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Corporation Code
Maria Zarah Villanueva - Castro
CORPORATION CODE (BP BLG 68) - It exist by fiction of law only, hence
it is subject to limitations that are
*Corporation Code is the general law on Private inherent because of its nature
Corporation regarding to its creation, formation - A corporation is a juridical person
and powers. which exists by process of legal
fiction
INTRODUCTION: Doctrine of Corporate
Entity/Doctrine of Separate
A. Historical Background
Effectivity: May 1, 1980 Personality - A corporation is a
Article XII Section 16 of the 1987 legal or juridical person with a
Constitution: “The Congress shall not, personality separate and apart
except by general law, provide for the from its individual stockholders or
formation, organization, or regulation of members and from any other legal
private corporations. Government-owned entities to which it may be
or controlled corporations may be created connected
or established by special charters in the Consequences/Implications of
interest of the common good and subject Separate Personality:
1. It is entitled to own properties
to the test of economic viability.”
*Congress has limited powers in the in its own name and its
formation, creation and regulation of a properties are not the
private corporation. properties of its stockholders,
Purposes: directors and officers.
1. Uniformity Cases: Magsaysay-Labrador
2. To avoid corruption v CA; Sulo ng Bayan v
Araneta
General Rule: Congress is prohibited to *The interest of the
enact a law directly forming a private stockholders over the
corporation. properties of the corporation is
Exception: GOCC may be created by merely inchoate.
special charter. *Merely inchoate because there
are still condition precedents
*GOCC is a private corporation with regard before the shareholders get
to function and in the meantime a public their share, viz, in Asset, there
corporation with regard to ownership. are dissolution and satisfaction
of claims; in profit-sharing,
Twin Conditions must be present in
there are unrestricted retained
forming a GOCC:
earnings and declaration by the
1. Interest in the common good
Board of Directors.
2. Subject to the test of economic
2. It can incur obligations and its
viability
obligations are not the
- Means can survive alone in the
obligations of its stockholders,
market; can generate income
directors and officers.
which they can use for their
Case: Francisco v CA
operating expenses 3. The rights belonging to the
corporation cannot be invoked
CONCEPT AND ATTRIBUTES OF A
by the stockholders, directors
CORPORATION:
and officers and vice versa.
A. Statutory definition of a Corporation 4. Corporations are entitled to
Section 2 of the Corporation Code: “A certain constitutional rights,
corporation is an artificial being created by i.e., right against unreasonable
operation of law, having the right of searches and seizure, due
succession and the powers, attributes and process clause.
*It is not entitled to certain
properties expressly authorized by law or
constitutional right, i.e., right
incident to its existence.”
against self-incrimination
B. Attributes of a Corporation
particularly production of
Artificial Being
corporate documents.
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to the honest decision of officers and committed within 5 years prior to the
directors of a corporation and the date of his election or appointment,
courts are without authority to shall qualify as a director, trustee or
substitute their judgment for the officer of any corporation.”
judgment of the board of directors; the Reason: The position is based on trust
board is the business manager of the and confidence.
corporation and so long as it acts in *No citizenship requirement.
*The By-Laws may provide additional
good faith its orders are not reviewable
qualifications/disqualifications.
by the courts or the SEC.
- A resolution or transaction pursued Election of the Board Members
Sec. 24 of the Corporation Code
within the corporate powers and
provides that: “At all elections of
business operations of the corporation,
directors or trustees, there must be
and passed in good faith by the board
present, either in person or by
of directors/trustee, is valid and
representative authorized to act by
binding, and generally the courts have
written proxy, the owners of a majority
no authority to review the same and
of the outstanding capital stock, or if
substitute their own judgment, even
there be no capital stock, a majority of
when the exercise of such power may
the members entitled to vote. The
cause losses to the corporation or
election must be by ballot if requested
decrease the profits of a department.
*Great respect is accorded to the by any voting stockholder or member.
decisions of the Board of In stock corporations, every
Directors/Trustees. stockholder entitled to vote shall have
*The directors are not liable to the the right to vote in person or by proxy
stockholders in performing such acts. the number of shares of stock
Qualifications of the Board Members standing, at the time fixed in the by-
Sec. 23 of the Corporation Code laws, in his own name on the stock
states that: “Every director must have books of the corporation, or where the
at least one share of the capital stock by-laws are silent at the time of the
of the corporation of which he is a election; and said stockholder may
director, which share shall stand in his vote such number of shares for as
name on the books of the corporation. many persons as there are directors to
Any director who ceases to be the be elected or he may cumulate said
owner of at least one share of the shares and give one candidate as
capital stock of the corporation of many votes as the number of directors
which he is a director shall thereby to be elected multiplied by the number
cease to be a director. Trustees of non- of his shares shall equal, or he may
stock corporations must be members distribute them on the same principle
thereof. A majority of the directors or among as many candidates as he shall
trustees of all corporations organized see fit: Provided, that the total number
under this Code must be residents of of votes cast by him shall not exceed
the Philippines.” the number of shares owned by him as
*In order to be eligible as director, shown in the books of the corporation
what is material is the legal title to and multiplied by the whole number of
not beneficial title or ownership of the directors to be elected: Provided,
stocks appearing on the books of the however, that no delinquent stock
corporation. shall be voted. Unless otherwise
*The directors/trustees must be provided in the articles of
natural persons. incorporation or in the by-laws,
*They must also be of legal age.
members of the corporations which
*He must possess other qualifications
have no capital stock may cast as
as may be prescribed in the by-laws of
many votes as there are trustees to be
the corporation.
*Under Sec. 27 of the Corporation elected but may not cast more than
Code: “No person convicted by final one vote for one candidate.
judgment of an offense punishable by Candidates receiving the highest
imprisonment for a period exceeding 6 number of votes shall be declared
years, or a violation of this Code elected. Any meeting of the
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against anyone who has in good faith objections with the secretary
dealt with it through such agent, be (Sec. 65).
stopped from denying the agent’s 5. Agree or stipulate in a contract
authority. to hold himself personally liable
Cases: People’s Aircargo; Inter- with the corporation.
Asia; Lapu-Lapu 6. By virtue of a specific provision
*Requires good faith on the part of of law such as BP 22; Trust
third person. receipts Law; RA 7832 (Anti-
Electricity Pilferage Act of
D. Liability of Directors, Trustees and Officers 1997); Securities Regulation
Instances when Corporate Code
Officers/Directors are held Solidarily
Liable *In Carag v NLRC, the Supreme Court
Sec. 31 of the Corporation Code held that not any violative of law, the
provides that: “Directors or trustees Code means that violation must have a
who wilfully and knowingly vote for or corresponding penalty. Patently unlawful
assent to patently unlawful acts of the act means that a law declares an act
corporation or who are guilty of gross unlawful and that such law provides
negligence or bad faith in directing the penalty for that unlawful act.
affairs of the corporation or acquire
any personal or pecuniary interest in Self-Dealing Directors/Officers
conflict with their duty as such Sec. 32 of the Corporation Code
directors or trustees shall be liable states that: “A contract of the
jointly and severally for all damages corporation with one or more of its
resulting therefrom suffered by the directors or trustees or officers is
corporation, its stockholders or voidable, at the option of such
members and other persons. When a corporation, unless all of the following
director, trustee or officer attempts to conditions are present: 1. That the
acquire or acquires, in violation of his presence of such director or trustee in
duty, any interest adverse to the the board meeting in which the
corporation in respect of any matter contract was approved was not
which has been reposed in him in necessary to constitute a quorum for
confidence, as to which equity imposes such meeting; 2. That the vote of such
a disability upon him to deal in his own director or trustee was not necessary
behalf, he shall be liable as a trustee for the approval of the contract; 3.
for the corporation and must account That the contract is fair and
for the profits which otherwise would reasonable under the circumstances;
have accrued to the corporation.” and 4. That in case of an officer, the
General Rule: contract has been previously
Directors/Trustees/Officers are not authorized by the board of directors.
solidarily liable with the corporation. Where any of the first two conditions
Exceptions: set forth in the preceding paragraph is
1. Wilfully and knowingly vote for absent, in the case of a contract with a
and assent to patently unlawful director or trustee, such contract may
acts of the corporation (Sec. be ratified by the vote of the
31). stockholders representing at least 2/3
Case: Carag v NLRC
of the outstanding capital stock or of
2. Guilty of gross negligence or
at least 2/3 of the members in a
bad faith in directing the affairs
meeting called for the purpose:
of the corporation (Sec. 31).
Case: David v Construction Provided, That full disclosure of the
Industry adverse interest of the directors or
3. Acquire any personal or trustees involved is made at such
pecuniary interest in conflict of meeting: Provided, however, that the
their duty (Sec.31). contract is fair and reasonable under
4. Consent to the issuance of the circumstances.”
watered stocks or having Example:
knowledge thereof, fails to file
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refunding the same, unless his act has Committee is invalid it may be ratified by
been ratified by a vote of the the Board.
stockholders owning or representing at *The decision of the executive committee
least 2/3 of the outstanding capital needs no confirmation from the Board.
stock. This provision shall be Case: Filipinas Port, Inc.
*The corporation may create other
applicable notwithstanding the fact
committees.
that the director risked his own funds
Distinction: In executive committee,
in the venture.”
there is a statutory restriction on members
General Rule: A director shall refund
whereas in other committee there is no
to the corporation all the profits he
such restriction.
realizes on a business opportunity
General Rule: The executive committee
which: 1. the corporation is financially
may act on specific matters within the
able to undertake; 2. from its nature, is
competence of the board as may be
in line with corporations business and
delegated to it in the by-laws or on a
is of practical advantage to it; and 3.
majority vote of the board.
the corporation has an interest or a Exceptions:
reasonable expectancy. 1. Approval of any action for which
Exception: His act has been ratified shareholders’ approval is also required;
by a vote of the stockholders owning 2. The filing of vacancies in the board;
or representing at least 2/3 of the 3. The amendment or repeal of by-laws
outstanding capital stock. or the adoption of new by-laws;
*A business opportunity ceases to be 4. The amendment or repeal of any
corporate opportunity and transforms resolution of the board which by its
to personal opportunity where the express terms is not so amendable or
corporation refuses or is definitely no repealable;
longer able to avail itself of the 5. A distribution of cash dividends to the
opportunity. shareholders.
Express – those expressly authorized retirement, and other plans for the benefit
by the Corporation Code and other of its directors, trustees, officers and
laws, and its Articles of Incorporation employees; and 11. To exercise such other
or Charter. powers as may be essential or necessary
Implied – those that can be inferred to carry out its purpose or purposes as
from or necessary for the exercise of stated in the articles of incorporation.”
the express powers. Amendment of Articles of Incorporation
Incidental – those that are incidental Sec. 16 of the Corporation Code
to the existence of the corporation. states that: “Unless otherwise
prescribed by this Code or by special
Doctrine of Necessary Implication – those law, and for legitimate purposes, any
which can be reasonably inferred from the provision or matter stated in the
express powers given since they are necessary articles of incorporation may be
for the corporation to perform a particular act are amended by a majority vote of the
deemed part of such powers. board of directors or trustees and the
vote or written assent of the
C. Statutory Powers of a Corporation and the stockholders representing at least 2/3
Limitations on their Exercise of the outstanding capital stock,
Sec. 36 of the Corporation Code states
without prejudice to the appraisal right
that: “Every corporation incorporated
of dissenting stockholders in
under this Code has the power and
accordance with the provisions of this
capacity: 1. To sue and be sued in its
Code, or the vote or written assent of
corporate name; 2. Of succession by its
at least 2/3 of the members if it be a
corporate name for the period of time
non-stock corporation.”
stated in the articles of incorporation and *The following are excluded in
the certificate of incorporation; 3. To adopt counting the outstanding capital stock:
and use a corporate seal; 4. To amend its 1. Treasury stock; 2. Unissued shares.
articles of incorporation in accordance *Aside from the votes of majority of
with the provisions of this Code; 5. To the board and assent of the 2/3 of the
adopt by-laws, not contrary to law, morals, OCS, the approval of the SEC is
or public policy, and to amend or repeal necessary for the amendment of the
the same in accordance with this Code; 6. AOI.
In case of stock corporations, to issue or *There is an implied approval of the
sell stocks to subscribers and to sell SEC, i.e., failure to act on the
treasury stocks in accordance with the application filed by the corporation
provisions of this Code; and to admit within 6 mos.
members to the corporation if it be a non- Q: How to get the approval of the
stock corporation; 7. To purchase, receive, stockholders?
take or grant, hold, convey, sell, lease, A: 1. Call for a meeting; 2. Obtain the
pledge, mortgage and otherwise deal with written assent of the stockholders.
such real and personal property, including *In Tan v Sycip, the Supreme Court
securities and bonds of other corporations, held that in case of a non-stock
as the transaction of the lawful business of corporation, membership is personal
the corporation may reasonably and and non-transferrable unless the by-
necessarily require, subject to the laws provides otherwise. The deceased
limitations prescribed by law and the member is not entitled to vote.
Constitution; 8. To enter into merger or
Four changes in Articles of Incorporation
consolidation with other corporations as
that require the approval of the
provided in this Code; 9. To make
stockholders.
reasonable donations, including those for
1. Extension of corporate term;
the public welfare or for hospital,
2. Shortening of corporate term;
charitable, cultural, scientific, civic, or
3. Increase or Decrease of Capital Stock;
similar purposes: Provided, That no
4. Increase or Decrease of Bonded indebtedness.
corporation, domestic or foreign, shall give
*Approval of Stockholders is necessary in these
donations in aid of any political party or
changes because they are necessary for the
candidate or for purposes of partisan
corporation’s existence.
political activity; 10. To establish pension,
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one holding the shares are considered into for such periods as may be
investors; risk-takers. provided by the pertinent laws or
Q: Will legal compensation possible to regulations.”
occur? Requisite:
A: NO. The parties are not mutually General Rule: Majority vote of the
creditor-debtor of each other. The OCS
Exception: 2/3 of the OCS
requisites under the Civil Code on legal
*SEC’s approval is not necessary
compensation are not present. *When the corporation enters into a
Management Contract management contract, appraisal right
Sec. 44 of the Corporation Code
is NOT AVAILABLE to any dissenting
states that: “No corporation shall
stockholder.
conclude a management contract with Reason: Sound business policy
another corporation unless such dictates that it would be better for the
contract shall have been approved by corporation, at the inception of its
the board of directors and by operation, to be managed by a
stockholders owning at least the company who has been experienced in
majority of the outstanding capital a particular kind of business if the
stock, or by at least a majority of the managed corporation needs the
members in the case of a non-stock technical expertise, skills, experiences,
corporation, of both the managing and background of another entity.
the managed corporation, at a meeting
duly called for the purpose: Provided, CORPORATE BY-LAWS:
That 1. Where a stockholder or
stockholders representing the same A. Concept, Use and Nature of By-Laws
interest of both the managing and the By-Laws – relatively permanent and
continuing rules of action adopted by the
managed corporations own or control
more than 1/3 of the total outstanding corporation for its own government and
that of the individuals composing it and
capital stock entitled to vote of the
managing corporation; or 2. Where a those having the direction, management
and control of its affairs, in whole or in
majority of the members of the board
of directors of the managing part, in the management and control of its
affairs and activities.
corporation also constitute a majority
Nature: Regulates internal affairs of the
of the members of the board of
corporation.
directors of the managed corporation,
then the management contract must B. By-Laws in relation to Articles of
be approved by the stockholders of the Incorporation
managed corporation owning at least Distinction between By-Laws and
2/3 of the total outstanding capital Articles of Incorporation:
stock entitled to vote, or by at least By-Laws –is a condition subsequent.
2/3 of the members in the case of a Articles of Incorporation – is a condition
non-stock corporation. No precedent. Essential for corporate
management contract shall be entered existence.
into for a period longer than 5 years
for any one term. The provisions of the
ARTICLES OF BY-LAWS
next preceding paragraph shall apply
INCORPORATION
to any contract whereby a corporation
undertakes to manage or operate all or External affairs Internal Affairs
substantially all of the business of Affects the status Does not affect the
of existence of the status of the
another corporation, whether such
corporation existence but has
contracts are called service contracts, impact on the
operating agreements or otherwise: existence; failure to
Provided, however, That such service submit is a ground
contracts or operating agreements for
which relate to the exploration, disenfranchisement
development, exploitation or utilization Joint decision of the General Rule: joint
board and decision
of natural resources may be entered
stockholders Exception:
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appointment and the term of office of all Laws shall only be effective upon the
officers other than directors or trustees; 8. issuance by the SEC of a certification that
The penalties for violation of the By-Laws; the same are not inconsistent with this
9. In the case of stock corporations, the Code.”
manner of issuing stock certificates; and
10. Such other matters as may be F. By-Laws in relation to Third Parties
*In China Banking Corporation v CA,
necessary for the proper or convenient
the SC held that in the absence of
transaction of its corporate business and
evidence that China Bank is aware of the
affairs.”
Requisites: provisions of the By-Laws, China Bank is
1. It must be consistent with Corporation not bound to observe the provisions of the
Code, other pertinent laws and By-Laws. Hence, China Bank must be
regulations. allowed to register the shares in its name.
2. It must be consistent with the Articles General Rule: Third parties are not
of Incorporation. affected by the By-Laws.
3. It must be reasonable and not arbitrary Exception: If the third party has actual
or oppressive. knowledge of the provisions of the By-
4. It must not disturb vested rights, Laws.
impair contract or property rights of
stockholders or members or create CORPORATE MEETINGS:
obligations unknown to law.
A. Kinds of Corporate Meetings
Sec. 49 of the Corporation Code
E. Amendment to By-Laws
Sec. 48 of the Corporation Code provides that: “Meetings of directors,
provides that: “The board of directors or trustees, stockholders, or members may
trustees, by a majority vote thereof, and be regular or special.”
Kinds:
the owners of at least a majority of the
a. Stockholders/Members:
outstanding capital stock, or at least a 1. Regular meeting
majority of the members of a non-stock 2. Special meeting
corporation, at a regular or special b. Directors/Trustees:
meeting duly called for the purpose, may 1. Regular meeting
amend or repeal any By-Laws or adopt 2. Special meeting
new By-Laws. The owners of 2/3 of the Sec. 50 of the Corporation Code
outstanding capital stock or 2/3 of the provides that: “Regular meetings of
members in a non-stock corporation may stockholders or members shall be held
delegate to the board of directors or annually on a date fixed in the by-laws, or
trustees the power to amend or repeal any if not so fixed, on any date in April of
By-Laws or adopt new By-Laws: Provided, every year as determined by the board of
That any power delegated to the board of directors or trustees: Provided, That
directors or trustees to amend or repeal written notice of regular meetings shall be
any By-Laws or adopt new By-Laws shall sent to all stockholders or members of
be considered as revoked whenever record at least 2 weeks prior to the
stockholders owning or representing a meeting, unless a different period is
majority of the outstanding capital stock required by the by-laws. Special meetings
or a majority of the members in non-stock of stockholders or members shall be held
corporations, shall so vote at a regular or at any time deemed necessary or as
special meeting. Whenever any provided in the by-laws: Provided,
amendment or new By-Laws are adopted, however, That at least 1 week written
such amendment or new By-Laws shall be notice shall be sent to all stockholders or
attached to the original By-Laws in the members, unless otherwise provided in
office of the corporation, and a copy the by-laws. Notice of any meeting may be
thereof, duly certified under oath by the waived, expressly or impliedly, by any
corporate secretary and a majority of the stockholder or member. Whenever, for any
directors or trustees, shall be filed with the cause, there is no person authorized to
SEC the same to be attached to the call a meeting, the SEC, upon petition of a
original articles of incorporation and stockholder or member on a showing of
original By-Laws. The amended or new By- good cause therefor, may issue an order
to the petitioning stockholder or member
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directing him to call a meeting of the meeting must be sent to every director or
corporation by giving proper notice trustee at least 1 day prior to the
required by this Code or by the by-laws. scheduled meeting unless otherwise
The petitioning stockholder or member provided by the by-laws.
shall preside thereat until at least a
majority of the stockholders or members B. Requirements of a Meeting
1. It must be held at the proper place.
present have been chosen one of their
2. It must be held at the stated date and
number as presiding officer.”
at the appointed time or at a
*Regular meeting of
reasonable time thereafter.
stockholders/members shall be held 3. It must be called by the proper person.
annually on a date fixed in the by-laws or 4. There must be a previous notice.
if not so fixed, on any date in April of 5. There must be a quorum.
every year. Written notice of regular Sec. 51 of the Corporation Code
meetings shall be sent 2 weeks prior to provides that: “Stockholders’ or members’
the meeting unless a different period is meetings, whether regular or special, shall
required by the by-laws. be held in the city or municipality where
** Special meeting of the principal office of the corporation is
stockholders/members shall be held at located, and if practicable in the principal
any time deemed necessary or as office of the corporation: Provided, That
provided in the by-laws. Written notice Metro Manila shall, for purposes of this
shall be sent to all stockholders or section, be considered a city or
members at least one week or unless municipality. Notice of meetings shall be in
otherwise provided in the by-laws. writing, and the time and place thereof
Sec. 53 of the Corporation Code stated therein. All proceedings had and
provides that: “Regular meetings of the any business transacted at any meeting of
board of directors or trustees of every the stockholders or members, if within the
corporation shall be held monthly, unless powers or authority of the corporation,
the by-laws provide otherwise. Special shall be valid even if the meeting be
meetings of the board of directors or improperly held or called, provided all the
trustees may be held at any time upon the stockholders or members of the
call of the president or as provided in the corporation are present or duly
by-laws. Meetings of directors or trustees represented at the meeting.”
of corporations may be held anywhere in *Applies to both stock and non-stock
or outside of the Philippines, unless the corporations.
by-laws provide otherwise. Notice of General Rule: The meeting must be held
regular or special meetings stating the in the city or municipality where the
date, time and place of the meeting must principal office is located.
be sent to every director or trustee at Exception: Sec. 93 on non-stock
least 1 day prior to the scheduled corporations, the By-Laws may provide
meeting, unless otherwise provided by the different venue for their meeting.
by-laws. A director or trustee may waive *A casual reading of section 51 would say
this requirement, either expressly or that a corporation cannot provide any
impliedly.” other place for the meeting of
*Regular meetings of directors/trustees stockholders. But in case of a non-stock
shall be held monthly unless the by-laws corporation, Section 93 of the Corporation
provide otherwise. provides that the by-laws could provide
*Special meetings of directors/trustees any place for the meeting of its members
may be held at any time upon the call of provided that it is within the Philippines
the president or as provided in the by- and proper notice has been given.
laws. Q: Is there a conflict between Section 51
*Meetings of directors or trustees may be and Section 93?
held anywhere in or outside of the A: YES. There is conflict but this conflict
Philippines unless the by-laws provide may be reconciled. As a rule, the by-laws
otherwise. may provide a different place of meeting
*Notice of regular or special meetings provided that it is within the Philippines
stating the date, time and place of the and notice has been given. As an
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like stock certificates, subject however, to inspection of all corporate books and
the trust agreement. records in accordance with the provisions
of this Code. Any other stockholder may
PROXY VOTING TRUST transfer his shares to the same trustee or
AGREEMENT trustees upon the terms and conditions
The stockholder The stockholder
stated in the voting trust agreement, and
remains the ceases to be a
stockholder of stockholder of thereupon shall be bound by all the
record record provisions of said agreement. No voting
Revocable Irrevocable trust agreement shall be entered into for
General Rule: 5 the purpose of circumventing the law
years against monopolies and illegal
Exception: If combinations in restraint of trade or used
coupled with
for purposes of fraud. Unless expressly
interest
renewed, all rights granted in a voting
trust agreement shall automatically expire
*The transfer includes the transfer of legal
at the end of the agreed period, and the
title.
voting trust certificates as well as the
Sec. 59 of the Corporation Code
certificates of stock in the name of the
provides that: “One or more stockholders
trustee or trustees shall thereby be
of a stock corporation may create a voting
deemed cancelled and new certificates of
trust for the purpose of conferring upon a
stock shall be reissued in the name of the
trustee or trustees the right to vote and
transferors. The voting trustee or trustees
other rights pertaining to the shares for a
may vote by proxy unless the agreement
period not exceeding 5 years at any time:
provides otherwise.”
Provided, That in the case of a voting trust
Consequence: The stockholder entering
specifically required as a condition in a
into a voting trust agreement ceases to be
loan agreement, said voting trust may be
a stockholder of record.
for a period exceeding 5 years but shall
*In case of Lee v CA, the SC held that the
automatically expire upon full payment of
stockholder concerned loses his legal title
the loan. A voting trust agreement must
to the shares so that if the stockholder is,
be in writing and notarized, and shall
at the same time, a director of the
specify the terms and conditions thereof. A
corporation, automatically he is
certified copy of such agreement shall be
disqualified to continue performing the
filed with the corporation and with the
duties of a director because the law
SEC; otherwise, said agreement is
requires each and every director to have
ineffective and unenforceable. The
legal, not beneficial title to at least one
certificate or certificates of stock covered
share.
by the voting trust agreement shall be
cancelled and new ones shall be issued in E. Derivative Suit; Concept and Requisites
the name of the trustee or trustees stating Derivative Suit is a suit brought by any
that they are issued pursuant to said stockholder, usually a minority
agreement. In the books of the shareholder, to redress a wrong
corporation, it shall be noted that the committed against the corporation
transfer in the name of the trustee or whenever the responsible officers refuse
trustees is made pursuant to said voting to take any action thereon or are the very
trust agreement. The trustee or trustees person to be sued.
shall execute and deliver to the *This prerogative is developed through
transferors voting trust certificates, which jurisprudence.
shall be transferable in the same manner *This is expressly mandated by Sec. 31 of
and with the same effect as certificates of the Corporation Code.
stock. The voting trust agreement filed Q: Why derivative?
with the corporation shall be subject to A: From the word derive. The one bringing
examination by any stockholder of the the suit derives the cause of action from
corporation in the same manner as any the corporation.
Q: Who brings the suit?
other corporate book or record: Provided,
A: Any stockholder/member usually
That both the transferor and the trustee or
minority stockholder.
trustees may exercise the right of Q: Whose cause of action?
