Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.

2014

ALLIED SPECIAL LAWS COMMERCE – relates to intercourse or dealing with

COMMERCIAL LAW foreign nations or states, while TRADE – denotes
(Atty. Noel Bolivar Lecture Notes) business intercourse within the limitations of a
nation or state, or the buying, selling, and exchange
of goods between members of the same community.
Memorize!

COMMERCIAL / MERCANTILE LAW – is that branch of
law relating to the rules that govern rights, obligations
and relations of persons engaged in commerce or trade.
Sources of Commercial Law:
Article 2. What lawshould govern the Acts of Commerce?
 Whether those who execute them (the act of
commerce) be merchants or not, and whether
specified In this Code or not, Acts of Commerce
should be governed by:

1. Legislation, whether commercial or civil 1. The provisions contained in the Code of

2. Contracts Commerce
3. Commercial Usages or customs otherwise
known as “law merchant” 2. By the usages of Commerce generally
4. Court Decisions. observed in each place; and,

 usages of commerce – law merchant

 Law Merchant – refers to commercial law
consisting of customs, practice and usages 3. In the absence of both rules, by those of the
which are given the force and effect of law by civil law
courts through judicial pronouncements.

 What are deemed to be Acts of Commerce?

CODE OF COMMERCE 1. Those acts contained in the Code of

Commerce
2. All others of analogous character
TITLE I
MERCHANTS AND ACT OF
COMMERCE  Acts of Commerce that are still governed by the
Code of Commerce:

Article 1. Who are merchants? 1. Charter Parties

2. Loans on Bottomry and Respondentia
 For purposes of the Code of Commerce, 3. Maritime Protest
merchants are: 4. Joint Accounts

1. Those (individuals or natural persons) who,

having legal capacity (Article 4) to engage in
commerce habitually devote themselves to
it.
 Habituality – in engaging in
commerce is attained where there
exists series of act of commerce or
commercial dealings, that is, there
must be continuity or repetition of
commercial acts.
JOINT ACCOUNTS – or “cuentas en participation” is a
juridical relationship which exists when a merchant
interests himself in the transaction of another merchant
contributing thereto, the amount of the capital they may
agree upon and participating in the favourable or
unfavourable results thereof in proportion to what they
may determine. This is sometimes called Joint Venture.
 Joint Accounts vs. Partnership

2. The commercial or industrial companies 1. JOINT ACCOUNTS has no juridical

(juridical persons) which may be created in personality whereas PARTNERSHIP has
accordance with existing legislation. juridical personality.

 For example: 2. JOINT ACCOUNTS cannot adopt a firm name

whereas PARTNERSHIP has a firm name.
1. BP 68 – Corporations
2. Civil Code – Partnerships 3. JOINT ACCOUNTS has no common fund
3. Cooperative Code of the Philippines – whereas PARTNERSHIP has common fund.
Cooperative

 Commerce vs. Trade:

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
 Acts of Commerce that are now governed by
the Civil Code:
1. Sales
2. Partnership
3. Agency
4. Loan
5. Deposit
6. Guarantee
Article 3. When does the legal presumption of habitually
engaging in trade arise?
 From the moment the person who intends to
engage therein announces through circulars,
newspapers, handbills, posters exhibited to the
public, or in any other manner whatsoever, an
establishment which has for its object some
commercial operation.
Article 4. What are the qualifications that must be
possessed by a person so that he may have the legal
capacity to habitually engage in Commerce?
1. Having completed the age of 21 years old.
 Article 234 of the Family Code provides:
“Emancipation takes place by the
attainment of majority. Unless otherwise
provided, majority commences at the age
of 18 years.”
 Article 73 of the Family Code further
provides: “Either spouse may may exercise
any legitimate profession, occupation,
business or activity without the consent of
the other.
 May a person between 18 years old to
below 21 years old engage in commerce?
Under Article 4 of the Code of
Commerce in relation to Article 234 of
the family Code, it would appear that
he is not legally capacitated to
habitually engage in commerce
because of the phrase UNLESS
OTHERWISE PROVIDED in the latter
provision.
However, Article 73 of the
Family Code states that if such person
is married, he may engage in
Commerce. If that is so, the possible
conclusion is that if such person is
single, he cannot habitually engage in
commerce, but if he is married, he can.
It is believed that such person,
married or single, may habitually
engage in Commerce because being
married is not a substantial distinction
that makes difference for purposes of
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engaging in Commerce. Moreover, the
latter intent of the law discloses that a
person of legal age is qualified to
engage in Commerce.
2. Not being subject to the authority of the father
or of the mother nor to marital authority.
3. Having free disposition of the property.
 For instance, that he is not suffering from civil
interdiction.
Article 5. Those under 21 years of age and those
incapacitated may CONTINUE, through their guardians,
the business engaged in by their parents or their
predecessors.
 Under 21 years of age – meaning 18 years of
age.
 Incapacitated – meaning insane or demented
person and deaf-mute who does not know how
to write.
Article 13. Absolute Incapacity.
 Who may not engage in Commerce?
1. Those sentenced to the penalty of civil
interdiction.
2. Those judicially declared bankrupt.
3. Those who, on account of Special Laws, or
Provisions, cannot trade.
 May members of the Civil Service engage in
Commerce?
YES, but only with the consent of their
department head.
 SPECIAL LAWS – The Constitution, Civil Service
Decree, anti-Graft and Corrupt Practice Act (R.A.
3019, as amended) and the Code of Conduct
and Ethical Standards (R.A. 6713)
Article 15.May foreigners and companies (foreign
corporations) engage in Commerce in the Philippines?
YES, subject to the laws of their country with
respect to their capacity to contract, and to the
provisions of this Code as regards the:
1. Creation of their establishment in the Philippine
territory.
2. Their mercantile operations; and,
3. Jurisdiction of Courts of the nation.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
TITLE II
COMMERCIAL REGISTRIES
Very Important!!!
 Commercial Registries in our Jurisdiction:
 Bureau of Trade Regulation and
Consumer Protection – under the DTI;
registration of business name.
 Office of the Register of Deeds –
registration of Chattel Mortgages
(except vessels) and real mortgages
and other transactions relative to real
property, such as sales.
 Securities and Exchange Commission –
registration of Partnerships and
Corporations
 Bureau of Customs, Philippine
Coastguard and Marina – registration
of vessels
 Land Transportation Office
registration of motor vehicles.
 Air Transportation Office – registration
of civil aircrafts
 National Library – registration of
copyrights.
 Intellectual Property Office –
registration of Patents and designs,
trademarks, trade names and service
marks.
 Board of Investments – registration of
pioneer industries, enterprises
 Office of the Municipal Treasurer–
registration of brands of large cattle
(municipality where owner is a
resident) and issuance of certificates of
transfer (municipality where contract of
sale is made and consummated by the
delivery of the cattle).
TITLE III
BOOKS AND BOOK KEEPING OF
COMMERCE
Article 33. What should merchants keep?
1. Book of inventories and balances at the end of
the taxable period.
2. Journal
2014
3. Ledger
4. Book/s for copies of letters and telegrams
5. Other books (such as stock and transfer book)
which may be registered by special laws
(example: Corporation Code and NIRC)
Article 48. What are the rules to be observed in order to
measure the probative force of the books of merchant?
1. The book of merchants shall be evidence against
themselves, no proof to the contrary being
admissible; but the adverse party cannot accept
the entries which may be favourable to him and
reject those which may prejudice him.
2. If there should be conflict in the entries of the
books kept by two merchants, and those of one
should have been kept with all the formalities
and those of the other should suffer from any
defect or should lack the requisites prescribed
by this Code, the entries of the books properly
kept shall be admitted against those of the
defective one.
–
3. If one of the merchants should not present his
books or should manifest that he does not have
them, those of his adversary, kept with all the
legal formalities shall be admitted against him
(one of the merchants).
Article 49. For how long should merchants keep their
books?
During all the time that the business may last
and for five (5) years after the liquidation of all their
business and commercial affairs.
Important!!!
Under the NIRC, all books of accounts must be
preserved for a period (3 years or 10 years, as the case
may be) beginning from the last entry in each book, until
the last day prescribed within which CIR is authorized to
make a tax assessment.
TITLE IV
GENERAL PROVISIONS RELATING
TO COMMERCIAL CONTRACTS
Important!!!
Article 51. Should commercial contracts be in a certain
form to be valid?
NO. Commercial Contracts shall be valid in
whatever form (oral or written) and language in which
they may be executed.
Important!!!
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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

Article 52. Are there exceptions to the immediately

preceding rules (that Commercial Contracts shall be valid
in whatever form they may be executed)?

YES, those:

1. Contracts which must be reduced into writing or

require forms or formalities necessary for their
efficacy.

 Examples of Contracts which must be

reduced into writing:

1. Contract of Loan with interest must be

in writing in order that the interest may
be demandable.

2. Agency to sell a piece of land belonging

to the principal, if the SPA of the agent
is oral, the contract of sale which he
rd
may enter into with a 3 person is void.

3. Limited Partnership

4. Partnership where real property is

contributed

5. Contract of Antichresis

6. Proxy under B.P. 68

2. Contracts executed in a foreign country in which

the law requires certain instruments, forms or
formalities for their validity, although Philippine
law does not require them.

Article 54. When are contracts entered into by

correspondence perfected?

From the moment the answer (even if such

acceptance is not yet known to the offeror) is made
accepting the offer or the conditions by which the latter
may be modified.

Article 55. In contracts in which an agent or broker

intervenes, when are they considered perfected?

When the contracting parties shall have

accepted the agent’s offer.

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
LETTERS OF CREDIT
TITLE XIII
CODE OF COMMERCE
Memorize!
Article 567. What are the so called Letters of Credit?
Those issued by one merchant (the drawer of
the letter of credit which is usually a bank, and is known
as the issuing bank) to another (the addressee of the
letter of credit which is usually a bank which makes the
advance of money, and is known as the correspondent
bank or confirming bank) for the purpose of attending to
a commercial transaction (such as importation of goods).
 Example:
A, who is engaged in import-export
business, is intending to purchase goods from D,
A’s supplier from California, USA at a cost of
$100,000.00, but he has no available funds at
that time. A applied a loan from B, A’s
depositary bank in the Philippines, and the latter
issued a letter of credit addressed to C, a bank in
California, USA as follows:
To C:
Pay to D the amount of
$100,000.00 upon your receipt of the
goods from the latter and ship them to
us immediately thereafter.
We will pay you the said
$100,000.00 including your interest and
shipping cost of the goods as soon as
we receive them in the Philippines.
(Sgd) B
In this example, A is the applicant of
the letter of credit/importer/buyer; B is the
drawer or issuer of the letter of credit or the
issuing bank; C is the addressee of the letter of
credit or the correspondent or confirming bank;
and, D id the beneficiary of the letter of
credit/exporter/seller.
Article 568.What are the essential conditions of letters of
credit?
The essential conditions (or requisites) of letters
of credit are:
1. Issued in favor of a definite person (the
beneficiary of the letter of credit/ seller/
exporter)and NOT to order (as a rule, letters of
credit are non-negotiable instrument, but
modern letters of credit may be issued as
negotiable).
2. Limited to a fixed and specified amount or to
one or more undetermined amounts, but within
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a maximum, the limits of which has to be stated
exactly.
Article 569. To what extent is the drawer (issuing bank)
of a letter of credit liable to the person on whom it was
issued (addressee or correspondent or confirming bank)?
For the amount paid by virtue of the letter of
credit and within the maximum fixed therein.
 Letters of Credit may not be protested even
should they not be paid (or honored by the
addressee because letter of credit is issued
merely for accommodation) nor shall the bearer
(applicant/ importer/ buyer, because he is
merely an accommodated party) thereof acquire
any right of action by reason of such non-
payment against the person (drawer/ issuing
bank) who issued them.
 The person paying (addressee/ respondent/
confirming bank) shall have the right to demand
the proof of the identity of the person
(beneficiary/ exporter/ seller) in whose favor the
letter of credit was issued.
Important!!!
Article 570. The drawer of a letter of credit may annul (or
cancel) it, informing the bearer and the person to whom
it is addressed of such revocation. [REVOCABILITY OF
LETTER OF CREDIT]
 Annul or cancel – such as when the applicant is
already insolvent.
Article 571. The bearer of a letter of credit shall pay the
amount received (by the bearer from the buyer/s of the
imported goods in the Philippines) to the drawer without
delay (in accordance with the agreement contained in the
trust receipt).
Article 572.When is a letter of credit considered VOID in
fact and in law?
If the bearer of a letter of credit does not make
use thereof within the period agreed upon with the
drawer, or in default of a period fixed, within six (6)
months counted from its date, in any point in the
Philippines and within twelve (12) months outside
thereof.
 Letters of Credit under the Code of Commerce,
however, are NOT negotiable instruments being
issued in favor of a specified person and not to
order nor to bearer.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

 Definition of Terms:

 Irrevocable letter of credit – means

that the issuing bank may not, without
the consent of the beneficiary (seller)
and the applicant (buyer), revoke his
undertaking under the letter.

 Confirmed letter of credit – pertains to

the kind of obligation assumed by the
correspondent bank, where the latter
gives absolute assurance to the
beneficiary that it will undertake the
issuing bank’s obligation as its own
according to the terms and conditions
of credit.

 Notifying Bank – is a correspondent

bank which assumes no liability except
to notify the beneficiary of the
existence of the letter of credit.

 Negotiating Bank – is a correspondent

bank which buys or discounts a draft
under the letter of credit.

 Confirming Bank – is a correspondent

bank which assumes direct obligation
to the seller and its liability is primary
as if the correspondent bank itself had
issued the letter of credit.

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
TRUST RECEIPTS LAW
P.D. No. 115
 Purposes of the Law:
a. To encourage and promote the use of the
trust receipts as additional and convenient
aid to commerce and trade.
b. To provide for the regulation of trust
receipt transactions in order to assure the
protection of the rights and the
enforcement of obligations of the parties
involved therein.
c. To declare misuse and/or misappropriation
of goods or proceeds realized from the sale
of goods, documents or instruments
released under trust receipts as criminal
offense (swindling or estafa).
 Definition of Terms:
 Document – written or printed
evidence of title to goods such as
warehouse receipts, bill of lading,
quedan and dock warrant.
 Entrustee – the person having or taking
possession of the goods, documents or
instruments (such as promissory notes,
certificates of deposit, bond certificate
and certificate of stock) under a trust
receipt transaction.
 Entrustor – the person holding title
(beneficial title) over the goods,
documents, instruments subject of a
trust receipt transaction.
 Instrument – means any negotiable
instrument defined in the NIL; any
certificate of stock, or bond or
debenture or any certificate of deposit,
participation certificate or receipt, any
credit or investment instrument
whereby the entrustees, after the
issuance of the trust receipt, appears
by virtue of possession and the face of
the instrument to be the owner (legal
owner).
 Security Interest (or beneficial
interest) – a property interest in goods
(such as imported goods), documents
or instruments to secure performance
of some obligations of the entrustee or
of some third persons to the entruster.
Memorize!
Trust Receipt – the written or printed document signed
by the entrustee in favor of the entruster containing
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terms and conditions substantially complying with the
provisions of this Decree.
Important!!!
 What constitutes a trust receipt transaction?
Any transaction by and between the
entruster and the entrustee whereby the
entruster who owns or holds beneficial title or
security interests over certain specified goods,
documents or instruments, releases the same to
the possession of the entrustee upon the
latter’s execution and delivery to entruster of a
signed document called the “trust receipt”
wherein the entrustee binds himself to hold the
designated goods, documents or instruments
with the obligation to turn over to the entruster
the proceeds thereof to the extent of the
amount owing to the entruster or as appears in
the trust receipt or the goods, instruments
themselves if they are unsold or not otherwise
disposed of, in accordance with the terms and
conditions specified in the trust receipt.
 In the case of goods delivered under trust
receipt for the purpose of manufacturing or
processing before its ultimate sale, the entruster
shall retain his title over the goods whether in
its original or processed form until the entrustee
has complied fully with his obligation under the
trust receipt.
 Note: Transactions of traders and dealers in
securities are NOT trust receipt transactions.
 The sale of goods, documents or instruments by
a person in the business of selling goods,
documents or instruments for profit, who at the
outset of the transaction, has, against the buyer,
general property rights in such goods, document
or instruments, or who sells the same to the
buyer on credit, retaining title or other interest
as security for the payment of the purchase
price, does NOT constitute a trust receipt
transaction and is outside the purview and
coverage of this Decree.
 Trust Receipt – specifically applied to a written
instrument whereby a banker (entrustee) having
advanced money for purchase of imported
merchandise and having taken title in his own
name, delivers possession to an importer on
agreement in writing to hold the merchandise in
trust for the banker till he is paid.
 By this arrangement (of trust receipt), a banker
advances money to an intending importer and
thereby lends the aid of capital, of credit, or of
business facilities and agencies abroad, to the
enterprise of foreign commerce. Much of this
trade could hardly be carried on by any other
means, and therefore, it is of the first
importance that the fundamental factor in the
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
transaction, the banker’s advance of money and
credit, would receive the amplest protection.
 Beneficial title vested in entruster.
Accordingly, in order to secure that the
banker shall be repaid at the critical point – that
is, when the imported goods finally reach the
hands of the intended vendee – the banker
takes the beneficial title to the goods at the very
beginning.
A trust receipt is thus considered a
security transaction intended to aid in financing
importers and retail dealers who do not have
sufficient funds or resources to finance the
importation or purchase of merchandise and
who may not be able to acquire credit except
through utilization, as collaterals, of the
merchandise imported or purchased.
Memorize!
 Entruster remains a lender or creditor.
The entruster des not become the real
owner of the goods. It is merely the holder of a
security title for the advances it had made to the
importer. The goods the importer had
purchased, through the bank financing, remain
the importer’s property and he holds it at his
own risk.
If under the trust receipt, the bank is
made to appear as the owner, it is but artificial
expedient, more of a legal fiction than fact, for if
it were so, it could dispose of the goods in any
manner it wants, which it cannot do, just to give
consistency with the purpose of the trust receipt
of giving a stronger security for the loan
obtained by the importer. To consider the bank
as the true owner form the inception of the
transaction would be to disregard the loan
feature involved.
Memorize!
 Letters of Credit – trust receipt arrangement.
A bank extends to a borrower a loan
covered by the letter of credit with the trust
receipt as a security for the loan. In other words,
the transaction involves a loan feature
represented by the letter of credit and a security
feature which is in the covering trust receipt.
 Form and Contents of trust receipts
A trust receipt need NOT be in any
particular form, but every such receipt must
substantially contain:
a. A description of the goods, documents or
instruments, subject of the trust receipt.
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b. To dispose of them in the manner provided
for the trust receipt; and,
c. To turn over the proceeds of the sale of the
goods, documents or instruments to the
entruster or as appears in the trust receipt
or to return the goods, documents or
instruments in the event of their non-sale.
 Currency in which a trust receipt may be
denominated.
A trust receipt may be denominated in
Philippine Currency or any foreign currency
acceptable and eligible as part of international
reserves of the Philippines.
 Right of the Entruster
The entruster shall be entitled to the
proceeds from the sale of the goods, documents
or instruments released under a trust receipt to
the entrustee to the extent of the amount
owing to the entruster or appears in the trust
receipt, or to the return of the goods,
documents or instruments in case of non-sale.
The entruster may cancel the trust and
re-take possession of the goods, instruments or
documents subject to the trust or the proceeds
realized therefrom at any time upon default or
failure of the entrustee to comply with any of
the terms and conditions of the trust receipt
and the entruster in possession of the goods,
documents or instruments may, on or after
default, give notice to the entrustee of the
intention to sell.
The entrustee shall receive any surplus
but shall be liable to the entruster for any
deficiency.
 Entruster NOT responsible on sale by
entrustee.
The entruster holding a security
interest shall not be responsible (such as for
branch of warranty against hidden defects) as
principal or as vendor under any sale or contract
to sell made by the entrustee.
Very Very Important!!!
 Liability of entrustee for loss.
The risks of loss shall be borne by the
entrustee. Loss of goods, documents or
instruments which are the subject of a trust
receipt, pending their disposition, irrespective of
whether or not it was due to the fault or
negligence of the entrustee, shall not extinguish
his obligation to the entruster for the value
thereof.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

 Right of Purchaser for value and in good faith.

Any purchaser of goods from an

entrustee with right to sell, or of documents or
instruments through their customary form of
transfer, who buys the goods, documents or
instruments for value and in good faith form the
entrustee, acquires said goods, documents or
instruments free from the entruster’s security
interest.

If the entrustee fails to remit the

proceeds to the entruster, the latter has no right
of action against the purchaser.

 Validity of the entrustee’s security interest as

against creditors.

The entruster’s security interest in

goods, documents or instruments pursuant to
the written terms of a trust receipt shall be valid
as against all creditors of the entrustee for the
duration of the trust receipt agreement.

The entruster is a preferred creditor as

against the other creditors of the entrustee.

 Penalty Clause

The failure of the entrustee to turn

over the proceeds of the sale of the goods,
documents or instruments covered by a trust
receipt or to return said goods, documents or
instruments if they were not sold or disposed of
in accordance with the terms of the trust receipt
shall constitute the crime of estafa (RPC, Article
315 [1]b).

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
BULK SALES LAW
(as amended)
Act No. 3952
Bulk Sales Law – is a law which provides that the sale of
all or any portion of the stock of merchandise other than
in the ordinary course of trade or business shall be
fraudulent and void against the creditors of the seller
unless the seller delivers to the buyer a list of the
former’s creditors and the buyer, in turn, notifies such
creditors of the proposed sale.
The REASON for this is because when a
merchant sells all of his merchandise as goods, the result
is that he will close or stop his business and his creditors
may not be paid of the claims against the merchant.
 Purpose of the Bulk Sales Law
To prevent the secret or fraudulent sale or
conveyance of goods in bulk until the creditors of the
seller shall have been paid in full.
 Sales of goods in bulk which are exempt from
the coverage of this law, hence, are valid:
1. Sale by a vendor who is an executor,
administrator, receiver or assignee in
insolvency by a public officer acting under
judicial process.
2. Sale by a vendor who produces and delivers
to the buyer a written waiver of the
provisions of this law from his creditors.
3. If the sale refers to properties exempt from
attachment or execution.
 What is/ are deemed to be sale and transfer in
bulk?
Under Section 2 of this law, the following acts
are deemed to be a sale and transfer in bulk:
1. Any sale of a stock of goods otherwise than
in ordinary cause of trade and the regular
prosecution of the business of the vendor.
2. Any sale of all or substantially all, of the
business or trade, theretofore conducted by
the vendor.
3. Any sale of all, or subsequently all, of the
fixtures and equipment used in and about
the business of the vendor.
 If such vendor produces (the written waiver
comes from the creditors of the seller and the
latter shall deliver it to the buyer of the goods in
bulk) and delivers (to the buyer) a written waiver
of the provisions of this Act from his creditors
as shown by verified statements (Section 3 of
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this Act), then the provisions of this Section shall
not apply (meaning, the sale in bulk is VALID).
 Statement of Creditors (Section 3)
It shall be the duty of every person who
shall sell any stock of goods in bulk, before
receiving from the vendee any part of the
purchase price, to deliver such vendee a written
statement, sworn to substantially of the names
and addresses of all creditors to whom said
vendor may be indebted, together with the
amount of indebtedness due or owing, or to
become due or owing by said vendor to each of
said creditors.
 Note: If the seller does not comply with this
requirement, the sale shall be fraudulent and
valid and shall make him criminally liable.
 Fraudulent and void sale, transfer or mortgage
(Section 4)
Whenever any person shall sell,
mortgage, transfer, or assign any stock of goods,
wares, merchandise, provisions or materials, in
bulk, for cash or on credit, and shall receive any
part of the purchase price, or any promissory
note, or other evidence of indebtedness for said
purchase price or advance upon mortgage,
without having first delivered to the vendee or
mortgagee or to his or its agent or
representative, the sworn statement provided
for in section three hereof, and without applying
the purchase or mortgage money of the said
property to the pro rata payment of the bona
fide claim or claims of the creditors of the
vendor or mortgagor, as shown upon such
sworn statement, he shall be deemed to have
violated this Act, and any such sale, transfer or
mortgage shall be fraudulent and void (good
faith on the part of the buyer is immaterial).
 Inventory (Section 5)
It shall be the duty of every vendor,
transferor, mortgagor, or assignor, at least ten
days before the sale, transfer or execution of a
mortgage upon any stock of goods, wares,
merchandise, provisions or materials, in bulk, to
make a full detailed inventory thereof and to
preserve the same showing the quantity and, so
far as is possible with the exercise of reasonable
diligence, the cost price to the vendor,
transferor, mortgagor or assignor of each article
to be included in the sale, transfer or mortgage,
and notify every creditor whose name and
address is set forth in the verified statement of
the vendor, transferor, mortgagor, or assignor,
at least ten days before transferring possession
thereof (goods involved).
 Note: Non-compliance of their requirement will
result to criminal liability of the vendor.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

 Any vendor, transferor, mortgagor or assignor of

any stock of goods, wares, merchandise,
provisions or materials, in bulk, or any person
acting for, or on behalf of any such vendor,
transferor, mortgagor, or assignor, who shall
knowingly or wilfully make, or deliver or cause
to be made or delivered, a statement, as
provided for in section three hereof, which shall
not include the names of all such creditors, with
the correct amount due and to become due to
each of them, or shall contain any false or
untrue statement, shall be deemed to have
violated the provisions of this Act.

 Note: Non-compliance with this requirement

shall make the vendor criminally liable but the
sale is valid.

 It shall be unlawful for any person, firm or

corporation, as owner of any stock of goods,
wares, merchandise, provisions or materials, in
bulk, to transfer title to the same without
consideration or for a nominal consideration
only.

 The sworn statement containing the names and

addresses of all creditors of the vendor shall be
registered in the Bureau of Trade Regulation
and Consumer Protection of the DTI.

 Any person violating any provision of this Act

shall, upon conviction thereof, be punished by
imprisonment not less than six months, nor
more than five years, or fined in sum not
exceeding five thousand pesos, or both such
imprisonment and fine, in the discretion of the
court.

