceeds of the policy. A#ception) A third person ,ay reco!er fro, the policy as against the ins"red if there has been a prior contract of e#press or i,plied tr"st between the ins"red and the third person. A third person ,ay reco!er fro, the policy as against the ins"rer only if s"ch person has been specifically gi!en the right of reco!ery in the ins"rance policy. i. 3tat"tory Li,itations on life ins"rance Art. 'F1' %Ci!il Code( Any person who is forbidden fro, recei!ing any donation "nder Article D6> cannot be na,ed beneficiary of a life ins"rance policy by the person who cannot ,a.e any donation to hi, according to said article. %n( Art. D6> %Ci!il Code( The following donations shall be !oid) %1( Those ,ade between persons who were g"ilty of ad"ltery or conc"binage at the ti,e of the donation%'( Those ,ade between persons fo"nd g"ilty of the sa,e cri,inal offense in consideration thereof%6( Those ,ade to a p"blic officer or his wife descedants and ascendants by reason of his office.
In the case referred to in No. 1 the action for declaration of n"llity ,ay be bro"ght by the spo"se of the donor or donee- and the g"ilt of the donor and donee ,ay be pro!ed by preponderance of e!idence in the sa,e action. %n( * In the first case %ad"ltery2 conc"binage( no need of cri,inal con!iction to !oid policy. Ano"gh if there is a preponderance of e!idence. * In the second case howe!er the CC "ses the words Lfo"nd g"iltyM hence cri,inal con!iction necessary. * ;"blic Ane,ies also dis+"alified fro, being beneficiary. Ins"lar Life Ass"rance Co ! Abrado 0ACT3 Abrado too. o"t a life ins"rance policy and na,ed his co,,on/law partner Carponia his beneficiary. Upon his death his lawf"l wife also filed a clai, w2 Ins"lar Life as the widow. RTC dis+"alified Carponia fro, clai,ing benefits "nder the policy 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1=? of 6<1 IN3URANCA CODA COBBARCIAL LA9 I33UA) 9ON Carponia dis+"alified fro, clai,ing ins"rance proceeds beca"se of her illicit relation with the ins"red. 5ALD) KA3. %3C applied CC( 3ince the Ins"rance Code does not contain any specific pro!ision on r"les respecting who ,ay be na,ed beneficiary the CC will apply. Art 'F1' states that Lany person forbidden fro, recei!ing donations "nder
Art D6> cannot be na,ed beneficiary of a life ins"rance policyM Art. D6> declares !oid donations ,ade between persons who are g"ilty of ad"ltery or conc"binage at the ti,e of the donation. 5ence Carponia is dis+"alified fro, being na,ed a beneficiary. Ida. de Cons"egra ! 83I3 0ACT3) Jose Cons"egra contracted two ,arriages to Dia$ and Herdin. After his death the proceeds of his life ins"rance w2 the 83I3 went to Herdin. 5owe!er he was also entitled to retire,ent benefits to which he did not designate any beneficiary. I33UA) 9ON Herdin sho"ld be considered the sole beneficiary of the retire,ent benefits being the beneficiary of the life ins"rance policy 5ALD) NO. Life Ins"rance and retire,ent ins"rance are separate and distinct f"nds. Life Ins"rance is paid to whoe!er is na,ed the beneficiary and ,ay not necessarily be the heir of the ins"red. Retire,ent benefits on the other hand are pri,arily intended for the benefit of the ee 7 to pro!ide for his old age incapacity etc. If the ee reaches the age retire,ent he gets the benefits e!en to the e#cl"sion of the beneficiary na,ed in the policy. The beneficiary of the retire,ent ins"rance can only clai, the proceeds of the retire,ent ins"rance if the ee dies before retire,ent. I0 there is no beneficiary designated in the policy benefits will accr"e to the estate
hence Dia$ is also entitled to the retire,ent benefits. Del Ial ! Del Ial 0ACT3) ;laintiff and Defendant are siblings. ;rior to their father4s death he too. o"t a life ins"rance policy and ,ade the Def the sole beneficiary. I33UA) 9ON the ins"rance proceeds belong e#cl"si!ely to the DA0 who was the sole beneficiary 5ALD) KA3 The proceeds of an ins"rance policy belong e#cl"si!ely to the beneficiary and not to the estate of the person whose life was ins"red and that s"ch proceeds are the separate and indi!id"al property of the beneficiary. >.=. Other parties to an ins"rance contract c Assignee of the thing ins"red ///// 8eneral R"le) If the thing ins"red is assigned to another the policy is not dee,ed transferred with the thing. The policy is instead dee,ed s"spended "ntil the assignee also beco,es the owner of the policy. The assignor on the other hand cannot reco!er on the policy after the transfer since he has already lost ins"rable interest o!er the thing. A#ceptions) The general r"le on s"spension of policy is not applicable in the following cases) a. In life health and accident ins"rance %&'F( b. A change of interest in the thing ins"red after an in1"ry occ"rs res"lting in
a loss %&'1(c. A change of interest in one or ,ore of se!eral things separately ins"red by one policy %&''(d. A change of interest by will or s"ccession on the death of the ins"red %&'6(e. A transfer of interest by one of se!eral persons 1oint owners or owners in co,,on 1ointly ins"red to the others %&'=(f. 9hen a policy will in"re to the benefit of the one who ,ay beco,e the new owner of the interest ins"red d"ring the contin"ance of the ris. %&<D(and g. 9hen there is an e#press prohibition against alienation in the policy alienation will ca"se the contract to be a!oided not s"spended %Article 16F? &'= Ci!il Code( c Agent or tr"stee ///// If an agent or tr"stee ta.es o"t an ins"rance policy for the benefit of his principal or beneficiary he shall state that the latter is the real party in interest by designating hi,self as an agent or tr"stee in the ins"rance policy itself. 5e can also signify his designation by so,e other general words in the policy. Ialen$"ela !s CA %1>>F( The general r"le that the principal reser!es the
right to ter,inate the agent/principal relationship at its will ad,its of an e#ception) when the agency has been gi!en not only for the interests of the principal b"t of 6rd persons or for the ,"t"al interest of agent and principal. Also an ins"rance agent can4t be held liable for all "ncollected pre,i",s "nder his acco"nt beca"se the re,edy for non/pay,ent of pre,i",s is the ter,ination of any ins"rance policy. c ;artner or co/owner ///// Ins"rable interest in the property of a partnership e#ists in both the partnership and the partners and a partner has an ins"rable interest in the fir, property which will s"pport the policy ta.en o"t thereon for his own benefit. H"t a partner who ta.es o"t the policy in own na,e li,its the co!erage to his indi!id"al share "nless the ter,s clearly show the policy was ,eant to co!er all the shares. c Bortgagor2 ,ortgagee ///// 8eneral R"le) 9hen a ,ortgagor ta.es o"t an ins"rance policy on his own na,e b"t stip"lates that the proceeds shall be payable to the ,ortgagee or assigns the said policy to the ,ortgagee the ins"rance shall be dee,ed to be "pon the ins"rable interest of the ,ortgagor. Conse+"ently three r"les apply) %1( any act of the ,ortgagor prior to the loss which wo"ld otherwise a!oid the ins"rance shall ha!e the sa,e effect e!en if the property ins"red is in the hands of the
,ortgagee %'( any act which wo"ld ha!e to be perfor,ed by the ,ortgagor ,ay be perfor,ed by the ,ortgagee with the sa,e effect as if it were perfor,ed by the for,er %6( if an ins"rer assents to the transfer of an ins"rance fro, a ,ortgagor to a ,ortgagee and at the ti,e of his assent i,poses f"rther obligation on the assignee ,a.ing 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1=D of 6<1 IN3URANCA CODA COBBARCIAL LA9 a new contract with hi, the act of the ,ortgagor cannot affect the rights of said assignee. 3U;;LABANTARK RULA3) On the ins"rable interest of ,ortgagor and ,ortgagee) a. 3eparate ins"rable interests 7 each has his own ins"rable interest in the ,ortgaged property which is .ept separate fro, each other. The benefits of s"ch belongs to the ins"red alone and if the two ins"re the sa,e property or ta.e o"t a policy co!ering their respecti!e interests this is not do"ble ins"rance. b. A#tent of ins"rable interest of ,ortgagor 7 the owner/,ortgagor has an interest to the e#tent of the property4s !al"e e!en if the ,ortgage debt e+"als it since the loss or destr"ction of the ins"red property will not e#ting"ish his debt. c. A#tent of ins"rable interest of ,ortgagee 7 he or his assignee has an interest to the
e#tent of the debt sec"red the property "sed as sec"rity. 5is interest is pri,a facie the !al"e ,ortgaged only as to the a,o"nt owed not e#ceeding the !al"e of the property. d. A#tent of a,o"nt of reco!ery 7 Bortgagor) only "p to f"ll a,o"nt of lossBortgagee) "p to the a,o"nt of credit at the ti,e of the loss or the !al"e of the property. Ins"rance by ,ortgagee of his own interest a. Right in case of loss 7 the ,ortgagee is entitled to proceeds if loss happens before pay,ent of ,ortgage. b. 3"brogation of ins"rer to the right of the ,ortgagee 7 ,ortgagee4s clai, passes by s"brogation to the ins"rer to the e#tent of the ins"rance ,oney paid. c. Change of creditor 7 pay,ent of the ins"rance to the ,ortgagee d"e to loss does not e#ting"ish the principal obligation b"t only changes the creditor. The ,ortgagee can4t clai, both the ins"rance and the debt. Ins"rance ta.en o"t by ,ortgagor a. 0or his own benefit as owner 7 proceeds won4t go to the ,ortgagee who has no greater right than "nsec"red creditors. b. 0or the ,ortgagee4s benefit 7 loss is payable to the ,ortgagee %"s"al practice(
to the e#tent of the credit. Upon pay,ent of the proceeds to the e#tent of the credit the debt is e#ting"ished. The ,ortgagee can be ,ade the beneficial payee by) 1. Heco,ing the assignee of the policy with ins"rer4s consent'. Heco,ing the ,ere pledge witho"t s"ch consent6. A rider %&<F( ,a.ing the policy payable to the Bortgagee Las his interest ,ay appearM ,ay be attached=. A Lstandard ,ortgage cla"seM containing a collateral independent contract between the two parties ,ay be attached- or <. The policy tho"gh by its ter,s payable to the ,ortgagor ,ay ha!e been proc"red by a ,ortgagor "nder a contract d"ty to ins"re for the ,ortgagee4s benefit where the latter ac+"ires an e+"itable line "pon the proceeds. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1=E of 6<1 IN3URANCA CODA COBBARCIAL LA9 Chapter III IN3URAHLA INTARA3T1= 1. Definition and ;"rpose 3ec '1 A change on interest in a thing ins"red after the occ"rrence of an in1"ry which res"lts in a
loss does not affect the right of the ins"red to inde,nity for the loss. 3ec '< A!ery stip"lation in a policy of ins"rances for the pay,ent of loss whether the person ins"red has or has not any interest n the property ins"red or that the policy shall be recei!ed as proof of s"ch interest and e!ery policy e#ec"ted by way of gaining or wagering is !oid. Ins"rable interest 7 interest which the law re+"ires policy owner to ha!e in the person or thing ins"red. / A person is said to ha!e an ins"rable interest in the s"b1ect ,atter ins"red where he has a relation or connection with or concern in it that he will deri!e pec"niary benefit or ad!antage fro, its preser!ation and will s"ffer pec"niary loss or da,age fro, its destr"ction ter,ination or in1"ry by the happening of the e!ent ins"red against. * Assential ele,ent of an ins"rance contract. * Not legally possible to wai!e re+"ire,ent * Rationale for re+"iring ins"rable interest) a As deterrence to the ins"red 7 p"blic policy holds wager policies in!alid for being against p"blic interest and de,orali$ing in that) * The ins"red has an interest in the destr"ction rather than the preser!ation of a s"b1ect ,atter. * It te,pts or ind"ces the ins"red with nothing to lose and e!erything to gain
to bring abo"t the e!ent "pon the happening of which the policy beco,es payable. a As a ,eas"re of li,it of reco!ery 7 in contracts to pay inde,nity the ins"rable interest will be the ,eas"re of the "pper li,it of his pro!able loss "nder the contract. The policy sho"ld not pro!ide the ins"red with the ,eans of ,a.ing a net profit fro, the happening of the e!ent ins"red against. * Difference between life and non/life ins"rance %pertaining to interest() LI0A / basically a contract of INIA3TBANTcan only reco!er face a,o"nt of the policy NON/LI0A 7 based on principle of INDABNITK for e#act pec"niary !al"e- can only reco!er on the policy the !al"e of the act"al loss 1= This topic ca,e o"t in 'FF' 'FF1 'FFF 1>>D 1>>? 1>>= 1>E= 1>E6 1>E' 1>EF 1>D> and 1>DD. Note the difference between ins"rable interest in property !ers"s ins"rable interest in life ins"ranceins"rable interest in ban. deposits- and e#isting interest in property ins"rance. '. Ins"rable Interest in life2health 3ec 1F A!ery person has an ins"rable interest in the life and health) a( Of hi,self of his spo"se and of his childrenb( On any person on who, he
depends wholly or in part for ed"cation or s"pport or in who, he has a pec"niary interestc( Of any person "nder a legal obligation to hi, for the pay,ent of ,oney or respecting property or ser!ices of which death or illness ,ight delay or pre!ent the perfor,ance and d( Of any person "pon whose life any estate or interest !ested in hi, depends. * ;erson ,ay ta.e o"t ins"rance on own life or so,eone else4s life pro!ided ins"rable interest e#ists. * Cest"i +"e !ie ,"st consent. * 3ec. 1F pro!ides the test of presence of ins"rable interest. 3aid section does not re+"ire the consent of the person being ins"red for the policy to be effecti!e. The policy is !alid as long as the presence of ins"rable interest can be ade+"ately shown. '.1. In one4s own life2health 3ec 11 The ins"red shall ha!e the right to change the beneficiary he designated in the policy "nless he has e#pressly wai!ed this right in said policy. 3ec 1' The interest of a beneficiary in a life ins"rance policy shall be forfeited when the beneficiary is the principal acco,plice or accessory in willf"lly bringing abo"t the death of the ins"red in which e!ent the nearest relati!e of the ins"red shall recei!e the proceeds of said
ins"rance if not otherwise dis+"alified. Ins"red is the cest"i +"e !ie * As a r"le each has "nli,ited ins"rable interest in his own life whether the ins"rance is for the benefit of hi,self or another * In ins"ring one4s own life for another4s benefit ins"rable interest is only needed as e!idence of good faith of the parties- it is contrary to h",an e#perience that a person will ins"re his own life for the benefit of another for the p"rpose of spec"lation to ta.e his own life to sec"re pay,ent to another or designate as a beneficiary a person interested in the destr"ction not the contin"ance of the ins"red4s life. * The nearest relati!e of the ins"red shall recei!e the proceeds of said ins"rance if not otherwise dis+"alified * 8ANARAL RULA) Heneficiary is the choice of the ins"red regardless of 9oN beneficiary has an ins"rable interest in ins"red4s life Ass",ption) Ins"red wo"ld not designate as his beneficiary a person who, he wo"ld not tr"st with his own life * AOCA;TION3 a 9ai!er 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1=> of 6<1 IN3URANCA CODA COBBARCIAL LA9 a Irre!ocable beneficiary %right to proceed !ests(
'.'. In the life2health of others Art 1>< %0a,ily Code(. 3"b1ect to the pro!isions of the s"cceeding articles the following are obliged to s"pport each other to the whole e#tent set forth in the preceding article) %1( The spo"ses%'( Legiti,ate ascendants and descendants%6( ;arents and their legiti,ate children and the legiti,ate and illegiti,ate children of the latter%=( ;arents and their illegiti,ate children and the legiti,ate and illegiti,ate children of the latterand %<( Legiti,ate brothers and sisters whether of f"ll or half/blood %'>1a( Ins"red is not the cest"i +"e !ie b"t is the beneficiary * 9hen person na,es hi,self the beneficiary in a policy ta.en o"t on the life of another he ,"st ha!e ins"rable interest in the life of the other person %his interest ,"st show so,e pec"niary interest and it e#ists whene!er the relation between the ass"red and the ins"red whether by blood ,arriage or co,,ercial interco"rse( * Bere lo!e and affection NOT ins"rable interest CA3TUI QUA IIA) person "pon whose life ins"rance is ta.en o"t on * B"st agree to the ta.ing o"t of ins"rance * No law saying yo" don4t need his consent p"blic policy de,ands consent be obtained
* A#ception) ;arent ta.ing policy o"t on ,inor child * No a,o"nt of consent can ,a.e "p for lac. on s"rable interest * 9hen the owner of the policy ins"res the life of anotherCthe cest"i +"e !ieCand designates a third party as beneficiary both the owner and beneficiary ,"st ha!e an ins"rable interest in the life of the cest"i +"e !ie. If the ins"rable interest re+"ire,ent is satisfied a life policy is assignable regardless of whether the assignee has an ins"rable interest in the life of the cest"i +"e !ie. In o"r law ins"rable interest in another4s life ,"st be one of those ,entioned in &1F. Heing engaged with one another is not s"ch interest. CLO3A RALATIIA3 * 3po"se and children %,inor or not ,arried or "n,arried dependent or not( / Law pres",es nat"ral affection e#isting between spo"ses parents and children. Th"s Law recogni$es a parent4s ins"rable interest in child4s life b"t is silent as to whether or not a child has ins"rable interest in the parent4s life. / Child entitled to s"pport re+"ired by law whether or not he2she is financially independent * s"fficient to constit"te
pec"niary interest. * Other close relati!es %brothers and sisters( not e#pressly co!ered by law %b"t loo. at Art 1>< 0C( * Hlood relationship or relationship by affinity is IBBATARIAL when relati!e is so"rce of s"pport %where no legal obligation e#ists( / There is ins"rable interest both ways OT5AR RALATIIA3 and 3TRAN8AR3 * B"st pro!e that he has so,e pec"niary interest in the life of the cest"i +"e !ie otherwise policy is !oid * Bere relationship will not s"ffice * The re+"ire,ents of ins"rable interest cannot be circ",!ented by an agree,ent between the ins"red %cest"i +"e !ie( and a 6rd person who has no interest whereby the latter ha!ing ind"ced the ins"red to ta.e o"t a policy pro,ises to pay of pre,i",s if the policy is assigned to hi,. a The intention to ta.e o"t policy is clearly not to ins"re life b"t rather to circ",!ent the re+"ire,ent a Is different fro, ta.ing a policy o"t on self and then later assigning it to so,eone who has no ins"rable interest beca"se law allows policy to transfer whether or not there is ins"rable interest 3ec 1E1 A policy of ins"rance "pon life or health ,ay pass by transfer will or s"ccession to any
person whether he has an ins"rable interest or not and s"ch person ,ay reco!er "pon it whate!er the ins"red ,ight ha!e reco!ered. 3ec 1E' Notice to an ins"rer of a transfer or be+"est thereof is not necessary to preser!e the !alidity of a policy of ins"rance "pon life or health "nless thereby e#pressly re+"ired. * Ins"rable interest of assignee in life ins"rance not re+"ired / since it is not a contract of inde,nity. Life ins"rance is one of the best recogni$ed for,s of in!est,ent and self/co,pelled sa!ings. 3o far as reasonable safety per,its it is desirable to gi!e life policies the ordinary characteristics of property. To re+"ire ins"rable interest in assignee is to di,inish the in!est,ent !al"e of the contract to the owner. * No ins"rable interest is re+"ired where policy is proc"red by the person whose life is ins"red on his own initiati!e. 3ince anyone can be na,ed beneficiary an assign,ent wo"ld not be in!alidated by the lac. of ins"rable interest of the assignee. * Assign,ent is disting"ished fro, a change in the designated beneficiary. COBBARCIAL or CONTRACT RALATION3 * Creditor ,ay ta.e o"t ins"rance on life of his debtor a The e#tent of the creditor4s interest is only as to the a,o"nt of debt and cost of
carrying the ins"rance on debtor4s life. The total !al"e ,"st not ,a.e the policy a wagering or spec"lati!e one. This .ind of policy is not ta.en o"t for the benefit of the debtor. The debtor cannot clai, the proceeds beca"se the creditor does not act as an agent of the for,er. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1<F of 6<1 IN3URANCA CODA COBBARCIAL LA9 3ec 1E6 Unless the interest of a person ins"red is s"sceptible of e#act pec"niary ,eas"re,ent the ,eas"re of inde,nity "nder a policy of ins"rance "pon life or health is the s", fi#ed in the policy. * Debtor ,ay ins"re self and na,e creditor as beneficiary a Creditor is entitled to f"ll proceeds of policy 1"st as any other beneficiary when debtor dies e!en if his credit is ,"ch less. * Debtor assigns policy to creditor as collateral sec"rity a Creditor can only reco!er a,o"nt of his credit a Halance will go to designated beneficiary AB;LOKAR2HU3INA33 A33OCIATA * Bay ta.e o"t policy on life of b"siness partner a Interest e#ists death of partner res"lts in interr"ption of operations which can lead to financial losses. * 0ir, ,ay ta.e o"t policy on officers2e,ployees a 3er!ices are !al"able to the b"siness
a ;roceeds of policy not ta#able inco,e beca"se it ser!es as inde,nity to the e,ployee for the loss the b"siness s"ffers "pon the death of the !al"ed officer of e,ployee. '.6. Ti,e when it sho"ld e#ist 3ec 1> An interest in property ins"red ,"st e#ist when the ins"rance ta.es effect and when the loss occ"rs b"t need not e#ist in the ,eanti,e4 and interest in the life or health of a person ins"red ,"st e#ist when the ins"rance ta.es effect b"t need not e#ist thereafter or when the loss occ"rs. * 8eneral R"le) ins"rable interest ,"st e#ist only at inception a ;olicy not inde,nifying loss b"t rather gi!ing financial sec"rity to ins"red or to beneficiaries a Law gi!es ins"red the right to con!ert policy into cash by selling it to a 6rd person who doesn4t ha!e any ins"rable interest in his life. a ;olicy is an in!est,ent A#ceptions) %cases where interest of the ins"red is capable of e#act pec"niary benefit( a Creditor who ta.es ins"rance o"t on life of debtor to sec"re debt * Once debt has been paid ins"rable interest disappears * No liability to pay proceeds beca"se there is not longer anything to
inde,nify * If debt already been paid sho"ld be denied reco!ery on the policy * Debtor sho"ld ha!e the right to ta.e o!er the policy fro, creditor after the ter,ination of relationship pre!ent the pre,i", paid fro, going to waste. a Co,pany ta.es o"t ins"rance on life of e,ployee * A,ployee lea!es co,pany * ;olicy is to inde,nify e,ployee for losses "pon death of e,ployee not resigning * Co,pany cannot reco!er on life of e,ployee who has already left2resigned 7 there is nothing to inde,nify * Relationship slightly different beca"se no esact pec"niary !al"e dan be gi!en. HUT sa,e principle holds that the cannot reco!er. 6. Ins"rable Interest In property 6.1. Definition 3ec 16 A!ery interest in property whether real or personal or any relation thereto or liability in respect thereof of s"ch nat"re that a conte,plated peril ,ight directly da,nify the ins"red is an ins"rable interest. Contract of inde,nity / ,eas"re of ins"rable interest in property is the e#tent to which the ins"red ,ight be inde,nified by loss or in1"ry.
6.'. In what it ,ay consist of 3ec 1= An ins"rable interest in property ,ay consist in) a( an e#isting interestb( An inchoate interest fo"nded on an e#isting interest- or c( An e#pectancy co"pled with an e#isting interest in that o"t of which the e#pectancy arises 3ec 1? A ,ere contingent or e#pectant interest in anything not fo"nded on an act"al right to the thing nor "pon any !alid contract for it is not ins"rable. * Ins"rable interest dee,ed to e#ist as long as s"ch interest relation or liability is of s"ch nat"re that a conte,plated part ,ight directly da,nifty the ins"red * A!en witho"t legal or e+"itable title as long as it can be shown that the ins"red will be benefited by property4s contin"ed e#istence or will s"ffer pec"niary loss by its destr"ction. * 0ORB3 OR IN3URAHLA INTARA3T a INTARA3T in the property itself whether s"ch property be real or personal e#. Ownership of or a lien on property a any RALATION to s"ch property e#. interest of a co,,ission agent on goods he is selling a LIAHILITK in respect thereof
e#. interest of carrier on cargo which he o"ght to carry safely to destination * NATURA O0 IN3URAHLA INTARA3T a An e#isting interest * ,ay arise fro, legal title %e#. ,ortgagor of the property ,ortgagedlessor of the property leased- assignee of property for the benefit of creditors etc.(- clearly definably based on so,e legal title * ,ay also be fro, e+"itable title %e#. ;"rchaser of property before deli!eryb"ilders in the b"ilding "nder constr"ction or "pon co,pletion of b"ilding( a An inchoate interest fo"nded on an e#isting interest 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1<1 of 6<1 IN3URANCA CODA COBBARCIAL LA9 * ,"st be fo"nded on an e#isting contract b"t not yet clearly defined or identified %A#. A stoc.holder has an inchoate interest in the property of the corporation w2c is fo"nded on an e#isting interest arising fro, his ownership shares( * A partner has an ins"rable interest in the fir,4s property which will s"pport a separate policy for his benefit a An e#pectancy co"pled with an e#isting
interest in that o"t of which the e#pectancy arises * s"ch ,"st be co"pled with an e#isting interest in that o"r of which s"ch e#pectancy arises. %A#. 0ar,er ins"ring f"t"re crops if it be grown on land owned by hi, at the ti,e of the iss"ance of the policy( 6.6. Beas"re of interest in property 3ec 1< A carrier or depository of any .ind has an ins"rable interest in a thing held by hi, as s"ch to the e#tent of his liability b"t not to e#ceed the !al"e thereof. 3ec 1D A ,ere contingent or e#pectant interest in anything not fo"nded on an act"al right to the thing not "pon any !alid contract for it is not ins"rable. Other Interests * 3TOCR5OLDAR2;ARTNAR to 0IRB / 5as s"fficient interest in property of corporation / Interest does not rise to the dignity of a title yet he stands in s"ch a relation to s"ch corporate property to !est hi, with an inchoate right to di!idends in case of profits and to share in the assets "pon li+"idation / Interest not ,eas"red by !al"e of what is destroyed / Interest is to share in the distrib"tion
of the proceeds only after pay,ent of corporation4s debts / B"st pro!e act"al in1"ry otherwise cannot reco!er ,ore than no,inal da,ages * 8ANARAL CRADITOR * No ins"rable interest in the property of the debtor * No right to posses no lien no relation that wo"ld ca"se hi, direct da,age * Cannot ta.e o"t policy on debtor4s property * Cannot reco!er as appointee or beneficiary on policy ta.en o"t by debtor * JUD8ABANT CRADITOR * 3"fficient interest in debtor4s property beca"se gi!en right to le!y %general lien( * In order to reco!er ,"st show debtor has no other property with which to satisfy debt * Bay ins"re debtor4s property d"e to pec"niary interest * BORT8A8A CRADITOR * 5as ins"rable interest %general lien( * Direct pre1"dice if there is loss * Recogni$ed by ins"rance Code %3ACE( 6.=. 9hen it sho"ld e#ist 3ec 1> An interest in property ins"red ,"st e#ist
when the ins"rance ta.es effect and when the loss occ"rs b"t need not e#ist in the ,eanti,e- and interest in the life or health of a person ins"red ,"st e#ist when the ins"rance ta.es effect b"t need not e#ist thereafter or when the loss occ"rs. 8eneral R"le) Interest ,"st e#ist at inception and at ti,e of loss b"t not in the ,eanti,e * ;RO;ARTK ,"st e#ist when the ins"rance ta.es effect and when the loss occ"rs b"t not e#ist in the ,eanti,e. * Nat"re of contract as inde,nity * Bere transfer of thing does not carry transfer of policy * Doesn4t own it any,ore cannot reco!er * New owner not a party to contract cannot reco!er * Can reco!er if !alid assign,ent to b"yer ,ade notation of contract * Transfer s"spends the contract "ntil sa,e person owns thing and policy A#ception) * %'1( A C5AN8A IN INTARA3T IN A T5IN8 IN3URAD. After occ"rrence of an in1"ry which res"lts in a loss does not affect the right of the ins"red to inde,nify for the loss * ins"red of the policy after fire ,ay sell re,ains of property witho"t pre1"dicing his right to reco!ery * %''( A change of interest IN ONA OR BORA 3AIARAL DI3TINCT T5IN83 3A;ARATALK
IN3URAD by one policy does not a!oid the ins"rance as to the others. * 3ingle fire policy co!ers se!eral pieces of f"rnit"re and appliances ins"rance !al"e of each on indicated sale of one ite, will not pre!ent ins"red fro, reco!ering on ite,s he did not sell * %'6( A change on interest by 9ILL or 3UCA33ION on the death of the ins"red does not a!oid an ins"rance and his interest in the ins"rance passes to the person ta.ing his interest in the thing ins"red * 0ire ins"rance on b"ilding owned by father father dies son inherits b"ilding and the fire ins"rance * %'=( A transfer of interest by one of 3AIARAL ;ARTNAR3 JOINT O9NAR3 or O9NAR3 IN COBBON 95O ARA JOINTLK IN3URAD to the others does not a!oid an ins"rance e!en tho"gh it has been agreed that the ins"rance shall cease "pon an alienation of the thing ins"red * Ac+"iring co/owner has the sa,e interest interest ,erely increases "pon ac+"iring other co/owners interest * Altho"gh there ,ay be a stip"lation that ins"rance ceases "pon alienation * Law allows policy to be fra,ed in s"ch a way that it will in"re to the benefit of who,e!er d"ring the contin"ance of the ris. ,ay beco,e owner of the interest
ins"red. * 3ale of property will not s"spend the policy or render it ineffecti!e. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1<' of 6<1 IN3URANCA CODA COBBARCIAL LA9 6.<. 3pecial ;ro!isions on ,ortgagor and ,ortgagee 3ec E Unless the policy otherwise pro!ides where a ,ortgagor of property effects ins"rance in his own na,e pro!iding that the loss shall be payable to the ,ortgagee or assigns a policy of ins"rance to a ,ortgagee the ins"rance is dee,ed to be "pon the interest of the ,ortgagor who does not cease to be a party to the original contract and any of his prior to the loss which wo"ld otherwise a!oid the ins"rance will ha!e the sa,e effect altho"gh the property is in the hands of the ,ortgagee b"t any act which "nder the contract of ins"rance is to be perfor,ed by the ,ortgagor ,ay be perfor,ed by the ,ortgagee therein na,ed with the sa,e effect as it had bee perfor,ed by the ,ortgagee. 3ec > If an ins"rer assents to the transfer of an ins"rance fro, a ,ortgagor to a ,ortgagee and at the ti,e of this assent i,poses f"rther obligations on the assignee ,a.ing a new contract with hi, the acts of the ,ortgagor cannot affect the rights of said assignee. * 3ee part II/C * LOpen ,ortgage cla"seM and L"nion
,ortgageM a( Open Bortgage %3ec E( 7 ,ortgage that can be paid/off to ,at"rity w2o penalty- ,ortgagee is the beneficiary for ins"rance ta.en by ,ortgagor * Lenders generally do not li.e open ,ortgages beca"se the early pay/off red"ces the interest they earn * Acts of ,ortgagor in!alidates the ins"rance b( Union Bortgage 7 standard ,ortgage cla"se * Bortgagee ,ay perfor, the acts of ,ortgagor * Cla"se incl"ded wherein the ins"rance interest of ,ortgagee shall not be in!alidated by any act of the ,ortgagor or owner of property at the ti,e. * ;rotects ,ortgagee4s interest fro, in!alidation d"e to ,ortgagor4s acts 6.?. Change of interest- instances of a"to,atic transfer of interest 3ec '1 A change on interest in a thing ins"red after the occ"rrence of an in1"ry which res"lts in a loss does not affect the right of the ins"red to inde,nity for the loss. 3ec '' A change of interest in one or ,ore of se!eral distinct things separately ins"red by one policy does not affect the right of the ins"red to inde,nity for the loss. 3ec '6 A change of interest by will or s"ccession on the death of the ins"red does not a!oid an ins"rance- and his interest in the ins"rance passes
to the person ta.ing his interest in the thing ins"red. 3ec '= A transfer of interest by one of se!eral partners 1oint owners or owners in co,,on who are 1ointly ins"red to the others does not a!oid an ins"rance e!en tho"gh it has been agreed that the ins"rance shall cease "pon an alienation of the thing ins"red. 3ec <6 The ins"rance proceeds shall be applied e#cl"si!ely to the proper interest of the person in whose na,e or for whose benefit it is ,ade "nless otherwise specified in the policy. 3ec <D A policy ,ay be so fra,ed that it will ins"re to the benefit of who,e!er d"ring the contin"ance of the ris. ,ay beco,e the owner of the interest ins"red. * 8eneral R"le) If the thing ins"red is assigned to another the policy is not dee,ed transferred with the thing. The policy is instead dee,ed s"spended "ntil the assignee also beco,es the owner of the policy. The assignor on the other hand cannot reco!er on the policy after the transfer since he has already lost ins"rable interest o!er the thing. 9hen there has been a change of interest in a property ins"red collecti!ely with others in one policy and paid for with a gross pre,i", the policy is s"spended. If howe!er the change of interest affects only one property
ins"red together with others "nder a di!isible contract of ins"rance the s"spension ta.es effect only with regard to the property affected. A#ceptions) The general r"le on s"spension of policy is not applicable in the following cases) 3ecs. 'F to '= <D Art 16F? &'= Ci!il Code 6.D. 3e!eral interests- do"ble ins"rance %cf. o!er ins"rance( 3ec >6 A do"ble ins"rance e#ists where the sa,e person is ins"red by se!eral ins"rers separately in respect in the sa,e s"b1ect and interest. * ;rohibition against additional ins"rance 7 9hen a policy contains a prohibition against additional ins"rance on the property ins"red witho"t the ins"rer4s consent s"ch pro!ision being !alid and reasonable a !iolation thereof by the ins"red a!oids the policy. %3ta. Ana !s. Co,,ercial Union Ass"rance Co. << ;hil 6'>(. 3ec >= 9here this ins"red is o!er ins"red by do"ble ins"rance) %a( The ins"red "nless the policy otherwise pro!ides ,ay clai, pay,ent fro, the ins"rers in s"ch order as he ,ay select "p to the a,o"nt for which the ins"rers are se!erally liable "nder their respecti!e contracts%b( 9here the policy "nder which the ins"red clai,s is a !al"ed is a !al"ed policy the ins"red ,"st gi!e credit as against the
!al"ation for any s", recei!ed by hi, "nder any other policy witho"t regard to the act"al !al"e of the s"b1ect ,atter ins"red. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1<6 of 6<1 IN3URANCA CODA COBBARCIAL LA9 %c( 9here the policy "nder which the ins"red clai,s is an "n!al"ed policy he ,"st gi!e credit as against the f"ll ins"rable !al"e for any s", recei!ed by hi, "nder any other policy. %d( 9here the ins"red recei!es any s", in e#cess of the !al"ation in the case of !al"ed policies and the ins"rable !al"e in the case of "n!al"ed policies and the ins"rable !al"e in the case of "n!al"ed policies he ,"st hold s"ch s", in tr"st for the ins"rers according to their right of contrib"tion a,ong the,sel!es. %e( Aach ins"rer is bo"nd as between hi,self and the other ins"rers to contrib"te ratably to the loss in proportion to the a,o"nt for which he is liable "nder the contract. * DOUHLA IN3URANCA 7 when one gets se!eral policies to co!er against the sa,e danger2peril / e#ists where the sa,e person is ins"red by se!eral ins"rers separately in respect to the sa,e s"b1ect and interest/ ,ay reco!er fro, ins"rer ins"rer who pays ,ay collect fro, other ins"rers / a co/ins"rance by two or ,ore ins"rers. LDo"ble ins"rance M Ladditional ins"ranceM and Lother ins"ranceM are so,eti,es "sed
interchangeably altho"gh there is a technical difference in their ,eaning. / Re+"isites of do"ble ins"rance 1. 3a,e person ins"red '. Two or ,ore ins"rers ins"ring separately 6. 3a,e s"b1ect ,atter =. 3a,e interest ins"red <. 3a,e Ris. or peril ins"red * OIAR IN3URANCA 7 when a,o"nt ins"red is o!er the !al"e of the property the ins"red is o!er ins"red by do"ble ins"rance * The ins"red ,ay clai, pay,ent fro, the ins"rers in s"ch order as he ,ay select "p to the a,o"nt for which the ins"rers are se!erally liable "nder their respecti!e contracts. * Ial"ed policy 7 the ins"red ,"st gi!e credit as against the !al"ation for any s", recei!ed by hi, "nder any other policy witho"t regard to the act"al !al"e of the s"b1ect ,atter ins"red. * Un!al"ed policy 7 he ,"st gi!e credit as against the f"ll ins"rable !al"e for any s", recei!ed by hi, "nder any policy * Ins"red recei!es any s", in e#cess 7 he ,"st hold s"ch s", in tr"st for the ins"rers according to their right of contrib"tion a,ong the,sel!es. * Aach ins"rer is bo"nd as between
hi,self and the other ins"rers to contrib"te RATAHLK to the loss in proportion to the a,o"nt for which he is liable "nder the contract. * Cannot get abo!e !al"e of property ,in"s that of proceeds fro, other policies * Cannot be ,ore than loss beca"se that wo"ld be wagering Do"ble ins"rance O!er/ins"rance A,o"nt of the ins"rance is beyond the !al"e of the ins"red4s ins"rable interest There ,ay be no o!er/ins"rance as when the s", total of the a,o"nts of the policies iss"ed does not e#ceed the ins"rable interest of the ins"red. There ,ay be only one ins"rer in!ol!ed There are always se!eral ins"rers
1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1<= of 6<1 IN3URANCA CODA COBBARCIAL LA9 Chapter II CONCAALBANT BI3RA;RA3ANTATION U HRAAC5 O0 9ARRANTIA31< A contract of ins"rance is) UHARRIBAA 0IDAA / A contract of "t,ost good faith 1. ;RIBARK CONCARN3 O0 ;ARTIA3 TO AN IN3URANCA CONTRACT The following are affected by an act of conceal,ent 1. Correct esti,ation of the ris. which enables the ins"rer to decide whether he is willing to ass",e it and if so at what rate of pre,i", '. The precise deli,itation of the ris. which deter,ines the e#tent of the contingent d"ty to pay "nderta.en by the ins"rer 6. Control of the ris. after it is ass",ed as will enable the ins"rer to g"ard against the increase of the ris. beca"se of change in conditions =. Deter,ining whether a lost occ"rred and if so the a,o"nt of s"ch loss. '. DAIICA3 0OR A3CARTAININ8 AND CONTROLLIN8 RI3R AND LO33 '.1. CONCAALBANT U RA;RA3ANTATION De!eloped for the p"rpose of enabling the ins"rer to sec"re the sa,e infor,ation with
respect to the ris. that was possessed by the applicant for ins"rance so that he ,ay be e+"ally capable of for,ing a 1"st esti,ate of its +"ality. '.'. A00IRBATIIA 9ARRANTIA3 U CONDITION3 Deals with conditions e#isting at the inception of the contract and operates to ,a.e ,ore definite and certain the general words "sed to describe the ris. the ins"rer "ndertoo. to bear. It in!ol!e facts the e#istence of which shows the ris. to be greater than that intended to be ass",ed and operates to create in the ins"rer the power to e#ting"ish if he so desires the legal relations already created. A#.. 9here an ins"red is re+"ired to warrant so,ething and when fo"nd g"ilty of conceal,ent or ,isrepresentation operates to !oid the contract. '.6. AOCA;TION3 Ba.es ,ore definite the co!erage indicated by the general description of the ris. by e#cl"ding certain specified ris.s that otherwise co"ld ha!e been incl"ded "nder the general lang"age describing the ris. ass",ed. '.=. AOACUTORK 9ARRANTIA3 U CONDITION3
1< The effects of conceal,ent was as.ed in 1>>D 1>>6 1>E> 1>ED 1>E6 1>EF 1>D> 1>DD 1>D? and 1>D<. Are "sed to enable the ins"rer to rescind the contract in case s"bse+"ent e!ents increased the ris. to s"ch an e#tent that he is no longer willing to bear. That is "nderta.ings that certain conditions sho"ld or sho"ld not e#ist in the f"t"re. '.<. CONDITION3 ;RACADANT Used by the ins"rer to protect hi,self against fra"d"lent clai,s of loss- these are conditions re+"iring i,,ediate notice of loss or in1"ry and detailed proofs of loss within a li,ited period. 6. CONCAALBANT 6.1. Definition 3ec. '?. A neglect to co,,"nicate that which a party .nows and o"ght to co,,"nicate is called a conceal,ent. 6.'. Re+"isites of conceal,ent) 1. A party .nows the fact which he neglects to co,,"nicate or disclose to the other '. the fact concealed is ,aterial to the ris. 6. s"ch party is d"ty bo"nd to disclose s"ch fact to the other =. the other party has not the ,eans of ascertaining the fact concealed <. s"ch party ,a.es no warranty of the
fact concealed. %If a warranty is ,ade of the fact concealed the non/disclos"re of s"ch fact is not conceal,ent b"t constit"tes a !iolation of the warranty( 3ec. 'D. A conceal,ent whether intentional or "nintentional entitles the in1"red party to rescind a contract of ins"rance. %As a,ended by H; Hlg. ED=( * The effect of conceal,ent on the part of the ins"red ,a.es the contract IOIDAHLA at the ins"rer4s option * Ins"rer NAAD NOT ;ROIA 0RAUD in order to rescind a contract on the gro"nds of conceal,ent. * The d"ty of co,,"nication is independent of the intention and is !iolated by the ,ere fact of conceal,ent e!en when there is no design to decei!e. * 3ection 'D ,"st be read in relation to 3ection '>. 3ec. 'E Aach party to a contract of ins"rance ,"st co,,"nicate to the other in good faith all facts within his .nowledge which are ,aterial to the contract and which the other has not the ,eans of ascertaining and as to which he ,a.es no warranty 6.6. Batters that B"st He Co,,"nicated A!en in the Absence of In+"iry) 1. Batters ,aterial to the contract
'. Batters which the other has not the ,eans of ascertaining the said facts 6. Batters as to which the party with the d"ty to co,,"nicate ,a.es no warranty. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1<< of 6<1 IN3URANCA CODA COBBARCIAL LA9 TA3T) If the applicant is aware of the e#istence of so,e circ",stance which he .nows wo"ld infl"ence the ins"rer in acting "pon his application good faith re+"ires hi, to disclose that circ",stance tho"gh "nas.ed. 6.=. 0ra"d"lent Intent 3ec. '>. An intentional and fra"d"lent o,ission on the part of one ins"red to co,,"nicate infor,ation of ,atters pro!ing or tending to pro!e the falsity of a warranty entitles the ins"red to rescind. 9hen 0ra"d"lent Intent Necessary) * Under section '> conceal,ent relates to the falsity of a warranty. * 0or the section to operate it is necessary that the nondisclos"re be intentional and fra"d"lent before the contract ,ay be rescinded. * The conceal,ent refers to ,atters pro!ing or tending to pro!e the falsity of the warranty. 6.<. BATTAR3 95IC5 NAAD NOT HA DI3CLO3AD 3ec. 6F. Neither party to a contract of ins"rance
is bo"nd to co,,"nicate infor,ation of the ,attes following e#cept in answer to the in+"iries of the others) %a( Those which the other .nows%b( Those which in the e#ercise of ordinary care the other o"ght to .now and of which the for,er has no reason to s"ppose hi, ignorant%c( Those of which the other wai!es co,,"nication%d( Those which pro!e or tend to pro!e the e#istence of a ris. e#cl"ded by a warranty and which are not otherwise ,aterial- and %e( Those which relate to a ris. e#cepted fro, the policy and which are not otherwise ,aterial. 3ec. 6'. Aach party to a contract of ins"rance is bo"nd to .now all the general ca"ses which are open to his in+"iry e+"ally with that of the other and which ,ay affect the political or ,aterial perils conte,plated- and all general "sages of trade. 3ec. 66. The right to infor,ation of ,aterial facts ,ay be wai!ed either by the ter,s of ins"rance or by neglect to ,a.e in+"iries as to s"ch facts where they are distinctly i,plied in other facts of which infor,ation is co,,"nicated. 3ec. 6=. Infor,ation of the nat"re or a,o"nt of the interest of one ins"red need not be co,,"nicated "nless in answer to an in+"iry
e#cept as prescribed by section <1. 3ec. 6<. Neither party to a contract of ins"rance is bo"nd to co,,"nicate e!en "pon in+"iry infor,ation of his own 1"dg,ent "pon the ,atters in +"estion. * 3ections 6F 6' 7 6< pertains to ,atters which need not be disclosed * A#ception fo"nd in 3ec. 6F last phrase of first sentence) Le#cept in answer to the in+"iries of the otherM Batters 9hich Need Not He Disclosed) 1. Battes already .nown to the ins"rer '. Batters of which the ins"rer wai!es co,,"nication 7 he is in estoppel. 6. Batters that concern only ris.s e#cepted either e#pressly or by warranty fro, the liability ass",ed "nder the policy. WWI,portant Note) The "ndisclosed fact ,"st NOT HA BATARIAL otherwise the ins"red is still bo"nd to ,a.e disclos"re. =. Infor,ation of the nat"re or a,o"nt of the interest of one ins"red e#cept if in+"ired "pon by the ins"rer. <. Batters each party are bo"nd to .now s"ch as p"blic e!ents general infor,ation etc. ?. The right to infor,ation of ,aterial fact ,ay be wai!ed either e#pressly by the ter,s of ins"rance or i,pliedly by neglecting to ,a.e in+"iry as to the facts
already co,,"nicated. D. If the interest of the ins"red to the property being ins"red is absol"te then there is no necessity to disclose the e#tent of his interest if not then he is re+"ired to disclose "nder 3ection <1 E. Batters of opinion. 6.?. BATARIALITK 3ec. 61. Bateriality is to be deter,ined not by the e!ent b"t solely by the probable and reasonable infl"ence of the fact "pon the party to who, the co,,"nication is d"e in for,ing his esti,ate of the disad!antages of the proposed contract or in ,a.ing his in+"iries. Test of Bateriality) The effect which the .nowledge of the fact in +"estion wo"ld ha!e on the ,a.ing of the contract. To be ,aterial a fact need not increase the ris. or contrib"te to any loss or da,age s"ffered. IT I3 3U00ICIANT I0 T5A RNO9LADA O0 IT 9OULD IN0LUANCA T5A ;ARTK IN BARIN8 T5A CONTRACT. * Bateriality is to be deter,ined not by the e!ent b"t solely by the probable and reasonable infl"ence of the facts "pon the party to who, the co,,"nication is d"e in for,ing his esti,ate of the disad!antages of the proposed contract or in ,a.ing his in+"iries. 5O9AIAR ,atters that ,ay be dee,ed i,,aterial in other respects will be dee,ed ,aterial if ,ade
the s"b1ect of an in+"iry. * The DUTK TO COBBUNICATA is to the e#tent that in good faith all facts within the .nowledge of either party which are ,aterial to the contract and as to which he ,a.es no warranty and which the other 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1<? of 6<1 IN3URANCA CODA COBBARCIAL LA9 has not the ,eans of ascertaining ,"st be co,,"nicated. The AOCA;TION to this r"le is that both parties are charged with the .nowledge of the general ca"ses which are open to his in+"iry e+"ally with that of the other and which ,ay affect the political or ,aterial perils conte,platedand all general "sages of trade. The Ins"rance Code e#e,pts a party fro, the d"ty to co,,"nicate with regard to ,atters which are dee,ed of p"blic .nowledge and which a pr"dent ,an engaged in the ins"rance b"siness o"ght to .now. * 8ANARALLK the right to infor,ation of ,aterial facts ,ay be wai!ed either by the ter,s of the ins"rance or by neglect to ,a.e in+"iry as to s"ch facts ;ROIIDAD they are distinctly i,plied in other facts of which infor,ation is co,,"nicated. * Conceal,ent ,"st ta.e place at the ti,e the contract is entered into in order that
the policy ,ay be a!oided. Infor,ation obtained after the perfection of the contract is no longer necessary to be disclosed by the ins"red e!en if the policy has not been iss"ed %WWA#ception is when the contract is to be effecti!e only "pon the iss"ance of the policy 7 the ins"red is still d"ty bo"nd to disclose to the ins"rer any ,aterial fact which co,es to his .nowledge.( * The d"ty of disclos"re ends with the co,pletion and effecti!ity of the contract. 3"nlife Ass"rance !s CA '=< 3CRA '?E %1>><( Ins"red need not die of the disease he had failed to disclose to the ins"rer. It is s"fficient that his nondisclos"re ,isled the ins"rer in for,ing his esti,ates of the ris.s of the proposed policy or in ,a.ing in+"iries. =. BI3RA;RA3ANTATION =.1. Definition 3ec. 6?. A representation ,ay be oral or written =.'. Representation !s. Bisrepresentation Representation) * fact"al state,ents ,ade by the ins"red at the ti,e of or prior to the iss"ance of the policy to gi!e infor,ation to the ins"rer and otherwise ind"ce hi, to enter into the ins"rance contract. They ,ay also be ,ade by the ins"rer b"t cases nearly always refer to representations ,ade by the ins"red.
Bisrepresentation) * a state,ent %a( as a fact of so,ething which is "ntr"e- %b( which the ins"red stated with .nowledge that it is "ntr"e and with an intent to decei!e or which he states positi!ely as tr"e witho"t .nowing it to be tr"e and which has a tendency to ,islead- %c( where s"ch fact in either case is ,aterial to the ris. =.6. Disting"ished fro, Conceal,ent * In conceal,ent the ins"red ,aintains silence when he o"ght to spea. while in ,isrepresentation the ins"red ,a.es a state,ent of fact which is not tr"e 7 acti!e for, of conceal,ent. 3ec. 6D. A representation ,ay be ,ade at the ti,e of or before iss"ance of the policy %a( 3ec. 6E. The lang"age of a representation is to be interpreted by the sa,e r"les as the lang"age of contracts in general. =.=. Constr"ction of Representations) o Constr"ed liberally in fa!or of the ins"red and are re+"ired to be only s"bstantially tr"e. 3ec. 6>. A representation as to the f"t"re is to be dee,ed a pro,ise "nless it appears that I was ,erely a state,ent of belief or e#pectation. =.<. Rinds of Representation) 1. Oral or 9ritten %3ec. 6?( '. Bade at the ti,e of iss"ing the policy or
before %3ec. 6D( 6.Affir,ati!e or pro,issory %3ec. 6> U ='( Affir,ati!e Representation) * Is any allegation as to the e#istence or non/e#istence of a fact when the contract begins. ;ro,issory Representation) * Is any pro,ise to be f"lfilled after the contract has co,e into e#istence or any state,ent concerning what is to happen d"ring the e#istence of the ins"rance. A pro,ise representation is s"bstantially a condition or warranty. =.?. 9hen Representation Dee,ed a Bere A#pression of Opinion) 8eneral R"le) a representation of the e#pectation belief opinion or 1"dg,ent of the ins"red altho"gh false will not a!oid the policy e!en if s"ch was ,aterial to the ris.. A#ception) 3"ch representation will a!oid the policy if there is a conc"rrence of ,ateriality and fra"d"lence or intent to decei!e. 5owe!er if the representation is one of fact the ins"rer need only pro!e the ,ateriality of the representation beca"se in s"ch cases the intent to decei!e is pres",ed. ILLU3TRATION) The state,ent LI a, an intelligent st"dentM will prod"ce the following effects) a. A!en if intelligence is ,aterial if there
was no intent to decei!e and the ins"red was ,erely relying on his own assess,ent of his abilities the policy will not be a!oided. b. If intelligence is ,aterial and it was pro!en that there was intent on the part of the ins"red to ,islead the ins"rer as to his intelligence the policy will be a!oided. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1<D of 6<1 IN3URANCA CODA COBBARCIAL LA9 c. If the state,ent was act"ally a state,ent of fact and not ,ere 1"dg,ent the policy will be a!oided as when the ins"red was not e!en a st"dent to begin with %Lst"dentM is a fact LintelligenceM is an opinionM(. 0ra"d"lent intent in this case is pres",ed. 3ec. =F. A representation cannot +"alify an e#press pro!ision in a contract of ins"rance- b"t it ,ay +"alify an i,plied warranty * A representation cannot +"alify an e#press pro!ision or an e#press warranty in a contract of ins"rance beca"se a representation is not a part of the contract b"t only a collateral ind"ce,ent to it. It ,ay howe!er +"alify an i,plied warranty. 3ec. =1. A representation ,ay be altered or withdrawn before the ins"rance is effected b"t
not afterwards. o A representation not being a part of the contract of ins"rance ,ay be altered or withdrawn before the contract act"ally ta.es effect b"t not afterwards since the ins"rer has already been led by the representation in ass",ing the ris. conte,plated. 3ec. ='. A representation ,"st be pres",ed to refer to the date on which the contract goes in effect. NO 0AL3A RA;RA3ANTATION I0) * If it is tr"e at the ti,e the contract ta.es effect altho"gh false at the ti,e i t was ,a de2r e pr es e nt ed. T5ARA I3 0AL3A RA;RA3ANTATION I0) * If it is tr"e at the ti,e it was ,ade2represented b"t false at the ti,e the contract ta.es effect. 3ec. =6. 9hen a person ins"red has no personal .nowledge of a fact he ,ay ne!ertheless repeat
infor,ation which he has "pon the s"b1ect and which he belie!es to be tr"e with the e#planation that he does so on the infor,ation of others- or he ,ay s"b,it the infor,ation in its whole e#tent to the ins"rer- and in neither case is he responsible for its tr"th "nless it proceeds fro, an agent of the ins"red whose d"ty is to gi!e the infor,ation. Art. ==. A representation is to be dee,ed false when the facts fail to correspond with its assertions or stip"lations. * 3ec. == defines ,isrepresentation * Representations are not re+"ired to be literally tr"e %"nli.e warranties(- they need only be 3UH3TANTIALLK TRUA 3ec. =<. If a representation is false in a ,aterial point whether affir,ati!e or pro,issory the in1"red party is entitled to rescind the contract fro, the ti,e when the representation beco,es false. The right to rescind granted by this Code to the ins"rer is wai!ed by the acceptance of pre,i", pay,ents despite .nowledge of the gro"nds for rescission. %As a,ended by H; Hlg. =D=( 8eneral R"le) Any ,isrepresentation on a ,aterial point entitles the in1"red party to rescind the contract fro, the ti,e the representation beco,es false. A#ceptions) The right to rescind on the gro"nd of ,isrepresentation is dee,ed wai!ed
when the ins"rer accepts pre,i", pay,ents despite .nowledge of the ,isrepresentation. 5owe!er a person cannot be held liable for any ,isrepresentation that he ,ay apparently ha!e co,,itted if %1( he has no personal .nowledge of the ,atter in +"estion %'( he relies on the infor,ation of others and %6( he belie!es s"ch infor,ation to be tr"e based on s"ch e#ternal so"rce or if he s"b,its the infor,ation fro, an e#ternal so"rce in its entirety to the ins"rer. The AOCA;TION to this r"le is when the infor,ation relied "pon proceeds fro, an agent of the ins"red whose d"ty it is to gi!e the infor,ation * 0ra"d or intent to ,isrepresent facts not essential to entitle the in1"red party to rescind a contract of ins"rance on the gro"nd of false representation. * To be dee,ed false it is s"fficient if the representation fails to correspond with the facts in a ,aterial point. 3ec. =?. The ,ateriality of a representation is deter,ined by the sa,e r"les as the ,ateriality of a conceal,ent. =.D. CONCAALBANT !s. BI3RA;RA3ANTATION 3ec. =D. The pro!isions of this chapter apply as well to a ,odification of a contract of ins"rance as to its original for,ation. Ng ! Asian Cr"saders 0acts) The ins"red applied for a 'F/year endow,ent ins"rance on his life and na,ed his
wife as beneficiary. Upon application he ga!e infor,ation regarding a pre!io"s operation %that CONCAALBANT BI3RA;RA3ANTATION Ins"red withholds infor,ation of ,aterial facts fro, the ins"rer Ins"red ,a.es erroneo"s state,ents of facts with the intent of ind"cing the ins"rer to enter into the ins"rance contract Deter,ined by the sa,e r"les as to ,ateriality 3a,e effects on the part of the ins"redins"rer has right to rescind In1"red party is entitled to rescind a contract of ins"rance on gro"nd of conceal,ent or false representation whether intentional or not R"les on conceal,ent and representation apply li.ewise to the ins"rer as ins"rance contract is one of "t,ost good faith 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1<E of 6<1 IN3URANCA CODA COBBARCIAL LA9 a t",or was ta.en o"t(. Ins"red died of li!er cancer. The ins"rer denied the clai, of the beneficiary clai,ing ,isrepresentation since the
operation which the ins"red "ndertoo. was for Lpeptic "lcerM and not re,o!al of a t",or. Ratio) Conceal,ent e#ist where the ins"red had .nowledge of a fact ,aterial to the ris. and honesty good faith and fair dealing re+"ires that he sho"ld co,,"nicate it to the ins"rer b"t he intentionally withhold the sa,e. The ins"red infor,ed the ,edical e#a,iner that the t",or he was operated on was associated with "lcer of the sto,ach. In the absence of e!idence that the ins"red had s"fficient ,edical .nowledge as to enable hi, to disting"ish between Lpeptic "lcerM and t",orM his state,ent was an e#pression ,ade in good faith of his belief as to the nat"re of his ail,ent and operation. If the operation and ail,ent of the ins"red had s"ch an i,portant bearing on the ass",ption of ris. by the ins"rer it sho"ld ha!e ,ade f"rther in+"ires on the ,atter or re+"ired copies of the hospital records before appro!ing the application. As pro!ided by 3ection 6' where the right to ,aterial infor,ation ,ay be wai!ed LZby neglect to ,a.e in+"ires as to s"ch facts where they are distinctly i,plied in other facts of which infor,ation is co,,"nicatedM Canilang !s. CA ''6 3CRA ==6 %1>>6( 0acts) The ins"red failed to disclose to the ins"rer that he was diagnosed to be s"ffering fro, Lsin"s tachycardiaM and that he had cons"lted with a doctor. 5e died of congesti!e
heart fail"re. 5is wife as the beneficiary filed a clai, with the ins"rer who denied the sa,e. Ratio) The infor,ation the ins"red failed to disclose was ,aterial to the ability of the ins"rer to esti,ate the probable ris. he presented as a s"b1ect of life ins"rance had he disclosed it it ,ay be reasonably ass",ed that the ins"rer wo"ld ha!e ,ade f"rther in+"ires and wo"ld ha!e probably ref"sed to iss"e a non/,edical ins"rance policy or at the !ery least re+"ired a higher pre,i", for the sa,e co!erage. Bateriality is the probable and reasonable infl"ence of the facts "pon the party to who, the co,,"nication sho"ld ha!e been ,ade in assessing the ris. in!ol!ed in ,a.ing or o,itting to ,a.e f"rther in+"ires and in accepting the application for ins"rance. K" ! CA 0acts) The ins"red applied for a life ins"rance with pri!ate respondent ins"rance co,pany. 5e concealed a ,aterial2i,portant fact in his application for, when he failed to disclose that he had cons"lted a doctor prior to his application and that he was s"ffering fro, certain sy,pto,s. Ins"red died and his brother the petitioner in the case filed a clai, which was denied by the ins"rer. Ratio) The ins"red is g"ilty of conceal,ent as the fact which he failed to disclose to the ins"rance co,pany depri!ed the respondent of
the opport"nity to ,a.e the necessary in+"iry as to the nat"re of his past illness so that it ,ay for, its esti,ate relati!e to the appro!al of his application. LA neglect to co,,"nicate that which a party .nows and o"ght to co,,"nicate is called conceal,entM and L9hether intentional or "nintentional the conceal,ent entitles the ins"rer to rescind the contract of ins"ranceM. Ins"rer is relie!ed fro, liability. ;acific Han.ing ! CA 0acts) The ins"red ;ara,o"nt is in the b"siness of shirt ,an"fact"ring it too. o"t a fire ins"rance policy with Oriental Ins"rance for ?1R. Heca"se of it4s indebtedness to ;acific Han.ing Corp. the policy was endorsed to ;acific as ,ortgagee2tr"stor. The property ins"red was g"tted by fire. ;acific ,ade a clai, on the ins"rance policy which was denied by Oriental beca"se it appeared that ;ara,o"nt failed to disclose co/ins"rance with 6 other ins"rance co,panies %only declared 6 others( in !iolation of ;olicy Condition X 6. Ratio) Hy reason of the "nre!ealed coins"rances the ins"red had been g"ilty of a false declaration- a clear ,isrepresentation and a !ital one beca"se where the ins"red had been as.ed to re!eal b"t did not that was deception. 5ad the ins"rer .nown that there were ,any coins"rers it co"ld ha!e hesitated or plainly desisted fro, entering into s"ch contract.
5ence the ins"red was g"ilty of clear fra"d. The ins"rance policy against fire e#pressly re+"ired that notice sho"ld be gi!en by the ins"red of other ins"rance "pon the sa,e property the total absence of s"ch notices n"llifies the policy. Ag"aras ! 8reat Aastern 0acts) The ins"red applied for a life ins"rance policy with defendant and na,ed beneficiary his ,other/in/law the petitioner in the case. Ins"red falsely answered +"estions on the application for, regarding his health and ,edical history. Also when he the ins"rance co,pany4s physician cond"cted a physical e#a,ination another person pretending to be the ins"red was presented. Ins"red died of intestinal occl"sion. Ratio) The ins"red per,itted fra"d to be co,,itted against the ins"rance co,pany in the fact that he allowed a healthy and rob"st person to s"bstit"te in his place since he .new that he was in bad health. It is i,,aterial the ca"se of death since at the ti,e he applied for the ins"rance on his life he was affected by a ,alady that wo"ld ha!e been s"fficient ca"se for the re1ection of his application by the ins"rance co,pany. The contract of ins"rance is n"ll and !oid beca"se it is false fra"d"lent and illegal. 8reat ;acific Life ! CA %1>>>( 0acts) A gro"p life ins"rance was e#ec"ted between 8re;aLife and DH; for ,ortgagors of DH; to the a,o"nt of debt to DH;. The ins"red
in this case was one s"ch ,ortgagor to DH;. 8re;aLife granted ins"rance and a co"ple of ,onths later ins"red died of L,assi!e cerebral he,orrhageM. Upon DH;4s clai, 8re;aLife denied clai,ing non/disclos"re of ins"red that he was s"ffering fro, hypertension at the ti,e of application for the ins"rance based on the testi,ony of a doctor who declared that the ca"se of death was Lpossible hypertension se!eral years agoM Ratio) 8re;aLife failed to establish that the ins"red concealed a ,aterial fact as the ,edical findings were not concl"si!e since the doctor who ga!e the testi,ony did not cond"ct an a"topsy on the ins"red nor had he any .nowledge of 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1<> of 6<1 IN3URANCA CODA COBBARCIAL LA9 ins"red4s pre!io"s hospital confine,ents. The death certificate only stated that hypertension as Lpossible ca"se of deathM. Conceal,ent e#ist where the ass"red had .nowledge of a fact ,aterial to the ris. and honesty good faith and fair dealing re+"ires that he sho"ld co,,"nicate it to the ass"rer b"t he intentionally withholds the sa,e. 0ra"d"lent intent on the part of the ins"red ,"st be established to entitle the ins"rer to rescind the contract. Bisrepresentation as a defense of the ins"rer to a!oid liability is an affir,ati!e defense and the d"ty to establish s"ch defense rests "pon the ins"rer.
Adillon ! Banila Han.ers Life 0acts) The ins"red applied for a >F/day ins"rance co!erage against accident and in1"ries. 3he clearly indicated in the application for, that her date of birth was J"ly 11 1>F= %which ,ade her al,ost ?< at the ti,e of application(. The ins"rer accepted her pre,i", pay,ent and iss"ed her a certificate of ins"rance. Under the ins"rance policy there contained a pro!ision which e#cl"des the co,pany fro, any liability to pay clai,s when the ins"red is "nder 1? or o!er ?F. Ins"red died of a !ehic"lar accident d"ring the effecti!ity of the ins"rance co!erage. Ratio) The ins"rer is dee,ed estopped fro, clai,ing that the ins"red is dis+"alified. 3he did not conceal nor ,isrepresent her age and the ins"rance corporation has been gi!en s"fficient infor,ation to .now that the ins"red is o!er ?F years of age yet they contin"ed to accept the pre,i", pay,ent and iss"ed her the policy. New Life Anterprise ! Co"rt of Appeals 0acts) The ins"red contracted 6 ins"rance policies fro, 6 different ins"rance co,panies for the stoc.s/in/trade of New Life Anterprises. It was "ndisp"ted that the plaintiff failed to indicate any co/ins"rance in any of the three policies. 9hen the b"ilding occ"pied by the ins"red enterprise was g"tted and the stoc.s/in/trade ins"red against were b"rned the plaintiff filed clai,s with the 6 ins"rers which were all denied.
The reason was that the ins"red !iolated the ter,s of policy in relation to co/ins"rance. Ratio) The ter,s of the contract are clear and "na,big"o"s. The ins"red is specifically re+"ired to disclose to the ins"rer any other ins"rance and its partic"lars which he ,ay ha!e effected on the sa,e s"b1ect. The e#c"se of the plaintiff that the agent of the ins"rance co,pany was aware of the other ins"rers or that he failed to read the ter,s of the policies cannot be accepted when the words and lang"age of the doc",ents are clear and plain or readily "nderstandable by an ordinary reader. There is absol"te no roo, for interpretation or constr"ction and the co"rts are not allowed to ,a.e contracts for the parties. The parties ,"st abide by the ter,s of the contract beca"se s"ch ter,s constit"te the ,eas"re of the ins"rer4s liability and co,pliance therewith is a condition precedent to the ins"red4s right to reco!ery fro, the ins"rer. A,erican 5o,e ! CA 0acts) The ins"red too. o"t a fire ins"rance policy to co!er the stoc.s/in/trade of his b"siness fro, the plaintiff ins"rer. 9hen a fire g"tted the b"siness he filed a clai, against plaintiff ins"rer and se!eral other ins"rance co,panies for which he also had a policy for the sa,e stoc.s/in/trade. The plaintiff ins"rer ref"sed pay,ent clai,ing that the ins"red !iolated the policy in se!eral instances 7 for o"r p"rposes the !iolation was the
fail"re of the ins"red to disclose co/ins"rance. 5owe!er d"ring trial the trial co"rt fo"nd that altho"gh the ins"red failed to disclose coins"rance the loss ad1"ster of the ins"rance co,pany had pre!io"s .nowledge of the coins"rance prior to the clai,. Ratio) The ins"rer is estopped fro, clai,ing e#e,ption fro, liability d"e to the !iolation of the policy on non/disclos"re. It cannot be said that petitioner was decei!ed by respondent by the latter4s non/disclos"re of the other ins"rance contracts when petitioner act"ally had prior .nowledge as petitioner4s loss ad1"ster had .nown all along of the other e#isting ins"rance contracts. The loss ad1"ster being an e,ployee of petitioner is dee,ed a representati!e of the latter whose awareness of the other ins"rance contracts binds the petitioner and th"s there was no !iolation of the Lother ins"ranceM cla"se by the respondent and petitioner is liable to pay its share of the loss. * Life ins"rance policy wording that pro!ides a ti,e li,it on the ins"rer4s right to disp"te a policy4s !alidity based on ,aterial ,isstate,ents in the application. * Incontestability ,eans that after the re+"isites are shown to e#ist the ins"rer shall be estopped fro, contesting the policy or setting "p any defense e#cept as is allowed on the gro"nd of p"blic policy
3ec. =E. 9hene!er a right to rescind a contract of ins"rance is gi!en to the ins"rer by any pro!ision of this chapter s"ch right ,"st be e#ercised pre!io"s to the co,,ence,ent of an action on the contract. .After a policy of life ins"rance ,ade payable on the death of the ins"red shall ha!e been in force d"ring the lifeti,e of the ins"red for a period of two years fro, the date of its iss"e or of its last reinstate,ent the ins"rer cannot pro!e that the policy is !oid ab initio or is rescindable by reason of the fra"d"lent conceal,ent or ,isrepresentation of the ins"red or his agent. <. RA3CI33ION <.1. 8ro"nds 1. Conceal,ent '. 0alse representation 7 ,isrepresentation 6. Hreach of 9arranty <.'. 9hen Ins"rer B"st A#ercise Right to Rescind) Non/Life ;olicy * B"st be e#ercised prior to the co,,ence,ent of an action on the contract. The ins"rer is no longer entitled to rescind a contract of ins"rance after the ins"red has filed an action to collect the a,o"nt of the ins"rance. * WW5owe!er it has been held that where any of the ,aterial representations is false the ins"rer4s tender of the pre,i",s and
notice that the policy is cancelled before 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1?F of 6<1 IN3URANCA CODA COBBARCIAL LA9 co,,ence,ent of the s"ite operates to rescind a contract of ins"rance Life ;olicy * The defense is a!ailable only d"ring the first two years of a life ins"rance policy. Or "pon the first two years after reinstate,ent. <.6. Incontestability cla"ses1? * The principle of incontestability states that after the re+"isites are shown to e#ist the ins"rer shall be estopped fro, contesting the policy or setting "p any defense e#cept as is allowed on the gro"nds of p"blic policy. In life ins"rance policies the incontestability begins after two years fro, the ti,e the policy too. effect. After this period the ins"rer is no longer allowed to declare the policy !oid or file an action for rescission on the gro"nds of conceal,ent of ,isrepresentation of the ins"red. It has the following re+"isites) 1. The policy is a life ins"rance policy '. It is payable on the death of the ins"red 6. It has been in force d"ring the lifeti,e of the ins"red for a period of at least two years fro, the date of
iss"e or its last reinstate,ent. This two/year period ,ay be shortened b"t it cannot be e#tended by stip"lation. * The period of two years for contesting a life ins"rance policy by the ins"rer ,ay be shortened b"t it cannot be e#tended by stip"lation. 3ec. ''D In the case of indi!id"al life or endow,ent ins"rance the policy shall contain in s"bstance the following conditions) %b( A pro!ision that the policy shall be incontestable after it shall ha!e been in force d"ring the lifeti,e of the ins"red for a period of two years fro, its date of iss"e as shown in the policy or date of appro!al of last reinstate,ent e#cept for non/pay,ent of pre,i", and e#cept for !iolation of the conditions of the policy relating to ,ilitary or na!al ser!ice in ti,e of war. Defenses Not Harred by Incontestable Cla"se) 1. That the person ta.ing the ins"rance lac.ed ins"rable interest as re+"ired by law. '. That the ca"se of the death of the ins"red is an e#cepted ris.. 6. That the pre,i",s ha!e not been paid. =. That the conditions of the policy relating to ,ilitary or na!al ser!ice ha!e been !iolated. <. That the fra"d is of a partic"larly !icio"s type as where the policy was
ta.en o"t in f"rtherance of a sche,e to ,"rder the ins"red or where the ins"red s"bstit"tes another person for the ,edical 1? This was co!ered in 1>>E 1>>D 1>>= 1>>1 and 1>E=. Ta.e note of the ' year period and the date of iss"ance and their rele!ance. e#a,ination or where the beneficiary felonio"sly .ills the ins"red. ?. That the beneficiary failed to f"rnish proof of death or to co,ply with any conditions i,posed by the policy after the loss has happened. D. That the action was not bro"ght within the ti,e specified. Argente ! 9est Coast Life Ins. Co. 0acts) The ins"red spo"ses signed an application for 1oint ins"rance which was accepted by the ins"rer. The wife died of cerebral apople#y a co"ple of ,onth after the effecti!ity of the policy. 9hen the h"sband filed a clai, the ins"rer denied the clai, d"e to fra"d and ,isrepresentation of the ins"red. It appeared that the answers the spo"ses ga!e in their ,edical e#a,inations with regard to their health and pre!io"s illnesses and ,edical attendance were "ntr"e. Ratio) The spo"ses were g"ilty of conceal,ent. As to the iss"e of the application of section =D %now sec. =E( on the ti,e the ins"rer ,"st e#ercise the right to rescind the co"rt held that a fail"re to e#ercise the right of rescission cannot pre1"dice
any defense to the action which the conceal,ent ,ay f"rnish. 9here any of the ,aterial representations are false the ins"rer4s tender of the pre,i", and notice that the policy is cancelled before the co,,ence,ent of s"it thereon operate to rescind the contract of ins"rance and are a s"fficient co,pliance with the law. ?. 9ARRANTIA3 ?.1. Definition Is a state,ent or pro,ise set forth in the policy itself or incorporated in it by proper reference the "ntr"th or non/f"lfill,ent of which in any respect and witho"t reference to whether the ins"rer was in fact pre1"diced by s"ch "ntr"th or nonf"lfill,ent renders the policy !oidable by the ins"rer. A warranty ,ay also be ,ade by an ins"rer. 3ec. ?D. A warranty is either e#pressed or i,plied. ?.'. Rinds of 9arranties) 1. A#press 9arranty %3ec ?D U D1( is an agree,ent contained in the policy or clearly incorporated whereby the ins"red stip"lates that certain facts relating to the ris. are or shall be tr"e or certain acts relating to the sa,e s"b1ect ha!e been or shall be done. '. I,plied 9arranty %,arine ins"rance only( is a warranty which fro, the !ery nat"re of the contract or fro, the general tenor of the words altho"gh no e#press
warranty is ,entioned is necessarily e,bodied in the policy as a part thereof and which binds the ins"red as tho"gh e#pressed in the contract. %There is an i,plied warranty that the ship is seaworthy when the policy attaches( 6. Affir,ati!e 9arranty %3ec. ?E( is one which asserts the e#istence of a fact or condition at the ti,e it is ,ade =. ;ro,issory warranty or A#ec"tory 9arranty %3ec. D' U D6( is one where 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1?1 of 6<1 IN3URANCA CODA COBBARCIAL LA9 the ins"red stip"lates that certain facts or conditions pertaining to the ris. shall e#ist or that certain things with reference thereto shall be done or o,itted. It is in the nat"re of a condition s"bse+"ent. WW9arranties are either affir,ati!e or pro,issory and e#pressed or i,plied 7 so it co,es in pairs yo" can ha!e an i,plied affir,ati!e warranty or an e#pressed affir,ati!e warranty.. WWA warranty is pres",ed to be affir,ati!e "nless the contrary intention appears 3ec. ?E. A warranty ,ay relate to the past the present the f"t"re or to any or all of these. 3ec. ?>. No partic"lar for, of words is necessary to create a warranty. ?.6. 9arranties ! Representation
9ARRANTK RA;RA3ANTATION Considered part of the contract Collateral ind"ce,ent to the contract Always written on the face of the policy act"ally or by reference Bay be written in a totally disconnected paper or ,ay be oral B"st be strictly co,plied with Only s"bstantial tr"th is re+"ired. 0alsity or nonf"lfill,ent of a warranty operates as a breach of contract 0alsity of a representation renders the policy !oid on the gro"nd of fra"d. ;res",ed ,aterial Ins"rer ,"st show the ,ateriality of a representation in order to defeat an action on the policy. 3ec. DF. 9itho"t pre1"dice to section fifty/one e!ery e#press warranty ,ade at or before the
e#ec"tion of a policy ,"st be contained in the policy itself or in another instr",ent signed by the ins"red and referred to in the policy as ,a.ing a part of it. * In order that a stip"lation ,ay be considered a warranty it ,"st not only be clearly shown that the parties intended it as s"ch b"t it ,"st also for, a part of the contract itself or if contained in another instr",ent it ,"st be signed by the ins"red and referred to in the policy as ,a.ing a part of it. Bere reference alone is not s"fficient to gi!e this effect. * The designation or non/designation of a cla"se as a warranty is not controlling. 9hat is essential is the intent of the contracting parties to create a warranty regardless of the for, of words "sed. 3ec. D1. A state,ent in a policy of a ,atter relating to the person or thing ins"red or to the ris. as a fact is an e#press warranty thereof. 3ec. D'. A state,ent in a policy which i,ports that it is intended to do or not to do a thing which ,aterially affects the ris. is a warranty that s"ch act or o,ission shall ta.e place. * 3ection D' refers to pro,issory warranty. * Hreach of pro,ises or agree,ents as to f"t"re acts will not a!oid a policy "nless the pro,ises are ,aterial to the ris.. * A#press warranties regarding the person
thing or ris. ,"st refer to a state,ent of fact. If it is a ,ere belief it will not constit"te a warranty as far as the policy is concerned b"t ,erely a warranty that the state,ent is his honest opinion or 1"dg,ent. 3ec. D6. 9hen before the ti,e arri!es for the perfor,ance of a warranty relating to the f"t"re a loss ins"red against happens or perfor,ance beco,es "nlawf"l at the place of the contract or i,possible the o,ission to f"lfill the warranty does not a!oid the policy. ?.=. 9hen Hreach of 9arranty does not a!oid policy) 1. 9hen loss occ"rs before ti,e for perfor,ance '. 9hen perfor,ance beco,es "nlawf"l 6. 9hen perfor,ance beco,es i,possible %legal U physical i,possibility( =. 9hen ins"rer wai!es the warranty i,pliedly or e#pressly. ?.<. Bateriality and 0ra"d in 9arranty 3ec. D=. The !iolation of a ,aterial warranty or other ,aterial pro!ision of a policy on the part of either party thereto entitles the other to rescind. 3ec. D<. A policy ,ay declare that a !iolation of specified pro!ision thereof shall a!oid it otherwise the breach of an i,,aterial pro!ision does not a!oid the policy. 3ec. D?. A breach of warranty witho"t fra"d
,erely e#onerates an ins"rer fro, the ti,e that it occ"rs or where it is bro.en in its inception pre!ents the policy fro, attaching to the ris.. * 0ra"d is not essential to entitle the ins"rer to rescind a contract for breach of warranty. * 0alsity not fra"d is the basis of liability in warranty. * If the breach of the warranty was 9IT5OUT 0RAUD 7 ins"red is entitled to) 1. Ret"rn of pre,i", paid at a pro/rata rate fro, the ti,e of breach if it occ"rs after the inception of the contract '. To all the pre,i",s if it is bro.en d"ring the inception of the contract. In this case the contract is !oid ab initio and ne!er beca,e binding. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1?' of 6<1 IN3URANCA CODA COBBARCIAL LA9 * If the breach of the warranty was 9IT5 0RAUD 7 policy is !oid ab initio and the ins"red is not entitled to the ret"rn of the pre,i", paid ?.?. 9arranties in 0ire Ins"rance 3ec. 1?D. As "sed in this Code the ter, Lfire ins"ranceM shall incl"de ins"rance against loss by fire lightning windstor, tornado or earth+"a.e and other allied ris.s when s"ch ris.s are co!ered by e#tension to fire ins"rance policies or "nder
separate policies. %a( * A fire ins"rance is a contract of inde,nity by which the ins"rer for consideration agrees to inde,nify the ins"red against loss of or da,age to property by fire. 3ec. 1?E. An alteration in the "se or condition of a thing ins"red fro, that to which it is li,ited by the policy ,ade witho"t the consent of the ins"rer by ,eans within the control of the ins"red and increasing the ris. entitles an ins"rer to rescind a contract of fire ins"rance. 3ec. 1?>. An alteration in the "se or condition of a thing ins"red fro, that to which it is li,ited by the policy which does not increase the ris. does not affect a contract of fire ins"rance. Re+"isites Alteration to Antitle Ins"rer to Rescind) 1. The "se or condition of the thing is specifically li,ited or stip"lated in the policy. '. 3"ch "se or condition as li,ited by the policy is altered. 6. The alteration is ,ade witho"t the consent of the ins"rer =. The alteration is ,ade by ,eans within the control of the ins"red <. The alteration increases the ris.. Increase of Ris. or 5a$ard in 8eneral * Increase of ha$ard ta.es place whene!er the ins"red property is p"t to so,e new
"se and the new "se increases the chance of loss. ;re,ise) A!ery ins"rance policy is ,ade in reference to the conditions s"rro"nding the s"b1ect ,atter of the ris. and the pre,i", is fi#ed with reference thereto. There is th"s an i,plied pro,ise or "nderta.ing on the part of the ins"red that he will not change the pre,ises or the character of the b"siness carried there or to be carried on there so as to increase the ris. of loss by fire. 8eneral R"le) Ins"rer is not liable if there was an increase in the ris. or ha$ard. There is increase in ha$ard when the new "se increases the chance of loss. The increase of the ris. of loss ,"st in all cases be of a s"bstantial character. A#ceptions) %Alterations which will not warrant the a!oidance of the policy() 1. The "se of the property is changed b"t it did not in any way increased the ris. of loss '. The "se of ,aterials prohibited fro, being "sed as per the policy if s"ch ,aterials are necessary or ordinarily "sed in the ins"red4s b"siness. 6. Increase in ris.s bro"ght abo"t by the "nderta.ing of necessary repairs in the pre,ises =. Increase in ris.s d"e to negligent acts te,porarily endangering the property or te,porary acts or conditions which ha!e ceased prior to the occ"rrence of the loss.
<. Alteration ,ade by accident or witho"t the .nowledge of the ins"red. Q"alifier) 5owe!er the acts of the ins"red4s tenants which ca"se alterations are dee,ed pres",pti!ely .nown to the ins"red. A#ception to the e#ception) Under 3ection D< the breach of an i,,aterial pro!ision will not a!oid the policy b"t the ins"rer is gi!en the right to insert ter,s which if !iolated wo"ld a!oid it. The increase in ris. bro"ght by an alteration is therefore irrele!ant if there is already a pro!ision in the policy which stip"lates that ANK alteration of whate!er nat"re and effect shall a!oid the policy. * 0or sec. 1?E to operate entitling the ins"rer the right to rescind there ,"st be an act"al increase of ris. and while it is not necessary that the increased ris. sho"ld ha!e ca"se or contrib"ted to the loss it is necessary that the increase be of a s"bstantial character. 3ec. 1DF. A contract of fire ins"rance is not affected by any act of the ins"red s"bse+"ent to the e#ec"tion of the policy which does not !iolate its pro!isions e!en tho"gh it increases the ris. and is the ca"se of a loss. * If the policy does not contain any prohibition li,iting the "se or condition of the thing ins"red an alteration in said "se or condition does not constit"te a !iolation of the policy. The contract is not affected
by s"ch alteration e!en tho"gh it increases the ris. and is the ca"se of the loss. 3ec. 1D1. If there is no !al"ation in the policy the ,eas"re of inde,nity in an ins"rance against fire is the e#pense it wo"ld be to the ins"red at the ti,e of the co,,ence,ent of the fire to replace the thing lost of in1"red in the condition in which it was at the ti,e of the in1"ry- b"t if there is a !al"ation in a policy of fire ins"rance the effect shall be the sa,e as in a policy of ,arine ins"rance. 3ec. 1D'. 9hene!er the ins"red desires to ha!e a !al"ation na,ed in his policy ins"ring any b"ilding or str"ct"re against fire he ,ay re+"ire s"ch b"ilding or str"ct"re to be e#a,ined by an independent appraiser and the !al"e of the ins"red4s interest therein ,ay then be fi#ed as between the ins"rer and the ins"red. The cost of s"ch e#a,ination shall be paid for by the ins"red. A cla"se shall be inserted in s"ch policy stating s"bstantially that the !al"e of the ins"red4s interest in s"ch b"ilding or str"ct"re has been th"s fi#ed. In the absence of any change increasing the ris. witho"t the consent of the ins"rer or of fra"d on the part of the ins"red then in case of a total loss "nder s"ch policy the whole a,o"nt so ins"red "pon the ins"red4s interest in s"ch b"ilding or str"ct"re as stated in the policy 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1?6 of 6<1 IN3URANCA CODA COBBARCIAL LA9
"pon which the ins"rers ha!e recei!ed a pre,i", shall be paid and in case of a partial loss the f"ll a,o"nt of the partial loss shall be so paid and in case there are two or ,ore policies co!ering the ins"red4s interest therein each policy shall contrib"te pro rata to the pay,ent of s"ch whole or partial loss. H"t in no case the ins"rer be re+"ired to pay ,ore than the a,o"nt th"s stated in s"ch policy. This section shall not pre!ent the parties fro, stip"lating in s"ch policies concerning the repairing reb"ilding or replacing of b"ildings or str"ct"res wholly or partially da,aged or destroyed. Beas"re of Inde,nity Under an Open ;olicy * Antitled to reco!er a,o"nt of act"al loss s"stained %b"rden of establishing the a,o"nt of loss by a preponderance of e!idence is "pon the ins"red( Beas"re of Inde,nity Under a Ial"ed ;olicy * The !al"ation in the policy of fire ins"rance is concl"si!e between the parties in the ad1"st,ent of either partial or total loss if the ins"red has an ins"rable interest and was not g"ilty of fra"d * In case of total loss the ins"red can reco!er the whole a,o"nt so ins"red as stated in the policy %the !al"ated a,o"nt( * In case of partial loss the f"ll a,o"nt of the partial loss %b"t sho"ld not e#ceed the !al"ated a,o"nt(
* Total loss e#ists when the res"lt of the fire is s"ch as to render the property wholly "nfit for "se. * If the thing is ins"red "nder two or ,ore policies each policy shall contrib"te prorata to the pay,ent of s"ch whole or partial loss. * The ins"red is not a co/ins"rer "nder a fire ins"rance policy in the absence of stip"lation "nli.e in ,arine ins"rance. Co/Ins"rance Cla"se * Is a cla"se re+"iring the ins"red to ,aintain ins"rance to an a,o"nt e+"al to a specified percentage of the !al"e of the ins"red property "nder penalty of beco,ing co/ins"rer to the e#tent of s"ch deficiency. Bany property owners reali$ing the possibility of total destr"ction is slight ,erely ta.e o"t a s,all percentage of the !al"e of the b"ilding or goods. To pre!ent the ins"red fro, ta.ing o"t s"ch s,all a,o"nt of ins"rance and thereby red"ce pre,i", pay,ents the ins"rers often insert as a rider to the standard fire policy a so called Lco/ins"ranceM cla"se which res"lts in red"cing the reco!ery in case of partial loss to b"t a portion of the s", na,ed in the policy tho"gh in case of total loss the ins"rer is liable for the a,o"nt na,ed in the policy.
Option to reb"ild cla"se * The ins"rer is gi!en the option to reinstate the property da,aged or destroyed or any part thereof instead of paying the a,o"nt of loss or da,age. If the ins"rer chooses to reb"ild he has to co,pletely "nderta.e it no ,atter how ,"ch it will cost hi, "nless the policy e#pressly states that any repair shall only be to the e#tent of the a,o"nt of the ins"rance. 3ec. 1D6. No policy of fire ins"rance shall be pledged hypothecated or transferred to any person fir, or co,pany who acts as agent for or otherwise represent the iss"ing co,pany and any s"ch pledge hypothecation or transfer hereafter ,ade shall be !oid and of no effect insofar as it ,ay affect other creditors of the ins"red. Affect of ;ledge of 0ire Ins"rance ;olicy * After a loss has occ"rred the ins"red BAK pledge hypotheticate or transfer a fire ins"rance policy or rights there"nder. * 9hat is being transferred is not the policy itself b"t the right to clai, against the ins"rer. * This right howe!er is s"b1ect to the prohibition of 3ection 1D6. ;ioneer ! Kap 0acts) The ins"red was the owner of a store selling bags and footwear she too. o"t a fire ins"rance fro, petitioner ins"rance co,pany
co!ering her stoc.s office f"rnit"re fi#t"res and fittings of e!ery .ind and description. A condition was set which re+"ired the ins"red to disclose to the ins"rer of any ins"rance or ins"rances Lalready effected or which ,ay be s"bse+"ently effectedM. It f"rther stip"lated that LZ"nless s"ch notice be gi!en and the partic"lars of s"ch ins"rance or ins"rances be stated in or endorsed on this ;olicy by or on behalf of the Co,pany before the occ"rrence of any loss or da,age all benefits "nder this ;olicy shall be forfeitedM. The ins"red failed to infor, the ins"rer of another coins"rance. 0ire bro.e o"t g"tted the store of ins"red. Upon filing of clai, petitioner ins"rance co,pany denied the clai, for !iolation of condition in the policy. Ratio) Hy the plain ter,s of the policy other ins"rance witho"t the consent of petitioner wo"ld ipso facto a!oid the contract. It re+"ired not affir,ati!e act of election on the part of the co,pany to ,a.e operati!e the cla"se a!oiding the contract where!er the specified conditions occ"r. Its obligation ceases "nless being infor,ed of the fact it consented to the additional ins"rance. 0"rther,ore the co"rt +"oting J"stice Hengson %8en Ins"rance U 3"rety Corp ! Ng 5"a( said that LZand considering the ter,s of the policy which re+"ired the ins"red to declare other ins"rances the state,ent in +"estion ,"st be dee,ed to be a state,ent
%9ARRANTK( binding on both ins"rer and ins"red that there were no other ins"rance on the propertyZ.the annotation then ,"st be dee,ed to be a warranty that the property was not ins"red by any other policy. Iiolation thereof entitled the ins"red to rescind.M Ko"ng ! Bidland Te#tile Ins"rance 0acts) The ins"red an owner of a candy and fr"it store too. o"t a fire ins"rance policy fro, the defendant ins"rance co,pany to ins"re his residence and his bodega. Under the policy a condition was set as Twarranty HT which stip"lates that no ha$ardo"s goods be stored or .ept for sale and no ha$ardo"s trade or process shall be carried in the b"ilding. D"ring the 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1?= of 6<1 IN3URANCA CODA COBBARCIAL LA9 enforce,ent of the ins"rance policy the ins"red .ept 6 bo#es of fire crac.ers. 3o,eti,e later a fire bro.e o"t which partially destroyed the b"ilding b"t it appeared that the fire crac.ers were not the ca"se of the fire as they were fo"nd in an area not b"rned. Upon clai, ins"rer denied pay,ent. Ratio) The ter,s of the contract constit"te the ,eas"re of the ins"rerVs liability. If the contract has been ter,inated by a !iolation of its ter,s on the part of the ins"red there can be no reco!ery. Co,pliance with the ter,s of the contract is a condition precedent to the right of
reco!ery. A !iolation of the ter,s of a contract of ins"rance by either party will constit"te the basis for a ter,ination of the contract"al relations at the election of the other %in this case the ins"rer(. The right to ter,inate the contract"al relations e#ist e!en tho"gh the !iolation was not the direct ca"se of the loss since the deposit of the Lha$ardo"s goodsM in the b"ilding ins"red was a !iolation of the ter,s of the contract. The ins"rer is relie!ed fro, his liability since the deposit of the ha$ardo"s ,aterials created a new ris. not incl"ded in the ter,s of the contract. The ins"rer had neither been paid nor had he entered into a contract to co!er the increased ris.. AOCA;TION32U AOCLU3ION * Intends to li,it the liability of the ins"rer "nder certain circ",stances. B"sngi ! 9est Coast Ins"rance Co. Inc. 0acts) The ins"red too. o"t two life ins"rance policies with defendant ins"rer designating as his beneficiaries the plaintiffs in the case. In his application the ins"red "ntr"thf"lly answered +"estions regarding his health partic"larly abo"t ha!ing cons"lted any physician regarding an illness or ail,ent. It appeared that prior to his application for ins"rance the ins"red had been treated for a n",ber of ail,ents incl"ding peptic "lcer TH etc. The ins"red died and "pon his death his beneficiaries filed a clai, with
defendant ins"rance co,pany who denied the clai,. Ratio) The ins"red is g"ilty of conceal,ent and th"s relie!es the ins"rer fro, paying the clai,. The ins"red .new that he had s"ffered fro, a n",ber of ail,ent before s"bscribing the application yet he concealed the, and o,itted the hospital where he was confined as well as the na,e of his physician who treated hi,. The conceal,ent and false state,ent constit"ted fra"d since this ca"sed the defendant ins"rer to accept the ris. when it wo"ld ha!e otherwise ref"sed. 3"ch conceal,ent of the ins"red rendered the policy n"ll and !oid %as held also in Argente ! 9est Coast(. 0ilipinas Cia de 3eg"ros ! Na!a 0acts) On 0ebr"ary 1>6> plaintiff Na!a and defendant 0ilipinas Life Ass"rance entered into 1D separate contracts of life ins"rance for which the ins"red iss"ed 1D life ins"rance policies for which the ins"rer iss"ed 1D life ins"rance policies one of said policies ha!ing a face !al"e of ;1F FFF while the rest a face !al"e of ;< FFF each or a total of ;>FR. Aach and e!ery policy contains a policy loan cla"se. On April 1>=E plaintiff applied for a loan of ;< FFF in line with the loan cla"se b"t defendants ref"sed citing certain reg"lations issed by the Ins"rance Co,,issioner on Bay 1>=?. 5eld) Defendant4s ref"sal to gi!e the loan
applied for by the plaintiff !iolated the loan cla"se e,bodied in each of the life ins"rance policies. This !iolation of the loan cla"se in the policy entitled plaintiff to rescind all policies "nder 3ection ?> of the Ins"rance Act which pro!ides) Lthe !iolation of a ,aterial warranty or other ,aterial pro!ision of a policy on the part of either party thereto entitles the other to rescind.M O"r Ins"rance Law does not contain an e#press pro!ision as to what the co"rt sho"ld do in cases of rescission of an ins"rance policy "nder 3ection ?> the pro!ision that sho"ld apply is that e,bodied in Art. 1'>< of the old ci!il code as post"lated in Art. 1? of the sa,e Code which pro!ides that on ,atters which are not go!erned by special laws the pro!ision of said Code shall s"pple,ent its deficiency. The CA was correct in ordering defendant to ref"nd to plaintiff all pre,i",s paid by hi, "p to the filing of the action a,o"nting to ;6= ?==.?F. 8ROUND3 AND AOARCI3A O0 RI85T O0 RA3CI33ION 3ec. =E. 9hene!er a right to rescind a contract of ins"rance is gi!en to the ins"rer by any pro!ision of this chapter s"ch right ,"st be e#ercised pre!io"s to the co,,ence,ent of an action on the contract. After a policy of life ins"rance ,ade payable on the death of the ins"red shall ha!e been in force d"ring the lifeti,e of the ins"red for a period of
two years fro, the date of its iss"e or of its last reinstate,ent the ins"rer cannot pro!e that the policy is !oid ab initio or is rescindable by reason of the fra"d"lent conceal,ent or ,isrepresentation of the ins"red or his agent. 3ec. ?6. A condition stip"lation or agree,ent in any policy of ins"rance li,iting the ti,e for co,,encing an action there"nder to a period of less than one year fro, the ti,e when the ca"se of action accr"es is !oid. 9hen Ca"se of Action Accr"es * The right of the ins"red to the pay,ent of his loss accr"es fro, the happening of the loss. * The ca"se of action in an ins"rance contract does not acc"re UNTIL T5A IN3URAD43 CLAIB I3 0INALLK RAJACTAD HK T5A IN3URAR beca"se before s"ch final re1ection there is no real necessity for binging s"it. * The period is to be co,p"ted not fro, the ti,e the loss act"ally occ"rs b"t fro, the ti,e when the ins"red has a right to bring an action against the ins"rer. WWCa"se of Action 7 re+"ires as essential ele,ents not only a legal right of the plaintiff and a correlati!e obligation of the defendant b"t also LAN ACT OR OBI33ION O0 T5A DA0ANDANT IN IIOLATION O0 3AID LA8AL RI85TM the ca"se of action in fa!or of the
ins"red does not accr"e "ntil the ins"rer ref"ses e#pressly or i,pliedly to co,ply with his d"ty to pay the a,o"nt of the loss. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1?< of 6<1 IN3URANCA CODA COBBARCIAL LA9 8eneral R"le) a cla"se in the policy to the effect that an action "pon the policy ,"st be bro"ght within a certain period is !alid and will pre!ail o!er the general law on li,itations of actions as prescribed by the Ci!il Code if not contrary to 3ec. ?6 IC. A#ceptions) In ind"strial life ins"rance policies the period cannot be less than ? years after the ca"se of action accr"es. Jac+"eline Ji,ine$ Ida. De 8abriel !s. CA 8.R. No. 1F6EE6 %No!e,ber 1= 1>>?( Under 6E= of the Ins"rance Code notice of clai, ,"st be filed within si# ,onths fro, the date of accident otherwise teh clai, shall be dee,ed wai!ed. Action or s"it ,"st be bro"ght to proper cases with the Co,,ission of the co"rt within one year fro, the denial of clai, otherwise the clai,ant4s right of action shall prescribe. 3ec. ?=. No policy of ins"rance other than life shall be cancelled by the ins"rer e#cept "pon prior notice thereof to the ins"red and no notice of cancellation shall be effecti!e "nless it is based on the occ"rrence after the effecti!e date of the policy of one or ,ore of the following) %a( non pay,ent of pre,i",-
%b( con!iction of a cri,e arising o"t of acts increasing the ha$ard ins"red against %c( disco!ery of fra"d or ,aterial ,isrepresentation%d( disco!ery of willf"l or rec.less acts or o,issions increasing the ha$ard ins"red against%e( physical changes in the property ins"red which res"lts in the property beco,ing "nins"rable- or %f( a deter,ination by the Co,,issioner that the contin"ation of the policy wo"ld !iolate or wo"ld place the ins"rer in !iolation of this Code. 3ec. ?<. All notices of cancellation ,entioned in the preceding section shall be in writing ,ailed or deli!ered to the na,ed ins"red at the address shown in the policy and shall state) %a( which of the gro"nds set forth in section ?= is relied "pon- and %b( that "pon written re+"est of the na,ed ins"red the ins"rer will f"rnish the facts on which the cancellation is based. 0or, and 3"fficiency of Notice of Cancellation 1. There ,"st be prior notice of cancellation to the ins"red. '. The notice ,"st be based on the occ"rrence after the effecti!e of the policy of one or ,ore of the gro"nds ,entioned in section ?=.
6. It ,"st be in writing ,ailed or deli!ered to the na,ed ins"red at the address shown in the policy. =. It ,"st state which of the gro"nds set forth is relied "pon <. It is the d"ty of the ins"rer "pon written re+"est of the ins"red to f"rnish the facts in which the cancellation is based. The pre,i", referred to in 3ection ?= ,"st be a pre,i", s"bse+"ent to the first beca"se it spea.s of non/pay,ent Lafter the effecti!e date of the policyM. If there was no pre,i", paid at all the action appropriate wo"ld be a declaration of n"llity based on 3ection DD which pro!ides that Lno policy or contract of ins"rance iss"ed by an ins"rance co,pany is !alid and binding "nless and "ntil the pre,i", thereof has been paidM 3ec. 1DF. A contract of fire ins"rance is not affected by any act of the ins"red s"bse+"ent to the e#ec"tion of the policy which does not !iolate its pro!isions e!en tho"gh it increases the ris. and is the ca"se of a loss. 3ec. ''D In the case of indi!id"al life or endow,ent ins"rance the policy shall contain in s"bstance the following conditions) %b( A pro!ision that the policy shall be incontestable after it shall ha!e been in force
d"ring the lifeti,e of the ins"red for a period of two years fro, its date of iss"e as shown in the policy or date of appro!al of last reinstate,ent e#cept for non/pay,ent of pre,i", and e#cept for !iolation of the conditions of the policy relating to ,ilitary or na!al ser!ice in ti,e of war. 3ec. 6EF. No cancellation of the policy shall be !alid "nless written notice thereof is gi!en to the land transportation operator or owner of the !ehicle and to the Land Transportation Co,,ission at least fifteen days prior to the intended effecti!e date thereof. Upon receipt of s"ch notice the Land Transportation Co,,ission "nless it recei!es e!idence of a new !alid ins"rance or g"aranty in cash or s"rety bond as prescribed in this Chapter or an endorse,ent of re!i!al of the cancelled one shall order the i,,ediate confiscation of the plates of the ,otor !ehicle co!ered by s"ch cancelled policy. The sa,e ,ay be reiss"ed only "pon presentation of a new ins"rance policy or that a g"aranty in cash or s"rety bond has been ,ade or posted with the Co,,issioner and which ,eets the re+"ire,ents of this chapter or an endorse,ent or re!i!al of the cancelled one. %As a,ended by ;D No. 1=<<( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1?? of 6<1 IN3URANCA CODA COBBARCIAL LA9 Chapter I) BARINA IN3URANCA1D 1. DA0INITION
3ec. >>. Barine Ins"rance incl"des) %1( Ins"rance against loss of or da,age to) %a( Iessels craft aircraft !ehicles goods freights cargoes ,erchandise effects disb"rse,ents profits ,oneys sec"rities choses in action e!idences of debts !al"able papers botto,ry and respondentia interests and all other .inds of property and interests therein in respect to appertaining to or in connection with any and all ris.s or perils of na!igation transit or transportation or while being asse,bled pac.ed crated baled co,pressed or si,ilarly prepared for ship,ent or while awaiting ship,ent or d"ring any delays storage tranship,ent or reship,ent incident thereto incl"ding war ris.s ,arine b"ilderVs ris.s and all personal property floater ris.s%b( ;erson or property in connection with or appertaining to a ,arine inland ,arine transit or transportation ins"rance incl"ding liability for loss of or da,age arising o"t of or in connection with the constr"ction repair operation ,aintenance or "se of the s"b1ect ,atter of s"ch ins"rance %b"t not incl"ding life ins"rance or s"rety bonds nor ins"rance against loss by reason of bodily in1"ry to any person arising o"t of ownership ,aintenance or "se of a"to,obiles(%c( ;recio"s stones 1ewels 1ewelry precio"s ,etals whether in co"rse of transportation or otherwise-
%d( Hridges t"nnels and other instr",entalities of transportation and co,,"nication %e#cl"ding b"ildings their f"rnit"re and f"rnishings fi#ed contents and s"pplies held in storage(- piers whar!es doc.s and slips and other aids to na!igation and transportation incl"ding dry doc.s and ,arine railways da,s and app"rtenant facilities for the control of waterways. %'( TBarine protection and inde,nity ins"rance T ,eaning ins"rance against or against legal liability of the ins"red for loss da,age or e#pense incident to ownership operation chartering ,aintenance "se repair or constr"ction of any !essel craft or instr",entality in "se of ocean or inland waterways incl"ding liability of the ins"red for personal in1"ry illness or death or for loss of or da,age to the property of another person. 1.1. LNa!igational A#pos"reM 7 basic concept in definition. * Dean says that since the IC %Ins"rance Code( does not really define what ,arine ins"rance is ,ost i,portant is to 1"st point o"t that NAII8ATIONAL AO;O3URA is the co,,on thread that r"ns thro"gh the en",eration in 3ec. >> * Related to Na!igation of the ship 1D This was as.ed in 'FF< 'FF' 1>>' and 1>E'. Note the definition of constr"cti!e total loss total loss and notice of abandon,ent. Also .now i,plied
warranties and instances when !essel ,ay proceed to a port other than its port of destination. Definition of ,arine ins"rance "nder the IC and "nder the Ins"rance Act %Law w2c IC a,ended( * Ca,pos) the IC gi!es the ter,s of ,arine ins"rance a !ery wide co!erage incl"ding property e#posed to ris.s not connected with na!igation. * The si,ple clear definition in the IA was better) Barine ins"rance is an ins"rance against ris.s connected with na!igation to which a ship cargo freightage profits or other ins"rable interest in ,o!able property ,ay be e#posed d"ring a certain !oyage or a fi#ed period of ti,e. Ins"rance Act %old definition( Ins"rance Code %present def4n( Barine ins"rance co!ers all .inds of ,o!able property b"t it operated only if s"ch property is e#posed to ris.s connected with na!igation. Co!ers property e#posed to ris.s of
na!igation and e!en those e#posed to ris.s not connected with na!igation li.e ris.s connected with all other ,eans of transportation incl"ding o!erland and perhaps e!en air transportaion. * Criticis, of IC def4n) It4s conf"sing i,practical and "nrealistic to apply pro!ision intended specifically and only for ris.s of na!igation %w2c ca,e down to "s fro, the "sages and c"sto,s of ,erchants( to ris.s connected with land and air transportation. * IC definition also didn4t ser!e any legal p"rpose by widening the scope of the definition since ,ost of the special pro!isions in the IC relating to ,arine ins"rance can properly apply only to ships or other property e#posed to na!igational ris.s. * A!erything co!ered by the new definition wo"ld anyway be necessarily go!erned by the general pro!isions of the IC e!en if the old definition had 1"st been retained. * Transportation ins"rance is concerned with the perils of property in transit as opposed to perils at a generally fi#ed location. Ba1or di!isions of transportation %,arine(
ins"rance 1( OCAAN BARINA IN3URANCA. An ins"rance against ris. connected with na!igation to which a ship cargo freightage profits or other ins"rable interest in ,o!able property ,ay be e#posed d"ring a certain !oyage or a fi#ed period of ti,e. / 3cope of ocean ,arine ins"rance) it pro!ide protection for) %a( ships or h"lls %b( goods or cargoes- %c( earnings s"ch as freight passage ,oney co,,issions or profits- %d( liability inc"rred by the owner or any party interested in or responsible for the ins"red property by reason of ,ariti,e perils. / All ris.s or losses ,ay be ins"red against e#cept s"ch as are rep"gnant to p"blic policy or 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1?D of 6<1 IN3URANCA CODA COBBARCIAL LA9 positi!ely prohibited. A general ,arine ins"rance policy which does not state the ris.s ass"red is !alid and co!ers the "s"al ,arine ris.s- and in a ,arine policy the general en",eration
of Lall other perils etc.M e#tends only to ,arine da,age of li.e .ind to those en",erated. To s"stain reco!ery on a ,arine policy the loss ,"st ha!e been pro#i,ately ca"sed by the ris. or peril ins"red against. '( INLAND BARINA IN3URANCA. Co!ers pri,arily the land or o!er the land transportation perils of property shipped by railroads ,otor tr"c.s airplanes and other ,eans of transportation. It also co!ers ris.s of la.e ri!er or other inland waterway transportation and waterborne perils o"tside of those ris.s that fall definitely within the ocean ,arine category. / to be eligible for inland ,arine contract the ris. ,"st in!ol!e an ele,ent of transportation. Aither the property is act"ally in transit held by persons who are not its owners or at a fi#ed location b"t an i,portant instr",ent of transportation or is a ,o!able type of goods which is often at different locations. / Di!isions of inland ,arine ins"rance) 1. ;roperty in transit 7 the ins"rance pro!ides
protection to property fre+"ently e#posed to loss while it is in transportation fro, one location to another '. Hailee liability 7 the ins"rance pro!ides protection to persons who ha!e te,porary c"stody of the goods or personal property of others s"ch as carriers la"ndry,en wareho"se,en garage.eepers 6. 0i#ed transportation property 7 the ins"rance co!ers bridges t"nnels and other instr",entalities of transportation and co,,"nication altho"gh as a ,atter of fact they are fi#ed property. They are ins"red beca"se they are essential to the transportation syste,. Barine policies ,"st e#cl"de b"ildings their f"rnit"re fi#t"res fi#ed contents and s"pplies held in storage. They in!ariably e#tend to co!er ,ore perils than those incl"ded in the "s"al fire policy. In order for a ris. to +"alify for a ,arine contract there ,"st be incl"ded so,e additional ,arine peril s"ch as collapse collision flood etc. =. 0loater 7 in inland ,arine ins"rance the ter, is "sed in the sense that it pro!ides ins"rance to follow the ins"red property where!er it ,ay be located s"b1ect always to territorial li,its of the contract. Altho"gh the basis for eligibility is the fact that transportation or ,o!e,ent of property is
often present the condition need not necessarily occ"r. 0loaters ha!e been iss"ed co!ering property that is seldo, ,o!ed. ;roperty co!ered by ,arine policy * A ,arine policy ,ay co!er any property or interest therein which ,ay be s"b1ected to the ris.s of na!igation. Definition in policy ,ay be ,odified or enlarged by riders warranties or indorse,ents attached to the policy. * Ter, Lgoods and ,erchandiseM "s"ally fo"nd in a ,arine policy incl"des all articles which are carried on the ship for COBBARCIAL p"rposes. %Does not incl e#. Clothing of crew food etc(. A#pected profits fro, the sale of s"ch goods ,ay also be protected. * 0reight or 0reightage 7 all benefits deri!ed by the owner either fro, chartering %borrowing the entire ship( of the ship or its e,ploy,ent for the carriage of his own goods or those of others. This is not co!ered "nless e#pressly stated in the policy. * 0reight Ins"rance doesn4t co!er passage ,oney payable by passenger at the co,pletion of the !oyage "nless e#pressly pro!ided. Ris.s which ,ay be ins"red against
* Ins"rer is liable for all losses ;ROOIBATALK ca"sed by the perils co!ered by the ,arine policy * Us"ally en",erated 1.'. L;erils of the 3eaM and L;erils of the 3hipM o ;eril of the 3ea / incl"des only cas"alties arising fro, the !iolent action of the ele,ents and does not co!er ordinary wear and tear li.e the silent nat"ral and grad"al action of the ele,ents on the !essel itself or other da,age "s"ally incident to the !oyage. / It also does not incl"de %1( an in1"ry d"e to the !iolence of so,e ,arine force if s"ch !iolence was not "n"s"al or "ne#pected- %'( loss of a sail d"ring a te,pest for neither e!ents are "n"s"al %b"t carrying away of a ,ast or loss of an anchor will be co!ered for in s"ch cases the stor,4s !iolence is definitely "n"s"al and not to be e#pected as incident to na!igation( / 0ort"ito"s and "n"s"al / B"st be connected with ,ariti,e na!igation / It is a relati!e ter, and the ,eaning ,ay !ary with the circ",stances. / It e,braces all .inds of ,arine cas"alty
s"ch as %1( shipwrec. fo"ndering stranding collision and da,ages done to the ship or goods at sea by !iolent action of wind and wa!es- %'( loses occasioned by the 1ettisoning of cargo if it is ,ade for the p"rpose of sa!ing a !essel rendered "nworthy d"ring the !oyage not thro"gh the fa"lt of the captain- %6( barratry or any willf"l ,iscond"ct on the part of the ,aster or crew in p"rs"ance of so,e "nlawf"l or fra"d"lent p"rpose witho"t the consent of the owners and to the pre1"dice of the owner4s interest. Harratry re+"ires a willf"l and intentional act in its co,,ission. No honest error of 1"dg,ent or ,ere negligence "nless cri,inally gross can be barratry. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1?E of 6<1 IN3URANCA CODA COBBARCIAL LA9 / The ,eaning of Lperils of the seaM !aries with circ",stances. 0OR AOAB;LA a !essel designed for inland waters was ins"red. It was towed in the 8"lf of Be#ico. The ins"rer was aware of the ha$ardo"s nat"re of the 1o"rney and charged e#tra pre,i",. If any loss occ"rs it will be held to be d"e to perils of the sea altho"gh a sea/going !essel wo"ld not ha!e been da,aged by the
,oderate wa!es enco"ntered. * ;eril of the 3hip / Loss which in the ordinary co"rse of e!ents res"lts fro, %a( the Nat"ral and ine!itable action of the sea- %b( ordinary 9ear and Tear of the ship%c( the negligent fail"re of the ship4s owner to pro!ide the !essel with proper e+"ip,ent to con!ey the cargo "nder ordinary conditions / The ins"rer does not "nderta.e to ins"re against perils of the ship. Note) A!erything that happens thr" the inherent !ice of the thing or by the act of the owner ,aster or shipper shall not be rep"ted a peril if not otherwise borne in the policy * Harratry / willf"l and intentional act on the part of the ,aster or crew in p"rs"ance of so,e "nlawf"l or fra"d"lent p"rpose witho"t the consent of the owner and to the pre1"dice of his interest- Neither honest error or 1"dg,ent nor ,ere negligence. / Bay be co!ered by policy * Ta.ing at sea arrests restraints and detain,ents of all .ings princes and people / e#traordinary acts by a so!ereign a"thority in ti,e of war or "nder other "n"s"al international conditions li.e bloc.ades and e,bargoes. Acts done in the co"rse of reg"lar proceedings not incl"ded
%i.e. !essel libeled and detained for nonpay,ent of debt( since there is nothing fort"ito"s abo"t the sit"ation. / Incl"des not only LarrestsM ca"sed by political acts of a sei$ing state b"t also by ordinary legal processes s"ch as a laws"it on ownership and possession of goods. %see Balayan Ins"rance Corp ! CA case( * All other perils losses and ,isfort"nes / co!ers ris.s which are of li.e .ind with the partic"lar ris.s which are en",erated in the preceding part of the sa,e cla"se of the contract La Ra$on 3ocial L8o Tiaoco y 5er,anosM ! Union Ins"rance 3ociety of Canton Ltd. 0acts) A drain pipe passing thro"gh the hold where the ins"red rice was stowed had beco,e corroded in co"rse of ti,e w2c created a hole in the pipe. An atte,pt was ,ade to ce,ent the hole and co!er it with a strip of iron b"t d"e to the loading of the ship this part of the pipe was s"b,erged in water d"ring the trip and was washed o"t. 9ater flowed into the hold and da,aged the rice. Iss"e) 9ON the ins"rer was liable 5eld) NO. A loss which in the ordinary co"rse of e!ents res"lts fro, the nat"ral and ine!itable action of the sea fro, the ordinary wear and tear of the ship or fro, the negligent fail"re of
the ship4s owner to pro!ide the !essel with proper e+"ip,ent to con!ey the cargo "nder ordinary conditions is not a peril of the sea b"t rather a Lperil of the ship.M In s"ch a case the re,edy of the ins"red shipper or consignee is not against the ins"rer b"t against the shipowner. Cathay Ins"rance ! CA 0acts) Re,ington Ind"strial 3ales filed for the reco!ery of losses inc"rred d"e to the r"sting of steel pipes it i,ported fro, Japan while it was in transit. Cathay Ins"rance ref"sed pay,ent clai,ing that the r"sting was not d"e to a peril of the sea since it was not a cas"alty which co"ld not be foreseen. 5eld) There is no +"estion that r"sting of steel pipes in the co"rse of !oyage is a Lperil of the seaM in !iew of the toll on the cargo by wind water and salt conditions. %5AN8LAHOd H"t in any case the 3C decided thro"gh constr"ction( 9e wo"ld fail to obser!e a cardinal r"le in the interpretation of contracts na,ely that any a,big"ity therein sho"ld be constr"ed against the iss"er2drafter na,ely the ins"rer. Balayan Ins"rance Corp ! CA %1>>D( 0acts TRC Bar.eting was the owner2consignee of soya bean ,eal shipped fro, Hra$il to Banila. It was ins"red by Balayan Ins"rance. 9hile the !essel was in 3o"th Africa it was arrested and detained d"e to a laws"it +"estioning its ownership and possession. As a res"lt TRC
Bar.eting filed a clai, with Balayan for the nondeli!ery of the cargo. Iss"e 9oN the arrest of the !essel by the ci!il a"thority was a peril of the sea 5eld The LarrestM ca"sed by ordinary 1"dicial process is dee,ed incl"ded a,ong the co!ered ris.s. %Decision detailed the history of the L0ree fro, Capt"re and 3ei$"reM cla"se( Altho"gh the 0ree fro, Capt"re and 3ei$"reM cla"se was originally inserted in ,arine policies to protect against ris.s of war its interpretation in recent years to incl"de sei$"re or detention by ci!il a"thorities see,s consistent with the general p"rposes of the cla"se. 0ilipino Berchants Ins"rance Co ! CA 0acts A ship,ent of fish,eal ins"red by 0ilipino Berchants Co. was fo"nd to be da,aged "pon its "nloading in the ;ort of Banila. The owner2consignee filed action to reco!er the a,o"nt represented by the da,ages based on the Lall ris.sM cla"se of the policy b"t 0il.Berchants ref"sed clai,ing that there ,"st be so,e cas"alty or accidental ca"se to which the loss is attrib"table. 5eld An Lall ris.s policyM sho"ld be read literally %not technically( as ,eaning all ris.s whatsoe!er and co!ering all losses by an accidental ca"se of any .ind. It has e!ol!ed to grant a greater protection than that afforded by the LperilsM cla"se in order to ass"re that no loss can happen
thro"gh the incident of a ca"se neither ins"red against nor creating liability in the ship. The ins"red "nder an all ris.s policy has the initial b"rden of pro!ing that the cargo was da,aged 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1?> of 6<1 IN3URANCA CODA COBBARCIAL LA9 when "nloaded fro, the !essel thereafter the b"rden then shifts to the ins"rer to show the e#ception to the co!erage. Under this policy it is s"fficient to show that there was da,age occasioned by so,e accidental ca"se of any .ind and there is no necessity to point to any partic"lar ca"se. '. IN3URAHLA INTARA3T 3ec. 1FF. The owner of a ship has in all cases an ins"rable interest in it e!en when it has been chartered by one who co!enants to pay hi, its !al"e in case of loss) ;ro!ided That in this case the ins"rer shall be liable for only that part of the loss which the ins"red cannot reco!er fro, the charterer. * Owner of Iessel has ins"rable interest in the !essel e!en if he has ,ortgaged it. 5owe!er if ship is chartered and charterer agrees to pay hi, its !al"e in case of loss it is only liable for that part of the loss which the ins"red cannot reco!er fro, the charterer. * Ins"rable interest of ins"red in ,arine ins"rance
8eneral R"le) there can be no !alid ,arine ins"rance "nless s"pported by an ins"rable interest in the thing ins"red. A#ception) in certain cases of ,arine ins"rance the ins"rer will still be held liable if he agreed to ins"re a ship or cargo Llost or not lostM that is he agreed to be bo"nd in any case e!en if it wo"ld later on be pro!ed that the ins"red had nothing to ins"re when the contract was ,ade. 3ec. 1F1. The ins"rable interest of the owner of the ship hypothecated by botto,ry is only the e#cess of its !al"e o!er the a,o"nt sec"red by botto,ry. 3ec. 1F'. 0reightage in the sense of a policy of ,arine ins"rance signifies all the benefits deri!ed by the owner either fro, the chartering of the ship or its e,ploy,ent for the carriage of his own goods or those of others. 3ec. 1F6. The owner of a ship has an ins"rable interest in e#pected freightage which according to the ordinary and probable co"rse of things he wo"ld ha!e earned b"t for the inter!ention of a peril ins"red against or other peril incident to the !oyage. 3ec. 1F=. The interest ,entioned in the last section e#ists in case of a charter party when the ship has bro.en gro"nd on the chartered !oyage. If a price is to be paid for the carriage of goods it e#ists when they are act"ally on board or there is
so,e contract for p"tting the, on board and both ship and goods are ready for the specified !oyage. 3ec. 1F<. One who has an interest in the thing fro, which profits are e#pected to proceed has an ins"rable interest in the profits. 3ec. 1F?. The charterer of a ship has an ins"rable interest in it to the e#tent that he is liable to be da,nified by its loss. In 3hip * Hotto,ry Loan 7 one gi!en on the sec"rity of the ship on condition that the loan be repaid only if the ship arri!es safely at the port of destination- ,oney gi!en in ad!ance- if ship sin.s botto,ry loan e#ting"ished and owner doesn4t ha!e to pay it. * Hotto,ry loans and ,arine ins"rance can share protection and co!erage of sa,e ris.s- b"t cannot coe#tend with each other. * 9here a !essel is hypothecated by way of botto,ry the owner has an ins"rable interest only in the e#cess of the !essel4s !al"e o!er the a,o"nt of the botto,ry loan. This is so beca"se when the !essel botto,ed is lost the owner need not pay the loan and is therefore benefited to the e#tent of the a,o"nt of the load obtained and the loss he act"ally s"ffers is only the difference bet the act"al !al"e of the !essel and the botto,ry.
* The lender in botto,ry is entitled to recei!e a high rate of interest to co,pensate hi, for the ris. of losing his loan. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1DF of 6<1 IN3URANCA CODA COBBARCIAL LA9 6. CONCAALBANT 3ec. 1FD. In ,arine ins"rance each party is bo"nd to co,,"nicate in addition to what is re+"ired by section twenty/eight all the infor,ation which he possesses ,aterial to the ris. e#cept s"ch as is ,entioned in 3ection thirty and to state the e#act and whole tr"th in relation to all ,atters that he represents or "pon in+"iry discloses or ass",es to disclose. 3ec. 1FE. In ,arine ins"rance infor,ation of the belief or e#pectation of a third person in reference to a ,aterial fact is ,aterial. 3ec. 1F>. A person ins"red by a contract of ,arine ins"rance is pres",ed to ha!e .nowledge at the ti,e of ins"ring of a prior loss if the infor,ation ,ight possibly ha!e reached hi, in the "s"al ,ode of trans,ission and at the "s"al rate of co,,"nication. 3ec. 11F. A conceal,ent in a ,arine ins"rance in respect to any of the following ,atters does not !itiate the entire contract b"t ,erely e#onerates the ins"rer fro, a loss res"lting fro, the ris. concealed) %a( The national character of the ins"red%b( The liability of the thing ins"red to capt"re
and detention%c( The liability to sei$"re fro, breach of foreign laws of trade%d( The want of necessary doc",ents%e( The "se of false and si,"lated papers. * Conceal,ent in ,arine ins"rance is the fail"re to disclose any ,aterial fact or circ",stance which in fact or law is within or which o"ght to be within the .nowledge of one party and of which the other has no act"al or pres",pti!e .nowledge. * The r"les are stricter than in the case of fire ins"rance beca"se in the latter the ins"rer can easily obtain infor,ation regarding the property ins"red. In ,arine ins"rance the !essels ins"red are often absent or afloat. Under 3ection 1FD it is s"fficient that the ins"red is in possession of the ,aterial fact concealed altho"gh he ,ay not be aware of it. * Opinions or e#pectations of third persons) 8eneral R"le in ins"rance) the ins"red is not bo"nd to co,,"nicate infor,ation of his own 1"dg,ent and what he learns fro, a third person. In ,arine ins"rance) the ins"red is bo"nd to co,,"nicate the beliefs2 opinions and e#pectations of third persons as long as the infor,ation is in reference to a ,aterial fact.
* ;res",pti!e .nowledge by ins"red of prior loss) 3ec. 1F> establishes a reb"ttable pres",ption of .nowledge of prior loss on the part of the ins"red on the recognition of the fact that co,,"nications technology nowadays ,a.es it possible for the ins"red to be apprised of the loss of his !essel i,,ediately after it occ"rs. The ins"red is not bo"nd howe!er to "se all accessible ,eans of infor,ation at the !ery last instant of ti,e to ascertain the condition of the property ins"red. * 9hen conceal,ent does not !itiate entire contract 8eneral R"le in ins"rance) conceal,ent of a ,aterial fact entitles the in1"red party to rescind. In ,arine ins"rance) if loss happens "nder any of the conditions in 3ection 11F and s"ch was concealed the ins"rer is In 3hip In 8oods 3hipped and ;rofits In 0reightage Owner of the 3hip /5as ins"rable interest in ALL cases e!en if the ship has been chartered by one who has agreed to pay its
!al"e in case of loss. In this case ins"rer4s %of the ship owner( liability is li,ited to the part of the loss which ins"red cannot reco!er fro, the charterer. / If ship is s"b1ected to botto,ry loan Owner4s interest is only in e#cess of !al"e o!er a,o"nt sec"red by botto,ry. Interest in goods ship carries to the e#tent that he ,ay be liable for their loss b"t NOT TO AOCAAD T5A IALUA thereof /5as ins"rable interest in e#pected freightage w2c accdg to the ordinary and probable co"rse of things he wo"ld ha!e earned b"t for the inter!ention of a peril ins"red against or other peril incident to the !oyage / If 0reight is ;ayable
"pon the Co,pletion of !oyage/ O9NAR has ins"rable interest Charterer 2 3hipper Bay ta.e o"t policy co!ering ins"rable interest which can be only to the e#tent that he ,ay be da,nified by the loss 5as ins"rable interest in goods since they will s"ffer da,age in case of loss 0reight ;AID in ADIANCA 7 Charterer or 3hipper has ins"rable interest 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1D1 of 6<1 IN3URANCA CODA COBBARCIAL LA9 ,erely e#onerated fro, liability. The ins"rer howe!er re,ains liable to pay for da,age or loss bro"ght by other perils of the sea. RA;RA3ANTATION 3ec. 111. If a representation by a person ins"red by a contract of ,arine ins"rance is intentionally false in any ,aterial respect or in
respect of any fact on which the character and nat"re of the ris. depends the ins"rer ,ay rescind the entire contract. 3ec. 11'. The e!ent"al falsity of a representation as to e#pectation does not in the absence of fra"d a!oid a contract of ,arine ins"rance. %Note) 9ill be !oid if there is fra"d( * Applicability of r"les on representation to ,arine ins"rance) The r"les on representation are applicable to ,arine ins"rance li.e the r"les on distinction between representations and warranties constr"ction of representations and a!oidance of the policy based on a s"bstantial ,isrepresentation of any ,aterial fact or circ",stance. The test of ,ateriality of representations also applies in ,arine ins"rance. * Anything which concerns the state of the !essel at any partic"lar period of her !oyage are ,aterial. 3tate,ents of the nat"re and a,o"nt of cargo or whether the !essel was o!erloaded or where the ins"rer did not rely thereon ha!e been held to be i,,aterial. * Affect of falsity of representation as to e#pectation) Representations of e#pectations are state,ents of f"t"re facts or e!ents which are in their nat"re contingent and which the ins"rer is bo"nd to .now that the ins"red co"ld not ha!e intended to state
as .nown facts b"t as ,ere e#pectations or intentions. Unless ,ade with fra"d"lent intent fail"re of the f"lfill,ent of a representation of e#pectation is not a gro"nd for rescission. They ,"st be caref"lly disting"ished fro, pro,issory warranties. 3pecial R"le in Barine Ins"rance * 3"bstantial tr"th of any ,aterial state,ent is NOT s"fficient * Law re+"ires the ins"red to state the e#act and whole tr"th in relation to all ,atters that he represents or "pon in+"iry discloses or ass",es to disclose. * D"e to nat"re of contract R"les on Conceal,ent and Bisrepresentation are 3TRICTAR in ,arine ins"rance. 9hyS * 0ail"re to disclose any ,aterial fact or circ",stance which in law or fact is within or which o"ght to be within the .nowledge of one party and of which the other has no act"al or pres",pti!e .nowledge. * 0ail"re to disclose the ff. will gi!e the ins"rer the right to rescincd %No ,ore liability(. / Baterial facts within .nowledge of party / All infor,ation he posessess which are ,aterial to ris. e#cept as is ,entioned in 3ec. 6F %cf with 3ec. 'E which only re+"ire co,,"nication of facts which are ,aterial to the contract
as to which he ,a.es no warranty( / Heliefs and e#pectations of 6rd persons in reference to a ,aterial fact. 3ec. 'E. Aach party to a contract of ins"rance ,"st co,,"nicated to the other in good faith all facts within his .nowledge which are ,aterial to the contract and as to which he ,a.es no warranty and which the other has not the ,eans of ascertaining. 3ec. 6F. Neither party to a contract of ins"rance is bo"nd to co,,"nicate infor,ation of the ,atters following e#cept in answer to the in+"iries of the other) %a( Those which the other .nows%b( Those which in the e#ercise of ordinary care the other o"ght to .now and of which the for,er has no reason to s"ppose hi, ignorant%c( Those of which the other wai!es co,,"nication%d( Those which pro!e or tend to pro!e the e#istence of a ris. e#cl"ded by a warranty and which are not otherwise ,aterial- and %e( Those which relate to a ris. e#cepted fro, the policy and which are not otherwise ,aterial. TA3T of Bateriality) 9hether the concealed fact ca"sed the loss and not its probable infl"ence on the other party in deciding whether or not to enter the contract. Representations) Ins"red ,"st state the e#act and whole tr"th in relation to all ,atters that he
represents of "pon in+"iry discloses or ass",es to disclose. 0alse representations) 1. Any ,isrepresentation of a ,aterial fact ,ade with fra"d"lent intent '. The character and nat"re of the ris. depends on the fact ,isrepresented Affect) Ins"rer ,ay RA3CIND the contract A#ception) A!ent"al falsity of a representation as to e#pectation in the absence of fra"d does not a!oid the contract. Coastwise ! CA 0acts) ;ag/Asa 3ales had ,olasses transported fro, Negros to Banila "sing Coastwise Lighterage Corp4s open barges. 5owe!er one of the barges san. when it hit an "n.nown s"n.en ob1ect while approaching Banila Hay ;ort. Heca"se of this ;ag/ Asa re1ected the ship,ent as a total loss and ;hil. 8eneral Ins"rance Co,pany paid for the loss. ;hil8en then filed an action against Coastwise Lighterage see.ing to reco!er the a,o"nt it paid ;ag/asa. Coastwise clai,s that it was "naware of the hidden danger in its path th"s it beca,e i,possible for Coastwise to a!oid it e!en with the e#ercise of e#traordinary diligence. 5eld) Coastwise4s assertion is belied by the e!idence. The patron of the !essel which san. ad,itted that he was not licensed th"s it cannot safely clai, to ha!e e#ercised e#traordinary 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1D' of 6<1
IN3URANCA CODA COBBARCIAL LA9 diligence by placing a person whose na!igational s.ills are +"estionable at the hel, of the !essel w2c ,et the accident. Logically a person w2o license to na!igate lac.s not 1"st the s.ill to do so b"t also the fa,iliarity with the "s"al and safe ro"tes ta.en by seasoned and legally a"thori$ed persons. =. IB;LIAD 9ARRANTIA3 3ec. 116. In e!ery ,arine ins"rance "pon a ship or freight or freightage or "pon any thing which is the s"b1ect of ,arine ins"rance a warranty is i,plied that the ship is seaworthy. 3ec. 11=. A ship is seaworthy when reasonably fit to perfor, the ser!ice and to enco"nter the ordinary perils of the !oyage conte,plated by the parties to the policy. 3ec. 11<. An i,plied warranty of seaworthiness is co,plied with if the ship be seaworthy at the ti,e of the of co,,ence,ent of the ris. e#cept in the following cases) %a( 9hen the ins"rance is ,ade for a specified length of ti,e the i,plied warranty is not co,plied with "nless the ship be seaworthy at the co,,ence,ent of e!ery !oyage it "nderta.es d"ring that ti,e%b( 9hen the ins"rance is "pon the cargo which by the ter,s of the policy description of the !oyage or established c"sto, of the trade is to be transhipped at an inter,ediate port the i,plied warranty is not co,plied with "nless each !essel
"pon which the cargo is shipped or transhipped be seaworthy at the co,,ence,ent of each partic"lar !oyage. 3ec. 11?. A warranty of seaworthiness e#tends not only to the condition of the str"ct"re of the ship itself b"t re+"ires that it be properly laden and pro!ided with a co,petent ,aster a s"fficient n",ber of co,petent officers and sea,en and the re+"isite app"rtenances and e+"ip,ent s"ch as ballasts cables and anchors cordage and sails food water f"el and lights and other necessary or proper stores and i,ple,ents for the !oyage. 3ec. 11D. 9here different portions of the !oyage conte,plated by a policy differ in respect to the things re+"isite to ,a.e the ship seaworthy therefor a warranty of seaworthiness is co,plied with if at the co,,ence,ent of each portion the ship is seaworthy with reference to that portion. 3ec. 11E. 9hen the ship beco,es "nseaworthy d"ring the !oyage to which an ins"rance relates an "nreasonable delay in repairing the defect e#onerates the ins"rer on ship or shipownerVs interest fro, liability fro, any loss arising therefro,. 3ec. 11>. A ship which is seaworthy for the p"rpose of an ins"rance "pon the ship ,ay ne!ertheless by reason of being "nfitted to recei!e the cargo be "nseaworthy for the p"rpose of the ins"rance "pon the cargo.