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after the expiration of 1 year from the demand, the yeas and nays must be taken
date of the last publication, if no contest on any motion or proposition, and a record
has been presented to said corporation thereof carefully made. The protest of any
regarding said certificate of stock, the director, trustee, stockholder or member
right to make such contest shall be barred on any action or proposed action must be
and said corporation shall cancel in its recorded in full on his demand. The
books the certificate of stock which has records of all business transactions of the
been lost, stolen or destroyed and issue in corporation and the minutes of any
lieu thereof new certificate of stock, unless meetings shall be open to inspection by
the registered owner files a bond or other any director, trustee, stockholder or
security in lieu thereof as may be member of the corporation at reasonable
required, effective for a period of 1 year, hours on business days and he may
for such amount and in such form and with demand, writing, for a copy of excerpts
such sureties as may be satisfactory to the from said records or minutes, at his
board of directors, in which case a new expense. Any officer or agent of the
certificate may be issued even before the corporation who shall refuse to allow any
expiration of the 1 year period provided director, trustee, stockholder or member
herein: Provided, That if a contest has of the corporation to examine and copy
been presented to said corporation or if an excerpts from its records or minutes, in
action is pending in court regarding the accordance with the provisions of this
ownership of said certificate of stock Code, shall be liable to such director,
which has been lost, stolen or destroyed, trustee, stockholder or member for
the issuance of the new certificate of stock damages, and in addition, shall be guilty
in lieu thereof shall be suspended until the of an offense which shall be punishable
final decision by the court regarding the under Section 144 of this Code: Provided,
ownership of said certificate of stock That if such refusal is made pursuant to a
which has been lost, stolen or destroyed. resolution or order of the board of
Except in case of fraud, bad faith, or directors or trustees, the liability under
negligence on the part of the corporation this section for such action shall be
and its officers, no action may be brought imposed upon the directors or trustees
against any corporation which shall have who voted for such refusal: and Provided,
issued certificate of stock in lieu of those further, That it shall be a defense to any
lost, stolen or destroyed pursuant to the action under this section that the person
procedure above-described.” demanding to examine and copy excerpts
from the corporation’s records and
CORPORATE BOOKS AND RECORDS: minutes has improperly used any
information secured through any prior
A. Books required to be kept by a
examination of the records or minutes of
Corporation
such corporation or of any other
Sec. 74 of the Corporation Code
provides that: “Every corporation shall corporation, or was not acting in good
faith or for a legitimate purpose in making
keep and carefully preserve at its principal
office a record of all business transactions his demand. Stock corporations must also
keep a book to be known as the “stock
and minutes of all meetings of
stockholders or members, or of the board and transfer book,” in which must be kept
a record of all stocks in the names of the
of directors or trustees, in which shall be
set forth in detail the time and place of stockholders alphabetically arranged; the
installments paid and unpaid on all stock
holding the meeting, how authorized, the
notice given, whether the meeting was for which subscription has been made, and
the date of payment of any installment; a
regular or special, if special its object,
those present and absent, and every act statement of every alienation, sale or
transfer of stock made, the date thereof,
done or ordered done at the meeting.
Upon the demand of any director, trustee, and by and to whom made; and such
other entries as the by-laws may
stockholder or member, the time when
any director, trustee, stockholder or prescribe. The stock and transfer book
shall be kept in the principal office of the
member entered or left the meeting must
be noted in the minutes; and on a similar corporation or in the office of its stock
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transfer agent and shall be open for concerned may file an action for
inspection by any director or stockholder mandamus before the RTC.
of the corporation at reasonable hours on *Can also claim damages.
business days. No stock transfer agent or
MERGER AND CONSOLIDATION:
one engaged principally in the business of
registering transfers of stocks in behalf of A. Concept of Merger and Consolidation
a stock corporation shall be allowed to Merger is one where a corporation
operate in the Philippines unless he absorbs the other and remains in
secures a license from the SEC and pays a existence while the others are dissolved.
fee as may be fixed by the Commission, *There is a continuous flow of juridical
which shall be renewable annually: personality.
Provided, That a stock corporation is not Examples:
precluded from performing or making A+B=B
transfer of its own stocks, in which case all A+B+C=C
A+B+C=A
the rules and regulations imposed on
A+B+C=B
stock transfer agents, except the payment Consolidation is one where a new
of a license fee herein provided, shall be corporation is created, and consolidating
applicable.” corporations are extinguished.
*Keeping of books and records are Examples:
mandatory. A+B=C
Books required to be kept: A+B+C=D
1. Book of minutes – reflects the A + B + C = ABC
decisions and actions of the Board of A + B + C = XYZ
Directors/Stockholders.
2. Record of all business transactions B. Requisites of and Procedure for Merger
3. Stock and Transfer Book/Membership and Consolidation
Book 1. Approval by majority vote of the Board
4. Books of Proceedings of Directors of each corporation.
2. Approval of the stockholders of each
B. Right to Inspect Corporate Books corporation representing 2/3 of the
Basis and Extent of the Right of outstanding capital stock.
Inspection 3. Approval of SEC
Q: Is the keeping of these books Cases: Associated Bank v CA; Polyan
mandatory? v CA
A: YES. Section 144 of the Corporation Procedure:
Code provides penalty for any violation 1. The Board of each corporation shall
of the provision of the Code. draw up a plan of
Rationale: Right of inspection would
merger/consolidation.
be futile. Right of inspection would not 2. The plan of merger or consolidation
be exercised. shall be approved by majority vote of
Limitations on the Right of Inspection
each board of the concerned
1. The books and records shall be
corporations at separate meetings.
open to inspection at reasonable
3. The plan of merger/consolidation shall
hours on business days.
be approved by the majority vote of
2. The books and records shall not be
the 2/3 of the shareholders of the
improperly used any information
outstanding capital stock or members
secured through any prior
in case of a non-stock corporation.
examination of the books or
4. Articles of Merger/Consolidation shall
records.
be executed by each of the constituent
3. The stockholder’s demand must be
corporators, signed by the President or
in good faith or for a legitimate
Vice-President and certified by the
purpose.
secretary or assistant secretary.
*Inspection can be done personally or
5. Four copies of the Articles of Merger or
through agent.
Consolidation together with favorable
Remedies to Enforce Right of recommendation of a pertinent
Inspection government agency in certain cases
*In case of refusal to exercise the right
shall be submitted to the SEC for
of inspection, the stockholder
approval.
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be submitted to the Securities and as a body corporate for three (3) years
Exchange Commission in accordance after the time when it would have been so
with this Code. Upon approval of the dissolved, for the purpose of prosecuting
amended articles of incorporation of and defending suits by or against it and
the expiration of the shortened term, enabling it to settle and close its affairs, to
as the case may be, the corporation dispose of and convey its property and to
shall be deemed dissolved without any distribute its assets, but not for the
further proceedings, subject to the purpose of continuing the business for
provisions of this Code on liquidation.” which it was established. At any time
during said three (3) years, the
B. Concept of Involuntary Dissolution and the corporation is authorized and empowered
Grounds therefor to convey all of its property to trustees for
Sec. 121 of the Corporation Code
the benefit of stockholders, members,
provides that: “A corporation may be
creditors, and other persons in interest.
dissolved by the Securities and Exchange
From and after any such conveyance by
Commission upon filing of a verified
the corporation of its property in trust for
complaint and after proper notice and
the benefit of its stockholders, members,
hearing on the grounds provided by
creditors and others in interest, all interest
existing laws, rules and regulations.”
which the corporation had in the property
*This must be done with substantive and
terminates, the legal interest vests in the
procedural due process.
Grounds: trustees, and the beneficial interest in the
1. Failure to submit by-laws within the stockholders, members, creditors or other
prescribed period persons in interest. Upon the winding up
2. Fraud in the procurement of Certificate of the corporate affairs, any asset
of Registration distributable to any creditor or stockholder
3. Misrepresentation as to the activities or member who is unknown or cannot be
that the corporation will undertake found shall be escheated to the city or
4. Treasurer’s affidavit is false municipality where such assets are
5. Continued inoperation for 5 years located. Except by decrease of capital
6. Failure to commence business
stock and as otherwise allowed by this
transactions within 2 years from
Code, no corporation shall distribute any
issuance of certificate of registration
of its assets or property except upon
7. To some cases, performance of ultra
lawful dissolution and after payment of all
vires act since it is a violation to the
its debts and liabilities.”
franchise but depending on the
seriousness or gravity of the offense D. Methods of Liquidation or Winding Up
8. Issuance of watered stocks 1. By Board of Directors
9. De facto status 2. Through a trustee to whom the
10. Failure to keep corporate books and
properties are conveyed
records depending on the gravity or 3. By management committee or
seriousness of the offense rehabilitation receiver
11. Violation of its charter
Q: Can the 3 year period be extended?
C. Corporate Liquidation A: NO.
Liquidation is a process by which all the
Reason: Beyond the 3 year period, there
assets of the corporation are converted
is no corporate existence for all purposes
into liquid assets in order to facilitate the
subject to doctrine of relation.
payment of obligations to creditors, and
Remedy: Before the expiration of the 3
the remaining balance if any is to be
year period, appoint a trustee/receiver.
distributed to the stockholders.
*Liquidation takes place after dissolution. Q: During the 3 year period, does the
Sec. 122 of the Corporation Code corporation enjoy corporate existence?
provides that: “Every corporation whose A: YES. But for limited purpose only, i.e.,
charter expires by its own limitation or is for liquidation purposes only. (Limited
annulled by forfeiture or otherwise, or existence)
whose corporate existence for other Q: May such corporation sue during the 3
purposes is terminated in any other year period?
manner, shall nevertheless be continued
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A: YES. But only when the subject matter otherwise whether enforcement is by
is related to liquidation and winding up of court or not, until rehabilitation
its remaining affairs. proceedings are terminated.
*In case trustee/receiver is appointed, he Cases: PAL v Garcia; Sobrejuanite;
is not bound by the 3 year period. Lingkod Manggagawa ng
*In Gelano v CA, the SC held that the Rubberworld v Rubberworld
lawyer of the corporation can be Philippines; RCBC v IAC
considered as trustee. The term trustee *In PAL v Garcia, the SC held that stay
must be considered in its generic sense. order suspends all enforcement in all
Anyone who has been designated by the stages of the proceedings.
corporation to act on its behalf could be *In Lingkod Manggagawa sa
considered as trustee for purposes of Rubberworld v Rubberworld
pursuing a claim for and on behalf of the Philippines, the SC held that labor claims
corporation. A lawyer falls within the ambit are likewise affected by the Stop order.
of the word “trustee.” *In RCBC v IAC, the SC held that whether
*Appointment of trustee can be inferred creditors are secured or not, stay order
from the conduct of the corporation. This will still affect them. The preference still
is by Implication. remains it is just the enforcement that is
*If the corporation is the creditor appoint a suspended.
trustee. If the corporation is the debtor
appoint a receiver. FOREIGN CORPORATIONS:
Q: What if the corporate properties have
A. Concept of Foreign Corporation
already been distributed among the Foreign Corporation is a corporation
shareholders without trustee/receiver? formed, organized or existing under any
A: Remedy: Run after the erring directors law other than those of the Philippines,
and officers. and whose laws allow Filipino citizens and
corporations to do business in its own
E. Concept of Rehabilitation; Effects of
country or state.
Appointment of Management Committee
Sec. 123 of the Corporation Code
or Receiver
provides that: “For the purposes of this
Rehabilitation connotes a reopening or
Code, a foreign corporation is one formed,
reorganization. Contemplates a
organized or existing under any laws other
continuance of corporate existence in an
than those of the Philippines and whose
effort to restore the corporation to its
laws allow Filipino citizens and
former successful operation.
*This is a remedy expressly allowed under corporations to do business in its own
Section 6 of PD 902-A. country or state. It shall have the right to
Purpose: To make the corporation transact business in the Philippines after it
financially viable again. shall have obtained a license to transact
Substantive Grounds: business in this country in accordance
1. When there is imminent danger of with this Code and a certificate of
dissipation or wastage of corporate authority from the appropriate
assets government agency.”
2. Serious paralyzation of business which Reciprocity Clause provides that the
would work to the prejudice of the foreign laws allow Filipino citizens and
stockholders and creditors of the corporations to do business in its own
corporation country or state.
*Mere misconduct of an officer is not a
ground for corporate rehabilitation. B. Tests to Determine Nationality of a
*A corporation cannot ask for corporate Corporation
rehabilitation and at the same time 1. Incorporation Test – when the
dissolution. corporation is incorporated, organized
*With the passage of RA8799, the remedy under the law of other country.
2. Control Test – for purposes of
could now be instituted with the proper
investment; the citizenship of a
RTC.
particular corporation is to be
Effect: Stay Order - stops or suspends
determined by the citizenship of the
the enforcement of all claims for money or
controlling stockholders.
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contract does not affect the other bank that the drafts already drawn by the
contracts. beneficiary have been reimbursed to the
A direct consequence of this principle is opening bank by the buyer.
the rule that banks only deal with e. Back-to-Back Letter of Credit – a credit
documents and not with goods, services or with identical documentary requirements
obligations to which they relate. and covering the same merchandise as
*In BPI v De Reny, the SC held that the another letter of credit, except for a
bank has no obligation to inquire the difference in the price of the merchandise
specifications of the goods. as shown by the invoice and the draft. The
b. Fraud Exception Principle second letter of credit can be negotiated
c. Rule of Strict Compliance
only after the first is negotiated.
This rule provides that the documentary
requirements imposed by the issuing bank
must be strictly complied with by the
beneficiary otherwise the issuing bank
cannot ask for reimbursement.
Usual documents submitted to the
bank:
1. Vouchers;
2. Contract of sale; and
3. Purchase orders
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submitted for final resolution which should itself, etc. in order to ensure compliance
be resolved within one (1) year from the with pertinent laws and regulations.
enactment of this Code. The Commission d. Prohibiting and penalizing different
fraudulent practices and transactions.
shall retain jurisdiction over pending
e. Providing the SEC with powers and
suspension of payment/rehabilitation functions.
cases filed as of 30 June 2000 until finally
disposed.” Definition of terms:
B. Cases transferred to the RTC:
Sec. 5. In addition to the regulatory and a. Securities – are share, participation or
adjudicative functions of the Securities interests in a corporation or in a
and Exchange Commission over commercial enterprise or profit-making
corporations, partnerships and other forms venture and evidenced by a certificate,
of associations registered with it as contract, instrument, whether written or
expressly granted under existing laws and electronic in character. It includes: a.
decrees, it shall have original and shares of stocks, bonds, debentures,
exclusive jurisdiction to hear and decide notes, evidences of indebtedness, asset-
cases involving: backed securities; b. investment
(a) Devices or schemes employed by or contracts, certificates of interest or
any acts, of the board of directors, participation in a profit sharing
business associates, its officers or agreement, certificates of deposit for a
partnership, amounting to fraud and future subscription; c. fractional undivided
misrepresentation which may be interests in oil, gas or other mineral rights;
detrimental to the interest of the public d. derivatives like option and warrants; e.
and/or of the stockholder, partners, certificates of assignments, certificates of
members of associations or organizations participation, trust certificates, voting
registered with the Commission; trust certificates or similar instruments; f.
(b) Controversies arising out of intra- proprietary or non-proprietary
corporate or partnership relations, membership certificates in corporations;
between and among stockholders, and other instruments as may in the
members, or associates; between any or future be determined by the Commission.
all of them and the corporation, b. Issuer – is the originator, maker, obligor,
partnership or association of which they or creator of the security.
are stockholders, members or associates, c. Broker – is a person engaged in the
respectively; and between such business of buying and selling securities
corporation, partnership or association for the account of others.
and the state insofar as it concerns their d. Dealer – means any person who buys and
individual franchise or right to exist as sells securities for his/her own account in
such entity; and the ordinary course of business.
(c) Controversies in the election or e. Clearing Agency – is any person who
appointments of directors, trustees, acts as intermediary in making deliveries
officers or managers of such corporations, upon payment to effect settlement in
partnerships or associations. securities transactions.
(d) Appointment of Rehabilitation Receiver f. Exchange – is an organized marketplace
or Management Committee. or facility that brings together buyers and
sellers and executes trades of securities
*Judico v Quiambao and/or commodities.
g. Pre-Need Plans – are contracts which
Q: How does the SRC protect the public who provide for the performance of future
wishes to invest in securities? services or the payment of future
A: The law protects the public as follows: monetary considerations at the time of
a. The law requires full disclosure of actual need, for which planholders pay in
information to the public regarding the cash or installment at stated prices, with
securities that are being offered and the or without interest or insurance coverage
issuers, including the filing of and approval and includes life, pension, education,
of the registration statement and the interment, and other plans which the
approval of the prospectus. Commission may from time to time
b. A continuing duty to regularly submit approve.
material information to the SEC. h. Promoter – is a person who, acting alone
c. Close monitoring of the securities and or with others, takes initiative in founding
other circumstances that may affect the and organizing the business or enterprise
same as well as the persons involved of the issuer and receives consideration
including brokers, issuers, the exchange therefore.
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prospectus, shall be deemed not to constitute an regulation after public hearing, add to the
offer for sale under this Section.” foregoing any class of securities if it finds that the
Sec. 8.4 of the Securities Regulation Code enforcement of this Code with respect to such
states that: “A record of the registration of securities is not necessary in the public interest
securities shall be kept in Register Securities in and for the protection of investors.”
which shall be recorded orders entered by the
Commission with respect such securities. Such *Reason: The issuer is a trusted and regulated
register and all documents or information with officer.
the respect to the securities registered therein
shall be open to public inspection at reasonable *Q: What transactions are exempt from the
hours on business days. registration requirement under Securities
Sec. 8.5 of the Securities Regulation Code Regulation Code?
states that: “The Commission may audit the A: Sec. 10.1 of the Securities Regulation
financial statements, assets and other Code provides that: “The requirement of
information of firm applying for registration of its registration under Subsection 8.1 shall not apply
securities whenever it deems the same necessary to the sale of any security in any of the following
to insure full disclosure or to protect the interest transactions: (a) At any judicial sale, or sale by an
of the investors and the public in general.” executor, administrator, guardian or receiver or
*In approving the registration of the securities, trustee in insolvency or bankruptcy. (b) By or for
the SEC is not only concerned with the the account of a pledge holder, or mortgagee or
requirement that full disclosure of information is any of a pledge lien holder selling of offering for
given to the public. The SEC is also concerned sale or delivery in the ordinary course of business
with the merit of the securities themselves and and not for the purpose of avoiding the provision
the issuer. of this Code, to liquidate a bonafide debt, a
security pledged in good faith as security for such
*Baviera v Paglinawan debt. (c) An isolated transaction in which any
security is sold, offered for sale, subscription or
*There is no assurance on the part of the SEC delivery by the owner therefore, or by his
that the securities presented are valid and good representative for the owner’s account, such sale
for investors. However, there is a penal sanction or offer for sale or offer for sale, subscription or
in case the securities are not what were delivery not being made in the course of repeated
disclosed. and successive transaction of a like character by
such owner, or on his account by such
representative and such owner or representative
*Q: What securities are exempt from the not being the underwriter of such security. (d)
requirement of registration? The distribution by a corporation actively
A: Sec. 9.1 of the Securities Regulation engaged in the business authorized by its articles
Code provides that: “The requirement of of incorporation, of securities to its stockholders
registration under Subsection 8.1 shall not as a or other security holders as a stock dividend or
general rule apply to any of the following classes other distribution out of surplus. (e) The sale of
of securities: (a) Any security issued or capital stock of a corporation to its own
guaranteed by the Government of the Philippines, stockholders exclusively, where no commission or
or by any political subdivision or agency thereof, other remuneration is paid or given directly or
or by any person controlled or supervised by, and indirectly in connection with the sale of such
acting as an instrumentality of said Government. capital stock. (f) The issuance of bonds or notes
(b) Any security issued or guaranteed by the secured by mortgage upon real estate or tangible
government of any country with which the personal property, when the entire mortgage
Philippines maintains diplomatic relations, or by together with all the bonds or notes secured
any state, province or political subdivision thereof thereby are sold to a single purchaser at a single
on the basis of reciprocity: Provided, That the sale. (g) The issue and delivery of any security in
Commission may require compliance with the exchange for any other security of the same
form and content for disclosures the Commission issuer pursuant to a right of conversion entitling
may prescribe. (c) Certificates issued by a the holder of the security surrendered in
receiver or by a trustee in bankruptcy duly exchange to make such conversion: Provided,
approved by the proper adjudicatory body. (d) That the security so surrendered has been
Any security or its derivatives the sale or transfer registered under this Code or was, when sold,
of which, by law, is under the supervision and exempt from the provision of this Code, and that
regulation of the Office of the Insurance the security issued and delivered in exchange, if
Commission, Housing and Land Use Rule sold at the conversion price, would at the time of
Regulatory Board, or the Bureau of Internal such conversion fall within the class of securities
Revenue. (e) Any security issued by a bank entitled to registration under this Code. Upon
except its own shares of stock.” such conversion the par value of the security
surrendered in such exchange shall be deemed
Sec. 9.2 of the Securities Regulation Code the price at which the securities issued and
provides that: “The Commission may, by rule or delivered in such exchange are sold. (h) Broker’s
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transaction, executed upon customer’s orders, on *Q: What are the grounds for revocation and/or
any registered Exchange or other trading market. rejection of the registration of
(i) Subscriptions for shares of the capitals stocks securities/statement?
of a corporation prior to the incorporation thereof A: Sec. 13.1 of the Securities Regulation
or in pursuance of an increase in its authorized Code provides that: “The Commission may reject
capital stocks under the Corporation Code, when a registration statement and refuse registration of
no expense is incurred, or no commission, the security there-under, or revoke the affectivity
compensation or remuneration is paid or given in of a registration statement and the registration of
connection with the sale or disposition of such the security there-under after the due notice and
securities, and only when the purpose for hearing by issuing an order to such effect, setting
soliciting, giving or taking of such subscription is forth its finding in respect thereto, if it finds that:
to comply with the requirements of such law as to (a) The issuer: (i) Has been judicially declared
the percentage of the capital stock of a insolvent; (ii) Has violated any of the provision of
corporation which should be subscribed before it this Code, the rules promulgate pursuant thereto,
can be registered and duly incorporated, or its or any order of the Commission of which the
authorized, capital increase. (j) The exchange of issuer has notice in connection with the offering
securities by the issuer with the existing security for which a registration statement has been filed;
holders exclusively, where no commission or (iii) Has been or is engaged or is about to engage
other remuneration is paid or given directly or in fraudulent transactions; (iv) Has made any
indirectly for soliciting such exchange. (k) The false or misleading representation of material
sale of securities by an issuer to fewer than facts in any prospectus concerning the issuer or
twenty (20) persons in the Philippines during any its securities; (v) Has failed to comply with any
twelve-month period. (l) The sale of securities to requirements that the Commission may impose
any number of the following qualified buyers: (i) as a condition for registration of the security for
Bank; (ii) Registered investment house; (iii) which the registration statement has been filed;
Insurance company; (iv) Pension fund or or (b) The registration statement is on its face
retirement plan maintained by the Government of incomplete or inaccurate in any material respect
the Philippines or any political subdivision thereof or includes any untrue statements of a material
or manage by a bank or other persons authorized fact required to be stated therein or necessary to
by the Bangko Sentral to engage in trust make the statement therein not misleading; or (c)
functions; (v) Investment company or; (vi) Such The issuer, any officer, director or controlling
other person as the Commission may rule by person performing similar functions, or any under
determine as qualified buyers, on the basis of writer has been convicted, by a competent
such factors as financial sophistication, net worth, judicial or administrative body, upon plea of
knowledge, and experience in financial and guilty, or otherwise, of an offense involving moral
business matters, or amount of assets under turpitude and /or fraud or is enjoined or
management.” restrained by the Commission or other competent
or administrative body for violations of securities,
*Reasons: 1. Limited character of offering; 2. commodities, and other related laws.”
Mandated by law; 3. Stock dividends declared; 4.
Transaction is such that registration of the Devices and practices on manipulation of
securities is unwarranted. security prices identified under the
Securities Regulation Code:
Sec. 10.2 of the Securities Regulation Code
provides that: “The Commission may exempt Sec. 24.1 of the Securities Regulation Code
other transactions, if it finds that the provides that: “It shall be unlawful for any person
requirements of registration under this Code is acting for himself or through a dealer or broker,
not necessary in the public interest or for the directly or indirectly: (a) To create a false or
protection of the investors such as by the reason misleading appearance of active trading in any
of the small amount involved or the limited listed security traded in an Exchange of any other
character of the public offering.” trading market (hereafter referred to purposes of
this Chapter as "Exchange"): (i) By effecting any
Sec. 10.3 of the Securities Regulation Code transaction in such security which involves no
provides that: “Any person applying for an change in the beneficial ownership thereof; (ii) By
exemption under this Section, shall file with the entering an order or orders for the purchase or
Commission a notice identifying the exemption sale of such security with the knowledge that a
relied upon on such form and at such time as the simultaneous order or orders of substantially the
Commission by the rule may prescribe and with same size, time and price, for the sale or
such notice shall pay to the Commission fee purchase of any such security, has or will be
equivalent to one-tenth (1/10) of one percent entered by or for the same or different parties; or
(1%) of the maximum value aggregate price or (iii) By performing similar act where there is no
issued value of the securities.” change in beneficial ownership. (b) To affect,
alone or with others, a securities or transactions
in securities that: (I) Raises their price to induce
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the purchase of a security, whether of the same Sec. 27.1 of the Securities Regulation Code
or a different class of the same issuer or of states that: “It shall be unlawful for an insider to
controlling, controlled, or commonly controlled sell or buy a security of the issuer, while in
company by others; or (iii) Creates active trading possession of material information with respect to
to induce such a purchase or sale through the issuer or the security that is not generally
manipulative devices such as marking the close, available to the public, unless: (a) The insider
painting the tape, squeezing the float, hype and proves that the information was not gained from
dump, boiler room operations and such other such relationship; or (b) If the other party selling
similar devices. (c) To circulate or disseminate to or buying from the insider (or his agent) is
information that the price of any security listed in identified, the insider proves: (I) that he disclosed
an Exchange will or is likely to rise or fall because the information to the other party, or (ii) that he
of manipulative market operations of any one or had reason to believe that the other party
more persons conducted for the purpose of otherwise is also in possession of the information.
raising or depressing the price of the security for A purchase or sale of a security of the issuer
the purpose of inducing the purpose of sale of made by an insider defined in Subsection 3.8, or
such security. (d) To make false or misleading such insider’s spouse or relatives by affinity or
statement with respect to any material fact, consanguinity within the second degree,
which he knew or had reasonable ground to legitimate or common-law, shall be presumed to
believe was so false or misleading, for the have been effected while in possession of
purpose of inducing the purchase or sale of any material non-public information if transacted after
security listed or traded in an Exchange. (e) To such information came into existence but prior to
effect, either alone or others, any series of dissemination of such information to the public
transactions for the purchase and/or sale of any and the lapse of a reasonable time for market to
security traded in an Exchange for the purpose of absorb such information: Provided, however, That
pegging, fixing or stabilizing the price of such this presumption shall be rebutted upon a
security; unless otherwise allowed by this Code or showing by the purchaser or seller that he was
by rules of the Commission.” aware of the material non-public information at
the time of the purchase or sale.”