11
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
THE WAREHOUSE RECEIPTS LAW
(as amended)
Act No. 2137
 Questions and Answers:
1. Is a warehouse receipt a negotiable
instrument?
NO, because it does not contain an
unconditional promise or order to pay a
sum certain in money. What it contains is
an undertaking to deliver the goods
described therein.
2. Is a warehouse receipt a document of title?
YES, warehouse receipt is one of
the documents of title to goods
enumerated under Article 1636 of the New
Civil Code.
3. Is a warehouse receipt a negotiable
document of title?
IT DEPENDS. If the goods described
in the warehouse receipt are deliverable to
bearer or order of a specified person or to a
specified person or his order, the
warehouse receipt is negotiable. It the
goods described in the warehouse receipt
are deliverable to a specified person, it is
NOT a negotiable document of title.
 Warehousemen – a person lawfully engaged in
the business of storing goods for profit.
 Warehouse – means every building, structure,
or other protected inclosure in which
commodity is kept for storage.
Section 2. Essential terms (or basic contents) of
warehouse receipts:
 Warehouse receipts need NOT be in any
particular form but every such receipt must
embody within its written or printed terms:
a. The location (address) of the warehouse;
b. The date of issue of the receipt;
c. number of receipt;
d. A statement whether the goods received will be
delivered to the bearer (negotiable), to a
specified person (non-negotiable), or to a
specified person or his order or to the order of a
specified person (negotiable).
e. The rate (amount) of storage charges;
f. Description of the goods;
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g. Signature of the warehouseman;
h. If the receipt is issued for goods of which the
warehouseman is owner, the fact of such
ownership;
 It is possible that although the
warehouseman is the owner of the
goods stored in his warehouse, he
issues a warehouse receipt in his favor
so that if he needs money, he can easily
negotiate the receipt without
delivering the goods to the person in
whose favor he negotiates the receipts.
i. Amount of advances (made by the
warehouseman such as for freight and handling
cost not yet paid by the owner of the goods)
made and of liabilities incurred (in favor of third
persons such as coopering cost) for which the
warehouseman claims a lien;
 A warehouseman shall be liable to any person
injured thereby, for all damages caused by the
omission from a negotiable receipt of any terms
herein required.
 The omission of the essential terms enumerated
above will not affect the validity of the
warehouse receipt without prejudice to
whatever damages third person may suffer by
reason of the omission.
Non-negotiable Receipt – a receipt in which it is stated
that the goods received will be delivered to the depositor
or to any other specified person (Section 4).
Negotiable Receipt – a receipt in which it is stated that
the goods received will be delivered to the bearer or to
the order of any person named in such receipt (Section
5).
Important!!!
Section 6.Duplicate receipts must be so marked.
When more than one negotiable receipt (two or
more negotiable receipt issued on different dates
covering the same goods not two or more copies of the
same receipt) is issued for the same goods, the word
“duplicate” shall be plainly placed upon the face of every
such receipt, except the one first issued.
A warehouseman shall be liable for all damages
(monetary because the warehouseman cannot deliver the
goods to two or more persons) caused by his failure to do
so to anyone who purchased the subsequent receipt for
value supposing it to be an original, even though the
purchase be after the delivery of the goods by the
warehouseman to the holder of the original receipt.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Important!!!
Section 7.What is the effect of the warehouseman’s
failure to mark the receipt as non-negotiable (or not
negotiable)?
A non-negotiable receipt shall have plainly
placed upon its face by the warehouseman issuing it
“non-negotiable”, or “not negotiable”.
In case of the warehouseman’s failure so to do,
a holder of receipt who purchased it for value supposing
it to be negotiable, may, at his option, treat such receipt
as imposing upon the warehouseman the same liabilities
(the holder can compel the warehouseman to deliver to
him the goods even if the receipt is non-negotiable) he
would have incurred had the receipt been negotiable.
Very Important!!!
Section 8.When is the warehouseman obliged to deliver
the goods?
A warehouseman is bound to deliver the goods
upon a demand made either by the holder (in the case of
negotiable warehouse receipt) of a receipt for the goods
or by the depositor (in the case of non-negotiable
warehouse receipt), if such demand is accompanied with:
a. An offer to satisfy the warehouseman’s lien
(advances made, liabilities incurred and storage
charges)
b. An offer to surrender the receipt, if negotiable,
with such indorsements as would be
necessary(order negotiable warehouse receipt)
for the negotiation of the receipt; and,
c. A readiness to sign, when the goods are
delivered, an acknowledgment that they have
been delivered, if such signature is requested by
the warehouseman.
 The warehouseman will be criminally liable if he
delivers the goods without obtaining possession
of the receipt.
Very Important!!!
Section 9. To whom is the warehouseman justified
(meaning, the warehouseman cannot be held liable for
misdelivery) in delivering the goods?
a. to the person(such as done, attaching creditor,
person to whom the court awarded the goods such
as under Sections 14 and 18) lawfully entitled to the
possession of the goods;
b. to a person (depositor) who is either himself entitled
to delivery by the terms of a non-negotiable receipt
issued for the goods or who (agent) has written
authority (Special Power of Attorney) from the
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person so entitled, either indorsed upon the receipt
or written upon another paper;
c. to a person in possession of a negotiable receipt by
the terms of which the goods are deliverable to him
or order, or bearer, or which has been endorsed to
him.
 Instances where written Special Power of
Attorney is required by law to be in writing:
1. When the agent is authorized by the
depositor or goods who is a holder of a non-
negotiable warehouse receipt;
2. Proxy under BP 68;
3. Authority of the resident agent of a foreign
corporation under BP 68;
4. Authority of an agent to sell a piece of land
belonging to his principal,
Important!!!
Section 10.What is the warehouseman’s liability in case
of misdelivery(or for “conversion”) of the goods?
Where a warehouseman delivers the goods to
one who is not in fact lawfully entitled to the possession
of them (such as the depositor who allegedly lost the
receipt when in fact he negotiated it to another person),
the warehouseman shall be liable as for conversion to all
having a right of property or possession in the goods if he
delivered the goods otherwise than as authorized by
subdivisions (b) and (c) of the preceding section, and
though he delivered the goods as authorized by said
subdivisions, he shall be so liable, if prior to such delivery
he had either:
(a) Been requested, by or on behalf of the person
lawfully entitled to a right of property or
possession in the goods, not to make such
deliver; or
(b) Had information that the delivery about to be
made was to one not lawfully entitled to the
possession of the goods.
Section 11. What is the effect of the warehouseman’s
failure to cancel the receipt upon delivery of the goods?
Except as provided in section thirty-six
(perishable or hazardous goods), where a warehouseman
delivers goods for which he had issued a negotiable
receipt and fails to take up and cancel the receipt, he
shall be liable (for the damage representing the value of
the goods without prejudice to his criminal liability under
Section 54) to anyone who purchases for value in good
faith such receipt, for failure to deliver the goods to him,
whether such purchaser acquired title to the receipt
before or after the delivery (to the person who did not
surrender the warehouse receipt) of the goods by the
warehouseman.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
 The above provisions are NOT applicable to non-
negotiable receipts because the warehouseman
may make delivery without requiring their
surrender and cancellation; Provided, the
depositor or his agent signs an acknowledgment
receipt of such delivery. The reason for this is
that the goods may only be delivered or
released by the warehouseman to the depositor
or his agent, hence, the receipt cannot be
negotiated to a third person so that the
warehouseman will not incur any liability for
misdelivery.
Section 13.What is the effect of alteration of a receipt?
The alteration of a receipt shall NOT excuse the
warehouseman who issued it from any liability if such
alteration was:
(a) Immaterial,
(b) Authorized (by the warehouseman), or
(c) Made without fraudulent intent.
Important!!!
Material and fraudulent alteration(such as
increasing the quantity of the goods) of a receipt shall
not excuse the warehouseman who issued it from
liability to deliver according to the terms of the receipt as
originally issued, the goods for which it was issued but
shall excuse him from any other liability to the person
who made the alteration. Any purchaser of the receipt
for value without notice of the alteration shall acquire
the same rights against the warehouseman which such
purchaser(he can claim the difference from the person
who made the alteration) would have acquired if the
receipt had not been altered at the time of purchase.
 If the alteration is material and fraudulently
made, the warehouseman is liable (to deliver
the goods) according to the original tenor of the
receipt to a purchaser of the receipt for value
without notice, and even to the alterer and
subsequent purchasers with notice except that
as regards to the last two, the warehouseman’s
liability is limited only to delivery as he is
excused from any other liability.
Important!!!
Section 14.What are the remedies available in case the
receipts are lost or destroyed?
Where a negotiable receipt has been lost or
destroyed, a court of competent jurisdiction may order
the delivery of the goods upon satisfactory proof of such
loss or destruction and upon the giving of a bond (by the
person who demands the release or delivery of the goods)
with sufficient sureties to be approved by the court to
protect the warehouseman from any liability or expense,
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which he or any person injured by such delivery may
incur by reason of the original receipt remaining
outstanding.
The delivery of the goods under an order of the
court shall not relieve the warehouseman from liability
(to pay the value of the goods and the bond shall answer
for their liability) to a person to whom the negotiable
receipt has been or shall be negotiated for value without
notice of the proceedings or of the delivery of the goods.
Section 15.What is the effect of duplicate receipts?
A receipt upon the face of which the word
"duplicate" is plainly placed is a representation and
warranty by the warehouseman that such receipt is an
accurate copy of an original receipt properly issued and
uncancelled at the date of the issue of the duplicate, but
shall impose upon him no other liability.
 Question: A deposited his goods in the
warehouse of B and the latter issued a
negotiable warehouse receipt in favor of B. Two
days later, A sold the goods to B but the latter
failed to demand from the former, the
surrender of the warehouse receipt. One week
later, A negotiated the negotiable warehouse
receipt to C and the latter paid the former for
the value of the goods without knowledge that
the goods represented by the negotiable
warehouse receipt was already sold by A to B.
Two days later, C demanded from B the release
of the goods but B refused on the ground that
he already derived title over the goods because
A sold them to him. Is B correct?
Answer: B is NOT correctbecause under the law,
the warehouseman is obliged to deliver the
goods to the person who can present or
surrender the negotiable warehouse receipt.
 The warehouseman may NOT be compelled to
deliver the goods by virtue of the duplicate only
unless the procedure provided for in Section 14
is followed.
Section 16.Can the warehouseman set up title in
himself?
GENERAL RULE: No title or right to the possession of the
goods, on the part of the warehouseman, shall excuse
him from liability for refusing to deliver the goods
according to the terms of the receipt.
EXCEPTION: If such title or right is derived directly or
indirectly:
1. from a transfer made by the depositor(in favor
of the warehouseman) at the time of or
subsequent to the deposit for storage; or,
 if the depositor transferred his title to
the goods to the warehouseman after
the issuance of the negotiable
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
warehouse receipt, the latter must
retake possession of the negotiable
warehouse receipt he issued to the
depositor so that he will be excused
from liability for refusing to deliver the
goods)
2. from the warehouseman's lien (the
warehouseman cannot be compelled to deliver
the goods until his lien, such as storage charges,
is fully satisfied).
Important!!!
Section 17.What is the remedy available in case two or
more persons claim title or possession over the goods?
If more than one person claims the title or
possession of the goods, the warehouseman may, either
as a defense to an action brought against him for non-
delivery of the goods or as an original suit
(warehouseman will file a complaint in interpleader),
whichever is appropriate, require all known claimants to
interplead.
Section 18.When is the warehouseman excused from
liability for refusing to deliver the goods in cases where
another person, other than the depositor, is claiming
under the latter (depositor)?
If someone(such as donee or attaching creditor
or any other adverse claimant) other than the depositor
or person(such as endorsee of an order negotiable
warehouse receipt or bearer of a bearer negotiable
warehouse receipt) claiming under him(depositor) has a
claim to the title or possession of goods, and the
warehouseman has information of such claim, the
warehouseman shall be excused from liability for
refusing to deliver the goods until the warehouseman
has had a reasonable time to ascertain the validity of the
conflicting claim or to bring legal proceedings to compel
claimants to interplead.
 What are the duties of the warehouseman in
case there are several claimants to the goods?
1. He must determine, within a reasonable
time, the validity to the conflicting claims
and delver to the person whom he finds is
entitled to the possession of the goods, OR
2. For his own protection, he must file a
complaint in interpleader and require the
different claimants to litigate among
themselves. In such case, the
warehouseman will be relieved from
liability in delivering the goods to the
person whom the court finds to have a
better right.
Section 20.What is the liability of the warehouseman in
case of non-existence or misdescription of goods?
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A warehouseman shall be liable to the holder of
a receipt for damages caused by the non-existence of the
goods or by the failure of the goods to correspond with
the description thereof in the receipt at the time of its
issue.
Section 21.Can the warehouseman be held liable for any
loss or injury to the goods? Yes.
A warehouseman shall be liable for any loss or
injury to the goods caused by his failure to exercise such
care in regard to them as reasonably careful owner
(ordinary diligence) of similar goods would exercise, but
he shall not be liable, in the absence of an agreement to
the contrary, for any loss or injury to the goods which
could not have been avoided (fortuitous event) by the
exercise of such care.
Very Very Important!!!
BAR FAVORITE
Section 25.When can there be an attachment or levy
upon the goods for which a negotiable receipt has been
issued?
If goods are delivered to a warehouseman by
the owner or by a person(agent) whose act would bind
the owner, and a negotiable receipt(if the receipt is non-
negotiable, the goods are subject to attachment or
execution because no third person can be prejudiced
thereby and because of Section 42) is issued for them,
they(the goods, because the negotiable warehouse
receipt itself is subject to attachment under Article 26)
cannot thereafter, while in the possession of the
warehouseman, be attached by garnishment or
otherwise (such as replevin), or be levied upon under an
execution unless the receipt be first surrendered to the
warehouseman or its negotiation enjoined (by the Court).
The warehouseman shall in no case be compelled to
deliver the actual possession of the goods until the
receipt is surrendered to him or impounded by the court.
 Example:
A stored his goods in the warehouse of B and
the latter issued a negotiable warehouse receipt in favor
of the former. A is indebted to C and C filed a collection
case against A, and the Court issued judgement ordering
A to pay C. The sheriff demanded payment from A but
the latter had no money. C informed the sheriff that A
owns goods stored in the warehouse of B.
1. Can the sheriff compel B to release the goods of
A to him (sheriff)?
NO, the goods covered by a negotiable
warehouse receipt are exempt from execution.
2. C filed a motion for the issuance of writ of
injunction to prohibit the negotiation of the
negotiable warehouse receipt which is in A’s
possession and the Court granted the motion
and issued the appropriate writ of injunction.
The sheriff presented to B the writ of injunction
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
and demanded the release of goods but B
refused to release the goods. Is B correct?
YES, the warehouseman shall in no case
be compelled to deliver actual possession of the
goods until the surrender of the receipt to him.
3. What should C do in order that the
warehouseman be compelled to release the
goods?
C must file a motion to impound the
negotiable warehouse receipt, which means to
order A to surrender the negotiable warehouse
receipt to the Court.
Section 26.What are the creditor’s remedies in reaching
negotiable receipts?
A creditor whose debtor is the owner of a
negotiable receipt shall be entitled to such aid from
courts, by injunction and otherwise, in attaching such
receipt (the negotiable warehouse receipt itself is subject
to attachment but NOT the goods) or in satisfying the
claim by means thereof (by filing a collection case and
attach then the negotiable warehouse receipt and then
sell at public auction the goods covered by such receipt)
as is allowed at law or in equity.
Section 27.(Here the receipt is non-negotiable)What are
the claims included the warehouseman’s lien?
Subject to the provisions of section thirty (the
receipt is negotiable), a warehouseman shall have a lien
on goods deposited oron the proceeds thereof in his
hands (in the case of perishable goods), for all:
1. lawful charges for storage and preservation of
the goods;
2. lawful claims for money advanced, interest,
insurance, transportation, labor, weighing,
coopering and other charges and expenses in
relation to such goods
3. reasonable charges and expenses for notice, and
advertisements of sale
 When the goods are covered by a non-
negotiable warehouse receipt, the lien of the
warehouseman are for storage charges,
advances, liabilities and expenses for
advertisement and sale even if they are not
stated or enumerated in the warehouse receipt.
 If the goods are covered by negotiable
warehouse receipt, the lien of the
warehouseman are for storage, charges, etc.
which must be stated or enumerated in the
negotiable warehouse receipt.
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Important!!!
Section 30.What are the liens of the warehouseman
when the goods are covered by negotiable warehouse
receipt?
If a negotiable receipt is issued for goods, the
warehouseman shall have no lien thereon except for:
1. charges for storage expressly enumerated
2. other charges
 When goods are covered by a negotiable
warehouse receipt, the storage charges and
other charges must be stated and or
enumerated on said receipt so that the person
to whom the receipt is negotiated will know
how much he will pay the warehouseman if he
will secure the release of the goods and this
amount will be considered in fixing the amount
to be paid to the person negotiating such
negotiable warehouse receipt.
Important!!!
Section 34.What should the warehouseman do in case
the goods stored are of perishable or hazardous nature?
If goods are of a perishable nature, or by
keeping will deteriorate greatly in value, the
warehouseman may give such notice to the owner or to
the person in whose names the goods are storedto
satisfy the lien upon such goods and to remove them
from the warehouse and in the event of the failure of
such person to satisfy the lien and to receive the goods
within the time so specified (in the notice), the
warehouseman may sell the goods at public or private
sale without advertising.If the warehouseman, after a
reasonable effort, is unable to sell such goods, he may
dispose of them in any lawful manner(he may donate the
goods to a charitable institutions or he may deliver them
to local officials) and shall incur no liability by reason
thereof.
Section 35.Are other remedies for the enforcement of
lien allowed? Yes.
The remedy for enforcing a lien herein provided
does not preclude any other remedies (such as action for
collection of sum of money) allowed by law for the
enforcement of a lien against personal property nor bar
the right to recover so much of the warehouseman's
claim as shall not be paid by the proceeds of the sale of
the property.
Section 36.What is the effect of sale of the goods?
After the goods have been fully and lawfully sold
to satisfy a warehouseman's lien, or have been lawfully
sold or disposed of because of their perishable or
hazardous nature, the warehouseman shall not
thereafter be liable for failure to deliver the goods to the
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
depositor or owner of the goods or to a holder of the
receipt given for the goods when they were deposited,
even if such receipt be negotiable.
Memorize!!!
 Remedies available to a warehouseman in
enforcing his lien:
1. By refusing to deliver the goods until the
lien is satisfied (Section 31)
2. By causing the extrajudicial sale of the
property and applying the proceeds to the
value of the lien (Sections 33 and 34)
3. By filing a civil action for the unpaid
charges.
Important!!!
Section 37.(Similar to Article 1508 of the New Civil Code)
 When may a negotiable receipt be negotiated
by delivery?
A negotiable receipt may be negotiated by
delivery:
a. Where the warehouseman undertakes to
deliver the goods to the bearer, or
b. Where the warehouseman undertakes to
deliver the goods to the order of a specified
person, and such person or a subsequent
indorsee of the receipt has indorsed it in
blank or to bearer.
 When may a negotiable receipt be negotiated
by indorsement?
Any holder may indorse the negotiable
receipt to himself or to any other specified person
(hence the receipt shall thereafter be negotiated only
by the indorsement of such indorsee):
a. Where the goods are deliverable to bearer;
or,
b. where a negotiable receipt has been
indorsed in blank or to bearer
 In this case, the bearer warehouse
receipt is converted to an order
warehouse receipt. The rule is different
under the Negotiable Instruments Law
because a bearer instrument on its
face, is never converted into an order
instrument regardless of special
endorsements thereon.
 A stored his goods in the warehouse of B and
the latter issued a negotiable warehouse receipt
as follows:
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The goods hereunder described are
deliverable to B.
(Sgd) B
A indorsed the said negotiable warehouse
receipt to himself as follows:
Deliver to myself.
(Sgd) A
In the hands of A, the bearer
warehouse receipt is converted to an order
warehouse receipt and A can negotiate it to C
either by endorsement either to a specified
person or in blank or to bearer.
 Some Examples:
1. A stored his goods in the warehouse of B and
the latter issued a warehouse receipt as follows:
The goods hereunder described are
deliverable to the order of A.
(Sgd) B
A negotiated the warehouse receipt to
C by simply affixing his signature at the back of
the warehouse receipt and delivered it to C. The
endorsement made by A to C is an endorsement
in blank which converts the order negotiable
warehouse receipt into a bearer warehouse
receipt. Hence, C can negotiate the warehouse
receipt to D by mere delivery.
2. A stored his goods in the warehouse of B and
the latter issued a negotiable warehouse receipt
as follows:
The goods hereunder described are
deliverable to A.
(Sgd) B
A negotiated the warehouse receipt to
C by placing at the back of the warehouse
receipt the following:
Deliver to C.
(Sgd) B
The endorsement made by A to C is a
special endorsement, hence, in the hands of C
the warehouse receipt remains an order
warehouse receipt and will require indorsement
by C if he negotiates it to C.
C negotiated the warehouse receipt to
D, by placing at the back of the warehouse
receipt the following:
Deliver to bearer.
(Sgd) C
In the hands of D, the order warehouse
receipt has been converted into a bearer
warehouse receipt. Hence, D can negotiate the
warehouse receipt to E by mere delivery.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Section 38.(See Article 1509 of the New Civil Code)
Can a negotiable receipt be negotiated by indorsement?
Yes.
A negotiable receipt may be negotiated by the
indorsement (coupled with delivery) of the person to
whose order the goods are deliverable. Such
indorsement may be in blank, to bearer or to a specified
person.
 If the endorsement is in blank or to bearer, the
order negotiable warehouse receipt is converted
into a bearer negotiable warehouse receipt
negotiable by delivery. If the endorsement of a
negotiable warehouse receipt is special, the
order negotiable warehouse receipt remains an
order negotiable warehouse receipt negotiable
by endorsement coupled with delivery.
 Advantages of a negotiable warehouse receipt:
1. It protects a purchaser for value and in
good faith;
2. The goods covered by it cannot be
garnished or levied upon under execution
unless it is surrendered (to the
warehouseman), or impounded, or its
negotiation enjoined (and the receipt is
impounded by the Court);
3. In case of negotiation, the holder acquires
the direct obligation of the warehouseman
to hold possession of the goods for him
without notice to such warehouseman; and,
4. The goods it covers are not subject to
seller’s lien (The right of a holder of a
negotiable warehouse receipt is superior to
the right of an unpaid seller) or stoppage in
transitu.
 Question: A sold goods worth Php1,000,000.00
to B on November 19, 2013. The contract provides that B
will pay the Php1,000,000.00 on December 31, 2013. On
November 20, 2013, B stored the goods in the
warehouse of C and the latter issued an order negotiable
warehouse receipt in favor of B. On December 1, 2013, B
negotiated the receipt in favor of D.
On December 31, 2013, B failed to pay and the
latter discovered that the goods of B are stored in the
warehouse of C. On January 2, 2014, D demanded from C
the release of said goods contending that he is exercising
his right as an unpaid seller and is also demanding the
release of said goods from C.
Who is the rightful owner of the goods?
Answer: The rightful owner of the goods is D because
goods which are covered by a negotiable warehouse
receipt are not subject to seller’s lien. Otherwise stated,
the right of a holder of a negotiable warehouse receipt is
superior to the right of an unpaid seller.
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2014
Important!!!
Section 40.Who may negotiate a receipt?
A negotiable receipt may be negotiated:
a. By the owner thereof, or
b. By any person to whom the possession or
custody of the receipt has been entrusted
by the owner, if, by the terms of the
receipt, the warehouseman undertakes to
deliver the goods to the order of the person
(such as agent or trustee) to whom the
possession or custody of the receipt has
been entrusted, or if, at the time of such
entrusting, the receipt is in such form that it
may be negotiated by delivery.
Question: A stored his goods in the warehouse of B and
the latter issued a warehouse receipt worded as follows:
The goods herein described are deliverable to
the order of A.
(Sgd) B
A entrusted the possession of the negotiable
warehouse receipt in favor of his friend C because at that
time, A will be going to Manila and he was afraid that he
may lose or misplace the said negotiable warehouse
receipt.
May C negotiate the negotiable
warehouse receipt entrusted to him by A?
Answer:NO, C cannot negotiate the negotiable
warehouse receipt because the receipt does not contain
an undertaking on the part of the warehouseman (B) to
deliver the goods to the order of the person to whom the
possession of the negotiable warehouse receipt has been
entrusted.
 A stored goods in the warehouse of B and the
latter issued a negotiable warehouse receipt as
follows:
The goods hereunder described are
deliverable to the order of A or to the order of
the person to whom the possession of the
receipt has been entrusted by A.
(Sgd) B
If A entrusted the possession of the
negotiable warehouse receipt to C, the latter
can validly negotiate the said negotiable receipt.
 A stored goods in the warehouse of B and the
latter issued a negotiable warehouse receipt as
follows:
The goods hereunder described are
deliverable to the order of A.
(Sgd) B
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
A negotiated the negotiable warehouse
receipt to C, by blank endorsement or by simply
affixing his signature of to the negotiable
warehouse receipt. C entrusted the possession
of the negotiable warehouse receipt to his
friend, D. May D negotiate the said negotiable
warehouse receipt?
YES, because at the time of the
entrusting of the negotiable warehouse receipt
it was such form that it may be negotiated by
mere delivery considering that the only
endorsement is endorsement in blank which
converted the order negotiable warehouse
receipt to bearer negotiable warehouse receipt
which is negotiable by mere delivery.
Important!!!
Section 41.What are the rights of a person to whom a
receipt has been negotiated?
A person to whom a negotiable receipt has been duly
negotiated acquires thereby:
a. title to the goods as the person negotiating the
receipt to him had and also such title to the
goods as the depositor or person to whose
order the goods were to be delivered had, and
b. the direct obligation of the warehouseman to
hold possession of the goods for him according
to the terms of the receipt as fully (there is no
need on the part of the person to whom the
negotiable warehouse receipt has been
negotiated to notify the warehouseman) as if
the warehouseman and contracted directly with
him.
 A stored his goods in the warehouse of B and
the latter issued a negotiable warehouse receipt
worded as follows:
The goods hereunder described are
deliverable to the order of A.
(Sgd) B
A negotiated the negotiable warehouse
receipt by placing at the back thereof, the
following:
Deliver to C.
(Sgd) A
C negotiated the negotiable warehouse
receipt by placing at the back thereof, the
following:
Deliver to D.
(Sgd) C
In this case, D acquired the title to the
goods as the person (C) negotiating the receipt
to him had, and D also acquired the previous
title to the goods as the depositor or person (A)
19
2014
to whose order the goods were to be delivered
had.
Section 42.What are the rights of a person to whom a
receipt has been transferred?
A person to whom a receipt (order negotiable
warehouse receipt which is transferred by delivery
without endorsement) has been transferred but not
negotiated acquires thereby, as against the transferor
(but not as against the depositor or person to whose
order the goods are to be delivered if the latter is not the
immediate transfer), the title to the goods.
If the receipt is non-negotiable, and the
depositor transfers it to another person, the latter
acquires the title to the goods and such
person(transferee) also acquires the right to notify the
warehouseman of the transfer to him of such receipt
(because without such notification, the transferee cannot
compel the warehouseman to deliver or release the
goods to him [transferee]) and thereby to acquire the
direct obligation of the warehouseman to hold
possession of the goods for him according to the terms
of the receipt.
Prior to the notification of the warehouseman
by the transferor or transferee of the transfer of the non-
negotiable receipt, the title of the transferee to the
goods may be defeated:
1. by the levy of an attachment or execution
upon the goods by a creditor of the
transferor, or
 If the levy or attachment or execution
upon the goods was made by the
creditor prior to the sending of notice to
the warehouseman either by the
transferor or the transferee of the
transfer of non-negotiable warehouse
receipt, the creditor of the transferor
has the better right to the goods.
 If the levy, etc. was made by the
creditor after the sending of notice to
the warehouseman by the transferor or
the transferee of the transferor of the
non-negotiable warehouse receipt, the
transferee has the better right over the
goods.
 The creditor who made the levy etc.
need not notify the warehouseman of
such levy, etc. to acquire a better right
to the goods.
2. by a notification to the warehouseman by
the transferor or a subsequent purchaser
from the transferor of a subsequent sale of
the goods by the transferor.
 The previous transfer of the non-
negotiable warehouse receipt may
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
have been without prejudice to the
right of the transferor to sell the
goods covered by the non-
negotiable warehouse receipt such
as when the previous transfer of
the non-negotiable warehouse
receipt is only to secure the
payment of a debt.
 If the subsequent purchaser of the
goods from the transferor has
notified the warehouseman of the
subsequent sale prior to the
sending of notice to the
warehouseman by the previous
transfer of the non-negotiable
warehouse receipt, the subsequent
purchaser has the better right to
the goods; otherwise, the
transferee shall have better right to
the goods.
 Section 42 (par.1): A stored his goods in the
warehouse of B and the latter issued a
negotiable warehouse receipt worded as
follows:
The goods hereunder described are
deliverable to the order of A.
(Sgd) B
A is indebted to C and when the debt
matured, A was unable to pay C and the former
requested an extension of time for payment and
he transferred his negotiable warehouse receipt
to C as a way of security. C likewise transferred
the said negotiable warehouse receipt to D and
the latter paid the former (C) for the value of
the goods. D acquired title to the goods as
against his transferor, C, but D did not acquire
title to the goods as against A, the depositor or
person to whose order the goods are
deliverable.
Section 43.What is the effect of transferring a negotiable
receipt for value by delivery and the endorsement of the
transferor is essential for negotiation?
Where a negotiable receipt is transferred for
value by delivery and the indorsement of the transferor
is essential for negotiation, the transferee acquires a
right against the transferor to compel him to indorse the
receipt. The negotiation shall take effect as of the time
when the indorsement is actually made.
 When is the indorsement of the transferor
essential for negotiation?
1. First negotiation of an order negotiable
warehouse receipt.
2. Subsequent negotiation of an order
negotiable warehouse receipt if the only or
last endorsement is special.
20
2014
3. Subsequent negotiation of a bearer
negotiable warehouse receipt if the only or
last endorsement is special.
Section 44.What are the warranties of a sale of receipt?
A person who, for value, negotiates or transfers a receipt
by indorsement and/or delivery, including one who
assigns for value a claim secured by a receipt warrants
that:
a. receipt is genuine,
b. he has a legal right (he is the owner of the
receipt as well as the goods) to negotiate or
transfer it,
c. he has knowledge of no fact which would
impair the validity or worth of the receipt, and ,
d. the goods are merchantable or fit
Very Important!!!
Section 45.Is the indorser liable for the failure of the
warehouseman or previous indorsers to fulfill their
obligations? No.
The indorsement of a receipt shall not make the
indorser liable for any failure on the part of the
warehouseman or previous indorsers of the receipt to
fulfill their respective obligations.
 The only instance where the endorser is liable is
when he breaches any of the four warranties in
Section 44, and his liability thereunder is for
damages.
 Under the NIL, the general endorser engages
that on due presentment, the instrument shall
be accepted as paid or both, as the case may be
according to its tenor, and that if it be
dishonoured and the necessary proceedings on
dishonour be duly taken, he will pay the amount
thereof to the holder.
Memorize!!!
BAR FAVORITE
Section 47.When is negotiation not impaired by fraud,
mistake or duress?
The validity of the negotiation of a receipt is not
impaired by the fact that such negotiation was a breach
of duty on the part of the person making the negotiation
or by the fact that the owner of the receipt was induced
by fraud, mistake or duress or to entrust the possession
or custody of the receipt to such person, IF the person to
whom the receipt was negotiated or a person to whom
the receipt was subsequently negotiated paid value
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
therefor, without notice of the breach of duty, or fraud,
mistake or duress.
Question: A stored his goods in the warehouse of B and
the latter issued a negotiable warehouse receipt as
follows:
The goods hereunder described are deliverable
to bearer.
(Sgd) B
C, one of the employees of A, stole the aid
negotiable warehouse receipt and negotiated it to D by
delivery. D paid the value for the goods without notice
that C has stolen the said negotiable warehouse receipt.
Is the negotiation made by C to D valid?
Answer: The negotiation made by C to D is valid even if A
was deprived of the possession of the negotiable
warehouse receipt by theft, because such ground (theft)
is included in Article 1518 of the New Civil Code. In case
of any inconsistency of the provisions in the New Civil
Code and in the Warehouse Receipts Law, the provisions
in the New Civil Code will prevail.
 Article 1518 of the New Civil Code – even if the
negotiable warehouse receipt was stolen by the
person negotiating the negotiable warehouse
receipt, the negotiation is valid provided the
person to whom the negotiable warehouse
receipt was negotiated is a purchaser for value
in good faith.
Section 48.What is the effect of subsequent negotiation?
Where a person having sold or mortgaged the
goods which are in warehouse and for which a
negotiable receipt has been issued, or having sold or
mortgaged the negotiable receipt representing such
goods, continues in possession of the negotiable receipt,
the subsequent negotiation (this is valid, hence, the
person to whom the negotiable warehouse receipt was
negotiated has better right to the goods than the first
purchaser or the mortgagee) thereof by
thatperson(considered as trustee or agent of the first
purchaser or the mortgagee) to any person(he becomes
the owner of the goods) receiving the same in good faith,
for value and without notice of the previous sale or
mortgage shall have the same effects as if the first
purchaser or mortgagee of the goods or receipt had
expressly authorized the subsequent negotiation.
 The subsequent purchaser, however, must have
taken the receipt in good faith and for value in
order to acquire a better right (compared to the
first purchaser or mortgagee).
Section 49.Does negotiation defeat the vendor’s lien?
Yes.
Where a negotiable receipt has been issued for
goods, no seller's lien or right of stoppage in transitu
shall defeat the rights of any purchaser for value in good
21
2014
faith to whom such receipt has been negotiated. Nor
shall the warehouseman be obliged to deliver or justified
in delivering the goods to an unpaid seller unless the
receipt is first surrendered for cancellation.
 When the seller delivered the goods to the
buyer, the former reserved his right to retake
possession of the goods in case of non-payment
of the price. Hence, the seller’s lien still exists.
 The right of purchaser for value in good faith
over the goods is superior to the right of an
unpaid seller.
 The right of stoppage in transitu is impliedly
excluded by the New Civil Code because such
right, under the law on sales in the New Civil
Code, can only be availed of by the seller if the
goods are still in transit which cannot be availed
of here because the goods are no longer in
transit since they are already in the warehouse
of warehouseman.
Section 50.What is the effect of issuing a receipt for
goods which are not actually received by the
warehouseman?
A warehouseman who issues or aids in issuing a
receipt (negotiable or not) knowing that the goods for
which such receipt is issued have not been actually
received by such warehouseman, or are not under his
actual control at the time of issuing such receipt, shall be
guilty of a crime.
Section 51.What is the effect of issuing a receipt which
contains a false statement?
A warehouseman who fraudulently issues or
aids in fraudulently issuing a receipt for goods knowing
that it contains any false statement, shall be guilty of a
crime.
Section 52.What is the effect of issuing a duplicate which
is not so marked?
A warehouse who issues or aids in issuing a
duplicate or additional negotiable receipt for goods
knowing that a former negotiable receipt for the same
goods is outstanding and uncancelled, without plainly
placing upon the face thereof the word "duplicate" shall
be guilty of a crime.
Section 53.What is the effect of issuing a
warehouseman’s goods or receipts which do not state
that fact?
Where there are deposited with or held by a
warehouseman goods of which he is owner, such
warehouseman, knowing this ownership, issues or aids in
issuing a negotiable receipt for such goods which does
not state such ownership, shall be guilty of a crime.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

Section 54.What is the effect of delivering goods without

obtaining a negotiable receipt?

A warehousemanwho delivers goods out of the

possession of such warehouseman, knowing that a
negotiable receipt the negotiation of which would
transfer the right to the possession of such goods is
outstanding and uncancelled, without obtaining the
possession of such receipt shall, except in sections
fourteen(lost or destroyed receipt) and thirty-six
(perishable or hazardous goods), be guilty of a crime.

Section 55.What is the effect of negotiating a receipt for

mortgaged goods?

Any person who deposits goods to which he has

no title, or upon which there is a lien or mortgage, and
who takes for such goods a negotiable receipt which he
afterwards negotiates for value with intent to deceive
and without disclosing his want of title or the existence
of the lien or mortgage, shall be guilty of a crime.

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
GENERAL BONDED
WAREHOUSE ACT
(as amended)
Act No. 3893
Warehouse – means every building, structure, or other
protected inclosure in which commodity is kept for
storage.
Receipt – means any receipt issued by a warehouseman
for commodity delivered to him.
For purposes of this Act, the business of receiving
commodity for storage shall include any contract or
transaction wherein the:
 Warehouseman is obliged to return the very
same commodity delivered to him or to pay its
value (the warehouseman is engaged in trading
business in addition to warehousing business).
 Commodity (such as sugar cane or palay or
copra) delivered is to be milled (the
warehouseman is engaged in milling business in
addition to warehousing business) for and on
account of the owner thereof.
 Commodity delivered is comingled with
commodity delivered by or belonging to other
persons, and the warehouseman is obligated to
return the commodity of the same kind or to
pay its value.
Section 3.No person shall engage in the business of
receiving commodity for storage without first securing a
license therefor from the Director of the Bureau of Trade
Regulation and Consumer Protection.
Important!!!
Section 5.The application for a license to engage in the
business of receiving commodity for storage shall:
1. State the place where the business and the
warehouse are to be established or located;
2. State the maximum quantity and market value
of commodity to be received; and,
3. Be accompanied by a cash bond or bond
secured by a real estate (property bond) or
signed by a duly authorized bonding company
(surety bond).
 The amount of the bond shall be fixed
by the Director at not less than one-
third (1/3) per cent of the market value
of the maximum quantity of commodity
to be received.
23
2014
 Said bond shall respond for the market
value of the commodity actually
delivered and received at any time the
warehouseman is unable to return the
commodity or to pay its value.
Section 6.Every person licensed to engage in the
business of receiving commodity for storage shall insure
the commodity so received and stored against fire.
 The term “fire insurance” shall include insurance
against loss by fire, lightning, windstorm,
tornado or earthquake or other allied risk such
as flooding but only when such risks are covered
by extension to file insurance policies (extended
coverage provision) or under separate policies.
Section 7.Any person (depositor of goods) injured shall
be entitled to sue on the bond of his own name in any
court of competent jurisdiction to recover the damages
he may have sustained by such breach. Nothing
contained herein shall exempt any property or assets of
any warehouseman licensed under this Act, not
exempted by law from attachment and execution, from
being sued on, in case the bond is given is not sufficient
to respond for the full market value of the commodity
received by such warehouseman.
 Liability of the warehouseman id NOT limited to
his bond.
Section 8.Every warehouseman shall receive for storage
in the usual manner and in the ordinary and usual course
of business, without making any discrimination between
persons desiring to avail themselves of warehouse
facilities:
1. So far as his license and the capacity of his
warehouse permit;
2. Any commodity of the kind customarily stored
therein by him;
3. In a suitable condition for warehousing.
 The business of warehousing involves public
interest.
 Question: May a person compel a
warehouseman to receive for storage his
person’s commodity?
Answer: YES, provided the requisites (above)
are present.
Section 11.Any person engaging in the business of
receiving commodity for storage in violation of Section 3
(without license) shall be deemed guilty of misdemeanor.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

Section 12.Any warehouseman licensed under this Act

receiving a quantity of commodity greater than that
specified in his application and license shall be fined
double the market value of the commodity so received in
excess of the quantity of commodity he is authorized to
receive.

 What are the obligations of the

Warehouseman?

1. To secure the required license;

2. To post the required bond;
3. To insure the commodity received and
stored against fire;
4. To issue warehouse receipts for said
commodity;
5. To answer for damages;
6. Not to discriminate;
7. To keep a complete record;
8. To make reports
9. To conduct his warehouse in all other
respects in compliance therewith (Numbers
7 and 8);
10. Not to receive a quantity of commodity
greater than that specified in his application
and license.

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
R.A. 3591
(as amended by R.A. 9302 and R.A. 9576)
PHILIPPINE DEPOSIT INSURANCE
CORPORATION
The Creation of the Philippine Deposit Insurance
Corporation (PDIC)
There is hereby created a Philippine Deposit
Insurance Corporation (private corporation created by
law or GOCC) which shall insure the deposits in all banks
(domestic and resident foreign corporation engaged in
banking business in the Philippines) which are entitled to
the benefits of insurance under this Act, and which shall
have the powers hereinafter granted (SECTION 1).
Purpose of the Law:
The Corporation shall promote and safeguard
the interests of the depositing public by way of providing
permanent and continuing insurance coverage on all
insured deposits (SECTION 1).
Board of Directors: Composition and Authority
The powers and functions of the Corporation
shall be vested in and exercised by a Board of Directors
which shall be composed of five (5) members as follows
(SECTION 2):
a. Secretary of Finance – ex-officio Chairman of the
Board without compensation.
b. Governor of the Bangko Sentral ng Pilipinas, -ex-
officio member of the Board without
compensation.
c. President of the Corporation – appointed by the
President of the Philippines from either the
Government or private sector to serve on a full-
time basis for a term of six (6) years. The
President of the Corporation shall also serve as
Vice Chairman of the Board.
d. Two (2) members from the private sector –
appointed for a term of six (6) years without
reappointment by the President of the
Philippines.
No person shall be appointed as member of the
Board unless he be of good moral character and of
unquestionable integrity and sense of responsibility.
The Secretary of Finance and the Governor of
the Bangko Sentral may each designate a representative,
whose position shall not be lower than an
undersecretary or deputy governor respectively, to
attend such meetings and to vote on behalf of their
respective principals.
25
2014
DEFINITION OF TERMS(SECTION 4):
 Insured Bank – any bank the deposits of which
are insured in accordance with the provisions of
this Act.
 Non-insured bank – means any bank the
deposits of which are not insured (such as
foreign branch of a domestic bank).
 Deposit – the unpaid balance of money or its
equivalent received by a bank in the usual
course of business and for which it has given or
is obliged to give credit to a commercial,
checking, savings, time or thrift account which is
evidenced by passbook, check or check book
and/or certificate of time deposit, printed or
issued in accordance with Bangko Sentral rules
and regulations
Provided, That any obligation of a bank
which is payable at the office of the bank
located outside of the Philippines shall not be a
deposit for any of the purposes of this Act or
included as part of the total deposits or of
insured deposit.
Memorize!!!
 Insured Deposit – the amount due to any bona
fide depositor for legitimate deposits in an
insured bank net of any obligation of the
depositor (such as bank loan) to the insured but
not to exceed P500,000.00.
In determining such amount due to any
depositor, there shall be added together all
deposits in the bank maintained in the same
right and capacity for his benefit either in his
own name or in the name of others. A joint
account regardless of whether the conjunction
"and," "or," "and/or" is used, shall be insured
separately from any individually-owned deposit
account
Problems and Solutions:
1. The amount of time deposit is P2,000,000 with
interest earned of P200,000. The depositor has
an outstanding loan with the bank in the
amount of P1,000,000. How much is the insured
deposit?
Amount of Deposit - P2,000,000
Interest Earned - 200,000
Amount Due - P1,200,000
Less: Bank Loan – 1,000,000
Net Amount Due - P1,200,000
Insured Deposit - P500,000
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
2. The amount of savings deposit is P1,000,000and
the interest earned is P20,000. The depositor
has an outstanding loan with the bank of
P800,000. How much is the insured deposit?
Amount of Deposit - P1,000,000
Interest Earned - 20,000
Amount Due - P1,020,000
Less: Bank Loan – 800,000
Net Amount Due - P220,000
Insured Deposit - P220,000
 The insured deposit is the net amount due or
P500,000 whichever is lower.
3. A has a deposit in the form of savings account
with bank X amounting to P300,000. A, together
with his brother B, has a time deposit with the
same bank in the amount of P500,000.
The savings deposit of A of P300,000 is
an insured deposit and the joint account deposit
of A and B of P500,000 is separately an insured
deposit.
Important!!!
 Transfer Deposit – a deposit in an insured bank
made available to a depositor by the
Corporation as payment of insured deposit of
such depositor in a closed bank and assumed by
another insured bank.
Bank A, located in Naga City, was ordered closed
by the monetary board of BSP. The PDIC was
designated by the BSP as receiver of Bank A. The
PDIC has determined that the total insured
deposits of Bank A is P100,000. And the PDIC
deposited said amount with Bank B, also located
in Naga City. This P100,000 deposited by the
PDIC with Bank B is called transfer deposit.
Whenever the PDIC approves a claim
by a depositor in Bank A, the depositor can
withdraw his claim from Bank B.
ASSESSMENT OF MEMBER BANKS
The assessment rate (similar to insurance
premium rate) shall be determined by the Board of
Directors: Provided, That the assessment rate shall not
exceed one-fifth (1/5) of one per centum (1%) per
annum.
The semi-annual assessment (or semi-annual
insurance premium) for each insured bank shall be one-
half (1/2) of the assessment rate multiplied by the
assessment base but in no case shall it be less than Five
thousand pesos (P5,000.00). The assessment base shall
be the amount of the liability of the bank for deposits
26
2014
without any deduction for indebtedness of depositors
(SECTION 6).
The total deposit is P1,000,000,000. How much
is the semi-annual assessment?
The semi-annual assessment is
(P1,000,000,000 x 1% ÷ 2) P1,000,000.
POWERS AS A CORPORATE BODY
The Corporation as a corporate body shall have
the power, among others, to conduct examination of
banks with prior approval of the Monetary
Board: Provided, That no examination can be conducted
within twelve (12) months from the last examination
date: Provided, however, That the Corporation may, in
coordination with the Bangko Sentral, conduct a special
examination as the Board of Directors, by an affirmative
vote of a majority of all of its members, if there is a
threatened or impending closure of a bank; Provided,
further, That, notwithstanding the provisions of R.A.
1405 (Bank Secrecy Law), as amended, Republic Act No.
6426, as amended, Republic Act No. 8791, and other
laws, the Corporation and/or the Bangko Sentral, may
inquire into or examine deposit accounts and all
information related thereto in case there is a finding of
unsafe or unsound banking practice (SECTION 8 [Eighth]).
POWERS, RESPONSIBILITIES AND PROHIBITIONS
Personnel of the Corporation are hereby
prohibited from(SECTION 9):
1. being an officer, director, consultant,
employee or stockholder, directly or
indirectly, of any bank or banking
institution except as otherwise
provided in this Act;
2. receiving any gift or thing of value from
any officer, director or employee
thereof;
3. revealing in any manner information
relating to the condition or business of
any such institution.
Notwithstanding the provisions of this Section
and Section 2 (C), members of the Board of
Directors and personnel of the Corporation may
become directors and officers of any bank and
banking institution and of any entity related to
such institution in connection with financial
assistance (Section 17[D]) extended by the
Corporation to such institution and when, in the
opinion of the Board, it is appropriate to make
such designation to protect the interest of the
Corporation.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Borrowing from any bank or banking institution
by examiners and other personnel of the
examination departments of the Corporation
shall be prohibited only with respect to the
particular institution in which they are assigned,
or are conducting an examination. Personnel of
other departments, offices or units of the
Corporation shall likewise be prohibited from
borrowing from any bank or banking institution
during the period of time that a transaction of
such institution with the Corporation is being
evaluated, processed or acted upon by such
personnel.
Borrowing by all full-time personnel of the
Corporation from any bank or banking
institution shall be secured (with mortgaged
property) and disclosed to the Board, and shall
be subject to such further rules and regulations
as the Board may prescribe. (As amended by
R.A. 7400, 13 April 1992)
Whenever it shall be appropriate for the
Monetary Board of the Bangko Sentral ng
Pilipinas to appoint a receiver of any banking
institution pursuant to existing laws, the
Monetary Board shall give prior notice and
appoint the Corporation as receiver [Section 20
(d) New Central Bank Act] (SECTION 10).
The assets of the closed bank under receivership
shall be deemed in custodia legis in the hands of
the receiver (PDIC). From the time the closed
bank is placed under such receivership, its
assets shall not be subject to attachment,
garnishment, execution, levy or any other court
processes (SECTION 10).
PERMANENT INSURANCE FUND
To carry out the purposes of this Act, the
permanent insurance fund (similar to capital
stock in an ordinary corporation) shall be Three
billion pesos (P3,000,000,000.00) (SECTION 13)
The Deposit Insurance Fund (similar to stock
holder’s equity in ordinary corporation) shall be
the capital account of the Corporation and shall
principally consist of the following (SECTION 13):
1. the Permanent Insurance Fund;
2. assessment collections (or insurance
premiums);
3. reserves for insurance and financial
assistance losses (similar to appropriation
retained earnings in ordinary corporation);
and,
4. retained earnings (the accumulated profits
of the PDIC which are not appropriated for
any special purposes).
27
2014
PAYMENT OF INSURED DEPOSITS
Whenever an insured bank shall have been
ordered closed by the Monetary Board pursuant
to Section 30 of R.A. 7653 (New Central Bank
Act), payment of the insured deposits on such
closed bank shall be made by the Corporation as
soon as possible either(SECTION 14):
1. by cash, or
2. by making available to each depositor a transfer
deposit in another insured bank in an amount
equal to insured deposit of such depositor.
Very Important!!!
The Corporation, upon payment to any
depositor, shall be subrogated to all rights of the
depositor. Such subrogation shall include the
right on the part of the Corporation to receive
the same dividends and payments from the
proceeds of the assets of such closed bank and
recoveries on account of stockholders’ liability
as would have been payable to the depositor on
a claim for the insured deposits but, such
depositor shall retain his claim for any uninsured
portion of his deposit. All payments by the
Corporation of insured deposits in closed banks
partake of the nature of public funds, and as
such, must be considered a preferred credit
similar to taxes due to the National Government
in the order of preference under Article 2244 of
the New Civil Code (SECTION 15).
CORPORATE FUNDS
It is hereby declared to be the policy of the State
that the Deposit Insurance Fund of the
Corporation shall be preserved and maintained
at all times. Accordingly, all tax obligations of
the Corporation for a period of five (5) years
reckoned from the date of effectivity of this Act
(R.A. 9576) shall be chargeable to the Tax
Expenditure Fund (TEF; Provided, That, on the
6th year (2015) and thereafter, the Corporation
shall be exempt from income tax, final
withholding tax, value-added tax on
assessments collected from member banks, and
local taxes (Section 17 [c]).
Important!!!
FINANCIAL ASSISTANCE
When the Corporation has determined that an
insured bank is in danger of closing, in order to
prevent such closing, the Corporation, is
authorized to make loans to, or purchase the
assets of, or assume liabilities of, or make
deposits in, such insured bank, upon such terms
and condition as the Board of Directors may
prescribe, when in the opinion of the Board of
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

Directors, the continued operation of such bank

is essential to provide adequate banking service
in the community or maintain financial stability
in the economy.

The authority of the Corporation under the

foregoing paragraph to extend financial
assistance to, assume liabilities of, purchase the
assets of an insured bank in danger of closing
may also be exercised in the case of a closed
insured bank if the Corporation finds that the
resumption of operations of such bank is vital to
the interests of the community: Provided, That
the reopening and resumption of operations of
the closed bank shall be subject to the prior
approval of the Monetary Board.(As amended
by R.A. 7400, 13 April 1992)

ISSUANCE OF BONDS, DEBENTURES AND OTHER

OBLIGATIONS

With the approval of the President of the

Philippines, the Corporation is authorized to
issue bonds, debentures, and other obligations,
both local or foreign, as may be necessary for
purposes of providing liquidity for settlement of
insured deposits in closed banks as well as for
financial assistance as provided herein (SECTION
19).

All notes, debentures, bonds, or such obligations

issued by the Corporation shall be exempt from
taxation both as to principal and interest, and
shall be fully guaranteed by the Government of
the Republic of the Philippines (SECTION 19).

SANCTIONS AND PENALTIES

No court, except the Court of Appeals, shall

issue any temporary restraining order,
preliminary injunction or preliminary mandatory
injunction against the Corporation for any action
under this Act (SECTION 22).

The Supreme Court may issue a restraining

order or injunction when the matter is of
extreme urgency involving a constitutional
issue, such that unless a temporary restraining
order is issued, grave injustice and irreparable
injury will arise (SECTION 22).

Any restraining order or injunction issued in

violation of this Section is void and of no force
and effect and any judge who has issued the
same shall suffer the penalty of suspension of at
least sixty (60) days without pay (SECTION 22).