3ec. 1'F. 9here the nationality or ne"trality of a ship or cargo is e#pressly warranted it is i,plied that the ship will carry the re+"isite doc",ents to show s"ch nationality or ne"trality and that it will not carry any doc",ents which cast reasonable s"spicion thereon. * 9arranty in ,arine ins"rance has been defined as a stip"lation either e#pressed or i,plied for,ing part of the policy as to so,e fact condition or circ",stance relating to the ris.. * I,plied 9arranties / conditions "pon the "nderwriterVs liability for the ris.s ass",ed in e!ery ins"rance "pon any ,arine !ent"re whether of !essel cargo or freight. =.1. I,plied warranties in ,arine ins"rance a( 3eaworthiness b( De!iation c( Other I,plied 9arranties) / Carry the re+"isite doc",ents to show nationality or ne"trality / Not engage in any illegal !ent"re d( it is also i,pliedly warranted that the ins"red has an ins"rable interest in the s"b1ect ,atter ins"red * 8eneral pro!isions on warranties also apply to ,arine ins"rance * ONLK ,arine ins"rance has IB;LIAD 9ARRANTIA3 pro!ided by law
a( 3eaworthiness) Beaning * 3hip is seaworthy when reasonably fit to perfor, the ser!ices and to enco"nter the ordinary perils of the !oyage conte,plated by the parties to the policy. * NOT absol"te g"arantee that !essel will safely ,eet all possible perils * CIRCUB3TANCA3 deter,ine 9ON !essel is reasonably seaworthy * 3eaworthiness e#tends not only to condition of ship4s str"ct"re b"t re+"ires / ship to be properly laden / co,petent ,aster / s"fficient n",ber of co,petent officers and crew / re+"isite app"rtenances and e+"ip,ent %ballasts cables anchors cordage sails food water f"el lights necessary2proper stores and i,ple,ents for the !oyage( / In a fit state as to repair e+"ip,ent crew and in all other respects to perfor, the !oyage ins"red and to enco"nter the ordinary perils of na!igation / B"st also be in a s"itable condition to carry the cargo p"t on board or intended to be p"t on board * 3"ch warranty can be e#cl"ded only by
clear pro!isions of the policy * 9here seaworthiness ad,itted by ins"rer) a. Ad,ission is stip"lated in the contract) the iss"e of seaworthiness cannot be raised by the ins"rer witho"t showing conceal,ent or ,isrepresentation by the ins"red. b. The ad,ission ,ay ,ean) 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1D6 of 6<1 IN3URANCA CODA COBBARCIAL LA9 %1( that the warranty of seaworthiness is to be ta.en as f"lfilled- or %'( that the ris. of "nseaworthiness is ass",ed by the ins"rer c. Insertion of wai!er cla"ses in cargo policies is in recognition of the realistic fact that cargo owners cannot control the state of the !essel. * 9here "nseaworthiness "n.nown to owner of cargo ins"red) a. 3UHJACT BATTAR I3 CAR8O) the i,plied warranty of seaworthiness attaches to whoe!er is ins"ring the cargo 9ON he is the shipowner. b. Lac. of .nowledge by the ins"red is i,,aterial in ordinary ,arine ins"rance and is not a defense in order to reco!er on the policy. c. 3ince the law pro!ides for an i,plied
warranty it beco,es the obligation of a cargo owner to loo. for a reliable co,,on carrier which .eeps its !essels in seaworthy condition. 3hipper ,ay ha!e no control o!er the !essel b"t he has f"ll control in the choice of the co,,on carrier that will transport his goods. d. Cargo owner ,ay also enter into a contract of ins"rance which specifically pro!ides that the ins"rer answers not only for the perils of the sea b"t also pro!ides for co!erage of perils of the ship. e. A charterer of a !essel has no obligation before transporting its cargo to ens"re that the !essel co,plied with all the legal re+"ire,ents. The d"ty rests "pon the co,,on carrier si,ply for being engaged in Tp"blic ser!ices.T f. Heca"se of the i,plied warranty of seaworthiness shippers are not e#pected when transacting with co,,on carriers to in+"ire into the !esselVs seaworthiness gen"ineness of its licenses and co,pliance with all ,ariti,e laws. * 3eaworthiness is a relati!e ter, depending "pon the nat"re of ship %,"st be in a fit state as to repair e+"ip,ent crew and in
all other respects to perfor, the !oyage ins"red and enco"nter the ordinary perilss"itable condition to carry cargo( nat"re of !oyage %deter,ines 9ON !essel is wellfitted( nat"re of ser!ice %nat"re of cargo sho"ld be deter,ined- the !essel sho"ld be reasonable capable of safely carrying the cargo to the port of destination(. * 0ail"re of a co,,on carrier to ,aintain in seaworthy condition the !essel is a clear breach of its d"ty prescribed in Article 1D<< CC. * It is not necessary that the cargo itself shall be seaworthy. 9hen warranty dee,ed co,plied withe#ceptions * I,plied warranty of seaworthiness is dee,ed co,plied with if ship is seaworthy AT T5A TIBA O0 T5A COBBANCABANT O0 T5A RI3R- 9hat ,atters is that at the start of the !oyage ins"red ship is seaworthy. Ass"red ,a.es no warranty that !essel will contin"e to be seaworthy or that the crew won4t be negligent / ;rinciple Hehind this) If !essel crew and e+"ip,ent be originally s"fficient the ass"red has done all that he contracted to do %not any,ore responsible for f"t"re deficiency(. * A#ceptions) 3ecs. 11<a 11<b 11D
/ %11<a( In case of TIBA policy 7 ins"rance ,ade for a specified length of ti,e ship ,"st be seaworthy at the co,,ence,ent of e!ery !oyage she ,ay "nderta.e / %11<b( in case of Cargo policy 7 Ins"rance is "pon the cargo which by the ter,s of the policy description of the !oyage or established c"sto, of the trade is to be transshipped1E at an inter,ediate port- each !essel "pon which the cargo is shipped ,"st be seaworthy at the co,,ence,ent of each partic"lar !oyage / %11D( In case of Ioyage policy conte,plating a !oyage in different stages 7 ship ,"st be seaworthy at the co,,ence,ent of each portion- stages ,"st be separate and distinct in order to ha!e a different degree of seaworthiness for partic"lar parts. 3cope of 3eaworthiness of !essel 1. IN3URANCA ON CAR8O) it ,"st be properly loaded stowed d"nnaged and sec"red so as not to i,peril the na!igation of the !essel to ca"se in1"ry to the !essel or cargo. '. IN3URANCA ON IA33AL) ship is not "nseaworthy beca"se of so,e defect in loading or stowage which is easily c"rable by those on board and was c"red before the loss.
6. DACR CAR8O) carrying it raises a pres",ption of "nseaworthiness which can be o!erco,e only by showing affir,ati!ely that the dec. cargo was not li.ely to interfere with the d"e ,anage,ent of the !essel. 9here ship beco,es "nseaworthy d"ring !oyage 8eneral R"le) There is no i,plied warranty that the !essel will re,ain in a seaworthy condition thro"gho"t the life of the policy. 1. 9hen the !essel beco,es "nseaworthy d"ring the !oyage it is the d"ty of the ,aster as the shipownerVs representati!e to e#ercise d"e diligence to ,a.e it seaworthy again and if loss sho"ld occ"r beca"se of his negligence in repairing the defect the ins"rer is relie!ed of liability b"t the contract of ins"rance is not affected as to any other ris. or loss co!ered and not ca"sed or increased by s"ch partic"lar defect. 1E Transship,ent / the act of ta.ing cargo o"t of one ship and loading it in another or the transfer of goods fro, the !essel stip"lated in the contract of affreight,ent to another !essel before the place of destination na,ed in the contract has been reached or the transfer for f"rther transportation fro, one ship or con!eyance to another. 0act of transship,ent is not dependent "pon the ownership of the transporting con!eyances b"t rather
on the fact of act"al physical transfer or cargoes fro, one !essel to another. Transship,ent of freight witho"t legal e#c"se howe!er co,petent and safe the !essel into which the transfer is ,ade is an infringe,ent on the right of the shipper and s"b1ects the carrier to liability if the freight is lost e!en by a ca"se otherwise e#cepted. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1D= of 6<1 IN3URANCA CODA COBBARCIAL LA9 '. Henefit of e#oneration is gi!en only to an Tins"rer on ship or shipownerVs interest.T D"e diligence not a defense * 9arranty precl"des any defense that ins"red had e#ercised d"e diligence to ,a.e the ship seaworthy. * 35I; BU3T ACTUALLK HA 3AA9ORT5K 3eaworthiness as to cargo * 3hip ,ay be seaworthy for p"rpose of ins"rance on the ship b"t ,ay still be "nseaworthy for p"rpose of ins"rance of the cargo %e#. 3hip with porthole only 1 foot abo!e waterline ,ay be fit to tra!el the sea b"t not fit to carry wheat or rice beca"se water will go into the ship !ia the porthole and da,age the cargo( Ro+"e ! IAC 0acts) Banila Hay Lighterage Corp a co,,on carrier entered into a contract w2 Ro+"e whereby Banila Hay Lighterage wo"ld carry on
board its barge Ro+"e4s logs fro, ;alawan to Banila. The logs were ins"red by ;ioneer Ins"rance. 5owe!er the barge san.. It was fo"nd that the barge was not seaworthy %one of the hatches was left open there was a lea. in the barge(. ;ioneer ref"sed to pay da,ages beca"se of the breach of the i,plied warranty on seaworthiness. Ro+"e4s defense is that as a ,ere shipper of cargo they ha!e no control of the ship therefore seaworthiness has nothing to do with the ,atter of ins"rance o!er the logs. Iss"e) 9ON the i,plied warranty of seaworthiness also applies to ,arine ins"rance on cargo. 5eld) KA3 0or e!ery contract of ins"rance which is a s"b1ect of ,arine ins"rance a warranty is i,plied that the ship will be seaworthy. 3ince the law pro!ides for an i,plied warranty of seaworthiness in e!ery contract of ,arine ins"rance it beco,es the obligation of a cargo owner to loo. for a reliable co,,on carrier which .eeps its !essels in seaworthy condition. The shipper of the cargo ,ay ha!e no control o!er the !essel b"t he has f"ll control in the choice of the co,,on carrier that will transport his goods. Delsan Transport ! CA 0acts) Calte# entered into a contract of affreight,ent with Delasan Transport Lines to transport Calte#4s f"el oil fro, its refinery to different parts of the co"ntry. 5owe!er the ship
to Na,boanga which was ins"red by A,erican 5o,e Corp. san.. A,erican 5o,e paid Calte# representing the ins"red !al"e of the lost cargo. A,erican 5o,e e#ercising its right of s"brogation de,anded of Delsan the sa,e a,t it paid to Calte# b"t Delsan ref"sed. It was fo"nd that the chief ,ate of the !essel was not +"alified "nder the ;hil. Berchant Barine R"les. Iss"e) 9ON the pay,ent ,ade by A,erican 5o,e to Calte# a,o"nted to ad,ission that the !essel was seaworthy 5eld) NO. The pay,ent ,ade by A,erican 5o,e operates as a wai!er of its right to enforce the ter, of the i,plied warranty against Calte# "nder the ins"rance policy. 5owe!er the sa,e cannot be !alidly interpreted as an a"to,atic ad,ission of the !essel4s seaworthiness by A,erican ho,e as to foreclose reco"rse against Delsan for any liability "nder its contract"al obligation as a co,,on carrier. The fact of pay,ent grants the pri!ate respondent s"brogatory right w2c enables it to e#ercise legal re,edies that wo"ld otherwise be a!ailable to Calte# as owner of the lost cargo.. b( Ioyage and De!iation 3ec. 1'1. 9hen the !oyage conte,plated by a ,arine ins"rance policy is described by the places of beginning and ending the !oyage ins"red in one which confor,s to the co"rse of sailing fi#ed by ,ercantile "sage between those places.
3ec. 1''. If the co"rse of sailing is not fi#ed by ,ercantile "sage the !oyage ins"red by a ,arine ins"rance policy is that way between the places specified which to a ,aster of ordinary s.ill and discretion wo"ld ,ean the ,ost nat"ral direct and ad!antageo"s. 3ec. 1'6. De!iation is a depart"re fro, the co"rse of the !oyage ins"red ,entioned in the last two sections or an "nreasonable delay in p"rs"ing the !oyage or the co,,ence,ent of an entirely different !oyage. 3ec. 1'=. A de!iation is proper) %a( 9hen ca"sed by circ",stances o!er which neither the ,aster nor the owner of the ship has any control%b( 9hen necessary to co,ply with a warranty or to a!oid a peril whether or not the peril is ins"red against%c( 9hen ,ade in good faith and "pon reasonable gro"nds of belief in its necessity to a!oid a peril- or %d( 9hen ,ade in good faith for the p"rpose of sa!ing h",an life or relie!ing another !essel in distress. 3ec. 1'<. A!ery de!iation not specified in the last section is i,proper. 3ec. 1'?. An ins"rer is not liable for any loss happening to the thing ins"red s"bse+"ent to an i,proper de!iation. 9hat Ioyage Ins"red
;olicy 9hat ship ,"st do Na,es) 1. ;orts of depat"re '. ;orts of destination 6. Inter,ediate ports of call Iessel ins"red BU3T follow co"rse 3;ACI0IAD Na,es) 1. ;orts of depart"re '. ;orts of destination / 3e!eral ro"tes to destination 1. Ioyage ins"red is the one which confor,s to co"rse of sailing fi#ed by ,ercantile "sage between ports %3ec. 1'1( '. if not fi#ed by ,ercantile "sage co"rse between ports specified which to a ,aster of ordinary s.ill and discretion wo"ld be 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1D< of 6<1 IN3URANCA CODA COBBARCIAL LA9 ,ost nat"ral direct and
ad!antageo"s %3ec. 1''( R"le) / 0i#ed Ro"te / Us"al C"sto, / Discretionary %,ost nat"ral( De!iation %3ec. 1'6( * Is any "ne#c"sed depart"re fro, the reg"lar co"rse or ro"te of the ins"red !oyage or any other act which s"bstantially alters the ris. constit"tes a de!iation * Depart"re fro, co"rse of ship * Unreasonable delay in p"rs"ing !oyage * Co,,ence,ent of entirely different !oyage ;roper and I,proper De!iation * ;RO;AR de!iation 7 those allowed by law %3ec. 1'=( * IB;RO;AR de!iation 7 all other de!iation not ,entioned in 3ec. 1'=- any loss s"ffered by thing ins"red s"bse+"ent to i,proper de!iation e#onerates ins"rer fro, liability regardless of whether de!iation increased ris. or not * 95K does i,proper de!iation e#onerateS Heca"se ins"red no!ated contract witho"t consent of ins"rerd * TA3T) 9ON de!iation was proper or not %NOT 9ON ris. was increased or di,inished(
8eneral R"le) when the !oyage co!ered by the policy is described by the places of beginning and ending the !oyage ins"red is the one which confor,s to the co"rse of sailing fi#ed by ,ercantile "sage between the places or in absence of the latter the way between the places that to a ,aster of ordinary s.ill and discretion wo"ld ,ean the ,ost nat"ral direct and ad!antageo"s ro"te. The ins"rer is not liable for a loss after an i,proper de!iation fro, the L"s"alM co"rse or the LbestM co"rse :ter,s in +"otation ,ine@. A#ception) the ins"rer is not e#onerated fro, liability for loss happening after proper de!iation. The effect is as if there was no de!iation. 9hen de!iation is proper * No !itiation of the policy if the de!iation is 1"stified or ca"sed by act"al necessity which is e+"al in i,portance to s"ch de!iation. * 3"ch co,p"lsory de!iations are ris.s i,pliedly ass",ed by the "nderwriter. 9hile de!iation to sa!e property is not 1"stified "nless it is to sa!e another !essel in distress a de!iation for the p"rpose of sa!ing life does not constit"te a breach of warranty. J"stification rests on gro"nd of h",anity. De!iation to repair da,aged ship * If d"ring !oyage !essel beco,es so da,aged as to render it "nsafe witho"t
"ndergoing repairs ins"rer is not relie!ed by de!iation fro, the ship4s co"rse in order to ,a.e the nearest port for s"ch repairs %can fall "nder La!oid perilM( * Baster ,"st consider distance facilities of port +"ic.ness new ,aterial can be proc"red etc. %not necessarily nearest port b"t ,"st be ,ost proper port for repair(. * Once repair is ,ade ship ,"st p"rs"e new co"rse witho"t de!iation in shortest and ,ost e#peditio"s ,anner %otherwise this is de!iation and will absol!e ins"rer( 9ai!er of warranty against i,proper de!iation * Done by e#pressly per,itting wai!er in policy Lat a ;RABIUB to be hereafter arranged M pro!ided DUA NOTICA be gi!en by ins"red "pon recipt of ad!ice of s"ch de!iation. * Re+"ire,ent) AO;RA33AD in policy. ;RABIUB paid NOTICA gi!en c( Other I,plied 9arranties * 9hen Nationality or Ne"trality of ship or cargo is e#pressly warranted it4s i,plied ship will carry re+"isite doc",ents showing nationality or ne"trality and will not carry doc",ents that will ca"se reasonable s"spicion / Nationality / doesn4t ,ean that the ship
was b"ilt in s"ch co"ntry b"t that the property belongs to a s"b1ect thereof / Ne"trality 7 property ins"red belongs to ne"trals- a warranty of ne"trality i,ports that the property ins"red is ne"tral in fact and in appearance and cond"ct that the property shall belong to ne"trals that no act of ins"red or his agent shall be done which can legally co,pro,ise its ne"trality- warranty e#tends to ins"redVs interest in all the property intended to be co!ered by the policy b"t not to the interest of a third person not co!ered by the policy. * A warranty of national character ,ay be gathered fro, the lang"age of the policy altho"gh an e#ception has been ,ade where the fact recited co"ld ha!e no relation to the ris.. * I,plied that ship will not engage in any !ent"re which is illegal "nder the laws of the co"ntry where contract is ,ade or before whose co"rts +"estion ,ay co,eCANNOT be wai!ed since r"le of p"blic policy. * I,plied warranty to carry re+"isite doc",ents) 1( 9arranty of nationality also re+"ires that the !essel be cond"cted and doc",ented as of s"ch nation a breach of
warranty in either partic"lar will a!oid the policy. '( 9arranty is a contin"ing one change of nationality is a breach of the warranty b"t warranty is not bro.en by a contract for sale and transfer to an alien at a f"t"re date. 6( ;roper papers ,"st be prod"ced when necessary to pro!e ownership. ;rod"ction not e#c"sed beca"se the papers were lost by the fa"lt of the ,aster. <. LO33 <.1. Rinds co!ered Act"al and Constr"cti!e Loss 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1D? of 6<1 IN3URANCA CODA COBBARCIAL LA9 3ec. 1'D. A loss ,ay be either total or partial. 3ec. 1'E. A!ery loss which is not total is partial. 3ec. 1'>. A total loss ,ay be either act"al or constr"cti!e. 3ec. 16F. An act"al total loss is ca"se by) %a( A total destr"ction of the thing ins"red%b( The irretrie!able loss of the thing by sin.ing or by being bro.en "p%c( Any da,age to the thing which renders it !al"eless to the owner for the p"rpose for which he held it- or %d( Any other e!ent which effecti!ely depri!es
the owner of the possession at the port of destination of the thing ins"red. 3ec. 161. A constr"cti!e total loss is one which gi!es to a person ins"red a right to abandon "nder 3ection one h"ndred thirty/nine. 3ec. 16'. An act"al loss ,ay be pres",ed fro, the contin"ed absence of a ship witho"t being heard of. The length of ti,e which is s"fficient to raise this pres",ption depends on the circ",stances of the case. 3ec. 166. 9hen a ship is pre!ented at an inter,ediate port fro, co,pleting the !oyage by the perils ins"red against the liability of a ,arine ins"rer on the cargo contin"es after they are th"s reshipped. Nothing in this section shall pre!ent an ins"rer fro, re+"iring an additional pre,i", if the ha$ard be increased by this e#tension of liability. 3ec. 16=. In addition to the liability ,entioned in the last section a ,arine ins"rer is bo"nd for da,ages e#penses of discharging storage reship,ent e#tra freightage and all other e#penses inc"rred in sa!ing cargo reshipped p"rs"ant to the last section "p to the a,o"nt ins"red. Nothing in this or in the preceding section shall render a ,arine ins"rer liable for any a,o"nt in e#cess of the ins"red !al"e or if there be none of the ins"rable !al"e. 3ec. 16<. Upon an act"al total loss a person
ins"red is entitled to pay,ent witho"t notice of abandon,ent. 3ec. 16?. 9here it has been agreed that an ins"rance "pon a partic"lar thing or class of things shall be free fro, partic"lar a!erage a ,arine ins"rer is not liable for any partic"lar a!erage loss not depri!ing the ins"red of the possession at the port of destination of the whole of s"ch thing or class of things e!en tho"gh it beco,es entirely worthless- b"t s"ch ins"rer is liable for his proportion of all general a!erage loss assessed "pon the thing ins"red. 3ec. 16D. An ins"rance confined in ter,s to an act"al loss does not co!er a constr"cti!e total loss b"t co!ers any loss which necessarily res"lts in depri!ing the ins"red of the possession at the port of destination of the entire thing ins"red. RIND3 of LO33 1( Total 7 "nderwriter is liable for the whole of the a,o"nt ins"red / ,ay be act"al or absol"te OR constr"cti!e or technical '( ;artial %refer to gen. and part a!erage( TOTAL LO33 %any loss not total is partial( a. Act"al Total Loss 1. Total destr"ction thing ins"red '. Irretrie!able loss of thing by sin.ing or by being bro.en "p 6. Any da,age to thing which renders it !al"eless to owner for the p"rpose for which
the owner held it * Loss by sin.ing ,ay not be irretrie!able b"t there4s still act"al total loss if thing beco,es !al"eless to owner for p"rpose for which he held it * TOTAL LO33 is cost of RATRIAIAL e+"al to or ,ore than original !al"e =. Any other e!ent which effecti!ely depri!es owner of possession at the port of destination of thing ins"red. <. Under 3ection 16F the co,plete physical destr"ction of the s"b1ect ,atter as in the case of fire is not essential to constit"te an act"al total loss %:b@ :c@ :d@(. 3"ch loss ,ay e#ist where the for, and specie of the thing is destroyed altho"gh the ,aterials of which it consisted still e#ist %;an Balayan !. CA :>1@(. 0or e#a,ple when repairs wo"ld be ,ore e#pensi!e than the original cost of the !essel and effecti!e depri!ation of "se and possession of property. * ;res",ed fro, contin"ed absence of ship witho"t being heard of %for length of ti,e s"fficient to raise s"ch pres",ption( 8eneral R"le) if a !essel is not heard of at all within a reasonable ti,e after sailing or for a reasonable ti,e after she was last seen she will be pres",ed to ha!e been lost fro, a peril ins"red against. 5ow pres",ption is established)
;laintiff ,"st pro!e that !essel left the port of o"tfit for the !oyage ins"red. Then he ,"st show that the !essel was not heard of at port of depart"re after sailing witho"t calling witnesses fro, port of destination to show she ne!er arri!ed there. No r"le as to the ti,e after which ,issing !essel is pres",ed lostCdepends on the circ",stances of the case. * Ins"red has AH3OLUTA right to clai, whole a,o"nt of ins"rance e!en witho"t notice of abandon,ent. Once he recei!es a,o"nt it ta.es the place of the !essel and ,"st be "sed to pay for any da,age for which it be held liable. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1DD of 6<1 IN3URANCA CODA COBBARCIAL LA9 b. Constr"cti!e %or Technical( total lossAbandon,ent %refer to the ne#t few sections( * Loss altho"gh not act"ally loss is of character that the ins"red is entitled if he thin.s fit to treat it as total by abandon,ent. * 8i!es the ins"red the right to abandon the thing ins"red by relin+"ishing to the ins"rer his interest in s"ch a thing entitling hi, to reco!er for a total loss thereof * Right to abandon granted by law if the peril ins"red against ca"ses a loss of ,ore than e the !al"e of the thing ins"red. * Ins"rer ac+"ires all rights o!er the thing
ins"red * If abandon,ent is not proper or properly ,ade the ins"rer wo"ld still be liable as "pon the Act"al total loss ded"cting fro, the a,o"nt any proceeds fro, the thing ins"red which ,ay ha!e co,e to the hands of the ins"red. * 9hy differentiate between the ' types of total loss) the .ind of loss is the basis for the application of the doctrine of abandon,ent %3ection 16E 16>(. In act"al total loss no abandon,ent necessary- b"t if loss ,erely constr"cti!ely total an abandon,ent beco,es necessary to reco!er as for a total loss. * 3tip"lation of Lact"al total lossM only strictly constr"ed) an ins"rance against Ltotal loss onlyM co!ers any total loss act"al or constr"cti!e altho"gh there is a"thority to the contrary. If against Labsol"teM or Lact"al total loss ins"rer not liable for constr"cti!e loss. Liability of ins"rer in case of partial loss of ship or its e+"ip,ent * There is a ded"ction fro, the cost of repairs of Lone third new for oldM on the theory that the new ,aterials render the !essel ,"ch ,ore !al"able than it was before the loss. 9hen repairs are ,ade one/third of the cost of the repair is laid "pon the ins"red as his b"rden and the i,plied agree,ent "nder the policy is that in case of da,age to the ship by a peril
within the policy the loss shall be esti,ated at two/thirds of the cost of repairs fairly e#ec"ted or one/third new for old as is co,,only e#pressed. I0 IOKA8A CAN4T HA COB;LATAD %3ee 3ec. 166( * In Ins"rance Act %3ec.1'?( if ship is pre!ented fro, lea!ing an inter,ediate port by perils ins"red against the ,aster ,"st ,a.e e!ery e#ertion to proc"re in the sa,e or contig"o"s port another ship for the p"rpose of con!eying the cargo to its destination and the liability of a ,arine ins"rer thereon contin"es after they are th"s reshipped. 5owe!er s"ch an obligation was deleted fro, the Ins"rance Code. Ca,pos says that this ,ay be either an "nintentional o,ission2error or intentional. In any case in case of reship,ent the ins"rer is liable) 1. 0or any loss which ,ay ta.e place on goods "ntil they are reshipped if !oyage cannot be co,pleted in any ins"rance "pon cargo 7 ins"rer ,ay re+"ired additional pre,i", if the ha$ard be increased by the e#tension of liability %3ec. 166( '. Ins"rer also liable for e#penses necessary to co,plete the transportaion of cargo reshipped- da,ages e#penses of discharging storage reship,ent e#tra
freiathage and all other e#penses inc"rred in sa!ing cargo reshipped 7 s"ch liability howe!er cannot e#ceed the a,o"nt of ins"rance %3ec 16=( 8eneral R"le) if the original ship be disabled and the ,aster acting with a wise discretion as the agent of the ,erchant and the shipowner forwards the cargo in another ship s"ch necessary and 1"stifiable change of ship will not discharge the "nderwriter on the goods fro, liability for any loss which ,ay ta.e place on goods after s"ch reship,ent. A#ception) the general r"le is not obligatory if the crew had to proc"re a !essel fro, distant places and there are serio"s i,pedi,ents in the way of p"tting the cargo on board. 3"bsidiary R"le) additional pre,i", ,ay be re+"ired if the ha$ard is increased by e#tension of liability. LIAHILITK O0 IN3URAR IN CA3A O0 AIARA8A A!erage 7 any e#traordinary or accidental e#penses inc"rred d"ring the !oyage for the preser!ation of the !essel cargo or both and all da,ages to the !essel and cargo fro, the ti,e it is loaded and the !oyage co,,enced "ntil it ends and the cargo "nloaded Two .ind of A!erages %Under Ad,iralty Law() a. ;artic"lar A!erage 7 partial loss ca"sed by the peril ins"red against which is not a general a!erage loss o"t of the ordinary "se of the thing
* Not e!eryone benefits. * Not intentionally ca"sed to pre!ent a co,,on danger * Ins"rer liable for the partic"lar a!erage "nless policy e#cl"des it. * Liability is li,ited to the proportion of the contrib"tion attaching to his policy !al"e where this is less than the contrib"ting !al"e of the thing ins"red. * Liability for partic"lar ins"rance 8eneral R"le) an ins"rer is liable for both general and partic"lar a!erage loss. A#ception) parties can stip"late as it often happens in ,arine ins"rance that the ins"rer will not be liable for loss partial or total arising fro, perils of the sea of a certain class of goods which are perishable or pec"liarly s"b1ect to da,age. A#ception) they ,ay also agree to e#e,pt partic"lar a!erage. Then ins"rer is liable only for general a!erage and not for partic"lar a!erage AOCA;T if the partic"lar a!erage loss has the effect of Ldepri!ing ins"red of possession at the port of destination of the wholeM of the thing ins"red. b. 8eneral A!erage 7 co,,on benefit %to e!eryone( INTANTIONAL da,age to sa!e the ,a1ority thing %so,ething is sacrificed(. * Applies only when it is 3UCCA330UL * Incl"des all da,ages and e#penses which are deliberately ca"sed in order to sa!e the !essel its cargo or both at the sa,e ti,e
fro, a real and .nown ris. * Therefore when e!eryone benefits e!eryone has to spend for it so the person whose cargo was sacrificed cannot reco!er 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1DE of 6<1 IN3URANCA CODA COBBARCIAL LA9 e!erything beca"se part of that will go to the pro/rata da,age to sa!e the ,a1ority * L8eneral a!erageM contrib"tion is a de!ice for a li,ited distrib"tion of loss. Loss is pro tanto ,ade "p by proportionate or Lgeneral a!erageM contrib"tions fro, owners of interests benefited by the sacrifice. * A principle of c"sto,ary law independent of contract * A#. Antering another port for repairs rehandling of cargo and 1ettisoning of goods to lighten !essel in case of danger of shipwrec. * 8i!es rise to right of owner to contrib"tion for, those benefited thereby or fro, ins"rer * 0or,alities in Art. E16 and E1= of the Code of Co,,erce ,"st be co,plied with to inc"r e#penses and ca"se da,ages corresponding to gross a!erage. * Liability of Ins"rer) If owner is ins"red he has the alternati!e of see.ing fro, his ins"rer s"brogating the latter to his said right of contrib"tion. 5e loses this
alternati!e howe!er if he neglects or wai!es his right to s"ch contrib"tion * A#ception) There can be no reco!ery for general a!erage loss against the ins"rer) 1. After the separation of the interests liable to the contrib"tion '. 9hen the ins"red has neglected or wai!ed his right to contrib"tion. * Re+"isites for 8en. A!e to e#ist 1. There ,"st be co,,on danger to ship and cargo '. 0or co,,on safety part of the !essel or cargo is sacrificed deliberately 6. 0ro, the e#penses or da,ages ca"sed follows the sa!ing of the !essel and cargo =. That the e#penses or da,ages sho"ld ha!e been inc"rred or inflicted after ta.ing the proper legal steps. <. Bade by the ,aster or "pon his a"thority ?. Not ca"sed by any fa"lt of party as.ing for contrib"tion D. Necessary * Liability of ins"rer for general a!erage Art. E<> Code of Co,,erce. The "nderwriters of the !essels of the freightage and of the cargo shall be obliged to pay for the inde,nity of the gross
a!erage in so far as is re+"ired of each one of these ob1ects respecti!ely. The abo!e pro!ision is ,andatory in ter,s and ins"rers whether for !essel cargo or freightage are bo"nd to contrib"te to the inde,nity of the general a!erage. This places ins"rer on sa,e footing as others who ha!e an interest in the !essel or cargo at ti,e of occ"rrence of the general a!erage and who are co,pelled to contrib"te. * 0or,"la for co,p"ting liability of ins"rer A,t of ins"ranceffff # 8eneral A!eage \ ;roportion of 8AL for Total a,t or !al"e in!ol!ed Loss %8AL( which ins"rer is liable * Li,it as to liability of ins"rer for general a!erage loss It is li,ited to the proportion of contrib"tion attaching to his policy !al"e where this is less than the contrib"ting !al"e of the thing ins"red. In other words the liability of the ins"rer shall be less than the proportion of the general a!erage loss assessed "pon the thing ins"red where its contrib"ting !al"e is ,ore than the a,o"nt of the ins"rance. In s"ch a case the ins"red is liable to contrib"te ratably with the ins"rer to the inde,nity of the general a!erage) ;hilippine Ban"fact"ring Co ! Ins"rance 3ociety of Canton Ltd. 0acts) The ins"red !essel owned by ;hil.
Ban"fact"ring Co. sand d"e to a typhoon. Despite the offer of ;hil Ban. To abandon the !essel as an absol"te total loss the ins"rer Ins. 3ociety of Canton ref"sed it and re+"ired that the ship be sal!aged. After se!eral f"tile atte,pts the ship was finally raised abo"t two ,onths later and was repaired. The cost of sal!age and repair was s"bstantially e+"al to the original cost of the !essel. Iss"e) 9ON Ins"rance 3ociety can be held for total loss of the !essel e!en after its reco!ery 5eld) KA3. Ins"rer liable for total loss beca"se while the ship was in the botto, of the sea it was of no !al"e to the owner. To render it !al"eless to the ins"red it is no necessary that there be an act"al or total loss or destr"ction of all the different parts of the entire !essel. Choa ! CA 0acts) Choa i,ported so,e lactose crystals fro, 5olland. The goods were ins"red with 0ilipino Berchants against all ris.s. Upon arri!al in Banila it was fo"nd that o"t of the ?FF bags =F6 were in bad order. Choa filed a clai, for the loss b"t 0il. Ber re1ected. Iss"e) 9ON an Lall ris.sM co!erage co!ers only losses occasioned by fort"ito"s e!ents 5eld) NO. An all ris. ins"rance policy ins"res against all ca"se of concei!able loss or da,age e#cept as otherwise e#cl"ded in the policy or d"e to fra"d. The ter,s of the policy are clear and
re+"ire no interpretation. An Lall ris.sM pro!ision creates a special type of ins"rance w2c e#tends co!erage to ris.s not "s"ally conte,plated and a!oids p"tting "pon the ins"red the b"rden of establishing that ins"rer can a!oid co!erage "pon de,onstrating that a specific pro!ision e#pressly e#cl"des the loss fro, co!erage. Aboiti$ 3hipping ! ;5ILAB8AN 0acts) Barind"+"e Bining Ind"strial Crop had shipped fro, the U3 a ship,ent of one s.id carton parts for !al!es. 9hen cargo arri!ed in Banila it was deposited in the office of Aboiti$ 3hipping Corp for transship,ent to Nonoc Island. 5owe!er before it was transshipped said cargo was pilfered. Barind"+"e filed a clai, against Aboiti$ in the a,o"nt of the pilfered cargo. It also filed for the sa,e a,o"nt against ;hilippine A,o"nt of ins"rance ff O ;roportion of general Li,it of liability Ial"e of the thing a!erage loss assessed \ of ins"rer ins"red "pon thing ins"red 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1D> of 6<1 IN3URANCA CODA COBBARCIAL LA9 A,erican 8eneral Ins"rance Co %;hil/A,( its ins"rer. Iss"e) 9ON Aboiti$ sho"ld be held liable for the pilfered cargo. 5eld) KA3. The +"estioned ship,ent is co!ered by a contin"ing open ins"rance co!erage fro, the ti,e it was loaded in the U3 to the ti,e it
was deli!ered to the possession of Aboiti$ in its Banila office. Aboiti$4s contention is that it co"ld not be held liable for the pilferage as it was stolen e!en before it was loaded on the !essel. This is "ntenable as the logs were in its possession before it was pilfered. Oriental Ass"rance ! CA 0acts) ;ana,a 3aw,ill Co had logs shipped fro, ;alawan aboard the barges of Transpacific Towage Inc. It was ins"red with Oriental Ass"rance Corp and loaded on ' barges. 5owe!er d"ring the !oyage =>D pieces of the <>E pieces loaded on one of the barges was lost. Iss"e) 9ON ;ana,a can de,and pay,ent for constr"cti!e loss of the logs on one of the barges 5eld) NO. The logs in!ol!ed altho"gh placed in two barges were not separately !al"ed by the policy nor separately ins"red. Res"ltantly the logs lost in the barge in relation to the total n",ber of logs loaded on the sa,e barge can not be ,ade the basis for deter,ining constr"cti!e total loss. The logs ha!ing been ins"red as one inseparate "nit the correct basis for deter,ining the e#istence of constr"cti!e total loss is the totality of the ship,ent of logs. %O0 the 1 'FE logs only =>D pieces were lost or =1G therefore it cannot fall "nder constr"cti!e total loss( ;an Balayan Ins"rance ! CA 0acts) The barge carrying a ship,ent of certified rice seeds to Ra,p"chea san.. The owner of the
rice seeds the 0ood and Agric"lt"ral Organi$ation of the U.N. %0AO( filed its clai, "nder a ,arine ins"rance policy with ;an Balayan. Later it was infor,ed by L"$on 3te!edoring Corporation the carrier that the ship,ent was reco!ered hence 0AO filed a clai, w2 L"$on 3te!edoring for co,pensation fo da,ages of its cargo. Iss"e) 9oN 0AO can reco!er for total loss e!en if so,e of the rice seeds was reco!ered. 5eld) KA3. The co,plete physical destr"ction of the s"b1ect ,atter is not essential t oconstit"te an act"al total loss. 3"ch a loss ,ay e#ist where the for, and specie of the thing is destroyed altho"gh the ,aterials which it consisted still e#ist. Of the 6= 1'' bags of rice seeds shipped 'D >'' bags were deter,ined to be lost2da,aged %DEG of cargo da,aged(. ?. AHANDONBANT ?.1. Re+"isites and Conditions 3ec. 16E. Abandon,ent in ,arine ins"rance is the act of the ins"red by which after a constr"cti!e total loss he declares the relin+"ish,ent to the ins"rer of his interest in the thing ins"red. 3ec. 16>. A person ins"red by a contract of ,arine ins"rance ,ay abandon the thing ins"red or any partic"lar portion thereof separately !al"ed by the policy or otherwise separately ins"red and reco!er for a total loss thereof when the ca"se of the loss is a peril ins"red against)
%a( If ,ore than three/fo"rths thereof in !al"e is act"ally lost or wo"ld ha!e to be e#pended to reco!er it fro, the peril%b( If it is in1"red to s"ch an e#tent as to red"ce its !al"e ,ore than three/fo"rths%c( If the thing ins"red is a ship and the conte,plated !oyage cannot be lawf"lly perfor,ed witho"t inc"rring either an e#pense to the ins"red of ,ore than three/fo"rths the !al"e of the thing abandoned or a ris. which a pr"dent ,an wo"ld not ta.e "nder the circ",stances- or %d( If the thing ins"red being cargo or freightage and the !oyage cannot be perfor,ed nor another ship proc"red by the ,aster within a reasonable ti,e and with reasonable diligence to forward the cargo witho"t inc"rring the li.e e#pense or ris. ,entioned in the preceding s"bparagraph. H"t freightage cannot in any case be abandoned "nless the ship is also abandoned. 3ec. 1=F. An abandon,ent ,"st be neither partial nor conditional. 3ec. 1=1. An abandon,ent ,"st be ,ade within a reasonable ti,e after receipt of reliable infor,ation of the loss b"t where the infor,ation is of a do"btf"l character the ins"red is entitled to a reasonable ti,e to ,a.e in+"iry. 3ec. 1='. 9here the infor,ation "pon which an abandon,ent has been ,ade pro!es incorrect or the thing ins"red was so far restored when the abandon,ent was ,ade that there was then in fact
no total loss the abandon,ent beco,es ineffect"al. 3ec. 1=6. Abandon,ent is ,ade by gi!ing notice thereof to the ins"rer which ,ay be done orally or in writing- ;ro!ided That if the notice be done orally a written notice of s"ch abandon,ent shall be s"b,itted within se!en days fro, s"ch oral notice. 3ec. 1==. A notice of abandon,ent ,"st be e#plicit and ,"st specify the partic"lar ca"se of the abandon,ent b"t need state only eno"gh to show that there is probable ca"se therefor and need not be acco,panied with proof of interest or of loss. 3ec. 1=<. An abandon,ent can be s"stained only "pon the ca"se specified in the notice thereof. 3ec. 1=?. An abandon,ent is e+"i!alent to a transfer by the ins"red of his interest to the ins"rer with all the chances of reco!ery and inde,nity. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1EF of 6<1 IN3URANCA CODA COBBARCIAL LA9 3ec. 1=D. If a ,arine ins"rer pays for a loss as if it were an act"al total loss he is entitled to whate!er ,ay re,ain of the thing ins"red or its proceeds or sal!age as if there had been a for,al abandon,ent. 3ec. 1=E. Upon an abandon,ent acts done in good faith by those who were agents of the ins"red in respect to the thing ins"red s"bse+"ent to the
loss are at the ris. of the ins"rer and for his benefit. 3ec. 1=>. 9here notice of abandon,ent is properly gi!en the rights of the ins"red are not pre1"diced by the fact that the ins"rer ref"ses to accept the abandon,ent. 3ec. 1<F. The acceptance of an abandon,ent ,ay be either e#press or i,plied fro, the cond"ct of the ins"rer. The ,ere silence of the ins"rer for an "nreasonable length of ti,e after notice shall be constr"ed as an acceptance. 3ec. 1<1. The acceptance of an abandon,ent whether e#press or i,plied is concl"si!e "pon the parties and ad,its the loss and the s"fficiency of the abandon,ent. 3ec. 1<'. An abandon,ent once ,ade and accepted is irre!ocable "nless the gro"nd "pon which it was ,ade pro!es to be "nfo"nded. 3ec. 1<6. On an accepted abandon,ent of a ship freightage earned pre!io"s to the loss belongs to the ins"rer of said freightage- b"t freightage s"bse+"ently earned belongs to the ins"rer of the ship. 3ec. 1<=. If an ins"rer ref"ses to accept a !alid abandon,ent he is liable as "pon act"al total loss ded"cting fro, the a,o"nt any proceeds of the thing ins"red which ,ay ha!e co,e to the hands of the ins"red. 3ec. 1<<. If a person ins"red o,its to abandon he ,ay ne!ertheless reco!er his act"al
loss. AHANDONBANT * Abandon,ent in ,arine ins"rance is the act of the ins"red by which after a constr"cti!e total loss he declares the relin+"ish,ent to the ins"rer of his interest in the thing ins"red. The ins"red chooses to ta.e the proceeds in place of the re,aining parts of the thing which is ceded to the * ins"rer. * Right to abandon is granted by law to the ins"red if peril ins"red against ca"ses a loss of ,ore than e the thing ins"red or where its !al"e is red"ced by ,ore than e * Re,e,ber) D<G loss \ Constr"cti!e Loss which entitles reco!ery of the f"ll a,o"nt in the policy. Does not ,ean that reco!ery is only "p to D<G. 9hen Constr"cti!e TOTAL loss e#ists) e R"le %3ec. 16>( 1. If ,ore than e thereof in !al"e is act"ally lost or wo"ld ha!e to be e#pended to reco!er fro, peril '. If it is in1"red to s"ch an e#tent as to red"ce its !al"e ,ore than e 6. I0 the thing ins"red is a ship and the conte,plated !oyage can4t be lawf"lly perfor,ed w2o inc"rring either an e#pense to the ins"red or ,ore than e the !al"e of the thing abandoned or a ris. which a
pr"dent ,an wo"ld not ta.e "nder the circ",stances =. If the thing ins"red being cargo or freightage and the !oyage can4t be perfor,ed nor another ship proc"red by the ,aster within a reasonable ti,e and with reasonable diligence to fowrward the cargo witho"t inc"rring the li.e e#pense or ris. ,entioned in the preceding s"bparagraph. H"t freightage cannot in any case be abandoned "nless the ship is also abandoned. Re+"ire,ents) 1. There ,"st be act"al relin+"ish,ent by the person ins"red of his interest in the thing ins"red %16E( '. There ,"st be constr"cti!e total loss %16>(. Any partic"lar portion of the thing ins"red separately !al"ed by the policy ,ay be separately abandoned as it is dee,ed separately ins"red 6. It ,"st be total and absol"te %1=F( =. It ,"st be within a reasonable ti,e after the receipt of reliable infor,ation of the loss %1=1( <. It ,"st be fact"al %1='( ?. It ,"st be ,ade by gi!ing notice thereof to the ins"rer which ,ay be done orally or in writing %1=6( D. Notice ,"st be e#plicit and ,"st
specify the partic"lar ca"se of the abandon,ent %1==( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1E1 of 6<1 IN3URANCA CODA COBBARCIAL LA9 Necessity for abandon,ent * TAC5NICAL TOTAL LO33) ins"red can4t clai, the whole ins"rance witho"t showing d"e regard to the interest the "nderwriter ,ay ta.e in the abandoned property. If "nderwriter can sa!e so,e parts he is entitled to ti,ely notice of abandon,ent and he can4t be liable for a total loss witho"t it. H"t there is no obligation to abandonCins"red4s choice. 5e still reco!ers act"al loss e!en if he doesn4t abandon %&1<<(. International R"le) * right of abandon,ent of !essels as a legal li,itation of a ship owner4s liability does not apply where in1"ry or a!erage was ca"sed by ship owner4s own fa"lt. Art.<ED %Code of Co,,erce( refers only to cases of captain4s fa"lt or negligence. If owner is also at fa"lt Ci!il Code pro!isions on Co,,on Carriers apply. 9hen there is constr"cti!e total loss * ;hilippine r"le 7 ins"red ,any not abandon "nless loss2da,age is ,ore than e of !al"e as indicated in &16>. Abandon,ent where ins"rance di!isible and
where indi!isible * Things separately !al"ed by the policy ,ay be separately abandoned beca"se they are separately ins"red %3ection 16>( This is a +"estion of intention to be deter,ined by the lang"age "sed Criterion as to e#tent of loss 8eneral R"le) The e#tent of in1"ry to the !essel is considered with reference to the general ,ar.et !al"e i,,ediately before the disaster. The r"le is said to apply e!en tho"gh the policy is !al"ed b"t so,e thin. otherwise. If the policy is e#pressly pro!ides that the !al"ation will be "sed it sho"ld be followed. The e#penses inc"rred or to be inc"rred by the ins"red reco!ering the thing ins"red are also considered %e#. cost for refloating the ship(. Abandon,ent ,"st be absol"te 8eneral R"le) To co!er the whole interest ins"red abandon,ent ,"st be "nconditional. A#ception) if only part of the thing is co!ered by the ins"rance the ins"rer need only abandon that part. Abandon,ent ,"st be ,ade within a reasonable ti,e * Once the ins"red recei!ed the notice of loss he ,"st choose within a reasonable ti,e 9ON he will abandon to the ins"rer. If he chooses to do so he ,"st gi!e notice so that the ins"rer ,ay not be pre1"diced by
the delay and ,ay ta.e i,,ediate steps for the preser!ation of the property. * Reasonable ti,e / depending on the facts and circ",stances in each case. If the first notice is not clearly ,ade the ins"red ,"st ha!e s"fficient ti,e to ascertain the facts. 5e cannot wait an "nd"e length of ti,e to see if it will be ,ore profitable to abandon or clai, for partial loss. Abandon,ent ,"st be fact"al 1. A#istence of loss at ti,e of abandon,ent / the right of the ins"red to choose between abandon,ent or reco!ery for total loss depends on the facts at the ti,e of the offer to abandon and not "pon the state disclosed by the infor,ation recei!ed or state of loss before the ti,e of offer '. Affect of s"bse+"ent e!ents / none. Once the abandon,ent is ,ade good the rights of the parties beco,e fi#ed. The sa,e is tr"e when the abandon,ent is not ,ade good. 3"bse+"ent e!ents will not affect it as to retroacti!ely i,part !alidity. a. Ins"red cannot abandon when the thing is safe or when he .new at the ti,e he ,ade the offer that the !essel had been repaired and is contin"ing !oyage. b. If after abandon,ent the thing is reco!ered ins"red ,ay not withdraw.
Ineffecti!e abandon,ent * Abandon,e nt can be s"stained only "pon ca"se specified * If ca"se is "nfo"nded and info "pon which it was ,ade pro!es incorrect * Thing ins"red was so far restored when the abandon,e nt was ,ade that there was in fact no total loss * A+"i!alent to transfer by the ins"red of his interest to the ins"rer with all the chances of reco!ery and inde,nity
* I0 proper and notice is properly gi!en ref"sal to accept abandon,ent does not pre1"dice ins"red. Ins"red still liable for act"al total loss ,in"s a,o"nt any proceeds of thing ins"red which ,ay ha!e co,e to the hands of the ins"red. * I0 ins"rer accepts abandon,ent it4s concl"si!e between the parties and ad,its the loss and the s"fficiency of the abandon,ent * Irre!ocable "nless gro"nds pro!e to be "nfo"nded ACCA;TANCA A#press or I,plied fro, cond"ct of ins"rer Bere silence for "nreasonable length of ti,e ,ay be dee,ed acceptance NO AHAN/DONBANT Ins"red still entitled to reco!er act"al loss
3a,e r"le applies where abandon,ent wasn4t proper or where it wasn4t properly ,ade 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1E' of 6<1 IN3URANCA CODA COBBARCIAL LA9 6. Instances 1"stifying abandon,ent / ins"red ,ay abandon for a total loss in case of capt"re sei$"re or detention of the ship or cargo- restraint by bloc.ade or e,bargof"nds for repair cannot be raised w2o fa"lt of owner- where !oyage absol"tely lostwhere sale ,ade by ,aster of the !essel beca"se of "rgent necessity. Infor,ation need not be direct or positi!e * Direct or positi!e infor,ation not necessary %e#. newspaper report letter fro, an agent( * The infor,ation ,"st be of s"ch facts and circ",stances as to render it highly probable that a constr"cti!e total loss has occ"rred and facts s"fficient to constit"te a total loss ,"st e#ist. H"t the facts and infor,ation need not be the sa,e. 0or, of notice of abandon,ent 8eneral R"le) no partic"lar for, of gi!ing notice of abandon,ent is re+"ired by law. It ,ay be ,ade orally "nless the policy re+"ires that it be
,ade in writing. Notice by telegraph ,ay be s"fficient. 3"bsidiary R"le) if notice is done orally the ins"red ,"st s"b,it to the ins"rer a written notice w2in D days fro, the oral notice Notice of abandon,ent ,"st be e#plicit * Notice cannot 1"st be inferred fro, so,e e+"i!ocal acts. There ,"st be an intention to abandon apparent fro, the co,,"nication. * The "se of the word LabandonM is not necessary. * There is no abandon,ent altho"gh the ins"red has gi!en notice of an intention to abandon if he contin"es to clai, and "se the property as his own. Notice of abandon,ent ,"st specify partic"lar ca"se thereof * The gro"nds ,"st be stated with s"ch partic"larity as to enable the ins"rer to deter,ine 9ON he is bo"nd to accept the offer. * ;robable ca"se of abandon,ent contained in the notice is s"fficient. * ;roof of interest or of loss is not necessary in the notice. ;roof of other ca"ses not ad,issible * 3"fficient gro"nds for abandon,ent ,"st be stated to ,a.e the abandon,ent !alid. 5e cannot a!ail hi,self of any gro"nd other
than those he stated. 0or, of acceptance of abandon,ent * Need not be e#press. It ,ay be i,plied by cond"ct as fro, an act of the ins"rer in conse+"ence of an abandon,ent which can only be 1"stified "nder a right deri!ed fro, the abandon,ent %e#. when the ins"rer too. possession of the ship and ,ade repairs already followed by retention for an "nreasonable a,o"nt of ti,e( * 3ilence if not for an "nreasonable a,o"nt of ti,e will not operate as an acceptance Right of the ins"rer to freightage 8eneral R"le) a !alidly ,ade abandon,ent passes to the ins"rer the interest that the ins"red has o!er the thing 3"bsidiary R"le as to a ship) the ins"rer after abandon,ent beco,es the owner thereof and his title beco,es !ested as of the ti,e of the loss. 3"bsidiary R"le as to freightage) depends "pon when s"ch freightage was earned. If s"bse+"ent to the loss it belongs to the ins"rer of the ship. If pre!io"sly earned to the ins"rer of the freightage who is s"brogated to the rights of the ins"red "p to the ti,e of the loss. Affects of acceptance of abandon,ent 1. Upon recei!ing notice of abandon,ent the ins"rer ,ay accept or re1ect abandon,ent.
'. Ins"rer beco,es liable for whole a,o"nt of ins"rance and beco,es entitled to all the rights which the ins"red has o!er the thing 6. The parties4 rights beco,e fi#ed. =. The ins"rer ,ay no longer rely on any ins"fficiency in the for, ti,e or right of abandon,ent. 9ON the ins"red has a right to abandon is i,,aterial where offer is already accepted and there is no fra"d. <. AOCA;TION to the general effects of acceptance) when the gro"nd "pon which it was ,ade pro!es to be "nfo"nded. ?. Abandon,ent can be s"stained only "pon the gro"nd specified in the notice. Affect of ref"sal to accept a !alid abandon,ent on ins"rer4s liability 8eneral R"le) the ins"red4s right to abandon is absol"te when it is 1"stified by circ",stances. Acceptance is not necessary to !alidate it. %Act"al Loss( / %;roceeds the ins"rer ,ight ha!e recei!ed fro, the da,aged property(fffffffff %Liability of ins"rer( 3"bsidiary R"le) "pon proper abandon,ent ins"red ,ay still reco!er to the e#tent of the da,age pro!ed
D. BAA3URA O0 INDABNITK D.1. Open and Ial"ed ;olicy 3ec. 1<?. A !al"ation in a policy of ,arine ins"rance in concl"si!e between the parties thereto in the ad1"st,ent of either a partial or total loss if the ins"red has so,e interest at ris. and there is no fra"d on his part- e#cept that when a thing has been hypothecated by botto,ry or respondentia before its ins"rance and witho"t the .nowledge of the person act"ally proc"ring the ins"rance he ,ay show the real !al"e. H"t a !al"ation fra"d"lent in fact entitles the ins"rer to rescind the contract. 3ec. 1<D. A ,arine ins"rer is liable "pon a partial loss only for s"ch proportion of the a,o"nt ins"red by hi, as the loss bears to the !al"e of the 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1E6 of 6<1 IN3URANCA CODA COBBARCIAL LA9 whole interest of the ins"red in the property ins"red. 3ec. 1<E. 9here profits are separately ins"red in a contract of ,arine ins"rance the ins"red is entitled to reco!er in case of loss a proportion of s"ch profits e+"i!alent to the proportion which the !al"e of the property lost bears to the !al"e of the whole. 3ec. 1<>. In case of a !al"ed policy of ,arine ins"rance on freightage or cargo if a part only of the s"b1ect is e#posed to the ris. the e!al"ation applies only in proportion to s"ch part.
3ec. 1?F. 9hen profits are !al"ed and ins"red by a contract of ,arine ins"rance a loss of the, is concl"si!ely pres",ed fro, a loss of the property o"t of which they are e#pected to arise and the !al"ation fi#es their a,o"nt. 3ec. 1?1. In esti,ating a loss "nder an open policy of ,arine ins"rance the following r"les are to be obser!ed) %a( The !al"e of a ship is its !al"e at the beginning of the ris. incl"ding all articles or charges which add to its per,anent !al"e or which are necessary to prepare it for the !oyage ins"red%b( The !al"e of the cargo is its act"al cost to the ins"red when laden on board or where the cost cannot be ascertained its ,ar.et !al"e at the ti,e and place of lading adding the charges inc"rred in p"rchasing and placing it on board b"t witho"t reference to any loss inc"rred in raising ,oney for its p"rchase or to any drawbac. on its e#portation or to the fl"ct"ation of the ,ar.et at the port of destination or to e#penses inc"rred on the way or on arri!al%c( The !al"e of freightage is the gross freightage e#cl"si!e of pri,age witho"t reference to the cost of earning it- and %d( The cost of ins"rance is in each case to be added to the !al"e th"s esti,ated. 3ec. 1?'. If cargo ins"red against partial loss arri!es at the port of destination in a da,aged condition the loss of the ins"red is dee,ed to be
the sa,e proportion of the !al"e which the ,ar.et price at that port of the thing so da,aged bears to the ,ar.et price it wo"ld ha!e bro"ght if so"nd. 3ec. 1?6. A ,arine ins"rer is liable for all the e#penses attendant "pon a loss which forces the ship into port to be repaired- and where it is stip"lated in the policy that the ins"red shall labor for the reco!ery of the property the ins"rer is liable for the e#pense inc"rred thereby s"ch e#pense in either case being in addition to a total loss if that afterwards occ"rs. 3ec. 1?=. A ,arine ins"rer is liable for a loss falling "pon the ins"red thro"gh a contrib"tion in respect to the thing ins"red re+"ired to be ,ade by hi, towards a general a!erage loss called for by a peril ins"red against- pro!ided that the liability of the ins"rer shall be li,ited to the proportion of contrib"tion attaching to his policy !al"e where this is less than the contrib"ting !al"e of the thing ins"red. 3ec. 1?<. 9hen a person ins"red by a contract of ,arine ins"rance has a de,and against others for contrib"tion he ,ay clai, the whole loss fro, the ins"rer s"brogating hi, to his own right to contrib"tion. H"t no s"ch clai, can be ,ade "pon the ins"rer after the separation of the interests liable to the contrib"tion nor when the ins"red ha!ing the right and opport"nity to enforce the contrib"tion fro, others has neglected or wai!ed the e#ercise of that right.
3ec. 1??. In the case of a partial loss of ship or its e+"ip,ent the old ,aterials are to be applied towards pay,ent for the new. Unless otherwise stip"lated in the policy a ,arine ins"rer is liable for only two/thirds of the re,aining cost of repairs after s"ch ded"ction e#cept that anchors ,"st be paid in f"ll. A. Ial"ed ;olicy * Ial"ation fi#es in ad!ance the !al"e of the property and th"s a!oids the necessity of pro!ing its act"al !al"e in case of loss * Ial"ation is concl"si!e between the parties in the ad1"st,ent of either a total or partial loss. * A#ception) If there is 0RAUD on the part of the ins"red ins"rer wo"ld ha!e the right to RA3CI33ION * The change in a !essel4s !al"e after a long period of !oyage cannot bind the parties as the ins"red !al"e stated in the policy is concl"si!e "pon the,. * Neither party can gi!e e!idence of the real !al"e of the thing ins"red. H"t when the thing has been hypothecated by botto,ry or respondentia before its ins"rance and witho"t the .nowledge of the person who act"ally proc"red the ins"rance the ins"rer ,ay show the real !al"e b"t he is not entitled to rescind the contract "nless he can pro!e that the !al"ation was in fact
fra"d"lent. * 9hen ins"red a co/ins"rer in ,arine ins"rance / In ,arine ins"rance the ins"red is e#pected to co!er by ins"rance the f"ll !al"e of the property ins"red. If the !al"e of his interest e#ceeds the a,o"nt of the ins"rance he is considered the co/ins"rer for an a,o"nt deter,ined by the difference between the ins"rance ta.en o"t and the !al"e of the property) / 3ection 1<D applies only if %1( the loss is partial and %'( the a,o"nt of ins"rance is less than the ins"red entire ins"rable interest in the property ins"red. * Loss of profits separately ins"red / If the profits to be reali$ed are separately ins"red fro, the !essel or f %partial( Lossfff A,o"nt A,o"nt !al"e of thing O of ;rofits \ of Reco!ery ins"red 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1E= of 6<1 IN3URANCA CODA COBBARCIAL LA9 cargo the ins"red is entitled to reco!er in case of loss s"ch proportion of the profits as the !al"e of the property lost bears to the !al"e of the whole property) / If policy is !al"ed loss of s"ch profits
is concl"si!ely pres",ed fro, a loss of the property o"t of which they are e#pected to arise and the !al"ation fi#es their a,o"nt. * 9here only part of a cargo or freightage ins"red e#posed to ris. / The !al"ation will be red"ced proportionately. The ins"rer is bo"nd to ret"rn s"ch portion of the pre,i", as corresponds with the portion of the cargo which had been e#posed to the ris.. * ;res",ption of loss of profits / 9here profits are separately ins"red fro, the property o"t of which they are e#pected to arise the ins"red in case of partial loss of the property is entitled ,erely to partial inde,nity for the profits lost. / If the property is totally lost pro tanto the total profits are also lost. 3"ch loss of the profits is concl"si!ely pres",ed fro, the loss of the property and the !al"ation agreed "pon in the policy fi#es the a,o"nt of reco!ery. H. Open ;olicy * Loss is esti,ated in accordance with certain r"les laid down in the code %refer to table below( * Cost of ins"rance ,"st be added to the
!al"e of ship cargo or freightage as the case ,ay be * 5owe!er ,a#i,", reco!ery ,ay only be "p to the face !al"e of the policy 95AT IALUA in O;AN ;OLICK 3hip Ial"e at beginning of ris. %incl all articles which add to its per,anent !al"e or which are necessary to prepare if for the !oyage ins"red( not the !al"e at ti,e she was b"ilt Cargo Act"al cost when laden on board. I0 act"al cost can4t be deter,ined ,ar.et !al"e at ti,e and place of lading ;LU3 e#penses inc"rred in p"rchasing and placing the, on board. A#pected profits are not considered since they can be separately isn"red. 0reightage 8ross freightage witho"t reference to cost of earning it * The cost of ins"rance is added in calc"lating the !al"e of the ship cargo or freightage of other s"b1ect ,atter in an open policy. * 9here cargo ins"red against partial loss is da,aged
/ 3ection 1?' is applicable if the cargo is ins"red against a partial loss and it s"ffers da,age as a res"lt of which its ,ar.et !al"e at the port of destination is red"ced) Bar.et price in so"nd state Less) Bar.et price in da,aged statef \ Red"ction in !al"e %depreciation( Red"ced in !al"e O a,o"nt of \ a,o"nt Bar.et price in ins"rance of so"nd state reco!ery C. Total Loss In case of open policy) * Ial"e of total loss will be co,p"ted in r"les stated abo!e * Ins"rer liable for total loss b"t it can4t e#ceed face a,o"nt of policy In case of !al"ed policy) * Ins"rer ,"st pay !al"ation fi#ed in the policy witho"t any right to arg"e against its correctness e#cept on basis of fra"d * Liability can4t e#ceed a,o"nt in policy D. ;artial Loss- Co/Ins"rance * In both open and !al"ed policies in case of partial loss the ins"red is dee,ed by law as co/ins"rer if the !al"e of the ins"rance is less than the !al"e of the property or interest ins"red e!en in the absence of any agree,ent to that effect. * 5owe!er law does not pre!ent parties fro,
stip"lating otherwise * Difference with 0ire Ins"rance) ;olicy sho"ld e#pressly pro!ide for coins"rance otherwise ins"rer is liable for the f"ll a,o"nt of the partial loss. In ,arine ins"rance co/ins"rance is ,andated by law. * A#a,ple of Co/Ins"rance) 3hip) b1FF B Ins"rance) bEFB Loss) b<FB 9hat does ins"red getS b=FB / only gets proportion A. Other A#penses Chargeable to Ins"rer * If ship has to ,a.e port for repairs ,arine ins"rer ,"st bear the attendant e#penses * Ins"rer also liable for e#penses for reco!ery of the property if policy i,posed "pon the ins"red the d"ty of s"ch reco!ery s"ch e#penses being additional to total loss 0. 0ranchise Cla"se * 0ranchise \ Designated ;ercentage * 3o,eti,es policy on cargo ,ay pro!ide that "nless da,age reaches a designated percentage of the !al"e of s"ch cargo no a,o"nt will be paid by ins"rer. * If loss reaches s"ch percentage ins"red will be entitled to f"ll a,o"nt of loss Ial"e of property lostffff A,o"nt of A,o"nt of Ial"e of the whole property O profits \ reco!ery
ins"red 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1E< of 6<1 IN3URANCA CODA COBBARCIAL LA9 Chapter II CLAIB3 3ATTLABANT U 3UHRO8ATION 1. NOTICA AND ;ROO0 O0 LO33 Title 1F 7 Notice and ;roof of Loss 3ec. EE. In case of loss "pon an ins"rance against fire an ins"rer is e#onerated if notice thereof be not gi!en to hi, by an ins"red or so,e person entitled to the benefit of the ins"rance witho"t "nnecessary delay. 3ec. E>. 9hen a preli,inary proof of loss is re+"ired by a policy the ins"red is not bo"nd to gi!e s"ch proofs as wo"ld be necessary in a co"rt of 1"stice- b"t it is s"fficient for hi, to gi!e the best e!idence6 which he has in his power at the ti,e. Notice of Loss 7 the for,al notice gi!en the ins"rer by the ins"red or clai,ant "nder a policy of the occ"rrence of the loss ins"red against. The p"rpose is to apprise the ins"rance co,pany so that it ,ay ,a.e proper in!estigation and ta.e s"ch action as ,ay be necessary to protect its interest. It is necessary as the ins"rer cannot be liable to pay a clai, "nless he recei!es notice of that clai,. Under 3ec. EE ins"rer is e#onerated if
notice of loss is not gi!en to the ins"rer by the ins"red or by the person entitled to the benefit witho"t "nnecessary delay. It has been held howe!er that for,al notice of loss is not necessary if ins"rer has act"al notice of loss already. ;roof of Loss 7 is the for,al e!idence gi!en the ins"rance co,pany by the ins"red or clai,ant "nder a policy of the occ"rrence of the loss the partic"lars and the data necessary to enable the co,pany to deter,ine its liability and the a,o"nt. Is not tanta,o"nt to proof or e!idence "nder the law on e!idence. ;roof of loss is distinct fro, notice of loss and intended to) 1. gi!e the ins"rer infor,ation by which he ,ay deter,ine the e#tent of his liability '. afford hi, a ,eans of detecting any fra"d that ,ay ha!e been practiced "pon hi,. * The law does not stip"late any re+"ire,ent as to the for, in which notice or proof of loss ,"st be gi!en. 5owe!er according to De Leon it is ad!isable to gi!e the notice in writing for the protection of the ins"red or his beneficiary. Notice ,ay be an infor,al or pro!isional clai, containing a ,ini,", of infor,ation as disting"ished fro, a for,al clai, which contains f"ll details of
the loss co,p"tations of the a,o"nts clai,ed and s"pporting e!idence together with a de,and or re+"est for pay,ent. Nat"re of notice and proof of loss * Altho"gh they are in the for, of conditions precedent they are in the nat"re of conditions s"bse+"ent the breach of which affects a right that has already accr"ed %before the loss ins"rer4s liability is contingent b"t with the happening of the loss his liability beco,es properly fi#ed(. * These conditions are intended ,erely for e!identiary p"rposes and do not for, any part of the conditions of liability and are constr"ed with ,"ch less strictness than those conditions that operate prior to loss. 3ec. >F. All defects in a notice of loss- or in preli,inary proof thereof which the ins"red ,ight re,edy and which the ins"rer o,its to specify to hi, witho"t "nnecessary delay as gro"nds of ob1ection are wai!ed. 3ec. >1. Delay in the presentation to an ins"rer of notice or proof of loss is wai!ed if ca"sed by any act of hi, or if he o,its to ta.e ob1ection pro,ptly and specifically "pon that gro"nd * Delay in the presentation of notice and proof of loss is dee,ed wai!ed when d"e to an act of the ins"rer by fail"re to ta.e ob1ection pro,ptly and specifically "pon
that gro"nd. * If the ins"red atte,pted to co,ply and the co,pany ,ade ob1ections the ins"red will be allowed a reasonable ti,e after he is appraised within which to re,edy the defects regardless of the ti,e prescribed by the policy for f"rnishing proofs. Delay as a gro"nd for resisting a clai, places the ins"rer on d"ty to in+"ire when the loss too. place so that it co"ld deter,ine whether delay wo"ld be a !alid gro"nd to ob1ect to a clai,. 3ec. >'. If the policy re+"ires by way of preli,inary proof of loss the certificate or testi,ony of a person other than the ins"red it is s"fficient for the ins"red to "se reasonable diligence to proc"re it and in case of the ref"sal of s"ch person to gi!e it then to f"rnish reasonable e!idence to the ins"rer that s"ch ref"sal was not ind"ced by any 1"st gro"nds of disbelief in the facts necessary to be certified or testified. Certificate or Testi,ony of ;erson other than Ins"red as ;reli,inary ;roof Bay be re+"ired by the policy 3"fficient that he ins"red "se reasonable diligence to proc"re it If person ref"ses to gi!e it it is s"fficient to f"rnish reasonable e!idence to the ins"rer that s"ch ref"sal was not ind"ced by any
gro"nds of DI3HALIA0 in the facts necessary to be certified. 8eneral R"le) Ins"red ,"st gi!e by way of preli,inary proof of loss the certificate or testi,ony of a person other than the ins"red when re+"ired by the policy. 3"pple,entary R"les) It is s"fficient for the ins"red to "se reasonable diligence to proc"re it. In case of the ref"sal of s"ch person to gi!e it 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1E? of 6<1 IN3URANCA CODA COBBARCIAL LA9 ins"red ,"st f"rnish reasonable e!idence to the ins"rer that s"ch ref"sal was not ind"ced by any 1"st gro"nds of disbelief in the facts necessary to be certified or testified b"t beca"se of other gro"nds. This re+"ire,ent ,"st be liberally constr"ed in fa!or of the ins"red. ;hil. A,. Life ! CA U ;"lido 0acts) The ins"red 0lorence ;"lido too. o"t a non/,edical life ins"rance policy fro, ;hila,life in the a,o"nt of 1FFR and the policy was iss"ed on 0eb. 11 1>E>. 3he died on 3ept. 1F 1>>1 and her beneficiary her sister Ali$a ;"lido filed a clai, which was denied by ;hila,life on the gro"nd of fra"d clai,ing that at the ti,e the ins"red applied for the policy she was already act"ally dead. Ratio) There was no fra"d the death certificates and notes by the ,"nicipal health officer prepared in the reg"lar perfor,ance of d"ties are
pri,a facie e!idence of facts. A d"ly/registered death certificate is considered a p"blic doc",ent and the entries fo"nd therein are pres",ed correct "nless the party who contests its acc"racy can prod"ce positi!e e!idence to establish otherwise which in the case at bar ;hila,life failed to do. '. 8UIDALINA3 ON CLAIB3 3ATTLABANT Title 11 7 Clai,s 3ettle,ent 3ec. '=1. %1( No ins"rance co,pany doing b"siness in the ;hilippines shall ref"se witho"t 1"st ca"se to pay or settle clai,s arising "nder co!erages pro!ided by its policies nor shall any s"ch co,pany engage "nfair clai, settle,ent practices. Any of the following acts by an ins"rance co,pany if co,,itted witho"t 1"st ca"se and perfor,ed with s"ch fre+"ency as to indicate a general b"siness practice shall constit"te "nfair clai, settle,ent practice) %a( .nowingly ,isrepresenting to clai,ants pertinent facts or policy pro!isions relating to co!erages at iss"e%b( failing to ac.nowledge with reasonable pro,ptness pertinent co,,"nications with respect to clai,s arising "nder
its policies%c( failing to adopt and i,ple,ent reasonable standards for the pro,pt in!estigation of clai,s arising "nder its policies%d( not atte,pting in good faith to effect"ate pro,pt fair and e+"itable settle,ent of clai,s s"b,itted in which liability has beco,e reasonably clear- or %e( co,pelling policyholders to instit"te s"its to reco!er a,o"nts d"e "nder its polices by offering witho"t 1"stifiable reason s"bstantially less than the a,o"nts "lti,ately reco!ered in s"ites bro"ght by the,. %'( A!idence as to the n",bers and types of !alid and 1"stifiable co,plaints to the Co,,issioner against an ins"rance co,pany and the Co,,issioner4s co,plaint e#perience with other ins"rance co,panies writing si,ilar lines of ins"rance shall be ad,issible in e!idence in an ad,inistrati!e or 1"dicial proceeding bro"ght "nder this section. %6( If it is fo"nd after notice and an opport"nity to be heard that an
ins"rance co,pany has !iolated this section each instance of non co,pliance with paragraph %1( ,ay be treated as a separate !iolation of this section and shall be considered s"fficient ca"se for the s"spension or re!ocation of the co,pany4s certificate of a"thority. 3ec. '='. The proceeds of a life ins"rance policy shall be paid i,,ediately "pon ,at"rity of the policy "nless s"ch proceeds are ,ade payable in install,ents or as an ann"ity in which case the install,ents or ann"ities shall be paid as they beco,e d"e) ;ro!ided howe!er That in the case of a policy ,at"ring by the death of the ins"red the proceeds thereof shall be paid within si#ty days after presentation of the clai, and filing of the proof of the death of the ins"red. Ref"sal or fail"re to pay the clai, within the ti,e prescribed herein will entitle the beneficiary to collect interest on the proceeds of the policy for the d"ration of the delay at the rate of twice the ceiling prescribed by the Bonetary Hoard "nless s"ch fail"re or ref"sal to pay is based on the gro"nd that the clai, is fra"d"lent. The proceeds of the policy ,at"ring by the death of the ins"red payable to the beneficiary shall incl"de the disco"nted !al"e of all pre,i",s paid in ad!ance of their d"e dates
b"t are not d"e and payable at ,at"rity. 3ec. '=6. The a,o"nt of any loss or da,age for which an ins"rer ,ay be liable "nder any policy other than life ins"rance policy shall be paid within thirty days after proof of loss is recei!ed by the ins"rer and ascertain,ent of the loss or da,age is ,ade either by agree,ent between the ins"red and the ins"rer or by arbitration- b"t if s"ch ascertain,ent is not had or ,ade within si#ty days after s"ch receipt by the ins"rer of the proof of loss then the loss or da,age shall be paid within ninety days after s"ch receipt. Ref"sal or fail"re to pay the loss or da,age within the ti,e prescribed herein will entitle the ass"red to collect interest on the proceeds of the policy for the d"ration of the delay at the rate of twice the ceiling prescribed by the Bonetary Hoard "nless s"ch fail"re or ref"sal to pay is based on the gro"nd that the clai, is fra"d"lent. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1ED of 6<1 IN3URANCA CODA COBBARCIAL LA9 3ec. '==. In case of any litigation for the enforce,ent of any policy or contact of ins"rance it shall be the d"ty of the Co,,issioner or the Co"rt as the case ,ay be to ,a.e a finding as to whether the pay,ent of the clai, of the ins"red has "nreasonably denied or withheld- and in the
affir,ati!e case the ins"rance co,pany shall be ad1"dged to pay da,ages which shall consist of attorney4s fees and other e#penses inc"rred by the ins"red person by reasons of s"ch "nreasonable denial or withholding of pay,ent pl"s interest of twice the ceiling prescribed by the Bonetary Hoard of the a,o"nt of the clai, d"e the ins"red fro, the date following the ti,e prescribed in 3ection two h"ndred forty/two or in 3ection two h"ndred forty/three as the case ,ay be "ntil the clai, is f"lly satisfied- ;ro!ided That the fail"re to pay any s"ch clai, within the ti,e prescribed in said section shall be considered pri,a facie e!idence of "nreasonable delay in pay,ent. '.1. Unfair Clai,s 3ettle,ent 3ec. '=1 %1( pro!ides instances of "nfair clai,s settle,ent done by an ins"rance co,pany) %a( .nowingly ,isrepresenting to clai,ants pertinent facts or policy pro!isions relating to co!erages at iss"e%b( failing to ac.nowledge with reasonable pro,ptness pertinent co,,"nications with respect to clai,s arising "nder its policies%c( failing to adopt and i,ple,ent reasonable standards for the pro,pt in!estigation of clai,s arising "nder
its policies%d( not atte,pting in good faith to effect"ate pro,pt fair and e+"itable settle,ent of clai,s s"b,itted in which liability has beco,e reasonably clear- or %e( co,pelling policyholders to instit"te s"its to reco!er a,o"nts d"e "nder its polices by offering witho"t 1"stifiable reason s"bstantially less than the a,o"nts "lti,ately reco!ered in s"ites bro"ght by the,. '.'. Ci!il Code R"les on ;res",ption of Death Art. 6>F. After an absence of se!en years it being "n.nown whether or not the absentee still li!es he shall be pres",ed dead for all p"rposes e#cept for those of s"ccession. The absentee shall not be pres",ed dead for the p"rpose of opening his s"ccession till after an absence of ten years. If he disappeared after the age of se!enty/fi!e years an absence of fi!e years shall be s"fficient in order that his s"ccession ,ay be opened. %n( Art. 6>1. The following shall be pres",ed dead for all p"rposes incl"ding the di!ision of the estate a,ong the heirs) %1( A person on board a !essel lost d"ring a sea !oyage or an aeroplane which is ,issing who has not been
heard of for fo"r years since the loss of the !essel or aeroplane%'( A person in the ar,ed forces who has ta.en part in war and has been ,issing for fo"r years%6( A person who has been in danger of death "nder other circ",stances and his e#istence has not been .nown for fo"r years. %n( Art. 6>'. If the absentee appears or witho"t appearing his e#istence is pro!ed he shall reco!er his property in the condition in which it ,ay be fo"nd and the price of any property that ,ay ha!e been alienated or the property ac+"ired therewith- b"t he cannot clai, either fr"its or rents. %1>=( Londres ! National Life Ins"rance Co. 0acts) National Life iss"ed a life ins"rance policy on the life of Jose C. Londres in the a,o"nt of ;hp6 FFF.FF on April 1= 1>=6 %d"ring the war period(. 5e died on 0eb. D 1>=<. 5is beneficiary filed a clai, which National denied clai,ing that there was a lac. of proof of death and a slew of other special defenses incl"ding the pay,ent sho"ld be ,ade based on the Hallantyne scales. Ratio) National ,"st pay the beneficiary of the ins"red the a,o"nt of the policy %6 FFF.FF( as the agree,ent was that the obligation will be ,ade in the c"rrency pre!ailing at the end of the stip"lated period which in this case is the ;hilippine c"rrency.
The proof of death was s"bstantially ,ade by the clai,ant and was not properly dispro!ed by National. 0ernande$ ! National Life Ins"rance Co. 0acts) National ins"red the life of J"an 0ernande$ for the period of J"ly 1< 1>= to J"ly 1= 1>=<. J"an died on No!. ' 1>==. 5is beneficiaries filed their clai, D years after his death or on A"g. 1 1><'. The disp"te is 9ON the Hallantyne scale is applicable in co,p"ting the a,o"nt which sho"ld be paid to the beneficiaries. The C0I rendered 1"dg,ent that National sho"ld pay the proceed of ;5p <FF.FF Hallantyne scale applicable. Ratio) C0I correct. Hallantyne scale is applicable since in life ins"rance the policy ,at"res "pon the e#piration of the ter, set forth therein 7 in this case "pon the death of J"an. The obligation of National arose as of that date and not at the ti,e of the clai,. 3ince the National co"ld ha!e paid his obligation at any ti,e d"ring the Japanese occ"pation. ;ay,ent after liberation ,"st be ad1"sted in accordance with the Hallantyne sched"le. Tio Rhe Chio ! CA U Aastern Ass"rance 0acts) Tio Rhe Chio i,ported fish,eal. These were ins"red with Aastern Ass"rance. The !essel "sed to ship the fish,eal was 0ar Aastern 3hipping Co. 9hen the goods reached Banila they were fo"nd to be da,aged 7 and therefore "seless. The iss"e is 9ON the interest to be paid by Aastern
Ass"rance is 1'G or ?GS 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1EE of 6<1 IN3URANCA CODA COBBARCIAL LA9 Ratio) ?G only as 3ec. '=6 and '== of the Ins"rance Code is not applicable to the case as these pro!isions apply only when the co"rt finds an "nreasonable delay or ref"sal in the pay,ent of the clai,s. The applicable law according to 3C is Art. ''F> of the Ci!il Code which stip"lates that in the absence of stip"lation the legal interest applicable is ?G Cathay ! CA 0acts) L"gay ins"red against fire with the ? ins"rance co,panies na,ed as petitioner in this case for the total s", of = ,illion her printing press which was ra$ed by fire on Dece,ber 1< 1>E'. 3he filed a clai, s"b,itting all the re+"ired proof of loss. After nearly 1F ,onths of waiting for her clai, to be paid she filed a s"it to collect her clai,. After the trial on the ,erits the TC rendered 1"dg,ent in fa!or of L"gay and directed the ? ins"rance co,panies to pay their share in the ins"rance and f"rther ,ade the, pay plaintiff interest at the rate of '# the ceiling being prescribed by the Bonetary board fro, the ti,e when the case was filed. Upon appeal to the CA the CA affir,ed the decision of the TC. Ratio) The award ,ade by the TC of do"ble interest is 1"stified "nder 3ections '=6 and '== of the Ins"rance Code which pro!ides that L3ec. '=6.
ZRef"sal or fail"re to pay the loss or da,age within the ti,e prescribed herein will entitle the ass"red to collect interest on the proceeds of the policy for the d"ration of the delay at the rate of twice the ceiling prescribed by the Bonetary HoardZM and L3ec. '==. In case of any litigation for the enforce,ent of any policy or contract of ins"rance it shall be the d"ty of the Co,,issioner or the Co"rt as the case ,ay be to ,a.e a finding as to whether the pay,ent of the clai, of the ins"red has been "nreasonably denied or withheld- and in the affir,ati!e case the ins"rance co,pany shall be ad1"sted to pay da,ages which shall consist of attorney4s fees and other e#penses inc"rred by the ins"red person by reason of s"ch "nreasonable denial or withholding of pay,ent pl"s interest of twice the ceiling prescribed by the Bonetary Hoard of the a,o"nt of clai, d"e the ins"redZM. Noda ! Cr"$/Arnaldo 0acts) Noda obtained fro, Nenith ' fire ins"rance policies for ' of his properties. Hoth was destroyed by fire. 9hen Noda filed a clai, it was denied by Nenith d"e to pre,i",s not paid and the other one was settled only for 1<RYY. IC denied Noda to clai, f"ll a,o"nt d"e to ins"fficient proof of the !al"e of his losses. Ratio) Noda was able to pro!e s"fficient losses since the doc",ent offered by Noda were offered
by Nenith itself to proof the a,o"nt of it4s liability being 12?th of the total loss only. Th"s co"ld !ery well be considered as an ad,ission of its liability "p to the a,o"nt reco,,ended. 0in,an 8eneral ! CA 0acts) U3I;5IL obtained a fire ins"rance policy fro, 0INBAN. The property ins"red was loss d"e to fire and U3I;5IL filed a clai,. 5.5. Hayne was appointed by 0INBAN to "nderta.e e!al"ation. U3I;5IL s"b,itted all the re+"ired proof of losses s"bstantially. Despite all these 0INBAN ref"sed to pay U3I;5IL43 clai, d"e to fail"re to co,ply with Condition 16 of the policy. TC and CA r"le din fa!or of U3I;5IL and ordered 0INBAN to pay Y do"ble the interest %'=G( Ratio) 3"bstantial co,pliance not strict co,pliance with the re+"ire,ents will be dee,ed s"fficient. The do"ble interest of '=G is a"thori$ed by 3ections '=6 and '== of the Ins"rance Code. Delsan Transport ! CA %s"pra( CLAIB3 LI0A IN3URANCA NON/LI0A IN3URANCA Bat"rity 1. Upon death of the person ins"red'. Upon his s"r!i!ing a specific period 6. Otherwise contingently on the contin"ance or cessation of life %3ec. 1EF( Upon happening of e!ent ins"red against
A!ent ,"st occ"r within the period specified in policy otherwise ins"rer has no liablity Deli!ery of ;roceeds 8ANARAL RULA) I,,ediately "pon ,at"rity of policy. AOCA;TION) If payable in IN3TALLBANT3 or as an ANNUITK when s"ch install,ents or ann"ities beco,e d"e I0 BATURITK I3 U;ON DAAT5) 9ithin ?F days after presentation of clai, and filing of proof of death of ins"red. 9ithin 6F days after %1( ;roof of loss is recei!ed by ins"rer- and %'( Ascertain,ent of loss or da,age is ,ade either by agree,ent between the ins"red and ins"rer or by arbitration If ascertain,ent not ,ade within ?F days after s"ch receipt by ins"rer of proof of loss loss or da,age shall be paid within >F days after s"ch receipt. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1E> of 6<1 IN3URANCA CODA COBBARCIAL LA9
Affect of Ref"sal or 0ail"re to pay clai, within ti,e prescribed) In case of litigation it is the d"ty of the Co,,issioner or the Co"rt to deter,ine 9ON clai, has been "nreasonably denied of withheld. 0ail"re to pay any s"ch clai, within the ti,e prescribed shall be considered pri,a facie e!idence of "nreasonable delay in pay,ent. Antitles beneficiary to collect interest on the proceeds of policy for the d"ration of the delay at rate of twice ceiling prescribed by the ,onetary board %"nless ref"sal to pay is based on gro"nd that clai, in fra"d"lent( In case da,ages awarded this incl"des attorney4s fees and other e#penses inc"rred d"e to delay %pl"s the interest( Antitles beneficiary to collect interest on the proceeds of policy
for the d"ration of the delay at rate of twice ceiling prescribed by the ,onetary board %"nless ref"sal to pay is based on gro"nd that clai, in fra"d"lent( In case da,ages awarded this incl"des attorney4s fees and other e#penses inc"rred d"e to delay %pl"s the interest( 6. ;RA3CRI;TION O0 ACTION 6.1. Title ? 7 The ;olicy 3ec. ?6. A condition stip"lation or agree,ent in any policy of ins"rance li,iting the ti,e for co,,encing an action there"nder to a period of less than one year fro, the ti,e when the ca"se of action accr"es is !oid. A cla"se in an ins"rance policy to the effect that an action "pon the policy by the ins"red ,"st be bro"ght within a certain period is IALID and will pre!ail o!er the general law on li,itations of actions. 5O9AIAR if the period fi#ed is less than one year fro, the ti,e the ca"se of action accr"es it is IOID. Nat"re of condition li,iting period for filing clai,) It is not ,erely a proced"ral re+"ire,ent. It is essential for the pro,pt settle,ent of clai,s as it de,ands for s"its to be bro"ght while
the e!idence as to the origin and ca"se of the loss or destr"ction has not yet disappeared. It is a condition precedent to the ins"rer4s liability or a resol"tory ca"se in case the action is not filed by the ins"red within the stip"lated period. Ins"rance Code e,powers the Ins"rance Co,,issioner to ad1"dicate disp"tes relating to an ins"rance co,pany4s liability to an ins"red "nder a policy. A co,plaint or clai, filed with s"ch official is considered an LactionM or Ls"itM the filing of which wo"ld ha!e the effect of tolling the s"spending the r"nning of the prescripti!e period. Ca"se of Action 7 The !iolation of a legal right co,,itted .nowingly- An act or o,ission of one party in !iolation of the legal right2s of the other. 6.'. Re+"isites2Assential Ale,ents) 1. A legal right of the plaintiff '. A correlati!e obligation of the defendant 6. An act or o,ission of the defendant in !iolation of the legal right of plaintiff. The ca"se of action in an ins"rance policy therefore does not accr"e "ntil the ins"rer ref"ses e#pressly or i,pliedly to co,ply with his d"ty to pay the a,o"nt of the loss. 6.6. Co,p"lsory Botor Iehicle Liability
Ins"rance 3ec. 6E=. Any person ha!ing any clai, "pon the policy iss"ed p"rs"ant to this chapter shall witho"t any "nnecessary delay present to the ins"rance co,pany concerned a written notice of clai, setting forth the nat"re e#tent and d"ration of the in1"ries s"stained as certified by a d"ly licensed physician. Notice of clai, ,"st be filed within si# ,onths fro, date of the accident otherwise the clai, shall be dee,ed wai!ed. Action or s"it for reco!ery of da,age d"e to loss or in1"ry ,"st be bro"ght in proper cases with the Co,,issioner or the Co"rts within one year fro, the denial of the clai, otherwise the clai,ant4s right of action shall prescribe %As a,ended by ;D No. 1E1= and H; Hlg. ED=.( Co,p"lsory Botor Iehicle Liability Ins"rance %C;TL( 7 The Ins"rance Code ,a.es it "nlawf"l for any land transportation operator or owner of ,otor !ehicle to operate the sa,e in p"blic highways "nless there is an ins"rance or g"aranty to inde,nify the death or bodily in1"ry of a third party or passenger arising fro, the "se thereof. R"les of C;TL 1. Registration of any !ehicle will not be ,ade or renewed witho"t co,plying with the re+"ire,ent. '. The protection ,ay be co,plied with "sing any of the following)
* Ins"rance policy * 3"rety bond * Cash bond 0irst Integrated Honding and Ins. Co. Inc. !s. 5ernando 1>> 3CRA D=? The p"rpose of C;TL is to gi!e i,,ediate financial assistance to !icti,s of ,otor !ehicle accidents and2or their dependents especially if they are poor regardless of the financial capability of ,otor !ehicle owners or operators responsible for the accident. 6.=. Ci!il Code 7 ;rescription 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1>F of 6<1 IN3URANCA CODA COBBARCIAL LA9 Art. 11==. The following action ,"st be bro"ght within ten years fro, the ti,e the right of action accr"es) %1( Upon a written contract%'( Upon an obligation created by law %6( Upon a 1"dg,ent. %n( 8eneral R"les on ;rescription) 1F Kears %CC( A#ceptions to the 8eneral R"le) 3tip"lation in the contract %3ec. ?6( 7 a cla"se in an ins"rance policy li,iting the period for which an action "pon the policy bay be bro"ght is !alid pro!ided it be not less than one year. Botor Iehicle Ins"rance 7 One
%1( year only =. T5A IN3URANCA COBBI33IONAR ADBINI3TRATIIA AND ADJUDICATORK ;O9AR3 3ec. =1?. The Co,,issioner shall ha!e the power to ad1"dicate clai,s and co,plaints in!ol!ing any loss da,age or liability for which in ins"rer ,ay be answerable "nder any .ind of policy or contract of ins"rance or for which s"ch ins"rer ,ay be liable "nder a contract of s"retyship or for which a reins"rer ,ay be s"ed "nder any contract of reins"rance it ,ay ha!e entered into- or for which a ,"t"al benefit association ,ay be held liable "nder the ,e,bership certificates it has iss"ed to its ,e,bers where the a,o"nt of any s"ch loss da,age or liability e#cl"ding interest cost and attorneyVs fees being clai,ed or s"ed "pon any .ind of ins"rance bond reins"rance contract or ,e,bership certificate does not e#ceed in any single clai, one h"ndred tho"sand pesos. The ins"rer or s"rety ,ay in the sa,e action file a co"nterclai, against the ins"red or the obligee. The ins"rer or s"rety ,ay also file a cross/clai, against a party for any clai, arising o"t of the transaction or occ"rrence that is the
s"b1ect ,atter of the original action or of a co"nterclai, therein. 9ith lea!e of the Co,,issioner an ins"rer or s"rety ,ay file a third/party co,plaint against its reins"rers for inde,nification contrib"tion s"brogation or any other relief in respect of the transaction that is the s"b1ect ,atter of the original action filed with the Co,,issioner. The party filing an action p"rs"ant to the pro!isions of this section thereby s"b,its his person to the 1"risdiction of the Co,,issioner. The Co,,issioner shall ac+"ire 1"risdiction o!er the person of the i,pleaded party or parties in accordance with and p"rs"ant to the pro!isions of the R"les of Co"rt. The a"thority to ad1"dicate granted to the Co,,issioner "nder this section shall be conc"rrent with that of the ci!il co"rts b"t the filing of a co,plaint with the Co,,issioner shall precl"de the ci!il co"rts fro, ta.ing cogni$ance of a s"it in!ol!ing the sa,e s"b1ect ,atter. Any decision order or r"ling rendered by the Co,,issioner after a hearing shall ha!e the force and effect of a 1"dg,ent. Any party ,ay appeal fro, a final order r"ling or decision of the Co,,issioner by
filing with the Co,,issioner within thirty days fro, receipt of copy of s"ch order r"ling or decision a notice of appeal to the Inter,ediate Appellate Co"rt in the ,anner pro!ided for in the R"les of Co"rt for appeals fro, the Regional Trial Co"rt to the Inter,ediate Appellate Co"rt. %As a,ended by Hatas ;a,bansa Hlg. ED=(. As soon as a decision order or r"ling has beco,e final and e#ec"tory the Co,,issioner shall ,ot" proprio or on ,otion of the interested party iss"e a writ of e#ec"tion re+"iring the sheriff or the proper officer to who, it is directed to e#ec"te said decision order or award p"rs"ant to R"le thirty/nine of the R"les of Co"rt. 0or the p"rpose of any proceeding "nder this section the Co,,issioner or any officer thereof designated by hi, e,powered to ad,inister oaths and affir,ation s"bpoena witnesses co,pel their attendance ta.e e!idence and re+"ire the prod"ction of any boo.s papers doc",ents or contracts or other records which are rele!ant or ,aterial to the in+"iry. In case of cont",acy by or ref"sal to obey a s"bpoena iss"ed to any person the Co,,issioner ,ay in!o.e the aid of any co"rt of first instance within
the 1"risdiction of which s"ch proceeding is carried on where s"ch person resides or carries on his own b"siness in re+"iring the attendance and testi,ony of witnesses and the prod"ction of boo.s papers doc",ents contracts or other records. And s"ch co"rt ,ay iss"e an order re+"iring s"ch person to appear before the Co,,issioner or officer designated by the Co,,issioner there to prod"ce records if so ordered or to gi!e testi,ony to"ching the ,atter in +"estion. Any fail"re to obey s"ch order of the co"rt ,ay be p"blished by s"ch co"rt as a conte,pt thereof. A f"ll and co,plete record shall be .ept of all proceedings had before the co,,issioner or the officers thereof designated by hi, and all testi,ony shall be ta.en down and transcribed by a stenographer appointed by the Co,,issioner. A transcribed copy of the e!idence and proceeding or any specific part thereof of any hearing ta.en by a stenographer appointed by the Co,,issioner being certified by s"ch stenographer to be a tr"e and correct transcript of the testi,ony on this hearing of a partic"lar witness or of a specific proof thereof
caref"lly co,pared by hi, fro, his original notes and to be a correct state,ent of e!idence and proceeding had in s"ch hearing so p"rporting to be ta.en and s"bscribed ,ay be recei!ed as 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1>1 of 6<1 IN3URANCA CODA COBBARCIAL LA9 e!idence by the Co,,issioner and by any co"rt with the sa,e effect as if s"ch stenographer were present and testified to the facts so certified. %As a,ended by ;residential Decree No. 1=<<(. =.1. J"risdiction of Ins"rance Co,,ission Incl"des the following as long as any 3IN8LA CLAIB does NOT AOCAAD 1FF FFF.FF) %1( Clai,s and co,plaints in!ol!ing liability of ins"rer "nder any .ind of policy or contract %'( 3"retyship %6( Reins"rance %=( B"t"al Henefit ,e,bership certificates '. Relation to RTC The RTC and IC ha!e conc"rrent 1"risdiction. 5O9AIAR filling a co,plaint with the IC ;RACLUDA3 ci!il co"rts fro, ta.ing cogni$ance of s"it in!ol!ing the sa,e s"b1ect. Lope$ ! 0ilipinas 0acts) Lope$ ins"red with 0C3 his Hieder,an tr"c. tractor and 9inter 9eils trailer fro, loss or
da,ages. It appeared that Lope$ concealed so,e ,aterial fact with regard to +"estions as.ed by 0C3. The !ehicles fig"red in an accident. Lope$ filed a clai, which 0C3 denied. Lope$ filed a co,plaint with IC less than ' ,onths after the denial and a co,plaint with the Co"rt 1D ,onths after the denial when 0C3 told the IC that it ref"sed to s"b1ect itself to arbitration. 0C3 clai,ed prescription. Ratio) The right of action has prescribed. There is nothing in the Ins"rance Law nor in any of its allied Legislations which e,power the IC to ad1"dicate on disp"tes relating to an ins"rance co,pany4s liability to an ins"red "nder a policy iss"ed by the ins"rer to an ins"red. The !alidity of an ins"red4s clai, "nder a specific policy its a,o"nt and all s"ch other ,atters as ,ight in!ol!e the interpretation and constr"ction of the ins"rance policy are iss"es which only a reg"lar co"rt of 1"stice ,ay resol!e and th"s the co,plaint filed by Lope$ with the IC co"ld not ha!e been an action or s"it. The prescription period started to r"n on A"g"st 'E 1>?F when 0C3 re1ected the clai, of Lope$ and the co,,ence,ent of an action was filed only on 3epte,ber 1> 1>?1with the C0I of Banila nearly 1D ,onths after the clai, was re1ected. Th"s the action has already prescribed. 0in,an ! Inocencio 0acts) ;an ;acific obtained a s"rety bond fro,
0in,an in co,pliance with ;OAA r"les. Inocencio et.al filed co,plaint against ;an ;acific. ;OAA ordered ;an ;acific and 0in,an 1ointly and se!erally to pay the clai, of Inocencio et.al. Ratio) ;OAA has 1"risdiction o!er the s"rety bonds as it is a well settled doctrine that the conditions of a bond specified in the stat"te pro!iding for the s"b,ission of a bond are b"ilt into all bonds tendered "nder that stat"e e!en thro"gh not printed therein. 0in,an ,ay be held liable if it is solidarily liable with ;an ;acific "nder the ter,s of the bond it ,"st follow that it is also liable to both Inocencio et.al and ;OAA. * sorry g"ys I don4t get how prescription fig"res into this caseddd Aagle 3tar ! Chin K" 0acts) Chin K" consigned 1= bales of "nderwear. Ins"red with Aagle 3tar. Upon arri!al to Banila = bales were lost and 6 were da,ages. Chin K" filed clai, for the lost and da,ages bales against he carrier and then with the ins"rer. Hoth denied liability. Ratio) Action has not prescribed "nder 3ec. ?1/ A the period of prescription starts to r"n when the ca"se of action accr"es and the ca"se of action accr"es only "pon the re1ection of the ins"rer of the clai, and not "pon the filing of the clai,. ACC0A ! Alpha Ins 0acts) 0ACOBA too. o"t a fidelity bond of
;hp< FFF.FF to ins"re its f"nds fro, Alpha Ins"rance which it later assigned to ACC0A. The f"nds were ,isappropriated "pon which ACC0A i,,ediately notified Alpha of the loss and presented proof of loss within the period fi#ed b"t despite repeated de,ands the s"rety co,pany ref"sed and failed to pay. It filed a s"it against Alpha. Alpha ,o!ed to dis,iss clai,ing that ACC0A4s right of action has prescribed since it filed an action one year after it filed its notice of loss // clai,ing that ACC0A4s right of action accr"ed "pon s"b,ission of notice of loss as stip"lated "nder Condition E of the contract. Ratio) The action does not accr"e "ntil the party obligated ref"ses e#pressly or i,plied to co,ply with its d"ty %in this case ref"sal of Alpha to pay the a,o"nt of the bond(. The year for instit"ting the action in co"rt ,"st be rec.oned fro, the ti,e of Alpha ref"sed to co,ply with its bond and not fro, the creditor4s filling of the clai, of loss %since the creditor does not .now yet "pon filling that the clai, wo"ld be denied or ref"sed(. Therefore condition XE which re+"ired action to be filed within one year fro, the filling of the clai, for loss contradicts the p"blic policy e#pressed in 3ec. ?1/A of the ;hilippine Ins"rance Act and is th"s n"ll and !oid Ang ! 0"lton 0acts) Ang ins"red his property against fire for 1 year with 0"lton thro"gh its agent ;ara,o"nt.
. 1'.'D.1>D6 // 3tore was destroyed thro"gh fire %6 days later Ang filed clai,( 1.16.1><< 7 Ang charged with arson ac+"itted =.?.1><? 7 0"lton denied Ang4s clai, =.1>.1><? 7 Ang recei!ed 0"lton denial <.1><? 7 Ang instit"ted clai, against ;ara,o"nt which was dis,issed w2o pre1"dice on >.1><D <.<.1><E 7 Ang instit"ted present action against 0"lton. According to C0I action not yet prescirbed Ratio) Action already prescribed. The action of Ang against ;ara,o"nt does not ha!e any legal 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1>' of 6<1 IN3URANCA CODA COBBARCIAL LA9 effect e#cept that of notifying the agent and ser!es no other p"rpose. It did not stop the prescription fro, r"nning. The filing of a clai, within one year after re1ection is a condition precedent to the liability of the ins"rer 7 a resol"tory ca"se the p"rpose of which is to ter,inate all liabilities in case action is not filed within the said period. Tra!ellers Ins"rance ! CA 0acts) A DE year old wo,an was hit by a ta#i cab died. 5er son %Iicente( filed a clai, against the owner of the Lady Lo!e ta#i cab the dri!er and Tra!ellers as the co,p"lsory ins"rer Ratio) Tra!ellers cannot be held 1ointly and se!erally liable with the owner and dri!er of the
Lady Lo!e ta#i cab as Iicente failed to attach a copy of the ins"rance contract to his co,plaint there co"ld be no basis to apprise the real nat"re and pec"niary li,its of Tra!ellers liability. 0"rther he also failed to file a written notice of clai, with Tra!eller which is an indispensable re+"ire,ent th"s his ca"se of action did not accr"e. 3"n Ins"rance ! CA %s"pra( <. 3UHRO8ATION <.1. Ci!il Code ;ro!isions Obligations U Contracts 7 A#ting"ish,ent of Obligations Art. 1'6?. The creditor is not bo"nd to accept pay,ent or perfor,ance by a third person who has no interest in the f"lfill,ent of the obligation "nless there is a stip"lation to the contrary. 9hoe!er pays for another ,ay de,and fro, the debtor what he has paid e#cept that if he paid witho"t the .nowledge or against the will of the debtor he can reco!er only insofar as the pay,ent has been beneficial to the debtor %11<Ea( Da,ages Art. ''FD. If the plaintiff4s property has been ins"red and he has recei!ed inde,nity fro, the ins"rance co,pany for the in1"ry or loss arising o"t of the wrong or breach of contract co,plained of the ins"rance co,pany shall be
s"brogated to the rights of the ins"red against the wrongdoer or the person who has !iolated the contract. If the a,o"nt paid by the ins"rance co,pany does not f"lly co!er the in1"ry or loss the aggrie!ed party shall be entitled to reco!er the deficiency fro, the person ca"sing the loss or in1"ry. According to sir 7 there is only s"brogation in property ins"rance. <.'. Concept) ;rocess of legal s"bstit"tion %ins"rer steps into shoes of ins"red( Reason) AQUITK 7 to pre!ent the ins"red fro, recei!ing ,ore than his act"al loss while at the sa,e ti,e ,a.es the person who ca"sed loss legally responsible. Loss D"e to 9rongf"l Act or Hreach of Contract by Third ;erson NOT A;;LICLAHLA TO LI0A IN3URANCA. Options a!ailable to ins"red when thro"gh wrongf"l act or breach of contract co,,itted by 6rd person ins"red property s"ffers loss) %1( Collect fro, ins"rer 7 if ins"rer pays ins"rer s"brogates ins"red "nder Ci!il Code o Right of s"brogation e#ist e!en if no e#press agree,ent recogni$ing it since it4s "nder the CC
o Arises only after ins"rer pays ins"red. %'( De,and pay,ent fro, wrongdoer 3ince Life Ins"rance is not contract of INDABNITK s"brogation ob!io"sly cannot apply. 9hen Bay Liability to 3"brogee be Li,ited) Hill of Lading %3t. ;a"l ! Bacondray( Contrib"tory Negligence %Tabacalera ! N03( Affect of Iol"ntary ;ay,ent Right of 3"brogation does not e#ist in fa!or of ,ere !ol"nteer If ins"rer has right to rescind b"t still pays ins"red there is still s"brogation 7 the 6rd party has no pri!ity. 9here the ins"rer pays the ins"red for a loss or liability which is not a ris. co!ered by the policy it will be considered as a !ol"nteer with no right of s"brogation. 5O9AIAR ins"rer ,ay still reco!er "nder Art. 1'6? of the Ci!il Code 7 to the e#tent that the debtor had been benefited. If ins"red gets a,o"nt of policy not as pay,ent b"t as a LOAN repayable to the e#tent of any reco!ery fro, the 6rd party responsible there can be no s"brogation. In Case of 8eneral A!erages) 1. De,and contrib"tions directly fro, different persons liable. '. Cla, whole loss fro, the ins"rer 7 ins"rer
s"brogates right of contrib"tion. Coastwise ! CA %s"pra( Baglana ! Concolacion %s"pra( Ceb" 3hipyard ! 9illai, Lines 0acts) 9illia, Lines Inc contracted the ser!ices of C3A9 for its ships ann"al dry/doc.ing and repairs. The !essel was ins"red with ;r"dential for =< ,illion for h"ll and ,achinery. The co!erage incl"ded an LAdditional ;erilsM cla"se co!ering loss of or da,age to the !essel thro"gh the negligence of ship repair,an. The !essel ca"ght fire and san. res"lting to its e!ent"al total loss. ;r"dential paid 9illia, Lines the total a,o"nt of the ins"rance policy and s"ed C3A9 as s"brogee to the rights of 9illia, Lines. Ratio) 3ince it has already been resol!ed that the ca"se of the fire which g"tted BI Banila City was 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1>6 of 6<1 IN3URANCA CODA COBBARCIAL LA9 the negligence act of C3A9 the proof of pay,ent ,ade by ;r"dential to 9illia, Lines Inc operated to properly s"brogate ;r"dential to the rights of 9illia, Lines "nder Art. ''FD of the Ci!il Code ;ioneer Ins"rance ! CA 0acts) Jacob Li, p"rchased ' aircrafts fro, JDA "sing f"nds fro, Hor,aheco the Cer!antes and Baglana. Ins"red it with ;ioneer as s"rety. Li, failed to pay ;ioneer paid %;ioneer reins"red the s"rety with an "nna,ed reins"rer( and collected fro, the reins"rer. Also foreclosed aircraft sold it
and collected proceeds. Ratio) ;ioneer no longer has any clai, since it has already collected the proceeds of the reins"rance on its bond. Under the principle of Art. ''FD of the CC the reins"rer on pay,ent of a loss ac+"ires the sa,e rights by s"brogation as are ac+"ired in si,ilar cases where the original ins"rer pays a loss. Banila Bahogany ! CA 0acts) Banila Bahogany ins"red its Bercede$ Hen$ with Nenith. Car was b",ped and da,aged by 3BC tr"c.. Nenith paid Bahogany in a,icable settle,ent. Nenith then de,anded rei,b"rse,ent fro, 3BC b"t it appeared that 3BC already paid Bahogany e!idenced by a Release of Clai,. Ratio) Hy the act of Banila Bahogany iss"ing a release clai, to 3BC the right of Nenith against 3BC is n"llified since the ins"rer can be s"brogated to only s"ch rights as the ins"red ,ay ha!e sho"ld the ins"red after recei!ing pay,ent fro, the ins"rer release the wrongdoer who ca"ses the loss the ins"rer loses his rights against hi,. H"t in s"ch a case the ins"rer will be entitled to reco!er fro, the ins"red whate!er it has paid "nless it was ,ade with the consent of the ins"rer. ;an Balayan ! CA U 0abie 0acts) The dri!er of Arlinda 0abie hit the ins"red Bits"bishi Colt Lancer owned by the Canl"bang A"to,oti!e Reso"rces Corporation. The !ehicle was ins"red with ;ANBALAK who paid the a,o"nt ins"red "nder the Lown da,ageM co!erageM of the
ins"rance policy. ;ANBALAK then de,anded fro, 0abie the pay,ent of whate!er a,o"nt it paid clai,ing that they were s"brogated to the rights of Canl"bang. Ratio) Art. ''FD of the Ci!il Code apply in the case at bar "nder the principle of s"brogation. If the ins"red property is destroyed or da,aged thro"gh the fa"lt or negligence of a party other than the ass"red then the ins"rer "pon pay,ent to the ass"red will be s"brogated to the rights of the ass"red to reco!er fro, the wrongdoer to the e#tent that the ins"rer has been obligated to pay. ;ay,ent by the ins"rer to the ass"red operates as an e+"itable assign,ent to the for,er of all re,edies which the latter ,ay ha!e against the third party whose negligence or wrongf"l act ca"sed the loss. The right of s"brogation is not dependent "pon nor does it grow o"t of any pri!ity of contract or "pon written assign,ent of clai,. It accr"es si,ply "pon pay,ent of the ins"rance clai,. 0ire,an4s 0"nd ! Ja,ila U Co. 0acts) 0irestone loss so,e properties d"e to the acts of its e,ployees and the sec"rity g"ards pro!ided by the sec"rity agency of Ja,ila U Co. 0ire,an4s 0"nd the ins"rer of 0irestone paid the loss and proceeded against Ja,ila and Ja,ila4s ins"rer 0irst Q"e$on City Ins. Co. Hoth denied liability TC dis,issed co,plaint d"e to no ca"se of action.
Ratio) 0irestone no longer has ca"se of action since it has already been paid by 0ire,an4s 0"nd. 0ire,an4s 0"nd howe!er has a ca"se of action as this falls "nder Art. ''FD "nder the doctrine of s"brogation. Tabacalera ! North 0ront 3hipping 0acts) 3ac.s of corn grain !al"ed at o!er 6B were consigned to R0B "nder a bill of lading and ins"red with Tabacalera et al. The !essel was owned by North 0ront. ;rior to lea!ing port the !essel was inspected and was dee,ed fit to carry ,erchandise. 9hen it arri!ed it ad!ised R0B who did not i,,ediately co,,ence "nloading witho"t any apparent reason. 9hen "nloaded there was shortage and the rest were ,oldy rancid and "nfit for its p"rpose. R0B re1ected cargo and de,anded fro, North 0ront pay,ent for da,ages which was denied. Tabacalera et.al paid then s"ed North 0ront. TC and CA dis,issed case. Ratio) North ;oint is liable since it is a co,,on carrier and as s"ch is re+"ired to obser!e e#traordinary diligence in its !igilance o!er the goods it transports. 9hen goods placed in its care are lost or da,aged the carrier is pres",ed to ha!e been at fa"lt or to ha!e acted negligently. North 0ront has b"rden of pro!ing it obser!ed e#traordinary diligence in order to a!oid responsibility which it failed to do. 5owe!er since R0B was g"ilty of contrib"tory negligence they sho"ld share at least =FG of the loss. North ;oint
ordered to pay Tabacalera et al ?FG of the total a,o"nt it paid to R0B. ;hila,gen ! CA 0acts) Coca/Cola Hottlers ;hilippines Inc. %CCH;I( loaded on board LBI AsildaM D <FF cases of 1/liter Co.e to be transported fro, Na,boanga City to Ceb" City. The !essel was owned and operated by 0ALBAN. The ship,ent was ins"red with ;5ILAB8AN. The !essel san.. CCH;I filed a clai, with 0ALBAN for reco!ery of da,ages which was denied and th"s CCH;I filed an ins"rance clai, with ;5ILAB8AN which paid its clai, for ;5pD<< '<F.FF. Clai,ing its right of s"brogation ;5ILAB8AN so"ght reco"rse against 0ALBAN who disclai,ed any liability fro, the lost. Ratio) Clearly falls "nder Art. ''FD of the Ci!il Code. The pay,ent by the ass"rer to the ass"red operates as an e+"itable assign,ent to the ass"rer of all the re,edies which the ass"red ,ay ha!e against the third party whose negligence or wrongf"l act ca"sed the loss. The right of s"brogation is not dependent "pon nor does it grow o"t of any pri!ity of contract. It accr"es si,ply "pon pay,ent by the ins"rance co,pany of the ins"rance clai,. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1>= of 6<1 IN3URANCA CODA COBBARCIAL LA9 3t ;a"l ! Bacondray 0acts) 9inthrop ;rod"cts consigned to 9inthrop 3tearns dr"gs and ,edicines %fro, NK to Bla(
thro"gh Bacondray U Co. Ins"red with 3t. ;a"l 0ire. Arrastre ser!ices pro!ided by Bla. ;ort 3er!ices. Upon arri!al to Banila one dr", and se!eral cartons arri!ed in bad condition. 9inthrop 3tear,s filed a clai, for da,ages. 3t. ;a"l paid clai,. 3t. ;a"l then proceeded against the Arrastre 3er!ice who resisted action which clai,ed it deli!ered goods in sa,e condition it recei!ed fro, the carrier %Bacondray(. Bacondray denied liability clai,ing liability ceased "pon discharge of goods fro, ship4s tac.le. Note) there is a bill of lading which stip"lated that the a,o"nt of the liability sho"ld only be ;hp1RYY b"t 3t. ;a"l paid a,o"nt U3b1.YY Ratio) 3t. ;a"l sho"ld recei!e the a,o"nt according to the bill of lading. The p"rpose of the bill of lading is to pro!ide for the rights and liabilities of the parties. The stip"lation in the bill of lading li,iting the co,,on carrier4s liability to the !al"e of the goods appearing in the bill is !alid and binding. 3t. ;a"l after paying the clai, of the ins"red for da,ages "nder the policy is s"brogated ,erely to the rights of the ass"red as s"brogee it can reco!er only the a,o"nt that is reco!erable by the latter. 3ince the right of 9inthrop in case of loss or da,age to the goods is li,ited or restricted by the pro!ision in the bill of lading a s"it by 3t. ;a"l as s"brogee is necessarily s"b1ect to li.e li,itations and restrictions. Chapter III
RAIN3URANCA Title 1' 7 Reins"rance 3ec. ><. A contract of reins"rance is one by which an ins"rer proc"res a third person to ins"re hi, against loss or liability by reason of s"ch original ins"rance. 1. DA0INITION O0 RAIN3URANCA It is a contract whereby one party the reins"rer agrees to inde,nify another the reins"red either in whole or in part against loss or liability which the latter ,ay s"stain or inc"r d"ring a separate and original contract of ins"rance with a third party the original ins"red. A contract of reins"rance is an ins"rance of an ins"rance or when ins"rance b"siness is transferred fro, one ins"rance co,pany to another. 3o,eti,es called Ltreaties.M '. RATIONALA O0 RAIN3URANCA It is one type of liability ins"rance. It represents a f"rther e#tension of the f"nda,ental idea of ins"rance that is distrib"tion a,ong ,any of the ris.s resting "pon one. 9here an ins"rer desires to entirely relie!e hi,self of liability "nder contracts ,ade and reins"res all his ris.s. Contracts2treaties of reins"rance are plainly beneficial to the p"blic inas,"ch as they pro,ote both efficiency and stability in the
cond"ct of the ins"rance b"siness. 6. HANA0IT3 O0 RAIN3URANCA TO T5A IN3URAR 1. Ins"rers are able to iss"e policies in e#cess of s"ch retention li,its or the ,a#i,", clai, it wishes to pay o"t of its own reso"rces. '. ;ooling the reso"rces of ,any co,panies also e#tends greater co!erage of ins"rance protection e#tended e!en a,ong A;;LICANT3 re+"iring large a,o"nts and those not eligible for ins"rance at standard rates. 6. UNDAR9RITAR3 benefit thro"gh the placing of additional ins"rance in an e#panded ,ar.et. =. The ins"rance INDU3TRK benefits by red"cing the waste arising o"t of policies which are applied for b"t not iss"ed. <. The RAIN3URAR benefits thro"gh the ac+"isition of b"siness which is e#pected to pro!e profitable in the long r"n. =. HANA0IT3 O0 RAIN3URANCA TO T5A IN3URAD 1. It gi!es ins"rance co,panies greater financial stability and th"s ,a.es the ins"red4s indi!id"al policy ,ore reliable. '. If a large a,o"nt of ins"rance is needed the ins"red ,ay obtain it witho"t negotiating with n",ero"s co,panies. 6. It enables the ins"red to obtain
protection pro,ptly witho"t the delay that wo"ld be re+"ired to di!ide and distrib"te the a,o"nt a,ong ,any co,panies. =. All the ins"rance can be written "nder identical contract pro!isions whereas otherwise these ,ight !ary with the different co,panies a,ong who, the ins"rance is di!ided. <. 3,all co,panies are enco"raged to di!ide large e#pos"res for safety and enabled to accept a wide !ariety of applicants. <. NATURA O0 CONTRACT O0 RAIN3URANCA The s"b1ect of the contract of reins"rance is the pri,ary ins"rer4s ris. and not the property ins"red "nder the original policy. 1. CONTRACT O0 INDABNITK A8AIN3T LIAHILITK. The reins"rer agrees to inde,nify the ins"rer not against act"al pay,ent ,ade b"t against liabilities inc"rred. It is not necessary that the ins"rer first pay the loss accr"ing to de,and pay,ent fro, reins"rer. '. CONTRACT 3A;ARATA 0ROB ORI8INAL IN3URANCA ;OLICK. Contracts of ins"rance and reins"rance are independent fro, each other. The practice is for the reins"rer to pay the ins"rer e!en before the latter has
inde,nified the original ins"red. 6. CONTRACT HA3AD ON ORI8INAL ;OLICK. The reins"rance policy is necessarily based on the original contract and the rights of the parties in the reins"rance are greatly 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1>< of 6<1 IN3URANCA CODA COBBARCIAL LA9 affected by the latter4s ter,s and conditions. The reins"red ris. ,"st be the sa,e as that co!ered by the original policy. =. IN3URAHLA INTARA3T RAQUIRABANT A;;LICAHLA. The doctrine of ins"rable interest "sed in the original policy is also applicable to reins"rance. 5ence the pri,ary ins"rer is not entitled to contract for reins"rance e#ceeding the li,its of the policy ceded to the reins"rer. <. RULA ON 3UHRO8ATION AIAILAHLA. In general a reins"rer on pay,ent of a loss ac+"ires the sa,e rights by s"brogation as are ac+"ired in si,ilar cases where the original ins"rer pays a loss. ?. RAIN3URANCA I3 DOUHLA IN3URANCA DI3TIN8UI35AD1> Reins"rance Do"ble Ins"rance Ins"rer beco,es the ins"red insofar as the reins"rer is concerned Ins"rer re,ains as
the ins"rer of the original ins"red The s"b1ect of the ins"rance is the original ins"rer4s ris. The s"b1ect of the ins"rance is the property being ins"red Ins"rance of a different interest Ins"rance of the sa,e interest Original ins"red has no interest in the contract of reins"rance which is independent of the original contract of ins"rance Ins"red is the party in interest in all the contracts Consent of the original ins"red is not necessary The ins"red has to gi!e his consent. 3ec. >?. 9here an ins"rer obtains reins"rance e#cept "nder a"to,atic
reins"rance treaties he ,"st co,,"nicate all the representations of the original ins"red and also all the .nowledge and infor,ation he possesses whether pre!io"sly or s"bse+"ently ac+"ired which are ,aterial to the ris.. The reins"red has the d"ty to disclose all ,aterial facts to the reins"rer %since the ris. ins"red against in a contract of reins"rance is the probability that the original ins"rer ,ay be co,pelled to inde,nify for, the loss "nder the policy iss"ed by hi,( the d"ty i,posed is si,ilar to persons see.ing an original ins"rance 7 that of the strictest good faith. 9hen called TRAATIA3 7 where the ins"rer ins"res all or a s"bstantial portion of its ris. with one ins"rer D. RAIN3URANCA TRAATIA3 I3 RAIN3URANCA ;OLICIA3 1> This was as.ed in 'FF<. Note when do"ble ins"rance occ"rs and the nat"re of the liabilities of the !ario"s ins"rers. Reins"rance Treaty Reins"rance ;olicy Berely an agree,ent between two ins"rance co,panies where
one agrees to cede and the other to accept reins"rance b"siness p"rs"ant to pro!isions specified in the treaty Contract for inde,nity one ins"rer ,a.es with another to protect the first ins"rer fro, ris. it has already ass",ed Contracts for ins"rance Contracts of ins"rance A"to,atic Reins"rance Treaties 7 the ceding co,pany %reins"red( is bo"nd to cede and the reins"rer is obligated to accept a fi#ed share of the ris. which has to be reins"red "nder the contract. 0ac"ltati!e Reins"rance Treaties 7 there is no obligation either to cede or to accept participation in the ris. ins"red each party ha!ing a free choice. Ad!antage to the ins"rer / The ad!antage of the a"to,atic ,ethod is a!oidance of delay in iss"ing the ins"rer4s policy. The ad!antage of the fac"ltati!e ,ethod is that it recei!es the reins"rer4s "nderwriting opinion before the policy is iss"ed.
;rotection to the reins"rer / Hy agreeing to accept b"siness a"to,atically the reins"rer is relying on the "nderwriting 1"dg,ent of the ins"rer and is bo"nd to accept a case e!en tho"gh it ,ay not agree with the "nderwriting decision. The ins"rer is protected by the re+"ire,ent that the original ins"rer retains its f"ll retention li,it which ass"res a ,eas"re of self/interest 5istory) In the 1><F4s do,estic ins"rer4s ceded ris.s to foreign reins"rers beca"se there was no reins"rance co,pany in the ;hilippines. Altho"gh today e!en when there are do,estic reins"rance co,panies operating in the co"ntry do,estic ris.s are still ceded to foreign reins"rance co,panies since the ;hilippines is a CALABITK ;RONA co"ntry. Li,itation Code li,its ris. which a non/life ins"rer ,ay retain on any one s"b1ect of ins"rance to 'FG of its net worth. Any reins"rance ceded by it is ded"cted in deter,ining the ris. retained. 3ec. >D. A reins"rance is pres",ed to be a contract of inde,nity against liability and not ,erely against da,age. 3ec. >E. The original ins"red has no interest in a contract of reins"rance. E. RALATION35I; O0 IN3URAD TO RAIN3URAR 8eneral R"le Original ins"red has NO INTARA3T in the
reins"rance contract 9hate!er the reins"rer pays the ins"rer "pon the happening of the loss beco,es part of the ins"rer4s assets and all its creditors share e+"al rights with the 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1>? of 6<1 IN3URANCA CODA COBBARCIAL LA9 ins"red to de,and pay,ent fro, s"ch f"nds. A#ceptions) Contract ,ay e#pressly bind the reins"rer to pay directly to the original owner any loss for which the original ins"rer ,ay be liable. o Ins"red ,ay choose to s"e either ins"rer reins"rer or HOT5. 5owe!er total reco!ery cannot be ,ore than the act"al loss. o Liability of reins"rer to original ins"red wo"ld not be affected by any defense which the reins"rer ,ay ha!e against the original ins"rer. o No no!ation which discharges original policy 7 original policy re,ains in f"ll force and original ins"red has right to de,and that all its ter,s and conditions be co,plied with. If ins"red agreed with ins"rer and reins"rer
that he will loo. only to reins"rer for inde,nity in case of loss o No!ation discharged original ins"rer o Technically not a reins"rance. >. LIAHILITK O0 RAIN3URAR TO RAIN3URAD Reins"rer is entitled to a!ail hi,self of e!ery defense which the reins"red ,ight "rge in an action by the person originally ins"red. Th"s the reins"rer is not liable to the reins"red for a loss "nder an original policy if the latter is not liable to the original ins"red or for an a,o"nt ,ore than the s", act"ally paid to the ins"red. ;hila, ! A"ditor 0acts) ;hila,life had a reins"rance treaty with AIRCO with an agree,ent to pay reins"rance pre,i",s on an ann"al basis. The Central Han. collected foreign e#change ,argin on the re,ittances of ;hila,life to AIRCO. ;hila,life filed for ref"nd contending that the reins"rance pre,i",s re,itted were paid p"rs"ant to the reins"rance treaty and therefore were pree#isting obligations e#pressly e#e,pt fro the ,argin fee. Ratio) ;hila,life is not entitled to ref"nd. Reins"rance treaties and reins"rance policies are not one and the sa,e. Reins"rance treaties are contracts 0OR ins"rance while reins"rance policies are contracts O0 ins"rance. ;hila,life4s obligation to re,it reins"rance pre,i",s
beco,es fi#ed and definite only "pon the e#ec"tion of the reins"rance policy beca"se it is only after a reins"rance policy is ,ade that pay,ent of reins"rance pre,i",s ,ay be e#acted as it is only after ;hila,life see.s to re,it the reins"rance pre,i",s that the obligation to pay the ,argin fee arises. 0ield,an4s ! Asian 3"rety 0acts) 0ield,an4s and Asian entered into a reins"rance treaty wherein Asian will cede to 0ield,en4s a specified portion of the a,o"nt of ins"rance "nderwritten by A3IAN. The contract stip"lates that if either party wishes to ter,inate or cancel the agree,ent they ,"st gi!e at least 6 ,oths notice by registered ,ail to the other party and the cancellation was to ta.e effect as of the 61st of Dece,ber of the year in which the notice was gi!en. 3o,eti,e in 3epte,ber 1>?1 0ield,en4s ga!e notice to Asian which Asian did not reply to 0ield,en4s ga!e ' other notices. D"ring this ti,e one of the reins"rance contracts 7 83I3 property was ra$ed by fire. Asian filed a clai, with 0ield,en4s who denied liability pointing o"t that they ha!e already ter,inated the reins"rance treaty. Ratio) The 0ac"ltati!e/Obligatory Reins"rance Treaty 0ire %part of the reins"rance contract2treaty( pro!ides that Lin the e!ent of ter,ination of this Agree,ent # # # the liability of the 0ield,en4s "nder c"rrent cessions shall
contin"e in f"ll force and effect "ntil their nat"ral e#piry # # #.M and LOn the ter,ination of this Agree,ent fro, any ca"se whate!er the liability of the RAIN3URAR %0ield,en4s( "nder any c"rrent cession incl"ding any a,o"nts d"e to be ceded "nder the ter,s of this Agree,ent which are not cancelled in the ordinary co"rse of b"siness shall contin"e in f"ll force "ntil their e#piry "nless the COB;ANK %Asian( shall prior to the 61st of Dece,ber ne#t following s"ch notice elect to withdraw the e#isting cessions.M Th"s insofar as the ' reins"rance agree,ents as concerned the e#press stip"lations did not ipso facto ter,inate all reins"rance cessions. 3"ch cessions contin"ed to be in f"ll force "ntil their respecti!e dates of e#piration. 3ince it was "nder one of said agree,ents na,ely the 0ac"ltati!e Obligatory Reins"rance Treaty/0ire that the reins"rance cessions corresponding to the 83I3 policy had been ,ade 0IALDBAN43 cannot a!oid liability which aro"se by reason of the b"rning of the ins"red property. Co+"ia ! 0ield,en4s Ins"rance 0acts) 0ield,en4s iss"ed to Banila Kellow Ta#icab a co,,on carrier accident ins"rance policy which will Linde,nify the ins"red in the e!ent of accident ca"sed by or arising o"t of the "se of Botor Iehicle against all s",s which the ins"red will beco,e legally liable to pay in
respect of) death or bodily in1"ry to any farepaying passenger incl"ding the dri!er cond"ctor and2or inspectorZM 9hile policy was in force Carlito Co+"ia dri!ing the ins"red !ehicle ,et an accident and died. 5is heirs field co,plaint against 0ield,en4s Ratio) 5eirs of Co+"ia ha!e ca"se of action against 0ield,en4s "nder Art. 1611 of the Ci!il %contracts po"r a"tr"i(. This r"le is the e#ception to the general r"le that only parties to a contract ,ay bring an action. Under this e#ception third parties ,ay de,and the enforce,ent of the contract which was ,ade for his benefit. Aternal 8ardens Be,orial ;ar. Corp. !. The ;hil. A,erican Life Ins"rance Co. April > 'FFE 0acts) This was a co,plaint of Aternal 8ardens Be,orial ;ar. Corp. %Aternal( see.ing to clai, on a gro"p life policy "nder which the clients of Aternal who p"rchased b"rial lots fro, it on install,ent basis wo"ld be ins"red by ;hilippine A,erican Life 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1>D of 6<1 IN3URANCA CODA COBBARCIAL LA9 Ins"rance Co,pany %;hila,life(. One s"ch client died one year and eight ,onths after Aternal had s"b,itted his application to ;hila,life which did not act on the application. ;hila,life howe!er denied Aternal4s ins"rance clai,. Aternal filed the case before the Ba.ati RTC which had ordered ;hila,life to pay the proceeds of the policy. On
appeal the CA re!ersed the RTC dis,issing the case. 5eld) The Co"rt noted that the gro"p life policy was a,big"o"s as to whether the ins"rance co!erage of Aternal4s clients beca,e effecti!e "pon contracting a loan with Aternal or "pon ;hila,life4s appro!al. A,phasi$ing that an ins"rance contract is a contract of adhesion which ,"st be constr"ed liberally in fa!or of the ins"red and strictly against the ins"rer which was the party which prepared and had e#cl"si!e control o!er the ter,s and phraseology of the ins"rance contract the 3"pre,e Co"rt interpreted the a,big"ity to ,ean that "pon a party4s p"rchase of a ,e,orial lot on install,ent fro, Aternal an ins"rance contract co!ering the lot p"rchaser is created and the sa,e is effecti!e "ntil ter,inated by ;hila,life4s disappro!al of the application. The Co"rt li.ewise fo"nd that ;hila,life4s receipt of a letter the contents of which state that attached thereto are ins"rance for,s for a list of b"rial lot owners incl"ding the disp"ted application is an ad,ission of ;hila,life against its own interest as well as an ac.nowledge,ent of the receipt of the letter together with the attach,ents. 3"ch receipt the Co"rt said shifted the b"rden of e!idence to ;hila,life to pro!e that the letter did not contain the disp"ted application. 5a!ing failed to do so ;hila,life is dee,ed to ha!e recei!ed the ins"rance application. The Co"rt th"s ordered
;hila,life to pay Aternal ;h;1FF FFF representing the proceeds of the ins"rance policy in addition to legal interest and attorney4s fees. Kolanda 3igney !. 3ocial 3ec"rity 3yste, Jan"ary 'E 'FFE 0acts) The deceased in this case had ' co,,onlaw wi!es petitioner and 8ina and one legal wife Aditha. ;etitioner had filed a clai, with the 333 alleging that she was the legal wife and that her h"sband had a co,,on/law wife 8ina. 8ina howe!er filed the sa,e clai, with the 333 alleging that both she and petitioner were co,,on/law wi!es and that deceased had a legal wife. The 333 had denied petitioner4s clai, stating that the ,arriage between she and the deceased was not !alid as it was e#ec"ted d"ring a prior e#isting ,arriage of the deceased against Aditha that deceased4s only legiti,ate child had predeceased hi, that deceased4s = children with petitioner were all o!er '1 years of age and hence cannot +"alify as dependents and declared deceased4s ' children with 8ina as pri,ary beneficiaries. 5eld) 9hoe!er clai,s entitle,ent to the benefits pro!ided by law sho"ld establish his or her right thereto by s"bstantial e!idence. 3ince petitioner is dis+"alified to be a beneficiary and beca"se the deceased has no legiti,ate child it follows that the dependent illegiti,ate ,inor children of the deceased shall be entitled to the death benefits as
pri,ary beneficiaries. The 333 Law is clear that for a ,inor child to +"alify as a Ldependent M the only re+"ire,ents are that he2she ,"st be below '1 years of age not ,arried nor gainf"lly e,ployed. In this case the ,inor illegiti,ate children 8inalyn and Rodelyn were born on 16 April 1>>? and 'F April 'FFF respecti!ely. 5ad the legiti,ate child of the deceased and Aditha s"r!i!ed and +"alified as a dependent "nder the 333 Law 8inalyn and Rodelyn wo"ld ha!e been entitled to a share e+"i!alent to only <FG of the share of the said legiti,ate child. 3ince the legiti,ate child of the deceased predeceased hi, 8inalyn and Rodelyn as the only +"alified pri,ary beneficiaries of the deceased are entitled to 1FFG of the benefits. 0ilipinas Life Ass"rance Co,pany !. Cle,ente N. ;edroso et al. 0ebr"ary = 'FFE 0acts) The respondents were d"ped by an agent %Ialle( of the petitioner into in!esting in a Lpro,otional in!est,entM progra, offering EG prepaid interest a ,onth for certain deposits ,ade on a ,onthly basis. Hasically the iss"e is whether or not the ins"rance co,pany sho"ld be held solidarily liable or whether it sho"ld hold only the agent solely liable to the respondents. 5eld) 0ilipinas Life as the principal is liable for obligations contracted by its agent Ialle. Hy the contract of agency a person binds hi,self to render so,e ser!ice or to do so,ething in
representation or on behalf of another with the consent or a"thority of the latter. The general r"le is that the principal is responsible for the acts of its agent done within the scope of its a"thority and sho"ld bear the da,age ca"sed to third persons. 9hen the agent e#ceeds his a"thority the agent beco,es personally liable for the da,age. H"t e!en when the agent e#ceeds his a"thority the principal is still solidarily liable together with the agent if the principal allowed the agent to act as tho"gh the agent had f"ll powers. In other words the acts of an agent beyond the scope of his a"thority do not bind the principal "nless the principal ratifies the, e#pressly or i,pliedly. 0ilipinas Life cannot profess ignorance of Ialle4s acts. A!en if Ialle4s representations were beyond his a"thority as a debit2ins"rance agent 0ilipinas Life e#pressly and .nowingly ratified Ialle4s acts. It cannot e!en be denied that 0ilipinas Life benefited fro, the in!est,ents deposited by Ialle in the acco"nt of 0ilipinas Life. In o"r considered !iew 0ilipinas Life had clothed Ialle with apparent a"thority- hence it is now estopped to deny said a"thority. Innocent third persons sho"ld not be pre1"diced if the principal failed to adopt the needed ,eas"res to pre!ent ,isrepresentation ,"ch ,ore so if the principal ratified his agent4s acts beyond the latter4s a"thority. Hl"e Cross 5ealth Care !. Neo,i and Danilo Oli!ares
0ebr"ary 1' 'FFE 0acts) Neo,i s"ffered a stro.e and applied for rei,b"rse,ent of her ,edical bills fro, petitioner her health care pro!ider. ;etitioner ref"sed "ntil a certification co"ld be iss"ed that her stro.e was not d"e to pre/e#isting conditions. Dr. 3aniel her physician howe!er was not able to iss"e s"ch a certification stating that beca"se the patient in!o.ed the doctor/patient confidentiality s"ch infor,ation co"ld not be gi!en ot the petitioner. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1>E of 6<1 IN3URANCA CODA COBBARCIAL LA9 The iss"e is whether petitioner was able to pro!e that Neo,i4s stro.e was ca"sed by pre/e#isting conditions and was therefore o"tside the co!erage of her plan. 5eld) It is an established r"le in ins"rance contracts that when their ter,s contain li,itations on liability they sho"ld be constr"ed strictly against the ins"rer. These are contracts of adhesion the ter,s of which ,"st be interpreted and enforced stringently against the ins"rer which prepared the contract. This doctrine is e+"ally applicable to health care agree,ents. ;etitioner ne!er presented any e!idence to pro!e that respondent Neo,iVs stro.e was d"e to a pree#isting condition. It ,erely spec"lated that Dr. 3anielVs report wo"ld be ad!erse to Neo,i based on her in!ocation of the doctor/patient pri!ilege. This was a disp"table pres",ption at best. 3"ffice
it to say that this pres",ption does not apply if the s"ppression is an e#ercise of a pri!ilege. 5ere respondentsV ref"sal to present or allow the presentation of Dr. 3anielVs report was 1"stified. It was pri!ileged co,,"nication between physician and patient. 0"rther,ore li,itations of liability on the part of the ins"rer or health care pro!ider ,"st be constr"ed in s"ch a way as to precl"de it fro, e!ading its obligations. Accordingly they sho"ld be scr"tini$ed by the co"rts with Le#tre,e 1ealo"syM and LcareM and with a L1a"ndiced eye.M 3ince petitioner had the b"rden of pro!ing e#ception to liability it sho"ld ha!e ,ade its own assess,ent of whether respondent Neo,i had a pre/e#isting condition when it failed to obtain the attending physicianVs report. It co"ld not 1"st passi!ely wait for Dr. 3anielVs report to bail it o"t. The ,ere reliance on a disp"table pres",ption does not ,eet the strict standard re+"ired "nder o"r 1"rispr"dence. ;hilippine Deposit Ins"rance Corporation !. COA 0ebr"ary '' 'FFE 0acts) The for,er 0inance 3ecretary Br. Roberto de Oca,po in his capacity as e#officio Chair,an of the ;hilippine Deposit Ins"rance Corporation %;DIC( Hoard for the years 1>>=/1>>? recei!ed a total a,o"nt of ;==F F?E.?' representing H"siness ;olicy De!elop,ent and Anforce,ent
A#penses %H;DAA( and Christ,as gift chec.s. The A"ditor thereat iss"ed Notice of Disallowance disallowing in a"dit the pay,ent of said e#penses on the gro"nd that it partoo. of the nat"re of additional co,pensation or re,"neration in !iolation of the r"le on ,"ltiple positions proscribed "nder 3ection 16 Article III of the ;hilippine Constit"tion and 3ection '%>( Rep"blic Act No. 6<>1 as a,ended. ;DIC so"ght reconsideration of the s"b1ect disallowance b"t the sa,e was denied by COA. The 3C affir,ed with finality said COA decision and resol"tion. The 0inal Order of Ad1"dication %0OA( was iss"ed to ;DIC for enforce,ent of the decision. 5owe!er instead of co,plying with the Order ;DIC condoned the a,o"nt of ;=16 E??.?' in!o.ing its power to condone "nder 3ection E paragraph 1' of its charter. 5eld) It is a f"nda,ental r"le that when a 1"dg,ent beco,es final and e#ec"tory it beco,es i,,"table and "nalterable the pre!ailing party can ha!e it e#ec"ted as a ,atter of right and the iss"ance of a writ of e#ec"tion beco,es a ,inisterial d"ty of the co"rt. The writ of e#ec"tion ,"st confor, to the 1"dg,ent to be e#ec"ted and adhere strictly to the !ery essential partic"lars. 0ollowing this r"le ;DIC sho"ld ha!e reasonably e#pected that an order directing the pay,ent or
ref"nd of the disallowed a,o"nt was forthco,ing in accordance with the COA R"les as in fact a 0inal Order of Ad1"dication was iss"ed. 9hate!er ,ay ha!e been the reason for the dis,issal of ;DIC4s petition the fact re,ains that the decision "pholding the a"dit disallowance had beco,e final and e#ec"tory. At the ris. of so"nding trite the decision is now "nalterable and i,,"table. It is no longer s"b1ect to any re!ision ,odification or appeal. In dis,issing the petition and affir,ing the a"dit disallowance this Co"rt effecti!ely declared that the pay,ent of the H;DAA to 3ecretary De Oca,po is prohibited as it !iolates the r"le against do"ble co,pensation. This declaration necessarily also ,eans that condonation of the sa,e pay,ent in fa!or of the sa,e person is li.ewise prohibited. To settle the ,atter once and for all the a"dit disallowance is not s"b1ect to condonation following the principle that what is prohibited directly is also prohibited indirectly. The a"dit disallowance cannot be circ",!ented and legiti,i$ed by resorting to condonation. The a"thority of ;DIC to condone applies only to ordinary recei!ables penalties and s"rcharges and ,"st be s"b,itted to the Co,,ission before it is i,ple,ented. This proced"re wo"ld enable the Co,,ission to in+"ire into the propriety of the condonation and to deter,ine whether the sa,e will not pre1"dice the go!ern,ent4s interest consistent with COA4s
constit"tional ,andate to e#a,ine a"dit and settle all acco"nts of the go!ern,ent its s"bdi!isions agencies and instr",entalities incl"ding go!ern,ent/owned and controlled corporations. 0"rther,ore ;DIC4s a"thority to condone "nder its charter is circ",scribed by the phrase Lto protect the interest of the Corporation.M This a"thority does not incl"de the power to condone a liability that arises fro, a !iolation of law. 9ith greater reason the condonation of a liability that arise fro, a !iolation of no less than the Constit"tion as in this case is not enco,passed by ;DIC4s charter. It is not in the interest of ;DIC to forego a"dit disallowances as it is neither its ,andate nor its tas. to perpet"ate breaches of law. 8loria 3ondayon !. ;.J. Lh"llier Inc and Ricardo Diago 0ebr"ary 'D 'FFE 0acts) ;etitioner had pledged her ;'<FR watch to respondent pawnshop. The pawnshop was robbed and a,ong the ite,s sei$ed was petitioner4s watch. ;etitioner tried to reco!er the watch b"t respondent arg"ed that the robbery was a fort"ito"s e!ent hence they were not liable. 5eld) 5ad respondent co,pany ins"red the articles pledged against b"rglary petitioner wo"ld ha!e been co,pensated for the loss fro, the b"rglary. Respondent co,pany4s fail"re to ins"re the article is therefore a contrib"tory ca"se to petitioner4s loss. Considering howe!er that
petitioner agreed to a !al"ation of ;1< FFF for the article pledged in case of a loss the replace,ent !al"e for fail"re to ins"re is li.ewise li,ited to ;1< FFF. Ne!ertheless this Co"rt ta.ing into acco"nt all the circ",stances of this case dee,s it 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 1>> of 6<1 IN3URANCA CODA COBBARCIAL LA9 fair and 1"st to award e#e,plary da,ages against respondent co,pany for its fail"re to co,ply with the r"le and reg"lation re+"iring it to ins"re the articles pledged against fire and b"rglary in the a,o"nt of Twenty 0i!e Tho"sand %;'< FFF( ;esos. This is witho"t pre1"dice to appropriate proceedings to reco!er any e#cess !al"e of the article pledged fro, a,o"nts that ,ay be or ha!e been awarded payable by third parties answerable for the loss arising fro, the robbery. ;hilippine Deposit Ins"rance Corporation Act %RA 6<>1 as a,ended by RAs ?F6D D=FF ED>1 and >6F' and ;Ds 1'F 1F>= 1=<1 and 1>6<( 1. Hasic ;olicy * To ins"re the deposits of all ban.s which are entitled to the benefits of ins"rance "nder this Act * To pro,ote and safeg"ard the interests of the depositing p"blic by way of pro!iding per,anent and contin"ing ins"rance co!erage on all ins"red deposits.
