nr vosaauwz| 78 _N O ZFacury oF Crvit. Law (1734) COMMERCIAL LAW 2021 GOLDEN NOTES FACULTY OF CIVIL LAW UNIVERSITY OF SANTO TOMAS MANILAThe UST GOLDEN NOTES is the annual student-edited bar review material of the University of Santo Tomas, Faculty of Civil Law. Communications regarding the Notes should be addressed to the Academics Committee of the Team: Bar-Ops. Address: Academics Committee UST Bar Operations Faculty of Civil Law University of Santo Tomas Espaiia, Manila 1008 Tel.No: (02) 731-4027 (02) 406-1611 loc. 8578 Academics Committee Faculty of Civil Law University of Santo Tomas Espafia, Manila 1008 All rights reserved by the Academics Committee of the Faculty of Civil Law of the Pontifical and Royal University of Santo Tomas, the Catholic University of the Philippines. 2021 Edition No portion of this material may be copied or reproduced in books, pamphlets, outlines or notes, whether printed, mimeographed, typewritten, copied in different electronic devises or in any other form, for distribution or sale, without a written permission, A copy of this material without the corresponding code either proceeds from an illegal source or is in possession of one who has no authority to dispose the same. Released in the Philippines, 2021.ACADEMIC YEAR 2020-2021 CIVIL LAW STUDENT COUNCIL LYODYCHIE Q. CAMARAO PRESIDENT MARIA FRANCES FAYER. GUTIERREZ, VICE PRESIDENT INTERNAL ‘STEPHEN FLOYD A.GOPEZ VICE PRESIDENT EXTERNAL KRYSTAL GAYLE R.DIGAY SECRETARY NATHAN RAPHAEL D.L AGUSTIN ‘TREASURER GIAN JUSTIN E. VERONA PURLIC RELATIONS OFFICER IRIS ABIGAIL C_PORAQUE CHIEF-OF-STAFF UST BAR-OPS KRIZA NINA B. MALALUAN CHAIRPERSON ELISHA ELAINE D. BAYOT VICE-CHAIRPERSON INTERNAL JOSEPHINE GRACE W. ANG VICE CHAIRPERSON EXTERNAL MARINETTEM. SOBREVILLA SECRETARY SARAH ANGELA. EVA HEAD, PUBLIC RELATIONS OFFICER REBECCA JOY M. MALITAO HEAD, FINANCE COMMITTEE JEDIDIAHR. PADUA HEAD, HOTEL ACCOMMODATIONS COMMITTEE SABINA MARIA H. MABUTAS ASST. HEAD, HOTEL ACCOMMODATIONS COMMITTEE, JOEMARI MATHEW R. AGARIN HEAD, LOGISTICS COMMITTEE JOHN FREDERICK A. NOJARA Locistics COMMITTEE KIER JOHN V. UY Locistics COMMITTEE, CHRISTINE JOYCE P. ANDRES SENIOR MEMBER ELOUISA ANN D.C. CARREON SENIOR MEMBER NICOLE MARIE A. CORTES SENIOR MEMBER PATRICIA MAE D. GUILLERMO SENIOR MEMBER GLENN MATTHEW C MANLAPID SENIOR MEMBER CIARIT. MENDOZA SENIOR MEMBER MARYLOU RENZIM. OLOTEO SENIOR MEMBER LOUELLEJUDE B. QUE SENIOR MEMBER JAMES KOSS L. TAN SENIOR MEMBER ATTY. AL CONRAD B. ESPALDON ‘ADVISERACADEMICS COMMITTEE 2021 MARIA FRANCES FAYE R. GUTIERREZ SECRETARY GENERAL NATHAN RAPHAEL D.L. AGUSTIN ASST. SECRETARY GENERAL JOHN EDWARD F. FRONDA EXECUTIVE COMMITTEE ‘ANGEL ISAHM. ROMERO EXECUTIVE COMMITTEE KIRBY ANNEC.RENIA EXECUTIVE COMMITTEE KAREN ABBIE C. ASPIRAS EXECUTIVE COMMITTEE JOSE CHRISTIAN ANTHONY I. PINZON EXECUTIVE COMMITTEE MARIA FRANCES FAYE R. GUTIERREZ LAYOUT ARTIST CIARIT. MENDOZA COVER DESIGN ARTIST COMMERCIAL LAW COMMITTEE 2021 ALLEN FREIDRICKB. ORODIO (COMMERCIAL LAW COMMITTEE HEAD RONNEL L. BELGA ASST. HEAD, INSURANCE LAW ENNA MAY H. HERMOSA ASST. HEAD, SPECIAL COMMERCIAL LAWS DAWN DESIREE 1. DELA PENA ‘ASST. HEAD, NEGOTIABLE INSTRUMENTS AW MICHAEL DALE R. APAREJADO ASST. HEAD, CORPORATION LAW YHANNA PATRICIA Y. MARTINEZ ‘ASST. HEAD, INTELLECTUAL PROPERTY LAW SARAH ANGELA D. EVA ASST. HEAD, TRANSPORTATION LAW MEMBERS IANA YSABEL A. ABELEDA MARK JOSHUA C. AMANCIO ANTHONY LUIGIB. DEVERA EDSON A. YUZON MICHAELLA G. RAMIREZ JAZIELM, DULA SEAN REY H.PULGAR SYDNEY ELLEN G, DESERVA JOSEMARIA ENRIQUE T. BAUTISTA RIZA