28
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
COMMON CARRIERS
(Articles 1732-1766, NCC)
SUBSECTION 1. General Provisions
What law governs transportation contracts?
Transportation contracts are primarily governed
by the NCC (Articles 1732 to 1766). Suppletorily,
they are governed by the Code of Commerce,
carriage of Goods by Sea Act, Salvage Act, Public
Service Act, Land Transportation and Traffic
Code and Warsaw Convention of 1929.
In other words, the primary law is the Civil Code
(Articles 1732-1766) and in default thereof, the
Code of Commerce and other special laws are
applied. Since the Civil Code contains no
provisions regulating liability of ship owners or
agents in the event of total loss or destruction
of the vessel, it is the provision of the Code of
Commerce, more particularly Article 587, that
governs in this case (Chua Yek Hong v. IAC, G.R.
No. 74811, September 30, 1988).
Who are the parties in a transportation
contract?
1. Carrier or conductor
2. Shipper or consignor of goods/ passengers
3. Consignee of goods
Carrier – a person (natural), corporation, firm or
association engaged in the business of carrying
or transporting passengers or goods or both, by
land, water, or air, for compensation.
o Private Carrier – one available only to
certain individuals.
o Common Carrier – one available to the
general public.
The Civil Code provisions on common carriers
should NOT be applied where the carrier is not
acting as such (common carrier) but as a private
carrier. A stipulation in the charter party
absolving the owner of the ship from liability for
loss due to negligence of its agents would be
void only if the strict public policy governing
common carriers would be applied. Such policy
has no force where the public at large is NOT
involved, as in the case of a ship totally
chartered for use of a single party (Home
Insurance Company v. American Steamship
Agencies, Inc., et. al., G.R. No. L-25599, April 4,
1968).
It is the registered owner of the common
carrier, not the transferee of his rights (which
transfer is not yet registered), who is liable for
damages resulting from the breach of contract
of common carriage, BUT the transferee is liable
to the registered owner for said damages (Perez
v. Gutierrez, 53 SCRA 149).
29
2014
Memorize!!!
Article 1732. Common carriers are persons (natural),
corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods
or both, by land, water, or air, for compensation, offering
their services to the public.
Important!!!
Test whether carrier is common or private: “Is
it generally obliged to carry all persons
indifferently as long as they apply for passage,
and as long as there is room and no legal excuse
for refusing? If the answer is in the affirmative,
the carrier is a common carrier; otherwise, it is a
private one.”
Examples: The ordinary passenger jitney owner
or operator, or a taxi company is a common
carrier. The same may be said of the owner of a
vessel licensed to engage in interisland or
coastwise trade. BUT the owner of a school bus
or a funeral car or chartered (leased) vehicle
CANNOT be classified under the same category,
for they are only private carriers.
Contract of Towage – NOT even a contract of
carriage, whether private or common. It is a
service contract or contract for a piece of work.
Article 1733. Common carriers are bound to observe
extraordinary diligence(common carrier must render
service with great skill and utmost foresight) in the
vigilance over the goods and for the safety of the
passengers transported by them, according to all the
circumstances of each case.
Question: May common carrier and the shipper
of goods validly stipulate that the former shall
exercise ordinary diligence only?
Answer: YES, under Article 1744.
Question: May the common carrier validly
stipulate that the former will only exercise only
ordinary diligence?
Answer: NO, except when the passenger is
carried gratuitously (Articles 1755 and 1758).
The hazards of modern transportation demand
an extraordinary diligence. A common carrier is
invested with public interest. However, a
common carrier should NOT be considered as an
absolute insurer against all risks of travel.
If passengers of an air carrier are injured or
killed, the air carrier is presumed to have been
at fault or to have acted negligently (Article
1756). To escape liability, the carrier must prove
it observed extraordinary diligence as prescribed
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
under Articles 1733 and 1755, Civil Code (Davila
v. PAL, 49 SCRA 497).
In case of international carriage by air, apply the
provisions of the Warsaw Convention on Air
Transport.
SUBSECTION 2. Vigilance Over Goods
Memorize!!!
Article 1734. Common carriers are responsible for the
loss, destruction, or deterioration of the goods, unless
the same is due to any of the following causes only:
1. Flood, storm, earthquake, lightning, or other
natural disaster or calamity
2. Act of the public enemy in war (or pirate);
3. Act or omission of the shipper or owner of the
goods;
4. The character(such as perishable in nature) of
the goods or defects in the packing or in the
containers;
5. Order or act of competent public authority.
Even if the cause of the loss or destruction or
deterioration is a natural disaster or calamity,
etc. if the carrier is at fault or is negligent, the
common carrier is still liable.
In order for a common carrier to be exempt
from liability in case of loss, etc., the cause of
the loss, etc., must be a natural disaster or
calamity etc., and the common carrier must NOT
be guilty of fault or negligence.
If the cause of the loss, etc., is a natural disaster
or calamity, etc., the common carrier is NOT
presumed to be at fault or is negligent. The
burden of proving fault or negligence lies on the
shipper of the goods or the consignee thereof.
Public enemy – refers to the government with
which the country is at war; also to pirates, who
are enemies of all mankind.
Order or act of competent public authority –
may refer to destruction or seizure because the
goods may be “prohibited” or “dangerous to life
and property” or “infected with disease”.
Very Important!!!
Article 1735. In all cases(such as vehicular collision or on
account of defective condition of the vehicle or vessel or
aircraft) other than those mentioned in Nos. 1, 2, 3, 4,
and 5 of the preceding article, if the goods are lost,
destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted
negligently, unless they prove that they observed
extraordinary diligence.
General Rule: Carrier is presumed at fault.
30
2014
Exceptions: Numbers 1 to 5 of Article 1734.
Here, the carrier is NOT presumed to be at fault.
But shipper may prove carrier’s fault, in which
case the carrier will be liable. (Note: Here, the
onus probandi will be on the shipper)
The carrier must prove extraordinary diligence.
If the employees were at fault, the carrier is
necessarily or automatically at fault, in view of
the master and servant rule in culpa
contractual; and here, due diligence by the
carrier in the selection and supervision of its
employees would NOT be a complete and valid
defense.
Article 1736. The extraordinary responsibility of the
common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received
by the carrier for transportation until the same are
delivered by the carrier to the consignee (the person
who, by the terms of the bill of lading, is to receive the
goods at the place of destination), or to the person(such
buyer of goods from the consignee in whose possession,
the bill of lading is with him duly endorsed if goods are
deliverable to bearer)who has a right to receive them.
Important!!!
Article 1739. In order that the common carrier may be
exempted from responsibility (or liability), the natural
disaster must have been the proximate and only cause of
the loss. However, the common carrier must exercise
due diligence (extraordinary diligence) to prevent or
minimize loss before, during and after the occurrence of
flood, storm or other natural disaster in order that the
common carrier may be exempted from liability for the
loss, destruction, or deterioration of the goods.
Article 1740. If the common carrier negligently incurs in
delay in transporting the goods, a natural disaster (Nos. 2
to 5 of Article 1734 are included) shall not free such
carrier from responsibility.
Question: Under what circumstances is the
carrier liable for the losses and deterioration
suffered by the goods transported by reason of
fortuitous events, force majeure, or the
inherent nature and defects of the goods?
Answer:
1. If the carrier is in default.
2. If the carrier did NOT exercise due
diligence to prevent or minimize the loss.
Memorize!!!
Article 1744. A stipulation between the common carrier
and the shipper or owner limiting the liability(or
responsibility) of the former for the loss, destruction, or
deterioration of the goods to a degree less than
extraordinary diligence(ordinary but not less than
ordinary) shall be valid, provided it(stipulation) be:
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
1. In writing, signed by the shipper or owner of the
goods;
2. Supported by a valuable consideration (such as
reduction of freightage); and
3. Reasonable, just and not contrary to public
policy (not falling under Article 1745).
Article 1745. Any of the following or similar
stipulations(void) shall be considered unreasonable,
unjust and contrary to public policy that the:
1. goods are transported at the risk of the owner
or shipper;
2. common carrier will not be liable for any loss,
destruction, or deterioration of the goods;
3. common carrier need not observe any diligence
in the custody of the goods;
4. common carrier shall exercise a degree of
diligence less than that of a good father of a
family;
5. common carrier shall not be responsible for the
acts or omission of his or its employees;
6. common carrier's liability for acts committed by
thieves, or of robbers who do not act with grave
or irresistible threat, violence or force, is
dispensed with or diminished;
7. common carrier is not responsible for the loss,
destruction, or deterioration of goods on
account of the defective condition of the car,
vehicle, ship, airplane or other equipment.
Article 1748. An agreement limiting the common
carrier's liability (or responsibility) for delay on account of
strikes or riots is valid.
Important!!!
Article 1749. A stipulation that the common carrier's
liability is limited to the value of the goods appearing in
the bill of ladingis binding unless the shipper or owner
declares a greater value.
Normally, the amount appearing in the bill of
lading is the invoice cost or purchase price of
the goods. Incidental costs such as handling
charges, freightage, import duties, insurance,
etc., may be added to such invoice cost and if
declared by the shipper or owner, the carrier is
liable for such higher value even if there is
stipulation that the liability of the carrier is
limited to the amount appearing in the bill of
lading.
Important!!!
Article 1753. The law of the country to which the goods
are to be transported shall govern the liability of the
common carrier for their loss, destruction or
deterioration.
The law of the country of destination applies
even if the goods never reach the destination,
31
2014
but does NOT apply if the goods were NEVER
transported.
If the country of destination is Philippines, it is
Philippine Internal Law on Loss, destruction, or
deterioration that must govern – the Civil Cod
principally, and the Code of Commerce and
special laws like the Carriage of Goods by Sea
Act, suppletorily.
Important!!!
Article 1754. The provisions of articles 1733 to
1753(observance of extraordinary diligence) shall apply
to the passenger's baggage which is not in his personal
custody(such as baggage placed in the baggage
compartment) or in that of his employee. As to other
baggage (baggage in the personal custody of the
passenger or his employee), the rules in articles 1998 and
2000 to 2003 concerning the responsibility(depositary) of
hotel- keepers shall be applicable.
Rules as to Baggage:
o If in personal custody of the passenger
or his employees, the carrier has the
same responsibility as that of an inn-
keeper (or depositary).
o If otherwise (as when it is in the
baggage compartment), the carrier’s
responsibility is that of a common
carrier of GOODS (with extraordinary
diligence being required).
SUBSECTION 3. Safety of Passengers
Memorize!!!
Article 1755. A common carrier is bound to carry the
passengers safely as far as human care and foresight can
provide, using the utmost diligence(extraordinary
diligence) of very cautious persons, with a due regard for
all the circumstances.
The high degree of care is imperatively
demanded by the preciousness of human life,
and by the consideration that every person
must in every way be safeguarded against all
injury.
The parties to a contract of common carriage of
passengers are the passenger on the one hand,
and the person, entity or corporation
undertaking the business of common carrier on
the other.
Passenger – one who has entered into a
contract of carriage, express or implied, with a
carrier. In addition to regular passengers as
commonly understood by the term, the
following persons, among others, have been
held to possess all the rights granted a
passenger:
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
1. Newsboys allowed to paddle on a train or
bus.
2. Concessionaires doing business aboard a
train, such as the concessionaires of the
dining room or newsstand there.
3. One who has boarded the wrong train or
bus.
4. One who, with the consent of the carrier’s
employees, rides in a dangerous or unusual
place in the vehicle, such as the roof, or the
running board.
Very Important!!!
Article 1756. In case of death of or injuries to passengers,
common carriers are presumed to have been at fault or
to have acted negligently, unless they prove that they
observed extraordinary diligence.
Even if the proximate cause of death or injury to
passengers is fortuitous event, this presumption
applies because it is the duty of the common
carrier to prove that he or it is NOT at fault or is
NOT negligent, or that he or it has observed
extraordinary diligence.
In cupla contractual, as in the case of the
contract of common carriage, the moment a
passenger dies or is injured, the carrier is
presumed to be at fault. The passenger,
therefore, does NOT have to prove that the
carrier was at fault or was negligent. All he has
to prove is the existence of the contract, and the
fact of non-performance.
The presumption of fault or negligence may be
rebutted by the carrier if it can prove:
a. That a fortuitous event was the proximate
cause;
b. And that the carrier had observed the
required extraordinary diligence
(automatically the carrier is NOT at fault or
is not negligent).
Memorize!!!
Article 1757. The responsibility(observance of
extraordinary diligence) of a common carrier for the
safety of passengers cannot be dispensed with or
lessened by stipulation, by the posting of notices, by
statements on tickets, or otherwise.
Article 1758. When a passenger is carried gratuitously, a
stipulation limiting the common carrier's liability for
negligence(simple) is valid, but not for wilful acts or gross
negligence. The reduction of fare does not justify any
limitation of the common carrier's liability.
Important!!!
32
2014
Article 1759. Common carriers are civillyliable for the
death of or injuries to passengers through the negligence
or wilful acts of the former's employees (such as drivers),
although such employees may have acted beyond the
scope of their authority or in violation of the orders of
the common carriers.
Memorize!!!
This liability of the common carriers does not
cease upon proof that they exercised all the
diligence of a good father of a family in the
selection and supervision of their employees.
o This rule is true if the case filed is based
either on culpa contractual or culpa
criminal, but NOT true if the case filed is
culpa aquiliana (or tort) because in the
latter case, the exercise of all the diligence
of a good father of a family in the selection
and supervision of employees is a proper
defense on the part of the common carrier.
Article 1762. The contributory negligence of the
passenger does not bar recovery of damages for his
death or injuries, if the proximate cause thereof is the
negligence of the common carrier, but the amount of
damages shall be equitably reduced.
If the contributory negligence of the passenger
is the proximate cause of the death or injury, no
recovery can be had. If otherwise, the amount
of damages will only be equitably reduced.
Article 1763. A common carrier is responsible for injuries
suffered by a passenger on account of the wilful acts or
negligence of other passengers or of strangers, if the
common carrier's employees through the exercise of the
diligence of a good father of a family could have
prevented or stopped the act or omission.
SUBSECTION 4. Common Provisions
Article 1764. Damages shall be awarded in accordance
with Title XVIII of this Book, concerning Damages. Article
2206 shall also apply to the death of a passenger caused
by the breach of contract by a common carrier.
Article 2206:
1. Actual damages of P50,000
2. Loss of earning capacity
3. Support
4. Moral Damages
Article 1766. In all matters not regulated by this Code,
the rights and obligations of common carriers shall be
governed by the Code of Commerce and by special laws
(such as Carriage of Goods by Sea Act and Salvage Law).
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

COMMERCIAL CONTRACTS 6. Date shipment is made.

FOR TRANSPORTATION 7. Place of delivery to the carrier.
OVERLAND
8. Place and the time at which delivery to the
TITLE VII consignee shall be made.
CODE OF COMMERCE 9. Indemnity in case of delay, if there should be
any agreement on this matter.
ARTICLE 349. A contract of transportation by land or Memorize!!!
water ways (air transportation is included) of any kind
shall be considered commercial: Bill of Lading – a written acknowledgment of
the receipt of goods and an agreement to
1. When it has for its object merchandise or any transport and to deliver them at a specified
article of commerce. place to a person named or his order or to
bearer.
2. When, whatever its object (such as passenger or
mail) may be, the carrier is a merchant or is Important!!!
habitually engaged in transportation for the
public. Nature of bill of lading:
The NCC now contains provisions on common 1. A bill of lading is a contract in itself and the
carriers. Consequently, there is now no parties are bound by its terms.
distinction between a transportation contract of 2. A bill of lading is also a receipt.
common carrier under the Civil Code and a 3. Like warehouse receipts, bills of lading are
transportation contract under the Code of documents of title to goods, and if
Commerce. However, the NCC does NOT negotiable in form (as when the goods
expressly repeal the provisions of the Code of described therein are deliverable either to
Commerce on overland transportation. Instead, the order of the person specified or to
it makes such provision suppletory to the bearer) they can constitute negotiable
provisions of the NCC on common carriers. documents of title.
A contract of transportation by air may be A document of title to goods includes:
regarded as commercial. Air transportation is
clearly similar or analogous to land and water 1. Bill of lading
transportation. The obvious reason for its non- 2. Dock warrant
inclusion in the Code of Commerce was that at 3. Quedan
the time of its promulgation, transportation by 4. Warehouse receipt
air on a commercial basis was not yet known. 5. Any other document (such as certificate of
transfer of large cattle) used in the ordinary
course of business in the sale or transfer of
ARTICLE 350.The shipper (may either be the seller or the goods.
buyer of goods) as well as the carrier of merchandise or
goods may(NOT mandatory) mutually demand that a bill
of lading be made, stating: Such documents of title are negotiable if it
states that the goods referred to therein will be
1. Name and residence of the shipper. delivered to the bearer or to the order of any
person named in such document. It is non-
2. Name and residence of the carrier. negotiable if it states that the goods referred to
therein will be delivered to the person specified
3. Nameand residence of the person(such as or named in said document.
consignee) to whom or to whose order the
goods are to be sent or whether they are to
be delivered to the bearer of said bill. Classes of Bill of Lading:
4. Description of the goods, statement
1. Negotiable Bill of Lading
of their kind, of their weight, and of the external
2. Non-negotiable Bill of Lading
marks or signs of the packages.
3. Clean Bill of Lading
4. Foul Bill of Lading
 The value of the goods is NOT 5. Spent Bill of Lading
mentioned here because it can be 6. Through Bill of Lading
determined under Article 363, 365, 371 7. On board Bill of Lading
and 372. 8. Received for shipment Bill of Lading
9. Custody Bill of Lading
5. Cost of transportation or freightage. 10. Port Bill of Lading

33
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Memorize!!!
o Negotiable Bill of Lading – one in which it is
stated that the goods referred to therein will be
delivered to the bearer, or to the order of any
person named in such document.
o Non-negotiable Bill of Lading – one in which it is
stated that the goods referred to therein will be
delivered to a specified person. Non-negotiable
bills of lading are also known as straight or flat
bills of lading.
o Foul Bill of Lading – is one which contains a
notation thereon indicating that the goods
covered by it are in bad condition.
o Clean Bill of Lading – is one which does NOT
indicate any defect in the goods.
ARTICLE 353. The legal evidence of the contract between
the shipper and the carrier shall be the bills of lading, by
the contents of which the disputes which may arise
regarding their execution and performance shall be
decided, no exceptions being admissible other than
those of falsity and material error in the drafting.
Oral or parol evidence is NOT admissible except
with respect to falsity or material error in the
drafting of the bill of lading.
In case the consignee, upon receiving the
goods, cannot return the bill of lading
subscribed by the carrier, because of its loss or
of any other cause, he(consignee) must give the
latter a receipt(acknowledgment) for the
goodsdelivered, this receipt producing the
same effects as the return of the bill of lading.
The Bill of Lading mentioned above is NON-
NEGOTIABLE, because if the bill of lading is
negotiable the applicable provision is that of
Article 368 and annotation thereunder.
ARTICLE 354. In the absence of a bill of lading, disputes
shall be determined by the legal proofs which the parties
may present in support of their respective claims,
according to the general provisions established in this
Code for commercial contracts.
While under Article 350, the sipper and the
carrier may mutually demand that a bill of lading
is made, it is NOT obligatory. The fact that a bill
is NOT issued does NOT preclude the existence
of a contract of transportation. Provided that
there is a meeting of the minds and from such
meeting arise rights and obligations, there
should be no limitations as to form.
ARTICLE 355.(See Article 1736 of the NCC) The
responsibility of the carrier shall commence from the
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moment he receives the merchandise at the place
indicated (in the bill of lading) for receiving them.
ARTICLE 356. Carriers may refuse packages which appear
unfit for transportation; and if the carriage is to be made
by railway (the carrier cannot refuse), and the shipment
is insisted upon, the company shall transport them, being
exempt from all responsibility, if its objectionsare made
to appear in the bill of lading.
ARTICLE 361.(See Articles 1734 and 1735 of the NCC) The
merchandise shall be transported at the risk and venture
of the shipper, if the contrary has not been expressly
stipulated. As a consequence, all the losses and
deteriorations which the goods may suffer during the
transportation by reason of fortuitous event, force
majeure, or the inherent nature and defect of the goods,
shall be for the account and risk of the shipper (provided
the carrier is NOT at fault or is NOT negligent or has NOT
incurred in delay). Proof of these accidents is incumbent
upon the carrier.
The transportation of the merchandise “at the
risk and venture of shipper” means that the
shipper will suffer losses and deterioration
arising from fortuitous event, force majeure, or
inherent nature and defects of the goods. It
does not mean that the carrier is free from
liability for losses and deteriorations arising
from his negligence or fault, which is presumed
(if the cause of the loss or deterioration is NOT
one of those enumerated under Article 1734 of
the NCC).
ARTICLE 362. Nevertheless, the carrier shall be liable for
the losses and damages resulting from the causes
mentioned in the preceding article if it is proved by the
shipper, as against him, that they arose through his
negligence or by reason of his having failed to take the
precautions(meaning he/it is at fault) which usage has
established among careful persons.
If the cause of the loss or destruction is a natural
calamity, there is no presumption that the
carrier is at fault or is negligent, hence, the
burden of proving fault or negligence is with the
shipper.
If the cause of the loss or destruction is NOT one
of those enumerated under Article 1734 of the
NCC, there is a presumption that the carrier is at
fault or is negligent, hence, the carrier has the
burden of proving that he/it is not at fault or is
not negligent.
ARTICLE 363. The carrier shall be obliged to deliver the
goods shipped in the same condition in which, according
to the bill of lading, they were found at the time they
were received by the carrier, without any damage or
impairment, andfailing to do so, to pay the value(FMV on
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
the day and at the place the goods should have been
delivered) which those not delivered may have at the
point and at the time atwhich their delivery should have
been made.If those not delivered form part of the goods
transported and delivered, the consignee may refuse
to receive the latter,when he proves that he cannot
make use of them independently of the others.
ARTICLE 365.If, in consequence of the damage, the goods
are rendered useless for sale andconsumption for the
purposes for which they are properly destined, the
consignee shall not be bound toreceive them, and he
may leave them in the hands of the carrier, demanding of
the latter their value atthe current price on that day at
the place where the goods are to be delivered.
Cases where consignee may abandon (or refuse
to receive) goods:
1. In case of partial non-delivery, where the
consignee proves that he cannot make use
of the goods capable of delivery
independently of those not delivered;
2. Where the goods are rendered useless for
sale an consumption for the purposes for
which they are properly destined; and,
3. Where there is delay through the fault of
the carrier.
Question: Within what period of time should
the claim for damages to goods be made by the
consignee from the carrier?
Answer:
1. Upon receipt of the goods, if the goods are
uncovered or in a package with indication
of damages.
2. Within 24 hours following the receipt of the
goods if the damage cannot be ascertained
from the exterior of the package.
3. Upon payment of the transportation
charges if said payment is made before the
expiration of 24 hours.
Memorize!!!
ARTICLE 366.Within 24 hours following the receipt of the
merchandise, the claim against the carrier for damage or
average be found therein upon opening the packages,
may be made, provided that the indications of the
damage or average which gives rise to the claim cannot
be ascertained from the outside part of such packages,
otherwise (there is indication of damage on the
package) the claim shall be admitted only at the time of
receipt. After the periods mentioned have elapsed, or
the transportation charges have been paid, no claim
shall be admitted against the carrier with regard to the
condition in which the goods transported were delivered.
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ARTICLE 368. The carrier must deliver to the consignee,
without delay or obstruction, the goods which he may
have received from the shipper, by the mere fact of
being named in the bill of lading to receive them; and if
he does not do so, he shall be liable for the damages(for
misdelivery) which may be caused thereby
Very Very Important!!!
Where the bill of lading is issued to the order of
the shipper (negotiable), the carrier is under a
duty NOT to deliver the merchandise mentioned
in the bill of lading except upon presentation of
the bill of lading duly endorsed by the shipper,
and where the carrier delivered the goods to
another person who did NOT present the bill of
lading, such carrier is liable for misdelivery. The
duty of the carrier is NOT merely to transport
the goods safely, but also to deliver them to the
person indicated in the bill of lading.
If the goods described in the bill of lading are
deliverable to bearer, the carrier should not
deliver the goods unless the consignee
surrenders to the carrier the bill of lading and
mere acknowledgment receipt is not sufficient.
Mere acknowledgement receipt of the
consignee is NOT sufficient unlike if the bill of
lading is non-negotiable.
ARTICLE 370. If a period has been fixed in the bill of
lading for the delivery of the goods, the delivery must
be made within such time, and, for failure to do so, the
carrier shall pay the indemnity (for delay) stipulated in
the bill of lading, neither the shipper nor the
consignee being entitled to anything else. If no indemnity
has been stipulated, the carrier shall be liable for the
damages which the delay may have caused.
The failure to deliver within the period fixed in
the bill of lading must be without fault or
negligence on the part of the carrier. Because if
there is fault or negligence, the consignee has
the right of abandonment or the right to refuse
to accept the delivery of goods (Article 371).
ARTICLE 371.In case of delay through the fault of the
carrier, the consignee may leave the goods transported
in the hands of the former, advising him thereof in
writing before their arrival at the point of destination.
When this abandonment takes place, the carrier shall pay
the full value of the goods as if they had been lost or
mislaid.
If the abandonment is not made, the
indemnification for losses and damages by
reason of the delay cannot exceed the current
price which the goods transported would have
had on the day and at the place in which they
should have been delivered.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

The above rule is true only if there is no

stipulation in the bill of lading for the amount of
indemnity to be paid by the carrier.

ARTICLE 372. The value of the goods which the carrier

must pay in cases if loss or misplacement shall be
determined in accordance with that declared in the bill
of lading, the shipper not being allowed to present proof
that among the goods declared therein there were
articles of greater value.

If no bill of lading has been issued or if the bill of

lading does not declare how much is the value
of the goods, the carrier shall pay the FMV of
the goods on the day and at the place where the
goods should have been delivered.

ARTICLE 374.The consignee to whom the shipment was

made may not defer the payment of the expenses (such
as handling charges)and transportation charges of the
goods they receive after the lapse of twenty-four hours
following their delivery; and in case of delay in this
payment, the carrier may demand the judicial sale of the
goods transported in an amount necessary to cover the
cost of transportation and the expenses incurred.

ARTICLE 375.The goods transported shall be especially

bound(lien on goods) to answer for the cost of
transportation and for the expenses and fees(such as toll
fees) incurred for them during their conveyance and until
the moment of their delivery. This special right(the
preference is lost or the carrier is no longer a preferred
creditor) shall prescribe thirty (30) days after the delivery
has been made, and once prescribed, the carrier shall
have no other action than that corresponding to him as
an ordinary creditor.

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
MARITIME COMMERCE
TITLE ONE
VESSELS
ARTICLE 573. Merchant vessels constitute property
which may be acquired(by intellectual creation on the
part of the ship builder) andtransferred(by tradition or
delivery as consequences of certain contracts like sale or
barter) by any of the means recognized by law (Article
712, NCC). The acquisition of a vessel must appear in a
written instrument, which shall not produce any
effect with respect to third persons if not inscribed in the
registry of vessels (Marina, Philippine Coast Guard
and/or Bureau of Customs).
The ownership of a vessel, by prescription, shall
likewise be acquired by:
1. possession in good faith;
2. continued for three (3)years;
3. with a just title; and,
4. duly recorded.
In the absence of any of therequisites
(particularly 2, 3 and 4), continuous possession for ten
yearsshall be necessary in order to acquire ownership.
A captain may not acquire by prescription the
vessel of which he is in command. Because
possession of the captain is NOT adverse or in
the concept of owner; rather, his possession is
in the concept of a holder, and also because the
captain is the agent of the ship owner.
Owners of vessels engaged in the business of
carrying or transporting passengers or goods,
for compensation, offering their services to the
public are common carriers. They are therefore
governed primarily by the provisions of the NCC
on common carriers, and subsidiarily by the
provisions of the Code of Commerce and by
special laws.
Vessels which are licensed to engage in
maritime commerce or commerce by sea,
whether in foreign or coastwise trade, are no
doubt regulated by Book III of the Code of
Commerce.
Vessels which are NOT included under the
Code of Commerce:
1. Pleasure craft
2. Yachts
3. Pontoons
4. Health Service and Harbor Police Vessels
5. Floating storehouses
6. Warships or Patrol Vessels
7. Coast Guard Vessels
8. Towboats
9. Other Crafts destined to other uses.
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Under Article 585, vessels are considered
personal or movable property. But whether
moved by steam or by sail, they partake to a
certain extent, of the nature and conditions of
real property, on account of their value and
importance in the world of commerce.
Under Article 573, vessels may be acquired by
any of the means recognized by law such as, by:
1. Tradition as a consequence of contract of
sale or barter
2. Prescription
3. Intellectual Creation
4. Occupation
5. Donation
6. Succession
7. Other means, such as by law.
B chartered or leased the vessel of A for one (1)
week. One day after the expiration of one (1)
week, B sold and delivered the vessel to C.
When A discovered that B sold the vessel C, A
demanded from B the price therefor and A
executed a deed of sale in favor of B. C acquired
ownership over the vessel not by tradition but
by law.
The Code prohibits the prescription of
ownership in favor of the captain of the vessel,
because the nature of the possession of the
captain is such that he is only an agent of the
owner, a depositary of the vessel, and a
depositary can never acquire the thing
deposited by prescription unless the tile of his
possession changes, from a cause derived from
a third person or by force or opposition
(repudiation) made to the right of the owner.
The Philippine Coast Guard is hereby vested
with exclusive authority over the registration
and documentation of Philippine Vessels, as well
as the issuance of all certificates, licenses or
other document necessary or incident to such
registration. Registration is given again to
Marina under E.O. No. 125-A, May 14, 1987.
If the vessel is engaged in international or
foreign trade, it must also be registered with the
Bureau of Customs.
ARTICLE 575.Co-owners of merchant vessels shall have
the right of repurchase or legal redemption in sales made
to strangers, but they may exercise the same only within
the nine days following the inscription of the sale in the
registry, and by depositing the price at the same time.
The law discourages co-ownership but if it
cannot be avoided, at least limit the number of
co-owners, hence, this law.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
ARTICLE 577. IF the alienation of the vessel should be
made while it is on a voyage, the freightage which it
earns from the time it receives its last cargo shall pertain
entirely to the purchaser, and the payment of the crew
and other persons who make up its complement for the
same voyage shall be for his account. If the sale is made
after the vessel has arrived at the port of its destination,
the freightage shall pertain to the vendor, and the
payment of the crew and other individuals who make up
its complement shall be for his account, unless the
contrary is stipulated in either case.
TITLE TWO
PERSONS WHO TAKE PART IN
MARITIME COMMERCE
SECTION ONE
SHIPOWNERS AND SHIP AGENTS
Who are the persons who take part in maritime
commerce?
1. Ship owner and ship agents.
2. Captains or masters or patrons.
3. Officers and crew members.
4. Super Cargoes.
Super Cargo – the agent of the owner of the
goods shipped as cargo on a vessel who
accompanies and takes charge of such cargo and
who sells and buys cargoes in different ports in
accordance with the instructions of his principal.
ARTICLE 586.The shipowner and the ship agent shall be
civilly liable(solidary) for the acts of the captainand for
the obligations contracted by the latter to repair, equip,
and provision(such as purchase of fuel, arms and
ammunitions, food, drinks, supplies, etc.) the vessel,
provided thecreditor proves that the amount claimed
was invested for the benefit of the same.
Ship agent– the person entrusted with
provisioning or representing the vessel in the
port in which it may be found.
When are ship owner and ship agent solidarily
liable to third persons for the acts of the ship
captain?
1. Obligations contracted by the captain for
repairs, etc. (Article 586).
2. Conduct of the captain in the care of goods
(Article 587) and safety of passengers
(Article 1755, NCC).
3. For those enumerated acts of the captain in
Article 618 and for non-fulfillment of duties
under Article 612.
4. For culpa aquiliana under Article 2180
(NCC).
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5. For collision of vessels through the
negligence of the captain.
BAR Favorite!!!
ARTICLE 587. The ship agent (includes the ship owner)
shall also be civilly liable for the indemnities in favor
of third persons which may arise from the conduct of the
captain in the care of the goods which he loaded on the
vessel; but he may exempt himself therefrom by
abandoning the vessel with all her equipment and the
freightage it may have earned during the voyage.
Question: What is the so-called “real and
hypothecary nature of maritime law” or the
“doctrine of limited liability” or “limited liability
rule”?
Answer: This means that in case of negligence
or illicit acts of the captain and/or the crew
members, the liability of the ship owner or the
ship agent is limited to the value of the vessel
including freightage already earned.
ARTICLE 588. Neither the ship owner nor the ship agent
shall be liable for the obligations contracted by the
captain, if the latter exceeds the powers and
privileges pertaining to him by reason of his position or
conferred upon him by the former. Nevertheless, if the
amounts claimed were invested for the benefit of the
vessel, the responsibility therefor shall devolve upon its
owner or agent.
The liability of the ship owner and ship agent is
limited to the value of the vessel or its insurance
in view f the so-called “real and hypothecary”
nature of maritime law. This is clear from the
right of the ship agent to abandon the vessel
with all her equipment and the freightage
earned during the voyage as provided for in
Article 587. But limited liability under this Article
is not applicable when no abandonment of the
vessel is made.
The “principle of limited liability” of a ship
owner is provided for in three (3) Articles of the
Code of Commerce:
1. Article 590
2. Article 587
3. Article 837
Exceptions to the limited liability rule:
1. Doctrine of limited liability NOT applicable
where ship owner is at fault.
2. Doctrine of limited liability NOT applicable
to Compensation Act.
3. NOT applicable to liability for repairs.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
ARTICLE 590. The co-owners of a vessel shall be
civilly liable in the proportion of their interests in the
common fund, for the results of the acts of the captain.
Each co-owner may exempt himself from this liability by
the abandonment, before a notary, of the part of the
vessel belonging to him.
o Husbanding Agent – is the general agent of the
owner in relation to the ship, with powers,
among others, to engage the vessel for general
freightage and the usual conditions, and settle
for freightage and adjust averages with the
merchant.
ARTICLE 603.Before the vessel sets out to sea (or before
the start of the voyage) the ship agent may at his
discretion discharge (with or without cause) the captain
and members of the crew whose contracts are not for
a definite period or voyage (such as when the captain
and/or the crew members are hired for as long as the
ship owner or ship agent needs their service), paying
them the salaries earned at the time of discharge and
without any indemnity whatsoever, unless there is an
express and specific agreement in respect thereto.
o Labor Code is not applicable.
ARTICLE 604.If the captain or any member of the crew
should be discharged during the voyage (if the ship
captain is discharged, the sailing mate will take over),
they shall receive their salary until they return to the port
where the contract was made, unlessthere should be just
cause for the discharge (in which case they are entitled to
salaries earned as of the time of discharge), all in
accordance with Article 636.
ARTICLE 605.If the contracts of the captain and
members of the crew with the ship agentshould be for a
definite period or voyage, they may not be discharged
until after the fulfillment of their contracts, except by
reason of:
1. insubordination in serious matters
2. robbery
3. theft
4. habitual drunkenness, or
5. damage caused to the vessel or to its cargo
through malice or manifest or proven
negligence
If the discharge is without just cause – entitled
to salary plus damages.
If the discharge is with just cause – entitled only
to salaries earned as of the time of discharge.
ARTICLE 606.If the captain should be a co-owner of the
vessel, he may not be dischargedunless the ship agent
returns to him the amount of his interest therein, which,
in the absence of agreement between the parties, shall
be appraised by experts appointed in the manner
established in thelaw of civil procedure.
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ARTICLE 607.If the captain who is a co-owner
should have obtained the command of the vessel by
virtue of a special agreement contained in the articles of
association (or articles of co-partnership) except for the
causes mentioned in Article 605.
If there is NO fixed period, the discharge may be
before the commencement of the voyage or
after the commencement of the voyage.
If the discharge is before the commencement of
the voyage, the captain and the crew members
are entitled only to the salaries earned by them
as of the time of discharge, without any
indemnity unless otherwise expressly agreed
upon.
If the discharge is made after the
commencement of the voyage, it may be with or
without just cause. If the discharge is without
just cause, the captain and the crew members
are entitled to receive their salary until they
return to the port where the contract was
made. If the discharge is with a just cause, the
captain and the crew will be entitled to salaries
earned as of the time of the discharge.
Where the contract of the captain and the crew
members is for a definite period or a definitive
voyage, they may NOT be discharged without a
just cause. Otherwise, they shall be entitled to
damages. If they are discharged with a just
cause, they shall be entitled only to salaries
earned as of the time of the discharge.
ARTICLE 608.In case of the voluntary sale of the vessel,
all contracts between the ship agentand the captain shall
terminate, reserving to the latter his right to the
indemnity which may pertain tohim, according to the
agreements made with the ship agent. The vessel sold
shall remain subject to the security of the payment of
said indemnity if, after theaction against the vendor (ship
owner) has been instituted, the latter is found to be
insolvent.
SECTION TWO
CAPTAINS AND MASTERS OF VESSELS
ARTICLE 609.Captains, masters or patrons of vessels
must be Filipinos, have legal capacity tocontract in
accordance with this code, and prove the skill, capacity,
and qualifications necessary tocommand and direct the
vessel, as established by marine or navigation laws,
ordinances, or regulations.
Patrons – chief of sailing vessel, although as of
today, sailing vessel is only for luxury and sport
purposes.
The name of captain or master is given,
according to the kind of vessel, to the person in
charge of it.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Captain – applied to those who govern vessels
that navigate the high seas (vessel is engaged in
foreign or international trade) or ships of large
dimensions and importance, although they be
engaged in the coastwise trade.
Masters – those who command smaller ships
engaged exclusively in the coastwise trade.
A captain, legally speaking has a triple position:
1. General agent (or husbanding) of the ship
owner;
2. The technical director of the vessel; and,
3. He represents the government of the
country under whose flag he navigates
ARTICLE 610.The following powers shall be inherent in
the position of captain, master or patronof a vessel:
1. To appoint or make contracts with the crew in
the absence of the ship agent, and to propose
said crew, should said agent be present; but the
ship agent may not employ any member against
thecaptain's express refusal.
2. To command the crew and direct the vessel to
the port of its destination.
3. To imposecorrectional punishment upon those
who fail to comply with his orders.
4. To make contracts for the charter of the vessel
in the absence of the ship agent.
5. To adopt all proper measures to keep the vessel
well supplied and equipped, purchasing all that
may be necessary for the purpose, provided
there is no time to request instruction from the
ship agent.
6. To orderthe repairs on the hull and engines of
the vessel and in its rigging and equipment,
which are absolutely necessary to enable it to
continue and finish its voyage; but if he should
arrive at a point where there is a consignee of
the vessel (agent at a particular part or sub-
agent of the ship agent), he shall actin
concurrence with the latter.
ARTICLE 611. In order to comply with the powers
mentioned in the preceding article (more particularly
numbers 5 and 6), the captain, when he has no funds and
does not expect to receive any from the ship agent, shall
obtain the same in the successive order stated below:
1. By requesting said funds from the consignee of
the vessel or correspondents (sub-agent)of the
ship agent.
2. By applying to(borrowing from) the consignees
of the cargo or to those interested therein.
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3. By drawing (of a bill of exchange, such as check)
on the ship agent.
4. By borrowing the amount required by means of
a loan on bottomry.
5. By selling a sufficient amount of the cargo (but
he cannot secure loans on respondentia [Article
617]).
In these two last cases he must apply to(secure
authority from) the judicial authority(admiralty court) of
the port, if in the Philippines, and to the consul of the
Republic of the Philippines if in a foreign country.
ARTICLE 612. The following obligations shall be
inherentin the office of captain:
1. To have on board before starting on a voyage a
detailed inventory of the hull, engines, rigging,
spare-masts, tackle, and other equipment of
the vessel; the lists of passengers; the charter
parties or authenticated copies thereof; and, the
invoices or manifests of the cargo.
2. To have a copy of this code on board.
3. To have three(3) folioed and stamped books:
o first book(log book) - where he shall
enter the condition of the atmosphere,
the power of the engines; the damage
suffered by the vessel, as well as the
impairment and damage suffered by
cargoes.
o second book (accounting book) –
where he shall record all the amounts
collected and paid for the account of
the vessel.
o third book, (freight book) – where he
shall record the loading and discharge
of all the goods as well as the names
and places of sailing of the passengers,
the number of packages in their
baggage, and the price of passage.
4. To remain constantly on board the vessel.
5. To be on deck on reaching land. He shall
not spend the night away from the vessel except
for serious causes or by reason of official
business.
6. To present himself, when making a port in
distress, to the maritime authority before 24
hours have elapsed (marine protest).
Important!!!
ARTICLE 614. A captain who, having made an agreement
to make a voyage, fails to perform his undertaking shall
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
indemnify for all the losses which he may cause without
prejudice to the criminal penalties which may be proper.
Where the captain fails to perform his
undertaking notwithstanding the existence of an
agreement to make a voyage, he cannot be
compelled to discharge his duties against his will
by an action for specific performance (not
available in personal obligations).
It is not wise, knowing the too delicate duty as
that of captain of a vessel to compel him to
continue discharging the duties of a captain
against his will; for this reason, the Code does
NOT impose upon him any such exigency, but it
compels him to: (1) indemnify all damages
which may occur, (2) without prejudice to
criminal penalties which may be proper.
Important!!!
ARTICLE 617. The captain(only the cargo owner or the
super cargo can secure loan on respondentia) may
not contract loans on respondentia secured by the
cargo; and should he do so, the contracts shall be
void. Neither may he borrow money on bottomry for his
own transactions, except on the portion of the vessel he
owns, provided no money has been previously borrowed
on the whole vessel, and there does not exist any other
kind of lien or obligation chargeable against the vessel.
ARTICLE 618. The captain shall be civilly liable to the ship
agent, and the latter to the third persons who may have
made contracts with the former:
1. For all the damages suffered by the vessel and
its cargo by reason of want of skill or negligence
on his part. If a misdemeanor or crime has been
committed, he shall be liable in accordance with
the Penal Code.
2. For all the thefts committed by the crew,
reserving his right of action against the guilty
parties.
3. For the losses, fines and confiscations imposed
on account of violation of customs, police,
health and navigation laws and regulations.
4. For the losses and damages caused by mutinies
on board the vessel or by reason of faults
committed by the crew in the service and
defense of the same, if he does not prove
that he made timely use of all his authority to
prevent or avoid them.
5. For those caused by the misuse of the powers
and the non-fulfillment of the obligations
pertaining to him in accordance with Articles
610 and 612.
6. For those arising by reason of his going out of
his course or taking a course which he should
not have taken without sufficient cause, in the
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opinion of the officers of the vessel, at a
meeting with the shippers or supercargoes who
may be on board. No exceptions whatsoever
shall exempt him from this obligation.
7. For those arising by reason of his voluntary
entering a port other than that of his
destination, outside of the cases or without
the formalities referred to in Article 612.
8. For those arising by reason of non-observance
of the provisions contained in the regulations on
situation of lights and maneuvers for the
purpose of preventing collisions.
ARTICLE 619. The captain shall be liable for the cargo
from the time it is delivered to him at the dock (or port)
or afloat alongside the ship at the port of loading, until
he delivers it on the shore or on the discharging wharf at
the port of unloading, unless the contrary has been
expressly agreed upon.
Very Important!!!
ARTICLE 620. The captain shall not be liable for the
damages caused to the vessel or to the cargo by force
majeure (or fortuitous event); but he shall always be so
for those arising through his own fault, no agreement to
the contrary being valid. Neither shall he be personally
liable for the obligations he may have contracted for
the repair, equipment, and provisioning of the vessel,
which shall devolve upon the ship agent, unless the
former has expressly bound himself(subject to
reimbursement from the ship agent) personally or has
signed a bill of exchange(e.g. check) or promissory note
in his name.
Memorize!!!
Requisites for defense of force majeure:
1. That the natural disaster must have been
the proximate and only cause of the loss;
2. That the common carrier must have
exercised due diligence to prevent or
minimize the loss, during and after the
occurrence of the natural disaster;
3. That the common carrier must NOT have
been guilty of delay; and,
4. The captain must have made a protest (by
filing with the admiralty court a maritime
protest or sworn statement of facts) before
the competent authority at the first port he
touched within the 24 hours following his
arrival and should have ratifiedit within the
same period when he arrived at the port of
destination (should do it again or repeat or
confirm with the admiralty court at the port
of destination).
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Numbers 1 to 3 are the same with those of
Articles 1739 and 1740 of the NCC
ARTICLE 622. If while on a voyage the captain should
learn of the appearance of privateers or men of war
against his flag (country under whose flag the captain
navigates or country of registration of the vessel),
he shall be obliged to make the nearest neutral port,
inform his agent and shippers, and await an occasion to
sail under convoy, or until the danger is over or he
has received express orders from the ship agent and
the shippers.
Privateers – a privately-owned warship
commissioned by a government to fight or
harass enemy shipping.
Cargo – includes all goods, wares, merchandise
aboard ship which do not form part of the ship’s
stores.
ARTICLE 623. If he should be attacked by a privateer,
and, after having tried to avoid the encounter and
having resisted the delivery of the effects of the vessel or
its cargo, they should be forcibly taken away from him, or
he should be obliged to deliver them, he shall make an
entry (or memorandum) thereof in his freight book and
shall prove the fact (by filing a maritime protest) before
the competent authority at the first port he touches.
After the force majeure has been proved, he shall be
exempted from liability.
o “Filing a maritime protest” – making a sworn
statement of facts and filing the same with the
admiralty court.
ARTICLE 624. A captain whose vessel has gone through a
hurricane or who believes that the cargo has suffered
damages or averages, shall make a protest thereon
before the competent authority at the first port he
touches, within twenty-four hours following his arrival
and shall ratify (repeat or confirm) it within the same
period when he arrives at his destination, immediately
proceeding with the proof of the facts, and he may not
open the hatches (apertures fitted with doors giving
access to the cargo compartment) until after this has
been done. The captain shall proceed in the same
manner (by filing a maritime protest), if, the vessel
having been wrecked; he is saved alone or with part of
his crew, in which case he shall appear before
the nearest authority, and make a sworn statement of
facts. The authority or the consul shall verify the said
facts receiving sworn statements of the members of the
crew and passengers who may have been saved; and
shall deliver to the captain the original record of
the proceedings, stamped and folioed (or paged), with a
memorandum of the folios, which he must rubricate (to
print or write in red), in order that it may be presented to
the judge or court of the port of destination.
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o Hurricane - storm of severe intensity with a wind
velocity of 73 miles per hour or faster
Important!!!
Formalities required where vessel has gone
through hurricane:
1. The captain must make a protest thereon
before the competent authority at the first
port he touches;
2. Such a protest must be made within 24
hours following his arrival;
3. The captain must ratify it within the same
period when he arrives at his destination;
and
4. He must immediately proceed with the
proof of the facts.
ARTICLE 625.If by reason of the absence of the consignee
(of the cargo) or on account of the nonappearance of a
legal holder of the bills of lading, the captain should not
know to whom he is to legally make the delivery of the
cargo, heshall place it at the disposal of the proper judge
or court or authority, in order that he may
determinewhat is proper with regard to its deposit,
preservation and custody.
SECTION THREE
OFFICERS AND CREW OF VESSELS
ARTICLE 627.The sailing mate, as the second chief of the
vessel, and unless the agent ordersotherwise, shall take
the place of the captain in cases of absence, sickness, or
death, and shall thenassume all his powers, duties, and
responsibilities.
ARTICLE 629. The sailing mate shall particularly
and personally keep a book, folioed andstamped on all its
pages, denominated "Binnacle Book", and shall enter
therein daily thedistance, the course travelled, the
variations of the needle, the leeway, the direction and
force of thewind, the condition of the atmosphere and of
the sea, the rigging set, the latitude and
longitudeobserved, the number of furnace heated, the
steam pressure, the number of revolutions, and under
thetitle "incidents," the maneuvers made, the meeting
with other vessels, and all the details and incidents which
may occur during the voyage.
ARTICLE 633.Thesecond mate shall take command of the
vessel in case of the inability or disqualification of the
captain and the sailing mate, assuming in such case their
powers and responsibilities.
ARTICLE 636. (see Articles 603, 604 and 605) If there is no
fixed period for which a seaman has been contracted he
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
may not bedischarged until the end of the return voyage
to the port where he enlisted.
ARTICLE 637.Neither may the captain discharge a
seaman during the time of his contract (his employment
is for a fixed period) except for just cause, the following
being considered as such:
1. The perpetration of a crime which disturbs
order on the vessel.
2. Repeated insubordination, want of discipline, or
non-fulfillment of the service.
3. Repeated incapacity and negligence in the
fulfillment of the service he should render.
4. Habitual drunkenness.
5. Any occurrence which
incapacitates the seaman to perform the work
6. Desertion (or abandonment)
The captain may, however, before setting out
on a voyage and without giving any reason, refuse
to permit a seaman whom he may have engaged to go on
board, and leave him on land, in which case hewill be
obliged to pay him his wages as if he had
rendered services.After the voyage has begun, during the
same, and until the conclusion thereof, the captain may
not abandon any member(or discharge) of his crew on
land or on sea, unless, by reason of some crime, his
imprisonment (in the detention facility of the vessel) and
delivery to the competent authority in the first port
touched should be proper, a matter obligatory for the
captain.
Memorize!!!
ARTICLE 640. The following shall be just cases for the
revocation (or cancellation) of the voyage:
1. A declaration of war or interdiction (cancellation
or formal prohibition) of commerce.
2. The blockade of the port of its destination,
or the breaking out of an epidemic.
3. The prohibition to receive in said port the
goods which make up the cargo of the vessel.
4. The detention or embargo of the same (vessel)
by order of the government, or for any
other reason independent of the will of the ship
agent.
5. The inability of the vessel to navigate (such as
when the vessel is rendered unseaworthy).
ARTICLE 642.
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Interdiction of Commerce–a governmental
prohibition of commercial intercourse intended
to bring about an entire cessation for the time
being all trade whatever. It is also referred to as
“interdiction of commercial intercourse.”
Embargo – a proclamation or order of a state,
usually issued in time of war or threatened
hostilities, prohibiting the departure of ships or
goods from some or all the ports of such state
until further order.
Blockade – circumvallation (or fortification) of a
place by which all foreign connections and
correspondence are, as far as human power can
effect it, to be cut off.
ARTICLE 643. If the vessel and her cargo should be totally
lost, by reason of capture or wreck, all rights shall be
extinguished, both as regards the crew to demand any
wages whatsoever, and as regards the ship agent to
recover the advances made. If a portion of the vessel or
of the cargo, or of both, should be saved, the crew
engaged on wages, including the captain, shall retain
their rights on the salvage, so far as they go, on the
remainder of the vessel as well as on the amount of the
freightage of the cargo saved.
ARTICLE 648. By the complement of a vessel shall be
understood all the persons on board, from the captain to
the cabin boy, necessary for the management,
maneuvers, and service, and therefore, the complement
shall include the crew, the sailing mates, engineers,
stokers (those who attend to the fires of an engine or
furnace of a cold-powered vessel) and other employees
on board not having specific designations; but it shall not
include the passengers or the persons whom the vessel is
transporting.
SECTION FOUR
SUPER CARGOES
ARTICLE 649.Supercargoes shall discharge on board the
vessel the administrative duties which the ship agent or
the shippers may have assigned to them; they shall keep
an account and record of their transactions in a book
which shall have the same conditions and requisites as
required for the accounting book of the captain, and they
shall respect the latter in his capacity as chief of the
vessel. The powers and responsibilities of the captain
shall cease, when there is a supercargo, with regard to
that part of the administration legitimately conferred
upon the latter, but shall continue in force for all acts
which are inseparable from his authority and office.
Memorize!!!
Supercargo – an agent of the owner of goods
shipped as cargo on a vessel, who has charge of
the cargo on board, sells the same to the best
advantage in the foreign market, buys a cargo to
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

be brought back on the return voyage of the 10. The days agreed upon for loading and
ship, and comes home with it. unloading.