Sec. 24.2 of the Securities Regulation Code
provides that: “No person shall use or employ, in *Q: What is the prohibition imposed on insiders
connection with the purchase or sale of any regarding material non-public information?
security any manipulative or deceptive device or A: Sec. 27.3 of the Securities Regulation
contrivance. Neither shall any short sale be Code states that: “It shall be unlawful for any
effected nor any stop-loss order be executed in insider to communicate material non-public
connection with the purchase or sale of any information about the issuer or the security to
security except in accordance with such rules and any person who, by virtue of the communication,
regulations as the Commission may prescribe as becomes an insider as defined in Subsection 3.8,
necessary or appropriate in the public interest for where the insider communicating the information
the protection of investors.” knows or has reason to believe that such person
will likely buy or sell a security of the issuer whole
in possession of such information.”
Acts that are considered unlawful with
respect to the purchase and sale of Tender Offer
securities:
Sec. 19 of the Securities Regulation Code
Sec. 26 of the Securities Regulation Code provides that: “Any person or group of persons
states that: “It shall be unlawful for any person, acting in concert who intends to acquire at least
directly or indirectly, in connection with the 15% of any class of any equity security of a listed
purchase or sale of any securities to: 1. Employ corporation of any class of any equity security of
any device, scheme, or artifice to defraud; 2. a corporation with assets of at least fifty million
Obtain money or property by means of any pesos (50,000,000.00) and having two
untrue statement of a material fact of any hundred(200) or more stockholders at least one
omission to state a material fact necessary in hundred shares each or who intends to acquire at
order to make the statements made, in the light least thirty percent(30%) of such equity over a
of the circumstances under which they were period of twelve months(12) shall make a tender
made, not misleading; or 3. Engage in any act, offer to stockholders by filling with the
transaction, practice or course of business which Commission a declaration to that effect; and
operates or would operate as a fraud or deceit furnish the issuer, a statement containing such of
upon any person.” the information required in Section 17 of this
Code as the Commission may prescribe. Such
Duties of an insider in case of trading person or group of persons shall publish all
securities: request or invitations or tender offer or
requesting such tender offers subsequent to the
initial solicitation or request shall contain such
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PRELIMINARY CONSIDERATIONS:
A. Governing Laws
1. The Negotiable Instruments Law
2. The Code of Commerce
3. The New Civil Code
money and passes from one person to check may pass from hand to hand
another as money, in such a manner as to similar to money, so as to give the
give a holder in due course the right to holder in due course the right to hold
hold the instrument free from defenses the instrument and to collect the sum
available to prior parties. payable for himself free from defenses.
*This attribute is very important.
C. Classes of Negotiable Instrument 2. Accumulation of secondary
1. Promissory Note contracts – secondary contracts are
Sec. 184 of the Negotiable picked up and carried along with them
Instruments Law provides that: “A as they are negotiated from one
negotiable promissory note within the person to another, or in the course of
meaning of this Act is an unconditional negotiation of a negotiable instrument,
promise in writing made by one person a series of juridical ties between the
to another, signed by the maker, parties thereto arise either by law or
engaging to pay on demand, or at a by privity.
fixed or determinable future time, a *There must be further negotiation for
sum certain in money to order or to secondary contracts exist.
bearer. Where a note is drawn to the *Converted to obligors because of their
maker’s own order, it is not complete indorsements
until indorsed by him.”
*Personal engagement on the part of F. Negotiable Instruments compared with
the maker. other papers (document of title, letter of
2. Bill of Exchange credit, certificate of stock, pawn ticket,
Sec. 126 of the Negotiable postal money order, treasury warrant)
Instruments Law provides that: “A Document of title includes any bill of
bill of exchange is an unconditional lading, dock warrant, quedan, or
order in writing addressed by one warehouse receipt or order for delivery of
person to another, signed by the goods, or any other document used in the
person giving it, requiring the person ordinary course of business in the sale or
to whom it is addressed to pay on transfer of goods, as proof of possession
demand or at a fixed or determinable or control of goods, or authorizing or
future time a sum certain in money to purporting to authorize the possessor of
order or to bearer.” the document to transfer or receive either
*There is only an order directing other by indorsement or by delivery, goods
party to pay the instrument. represented by such document (Article
1636 of the New Civil Code)
D. Functions of Negotiable Instrument Letter of Credit is an engagement by a
1. It operates as a substitute of money
bank or other person made at the request
*This is the main function of negotiable
of a customer that the issuer will honor
instruments.
*Either negotiable or non-negotiable drafts or other demands for payment upon
instrument, it is a substitute for money. compliance with the conditions specified
Both are in lieu of money. in the credit.
*relate this with legal tender Certificate of Stock is a non-negotiable
2. It is a means of creating and instrument because it does not contain an
transferring credit unconditional promise or order to pay a
3. It facilitates the sale of goods sum certain in money.
4. It increases the purchasing medium in Pawn Ticket is a non-negotiable
circulation document because it does not represent
Q: Which one is the best or better money but the pawned articles.
substitute for money? Why? Postal Money Order is a non-negotiable
A: Negotiable instrument. instrument because it is governed by
Reasons: postal rules and regulations which may be
1. Negotiability and inconsistent with the Negotiable
2. Accumulation of secondary contracts. Instruments Law and it can only be
negotiated once.
E. Characteristics of Negotiable Instrument Treasury Warrant is a non-negotiable
1. Negotiability – it is that attribute or instrument because it is payable out of a
property whereby a bill or note or particular fund.
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provisions of the instrument, the written assignor and merely a better right than
provisions prevail; (e) Where the acquires whatever the right of the
instrument is so ambiguous that there is rights the assignor transferor
doubt whether it is a bill or note, the may have
Governed by the Governed by the
holder may treat it as either at his
Civil Code Negotiable
election; (f) Where a signature is so placed Instrument Law
upon the instrument that it is not clear in
what capacity the person making the
same intended to sign, he is to be deemed C. Ways of negotiation (in case of order or
an indorser; (g) Where an instrument bearer instrument)
containing the word "I promise to pay" is 1. If payable to bearer, it is negotiated by
signed by two or more persons, they are mere delivery
deemed to be jointly and severally liable 2. If payable to order, it is negotiated by
thereon. “ indorsement and delivery
*This rule is applicable only in case of Q: Why can’t indorsement be avoided by
ambiguity and there is doubt. original payee?
A: Because by indorsement, it is the
NEGOTIATION: original payee’s order to the maker to pay
the transferee.
A. Modes of transfer Q: Why indorsement is not necessary in
1. Negotiation – an instrument is
bearer instrument?
negotiated when it is transferred from
A: Because the engagement is to pay the
one person to another in such manner
amount of the instrument to holder or to
as to constitute the transferee the
any subsequent holders.
holder thereof.
Q: If the instrument is originally issued as
2. Assignment – a method of
an order instrument and was subsequently
transferring a non-negotiable
negotiated, does it always require
instrument whereby the assignee is
indorsement and delivery?
merely placed in the position of the
A: IT DEPENDS. If the indorsement is
assignor and acquires the instrument
special, it is necessary that there is
subject to all defenses that might have
indorsement and delivery, however, if the
been set up against the original payee.
indorsement is blank, delivery alone is
*If the instrument is a non-negotiable the
sufficient.
only transfer that can be made is by
assignment.
D. Concept of delivery
Sec. 16 of the Negotiable Instrument
B. Concept of negotiation; distinguished from
Law provides that: “Every contract on a
assignment
negotiable instrument is incomplete and
Sec. 30 of the Negotiable Instrument
revocable until delivery of the instrument
Law provides that: “An instrument is
for the purpose of giving effect thereto. As
negotiated when it is transferred from one
between immediate parties and as regards
person to another in such manner as to
a remote party other than a holder in due
constitute the transferee the holder
course, the delivery, in order to be
thereof. If payable to bearer, it is
effectual, must be made either by or
negotiated by delivery; if payable to order,
under the authority of the party making,
it is negotiated by the indorsement of the
drawing, accepting, or indorsing, as the
holder and completed by delivery.”
case may be; and, in such case, the
Assignment Negotiation delivery may be shown to have been
Pertains to Pertains to conditional, or for a special purpose only,
contracts in general negotiable and not for the purpose of transferring the
instruments property in the instrument. But where the
Assignee takes the Holder in due instrument is in the hands of a holder in
instrument subject course takes it free due course, a valid delivery thereof by all
to the defenses from personal
obtaining among defenses available parties prior to him so as to make them
the original parties among the parties liable to him is conclusively presumed.
Assignee steps into Holder in due And where the instrument is no longer in
the shoes of the course may acquire the possession of a party whose signature
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course; but when it is shown that the title To subsequent holder, F is considered to
of any person who has negotiated the be a holder in due course because he was
instrument was defective, the burden is on sheltered by E who is a holder in due
the holder to prove that he or some course.
person under whom he claims acquired *The determination of whether there is
the title as holder in due course. But the due course holding or not is material only
last-mentioned rule does not apply in when there is a personal defense.
favor of a party who became bound on the Q: Is it worth comparing the holders in
instrument prior to the acquisition of such due course and the one who derived title
defective title.” from the holder in due course?
*The presumption expressed in this A: YES.
section arises only in favor of a person Advantages:
who is a holder in the sense defined in
Holder in due A person derived
Sec. 191 of the Negotiable Instrument
course title from a holder
Law, i. e., a payee or indorsee who is in in due course
possession of the draft, or the bearer Always a holder in Holder in due
thereof. due course to all course to all prior
Q: How important is the statutory prior parties. parties except to
presumption? Always with the person who
A: The holder of the instrument need not freedom against negotiated the
prove that he is a holder in due course. defenses and instrument to him
*The burden to prove shifted to the other defective title
party. Shelter rule is Shelter rule is not
applicable applicable
D. Rights of holders in due course General Rule: Equitable defenses can be
Sec. 57 of the Negotiable Instrument interposed against a person not a holder
Law provides that: “A holder in due in due course.
course holds the instrument free from any Exception: Shelter rule, i. e., Section 58
defect of title of prior parties, and free of the Negotiable Instrument Law.
from defenses available to prior parties
LIABILITY OF PARTIES:
among themselves, and may enforce
payment of the instrument for the full Q: What is your understanding of parties liable?
amount thereof against all parties liable When do you say a party is liable?
thereon.” A: A person is liable when he in obligated to
perform a particular prestation.
E. Shelter Rule
Sec. 58 of the Negotiable Instrument Q: What are the liabilities of the parties according
Law provides that: “In the hands of any to its nature?
holder other than a holder in due course, a A: 1. Warranties; 2. Engagement to pay
negotiable instrument is subject to the ( primary; secondary)
same defenses as if it were non-
A. Primary and secondary liability,
negotiable. But a holder who derives his
distinguished
title through a holder in due course, and Distinction:
who is not himself a party to any fraud or
illegality affecting the instrument, has all Primary Liability Secondary
the rights of such former holder in respect Liability
of all parties prior to the latter.” The engagement of An engagement by
Requisites: a party to an a party to an
1. That the holder derived his title from a instrument that on instrument that on
holder in due course. its due date he will its due presentment
2. That he himself is not a party to any accept or pay, or it shall be accepted
both, the or paid or both as
fraud or illegality affecting the
instrument to the the case may be
instrument. payee or to any one according to its
Example: to whom it is tenor and that if it
A → B → C → D → E → F negotiated be dishonored and
E is a holder in due course according to its the necessary
E negotiated the instrument to F who is tenor. proceedings on
not a holder in due course. dishonor be duly
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b. Relationship with collecting bank it; (c) That all prior parties had
3. Acceptor capacity to contract; (d) That he
Sec. 62 of the Negotiable has no knowledge of any fact which
Instrument Law states that: “The would impair the validity of the
acceptor, by accepting the instrument, instrument or render it valueless.
engages that he will pay it according But when the negotiation is by
to the tenor of his acceptance and delivery only, the warranty extends
admits: (a) The existence of the in favor of no holder other than the
drawer, the genuineness of his immediate transferee. The
signature, and his capacity and provisions of subdivision (c) of this
authority to draw the instrument; and section do not apply to a person
(b) The existence of the payee and his negotiating public or corporation
then capacity to indorse.” securities other than bills and
*Acceptor is primarily liable
notes.”
Sec. 127 of the Negotiable
*Qualified indorsers are liable for
Instrument Law states that: “A bill of
warranties
itself does not operate as an c. Order of liability
assignment of the funds in the hands Sec. 68 of the Negotiable
of the drawee available for the Instrument Law states that: “As
payment thereof, and the drawee is respect one another, indorsers are
not liable on the bill unless and until he liable prima facie in the order in
accepts the same.” which they indorse; but evidence is
4. Indorsers admissible to show that, as
a. General indorsers
between or among themselves,
Sec. 66 of the Negotiable
they have agreed otherwise. Joint
Instrument Law states that:
payees or joint indorsees who
“Every indorser who indorses
indorse are deemed to indorse
without qualification, warrants to
jointly and severally.”
all subsequent holders in due
5. Parties negotiating by mere
course: (a) The matters and things
delivery
mentioned in subdivisions (a), (b), Sec. 65 of the Negotiable
and (c) of the next preceding Instrument Law provides that:
section; and (b) That the “Every person negotiating an
instrument is, at the time of his instrument by delivery or by a
indorsement, valid and subsisting; qualified indorsement warrants: (a)
And, in addition, he engages that, That the instrument is genuine and in
on due presentment, it shall be all respects what it purports to be; (b)
accepted or paid, or both, as the That he has a good title to it; (c) That
case may be, according to its all prior parties had capacity to
tenor, and that if it be dishonored contract; (d) That he has no knowledge
and the necessary proceedings on of any fact which would impair the
dishonor be duly taken, he will pay validity of the instrument or render it
the amount thereof to the holder, valueless. But when the negotiation is
or to any subsequent indorser who by delivery only, the warranty extends
may be compelled to pay it.” in favor of no holder other than the
*General indorsers are liable for
immediate transferee. The provisions
warranties and they are
of subdivision (c) of this section do not
secondarily liable for engagement
apply to a person negotiating public or
to pay.
corporation securities other than bills
b. Qualified indorsers
Sec. 65 of the Negotiable and notes.”
6. Other cases
Instrument Law states that:
a. Irregular indorser
“Every person negotiating an Sec. 64 of the Negotiable
instrument by delivery or by a Instrument Law states that:
qualified indorsement warrants: (a) “Where a person, not otherwise a
That the instrument is genuine and party to an instrument, places
in all respects what it purports to thereon his signature in blank
be; (b) That he has a good title to
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following minimum information: 1. and the bank is not liable to the holder
Date issued; 2. Amount; 3. Name of unless and until it accepts or certifies
buyer; 4. Date paid; 5. If the aggregate the check.”
instruments purchased by the same 3. Crossed Check done by writing two
person within any thirty (30) day parallel lines diagonally on the left top
period amounts to at least fifty portion of the checks.
thousand pesos (P50,000), the purpose Article 541 of the Code of
of the buyer should be stated.; d. That Commerce provides that: “The maker
banks which issue as well as those of any legal holder of a check shall be
which accept as deposits, said entitled to indicate therein that it be
cashier’s, manager’s or certified paid to a certain banker or institution,
checks or other similar instruments which he shall do by writing across the
issued in blank or payable to cash, face the name of said banker or
bearer or numbered account shall take institution, or only the words "and
such measure(s) as may be necessary company".
a. Effects of crossing a check
to ensure that said instruments are not
1. The check may not be
being used/resorted to by the buyer or
encashed but only deposited in
depositor in furtherance of a money-
the bank
laundering activity; e. That the 2. The check may be negotiated
deposit of said instruments shall be only once – to one who has an
subject to the same account with the bank
requirements/scrutiny applicable to 3. The act of crossing serves as a
cash deposits; f. That transactions warning to the holder that the
involving said instruments should be check has been issued for a
accordingly reported to the Bangko definite purpose so that he may
Sentral ng Pilipinas if there is inquire if he has received the
reasonable ground to suspect that said check pursuant to that purpose.
transactions are being used to launder 4. Memorandum and traveller’s check
funds of illegitimate origin.” Memorandum Check is in the form of
2. Certified check one drawn by a an ordinary check, with the word
depositor upon funds to his credit in a “memorandum”, “memo” or “mem”
bank which a proper officer of the bank written across its face, signifying that
certifies will be paid when duly the maker or drawer engages to pay
presented for payment. the bona fide holder absolutely,
*There is a guarantee that upon without any condition concerning its
presentment it will be accepted. presentment. Such check is an
*It is accepted in advance. evidence of debt against the drawer,
*Certification is equivalent to
and although it may not be intended to
acceptance.
be presented, has the same effect as
*It is forbidden to issue a stop order
an ordinary check, and if passed to a
payment.
Sec. 187 of the Negotiable third person, will be valid in his hands
Instrument Law provides that: like any other check.
Traveller’s Check instruments
“Where a check is certified by the bank
purchased from banks, express
on which it is drawn, the certification is
companies, or the like, in various
equivalent to an acceptance.”
Sec. 188 of the Negotiable denominations, which can be used like
Instrument Law provides that: cash upon second signature by the
“Where the holder of a check procures purchaser. It has the characteristics of
it to be accepted or certified, the a cashier’s check of the issuer. It
drawer and all indorsers are requires the signature of the purchaser
discharged from liability thereon.” at the time he buys it and also at the
Sec. 189 of the Negotiable time he uses it – that is when he
Instrument Law provides that: “A obtains the check from the bank and
check of itself does not operate as an also at the time he delivers the same
assignment of any part of the funds to to the establishment that will be paid
the credit of the drawer with the bank, thereby.
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when a demand is made with which he is bound nature, will be liable to injure other property , the
to comply under the provisions of this Act.” warehouseman may give such notice to the
Sec. 33 of the Warehouse Receipt Law states owner or to the person in whose names the goods
that: “A warehouseman's lien for a claim which are stored, as is reasonable and possible under
has become due may be satisfied as follows: (a) the circumstances, to satisfy the lien upon such
An itemized statement of the warehouseman's goods and to remove them from the warehouse
claim, showing the sum due at the time of the and in the event of the failure of such person to
notice and the date or dates when it becomes satisfy the lien and to receive the goods within
due, (b) A brief description of the goods against the time so specified, the warehouseman may
which the lien exists, (c) A demand that the sell the goods at public or private sale without
amount of the claim as stated in the notice of advertising. If the warehouseman, after a
such further claim as shall accrue, shall be paid reasonable effort, is unable to sell such goods, he
on or before a day mentioned, not less than ten may dispose of them in any lawful manner and
days from the delivery of the notice if it is shall incur no liability by reason thereof. The
personally delivered, or from the time when the proceeds of any sale made under the terms of
notice shall reach its destination, according to the this section shall be disposed of in the same way
due course of post, if the notice is sent by mail, as the proceeds of sales made under the terms of
(d) A statement that unless the claim is paid the preceding section.”
within the time specified, the goods will be Sec. 35 of the Warehouse Receipt Law states
advertised for sale and sold by auction at a that: “The remedy for enforcing a lien herein
specified time and place. In accordance with the provided does not preclude any other remedies
terms of a notice so given, a sale of the goods by allowed by law for the enforcement of a lien
auction may be had to satisfy any valid claim of against personal property nor bar the right to
the warehouseman for which he has a lien on the recover so much of the warehouseman's claim as
goods. The sale shall be had in the place where shall not be paid by the proceeds of the sale of
the lien was acquired, or, if such place is the property.”
manifestly unsuitable for the purpose of the claim Warehouseman’s defences for non-delivery
specified in the notice to the depositor has or misdelivery:
elapsed, and advertisement of the sale, 1. Loss or destruction of the goods without
describing the goods to be sold, and stating the the fault of the bailee.
name of the owner or person on whose account 2. Failure to surrender the negotiable
the goods are held, and the time and place of the document of title.
sale, shall be published once a week for two 3. Lack of willingness to sign
consecutive weeks in a newspaper published in acknowledgment.
the place where such sale is to be held. The sale 4. Receipt by the bailee of a request by or on
shall not be held less than fifteen days from the behalf of the person lawfully entitled to a
time of the first publication. If there is no right of property or possession in the
newspaper published in such place, the goods, not to make such delivery.
advertisement shall be posted at least ten days 5. The bailee has information that the
before such sale in not less than six conspicuous delivery about to be made was to one not
places therein. From the proceeds of such sale, lawfully entitled to the possession of the
the warehouseman shall satisfy his lien including goods.
the reasonable charges of notice, advertisement 6. Delivery to a claimant with better right.
and sale. The balance, if any, of such proceeds 7. Attachment or levy of the goods by a
shall be held by the warehouseman and delivered creditor where the document is
on demand to the person to whom he would have surrendered or its negotiation is enjoined
been bound to deliver or justified in delivering or the document is impounded.
goods. At any time before the goods are so sold, 8. Where the document of title is attached by
any person claiming a right of property or a creditor.
possession therein may pay the warehouseman
the amount necessary to satisfy his lien and to ADVERSE CLAIMS
pay the reasonable expenses and liabilities
incurred in serving notices and advertising and Sec. 17 of the Warehouse Receipt Law
preparing for the sale up to the time of such provides that: “If more than one person claims
payment. The warehouseman shall deliver the the title or possession of the goods, the
goods to the person making payment if he is a
warehouseman may, either as a defense to an
person entitled, under the provision of this Act, to
the possession of the goods on payment of action brought against him for non-delivery of the
charges thereon. Otherwise, the warehouseman goods or as an original suit, whichever is
shall retain the possession of the goods according appropriate, require all known claimants to
to the terms of the original contract of deposit.” interplead.”
Sec. 34 of the Warehouse Receipt Law states Sec. 18 of the Warehouse Receipt Law
that: “If goods are of a perishable nature, or by provides that: “If someone other than the
keeping will deteriorate greatly in value, or, by
depositor or person claiming under him has a
their order, leakage, inflammability, or explosive
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Sec. 4 of the Trust Receipt Law provides that: Sec. 5 of the Trust Receipt Law provides that:
“A trust receipt transaction, within the meaning “A trust receipt need not be in any particular
of this Decree, is any transaction by and between form, but every such receipt must substantially
a person referred to in this Decree as the contain (a) a description of the goods, documents
entruster, and another person referred to in this or instruments subject of the trust receipt; (2) the
Decree as entrustee, whereby the entruster, who total invoice value of the goods and the amount
owns or holds absolute title or security interests of the draft to be paid by the entrustee; (3) an
over certain specified goods, documents or undertaking or a commitment of the entrustee (a)
instruments, releases the same to the possession to hold in trust for the entruster the goods,
of the entrustee upon the latter's execution and documents or instruments therein described; (b)
delivery to the entruster of a signed document to dispose of them in the manner provided for in
called a "trust receipt" wherein the entrustee the trust receipt; and (c) to turn over the
binds himself to hold the designated goods, proceeds of the sale of the goods, documents or
documents or instruments in trust for the instruments to the entruster to the extent of the
entruster and to sell or otherwise dispose of the amount owing to the entruster or as appears in
goods, documents or instruments with the the trust receipt or to return the goods,
obligation to turn over to the entruster the documents or instruments in the event of their
proceeds thereof to the extent of the amount non-sale within the period specified therein. The
owing to the entruster or as appears in the trust trust receipt may contain other terms and
receipt or the goods, documents or instruments conditions agreed upon by the parties in addition
themselves if they are unsold or not otherwise to those hereinabove enumerated provided that
disposed of, in accordance with the terms and such terms and conditions shall not be contrary
conditions specified in the trust receipt, or for to the provisions of this Decree, any existing
other purposes substantially equivalent to any of laws, public policy or morals, public order or good
the following: 1. In the case of goods or customs.”
documents, (a) to sell the goods or procure their
sale; or (b) to manufacture or process the goods PARTIES TO A TRUST RECEIPT TRANSACTION
with the purpose of ultimate sale: Provided, That,
1. Entruster – release the possession of the
in the case of goods delivered under trust receipt
goods to the entrustee upon the latter’s
for the purpose of manufacturing or processing
execution of the trust receipt.
before its ultimate sale, the entruster shall retain 2. Entrustee – Sec. 9 of the Trust Receipt
its title over the goods whether in its original or Law provides that: “The entrustee shall
processed form until the entrustee has complied (1) hold the goods, documents or
fully with his obligation under the trust receipt; or instruments in trust for the entruster and
(c) to load, unload, ship or tranship or otherwise shall dispose of them strictly in
deal with them in a manner preliminary or accordance with the terms and conditions
necessary to their sale; or 2. In the case of of the trust receipt; (2) receive the
instruments, (a) to sell or procure their sale or proceeds in trust for the entruster and
exchange; or (b) to deliver them to a principal; or turn over the same to the entruster to the
(c) to effect the consummation of some extent of the amount owing to the
transactions involving delivery to a depository or entruster or as appears on the trust
register; or (d) to effect their presentation, receipt; (3) insure the goods for their total
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value against loss from fire, theft, *In Rosario Textile v Home Banker’s, the SC
pilferage or other casualties; (4) keep said held that ownership of the entruster of the goods
goods or proceeds thereof whether in is only a fiction. The one really owns the goods
money or whatever form, separate and are the entrustee.
capable of identification as property of the *Entruster is entitled to deficiency.
entruster; (5) return the goods, documents *Entrustee is entitled to receive surplus.
or instruments in the event of non-sale or Sec. 8 of the Trust Receipt Law provides that:
upon demand of the entruster; and (6) “The entruster holding a security interest shall
observe all other terms and conditions of not, merely by virtue of such interest or having
the trust receipt not contrary to the given the entrustee liberty of sale or other
provisions of this Decree.” disposition of the goods, documents or
3. Seller of the Goods - Not strictly and instruments under the terms of the trust receipt
actually a party to the trust receipt transaction be responsible as principal or as
transaction; but merely a party to the vendor under any sale or contract to sell made by
contract of sale with the buyer/importer the entrustee.”