FLOR. MOSQUERA. JUDGE MARIA ELLA CECILIA D. ESCALANTE ATTY. MARIAN JOANNE K. CO-PUA. ATTY. AMADO E. TAYAG AdvisersACADEMICS COMMITTEE 2020 AYA DOMINIQUE S, CAPARAS SECRETARY GENERAL MARIA FRANCES FAYE R. GUTIERREZ ASST. SECRETARY GENERAL RUTH MAE G. SANVICTORES EXECUTIVE COMMITTE! NICOLE G. AMANTE EXECUTIVE COMMITTEE JAVSON GABRIEL R. SORIANO EXECUTIVE COMMITTE CARA ANGELA N. FLORES EXECUTIVE COMMITTEE IANA CASSANDRA Y. ESMILE EXECUTIVE COMMITTEE AYA DOMINIQUE S. CAPARAS LAYOUT ARTIST CIARIT. MENDOZA COVER DESIGN ARTIST COMMERCIAL LAW COMMITTEE 2020 ‘MA. CLARISSA M. DELA CRUZ ‘COMMERCIAL LAW COMMITTEE HEAD. SHERISSA MARISSE M. BERNABE ASST. HEAD, INSURANCE LAW NICOLE ANN GRYSTA M. ROMERO ASST. HEAD, SPECIAL COMMERCIAL LAWS ALLEN FREIDRICK 8. ORODIO ‘ASST. HEAD, NEGOTIABLE INSTRUMENTS 1AW KRISTELSAMSON ASST. HEAD, CORPORATION LAW LINCY JANE AGUSTIN ‘ASST. HEAD, INTELLECTUAL PROPERTY LAW MICHAEL DALE R APAREJADO ASST. HEAD, TRANSPORTATION LAW MEMBERS CLAUDETTE IRENE S, MANALASTAS JENLA RAS RONNEL LOPEZ BELGA PRECIOUS OBIEGBU GIO B. SEMENIANO GABRIEL ADORA SARAH ANGELA D. EVA RALPH RAFAEL CELINO “TEODULO N. CRUZ, JR. NATHAN ISAAC PUZON JAZIELM.DULA JUDGE MARIA ELLA CECILIA D. ESCALANTE ATTY. AMADO E. TAYAG AdvisersFACULTY OF CIVIL LAW UNIVERSITY OF SANTO TOMAS ACADEMIC OFFICIALS ATTY. NILO T. DIVINA REV. FR. ISIDRO C. ABANO, 0.P. DEAN RECENT ATTY. ARTHUR B. CAPILI FACULTY SECRETARY ATTY. ELGIN MICHAEL C. PEREZ LEGAL COUNSEL UST CHIEF JUSTICE ROBERTO CONCEPCION LEGAL AID CLINIC JUDGE PHILIP A. AGUINALDO SWDB COORDINATOR LENY G. GADIANA, R.G.C. GUIDANCE COUNSELOROUR DEEPEST APPRECIATION TO OUR MENTORS AND INSPIRATION DEAN NILO T. DIVINA DEAN AMADO L. DIMAYUGA ATTY. JACINTO D. JIMENEZ ATTY. ALBERT R. PALACIOS ATTY. AMADO E. TAYAG ATTY. TEOFILO R. RAGADIO ATTY. ALLAN B. GEPTY JUSTICE GABRIEL T. ROBENIOL JUSTICE JAPAR B. DIMAAMPAO JUDGE MARIA ELLA CECILIA D. ESCALANTE ATTY. MARIAN JOANNE K. CO-PUA ATTY. FE T. BECINA - MACALINO For being our guideposts in understanding the intricate sphere of Mercantile Law. -Academics Committee 2021DISCLAIMER THE RISK OF USE OF THIS BAR REVIEW MATERIAL SHALL BE BORNE BY THE USERTable of Contents INSURANCE .. A. Concept of Insurance. B. Elements of an insurance contract. C. Characteristics and nature of insurance contracts. Microinsurance. Compulsory motor vehicle liability insurance. Compulsory insurance coverage for agency-hired workers E. Variable contracts... SN AAA w F. Insurable interest 1. Inlife/ health. 2. In property.. 3. Double insurance and over insurance... 4. Multiple or several interests on same propert G. Perfection of the contract of insurance 1. Offer and acceptance/ consensuality. a. Delay in acceptance b. Delivery of policy 2. Premium payment 3. Non-default options in life insurance 4. Reinstatement of a lapsed policy of life insurance... 5. Refund of premiums. H. Rescission of insurance contracts cee 1. Concealment 2. Misrepresentation/ omissions... 3. Breach of warranties. 1. Claims settlement and subrogation. 46 1. Notice and proof of loss.. 2. Guidelines on claims settlement a. Unfair claims settlement; sanctions. b. Prescription of actio1UL ML. c. Subrogation J. Business of insurance; requirements. K. Insurance Commissioner and its powers. PRE-NEED A. Definition. 1. Pre-need plans . 2. Pre-need company een eee 56 B. Registration of pre-need plans. C. Liscensing of sales counselor and general agent. D. Default and termination. E. Claims settlement ‘TRANSPORTATION LAW .. A. COMMON CARRIERS. 1. Diligence required of common carriers.. 