11. The lay days and extra lay days to be allowed

TITLE THREE and the demurrage to be paid for each of them.
SPECIAL CONTRACTS OF MARITIME
COMMERCE Memorize!!!
Charter Party – is a contract, by virtue of which
SECTION ONE the owner or the agent of a vessel leases for a
CHARTER PARTIES PARTIFORMS AND EFFECTS OF certain price the whole or a portion of the vessel
CHARTER PARTIES for the transportation of goods or persons from
one port to another.
Memorize!!!
Towage is NOT a charter party – Towage is
Special Contracts in Maritime Commerce: contract for the hire of services by virtue of
which a vessel is engaged to tow another vessel
1. Charter parties from one port to another for a consideration.
2. Contract of transportation evidenced by bill
of lading Primage – a small allowance or compensation
3. Contracts of transportation of passengers payable to the master and crew members of a
on sea voyages ship or vessel; to the former for the use of his
4. Loans on bottomry cables and ropes to discharge the goods of the
5. Loans on respondentia merchant; to the latter for lading and unlading
6. Marine insurance (now governed by in any port or haven (small natural bay or inlet).
Insurance Act) However, at present, it is no longer a gratuity to
the master, unless specifically stipulated; but it
belongs to the owners or freighters, and is
ARTICLE 652. A charter party must be drawn in duplicate nothing but an increase of the freightage.
and signed by the contracting parties, and when either
does not know (to sign) how or is not able to do so, by Demurrage – the sum which is fixed by the
two witnesses at his request. The charter party shall contract of carriage, or which is allowed, as
contain, besides the conditions freely stipulated, the remuneration to the owner of a ship for the
following circumstances: detention of his vessel beyond the number of
days allowed by the charter party for loading
1. The kind, name, and tonnage of the vessel. and unloading or for sailing.

2. Its flag and port of registry. Lay days – are the days allowed to charter
parties for loading and unloading the cargo.
3. The name, surname, and domicile of the
captain. Extra Lay Days – are the days which follow after
the lay days have elapsed.
4. The name, surname, and domicile of the ship
agent, if the latter should make the charter ARTICLE 655.Charter parties executed by the captain
party. in the absence of the ship agent shall be valid and
effective (because this is one of the inherent powers of
5. The name, surname, and domicile of the the ship captain), even though in executing them he
charterer; and if he states that he is acting by should have acted in violation of the orders
commission, that of the person for whose andinstructions of the ship agent or shipowner; but
account he makes the contract. the latter shall have a right of action against the
captainfor indemnification of damages.
6. The port of loading and unloading.

7. The capacity, number of tons or the weight or
measurement which they respectively bind
themselves to load and to transport, or whether
the charter party is total.
8. The freightage to be paid, stating whether it is
to be a fixed amount for the voyage or so
much per month, or for the space to be
occupied, or for the weight or measure of the
goods of which the cargo consists, or in any
other manner whatsoever agreed upon.
9. The amount of primage to be paid to
captain.
ARTICLE 657.If during the voyage the vessel should
be rendered unseaworthy, the captain shall be obliged to
charter at his expense(not at the expense of cargo
owners) another one in good condition to receive the
cargo and carry it to itsdestination, for which purpose he
shall be obliged to look for a vessel not only at the port
of arrival butalso in the neighborhood within distance of
150 kilometers.If the captain, through indolence or
malice, should not furnish a vessel to carry the cargo
to its destination, the shippers,after requiring the captain
to charter a vessel within an inextendible period, may
charter one and petition the judicial authority to
the summarily approve the charter party which they may
have made.If the captain, notwithstanding his diligence,

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
should not find a vessel for the charter, he shall
depositthe cargo at the disposal of the shippers, to
whom he shall communicate the facts on the
firstopportunity which presents itself, the freight being
adjusted in such cases by the distance covered bythe
vessel, with no right to any indemnification whatsoever.
o If the vessel was rendered unseaworthy by
reason of fortuitous event, the charter fee
shall be paid by the captain but at the
expense of the shipowner. If the vessel was
rendered unseaworthy by reason of fault or
negligence of the captain, the charter fee
shall be his personal expense.
ARTICLE 658.The freightage shall accrue according to the
conditions stipulated in the contract,and should they not
be expressed (e.g. the transportation contract is oral), or
should they be ambiguous, the following rules shall be
observed:
1. If the vessel has been chartered by months or by
days, the freightage shall begin to run from the
day the loading of the vessel is begun.
2. In charters made for a fixed period, the
freightage shall begin to run from that very day.
3. If the freightage is charged according to weight,
the payment shall be made according to gross
weight, including the containers, such as barrels
or any other objects(e.g. wooden or metal
crates) in which the cargo is contained.
PART 4
TOTAL OR PARTIAL RESCISSION OF CHARTER PARTIES
ARTICLE 688.A charter party may be rescinded(or
cancelled) the request of the charterer (or lessee):
1. If before loading the vessel he should not agree
with that stated in the certificate of
tonnage, or if there should be an error in the
statement of the flag under which she sails.
2. If the vessel should not be placed at the
disposal of the charterer within the period and
in the manner agreed upon.
3. If after the vessel has put to sea, she should
return to the port of departure, on account of
risk from pirates, enemies, or bad weather, and
the shippers should agree to unload her.
ARTICLE 689.At the request of the person from whom
the vessel is chartered the charter party (shipowner) may
be rescinded:
1. If the charterer, at the termination of the extra
lay days, does not place the cargo
alongside thevessel. In such case the charterer
must pay half the freight stipulated, besides the
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2014
demurrage due for the laydays and extra lay
days.
2. If the person from whom the vessel was
chartered should sell it before the charter
has begunto load it, and the purchaser should
load it for his own account.In such case the
vendor shall indemnify the charterer for the
losses he may suffer.If the new owner of
the vessel should not load it for his
own account, the charter party shall
berespected, and the vendor shall indemnify the
purchaser if the former did not inform him of
the charter pending at the time of making the
sale.
ARTICLE 690.The charter party shall be rescinded and all
actions arising therefrom shall beextinguished, if, before
the vessel puts to sea from the port of departure, any of
the following cases should occur:
1. A declaration of war or interdiction of
commerce.
2. Blockade of the port of destination or the
breaking out of an epidemic.
3. Prohibition to receive at the said port the
merchandise constituting the cargo of the
vessel.
4. Detention by reason of an embargo of the
vessel.
5. Inability of the vessel to navigate, without fault
of the captain or ship agent.
o Same grounds for revocation of voyage.
SECTION TWO
LOANS ON BOTTOMRY AND RESPONDENTIA
Very Very Important!!!
ARTICLE 719.A loan in which under any condition
whatever, the repayment of the sum loanedand of the
premium(or interest) stipulated depends upon the safe
arrival in port of the vessel or the goods on which it is
made, or of the price they may receive in case of
accident, shall be considered a loan on bottomry
or respondentia.
o *price – such as proceeds from insurance, if
the vessel or cargo is insured and the vessel
sank, the amount of insurance that can be
recovered from the insurer is the amount to
be paid to the lender on bottomry or lender
in respondentia.
Bottomry – a system of lending money to a
shipowner on the security of his ship.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Memorize!!!
Loan on Bottomry – a contract by which the
owner of a ship borrows money for the use,
equipment or repair of the vessel, and for a
definite term (or period), and pledges the ship
as a security for its repayment, with maritime or
extraordinary interest on account of the
maritime risks to be borne by the lender, it
being stipulated that if the ship be lost in the
course of the specific voyage or during the
agreed time by any of the perils enumerated in
the contract, the lender shall also lose his
money.
Memorize!!!
Loan on Respondentia – one made on the
goods (or cargo) laden on board the ship, and
which are to be sold in the course of the voyage,
the borrower’s (the cargo owner) personal
responsibility (to pay the lender after the sale of
the goods or cargo) being deemed the principal
security for the performance of the contract,
which is therefore called respondentia.
o In a loan on respondentia the
lender must be paid his principal
and interest, though the ship
perishes, provided that the goods
are saved.
Memorize!!!
Loans on bottomry and respondentia v.
Ordinary loan
Loans on Bottomry
Ordinary Loan
and Respondentia
The first lender (similar to The last lender has
st
1 mortgagee) has a right preference over the
of preference on the previous ones
security over the
subsequent lender
Must be paid absolutely The loan is required to
and at all events, whether be paid only upon safe
or not the thing given as arrival of the thing given
security is lost or destroyed as security at the port of
destination
ARTICLE 720. Loans on bottomry or respondentia may be
executed:
1. By means of a public instrument.
2. By means of a policy signed by the contracting
parties and the broker taking part therein.
3. By means of a private instrument. Under
whichever of these forms the contract is
executed, it shall be entered in the certificate of
the registry of the vessel and shall be recorded
in the registry of vessels, without which
requisites the credits of this kind shall not have,
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with regard to other credits, the preference
which, according to their nature, they should
have, although the obligation shall be valid
between the contracting parties. Contracts(they
are valid but unenforceable) which are not
reduced to writing shall not give rise to judicial
action.
ARTICLE 721.In a contract of bottomry or respondentia
the following must be stated:
1. Kind, name (e.g. “MV”), and registry of the
vessel.
2. Name and domicile of the captain.
3. Names and domiciles of the person giving and
the person receiving the loan.
4. Amount of the loan and the premium stipulated.
5. Time for repayment.
6. Property or goods pledged to secure repayment.
7. The voyage during which the risk is to run.
ARTICLE 722. The contract may be made payable to
order, in which case it shall be transferrable by
indorsement, and the indorsee shall acquire all the rights
and shall incur all the risks corresponding to the indorser
st
(the 1 endorsee is necessary the lender).
Article 722 allows such contracts to be made
payable to order, similar to that of a negotiable
bill of lading or warehouse receipt. But it is in no
sense a negotiable instrument under the
Negotiable Instruments Law. It I, likewise, in no
sense a negotiable document of title to goods
under the law on negotiable document of title
such as the warehouse receipts law.
ARTICLE 725.No loans on bottomry may be made using
as collateral the salaries of the crew or on the
profitsexpected.
ARTICLE 726.If the lender should prove that he loaned an
amount larger than the value of theobject(vessel) liable
for the bottomry loan, the loan shall be valid only for
the amount at which said object is appraised by
experts.The surplus(or excess) principal shall be
returned(even if the vessel is lost) with legal interests for
the entire time required for repayment.
Important!!!
ARTICLE 730. Loans made during the voyage
shall have preference over those made before the
clearing of the vessel (before the vessel is put to sea),
and they shall be graduated in the inverse order of their
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
dates. The loans for the last voyage shall have preference
over prior ones.
ARTICLE 731. The actions pertaining to the lender shall
be extinguished by the absolute loss of the goods on
which the loan was made, if it arose from an accident of
the sea at the time and during the voyage designated in
the contract, and it is proven that the cargo was on
board; but this shall not take place (the extinguishment
of the loan) if the loss was caused by:
1. the inherent defect of the thing, or
2. through the fault or malice, of the borrower, or
3. barratry (fraud) on the part of the captain, or
4. if it was caused by damages suffered by the
vessel as a consequence of being engaged in
contraband, or
5. if it arose from having loaded the merchandise
on a vessel different from that designated in the
contract, unless this change should have been
made by reason of force majeure.
Important!!!
When loss does NOT extinguish the loan on
respondentia:
1. Loss is caused by the inherent defect of
the thing.
2. Loss is caused by fault or malice, of
the borrower.
3. Loss is caused by barratry on the part of
the captain.
4. Loss is caused by damage to the vessel
as a consequence of being engaged in
contraband (e.g. smuggling).
5. Loss aose from having loaded the
merchandise on a vessel different from
that designated in the contract, unless
this change should have been made by
reason of force majeure.
Important!!!
ARTICLE 732.Lenders on bottomry or respondentia shall
suffer, in proportion to their respective interest, the
general average which may take place in the goods on
which the loan is made.
The FMV of the cargo is P10 million while the
loan on respondentia on said cargo is P4 million.
The cargo owners were made to contribute to a
general average loss to another cargo which was
cast overboard in the amount of P2 million.
Question: How much loss shall the lender in
respondentia suffer?
Answer: The lender in respondentia shall suffer
as loss the amount of (P2M x 4/10) P800,000.
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ARTICLE 733.Should the period during which the
lender shall run the risk not have been statedin the
contract, it shall last, with regard to the vessel, engines,
rigging, and equipment, from themoment said vessel
puts to sea until she drops anchor in the port
of destination; and with regard to themerchandise, from
the time they are loaded at the shore or wharf of
the port of shipment until they areunloaded in the port
of consignment.
ARTICLE 734.In case of shipwreck, the amount liable
for the payment of the loan shall bereduced to the
proceeds of the goods saved, after deducting the costs of
the salvage.
Very Important!!!
ARTICLE 735. If the same vessel or cargo should be the
object of a loan on bottomry or respondentiaand marine
insurance, the value of what may be saved in case of
shipwreck shall be divided betweenthe lender and
the insurer, in proportion to the legitimate interest of
each one, taking into consideration,for this purpose only,
the principal with respect to the loan.
The FMV of the cargo is P100 million while the
loan on bottomry is P30 million. The vessel was
wrecked but was sold as junk for P10 million.
Question: From the proceeds of the sale of P10
million, how much will the insurer get and how
much will the lender on bottomry get?
Answer: The insurer will get (P10M x 7/10) P7
million, while the lender on bottomry gets
(P10M x 3/10) P3 million
TITLE FOUR
RISKS, DAMAGES AND ACCIDENTS OF
MARITIME COMMERCE
SECTION ONE
AVERAGES
Memorize!!!
The risks, damages etc. of maritime commerce
are:
1. Averages, both general and particular
2. Arrivals under stress
3. Collisions
4. Shipwrecks
ARTICLE 806. The following shall be considered averages:
1. All extraordinary or accidental expenses (e.g.
cost of repairs of vessel after collision) which
may be incurred during the voyage in order
to preserve(e.g. cargo jettisoned and ransom
money paid to pirates) the vessel, the cargo, or
both.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
2. Any damages or deteriorations (caused by perils
of the sea such as hurricane) which the vessel
may suffer from the time it puts to sea
from the port of departure until it casts anchor
in the port of destination, and those suffered by
the merchandise from the time they are loaded
in the port of shipment until they are
unloaded in the port of their consignment.
ARTICLE 807. (These are considered averages) Thepetty
and ordinary expenses incident to navigation, such
as those of pilotageof coasts and ports, those of
lighterage(expense for loading and unloading of ships)
and towage, anchorage, inspection, health, quarantine,
lazaretto (a building or vessel or ship set apart for
quarantine purposes),and other so-called port expenses,
costs of barges and unloading until the merchandise is
placed on thewharf, and any other usual expenses of
navigation, shall be considered ordinary expenses to
bedefrayed by the shipowner, unless there is an express
agreement to the contrary.
To constitute an average, an expense must be:
1. Extraordinary or accidental
2. Incurred during the voyage
3. Incurred in order to preserve the vessel, the
cargo or both.
To constitute an average, a damage or
deterioration must:
1. Have been suffered from the time the
vessel puts to sea from the port of
departure until it casts anchor in the port of
destination, or
2. Have been suffered by the merchandise (or
cargo) from the time they are loaded in the
port of shipment until they are loaded in
the port of shipment until they are unload
in the port of their consignment.
ARTICLE 809.As a general rule, simple or particular
averages shall include all the expenses anddamages
caused to the vessel or to her cargo which have not
inured to the common benefit and profit of all the
persons interested in the vessel and her cargo, and
especially the following:
1. The losses suffered by the cargo from the
time of its embarkation until it is unloaded,
either on account of inherent defect of the
goods or by reason of an accident of the sea or
force majeure.
2. The losses and expenses suffered by the vessel
for the same causes and reasons.
3. The losses suffered by the merchandise loaded
on deck.
48
2014
4. The wages and victuals of the crew when the
vessel is detained or embargoed by legitimate
order or force majeure.
5. The necessary expenses on arrival at a port, in
order to make repairs.
6. The lowest value of the goods sold by the
captain in arrivals under stress for payment
of provisions and in order to save the crew.
7. The victuals and wages of the crew while
the vessel is in quarantine.
8. The loss inflicted upon the vessel or cargo
by reason of an impact or collision with another,
if it is accidental and unavoidable.
9. Any loss suffered by the cargo through the fault,
negligence, or barratry of the captain or of the
crew, without prejudice to the right of the
owner to recover the corresponding indemnity
from the captain, the vessel, and the freightage.
o Memorize particular averages.
ARTICLE 810.The owner of the goods which gave rise to
the expense or suffered the damages shall bear the
simple or particular averages.
Concept of particular average
The distinguishing feature of particular average
is that it is an expense incurred or damage
suffered which has not inured to the common
benefit and profit all persons interested in the
vessel and its cargo. Being such, a particular
average shall be borne by the owner of the thing
which gave rise to the expenses or which
suffered the damage.
ARTICLE 811.As a general rule, general or gross averages
shall include all the damages andexpenses which are
deliberately caused in order to save the vessel, its
cargo, or both at the same time,from a real and
known risk, and particularly the following:
1. The goods or cash invested (e.g. ransom money)
in the redemption of the vessel or of the cargo
captured by enemies, privateers or pirates.
2. The goods jettisoned to lighten the
vessel, whether they belong to the cargo,
to the vessel, or to the crew, and the damage
suffered through said act by the goods which
are kept on board.
o Memorize general averages.
ARTICLE 812.In order to satisfy the amount of the gross
or general averages, all the persons (shipowner and
cargo owners) having an interest in the vessel and cargo
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
therein at the time of the occurrence of the average
shallcontribute.
Concept of general average
The distinguishing feature of general average is
that it is an expense or damage suffered
deliberately in order to save the vessel, her
cargo, or both, from a real or known risk. Being
such, all persons having an interest in the vessel
or the cargo therein at the time of the
occurrence of the average shall contribute.
Memorize!!!
Requisites of General Average
1. There must be a common danger;
2. The danger arises from accidents of the sea,
dispositions of the authorities or faults of
men;
3. Peril should be ascertained and imminent;
4. For the common safety, part of the vessel
or the cargo, or both are sacrificed
deliberately;
5. Successful saving of the vessel and other
cargo;and,
6. Expenses or damages should have been
incurred or inflicted after taking legal steps
and authority;
ARTICLE 813. (Legalrequirements) In order to incur the
expenses and cause the damages corresponding to gross
average:
1. there must be a resolution (or decision) of the
captain, adopted after deliberation with the
sailing mate and other officers of the vessel, and
after hearing the persons interested in the cargo
who may be present.
2. the resolution adopted to cause the
damages which constitute general average must
necessarily be entered in the log book (Art. 814).
3. In the minutes, and after the resolution, shall be
stated in detail all the goods jettisoned, and
mention shall be made of the injuries caused to
those kept on board (Art. 814).
4. The captain shall be obliged to deliver one copy
of these minutes to the maritime judicial
authority of the first port he may make, within
twenty-four hours after his arrival, and to ratify
it immediately under oath (Art. 814).
49
2014
ARTICLE 815.The captain shall direct the jettison, and
shall order the goods cast overboard inthe following
order:
1. Those which are on deck (platform covering or
extending horizontally across a vessel),
beginning with those which embarrass(obstruct)
the maneuver, the heaviest ones with the least
utility and value.
2. Those which are below the upper deck, always
beginning with those of the greatest weight and
smallest value.
ARTICLE 817.If in lightening a vessel on account of
a storm, in order to facilitate its entry intoa port or
roadstead (particular section of a part where vessels are
repaired), part of the cargo should be transferred to
lighters(flat bottom barges used in lightening or
unloading and in unloading ships or in transporting goods
for short distances) or barges and be lost, the owner of
said part shall be entitled to indemnity, as if the loss had
originated from a gross average. If, on the contrary, the
merchandise transferred should be saved and the vessel
should be lost, noliability may be demanded of the
merchandise saved.
ARTICLE 818.If, as a necessary measure to extinguish a
fire in a port,it should be decided to sink any vessel, this
loss shall be considered gross average, to which the
vesselssaved shall contribute.
SECTION TWO
ARRIVAL UNDER STRESS (ARIVADA POR SOSA)
ARTICLE 819. If during the voyage the captain should
believe that the vessel cannot continuethe trip to the
port of destination on account of the:
1. lack of provisions,
2. well-founded fear of seizure, privateers, or
pirates, or
3. accident of the sea disabling it to navigate
he shall assemblethe officers and shall summon
the persons interested in the cargo(supercargoes) who
may be present; and if, after evaluating
the circumstances of the case, thereason should be
considered well-founded, the arrival at the nearest and
most convenient port shall beagreed upon, drafting and
entering the proper minutes, which shall be signed by all,
in the log book.The captain shall have the deciding vote.
ARTICLE 820.An arrival shall not be considered lawful in
the following cases:
1. If the lack of provisions should arise from the
failure to take the necessary provisions for the
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
voyage according to usage and customs, or if
they should have been rendered useless or lost
through bad storage or negligence in their care.
2. If the risk of enemies, privateers, or pirates
should not have been well known, manifest and
based on positive and provable facts.
3. If the defect of the vessel should have arisen
from the fact that it was not repaired, rigged,
equipped, and prepared in a manner suitable for
the voyage, or from some erroneous order of
the captain.
4. When malice, negligence, want of foresight, or
lack of skill on the part of the captain exists in
the act causing the damage.
Important!!!
ARTICLE 821. The expenses of an arrival under stress
shall always be for the account of theshipowner or agent,
but he shall not be liable for the damages which may be
caused the shippers byreason of the arrival provided the
latter is legitimate.Otherwise, the ship agent and
the captain shall be jointly liable.
o The arrival under stress must be due to any
of the 3 grounds mentioned in Article 819.
Memorize!!!
Arrival under stress – the arrival of a vessel at
the nearest and most convenient port, if during
the voyage, the vessel cannot continue the trip
to the port of destination due to:
1. Lack of provisions
2. A well-founded fear of seizure, privateers,
or pirates, or
3. Accident of the sea disabling it to navigate.
SECTION THREE
COLLISIONS
Very Very Important!!!
ARTICLE 826.If a vessel should collide with another,
through or the fault, negligence, or lack of skill of the
captain, sailing mate, or any other member of the
complement, the owner of the vessel atfault shall
indemnify the losses and damages suffered by the other
vessel and her cargo, after an expert appraisal.
ARTICLE 827.If the collision is imputable to both vessels,
each one shall suffer her owndamages, and both shall
be solidarily responsible for the losses and damages
occasioned to their cargoes.
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2014
The doctrine of last clear chance in vehicular
collision under the Civil Code does NOT apply.
ARTICLE 828.The provisions of the preceding article are
applicable to a case where itcannot be determined
which of the two vessels has caused the collision.
This provision is known as the DOCTRINE OF
INSCRUTABLE(mysterious)FAULT.
ARTICLE 830.If a vessel should collide with another,
through fortuitous event or force majeure,each vessel
and her cargo shall bear her or its own damages.
ARTICLE 831.If a vessel should be forced by a third vessel
to collide with another, the owner of the third vessel
shall indemnify the losses and damages caused, the
rd
captain thereof(3 vessel) being civilly liableto said
owner.
Memorize!!!
Collision – the impact of two vessels both of
which are moving.
Allision – refers to the striking of a moving
vessel against one that is stationary (or
anchored on).
Nautical rules to determine negligence:
1. When two vessels are about to enter a port,
the farther one must allow the nearer to
enter first.
2. When two vessels meet, the smaller should
give the right of way to the larger one.
Memorize!!!
o Zones (or divisions) of time in maritime
collision:
o First division – covers all the time up to the
moment when the risk of collision may be
said to have begun.
o Second division – covers the time between
the moment when the risk of collision
begins and the moment when it has become
a practical certainty.
o Third division – covers the time between the
moment when collision has become a
practical certainty and the moment of
actual contact.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
o Effect of Fault of Privileged Vessel (or
DOCTRINE OF “ERROR IN EXTREMIS”):
If a vessel, having a right of way, suddenly
changes its course during the third zone, in an
effort to avoid an imminent collision due to the
fault of another vessel, such act may be said to
be done in extremis, and even if wrong, cannot
create responsibility on the part of said vessel
with the right of way.
o Defense of diligence in selection of employees
NOT available to shipowner in maritime tort
(unlike in civil tort [culpa aquiliana] under the
Civil Code) – “While it is true that plaintiff’s
action against petitioner is based on a tort or
quasi-delict, the tort in question is not a civil tort
under the Civil Code but a maritime tort
resulting in a collision at sea, governed by
Articles 826-839 of the Code of Commerce.
ARTICLE 835.The action for the recovery of losses and
damages arising from collisions cannot be admitted if a
protest(maritime protest which is effected by filing a
sworn statement of facts) or declaration is not presented
st
within twenty-four hours(from the arrival at the 1 port)
before the competentauthority of the point where the
collision took place, or that of the first port of arrival
of the vessel, if inPhilippine territory, and to the consul of
the Republic of the Philippines if it occurred in a
foreigncountry.
o The provisions on collision does NOT apply to
small boats engaged in river and bay traffic, nor
to boats manned by a group of fishermen.
Memorize!!!
Summary of cases where protest is required:
1. When the vessel makes arrival under stress.
2. Where the vessel is wrecked.
3. Where the vessel has gone through a
hurricane or when the captain believes that
the cargo has suffered damages or
averages.
4. In case of maritime collisions.
5. When the vessel is attacked by privateers or
pirates.
Very Important!!!
ARTICLE 837. (DOCTRINE OF LIMITED LIABILITY) The
civil liability incurred by the ship owners in the
case prescribed in this section, shall be understood as
limited to the value of the vessel with all its
appurtenances and freightage earned during the voyage.
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2014
ARTICLE 838. When the value of the vessel and
her appurtenances should not be sufficient to cover all
the liabilities, the indemnity due by reason of the death
or injury of persons shall have preference over the
indemnity for the other vessel and her cargo.
Effect of Loss of Vessel
The claim for damages arising from
maritime collisions is real and hypothecary in
nature. The vessel itself is responsible for the
amount of the damage caused. Consequently,
where the vessel is lost, the liability of the
shipowner is extinguished, and no damages
could be recovered from him. However,
damages may be recovered to the extent of
what may be salvaged, or of the freightage
earned. And if the vessel is insured, the amount
of the insurance substitutes for the value of the
ship and should be applied to the payment of
damages.
SECTION FOUR
SHIPWRECKS
ARTICLE 840.The losses and deteriorations suffered by
a vessel and her cargo by reason of shipwreck or
stranding(vessel is halted or struck by a difficult situation,
stranding is similar to run aground) shall be individually
for the account of the owners.
ARTICLE 841.If the wreck or stranding should be caused
by the malice, negligence, or lack of skill of the captain,
or because the vessel put to sea was insufficiently
repaired and equipped, the shipagent or the shippers
may demand indemnity of the captain for the
damages caused to the vessel or tothe cargo by the
accident.
Shipwreck – a ship which has received injuries
rendering her incapable of navigation. It
includes the loss of a vessel at sea, either by
being swallowed up by the waves, by running
against another vessel or thing at sea (e.g. ice
berg), or on the coast.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

CARRIAGE OF GOODS will not cover cases of misdelivery or conversion

of the goods, as to which contingencies the rules
BY SEA ACT on prescription found in the Civil Code would
(C.A. No. 65) apply – ten years in the case of breach of a
written contract or four years where the cause
id tort.
RESPONSIBILITIES AND LIABILITIES

Section 3. (par. 6)Unless notice of loss or damage and

the general nature of such loss or damage be given in
writing to the carrier or his agent at the port of discharge
at the time of the removal of the goods(if the loss or
damage is apparent) from the vessel into the custody of
the person entitled to delivery thereof under the
contract of carriage, such removal shall be prima facie
evidence of the delivery by the carrier of the goods as
described in the bill of lading. If the loss or damage is not
apparent, the notice must be given within three days of
the delivery.

o In overland transportation, the claim must

be made within 24 hours after receipt of the
goods, and before the payment of the
freightage.

In any event(whether the damage or loss is apparent or

not) the carrier or his agent shall be discharged from all
liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or
the date when the goods should have been delivered (no
delivery has taken place because the goods had
perished): Provided, That if a notice of loss or damage,
either apparent or concealed, is not given as provided for
in this section, that fact shall not affect or prejudice the
right of the shipper to bring suit within one year after the
delivery of the goods or the date when the goods should
have been delivered

Memorize!!!

1. Lack of written notice of loss or damage does

NOT preclude the shipper or cargo owner from
filing an action for damages.

2. In overland transportation, if the claim is NOT

made within the specified period, the action for
damage is barred.

3. In international Air Carriage, the filing of a

written compliant to the carrier is a conclusion
precedent to court action.

Cases of misdelivery or conversion NOT

covered.

The one-year prescriptive period fixed in

paragraph 4 of Section 3(6) applies only
whenever there is loss or damage. Loss
contemplates merely a situation where no
delivery at all was made by the carrier of the
goods because the same had perished or
disappeared in such a way that their existence is
unknown or they cannot be recovered. In the
absence of contrary agreement, the provision

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
THE PUBLIC SERVICE LAW
(C.A. No. 146)
For purposes of the Bar Exams, the
important provisions in the Public
Service Act are Sections 13, 14, 15, 16,
20and 40(c).
It is still Commonwealth Act No. 146 that
continues to be the public service law in force in
this jurisdiction although the public service
commission was abolished under the integrated
organization plan and its regulatory and
adjudicatory functions were transferred to the
appropriate regulatory boards as follows:
1. Department of Transportation and
Communication (DOTC) and Land
Transportation Franchising Regulatory Board
(LTFRB) –land transportation.
2. Maritime Industry Authority (MARINA) – water
transportation
3. Air Transportation Office (ATO) and Civil
Aeronautics Board (CAB) – air transportation.
4. National Telecommunications Commission
(NTC) – communication utilities and services,
radio communication system, wire or wireless
telephone and telegraph system, radio and
television broadcasting system, and other
similar public utilities.
5. Energy Regulatory Board (ERB) – Public power
utilities and services, electric light, power and
other similar public utilities.
6. National Water Resources Board (NWRB) –
public water works utilities and services, water
supply and other similar public utilities.
NOTES:
1. The DOTC shall be the primary entity in
transportation and communication.
2. NTC, ATO, CAB are attached agencies of the
DOTC.
3. NWRB is under administrative supervision
of the DPWH.
4. ERB is under administrative supervision of
the Office of the President.
Purposes of the Law:
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2014
o The general purpose of the Public Service
Law is to subject public services to state
control and regulation.
o The primary purposes of the law are:
1. To secure, adequate, sustained service
for the public at the least possible cost,
and protect the public against
unreasonable charges and poor and
inefficient service.
2. To protect and conserve investments
which have already been made for
public service, and prevent ruinous
competition.
CHAPTER II
JURISDICTION, POWERS AND DUTIES OF THE
COMMISSION
Section 13. (a) The Appropriate Regulatory Board (ARB)
shall have jurisdiction, supervision, and control over all
public services and their franchises, equipment, and
other properties, and in the exercise of its authority, it
shall have the necessary powers and the aid of the police
force: Provided, That public services owned or operated
by government entities or government-owned or
controlled corporations(e.g. PNR, MRT, LRT, NAPOCOR,
etc.) shall be regulated by the ARB in the same way as
privately-owned public services, but certificates of public
convenience or certificates of public convenience and
necessity shall not be required of such entities or
corporations.
(b) The term "public service" includes every person that
now or hereafter may own, operate, manage, or control
in the Philippines, for hire or compensation, with general
or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any
common carrier, railroad, street railway, traction railway,
sub-way motor vehicle, either for freight(or cargo) or
passenger, or both with or without fixed route: Provided,
however, That a person engaged in agriculture, not
otherwise a public service, who owns a motor vehicle
and uses it personally and/or enters into a special
contract whereby said motor vehicle is offered for hire or
compensation to a third party or third parties engaged in
agriculture, not itself or themselves a public service, for
operation by the latter for a limited time and for a
specific purpose directly connected with the cultivation
of his or their farm, the transportation, processing, and
marketing of agricultural products of such third party or
third parties shall not be considered as operating a public
service for the purposes of this Act.
The pertinent regulatory and adjudicatory
functions of the Public Service Commission
were “correspondingly transferred to the
appropriate regulatory boards including their
common technical staffs, and their pertinent
enforcement and operational functions are
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
correspondingly transferred to the appropriate
bureaus and units in the Department, together
with the applicable appropriations, records,
equipment, property and such personnel as may
be necessary.”
Section 14. The following are exempted from the
provisions of the preceding section:
a. Warehouses (regulated by the Bureau of Trade
Regulation and Consumer Protection);
b. Vehicles drawn by animals and bancas moved
by oar or sail, and tugboats and lighters
(regulated by the LGU’s);
c. Airships within the Philippines except as regards
the fixing of their maximum rates on freight and
passengers (regulated by the CAB);
d. Radio companies except with respect to the
fixing of rates (regulated by the NTC);
e. Public services owned or operated by any
instrumentality of the National Government or
by any government-owned or controlled
corporation, except with respect to the fixing of
rates (regulated by the ARB).
o Those enumerated above are NOT
required to secure CPC or CPCN except
(c) and (d).
Section 15. No public service shall operate in the
Philippines without possessing a valid and subsisting
certificate from the ARB known as "certificate of public
convenience," (franchise is required by law) or
"certificate of public convenience and necessity,"
(franchise is NOT required by law) to the effect that the
operation of said service and the authorization to do
business will promote the public interests in a proper and
suitable manner.
The ARB may prescribe as a condition for the
issuance of the certificate provided in the preceding
paragraph that the service (or the public utility company)
can be acquired by the Republic of the Philippines or any
instrumentality thereof upon payment of the cost price
of its useful equipment, less reasonable depreciation;
and likewise, that the certificate shall be valid only for a
definite period of time (not exceeding 50 years); and that
the violation of any of these conditions shall produce the
immediate cancellation of the certificate without the
necessity of any express action on the part of the ARB
(but notice and hearing are still required to comply with
the requirements of due process).
A certificate of public convenience is an
authorization issued by the ARB for the
operation of public services for which no
franchise, either municipal or legislative, is
required by law.
54
2014
A certificate of public convenience and
necessity is an authorization issued by the ARB
for the operation of public services for which a
franchise is required by law.
Section 16. Proceedings of the ARB, upon notice and
hearing. - The ARB shall have power, upon proper notice
and hearing:
a. To issue certificates which shall be known as
certificates of public convenience, (1)whenever
the Commission finds that the operation of the
public service proposed and the authorization to
do business will promote the public interest in a
proper and suitable manner; (2)will be granted
only to citizens of the Philippines to
corporations, partnerships, associations or joint-
stock companies constituted and organized
under the laws of the Philippines; Provided,
That at least sixty per centum of the stock or
paid-up capital of any such corporations, must
belong entirely to citizens of the Philippines:
Provided, further, That (3)no such certificates
shall be issued for a period of more than fifty
years.
b. To approve any franchise or privilege granted by
any political subdivision of the Philippines.
c. To fix and determine rates, tolls, charges,
classifications, or schedules thereof.
d. To fix just and reasonable standards,
classifications, regulations, practices,
measurement, or service to be furnished,
imposed by any public service.
m. To amend, modify or revoke at any time
certificate issued, whenever the facts and
circumstances on the strength of which said
certificate was issued have been misrepresented
or materially changed.
n. To suspend or revoke any certificate issued
whenever the holder thereof has violated or
willfully and contumaciously refused to comply
with any order rule or regulation of the ARB or
any provision of this Act.
Important!!!
The following rules are used in deciding whether
or not to grant certificate of public
convenienceorcertificate of public convenience
and necessity to operate a public utility:
1. Prior Applicant Rule – where there are
various applicants over the same territory,
all conditions being equal, priority in filing
the application for CPC or CPCN becomes an
important factor in granting the same.
2. Prior Operator Rule – before permitting a
new company to invade the territory of
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

another company already established with

a CPC or CPCN, thereby entering into
competition with it, the prior operator must
be given opportunity to extend its services
in order to meet the public needs.

3. Third Operator Rule – where two operators

are more than serving the public, there is
rd
no reason to permit a 3 operator to
engage in competition.