(entrustee). Sec. 12 of the Trust Receipt Law provides
that: “The entruster's security interest in goods,
RIGHTS OF THE ENTRUSTER
documents, or instruments pursuant to the
written terms of a trust receipt shall be valid as
Sec. 7 of the Trust Receipt Law provides that:
“The entruster shall be entitled to the proceeds against all creditors of the entrustee for the
duration of the trust receipt agreement.”
from the sale of the goods, documents or
instruments released under a trust receipt to the
OBLIGATIONS/LIABILITIES OF THE
entrustee to the extent of the amount owing to ENTRUSTEE
the entruster or as appears in the trust receipt, or
to the return of the goods, documents or Sec. 9 of the Trust Receipt Law states that:
instruments in case of non-sale, and to the “The entrustee shall (1) hold the goods,
enforcement of all other rights conferred on him documents or instruments in trust for the
in the trust receipt provided such are not contrary entruster and shall dispose of them strictly in
to the provisions of this Decree. The entruster accordance with the terms and conditions of the
may cancel the trust and take possession of the trust receipt; (2) receive the proceeds in trust for
goods, documents or instruments subject of the the entruster and turn over the same to the
trust or of the proceeds realized therefrom at any entruster to the extent of the amount owing to
time upon default or failure of the entrustee to the entruster or as appears on the trust receipt;
comply with any of the terms and conditions of (3) insure the goods for their total value against
the trust receipt or any other agreement between loss from fire, theft, pilferage or other casualties;
the entruster and the entrustee, and the (4) keep said goods or proceeds thereof whether
entruster in possession of the goods, documents in money or whatever form, separate and capable
or instruments may, on or after default, give of identification as property of the entruster; (5)
notice to the entrustee of the intention to sell, return the goods, documents or instruments in
and may, not less than five days after serving or the event of non-sale or upon demand of the
sending of such notice, sell the goods, documents entruster; and (6) observe all other terms and
or instruments at public or private sale, and the conditions of the trust receipt not contrary to the
entruster may, at a public sale, become a provisions of this Decree.”
purchaser. The proceeds of any such sale, *Failure to return the proceeds or failure to return
whether public or private, shall be applied (a) to the goods in case of non-sale is equivalent to
the payment of the expenses thereof; (b) to the estafa.
payment of the expenses of re-taking, keeping Sec. 10 of the Trust Receipt Law states that:
and storing the goods, documents or instruments; “The risk of loss shall be borne by the entrustee.
(c) to the satisfaction of the entrustee's Loss of goods, documents or instruments which
indebtedness to the entruster. The entrustee shall are the subject of a trust receipt, pending their
receive any surplus but shall be liable to the disposition, irrespective of whether or not it was
entruster for any deficiency. Notice of sale shall due to the fault or negligence of the entrustee,
be deemed sufficiently given if in writing, and shall not extinguish his obligation to the entruster
either personally served on the entrustee or sent for the value thereof.”
by post-paid ordinary mail to the entrustee's last *In Landl & Co. (Phil.) v Metrobank, the SC held
known business address.” that the entrustee is still liable to pay the
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RIGHTS OF PURCHASER
PENALTIES
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Q: Who will be exposed to the risk? the burden is upon him to establish the
A: Insured amount of such loss.
*It is the basis of all property
C. Characteristics insurance.
1. Risk Distributing Device – the *Life insurance is not a contract of
device of insurance serves to distribute indemnity. Life is not subject to
the risk of economic loss among as pecuniary estimation; Life is precious.
many as possible to those who are General Rule: Insurance contract is a
subject to the same kind of risk. contract of indemnity.
*The risk is distributed to the group of Exception: Life insurance
persons having the same risk. 5. Uberrimae Fides Contract/Utmost
Q: Why is it a risk distribution device? Good Faith – The contract of
A: Insurer has different policyholders insurance is one of perfect good faith
that contribute to a common fund for not for the insured alone but equally so
the same risk. The common fund will for the insurer; in fact, it is more so for
indemnify the person who suffers loss the latter since its dominant
for the same risk. bargaining position carries with it
Catch: not all policyholders will suffer stricter responsibility.
the same risk at the same time. *Since there was an assumption of risk
2. Contract of Adhesion – Insurance is on the part of the insurer, it is their
a contract of adhesion considering that duty to make an intelligent estimates
most of the terms of the contract do that is the reason why it requires the
not result from mutual negotiations parties to the contract of insurance to
between the parties as they are disclose conditions affecting the risk of
prescribed by the insurer in printed which he is aware, or material fact,
form to which the insured may which the applicant knows, and those,
“adhere” if he chooses but which he which he ought to know.
cannot change. *Material facts are facts needed by the
*Insurer always comes up with already insurer for the determination of
made contract. whether he will assume or not the risk.
Q: Is there a contract?
A: YES. D. Elements of Insurance
Importance of knowing whether 1. Existence of an insurable interest
the contract is one of adhesion: In Sec. 12 of the Insurance Code
case of doubt, the contract shall be provides that: “The interest of a
interpreted strictly against the insurer beneficiary in a life insurance policy
and liberally in favor of the insured. shall be forfeited when the beneficiary
Q: is this rule unfair? is the principal, accomplice, or
A: NO. Because the contract was
accessory in willfully bringing about
already prepared by the insurer, the
the death of the insured; in which
only thing that the insured can do is
event, the nearest relative of the
either take it wholly or leave it.
insured shall receive the proceeds of
3. Aleatory – The obligation of the
said insurance if not otherwise
insurer to pay the proceeds of the
disqualified.”
insurance arises only upon the
Sec. 13 of the Insurance Code
happening of an event which is
provides that: “Every interest in
uncertain, or which is to occur at an
property, whether real or personal, or
indeterminate time. (Article 2010 NCC)
any relation thereto, or liability in
*The insurer becomes liable upon the
respect thereof, of such nature that a
happening of the peril insured against.
*One or both parties are reciprocally contemplated peril might directly
bound to give or do something for damnify the insured, is an insurable
consideration upon the happening of interest.”
Sec. 14 of the Insurance Code
an event which is uncertain or to which
provides that: “An insurable interest in
is to occur at an indeterminate time.
4. Contract of Indemnity - The insured property may consist in:
(a) An existing interest;
who has insurable interest over a
(b) An inchoate interest founded on an
property is only entitled to recover the
existing interest; or
amount of actual loss sustained and
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(c) An expectancy, coupled with an 1. The insured by his own act releases
existing interest in that out of which the wrongdoer/third person liable for
the expectancy arises.” the loss
2. Risk of loss 2. Where the insurer pays the insured for
Sec. 51 paragraph g of the a loss or risk not covered by the policy
Insurance Code provides that: “ A 3. In life insurance
policy of insurance must specify: x x x 4. For recovery of loss in excess of
(g) The period during which the insurance coverage
insurance is to continue.”
3. Assumption of risks CONTRACT OF INSURANCE:
Sec. 2 of the Insurance Code states
A. Requisites of a contract of Insurance
that: “xxx (1) A “contract of insurance”
1. A subject matter in which the insured
is an agreement whereby one
has an insurable interest
undertakes for a consideration to 2. Event or peril insured against which
indemnify another against loss, may be any future contingent or
damage or liability arising from an unknown event, past or future and a
unknown or contingent event.” duration for the risk thereof
4. Scheme to distribute losses 3. A promise to pay or indemnify in a
5. Payment of premiums
fixed or ascertainable amount
Sec. 77 of the Insurance Code
4. A consideration known as premium
states that: “An insurer is entitled to 5. Meeting of the minds of the parties
payment of the premium as soon as
the thing insured is exposed to the B. Perfection
peril insured against. Notwithstanding *An insurance contract is consensual
any agreement to the contrary, no contract and is therefore perfected the
policy or contract of insurance issued moment there is a meeting of minds with
by an insurance company is valid and respect to the object and the cause or
binding unless and until the premium consideration.
thereof has been paid, except in the *What is being followed in insurance
case of a life or an industrial life policy contracts is what is known as the
whenever the grace period provision Cognition Theory.
applies.” Q: What is the crucial point?
A: The point wherein there must be an
E. Right of Subrogation actual communication to the insured of
*This principle is a normal incident of the approval of the application.
indemnity property insurance as a legal *In Great Pacific Life Assurance
effect of payment; it inures to the insurer Corporation v CA, the SC held that the
without any formal assignment or any insured is the one making the offer by
express stipulation to that effect in the submitting an application to the insurer
policy. Said right is not dependent upon and the latter accepts the offer by
nor does it grow out of any privity of approving the application. Thus, mere
contract. Payment to the insured makes submission of the application without the
the insurer an assignee in equity. corresponding approval of the policy does
*The insurer can only recover from the not result in the perfection of the contract
third person what the insured could have of insurance.
recovered. Thus, there can be no recovery
if the insurer voluntarily paid even if the C. Parties to a contract of Insurance
Sec. 6 of the Insurance Code states
loss is not covered by the policy.
*The insured can no longer recover from that: “Every person, partnership,
the offending party what was paid to him association, or corporation duly authorized
by the insurer but he can recover any to transact insurance business as
deficiency, that is, if his damages is more elsewhere provided in this code, may be
than what was paid. The deficiency is not an insurer.”
Sec. 7 of the Insurance Code states
covered by the right of subrogation.
Cases when there is no right of that: “Anyone except a public enemy may
subrogation: be insured.”
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no warranty, and which the other has contract of insurance is bound to know
not the means of ascertaining.” all the general causes which are open
3. Test of Materiality to his inquiry, equally with that of the
Sec. 31 of the Insurance Code other, and which may affect the
provides that: “Materiality is to be political or material perils
determined not by the event, but contemplated; and all general usages
solely by the probable and reasonable of trade.”
influence of the facts upon the party to Sec. 34 of the Insurance Code
whom the communication is due, in provides that: “Information of the
forming his estimate of the nature or amount of the interest of one
disadvantages of the proposed insured need not be communicated
contract, or in making his inquiries.” unless in answer to an inquiry, except
*The fact disclosed may not be the as prescribed by section fifty-one.”
proximate cause of the loss still there Sec. 35 of the Insurance Code
is breach because there is a vitiation of provides that: “Neither party to a
consent, the contract is voidable. contract of insurance is bound to
4. Effect of Concealment communicate, even upon inquiry,
Sec. 27 of the Insurance Code
information of his own judgment upon
provides that: “A concealment whether
the matters in question. “
intentional or unintentional entitles the 6. Waiver of Information
injured party to rescind a contract of Sec. 33 of the Insurance Code
insurance.” provides that: “The right to information
Sec. 29 of the Insurance Code of material facts may be waived, either
provides that: “An intentional and by the terms of the insurance or by
fraudulent omission, on the part of one neglect to make inquiry as to such
insured, to communicate information facts, where they are distinctly implied
of matters proving or tending to prove in other facts of which information is
the falsity of a warranty, entitles the communicated.”
insurer to rescind.”
*It vitiates the contract and entitles B. Representation
the insurer to rescind, even if the 1. Concept
death or loss is due to a cause not Representations are factual
related to the concealed matter. statements made by the insured at the
5. Matters which need not be time of or prior to the issuance of the
communicated policy to give information to the
Sec. 30 of the Insurance Code insurer and otherwise induce him to
provides that: “Neither party to a enter into the insurance contract.
contract of insurance is bound to *Representation per se is not wrong as
communicate information of the long as such representation is true.
matters following, except in answer to *The false representation may still be
the inquiries of the other: corrected as long as it is made before
(a) Those which the other knows; the issuance of the policy.
(b) Those which, in the exercise of 2. Kinds of Representation
ordinary care, the other ought to know, Sec. 36 of the Insurance Code
and of which the former has no reason provides that: “A representation may
to suppose him ignorant; be oral or written.”
(c) Those of which the other waives Sec. 37 of the Insurance Code
communication; provides that: “representation may be
(d) Those which prove or tend to prove made at the time of, or before,
the existence of a risk excluded by a issuance of the policy.”
warranty, and which are not otherwise Sec. 39 of the Insurance Code
material; and provides that: “A representation as to
(e) Those which relate to a risk the future is to be deemed a promise,
excepted from the policy and which unless it appears that it was merely a
are not otherwise material.” statement of belief or expectation. “
*Things need not be disclosed. Sec. 42 of the Insurance Code
Sec. 32 of the Insurance Code provides that: “. A representation must
provides that: “Each party to a
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Sec. 75 of the Insurance Code form to which the insured may “adhere” if
states that: “A policy may declare that he chooses but which he cannot change.
a violation of specified provisions
thereof shall avoid it, otherwise the C. Contents of the Policy
Sec. 51 of the Insurance Code provides
breach of an immaterial provision does
that: “A policy of insurance must specify:
not avoid the policy.”
(a) The parties between whom the
Sec. 76 of the Insurance Code
contract is made;
states that: “A breach of warranty
(b) The amount to be insured except in the
without fraud merely exonerates an
cases of open or running policies;
insurer from the time that it occurs, or (c) The premium, or if the insurance is of a
where it is broken in its inception, character where the exact premium is only
prevents the policy from attaching to determinable upon the termination of the
the risk.” contract, a statement of the basis and
rates upon which the final premium is to
POLICY OF INSURANCE:
be determined;
A. Definition and Form (d) The property or life insured;
Sec. 49 of the Insurance Code states (e) The interest of the insured in property
that: “The written instrument in which a insured, if he is not the absolute owner
contract of insurance is set forth, is called thereof;
(f) The risks insured against; and
a policy of insurance.”
(g) The period during which the insurance
Sec. 50 of the Insurance Code provides
is to continue.”
that: “The policy shall be in printed form
which may contain blank spaces; and any D. Papers attached to the policy and
word, phrase, clause, mark, sign, symbol, their binding effect (rider, warranties,
signature, number, or word necessary to clause, endorsement)
complete the contract of insurance shall Rider is an attachment to an insurance
be written on the blank spaces provided policy that modifies the conditions of the
therein. Any rider, clause, warranty or policy by expanding or restricting its
endorsement purporting to be part of the benefits or excluding certain conditions
contract of insurance and which is pasted from the coverage.
or attached to said policy is not binding on *Riders, together with other attachments
the insured, unless the descriptive title or to the policy like clause, warranty or
name of the rider, clause, warranty or endorsements, are not binding on the
endorsement is also mentioned and insured unless the descriptive title or
written on the blank spaces provided in name thereof is mentioned and written on
the policy. Unless applied for by the the blank spaces provided in the policy.
insured or owner, any rider, clause, Purpose: To modify the conditions or
warranty or endorsement issued after the provisions.
original policy shall be countersigned by Interpretation: In case of doubt, riders
the insured or owner, which prevail over the policy.
countersignature shall be taken as his *Riders and the like shall be countersigned
agreement to the contents of such rider, by the insured or owner unless he was the
clause, warranty or endorsement. Group one who applied for the rider, clause, and
insurance and group annuity policies, warranty.
*When the requirements for a rider are
however, may be typewritten and need
complied with including clause, warranty
not be in printed form.”
*Contract of insurance may be made in or endorsement, it is considered part of
any form but the policy of insurance must the policy.
*It is a part of the original policy which is
be in writing.
in the nature of a conditional obligation.
B. Fine Print Rule
Insurance is a contract of adhesion E. Kinds of Policy
1. Open
considering that most of the terms of the
Sec. 60 of the Insurance Code
contract do not result from mutual
states that: “An open policy is one in
negotiations between the parties as they
which the value of the thing insured is
are prescribed by the insurer in printed
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not agreed upon, but is left to be governing such extensions for the purpose
ascertained in case of loss.” of preventing such violations and may by
*To put a threshold for purposes of such rules and regulations dispense with
premium. the requirement of written approval by
Advantage: actual valuation; the final him in the case of extension in compliance
valuation is accurate value of the with such rules and regulations. “
property *This is a preliminary contract of
Disadvantage: hassle insurance.
Example: *The protection is temporary; limited to 60
Warehouse valued for P1M
days only
At the time of loss the actual valuation
*In Pacific Timber Export Corporation
of the warehouse is P800,000
v CA, the SC held that no separate
The insured can only recover P800,000
2. Valued premium is required for the cover note. As
Sec. 61 of the Insurance Code an exception, the parties may agree
provides that: “A valued policy is one otherwise.
which expresses on its face an
G. Cancellation of Policy
agreement that the thing insured shall
Sec. 64 of the Insurance Code states
be valued at a specific sum.”
that: “No policy of insurance other than
Example:
a. Warehouse valued for P1M life shall be cancelled by the insurer
Agreed valuation is P1M except upon prior notice thereof to the
The insured can recover the whole P1M insured, and no notice of cancellation shall
without proving the actual value of the be effective unless it is based on the
property. occurrence, after the effective date of the
b. Warehouse valued for P1.5M policy, of one or more of the following:
Agreed valuation is P1M (a) non-payment of premium;
The insurer can only recover P1M (b) conviction of a crime arising out of acts
3. Running increasing the hazard insured against;
Sec. 62 of the Insurance Code (c) discovery of fraud or material
provides that: “A running policy is one misrepresentation;
which contemplates successive (d) discovery of willful or reckless acts or
insurances, and which provides that omissions increasing the hazard insured
the object of the policy may be from against;
(e) physical changes in the property
time to time defined, especially as to
insured which result in the property
the subjects of insurance, by additional
becoming uninsurable; or
statements or indorsements.”
(f) a determination by the Commissioner
*Usually covers stock and goods in
that the continuation of the policy would
warehouse
Purpose: Avoidance of over and under violate or would place the insurer in
insurance. violation of this Code.”
Prescriptive Period:
F. Cover Notes Oral = 6 years; written= 10 years
Sec. 52 of the Insurance Code provides Sec. 65 of the Insurance Code states
that: “Cover notes may be issued to bind that: “All notices of cancellation
insurance temporarily pending the mentioned in the preceding section shall
issuance of the policy. Within sixty days be in writing, mailed or delivered to the
after the issue of the cover note, a policy named insured at the address shown in
shall be issued in lieu thereof, including the policy, and shall state (a) which of the
within its terms the identical insurance grounds set forth in section sixty-four is
bound under the cover note and the relied upon and (b) that, upon written
premium therefor. Cover notes may be request of the named insured, the insurer
extended or renewed beyond such sixty will furnish the facts on which the
days with the written approval of the cancellation is based.”
Commissioner if he determines that such Sec. 66 of the Insurance Code states
extension is not contrary to and is not for that: “In case of insurance other than life,
the purpose of violating any provisions of unless the insurer at least forty-five days
this Code. The Commissioner may in advance of the end of the policy period
promulgate rules and regulations mails or delivers to the named insured at
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the address shown in the policy notice of binding, notwithstanding any stipulation
its intention not to renew the policy or to therein that it shall not be binding until the
condition its renewal upon reduction of premium is actually paid.”
limits or elimination of coverages, the General Rule: No insurance policy issued
named insured shall be entitled to renew or renewal is valid and binding until actual
the policy upon payment of the premium payment of premium. Any agreement to
due on the effective date of the renewal. the contrary is void. (Cash and Carry Rule)
Any policy written for a term of less than Exceptions:
1. In case of life and industrial life
one year shall be considered as if written
whenever the grace period provision
for a term of one year. Any policy written
applies (Sec. 77);
for a term longer than one year or any
Requisites:
policy with no fixed expiration date shall a. Life and industrial life insurance
be considered as if written for successive b. There is a grace period
policy periods or terms of one year.” c. Grace period still exists
2. Where there is an acknowledgment in
H. Time to commence action on the the contract or policy of insurance that
policy; effect of stipulation the premium had already been paid
Q: When cause of action accrues? (Sec. 78);
A: From the denial of the claim. Conclusive effect: the validity of the
Sec. 63 of the Insurance Code provides
contract/policy and its binding effect.
that: “A condition, stipulation, or *No conclusive effect as to the
agreement in any policy of insurance, payment of premium.
limiting the time for commencing an *Acknowledgment results to estoppel
action thereunder to a period of less than 3. The rule laid down in Makati Tuscany
one year from the time when the cause of Condominium v CA to the effect that
action accrues, is void.” Sec. 77 may not apply if the parties
have agreed to the payment of the
PREMIUM: premium in installments and partial
payment has been made at the time of
A. Concept
Premium is the consideration paid to an the loss;
*By express agreement
insurer for undertaking to indemnify the
Q: What was agreed upon?
insured against a specified peril. A: Payment by instalment plan
Q: Who pays the premium? 4. Where a credit term was agreed upon
A: Insured like the agreement in UCPB General
Q: What is the consideration?
Insurance, Inc. v Masagana
A: Insured: premium; Insurer: Assumption
Telemart where the insurer granted a
of risk
60-90 day credit term for the payment
B. Effect of non-payment of premium; of the premiums despite full awareness
exceptions Sec. 77 of the Insurance of Sec.77;
*By previous conduct/practice
Code states that: “. An insurer is entitled
*Insured = principle of equity; insurer
to payment of the premium as soon as the
= estoppel.
thing insured is exposed to the peril 5. Where the parties are barred by
insured against. Notwithstanding any estoppels
agreement to the contrary, no policy or Article 1306 of the : “New Civil Code
contract of insurance issued by an states that: “The contracting parties may
insurance company is valid and binding establish such stipulations, clauses, terms
unless and until the premium thereof has and conditions as they may deem
been paid, except in the case of a life or convenient, provided they are not contrary
an industrial life policy whenever the to law, morals, good customs, public
grace period provision applies.” order, or public policy.”
*This is called as Cash and Carry Rule
Sec. 78 of the Insurance Code states
C. When insured entitled to return of
that: “An acknowledgment in a policy or
premiums Sec. 79 of the Insurance
contract of insurance or the receipt of
Code states that: “A person insured is
premium is conclusive evidence of its
entitled to a return of premium, as follows:
payment, so far as to make the policy
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(a) To the whole premium if no part of his bringing about the death of the insured; in
interest in the thing insured be exposed to which event, the nearest relative of the
any of the perils insured against; insured shall receive the proceeds of said
(b) Where the insurance is made for a insurance if not otherwise disqualified.”
definite period of time and the insured Sec. 53 of the Insurance Code states
surrenders his policy, to such portion of that: “The insurance proceeds shall be
the premium as corresponds with the applied exclusively to the proper interest
unexpired time, at a pro rata rate, unless a of the person in whose name or for whose
short period rate has been agreed upon benefit it is made unless otherwise
and appears on the face of the policy, specified in the policy.”
after deducting from the whole premium Sec. 56 of the Insurance Code states
any claim for loss or damage under the that: “When the description of the insured
policy which has previously accrued; in a policy is so general that it may
Provided, That no holder of a life insurance comprehend any person or any class of
policy may avail himself of the privileges persons, only he who can show that it was
of this paragraph without sufficient cause intended to include him can claim the
as otherwise provided by law.” benefit of the policy.”
Sec. 57 of the Insurance Code provides
Sec. 80 of the Insurance Code states
that: “A policy may be so framed that it
that: “If a peril insured against has
will inure to the benefit of whomsoever,
existed, and the insurer has been liable for
during the continuance of the risk, may
any period, however short, the insured is
become the owner of the interest
not entitled to return of premiums, so far
insured.”
as that particular risk is concerned.”
Q: Who receives the proceeds?