2. Liabilities of common carriers companies. B. VIGILANCE OVER GOODS 1, Exempting Causes. a. Requirement of absence of negligence. b. Absence of delay. ¢. Due diligence to prevent or lessen the loss 2. Contributory Negligence 3. Duration of liability. a. Delivery of goods to common carrier. b. Actual or constructive delivery. c. Temporary unloading or storage. 4. Stipulation for limitation of liability. a. Void stipulation... b. Limitation of liability to fixed amount. c. Limitation of liability in absence of declaration of greater value 5. Liability for baggage of passenger: a. Checked-in baggage b. Baggage in possession of passengers. C. SAFETY OF PASSENGERS. 1. Void stipulation 2. Duration of liability _ a, Waiting for carrier or boarding of carrier. b. Arrival at destinatior3. Liability for acts of others a, Employees b. Other passengers and strangers. 4. Liability for delay in commencement of voyage... 5. Liability for defects in equipment and facilities. 6. Extent of liability for damages... D. BILL OF LADING 1, Three-fold character 2. Delivery of goods. a. Period for delivery b. Delivery without surrender of bill of lading cee BB ¢. Refusal of consignee to take delivery. 3. Period for filing claims... 4. Period for filing actions 5. Effects of stipulations E. MARITIME COMMERCE. 1. Charter parties... a. Bareboat/demise charter. b, Time charter. c. Voyage/trip charter 2. Liability of shipowners and shipping agents. a. Liability for acts of captain. b. Exceptions to limited liability.. 3. Accidents and damages in maritime commerce. ener a. General average b. Collisions and allisions en 4. Carriage of Goods by Sea Act. a. Application. b. Notice of loss or damage.. 9 ¢. Period of prescription 9 . Limitation of liability. 100 F. PUBLIC SERVICE ACT. 101 1. Definition of public utility... 2. Necessity for certificate of public convenience. a. Requisites: i, Citizenshij ii, Promotion of public interest 101 102 102 iii, Financial capability.. b. Prior operator rule. i, Meaning... fi, Exceptions eee 102 ii, Ruinous Competition 102 102 102 3. Fixing of rate... a. Rate of return...b. Exclusion of income tax as expense.. 103 4, Unlawful arrangement: a. Boundary System b. Kabit System, 5. Approval of sale, encumbrance or lease of property G. THE WARSAW CONVENTION. 1. Applicability... 2. Limitation of liability a. Liability to passengers... b. Liability for checked baggage. ¢. Liability for hand-carried baggage vee 105 3. Willful misconduct. IV. _ BUSINESS ORGANIZATIONS. A. PARTNERSHIP. 1. General provisions Definition.. Elements Characteristics Rulles to determine existence Partnership term. Partnership by estoppel. Partnership as distinguished from joint ventur Professional partnership... Management, Pee MOBO TE 2. Rights and obligations of partnership and partners a. Rights and obligations of the partnership... - b. Obligations of partners among themselves ¢. Obligations of partnership /partners to third persons 3, Dissolution and winding up .. 4, Limited Partnership .. B. CORPORATION 1, Definition of corporation. 2. Classes of corporations. 3. Nationality of corporations a. Control test.. b. Grandfather rule 4. Corporate juridical person: a. Doctrine of separate juridical personality . i. Liability for tort and crimes..... fi, Recovery of damagesb. Doctrine of piercing the corporate veil i, Grounds for application of doctrine ii, Test in determining applicability. 5. Capital structure. Number and qualifications of incorporators.. Subscription requirements. Corporate term. Classification of shares oP ae i, Preferred shares versus common shares ii, Scope of voting rights subject to classification... 