4. Protection of Investment Rule - the policy

of the law is to protect and conserve
investment already made for public services
but when it is clear that public interest and
convenience will be jeopardized, the
protection of investment shall not be the
criterion in determining whether a new
application will be granted or not.

Section 20. Acts requiring the approval of the

Commission. - It shall be unlawful for any public service
or for the owner, lessee or operator thereof, without the
approval and authorization of the ARB previously had -

(a) To adopt, establish, fix, impose, maintain,

collect or carry into effect any individual or joint rates,
commutation, mileage or other special rate, toll, fare,
charge, classification or itinerary (or route).

(b) To establish, construct, maintain, or operate

new units or extend existing facilities or make any other
addition to or general extension of the service.

(g) To sell, alienate, mortgage, encumber or

lease its property, franchises, certificates, privileges, or
rights or any part thereof; or merge or consolidate its
property, franchises privileges or rights, or any part
thereof, with those of any other public service.

Section 40. (e) For annual reimbursement of the

expenses incurred by the ARB in the supervision of other
public services and/or in the regulation or fixing of their
rates, twenty centavos for each one hundred pesos or
fraction thereof, of the capital stock subscribed or paid,
or if no shares have been issued (e.g. sole proprietorship
or partnership), of the capital invested, or of the property
and equipment, whichever is higher.

twenty centavos for each one hundred pesos –

or 1/5 of 1%, such as if the capital stock or the
capital invested is P100 million, the amount that
may be collected as fee is (P100M x .01 ÷ 5)
P200,000.

55
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
WARSAW CONVENTION
(As amended at the Hague, 1955
and by Protocol No. 4 of Montreal, 1975)
Chapter III
Liability of the Carrier
Article 17. The carrier(international air carrier) is liable
for damage sustained in the event of the death or
wounding of a passenger or any other bodily injury
suffered by a passenger, if the accident which caused the
damage so sustained took place on board the aircraft or
in the course of any of the operations of embarking or
disembarking.
Article 18.
1. The carrier is liable for damage sustained in the
event of the destruction or loss of, or of damage
to, any registered baggage (formerly checked
baggage) or any goods, if the occurrence which
caused the damage so sustained took place
during the carriage by air.
Registered baggage – refers to passenger’s
baggage other than small personal objects
which the passenger takes charge himself; this
baggage is in the baggage compartment of the
plane
Is the carrier liable even if the cause of death or
wounding is a fortuitous event? NO, see Article
20.
2. The carrier is liable for damage for damages
sustained in the event of the destruction or loss
of, or damage to, cargo (goods or merchandise)
upon condition only that the occurrence which
caused the damage so sustained took place
during the carriage by air.
Memorize!!!
3. However, the carrier is NOT liable if he proves
that the destruction, loss of, or damage to, the
cargo resulted solely from one or more of the
following:
a. Inherent defect, quality or vice (or impurity)
of that cargo;
b. Defective packing of that cargo performed
by a person other than the carrier or his
servants or agents;
c. An act of war or an armed conflict;
d. An act of public authority carried out in
connection with the entry, exit or transit of
the cargo.
4. The carriage of air within the meaning of the
preceding paragraphs of this Article comprises
56
2014
the period during which the baggage or cargo is
in the charge of the carrier, whether in an
airport or on board an aircraft, or, in the case of
a landing outside an airport (e.g. emergency
landing in a dessert or body of water), in any
place whatsoever.
Article 19.The carrier is liable for damage occasioned by
delay in the transportation by air of passengers, baggage,
or cargo.
Memorize!!!
Article 20.In the carriage of passengers and baggage, and
in the case of damage occasioned by delay in the carriage
of cargo, the carrier shall not be liable if he proves that
he and his servants and agents have taken all necessary
measures to avoid the damage or that it was impossible
for them to take such measures (e.g. if the proximate
cause is a fortuitous event).
Very Very Important!!!
Article 22.In the carriage of persons, the liability of the
carrier for each passenger, in case of death or bodily
injury, is limited to the sum two hundred and fifty
thousand francs. Nevertheless, by special contract, the
carrier and the passenger may agree to a higher limit of
liability.
o two hundred and fifty thousand francs
– French francs which totally expired on
February 17, 2002, and were replaced
by Euro; former monetary units of
France, Belgium, Switzerland,
Luxemburg and certain African
countries which were the former
colonies of France and Belgium, such as
Tonesia; (ask for current equivalent
during bar review).
In the carriage of registered baggage, the
liability of the carrier is limited to a sum of two
hundred and fifty thousand francs per
kilogramme unless the passenger or consignor
has made, at the time when the package was
handed over the carrier, a special declaration of
interest (special declaration of higher value) in
delivery at destination and has paid a
supplementary sum if the carrier so requires. In
that case the carrier will be liable to pay a sum
not exceeding the declared sum unless he
proves that the sum is greater than the
passenger’s or consignor’s actual interest in
delivery at destination.
As regards objects of which the passenger takes
charge himself the liability of the carrier is
limited to five thousand francs per passenger.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

Very Very Important!!!

Article 23.Any provision (or stipulation in the passenger
ticket or baggage check or air waybill) tending to relieve
(or exempt) the carrier of liability or to fix a lower limit
than which is laid down in this Convention shall be null
and void, but the nullity of any such provision does NOT
involve the nullity of the whole contract, which shall
remain subject to the provisions of this Convention.
Article 29.The damages shall be extinguished if an action
in court is NOT brought within two (2) years, reckoned
from the date of arrival at the destination or from the
date on which the aircraft ought to have arrived (missing
aircraft) or from the date on which the carriage stopped
(e.g. in the case of emergency landing in an airport other
than the port of destination).

Article 30.In the case of carriage to be performed by

Very Very Important!!! various successive carriers, the passenger or his
representative (e.g. heir of the passenger who died), can
Article 26. take action only against the carrier who performed the
carriage during which the accident or the delay occurred,
1. Receipt by the person entitled to the delivery of save in the case where, by express agreement, the first
baggage or cargo without complaint is prima carrier has assumed liability for the whole journey.
facieevidence that the same has been delivered
in good condition and in accordance with the
document of carriage (e.g. baggage check in the
case of baggage or air waybill in the case of
cargo).

2. In the case of damage, the person entitled to

delivery must complain to the carrier forthwith
after the discovery of the damage, and, at the
latest, within seven days from the date of
receipt in the case of baggage and fourteen
days from the date of receipt in the case of
cargo. In the case of delay the complaint must
be made at the latest within twenty-one days
from the date on which the baggage or cargo
has been placed at his disposal.

3. Every complaint must be made in writing upon

the document of carriage or by separate notice
in writing dispatched within the times aforesaid.

4. Failure to make the complaint (the filing of

complaint with the carrier is a pre-requisite to
court action) within the times aforesaid, no
action shall lie against the carrier save in the
case of fraud on his part.

Memorize!!!

Article 28.An action for damages must be brought, at the

option of the plaintiff, in the territory of one of the High
Contracting Parties (member countries of the Warsaw
Convention), either before the Court having jurisdiction:

1. Where the carrier is ordinarily a resident of, or

2. Where the carrier has his principal place of
business, or
3. Where the carrier has an establishment (e.g.
branch office of the common carrier) by which
the contract has been made (normally, country
of departure), or
4. At the place of destination

Questions of procedure shall be governed by the

law of the court hearing the case.

Important!!!

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

THE NEW CENTRAL Monetary Board, composed of seven (7)

membersappointed by the President of the
BANK ACT Philippines for a term of six (6) years.

R.A. 7653
July 1993 The seven (7) members are:

a. Governor of the Bangko Sentral, who shall

Section 1. Declaration of Policy be the Chairman of the Monetary Board.

The State shall maintain a central monetary The Governor of the Bangko
authority(BSP) that shall function and operate Sentral shall be head of a department and
as an independent and accountable body his appointment shall be subject to
corporate in the discharge of its mandated confirmation by the Commission on
responsibilities concerning money, banking and Appointments;
credit.
o department – but this does NOT
o BSP is NOT under any government make the BSP an executive
agency or department including the department whose head appointed
office of the President. by the President is subject to
confirmation by the CA.
The central monetary authority established
under this Act, while being a government- o his appointment shall be subject to
owned corporation, shall enjoy fiscal and confirmation by the Commission on
administrative autonomy. Appointments – this is
unconstitutional (Article VII,
Section 16, 1987 Constitution).
Section 2. Creation of the Bangko Sentral

There is hereby established an independent b. a member of the Cabinet; and

central monetary authority, which shall be a
body corporate known as the Bangko Sentral ng c. five (5) members who shall come from the
Pilipinas (BSP). private sector.

Powers of the BSP: No member of the Monetary Board may be

reappointed more than once.
Section 3. Responsibility and Primary Objective.

1. shall provide policy directions in the areas of Section 8. Qualifications

money, banking, and credit;
The members of the Monetary Board must be:
2. shall have supervision over the operations of
banks and 1. natural-born citizens of the Philippines,

3. exercise such regulatory powers 2. at least thirty-five (35) years of age,

over the operations of finance companies and non-bank
financial institutions(such lending institutions including
pawnshops) performing quasi-banking functions, and
institutions performing similar functions.
Purposes of the law:
1. to maintain price stability conducive to a
balanced and sustainable growth of the
economy.
2. To promote and maintain monetary stability and
the convertibility of the peso into foreign
currencies.
Section 6. Composition of the Monetary Board
The powers and functions of the Bangko Sentral
shall be exercised by the BangkoSentral
3. of good moral character,
4. of unquestionable integrity,
5. of known probity and patriotism, and
6. with recognized competence in social
and economic disciplines.
Section 9. Disqualifications
A member of the Monetary Board is disqualified
from being a director, officer, employee,
consultant, lawyer, agent or stockholder of any
bank, quasi-bank or any other institution which
is subject to supervision or examination by the
Bangko Sentral if, at the time of his
appointment, he is a director, etc. of any bank,

58
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
then and in which case such member shall
resign from, and divest himself of any and all
interests in such institution before assumption
of office as member of the Monetary Board.
Section 11. Meetings
The Monetary Board shall meet at least once a
week.
The presence of four (4) members shall
constitute a quorum.
Provided, That in all cases the Governor or his
duly designated alternate shall be among the
four (4).
All decisions of the Monetary Board shall
require the concurrence of at least four (4)
members.
Section 25. Supervision and Examination
The Bangko Sentral shall have supervision over,
and conduct periodic or special examinations of,
banking institutions and quasi-banks, including
their subsidiaries and affiliates engaged in allied
activities.
o quasi-banks – finance companies,
lending institutions, pawnshops and
corporations engaged in lending
money.
Important!!!
No restraining order or injunction shall be issued
by the court enjoining the Bangko Sentral unless
1. there is convincing proof that the action of
the Bangko Sentral is plainly arbitrary and
made in bad faith and
2. the petitioner or plaintiff files with the clerk
of the court
Section 27. Prohibitions
 Personnel of the Bangko Sentral are
hereby prohibited from, among others,
borrowing from any institution subject
to supervision or examination by the
Bangko Sentral unless said borrowings
are adequately secured (with real
estate mortgage), fully disclosed to the
Monetary Board, and shall be subject
to such further rules and regulations as
the Monetary Board may prescribe.
 Provided, however, That personnel of
the supervising and examining
departments are prohibited from
borrowing from a bank under their
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supervision or examination (even if the
borrowing is adequately secured with
real estate mortgage and even if the
borrowing if fully disclosed with the
Monetary Board. The reason for this is
to avoid any possible undue influence).
o their – if outside their area, they can
borrow provided it is adequately
secured with real estate mortgage and
fully disclosed with the Monetary
Board.
Very Important!!!
BAR FAVORITE
Section 29. Appointment of Conservator
Wheneverthe Monetary Board finds that a bank
or a quasi-bank is in a state of continuing
inability or unwillingness to maintain a condition
of liquidity deemed adequate to protect the
interest of depositors and creditors, the
Monetary Board may appoint a conservator
with such powers as the Monetary Board shall
deem necessary:
1. to take charge of the assets,
liabilities, and the management
thereof
2. reorganize the management
3. collect all monies and debts due
said institution, and
4. exercise all powers necessary to
restore its viability.
o condition of liquidity – must always have
sufficient cash and/or realizable assets to
pay its liabilities as they become due.
The conservator shall report and be responsible
to the Monetary Board and shall have the power
to overrule or revoke the actions of the previous
management and board of directors of the bank
or quasi-bank.
The conservator should be competent and
knowledgeable in bank operations and
management. The conservatorship shall not
exceed one (1) year.
The Monetary Board shall terminate the
conservatorship when it is satisfied that the
institution can continue to operate on its own
and the conservatorship is no longer necessary.
The conservatorship shall likewise be
terminated should the Monetary Board
determine that the continuance in business of
the institution would involve probable loss to its
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
depositors or creditors, in which case the
provisions of Section 30 shall apply.
Very Important!!!
BAR FAVORITE
Section 30. Proceedings in Receivership and Liquidation
Wheneverthe Monetary Board finds that a bank
or quasi-bank:
a. is unable to pay its liabilities as they
become due in the ordinary course of
business (the bank is NOT liquid although it
is solvent); or
b. has insufficient realizable assets (such as
highly marketable securities) to meet its
liabilities (bank is insolvent); or
c. cannot continue in business without
involving probable losses to its depositors
or creditors; or
d. has willfully violated a cease and desist
order under Section 37 that has become
final. The Monetary Board may summarily
and without need for prior hearing:
i. forbid the institution from doing
business and
ii. designate the Philippine Deposit
Insurance Corporation as receiver of the
banking institution.
For a quasi-bank, any person of recognized
competence in banking or finance may be
designed as receiver.
Duties of a Receiver:
1. receiver shall immediately gather and take
charge of all the assets and liabilities of the
institution
2. administer the same for the benefit of its
creditors, and
3. exercise the general powers of a receiver under
the Revised Rules of Court but shall not
(because payments to depositor and/or other
creditors require court order) pay or commit any
act that will involve the transfer or disposition of
any asset of the institution.
The receiver shall determine as soon as possible,
whether the institution may be rehabilitated or
otherwise placed in such a condition so that it
may be permitted to resume business with
safety to its depositors and creditors and the
general public.
Provided, That any determination for the
resumption of business of the institution shall
60
2014
be subject to prior approval of the Monetary
Board.
If the receiver determines that the institution
cannot be rehabilitated or permitted to resume
business, the Monetary Board shall notify in
writing the board of directors of the bank under
receivership of its findings and direct the
receiver to proceed with the liquidation of the
institution.
The receiver shall:
1. File ex parte with the proper regional trial
courta petition for assistance in the liquidation
of the institution pursuant to a liquidation plan
adopted by the Philippine Deposit Insurance
Corporation for general application to all closed
banks.
Upon acquiring jurisdiction, the court
shall, upon motion of the receiver after due
notice, adjudicate disputed claims against the
institution, assist the enforcement of individual
liabilities of the stockholders, directors and
officers, and decide on other issues as may be
material to implement the liquidation plan
adopted.
2. Convert the assets of the institutions to money,
(dispose of the same to creditors and other
parties), for the purpose of paying the debts of
such institution in accordance with the rules on
concurrence and preference of credits under the
Civil Code and he mayinstitute such actions as
may be necessary to collect and recover
accounts and assets of, or defend any action
against, the institution. The assets of an
institution under receivership or liquidation shall
be deemed in custodia legis in the hands of the
receiver and shall, from the moment the
institution was placed under such receivership
or liquidation, be exempt from any order of
garnishment, levy, attachment, or execution.
o (dispose of the same to creditors and
other parties) – this is dacion en pago,
which cannot be done because
payments to creditors must be made
under order of the Court (Section 31).
The actions of the Monetary Board taken under
this section or under Section 29(appointment of
conservator) of this Act shall be final and
executory, and may not be restrained or set
aside by the court except on petition for
certiorari on the ground that the action taken
was in excess of jurisdiction or with such grave
abuse of discretion as to amount to lack or
excess of jurisdiction.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
The petition for certiorari may only be filed by
the stockholders of record representing the
majority of the capital stock within ten (10)
days from receipt by the board of directors of
the institution of the order directing
receivership, liquidation or conservatorship.
The designation of a conservator or the
appointment of a receiver shall be vested
exclusively with the Monetary Board.
Furthermore, the designation of a conservator
is not a precondition to the designation of a
receiver.
o Conservatorship is NOT a pre-requisite
to receivership.
Very Important!!!
Section 31. Distribution of Assets
In case of liquidation of a bank or quasi-bank,
after payment of the cost of proceedings,
including reasonable expenses and fees of the
receiver to be allowed by the court, the receiver
shall pay the debts of such institution, under
order of the court, in accordance with the rules
on concurrence and preference of credit as
provided in the Civil Code (and pursuant to
Section 15, R.A. 3591, which provides that all
payments by the PDIC of insured deposits in
closed bank partakes of the nature of public
funds and such may be considered as preferred
credit similar to national taxes in the order of
preference under Article 2244 of the NCC).
Section 37. Administrative Sanctions on Banks and Quasi-
banks
The Monetary Board mayimpose upon any bank
or quasi-bank, their directors and/or officers, for
any willful violation of its charter(Articles of
Incorporation) or by-laws, willful delay in the
submission of reports; refusal to permit
examination into the affairs of the institution;
any willful making of a false or misleading
statement to the Board or the appropriate
supervising and examining department or its
examiners.
The following administrative sanctions,
whenever applicable, are:
a. fines;
b. suspension of rediscounting privileges or
access to Bangko Sentral credit facilities;
c. suspension of lending or foreign exchange
operations or authority to accept new
deposits or make new investments;
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2014
d. suspension of interbank clearing privileges;
and/or
e. revocation of quasi-banking license.
The Monetary Board may, whenever warranted
by circumstances, preventively suspend any
director or officer of a bank or quasi-bank
pending an investigation.
Provided, That should the case be not finally
decided by the BSP within a period of one
hundred twenty (120) days after the date of
suspension, said director or officer shall be
reinstated to his position
The respondents shall be afforded an
opportunity to defend their action in a hearing
before the Monetary Board or any committee
chaired by any Monetary Board member, upon
request made by the respondents within five (5)
days from their receipt of the order of
suspension.
Section 42. Accounting Period or Taxable Year
The accounting period or taxable year of the
Bangko Sentral shall begin on January first and
end on December thirty-first of each year.
Section 49. Definition of Currency
The word "currency" means all Philippine notes
and coins issued or circulating in accordance
with the provisions of this Act.
Section 50. Exclusive Issue Power
The Bangko Sentral shall have the sole power
and authority to issue currency, within the
territory of the Philippines.
Section 51. Liability for Notes and Coins
Notes and coins issued by the Bangko Sentral
shall be liabilities of the Bangko Sentral and may
be issued only against, and in amounts not
exceeding, the assets of the Bangko Sentral. Said
notes and coins shall be a first and paramount
lien on all assets of the Bangko Sentral.
The Bangko Sentral's holdings of its own notes
and coins shall not be considered as part of its
currency issue and, accordingly, shall not form
part of the assets or liabilities of the Bangko
Sentral.
o holdings – not yet issued and
circulating such as newly-printed bills or
notes and newly-minted coins.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Question: X has P1billion all in P1,000
denomination. He wants to go to the USA to
permanently reside therein. He surrenders the
said P1billion to the BSP. What will X receive in
return?
Answer: X will either receive gold or US dollars
or combination of both upon the discretion of
the BSP (Sections 66 and 69).
Section 52. Legal Tender Power
All notes and coins issued by the Bangko Sentral
shall be fully guaranteed by the Government
and shall be legal tender in the Philippines for all
debts, both public and private.
Provided, however, That, unless otherwise fixed
by the Monetary Board,coins shall be legal
tender in amounts not exceeding Fifty pesos
(P50.00) for denominations of Twenty-five
centavos and above, and in amounts not
exceeding Twenty pesos (P20.00) for
denominations of Ten centavos or less.
Memorize!!!
Pursuant to BSP Circular No. 537, Series of
2006, the maximum amount of coins to be
considered as legal tender is adjusted as follows:
1. One thousand (Php1,000) for
denominations of 1-Piso, 5-Piso,
and 10-Piso coins; and,
2. One hundred pesos (Php100) for
denominations of 1-sentimo, 5-
sentimo, 10-sentimo, and 25-
sentimo coins.
QUESTION: May said circular validly amend
Section 52 of the New Central Bank Act?
ANSWER: YES, the reason is that, the Monetary
Board of the BSP has been authorized by
Congress to fix other amounts than those
specified in Section 52, when said section states:
“Provided, however, that, unless otherwise fixed
by the monetary board.”
o Bills or notes of whatever denomination
have no maximum.
o Question: A is indebted in the amount
of P1million. A is willing to pay 200,000
pieces of P5 coins, but B refuses to
accept them. Is B correct?
Answer: Yes, because P5 coins are legal
tender only up to P1,000, which means
that A can compel B to accept only 200
pieces out of the 200,000 pieces
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2014
offered by A, and the rest shall be
payable in paper bills or notes.
Section 56. Replacement of Currency Unfit for Circulation
The Bangko Sentral shall withdraw from
circulation and shall demonetize all notes and
coins which for any reason whatsoever are unfit
for circulation and shall replace them by
adequate notes and coins.
Provided, however, That the Bangko Sentral
shall not replace notes and coins the
identification of which is impossible, coins which
show signs of filing, clipping or perforation, and
notes which have lost more than two-fifths
(2/5) of their surface or all of the signatures
inscribed thereon. Notes and coins in such
mutilated conditions shall be withdrawn from
circulation and demonetized without
compensation to the bearer.
Section 57. Retirement of Old Notes and Coins
The Bangko Sentral may call in for replacement
notes of any series or denomination which are
more than five (5) years old and coins which are
more than (10) years old.
Notes and coins called in for replacement in
accordance with this provision shall remain legal
tender for a period of one (1) year from the date
of call. After this period, they shall cease to be
legal tender but during the following year, or for
such longer period as the Monetary Board may
determine, they may be exchanged at par and
without charge in the Bangko Sentral and by
agents duly authorized by the Bangko Sentral for
this purpose.
After the expiration of this latter period, the
notes and coins which have not been exchanged
shall cease to be a liability of the Bangko Sentral
and shall be demonetized.
Section 58. Definition
"demand deposits" (or checking accounts)
means all those liabilities of the BSP and of
other banks which are denominated in
Philippine currency and are subject to payment
in legal tender upon demand by the
presentation of checks.
Memorize!!!
Section 60. Legal Character
Checks representing demand deposits do not
have legal tender power and their acceptance in
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the payment of debts, both public and private, is
at the option of the creditor.
Provided, however, That a check which has been
cleared and credited to the account of the
creditor shall be equivalent to a delivery to the
creditor of cash in an amount equal to the
amount credited to his account.
Section 66. Composition of the International Reserves
The international reserves of the Bangko Sentral
may include but shall not be limited to the
following assets:
a. gold; and
b. assets in foreign currencies in the form of:
i. documents and instruments
customarily employed for the
international transfer of funds;
ii. demand and time deposits in
central banks, treasuries and
commercial banks abroad;
iii. foreign government securities; and
iv. foreign notes and coins.
Section 69. Purchases and Sales of Gold
The Bangko Sentral may buy and sell gold in any
form, subject to such regulations as the
Monetary Board may issue.
The purchases and sales of gold authorized by
this section shall be made in the national
currency at the prevailing international market
price as determined by the Monetary Board.
Section 70. Purchases and Sales of Foreign Exchange
The Bangko Sentral may engage in foreign
exchange transactions with the following
entities or persons only:
a. banking institutions operating in the
Philippines;
b. the Government, its political
subdivisions and instrumentalities;
c. foreign or international financial
institutions;
d. foreign governments and their
instrumentalities; and
e. other entities or persons which the
Monetary Board is hereby empowered
to authorize as foreign exchange
dealers.
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2014
Section 71. Foreign Asset Position of the Bangko Sentral
The Bangko Sentral shall endeavor to maintain
at all times a net positive foreign asset position
so that its gross foreign exchange assets will
always exceed its gross foreign liabilities.
NORMAL CREDIT OERATIONS
Section 82. Authorized Types of Operations
The Bangko Sentral may normally and regularly
carry on the following credit operations with
banking institutions operating in the Philippines:
a. Commercial credits. - The Bangko Sentral
may rediscount, discount, buy and sell bills
of exchange (e.g. checks), acceptances,
promissory notes and other credit
instruments with maturities of not more
than one hundred eighty (180) days from
the date of their rediscount, discount or
acquisition by the Bangko Sentral and
resulting from transactions related to:
1. the importation, exportation,
purchase or sale of readily saleable
goods and products; or
2. the storing of non-perishable
goods and products which are duly
insured and depositedin
authorized bonded warehouses.
b. Production credits. - The Bangko Sentral
may rediscount, discount, buy and sell bills,
acceptances, promissory notes and other
credit instruments having maturities of not
more than three hundred sixty (360) days
resulting from transactions related to the
production or processing of agricultural,
animal, mineral, or industrial products.
c. Other credits. - Special credit instruments
not otherwise rediscountable.
d. Advances.
Section 83. Loans for Liquidity Purposes
The Bangko Sentral may extend loans and
advances to banking institutions for a period of
not more than seven (7) days without any
collateral for the purpose of providing liquidity
to the banking system in times of need.
Section 84. Emergency Loans and Advances
In periods of national and/or local emergency or
of imminent financial panic which directly
threaten monetary and banking stability, the
Monetary Board may authorize the Bangko
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Sentral to grant extraordinary loans or advances
to banking institutions secured by assets.
Provided, That while such loans or advances are
outstanding, the debtor institution shall not,
expand the total volume of its loans or
investments.
Section 94. Reserve Requirements
In order to control the volume of money(if the
volume of money in circulation is excessive,
inflation results) created by the credit
operations of the banking system, all banks
operating in the Philippines shall be required to
maintain reserves against their deposit
liabilities.
o control the volume of money– if the
volume of money in circulation is
excessive, inflation results)
Provided, That the Monetary Board may, at its
discretion, also require all banks and/or quasi-
banks to maintain reserves against funds held in
trust(e.g. pension funds) and liabilities for
deposit substitutes as defined in this Act.
The required reserves of each bank shall be
proportional to the volume of its deposit
liabilities and shall ordinarily take the form of a
deposit in the Bangko Sentral.
Since the requirement to maintain bank
reserves is imposed primarily to control the
volume of money, the Bangko Sentral shall not
pay interest on the reserves maintained with it
unless the Monetary Board decides otherwise
as warranted by circumstances.
Section 95. Definition of Deposit Substitutes
“deposit substitutes" is an alternative form of
obtaining funds from the public, other than
deposits, through the issuance, endorsement, or
acceptance of debt instruments(e.g. bonds) for
the borrower's own account, for the purpose of
relending or purchasing of receivables and other
obligations. These instruments may include, but
need not be limited to, bankers acceptances,
promissory notes, participations, certificates of
assignment and similar instruments with
recourse, and repurchase agreements.
Section 103. Exemption from Attachment and Other
Purposes
Deposits maintained by banks with the BSP as
part of their reserve requirements shall be
exempt from attachment, garnishments, or any
other order or process of any court, government
agency or any other administrative body issued
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2014
to satisfy the claim of a party other than the
Government, or its political subdivisions or
instrumentalities.
Section 120. The Securities Stabilization Fund
There shall be established a "Securities
Stabilization Fund" which shall be administered
by the Bangko Sentral for the account of the
Government.
The operations of the Securities Stabilization
Fund shall consist of purchases and sales, in the
open market (stock exchange), of bonds and
other evidences of indebtedness issued or fully
guaranteed by the Government. The purpose of
these operations shall be to increase the
liquidity and stabilize the value of said securities
in order thereby to promote investment in
government obligations.
Section 125. Tax Exemptions
The Bangko Sentral shall be exempt for a period
of five (5) yearsfrom the approval of this Act(i.e.
1998) from all national, provincial, municipal
and city taxes, fees, charges and assessments.
Section 126. Exemption from Customs Duties
The importation and exportation by the Bangko Sentral
of notes and coins, and of gold and other metals to be
used for purposes authorized under this Act, and the
importation of all equipment needed for bank note
production, minting of coins, metal refining and other
security printing operations shall be fully exempt from all
customs duties and consular fees and from all other
taxes, assessments and charges related to such
importation or exportation.
Section 128. Prohibitions
The BSP shall not acquire shares of any kind or
accept them as collateral, and shall not
participate in the ownership or management of
any enterprise, either directly or indirectly.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

The General Banking Section 4. Supervisory Powers

Law of 2000 The operations and activities of banks shall be
subject to supervision of the Bangko Sentral.
R.A. 8791
May 23, 2000
"Supervision" shall include the following:

Section 2. Declaration Of Policy 1. The issuance of rules of, conduct or the

establishment standards of operation;
The State recognizes the vital role of banks
providing an environment conducive to the 2. The conduct of examination to
sustained development of the national economy determine compliance with laws and
and the fiduciary nature of banking that requires regulations;
high standards of integrity and performance.
3. Overseeing to ascertain that laws and
Purpose: regulations are complied with;

In furtherance thereof, the State shall promote
and maintain a stable and efficient banking and
financial system that is globally competitive,
dynamic and responsive to the demands of a
developing economy.
Section 3. Definition and Classification of Banks
4. Regular investigation which shall not be
oftener than once a year from the last
date of examination to determine
whether an institution is conducting its
business on a safe or sound basis (This
is known as the visitorial power of the
BSP which does NOT require a
complaint).

"Banks" – refer to entities engaged in the 5. Inquiring into the solvency and liquidity
lending of funds most of which are obtained in of the institution; or
the form of deposits.
6. Enforcing prompt corrective action.

o Other sources of funds of a bank are:

The BSP shall also have supervision over the
1. Borrowing from the BSP operations of and exercise regulatory powers
2. Borrowing from the PDIC over quasi-banks, trust entities and other
3. Issuance of its capital stock financial institutions which under special laws
4. Dividends from other corporation are subject to Bangko Sentral supervision.
5. Sale of foreclosed properties
6. Income from the operations of the bank
For purposes of this Act, "quasi-banks" (e.g.
finance companies and other lending
Banks shall be classified into: institutions) shall refer to entities engaged in the
borrowing of funds through the issuance,
a. Universal banks; endorsement or assignment with recourse of
debt instruments (e.g. promissory notes) or
b. Commercial banks; acceptance of deposit substitutes for purposes
of re-lending or purchasing of receivables and
c. Thrift banks, composed of: other obligations.

i. Savings and mortgage banks,

ii. Stock savings and loan Important!!!
associations, and
iii. Private development banks; Section 6. Authority to Engage in Banking and Quasi-
Banking Functions
d. Rural banks;
No person or entity shall engage in banking
e. Cooperative banks; operations or quasi-banking functions without
authority from the Bangko Sentral.
f. Islamic banks; and

g. Other banks as may be determined and Provided, however, That an entity authorized
classified by the Monetary Board of the by the Bangko Sentral to perform universal or
BSP. commercial banking functions shall likewise
have the authority to engage in quasi-banking
functions.