Sec. 81 of the Insurance Code states
A: General Rule: Beneficiary
that: “A person insured is entitled to Exception: In case the designated
return of the premium when the contract beneficiary is disqualified, it is the insured
is voidable, on account of fraud or who receive the proceeds.
misrepresentation of the insurer, or of his General Rule: The designation of the
agent, or on account of facts, the beneficiary is revocable.
existence of which the insured was Exception: Irrevocable
ignorant without his fault; or when by any In irrevocable designation, the general
default of the insured other than actual rule is that the designated beneficiary
fraud, the insurer never incurred any cannot be changed.
liability under the policy.” Exceptions:
Sec. 82 of the Insurance Code states 1. The beneficiary consented to the
that: “In case of an over-insurance by change
several insurers, the insured is entitled to 2. Under Art. 45 of the Family Code which
a ratable return of the premium, substantially provides that the
proportioned to the amount by which the innocent spouse has the authority to
aggregate sum insured in all the policies revoke the designation of his
exceeds the insurable value of the thing at beneficiary
3. In cases where the marriage is
risk.”
declared void ab initio
PERSONS ENTITLED TO RECOVER ON THE 4. In cases of annulment
5. In cases of legal separation
POLICY AND CONDITIONS TO RECOVERY:
B. Limitations on the appointment of
A. Beneficiary
Sec. 11 of the Insurance Code provides beneficiary Article 2012 of the New
that: “The insured shall have the right to Civil Code states that: “Any person who
change the beneficiary he designated in is forbidden from receiving any donation
the policy, unless he has expressly waived under Article 739 cannot be named
this right in said policy.” beneficiary of a life insurance policy by the
Sec. 12 of the Insurance Code provides person who cannot make any donation to
that: “The interest of a beneficiary in a life him, according to said article.”
insurance policy shall be forfeited when *The prohibition applies only to life
the beneficiary is the principal, insurance policy.
accomplice, or accessory in willfully
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*Under Article 1236 of the New Civil Code, sufficient for him to give the best evidence
the beneficiary may pay the premium which he has in his power at the time.”
even against the will of the insurer. Sec. 90 of the Insurance Code provides
Reason: Beneficiary has interest over the that: “All defects in a notice of loss, or in
insurance policy. preliminary proof thereof, which the
Article 739 of the New Civil Code insured might remedy, and which the
states that: ”The following donations shall insurer omits to specify to him, without
be void: unnecessary delay, as grounds of
(1) Those made between persons who objection, are waived.”
were guilty of adultery or concubinage at Sec. 91 of the Insurance Code provides
the time of the donation; that: “Delay in the presentation to an
(2) Those made between persons found insurer of notice or proof of loss is waived
guilty of the same criminal offense, in if caused by any act of him, or if he omits
consideration thereof; to take objection promptly and specifically
(3) Those made to a public officer or his
upon that ground.”
wife, descendants and ascendants, by Sec. 92 of the Insurance Code provides
reason of his office. that: “If the policy requires, by way of
In the case referred to in No. 1, the action
preliminary proof of loss, the certificate or
for declaration of nullity may be brought
testimony of a person other than the
by the spouse of the donor or donee; and
insured, it is sufficient for the insured to
the guilt of the donor and donee may be
use reasonable diligence to procure it, and
proved by preponderance of evidence in
in case of the refusal of such person to
the same action.”
give it, then to furnish reasonable
C. Rule where insurance is made by an evidence to the insurer that such refusal
agent or trustee was not induced by any just grounds of
Sec. 54 of the Insurance Code provides disbelief in the facts necessary to be
that: “When an insurance contract is certified or testified.”
executed with an agent or trustee as the
DOUBLE INSURANCE:
insured, the fact that his principal or
beneficiary is the real party in interest A. Definition and requisites
may be indicated by describing the Sec. 93 of the Insurance Code provides
insured as agent or trustee, or by other that: “A double insurance exists where the
general words in the policy.” same person is insured by several insurers
separately in respect to the same subject
D. Rule where insurance if made by
and interest.”
partner or part owner Requisites:
Sec. 55 of the Insurance Code provides 1. The person insured is the same
that: “To render an insurance effected by 2. There are two or more insurers
one partner or part-owner, applicable to insuring separately
the interest of his co-partners or other 3. The subject matter is the same
part-owners, it is necessary that the terms 4. The interest insured is also the same
of the policy should be such as are 5. The risk or peril insured against is
applicable to the joint or common interest. likewise the same
“
B. Distinguished from Over-insurance
E. Notice and proof of loss
Distinctions:
Sec. 88 of the Insurance Code states
that: “In case of loss upon an insurance
against fire, an insurer is exonerated, if Double Insurance Over-Insurance
notice thereof be not given to him by an When the amount of
insured, or some person entitled to the There may be no the insurance is
benefit of the insurance, without over-insurance as beyond the value of
unnecessary delay.” when the sum total the insured’s
Sec. 89 of the Insurance Code states of the amounts of insurable interest
that: “When a preliminary proof of loss is the policies issued
does not exceed the
required by a policy, the insured is not
insurable interest of
bound to give such proof as would be the insured
necessary in a court of justice; but it is There are always There may only be
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(c) When made in good faith, and 3. Scope of insurance against actual
upon reasonable grounds of belief total loss
in its necessity to avoid a peril; or Sec. 137 of the Insurance Code
(d) When made in good faith, for states that: “An insurance confined in
the purpose of saving human life or terms to an actual loss does not cover
relieving another vessel in a constructive total loss, but covers
distress.” any loss, which necessarily results in
*Warranty is against improper depriving the insured of the
deviation. possession, at the port of destination,
*Whether or not improper deviation of the entire thing insured.”
contributed to the loss is 4. When constructive total
immaterial because there was loss/partial loss exists
already a breach of implied Sec. 139 of the Insurance Code
warranty. provides that: “A person insured by a
Sec. 126 of the Insurance Code contract of marine insurance may
states that: “An insurer is not liable abandon the thing insured, or any
for any loss happening to the thing particular portion thereof separately
insured subsequent to an improper valued by the policy, or otherwise
deviation.” separately insured, and recover for a
total loss thereof, when the cause of
H. Loss
the loss is a peril insured against:
1. Kinds of losses
(a) If more than three-fourths thereof
a. Actual
Sec. 130 of the Insurance Code in value is actually lost, or would have
provides that: “An actual total loss to be expended to recover it from the
is cause by: peril;
(a) A total destruction of the thing (b) If it is injured to such an extent as
insured; to reduce its value more than three-
(b) The irretrievable loss of the fourths;
thing by sinking, or by being (c) If the thing insured is a ship, and
broken up; the contemplated voyage cannot be
(c) Any damage to the thing which lawfully performed without incurring
renders it valueless to the owner either an expense to the insured of
for the purpose for which he held more than three-fourths the value of
it; or the thing abandoned or a risk which a
(d) Any other event which prudent man would not take under the
effectively deprives the owner of circumstances; or
the possession, at the port of (d) If the thing insured, being cargo or
destination, of the thing insured.” freightage, and the voyage cannot be
Sec. 132 of the Insurance Code performed, nor another ship procured
states that: “An actual loss may be by the master, within a reasonable
presumed from the continued time and with reasonable diligence, to
absence of a ship without being forward the cargo, without incurring
heard of. The length of time which the like expense or risk mentioned in
is sufficient to raise this the preceding sub-paragraph. But
presumption depends on the freightage cannot in any case be
circumstances of the case.” abandoned unless the ship is also
b. Constructive abandoned.”
Sec. 131 of the Insurance Code Test: The loss is more than ¾ but less
provides that: “A constructive total than 1.
loss is one which gives to a person *If there is partial loss, only partial can
insured a right to abandon, under be claimed.
Section one hundred thirty-nine. “ *The extent of damage in constructive
2. Right to payment upon an actual loss is so severe.
total loss *This is not automatic.
Sec. 135 of the Insurance Code *There is an option either to abandon it
states that: “Upon an actual total loss, or to recover only the partial loss.
a person insured is entitled to payment 5. Concept of abandonment and its
without notice of abandonment.” requisites
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(a) Motor vehicles with an authorized Sec. 378 of the Insurance Code
capacity of twenty-six or more provides that: “Any claim for death or
passengers: Fifty thousand pesos; injury to any passenger or third party
(b) Motor vehicles with an authorized pursuant to the provisions of this chapter
capacity of from twelve to twenty-five shall be paid without the necessity of
passengers: Forty thousand pesos; proving fault or negligence of any kind;
(c) Motor vehicles with an authorized Provided, That for purposes of this section:
capacity of from six to eleven passengers: (i) The total indemnity in respect of
Thirty thousand pesos; any person shall not exceed fifteen
(d) Motor vehicles with an authorized thousand pesos;
capacity of five or less passengers: Five (ii) The following proofs of loss, when
thousand pesos multiplied by the submitted under oath, shall be
authorized capacity. sufficient evidence to substantiate
Provided, however, That such cash deposit the claim: (a) Police report of
made to, or surety bond posted with, the accident; and
Commissioner shall be resorted to by him (b) Death certificate and evidence
in cases of accidents the indemnities for sufficient to establish the proper
which to third-parties and/or passengers payee; or (c) Medical report and
are not settled accordingly by the land evidence of medical or hospital
transportation operator and, in that event, disbursement in respect of which
the said cash deposit shall be replenished refund is claimed;
or such surety bond shall be restored with (iii) Claim may be made against one
sixty days after impairment or expiry, as motor vehicle only. In the case of
the case may be, by such land an occupant of a vehicle, claim
transportation operator, otherwise, he shall lie against the insurer of the
shall secure the insurance policy required vehicle in which the occupant is
by this chapter. The aforesaid cash deposit riding, mounting or dismounting
may be invested by the Commissioner in from. In any other case, claim shall
readily marketable government bonds lie against the insurer of the
and/or securities. directly offending vehicle. In all
(2) In the case of an owner of a motor cases, the right of the party paying
vehicle, the insurance or guaranty in cash the claim to recover against the
or surety bond shall cover liability for owner of the vehicle responsible for
death or injury to third parties in an the accident shall be maintained.“
amount not less than that set forth in the Q: How does the law protects the victim?
following scale in any one accident: A: By the provision under the NO FAULT
I. Private Cars INDEMNITY CLAUSE.
(a) Bantam : Twenty thousand pesos;
*No fault clause applies only to bodily
(b) Light : Twenty thousand pesos;
(c) Heavy : Thirty thousand pesos; physical injuries or death not to property
II. Other Private Vehicles damage.
(a) Tricycles, motorcyles, and scooters : Q: From whom should the injured recover?
Twelve thousand pesos; A: (a) In the case of an occupant of a
(b) Vehicles with an unladen weight of vehicle, claim shall lie against the insurer
2,600 kilos or less : Twenty thousand of the vehicle in which the occupant is
pesos; riding, mounting or dismounting from; (b)
(c) Vehicles with an unladen weight of If not an occupant, claim shall lie against
between 2,601 kilos and 3,930 kilos : the insurer of the directly offending
Thirty thousand pesos; vehicle; (c) In all cases, the right of the
(d) Vehicles with an unladen weight over party paying the claim to recover against
3,930 kilos : Fifty thousand pesos. the owner of the vehicle responsible for
The Commissioner may, if warranted, set
the accident shall be maintained.
forth schedule of indemnities for the
Examples:
payment of claims for death or bodily
a. A passenger rode Y taxi cab. The taxi
injuries with the coverages set forth
cab is insured by X company under the
herein.”
compulsory motor vehicle liability
D. No-Fault indemnity claim insurance. The taxi collided against a
MERALCO post.
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The passenger can claim against X investigation of claims arising under its
company without proving fault or policies;
negligence. Only documents that (d) not attempting in good faith to
prove the happening of the incident. effectuate prompt, fair and equitable
b. Passenger 1 received P15,000 under settlement of claims submitted in which
the no fault clause. His actual liability has become reasonably clear; or
expenses amount to P50,000. (e) compelling policyholders to institute
Q: Can he still recover the balance? suits to recover amounts due under its
From whom? policies by offering without justifiable
A: YES. Against the offending vehicle reason substantially less than the amounts
but this time he is required to prove ultimately recovered in suits brought by
fault or negligence. them.
(2) Evidence as to numbers and types of
E. Notice of claim valid and justifiable complaints to the
Sec. 384 of the Insurance Code states
Commissioner against an insurance
that: “Any person having any claim upon
company, and the Commissioner's
the policy issued pursuant to this Chapter
complaint experience with other insurance
shall, without any unnecessary delay,
companies writing similar lines of
present to the insurance company
insurance shall be admissible in evidence
concerned a written notice of claim setting
in an administrative or judicial proceeding
forth the nature, extent and duration of
brought under this section.
the injuries sustained as certified by a duly (3) If it is found, after notice and an
licensed physician. Notice of claim must opportunity to be heard, that an insurance
be filed within six months from date of company has violated this section, each
accident, otherwise, the claim shall be instance of non-compliance with
deemed waived. Action or suit for recovery paragraph (1) may be treated as a
of damage due to loss or injury must be separate violation of this section and shall
brought, in proper cases, with the be considered sufficient cause for the
Commissioner or the Courts within one suspension or revocation of the company's
year from denial of the claim, otherwise, certificate of authority.”
the claimant's right of action shall General Rule: Upon maturity of the
prescribe.” policy
Exception: Annuities payment
CLAIMS SETTLEMENT:
B. Claims for life insurance policies
A. Unfair claim settlement practices Sec. 242 of the Insurance Code
Sec. 241 of the Insurance Code states provides that: “The proceeds of a life
that: “(1) No insurance company doing insurance policy shall be paid immediately
business in the Philippines shall refuse, upon maturity of the policy, unless such
without just cause, to pay or settle claims proceeds are made payable in
arising under coverages provided by its installments or as an annuity, in which
policies, nor shall any such company case the installments, or annuities shall be
engage in unfair claim settlement paid as they become due: Provided,
practices. Any of the following acts by an however, That in the case of a policy
insurance company, if committed without maturing by the death of the insured, the
just cause and performed with such proceeds thereof shall be paid within sixty
frequency as to indicate a general days after presentation of the claim and
business practice, shall constitute unfair filing of the proof of the death of the
claim settlement practices: insured. Refusal or failure to pay the claim
(a) knowingly misrepresenting to within the time prescribed herein will
claimants pertinent facts or policy entitle the beneficiary to collect interest
provisions relating to coverage at issue; on the proceeds of the policy for the
(b) failing to acknowledge with reasonable
duration of the delay at the rate of twice
promptness pertinent communications
the ceiling prescribed by the Monetary
with respect to claims arising under its
Board, unless such failure or refusal to pay
policies;
(c) failing to adopt and implement is based on the ground that the claim is
fraudulent.
reasonable standards for the prompt
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public and that it still has the capacity Implications being a common
to do so. carrier:
2. Protection Investment Rule – protects a. extraordinary diligence must be
from unfair competition exercised
3. Prior Applicant Rule – protects the first b. in case of damage, presumption of
applicant. Principle: all things being negligence on the part of the
equal common carrier
*Public interest is the first and paramount *It is the activity of the carrier that is
consideration. controlling.
Cases: A.F. Sanchez Brokerage, Inc
E. Concept of franchise and certificate v CA; Asia Lighterage v CA; De
of public convenience Guzman v CA
Franchise is a grant or privilege from the *The fact that there is no license at the
sovereign power. time of the incident happen is of no
Certificate of Public Convenience is a
moment for liability purposes.
form of regulation through an
2. Distinguished from private carrier
administrative agency.
Common Private
Q: Is a legislative franchise necessary
Carrier Carrier
before a public utility can be allowed to As to holds Contracts
secure a certificate of public convenience? availabilit himself out with
A: General Rule: NO. y: for all particular
Exception: If a pertinent law requires people individual
such legislative franchise. indiscriminat s or
Factors: ely groups
1. Public interest only
2. Public convenience As to Extraordinar Ordinary
3. Public necessity required y diligence diligence
diligence: is required is required
GENERAL CONCEPTS: As to Subject to Not
regulatio state subject to
A. Contract of transportation in general n: regulation state
Transportation is a contract whereby a regulation
person, natural or juridical, obligates to Stipulatio Parties may Parties
n limiting not agree on may limit
transport persons, goods, or both, from
liability: limiting the the
one place to another, by land, air, or carrier’s carrier’s
water, for a price or commission. liability liability,
*Importance: For liability purposes except when provided
provided by it is not
B. Perfection law contrary
There is a perfected contract when there to law,
was a meeting of the minds as to the morals or
subject matter and consideration. good
customs
C. Common Carrier Exemptin Prove Caso
1. Statutory definition g extraordinar fortuito,
Article 1732 of the New Civil Code circumsta y diligence Article
provides that: “Common carriers are nce: and Article 1174 NCC
persons, corporations, firms or 1734 NCC
Presumpti There is a No
associations engaged in the business
on of presumption presumpti
of carrying or transporting passengers Negligenc of fault or on of fault
or goods or both, by land, water, or air, e: negligence or
for compensation, offering their negligenc
services to the public.” e
- one that holds itself out as ready to Governing Law on Law on
engage in the transportation of law: common obligation
goods for hire as a public carriers s and
contracts
employment and not as a casual
occupation.
3. Distinguished from towage,
arrastre and stevedoring
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force and effect even when they are Article 1739 of the New Civil
temporarily unloaded or stored in Code provides that: “In order that
transit, unless the shipper or owner the common carrier may be
has made use of the right of stoppage exempted from responsibility, the
in transitu.” natural disaster must have been
Article 1738 of the New Civil Code the proximate and only cause of
provides that: “The extraordinary the loss. However, the common
liability of the common carrier carrier must exercise due diligence
continues to be operative even during to prevent or minimize loss before,
the time the goods are stored in a during and after the occurrence of
warehouse of the carrier at the place flood, storm or other natural
of destination, until the consignee has disaster in order that the common
been advised of the arrival of the carrier may be exempted from
goods and has had reasonable liability for the loss, destruction, or
opportunity thereafter to remove them deterioration of the goods. The
or otherwise dispose of them.” same duty is incumbent upon the
3. Defenses of common carriers common carrier in case of an act of
Article 1734 of the New Civil Code
the public enemy referred to in
provides that: “Common carriers are
Article 1734, No. 2.”
responsible for the loss, destruction, or *Fire is not within the ambit of
deterioration of the goods, unless the natural disaster or calamity.
same is due to any of the following *Calamity includes thunderstorm.
causes only: *mechanical defect is not within
(1) Flood, storm, earthquake, lightning, the ambit of the natural disaster; it
or other natural disaster or calamity; is within the control of the common
(2) Act of the public enemy in war, carrier.
whether international or civil; Requisites:
(3) Act of omission of the shipper or 1. Proximate cause is the natural
owner of the goods; calamity
(4) The character of the goods or 2. Absence of negligence on the
defects in the packing or in the part of the common carrier
containers; 3. The common carrier must
(5) Order or act of competent public exercise due diligence to
authority.” prevent loss before, during and
*The enumeration is exclusive or a after the occurrence of the
closed list. disaster
General Rule: Common carriers are 4. Free from unreasonable delay
responsible for the loss, destruction or by the common carrier or
deterioration of the goods. unreasonable deviation
Exceptions: b. Public enemy
1. Flood, storm, earthquake, Article 1739 of the New Civil
lightning or other natural Code states that: “In order that the
disaster or calamity; common carrier may be exempted
2. Act of the public enemy in war
from responsibility, the natural
whether international or civil;
disaster must have been the
3. Act of omission of the shipper
proximate and only cause of the
or owner of the goods;
4. The character of the goods or loss. However, the common carrier
defects in the packaging or in must exercise due diligence to
the containers; and prevent or minimize loss before,
5. Order or act of the competent during and after the occurrence of
public authority flood, storm or other natural
Article 1740 of the New Civil Code disaster in order that the common
states that: “If the common carrier carrier may be exempted from
negligently incurs in delay in liability for the loss, destruction, or
transporting the goods, a natural deterioration of the goods. The
disaster shall not free such carrier from same duty is incumbent upon the
responsibility.” common carrier in case of an act of
a. Fortuitous event
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the damages which the delay may conveyance, reserving his right to
have caused.” proceed against the latter if he was
Article 371 of the Code of not the party directly responsible
Commerce provides that: “In case for the fault which gave rise to the
of delay through the fault of the claim of the shipper or consignee.
carrier, referred to in the preceding The carrier who makes the delivery
articles, the consignee may leave shall likewise acquire all the actins
the goods transported in the hands and rights of those who preceded
of the former, advising him thereof him in the conveyance. The shipper
in writing before their arrival at the and the consignee shall have an
point of destination. When this immediate right of action against
abandonment takes place, the the carrier who executed the
carrier shall pay the full value of transportation contract, or against
the goods as if they had been lost the other carriers who may have
or mislaid. If the abandonment is received the goods transported
not made, the indemnification for without reservation. However, the
losses and damages by reason of reservation made by the latter shall
the delay cannot exceed the not relieve them from the
current price which the goods responsibilities which they may
transported would have had on the have incurred by their own acts.”
day and at the place in which they Article 374 of the Code of
should have been delivered; this Commerce states that: “The
same rule is to be observed in all consignees to whom the shipment
other cases in which this indemnity was made may not defer the
may be due.” payment of the expenses and
Article 372 of the Code of transportation charges of the goods
Commerce states that: “The value they receive after the lapse of 24
of the goods which the carrier must hours following their delivery; and
pay in cases of loss or in case of delay in this payment,
misplacement shall be determined the carrier may demand the judicial
in accordance with that declared in sale of the goods transported in an
the bill of lading, the shipper not amount necessary to cover the
being allowed to present proof that cost of transportation and the
among the goods declared therein expenses incurred.”
there were articles of greater value Effects of delay:
and money. Horses, vehicles, 1. Excusable delay in carriage
vessels, equipment and all other merely suspends and generally
principal and accessory means of does not terminate the contract
transportation shall be especially of carriage. When the cause is
bound in favour of the shipper, removed, the master must
although with respect to railroads proceed with the voyage and
said liability shall be subordinated make delivery;
to the provisions of the laws of 2. Carrier remains duty bound to
concession with respect to the exercise extraordinary
property, and to what this Code diligence;
3. Natural disaster shall not free
established as to the manner and
the carrier from responsibility;
form of effecting seizures and
4. If delay is without just cause,
attachments against said
the contract limiting the
companies.”
common carrier’s liability
Article 373 of the Code of
cannot be availed of in case of
Commerce states that: “The
loss or deterioration of the
carrier who makes the delivery of
goods.
the merchandise to the consignee
c. Place of Delivery
by virtue of combined agreements Article 360 of the Code of
or services with other carriers shall Commerce provides that: “The
assume the obligations of those shipper, without changing the
who preceded him in the
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place where the delivery is to be damages; and the SC said that these
made, may change the claims can still prosper in because
consignment of the goods which he there is still a breach of contract of
delivered to the carrier, provided carriage.
that at the time of ordering the *Behavior of the employees towards to
change of consignee the bill of passengers is also a factor considered
lading signed by the carrier, if one by the court to rule against a common
has been issued, be returned to carrier.
him, in exchange for another *In CAL v PAL, the SC held that
wherein the novation of the hijacking of the airplane is considered
contract appears. The expenses to be a force majeure thus cannot held
which this change of consignment the carrier liable.
Case: Singapore Airline v Andion
occasions shall be for the account
Fernandez
of the shipper.”
*In Japan Airlines v Asuncion
d. To whom delivery shall be
(January 28, 2005), the SC held that
made
Article 368 of the Code of the things invoked by the respondent
Commerce provides that: “The do not fall within the ambit of
carrier must deliver to the extraordinary diligence. Though it is
consignee, without any delay or the duty of the carrier to check that
obstruction, the goods which he travel documents are with the
may have received, by the mere passengers but it is not under the
fact of being named in the bill of obligation of the carrier to check the
lading to receive them; and if he veracity of the information in the travel
does not do so, he shall be liable document; it also held that the
for the damages which may be obligation of the carrier is limited to
caused thereby.” endorsing and not to influence. The
Article 369 of the Code of issue of whether or not an alien be
Commerce provides that: “If the admitted entrance to a country is a
consignee cannot be found at the sovereign act and such cannot be
residence indicated in the bill of interfered by the petitioner.
lading, or if he refuses to pay the 2. Duration of liability
*The carrier is bound to exercise
transportation charges and
utmost diligence with respect to
expenses, or if he refuses to
passengers the moment the person
receive the goods, the municipal
who purchases the ticket or token from
judge, where there is none of the
the carrier presents himself at the
first instance, shall provides for
proper place and in a proper manner to
their deposit at the disposal of the
be transported. Such person must
shipper, this deposit producing all
have a bona fide intention to use the
the effects of delivery without
facilities of the carrier, possess
prejudice to third parties with a
sufficient fare with which to pay for his
better right.”
passage, and present himself to the
OBLIGATIONS OF THE COMMON CARRIER IN carrier for transportation in the place
A CONTRACT OF CARRIAGE OF PASSENGERS: and manner provided.
*In LRTA v Navidad, the SC held the
A. Safety of Passengers petitioner carrier liable for breach of
1. Duty to observe utmost diligence contract. The SC held that Nicanor
Article 1755 of the New Civil Code Navidad was a passenger when he
provides that: “A common carrier is died after he fell on the LRT tracks and
bound to carry the passengers safely was struck by a moving train. He was
as far as human care and foresight can considered a passenger because he
provide, using the utmost diligence of entered the LRT station after having
very cautious persons, with a due purchased a token and he fell while he
regard for all the circumstances.” was on the platform waiting for a train.
*There are claims not really focused on Thus, he was where he was supposed
death, injuries, loss or damage of
goods but concentrates on moral
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to be with the intention of boarding a Article 1759 of the New Civil Code
train. provides that: “Common carriers are
*Once created, the relationship will not liable for the death of or injuries to
ordinarily terminate until the passengers through the negligence or
passenger has, after reaching his wilful acts of the former's employees,
destination, safely alighted from the although such employees may have
carrier’s conveyance or has had a acted beyond the scope of their
reasonable opportunity to leave the authority or in violation of the orders of
carrier’s premises. All persons who the common carriers.
remain on the premises within a This liability of the common carriers
reasonable time after leaving the does not cease upon proof that they
conveyance are to be deemed exercised all the diligence of a good
passengers, and what is a reasonable father of a family in the selection and
time or a reasonable delay within this supervision of their employees.”
rule is to be determined from all the Case: Maranan v Perez
circumstances, and includes 5. Liability for acts of strangers
Article 1763 of the New Civil Code
reasonable time to look after his
provides that: “A common carrier is
baggage and prepare for his
responsible for injuries suffered by a
departure.
*In La Mallorca v CA, the SC held passenger on account of the wilful acts
that there was a breach of duty to or negligence of other passengers or of
exercise extraordinary diligence with strangers, if the common carrier's
respect to the 4 year old child and the employees through the exercise of the
carrier is liable as a consequence. The diligence of a good father of a family
presence of passengers near the bus could have prevented or stopped the
was not unreasonable and they were, act or omission. “
Case: Bachelor Express v CA
therefore, to be considered still as
6. Effect of stipulation on liability
passengers of the carrier, entitled to Article 1757 of the New Civil Code
the protection under their contract. provides that: “The responsibility of a
*In Aboitiz Shipping Corporation v
common carrier for the safety of
CA, the SC held that extraordinary
passengers as required in Articles
diligence was still owed to AV at the
1733 and 1755 cannot be dispensed
time of the accident. It was ruled that
with or lessened by stipulation, by the
AV’s presence in the premises was not
posting of notices, by statements on
without cause. The victim had to claim
tickets, or otherwise.”
his baggage which was possible only Article 1758 of the New Civil Code
one hour after the vessel arrived since provides that: “When a passenger is
it was the standard procedure in the carried gratuitously, a stipulation
case of petitioner’s vessels that the limiting the common carrier's liability
unloading operation shall start only for negligence is valid, but not for
after that time. wilful acts or gross negligence.
*The differences between the La The reduction of fare does not justify
Mallorca case and Aboitiz Shipping any limitation of the common carrier's
Corporation are: 1. The business is liability.”
different from that of La Mallorca case; Article 1760 of the New Civil Code
and 2. The capacity of passengers and states that: “The common carrier's
baggages are different responsibility prescribed in the
3. Presumption of negligence preceding article cannot be eliminated
Article 1756 of the New Civil Code
or limited by stipulation, by the posting
states that: “In case of death of or
of notices, by statements on the
injuries to passengers, common
tickets or otherwise.”
carriers are presumed to have been at
fault or to have acted negligently, B. Passenger’s Baggages
unless they prove that they observed Article 1754 of the New Civil Code
extraordinary diligence as prescribed provides that: “The provisions of Articles
in Articles 1733 and 1755.” 1733 to 1753 shall apply to the
4. Liability for acts of employees passenger's baggage which is not in his
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Article 1758 of the New Civil Code limit himself to the financial
states that: “When a passenger is administration of the vessel, and
carried gratuitously, a stipulation shall intrust the navigation to a
limiting the common carrier's liability person possessing the
for negligence is valid, but not for qualifications required by said
wilful acts or gross negligence. ordinances and regulations.”