'. ;DIC 0"nctions * Can lend ,oney to ban.s before clos"re * Ins"rer of deposits against ban. clos"res * Acts as recei!er for ban.s * The ;DIC Act is not applicable to Offshore Han.ing Units * Nat"re of ins"rance f"nction) co,p"lsory ins"rance on all ban. deposits Ad,inistrati!e 0"nctions) '.1. A"thority to A#a,ine Han.s The ;DIC has the power to cond"ct e#a,ination of ban.s with prior appro!al of the Bonetary Hoard) ;ro!ided No e#a,ination can be cond"cted within 1' ,onths fro, the last e#a,ination date. '.'. A"thority to Underwrite and Ad!ance Legal 0ees and Litigation A#penses 9ho are co!eredS The Corporation shall "nderwrite or ad!ance litigation costs and e#penses or pro!ide legal assistance to its directors officers e,ployees or agents in connection with any ci!il cri,inal ad,inistrati!e or any other action or proceeding to which s"ch director officer e,ployee or agent is ,ade a party by reason of the e#ercise of a"thority or perfor,ance of f"nctions and d"ties "nder this Act. Directors officers e,ployees or agents who shall resign retire transfer to another agency or be separated fro, the ser!ice shall contin"e to be
pro!ided with s"ch legal protection in connection with any act done or o,itted to be done by the, in good faith d"ring their ten"re or e,ploy,ent. This shall not apply to any ci!il cri,inal ad,inistrati!e or any action or proceeding initiated by the Corporation against s"ch director officer e,ployee or agent. 9hat fees 2 e#penses are co!eredS * Litigation costs and e#penses incl"ding legal fees and other e#penses of e#ternal co"nsel or pro!iding legal assistance * Legal assistance shall incl"de the grant or ad!ance of reasonable legal fees to enable the e,ployee to engage co"nsel of his choice. * In the e!ent of a settle,ent or co,pro,ise inde,nification shall be pro!ided only when the Corporation is ad!ised by co"nsel that the persons to be inde,nified did not co,,it any negligence or ,iscond"ct. * The costs and e#penses inc"rred ,ay be paid by the Corporation in ad!ance of the final disposition "pon receipt of an "nderta.ing by the e,ployee to repay the a,o"nt ad!anced sho"ld it "lti,ately be deter,ined by the Hoard of Directors that he is not entitled to be inde,nified. '.6. A"thority to ;ro!ide 0inancial Assistance 9hat entities are co!eredS * Ins"red ban.s in danger of closing
9hen the Corporation has deter,ined that a an ins"red ban. is in danger of closing a the contin"ed operation of s"ch ban. is essential to pro!ide ade+"ate ban.ing ser!ice in the co,,"nity ,aintain financial stability in the econo,y. * Ins"red ban.s that ha!e already closed The a"thority to e#tend financial assistance ,ay also be e#ercised in the case of a closed ins"red ban. if the Corporation finds that a the res",ption of operations of s"ch ban. is !ital to the interests of the co,,"nity or a a se!ere financial cli,ate e#ists which threatens the stability of a n",ber of ban.s possessing significant reso"rces * Antities ac+"iring 2,erging with closed 2 closing ins"red ban.s The Corporation ,ay pro!ide any corporation a ac+"iring control of a ,erging with a consolidating with a ac+"iring the assets of an ins"red ban. in danger of closing in order to pre!ent s"ch. * Clos"re of entities that ,ay prod"ce
syste,ic conse+"ences 9hen the Bonetary Hoard has deter,ined that there are syste,ic conse+"ences of a probable clos"re of an ins"red ban. the Corporation ,ay grant financial assistance in s"ch a,o"nt as ,ay be necessary to pre!ent its fail"re or clos"re and2 or restore the ins"red ban. to !iable operations. A syste,ic ris. refers to the possibility that fail"re of one ban. to settle net transactions with other ban.s will trigger a chain reaction depri!ing other ban.s of f"nds leading to a general sh"tdown 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'FF of 6<1 IN3URANCA CODA COBBARCIAL LA9 of nor,al clearing and settle,ent acti!ity. It also ,eans the li.elihood of a s"dden "ne#pected collapse of confidence in a significant portion of the ban.ing or financial syste, with potentially large real econo,ic effects. 9hat are ;DIC4s powers with regard to financial assistanceS It is a"thori$ed to * ,a.e loans * p"rchase the assets * ass",e liabilities * ,a.e deposits * ;ro!ide financial assistance which ,ay ta.e the for, of e+"ity or +"asi/e+"ity of the ins"red ban. ;ro!ided That the Corporation shall dispose of s"ch e+"ity as soon as practicable. The Corporation prior to the e#ercise of its powers
shall deter,ine that act"al payoff and li+"idation will be ,ore e#pensi!e than the e#ercise of this power. The Corporation ,ay not "se its a"thority to p"rchase the !oting or co,,on stoc. of an ins"red ban. b"t it can enter into and enforce agree,ents that it deter,ines to be necessary to protect its financial interests. 6. Concept of Ins"red Deposits The ter, Lins"red depositM ,eans the a,o"nt d"e to any depositor for deposits in an ins"red ban. net of any obligation of the depositor to the ins"red ban. as of the date of clos"re b"t not to e#ceed ;'<F FFF.FF. In deter,ining s"ch a,o"nt d"e to any depositor there shall be added together all deposits in the ban. ,aintained in the sa,e right and capacity for his benefit either in his own na,e or in the na,e of others. A 1oint acco"nt regardless of whether the con1"nction Land M Lor M Land2orM is "sed shall be ins"red separately fro, any indi!id"ally/owned deposit acco"nt) ;ro!ided That a. If the acco"nt is held 1ointly by two or ,ore nat"ral persons or by two or ,ore 1"ridical persons or entities the ,a#i,", ins"red deposit shall be di!ided into as ,any e+"al shares as there are indi!id"als 1"ridical persons or entities "nless a different
sharing is stip"lated in the doc",ent of deposit and b. If the acco"nt is held by a 1"ridical person or entity 1ointly with one or ,ore nat"ral persons the ,a#i,", ins"red deposit shall be pres",ed to belong entirely to s"ch 1"ridical person or entity c. The aggregate of the interests of each coowner o!er se!eral 1oint acco"nts whether owned by the sa,e or different co,binations of indi!id"als 1"ridical persons or entities shall li.ewise be s"b1ect to the ,a#i,", ins"red deposit of ;'<F FFF.FF No owner2holder of any negotiable certificate of deposit shall be recogni$ed as a depositor entitled to the rights pro!ided in this Act "nless his na,e is registered as owner2holder thereof in the boo.s of the iss"ing ban.. =. Liability to Depositors =.1. Co,,ence,ent of Liability Liability co,,ences when an ins"red ban. is closed by the Bonetary Hoard p"rs"ant to 3ec 6F of R.A. D?<6. =.'. A#tent of Liability Liability co!ers the a,o"nt d"e to any depositor for deposits in an ins"red ban. net of any obligation of the depositor to the ins"red ban. as of the date of clos"re b"t not to e#ceed ;'<F FFF.FF. =.6. Deter,ination of Ins"red Deposits
The Corporation shall co,,ence the deter,ination of ins"red deposits "pon its act"al ta.eo!er of the closed ban.. In order that a clai, for deposit ins"rance with the ;DIC ,ay prosper the law re+"ires that a corresponding deposit be placed in the ins"red ban.. A deposit as defined in 3ection 6%f( ,ay be constit"ted only if ,oney or the e+"i!alent of ,oney is recei!ed by a ban.) %f( The ter, TdepositT ,eans the "npaid balance of ,oney or its e+"i!alent recei!ed by a ban. in the "s"al co"rse of b"siness and for which it has gi!en or is obliged to gi!e credit to a co,,ercial chec.ing sa!ings ti,e or thrift acco"nt or which is e!idenced by passboo. chec. and2or certificate of deposit %;DIC !s CA 1>>D( The Corporation shall p"blish the notice once a wee. for at least 6 consec"ti!e wee.s in a newspaper of general circ"lation or when appropriate in a newspaper circ"lated in the co,,"nity or co,,"nities where the closed ban. or its branches are located. =.=. Calc"lation of Liability %3ee ;art III( 3pecial ;ro!isions for Joint Acco"nts %;DIC H"lletin 'FF=/F=( 1. A 1oint acco"nt regardless of whether the con1"nction LandM LorM or Land2orM is "sed shall be ins"red separately fro, an
indi!id"ally/owned deposit acco"nt. '. If the acco"nt is held 1ointly by two or ,ore nat"ral persons or by two or ,ore 1"ridical persons or entities the ,a#i,", ins"red deposit shall be di!ided into as ,any e+"al shares as there are indi!id"als 1"ridical persons or entities "nless a different sharing is stip"lated in the doc",ent of deposit. Doc",ent of deposit referred to in the preceding paragraph pertains to 1oint acco"nt agree,ents acco"nt ledgers certificate of ti,e deposits passboo.s or other e!idence of deposits speci,en signat"re cards corporate resol"tions contracts or si,ilar instr",ents copies of which ,"st be in the c"stody or possession of the ban. "pon ta.eo!er by ;DIC. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'F1 of 6<1 IN3URANCA CODA COBBARCIAL LA9 6. If the acco"nt is held by a 1"ridical person or entity 1ointly with one or ,ore nat"ral persons the ,a#i,", ins"red deposit shall be pres",ed to belong entirely to the 1"ridical person or entity. =. The aggregate of the interests or total share of each co/owner o!er se!eral 1oint acco"nts whether owned by the sa,e or different co,binations of indi!id"als 1"ridical persons or entities shall li.ewise
be s"b1ect to the ,a#i,", ins"red deposit of ;'<F FFF.FF. <. The a,o"nt of ins"rance d"e to any depositor for deposits in an ins"red ban. shall be net of any ,at"red or "n,at"red obligation of the depositor to the ins"red ban. as of date of clos"re. In case of 1oint deposit acco"nts where only one of the codepositors has an obligation to the closed ban. the following shall apply) a. 9here the deposit is a 1oint Land2orM or LorM acco"nt which is co!ered by a hold/o"t agree,ent the obligation sec"red by the holdo"t agree,ent shall be ded"cted fro, the balance of the 1oint acco"nt regardless of the fact that only one of the co/depositors in the 1oint acco"nt is indebted to the closed ban.. b. 9hen the deposit is a 1oint LandM acco"nt which is co!ered by a holdo"t agree,ent the obligation sec"red by the hold/o"t agree,ent shall be ded"cted only fro, the share in the 1oint acco"nt of the depositor who is indebted to the closed ban. "nless his codepositor is hi,self a co/signatory to the hold/o"t agree,ent.
c. 9here the deposit is either a 1oint LandM LorM or Land2orM acco"nt which is not co!ered by a hold/o"t agree,ent the obligation of the depositor who is indebted to the closed ban. shall be ded"cted only fro, his share in the balance of the 1oint deposit acco"nt. =.<. Bode of ;ay,ent ;ay,ent of the ins"red deposits shall be ,ade by the Corporation as soon as possible either a by cash or a by ,a.ing a!ailable to each depositor a transferred deposit in another ins"red. The ter, Ltransfer depositM ,eans a deposit in an ins"red ban. ,ade a!ailable to a depositor by the Corporation as pay,ent of ins"red deposit of s"ch depositor in a closed ban. and ass",ed by another ins"red ban.. =.?. Conditions that ,ay be i,posed prior to pay,ent a The Corporation in its discretion ,ay re+"ire proof of clai,s to be filed before paying the ins"red deposits a 9here the Corporation is not satisfied as to the !iability of a clai, for an ins"red deposit it ,ay re+"ire final deter,ination of a co"rt of co,petent 1"risdiction before paying s"ch clai, =.D. Affect of ;ay,ent of Ins"red Deposit
a ;DIC is discharged fro, obligations * ;ay,ent of an ins"red deposit to any person by the Corporation shall discharge the Corporation * ;ay,ent of a transferred deposit by the new ban. or by an ins"red ban. in which a transferred deposit has been ,ade a!ailable shall discharge the Corporation and s"ch new ban. or other ins"red ban. a ;DIC is s"brogated to depositor4s rights * The Corporation "pon pay,ent of any depositor shall be s"brogated to all rights of the depositor against the closed ban.. H"t the depositor shall retain his clai, for any "nins"red portion of his deposit. * All pay,ents by the Corporation of ins"red deposits in closed ban.s parta.e of the nat"re of p"blic f"nds and ,"st be considered a preferred credit si,ilar to ta#es d"e to the National 8o!ern,ent. =.E. 0ail"re to settle clai, of ins"red depositor 0ail"re to settle the clai, within ? ,onths fro, the date of filing of clai, for ins"red deposit where s"ch fail"re was d"e to gra!e ab"se of discretion gross negligence bad faith or ,alice shall s"b1ect the directors officers or e,ployees responsible to
i,prison,ent fro, ? ,onths to 1 year. The period shall not apply if the !alidity of the clai, re+"ires the resol"tion of iss"es of facts and or law by another office body or agency. =.>. 0ail"re of Depositor to Clai, Ins"red Deposit Unless otherwise wai!ed by the Corporation if the depositor in the closed ban. shall fail to clai, his ins"red deposits with the Corporation a within ' years fro, act"al ta.eo!er of the closed ban. by the recei!er or a within ' years after the two/year period to file a clai, all rights of the depositor against the Corporation shall be barred. 5owe!er all rights of the depositor against the closed ban. and its shareholders or the recei!ership estate to which the Corporation ,ay ha!e beco,e s"brogated shall re!ert to the depositor. <. Restriction on ;ay,ent of Di!idends by Ins"red Han. <.1. 8eneral R"le) No ins"red ban. shall pay any di!idend on its capital stoc. or interest on its capital notes or debent"res %if s"ch interest is re+"ired to be paid only o"t of net profits( or distrib"te any of its capital assets while it re,ains in defa"lt in the pay,ent of any assess,ent d"e to the Corporation <.'. A#ception)
* If s"ch defa"lt is d"e to a disp"te between the ins"red ban. and the Corporation o!er the a,o"nt of s"ch assess,ent and Han. deposits 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'F' of 6<1 IN3URANCA CODA COBBARCIAL LA9 sec"rity satisfactory to the Corporation for pay,ent "pon final deter,ination ?. ;rohibition against 3plitting of Deposits The penalty of prision ,ayor or a fine of not less than ;<F FFF b"t not ,ore than ;' FFF FFF or both shall be i,posed "pon any director officer e,ployee or agent of a ban. for ) ### <( splitting of deposits or creation of fictitio"s loans or deposit acco"nts. ### D. ;rohibition against Iss"ance of TROs * No co"rt e#cept the CA shall iss"e any TRO preli,inary in1"nction or preli,inary ,andatory in1"nction against the Corporation. * This prohibition shall apply in all cases disp"tes or contro!ersies instit"ted by a pri!ate party the ins"red ban. or any shareholder.( * The 3"pre,e Co"rt ,ay iss"e a restraining order or in1"nction when o the ,atter is of e#tre,e "rgency in!ol!ing a constit"tional iss"e o gra!e in1"stice and irreparable in1"ry will arise
o The party applying shall file a bond in an a,o"nt to be fi#ed by the 3"pre,e Co"rt Affects of iss"ing TRO) * Any restraining order or in1"nction iss"ed in !iolation of this 3ection is !oid and of no force and effect * Any 1"dge who has iss"ed the sa,e shall s"ffer the penalty of s"spension of at least ?F days witho"t pay 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'F6 of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 TRAN3;ORTATION LA9 I. 8eneral Considerations A. ;"blic Utilities 1>ED Constit"tion Article OII 3ection 11 No franchise certificate or any other for, of a"thori$ation for the operation of a p"blic "tility shall be granted e#cept to citi$ens of the ;hilippines or to corporations or associations organi$ed "nder the laws of the ;hilippines at least si#ty per cent", of whose capital is owned by s"ch citi$ens- nor shall s"ch franchise certificate or a"thori$ation be e#cl"si!e in character or for a longer period than fifty years. Neither shall any s"ch franchise or right be granted e#cept "nder the condition that it shall be s"b1ect to a,end,ent alteration or repeal by the Congress when the co,,on good so re+"ires. The 3tate shall enco"rage e+"ity participation in p"blic "tilities by
the general p"blic. The participation of foreign in!estors in the go!erning body of any p"blic "tility enterprise shall be li,ited to their proportionate share in its capital and all the e#ec"ti!e and ,anaging officers of s"ch corporation or association ,"st be citi$ens of the ;hilippines. 3ection 1D In ti,es of national e,ergency when the p"blic interest so re+"ires the 3tate ,ay d"ring the e,ergency and "nder reasonable ter,s prescribed by it te,porarily ta.e o!er or direct the operation of any pri!ately/owned p"blic "tility or b"siness affected with p"blic interest. Agan Jr. !s. ;IATCO =F' 3CRA ?1' %'FF6( The Constit"tion en!isions a sit"ation wherein the e#igencies of the ti,es necessitated the go!ern,ent to Lte,porarily ta.e o!er or direct the operation of any pri!ately owned p"blic "tility or b"siness affected with p"blic interestM. 3ince the 3tate in this case is ,erely e#ercising its police power s"ch e#ercise ,"st not be "nreasonably ha,pered nor can it be a so"rce of obligation in the absence of da,age d"e to arbitrariness. Also re+"iring the go!ern,ent pay reasonable co,pensation for the reasonable "se of the property p"rs"ant to the operation of the b"siness contra!enes the Constit"tion. 3ection 1E The 3tate ,ay in the interest of national welfare or defense establish and operate !ital ind"stries
and "pon pay,ent of 1"st co,pensation transfer to p"blic ownership "tilities and other pri!ate enterprises to be operated by the 8o!ern,ent. 3ection 1> The 3tate shall reg"late or prohibit ,onopolies when the p"blic interest so re+"ires. No co,binations in restraint of trade or "nfair co,petition shall be allowed. The ;"blic 3er!ice Law CA 1=? as a,ended 3ec. 16%b( The ter, Tp"blic ser!iceT incl"des e!ery person that now or hereafter ,ay own operate ,anage or control in the ;hilippines for hire or co,pensation with general or li,ited clientele whether per,anent occasional or accidental and done for general b"siness p"rposes any co,,on carrier railroad street railway traction railway s"b/way ,otor !ehicle either for freight or passenger or both with or witho"t fi#ed ro"te and whether ,ay be its classification freight or carrier ser!ice of any class e#press ser!ice stea,boat or stea,ship line pontines ferries and water craft engaged in the transportation of passengers or freight or both shipyard ,arine railways ,arine repair shop :wareho"se@ wharf or doc. ice plant ice/refrigeration plant canal irrigation syste, gas electric light heat and power water s"pply and power petrole", sewerage syste, wire or wireless co,,"nications syste, wire or wireless broadcasting stations and other si,ilar p"blic
ser!ices) ;ro!ided howe!er That a person engaged in agric"lt"re not otherwise a p"blic ser!ice who owns a ,otor !ehicle and "ses it personally and2or enters into a special contract whereby said ,otor !ehicle is offered for hire or co,pensation to a third party or third parties engaged in agric"lt"re not itself or the,sel!es a p"blic ser!ice for operation by the latter for a li,ited ti,e and for a specific p"rpose directly connected with the c"lti!ation of his or their far, the transportation processing and ,ar.eting of agric"lt"ral prod"cts of s"ch third party or third parties shall not be considered as operating a p"blic ser!ice for the p"rposes of this Act. 95AT I3 A ;UHLIC UTILITKS Ril"sang Bayo Uno Labor Center !. 8arcia %1>>=( ;"blic "tilities are pri!ately owned and operated b"sinesses whose ser!ices are essential to the general p"blic. They are enterprises which specially cater to the needs of the p"blic and cond"ce to their co,fort and con!enience. As s"ch p"blic "tility ser!ices are i,pressed with p"blic interest and concern. 9hen therefore one de!otes his property to a "se in which the p"blic has an interest he in effect grants to the p"blic an interest in that "se and ,"st s"b,it to the control by the p"blic for the co,,on good to the e#tent of the interest he has th"s created. Albano !. Reyes %1>E>(
0ranchises iss"ed by Congress are not re+"ired before each and e!ery p"blic "tility ,ay operate. A p"blic "tility is a b"siness or ser!ice engaged in reg"larly s"pplying the p"blic with so,e co,,odity or ser!ice of p"blic conse+"ence s"ch as electricity gas water transportation telephone or telegraph ser!ices. Apart fro, stat"tes which define p"blic "tilities that are within the p"r!iew of s"ch stat"tes it wo"ld be diffic"lt to constr"ct a definition of a p"blic "tility which wo"ld fit e!ery concei!able case. As its na,e indicates howe!er the ter, p"blic "tility i,plies a p"blic "se and ser!ice to the p"blic. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'F= of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 95AN I3 A HU3INA33 A ;UHLIC UTILITKS 9hen it in!ol!es a co,,odity or ser!ice of p"blic conse+"ence. ' CONCA;T3 O0 ;UHLIC UTILITK UNDAR T5A 1>ED CON3TITUTION) 1. A p"blic "tility is a partly nationali$ed b"siness endea!or '. It is a b"siness affected with the p"blic interest. %Lnational e,ergencyM- Lgeneral welfareMLco,,on goodM( ' TA3T3 0OR DATARBININ8 ;UHLIC UTILITK) 1. Is it engaged in reg"larly s"pplying the p"blic with so,e co,,odity or ser!ice %per definition in Albano !. Reyes below( '. If X1 is "ncertain is it a p"blic ser!ice as
defined in the ;"blic 3er!ice Law "nder CA 1=? 3ec 16%b(S If it falls "nder any one of the e#a,ples gi!en "nder CA 1=? 3ec 16%b( then it is a p"blic "tility. 95AT DOA3 LRA8ULARLK 3U;;LKIN8 T5A ;UHLICZM BAANS The "tility ,"st hold itself o"t to the p"blic as a p"blic "tility by de,and and as a ,atter of right and not by per,ission. To deter,ine what constit"tes reg"larity loo. at it fro, the perspecti!e of the p"blic and not the operator. It is a ser!ice or a readiness to ser!e an indefinite portion of the pop"lation s"b1ect only to the li,itations of the ser!ice as gi!en by the grant s"ch that :the "tility@ inc"rs a liability as a !iolation of its d"ty if it ref"ses s"ch that the a!ail,ent of the ser!ice has beco,e thro"gh ti,e a ,atter of right and not of ,ere pri!ilege. %also in U3 !. Tan ;iaco( ARA ALL ;UHLIC 3ARIICA O0 UTILITIA3 COBBODITIA3 OR
;UHLIC CON3AQUANCAS Kes. All p"blic "tilities ha!e a p"blic conse+"ence. H"t not all b"sinesses bearing p"blic conse+"ence are p"blic "tilities. This is beca"se al,ost all types of b"siness ha!e so,e for, of reg"lation fro, the 3tate. TO 95OB DOA3 L;UHLICM RA0AR TOS I3 T5A 9ORD L;UHLICM IN L;UHLIC UTILITKM T5A 3ABA IN L;UHLIC 3ARIICAMS
There are three senses of the word Lp"blicM in Transportation Law) a( p"blic "tility- b( p"blic ser!ice- and c( definition of a co,,on carrier "nder Art. 1D6' of the Ci!il Code. To deter,ine a p"blic "tility the two tests abo!e U the definition "nder Albano !. Reyes apply. 95AT I3 A ;UHLIC 3ARIICAS Ril"sang Bayo Uno Labor Center !. 8arcia Jr. %1>>=( In deter,ining p"blic need the pres",ption of need for a ser!ice shall be dee,ed in fa!or of the applicant. The b"rden of pro!ing that there is no need for a proposed ser!ice shall be with the oppositor%s(. ;"blic con!enience and necessity e#ists when the proposed facility or ser!ice ,eets a reasonable want of the p"blic and s"pply a need which the e#isting facilities do not ade+"ately s"pply. The e#istence or none#istence of p"blic con!enience and necessity is therefore a +"estion of fact that ,"st be established by e!idence real and2or testi,onial- e,pirical data- statistics and s"ch other ,eans necessary in a p"blic hearing cond"cted for that p"rpose. The ob1ect and p"rpose of s"ch proced"re a,ong other things is to loo. o"t for and protect the interests of both the p"blic and the e#isting transport operators. Albano !. Reyes %1>E>( 0ranchises iss"ed by Congress are not re+"ired before each and e!ery p"blic "tility ,ay
operate. A p"blic "tility is a b"siness or ser!ice engaged in reg"larly s"pplying the p"blic with so,e co,,odity or ser!ice of p"blic conse+"ence s"ch as electricity gas water transportation telephone or telegraph ser!ices. Apart fro, stat"tes which define p"blic "tilities that are within the p"r!iew of s"ch stat"tes it wo"ld be diffic"lt to constr"ct a definition of a p"blic "tility which wo"ld fit e!ery concei!able case. As its na,e indicates howe!er the ter, p"blic "tility i,plies a p"blic "se and ser!ice to the p"blic. Tatad ! 8arcia 9hat constit"tes a p"blic "tility is not their ownership b"t their "se to ser!e the p"blic. ;AL !. Ci!il Aerona"tics Hoard %1>>D( 9ON Lcertificates of ;"blic Con!enience and NecessityM %franchise re+"ired( as "sed in RA DD? to a"thori$e the Hoard is different fro, LCertificates of ;"blic Con!enienceM %no franchise re+"ired(S No There is no a"thoritati!e basis in disting"ishing a Certificate of ;"blic Con!enience and Necessity %franchise re+"ired( and a Certificate of ;"blic Con!enience %no franchise re+"ired( based only on the "se of the words con!enience and necessity. The "se of the word LnecessityM in con1"nction with Lp"blic con!enienceM in a certificate of a"thori$ation to a p"blic ser!ice entity to operate does not in any way ,odify the nat"re
of s"ch certification or the re+"ire,ents for the iss"ance of the sa,e. It is the law which deter,ines the re+"isites for the iss"ance of s"ch certification and not the title indicating the certificate. 95AT I3 T5A DI00ARANCA HAT9AAN A ;UHLIC UTILITK AND A ;UHLIC 3ARIICAS 0or all intents and p"rposes they are the sa,e and are "sed interchangeably. 5owe!er p"blic "tility is a broader concept that e,braces p"blic ser!ice. A p"blic ser!ice is necessarily a p"blic "tility b"t not all p"blic "tilities are p"blic ser!ices. 95AN I3 A ;UHLIC UTILITK NOT A ;UHLIC 3ARIICAS If it is not incl"ded in the en",eration in the ;"blic 3er!ice Act %CA 1=? 3ec. 16%b(( and Albano !. Reyes. 5O9 DO T5AK DI00AR IN CON3TITUTIONAL RA3TRICTION3 AND RAQUIRABANT3S If a b"siness is a p"blic "tility then it is s"b1ect to the li,itations and restrictions pro!ided for in the 1>ED Constit"tion %Art 1' 3ecs. 11 1D 1E 1>( 3ince a p"blic ser!ice is necessarily a p"blic "tility therefore p"blic ser!ices are s"b1ect to the sa,e Constit"tional li,itations and restrictions. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'F< of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 If a p"blic "tility is not a p"blic ser!ice it is
still s"b1ect to the sa,e Constit"tional li,itations and restrictions. Therefore p"blic "tility \ Constit"tion p"blic ser!ice \ Constit"tion Y ;"blic 3er!ice Act H. Transportation DA0INITION The ,o!e,ent of goods or persons fro, one place to another by a carrier. %Hlac.4s Law Dictionary( A contract of transportation is one whereby a certain person or association of persons obligate the,sel!es to transport persons things news fro, one place to another for a fi#ed price. It is the re,o!al of goods or persons fro, one place to another. NOTA) Art. 1D?? In all ,atters not reg"lated by this Code the rights and obligations of co,,on carriers shall be go!erned by the Code of Co,,erce and by special laws. ;UHLIC NATURA It is for p"blic "se which ,eans that the "se is not confined to pri!ileged indi!id"als b"t is instead open to an indefinite p"blic. It is this indefinite or "nrestricted +"ality that gi!es it its p"blic character. The tr"e criterion by which to 1"dge the character of the "se is whether the p"blic ,ay en1oy it by right or by per,ission. There ,"st be in general a right "nder the law which co,pels
the owner to gi!e the ser!ice for the general p"blic. ;UHLIC 3ARIICA ACT T5A ;UHLIC 3ARIICA LA9 %CA 1=?( %As a,ended and as ,odified partic"larly by ;D No. 1 Integrated Reorgani$ation ;lan and AO <=?( C5A;TAR I OR8ANINATION 3ACTION 1 This Act shall be .nown as the T;"blic 3er!ice Act.T 3ACTION ' There is created "nder the Depart,ent of J"stice a co,,ission which shall be designated and .nown as the ;"blic 3er!ice Co,,ission co,posed of one ;"blic 3er!ice Co,,issioner and fi!e Associate Co,,issioners and which shall be !ested with the powers and d"ties hereafter specified. 9hene!er the word TCo,,issionT is "sed in this Act it shall be held to ,ean the ;"blic 3er!ice Co,,ission and whene!er the word TCo,,issionerT is "sed in this Act it shall be held to ,ean the ;"blic 3er!ice Co,,issioner or anyone of the Associate Co,,issioners. The ;"blic 3er!ice Co,,issioner and the Associate ;"blic 3er!ice Co,,issioners shall be nat"ral born citi$ens and residents of the ;hilippines not "nder thirty years of age- ,e,bers of the Har of the ;hilippines with at least fi!e years of law practice or fi!e years of e,ploy,ent in the go!ern,ent ser!ice re+"iring a lawyerVs diplo,aand shall be appointed by the ;resident of the ;hilippines with the consent of the Co,,ission on
Appoint,ents of the Congress of the ;hilippines) ;ro!ided howe!er That the present Co,,issioner and the personnel of the Co,,ission shall contin"e in office witho"t the necessity of re/appoint,ent. The Co,,issioners shall ha!e the ran. and pri!ilege of retire,ent of J"dges of the Co"rts of 0irst Instance. %As a,ended by Rep"blic Act Nos. 1DE and '?DD( 3ACTION 6 The Co,,issioner and Associate Co,,issioners shall hold office "ntil they reach the age of se!enty years or "ntil re,o!ed in accordance with the proced"res prescribed in section one h"ndred and se!enty/three of Act N",bered Twenty/se!en h"ndred and ele!en .nown as the Re!ised Ad,inistrati!e Code) ;ro!ided howe!er That "pon retire,ent any Co,,issioner of Associate Co,,issioner shall be entitled to all retire,ent benefits and pri!ileges for J"dges of the Co"rts of 0irst Instance or "nder the retire,ent law to which he ,ay be entitled on the date of his retire,ent. In case of the absence for any reason of the ;"blic 3er!ice Co,,issioner the Associate Co,,issioner with seniority of appoint,ent shall act as Co,,issioner. If on acco"nt of absence illness or incapacity of any of three Co,,issioners or whene!er by reason of te,porary disability of any Co,,issioner or of a !acancy occ"rring therein the re+"isite n",ber of Co,,issioners necessary to render a decision or iss"e an order in any case is
not present or in the e!ent of a tie !ote a,ong the Co,,issioners the 3ecretary of J"stice ,ay designate s"ch n",ber of J"dges of the Co"rts of 0irst Instance or s"ch n",ber of attorneys of the legal di!ision of the Co,,ission as ,ay be necessary to sit te,porarily as Co,,issioners in the ;"blic 3er!ice Co,,ission. The ;"blic 3er!ice Co,,ission shall sit indi!id"ally or as a body en banc or in two di!isions of three Co,,issioners each. The ;"blic 3er!ice Co,,issioner shall preside when the Co,,ission sits en banc and in one di!ision. In the other di!ision the Associate Co,,issioner with seniority of appoint,ent in that di!ision shall preside. 0i!e Co,,issioners shall constit"te a +"or", for sessions en banc and two Co,,issioners shall constit"te a +"or", for the sessions of a di!ision. In the absence of a +"or", the session shall be ad1o"rned "ntil the re+"isite n",ber is present. All the powers herein !ested "pon the Co,,ission shall be considered !ested "pon any of the Co,,issioners acting either indi!id"ally or 1ointly as hereinafter pro!ided. The Co,,issioners shall e+"itably di!ide a,ong the,sel!es all pending cases and those that ,ay hereafter be s"b,itted to the Co,,issioner in s"ch ,anner and for, as they ,ay deter,ine and shall proceed to hear and deter,ine the case assigned to each or to their respecti!e di!isions or to the Co,,ission en banc as follows) "ncontested cases e#cept those
pertaining to the fi#ing of rates shall be decided by one Co,,issioner- contested cases and all cases in!ol!ing the fi#ing of rates shall be decided by the Co,,ission in di!ision and the conc"rrence of at least two Co,,issioners in the di!ision shall be necessary for the pro,"lgation of a decision or non/interloc"tory order in these cases) ;ro!ided 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'F? of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 howe!er That any ,otion for reconsideration of a decision or non/interloc"tory order of any Co,,issioner or di!ision shall be heard directly by the Co,,ission en banc and the conc"rrence of at least fo"r Co,,issioners shall be necessary for the pro,"lgation of a final decision or order resol!ing s"ch ,otion for reconsideration. %As a,ended by Rep"blic Act Nos. D'6 and '?DD( 3ACTION = The ;"blic 3er!ice Co,,issioner shall recei!e an ann"al co,pensation of thirteen tho"sand pesosand each of the Associate Co,,issioners an ann"al co,pensation of twel!e tho"sand pesos. The Co,,issioners shall be assisted by one chief attorney one finance and rate reg"lation officer one chief "tilities reg"lation engineer one chief acco"ntant one transportation reg"lation chief one secretary of the ;"blic 3er!ice Co,,ission and three p"blic "tilities ad!isers who shall recei!e an ann"al co,pensation of not less than ten tho"sand eight h"ndred pesos each- fi!e assistant
chiefs of di!ision who shall recei!e an ann"al co,pensation of not less than nine tho"sand si# h"ndred pesos each- twel!e attorneys who shall recei!e an ann"al co,pensation of not less than nine tho"sand pesos each- and a technical and confidential staff to be co,posed of two certified p"blic acco"nts two electrical engineers two ,echanical or co,,"nication engineers and two special assistants who shall recei!e an ann"al co,pensation of not less than se!en tho"sand two h"ndred pesos each. %As a,ended by Rep"blic Act Nos. D'6 '?DD and 6D>'( 3ACTION < The ;"blic 3er!ice Co,,issioner the Associate ;"blic 3er!ice Co,,issioners and all other officers and e,ployees of the ;"blic 3er!ice Co,,ission shall en1oy the sa,e pri!ileges and rights as the officer and e,ployees of the classified ci!il ser!ice of the 8o!ern,ent of the ;hilippines. They shall also be entitled to recei!e fro, the 8o!ern,ent of the ;hilippines their necessary tra!elling e#penses while tra!elling on the b"siness of the Co,,ission which shall be paid on proper !o"cher therefor appro!ed by the 3ecretary of J"stice o"t of f"nds appropriated for the contingent e#penses of the Co,,ission. 9hen the e#igency of the ser!ice so re+"ires and with the appro!al of the 3ecretary of J"stice and s"b1ect to the pro!isions of Co,,onwealth Act N",bered Two h"ndred forty/si# as a,ended
f"nds ,ay be set aside fro, the appropriations pro!ided for the Co,,ission and2or fro, the fees collected "nder 3ection forty of this Act to defray the e#penses to be inc"rred by the ;"blic 3er!ice Co,,issioner or any of the Associate Co,,issioners officers or e,ployees of the Co,,ission to be designated by the Co,,issioner with the appro!al of the 3ecretary of J"stice in the st"dy of ,odern trends in s"per!ision and reg"lation of p"blic ser!ices. %As a,ended by Rep"blic Act No. 6D>'( 3ACTION ? The 3ecretary of J"stice "pon reco,,endation of the ;"blic 3er!ice Co,,issioner shall appoint all s"bordinate officers and e,ployees of the Co,,ission as ,ay be pro!ided in the Appropriation Act. The ;"blic 3er!ice Co,,issioner shall ha!e general e#ec"ti!e control direction and s"per!ision o!er the wor. of the Co,,ission and of its ,e,bers body and personnel and o!er all ad,inistrati!e b"siness. %As a,ended by Rep"blic Act Nos. 1DE and 6D>'( 3ACTION D The 3ecretary of the Co,,ission "nder the direction of the Co,,issioner shall ha!e charge of the ad,inistrati!e b"siness of the Co,,ission and shall perfor, s"ch other d"ties as ,ay be re+"ired of hi,. 5e shall be the recorder and official reporter of the proceedings of the Co,,ission and shall ha!e a"thority to ad,inister oaths in all
,atters co,ing "nder the 1"risdiction of the Co,,ission. 5e shall be the c"stodian of the records ,aps profiles tariffs itineraries reports and any other doc",ents and papers filed with the Co,,ission or entr"sted to his care and shall be responsible therefor to the Co,,ission. 5e shall ha!e a"thority to designate fro, ti,e to ti,e any of his delegates to perfor, the d"ties of Dep"ty 3ecretary with any of the Co,,issioners. 3ACTION E The Co,,ission shall f"rnish the 3ecretary s"ch of its findings and decisions as in its 1"dg,ent ,ay be of general p"blic interest- the 3ecretary shall co,pile the sa,e for the p"rpose of p"blication in a series of !ol",es to be designated TReports of the ;"blic 3er!ice Co,,ission of the ;hilippines T which shall be p"blished in s"ch for, and ,anner as ,ay be best adapted for p"blic infor,ation and "se and s"ch a"thori$ed p"blications shall be co,petent e!idence of the reports and decisions of the Co,,ission therein contained witho"t any f"rther proof or a"thentication thereof. 3ACTION > No ,e,ber or e,ployee of the Co,,ission shall ha!e any official or professional relation with any p"blic ser!ice as herein defined or hold any office of profit or tr"st with the 8o!ern,ent of the ;hilippines. 3ACTION 1F The Co,,ission shall ha!e its office in the City of
Banila or at s"ch other place as ,ay be designated and ,ay hold hearings on any proceedings at s"ch ti,es and places within the ;hilippines as it ,ay pro!ide by order in writing) ;ro!ided That d"ring the ,onths of April and Bay of each year at least three Co,,issioners shall be on !acation in s"ch ,anner that once e!ery two years at least three of the, shall be on d"ty d"ring April and Bay) ;ro!ided howe!er That in the interest of p"blic ser!ice the 3ecretary of J"stice ,ay re+"ire any or all the Co,,issioners not on d"ty to render ser!ices and perfor, their d"ties 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'FD of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 d"ring the !acation ,onths. %As a,ended by Rep"blic Act Nos. 1D? and 6D>'( 3ACTION 11 The Co,,ission shall ha!e the power to ,a.e needf"l r"les for its 8o!ern,ent and other proceedings not inconsistent with this Act and shall adopt a co,,on seal and 1"dicial notice shall be ta.en for s"ch seal. Tr"e copies of said r"les and other a,end,ents shall be pro,ptly f"rnished to the H"rea" of ;rinting and shall be forthwith p"blished in the Official 8a$ette. 3ACTION 16 %a( The Co,,ission shall ha!e 1"risdiction s"per!ision and control o!er all p"blic ser!ices and their franchises e+"ip,ent and other properties and in the e#ercise of its a"thority it shall ha!e the
necessary powers and the aid of the p"blic force) ;ro!ided That p"blic ser!ices owned or operated by go!ern,ent entities or go!ern,ent/owned or controlled corporations shall be reg"lated by the Co,,ission in the sa,e way as pri!ately/owned p"blic ser!ices b"t certificates of p"blic con!enience or certificates of p"blic con!enience and necessity shall not be re+"ired of s"ch entities or corporations) And pro!ided f"rther That it shall ha!e no a"thority to re+"ire stea,boats ,otor ships and stea,ship lines whether pri!atelyowned or owned or operated by any 8o!ern,ent controlled corporation or instr",entality to obtain certificate of p"blic con!enience or to prescribe their definite ro"tes or lines of ser!ice. %b( The ter, Tp"blic ser!iceT incl"des e!ery person that now or hereafter ,ay own operate ,anage or control in the ;hilippines for hire or co,pensation with general or li,ited clientele whether per,anent occasional or accidental and done for general b"siness p"rposes any co,,on carrier railroad street railway traction railway s"b/way ,otor !ehicle either for freight or passenger or both with or witho"t fi#ed ro"te and whether ,ay be its classification freight or carrier ser!ice of any class e#press ser!ice stea,boat or stea,ship line pontines ferries and water craft engaged in the transportation of passengers or freight or both shipyard ,arine railways ,arine repair shop :wareho"se@ wharf or doc. ice plant
ice/refrigeration plant canal irrigation syste, gas electric light heat and power water s"pply and power petrole", sewerage syste, wire or wireless co,,"nications syste, wire or wireless broadcasting stations and other si,ilar p"blic ser!ices) ;ro!ided howe!er That a person engaged in agric"lt"re not otherwise a p"blic ser!ice who owns a ,otor !ehicle and "ses it personally and2or enters into a special contract whereby said ,otor !ehicle is offered for hire or co,pensation to a third party or third parties engaged in agric"lt"re not itself or the,sel!es a p"blic ser!ice for operation by the latter for a li,ited ti,e and for a specific p"rpose directly connected with the c"lti!ation of his or their far, the transportation processing and ,ar.eting of agric"lt"ral prod"cts of s"ch third party or third parties shall not be considered as operating a p"blic ser!ice for the p"rposes of this Act. %c( The word TpersonT incl"des e!ery indi!id"al co/partnership 1oint/stoc. co,pany or corporation whether do,estic or foreign their lessees tr"stees or recei!ers as well as any ,"nicipality pro!ince city go!ern,ent/owned or controlled corporation or agency of the 8o!ern,ent of the ;hilippines and whate!er other persons or entities that ,ay own or possess or operate p"blic ser!ices. %As a,ended by Co,. Act =<= and RA No. '?DD( 3ACTION 1=
The following are e#e,pted fro, the pro!isions of the preceding section) %a( 9areho"ses%b( Iehicles drawn by ani,als and bancas ,o!ed by oar or sail and t"gboats and lighters%c( Airships within the ;hilippines e#cept as regards the fi#ing of their ,a#i,", rates on freight and passengers%d( Radio co,panies e#cept with respect to the fi#ing of rates%e( ;"blic ser!ices owned or operated by any instr",entality of the National 8o!ern,ent or by any go!ern,ent/owned or controlled corporation e#cept with respect to the fi#ing of rates. %As a,ended by Co,. Act =<= RA No. 'F61 and RA No. '?DD( 3ACTION 1< 9ith the e#ception of those en",erated in the preceding section no p"blic ser!ice shall operate in the ;hilippines witho"t possessing a !alid and s"bsisting certificate fro, the ;"blic 3er!ice Co,,ission .nown as Tcertificate of p"blic con!enience T or Tcertificate of p"blic con!enience and necessity T as the case ,ay be to the effect that the operation of said ser!ice and the a"thori$ation to do b"siness will pro,ote the p"blic interests in a proper and s"itable ,anner. The Co,,ission ,ay prescribe as a condition for the iss"ance of the certificate pro!ided in the preceding paragraph that the ser!ice can be
ac+"ired by the Rep"blic of the ;hilippines or any instr",entality thereof "pon pay,ent of the cost price of its "sef"l e+"ip,ent less reasonable depreciation- and li.ewise that the certificate shall be !alid only for a definite period of ti,e- and that the !iolation of any of these conditions shall prod"ce the i,,ediate cancellation of the certificate witho"t the necessity of any e#press action on the part of the Co,,ission. In esti,ating the depreciation the effect of the "se of the e+"ip,ent its act"al condition the age of the ,odel or other circ",stances affecting its !al"e in the ,ar.et shall be ta.en into consideration. The foregoing is li.ewise applicable to any e#tension or a,end,ent of certificates act"ally in force and to those which ,ay hereafter be iss"ed to per,it to ,odify itineraries and ti,e sched"les 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'FE of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 of p"blic ser!ices and to a"thori$ations to renew and increase e+"ip,ent and properties. 3ACTION 1?'F ;roceedings of the Co,,ission "pon notice and hearing. / The Co,,ission shall ha!e power "pon proper notice and hearing in accordance with the r"les and pro!isions of this Act s"b1ect to the li,itations and e#ceptions ,entioned and sa!ing pro!isions to the contrary) %a( To iss"e certificates which shall be .nown as
certificates of p"blic con!enience a"thori$ing the operation of p"blic ser!ice within the ;hilippines whene!er the Co,,ission finds that the operation of the p"blic ser!ice proposed and the a"thori$ation to do b"siness will pro,ote the p"blic interest in a proper and s"itable ,anner. ;ro!ided That thereafter certificates of p"blic con!enience and certificates of p"blic con!enience and necessity will be granted only to citi$ens of the ;hilippines or of the United 3tates or to corporations copartnerships associations or 1oint/stoc. co,panies constit"ted and organi$ed "nder the laws of the ;hilippines- ;ro!ided That si#ty per cent", of the stoc. or paid/"p capital of any s"ch corporations co/partnership association or 1oint/stoc. co,pany ,"st belong entirely to citi$ens of the ;hilippines or of the United 3tates) ;ro!ided f"rther That no s"ch certificates shall be iss"ed for a period of ,ore than fifty years. %b( To appro!e s"b1ect to constit"tional li,itations any franchise or pri!ilege granted "nder the pro!isions of Act No. 3i# 5"ndred and 3i#ty/se!en as a,ended by Act No. One Tho"sand and twentytwo by any political s"bdi!ision of the ;hilippines when in the 1"dg,ent of the Co,,ission s"ch franchise or pri!ilege will properly conser!e the p"blic interests and the Co,,ission shall in so appro!ing i,pose s"ch conditions as to constr"ction e+"ip,ent ,aintenance ser!ice or operation as the p"blic interests and con!enience
,ay reasonably re+"ire and to iss"e certificates of p"blic con!enience and necessity when s"ch is re+"ired or pro!ided by any law or franchise. %c( To fi# and deter,ine indi!id"al or 1oint rates tolls charges classifications or sched"les thereof as well as co,,"tation ,ileage .ilo,etrage and other special rates which shall be i,posed obser!ed and followed thereafter by any p"blic ser!ice) ;ro!ided That the Co,,ission ,ay in its discretion appro!e rates proposed by p"blic ser!ices pro!isionally and witho"t necessity of any hearing- b"t it shall call a hearing thereon within thirty days thereafter "pon p"blication and notice to the concerns operating in the territory affected) ;ro!ided f"rther That in case the p"blic ser!ice e+"ip,ent of an operator is "sed principally or secondarily for the pro,otion of a pri!ate b"siness the net profits of said pri!ate b"siness shall be considered in relation with the p"blic ser!ice of s"ch operator for the p"rpose of fi#ing the rates. %d( To fi# 1"st and reasonable standards classifications reg"lations practices ,eas"re,ent or ser!ice to be f"rnished i,posed 'F The powers of the ;"blic 3er!ice Co,,ission were as.ed in 1>>6. obser!ed and followed thereafter by any p"blic ser!ice. %e( To ascertain and fi# ade+"ate and ser!iceable standards for the ,eas"re,ent of +"antity +"ality press"re initial !oltage or other condition
pertaining to the s"pply of the prod"ct or ser!ice rendered by any p"blic ser!ice and to prescribe reasonable reg"lations for the e#a,ination and test of s"ch prod"ct or ser!ice and for the ,eas"re,ent thereof. %f( To establish reasonable r"les reg"lations instr"ctions specifications and standards to sec"re the acc"racy of all ,eters and appliances for ,eas"re,ents. %g( To co,pel any p"blic ser!ice to f"rnish safe ade+"ate and proper ser!ice as regards the ,anner of f"rnishing the sa,e as well as the ,aintenance of the necessary ,aterial and e+"ip,ent. %h( To re+"ire any p"blic ser!ice to establish constr"ct ,aintain and operate any reasonable e#tension of its e#isting facilities where in the 1"dg,ent of said Co,,ission s"ch e#tension is reasonable and practicable and will f"rnish s"fficient b"siness to 1"stify the constr"ction and ,aintenance of the sa,e and when the financial condition of the said p"blic ser!ice reasonably warrants the original e#pendit"re re+"ired in ,a.ing and operating s"ch e#tension. %i( To direct any railroad street railway or traction co,pany to establish and ,aintain at any 1"nction or point of connection or intersection with any other line of said road or trac. or with any other line of any other railroad street railway or traction to pro,ote s"ch 1"st and reasonable connection as
shall be necessary to pro,ote the con!enience of shippers of property or of passengers and in li.e ,anner direct any railroad street railway or traction co,pany engaged in carrying ,erchandise to constr"ct ,aintain and operate "pon reasonable ter,s a switch connection with any pri!ate sidetrac. which ,ay be constr"cted by any shipper to connect with the railroad street railway or traction co,pany line where in the 1"dg,ent of the Co,,ission s"ch connection is reasonable and practicable and can be o"t in with safety and will f"rnish s"fficient b"siness to 1"stify the constr"ction and ,aintenance of the sa,e. %1( To a"thori$e in its discretion any railroad street railway or traction co,pany to lay its trac.s across the trac.s of any other railroad street railway or traction co,pany or across any p"blic highway. %.( To direct any railroad or street railway co,pany to install s"ch safety de!ices or abo"t s"ch other reasonable ,eas"res as ,ay in the 1"dg,ent of the Co,,ission be necessary for the protection of the p"blic are passing grade crossing of %1( p"blic highways and railroads %'( p"blic highways and streets railway or %6( railways and street railways. %l( To fi# and deter,ine proper and ade+"ate rates of depreciation of the property of any p"blic ser!ice which will be obser!ed in a proper and ade+"ate 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'F> of 6<1
TRAN3;ORTATION LA9 COBBARCIAL LA9 depreciation acco"nt to be carried for the protection of stoc.holders bondholders or creditors in accordance with s"ch r"les reg"lations and for, of acco"nt as the Co,,ission ,ay prescribe. 3aid rates shall be s"fficient to pro!ide the a,o"nts re+"ired o!er and abo!e the e#pense of ,aintenance to .eep s"ch property in a state of efficiency corresponding to the progress of the ind"stry. Aach p"blic ser!ice shall confor, its depreciation acco"nts to the rates so deter,ined and fi#ed and shall set aside the ,oneys so pro!ided for o"t of its earnings and carry the sa,e in a depreciation f"nd. The inco,e fro, in!est,ents of ,oney in s"ch f"nd shall li.ewise be carried in s"ch f"nd. This f"nd shall not be e#pended otherwise than for depreciation i,pro!e,ents new constr"ction e#tensions or conditions to the properly of s"ch p"blic ser!ice. %,( To a,end ,odify or re!o.e at any ti,e certificate iss"ed "nder the pro!isions of this Act whene!er the facts and circ",stances on the strength of which said certificate was iss"ed ha!e been ,isrepresented or ,aterially changed. %n( To s"spend or re!o.e any certificate iss"ed "nder the pro!isions of this Act whene!er the holder thereof has !iolated or willf"lly and cont",acio"sly ref"sed to co,ply with any order r"le or reg"lation of the Co,,ission or any pro!ision of this Act) ;ro!ided That the
Co,,ission for good ca"se ,ay prior to the hearing s"spend for a period not to e#ceed thirty days any certificate or the e#ercise of any right or a"thority iss"ed or granted "nder this Act by order of the Co,,ission whene!er s"ch step shall in the 1"dg,ent of the Co,,ission be necessary to a!oid serio"s and irreparable da,age or incon!enience to the p"blic or to pri!ate interests. %o( To fi# deter,ine and reg"late as the con!enience of the state ,ay re+"ire a special type for a"to/b"sses tr"c.s and ,otor tr"c.s to be hereafter constr"cted p"rchased and operated by operators after the appro!al of this Act- to fi# and deter,ine a special registration fee for a"tob"ses tr"c.s and ,otor tr"c.s so constr"cted p"rchased and operated) ;ro!ided That said fees shall be s,aller than ,ore those charged for a"tob"sses tr"c.s and ,otor tr"c.s of types not ,ade reg"lation "nder the s"bsection. 3ACTION 1E It shall be "nlawf"l for any indi!id"al copartnership association corporation or 1oint/stoc. co,pany their lessees tr"stees or recei!ers appointed by any co"rt whatsoe!er or any ,"nicipality pro!ince or other depart,ent of the 8o!ern,ent of the ;hilippines to engage in any p"blic ser!ice b"siness witho"t ha!ing first sec"red fro, the Co,,ission a certificate of p"blic con!enience or certificate of p"blic con!enience and necessity as pro!ided for in this Act e#cept
grantees of legislati!e franchises e#pressly e#e,pting s"ch grantees fro, the re+"ire,ent of sec"ring a certificate fro, this Co,,ission as well as concerns at present e#isting e#pressly e#e,pted fro, the 1"risdiction of the Co,,ission either totally or in part by the pro!isions of section thirteen of this Act. 3ACTION 1> Unlawf"l Acts. / It shall be "nlawf"l for any p"blic ser!ice) %a( To pro!ide or ,aintain any ser!ice that is "nsafe i,proper or inade+"ate or withhold or ref"se any ser!ice which can reasonably be de,anded and f"rnished as fo"nd and deter,ined by the Co,,ission in a final order which shall be concl"si!e and shall ta.e effect in accordance with this Act "pon appeal of otherwise. %b( To ,a.e or gi!e directly or indirectly by itself or thro"gh its agents attorneys or bro.ers or any of the, disco"nts or rebates on a"thori$ed rates or grant credit for the pay,ent of freight charges or any "nd"e or "nreasonable preference or ad!antage to any person of corporation or to any locality or to any partic"lar description of traffic or ser!ice or s"b1ect any partic"lar person or corporation or locality or any partic"lar description of traffic to any pre1"dice or disad!antage in any respect whatsoe!er- to adopt ,aintain or enforce any reg"lation practice or ,eas"re,ent which shall be fo"nd or deter,ined by the Co,,ission to
be "n1"st "nreasonable "nd"ly preferential or "n1"stly discri,inatory in a final order which shall be concl"si!e and shall ta.e effect in accordance with the pro!isions of this Act "pon repeal or otherwise. %g( To sell alienate ,ortgage enc",ber or lease its property franchises certificates pri!ileges or rights or any part thereof- or ,erge or consolidate its property franchises pri!ileges or rights or any part thereof with those of any other p"blic ser!ice. The appro!al herein re+"ired shall be gi!en after notice to the p"blic and hearing the persons interested at a p"blic hearing if it be shown that there are 1"st and reasonable gro"nds for ,a.ing the ,ortgaged or enc",brance for liabilities of ,ore than one year ,at"rity or the sale alienation lease ,erger or consolidation to be appro!ed and that the sa,e are not detri,ental to the p"blic interest and in case of a sale the date on which the sa,e is to be cons",,ated shall be fi#ed in the order of appro!al) ;ro!ided howe!er that nothing herein contained shall be constr"ed to pre!ent the transaction fro, being negotiated or co,pleted before its appro!al or to pre!ent the sale alienation or lease by any p"blic ser!ice of any of its property in the ordinary co"rse of its b"siness. %h( To sell or register in its boo.s the transfer or sale of shares of its capital stoc. if the res"lt of that sale in itself or in connection with another
pre!io"s sale shall be to !est in the transferee ,ore than forty per cent", of the s"bscribed capital of said p"blic ser!ice. Any transfer ,ade in !iolation of this pro!ision shall be !oid and of no effect and shall not be registered in the boo.s of the p"blic ser!ice corporation. Nothing herein contained shall be constr"ed to pre!ent the holding of shares lawf"lly ac+"ired. %As a,ended by Co,. Act No. =<=.( %i( To sell alienate or in any ,anner transfer shares of its capital stoc. to any alien if the res"lt of that sale alienation or transfer in itself or in connection with another pre!io"s sale shall be the 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '1F of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 red"ction to less than si#ty per cent", of the capital stoc. belonging to ;hilippine citi$ens. 3"ch sale alienation or transfer shall be !oid and of no effect and shall be s"fficient ca"se for ordering the cancellation of the certificate. K Transit !. NLRC The sale alienation or other enc",brance of a p"blic ser!ice operator4s properties re+"ires the pre!io"s appro!al and a"thori$ation of the Co,,ission. NOTA) The ;"blic 3er!ice Co,,ission does not e#ist any,ore. It is now the Depart,ent of Transportation and Co,,"nications. T5A CARTI0ICATA O0 ;UHLIC CONIANIANCA %C;C(T5A
CARTI0ICATA O0 ;UHLIC CONIANIANCA U NACA33ITK %C;CN( AND T5A ;RIOR O;ARATOR RULA Does the sale of a C;C C;CN or other properties of the p"blic "tility ha!e to be appro!ed before it is sold to a third personS No. The appro!al of the sale of C;Cs C;CNs or other properties does not affect the !alidity %perfection( of the sale between the parties as long as all the ele,ents of a contract are ,et. This only affectes the relation of the parties to the DOTC or to 6rd parties. If there is no appro!al then the sale does not bind the DOTC or 6rd parties. The controlling factor therefore is the registration. If a stoc.holder of a p"blic "tility transfers his stoc. to the 6rd person is there a need to obtain the appro!al of the DOTCS It depends. If the transfer res"lts in the transferee owning ,ore than =FG of the stoc. of the p"blic "tility then the appro!al of the DOTC is needed. 9hen ,"st the appro!al of the DOTC be sec"redS Hefore or after the e#ec"tion of the contract. 9hat if the transferree is an alienS IOID. An alien cannot own ,ore than =FG of the stoc. of a p"blic "tility. 9hat is a Certificate of ;"blic Con!enienceS %C;C( The ;"blic 3er!ice Law 3ec. 1< 9ith the e#ception of those en",erated in the preceding section no p"blic ser!ice shall operate in the ;hilippines witho"t possessing a !alid and s"bsisting certificate fro, the ;"blic 3er!ice
Co,,ission .nown as Tcertificate of p"blic con!enience T or Tcertificate of p"blic con!enience and necessity T as the case ,ay be to the effect that the operation of said ser!ice and the a"thori$ation to do b"siness will pro,ote the p"blic interests in a proper and s"itable ,anner. The Co,,ission ,ay prescribe as a condition for the iss"ance of the certificate pro!ided in the preceding paragraph that the ser!ice can be ac+"ired by the Rep"blic of the ;hilippines or any instr",entality thereof "pon pay,ent of the cost price of its "sef"l e+"ip,ent less reasonable depreciation- and li.ewise that the certificate shall be !alid only for a definite period of ti,e- and that the !iolation of any of these conditions shall prod"ce the i,,ediate cancellation of the certificate witho"t the necessity of any e#press action on the part of the Co,,ission. A C;C is any a"thori$ation to operate a p"blic ser!ice iss"ed by the ;3C %now DOTC(. It is an a"thori$ation iss"ed by the Co,,ission for the operation of p"blic ser!ices for which no franchise either ,"nicipal or legislati!e is re+"ired by law( e.g. ,otor !ehicles It constit"tes neither a franchise nor a contract it does not confer property rights and is a ,ere license or pri!ilege. %;antranco !. ;3C( 3"ch pri!ilege is forfeited when the grantee fails to co,ply with his co,,it,ents to ser!e the p"blic
and p"blic necessity. 5owe!er these certificates represent property rights to the e#tent that if the rights which any p"blic "tility is e#ercising p"rs"ant to the lawf"l orders of the ;3C %now DOTC( has been in!aded by another p"blic "tility in appropriate cases actions ,ay be ,aintained by the co,plainant p"blic "tility. 9hich p"blic "tilities are e#e,pted fro, getting a C;CS The ;"blic 3er!ice Law 3ec. 1= The following are e#e,pted fro, the pro!isions of the preceding section) %a( 9areho"ses%b( Iehicles drawn by ani,als and bancas ,o!ed by oar or sail and t"gboats and lighters%c( Airships within the ;hilippines e#cept as regards the fi#ing of their ,a#i,", rates on freight and passengers%d( Radio co,panies e#cept with respect to the fi#ing of rates%e( ;"blic ser!ices owned or operated by any instr",entality of the National 8o!ern,ent or by any go!ern,ent/owned or controlled corporation e#cept with respect to the fi#ing of rates. %As a,ended by Co,. Act =<= RA No. 'F61 and RA No. '?DD( 9hat is a Certificate of ;"blic Con!enience U NecessityS %C;CN( It is a certificate iss"ed by the ;3C to a p"blic ser!ice to which any political s"bdi!ision has
granted a franchise "nder RA ??D after the ;3C has appro!ed the sa,e "nder 3ec. 1?%b(. It is an a"thori$ation iss"ed by the ;3C for the operation of p"blic ser!ices for which a franchise is re+"ired by law. %e.g. electric telephone( 9hat is the difference between a C;C U a C;CNS A C;CN re+"ires a franchise fro, Congress. The p"blic "tility cannot be iss"ed a C;CN and cannot operate therefore witho"t a franchise fro, Congress 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '11 of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 A C;C does not. 9hat is a franchiseS It is a legislati!e grant fro, Congress or a local legislati!e body. If it is of nationwide application %e.g. ;hilippine Air Lines( then it ,"st ta.e the for, of a Rep"blic Act. 5ow does one get a franchiseS It is the sa,e proced"re for any law %file a bill 6 readings in Congress etc( The applicant ,"st a(pro!e that he or she is a 0ilipino citi$en- b( de,onstrate financial capacity and c( ,"st show that he or she is applying for a b"siness of p"blic con!enience that the p"blic shall benefit fro, the grant of the franchise. Is a franchise eno"gh in order to operateS No. All p"blic "tilities re+"ire either a C;C or C;CN to operate. Those p"blic "tilities for which franchises ha!e been granted still re+"ire a C;CN
in order to operate. Those p"blic "tilities that did not re+"ire a franchise for there creation still re+"ire a C;C in order to operate. Ray,"ndo !. L"neta Botor Corporation %1>66( The ;"blic 3er!ice Law Act No. 61FE as a,ended a"thori$es certificates of p"blic con!enience to be sec"red by p"blic ser!ice operators fro, the ;3C. A C;C granted to the owner or operator of p"blic ser!ice ,otor !ehicles grants a right in the nat"re of a li,ited franchise. The Code of Ci!il ;roced"re establishes the general r"le that Tproperty both real and personal or any interest therein of the 1"dg,ent debtor not e#e,pt by law and all property and rights of property sei$ed and held "nder attach,ent in the action shall be liable to e#ec"tion.T The stat"tory e#e,ptions do not incl"de franchises or certificates- of p"blic con!enience. The word TpropertyT as "sed in section =<F of the Code of Ci!il ;roced"re co,prehends e!ery species of title inchoate or co,plete legal or e+"itable. The TA3T to deter,ine whether or not property can be attached and sold "pon e#ec"tion is whether the 1"dg,ent debtor has s"ch a beneficial interest therein that he can sell or otherwise dispose of it for !al"e. Now the ;"blic 3er!ice Law per,its the ;3C to appro!e the sale alienation ,ortgaging enc",bering or leasing of property franchises
pri!ileges or rights or any part thereof %sec. 1? :h@( and in practice the p"rchase and sale of certificates of p"blic con!enience has been per,itted by the ;3C. If the holder of a C;C can sell it !ol"ntarily there is no !alid reason why the sa,e certificate cannot be ta.en and sold in!ol"ntarily p"rs"ant to co"rt process. C;Cs sec"red by p"blic ser!ice operators are liable to e#ec"tion and the ;"blic 3er!ice Co,,ission is a"thori$ed to appro!e the transfer of the certificates of p"blic con!enience to the e#ec"tion creditor. 9hat is the prior operator r"leS The prior operator r"le wor.s to protect the prior operator if it ,aintains an ade+"ate ser!ice and is able to ,eet the de,ands of the p"blic. 5is or her in!est,ent is protected by not allowing a s"bse+"ent operator to be granted a license for the sa,e ro"te. The rationale for this r"le is for the preser!ation of p"blic con!enience and to pre!ent r"ino"s co,petition. 9hat are so,e of the instances where the prior operator r"le does NOT applyS The prior operator r"le does not apply when the C;C or C;CN granted to the applicant is a ,aiden franchise that co!ers a new ro"te e!en if it o!erlaps with the ro"te of the prior operator. The prior operator r"le is inapplicable where the corporate e#istence of the prior operator has e#pired.
Reg"lar operators are preferred o!er irreg"lar operators. The Co,,ission cannot grant a C;C or C;CN that co,prises a larger territory than that applied for. 5ow do yo" .now whether there is r"ino"s co,petition eno"gh for the prior operator r"le to ta.e effectS R"ino"s co,petition ,eans that there is act"al r"in of the b"siness of the operator- that the e#isting operator will not gain eno"gh profits if another person is allowed to enter the b"sinessthat which will res"lt in the depri!ation of s"fficient gain in respect of reasonable ret"rn of in!est,ent therefore the oppositor alleging this ,"st show that he will be depri!ed of a reasonable ret"rn on his in!est,ent. The ,ere possibility of red"ction in the earnings of the b"siness or the deterioration in the inco,e of his b"siness is not s"fficient to pro!e r"ino"s co,petition. It ,"st be shown that the b"siness wo"ld not ha!e s"fficient gains to pay a fair rate of interest on his capital in!est,ents. Does the prior operator r"le create a ,onopolyS Legally spea.ing there cannot be a ,onopoly when a property is operated as a p"blic "tility. The prior operator r"le does not enco"rage a ,onopoly beca"se the theory is that one operator .eeps the prices low. Hatangas Transportation Co. !. Cayetano
Orlanes %1>'E( 3o long as the 1st licensee .eeps and perfor,s the ter,s and conditions of its license and co,plies with the reasonable r"les and reg"lations of the Co,,ission and ,eets the de,ands of the p"blic it sho"ld ha!e ,ore or less of a bested and preferential right o!er a person who see.s to ac+"ire another and a later license o!er sa,e ro"te. Otherwise the first licensee wo"ld not ha!e protection on his in!est,ent and wo"ld be s"b1ect 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '1' of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 to r"ino"s co,petition and this defeat the !ery p"rpose and intent for the ;3C was created. 3an ;ablo !. ;antranco %1>ED( Hefore pri!ate respondent ,ay be iss"ed a franchise or C;C for the operation of the said ser!ice as a co,,on carrier it ,"st co,ply with the "s"al re+"ire,ents of filing an application pay,ent of the fees p"blication add"cing e!idence at a hearing and affording the oppositors the opport"nity to be heard a,ong others as pro!ided by law. Considering the en!iron,ental circ",stances of the case the con!eyance of passengers tr"c.s and cargo fro, Batnog to Allen is certainly not a ferry boat ser!ice b"t a coastwise or interisland shipping ser!ice. Under no circ",stance can the sea between Batnog and Allen be considered a contin"ation of the highway Batnog and Allen are separated by an open sea. Its
C;C as a b"s transportation cannot be ,erely a,ended to incl"de this water ser!ice "nder the g"ise that it is a ,ere pri!ate ferry ser!ice. 9hat is an e#a,ple of the L.abit syste,MS'1 A a grantee of a C;C fro, the LT0RH is gi!en the a"thority to operate 1F "nits of ta#is. H a nongrantee wishes to operate as a co,,on carried and L.abitsM with the C;C of A who will obtain appro!al fro, the LT0RH to operate another ta#i. The ta#i will be registered in the na,e of A who will be paid by H. Ass",e that A e#ec"ted a deed of sale in fa!or of H in case H decides not to go on with the arrange,ent in order to safeg"ard the rights of H. 5owe!er in case of in1"ry to a passenger of the ta#i act"ally operated by H %and pre!io"sly sold to H as well( it is still A who will be liable. The illegal contract of sale between A U H cannot be p"t "p as a defense. A does not ha!e a ca"se of action against H either. They are in pari delicto. Te1a Bar.eting !. IAC %1>ED( ;arties operated "nder an arrange,ent co,,only .nown as the T.abit syste,T whereby a person who has been granted a certificate of p"blic con!enience allows another person who owns ,otor !ehicles to operate "nder s"ch franchise for a fee. A certificate of p"blic con!enience is a special pri!ilege conferred by the go!ern,ent. Altho"gh not o"trightly penali$ed as a cri,inal
offense the .abit syste, is in!ariably recogni$ed as being contrary to p"blic policy and therefore !oid and in e#istent "nder Article 1=F> of the Ci!il Code. ;RIIATA NATURA- RI85T3 AND OHLI8ATION3 O0 ;ARTIA3 ARI3IN8 0ROB TRAN3ACTION3 RALATIN8 TO TRAN3;ORTATION AH3ANT A TRAN3;ORTATION CONTRACT Lara !. Ialencia %1><E( The owner and dri!er of a !ehicle owes to acco,,odation passengers or in!ited g"ests ,erely the d"ty to e#ercise reasonable care so that they ,ay be transported safely to their destination. '1 This was as.ed in 'FF<. Rnow the definition of the Rabit 3yste, and the liability of the party. Th"s LThe r"le is established by the weight of a"thority that the owner or operator of an a"to,obile owes the d"ty to an in!ited g"est to e#ercise reasonable care in its operation and not "nreasonably to e#pose hi, to danger and in1"ry by increasing the ha$ard of tra!el. Ialencia therefore is only re+"ired to obser!e ordinary care and is not in d"ty bo"nd to e#ercise e#traordinary diligence as re+"ired of a co,,on carrier by o"r law %Art. 1D<< U 1D<? new CC( ARI3IN8 0ROB A TRAN3;ORTATION CONTRACT Contract of transportation definedA contract of transportation is one whereby a certain person or association of persons obligate the,sel!es to transport persons things or news
fro, one to another for a fi#ed price. Contract of transportation ele,ents;arties to the contract) 3hipper / one who gi!es rise to the contract of transportation by agreeing to deli!er the things or news to be transported or to present his own person or those of other or others in the case of transportation of passengers Carrier or cond"ctor / one who binds hi,self to transport person things or news as the case ,ay be or one e,ployed in or engaged in the b"siness of carrying good for others for hire Consignee / the party to who, the carrier is to deli!er the things being transported- to who, the carrier ,ay lawf"lyy ,a.e deli!ery in accordance with its contract of carriage. The shipper and the consignee ,ay be the sa,e person. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '16 of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 III. Code of Co,,erce ;ro!isions on O!erland Transportation %"nless otherwise indicated reference is to Code of Co,,erce( 9hat does the Code of Co,,erce co!erS It go!erns o!er o!erland transporation and ,ariti,e ad,iralty. It go!erns only co,,ercial contracts. Co,,ercial contracts in!ol!ing co,,on carriers * refer first to the Ci!il Code then to the Code of Co,,erce
;ri!ate carriers in!ol!ed in co,,ercial contracts * refer first to the Code of Co,,erce then to the Ci!il Code b"t e#cl"ding the Ci!il Code pro!isions on co,,on carriers A. 3cope of O!erland Transportation 9hat is o!erland transportS O!erland transport applies to transport on land and on s,all bodies of water waterways both nat"ral and artificial incl"ding transport on ri!ers which are not !ery large. %If it is transport at sea then it is ad,iralty( H. Nat"re of Contract ARTICLA 6=> A contract for all .inds of transportation o!er land or ri!er shall be considered co,,ercial) 1. 9hen it in!ol!es ,erchandise or any co,,ercial goods. '. 9hen no ,atter what its ob1ect ,ay be the carrier is a ,erchant or is c"sto,arily engaged in ,a.ing transportation for the p"blic. C. Affect of Ci!il Code Art 1D?? In all ,atters not reg"lated by this Code the rights and obligations of co,,on carriers shall be go!erned by the Code of Co,,erce and by special laws. Art. ''DF The following laws and reg"lations are hereby repealed) %1( Those parts and pro!isions of the Ci!il Code of
1EE> which are in force on the date when this new Ci!il Code beco,es effecti!e) %'( The pro!isions of the Code of Co,,erce go!erning sales partnership agency loan deposit and g"aranty%6( The pro!isions of the Code of Ci!il ;roced"re on prescription as far as inconsistent with this Codeand %=( All laws Acts parts of Acts r"les of co"rt e#ec"ti!e orders and ad,inistrati!e reg"lations which are inconsistent with this Code. %n( D. Contract of Carriage 1. HILL O0 LADIN8 DA0INITION 3UHJACT BATTAR ARTICLA 6<' Hills of lading or tic.ets in the case of transportation of passengers ,ay be different one for persons and another for baggage b"t all of the, shall contain the na,e of the carrier the date of ship,ent the points of depart"re and arri!al the price and with regard to baggage the n",ber and weight of the pac.ages with any other indications which ,ay be considered necessary in order to easily identify the,. 9hat is a bill of ladingS It ,ay be defined as a written ac.nowledg,ent of the receipt of goods and an agree,ent to transport and to deli!er the, at a specified place to a person na,ed or on his order. It co,prehends all ,ethods of transportation.
Aach bill of lading is a contract in itself and the parties are bo"nd by its ter,s. A bill of lading is also a receipt and it is li.ewise a sy,bol of the goods co!ered by it. It is also a doc",ent of title. 9ho are the parties to a bill of ladingS 1. shipper '. consignee 6. carrier 0ORB CONTANT3 ARTICLA 6<F The shipper as well as the carrier of ,erchandise and goods ,ay ,"t"ally de,and of each other the iss"e of a bill of lading in which there shall be stated) 1. The na,e s"rna,e and do,icile of the shipper. '. The na,e s"rna,e and do,icile of the carrier. 6. The na,e s"rna,e and do,icile of the person to who, or to whose order the goods are addressed or whether they are to be deli!ered to the bearer of the said bill. =. A description of the goods stating their generic character their weight and the e#ternal ,ar.s or signs of the pac.ages containing the sa,e. <. The cost of the transportation. ?. The date on which the ship,ent is ,ade. D. The place of the deli!ery to the carrier. E. The place and ti,e at which the deli!ery is
to be ,ade to the consignee. >. The da,ages to be paid by the carrier in case of delay if any agree,ent is ,ade on this point. ARTICLA 6<1 In ship,ents ,ade o!er railroads or by other enterprises which are s"b1ect to sched"les or the ti,e fi#ed by reg"lations it shall be s"fficient that the bills of lading or declarations of ship,ent f"rnished by the shipper refer with regard to the rate ter,s and special conditions of the 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '1= of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 transportation to the sched"les and reg"lations the application of which is re+"ested- and sho"ld no sched"le be deter,ined the carrier ,"st apply the rate of the ,erchandise paying the lowest with the condition inherent thereto always incl"ding s"ch state,ent or reference in the bill of lading deli!ered to the shipper. Is the for, ,aterialS No. As long as it contains an ac.nowledg,ent by the carrier of the receipt of goods for transporation it is in legal effect a bill of lading. 0UNCTION ARTICLA 6<6 The legal basis of the contract between the shipper and the carrier shall be the bills of lading by the contents of which all disp"tes which ,ay arise with regard to their e#ec"tion and f"lfill,ent shall be
decided witho"t ad,ission of other e#ceptions than forgery or ,aterial errors in the drafting thereof. After the contract has been co,plied with the bill of lading iss"ed by the carrier shall be ret"rned to hi, and by !irt"e of the e#change of this certificate for the article transported the respecti!e obligations and actions shall be considered as canceled "nless in the sa,e act the clai,s which the contracting parties desired to reser!e are red"ced to writing e#ception being ,ade of the pro!isions of Article 6??. If in case of loss or for any other reason whatsoe!er the consignee can not ret"rn "pon recei!ing the ,erchandise the bill of lading s"bscribed by the carrier he shall gi!e said carrier a receipt for the goods deli!ered this receipt prod"cing the sa,e effects as the ret"rn of the bill of lading. '. RA0U3AL TO TRAN3;ORT ARTICLA 6<? Carrier ,ay ref"se to accept pac.ages which appear "nfit for transportation- and if said transportation is to be ,ade by railway and the ship,ent is insisted on the co,pany shall carry the, being e#e,pt fro, all liability if its ob1ections are so stated in the bill of lading. 6. DOUHT0UL DACLARATION O0 CONTANT3 ARTICLA 6<D If the carrier by reason of well/fo"nded s"spicions
as to the correctness of the declaration of the contents of a pac.age sho"ld deter,ine to e#a,ine it he shall do so before witnesses in the presence of the shipper or of the consignee. 3ho"ld the shipper or consignee to be cited not appear the e#a,ination shall be ,ade before a notary who shall draft a certificate of the res"lt of the e#a,ination for the proper p"rposes. If the declaration of the shipper sho"ld be correct the e#penses ca"sed by the e#a,ination and those of caref"lly repac.ing the pac.ages shall be defrayed by the carrier and in a contrary case by the shipper. =. NO HILL O0 LADIN8 ARTICLA 6<= In the absence of a bill of lading the respecti!e clai,s of the parties shall be decided by the legal proofs that each one ,ay s"b,it in s"pport of his clai,s in accordance with the general pro!isions established in this Code for co,,ercial contracts. ARTICLA 6<1 In transporation ,ade by railroads or other enterprises which are s"b1ect to sched"les or the ti,e fi#ed by reg"lations it shall be s"fficient that the bills of lading or the declarations of ship,ent f"rnished by the shipper refer with respect to the rate ter,s and special conditions of the transportation to the sched"les and reg"lations the application of which he re+"ests and sho"ld no sched"le by deter,ined the carrier ,"st apply the
rate of the ,erchandise paying the lowest with the conditions inherent therein always incl"ding s"ch state,ent or reference to the, in the bill of lading which he deli!ers to the shipper. Is a bill of lading essential to a contract of transportationS No. 9hile "nder Art. 6<F the shipper and the co,,on carrier ,ay ,"t"ally de,and that a bill of lading be ,ade it is not obligatory. The fact that a bill of lading is not iss"ed does not precl"de the e#istence of a contract of transportation. 9here no bill of lading is iss"ed the disp"tes between the parties shall be decided according to the r"les laid down in Art. 6<=. A. Responsibility of the carrier 1. 95AN IT COBBANCA3 ARTICLA 6<< The liability of the carrier shall begin fro, the ,o,ent he recei!es the ,erchandise in person or thro"gh a person intr"sted thereto in the place indicated for their reception. '. ROUTA ARTICLA 6<> If there sho"ld be an agree,ent between the shipper and the carrier with regard to the road o!er which the transportation is to be ,ade the carrier can not change the ro"te "nless obliged to do so by force ,a1e"re- and sho"ld he do so witho"t being forced to he shall be liable for any da,age which ,ay be s"ffered by the goods transported
for any other ca"se whatsoe!er besides being re+"ired to pay the a,o"nt which ,ay ha!e been stip"lated for s"ch a case. 9hen on acco"nt of the said force ,a1e"re the carrier is obliged to ta.e another ro"te ca"sing an increase in the transportation charges he shall be rei,b"rsed for said increase after presenting the for,al proof thereof. 6. CARA O0 8OOD3 ARTICLA 6?1 Berchandise shall be transported at the ris. and !ent"re of the shipper if the contrary was not e#pressly stip"lated. Therefore all da,ages and i,pair,ent s"ffered by the goods d"ring the transportation by reason of accident force ,a1e"re or by !irt"e of the nat"re or defect of the articles shall be for the acco"nt and ris. of the shipper. cdta The proof of these accidents is inc",bent on the carrier. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '1< of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 ARTICLA 6?' The carrier howe!er shall be liable for the losses and da,ages arising fro, the ca"ses ,entioned in the foregoing article if it is pro!ed that they occ"rred on acco"nt of his negligence or beca"se he did not ta.e the preca"tions "s"ally adopted by caref"l persons "nless the shipper co,,itted fra"d in the bill of lading ,a.ing hi, belie!e that
the goods were of a class or +"ality different fro, what they really were. If notwithstanding the preca"tion referred to in this article the goods transported r"n the ris. of being lost on acco"nt of the nat"re or by reason of an "na!oidable accident witho"t there being ti,e for the owners of the sa,e to dispose thereof the carrier shall proceed to their sale placing the, for this p"rpose at the disposal of the 1"dicial a"thority or the officials deter,ined by special pro!isions. Art 1D6= Co,,on carriers are responsible for the loss destr"ction or deterioration of the goods "nless the sa,e is d"e to any of the following ca"ses only) %1( 0lood stor, earth+"a.e lightning or other nat"ral disaster or cala,ity%'( Act of the p"blic ene,y in war whether international or ci!il%6( Act of o,ission of the shipper or owner of the goods%=( The character of the goods or defects in the pac.ing or in the containers%<( Order or act of co,petent p"blic a"thority. Art. 1D6<. In all cases other than those ,entioned in Nos. 1 ' 6 = and < of the preceding article if the goods are lost destroyed or deteriorated co,,on carriers are pres",ed to ha!e been at fa"lt or to ha!e acted negligently "nless they
pro!e that they obser!ed e#traordinary diligence as re+"ired in Article 1D66. =. DALIIARK CONDITION O0 8OOD3 ARTICLA 6?6 9ith the e#ception of the cases prescribed in the second paragraph of Article 6?1 the carrier shall be obliged to deli!er the goods transported in the sa,e condition in which according to the bill of lading they were at the ti,e of their receipt witho"t any detri,ent or i,pair,ent and sho"ld he not do so he shall be obliged to pay the !al"e of the goods not deli!ered at the point where they sho"ld ha!e been and at the ti,e the deli!ery sho"ld ha!e ta.en place. If part of the goods transported sho"ld be deli!ered the consignee ,ay ref"se to recei!e the, when he pro!es that he can not ,a.e "se thereof witho"t the others. ARTICLA 6?= If the effect of the da,age referred to in Article 6?1 sho"ld be only a red"ction in the !al"e of the goods the obligation of the carrier shall be red"ced to the pay,ent of the a,o"nt of said red"ction in !al"e after appraisal by e#perts. ARTICLA 6?< If on acco"nt of the da,age the goods are rendered "seless for p"rposes of sale or cons",ption in the "se for which they are properly destined the consignee shall not be bo"nd to
recei!e the, and ,ay lea!e the, on the hands of the carrier de,anding pay,ent therefor at c"rrent ,ar.et prices. If a,ong the goods da,aged there sho"ld be so,e in good condition and witho"t any defect whatsoe!er the foregoing pro!ision shall be applicable with regard to the da,aged ones and the consignee shall recei!e those which are so"nd this separation being ,ade by distinct and separate articles no ob1ect being di!ided for the p"rpose "nless the consignee pro!es the i,possibility of con!eniently ,a.ing "se thereof in this for,. The sa,e pro!ision shall be applied to ,erchandise in bales or pac.ages with distinction of the pac.ages which appear so"nd. ARTICLA 6?? 9ithin the twenty/fo"r ho"rs following the receipt of the ,erchandise a clai, ,ay be bro"ght against the carrier on acco"nt of da,age or a!erage fo"nd therein on opening the pac.ages pro!ided that the indications of the da,age or a!erage gi!ing rise to the clai, can not be ascertained fro, the e#terior of said pac.ages in which case said clai, wo"ld only be ad,itted on the receipt of the pac.ages. After the periods ,entioned ha!e elapsed or after the transportation charges ha!e been paid no clai, whatsoe!er shall be ad,itted against the carrier with regard to the condition in which the goods transported were deli!ered. ARTICLA 6?D
If there sho"ld occ"r do"bts and disp"tes between the consignee and the carrier with regard to the condition of goods transported at the ti,e of their deli!ery to the for,er the said goods shall be e#a,ined by e#perts appointed by the parties and a third one in case of disagree,ent appointed by the 1"dicial a"thority the res"lt of the e#a,ination being red"ced to writing- and if the persons interested sho"ld not agree to the report of the e#perts and co"ld not settle their disp"tes said 1"dicial a"thority shall order the deposits of the ,erchandise in a safe wareho"se and the parties interested shall ,a.e "se of their rights in the proper ,anner. TO 95OB DALIIARK BADA ARTICLA 6?E The carrier ,"st deli!er to the consignee witho"t any delay or diffic"lty the ,erchandise recei!ed by hi, by reason of the ,ere fact of being designated in the bill of lading to recei!e it- and sho"ld said carrier not do so he shall be liable for the da,ages which ,ay arise therefro,. JUDICIAL DA;O3IT ARTICLA 6?> 3ho"ld the consignee be not fo"nd at the do,icile indicated in the bill of lading or sho"ld ref"se to pay the transportation charges and e#penses or to recei!e the goods the deposit of said goods shall be ordered by the ,"nicipal 1"dge where there is no 1"dge of first instance to be placed at the
disposal of the shipper or sender witho"t pre1"dice 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '1? of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 to a person ha!ing a better right this deposit ha!ing all the effects of a deli!ery. Art. 1D<' A!en when there is an agree,ent li,iting the liability of the co,,on carrier in the !igilance o!er the goods the co,,on carrier is disp"tably pres",ed to ha!e been negligent in case of their loss destr"ction or deterioration. 95AN TO HA BADA ARTICLA 6DF If a period has been fi#ed for the deli!ery of the goods it ,"st be ,ade within the sa,e and otherwise the carrier shall pay the inde,nity agreed "pon in the bill of lading neither the shipper nor consignee being entitled to anything else. 3ho"ld no inde,nity ha!e been agreed "pon and the delay e#ceeds the ti,e fi#ed in the bill of lading the carrier shall be liable for the da,ages which ,ay ha!e been ca"sed by the delay. ARTICLA 6<E 3ho"ld no period within which goods are to be deli!ered be pre!io"sly fi#ed the carrier shall be "nder the obligation to forward the, in the first ship,ent of the sa,e or si,ilar ,erchandise which he ,ay ,a.e to the point of deli!ery- and sho"ld he not do so the da,ages occasioned by the delay
shall be s"ffered by hi,. T9O OR BORA CARRIAR3 ARTICLA 6D6 A carrier who deli!ers ,erchandise to a consignee by !irt"e of agree,ents or co,bined ser!ices with other carriers shall ass",e the obligations of the carriers who preceded hi, reser!ing his right to proceed against the latter if he sho"ld not be directly responsible for the fa"lt which gi!es rise to the clai, of the shipper or of the consignee. The carrier ,a.ing the deli!ery shall also ass",e all the actions and rights of those who ,ay ha!e preceded hi, in the transportation. The sender and the consignee shall ha!e an i,,ediate right of action against the carrier who e#ec"ted the transportation contract or against the other carriers who recei!ed the goods transported witho"t reser!e. The reser!ations ,ade by the latter shall not e#e,pt the, howe!er fro, the liabilities they ,ay ha!e inc"rred by reason of their own acts. OHLI8ATION TO RAA; RA8I3TRK ARTICLA 6DE Transportation agents shall be obliged to .eep a special registry with the for,alities re+"ired by Article 6? in which there shall be entered in progressi!e order of n",bers and dates all the goods the transportation of which is "nderta.en stating the circ",stances re+"ired by Articles 6<F et se+. for the responsi!e bills of lading.
COB;LIANCA 9IT5 ADBINI3TRATIIA RA8ULATION3 ARTICLA 6DD The carrier shall be liable for all the conse+"ences arising fro, nonco,pliance on his part with the for,alities prescribed by the laws and reg"lations of the p"blic ad,inistration d"ring the entire co"rse of the trip and on the arri!al at the point of destination e#cept when his o,ission arises fro, his ha!ing been ind"ced into error by false state,ents of the shipper in the declaration of the ,erchandise. If the carrier has acted in accordance with a for,al order recei!ed fro, the shipper or consignee of the ,erchandise both shall inc"r liability. 0. Rights and Obligations of 3hipper and2or Consignee 1. RI85T3 TO DABA8A3 CONDITION IB;O3AD ON RI85T ARTICLA 6?? 9ithin the twenty/fo"r ho"rs following the receipt of the ,erchandise a clai, ,ay be bro"ght against the carrier on acco"nt of da,age or a!erage fo"nd therein on opening the pac.ages pro!ided that the indications of the da,age or a!erage gi!ing rise to the clai, can not be ascertained fro, the e#terior of said pac.ages in which case said clai, wo"ld only be ad,itted on the receipt of the pac.ages. After the periods ,entioned ha!e elapsed or after the transportation charges ha!e been paid no clai, whatsoe!er shall be ad,itted against the
carrier with regard to the condition in which the goods transported were deli!ered. ARTICLA 6<D If the carrier by reason of well/fo"nded s"spicions as to the correctness of the declaration of the contents of a pac.age sho"ld deter,ine to e#a,ine it he shall do so before witnesses in the presence of the shipper or of the consignee. 3ho"ld the shipper or consignee to be cited not appear the e#a,ination shall be ,ade before a notary who shall draft a certificate of the res"lt of the e#a,ination for the proper p"rposes. If the declaration of the shipper sho"ld be correct the e#penses ca"sed by the e#a,ination and those of caref"lly repac.ing the pac.ages shall be defrayed by the carrier and in a contrary case by the shipper. ARTICLA 6<6 The legal basis of the contract between the shipper and the carrier shall be the bills of lading by the contents of which all disp"tes which ,ay arise with regard to their e#ec"tion and f"lfill,ent shall be decided witho"t ad,ission of other e#ceptions than forgery or ,aterial errors in the drafting thereof. After the contract has been co,plied with the bill of lading iss"ed by the carrier shall be ret"rned to hi, and by !irt"e of the e#change of this certificate for the article transported the respecti!e obligations and actions shall be considered as canceled "nless in the sa,e act the clai,s which
the contracting parties desired to reser!e are red"ced to writing e#ception being ,ade of the pro!isions of Article 6??. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '1D of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 If in case of loss or for any other reason whatsoe!er the consignee can not ret"rn "pon recei!ing the ,erchandise the bill of lading s"bscribed by the carrier he shall gi!e said carrier a receipt for the goods deli!ered this receipt prod"cing the sa,e effects as the ret"rn of the bill of lading. ABOUNT O0 DABA8A3 0OR LO33 ARTICLA 6D' The appraise,ent of the goods which the carrier ,"st pay in case of their being lost or ,islaid shall be fi#ed in accordance with what is stated in the bill of lading no proofs being allowed on the part of the shipper that there were a,ong the goods declared therein articles of greater !al"e and ,oney. 5orses !ehicles !essels e+"ip,ent and all the other principal and accessory ,eans of transportation shall be especially obligated in fa!or of the shipper altho"gh with relation to railroads said obligation shall be s"bordinated to the pro!isions of the laws of concession with regard to property and to those of this Code with regard to the ,anner and for, of ,a.ing attach,ents and retentions against the said co,panies.
Art. 1D== A stip"lation between the co,,on carrier and the shipper or owner li,iting the liability of the for,er for the loss destr"ction or deterioration of the goods to a degree less than e#traordinary diligence shall be !alid pro!ided it be) %1( In writing signed by the shipper or owner%'( 3"pported by a !al"able consideration other than the ser!ice rendered by the co,,on carrierand %6( Reasonable 1"st and not contrary to p"blic policy. ABOUNT O0 DABA8A3 0OR DALAK ARTICLA 6D1%6(. 3ho"ld the abandon,ent not occ"r the inde,nity for loss and da,ages on acco"nt of the delays can not e#ceed the c"rrent price of the goods transported on the day and at the place where the deli!ery was to ha!e been ,ade. The sa,e pro!ision shall be obser!ed in all cases where this inde,nity is d"e. '. RI85T TO AHANDON ARTICLA 6D1 In cases of delay on acco"nt of the fa"lt of the carrier referred to in the foregoing articles the consignee ,ay lea!e the goods transported on the hands of the carrier infor,ing hi, thereof in writing before the arri!al of the sa,e at the point of destination. 9hen this abandon,ent occ"rs the carrier shall
satisfy the total !al"e of the goods as if they had been lost or ,islaid. aisadc 3ho"ld the abandon,ent not occ"r the inde,nity for loss and da,ages on acco"nt of the delays can not e#ceed the c"rrent price of the goods transported on the day and at the place where the deli!ery was to ha!e been ,ade. The sa,e pro!ision shall be obser!ed in all cases where this inde,nity is d"e. ARTICLA 6?F The shipper ,ay witho"t changing the place where the deli!ery is to be ,ade change the consign,ent of the goods deli!ered to the carrier and the latter shall co,ply with his orders pro!ided that at the ti,e of ,a.ing the change of the consignee the bill of lading s"bscribed by the carrier be ret"rned to hi, if one were iss"ed e#changing it for another containing the no!ation of the contract. The e#penses arising fro, the change of consign,ent shall be defrayed by the shipper. ARTICLA 6?6 9ith the e#ception of the cases prescribed in the second paragraph of Article 6?1 the carrier shall be obliged to deli!er the goods transported in the sa,e condition in which according to the bill of lading they were at the ti,e of their receipt witho"t any detri,ent or i,pair,ent and sho"ld he not do so he shall be obliged to pay the !al"e of the goods not deli!ered at the point where they
sho"ld ha!e been and at the ti,e the deli!ery sho"ld ha!e ta.en place. If part of the goods transported sho"ld be deli!ered the consignee ,ay ref"se to recei!e the, when he pro!es that he can not ,a.e "se thereof witho"t the others. ARTICLA 6?< If on acco"nt of the da,age the goods are rendered "seless for p"rposes of sale or cons",ption in the "se for which they are properly destined the consignee shall not be bo"nd to recei!e the, and ,ay lea!e the, on the hands of the carrier de,anding pay,ent therefor at c"rrent ,ar.et prices. If a,ong the goods da,aged there sho"ld be so,e in good condition and witho"t any defect whatsoe!er the foregoing pro!ision shall be applicable with regard to the da,aged ones and the consignee shall recei!e those which are so"nd this separation being ,ade by distinct and separate articles no ob1ect being di!ided for the p"rpose "nless the consignee pro!es the i,possibility of con!eniently ,a.ing "se thereof in this for,. The sa,e pro!ision shall be applied to ,erchandise in bales or pac.ages with distinction of the pac.ages which appear so"nd. 6. RI85T TO C5AN8A CON3I8NBANT ARTICLA 6?F The shipper ,ay witho"t changing the place where the deli!ery is to be ,ade change the
consign,ent of the goods deli!ered to the carrier and the latter shall co,ply with his orders pro!ided that at the ti,e of ,a.ing the change of the consignee the bill of lading s"bscribed by the carrier be ret"rned to hi, if one were iss"ed e#changing it for another containing the no!ation of the contract. The e#penses arising fro, the change of consign,ent shall be defrayed by the shipper. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '1E of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 =. OHLI8ATION TO ;AK TRAN3;ORTATION C5AR8A3 ARTICLA 6D= The consignees to who, the re,ittance ,ay ha!e been ,ade can not defer the pay,ent of the e#penses and transportation charges on the goods that they recei!ed after twenty/fo"r ho"rs ha!e elapsed fro, the ti,e of the deli!ery- and in case of delay in ,a.ing this pay,ent the carrier ,ay re+"est the 1"dicial sale of the goods he transported to a s"fficient a,o"nt to co!er the transportation charges and the e#penses inc"rred. ARTICLA 6D< The goods transported shall be specifically obligated to answer for the transportation charges and for the e#penses and fees ca"sed by the sa,e d"ring their transportations or "ntil the ti,e of their deli!ery. This special right shall be li,ited to eight days
after the deli!ery has been ,ade and after said prescription the carrier shall ha!e no f"rther right of action than that corresponding to an ordinary creditor. ARTICLA 6D? The preference of the carrier to the pay,ent of what is d"e hi, for the transportation and e#penses of the goods deli!ered to the consignee shall not be affected by the ban.r"ptcy of the latter pro!ided the action is bro"ght within the eight days ,entioned in the foregoing article. Art. ''=1 9ith reference to specific ,o!able property of the debtor the following clai,s or liens shall be preferred) %>( Credits for transportation "pon the goods carried for the price of the contract and incidental e#penses "ntil their deli!ery and for thirty days thereafter<. OHLI8ATION TO RATURN HILL O0 LADIN8 ARTICLA 6<6. %'( %6( After the contract has been co,plied with the bill of lading iss"ed by the carrier shall be ret"rned to hi, and by !irt"e of the e#change of this certificate for the article transported the respecti!e obligations and actions shall be considered as canceled "nless in the sa,e act the clai,s which the contracting parties desired to reser!e are red"ced to writing e#ception being ,ade of the
pro!isions of Article 6??. If in case of loss or for any other reason whatsoe!er the consignee can not ret"rn "pon recei!ing the ,erchandise the bill of lading s"bscribed by the carrier he shall gi!e said carrier a receipt for the goods deli!ered this receipt prod"cing the sa,e effects as the ret"rn of the bill of lading. 8. Applicability of ;ro!isions ARTICLA 6D> The pro!isions contained in Articles 6=> et se+. shall also be "nderstood as relating to persons who altho"gh they do not personally effect the transportation of co,,ercial goods contract to do so thro"gh others either as contractors for a special and fi#ed transaction or as freight and transportation agents. In either case they shall be s"brogated to the place of the carriers with regard to the obligations and liability of the latter as well as with regard to their right. II. Ad,iralty and Bariti,e Co,,erce A. 3o"rces of Bariti,e2Ad,iralty Laws in the ;hilippines Bain so"rce of law) Code of Co,,erce If co,,on carrier apply Ci!il Code first then Code of Co,,erce and special laws. Bariti,e law incl"des coastwise oceanwise and co,,ercial laws. H. Concept of Ad,iralty- 1"risdiction o!er
ad,iralty cases Ad,iralty is disting"ished fro, o!erland transportation on the si$e of the !essel and si$e of the body of water o!er which a !essel tra!erses. 5owe!er it is now the a,o"nt of the clai, that is rele!ant and not whether it is an ad,iralty or ,ariti,e clai,. H; 1'> 3ec 1> J"risdiction in ci!il cases. C Regional Trial Co"rts shall e#ercise e#cl"si!e original 1"risdiction) %6( In all actions in ad,iralty and ,ariti,e 1"risdiction where he de,and or clai, e#ceeds One h"ndred tho"sand pesos %;1FF FFF.FF( or in Betro Banila where s"ch de,and or clai, e#ceeds Two h"ndred tho"sand pesos %'FF FFF.FF(3ection 66. J"risdiction of Betropolitan Trial Co"rts B"nicipal Trial Co"rts and B"nicipal Circ"it Trial Co"rts in ci!il cases. C Betropolitan Trial Co"rts B"nicipal Trial Co"rts and B"nicipal Circ"it Trial Co"rts shall e#ercise) %1( A#cl"si!e original 1"risdiction o!er ci!il actions and probate proceedings testate and intestate incl"ding the grant of pro!isional re,edies in proper cases where the !al"e of the personal property estate or a,o"nt of the de,and does not e#ceed One h"ndred tho"sand pesos %;1FF FFF.FF( or in Betro Banila where s"ch personal property estate or a,o"nt of the de,and does not e#ceed Two h"ndred tho"sand pesos %;'FF FFF.FF( e#cl"si!e of interest da,ages
of whate!er .ind attorneyVs fees litigation e#penses and costs the a,o"nt of which ,"st be specifically alleged) ;ro!ided That where there are se!eral clai,s or ca"ses of action between the sa,e or different parties e,bodied in the sa,e co,plaint the a,o"nt of the de,and shall be the 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '1> of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 totality of the clai,s in all the ca"ses of action irrespecti!e of whether the ca"ses of action arose o"t of the sa,e or different transactionsC. Iessels 1. BAANIN8 Iessels are those engaged in na!igation whether coastwide or on the high seas incl"ding floating doc.s pontoons dredges scows and any other floating apparat"s destined for the ser!ices of the ind"stry or ,ariti,e co,,erce. Iessels engaged in the b"siness of carrying or transporting passengers or goods for co,pensation offering their ser!ices to the p"blic are co,,on carriers and are go!erned pri,arily by the Ci!il Code and s"ppletorily by the Code of Co,,erce and special laws. '. NATURA AND ACQUI3ITION O0 Lope$ !. D"r"elo The word !essel "sed in the section was not intended to incl"de all ships craft or floating str"ct"res of e!ery .ind witho"t li,itation and the pro!ision of that section sho"ld not be held to
incl"de ,inor craft engaged only in ri!er or bay traffic. Iessels of a ,inor nat"re s"ch as ri!er boats and those carrying passengers fro, ship to shore are go!erned as to their liability in passengers by the Ci!il Code. ARTICLA <D6 Berchant !essels constit"te property which ,ay be ac+"ired and transferred by any of the ,eans recogni$ed by law. The ac+"isition of a !essel ,"st be incl"ded in a written instr",ent which shall not prod"ce any effect with regard to third persons if not recorded in the ,ercantile registry. The ownership of a !essel shall also be ac+"ired by the possession thereof in good faith for three years with a good title d"ly recorded. In the absence of any of these re+"isites "ninterr"pted possession for ten years shall be necessary in order to ac+"ire ownership. A captain can not ac+"ire by prescription the ship of which he is in co,,and. ARTICLA <D= The b"ilders of !essels ,ay e,ploy the ,aterial and with regard to their constr"ction and rigging ,ay follow the syste, which is ,ost con!enient to their interests. 3hip agents and sea,en shall be s"b1ect to the pro!isions of the laws and reg"lations of the p"blic ad,inistration on na!igation c"sto,s health safety of the !essels and other si,ilar pro!isions. ARTICLA <E<
0or all p"rposes of law not ,odified or restricted by the pro!isions of this Code !essels shall contin"e to be considered as personal property. Art. D1' Ownership is ac+"ired by occ"pation and by intellect"al creation. Ownership and other real rights o!er property are ac+"ired and trans,itted by law by donation by estate and intestate s"ccession and in conse+"ence of certain contracts by tradition. They ,ay also be ac+"ired by ,eans of prescription. D. ;ersons ;articipating in Bariti,e Co,,erce 1. 35I;O9NAR3 AND 35I;A8ANT3'' Owners of Iessels and 3hip Agents ARTICLA <E? The owner of a !essel and the agent shall be ci!illy liable for the acts of the captain and for the obligations contracted by the latter to repair e+"ip and pro!ision the !essel pro!ided the creditor pro!es that the a,o"nt clai,ed was in!ested therein. Hy agent is "nderstood the person intr"sted with the pro!isioning of a !essel or who represents her in the port in which she happens to be. ARTICLA <ED The agent shall also be ci!illy liable for the inde,nities in fa!or of third persons which arise fro, the cond"ct of the captain in the care of the
goods which the !essel carried- b"t he ,ay e#e,pt hi,self therefro, by abandoning the !essel with all her e+"ip,ents and the freight he ,ay ha!e earned d"ring the !oyage. ARTICLA <EE Neither the owner of the !essel nor the agent shall be liable for the obligations contracted by the captain if the latter e#ceeds his powers and pri!ileges which are his by reason of his position or ha!e been conferred "pon hi, by the for,er. 5owe!er if the a,o"nts clai,ed were ,ade "se of for the benefit of the !essel the owner or agent shall be liable. ARTICLA <E> If two or ,ore persons sho"ld be part owners of a ,erchant !essel an association shall be pres",ed as established by the part owners. This association shall be go!erned by the resol"tions of a ,a1ority of the ,e,bers. A ,a1ority shall be the relati!e ,a1ority of the !oting ,e,bers. If there sho"ld be only two part owners in case of disagree,ent the !ote of the ,e,ber ha!ing the largest interest shall be decisi!e. If the interests are e+"al it shall be decided by lot. The representation of the s,allest part in the ownership shall ha!e one !ote- and proportionately the other part owners as ,any !otes as they ha!e parts e+"al to the s,allest one. aisadc A !essel can not be detained attached or le!ied
"pon e#ec"tion in her entirety for the pri!ate debts of a part owner b"t the proceedings shall be li,ited to the interest the debtor ,ay ha!e in the !essel witho"t interfering with her na!igation. ARTICLA <>F The owners of a !essel shall be ci!illy liable in the proportion of their contrib"tion to the co,,on '' The liabilities of shipowners and shipagents were as.ed in 1>E> 1>E= and 1>E1. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ''F of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 f"nd for the res"lts of the acts of the captain referred to in Article <ED. Aach part owner ,ay e#e,pt hi,self fro, this liability by the abandon,ent before a notary of the part of the !essel belonging to hi,. ARTICLA <>1 All the part owners shall be liable in proportion to their respecti!e ownership for the e#penses of repairs to the !essel and for other e#penses which are inc"rred by !irt"e of a resol"tion of the ,a1ority. They shall li.ewise be liable in the sa,e proportion for the e#penses of ,aintenance e+"ip,ent and pro!isioning of the !essel necessary for na!igation. ARTICLA <>' The resol"tions of the ,a1ority with regard to the repair e+"ip,ent and pro!isioning of the !essel in the port of depart"re shall bind the ,a1ority "nless
the partners in the ,inority reno"nce their participation therein which ,"st be ac+"ired by the other part owners after a 1"dicial appraise,ent of the !al"e of the portion or portions assigned. The resol"tions of the ,a1ority relating to the dissol"tion of the association and sale of the !essel shall also be binding on the ,inority. The sale of the !essel ,"st ta.e place at a p"blic a"ction s"b1ect to the pro!isions of the law of ci!il proced"re "nless the part owners "nani,o"sly agree otherwise the right of option to p"rchase and to withdraw ,entioned in Article <D< being always reser!ed in fa!or of said part owners. ARTICLA <>6 The owners of a !essel shall ha!e preference in her charter to other persons offering e+"al conditions and price. If two or ,ore of the for,er sho"ld clai, said right the one ha!ing greater interest shall be preferred and sho"ld they ha!e an e+"al interest it shall be decided by lot. ARTICLA <>= The part owners shall elect the ,anager who is to represent the, in the capacity of agent. The appoint,ent of director or agent shall be re!ocable at the will of the ,e,bers. ARTICLA <>< The agent be he at the sa,e ti,e an owner of a !essel or a ,anager for an owner or for an association of co/owners ,"st be +"alified to trade and ,"st be recorded in the ,erchantVs registry of
the pro!ince. The agent shall represent the ownership of the !essel and ,ay in his own na,e and in s"ch capacity ta.e 1"dicial and e#tra1"dicial steps in all that relates to co,,erce. ARTICLA <>? The agent ,ay discharge the d"ties of captain of the !essel s"b1ect in e!ery case to the pro!isions contained in Article ?F>. If two or ,ore co/owners re+"est the position of captain the disagree,ent shall be decided by a !ote of the ,e,bers- and if the !ote sho"ld res"lt in a tie the position shall be gi!en to the part owner ha!ing the larger interest in the !essel. If the interest of the petitioners sho"ld be the sa,e and there sho"ld be a tie the ,atter shall be decided by lot. ARTICLA <>D The agent shall select and co,e to an agree,ent with the captain and shall contract in the na,e of the owners who shall be bo"nd in all that refers to repairs details of e+"ip,ent ar,a,ent pro!isions f"el and freight of the !essel and in general in all that relates to the re+"ire,ents of na!igation. ARTICLA <>E The agent can not order a new !oyage nor ,a.e contracts for a new charter nor ins"re the !essel witho"t the a"thority of her owner or by !irt"e of a resol"tion of the ,a1ority of the co/owners "nless
these pri!ileges were granted hi, in the certificate of his appoint,ent. If he sho"ld ins"re the !essel witho"t a"thority therefor he shall be secondarily liable for the sol!ency of the "nderwriter. ARTICLA <>> The ,anaging agent of an association shall gi!e his co/owners an acco"nt of the res"lts of each !oyage of the !essel witho"t pre1"dice to always ha!ing the boo.s and correspondence relating to the !essel and to its !oyages at the disposal of the sa,e. ARTICLA ?FF After the acco"nt of the ,anaging agent has been appro!ed by a relati!e ,a1ority the co/owners shall satisfy the e#penses in proportion to their interest witho"t pre1"dice to the ci!il or cri,inal actions which the ,inority ,ay dee, fit to instit"te afterwards. In order to enforce the pay,ent the ,anaging agent shall ha!e a right of action to sec"re e#ec"tion which shall be instit"ted by !irt"e of a resol"tion of the ,a1ority and witho"t f"rther proceedings than the ac.nowledg,ent of the signat"res of the persons who !oted the resol"tion. ARTICLA ?F1 3ho"ld there be any profits the co/owners ,ay de,and of the ,anaging agent the a,o"nt d"e the, by ,eans of an e#ec"tory action witho"t f"rther re+"isites than the ac.nowledg,ent of the
signat"res of the instr",ent appro!ing the acco"nt. ARTICLA ?F' The agent shall inde,nify the captain for all the e#penses he ,ay ha!e inc"rred fro, his own f"nds or fro, those of other persons for the benefit of the !essel. ARTICLA ?F6 Hefore a !essel goes o"t to sea the agent shall ha!e at his discretion a right to discharge the captain and ,e,bers of the crew whose contract did not state a definite period nor a definite !oyage paying the, the salaries earned according to their contracts and witho"t any inde,nity whatsoe!er "nless there is a special and specific agree,ent in respect thereto. ARTICLA ?F= If the captain or any other ,e,ber of the crew sho"ld be discharged d"ring the !oyage they shall recei!e their salary "ntil the ret"rn to the place 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ''1 of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 where the contract was ,ade "nless there are good reasons for the discharge all in accordance with Articles ?6? et se+. of this Code. ARTICLA ?F< If the contracts of the captain and ,e,bers of the crew with the agent sho"ld be for a definite period or !oyage they can not be discharged "ntil the f"lfill,ent of their contracts e#cept for reasons of
ins"bordination in serio"s ,atters robbery theft habit"al dr"n.enness and da,age ca"sed to the !essel or to its cargo by ,alice or ,anifest or pro!en negligence. ARTICLA ?F? If the captain sho"ld be a part owner in the !essel he can not be discharged witho"t the agent ret"rning hi, the a,o"nt of his interest therein which in the absence of an agree,ent between the parties shall be appraised by e#perts appointed in the ,anner established in the law of ci!il proced"re. ARTICLA ?FD If the captain who is a part owner sho"ld ha!e obtained the co,,and of the !essel by !irt"e of a special agree,ent contained in the articles of copartnership he can not be depri!ed thereof e#cept for the reasons ,entioned in Article ?F<. ARTICLA ?FE In case of the !ol"ntary sale of the !essel all contracts between the agent and captain shall ter,inate the right to proper inde,nity being reser!ed in fa!or of the captain according to the agree,ents ,ade with the agent. They !essel sold shall re,ain s"b1ect to the sec"rity of the pay,ent of said inde,nity if after the action against the !endor has been instit"ted the latter sho"ld be insol!ent. ARTICLA ?1E The captain shall be ci!illy liable to the agent and
the latter to the third persons who ,ay ha!e ,ade contracts with the for,er C 1. 0or all the da,ages s"ffered by the !essel and his cargo by reason of want of s.ill or negligence on his part. If a ,isde,eanor or cri,e has been co,,itted he shall be liable in accordance with the ;enal Code. cda '. 0or all the thefts co,,itted by the crew reser!ing his right of action against the g"ilty parties. 6. 0or the losses fines and confiscations i,posed an acco"nt of !iolation of the laws and reg"lations of c"sto,s police health and na!igation. =. 0or the losses and da,ages ca"sed by ,"tinies on board the !essel or by reason of fa"lts co,,itted by the crew in the ser!ice and defense of the sa,e if he does not pro!e that he ,ade f"ll "se of his a"thority to pre!ent or a!oid the,. <. 0or those arising by reason of an "nd"e "se of powers and non/f"lfill,ent of the obligations which are his in accordance with Articles ?1F and ?1'. ?. 0or those arising by reason of his going o"t of his co"rse or ta.ing a co"rse which he sho"ld not ha!e ta.en witho"t s"fficient ca"se in the opinion of the officers of the !essel at a ,eeting with the shippers or s"percargoes who ,ay be on board. No e#ception whatsoe!er shall e#e,pt hi,
fro, this obligation. D. 0or those arising by reason of his !ol"ntarily entering a port other than his destination with the e#ception of the cases or witho"t the for,alities referred to in Article ?1'. E. 0or those arising by reason of the nonobser!ance of the pro!isions contained in the reg"lations for lights and e!ol"tions for the p"rpose of pre!enting collisions. 3tandard Oil !. Castelo %1>'1( In considering the +"estion now before "s it is i,portant to re,e,ber that the owner of the ship ordinarily has !astly ,ore capital e,bar.ed "pon a !oyage than has any indi!id"al shipper of cargo. Boreo!er the owner of the ship in the person of the captain has co,plete and e#cl"si!e control of the crew and of the na!igation of the ship as well as of the disposition of the cargo at the end of the !oyage. It is therefore proper that any person whose property ,ay ha!e been cast o!erboard by order of the captain sho"ld ha!e a right of action directly against the shipVs owner for the breach of any d"ty which the law ,ay ha!e i,posed on the captain with respect to s"ch cargo. To adopt the interpretation of the law for which the appellant contends wo"ld place the shipowner in a position to escape all responsibility for a general a!erage of this character by ,eans of the delin+"ency of his own captain. This cannot be per,itted. The e!ident intention of the Code ta.en in all of its pro!isions
is to place the pri,ary liability "pon the person who has act"al control o!er the cond"ct of the !oyage and who has ,ost capital e,bar.ed in the !ent"re na,ely the owner of the ship lea!ing hi, to obtain reco"rse as it is !ery easy to do fro, other indi!id"als who ha!e been drawn into the !ent"re as shippers. RA3;ON3IHILITIA3 AND LIAHILITIA3 K" Con !. Ipil %1>1?( As to the shipowner) Astasen ,a.es the following re,ar.s) It is well and good that the shipowner be not held cri,inally liable for s"ch cri,es or +"asi cri,es- b"t the cannot be e#c"sed fro, liability for the da,age and har, which in conse+"ence of those acts ,ay be s"ffered by the third parties who contracted with the captain in his do"ble capacity of agent and s"bordinate of the shipowner hi,self. In ,ariti,e co,,erce the shippers and passengers in ,a.ing contracts with the captain do so thro"gh the confidence they ha!e in the shipowner who appointed hi,- they pres",e that the owner ,ade a ,ost caref"l in!estigation before appointing hi, and abo!e all they the,sel!es are "nable to ,a.e s"ch an in!estigation and e!en tho"gh they sho"ld do so they co"ld not obtain co,plete sec"rity inas,"ch as the shipowner can whene!er he sees fir appoint another captain instead. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ''' of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9
DOCTRINA O0 LIBITAD LIAHILITK AND AOCA;TION3'6 ARTICLA <ED The agent shall also be ci!illy liable for the inde,nities in fa!or of third persons which arise fro, the cond"ct of the captain in the care of the goods which the !essel carried- b"t he ,ay e#e,pt hi,self therefro, by abandoning the !essel with all her e+"ip,ents and the freight he ,ay ha!e earned d"ring the !oyage. ARTICLA <>F The owners of a !essel shall be ci!illy liable in the proportion of their contrib"tion to the co,,on f"nd for the res"lts of the acts of the captain referred to in Article <ED. Aach part owner ,ay e#e,pt hi,self fro, this liability by the abandon,ent before a notary of the part of the !essel belonging to hi,. ARTICLA E6D The ci!il liability contracted by the shipowners in the cases prescribed in this section shall be "nderstood as li,ited to the !al"e of the !essel with all her app"rtenances and all the freight earned d"ring the !oyage. Kangco !. Laserna et al %1>=1( If the shipowner or agent ,ay in any way be held ci!illy liable at all for in1"ry to or death of passengers arising fro, the negligence of the captain in cases of collisions or shipwrec.s his liability is ,erely co/e#tensi!e with his interest in the !essel s"ch that a total loss thereof res"lts in
its e#tinction. In arri!ing at this concl"sion the fact is not ignored that the ill/fated 3. 3. Negros as a !essel engaged in interisland trade is a co,,on carrier and that the relationship between the petitioner and the passengers who died in the ,ishap rests on a contract of carriage. H"t ass",ing that petitioner is liable for a breach of contract of carriage the e#cl"si!ely Treal and hypothecary nat"reT of ,ariti,e law operates to li,it s"ch liability to the !al"e of the !essel or to the ins"rance thereon if any. In the instant case it does not appear that the !essel was ins"red. Art. <ED of the Code of Co,,erce appears to deal only with the li,ited liability of shipowners or agents for da,ages arising fro, the ,iscond"ct of the captain in the care of the goods which the !essel carries b"t this is a ,ere deficiency of lang"age and in no way indicates the tr"e e#tent of s"ch liability. 9hether the abandon,ent of the !essel so"ght by the petitioner in the instant case was in accordance with law or not is i,,aterial. The !essel ha!ing totally perished any act of abandon,ent wo"ld be an idle cere,ony. J"dg,ent is re!ersed and petitioner is hereby absol!ed of all the co,plaints witho"t costs. AHUA8 !s. 3AN DIA8O%1>=?( The real and hypothecary nat"re of the liability of the shipowner or agent e,bodied in the pro!isions of the Bariti,e Law H. III Code of Co,,erce
had its origin in the pre!ailing contin"es of the ,ariti,e trade and sea !oyages d"ring the ,edie!al ages attended by inn",erable ha$ards and perils. To offset against these ad!erse '6 The definition and e#ceptions of the Doctrine of Li,ited Liability were as.ed in 'FFF 1>>> 1>>D 1>>= 1>E> 1>E< and 1>E'. conditions and enco"rage shipb"ilding and ,ariti,e co,,erce it was dee,ed necessary to confine the liability of the owner or agent arising fro, the operation of a ship to the !essel e+"ip,ent and freight or ins"rance if any so that if the shipowner or agent abandoned the ship e+"ip,ent and freight his liability was e#ting"ished. If an accident is co,pensable "nder the 9or.,enVs Co,pensation Act it ,"st be co,pensated e!en when the wor.,anVs right is not recogni$ed by or is in conflict with other pro!isions of the Ci!il Code or the Code of Co,,erce. The reason behind this principle is that the 9or.,enVs Co,pensation Act was enacted by the Legislat"re in abrogation of the other e#isting laws. 3;ACI0IC RI85T3 AND ;RARO8ATIIA3 ARTICLA <D< ;art owners of !essels shall en1oy the right of option of p"rchase and withdrawal in the sales ,ade to strangers- b"t they can only e#ercise it within the nine days following the record of the sale in the registry and by deli!ering the price at once.
ARTICLA <>6 The owners of a !essel shall ha!e preference in her charter to other persons offering e+"al conditions and price. If two or ,ore of the for,er sho"ld clai, said right the one ha!ing greater interest shall be preferred and sho"ld they ha!e an e+"al interest it shall be decided by lot. ARTICLA <>= The part owners shall elect the ,anager who is to represent the, in the capacity of agent. The appoint,ent of director or agent shall be re!ocable at the will of the ,e,bers. ARTICLA <>? The agent ,ay discharge the d"ties of captain of the !essel s"b1ect in e!ery case to the pro!isions contained in Article ?F>. If two or ,ore co/owners re+"est the position of captain the disagree,ent shall be decided by a !ote of the ,e,bers- and if the !ote sho"ld res"lt in a tie the position shall be gi!en to the part owner ha!ing the larger interest in the !essel. If the interest of the petitioners sho"ld be the sa,e and there sho"ld be a tie the ,atter shall be decided by lot. ARTICLA ?F1. 3ho"ld there be any profits the coowners ,ay de,and of the ,anaging agent the a,o"nt d"e the, by ,eans of an e#ec"tory action witho"t f"rther re+"isites than the ac.nowledg,ent of the signat"res of the instr",ent appro!ing the acco"nt.
'. CA;TAIN3 AND BA3TAR3 QUALI0ICATION3 AND LICAN3IN8 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ''6 of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 ARTICLA ?F> Captains and ,asters of !essels ,"st be 3paniards W ha!ing legal capacity to bind the,sel!es in accordance with this Code and ,"st pro!e that they ha!e the s.ill capacity and +"alifications re+"ired to co,,and and direct the !essel as established by ,arine laws ordinances or reg"lations or by those of na!igation and that they are not dis+"alified according to the sa,e for the discharge of the d"ties of that position. cdt If the owner of a !essel desires to be the captain thereof and does not ha!e the legal +"alifications therefor he shall li,it hi,self to the financial ad,inistration of the !essel and shall intr"st her na!igation to a person possessing the +"alifications re+"ired by said ordinances and reg"lations. ;O9AR3 AND DUTIA3 ARTICLA ?1F The following powers are inherent in the position of captain or ,aster of a !essel) 1. To appoint or ,a.e contracts with the crew in the absence of the agent and propose said crew sho"ld said agent be present- b"t the agent shall not be per,itted to e,ploy any ,e,ber against the captainVs e#press ref"sal. '. To co,,and the crew and direct the !essel
to the port of its destination in accordance with the instr"ctions he ,ay ha!e recei!ed fro, the agent. 6. To i,pose in accordance with the agree,ents and the laws and reg"lations of the ,erchants ,arine on board the !essel correctional p"nish,ent "pon those who do not co,ply with his orders or who cond"ct the,sel!es against discipline holding a preli,inary in!estigation on the cri,es co,,itted on board the !essel on the high seas which shall be t"rned o!er to the a"thorities who are to ta.e cogni$ance thereof at the first port to"ched. =. To ,a.e contracts for the charter of the !essel in the absence of the agent or of her consignee acting in accordance with the instr"ctions recei!ed and protecting the interests of the owner ,ost caref"lly. <. To adopt all the ,eas"res which ,ay be necessary to .eep the !essel well s"pplied and e+"ipped p"rchasing for the p"rpose all that ,ay be necessary pro!ided there is no ti,e to re+"est instr"ctions of the agent. ?. To ,a.e in si,ilar "rgent cases and on a !oyage the repairs to the h"ll and engines of the !essel and to her rigging and e+"ip,ent which are absol"tely necessary in order for her to be able to contin"e and concl"de her !oyage- b"t if she sho"ld arri!e at a point where there is a consignee of the !essel he shall act in conc"rrence with the latter.