65
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Section 7. Examination by the Bangko Sentral
The Bangko Sentral shall, when examining a
bank, have the authority to examine an
enterprise which is wholly or majority-owned or
controlled by the bank.
Very Very Important!!!
Section 8. Organization
The Monetary Board may authorize the
organization of a bank or quasi-bank subject to
the following conditions:
1. Entity is a stock corporation;
2. Its funds are obtained from the public,
which shall mean twenty (20) or more
persons;
3. Minimum capital requirements prescribed
by the Monetary Board for each category of
banks are satisfied; and,
4. Entity must be an open or widely-held
corporation (Section 96, B.P. 68).
5. [Banks shall issue par value stocks only]
o authorize – by issuing a favorable
recommendation to the SEC that the Articles of
Incorporation of the bank is in accordance with
nd
law (Section 17, 2 par., B.P. 68) and certificate
of authority (Section 14 of this law).
Section 9. Issuance of Stocks
The Monetary Board may prescribe rules and
regulations on the types of stock a bank may
issue, including the terms thereof and rights
appurtenant thereto to determine compliance
with laws and regulations governing capital and
equity structure of banks; Provided, That banks
shall issue par value stocks only (See Section 6,
B.P. 68).
Very Important!!!
Section 10. Treasury Stocks
No bank shall purchase or acquire shares of its
own capital stock or accept its own shares as a
security for a loan, except when authorized by
the Monetary Board.
o accept its own shares as a security for a
loan – the bank cannot grant loans to
its stockholders using the latter’s shares
of stock in the bank as collateral.
Provided, That in every case the stock so
purchased or acquired shall, within six (6)
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2014
months from the time of its purchase or
acquisition, be sold or disposed of at a public or
private sale.
o stock so purchased or acquired –
treasury shares acquired by the bank
with authority from the Monetary
Board.
Section 11. Foreign Stockholdings
(1) Foreign individuals and (2) foreign non-bank
corporations may own or control up to forty
percent (40%) of the voting stock(not OCS) of a
domestic bank. This rule shall apply to Filipinos
and domestic non-bank corporations.
o An alien or Filipino citizen or non-bank
foreign corporation or non-bank
domestic corporation may own or
control up to 40% of the voting stock of
a domestic bank. But a foreign bank
may acquire up to 100% of the voting
stock of only one domestic bank
(Section 73 of this law).
The citizenship of the corporation(non-bank
corporation whether foreign or domestic) which
is a stockholder in a bank shall follow the
citizenship of the controlling stockholders of the
corporation, irrespective of the place of
incorporation (Control Test).
Section 12. Stockholdings of Family Groups of Related
Interests
Stockholdings(in a corporation or corporations
transacting business with a bank) of individuals
related to each other within the fourth degree
of consanguinity or affinity, legitimate or
illegitimate, shall be considered family groups or
related interests and must be fully disclosed in
all transactions by such corporations or related
groups of persons with the bank. (12-Ba)
Section 13. Corporate Stockholdings
Two or more corporations owned or controlled
by the same family group or same group of
persons shall be considered related interests
and must be fully disclosed in all transactions by
such corporations or related group of persons
with the bank.
o Sections 12 and 13 – the purpose or
wisdom of these provisions is to avoid
possible undue favour that a bank may
extend to said corporations, especially
if a director or officer of the bank is also
related to the family controlling said
corporations.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Section 14. Certificate of Authority to Register
The Securities and Exchange Commission shall
not register the articles of incorporation of any
bank, or any amendment thereto, unless
accompanied by a certificate of authority issued
by the Monetary Board.
Such certificate shall not be issued unless the
Monetary Board is satisfied, among others, that
the amount of capital, the financing,
organization, direction and administration, as
well as the integrity and responsibility of the
organizers and administrators reasonably assure
the safety of deposits and the public interest.
The Securities and Exchange Commission shall
not register the by-laws of any bank, or any
amendment thereto, unless accompanied by a
certificate of authority from the Bangko Sentral.
Section 15. Board of Directors
There shall be at least five (5), and a maximum
of fifteen (15) members of the board or
directors of a bank, two (2) of whom shall be
independent directors.
An "independent director" shall mean a person
other than an officer or employee of the bank,
its subsidiaries or affiliates or related interests.
o independent director – must be a
stockholder and must not be an officer
or employee of the bank where he is a
director.
Non-Filipino citizens may become members of
the board of directors of a bank to the extent of
the foreign participation in the equity of said
bank. (Sec. 7, RA 7721)
The meetings of the board of directors may be
conducted through modern technologies such
as, but not limited to, teleconferencing and
video-conferencing.
o There is no similar provision
(teleconferencing or videoconferencing)
under B.P. 68.
Section 17. Directors of Merged or Consolidated Banks
In the case of a bank merger or consolidation,
the number of directors shall not exceed
twenty-one (21).
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2014
o Provided that such number is stated in
the Articles of Merger or Articles of
Consolidation, to be filed with the SEC.
Section 18. Compensation and Other Benefits of Directors
and Officers
To protect the funds of depositors and creditors,
the Monetary Board may regulate the payment
by the bark to its directors(subject to provisions
of Section 30, B.P. 68) and officers of
compensation, allowance, fees, bonuses, stock
options, profit sharing and fringe benefits only
in exceptional cases and when the
circumstances warrant, such as but not limited
to the following:
1. When a bank is under comptrollership
or conservatorship; or
2. When a bank is found by the Monetary
Board to be conducting business in an
unsafe or unsound manner; or
3. When a bank is found by the Monetary
Board to be in an unsatisfactory
financial condition. (n)
o only in exceptional cases and when the
circumstances warrant – The Monetary
Board cannot regulate the payment of
compensation of directors and officers
in all cases and/or under any or all
circumstances because to regulate such
payment may amount to undue
interference of the management of the
bank.
Section 21. Banking Days and Hours
All banks including their branches and offices
shall transact business on all working days for at
least six (6) hours a day. In addition, banks or
any of their branches or offices may open for
business on Saturdays, Sundays or holidays for
at least three (3) hours a day.
Very Important!!!
Section 22. Strikes and Lockouts.
The banking industry is hereby declared as
indispensable to the national interest and,
notwithstanding the provisions of any law to the
contrary, any strike or lockout involving banks, if
unsettled after seven (7) calendar days shall be
reported by the Bangko Sentral to the secretary
of Labor who may assume jurisdiction over the
dispute or decide it or certify the sane to the
National Labor Relations Commission for
compulsory arbitration.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
However, the President of the Philippines may
at any time intervene and assume jurisdiction
over such labor dispute in order to settle or
terminate the same.
Important!!!
Section 23. Powers of a Universal Bank
A universal bank shall have the authority to
exercise, in addition to the powers authorized
for a commercial bank in Section 29, the powers
of an investment house as provided in existing
laws and the power to invest in non-allied
enterprises.
o investment house – engaged in
substantial investment activities similar
to holding company or investment
company.
o invest in non-allied enterprises – non-
financing activities such as investment
in oil, energy, automotive and textile
industry.
Important!!!
Section 24. Equity Investments of a Universal Bank.
A universal bank may, subject to the conditions
stated in the succeeding paragraph, invest in the
equities(or buy shares of stocks) ofallied and
non-allied enterprises as may be determined by
the Monetary Board.
Allied enterprises may either be financial(a
universal bank may buy shares of stock in thrift
and rural bank) ORnon-financial (e.g. insurance
company and real estate company selling real
estate in installment).
Except as the Monetary Board may otherwise
prescribe:
1. The total investment in equities of allied
and non-allied enterprises shall not exceed
fifty percent (50%) of the net worth of the
bank; and
2. The equity investment in any one
enterprise, whether allied or non-allied,
shall not exceed twenty-five percent (25%)
of the net worth of the bank.
Memorize!!!
As used in this Act, "net worth" shall mean the
total of the unimpaired:
o net worth – is equal to total assets
minus total liabilities.
1. paid-in capital (no. of share of stock issued
multiplied by par value per share)
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2014
2. paid-in surplus (or premium on capital stock
which is equal to no. of shares issued
multiplied by the difference between the
issue price and par value per share)
3. retained earnings (accumulated profits after
income tax of the bank not yet distributed
to the stockholders in the form of dividends)
4. net of valuation reserves (or net revaluation
increment)
o Example:20 years ago, the bank
purchased a piece of land for the
purpose of constructing a building
thereon to be used as the office of
the bank. The purchase price was
P30million but now, the appraised
value is P50million. The revaluation
increment is P20million.
Section 29. Powers of a Commercial Bank
A commercial bank shall have, in addition to the
general powers incident to corporations, all
such powers as may be necessary to carry on
the business of commercial banking such as:
a. accepting drafts and issuing letters of
credit;
b. discounting and negotiating promissory
notes, drafts, bills of exchange, and other
evidence of indebtedness (e.g. bond
indenture or bond contract);
c. accepting or creating demand deposits;
receiving other types of deposits and
deposit substitutes;
d. buying and selling foreign exchange and
gold or silver bullion;
e. acquiring marketable bonds and other debt
securities; and
f. extending credit, subject to such rules as
the Monetary Board may promulgate.
Section 30. Equity Investments of a Commercial Bank.
A commercial bank mayinvest only in
theequities of allied enterprises (universal bank
may invest in both allied and non-allied
enterprise).
The total investment in equities of allied
enterprises shall not exceed thirty-five percent
(35%)(universal bank – 50%) of the net worth of
the bark; and
The equity investment in any one enterprise
shall not exceed twenty-five percent (25%)
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
(same as universal bank) of tile net worth of the
bank.
Section 33. Acceptance of Demand Deposits
A bank(thrift, rural, cooperative or Islamic) other
than a universal or commercial bank cannot
accept or create demand deposits except upon
prior approval of, and subject to such conditions
and rules as may be prescribed by the Monetary
Board.
Section 34. Risk-Based Capital
The Monetary Board shall prescribe the
minimum ratio(ex: ratio of 2:1) which the net
worth of a bank must bear to its total risk
assets(e.g. investments in allied and non-allied
enterprises) which may include contingent
accounts (loans receivables from borrowers).
Important!!!
In case a bank does not comply with the
prescribed minimum ratio, the Monetary Board
may limit or prohibit the distribution of net
profits by such bank(the bank cannot declare
cash or property dividend) and may require that
part or all of the net profits be used to increase
the capital accounts(the bank may be required
to declare stock dividend) of the bank until the
minimum requirement has been met.
The Monetary Board may, furthermore, restrict
or prohibit the acquisition of major assets and
the making of new investments by the bank,
with the exception of purchases of readily
marketable evidence of indebtedness of the
Republic of the Philippines and of the Bangko
Sentral and any other evidences of indebtedness
or obligations the servicing and repayment of
which are fully guaranteed by the Republic of
the Philippines.
Section 35. Limit on Loans, Credit Accommodations and
Guarantees
Except as the Monetary Board may otherwise
prescribe for reasons of national interest, the
total amount of loans, credit accommodations
and guarantees as may be defined by the
Monetary Board that may be extended by a
bank to any individual, partnership, association,
corporation or other entity shall at no time
exceed twenty percent (20%) of the net worth
of such bank.
The basis for determining compliance with
single borrower limit is the total credit
commitment(the present as well as future credit
accommodations or loans) of the bank to the
borrower.
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2014
Unless the Monetary Board prescribes
otherwise, the total amount of loans, credit
accommodations and guarantees may be
increased by an additional ten percent (10%) of
the net worth of such bank provided the
additional liabilities of any borrower are
adequately secured by trust receipts, shipping
documents, warehouse receipts or other similar
documents transferring or securing title
covering readily marketable, non-perishable
goods which must be fully covered by insurance.
Section 36. Restriction on Bank Exposure to Directors,
Officers, Stockholders and Their Related Interests.
No director or officer of any bank shallborrow
from such bank nor shall he become a
guarantor, endorser or surety for loans from
such bank to others, or in any manner be an
obligor or incur any contractual liability to the
bank except with the written approval of the
majority of all the directors(not merely majority
of the directors present during the board
meeting with quorum) of the bank, excluding
the director concerned.
Dealings of a bank with any of its directors,
officers or stockholders and their related
interests shall be upon terms equal to those
offered to others.
The Monetary Board may regulate the amount
of loans, credit accommodations and guarantees
that may be extendedby a bank to its directors,
officers, stockholders and their related interests.
o extended – with written approval
of the majority of all the directors if
a borrower is a director or officer
of the bank.
However, the outstanding loans, credit
accommodations and guarantees which a bank
may extend to each of its stockholders,
directors, or officers and their related interests,
shall be limited to an amount equivalent to their
respective unencumbered deposits(e.g. time
deposits which are not pre-terminable or cannot
be withdrawn before the arrival of the period
agreed upon) and book value of their paid-in
capital contribution in the bank
Provided, however, That loans, credit
accommodations and guarantees secured by
assets9e.g. real estate mortgage) considered as
non-risk by the Monetary Board shall be
excluded from such limit
Section 37. Loans and Other Credit Accommodations
Against Real Estate (Real Estate Mortgage)
Loans and other credit accommodations against
real estate(lands) shall not exceed seventy-five
percent (75%) of the appraised value of the
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respective real estate security, plus sixty
percent (60%) of the appraised value of the
insured improvements, and such loans may be
made to the owner of the real estate or to his
assignees.
o If a person will mortgage his real
property to the bank to secure the
indebtedness of another person,
the law (R.A. 8791) requires that
the former shall execute a deed of
assignment of his real property in
favor of the latter (borrower).
o Under Article 2085 of the NCC, the
owner of the real property used to
secure the indebtedness of another
person, deed of assignment is NOT
required if the lender or creditor is
not a bank. In this case, the
mortgagor is the real property
owner, not the borrower.
Section 38. Loans And Other Credit Accommodations on
Security of Chattels (e.g. personal property) and
Intangible Properties
Loans and other credit accommodations on
security of chattels and intangible properties
such as, but not limited to, patents, trademarks,
trade names, and copyrights shall not
exceedseventy-five percent (75%) of the
appraised value of the security, an such loans
and other credit accommodation may be made
to the title-holder of the chattels and intangible
properties or his assignees.
Section 39. Grant and Purpose of Loans and Other Credit
Accommodations
The purpose of all loans and other credit
accommodations shall be stated in the credit
application and in the contract of loan between
the bank and the borrower. If the bank finds
that the proceeds of the loan or other credit
accommodation have been employed, without
its approval, for purposes other than those
agreed upon with the bank, it shall have the
right to terminate the loan or other credit
accommodation and demand immediate
repayment of the obligation.
o If the interest has been deducted in
advance by the bank, it is believed that
the borrower shall pay the principal
amount of the loan in case of pre-
termination.
Section 45. Prepayment of Loans and Other Credit
Accommodations
A borrower may at any time prior to the agreed
maturity date prepay, in whole or in part, the
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2014
unpaid balance of any bank loan and other
credit accommodation, subject to such
reasonable terms(e.g. the adjustment of
interest) and conditions as may be agreed upon
between the bank and its borrower.
o This is an exception to the rule under
the NCC that when the period is
established for the benefit of both the
debtor and creditor, neither may
compel the performance before the
arrival of the period.
Very Very Important!!!
BAR FAVORITE
Section 47. Foreclosure of Real Estate Mortgage
In the event of foreclosure, whether judicially or
extra-judicially, of any mortgage on real estate,
the mortgagor/debtor whose real property has
been sold for the full or partial payment of his
obligation shall have the right within one year
after the sale of the real estate, to redeem the
property by paying the amount due under the
mortgage deed, with interest thereon at rate
specified in the mortgage, and all the costs and
expenses incurred by the bank or institution
from the sale and custody of said property less
the income derived therefrom.
o extra-judicially – extra-judicial
foreclosure is allowed only if there is
express agreement between the
borrower and the bank, and the
borrower executes a Special Power of
Attorney to sell the real property at
public auction in favor of the bank.
o within one year after the sale – it has
been the consistent ruling of the SC that
one year redemption period is from the
registration of the certificate of
provisional deed of sale or the
certificate of foreclosure with the ROD,
and NOT from the date of the auction
sale.
o custody of said property – the bank is
authorized to take possession of the
real property during the redemption
period if the bank is the purchaser at
the auction sale.
o Under the Rules of Court, in case of
judicial foreclosure of real property
mortgaged, the mortgagor/debtor has
no right of redemption, and he only has
equity of redemption which he can
exercise within the period fixed by the
Court.
o Under this law, judicial foreclosure of
real property mortgaged entitles the
mortgagor/debtor to his right of
redemption of one year.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
o If the mortgagee is a bank, apply this
law. And if the mortgagee is NOT a
bank, apply the Rules of Court.
However, the purchaser at the auction sale
concerned whether in a judicial or extra-judicial
foreclosure shall have the right to enter upon
and take possession of such property
immediately after the date of the confirmation
of the auction sale and administer the same in
accordance with law.
Juridical person whose property is sold pursuant
to an extrajudicial foreclosure, shall have the
right to redeem the property in accordance with
this provision (by paying the amount due) until,
but not after, the registration of the certificate
of foreclosure sale with the applicable Register
of Deeds which in no case shall be more than
three (3) months after foreclosure, whichever is
earlier.
o If the mortgagor/debtor is a natural
person, the redemption period is always
one year, whether the foreclosure is
judicial or extrajudicial.
o If the mortgagor/debtor is a juridical
person, the redemption period is also
one year if the foreclosure is also
judicial.
o If the foreclosure is extrajudicial, the
real property may be redeemed within
3 months from foreclosure sale and
until the registration of certificate of
foreclosure sale whichever comes
earlier.
Section 51. Ceiling on Investments in Certain Assets
o This provision is another example of personal
property in nature but is made real property by
law.
Any bank may acquire real estate as shall be
necessary for its own use in the conduct of its
business.
Provided, however, That the total investment in
such real estate and improvements thereof
including bank equipment, shall not exceed fifty
percent (50%) of combined capital accounts (net
worth or net assets).
Provided, further, That the equity
investment(shares of stock purchased by the
bank from another corporation) of a bank in
another corporation engaged primarily in real
estate shall be considered as part of the bank's
total investment in real estate.
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2014
Section 52. Acquisition of Real Estate by Way of
Satisfaction of Claims
Notwithstanding the limitations of the
preceding Section, a bank may acquire, hold or
convey real property:
1. Such as shall be mortgaged(and
subsequently foreclosed by the bank) to it in
good faith by way of security for debts.
2. Such as shall be conveyed to it in
satisfaction of debts(dacion en pago)
previously contracted in the course of its
dealings, or
Very Important!!!
3. Such as it shall purchase at sales under
judgments (execution sale), decrees,
mortgages, or trust deeds held by it and
such as it shall purchase to secure debts
due it.
 purchase – during auction sale of
real property which is not
mortgaged to the bank, and the
bank is the highest bidder)
o The enumerated real properties here
are not included in determining the
maximum 50% as investment in real
property under Section 51.
Any real property acquired or held under the
circumstances enumerated in the above
paragraph shall be disposed of by the bank
within a period of five (5) years or as may be
prescribed by the Monetary Board
Provided, however, That the bank may, after
said period, continue to hold the property for its
own use, subject to the limitations of the
preceding Section. (25a)
Section 53. Other Banking Services
In addition to the operations specifically
authorized in this Act, a bank may perform the
following services:
1. Receive in custody funds (e.g. pension
fund or employee’s trust fund),
documents and valuable objects (to be
kept in safety deposit boxes);
2. Act as financial agent and buy and sell,
by order of and for the account of their
customers, shares, evidences of
indebtedness and all types of securities
(Banks are considered dealers in
securities under the NIRC);
3. Make collections and payments for the
account of others;
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
4. Act as managing agent, adviser,
consultant or administrator of
investment
management/advisory/consultancy
accounts; and
5. Rent out safety deposit boxes (contract
of special deposit NOT contract of
lease).
The bank shall perform the services permitted
under Subsections 1., 2.,3.,and 4. (Subsection 5
is not included because it is deemd included in
subsection 1) as depositary or as an agent.
In case a bank or quasi-bark notifies the Bangko
Sentral or publicly announces a bank holiday
(temporary suspension of bank withdrawals), or
in any manner suspends the payment of its
deposit liabilities continuously for more than
thirty (30) days, the Monetary Board may
summarily and without need for prior hearing
close such banking institution and place it under
receivership of the Philippine Deposit Insurance
Corporation.
Section 54. Prohibition to Act as Insurer
A bank shall not directly engage in insurance
business as the insurer.
Section 55. Prohibited Transactions.
No director, officer, employee, or agent of any
bank shall -
Memorize!!!
 Without order of a court of competent
jurisdiction, disclose to any unauthorized
person any information relative to the
funds or properties in the custody of the
bank belonging to private individuals,
corporations, or any other entity:
Provided, That with respect to bank
deposits, the provisions of existing laws
shall prevail;
 existing laws:
1. law on secrecy of bank deposits
(Sections 2 and 3, R.A. 1405);
2. NIRC (Sections 6[F]);
3. PDIC (Section 8[8]).
 Accept gifts, fees, or commissions or any
other form of remuneration in connection
with the approval of a loan or other credit
accommodation from said bank;
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2014
No borrower of a bank shall offer any director,
officer, employee or agent of a bank any gift,
fee, commission, or any other form of
compensation in order to influence such
persons into approving a loan or other credit
accommodation application.
Important!!!
Section 57. Prohibition on Dividend Declaration
No bank or quasi-bank shall declare dividends, if
at the time of declaration:
1. Its clearing account with the Bangko Sentral
is overdrawn; or
2. It is deficient in the required liquidity floor
for government deposits for five (5) or more
consecutive days, or
3. It does not comply with the liquidity
standards/ratios prescribed by the Bangko
Sentral; or
4. It has committed a major violation.
Section 61. Publication of Financial Statements
Every bank, quasi-bank or trust entity, shall
publish a statement of its financial condition [or
balance sheet] (should have been “financial
statements”), at least once every quarter in a
newspaper of general circulation in the city or
province where the principal office is located.
The Monetary Board may allow the posting of
the financial statements of a bank, quasi-bank
or trust entity in public places it may determine,
in lieu of the publication required in the
preceding paragraph, when warranted by the
circumstances.
Section 64. Unauthorized Advertisement or Business
Representation
No association or corporation unless duly
authorized to engage in the business of a bank,
quasi-bank, trust entity, shall advertise or hold
itself out as being engaged in the business of
such bank, quasi-bank, trust entity, or
association, or use in connection with its
business title, the word or words "bank",
"banking", "banker", "quasi-bank", "quasi-
banking", "quasi-banker", "trust corporation",
"trust company" or words of similar import or
transact in any manner the business of any such
bank, corporation or association.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Section 66. Penalty for Violation of this Act
Violation of any of the provisions of this Act
shall be subject to Sections 34, 35, 36 and 37 of
the New Central Bank Act.
If the offender is a director or officer of a bank,
quasi-bank or trust entity, the Monetary Board
may also suspend or remove such director or
officer.
If the violation is committed by a corporation,
such corporation may be dissolved by quo
warranto proceedings instituted by the Solicitor
General. (87)
Section 67. Conservatorship
The grounds and procedures for placing a bank
under conservatorship, as well as, the powers
and duties of the conservator appointed for the
bank shall be governed by the provisions of
Section 29 and the last two paragraphs of
Section 30 of the New Central Bank Act.
Important!!!
Section 68. Voluntary Liquidation
In case of voluntary liquidation of any bank
organized, written notice of such liquidation
shall be sent to the Monetary Board and before
such liquidation is undertaken, the Monetary
Board shall have the right to intervene and take
such steps as may be necessary to protect the
interests of creditors.
Section 69. Receivership and Involuntary Liquidation
The grounds and procedures for placing a bank
under receivership or liquidation, as well as the
powers and duties of the receiver or liquidator
appointed for the bank shall be governed by the
provisions of Sections 30, 31, 32, and 33 of the
New Central Bank Act.
Section 73. Acquisition of Voting Stock in a Domestic
Bank (See Section 11)
Within seven (7) years from the effectivity of
this act, the Monetary Board may authorize a
foreign bankto acquire up to one hundred
percent (100%) of the voting stock(not
authorized capital stock) of only one (1) bank
organized under the laws of the Republic of the
Philippines.
The Monetary Board shall adopt measures as
may be necessary to ensure that at all times the
control of seventy percent (70%) of the
resources or assets of the entire banking system
is held by banks which are at least majority-
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2014
owned by Filipinos. Any right, privilege or
incentive granted to a foreign bank under this
Section shall be equally enjoyed by and
extended under the same conditions to banks
organized under the laws of the Republic of the
Philippines.
Section 75. Head Office Guarantee
In order to provide effective protection of the
interests of the depositors and other creditors
of Philippine branches of a foreign bank, the
head office of such branches shall fully
guarantee the prompt payment of all liabilities
of its Philippine branch.
Residents(Resident Alien) andcitizens(Resident
or Non-resident) who are creditors of a branch
in the Philippines of a foreign bank shall have
preferential rights to the assets of such branch
in accordance with the existing laws.
Section 76. Summons and Legal Process
Summons and legal process served upon the
Philippine agent or head of any foreign bank
designated to accept service thereof shall give
jurisdiction to the courts over such bank, and
service of notices on such agent or head shall be
as binding upon the bank which he represents
as if made upon the bank itself.
Section 79. Authority to Engage in Trust Business
Only a stock corporation or a person(an individual or
partnership cannot be authorized to engage in trsut
business) duly authorized by the Monetary Board to
engage in trust business shall act as a trustee or
administer any trust or hold property in trust or on
deposit for the use, benefit, or behoof(profit) of others.
For purposes of this Act, such a corporation shall be
referred to as a trust entity.
Section 80. Conduct of Trust Business
No trust entity shall, for the account of the
trustor or the beneficiary of the trust, purchase
or acquire property from, or sell, transfer,
assign, or lend money or property to, or
purchase debt instruments of, any director,
officer, stockholder, or employee of the trust
entity, relative within the first degree of
consanguinity or affinity, or the related
interests, of such directors, officers and
stockholders, unless the transaction is
specifically authorized by the trustor and the
relationship of the trustee and the other party
involved in the transaction is fully disclosed to
the trustor or beneficiary of the trust prior to
the transaction.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

o This is to prevent fraudulent
transaction to the prejudice of the
trustor and/or the beneficiary.
Section 81. Registration of Articles of Incorporation and
By-Laws of a Trust Entity
The Securities and Exchange Commission shall
not register the articles of incorporation and by-
laws or any amendment thereto, of any trust
entity, unless accompanied by a certificate of
authority issued by the Bangko Sentral.
Section 94. Phase Out of Bangko Sentral Powers Over
Building and Loan Associations
Within a period of three (3) years from the
effectivity of this Act, the Bangko Sentral shall
phase out and transfer its supervising and
regulatory powers over building and loan
associations to the Home Insurance and
Guaranty Corporation which shall assume the
same.

Section 82. Minimum Capitalization

A trust entity, before it can engage in trust or

other fiduciary business, shall comply with the
minimum paid-in capital requirement which will
be determined by the Monetary Board.

Section 84. Deposit for the Faithful Performance of Trust

Duties

Before transacting trust business, every trust

entity shall deposit with the Bangko Sentral, as
security for the faithful performance of its trust
duties, cash or securities approved by the
Monetary Board in an amount equal to or not
less than Five hundred thousand pesos
(P500,000.00) or such higher amount as may
fixed by the Monetary Board.

Provided, however, That the Monetary Board

shall require every trust entity to increase the
amount of its cash or securities on deposit with
the Bangko Sentral in accordance with the
provisions of this paragraph.

Section 85. Bond of Certain Persons for the Faithful

Performance of Duties

Before an executor, administrator, guardian,

trustee, receiver or depositary appointed by the
court enters upon the execution of his duties, he
shall, upon order of the court, file a bond in such
sum as the court may direct.

Section 87. Separation of Trust Business from General

Business

The trust business and all funds, properties or

securities received by any trust entity as
executor, administrator, guardian, trustee,
receiver, or depositary shall be kept separate
and distinct from the general business(such as
banking business) including all other funds,
properties, and assets of such trust entity. The
accounts of all such funds, properties, or
securities shall likewise be kept separate and
distinct from the accounts of the general
business of the trust entity.

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LAW ON SECRECY OF BANK Section 3. (See Section 55, R.A. 8791)

DEPOSITS It shall be unlawful for any official or employee
of a banking institution to disclose to any
R.A. 1405 person other than those mentioned in Section
two hereof any information concerning said
deposits.
Policy and Purposes of the Law:

Section 1.

1. It is hereby declared to be the policy of the

Government to give encouragement to the
people to deposit their money(Philippine
Currency) in banking institutions and

2. to discourage private hoarding so that the same

may be properly utilized by banks in authorized
loans to assist in the economic development of
the country.

Memorize!!!

Section 2.

All deposits(Philippine Currency) of whatever

nature with banks or banking institutions in the
Philippines including investments in bonds
issued by the Government of the Philippines, its
political subdivisions and its instrumentalities,
are hereby considered as of an absolutely
confidential nature and may not be examined,
inquired or looked into by any person,
government official, bureau or office, except:

1. upon written permission of the

depositor, or

2. in cases of impeachment, or

3. upon order of a competent court in

cases of bribery or dereliction of duty
of public officials, or

4. in cases where the money deposited or

invested is the subject matter of the
litigation, or

5. in the case of a decedent to determine

his gross estate or in the case of a
taxpayer who has filed an application
for the compromise of his tx liability by
reason of financial incapacity (waiver in
writing is required in the latter case)
where the CIR is authorized to inquire
into bank deposits (Section 6[F], NIRC),
or

6. PDIC is authorized to inquire or

examine deposit accounts of a bank
which is found to be engaged in unsafe
or unsound banking practice (Section
8[8], R.A. 3591).

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

THE CHATTEL o Paras is of the opinion that the

registration or recording in the
MORTGAGE LAW CMR is necessary for the validity of
ACT NO. 1508 the chattel mortgage contract even
August 1, 1906 as between the parties. However,
in the case of Lara vs. Mayona
(May 10, 1955), the SC ruled that
The Chattel Mortgage Law (CML) primarily an unregistered and unrecorded
governs the chattel mortgages. Chattel Mortgage is valid and
binding upon the parties but void
However, the provisions of the New Civil Code as to innocent third persons.In fact,
[NCC] (Article 2141) “on pledge insofar as they Article 2125 of the NCC expressly
are not in conflict with the CML, shall be provide this.
applicable to chattel mortgages.”
Chattel Mortgage vs. Pledge
In case there is a conflict between the provisions
of the CML and the NCC, the provisions of the CHATTEL MORTGAGE PLEDGE
former (CML) shall prevail and apply except Recorded in the CMR The movable, instead
Section 4 herein. of being recorded, is
delivered to the
Memorize!!! creditor (pledgee) or
Chattel Mortgage – is an accessory contract third person
whereby a personal property is recorded in the
Chattel Mortgage Register (CMR) as a security Consent of the Consent of the
for the performance of an obligation. mortgagee to sell the pledgee to sell the
thing mortgaged must thing pledged need
be in writing and not be in writing but
Very Important!!! annotated on the back may be oral.
of the mortgaged
Requisites of Chattel Mortgage: instrument

1. It be constituted to secure the fulfilment of Aside from other There is no

a principal obligation (usually a contract of formal requirements, requirement that the
loan); mortgagor must pledger execute such
execute an affidavit of affidavit, but in order
2. Mortgagor be the absolute owner of the good faith in order to affect third
thing mortgaged; that the mortgage persons, a description
shall be valid against of the thing pledged
o The mortgagor need NOT be the third persons. and the date of the
debtor except under R.A. 8791 pledge must a appear
(General banking Law of 2000) in a public instrument.
Memorize the distinctions below!!!
o If the mortgagee is a bank, the BAR Favorite
mortgagor must always be the In case of the The pledgee is entitled
debtor; and if the personal foreclosure of the to the entire proceeds
property to be used as collateral is thing mortgaged, the of the sale of the thing
owned by another person, such mortgagee is NOT pledged even if it
person must execute a deed of entitled to the entire exceeds the amount
assignment in favor of the debtor. proceeds of the sale of of the debt, interest
the thing mortgaged and incidental
o If the mortgagee is NOT a bank, but only to an amount expenses unless it is
the debtor need NOT be the thereof sufficient to otherwise agreed.
mortgagor. pay the mortgage
debt, interest and
3. Persons constituting the mortgage have the incidental expenses.
free disposal of their property and, in the
absence thereof, they be legally authorized Mortgagee is Pledgee is NOT
for the purpose; correspondingly entitled to recover
entitled to recover any deficiency,
4. Object be personal or movable property;
deficiency except notwithstanding any
and, under Article 1484 of stipulation to the
the Recto Law where, contrary.
5. In order to be binding against third persons,
in the event the seller
that the mortgage be recorded in the CMR.
of the personal
property in installment

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foreclosed the chattel

mortgage, the seller/ 1. Whether the mortgagor
mortgagee is NOT is natural or juridical, if
entitled to recover the foreclosure is
deficiency, even if extrajudicial, the
there is contrary redemption period is 1
agreement. year.

2. Whether the mortgagor

SIMILARITIES of Chattel Mortgage and Pledge is a natural or juridical
person, if the foreclosure
o The subject matter of both pledge and is judicial, there is no
chattel mortgage is personal or movable right of redemption. The
property. mortgagor may redeem
the property after
o In both, the mortgagor or pledgor CANNOT judicial sale but before
sell the thing mortgaged or pledged judicial confirmation of
without the consent of the mortgagee or sale, between the period
pledgee. of 90 to 120 days from
the entry of judgment.

Chattel Mortgage vs. Real Estate Mortgage

CHATTEL REAL ESTATE Sec. 2. All personal property shall be subject to “chattel
MORTGAGE MORTGAGE mortgage”.
Mortgagor Mortgagor can alienate the
cannot alienate thing mortgaged without The parties to a contract may by agreement
the thing the consent of the treat as personal property that which by nature
mortgaged mortgagee, and any would be real property, as long as no interest of
without the stipulation prohibiting such third parties would be prejudiced thereby.
written consent alienation is void.
of the mortgagee
annotated on the Sec. 4. Validity
back of the
mortgage A chattel mortgage shall not be valid against any
person except the mortgagor, his executors or
Prevention of the In real estate Mortgage: administrators and the mortgagee, unless(the
rd
sale of the thing chattel mortgage is valid against 3 persons) the
mortgaged may A. If the mortgagee is a mortgage is recorded in the Chattel Mortgage
be made only bank: Register of the Office of the Register of Deeds of
before the sale the province in which the mortgagor resides at
thereof. 1. If the mortgagee is a the time of making the same, or, if he resides
natural person, the without the Philippine Islands, in the province in
redemption period is which the property is situated.
always 1 year whether
the foreclosure is judicial
or extra-judicial; If the property is situated in a different province
from that in which the mortgagor resides, the
2. If the mortgagor is a mortgage shall be recorded in the office of the
juridical person, the register of deeds of both the province in which
redemption period is 1 the mortgagor resides and that in which the
year if the foreclosure is property is situated.
judicial. If the foreclosure
is extrajudicial, the real
property may be o If the movable, instead of being
redeemed within 3 recorded, is delivered to the creditor or
months from the to a third person, the contract is a
foreclosure sale or until pledge and not a chattel mortgage.
the registration of the
certificate of foreclosure, o If the chattel mortgage is not recorded,
whichever comes earlier the mortgage is nevertheless binding
(Sec. 47, R.A. 8791) between the parties (Article 2125,
NCC).

B. If the mortgagee is NOT

a bank:

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Important for purposes of legal forms:
FORM OF CHATTEL MORTGAGE AND AFFIDAVIT.
"This mortgage made this ____ day of ______19____ by
_______________, a resident of the municipality of
______________, Province of ____________, Philippine Islands
mortgagor, to ____________, a resident of the municipality of
___________, Province of ______________, Philippine Islands,
mortgagee, witnesseth:
"That the said mortgagor hereby conveys and mortgages to the
said mortgagee all of the following-described personal property
situated in the municipality of ______________, Province of
____________ and now in the possession of said mortgagor, to
wit:
(Here insert specific description of the property mortgaged.)
"This mortgage is given as security for the payment to the said
______, mortgagee, of promissory notes for the sum of
____________ pesos, with (or without, as the case may be)
interest thereon at the rate of ___________ per centum per
annum, according to the terms of __________, certain
promissory notes, dated _________, and in the words and
figures following (here insert copy of the note or notes
secured).
"(If the mortgage is given for the performance of some other
obligation aside from the payment of promissory notes,
describe correctly but concisely the obligation to be
performed.)
"The conditions of this obligation are such that if the
mortgagor, his heirs, executors, or administrators shall well and
truly perform the full obligation (or obligations) above stated
according to the terms thereof, then this obligation shall be
null and void.
"Executed at the municipality of _________, in the Province of
________, this _____ day of 19_____
____________________
(Signature of mortgagor.)
"In the presence of
"_________________
"_________________
(Two witnesses sign here.)
FORM OF OATH.
"We severally swear that the foregoing mortgage is made
for the purpose of securing the obligation specified in the
conditions thereof, and for no other purpose, and that
the same is a just and valid obligation, and one not
entered into for the purpose of fraud."
FORM OF CERTIFICATE OF OATH.
"At ___________, in the Province of _________, personally
appeared ____________, the parties who signed the foregoing
affidavit and made oath to the truth thereof before me.
"_____________________________"
(Notary public, justice of the peace, 1 or other officer, as the
case may be.)
o Form of Oath is also known as the affidavit of
good faith.
o The special affidavit of good faith is not
necessary for the validity of the chattel
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2014
mortgage itself, but only to give it a preferential
status.
Sec. 7. Descriptions of property
If growing crops be mortgaged the mortgage
may contain an agreement stipulating that the
mortgagor binds himself properly to tend, care
for and protect the crop while growing, and
faithfully and without delay to harvest the same,
and that in default of the performance of such
duties the mortgage may enter upon the
premises, take all the necessary measures for
the protection of said crop, and retain
possession thereof and sell the same, and from
the proceeds of such sale pay all expenses
incurred in caring for, harvesting, and selling the
crop and the amount of the indebtedness or
obligation secured by the mortgage, and the
surplus thereof, if any shall be given to the
mortgagor or those entitled to the same.
A chattel mortgage shall be deemed to cover
only the property described therein and not like
or substituted property thereafter acquired by
the mortgagor and placed in the same
depository as the property originally mortgaged,
anything in the mortgage to the contrary
notwithstanding.
o This provision does NOT apply to stores
or groceries.
Sec. 13.
When the condition of a chattel mortgage is
broken, a mortgagororperson holding a
subsequent mortgage, or a subsequent
attaching creditor may prevent the sale thereof
the same by paying or delivering to the
mortgagee the amount due on such mortgage
and the reasonable costs and expenses incurred
by such breach of condition before the sale
thereof.
o condition of a chattel mortgage is
broken– the principal debtor failed to
pay the mortgage indebtedness.
o mortgagor – not the principal debtor
and in this case, the mortgagee is NOT
a bank.
o person holding a subsequent mortgage
– junior mortgagee or second
mortgagee.
Sec. 14. Sale of property at public auction; Officer's
return; Fees; Disposition of proceeds
The mortgageemay, after thirty days from the
time the condition is broken, cause the
mortgaged property, to be sold at public auction
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
by a public officer at a public place in the
municipality where the mortgagor resides, or
where the property is situated, provided:
1. at least ten days' notice of the time, place,
and purpose of such sale has been posted
at two or more public places and
2. the mortgageeshall notify the mortgagor or
person holding under him(e.g. agent or
trustee or depositary) and the persons
holding subsequent mortgages(junior
mortgagee) of the time and place of saleat
least ten days previous to the sale.
o public officer:
1. sheriff
2. notary public
3. mortgagee when the chattel
mortgage contract contains a
stipulation to that effect.
Memorize!!!
The proceeds of such sale shall be applied to the
payment, first, of the costs and expenses of
keeping and sale, and then to the payment of
the demand or obligation secured by such
mortgage, and the residue shall be paid to
persons holding subsequent mortgages in their
order, and the balance, after paying the
mortgages, shall be given to the mortgagor or
person holding under him on demand.
Mortgagee has right to possession of property
upon default
o When default occurs and the creditor
desires to foreclose, he must necessarily
take the mortgaged property into his
hands; and his right to do this is clearly
implied in the provision which gives the
right to sell.
o As will be seen, this provision supposes
that the creditor has possession of the
mortgaged property, for the power to
sell imports a power to make delivery of
the thing sold to the purchaser; and
without actual possession, delivery
would be impossible.
Default does NOT vest ownership in mortgagee
o The creditor has no right to appropriate
to himself the personal property
mortgaged nor can he make payment
to himself for his own credit with the
value of the said property, because he
is only permitted to recover his credit
from the proceeds of the sale at public
auction of the mortgaged property in
accordance with law.
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2014
o Therefore, the mortgagor’s default
does NOT operate to vest in the
mortgagee the ownership of the
mortgaged property, for any such effect
is against public policy.
Mortgagee cannot take possession of property
by force
o Where, however, the debtor refuses to
yield up the property, the creditor must
institute an action, either to effect a
judicial foreclosure directly or to secure
possession (he must file an action for
recovery of personal property) as
preliminary to the sale contemplated in
the provision above quoted. He cannot
lawfully take the property by force
against the will of the debtor.
Sheriff cannot take possession of property by
force
o The sheriff or other officer proceeding
under the authority from Section 14 of
CML becomes pro hac vice the mare
agent of the creditor.
Place of Sale of thing mortgaged
o Unless the mortgagor otherwise
agrees, the foreclosure sale should be
conducted in the municipality where
the mortgagor lives, or where the
mortgaged property is situated.
o A mortgagee cannot, without the
consent of the mortgagor, legally
remove the property to another
municipality or province for the purpose
of selling it.
Effect of Sale in a different place where parties
stipulate the place
o The sale of the mortgaged car by the
sheriff which took place in the
municipality of Legazpi and not in the
municipality of Tabaco where the
mortgagor resided, was not in violation
of Section 14 of Act No. 1508, there
being a stipulation in the chattel
mortgage contract for mortgagee to
remove it to the place f its residence,
and there foreclose it.
Sale without ten day notice void
o Where the foreclosure sale scheduled
for November 10 was advertised on
November 1and the sale actually took
place on November 7, without previous
notice and without opportunity for the
mortgagor to bid, the sale, which was
held without the ten days prior notice
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

to the mortgagor must be declared null

and void.

Right of chattel mortgagee superior to that of

subsequent judgment of attaching creditor

o The right of a judgment or attaching

creditor who acquires or purchases
mortgaged property at public auction
after execution cannot be superior to
that of the creditor who has in his favor
an instrument of mortgaged executed
with the formalities of the law, in good
faith and without the least indication of
fraud.

Memorize!!!

Mortgagee has right to recover deficiency

o If in the case of the foreclosure of a

chattel mortgage a deficiency exists, an
independent action (collection of sum
of money) may be instituted for the
recovery of such deficiency except
under Article 1484 of the NCC whereby
the foreclosure of chattel mortgage
over personal property sold in
installment where the seller/
mortgagee opted the remedy of
foreclosure and any agreement to the
contrary is void.

o In pledge, the pledgee has no right to

recover deficiency and any stipulation
to the contrary is void.

No right to deficiency in installment sales and

leases under Articles 1484, 1485, NCC

o Under Article 1484, in a contract of sale

of personal property the price of which
is payable in installment, the vendor
may “foreclose the chattel mortgage on
the thing sold, if one has been
constituted, should the vendee’s failure
to pay cover two or more installments.
In this case, he shall have no further
action against the purchaser/
mortgagor to recover any unpaid
balance of the price. Any agreement to
the contrary shall be void.”

In installment sales, where mortgagee does NOT

choose to foreclose, he is entitled to deficiency
(the seller/ mortgagee exercises the remedy of
specific performance).

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ACT NO. 3135
Approved: March 6, 1924
REAL ESTATE MORTGAGE LAW
SECTION 1. When a sale (auction sale) is made under a
special power (to foreclose extrajudicially) inserted (or
incorporated) in or attached to any real-estate
mortgage contract, the provisions of the following
sections shall govern as to the manner in which the
sale and redemption shall be effected, whether or not
provision for the same is made in the power.
mortgage may redeem the same at any time within the
term of one year (except if the mortgagor is a juridical
person and the mortgagee is a bank) from and after
the date of the sale;
SECTION 7. In any sale made under the provisions of
this Act, the purchaser (at the auction sale) may
petition the Court [RTC] (under R.A. 8791, this is not
required) to give him possession thereof during the
redemption period, furnishing bond in an amount
equivalent to the value of the use of the property for a
period of twelve months.

SECTION 2. Said sale cannot be made legally outside of

the province in which the property sold is situated; and
in case the place within said province in which the sale
is to be made is subject to stipulation, such sale shall
be made in said place or in the municipal building of
the municipality in which the property or part thereof
is situated.

o If there is no stipulation in the mortgage

contract for the specific place where the
property will be sold.

SECTION 3. Notice (of auction sale) shall be given by

posting notices of the sale for not less than twenty
days in at least three public places of the municipality
or city where the property is situated, and if such
property is worth (FMV) more than four hundred
pesos, such notice shall also be published once a week
for at least three consecutive weeks in a newspaper of
general circulation in the municipality or city.

o In judicial foreclosure when the assessed value

[FMV x assessment level] exceeds P50,000
publication is required (Rule 39, Section 15[c]

SECTION 4. The sale shall be made at public auction,

between the hours or nine in the morning and four in
the afternoon; and shall be under the direction of the
sheriff of the province, the justice or auxiliary justice
(municipal judge) of the peace or a notary public.

SECTION 5. At any sale, the creditor (mortgagee)

authorized to act for the creditor, may participate in
the bidding unless the contrary has been expressly
provided in the mortgage or trust deed under which
the sale is made.

SECTION 6. In all cases in which an extrajudicial sale is

made the debtor (may or may not be the mortgagor
except if the mortgagee is a bank in which case, the
mortgagor and the debtor must be the same person),
his successors (such as heirs or assigns) in interest or
any judicial creditor or judgment creditor of said
debtor, or any person having a lien on the property
(second or junior mortgagee) subsequent to the

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REPUBLIC ACT No. 3765 the transaction but which are not incident to the
June 22, 1963 extension of credit;

(5) total amount (installment price minus down

TRUTH IN LENDING ACT
payment and trade-in value) to be financed;

(6) finance charge (installment price minus cash

Purpose of the law:
price); and
Section 2. Declaration of Policy. It is hereby declared to
Very Very Important!!!
be the policy of the State to protect its citizens from a
lack of awareness of the true cost of credit to the user by
(7) percentage that the finance charge bears to
assuring a full disclosure of such cost with a view of
the total amount to be financed expressed as a
preventing the uninformed use of credit to the detriment
simple annual rate (This is called “cost of
of the national economy.
credit”).

o Problem: A and B entered into a contract to sell

Section 3. As used in this Act, the term
a machinery with a cash price of P3 million. The
installment price shall be payable by B in two (2)
(1) "Board" means the Monetary Board of the
years. B gave a down payment of P500,000 and
BSP.
he traded in his old machinery with a trade-in
allowance of P300,000. Compute the cost of
(2) "Credit" means any loan, mortgage, deed of
credit.
trust, advance, or discount; any conditional sales
contract; any contract to sell, or sale or contract
Answer: Finance charge is installment price
of sale of property or services, either for present
minus cash price or P3 million minus P2 million
or future delivery, under which part or all of the
or P1 million. The amount to be financed is the
price is payable subsequent to the making of
installment price minus down payment and
such sale or contract;
trade-in allowance (P3 million - P500,000 -
P300,000) or P2,200,000. Therefore, the cause
(3) "Finance charge" includes interest, fees,
of credit which is finance charge divided by the
service charges, discounts (interest on loan
amount to be financed (P1 million ÷ P2.2. million
deducted by the lender in advance), and such
÷ 2 years) or 22.73%.
other charges incident to the extension of
credit.
Section 6. (a) Any creditor who in connection with any
(4) "Creditor" means any person (such as banks,
credit transaction fails to disclose to any person any
financial companies and lending institutions as
information in violation of this Act or any regulation
well as pawnshops) engaged in the business of
issued thereunder shall be liable to such person in the
extending credit (including any person who as a
amount of P100 or in an amount equal to twice the
regular business practice make loans or sells or
finance charged required by such creditor in connection
rents property or services on a time, credit, or
with such transaction, whichever is the greater, except
installment basis, either as principal or as agent)
that such liability shall not exceed P2,000 on any credit
who requires as an incident to the extension of
transaction.
credit, the payment of a finance charge.