161 ii, Founder's shares iv. Redeemable shares... eee 161 v. Treasury share 6. Incorporation and organization. a. Promoter... i. Liability of promoter ii, Liability of corporation for promoter's contracts. Subscription contract. Pre-incorporation subscription agreements... Consideration for stocks Articles of Incorporation. i, Contents.. ii, Non-amendable item: Corporate name; limitations on use of corporate name. Registration, incorporation and commencement of corporate existence eae Election of directors or trustees.. Adoption of by-laws... i, Contents of by-laws ii, Binding effects.. ii, Amendments j. Effects of non-use of corporate charter... Pr gm 7. Corporate powers.. 177 a. General powers; theory of general capacity. 179 b. Specific powers; theory of specific capacity. 181 ¢. Power to extend or shorten corporate term... 181 . Power to increase or decrease capital stock or incur, create, increase bonded indebtednes: 182 ¢. Power to deny pre-emptive rights... 184 £. Power to sell or dispose corporate assets. 186 g. Power to acquire own share: 197 h, Power to invest corporate funds in another corporation or business 188, i, Power to declare dividend 189 j. Power to enter into management contract. 193 k. Limitation: 1944. Ultra vires acts... (a) Applicability of ultra vires doctrin (b) Consequences of ultra vires acts 1. Doctrine of individuality of subscription.. m, Doctrine of equality of shares.. n, Trust fund doctrine i, How exercise (a) By the shareholders (b) By the board of directors (0) By the officers: 8. Stockholders and members .. a. Fundamental rights of a stockholder. eee 208 b. Participation in management.. i Proxy fi, Voting trust. iii, Cases when stockholders’ action is required. 210 (a) By a majority vor (b) By a two-thirds vote (c) By cumulative voting, iv. Manner of votin, 210 ¢. Proprietary right: i, Rightto dividends. ii, Appraisal right... (a) When available 213 (b) Manner of exercise of right... 24 iii, Right to inspect.. 215, iv. Preemptive right. v. — Rightto vot 219 vi Rightto dividends. vee 220 d. Remedial rights... i, Individual suit. fi. Representative suit.. iii, Derivative suit.. e. Obligations ofa stockholder. f Meeting 1. Regular or special. ii, Notice of meetings fi Place and time of meetings. iv. Quorum v. Minutes and agenda of meeting: 9, Board of directors and trustees. a. Repository of corporate powers. b. Tenure, qualifications and disqualifications of directors. ¢. Requirement of independent directors. d. Elections...1. Cumulative voting. ii, Quorum Removal. Filling of vacancies Compensation.. Disloyalty.. Business judgment rule. Solidary liabilities for damage: Personal liabilities Responsibility for crimes. Special fact doctrine... Inside information.. Contracts... nee i. By self-dealing directors with the corporation ii, Between corporations with interlocking directors. p. Executive and other special committees... i, Creation.... fi. _Limitations on its powers q. Meeting 1. Regular or special (a) When and where (b) Notice (o) Attendance in meetings. ii. Who presidi ii, — Quorum iv. Rule on abstention Sry rar me 10.Capital affairs... a. Certificate of stock.. i Nature of the certificate... ne) ii, Uncertificated shares. iii, Negotiability; requirements for valid transfer of stock. iv. Issuance... (a) Full payment (b) Payment pro-rata v. Stock and transfer boo! (a) Contents (b) Who may make valid entries. (0) Stock transfer agent vi. Lost