ARTICLA ?11 In order to co,ply with the obligations ,entioned in the foregoing article the captain when he has no f"nds and does not e#pect to recei!e any fro, the agent shall proc"re the sa,e in the s"ccessi!e order stated below) 1. Hy re+"esting said f"nds of the consignees or correspondents of a !essel. '. Hy applying to the consignees of the cargo or to the persons interested therein. 6. Hy drawing on the agent. =. Hy borrowing the a,o"nt re+"ired by ,eans of a botto,ry bond. <. Hy selling a s"fficient a,o"nt of the cargo to co!er the a,o"nt absol"tely necessary to repair the !essel and to e+"ip her to p"rs"e the !oyage. In the two latter cases he ,"st apply to the 1"dicial a"thority of the port if in 3pain W and to the 3panish W cons"l if in a foreign co"ntry- and where there sho"ld be none to the local a"thority proceeding in accordance with the prescriptions of Article <E6 and with the pro!isions of the law of ci!il proced"re. ARTICLA ?'' If while on a !oyage the captain sho"ld learn of the appearance of pri!ateers or ,en of war against his flag he shall be obliged to ,a.e the nearest ne"tral port infor, his agent or shippers and await an occasion to sail "nder con!oy or "ntil the danger is o!er or he has recei!ed e#press orders
fro, the ship agent or the shippers. ARTICLA ?'= A captain whose !essel has gone thro"gh a h"rricane or who belie!es that the cargo has s"ffered da,ages or a!erages shall ,a.e a protest thereon before the co,petent a"thority at the first port he to"ches within '= ho"rs following his arri!al and shall ratify it within the sa,e period when he arri!es at his destination i,,ediately proceeding with the proof of the facts and he ,ay not open the hatches "ntil after this has been done. The captain shall proceed in the sa,e ,anner if the !essel ha!ing been wrec.ed- he is sa!ed alone or with part of his crew in which case he shall appear before the nearest a"thority and ,a.e a sworn state,ent of facts. The a"thority or the cons"l shall !erify the said facts recei!ing sworn state,ents of the ,e,bers of the crew and passengers who ,ay ha!e been sa!ed- and ta.ing s"ch other steps as ,ay assist in arri!ing at the facts he shall ,a.e a state,ent of the res"lt of the proceedings in the log boo. and in that of the sailing ,ate and shall deli!er to the captain the original records of the proceedings sta,ped and folioed with a ,e,orand", of the folios which he ,"st r"bricate in order that it ,ay be presented to the 1"dge or co"rt of the port of destination. The state,ent of the captain shall be accepted if it
is in accordance with those of the crew and passengers- if they disagree the latter shall be accepted always sa!ing proof to the contrary. ARTICLA ?'< The captain "nder his personal responsibility as soon as he arri!es at the port of destination sho"ld get the necessary per,ission fro, the health and c"sto,s officers and perfor, the other for,alities re+"ired by the reg"lations of the ad,inistration deli!ering the cargo witho"t any defalcation to the consignee and in a proper case the !essel rigging and freightage to the ship agent. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ''= of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 If by reason of the absence of the consignee or on acco"nt of the nonappearance of a legal holder of the bills of lading the captain sho"ld not .now to who, he is to legally ,a.e the deli!ery of the cargo he shall place it at the disposal of the proper 1"dge or co"rt or a"thority in order that he ,ay deter,ine what is proper with regards to its deposit preser!ation and c"stody. ;RO5IHITAD ACT3 AND TRAN3ACTION3 ARTICLA ?16 A captain who na!igates for freight in co,,on or on shares can not ,a.e any transaction for his e#cl"si!e acco"nt and sho"ld he do so the profit shall belong to the other persons in interest and the losses shall be for his own e#cl"si!e acco"nt. ARTICLA ?1=
A captain who ha!ing ,ade an agree,ent to ,a.e a !oyage fails to perfor, his "nderta.ing witho"t being pre!ented by fort"itio"s accident or force ,a1e"re shall inde,nify for all the losses which he ,ay ca"se witho"t pre1"dice to the cri,inal penalties which ,ay be proper. ARTICLA ?1< 9itho"t the consent of the agent the captain can not ha!e hi,self s"bstit"ted by another personand sho"ld he do so besides being liable for all the acts of the s"bstit"te and bo"nd to the inde,nities ,entioned in the foregoing article the s"bstit"te as well as the captain ,ay be discharged by the agent. ARTICLA ?1D The captain can not contract loans on respondentia and sho"ld he do so the contracts shall be !oid. Neither can he borrow ,oney on botto,ry for his own transactions e#cept on the portion of the !essel he owns pro!ided no ,oney has been pre!io"sly borrowed on the whole !essel and pro!ided there does not e#ist any other .ind of lien or obligation thereon. 9hen he is per,itted to do so he ,"st necessarily state what interest he has in the !essel. In case of !iolation of this article the principal interest and costs shall be charged to the pri!ate acco"nt of the captain and the agent ,ay f"rther,ore ha!e the right to discharge hi,.
ARTICLA ?'1 A captain who borrows ,oney on botto,ry or who pledges or sells ,erchandise or pro!isions in other cases and witho"t the for,alities prescribed in this Code shall be liable for the principle interest and costs and shall inde,nify for the da,ages he ,ay ca"se. The captain who co,,its fra"d in his acco"nts shall rei,b"rse the a,o"nt defra"ded and shall be s"b1ect to the pro!isions contained in the ;enal Code. ARTICLA <E6 If the ship being on a !oyage the captain sho"ld find it necessary to contract one or ,ore of the obligations ,entioned in Nos. E and > of Article <EF he shall apply to the 1"dge or co"rt if he is in 3panish W territory and otherwise to the cons"l of 3pain W sho"ld there be one and in his absence to the 1"dge or co"rt or to the proper local a"thority presenting the certificate of the registry of the !essel treated of in Article ?1' and the instr",ents pro!ing the obligation contracted. The 1"dge or co"rt the cons"l or the local a"thority as the case ,ay be in !iew of the res"lt of the proceedings instit"ted shall ,a.e a te,porary ,e,orand", in the certificate of their res"lt in order that it ,ay be recorded in the registry when the !essel ret"rns to the port of her registry or so that it can be ad,itted as a legal and preferred obligation in case of sale before the ret"rn by
reason of the sale of the !essel by !irt"e of a declaration of "nseaworthiness. The lac. of this for,ality shall ,a.e the captain personally liable to the creditors who ,ay be pre1"diced thro"gh his fa"lt. 6. OT5AR O00ICAR3 AND CRA9 CONTRACT3 AND 0ORBALITIA3 ARTICLA ?6= The captain ,ay ,a.e "p his crew with the n",ber he ,ay consider ad!isable and in the absence of 3panish W sailors he ,ay ship foreigners residing in the co"ntry the n",ber thereof not to e#ceed one/fifth of the total crew. If in foreign ports the captain sho"ld not find a s"fficient n",ber of 3panish W sailors he ,ay ,a.e "p the crew with foreigners with the consent of the cons"l or ,arine a"thorities. The agree,ents which the captain ,ay ,a.e with the ,e,bers of the crew and others who go to ,a.e "p the co,ple,ent of the !essels to which reference is ,ade in Article ?1' ,"st be red"ced to writing in the acco"nt boo. witho"t the inter!ention of a notary p"blic or cler. signed by the parties thereto and !ised by the ,arine a"thority if they are e#ec"ted in 3panish W territory or by the cons"ls or cons"lar agents of 3pain W if e#ec"ted abroad stating therein all the obligations which each one contracts and all the rights they ac+"ire said a"thorities ta.ing care that these obligations and rights are recorded in a
concise and clear ,anner which will not gi!e rise to do"bts or clai,s. cd The captain shall ta.e care to read to the, the articles of this Code which concern the, stating that they were read in the said doc",ent. If the boo. incl"des the re+"isites prescribed in Article ?1' and there sho"ld not appear any signs of alterations in its cla"ses it shall be ad,itted as e!idence in +"estions which ,ay arise between the captain and the crew with regard to the agree,ents contained therein and the a,o"nts paid on acco"nt of the sa,e. A!ery ,e,ber of the crew ,ay re+"est a copy of the captain signed by the latter of the agree,ent and of the li+"idation of his wages as they appear in the boo.. DUTIA3 AND LIAHILITIA3 ARTICLA ?6< A sailor who has been contracted to ser!e on a !essel can not rescind his contract nor fail to 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ''< of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 co,ply therewith e#cept by reason of a legiti,ate i,pedi,ent which ,ay ha!e occ"rred. Neither can he pass fro, the ser!ice of one !essel to another witho"t obtaining the written consent of the !essel on which he ,ay be. If witho"t obtaining said per,ission the sailor who has signed for one !essel sho"ld sign for another one the second contract shall be !oid and
the captain ,ay choose between forcing hi, to f"lfill the ser!ice to which he first bo"nd hi,self or loo. for a person to s"bstit"te hi, at his e#pense. 3aid sailor shall f"rther,ore lose the wages earned on his first contract to the benefit of the !essel for which he ,ay ha!e signed. A captain who .nowing that a sailor is in the ser!ice of another !essel sho"ld ha!e ,ade a new agree,ent with hi, witho"t ha!ing re+"ested the per,ission referred to in the foregoing paragraphs shall be personally liable to the captain of the !essel to which the sailor first belonged for that part of the inde,nity referred to in the third paragraph of this article which the sailor co"ld not pay. RI85T3 ARTICLA ?6? 3ho"ld a fi#ed period for which a sailor has signed not be stated he can not be discharged "ntil the end of the ret"rn !oyage to the port where he enrolled. ARTICLA ?6D Neither can the captain discharge a sailor d"ring the ti,e of his contract e#cept for s"fficient ca"se the following being considered as s"ch) 1. The perpetration of a cri,e which dist"rbs order on the !essel. '. Repeated offenses of ins"bordination against discipline or against the f"lfill,ent of the ser!ice.
6. Repeated incapacity or negligence in the f"lfill,ent of the ser!ice to be rendered. =. 5abit"al dr"n.enness. <. Any occ"rrence which incapacitates the sailor to carry o"t the wor. "nder his charge with the e#ception of the pro!isions contained in Article ?==. ?. Desertion. The captain ,ay howe!er before setting o"t on a !oyage and witho"t gi!ing any reason whatsoe!er ref"se to per,it a sailor he ,ay ha!e engaged fro, going on board and ,ay lea!e hi, on land in which case he will be obliged to pay hi, his wages as if he had rendered ser!ices. This inde,nity shall be paid fro, the f"nds of the !essel if the captain sho"ld ha!e acted for reasons of pr"dence and in the interest of the safety and good ser!ice of the for,er. 3ho"ld this not be the case it shall be paid by the captain personally. aisadc After the !essel has sailed and d"ring the !oyage and "ntil the concl"sion thereof the captain can not abandon any ,e,ber of his crew on land or on the sea "nless by reason of being g"ilty of so,e cri,e his i,prison,ent and deli!ery to the co,petent a"thority is proper in the first port to"ched which will be obligatory on the captain. ARTICLA ?6E If the crew ha!ing been engaged the !oyage is re!o.ed by the will of the agent or of the
charterers before or after the !essel has p"t to sea or if the !essel is in the sa,e ,anner gi!en a different destination than that fi#ed in the agree,ent with the crew the latter shall be inde,nified beca"se of the rescission of the contract according to the case !i$) 1. If the re!ocation of the !oyage sho"ld be decided before the depart"re of the !essel fro, the port each sailor engaged shall be gi!en one ,onthVs salary besides what ,ay be d"e hi, in accordance with his contract for the ser!ices rendered to the !essel "p to the date of the re!ocation. '. If the agree,ent sho"ld ha!e been for a fi#ed a,o"nt for the whole !oyage there shall be grad"ated what ,ay be d"e for said ,onth and days calc"lating the sa,e in proportion to the esti,ated d"ration of the !oyage in the 1"dg,ent of e#perts in the ,anner established in the law of ci!il proced"re- and if the proposed !oyage sho"ld be of s"ch short d"ration that it is calc"lated at one ,onth ,ore or less the inde,nity shall be fi#ed for fifteen days disco"nting in all cases the s",s ad!anced. 6. If the re!ocation sho"ld ta.e place after the !essel has p"t to sea the sailors engaged for a fi#ed a,o"nt for the !oyage shall recei!e the salary which ,ay ha!e been offered the, in f"ll as if the !oyage had ter,inated and those engaged by the ,onth shall recei!e the a,o"nt
corresponding to the ti,e they ,ight ha!e been on board and to the ti,e they ,ay re+"ire to arri!e at the port of destination the captain being obliged f"rther,ore to pay said sailors the passage to the said port or to the port of sailing of the !essel as ,ay be con!enient for the,. =. If the agent or the charterers of the !essel sho"ld gi!e said !essel a destination other than that fi#ed in the agree,ent and the ,e,bers of the crew sho"ld not agree thereto they shall be gi!en by way of inde,nity half the a,o"nt fi#ed in case No. 1 besides what ,ay be owed the, for the part of the ,onthly wages corresponding to the days which ha!e elapsed fro, the date of their agree,ents. If they accept the change and the !oyage on acco"nt of the greater distance or for other reasons sho"ld gi!e rise to an increase of wages the latter shall be pri!ately reg"lated or thro"gh a,icable arbitrators in case of disagree,ent. A!en tho"gh the !oyage ,ay be to a nearer point this shall not gi!e rise to a red"ction in the wages agreed "pon. If the re!ocation or change of the !oyage sho"ld originate fro, the shippers or charterers the agent shall ha!e a right to de,and of the, the inde,nity which is 1"stly d"e. ARTICLA ?6> If the re!ocation of the !oyage sho"ld arise fro, a 1"st ca"se independent of the will of the agent or
charterers and the !essel sho"ld not ha!e left the port the ,e,bers of the crew shall not ha!e any other right than to recei!e the wages earned "p to the day on which the re!ocation too. place. ARTICLA ?=F The following shall be 1"st ca"ses for the re!ocation of the !oyage) 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ''? of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 1. A declaration of war or interdiction of co,,erce with the power to whose territory the !essel was bo"nd. '. The bloc.ade of the port of destination or the brea.ing o"t of an epide,ic after the agree,ent. 6. The prohibition to recei!e in said port the goods which ,a.e "p the cargo of the !essel. =. The detention or e,bargo of the sa,e by order of the 8o!ern,ent or for any other reason independent of the will of the agent. <. The inability of the !essel to na!igate. ARTICLA ?=1 If after a !oyage has been beg"n any of the first three ca"ses ,entioned in the foregoing article sho"ld occ"r the sailors shall be paid at the port the captain ,ay dee, it ad!isable to ,a.e for the benefit of the !essel and cargo according to the ti,e they ,ay ha!e ser!ed thereon- b"t if the !essel is to contin"e the !oyage the captain and the crew ,ay ,"t"ally de,and the enforce,ent of
the contract. In case of the occ"rrence of the fo"rth ca"se the crew shall contin"e to be paid half wages if the agree,ent is by ,onth b"t if the detention sho"ld e#ceed three ,onths the engage,ent shall be rescinded and the crew shall be paid what they sho"ld ha!e earned according to the contract if the !oyage had been ,ade. And if the agree,ent had been ,ade for a fi#ed s", for the !oyage the contract ,"st be co,plied within the ter,s agreed "pon. In the fifth case the crew shall not ha!e any other right than be entitled to reco!er the wages earnedb"t if the disability of the !essel sho"ld ha!e been ca"sed by the negligence or lac. of s.ill of the captain engineer or sailing ,ate they shall inde,nify the crew for the loss s"ffered always reser!ing the cri,inal liability which ,ay be proper. ARTICLA ?=' If the crew has been engaged to wor. on shares they shall not be entitled by reason of the re!ocation delay or greater e#tension of the !oyage to anything b"t the proportionate part of the inde,nity paid into the co,,on f"nds of the !essel by the persons liable for said occ"rrences. ARTICLA ?=6 If the !essel and her freight sho"ld be totally lost by reason of capt"re or wrec. all rights of the crew to de,and any wages whatsoe!er shall be
e#ting"ished as well as that of the agent for the reco!ery of the ad!ances ,ade. If a portion of the !essel or freight sho"ld be sa!ed or part of either the crew engaged on wages incl"ding the captain shall retain their rights on the sal!age so far as they go on the re,ainder of the !essel as well as !al"e of the freightage or the cargo sa!ed- b"t sailors who are engaged on shares shall not ha!e any right whatsoe!er to the sal!age of the h"ll b"t only on the portion of the freightage sa!ed. If they sho"ld ha!e wor.ed to collect the re,ainder of the shipwrec.ed !essel they shall be gi!en an award in proportion to the efforts ,ade and to the ris.s enco"ntered in order to acco,plish the sal!age. ARTICLA ?== A sailor who falls sic. shall not lose his right to wages d"ring the !oyage "nless the sic.ness is the res"lt of his own fa"lt. At any rate the costs of the attendance and c"re shall be defrayed fro, the co,,on f"nds in the for, of a loan. If the sic.ness sho"ld be ca"sed by an in1"ry recei!ed in the ser!ice or defense of the !essel the sailor shall be attended and c"red fro, the co,,on f"nds there being ded"cted before anything else fro, the proceeds of the freight the cost of the attendance and c"re. ARTICLA ?=< If a sailor sho"ld die d"ring the !oyage his heir shall be gi!en the wages earned and not recei!ed
according to his engage,ent and the reason for his death na,ely C If he sho"ld ha!e died a nat"ral death and sho"ld ha!e been engaged on wages there shall be paid what ,ay ha!e been earned "p to the date of his death. If the engage,ent had been ,ade for a fi#ed s", for the whole !oyage there shall be paid half the a,o"nt earned if the sailor died on the !oyage o"t and the whole a,o"nt if he died on the ret"rn !oyage. And if the engage,ent had been ,ade on shares and the death sho"ld ha!e occ"rred after the !oyage was beg"n the heirs shall be paid the entire portion d"e the sailor- b"t sho"ld the latter ha!e died before the depart"re of the !essel fro, the port the heirs shall not be entitled to clai, anything. If the death sho"ld ha!e occ"rred in the defense of the !essel the sailor shall be considered as li!ing and his heirs shall be paid at the end of the !oyage the f"ll a,o"nt of wages or the f"ll part of the profits d"e hi, as to the others of his grade. The sailor shall li.ewise be considered as present in the e!ent of his capt"re when defending the !essel in order to en1oy the sa,e benefits as the rest- b"t sho"ld he ha!e been capt"red on acco"nt of carelessness or other accident not related to the ser!ice he shall only recei!e the wages d"e "p to the day of his capt"re.
ARTICLA ?=? The !essel with her engines rigging e+"ip,ent and freights shall be liable for the wages earned by the crew engaged per ,onth or for the trip the li+"idation and pay,ent o"ght to ta.e place between one !oyage and the other. After a new !oyage has been "nderta.en credits s"ch as the for,er shall lose their right of preference. ARTICLA ?=D The officers and the crew of the !essel shall be e#e,pted fro, all obligations contracted if they dee, it proper in the following cases) 1. If before the beginning of the !oyage the captain atte,pts to change it or there occ"rs a na!al war with the power to which the !essel was destined. '. If a disease sho"ld brea. o"t and be officially declared epide,ic in the port of destination. 6. If the !essel sho"ld change owner or captain. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ''D of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 =. 3U;ARCAR8OA3 ARTICLA ?=> 3"percargoes shall discharge on board the !essel the ad,inistrati!e d"ties which the agent or shippers ,ay ha!e assigned the,- they shall .eep an acco"nt and record of their transactions in a
boo. which shall ha!e the sa,e conditions and re+"isites as re+"ired for the acco"nting boo. of the captain and shall respect the latter in his d"ties as chief of the !essel. cdta The powers and liabilities of the captain shall cease when there is a s"percargo with regard to that part of the ad,inistration legiti,ately conferred "pon the latter b"t shall contin"e in force for all acts which are inseparable fro, his a"thority and office. ARTICLA ?<F All the pro!isions contained in the second section of Title III Hoo. II with regard to +"alifications ,anner of ,a.ing contracts and liabilities of factors shall be applicable to s"percargoes. ARTICLA ?<1 3"percargoes can not witho"t special a"thori$ation or agree,ent ,a.e any transaction for their own acco"nt d"ring the !oyage with the e#ception of the !ent"res which in accordance with the c"sto, of the port of destination they are per,itted to do. Neither shall they be per,itted to in!est in the ret"rn trip ,ore than the profits fro, the !ent"res "nless there is a special a"thori$ation thereto fro, the principals. 9hat is a s"percargoS 5e or she is an agent of the owner of goods shipped as cargo on a !essel who has charge of the cargo on board sells the sa,e to the best ad!antage in the foreign ,ar.ets b"ys cargo to be
bro"ght bac. on the ret"rn !oyage of the ship and co,es ho,e with it. A. Accidents and Da,ages in Bariti,e Co,,erce 1. AIARA8A3'= NATURA AND RIND3 ARTICLA EF? 0or the p"rposes of this Code the following shall be considered a!erages) 1. All e#traordinary or accidental e#penses which ,ay be inc"rred d"ring the na!igation for the preser!ation of the !essel or cargo or both. '. All da,ages or deterioration the !essel ,ay s"ffer fro, the ti,e she p"ts to sea fro, the port of depart"re "ntil she casts anchor in the port of destination and those s"ffered by the ,erchandise fro, the ti,e it is loaded in the port of ship,ent "ntil it is "nloaded in the port of consign,ent. ARTICLA EFD '= 8eneral a!erages re+"isites and 1ettison were as.ed in 'FFF 1>E6 and 1>E'. The petty and ordinary e#penses of na!igation s"ch as pilotage of coasts and ports lighterage and towage anchorage d"es inspection health +"arantine la$aretto and other so/called port e#penses costs of barges and "nloading "ntil the ,erchandise is placed on the wharf and any other e#penses co,,on to na!igation shall be considered ordinary e#penses to be defrayed by
the shipowner "nless there is a special agree,ent to the contrary. ARTICLA EFE A!erages shall be) 1. 3i,ple or partic"lar. '. 8eneral or gross. i. 3i,ple or ;artic"lar %a( Defined ARTICLA EF> 3i,ple or partic"lar a!erages shall be as a general r"le all the e#penses and da,ages ca"sed to the !essel or to her cargo which ha!e not redo"nded to the benefit and co,,on profit of all the persons interested in the !essel and her cargo and especially the following) 1. The da,ages s"ffered by the cargo fro, the ti,e of its e,bar.ation "ntil it is "nloaded either on acco"nt of the nat"re of the goods or by reason of an accident at sea or force ,a1e"re and the e#penses inc"rred to a!oid and repair the sa,e. '. The da,ages s"ffered by the !essel in her h"ll rigging ar,s and e+"ip,ent for the sa,e ca"ses and reasons fro, the ti,e she p"ts to sea fro, the port of depart"re "ntil she anchored in the port of destination. 6. The da,ages s"ffered by the ,erchandise loaded on dec. e#cept in coastwise na!igation if the ,arine ordinances allow it. =. The wages and !ict"als of the crew when
the !essel sho"ld be detained or e,bargoed by a legiti,ate order or force ,a1e"re if the charter sho"ld ha!e been for a fi#ed s", for the !oyage. <. The necessary e#penses on arri!al at a port in order to ,a.e repairs or sec"re pro!isions. ?. The lowest !al"e of the goods sold by the captain in arri!als "nder stress for the pay,ent of pro!isions and in order to sa!e the crew or to co!er any other re+"ire,ent of the !essel against which the proper a,o"nt shall be charged. D. The !ict"als and wages of the crew d"ring the ti,e the !essel is in +"arantine. E. The da,age s"ffered by the !essel or cargo by reason of an i,pact or collision with another if it were accidental and "na!oidable. If the accident sho"ld occ"r thro"gh the fa"lt or negligence of the captain the latter shall be liable for all the da,age ca"sed. >. Any da,age s"ffered by the cargo thro"gh the fa"lts negligence or barratry of the captain or of the crew witho"t pre1"dice to the right of the owner to reco!er the corresponding inde,nity fro, the captain the !essel and the freight. %b( Affects ARTICLA E1F The owner of the goods which ga!e rise to the e#pense or s"ffered the da,age shall bear the si,ple or partic"lar a!erages. ii. 8ross or 8eneral 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ''E of 6<1
TRAN3;ORTATION LA9 COBBARCIAL LA9 %a( Defined ARTICLA E11 8eneral or gross a!erages shall be as a general r"le all the da,ages and e#penses which are deliberately ca"sed in order to sa!e the !essel her cargo or both at the sa,e ti,e fro, a real and .nown ris. and partic"larly the following) 1. The goods or cash in!ested in the rede,ption of the !essel or cargo capt"red by ene,ies pri!ateers or pirates and the pro!isions wages and e#penses of the !essel detained d"ring the ti,e the arrange,ent or rede,ption is ta.ing place. '. The goods 1ettisoned to lighten the !essel whether they belong to the !essel to the cargo or to the crew and the da,age s"ffered thro"gh said act by the goods .ept. 6. The cables and ,asts which are c"t or rendered "seless the anchors and the chains which are abandoned in order to sa!e the cargo the !essel or both. =. The e#penses of re,o!ing or transferring a portion of the cargo in order to lighten the !essel and place her in condition to enter a port or roadstead and the da,age res"lting therefro, to the goods re,o!ed or transferred. <. The da,age s"ffered by the goods of the cargo thro"gh the opening ,ade in the !essel in order to drain her and pre!ent her sin.ing.
?. The e#penses ca"sed thro"gh floating a !essel intentionally stranded for the p"rpose of sa!ing her. D. The da,age ca"sed to the !essel which it is necessary to brea. open sc"ttle or s,ash in order to sa!e the cargo. E. The e#penses of c"ring and ,aintaining the ,e,bers of the crew who ,ay ha!e been wo"nded or crippled in defending or sa!ing the !essel. >. The wages of any ,e,ber of the crew detained as hostage by ene,ies pri!ateers or pirates and the necessary e#penses which he ,ay inc"r in his i,prison,ent "ntil he is ret"rned to the !essel or to his do,icile sho"ld he prefer it. 1F. The wages and !ict"als of the crew of a !essel chartered by the ,onth d"ring the ti,e it sho"ld be e,bargoed or detained by force ,a1e"re or by order of the 8o!ern,ent or in order to repair the da,age ca"sed for the co,,on good. 11. The loss s"ffered in the !al"e of the goods sold at arri!als "nder stress in order to repair the !essel beca"se of gross a!erage. 1'. The e#penses of the li+"idation of the a!erage. ARTICLA E1D If in lightening a !essel on acco"nt of a stor, in order to facilitate her entry into a port or roadstead part of her cargo sho"ld be transferred to lighters or barges and be lost the owner of said part shall be entitled to inde,nity as if the loss
has originated fro, a gross a!erage the a,o"nt thereof being distrib"ted between the entire !essel and cargo which ca"sed the sa,e. If on the contrary the ,erchandise transferred sho"ld be sa!ed and the !essel sho"ld be lost no liability can be de,anded of the sal!age. ARTICLA E1E If as a necessary ,eas"re to e#ting"ish a fire in a port- roadstead- cree. or bay it sho"ld be decided to sin. any !essel this loss shall be considered gross a!erage to which the !essels sa!ed shall contrib"te. %b( Assential Re+"isites ARTICLA E16 In order to inc"r the e#penses and ca"se the da,ages corresponding to gross a!erage a pre!io"s resol"tion of the captain adopted after deliberation with the sailing ,ate and other officers of the !essel and with a hearing of the persons interested in the cargo who ,ay be present shall be re+"ired. If the latter shall ob1ect and the captain and officers or a ,a1ority or the captain if opposed to the ,a1ority sho"ld consider certain ,eas"res necessary they ,ay be e#ec"ted "nder his liability witho"t pre1"dice to the freighters e#ercising their rights against the captain before the 1"dge or co"rt of co,petent 1"risdiction if they can pro!e that he acted with ,alice lac. of s.ill or negligence.
If the persons interested in the cargo being on the !essel sho"ld not be heard they shall not contrib"te to the gross a!erage which contrib"tion shall be paid by the captain "nless the "rgency of the case sho"ld be s"ch that the ti,e necessary for pre!io"s deliberation was lac.ing. ARTICLA E1= The resol"tion adopted to ca"se the da,ages which constit"te a general a!erage ,"st necessarily be entered in the log boo. stating the ,oti!es and reasons therefor the !otes against it and the reasons for the disagree,ent sho"ld there be any and the irresistible and "rgent ca"ses which ,o!ed the captain if he acted of his own accord. In the first case the ,in"tes shall be signed by all the persons present who co"ld do so before ta.ing action if possible and if not at the first opport"nityin the second case by the captain and by the officers of the !essel. In the ,in"tes and after the resol"tion there shall be stated in detail all the goods cast away and ,ention shall be ,ade of the in1"ries ca"sed to those .ept on board. The captain shall be obliged to deli!er one copy of these ,in"tes to the ,ariti,e 1"dicial a"thority of the first port he ,ay ,a.e within twenty/fo"r ho"rs after his arri!al and to ratify it i,,ediately by an oath. ARTICLA E?F If notwithstanding the 1ettison of the ,erchandise
brea.age of ,asts ropes and e+"ip,ent the !essel sho"ld be lost r"nning said ris. no contrib"tion whatsoe!er by reason of gross a!erage shall be proper. The owners of the goods sa!ed shall not be liable for the inde,nity of those 1ettisoned lost or da,aged. BA83AK3AK INC. !s A8AN %1><<( RAQUI3ITA3 0OR 8ANARAL AIARA8A) 1. There ,"st be a co,,on danger. This ,eans that both the ship and the cargo after it has been loaded are s"b1ect to the sa,e danger whether d"ring the !oyage or in the port of loading or "nloading- that the danger arises fro, the accidents of the sea dispositions of the a"thority or fa"lts of ,en pro!ided that the circ",stances prod"cing the peril sho"ld be ascertained and i,,inent or ,ay rationally be said to be certain and i,,inent. This last re+"ire,ent e#cl"de ,eas"res "nderta.en against a distant peril. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age ''> of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 '. That for the co,,on safety part of the !essel or of the cargo or both is sacrificed deliberately. 6. That fro, the e#penses or da,ages ca"sed follows the s"ccessf"l sa!ing of the !essel and cargo. =. That the e#penses or da,ages sho"ld ha!e
been inc"rred or inflicted after ta.ing proper legal steps and a"thority %c( Affects ARTICLA E1' In order to satisfy the a,o"nt of the gross or general a!erages all the persons ha!ing an interest in the !essel and cargo therein at the ti,e of the occ"rrence of the a!erage shall contrib"te. %d( Jettison ARTICLA E1< The captain shall s"per!ise the 1ettison and shall order the goods cast o!erboard in the following order) 1. Those which are on dec. beginning with those which e,barrass the handling of the !essel or da,age her preferring if possible the hea!iest ones and those of least "tility and !al"e. cda '. Those in the hold always beginning with those of the greatest weight and s,allest !al"e to the a,o"nt and n",ber absol"tely indispensable. ARTICLA E1? In order that the goods 1ettisoned ,ay be incl"ded in the gross a!erage and the owners thereof be entitled to inde,nity it shall be necessary in so far as the cargo is concerned that their e#istence on board be pro!en by ,eans of the bill of lading- and with regard to those belonging to the !essel by ,eans of the in!entory ,ade "p before the depart"re in accordance with the first paragraph of Article ?1'.
%e( Jason Cla"ses %Kor. / Antwerp R"les R"le D( Rights to contrib"tion in general a!erage shall not be affected tho"gh the e!ent which ga!e rise to the sacrifice or e#pendit"re ,ay ha!e been d"e to the fa"lt of one of the parties to the ad!ent"re- b"t this shall not pre1"dice any re,edies which ,ay be open against that party for s"ch fa"lt. 9hat are the Kor./Antwerp R"les and the Jason Cla"seS The Kor./Antwerp R"les is an international syste, of r"les %they are not law or international treaties b"t are 1"st widely in "se( for the li+"idation and pay,ent of a!erage to a!oid the proble, of characteri$ation. The Jason Cla"se is a standard pro!ision in ,ariti,e contracts. It pro!ides for "nifor, r"les on ad1"st,ent proof and li+"idation of a!ergaes in ,ariti,e accidents to address !ario"s syste,s of deter,ining the sa,e. ;ROO0 AND LIQUIDATION O0 AIARA8A3 i. Bodes ARTICLA E=? The persons interested in the proof and li+"idation of a!erages ,ay ,"t"ally agree and bind the,sel!es at any ti,e with regard to the liability li+"idation and pay,ent thereof. cdt In the absence of agree,ents the following r"les shall be obser!ed) 1. The proof of the a!erage shall ta.e place in
the port where the repairs are ,ade sho"ld any be necessary or in the port of "nloading. '. The li+"idation shall ta.e place in the port of "nloading sho"ld it be a 3panish W port. 6. 3ho"ld the a!erage ha!e occ"rred o"tside of the waters "nder the 1"risdiction of the ;hilippines or the cargo sho"ld ha!e been sold in a foreign port by reason of an arri!al "nder stress the li+"idations shall be ,ade in the port of arri!al. =. If the a!erage sho"ld ha!e occ"rred near the port of destination so that said port can be ,ade the proceedings treated of in R"les 1 and ' shall be held there. ARTICLA E=D In case of ,a.ing the li+"idation of the a!erages pri!ately by !irt"e of agree,ent as well as when a 1"dicial a"thority ta.es part therein at the re+"est of any of the parties interested who do not agree thereto all of the, shall be cited and heard sho"ld they not ha!e reno"nced this right. 3ho"ld they not be present or not ha!e a legiti,ate representati!e the li+"idation shall be ,ade by the cons"l in a foreign port and where there is none by the 1"dge or co"rt of co,petent 1"risdiction according to the laws of the co"ntry and for the acco"nt of the proper person. 9hen the representati!e is a person well .nown in the place where the li+"idation ta.es place his inter!ention shall be ad,itted and prod"ce legal
effects e!en tho"gh he be a"thori$ed only by a letter of the shipowner freighter or "nderwriter. ARTICLA E=E Clai,s for a!erages shall not be ad,itted if they do not e#ceed < per cent of the interest which the clai,ant ,ay ha!e in the !essel or cargo if it is gross a!erage and 1 per cent of the goods da,aged if partic"lar a!erage ded"cting in both cases the e#penses of appraisal "nless there is an agree,ent to the contrary. ii. Appraisal of general a!erage ARTICLA E<F If by reason of one or ,ore accidents of the sea partic"lar and gross a!erages of the !essel or the cargo or of both sho"ld ta.e place on the sa,e !oyage the e#penses and da,ages corresponding to each one shall be deter,ined separately in the port where the repairs are ,ade or where the cargo is discharged or sold or the ,erchandise is benefited. 0or this p"rpose the captains shall be obliged to de,and of the e#pert appraisers and of the contractors ,a.ing the repairs as well as of those appraising and ta.ing part in the "nloading repair sale or the benefiting of the ,erchandise that they separate and detail e#actly in their appraise,ents or esti,ates and acco"nts all the e#penses and da,ages belonging to each a!erage and in those of each a!erage those corresponding to the !essel and to the cargo stating also
separately whether there are or not any da,ages proceeding fro, the nat"re of the goods and not by reason of a sea accident- and in case there 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '6F of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 sho"ld be e#penses co,,on to the different a!erages and to the !essel and her cargo there ,"st be calc"lated the a,o"nt corresponding to each and stated distinctly. 3ACTION II Li+"idation of 8ross A!erages ARTICLA E<1 At the instance of the captain the ad1"st,ent li+"idation and distrib"tion of gross a!erages shall be held pri!ately with the consent of all the parties in interest. 0or this p"rpose within forty/eight ho"rs following the arri!al of the !essel at the port the captain shall call all the persons interested in order that they ,ay decide as to whether the ad1"st,ent or li+"idation of the gross a!erage is to be ,ade by e#perts and li+"idators appointed by the,sel!es in which case this shall be done sho"ld the persons interested agree. 3ho"ld an agree,ent not be possible the captain shall apply to the 1"dge or co"rt of co,petent 1"risdiction who shall be the one of the port where these proceedings are to be held in accordance with the pro!isions of this Code or to the cons"l of 3pain W sho"ld there be one and otherwise to the
local a"thority when they are to be held in a foreign port. cdta ARTICLA E<' If the captain sho"ld not co,ply with the pro!isions contained in the foregoing article the shipowner or agent or the freighters shall de,and the li+"idation witho"t pre1"dice to the action they ,ay bring to de,and inde,nity fro, hi,. ARTICLA E<6 After the e#perts ha!e been appointed by the persons interested or by the 1"dge or co"rt before the acceptance an e#a,ination of the !essel and of the repairs re+"ired shall be ,ade as well as an esti,ate of their cost separating these losses and da,ages fro, those arising fro, the nat"ral !ice of the thing. The e#perts shall also declare whether the repairs can be ,ade i,,ediately or whether it is necessary to "nload the !essel to e#a,ine and repair her. 9ith regard to the ,erchandise if the a!erage sho"ld be !isible at a ,ere glance the e#a,ination thereof ,"st be ,ade before it is deli!ered. 3ho"ld it not be !isible at the ti,e of "nloading said e#a,ination ,ay be held after the deli!ery pro!ided it is done within forty/eight ho"rs fro, the "nloading and witho"t pre1"dice to the other proofs which the e#perts ,ay dee, necessary. ARTICLA E<= The appraise,ent of the goods which are to
contrib"te to the gross a!erage and that of those which constit"te the a!erage shall confor, to the following r"les) 1. The ,erchandise sa!ed which is to contrib"te to the pay,ent of the gross a!erage shall be !al"ed at the c"rrent price thereof at the port of "nloading ded"cting the freights c"sto,s d"ties and charges for "nloading as ,ay appear fro, a ,aterial inspection of the sa,e not ta.ing into consideration the bills of lading "nless there is an agree,ent to the contrary. '. If the li+"idation is to ta.e place in the port of sailing the !al"e of the ,erchandise loaded shall be fi#ed by the p"rchase price incl"ding the e#penses "ntil they are p"t on board e#cl"ding the ins"rance pre,i",. 6. If the ,erchandise sho"ld be da,aged it shall be appraised at its tr"e !al"e. =. If the !oyage sho"ld be interr"pted the ,erchandise ha!ing been sold in a foreign port and the a!erage can not be esti,ated there shall be ta.en as the contrib"ting capital the !al"e of the ,erchandise in the port of arri!al or the net proceeds obtained at the sale thereof. <. Berchandise lost which sho"ld constit"te the gross a!erage shall be appraised at the !al"e ,erchandise of its .ind ,ay ha!e in the port of "nloading pro!ided its .ind and +"ality appears in the bill of lading- and sho"ld this not be the case the in!oices of the p"rchase iss"ed in the port of
ship,ent shall be ta.en as a basis adding to its !al"e the e#penses and freights s"bse+"ently arising. cd ?. The ,asts c"t down the sails cables and other e+"ip,ent of the !essel rendered "seless for the p"rpose of sa!ing her shall be appraised at the c"rrent !al"e ded"cting one/third by reason of the difference between new and old. This ded"ction shall not be ,ade in regard to anchors and chains. D. The !essel shall be appraised at her real !al"e in her condition at the ti,e. E. The freights shall represent <F per cent by way of contrib"ting capital. ARTICLA E<< The ,erchandise loaded on the "pper dec. of the !essel shall contrib"te to the gross a!erage sho"ld it be sa!ed- b"t there shall be no right to inde,nity if it sho"ld be lost by reason of being 1ettisoned for general safety e#cept when the ,arine ordinances allow its ship,ent in this ,anner in coastwise na!igation. The sa,e shall ta.e place with that which is on board and is not incl"ded in the bills of lading or in!entories according to the cases. In any case the shipowner and the captain shall be liable to freighters for the loss of the 1ettison if the storage on the "pper dec. too. place witho"t the consent of the latter. ARTICLA E<D
After the appraise,ent of the goods sa!ed has been concl"ded by the e#perts as well as that of the goods lost which constit"te the gross a!erage and after the repairs ha!e been ,ade to the !essel sho"ld any ha!e to be ,ade and in s"ch case after the appro!al of the acco"nts of the sa,e by the persons interested or by the 1"dge or co"rt the entire record shall be t"rned o!er to the li+"idator appointed in order that he ,ay proceed with the distrib"tion of the a!erage. iii. Li+"idation of general a!erages ARTICLA E<E In order to effect the li+"idation the li+"idator shall e#a,ine the sworn state,ent of the captain co,paring it if necessary with the log boo. and all the contracts which ,ay ha!e been ,ade between the persons interested in the a!erage the appraise,ents e#pert e#a,inations and acco"nts of repairs ,ade. If as a res"lt of this e#a,ination he sho"ld find any defect in this proced"re which ,ight in1"re the rights of the persons interested or affect the liability of the captain he shall call attention thereto in order that it be corrected if 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '61 of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 possible and otherwise he shall incl"de it in the preli,inaries of the li+"idation. I,,ediately thereafter he shall proceed with the distrib"tion of the a,o"nt of the a!erage for which p"rpose he shall fi#)
1. The contrib"ting capital which he shall deter,ine by the !al"e of the cargo in accordance with the r"les established in Article E<=. '. That of the !essel in her act"al condition according to a state,ent of e#perts. 6. The <F per cent of the a,o"nt of the freight ded"cting the re,aining <F per cent for wages and ,aintenance of the crew. After the a,o"nt of the gross a!erage has been deter,ined in accordance with the pro!isions of this Code it shall be distrib"ted pro rata a,ong the goods which are to co!er the sa,e. ARTICLA E?< The distrib"tion of the gross a!erage shall not be final "ntil it has been agreed to or in the absence thereof "ntil it has been appro!ed by the 1"dge or co"rt after an e#a,ination of the li+"idation and a hearing of the persons interested who ,ay be present or of their representati!es. ARTICLA E?? After the li+"idation has been appro!ed it shall be the d"ty of the captain to collect the a,o"nt of the distrib"tion and he shall be liable to the owners of the goods a!eraged for the losses they s"ffer thro"gh his delay or negligence. ARTICLA E?D If the contrib"tors sho"ld not pay the a,o"nt of the assess,ent within the third day after ha!ing been re+"ested to do so the goods sa!ed shall be attached at the re+"est of the captain and shall
be sold to co!er the pay,ent. ARTICLA E?E If the persons interested in recei!ing the goods sa!ed sho"ld not gi!e sec"rity s"fficient to answer for the a,o"nt corresponding to the gross a!erage the captain ,ay defer the deli!ery thereof "ntil pay,ent has been ,ade. aisadc 3ACTION III Li+"idation of Ordinary A!erages ARTICLA E?> The e#perts which the 1"dge or co"rt or the persons interested ,ay appoint according to the cases shall proceed with the appraise,ent and e#a,ination of the a!erages in the ,anner prescribed in Article E<6 and in Article E<= R"les ' to D in so far as they are applicable. i!. Li+"idation of partic"lar a!erage ARTICLA E?> The e#perts which the 1"dge or co"rt or the persons interested ,ay appoint according to the cases shall proceed with the appraise,ent and e#a,ination of the a!erages in the ,anner prescribed in Article E<6 and in Article E<= R"les ' to D in so far as they are applicable. '. ARRIIAL3 UNDAR 3TRA33 CAU3A3 ARTICLA E1> If the captain d"ring the na!igation sho"ld belie!e that the !essel can not contin"e the !oyage to the port of destination on acco"nt of the lac. of
pro!isions well fo"nded fear of sei$"re pri!ateers or pirates or by reason of any accident of the sea disabling her to na!igate he shall asse,ble the officers and shall call the persons interested in the cargo who ,ay be present and who ,ay attend the ,eeting witho"t the right to !ote- and if after e#a,ining the circ",stances of the case the reasons sho"ld be considered well fo"nded it shall be decided to ,a.e the nearest and ,ost con!enient port drafting and entering in the log boo. the proper ,in"tes which shall be signed by all. The captain shall ha!e the deciding !ote and the persons interested in the cargo ,ay ,a.e the ob1ections and protests they ,ay dee, proper which shall be entered in the ,in"tes in order that they ,ay ,a.e "se thereof in the ,anner they ,ay consider ad!isable. ARTICLA E'F The arri!al "nder stress shall not be considered legal in the following cases) 1. If the lac. of pro!isions sho"ld arise fro, the fail"re to ta.e the necessary pro!isions for the !oyage according to "sage and c"sto, or if they sho"ld ha!e been rendered "seless or lost thro"gh bad stowage or negligence in their care. '. If the ris. of ene,ies pri!ateers or pirates sho"ld not ha!e been well .nown ,anifest and based on positi!e and 1"stifiable facts. 6. If the in1"ry to the !essel sho"ld ha!e been
ca"sed by reason of her not being repaired rigged e+"ipped and arranged in a con!enient ,anner for the !oyage or by reason of so,e erroneo"s order of the captain. =. 9hene!er ,alice negligence want of foresight or lac. of s.ill on the part of the captain is the reason for the act ca"sing the da,age. 0ORBALITIA3 ARTICLA E1> If the captain d"ring the na!igation sho"ld belie!e that the !essel can not contin"e the !oyage to the port of destination on acco"nt of the lac. of pro!isions well fo"nded fear of sei$"re pri!ateers or pirates or by reason of any accident of the sea disabling her to na!igate he shall asse,ble the officers and shall call the persons interested in the cargo who ,ay be present and who ,ay attend the ,eeting witho"t the right to !ote- and if after e#a,ining the circ",stances of the case the reasons sho"ld be considered well fo"nded it shall be decided to ,a.e the nearest and ,ost con!enient port drafting and entering in the log boo. the proper ,in"tes which shall be signed by all. The captain shall ha!e the deciding !ote and the persons interested in the cargo ,ay ,a.e the ob1ections and protests they ,ay dee, proper which shall be entered in the ,in"tes in order that they ,ay ,a.e "se thereof in the ,anner they ,ay consider ad!isable.
ARTICLA E'' If in order to ,a.e repairs to the !essel or beca"se there sho"ld be danger of the cargo s"ffering da,age it sho"ld be necessary to "nload the captain ,"st re+"est a"thori$ation of the 1"dge or co"rt of co,petent 1"risdiction to lighten the !essel and do so with the .nowledge of the person 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '6' of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 interested or representati!e of the cargo sho"ld there be one. In a foreign port it shall be the d"ty of the 3panish W cons"l where there is one to gi!e the a"thori$ation. In the first case the e#penses shall be defrayed by the ship agent or owner and in the second they shall be for the acco"nt of the owners of the ,erchandise for whose benefit the act too. place. If the "nloading sho"ld ta.e place for both reasons the e#penses shall be defrayed in proportion to the !al"e of the !essel and that of the cargo. AO;AN3A3 ARTICLA E'1 The e#penses ca"sed by the arri!al "nder stress shall always be for the acco"nt of the shipowner or agent b"t the latter shall not be liable for the da,age which ,ay be ca"sed the shippers by reason of the arri!al "nder stress pro!ided the latter is legiti,ate. Otherwise the shipowner or agent and the captain
shall be 1ointly liable. ARTICLA E'' If in order to ,a.e repairs to the !essel or beca"se there sho"ld be danger of the cargo s"ffering da,age it sho"ld be necessary to "nload the captain ,"st re+"est a"thori$ation of the 1"dge or co"rt of co,petent 1"risdiction to lighten the !essel and do so with the .nowledge of the person interested or representati!e of the cargo sho"ld there be one. In a foreign port it shall be the d"ty of the 3panish W cons"l where there is one to gi!e the a"thori$ation. In the first case the e#penses shall be defrayed by the ship agent or owner and in the second they shall be for the acco"nt of the owners of the ,erchandise for whose benefit the act too. place. If the "nloading sho"ld ta.e place for both reasons the e#penses shall be defrayed in proportion to the !al"e of the !essel and that of the cargo. RA3;ON3IHILITK O0 T5A CA;TAIN ARTICLA E'6 The care and preser!ation of the cargo which has been "nloaded shall be in charge of the captain who shall be responsible for the sa,e e#cept in cases of force ,a1e"re. ARTICLA E'= If the entire cargo or part thereof sho"ld appear to be da,aged or there sho"ld be i,,inent danger of its being da,aged the captain ,ay re+"est of
the 1"dge or co"rt of co,petent 1"risdiction or the cons"l in a proper case the sale of all or of part of the for,er and the person ta.ing cogni$ance of the ,atter shall a"thori$e it after an e#a,ination and declaration of e#perts ad!ertise,ents and other for,alities re+"ired by the case and an entry in the boo. in accordance with the pro!isions of Article ?'=. The captain shall in a proper case 1"stify the legality of the proced"re "nder the penalty of answering to the shipper for the price the ,erchandise wo"ld ha!e bro"ght if it sho"ld ha!e arri!ed at the port of its destination in good condition. ARTICLA E'< The captain shall answer for the da,ages ca"sed by his delay if the reason for the arri!al "nder stress ha!ing ceased he sho"ld not contin"e the !oyage. If the reason for said arri!al sho"ld ha!e been the fear of ene,ies pri!ateers or pirates before sailing a disc"ssion and resol"tion of a ,eeting of the officers of the !essel and persons interested in the cargo who ,ay be present shall ta.e place in accordance with the pro!isions contained in Article E1>. 6. COLLI3ION3 NOTA) Collision 7 the i,pact of two !essels both of which are ,o!ing.
Allision 7 the stri.ing of a ,o!ing !essel agains one that is stationary. CLA33A3 AND A00ACT3 i. 0ort"ito"s ARTICLA E6F If a !essel sho"ld collide with another by reason of an accident or thro"gh force ,a1e"re each !essel and her cargo shall be liable for their own da,age. ARTICLA E61 If a !essel sho"ld be forced to collide with another one by a third !essel the owner of the third !essel shall inde,nify for the losses and da,ages ca"sed the captain thereof being ci!illy liable to said owner. ARTICLA E6' If by reason of a stor, or other ca"se of force ,a1e"re a !essel which is properly anchored and ,oored sho"ld collide with those in her i,,ediate !icinity ca"sing the, da,age the in1"ry occasioned shall be loo.ed "pon as partic"lar a!erage to the !essel r"n into. ii. C"lpable ARTICLA E'? If a !essel sho"ld collide with another thro"gh the fa"lt negligence or lac. of s.ill of the captain sailing ,ate or any other ,e,ber of the co,ple,ent the owner of the !essel at fa"lt shall inde,nify the losses and da,ages s"ffered after an e#pert appraisal. aisadc ARTICLA E'D
If both !essels ,ay be bla,ed for the collision each one shall be liable for his own da,ages and both shall be 1ointly responsible for the losses and da,ages s"ffered by their cargoes. ARTICLA E61 If a !essel sho"ld be forced to collide with another one by a third !essel the owner of the third !essel shall inde,nify for the losses and da,ages ca"sed the captain thereof being ci!illy liable to said owner. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '66 of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 iii. Inscr"table 0a"lt'< ARTICLA E'E The pro!isions of the foregoing article are applicable to the case in which it can not be decided which of the two !essels was the ca"se of the collision. ;RA3UB;TION O0 LO33 HK COLLI3ION ARTICLA E66 A !essel shall be pres",ed as lost thr" a collision which "pon being r"n into sin.s i,,ediately and also any !essel which is obliged to ,a.e a port to repair the da,ages ca"sed by the collision sho"ld be lost d"ring the !oyage or sho"ld be obliged to be stranded in order to be sa!ed. LIAHILITIA3'? i. 3hipowner or agent ARTICLA E6D The ci!il liability contracted by the shipowners in
the cases prescribed in this section shall be "nderstood as li,ited to the !al"e of the !essel with all her app"rtenances and all the freight earned d"ring the !oyage. ARTICLA E6E 9hen the !al"e of the !essel and her app"rtenances sho"ld not be s"fficient to co!er all the liabilities the inde,nity d"e by reason of the death or in1"ry of persons shall ha!e preference. ii. Captain pilot others ARTICLA E'> In the cases abo!e ,entioned the ci!il action of the owner against the person liable for the da,age is reser!ed as well as the cri,inal liabilities which ,ay be proper. ARTICLA E6= If the !essels colliding sho"ld ha!e pilots on board discharging their d"ties at the ti,e of the collision their presence shall not e#e,pt the captains fro, the liabilities they inc"r- b"t the latter shall ha!e the right to be inde,nified by the pilots witho"t pre1"dice to the cri,inal liability which the latter ,ay inc"r. iii. Conditions protest'D Bariti,e ;rotest 7 a written state,ent "nder oath ,ade by the ,aster of a !essel after the occ"rrence of an accident or disaster in which the !essel or cargo is lost or in1"red with respect to the circ",stances attending s"ch occ"rrence. It is "s"ally intended to show that the loss or da,age
res"lted fro, a peril of the sea or fro, so,e other ca"se for which neither the ,aster nor owner was responsible and conl"des with the protestation against any liability of the owner for s"ch loss or da,age. '< 3ee footnote 1'. Disting"ish inscr"table fa"lt with the doctrine of last clear chance and with the doctrine of li,ited liabilities. '? 3ee footnote 1<. 'D Ta.e note of the concept of ,ariti,e protest and when and where it sho"ld be file. This was as.ed in 'FFD 1>EE 1>DE and 1>DD. ARTICLA E6< The action for the reco!ery of losses and da,ages arising fro, collisions can not be ad,itted if a protest or declaration is not presented within twenty/fo"r ho"rs to the co,petent a"thority of the point where the collision too. place or that of the first port of arri!al of the !essel if in 3pain W and to the cons"l of 3pain W if it sho"ld ha!e occ"rred in a foreign co"ntry. ARTICLA E6? In so far as the da,ages ca"sed to persons or to the cargo are concerned the absence of a protest can not pre1"dice the persons interested who were not on board or were not in a condition to ,a.e .nown their wishes. ARTICLA E6> If the collision sho"ld occ"r between 3panish W !essels in foreign waters or if it sho"ld ta.e place
in open waters and the !essels sho"ld ,a.e a foreign port the 3panish W cons"l in said port shall hold a s",,ary in!estigation of the accident forwarding the proceedings to the captain/general of the nearest depart,ent W for contin"ation and concl"sion. =. 35I;9RACR3 ARTICLA E=F The losses and deteriorations s"ffered by a !essel and her cargo by reason of shipwrec. or stranding shall be indi!id"ally for the acco"nt of the owners the part of the wrec. which ,ay be sa!ed belonging to the, in the sa,e proportion. ARTICLA E=1 If the wrec. or stranding sho"ld arise thro"gh the ,alice negligence or lac. of s.ill of the captain or beca"se the !essel p"t to sea ins"fficiently repaired and prepared the owner or the freighters ,ay de,and inde,nity of the captain for the da,ages ca"sed to the !essel or cargo by the accident in accordance with the pro!isions contained in Articles ?1F ?1' ?1= and ?'1. ARTICLA E=' The goods sa!ed fro, the wrec. shall be specially liable for the pay,ent of the e#penses of the respecti!e sal!age and the a,o"nt thereof ,"st be paid by the owners of the for,er before they are deli!ered to the, and with preference to any other obligation if the ,erchandise sho"ld be sold. ARTICLA E=6
If se!eral !essels na!igate "nder con!oy and any of the, sho"ld be wrec.ed the cargo sa!ed shall be distrib"ted a,ong the rest in the proportion to the a,o"nt each one can recei!e. If any captain sho"ld ref"se witho"t s"fficient ca"se to recei!e what ,ay correspond to hi, the captain of the wrec.ed !essel shall enter a protest against hi, before two sea officials of the losses and da,ages res"lting therefro, ratifying the co,plaint within twenty/fo"r ho"rs after arri!al at the first port and incl"ding it in the proceedings he ,"st instit"te in accordance with the pro!isions contained in Article ?1'. 3ho"ld it not be possible to transfer to the other !essels the entire cargo of the one wrec.ed the goods of the highest !al"e and s,allest !ol",e shall be sa!ed first the designation thereof being ,ade by the captain in conc"rrence with the officers of his !essel. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '6= of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 0. 3pecial Contracts of Bariti,e Co,,erce 1. C5ARTAR ;ARTIA3'E DA0INITION A charter party is a contract by !irt"re of which the owenr or agent of a !essel binds hi,self to transport ,erchandise or persons for a fi#ed price. It is a contract by which the owner or agent of the !essel leases for a certain price the whole or portion of a !essel for the transportation of the
goods or persons fro, one port to another. Towage is not a charter party. It is a contract for the hire of ser!ices by which a !essel is engaged to tow another !essel fro, one port to another for consideration. RIND3 As to e#tent of !essel hired) * Total * ;artial / charterer as a r"le does not ac+"ire the right to fi# the date when the !essel sho"ld depart "nless s"ch right is e#pressly granted in the contract As to ti,e) * Until a fi#ed day or for a deter,ined n",ber of days or ,onths 0or a !oyage As to freightage) * 0or a fi#ed a,o"nt for the whole cargo * 0or a fi#ed rate per ton * 0or so ,"ch per ,onth Coastwise Lighterage Corp !s. CA and ;hil. 8en. Ins"rance Co. %1>><( The distinction between the two .inds of charter parties %i.e. bareboat or de,ise and contract of affreight,ent( is ,ore clearly set o"t in the case of ;"ro,ines Inc. !s. Co"rt of Appeals) Under the de,ise or bareboat charter of the !essel the charterer will generally be regarded as the
owner for the !oyage or ser!ice stip"lated. The charterer ,ans the !essel with his own people and beco,es the owner pro hac !ice s"b1ect to liability to others for da,ages ca"sed by negligence. To create a de,ise the owner of a !essel ,"st co,pletely and e#cl"si!ely relin+"ish possession co,,and and na!igation thereof to the charterer anything short of s"ch a co,plete transfer is a contract of affreight,ent %ti,e or !oyage charter party( or not a charter party at all. A contract of affreight,ent is one in which the owner of the !essel leases part or all of its space to ha"l goods for others. It is a contract for special ser!ice to be rendered by the owner of the !essel and "nder s"ch contract the general owner retains the possession co,,and and na!igation of the 'E The topic was co!ered in 'FF= 'FF6 1>>1 and 1>E>. Ta.e note of the definition and .inds of a charter party who sho"ld bear the loss of cargo in case of death of crew,e,bers !alidity of stip"lation e#e,pting owner fro, liability and owner pro hac !ice. ship the charterer or freighter ,erely ha!ing "se of the space in the !essel in ret"rn for his pay,ent of the charter hire. Altho"gh a charter party ,ay transfor, a co,,on carrier into a pri!ate one the sa,e howe!er is not tr"e in a contract of affreight,ent on acco"nt of the afore,entioned distinctions between the two. Th"s Coastwise by the contract of affreight,ent
was not con!erted into a pri!ate carrier b"t re,ained a co,,on carrier and was still liable as s"ch. Owner ;ro 5ac Iice 7 de,ise charter to who, the owner of the !essel has co,pletely and e#cl"si!ely relin+"ished possession co,,and and na!igation of the !essel. In this .ind of charter the charterer ,ans and e+"ips the !essel and ass",es all responsibility for na!igation ,anage,ent and operation. 5e th"s acts as the owner of the !essel in all i,portant aspects d"ring the d"ration of the charter. 0ORB3 AND A00ACT3 Charter ;arties 1. 0or,s and Affects of Charter ;arties ARTICLA ?<' A charter party ,"st be drawn in d"plicate and signed by the contracting parties and when either does not .now how or can not do so by two witnesses at their re+"est. The charter party shall incl"de besides the conditions "nrestrictedly stip"lated the following state,ents) 1. The .ind na,e and tonnage of the !essel. '. 5er flag and port of registry. 6. The na,e s"rna,e and do,icile of the captain. =. The na,e s"rna,e and do,icile of the agent if the latter sho"ld ,a.e the charter party. <. The na,e s"rna,e and do,icile of the
charterer and if he states that he is acting by co,,ission that of the person for whose acco"nt he ,a.es the contract. ?. The port of loading and "nloading. D. The capacity n",ber of tons or weight or ,eas"re which they respecti!ely bind the,sel!es to load and transport or whether it is the total cargo. E. The freightage to be paid stating whether it is to be a fi#ed a,o"nt for the !oyage or so ,"ch per ,onth or for the space to be occ"pied or for the weight or ,eas"re of the goods of which the cargo consists or in any other ,anner whatsoe!er agreed "pon. >. The a,o"nt of pri,age to be paid to the captain. 1F. The days agreed "pon for loading and "nloading. 11. The lay days and e#tra lay days to be allowed and the rate of de,"rrage. ARTICLA ?<6 If the freight sho"ld be recei!ed witho"t the charter party ha!ing been signed the contract shall be "nderstood as e#ec"ted in accordance with what appears in the bill of lading which shall be the only instr",ent with regard to the freight to deter,ine the rights and obligations of the owner of the captain and of the charterer. cdt ARTICLA ?<= 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '6< of 6<1
TRAN3;ORTATION LA9 COBBARCIAL LA9 The charter parties e#ec"ted with the inter!ention of a bro.er who certifies to the a"thenticity of the signat"res of the contracting parties ,ade in his presence shall be f"ll e!idence in co"rt- and if said signat"res sho"ld not agree the ones identical with the signat"res the bro.er ,"st .eep in his registry if .ept in accordance to law shall be final. The contracts shall also be ad,itted as e!idence e!en tho"gh a bro.er has not ta.en part therein if the contracting parties ac.nowledge the signat"res to be the sa,e as their own. 3ho"ld no bro.er ha!e ta.en part in the charter party and sho"ld the signat"res not ha!e been ac.nowledged do"bts shall be decided by what is pro!ided for in the bill of lading and in the absence thereof by the proofs s"b,itted by the parties. ARTICLA ?<< Charter parties e#ec"ted by the captain in the absence of the agent shall be !alid and efficient e!en tho"gh in e#ec"ting the, he sho"ld ha!e acted in !iolation of the orders and instr"ctions of the agent or shipowner- b"t the latter shall ha!e a right of action against the captain to reco!er da,ages. ARTICLA ?<? If in the charter party the ti,e in which the loading and "nloading is to ta.e place is not stated the c"sto,s of the port where these acts ta.e place shall be obser!ed. After the period stip"lated or the
c"sto,ary one has passed and sho"ld there not be in the freight contract an e#press cla"se fi#ing the inde,nification for the delay the captain shall be entitled to de,and de,"rrage for the "s"al and e#tra lay days which ,ay ha!e elapsed in loading and "nloading. ARTICLA ?<D If d"ring the !oyage the !essel sho"ld be rendered "nseaworthy the captain shall be obliged to charter another one at his e#pense in good condition to ta.e the cargo to its destination for which p"rpose he shall be obliged to loo. for a !essel not only at the port of arri!al b"t in the other ports within a distance of 1<F .ilo,eters. If the captain sho"ld not f"rnish a !essel to ta.e the cargo to its destination either thro"gh indolence or ,alice the freighters after a de,and of the captain to charter a !essel within an "ne#tendible period ,ay charter one and apply to the 1"dicial a"thority re+"esting that the charter party which ,ay ha!e been ,ade be i,,ediately appro!ed. The sa,e a"thority shall 1"dicially co,pel the captain to confir, the charter ,ade by the shippers for his acco"nt and "nder his responsibility. If the captain notwithstanding his efforts sho"ld not find a !essel to charter he shall deposit the cargo at the disposal of the freighters to who, he shall co,,"nicate the facts on the first opport"nity
presenting itself the charter being reg"lated in s"ch cases by the distance co!ered by the !essel there being no right to any inde,nification whatsoe!er. Is there a !alid contract if there was no charter party and bill of ladingS If we ta.e Art. ?<6 literally no. 5owe!er if we ta.e into acco"nt the fact that deli!ery of the cargo does not constit"te the ,a.ing of a contract b"t rather the partial perfor,ance thereof the ,ere fact of deli!ery and receipt of s"ch cargo the good faith and ,"t"al consent with which they ha!e been ,ade sho"ld be a better s"bstit"te for the chater party than the bill of lading which is nothing ,ore than proof of s"ch deli!ery. 9hat is pri,ageS It was for,erly a s,all allowance or co,pensation payable to the ,aster and ,arines of a ship to the for,er for the "se of his cables and ropes to discharge the goods of the ,erchant- to the latter for the lading and "nlading in any port of ha!en. Today it is no longer a grat"ity b"t is incl"ded in the freight rate. 9hat is de,"rrageS It is the s", fi#ed by the contract of carriage or which is allowed as re,"neration to the owner of a ship for the detention of his !essel beyond the n",ber of days allowed by the charter party for loading and "nloading of for sailing. It is an e#tended freight or reward to the !essel in
co,pensation for the earnings she is i,properly ca"sed to lose. 9hat are lay daysS Lay days are days allowed to charter parties for loading and "nloading the cargo. RI85T3 AND OHLI8ATION3 O0 35I;O9NAR3 '. Rights and Obligations of Owners ARTICLA ??> The owners or the captain shall obser!e in charter parties the capacity of the !essel or that e#pressly designated in the registry of the sa,e a difference greater than ' per cent between that stated and her tr"e capacity not being per,issible. If the owners or the captain sho"ld contract to carry a greater a,o"nt of cargo than the !essel can hold in !iew of her tonnage they shall inde,nify the freighters whose contracts they do not f"lfill for the losses they ,ay ha!e ca"sed the, by reason of their defa"lt according to the cases !i$) If the !essel has been chartered by one freighter only and there sho"ld appear to be an error or fra"d in her capacity and the charterer sho"ld not wish to rescind the contract when he has a right to do so the charter sho"ld be red"ced in proportion to the cargo the !essel can not recei!e the person fro, who, the !essel is chartered being f"rther,ore obliged to inde,nify the charterer for the losses he ,ay ha!e ca"sed. If on the contrary there sho"ld be se!eral charter
parties and by reason of the want of space all the cargo contracted for can not be recei!ed and none of the charterers desires to rescind the contract preference shall be gi!en to the person who has already loaded and arranged the freight in the !essel and the rest shall ta.e the place corresponding to the, in the order of the dates of their contracts. 3ho"ld there be no priority the charterers ,ay load if they wish pro rata of the a,o"nts of weight or space they ,ay ha!e engaged and the person fro, who, the !essel was chartered shall be obliged to inde,nify the, for the loss and da,age. ARTICLA ?DF If the person fro, who, the !essel is chartered after recei!ing a part of the freight sho"ld not find s"fficient to ,a.e "p at least three/fifths of the a,o"nt which the !essel can hold at the price he 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '6? of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 ,ay ha!e fi#ed he ,ay s"bstit"te for the transportation another !essel inspected and declared s"itable for the sa,e !oyage the e#penses of transfer being defrayed by hi, as well as the increase sho"ld there be any in the price of the charter. 3ho"ld he not be able to ,a.e this change the !oyage shall be "nderta.en at the ti,e agreed "pon- and sho"ld no ti,e ha!e been fi#ed within fifteen days fro, the ti,e of beginning to
load sho"ld nothing to the contrary ha!e been stip"lated. If the owner of the part of the freight already loaded sho"ld proc"re so,e ,ore at the sa,e price and "nder si,ilar or proportionate conditions to those accepted for the freight recei!ed the person fro, who, the !essel is chartered or the captain can not ref"se to accept the rest of the cargo- and sho"ld he do so the freighter shall ha!e a right to de,and that the !essel p"t to sea with the cargo she ,ay ha!e on board. ARTICLA ?D1 After three/fifths of the !essel is loaded the person fro, who, she is chartered can not witho"t the consent of the charterers or freighters s"bstit"te the !essel designated in the charter party by another one "nder the penalty of ,a.ing hi,self thereby liable for all the losses and da,ages occ"rring d"ring the !oyage to the cargo of the person who did not consent to the change. ARTICLA ?D' If the !essel has been chartered in whole the captain can not witho"t the consent of the person chartering her accept freight fro, any other person- and sho"ld he do so said charterer ,ay oblige hi, to "nload it and re+"ire hi, to inde,nify hi, for the losses s"ffered thereby. ARTICLA ?D6 The person fro, who, the !essel is chartered shall be liable for all the losses ca"sed the charterer by
reason of the !ol"ntary delay of the captain in p"tting to sea according to the r"les prescribed pro!ided he has been re+"ested to p"t to sea at the proper ti,e thro"gh a notary or 1"dicially. ARTICLA ?D= If the charterer sho"ld carry to the !essel ,ore freight than that contracted for the e#cess ,ay be ad,itted in accordance with the price stip"lated in the contract if it can be well stowed witho"t in1"ring the other freighters b"t if in order to stow said freight it sho"ld be necessary to stow it in s"ch ,anner as to throw the !essel o"t of tri, the captain ,"st ref"se it or "nload it at the e#pense of its owner. The captain ,ay li.ewise before lea!ing the port "nload the ,erchandise placed on board clandestinely or transport it if he can do so and .eep the !essel in tri, de,anding by way of freightage the highest price which ,ay ha!e been stip"lated for said !oyage. ARTICLA ?D< If the !essel has been chartered to recei!e the cargo in another port the captain shall appear before the consignee designated in the charter party and sho"ld the latter not deli!er the cargo to hi, he shall infor, the charterer and await his instr"ctions and in the ,eanti,e the lay days agreed "pon shall begin to r"n or those allowed by c"sto, in the port "nless there is a special agree,ent to the contrary.
3ho"ld the captain not recei!e an answer within the ti,e necessary therefor he shall ,a.e efforts to find freight- and sho"ld he not find any after the lay days and e#tra lay days ha!e elapsed he shall ,a.e a protest and ret"rn to the port where the charter was ,ade. The charterer shall pay the freightage in f"ll disco"nting that which ,ay ha!e been earned on the ,erchandise which ,ay ha!e been carried on the !oyage o"t or on the ret"rn trip if carried for the acco"nt of third persons. The sa,e shall be done if a !essel ha!ing been chartered for the ro"nd trip sho"ld not be gi!en any cargo for her ret"rn. ARTICLA ?D? The captain shall lose the freightage and shall inde,nify the charterers if the latter sho"ld pro!e e!en against the certificate of inspection sho"ld one ha!e ta.en place at the port of depart"re that the !essel was not in a condition to na!igate at the ti,e of recei!ing the cargo. ARTICLA ?DD The charter party shall be enforced if the captain sho"ld not ha!e any instr"ctions fro, the charterer and a declaration of war or a bloc.ade sho"ld ta.e place d"ring the !oyage. In s"ch case the captain shall be obliged to ,a.e the nearest safe and ne"tral port and re+"est and await orders fro, the freighter- and the e#penses inc"rred and salaries earned d"ring the detention
shall be paid as general a!erage. If by orders of the freighter the cargo sho"ld be discharged at the port of arri!al the freight for the !oyage o"t shall be paid in f"ll. ARTICLA ?DE If the ti,e necessary in the opinion of the 1"dge or co"rt in which to recei!e orders fro, the freighters sho"ld ha!e elapsed witho"t the captain ha!ing recei!ed any instr"ctions the cargo shall be deposited and it shall be liable for the pay,ent of the freight and e#penses inc"rred by reason of the delay which shall be paid fro, the proceeds of the part first sold. OHLI8ATION3 O0 C5ARTARAR3 6. Obligations of Charterers ARTICLA ?D> The charterer of an entire !essel ,ay s"bcharter the whole or part thereof for the a,o"nts he ,ay consider ,ost con!enient witho"t the captain being allowed to ref"se to recei!e on board the freight deli!ered by the second charterers pro!ided the conditions of the first charter are not changed and that the person fro, who, the !essel is chartered be paid the f"ll price agreed "pon e!en tho"gh the f"ll cargo is not e,bar.ed with the li,itation established in the ne#t article. cdtai ARTICLA ?EF A charterer who does not ,a.e "p the f"ll cargo he bo"nd hi,self to ship shall pay the freightage of
the a,o"nt he fails to ship if the captain did not ta.e other freight to ,a.e "p the cargo of the !essel in which case he shall pay the first charterer the difference sho"ld there be any. ARTICLA ?E1 If the charterer sho"ld ship goods different fro, those indicated at the ti,e of e#ec"ting the charter 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '6D of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 party witho"t the .nowledge of the person fro, who, the !essel was chartered or of the captain and sho"ld thereby gi!e rise to losses by reason of confiscation e,bargo detention or other ca"ses to the person fro, who, the !essel was chartered or to the shippers the person gi!ing rise thereto shall be liable with the !al"e of his ship,ent and f"rther,ore with his property for the f"ll inde,nity to all those in1"red thro"gh his fa"lt. ARTICLA ?E' If the ,erchandise shipped sho"ld ha!e been for the p"rpose of illicit co,,erce and was ta.en on board with the .nowledge of the person fro, who, the !essel was chartered or of the captain the latter 1ointly with the owner of the sa,e shall be liable for all the losses which ,ay be ca"sed the other shippers and e!en tho"gh it ,ay ha!e been agreed they can not de,and any inde,nity whatsoe!er of the charterer for the da,age ca"sed the !essel. ARTICLA ?E6
In case of ,a.ing a port to repair the h"ll ,achinery or e+"ip,ent of the !essel the freighters ,"st wait "ntil the !essel is repaired being per,itted to "nload her at their own e#pense sho"ld they dee, it ad!isable. If for the benefit of the cargo s"b1ect to deterioration the freighters or the co"rt or the cons"l or the co,petent a"thority in a foreign land sho"ld order the ,erchandise to be "nloaded the e#penses of loading and "nloading shall be for the acco"nt of the for,er. ARTICLA ?E= If the charterer witho"t the occ"rrence of any of the cases of force ,a1e"re ,entioned in the foregoing article sho"ld wish to "nload his ,erchandise before arri!ing at the port of destination he shall pay the f"ll freight the e#penses of the stop ,ade at his re+"est and the losses and da,ages ca"sed the other freighters sho"ld there be any. ARTICLA ?E< In charters for transportation of general freight any of the freighters ,ay "nload the ,erchandise before the beginning of the !oyage by paying onehalf the freight the e#pense of stowing and restowing the cargo and any other da,age which ,ay be ca"sed the other shippers. ARTICLA ?E? After the !essel has been "nloaded and the cargo placed at the disposal of the consignee the latter
,"st i,,ediately pay the captain the freight d"e and the other e#penses to which he ,ay be liable for said cargo. The pri,age ,"st be paid in the sa,e proportion and at the sa,e ti,e as the freight all the changes and ,odifications to which the latter sho"ld be s"b1ect also go!erning the for,er. ARTICLA ?ED The charters and freighters can not abandon ,erchandise da,aged on acco"nt of the inherent !ice of the goods or by reason of an accidental case for the pay,ent of the freight and other e#penses. aisadc The abandon,ent shall be proper howe!er if the cargo sho"ld consist of li+"ids and sho"ld they ha!e lea.ed o"t there not re,aining in the containers ,ore than one/+"arter of their contents. RA3CI33ION =. Total or ;artial Rescissions of Charter ;arties ARTICLA ?EE A charter party ,ay be ann"lled at the re+"est of the charterer) 1. If before loading the !essel he sho"ld abandon the charter paying half of the freightage agreed "pon. '. If the capacity of the !essel sho"ld not agree with that stated in the certificate of the tonnage or if there is an error in the state,ent of the flag "nder which she sails.
6. If the !essel sho"ld not be placed at the disposal of the charterer within the period and in the ,anner agreed "pon. =. If after the !essel has p"t to sea she sho"ld ret"rn to the port of depart"re on acco"nt of ris. of pirates ene,ies or bad weather and the freighters sho"ld agree to "nload her. In the second and third cases the person fro, who, the !essel was chartered shall inde,nify the charterer for the losses he ,ay s"ffer. In the fo"rth case the person fro, who, the !essel was chartered shall ha!e a right to the freightage in f"ll for the !oyage o"t. If the charter sho"ld ha!e been ,ade by the ,onths the charterers shall pay the f"ll freightage for one ,onth if the !oyage were to a port in the sa,e waters and two ,onths if the !oyage were to a port in different waters. 0ro, one port to another of the ;enins"la and ad1acent islands the freightage for one ,onth only shall be paid. <. If a !essel sho"ld ,a.e a port d"ring the !oyage in order to ,a.e "rgent repairs and the freighters sho"ld prefer to dispose of the ,erchandise. 9hen the delay does not e#ceed thirty days the freighters shall pay the f"ll freight for the !oyage o"t. 3ho"ld the delay e#ceed thirty days they shall only pay the freight in proportion to the distance
co!ered by the !essel. ARTICLA ?E> At the re+"est of the person fro, who, the !essel is chartered the charter party ,ay be rescinded) 1. If the charterer at the ter,ination of the e#tra lay days does not place the cargo alongside the !essel. In s"ch case the charterer ,"st pay half the freight stip"lated besides the de,"rrage for the lay days and e#tra lay days elapsed. '. If the person fro, who, the !essel was chartered sho"ld sell her before the charterer has beg"n to load her and the p"rchaser sho"ld load her for his own acco"nt. In s"ch case the !endor shall inde,nify the charterer for the losses he ,ay s"ffer. If the new owner of the !essel sho"ld not load her for his own acco"nt the charter party shall be respected and the !endor shall inde,nify the p"rchaser if the for,er did not infor, hi, of the charter pending at the ti,e of ,a.ing the sale. ARTICLA ?>F The charter party shall be rescinded and all action arising therefro, shall be e#ting"ished if before the !essel p"ts to sea fro, the port of depart"re any of the following cases sho"ld occ"r) 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '6E of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 1. A declaration of war or interdiction of co,,erce with the power to whose ports the
!essel was going to sail. '. A condition of bloc.ade of the port of destination of said !essel or the brea.ing o"t of an epide,ic after the contract was e#ec"ted. 6. The prohibition to recei!e the ,erchandise of the !essel at the said port. =. An indefinite detention by reason of an e,bargo of the !essel by order of the go!ern,ent or for any other reason independent of the will of the agent. <. The i,possibility of the !essel to na!igate witho"t fa"lt of the captain or agent. The "nloading shall be ,ade for the acco"nt of the charterer. ARTICLA ?>1 If the !essel can not p"t to sea on acco"nt of the closing of the port of depart"re or any other te,porary ca"se the charter shall be in force witho"t any of the contracting parties ha!ing a right to clai, da,ages. The s"bsistence and wages of the crew shall be considered as general a!erage. D"ring the interr"ption the charterer ,ay at the proper ti,e and for his own acco"nt "nload and load the ,erchandise paying de,"rrage if the reloading sho"ld contin"e after the reason for the detention has ceased. ARTICLA ?>' A charter party shall be partially rescinded "nless there is an agree,ent to the contrary and the
captain shall only be entitled to the freight for the !oyage o"t if by reason of a declaration of war closing of ports or interdiction of co,,ercial relations d"ring the !oyage the !essel sho"ld ,a.e the port designated for s"ch a case in the instr"ctions of the charterer. '. LOAN3 ON HOTTOBRK AND RA3;ONDANTIA'> Ordinary Loan Loan on Hotto,ry or Respondentia Collateral is not re+"ired Collateral re+"ired Collateral ,ay be any property real or personal Collateral ,"st be a !essel or cargo s"b1ect to ,ariti,e ris.s Absol"tely repayable Depends "pon the safe arri!al at the port of the collateral of the loan 3"b1ect to "s"ry law Not s"b1ect to "s"ry law Need not be in writing e#cept the interest B"st be in writing Need not be registered to be binding on third
persons B"st be registered in the registry of !essels of the port of entry of registry of the !essel Loss of collateral does not e#ting"ish the sa,e Loss of collateral e#ting"ishes the sa,e LOAN ON HOTTOBRK DA0INAD It is a contract in the nat"re of a ,ortgage by which the owner of the ship borrows ,oney for the "se e+"ip,ent and repair of the !essel for a '> The definitions of loan on botto,ry and loan on respondentia were as.ed in 1>EF and 1>D<. definite ter, and pledges the ship as a sec"rity for its repay,ent with ,ariti,e or e#traordinary interest on acco"nt of the ,ariti,e ris.s to be borne by the lender it being stip"ltaed that if the ship be lost in the co"rse of the specific !oyage or d"ring the li,ited ti,e by any of the perils en",erated in the contract the lender shall also lose his ,oney. LOAN ON RA3;ONDANTIA DA0INAD It is a contract ,ade on the goods laden on board the hsip and which are to be sold or e#changed in the co"rse of the !oyage the borrower4s personal responsibility being dee,ed the principal sec"rity for the perfor,ance of the contract. The lender
,"st be paid his principal and interest tho"gh the ship perishes pro!ided that the goods are sa!ed. C5ARACTAR O0 LOAN ART. D1> ARTICLA D1> A loan on botto,ry or respondentia shall be considered that which the repay,ent of the s", loaned and the pre,i", stip"lated "nder any condition whatsoe!er depends on the safe arri!al in port of the goods on which it is ,ade or of their !al"e in case of accident. 0ORB3 AND RAQUI3ITA3 ARTICLA D'F Loans on botto,ry or respondentia ,ay be e#ec"ted) 1. Hy ,eans of a p"blic instr",ent. '. Hy ,eans of a bond signed by the contracting parties and the bro.er who too. part therein. cdt 6. Hy ,eans of a pri!ate instr",ent. Under whiche!er of these for,s the contract is e#ec"ted it shall be entered in the certificate of the registry of the !essel and shall be recorded in the co,,ercial registry witho"t which re+"isites the credits originating fro, the sa,e shall not ha!e with regard to other credits the preference which according to their nat"re they sho"ld ha!e altho"gh the obligation shall be !alid between the contracting parties. The contracts ,ade d"ring a !oyage shall be go!erned by the pro!isions of Articles <E6 and ?11
and shall be effecti!e with regard to third persons fro, the date of their e#ec"tion if they sho"ld be recorded in the co,,ercial registry of the port of registry of the !essel before eight days ha!e elapsed fro, the date of her arri!al. If said eight days sho"ld elapse witho"t the record ha!ing been ,ade in the co,,ercial registry the contracts ,ade d"ring the !oyage of a !essel shall not ha!e any effect with regard to third persons e#cept fro, the day and date of their entry. In order that the bonds of the contracts celebrated in accordance with No. ' ,ay ha!e legal force they ,"st confor, to the registry of the bro.er who too. part therein. In those celebrated in accordance with No. 6 the ac.nowledg,ent of the signat"re ,"st precede. Contracts which are not red"ced to writing shall not be the basis for a 1"dicial action. ARTICLA D'1 In a botto,ry or respondentia bond there ,"st be stated) 1. The .ind na,e and registry of the !essel. '. The na,e s"rna,e and do,icile of the captain. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '6> of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 6. The na,es s"rna,es and do,icile of the person gi!ing and of the person recei!ing the loan. =. The a,o"nt of the loan and the pre,i", stip"lated.
<. The ti,e for repay,ent. ?. The goods pledged to sec"re repay,ent. D. The !oyage for which the ris. is r"n. ARTICLA D'' The bonds ,ay be iss"ed to order in which case they shall be transferable by indorse,ent and the assignee shall ac+"ire all the rights and r"n all the ris.s corresponding to the indorser. ON95AT CON3TITUTAD ARTICLA D'= The loans ,ay be constit"ted 1ointly or separately) 1. On the h"ll of the !essel. '. On the rigging. 6. On the e+"ip,ent pro!isions and f"el. =. On the engine if the !essel is a stea,er. <. On the cargo. If the loan is constit"ted on the h"ll of the !essel there shall be "nderstood as also s"b1ect to the liability of the loan the rigging e+"ip,ent and other goods pro!isions f"el stea, engines and the freight earned d"ring the !oyage s"b1ect to the loan. cdta If the loan is ,ade on the cargo all that constit"tes the sa,e shall be s"b1ect to the repay,ent- and if on a partic"lar ob1ect of the !essel or of the cargo the ob1ect e#cl"si!ely and specifically ,entioned only shall be liable. ARTICLA D'< No loans can be ,ade on the salaries of the crew nor on the profits which it is e#pected to earn.
ABOUNT ARTICLA D'6 Loans ,ade be ,ade in goods and in ,erchandise fi#ing their !al"e in order to deter,ine the principal of the loan. ARTICLA D'? If the lender sho"ld pro!e that he loaned a larger a,o"nt than the !al"e of the article liable for the botto,ry loan by reason of fra"d"lent ,eas"res e,ployed by the borrower the loan shall only be !alid for the a,o"nt at which said ob1ect is appraised by e#perts. The s"rpl"s principal shall be ret"rned with legal interest for the whole period of the d"ration of the disb"rse,ent. ARTICLA D'D If the f"ll a,o"nt of the loan contracted to load the !essel sho"ld not be ,ade "se of for the cargo the s"rpl"s shall be ret"rned before clearing. The sa,e proced"re shall be obser!ed with regard to the goods ta.en as a loan if they co"ld not all ha!e been loaded. ARTICLA D'E The loan which the captain ta.es at the point of residence of the owners of the !essel shall only affect that part of the latter which belongs to the captain if the other owners or their agents sho"ld not ha!e gi!en their e#press a"thori$ation thereto or sho"ld not ha!e ta.en part in the transaction. If one or ,ore of the owners sho"ld be re+"ested
to f"rnish the a,o"nt necessary to repair or pro!ision the !essel and sho"ld not do so within twenty/fo"r ho"rs the interest which the parties in defa"lt ,ay ha!e in the !essel shall be liable for the loan in the proper proportion. O"tside of the residence of the owners the captain ,ay contract loans in accordance with the pro!isions of Articles <E6 and ?11. HK95OB ARTICLA ?11 In order to co,ply with the obligations ,entioned in the foregoing article the captain when he has no f"nds and does not e#pect to recei!e any fro, the agent shall proc"re the sa,e in the s"ccessi!e order stated below) 1. Hy re+"esting said f"nds of the consignees or correspondents of a !essel. '. Hy applying to the consignees of the cargo or to the persons interested therein. 6. Hy drawing on the agent. =. Hy borrowing the a,o"nt re+"ired by ,eans of a botto,ry bond. <. Hy selling a s"fficient a,o"nt of the cargo to co!er the a,o"nt absol"tely necessary to repair the !essel and to e+"ip her to p"rs"e the !oyage. In the two latter cases he ,"st apply to the 1"dicial a"thority of the port if in 3pain W and to the 3panish W cons"l if in a foreign co"ntry- and where there sho"ld be none to the local a"thority proceeding in accordance with the prescriptions of
Article <E6 and with the pro!isions of the law of ci!il proced"re. ARTICLA ?1D The captain can not contract loans on respondentia and sho"ld he do so the contracts shall be !oid. Neither can he borrow ,oney on botto,ry for his own transactions e#cept on the portion of the !essel he owns pro!ided no ,oney has been pre!io"sly borrowed on the whole !essel and pro!ided there does not e#ist any other .ind of lien or obligation thereon. 9hen he is per,itted to do so he ,"st necessarily state what interest he has in the !essel. In case of !iolation of this article the principal interest and costs shall be charged to the pri!ate acco"nt of the captain and the agent ,ay f"rther,ore ha!e the right to discharge hi,. ARTICLA <E6 If while on !oyage the captain sho"ld find it necessary to contract one or ,ore obligations ,entioned in s"bdi!isions E and > of Article <EF he shall apply to the 1"dge or co"rt if he is in ;hilippine territory and otherwise to the cons"l of the Rep"blic of the ;hilippines sho"ld there be one and in his absence to the 1"dge or co"rt or proper local a"thority presenting the certificate of the registration sheet treated of in Article ?1' and the instr",ents pro!ing the obligation contracted. The 1"dge or co"rt the cons"l or the local
a"thority as the case ,ay be in !iew of the res"lt of the proceedings instit"ted shall ,a.e a te,porary ,e,orand", of their res"lt in the certficate in order that it ,ay be recorded in the registry when the !essel ret"rns to the port of its registry or so that it can be ad,itted as a legal and preferred obligation in case of sale before its ret"rn by reason of the sale of the !essel on acco"nt of a declaration of "nseaworthiness. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '=F of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 A00ACT3 O0 CONTRACT ARTICLA D1> A loan on botto,ry or respondentia shall be considered that which the repay,ent of the s", loaned and the pre,i", stip"lated "nder any condition whatsoe!er depends on the safe arri!al in port of the goods on which it is ,ade or of their !al"e in case of accident. ARTICLA D'? If the lender sho"ld pro!e that he loaned a larger a,o"nt than the !al"e of the article liable for the botto,ry loan by reason of fra"d"lent ,eas"res e,ployed by the borrower the loan shall only be !alid for the a,o"nt at which said ob1ect is appraised by e#perts. The s"rpl"s principal shall be ret"rned with legal interest for the whole period of the d"ration of the disb"rse,ent. ARTICLA D'D
If the f"ll a,o"nt of the loan contracted to load the !essel sho"ld not be ,ade "se of for the cargo the s"rpl"s shall be ret"rned before clearing. The sa,e proced"re shall be obser!ed with regard to the goods ta.en as a loan if they co"ld not all ha!e been loaded. ARTICLA D'> 3ho"ld the goods on which ,oney is ta.en not be s"b1ected to any ris. the contract shall be considered an ordinary loan the borrower being "nder the obligation to ret"rn the principal and interest at the legal rate if the interest stip"lated sho"ld not ha!e been lower. ARTICLA D6F Loans ,ade d"ring the !oyage shall ha!e preference o!er those ,ade before the clearing of the !essel and they shall be grad"ated by the in!erse order to that of their dates. The loans for the last !oyage shall ha!e preference o!er prior ones. 3ho"ld se!eral loans ha!e been ,ade at a port ,ade "nder stress and for the sa,e p"rpose all of the, shall be paid pro rata. 8. Hill of Lading6F 1. CONTANT3 ARTICLA DF? The captain and the freighter of the !essel are obliged to draft the bill of lading in which there shall be stated) 1. The na,e registry and tonnage of the
!essel. '. The na,e of the captain and his do,icile. 6. The port of loading and that of "nloading. =. The na,e of the shipper. <. The na,e of the consignee if the bill of lading is iss"ed to order. ?. The +"antity +"ality n",ber of pac.ages and ,ar.s of the ,erchandise. D. The freight and the pri,age stip"lated. The bill of lading ,ay be iss"ed to bearer to order or in the na,e of a specific person and ,"st be signed within twenty/fo"r ho"rs after the cargo has 6F The presentation of the bill of lading and the liability of the ship owner when bill of lading is not presented were as.ed in 'FF<. In 1>>E it definition and two/fold character was also as.ed. been recei!ed on board the freighter being able to re+"est the "nloading thereof at the e#pense of the captain sho"ld he not sign it and in e!ery case inde,nity for the losses and da,ages s"ffered thereby. ARTICLA DFD 0o"r tr"e copies of the original bill of lading shall be ,ade all of which shall be signed by the captain and by the freighter. Of these copies the freighter shall .eep one and send another to the consigneethe captain shall ta.e two one for hi,self and another for the agent. There ,ay f"rther,ore be ,ade as ,any copies of the bill of lading as ,ay be considered necessary
by the persons interested- b"t when they are iss"ed to order or to the bearer there shall be stated in all the copies be they either of the first fo"r or of the s"bse+"ent ones the destination of each one stating whether it is for the agent for the captain for the freighter or for the consignee. If the copy sent to the latter sho"ld be d"plicated there ,"st be stated in said d"plicate this fact and that it is not !alid e#cept in case of the loss of the first one. ARTICLA D16 If before deli!ering the cargo a new bill of lading sho"ld be de,anded of the captain it being alleged that the pre!io"s ones are not presented on acco"nt of their loss or for any other s"fficient ca"se he shall be obliged to iss"e it pro!ided sec"rity for the !al"e of the cargo is gi!en to his satisfaction- b"t witho"t changing the consign,ent and stating therein the circ",stances prescribed in the last paragraph of Article DFD when the bills of lading referred to therein are in +"estion "nder the penalty otherwise to be liable for said cargo if not properly deli!ered thro"gh his fa"lt. ARTICLA D1= If before the !essel p"ts to sea the captain sho"ld die or sho"ld discontin"e in his position thro"gh any accident the freighters shall ha!e a right to de,and of the new captain the ratification of the first bills of lading and the latter ,"st do so pro!ided all the copies pre!io"sly iss"ed be
presented or ret"rned to hi, and it sho"ld appear fro, an e#a,ination of the cargo that they are correct. The e#penses arising fro, the e#a,ination of the cargo shall be defrayed by the agent witho"t pre1"dice to the right of action of the latter against the first captain if he ceased to be s"ch thro"gh his own fa"lt. 3ho"ld said e#a,ination not be ,ade it shall be "nderstood that the new captain accepts the cargo as it appears fro, the bills of lading iss"ed. '. ;ROHATIIA IALUA ARTICLA DF> A bill of lading drawn "p in accordance with the pro!isions of this title shall be proof as between all those interested in the cargo and between the latter and the "nderwriters proof to the contrary being reser!ed by the latter. ARTICLA D1F 3ho"ld the bills of lading not agree and there sho"ld not be obser!ed any correction or eras"re in any of the, those possessed by the freighter or consignee signed by the captain shall be proof against the captain or agent in fa!or of the 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '=1 of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 consignee or freighter- and those possessed by the captain or agent signed by the freighter shall be proof against the freighter or consignee in fa!or of the captain or agent.
5. ;assengers on 3ea Ioyage 1. NATURA O0 CONTRACT ARTICLA ?>< The right to passage if iss"ed to a specified person can not be transferred witho"t the consent of the captain or of the consignee. '. OHLI8ATION3 O0 ;A33AN8AR3 ARTICLA ?>6 3ho"ld the passage price not ha!e been agreed "pon the 1"dge or co"rt shall s",,arily fi# it after a state,ent of e#perts. ARTICLA ?>> After the contract has been rescinded before or after the co,,ence,ent of the !oyage the captain shall ha!e a right to clai, pay,ent for what he ,ay ha!e f"rnished the passengers. ARTICLA DF= The captain in order to collect the price of the passage and e#penses of ,aintenance ,ay retain the goods belonging to the passenger and in case of the sale of the sa,e he shall be gi!en preference o!er the other creditors acting in the sa,e way as in the collection of freight. ARTICLA ?>= 3ho"ld the passenger not arri!e on board at the ti,e fi#ed or sho"ld lea!e the !essel witho"t per,ission fro, the captain when the latter is ready to lea!e the port the captain ,ay contin"e the !oyage and de,and the f"ll passage price. ARTICLA DFF
In all that relates to the preser!ation of order and police on board the !essel the passengers shall confor, to the orders gi!en by the captain witho"t any distinction whatsoe!er. 6. RI85T3 O0 ;A33AN8AR3 ARTICLA ?>D If before beginning the !oyage it sho"ld be s"spended thro"gh the sole fa"lt of the captain or agent the passengers shall be entitled to ha!e their passage ref"nded and to reco!er for losses and da,ages- b"t if the s"spension was d"e to an accidental ca"se or to force ,a1e"re or to any other ca"se beyond the control of the captain or agent the passengers shall only be entitled to the ret"rn of the passage ,oney. ARTICLA ?>E In case a !oyage already beg"n sho"ld be interr"pted the passengers shall be obliged only to pay the passage in proportion to the distance co!ered and shall not be entitled to reco!er for losses and da,ages if the interr"ption is d"e to an accidental ca"se or to force ,a1e"re b"t ha!e a right to inde,nity if the interr"ption sho"ld ha!e been ca"sed by the captain e#cl"si!ely. If the interr"ption sho"ld be by reason of the disability of the !essel and the passenger sho"ld agree to await her repair he can not be re+"ired to pay any increased price of passage b"t his li!ing e#penses d"ring the delay shall be for his own acco"nt. In case the depart"re of the !essel is delayed the
passengers ha!e a right to re,ain on board and to be f"rnished with food for the acco"nt of the !essel "nless the delay is d"e to an accidental ca"se or to force ,a1e"re. If the delay sho"ld e#ceed ten days the passengers who re+"est it shall be entitled to the ret"rn of the passage- and if it were d"e e#cl"si!ely to the captain or agent they ,ay f"rther,ore de,and inde,nity for losses and da,ages. A !essel which is e#cl"si!ely destined to the transportation of passengers ,"st ta.e the, directly to the port or ports of destination no ,atter what the n",ber of passengers ,ay be ,a.ing all the stops indicated in her itinerary. =. RA3;ON3IHILITIA3 O0 CA;TAIN ARTICLA DF1 The con!enience or the interest of the passengers shall not obligate nor e,power the captain to stand in shore or enter places which ,ay ta.e the !essel o"t of her co"rse nor to re,ain in the ports he ,"st or is "nder the necessity of to"ching for a period longer than that re+"ired for the b"siness of the na!igation. ARTICLA DF' In the absence of an agree,ent to the contrary it shall be "nderstood that the ,aintenance of the passengers d"ring the !oyage is incl"ded in the price of the passage- b"t sho"ld said ,aintenance be for the acco"nt of the latter the captain shall be "nder the obligation in case of necessity to
f"rnish the, the !ict"als at a reasonable price necessary for their ,aintenance. ARTICLA DF6 A passenger shall be loo.ed "pon as a shipper in so far as the goods he carries on board are concerned and the captain shall not be liable for what said passenger ,ay preser!e "nder his i,,ediate and special c"stody "nless the da,age arises fro, an act of the captain or of the crew. ARTICLA DF< In case of the death of a passenger d"ring the !oyage the captain is a"thori$ed with regard to the body to ta.e the steps re+"ired by the circ",stances and shall caref"lly ta.e care of the papers and goods there ,ay be on board belonging to the passenger obser!ing the pro!isions of Case No. 1F of Article ?1' with regard to ,e,bers of the crew. ARTICLA ?1' The following obligations are inherent in the office of captain) 1. To ha!e on board before starting on a !oyage a detailed in!entory of the h"ll engines rigging tac.le stores and other e+"ip,ents of the !essel- the na!igation certificate- the roll of the persons who ,a.e "p the crew of the !essel and the contracts entered into with the crew- the list of passengers- the health certificate- the certificate of the registry pro!ing the ownership of the !essel and all the obligations which enc",ber the sa,e
"p to that date- the charters or a"thenticated copies thereof- the in!oices or ,anifest of the cargo and the instr",ent of the e#pert !isit or inspection sho"ld it ha!e been ,ade at the port of depart"re. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '=' of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 '. To ha!e a copy of this Code on board. 6. To ha!e three folioed and sta,ped boo.s placing at the beginning of each one a note of the n",ber of folios it contains signed by the ,ariti,e official and in his absence by the co,petent a"thority. In the first boo. which shall be called Tlog boo. T he shall enter e!ery day the condition of the at,osphere the pre!ailing winds the co"rse sailed the rigging carried the horsepower of the engines the distance co!ered the ,ane"!ers e#ec"ted and other incidents of na!igation. 5e shall also enter the da,age s"ffered by the !essel in her h"ll engines rigging and tac.le no ,atter what is its ca"se as well as the i,perfections and a!erages of the cargo and the effects and conse+"ence of the 1ettison sho"ld there be anyand in cases of gra!e resol"tions which re+"ire the ad!ice or a ,eeting of the officers of the !essel or e!en of the passengers and crew he shall record the decision adopted. 0or the infor,ations indicated he shall ,a.e "se of the binnacle boo. and of the stea, or engine boo. .ept by the
engineer. In the second boo. called the Tacco"nting boo. T he shall enter all the a,o"nts collected and paid for the acco"nt of the !essel entering specifically article by article the so"rces of the collection and the a,o"nts in!ested in pro!isions repairs ac+"isition of rigging or goods f"el o"tfits wages and all other e#penses. 5e shall f"rther,ore enter therein a list of all the ,e,bers of the crew stating their do,iciles their wages and salaries and the a,o"nts they ,ay ha!e recei!ed on acco"nt either directly or by deli!ery to their fa,ilies. In the third boo. called Tfreight boo. T he shall record the entry and e#it of all the goods stating their ,ar.s and pac.ages na,es of the shippers and of the consignees ports of loading and "nloading and the freight earned. In the sa,e boo. he shall record the na,es and places of sailing of the passengers and the n",ber of pac.ages of which their baggage consists and the price of the passage. =. To ,a.e before recei!ing the freight with the officers of the crew and the two e#perts if re+"ired by the shippers and passengers an e#a,ination of the !essel in order to ascertain whether she is watertight and whether the rigging and engines are in good condition- and if she has the e+"ip,ent re+"ired for good na!igation preser!ing a certificate of the ,e,orand", of this
inspection signed by all the persons who ,ay ha!e ta.en part therein "nder their liability. The e#perts shall be appointed one by the captain of the !essel and the other one by the persons who re+"est the e#a,ination and in case of disagree,ent a third shall be appointed by the ,arine a"thority of the port. <. To re,ain constantly on board the !essel with the crew d"ring the ti,e the freight is ta.en on board and caref"lly watch the stowage thereofnot to consent to any ,erchandise or goods of a dangero"s character to be ta.en on s"ch as infla,,able or e#plosi!e s"bstances witho"t the preca"tions which are reco,,ended for their pac.ing ,anage,ent and isolation- not to per,it that any freight be carried on dec. which by reason of its disposition !ol",e or weight ,a.es the wor. of the sailors diffic"lt and which ,ight endanger the safety of the !essel- and if on acco"nt of the nat"re of the ,erchandise the special character of the ship,ent and principally the fa!orable season it ta.es place he allows ,erchandise to be carried on dec. he ,"st hear the opinion of the officers of the !essel and ha!e the consent of the shippers and of the agent. ?. To de,and a pilot at the e#pense of the !essel whene!er re+"ired by na!igation and principally when a port canal or ri!er or a roadstead or anchoring place is to be entered with which neither he the officers nor the crew are
ac+"ainted. D. To be on dec. at the ti,e of sighting land and to ta.e co,,and on entering and lea!ing ports canals roadsteads and ri!ers "nless there is a pilot on board discharging his d"ties. 5e shall not spend the night away fro, the !essel e#cept for serio"s ca"ses or by reason of official b"siness. cdtai E. To present hi,self when ,a.ing a port in distress to the ,ariti,e a"thority if in 3pain W and to the 3panish W cons"l if in a foreign co"ntry before twenty/fo"r ho"rs ha!e elapsed and ,a.e a state,ent of the na,e registry and port of depart"re of the !essel of its cargo and reason of arri!al which declaration shall be !ised by the a"thority or by the cons"l if after e#a,ining the sa,e it is fo"nd to be acceptable gi!ing the captain the proper certificate in order to show his arri!al "nder stress and the reasons therefor. In the absence of ,arine officials or of the cons"l the declaration ,"st be ,ade before the local a"thority. >. To ta.e the steps necessary before the co,petent a"thority in order to enter in the certificate of the Co,,ercial Registry of the !essel the obligations which he ,ay contract in accordance with Article <E6. 1F. To p"t in a safe place and .eep all the papers and belongings of any ,e,bers of the crew who ,ight die on the !essel drawing "p a detailed
in!entory in the presence of passengers as witnesses and in their absence of ,e,bers of the crew. 11. To cond"ct hi,self according to the r"les and precepts contained in the instr"ctions of the agent being liable for all that he ,ay do in !iolation thereof. 1'. To gi!e an acco"nt to the agent fro, the port where the !essel arri!es of the reason thereof ta.ing ad!antage of the se,aphore telegraph ,ail etc. according to the cases- notify hi, the freight he ,ay ha!e recei!ed stating the na,e and do,icile of the shippers freight earned and a,o"nts borrowed on botto,ry bond ad!ise hi, of his depart"re and gi!e hi, any infor,ation and data which ,ay be of interest. 16. To obser!e the r"les on the sit"ation of lights and e!ol"tions to pre!ent collisions. 1=. To re,ain on board in case of danger to the !essel "ntil all hope to sa!e her is lost and before abandoning her to hear the officers of the crew abiding by the decision of the ,a1ority- and if he sho"ld ha!e to ta.e a boat he shall ta.e with hi, before anything else the boo.s and papers and then the articles of ,ost !al"e being obliged to pro!e in case of the loss of the boo.s and papers that he did all he co"ld to sa!e the,. 1<. In case of wrec. he shall ,a.e the proper protest in d"e for, at the first port reached before the co,petent a"thority or the 3panish W cons"l
within twenty/fo"r ho"rs stating therein all the incidents of the wrec. in accordance with case E of this article. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '=6 of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 1?. To co,ply with the obligations i,posed by the laws and r"les of na!igation c"sto,s health and others. I. Carriage of 8oods by 3ea Act %Co,,onwealth Act No. ?<- ;"blic Act No. ?<;"blic Act <'1 D=th U3 Congress( CA No. ?< ACT TO DACLARA T5AT ;UHLIC ACT NUBHARAD 0IIA 5UNDRAD AND T9ANTK/ONA RNO9N A3 TCARRIA8A O0 8OOD3 HK 3AA ACT T ANACTAD HK T5A 3AIANTK/0OURT5 CON8RA33 O0 T5A UNITAD 3TATA3 HA ACCA;TAD A3 IT I3 5ARAHK ACCA;TAD HK T5A NATIONAL A33ABHLK 95ARAA3 the 3e!enty/fo"rth Congress of the United 3tates enacted ;"blic Act N",bered 0i!e h"ndred and twenty/one entitled) TCarriage of 8oods by 3ea ActT95ARAA3 the pri,ordial p"rpose of the said Acts is to bring abo"t "nifor,ity in ocean bills of lading and to gi!e effect to the Hr"ssels Treaty signed by the United 3tates with other powers95ARAA3 the 8o!ern,ent of the United 3tates has left it to the ;hilippine 8o!ern,ent to decide whether or not the said Act shall apply to carriage of goods by sea in foreign trade to and fro,
;hilippine ports95ARAA3 the said Act of Congress contains ad!anced legislation which is in consonance with ,odern ,ariti,e r"les and the practices of the great shipping co"ntries of the world95ARAA3 shipping co,panies shippers and ,arine ins"rance co,panies and !ario"s cha,bers of co,,erce which are directly affected by s"ch legislation ha!e e#pressed their desire that said Congressional Act be ,ade applicable and e#tended to the ;hilippines- therefore He it enacted by the National Asse,bly of the ;hilippines) 3ection 1 That the pro!isions of ;"blic Act N",bered 0i!e h"ndred and twenty/one of the 3e!enty/fo"rth Congress of the United 3tates appro!ed on April si#teenth nineteen h"ndred and thirty/si# be accepted as it is hereby accepted to be ,ade applicable to all contracts for the carriage of goods by sea to and fro, ;hilippine ports in foreign trade) ;ro!ided That nothing in the Act shall be constr"ed as repealing any e#isting pro!ision of the Code of Co,,erce which is now in force or as li,iting its application. 3ection ' This Act shall ta.e effect "pon its appro!al. Appro!ed) October '' 1>6?. An Act Relating to the Carriage of 8oods by 3ea. He it enacted by the 3enate and 5o"se of
Representati!es of the United 3tates of A,erica in Congress asse,bled That e!ery bill of landing or si,ilar doc",ent of title which is e!idence of a contract for the carriage of goods by sea to or fro, ports of the United 3tates in foreign trade shall ha!e effect s"b1ect to the pro!isions of the Act. TITLA I 3ection 1 9hen "sed in this Act C %a( The ter, TcarrierT incl"des the owner or the charterer who enters into a contract of carriage with a shipper. %b( The ter, Tcontract of carriageT applies only to contracts of carriage co!ered by a bill of lading or any si,ilar doc",ent of title insofar as s"ch doc",ent relates to the carriage of goods by sea incl"ding any bill of lading or any si,ilar doc",ent as aforesaid iss"ed "nder or p"rs"ant to a charter party fro, the ,o,ent at which s"ch bill of lading or si,ilar doc",ent of title reg"lates the relations between a carrier and a holder of the sa,e. %c( The ter, TgoodsT incl"des goods wares ,erchandise and articles of e!ery .ind whatsoe!er e#cept li!e ani,als and cargo which by the contract of carriage is stated as being carried on dec. and is so carried. %d( The ter, TshipT ,eans any !essel "sed for the carriage of goods by sea. %e( The ter, Tcarriage of goodsT co!ers the period fro, the ti,e when the goods are loaded on to the
ti,e when they are discharged fro, the ship. RI3R3 3ection ' 3"b1ect to the pro!isions of section ? "nder e!ery contract of carriage of goods by sea the carrier in relation to the loading handling stowage carriage c"stody care and discharge of s"ch goods shall be s"b1ect to the responsibilities and liabilities and entitled to the rights and i,,"nities hereinafter set forth. RA3;ON3IHILITIA3 AND LIAHILITIA3 3ection 6 1( The carrier shall be bo"nd before and at the beginning of the !oyage to e#ercise d"e diligence to C %a( Ba.e the ship seaworthy%b( ;roperly ,an e+"ip and s"pply the ship1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '== of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 %c( Ba.e the holds refrigerating and cooling cha,bers and all other parts of the ship in which goods are carried fit and safe for their reception carriage and preser!ation. %'( The carrier shall properly and caref"lly load handle stow carry .eep care for and discharge the goods carried. %6( After recei!ing the goods into his charge the carrier or the ,aster or agent of the carrier shall on de,and of the shipper iss"e to the shipper a bill of lading showing a,ong other things C
%a( The leading ,ar.s necessary for identification of the goods as the sa,e are f"rnished in writing by the shipper before the loading of s"ch goods starts pro!ided s"ch ,ar.s are sta,ped or otherwise shown clearly "pon the goods if "nco!ered or on the cases or co!erings in which s"ch goods are contained in s"ch a ,anner as sho"ld ordinarily re,ain legible "ntil the end of the !oyage. %b( Aither the n",ber of pac.ages or pieces or the +"antity or weight as the case ,ay be as f"rnished in writing by the shipper. %c( The apparent order and condition of the goods) ;ro!ided That no carrier ,aster or agent of the carrier shall be bo"nd to state or show in the bill of lading any ,ar.s n",ber +"antity or weight which he has reasonable gro"nd for s"specting not acc"rately to represent the goods act"ally recei!ed or which he has had no reasonable ,eans of chec.ing. %=( 3"ch a bill of lading shall be pri,a facie e!idence of the receipt by the carrier of the goods as therein described in accordance with paragraphs %6( %a( %b( and %c( of this section) ;ro!ided That nothing in this Act shall be constr"ed as repealing or li,iting the application of any part of the Act as a,ended entitled TAn Act relating to bills of lading in interstate and foreign co,,erce T appro!ed A"g"st '> 1>1? %U. 3. C. title => secs. E1/1'=( co,,only .nown as the T;o,erene Hills of Lading
Act.T %<( The shipper shall be dee,ed to ha!e g"aranteed to the carrier the acc"racy at the ti,e of ship,ent of the ,ar.s n",ber +"antity and weight as f"rnished by hi,- and the shipper shall inde,nify the carrier against all loss da,ages and e#penses arising or res"lting fro, inacc"racies in s"ch partic"lars. The right of the carrier to s"ch inde,nity shall in no way li,it his responsibility and liability "nder the contract of carriage or to any person other than the shipper. %?( Unless notice of loss or da,age and the general nat"re of s"ch loss or da,age be gi!en in writing to the carrier or his agent at the port of discharge before or at the ti,e of the re,o!al of the goods into the c"stody of the person entitled to deli!ery thereof "nder the contract of carriage s"ch re,o!al shall be pri,a facie e!idence of the deli!ery by the carrier of the goods as described in the bill of lading. If the loss or da,age is not apparent the notice ,"st be gi!en within three days of the deli!ery. 3aid notice of loss or da,age ,aybe endorsed "pon the receipt for the goods gi!en by the person ta.ing deli!ery thereof. The notice in writing need not be gi!en if the state of the goods has at the ti,e of their receipt been the s"b1ect of 1oint s"r!ey or inspection. In any e!ent the carrier and the ship shall be discharged fro, all liability in respect of loss or
da,age "nless s"it is bro"ght within one year after deli!ery of the goods or the date when the goods sho"ld ha!e been deli!ered) ;ro!ided That if a notice of loss or da,age either apparent or concealed is not gi!en as pro!ided for in this section that fact shall not affect or pre1"dice the right of the shipper to bring s"it within one year after the deli!ery of the goods or the date when the goods sho"ld ha!e been deli!ered In the case of any act"al or apprehended loss or da,age the carrier and the recei!er shall gi!e all reasonable facilities to each other for inspecting and tallying the goods. %D( After the goods are loaded the bill of lading to be iss"ed by the carrier ,aster or agent of the carrier to the shipper shall if the shipper so de,ands be a TshippedT bill of lading ;ro!ided That if the shipper shall ha!e pre!io"sly ta.en "p any doc",ent of title to s"ch goods he shall s"rrender the sa,e as against the iss"e of the TshippedT bill of lading b"t at the option of the carrier s"ch doc",ent of title ,ay be noted at the port of ship,ent by the carrier ,aster or agent with na,e or na,e the na,es of the ship or ships "pon which the goods ha!e been shipped and the date or dates of ship,ent and when so noted the sa,e shall for the p"rpose of this section be dee,ed to constit"te a TshippedT bill of lading. %E( Any cla"se co!enant or agree,ent in a contract of carriage relie!ing the carrier or the ship
fro, liability for loss or da,age to or in connection with the goods arising fro, negligence fa"lt or fail"re in the d"ties and obligations pro!ided in this section or lessening s"ch liability otherwise than as pro!ided in this Act shall be n"ll and !oid and of no effect. A benefit of ins"rance in fa!or of the carrier or si,ilar cla"se shall be dee,ed to be a cla"se relie!ing the carrier fro, liability. RI85T3 AND IBBUNITIA3 3ection = %1( Neither the carrier nor the ship shall be liable for loss or da,age arising or res"lting fro, "nseaworthiness "nless ca"sed by want of d"e diligence on the part of the carrier to ,a.e the ship seaworthy and to sec"re that the ship is properly ,anned e+"ipped and s"pplied and to ,a.e to the holds refrigerating and cool cha,bers and all other parts of the ship in which goods are carried fit and safe for their reception carriage and preser!ation in accordance with the pro!isions of paragraph %1( of section 6. 9hene!er loss or da,age has res"lted fro, "nseaworthiness the b"rden of pro!ing the e#ercise of d"e diligence 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '=< of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 shall be on the carrier or other persons clai,ing e#e,ption "nder the section. %'( Neither the carrier nor the ship shall be responsible for loss or da,age arising or res"lting fro, C
%a( Act neglect or defa"lt of the ,aster ,ariner pilot or the ser!ants of the carrier in the na!igation or in the ,anage,ent of the ship%b( 0ire "nless ca"sed by the act"al fa"lt or pri!ity of the carrier%c( ;erils dangers and accidents of the sea or other na!igable waters%d( Act of 8od%e( Act of war %f( Act of p"blic ene,ies%g( Arrest or restraint of princes r"lers or people or sei$"re "nder legal process%h( Q"arantine restrictions%i( Act or o,ission of the shipper or owner of the goods his agent or representati!e%1( 3tri.es or loc.o"ts or stoppage or restraint of labor fro, whate!er ca"se whether partial or general- ;ro!ided That nothing herein contained shall be constr"ed to relie!e a carrier fro, responsibility for the carrierVs own acts%.( Riots and ci!il co,,otions %l( 3a!ing or atte,pting to sa!e life or property at sea%,( 9astage in b"l. or weight or any other loss or da,age arising fro, inherent defect +"ality or !ice of the goods%n( Ins"fficiency of pac.ing%o( Ins"fficiency of inade+"acy of ,ar.s%p( Latent defects not disco!erable by d"e diligence- and
%+( Any other ca"se arising witho"t the act"al fa"lt and pri!ity of the carrier and witho"t the fa"lt or neglect of the agents or ser!ants of the carrier b"t the b"rden of proof shall be on the person clai,ing the benefit of this e#ception to show that neither the act"al fa"lt or pri!ity of the carrier nor the fa"lt or neglect of the agents or ser!ants of the carrier contrib"ted to the loss or da,age. %6( The shipper shall not be responsible for loss or da,age s"stained by the carrier or the ship arising fro, any ca"se witho"t the act fa"lt or neglect of the shipper his agents or ser!ants. %=( Any de!iation in sa!ing or atte,pting to sa!e life or property at sea or any reasonable de!iation shall not be dee,ed to be an infringe,ent or breach of this Act or of the contract of carriage and the carrier shall not be liable for any loss or da,age res"lting therefro,) ;ro!ided howe!er That if the de!iation is for the p"rpose of loading cargo or "nloading cargo or passengers it shall pri,a facie be regarded as "nreasonable. %<( Neither the carrier nor the ship shall in any e!ent be or beco,e liable for any loss or da,age to or in connection with the transportation of goods in an a,o"nt e#ceeding b?FF per pac.age lawf"l ,oney of the United 3tates or in case of goods not shipped in pac.ages per c"sto,ary freight "nit or the e+"i!alent of that s", in other c"rrency "nless the nat"re and !al"e of s"ch goods ha!e been declared by the shipper before ship,ent and
inserted in the bill of lading. This declaration if e,bodied in the bill of lading shall be pri,a facie e!idence b"t shall not be concl"si!e on the carrier. Hy agree,ent between the carrier ,aster or agent of the carrier and the shipper another ,a#i,", a,o"nt than that ,entioned in this paragraph ,ay be fi#ed) ;ro!ided That s"ch ,a#i,", shall not be less than the fig"re abo!e na,ed. In no e!ent shall the carrier be liable for ,ore than the a,o"nt of da,age act"ally s"stained. Neither the carrier nor the ship shall be responsible in any e!ent for loss or da,age to or in connection with the transportation of the goods if the nat"re or !al"e thereof has been .nowingly and fra"d"lently ,isstated by the shipper in the bill of lading. %?( 8oods of an infla,,able e#plosi!e or dangero"s nat"re to the ship,ent whereof the carrier ,aster or agent of the carrier has not consented with .nowledge of their nat"re and character ,ay at any ti,e before discharge be landed at any place or destroyed or rendered innoc"o"s by the carrier witho"t co,pensation and the shipper of s"ch goods shall be liable for all da,ages and e#penses directly or indirectly arising o"t of or res"lting fro, s"ch ship,ent. If any s"ch goods shipped with s"ch .nowledge and consent shall beco,e a danger to the ship or cargo they ,ay in li.e ,anner be landed at any place or destroyed or rendered innoc"o"s by the carrier
witho"t liability on the part of the carrier e#cept to general a!erage if any. 3URRANDAR O0 RI85T3 AND IBBUNITIA3 AND INCRAA3A O0 RA3;ON3IHILITIA3 AND LIAHILITIA3 3ection < A carrier shall be at liberty to s"rrender in whole or in part all or any of his rights and i,,"nities or to increase any of his responsibilities and liabilities "nder this Act pro!ided s"ch s"rrender or increase shall be e,bodied in the bill of lading iss"ed to the shipper. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '=? of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 The pro!isions of this Act shall not be applicable to charter parties- b"t if bills of lading are iss"ed in the case of a ship "nder charter party they shall co,ply with the ter,s of this Act. Nothing in this Act shall be held to pre!ent the insertion in a bill of lading of any lawf"l pro!ision regarding general a!erage. 3;ACIAL CONDITION3 3ection ? Notwithstanding the pro!isions of the preceding sections a carrier ,aster or agent of the carrier and a shipper shall in regard to any partic"lar goods be at liberty to enter into any agree,ent in any ter,s as to the responsibility and liability of the carrier for s"ch goods and as to the rights and i,,"nities of the carrier in respect of s"ch goods
or his obligation as to seaworthiness %so far as the stip"lation regarding seaworthiness is not contrary to p"blic policy( or the care or diligence of his ser!ants or agents in regard to the loading handling stowage carriage c"stody care and discharge of the goods carried by sea) ;ro!ided That in this case no bill of lading has been or shall be iss"ed and that the ter,s agreed shall be e,bodied in a receipt which shall be a nonnegotiable doc",ent and shall be ,ar.ed as s"ch. Any agree,ent so entered into shall ha!e f"ll legal effect) ;ro!ided That this section shall not apply to ordinary co,,ercial ship,ents ,ade in the ordinary co"rse of trade b"t only to other ship,ents where the character or condition of the property to be carried or the circ",stances ter,s and conditions "nder which the carriage is to be perfor,ed are s"ch as reasonably to 1"stify a special agree,ent. 3ection D Nothing contained in this Act shall pre!ent a carrier or a shipper fro, entering into any agree,ent stip"lation condition reser!ation or e#e,ption as to the responsibility and liability of the carrier or the ship for the loss or da,age to or in connection with the c"stody and care and handling of goods prior to the loading on and s"bse+"ent to the discharge fro, the ship on which the goods are carried by sea. 3ection E
The pro!isions of this Act shall not affect the rights and obligations of the carrier "nder the pro!isions of the 3hipping Act 1>1? or "nder the pro!isions of section ='E1 to ='E> incl"si!e of the Re!ised 3tat"tes of the United 3tates or of any a,end,ents thereto- or "nder the pro!isions of any other enact,ent for the ti,e being in force relating to the li,itation of the liability of the owners of seagoing !essels. TITLA II 3ection > Nothing contained in this Act shall be constr"ed as per,itting a co,,on carrier by water to discri,inate between co,peting shippers si,ilarly place in ti,e and circ",stances either %a( with respect to the right to de,and and recei!e bills of lading s"b1ect to the pro!isions of this Act- or %b( when iss"ing s"ch bills of lading either in the s"rrender of any of the carrierVs rights and i,,"nities or in the increase of any of the carrierVs responsibilities and liabilities p"rs"ant to section ? title I of this Act or %c( in any other way prohibited by the 3hipping Act 1>1? s a,ended. 3ection 1F 3ection '< of the Interstate Co,,erce Act is hereby a,ended by adding the following pro!iso at the end of paragraph = thereof) T;ro!ided howe!er That insofar as any bill of lading a"thori$ed here"nder relates to the carriage of goods by sea s"ch bill of lading shall be s"b1ect to
the pro!isions of the Carriage of 8oods by 3ea Act.T 3ection 11 9here "nder the c"sto,s of any trade the weight of any b"l. cargo inserted in the bill of lading is a weight ascertained or accepted by a third party other than the carrier or the shipper and the fact that the weight is so ascertained or accepted is stated in the bill of lading then notwithstanding any thing in this Act the bill of lading shall not be dee,ed to be pri,a facie e!idence against the carrier of the receipt of goods of the weight so inserted in the bill of lading and the acc"racy thereof at the ti,e of ship,ent shall not be dee,ed to ha!e been g"aranteed by the shipper. 3ection 1' Nothing in this Act shall be constr"ed as s"perseding any part of the Act entitled TAn act relating to na!igation of !essels bills of lading and to certain obligations d"ties and rights in connection with the carriage of property T appro!ed 0ebr"ary 16 1E>6 or of any other law which wo"ld be applicable in the absence of this Act insofar as they relate to the d"ties responsibilities and liabilities of the ship or carrier prior to the ti,e when the goods are loaded on or after the ti,e they are discharged fro, the ship. 3ection 16 This Act shall apply to all contracts for carriage of goods by sea to or fro, ports of the United 3tates
in foreign trade. As "sed in this Act the ter, TUnited 3tatesT incl"des its districts territories and possessions) ;ro!ided howe!er That the ;hilippine legislat"re ,ay by law e#cl"de its application to transportation to or fro, ports of the ;hilippine Islands. The ter, Tforeign tradeT ,eans the transportation of goods between the ports of the United 3tates and ports of foreign co"ntries. Nothing in this Act shall be held to apply to contracts for carriage of goods by sea between any 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '=D of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 port of the United 3tates or its possessions and any other port of the United 3tates or its possession) ;ro!ided howe!er That any bill of lading or si,ilar doc",ent of title which is e!idence of a contract for the carriage of goods by sea between s"ch ports containing an e#press state,ent that it shall be s"b1ect to the pro!isions of this Act shall be s"b1ected hereto as f"lly as if s"b1ect hereto as f"lly as if s"b1ect hereto by the e#press pro!isions of this Act) ;ro!ided f"rther That e!ery bill of lading or si,ilar doc",ent of title which is e!idence of a contract for the carriage of goods by sea fro, ports of the United 3tates in foreign trade shall contain a state,ent that it shall ha!e effect s"b1ect to the pro!isions of this Act. 3ection 1= Upon the certification of the 3ecretary of Co,,erce that the foreign co,,erce of the United
3tates in its co,petition with that of foreign nations is pre1"diced the pro!isions or any of the, of Title I of this Act or by the laws of any foreign co"ntry or co"ntries relating to the carriage of goods by sea the ;resident of the United 3tates ,ay fro, ti,e to ti,e by procla,ation s"spend any or all pro!isions of Title I of this Act for s"ch periods of ti,e or indefinitely as ,ay be designated in the procla,ation. The ;resident ,ay at any ti,e rescind s"ch s"spension of Title I hereof and any pro!isions thereof which ,ay ha!e been s"spended shall thereby be reinstated and again apply to contracts thereafter ,ade for the carriage of goods by sea. Any procla,ation of s"spension or rescission of any s"ch s"spension shall ta.e effect on a date na,ed therein which date shall be not less than ten days fro, the iss"e of the procla,ation. Any contract for the carriage of goods by sea s"b1ect to the pro!isions of this Act effecti!e d"ring any period when title I hereof or any part thereof is s"spended shall be s"b1ect to all pro!isions of law now or hereafter applicable to that part of Title I which ,ay ha!e th"s been s"spended. 3ection 1< This Act shall ta.e effect ninety days after the date of its appro!al- b"t nothing in this Act shall apply d"ring a period not to e#ceed one year following its appro!al to any contract for the carriage of goods
by sea ,ade before the date on which this Act is appro!ed nor to any bill of lading or si,ilar doc",ent of title iss"ed whether before or after s"ch date of appro!al in p"rs"ance of any s"ch contract as aforesaid. 3ection 1? This Act ,ay be cited as the TCarriage of 8oods by 3ea Act.T Appro!ed April 1? 1>6?. ;UHLIC ACT <'1 CARRIA8A O0 8OOD3 HK 3AA ACT 3ection 1 That the pro!isions of ;"blic Act No. <'1 of the Dth Congress of the United 3tates appro!ed on April 1? 1>6? be accepted as it is hereby accepted to be ,ade applicable to all contracts for the carriage of goods by sea to and fro, ;hilippine ports in foreign trade) ;ro!ided that nothing in this Act shall be constr"ed as repealing any e#isting pro!ision of the Code of Co,,erce which is now in force or as li,iting its application. . 3ec. ' This Act shall ta.e effect "pon its appro!al. %Appro!ed October '' 1>6?(. TITLA I 3ec. 1 9hen "sed in this Act C. %a( The ter, TcarrierT incl"des the owner or the charterer who enters into a contract of carriage with a shipper.
%b( The ter, Tcontract of carriageT applies only to contracts of carriage by co!ered by a bill of lading or any si,ilar doc",ent of title insofar as s"ch doc",ent relates to the carriage of goods by sea incl"ding any bill of lading or any si,ilar doc",ent as aforesaid iss"ed "nder or p"rs"ant to a character party fro, the ,o,ent at which s"ch bill of lading or si,ilar doc",ent of title reg"lates the relations between a carrier and a holder of the sa,e. . %c( The ter, TgoodsT incl"des goods wares ,erchandise and articles of e!ery .ind whatsoe!er e#cept li!e ani,als and cargo which by the contract of carriage is stated as being carried on dec. and is so carried.. %d( The ter, TshipT ,eans any !essel "sed for the carriage of goods by sea.. %e( The ter, Tcarriage of goodsT co!ers the period fro, the ti,e when the goods are loaded to the ti,e when they are discharged fro, the ship. RI3R3 3ec. ' 3"b1ect to the pro!isions of 3ection ? "nder e!ery contract of carriage of goods by sea the carrier in relation to the loading handling stowage carriage c"stody care and discharge of s"ch goods shall be s"b1ect to the responsibilities and liabilities and entitled to the rights and i,,"nities hereinafter set forth.. RA3;ON3IHILITIA3 AND LIAHILITIA3
3ec. 6 %1( The carrier shall be bo"nd before and at the beginning of the !oyage to e#ercise d"e diligence to C %a( Ba.e the ship seaworthy%b( ;roperly ,an e+"ip and s"pply the ship%c( Ba.e the holds refrigerating and cooling cha,bers and all other parts of the ship in which goods are carried fit and safe for their reception carriage and preser!ation. %'( The carrier shall properly and caref"lly load handle stow carry .eep care for and discharge the goods carried. %6( After recei!ing the goods into his carrier or the ,aster or agent of the carrier shall on de,and of the shipper iss"e to the shipper a bill of lading showing a,ong other things C. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '=E of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 %a( The loading ,ar.s necessary for identification of the goods as the sa,e are f"rnished in writing by the shipper before the loading of s"ch goods starts pro!ided s"ch ,ar.sare sta,ped or otherwise shown clearly "pon the goods if "nco!ered in s"ch a ,anner as sho"ld ordinarily re,ain legible "ntil the end of the !oyage.. %b( Aither the n",ber of pac.ages or pieces or the +"antity or weight as the case,ay be as f"rnished in writing by the shipper.
%c( The apparent order and conditions of the goods) ;ro!ided that no carrier ,aster or agent of the carrier shall be bo"nd to state or show in the bill of lading any ,ar.s n",ber +"antity or weight which he has reasonable gro"nd for s"specting not acc"rately to represent the good act"ally recei!ed or which he has had no reasonable ,eans of chec.ing.. %=( 3"ch a bill of lading shall be pri,a facie e!idence of the receipt by the carrier of the goods as therein described in accordance with paragraphs %6( %a( %b( and %c( of this section) %The rest of the pro!ision is not applicable to the ;hilippines(. %<( The shipper shall be dee,ed to ha!e g"aranteed to the carrier the acc"racy at the ti,e of ship,ent of the ,ar.s n",ber +"antity and weight as f"rnished by hi,- and the shipper shall inde,nify the carrier against all loss da,ages and e#penses arising or res"lting fro, inacc"racies in s"ch partic"lars. The right of the carrier to s"ch inde,nity shall in no way li,it his responsibility and liability "nder the contract of carriage to any person other than the shipper.. %?( Unless notice or loss or da,age and the general nat"re of s"ch loss or da,age by gi!en in writing to the carrier or his agent at the port of discharge or at the ti,e of the re,o!al of the goods into the c"stody of the person entitled to deli!ery thereof "nder the contract of carriage s"ch re,o!al shall be pri,a facie e!idence of the
deli!ery by the carrier of the goods as described in the bill of lading. If the loss or da,age is not apparent the notice ,"st be gi!en within three days of the deli!ery.. 3aid notice of loss or da,age ,ay be endorsed "pon the receipt for the goods gi!en by the person ta.ing deli!ery thereof. The notice in writing need not be gi!en if the state of the goods has at the ti,e of their receipt been the s"b1ect of 1oint s"r!ey or inspection. In any e!ent the carrier and the ship shall be discharged fro, all liability in respect of loss or da,age "nless s"it is bro"ght within one year after deli!ery of the goods or the date when the goods sho"ld ha!e been deli!ered) ;ro!ided that if a notice of loss or da,age either apparent or concealed is not gi!en as pro!ided for in this section that fact shall not affect or pre1"dice the right of the shipper to bring s"it within one year after the deli!ery of the goods or the date when the goods sho"ld ha!e been deli!ered. In the case of any act"al or apprehended loss or da,age the carrier and the recei!er shall gi!e all reasonable facilities to each other for inspecting and tallying the goods.. %D( After the goods are loaded the bill of lading to be iss"ed by the carrier ,aster or agent of the carrier to the shipper shall if the shipper so de,ands be a TshippedT bill of lading) ;ro!ided that if the shipper shall ha!e pre!io"sly ta.en "p
any doc",ent of title to s"ch goods he shall s"rrender the sa,e as against the iss"e of the TshippedT bill of lading b"t at the option of the carrier s"ch doc",ent of title ,ay be noted at the port of ship,ent by the carrier ,aster or agent with the na,e or na,es of the ship or ships "pon which the goods ha!e been shipped and the date or dates of ship,ent and when so noted the sa,e shall for the p"rpose of this section be dee,ed to constit"te a TshippedT bill of lading. %E( Any cla"se co!enant or agree,ent in a contract of carriage relie!ing the carrier of the ship fro, liability for loss or da,age to or in connection with the goods arising fro, negligence fa"lt or fail"re in the d"ties and obligations pro!ide in this section or lessening s"ch liability otherwise than as pro!ided in this Act shall be n"ll and !oid and of no effect. A benefit of ins"rance in fa!or of the carrier or si,ilar cla"se shall be dee,ed to be a cla"se relie!ing the carrier fro, liability. RI85T3 AND IBBUNITIA3 3ec. = %1( Neither the carrier nor the ship shall be liable for loss or da,age arising or res"lting fro, "nseaworthiness "nless ca"sed by want of d"e diligence on the part of the carrier to ,a.e the ship seaworthy and to sec"re that the ship is properly ,anned e+"ipped and s"pplied and to ,a.e the holds refrigerating and cooling cha,bers and all other parts of the ship in which goods are carried
fit and safe for their reception carriage and preser!ation in accordance with the pro!isions of paragraph %1( of 3ection %6(. 9hene!er loss or da,age has res"lted fro, "nseaworthiness the b"rden of pro!ing the e#ercise of d"e diligence shall be on the carrier or other person clai,ing e#e,ption "nder this section.. %'( Neither the carrier nor the ship shall be responsible for loss or da,age arising or res"lting fro, C %a( Act neglect or defa"lt of the ,aster ,ariner pilot or the ser!ants of the carrier in the na!igation or in the ,anage,ent of the ship%b( 0ire "nless ca"sed by the act"al fa"lt or pri!ity of the carrier-. %c( ;erils dangers and accidents of the sea or other na!igable water-. %d( Act of 8od-. %e( Act of war-. %f( Act of p"blic ene,ies%g( Arrest or restraint of princes r"lers or people or sei$"re "nder legal process%h( Q"arantine restrictions-. %i( Act or o,ission of the shipper or owner of the goods his agent or representati!e-. %1( 3tri.es or loc.o"ts or stoppage or restraint of labor fro, whate!er ca"se whether partial or general) ;ro!ided that nothing herein contained shall be constr"ed to relie!e a carrier fro, responsibility for the carrierVs own acts-.