Memorize!!!
Very Very Important!!!
BAR FAVORITE
Section 4. Any creditor shall furnish to each person to
(b) Nothing contained in this Act or any regulation
whom credit is extended, prior to the consummation of
contained in this Act or any regulation thereunder shall
the transaction, a clear statement in writing setting forth,
affect the validity or enforceability of any contract or
the following information:
transactions.
(1) cash price or delivered price of the property;
o The contract is valid and enforceable
notwithstanding non-compliance of Section 4.
(2) amounts to be credited as down payment
and/or trade-in;
(c) Any person who willfully violates any provision of this
Act or any regulation issued thereunder shall be fined by
(3) difference between the amounts set forth
not less than P1,000 or more than P5,000 or
under clauses (1) and (2);
imprisonment for not less than 6 months, nor more than
one year or both.
(4) charges (such as freight and handling
charges), individually itemized, which are paid
or to be paid by such person in connection with

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
R.A. 8293
June 6, 1997
THE INTELLECTUAL PROPERTY LAW
(as amended by R.A. 10372,
Approved on February 29, 2013)
Purposes of the Law:
1. To establish effective intellectual and
industrial property system;
Important!!!
2. To protect and secure the exclusive rights of
scientists, inventors, artists and other gifted citizens to
their intellectual property and creations;
3. To promote t6he diffusion of knowledge and
information for the promotion of national development
of progress and common good;
4. To streamline administrative procedures of
registering patents, trademarks, copyrights; and,
5. To liberalize the registration on the transfer
of technology and to enhance the enforcement of
intellectual property rights.
PART I
THE INTELLECTUAL PROPERTY OFFICE
Section 3. International Conventions and Reciprocity. -
Any person who:
(1) is a national or
(2) is domiciled or
(3) has a real and effective industrial establishment
in a country which is a party to any convention,
treaty or agreement relating to intellectual property
rights, to which the Philippines is also a party, or extends
reciprocal rights (principle of reciprocity) to nationals of
the Philippines by law, shall be entitled to benefits to the
extent necessary to give effect to any provision of such
convention, treaty or reciprocal law, in addition to the
rights to which any owner of an intellectual property
right is otherwise entitled by this Act. (n)
o Illustration of the PRINCIPLE OF RECIPROCITY:
X is a German national/ citizen but is
domiciled/ resident in France. He has a factory in
the USA producing or manufacturing patented
food products. Philippines is a member-country
of a treaty relating to intellectual property
rights.
If Germany or France or the USA or any
of the three (3) of them or all of them are also
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member-countries of the said treaty, X shall be
entitled to the protection of the international
treaty and of this law.
Even if Germany or France of the USA
or any of the three (2) of them or all of them are
not member-countries of said treaty, if their
intellectual property law grants the same
protection to Filipinos, X shall also be entitled to
the protection of this law.
Section 4. Definitions. -
4.1. The term "intellectual property rights" shall consist
of:
a) Copyright and Related Rights;
b) Trademarks and Service Marks;
c) Geographic Indications;
d) Industrial Designs;
e) Patents;
f) Layout-Designs (Topographies) of Integrated
Circuits; and
g) Protection of Undisclosed Information (n,
TRIPS).
4.2. The term "technology transfer arrangements" refers
to contracts or agreements involving the transfer of
systematic knowledge for the manufacture of a product,
the application of a process, or rendering of a service
including management contracts; and the transfer,
assignment or licensing of all forms of intellectual
property rights.
4.3. The term "Office" refers to the Intellectual Property
Office (under the DTI) created by this Act.
Section 5. Functions of the Intellectual Property Office
(IPO). -
a) Examine applications for grant of letters
patent for inventions and register utility models
and industrial designs;
b) Examine applications for the registration of
marks, geographic indication, integrated
circuits;
c) Register technology transfer arrangements
and settle disputes involving technology transfer
payments (royalties);
d) Promote the use of patent information as a
f) Administratively adjudicate contested
proceedings affecting intellectual property
rights; and
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Section 6. The Organizational Structure of the IPO. -
6.1. The Office shall be headed by a Director General
who shall be assisted by two (2) Deputies Director
General.
6.2. The Office shall be divided into seven (7) Bureaus,
each of which shall be headed by a Director and assisted
by an Assistant Director.
These Bureaus are:
a) The Bureau of Patents;
b) The Bureau of Trademarks;
c) The Bureau of Legal Affairs;
d) The Documentation, Information and
Technology Transfer Bureau;
e) The Management Information System and
EDP Bureau*;
(f) the Administrative, Financial and Personnel
Services Bureau (as amended by R.A. 10372)*;
and,
(g) the Bureau of Copyright and Other Related
Rights (as amended by R.A. 10372).
o NOTE: The Bureaus in e) and f) have no quasi-
judicial functions.
Section 7. The Director General and Deputies Director
General. - 7.1. Functions. - The Director General shall
exercise the following powers and functions:
Section 8. The Bureau of Patents. - The Bureau of
Patents shall have the following functions:
(b) Exercise exclusive appellate jurisdiction over
all decisions rendered by:
1. the Director of Legal Affairs
2. the Director of Patents
3. the Director of Trademarks
4. the Director of Copyright and Other
Related Rights, and
5. the Director of the Documentation,
Information and Technology Transfer
Bureau.
Section 9. The Bureau of Trademarks. - The Bureau of
Trademarks shall have the following functions:
The decisions of the Director General in the
exercise of his appellate jurisdiction in respect
of the decisions of:
1. the Director of Patents
2. the Director of Trademarks and
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3. the Director of Copyright and Other
Related Rights
shall be appealable to the Court of
Appeals in accordance with the Rules of Court
(as amended by R.A. 10372).
Those in respect of the decisions of the
Director of the Documentation, Information
and Technology Transfer Bureau shall be
appealable to the Secretary of Trade and
Industry (as amended by R.A. 10372);
o NOTE:
Under both the old and the new laws,
there is no mention on whether the decision of
the Director General with respect to the
decisions of the Director of Legal Affairs is
appealable or not.
This means that the decision of the
Director General with respect to the decisions of
the Director of Legal Affairs is final and not
appealable for the reason that the right to
appeal is merely a statutory right, and since the
statute does not grant said right, there is no
such right.
However, the decision of the Director
General with respect to the decisions of the
Director of Legal Affairs may be elevated to
higher authorities by certiorari under Rule 65 on
the ground of grave abuse of discretion
amounting to lack or excess of jurisdiction.
8.1. Search (at the office of the classification
systems, national or international, with respect
to patented inventions) and examination of
patent applications and the grant of patents;
8.2. Registration of utility models, industrial
designs, and integrated circuits; and
8.3. Conduct studies and researches in the field
of patents in order to assist the Director General
in formulating policies on the administration
and examination of patents. (n)
9.1. Search and examination of the applications
for the registration of marks, geographic
indications and other marks of ownership and
the issuance of the certificates of registration;
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Very Important!!!
Section 10. The Bureau of Legal Affairs. - The Bureau of
Legal Affairs shall have the following functions:
10.1. Hear and decide:
(1) opposition to the application for registration
of marks;
(2) petition for cancellation of trademarks;
(3) cancellation of patents;
(4) petitions for compulsory licensing of patents;
(5) Exercise original jurisdiction in
administrative complaints for violations of laws
involving intellectual property rights (10.2. [a]):
Provided, That its jurisdiction is limited to
complaints where the total damages claimed is
not less than Two hundred thousand pesos
(P200,000) [P200,000 or more].
o violations of laws involving intellectual
property rights - other than Sections 70,
76 and 77 which are cognizable by the
Regular Courts.
o Under E.O. 913 (1983), if the total
damages claimed is less than P200,000,
the complaint must be filed to the DTI.
(b) After formal investigation, the Director for
Legal Affairs may impose one (1) or more of the
following administrative penalties:
(i) The issuance of a cease and desist
order;
(ii) The acceptance of a voluntary
assurance of compliance or
discontinuance;
(iii) The condemnation or seizure of
products which are subject of the
offense;
(iv) The forfeiture of paraphernalia and
all real and personal properties which
have been used in the commission of
the offense;
(v) The imposition of administrative
fines;
(vi) The cancellation of any permit,
license, authority, or registration which
may have been granted by the Office,
or the suspension of the validity
thereof;
(vii) The withholding of any permit,
license, authority, or registration;
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(viii) The assessment of damages;
(ix) Censure; and
(x) Other analogous penalties or
sanctions.
Section 11. The Documentation, Information and
Technology Transfer Bureau. - The Documentation,
Information and Technology Transfer Bureau shall have
the following functions:
11.8. Register technology transfer
arrangements, and settle disputes involving
technology transfer payments. (n)
Section 19. Disqualification of Officers and Employees of
the Office. - All officers and employees of the Office shall
not apply or act as an attorney or patent agent of an
application for a grant of patent, for the registration of a
utility model, industrial design or mark nor acquire,
except by hereditary succession, any patent or utility
model, design registration, or mark or any right, title or
interest therein during their employment and for one (1)
year thereafter.
PART II
THE LAW ON PATENTS
CHAPTER I
GENERAL PROVISIONS
o Patent - is a right or privilege guaranteeing an
inventor or his heirs or assigns, the exclusive
rights over an invention, process, etc. For a
given length of time.
Section 20. Definition of Terms Used in Part II, The Law
on Patents.
20.2. "Director" means the Director of Patents;
20.4. "Examiner" means the patent examiner;
20.6. "Priority date" means the date of filing of
the foreign application for the same invention
referred to in Section 31 of this Act. (n)
CHAPTER II
PATENTABILITY
Section 21. Patentable Inventions. (Requisites of
Patentability) -
Any:
(1) technical solution of a problem in any field of
human activity
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
(2) which is new (i.e. the result must must be so
distinct from the previous invention as to have
the feature of novelty even if the invention forms
part of a prior art)
(3) involves an inventive step (Section 26) and
(4) is industrially applicable (Section 27)
shall be Patentable. It may be, or may
(5) relate to, a product, or process, or an
improvement of any of the foregoing.
Section 22. Non-Patentable Inventions. -
22.6. Anything which is contrary to public order or
morality (or public health or welfare [R.A. 165]). (Sec. 8,
R.A. No. 165a)
o Question: X invented a bogus coin detector
which can be used exclusively on self-operating
gambling devices known as “one-armed
bandits”. Can X apply for a patent?
Answer: No, for being contrary to morals
because the invention can only be used
exclusively for gambling purposes.
o Question: Y invented a method of improving the
tenderness of a meat by injecting an enzyme
solution into the live animal shortly before
slaughter. Is the invention patentable?
Answer: Yes, so long as the solution will not
injure public health.
Section 23. Novelty. . - An invention shall not be
considered new if it forms part of a prior art. (Sec. 9, R.A.
No. 165a)
Section 24. Prior Art. - Prior art shall consist of:
24.1. Everything which has been made available
to the public anywhere in the world, before the
filing date or the priority date of the application
claiming the invention; and
Section 26. Inventive Step. - An invention involves an
inventive step if, having regard to prior art, it is not
obvious (not easily understood) to a person skilled in the
art at the time of the filing date or priority date of the
application claiming the invention. (n)
Section 27. Industrial Applicability. - An invention that
can be produced and used in any industry shall be
industrially applicable. (n)
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CHAPTER III
RIGHT TO A PATENT
Very Important!!!
Section 28. Right to a Patent. - The right to a patent
belongs to the inventor, his heirs, or assigns (such as
buyer of the invention). When two (2) or more persons
have jointly made an invention, the right to a patent shall
belong to them jointly. (Sec. 10, R.A. No. 165a)
A invented a certain device which when
attached to the engine would reduce the consumption of
gasoline by 50% without securing a patent therefor. He
started manufacturing the device in large quantity and
promoted the sale thereof.
B bought 1 device, dismantled and studied it and
later was himself manufacturing an identical device.
Before offering the manufactured products for sale, B
secured a patent for his device which he called “gasopid”.
A later discovered the patent secured by B and
now intends to secure his own patent.
1.) Who has the right to the patent?
A owns the patent because he is the true and
real inventor. B, being an imitator, is not entitled to the
patent even if the letters patent has been issued in his
favor.
2.) May A hold B liable for infringement of patent?
No, because A is not yet the patentee, nor has he
filed an application for patent of his invention.
3.) What is the remedy of A?
A can file a petition for cancellation of patent
under Section 68 to be filed before the Regular Courts
and not before the Bureau of Legal Affairs.
Section 29. First to File Rule. - If two (2) or more persons
have made the invention separately and independently
of each other, the right to the patent shall belong to the
person who filed an application for such invention, or
where two or more applications are filed for the same
invention, to the applicant who has the earliest filing
date or, the earliest priority date.
Section 30. Inventions Created Pursuant to a
Commission. - 30.1. The person who commissions (or
orders or employs) the work shall own the patent, unless
otherwise provided in the contract (for a piece of work).
30.2. In case the employee made the invention in the
course of his employment contract, the patent shall
belong to:
(a) The employee, if the inventive activity is not
a part of his regular duties even if the employee
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
uses the time, facilities and materials of the
employer.
(b) The employer, if the invention is the result of
the performance of his regularly-assigned
duties, unless there is an agreement, express or
implied, to the contrary.
Memorize!!!
Section 31. Right of Priority. . - An application for patent
filed (in the Philippines) by any person (Filipino or alien or
non-resident) who has previously applied for the same
invention in another country, shall be considered as filed
as of the date of filing the foreign application: Provided,
That:
(a) the local application expressly claims priority;
o expressly claims priority - he must allege in his
application that he is claiming priority because
he already previously filed an application for
patent in another country.
(b) it is filed within twelve (12) months from the date the
earliest foreign application was filed (several
applications); and
(c) a certified copy of the foreign application together
with an English translation is filed within six (6) months
from the date of filing in the Philippines.
CHAPTER IV
PATENT APPLICATION
Memorize!!!
Section 32. The Application. - 32.1. The patent
application shall be in Filipino or English and shall contain
the following:
(a) A request for the grant of a patent;
(b) A description of the invention;
(c) Drawings necessary for the understanding of
the invention;
(d) One or more claims; and
(e) An abstract.
32.2. No patent may be granted unless the application
identifies the inventor. If the applicant is not the
inventor, the Office may require him to submit said
authority. (Sec. 13, R.A. No. 165a)
Section 37. The Abstract. - The abstract shall consist of a
concise summary of the disclosure of the invention as
contained in the description, claims and drawings in
preferably not more than one hundred fifty (150) words.
It must be drafted in a way which allows the clear
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understanding of the technical problem, the gist of the
solution of that problem through the invention, and the
principal use or uses of the invention.
Section 38. Unity of Invention. - 38.1. The application
shall relate to one invention only or to a group of
inventions forming a single general inventive concept.
CHAPTER V
PROCEDURE FOR GRANT OF PATENT
Section 40. Filing Date Requirements. - 40.1. The filing
date of a patent application shall be the date of receipt
(except if right of priority is applicable) by the Office of at
least the following elements:
(a) An express or implicit indication that a
Philippine patent is sought;
(b) Information identifying the applicant; and
(c) Description of the invention and one (1) or
more claims in Filipino or English.
40.2. If any of these elements is not submitted within the
period set by the Regulations, the application shall be
considered withdrawn. (n)
Section 41. According a Filing Date. - The Office shall
examine whether the patent application satisfies the
requirements for the grant of date of filing as provided in
Section 40 hereof. If the date of filing cannot be
accorded, the applicant shall be given an opportunity to
correct the deficiencies in accordance with the
implementing Regulations. If the application does not
contain all the elements indicated in Section 40, the filing
date should be that date when all the elements are
received. If the deficiencies are not remedied within the
prescribed time limit, the application shall be considered
withdrawn. (n)
Section 42. Formality Examination. - 42.1. After the
patent application has been accorded a filing date and
the required fees have been paid on time in accordance
with the Regulations, the applicant shall comply with the
formal requirements specified by Section 32 and the
Regulations within the prescribed period, otherwise the
application shall be considered withdrawn.
42.2. The Regulations shall determine the procedure for
the re-examination and revival of an application as well
as the appeal to the Director of Patents from any final
action by the examiner. (Sec. 16, R.A. No. 165a)
Section 44. Publication of Patent Application. - 44.1. The
patent application shall be published in the IPO Gazette,
after the expiration of eighteen (18) months from the
filing date or priority date.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
44.2. After publication of a patent application, any
interested party may inspect the application documents
filed with the Office.
Section 45. Confidentiality Before Publication. - A patent
application, which has not yet been published, and all
related documents, shall not be made available for
inspection without the consent of the applicant.
Very Important!!!
Section 46. Rights Conferred by a Patent Application
After Publication. - The applicant shall have all the rights
of a patentee under Section 76 (right to file civil action
for infringement) against any person who, without his
authorization, exercised any of the rights conferred
under Section 71 of this Act in relation to the invention
claimed in the published patent application, as if a patent
had been granted for that invention: Provided, That the
said person (infringer) had:
46.1. Actual knowledge that the invention that
he was using was the subject matter of a
published application; or
46.2. Received written notice that the invention
that he was using was the subject matter of a
published application being identified in the said
notice by its serial number: Provided, That the
action may not be filed until after the grant of a
patent on the published application and within
four (4) years from the commission of the acts
complained of. (n)
Section 50. Grant of Patent. - 50.1. If the application
meets the requirements of this Act (Section 21), the
Office shall grant the patent: Provided, That all the fees
are paid on time.
50.2. If the required fees for grant and printing
are not paid in due time, the application shall be
deemed to be withdrawn.
Memorize!!!
50.3. A patent shall take effect on the date of
the publication of the grant (letters patent) of
the patent in the IPO Gazette.
Section 51. Refusal of the Application. - 51.1. The final
order of refusal of the examiner to grant the patent shall
be appealable to the Director of Patents
Section 52. Publication Upon Grant of Patent. - 52.1. The
grant (letters patent) of the patent together with other
related information shall be published in the IPO Gazette
within the time prescribed by the Regulations.
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Memorize!!!
Section 54. Term of Patent. - The term of a patent shall
be twenty (20) years from the filing date of the
application.
o Section 50.3 in relation to Section 54:
The term of the patent commences to run
from the filing date of the application even if it has
not yet taken effect, because patent takes effect on
the date of publication of the grant or letters patent
in the IPO Gazette; hence, it is not impossible that
the term of the patent shall have already expired
even before the grant of the letters patent esp. if
there is an opposition to the application for patent.
Under the old law, the term of patent is 17
years from the issuance of the letters patent.
CHAPTER VI
CANCELLATION OF PATENTS AND SUBSTITUTION OF
PATENTEE
Very Important!!!
Section 61. Cancellation of Patents. - 61.1. Any interested
person may, upon payment of the required fee, petition
to cancel the patent or any claim thereof, or parts of the
claim, on any of the following grounds:
(a) That what is claimed as the invention is not
new or Patentable;
(b) That the patent does not disclose the
invention in a manner sufficiently clear and
complete for it to be carried out by any person
skilled in the art; or
(c) That the patent is contrary to public order or
morality.
o The petition for cancellation of patent shall be
filed with the Bureau of Legal Affairs not with
the Bureau of Patents.
o Under Section 28(c) of R.A. 165, the following
was a ground for cancellation of patents: “that
the person to whom the patent was issued is not
the true or actual inventor.” Is this no longer a
ground for cancellation?
Yes, but the petition for cancellation of
patent shall be filed with the regular courts
(Section 68) not with the Bureau of Legal Affairs.
(Atty. Bolivar’s answer here confuses me).
Section 63. Notice of Hearing. - Upon filing of a petition
for cancellation, the Director of Legal Affairs shall
forthwith serve:
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
(1) notice of the filing thereof upon the
patentee and all persons (licensees) having
grants or licenses, or any other right, title or
interest in and to the patent and the invention
covered thereby, and
(2) notice of the date of hearing thereon on
such persons and the petitioner.
o Question: Why not require first the patentee
and licensee as respondents to file their answer
to the petition?
Answer: Maybe the order for the respondents to
file their answer is included in the first notice.
The law is silent as to who will designate the two
numbers but it is believed that one of them will
be designated by the petitioner and the other to
be designated by the respondents (rule of reason
or logic).
Section 64. Committee of Three. - In cases involving
highly technical issues, on motion of any party, the
Director of Legal Affairs may order that the petition be
heard and decided by a committee composed of the
Director of Legal Affairs as chairman and two (2)
members who have the experience or expertise in the
field of technology to which the patent sought to be
cancelled relates. The decision of the committee shall be
appealable to the Director General.
o decision - Is it unanimous or majority decision?
Again, the law is silent but it is believed
that only majority decision because whenever
two (2) or more persons are mandated to render
decision, normally or ordinarily, majority
decision is required.
Section 66. Effect of Cancellation of Patent or Claim. -
The rights conferred by the patent cancelled shall
terminate. Notice of the cancellation shall be published
in the IPO Gazette. Unless restrained by the Director
General, the decision or order to cancel by Director of
Legal Affairs (or the Committee) shall be immediately
executory even pending appeal. (Sec. 32, R.A. No. 165a)
CHAPTER VII
REMEDIES OF A PERSON WITH A RIGHT TO A PATENT
Very Important!!!
Section 67. Patent Application by Persons Not Having the
Right to a Patent. . - 67.1. If a person (the true or real
inventor or buyer of the invention from the former or the
heir or assignee of the inventor) referred to in Section 29
other than the applicant, is declared by final court order
or decision as having the right to the patent, such person
may, within three (3) months after the decision has
become final:
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(a) Prosecute the application as his own
application; or
(b) File a new patent application; or
(c) Request that the application be refused; or
(d) Seek cancellation of the patent, if one has
already been issued.
67.2. The provisions of Subsection 38.2 shall apply
mutatis mutandis (“also” or “in like manner”; means
with the necessary changes having been made) to a new
application filed under Subsection 67. 1(b). (n)
Memorize!!!
Section 68. Remedies of the True and Actual Inventor. - If
a person, who was deprived of the patent without his
consent or through fraud is declared by final court order
or decision to be the true and actual inventor, the court
shall order for his substitution as patentee, or at the
option of the true inventor, cancel the patent, and award
actual and other damages in his favor if warranted by the
circumstances. (The action filed was declaratory relief)
Section 70. Time to File Action in Court. - The actions
indicated in Sections 67 and 68 shall be filed within one
(1) year from the date of publication of the grant of the
patent.
CHAPTER VIII
RIGHTS OF PATENTEES AND INFRINGEMENT OF
PATENTS
Very Important!!!
Section 71. Rights Conferred by Patent. - 71.1. A patent
shall confer on its owner the following exclusive rights:
(a) Where the subject matter of a patent is a
product, to restrain, prohibit and prevent any
unauthorized person or entity from making (or
manufacturing or making), using (as when the
product is being used as a sample), offering for
sale, selling or importing (should be “exporting”)
that product;
(b) Where the subject matter of a patent is a
process (or formula), to restrain, prevent or
prohibit any unauthorized person or entity from
using the process, and from manufacturing,
dealing in, using, selling or offering for sale, or
importing (should be “exporting”) any product
obtained directly or indirectly from such
process.
71.2. Patent owners shall also have the right to assign,
or transfer by succession the patent, and to conclude
licensing contracts for the same. (Sec. 37, R.A. No. 165a)
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
Section 72. Limitations of Patent Rights. - The owner of a
patent has no right to prevent third parties from
performing, without his authorization, the acts referred
to in Section 71 in the following instances:
72.1. Using a patented product which has been
put on the market in the Philippines by the
owner of the product, or with his express
consent, insofar as such use is performed after
that product has been so put on the said
market;
72.2. Where the act is done privately and on a
non-commercial scale or for a non-commercial
purpose: Provided, That it does not significantly
prejudice the economic interests of the owner
of the patent;
72.3. Where the act consists of making or using
exclusively for the purpose of experiments that
relate to the subject matter of the patented
invention;
72.4. Where the act consists of the preparation
for individual cases, in a pharmacy or by a
medical professional, of a medicine;
72.5. Where the invention is used in any ship,
vessel, aircraft, or land vehicle of any other
country entering the territory of the Philippines
temporarily or accidentally: Provided, That such
invention is used exclusively for the needs of the
ship, vessel, aircraft, or land vehicle and not
used for the manufacturing of anything to be
sold within the Philippines. (Secs. 38 and 39,
R.A. No. 165a)
Important!!!
Section 74. Use of Invention by Government. - 74.1. A
Government agency or third person authorized by the
Government may exploit the invention even without
agreement with the patent owner where:
(a) The public interest so requires; or
(b) A judicial or administrative body has
determined that the manner of exploitation, by
the owner of the patent or his licensee is anti-
competitive (such as accepting money from
competitors to limit his productions).
74.2. The use by the Government, or third person
authorized by the Government shall be subject, mutatis
mutandis, to the conditions set forth in Sections 95 to 97
and 100 to 102.
Memorize!!!
Section 76. Civil Action for Infringement. - 76.1. Patent
infringement is the making, using, offering for sale,
selling, or exporting a patented product or a product
obtained directly or indirectly from a patented process,
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or the use of a patented process without the
authorization of the patentee.
Important!!!
76.2. Any patentee, or anyone (such as transferee or heir
or licensee) possessing any right, title or interest in and to
the patented invention, whose rights have been
infringed, may bring a civil action before a court (1) to
recover from the infringer damages, and (2) to secure an
injunction for the protection of his rights.
76.5. The court may, in its discretion, order that the (3)
infringing goods, materials and implements
predominantly used in the infringement be disposed of
outside the channels of commerce or destroyed, without
compensation.
Who is a contributory infringer?
76.6. Anyone who actively induces the infringement of a
patent or provides the infringer with a component of a
patented product or of a product produced because of a
patented process knowing it to be especially adopted for
infringing the patented invention shall be liable as a
contributory infringer and shall be jointly and severally
(solidarily) liable with the infringer.
o Actions for Infringement of patent, infringement
of trademark, infringement of copyright and
unfair competition, are within the jurisdiction
regular courts and not with the Bureau of Legal
Affairs nor within the Bureau of Copyrights.
Very Important!!!
Section 77. Infringement Action by a Foreign National. -
Any foreign national or (foreign) juridical entity, who
meets the requirements of Section 3 and not engaged in
business in the Philippines, to which a patent has been
granted or assigned, may bring an action for
infringement of patent, whether or not it is licensed to
do business in the Philippines under existing law.
o not engaged in business - (1) If engaged and
with a license, he or it can file infringement suit
in the Philippines; (2) If engaged but is not
licensed, it cannot file infringement suit in the
Philippines.
Section 79. Limitation of Action for Damages. - No
damages (but reliefs number 2 and 3 may still be granted
by the Court [injunction and destruction]) can be
recovered for acts of infringement committed more than
four (4) years before the institution of the action for
infringement.
Section 80. Damages, Requirement of Notice. - Damages
cannot be recovered for acts of infringement committed
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before the infringer had known, or had reasonable
grounds to know of the patent.
o Knowledge is an element for relief no. 1 but not
in reliefs 2 and 3 [injunction and destruction].
Section 81. Defenses in Action for Infringement. - In an
action for infringement, the defendant (the infringer and
the contributory infringer, if any), in addition to other
defenses (such as lack of knowledge of the patent and
prescription) available to him, may show the invalidity of
the patent, or any claim thereof, on any of the grounds
on which a petition of cancellation can be brought under
Section 61 hereof.
Section 82. Patent Found Invalid May be Cancelled. - In
an action for infringement, if the court shall find the
patent or any claim to be invalid, it shall cancel the same,
and the Director of Legal Affairs upon receipt of the final
judgment of cancellation by the court, shall record that
fact in the register of the Office and shall publish a notice
to that effect in the IPO Gazette.
Section 84. Criminal Action for Repetition of
Infringement. - If infringement is repeated by the
infringer after finality of the judgment (in the first case
for civil action for infringement) of the court against the
infringer, the offenders shall be criminally liable therefor.
The criminal action herein provided shall prescribe in
three (3) years from date of the commission of the crime.
o One infringement suit against the infringer will
not result to criminal liability.
CHAPTER IX
VOLUNTARY LICENSING
Section 86. Jurisdiction to Settle Disputes on Royalties. -
The Director of the Documentation, Information and
Technology Transfer Bureau shall exercise quasi-judicial
jurisdiction in the settlement of disputes between parties
to a technology transfer arrangement arising from
technology transfer payments, including the fixing of
appropriate amount or rate of royalty. (n)
Memorize!!!
Section 89. Rights of Licensor (or patentee). - In the
absence of any provision to the contrary in the
technology transfer arrangement, the grant of a license
shall not prevent the licensor from granting further
licenses to third persons nor from exploiting the subject
matter of the technology transfer arrangement himself.
o Problem: A, the patentee-licensor, granted a
license in favor of B to manufacture the
patented product of the former in Bicol Region
for a period of 10 years. The agreed royalty
payment is P100 per unit manufactured, sold or
unsold. Three (3) years after the effectivity of the
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2014
technology transfer arrangement, A granted
another license in favor of C to manufacture the
patented product of A also for 10 years and also
in Bicol Region at a royalty rate of P100 per unit
manufactured, sold or unsold.
When B discovered that A granted a
license to C, thereby competing with him in Bicol
Region, B filed a complaint in court for unfair
competition. Is B correct?
Answer: NO, in the absence of any provision to
the contrary in the technology transfer
arrangement between A and B, the grant of the
license to the latter, shall not prevent the former
from granting further license to a third person
(C).
Section 90. Rights of Licensee. - The licensee shall be
entitled to exploit the subject matter of the technology
transfer arrangement during the whole term thereof of
the technology transfer arrangement.
CHAPTER X
COMPULSORY LICENSING
Important!!!
Section 93. Grounds for Compulsory Licensing. - The
Director of Legal Affairs may grant a license to exploit a
patented invention, even without the agreement with
the patent owner, in favor of any person who has shown
his capability to exploit the invention, under any of the
following instances:
93.1. National emergency or other
circumstances of extreme urgency;
93.2. public interest so requires; or
93.3. manner of exploitation by the owner of
the patent or his licensee is anti-competitive; or
93.4. public non-commercial use (very limited
production, although, raw materials are
available for mass production) of the patent by
the patentee, without satisfactory reason;
93.5. If the patented invention is not being
worked in the Philippines on a commercial scale,
although capable of being worked.
Section 100. Terms and Conditions of Compulsory
License. (This is an example of limitation on the freedom
to contract)- The basic terms and conditions including the
rate of royalties of a compulsory license shall be fixed by
the Director of Legal Affairs subject to the following
conditions:
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
100.1. The scope and duration of such license
shall be limited to the purpose for which it was
authorized;
100.2. The license shall be non-exclusive;
100.3. The license shall be non-assignable;
100.4. Use of the subject matter of the license
shall be devoted predominantly for the supply
of the Philippine market;
100.5. The license may be terminated upon
proper showing that circumstances which led to
its grant have ceased to exist and are unlikely to
recur; and
100.6. The patentee shall be paid adequate
remuneration taking into account the economic
value of the grant or authorization.
Section 102. Licensee's Exemption from Liability. - Any
person (licensee) who works a patented product,
substance and/or process under a license (compulsory)
granted under this Chapter, shall be free from any
liability for infringement: Provided however, That in the
case of voluntary licensing, no collusion with the licensor
is proved.
PART III
THE LAW ON TRADEMARKS, SERVICE MARKS AND
TRADE NAMES
o Trademark - is any distinctive word or words,
name, symbol, emblem, sign or device or any
combination thereof adopted and used by a
manufacturer or merchant on his goods to
identify and distinguish them from those
manufactured, sold or dealt with by others.
Section 121. Definitions. - As used in Part III, the
following terms have the following meanings:
121.1. "Mark" means any visible sign capable of
distinguishing the goods (trademark) or services (service
mark) of an enterprise and shall include a stamped or
marked container of goods; (Sec. 38, R.A. No. 166a)
121.3. "Trade name" means the name or designation
identifying or distinguishing an enterprise; (Sec. 38, R.A.
No. 166a)
Section 122. How Marks are Acquired. - The rights in a
mark shall be acquired through registration made validly
in accordance with the provisions of this law (Section
124).
Section 123. Registrability. - 123.1. A mark cannot be
registered if it (non-registrable marks):
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2014
(a) Consists of immoral, deceptive or scandalous
matter;
(b) Consists of the flag or coat of arms or other
insignia of the Philippines or any of its political
subdivisions;
(c) Consists of a name, portrait or signature
identifying a particular living individual except
by his written consent, or the name, signature,
or portrait of a deceased President of the
Philippines, during the life of his widow, except
by written consent of the widow or widower;
(d) Is identical with a registered mark belonging
to a different proprietor or a mark with an
earlier filing or priority date:
(i) The same goods or services, or
(ii) Closely related goods or services, or
(iii) nearly resembles such a mark;
Important!!!
(e) Is identical with, or confusingly similar to a
mark which is considered by the competent
authority of the Philippines to be well-known
internationally and in the Philippines, whether
or not it is registered here, as being already the
mark of a person, and used for identical or
similar goods or services;
Important!!!
(f) Is identical with, or confusingly similar to, or
constitutes a translation of a mark considered
well-known in accordance with the preceding
paragraph, which is registered in the Philippines
with respect to goods or services which are not
similar to those with respect to which
registration is applied for;
o Examples of par. (e) and (f):
NIKE is a trademark which is well-
known internationally and in the Philippines and
is used for sportswear products such as shirts,
shorts, rubber shoes, socks, cap, etc.
1. If the said trademark is registered in the
Philippines, it cannot be used to any product
whether or not it is similar to or identical with
the abovementioned products.
2. If said trademark is not registered in the
Philippines, it cannot be used to products which
are similar to or identical with the above-
mentioned products, but it can be used to
products which are similar thereto or identical
therewith.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
o Doctrine of Secondary Meaning:
- means that a sign or device which is otherwise
non-registrable but has become distinctive in
relation to the goods for which registration is
requested as a reserve of the exclusive and
continuous use that has been made of it in
commerce in the Philippines for at least five (5)
years will now become registrable.
Example: geographic origin
(g) Is likely to mislead the public, particularly as
to the nature, quality, characteristics or
geographical origin of the goods or services;
(h) Consists exclusively of signs that are generic
for the goods or services that they seek to
identify;
(i) Consists exclusively of signs or of indications
that have become customary or usual to
designate the goods or services in everyday
language;
(j) Consists exclusively of signs or of indications
to designate the kind, quality, quantity,
intended purpose, value, geographical origin,
time or production of the goods or rendering of
the services, or other characteristics of the
goods or services;
(k) Consists of shapes;
(l) Consists of color alone; or
(m) Is contrary to public order or morality.
Doctrine of Secondary Meaning:
123.2. As regards signs or devices mentioned in
paragraphs (j), (k), and (l), nothing shall prevent
the registration of any such sign or device which
has become distinctive in relation to the goods
for which registration is requested as a result of
the use that has been made of it in commerce in
the Philippines. The Office may accept as prima
facie evidence that the mark has become
distinctive, as used in connection with the
applicant's goods or services in commerce,
proof of substantially exclusive and continuous
use thereof by the applicant in commerce in the
Philippines for five (5) years before the date on
which the claim of distinctiveness is made.
Section 131. (See Section 31) Priority Right. - 131.1. An
application for registration of a mark filed in the
Philippines by a person (Filipino or alien, resident or non-
resident) referred to in Section 3, and who previously
duly filed an application for registration of the same
mark in one of those countries, shall be considered as
filed as of the day the application was first filed in the
foreign country.
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131.2. No registration of a mark in the Philippines by a
person described in this section shall be granted until
such mark has been registered in the country of origin of
the applicant.
131.3. Nothing in this section shall entitle the owner of a
registration granted under this section to sue (for
infringement of trademarks) for acts committed prior to
the date on which his mark was registered in this
country: Provided, That, notwithstanding the foregoing,
the owner of a well-known mark as defined in Section
123.1(e) (well-known x x x), that is not registered in the
Philippines, may:
(1) oppose its registration, or
(2) petition the cancellation of its registration or
sue for unfair competition (but not for
infringement of trademark).
o In the case of priority right regarding patent,
the law does not require that letters patent has
already been issued in the foreign country.
Section 133. Examination and Publication.
133.5. The final decision of refusal of the
Director of Trademarks shall be appealable to
the Director General (then to the CA then to the
SC).
Section 134. Opposition. - Any person who believes that
he would be damaged by the registration of a mark may,
within thirty (30) days after the publication of the
application, file with the Office (Bureau of Legal Affairs)
an opposition to the application.
Section 136. Issuance and Publication of Certificate. -
When the period (30 days from publication of the
application) for filing the opposition has expired, or when
the Director of Legal Affairs shall have denied the
opposition, the Office (Bureau of Trademarks) upon
payment of the required fee, shall issue the certificate of
registration.
Section 138. Certificates of Registration. - A certificate of
registration of a mark shall be prima facie evidence of
the (1) validity of the registration, the (2) registrant's
ownership of the mark, and of the (3) registrant's
exclusive right to use the same.
Section 145. Duration. - A certificate of registration shall
remain in force for ten (10) years (Patent - 20 years but
non-renewable): Provided, That the registrant shall file a
declaration of actual use and evidence to that effect
within one (1) year from the fifth anniversary of the date
of the registration of the mark. Otherwise, the mark shall
be removed from the Register by the Office.
Section 146. Renewal. - 146.1. A certificate of
registration may be renewed (perpetually) for periods of
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
ten (10) years at its expiration upon payment of the
prescribed fee and upon filing of a request.
Section 147. Rights Conferred. -
147.1. The owner of a registered mark shall
have the exclusive right to prevent all third
parties not having the owner's consent from
using in the course of trade identical or similar
signs or containers for goods or services which
are identical or similar to those in respect of
which the trademark is registered where such
use would result in a likelihood of confusion.
147.2. The exclusive right of the owner of a well-
known mark defined in Subsection 123.1(e)
which is registered in the Philippines, shall
extend to goods and services which are not
similar to those in respect of which the mark is
registered.
Section 151. Cancellation. - 151.1. A petition to cancel a
registration of a mark under this Act may be filed with
the Bureau of Legal Affairs by any person who believes
that he is or will be damaged by the registration of a
mark as follows:
(a) Within five (5) years from the date of the
registration of the mark under this Act.
(b) At any time (even after 5 years), if the
registered mark becomes the generic name (the
mark has already become non-registrable) for
the goods or services for which it is registered.
Section 155. Remedies; Infringement. - Any person who
shall, without the consent of the owner of the registered
mark:
155.1. Use in commerce any reproduction,
counterfeit, copy, or colorable imitation of a
registered mark or the same container or a
dominant feature thereof in connection with
the sale, offering for sale, distribution,
advertising of any goods or services which is
likely to cause confusion, or to cause mistake, or
to deceive; or
o Test of Dominancy - means that the exact copy
of the registered trademark is not required to
show infringement. If there is similarity with the
essential or dominant feature of the trademark
despite some variations in detail, there is
infringement.
o The test is whether or not the mark used would
likely cause confusion or mistake in the minds of
the buying public or deceive customers. The
deceptive tendency of the mark is enough to be
the basis for infringement. Intent to imitate is
immaterial. It is well-settled that fraudulent
intent is not required in infringement of a
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registered trademark. If there is fraudulent
intent, damages may be doubled.
155.2. Reproduce, counterfeit, copy or colorably
imitate a registered mark or a dominant feature
thereof and apply such reproduction,
counterfeit, copy or colorable imitation to
labels, signs, prints, packages, wrappers,
receptacles or advertisements intended to be
used in commerce which is likely to cause
confusion, or to cause mistake, or to deceive,
shall be liable in a civil action for infringement
regardless of whether there is actual sale of
goods or services using the infringing material.
o Sections 155.1 and 155.2:
The difference between no. 1 and no. 2
is that, in no. 1, the registered mark is already
being used in commerce more particularly there
has already been sale while in no. 2, the mark is
intended to be used in commerce and are
applied to labels, signs, prints, packages,
wrappers, receptacles or advertisements and it
is possible that there are no sales yet.
Section 156. Actions, and Damages and Injunction for
Infringement. -
(1) The owner of a registered mark may recover
damages from any person who infringes his
rights (156.1).
In cases where actual intent to mislead
the public or to defraud the complainant is
shown, the damages may be doubled (156.3).
(2) On application of the complainant, the court
may impound during the pendency of the
action, sales invoices and other documents
evidencing sales (156.2).
(3) The complainant, upon proper showing, may
also be granted injunction. (156.4)
(4) the court may order that goods found to be
infringing be, without compensation of any sort,
disposed of outside the channels of commerce
in such a manner as to avoid any harm caused to
the right holder, or destroyed (157.1 [Section
157. Power of Court to Order Infringing Material
Destroyed]).
Section 158. Damages; Requirement of Notice. - In any
suit for infringement, the owner of the registered mark
shall not be entitled to recover damages unless the acts
have been committed with knowledge that such
imitation is likely to cause confusion, or to cause mistake,
or to deceive. Such knowledge is presumed if the
registrant gives notice that his mark is registered by
displaying with the mark the words '"Registered Mark" or
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the letter R within a circle or if the defendant had o Distinctions between infringement of
otherwise actual notice of the registration. trademark and unfair competition:

1) Infringement of trademark is the

Very Important!!! unauthorized use of a trademark,
whereas unfair competition is the
Section 160. Right of Foreign Corporation to Sue in passing off of one’s goods as those of
Trademark or Service Mark Enforcement Action. - Any another;
foreign national (alien) or juridical person (foreign
corporation) who meets the requirements of Section 3 of 2) In Infringement of Trademark,
this Act and does not engage in business in the fraudulent intent is unnecessary,
Philippines may bring a civil or administrative action whereas in unfair competition,
hereunder for opposition, cancellation, infringement, fraudulent intent is essential;
unfair competition, or false designation of origin and
false description, whether or not it is licensed to do 3) In Infringement of Trademark, the
business in the Philippines under existing laws. (Sec. 21- prior registration of trademark is a pre-
A, R.A. No. 166a) requisite to the action, wheras in unfair
competition, registration is not
necessary;
Section 168. Unfair Competition, Rights, Regulation and
Remedies. - 168.1. A person who has identified in the 4) Infringement of Trademark involves
mind of the public the goods he manufactures or deals the same class of goods while unfair
in, his business or services from those of others, whether competition may involve different
or not a registered mark is employed, has a property classes of goods.
right in the goodwill of the said goods, business or
services so identified, which will be protected in the
same manner as other property rights. o Similarities between infringement of
trademark and unfair competition:
168.2. Any person who shall employ deception or any
other means contrary to good faith by which he shall 1) Both will result in a likelihood of
pass off the goods manufactured by him or in which he confusion, mistake or deception on the
deals, or his business, or services for those of the one part of the buying public;
having established such goodwill, or who shall commit
any acts calculated to produce said result, shall be guilty 2) Both cases must be filed with the
of unfair competition, and shall be subject to an action regular courts not with the Bureaus of
therefor. Legal Affairs;

168.3. The following shall be deemed guilty of unfair 3) Reliefs available to the plaintiff are
competition: the same.

(a) Any person, who is selling his goods and o Infringement of patent, infringement of
gives them the general appearance of goods of trademark and infringement of
another manufacturer or dealer; copyright as well as unfair competition
must be filed with the regular courts.
(b) Any person who by any artifice, or device, or
who employs any other means calculated to
induce the false belief that such person is
offering the services of another (such as PART IV
misrepresenting himself to be the exclusive THE LAW ON COPYRIGHT
distributor of a certain product, although CHAPTER I
actually he is not); or PRELIMINARY PROVISIONS

(c) Any person who shall make any false

statement in the course of trade or who shall
commit any other act contrary to good faith of a
nature calculated to discredit the goods,
business or services of another.
168.4. The remedies provided by Sections 156
and 157 (damages; impounding of sales invoices
and other documents evidencing sales;
injunction; destruction) shall apply mutatis
mutandis (in like manner).
o Copyright - is an intangible or incorporeal right
granted by statute to the author or originator of
certain literary or artistic productions whereby he
is invested with the sole and exclusive privilege of
multiplying or reproducing copies of the same and
publishing and selling them.
Section 171. Definitions. - For the purpose of this Act, the
following terms have the following meaning:

o Unfair Competition - is the passing off 171.1. "Author" is the natural person who has created
of one’s goods as those of others. the work;