The reduction of fare does not justify *Extraordinary diligence requires
any limitation of the common carrier's that the ship which will transport
liability.” the passengers and goods is
Article 1760 of the New Civil Code seaworthy.
states that: “The common carrier's *The carriers are deemed to
responsibility prescribed in the warrant impliedly the
preceding article cannot be eliminated seaworthiness of the ship. The
or limited by stipulation, by the posting failure of a common carrier to
of notices, by statements on the maintain in seaworthy condition
tickets or otherwise.” the vessel involved in its contract
of carriage is a clear breach of its
C. Extraordinary diligence in carriage duty prescribed in Article 1755 of
by sea the NCC.
1. Seaworthiness of the vessel *Shippers of goods are not
Sec. 3 [1] of the COGSA
expected to inquire into the
provides that: “The carrier shall be
vessel’s seaworthiness and
bound before and at the beginning
compliance with all maritime laws.
of the voyage to exercise due *The unseaworthiness can be
diligence to — established by the fact that it did
(a) Make the ship seaworthy;
not withstand the natural and
(b) Properly man,equip, and supply
inevitable action of the sea.
the ship;
2. Overloading
(c) Make the holds, refrigerating
*Duty to exercise due diligence
and cooling chambers, and all
includes the duty to take
other parts of the ship in which
passengers or cargoes that are
goods are carried, fit and safe for
within the carrying capacity of the
their reception, carriage, and
vessel.
preservation.” 3. Proper storage
Sec. 3 [2] of the COGSA provides *The ship must not be only
that: “The carrier shall properly and seaworthy but it must also be
carefully load, handle, stow, carry, cargoworthy. The ship must be an
keep, care for, and discharge the efficient storehouse for her cargo.
goods carried.” *The vessel must be adequately
Sec. 116 of the IC equipped and properly manned.
Sec. 119 of the IC 4. Obligation of captain and crew
Article 609 of the Code of *If the negligence of the captain
Commerce states that: “Captains, and crew can be traced to the fact
masters or patrons of vessels must that they are really incompetent,
be Filipinos, have legal capacity to the Limited Liability Rule cannot be
contract in accordance with this invoked because the ship owner
code, and prove the skill, capacity, may be deemed negligent.
and qualifications necessary to 5. Rule on deviation and
command and direct the vessel, as transhipment Deviation
established by marine or *If route is stipulated upon by the
navigation laws, ordinances, or shipper and carrier, carrier can’t
regulations, and must not be change unless due to force
disqualified according to the same majeure.
for the discharge of the duties of *Carrier shall be liable for all losses
the position. If the owner of a suffered from any other cause,
vessel desires to be the captain beside the sum stipulated for such
thereof, without having the legal case.
qualifications therefor, he shall
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Basis: Article 2180 of the New Civil *One year period applies to
Code shipper, assignee, insurer,
subrogees, and successor in
B. Prescriptive period and conditions interest.
precedent *One year period does not apply in
1. Overland transportation of
cases of delay or misdelivery.
goods and coastwise shipping
(Domestic) International Carriage of Goods
Article 366 of the Code of by Sea Sec. 3 [6] of the COGSA
Commerce provides that: “Within substantially provides that in case
the 24 hours following the receipt of patent damage, the shipper
of the merchandise, the claim should file a claim with the carrier
against the carrier for damage or immediately upon delivery. In case
average which may be found of latent damage, the shipper
therein upon opening the should file a claim with the carrier
packages, may be made, provided within 3 days from delivery. Action
that the indications of the damage for loss or damage to the cargo
or average which gives rise to the should be brought within one year
claim cannot be ascertained from after: delivery of the goods
the outside part of such packages, (delivered but damaged goods); or
in which case the claim shall be the date when the goods should
admitted only at the time of have been delivered (loss).
receipt. After the periods *The filing of a notice of claim is
mentioned have elapsed, or the not a condition precedent.
transportation charges have been
paid, no claim shall be admitted Recoverable Damages
against the carrier with regard to The court may award the following
the condition in which the goods damages:
transported were delivered.” 1. Actual/Compensatory Damages
*Prior notice of claim does not 2. Temperate Damages
apply to misdelivery of goods. 3. Liquidated Damages
Purpose of notice: To inform the 4. Exemplary Damages
5. Moral Damages
carrier that the shipment has been
6. Nominal Damages
damaged and that it is charged
with liability therefor, and to give it
Actual/Compensatory damages are
an opportunity to make an
those awarded to the aggrieved party as
investigation and fix responsibility
adequate compensation only for such
while the matter is fresh.
pecuniary loss suffered by him as he has
*The filing of notice of claim is a
alleged and duly proved.
condition precedent for recovery in
Article 2199 of the Civil Code states
case of damage condition of the
that: “Except as provided by law or by
goods.
*Not provided by Article 366 of the stipulation, one is entitled to an adequate
Code of Commerce. Thus, in such compensation only for such pecuniary loss
absence, the New Civil Code rules suffered by him as he has duly proved.
on prescription apply. Such compensation is referred to as actual
Prescriptive period: or compensatory damages.”
General Rule: If written, 10 years, *To claim this award, proving the amount
if not written, 6 years is necessary.
Exceptions: *Procedures or plastic surgeries performed
1. COGSA – 1 year to restore the part of the body injured are
2. Warsaw Convention – 2 years
included as a component of actual
Example: Q: In case of pending damages.
extrajudicial claim, does it suspend Temperate damages or moderate
the one year period? damages these are damages the amount
A: NO of which is left to the sound discretion of
the court, but it is necessary that there be
some injury or pecuniary loss established,
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the exact amount of which, could not be *This is awarded to prevent other carrier
determined by the plaintiff by reason of to commit oppressive acts.
the nature of the case. *This cannot be awarded unless the
Article 2224 of the New Civil Code plaintiff is entitled to moral at the same
provides that: “Temperate or moderate time actual or temperate damages.
damages, which are more than nominal Article 2231 of the New Civil Code
but less than compensatory damages, states that: “In quasi-delicts, exemplary
may be recovered when the court finds damages may be granted if the defendant
that some pecuniary loss has been acted with gross negligence.”
Article 2232 of the New Civil Code
suffered but its amount can not, from the
states that: “In contracts and quasi-
nature of the case, be provided with
contracts, the court may award exemplary
certainty.”
*The court is convinced that there is damages if the defendant acted in a
pecuniary loss. wanton, fraudulent, reckless, oppressive,
*There is no actual certainty of the actual or malevolent manner.”
amount loss. The court is allowed to Article 2233 of the New Civil Code
calculate the amount. states that: “Exemplary damages cannot
*This is in the form of actual damages be recovered as a matter of right; the
Liquidated damages are fixed damages court will decide whether or not they
previously agreed by the parties to the should be adjudicated.”
contract and payable to the innocent Article 2234 of the New Civil Code
party in case of breach by the other. states that: “While the amount of the
Article 2226 of the New Civil Code exemplary damages need not be proved,
provides that: “Liquidated damages are the plaintiff must show that he is entitled
those agreed upon by the parties to a to moral, temperate or compensatory
contract, to be paid in case of breach damages before the court may consider
thereof.” the question of whether or not exemplary
*This is in the form of actual damages but damages should be awarded In case
a stipulated one. liquidated damages have been agreed
*Proving the amount is not necessary. upon, although no proof of loss is
*In this kind of damages, estoppel applies.
necessary in order that such liquidated
General Rule: The court cannot change
damages may be recovered, nevertheless,
the amount.
Exception: If the amount stipulated is before the court may consider the
excessive the court may disregard said question of granting exemplary in addition
amount and may compute the actual to the liquidated damages, the plaintiff
damages. must show that he would be entitled to
*The only thing to be proved is the fact of moral, temperate or compensatory
loss. damages were it not for the stipulation for
Exemplary damages are mere liquidated damages.”
accessories to other forms of damages Article 2235 of the New Civil Code
except nominal damages. They are mere states that: “A stipulation whereby
additions to actual, moral, temperate and exemplary damages are renounced in
liquidated damages which may or may not advance shall be null and void.”
be granted at all depending upon the Nominal damages are not for
necessity of setting an example for the indemnification of loss but for vindication
public good as a form of deterrent to the of a right violated.
Article 2221 of the New Civil Code
repetition of the same act by any one.
Article 2229 of the New Civil Code provides that: “Nominal damages are
provides that: “Exemplary or corrective adjudicated in order that a right of the
damages are imposed, by way of example plaintiff, which has been violated or
or correction for the public good, in invaded by the defendant, may be
addition to the moral, temperate, vindicated or recognized, and not for the
liquidated or compensatory damages.” purpose of indemnifying the plaintiff for
*Awarded because of the wanton, any loss suffered by him.”
fraudulent, malevolent, oppressive acts of Article 2222 of the New Civil Code
the carrier. states that: “The court may award nominal
damages in every obligation arising from
any source enumerated in Article 1157, or
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in every case where any property right has maritime lien as there is no longer any
been invaded.” res to which it can attach.
Article 2223 of the New Civil Code Q: Is this rule applies in the handling of
states that: “The adjudication of nominal the passengers?
damages shall preclude further contest A: YES
upon the right involved and all accessory Q: Whose liability is this?
A: Shipowner or Agents.
questions, as between the parties to the
Article 586 2nd paragraph states
suit, or their respective heirs and assigns.”
that: “By ship agent is understood the
*In Japan Airlines v CA, JAL failed to give
person entrusted with provisioning or
the plaintiff the priority for the first
representing the vessel in the port in
available flight. The SC awarded nominal
which it may be found.”
damages.
*Ship agent is the only person that can
Moral damages are in the category of an
be sued directly.
award designed to compensate the
Reason: Article 618 of the Code of
claimant for actual injury suffered and not
Commerce provides so.
to impose a penalty on the wrongdoer. Article 618 1st paragraph states
Article 2217 of the New Civil Code
that: “The ship captain shall be civilly
provides that: “Moral damages include
liable to the ship agent, and the latter
physical suffering, mental anguish, fright,
to the third persons who may have
serious anxiety, besmirched reputation,
made contracts with the former; x x
wounded feelings, moral shock, social
x.”
humiliation, and similar injury. Though Q: What kind?
incapable of pecuniary computation, moral A: Maritime in nature; marine
damages may be recovered if they are the transactions connected with maritime
proximate result of the defendant's law; maritime trade and commerce
wrongful act for omission.” Purpose: To encourage shipbuilding
Q: When moral damages may be and maritime transactions
awarded? Article 587 of the Code of
A: 1. Death of a passenger; 2. Carrier is Commerce provides that: “The ship
guilty of fraud, malice, bad faith even if agent shall also be civilly liable for the
there is no death of a passenger (Case: indemnities in favor of third persons
Lopez v Pan-American); 3. In Air which may arise from the conduct of
France case the captain in the care of the goods
which he loaded on the vessel; but he
MARITIME LAW:
may exempt himself therefrom by
Source: Code of Commerce abandoning the vessel with all her
equipments and the freight it may
A. Concept of Maritime Law have earned during the voyage.”
Maritime Law is the system of laws Article 590 of the Code of
which particularly relates to the affairs and Commerce provides that: “The co-
business of the sea, to ships, their crews owners of a vessel shall be civilly liable
and navigation, and to maritime in the proportion of their interests in
conveyance of persons and property. the common fund, for the results of the
*Apply only to maritime trade and sea acts of the captain, referred to in
voyages. Article 587. Each co-owner may
exempt himself from this liability by
B. Limited Liability Rule the abandonment, before a notary, of
1. Concept
the part of the vessel belonging to
The exclusively real and hypothecary
him.”
nature of maritime law operates to
Article 837 of the Code of
limit the liability of the shipowner to
Commerce provides that: “The civil
the value of the vessel, earned
liability incurred by the shipowners in
freightage and proceeds of the
the case prescribed in this section,
insurance, if any. “NO VESSEL NO
shall be understood as limited to the
LIABILITY” expresses in a nutshell the
value of the vessel with all its
limited liability rule. The total
appurtenances and freightage earned
destruction of the vessel extinguishes
during the voyage.”
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terms with the captain, and shall executor action (‘accion ejecutiva’),
contract in the name of the owners, without any other requisite than
who shall be bound in all that refer the acknowledgment of the
to repairs, details equipment, signatures on the instrument
armament, provisions of food and approving the account.”
fuel, and freight of the vessel, and, Article 602 of the Code of
in general, in all that relate to the Commerce states that: “The ship
requirements of navigation.” agent shall indemnify the captain
Article 598 of the Code of for all the expenses he may have
Commerce states that: “The ship incurred with funds of his own or of
agent may not order a new voyage, others, for the benefit of the
or make contracts for a new vessel.”
charter, or insure the vessel, *The ship agent is entrusted with
without the authorization of its the provisioning and representing
owner or resolution of the majority the vessel in the port in which it
of the co-owners, unless these may be found. His liability to
powers were granted him in the passengers and cargo owners for
certificate of his appointment. If he loss or injury is the same as the
insures the vessel without shipowner.
authorization therefore, he is *He is solidarily liable with the
subsidiarily liable for the solvency owner for such loss or damage
of the insurer.” subject to his right to claim
Article 599 of the Code of reimbursement from the shipowner.
Commerce states that: “The ship *Only agent that can be sued
agent managing for an association directly.
2. Captains and masters of vessels
shall render to his associates an
a. Qualifications
account of the results of each Article 609 of the Code of
voyage of the vessel, without Commerce states that: “Captains,
prejudice to always having the masters or patrons of vessels must
books and correspondence relating be Filipinos, have legal capacity to
to the vessel and to its voyages at contract in accordance with this
their disposal.” code, and prove the skill, capacity,
Article 600 of the Code of
and qualifications necessary to
Commerce states that: “After the
command and direct the vessel, as
account of the managing agent has
established by marine or
been approved by a relative
navigation laws, ordinances, or
majority, the co-owners shall pay
regulations, and must not be
the expenses in proportion to their
disqualified according to the same
interest, without prejudice to the
for the discharge of the duties of
civil or criminal actions which the
the position. If the owner of a
minority may deem fit to institute
vessel desired to be the captain
afterwards. In order to enforce the
thereof, without having the legal
payment, the managing agent shall
qualifications therefor, he shall
be entitled to an executor action
limit himself to the financial
(‘accion ejecutiva’), which shall be
administration of the vessel, and
instituted by virtue of a resolution
shall intrust the navigation to a
of the majority, and without further
person possessing the
proceedings than the
qualifications required by said
acknowledgment of the signatures
ordinances and regulations.”
of the persons who voted for the b. Powers and functions
resolution.” Article 610 of the Code of
Article 601 of the Code of Commerce states that: “The
Commerce states that: “Should following powers shall be inherent
there be any profits, the co-owners in the position of captain, master or
may demand of the managing patron of a vessel: 1. To appoint or
agent the amount corresponding to make contracts with the crew in
their interests by means of an the absence of the ship agent, and
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navigation of the ship; the master navigation and provides his own
does not surrender his vessel to the people.
pilot and the pilot is not the master. *Shipowner is not liable to third
There are occasions when the person; it is the charterer who is
master may and should interfere liable to them.
and even displace the pilot, as General Rule: The charterer is
when the pilot is obviously liable to the third person.
Exception: Shipowner may still be
incompetent or intoxicated.
Case: Far Eastern Shipping v held liable if the injury was caused
CA by unseaworthiness or negligence
b. Relationship to master and of the shipowner beyond before the
shipowner demise or bareboat took over.
4. Officers and crew of the vessel 2. Contract of affreightment
i. Sailing mate/First mate involves that use of shipping space
ii. Second mate leased by the owner in part or as a
iii. Engineers – marine engineers whole, to carry goods for others.
iv. Crew – cabin boy; paramedics; *The shipowner retains the
watchkeeper; radio officers possession, command and
5. Supercargoes person who discharges
navigation of the ship, the
administrative duties assigned to him
charterer merely having use of the
by ship agent or shippers, keeping an
space in the vessel in return for his
account and record of transaction as
payment of the charter hired.
required in the accounting book of the *The shipowner is liable to third
captain. person.
3. Persons qualified to make charter
E. Charter parties Q: Can the captain enter into a charter
1. Concept
contract?
Article 655 of the Code of
A: YES provided that he is authorized.
Commerce states that: “Charter Q: Can the charterer enter into a sub-
parties executed by the captain in the charter contract?
absence of the ship agent shall be A: YES provided it is not prohibited.
valid and effective, even though in This is just like the rule in lease.
executing them he should have acted 4. Requisites of a valid charter
in violation of the orders and Article 652 of the Code of
instructions of the ship agent or Commerce states that: “A charter
shipowner; but the latter shall have a party must be drawn in duplicate and
right of action against the captain for signed by the contracting parties, and
indemnification of damages.” when either does not know how or is
Charter party is a lease contract by not able to do so, by two witnesses at
which with the entire ship or some his request. The charter party shall
principal part thereof is let by the contain, besides the conditions freely
owner to another person for a stipulated, the following
specified period of time or use. circumstances: 1. The kind, name, and
2. Kinds; bareboat and contract of tonnage of the vessel; 2. Its flag and
affreightment port of registry; 3. The name, surname,
Kinds: and domicile of the captain; 4. The
1. Bareboat or demise means the
name, surname, and domicile of the
whole vessel is lend to the
ship agent, if the latter should make
charterer which transfers to him its
the charter party; 5. The name,
entire command and possession
surname, and domicile of the
and consequent control over its
charterer; and if he states that he is
navigation, including the master
acting by commission, that of the
and crew who are his servants. The
person for whose account he makes
charterer is treated as owner pro
the contract; 6. The port of loading and
hac vice of the vessel. In such
unloading; 7. The capacity, number of
case, a common carrier becomes a
tons or the weight or measurement
private carrier.
which they respectively bind
*Charterer means the vessel
themselves to load and to transport, or
assumes all responsibilities of
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within 24 hours, the interest which the expenses incurred to avoid and
parties in default may have in the repair the same;
vessel shall be liable for the loan in the 2. The losses and expenses
proper proportion. Outside of the suffered by the vessel in its
residence of the owners the captain hull, rigging, arms, and
may contract loans in accordance with equipment, for the same causes
the provisions of Articles 583 and and reasons, from the time it
611.” puts to sea from the port of
Article 729 of the Code of departure until it anchors and
Commerce provides that: “Should the lands in the port of destination;
goods on which money is taken not be 3. The losses suffered by the
subjected to risk, the contract shall be merchandise loaded on deck,
considered a simple loan, with the except in coastwise navigation,
obligation on the part of the borrower if the marine ordinances allow
to return the principal and interest at it;
the legal rate, if that agreed upon 4. The wages and victuals of the
should not be lower.” crew when the vessel is
detained or embargoed by
G. Averages legitimate order or force
1. Concept majeure, if the charter has been
Article 806 of the Code of contracted for a fixed sum for
Commerce provides that: “For the the voyage;
purposes of this code the following 5. The necessary expenses on
shall be considered averages: 1. All arrival at a port, in order to
extraordinary or accidental expenses make repairs or secure
which may be incurred during the provisions;
voyage in order to preserve the vessel, 6. The lowest value of the goods
the cargo, or both; 2. Any damages or sold by the captain in arrivals
deteriorations which the vessel may under stress for the payment of
suffer from the time it puts to sea from provisions and in order to save
the port of departure until it casts the crew, or to meet any other
anchor in the port of destination, and need of the vessel, against
those suffered by the merchandise which the proper amount shall
from the time they are loaded in the be charged;
port of shipment until they are 7. The victuals and wages of the
unloaded in the port of their crew while the vessel is in
consignment.” quarantine;
2. Classes of average and the 8. The loss inflicted upon the
persons liable vessel or cargo by reason of an
a. Simple average impact or collision with another,
Article 809 of the Code of if it is accidental and
Commerce provides that: “As a unavoidable. If the accident
general rule, simple or particular should occur through the fault
averages shall include all the or negligence of the captain,
expenses and damages caused to the latter shall be liable for all
the vessel or to her cargo which the losses caused;
have not inured to the common 9. Any loss suffered by the cargo
benefit and profit of all the persons through the fault, negligence,
interested in the vessel and her or barratry of the captain or of
cargo, and especially the following: the crew, without prejudice to
1. The losses suffered by the the right of the owner to
cargo from the time of its recover the corresponding
embarkation until it is indemnity from the captain, the
unloaded, either on account of vessel, and the freightage.”
inherent defect of the goods or General Rule: No reimbursement
by reason of an accident of the Principle: Loss will lie where it
sea or force majeure, and the falls
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shall object, and the captain and bay, it should be decided to sink
officers or a majority of them, or any vessel, this loss shall be
the captain, if opposed to the considered gross average, to which
majority, should consider certain the vessels saved shall contribute.”
measures necessary, they may be Article 732 of the Code of
executed under his responsibility, Commerce provides that: “Lenders
without prejudice to the right of the on bottomry or respondentia shall
shippers to proceed against the suffer, in proportion to their
captain before the competent respective interest, the general
judge or court, if they can prove average which may take place in
that he acted with malice, lack of the goods on which the loan is
skill, or negligence. If the persons made. In particular averages, in the
interested in the cargo, being on absence of an express agreement
board the vessel, have not been between the contracting parties,
heard, they shall not contribute to the lender on bottomry or
the gross average, their share respondentia shall also contribute
being chargeable against the in proportion to his respective
captain, unless the urgency of the interest, should it not belong to the
case should be such that the time kind of risks excepted in the
necessary for previous foregoing article.”
deliberations was wanting.” Article 859 of the Code of
Article 816 of the Code of Commerce provides that: “The
Commerce states that: “In order insurers of the vessel of the
that the goods jettisoned may be freightage, and of the cargo shall
included in the gross average and be obliged to pay for the
the owners thereof be entitled to indemnification of the gross
indemnity, it shall be necessary average, insofar as is required of
insofar as the cargo is concerned each one of these objects
that their existence on board be respectively.”
proven by means of the bill of Article 860 of the Code of
lading; and with regard to those Commerce provides that: “If,
belonging to the vessel, by means notwithstanding the jettison of
of the inventory prepared before merchandise, breakage of masts,
the departure in accordance with ropes, and equipment, the vessel
the first paragraph of Article 812.” should be lost running the same
Article 817 of the Code of risk, no contribution whatsoever by
Commerce states that: “if in reason of gross average shall be
lightning a vessel on account of a proper. The owners of the goods
storm, in order to facilitate its entry saved shall not be liable for the
into a port or roadstead, part of the indemnification of those jettisoned,
cargo should be transferred to lost, or damaged.”
lighters or barges and be lost, the Article 861 of the Code of
owner of said part shall be entitled Commerce provides that: “If, after
to indemnity, as if the loss had the vessel has been saved from the
originated from a gross average, risk which gave rise to the jettison,
the amount thereof being it should be lost through another
distributed between the vessel and accident taking place during the
cargo from which it came. If, on the voyage, the goods saved and
contrary, the merchandise existing from the first risk shall
transferred should be saved and continue liable to contribution by
the vessel should be lost, no reason of the gross average
liability may be demanded of the according to their value in the
salvage.” condition in which they may be
Article 818 of the Code of found, deducting the expenses
Commerce states that: “If, as a incurred in saving them.”
necessary measure to extinguish a Remedy: Reimbursement
fire in port, roadstead, creek, or
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the book, in accordance with the by the owners of the former before
provisions of Article 624. The captain they are delivered to them, and with
shall, in proper case, justify the legality preference over any other obligation if
of his conduct, under the penalty of the merchandise should be sold.”
answering to the shipper for the price Article 843 of the Code of
the merchandise would have brought if Commerce states that: “If several
they had arrived in good condition at vessels sail under convoy, and any of
the port of destination.” them should be wrecked, the cargo
5. Captain’s liability saved shall be distributed among the
Article 825 of the Code of rest in proportion to the amount which
Commerce states that: “The captain each one is able to take. If any captain
shall be responsible for the damages should refuse, without sufficient cause,
caused by his delay, if after the cause to receive what may correspond to
of the arrival under stress has ceased, him, the captain of the wrecked vessel
he should not continue the voyage. If shall enter a protest against him,
the cause of arrival should have been before two sea officials, of the losses
the fear of enemies, privateers, or and damages resulting therefrom,
pirates, a deliberation and resolution in ratifying the protest within 24 hours
a meeting of the officers of the vessel after arrival at the first port, and
and persons interested in the cargo including it in the proceedings he must
who may be present, in accordance institute in accordance with the
with the provisions contained in Article provisions contained in Article 612. If it
819, shall precede the departure.” is not possible to transfer to the other
6. Rules in case of shipwreck vessels the entire cargo of the vessel
Shipwreck denotes all types of loss/
wrecked, the goods of the highest
wreck of a vessel at sea either by
value and smallest volume shall be
being swallowed up by the waves, by
saved first, the designation thereof to
running against another vessel or thing
be made by the captain with the
at sea or on coast where the vessel is
concurrence of the officers of his
rendered incapable of navigation.
vessel.”
Article 840 of the Code of
Article 844 of the Code of
Commerce provides that: “The losses
Commerce provides that: “A captain
and deteriorations by a vessel and her
who may have taken on board the
cargo by reason of shipwreck or
goods saved from the wreck shall
stranding shall be individually for the
continue his course to the port of
account of the owners, the part which
destination, and on arrival shall
may be saved belonging to them in the
deposit the same, with judicial
same proportion.”
intervention, at the disposal of their
Article 841 of the Code of
legitimate owners. In case he changes
Commerce states that: “If the wreck
his course, if he can unload them at
or stranding should be caused by the
the port of which they were consigned,
malice, negligence, or lack of skill of
the captain may make said port if the
the captain, or because the vessel put
shippers or supercargoes present and
to sea was insufficiently repaired and
the officers and passengers of the
equipped, the ship agent or the
vessel consent thereto; but he may not
shippers may demand indemnity of the
do so, even with said consent, in time
captain for the damages caused to the
of war or when the port is difficult and
vessel or to the cargo by the accident,
dangerous to make. The owners of the
in accordance with the provisions
cargo shall defray all the expenses of
contained in Articles 610, 612, 614,
this arrival as well as the payment of
and 621.”