%.( Riotsand ci!il co,,otions-. %l( 3a!ing or atte,pting to sa!e life or property at sea-. %,( 9astage in b"l. or weight or any other loss or da,age arising fro, inherent defect +"ality or !ice of the goods%n( Ins"fficiency or pac.ing%o( Ins"fficiency or inade+"acy of ,ar.s-. %p( Latent defects not disco!erable by d"e diligence- and. %+( Any other ca"se arising witho"t the act"al fa"lt and pri!ity of the carrier and witho"t the fa"lt or neglect of the agents or ser!ants of the carrier b"t the b"rden of proof shall be on the person clai,ing the benefit of this e#ception to show that neither the act"al fa"lt or pri!ity of the carrier nor 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '=> of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 the fa"lt or neglect of the agents or ser!ants of the carrier contrib"ted to the loss or da,age. %6( The shipper shall not be responsible for loss or da,age s"stained by the carrier or the ship arising or res"lting fro, any ca"se witho"t the act or neglect of the shipper his agents or his ser!ants.. %=( Any de!iation in sa!ing or atte,pting to sa!e life or property at sea or any reasonable de!iation shall not be dee,ed to be an infringe,ent or breach or this Act or of the contract of carriage and carrier shall not be liable for any
loss or da,age res"lting therefro,) ;ro!ided howe!er that if the de!iation is for the p"rpose of loading or "nloading cargo or passengers it shall pri,a facie be regarded as "nreasonable.. %<( Neither the carrier nor the ship shall in any e!ent be or beco,e liable for any loss or da,age to or in connection with the transportation of goods in an a,o"nt e#ceeding b<FF per pac.age of lawf"l ,oney of the United 3tates or in case of goods not shipped in pac.ages per c"sto,ary freight "nit or the e+"i!alent of that s", in other c"rrency "nless the nat"re and !al"e of s"ch goods ha!e been declared by the shipper before ship,ent and inserted in the bill of lading. This declaration if e,bodied in the bill of lading shall be pri,a facie e!idence b"t shall not be concl"si!e on the carrier.. Hy agree,ent between the carrier ,aster or agent of the carrier and the shipper another ,a#i,", a,o"nt than that ,entioned in this paragraph ,ay be fi#ed) ;ro!ided that s"ch ,a#i,", shall not be less than the fig"re abo!e na,ed. In no e!ent shall the carrier be liable for ,ore than the a,o"nt of da,age act"ally s"stained.. Neither the carrier nor the ship shall be responsible in any e!ent for loss da,age to or in connection with the transportation of the goods if the nat"re or !al"e thereof has been .nowingly and fra"d"lently ,isstated by the shipper in the bill of lading.. %?( 8oods of an infla,,able e#plosi!e or
dangero"s nat"re to the ship,ent whereof the carrier ,aster or agent of the carrier has not consented with .nowledge of their nat"re and character ,ay at any ti,e before discharge be landed at any place or destroyed or rendered innoc"o"s by the carrier witho"t co,pensation and the shipper of s"ch goods shall be liable for all da,ages and e#penses directly or indirectly arising o"t of or res"lting fro, s"ch ship,ent. If any s"ch goods shipped with s"ch .nowledge and consent shall beco,e a danger to the ship or cargo they ,ay in li.e ,anner be landed at any place or destroyed or rendered innoc"o"s by the carrier witho"t liability on the part of the carrier e#cept to general a!erage if any.. 3URRANDAR O0 RI85T3 AND IBBUNITIA3 AND INCRAA3A O0 RA3;ON3IHILITIA3 AND LIAHILITIA3 3ec. < A carrier shall be at liberty to s"rrender in whole or in part all or any of his rights and i,,"nities or to increase any of his responsibilities and liabilities "nder this Act pro!ided s"ch s"rrender or increase shall be e,bodied in the bill of lading iss"ed to the shipper. The pro!isions of this Act shall not be applicable to charter parties- b"t if bills of lading are iss"ed in the case of a ship "nder a charter party they shall co,ply with the ter,s of this Act. Nothing in this Act shall be held to pre!ent the insertion in a bill of
lading of any lawf"l pro!isions regarding general a!erage.. 3;ACIAL CONDITION3 3ec. ? Notwithstanding the pro!isions of the preceding section a carrier ,aster or agent of the carrier and a shipper shall in regard to any partic"lar goods be at liberty to enter into any agree,ent in any ter,s as to the responsibility and liability of the carrier for s"ch goods and as to the rights and i,,"nities of the carrier in respect to s"ch goods or his obligation to seaworthiness %so far as the stip"lation regarding seaworthiness is contrary to p"blic policy( or the care or diligence of his ser!ants or agents in regard to the loading handling stowage carriage c"stody care and discharge of the goods carried by sea- pro!ided that in this case no bill of lading has been or shall be iss"ed and that the ter,s agreed shall be a non/negotiable doc",ent and shall be ,ar.ed as s"ch. . Any agree,ent so entered into shall ha!e f"ll legal effect) ;ro!ided that this section shall not apply to ordinary co,,ercial ship,ents ,ade in the ordinary co"rse of trade b"t only to other ship,ents where the character or condition of the property to be carried or the circ",stances ter,s and conditions "nder which the carriage is to be perfor,ed are s"ch as reasonably to 1"stify a special agree,ent.
3ec. D Nothing contained in this Act shall pre!ent a carrier or a shipper fro, entering into any agree,ent stip"lation condition reser!ation or e#e,ption as to the responsibility and liability of the carrier or the ship for the loss or da,age to or in connection with the c"stody and care and handling of goods prior to the loading on and s"bse+"ent to the discharge fro, the ship on which the goods are carried by sea.. 3ec. E The pro!isions of this Act shall not affect the rights and obligations of the carrier "nder the pro!isions of the 3hipping Act 1>1? or "nder the pro!isions of 3ections ='E1 to ='>' incl"si!e of the Re!ised 3tat"tes of the United 3tates or of any a,end,ents thereto or "nder the pro!isions of any other enact,ent for the ti,e being in force relating to the li,itation of the liability of the owners of seagoing !essels.. TITLA II 3ec. > Nothing contained in this Act shall be constr"ed as per,itting a co,,on carrier by water to discri,inate between co,peting shippers si,ilarly placed in ti,e and circ",stances either %a( with respect to their right to de,and and recei!e bills of lading s"b1ect to the pro!isions of this Act- or %b( when iss"ing s"ch bills of lading either in the s"rrender of any of the carrierVs rights and
i,,"nities or in the increase of any of the carrierVs responsibilities and liabilities p"rs"ant to 3ection < Title I of this Act- %c( in any other way prohibited by the 3hipping Act 1>1? as a,ended.. 3ec. 1F %Not applicable to the ;hilippines.(. 3ec. 11 9hen "nder the c"sto, of any trade the weight of any b"l. cargo inserted in the bill of lading is a 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '<F of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 weight ascertained or accepted by a third party other than the carrier or the shipper and the fact that the weight as ascertained or accepted is stated in the bill of lading then notwithstanding anything in this Act the bill of lading shall not be dee,ed to be pri,a facie e!idence against the carrier of the receipt of goods of the weight so inserted in the bills of lading and the acc"racy thereof at the ti,e of ship,ent shall not be dee,ed to ha!e been g"aranteed by the shipper.. 3ec. 1' %Not applicable to the ;hilippines.(. 3ec. 16 This Act shall apply to all contracts for carriage of goods by seas to or fro, ports of the United 3tates in foreign trade. As "sed in this Act the ter, TUnited 3tatesT incl"des its districts territories and possessions) ;ro!ided howe!er that the ;hilippine Legislat"re ,ay by law e#cl"de its
application to transportation to or fro, ports of the ;hilippine Islands. The ter, Tforeign tradeT ,eans the transportation of goods between the ports of the United 3tates and ports of foreign co"ntries. Nothing in this Act shall be held to apply to contracts for carriage of goods by sea between any port of the United 3tates or its possessions and any other port of the United 3tates or its possessions) ;ro!ided howe!er that any bill of lading or si,ilar doc",ent of the title which is e!idence of a contract for the carriage of goods by sea between s"ch ports containing an e#press state,ent that it shall be s"b1ect to the pro!isions of this Act- shall be s"b1ected hereto as f"lly as if s"b1ect hereto by the e#press pro!isions of this Act) ;ro!ided f"rther that e!ery bill of lading or si,ilar doc",ent of title which is e!idence of a contract for the carriage of goods by sea fro, ports of the United 3tates in foreign trade shall contain a state,ent that it shall ha!e effect s"b1ect to the pro!isions of this Act. . 3ec. 1= Upon the certification of the 3ecretary of Co,,erce that the foreign co,,erce of the United 3tates in its co,petition with that of foreign nations is pre1"diced by the pro!isions or any of the, of the Title I of this Act or by the laws of any foreign co"ntry or co"ntries relating to the carriage of goods by sea the ;resident of the United 3tates ,ay fro, ti,e to ti,e by
procla,ation s"spend any or all pro!isions of Title I of this Act for s"ch periods of ti,e or indefinitely as ,ay be designated in the procla,ation. The ;resident ,ay at any ti,e rescind s"ch s"spension of Title I hereof and any pro!isions thereof which ,ay ha!e been s"spended shall thereby be reinstated and again apply to contracts thereafter ,ade for carriage of goods by sea. Any procla,ation of s"spension or rescission of any s"ch s"spension shall ta.e effect on the date na,ed therein which date shall be not less than ten days fro, the iss"e of the procla,ation. Any contract for the carriage of goods by sea s"b1ect to the pro!isions of this Act effecti!e d"ring any period when Title I hereof or any part thereof is s"spended shall be s"b1ect to all pro!isions of law now or hereafter applicable to that part of Title I which ,ay ha!e th"s been s"spended.. 3ec. 1< This Act shall ta.e effect ninety days after the date of its appro!al- b"t nothing in this Act shall apply d"ring a period not to e#ceed one year following its appro!al to any contract for the carriage of goods by sea ,ade before the date on which this Act is appro!ed nor to any bill of lading or si,ilar doc",ent of title iss"ed whether before or after s"ch date of appro!al in p"rs"ance of any s"ch contract as aforesaid.. 3ec. 1?
This Act ,ay be cited as the TCarriage of 8oods by 3ea Act.T. 1. CONTRACT3 COIARAD UNDAR CO83A CO83A is a special law that go!erns in all contracts of carriage of) goods by sea between or to and fro, ;hilippine ports !essels in!ol!ed in foreign trade Application of laws) If the co,,on carrier is co,ing to the ;hilippines) 0irst) Ci!il Code 3econd) CO83A %in foreign trade( Third) Code of Co,,erce If the pri!ate carrier is co,ing to the ;hilippines) 0irst) CO83A 3econd) Code of Co,,erce Third) Ci!il Code %e#cl"ding r"les on co,,on carriers( If the pri!ate or co,,on carrier is fro, the ;hilippines to a foreign co"ntry) Apply the law of the foreign co"ntry %per Art. 1D<6 CC( UNLA33 the parties ,a.e CO83A applicable 5ierarchy of laws) 1( Art. 1D?? CC %CO83A as only in ,atters not
reg"lated by this Code( This is notwitstanding that CO83A is a special law. 8oods in a foreign co"ntry shipped to the ;hilippines are go!erned by the Ci!il Code '( Art. 1D<6 CC %Conflict of Laws pro!ision( '. LIBIT O0 LIAHILITK ;AR ;ACRA8A HAL8IAN OIAR3AA3 !s. ;5ILI;;INA 0IR3T IN3URANCA CO. INC. %'FF'( The Ci!il Code does not li,it the liability of the co,,on carrier to a fi#ed a,o"nt per pac.age. In all ,atters not reg"lated by the Ci!il Code the right and the obligations of co,,on carriers shall be go!erned by the Code of Co,,erce and special laws. Th"s the CO83A which is s"ppletory to the pro!isions of the Ci!il Code s"pple,ents the latter by establishing a stat"tory pro!ision li,iting the carrierVs liability in the absence of a shipperVs declaration of a higher !al"e in the bill of lading. In the case before "s there was no stip"lation in the Hill of Lading li,iting the carrierVs liability. Neither did the shipper declare a higher !al"ation of the goods to be shipped. ;etitionersV liability sho"ld be co,p"ted based on U3b<FF per pac.age 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '<1 of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 and not on the per ,etric ton price declared in the Letter of Credit. On Notice of Clai,2On ;rescription of Action) 0irst the pro!ision of CO83A pro!ides that the notice of clai, need not be gi!en if the state of the
goods at the ti,e of their receipt has been the s"b1ect of a 1oint inspection or s"r!ey. ;rior to "nloading the cargo an Inspection Report as to the condition of the goods was prepared and signed by representati!es of both parties. 3econd as stated in the sa,e pro!ision a fail"re to file a notice of clai, within three days will not bar reco!ery if it is nonetheless filed within one year. This one/year prescripti!e period also applies to the shipper the consignee the ins"rer of the goods or any legal holder of the bill of lading. TInas,"ch as the neither the Ci!il Code nor the Code of Co,,erce states a specific prescripti!e period on the ,atter the Carriage of 8oods by 3ea Act %CO83A(//which pro!ides for a one/year period of li,itation on clai,s for loss of or da,age to cargoes s"stained d"ring transit//,ay be applied s"ppletorily to the case at bar.T In the present case the cargo was discharged on J"ly 61 1>>F while the Co,plaint was filed by respondent on J"ly '< 1>>1 within the one/year prescripti!e period. 6. NOTICA O0 LO33 O0 CLAIB =. ;RA3CRI;TION O0 ACTION 0ilipino Berchants Ins"rance Inc. !. Ale1andro %1>E?( Clearly the co!erage of the Act incl"des the ins"rer of the goods. Otherwise what the Act intends to prohibit after the lapse of the one/year prescripti!e period can be done indirectly by the shipper or owner of the goods by si,ply filing a
clai, against the ins"rer e!en after the lapse of one year. Bariti,e Agencies U 3er!ices Inc. !. CA The period for filing the clai, is one year in accordance with the Carriage of 8oods by 3ea Act. This was adopted and e,bodied by o"r legislat"re in Co,. Act No. ?< which as a special law pre!ails o!er the general pro!isions of the Ci!il Code on prescription of actions. 3ection 6%?( of that Act pro!ides as follows) In any e!ent the carrier and the ship shall be discharged fro, all liability in respect of loss or da,age "nless s"it is bro"ght within one year after deli!ery of the goods or the date when the goods sho"ld ha!e been deli!ered;ro!ided that if a notice of loss for da,age- either apparent or concealed is not gi!en as pro!ided for in this section that fact shall not effect or pre1"dice the right of the shipper to bring s"it within one year after the deli!ery of the goods or the date when the goods sho"ld ha!e been deli!ered. <. 9AIIAR UNDAR CO83A I. INTARNATIONAL AIR TRAN3;ORT A. The 9arsaw Con!ention Chapter III / Liability of the Carrier Article 1D The carrier is liable for da,age s"stained in the e!ent of the death or wo"nding of a passenger or any other bodily in1"ry s"ffered by a passenger if the accident which ca"sed the da,age so s"stained too. place on board the aircraft or in the co"rse of
any of the operations of e,bar.ing or dise,bar.ing. Article 1E 1. The carrier is liable for da,age s"stained in the e!ent of the destr"ction or loss of or of da,age to any registered l"ggage or any goods if the occ"rrence which ca"sed the da,age so s"stained too. place d"ring the carriage by air. '. The carriage by air within the ,eaning of the preceding paragraph co,prises the period d"ring which the l"ggage or goods are in charge of the carrier whether in an aerodro,e or on board an aircraft or in the case of a landing o"tside an aerodro,e in any place whatsoe!er. 6. The period of the carriage by air does not e#tend to any carriage by land by sea or by ri!er perfor,ed o"tside an aerodro,e. If howe!er s"ch a carriage ta.es place in the perfor,ance of a contract for carriage by air for the p"rpose of loading deli!ery or transship,ent any da,age is pres",ed s"b1ect to proof to the contrary to ha!e been the res"lt of an e!ent which too. place d"ring the carriage by air. Article 1> The carrier is liable for da,age occasioned by delay in the carriage by air of passengers l"ggage or goods. Article 'F 1. The carrier is not liable if he pro!es that he and his agents ha!e ta.en all necessary ,eas"res to
a!oid the da,age or that it was i,possible for hi, or the, to ta.e s"ch ,eas"res. '. In the carriage of goods and l"ggage the carrier is not liable if he pro!es that the da,age was occasioned by negligent pilotage or negligence in the handling of the aircraft or in na!igation and that in all other respects he and his agents ha!e ta.en all necessary ,eas"res to a!oid the da,age. Article '1 If the carrier pro!es that the da,age was ca"sed by or contrib"ted to by the negligence of the in1"red person the Co"rt ,ay in accordance with the pro!isions of its own law e#onerate the carrier wholly or partly fro, his liability. Article '' 1. In the carriage of passengers the liability of the carrier for each passenger is li,ited to the s", of 1'< FFF francs. 9here in accordance with the law of the Co"rt seised of the case da,ages ,ay be awarded in the for, of periodical pay,ents the e+"i!alent capital !al"e of the said pay,ents shall not e#ceed 1'< FFF francs. Ne!ertheless by special contract the carrier and the passenger ,ay agree to a higher li,it of liability. '. In the carriage of registered l"ggage and of 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '<' of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 goods the liability of the carrier is li,ited to a s", of '<F francs per .ilogra, "nless the consignor has ,ade at the ti,e when the pac.age was
handed o!er to the carrier a special declaration of the !al"e at deli!ery and has paid a s"pple,entary s", if the case so re+"ires. In that case the carrier will be liable to pay a s", not e#ceeding the declared s", "nless he pro!es that that s", is greater than the act"al !al"e to the consignor at deli!ery. 6. As regards ob1ects of which the passenger ta.es charge hi,self the liability of the carrier is li,ited to < FFF francs per passenger. =. The s",s ,entioned abo!e shall be dee,ed to refer to the 0rench franc consisting of ?< g ,illigra,s gold of ,illesi,al fineness >FF. These s",s ,ay be con!erted into any national c"rrency in ro"nd fig"res. Article '6 Any pro!ision tending to relie!e the carrier of liability or to fi# a lower li,it than that which is laid down in this Con!ention shall be n"ll and !oid b"t the n"llity of any s"ch pro!ision does not in!ol!e the n"llity of the whole contract which shall re,ain s"b1ect to the pro!isions of this Con!ention. Article '= 1. In the cases co!ered by Articles 1E and 1> any action for da,ages howe!er fo"nded can only be bro"ght s"b1ect to the conditions and li,its set o"t in this Con!ention. '. In the cases co!ered by Article 1D the pro!isions of the preceding paragraph also apply witho"t pre1"dice to the +"estions as to who are the
persons who ha!e the right to bring s"it and what are their respecti!e rights. Article '< 1. The carrier shall not be entitled to a!ail hi,self of the pro!isions of this Con!ention which e#cl"de or li,it his liability if the da,age is ca"sed by his wilf"l ,iscond"ct or by s"ch defa"lt on his part as in accordance with the law of the Co"rt seised of the case is considered to be e+"i!alent to wilf"l ,iscond"ct. '. 3i,ilarly the carrier shall not be entitled to a!ail hi,self of the said pro!isions if the da,age is ca"sed as aforesaid by any agent of the carrier acting within the scope of his e,ploy,ent. Article '? 1. Receipt by the person entitled to deli!ery of l"ggage or goods witho"t co,plaint is pri,a facie e!idence that the sa,e ha!e been deli!ered in good condition and in accordance with the doc",ent of carriage. '. In the case of da,age the person entitled to deli!ery ,"st co,plain to the carrier forthwith after the disco!ery of the da,age and at the latest within three days fro, the date of receipt in the case of l"ggage and se!en days fro, the date of receipt in the case of goods. In the case of delay the co,plaint ,"st be ,ade at the latest within fo"rteen days fro, the date on which the l"ggage or goods ha!e been placed at his disposal. 6. A!ery co,plaint ,"st be ,ade in writing "pon
the doc",ent of carriage or by separate notice in writing despatched within the ti,es aforesaid. =. 0ailing co,plaint within the ti,es aforesaid no action shall lie against the carrier sa!e in the case of fra"d on his part. Article 'D In the case of the death of the person liable an action for da,ages lies in accordance with the ter,s of this Con!ention against those legally representing his estate. Article 'E 1. An action for da,ages ,"st be bro"ght at the option of the plaintiff in the territory of one of the 5igh Contracting ;arties either before the Co"rt ha!ing 1"risdiction where the carrier is ordinarily resident or has his principal place of b"siness or has an establish,ent by which the contract has been ,ade or before the Co"rt ha!ing 1"risdiction at the place of destination. '. Q"estions of proced"re shall be go!erned by the law of the Co"rt seised of the case. Article '> 1. The right to da,ages shall be e#ting"ished if an action is not bro"ght within two years rec.oned fro, the date of arri!al at the destination or fro, the date on which the aircraft o"ght to ha!e arri!ed or fro, the date on which the carriage stopped. '. The ,ethod of calc"lating the period of li,itation shall be deter,ined by the law of the
Co"rt seised of the case. Article 6F 1. In the case of carriage to be perfor,ed by !ario"s s"ccessi!e carriers and falling within the definition set o"t in the third paragraph of Article 1 each carrier who accepts passengers l"ggage or goods is s"b1ected to the r"les set o"t in this Con!ention and is dee,ed to be one of the contracting parties to the contract of carriage in so far as the contract deals with that part of the carriage which is perfor,ed "nder his s"per!ision. '. In the case of carriage of this nat"re the passenger or his representati!e can ta.e action only against the carrier who perfor,ed the carriage d"ring which the accident or the delay occ"rred sa!e in the case where by e#press agree,ent the first carrier has ass",ed liability for the whole 1o"rney. 6. As regards l"ggage or goods the passenger or consignor will ha!e a right of action against the first carrier and the passenger or consignee who is entitled to deli!ery will ha!e a right of action against the last carrier and f"rther each ,ay ta.e action against the carrier who perfor,ed the carriage d"ring which the destr"ction loss da,age or delay too. place. These carriers will be 1ointly and se!erally liable to the passenger or to the consignor or consignee. H. Applicability- ,eaning of international transportation
International air transportation is transportation by air between points of contact of two high contracting parties or those co"ntries that ha!e acceded to the Con!ention. C. Liabilities "nder the Con!ention The en",eration of ca"ses of action in the 9arsaw Con!ention is not an e#cl"si!e list. Ko" can ha!e a ca"se of action e!en if it is not) a( death or wo"nding of the passenger- b( da,age or loss or destr"ction of chec.ed baggage or c( delay in the transportation of passengers l"ggage and goods. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '<6 of 6<1 TRAN3;ORTATION LA9 COBBARCIAL LA9 Note howe!er that the li,itations of liability in the Con!ention fa!or the carrier. NORT59A3T AIRLINA3 INC. !s. CUANCA %1>?<( The Articles ,erely declare the carrier liable for da,ages in the en",erated cases if the conditions therein specified are present. Neither said pro!isions nor others in the afore,entioned Con!ention reg"late or e#cl"de liability for other breaches of contract by the carrier. Under petitionerVs theory an air carrier wo"ld be e#e,pt fro, any liability for da,ages in the e!ent of its absol"te ref"sal in bad faith to co,ply with a contract of carriage which is abs"rd. ALITALIA !s IAC %1>>F( Under the 9arsaw Con!ention an air carrier is ,ade liable for da,ages for)
1. the death wo"nding or other bodily in1"ry of a passenger if the accident ca"sing it too. place on board the aircraft or in the co"rse of its operations of e,bar.ing2dise,bar.ing '. the destr"ction or loss of or da,age to any registered l"ggage or goods if the occ"rrence ca"sing it too. place d"ring the carriage by air 6. delay in the transportation by air of passengers l"ggage or goods. In these cases the Con!ention pro!ides that the Laction for da,ages howe!er fo"nded can only be bro"ght s"b1ect to the conditions and li,its set o"t therein.M The 9arsaw Con!ention howe!er denies to the carrier a!ail,ent Lof the pro!isions w2c e#cl"de or li,it his liability if the da,age is ca"sed by his willf"l ,iscond"ct or by s"ch defa"lt on his part as in accordance w2 the law of the co"rt sei$ed of the case is considered to be e+"i!alent to willf"l ,iscond"ct or if the da,age is si,ilarly ca"sed by any agent of the carrier acting w2n the scope of his e,ploy,ent.M The Con!ention does not operate as an e#cl"si!e en",eration of the instances of an airline4s liability or as an absol"te li,it of the e#tent of that liability. Boreo!er it sho"ld be dee,ed a li,it of liability only in those cases where the ca"se of the death or in1"ry to person or destr"ction loss or da,age to property or delay in its transport is not
attrib"table to or attended by any willf"l ,iscond"ct bad faith rec.lessness or otherwise i,proper cond"ct on the part of any official or e,ployee for which the carrier is responsible and there is otherwise no special or e#traordinary for, of res"lting in1"ry. The Con!ention has in!ariably been held inapplicable or as not restricti!e of the carrier4s liability where there was satisfactory e!idence of ,alice or bad faith attrib"table to its officers and e,ployees. Note) Liability of carrier in case of loss of l"ggage is li,ited to a s", of bU3D 'F per .ilo or bU3D >.FD per po"nd "nless a higher !al"e is declared in ad!ance and additional charges are paid. D. Li,itations on Liability ;AL INC. ! CA and JA3U3 3AB3ON %1>E1( Ratio) The li,itation of their liability "nder 1D11 of NCC) If the ,ishap was d"e to the e,ployeeVs own notorio"s negligence or !ol"ntary act or dr"n.enness the e,ployer shall not be liable for co,pensation. 9hen the e,ployeeVs lac. of d"e care contrib"ted to his death or in1"ry the co,pensation shall be e+"itably red"ced. AND "nder 1D1' If a fellow wor.erVs intentional ,alicio"s act is the only ca"se of the death or in1"ry the e,ployer shall not be answerableZ ;AL !s. CA DR. JO3A0INO BIRANDA and LUI3A BIRANDA %1>>?( The appellees do not see. pay,ent for loss of any
baggage. They are clai,ing da,ages arising fro, the discri,inatory off/loading of their baggage. That cannot be li,ited by the printed conditions in the tic.ets and baggage chec.s. Neither can the 9arsaw Con!ention e#cl"de nor reg"late the liability for other breaches of contract by air carriers. A recognition of the 9arsaw Con!ention does not precl"de the operation of o"r Ci!il Code and related laws in deter,ining the e#tent of liability of co,,on carriers in breach of contract of carriage partic"larly for willf"l ,iscond"ct of their e,ployees. 3aid con!ention does not operate as an e#cl"si!e en",eration of the instances for declaring a carrier liable for breach of contract of carriage or as an absol"te li,it of the e#tent of that liability. The 9arsaw Con!ention declares the carrier liable in the en",erated cases and "nder certain li,itations. 5owe!er it ,"st not be constr"ed to precl"de the operation of the Ci!il Code and pertinent laws. It does not reg"late ,"ch less e#e,pt the carrier fro, liability for da,ages for !iolating the rights of its passengers "nder the contract of carriage especially if willf"l ,iscond"ct on the part of the carrierVs e,ployees is fo"nd or established which is the case before Us. A. 9hen Li,itations Una!ailable T9A !. CA and Iinl"an %1>EE( The petitioner4s contention that it is not liable is de!oid of ,erit. ;ri!ate respondent had a first
class tic.et for 0light No. =1 of petitioner fro, New Kor. to 3an 0rancisco on April 'F 1>D>. It was twice confir,ed and yet respondent "ncere,onio"sly told hi, that there was no first class seat a!ailable for hi, and that he had to be downgraded to the econo,y class. As he protested he was arrogantly threatened by one Br. Hraa,. 9orst still while he was waiting for the flight he saw that se!eral Ca"casians who arri!ed ,"ch later were acco,,odated in first class seats when the other passengers did not show "p. The discri,ination is ob!io"s and the h",iliation to which pri!ate respondent was s"b1ected is "ndeniable. Conse+"ently the award of ,oral and e#e,plary da,ages by the respondent co"rt is in order. At the ti,e of this "nfort"nate incident the pri!ate respondent was a practicing lawyer a senior partner of a big law fir, in Banila. 5e was a director of se!eral co,panies and was acti!e in ci!ic and social organi$ations in the ;hilippines. Considering the circ",stances of this case and the social standing of pri!ate respondent in the co,,"nity he is entitled to the award of ,oral and e#e,plary da,ages. 5owe!er the ,oral da,ages sho"ld be red"ced to ;6FF FFF.FF and the e#e,plary da,ages sho"ld be red"ced to ;'FF FFF.FF. This award sho"ld be reasonably s"fficient to inde,nify pri!ate respondent for the 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '<= of 6<1
TRAN3;ORTATION LA9 COBBARCIAL LA9 h",iliation and e,barrass,ent that he s"ffered and to ser!e as an e#a,ple to disco"rage the repetition of si,ilar oppressi!e and discri,inatory acts. 0. Conditions on Liability L"na !. Astrada %1>>'( 5ALD) The 9arsaw Con!ention was a treaty co,,it,ent !ol"ntarily ass",ed by the ;hilippine go!ern,entconse+"ently it has the force and effect of law in this co"ntry. H"t in the sa,e to.en 1"rispr"dence shows that the 9arsaw Con!ention does not operate as an e#cl"si!e en",eration of the instances for declaring an airline liable for breach of contract of carriage or as an absol"te li,it of the e#tent of that liability. The fail"re of pri!ate respondent to deli!er their l"ggage at the designated ti,e and place does not ipso facto a,o"nt to willf"l ,iscond"ct. 0or willf"l ,iscond"ct to e#ist there ,"st be a showing that the acts co,plained of were i,pelled by an intention to !iolate the law or were in persistent disregard of oneVs rights. It ,"st be e!idenced by a flagrantly or sha,ef"lly wrong or i,proper cond"ct. 8. Ien"e of Co"rt Actions 3ANTO3 !s NORT59A3T ORIANT AIRLINA3 %1>>'( %;etitioner clai,s that Art 'E%1( is a r"le ,erely of
!en"e and was wai!ed by NOA when it did not ,o!e to dis,iss on the gro"nd of i,proper !en"e.( 3C) A n",ber of reasons tend to s"pport the characteri$ation of Art 'E%1( as a 1"risdiction and not a !en"e pro!ision. 1. the wording of Art. 6' w2c indicates the places where the action for da,ages L,"stM be bro"ght "nderscores the ,andatory nat"re of Art 'E%1( '. this characteri$ation is consistent w2 one of the ob1ecti!es of the Con!ention w2c is to reg"late in a "nifor, ,anner the conditions of int4l transportation by air. 6. the Con!ention doesn4t contain any pro!ision prescribing r"les of 1"risdiction other than Art 'E%1( w2c ,eans that the phrase Lr"les as to 1"risdictionM "sed in Art 6' ,"st refer only to Art 'E%1(. In fact the last sentence of Art 6' specifically deals w2 the e#cl"si!e en",eration in Art 'E%1( as L1"risdictionsM w2c as s"ch cannot be left to the will of the parties regardless of the ti,e when the da,age occ"rred. 9here the ,atter is go!erned by the 9arsaw Con!ention 1"risdiction ta.es on a d"al concept. J"risdiction in the international sense ,"st be established in accordance w2 Art 'E%1( of the 9arsaw Con!ention following w2c the 1"risdiction of a partic"lar co"rt ,"st be established p"rs"ant to the applicable do,estic law. Only after the +"estion of which co"rt has
1"risdiction is deter,ined will the iss"e of !en"e be ta.en "p. This second +"estion shall be go!erned by the law of the co"rt to w2c the case is s"b,itted. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '<< of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 CODA O0 COBBARCA a. Berchants and Co,,ercial Transactions %Articles 1/?6( 1. Definition of Berchants Berchant/ is the ,iddle,an between the cons",er and ,an"fact"rer- a ,erchant ,"st do b"siness in his own na,e 1.1. Nat"ral persons * Those who ha!ing legal capacity to engage in co,,erce habit"ally de!ote the,sel!es thereto %Art 1( a Legal capacity to engage in co,,erce) ha!ing co,pleted the age of 1E years61 a 5a!ing free disposition of their property %Art =( * Legal pres",ption of habit"ally engaging in co,,erce e#ists fro, the ,o,ent the person who intends to engage therein anno"nces thro"gh circ"lars newspapers handbills posters e#hibited to the p"blic or in any ,anner whatsoe!er an establish,ent which has for its ob1ect so,e co,,ercial operation.
%Art 6( * A ,erchant need not de!ote his f"ll ti,e to co,,erce 1.'. 0oreign entities * 0oreigners and co,panies created abroad ,ay engage in co,,erce s"b1ect to the laws of their co"ntry with respect to their capacity to contract * 0oreign corporations and partnerships can engage b"siness here pro!ided they get a license fro, the 3AC. 0or ins"rance co,panies they need a certificate of a"thority fro, the Ins"rance Co,,ission. Han.s need a license fro, the Bonetary Hoard. * Code of Co,,erce go!erns) a regards the creation of their establish,ents in ;hilippine territory a their ,ercantile operations and a the 1"risdiction of the co"rts of the ;hilippines. * H"t if there4s a special treaty the treaty go!erns. '. Applicable Laws %whether or not e#ec"ted by ,erchants( a. Code of Co,,erce b. If no pro!ision co,,ercial c"sto,s c. In the absence of these two Ci!il Code * C"sto,s ta.e precedence o!er ci!il law beca"se of the progressi!e character of co,,erce. 0or cent"ries negotiable
instr",ents are go!erned ,ostly by c"sto,s rather than law. H"t ci!il law can also s"pple,ent the Code of Co,,erce 7 the Code does not contain pro!isions on e#ting"ish,ents of obligations or da,ages. 61 The Code of Co,,erce sets it at '1 years b"t RA ?EF> lowered the ,a1ority age to 1E years 6. Absol"te Dis+"alification fro, Trade The following cannot engage in co,,erce nor hold office or ha!e any direct ad,inistrati!e or financial inter!ention in co,,ercial or ind"strial co,panies) a. ;ersons sentenced to the penalty of ci!il interdiction while they ha!e not ser!ed their sentence or ha!e not been a,nestied or pardoned b. ;ersons who ha!e been declared ban.r"pt while they ha!e not obtained their discharge or been a"thori$ed by !irt"e of an agree,ent accepted at a general ,eeting of creditors and appro!ed by 1"dicial a"thority to contin"e at the head of their establish,ents- the discharge being considered in s"ch cases is li,ited to that e#pressed in the agree,ent c. ;ersons who on acco"nt of laws or special pro!isions ,ay not engage in co,,erce =. Relati!e Dis+"alification fro, Trade The following cannot engage in the co,,erce
either in person or by pro#y nor can they hold any office or ha!e any direct ad,inistrati!e or financial inter!ention in co,,ercial or ind"strial co,panies within the li,its of the districts pro!inces or towns in which they discharge their d"ties) a. J"stices of the 3"pre,e Co"rt 1"dges6' and officials of the depart,ent of p"blic prosec"tors in acti!e ser!ice. This pro!ision shall not be applicable to the ,"nicipal ,ayors 1"dges or prosec"ting attorneys nor to those who by chance are te,porarily discharging the f"nctions of 1"dges or prosec"ting attorneys. b. Ad,inistrati!e econo,ic or ,ilitary heads of districts pro!inces or posts c. A,ployees engaged in the collection and ad,inistration of f"nds of the 3tate appointed by the 8o!ern,ent. ;ersons who by contract ad,inister and collect te,porarily or their representati!es are e#e,pted. d. 3toc. and co,,ercial bro.ers of whate!er class they ,ay be. e. Those who by !irt"e of laws or special pro!isions ,ay not engage in co,,erce in a deter,inate territory. f. Be,bers of Congress %4ED Consti( g. ;resident Iice ;resident Cabinet ,e,bers and their dep"ties or assistants %4ED Consti(
h. Be,bers of Constit"tional Co,,ission %4ED Consti( i. ;resident Iice ;resident Be,bers of the Cabinet Congress 3"pre,e Co"rt and the Constit"tional Co,,ission O,b"ds,an with respect to any loan g"aranty or other for, of financial acco,,odation for any b"siness p"rpose by any go!ern,ent/owned or controlled ban. to the, %Art OI 3ec. 1? 4ED Consti( 6' J"dges are no longer dis+"alified as per Bacariola !s. As"ncion %11= 3CRA DD 1>E'(. 3ince the relati!e dis+"alification of 1"dges is political in nat"re this was dee,ed abrogated by change in so!ereignty fro, 3pain to the United 3tates. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '<? of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 Absol"te Incapacity Relati!e Incapacity A#tends thro"gho"t the ;hilippines A#tends only to the territory where the officer is e#ercising his f"nctions Affect of act is n"ll and !oid Affect is to s"b1ect the !iolator to disciplinary action or p"nish,ent <. Acts of Co,,erce %Co,,ercial
Transactions( a. Those acts contained in the Code of Co,,erce b. all others of analogo"s character * The Code of Co,,erce does not atte,pt anywhere to define what co,,ercial transactions are. It only specifies ' general classes. * An act need not be perfor,ed by a ,erchant in order that it ,ay be considered an act of co,,erce %Cia Agricola de Ultra,ar !s. Reyes = ;hil '( ?. Co,,ercial Contracts ?.1. Anforceability of Contracts i. Co,,ercial contracts shall be !alid whate!er the for, and lang"age pro!ided their e#istence is shown by any ,eans established by the ci!il law. AOCA;T when the contract e#ceeds ;6FF %the e+"i!alent of 1 <FF pesetas( it cannot be pro!ed by the testi,ony of a witness alone. There ,"st be so,e other e!idence. ?.'. Afficacy of Contracts i. 8eneral R"le) Co,,ercial contracts are consens"al so a written instr",ent is not necessary. A#ception) in the ff cases in Art <' * Contracts stated in the Code66 or in special laws6= which ,"st be
red"ced to writing or re+"ire for,s or for,alities necessary for their efficacy * Contracts e#ec"ted in a foreign co"ntry in which the law re+"ires certain instr",ents for,s or for,alities for their !alidity altho"gh ;hilippine law does not re+"ire the,. ii. if these contracts do not satisfy the circ",stances respecti!ely re+"ired it shall not gi!e rise to obligations or ca"ses of action ?.6. ;erfection of Contracts i. Contracts entered into by correspondence shall be perfected fro, the ,o,ent an answer is ,ade accepting the offer or the conditions by which the latter ,ay be ,odified. %Art <=( 66 The Code re+"ires specific for,s for charter parties and loans on botto,ry and respondentia %Arts '?D <DE ?<' and D'F(. 6= Negotiable Instr",ents Law re+"ires negotiable instr",ents to be in writing. Ins"rance Code re+"ires pay,ent of pre,i", for a fire ins"rance contract to e#ist. ii. Note that receipt of the acceptance by the offeror is i,,aterial a Theory of ,anifestation) in co,,ercial transactions since ti,e is of the essence the contract is
perfected fro, the ,o,ent the acceptance is sent e!en if it has not yet been recei!ed by the offeror. The offeror can no longer withdraw the offer or change the ter,s of his offer. a Theory of cognition) in ci!il law when a contract is entered into by correspondence it will be perfected only "pon receipt by the offeror of the "nconditional acceptance of the offeree. iii. Co,pare with Art 161> Ci!il Code) ;erfection is only fro, the ti,e the offeror has act"al .nowledge of acceptance. i!. HUT different r"le when a bro.er or agent inter!enes) perfection is when the contracting parties shall ha!e accepted his offer. %Art <<( ?.=. Inde,nification i. If the penalty for inde,nification is fi#ed the in1"red party ,ay de,and thro"gh legal ,eans the f"lfill,ent of the contract or the penalty stip"lated. Reco"rse to one e#ting"ishes the other "nless the contrary is stip"lated. %Art <?( ?.<. Interpretation i. Interpretation and co,pliance in good faith and f"ll enforceability of their
pro!isions in their plain "s"al and proper ,eanings %Art <D( ii. In case of conflicts between copies of the contract and an agent inter!ened in the negotiation that which appears in the agent4s boo. shall pre!ail %Art <E( iii. In case of do"bt and the r"les cannot resol!e the conflict iss"es shall be decided in fa!or of the debtor %Art <>( ?.?. Biscellaneo"s pro!isions i. Days of grace co"rtesy or others which "nder any na,e whatsoe!er defer the f"lfill,ent of co,,ercial obligations shall not be recogni$ed e#cept those in which the parties ,ay ha!e pre!io"sly fi#ed in contract or which are based on a definite pro!ision of law. %Art ?1(. Ratio) Ti,e is of the essence in co,,ercial contracts so days of grace are prohibited. A#ception) 6F/day grace period in the Ins"rance Code to pay pre,i",s ii. Debtor is in delay when) a If day of perfor,ance is fi#ed by the parties or by law debtor is in defa"lt on the day following the day fi#ed %art ?6( a If no period is fi#ed 1F days fro, e#ec"tion of contract and on 11th day debtor in delay witho"t need
of de,and %Art ?'( a ;otestati!e period %Mwhen debtor desiresM( debtor is in delay fro, de,and iii. Art. <F. Co,,ercial contracts. They are go!erned by) 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '<D of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 a( Code of Co,,erce b( 3pecial law 7 if it4s the appropriate law li.e the Ins"rance Code c( Ci!il Code 7 to be applied in a s"ppletory ,anner to other special laws. %This is not the sa,e as in Art. '. If what is in!ol!ed is an act of co,,erce apply Art. '. H"t if it is a co,,ercial contract apply Art. <F.( D. Co,,ercial Registry a. A boo. where entries are ,ade of ,erchants and of doc",ents affecting their co,,ercial transactions or b. An office established for the p"rpose of copying and recording !erbati, certain classes of doc",ents of co,,ercial nat"re D.1. Nat"re of registration) a by indi!id"al ,erchants 7 optional a by corporation 7 co,p"lsory as it is the fact of registration which creates the corporation a partnerships with a capital of ;6FFF or ,ore
or where the contrib"tions consists of real estate properties 7 co,p"lsory per Art. 1DD' Ci!il Code a ;hilippine !essels * with ,ore than 6 tons gross 7 co,p"lsory * with gross tonnage of 6 tons or less 7 optional %Har Re!iew Baterials in Co,,ercial Law 7 J. Bira!ite 'FF< ed.( D.'. Affect of fail"re to register a an indi!id"al ,erchant who fails to register cannot re+"est the inscription of any doc",ent in the ,ercantile registry nor ta.e ad!antage of its effects %Art. 1E Code of Co,,erce( a fail"re to register the articles of incorporation will not create the corporation a fail"re to register the partnership does not affect the e#istence of 1"ridical personality whether or not it has ;6FFF or ,ore or real estate properties in contrib"tions by the partners %Har Re!iew Baterials in Co,,ercial Law 7 J. Bira!ite 'FF< ed.( D.6. Hoo..eeping of Co,,erce * National Internal Re!en"e Code) a ta#payer ,"st .eep a 1o"rnal and a ledger. H"t if his gross +"arterly receipts do not e#ceed ;<FFF he can .eep a si,plified set of boo.s. In the case of corporations and partnerships if their gross inco,e e#ceed ;'< FFF +"arterly their
boo.s ,"st be a"dited by an independent C;A. * NIRC also re+"ires that the boo.s ,"st be .ept for 6 years. In case of corporations the Corporation Code re+"ires the, to .eep record of all b"siness transactions ,in"tes of ,eeting of HOD and stoc.holder and stoc. and transfer boo.. * Art. =E lays down certain e!identiary r"les regarding .eeping of boo.s) a This is an ad,ission against interest. The entries in the boo.s of ,erchants ,ay be "sed as e!idence against the,. a If the boo.s of ' ,erchants conflict where 1 boo. is .ept in accordance with law while the other is not the for,er will pre!ail. a If one ,erchant does not present his boo.s while the other presents his and are .ept in accordance with law the one who presents will pre!ail "nless the reason for fail"re to prod"ce is ca"sed by a fort"ito"s e!ent. a If both boo.s are .ept in accordance with law and they conflict the co"rt will decide on the basis of the r"les of preponderance of e!idence by ta.ing into consideration the totality of the e!idence presented by both sides. E. C"entas en ;articipacion * A partnership the e#istence of which was only .nown to those who had an interest in
the sa,e being no ,"t"al agree,ents between the partners and witho"t a corporate na,e indicating to the p"blic in so,e way that there were other people besides the one who ostensibly ,anaged and cond"cted the b"siness is e#actly the accidental partnership of c"entas en participacion defined in article '6> of the Code of Co,,erce. * Those who contract with the person "nder whose na,e the b"siness of s"ch partnership of c"entas en participacion is cond"cted shall ha!e only a right of action against s"ch person and not against the other persons interested and the latter on the other hand shall ha!e no right of action against the third person who contracted with the ,anager "nless s"ch ,anager for,ally transfers his right to the,. %Art '=' of the code Of Co,,erce.( %Ho"rns !s Car,an 1>F?( Joint Acco"nt ;artnership No fir, na,e 5as a fir, na,e No co,,on f"nd 5as co,,on f"nd No 1"ridical personality 5as 1"ridical personality Only ostensible partner liable to 6rd persons All general partners liable to 6rd persons Only ostensible partner
,anages All general partners ,anage Li+"idation done by ostensible partner Li+"idation entr"sted to any partner2s 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '<E of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 b. Letters of Credit %Articles <?D/<D'( 1. Definition * An engage,ent by a ban. or other person ,ade at the re+"est of a c"sto,er that the iss"er %ban.( will honor a draft or other de,ands for pay,ent or other co,plaints with the conditions specified in the credit. %;r"dential Han. !s. IAC 1>>'(. * An instr",ent iss"ed by a ban. in behalf of a c"sto,er a"thori$ing a beneficiary to draw a draft or drafts which will be honored on presentation to the ban. if drawn in accordance with the ter,s and conditions specified in the letter of credit. * Art. <?D Code of Co,,erce) those iss"ed by one ,erchant to another or for the p"rpose of attending to a co,,ercial transaction. '. ;"rpose * To satisfy the see,ingly irreconcilable interests
of a seller who ref"ses to part with his goods before he is paid and a b"yer who wants to ha!e control of the goods before paying. %Han. of A,erica !s. CA 1>>6( * The pri,ary p"rpose of the LoC is to s"bstit"te for and s"pport the agree,ent of the b"yer2i,porter to pay ,oney "nder a contract or other arrange,ent. It creates in the seller2e#porter a sec"re e#pectation of pay,ent. 6. Nat"re * The b"yer ,ay be re+"ired to contract a ban. to iss"e a letter of credit in fa!or of the seller so that the iss"ing ban. can a"thori$e the seller to draw drafts and engage to pay the, "pon their present,ent si,"ltaneo"sly with the tender of doc",ents re+"ired by the letter of credit. The seller gets paid only if he deli!ers the doc",ents of title o!er the goods while the b"yer gets the goods only after rei,b"rsing the ban.. * Hasic principle) ban. deals with doc",ents only. As s"ch they are not +"alified to deal with goods. They will act on the basis of doc",ents only. * 6 distinct and separate contracts in the LoC) a One lin.s the party applying for the LoC %b"yer( and the party for whose benefit the LoC is iss"ed %seller(. a Hetween the acco"nt party %b"yer( and the iss"ing ban.. Under this contract
%so,eti,es called the TApplication and Agree,entT or the TRei,b"rse,ent Agree,entT( the acco"nt party applies to the iss"ing ban. for a specified LoC and agrees to rei,b"rse the ban. for a,o"nts paid by that ban. a Hetween the iss"ing ban. and the beneficiary %seller( in order to s"pport the contract. It is the LoC proper in which the ban. pro,ises to pay the seller p"rs"ant to the ter,s and conditions stated therein * Independent contracts in!ol!ed in a LoC) a contract of sale between b"yer and seller a contract of the iss"ing ban. a LoC =. 5ow it wor.s) <. ;erfection of the LoC * 0ro, the ti,e the correspondent ban. ,a.es pay,ent to persons in whose fa!or the LoC has been opened %Hel,an Inc. !s. Central Han. 1><E( * Ta.e note) The opening of a LoC is only a ,ode of pay,ent which is not an essential re+"isite of a contract %Johannes 3ch"bac. U 3ons !s. CA 1>>6(. A contract can still be perfected e!en witho"t the perfection of a LoC. ?. R"les on LoC Han. of A,erica !s. CA %1>>6( * If there is no pro!ision in the Code of Co,,erce follow Unifor, C"sto,s and
;ractice or generally obser!ed "sages and c"sto,s * R"le of 3trict Confor,ity2Co,pliance) Doc",ents tendered ,"st strictly confor, to the ter,s of the LoC. The tender of doc",ents by the beneficiary %seller( ,"st incl"de all doc",ents re+"ired by the letter. A correspondent ban. which departs fro, what has been stip"lated "nder the letter of credit as when it accepts a fa"lty tender acts on its own ris.s and it ,ay not thereafter be able to reco!er fro, the b"yer or the iss"ing ban. as the case ,ay be the ,oney th"s paid to the beneficiary 0eati Han. !s CA %1>>1( * An ad!ising or notifying ban. does not inc"r any obligation by the notification. Its only obligation is to chec. the apparent a"thenticity of the LoC * Negotiating ban. has a right of reco"rse against the iss"er ban.. Until the negotiating Iss"ing ban. iss"es LoC in fa!or of seller 3eller ships goods to the b"yer and deli!ers doc",ents of title and draft to the iss"ing %or negotiating( ban. to reco!er pay,ent H"yer proc"res LoC and obliges hi,self to rei,b"rse the iss"ing ban. "pon receipt of the doc",ents of title Iss"ing ban. opens a LoC with a correspondent ban.
abroad %ban./to/ban. transaction 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '<> of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 ban. is rei,b"rsed drawer of the draft is still contingently liable. * Relationship between the seller and the negotiating ban. is li.e that between drawer and p"rchaser of drafts ie. the in!ol!ed ban. deals only with doc",ents and not on the goods described in the doc",ents. D. Obligations of ;arties in Letter of Credit * Independence ;rinciple) Negotiating ban. has no d"ty to !erify if what is described in the LoC or shipping doc",ents act"ally tallies with that loaded aboard a ship. Han.s do not deal with the property to be e#ported or shipped to the i,porter b"t deal only with doc",ents. International c"sto, negates any d"ty on the part of a ban. to !erify whether what has been described in letters of credits or drafts or shipping doc",ents act"ally tallies with what was loaded aboard ship H;I !s De Reny 0abrics %1>DF( * LoC is a pri,ary obligation of the ban.. It is separate fro, the "nderlying contract it ,ay s"pport and is not ,erely an accessory contract. E. ;arties E.1. H"yer
/ proc"res the LoC and obliges hi,self to rei,b"rse the iss"ing ban. "pon receipt of the doc",ent4s title E.'. Iss"ing ban. / "nderta.es to pay the seller "pon receipt of the draft and proper doc",ents of titles and to s"rrender the doc",ents to the b"yer "pon rei,b"rse,ent E.6. 3eller / who in co,pliance with the contract of sale ships the goods to the b"yer and deli!ers the doc",ents of title and draft to the iss"ing ban. to reco!er pay,ent. E.=. Other parties ,ay incl"de) a Ad!ising %notifying( ban. / ,ay be "tili$ed to con!ey to the seller the e#istence of the credit a Confir,ing ban. / will lend credence to the LoC iss"ed by a lesser .nown iss"ing ban.. The confir,ing ban. is directly liable to pay the sellerbeneficiary a ;aying ban. / "nderta.es to encash the drafts drawn by the e#porter2seller a Instead of going to the place of the iss"ing ban. to clai, pay,ent the b"yer ,ay approach another ban. %ter,ed the negotiating ban.( to ha!e the draft disco"nted %Charles Lee !s
CA 'FF'( >. Letter of Credit/Tr"st Receipt Transaction * Han. e#tends loan to borrower. Loan is co!ered by a LoC and the sec"rity for the loan is a tr"st receipt. 1F. Rinds of LoC 1F.1. Co,,ercial LoC 1F.'. Tra!eller4s LoC Note) No protest is re+"ired in case of dishonor. LoCs are iss"ed to definite persons and not to order th"s non/negotiable. 1F.6.Other .inds) %3"ndiangRe!iewer( a Confir,ed LoC / whene!er the beneficiary stip"lates that the obligation of the opening ban. shall also be ,ade the obligation of another ban. to hi,self a Irre!ocable LoC/ a definite "nderta.ing on the part of the iss"ing ban. and constit"tes the engage,ent of that ban. to the beneficiary and bona fide holders of drafts drawn and2or doc",ents presented there"nder that the pro!isions for pay,ent acceptance or negotiation contained in the credit will be d"ly f"lfilled pro!ided that all ter,s and conditions of the credit are co,plied with.
/ Iss"ing ban. cannot re!o.e witho"t consent of beneficiary and applicant %9itho"t s"ch consent it cannot be cancelled e!en by a co"rt order( a Re!ol!ing LoC / one that pro!ides for renewed credit to beco,e a!ailable as soon as the opening ban. has ad!ised that the negotiating or paying that the drafts already drawn by the beneficiary ha!e been rei,b"rse to the opening ban. by the b"yer a Hac./to/Hac. LoC / a credit with identical doc",entary re+"ire,ents and co!ering the sa,e ,erchandise as another LoC e#cept for a difference in the price of the ,erchandise as shown by the in!oice and the draft. The second letter can be negotiated only after the first is negotiated. a 3tandby LoC / a sec"rity arrange,ent for the perfor,ance of certain obligations. It can be drawn against only if another b"siness transaction is not perfor,ed. It ,ay be iss"ed in lie" of a perfor,ance bond. / an absol"te "nderta.ing to
pay the ,oney ad!anced or the a,o"nt for which credit is gi!en on the faith of the instr",ent. They are pri,ary obligations and not accessory contracts. H"t while they are a sec"rity arrange,ent they are not con!erted thereby into contracts of g"aranty. %IHAA !s IAC 1>EE( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '?F of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 11. 3ight Drafts * No present,ent re+"ired before acceptance. 1'. Bargin 0ee * Ta# on sale of foreign e#change. 3ince the contract of sale is consens"al it falls d"e as soon as the local ban. opens the LoC %;acific O#ygen Co,pany !s. Central Han. 1>?E(. 1.I. H"l. 3ales Law %Act6><' asa,ended( 1. ;"rpose * To reg"late the sale transfer ,ortgage or assign,ent of goods wares ,erchandise pro!isions or ,aterials in b"l. and prescribing penalties for the !iolation of the pro!isions thereof. * To pre!ent the defra"ding of creditors by
the secret sale or disposal or ,ortgage in b"l. of all or s"bstantially all of a ,erchant4s stoc. of goods b"l. "ntil the creditor of the seller shall ha!e been paid in f"ll. * The law is penal in nat"re. Th"s its pro!isions ,"st be strictly constr"ed against the go!ern,ent and liberally in fa!or of the acc"sed. * The general sche,e of the law is to declare s"ch b"l. sales fra"d"lent and !oid as to creditors of the !endor or pres",pti!ely so "nless specified for,alities are obser!ed s"ch as the de,anding and the gi!ing of a list of creditors the gi!ing of act"al or constr"cti!e notice to s"ch creditors by the record or otherwise and the ,a.ing of an in!entory. %Co,,ents and Cases on 3ales 7 De Leon 'FF< ed.( * J"stification) police power of the state %Liwanag !s Bengra1( '. Types of 3ales in H"l.6< * Not in the ordinary co"rse of trade or b"siness Any sale transfer ,ortgage or assign,ent of a stoc. of goods wares ,erchandise pro!isions or ,aterials %3ec '( * In the co"rse of trade or b"siness 3ale transfer ,ortgage or assign,ent of all or s"bstantially all of the b"siness or trade cond"cted or of all or s"bstantially all of
6< This topic ca,e o"t in 'FFD 'FF? 'FF< 'FF1 'FFF 1>>D 1>>< 1>>= 1>>6 1>EE. 3pecific +"estions were as.ed of sec. ' and sec. <. In 1>E' +"estions on the rights and liabilities of parties were as.ed these are co!ered in sections 6 = < and >. the fi#t"res and e+"ip,ent "sed in and abo"t the b"siness %3ec '( * A#e,pt Transactions) a 3ale or ,ortgage is ,ade in the ordinary co"rse of b"siness a 9hen acco,panied with a written wai!er by all the seller2,ortgagor4s creditors %3ec. '( a 3ale by !irt"e of a 1"dicial order %3ec. E( a 3ale by assignee in insol!ency or those beyond the reach of creditors a 3ale of properties e#e,pt fro, attach,ent or e#ec"tion %R"le 6> 3ec. 16 R"les of Co"rt( * Creditors conte,plated) a Creditor at the ti,e of the sale2,ortgage a Need not be 1"dg,ent creditors a Clai, need not be d"e * 0ra"d"lent con!eyance "nder the H"l. 3ales Law as against transfer in fra"d of creditors "nder the CC) a The for,er is n"ll and !oid while the latter %"nder Arts. 16E1/16E>( is rescissible and is !alid "ntil set aside by a co,petent co"rt a 9hen the law is d"ly co,plied with the
creditors ,ay not ob1ect to the transaction b"t it ,ay be rescinded if it is shown that it was in fact ,ade in fra"d of creditors %;andect of Co,,ercial Law and J"rispr"dence / J"stice Iit"g 1>>D ed.( * The law co!ers all transactions whether done in good faith or not or whether the seller is in a state of insol!ency or not as long as the transaction falls within the description of what is a Lb"l. saleM. Neither the ,oti!e nor the intention of the seller nor the res"lting conse+"ence thereof to his estate constit"tes an ele,ent of what is a b"l. sale- nor is the proof thereof rele!ant in deter,ining whether the said transaction falls within the co!erage of the law. Albercht !s C"di.ee %D> ;ac. ?'E( The co,,on "se of the ter, stoc. when applied to goods in a ,ercantile ho"se refers to that which are .ept for sale. Hoise Credit Ben4s Assoc. !s Allis %166 ;ac. ?( Berchandise ,"st be constr"ed to ,ean s"ch things as are "s"ally bo"ght and sold in trade by ,erchants. %;eople4s 3a!ings Han. !s Hen Allsb"rg 161 N.9. 1F1( It ,eans so,ething that is sold e!eryday and is constantly going o"t of the store and being replaced by other goods. Hrown !s Q"igley %16F N.9. ?>F( The ter, %fi#t"res( refers to s"ch articles of ,erchandise "s"ally possessed and anne#ed to the
pre,ises occ"pied by ,erchants to enable the, better to store handle and display their wares altho"gh re,o!able witho"t ,aterial in1"ry to the pre,ises at or before the end of tenancy. Co,,ents ad Cases on 3ales 7 De Leon 'FFF ed. Lands and b"ildings are not Lgoods ,erchandise and fi#t"resM therefore not co!ered by the H3L. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '?1 of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 ;hilippine Law on 3ales 7 Iillan"e!a 1>>E ed. * The +"alification Lin the nor,al co"rse of b"sinessM applies only to the first type of b"l. sale defined by law. * 0ra"d and insol!ency is not an ele,ent of what constit"tes LH"l. 3alesM. * The law co!ers all transactions whether done in good faith or bad faith. 6. D"ties of ;ersons 3elling in H"l. 6.1. 3tate,ent of Creditors Iendor ,"st before recei!ing fro, the !endee ,ortgagee or agent any part of the p"rchase price or any pro,issory note ,e,orand", or other e!idence therefore deli!er a written state,ent of creditors with the following infor,ation) i. na,es and addresses of all creditors to who, said !endor or ,ortgagor ,ay be indebted ii. a,o"nt of indebtedness d"e or owing or to beco,e d"e or owing
to each of said creditors %3ec 6( The sworn state,ent shall be registered in the H"rea" of Co,,erce. 0or the registration of each s"ch sworn state,ent a fee of fi!e pesos shall be charged. %3ec >( If the !endor2,ortgagor recei!es any part of the p"rchase price or any pro,issory note or other e!idence of indebtedness witho"t ha!ing first deli!ered the sworn state,ent and witho"t applying the p"rchase or ,ortgage ,oney of the said property to the pro rata pay,ent of the bona fide clai,s of the creditors of the !endor or ,ortgagor he shall be dee,ed to ha!e !iolated this Act and any s"ch sale transfer or ,ortgage shall be fra"d"lent and !oid. %3ec =( If the !endor 2 ,ortgagor shall .nowingly or willf"lly ,a.e deli!er or ca"se to be ,ade or deli!ered a state,ent which shall not incl"de the na,es of all s"ch creditors w2 the correct a,o"nt d"e and to beco,e d"e to each of the, or shall contain any false or "ntr"e state,ent shall be dee,ed to ha!e !iolated the pro!isions of this Act. %3ec ?( The !endor ,ortgagor transferor or assignor ,"st apply the p"rchase ,oney to the pro/rata pay,ent of bona fide clai,s of the creditors as shown in the !erified state,ent. 6.'. In!entory and Notification Iendor 2 ,ortgagor ,"st at least ten days
before the sale transfer or e#ec"tion of a ,ortgage i. ,a.e a f"ll detailed in!entory ii. preser!e the sa,e showing the +"antity and so far as is possible with the e#ercise of reasonable diligence the cost price to the !endor transferor ,ortgagor or assignor of each article to be incl"ded in the sale transfer or ,ortgage iii. notify e!ery creditor whose na,e and address is set forth in the !erified state,ent personally or by registered ,ail of the price ter,s conditions of the sale transfer ,ortgage or assign,ent. 6.6. Transfer for Consideration It shall be "nlawf"l for !endor to transfer title witho"t consideration or for a no,inal consideration only. %3ec D( =. Conse+"ences of Non/co,pliance Any person !iolating any pro!ision of this Act shall be p"nished by i,prison,ent not less than si# ,onths nor ,ore than fi!e years or fined in s", not e#ceeding fi!e tho"sand pesos or both. %3ec 11( =.1. Inco,plete or false or "ntr"e sworn written state,ent is a !iolation =.'. Affects of false state,ents in the
sched"le of creditors a 9itho"t .nowledge of the b"yer) if the state,ent is fair "pon its face he will be protected a 9ith .nowledge or i,p"ted .nowledge of b"yer) the !endee accepts it at his peril. The sale is !alid between the !endor and the !endee b"t !oid as the against the creditors a 9ith na,es of certain creditors witho"t notice) the sale is !oid as to s"ch creditors whether that o,ission was fra"d"lent or not a 9ith respect to an innocent p"rchaser for !al"e fro, the original p"rchaser) p"rchaser shall be protected =.6. Affects of !iolation of law on transfer a As between the parties) !alid contract a As between persons other than the creditors) !alid a As to affected creditors of the seller2,ortgagor) !oid a Cri,inal liability if e#pressly pro!ided 1.II 9areho"se Receipts Law %Act '16D( 1. ;"rpose and Co!erage * To reg"late the stat"s rights and liabilities of the parties in a wareho"sing contract
* To protect those who in good faith and for !al"e ac+"ire negotiable wareho"se receipts by negotiation * To render the title to and the right of possession of property stored in wareho"ses ,ore easily con!ertible * To facilitate the "se of wareho"se receipts as doc",ents of title 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '?' of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 * In order to acco,plish these to place a ,"ch greater responsibility on the wareho"se,an * Co!ers negotiable wareho"se receipts which can only be iss"ed by a wareho"se,an in the b"siness of recei!ing co,,odities on deposit for storage. In all other cases where receipts are not iss"ed by a wareho"se,an Art. 1<FD/ 1<'F of the Ci!il Code applies * 0or p"blic and pri!ate wareho"ses * Hills of lading and +"edans are go!erned by Art 1<FD/1<'F and 1?6? of the Ci!il Code %Ratio) 3"gar centrals that iss"e +"edans are not wareho"se,en( * H"t note) a wareho"se receipt is also cited in Art 1?6? as a doc",ent of title * All other negotiable receipts are co!ered by the law on negotiable instr",ents '. Definitions '.1. 9areho"se,an a ;erson lawf"lly engaged in the b"siness of
storing goods for profit %3ec. <Ea( a D"ly a"thori$ed officer2agent of a wareho"se,an ,ay !alidly iss"e a wareho"se receipt %National Han. !s ;rod"cer4s 9areho"se Association =' ;hil ?F>( '.'. 9areho"se a H"ilding or place where goods are deposited and stored for profit '.6. 9areho"se receipt a 9ritten ac.nowledg,ent by a wareho"se,an that he has recei!ed and holds certain goods therein described in store for the person to who, it is iss"ed a 3i,ple written contract between the owner of the goods and the wareho"se,an to pay the co,pensation for that ser!ice a Hilateral contract- i,ports that goods are in the ho"se of the wareho"se,an and is a sy,bolical representation of the property itself. a Not a negotiable instr",ent altho"gh it is negotiable as pro!ided by the act. 6. Nat"re2Characteristics of 9areho"se Receipts6? 6.1. 0"nction of 9areho"se Receipt Negotiation carries with it transfer of title o!er the co,,odity co!ered by the receipt %th"s it has the sa,e f"nction as a negotiable bill of lading(
A#cept) 9here a negotiable wareho"se receipt is indorsed and deli!ered to a creditor as a collateral for a loan If co,,odity co!ered by receipt is lost thro"gh a fort"ito"s e!ent the debtor will bear loss Bartine$ !s ;NH %1><6( 6? The negotiation and transfer of receipts was as. in 'FFD 'FF< 1>>6 and 1>D>. 9here a wareho"se receipt or +"edan is transferred or endorsed to a creditor only to sec"re the pay,ent of a loan or debt the transferee or endorsee does not a"to,atically beco,e the owner of the goods co!ered by the wareho"se receipt or +"edan b"t he ,erely retains the right to .eep and with the consent of the owner to sell the, so as to satisfy the obligation fro, the proceeds of the sale this for the si,ple reason that the transaction in!ol!ed is not a sale b"t only a ,ortgage or pledge and if the property co!ered by the +"edans or wareho"se receipts is lost later witho"t the fa"lt or negligence of the ,ortgagee or pledgee or the transferee or endorsee of the wareho"se receipt or +"edan then said goods are to be regarded as lost on acco"nt of the real owner ,ortgagor or pledgor. 6.'. 0or, of 9areho"se Receipt 3ec '. 9areho"se receipts need not be in any partic"lar for, b"t e!ery s"ch receipt ,"st e,body within its written or printed ter,s) i. The location of the wareho"se
where the goods are stored ii. The date of the iss"e of the receipt iii. The consec"ti!e n",ber of the receipt i!. A state,ent whether the goods recei!ed will be deli!ered to the bearer to a specified person or to a specified person in his order !. The rate of storage charges !i. A description of the goods or of the pac.ages containing the, !ii. The signat"re of the wareho"se,an or his a"thori$ed agent !iii. If the receipt is iss"ed for goods of which the wareho"se,an is owner either solely or in co,,on with others the fact of s"ch ownership and i#. A state,ent of the a,o"nt of ad!ances ,ade and of liabilities inc"rred for which the wareho"se,an clai,s a lien. If the precise a,o"nt of s"ch ad!ances ,ade or of s"ch liabilities inc"rred is at the ti,e of the iss"e of "n.nown to the wareho"se,an or to his agent who iss"es it a
state,ent of the fact that ad!ances ha!e been ,ade or liabilities inc"rred and the p"rpose thereof is s"fficient. * The date of iss"e appearing in the receipt indicates pri,a facie the date when the contract of deposit is perfected and when the storage charges shall begin to r"n against the depositor. * The ,ere fact that the goods deposited are incorrectly described does not ,a.e ineffecti!e the receipt when the identity of the goods is f"lly established by e!idence. Th"s its endorse,ent and deli!ery shall constit"te a s"fficient transfer of the title of the goods %A,erican 0oreign Han.ing Corp. !s 5erridge => ;hil >D<(. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '?6 of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 6.6. Affect of Non/co,pliance) a 3ec. '. A wareho"se,an shall be liable to any person in1"red thereby for all da,ages ca"sed by the o,ission fro, a negotiable receipt of any of the ter,s herein re+"ired. a If any of these re+"isites in 3ec ' are absent it beco,es a deposit only 6.=. Affect of o,ission of any of the essential ter,s) a Ialidity of receipt is not affected a 9areho"se,an is liable for da,ages
a Negotiability of receipt is not affected a The iss"ance of a wareho"se receipt in the for, pro!ided by the law is ,erely per,issi!e and directory and not ,andatory in the sense that if the re+"ire,ents are not obser!ed then the goods deli!ered for storage beco,e ordinary deposits 6.<. Ter,s that cannot be incl"ded a Those contrary to the pro!isions of the 9areho"se Receipts Law a Those which ,ay i,pair his obligation to e#ercise that degree of care in the safe.eeping of the goods entr"sted to hi, which a reasonably caref"l ,an wo"ld e#ercise in regard to si,ilar goods of his own a Those contrary to law ,orals p"blic c"sto,s p"blic order or p"blic policy a Those e#e,pting the wareho"se,an fro, liability for ,isdeli!ery a Those e#e,pting the wareho"se,an fro, liability for negligence 6.?. Rinds of 9areho"se Receipts i. Non/negotiable 3ec. =. A receipt in which it is stated that the goods recei!ed will be deli!ered to the depositor or to any other specified person 3ec. D. A non/negotiable receipt shall ha!e plainly placed "pon its face by the
wareho"se,an iss"ing it Lnon/negotiableM or Lnot negotiable.M In case of the wareho"se,an4s fail"re so to do a holder of the receipt who p"rchased it for !al"e s"pposing it to be negotiable ,ay at his option treat s"ch receipt as i,posing "pon the wareho"se,an the sa,e liabilities he wo"ld ha!e inc"rred had the receipt been negotiable. This section shall not apply to letters ,e,oranda or written ac.nowledge,ent of an infor,al character. * It is transferred by its deli!ery to the transferee acco,panied by a deed of assign,ent donation or other for, of transfer * Affect of fail"re to ,ar. LnegotiableM) does not render it non/negotiable if it contains words of negotiability ii. Negotiable 3ec. <. A receipt in which it is stated that the goods recei!ed will be deli!ered to the bearer or to the order of any person na,ed in s"ch receipt No pro!ision shall be inserted in a negotiable receipt that it is non/negotiable. 3"ch pro!ision shall be !oid. * It is negotiated either by deli!ery or indorse,ent * 9hen negotiable receipt not re+"ired to be
s"rrendered Astrada !s CAR %1>?1( %No s"rrender needed if ordered by co"rt( The 3C ordered the ,anager of Boncada Honded 9areho"se to release shares in palay witho"t the necessity of prod"cing and s"rrendering the original of the wareho"se receipts iss"ed. The 3C stated Lo"r order ,"st be carried o"t in the ,eanti,e that this cases ha!e not been finally decided in order to a,eliorate the precario"s sit"ation in which said petitioners find the,sel!es.M * D"plicate Receipts 3ec. ?. 9hen ,ore than one negotiable receipt is iss"ed for the sa,e goods the word Ld"plicateM shall be plainly placed "pon the face of e!ery s"ch receipt e#cept the first one iss"ed. A wareho"se,an shall be liable for all da,ages ca"sed by his fail"re to do so to any one who p"rchased the s"bse+"ent receipt for !al"e s"pposing it to be an original e!en tho"gh the p"rchase be after the deli!ery of the goods by the wareho"se,an to the holder of the original receipt. * Negotiable !s Non/negotiable receipts6D Non/Negotiable Negotiable If goods are sold by assign,ent assignee ,"st ad!ise wareho"se,an. Until he does his rights
,ay be defeated by a s"bse+"ent attaching creditor or a s"bse+"ent le!y on e#ec"tion or a !endor4s lien or stoppage in transit" that co"ld be enforced against the assignor As long as the goods co!ered by a negotiable wareho"se receipt these goods ,ay not be attached etc. Rights of the transferee) 1. Title of the goods as against the transferor %,erely steps into the shoes( '. Right to notify the wareho"se,an of the transfer and ac+"ire the direct obligation of the wareho"se,an to hold the goods for hi, Rights of the person to who, it is negotiated %holder() 1. Title to the goods of the person
negotiating the receipt and title of the person to whose order the goods were to be deli!ered '. Direct obligation of the wareho"se,an to hold possession of the goods for hi, as if the wareho"se,an directly contracted 6D The co,parison between negotiable !ers"s nonnegotiable wareho"se receipts was as.ed in 'FFD 1>EE 1>E= 1>E6 and 1>E'. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '?= of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 Non/Negotiable Negotiable with hi, Negotiation defeats the lien of the seller of the goods %sec. >( 8oods represented can be s"b1ect to attach,ent or le!y by e#ec"tion %3ec. ='( 8oods represented cannot be s"b1ect to attach,ent or le!y by e#ec"tion "nless in proper circ",stances %3ec.
'<(6E a Deli!er to O 7 this is non/negotiable. To sell the goods the wareho"se receipt ,"st be assigned a Deli!er to O or order / this is negotiable. The goods can be sold by special endorse,ent and deli!ery a Deli!er to O or bearer/ this is negotiable beca"se it is deli!erable to bearer. The goods can be sold by deli!ery. * Lost2destroyed receipts 3ec. 1=. Lost 2 destroyed receipts 9here a negotiable receipt has been lost 2 destroyed a co"rt ,ay order the deli!ery of the goods "pon a satisfactory proof of loss2 destr"ction a gi!ing of a bond with s"fficient s"reties to be appro!ed by the co"rt to protect the wareho"se,an fro, any liability or e#pense which he or any person in1"red by s"ch deli!ery ,ay inc"r by reason of the original receipt re,aining o"tstanding A co"rt ,ay also order pay,ent of wareho"se,an4s reasonable costs and co"nsel fees. The deli!ery of goods shall not relie!e the
wareho"se,an fro, liability to a person to who, the negotiable receipt has been2shall be negotiated for !al"e witho"t notice of the proceedings2deli!ery of goods. =. Assign,ent and Negotiation 3ec =1. A person to who, a negotiable receipt has been d"ly negotiated ac+"ires thereby) a. 3"ch title to the goods as the person negotiating the receipt to hi, had or had ability to con!ey to a p"rchaser in good faith for !al"e and also s"ch title to the goods as the depositor or person to whose order the goods were to be deli!ered by the ter,s of the receipt had or had ability to con!ey to a p"rchaser in good faith for !al"e and b. The direct obligation of the wareho"se,an to hold possession of the goods for hi, according to the ter,s of the receipt as f"lly as if the wareho"se,an and contracted directly with hi,. 6E 3ec. '< was as.ed in 1>>> and 1>E1. Note) Negotiable 9areho"se Receipt is different fro, a Negotiable Instr",ent Note) Negotiation ta.es effect as of the ti,e when the indorse,ent is act"ally ,ade. Negotiable Instr",ents Negotiable 9areho"se Receipts
Allow negotiation If deliberately altered it beco,es n"ll and !oid If altered it is still !alid b"t can be enforced only accdg to its original tenor 3"b1ect is ,oney 3"b1ect is ,erchandise Ob1ect of !al"e is the instr",ent itself Ob1ect of !al"e is the goods deposited Liability of inter,ediate parties is secondary %NIL( Liability of inter,ediate parties is none %for fail"re to deli!er goods( If originally payable to bearer it will always re,ain so e!en if it is endorsed specially or in blan. If originally payable to bearer b"t is endorsed specially it will beco,e deli!erable to order and can only be negotiated by indorse,ent and deli!ery 5older in d"e co"rse
,ay obtain a title better than that which the party negotiating to hi, had Andorsee e!en if a holder in d"e co"rse obtains only s"ch title as the person negotiating had o!er the goods * 9ho ,ay negotiate a wareho"se receipt) a its owner a any person to who, the possession or c"stody of the receipt has been entr"sted by the owner if by the ter,s of the receipt the goods are deli!erable to the person to who, the possession or c"stody of receipt has been entr"sted or in s"ch a for, that it ,ay be negotiated by deli!ery %3ec. =F( * 9arranties) a that receipt is gen"ine a legal right to negotiate a no .nowledge of defects that ,ay i,pair receipt a right of transfer to title o!er goods and that the goods are ,erchantable * The indorser does not g"arantee that the wareho"se,an will co,ply with his d"ties %3ec. =<(
* Creditor recei!ing the wareho"se receipt which is gi!en as a collateral ,a.es no warranty %3ec. =?( <. Rights and D"ties of a 9areho"se,an6> <.1. Rights a Degree of Care 6> The obligation and liabilities of a wareho"se,an was as.ed in 'FF 1>>> 1>>E 1>>6 1>>1 1>E= 1>E> 1>EF 1>DE and 1>DD. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '?< of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 3ec 6. A wareho"se,an ,ay insert in a receipt iss"ed by hi, any other ter,s and conditions pro!ided that s"ch ter,s and conditions shall not) ### a( in any wise i,pair his obligation to e#ercise that degree of care which a reasonably caref"l ,an wo"ld e#ercise in regard to si,ilar goods of his own 8eneral R"le) 9areho"se,an is re+"ired to e#ercise s"ch degree of care which a reasonable caref"l owner wo"ld e#ercise o!er si,ilar goods of his own. 5e shall be liable for any loss or in1"ry to the goods ca"sed by his fail"re to e#ercise s"ch care. A#ception) 5e shall not be liable for any loss or in1"ry which co"ld not ha!e been a!oided by the e#ercise of s"ch care. A#ception to the e#ception) 5e ,ay li,it
his liability to an agreed !al"e of the property recei!ed in case of loss. 5e cannot stip"late that he will not be responsible for any loss ca"sed by his negligence. a To be paid a In case of non/pay,ent to e#ercise his lien on the goods deposited a To ref"se deli!ery in proper legal circ",stances <.'. D"ties a Iss"e a wareho"se receipt in the re+"ired for, for goods recei!ed a Obligation to Deli!er 8oods 3ec E. A wareho"se,an in the absence of so,e lawf"l e#c"se pro!ided by this Act is bo"nd to deli!er the goods "pon a de,and ,ade either by the holder of a receipt for the goods or by the depositor- if s"ch de,and is acco,panied with) 1. an offer to satisfy the wareho"se ,an4s lien '. an offer to s"rrender the receipt if negotiable with s"ch indorse,ents as wo"ld be necessary for the negotiation of the receipt- and 6. a readiness and willingness to sign when the goods are deli!ered an ac.nowledge,ent that they ha!e been deli!ered if s"ch signat"re is re+"ested
by the wareho"se,an. The b"rden shall be "pon the wareho"se,an to establish the e#istence of a lawf"l e#c"se for s"ch ref"sal. 8eneral R"le) a de,and sho"ld be ,ade on the wareho"se,an in order that the d"ty to deli!er the goods will arise A#ception) when the wareho"se,an has rendered it beyond his power to deli!er the goods de,and ,ay be dispensed with :Art. 11?>%6( Ci!il Code@ 3ec >. A wareho"se,an is 1"stified in deli!ering the goods to one who is) 1. the person lawf"lly entitled to the possession of the goods or his agent'. a person who is either hi,self entitled to deli!ery by the ter,s of a nonnegotiable receipt iss"ed for the goods or who has written a"thority fro, the person so entitled either indorsed "pon the receipt or written "pon another paper- or 6. a person in possession of a negotiable receipt by the ter,s of which the goods are deli!erable to hi, or order or to bearer or which has been indorsed to hi, or in blan. by the person to who, deli!ery was pro,ised by the ter,s of the receipt or by his ,ediate or i,,ediate indorser.
3ec. 1F. 9hen a wareho"se,an deli!ers the goods to one who is not in fact lawf"lly entitled to the possession of the, the wareho"se,an shall be liable as for con!ersion to all ha!ing a right of property or possession in the goods if he deli!ered the goods otherwise than as a"thori$ed by %b( and %c( of 3ec > Tho"gh he deli!ered the goods as a"thori$ed by said s"bdi!isions he shall be so liable if prior to s"ch deli!ery he had either) 1. been re+"ested by or on behalf of the person lawf"lly entitled not to ,a.e s"ch deli!ery or '. had infor,ation that the deli!ery abo"t to be ,ade was to one not lawf"lly entitled Con!ersion / an "na"thori$ed ass",ption and e#ercise of the right of ownership o!er goods belonging to another thro"gh the alteration of their condition or the e#cl"sion of the owner4s right %Ho"!ier4s Law Dictionary( 3ec. 1D.=F If ,ore than one person clai,s the title2possession of the goods the wareho"se,an ,ay either as a defense to an action or as an original s"it re+"ire all .nown clai,ants to interplead. 3ec. 1E. If) 1. so,eone other than the depositor or person clai,ing "nder hi, has a clai,
to the title or possession of goods AND '. the wareho"se,an has infor,ation of s"ch clai, the wareho"se,an shall be e#c"sed fro, liability for ref"sing to deli!er the goods "ntil he has had) '. reasonable ti,e to ascertain the !alidity of the ad!erse clai, OR 6. bring legal proceedings to co,pel clai,ants to interplead * 3ec. 1E not applicable to cases where the wareho"se,an hi,self ,a.es a clai, to the goods %?D C.J. <6?( * In case there are ad!erse clai,ants the wareho"se,an can ref"se to deli!er the goods to anyone of the, "ntil he has had =F This topic on ad!erse clai,ants was as.ed in 'FF< and 1>D<. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '?? of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 reasonable ti,e to ascertain the !alidity of the !ario"s clai,s- he is not e#c"sed fro, liability in case he ,a.es a ,ista.e %Co,,ents and Cases on Credit Transactions 7 De Leon 'FF' ed.( * Original action or co"nterclai, for interpleader whiche!er is appropriate. In s"ch case the wareho"se,an will be relie!ed fro, liability in deli!ering the goods to the person fo"nd by the co"rt to
ha!e a better right %Co,,ents and Cases on Credit Transactions 7 De Leon 'FF' ed.( * Other instances when the wareho"se,an ,ay ref"se to deli!er) a when the holder of the receipt does not satisfy the conditions prescribed in 3ec. E a when the wareho"se,an has legal title in hi,self on the goods s"ch title or right being deri!ed directly or indirectly fro, the transfer ,ade by the depositor at the ti,e or s"bse+"ent to the deposit for storage or fro, the wareho"se,an4s lien %3ec. 1?( 8eneral r"le) The wareho"se,an cannot ref"se to deli!er on the gro"nd that he owns the goods %bailee cannot assert title to the goods entr"sted to hi,(. A#ceptions) In the ' cases ,entioned abo!e a 9here the goods ha!e already been lawf"lly sold to third persons to satisfy the wareho"se,an4s lien or disposed of beca"se of their perishable nat"re %3ec. 6?( a In the !alid e#ercise of the wareho"se,an4s lien %3ec. 61( a The wareho"se,an will not be re+"ired to deli!er the goods if s"ch
had been lost. H"t this is witho"t pre1"dice to liabilities which ,ay be inc"rred by hi, d"e to s"ch loss. a On co,,ingling of 8oods 8eneral R"le ) 3ec. '' A wareho"se,an shall .eep the goods so far separate fro, 1. the goods of other depositors and '. fro, other goods of the sa,e depositor for which a separate receipt has been iss"ed as to per,it at all ti,es the identification and redeli!ery of the goods deposited. A#ception) 3ec. '6. 1. If a"thori$ed by agree,ent or c"sto, and '. 8oods are f"ngible the wareho"se,an ,ay ,ingle with other goods of the sa,e .ind and grade. The !ario"s depositors shall own the entire ,ass and each shall be entitled to s"ch portion as the a,o"nt deposited by hi, bears to the whole. * The wareho"se,an shall be se!erally liable to each depositor for the care and redeli!ery of his share of s"ch ,ass to the sa,e e#tent and "nder the sa,e circ",stances as if the goods had been .ept separate. a To ins"re the goods in proper circ",stances
* 9here the law pro!ides * 9here it was an ind"ce,ent for the depositor to enter into the contract * Astablished practice * 9here the wareho"se receipt contains a representation to that effect a To ,ar. a non/negotiable wareho"se receipt as s"ch a To ,ar. as s"ch the d"plicates of a negotiable wareho"se receipt a To gi!e the proper notice in case of sale of the goods as pro!ided in the law a To ta.e "p and cancel the wareho"se receipt when the goods are deli!ered a Other D"ties * If wareho"se,an fails to cancel receipt when he deli!ers goods he is liable if receipt sho"ld t"rn "p again %3ec 11( * 9areho"se,an sho"ld record partial deli!ery on receipt or else he is liable on entire receipt %3ec 1'( * If alteration is a"thori$ed wareho"se,an is liable as altered. If not a"thori$ed wareho"se,an is liable as originally iss"ed %3ec 16( * Affects of alteration) Alteration i,,aterial %tenor of receipt not changed(
%9ON fra"d"lent- 9ON a"thori$ed( wareho"se,an is liable on the altered receipt accdg to its original tenor Alteration ,aterial b"t a"thori$ed 9areho"se,an is liable accdg to its ter,s as altered Baterial alteration innocently ,ade Liable accdg to its original tenor Baterial alteration fra"d"lently ,ade Liable accdg to the original tenor to a p"rchaser of receipt for !al"e witho"t notice and e!en to the alterer and s"bse+"ent p"rchasers with notice %e#cept that liability is li,ited only to deli!ery as he is e#c"sed fro, any liability( * A fra"d"lent alteration cannot di!est the title of the owner of the stored
goods and the wareho"se,an is liable to ret"rn the, to the owner * A bona fide holder ac+"ires no right to the goods "nder a lost or stolen negotiable receipt or to which the indorse,ant of the depositor has been forged 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '?D of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 * 9areho"se,an is liable for iss"ing receipt for non/e#isting goods or ,isdescribed goods %3ec. 'F( Affect of ,isdescription of goods) * 9areho"se,an is "nder the obligation to deli!er the identical property stored with hi, and if he fails to do so he is liable directly to the owner. * As against a bona fide p"rchaser of a wareho"se receipt the wareho"se,an is estopped fro, denying that he has recei!ed the goods described in the receipt * If the description consists ,erely of ,ar.s or label "pon the goods or "pon the pac.ages containing the, the wareho"se,an is not liable e!en if the goods are not of the .ind as indicated in the ,ar.s or labels. * 9areho"se,an is estopped to set "p title in hi,self %3ec 1?(
* Non/deli!ery or goods do not correspond to description \P wareho"se,an is liable ?. 9areho"se,an4s Lien 3ec. 'D. A wareho"se,an shall ha!e a lien on the goods deposited or on the proceeds thereof for 1. all lawf"l charges for storage and preser!ation of goods '. all lawf"l clai,s for ,oney ad!anced interest ins"rance transportation labor weighing coopering and other charges in relation to s"ch goods 6. all reasonable charges for notice and ad!ertise,ents of sale =. sale of goods where defa"lt has been ,ade in satisfying the wareho"se,an4s lien * In case of a negotiable receipt the charges that are present at the ti,e of the iss"ance of the receipt ,"st be so stated in the receipt with the a,o"nts thereof specified. If the e#isting charges are not stated the wareho"se,an shall ha!e no lien thereon e#cept only for charges for storage of those goods s"bse+"ent to the date of the receipt. 3ec. 'E. A wareho"se,an4s lien ,ay be enforced) 1. against all goods belonging to the person who is liable as debtor for the clai,s '. against all goods belonging to others
which ha!e been deposited at any ti,e by the person who is liable as debtor for the clai,s If s"ch person had been so entr"sted with the possession of goods s"ch that a pledge by hi, at the ti,e of the deposit to one who too. the goods in good faith for !al"e wo"ld ha!e been !alid. 3ec. '>. A wareho"se,an loses his lien) 1. by s"rrendering possession of the goods '. by ref"sing to deli!er the goods when a de,and is ,ade with which he is bo"nd to co,ply 3ec. 61. A wareho"se,an ha!ing a !alid lien against the person de,anding the goods ,ay ref"se to deli!er the goods "ntil the lien is satisfied. * The wareho"se,an4s lien is possessory in nat"re %;NH !s J"dge 3e( * In!ol"ntary parting with possession of goods ordinarily does not res"lt in loss of his lien by a wareho"se,an %>6 C.J.3. <>( * A wareho"se,an who has released his lien by the s"rrender of the goods ,ay not thereafter clai, a lien on other goods of the sa,e depositor for "npaid charges on the goods if the goods were deli!ered to hi, "nder different bail,ents * The loss of the wareho"se,an4s lien does not necessarily ,ean the e#ting"ish,ents of the
depositor4s obligation to pay the wareho"sing fees and charges which s"bsists to be a personal liability * Re,edies disc"ssed in ;NH !s. 3a1o '>' 3CRA 'F' %1>>E( a To ref"se to deli!er the goods "ntil his lien is satisfied %3ec 61( a To sell the goods by p"blic a"ction and apply the proceeds to the !al"e of the lien %3ec 66 and 6=( Affects) * the wareho"se,an is not liable for non/deli!ery e!en if the receipt gi!en for the goods were negotiated %3ec. 6?( * where the sale was ,ade witho"t the p"blication re+"ired and before the ti,e pro!ided by law s"ch sale is !oid and the p"rchaser of the goods ac+"ires no title in the, %Aastern ;aper Bills Co. Inc. !s Rep"blic 9areho"sing Corp 1DF 3CRA <><( a Hy other ,eans allowed by law to a creditor against his debtor to collect fro, the depositor all charges and ad!ances which the depositor
e#pressly or i,pliedly contracted with the wareho"se,an to pay %3ec 6'( a Other re,edies allowed by law to enforce a lien against personal property %3ec 6<( * The wareho"se,an ,ay ref"se to deli!er goods to any holder of the receipt when the storage fee stip"lated in the receipt has not yet been paid ;NH !s. 3e %1>>?( 9hile the ;NH is entitled to the stoc.s of s"gar as the endorsee of the +"edans deli!ery to it shall be effected only "pon pay,ent of the storage fees. I,perati!e is the right of the wareho"se,an to de,and pay,ent of his lien at this 1"nct"re beca"se in accordance with 3ection '> of the 9areho"se Receipts Law the wareho"se,an loses his lien "pon goods by s"rrendering possession thereof. In other words the lien ,ay be lost where the wareho"se,an s"rrenders the possession of the goods witho"t re+"iring pay,ent of his lien beca"se a wareho"se,anVs lien is possessory in nat"re. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '?E of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 * H"t the wareho"se,an cannot ref"se to deli!er the goods beca"se of an ad!erse clai, of ownership :;NH !s. 3ayo '>' 3CRA 'F' %1>>E(@ * R"les on attach,ent2e#ec"tion of goods
deposited) a In case of negotiable receipt the goods cannot be attached or le!ied in e#ec"tion "nless) * receipt is first s"rrendered * its negotiation is en1oined * receipt is i,po"nded by the co"rt %3ec. '<( Creditor4s re,edies) see. for the attach,ent of the receipt or see. aid fro, co"rts to co,pel the debtor to satisfy clai,s by ,eans allowed by law in regard to property which cannot readily be attached or le!ied "pon by ordinary process %3ec. '?( Not applicable) * If the depositor is not the owner of the goods %thief( or one who has no right to con!ey title to the goods binding "pon the owner * Actions for reco!ery or ,an"al deli!ery of goods by the real owner * 9here attach,ent is ,ade prior to the iss"ance of receipt Rights ac+"ired by attaching creditors cannot be defeated by the iss"ance of a negotiable receipt of title thereafter %International Hreeding Co. !s Ter,inal 9areho"se Co. 1'? Atl. >F'( a In case of a non/negotiable receipt the
goods can be attached pro!ided it is done prior to the notification of the wareho"se,an of the transfer %3ec. ='(reason) absent s"ch notice both the wareho"se,an and the sheriff ha!e a right to ass",e that the goods are still owned by the person whose na,e appears in the receipt D. Liabilities=1 Ci!il liabilities Cri,inal liabilities 9areho"se,an or his agent 0or da,ages s"ffered for fail"re to co,ply with legal d"ties 1. iss"ance of receipts for goods not recei!ed %3ec. <F( '. iss"ance of receipt containing false state,ent %3ec. <1( 6. iss"ance of
d"plicate negotiable wareho"se receipt not ,ar.ed as s"ch %3ec. <'( =. iss"ance of =1 ;lease read footnote ?. Ci!il liabilities Cri,inal liabilities a negotiable wareho"se receipt for goods of which he is an owner witho"t stating s"ch fact of ownership %3ec. <1( <. deli!ery of goods witho"t obtaining negotiable wareho"se receipt %3ec. <=( 6rd persons Negotiation of wareho"se receipt iss"ed
for ,ortgaged goods with intent to decei!e 8eneral Honded 9areho"se Act %Act 6E>6 as a,ended by RA '=D( 1. ;"rpose * An act to reg"late the b"siness of recei!ing co,,odities for storage gi!ing the director of Co,,erce and Ind"stry the d"ty to enforce if pro!iding penalties for !iolation of the pro!isions e#e,pting cooperati!e ,ar.eting associations of co,,odity prod"cers fro, application thereof. * To protect depositors by gi!ing the, a direct reco"rse against the bond filed by the wareho"se,an in case of the latter4s insol!ency * To enco"rage the establish,ent of ,ore wareho"ses '. Definition of Ter,s '.1. 9areho"se A!ery b"ilding str"ct"re or other protected enclos"re in which co,,odities are .ept for storage. '.'. 9areho"se,an A person engaged in the b"siness recei!ing co,,odities for storage '.6. Receipt Any receipt iss"ed by a wareho"se,an for
co,,odities deli!ered to hi,. 8on$ales !s 8o Tiong %1><E( The .ind or nat"re of the receipts iss"ed by hi, for the deposits is not !ery ,aterial ,"ch less decisi!e. Tho"gh it is desirable that receipts iss"ed by a bonded wareho"se,an sho"ld confor, to the pro!isions of the 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '?> of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 9areho"se,an Receipts Law said pro!isions are not ,andatory. Under 3ection 1 of the 9areho"se Receipts Act the iss"ance of a wareho"se receipt in the for, pro!ided by it is ,erely per,issi!e and directory and not obligatory. * Co,,odities a Any far, agric"lt"ral or hortic"lt"ral prod"cta ani,al and ani,al h"sbandry or li!estoc. dairy or po"ltry prod"cta water ,arine or fish prod"cta ,ineral che,ical dr"g or ,edicinal prod"cta forestry prod"ct- and any raw processed ,an"fact"red or finished prod"ct or by/prod"ct a good article or ,erchandise either of do,estic or of foreign prod"ction or origin which ,ay be traded or dealt in openly and legally.
6. H"siness of Recei!ing Co,,odities for 3torage The b"siness of recei!ing co,,odities for storage shall incl"de any contract or transaction wherein 1. the wareho"se,an is obligated to ret"rn the !ery sa,e co,,odities deli!ered to hi, or pay its !al"e'. the co,,odities deli!ered is to be ,illed for and on acco"nt of the owner thereof6. the co,,odities deli!ered is co,,ingled with the co,,odities deli!ered by or belonging to other persons and the wareho"se,an is obligated to ret"rn the co,,odities of the sa,e .ind or pay its !al"e. * The .inds of co,,odity to be deposited ,"st be those which ,ay be traded or dealt in openly and legally. Th"s illegal and prohibited goods ,ay not be !alidly recei!ed %3ec. '( * The wareho"se,an is not co!ered by law if the owner ,erely rents space to a certain gro"p of persons beca"se the law co!ers wareho"se that accepts goods) %a( storage %b( ,illing and co,,ingling with the obligation to ret"rn the sa,e +"antity or to pay their !al"e. Li,1oco !s Director of Co,,erce %1>?<( Any contract or transaction wherein the palay deli!ered is to be ,illed for and on acco"nt of the owner shall be dee,ed incl"ded in the b"siness of
recei!ing rice for storage. In other words it is eno"gh that the palay is deli!ered e!en if only to ha!e it ,illed. In this case it is a fact that palay is deli!ered to appellant and so,eti,es piled inside her Tca,aligT in appreciable +"antities to wait for its t"rn in the ,illing process. This is precisely the sit"ation co!ered by the stat"te. The ,ain intention of the law/,a.er is to gi!e protection to the owner of the co,,odity against possible ab"ses %and we ,ight add negligence( of the person to who, the physical control of his properties is deli!ered. =. Re+"ire,ent of License No person shall engage in the b"siness of recei!ing co,,odities for storage witho"t first sec"ring a license therefore fro, the Director of the H"rea" of Co,,erce and Ind"stry. 3aid license shall be ann"al and shall e#pire on the thirty/first day of Dece,ber. Any person applying for a license shall set forth in the application * the place or places where the b"siness and wareho"se are to be established or located and * the ,a#i,", +"antity of co,,odities to be recei!ed. There shall be i,posed an ann"al license fee of) * ;<F for the first 1FFF s+"are ,eters of protected enclos"re or 1FFF c"bic ,eters
of storage space or any fraction of s"ch enclos"re or space and * ' h centa!os for each additional s+"are ,eter or c"bic ,eter. <. Re+"ire,ent of Hond The application shall be acco,panied by a cash bond or a bond sec"red by real estate or signed by a d"ly a"thori$ed bonding co,pany at not less than 66 126G of the ,ar.et !al"e of the ,a#i,", +"antity or co,,odities to be recei!ed. 3aid bond shall be so conditioned as to respond for the ,ar.et !al"e of the co,,odities act"ally deli!ered and recei!ed at any ti,e the wareho"se,an is "nable to ret"rn the co,,odities or to pay its !al"e. The bond shall be appro!ed by the Director of the H"rea" of Co,,erce and Ind"stry before iss"ing a license "nder this Act. 9hene!er the Director shall deter,ine that a bond appro!ed by hi, has beco,e ins"fficient he ,ay re+"ire an additional bond or bonds to be gi!en by the wareho"se,an concerned. Any person in1"red by the breach of any obligation to sec"re which a bond is gi!en shall be entitled to s"e on the bond in his own na,e in any co"rt of co,petent 1"risdiction to reco!er the da,ages he ,ay ha!e s"stained by s"ch breach. Nothing contained herein shall e#cept any property of assets of any wareho"se,an fro, being s"ed on in case the bond gi!en is not s"fficient to respond
for the f"ll ,ar.et !al"e of the co,,odities recei!ed by s"ch wareho"se,an. ?. Re+"ire,ent of Ins"rance A!ery person licensed to engage in the b"siness of recei!ing co,,odities for storage shall ins"re the co,,odities so recei!ed and stored against fire. * 0or palay and corn license a bond with the National 8rains A"thority is re+"ired- also an ins"rance co!er is re+"ired D. D"ties of Honded 9areho"se,an D.1. 3torage of Co,,odities A!ery wareho"se,an shall recei!e for storage so far as his license and the capacity of his wareho"se per,it any co,,odities of the .ind c"sto,arily stored therein by hi, which 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'DF of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 ,ay be tendered to hi, in a s"itable condition for wareho"sing in the "s"al ,anner and in the ordinary and "s"al co"rse of b"siness witho"t ,a.ing any discri,ination between persons desiring to a!ail the,sel!es of wareho"se facilities. D.'. 8i!e the necessary bond D.6. Ins"re against fire the co,,odity recei!ed %3ec. ?( D.=. Record/Reeping and Reporting Re+"ire,ents A!ery wareho"se,an shall .eep a co,plete record of)
* the co,,odities recei!ed by hi, * the receipts iss"ed therefor of the withdrawals * the li+"idations and all receipts ret"rned to and cancelled by hi,. 5e shall ,a.e reports to the Director of H"rea" of Co,,erce and Ind"stry concerning his wareho"se and the conditions contents operations and b"siness. D.<. Obser!e r"les and reg"lations of the H"rea" of Do,estic Trade %3ec. >( * A person in1"red by the breach of the wareho"se,an ,ay s"e on the bond p"t "p by the wareho"se,an to reco!er da,ages he ,ay ha!e s"stained on co"nt of s"ch breach. In case the bond is ins"fficient to co!er f"ll ,ar.et !al"e of the co,,odity stored he ,ay s"e on any property or assets of the wareho"se,an not e#e,pt by law fro, attach,ent and e#ec"tion %3ec. D( E. 9areho"se Receipts Law !s. 8eneral Honded 9areho"se Act 9areho"se Receipts Law 8eneral Honded 9areho"se Act ;rescribes the ,"t"al d"ties and rights of a wareho"se,an who
iss"es wareho"se receipts and his depositor and co!ers all wareho"ses whether bonded or not Reg"lates and s"per!ises wareho"ses which p"t "p a bond WHar Re!iew Baterials in Co,,ercial Law / Jorge Bira!ite 'FF' ed. >. Liabilities a. ci!il) breach of obligations sec"red by the bond b. cri,inal) i. engaging in b"siness co!ered by the Act in !iolation of the license re+"ire,ent %3ec. 11( ii. recei!ing a +"antity of co,,odity greater than its capacity or that specified in the license if the goods deposited are lost or destroyed %3ec. 1'( iii. conni!ance with a wareho"se,an for the p"rpose of e!ading the license re+"ire,ent %3ec. 16( 1.III Tr"st Receipts Law %;D 11<( 1. Definition of Tr"st Receipt * As a doc",ent it is a written or printed doc",ent signed by the entr"stee in fa!or of the entr"ster whereby the latter releases the
goods to the possession of the for,er "pon the entr"stee4s pro,ise to hold said goods in tr"st for the entr"ster to sell or dispose of the goods and to ret"rn the proceeds thereof to the e#tent of what is owing to the entr"sterOR to ret"rn the goods if "nsold or not otherwise dispose of %3ec. =( * Tr"st Receipt transaction 7 a separate and independent sec"rity transaction intended to aid in financing i,porters and retail dealers who do not ha!e s"fficient f"nds to finance the i,portation2p"rchases and who ,ay not be able to ac+"ire credit e#cept thro"gh "tili$ation as collateral of the ,erchandise i,ported2p"rchased %Nac" !s. CA- 3o"th City 5o,e !s. HA 0inance( * 8oods are owned by the ban. and are only released to the i,porter in tr"st after the grant of the loan. The ban. ac+"ires a sec"rity interest in the goods as holder of a sec"rity title for the ad!ances it ,ade to the entr"stee. * Antr"stee ,"st deli!er ,oney or ret"rn "nsold goods to entr"stor * Han. is preferred o!er other creditors. * Han. is also not liable to b"yer of goods as !endor * ;"rchaser fro, entr"stee gets good title. * No partic"lar for, is re+"ired for tr"st receipt b"t it ,"st s"bstantially contain) a Description of the goods doc",ents or
instr",ents s"b1ect of the TR a Total in!oice !al"e of the goods and the a,o"nt of the draft to be paid by the entr"stee a Underta.ing or a co,,it,ent of the entr"stee * to hold in tr"st for the entr"ster the goods doc",ents or instr",ents therein described * to dispose of the, in the ,anner pro!ided for in the tr"st receipt * to t"rn o!er the proceeds of the sale of the goods doc",ents or instr",ents to the entr"ster to the e#tent of the a,o"nt owing to the entr"ster or as appears in the tr"st receipt or to ret"rn the goods doc",ents or instr",ents in the e!ent of their non/sale within the period specified therein %3ec. <( a the tr"st receipt ,ay contain other ter,s and conditions agreed "pon by the parties in addition to those hereinabo!e en",erated pro!ided that s"ch ter,s and conditions shall not be contrary to pro!isions of this Decree any e#isting laws p"blic policy or ,orals p"blic order or good c"sto,s %3ec. <( a tr"st receipts are deno,inated in ;hilippine
c"rrency or acceptable and eligible foreign c"rrency 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'D1 of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 '. ;"rposes of the Law * To enco"rage the "se of and pro,ote transactions based on tr"st receipts- reg"late the "se of tr"st receipts- enco"rage and pro,ote the "se of tr"st receipts as an additional and con!enient aid to co,,erce and trade * To reg"late tr"st receipt transactions in order to ass"re the protection of the rights and the enforce,ent of the obligations of the parties in!ol!ed * To declare the ,is"se or ,isappropriation of goods or the proceeds reali$ed fro, the sale of goods released "nder tr"st receipts as an offense p"nishable "nder Art. 61< R;C %3ec. '( * To p"nish the dishonesty and ab"se of confidence in the handling of ,oney or goods to the pre1"dice of another regardless of whether or not the latter is the owner %Colinares !s. CA 'FFF( 6. Nat"re of Tr"st Receipt Transaction 3ec =. Any transaction by and between an entr"ster and an entr"stee whereby * the entr"ster who owns2holds absol"te title or sec"rity interests o!er certain specified goods
doc",ents or instr",ents * releases the sa,e to the possession of the entr"stee "pon the latterVs e#ec"tion and deli!ery of a signed doc",ent called a Ttr"st receiptT wherein the entr"stee binds hi,self a to hold the designated goods doc",ents or instr",ents in tr"st for the entr"ster and a to sell or otherwise dispose of the goods doc",ents or instr",ents with the obligation to t"rn o!er to the entr"ster the proceeds or the goods doc",ents or instr",ents the,sel!es if they are "nsold or for other p"rposes s"bstantially e+"i!alent to any of the following) * In the case of goods or doc",ents * to sell 2 proc"re their sale- or * to ,an"fact"re or process the goods with the p"rpose of "lti,ate sale) ;ro!ided that the entr"ster shall retain title o!er the goods whether in its original or processed for, "ntil the entr"stee has co,plied f"lly with his obligation "nder the tr"st receipt- or * to load "nload ship or tranship or otherwise deal with the, in a ,anner preli,inary or
necessary to their sale- or * In the case of instr",ents * to sell or proc"re their sale or e#change- or * to deli!er the, to a principalor * to effect the cons",,ation of so,e transactions in!ol!ing deli!ery to a depository or register- or * to effect their presentation collection or renewal The sale of goods2doc",ents2instr",ents by a person in the b"siness of selling s"ch for profit who at the o"tset of the transaction has as against the b"yer * general property rights in s"ch goods2 doc",ents2instr",ents or * who sells the sa,e to the b"yer on credit retaining title or other interest as sec"rity for the pay,ent of the p"rchase price does not constit"te a tr"st receipt transaction and is o"tside the p"r!iew and co!erage of this Decree. Notes ) * This is not a si,ple loan transaction between a creditor and debtor/i,porter * The law warrants the !alidity of the entr"ster4s sec"rity interest as against the creditors of the tr"st receipt agree,ent. ;D 11< Ci!il Code
Altho"gh the entr"stee is not the owner of the goods anyone who b"ys fro, hi, ac+"ires good title o!er the goods H"yer ac+"ires only whate!er title the seller has at the ti,e the sale is perfected %Art 1<F<( A!en if the entr"stee is not the owner he bears ris. of loss while the goods are in his possession 8enerally owner bears loss Landl U Co. %;hil( Inc. !s Betropolitan Han. %'FF=( A tr"st receipt agree,ent is ,erely a collateral agree,ent the p"rpose of which is to ser!e as sec"rity for a loan. Allied Han.ing !s Ordone$ %1>>F( %Capital goods are co!ered.( Applies e!en to goods not destined for sale or ,an"fact"re and wo"ld incl"de ite,s obtained to repair and ,aintain e+"ip,ent "sed in b"siness =. Tr"st Receipts as Against Other Transactions %Notes on 3elected Co,,ercial Laws) A 8"ide for Har Re!iewees Tristan Catindig 'FF6 ed.(
Other transactions Tr"st Receipt Transaction Chattel Bortgage s"b1ects the property to a lien no lien is created o!er the property ;ledge financer possesses the property person financed possesses the property Conditional 3ale There is a sale of the property fro, the seller to the b"yer There is no sale of the property fro, the entr"ster to the entr"stee Consign,ent 1.Hipartite
'.Consignor retains ownership of the property 1. Tripartite '. 3eller does not retain title to the property 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'D' of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 Colinares !s CA %'FFF( %Loan !s tr"st receipts transaction( This sit"ation belies what nor,ally obtains in a p"re tr"st receipt transaction where goods are owned by the ban. and only released to the i,porter in tr"st s"bse+"ent to the grant of the loan. The ban. ac+"ires a Lsec"rity interestM in the goods. The ownership of the ,erchandise contin"es to be !ested in the person who had ad!anced pay,ent "ntil he has been paid in f"ll or if the ,erchandise has already been sold the proceeds of the sale sho"ld be t"rned o!er to hi,. The ban. ta.es f"ll title to the goods and contin"es to hold that as his indispensable sec"rity "ntil the goods are sold and the !endee is called "pon to pay for the,. Tr"st receipts parta.e of the nat"re of a conditional sale where the i,porter beco,es absol"te owner of the i,ported ,erchandise as soon as he has paid its price. Consolidated Han. !s CA %'FF1(
%3i,ple loan !s tr"st receipt transaction( The deli!ery to Corporation of the goods s"b1ect of the tr"st receipt occ"rred long before the tr"st receipt itself was e#ec"ted. This sit"ation is inconsistent with what nor,ally obtains in a p"re tr"st receipt transaction wherein the goods belong in ownership to the ban. and are only released to the i,porter in tr"st after the loan is granted. Robles !s CA %1>>1( %Hipartite transactions are co!ered(. In deciding 9ON the deli!ery tr"st receipts co!ered a trial sale transaction or one that fell "nder the tr"st receipts law the 3C fo"nd that the re+"isites "nder 3ec = were ,et) 1( ;ara,o"nt retained ownership of the office e+"ip,ent co!ered by the receipts'( possession of the goods was s"b1ect to a fid"ciary obligation to ret"rn the, within a specified period or to acco"nt for the proceeds thereof <. ;arties <.1. Antr"ster a lender2financier a person holding title o!er the goods doc",ents or instr",ents s"b1ect of a tr"st receipt transaction- releases possession of the goods "pon e#ec"tion of tr"st receipt a not the owner of the goods b"t ,erely a holder of sec"rity interest
a if it is ,ade to appear in the tr"st receipt as the owner of the goods p"rchased it is ,erely theoretical an artificial e#pedient and ,ore of fiction than fact %8arcia !s. CA- Iintola !s. IHAA- ;NH !s. ;ineda(- see howe!er the contrary !iew of ;rof. Catindig and the r"lings in Colinares !s. CA and ;r"dential Han. !s. IAC <.'. Antr"stee a borrower2b"yer2i,porter a person to who, the goods are deli!ered for sale or processing in tr"st with the obligation to ret"rn the proceeds of sale of the goods or the goods the,sel!es to the entr"ster a the owner of the goods p"rchased- in fact the law i,poses on hi, the ris. of loss of the goods. Res perit do,ino. DH; !s. ;"dential Han. 8.R. 1=6DD' No!. '' 'FF< The entr"stee has NO a"thority to ,ortgage goods co!ered by tr"st receipt. <.6. 3eller of the goods a not strictly and act"ally a party to the tr"st receipt transaction b"t a party to the contract of sale with the b"yer2i,porter %entr"stee( ?. Rights2D"ties of the Antr"ster ?.1. Rights of Antr"ster
a 3ec.D. The entr"ster shall be entitled to * the proceeds fro, the sale of the goods doc",ents or instr",ents to the e#tent of the a,o"nt owing to the entr"ster or as appears in the tr"st receipt or * to the ret"rn of the goods doc",ents or instr",ents in case of non/sale and * to the enforce,ent of all other rights conferred on hi, in the tr"st receipt a A#tent of sec"rity interest * as against the innocent p"rchaser for !al"e 7 not preferred %3ec. 11( * as against creditors of entr"stee 7 preferred %3ec. 1'( ;r"dential Han. !s NLRC %1>><( %Nat"re of interest of entr"ster in goods co!ered( The sec"rity interest of the entr"ster is not ,erely an e,pty or idle title. To a certain e#tent s"ch interest beco,es a TlienT on the goods beca"se the entr"sterVs ad!ances will ha!e to be settled first before the entr"stee can consolidate his ownership o!er the goods. The law warrants the !alidity of petitionerVs sec"rity interest as against all creditors of the tr"st receipt agree,ent. The only e#ception is when the properties are in the hands of an innocent p"rchaser for !al"e and in good faith. ;r"dential Han. !s NLRC %1>><( The goods co!ered by tr"st receipts cannot be
le!ied "pon by creditors of the entr"stee. The entr"ster ,ay cancel the tr"st and ta.e possession of the goods doc",ents or instr",ents s"b1ect of the tr"st or of the proceeds reali$ed therefro, at any ti,e "pon defa"lt or fail"re of the entr"stee to co,ply with any of the ter,s and conditions of the tr"st receipt or any other agree,ent between the entr"ster and the entr"stee. The entr"ster in possession of the goods doc",ents or instr",ents ,ay on or after defa"lt gi!e notice to the entr"stee of the intention to sell and ,ay not less than fi!e days after ser!ing or sending of s"ch notice sell the goods doc",ents or instr",ents at p"blic or pri!ate sale and the entr"ster ,ay at a p"blic sale beco,e a p"rchaser. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'D6 of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 The proceeds of any s"ch sale whether p"blic or pri!ate shall be applied * to the pay,ent of the e#penses thereof* to the pay,ent of the e#penses of reta.ing .eeping and storing the goods doc",ents or instr",ents* to the satisfaction of the entr"steeVs indebtedness to the entr"ster. The entr"stee shall recei!e any s"rpl"s b"t shall be liable to the entr"ster for any
deficiency. ?.'. D"ties of Antr"ster a To gi!e possession of the goods to the entr"stee a To gi!e at least < days notice to the entr"stee of the intention to sell the goods at an intended p"blic sale 3tate In!est,ent !s CA %'FFF( %Antr"ster not entitled to proceeds of sale of goods not co!ered by tr"st receipt( The e!idence for ;NH fails to establish that the !ehicles sold to the 0rancos were a,ong those co!ered by the tr"st receipts. Neither the tr"st receipts co!ering the "nits i,ported nor the corresponding bills of lading contain the chassis and engine n",bers of the !ehicles in +"estion. D. Rights2D"ties of the Antr"stee D.1. Rights of Antr"stee a To recei!e the s"rpl"s fro, the p"blic sale a To ha!e possession of the goods as a condition for his liability "nder the Tr"st Receipt Law %Ra,os !s. CA( D.'. D"ties of Antr"stee 3ec. >. a hold the goods doc",ents or instr",ents in tr"st for the entr"ster and shall dispose of the, strictly in accordance with the ter,s and conditions of the tr"st receipt-
a recei!e the proceeds in tr"st for the entr"ster and t"rn o!er the sa,e to the e#tent of the a,o"nt owing to the entr"ster or as appears on the tr"st receipta ins"re the goods for their total !al"e against loss fro, fire theft pilferage or other cas"altiesa .eep said goods or proceeds separate and capable of identificationa ret"rn the goods doc",ents or instr",ents in the e!ent of non/sale or "pon de,anda obser!e all other ter,s and conditions of the tr"st receipt Iintola !s IHAA %1>ED( %Liability of entr"stee not e#ting"ished by ret"rn of goods to entr"ster( IHAA did not beco,e the real owner of the goods - it was ,erely the holder of a sec"rity title for the ad!ances it had ,ade to the Iintolas. The goods re,ain the Iintolas4 own property. The tr"st receipt arrange,ent did not con!ert the IHAA into an in!estor. The fact that the Iintolas were "nable to sell the seashells does not affect IHAAVs right to reco!er the ad!ances ,ade "nder the Letter of Credit D.6. Ris. of Loss borne by entr"stee 3ec. 1F. The ris. of loss shall be borne by the entr"stee - irrespecti!e of whether or not it was
d"e to the fa"lt or negligence of the entr"stee shall not e#ting"ish his obligation to the entr"ster for the !al"e thereof. D.=. Non/Liability of Antr"ster for 3ale by Antr"stee 3ec. E. The entr"ster holding a sec"rity interest shall not ,erely by !irt"e of s"ch interest or ha!ing gi!en the entr"stee liberty of sale or other disposition of the goods doc",ents or instr",ents be responsible as principal or as !endor "nder any sale or contract to sell ,ade by the entr"stee. E. ;"rchaser in 8ood 0aith * Ac+"isition by p"rchaser of goods in good faith 3ec 11. Any p"rchaser of goods fro, an entr"stee with right to sell or of doc",ents or instr",ents thro"gh their c"sto,ary for, of transfer who b"ys s"ch for !al"e and in good faith fro, the entr"stee ac+"ires said goods doc",ents or instr",ents free fro, the entr"sterVs sec"rity interest. >. Re,edies A!ailable * 0ail"re to t"rn o!er proceeds of the sale of goods or to ret"rn "nsold goods is a p"blic n"isance to be abated by the i,position of penal sanctions %Tio,ico !s. Co"rt of Appeals 1>>>(. * The offense is ,al", prohibit",. There is no need to pro!e da,age to the entr"stor. %Betropolitan Han. !s. Tonda 'FFF( or intent to defra"d %;eople !s. C"er!o 1>E1(
* Offense) estafa "nder Art 61< of the Re!ised ;enal Code. * Also liable for da,ages "nder Art. 66 CC %;r"dential !s. IAC ;; !s. C"er!o BHTC !s. Tonda( * Affect of co,pliance) a before cri,inal charge 7 no cri,inal liability a after charge before con!iction 7 e#ting"ish,ents of cri,inal liability * Liability of entr"stee accr"es on his fail"re to co,ply with his obligation to ret"rn. It is not absol"tely necessary that the entr"ster cancels the tr"st and ta.e possession of the goods to be able to enforce his rights "nder this law. * ;D 11< allows the ban. to ta.e possession of the goods co!ered by the tr"st receipts. Th"s e!en tho"gh the ban. too. possession of the goods co!ered by the tr"st receipts the entr"stees re,ained liable for the entire a,o"nt of the loans co!ered by the tr"st receipts %;hil. Hloo,ing !s. CA( Lee !s Rodil %1>E>( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'D= of 6<1 CODA O0 COBBARCA COBBARCIAL LA9 Acts in!ol!ing the !iolation of tr"st receipt agree,ents occ"rring after '> Jan 1>D6 wo"ld ,a.e the acc"sed cri,inally liable for estafa "nder par1%b( Art 61< of the R;C p"rs"ant to the e#plicit pro!ision in 3ec. 16 of ;.D. 11<.