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171.2. A "collective work" is a work which has been
created by two (2) or more natural persons at the
initiative and under the direction of another with the
understanding that it will be disclosed by the latter under
his own name and that the contributing natural persons
will not be identified (in relation to 178.5);
o collective work - such as cinematographic film
where producer will hire: (1) novelist; (2) script
writer; (3) musical scorer; (4) film director; (5) film
editor.
CHAPTER II
ORIGINAL WORKS
Section 172. Literary and Artistic Works. - 172.1. Literary
and artistic works, hereinafter referred to as "works", are
original intellectual creations in the literary and artistic
domain protected from the moment of their creation
(original copyrightable work or intellectual creation) and
shall include in particular:
(a) Books, pamphlets, articles and other
writings;
(b) Periodicals and newspapers;
(c) Lectures, sermons, addresses, dissertations
prepared for oral delivery, whether or not
reduced in writing or other material form;
(d) Letters;
(e) Dramatic or dramatico-musical
compositions; choreographic works or
entertainment in dumb shows;
(f) Musical compositions, with or without words;
(g) Works of drawing, painting, architecture,
sculpture, engraving, lithography or other works
of art; models or designs for works of art;
(h) Original ornamental designs or models for
articles of manufacture, whether or not
registrable as an industrial design, and other
works of applied art;
(i) Illustrations, maps, plans, sketches, charts
and three-dimensional works relative to
geography, topography, architecture or science;
(j) Drawings or plastic works of a scientific or
technical character;
(k) Photographic works including works
produced by a process analogous to
photography; lantern slides;
(l) Audiovisual works and cinematographic
works and works produced by a process
analogous to cinematography or any process for
making audio-visual recordings;
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(m) Pictorial illustrations and advertisements;
(n) Computer programs; and
(o) Other literary, scholarly, scientific and artistic
works.
172.2. Works are protected by the sole fact of their
creation, irrespective of their mode or form of
expression, as well as of their content, quality and
purpose.
CHAPTER III
DERIVATIVE WORKS
Section 173. Derivative Works. - 173.1. The following
derivative works shall also be protected by copyright:
(a) Dramatizations, translations, adaptations,
abridgments (shortened version), arrangements,
and other alterations of literary or artistic
works; and
(b) Collections of literary, scholarly or artistic
works, and compilations of data and other
materials which are original by reason of the
selection or coordination or arrangement of
their contents. (Sec. 2, [P] and [Q], P.D. No. 49)
173.2. The works referred to in paragraphs (a) and (b) of
Subsection 173.1 shall be protected as new works.
CHAPTER IV
WORKS NOT PROTECTED
Section 175. Unprotected Subject Matter (Non-
copyrightable works) - No protection shall extend, under
this law, to:
(1) any idea, procedure, system, method or
operation, concept, principle, discovery or mere
data as such, even if they are expressed,
explained, illustrated or embodied in a work;
(2) news of the day and other miscellaneous
facts having the character of mere items of
press information; or any official text of a
legislative, administrative or legal nature, as well
as any official translation thereof.
Section 176. Works of the Government. - 176.1. No
copyright shall subsist in any work of the Government of
the Philippines. However, prior approval of the
government agency or office wherein the work is created
shall be necessary for exploitation of such work for
profit.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
CHAPTER VI
OWNERSHIP OF COPYRIGHT
Section 178. Rules on Copyright Ownership. - Copyright
ownership shall be governed by the following rules:
178.1 In the case of original literary and artistic
works, copyright shall belong to the author of
the work;
178.2. In the case of works of joint authorship
(such as composer and lyricist of a song), the co-
authors shall be the original owners of the
copyright;
178.3. In the case of work created by an author
during and in the course of his employment, the
copyright shall belong to:
(a) The employee, if the creation of the
object of copyright is not a part of his
regular duties even if the employee
uses the time, facilities and materials of
the employer.
(b) The employer, if the work is the
result of the performance of his
regularly-assigned duties, unless there
is an agreement, express or implied, to
the contrary.
Very Important!!!
178.4. In the case of a work commissioned by a
person other than an employer of the author
and who pays for it, the person who so
commissioned the work shall have ownership of
the work, but the copyright thereto shall remain
with the creator, unless there is a written
stipulation to the contrary;
178.5. In the case of audiovisual work, the
copyright shall belong to the producer, the
author of the scenario, the composer of the
music, the film director, and the author of the
work so adapted; and
178.6. In respect of letters, the copyright shall
belong to the writer.
CHAPTER VII
TRANSFER OR ASSIGNMENT OF COPYRIGHT
Section 180. Rights of Assignee or Licensee -
180.1. the copyright may be assigned or licensed
in whole or in part. Within the scope (in
accordance with the contract in the assignment
or license) of the assignment or license, the
assignee or licensee is entitled to all the rights
and remedies which the assignor or licensor had
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with respect to the copyright (as amended by
R.A. 10372).
Very Important!!!
"180.2. the copyright is not deemed assigned or
licensed inter vivos unless there is a written
indication of such intention (as amended by R.A.
10372).
o inter vivos - the assignment or licensing
of the copyright is not during the
lifetime of the copyright owner but only
limited to a particular or single
production, presentation or publication.
180.3. The submission of a literary,
photographic or artistic work to a newspaper,
magazine or periodical for publication shall
constitute only a license to make a single
publication unless a greater right is expressly
granted. If two (2) or more persons jointly own a
copyright or any part thereof, neither of the
owners shall be entitled to grant licenses
without the prior written consent of the other
owner or owners.
"180.4. Any exclusivity in the economic rights in
a work may be exclusively licensed. Within the
scope of the exclusive license, the licensee is
entitled to all the rights and remedies which the
licensor had with respect to the copyright (as
amended by R.A. 10372).
"180.5. the copyright owner has the right to
regular statements of accounts from the
assignee or the licensee with regard to assigned
or licensed work [even if there is exclusivity
provision in the contract because the obvious
reason for this is for the copyright owner to
determine his rightful royalty] (as amended by
R.A. 10372).
Section 181. Copyright and Material Object. – the
copyright is distinct from the property in the material
object subject to it. Consequently, the transfer,
assignment or licensing of the copyright shall not itself
constitute a transfer of the material object (original
creation or work). Nor shall a transfer or assignment of
the sole copy or of one or several copies of the work
imply transfer, assignment or licensing of the copyright
(as amended by R.A. 10372).
Section 182. Filing of Assignment or License. - An
assignment or exclusive license may be filed in duplicate
with the Bureau of Copyright (Sec. 9 [A.1], R.A. 10372)
upon payment of the prescribed fee for registration in
books and records kept for the purpose.
Section 183. Designation of Society. - The copyright
owners or their heirs may designate a society of artists,
writers or composers to enforce their economic rights
and moral rights on their behalf. (Sec. 32, P.D. No. 49a)
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
CHAPTER VIII
LIMITATIONS ON COPYRIGHT
Section 184. Limitations on Copyright. - 184.1.
Notwithstanding the provisions of Chapter V, the
following acts shall not constitute infringement of
copyright:
(a) The recitation or performance of a work,
once it has been lawfully made accessible to the
public, if done privately and free of charge
Important!!!
DOCTRINE OF FAIR USE:
Section 185. Fair Use of a Copyrighted Work. - the fair
use of a copyrighted work for criticism, comment, news
reporting, teaching including limited number of copies
for classroom use, scholarship, research, and similar
purposes is not an infringement of copyright.
o Fair use - use in good faith with no intent to derive
profit or economic benefit.
Section 187. Reproduction of Published Work. - 187.1.
The private reproduction of a published work in a single
copy, where the reproduction is made by a natural
person exclusively for research and private study, shall
be permitted, without the authorization of the owner of
copyright in the work.
CHAPTER X
MORAL RIGHTS
Section 193. Scope of Moral Rights. - The author of a
work shall, independently of the economic rights (such
as royalties) or the grant of an assignment or license with
respect to such right, have the right:
193.1. To require that the authorship of the
works be attributed to him, in particular, the
right that his name, as far as practicable, be
indicated in a prominent way on the copies, and
in connection with the public use of his work;
193.2. To make any alterations of his work prior
to, or to withhold it from publication;
193.3. To object to any distortion, mutilation or
other modification of, or other derogatory
action in relation to, his work which would be
prejudicial to his honor or reputation;
Section 194. Breach of Contract. - An author cannot be
compelled to perform (this is a personal contract to do
where specific performance is not the proper remedy) his
contract to create a work or for the publication of his
work already in existence. However, he may be held
liable for damages for breach of such contract.
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Section 198. Term of Moral Rights. – 198.1. the right of
an author under Section 193.1. shall last during the
lifetime of the author and in perpetuity after his death
while the rights under Sections 193.2. 193.3. and 193.4.
shall be coterminous with the economic rights, the moral
rights shall not be assignable or subject to license. the
person or persons to be charged with the posthumous
enforcement of these rights shall be named in a written
instrument which shall be filed with the National Library.
In default of such person or persons, such enforcement
shall devolve upon either the author’s heirs, and in
default of the heirs, the Director of the National Library.
o Why not Bureau of Copyright (instead of National
Library) when these involve a license? - Atty. Bolivar
CHAPTER XVI
TERM OF PROTECTION
Section 213. Term of Protection. - The copyright in works
shall be protected during the life of the author and for
fifty (50) years after his death.
213.2. In case of works of joint authorship, the economic
rights shall be protected during the life of the last
surviving author and for fifty (50) years after his death.
CHAPTER XVII
INFRINGEMENT
Section 216. Infringement. – (as amended by R.A. 10372)
A person infringes a right protected under this Act when
one:
"(a) Directly commits an infringement;
"(b) Benefits from the infringing activity of
another person who commits an infringement if
the person benefiting has been given notice of
the infringing activity and has the right and
ability to control the activities of the other
person;
"(c) With knowledge of infringing activity,
induces, causes or materially contributes to the
infringing conduct of another.
"216.1. Remedies for Infringement. – Any person
infringing a right protected under this law shall be liable:
(1) injunction;
(2) actual damages;
(3) Deliver for impounding;
(4) Deliver for destruction all infringing copies or
devices;
(5) Payment of moral and exemplary damages.
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N. 2014

(6) seizure and impounding of any article which

may serve as evidence in the court proceedings
(216.2).

Section 217. Criminal Penalties. - 217.1. Any person

infringing any right secured by provisions of Part IV of
this Act or aiding or abetting such infringement shall be
guilty of a crime (plagiarism).

CHAPTER XIX
INSTITUTION OF ACTIONS

Section 225. Jurisdiction. - Actions (for infringement of

copyright) under this Act shall be cognizable by the
courts with appropriate jurisdiction under existing law.

Section 226. Damages. - No damages may be recovered

under this Act after four (4) years from the time the
cause of action arose.

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 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
THE SECURITIES
REGULATION CODE
R.A. 8799
CHAPTER I
TITLE AND DEFINITIONS
Purposes of the Law:
Section 2. Declaration of State Policy. – The State shall:
1) establish a socially conscious, free market (stock
exchange) that regulates itself,
2) encourage the widest participation of ownership
in enterprises (widely-held corporations are
favored over closed corporations),
3) enhance the democratization of wealth,
4) promote the development of the capital market
(such as investment companies),
5) protect investors (this is the primordial or
paramount or pre-dominant purpose of the law),
6) ensure full and fair disclosure about securities,
7) minimize if not totally eliminate insider trading
and other fraudulent or manipulative devices
and practices which create distortions in the
free market.
Memorize!!!
BAR FAVORITE:
o insider trading–refers to the act of an insider of
selling or buying a security of the issuer while
the said insider is in possession of material
information with respect to the issuer or the
security he is selling or buying which material
information is not available to the public.
Section 3. Definition of Terms. –
3.1. "Securities" are shares, participation or interests in a
corporation or in a commercial enterprise or profit-
making venture and evidenced by(such as certificate of
stocks, profit-sharing agreement, or bond indenture)a
certificate, contract, instruments, whether written or
electronic in character.
It includes:
(a) Shares of stocks, bonds, debentures, notes
evidences of indebtedness, asset-backed
securities;
(b) Investment contracts, certificates of interest
or participation in a profit sharing agreement,
certifies of deposit for a future subscription;
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(c) Fractional undivided interests in oil, gas or
other mineral rights;
(d) Derivatives like option and warrants;
(e) Certificates of assignments, certificates of
participation, trust certificates, voting trust
certificates or similar instruments;
(f) Proprietary or non-proprietary membership
certificates in corporations; and
(g) Other instruments as may in the future be
determined by the Commission.
3.2. "Issuer" is the originator, maker, obligor, or creator
of the security.
3.3. "Broker" is a person engaged in the business of
buying and selling securities for the account of others.
3.4. "Dealer" means many person who buys sells
securities for his/her own account in the ordinary course
of business.
3.5. "Associated person of a broker or dealer" is an
employee therefor whom, directly exercises control or
supervisory authority, but does not include a salesman,
or an agent or a person whose functions are solely
clerical or ministerial.
3.6. "Clearing Agency" is any person who acts as
intermediary (such as stock transfer agent)in making
deliveries upon payment effect settlement in securities
transactions.
3.7. "Exchange" is an organized market place or facility
that brings together buyers and sellers and executes
trading of securities and/or commodities.
Memorize!!!
BAR FAVORITE:
3.8. "Insider" means:
(a) the issuer;
(b) a director or officer (or any person
performing similar functions) of, or a person
controlling the issuer(majority stockholder);
(c) a person whose relationship or former
relationship to the issuer gives or gave him
access to material information about the issuer
or the security that is not generally available to
the public (refers to material information);
(d) A government employee(of the SEC),
director, or officer of an exchange, clearing
agency and/or self-regulatory organization who
has access to material information about an
issuer or a security that is not generally
available to the public; or
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
o self-regulatory organization – such as
association of dealers and brokers of securities)
(e) a person who learns such information by a
communication from any forgoing insiders.
3.9. "Pre-need plans" (such as educational and interment
plans) are contracts which provide for the performance
of future services of or the payment of future monetary
considerations at the time actual need, for which plan
holders pay in cash or installment at stated prices (the
premiums therefor), with or without interest or insurance
coverage and includes life, pension, education,
interment, and other plans which the Commission may
from time to time approve.
3.10. "Promoter" is a person who, acting alone or with
others, takes initiative in founding and organizing the
business or enterprise of the issuer and receives
consideration therefor.
3.11. "Prospectus" is the document made by or an behalf
of an issuer, underwriter or dealer to sell or offer
securities for sale to the public through registration
statement filed with the Commission.
o A kind or sort of a proposal to sell a security; the
form and contents thereof are prescribed by the
SEC.
3.12. "Registration statement" is the application for the
registration of securities required to be filed with the
Commission.
3.13. "Salesman" is a natural person, employed as such
as an agent, by a dealer, issuer or broker to buy and sell
securities.
3.14. "Uncertificated security" is a security evidenced by
electronic or similar records.
3.15. "Underwriter" is a person who guarantees on a
firm commitment and/or declared best effort basis the
distribution and sale of securities of any kind of another
company.
CHAPTER II
SECURITIES AND EXCHANGE COMMISSION
Section 5. Powers and Functions of the Commission.–
5.1. The Commission shall act with transparency and
shall have, among others, the following powers and
functions:
(a)Jurisdiction and supervision over all
corporations, partnership or associations which
are the grantees of primary franchises and/or a
license or a permit issued by the Government;
(b) Formulate policies and recommendations on
issues concerning the securities market, advise
Congress and other government agencies on all
aspect of the securities market and propose
legislation and amendments thereto;
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(c) Approve, reject, suspend, revoke or require
amendments to registration statements, and
registration and licensing applications;
(d) Regulate, investigate or supervise the
activities of persons to ensure compliance;
(e) Supervise, monitor, suspend or take over the
activities of exchanges, clearing agencies and
other SROs (self-regulatory organizations, such
as association of brokers, dealers and salesmen
of securities);
(f) Impose sanctions for the violation of laws
and rules, regulations and orders, and issued
pursuant thereto;
(g) Prepare, approve, amend or repeal rules,
regulations and orders, and issue opinions and
provide guidance on and supervise compliance
with such rules, regulation and orders;
(h) Enlist the aid and support of and/or
deputized any and all enforcement agencies of
the Government, civil or military as well as any
private institution, corporation, firm, association
or person in the implementation of its powers
and function under its Code;
(i) Issue cease and desist orders to prevent fraud
or injury to the investing public;
(j) Punish for the contempt of the Commission,
both direct and indirect, in accordance with the
pertinent provisions of and penalties prescribed
by the Rules of Court;
(k) Compel the officers of any registered
corporation or association to call meetings of
stockholders or members thereof under its
supervision;
(l) Issue subpoena duces tecum and summon
witnesses to appear in any proceedings of the
Commission and in appropriate cases, order the
examination, search and seizure of all
documents, papers, files and records, tax
returns and books of accounts of any entity or
person under investigation as may be necessary
for the proper disposition of the cases before it,
subject to the provisions of existing laws;
(m) Suspend, or revoke, after proper notice and
hearing the franchise or certificate of
registration of corporations, partnership or
associations, upon any of the grounds provided
by law; and
(n) Exercise such other powers as may be
provided by law as well as those which may be
implied from, or which are necessary or
incidental to the carrying out of, the express
powers granted the Commission to achieve the
objectives and purposes of these laws.
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5.2. The Commission’s jurisdiction over all cases
enumerated under Section 5(intra-corporate
controversies) of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the
appropriate Regional Trial Court: Provided, That the
Supreme Court in the exercise of its authority may
designate the Regional Trial Court branches that shall
exercise jurisdiction over the cases. The Commission shall
retain jurisdiction over pending cases involving intra-
corporate disputes submitted for final resolution which
should be resolved within one (1) year from the
enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of
payment/rehabilitation cases filed as of 30 June 2000
until finally disposed.
CHAPTER III
REGISTRATION OF SECURITIES
Important!!!
Section 8. Requirement of Registration of Securities
8.1. Securities shall not be sold or offered for sale or
distribution to the general public within the Philippines,
without a registration statement duly filed with and
approved by the Commission.
Memorize!!!
Section 9. Exempt Securities. –
9.1. The requirement of registration under Subsection
8.1 shall not as a general rule apply to any of the
following classes of securities:
(a) Any security issued or guaranteed by the
Government of the Philippines.
(b) Any security issued or guaranteed by the
government of any country with which the
Philippines maintains diplomatic relations.
(c) Certificates issued by a receiver or by a
trustee in bankruptcy duly approved by the
proper adjudicatory body.
(d) Any security or its derivatives(such as stock
options) the sale or transfer of which, by law, is
under the supervision and regulation of the
Office of the Insurance Commission (such as
insurance or endowment policy or annuity
contract), Housing and Land Use Rule
Regulatory Board (such as security issued by a
building and loan association), or the Bureau of
Internal Revenue(such as pension plan).
(e) Any security issued by a bank except its own
shares of stock.
o Exempt Securities – are those enumerated by
law as exempt from registration statement to be
filed with the SEC, whereas
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o Exempted Securities– are those which are not
enumerated by law as exempt from filing of
registration statement but considered and
determined by the SEC that the enforcement of
this law is not necessary in the public interest
and for the protection of investors.
9.2. The Commission may add to the foregoing any class
of securities(exempted securities)if it finds that the
enforcement of this Code with respect to such securities
is not necessary in the public interest and for the
protection of investors(such as shares of stocks to be
issued by a close corporation).
NOTE:
1) The reason for the exemption from registration
requirement under Section 9 is because, these
securities are issued by institutions or
organizations over which other government
agencies exercise supervisory care and it would
be repetitive for the SEC to require registration
and additional supervision.
2) If the securities are exempt or exempted from
registration requirement necessarily or
automatically, all transactions involving said
securities are automatically exempt whether
said transactions are included in Section 10 or
not.
3) If the security does not fall under Section 9.1 or
9.2, registration statement is required to be
filed and be approved by the SEC, However, if
the transactions involving said security falls
under Section 10.1 and 10.2, registration
statement for purposes of securing permit or
authority to sell is no longer required.
4) The reason for the exemption from the
registration requirement under Section 10, is
because the transaction is single or isolated;
hence, the general public is not involved and/ or
involving securities already in the hands of
security holders, as if they are still to be issued.
The purchasers or prospective purchaser are
persons who are deemed to know the status of
the issuer; hence, do not need, the protection
under the law.
Very Important!!!
Section 10. Exempt Transactions. –
10.1. The requirement of registration under Subsection
8.1 shall not apply to the sale of any security in any of the
following transactions:
(a) At any judicial sale, or sale by an executor,
administrator, guardian or receiver or trustee in
insolvency or bankruptcy.
(b) By or for the account of a pledge holder, or
mortgagee or any of a pledge lien holder selling
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
of offering for sale to liquidate a bona fide debt,
a security pledged in good faith as security for
such debt.
(c) An isolated transaction.
(d) The distribution by a corporation of
securities to its stockholders or other security
holders as a stock dividend or other distribution
out of surplus.
(e) The sale of capital stock of a corporation to
its own stockholders exclusively.
(f) The issuance of bonds or notes secured by
mortgage upon real estate or tangible personal
property, when the entire mortgage together
with all the bonds or notes secured thereby are
sold to a single purchaser at a single sale.
(g) The issue and delivery of any security in
exchange for any other security of the same
issuer pursuant to a right of conversion.
(h) Broker’s transaction, executed upon
customer’s orders, on any registered Exchange
or other trading market.
(i) Subscriptions for shares of the capitals stocks
of a corporation prior to the incorporation or in
pursuance of an increase in its authorized
capital stocks.
(j) The exchange of securities by the issuer with
the existing security holders exclusively.
(k) The sale of securities by an issuer to fewer
than twenty (20) persons in the Philippines
during any twelve-month period.
(l) The sale of securities to any number of the
following qualified buyers:
(i) Bank;
(ii) Registered investment house;
(iii) Insurance company;
(iv) Pension fund or retirement plan
maintained by the Government of the
Philippines or any political subdivision
thereof or manage by a bank or other
persons authorized by the Bangko
Sentral to engage in trust functions;
(v) Investment company or;
(vi) Such other person as the
Commission may rule by determine as
qualified buyers.
10.2.(Exempted Transactions)The Commission may
exempt other transactions, if it finds that the
requirements of registration under this Code is not
necessary in the public interest or for the protection of
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the investors such as by the reason of the small amount
involved or the limited character of the public offering.
Section 11. Commodity Futures Contracts. - No person
shall offer, sell or enter into commodity futures contracts
except in accordance with the rules, regulations and
orders the Commission may prescribe.
o commodity futures contracts–contracts to buy
and sell interest in a commodity or security to be
delivered in the future.
Important!!!
Section 12. Procedure of Registration Securities. –
(1) All securities required to be registered. I shall be
registered through the filing by the issuer in the
main office of the Commission, of a sworn
registration statement with the respect to such
securities, in such form and containing such
information and document as the Commission
prescribe(12.1).
(2) Upon filing of the registration statement, the
issuer shall pay to the Commission a fee of not
more than one-tenth (1/10) of one per
centum (1%) of the maximum aggregate price at
which such securities are proposed to be
offered (12.5 [a]).
(3) Notice of the filing of the registration statement
shall be immediately published by the issuer, at
its own expense, in two (2) newspapers of
general circulation in the Philippines, once a
week for two (2) consecutive weeks, reciting
that a registration statement for the sale of such
securities has been filed, and that aforesaid
registration statement, as well as the papers
attached thereto are open to inspection (12.5
[b]).
(4) Within forty-five (45) days after the date of filing
of the registration statement, the Commission
shall declare the registration statement effective
or rejected, unless the applicant is allowed to
amend the registration statement. The
Commission shall enter an order declaring the
registration statement to be effective if it finds
that the registration statement together with all
the other papers and documents attached
thereto, is on its face complete and that the
requirements have been complied with (12.6).
Section 13. Rejection and Revocation of Registration of
Securities. –
13.1. The Commission may reject a registration
statement and refuse registration of the security there-
under, or revoke the affectivity of a registration
statement and the registration of the security there-
under after the due notice and hearing by issuing an
order to such effectif it finds that:
 Commercial_Law_Review/Allied_Special_Laws/Atty._Bolivar_Lecture_Notes/SALIVIO, Yani N.
(a) The issuer:
(i) Has been judicially declared
insolvent;
(ii) Has violated any of the provision of
this Code, the rules promulgate
pursuant thereto, or any order of the
Commission of which the issuer has
notice in connection with the offering
for which a registration statement has
been filed
(iii) Has been or is engaged or is about
to engage in fraudulent transactions;
(iv) Has made any false or misleading
representation of material facts in any
prospectus concerning the issuer or its
securities;
(v) Has failed to comply with any
requirements that the Commission may
impose as a condition for registration
of the security for which the
registration statement has been filed;
or
(b) The registration statement is on its face
incomplete or inaccurate in any material respect
or includes any untrue statements of a material
fact required to be stated therein or necessary
to make the statement therein not misleading;
or
(c) The issuer, any officer, director or controlling
person performing similar functions, or any
under writer has been convicted, by a
competent judicial or administrative body, upon
plea of guilty, or otherwise, of an offense
involving moral turpitude and /or fraud or is
enjoined or restrained by the Commission or
other competent or administrative body for
violations of securities, commodities, and other
related laws.
CHAPTER IV
REGULATION OF PRE-NEED PLANS
Section 16. Pre-Need Plans. – No person shall sell or
offer for sale to the public any pre-need plan except in
accordance with rules and regulations which the
Commission shall prescribe. Such rules shall regulate the
sale of pre-need plans by:
1) requiring the registration of pre-need plans,
2) licensing persons involved in the sale of pre-
need plans,
3) requiring disclosures to prospective plan
holders,
4) prescribing advertising guidelines,
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5) providing for uniform accounting system,
reports and recording keeping with respect to
such plans,
6) imposing capital, bonding and other financial
responsibility, and
7) establishing trust funds for the payment of
benefits under such plans.
CHAPTER V
REPORTORIAL REQUIREMENTS
Section 18. Reports by five per centum (5%) Holders of
Equity Securities. –
18.1. In every case in which an issuer satisfies the
requirements of Subsection 17.2 hereof any person who
acquires directly or indirectly the beneficial ownership of
more than five of per centum (5%) of such class(shares
of stocks)shall, within ten (10) days after such acquisition
submit:
1) to the issuer of the securities,
2) to the Exchange where the security is traded,
and
3) to the Commission a sworn statement
containing the following information and such
order information as the Commission may
require in the public interest or for the
protection of investors.
(a) The personal background, identity,
residence, and citizenship of, and the nature of
such beneficial ownership by, such person and
all other person by whom or on whose behalf
the purchases are effected; in the event the
beneficial owner is a juridical person, the of
business of the beneficial owner shall also be
reported;
(b) If the purpose of the purchases or
prospective purchases is to acquire control of
the business of the issuer of the securities, any
plans or proposals which such persons may have
that will effect a major change in its business or
corporate structure;
(c) The number of shares of such security which
are beneficially owned, and the number of
shares concerning which there is a right to
acquire, directly or indirectly, by; (i) such
person, and (ii) each associate of such person,
giving the background, identity, residence, and
citizenship of each such associate; and
(d) Information as to any contracts,
arrangements, or understanding with any
person with respect to any securities of the
issuer including but not limited to transfer, joint
ventures, loan or option arrangements, puts or
call guarantees or division of losses or profits, or
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proxies naming the persons with whom such
contracts, arrangements, or understanding have
been entered into, and giving the details
thereof.
o put – is a transferrable option to sell a specified
number of shares of stock at a stated price
which is usually below the current market price
at any time during a stated period.
o call – is a transferrable option to buy a specified
number of shares of stocks at a stated price,
which is usually above the current price at any
time during a stated price.
18.3. The Commission, may permit any person to file in
lieu of the statement required by subsection 18.1 hereof,
a notice stating the name of such person, the shares of
any equity securities subject to Subsection 18.1 which
are owned by him, the date of their acquisition and such
other information as the commission may specify, if it
appears to the commission that such securities were
acquired by such person(dealer in securities)in the
ordinary course of his business and were not acquired for
the purpose of and do not have the effect of changing or
influencing the control of the issuer nor in connection
with any transaction having such purpose or effect.
CHAPTER VI
PROTECTION OF SHAREHOLDERS INTERESTS
Very Very Important!!!
BAR FAVORITE
Section 19. Tender Offers. –
o tender offer– is an offer made to the existing
stockholders of the issuer by a person or group
of persons who intends to buy or acquire equity
security (share of stocks) from such issuer of at
least fifteen percent (15%) of such class at one
time or at least 30% of such class over a period
of 12 months by filing with the SEC a declaration
to that effect.
19.1 Any person or group of persons acting in concert
who intends to acquire at least 15% of any class of any
equity security of a listed corporation of any class of any
equity security of a corporation or who intends to
acquire at least thirty percent(30%) of such equity
security over a period of twelve months(12) shall make a
tender offer to stockholders because of their right of pre-
emption by filling with the Commission a declaration to
that effect; and furnish the issuer, a statement
containing such of the information required in Section
18.
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Section 20. Proxy solicitations
20.1. Proxies must be issued and proxy solicitation must
be made in accordance with rules and regulations to be
issued by the Commission;
20.2. Proxies must be in writing, signed by the
stockholder or his duly authorized representative and file
before the scheduled meeting with the corporate
secretary.
20.4. No broker or dealer shall give any proxy, consent or
any authorization, in respect of any security carried for
the account of the customer, to a person other than the
customer, without written authorization of such
customer.
o to a person other than the customer – but the
certificate of stock is in the name of the broker
or dealer, because normally the money used to
purchase the shares of stock was advanced by
the dealer or broker; hence, for his own
safeguards or security, the Certificate of Stocks
is in his name in the meantime that the money
he advanced has not yet been paid by his
customer.
o The person who issues a proxy or authority is the
dealer or broker because the certificate of stock
is in his name and the proxy must be issued in
favor of his customer, and if issued to a person
other than his customer, the latter must give an
express written authority to the dealer or broker.
CHAPTER VII
PROHIBITIONS AND FRAUD, MANIPULATION AND
INSIDER TRADING
Important!!!
Section 24. Manipulation of Security Prices; Devices and
Practices. –
o Section 24.1 – these are the manipulative
devices or practices known as “pegging the
prices of securities.”
24.1 It shall be unlawful for any person acting for himself
or through a dealer or broker, directly or indirectly:
(a) To create a false or misleading appearance of active
trading in any listed security traded in an Exchange:
(i) By effecting any transaction in such security
which involves no change in the beneficial
ownership thereof (wash sale);
 wash – is the sale of securities where it
appears that within a period beginning
30 days before the date of such sale
and ending 30 days after such date, the
seller acquired (or purchased)
substantially identical securities.
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 short sale – is the sale of a security for
future delivery with the expectation
that the market price will be no higher
or will decline by the time a covering
purchase and delivery will be made.
 stop loss order – is a limit order to buy
or sell a quantity of stock which
becomes a market order as soon as the
stock prices declines thru the limit
specified by the customer.
(ii) By entering an order or orders for the
purchase or sale of such security with the
knowledge that a simultaneous order or orders
of substantially the same size, time and price,
for the sale or purchase of any such security, has
or will be entered (matched orders); or
(iii) By performing similar act where there is no
change in beneficial ownership.
(b) To affect, alone or with others, series of transactions
in securities that: (i) Raises their price to induce the
purchase of a security, whether of the same or a
different class of the same issuer; or (ii) Depresses their
price to induce the sale of a security, whether of the
same or a different class, of the same issuer; or, (iii)
Creates active trading to induce such a purchase or sale
through manipulative devices such as marking the close,
painting the tape, squeezing the float, hype and dump,
boiler room operations and such other similar devices
(market rigging or jiggling).
(c) To circulate or disseminate information that the price
of any security listed in an Exchange will or is likely to rise
or fall for the purpose of raising or depressing the price
of the security for the purpose of inducing the purpose of
sale of such security (fraudulent dissemination of
information).
(d) To make false or misleading statement with respect
to any material fact, which he knew or had reasonable
ground to believe was so false or misleading, for the
purpose of inducing the purchase or sale of any security
listed or traded in an Exchange (making false or
misleading statements).
(e) To effect, either alone or others, any series of
transactions for the purchase and/or sale of any security
traded in an Exchange for the purpose of pegging(or
restricting), fixing or stabilizing the price of any security;
unless otherwise allowed by this Code or by rules of the
Commission.
24.2. No person shall use or employ, in connection with
the purchase or sale of any security any manipulative or
deceptive device or contrivance. Neither shall any short
sale be effected nor any stop-loss order be executed in
connection with the purchase or sale of any security.
24.3. The foregoing provisions notwithstanding, the
Commission, having due regard to the public interest and
the protection of investors, may, by rules and
regulations, allow certain acts or transactions that may
otherwise be prohibited under this Section.
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Very Important!!!
Section 27. Insider’s Duty to Disclose When Trading. –
27.1. It shall be unlawful for an insider to sell or buy a
security of the issuer, while in possession of material
information with respect to the issuer or the security
that is not generally available to the public, unless:
(a) The insider proves that the information was
not gained(such as when the material
information was obtained from the stock
exchange)from such relationship; or
(b) If the other party selling to or buying from
the insider (or his agent) is identified, the insider
proves(or which means): (i) that he disclosed
the information to the other party, or (ii) that he
had reason to believe that the other party
otherwise is also in possession of the
information.
27.2.Information is “material non-public" if:
(a) It has not been generally disclosed to the
public and would likely affect the market price
of the security after being disseminated to the
public and the lapse of a reasonable time for the
market to absorb the information; or
(b) would be considered by a reasonable person
important under the circumstances in
determining his course of action whether to
buy, sell or hold a security.
27.3. It shall be unlawful for any insider to communicate
material non-public information about the issuer or the
security to any person who, by virtue of the
communication, becomes an insider, where the insider
communicating the information knows or has reason to
believe that such person(to whom the material
information was communicated)will likely buy or sell a
security of the issuer whole in possession of such
information.
CHAPTER VIII
REGULATION OF SECURITIES MARKET PROFESSIONALS
Section 28. Registration of Brokers, Dealers, Salesmen
and Associated Persons.
28.1. No person shall engage in the business of buying or
selling securities in the Philippine as a broker or dealer,
or act as a salesman, or an associated person of any
broker or dealer unless registered as such with the
Commission.
Section 29. Revocation, Refusal or Suspension of
Registration of Brokers, Dealers, Salesmen and
Associated Persons. –
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29.1. Registration under Section 28 of this Code may be
refused , or any registration granted thereunder may be
revoked, suspended, or limitations placed thereon, by
the Commission if, after due notice and hearing the
Commission determines the application or registrant:
(a) Has willfully violated any provision of this
Code, any rule, regulation or order made
hereunder, or any other law administered by
the Commission, or in the case of a registered
broker, dealer or associated persons has failed
to supervise, with a view to preventing such
violation, another person who commits such
violation;
(b) Has willfully made or caused to be made a
materially false or misleading statement in any
application for registration or report filed with
the Commission or a self-regulatory
organization, or has willfully omitted to state
any material fact that is required to be stated
therein;
(c) Has failed to satisfy the qualifications or
requirements for registration prescribed under
Section 28 and the rules and regulations of the
Commission promulgated thereunder;
(d) Has been convicted, by a competent judicial
or administrative body of an offense involving
moral turpitude, fraud, embezzlement,
counterfeiting, theft, estafa, misappropriation,
forgery, bribery, false oath, or perjury, or of a
violation of securities, commodities, banking,
real state or insurance laws;
(e) Is enjoined or restrained by a competent
judicial or administrative body from engaging in
securities, commodities, banking, real state or
insurance activities or from willfully violating
laws governing such activities;
(f) Is subject to an order of a competent judicial
or administrative body refusing, revoking or
suspending any registration, licensed or other
permit under this Code, the rules and
regulations promulgated thereunder, any other
law administered by the Commission;
(g) Is subject to an order of a self-regulatory
organization suspending or expelling him from
membership or participating therein or from
association with a member or participant
thereof;
(h) Has been found by a competent judicial or
administrative body to have willfully violated
any provisions of securities, commodities,
banking, real state or insurance laws, or has
willfully aided, abetted, counseled, commanded,
induced or procured such violation; or
(i) Has been judicially declared insolvent.
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CHAPTER IX
EXCHANGES AND OTHER SECURITIES TRADING
MARKETS
Section 32. Prohibition on Use of Unregistered
Exchange; Regulation of Over-the-Counter Markets.
32.1. No broker, dealer, salesman, associated person of a
broker or dealer, or Exchange, directly or indirectly shall
make use of any facility of an Exchange in the Philippines
to effect any transaction in a security, or to report such
transaction, unless such Exchange is registered as such
under Section 33 of this Code.
Section 33. Registration of Exchanges. –
Important!!!
33.2. Registrations of an Exchange shall be granted upon
compliance with the following provisions:
(a) That the applicant is organized as a stock
corporation;
(b) That the applicant is engaged solely in the
business of operating as exchange;
(c)That no person may beneficially own or
control, directly or indirectly, more than five
percent (5%) (such as oil industry, construction
industry and food and beverage industry)of the
voting rights of the Exchange and no industry or
business group may beneficially own or control,
directly or indirectly, more than twenty percent
(20%) of the voting rights of the Exchange.
Section 36. Powers with Respect to Exchanges and
Other Trading Market. –
36.1. The Commission is authorized, if in its opinion such
action is necessary or appropriate for the protection of
investors and the public interest so requires, summarily
to suspend trading on any listed security on any
Exchange for a period not exceeding thirty (30) days but
not exceeding ninety (90) days.
CHAPTER X
REGISTRATION, RESPONSIBILITIES AND OVERSIGHT OF
SELF-REGULATORY ORGANIZATIONS
Section 39. Associations of Securities Brokers, and
Dealers, and Other Securities Related Organizations.
39.1. The Commission shall have the power to register as
a self-regulatory organization, or otherwise grant
licenses, and to regulate, supervise, examine, suspend or
otherwise discontinue, as a condition for the operation
of organizations whose operations are related to or
connected with the securities market such as but not
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limited to associations of brokers and dealers, transfer
agents, custodians.
CHAPTER XI
ACQUISITION AND TRANSFER OF SECURITIES AND
SETTLEMENT OF TRANSACTION IN SECURITIES
Section 42. Registration of Clearing Agencies. –
42.1.Any clearing agency may be registered as such with
the Commission under the terms and conditions
hereinafter provided in this Section, by filing an
application for registration in such form and containing
such information and supporting documents as the
Commission by rule shall prescribe.
o clearing agency– are stock transfer agents
whose function is similar to arbitration board.
Section 43. Uncertificated Securities. –
43.1. A corporation whose securities are registered
pursuant to this Code or listed on securities exchange
may:
(a) If so resolved by its Board of Directors and
agreed to by a shareholder, investor or
securities intermediary (such as broker), issue
shares to, or record the transfer of some or all
its shares into the name of said shareholder,
investor or, securities intermediary in the form
of uncertified securities. The use of uncertified
securities in these circumstances shall be
without prejudice to the rights of the securities
intermediary subsequently to require the
corporation to issue a certificate of stock in
respect of any shares recorded in its name; and
CHAPTER XII
MARGIN AND CREDIT
Important!!!
BAR FAVORITE
Section 48. Margin Requirements. –
48.1. For the purpose of preventing the excessive use of
credit for the purchase or carrying of securities, the
Commission shall prescribe rules and regulations with
respect to the amount of credit that may be extended by
the broker to the customer on any security. For the
extension of credit, such rules and regulations shall be
based upon the following standard:
An amount(of credit that may be extended by the broker
to his customer)not greater than the whichever is the
higher of –
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(a)Sixty-five per centum (65%) of the current
market price of the security, or
(b)One hundred per centum (100%) of the
lowest market price of the security during the
preceding thirty-six (36) calendar months, but
not more than seventy-five per centum (75%) of
the current market price.
However, the Monetary Board may increase or
decrease the above percentages, in order to achieve the
objectives of the Government with due regard for
promotion of the economy and prevention of the use of
excessive credit.
Such rules and regulations may make
appropriate provision with respect to the carrying of
undermargined accounts for limited periods and under
specified conditions; the withdrawal of funds or
securities; the transfer of accounts from one lender to
another; special or different margin requirements for
delayed deliveries, short sales, arbitrage transactions,
and securities to which letter (b) of the second paragraph
of this subsection does not apply; the methods to be
used in calculating loans, and margins and market prices;
and similar administrative adjustments and details.
o delayed deliveries – are deliveries of securities
from a broker to a customer within a period
agreed upon in the contract.
o short sales - is the sale of a security for future
delivery with the expectation that the market
price will be no higher or will decline by the time
a covering purchase and delivery will be made.
o arbitrage transaction – is the simultaneous
buying of securities in one exchange and selling
at another in order to profit from price
discrepancies.
o margin transaction – is the purchase of a
security, with only part of the necessary funds
supplied by the purchaser/ customer, the rest
being made available by his broker [the broker
retains the security as collateral for his credit]
o margin trading–refers to securities transactions
involving the use of credit and to the systems of
techniques and accommodations facilitating
such transactions.
o margin – is the use of credit for the purpose of
financing ownership of securities. It may also
refer to the fund supplied by the purchaser/
customer to his broker.
 Illustration: The current market price of the
security to be purchased is P1 million while the
lowest market price (LMP) thereof during the
preceding 36 months is P600,000. How much
credit may the broker extend to his customers
and how much is the margin?
65%of the current market price (CMP)
of p1 million is P650,000, while 100% of the LMP
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of P600,000 is P600,000, and the latter amount

is not more than 75% of the CMP of P1 million or
P750,000. Hence, the amount of credit that can
be extended by the broker is P650,000 which is
the higher of 65% of P1 million and the 100% of
the P600,000. Therefore the margin is (P1
million – P650,000) P350,000.

 Illustration: The CMP of the security to be

purchased is P1 million, while the LMP during
the preceding 36 months is P800,000. How much
credit may the broker extend to his customer
and how much is the margin?

65% of the CMP of P1 million is

P650,000, while 100% of the LMP of P800,000 is
P800,000. But the latter amount is more than
75% of the CMP of P1 million or P750,000.
Hence, the amount of credit is P750,000 which is
the higher of the 65% of CMP which is P650,000
and the 75% of the CMP which is P750,000.
Therefore, the margin is (P1 million – P750,000)
P250,000.

Section 62. Limitation of Actions. –

62.1. No action shall be maintained to enforce any

liability created under Section 56(liability for damages on
act of false registration statement)or 57 (liability to
return the purchase price of the security or damages
arising in connection with prospectus, communications
and reports)unless brought within two (2) years after the
discovery of the untrue statement or the omission, or
brought within two (2) years after the violation upon
which it is based.

Section 70. Judicial Review of Commission Orders. – Any

person aggrieved by an order of the Commission may
appeal the order to the Court of Appeals by petition for
review in accordance with the pertinent provisions of the
Rules of Court.

Section 71. Validity of Contracts. –

71.1. Any condition, stipulation, provision binding any

person to waive compliance with any provision of this
Code or of any rule or regulation thereunder, or of any
rule of an Exchange required thereby, as well as the
waiver itself, shall be void.

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