Article 842 of the Code of the freightage which, after taking into
Commerce states that: “The goods consideration the circumstances of the
saved from the wreck shall be specially case, may be fixed by agreement or by
bound for the payment of the a judicial decision.”
Article 845 of the Code of
expenses of the respective salvage,
Commerce provides that: “If on the
and the amount thereof must be paid
vessel there should be no person
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interested in the cargo who can pay joint owner and if months after the
the expenses and freightage the property is publication of a
corresponding to the salvage, the lost he must bear salvage report,
competent judge or court may order his share otherwise the
thing saved shall
the sale of the part necessary to cover
be sold
the same. This shall also be done when Acquires the right Entitled to the
its preservation is dangerous, or when of possession of salvage reward for
in a period of one year it should not derelict for the use of his
have been possible to ascertain who purposes of a vessel in
are its legitimate owners. In both cases salvage claim rendering salvage
the proceedings shall be with the services
Entitled to half of
publicity and formalities prescribed in
the deposit of the
Article 579, and the net proceeds of derelict sold, if
the sale shall be safely deposited, in after the lapse of
the discretion of the judge or court, so 3 years no claim
that they may be delivered to the was made
legitimate owner thereof.”
*It is the loss of the vessel at sea as a WARSAW CONVENTION:
consequence of its grounding, or Warsaw Convention is an agreement among
running against an object in sea or on sovereign countries concerning the regulation in
the coast. It occurs when the vessel a uniform manner of the conditions of
sustains injuries due to a marine peril international transportation by air in respect of
rendering her incapable of navigation. the documents used for such transportation and
*The rules on collision or allusion, as of the liability of the carrier.
may be pertinent, can equally apply to - Signed on October 12, 1929 in Warsaw,
shipwrecks. Poland.
Purpose: To protect the emerging air
J. Salvage transportation industry and to secure the
1. Definition uniformity of recovery by the passengers.
Salvage - Compensation allowed to Applicability: The transportation must be:
persons by whose voluntary assistance 1. International transportation
a ship at sea or her cargo or both have 2. Air transportation
been saved in whole or in part from an 3. Carriage of passengers, baggage or goods
impending or actual peril, shipwrecks, *The Warsaw Convention shall also apply to
derelicts or recapture fortuitous events affecting transportation by
- Services one person render to the aircraft performed by an air transportation
owner of a ship or goods, by his own enterprise.
labor, preserving the goods or the ship *The Convention is likewise applicable to air
which the owner or those entrusted transportation by legal entities constituted under
with the care of them have either public law of the High Contracting Parties.
abandoned in distress at sea, or are *The Convention does not apply to transportation
unable to protect or secure. performed under the terms of any international
2. Rights and obligations of salvors postal convention.
and owners (Salvage Law) International Transportation is any
transportation in which the place of departure
Salvors Owners
and the place of destination are situated either:
Entitled to He does not
compensation for renounce his right 1. Within the territories of two High
services rendered to the derelict Contracting Parties regardless of whether
Acquires a lien Has a right to the or not there be a break in the
upon the property delivery of the transportation or transhipment; or
salvaged until he vessel or things Controlling: Two territories must be High
is compensated saved after the Contracting Parties
salvage is *Also called as one way ticket
accomplished, 2. Within the territory of a single High
provided he pays Contracting Parties, if there is an agreed
or gives a bond
stopping place within a territory subject to
To all intents and Should make a
the sovereignty, mandate or authority of
purposes, he is a claim within 3
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another power, even though that power is action is barred except in case of fraud
not a party to the Convention. on the part of the carrier.
Controlling: There must be a stopping 2. Prescriptive period
place in another territory. *Action must be filed within 2 years
*Also called as round trip ticket. from:
High Contracting Party is one of the original a. The date of arrival at the
parties to the convention. destination
When inapplicable: *An intermediate place where
1. When public policy is contradicted; carriage may be broken is not a
2. If the requirement under the Convention place of destination.
are not complied with b. The date of expected arrival
c. The date on which the
Transportation Documents:
transportation stopped
a. Passenger – passenger ticket
b. Checked-in baggage – baggage check Venue:
c. Goods to be shipped – airway bill At the option of the plaintiff, the action for
Liability of carrier for damages: damages may be filed in the:
1. Death or injury of a passenger if the 1. Court of domicile of the carrier;
accident causing it took place on board 2. Court of its principal place of business;
3. Court where it has a place of business
the aircraft or in the course of its
through which the contract has been
operations of embarking or disembarking;
2. Destruction, loss or damage to any made; or
4. Court of the place of destination.
baggage or goods, if it took place during
*In Santos III v Northwest Airline, the SC held
the transportation by air; and
3. Delay in the transportation of passengers, that the forum of action is a matter of jurisdiction
baggage or goods. rather than of venue.
Limit of Liability:
1. Passenger:
In case of death or injury, general rule:
100,000 STR per passenger
*1.51 US Dollar
Exception: Agreement to a higher limit
In case of delay, 4150 STR per passenger
2. Checked in baggage:
General Rule: 20 STR per kilogram
Exception: In case of special declaration
of value and payment of a supplementary
sum by consignor, carrier is liable to not
more than the declared sum unless it
proves the sum is greater than actual
value.
3. Hand carried baggage: 1000 STR per
passenger
4. Goods to be shipped:
General Rule: 17 STR per kilogram
Exception: In case of special declaration
of value and payment of a supplementary
sum by consignor, carrier is liable to not
more than the declared sum unless it
proves the sum is greater than actual
value.
Action for damages:
1. Notice of claim
*A written complaint must be made
within: 3 days from receipt of baggage;
7 days from receipt of goods; in case
of delay, 14 days from receipt of
baggage/goods.
*The complaint is a condition
precedent. Without the complaint, the
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*Banks must obtain funds from the public. Authority to incorporate and operate:
Minimum number of depositor is 20 persons.
Sec. 14 of the General Banking Law states
Nature of Business: that: “The Securities and Exchange Commission
shall not register the articles of incorporation of
Sec. 2 of the General Banking Law states any bank, or any amendment thereto, unless
that: “The State recognizes the vital role of banks
accompanied by a certificate of authority issued
providing an environment conducive to the
sustained development of the national economy by the Monetary Board, under its seal. Such
and the fiduciary nature of banking that requires certificate shall not be issued unless the
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Monetary Board is satisfied from the evidence Persons or entities found to be performing
submitted to it: banking or quasi-banking functions without
14.1. That all requirements of existing laws and authority from the Bangko Sentral shall be
subject to appropriate sanctions under the New
regulations to engage in the business for which
Central Bank Act and other applicable laws.”
the applicant is proposed to be incorporated have
been complied with; Classification of banks:
14.2. That the public interest and economic
conditions, both general and local, justify the Sec. 3.2 of the General Banking Law
authorization; and provides that: “Banks shall be classified into:
14.3. That the amount of capital, the financing, (a) Universal banks;
organization, direction and administration, as well (b) Commercial banks;
as the integrity and responsibility of the (c) Thrift banks, composed of:
organizers and administrators reasonably assure (i) Savings and mortgage banks;
the safety of deposits and the public interest. (ii) Stock savings and loan associations;
The Securities and Exchange Commission shall and
not register the by-laws of any bank, or any (iii) Private development banks, as defined
amendment thereto, unless accompanied by a in the Republic Act No. 7906 (hereafter the
certificate of authority from the Bangko Sentral.” “Thrift Banks Act”);
*The articles of incorporation must be (d) Rural banks, as defined in Republic Act
accompanied by the favorable recommendation No. 73S3 (hereafter the "Rural Banks Act");
of the BSP.
(e) Cooperative banks, as defined in
Sec. 6 of the General Banking Law provides
Republic Act No 6938 (hereafter the
that: “No person or entity shall engage in banking
"Cooperative Code");
operations or quasi-banking functions without
(f) Islamic banks as defined in Republic Act
authority from the Bangko Sentral: Provided,
No. 6848, otherwise known as the “Charter of
however, That an entity authorized by the Bangko
Al Amanah Islamic Investment Bank of the
Sentral to perform universal or commercial
Philippines”; and
banking functions shall likewise have the
(g) Other classifications of banks as
authority to engage in quasi-banking functions.
determined by the Monetary Board of the
The determination of whether a person or entity
is performing banking or quasi-banking functions Bangko Sentral ng Pilipinas.”
without Bangko Sentral authority shall be decided Distinctions between different kinds of
by the Monetary Board. To resolve such issue, banks:
the Monetary Board may; through the appropriate
supervising and examining department of the a. As to Capitalization: They have different
Bangko Sentral, examine, inspect or investigate minimum capitalization requirements.
b. As to Purpose: Some of the banks have
the books and records of such person or entity.
specific purposes and social functions.
Upon issuance of this authority, such person or c. As to Powers or Functions: There are
entity may commence to engage in banking functions and powers that are not
operations or quasi-banking function and shall exercised by one that are exercised by
continue to do so unless such authority is sooner others. Some banks may exercise certain
surrendered, revoked, suspended or annulled by powers only upon prior approval of the
the Bangko Sentral in accordance with this Act or Monetary Board.
*Universal banks can engage into non-
other special laws.
allied enterprises. It can also act as an
The department head and the examiners of the investment house, thus, it can enter into
appropriate supervising and examining underwriting commitments and do
department are hereby authorized to administer underwriting securities.
oaths to any such person, employee, officer, or d. As to who can be directors: Public
director of any such entity and to compel the officers can be directors of Rural Banks
presentation or production of such books, while such officers are prohibited from
documents, papers or records that are reasonably being directors or officers of other types of
necessary to ascertain the facts relative to the banks.
true functions and operations of such person or e. As to Incorporators: General Rule:
entity. Failure or refusal to comply with the Incorporators must be natural persons.
required presentation or production of such Exception: In rural banks, it can be
books, documents, papers or records within a organized or established by cooperatives
reasonable time shall subject the persons and corporations primarily organized to
responsible therefore to the penal sanctions hold equities in rural banks.
provided under the New Central Bank Act.
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f. As to Foreign Equity: A rural bank must *What is prohibited under the Family Code is
be wholly owned by Filipinos while other donation inter vivos and not donation mortis
banks require only 40% Filipino ownership causa.
of their voting stocks.
*In RA 6938, majority of the shares must Secrecy of Bank Deposits:
be owned by cooperatives.
g. As to necessity of public offering: Peso deposits:
Public offering of shares is necessary for General Rule: Sec. 2 of Republic Act No.
domestic banks seeking authority to act as 1405 provides that: “All deposits of whatever
universal bank while there is no such nature with banks or banking institutions in the
requirement for other banks. Philippines including investments in bonds issued
by the Government of the Philippines, its political
subdivisions and its instrumentalities, are hereby
Functions of the bank: considered as of an absolutely confidential nature
and may not be examined, inquired or looked into
1. Deposit Functions by any person, governmental official, bureau or
2. Loan Functions office.”
Exceptions:
Deposit Function: 1. When there is written permission of the
depositor or investor;
*The relationship created is one of creditor-debtor 2. Impeachment cases;
relation. 3. Upon the order of a competent court in
*There is passing of ownership to the bank. cases of bribery or dereliction of duty of
*The bank can appropriate the deposits without public officials;
the consent of the depositor. 4. Upon the order of a competent court in
*Legal compensation can take place because cases where the money deposited or
they are mutually creditor-debtor of each other. invested is the subject of litigation;
*Prior to incorporation, the deposits can be 5. Upon order of the competent court or
named to corporate treasurer. He will held it in tribunal in cases involving unexplained
trust for the corporation. wealth under Sec. 8 of the Anti-Graft and
Depositors: Corrupt Practices Act (R.A. 3019);
1. Minors: 6. Upon inquiry by the Commissioner of
- They can open bank accounts in their Internal Revenue for the purpose of
own right provided that they are at least 7 determining the net estate of a deceased
years of age; they are able to read and depositor;
write and have sufficient discretion; they *In case the taxpayer compromised his tax
are not otherwise disqualified by any other liability by reason of financial incapacity.
incapacity; and it should only be savings 7. General Rule: Upon the order of a
or time deposits. competent court or in proper cases by the
* They cannot open checking account nor Anti-Money Laundering Council where
demand deposits. there is probable cause of money
2. Married Women: laundering.
- They are allowed to open bank Exception: In some instances even
accounts without the assistance of without court order.
their husbands. 8. Disclosure of the Treasurer of the
Reason: equality in capacity Philippines for dormant deposits for at
*Bank account may be opened by one individual least 10 years under the Unclaimed
or two or more persons. Whenever two or more Balances Act (R.A. 3936)
persons open an account, the same may be an *Escheat proceedings
“and/or account” or an “and account”.
General Rule: Fictitious accounts or anonymous Foreign Currency deposits:
accounts are prohibited.
Exception: Foreign currency deposits which may *Subsequent to secrecy law.
be a numbered account. Under the Foreign Currency Deposit Act, there is
*The law requires that necessary measures are only one exception and that is: When there is a
undertaken by the bank to record and establish written consent of depositor.
the true identity of the depositor.
*Joint accounts may be the subject of Secrecy of Deposits under the Anti-Money
survivorship agreement whereby the co- Laundering Law:
depositors agree to permit either of them to
withdraw the whole deposit during their lifetime General Rule: The Anti-Money Laundering
and transferring the balance to the survivor upon Council may inquire into deposits upon order of
the death of one of them. the court when there is probable cause that the
Basis: Trust and Confidence deposits are related to the crime of unlawful
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activities defined in Sec. 3(1) and Sec. 4 of R.A. Sec. 35.1 of the General Banking Law
9160 as amended by R.A. 9194. provides that: “Except as the Monetary Board
Exception: A court order is not even necessary may otherwise prescribe for reasons of
when the offense or unlawful activity involved is national interest, the total amount of loans,
any of the following: 1. Kidnapping for ransom credit accommodations and guarantees as may
under Article 267 of the Revised Penal Code; 2. be defined by the Monetary Board that may be
Sections 4, 5, 7, 8, 9, 10, 12, 13, 14, 15, and 16 of extended by a bank to any person,
the Comprehensive Dangerous Drugs Act of partnership, association, corporation or other
2002; and Hi-jacking and other violations under entity shall at no time exceed twenty-five percent
R.A. 6235; destructive arson and murder, as (25%) of the net worth of such bank. The
defined under the Revised Penal Code, as basis for determining compliance with single
amended, including those perpetrated by borrower limit is the total credit commitment
terrorists against non-combatant persons and of the bank to the borrower.
similar targets. Sec. 35.2 of the General Banking Law states
Garnishment: that: “Unless the Monetary Board prescribes
General Rule: Bank accounts may be garnished otherwise, the total amount of loans, credit
by the creditors of the depositor. accommodations and guarantees prescribed in
Reason: Not deposits for investment, thus, law the preceding paragraph may be increased by
on secrecy is not applicable. an additional ten percent (10%) of the net worth
Exceptions: of such bank provided the additional liabilities of
1. Foreign Currency Deposits any borrower are adequately secured by trust
*In Salvacion v Central Bank of the receipts, shipping documents, warehouse receipts
Philippines, the SC held that foreign or other similar documents transferring or
currency deposits of an American tourist securing title covering readily marketable,
who was found guilty of repeatedly raping non-perishable goods which must be fully
a twelve years old child is subject to covered by insurance.”
garnishment.
2. Those exempt under the Rules of Civil DOSRI ACCOUNTS:
Procedure like provision for the family for
four months Sec. 36 of the General Banking Law states
that: “No director or officer of any bank shall,
Deposit Insurance: directly or indirectly, for himself or as the
representative or agent of others, borrow from
*All deposits of any bank are insured with the such bank nor shall he become a guarantor,
PDIC. endorser or surety for loans from such bank to
others, or in any manner be an obligor or incur
*Obligation to pay the premium lies on the bank.
any contractual liability to the bank except with
Risk insured against: closure of banks due to the written approval of the majority of all the
liquidity problems. directors of the bank, excluding the director
*Insured deposit under the law means the net concerned: Provided, That such written approval
amount due to any depositor for deposits in an shall not be required for loans, other credit
insured bank but should not exceed P250,000. If accommodations and advances granted to
the depositor has two or more accounts with the officers under a fringe benefit plan approved by
the Bangko Sentral. The required approval shall
same bank, the maximum coverage of P250,000
be entered upon the records of the bank and
pertains to the sum of all such accounts a copy of such entry shall be transmitted
maintained in the same right and capacity. forthwith to the appropriate supervising and
*A joint account shall be insured separately from examining department of the Bangko Sentral.
any individual-owned account. Dealings of a bank with any of its directors,
*A joint account held by a juridical person or officers or stockholders and their related
entity jointly with natural person/s shall be interests shall be upon terms not less favorable to
the bank than those offered to others.
presumed to belong to the juridical person.
After due notice to the board of directors of the
*The aggregate share in all joint accounts is bank, the office of any bank director or officer
subject to P250,000 threshold. who violates the provisions of this Section may
be declared vacant and the director or officer
Loan Function of the Banks: shall be
subject to the penal provisions of the New Central
*A bank shall grant loans and other credit Bank Act.
accommodations only in amounts and for the The Monetary Board may regulate the amount of
periods of time essential for the effective loans, credit accommodations and guarantees
completion of the operations to be financed. that may be extended, directly or indirectly,
by a bank to its directors, officers,
Single Borrower’s Limit: stockholders and their related interests, as well
as investments of such bank in enterprises owned
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Sec. 11 of the General Banking Law provides Sec. 2 of Republic Act No. 7721 provides that:
that: “Foreign individuals and non-bank “The Monetary Board may authorize foreign
corporations may own or control up to forty banks to operate in the Philippine banking system
percent (40%) of the voting stock of a domestic through any of the following modes of entry: (i)
bank. This rule shall apply to Filipinos and by acquiring, purchasing or owning up to sixty
domestic non-bank corporations. percent (60%) of the voting stock of an existing
The percentage of foreign-owned voting stocks in bank; (ii) by investing in up to sixty percent (60%)
a bank shall be determined by the citizenship of of the voting stock of a new banking subsidiary
the individual stockholders in that bank. The incorporated under the laws of the Philippines; or
citizenship of the corporation which is a (iii) by establishing branches with full banking
stockholder in a bank shall follow the citizenship authority: Provided, That a foreign bank may avail
of the controlling stockholders of the corporation, itself of only one (1) mode of entry: Provided,
irrespective of the place of incorporation.” further, That a foreign bank or a Philippine
General Rule: Banks are partly nationalized corporation may own up to a sixty percent (60%)
*The 60% minimum threshold must be satisfied of the voting stock of only one (1) domestic bank
by the bank. or new banking subsidiary.”
*Filipino ownership – voting stocks owned by Sec. 3 of Republic Act No. 7721 states that:
Filipinos “In approving entry applications of foreign banks,
Examples: the Monetary Board shall: (i) ensure geographic
X bank has 1M voting stocks: 600,000 owned by
representation and complementation; (ii)
Filipinos and 400,000 owned by foreigners. The
bank complied with the 60% requirement. consider strategic trade and investment
relationships between the Philippines and the
X bank has 1M voting shares: 400,000 owned by country of incorporation of the foreign bank; (iii)
Filipinos; 400,000 owned by foreigners and study the demonstrated capacity, global
200,000 owned by Y Corporation. reputation for financial innovations and stability
Q: Does the 60% requirement satisfied? in a competitive environment of the applicant;
A: IT DEPENDS. Depending on the citizenship of
(iv) see to it that reciprocity rights are enjoyed by
Y Corporation. If the majority controlling
stockholders are Filipino thus Y Corporation is a Philippine banks in the applicant's country; and
Filipino citizen hence the 60% is complied with. If (v) consider willingness to fully share their
Y corporation is controlled by a foreigners there is technology.
non-compliance of the 60% requirement. Only those among the top one hundred fifty (150)
*The 40% requirement is applicable not only to foreign banks in the world or the top five (5)
foreigners but also to individual Filipino banks in their country of origin as of the date of
shareholders and domestic non-bank corporation.
application shall be allowed entry in accordance
*If the corporation acquiring is a bank the 40%
threshold is not applicable. with Section 2 (ii) and (iii) hereof.
Examples: In the exercise of this authority, the Monetary
600,000 owned by Filipinos; 400,000 owned by Board shall adopt such measures as may be
foreigners necessary to: (i) ensure that at all times the
A – owned 500,000 shares control of seventy percent (70%) of the resources
*A single Filipino stockholders can only own upto or assets of the entire banking system is held by
40% of the voting stock of the bank.
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domestic banks which are at least majority- management and afford better protection to
owned by Filipinos; (ii) prevent a dominant depositors and the public in general the Monetary
market position by one bank or the concentration Board shall prescribe, pass upon and review the
qualifications and disqualifications of individuals
of economic power in one or more financial
elected or appointed bank directors or officers
institutions, or in corporations, participations, and disqualify those found unfit.
partnerships, groups or individuals with related After due notice to the board of directors of
interests; and (iii) secure the listing in the the bank, the Monetary Board may disqualify,
Philippine Stock Exchange of the shares of stocks suspend or remove any bank director or officer
of banking corporations established under who commits or omits an act which render him
Section 2(i) and (ii) of this Act: Provided, That unfit for the position.
In determining whether an individual is fit and
said banking corporations shall establish stock
proper to hold the position of a director or officer
option plans for their officers and employees as of a bank, regard shall be given to his integrity,
the resources or assets of these corporations may experience, education, training, and
allow in the best business judgment of their competence.”
respective boards of directors, pursuant to the Justification: Police power
Corporation Code of the Philippines. Reason: Banking institution is imbued with
To qualify to establish a branch or a subsidiary, public interest.
the foreign bank applicant must be widely-owned Regulations to maintain liquidity and
and publicly-listed in its country of origin, unless security:
the foreign bank applicant is owned by the
government of its country of origin.” 1. Sec. 34 of the General Banking Law
General Rule: Foreigners must own only upto provides that: “The Monetary Board shall
prescribe the minimum ratio which the net
40% of the voting shares of a bank.
worth of a bank must bear to its total risk
Exception: Foreign bank can own upto 60% of assets which may include contingent
the voting shares of a bank. accounts.
For purposes of this Section, the Monetary
Directors and Officers: Board may require such ratio be
determined on the basis of the net worth
Composition: and risk assets of a bank and its
Sec. 15 of the General Banking Law states subsidiaries, financial or otherwise, as
that: “The provisions of the Corporation Code to well as prescribe the composition and
the contrary notwithstanding, there shall be at the manner of determining the net
least five (5), and a maximum of fifteen (15) worth and total risk assets of banks and
members of the board or directors of a bank, two their subsidiaries: Provided, That in the
(2) of whom shall be independent directors. An exercise of this authority, the Monetary
"independent director" shall mean a person other Board shall, to the extent feasible
than an officer or employee of the bank, its conform to internationally accepted
subsidiaries or affiliates or related interests. standards, including those of the Bank
Non-Filipino citizens may become members of for International Settlements (BIS),
the board of directors of a bank to the extent relating to risk-based capital
of the foreign participation in the equity of requirements: Provided further, That it
said bank. may alter or suspend compliance with
The meetings of the board of directors may be such ratio whenever necessary for a
conducted through modern technologies such as, maximum period of one (1) year:
but not limited to, teleconferencing and video- Provided, finally, That such ratio shall be
conferencing.” applied uniformly to banks of the same
Sec. 19 of the General Banking Law states category. In case a bank does not comply
that: “Except as otherwise provided in the Rural with the prescribed minimum ratio, the
Banks Act, no appointive or elective public Monetary Board may limit or prohibit the
official whether full-time or part-time shall at the distribution of net profits by such bank
same time serve as officer of any private bank, and may require that part or all of the net
save in cases where such service is incident profits be used to increase the capital
to financial assistance provided by the accounts of the bank until the
government or a government owned or minimum requirement has been met The
controlled corporation to the bank or unless Monetary Board may, furthermore,
otherwise provided under existing laws.” restrict or prohibit the acquisition of major
General Rule: The Board of Directors is assets and the making of new
composed of 5 to 15 members only. investments by the bank, with the
Exception: In case of merger exception of purchases of readily
Sec. 16 of the General Banking Law provides marketable evidences of indebtedness
that: “To maintain the quality of bank of the Republic of the Philippines and of
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the Bangko Sentral and any other directors, officers, stockholders and their
evidences of indebtedness or related interests, as well as investments of
obligations the servicing and repayment such bank in enterprises owned or
of which are fully guaranteed by the controlled by said directors, officers,
Republic of the Philippines, until the stockholders and their related interests.
minimum required capital ratio has However, the outstanding loans, credit
been restored. In case of a bank accommodations and guarantees which a
merger or consolidation, or when a bank bank may extend to each of its
is under rehabilitation under a program stockholders, directors, or officers and
approved by the Bangko Sentral, Monetary their related interests, shall be limited
Board may temporarily relieve the to an amount equivalent to their
surviving bank, consolidated bank, or respective unencumbered deposits and
constituent bank or corporations under book value of their paid-in capital
rehabilitation from full compliance with the contribution in the bank: Provided,
required capital ratio under such however, That loans, credit
conditions as it may prescribe. Before the accommodations and guarantees
effectivity of rules which the Monetary secured by assets considered as non-
Board is authorized to prescribe under risk by the Monetary Board shall be
this provision, Section 22 of the excluded from such limit: Provided,
General Banking Act, as amended, Section further, That loans, credit
9 of the Thrift Banks Act, and all pertinent accommodations and advances to officers
rules issued pursuant thereto, shall in the form of fringe benefits granted
continue to be in force.” in accordance with rules as may be
2. The law imposes limits on loans, credit prescribed by the Monetary Board shall
accommodations and guarantees that not be subject to the individual limit.
may be extended by banks. The Monetary Board shall define the term
3. Sec. 36 of the General Banking Law “related interests.”
states that: “No director or officer of any The limit on loans, credit
bank shall, directly or indirectly, for accommodations and guarantees
himself or as the representative or agent prescribed herein shall not apply to
of others, borrow from such bank nor shall loans, credit accommodations and
he become a guarantor, endorser or guarantees extended by a cooperative
surety for loans from such bank to others, bank to its cooperative shareholders.”
or in any manner be an obligor or incur 4. The law imposes restrictions on the value
any contractual liability to the bank except of collaterals on loans.
with the written approval of the majority 5. Sec. 41 of the General Banking Law
of all the directors of the bank, provides that: “The Monetary Board is
excluding the director concerned: hereby authorized to issue such
Provided, That such written approval shall regulations as it may deem necessary with
not be required for loans, other credit respect to unsecured loans or other credit
accommodations and advances granted accommodations that may be granted by
to officers under a fringe benefit plan banks.”
approved by the Bangko Sentral. The 6. Sec. 43 of the General Banking Law
required approval shall be entered upon provides that: “The Monetary Board,
the records of the bank and a copy of may, similarly in accordance with the
such entry shall be transmitted forthwith authority granted to it in Section 106 of
to the appropriate supervising and the New Central Bank Act, and taking
examining department of the Bangko into account the requirements of the
Sentral. economy for the effective utilization of
Dealings of a bank with any of its long-term funds, prescribe the
directors, officers or stockholders and maturities, as well as related terms
their related interests shall be upon terms and conditions for various types of
not less favorable to the bank than those bank loans and other credit
offered to others. accommodations. Any change by the
After due notice to the board of directors Board in the maximum maturities, as
of the bank, the office of any bank well as related terms and conditions for
director or officer who violates the various types of bank loans and other
provisions of this Section may be credit accommodations. Any change by
declared vacant and the director or the Board in the maximum maturities shall
officer shall be subject to the penal apply only to loans and other credit
provisions of the New Central Bank Act. accommodations made after the date of
The Monetary Board may regulate the such action. The Monetary Board shall
amount of loans, credit accommodations regulate the interest imposed on micro
and guarantees that may be extended, finance borrowers by lending investors
directly or indirectly, by a bank to its and similar lenders such as, but not
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limited to, the unconscionable rates of two (2) or more tranches. The amount
interest collected on salary loans and of the first tranche shall be limited to
similar credit accommodations.” twenty-five percent (25%) of the total
7. Sec. 57 of the General Banking Law deposit and deposit substitutes of the
states that: “No bank or quasi-bank shall institution and shall be secured by
declare dividends, if at the time of government securities to the extent of
declaration: their applicable loan values and other
57.1 Its clearing account with the Bangko unencumbered first class collaterals
Sentral is overdrawn; or which the Monetary Board may
57.2 It is deficient in the required approve: Provided, That if as
liquidity floor for government deposits determined by the Monetary Board,
for five (5) or more consecutive days, or the circumstances surrounding the
57.3 It does not comply with the liquidity emergency warrant a loan or advance
standards/ratios prescribed by the Bangko greater than the amount provided
Sentral for purposes of determining funds hereinabove, the amount of the first
available for dividend declaration; or tranche may exceed twenty-five
57.4 It has committed a major violation as percent (25%) of the bank's total
may be determined by the Bangko deposit and deposit substitutes if the
Sentral.” same is adequately secured by
applicable loan values of government
Other functions of the Bangko securities and unencumbered first
Sentral: class collaterals approved by the
Monetary Board, and the principal
A. Emergency Loan stockholders of the institution furnish
Sec. 84 of the New Central Bank an acceptable undertaking to
Act states that: “In periods of national indemnify and hold harmless from suit
and/or local emergency or of imminent a conservator whose appointment the
financial panic which directly threaten Monetary Board may find necessary at
monetary and banking stability, the any time.