Allied !s. Ordoie$ The penal pro!isions of ;D 11< enco,passes any act !iolati!e of the obligation co!ered by the tr"st receipt. It is not li,ited to transactions in goods which are to be sold reshipped or stored b"t also applies to goods processed as a co,ponent of a prod"ct "lti,ately sold to the general p"blic. 3ar,iento Jr. !s. CA %'FF'( The breach of obligation of a tr"st receipt agree,ent is separate and distinct fro, any cri,inal liability for L,is"se and2or ,isappropriation of goods or proceeds reali$ed fro, the sale of goods doc",ents or instr",ents released "nder tr"st receiptsM p"nishable "nder 3ec. 16 of the Tr"st Receipts Law %;D 11<( in relation to Article 61<%1( %b( of the Re!ised ;enal Code. Heing based on an obligation e# contract" and not e# delicto the ci!il action ,ay proceed independently of the cri,inal proceedings instit"ted against petitioners regardless of the res"lt of the latter. ;eople !s Nitafan %1>>'( %Iiolation of ;D 11< is an offense against p"blic order not property( The Tr"st Receipts Law p"nishes the dishonesty and ab"se of confidence in the handling of ,oney or goods / it does not see. to enforce pay,ent of the loan. Th"s there can be no !iolation of a right against i,prison,ent for non/pay,ent of a debt. ;.D. 11< li.e H; '' p"nishes the act Tnot as an
offense against property b"t as an offense against p"blic order.M Th"s the law states that a breach of a tr"st receipt agree,ent ,a.es one liable for estafa. ;hilippines Han. !s Ong %'FF'( The 3"pre,e Co"rt r"led that a Be,orand", of Agree,ent entered into between the ban.entr"ster and entr"stee e#ting"ished the obligation "nder the e#isting tr"st receipt beca"se the agree,ent did not only resched"le the debts of the entr"stee b"t it pro!ided principal conditions which are inco,patible with the tr"st agree,ent. 5ence the liability for breach of the Be,orand", of Agree,ent wo"ld be p"rely ci!il in nat"re and no cri,inal liability "nder the Tr"st Receipt Law can be i,posed. ;r"dential Han. !s. NLRC %1>><( Antr"stor can) o cancel tr"st and ta.e possession of the goods o file a 6rd party clai, or separate ci!il action at any ti,e "pon defa"lt or fail"re of entr"stee to co,ply with ter,s and conditions of the tr"st agree,ent T"pa$ II et. al. !s. CA and H;I 8.R. 1=<<DE No!. 1E 'FF< 5ere H;I chose not to file a separate ci!il action to reco!er pay,ent "nder the tr"st receipts. Instead respondent ban. so"ght to reco!er pay,ent in Cri,inal Case Nos. EE=E and EE=>. Altho"gh the
trial co"rt ac+"itted petitioner Jose T"pa$ his ac+"ittal did NOT e#ting"ish his ci!il liability. 5is liability arose not fro, the cri,inal act of which he was ac+"itted %e# delicto( b"t fro, the tr"st receipt contract %e# contract"( of 6F 3epte,ber 1>E1. ;etitioner Jose T"pa$ signed the tr"st receipt of 6F 3epte,ber 1>E1 in his personal capacity. Ac+"ittal in a cri,inal case for estafa does not e#ting"ish ci!il liability arising fro, breach of tr"st receipt contract. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'D< of 6<1 HANRIN8 LA9 COBBARCIAL LA9 8eneral Han.ing Law of 'FFF %RA ED>1( 3ection 1 7 8eneral ;ro!isions 1.F1. LON8 TITLA An act pro!iding for the reg"lation of and organi$ation and operations of ban.s +"asi/ban.s tr"st entities and for other p"rposes. 1.F'. LA93 ;RIBARILK A;;LICAHLA TO DI00ARANT HANR3 =' 1. The 8eneral Han.ing Law %8HL( go!erns a. Uni!ersal Han.s %UH( %esp. 3ecs. '6/ 'E( b. Co,,ercial Han.s %RH( %esp. 3ecs. '>/ 6'( '. The 8HL has s"ppletory application to a. Thrift Han.s %pri,arily go!erned by RA D>F? the Thrift Han.s Act(
b. R"ral Han.s %pri,arily go!erned by RA D6<6 the R"ral Han.s Act( c. Cooperati!e Han.s %pri,arily go!erned by RA ?>6E the Cooperati!e Code( %3ec. D1( Note) 3ec D1) :1@ 0or p"poses of prescribing the ,ini,", ratio which the net worth of a thrift ban. ,"st bear to its total ris. assets the pro!isions of 3ection 66 :sho"ld be 3ec. 6=@ of the 8HL shall go!ern. :'@ Altho"gh 3ec. D1 pro!ides that LIsla,ic ban.s shall be go!erned by special laws.M It does not incl"de Thrift Han.s in the en",eration of Han.s to which the 8HL has application. 6. The entry of foreign ban.s in the ;hil. thro"gh the establish,ent of branches shall be go!erned by the pro!isions of the 0oreign Han.s Liberali$ation Act. The cond"ct of offshore ban.ing b"siness in the ;hil. shall be go!erned by ;D 1F6= the TOffshore Han.ing 3yste, Decree.T %3ec. D'( 1.F6. ;OLICK O0 T5A 8HL * The 3tate recogni$es a. the !ital role of ban.s in pro!iding an en!iron,ent cond"ci!e to the s"stained de!elop,ent of the national econo,y and b. the fid"ciary nat"re of ban.ing that re+"ires high standards of integrity and perfor,ance. * The 3tate shall pro,ote and ,aintain a stable
and efficient ban.ing and financial syste, that is globally co,petiti!e dyna,ic and responsi!e =' This topic was as.ed in 1>EF and 'FF'. Note the characteristics or f"nctions of these ban.s. Also pay attention to the li,itations and restrictions on loans and credit transactions which ,ay be e#tended by the ban.s. to the de,ands of a de!eloping econo,y. %3ec. '( 1.F=. HANR3 DA0INAD) CORA HANRIN8 * THan.sT shall refer to entities engaged in 1. the lending of f"nds '. obtained in the for, of deposits. %3"b3ec. 6.1( * The Llending of f"nds obtained in the for, of depositsM is classical or core ban.ing f"nction of ,obili$ing sa!ings %thro"gh deposit/ta.ing( and allocating reso"rces %thro"gh lending(. It was held in the case of R; ! 3ec"rity Credit and Acceptance Corp %1>?D( that a ban. is La ,oneyed instit"te fo"nded to facilitate the borrowing lending and safe/.eeping of ,oney and to deal in notes bills of e#change and creditsZ. Boreo!er Zan in!est,ent co,pany which loans o"t the ,oney of its c"sto,ers collects the interest and charges a co,,ission to both lender and borrower is a ban.. ### any person engage in the b"siness carried on by ban.s of deposit of disco"nt or of circ"lation is doing a ban.ing b"siness altho"gh b"t one of these f"nctions is e#ercised.M In reality
howe!er ban.s do ,ore than deposit/ta.ing and lending. 3ecs. '> to <6 of the 8HL en",erate these other acti!ities which can all be cond"cted by a Uni!ersal Han. %UH(. 9hat is ,ore both a UH and a Co,,ercial Han. %RH( can ha!e e+"ity interests in allied enterprises. UHs can also be stoc.holders in non/allied enterprises and can e!en e#ercise the powers of an in!est,ent ho"se. %Borales( 1.F<. QUA3I/HANR3 DA0INAD * LQ"asi/ban.sT %QH( refer to entities engaged in the borrowing of f"nds thro"gh the iss"ance endorse,ent or assign,ent with reco"rse or acceptance of deposit s"bstit"tes %as defined in 3ec. >< RA D?<6 the New Central Han. Act( for p"rposes of relending or p"rchasing of recei!ables and other obligations. %last par of 3ec. =( * This is an inherent power of UHs and RHs. Th"s they do not re+"ire separate licensing or a"thori$ation for this p"rpose. Th"s they can ta.e Ldeposit s"bstit"tesM for re/lending. %Borales( 1.F?. DA;O3IT 3UH3TITUTA3 * Deposit s"bstit"tes are / deposits other than sa!ings de,and2c"rrent ti,e2fi#ed deposits b"t also in the for, of cash / obtained fro, the p"blic i.e. 'F or ,ore lenders at any one ti,e
/ obtained thro"gh the iss"ance endorse,ent or acceptance with reco"rse to of debt instr",ents %incl"ding b"t not li,ited to ban.erVs acceptances pro,issory notes participations certificates of assign,ent si,ilar instr",ents with reco"rse and rep"rchase agree,ents( / obtained for the p"rpose of relending or p"rchasing of recei!ables and other obligations. %3ec >< NCHA- 3"bsec. O'6=.'.d Ban"al of Reg"lations for Han.s( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'D? of 6<1 HANRIN8 LA9 COBBARCIAL LA9 * Deposit s"bstit"te ta.ing ,ay be classified as a core/ban.ing operation especially in the case of UHs and RHs which are allowed "nder 3ec. ? of the 8HL to engage in Q"asi/ban.ing acti!ities %,ore appropriately ter,ed deposit s"bstit"te operations as there is nothing T+"asiT abo"t ban.s perfor,ing these operations the,sel!es(. 3ince a deposit s"bstit"te is ,erely a prod"ct of the acti!ity called Q"asi/ban.ing %deposit s"bstit"te operations( deposit s"bstit"te ta.ing ,ay be considered a core ban.ing f"nction in the sense that it ,obili$es sa!ings thro"gh deposits"bstit"te ta.ing. It sho"ld li.ewise be noted that the p"rpose of a deposit/s"bstit"te is relending which is also a core ban.ing f"nction. %Borales(
* The H3; s"per!ises QHs i.e. entities engaged in obtaining deposit s"bstit"tes. This s"per!ision was pre,ised on the finding by the Joint IB0/CH; Han.ing 3"r!ey Co,,ission that Linstit"tionsZ reg"larly engaged in the lending of f"nds obtained fro, the p"blic thro"gh the iss"ance of their own debt instr",ents %other than deposit instr",ents( :and@ Zbeyond the pale of CH reg"latory a"thorityM wea.ened Lto a large e#tent the effecti!eness of CH action in the field of credit reg"lations.M This "nreg"lated seg,ent of the financial syste, was the L,oney ,ar.etM that had de!eloped since the 1>?Fs by what later beca,e .nown as Lin!est,ent ho"ses.M The said ,oney ,ar.et in!ol!ed short/ter, instr",ents and e,erged in response to interest rate ceilings i,posed by the Us"ry Law. These ceilings then applied to deposits in ban.s b"t not to place,ents co"rse thro"gh the in!est,ent ho"ses. Nat"rally in!estors floc.ed to these ho"ses for higher yields. Hefore long the deposit generating ability of the ban.s was serio"sly "nder,ined by the co,petition. In 1>D' the hitherto "nfettered ,oney ,ar.et was called Q"asiban.ing and s"b1ected to CH reg"lation and f"nds placed with +"asi/ban.s were labeled as Ldeposit s"bstit"tes.M %Borales( 1.FD. CLA33I0ICATION O0 HANR3 1. Uni!ersal ban.s %UH(-
'. Co,,ercial ban.s %RH(6. Thrift ban.s co,posed of) a. 3a!ings and ,ortgage ban.s b. 3toc. sa!ings and loan associations and c. ;ri!ate de!elop,ent ban.s =. R"ral ban.s<. Cooperati!e ban.s?. Isla,ic ban.s %"nder RA ?E=E Charter of Al A,anah Isla,ic In!est,ent Han. of the ;hils.(D. Other classifications of ban.s as deter,ined by the BH of the H3;. 1.FE. RULA ON HANRIN8 O;ARATION3 * No person or entity shall engage in ban.ing operations or +"asi/ban.ing f"nctions witho"t a"thority fro, the H3;. ;ersons or entities fo"nd to be perfor,ing ban.ing or +"asiban.ing f"nctions witho"t a"thority fro, the H3; shall be s"b1ect to appropriate sanctions "nder the NCHA and other applicable laws. %3ec. ?( * No person association or corporation "nless d"ly a"thori$ed to engage in the b"siness of a ban. QH tr"st entity or sa!ings and loan association shall ad!ertise or hold itself o"t as being engaged in the b"siness of s"ch ban. QH tr"st entity or association or "se in connection with its b"siness title the word or words Tban.T Tban.ingT Tban.erT TQH T T+"asi/ban.ingT T+"asi/ban.erT Tsa!ings and
loan associationT Ttr"st corporationT Ttr"st co,panyT or words of si,ilar i,port or transact in any ,anner the b"siness of any s"ch ban. corporation or association. %3ec. ?=( * An entity a"thori$ed by the H3; to perfor, UH or RH f"nctions shall li.ewise ha!e the a"thority to engage in +"asi/ban.ing f"nctions. %3ec. ?( Note) The deter,ination of whether a person or entity is perfor,ing ban.ing or +"asi/ban.ing f"nctions witho"t Hang.o 3entral a"thority shall be decided by the BH. To resol!e s"ch iss"e the BH ,ay thro"gh the appropriate s"per!ising and e#a,ining depart,ent of the H3; e#a,ine inspect or in!estigate the boo.s and records of s"ch person or entity. Upon iss"ance of this a"thority s"ch person or entity ,ay co,,ence to engage in ban.ing operations or +"asi/ban.ing f"nctions and shall contin"e to do so "nless s"ch a"thority is sooner s"rrendered re!o.ed s"spended or ann"lled by the H3; in accordance with this Act or other special laws. The depart,ent head and the e#a,iners of the appropriate s"per!ising and e#a,ining depart,ent are hereby a"thori$ed to ad,inister oaths to any s"ch person e,ployee officer or director of any s"ch entity and to co,pel the presentation or prod"ction of s"ch boo.s doc",ents papers or records that are reasonably necessary to ascertain the facts relati!e
to the tr"e f"nctions and operations of s"ch person or entity. 0ail"re or ref"sal to co,ply with the re+"ired presentation or prod"ction of s"ch boo.s doc",ents papers or records within a reasonable ti,e shall s"b1ect the persons responsible therefor to the penal sanctions pro!ided "nder the NCHA. %3ec. ?( 1.F>. AUT5ORITK O0 T5A H3; A. 3"per!ision The operations and acti!ities of ban.s shall be s"b1ect to s"per!ision of the Hang.o 3entral. T3"per!isionT shall incl"de the following) 1. The iss"ance of r"les of cond"ct or the establish,ent of standards of operation for "nifor, application to all instit"tions or f"nctions co!ered'. The cond"ct of e#a,ination to deter,ine co,pliance with laws and reg"lations6. O!erseeing to ascertain that laws and reg"lations are co,plied with=. Reg"lar in!estigation %not oftener than once a year( to deter,ine whether an instit"tion is cond"cting its b"siness on a safe or so"nd basis<. In+"iring into the sol!ency and li+"idity of the instit"tion- or ?. Anforcing pro,pt correcti!e action. %3ec. =( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'DD of 6<1 HANRIN8 LA9 COBBARCIAL LA9 W The H3; shall also ha!e s"per!ision o!er
QHs tr"st entities and other financial instit"tions which "nder special laws are s"b1ect to H3; s"per!ision. %3ec. =( * The H3; shall when e#a,ining a ban. ha!e the a"thority to e#a,ine an enterprise which is wholly or ,a1ority/owned or controlled by the ban.. %3ec. D( H. ;olicy Direction The H3; shall pro!ide policy direction in the areas of ,oney ban.ing and credit. 0or this p"rpose the BH ,ay prescribe ratios ceilings li,itations or other for,s of reg"lation on the different types of acco"nts and practices of ban.s and QHs which shall to the e#tent feasible confor, to internationally accepted standards incl"ding those of the Han. for International 3ettle,ents %HI3(. The Bonetary Hoard ,ay e#e,pt partic"lar categories of transactions fro, s"ch ratios ceilings and li,itations b"t not li,ited to e#ceptional cases or to enable a ban. or +"asi/ban. "nder rehabilitation or d"ring a ,erger or consolidation to contin"e in b"siness with safety to its creditors depositors and the general p"blic. %3ec. <( C. A"thority of H3; o!er H"ilding and 5o,e Associations 9ithin a period of 6 years fro, the effecti!ity of the 8HL the H3; shall phase o"t and transfer its s"per!ising and reg"latory powers o!er b"ilding and loan associations to the 5o,e Ins"rance and 8"aranty Corporation which shall
ass",e the sa,e. %3ec. >=( 3ection ' 7 Organi$ation Banage,ent and Ad,inistration of Han.s Q"asi/Han.s and Tr"st Antities '.F1. CONDITION3 0OR T5A OR8ANINATION O0 HANR3 AND QH3 The Bonetary Hoard ,ay a"thori$e the organi$ation of a ban. or +"asi/ban. s"b1ect to the following conditions) 1. entity ,"st be a stoc. corporation and ,"st only iss"e par !al"e stoc.s'. its f"nds ,"st be obtained fro, the p"blic which shall ,ean 'F or ,ore persons- and 6. ,ini,", capital re+"ire,ents prescribed by the BH for each category of ban.s ,"st be satisfied %3ec. E(. '.F'. CARTI0ICATA O0 AUT5ORITK TO RA8I3TAR The 3AC shall not register the articles of incorporation or the by/laws of any ban. or any a,end,ent thereto "nless acco,panied by a certificate of a"thority iss"ed by the BH "nder its seal. 3"ch certificate shall not be iss"ed "nless the BH is satisfied fro, the e!idence s"b,itted to it that) 1. all re+"ire,ents of e#isting laws and reg"lations to engage in the b"siness for which the applicant is proposed to be incorporated ha!e been co,plied with'. the p"blic interest and econo,ic
conditions both general and local 1"stify the a"thori$ation- and 6. the a,o"nt of capital the financing organi$ation direction and ad,inistration as well as the integrity and responsibility of the organi$ers and ad,inistrators reasonably ass"re the safety of deposits and the p"blic interest. %3ec. 1=( '.F6. ;3A/LI3TAD HANRIN8 COR;ORATION 3UHJACT TO 3AC RA;ORTORIAL RULA3 A co,,ercial ban.ing corporation listed in the ;3A ,"st adhere not only to the ban.ing and other allied special laws b"t also to the r"les pro,"lgated by the 3AC the go!ern,ent entity tas.ed not only with the enforce,ent of the Re!ised 3ec"rities Act b"t also the s"per!ision of all corporations partnerships or associations which are grantees of go!ern,ent/iss"ed pri,ary franchises and2or licenses or per,its to operate in the ;hils.. That s"ch ban.ing instit"tion is "nder the s"per!ision of H3; and ;3A does not e#e,pt it fro, co,plying with the contin"ing discl"se re+"ire,ents e,bodied in the R3A R"les. The ban. is pri,arily s"b1ect to the control of H3;- and as a corporation trading its sec"rities in the stoc. ,ar.et it is "nder the s"per!ision of 3AC. There is no o!er/s"per!ision here- each reg"lating a"thority operates within the sphere of its powers- the stringent re+"ire,ent i,posed are "nderstandable considering the para,o"nt i,portance gi!en to the
interests of the in!esting p"blic. %Union Han. of the ;hils. ! 3AC 'FF1( '.F=. ;RO5IHITION ON TRAA3URK 3TOCR3 No ban. shall p"rchase or ac+"ire shares of its own capital stoc. or accept its own shares as a sec"rity for a loan e#cept when a"thori$ed by the BH) ;ro!ided That in e!ery case the stoc. so p"rchased or ac+"ired shall within ? ,onths fro, the ti,e of its p"rchase or ac+"isition be sold or disposed of at a p"blic or pri!ate sale. %3ec. 1F( '.F<. RA3TRICTION3 ON 0ORAI8N 3TOCR5OLDIN83 0oreign indi!id"als and non/ban. corporations ,ay own or control "p to =FG of the !oting stoc. of a do,estic ban.. This r"le shall apply to 0ilipinos and do,estic non/ban. corporations. %3ec. 11( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'DE of 6<1 HANRIN8 LA9 COBBARCIAL LA9 '.F?. 8RAND0AT5AR RULA The percentage of foreign/owned !oting stoc.s in a ban. shall be deter,ined by the citi$enship of the indi!id"al stoc.holders in that ban.. The citi$enship of the corporation which is a stoc.holder in a ban. shall follow the citi$enship of the controlling stoc.holders of the corporation irrespecti!e of the place of incorporation. %3ec. 11( H3; Circ"lar '<? %'FFF( 3ection 1. 0oreign indi!id"als and non/ban. corporations ,ay own or control "p to =FG of the !oting stoc. of a do,estic ban.) ;ro!ided That the
aggregate foreign owned !oting stoc.s shall not e#ceed =FG of the o"tstanding !oting stoc. of the ban.. 3ection '. A 0ilipino indi!id"al and a do,estic nonban. corporation ,ay each own "p to =FG of the !oting stoc. of a do,estic ban.. There shall be no aggregate ceiling on the ownership by s"ch indi!id"als and corporations in a do,estic ban.. 3ection 6. The citi$enship of the corporation which is a stoc.holder of a ban. shall follow the citi$enship of the controlling stoc.holders of the corporation irrespecti!e of the place of incorporation. The ter, Tcontrolling stoc.holdersT shall refer to indi!id"als holding ,ore than <FG of the !oting stoc. of the corporate stoc.holder. 3ection = The right of ;hilippine corporations howe!er "nder 3ec. E of RA DD'1 %Act Liberali$ing the Antry of 0oreign Han.s( to wit) T# # # Any right pri!ilege or incenti!e granted to foreign ban.s or their s"bsidiaries or affiliates "nder this Act shall be e+"ally en1oyed by and e#tended "nder the sa,e conditions to ;hilippine ban.s. ;hilippine corporations whose shares of stoc.s are listed in the ;3A or are of long standing for at least 1F years shall ha!e the right to ac+"ire p"rchase or own "p to ?FG of the !oting stoc. of a do,estic ban..T shall contin"e to be in force and effect. '.FD. DI3CLO3URA O0 3TOCR5OLDIN83 O0
0ABILK 8ROU;3 OR RALATAD INTARA3T3 * 3toc.holdings of indi!id"als related to each other within the fo"rth degree of consang"inity or affinity legiti,ate or co,,on/law shall be considered fa,ily gro"ps or related interests and ,"st be f"lly disclosed in all transactions by s"ch an indi!id"al with the ban.. %3ec. 1'( * Two or ,ore corporations owned or controlled by the sa,e fa,ily gro"p or sa,e gro"p of persons shall be considered related interests and ,"st be f"lly disclosed in all transactions by s"ch corporations or related gro"ps of persons with the ban.. %3ec. 16( H3; Circ"lar 66' %'FF'( 3toc.holdings of 0a,ily 8ro"ps or Related Interests. Indi!id"als related to each other within the =th degree of consang"inity or affinity whether legiti,ate illegiti,ate or co,,on/law shall be considered fa,ily gro"ps or related interests b"t ,ay each own "p to =FG of the !oting stoc. of a do,estic ban.) ;ro!ided That said relationship ,"st be f"lly disclosed in all transactions by s"ch indi!id"al or fa,ily gro"p with the ban.. Corporate 3toc.holdings. '2,ore corporations owned or controlled by the sa,e fa,ily gro"p or sa,e gro"p of persons shall be considered related interests b"t ,ay each own "p to =FG of the !oting stoc. of a do,estic ban.) ;ro!ided That said relationship ,"st be f"lly disclosed in all
transactions by s"ch corporations or related gro"ps of persons with the ban.. * A nat"ral person and a corporation or corporations which are wholly/owned or a ,a1ority of the !oting stoc. of which is owned by hi, ,ay own only "p to a co,bined =FG of the !oting stoc. of a do,estic ban.. * A!ery nat"ral person ac+"iring shares c","lati!ely a,o"nting to at least 'G of the total s"bscribed capital of a do,estic ban. ,"st disclose all rele!ant infor,ation on all persons related to hi, within the =th degree of consang"inity or affinity as well as corporations partnerships or associations where he has controlling interests. A corporation ac+"iring shares a,o"nting to at least 'G of the total s"bscribed capital of a do,estic ban. ,"st disclose its controlling stoc.holder or gro"p of stoc.holders as well as the corporations partnerships or associations where s"ch controlling stoc.holder or gro"p of stoc.holders ha!e controlling interest. * Ceilings on stoc.holdings in a cooperati!e ban.. The e+"ity in!est,ent of any cooperati!e in any Cooperati!e Han. shall not e#ceed =FG of the s"bscribed capital stoc. of s"ch Cooperati!e Han.. * Any arrange,ent s"ch as !oting tr"st
agree,ent or pro#y which !ests on any person or corporation the right to !ote or control !oting stoc.s in ban.s if s"ch agree,ent in itself or in relation with another pre!io"s si,ilar agree,ent or pre!io"s sale or transfer shall res"lt in the ac+"isition of control in e#cess of the prescribed li,itations is "nlawf"l and !oid. Transfers re+"iring prior Bonetary Hoard appro!al. %a( Any sale or transfer or series of sales or transfers which will res"lt in ownership or control of ,ore than 'FG of the !oting stoc. of a ban. by any person whether nat"ral or 1"ridical or which will enable s"ch person to elect or be elected as a director of s"ch ban.and %b( Any sale or transfer or series of sales or transfers which will effect a change in the ,a1ority ownership or control of the !oting stoc. of the ban. fro, one gro"p of persons to another gro"p) ;ro!ided That in no case shall s"ch sale or transfer be appro!ed "nless the ban. concerned shall i,,ediately co,ply with the prescribed ,ini,", capital re+"ire,ent for new ban.s 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'D> of 6<1 HANRIN8 LA9 COBBARCIAL LA9 3ection 6 7 Hoard of Directors and Officers 6.F1. COB;O3ITION O0 T5A HOARD O0
DIRACTOR3 * The pro!isions of the Corporation Code to the contrary notwithstanding there shall be at least < and a ,a#i,", of 1< ,e,bers of the board of directors of ban. ' of who, shall be independent directors. An Tindependent directorT shall ,ean a person other than an officer or e,ployee of the ban. its s"bsidiaries or affiliates or related interests. %3ec. 1<( * In the case of a ban. ,erger or consolidation the n",ber of directors shall not e#ceed '1. %3ec. 1D( * Non/0ilipino citi$ens ,ay beco,e ,e,bers of the board of directors of a ban. to the e#tent of the foreign participation in the e+"ity of said ban.. %3ec. 1< with 3ec. D RA DD'1( 6.F'. QUALI0ICATION3 2 DI3QUALI0ICATION3 O0 DIRACTOR3 %H3; CIRCULAR '>? - 'FF1( A director shall ha!e the following ,ini,", +"alifications) * At least '< years of age at the ti,e of his election or appoint,ent* At least a college grad"ate or ha!e at least < years e#perience in b"siness* B"st ha!e attended a special se,inar for board of directors cond"cted or accredited by the H3;) * B"st be fit and proper for the position of a director of the ban.2+"asiban.2
tr"st entity. In deter,ining whether a person is fit and proper for the position of a director the following ,atters ,"st be considered) / integrity2probity/ co,petence/ ed"cation/ diligence- and / e#perience2training. The following are ;er,anently dis+"alified fro, being directors ) * Directors2officers2e,ployees per,anently dis+"alified by the BH* ;ersons who ha!e been con!icted by final 1"dge,ent for offenses in!ol!ing dishonesty or breach of tr"st* ;ersons who ha!e been con!icted by final 1"dge,ent for !iolation of ban.ing laws* ;ersons who ha!e been 1"dicially declared insol!ent spendthrift or incapacitated to contract- or * Directors officers or e,ployees of closed ban.s2+"asi/ban.s2tr"st entities who were responsible for s"ch instit"tion4s clos"re. The following are Te,porarily dis+"alified) * Directors2officers2e,ployees dis+"alified by the BH * .;ersons who ref"se to f"lly disclose the e#tent of their b"siness interest. This
dis+"alification shall be in effect as long as the ref"sal persists* Directors who ha!e been absent or who ha!e not participated for whate!er reasons in ,ore than <FG of all ,eetings both reg"lar and special of the board of directors d"ring their inc",bency or any 1' ,onth period d"ring said inc",bency. This dis+"alification applies for p"rposes of the s"cceeding election* ;ersons who are delin+"ent in the pay,ent of their obligations. Delin+"ency in the pay,ent of obligations ,eans that an obligation of a person with a ban.2+"asi ban.2tr"st entity where he2she is a director or officer or at least two obligations with other ban.s2financial instit"tion "nder different credit lines or loan contracts are past d"e. This dis+"alification shall be in effect as long as the delin+"ency persists. * ;ersons con!icted for offenses in!ol!ing dishonesty breach of tr"st or !iolation of ban.ing laws b"t whose con!iction has not yet beco,e final and e#ec"tory* Directors and officers of closed ban.s2+"asi/ban.s2tr"st entities pending their clearance by the BH-
* Directors dis+"alified for fail"re to obser!e2discharge their d"ties and responsibilities prescribed "nder e#isting reg"lations. This dis+"alification applies "ntil the lapse of the specific period of dis+"alification or "pon appro!al by the BH-Directors who failed to attend the special se,inar for board of directors re+"ired* ;ersons dis,issed2ter,inated fro, e,ploy,ent for ca"se. This dis+"alification shall be in effect "ntil they ha!e cleared the,sel!es of in!ol!e,ent in the alleged irreg"larity* Those "nder pre!enti!e s"spension- or * ;ersons with derogatory records with the NHI co"rt police interpol and ,onetary a"thority %central ban.( of other co"ntries %for foreign directors and officers( in!ol!ing !iolation of any law r"le or reg"lation of the 8o!ern,ent or any of its instr",entalities ad!ersely affecting the integrity and2or ability to discharge the d"ties of a ban.2+"asi ban.2tr"st entity director2officer. This dis+"alification applies "ntil they ha!e cleared the,sel!es of in!ol!e,ent in the alleged irreg"larity. 6.F6. QUALI0ICATION32DI3QUALI0ICATION3
O0 O00ICAR3 %H3; CIRCULAR '>? - 'FF1( An officer shall ha!e the following ,ini,", +"alifications) * At least '1 years of age* At least a college grad"ate or ha!e at least < years e#perience in ban.ing or tr"st operations or related acti!ities or in a field related to his position and responsibilities or ha!e "ndergone training in ban.ing or tr"st operations acceptable to the appropriate s"per!ising and e#a,ining depart,ent of the H3;) ;ro!ided howe!er That tr"st officers shall ha!e at least ' years of act"al e#perience or training in tr"st operations or f"nd ,anage,ent or other related fields- and 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'EF of 6<1 HANRIN8 LA9 COBBARCIAL LA9 * B"st be fit and proper for the position he is being proposed2appointed to. In deter,ining whether a person is fit and proper for a partic"lar position the following ,atters ,"st be considered) / integrity2probity/ co,petence/ ed"cation/ diligence- and / e#perience2training. * The dis+"alifications for directors
,entioned for shall li.ewise apply to officers e#cept that stated in Ite,s b.' %persons who ref"se to f"lly disclose the e#tent of their b"siness interest ( and b.D %directors dis+"alified for fail"re to obser!e2discharge their d"ties and responsibilities(. * A#cept as ,ay be a"thori$ed the spo"se or a relati!e within the 'nd degree of consang"inity or affinity of any person holding the position of Chair,an ;resident A#ec"ti!e Iice ;resident or any position of e+"i!alent ran. 8eneral Banager Treas"rer Chief Cashier or Chief Acco"ntant is dis+"alified fro, holding or being elected or appointed to any of said positions in the sa,e ban.2+"asi/ban.- and the spo"se or relati!e within the second degree of consang"inity or affinity of any person holding the position of Banager Cashier or Acco"ntant of a branch or office of a ban.2+"asi/ban.2tr"st entity is dis+"alified fro, holding or being appointed to any of said positions in the sa,e branch or office. * In the case of UHs CHs and THs any appointi!e or electi!e officials whether f"ll ti,e or part ti,e e#cept in cases where s"ch ser!ice is incident to financial
assistance pro!ided by the go!ern,ent or go!ern,ent/owned or controlled corporations or in cases allowed "nder e#isting law. * In the case of Cooperati!e Han.s any officer or e,ployee of the Cooperati!e De!elop,ent A"thority or any electi!e p"blic official e#cept a barangay official. * A#cept as ,ay otherwise be allowed "nder LThe Anti/D",,y LawM as a,ended foreigners cannot be officers or e,ployees of ban.s. 6.F=. 0IT AND ;RO;AR RULA * To ,aintain the +"ality of ban. ,anage,ent and afford better protection to depositors and the p"blic in general the BH shall prescribe pass "pon and re!iew the +"alifications and dis+"alifications of indi!id"als elected or appointed ban. directors or officers and dis+"alify those fo"nd "nfit. After d"e notice to the board of directors of the ban. the BH ,ay dis+"alify s"spend or re,o!e any ban. director or officer who co,,its or o,its an act which render hi, "nfit for the position. In deter,ining whether an indi!id"al is fit and proper to hold the position of a director or officer of a ban. regard shall be gi!en to his integrity e#perience ed"cation training and co,petence. %3ec. 1?( * The s"spension of ban. officers which is only
pre!enti!e in nat"re wo"ld re+"ire no notice or hearing and "ntil s"ch ti,e that the officers ha!e pro!ed their innocence they ,ay be pre!enti!ely s"spended fro, holding office so as not to infl"ence the cond"ct of in!estigation and to pre!ent the co,,ission of f"rther irreg"larities. %H"sego ! CA 1>>>( * As a general r"le a ban.ing corporation is liable for the wrongf"l or tort"o"s acts and declarations of its officers or agents within the co"rse and scope of their e,ploy,ent. A ban. will be held liable for the negligence of its officers or agents when acting within the co"rse and scope of their e,ploy,ent. It ,ay be liable for the tort"o"s acts of its officers e!en as regards that species of tort of which ,alice is an essential ele,ent. A ban. holding o"t its officers and agents as worthy of confidence will not be per,itted to profit by the fra"ds these officers or agents were enabled to perpetrate in the apparent co"rse of their e,ploy,ent- nor will it be per,itted to shir. its responsibility for s"ch fra"ds e!en tho"gh no benefit ,ay accr"e to the ban. therefro,. If an officer or official of a ban. in his official capacity recei!es ,oney to satisfy an e!idence of indebtedness lodged for his ban. collection the ban. is liable for his ,isappropriation of s"ch s",. %;CI Han. ! CA 'FF1( 6.F<. 8OOD 8OIARNANCA %H3; CIRCULAR
'E6- 'FF1( The position of a ban.2+"asi/ban.2tr"st entity director is a position of tr"st. A director ass",es certain responsibilities to different constit"encies or sta.eholders These constit"encies or sta.eholders ha!e the right to e#pect that the instit"tion is being r"n in a pr"dent and so"nd ,anner.M The board of directors is pri,arily responsible for the corporate go!ernance of the ban.2+"asiban.2 tr"st entity. To ens"re good go!ernance of the ban.2+"asi/ban.2tr"st entity the board of directors sho"ld establish strategic ob1ecti!es policies and proced"res that will g"ide and direct the acti!ities of the ban.2+"asi/ban.2 tr"st entity and the ,eans to attain the sa,e as well as the ,echanis, for ,onitoring ,anage,ent4s perfor,ance. 6.F?. RA8ULATION O0 T5A COB;AN3ATION AND OT5AR HANA0IT3 O0 DIRACTOR3 AND O00ICAR3 * To protect the f"nds of depositors and creditors the BH ,ay reg"late the pay,ent by the ban. to its directors and officers of co,pensation allowance fees bon"ses stoc. options profit sharing and fringe benefits only in e#ceptional cases and when the circ",stances warrant s"ch as b"t not li,ited to the following instances when a ban. is 1. "nder co,ptrollership or conser!atorshipor
'. fo"nd by the BH to be cond"cting b"siness in an "nsafe or "nso"nd ,anner6. fo"nd by the BH to be in an "nsatisfactory financial condition. %3ec. 1E( 6.FD. ;RO5IHITION A8AIN3T ;UHLIC O00ICIAL3 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'E1 of 6<1 HANRIN8 LA9 COBBARCIAL LA9 * No appointi!e or electi!e p"blic official whether f"ll/ti,e or part/ti,e shall at the sa,e ti,e ser!e as officer of any pri!ate ban. sa!e in cases where 1. s"ch ser!ice is incident to financial assistance pro!ided by the go!ern,ent or a 8OCC to the ban. or '. "nless otherwise pro!ided in the R"ral Han.s Act 6. "nless otherwise pro!ided "nder e#isting laws. %3ec. 1>( 6.FE. CONDUCT O0 HOARD O0 DIRACTOR34 BAATIN83 * The ,eetings of the board of directors ,ay be cond"cted thro"gh ,odern technologies s"ch as b"t not li,ited to teleconferencing and !ideo/conferencing. %3ec. 1<( 6.F>. HANR HRANC5A3 * Uni!ersal or co,,ercial ban.s ,ay open branches or other offices within or o"tside the ;hils. "pon prior appro!al of the H3;. Hranching by all other ban.s shall be go!erned
by pertinent laws. %3ec. 'F( * A ban. a"thori$ed to establish branches or other offices shall be responsible for all b"siness cond"cted in s"ch branches and offices to the sa,e e#tent and in the sa,e ,anner as tho"gh s"ch b"siness had all been cond"cted in the head office. A ban. and its branches and offices shall be treated as one "nit. %3ec. 'F( * A ban. ,ay s"b1ect to prior appro!al of the BH "se any or all of its branches as o"tlets for the presentation and2or sale of the financial prod"cts of its allied "nderta.ing or of its in!est,ent ho"se "nits. %3ec. 'F( 6.1F. HANRIN8 DAK3 AND 5OUR3 * Unless otherwise a"thori$ed by the H3; in the interest of the ban.ing p"blic all ban.s incl"ding their branches and offices shall transact b"siness on all wor.ing days for at least ? ho"rs a day. %3ec. '1( * L9or.ing daysM shall ,ean Bondays to 0ridays e#cept if s"ch days are holidays. %3ec. '1( * Han.s or any of their branches or offices ,ay open for b"siness on 3at"rdays 3"ndays or holidays for at least 6 ho"rs a day. Han.s which opt to open on days other than wor.ing days shall report to the H3; the additional days d"ring which they or their branches or offices shall transact b"siness. %3ec. '1( 6.11. 3TRIRA3 AND LOCROUT3
* The ban.ing ind"stry is hereby declared as indispensable to the national interest. %3ec. ''( * Notwithstanding the pro!isions of any law to the contrary any stri.e or loc.o"t in!ol!ing ban.s if "nsettled after D calendar days shall be reported by the H3; to the 3ecretary of Labor who ,ay ass",e 1"risdiction o!er the disp"te decide it or certify the sa,e to the NLRC for co,p"lsory arbitration. 5owe!er the ;resident of the ;hilippines ,ay at any ti,e inter!ene and ass",e 1"risdiction o!er s"ch labor disp"te in order to settle or ter,inate the sa,e. %3ec.''( 3ection = 7 Deposits =.F1. ACCA;TANCA O0 DABAND DA;O3IT3 A ban. other than a UH or RH cannot accept or create de,and deposits e#cept "pon prior appro!al of and s"b1ect to s"ch conditions and r"les as ,ay be prescribed by the Bonetary Hoard. %3ec. 66( =.F'. TK;A3 O0 DA;O3IT3 1. Ti,e Deposit C Interest rate stip"lated depending on the n",ber of days. D"ring this period the ,oney deposited cannot be withdrawn. 5igh interest rates. '. 3a!ings Deposit C Under the fine print if yo" deposit today yo" cannot withdraw the a,o"nt "ntil ?F days later. Han. pays an interest rate b"t not as high as ti,e deposits. 6. De,and Deposits 2 C"rrent Acco"nts C No interest is paid by the ban. beca"se the
depositor can ta.e o"t his f"nds any ti,e. It is called de,and deposit beca"se the depositor can withdraw the ,oney he deposited on the !ery sa,e day when he deposited it. %Iillan"e!a( =.F6. BAK ALL HANR3 ACCA;T DABAND DA;O3IT3S 8R) A ban. cannot accept or create de,and deposits e#cept "pon prior appro!al of and s"b1ect to s"ch conditions and r"les as ,ay be prescribed by the BH. %3ec. 66( A#c) UHs and RHs =.F=. HANR3 A3 DAHTOR3 As per Art. 1>EF of the Ci!il Code loans fro, the depositor %creditor( to a ban. %debtor( ,ay be in the for, of sa!ings deposits de,and2c"rrent deposits %Lall those liabilities of the H3; and of other ban.s which are deno,inated in ;hil c"rrency and are s"b1ect to pay,ent in legal tender "pon de,and by the presentation of chec.sM as per 3ec. <E of NCHA( and ti,e2fi#ed deposits. 0or this reason 3an Carlos Billing Co. Ltd !. H;I 1>66( declared that Lban.s are r"n for gain and they solicit deposits in order that they can "se the ,oney for that !ery p"rpose.M 0or the sa,e reason it has been held that La ban. has a right of set off of the deposits in its hands for the pay,ent of any indebtedness to it on the part of a depositor.M %8"llas !. ;NH 1>6<( Con!ersely the depositor has e!ery right to apply his deposit in a
ban. against his loan fro, s"ch ban.. %R; !. CA 1>D<( %Borales- Iillan"e!a cites 3errano !. CH 1>EF- ;pl !. Ong 1>>1( =.F<. ;RA3UB;TION O0 O9NAR35I; O0 DA;O3IT3 * It is pres",ed that ,oney deposited in a ban. acco"nt belongs to the person in whose na,e the deposit acco"nt is opened. A ban. is 1"stified in paying o"t the ,oney to the depositor or "pon his order and cannot be liable to any other person who t"rned o"t to he 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'E' of 6<1 HANRIN8 LA9 COBBARCIAL LA9 the tr"e owner of the f"nds deposited. Th"s it was held in 0"lton Iron 9or.s Co ! China Han.ing Corp %1>6F( LThe speciali$ed f"nction of a ban. is to ser!e as a place of deposit for ,oney to .eep it safely while on deposit and to pay it o"t "pon de,and to the person who effected the deposit or "pon his order. A ban. is not a g"ardian of tr"st f"nds deposited w2 it in the sense that it ,"st see to their proper application not is it its b"siness to pry into the "ses to which ,oney on deposit in its !a"lt are being p"t- and so long as it ser!es its f"nction and pays the ,oney o"t in good faith to the person who deposited it or "pon his order w2o"t .nowledge or notice that it is in fact assisting in the ,isappropriation of the f"nd the ban. will be protected. As is well saidZ it
wo"ld serio"sly interfere w2 co,,ercial transactions to charge ban.s w2 the d"ty of s"per!ising the ad,inistration of tr"st f"nds when in d"e co"rse of b"siness they recei!e chec.s and drafts in proper for, drawn "pon s"ch f"nds in their c"stody. The law i,poses no s"ch d"ty "pon the,.M Note howe!er that there is a li,itation in this regard as per s"r!i!orship agree,ents. %Borales( =.F?. OHLI8ATION O0 HANR3 TO DA;O3ITOR3 * The ban. is "nder the obligation to treat deposit acco"nts of it depositors with ,etic"lo"s care. It ,"st bear the bla,e for failing to disco!er the ,ista.e of its e,ployees despite the established proced"re re+"iring ban. papers to pass thro"gh ban. personnel whose d"ty it is to chec. and co"nterchec. the, for possible errors. %Betropolitan Han. and Tr"st Co. !. CA 1>>= and 0irestone Tire ! CA 'FF1( * As a b"siness affected with p"blic interest and beca"se of the nat"re of its f"nctions a ban. is "nder obligation to treat the acco"nts of its depositors with ,etic"lo"s case always ha!ing in ,ind the fid"ciary nat"re of their relationship. %;CI Han. !. CA 1>>D( 3olidban. Corporation2 Betropolitan Han. and Tr"st Co. !. 3ps. Tan 8R No. 1?D6=? April ' 'FFD
1F chec.s were deposited by representati!e of 3ps. Tan and "pon chec.ing their passboo. it was disco!ered that one chec. was not posted. The ban. proffered the d"plicate deposit slip which indicated that the said chec. was not deposited b"t it was disco!ered that it had been cleared in another ban. by another person. 3ps. Tan filed a collection case against the ban. and was able to get fa!orable 1"dg,ent fro, RTC and CA. 5ALD) Han. was negligent and so 3ps. Tan entitled to da,ages. 0ail"re to present original deposit slip which co"ld ha!e pro!en its clai, that it did not recei!e respondents4 ,issing chec. was a s"ppression of the best e!idence that co"ld ha!e bolstered its clai, and confir,ed its innocence the pres",ption now arises that it withheld the sa,e for fra"d"lent p"rposes. Citing the case of Canlas !. Asian 3a!ings Han. %'FFF( the Co"rt held that the degree of diligence re+"ired of ban.s is ,ore than that of a good father of a fa,ily in .eeping with their responsibility to e#ercise the necessary care and pr"dence in handling their clients4 ,oney. It find no co,pelling reason to disallow the application of the pro!isions on co,,on carriers to this case if only to e,phasi$e the fact that ban.ing instit"tions %li.e petitioner( ha!e the d"ty to e#ercise the highest degree of diligence when transacting with the p"blic. Hy the nat"re of their b"siness they are re+"ired to obser!e the highest standards of integrity and perfor,ance and "t,ost assid"o"sness as well. =.FD. O;TION TO AOARCI3A 3AT/O00 ON DA;O3IT 0OR OUT3TANDIN8 LOAN
A ban. is "nder no d"ty or obligation to ,a.e an application or set/off against the deposit acco"nts of a borrower. To apply the deposit to the pay,ent of a loan is a pri!ilege a right of set/off which the ban. has the option to e#ercise b"t not the obligation. %H;I !. CA 1>>=( =.FE. NOTA ON 3A0ATK DA;O3IT HOOA3 In the case of rent of safety deposit bo#. The contract is a special .ind of deposit and cannot be characteri$ed as an ordinary contract of lease beca"se the f"ll and absol"te possession and control of the deposit bo# is not gi!en to the renters. The pre!ailing r"le is that the relation between the ban. renting o"t and the renter is that of bailer and bailee the bail,ent being for hire and ,"t"al benefiit. %CA Agro/ind"strial De!. Corp. !. CA 1>E6- reiterated in 3ia !. CA 1>>6 according to Iillan"e!a(=6 =.F>. BH ORDAR O0 CLO3URA In case a ban. or QH notifies the H3; or p"blicly anno"nces a ban. holiday or in any ,anner s"spends the pay,ent of its deposit liabilities contin"o"sly for ,ore than 6F days the BH ,ay s",,arily and witho"t need for prior hearing close s"ch ban.ing instit"tion and place it "nder recei!ership of the ;hil. Deposit Ins"rance Corp. %;DIC(. %3ec. <6( 3ection < 7 Loans <.F1. RI3R/HA3AD CA;ITAL RATIO The BH shall prescribe the ,ini,", ratio which
the net worth of a ban. ,"st bear to its total ris. assets which ,ay incl"de contingent acco"nts :i.e. net worth ) total ris. assets@ %3ec. 66( <.F'. H3; CIRCULAR 'EF %'FF1( The ris./based capital ratio of a ban. e#pressed as a percentage of +"alifying capital to ris./weighted assets shall not be less than 1FG for both solo basis %head office pl"s branches( and consolidated basis %parent ban. pl"s s"bsidiary financial allied "nderta.ings b"t e#cl"ding ins"rance co,panies(. The ratio shall be ,aintained daily. <.F6. ;O9AR O0 T5A BH IN T5I3 RA8ARD * The BH ,ay / re+"ire that s"ch ratio be deter,ined on the basis of the net worth and ris. assets of =6 This topic was as.ed in 'FF=. Note the liability of bac. in case of loss. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'E6 of 6<1 HANRIN8 LA9 COBBARCIAL LA9 a ban. and its s"bsidiaries financial or otherwise/ prescribe the co,position and the ,anner of deter,ining the net worth and total ris. assets of ban.s and their s"bsidiaries. ;ro!ided that / in the e#ercise of this a"thority the BH shall to the e#tent feasible confor, to internationally accepted standards incl"ding those of the Han. for International 3ettle,ents %HI3(
relating to ris./based capital re+"ire,ents/ the BH ,ay alter or s"spend co,pliance with s"ch ratio whene!er necessary for a ,a#i,", period of 1 year- and / s"ch ratio shall be applied "nifor,ly to ban.s of the sa,e category. %3ec. 66( * In case of a ban. ,erger or consolidation or when a ban. is "nder rehabilitation "nder a progra, appro!ed by the H3; the BH ,ay te,porarily relie!e the s"r!i!ing ban. consolidated ban. or constit"ent ban. or corporations "nder rehabilitation fro, f"ll co,pliance with the re+"ired capital ratio "nder s"ch conditions as it ,ay prescribe. %3ec. 66( <.F=. A00ACT O0 NON/COB;LIANCA * The BH ,ay li,it or prohibit the distrib"tion of net profits by s"ch ban. and ,ay re+"ire that part or all of the net profits be "sed to increase the capital acco"nts of the ban. "ntil the ,ini,", re+"ire,ent has been ,et. * The BH ,ay f"rther,ore restrict or prohibit the ac+"isition of ,a1or assets and the ,a.ing of new in!est,ents by the ban. with the e#ception of p"rchases of readily ,ar.etable e!idences of indebtedness of the R; and the H3; and any other e!idences of indebtedness or obligations the ser!icing and repay,ent of which are f"lly g"aranteed by the R; "ntil the
,ini,", re+"ired capital ratio has been restored. %3ec. 66( <.F<. 3IN8LA HORRO9AR43 LIBIT %3HL( * A#cept as the BH ,ay otherwise prescribe for reasons of national interest the total a,o"nt of loans credit acco,,odations and g"arantees as ,ay be defined by the BH that ,ay be e#tended by a ban. to any person partnership association corporation or other entity shall at no ti,e e#ceed 'FG of the net worth of s"ch ban.. %3ec. 6<.1( * The basis for deter,ining co,pliance with 3HL is the total credit co,,it,ent of the ban. to the borrower. %3ec. 6<.1( * Unless the BH prescribes otherwise the total a,o"nt of loans credit acco,,odations and g"arantees prescribed in the preceding paragraph ,ay be increased by an additional 1FG of the net worth of s"ch ban. pro!ided the additional liabilities of any borrower are ade+"ately sec"red by tr"st receipts shipping doc",ents wareho"se receipts or other si,ilar doc",ents transferring or sec"ring title co!ering readily ,ar.etable non/perishable goods which ,"st be f"lly co!ered by ins"rance. %3ec. 6<.'( * Incl"sions. The abo!e prescribed ceilings shall incl"de) a. the direct liability of the ,a.er or acceptor of paper disco"nted with or sold to s"ch
ban. and the liability of a general indorser drawer or g"arantor who obtains a loan or other credit acco,,odation fro, or disco"nts paper with or sells papers to s"ch ban.b. in the case of an indi!id"al who owns or controls a ,a1ority interest in a corporation partnership association or any other entity the liabilities of said entities to s"ch ban.c. in the case of a corporation all liabilities to s"ch ban. of all s"bsidiaries in which s"ch corporation owns or controls a ,a1ority interest- and d. in the case of a partnership association or other entity the liabilities of the ,e,bers thereof to s"ch ban.. %6<.6( W A!en if a parent corporation partnership association entity or an indi!id"al who owns or controls a ,a1ority interest in s"ch entities has no liability to the ban. the BH ,ay prescribe the co,bination of the liabilities of s"bsidiary corporations or ,e,bers of the partnership association entity or s"ch indi!id"al "nder certain circ",stances incl"ding b"t not li,ited to any of the following sit"ations) a. the parent corporation partnership association entity or indi!id"al g"arantees the repay,ent of the
liabilitiesb. the liabilities were inc"rred for the acco,,odation of the parent corporation or another s"bsidiary or of the partnership or association or entity or s"ch indi!id"al- or c. the s"bsidiaries tho"gh separate entities operate ,erely as depart,ents or di!isions of a single entity. %6<.=( WW Certain types of contingent acco"nts of borrowers ,ay be incl"ded a,ong those s"b1ect to these prescribed li,its as ,ay be deter,ined by the BH. %6<.D( WWW Loans and other credit acco,,odations deposits ,aintained with and "s"al g"aranteed by a ban. to any other ban. or non/ban. entity whether locally or abroad shall be s"b1ect to the li,its as herein prescribed. %6<.?( * A#cl"sions. 0or p"rposes of this 3ection loans other credit acco,,odations and g"arantees shall e#cl"de) a. loans and other credit acco,,odations sec"red by obligations of the H3; or of the ;hil. 8o!4tb. loans and other credit acco,,odations f"lly g"aranteed by the go!4t as to the pay,ent of principal and interest-
1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'E= of 6<1 HANRIN8 LA9 COBBARCIAL LA9 c. loans and other credit acco,,odations co!ered by assign,ent of deposits ,aintained in the lending ban. and held in the ;hils.d. loans credit acco,,odations and acceptances "nder letters of credit to the e#tent co!ered by ,argin deposits- and e. other loans or credit acco,,odations which the BH ,ay fro, ti,e to ti,e specify as non/ris. ite,s. %6<.<( <.F?. RA3TRICTION ON HANR AO;O3URA TO DO3RI == DO3RI \ Directors Officers 3toc.holders and their Related InterestsNOTA) The BH shall define the ter, Trelated interests.T %3ec. 6? par. <( * 8R) A director or officer of any ban. shall neither 1. directly or indirectly for hi,self or as the representati!e or agent of others borrow fro, s"ch ban.- nor '. beco,e a g"arantor indorser or s"rety for loans fro, s"ch ban. to others or in any ,anner be an obligor or inc"r any contract"al liability to the ban.. AOC. A#cept with the written appro!al of the ,a1ority of all the directors of the
ban. e#cl"ding the director concerned. The re+"ired appro!al shall be entered "pon the records of the ban. and a copy of s"ch entry shall be trans,itted forthwith to the appropriate s"per!ising and e#a,ining depart,ent of the H3;. W 3"ch written appro!al shall not be re+"ired for loans other credit acco,,odations and ad!ances granted to officers "nder a fringe benefit plan appro!ed by the H3;. %3ec. 6? par. 1( WW The li,it on loans credit acco,,odations and g"arantees prescribed herein shall not apply to loans credit acco,,odations and g"arantees e#tended by a cooperati!e ban. to its cooperati!e shareholders. %3ec. 6? par. ?( * ;rinciples In!ol!ed. / Dealings of a ban. with any of its directors officers or stoc.holders and their related interests shall be "pon ter,s not less fa!orable to the ban. than those offered to others. %3ec. 6? par. '( / After d"e notice to the board of directors of the ban. the office of any ban. director or officer who !iolates the pro!isions of this 3ection ,ay be declared !acant and the
director or officer shall be s"b1ect to the penal pro!isions of the NCHA. %3ec. 6? par. 6( / The BH ,ay reg"late the a,o"nt of loans credit acco,,odations and g"arantees that ,ay be e#tended directly or indirectly by == This topic was as.ed in 'FF? specifically on re+"isites before a ban. can lend to DO3RI. a ban. to its DO3RI as well as in!est,ents of s"ch ban. in enterprises owned or controlled by said directors officers stoc.holders and their related interests. W The o"tstanding loans credit acco,,odations and g"arantees which a ban. ,ay e#tend to each of its DO3RI shall be li,ited to an a,o"nt e+"i!alent to their respecti!e "nenc",bered deposits and boo. !al"e of their paid/in capital contrib"tion in the ban.. WW The loans credit acco,,odations and g"arantees sec"red by assets considered as non/ris. by the BH shall be e#cl"ded fro, s"ch li,it. WWW The loans credit acco,,odations and ad!ances to officers in the for, of fringe benefits granted in accordance with r"les as ,ay be prescribed by the Bonetary Hoard shall not be s"b1ect to the indi!id"al li,it. %3ec. 6? par. =( <.FD. LIBIT3 ON LOAN3 AND OT5AR CRADIT
ACCOBBODATION3 ONZ * Loans and other credit acco,,odations againstZ real estate shall not e#ceed D<G of the appraised !al"e of the respecti!e real estate sec"rity pl"s ?FG of the appraised !al"e of the ins"red i,pro!e,ents and s"ch loans ,ay be ,ade to the owner of the real estate or to his assignees. %3ec. 6D( sec"rity of chattels and intangible properties %s"ch as b"t not li,ited to patents trade,ar.s trade na,es and copyrights( shall not e#ceed D<G of the appraised !al"e of the sec"rity and
s"ch loans and other credit acco,,odations ,ay be ,ade to the title/holder of the chattels and intangible properties or his assignees. %3ec. 6E( * A#ception. In both cases the BH ,ay prescribe otherwise. %3ec. 6D/6E( <.FE. 0ORACLO3URA O0 RAAL A3TATA BORT8A8A * In the e!ent of foreclos"re whether 1"dicially or e#tra1"dicially of any ,ortgage on real estate which is sec"rity for any loan or other credit acco,,odation granted the ,ortgagor or debtor whose real property has been sold for the f"ll or partial pay,ent of his obligation shall ha!e the right within one year after the sale of the real estate to redee, the property by paying the a,o"nt d"e "nder the ,ortgage deed with interest thereon at the rate specified in the ,ortgage and all the costs and e#penses inc"rred by the ban. or instit"tion 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'E< of 6<1 HANRIN8 LA9 COBBARCIAL LA9 fro, the sale and c"stody of said property less the inco,e deri!ed therefro,. 5owe!er the p"rchaser at the a"ction sale concerned whether in a 1"dicial or e#tra1"dicial foreclos"re shall ha!e the right to enter "pon and ta.e
possession of s"ch property i,,ediately after the date of the confir,ation of the a"ction sale and ad,inister the sa,e in accordance with law. Any petition in co"rt to en1oin or restrain the cond"ct of foreclos"re proceedings instit"ted p"rs"ant to this pro!ision shall be gi!en d"e co"rse only "pon the filing by the petitioner of a bond in an a,o"nt fi#ed by the co"rt conditioned that he will pay all the da,ages which the ban. ,ay s"ffer by the en1oining or the restraint of the foreclos"re proceeding. * J"ridical Bortgagor. Notwithstanding Act 616< 1"ridical persons whose property is being sold p"rs"ant to an e#tra1"dicial foreclos"re shall ha!e the right to redee, the property in accordance with this pro!ision "ntil b"t not after the registration of the certificate of foreclos"re sale with the applicable Register of Deeds which in no case shall be ,ore than 6 ,onths after foreclos"re whiche!er is earlier. Owners of property that has been sold in a foreclos"re sale prior to the effecti!ity of the 8HL shall retain their rede,ption rights "ntil their e#piration. %3ec. =D( <.F>. OT5AR 3ACURITK RAQUIRABANT3 O0 HANR3 * 8rant and ;"rpose of Loans and Other Credit Acco,,odations * A ban. shall grant loans and other credit
acco,,odations only in a,o"nts and for the periods of ti,e essential for the effecti!e co,pletion of the operations to be financed. %3ec. 6>( * 3"ch grant of loans and other credit acco,,odations shall be consistent with safe and so"nd ban.ing practices. %3ec. 6>( * The p"rpose of all loans and other credit acco,,odations shall be stated in the application and in the contract between the ban. and the borrower. If the ban. finds that the proceeds of the loan or other credit acco,,odation ha!e been e,ployed witho"t its appro!al for p"rposes other than those agreed "pon with the ban. it shall ha!e the right to ter,inate the loan or other credit acco,,odation and de,and i,,ediate repay,ent of the obligation. %3ec. 6>( * Debtor is Capable * Hefore granting a loan or other credit acco,,odation a ban. ,"st ascertain that the debtor is capable of f"lfilling his co,,it,ents to the ban.. Toward this end a ban. ,ay de,and fro, its credit applicants a state,ent of their assets and liabilities and of their inco,e and e#pendit"res and s"ch infor,ation as ,ay be prescribed by law or by r"les and
reg"lations of BH to enable the ban. to properly e!al"ate the credit application which incl"des the corresponding financial state,ents s"b,itted for ta#ation p"rposes to the HIR. 3ho"ld s"ch state,ents pro!e to be false or incorrect in any ,aterial detail the ban. ,ay ter,inate any loan or other credit acco,,odation granted on the basis of said state,ents and shall ha!e the right to de,and i,,ediate repay,ent or li+"idation of the obligation. %3ec. =F( <.1F. ABBORTINATION * A,orti$ation on Loans and Other Credit Acco,,odations. C The a,orti$ation sched"le of ban. loans and other credit acco,,odations shall be adapted to the nat"re of the operations to be financed. / In case of loans and other credit acco,,odations with ,at"rities of ,ore than < years pro!isions ,"st be ,ade for periodic a,orti$ation pay,ents b"t s"ch pay,ents ,"st be ,ade at least ann"ally) ;ro!ided howe!er That when the borrowed f"nds are to be "sed for p"rposes which do not initially prod"ce re!en"es ade+"ate for reg"lar a,orti$ation pay,ents therefro, the ban. ,ay per,it the initial a,orti$ation pay,ent to be deferred "ntil s"ch ti,e as said re!en"es are s"fficient for s"ch p"rpose b"t in no
case shall the initial a,orti$ation date be later than < years fro, the date on which the loan or other credit acco,,odation is granted. / In case of loans and other credit acco,,odations to ,icrofinance sectors the sched"le of loan a,orti$ation shall ta.e into consideration the pro1ected cash flow of the borrower and adopt this into the ter,s and conditions for,"lated by ban.s. %3ec. ==( <.11. ;RA;AKBANT O0 LOAN3 AND OT5AR CRADIT ACCOBBODATION3 * A borrower ,ay at any ti,e prior to the agreed ,at"rity date prepay in whole or in part the "npaid balance of any ban. loan and other credit acco,,odation s"b1ect to s"ch reasonable ter,s and conditions as ,ay be agreed "pon between the ban. and its borrower. %3ec. =<( <.1'. 3OBA O0 BH43 ;O9AR3 RALATAD TO LOAN3 AND CRADIT ACCOBBODATION3 * The BH is hereby a"thori$ed to iss"e s"ch reg"lations as it ,ay dee, necessary with respect to "nsec"red loans or other credit acco,,odations that ,ay be granted by ban.s. %3ec. =1( * The BH ,ay by reg"lation prescribe f"rther sec"rity re+"ire,ents to which the !ario"s types of ban. credits shall be s"b1ect and in
accordance with the a"thority granted to it in 3ec. 1F? of the NCHA the Hoard ,ay by reg"lation red"ce the ,a#i,", ratios established in 3ecs. 6? and 6D :sho"ld be 3ecs. 6D and 6E@ of this Act or in special cases increase the ,a#i,", ratios established therein. %3ec. ='( * The BH ,ay in accordance with the a"thority granted to it in 3ec. 1F? of the NCHA and 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'E? of 6<1 HANRIN8 LA9 COBBARCIAL LA9 ta.ing into acco"nt the re+"ire,ents of the econo,y for the effecti!e "tili$ation of longter, f"nds prescribe the ,at"rities as well as related ter,s and conditions for !ario"s types of ban. loans and other credit acco,,odations. Any change by the BH in the ,a#i,", ,at"rities shall apply only to loans and other credit acco,,odations ,ade after the date of s"ch action. %3ec. =6( * The Bonetary Hoard shall reg"late the interest i,posed on ,icrofinance borrowers by lending in!estors and si,ilar lenders s"ch as b"t not li,ited to the "nconscionable rates of interest collected on salary loans and si,ilar credit acco,,odations. %3ec. =6( * De!elop,ent Assistance Incenti!es. The H3; shall pro!ide incenti!es to ban.s which witho"t go!ern,ent g"arantee e#tend loans to finance ed"cational instit"tions cooperati!es hospitals
and other ,edical ser!ices sociali$ed or lowcost ho"sing local go!ern,ent "nits and other acti!ities with social content. %3ec. =?( * Renewal or A#tension of Loans and Other Credit Acco,,odations. The BH ,ay by reg"lation prescribe the conditions and li,itations "nder which a ban. ,ay grant e#tensions or renewals of its loans and other credit acco,,odations. %3ec. =E( * ;ro!isions for Losses and 9rite/Offs. The BH ,ay fi# by reg"lation or by order in a specific case the a,o"nt of reser!es for bad debts or do"btf"l acco"nts or other contingencies. 9riting off of loans other credit acco,,odations ad!ances and other assets shall be s"b1ect to reg"lations iss"ed by the BH. %3ec. =>( 3ection ? 7 Other Operations ?.F1. BAJOR INIA3TBANT3 0or the p"rpose of enhancing ban. s"per!ision the BH shall establish criteria for re!iewing ,a1or ac+"isitions or in!est,ents by a ban. incl"ding corporate affiliations or str"ct"res that ,ay e#pose the ban. to "nd"e ris.s or in any way hinder effecti!e s"per!ision. %3ec. <F( ?.F'. ACQUI3ITION O0 RAAL A3TATA * Any ban. ,ay ac+"ire real estate as shall be necessary for its own "se in the cond"ct of its b"siness. %3ec. <1( * The total in!est,ent in s"ch real estate and
i,pro!e,ents thereof incl"ding ban. e+"ip,ent shall not e#ceed <FG of co,bined capital acco"nts. / Unless otherwise pro!ided by the BH the e+"ity in!est,ent of a ban. in another corporation engaged pri,arily in real estate shall be considered as part of the ban.Vs total in!est,ent in real estate. %3ec. <1( ?.F6. HK 9AK O0 3ATI30ACTION O0 CLAIB3 * Notwithstanding the li,itations 1"st ,entioned a ban. ,ay ac+"ire hold or con!ey real property "nder the following circ",stances) 1. 3"ch as shall be ,ortgaged to it in good faith by way of sec"rity for debts'. 3"ch as shall be con!eyed to it in satisfaction of debts pre!io"sly contracted in the co"rse of its dealings- or 6. 3"ch as it shall p"rchase at sales "nder 1"dg,ents decrees ,ortgages or tr"st deeds held by it and s"ch as it shall p"rchase to sec"re debts d"e it. %3ec. <'( * Any real property ac+"ired or held "nder these circ",stances shall be disposed of by the ban. within a period of < years or as ,ay be prescribed by the BH. The ban. ,ay after said period contin"e to hold the property for its own "se s"b1ect to the li,itation that the total in!est,ent in real estate and i,pro!e,ents thereof incl"ding ban. e+"ip,ent shall not e#ceed <FG of co,bined capital acco"nts.
%3ec. <'( ?.F=. OT5AR HANRIN8 3ARIICA3 1. Recei!e in c"stody f"nds doc",ents and !al"able ob1ects'. Act as financial agent and b"y and sell by order of and for the acco"nt of their c"sto,ers shares e!idences of indebtedness and all types of sec"rities6. Ba.e collections and pay,ents for the acco"nt of others and perfor, s"ch other ser!ices for their c"sto,ers as are not inco,patible with ban.ing b"siness=. Upon prior appro!al of BH act as ,anaging agent ad!iser cons"ltant or ad,inistrator of in!est,ent ,anage,ent2ad!isory2cons"ltancy acco"nts- and <. Rent o"t safety deposit bo#es. %3ec. <6( * The ban. shall perfor, the ser!ices per,itted "nder 1/= as depositary or as an agent. Accordingly it shall .eep the f"nds sec"rities and other effects which it recei!es d"ly separate fro, the ban.Vs own assets and liabilities. %3ec. <6( * The BH ,ay reg"late all these operations in order to ens"re that s"ch operations do not endanger the interests of the depositors and other creditors of the ban.. %3ec. <6( ?.F<. ;RO5IHITION3 A. Against Acting as an Ins"rer A ban. shall not directly engage in
ins"rance b"siness as the ins"rer. %3ec. <=( H. ;rohibited Transactions of Directors Officers A,ployees or Agents of Any Han.W 1. Ba.ing false entries in any ban. report or state,ent or participating in any fra"d"lent transaction thereby affecting the financial interest of or ca"sing da,age to the ban. or any person'. 9itho"t order of a co"rt of co,petent 1"risdiction disclosing to any "na"thori$ed person any infor,ation 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'ED of 6<1 HANRIN8 LA9 COBBARCIAL LA9 relati!e to the f"nds or properties in the c"stody of the ban. belonging to pri!ate indi!id"als corporations or any other entity) ;ro!ided That with respect to ban. deposits the pro!isions of e#isting laws shall pre!ail6. Accepting gifts fees or co,,issions or any other for, of re,"neration in connection with the appro!al of a loan or other credit acco,,odation fro, said ban.=. O!er!al"ing or aiding the o!er!al"ing of any sec"rity for the p"rpose of infl"encing in any way the actions of
the ban. or any ban.- or <. O"tso"rcing inherent ban.ing f"nctions. %3"b3ec. <<.1( C. H3; Circ"lar '?E %'FFF( 3ection '.1 O"tso"rcing of inherent ban.ing f"nctions shall refer to any contract between the ban. and a ser!ice pro!ider for the latter to s"pply the ,anpower to ser!ice the deposit transactions of the for,er. 3ection '.' Han.s cannot o"tso"rce ,anage,ent f"nctions e#cept as ,ay be a"thori$ed by the Bonetary Hoard when circ",stances 1"stify. 3ection 6. O"tso"rcing of Infor,ation Technology 3yste,s2;rocesses. 3"b1ect to prior appro!al of the BH ban.s ,ay o"tso"rce all infor,ation technology syste,s and processes e#cept for f"nctions e#cl"ded in 3ection 6.1. 3ection 6.1 0"nctions affecting the ability of the ban. to ens"re the fit of technology ser!ices deployed to ,eet its strategic and b"siness ob1ecti!es and to co,ply with all pertinent ban.ing laws and reg"lations ,ay not be o"tso"rced. 3"b1ect to prior appro!al of the BH cons"ltants and2or ser!ice pro!iders ,ay be engaged to pro!ide assistance2s"pport.
3ection =. O"tso"rcing of Other Han.ing 0"nctions. 3ection =.1 3"b1ect to prior appro!al of the BH ban.s ,ay o"tso"rce data i,aging storage retrie!al and other related syste,s- clearing and processing of chec.s not incl"ded in the ;hilippine Clearing 5o"se 3yste,printing of ban. deposit state,ents. 3ection =.'. Han.s ,ay o"tso"rce credit card ser!ices- printing of ban. loan state,ents and other non/deposit records ban. for,s and pro,otional ,aterials- credit in!estigation and collection- processing of e#port i,port and other trading transactions- transfer agent ser!ices for debt and e+"ity sec"rities- property appraisalproperty ,anage,ent ser!ices,essenger co"rier and postal ser!icessec"rity g"ard ser!ices- !ehicle ser!ice contracts- 1anitorial ser!ices. 3ection <. 3er!ice ;ro!iders. 9hen allowed by law and "nder this circ"lar ban.s ,ay enter into o"tso"rcing contracts only with ser!ice pro!iders with de,onstrable technical and financial capability co,,ens"rate to the ser!ices to be rendered. * Consistent with the pro!isions of the
Han.s 3ecrecy Law no ban. shall e,ploy cas"al or nonreg"lar personnel or too lengthy probationary personnel in the cond"ct of its b"siness in!ol!ing ban. deposits. %3"bsec. <<.=( ?.F?. ;RO5IHITAD TRAN3ACTION3 O0 HORRO9AR3 O0 HANRW 1. 0ra"d"lently o!er!al"ing property offered as sec"rity for a loan or other credit acco,,odation fro, the ban.'. 0"rnishing false or ,isrepresenting or s"ppressing ,aterial facts for the p"rpose of obtaining renewing or increasing a loan or other credit acco,,odation or e#tending the period thereof6. Atte,pting to defra"d the said ban. in the e!ent of a co"rt action to reco!er a loan or other credit acco,,odation- or =. Offering any director officer e,ployee or agent of a ban. any gift fee co,,ission or any other for, of co,pensation in order to infl"ence s"ch persons into appro!ing a loan or other credit acco,,odation application. %3"b3ec. <<.'( W No e#a,iner officer or e,ployee of the H3; or of any depart,ent b"rea" office branch or agency of the 8o!4t that is assigned to s"per!ise e#a,ine assist or render technical assistance to any ban. shall co,,it any of the acts en",erated in 3"bsecs. <<.1 and <<.' or
aid in the co,,ission of the sa,e. The ,a.ing of false reports or ,isrepresentation or s"ppression of ,aterial facts by personnel of the H3; shall constit"te fra"d and shall be s"b1ect to the ad,inistrati!e and cri,inal sanctions pro!ided "nder the NCHA. %3"bsec. <<.6( ?.FD. CONDUCTIN8 HU3INA33 IN AN UN3A0A OR UN3OUND BANNAR In deter,ining whether a partic"lar act or o,ission which is not otherwise prohibited by any law r"le or reg"lation affecting ban.s QHs or tr"st entities ,ay be dee,ed as cond"cting b"siness in an "nsafe or "nso"nd ,anner the BH shall consider any of the following circ",stances where the act or o,ission hasZ 1. res"lted or ,ay res"lt in ,aterial loss or da,age or abnor,al ris. or danger to the safety stability li+"idity or sol!ency of the instit"tion'. res"lted or ,ay res"lt in ,aterial loss or da,age or abnor,al ris. to the instit"tionVs depositors creditors in!estors stoc.holders or to the H3; or to the p"blic in general6. has ca"sed any "nd"e in1"ry or has gi!en any "nwarranted benefits ad!antage or preference to the ban. or any party in the discharge by the director or officer of his d"ties and responsibilities thro"gh ,anifest
partiality e!ident bad faith or gross ine#c"sable negligence- or s"ch in!ol!es entering into any contract or transaction ,anifestly and grossly disad!antageo"s to 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'EE of 6<1 HANRIN8 LA9 COBBARCIAL LA9 the ban. QH or tr"st entity 9ON the director or officer profited or will profit thereby. 9hene!er a ban. QH or tr"st entity persists in cond"cting its b"siness in an "nsafe or "nso"nd ,anner the BH ,ay witho"t pre1"dice to the ad,inistrati!e sanctions pro!ided in 3ec. 6D of the NCHA ta.e action "nder 3ec. 6F of the sa,e Act and2or i,,ediately e#cl"de the erring ban. fro, clearing the pro!isions of law to the contrary notwithstanding. %3ec. <?( ?.FE. ON DIIIDAND DACLARATION * No ban. or QH shall declare di!idends greater than its acc","lated net profits then on hand ded"cting therefro, its losses and bad debts. %3ec. <D( * No ban. nor QH shall declare di!idends if at the ti,e of declaration) 1. Its clearing acco"nt with the H3; is o!erdrawn- or '. It is deficient in the re+"ired li+"idity floor for go!4t deposits for < or ,ore consec"ti!e days- or 6. It does not co,ply with the li+"idity
standards2ratios prescribed by the H3; for p"rposes of deter,ining f"nds a!ailable for di!idend declaration- or =. It has co,,itted a ,a1or !iolation as ,ay be deter,ined by the H3;. %3ec. <D( ?.F>. INDA;ANDANT AUDITOR * The BH ,ay re+"ire a ban. QH or tr"st entity to engage the ser!ices of an independent a"ditor to be chosen by the ban. QH or tr"st entity concerned fro, a list of C;As acceptable to the BH. * The ter, of the engage,ent shall be as prescribed by the BH which ,ay either be on a contin"ing basis where the a"ditor shall act as resident e#a,iner or on the basis of special engage,ents b"t in any case the independent a"ditor shall be responsible to the ban.Vs QH4s or tr"st entityVs board of directors. * A copy of the report shall be f"rnished to the BH. * The BH ,ay also direct the board of directors of a ban. QH tr"sty entity and2or the indi!id"al ,e,bers thereof to cond"ct either personally or by a co,,ittee created by the board an ann"al balance sheet a"dit of the ban. QH or tr"st entity to re!iew the internal a"dit and control syste, of the ban. QH or tr"st entity and to s"b,it a report of s"ch a"dit. %3ec. <E( ?.1F. 0INANCIAL 3TATABANT3
* A!ery ban. QH or tr"st entity shall s"b,it to the appropriate s"per!ising and e#a,ining depart,ent of the H3; financial state,ents in s"ch for, and fre+"ency as ,ay be prescribed by the H3;. %3ec. ?F( * 3"ch state,ents which shall be as of a specific date designated by the H3; shall show the act"al financial condition of the instit"tion s"b,itting the state,ent and of its branches offices s"bsidiaries and affiliates incl"ding the res"lts of its operations and shall contain s"ch infor,ation as ,ay be re+"ired in H3; reg"lations. %3ec. ?F( * In periods of national and2or local e,ergency or of i,,inent panic which directly threaten ,onetary and ban.ing stability the BH by a !ote of at least < of its ,e,bers in special cases and "pon application of the ban. +"asiban. or tr"st entity ,ay allow s"ch ban. QH or tr"st entity to defer for a stated period of ti,e the p"blication of the state,ent of financial condition re+"ired herein. %3ec. ?1( ?.11. ;UHLICATION2;O3TIN8 O0 0INANCIAL 3TATABANT3 * A!ery ban. QH or tr"st entity shall p"blish a state,ent of its financial condition incl"ding those of its s"bsidiaries and affiliates in s"ch ter,s "nderstandable to the lay,an and in s"ch fre+"ency as ,ay be prescribed by the H3; in Anglish or 0ilipino at least once e!ery
+"arter in a newspaper of general circ"lation in the city or pro!ince where the principal office in the case of a do,estic instit"tion or the principal branch or office in the case of a foreign ban. is located b"t if no newspaper is p"blished in the sa,e pro!ince then in a newspaper p"blished in Betro Banila or in the nearest city or pro!ince. The Hang.o 3entral ,ay by reg"lation prescribe the newspaper where the state,ents prescribed herein shall be p"blished. %3ec. ?1( * The Bonetary Hoard ,ay allow the posting of the financial state,ents of a ban. QH or tr"st entity in p"blic places it ,ay deter,ine in lie" of the p"blication re+"ired in the preceding paragraph when warranted by the circ",stances. %3ec. ?1( * Han.s shall also ,a.e a!ailable to the p"blic in s"ch for, and ,anner as the H3; ,ay prescribe the co,plete set of its a"dited financial state,ents as well as s"ch other rele!ant infor,ation incl"ding those on enterprises ,a1ority/owned or controlled by the ban. that will infor, the p"blic of the tr"e financial condition of a ban. as of any gi!en ti,e. %3ec. ?1( ?.1'. ;UHLICATION O0 CA;ITAL 3TOCR * A ban. QH or tr"st entity incorporated "nder the laws of the ;hils. shall not p"blish the a,o"nt of its a"thori$ed or s"bscribed capital
stoc. witho"t indicating at the sa,e ti,e and with e+"al pro,inence the a,o"nt of its capital act"ally paid "p. %3ec. ?'( * No branch of any foreign ban. doing b"siness in the ;hils. shall in any way anno"nce the a,o"nt of the capital and s"rpl"s of its head office or of the ban. in its entirety witho"t indicating at the sa,e ti,e and with e+"al 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 'E> of 6<1 HANRIN8 LA9 COBBARCIAL LA9 pro,inence the a,o"nt of the capital if any definitely assigned to s"ch branch. In case no capital has been definitely assigned to s"ch branch s"ch fact shall be stated in and shall for, part of the p"blication. %3ec. ?'( ?.16. ALACTRONIC TRAN3ACTION3 * The H3; shall ha!e f"ll a"thority to reg"late the "se of electronic de!ices s"ch as co,p"ters and processes for recording storing and trans,itting infor,ation or data in connection with the operations of a ban. QH or tr"st entity incl"ding the deli!ery of ser!ices and prod"cts to c"sto,ers by s"ch entity. %3ec. <>( ?.1=. OT5AR RALATAD ;ROII3ION3 O0 T5A 8HL * The Hang.o 3entral ,ay charge e+"itable rates co,,issions or fees as ,ay be prescribed by the Bonetary Hoard for s"per!ision e#a,ination and other ser!ices
which it renders "nder this Act. %3ec. ?<( * Unless otherwise pro!ided the !iolation of any of the pro!isions of this Act shall be s"b1ect to 3ecs 6= 6< 6? and 6D of the NCHA. If the offender is a director or officer of a ban. +"asi/ban. or tr"st entity the BH ,ay also s"spend or re,o!e s"ch director or officer. If the !iolation is co,,itted by a corporation s"ch corporation ,ay be dissol!ed by +"o warranto proceedings instit"ted by the 3ol.8en.. %3ec. ??( * The pro!isions of any law to the contrary notwithstanding the H3; shall be cons"lted by other go!ern,ent agencies or instr",entalities in actions or proceedings initiated by or bro"ght before the, in!ol!ing contro!ersies in ban.s QHs or tr"st entities arising o"t of and in!ol!ing relations between and a,ong their directors officers or stoc.holders as well as disp"tes between any or all of the, and the ban. QHs or tr"st entity of which they are directors officers or stoc.holders. %3ec. ?6( Uni!ersal Han.s Co,,ercial Han.s ;owers T5A ;O9AR3 AUT5ORINAD 0OR A COBBARCIAL HANRthe powers of an in!est,ent ho"se as pro!ided in
e#isting lawsand the power to in!est in non/allied enterprises as pro!ided in the 8HL. %3ec. '6( T5A 8ANARAL ;O9AR3 INCIDANT TO COR;ORATION3 ALL 3UC5 ;O9AR3 A3BAK HA NACA33ARK TO CARRK ON T5A HU3INA33 O0 COBBARCIAL HANRIN8 3UC5 A3 ACCA;TIN8 DRA0T3 AND I33UIN8 LATTAR3 O0 CRADITDI3COUNTIN8 AND NA8OTIATIN8 ;ROBI33ORK NOTA3 DRA0T3 HILL3 O0 AOC5AN8A AND OT5AR AIIDANCA3 O0 DAHTACCA;TIN8 OR CRAATIN8 DABAND DA;O3IT3RACAIIIN8 OT5AR TK;A3 O0 DA;O3IT3 AND DA;O3IT 3UH3TITUTA3HUKIN8 AND 3ALLIN8 0ORAI8N AOC5AN8A AND 8OLD OR 3ILIAR HULLIONACQUIRIN8BARRATAHLA HOND3 AND OT5AR DAHT 3ACURITIA3- AND AOTANDIN8 CRADIT 3UHJACT TO 3UC5 RULA3 A3 T5ABH
BAK ;ROBUL8ATA. T5A3A RULA3BAK INCLUDA T5A DATARBINATION O0 HOND3 AND OT5AR DAHT 3ACURITIA3 ALI8IHLA 0OR INIA3TBANT T5A BATURITIA3 AND A88RA8ATA ABOUNT O0 3UC5 INIA3TBANT. %3AC. '>( H3; Circ"lar 'D1 %'FF'( %1( in!est in the e+"ities of allied enterprises%'( p"rchase hold and con!ey real estate%6( recei!e in c"stody f"nds doc",ents and !al"able ob1ects%=( act as financial agent%<( ,a.e collections and pay,ents for the acco"nt of others%?( act as ,anaging agent ad!iser cons"ltant or ad,inistrator of in!est,ent ,anage,ent2ad!isory2/ cons"ltancy acco"nts%D( rent o"t safety deposit bo#es- and %E( engage in +"asi/ban.ing f"nctions. A+"ity In!est,ents A UHBAK INIA3T IN T5A
AQUITIA3 O0 ALLIAD %AIT5AR 0INANCIAL OR NON/0INANCIAL( AND NON/ALLIAD ANTAR;RI3A3. %3AC. '=( AOCA;T A3 T5ABHBAK OT5AR9I3A ;RA3CRIHA) T5A TOTAL INIA3TBANT IN AQUITIA3 O0 ALLIAD AND NON/ALLIAD ANTAR;RI3A3 35ALL NOT A RHBAK INIA3T ONLK IN T5A AQUITIA3 O0 ALLIAD ANTAR;RI3A3 %AIT5AR 0INANCIAL OR NON/0INANCIAL(. %3AC. 6F( AOCA;T A3 T5ABHBAK OT5AR9I3A ;RA3CRIHA) T5A TOTAL INIA3TBANT IN AQUITIA3 O0 ALLIAD ANTAR;RI3A3 35ALL NOT AOCAAD 6<G O0 T5A NAT 9ORT5 O0 T5A HANR- AND T5A AQUITK INIA3TBANT IN ANK ONA ANTAR;RI3A 35ALL NOT AOCAAD '<G O0 T5A NAT 9ORT5 O0 T5A HANR. %3AC. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '>F of 6<1 HANRIN8 LA9 COBBARCIAL LA9 AOCAAD <FG O0 T5A NAT 9ORT5 O0 T5A HANR- AND T5A AQUITK INIA3TBANT IN ANK ONA ANTAR;RI3A
95AT5AR ALLIAD OR NONALLIAD 35ALL NOT AOCAAD '<G O0 T5A NAT 9ORT5 O0 T5A HANR. %3AC. '=( 6F( TNAT 9ORT5T 35ALLBAAN T5A TOTAL O0 T5A UNIB;AIRAD ;AID/IN CA;ITAL INCLUDIN8 ;AID/IN 3UR;LU3 AARNIN83 AND RATAINAD
UNDIIIDAD ;RO0IT NAT O0 IALUATION RA3ARIA3 AND OT5AR ADJU3TBANT3 A3BAK HA RAQUIRAD HK T5A H3;. %3AC. '=( T5A ACQUI3ITION O0 3UC5 AQUITK OR AQUITIA3 I3 3UHJACT TO T5A ;RIOR A;;ROIAL ;ROBUL8ATA O0 T5ABH95IC5 TO 8OIARN 35ALL 3UC5
A;;RO;RIATA 8UIDALINA3 INIA3TBANT3. %3AC. '= U 6F(
A+"ity In!est,ents in 0inancial Allied Anterprises A UH CAN O9N U; TO 1FFG O0 T5A AQUITK INZ A T5RI0T HANR A RURAL HANR OR A 0INANCIAL ALLIAD ANTAR;RI3A. %3AC. '<( A RHBAK O9N U; TO 1FFG O0 T5A AQUITK O0
A T5RI0T HANR OR A RURAL HANR. %3AC. 61( 95ARA T5A AQUITK INIA3TBANT O0 A RH I3 IN OT5AR 0INANCIAL ALLIAD ANTAR;RI3A3 INCLUDIN8 ANOT5AR COBBARCIAL HANR 3UC5 INIA3TBANT 35ALL RABAIN A BINORITK 5OLDIN8 IN T5AT ANTAR;RI3A. %3AC. 61( A ;UHLICLK/LI3TAD UH OR RH BAK O9N U; TO ONA 1FFG O0 T5A IOTIN8 3TOCR O0 ONLK ONA OT5AR UH OR RH. %3AC. '<( H3; Circ"lar '?6 %'FFF( 9ith prior H3; appro!al ban.s ,ay in!est in e+"ities of the following financial allied "nderta.ings) a. Leasing co,panies incl"ding leasing of stalls and spaces in a co,,ercial establish,ent- ;ro!ided That ban. in!est,ent in2ac+"isition of shares of s"ch leasing co,pany shall be li,ited2applicable only in cases of con!ersion of o"tstanding loan obligations into e+"ity. b. Han.sc. In!est,ent ho"sesd. 0inancing co,paniese. Credit card co,paniesf. 0inancial instit"tions catering to s,all
and ,edi", scale ind"stries incl"ding !ent"re capital corporationsg. Co,panies engaged in stoc. bro.erage2sec"rities dealership- and h. Co,panies engaged in foreign e#change dealership2bro.erage. A+"ity In!est,ents in Non/0inancial Allied Anterprises A UH OR RHBAK O9N U; TO ONA 5UNDRAD ;ARCANT %1FFG( O0 T5A AQUITK IN A NON/0INANCIAL ALLIAD ANTAR;RI3A. %3AC. '? AND 6'( A+"ity In!est,ents in QHs TO ;ROBOTA COB;ATITIIA 0INANCIAL BARRAT3 T5A CONDITION3 IN
BHBAK 0URT5AR LIBIT TO =FG AQUITK INIA3TBANT3 O0 UH3 AND RH3 IN QH3. %3AC. 'E( A+"ity In!est,ents in Non/Allied Anterprises T5A AQUITK INIA3TBANT O0 A UH OR O0 IT3 95OLLK ORBAJORITKO9NAD 3UH3IDIARIA3 IN A 3IN8LA NON/ALLIAD ANTAR;RI3A 1. shall not e#ceed 6<G of the total e+"ity in that
enterprise nor '. shall it e#ceed 6<G of the !oting stoc. in that enterprise. %3ec. 'D( 3ection D 7 0oreign Han.s D.F1. TRAN3ACTIN8 HU3INA33 IN T5A ;5IL3 * The entry of foreign ban.s in the ;hils. thro"gh the establish,ent of branches shall be go!erned by the pro!isions of the 0oreign Han.s Liberali$ation Act. %3ec. D'( * In the case of a foreign ban. which has ,ore than 1 branch in the ;hils. all s"ch branches shall be treated as 1 "nit for the p"rpose of the 8HL and all references to the ;hil. branches of foreign ban.s shall be held to refer to s"ch "nits. %3ec. D=( * In all ,atters not specifically co!ered by special pro!isions applicable only to a foreign ban. or its branches and other offices in the ;hils. any foreign ban. licensed to do b"siness in the ;hils. shall be bo"nd by the pro!isions of the 8HL and all other laws r"les and reg"lations applicable to ban.s organi$ed "nder the laws of the ;hils. of the sa,e class e#cept those that pro!ide for the creation for,ation organi$ation or dissol"tion of corporations or for the fi#ing of the relations liabilities responsibilities or d"ties of stoc.holders
,e,bers directors or officers of corporations to each other or to the corporation. %3ec. DD( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '>1 of 6<1 HANRIN8 LA9 COBBARCIAL LA9 * The cond"ct of offshore ban.ing b"siness in the ;hilippines shall be go!erned by Offshore Han.ing 3yste, Decree %;D 1F6=( %3ec. D'( D.F'. ACQUI3ITION O0 IOTIN8 3TOCR IN A DOBA3TIC HANR * 9ithin D years fro, the effecti!ity of the 8HL and s"b1ect to g"idelines iss"ed p"rs"ant to the 0oreign Han.s Liberali$ation Act the BH ,ay a"thori$e a foreign ban. to ac+"ire "p to 1FFG of the !oting stoc. of only 1 do,estic ban.. * 9ithin the sa,e period the BH ,ay a"thori$e any foreign ban. which prior to the effecti!ity of the 8HL a!ailed itself of the pri!ilege to ac+"ire "p to ?FG of the !oting stoc. of a ban. "nder the 0oreign Han.s Liberali$ation Act and the Thrift Han.s Act to f"rther ac+"ire !oting shares of s"ch ban. to the e#tent necessary for it to own 1FFG of the !oting stoc. thereof. * In the e#ercise of this a"thority the BH shall adopt ,eas"res as ,ay be necessary to ens"re that at all ti,es the control of DFG of the reso"rces or assets of the entire ban.ing syste, is held by ban.s which are at least ,a1ority/owned by 0ilipinos. * Any s"ch right pri!ilege or incenti!e granted to
a foreign ban. shall be e+"ally en1oyed by and e#tended "nder the sa,e conditions to ban.s organi$ed "nder ;hilippine laws. %3ec. D6( D.F6. 5AAD O00ICA 8UARANTAA * In order to pro!ide effecti!e protection of the interests of the depositors and other creditors of ;hil. branches of a foreign ban. the head office of s"ch branches shall f"lly g"arantee the pro,pt pay,ent of all liabilities of its ;hil. branch. * Residents and citi$ens of the ;hils. who are creditors of a branch in the ;hils. of a foreign ban. shall ha!e preferential rights to the assets of s"ch branch in accordance with e#isting laws. %3ec. D<( D.F=. 3UBBON3 AND LA8AL ;ROCA33 Upon the ;hil. Agent or 5ead of the 0oreign Han. Designated to Accept 3er!ice * 3",,ons and legal process ser!ed "pon the ;hil. agent or head of any foreign ban. designated to accept ser!ice thereof shall gi!e 1"risdiction to the co"rts o!er s"ch ban. and ser!ice of notices on s"ch agent or head shall be as binding "pon the ban. which he represents as if ,ade "pon the ban. itself. * 3ho"ld the a"thority of s"ch agent or head to accept ser!ice of s",,ons and legal processes for the ban. or notice to it be re!o.ed or sho"ld s"ch agent or head
beco,e ,entally inco,petent or otherwise "nable to accept ser!ice while e#ercising s"ch a"thority it shall be the d"ty of the ban. to na,e and designate pro,ptly another agent or head "pon who, ser!ice of s",,ons and processes in legal proceedings against the ban. and of notices affecting the ban. ,ay be ,ade and to file with the 3AC a d"ly a"thenticated no,ination of s"ch agent. %3ec. D?( Upon the H3; Dep"ty 8o!ernor In/Charge of the 3"per!ising and A#a,ining Depart,ents * In the absence of the agent or head or sho"ld there be no person a"thori$ed by the ban. "pon who, ser!ice of s",,ons processes and all legal notices ,ay be ,ade ser!ice of s",,ons processes and legal notices ,ay be ,ade "pon the H3; Dep"ty 8o!ernor In/Charge of the s"per!ising and e#a,ining depart,ents and s"ch ser!ice shall be as effecti!e as if ,ade "pon the ban. or its d"ly a"thori$ed agent or head. * The said Dep"ty 8o!ernor shall register and trans,it by ,ail to the president or the secretary of the ban. at its head or principal office a copy d"ly certified by hi, of the s",,ons process or notice. The sending of s"ch copy of the s",,ons
process or notice shall be a necessary part of the ser!ices and shall co,plete the ser!ice. * The registry receipt of ,ailing shall be pri,a facie e!idence of the trans,ission of the s",,ons process or notice. * All costs necessarily inc"rred by the said Dep"ty 8o!ernor for the ,a.ing and ,ailing and sending of a copy of the s",,ons process or notice to the president or the secretary of the ban. at its head or principal office shall be paid in ad!ance by the party at whose instance the ser!ice is ,ade. %3ec. D?( D.F<. RAIOCATION O0 LICAN3A * The BH ,ay re!o.e the license to transact b"siness in the ;hils. of any foreign ban. if it finds that the foreign ban. is insol!ent or in i,,inent danger thereof or that its contin"ance in b"siness will in!ol!e probable loss to those transacting b"siness with it. * After the re!ocation of its license it shall be "nlawf"l for any s"ch foreign ban. to transact b"siness in the ;hils. "nless its license is renewed or reiss"ed. The H3; shall ta.e the necessary action to protect the creditors of s"ch foreign ban. and the p"blic. * The pro!isions of the NCHA on sanctions and penalties shall li.ewise be applicable. %3ec. DE( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '>' of 6<1
HANRIN8 LA9 COBBARCIAL LA9 3ection E 7 Tr"st Operations E.F1. AUT5ORITK TO AN8A8A IN TRU3T HU3INA33 Only a stoc. corporation or a person d"ly a"thori$ed by the BH to engage in tr"st b"siness shall act as a tr"stee or ad,inister any tr"st or hold property in tr"st or on deposit for the "se benefit or behalf of others. 0or p"rposes of the 8HL s"ch a corporation is referred to as a tr"st entity. %3ec. D>( A tr"st receipt is a written2printed doc",ent and deli!ered by the entr"stee in fa!or of the entr"ster whereby the latter releases the goods doc",ents or instr",ents o!er which he holds absol"te title or a sec"rity interest ot the possession of the for,er "pon the entr"stee4s pro,ist to hold said goods in tr"st for the entr"ster an to sell or otherwise dispose of the goods etc. with the obligation to t"rn o!er the proceeds thereof to the e#tent of what is owing to the enstr"ster- or to ret"rn the goods if UN3OLD or for other p"rposes.=< E.F'. HRANC5A3 O0 TRU3T ANTITK * The ordinary b"siness of a tr"st entity shall be transacted at the place of b"siness specified in its articles of incorporation. 3"ch tr"st entity ,ay with prior appro!al of the BH establish branches in the ;hilippines and the said entity shall be responsible for all b"siness cond"cted in
s"ch branches to the sa,e e#tent and in the sa,e ,anner as tho"gh s"ch b"siness had all been cond"cted in the head office. 0or the p"rpose of this Act the tr"st entity and its branches shall be treated as one "nit. %3ec. >6( E.F6. A;;LICAHILITK O0 CIIIL CODA Art 1==' of the Ci!il Code) LThe principles of the general law of tr"sts insofar as they are not in conflict w2 the Ci!il Code the Code of Co,,erce the R"les of Co"rt and special laws :incl"ding the 8HL@ are hereby adopted. E.F=. 5I3TORK LThe idea of property held Lin tr"stM is a great legacy fro, the 9ars of the Roses and the ,essiness of the Anglish Refor,ation. The p"rpose of the arrange,ent is to separate the benefits fro, the responsibilities of ownershipCto per,it for e#a,ple land or a b"siness left to a widow or children to be ,anaged by a strong third party co,,itted to act solely in the interest of the LbeneficiariesM of the tr"st. Tho"gh beneficiaries ha!e since the 1<th cent"ry had the right to call tr"stees to the law co"rts to acco"nt for their stewardship in fact the g"ts of the syste, is the pride of the tr"stee for who, the opport"nity to e,ploy his powers "nselfishly sho"ld be an honor =< In 'FFD the definition of Tr"st Receipt was as.ed. and a pri!ilege. LOb!io"sly the tr"stee as described in law needs a so"l and co,,ents co"ld
be ,ade abo"t the A,erican inno!ation of 1E1E which first chartered a so"lless corp to perfor, tr"st f"nctions. The Ltr"st co,pany M so called perfor,ed a n",ber of f"nctions closely analogo"s to ban.ing) its basic 1ob after all was to in!est and ,anage safely the assets left w2 it by others. The +"estion of the standard of care to which s"ch a co,pany co"ld be held was !ario"sly resol!ed ###. In 1E66 the 3"pre,e J"dicial Co"ncil of Bassach"setts r"led that a tr"stee co"ld ,anage a tr"st in any way a Lpr"dent ,anM wo"ld treat his own assets- b"t other states lagged far behind and will into the 'Fth cent"ry ,ost laws prescribed a Llegal listM of in!est,ents appro!ed for tr"sts ###M %Borales +"oting Bartin Bayer in The Han.ers %1>D=(( E.F<. ;RUDANT BAN AND 3AL0/DAALIN8 RULA3 ;r"dent Ban R"le * A tr"st entity shall ad,inister the f"nds or property "nder its c"stody with the diligence that a pr"dent ,an wo"ld e#ercise in the cond"ct of an enterprise of a li.e character and with si,ilar ai,s. %3ec. EF par. 1( * The BH shall pro,"lgate s"ch r"les and reg"lations as ,ay be necessary to pre!ent circ",!ention of the pr"dent ,an r"le and the responsibility therein i,posed on a tr"st entity. %3ec. EF par. 6( * This r"le is part of the code of cond"ct re+"ired
of a tr"stee and th"s set o"t in the beha!ioral g"idelines of the Ban"al of Reg"lation of Han.s) L3ec O=F1 3tate,ent of ;rinciples. The cardinal principle co,,on to all tr"st and other fid"ciary relationships is fidelity. ;olicies predicated "pon this principle are directed towards confidentiality scr"p"lo"s care safety and pr"dent ,anage,ent of property incl"ding reasonable probability of inco,e w2 proper acco"nting and appropriate reporting thereon. ;ractices are designed to pro,ote efficiency in ad,inistration and operation- to adhere and confor, w2 the ter,s of the instr",ent or contract- and to ,aintain absol"te separation of property free fro, any intr"sion of conflict of interest. LA ban. a"thori$ed to engage in tr"st and fid"ciary b"siness is "nder no obligation either legal or ,oral to accept any s"ch b"siness being offered nor has it the right to accept if the sa,e is contrary to law r"les reg"lations p"blic order and p"blic policy. It shall ad!ertise its ser!ices in a dignified ,anner and enter s"ch b"siness only when de,and for s"ch ser!ice is e!ident when specially e+"ipped to render s"ch ser!ice and "pon f"ll appreciation of the responsibilities in!ol!ed. It shall be ready and willing to gi!e f"ll disclos"re of the ser!ices being offered and shall cond"ct
its dealing w2 transparency. 5ar,onio"s relationship shall li.ewise be p"rs"ed w2 other professions to achie!e the co,,on goal of ,"t"al ser!ice to the p"blic and protection of its interest.M %Borales noting that there is a si,ilar state,ent of 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '>6 of 6<1 HANRIN8 LA9 COBBARCIAL LA9 principles in 3ec ==F1Q of the Ban"al of Reg"lations for Non/0inancial Instit"tions( 3elf/Dealing R"le * 8R)No tr"st entity shall for the acco"nt of the tr"stor or the beneficiary of the tr"st 1. p"rchase or ac+"ire property fro, or '. sell transfer assign or lend ,oney or property to or 6. p"rchase debt instr",ents of a. any of the depart,ents directors officers stoc.holders or e,ployees of the tr"st entity b. relati!es within the 1st degree of consang"inity or affinity or the related interests of s"ch directors officers and stoc.holders AOC. 1. the transaction is specifically a"thori$ed by the tr"stor and '. the relationship of the tr"stee and the other party in!ol!ed in the transaction is f"lly disclosed to the tr"stor or
beneficiary of the tr"st prior to the transaction. %3ec. EF par. '( * The BH shall pro,"lgate s"ch r"les and reg"lations as ,ay be necessary to pre!ent circ",!ention of the self/dealing r"le or the e!asion of the responsibility therein i,posed on a tr"st entity. %3ec. EF par. 6( * Hasically a tr"stee cannot engage in a self dealing transaction "nless) %1( the transaction is specifically a"thori$ed by the tr"stor and %'( the relationship of the tr"stee and its co"nterparty is f"lly disclosed to the tr"stor or beneficiary of the tr"st prior to the transactions %either in a separate instr",ent of in the tr"st instr",ent itself(. %Borales on the basis of 3"bsec. O=F>.6 of the Ban"al of Reg"lations for Han.s and 3"bsec. ==F>Q.6 of the Ban"al of Reg"lations for Non/Han. 0inancial Instit"tions( Rationale of the R"les * L0or the protection of the p"blic ### there is need for writing into the law pro!isions intended to ens"re that tr"st ,anagers shall handle tr"st acco"nts along the Lpr"dent ,anM concept of ,anaging f"nds in tr"st since tr"stors "s"ally entr"st their f"nds ### in f"ll confidence sec"re in the belief that the tr"stee will ,anage his f"nds as a pr"dent ,an wo"ld. * LThere is need therefore to p"t in safeg"ards in the law so as to ens"re that the e#pected
pr"dence in ,anage,ent shall indeed be the nor, 3"ch safeg"ards or g"idelines ,ay ta.e the for, of prohibition for, p"rchasing or ac+"iring property for the tr"st or for acco"nt of the tr"stor or beneficiary of the tr"st fro, the ban. proper or any of its dep4ts or directors officers or e,ployees "nless specifically a"thori$ed by the tr"stor. * LIt has been said that the essence of tr"steeship is that the tr"stee wo"ld not be ,oti!ated by self/interest that on no acco"nt shall it recei!e any personal ad!antage fro, the tr"steeship that it shall per,it no dealings of any character between itself as an indi!id"al or corp and itself in its capacity as tr"stee and that it shall recei!e fro, the tr"st no profit or financial ret"rn directly or indirectly other than its rightf"l co,pensation for ser!ices rendered.M %Borales citing Reco,,endation DF of Joint IB0/CH; Han.ing 3"r!ey Co,,ission( E.F?. RA8I3TRATION RAQUIRABANT * The 3AC shall not register the articles of incorporation and by/laws or any a,end,ent thereto of any tr"st entity "nless acco,panied by a certificate of a"thority iss"ed by the H3;. %3ec. EF( * Reiterates the re+"ire,ents "nder the Corporation Code. %Borales( Note) 3ec 1D par ' of the Corporation Code) LNo articles of incorporation or a,end,ent to the
articles of incorporation of ban.s ban.ing and Q"asi/ban.ing instit"tions b"ilding and loan associations tr"st co,panies and other financial inter,ediaries ins"rance co,panies p"blic "tilities ed"cational instit"tions and other corps go!erned by special laws shall be accepted or appro!ed by the 3AC "nless acco,panied by a fa!orable reco,,endation of the appropriate go!ern,ent agency to the effect that s"ch articles or a,end,ent is in accordance with law.M AND 3ec =? par =) LThe 3AC shall not accept for filing the by/laws or any a,end,ent thereto of any ban. ban.ing instit"tion b"ilding and loan association tr"st co,pany ins"rance co,pany p"blic "tility ed"cational instit"tion or other special corps go!erned by special laws "nless acco,panied by a certificate of the appropriate go!ern,ent agency to the effect that s"ch by/laws or a,end,ents are in accordance with law. * The certificate of a"thority need not be iss"ed by the BH itself "nder its seal. %Borales( E.FD. BINIBUB CA;ITALINATION * A tr"st entity before it can engage in tr"st or other fid"ciary b"siness shall co,ply with the ,ini,", paid/in capital re+"ire,ent which will be deter,ined by the BH. %3ec. E'( * This ,eans it ,"st ha!e co,bined capital acco"nts of ;'<FB. LCo,bined capital acco"ntsM refers to the the total capital stoc. retained earnings and profit and loss s",,ary
net of %1( s"ch "nboo.ed !al"ation reser!es and other capital ad1"st,ents as ,ay be re+"ired by the H3; and %'( total o"tstanding "nsec"red credit acco,,odations both direct and indirect to DO3RI 9hen applicant is a do,estic ban. the co,bined capital acco"nts ,"st not be less that the ,ini,", capital prescribed by the BH for s"ch ban. b"t in no case less than ;'<FB- and when applicant is a branch of a foreign ban. it ,"st co,ply with 2 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '>= of 6<1 HANRIN8 LA9 COBBARCIAL LA9 the capital re+"ire,ent applicable to s"ch local ban.. %Borales citing !ario"s pro!isions of the Ban"al of Reg"lations for Non/Han. 0inancial Instit"tions and the Ban"al of Reg"lation for Han.s( E.FE. ;O9AR3 O0 A TRU3T ANTITK A tr"st entity in addition to the general powers incident to corporations shall ha!e the power to) 1. Act as tr"stee on any ,ortgage or bond iss"ed by any ,"nicipality corporation or any body politic and to accept and e#ec"te any tr"st consistent with law'. Act "nder the order or appoint,ent of any co"rt as g"ardian recei!er tr"stee or depositary of the estate of any ,inor or other inco,petent person and as recei!er and depositary of any ,oneys paid into co"rt by parties to any legal proceedings
and of property of any .ind which ,ay be bro"ght "nder the 1"risdiction of the co"rt6. Act as the e#ec"tor of any will when it is na,ed the e#ec"tor thereof=. Act as ad,inistrator of the estate of any deceased person with the will anne#ed or as ad,inistrator of the estate of any deceased person when there is no will<. Accept and e#ec"te any tr"st for the holding ,anage,ent and ad,inistration of any estate real or personal and the rents iss"es and profits thereof- and ?. Astablish and ,anage co,,on tr"st f"nds s"b1ect to s"ch r"les and reg"lations as ,ay be prescribed by the BH. %3ec. E6( E.F>. 8ANARAL 8ROU;IN83 1. Tr"st H"siness / any acti!ity res"lting fro, a tr"stortr"stee relationship %tr"steeship( in!ol!ing the appoint,ent of a tr"stee by a tr"stor for the ad,inistration holding ,anage,ent of f"nds and2or properties of the tr"stor by the tr"stee for the "se benefit or ad!antage of the tr"stor or of others called beneficiaries / Tr"st entity enters into a property relationship wherein legal title to the property is transferred to it %as tr"stee( by a tr"stor for the benefit of one or ,ore beneficiaries who ,ay or ,ay
not incl"de the tr"stor. There is th"s a di!ision of legal and beneficial interests in and to the property entr"sted to the tr"st entity. The tr"stor is able to shift the b"rden of ,anage,ent of the property to the tr"stee and at the sa,e ti,e confer the benefits of ownership on the beneficiary. Note) Art 1==F Ci!il Code. A person who establishes a tr"st is called the tr"stor- one in who, confidence is reposed as regards property for the benefit of another person is .nown as the tr"stee- and the person for whose benefit the tr"st has been created is referred to as the beneficiary. '. Other fid"ciary b"siness / any acti!ity of a tr"st licensed ban. res"lting fro, a contract or agree,ent whereby the ban. binds itself to render ser!ices or to act in a representati!e capacity s"ch as in an agency g"ardianship Ad,inistratorship of wills properties and estates e#ec"torship recei!ership and other si,ilar ser!ices which do not create or res"lt in a tr"steeship. / It shall e#cl"de collecting or paying agency arrange,ents and si,ilar fid"ciary ser!ices which are inherent in the "se of the facilities of the other dep4ts of said ban.. In!est,ent
,anage,ent acti!ities which are considered as a,ong other fid"ciary b"siness shall be separately defined in the s"cceeding ite, to highlights its being a ,a1or so"rce of fid"ciary b"siness. / Does not act as a tr"stee b"t renders ser!ices to its co"nterparty in a representati!e capacity. In partic"lar the tr"st entity acts as agent ad!iser cons"ltant or ad,inistrator in respect of an in!est,ent ,anage,ent acco"nt. / Art 1F?F Ci!il Code. A corporation or association a"thori$ed to cond"ct the b"siness of a tr"st co,pany in the ;hils ,ay be appointed as an e#ec"tor ad,inistrator g"ardian of an estate or tr"stee in li.e ,anner as an indi!id"alb"t it shall not be appointed g"ardian of the person of a ward. 6. In!est,ent ,anage,ent acti!ity / Any acti!ity res"lting fro, a contract or agree,ent pri,arily for financial ret"rn whereby the ban. %the in!est,ent ,anager( binds itself to handle or ,anage in!estible f"nds or any in!est,ent portfolio in a representati!e capacity as financial or ,anaging agent ad!iser cons"ltant or ad,inistrator of financial or in!est,ent
,anage,ent ad!isory cons"ltancy or any si,ilar arrange,ent which does not create of res"lt in a tr"steeship. %Borales( E.1F. NACA33ARK DA;O3IT3 1. Hasic 3ec"rity / Hefore transacting tr"st b"siness e!ery tr"st entity shall deposit with the H3; as sec"rity for the faithf"l perfor,ance of its tr"st d"ties cash or sec"rities appro!ed by the BH in an a,o"nt e+"al to not less than ;<FF FFF or s"ch higher a,o"nt as ,ay be fi#ed by the BH. / The BH shall re+"ire e!ery tr"st entity to increase the a,o"nt of its cash or sec"rities on deposit with the H3; whene!er in its 1"dg,ent s"ch increase is necessary by reason of the tr"st b"siness of s"ch entity. %3ec. E=( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '>< of 6<1 HANRIN8 LA9 COBBARCIAL LA9 '. ;aid/In Capital and 3ec"rity / The paid/in capital and s"rpl"s of s"ch entity ,"st be at least e+"al to the a,o"nt re+"ired to be deposited with the H3; in accordance with the pro!isions of this paragraph. %3ec. E=( 6. Reser!es / In addition to basic sec"rity a tr"st entity is re+"ired to ,aintain reser!es against
peso/deno,inated co,,on tr"st f"nds as well as certain tr"st and other fid"ciary acco"nts. %Borales citing 3"bsec O=F<.< Ban"al of Reg"lation for ban.s- 3"bsec ==F<Q.< Ban"al of reg"lation for Non/ban. 0inancial Instit"tions( 0ail"re to Baintain s"ch A,o"nts * 3ho"ld the capital and s"rpl"s fall below said a,o"nt the BH shall ha!e the sa,e a"thority as that granted to it "nder the pro!isions of the fifth paragraph of 3ec. 6= of the 8HL. * A tr"st entity so long as it shall contin"e to be sol!ent and co,ply with laws or reg"lations shall ha!e the right to collect the interest earned on s"ch sec"rities deposited with the H3; and fro, ti,e to ti,e with the appro!al of the H3; to e#change the sec"rities for others. * If the tr"st entity fails to co,ply with any law or reg"lation the H3; shall retain s"ch interest on the sec"rities deposited with it for the benefit of rightf"l clai,ants. * All clai,s arising o"t of the tr"st b"siness of a tr"st entity shall ha!e priority o!er all other clai,s as regards the cash or sec"rities deposited as abo!e pro!ided. The BH ,ay not per,it the cash or sec"rities deposited to be red"ced below the prescribed ,ini,", a,o"nt "ntil the depositing entity shall discontin"e its
tr"st b"siness and shall satisfy the BH that it has co,plied with all its obligations in connection with s"ch b"siness. %3ec. E=( =. Hond / Hefore an e#ec"tor ad,inistrator g"ardian tr"stee recei!er or depositary appointed by the co"rt enters "pon the e#ec"tion of his d"ties he shall "pon order of the co"rt file a bond in s"ch s", as the co"rt ,ay direct. %3ec. E<( / Upon the application of any e#ec"tor ad,inistrator g"ardian tr"stee recei!er depositary or any other person in interest the co"rt ,ay after notice and hearing order that the s"b1ect ,atter of the tr"st or any part thereof be deposited with a tr"st entity. Upon presentation of proof to the co"rt that the s"b1ect ,atter of the tr"st has been deposited with a tr"st entity the co"rt ,ay order that the bond gi!en by s"ch persons for the faithf"l perfor,ance of their d"ties be red"ced to s"ch s",s as it ,ay dee, proper) ;ro!ided howe!er That the red"ced bond shall be s"fficient to sec"re ade+"ately the proper ad,inistration and care of any property re,aining "nder the control of s"ch persons and the proper acco"nting for s"ch property. ;roperty so deposited with any tr"st entity shall be held by s"ch entity
"nder the orders and direction of the co"rt. %3ec.E<( / No bond or other sec"rity shall be re+"ired by the co"rt fro, a tr"st entity for the faithf"l perfor,ance of its d"ties as co"rtappointed tr"stee e#ec"tor ad,inistrator g"ardian recei!er or depositary. 5owe!er the co"rt ,ay "pon proper application with it showing special ca"se therefor re+"ire the tr"st entity to post a bond or other sec"rity for the protection of f"nds or property confided to s"ch entity. %3ec. E?( / That tr"st entities need not post a bond "nless re+"ired by the co"rt for the faithf"l perfor,ance of 3ec E< 8HL d"ties is based on the pres",ption that tr"st entities already ha!e a basic sec"rity deposit with the H3;. %Borales( E.11. 3A;ARATION O0 TRU3T HU3INA33 AND A33AT3 0ROB T5A OT5AR HU3INA33A3 AND A33AT3 O0 T5A HANR * The tr"st b"siness and all f"nds properties or sec"rities recei!ed by any tr"st entity as e#ec"tor ad,inistrator g"ardian tr"stee recei!er or depositary shall be .ept separate and distinct fro, the general b"siness incl"ding all other f"nds properties and assets of s"ch tr"st entity. The acco"nts of all s"ch f"nds properties or sec"rities shall li.ewise be .ept separate and distinct fro, the acco"nts of the
general b"siness of the tr"st entity. %3ec. ED( * Tr"st H"siness 3eparation. LTr"st and other fid"ciary b"siness of a ban. shall be carried o"t thro"gh a tr"st dep4t which shall be organi$ationally operationally ad,inistrati!ely and f"nctionally separate and distinct fro, the other dep4ts and2or b"siness of the instit"tion.M %Borales citing 3"bsec O=F?.1.a Ban"al of Reg"lations for Han.s( * Tr"st Assets 3eparation. LAll ,oneys properties or sec"rities by a ban. in its capacity as tr"stee fid"ciary or in!es,tnet ,anager shall be .ept physically separate and distinct fro,t eh other assets of its other b"siness and shal be "nder the 1oint c"stody of at least ' persons one of who, shall be an officer of the tr"st or in!est,ent ,anage,ent dep4t designated for that p"rpose by the board of directors. The in!est,ent of each tr"st other fid"ciary or in!est,ent ,anage,ent acco"nt shall be .ept physically separate fro, those of other tr"st other fid"ciary or in!est,ent ,anage,ent acco"nts and ade+"ately identifies as the assets of property of the rele!ant acco"nt.M %Borales citing 3ec O='' Ibid.( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '>? of 6<1 HANRIN8 LA9 COBBARCIAL LA9 * In!est,ent of Non/Tr"st 0"nds. The in!est,ent of f"nds other than tr"st f"nds of a
tr"st entity which is a ban. financing co,pany or an in!est,ent ho"se shall be go!erned by the rele!ant pro!isions of the 8HL and other applicable laws. %3ec. >F( * If the tr"st entity is a "nit of a ban. a financing co,pany or an in!est,ent ho"se then non/tr"st b"siness acti!ities are cond"cted by other "nits of s"ch ban. financing co,pany or in!est,ent ho"se. %Borales( E.1'. INIA3TBANT LIBITATION3 * Unless otherwise directed by the instr",ent creating the tr"st the lending and in!est,ent of f"nds and other assets ac+"ired by a tr"st entity as e#ec"tor ad,inistrator g"ardian tr"stee recei!er or depositary of the estate of any ,inor or other inco,petent person shall be li,ited to loans or in!est,ents as ,ay be prescribed by law the BH or any co"rt of co,petent 1"risdiction. %3ec. EE( * 5istorical Note. It "sed to be that a tr"st co,pany partic"larly in the U3 co"ld own anything. In fact ,any national ban.s were then s"bsidiaries of tr"st co,panies. 9hen ,onopolies were being ,ade in the 1>th and 'Fth cent"ries the de!ise "sed was the tr"st as it co"ld hold the stoc. of all co,panies w2in the gro"p. Accordingly then the U3 Congress was brea.ing "p ,onopolies what were passed were Lanti/tr"stM laws. %Borales(
E.16. LOAN3 OR INIA3TBANT3 ;RA3CRIHAD HK BH LUnless otherwise specifically en",erated in the agree,ent or indent"re and directed in writing by the client co"rt of co,petent 1"risdiction or other co,petent a"thority loans and in!est,ents of the :tr"st or other fid"ciary@ f"nd shall be li,ited to) 1. %a( e!idences of indebtedness of the R; and H3; and %b( any other e!idences of indebtedness or obligations the ser!icing and repay,ent of which are f"lly g"aranteed by the R; or %c( loans against s"ch go!ern,ent sec"rities'. loans f"lly g"aranteed by the R; as to the pay,ent of principal and interest6. loans f"lly sec"red by :a@ a hold/o"t on :b@ assign,ent or :c@ pledge of deposits ,aintained either w2 the ban. or other ban.s or of deposit s"bstit"tes of the ban. or of :d@ chattel ,ortgage bonds iss"ed by the tr"stee or fid"ciary- and =. loans f"lly sec"red by real estate or chattelsM %Borales referring to 3"bsec O=F>.' Ibid- si,ilar r"le in 3"bsec ==F>Q.' Ban"al o Reg"lations for Non/Han. 0inancial Instit"tions( E.1=. RAAL A3TATA INIA3TBANT3 * Unless otherwise specifically directed by the tr"stor or the nat"re of the tr"st real estate
ac+"ired by a tr"st entity in whate!er ,anner and for whate!er p"rpose shall li.ewise be go!erned by the rele!ant pro!isions of 3ec. <' of the 8HL. %3ec. E>( * The reference to 3ec <' is w2o"t pre1"dice to the directi!es of the tr"stor or the nat"re of the tr"st itself. It is to be "nderstood that the tr"st entity can ta.e specific directi!es fro, the tr"stor only if the tr"st is re!ocable. H"t if it is irre!ocable then the tr"stor is o"t of the pict"re and the tr"st entity sho"ld ta.e instr"ctions fro, the beneficiaries the,sel!es in the conte#t of the tr"st instr",ent in +"estion. %Borales( E.1<. 3ANCTION3 AND ;ANALTIA3 * A tr"st entity or any of its officers and directors fo"nd to ha!e willf"lly !iolated any pertinent pro!isions of the 8HL shall be s"b1ect to the sanctions and penalties pro!ided "nder 3ec. ?? of the 8HL and 3ecs. 6? and 6D of the NCHA. E.1?. AOAB;TION O0 TRU3T A33AT3 0ROB CLAIB3 * No assets held by a tr"st entity in its capacity as tr"stee shall be s"b1ect to any clai,s other than those of the parties interested in the specific tr"sts. %3ec. >'( * Rationale. The creditors of the tr"stee will not be able to attach garnish or otherwise clai, the tr"st assets beca"se the tr"stee is not the beneficial owner thereof. Only the )Mparties
interested in the specific tr"stM %nor,ally the beneficiaries of the tr"st( can clai, those assets. This is f"rther reinforced by the following) LArt ''=F Ci!il Code. ;roperty held by the insol!ent debtor as a tr"stee of an e#press or i,plied tr"st shall be e#cl"ded fro, the insol!ency proceedings.M %Borales( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '>D of 6<1 HANRIN8 LA9 COBBARCIAL LA9 3ection > 7 Conser!atorship and Cessation of Han.ing H"siness >.F1. CON3ARIATOR35I; * The gro"nds and proced"res for placing a ban. "nder conser!atorship as well as the powers and d"ties of the conser!ator appointed for the ban. shall be go!erned by the pro!isions of 3ec. '> and the last two paragraphs of 3ec. 6F of the NCHA) ;ro!ided That this 3ection shall also apply to conser!atorship proceedings of QHs. %3ec. ?D please refer to co,panion re!iewer( >.F'. IOLUNTARK LIQUIDATION * In case of the !ol"ntary li+"idation of any ban. organi$ed "nder the laws of the ;hils. or of any branch or office in the ;hils. of a foreign ban. written notice of s"ch li+"idation shall be sent to the BH before s"ch li+"idation is "nderta.en and the BH shall ha!e the right to inter!ene and ta.e s"ch steps as ,ay be necessary to protect the interests of creditors.
%3ec. ?E( >.F6. RACAIIAR35I; AND INIOLUNTARK LIQUIDATION * The gro"nds and proced"res for placing a ban. "nder recei!ership or li+"idation as well as the powers and d"ties of the recei!er or li+"idator appointed for the ban. shall be go!erned by the pro!isions of 3ecs. 6F 61 6' and 66 of the NCHA) ;ro!ided That the petitioner or plaintiff files with the cler. or 1"dge of the co"rt in which the action is pending a bond e#ec"ted in fa!or of the H3; in an a,o"nt to be fi#ed by the co"rt. This shall also apply to the e#tent possible to the recei!ership and li+"idation proceedings of QHs. %3ec. ?>( >.F=. ;ANALTK 0OR TRAN3ACTION3 A0TAR A HANR HACOBA3 IN3OLIANT * Any director or officer of any ban. declared insol!ent or placed "nder recei!ership by the BH shall be s"b1ect to the penal pro!isions of the NCHA if he 1. ref"ses to t"rn o!er the ban.Vs records and assets to the designated recei!ers '. ta,pers with ban.s records 6. appropriates for hi,self or another party or destroys or ca"ses the ,isappropriation and destr"ction of the ban.Vs assets =. recei!es or per,its or ca"ses to be recei!ed in said ban. any deposit collection of loans and2or recei!ables
<. pays o"t or per,its or ca"ses to be paid o"t any f"nds of said ban. or ?. transfers or per,its or ca"ses to be transferred any sec"rities or property of said ban. %3ec. DF( II. The New Central Han. Act %RA D?<6( A. Creation Responsibilities and Corporate ;owers of the H3; 1. DACLARATION O0 ;OLICK 1. The 3tate shall ,aintain a central ,onetary a"thority that shall f"nction and operate as an independent and acco"ntable body corporate in the discharge of its ,andated responsibilities concerning ,oney ban.ing and credit. %3ec. 1( '. In line with this policy and considering its "ni+"e f"nctions and responsibilities the central ,onetary a"thority established "nder the NCHA while being a go!4t/owned corporation shall en1oy fiscal and ad,inistrati!e a"tono,y. %3ec. 1( NOTA The NCHA establishes the independent central ,onetary a"thority which is a body corporate .nown as the H3;. %3ec. '( '. ;RIBARK OHJACTIIA AND ROLA O0 T5A H3; 1. To ,aintain price stability cond"ci!e to a balanced and s"stainable growth of the econo,y. %;ri,ary Ob1ecti!e(
'. To pro,ote and ,aintain ,onetary stability and the con!ertibility of the peso. 6. To pro!ide policy directions in the areas of ,oney ban.ing and credit. =. To ha!e s"per!ision o!er the operations of ban.s <. To e#ercise s"ch reg"latory powers %as pro!ided "nder the NCHA and other pertinent laws( o!er the operations of finance co,panies and non/ban. financial instit"tions perfor,ing +"asi/ban.ing f"nctions and instit"tions perfor,ing si,ilar f"nctions. %3ec. 6( NOTA ;hase/o"t of Reg"latory ;owers O!er the Operations of 0inance Corporations and Other Instit"tions ;erfor,ing 3i,ilar 0"nctions. The H3; shall within a period of < years fro, the effecti!ity of this Act phase o"t its reg"latory powers o!er finance co,panies witho"t +"asi/ban.ing f"nctions and other instit"tions perfor,ing si,ilar f"nctions as pro!ided in e#isting laws the sa,e to be ass",ed by the 3AC. %3ec. 16F( 6. CA;ITAL O0 T5A H3; The capital of the H3; shall be ;<FH to be f"lly s"bscribed by the 8o!4t of the R;. %3ec. '( =. ;LACA O0 HU3INA33 O0 T5A H3; The H3; shall ha!e its principal place of b"siness in Betro Banila b"t ,ay ,aintain branches agencies and correspondents in s"ch other places as the proper cond"ct of its b"siness ,ay re+"ire. %3ec.
=( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '>E of 6<1 HANRIN8 LA9 COBBARCIAL LA9 <. COR;ORATA ;O9AR3 1. To adopt alter and "se a corporate seal which shall be 1"dicially noticed'. To enter into contracts6. To lease or own real and personal property and to sell or otherwise dispose of the sa,e=. To s"e and be s"ed- and <. To ac+"ire and hold s"ch assets and inc"r s"ch liabilities in connection with its operations a"thori$ed by the pro!isions of the NCHA or as are essential to the proper cond"ct of s"ch operations?. To co,pro,ise condone or release in whole or in part any clai, of or settled liability to the H3; regardless of the a,o"nt in!ol!ed "nder s"ch ter,s and conditions as ,ay be prescribed by the BH to protect the interests of the H3;D. To do and perfor, any and all things that ,ay be necessary or proper to carry o"t the p"rposes of the NCHA %3ec. <( NOTA The powers and f"nctions of the H3; shall be e#ercised by the H3; BH. %3ec. ?( ?. CRAATION) 0ROB CH TO H3; 1. Transfer of Assets and Liabilities Upon the effecti!ity of this Act 6 ,e,bers of
the BH which ,ay incl"de the 8o!ernor in representation of the H3; the 3ecretary of 0inance and the 3ecretary of H"dget and Banage,ent in representation of the National 8o!ern,ent and the Chair,en of the Co,,ittees on Han.s of the 3enate and the 5o"se of Representati!es shall deter,ine the assets and liabilities of the Central Han. %CH( which ,ay be transferred to or ass",ed by the H3;. %3ec. 16'(=? =? LThe Co,,ittee shall co,plete its wor. within >F days fro, the constit"tion of the BH s"b,itting a co,prehensi!e report with all its findings and 1"stification. The following g"idelines shall be strictly obser!ed in the deter,ination of which assets and liabilities shall be transferred to the H3;) %a( the BH and the 3ecretary of 0inance shall ha!e pri,ary responsibility for wor.ing o"t creati!e ,onetary and financial sol"tions to retire the Central Han. liabilities and losses at the least cost to the 8o!ern,ent- %b( the H3; shall re,it D<G of its net profits to a special deposit acco"nt %sin.ing f"nd( "ntil s"ch ti,e as the net liabilities of the Central Han. shall ha!e been li+"idated thro"gh generally accepted finance ,echanis,s s"ch as b"t not li,ited to write/offs set/offs condonation collections reappraisal re!al"ation and bond iss"ance by the National 8o!ern,ent or to the National 8o!ern,ent as di!idends- %c( the assets and liabilities to be transferred shall be li,ited to an a,o"nt that will enable the H3; to perfor, its responsibilities ade+"ately and operate on a !iable basis) ;ro!ided That the assets shall e#ceed the liabilities as certified by the COA by an initial a,o"nt of
;1FH- %d( liabilities to be ass",ed by the H3; shall incl"de liability for notes and coins in circ"lation as of the effecti!e date of this Act- and %e( any asset or liability of the Central Han. not transferred to the H3; shall be retained and ad,inistered disposed of and li+"idated by the Central Han. itself which shall contin"e to e#ist as the CH Hoard of Li+"idators only for the p"rposes pro!ided in this paragraph b"t not later than twenty/fi!e %'<( years or "ntil s"ch ti,e that liabilities ha!e been li+"idated) ;ro!ided That the H3; ,ay financially assist the Central Han. of Li+"idators in the '. Bandate to Organi$e The H3; shall be organi$ed by the BH by adopting if it so desires an entirely new staffing pattern on organi$ational str"ct"re to s"it the operations of the H3;. No preferential or priority right shall be gi!en to or en1oyed by any personnel for appoint,ent to any position in the new staffing pattern nor shall any personnel be considered as ha!ing prior or !ested rights with respect to retention in the H3; or in any position which ,ay be created in the new staffing pattern e!en if he sho"ld be the inc",bent of a si,ilar position prior to organi$ation. The for,"lation of the progra, of organi$ation shall be co,pleted within ? ,onths after the effecti!ity of this Act and shall be f"lly i,ple,ented within a period of ? ,onths thereafter. ;ersonnel who ,ay not be retained are dee,ed separated fro, the ser!ice. %3ec. 166(
6. 3eparation Henefits ;"rs"ant to 3ec. 1< of this Act the BH is a"thori$ed to pro!ide separation incenti!es and all those who shall retire or be separated fro, the ser!ice on acco"nt of reorgani$ation "nder the preceding section shall be entitled to s"ch incenti!es which shall be in addition to all grat"ities and benefits to which they ,ay be entitled "nder e#isting laws. %3ec. 16=( =. Transfer of ;owers All powers d"ties and f"nctions !ested by law in the Central Han. of the ;hilippines not inconsistent with the pro!isions of this Act shall be dee,ed transferred to the H3;. All references to the Central Han. of the ;hilippines in any law or special charters shall be dee,ed to refer to the H3;. %3ec. 16?( <. I,ple,enting Details The H3; shall be ,ade operational by the perfor,ance of the following acts) %a( the ;resident shall constit"te the BH by appointing the ,e,bers thereof within ?F days fro, the effecti!ity of this Act- and %b( the transfer of s"ch assets and liabilities fro, the Central Han. to the H3; as pro!ided in 3ec. 16' shall be co,pleted within >F days fro, the constit"tion of the BH. All inc",bent personnel in the Central Han. as of the date of the appro!al of this Act shall contin"e to e#ercise their d"ties and f"nctions
as personnel of the H3; s"b1ect to the pro!isions of 3ection 166) ;ro!ided That s"ch personnel in the Central Han. as ,ay be necessary for the p"rpose of i,ple,enting 3ection 16' ,ay be assigned by the H3; BH to the Central Han.. %3ec. 161( li+"idation of CH liabilities) ;ro!ided finally That "pon disposition of said retained assets and li+"idation of said retained liabilities the Central Han. shall be dee,ed abolished. LAll actions ta.en by the H3; BH "nder this section shall be reported to Congress and the ;resident within 6F days.M %3ec. 16'( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age '>> of 6<1 HANRIN8 LA9 COBBARCIAL LA9 H. The Bonetary Hoard 1. COB;O3ITION The BH is co,posed of D ,e,bers appointed by the ;resident for a ter, of ? years. No ,e,ber of the BH ,ay be reappointed ,ore than once. 1. H3; 8o!ernor who shall be the Chair,an of the BH C shall be head of a depart,ent and his appoint,ent shall be s"b1ect to confir,ation by the COA. 9hene!er the 8o!ernor is "nable to attend a ,eeting of the Hoard he shall designate a Dep"ty 8o!ernor to act as his alternate) ;ro!ided That in s"ch e!ent the BH shall designate one of its ,e,bers as acting Chair,an'. Cabinet Be,ber C designated by the
;resident. 9hene!er the designated Cabinet Be,ber is "nable to attend a ,eeting of the Hoard he shall designate an Undersecretary in his Depart,ent to attend as his alternate- and 6. < Be,bers fro, the ;ri!ate 3ector Call of who, shall ser!e f"ll/ti,e) ;ro!ided howe!er That three 6 shall ha!e a ter, of ? years and the other ' 6 years. '. BABHAR3 1. Q"alifications of Be,bers 1. B"st be nat"ral/born citi$ens of the ;hilippines '. B"st be at least 6< years of age with the e#ception of the 8o!ernor who sho"ld at least be =F years of age 6. B"st be of good ,oral character =. B"st be of "n+"estionable integrity <. B"st be of .nown probity and patriotis, and ?. B"st be with recogni$ed co,petence in social and econo,ic disciplines. %3ec. E( '. Dis+"alifications of Be,bers 1. The dis+"alifications i,posed by RA ?D16 %Code of Cond"ct and Athical 3tandards for ;"blic Officials and A,ployees( and '. A Be,ber ,ay not be a director officer e,ployee cons"ltant lawyer agent or stoc.holder of any ban. QH or any other instit"tion which is s"b1ect to s"per!ision or e#a,ination by the H3;. In s"ch cases he
shall resign fro, and di!est hi,self of any and all interests in s"ch instit"tion before ass",ption of office as ,e,ber of the BH. 6. The ,e,bers of the BH co,ing fro, the pri!ate sector shall not hold any other p"blic office or p"blic e,ploy,ent d"ring their ten"re. =. No person shall be a ,e,ber of the BH if he has been connected directly with any ,"ltilateral ban.ing or financial instit"tion or has a s"bstantial interest in any pri!ate ban. in the ;hils. within 1 year prior to his appoint,ent<. No ,e,ber of the BH shall be e,ployed in any s"ch instit"tion within ' years after the e#piration of his ter, e#cept when he ser!es as an official representati!e of the ;hilippine 8o!ern,ent to s"ch instit"tion. %3ec. >( NOTA 1. In addition to the re+"ire,ents of RA ?D16 %Code of Cond"ct and Athical 3tandards for ;"blic Officials and A,ployees( any ,e,ber of the BH with personal or pec"niary interest in any ,atter in the agenda of the BH shall disclose his interest to the BH and shall retire fro, the ,eeting when the ,atter is ta.en "p. The decision ta.en on the ,atter shall be ,ade p"blic. The ,in"tes shall reflect the disclos"re
,ade and the retire,ent of the ,e,ber concerned fro, the ,eeting. %3ec. 1=( '. O"tside Interests of the 8o!ernor and the 0"ll/ti,e Be,bers of the Hoard. The 8o!ernor of the H3; and the f"ll/ti,e ,e,bers of the Hoard shall li,it their professional acti!ities to those pertaining directly to their positions with the H3;. Accordingly they ,ay not accept any other e,ploy,ent whether p"blic or pri!ate re,"nerated or ad honore, with the e#ception of positions in elee,osynary ci!ic c"lt"ral or religio"s organi$ations or whene!er by designation of the ;resident the 8o!ernor or the f"ll/ti,e ,e,ber is tas.ed to represent the interest of the 8o!ern,ent or other go!ern,ent agencies in ,atters connected with or affecting the econo,y or the financial syste, of the co"ntry. %3ec. 'F( 6. Iacancies Any !acancy in the BH created by the death resignation or re,o!al of any ,e,ber shall be filled by the appoint,ent of a new ,e,ber to co,plete the "ne#pired period of the ter, of the ,e,ber concerned. %3ec. D( =. Re,o!al The ;resident ,ay re,o!e any ,e,ber of the BH for any of the following reasons) 1. If he no longer possesses the +"alifications
specified '. If he is s"bse+"ently dis+"alified "nder any of the instances pro!ided for dis+"alification6. If he is physically or ,entally incapacitated that he cannot properly discharge his d"ties and responsibilities and s"ch incapacity has lasted for ,ore than ? ,onths- or =. If he is g"ilty of acts or operations which are of fra"d"lent or illegal character or which are ,anifestly opposed to the ai,s and interests of the H3;. %3ec. 1F( <. 3alary The salary of the 8o!ernor and the ,e,bers of the BH fro, the pri!ate sector shall be fi#ed by the ;resident at a s", co,,ens"rate to the i,portance and responsibility attached to the position. %3ec. 16( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6FF of 6<1 HANRIN8 LA9 COBBARCIAL LA9 6. AOARCI3A O0 AUT5ORITK In the e#ercise of its a"thority the BH shall) 1. Iss"e r"les and reg"lations it considers necessary for the effecti!e discharge of the responsibilities and e#ercise of the powers !ested "pon the BH and the H3;. The r"les and reg"lations iss"ed shall be reported to the ;resident and the Congress within 1< days fro, the date of their iss"ance-
'.Direct the ,anage,ent operations and ad,inistration of the H3; reorgani$e its personnel and iss"e s"ch r"les and reg"lations as it ,ay dee, necessary or con!enient for this p"rpose. The legal "nits of the H3; shall be "nder the e#cl"si!e s"per!ision and control of the BH6.Astablish a h",an reso"rce ,anage,ent syste, which shall go!ern the selection hiring appoint,ent transfer pro,otion or dis,issal of all personnel. 3"ch syste, shall ai, to establish professionalis, and e#cellence at all le!els of the H3; in accordance with so"nd principles of ,anage,ent.=D =.Adopt an ann"al b"dget for and a"thori$e s"ch e#pendit"res by the H3; as are in the interest of the effecti!e ad,inistration and operations of the H3; in accordance with applicable laws and reg"lations- and <. Inde,nify its ,e,bers and other officials of the H3; incl"ding personnel of the depart,ents perfor,ing s"per!ision and e#a,ination f"nctions against all costs and e#penses reasonably inc"rred by s"ch persons in connection with any ci!il or cri,inal action s"it or proceedings to which he ,ay be or is ,ade a party by reason of the perfor,ance of his f"nctions or d"ties "nless he is finally ad1"dged in s"ch action or proceeding to be liable for negligence or ,iscond"ct.=E %3ec. 1<(
=D LA co,pensation str"ct"re based on 1ob e!al"ation st"dies and wage s"r!eys and s"b1ect to the BHVs appro!al shall be instit"ted as an integral co,ponent of the H3;Vs h",an reso"rce de!elop,ent progra,) ;ro!ided That the BH shall ,a.e its own syste, confor, as closely as possible with the principles pro!ided for "nder RA ?D<E %Co,pensation and ;osition Classification Act of 1>E>() ;ro!ided howe!er That co,pensation and wage str"ct"re of e,ployees whose positions fall "nder salary grade 1> and below shall be in accordance with the rates prescribed "nder RA ?D<E. LOn the reco,,endation of the 8o!ernor appoint fi# the re,"nerations and other e,ol",ents and re,o!e personnel of the H3; s"b1ect to pertinent ci!il ser!ice laws) ;ro!ided That the BH shall ha!e e#cl"si!e and final a"thority to pro,ote transfer assign or reassign personnel of the H3; and these personnel actions are dee,ed ,ade in the interest of the ser!ice and not disciplinary) ;ro!ided f"rther That the BH ,ay delegate s"ch a"thority to the 8o!ernor "nder s"ch g"idelines as it ,ay deter,ine.M %3ec. 1<( =E LIn the e!ent of a settle,ent or co,pro,ise inde,nification shall be pro!ided only in connection with s"ch ,atters co!ered by the settle,ent as to which the H3; is ad!ised by e#ternal co"nsel that the person to be inde,nified did not co,,it any negligence or ,iscond"ct. LThe costs and e#penses inc"rred in defending the afore,entioned action s"it or proceeding ,ay be paid by the H3; in ad!ance of the final disposition of s"ch action s"it or proceeding "pon receipt of an "nderta.ing by or on behalf of the ,e,ber officer or e,ployee to repay the a,o"nt
ad!anced sho"ld it "lti,ately be deter,ined by the BH that he is not entitled to be inde,nified as pro!ided in this s"bsection.M %3ec. 1<( =. BAATIN83 NOTA3 1. The BH shall ,eet at least once a wee.. %3ec. 11( '. The BH ,ay be called to a ,eeting by the 8o!ernor or by ' other ,e,bers of the BH. %3ec. 11( 6. The presence of = ,e,bers shall constit"te a +"or",) ;ro!ided That in all cases the 8o!ernor or his d"ly designated alternate shall be a,ong the = %3ec. 11( =. Unless otherwise pro!ided in this Act all decisions of the BH shall re+"ire the conc"rrence of at least = ,e,bers. %3ec. 11( <. The H3; shall ,aintain and preser!e a co,plete record of the proceedings and deliberations of the BH incl"ding the tapes and transcripts of the stenographic notes either in their original for, or in ,icrofil,. %3ec. 11( ?. The Dep"ty 8o!ernors ,ay attend the ,eetings of the BH with the right to be heard. %3ec. 1'( D. In case of e,ergencies where ti,e is ins"fficient to call a ,eeting of the BH the 8o!ernor of the H3; with the conc"rrence of ' other ,e,bers of the BH ,ay decide any ,atter or ta.e any action within the a"thority
of the Hoard. The 8o!ernor shall s"b,it a report to the ;resident and Congress within D' ho"rs after the action has been ta.en. At the soonest possible ti,e the 8o!ernor shall call a ,eeting of the BH to s"b,it his action for ratification. %3ec. 1>( <. 3ANCTION3 NOTA3 1. Be,bers of the BH officials e#a,iners and e,ployees of the H3; who willf"lly !iolate this Act or who are g"ilty of negligence ab"ses or acts of ,alfeasance or ,isfeasance or fail to e#ercise e#traordinary diligence in the perfor,ance of his d"ties shall be held liable for any loss or in1"ry s"ffered by the H3; or other ban.ing instit"tions as a res"lt of s"ch !iolation negligence ab"se ,alfeasance ,isfeasance or fail"re to e#ercise e#traordinary diligence. %3ec. 1?( '. 3i,ilar responsibility shall apply to ,e,bers officers and e,ployees of the H3; for) a.the disclos"re of any infor,ation of a confidential nat"re or any infor,ation on the disc"ssions or resol"tions of the BH or abo"t the confidential operations of the H3; "nless the disclos"re is in connection with the perfor,ance of official f"nctions with the H3; or is with prior a"thori$ation of the BH or the 8o!ernor- or b.the "se of s"ch infor,ation for personal gain
or to the detri,ent of the 8o!ern,ent the H3; or third parties) ;ro!ided howe!er That any data or infor,ation re+"ired to be s"b,itted to the ;resident and2or the Congress or to be p"blished "nder the pro!isions of this Act shall not be considered confidential. %3ec. 1?( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6F1 of 6<1 HANRIN8 LA9 COBBARCIAL LA9 ?. 8OIARNOR 1. ;owers and D"ties The 8o!ernor shall be the chief e#ec"ti!e officer of the H3;. %3ec. 1D( 1. prepare the agenda for the ,eetings of the BH and to s"b,it for the consideration of the BH the policies and ,eas"res which he belie!es to be necessary to carry o"t the p"rposes and pro!isions of the NCHA'. e#ec"te and ad,inister the policies and ,eas"res appro!ed by the BH6. direct and s"per!ise the operations and internal ad,inistration of the H3;. The 8o!ernor ,ay delegate certain of his ad,inistrati!e responsibilities to other officers or ,ay assign specific tas.s or responsibilities to any f"ll/ti,e ,e,ber of the BH witho"t additional re,"neration or allowance whene!er he ,ay dee, fit or s"b1ect to s"ch r"les and reg"lations as the BH ,ay prescribe=. appoint and fi# the re,"nerations and other
e,ol",ents of personnel below the ran. of a depart,ent head in accordance with the position and co,pensation plans appro!ed by the BH as well as to i,pose disciplinary ,eas"res "pon personnel of the H3; s"b1ect to the pro!isions of 3ection 1<%c( of this Act) ;ro!ided That re,o!al of personnel shall be with the appro!al of the BH<. render opinions decisions or r"lings which shall be final and e#ec"tory "ntil re!ersed or ,odified by the BH on ,atters regarding application or enforce,ent of laws pertaining to instit"tions s"per!ised by the H3; and laws pertaining to +"asi/ban.s as well as reg"lations policies or instr"ctions iss"ed by the BH and the i,ple,entation thereof- and ?. e#ercise s"ch other powers as ,ay be !ested in hi, by the BH. %3ec. 1D( '. Representation of the BH and the H3; The 8o!ernor of the H3; shall be the principal representati!e of the BH and of the H3; and in s"ch capacity and in accordance with the instr"ctions of the BH he shall be e,powered to) 1. represent the BH and the H3; in all dealings with other offices agencies and instr",entalities of the 8o!ern,ent and all other persons or entities p"blic or pri!ate whether do,estic foreign or international'. sign contracts entered into by the H3; notes and sec"rities iss"ed by the H3; all reports
balance sheets profit and loss state,ents correspondence and other doc",ents of the H3;. The signat"re of the 8o!ernor ,ay be in facsi,ile whene!er appropriate6. represent the H3; either personally or thro"gh co"nsel incl"ding pri!ate co"nsel as ,ay be a"thori$ed by the BH in any legal proceedings action or speciali$ed legal st"dies- and =. delegate his power to represent the H3; as pro!ided in s"bsections %a( %b( and %c( of this section to other officers "pon his own responsibility) ;ro!ided howe!er That in order to preser!e the integrity and the prestige of his office the 8o!ernor of the H3; ,ay choose not to participate in preli,inary disc"ssions with any ,"ltilateral ban.ing or financial instit"tion on any negotiations for the 8o!4t within or o"tside the ;hils. D"ring the negotiations he ,ay instead be represented by a per,anent negotiator. %3ec. 1E( 6. Dep"ty 8o!ernor%s( NOTA3 1. The 8o!ernor of the H3; with the appro!al of the BH shall appoint not ,ore than 6 Dep"ty 8o!ernors who shall perfor, d"ties as ,ay be assigned to the, by the 8o!ernor and the Hoard. '. In the absence of the 8o!ernor a Dep"ty 8o!ernor designated by the 8o!ernor shall act as chief e#ec"ti!e of the H3; and shall e#ercise
the powers and perfor, the d"ties of the 8o!ernor. 9hene!er the 8o!ern,ent is "nable to attend ,eetings of go!ern,ent boards or co"ncils in which he is an e# officio ,e,ber p"rs"ant to pro!isions of special laws a Dep"ty 8o!ernor as ,ay be designated by the 8o!ernor shall be !ested with a"thority to participate and e#ercise the right to !ote in s"ch ,eetings. %3ec. '1( C. Operations of the H3; 1. 3U;ARII3ION AND AOABINATION The H3; shall ha!e s"per!ision o!er and cond"ct periodic or special e#a,inations of ban.ing instit"tions and +"asi/ban.s incl"ding their s"bsidiaries and affiliates=> engaged in allied acti!ities. %3ec. '=( The depart,ent heads and the e#a,iners of the s"per!ising and2or e#a,ining depart,ents are hereby a"thori$ed to ad,inister oaths to any director officer or e,ployee of any instit"tion "nder their respecti!e s"per!ision or s"b1ect to their e#a,ination and to co,pel the presentation of all boo.s doc",ents papers or records necessary in their 1"dg,ent to ascertain the facts relati!e to the tr"e condition of any instit"tion as well as the boo.s and records of persons and entities relati!e to or in connection with the operations acti!ities or transactions of the instit"tion "nder e#a,ination s"b1ect to the pro!ision of e#isting laws protecting or
safeg"arding the secrecy or confidentiality of ban. deposits as well as in!est,ents of pri!ate persons => 3"bsidiary Ca corporation ,ore than <FG of the !oting stoc. of which is owned by a ban. or QH. Affiliate Ca corporation the !oting stoc. of which to the e#tent of <FG or less is owned by a ban. or QH or which is related or lin.ed to s"ch instit"tion or inter,ediary thro"gh co,,on stoc.holders or s"ch other factors as ,ay be deter,ined by the BH. %3ec. '=( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6F' of 6<1 HANRIN8 LA9 COBBARCIAL LA9 nat"ral or 1"ridical in debt instr",ents iss"ed by the 8o!4t. %3ec. '=( 1. No Restraining Order No restraining order or in1"nction shall be iss"ed by the co"rt en1oining the H3; fro, e#a,ining any instit"tion s"b1ect to s"per!ision or e#a,ination by the H3; "nless there is con!incing proof that the action of the H3; is plainly arbitrary and ,ade in bad faith and the petitioner or plaintiff files with the cler. or 1"dge of the co"rt in which the action is pending a bond e#ec"ted in fa!or of the H3; in an a,o"nt to be fi#ed by the co"rt. %3ec. '=(<F '. 9ai!er of 3ecrecy of Deposits in DO3RI Acco"nts Any director officer or stoc.holder who together with his related interest %DO3RI( contracts a loan or any for, of financial acco,,odation fro,) 1. his ban.- or '. fro, a ban. %a( which is a s"bsidiary of a
ban. holding co,pany of which both his ban. and the lending ban. are s"bsidiaries or %b( in which a controlling proportion of the shares is owned by the sa,e interest that owns a controlling proportion of the shares of his ban. in e#cess of <G of the capital and s"rpl"s of the ban. or in the ,a#i,", a,o"nt per,itted by law whiche!er is lower shall be re+"ired by the lending ban. to wai!e the secrecy of his deposits of whate!er nat"re in all ban.s in the ;hilippines.<1 %3ec. '?( 6. A#a,ination and 0ees * The s"per!ising and e#a,ining depart,ent head personally or by dep"ty shall e#a,ine the boo.s of e!ery ban.ing instit"tion once in e!ery 1' ,onths and at s"ch other ti,es as the BH by an affir,ati!e !ote of < ,e,bers ,ay dee, e#pedient and to ,a.e a report on the sa,e to the BH) ;ro!ided That there shall be an inter!al of at least twel!e 1' ,onths between ann"al e#a,inations. * The ban. concerned shall afford to the head of the appropriate s"per!ising and e#a,ining depart,ents and to his a"thori$ed dep"ties f"ll opport"nity to e#a,ine its boo.s cash and a!ailable assets and general condition at any ti,e d"ring ban.ing ho"rs when re+"ested to do so by the H3;) ;ro!ided howe!er That none of the reports and other papers relati!e to
s"ch e#a,inations shall be open to inspection by the p"blic e#cept insofar as s"ch p"blicity is incidental to the proceedings hereinafter a"thori$ed or is necessary for the prosec"tion of !iolations in connection with the b"siness of s"ch instit"tions. <F LThe pro!isions of R"le <E of the New R"les of Co"rt insofar as they are applicable and not inconsistent with the pro!isions of this section shall go!ern the iss"ance and dissol"tion of the restraining order or in1"nction conte,plated in this section.M %3ec. '=( <1 LAny infor,ation obtained fro, an e#a,ination of his deposits shall be held strictly confidential and ,ay be "sed by the e#a,iners only in connection with their s"per!isory and e#a,ination responsibility or by the H3; in an appropriate legal action it has initiated in!ol!ing the deposit acco"nt.M %3ec. '?( * Han.ing and +"asi/ban.ing instit"tions which are s"b1ect to e#a,ination by the H3; shall pay to the H3; within the first 6F days of each year an ann"al fee in an a,o"nt e+"al to a percentage as ,ay be prescribed by the BH of its a!erage total assets d"ring the preceding year as shown on its end/of/,onth balance sheets after ded"cting cash on hand and a,o"nts d"e fro, ban.s incl"ding the H3; and ban.s abroad. %3ec. 'E( '. 5ANDLIN8 O0 HANR3 IN DI3TRA33 1. Conser!atorship 1. ;owers of Conser!ator
9hene!er on the basis of a report s"b,itted by the appropriate s"per!ising or e#a,ining depart,ent the BH finds that a ban. or a QH is in a state of contin"ing inability or "nwillingness to ,aintain a condition of li+"idity dee,ed ade+"ate to protect the interest of depositors and creditors the BH ,ay appoint a conser!ator with s"ch powers as the BH shall dee, necessary to) a. ta.e charge of the assets liabilities and the ,anage,ent thereof b. reorgani$e the ,anage,ent c. collect all ,onies and debts d"e said instit"tion and d. e#ercise all powers necessary to restore its !iability. %3ec. '>( '. ;eriod of Conser!atorship The conser!atorship shall not e#ceed 1 year. %3ec. '>( The BH shall ter,inate the conser!atorship when it is satisfied that the instit"tion can contin"e to operate on its own and the conser!atorship is no longer necessary. The conser!atorship shall li.ewise be ter,inated sho"ld the BH on the basis of the report of the conser!ator or of its own findings deter,ine that the contin"ance in b"siness of the instit"tion wo"ld in!ol!e probable loss to its depositors or creditors in which case the pro!isions of 3ection 6F shall apply. %3ec. '>( 6. Conser!ator The conser!ator shall report and be responsible to the BH and shall ha!e the power to o!err"le or
re!o.e the actions of the pre!io"s ,anage,ent and board of directors of the ban. or +"asi/ban.. %3ec. '>( * 9hile the Central Han. law gi!es !ast and farreaching powers to the conser!ator of a ban. s"ch powers ,"st be related to the preser!ation of the assets of the ban. the reorgani$ation of the ,anage,ent and the restoration of !iability. 3"ch powers cannot e#tend to the post/facto rep"diation of perfected transactions otherwise they wo"ld infringe against the non/i,pair,ent cla"se of the Constit"tion. The law ,erely gi!es the conser!ator power to re!o.e contracts that are dee,ed to be defecti!e / i.e. !oid !oidable "nenforceable or rescissible. The conser!ator ,erely ta.es the place of a ban.4s board of directors. 9hat the said board cannot do / s"ch as rep"diating a contract !alidly entered into 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6F6 of 6<1 HANRIN8 LA9 COBBARCIAL LA9 "nder the doctrine of i,plied a"thority / the conser!ator cannot do either. Inel"ctably his power is not "nilateral and he cannot si,ply rep"diate !alid obligations of the Han.. 5is a"thority wo"ld be only to bring co"rt actions to assail s"ch contracts. %0irst ;hilippine International Han. !s CA - 1>>?( * The conser!ator sho"ld be co,petent and .nowledgeable in ban. operations and
,anage,ent. %3ec. '>( * The conser!ator shall recei!e re,"neration to be fi#ed by the BH in an a,o"nt not to e#ceed '26 of the salary of the president of the instit"tion in 1 year payable in 1' e+"al ,onthly pay,ents) ;ro!ided That if at any ti,e within one/year period the conser!atorship is ter,inated on the gro"nd that the instit"tion can operate on its own the conser!ator shall recei!e the balance of the re,"neration which he wo"ld ha!e recei!ed "p to the end of the year- b"t if the conser!atorship is ter,inated on other gro"nds the conser!ator shall not be entitled to s"ch re,aining balance. The BH ,ay appoint a conser!ator connected with the H3; in which case he shall not be entitled to recei!e any re,"neration or e,ol",ent fro, the H3; d"ring the conser!atorship. The e#penses attendant to the conser!atorship shall be borne by the ban. or +"asi/ban. concerned. %3ec. '>( '. Clos"re 1. 9hen clos"re is ordered 9hene!er "pon report of the head of the s"per!ising or e#a,ining depart,ent the BH finds that a ban. or +"asi/ban.) * is "nable to pay its liabilities as they beco,e d"e in the ordinary co"rse of b"siness) ;ro!ided That this shall not incl"de inability to pay ca"sed by
e#traordinary de,ands ind"ced by financial panic in the ban.ing co,,"nity* has ins"fficient reali$able assets as deter,ined by the H3; to ,eet its liabilities- or * cannot contin"e in b"siness witho"t in!ol!ing probable losses to its depositors or creditors- or * has willf"lly !iolated a cease and desist order "nder 3ec. 6D that has beco,e final in!ol!ing acts or transactions which a,o"nt to fra"d or a dissipation of the assets of the instit"tionin which cases the BH ,ay s",,arily and witho"t need for prior hearing forbid the instit"tion fro, doing b"siness in the ;hilippines %3ec. 6F( '. Related ;ro!isions in RA ED>1 %8eneral Han.ing Law of 'FFF( * In case a ban. or +"asi/ban. notifies the H3; or p"blicly anno"nces a ban. holiday or in any ,anner s"spends the pay,ent of its deposit liabilities contin"o"sly for ,ore than 6F days the BH ,ay s",,arily and witho"t need for prior hearing close s"ch ban.ing instit"tion and place it "nder recei!ership of the ;hilippine Deposit Ins"rance Corporation. %3ec <6( * 9hene!er a ban. +"asi/ban. or tr"st entity persists in cond"cting its b"siness in an "nsafe
or "nso"nd ,anner the BH ,ay ta.e action "nder 3ec 6F. Cond"cting b"siness in an "nsafe or "nso"nd ,anner ,eans) / The act or o,ission has res"lted or ,ay res"lt in ,aterial loss or da,age or abnor,al ris. or danger to safety stability li+"idity or sol!ency or / to the instit"tionVs depositors creditors in!estors stoc.holders or to the Hang.o 3entral or to the p"blic in general or / The act or o,ission has ca"sed any "nd"e in1"ry or has gi!en any "nwarranted benefits ad!antage or preference to the ban. or any party in the discharge by the director or officer of his d"ties and responsibilities thro"gh ,anifest partiality e!ident bad faith or gross ine#c"sable negligence or / The act or o,ission in!ol!es entering into any contract or transaction ,anifestly and grossly disad!antageo"s to the ban. +"asiban. or tr"st entity whether or not the director or officer profited or will profit thereby %3ec. <?( 6. Recei!ership 1. 9hen Recei!er is Designated
9hene!er "pon report of the head of the s"per!ising or e#a,ining depart,ent the BH finds that a ban. or +"asi/ban.) * is "nable to pay its liabilities as they beco,e d"e in the ordinary co"rse of b"siness) ;ro!ided That this shall not incl"de inability to pay ca"sed by e#traordinary de,ands ind"ced by financial panic in the ban.ing co,,"nity* has ins"fficient reali$able assets as deter,ined by the H3; to ,eet its liabilities- or * cannot contin"e in b"siness witho"t in!ol!ing probable losses to its depositors or creditors- or * has willf"lly !iolated a cease and desist order "nder 3ec. 6D that has beco,e final in!ol!ing acts or transactions which a,o"nt to fra"d or a dissipation of the assets of the instit"tion1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6F= of 6<1 HANRIN8 LA9 COBBARCIAL LA9 in which cases the BH ,ay s",,arily and witho"t need for prior hearing forbid the instit"tion fro, doing b"siness in the ;hilippines and designate the ;hilippine Deposit Ins"rance Corporation %;DIC( as recei!er of the ban.ing instit"tion. 0or a
+"asi/ban. any person of recogni$ed co,petence in ban.ing or finance ,ay be designed as recei!er. %3ec. 6F( * There is no re+"ire,ent whether e#press or i,plied that a hearing be first cond"cted before a ban.ing instit"tion ,ay be placed "nder recei!ership. The law is e#plicit as to the conditions prere+"isite to the action of the BH to forbid the instit"tion to do b"siness in the ;hilippines and to appoint a recei!er to i,,ediately ta.e charge of the ban.Vs assets and liabilities. They are) %a( an e#a,ination ,ade by the e#a,ining depart,ent of the CH- %b( report by said depart,ent to the BHand %c( pri,a facie showing that the ban. is in a condition of insol!ency or so sit"ated that its contin"ance in b"siness wo"ld in!ol!e probable loss to its depositors or creditors. %R"ral Han. of H"hi !s CA - 1>EE( '. 0"nctions and Obligations of the Recei!er The recei!er shall i,,ediately gather and ta.e charge of all the assets and liabilities of the instit"tion ad,inister the sa,e for the benefit of its creditors and e#ercise the general powers of a recei!er "nder the Re!ised R"les of Co"rt b"t shall not with the e#ception of ad,inistrati!e
e#pendit"res pay or co,,it any act that will in!ol!e the transfer or disposition of any asset of the instit"tion) ;ro!ided That the recei!er ,ay deposit or place the f"nds of the instit"tion in non/spec"lati!e in!est,ents. The recei!er shall deter,ine as soon as possible b"t not later than >F days fro, ta.e o!er whether the instit"tion ,ay be rehabilitated or otherwise placed in s"ch a condition so that it ,ay be per,itted to res",e b"siness with safety to its depositors and creditors and the general p"blic) ;ro!ided That any deter,ination for the res",ption of b"siness of the instit"tion shall be s"b1ect to prior appro!al of the BH. %3ec. 6F( 6. Related ;ro!isions in RA ED>1 %8eneral Han.ing Law of 'FFF( The petitioner or plaintiff ,"st file with the cler. or 1"dge of the co"rt in which the action is pending a bond e#ec"ted in fa!or of the H3; in an a,o"nt to be fi#ed by the co"rt. %3ec ?>( Any director or officer of any ban. placed "nder recei!ership who ref"ses to t"rn o!er the ban.4s records and assets to designated recei!ers ta,pers with records appropriates or destroys or ca"ses the ,isappropriation and destr"ction of the ban.4s assets recei!es or per,its or ca"ses to be recei!ed in said ban. any deposit collection of loans and2or recei!ables pays o"t or per,its or ca"ses to be transferred any sec"rities or property of said ban. shall be s"b1ect to the penal pro!isions
of the New Central Han. Act. %3ec DF( =. Li+"idation If the recei!er deter,ines that the instit"tion cannot be rehabilitated or per,itted to res",e b"siness in accordance with the ne#t preceding paragraph the BH shall notify in writing the board of directors of its findings and direct the recei!er to proceed with the li+"idation of the instit"tion. 1. Recei!er4s Acts 1. file e# parte with the proper RTC and witho"t re+"ire,ent of prior notice or any other action a petition for assistance in the li+"idation of the instit"tion p"rs"ant to a li+"idation plan adopted by the ;hilippine Deposit Ins"rance Corporation for general application to all closed ban.s. In case of +"asi/ban.s the li+"idation plan shall be adopted by the BH. '. "pon ac+"iring 1"risdiction the co"rt shall "pon ,otion by the recei!er after d"e notice ad1"dicate disp"ted clai,s against the instit"tion assist the enforce,ent of indi!id"al liabilities of the stoc.holders directors and officers and decide on other iss"es as ,ay be ,aterial to i,ple,ent the li+"idation plan adopted. The recei!er shall pay the cost of the proceedings fro, the assets of the instit"tion. * The e#cl"si!e 1"risdiction of the li+"idation co"rt pertains only to the
ad1"dication of clai,s against the ban.. It does not co!er the re!erse sit"ation where it is the ban. which files a clai, against another person or legal entity. %Banalo !s CA - 'FF1( 6. con!ert the assets of the instit"tions to ,oney dispose of the sa,e to creditors and other parties for the p"rpose of paying the debts of s"ch instit"tion in accordance with the r"les on conc"rrence and preference of credit "nder the Ci!il Code and =. he ,ay in the na,e of the instit"tion and with the assistance of co"nsel as he ,ay retain instit"te s"ch actions as ,ay be necessary to collect and reco!er acco"nts and assets of or defend any action against the instit"tion. %3ec. 6F( <. In case of li+"idation of a ban. or +"asiban. after pay,ent of the cost of proceedings incl"ding reasonable e#penses and fees of the recei!er to be allowed by the co"rt the recei!er shall pay the debts of s"ch instit"tion "nder order of the co"rt in accordance with the r"les on conc"rrence and preference of credit as pro!ided in the Ci!il Code. %3ec. 61( ?. All re!en"es and earnings reali$ed by the recei!er in winding "p the affairs and ad,inistering the assets of any ban. or
+"asi/ban. within the p"r!iew of this Act shall be "sed to pay the costs fees and e#penses ,entioned in no. < salaries of s"ch personnel whose e,ploy,ent is rendered necessary in the discharge of the 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6F< of 6<1 HANRIN8 LA9 COBBARCIAL LA9 li+"idation together with other additional e#penses ca"sed thereby. The balance of re!en"es and earnings after the pay,ent of all said e#penses shall for, part of the assets a!ailable for pay,ent to creditors. %3ec. 6'( * The assets of an instit"tion "nder recei!ership or li+"idation shall be dee,ed in c"stodia legis in the hands of the recei!er and shall fro, the ,o,ent the instit"tion was placed "nder s"ch recei!ership or li+"idation be e#e,pt fro, any order of garnish,ent le!y attach,ent or e#ec"tion. %3ec. 6F( * The H3; ,ay if p"blic interest so re+"ires award to an instit"tion "pon s"ch ter,s and conditions as the BH ,ay appro!e the ban.ing franchise of a ban. "nder li+"idation to operate in the area where said ban. or its branches were pre!io"sly operating) ;ro!ided That whate!er proceeds ,ay be reali$ed fro, s"ch award shall be s"b1ect to the appropriate
e#cl"si!e disposition of the BH. %3ec. 66( '. Related ;ro!isions in RA ED>1 %8eneral Han.ing Law of 'FFF( The petitioner or plaintiff ,"st file with the cler. or 1"dge of the co"rt in which the action is pending a bond e#ec"ted in fa!or of the H3; in an a,o"nt to be fi#ed by the co"rt. %3ec ?>( 6. ;ro!isions co,,on to Conser!atorship and Recei!ership * The actions of the BH ta.en "nder these sections shall be final and e#ec"tory and ,ay not be restrained or set aside by the co"rt e#cept on petition for certiorari on the gro"nd that the action ta.en was in e#cess of 1"risdiction or with s"ch gra!e ab"se of discretion as to a,o"nt to lac. or e#cess of 1"risdiction. The petition for certiorari ,ay only be filed by the stoc.holders of record representing the ,a1ority of the capital stoc. within 1F days fro, receipt by the board of directors of the instit"tion of the order directing recei!ership li+"idation or conser!atorship. * The designation of a conser!ator or the appoint,ent of a recei!er shall be !ested e#cl"si!ely with the BH. 0"rther,ore the designation of a conser!ator is not a precondition to the designation of a recei!er. %3ec. 6F(
<. Other Operations 1. Research 3tatistics Data and Infor,ation * Research and 3tatistics. The H3; shall prepare data and cond"ct econo,ic research for the g"idance of the BH in the for,"lation and i,ple,entation of its policies.<' %3ec. ''( <' L3"ch data shall incl"de a,ong others forecasts of the balance of pay,ents of the ;hilippines statistics on the ,onthly ,o!e,ent of the ,onetary aggregates and of prices and other statistical series and econo,ic st"dies "sef"l for the for,"lation and analysis of ,onetary ban.ing credit and e#change policies.M %3ec. ''( * The H3; shall ha!e the a"thority to re+"est fro, go!ern,ent offices and instr",entalities or 8OCCs any data which it ,ay re+"ire for the proper discharge of its f"nctions and responsibilities. The H3; thro"gh the 8o!ernor or in his absence a d"ly a"thori$ed representati!e shall ha!e the power to iss"e a s"bpoena for the prod"ction of the boo.s and records for the aforesaid p"rpose. Those who ref"se the s"bpoena witho"t 1"stifiable ca"se or who ref"se to s"pply the ban. with data re+"ested or re+"ired shall be s"b1ect to p"nish,ent for conte,pt in accordance with the pro!isions of the R"les of Co"rt. %3ec. '6( * Data on indi!id"al fir,s other than ban.s gathered by the Depart,ent of Acono,ic Research and other depart,ents or "nits of the H3; shall not be ,ade a!ailable to any person
or entity o"tside of the H3; whether p"blic or pri!ate e#cept "nder order of the co"rt or "nder s"ch conditions as ,ay be prescribed by the BH) ;ro!ided howe!er That the collecti!e data on fir,s ,ay be released to interested persons or entities) ;ro!ided finally That in the case of data on ban.s the pro!isions of 3ec. 'D of this Act %infra( shall apply. %3ec. '6( '. Training of Technical ;ersonnel * The H3; shall pro,ote and sponsor the training of technical personnel in the field of ,oney and ban.ing. %3ec. '6(<6 6. Operating Depart,ents * The BH shall in accordance with its a"thority "nder this Act deter,ine and pro!ide for s"ch operating depart,ents and other offices incl"ding a p"blic infor,ation office of the H3; as it dee,s con!enient for the proper and efficient cond"ct of the operations and the acco,plish,ent of the ob1ecti!es of the H3;. The f"nctions and d"ties of s"ch operating depart,ents and other offices shall be deter,ined by the BH. %3ec. 6E( =. Reports and ;"blications * The H3; shall p"blish a general balance sheet showing the !ol",e and co,position of its assets and liabilities as of the last wor.ing day of the ,onth within si#ty %?F( days after the end of each ,onth e#cept
for the ,onth of Dece,ber which shall be s"b,itted within ninety %>F( days after the end hereof. %3ec. 6>( * The BH shall p"blish and s"b,it the following reports to the ;resident and to the Congress) * not later than >F days after the end of each +"arter an analysis of econo,ic and financial de!elop,ents incl"ding the condition of net international reser!es and ,onetary aggregates<6 LToward this end the H3; is hereby a"thori$ed to defray the costs of st"dy at ho,e or abroad of +"alified e,ployees of the H3; of pro,ising "ni!ersity grad"ates or of any other +"alified persons who shall be deter,ined by proper co,petiti!e e#a,inations. The BH shall prescribe r"les and reg"lations to go!ern the training progra, of the H3;.M 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6F? of 6<1 HANRIN8 LA9 COBBARCIAL LA9 * within >F days after the end of the year the preceding yearVs b"dget and profit and loss state,ent of the H3; showing in reasonable detail the res"lt of its operations* 1'F days after the end of each se,ester a re!iew of the state of the financial syste,and * as soon as practicable abnor,al ,o!e,ents in ,onetary aggregates and
the general price le!el and not later than D' ho"rs after they are ta.en re,edial ,eas"res in response to s"ch abnor,al ,o!e,ents. %3ec. 6>( <. Ann"al Report * Hefore the end of Barch of each year the H3; shall p"blish and s"b,it to the ;resident and the Congress an ann"al report on the condition of the H3; incl"ding a re!iew of the policies and ,eas"res adopted by the BH d"ring the past year and an analysis of the econo,ic and financial circ",stances which ga!e rise to said policies and ,eas"res. The ann"al report shall also incl"de a state,ent of the financial condition of the H3; and a statistical appendi#.<= %3ec. =F( * The H3; shall p"blish another !ersion of the ann"al report in ter,s "nderstandable to the lay,an. %3ec. =F(<< ?. ;rofits Losses and 3pecial Acco"nts * 9ithin the 6F days following the end of each fiscal year<? the H3; shall deter,ine its net profits or losses. In the calc"lation of net profits the H3; shall ,a.e ade+"ate allowance or establish ade+"ate reser!es for bad and do"btf"l acco"nts. %3ec. =6( * 9ithin the first ?F days following the end of each fiscal year the BH shall deter,ine and carry o"t the distrib"tion of the net profits in accordance with the following r"le) <FG of the
net profits shall be carried to s"rpl"s and the re,aining <FG shall re!ert bac. to the National Treas"ry e#cept as otherwise pro!ided in the transitory pro!isions of this Act. %3ec. ==( <= The statistical appendi# Lshall present as a ,ini,", the following data) %a( the ,onthly ,o!e,ent of ,onetary aggregates and their co,ponents- %b( the ,onthly ,o!e,ent of p"rchases and sales of foreign e#change and of the international reser!es of the H3;- %c( the balance of pay,ents of the ;hilippines- %d( ,onthly indices of cons",er prices and of i,port and e#port prices- %e( the ,onthly ,o!e,ent in s",,ary for, of e#ports and i,ports by !ol",e and !al"e- %f( the ,onthly ,o!e,ent of the acco"nts of the H3; and of other ban.s- %g( the principal data on go!ern,ent receipts and e#pendit"res and on the stat"s of the p"blic debt both do,estic and foreign- and %h( the te#ts of the ,a1or legal and ad,inistrati!e ,eas"res adopted by the 8o!ern,ent and the BH d"ring the year which relate to the f"nctions or operations of the H3; or of the financial syste,.M %3ec. =F( << L0ail"re to co,ply with the reportorial re+"ire,ents p"rs"ant to this article witho"t 1"stifiable reason as ,ay be deter,ined by the BH shall ca"se the withholding of the salary of the personnel concerned "ntil the re+"ire,ents are co,plied with.M %3ec. =F( LThe balance sheets and other financial state,ents of the H3; shall be signed by the officers responsible for their preparation by the 8o!ernor and by the a"ditor of the H3;.M %3ec. =1(
<? LThe fiscal year of the H3; shall begin on Jan"ary first and end on Dece,ber thirty/first of each year.M %3ec. ='( * ;rofits or losses arising fro, any re!al"ation of the H3;Vs net assets or liabilities in gold or foreign c"rrencies with respect to the ;hilippine peso shall not be incl"ded in the co,p"tation of the ann"al profits and losses of the H3;. Any profits or losses arising in this ,anner shall be offset by any a,o"nts which as a conse+"ence of s"ch re!al"ations are owed by the ;hilippines to any international or regional intergo!ern,ental financial instit"tion of which the ;hilippines is a ,e,ber or are owed by these instit"tions to the ;hilippines. Any re,aining profit or loss shall be carried in a special fro$en acco"nt which shall be na,ed TRe!al"ation of International Reser!eT and the net balance of which shall appear either a,ong the liabilities or a,ong the assets of the H3; depending on whether the re!al"ations ha!e prod"ced net profits or net losses. The Re!al"ation of International Reser!e acco"nt shall be neither credited nor debited for any p"rposes other than those specifically a"thori$ed in this section. %3ec. =<(<D D. n.b. A"ditor * The Chair,an of the COA shall act as the e# officio a"ditor of the H3; and as s"ch he is e,powered and a"thori$ed to appoint a representati!e who shall be the a"ditor of the
H3; and in accordance with law fi# his salary and to appoint and fi# salaries and n",ber of personnel to assist said representati!e in his wor.. The salaries and other e,ol",ents shall be paid by the COA. The a"ditor of the H3; and personnel "nder hi, ,ay be re,o!ed only by the Chair,an of the COA. %3ec. =D( * The representati!e of the Chair,an of the COA ,"st be a C;A with at least 1F years e#perience as s"ch. No relati!e of any ,e,ber of the BH or the Chair,an of the COA within the ?th degree of consang"inity or affinity shall be appointed s"ch representati!e. %3ec. =D( 6. ;RO5IHITION3 ON H3; ;AR3ONNAL In addition to the prohibitions fo"nd in RA 6F1> %Anti/8raft and Corr"pt ;ractices Act( and ?D16 %Code of Cond"ct and Athical 3tandards for ;"blic Officials and A,ployees( personnel of the H3; are hereby prohibited fro,) 1. being an officer director lawyer or agent e,ployee cons"ltant or stoc.holder directly or indirectly of any instit"tion s"b1ect to s"per!ision or e#a,ination by the H3; AOC) a. non/stoc. sa!ings and loan associations and pro!ident f"nds organi$ed e#cl"si!ely for e,ployees of the H3; and <D L3ections =6 and =6/A of RA '?< as a,ended creating the Bonetary Ad1"st,ent Acco"nt %BAA( and the
A#change 3tabili$ation Ad1"st,ent Acco"nt %A3AA( respecti!ely are hereby repealed. A,o"nts o"tstanding as of the effecti!e date of this Act based on these acco"nts shall contin"e to be for the acco"nt of the CH and shall be go!erned by the transitory pro!isions of this Act. The Re!al"ation of International Reser!e %RIR( acco"nt as of the effecti!e date of this Act of the CH shall contin"e to be for the acco"nt of the sa,e entity and shall be go!erned by the pro!isions of 3ec. == of RA '?< as a,ended "ntil otherwise pro!ided for in accordance with the transitory pro!isions of this Act.M %3ec. =?( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6FD of 6<1 HANRIN8 LA9 COBBARCIAL LA9 b. as otherwise pro!ided in the NCHA in this Act'. directly or indirectly re+"esting or recei!ing any gift present or pec"niary or ,aterial benefit for hi,self or another fro, any instit"tion s"b1ect to s"per!ision or e#a,ination by the H3;6. re!ealing in any ,anner e#cept "nder orders of the co"rt the Congress or any go!ern,ent office or agency a"thori$ed by law or "nder s"ch conditions as ,ay be prescribed by the BH infor,ation relating to the condition or b"siness of any instit"tion. This prohibition shall not be held to apply to the gi!ing of infor,ation to the BH or the 8o!ernor of the H3; or to any person a"thori$ed by either of the, in writing to recei!e s"ch infor,ation-
and =. borrowing fro, any instit"tion s"b1ect to s"per!ision or e#a,ination by the H3; shall be prohibited "nless said borrowings are ade+"ately sec"red f"lly disclosed to the BH and shall be s"b1ect to s"ch f"rther r"les and reg"lations as the BH ,ay prescribe) ;ro!ided howe!er That personnel of the s"per!ising and e#a,ining depart,ents are prohibited fro, borrowing fro, a ban. "nder their s"per!ision or e#a,ination. %3ec. 'D( =. 3ANCTION3 1. Ref"sal to Ba.e Reports or ;er,it A#a,ination Any officer owner agent ,anager director or OIC of any instit"tion s"b1ect to the s"per!ision or e#a,ination by the H3; within the p"r!iew of this Act who being re+"ired in writing by the BH or by the head of the s"per!ising and e#a,ining depart,ent willf"lly ref"ses to file the re+"ired report or per,it any lawf"l e#a,ination into the affairs of s"ch instit"tion shall be p"nished by a fine of not less than ;<F FFF nor ,ore than ;1FF FFF or by i,prison,ent of not less than 1 year nor ,ore than < years or both in the discretion of the co"rt. %3ec. 6=( '. 0alse 3tate,ent The willf"l ,a.ing of a false or ,isleading state,ent on a ,aterial fact to the BH or to the e#a,iners of the H3; shall be p"nished by a fine of
not less than ;1FF FFF nor ,ore than ;'FF FFF or by i,prison,ent of not ,ore < years or both at the discretion of the co"rt. %3ec. 6<( 6. Iiolation of This Act and Other Han.ing Laws R"les Reg"lations Orders or Instr"ctions 9hene!er a ban. or QH or whene!er any person or entity willf"lly !iolates this Act or other pertinent ban.ing laws being enforced or i,ple,ented by the H3; or any order instr"ction r"le or reg"lation iss"ed by the BH the person or persons responsible for s"ch !iolation shall "nless otherwise pro!ided in this Act be p"nished by a fine of not less than ;<F FFF nor ,ore than ;'FF FFF or by i,prison,ent of not less than ' years nor ,ore than 1F years or both at the discretion of the co"rt. 9hene!er a ban. or QH persists in carrying on its b"siness in an "nlawf"l or "nsafe ,anner the Hoard ,ay witho"t pre1"dice to the penalties pro!ided in the preceding paragraph of this section and the ad,inistrati!e sanctions pro!ided in 3ec. 6D ta.e action "nder 3ec. 6F. %3ec. 6?( =. Ad,inistrati!e 3anctions on Han.s and QHs 9itho"t pre1"dice to the cri,inal sanctions against the c"lpable persons pro!ided in 3ecs. 6=/6? the BH ,ay at its discretion i,pose "pon any ban. or QH their directors and2or officers for anyZ 1. willf"l !iolation of its charter or by/laws
'. willf"l delay in the s"b,ission of reports or p"blications thereof as re+"ired by law r"les and reg"lations6. any ref"sal to per,it e#a,ination into the affairs of the instit"tion=. any willf"l ,a.ing of a false or ,isleading state,ent to the Hoard or the appropriate s"per!ising and e#a,ining depart,ent or its e#a,iners<. any willf"l fail"re or ref"sal to co,ply with or !iolation of any ban.ing law or any order instr"ction or reg"lation iss"ed by the BH or any order instr"ction or r"ling by the 8o!ernor- or ?. any co,,ission of irreg"larities and2or cond"cting b"siness in an "nsafe or "nso"nd ,anner as ,ay be deter,ined by the BH Zthe following ad,inistrati!e sanctions %which need not be applied in the order of their se!erity( whene!er applicable) '. fines in a,o"nts as ,ay be deter,ined by the BH to be appropriate b"t in no case to e#ceed ;6F FFF a day for each !iolation ta.ing into consideration the attendant circ",stances s"ch as the nat"re and gra!ity of the !iolation or irreg"larity and the si$e of the ban. or +"asi/ban.6. s"spension of redisco"nting pri!ileges or access to H3; credit facilities-
=. s"spension of lending or foreign e#change operations or a"thority to accept new deposits or ,a.e new in!est,ents<. s"spension of interban. clearing pri!ilegesand2or ?. re!ocation of +"asi/ban.ing license. * Resignation or ter,ination fro, office shall not e#e,pt s"ch director or officer fro, ad,inistrati!e or cri,inal sanctions. %3ec. 6D( <. ;re!enti!e 3"spension The BH ,ay whene!er warranted by circ",stances pre!enti!ely s"spend any director or officer of a ban. or +"asi/ban. pending an in!estigation) ;ro!ided That sho"ld the case be not finally decided by the H3; within a period of 1'F days after the date of s"spension said director or officer shall be reinstated in his position) 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6FE of 6<1 HANRIN8 LA9 COBBARCIAL LA9 ;ro!ided f"rther That when the delay in the disposition of the case is d"e to the fa"lt negligence or petition of the director or officer the period of delay shall not be co"nted in co,p"ting the period of s"spension herein pro!ided. %3ec. 6D( ?. Cease and Desist Order 9ON there is an ad,inistrati!e proceeding if the instit"tion and2or the directors and2or officers concerned contin"e with or otherwise persist in the co,,ission of the indicated practice or !iolation
the BH ,ay iss"e an order re+"iring the instit"tion and2or the directors and2or officers concerned to cease and desist fro, the indicated practice or !iolation and ,ay f"rther order that i,,ediate action be ta.en to correct the conditions res"lting fro, s"ch practice or !iolation. The cease and desist order shall be i,,ediately effecti!e "pon ser!ice on the respondents. The respondents shall be afforded an opport"nity to defend their action in a hearing before the BH or any co,,ittee chaired by any BH ,e,ber created for the p"rpose "pon re+"est ,ade by the respondents within < days fro, their receipt of the order. If no s"ch hearing is re+"ested within said period the order shall be final. If a hearing is cond"cted all iss"es shall be deter,ined on the basis of records after which the BH ,ay either reconsider or ,a.e final its order. %3ec. 6D( D. Daily 0ines The 8o!ernor is hereby a"thori$ed at his discretion to i,pose "pon ban.ing instit"tions for any fail"re to co,ply with the re+"ire,ents of law BH reg"lations and policies and2or instr"ctions iss"ed by the BH or by the 8o!ernor fines not in e#cess of ;1F FFF a day for each !iolation the i,position of which shall be final and e#ec"tory "ntil re!ersed ,odified or lifted by the BH on appeal. %3ec. 6D( D. ;eso C"rrency Legal Tender and Han. Deposit Acco"nts
1. ;A3O The "nit of ,onetary !al"e in the ;hilippines is the Tpeso T which is represented by the sign T;.T The peso is di!ided into 1FF e+"al parts called Tcenta!os T which are represented by the sign Tc.T %3ec. =E( '. CURRANCK * The word Tc"rrencyT is hereby defined for p"rposes of this Act as ,eaning all ;hilippine notes and coins iss"ed or circ"lating in accordance with the pro!isions of this Act. %3ec. =>( * The BH with the appro!al of the ;resident of the ;hilippines shall prescribe the deno,inations di,ensions designs inscriptions and other characteristics of notes iss"ed by the H3;) ;ro!ided howe!er That said notes shall state that they are liabilities of the H3; and are f"lly g"aranteed by the 8o!ern,ent of the Rep"blic of the ;hilippines. 3aid notes shall bear the signat"res in facsi,ile of the ;resident of the ;hilippines and of the 8o!ernor of the H3;. 3i,ilarly the BH with the appro!al of the ;resident of the ;hilippines shall prescribe the weight fineness designs deno,inations and other characteristics of the coins iss"ed by the H3;. In the ,inting of coins the BH shall gi!e f"ll consideration to the a!ailability of s"itable ,etals and to their relati!e prices and cost of
,inting. %3ec. <6( * The BH shall prescribe the a,o"nts of notes and coins to be printed and ,inted respecti!ely and the conditions to which the printing of notes and the ,inting of coins shall be s"b1ect. The BH shall ha!e the a"thority to contract instit"tions ,ints or fir,s for s"ch operations. All e#penses inc"rred in the printing of notes and the ,inting of coins shall be for the acco"nt of the H3;. %3ec. <=( * The H3; shall e#change on de,and and witho"t charge ;hilippine c"rrency of any deno,ination for ;hilippine notes and coins of any other deno,ination re+"ested. If for any reason the H3; is te,porarily "nable to pro!ide notes or coins of the deno,inations re+"ested it shall ,eet its obligations by deli!ering notes and coins of the deno,inations which ,ost nearly appro#i,ate those re+"ested. %3ec. <<( * The H3; shall withdraw fro, circ"lation and shall de,oneti$e all notes and coins which for any reason whatsoe!er are "nfit for circ"lation and shall replace the, by ade+"ate notes and coins) ;ro!ided howe!er That the H3; shall not replace notes and coins the identification of which is i,possible coins which show signs of filing clipping or perforation and notes which ha!e lost ,ore than '2< of their s"rface or all of the signat"res inscribed thereon. Notes and coins in s"ch ,"tilated conditions shall be
withdrawn fro, circ"lation and de,oneti$ed witho"t co,pensation to the bearer. %3ec. <?( * The H3; ,ay call in for replace,ent notes of any series or deno,ination which are ,ore than < years old and coins which are ,ore 1F years old. Notes and coins called in for replace,ent in accordance with this pro!ision shall re,ain legal tender for a period of 1 year fro, the date of call. After this period they shall cease to be legal tender b"t d"ring the following year or for s"ch longer period as the BH ,ay deter,ine they ,ay be e#changed at par and witho"t charge in the H3; and by agents d"ly a"thori$ed by the H3; for this p"rpose. After the e#piration of this latter period the notes and coins which ha!e not been e#changed shall cease to be a liability of the H3; and shall be de,oneti$ed. The H3; shall also de,oneti$e all notes and coins which ha!e been called in and replaced. %3ec. <D( 6. AOCLU3IIA I33UA ;O9AR * The H3; shall ha!e the sole power and a"thority to iss"e c"rrency within the territory of the ;hilippines. No other person or entity p"blic or pri!ate ,ay p"t into circ"lation notes coins or any other ob1ect or doc",ent which in the opinion of the BH ,ight circ"late as c"rrency nor reprod"ce or i,itate the facsi,iles of H3; notes witho"t prior a"thority fro, the H3;. The BH ,ay iss"e s"ch
reg"lations as it ,ay dee, ad!isable in order to pre!ent the circ"lation of foreign c"rrency or of c"rrency s"bstit"tes as well as to pre!ent 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6F> of 6<1 HANRIN8 LA9 COBBARCIAL LA9 the reprod"ction of facsi,iles of H3; notes. The H3; shall ha!e the a"thority to in!estigate ,a.e arrests cond"ct searches and sei$"res in accordance with law for the p"rpose of ,aintaining the integrity of the c"rrency. * Iiolation of this pro!ision or any reg"lation iss"ed by the H3; p"rs"ant thereto shall constit"te an offense p"nishable by i,prison,ent of not less than < years b"t not ,ore than 1F years. In case the R;C pro!ides for a greater penalty then that penalty shall be i,posed. %3ec. <F( =. LIAHILITK 0OR NOTA3 AND COIN3 * Notes and coins iss"ed by the H3; shall be liabilities of the H3; and ,ay be iss"ed only against and in a,o"nts not e#ceeding the assets of the H3;. 3aid notes and coins shall be a first and para,o"nt lien on all assets of the H3;. * The H3;Vs holdings of its own notes and coins shall not be considered as part of its c"rrency iss"e and accordingly shall not for, part of the assets or liabilities of the H3;. %3ec. <1( <. LA8AL TANDAR ;O9AR All notes and coins iss"ed by the H3; shall be f"lly
g"aranteed by the 8o!ern,ent of the Rep"blic of the ;hilippines and shall be legal tender in the ;hilippines for all debts both p"blic and pri!ate) ;ro!ided howe!er That "nless otherwise fi#ed by the BH coins shall be legal tender in a,o"nts not e#ceeding ;<F for deno,inations of '< centa!os and abo!e and in a,o"nts not e#ceeding ;'F for deno,inations of 1F centa!os or less. %3ec. <'(<E ?. DABAND DA;O3IT3 * 0or p"rposes of this Act the ter, Tde,and depositsT ,eans all those liabilities of the H3; and of other ban.s which are deno,inated in ;hilippine c"rrency and are s"b1ect to pay,ent in legal tender "pon de,and by the presentation of chec.s. %3ec. <E( * Only ban.s d"ly a"thori$ed to do so ,ay accept f"nds or create liabilities payable in pesos "pon de,and by the presentation of chec.s and s"ch operations shall be s"b1ect to the control of the BH in accordance with the powers granted it with respect thereto "nder this Act. %3ec. <>( * Chec.s representing de,and deposits do not ha!e legal tender power and their acceptance in the pay,ent of debts both p"blic and pri!ate is at the option of the creditor) ;ro!ided howe!er That a chec. which has been cleared and credited to the acco"nt of the creditor shall be e+"i!alent to a deli!ery to the creditor of cash in an a,o"nt e+"al to the
a,o"nt credited to his acco"nt. %3ec. ?F( <E This topic on Legal Tender was as.ed in 'FFF. A. Bonetary Ad,inistration by the H3; 1. DOBA3TIC BONATARK 3TAHILINATION * The BH shall endea!or to control any e#pansion or contraction in ,onetary aggregates which is pre1"dicial to the attain,ent or ,aintenance of price stability.<> %3ec. ?1( * 9hene!er abnor,al ,o!e,ents in the ,onetary aggregates in credit or in prices endanger the stability of the ;hilippine econo,y or i,portant sectors thereof the BH shall ta.e s"ch re,edial ,eas"res as are appropriate and within the powers granted to the BH and the H3; "nder the pro!isions of this Act- and s"b,it to the ;resident of the ;hilippines and the Congress and ,a.e p"blic a detailed report which shall incl"de as a ,ini,", a description and analysis of) %1( the ca"ses of the rise or fall of the ,onetary aggregates of credit or of prices- %'( the e#tent to which the changes in the ,onetary aggregates in credit or in prices ha!e been reflected in changes in the le!el of do,estic o"tp"t e,ploy,ent wages and econo,ic acti!ity in general and the nat"re and significance of any s"ch changes- and %6( the ,eas"res which the BH has ta.en and the other ,onetary fiscal or ad,inistrati!e ,eas"res which it reco,,ends to be adopted.
* 9hene!er the ,onetary aggregates or the le!el of credit increases or decreases by ,ore than 1<G or the cost of li!ing inde# increases by ,ore than 1FG in relation to the le!el e#isting at the end of the corresponding ,onth of the preceding year or e!en tho"gh any of these +"antitati!e g"idelines ha!e not been reached when in its 1"dg,ent the circ",stances so warrant the BH shall s"b,it the reports ,entioned in this section and shall state therein whether in the opinion of the Hoard said changes in the ,onetary aggregates credit or cost of li!ing represent a threat to the stability of the ;hilippine econo,y or of i,portant sectors thereof. * The BH shall contin"e to s"b,it periodic reports to the ;resident of the ;hilippines and to Congress "ntil it considers that the ,onetary credit or price dist"rbances ha!e disappeared or ha!e been ade+"ately controlled. %3ec. ?6( '. INTARNATIONAL BONATARK 3TAHILINATION * The H3; shall e#ercise its powers "nder this Act to preser!e the international !al"e of the peso and to ,aintain its con!ertibility into other freely con!ertible c"rrencies pri,arily for altho"gh not necessarily li,ited to c"rrent pay,ents for foreign trade and in!isibles. %3ec. ?=(
<> L0or p"rposes of this article and of this Act the BH shall for,"late definitions of ,onetary aggregates credit and prices and shall ,a.e p"blic s"ch definitions and any changes thereof.M %3ec. ?'( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 61F of 6<1 HANRIN8 LA9 COBBARCIAL LA9 * In order to ,aintain the international stability and con!ertibility of the ;hilippine peso the H3; shall ,aintain international reser!es ade+"ate to ,eet any foreseeable net de,ands on the H3; for foreign c"rrencies. In 1"dging the ade+"acy of the international reser!es the BH shall be g"ided by the prospecti!e receipts and pay,ents of foreign e#change by the ;hilippines. The Hoard shall gi!e special attention to the !ol",e and ,at"rity of the H3;Vs own liabilities in foreign c"rrencies to the !ol",e and ,at"rity of the foreign e#change assets and liabilities of other ban.s operating in the ;hilippines and insofar as they are .nown or can be esti,ated the !ol",e and ,at"rity of the foreign e#change assets and liabilities of all other persons and entities in the ;hilippines. %3ec. ?<( * The international reser!es of the H3; ,ay incl"de b"t shall not be li,ited to the following assets) 1. gold- and '. assets in foreign c"rrencies in the for, of) doc",ents and instr",ents c"sto,arily
e,ployed for the international transfer of f"nds6. de,and and ti,e deposits in central ban.s treas"ries and co,,ercial ban.s abroadforeign go!ern,ent sec"rities- and foreign notes and coins. %3ec. ??( * The BH shall endea!or to hold the foreign e#change reso"rces of the H3; in freely con!ertible c"rrencies- ,oreo!er the Hoard shall gi!e partic"lar consideration to the prospects of contin"ed strength and con!ertibility of the c"rrencies in which the reser!e is ,aintained as well as to the anticipated de,ands for s"ch c"rrencies. The BH shall iss"e reg"lations deter,ining the other +"alifications which foreign e#change assets ,"st ,eet in order to be incl"ded in the international reser!es of the H3;. The H3; shall be free to con!ert any of the assets in its international reser!es into other assets as described in s"bsecs %a( and %b( of 3ec. ??. %3ec. ??( * 9hene!er the international reser!e of the H3; falls to a le!el which the BH considers inade+"ate to ,eet prospecti!e net de,ands on the H3; for foreign c"rrencies or whene!er the international reser!e appears to be in i,,inent danger of falling to s"ch a le!el or whene!er the international reser!e is falling as a res"lt of pay,ents or re,ittances abroad
which in the opinion of the BH are contrary to the national welfare the BH shall) 1. ta.e s"ch re,edial ,eas"res as are appropriate and within the powers granted to the BH and the H3; "nder the pro!isions of this Act- and '. s"b,it to the ;resident of the ;hilippines and to Congress a detailed report which shall incl"de as a ,ini,", a description and analysis of) a. the nat"re and ca"ses of the e#isting or i,,inent declineb. the re,edial ,eas"res already ta.en or to be ta.en by the BHc. the ,onetary fiscal or ad,inistrati!e ,eas"res f"rther proposed- and d. the character and e#tent of the cooperation re+"ired fro, other go!ern,ent agencies for the s"ccessf"l e#ec"tion of the policies of the BH. If the res"ltant actions fail to chec. the deterioration of the reser!e position of the H3; or if the deterioration cannot be chec.ed e#cept by chronic restrictions on e#change and trade transactions or by sacrifice of the do,estic ob1ecti!es of a balanced and s"stainable growth of the econo,y the BH shall propose to the ;resident with appropriate
notice of the Congress s"ch additional action as it dee,s necessary to restore e+"ilibri", in the international balance of pay,ents of the ;hilippines. The BH shall s"b,it periodic reports to the ;resident and to Congress "ntil the threat to the international ,onetary stability of the ;hilippines has disappeared. %3ec. ?D( 6. IN3TRUBANT3 O0 H3; ACTION In order to achie!e the pri,ary ob1ecti!e of price stability the BH shall rely on its ,oral infl"ence and the powers granted to it "nder this Act for the ,anage,ent of ,onetary aggregates. %3ec. ?E( 1. ;"rchases in 8old The H3; ,ay b"y and sell gold in any for, s"b1ect to s"ch reg"lations as the BH ,ay iss"e. The p"rchases and sales of gold a"thori$ed by this section shall be ,ade in the national c"rrency at the pre!ailing international ,ar.et price as deter,ined by the BH. %3ec. ?>( '. ;"rchases in 8old and 0oreign A#change The H3; ,ay b"y and sell foreign notes and coins and doc",ents and instr",ents of types c"sto,arily e,ployed for the international transfer of f"nds. The H3; ,ay engage in f"t"re e#change operations. The H3; ,ay engage in foreign e#change transactions with the following entities or persons only) 1. ban.ing instit"tions operating in the ;hilippines-
'. the 8o!ern,ent its political s"bdi!isions U instr",entalities6. foreign or international financial instit"tions=. foreign go!ern,ents and their instr",entalities- and <. other entities or persons which the BH is hereby e,powered to a"thori$e as foreign e#change dealers s"b1ect to s"ch r"les and reg"lations as the BH shall prescribe. %3ec. DF( * In order to ,aintain the con!ertibility of the peso the H3; ,ay at the re+"est of any ban.ing instit"tion operating in the ;hilippines b"y any +"antity of foreign e#change offered and sell any +"antity of foreign e#change 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 611 of 6<1 HANRIN8 LA9 COBBARCIAL LA9 de,anded by s"ch instit"tion pro!ided that the foreign c"rrencies so offered or de,anded are freely con!ertible into gold or United 3tates dollars. This re+"ire,ent shall not apply to de,ands for foreign notes and coins. %3ec. DF( * The H3; shall effect its e#change transactions between foreign c"rrencies and the ;hilippine peso at the rates deter,ined in accordance with the pro!isions of 3ection D= of this Act.?F %3ec. DF( * The H3; shall endea!or to ,aintain at all ti,es a net positi!e foreign asset position so that its
gross foreign e#change assets will always e#ceed its gross foreign liabilities. In the e!ent that the e+"i!alent a,o"nt in pesos of the foreign e#change liabilities of the H3; e#ceed twice the e+"i!alent a,o"nt in pesos of the foreign e#change assets of the ban. the H3; shall within ?F days fro, the date the li,it is e#ceeded s"b,it a report to the Congress stating the origin of these liabilities and the ,anner in which they will be paid. %3ec. D1( * The H3; shall a!oid the ac+"isition and holding of c"rrencies which are not freely con!ertible and ,ay ac+"ire s"ch c"rrencies in an a,o"nt e#ceeding the ,ini,", balance necessary to co!er c"rrent de,ands for said c"rrencies only when and to the e#tent that s"ch ac+"isition is considered by the BH to be in the national interest. The BH shall deter,ine the proced"res which shall apply to the ac+"isition and disposition by the H3; of foreign e#change which is not freely "tili$able in the international ,ar.et. %3ec. D6( 6. A,ergency Restrictions on A#change Operations * In order to achie!e the pri,ary ob1ecti!e of the H3; as set forth in 3ec. 6 of this Act or protect the international reser!es of the H3; in the i,,inence of or d"ring an e#change crisis or in ti,e of national e,ergency and to gi!e the BH and the 8o!ern,ent ti,e in which to ta.e
constr"cti!e ,eas"res to forestall co,bat or o!erco,e s"ch a crisis or e,ergency the BH with the conc"rrence of at least < of its ,e,bers and with the appro!al of the ;resident of the ;hilippines ,ay te,porarily s"spend or restrict sales of e#change by the H3; and ,ay s"b1ect all transactions in gold and foreign e#change to license by the H3; and ,ay re+"ire that any foreign e#change thereafter obtained by any person residing or entity operating in the ;hilippines be deli!ered to the H3; or to any ban. or agent designated ?F L3ec D=. A#change Rates. C The BH shall deter,ine the e#change rate policy of the co"ntry. LThe BH shall deter,ine the rates at which the H3; shall b"y and sell spot e#change and shall establish de!iation li,its fro, the effecti!e e#change rate or rates as it ,ay dee, proper. The H3; shall not collect any additional co,,issions or charges of any sort other than act"al telegraphic or cable costs inc"rred by it. LThe BH shall si,ilarly deter,ine the rates for other types of foreign e#change transactions by the H3; incl"ding p"rchases and sales of foreign notes and coins b"t the ,argins between the effecti!e e#change rates and the rates th"s established ,ay not e#ceed the corresponding ,argins for spot e#change transactions by ,ore than the additional costs or e#penses in!ol!ed in each type of transactions.M by the H3; for the p"rpose at the effecti!e e#change rate or rates) ;ro!ided howe!er That foreign c"rrency deposits ,ade "nder RA
?='? %0CDU Law( shall be e#e,pt fro, these re+"ire,ents. %3ec. D'( =. Operations with 0oreign Antities * The BH ,ay a"thori$e the H3; to grant loans to and recei!e loans fro, foreign ban.s and other foreign or international entities both p"blic and pri!ate and ,ay engage in s"ch other operations with these entities as are in the national interest and are appropriate to its character as a central ban.. The H3; ,ay also act as agent or correspondent for s"ch entities. Upon a"thority of the BH the H3; ,ay pledge any gold or other assets which it possesses as sec"rity against loans which it recei!es fro, foreign or international entities. %3ec. D<( =. RA8ULATION O0 0ORAI8N AOC5AN8A O;ARATION3 O0 T5A HANR3 * In order that the H3; ,ay at all ti,es ha!e foreign e#change reso"rces s"fficient to enable it to ,aintain the international stability and con!ertibility of the peso or in order to pro,ote the do,estic in!est,ent of ban. reso"rces the BH ,ay re+"ire the ban.s to sell to the H3; or to other ban.s all or part of their s"rpl"s holdings of foreign e#change. 3"ch transfers ,ay be re+"ired for all foreign c"rrencies or for only certain of s"ch c"rrencies according to the decision of the BH.
The transfers shall be ,ade at the rates established "nder the pro!isions of 3ec. D= of this Act. %3ec. D?( * The BH ,ay whene!er warranted deter,ine the net assets and net liabilities of ban.s and shall in ,a.ing s"ch a deter,ination ta.e into acco"nt the ban.Vs networth o"tstanding liabilities act"al and contingent or s"ch other financial or perfor,ance ratios as ,ay be appropriate "nder the circ",stances. Any s"ch deter,ination of net assets and net liabilities shall be applied in all ban.s "nifor,ly and witho"t discri,ination. %3ec. D?( * The BH ,ay re+"ire the ban.s to ,aintain a balanced position between their assets and liabilities in ;hilippine pesos or in any other c"rrency or c"rrencies in which they operate. The ban.s shall be granted a reasonable period of ti,e in which to ad1"st their c"rrency positions to any s"ch re+"ire,ent. %3ec. DD(?1 * In order to restrain the ban.s fro, ta.ing spec"lati!e positions with respect to f"t"re fl"ct"ations in foreign e#change rates the BH ,ay iss"e s"ch reg"lations go!erning ban. p"rchases and sales of non/spot e#change as it ,ay consider necessary for said p"rpose. %3ec. DE( ?1 LThe powers granted "nder this section shall be e#ercised only when special circ",stances ,a.e s"ch action necessary in the opinion of the BH and shall be applied to all
ban.s ali.e and witho"t discri,ination.M %3ec. DD( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 61' of 6<1 HANRIN8 LA9 COBBARCIAL LA9 * The ban.s shall bear the ris.s of nonco,pliance with the ter,s of the foreign e#change doc",ents and instr",ents which they b"y and sell and shall also bear any other typically co,,ercial or ban.ing ris.s incl"ding e#change ris.s not ass",ed by the H3; "nder the pro!isions of the preceding section. %3ec. D>( * The ban.s shall report to the H3; the !ol",e and co,position of their p"rchases and sales of gold and foreign e#change each day and ,"st f"rnish s"ch additional infor,ation as the H3; ,ay re+"est with reference to the ,o!e,ents in their acco"nts in foreign c"rrencies. The BH ,ay also re+"ire other persons and entities to report to it c"rrently all transactions or operations in gold in any shape or for, and in foreign e#change whether entered into or "nderta.en by the, directly or thro"gh agents or to s"b,it s"ch data as ,ay be re+"ired on operations or acti!ities gi!ing rise to or in connection with or relating to a gold or foreign e#change transaction. The BH shall prescribe the for,s on which s"ch declarations ,"st be ,ade. The acc"racy of the declarations ,ay be !erified by the H3; by whate!er inspection it ,ay dee, necessary. %3ec. EF(
<. LOAN3 TO HANRIN8 AND OT5AR 0INANCIAL IN3TITUTION3 * 8"iding ;rinciples. The redisco"nts disco"nts loans and ad!ances which the H3; is a"thori$ed to e#tend to ban.ing instit"tions "nder the pro!isions of the present article of this Act shall be "sed to infl"ence the !ol",e of credit consistent with the ob1ecti!e of price stability. %3ec. E1( 1. Nor,al Credit Operations * A"thori$ed Types of Operations. 3"b1ect to the principle stated in the preceding section of this Act the H3; ,ay nor,ally and reg"larly carry on the following credit operations with ban.ing instit"tions operating in the ;hilippines) 1. Co,,ercial credits. C The H3; ,ay redisco"nt disco"nt b"y and sell bills acceptances pro,issory notes and other credit instr",ents with ,at"rities of not ,ore than 1EF days fro, the date of their redisco"nt disco"nt or ac+"isition by the H3; and res"lting fro, transactions related to) * the i,portation e#portation p"rchase or sale of readily saleable goods and prod"cts or their transportation within the ;hilippines* the storing of non/perishable
goods U prod"cts w2c are d"ly ins"red U deposited "nder conditions ass"ring their preser!ation in a"thori$ed bonded wareho"ses or in other places appro!ed by the BH. '. ;rod"ction credits. C The H3; ,ay redisco"nt disco"nt b"y and sell bills acceptances pro,issory notes and other credit instr",ents ha!ing ,at"rities of not ,ore than 6?F days fro, the date of their redisco"nt disco"nt or ac+"isition by the H3; and res"lting fro, transactions related to the prod"ction or processing of agric"lt"ral ani,al ,ineral or ind"strial prod"cts. Doc",ents or instr",ents ac+"ired in accordance with this s"bsection shall be sec"red by a pledge of the respecti!e crops or prod"cts) ;ro!ided howe!er That the crops or prod"cts need not be pledged to sec"re the doc",ents if the original loan granted by the H3; is sec"red by a lien or ,ortgage on real estate property DFG of the appraised !al"e of which e+"als or e#ceeds the a,o"nt of the loan granted.
6. Other credits. C 3pecial credit instr",ents not otherwise redisco"ntable "nder the i,,ediately preceding s"bsections %a( and %b( ,ay be eligible for redisco"nting in accordance with r"les and reg"lations which the H3; shall prescribe. 9hene!er necessary the H3; shall pro!ide f"nds fro, non/inflationary so"rces) ;ro!ided howe!er That the BH shall prescribe additional safeg"ards for disb"rsing these f"nds. =. Ad!ances. C The H3; ,ay grant ad!ances against the following .inds of collaterals for fi#ed periods which with the e#ception of ad!ances against collateral na,ed in cla"se %=( of the present s"bsection shall not e#ceed 1EF days) a. gold coins or b"llionb. sec"rities representing obligations of the H3; or of other do,estic instit"tions of recogni$ed sol!encyc. the credit instr",ents to which reference is ,ade in s"bsection %a( of this section-
d. the credit instr",ents to which reference is ,ade in s"bsection %b( of this section for periods which shall not e#ceed 6?F dayse. "tili$ed portions of ad!ances in c"rrent a,o"nt co!ered by reg"lar o!erdraft agree,ents related to operations incl"ded "nder s"bsections %a( and %b( of this section and certified as to a,o"nt and li+"idity by the instit"tion soliciting the ad!ancef. negotiable treas"ry bills certificates of indebtedness notes and other negotiable obligations of the 8o!ern,ent 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 616 of 6<1 HANRIN8 LA9 COBBARCIAL LA9 ,at"ring within 6 years fro, the date of the ad!ance- and g. negotiable bonds iss"ed by the 8o!ern,ent of the ;hilippines by ;hilippine pro!incial city or ,"nicipal go!ern,ents or by any ;hilippine 8o!ern,ent instr",entality and ha!ing ,at"rities of not ,ore than 1F years fro, the date of ad!ance.
Ad!ances ,ade against the collateral na,ed in cla"ses %?( and %D( ,ay not e#ceed EFG of the c"rrent ,ar.et !al"e of the collateral. The redisco"nts disco"nts loans and ad!ances ,ade in accordance with the pro!isions of this section ,ay not be renewed or e#tended "nless e#traordinary circ",stances f"lly 1"stify s"ch renewal or e#tension. %3ec. E'( '. 3pecial Credit Operation The H3; ,ay e#tend loans and ad!ances to ban.ing instit"tions for a period of not ,ore than D days witho"t any collateral for the p"rpose of pro!iding li+"idity to the ban.ing syste, in ti,es of need. %3ec. E6( 6. A,ergency Credit Operation * In periods of national and2or local e,ergency or of i,,inent financial panic which directly threaten ,onetary and ban.ing stability the BH ,ay by a !ote of at least < of its ,e,bers a"thori$e the H3; to grant e#traordinary loans or ad!ances to ban.ing instit"tions sec"red by assets as defined here"nder) ;ro!ided That while s"ch loans or ad!ances are o"tstanding the debtor instit"tion shall not e#cept "pon prior a"thori$ation by the BH e#pand the total !ol",e of its loans or in!est,ents.?'
?' LThe a,o"nt of any e,ergency loan or ad!ance shall not e#ceed the s", of <FG of total deposits and deposit s"bstit"tes of the ban.ing instit"tion and shall be disb"rsed in ' or ,ore tranches. The a,o"nt of the first tranche shall be li,ited to '<G of the total deposit and deposit s"bstit"tes of the instit"tion and shall be sec"red by go!ern,ent sec"rities to the e#tent of their applicable loan !al"es and other "nenc",bered first class collaterals which the BH ,ay appro!e) ;ro!ided That if as deter,ined by the BH the circ",stances s"rro"nding the e,ergency warrant a loan or ad!ance greater than the a,o"nt pro!ided hereinabo!e the a,o"nt of the first tranche ,ay e#ceed '<G of the ban.Vs total deposit and deposit s"bstit"tes if the sa,e is ade+"ately sec"red by applicable loan !al"es of go!ern,ent sec"rities and "nenc",bered first class collaterals appro!ed by the BH and the principal stoc.holders of the instit"tion f"rnish an acceptable "nderta.ing to inde,nify and hold har,less fro, s"it a conser!ator whose appoint,ent the BH ,ay find necessary at any ti,e. ;rior to the release of the first tranche the ban.ing instit"tion shall s"b,it to the H3; a resol"tion of its board of directors a"thori$ing the H3; to e!al"ate other assets of the ban.ing instit"tion certified by its e#ternal a"ditor to be good and a!ailable for collateral p"rposes sho"ld the release of the s"bse+"ent tranche be thereafter applied for. The BH ,ay by a !ote of at least < of its ,e,bers a"thori$e the release of a s"bse+"ent tranche on condition that the principal stoc.holders of the instit"tion) %a( f"rnish an acceptable "nderta.ing to inde,nify and hold har,less fro, s"it a conser!ator whose appoint,ent the BH ,ay find necessary at any ti,e- and %b( pro!ide acceptable
sec"rity which in the 1"dg,ent of the BH wo"ld be ade+"ate * The BH ,ay at its discretion li.ewise a"thori$e the H3; to grant e,ergency loans or ad!ances to ban.ing instit"tions e!en d"ring nor,al periods for the p"rpose of assisting a ban. in a precario"s financial condition or "nder serio"s financial press"res bro"ght by "nforeseen e!ents or e!ents which tho"gh foreseeable co"ld not be pre!ented by the ban. concerned) ;ro!ided howe!er That the BH has ascertained that the ban. is not insol!ent and has the assets defined here"nder to sec"re the ad!ances) ;ro!ided f"rther That a conc"rrent !ote of at least < ,e,bers of the BH is obtained. * In connection with the e#ercise of these powers the prohibitions in 3ec. 1'E of this Act shall not apply insofar as it refers to acceptance as collateral of shares and their ac+"isition as a res"lt of foreclos"re proceedings incl"ding the e#ercise of !oting rights pertaining to said shares) ;ro!ided howe!er That sho"ld the H3; ac+"ire any of the shares it has accepted as collateral as a res"lt of foreclos"re proceedings the H3; shall dispose of said shares by p"blic bidding within 1 year fro, the date of consolidation of title by the H3;. 9hene!er a financial instit"tion inc"rs an o!erdraft in its acco"nt with the H3; the sa,e shall be eli,inated within the period prescribed
in 3ec. 1F' of this Act. %3ec. E=( Credit Ter,s * The H3; shall collect interest and other appropriate charges on all loans and ad!ances it e#tends the clos"re recei!ership or li+"idations of the debtor/instit"tion notwithstanding. This pro!ision shall apply prospecti!ely. %3ec. E<( * The BH shall fi# the interest and redisco"nt rates to be charged by the H3; on its credit operations in accordance with the character and ter, of the operation b"t after d"e consideration has been gi!en to the credit needs of the ,ar.et the co,position of the H3;Vs portfolio and the general re+"ire,ents of the national ,onetary policy. Interest and redisco"nt rates shall be applied to all ban.s of the sa,e category "nifor,ly and witho"t discri,ination. %3ec. E<( * The doc",ents redisco"nted disco"nted bo"ght or accepted as collateral by the H3; in the co"rse of the credit operations a"thori$ed in this article shall bear the endorse,ent of the instit"tion fro, which they are recei!ed. %3ec. E?( * Doc",ents redisco"nted disco"nted or accepted as collateral by the H3; ,"st be withdrawn by the borrowing instit"tion on the dates of their ,at"rities or "pon li+"idation of the obligations which they represent or to
which they relate whene!er said obligations ha!e been li+"idated prior to their dates of ,at"rity. Han.s shall ha!e the right at any ti,e to withdraw any doc",ents which they ha!e presented to the H3; as collateral "pon to s"pple,ent where necessary the assets tendered by the ban.ing instit"tion to collaterali$e the s"bse+"ent tranche.M %3ec. E=( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 61= of 6<1 HANRIN8 LA9 COBBARCIAL LA9 pay,ent in f"ll of the corresponding debt to the H3; incl"ding interest charges. %3ec. ED( * The BH ,ay prescribe within the general powers granted to it "nder this Act additional conditions which borrowing instit"tions ,"st satisfy in order to ha!e access to the credit of the H3;. These conditions ,ay refer to the rates of interest charged by the ban.s to the p"rposes for which their loans in general are destined and to any other clearly definable aspect of the credit policy of the ban.. %3ec. EE( * The H3; ,ay ,a.e direct pro!isional ad!ances with or witho"t interest to the National 8o!ern,ent to finance e#pendit"res a"thori$ed in its ann"al appropriation) ;ro!ided That said ad!ances shall be repaid before the end of 6 ,onths e#tendible by another 6 ,onths as the BH ,ay allow following the date the
National 8o!ern,ent recei!ed s"ch pro!isional ad!ances and shall not in their aggregate e#ceed 'FG of the a!erage ann"al inco,e of the borrower for the last 6 preceding fiscal years. %3ec. E>( ?. O;AN BARRAT O;ARATION3 ;rinciples. The open ,ar.et p"rchases and sales of sec"rities by the H3; shall be ,ade e#cl"si!ely in accordance with its pri,ary ob1ecti!e of achie!ing price stability. %3ec. >F( 1. ;"rchases and 3ales of 8o!ern,ent 3ec"rities The H3; ,ay b"y and sell in the open ,ar.et for its own acco"nt) %a( e!idences of indebtedness iss"ed directly by the 8o!ern,ent of the ;hilippines or by its political s"bdi!isions- and %b( e!idences of indebtedness iss"ed by go!ern,ent instr",entalities and f"lly g"aranteed by the 8o!ern,ent. The e!idences of indebtedness ac+"ired "nder the pro!isions of this section ,"st be freely negotiable and reg"larly ser!iced and ,"st be a!ailable to the general p"blic thro"gh ban.ing instit"tions and local go!ern,ent treas"ries in deno,inations of a tho"sand pesos or ,ore. %3ec. >1( '. Iss"e and Negotiation of H3; Obligations In order to pro!ide the H3; with effecti!e instr",ents for open ,ar.et operations the H3; ,ay iss"e place b"y and sell freely negotiable e!idences of indebtedness of the H3;) ;ro!ided
That iss"ance of s"ch certificates of indebtedness shall be ,ade only in cases of e#traordinary ,o!e,ent in price le!els. 3aid e!idences of indebtedness ,ay be iss"ed directly against the international reser!e of the H3; or against the sec"rities which it has ac+"ired or ,ay be iss"ed witho"t relation to specific types of assets of the H3;. The BH shall deter,ine the interest rates ,at"rities and other characteristics of said obligations of the H3; and ,ay if it dee,s it ad!isable deno,inate the obligations in gold or foreign c"rrencies. The e!idences of indebtedness of the H3; to which this section refers ,ay be ac+"ired by the H3; before their ,at"rity either thro"gh p"rchases in the open ,ar.et or thro"gh rede,ptions at par and by lot if the H3; has reser!ed the right to ,a.e s"ch rede,ptions. The e!idences of indebtedness ac+"ired or redee,ed by the H3; shall not be incl"ded a,ong its assets and shall be i,,ediately retired and cancelled. %3ec. >'( D. H3; ;ORT0OLIO II H3; ;ORT0OLIO * At least once e!ery ,onth the BH shall re!iew the portfolio of the H3; in relation to its f"t"re credit policy. In re!iewing the H3;Vs portfolio the BH shall especially consider whether a s"fficiently large part of the portfolio consists of
assets with early ,at"rities in order that a contraction in H3; credit ,ay be effected pro,ptly whene!er the national ,onetary policy so re+"ires. %3ec. >6( E. HANR RA3ARIA3 1. Reser!e Re+"ire,ents In order to control the !ol",e of ,oney created by the credit operations of the ban.ing syste, all ban.s operating in the ;hilippines shall be re+"ired to ,aintain reser!es against their deposit liabilities) ;ro!ided That the BH ,ay at its discretion also re+"ire all ban.s and2or +"asiban.s to ,aintain reser!es against f"nds held in tr"st and liabilities for deposit s"bstit"tes as defined in this Act. The re+"ired reser!es of each ban. shall be proportional to the !ol",e of its deposit liabilities and shall ordinarily ta.e the for, of a deposit in the H3;. Reser!e re+"ire,ents shall be applied to all ban.s of the sa,e category "nifor,ly and witho"t discri,ination. Reser!es against deposit s"bstit"tes if i,posed shall be deter,ined in the sa,e ,anner as pro!ided for reser!e re+"ire,ents against reg"lar ban. deposits with respect to the i,position increase and co,p"tation of reser!es. The BH ,ay e#e,pt fro, reser!e re+"ire,ents deposits and deposit s"bstit"tes with re,aining ,at"rities of ' years or ,ore as well as interban. borrowings.
3ince the re+"ire,ent to ,aintain ban. reser!es is i,posed pri,arily to control the !ol",e of ,oney the H3; shall not pay interest on the reser!es ,aintained with it "nless the BH decides otherwise as warranted by circ",stances. %3ec. >=( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 61< of 6<1 HANRIN8 LA9 COBBARCIAL LA9 '. Deposit 3"bstit"tes The ter, Tdeposit s"bstit"tesT is defined as an alternati!e for, of obtaining f"nds fro, the p"blic other than deposits thro"gh the iss"ance endorse,ent or acceptance of debt instr",ents for the borrowerVs own acco"nt for the p"rpose of relending or p"rchasing of recei!ables and other obligations. These instr",ents ,ay incl"de b"t need not be li,ited to ban.ers acceptances pro,issory notes participations certificates of assign,ent and si,ilar instr",ents with reco"rse and rep"rchase agree,ents. The BH shall deter,ine what specific instr",ents shall be considered as deposit s"bstit"tes for the p"rposes of 3ection >= of this Act) ;ro!ided howe!er That deposit s"bstit"tes of co,,ercial ind"strial and other non/financial co,panies for the li,ited p"rpose of financing their own needs or the needs of their agents or dealers shall not be co!ered by the pro!isions of 3ec. >= of this Act. %3ec. ><( 6. Re+"ired Reser!es Against ;eso Deposits. The BH ,ay fi# and when it dee,s necessary alter the ,ini,", reser!e
ratios to peso deposits as well as to deposit s"bstit"tes which each ban. and2or +"asi/ban. ,ay ,aintain and s"ch ratio shall be applied "nifor,ly to all ban.s of the sa,e category as well as to +"asi/ban.s. %3ec. >?( Against 0oreign C"rrency Deposits. The BH is si,ilarly a"thori$ed to prescribe and ,odify the ,ini,", reser!e ratios applicable to deposits deno,inated in foreign c"rrencies. %3ec. >D( Against Un"sed Halances of O!erdraft Lines. In order to facilitate H3; control o!er the !ol",e of ban. credit the BH ,ay establish ,ini,", reser!e re+"ire,ents for "n"sed balances of o!erdraft lines. The powers of the BH to prescribe and ,odify reser!e re+"ire,ents against "n"sed balances of o!erdraft lines shall be the sa,e as its powers with respect to reser!e re+"ire,ents against de,and deposits. %3ec. >E( * Increase in Reser!e Re+"ire,ents. 9hene!er in the opinion of the BH it beco,es necessary to increase reser!e re+"ire,ents against e#isting liabilities the increase shall be ,ade in a grad"al ,anner and shall not e#ceed fo"r percentage points in any thirty/day period. Han.s and other affected financial instit"tions shall be notified reasonably in ad!ance of the date on which s"ch increase is to beco,e effecti!e. %3ec. >>( =. Co,p"tation on Reser!es The reser!e position of each ban. or +"asi/ban.
shall be calc"lated daily on the basis of the a,o"nt at the close of b"siness for the day of the instit"tionVs reser!es and the a,o"nt of its liability acco"nts against which reser!es are re+"ired to be ,aintained) ;ro!ided That with reference to holidays or non/ban.ing days the reser!e position as calc"lated at the close of the b"siness day i,,ediately preceding s"ch holidays and nonban.ing days shall apply on s"ch days. 0or the p"rpose of co,p"ting the reser!e position of each ban. or +"asi/ban. its principal office in the ;hilippines and all its branches and agencies located therein shall be considered as a single "nit. %3ec. 1FF( <. Reser!e Deficiencies 9hene!er the reser!e position of any ban. or +"asi/ban. co,p"ted in the ,anner specified in the preceding section of this Act is below the re+"ired ,ini,", the ban. or +"asi/ban. shall pay the H3; 121F of 1G per day on the a,o"nt of the deficiency or the pre!ailing ninety/one/day treas"ry bill rate pl"s three percentage points whiche!er is higher) ;ro!ided howe!er That ban.s and +"asi/ban.s shall ordinarily be per,itted to offset any reser!e deficiency occ"rring on one or ,ore days of the wee. with any e#cess reser!es which they ,ay hold on other days of the sa,e wee. and shall be re+"ired to pay the penalty only on the a!erage daily deficiency d"ring the wee.. In cases of ab"se the BH ,ay deny any ban. or
+"asi/ban. the pri!ilege of offsetting reser!e deficiencies in the aforesaid ,anner. %3ec. 1F1( If a ban. or +"asi/ban. chronically has a reser!e deficiency the BH ,ay li,it or prohibit the ,a.ing of new loans or in!est,ents by the instit"tion and ,ay re+"ire that part or all of the net profits of the instit"tion be assigned to s"rpl"s. The BH ,ay ,odify or set aside the reser!e deficiency penalties pro!ided in this section for part or the entire period of a stri.e or loc.o"t affecting a ban. or a +"asi/ban. as defined in the Labor Code or of a national e,ergency affecting operations of ban.s or +"asi/ban.s. The BH ,ay also ,odify or set aside reser!ed deficiency penalties for rehabilitation progra, of a ban.. %3ec. 1F1( D. Interban. 3ettle,ent The H3; shall establish facilities for interban. clearing "nder s"ch r"les and reg"lations as the BH ,ay prescribe) ;ro!ided That the H3; ,ay charge ad,inistrati!e and other fees for the ,aintenance of s"ch facilities. The deposit reser!es ,aintained by the ban.s in the H3; in accordance with the pro!isions of 3ection >= of this Act shall ser!e as basis for the clearing of chec.s and the settle,ent of interban. balances s"b1ect to s"ch r"les and reg"lations as the BH ,ay iss"e with respect to s"ch operations) ;ro!ided That any ban. which inc"rs on o!erdrawing in its deposit acco"nt with the H3; shall f"lly co!er said o!erdraft incl"ding interest
thereon at a rate e+"i!alent to 121F of 1G per day or the pre!ailing ninety/one/day treas"ry bill rate pl"s three percentage points whiche!er is higher not later than the ne#t clearing day) ;ro!ided f"rther That settle,ent of clearing balances shall not be effected for any acco"nt which contin"es to be o!erdrawn for < consec"ti!e ban.ing days "ntil s"ch ti,e as the o!erdrawing is f"lly co!ered or otherwise con!erted into an e,ergency loan or ad!ance p"rs"ant to the pro!isions of 3ec. E= of this Act) ;ro!ided finally That the appropriate clearing office shall be officially notified of ban.s with o!erdrawn balances. Han.s with e#isting o!erdrafts with the H3; as of the effecti!ity of this Act shall within s"ch period as ,ay be prescribed by the BH either con!ert the o!erdraft into an e,ergency loan or ad!ance with a plan of pay,ent or settle s"ch o!erdrafts and that "pon fail"re to so co,ply herewith the H3; shall ta.e 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 61? of 6<1 HANRIN8 LA9 COBBARCIAL LA9 s"ch action against the ban. as ,ay be warranted "nder this Act. %3ec. 1F'( E. A#e,ption fro, Attach,ent and Other ;"rposes Deposits ,aintained by ban.s with the H3; as part of their reser!e re+"ire,ents shall be e#e,pt fro, attach,ent garnish,ents or any other order or process of any co"rt go!ern,ent agency or any other ad,inistrati!e body iss"ed to satisfy the
clai, of a party other than the 8o!ern,ent or its political s"bdi!isions or instr",entalities. %3ec. 1F6( >. 3ALACTIIA RA8ULATION O0 HANR O;ARATION3 * 8"iding ;rinciple. The BH shall "se the powers granted to it to ens"re that the s"pply a!ailability and cost of ,oney are in accord with the needs of the ;hilippine econo,y and that ban. credit is not granted for spec"lati!e p"rposes pre1"dicial to the national interests. Reg"lations on ban. operations shall be applied to all ban.s of the sa,e category "nifor,ly and witho"t discri,ination. %3ec. 1F=( * Bargin Re+"ire,ents Against Letters of Credit. The BH ,ay at any ti,e prescribe ,ini,", cash ,argins for the opening of letters of credit and ,ay relate the si$e of the re+"ired ,argin to the nat"re of the transaction to be financed. %3ec. 1F<( * Re+"ired 3ec"rity Against Han. Loans. In order to pro,ote li+"idity and sol!ency of the ban.ing syste, the BH ,ay iss"e s"ch reg"lations as it ,ay dee, necessary with respect to the ,a#i,", per,issible ,at"rities of the loans and in!est,ents which the ban.s ,ay ,a.e and the .ind and a,o"nt of sec"rity to be re+"ired against the !ario"s types of credit operations of the ban.s. %3ec. 1F?(
* ;ortfolio Ceilings. 9hene!er the BH considers it ad!isable to pre!ent or chec. an e#pansion of ban. credit it ,ay place an "pper li,it on the a,o"nt of loans and in!est,ents which the ban.s ,ay hold or ,ay place a li,it on the rate of increase of s"ch assets within specified periods of ti,e. The BH ,ay apply s"ch li,its to the loans and in!est,ents of each ban. or to specific categories thereof. In no case shall the BH establish li,its which are below the !al"e of the loans or in!est,ents of the ban.s on the date on which they are notified of s"ch restrictions. The restrictions shall be applied to all ban.s "nifor,ly and witho"t discri,ination. %3ec. 1FD( * Bini,", Capital Ratios. The BH ,ay prescribe ,ini,", ratios which the capital and s"rpl"s of the ban.s ,"st bear to the !ol",e of their assets or to specific categories thereof and ,ay alter said ratios whene!er it dee,s necessary. %3ec. 1FE( RALATAD ;ROII3ION3 IN RA ED>1 %8ANARAL HANRIN8 ACT O0 'FFF( * A#cept as the BH ,ay otherwise prescribe loans and other credit acco,,odations against real estate shall not e#ceed D<G of the appraised !al"e of the respecti!e real estate sec"rity pl"s ?FG of the appraised !al"e of the ins"red i,pro!e,ents and s"ch loans ,ay be ,ade to the owner of the real estate or to his
assignees. %3ec 6D( * A#cept as the BH ,ay otherwise prescribe loans and other credit acco,,odations on sec"rity of chattels and intangible properties s"ch as patents trade,ar.s trade na,es and copyrights shall not e#ceed D<G of the appraised !al"e of the sec"rity an s"ch loans and other credit acco,,odation ,ay be ,ade to the title/holder of the chattels and intangible properties or his assignees. * The BH ,ay prescribe the ,at"rities as well as related ter,s and conditions for !ario"s types of ban. loans and other credit acco,,odations. %3ec =6( 1F. COORDINATION O0 CRADIT ;OLICIA3 HK 8OIARNBANT IN3TITUTION3 * Coordination of Credit ;olicies. 8OCCs which perfor, ban.ing or credit f"nctions shall coordinate their general credit policies with those of the BH. Toward this end the BH ,ay whene!er it dee,s it e#pedient ,a.e s"ggestions or reco,,endations to s"ch corporations for the ,ore effecti!e coordination of their policies with those of the H3;. %3ec. 1F>( 0. H3;43 0"nctions as Han.er and 0inancial Ad!isor of the 8o!4t 1. 0UNCTION A3 HANRAR O0 T5A 8OI4T I 0UNCTION A3 HANRAR
O0 T5A 8OI4T * The H3; shall act as a ban.er of the 8o!ern,ent its political s"bdi!isions and instr",entalities. %3ec. 11F( A. Representing the 8o!ern,ent 9ith the International Bonetary 0"nd %IB0(. The H3; shall represent the 8o!ern,ent in all dealings negotiations and transactions with the IB0 and shall carry s"ch acco"nts as ,ay res"lt fro, ;hilippine ,e,bership in or operations with the IB0. %3ec. 111( 9ith Other 0inancial Instit"tions. C The H3; ,ay be a"thori$ed by the 8o!ern,ent to represent it in dealings negotiations or transactions with the International Han. for Reconstr"ction and De!elop,ent and with other foreign or international financial instit"tions or agencies. The ;resident ,ay howe!er designate any of his other financial ad!isors to 1ointly represent the 8o!ern,ent in s"ch dealings negotiations or transactions. %3ec. 11'( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 61D of 6<1 HANRIN8 LA9 COBBARCIAL LA9 H. Official Depositary The H3; shall be the official depository of the 8o!ern,ent its political s"bdi!isions and instr",entalities as well as of go!ern,ent/owned or controlled
corporations and as a general policy their cash balances sho"ld be deposited with the H3; with only ,ini,", wor.ing balances to be held by go!ern,ent/owned ban.s and s"ch other ban.s incorporated in the ;hilippines as the BH ,ay designate s"b1ect to s"ch r"les and reg"lations as the Hoard ,ay prescribe) ;ro!ided That s"ch ban.s ,ay hold deposits of the political s"bdi!isions and instr",entalities of the 8o!ern,ent beyond their ,ini,", wor.ing balances whene!er s"ch s"bdi!isions or instr",entalities ha!e o"tstanding loans with said ban.s. The H3; ,ay pay interest on deposits of the 8o!ern,ent or of its political s"bdi!isions and instr",entalities as well as on deposits of ban.s with the H3;. %3ec. 116( C. 0iscal Operations The H3; shall open a general cash acco"nt for the Treas"rer of the ;hilippines in which the li+"id f"nds of the 8o!ern,ent shall be deposited. Transfers of f"nds fro, this acco"nt to other acco"nts shall be ,ade only "pon order of the Treas"rer of the ;hilippines. %3ec. 11=( D. Other Han.s as Agents of the H3; In the perfor,ance of its f"nctions as fiscal agent the H3; ,ay engage the ser!ices of other go!ern,ent/owned and controlled
ban.s and of other do,estic ban.s for operations in localities at ho,e or abroad in which the H3; does not ha!e offices or agencies ade+"ately e+"ipped to perfor, said operations) ;ro!ided howe!er That for fiscal operations in foreign co"ntries the H3; ,ay engage the ser!ices of foreign ban.ing and financial instit"tions. %3ec. 11<( A. Re,"neration for 3er!ices The H3; ,ay charge e+"itable rates co,,issions or fees for ser!ices which it renders to the 8o!ern,ent its political s"bdi!isions and instr",entalities. %3ec. 11?( '. BARRATIN8 AND 3TAHILININ8 3ACURITIA3 0OR T5A ACCOUNT O0 T5A 8OI4T 1. The Iss"e and ;lacing of 8o!ern,ent 3ec"rities Iss"e of 8o!ern,ent Obligations. The iss"e of sec"rities representing obligations of the 8o!ern,ent its political s"bdi!isions or instr",entalities ,ay be ,ade thro"gh the H3; which ,ay act as agent of and for the acco"nt of the 8o!ern,ent or its respecti!e s"bdi!isions or instr",entality as the case ,ay be. ;ro!ided)That the H3; shall not g"arantee the place,ent of said sec"rities and shall not s"bscribe to their iss"e e#cept to replace its ,at"ring holdings of sec"rities with the sa,e type
as the ,at"ring sec"rities. %3ec. 11D( Bethods of ;lacing 8o!ern,ent 3ec"rities. The H3; ,ay place the sec"rities thro"gh direct sale to financial instit"tions and the p"blic. The H3; shall not be a ,e,ber of any stoc. e#change or syndicate b"t ,ay inter!ene therein for the sole p"rpose of reg"lating their operations in the placing of go!ern,ent sec"rities. %3ec. 11E( The 8o!ern,ent or its political s"bdi!isions or instr",entalities shall rei,b"rse the H3; for the e#penses inc"rred in the placing of the aforesaid sec"rities. %3ec. 11E( 3er!icing and Rede,ption of the ;"blic Debt. The ser!icing and rede,ption of the p"blic debt shall also be effected thro"gh the H3;. %3ec. 11>( '. H3; 3"pport of the 8o!ern,ent 3ec"rities Bar.et The 3ec"rities 3tabili$ation 0"nd. There shall be established a T3ec"rities 3tabili$ation 0"ndT %330( which shall be ad,inistered by the H3; for the acco"nt of the 8o!ern,ent. The operations of the 330 shall consist of p"rchases and sales in the open ,ar.et of bonds and other e!idences of indebtedness iss"ed or f"lly g"aranteed by the 8o!ern,ent. The p"rpose of these operations shall be to increase the li+"idity and stabili$e the !al"e of said sec"rities in order thereby to pro,ote in!est,ent in go!ern,ent obligations. The BH shall "se the reso"rces of the 330 to pre!ent or ,oderate sharp fl"ct"ations in the +"otations of
said go!ern,ent obligations b"t shall not endea!or to alter ,o!e,ents of the ,ar.et res"lting fro, basic changes in the pattern or le!el of interest rates. %3ec. 1'F(?6 ;hase/o"t of 0iscal Agency 0"nctions. Unless circ",stances warrant otherwise and appro!ed by the Congress O!ersight Co,,ittee the H3; shall within a period of 6 years b"t in no case longer than < years fro, the appro!al of this Act phase o"t all fiscal agency f"nctions pro!ided for in 3ecs.11D/1'F and 1'F as well as in other pertinent pro!isions of this Act and transfer the sa,e to the Depart,ent of 0inance. %3ec. 1'>( ;rofits and Losses of the 0"nd. The 330 shall retain net profits which it ,ay ,a.e on its operations regardless of whether said profits arise fro, capital gains or fro, interest earnings. The 330 shall correspondingly bear any net losses which it ,ay inc"r. %3ec. 1''( 6. 0UNCITON A3 0INANCIAL ADII3OR O0 T5A 8OI4T ?6 LReso"rces of the 330. 3"b1ect to 3ec. 16' of this Act the reso"rces of the 330 shall co,e fro, the balance of the f"nd as held by the CH "nder RA '?< as of the effecti!e date of this Act.M %3ec. 1'1( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 61E of 6<1 HANRIN8 LA9 COBBARCIAL LA9 * 0inancial Ad!ice on Official Credit Operations. Hefore "nderta.ing any credit operation abroad the 8o!ern,ent thro"gh the
3ecretary of 0inance shall re+"est the opinion in writing of the BH on the ,onetary i,plications of the conte,plated action. 3"ch opinions ,"st si,ilarly be re+"ested by all political s"bdi!isions and instr",entalities of the 8o!ern,ent before any credit operation abroad is "nderta.en by the,. The opinion of the BH shall be based on the gold and foreign e#change reso"rces and obligations of the nation and on the effects of the proposed operation on the balance of pay,ents and on ,onetary aggregates. %3ec. 1'6( * 9hene!er the 8o!ern,ent or any of its political s"bdi!isions or instr",entalities conte,plates borrowing within the ;hilippines the prior opinion of the BH shall li.ewise be re+"ested in order that the Hoard ,ay render an opinion on the probable effects of the proposed operation on ,onetary aggregates the price le!el and the balance of pay,ents. %3ec. 1'6( * Representation on the National Acono,ic and De!elop,ent A"thority %NADA(. In order to ass"re effecti!e coordination between the econo,ic financial and fiscal policies of the 8o!ern,ent and the ,onetary credit and e#change policies of the H3; the Dep"ty 8o!ernor designated by the 8o!ernor of the H3; shall be an e# officio ,e,ber of the NADA Hoard. %3ec. 1'=(
=. ;RIIILA8A3 AND ;RO5IHITION3 1. ;ri!ileges 1. Ta# A#e,ptions. The H3; shall be e#e,pt for a period of < years fro, the appro!al of this Act fro, all national pro!incial ,"nicipal and city ta#es fees charges and assess,ents. This e#e,ption shall apply to all property of the H3; to the reso"rces receipts e#pendit"res profits and inco,e of the H3; as well as to all contracts deeds doc",ents and transactions related to the cond"ct of the b"siness of the H3;) ;ro!ided howe!er That said e#e,ptions shall apply only to s"ch ta#es fees charges and assess,ents for which the H3; itself wo"ld otherwise be liable and shall not apply to ta#es fees charges or assess,ents payable by persons or other entities doing b"siness with the H3;) ;ro!ided f"rther That foreign loans and other obligations of the H3; shall be e#e,pt both as to principal and interest fro, any and all ta#es if the pay,ent of s"ch ta#es has been ass",ed by the H3;. %3ec. 1'<( '. A#e,ption fro, C"sto,s D"ties. The i,portation and e#portation by the H3; of notes and coins and of gold and other ,etals and the i,portation of all e+"ip,ent needed for ban. note prod"ction ,inting of coins ,etal refining and other sec"rity printing operations shall be f"lly e#e,pt fro, all c"sto,s d"ties and cons"lar fees and fro, all
other ta#es assess,ents and charges related to s"ch i,portation or e#portation. %3ec. 1'?( 6. Applicability of the Ci!il 3er!ice Law %C3L(. Appoint,ents in the H3; e#cept as to those which are policy/deter,ining pri,arily confidential or highly technical in nat"re shall be ,ade only according to the C3L and reg"lations) ;ro!ided That no +"alification re+"ire,ents for positions in the H3; shall be i,posed other than those set by the BH) ;ro!ided f"rther That the BH or 8o!ernor in accordance with 3ecs. 1<%c(?= and 1D%d(?< of this Act respecti!ely ,ay witho"t need of obtaining prior appro!al fro, any other go!ern,ent agency appoint personnel in the H3; whose ser!ices are dee,ed necessary in order not to "nd"ly disr"pt the operations of the H3;. Officers and e,ployees of the H3; incl"ding all ,e,bers of the BH shall not engage directly or indirectly in partisan acti!ities or ta.e part in any election e#cept to !ote. %3ec. 1'D( '. ;RO5IHITION3 The H3; shall not ac+"ire shares of any .ind or accept the, as collateral and shall not participate in the ownership or ,anage,ent of any enterprise either directly or indirectly. The H3; shall not engage in de!elop,ent ban.ing or financing) ;ro!ided howe!er That o"tstanding loans obtained or e#tended for de!elop,ent
financing shall not be affected by the prohibition of this section. %3ec. 1'E( ?= L3ec. 1<. A#ercise of A"thority. C In the e#ercise of its a"thority the Bonetary Hoard shall) ### %c( establish a h",an reso"rce ,anage,ent syste, which shall go!ern the selection hiring appoint,ent transfer pro,otion or dis,issal of all personnel. L3"ch syste, shall ai, to establish professionalis, and e#cellence at all le!els of the Hang.o 3entral in accordance with so"nd principles of ,anage,ent. LA co,pensation str"ct"re based on 1ob e!al"ation st"dies and wage s"r!eys and s"b1ect to the HoardVs appro!al shall be instit"ted as an integral co,ponent of the Hang.o 3entralVs h",an reso"rce de!elop,ent progra,) ;ro!ided That the Bonetary Hoard shall ,a.e its own syste, confor, as closely as possible with the principles pro!ided for "nder Rep"blic Act No. ?D<E) ;ro!ided howe!er That co,pensation and wage str"ct"re of e,ployees whose positions fall "nder salary grade 1> and below shall be in accordance with the rates prescribed "nder Rep"blic Act No. ?D<E. LOn the reco,,endation of the 8o!ernor appoint fi# the re,"nerations and other e,ol",ents and re,o!e personnel of the Hang.o 3entral s"b1ect to pertinent ci!il ser!ice laws) ;ro!ided That the Bonetary Hoard shall ha!e e#cl"si!e and final a"thority to pro,ote transfer assign or reassign personnel of the Hang.o 3entral and these personnel actions are dee,ed ,ade in the interest of the ser!ice and not disciplinary) ;ro!ided f"rther That the Bonetary Hoard ,ay delegate s"ch a"thority to the 8o!ernor "nder s"ch
g"idelines as it ,ay deter,ine. ###M ?< L3ec. 1D. ;owers and D"ties of the 8o!ernor. C The 8o!ernor shall be the chief e#ec"ti!e officer of the Hang.o 3entral. 5is powers and d"ties shall be to) ### %d( appoint and fi# the re,"nerations and other e,ol",ents of personnel below the ran. of a depart,ent head in accordance with the position and co,pensation plans appro!ed by the Bonetary Hoard as well as to i,pose disciplinary ,eas"res "pon personnel of the Hang.o 3entral s"b1ect to the pro!isions of 3ec. 1<%c( of this Act) ;ro!ided That re,o!al of personnel shall be with the appro!al of the Bonetary Hoard- ###M 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 61> of 6<1 HANRIN8 LA9 COBBARCIAL LA9 III. Law on 3ecrecy of Han. Deposits %RA 1=F<( A. ;"rpose 1. To gi!e enco"rage,ent to the people to deposit their ,oney in ban.ing instit"tions and to disco"rage pri!ate hoarding %3ec. 1( '. 3o that the people4s ,oney ,ay be properly "tili$ed by ban.s in a"thori$ed loans to assist in the econo,ic de!elop,ent of the co"ntry. %3ec. 1( H. Co!erage All deposits of whate!er nat"reW with ban.s or ban.ing instit"tions in the ;hils. are hereby considered as of an absol"tely confidential nat"re and ,ay not be e#a,ined. %3ec. '( NOTA This incl"des in!est,ents in bonds iss"ed by the
;hilippine 8o!ern,ent its political s"bdi!isions and its instr",entalities. %3ec. '( C. ;rohibited Acts 1. No person go!ern,ent official b"rea" or office ,ay e#a,ine in+"ire into or loo. into s"ch deposits- and '. No official or e,ployee of any ban.ing instit"tion ,ay disclos"re to any "na"thori$ed person any infor,ation concerning said deposits %3ec. 6(. NOTA RA 1=F< does not prohibit attach,ent or garnish,ent of ban. acco"nts. %China Han.ing Corp !. Ortega 1>D6 ;hilippine Co,,ercial and Ind"strial Han. !. CA 1>>1( D. A#ceptions %Under RA 1=F<(?? 1. "pon written per,ission of the depositor %3ec. '( '. in cases of i,peach,ent %3ec. '( 6. "pon order of a co,petent co"rt in cases of a. bribery b. dereliction of d"ty of p"blic officials or c. where the ,oney deposited or in!ested is the s"b1ect ,atter of the litigation. %3ec. '( NOTA3 1. RA 1=F< does not prohibit attach,ent or garnish,ent of ban. acco"nts. %China Han.ing Corp !. Ortega 1>D6 ;hilippine Co,,ercial and Ind"strial Han. !. CA 1>>1( '. In a collection s"it by an ins"rance co,pany to
deter,ine how the defendant has applied the ?? A#ceptions were as.ed in 'FF? 'FF< 'FFF 1>>E 1>>D 1>>< 1>>= 1>>1 1>>F 1>E> 1>EE 1>E6 and 1>DD. proceeds of a chec. paid to it the grant by the trial co"rt of e#a,ination of the pertinent records of the ban. was allowed witho"t need of notice to the depositor hi,self p"rs"ant to 3ec. 1F R"le <D of the R"les of Co"rt co!ering e#a,ination of party who property is attached and persons indebted to hi, or controlling his property- deli!ery of property to officer. %Onate ! Aborgar 1>>=( 6. The e#ception applies to cases of conceal,ent of illegally ac+"ired property in anti/graft cases. The in+"iry into illegally ac+"ired property C or property NOT Tlegiti,ately ac+"iredT C e#tends to cases where s"ch property is concealed by being held by or recorded in the na,e of other persons. This proposition is ,ade clear by R.A. No. 6F1> which +"ite categorically states that the ter, Tlegiti,ately ac+"ired property of a p"blic officer or e,ployee shall not incl"de .. property "nlawf"lly ac+"ired by the respondent b"t its ownership is concealed by its being recorded in the na,e of or held by respondentVs spo"se ascendants descendants relati!es or any other persons.T %Hanco 0ilipino !s ;"risi,a - 1>EE( =. It also e#tends to cases of conceal,ent of
illegally ac+"ired property not in!ol!ing antigraft cases. In the case of Bellon Han. N.A. !. Bagsino 1>>F which in!ol!ed the erroneo"s wire transfer and of U3b 1 Billion instead of the intended U3b 1 FFF and the res"lting illegal con!ersion by the recipients the 3"pre,e Co"rt held that Lan in+"iry into the whereabo"ts of ,oney illegally ac+"ired e#tends to whate!er is concealed or being held or recorded in the na,e of persons other than the one responsible for the illegal ac+"isition M inas,"ch as the case is ai,ed at reco!ering the a,o"nt con!erted. OT5AR AOCA;TION3 1. "pon order of a co,petent co"rt in cases of "ne#plained wealth "nder RA 6F1> or the Anti/ 8raft and Corr"pt ;ractices Act %;NH !. 8ancayco 1>?<- Hanco 0ilipino !. ;"risi,a 1>EE- Bar+"e$ !. Desierto 'FF1( a. 3ec. E of RA 6F1> pro!ides that ban. deposits Lshall be ta.en into consideration in the enforce,ent of this section notwithstanding any pro!ision of law to the contrary.M b. 3ec. E of RA 6F1> is intended to a,end 3ec. ' of RA 1=F< by pro!iding an additional e#ception to the r"le against the disclos"re of ban. deposits. Cases of "ne#plained wealth are si,ilar to cases of bribery or dereliction of d"ty. %;NH !.
8ancayco( c. In Hanco 0ilipino !. ;"risi,a 1>EE the co"rt went f"rther and stated that the pro!isions of the Anti/8raft Law warrant e#a,ination of ban. records not only in the na,e of the respondent b"t also those in the na,e of the respondents4 relati!es or in the na,e of other persons. '. when in+"iry is cond"cted "nder the a"thority of the Co,,issioner of Internal Re!en"e into the ban. acco"nts of the following) a. a decedent in order to deter,ine his gross estate 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6'F of 6<1 HANRIN8 LA9 COBBARCIAL LA9 b. any ta#payer who has filed an application for co,pro,ise of his ta# liability which application shall incl"de a written wai!er of his pri!ilege "nder RA 1=F< or "nder other general or special laws. %3ec. ?%0( RA E='= or the National Internal Re!en"e Code of 1>>D( 6. in the following cases "nder the Anti/Boney La"ndering Lact of 'FF1 %RA >1?F() a. when a ban.ing and other co!ered instit"tions are re+"ired to report to the Anti/Boney La"ndering Co"ncil %ABLC( any single series or co,bination of transations in!ol!ing a total a,o"nt in e#cess of ;=.F Billion %or an e+"i!alent in foreign
c"rrency( within < wor.ing days fro, occ"rrence thereof "nless the 3"per!ising A"thority concerned prescribes a longer period not to e#ceed 1> wor.ing days. %3ec. >%c( RA >1?F( b. when the ABLC in+"ires into or e#a,ines any partic"lar deposit or in!est,ent "pon order of any co,petent co"rt when it has been established that there is probable ca"se that deposits or in!est,ents in!ol!ed are in any way related to ,oney la"ndering offense e#cept that no co"rt order is re+"ired in the following cases) i. .idnapping for ranso, ii. "nlawf"l acti!ities "nder 3ections = < ? E > 1F 1' 16 1= 1< and 1? of the Co,prehensi!e Dangerso"s Dr"gs Act of 'FF' iii. hi1ac.ing and other !iolations "nder TA ?'6< and i!. destr"cti!e arson and ,"rder incl"ding those perpetrated by terrorists against non/co,batants and si,ilar targets. %3ec. 11 RA >1?F( c. Hang.o 3entral4s in+"iry into or e#a,ination of deposits or in!est,ents with any ban. when the in+"iry or e#a,ination is ,ade in the co"rse of the Hang.o 3entral4s periodic or special e#a,ination of s"ch ban. %3ec. 11 RA
>1?F( =. In the following cases "nder the NIRC) a. In+"iry by the Co,,issioner of Internal Re!en"e into the deposits of a decedent for the p"rpose of deter,ining the gross estate of s"ch decedent. %3ec. ?%0( NIRC( b. In case a ta#payer offers to co,pro,ise his ta# liabilities on the gro"nd of financial incapacity he ,"st wai!e in writing the secrecy of his ban. deposits in fa!or of the Co,,issioner of Internal Re!en"e %3ec. ?%0( NIRC( <. "nder 3ec. '? of RA D?<6 or the New Central Han. Act of 1>>6 when the e#a,ination is cond"cted p"rs"ant to the re+"ired wai!er of the secrecy of deposits %of whate!er nat"re in all ban.s in the ;hilippines( ,ade by any DO3RI %Director Officer or 3toc.holder who together with his Related Interest contracts a loan or any for, of financial acco,,odation fro,) a. his ban.- or b. fro, a ban. i. which is a s"bsidiary of a ban. holding co,pany of which both his ban. and the lending ban. are s"bsidiaries or ii. in which a controlling proportion of the shares is owned by the sa,e interest that owns a controlling proportion of the shares of his ban. in e#cess of <G
of the capital and s"rpl"s of the ban. or in the ,a#i,", a,o"nt per,itted by law whiche!er is lower. Any infor,ation obtained fro, an e#a,ination of his deposits shall be held strictly confidential and ,ay be "sed by the e#a,iners only in connection with their s"per!isory and e#a,ination responsibility or by the Hang.o 3entral in an appropriate legal action it has initiated in!ol!ing the deposit acco"nt. ?. Disclos"re of certain infor,ation abo"t ban. deposits which ha!e been dor,ant for at least ten years to the Treas"rer of the ;hilippine in a sworn state,ent a copy of which is posted in the ban. pre,ises. %3ec. ' Unclai,ed Halances Law %Act No. 6>'? as a,ended(( :not incl"ded in the abo!e en",eration for reasons that shall be soon be pro!ided@ a. In 1>E1 ;D 1D>' added the following gro"nds when the ban. can be co,pelled to re!eal the a,o"nt of a depositor) i. L,ade in the co"rse of a special or general e#a,ination of a ban. and is specifically a"thori$ed by the Bonetary Hoard after being satisfied that there is reasonable gro"nd to belie!e that a ban. fra"d or serio"s irreg"larity has been or is being co,,itted and that it is necessary to loo. into the deposit to establish s"ch fra"d or irreg"larity M or
ii. L,ade by an independent a"ditor hired by the ban. to cond"ct its reg"lar a"dit pro!ided that the e#a,ination is for a"dit p"rposes only and the res"lts thereof shall be for the e#cl"si!e "se of the ban..M 5owe!er 3ec. 16< of RA D?<6 or the New Central Han. Act re!erted RA 1=F< to its !ersion prior to the pro,"lgation of the decree. a( Th"s Iillan"e!a says that these two instances as e#cl"ded fro, the en",eration of e#ceptions to the secrecy of ban. deposits %Iillan"e!a Co,,ercial Law Re!iew 'FF=(. b( Borales howe!er notes that L9ith the A,end,ent of the Anti/Boney La"dering Act of 'FF1 e#ception %1( has been s"bstantially res"rrected. 9hile there is no si,ilar de!elop,ent of e#ception %'( the e#cl"sion of the Hang.o 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6'1 of 6<1 HANRIN8 LA9 COBBARCIAL LA9 3entral e#a,iners and independent a"ditors fro, the co!erage of the 3ecrecy of Han. Deposits Law finds basis in Opinion No. '=6 %s. 1>D<( of then 3ecretary of J"stice ;edro T"ason. %Borales The ;hil. 8eneral
ban.ing Law Annotated 'nd ed. 'FF=( b. It "sed to be belie!ed that the RA 1=F< did not apply to the O,b"ds,an on acco"nt of his a"thority "nder 3ec. 1<%E( of RA ?DDF or the O,b"ds,an Act of 1>E> to Le#a,ine and ha!e access to ban. acco"nts and records.M 5owe!er the 3C %Bar+"e$ !. Desierto 'FF1( restricted the O,b"ds,an4s power as follows) LZbefore an in ca,era inspection ,ay be allowed there ,"st be a pending case before a co"rt of co,petent 1"risdiction. 0"rther the acco"nt ,"st be clearly identified the inspection li,ited to the s"b1ect ,atter of the pending case before the co"rt of co,petent 1"risdiction. The ban. personnel and the acco"nt holder ,"st be notified to be present d"ring the inspection and s"ch inspection ,ay co!er only the acco"nt identified in the pending case.M %Borales The ;hil. 8eneral ban.ing Law Annotated 'nd ed. 'FF=( c. L0"rther it is interesting to note that the 3ecretary of J"stice in his Opinion No. 16 %s. 1>ED( concl"ded that the ;residential Co,,ission on 8ood 8o!ern,ent can co,pel ban.s to disclose or prod"ce ban. records witho"t !iolating the ban. secrecy laws.M %Borales The ;hil. 8eneral ban.ing
Law Annotated 'nd ed. 'FF=( d. LBoreo!er "nder 3ec. 1%d( of RA ?6E' %1>>F( which created the Da!ide Co,,ission that cond"cted a fact finding in!estigation of the failed co"p d4 etat of Dece,ber 1>E> the co,,ission had the power to âs. the Bonetary board to disclose infor,ation on and2or grant a"thority to e#a,ine ban. deposits tr"st finds or ban.ing transactions in the na,e of and2or "tili$ed by a person nat"ral or 1"ridical "nder in!estigation by the Co,,ission in any ban. or ban.ing instit"tion in the ;hilippines when the Co,,ission has reasonable gro"nd to belie!e that said deposits tr"st or in!est,ent f"nds or ban.ing transactions ha!e been "sed in s"pport of f"rtherance of the ob1ecti!es of the co"p d4 etat.4M %Borales The ;hil. 8eneral ban.ing Law Annotated 'nd ed. 'FF=( A. 9hen Bay 0oreign C"rrency Deposits He A#a,ined28arnished 8ANARAL RULA) 3ec. E. 3ecrecy of 0oreign C"rrency Deposits./ All foreign c"rrency deposits a"thori$ed "nder this Act as a,ended by ;D 1F6< as well as foreign c"rrency deposits a"thori$ed "nder ;D 1F6= are declared and considered of an absol"tely confidential nat"re and e#cept "pon the written
per,ission of the depositor in no instance shall s"ch foreign c"rrency deposits be e#a,ined in+"ired or loo.ed into by any person go!ern,ent official b"rea" or office whether 1"dicial or ad,inistrati!e or legislati!e or any other entity whether p"blic or pri!ate) ;ro!ided howe!er that said foreign c"rrency deposits shall be e#e,pt fro, attach,ent garnish,ent or any other order or process of any co"rt legislati!e body go!ern,ent agency or any ad,inistrati!e body whatsoe!er AOCA;TION3) 1. "pon written per,ission of the depositor %3ec. E 0oreign C"rrency Deposit Act - Intengan !s CA - 'FF'( '. "pon order of a co,petent co"rt in cases of !iolation of the Anti/Boney La"ndering Act of 'FF1 :as in the case of peso deposits s"pra@ 6. d"ring Hang.o 3entral4s periodic or special e#a,inations :as in the case of peso deposits s"pra@ and =. disclos"re ot the Treas"rer of the ;hilippines when the "nclai,ed balances law applies %Borales The ;hil. 8eneral ban.ing Law Annotated 'nd ed. 'FF=( <. In a case where a 0ilipino child was raped by a foreigner the 3C allowed garnish,ent of foreign c"rrency deposits stating ) 9e r"le that the +"estioned 3ection 116 of Central Han. Circ"lar No. >?F which e#e,pts fro, attach,ent garnish,ent or any other order or
process of any co"rt. Legislati!e body go!ern,ent agency or any ad,inistrati!e body whatsoe!er is applicable to a foreign transient in1"stice wo"ld res"lt especially to a citi$en aggrie!ed by a foreign g"est. %3al!acion !s CH - 1>>D( 0. ;enalty 0or Iiolations Any !iolation of this law will s"b1ect offender "pon con!iction to an i,prison,ent of not ,ore than < years or a fine of not ,ore than ;'F FFF or both in the discretion of the co"rt. %3ec. <( 8. 9hat Alse 3ho"ld I Rnow Abo"t RA 1=F<S 1. It too. effect on April > 1><< and is entitled LAn act prohibiting disclos"re of or in+"iry into deposits with any ban.ing instit"tion and pro!iding the penalty therefore.M '. 3ec. ? of RA ?='? or The 0oreign C"rrency Deposit Act pro!ides that Lthe secrecy of deposits "nder this act shall be go!erned in accordance with the pro!isions ofM RA 1=F<.M 6. 3"b3ec. <<.= of RA ED>1 or the 8eneral Han.ing Law of 1>>1 pro!ides that in line with RA 1=F< no ban. shall e,ploy cas"al or nonreg"lar personnel or too lengthy probationary personnel in the cond"ct of its b"siness in!ol!ing ban. deposits. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6'' of 6<1 HANRIN8 LA9 COBBARCIAL LA9 ANTI/BONAK LAUNDARIN8 ACT
%RA >1?F as a,ended by RA >1>=( A#ception of the 3ecrecy of Han. Deposits Act 1. ;OLICK O0 T5A LA9 * to protect and preser!e the integrity and confidentiality of ban. acco"nts * to ens"re that the ;hilippines shall not be "sed as a ,oney la"ndering site for the proceeds of any "nlawf"l acti!ity * consistent with its foreign policy to e#tend cooperation in transnational in!estigations and prosec"tions of persons in!ol!ed in ,oney la"ndering acti!ities whene!er co,,itted. %3ec. ' RA >1?F( '. ;OLICK A8AIN3T ;OLITICAL 5ARA33BANT This Act shall not be "sed for political prosec"tion or harass,ent or as an instr",ent to ha,per co,petition in trade and co,,erce. No case for ,oney la"ndering ,ay be filed against and no assets shall be fro$en attached or forfeited to the pre1"dice of a candidate for an electoral office d"ring an election period. %3ec. 1?( 6. COIARAD TRAN3ACTION a co!ered transaction is a transaction in cash or other e+"i!alent ,onetary instr",ent in!ol!ing a total a,o"nt in e#cess of ;h; <FF FFF.FF within one ban.ing day. %3ec. 6%b(( =. 3U3;ICIOU3 TRAN3ACTION3 Transactions with co!ered instit"tions regardless of the a,o"nts in!ol!ed where any of the
following circ",stances e#ist) 1. there is no "nderlying legal or trade obligation p"rpose or econo,ic 1"stification'. the client is not properly identified6. the a,o"nt in!ol!ed is not co,,ens"rate with the b"siness or financial capacity of the client=. ta.ing into acco"nt all .nown circ",stances it ,ay be percei!ed that the clientVs transaction is str"ct"red in order to a!oid being the s"b1ect of reporting re+"ire,ents "nder the Act<. any circ",stances relating to the transaction which is obser!ed to de!iate fro, the profile of the client and2or the clientVs past transactions with the co!ered instit"tion?. the transactions is in a way related to an "nlawf"l acti!ity or offense "nder this Act that is abo"t to be is being or has been co,,itted- or D. any transactions that is si,ilar or analogo"s to any of the foregoing. %3ec. 6%b/1(( <. COIARAD IN3TITUTION3 1. ban.s non/ban.s +"asi/ban.s tr"st entities and all other instit"tions and their s"bsidiaries and affiliates s"per!ised or reg"lated by the H3;-
'. ins"rance co,panies and all other instit"tions s"per!ised or reg"lated by the Ins"rance Co,,ission- and 6. the following entities s"per!ised or reg"lated by 3AC) a. sec"rities dealers bro.ers sales,en in!est,ent ho"ses and other si,ilar entities ,anaging sec"rities or rendering ser!ices as in!est,ent agent ad!isor or cons"ltant b. ,"t"al f"nds close and in!est,ent co,panies co,,on tr"st f"nds pre/need co,panies and other si,ilar entities c. foreign e#change corporations ,oney changers ,oney pay,ent re,ittance and transfer co,panies and other si,ilar entities and d. other entities ad,inistering or otherwise dealing in c"rrency co,,odities or financial deri!ati!es based thereon !al"able ob1ects cash s"bstit"tes and other si,ilar ,onetary instr",ents or property %3ec. 6%a(( ?. OHLI8ATION3 O0 COIARAD IN3TITUTION3?D 1. C"sto,er Identification * establish and record the tr"e identity of its clients based on official doc",ents. * ,aintain a syste, of !erifying the tr"e identity of their clients
* in the case of corporate clients re+"ire a syste, of !erifying their legal e#istence and organi$ational str"ct"re as well as the a"thority and identification of all persons p"rporting to act on their behalf. * anony,o"s acco"nts acco"nts "nder fictitio"s na,es and all other si,ilar acco"nts shall be absol"tely prohibited. e#ception) peso and foreign c"rrency non/chec.ing n",bered acco"nts shall be allowed- b"t the H3; ,ay cond"ct ann"al testing solely li,ited to the deter,ination of the e#istence and tr"e identity of the owners of s"ch acco"nts. %3ec. >%a(( '. Record Reeping * all records of all transactions of co!ered instit"tions shall be ,aintained and safely ?D This topic was as.ed in 'FF?. 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6'6 of 6<1 HANRIN8 LA9 COBBARCIAL LA9 stored for fi!e years fro, the date of transactions. * with respect to closed acco"nts the records on c"sto,er identification acco"nt files and b"siness correspondence shall be preser!ed and safety stored for at least fi!e years fro, the dates when they were closed. %3ec. >%b(( 6. Reporting of Co!ered and 3"spicio"s
Transactions * report to the Anti/Boney La"ndering Co"ncil %ABLC( all co!ered transactions and s"spicio"s transactions within < wor.ing days fro, occ"rrences thereof "nless the 3"per!ising A"thority prescribes a longer period not e#ceeding 1F wor.ing days. * when reporting co!ered or s"spicio"s transactions co!ered instit"tions and their officers and e,ployees shall not be dee,ed to ha!e !iolated the 3ecrecy of Han. Deposits Act %RA 1=F<( the 0oreign C"rrency Deposits Act %RA ?='?( and the 8eneral Han.ing Law of 'FFF %RA ED>1( and other si,ilar laws b"t they are prohibited fro, co,,"nicating directly or indirectly in any ,anner or by an ,eans to any person the fact that a co!ered or s"spicio"s transaction report was ,ade the contents thereof or any other infor,ation in relation thereto. In case of !iolation thereof the concerned officer and e,ployee of the co!ered instit"tion shall be cri,inally liable. 5owe!er no ad,inistrati!e cri,inal or ci!il proceedings shall lie against any person for ha!ing ,ade a co!ered or s"spicio"s transaction report in the reg"lar perfor,ance of his d"ties in good faith whether or not s"ch reporting res"lts in
any cri,inal prosec"tion "nder this Act of any other law. * when reporting co!ered or s"spicio"s transactions to the ABLC co!ered instit"ting and their officers and e,ployees are prohibited fro, co,,"nicating directly or indirectly in any ,anner or by any ,eans to any person or entity the ,edia the fact that a co!ered or s"spicio"s transaction report was ,ade the contents thereof or any other infor,ation in relation thereto. Neither ,ay s"ch reporting be p"blished or aired in any ,anner or for, by the ,ass ,edia electronic ,ail or other si,ilar de!ices. In case of !iolation thereof the concerned officer and e,ployee of the co!ered instit"tion and ,edia shall be held cri,inally liable. %3ec. >%c(( D. 95AN I3 BONAK LAUNDARIN8 COBBITTADS?E Boney la"ndering is a cri,e whereby the proceeds of an L"nlawf"l acti!ityM are transacted thereby ,a.ing the, appear to ha!e originated fro, ?E This topic was as.ed in 'FFD and 'FF?. Note the predicate cri,es to ,oney la"ndering and that prior con!iction for the predicate cri,es is necessary. legiti,ate so"rces. It is co,,itted by the following) 1. transacting or atte,pting to transacts with
,onetary instr",ent or property .nowing s"ch to represent in!ol!e or relate to the proceeds of any L"nlawf"l acti!ityM'. facilitating the offense of ,oney la"ndering referred to in %1( by .nowingly perfor,ing or failing to perfor, any act- or 6. .nowingly failing to disclose and file a report with the ABLC of any ,onetary instr",ent or property as re+"ired. %3ec. =( E. UNLA90UL ACTIIITIA3 Unlawf"l acti!ity refers to any act or o,ission or series or co,bination thereof in!ol!ing or ha!ing direct relation to following) 1. Ridnapping for ranso, %Art '?D R;C( '. Dr"g Traffic.ing %3ections. =/? E/1F 1'/ 1? Co,prehensi!e Dangero"s Act of 'FF'(6. 8raft and Corr"pt ;ractices %3ec. 6 par H C A 8 5 I of the Anti/8raft and Corr"pt ;ractices Act(=. ;l"nder %RA DFEF(<. Robbery and e#tortion %Articles '>=/>? '>>/6F' R;C(?. J"eteng and Basiao %;D 1?F'(D. ;iracy on the high seas %R;C and ;D <6'(E. Q"alified theft %Art. 61F R;C(>. 3windling %Art. 61< R;C(1F. 3,"ggling %RA =<< and 1>6D(11. Iiolations of the A/Co,,erce Act of 'FFF-
1'. 5i1ac.ing %RA ?'6<(- destr"cti!e arson and ,"rder incl"ding those perpetrated by terrorists against non/co,batant persons and si,ilar targets %R;C(16. 0ra"d"lent practices and other !iolations "nder 3ec"rities Reg"lation Code of 'FFF1=. 0elonies or offenses of a si,ilar nat"re that are p"nishable "nder the penal laws of other co"ntries.T%3ec. 6%i(( NOTA Any person ,ay be charged with and con!icted of both the offense of ,oney la"ndering and the "nlawf"l acti!ity. Any proceeding relating to the "nlawf"l acti!ity shall be gi!en precedence o!er the prosec"tion of any offense or !iolation "nder RA >1?F as a,ended witho"t pre1"dice to free$ing and other re,edies pro!ided RA >1?F. %3ec. ?( >. 0RAANIN8 O0 BONATARK IN3TRUBANT O0 ;RO;ARTK * The Co"rt of Appeals ,ay iss"e a free$e order which shall be effecti!e i,,ediately 1. "pon application e# parte by the ABLC and '. after deter,ination that probable ca"se e#ists that any ,onetary instr",ent or property is in any way related to an L"nlawf"l acti!ityM * The free$e order shall be for a period of twenty days "nless e#tended by the co"rt. %3ec. 1F( 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6'= of 6<1
HANRIN8 LA9 COBBARCIAL LA9 1F. AOABINATION O0 ACCOUNT3 1. A#a,ination by the ABLC * Notwithstanding the pro!isions of the 3ecrecy of Han. Deposits Act %RA 1=F<( the 0oreign C"rrency Deposits Act %RA ?='?( and the 8eneral Han.ing Law of 'FFF %RA ED>1( and other laws the ABLC ,ay in+"ire into or e#a,ine any partic"lar deposit or in!est,ent with any ban.ing instit"tion or nonban. financial instit"tion. * This in+"iry ,"st be "pon order of any co,petent co"rt in cases of !iolation of the Anti/Boney La"ndering Act when it has been established that there is probable ca"se that the deposits or in!est,ents are related to an L"nlawf"l acti!ityM or a ,oney la"ndering offense e#cept that no co"rt order shall be re+"ired in the following "nlawf"l acti!ities) 1. Ridnapping for ranso, '. Dr"g Traffic.ing6. 5i1ac.ing- destr"cti!e arson and ,"rder incl"ding those perpetrated by terrorists against non/co,batant persons and si,ilar targets'. A#a,ination by the H3;
* To ens"re co,pliance with this Act the Hang.o 3entral ng ;ilipinas %H3;( ,ay in+"ire into or e#a,ine any deposit of in!est,ent with any ban.ing instit"tion or non/ban. financial instit"tion when the e#a,ination is ,ade in the co"rse of a periodic or special e#a,ination in accordance with the r"les of e#a,ination of the H3;. %3ec. 11( 11. 0OR0AITURA ;ROII3ION3 1. Ci!il 0orfeit"re * 9hen there is a co!ered transaction report ,ade and the co"rt has in a petition filed for the p"rpose ordered sei$"re of any ,onetary instr",ent or property in whole or in part directly or indirectly related to said report the Re!ised R"les of Co"rt on ci!il forfeit"re shall apply. '. Clai, on 0orfeited Assets * 9here the co"rt has iss"ed an order of forfeit"re of the ,onetary instr",ent or property in a cri,inal prosec"tion for any ,oney la"ndering offense the offender or any other person clai,ing an interest therein ,ay apply by !erified petition * for a declaration that the sa,e legiti,ately belongs to hi, and * for segregation or e#cl"sion of the
,onetary instr",ent or property corresponding thereto. The !erified petition shall be filed with the co"rt which rendered the 1"dg,ent of con!iction and order of forfeit"re within fifteen days fro, the date of the order or forfeit"re in defa"lt of which the said order shall beco,e final and e#ec"tory. This pro!ision shall apply in both ci!il and cri,inal forfeit"re. 6. ;ay,ent in Lie" of 0orfeit"re * 9here the co"rt has iss"ed an order of forfeit"re of the ,onetary instr",ent or property s"b1ect of a ,oney la"ndering offense and said order cannot be enforced beca"se any partic"lar ,onetary instr",ent or property * cannot with d"e diligence be located or * has been s"bstantially altered destroyed di,inished in !al"e or otherwise rendered worthless by any act or o,ission directly or indirectly attrib"table to the offender or * has been concealed re,o!ed con!erted or otherwise transferred to pre!ent the sa,e fro, being fo"nd or to a!oid forfeit"re thereof or * is located o"tside the ;hilippines or has
been placed or bro"ght o"tside the 1"risdiction of the co"rt or * has been co,,ingled with other ,onetary instr",ents or property belonging to either the offender hi,self or a third person or entity thereby rendering the sa,e diffic"lt to identify or be segregated for p"rposes of forfeit"re the co"rt ,ay instead of enforcing the order of forfeit"re of the ,onetary instr",ent or property or part thereof or interest therein accordingly order the con!icted offender to pay an a,o"nt e+"al to the !al"e of said ,onetary instr",ent or property. This pro!ision shall apply in both ci!il and cri,inal forfeit"re. %3ec. 1'( NOTA Restit"tion for any aggrie!ed party shall be go!erned by the Ci!il Code. %3ec. 1D( 1'. ANTI/BONAK LAUNDARIN8 COUNCIL %ABLC( Co,position) Three Be,bers 1. 8o!ernor of the H3; %chair,an( '. Co,,issioner of the Ins"rance Co,,ission 6. Chair,an of the 3AC. 0"nctions The ABLC shall shall act "nani,o"sly in the discharge of its f"nctions which are as follows)
* to re+"ire and recei!e co!ered or s"spicio"s transaction reports fro, co!ered instit"tions* to iss"e orders addressed to the appropriate 3"per!ising A"thority or the co!ered instit"tions or to re+"est for assistance fro, a foreign 3tate to deter,ine the tr"e identity of the owner of 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6'< of 6<1 HANRIN8 LA9 COBBARCIAL LA9 any ,onetary instr",ent or property s"b1ect of a co!ered transaction or s"spicio"s transaction report belie!ed by the Co"ncil on the basis of s"bstantial e!idence to be in whole or in part where!er located representing in!ol!ing or related to directly or indirectly in any ,anner or by any ,eans the proceeds of an "nlawf"l acti!ity. * to instit"te ci!il forfeit"re proceedings and all other re,edial proceedings thro"gh the Office of the 3olicitor 8eneral* to ca"se the filing of co,plaints with the DOJ or the O,b"ds,an for the prosec"tion of ,oney la"ndering offenses* to in!estigate s"spicio"s transactions and co!ered transactions dee,ed s"spicio"s after an in!estigation by ABLC ,oney la"ndering acti!ities and other !iolations of the Anti/Boney La"ndering Act-
* to apply before the Co"rt of Appeals e# parte for the free$ing of any ,onetary instr",ent or property alleged to be the proceeds of any L"nlawf"l acti!ityM* to i,ple,ent s"ch ,eas"res as ,ay be necessary and 1"stified "nder the Anti/ Boney La"ndering Act to co"nteract ,oney la"ndering* to recei!e and ta.e action in respect of any re+"est fro, foreign states for assistance in their own anti/,oney la"ndering operations pro!ided in this Act* to de!elop ed"cational progra,s on the pernicio"s effects of ,oney la"ndering the ,ethods and techni+"es "sed in the ,oney la"ndering the !iable ,eans of pre!enting ,oney la"ndering and the effecti!e ways of prosec"ting and p"nishing offenders* to enlist the assistance of any branch depart,ent b"rea" office agency or instr",entality of the go!ern,ent incl"ding 8OCCs in "nderta.ing any and all anti/,oney la"ndering operations which ,ay incl"de the "se of its personnel facilities and reso"rces for the ,ore resol"te pre!ention detection and in!estigation of ,oney la"ndering offenses and prosec"tion of offenders- and * to i,pose ad,inistrati!e sanctions for the !iolation of laws r"les reg"lations and
orders and resol"tions iss"ed p"rs"ant thereto. %3ec. D( 3ecretariat * The ABLC is also a"thori$ed to establish a secretariat to be headed by an A#ec"ti!e Director who shall be appointed by the Co"ncil for a ter, of < years. * The A#ec"ti!e Director ,"st be a ,e,ber of the ;hilippine Har at least thirty/fi!e years of age and of good ,oral character "n+"estionable integrity and .nown probity. * All ,e,bers of the 3ecretariat ,"st ha!e ser!ed for at least < years either in the Ins"rance Co,,ission the 3AC or the H3; and shall hold f"ll/ti,e per,anent positions within the H3;. %3ec. E( 16. BUTUAL A33I3TANCA ABON8 3TATA3 1. Re+"est for Assistance fro, a 0oreign 3tate. * 9here a foreign 3tate ,a.es a re+"est for assistance in the in!estigation or prosec"tion of a ,oney la"ndering offense the ABLC ,ay e#ec"te the re+"est or ref"se to e#ec"te the sa,e and infor, the foreign 3tate of any !alid reason for not e#ec"ting the re+"est or for delaying the e#ec"tion thereof. The principles of ,"t"ality and reciprocity shall for this p"rpose be at all ti,es recogni$ed.