Monetary Board may, by a vote of at Prior to the release of the first tranche,
least five (5) of its members, authorize the banking institution shall submit to
the Bangko Sentral to grant the Bangko Sentral a resolution of its
extraordinary loans or advances to board of directors authorizing the
banking institutions secured by assets Bangko Sentral to evaluate other
as defined hereunder: Provided, That assets of the banking institution
while such loans or advances are certified by its external auditor to be
outstanding, the debtor institution good and available for collateral
shall not, except upon prior purposes should the release of the
authorization by the Monetary Board, subsequent tranche be thereafter
expand the total volume of its loans or applied for.
investments. The Monetary Board may, by a vote of
The Monetary Board may, at its at least five (5) of its members,
discretion, likewise authorize the authorize the release of a subsequent
Bangko Sentral to grant emergency tranche on condition that the principal
loans or advances to banking stockholders of the institution:
institutions, even during normal (a) furnish an acceptable undertaking
periods, for the purpose of assisting a to indemnify and hold harmless from
bank in a precarious financial condition suit a conservator whose appointment
or under serious financial pressures the Monetary Board may find
brought by unforeseen events, or necessary at any time; and
events which, though foreseeable, (b) provide acceptable security which,
could not be prevented by the bank in the judgment of the Monetary
concerned: Provided, however, That Board, would be adequate to
the Monetary Board has ascertained supplement, where necessary, the
that the bank is not insolvent and has assets tendered by the banking
the assets defined hereunder to secure institution to collateralize the
the advances: Provided, further, That a subsequent tranche.
concurrent vote of at least five (5) In connection with the exercise of
members of the Monetary Board is these powers, the prohibitions in
obtained. Section 128 of this Act shall not apply
The amount of any emergency loan or insofar as it refers to acceptance as
advance shall not exceed the sum of collateral of shares and their
fifty percent (50%) of total deposits acquisition as a result of foreclosure
and deposit substitutes of the banking proceedings, including the exercise of
institution and shall be disbursed in voting rights pertaining to said shares:
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The conservator should be competent and 5. There will be no preference even if the
knowledgeable in bank operations and claimant-depositor obtained a writ of
management. The conservatorship shall not preliminary attachment.
exceed one (1) year.
The conservator shall receive remuneration to be Supervision of Banks:
fixed by the Monetary Board in an amount not to
exceed two-thirds (2/3) of the salary of the Sec. 4 of the General Banking Law states
president of the institution in one (1) year, that: “The operations and activities of banks
payable in twelve (12) equal monthly payments: shall be subject to supervision of the Bangko
Provided, That, if at any time within one-year Sentral. “ Supervision” shall include the following:
period, the conservatorship is terminated on the 4.1. The issuance of rules of, conduct or the
ground that the institution can operate on its establishment standards of operation for uniform
own, the conservator shall receive the balance of application to all institutions or functions covered,
the remuneration which he would have received taking into consideration the distinctive character
up to the end of the year; but if the of the operations of institutions and the
conservatorship is terminated on other grounds, substantive similarities of specific functions to
the conservator shall not be entitled to such which such rules, modes or standards are to be
remaining balance. The Monetary Board may applied;
appoint a conservator connected with the Bangko 4.2 The conduct of examination to determine
Sentral, in which case he shall not be entitled to compliance with laws and regulations if the
receive any remuneration or emolument from the circumstances so warrant as determined by the
Bangko Sentral during the conservatorship. The Monetary Board;
expenses attendant to the conservatorship shall 4.3 Overseeing to ascertain that laws and
be borne by the bank or quasi-bank concerned. regulations are complied with;
The Monetary Board shall terminate the 4.4 Regular investigation which shall not be
conservatorship when it is satisfied that the oftener than once a year from the last date of
institution can continue to operate on its own and examination to determine whether an
the conservatorship is no longer necessary. The institution is conducting its business on a
conservatorship shall likewise be terminated safe or sound basis: Provided, That the
should the Monetary Board, on the basis of the deficiencies/irregularities found by or
report of the conservator or of its own findings, discovered by an audit shall be immediately
determine that the continuance in business of the addressed;
institution would involve probable loss to its 4.5 Inquiring into the solvency and liquidity of
depositors or creditors, in which case the the institution; or
provisions of Section 30 shall apply.” 4.6 Enforcing prompt corrective action.
*No prior hearing is necessary in appointing a The Bangko Sentral shall also have supervision
receiver and in closing the bank. It is enough that over the operations of and exercise regulatory
subsequent judicial review is provided for. Indeed, powers over quasi-banks, trust entities and
to require such previous hearing would not only other financial institutions which under special
be impractical but would tend to defeat the very laws are subject to Bangko Sentral supervision.
purpose of the law when it invested the Monetary For the purposes of this Act, “ quasi-banks”
Board with such authority. shall refer to entities engaged in the
Purpose: To avoid creation of panic from the borrowing of funds through the issuance,
depositors or public. endorsement or assignment with recourse or
Reason: The government has responsibility to acceptance of deposit substitutes as defined in
see to it that the person dealing with the bank is Section 95 of Republic Act No. 7653 (hereafter
protected. the “New Central Bank Act”) for purposes of re-
lending or purchasing of receivables and other
Effects of receivership and liquidation: obligations.”
1. Suspension of operation
2. The assets under receivership or Money Function:
liquidation shall be deemed in custodia
legis in the hands of the receiver and shall Sec. 50 of the New Central Bank Act states
be exempt from garnishment, levy, that: “The Bangko Sentral shall have the sole
attachment or execution power and authority to issue currency, within the
3. Bank is not liable to pay interest on territory of the Philippines. No other person or
deposits during the period of suspension entity, public or private, may put into circulation
of operation notes, coins or any other object or document
Reason: There is no source of income which, in the opinion of the Monetary Board,
4. Banks under liquidation retain their legal might circulate as currency, nor reproduce or
personality imitate the facsimiles of Bangko Sentral notes
*The bank can sue and be sued but any without prior authority from the Bangko Sentral.
case should be initiated and prosecuted The Monetary Board may issue such regulations
through the liquidator. as it may deem advisable in order to prevent the
circulation of foreign currency or of currency
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substitutes as well as to prevent the reproduction client’s past transactions with the covered
of facsimiles of Bangko Sentral notes. institution;
The Bangko Sentral shall have the authority to 6. The transaction is in any way related to an
investigate, make arrests, conduct searches and unlawful activity or any money laundering
seizures in accordance with law, for the purpose activity or offense under this ACT that is
of maintaining the integrity of the currency. about to be, is being or has been
Violation of this provision or any regulation issued committed; or
by the Bangko Sentral pursuant thereto shall 7. Any transaction that is similar, analogous
constitute an offense punishable by imprisonment or identical to any of the foregoing.
of not less than five (5) years but not more than
ten (10) years. In case the Revised Penal Code Sec. 3.i. of Republic Act 9160 states that:
provides for a greater penalty, then that penalty “Unlawful activity" refers to any act or omission
shall be imposed.” or series or combination thereof involving or
having relation, to the following:
Anti-Money Laundering Act: (A) Kidnapping for ransom under Article 267 of
Act No. 3815, otherwise known as the Revised
Sec. 4.1 of Republic Act 9160 states that: Penal Code, as amended; (14) Kidnapping for
“Money laundering is a crime whereby the ransom
proceeds of an unlawful activity AS HEREIN (B) Sections 4, 5, 6, 8, 9, 10, 12,13, 14, 15 and 16
DEFINED are transacted, thereby making them of Republic Act No.9165, otherwise known as the
appear to have originated from legitimate COMPREHENSIVE Dangerous Drugs Act of 2002;
sources. It is committed by the following: (14) Importation of prohibited drugs;
a) Any person knowing that any monetary (15) Sale of prohibited drugs;
instrument or property represents, involves, or (16) Administration of prohibited drugs;
relates to, the proceeds of any unlawful activity, (17) Delivery of prohibited drugs
transacts or attempts to transact said monetary (18) Distribution of prohibited drugs
instrument or property. (19) Transportation of prohibited drugs
b) Any person knowing that any monetary (20) Maintenance of a Den, Dive or Resort for
instrument or property involves the proceeds of prohibited users
any unlawful activity, performs or fails to perform (21) Manufacture of prohibited drugs
any act as a result of which he facilitates the (22) Possession of prohibited drugs
offense of money laundering referred to in (23) Use of prohibited drugs
paragraph (a) above. (24) Cultivation of plants which are sources of
c) Any person knowing that any monetary prohibited drugs
instrument or property is required under this Act (25) Culture of plants which are sources of
to be disclosed and filed with the Anti-Money prohibited drugs
Laundering (C) Section 3 paragraphs b, c, e, g, h and i of
Council (AMLC), fails to do so.” Republic Act No. 3019, as amended, otherwise
known as the Anti-Graft and Corrupt Practices
Definitions: Act;
(14) Directly or indirectly requesting or receiving
Covered Transaction is a transaction in cash or any gift, present, share, percentage or benefit for
other equivalent monetary instrument involving himself or for any other person in connection with
total amount in excess of P500,000 within one any contract or transaction between the
banking day. Government and any party, wherein the public
*P500,000 is the threshold/controlling officer in his official capacity has to intervene
Suspicious Transaction are transactions, under the law;
regardless of amount, where any of the following (15) Directly or indirectly requesting or receiving
circumstances exists: any gift, present or other pecuniary or material
1. There is no underlying legal or trade benefit, for himself or for another, from any
obligation, purpose or economic person for whom the public officer, in any manner
justification; or capacity, has secured or obtained, or will
2. The client is not properly identified; secure or obtain, any government permit or
3. The amount involved is not commensurate license, in consideration for the help given or to
with the business or financial capacity of be given, without prejudice to Section 13 of R.A.
the client; 3019;
4. Taking into account all known (16) Causing any undue injury to any party,
circumstances, it may be perceived that including the government, or giving any private
the client’s transaction is structured in party any unwarranted benefits, advantage or
order to avoid being the subject of preference in the discharge of his official,
reporting requirements under the ACT; administrative or judicial functions through
5. Any circumstance relating to the manifest partiality, evident bad faith or gross
transaction which is observed to deviate inexcusable negligence;
from the profile of the client and/or the (17) Entering, on behalf of the government, into
any contract or transaction manifestly and
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grossly disadvantageous to the same, whether or (G) Piracy on the high seas under the Revised
not the public officer profited or will profit Penal Code, as amended and Presidential Decree
thereby; No. 532;
(18) Directly or indirectly having financial or (31) Piracy on the high seas;
pecuniary interest in any business contract or (32) Piracy in inland Philippine waters;
transaction in connection with which he (33) Aiding and abetting pirates and brigands.
intervenes or takes part in his official capacity, or (H) Qualified theft under Article 310 of the
in which he is prohibited by the Constitution or by Revised Penal Code, as amended;
any law from having any interest; (34) Qualified theft.
(19) Directly or indirectly becoming interested, for (I) Swindling 'under Article 315 of the Revised
personal gain, or having material interest in any Penal Code, as amended;
transaction or act requiring the approval of a (35) Estafa with unfaithfulness or abuse of
board, panel or group of which he is a member, confidence by altering the substance, quality or
and which exercise of discretion in such approval, quantity of anything of value which the offender
even if he votes against the same or he does not shall deliver by virtue of an obligation to do so,
participate in the action of the board, committee, even though such obligation be based on an
panel or group. immoral or illegal consideration;
(D) Plunder under Republic Act No. 7080, as (36) Estafa with unfaithfulness or abuse of
amended; confidence by misappropriating or converting, to
(20) Plunder through misappropriation, the prejudice of another, money, goods or any
conversion, misuse or malversation of public other personal property received by the offender
funds or raids upon the public treasury; in trust or on commission, or for administration,
(21) Plunder by receiving, directly or indirectly, or under any other obligation involving the duty
any commission, gift, share, percentage, to make delivery or to return the same, even
kickbacks or any other form of pecuniary benefit though such obligation be totally or partially
from any person and/or entity in connection with guaranteed by a bond; or by denying having
any government contract or project or by reason received such money, goods, or other property;
of the office or position of the public officer (37) Estafa with unfaithfulness or abuse of
concerned; confidence by taking undue advantage of the
(22) Plunder by the illegal or fraudulent signature of the offended party in blank, and by
conveyance or disposition of assets belonging to writing any document above such signature in
the National Government or any of its blank, to the prejudice of the offended party or
subdivisions, agencies, instrumentalities or any third person;
government-owned or controlled corporations or (38) Estafa by using a fictitious name, or falsely
their subsidiaries; pretending to possess power, influence,
(23) Plunder by obtaining, receiving or accepting, qualifications, property, credit, agency, business
directly or indirectly, any shares of stock, equity or imaginary transactions, or by means of other
or any other form of interest or participation similar deceits;
including the promise of future employment in (39) Estafa by altering the quality, fineness or
any business enterprise or undertaking; weight of anything pertaining to his art or
(24) Plunder by establishing agricultural, business;
industrial or commercial monopolies or other (40) Estafa by pretending to have bribed any
combinations and/or implementation of decrees government employee;
and orders intended to benefit particular persons (41) Estafa by postdating a check, or issuing a
or special interests; check in payment of an obligation when the
(25) Plunder by taking undue advantage of official offender has no funds in the bank, or his funds
position, authority, relationship, connection or deposited therein were not sufficient to cover the
influence to unjustly enrich himself or themselves amount of the check;
at the expense and to the damage and prejudice (42) Estafa by inducing another, by means of
of the Filipino people and the Republic of the deceit, to sign any document;
Philippines (43) Estafa by resorting to some fraudulent
(E) Robbery and extortion under Articles 294, practice to ensure success in a gambling game;
295, 296, 299, 300, 301 and 302 of the Revised (44) Estafa by removing, concealing or
Penal Code, as amended; destroying, in whole or in part, any court record,
(26) Robbery with violence or intimidation of office files, document or any other papers.
persons; (J) Smuggling under Republic Act Nos. 455 and
(27) Robbery with physical injuries, committed in 1937;
an uninhabited place and by a band, or with use (45) Fraudulent importation of any vehicle;
of firearms on a street, road or alley; (46) Fraudulent exportation of any vehicle;
(28) Robbery in an uninhabited house or public (47) Assisting in any fraudulent importation;
building or edifice devoted to worship. (48) Assisting in any fraudulent exportation;
(F) Jueteng and Masiao punished as illegal (49) Receiving smuggled article after fraudulent
gambling under Presidential Decree No. 1602; importation;
(29) Jueteng; (50) Concealing smuggled article after fraudulent
(30) Masiao. importation;
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(51) Buying smuggled article after fraudulent (72) Sale of any drug or device by any person not
importation; licensed in accordance with the provisions of the
(52) Selling smuggled article after fraudulent E-Commerce Act;
importation; (73) Sale of any drug or device beyond its
(53) Transportation of smuggled article after expiration date;
fraudulent importation; (74) Introduction into commerce of any
(54) Fraudulent practices against customs mislabeled or banned hazardous substance;
revenue. (75) Alteration or removal of the labeling of a
(K) Violations under Republic Act No. 8792, hazardous substance;
otherwise known as the Electronic Commerce Act (76) Deceptive sales acts and practices;
of 2000; (77) Unfair or unconscionable sales acts and
K.1. Hacking or cracking, which refers to: practices;
(55) unauthorized access into or interference in a (78) Fraudulent practices relative to weights and
computer system/server or information and measures;
communication system; or (79) False representations in advertisements as
(56) any access in order to corrupt, alter, steal, or the existence of a warranty or guarantee;
destroy using a computer or other similar (80) Violation of price tag requirements;
information and communication devices, without (81) Mislabeling consumer products;
the knowledge and consent of the owner of the (82) False, deceptive or misleading
computer or information and communications advertisements;
system, including (83) Violation of required disclosures on
(57) the introduction of computer viruses and the consumer loans;
like, resulting in the corruption, destruction, (84) Other violations of the provisions of the E-
alteration, theft or loss of electronic data Commerce Act;
messages or electronic document; (L) Hijacking and other violations under Republic
K.2. Piracy, which refers to: Act No. 6235; destructive arson and murder, as
(58) the unauthorized copying, reproduction, defined under the Revised Penal Code, as
(59) the unauthorized dissemination, distribution, amended, including those perpetrated by
(60) the unauthorized importation, terrorists against non-combatant persons and
(61) the unauthorized use, removal, alteration, similar targets;
substitution, modification, (85) Hijacking;
(62) the unauthorized storage, uploading, (86) Destructive arson;
downloading, communication, making available (87) Murder;
to the public, or (88) Hijacking, destructive arson or murder
(63) the unauthorized broadcasting, of protected perpetrated by terrorists against non-combatant
material, electronic signature or copyrighted persons and similar targets;
works including legally protected sound (M) Fraudulent practices and other violations
recordings or phonograms or information material under Republic Act No. 8799, otherwise known as
on protected works, through the use of the Securities Regulation Code of 2000;
telecommunication networks, such but not (89) Sale, offer or distribution of securities within
limited to, the internet, in a manner that infringes the Philippines without a registration statement
intellectual property rights; duly filed with and approved by the SEC;
K.3. Violations of the Consumer Act or Republic (90) Sale or offer to the public of any pre-need
Act No. 7394 and other relevant or pertinent laws plan not in accordance with the rules and
through transactions covered by or using regulations which the SEC shall prescribe;
electronic data messages or electronic (91) Violation of reportorial requirements imposed
documents: upon issuers of securities;
(64) Sale of any consumer product that is not in (92) Manipulation of security prices by creating a
conformity with standards under the Consumer false or misleading appearance of active trading
Act; in any listed security traded in an Exchange or
(65) Sale of any product that has been banned by any other trading market;
a rule under the Consumer Act; , (93) Manipulation of security prices by effecting,
(66) Sale of any adulterated or mislabeled alone or with others, a series of transactions in
product using electronic documents; securities that raises their prices to induce the
(67) Adulteration or misbranding of any consumer purchase of a security, whether of the same or
product; different class, of the same issuer or of a
(68) Forging, counterfeiting or simulating any controlling, controlled or commonly controlled
mark, stamp, tag, label or other identification company by others;
device; (94) Manipulation of security prices by effecting,
(69) Revealing trade secrets; alone or with others, series of transactions in
(70) Alteration or removal of the labeling of any securities that depresses their price to induce the
drug or device held for sale; sale of a security, whether of the same or
(71) Sale of any drug or device not registered in different class, of the same issuer or of a
accordance with the provisions of the E- controlling, controlled or commonly controlled
Commerce Act; company by others;
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(95) Manipulation of security prices by effecting, (108) Making use of the facility of a clearing
alone or with others, a series of transactions in agency which is not registered with the SEC;
securities that creates active trading to induce (109) Violations of margin requirements;
such a purchase or sale though manipulative (110) Violations on the restrictions on borrowings
devices such as marking the close, painting the by members, brokers and dealers;
tape, squeezing the float, hype and dump, boiler (111) Aiding and Abetting in any violations of the
room operations and such other similar devices; Securities Regulation Code;
(96) Manipulation of security prices by circulating (112) Hindering, obstructing or delaying the filing
or disseminating' information that the price of of any document required under the Securities
any security listed in an Exchange will or is likely Regulation Code or the rules and regulations of
to rise or fall because of manipulative market the SEC;
operations of anyone or more persons conducted (113) Violations of any of the provisions of the
for the purpose of raising or depressing the price implementing rules and regulations of the SEC;
of the security for the purpose of inducing the (114) Any other violations of any of the provisions
purchase or sale of such security; of the Securities Regulation Code.
(97) Manipulation of security prices by making (N) Felonies or offenses of a similar nature to the
false or misleading statements with respect to afore-mentioned unlawful activities that are
any material fact; which he knew or had punishable under the penal laws of other
reasonable ground to believe was so false and countries.
misleading, for the purpose of inducing the In determining whether or not a felony or offense
purchase or sale of any security listed or traded punishable under the penal laws of other
in an Exchange; countries, is "of a similar nature", as to constitute
(98) Manipulation of security prices by effecting, the same as an unlawful activity under the AMLA,
alone or with others, any series of transactions the nomenclature of said felony or offense need
for the purchase and/or sale of any security not be identical to any of the predicate crimes
traded in an Exchange for the purpose of listed under Rule 3.i.”
pegging, fixing or stabilizing the price of such
security, unless otherwise allowed by the Safe Harbor Provisions:
Securities Regulation Code or by the rules of the
SEC; Sec. 9.3.e of Republic Act 9160 states that:
(99) Sale or purchase of any security using any “No administrative, criminal or civil proceedings,
manipulative deceptive device or contrivance; shall lie against any person for having made a
(100) Execution of short sales or stop-loss order covered transaction report or a suspicious
in connection with the purchase or sale of any transaction report in the regular performance of
security not in accordance with such rules and his duties and in good faith, whether or not such
regulations as the SEC may prescribe as reporting results in any criminal prosecution
necessary and appropriate in the public interest under this Act or any other Philippine law.”
or the protection of the investors;
(101) Employment of any device, scheme or Truth in Lending Act:
artifice to defraud in connection with the Sec. 4 of Republic Act No. 3765 states that:
purchase and sale of any securities;
“Any creditor shall furnish to each person to
(102) Obtaining money or property in connection
whom credit is extended, prior to the
with the purchase and sale of any security by
consummation of the transaction, a clear
means of any untrue statement of a material fact
statement in writing setting forth, to the extent
or any omission to state a material fact necessary
applicable and in accordance with rules and
in order to make the statements made, in the
regulations prescribed by the Board, the following
light of the circumstances under which they were
information:
made, not misleading;
(1) the cash price or delivered price of the
(103) Engaging in any act, transaction, practice
property or service to be acquired;
or course of action in the sale and purchase of
(2) the amounts, if any, to be credited as down
any security which operates or would operate as
payment and/or trade-in;
a fraud or deceit upon any person;
(3) the difference between the amounts set forth
(104) Insider trading;
under clauses (1) and (2);
(105) Engaging in the business of buying and
(4) the charges, individually itemized, which are
selling securities in the Philippines as a broker or
paid or to be paid by such person in connection
dealer, or acting as a salesman, or an associated
with the transaction but which are not incident to
person of any broker or dealer without any
the extension of credit;
registration from the Commission;
(5) the total amount to be financed;
(106) Employment by a broker or dealer of any
(6) the finance charge expressed in terms of
salesman or associated person or by an issuer of
pesos and centavos; and
any salesman, not registered with the SEC; ,
(7) the percentage that the finance bears to the
(107) Effecting any transaction in any security, or
total amount to be financed expressed as a
reporting such transaction, in an Exchange or
simple annual rate on the outstanding unpaid
using the facility of an Exchange which is not
balance of the obligation.”
registered with the SEC;
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Commercial Law Review
Corporation Code
Maria Zarah Villanueva - Castro
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