'. ;ower of the ABLC to Act on a Re+"est for Assistance fro, a 0oreign 3tate. * The ABLC ,ay e#ec"te a re+"est for assistance fro, a foreign 3tate by) 1( trac.ing down free$ing restraining and sei$ing assets alleged to be proceeds of any "nlawf"l acti!ity "nder the proced"res laid down in the Anti/Boney La"ndering Act'( gi!ing infor,ation needed by the foreign 3tate within the proced"res laid down in this Act- and 6( applying for an order of forfeit"re of any ,onetary instr",ent or property in the co"rt) ;ro!ided That the co"rt shall not iss"e s"ch an order "nless the application is acco,panied by an a"thenticated copy of the order of a co"rt in the re+"esting 3tate ordering the forfeit"re of said ,onetary instr",ent or property of a person who has been con!icted of a ,oney la"ndering offense in the re+"esting 3tate and a certification of an affida!it of a co,petent officer of the re+"esting 3tate stating that the con!iction and the order of forfeit"re are final and that no f"rther appeal lies in respect or either. 6. Obtaining Assistance fro, 0oreign 3tates.
* The ABLC ,ay ,a.e a re+"est to any foreign 3tate for assistance in) 1( trac.ing down free$ing restraining and sei$ing assets alleged to be proceeds of any "nlawf"l acti!ity'( obtaining infor,ation that it needs relating to any co!ered transaction ,oney la"ndering offense or any other ,atter directly or indirectly related thereto6( to the e#tent allowed by the law of the 0oreign 3tate applying with the proper co"rt therein for an order to enter any pre,ises belonging to or in the possession or control of any or all of the persons na,ed in said re+"est and2or search any or all s"ch persons na,ed therein and2or re,o!e any doc",ent ,aterial or ob1ect na,ed in said re+"est) ;ro!ided That the co"rt shall not iss"e s"ch an order "nless the application is acco,panied by an a"thenticated copy of the order of a co"rt in the re+"esting 3tate ordering the forfeit"re of said 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6'? of 6<1 HANRIN8 LA9 COBBARCIAL LA9 ,onetary instr",ent or property of a person who has been con!icted of a ,oney la"ndering offense in the
re+"esting 3tate and a certification of an affida!it of a co,petent officer of the re+"esting 3tate stating that the con!iction and the order of forfeit"re are final and that no f"rther appeal lies in respect or either. =. Li,itations on Re+"est for B"t"al Assistance. * The ABLC ,ay ref"se to co,ply with any re+"est for assistance where the action so"ght by the re+"est contra!enes any pro!ision of the Constit"tion or the e#ec"tion of a re+"est is li.ely to pre1"dice the national interest of the ;hilippines "nless there is a treaty between the ;hilippines and the re+"esting 3tate relating to the pro!ision of assistance in relation to ,oney la"ndering offenses. <. Re+"ire,ents for Re+"ests for B"t"al Assistance fro, 0oreign 3tate. * A re+"est for ,"t"al assistance fro, a foreign 3tate ,"st 1( confir, that an in!estigation or prosec"tion is being cond"cted in respect of a ,oney la"nderer na,ed therein or that he has been con!icted of any ,oney la"ndering offense'( state the gro"nds on which any person is being in!estigated or prosec"ted for ,oney la"ndering or the details of his
con!iction6( gi!es s"fficient partic"lars as to the identity of said person=( gi!e partic"lars s"fficient to identity any co!ered instit"tion belie!ed to ha!e any infor,ation doc",ent ,aterial or ob1ect which ,ay be of assistance to the in!estigation or prosec"tion<( as. fro, the co!ered instit"tion concerned any infor,ation doc",ent ,aterial or ob1ect which ,ay be of assistance to the in!estigation or prosec"tion?( specify the ,anner in which and to who, said infor,ation doc",ent ,aterial or ob1ect detained p"rs"ant to said re+"est is to be prod"cedD( gi!e all the partic"lars necessary for the iss"ance by the co"rt in the re+"ested 3tate of the writs orders or processes needed by the re+"esting 3tate- and E( contain s"ch other infor,ation as ,ay assist in the e#ec"tion of the re+"est. ?. A"thentication of Doc",ents. * A doc",ent is a"thenticated if the sa,e is signed or certified by a 1"dge ,agistrate or e+"i!alent officer in or of the re+"esting 3tate and a"thenticated by the oath or affir,ation of a witness or sealed with an
official or p"blic seal of a ,inister secretary of 3tate or officer in or of the go!ern,ent of the re+"esting 3tate or of the person ad,inistering the go!ern,ent or a depart,ent of the re+"esting territory protectorate or colony. The certificate of a"thentication ,ay also be ,ade by a secretary of the e,bassy or legation cons"l general cons"l !ice cons"l cons"lar agent or any officer in the foreign ser!ice of the ;hilippines stationed in the foreign 3tate in which the record is .ept and a"thenticated by the seal of his office. D. A#tradition. * The ;hilippines shall negotiate for the incl"sion of ,oney la"ndering offenses as herein defined a,ong e#traditable offenses in all f"t"re treaties. %3ec. 16( 16. 95AT AL3A 35OULD I RNO9 AHOUT T5A ANTI/BONAK LAUNDARIN8 ACTS * The co,plete title of the Act is LAn Act Defining the Cri,e of Boney La"ndering ;ro!iding ;enalties Therfore and for Other ;"rposes.M * The Act was appro!ed by ;resident Bacapagal/ Arroyo on 3ept. '> 'FF1. It was s"bse+"ently a,ended by RA >1>= which was appro!ed by the sa,e ;resident on Bar. D 'FF6. * One of the ,any a,end,ents ,ade by RA >1>= was the deletion of the phrase that pro!ided that LThe pro!isions of this Act shall
not apply to deposits and in!est,ents ,ade prior to its effecti!ity.M * The Act pro!ided the ABLC with an initial appropriation of ;hp '< FFF FFF. * The Act also re+"ired the H3; the Ins"rance Co,,ission and the 3AC to %1( pro,"lgate r"les and reg"lations i,ple,enting the act which wo"ld be s"b,itted to a Congressional O!ersight Co,,ittee and %'( to for,"late ,oney la"ndering pre!ention progra,s in accordance with the Act. INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6'D of 6<1 INTALLACTUAL ;RO;ARTK CODA %RA E'>6 as a,ended by RA >1<F( Chapter I. INTALLACTUAL ;RO;ARTK RI85T3 IN 8ANARAL 1. 3tate ;olicies 3ec. '. Declaration of 3tate ;olicy. / The 3tate recogni$es that an effecti!e intellect"al and ind"strial property syste, is !ital to the de!elop,ent of do,estic and creati!e acti!ity facilitates transfer of technology attracts foreign in!est,ents and ens"res ,ar.et access for o"r prod"cts. It shall protect and sec"re the e#cl"si!e rights of scientists in!entors artists and other gifted citi$ens to their intellect"al property and creations partic"larly when beneficial to the people for s"ch periods as pro!ided in this Act.
The "se of intellect"al property bears a social f"nction. To this end the 3tate shall pro,ote the diff"sion of .nowledge and infor,ation for the pro,otion of national de!elop,ent and progress and the co,,on good. It is also the policy of the 3tate to strea,line ad,inistrati!e proced"res of registering patents trade,ar.s and copyright to liberali$e the registration on the transfer of technology and to enhance the enforce,ent of intellect"al property rights in the ;hilippines. '. Intellect"al ;roperty Rights 3ec. =.1 The ter, Tintellect"al property rightsT consists of) 1. Copyright and Related Rights'. Trade,ar.s and 3er!ice Bar.s6. 8eographic Indications=. Ind"strial Designs<. ;atents?. Layo"t/Designs %Topographies( of Integrated Circ"its- and D. ;rotection of Undisclosed Infor,ation :TRI;3@. Rho !. CA et al. 6D> 3CRA =1F :'FF'@ Trade,ar. copyright and patents are different intellect"al property rights that cannot be interchanged with one another. A trade,ar. is any !isible sign capable of disting"ishing the goods %trade,ar.( or ser!ices %ser!ice ,ar.( of an enterprise and shall incl"de a sta,ped or ,ar.ed
container of goods. In relation thereto a trade na,e ,eans the na,e or designation identifying or disting"ishing an enterprise. Beanwhile the scope of a copyright is confined to literary and artistic wor.s which are original intellect"al creations in the literary and artistic do,ain protected fro, the ,o,ent of their creation. ;atentable in!entions on the other hand refer to any technical sol"tion of a proble, in any field of h",an acti!ity which is new in!ol!es an in!enti!e step and is ind"strially applicable. 6. Re!erse Reciprocity 3ec. '61. Re!erse Reciprocity of 0oreign Laws. / Any condition restriction li,itation di,in"tion re+"ire,ent penalty or any si,ilar b"rden i,posed by the law of a foreign co"ntry on a ;hilippine national see.ing protection of intellect"al property rights in that co"ntry shall reciprocally be enforceable "pon nationals of said co"ntry within ;hilippine 1"risdiction. Chapter II. ;ATANT3 1. 9hat are ;atentable 1.1. In!entions 3ec. '1. ;atentable In!entions. / Any technical sol"tion of a proble, in any field of h",an acti!ity which is new in!ol!es an in!enti!e step and is ind"strially applicable shall be patentable. It ,ay be or ,ay relate to a prod"ct or process or an i,pro!e,ent of any
of the foregoing. %3ec. D RA 1?<a( 3ec. '6. No!elty. / An in!ention shall not be considered new if it for,s part of a prior art. %3ec. > RA 1?<a( 3ec. '=. ;rior Art. / ;rior art shall consist of) '=.1. A!erything which has been ,ade a!ailable to the p"blic anywhere in the world before the filing date or the priority date of the application clai,ing the in!ention- and '=.'. The whole contents of an application for a patent "tility ,odel or ind"strial design registration p"blished in accordance with this Act filed or effecti!e in the ;hilippines with a filing or priority date that is earlier than the filing or priority date of the application) ;ro!ided That the application which has !alidly clai,ed the filing date of an earlier application "nder 3ection 61 of this Act shall be prior art with effect as of the filing date of s"ch earlier application) ;ro!ided f"rther That the applicant or the in!entor identified in both applications are not one and the sa,e. %3ec. > RA 1?<a( 3ec. '?. In!enti!e 3tep. / An in!ention in!ol!es an in!enti!e step if ha!ing regard to prior art it is not ob!io"s to a person s.illed in the art at the ti,e of the filing date or priority date of the application clai,ing the in!ention.
3ec. 'D. Ind"strial Applicability. / An in!ention that can be prod"ced and "sed in any ind"stry shall be ind"strially applicable. 1.'. Utility Bodel 3ec. 1F>.1 %a( An in!ention +"alifies for registration as a "tility ,odel if it is new and ind"strially applicable. %b( 3ection '1 T;atentable In!entionsT shall apply e#cept the reference to in!enti!e step as a condition of protection. INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6'E of 6<1 1.6. Ind"strial Designs 3ec. 11'.1 An Ind"strial Design is any co,position of lines or colors or any threedi,ensional for, whether or not associated with lines or colors) ;ro!ided That s"ch co,position or for, gi!es a special appearance to and can ser!e as pattern for an ind"strial prod"ct or handicraft1.=. Lay/o"t Designs %Topographies( of Integrated Circ"its 3ec. 11'.' Integrated Circ"it ,eans a prod"ct in its final for, or an inter,ediate for, in which the ele,ents at least one of which is an acti!e ele,ent and so,e or all of the interconnections are integrally for,ed in and2or on a piece of ,aterial and which is intended to perfor, an electronic f"nction- and 3ec. 11'.6 Layo"t/Design is synony,o"s with
VTopographyV and ,eans the three/di,ensional disposition howe!er e#pressed of the ele,ents at least one of which is an acti!e ele,ent and of so,e or all of the interconnections of an integrated circ"it or s"ch a three/di,ensional disposition prepared for an integrated circ"it intended for ,an"fact"re. '. A#cl"sions fro, ;atent ;rotection 3ec. ''. Non/;atentable In!entions. / The following shall be e#cl"ded fro, patent protection) ''.1. Disco!eries scientific theories and ,athe,atical ,ethods''.'. 3che,es r"les and ,ethods of perfor,ing ,ental acts playing ga,es or doing b"siness and progra,s for co,p"ters''.6 Bethods for treat,ent of the h",an or ani,al body by s"rgery or therapy and diagnostic ,ethods practiced on the h",an or ani,al body. This pro!ision shall not apply to prod"cts and co,position for "se in any of these ,ethods''.=. ;lant !arieties or ani,al breeds or essentially biological process for the prod"ction of plants or ani,als. This pro!ision shall not apply to ,icroorganis,s and non/biological and ,icrobiological processes.
;ro!isions "nder this s"bsection shall not precl"de Congress to consider the enact,ent of a law pro!iding s"i generis protection of plant !arieties and ani,al breeds and a syste, of co,,"nity intellect"al rights protection) ''.<. Aesthetic creations- and ''.?. Anything which is contrary to p"blic order or ,orality. %3ec. E RA 1?<a( 6. 0irst/To/0ile R"le 3ec. '>. 0irst to 0ile R"le. / If two %'( or ,ore persons ha!e ,ade the in!ention separately and independently of each other the right to the patent shall belong to the person who filed an application for s"ch in!ention or where two or ,ore applications are filed for the sa,e in!ention to the applicant who has the earliest filing date or the earliest priority date. %6rd 3entence 3ec. 1F RA 1?<a.( =. Right of ;riority 3ec. 61. Right of ;riority. / An application for patent filed by any person who has pre!io"sly applied for the sa,e in!ention in another co"ntry which by treaty con!ention or law affords si,ilar pri!ileges to 0ilipino citi$ens shall be considered as filed as of the date of filing the foreign application) ;ro!ided That) %a( the local application e#pressly clai,s priority- %b( it is filed within twel!e %1'( ,onths fro, the date the earliest foreign
application was filed- and %c( a certified copy of the foreign application together with an Anglish translation is filed within si# %?( ,onths fro, the date of filing in the ;hilippines. %3ec. 1< RA 1?<a( <. Contents of the Application for ;atent 3ec. 6'. The Application. / 6'.1. The patent application shall be in 0ilipino or Anglish and shall contain the following) %a( A re+"est for the grant of a patent%b( A description of the in!ention%c( Drawings necessary for the "nderstanding of the in!ention%d( One or ,ore clai,s- and %e( An abstract. 6'.'. No patent ,ay be granted "nless the application identifies the in!entor. If the applicant is not the in!entor the Office ,ay re+"ire hi, to s"b,it said a"thority. %3ec. 16 RA 1?<a( 3ec. 6=. The Re+"est. / The re+"est shall contain a petition for the grant of the patent the na,e and other data of the applicant the in!entor and the agent and the title of the in!ention. 3ec. 6<. Disclos"re and Description of the In!ention. / 6<.1. Disclos"re. / The application shall disclose the in!ention in a ,anner s"fficiently clear and co,plete for it to be carried o"t by a person s.illed in the art. 9here the application concerns a ,icrobiological process or the
prod"ct thereof and in!ol!es the "se of a ,icro/organis, which cannot be s"fficiently disclosed in the application in s"ch a way as to enable the in!ention to be carried o"t by a person s.illed in the art and s"ch ,aterial is not a!ailable to the p"blic the application shall be s"pple,ented by a deposit of s"ch ,aterial with an international depository instit"tion. 6<.'. Description. / The Reg"lations shall prescribe the contents of the description and the order of presentation. %3ec. 1= RA 1?<a( 3ec. 6?. The Clai,s. / INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6'> of 6<1 6?.1. The application shall contain one %1( or ,ore clai,s which shall define the ,atter for which protection is so"ght. Aach clai, shall be clear and concise and shall be s"pported by the description. 6?.'. The Reg"lations shall prescribe the ,anner of the presentation of clai,s. 3ec. 6D. The Abstract. / The abstract shall consist of a concise s",,ary of the disclos"re of the in!ention as contained in the description clai,s and drawings in preferably not ,ore than one h"ndred fifty %1<F( words. It ,"st be drafted in a way which allows the clear "nderstanding of the technical proble, the gist of the sol"tion of that proble, thro"gh the in!ention and the principal "se or "ses of the in!ention. The abstract shall
,erely ser!e for technical infor,ation. ?. ;roced"re for 8rant of ;atent ?.1. 0iling Date 3ec. =F. 0iling Date Re+"ire,ents. / =F.1. The filing date of a patent application shall be the date of receipt by the Office of at least the following ele,ents) %a( An e#press or i,plicit indication that a ;hilippine patent is so"ght%b( Infor,ation identifying the applicant- and %c( Description of the in!ention and one %1( or ,ore clai,s in 0ilipino or Anglish. =F.'. If any of these ele,ents is not s"b,itted within the period set by the Reg"lations the application shall be considered withdrawn. 3ec. =1. According a 0iling Date. / The Office shall e#a,ine whether the patent application satisfies the re+"ire,ents for the grant of date of filing as pro!ided in 3ection =F hereof. If the date of filing cannot be accorded the applicant shall be gi!en an opport"nity to correct the deficiencies in accordance with the i,ple,enting Reg"lations. If the application does not contain all the ele,ents indicated in 3ection =F the filing date sho"ld be that date when all the ele,ents are recei!ed. If the deficiencies are not re,edied within the
prescribed ti,e li,it the application shall be considered withdrawn. 1. 0or,ality A#a,ination 3ec. ='. 0or,ality A#a,ination. / ='.1. After the patent application has been accorded a filing date and the re+"ired fees ha!e been paid on ti,e in accordance with the Reg"lations the applicant shall co,ply with the for,al re+"ire,ents specified by 3ection 6' and the Reg"lations within the prescribed period otherwise the application shall be considered withdrawn. ='.'. The Reg"lations shall deter,ine the proced"re for the re/e#a,ination and re!i!al of an application as well as the appeal to the Director of ;atents fro, any final action by the e#a,iner. %3ec. 1? RA 1?<a( ?.'. Classification and 3earch 3ec. =6. Classification and 3earch. / An application that has co,plied with the for,al re+"ire,ent shall be classified and a search cond"cted to deter,ine the prior art. ?.6. ;"blication 3ec. ==. ;"blication of ;atent Application. / ==.1. The patent application shall be p"blished in the I;O 8a$ette together with a search doc",ent established by or on behalf of the Office citing any doc",ents that reflect prior art after the e#piration of
eighteen %1E( ,onths fro, the filing date or priority date. ==.6. The Director 8eneral s"b1ect to the appro!al of the 3ecretary of Trade and Ind"stry ,ay prohibit or restrict the p"blication of an application if in his opinion to do so wo"ld be pre1"dicial to the national sec"rity and interests of the Rep"blic of the ;hilippines. ?.=. Inspection 3ec. =<. Confidentiality Hefore ;"blication. / A patent application which has not yet been p"blished and all related doc",ents shall not be ,ade a!ailable for inspection witho"t the consent of the applicant. 3ec. ==.'. After p"blication of a patent application any interested party ,ay inspect the application doc",ents filed with the Office. 3ec. =D. Obser!ation by Third ;arties. / 0ollowing the p"blication of the patent application any person ,ay present obser!ations in writing concerning the patentability of the in!ention. 3"ch obser!ations shall be co,,"nicated to the applicant who ,ay co,,ent on the,. The Office shall ac.nowledge and p"t s"ch obser!ations and co,,ent in the file of the application to which it relates. ?.<. Re+"est for 3"bstanti!e A#a,ination 3ec. =E. Re+"est for 3"bstanti!e A#a,ination.
/ =E.1. The application shall be dee,ed withdrawn "nless within si# %?( ,onths fro, the date of p"blication "nder 3ection =1 a written re+"est to deter,ine whether a patent application ,eets the re+"ire,ents of 3ections '1 to 'D and 3ections 6' to 6> and the fees ha!e been paid on ti,e. =E.'. 9ithdrawal of the re+"est for e#a,ination shall be irre!ocable and shall not a"thori$e the ref"nd of any fee. 3AC. =>. A,end,ent of Application. / An applicant ,ay a,end the patent application d"ring e#a,ination) ;ro!ided That s"ch INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 66F of 6<1 a,end,ent shall not incl"de new ,atter o"tside the scope of the disclos"re contained in the application as filed. ?.?. 8rant or Ref"sal of Application 3ec. <F. 8rant of ;atent. / <F.1. If the application ,eets the re+"ire,ents of this Act the Office shall grant the patent) ;ro!ided That all the fees are paid on ti,e. <F.'. If the re+"ired fees for grant and printing are not paid in d"e ti,e the application shall be dee,ed to be withdrawn.
<F.6. A patent shall ta.e effect on the date of the p"blication of the grant of the patent in the I;O 8a$ette. %3ec. 1E RA 1?<a( 3ec. <1. Ref"sal of the Application. / <1.1. The final order of ref"sal of the e#a,iner to grant the patent shall be appealable to the Director in accordance with this Act. <1.'. The Reg"lations shall pro!ide for the proced"re by which an appeal fro, the order of ref"sal fro, the Director shall be "nderta.en. ?.D. ;"blication of the 8rant of ;atent 3ec. <'. ;"blication Upon 8rant of ;atent. / <'.1. The grant of the patent together with other related infor,ation shall be p"blished in the I;O 8a$ette within the ti,e prescribed by the Reg"lations. <'.'. Any interested party ,ay inspect the co,plete description clai,s and drawings of the patent on file with the Office. %3ec. 1E RA 1?<a( D. Rights Conferred by ;atent 3ec. D1. Rights Conferred by ;atent. / D1.1. A patent shall confer on its owner the following e#cl"si!e rights) %a( 9here the s"b1ect ,atter of a patent is a prod"ct to restrain prohibit and pre!ent any "na"thori$ed person or
entity fro, ,a.ing "sing offering for sale selling or i,porting that prod"ct%b( 9here the s"b1ect ,atter of a patent is a process to restrain pre!ent or prohibit any "na"thori$ed person or entity fro, "sing the process and fro, ,an"fact"ring dealing in "sing selling or offering for sale or i,porting any prod"ct obtained directly or indirectly fro, s"ch process. D1.'. ;atent owners shall also ha!e the right to assign or transfer by s"ccession the patent and to concl"de licensing contracts for the sa,e. %3ec. 6D RA 1?<a( ;earl and Dean Inc !. 3hoe,art Inc %'FF6( To be able to effecti!ely and legally precl"de others fro, copying and profiting fro, the in!ention a patent is a pri,ordial re+"ire,ent. No patent no protection. The "lti,ate goal of a patent syste, is to bring new designs and technologies into the p"blic do,ain thro"gh disclos"re. Ideas once disclosed to the p"blic witho"t the protection of a !alid patent are s"b1ect to appropriation witho"t significant restraint. E. Ter, 3ec. <=. Ter, of ;atent. / The ter, of a patent shall be twenty %'F( years fro, the filing date of the application. %3ec. '1 RA 1?<a(
3ec. 1F>.6. A "tility ,odel registration shall e#pire witho"t any possibility of renewal at the end of the se!enth year after the date of the filing of the application. 3ec. 11E. The Ter, of Ind"strial Design or Layo"t/ Design Registration. / 11E.1. The registration of an ind"strial design shall be for a period of fi!e %<( years fro, the filing date of the application. 11E.'. The registration of an ind"strial design ,ay be renewed for not ,ore than two %'( consec"ti!e periods of fi!e %<( years each by paying the renewal fee. ### ### ### 11E.<. Registration of a layo"t/design shall be !alid for a period often %1F( years witho"t renewal and s"ch !alidity to be co"nted fro, the date of co,,ence,ent of the protection accorded to the layo"t/design. The protection of a layo"t/design "nder this Act shall co,,ence) a( on the date of the first co,,ercial e#ploitation anywhere in the world of the layo"t/design by or with the consent of the right holder) ;ro!ided That an application for registration is filed with the Intellect"al ;roperty Office within two %'( years fro, s"ch date of first co,,ercial e#ploitationor b( on the filing date accorded to the application for the registration of the
layo"t/design if the layo"t/design has not been pre!io"sly e#ploited co,,ercially anywhere in the world. >. Li,itations on Rights of ;atentees 3ec. D'. Li,itations of ;atent Rights. / The owner of a patent has no right to pre!ent third parties fro, perfor,ing witho"t his a"thori$ation the acts referred to in 3ection D1 hereof in the following circ",stances) D'.1. Using a patented prod"ct which has been p"t on the ,ar.et in the ;hilippines by the owner of the prod"ct or with his e#press consent insofar as s"ch "se is perfor,ed after that prod"ct has been so p"t on the said ,ar.etINTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 661 of 6<1 D'.'. 9here the act is done pri!ately and on a non/co,,ercial scale or for a non/co,,ercial p"rpose) ;ro!ided That it does not significantly pre1"dice the econo,ic interests of the owner of the patentD'.6. 9here the act consists of ,a.ing or "sing e#cl"si!ely for the p"rpose of e#peri,ents that relate to the s"b1ect ,atter of the patented in!entionD'.=. 9here the act consists of the preparation for indi!id"al cases in a phar,acy or by a ,edical professional of a ,edicine in accordance with a ,edical prescription or acts
concerning the ,edicine so preparedD'.<. 9here the in!ention is "sed in any ship !essel aircraft or land !ehicle of any other co"ntry entering the territory of the ;hilippines te,porarily or accidentally) ;ro!ided That s"ch in!ention is "sed e#cl"si!ely for the needs of the ship !essel aircraft or land !ehicle and not "sed for the ,an"fact"ring of anything to be sold within the ;hilippines. %3ecs. 6E and 6> RA 1?<a( 3ec. D6. ;rior User. / D6.1. Notwithstanding 3ection D' hereof any prior "ser who in good faith was "sing the in!ention or has "nderta.en serio"s preparations to "se the in!ention in his enterprise or b"siness before the filing date or priority date of the application on which a patent is granted shall ha!e the right to contin"e the "se thereof as en!isaged in s"ch preparations within the territory where the patent prod"ces its effect. D6.'. The right of the prior "ser ,ay only be transferred or assigned together with his enterprise or b"siness or with that part of his enterprise or b"siness in which the "se or preparations for "se ha!e been ,ade. %3ec. =F RA 1?<a( 3ec. D=. Use of In!ention by 8o!ern,ent. / D=.1. A 8o!ern,ent agency or third person a"thori$ed by the 8o!ern,ent ,ay e#ploit the
in!ention e!en witho"t agree,ent of the patent owner where) %a( the p"blic interest in partic"lar national sec"rity n"trition health or the de!elop,ent of other sectors as deter,ined by the appropriate agency of the go!ern,ent so re+"ires- or %b( A 1"dicial or ad,inistrati!e body has deter,ined that the ,anner of e#ploitation by the owner of the patent or his licensee is antico,petiti!e. D=.'. The "se by the 8o!ern,ent or third person a"thori$ed by the 8o!ern,ent shall be s"b1ect ,"tatis ,"tandis to the conditions set forth in 3ections >< to >D and 1FF to 1F'. %3ec. =1 RA 1?<a( 1F. Notice Re+"ire,ent 3ec. EF. Da,ages- Re+"ire,ent of Notice. / Da,ages cannot be reco!ered for acts of infringe,ent co,,itted before the infringer had .nown- or had reasonable gro"nds to .now of the patent. It is pres",ed that the infringer had .nown of the patent if on the patented prod"ct or on the container or pac.age in which the article is s"pplied to the p"blic or on the ad!ertising ,aterial relating to the patented prod"ct or process are placed the words T;hilippine ;atentT with the n",ber of the patent. %3ec. == RA 1?<a( 11. ;atent Infringe,ent 11.1. Ci!il Action
3ec. D?. Ci!il Action for Infringe,ent. / D?.1. The ,a.ing "sing offering for sale selling or i,porting a patented prod"ct or a prod"ct obtained directly or indirectly fro, a patented process or the "se of a patented process witho"t the a"thori$ation of the patentee constit"tes patent infringe,ent. D?.'. Any patentee or anyone possessing any right title or interest in and to the patented in!ention whose rights ha!e been infringed ,ay bring a ci!il action before a co"rt of co,petent 1"risdiction to reco!er fro, the infringer s"ch da,ages s"stained thereby pl"s attorney4s fees and other e#penses of litigation and to sec"re an in1"nction for the protection of his rights. D?.6. If the da,ages are inade+"ate or cannot be readily ascertained with reasonable certainty the co"rt ,ay award by way of da,ages a s", e+"i!alent to reasonable royalty. D?.=. The co"rt ,ay according to the circ",stances of the case award da,ages in a s", abo!e the a,o"nt fo"nd as act"al da,ages s"stained) ;ro!ided That the award does not e#ceed three %6( ti,es the a,o"nt of s"ch act"al da,ages. D?.<. The co"rt ,ay in its discretion order that the infringing goods ,aterials
and i,ple,ents predo,inantly "sed in the infringe,ent be disposed of o"tside the channels of co,,erce or destroyed witho"t co,pensation. D?.?. Anyone who acti!ely ind"ces the infringe,ent of a patent or pro!ides the infringer with a co,ponent of a patented prod"ct or of a prod"ct prod"ced beca"se of a patented process .nowing it to be especially adopted for infringing the patented in!ention and not s"itable for s"bstantial non/infringing "se shall be liable as a contrib"tory infringer and shall be 1ointly and se!erally liable with the infringer. %3ec. =' RA 1?<a( 11.'. Cri,inal Action INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 66' of 6<1 3ec. E=. Cri,inal Action for Repetition of Infringe,ent. / If infringe,ent is repeated by the infringer or by anyone in conni!ance with hi, after finality of the 1"dg,ent of the co"rt against the infringer the offenders shall witho"t pre1"dice to the instit"tion of a ci!il action for da,ages be cri,inally liable therefor and "pon con!iction shall s"ffer i,prison,ent for the period of not less than si# %?( ,onths b"t not ,ore than three %6( years and2or a fine of not less than One h"ndred tho"sand pesos %;1FF FFF( b"t not ,ore than Three h"ndred
tho"sand pesos %;6FF FFF( at the discretion of the co"rt. The cri,inal action herein pro!ided shall prescribe in three %6( years fro, date of the co,,ission of the cri,e. %3ec. =E RA 1?<a( 3ony Co,p"ter ! 3"pergreen Inc. %'FFD( 3"pergreen is engaged in reprod"ction and distrib"tion of co"nterfeit L;lay3tationM ga,e software consoles and accessories !iolati!e of 3ony4s intellect"al property rights. NHI ser!ed search warrants on s"b1ect pre,ises :Ca!ite@ and sei$ed a replicating ,achine and se!eral "nits of co"nterfeit L;lay3tationM consoles 1oy pads ho"sing labels and ga,e software. Respondent filed Botion to Q"ash 7 which was granted by RTC 7 alleging i,propriety of !en"e2lac. of 1"risdiction. 3C) The alleged acts constit"te a transitory or contin"ing offense "nder 3ection 1?E I;C :RA E'>6@ 7 in relation to Art. 1E>%1( R;C on "nfair co,petition. Respondent4s i,itation of the general appearance of petitioner4s goods was done allegedly in Ca!ite b"t sold s"ch in Bandal"yong City Betro Banila. 1'. Tests of infringe,ent 8odines !. CA ''? 3CRA <D? :1>>6@ Tests ha!e been established to deter,ine infringe,ent. These are :a@ literal infringe,entand :b@ the doctrine of e+"i!alents. In "sing literal infringe,ent as a test resort ,"st be had in the first instance to the words of the clai,. To
deter,ine whether the partic"lar ite, falls within the literal ,eaning of the patent clai,s the co"rt ,"st 1"#tapose the clai,s of the patent and the acc"sed prod"ct within the o!erall conte#t of the clai,s and specifications to deter,ine whether there is e#act identity of all ,aterial ele,ents. On the other hand "nder the doctrine of e+"i!alents an infringe,ent also occ"rs when a de!ice appropriates a prior in!ention by incorporating its inno!ati!e concept and albeit with so,e ,odification and change perfor,s s"bstantially the sa,e f"nction in s"bstantially the sa,e way to achie!e s"bstantially the sa,e res"lt. 16. ;atent infringe,ent Del Rosario ! CA %1>>?( It is ele,entary that a patent ,ay be infringed where the essential or s"bstantial feat"res of the patented in!ention are ta.en or appropriated or the de!ice ,achine or other s"b1ect ,atter alleged to infringe is s"bstantially identical with the patent in!ention. In order to infringe a patent a ,achine or de!ice ,"st perfor, the sa,e f"nction or acco,plish the sa,e res"lt by identical or s"bstantially identical ,eans and the principle or ,ode of operation ,"st be s"bstantially the sa,e. Creser ;recision 3yste,s Inc. !. CA et al. 'E? 3CRA 16 :1>>E@ Only the patentee or his s"ccessor/in/interest ,ay file an action for infringe,ent. Boreo!er there can be no infringe,ent of a patent "ntil a patent has
been iss"ed since whate!er right one has to the in!ention co!ered by the patent arises alone fro, the grant of patent. In short a person or entity who has not been granted letter of patent o!er an in!ention and has not ac+"ired any rights or title thereto either as an assignee or a licensee has no ca"se of action for infringe,ent beca"se the right to ,aintain an infringe,ent s"it depends "pon the e#istence of a patent. 3BIT5 RLINA HACRBAN COR;ORATION ! CA %'FF6( The doctrine of e+"i!alents pro!ides that an infringe,ent also ta.es place when a de!ice appropriates a prior in!ention by incorporating its inno!ati!e concept and altho"gh with so,e ,odification and change perfor,s s"bstantially the sa,e f"nction in s"bstantially the sa,e way to achie!e s"bstantially the sa,e res"ltZ The principle or ,ode of operation ,"st be the sa,e or s"bstantially the sa,e. The doctrine of e+"i!alents th"s re+"ires satisfaction of the f"nction/,eans/and/res"lt test the patentee ha!ing the b"rden to show that all three co,ponents of s"ch e+"i!alency test are ,et. 1=. Iol"ntary Licensing 3ec. E<. Iol"ntary License Contract. / To enco"rage the transfer and disse,ination of technology pre!ent or control practices and conditions that ,ay in partic"lar cases constit"te
an ab"se of intellect"al property rights ha!ing an ad!erse effect on co,petition and trade all technology transfer arrange,ents shall co,ply with the pro!isions of this Chapter. 3ec. EE. Bandatory ;ro!isions. / The following pro!isions shall be incl"ded in !ol"ntary license contracts) EE.1. That the laws of the ;hilippines shall go!ern the interpretation of the sa,e and in the e!ent of litigation the !en"e shall be the proper co"rt in the place where the licensee has its principal officeEE.'. Contin"ed access to i,pro!e,ents in techni+"es and processes related to the technology shall be ,ade a!ailable d"ring the period of the technology transfer arrange,entEE.6. In the e!ent the technology transfer arrange,ent shall pro!ide for arbitration the ;roced"re of Arbitration of the Arbitration Law of the ;hilippines or the Arbitration R"les of the United Nations Co,,ission on International Trade Law %UNCITRAL( or the R"les of Conciliation and Arbitration of the International Cha,ber of Co,,erce %ICC( shall apply and the !en"e of arbitration shall be the ;hilippines or any ne"tral co"ntry- and INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 666 of 6<1 EE.=. The ;hilippine ta#es on all pay,ents relating to the technology transfer arrange,ent
shall be borne by the licensor. 3ec. ED. ;rohibited Cla"ses. / A#cept in cases "nder 3ection >1 the following pro!isions shall be dee,ed pri,a facie to ha!e an ad!erse on co,petition and trade) ED.1. Those which i,pose "pon the licensee the obligation to ac+"ire fro, a specific so"rce capital goods inter,ediate prod"cts raw ,aterials and other technologies or of per,anently e,ploying personnel indicated by the licensorED.'. Those p"rs"ant to which the licensor reser!es the right to fi# the sale or resale prices of the prod"cts ,an"fact"red on the basis of the licenseED.6. Those that contain restrictions regarding the !ol",e and str"ct"re of prod"ctionED.=. Those that prohibit the "se of co,petiti!e technologies in a non/e#cl"si!e technology transfer agree,entED.<. Those that establish a f"ll or partial p"rchase option in fa!or of the licensorED.?. Those that obligate the licensee to transfer for free to the licensor the in!entions or i,pro!e,ents that ,ay be obtained thro"gh the "se of the licensed technologyED.D. Those that re+"ire pay,ent of royalties to the owners of patents for patents which are not "sedED.E. Those that prohibit the licensee to e#port
the licensed prod"ct "nless 1"stified for the protection of the legiti,ate interest of the licensor s"ch as e#ports to co"ntries where e#cl"si!e licenses to ,an"fact"re and2or distrib"te the licensed prod"ct%s( ha!e already been grantedED.>. Those which restrict the "se of the technology s"pplied after the e#piration of the technology transfer arrange,ent e#cept in cases of early ter,ination of the technology transfer arrange,ent d"e to reason%s( attrib"table to the licenseeED.1F. Those which re+"ire pay,ents for patents and other ind"strial property rights after their e#piration ter,ination arrange,entED.11. Those which re+"ire that the technology recipient shall not contest the !alidity of any of the patents of the technology s"pplierED.1'. Those which restrict the research and de!elop,ent acti!ities of the licensee designed to absorb and adapt the transferred technology to local conditions or to initiate research and de!elop,ent progra,s in connection with new prod"cts processes or e+"ip,entED.16. Those which pre!ent the licensee fro, adapting the i,ported technology to local conditions or introd"cing inno!ation to it as long as it does not i,pair the +"ality standards
prescribed by the licensorED.1=. Those which e#e,pt the licensor for liability for non/f"lfill,ent of his responsibilities "nder the technology transfer arrange,ent and2or liability arising fro, third party s"its bro"ght abo"t by the "se of the licensed prod"ct or the licensed technology- and ED.1<. Other cla"ses with e+"i!alent effects. %3ec. 66/C:'@ RA 1?<a( 1<. Co,p"lsory Licensing 3ec. >6. 8ro"nds for Co,p"lsory Licensing. / The Director of Legal Affairs ,ay grant a license to e#ploit a patented in!ention e!en witho"t the agree,ent of the patent owner in fa!or of any person who has shown his capability to e#ploit the in!ention "nder any of the following circ",stances) >6.1. National e,ergency or other circ",stances of e#tre,e "rgency>6.'. 9here the p"blic interest in partic"lar national sec"rity n"trition health or the de!elop,ent of other !ital sectors of the national econo,y as deter,ined by the appropriate agency of the 8o!ern,ent so re+"ires- or >6.6. 9here a 1"dicial or ad,inistrati!e body has deter,ined that the ,anner of e#ploitation by the owner of the patent or his licensee is anti/co,petiti!e- or >6.=. In case of p"blic non/co,,ercial "se of
the patent by the patentee witho"t satisfactory reason>6.<. If the patented in!ention is not being wor.ed in the ;hilippines on a co,,ercial scale altho"gh capable of being wor.ed witho"t satisfactory reason) ;ro!ided That the i,portation of the patented article shall constit"te wor.ing or "sing the patent. %3ecs. 6= 6=/A and 6=/H RA 1?<a( 3ec. >D. Co,p"lsory License Hased on Interdependence of ;atents. / If the in!ention protected by a patent hereafter referred to as the Tsecond patent T within the co"ntry cannot be wor.ed witho"t infringing another patent hereafter referred to as the Tfirst patent T granted on a prior application or benefiting fro, an earlier priority a co,p"lsory license ,ay be granted to the owner of the second patent to the e#tent necessary for the wor.ing of his in!ention s"b1ect to the following conditions) >D.1. The in!ention clai,ed in the second patent in!ol!es an i,portant technical ad!ance of considerable econo,ic significance in relation to the first patent>D.'. The owner of the first patent shall be entitled to a cross/license on reasonable ter,s to "se the in!ention clai,ed in the second patentINTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 66= of 6<1
>D.6. The "se a"thori$ed in respect of the first patent shall be non/assignable e#cept with the assign,ent of the second patent- and >D.=. The ter,s and conditions of 3ections >< >? and >E to 1FF of this Act. %3ec. 6=/C RA 1?<a( 1?. Assign,ent and Transfer of ;atent 3ec. 1F=. Assign,ent of In!entions. / An assign,ent ,ay be of the entire right title or interest in and to the patent and the in!ention co!ered thereby or of an "ndi!ided share of the entire patent and in!ention in which e!ent the parties beco,e 1oint owners thereof. An assign,ent ,ay be li,ited to a specified territory. %3ec. <1 RA 1?<( 3ec. 1F<. 0or, of Assign,ent. / The assign,ent ,"st be in writing ac.nowledged before a notary p"blic or other officer a"thori$ed to ad,inister oath or perfor, notarial acts and certified "nder the hand and official seal of the notary or s"ch other officer. %3ec. <' RA 1?<( 3ec. 1F?. Recording. / 1F?.1. The Office shall record assign,ents licenses and other instr",ents relating to the trans,ission of any right title or interest in and to in!entions and patents or application for patents or in!entions to which they relate which are presented in d"e for, to the Office for registration in boo.s and records .ept for the p"rpose. The original doc",ents together
with a signed d"plicate thereof shall be filed and the contents thereof sho"ld be .ept confidential. If the original is not a!ailable an a"thenticated copy thereof in d"plicate ,ay be filed. Upon recording the Office shall retain the d"plicate ret"rn the original or the a"thenticated copy to the party who filed the sa,e and notice of the recording shall be p"blished in the I;O 8a$ette. 1F?.'. 3"ch instr",ents shall be !oid as against any s"bse+"ent p"rchaser or ,ortgagee for !al"able consideration and witho"t notice "nless it is so recorded in the Office within three %6( ,onths fro, the date of said instr",ent or prior to the s"bse+"ent p"rchase or ,ortgage. %3ec. <6 RA 1?<a( 1D. Cancellation of ;atent 3ec. ?1. Cancellation of ;atents. / ?1.1. Any interested person ,ay "pon pay,ent of the re+"ired fee petition to cancel the patent or any clai, thereof or parts of the clai, on any of the following gro"nds) %a( That what is clai,ed as the in!ention is not new or patentable%b( That the patent does not disclose the in!ention in a ,anner s"fficiently clear and co,plete for it to be carried o"t by any person s.illed in the art- or %c( That the patent is contrary to p"blic order or ,orality.
?1.'. 9here the gro"nds for cancellation relate to so,e of the clai,s or parts of the clai, cancellation ,ay be effected to s"ch e#tent only. %3ecs. 'E and '> RA 1?<a( 3ec. ?'. Re+"ire,ent of the ;etition. / The petition for cancellation shall be in writing !erified by the petitioner or by any person in his behalf who .nows the facts specify the gro"nds "pon which it is based incl"de a state,ent of the facts to be relied "pon and filed with the Office. Copies of printed p"blications or of patents of other co"ntries and other s"pporting doc",ents ,entioned in the petition shall be attached thereto together with the translation thereof in Anglish if not in Anglish lang"age. %3ec. 6F RA 1?<( 3ec. ?6. Notice of 5earing. / Upon filing of a petition for cancellation the Director of Legal Affairs shall forthwith ser!e notice of the filing thereof "pon the patentee and all persons ha!ing grants or licenses or any other right title or interest in and to the patent and the in!ention co!ered thereby as appears of record in the Office and of notice of the date of hearing thereon on s"ch persons and the petitioner. Notice of the filing of the petition shall be p"blished in the I;O 8a$ette. %3ec. 61 RA 1?<a( 3ec. ??. Affect of Cancellation of ;atent or Clai,. / The rights conferred by the patent or any specified clai, or clai,s cancelled shall ter,inate. Notice of the cancellation shall be p"blished in the I;O
8a$ette. Unless restrained by the Director 8eneral the decision or order to cancel by Director of Legal Affairs shall be i,,ediately e#ec"tory e!en pending appeal. %3ec. 6' RA 1?<a( Chapter III. INDU3TRIAL DA3I8N3AND LAK/OUT DA3I8N3 %TO;O8RA;5IA3( O0 INTA8RATAD CIRCUIT3 1. 3"bstanti!e Conditions for ;rotection 3ec. 116. 3"bstanti!e Conditions for ;rotection. / 116.1. Only ind"strial designs that are new or orna,ental shall benefit fro, protection "nder this Act. 116.'. Ind"strial designs dictated essentially by technical or f"nctional considerations to obtain a technical res"lt or those that are contrary to p"blic order health or ,orals shall not be protected. 116.6. Only layo"t /designs of integrated circ"its that are original shall benefit fro, protection "nder this Act. A layo"t/design shall be considered original if it is the res"lt of its creatorVs own intellect"al effort and is not co,,onplace a,ong creators of layo"t/designs and ,an"fact"rers of integrated circ"its at the ti,e of its creation. 116.=. A layo"t/design consisting of a co,bination of ele,ents and interconnections that are co,,onplace shall be protected only if the co,bination ta.en as a whole is original.
INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 66< of 6<1 1.1. Rights Conferred on Registered Owner of Lay/o"t Design 3ec. 11>.=. Rights Conferred to the Owner of a Layo"t/Design Registration. / The owner of a layo"t/design registration shall en1oy the following rights) %1( to reprod"ce whether by incorporation in an integrated circ"it or otherwise the registered layo"t/design in its entirety or any part thereof e#cept the act of reprod"cing any part that does not co,ply with the re+"ire,ent of originality- and %'( to sell or otherwise distrib"te for co,,ercial p"rposes the registered layo"t design an article or an integrated circ"it in which the registered layo"tdesign is incorporated. 3ec. 11>.<. Li,itations of Layo"t Rights. / The owner of a layo"t design has no right to pre!ent third parties fro, reprod"cing selling or otherwise distrib"ting for co,,ercial p"rposes the registered layo"t/design in the following circ",stances) %1( Reprod"ction of the registered layo"tdesign for pri!ate p"rposes or for the sole p"rpose of e!al"ation analysis research or teaching%6( 9here the act is perfor,ed in respect of a
layo"t/design created on the basis of s"ch analysis or e!al"ation and which is itself original in the ,eaning as pro!ided herein%=( 9here the act is perfor,ed in respect of a registered lay/o"t/design or in respect of an integrated circ"it in which s"ch a layo"t/design is incorporated that has been p"t on the ,ar.et by or with the consent of the right holder%<( In respect of an integrated circ"it where the person perfor,ing or ordering s"ch an act did not .now and had no reasonable gro"nd to .now when ac+"iring the integrated circ"it or the article incorporating s"ch an integrated circ"it that it incorporated an "nlawf"lly reprod"ced layo"t/design) ;ro!ided howe!er That after the ti,e that s"ch person has recei!ed s"fficient notice that the layo"t/design was "nlawf"lly reprod"ced that person ,ay perfor, any of the said acts only with respect to the stoc. on hand or ordered before s"ch ti,e and shall be liable to pay to the right holder a s", e+"i!alent to at least <G of net sales or s"ch other reasonable royalty as wo"ld be payable "nder a freely negotiated license in respect of s"ch layo"t/design- or
%?( 9here the act is perfor,ed in respect of an identical layo"t/design which is original and has been created independently by a third party. 1.'. 8ro"nds for Cancellation of Registration 3ec. 1'F. Cancellation of Design Registration. 7 1'F.1. At any ti,e d"ring the ter, of the ind"strial design registration any person "pon pay,ent of the re+"ired fee ,ay petition the Director of Legal Affairs to cancel the ind"strial design on any of the following gro"nds) %a( If the s"b1ect ,atter of the ind"strial design is not registerable within the ter,s of 3ections 11' and 116%b( If the s"b1ect ,atter is not new- or %c( If the s"b1ect ,atter of the ind"strial design e#tends beyond the content of the application as originally filed. 1'F.'. 9here the gro"nds for cancellation relate to a part of the ind"strial design cancellation ,ay be effected to s"ch e#tent only. The restriction ,ay be effected in the for, of an alteration of the effected feat"res of the design. 1'F.6. 8ro"nds for Cancellation of Layo"t/ Design of Integrated Circ"its./ Any interested person ,ay petition that the registration of a layo"t/design be canceled on the gro"nd that) %a( the layo"t/design is not protectable "nder this Act-
%b( the right holder is not entitled to protection "nder this Act- or %c( where the application for registration of the layo"t/design was not filed within two %'( years fro, its first co,,ercial e#ploitation anywhere in the world. 9here the gro"nds for cancellation are established with respect only to a part of the layo"t/design only the corresponding part of the registration shall be canceled. Any canceled layo"t/design registration or part thereof shall be regarded as n"ll and !oid fro, the beginning and ,ay be e#p"nged fro, the records of the Intellect"al ;roperty Office. Reference to all canceled layo"t/design registration shall be p"blished in the I;O 8a$ette. Chapter II. TRADABARR3 1. Bar.s and Na,es 3ec. 1'1. Definitions. / As "sed in ;art III the following ter,s ha!e the following ,eanings) 1'1.1. TBar.T ,eans any !isible sign capable of disting"ishing the goods %trade,ar.( or ser!ices %ser!ice ,ar.( of an enterprise and shall incl"de a sta,ped or ,ar.ed container of goods- %3ec. 6E RA 1??a( 1'1.'. TCollecti!e ,ar.T ,eans any !isible sign designated as s"ch in the application for
registration and capable of disting"ishing the origin or any other co,,on characteristic incl"ding the +"ality of goods or ser!ices of different enterprises which "se the sign "nder the control of the registered owner of the collecti!e ,ar.- %3ec. =F RA 1??a( 1'1.6. TTrade na,eT ,eans the na,e or designation identifying or disting"ishing an enterprise- %3ec. 6E RA 1??a( INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 66? of 6<1 1.1. ;rod"ct na,e and container not proper s"b1ects of copyright and patent registration Rho !. CA et al. 6D> 3CRA =1F :'FF'@ The na,e and container of a bea"ty crea, prod"ct are proper s"b1ects of a trade,ar. inas,"ch as the sa,e falls s+"arely within its definition. In order to be entitled to e#cl"si!ely "se the sa,e in the sale of the bea"ty crea, prod"ct the "ser ,"st s"fficiently pro!e that she registered or "sed it before anybody else did. The petitioner4s copyright and patent registration of the na,e and container wo"ld not g"arantee her right to the e#cl"si!e "se of the sa,e for the reason that they are not appropriate s"b1ects of the said intellect"al rights. Conse+"ently a preli,inary in1"nction order cannot be iss"ed for the reason that the petitioner has not pro!en that she has a clear right o!er the said na,e and container to the e#cl"sion of others not ha!ing pro!en that she has registered a
trade,ar. thereto or "sed the sa,e before anyone did. '. Ac+"isition of Ownership 3ec. 1''. 5ow Bar.s are Ac+"ired. / The rights in a ,ar. shall be ac+"ired thro"gh registration ,ade !alidly in accordance with the pro!isions of this law. %3ec. '/A RA 1??a( 3ec. 1?<. Trade Na,es or H"siness Na,es. / 1?<.1. A na,e or designation ,ay not be "sed as a trade na,e if by its nat"re or the "se to which s"ch na,e or designation ,ay be p"t it is contrary to p"blic order or ,orals and if in partic"lar it is liable to decei!e trade circles or the p"blic as to the nat"re of the enterprise identified by that na,e. 1?<.'. %a( Notwithstanding any laws or reg"lations pro!iding for any obligation to register trade na,es s"ch na,es shall be protected e!en prior to or witho"t registration against any "nlawf"l act co,,itted by third parties. %b( In partic"lar any s"bse+"ent "se of the trade na,e by a third party whether as a trade na,e or a ,ar. or collecti!e ,ar. or any s"ch "se of a si,ilar trade na,e or ,ar. li.ely to ,islead the p"blic shall be dee,ed "nlawf"l. 6. Use of Bar. as a Re+"ire,ent 3ec. 1'=.'. The applicant or the registrant shall file a declaration of act"al "se of the ,ar. with
e!idence to that effect as prescribed by the Reg"lations within three %6( years fro, the filing date of the application. Otherwise the application shall be ref"sed or the ,ar. shall be re,o!ed fro, the Register by the Director. =. Non/Registrable Bar.s 3ec. 1'6.1. A ,ar. cannot be registered if it) %a( Consists of i,,oral decepti!e or scandalo"s ,atter or ,atter which ,ay disparage or falsely s"ggest a connection with persons li!ing or dead instit"tions beliefs or national sy,bols or bring the, into conte,pt or disrep"te%b( Consists of the flag or coat of ar,s or other insignia of the ;hilippines or any of its political s"bdi!isions or of any foreign nation or any si,"lation thereof%c( Consists of a na,e portrait or signat"re identifying a partic"lar li!ing indi!id"al e#cept by his written consent or the na,e signat"re or portrait of a deceased ;resident of the ;hilippines d"ring the life of his widow if any e#cept by written consent of the widow%d( Is identical with a registered ,ar. belonging to a different proprietor or a ,ar. with an earlier filing or priority date in respect of) 1( The sa,e goods or ser!ices or '( Closely related goods or ser!ices
or 6( If it nearly rese,bles s"ch a ,ar. as to be li.ely to decei!e or ca"se conf"sion%e( Is identical with or conf"singly si,ilar to or constit"tes a translation of a ,ar. which is considered by the co,petent a"thority of the ;hilippines to be well.nown internationally and in the ;hilippines whether or not it is registered here as being already the ,ar. of a person other than the applicant for registration and "sed for identical or si,ilar goods or ser!ices) ;ro!ided That in deter,ining whether a ,ar. is well.nown acco"nt shall be ta.en of the .nowledge of the rele!ant sector of the p"blic rather than of the p"blic at large incl"ding .nowledge in the ;hilippines which has been obtained as a res"lt of the pro,otion of the ,ar.%f( Is identical with or conf"singly si,ilar to or constit"tes a translation of a ,ar. considered well/.nown in accordance with the preceding paragraph which is registered in the ;hilippines with respect to goods or ser!ices which are not si,ilar to those with respect to which registration is applied for) ;ro!ided That "se of the ,ar. in relation to those goods or ser!ices
wo"ld indicate a connection between those goods or ser!ices and the owner of the registered ,ar.) ;ro!ided f"rther That the interests of the owner of the registered ,ar. are li.ely to be da,aged by s"ch "se%g( Is li.ely to ,islead the p"blic partic"larly as to the nat"re +"ality characteristics or geographical origin of the goods or ser!ices%h( Consists e#cl"si!ely of signs that are generic for the goods or ser!ices that they see. to identify%i( Consists e#cl"si!ely of signs or of indications that ha!e beco,e c"sto,ary or "s"al to designate the goods or ser!ices in e!eryday lang"age or in bona fide and established trade practice%1( Consists e#cl"si!ely of signs or of indications that ,ay ser!e in trade to designate the .ind +"ality +"antity intended p"rpose !al"e geographical origin ti,e or prod"ction of the goods or rendering of the ser!ices or other characteristics of the goods or ser!icesINTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 66D of 6<1 %.( Consists of shapes that ,ay be necessitated by technical factors or by the nat"re of the goods the,sel!es or factors
that affect their intrinsic !al"e%l( Consists of color alone "nless defined by a gi!en for,- or %,( Is contrary to p"blic order or ,orality. A ,ar. is !alid if it is distincti!e and hence not barred fro, registration "nder the Trade,ar. Law. 5owe!er once registered not only the ,ar.4s !alidity b"t also the registrant4s ownership thereof is pri,a facie pres",ed. <. Tests to Deter,ine Conf"sing 3i,ilarity Hetween Bar.s <.1. Colorable i,itation 3ociete des ;rod"its Nestlj 3.A. !. CA 6<? 3CRA 'FD :'FF1@ Colorable i,itation denotes s"ch a close or ingenio"s i,itation as to be calc"lated to decei!e ordinary persons or s"ch a rese,blance to the original as to decei!e an ordinary p"rchaser gi!ing s"ch attention as a p"rchaser "s"ally gi!es as to ca"se hi, to p"rchase the one s"pposing it to be the other. In ascertaining whether one ,ar. is conf"singly si,ilar to or is a colorable i,itation of another no set r"les can be ded"ced. Aach case ,"st be decided on its own ,erits. The co,ple#ities attendant to an acc"rate assess,ent of li.elihood of conf"sion re+"ire that the entire panoply of ele,ents constit"ting the rele!ant fact"al landscape be co,prehensi!ely e#a,ined. <.'. 5olistic test Del Bonte Corporation et al. !. CA 1E1 3CRA
=1F :1>>F@ To deter,ine whether a trade,ar. has been infringed we ,"st consider the ,ar. as a whole and not as dissected. If the b"yer is decei!ed it is attrib"table to the ,ar.s as a totality not "s"ally to any part of it. The co"rt therefore sho"ld be g"ided by its first i,pression for the b"yer acts +"ic.ly and is go!erned by a cas"al glance the !al"e of which ,ay be dissipated as soon as the co"rt ass",ed to analy$e caref"lly the respecti!e feat"res of the ,ar.. <.6. Test of do,inancy Asia Hrewery !. CA and 3an Big"el ''= 3CRA =6D :1>>6@ Infringe,ent is deter,ined by the test of Ldo,inancyM rather than by differences or !ariations in the details of one trade,ar. and of another. 3i,ilarity in si$e for, and color while rele!ant is not concl"si!e. If the co,peting trade,ar. contains the ,ain or essential or do,inant feat"res of another and conf"sion is li.ely to res"lt infringe,ent ta.es place. 3ociete Des ;rod"its Nestle 3.A. !. CA %'FF1( The totality or holistic test is contrary to the ele,entary post"late of the law on trade,ar.s and "nfair co,petition that conf"sing si,ilarity is to be deter,ined on the basis of !is"al a"ral connotati!e co,parisons and o!erall i,pressions engendered by the ,ar.s in contro!ersy as they are enco"ntered in the ,ar.etplace. The totality or
holistic test only relies on !is"al co,parisons between two trade,ar.s whereas the do,inancy test relies not only on the !is"al b"t also on the a"ral and connotati!e co,parisons and o!erall i,pressions between the two trade,ar.s. BcDonald4s Corporation !. L.C. Hig Ba. H"rger Inc. et al. =6D 3CRA 1F :'FF=@ This Co"rt ### has relied on the do,inancy test rather than the holistic test. The do,inancy test considers the do,inant feat"res in the co,peting ,ar.s in deter,ining whether they are conf"singly si,ilar. Under the do,inancy test co"rts gi!e greater weight to the si,ilarity of the appearance of the prod"ct arising fro, the adoption of the do,inant feat"res of the registered ,ar. disregarding ,inor differences. Co"rts will consider ,ore the a"ral and !is"al i,pressions created by the ,ar.s in the p"blic ,ind gi!ing little weight to factors li.e prices +"ality sales o"tlets and ,ar.et seg,ents. BcDonald4s Corp ! BACJOK 0astfood Corp %'FFD( Applying the do,inancy test to the instant case the Co"rt finds that herein petitioner4s LBCDONALD43M and respondent4s LBACJOKM ,ar.s are conf"singly si,ilar with each other s"ch that an ordinary p"rchaser can concl"de an association or relation between the ,ar.s. To begin with both ,ar.s "se the corporate LBM design logo and the prefi#es LBcM and2or LBacM as
do,inant feat"res. The first letter LBM in both ,ar.s p"ts e,phasis on the prefi#es LBcM and2or LBacM by the si,ilar way in which they are depicted i.e. in an arch/li.e capitali$ed and styli$ed ,anner. 0or s"re it is the prefi# LBc M an abbre!iation of LBac M which !is"ally and a"rally catches the attention of the cons",ing p"blic. Ierily the word LBACJOKM attracts attention the sa,e way as did LBcDonalds M LBac0ries M LBc3paghetti M LBcDo M LHig BacM and the rest of the BCDONALD43 ,ar.s which all "se the prefi#es Bc and2or Bac. Hesides and ,ost i,portantly both trade,ar.s are "sed in the sale of fastfood prod"cts. Indisp"tably the respondent4s trade,ar. application for the LBACJOK U DAIICAM trade,ar. co!ers goods "nder Classes '> and 6F of the International Classification of 8oods na,ely fried chic.en chic.en barbe+"e b"rgers fries spaghetti etc. Li.ewise the petitioner4s trade,ar. registration for the BCDONALD43 ,ar.s in the ;hilippines co!ers goods which are si,ilar if not identical to those co!ered by the respondent4s application. ?. 9ell/.nown Bar.s 3ec. 1'6.1. %e( Is identical with or conf"singly si,ilar to or constit"tes a translation of a ,ar. which is considered by the co,petent a"thority of the ;hilippines to be well/.nown internationally and in the ;hilippines whether or not it is registered here as being already the ,ar. of a person other than the applicant for registration and "sed for
identical or si,ilar goods or ser!ices) ;ro!ided That in deter,ining whether a ,ar. is well/.nown acco"nt shall be ta.en of the .nowledge of the INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 66E of 6<1 rele!ant sector of the p"blic rather than of the p"blic at large incl"ding .nowledge in the ;hilippines which has been obtained as a res"lt of the pro,otion of the ,ar.%f( Is identical with or conf"singly si,ilar to or constit"tes a translation of a ,ar. considered well.nown in accordance with the preceding paragraph which is registered in the ;hilippines with respect to goods or ser!ices which are not si,ilar to those with respect to which registration is applied for) ;ro!ided That "se of the ,ar. in relation to those goods or ser!ices wo"ld indicate a connection between those goods or ser!ices and the owner of the registered ,ar.) ;ro!ided f"rther That the interests of the owner of the registered ,ar. are li.ely to be da,aged by s"ch "se3ec. 1=D.'. The e#cl"si!e right of the owner of a well/.nown ,ar. defined in 3"bsection 1'6.1%e( which is registered in the ;hilippines shall e#tend to goods and ser!ices which are not si,ilar to those in respect of which the ,ar. is registered) ;ro!ided That "se of that ,ar. in relation to those goods or ser!ices wo"ld indicate a connection between those goods or ser!ices and the owner of the registered ,ar.) ;ro!ided f"rther That the
interests of the owner of the registered ,ar. are li.ely to be da,aged by s"ch "se. D. Registration D.1. Re+"ire,ents for Registration 3ec. 1'=. Re+"ire,ents of Application. / 1'=.1. The application for the registra %a( A re+"est for registrationtion of the ,ar. shall be in 0ilipino or in Anglish and shall contain the following) %b( The na,e and address of the applicant%c( The na,e of a 3tate of which the applicant is a national or where he has do,icile- and the na,e of a 3tate in which the applicant has a real and effecti!e ind"strial or co,,ercial establish,ent if any%d( 9here the applicant is a 1"ridical entity the law "nder which it is organi$ed and e#isting%e( The appoint,ent of an agent or representati!e if the applicant is not do,iciled in the ;hilippines%f( 9here the applicant clai,s the priority of an earlier application an indication of) 1( The na,e of the 3tate with whose national office the earlier application was filed or it filed with an office other than a
national office the na,e of that office '( The date on which the earlier application was filed and 6( 9here a!ailable the application n",ber of the earlier application%g( 9here the applicant clai,s color as a distincti!e feat"re of the ,ar. a state,ent to that effect as well as the na,e or na,es of the color or colors clai,ed and an indication in respect of each color of the principal parts of the ,ar. which are in that color%h( 9here the ,ar. is a threedi,ensional ,ar. a state,ent to that effect%i( One or ,ore reprod"ctions of the ,ar. as prescribed in the Reg"lations%1( A transliteration or translation of the ,ar. or of so,e parts of the ,ar. as prescribed in the Reg"lations%.( The na,es of the goods or ser!ices for which the registration is so"ght gro"ped according to the classes of the Nice Classification together with the n",ber of the class of the said Classification to which each gro"p of
goods or ser!ices belongs- and %l( A signat"re by or other selfidentification of the applicant or his representati!e. 1'=.'. The applicant or the registrant shall file a declaration of act"al "se of the ,ar. with e!idence to that effect as prescribed by the Reg"lations within three %6( years fro, the filing date of the application. Otherwise the application shall be ref"sed or the ,ar. shall be re,o!ed fro, the Register by the Director. 1'=.6. One %1( application ,ay relate to se!eral goods and2or ser!ices whether they belong to one %1( class or to se!eral classes of the Nice Classification. 1'=.=. If d"ring the e#a,ination of the application the Office finds fact"al basis to reasonably do"bt the !eracity of any indication or ele,ent in the application it ,ay re+"ire the applicant to s"b,it s"fficient e!idence to re,o!e the do"bt. %3ec. < RA 1??a( D.'. ;riority Right 3ec. 161. ;riority Right. / 161.1. An application for registration of a ,ar. filed in the ;hilippines by a person referred to in 3ection 6 and who pre!io"sly d"ly filed an application for registration of the sa,e ,ar. in one of those co"ntries shall be considered as
filed as of the day the application was first filed in the foreign co"ntry. 161.'. No registration of a ,ar. in the ;hilippines by a person described in this section shall be granted "ntil s"ch ,ar. has been registered in the co"ntry of origin of the applicant. 161.6. Nothing in this section shall entitle the owner of a registration granted "nder this section to s"e for acts co,,itted prior to the date on which his ,ar. was registered in this co"ntry) ;ro!ided That notwithstanding the foregoing the owner of a well/.nown ,ar. as defined in 3ection 1'6.1%e( of this Act that is not registered in the ;hilippines ,ay against an identical or conf"singly si,ilar ,ar. oppose its registration or petition the cancellation of its registration or s"e for "nfair co,petition INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 66> of 6<1 witho"t pre1"dice to a!ailing hi,self of other re,edies pro!ided for "nder the law. 161.=. In li.e ,anner and s"b1ect to the sa,e conditions and re+"ire,ents the right pro!ided in this section ,ay be based "pon a s"bse+"ent reg"larly filed application in the sa,e foreign co"ntry) ;ro!ided That any foreign application filed prior to s"ch s"bse+"ent application has been withdrawn abandoned or otherwise disposed of witho"t
ha!ing been laid open to p"blic inspection and witho"t lea!ing any rights o"tstanding and has not ser!ed nor thereafter shall ser!e as a basis for clai,ing a right of priority. %3ec. 6D RA 1??a( D.6. Classification of 8oods and 3er!ices 3ec. 1==. Classification of 8oods and 3er!ices. / 1==.1. Aach registration and any p"blication of the Office which concerns an application or registration effected by the Office shall indicate the goods or ser!ices by their na,es gro"ped according to the classes of the Nice Classification and each gro"p shall be preceded by the n",ber of the class of that Classification to which that gro"p of goods or ser!ices belongs presented in the order of the classes of the said Classification. 1==.'. 8oods or ser!ices ,ay not be considered as being si,ilar or dissi,ilar to each other on the gro"nd that in any registration or p"blication by the Office they appear in different classes of the Nice Classification. %3ec. ? RA 1??a( D.=.Registration ;roced"re 3ec. 16'. Application N",ber and 0iling Date. / 16'.1. The Office shall e#a,ine whether the application satisfies the re+"ire,ents for the grant of a filing date as pro!ided in 3ection 1'D and Reg"lations relating thereto. If the application does not satisfy the filing
re+"ire,ents the Office shall notify the applicant who shall within a period fi#ed by the Reg"lations co,plete or correct the application as re+"ired otherwise the application shall be considered withdrawn. 16'.'. Once an application ,eets the filing re+"ire,ents of 3ection 1'D it shall be n",bered in the se+"ential order and the applicant shall be infor,ed of the application n",ber and the filing date of the application will be dee,ed to ha!e been abandoned. 3ec. 166. A#a,ination and ;"blication. / 166.1. Once the application ,eets the filing re+"ire,ents of 3ection 1'D the Office shall e#a,ine whether the application ,eets the re+"ire,ents of 3ection 1'= and the ,ar. as defined in 3ection 1'1 is registrable "nder 3ection 1'6. 166.'. 9here the Office finds that the conditions referred to in 3"bsection 166.1 are f"lfilled it shall "pon pay,ent of the prescribed fee. 0orthwith ca"se the application as filed to be p"blished in the prescribed ,anner. 166.6. If after the e#a,ination the applicant is not entitled to registration for any reason the Office shall ad!ise the applicant thereof and the reasons therefor. The applicant shall ha!e a period of fo"r %=( ,onths in which to reply or a,end his application which shall then be ree#a,ined.
The Reg"lations shall deter,ine the proced"re for the re/e#a,ination or re!i!al of an application as well as the appeal to the Director of Trade,ar.s fro, any final action by the A#a,iner. 166.=. An abandoned application ,ay be re!i!ed as a pending application within three %6( ,onths fro, the date of abandon,ent "pon good ca"se shown and the pay,ent of the re+"ired fee. 166.<. The final decision of ref"sal of the Director of Trade,ar.s shall be appealable to the Director 8eneral in accordance with the proced"re fi#ed by the Reg"lations. %3ec. D RA 1??a( 3ec. 16=. Opposition. / Any person who belie!es that he wo"ld be da,aged by the registration of a ,ar. ,ay "pon pay,ent of the re+"ired fee and within thirty %6F( days after the p"blication referred to in 3"bsection 166.' file with the Office an opposition to the application. 3"ch opposition shall be in writing and !erified by the oppositor or by any person on his behalf who .nows the facts and shall specify the gro"nds on which it is based and incl"de a state,ent of the facts relied "pon. Copies of certificates of registration of ,ar.s registered in other co"ntries or other s"pporting doc",ents ,entioned in the opposition shall be filed therewith together with the translation in Anglish if not in the Anglish lang"age. 0or good
ca"se shown and "pon pay,ent of the re+"ired s"rcharge the ti,e for filing an opposition ,ay be e#tended by the Director of Legal Affairs who shall notify the applicant of s"ch e#tension. The Reg"lations shall fi# the ,a#i,", period of ti,e within which to file the opposition. %3ec. E RA 1?<a( 3ec. 16<. Notice and 5earing. / Upon the filing of an opposition the Office shall ser!e notice of the filing on the applicant and of the date of the hearing thereof "pon the applicant and the oppositor and all other persons ha!ing any right title or interest in the ,ar. co!ered by the application as appear of record in the Office. %3ec. > RA 1?<( 3ec. 16?. Iss"ance and ;"blication of Certificate. / 9hen the period for filing the opposition has e#pired or when the Director of Legal Affairs shall ha!e denied the opposition the Office "pon pay,ent of the re+"ired fee shall iss"e the certificate of registration. Upon iss"ance of a certificate of registration notice thereof ,a.ing reference to the p"blication of the application shall be p"blished in the I;O 8a$ette. %3ec. 1F RA 1?<( 3ec. 16E. Certificates of Registration. / A certificate of registration of a ,ar. shall be pri,a facie e!idence of the !alidity of the registration the INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6=F of 6<1 registrant4s ownership of the ,ar. and of the
registrant4s e#cl"si!e right to "se the sa,e in connection with the goods or ser!ices and those that are related thereto specified in the certificate. %3ec. 'F RA 1?<( D.<. D"ration of Registration 3ec. 1=<. D"ration./ A certificate of registration shall re,ain in force for ten %1F( years) ;ro!ided That the registrant shall file a declaration of act"al "se and e!idence to that effect or shall show !alid reasons based on the e#istence of obstacles to s"ch "se as prescribed by the Reg"lations within one %1( year fro, the fifth anni!ersary of the date of the registration of the ,ar.. Otherwise the ,ar. shall be re,o!ed fro, the Register by the Office. %3ec. 1' RA 1??a( 3ec. 1=?. Renewal. / 1=?.1. A certificate of registration ,ay be renewed for periods of ten %1F( years at its e#piration "pon pay,ent of the prescribed fee and "pon filing of a re+"est. The re+"est shall contain the following indications) %a( An indication that renewal is so"ght%b( The na,e and address of the registrant or his s"ccessor/ininterest hereafter referred to as the Tright holderT%c( The registration n",ber of the registration concerned%d( The filing date of the application which res"lted in the registration
concerned to be renewed%e( 9here the right holder has a representati!e the na,e and address of that representati!e%f( The na,es of the recorded goods or ser!ices for which the renewal is re+"ested or the na,es of the recorded goods or ser!ices for which the renewal is not re+"ested gro"ped according to the classes of the Nice Classification to which that gro"p of goods or ser!ices belongs and presented in the order of the classes of the said Classification- and %g( A signat"re by the right holder or his representati!e. 1=?.'. 3"ch re+"est shall be in 0ilipino or Anglish and ,ay be ,ade at any ti,e within si# %?( ,onths before the e#piration of the period for which the registration was iss"ed or renewed or it ,ay be ,ade within si# %?( ,onths after s"ch e#piration on pay,ent of the additional fee herein prescribed. 1=?.6. If the Office ref"ses to renew the registration it shall notify the registrant of his ref"sal and the reasons therefor. 1=?.=. An applicant for renewal not do,iciled in the ;hilippines shall be s"b1ect to and co,ply with the re+"ire,ents of this Act. %3ec. 1< RA 1??a( D.?. Rights Conferred by Registration
3ec. 1=D. Rights Conferred. / 1=D.1. The owner of a registered ,ar. shall ha!e the e#cl"si!e right to pre!ent all third parties not ha!ing the owner4s consent fro, "sing in the co"rse of trade identical or si,ilar signs or containers for goods or ser!ices which are identical or si,ilar to those in respect of which the trade,ar. is registered where s"ch "se wo"ld res"lt in a li.elihood of conf"sion. In case of the "se of an identical sign for identical goods or ser!ices a li.elihood of conf"sion shall be pres",ed. 1=D.'. The e#cl"si!e right of the owner of a well/.nown ,ar. defined in 3"bsection 1'6.1%e( which is registered in the ;hilippines shall e#tend to goods and ser!ices which are not si,ilar to those in respect of which the ,ar. is registered) ;ro!ided That "se of that ,ar. in relation to those goods or ser!ices wo"ld indicate a connection between those goods or ser!ices and the owner of the registered ,ar.) ;ro!ided f"rther That the interests of the owner of the registered ,ar. are li.ely to be da,aged by s"ch "se. D.D. ;rotection li,ited to goods specified in registration certificate 0aberge Inc. !. IAC and Co Heng Ray '1< 3CRA 61? :1>>'@ The certificate of registration can confer "pon the petitioner the e#cl"si!e right to "se its own sy,bol
only to those goods specified in the certificate s"b1ect to any conditions a li,itations stated therein. One who has adopted and "sed a trade,ar. on his goods does not pre!ent the adoption and "se of the sa,e trade,ar. by others for prod"cts which are of a different description. E. Infringe,ent and Re,edies 3ec. 1<<. Re,edies- Infringe,ent. / Any person who shall witho"t the consent of the owner of the registered ,ar.) 1<<.1. Use in co,,erce any reprod"ction co"nterfeit copy or colorable i,itation of a registered ,ar. or the sa,e container or a do,inant feat"re thereof in connection with the sale offering for sale distrib"tion ad!ertising of any goods or ser!ices incl"ding other preparatory steps necessary to carry o"t the sale of any goods or ser!ices on or in connection with which s"ch "se is li.ely to ca"se conf"sion or to ca"se ,ista.e or to decei!e- or 1<<.'. Reprod"ce co"nterfeit copy or colorably i,itate a registered ,ar. or a do,inant feat"re thereof and apply s"ch reprod"ction co"nterfeit copy or colorable i,itation to labels signs prints pac.ages wrappers receptacles or ad!ertise,ents intended to be "sed in co,,erce "pon or in connection with the sale offering for sale distrib"tion or ad!ertising of goods or ser!ices
on or in connection with which s"ch "se is li.ely to ca"se conf"sion or to ca"se ,ista.e or to decei!e shall be liable in a ci!il action for infringe,ent by the registrant for the re,edies hereinafter set forth) ;ro!ided That the INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6=1 of 6<1 infringe,ent ta.es place at the ,o,ent any of the acts stated in 3"bsection 1<<.1. or this s"bsection are co,,itted regardless of whether there is act"al sale of goods or ser!ices "sing the infringing ,aterial. %3ec. '' RA No 1??a( 3ec. 1<?. Actions and Da,ages and In1"nction for Infringe,ent. / 1<?.1. The owner of a registered ,ar. ,ay reco!er da,ages fro, any person who infringes his rights and the ,eas"re of the da,ages s"ffered shall be either the reasonable profit which the co,plaining party wo"ld ha!e ,ade had the defendant not infringed his rights or the profit which the defendant act"ally ,ade o"t of the infringe,ent or in the e!ent s"ch ,eas"re of da,ages cannot be readily ascertained with reasonable certainty then the co"rt ,ay award as da,ages a reasonable percentage based "pon the a,o"nt of gross sales of the defendant or the !al"e of the ser!ices in connection with which the ,ar. or trade na,e
was "sed in the infringe,ent of the rights of the co,plaining party. %3ec. '6 0irst ;ar. RA 1??a( 1<?.'. On application of the co,plainant the co"rt ,ay i,po"nd d"ring the pendency of the action sales in!oices and other doc",ents e!idencing sales. 1<?.6. In cases where act"al intent to ,islead the p"blic or to defra"d the co,plainant is shown in the discretion of the co"rt the da,ages ,ay be do"bled. %3ec. '6 0irst ;ar. RA 1??( 1<?.=. The co,plainant "pon proper showing ,ay also be granted in1"nction. %3ec. '6 3econd ;ar. RA 1??a( 3ec. 1<D. ;ower of Co"rt to Order Infringing Baterial Destroyed. / 1<D.1. In any action arising "nder this Act in which a !iolation of any right of the owner of the registered ,ar. is established the co"rt ,ay order that goods fo"nd to be infringing be witho"t co,pensation of any sort disposed of o"tside the channels of co,,erce in s"ch a ,anner as to a!oid any har, ca"sed to the right holder or destroyed- and all labels signs prints pac.ages wrappers receptacles and ad!ertise,ents in the possession of the defendant bearing the registered ,ar. or trade na,e or any reprod"ction co"nterfeit copy or colorable i,itation thereof all plates
,olds ,atrices and other ,eans of ,a.ing the sa,e shall be deli!ered "p and destroyed. 1<D.'. In regard to co"nterfeit goods the si,ple re,o!al of the trade,ar. affi#ed shall not be s"fficient other than in e#ceptional cases which shall be deter,ined by the Reg"lations to per,it the release of the goods into the channels of co,,erce. %3ec. '= RA 1??a(. 3ec. 1DF. ;enalties. / Independent of the ci!il and ad,inistrati!e sanctions i,posed by law a cri,inal penalty of i,prison,ent fro, two %'( years to fi!e %<( years and a fine ranging fro, 0ifty tho"sand pesos %;<F FFF( to Two h"ndred tho"sand pesos %;'FF FFF( shall be i,posed on any person who is fo"nd g"ilty of co,,itting any of the acts ,entioned in 3ection 1<< 3ection 1?E and 3"bsection 1?>.1. %Arts. 1EE and 1E> Re!ised ;enal Code( 3ec. 1<>. Li,itations to Actions for Infringe,ent. / Notwithstanding any other pro!ision of this Act the re,edies gi!en to the owner of a right infringed "nder this Act shall be li,ited as follows) 1<>.1. Notwithstanding the pro!isions of 3ection 1<< hereof a registered ,ar. shall ha!e no effect against any person who in good faith before the filing date or the priority date was "sing the ,ar. for the p"rposes of his b"siness or enterprise) ;ro!ided That his right ,ay only be transferred or assigned together with his enterprise or b"siness or with that part
of his enterprise or b"siness in which the ,ar. is "sed. 1<>.'. 9here an infringer who is engaged solely in the b"siness of printing the ,ar. or other infringing ,aterials for others is an innocent infringer the owner of the right infringed shall be entitled as against s"ch infringer only to an in1"nction against f"t"re printing. 1<>.6. 9here the infringe,ent co,plained of is contained in or is part of paid ad!ertise,ent in a newspaper ,aga$ine or other si,ilar periodical or in an electronic co,,"nication the re,edies of the owner of the right infringed as against the p"blisher or distrib"tor of s"ch newspaper ,aga$ine or other si,ilar periodical or electronic co,,"nication shall be li,ited to an in1"nction against the presentation of s"ch ad!ertising ,atter in f"t"re iss"es of s"ch newspapers ,aga$ines or other si,ilar periodicals or in f"t"re trans,issions of s"ch electronic co,,"nications. The li,itations of this s"bparagraph shall apply only to innocent infringers) ;ro!ided That s"ch in1"ncti!e relief shall not be a!ailable to the owner of the right infringed with respect to an iss"e of a newspaper ,aga$ine or other si,ilar periodical or an electronic co,,"nication containing infringing ,atter where restraining
the disse,ination of s"ch infringing ,atter in any partic"lar iss"e of s"ch periodical or in an electronic co,,"nication wo"ld delay the deli!ery of s"ch iss"e or trans,ission of s"ch electronic co,,"nication is c"sto,arily cond"cted in accordance with the so"nd b"siness practice and not d"e to any ,ethod or de!ice adopted to e!ade this section or to pre!ent or delay the iss"ance of an in1"nction or restraining order with respect to s"ch infringing ,atter. Bighty Corporation !. A. U J. 8allo 9inery =6= 3CRA =D6 :'FF=@ A cr"cial iss"e in any trade,ar. infringe,ent case is the li.elihood of conf"sion ,ista.e or deceit as to the identity so"rce or origin of the goods or identity of the b"siness as a conse+"ence of "sing a certain ,ar.. Li.elihood of conf"sion is ad,ittedly a relati!e ter, to be deter,ined rigidly INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6=' of 6<1 according to the partic"lar %and so,eti,es pec"liar( circ",stances of each case. In deter,ining li.elihood of conf"sion the co"rt ,"st consider) :a@ the rese,blance between the trade,ar.s- :b@ the si,ilarity of the goods to which the trade,ar.s are attached- :c@ the li.ely effect on the p"rchaser- and :d@ the registrant4s e#press or i,plied consent and other fair and e+"itable considerations.
BcDonald4s Corporation !. L.C. Hig Ba. H"rger Inc. et al. =6D 3CRA 1F :'FF=@ To establish trade,ar. infringe,ent the following ele,ents ,"st be shown) :1@ the !alidity of the ,ar.- :'@ the plaintiff4s ownership of the ,ar.and :6@ the "se of the ,ar. or its colorable i,itation by the alleged infringer res"lts in Lli.elihood of conf"sion.M Of these it is the ele,ent of li.elihood of conf"sion that is the gra!a,en of trade,ar. infringe,ent. Two types of conf"sion arise fro, the "se of si,ilar or colorable i,itation ,ar.s na,ely conf"sion of goods %prod"ct conf"sion( and conf"sion of b"siness %Lso"rce or origin conf"sion(. 9hile there is conf"sion of goods when the prod"cts are co,peting conf"sion of b"siness e#ists when the prod"cts are nonco,peting b"t related eno"gh to prod"ce conf"sion of affiliation. Canon Rab"shi.i Raisha !. CA et al. 66? 3CRA '?? :'FFF@ The li.elihood of conf"sion of goods or b"siness is a relati!e concept to be deter,ined according to the partic"lar and so,eti,es pec"liar circ",stances of each case. In cases of conf"sion of b"siness or origin the +"estion that "s"ally arises is whether the respecti!e goods or ser!ices of the senior "ser and the 1"nior "ser are so related as to li.ely ca"se conf"sion of b"siness or origin and thereby render the trade,ar. or tradena,es conf"singly si,ilar. 8oods are related when they belong to the sa,e
class or ha!e the sa,e descripti!e propertieswhen they possess the sa,e physical attrib"tes or essential characteristics with reference to their for, co,position te#t"re or +"ality. They ,ay also be related beca"se they ser!e the sa,e p"rpose or are sold thro"gh the sa,e channels of distrib"tion. 3a,son !. Daway =6= 3CRA ?1' :'FF=@ R.A. No. E'>6 and R.A. No. 1?? are special laws conferring 1"risdiction o!er !iolations of intellect"al property rights to the Regional Trial Co"rt. They sho"ld therefore pre!ail o!er R.A. No. D?>1 which is a general law. 5ence 1"risdiction is properly lodged with the Regional Trial Co"rt e!en if the penalty therefore is i,prison,ent of less than si# years or fro, ' to < years and a fine ranging fro, ;<F FFF to ;'FF FFF. E.1. Notice Re+"ire,ent 3ec. 1<E. Da,ages- Re+"ire,ent of Notice. / In any s"it for infringe,ent the owner of the registered ,ar. shall not be entitled to reco!er profits or da,ages "nless the acts ha!e been co,,itted with .nowledge that s"ch i,itation is li.ely to ca"se conf"sion or to ca"se ,ista.e or to decei!e. 3"ch .nowledge is pres",ed if the registrant gi!es notice that his ,ar. is registered by displaying with the ,ar. the words TRegistered Bar.T or the letter R within a circle or if the defendant had otherwise act"al notice of the registration. %3ec. '1 RA 1??a(
>. Unfair Co,petition 3ec. 1?E. Unfair Co,petition Rights Reg"lation and Re,edies. / 1?E.1. A person who has identified in the ,ind of the p"blic the goods he ,an"fact"res or deals in his b"siness or ser!ices fro, those of others whether or not a registered ,ar. is e,ployed has a property right in the goodwill of the said goods b"siness or ser!ices so identified which will be protected in the sa,e ,anner as other property rights. 1?E.'. Any person who shall e,ploy deception or any other ,eans contrary to good faith by which he shall pass off the goods ,an"fact"red by hi, or in which he deals or his b"siness or ser!ices for those of the one ha!ing established s"ch goodwill or who shall co,,it any acts calc"lated to prod"ce said res"lt shall be g"ilty of "nfair co,petition and shall be s"b1ect to an action therefor. 1?E.6. In partic"lar and witho"t in any way li,iting the scope of protection against "nfair co,petition the following shall be dee,ed g"ilty of "nfair co,petition) %a( Any person who is selling his goods and gi!es the, the general appearance of goods of another ,an"fact"rer or dealer either as to the goods the,sel!es or in the wrapping of the pac.ages in which
they are contained or the de!ices or words thereon or in any other feat"re of their appearance which wo"ld be li.ely to infl"ence p"rchasers to belie!e that the goods offered are those of a ,an"fact"rer or dealer other than the act"al ,an"fact"rer or dealer or who otherwise clothes the goods with s"ch appearance as shall decei!e the p"blic and defra"d another of his legiti,ate trade or any s"bse+"ent !endor of s"ch goods or any agent of any !endor engaged in selling s"ch goods with a li.e p"rpose%b( Any person who by any artifice or de!ice or who e,ploys any other ,eans calc"lated to ind"ce the false belief that s"ch person is offering the ser!ices of another who has identified s"ch ser!ices in the ,ind of the p"blic- or %c( Any person who shall ,a.e any false state,ent in the co"rse of trade or who shall co,,it any other act contrary to good faith of a nat"re calc"lated to discredit the goods b"siness or ser!ices of another. 1?E.=. The re,edies pro!ided by 3ections 1<? 1<D and 1?1 shall apply ,"tatis ,"tandis. %3ec. '> RA 1??a(
INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6=6 of 6<1 Del Bonte Corporation et al. !. CA 1E1 3CRA =1F :1>>F@ The following are the distinctions between infringe,ent of trade,ar. and "nfair co,petition) 1. Infringe,ent of trade,ar. is the "na"thori$ed "se of a trade,ar. whereas "nfair co,petition is the passing off of one4s goods as those of another. '. In infringe,ent of trade,ar. fra"d"lent intent is "nnecessary whereas in "nfair co,petition fra"d"lent intent is essential. 6. In infringe,ent of trade,ar. the prior registration of the trade,ar. is a prere+"isite to the action whereas in "nfair co,petition registration is not necessary. Bighty Corporation !. A. U J. 8allo 9inery =6= 3CRA =D6 :'FF=@ The law on "nfair co,petition is broader and ,ore incl"si!e than the law on trade,ar. infringe,ent. The latter is ,ore li,ited b"t it recogni$es a ,ore e#cl"si!e right deri!ed fro, the trade,ar. adoption and registration by the person whose goods or b"siness is first associated with it. 5ence e!en if one fails to establish his e#cl"si!e property right to a trade,ar. he ,ay still obtain relief on the gro"nd of his co,petitor4s "nfairness or fra"d. Cond"ct constit"tes "nfair co,petition if the effect is to pass off on the p"blic the goods of one ,an as
the goods of another. BcDonald4s Corporation !. L.C. Hig Ba. H"rger Inc. et al. =6D 3CRA 1F :'FF=@ The ele,ents of an action for "nfair co,petition are) :1@ conf"sing si,ilarity in the general appearance of the goods and :'@ intent to decei!e the p"blic and defra"d a co,petitor. The conf"sing si,ilarity ,ay or ,ay not res"lt fro, si,ilarity in the ,ar.s b"t ,ay res"lt fro, other e#ternal factors in the pac.aging or presentation of the goods. The intent to decei!e and defra"d ,ay be inferred fro, the si,ilarity in appearance of the goods as offered for sale to the p"blic. Act"al fra"d"lent intent need not be shown. Caterpillar Inc !. 3a,son %'FF?( An action for "nfair co,petition is based on the proposition that no dealer in ,erchandise sho"ld be allowed to dress his goods in si,"lation of the goods of another dealer so that p"rchasers desiring to b"y the goods of the latter wo"ld be ind"ced to b"y the goods of the for,er. The ,ost "s"al de!ices e,ployed in co,,itting this cri,e are the si,"lation of labels and the reprod"ction of for, color and general appearance of the pac.age "sed by the pioneer ,an"fact"rer or dealer. Chapter I. CO;KRI85T3 1. Hasic ;rinciples 1. 9or.s are protected by the sole fact of their creation.
3ec. 1D'.'. 9or.s are protected by the sole fact of their creation irrespecti!e of their ,ode or for, of e#pression as well as of their content +"ality and p"rpose. %3ec. ' ;D No. =>a( '. ;rotection e#tends only to the e#pression of an idea not the idea itself. 3ec. 1D<. Unprotected 3"b1ect Batter. / Notwithstanding the pro!isions of 3ections 1D' and 1D6 no protection shall e#tend "nder this law to any idea proced"re syste, ,ethod or operation concept principle disco!ery or ,ere data as s"ch e!en if they are e#pressed e#plained ill"strated or e,bodied in a wor.- ### ### ### '. Definition 3ec. 1DD. Copy or Acono,ic Rights. / 3"b1ect to the pro!isions of Chapter IIII copyright or econo,ic rights shall consist of the e#cl"si!e right to carry o"t a"thori$e or pre!ent the following acts) 1DD.1. Reprod"ction of the wor. or s"bstantial portion of the wor.1DD.'. Dra,ati$ation translation adaptation abridg,ent arrange,ent or other transfor,ation of the wor.1DD.6. The first p"blic distrib"tion of the original and each copy of the wor. by sale or other for,s of transfer of ownership1DD.=. Rental of the original or a copy of an a"dio!is"al or cine,atographic wor. a wor.
e,bodied in a so"nd recording a co,p"ter progra, a co,pilation of data and other ,aterials or a ,"sical wor. in graphic for, irrespecti!e of the ownership of the original or the copy which is the s"b1ect of the rental1DD.<. ;"blic display of the original or a copy of the wor.1DD.?. ;"blic perfor,ance of the wor.- and 1DD.D. Other co,,"nication to the p"blic of the wor. %3ec. < ;D No. =>a( 6. Copyrightable 9or.s 3ec. 1D'. Literary and Artistic 9or.s. / 1D'.1. Literary and artistic wor.s hereinafter referred to as Twor.sT are original intellect"al creations in the literary and artistic do,ain protected fro, the ,o,ent of their creation and shall incl"de in partic"lar) %a( Hoo.s pa,phlets articles and other writings%b( ;eriodicals and newspapers%c( Lect"res ser,ons addresses dissertations prepared for oral deli!ery whether or not red"ced in writing or other ,aterial for,%d( LettersINTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6== of 6<1 %e( Dra,atic or dra,atico/,"sical co,positions- choreographic wor.s or entertain,ent in d",b shows-
%f( B"sical co,positions with or witho"t words%g( 9or.s of drawing painting architect"re sc"lpt"re engra!ing lithography or other wor.s of art,odels or designs for wor.s of art%h( Original orna,ental designs or ,odels for articles of ,an"fact"re whether or not registrable as an ind"strial design and other wor.s of applied art%i( Ill"strations ,aps plans s.etches charts and three/di,ensional wor.s relati!e to geography topography architect"re or science%1( Drawings or plastic wor.s of a scientific or technical character%.( ;hotographic wor.s incl"ding wor.s prod"ced by a process analogo"s to photography- lantern slides%l( A"dio!is"al wor.s and cine,atographic wor.s and wor.s prod"ced by a process analogo"s to cine,atography or any process for ,a.ing a"dio/!is"al recordings%,( ;ictorial ill"strations and ad!ertise,ents%n( Co,p"ter progra,s- and %o( Other literary scholarly scientific and artistic wor.s.
3ec. 1D6. Deri!ati!e 9or.s. / 1D6.1. The following deri!ati!e wor.s shall also be protected by copyright) %a( Dra,ati$ations translations adaptations abridg,ents arrange,ents and other alterations of literary or artistic wor.s- and %b( Collections of literary scholarly or artistic wor.s and co,pilations of data and other ,aterials which are original by reason of the selection or coordination or arrange,ent of their contents. %3ec. ' :;@ and :Q@ ;D No. =>( 1D6.'. The wor.s referred to in paragraphs %a( and %b( of 3"bsection 1D6.1 shall be protected as a new wor.s) ;ro!ided howe!er That s"ch new wor. shall not affect the force of any s"bsisting copyright "pon the original wor.s e,ployed or any part thereof or be constr"ed to i,ply any right to s"ch "se of the original wor.s or to sec"re or e#tend copyright in s"ch original wor.s. %3ec. E ;D =>- Art. 1F TRI;3( 3ec. 1D=. ;"blished Adition of 9or.. / In addition to the right to p"blish granted by the a"thor his heirs or assigns the p"blisher shall ha!e a copy right consisting ,erely of the right of reprod"ction of the typographical arrange,ent of the p"blished edition of the wor.. 6.1. 0or,at of a show not copyrightable
Joa+"in Jr. et al. !. Drilon et al. 6F' 3CRA ''< :1>>>@ The for,at of a show is not copyrightable. 3ection ' of ;D No. => otherwise .nown as the Decree on Intellect"al ;roperty en",erates the classes of wor. entitled to copyright protection. This pro!ision is s"bstantially the sa,e as 3ection 1D' of the Intellect"al ;roperty Code %R.A. No. E'>6(. The for,at or ,echanics of a tele!ision show is not incl"ded in the list of protected wor.s. 0or this reason the protection afforded by the law cannot be e#tended to co!er the,. Copyright in the strict sense of the ter, is p"rely a stat"tory right. Heing a stat"tory grant the rights are only s"ch as the stat"te confers and ,ay be obtained and en1oyed only with respect to the s"b1ects and by the persons and on ter,s and conditions specified in the stat"te. =. Non/copyrightable 9or.s %1D< 1D?( 3ec. 1D<. Unprotected 3"b1ect Batter. / Notwithstanding the pro!isions of 3ections 1D' and 1D6 no protection shall e#tend "nder this law to any idea proced"re syste, ,ethod or operation concept principle disco!ery or ,ere data as s"ch e!en if they are e#pressed e#plained ill"strated or e,bodied in a wor.- news of the day and other ,iscellaneo"s facts ha!ing the character of ,ere ite,s of press infor,ation- or any official te#t of a legislati!e ad,inistrati!e or legal nat"re as well as any official translation thereof.
3ec. 1D?. 9or.s of the 8o!ern,ent. / 1D?.1. No copyright shall s"bsist in any wor. of the 8o!ern,ent of the ;hilippines. 5owe!er prior appro!al of the go!ern,ent agency or office wherein the wor. is created shall be necessary for e#ploitation of s"ch wor. for profit. 3"ch agency or office ,ay a,ong other things i,pose as a condition the pay,ent of royalties. No prior appro!al or conditions shall be re+"ired for the "se of any p"rpose of stat"tes r"les and reg"lations and speeches lect"res ser,ons addresses and dissertations prono"nced read or rendered in co"rts of 1"stice before ad,inistrati!e agencies in deliberati!e asse,blies and in ,eetings of p"blic character. %3ec. > 0irst ;ar. ;D No. =>( 1D?.'. The A"thor of speeches lect"res ser,ons addresses and dissertations ,entioned in the preceding paragraphs shall ha!e the e#cl"si!e right of ,a.ing a collection of his wor.s. 1D?.6. Notwithstanding the foregoing pro!isions the 8o!ern,ent is not precl"ded fro, recei!ing and holding copyrights transferred to it by assign,ent be+"est or otherwise- nor shall p"blication or rep"blication by the go!ern,ent in a p"blic doc",ent of any wor. in which copy right is s"bsisting be ta.en to ca"se any abridg,ent or ann"l,ent of the
copyright or to a"thori$e any "se or appropriation of s"ch wor. witho"t the consent of the copyright owners. %3ec. > Third ;ar. ;D No. =>( <. 3tandard for Copyright ;rotection Ching Rian Ch"an !. Co"rt of Appeals 6?6 3CRA 1=' :'FF1@ INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6=< of 6<1 A person to be entitled to a copyright ,"st be the original creator of the wor.. 5e ,"st ha!e created it by his own s.ill labor and 1"dg,ent witho"t directly copying or e!asi!ely i,itating the wor. of another. Ching ! 3alinas %'FF<( Ownership of copyrighted ,aterial is shown by proof of originality and copyrightability. Hy originality is ,eant that the ,aterial was not copied and e!idences at least ,ini,al creati!itythat it was independently created by the a"thor and that it possesses at least sa,e ,ini,al degree of creati!ity. Copying is shown by proof of access to copyrighted ,aterial and s"bstantial si,ilarity between the two wor.s. The applicant ,"st th"s de,onstrate the e#istence and the !alidity of his copyright beca"se in the absence of copyright protection e!en original creation ,ay be freely copied. ?. Acono,ic Rights 3ec. 1DD. Copy or Acono,ic Rights. / 3"b1ect to
the pro!isions of Chapter IIII copyright or econo,ic rights shall consist of the e#cl"si!e right to carry o"t a"thori$e or pre!ent the following acts) 1DD.1. Reprod"ction of the wor. or s"bstantial portion of the wor.1DD.'. Dra,ati$ation translation adaptation abridg,ent arrange,ent or other transfor,ation of the wor.1DD.6. The first p"blic distrib"tion of the original and each copy of the wor. by sale or other for,s of transfer of ownership1DD.=. Rental of the original or a copy of an a"dio!is"al or cine,atographic wor. a wor. e,bodied in a so"nd recording a co,p"ter progra, a co,pilation of data and other ,aterials or a ,"sical wor. in graphic for, irrespecti!e of the ownership of the original or the copy which is the s"b1ect of the rental1DD.<. ;"blic display of the original or a copy of the wor.1DD.?. ;"blic perfor,ance of the wor.- and 1DD.D. Other co,,"nication to the p"blic of the wor. %3ec. < ;D No. =>a( D. Droit de 3"ite 3ec. 'FF. 3ale or Lease of 9or.. / In e!ery sale or lease of an original wor. of painting or sc"lpt"re or of the original ,an"script of a writer or co,poser s"bse+"ent to the first disposition thereof by the a"thor the a"thor or his heirs shall ha!e an
inalienable right to participate in the gross proceeds of the sale or lease to the e#tent of fi!e percent %<G(. This right shall e#ist d"ring the lifeti,e of the a"thor and for fifty %<F( years after his death. %3ec. 61 ;D No. =>( 3ec. 'F1. 9or.s Not Co!ered. / The pro!isions of this Chapter shall not apply to prints etchings engra!ings wor.s of applied art or wor.s of si,ilar .ind wherein the a"thor pri,arily deri!es gain fro, the proceeds of reprod"ctions. %3ec. 66 ;D No. =>( E. Boral Rights 3ec. 1>6. 3cope of Boral Rights. / The a"thor of a wor. shall independently of the econo,ic rights in 3ection 1DD or the grant of an assign,ent or license with respect to s"ch right ha!e the right) 1>6.1. To re+"ire that the a"thorship of the wor.s be attrib"ted to hi, in partic"lar the right that his na,e as far as practicable be indicated in a pro,inent way on the copies and in connection with the p"blic "se of his wor.1>6.'. To ,a.e any alterations of his wor. prior to or to withhold it fro, p"blication1>6.6. To ob1ect to any distortion ,"tilation or other ,odification of or other derogatory action in relation to his wor. which wo"ld be pre1"dicial to his honor or rep"tation- and 1>6.=. To restrain the "se of his na,e with respect to any wor. not of his own creation or
in a distorted !ersion of his wor.. %3ec. 6= ;D No. =>( >. Ownership of Copyright 3ec. 1DE. R"les on Copyright Ownership. / Copyright ownership shall be go!erned by the following r"les) 1DE.1. 3"b1ect to the pro!isions of this section in the case of original literary and artistic wor.s copyright shall belong to the a"thor of the wor.1DE.'. In the case of wor.s of 1oint a"thorship the co/a"thors shall be the original owners of the copyright and in the absence of agree,ent their rights shall be go!erned by the r"les on co/ownership. If howe!er a wor. of 1oint a"thorship consists of parts that can be "sed separately and the a"thor of each part can be identified the a"thor of each part shall be the original owner of the copyright in the part that he has created1DE.6. In the case of wor. created by an a"thor d"ring and in the co"rse of his e,ploy,ent the copyright shall belong to) %a( The e,ployee if the creation of the ob1ect of copyright is not a part of his reg"lar d"ties e!en if the e,ployee "ses the ti,e facilities and ,aterials of the e,ployer. %b( The e,ployer if the wor. is the res"lt of the perfor,ance of his reg"larlyassigned
d"ties "nless there is an agree,ent e#press or i,plied to the contrary. 1DE.=. In the case of a wor./co,,issioned by a person other than an e,ployer of the a"thor and who pays for it and the wor. is ,ade in p"rs"ance of the co,,ission the person who so co,,issioned the wor. shall ha!e INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6=? of 6<1 ownership of wor. b"t the copyright thereto shall re,ain with the creator "nless there is a written stip"lation to the contrary1DE.<. In the case of a"dio!is"al wor. the copyright shall belong to the prod"cer the a"thor of the scenario the co,poser of the ,"sic the fil, director and the a"thor of the wor. so adapted. 5owe!er s"b1ect to contrary or other stip"lations a,ong the creators the prod"cers shall e#ercise the copyright to an e#tent re+"ired for the e#hibition of the wor. in any ,anner e#cept for the right to collect perfor,ing license fees for the perfor,ance of ,"sical co,positions with or witho"t words which are incorporated into the wor.- and 1DE.?. In respect of letters the copyright shall belong to the writer s"b1ect to the pro!isions of Article D'6 of the Ci!il Code. %3ec. ? ;D No. =>a( 3ec. 1D>. Anony,o"s and ;se"dony,o"s 9or.s. /
0or p"rposes of this Act the p"blishers shall be dee,ed to represent the a"thors of articles and other writings p"blished witho"t the na,es of the a"thors or "nder pse"dony,s "nless the contrary appears or the pse"dony,s or adopted na,e lea!es no do"bts as to the a"thor4s identity or if the a"thor of the anony,o"s wor.s discloses his identity. %3ec. D ;D =>( 1F. Li,itations on Copyright 3ec. 1E=. Li,itations on Copyright. / 1E=.1. Notwithstanding the pro!isions of Chapter I the following acts shall not constit"te infringe,ent of copyright) %a( the recitation or perfor,ance of a wor. once it has been lawf"lly ,ade accessible to the p"blic if done pri!ately and free of charge or if ,ade strictly for a charitable or religio"s instit"tion or society- %3ec. 1F%1( ;D No. =>( %b( The ,a.ing of +"otations fro, a p"blished wor. if they are co,patible with fair "se and only to the e#tent 1"stified for the p"rpose incl"ding +"otations fro, newspaper articles and periodicals in the for, of press s",,aries) ;ro!ided That the so"rce and the na,e of the a"thor if appearing on the wor. are ,entioned- %3ec. 11 Third ;ar. ;D
No. =>( %c( The reprod"ction or co,,"nication to the p"blic by ,ass ,edia of articles on c"rrent political social econo,ic scientific or religio"s topic lect"res addresses and other wor.s of the sa,e nat"re which are deli!ered in p"blic if s"ch "se is for infor,ation p"rposes and has not been e#pressly reser!ed) ;ro!ided That the so"rce is clearly indicated%3ec. 11 ;D No. =>( %d( The reprod"ction and co,,"nication to the p"blic of literary scientific or artistic wor.s as part of reports of c"rrent e!ents by ,eans of photography cine,atography or broadcasting to the e#tent necessary for the p"rpose- %3ec. 1' ;D No. =>( %e( The incl"sion of a wor. in a p"blication broadcast or other co,,"nication to the p"blic so"nd recording or fil, if s"ch incl"sion is ,ade by way of ill"stration for teaching p"rposes and is co,patible with fair "se) ;ro!ided That the so"rce and of the na,e of the a"thor if appearing in the wor. are ,entioned%f( The recording ,ade in schools
"ni!ersities or ed"cational instit"tions of a wor. incl"ded in a broadcast for the "se of s"ch schools "ni!ersities or ed"cational instit"tions) ;ro!ided That s"ch recording ,"st be deleted within a reasonable period after they were first broadcast) ;ro!ided f"rther That s"ch recording ,ay not be ,ade fro, a"dio!is"al wor.s which are part of the general cine,a repertoire of feat"re fil,s e#cept for brief e#cerpts of the wor.%g( The ,a.ing of ephe,eral recordings by a broadcasting organi$ation by ,eans of its own facilities and for "se in its own broadcast%h( The "se ,ade of a wor. by or "nder the direction or control of the 8o!ern,ent by the National Library or by ed"cational scientific or professional instit"tions where s"ch "se is in the p"blic interest and is co,patible with fair "se%i( The p"blic perfor,ance or the co,,"nication to the p"blic of a wor. in a place where no ad,ission fee is charged in respect of s"ch p"blic perfor,ance or co,,"nication by a cl"b or
instit"tion for charitable or ed"cational p"rpose only whose ai, is not profit ,a.ing s"b1ect to s"ch other li,itations as ,ay be pro!ided in the Reg"lations%1( ;"blic display of the original or a copy of the wor. not ,ade by ,eans of a fil, slide tele!ision i,age or otherwise on screen or by ,eans of any other de!ice or process) ;ro!ided That either the wor. has been p"blished or that original or the copy displayed has been sold gi!en away or otherwise transferred to another person by the a"thor or his s"ccessor in title- and %.( Any "se ,ade of a wor. for the p"rpose of any 1"dicial proceedings or for the gi!ing of professional ad!ice by a legal practitioner. 1E=.'. The pro!isions of this section shall be interpreted in s"ch a way as to allow the wor. to be "sed in a ,anner which does not conflict with the nor,al e#ploitation of the wor. and does not "nreasonably pre1"dice the right holderVs legiti,ate interest. 3ec. 1ED. Reprod"ction of ;"blished 9or.. / INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6=D of 6<1
1ED.1. Notwithstanding the pro!ision of 3ection 1DD and s"b1ect to the pro!isions of 3"bsection 1ED.' the pri!ate reprod"ction of a p"blished wor. in a single copy where the reprod"ction is ,ade by a nat"ral person e#cl"si!ely for research and pri!ate st"dy shall be per,itted witho"t the a"thori$ation of the owner of copyright in the wor.. 1ED.'. The per,ission granted "nder 3"bsection 1ED.1 shall not e#tend to the reprod"ction of) %a( A wor. of architect"re in for, of b"ilding or other constr"ction%b( An entire boo. or a s"bstantial past thereof or of a ,"sical wor. in which graphics for, by reprographic ,eans%c( A co,pilation of data and other ,aterials%d( A co,p"ter progra, e#cept as pro!ided in 3ection 1E>- and %e( Any wor. in cases where reprod"ction wo"ld "nreasonably conflict with a nor,al e#ploitation of the wor. or wo"ld otherwise "nreasonably pre1"dice the legiti,ate interests of the a"thor. 3ec. 1EE. Reprographic Reprod"ction by Libraries. / 1EE.1. Notwithstanding the pro!isions of 3"bsection 1DD.? any library or archi!e whose
acti!ities are not for profit ,ay witho"t the a"thori$ation of the a"thor of copyright owner ,a.e a single copy of the wor. by reprographic reprod"ction) %a( 9here the wor. by reason of its fragile character or rarity cannot be lent to "ser in its original for,%b( 9here the wor.s are isolated articles contained in co,posite wor.s or brief portions of other p"blished wor.s and the reprod"ction is necessary to s"pply the,- when this is considered e#pedient to person re+"esting their loan for p"rposes of research or st"dy instead of lending the !ol",es or boo.lets which contain the,- and %c( 9here the ,a.ing of s"ch a copy is in order to preser!e and if necessary in the e!ent that it is lost destroyed or rendered "n"sable replace a copy or to replace in the per,anent collection of another si,ilar library or archi!e a copy which has been lost destroyed or rendered "n"sable and copies are not a!ailable with the p"blisher. 1EE.'. Notwithstanding the abo!e pro!isions it shall not be per,issible to prod"ce a !ol",e of a wor. p"blished in se!eral !ol",es or to prod"ce ,issing to,es or pages of ,aga$ines or si,ilar wor.s "nless the !ol",e to,e or
part is o"t of stoc.- ;ro!ided That e!ery library which by law is entitled to recei!e copies of a printed wor. shall be entitled when special reasons so re+"ire to reprod"ce a copy of a p"blished wor. which is considered necessary for the collection of the library b"t which is o"t of stoc.. %3ec. 16 ;D =>a( 3ec. 1E>. Reprod"ction of Co,p"ter ;rogra,. 7 1E>.1. Notwithstanding the pro!isions of 3ection 1DD the reprod"ction in one %1( bac."p copy or adaptation of a co,p"ter progra, shall be per,itted witho"t the a"thori$ation of the a"thor of or other owner of copyright in a co,p"ter progra, by the lawf"l owner of that co,p"ter progra,) ;ro!ided That the copy or adaptation is necessary for) %a( The "se of the co,p"ter progra, in con1"nction with a co,p"ter for the p"rpose and to the e#tent for which the co,p"ter progra, has been obtained- and %b( Archi!al p"rposes and for the replace,ent of the lawf"lly owned copy of the co,p"ter progra, in the e!ent that the lawf"lly obtained copy of the co,p"ter progra, is lost destroyed or rendered "n"sable. 1E>.'. No copy or adaptation ,entioned in this 3ection shall be "sed for any p"rpose other than the ones deter,ined in this 3ection and
any s"ch copy or adaptation shall be destroyed in the e!ent that contin"ed possession of the copy of the co,p"ter progra, ceases to be lawf"l. 1E>.6. This pro!ision shall be witho"t pre1"dice to the application of 3ection 1E< whene!er appropriate. 3ec. 1>F. I,portation for ;ersonal ;"rposes. / 1>F.1. Notwithstanding the pro!ision of 3"bsection 1DD.? b"t s"b1ect to the li,itation "nder the 3"bsection 1E<.' the i,portation of a copy of a wor. by an indi!id"al for his personal p"rposes shall be per,itted witho"t the a"thori$ation of the a"thor of or other owner of copyright in the wor. "nder the following circ",stances) %a( 9hen copies of the wor. are not a!ailable in the ;hilippines and) 1( Not ,ore than one %1( copy at one ti,e is i,ported for strictly indi!id"al "se only- or '( The i,portation is by a"thority of and for the "se of the ;hilippine 8o!ern,ent- or 6( The i,portation consisting of not ,ore than three %6( s"ch copies or li.enesses in any one in!oice is not for sale b"t for the "se only of any religio"s charitable or ed"cational society or instit"tion
d"ly incorporated or registered or is for the enco"rage,ent of the fine arts or for any state school college "ni!ersity or free p"blic library in the ;hilippines. %b( 9hen s"ch copies for, parts of libraries and personal baggage belonging to persons or fa,ilies arri!ing fro, foreign co"ntries and are not intended for sale) ;ro!ided That s"ch copies do not e#ceed three %6(. INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6=E of 6<1 1>F.'. Copies i,ported as allowed by this 3ection ,ay not lawf"lly be "sed in any way to !iolate the rights of owner the copyright or ann"l or li,it the protection sec"red by this Act and s"ch "nlawf"l "se shall be dee,ed an infringe,ent and shall be p"nishable as s"ch witho"t pre1"dice to the proprietor4s right of action. 1>F.6. 3"b1ect to the appro!al of the 3ecretary of 0inance the Co,,issioner of C"sto,s is hereby e,powered to ,a.e r"les and reg"lations for pre!enting the i,portation of articles the i,portation of which is prohibited "nder this 3ection and "nder treaties and con!entions to which the ;hilippines ,ay be a party and for sei$ing and conde,ning and disposing of the sa,e in case they are
disco!ered after they ha!e been i,ported. %3ec. 6F ;D No. =>( 11. Doctrine of 0air Use 3ec. 1E<. 0air Use of a Copyrighted 9or.. / 1E<.1. The fair "se of a copyrighted wor. for criticis, co,,ent news reporting teaching incl"ding ,"ltiple copies for classroo, "se scholarship research and si,ilar p"rposes is not an infringe,ent of copyright. Deco,pilation which is "nderstood here to be the reprod"ction of the code and translation of the for,s of the co,p"ter progra, to achie!e the inter/operability of an independently created co,p"ter progra, with other progra,s ,ay also constit"te fair "se. In deter,ining whether the "se ,ade of a wor. in any partic"lar case is fair "se the factors to be considered shall incl"de) %a( The p"rpose and character of the "se incl"ding whether s"ch "se is of a co,,ercial nat"re or is for nonprofit ed"cation p"rposes%b( The nat"re of the copyrighted wor.%c( The a,o"nt and s"bstantiality of the portion "sed in relation to the copyrighted wor. as a whole- and %d( The effect of the "se "pon the potential ,ar.et for or !al"e of the copyrighted wor.. 1E<.'. The fact that a wor. is "np"blished
shall not by itself bar a finding of fair "se if s"ch finding is ,ade "pon consideration of all the abo!e factors. 1'. Notice of Copyright 3ec. 1>'. Notice of Copyright. / Aach copy of a wor. p"blished or offered for sale ,ay contain a notice bearing the na,e of the copyright owner and the year of its first p"blication and in copies prod"ced after the creator4s death the year of s"ch death. %3ec. 'D ;D No. =>a( 16. D"ration of Copyright 3ec. '16. Ter, of ;rotection. / '16.1. 3"b1ect to the pro!isions of 3"bsections '16.' to '16.< the copyright in wor.s "nder 3ections 1D' and 1D6 shall be protected d"ring the life of the a"thor and for fifty %<F years after his death. This r"le also applies to posth",o"s wor.s. %3ec. '1 0irst 3entence ;D No. =>a( '16.'. In case of wor.s of 1oint a"thorship the econo,ic rights shall be protected d"ring the life of the last s"r!i!ing a"thor and for fifty %<F( years after his death. %3ec. '1 3econd 3entence ;D No. =>( '16.6. In case of anony,o"s or pse"dony,o"s wor.s the copyright shall be protected for fifty %<F( years fro, the date on which the wor. was first lawf"lly p"blished) ;ro!ided That where before the e#piration of the said period the a"thorVs identity is re!ealed or is no longer in do"bt the pro!isions
of 3"bsections '16.1 and '16.' shall apply as the case ,ay be) ;ro!ided f"rther That s"ch wor.s if not p"blished before shall be protected for fifty %<F( years co"nted fro, the ,a.ing of the wor.. %3ec. '6 ;D No. =>( '16.=. In case of wor.s of applied art the protection shall be for a period of twenty/fi!e %'<( years fro, the date of ,a.ing. %3ec. '=%H( ;D No. =>a( '16.<. In case of photographic wor.s the protection shall be for fifty %<F( years fro, p"blication of the wor. and if "np"blished fifty %<F( years fro, the ,a.ing. %3ec. '=%C( ;D =>a( '16.?. In case of a"dio/!is"al wor.s incl"ding those prod"ced by process analogo"s to photography or any process for ,a.ing a"dio!is"al recordings the ter, shall be fifty %<F( years fro, date of p"blication and if "np"blished fro, the date of ,a.ing. %3ec. '=%C( ;D No. =>a( 3ec. '1=. Calc"lation of Ter,. / The ter, of protection s"bse+"ent to the death of the a"thor pro!ided in the preceding 3ection shall r"n fro, the date of his death or of p"blication b"t s"ch ter,s shall always be dee,ed to begin on the first day of Jan"ary of the year following the e!ent which ga!e rise to the,. %3ec. '< ;D No. =>( 1=. Transfer and Assign,ent of Copyright 3ec. 1EF. Rights of Assignee. /
1EF.1. The copyright ,ay be assigned in whole or in part. 9ithin the scope of the assign,ent the assignee is entitled to all the rights and re,edies which the assignor had with respect to the copyright. 1EF.'. The copyright is not dee,ed assigned inter !i!os in whole or in part "nless there is a written indication of s"ch intention. 1EF.6. The s"b,ission of a literary photographic or artistic wor. to a newspaper ,aga$ine or periodical for p"blication shall constit"te only a license to ,a.e a single p"blication "nless a greater right is e#pressly granted. If two %'( or ,ore persons 1ointly own a copyright or any part thereof neither of the owners shall be entitled to grant licenses witho"t the prior written consent of the other owner or owners. %3ec. 1< ;D No. =>a( INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6=> of 6<1 3ec. 1E1. Copyright and Baterial Ob1ect. / The copyright is distinct fro, the property in the ,aterial ob1ect s"b1ect to it. Conse+"ently the transfer or assign,ent of the copyright shall not itself constit"te a transfer of the ,aterial ob1ect. Nor shall a transfer or assign,ent of the sole copy or of one or se!eral copies of the wor. i,ply transfer or assign,ent of the copyright. %3ec. 1? ;D No. =>( 3ec. 1E'. 0iling of Assign,ent of License. / An
assign,ent or e#cl"si!e license ,ay be filed in d"plicate with the National Library "pon pay,ent of the prescribed fee for registration in boo.s and records .ept for the p"rpose. Upon recording a copy of the instr",ent shall be ret"rned to the sender with a notation of the fact of record. Notice of the record shall be p"blished in the I;O 8a$ette. %3ec. 1> ;D No. =>a( 3ec. 1E6. Designation of 3ociety. / The copyright owners or their heirs ,ay designate a society of artists writers or co,posers to enforce their econo,ic rights and ,oral rights on their behalf. %3ec. 6' ;D No. =>a( 1<. Neighboring Rights 3ec. 'F6. 3cope of ;erfor,ersV Rights. / 3"b1ect to the pro!isions of 3ection '1' perfor,ers shall en1oy the following e#cl"si!e rights) 'F6.1. As regards their perfor,ances the right of a"thori$ing) %a( The broadcasting and other co,,"nication to the p"blic of their perfor,ance- and %b( The fi#ation of their "nfi#ed perfor,ance. 'F6.'. The right of a"thori$ing the direct or indirect reprod"ction of their perfor,ances fi#ed in so"nd recordings in any ,anner or for,'F6.6. 3"b1ect to the pro!isions of 3ection 'F? the right of a"thori$ing the first p"blic
distrib"tion of the original and copies of their perfor,ance fi#ed in the so"nd recording thro"gh sale or rental or other for,s of transfer of ownership'F6.=. The right of a"thori$ing the co,,ercial rental to the p"blic of the original and copies of their perfor,ances fi#ed in so"nd recordings e!en after distrib"tion of the, by or p"rs"ant to the a"thori$ation by the perfor,er- and 'F6.<. The right of a"thori$ing the ,a.ing a!ailable to the p"blic of their perfor,ances fi#ed in so"nd recordings by wire or wireless ,eans in s"ch a way that ,e,bers of the p"blic ,ay access the, fro, a place and ti,e indi!id"ally chosen by the,. %3ec. =' ;D No. =>a( 3ec. 'FE. 3cope of Right. / 3"b1ect to the pro!isions of 3ection '1' prod"cers of so"nd recordings shall en1oy the following e#cl"si!e rights) 'FE.1. The right to a"thori$e the direct or indirect reprod"ction of their so"nd recordings in any ,anner or for,- the placing of these reprod"ctions in the ,ar.et and the right of rental or lending'FE.'. The right to a"thori$e the first p"blic distrib"tion of the original and copies of their so"nd recordings thro"gh sale or rental or other for,s of transferring ownership- and 'FE.6. The right to a"thori$e the co,,ercial
rental to the p"blic of the original and copies of their so"nd recordings e!en after distrib"tion by the, by or p"rs"ant to a"thori$ation by the prod"cer. %3ec. =? ;D No. =>a( 3ec. '11. 3cope of Right. / 3"b1ect to the pro!isions of 3ection '1' broadcasting organi$ations shall en1oy the e#cl"si!e right to carry o"t a"thori$e or pre!ent any of the following acts) '11.1. The rebroadcasting of their broadcasts'11.'. The recording in any ,anner incl"ding the ,a.ing of fil,s or the "se of !ideo tape of their broadcasts for the p"rpose of co,,"nication to the p"blic of tele!ision broadcasts of the sa,e- and '11.6. The "se of s"ch records for fresh trans,issions or for fresh recording. %3ec. <' ;D No. =>( 3ec. '1<. Ter, of ;rotection for ;erfor,ers ;rod"cers and Hroadcasting Organi$ations./ '1<.1. The rights granted to perfor,ers and prod"cers of so"nd recordings "nder this law shall e#pire) %a( 0or perfor,ances not incorporated in recordings fifty %<F( years fro, the end of the year in which the perfor,ance too. place- and %b( 0or so"nd or i,age and so"nd recordings and for perfor,ances incorporated therein fifty %<F( years
fro, the end of the year in which the recording too. place. '1<.'. In case of broadcasts the ter, shall be twenty %'F( years fro, the date the broadcast too. place. The e#tended ter, shall be applied only to old wor.s with s"bsisting protection "nder the prior law. %3ec. << ;D =>a( 1?. Infringe,ent 5abana et al. !. Robles et al. 61F 3CRA <11 :1>>>@ Infringe,ent consists in the doing by any person witho"t the consent of the owner of the copyright of anything the sole right to do which is conferred by stat"te on the owner of the copyright. The act of lifting fro, another4s boo. s"bstantial portions of disc"ssions and e#a,ples and the fail"re to ac.nowledge the sa,e is an infringe,ent of copyright. 0or there to be s"bstantial reprod"ction of a boo. it does not necessarily re+"ire that the entire copyrighted wor. or e!en a large portion of it be copied. If so ,"ch is ta.en that the !al"e of the original wor. is s"bstantially di,inished there is an infringe,ent of copyright and to an in1"rio"s INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6<F of 6<1 e#tent the wor. is appropriated. It is no defense that the pirate did not .now whether or not he was infringing any copyright- he at least .new that what he was copying was not his and he copied at his peril. In cases of infringe,ent copying alone is
not what is prohibited. The copying ,"st prod"ce an Lin1"rio"s effectM. Col",bia ;ict"re Antertain,ent Inc ! CA It is e!idently incorrect to s"ggest as the r"ling in 'Fth Cent"ry 0o# ,ay appear to do that in copyright infringe,ent cases the presentation of ,aster tapes of the copyrighted fil,s is always necessary to ,eet the re+"ire,ent of probable ca"se and that in the absence thereof there can be no finding of probable ca"se for the iss"ance of a search warrant. It is tr"e that s"ch ,aster tapes are ob1ect e!idence with the ,erit that in this class of e!idence the ascertain,ent of the contro!erted fact is ,ade thro"gh de,onstrations in!ol!ing the direct "se of the senses of the presiding ,agistrate. %City of Banila !. Cabangis 1F ;hil. 1<1 :1>FE@- Rabase !. 3tate 61 Ala. App. DD 1' 3o. 'ND D<E D?=(. 3"ch a"#iliary proced"re howe!er does not r"le o"t the "se of testi,onial or doc",entary e!idence depositions ad,issions or other classes of e!idence tending to pro!e the fact", proband", %3ee ;hil. Bo!ie 9or.ers Association !. ;re,iere ;rod"ctions Inc. >' ;hil. E=6 :1><6@( especially where the prod"ction in co"rt of ob1ect e!idence wo"ld res"lt in delay incon!enience or e#penses o"t of proportion to its e!identiary !al"e. 1D. Re,edies for Infringe,ent 1D.1. Ci!il Action 3ec. '1?. Re,edies for Infringe,ent. /
'1?.1. Any person infringing a right protected "nder this law shall be liable) %a( To an in1"nction restraining s"ch infringe,ent. The co"rt ,ay also order the defendant to desist fro, an infringe,ent a,ong others to pre!ent the entry into the channels of co,,erce of i,ported goods that in!ol!e an infringe,ent i,,ediately after c"sto,s clearance of s"ch goods. %b( ;ay to the copyright proprietor or his assigns or heirs s"ch act"al da,ages incl"ding legal costs and other e#penses as he ,ay ha!e inc"rred d"e to the infringe,ent as well as the profits the infringer ,ay ha!e ,ade d"e to s"ch infringe,ent and in pro!ing profits the plaintiff shall be re+"ired to pro!e sales only and the defendant shall be re+"ired to pro!e e!ery ele,ent of cost which he clai,s or in lie" of act"al da,ages and profits s"ch da,ages which to the co"rt shall appear to be 1"st and shall not be regarded as penalty. %c( Deli!er "nder oath for
i,po"nding d"ring the pendency of the action "pon s"ch ter,s and conditions as the co"rt ,ay prescribe sales in!oices and other doc",ents e!idencing sales all articles and their pac.aging alleged to infringe a copyright and i,ple,ents for ,a.ing the,. %d( Deli!er "nder oath for destr"ction witho"t any co,pensation all infringing copies or de!ices as well as all plates ,olds or other ,eans for ,a.ing s"ch infringing copies as the co"rt ,ay order. %e( 3"ch other ter,s and conditions incl"ding the pay,ent of ,oral and e#e,plary da,ages which the co"rt ,ay dee, proper wise and e+"itable and the destr"ction of infringing copies of the wor. e!en in the e!ent of ac+"ittal in a cri,inal case. '1?. '. In an infringe,ent action the co"rt shall also ha!e the power to order the sei$"re and i,po"nding of any article which ,ay ser!e as e!idence in the co"rt proceedings. %3ec. 'E ;D =>a( 1D.'. Cri,inal Action
3ec. '1D. Cri,inal ;enalties. / '1D. 1. Any person infringing any right sec"red by pro!isions of ;art II of this Act or aiding or abetting s"ch infringe,ent shall be g"ilty of a cri,e p"nishable by) %a( I,prison,ent of one %1( year to three %6( years pl"s a fine ranging fro, 0ifty tho"sand pesos %;<F FFF( to One h"ndred fifty tho"sand pesos %;1<F FFF( for the first offense. %b( I,prison,ent of three %6( years and one %1( day to si# %?( years pl"s a fine ranging fro, One h"ndred fifty tho"sand pesos %;1<F FFF( to 0i!e h"ndred tho"sand pesos %;<FF FFF( for the second offense. %c( I,prison,ent of si# %?( years and one %1( day to nine %>( years pl"s a fine ranging fro, 0i!e h"ndred tho"sand pesos %;<FF FFF( to One ,illion fi!e h"ndred tho"sand pesos %;1 <FF FFF( for the third and s"bse+"ent offenses. %d( In all cases s"bsidiary i,prison,ent in cases of insol!ency. '1D. '. In deter,ining the n",ber of years of i,prison,ent and the a,o"nt of
fine the co"rt shall consider the !al"e of the infringing ,aterials that the defendant has prod"ced or ,an"fact"red and the da,age that the copyright owner has s"ffered by reason of the infringe,ent. '1D. 6. Any person who at the ti,e when copyright s"bsists in a wor. has in his possession an article which he .nows or INTALLACTUAL ;RO;ARTK CODA COBBARCIAL LA9 1 F F G U ; L A 9 U ; H A R O ; 3 ' F F E ;age 6<1 of 6<1 o"ght to .now to be an infringing copy of the wor. for the p"rpose of) %a( 3elling letting for hire or by way of trade offering or e#posing for sale or hire the article%b( Distrib"ting the article for p"rpose of trade or for any other p"rpose to an e#tent that will pre1"dice the rights of the copyright owner in the wor.- or %c( Trade e#hibit of the article in p"blic shall be g"ilty of an offense and shall be liable on con!iction to i,prison,ent and fine as abo!e ,entioned. %3ec. '> ;D No. =>a( 3UBBARIILLA !s. CA %'FFD( 3",,er!ille holds copyrights and patents o!er ROKAL brand playing cards- it alleges that fa.es thereof proliferate. 3te,,ing fro, a letterco,plaint sei$"re of cards :CRO9N brand@ inside
a :fa.e allegedly@ ROKAL brand plastic container and the printing ,achines ,an"fact"ring the cards were sei$ed. Are the ,achines and cards inside the s"pposedly infringing case proper s"b1ects of the sei$"reS NO. 0irst pri!ate respondents are the owners of copyrights and patents pertaining to the CRO9N brand. 3econd the cards and the ,achines are "seless to pro!e trade,ar. infringe,ent with respect to the plastic container hence "nnecessary to retain. 1E. Affida!it A!idence 3ec. '1E. Affida!it A!idence. / '1E.1. In an action "nder this Chapter an affida!it ,ade before a notary p"blic by or on behalf of the owner of the copyright in any wor. or other s"b1ect ,atter and stating that) %a( At the ti,e specified therein copyright s"bsisted in the wor. or other s"b1ect ,atter%b( 5e or the person na,ed therein is the owner of the copyright- and %c( The copy of the wor. or other s"b1ect ,atter anne#ed thereto is a tr"e copy thereof shall be ad,itted in e!idence in any proceedings for an offense "nder this Chapter and shall be pri,a facie proof of the ,atters therein stated "ntil the contrary is pro!ed and the co"rt before which s"ch affida!it is
prod"ced shall ass",e that the affida!it was ,ade by or on behalf of the owner of the copyright. '1E.'. In an action "nder this Chapter. %a( Copyright shall be pres",ed to s"bsist in the wor. or other s"b1ect ,atter to which the action relates if the defendant does not p"t in iss"e the +"estion whether copyright s"bsists in the wor. or other s"b1ect ,atter- and %b( 9here the s"bsistence of the copyright is established the plaintiff shall be pres",ed to be the owner of the copyright if he clai,s to be the owner of the copyright and the defendant does not p"t in iss"e the +"estion of his ownership. %d( 9here the defendant witho"t good faith p"ts in iss"e the +"estions of whether copyright s"bsists in a wor. or other s"b1ect ,atter to which the action relates or the ownership of copyright in s"ch wor. or s"b1ect ,atter thereby occasioning "nnecessary costs or delay in the proceedings the co"rt ,ay direct that any costs to the defendant in respect of the action shall not be allowed by hi, and that any costs occasioned by
the defendant to other parties shall be paid by hi, to s"ch other parties. 1>. ;res",ption of Ownership 3ec. '1>. ;res",ption of A"thorship. / '1>.1. The nat"ral person whose na,e is indicated on a wor. in the "s"al ,anner as the a"thor shall in the absence of proof to the contrary be pres",ed to be the a"thor of the wor.. This pro!ision shall be applicable e!en if the na,e is a pse"dony, where the pse"dony, lea!es no do"bt as to the identity of the a"thor. '1>.'. The person or body corporate whose na,e appears on an a"dio/!is"al wor. in the "s"al ,anner shall in the absence of proof to the contrary be pres",ed to be the ,a.er of said wor..

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Chapter I INTRODUCTION 1. The Corporation as a Legal Concept 1.

A;;RO;RIATA 8UIDALINA3 INIA3TBANT3. %3AC. '= U 6F(

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