or destroyed certificates vil, Situs of the shares of stock. b, Watered stocks. i, Definition ii. Liability of directors for watered stocks iii, Trust fund doctrine for liability for watered stocks, Payment of balance of subscription. i, Call by board of directors... ii, Notice requirement.d. Sale of delinquent shares. i. Effect of delinquency ii, Call by resolution of the board of directors... ii, Notice of sale iv. Auction sal ¢. Alienation of shares... i, Alienation of shares. ii, Sale of partially paid shares. iii, Sale of a portion of shares not fully pai iv. Sale of all of shares not fully paid. v. Sale of fully paid shares ..... vi. Requisites ofa valid transfer. vii, Involuntary dealings... £. Corporate books and record: i, Records to be kept at principal office.. fi. _Rightto inspect corporate records iii, Effect of refusal to inspect corporate records. 11.Dissolution and liquidation a, Modes of dissolution. i, Voluntary dissolution (a) Where no creditors are affected. (b) Where creditors are affected .. (c) By shortening of corporate term. (d) Withdrawal of dissolution. ii, Involuntary dissolution b. Methods of liquidation. i, By the corporation itsel.. ii. Conveyance toa trustee within a three-year period. iii, By management committee or rehabilitation receiver.......... 275 iv. Liquidation after three years. 12.Other corporations a. Close corporations. i. Characteristics of a close corporation ii. Validity of restrictions on transfer of shares... fil Issuance or transfer of stock in breach of qualifying conditions iv. When board meeting is unnecessary or improperly held v. Preemptive right. vi. Amendment of articles of incorporation. vii. Deadlocks. b, Non-stock corporation: i, Definition ii, Purposes. ii, Treatmentof profit: iv. Plan and distribution of assets upon dissolution.¢. Educational corporation: 289 d._ Religious corporations. 289 i. Corporation sole; nationality. 289 ii, Religious societie: 202 e. One person corporations. 292 i, Excepted corporations.. 202 ii, Capital stock requirement 293 iii, Articles of incorporation and by-laws. 293 iv. Corporate nam 293 v. Corporate structure and officers. 293 Vi Nominee nnn oem 293 vii, Minutes and records... 294 viii, Liability. eee 204 ix. Conversion of corporation to one person corporations and vice- versa 295 £. Foreign corporation: 295 i,” Bases of authority over foreign corporations 296 (a) Consent. 296 (b) Doctrine of "doing business’ 296 ii, Necessity of a license to do business... 298 (a) Requisites for issuance of a licens: 298 (b) Resident agent 299 (c) Amendment of license. 299 ii, Personality to sue. 300 iv. Suability of foreign corporations. 301 v. __ Instances when unlicensed foreign corporations may be allowed to sue (isolated transactions) 301 vi. Grounds for revocation of license 302 13. Merger and consolidation. 303 a. Definition and concept... oven 808 b. Distinguish: constituent and consolidated corporation, 307 ¢. Plan of merger or consolidation 307 d. Articles of merger or consolidation . 308 e. Procedure... 308 f. Effectivity.. 309 g. Limitations 310 h. Effects. 310 14. Investigations, offenses, and penalties. 311 a. Authority of Commissionel 3uL i, Investigation and prosecution of offenses. 311 ii, Administration of oath and issuance of subpoena. 3 iii, Cease and desist power 312 iv. Contempt. 312 b. Sanctions for violation: 312 i, Administrative sanctions... 312 ii, Prohibited Acts. 312 iii, Penalties. 312 iv. Who are liabl 314vi. c. Authority of the Securities and Exchange Commission.. SECURITIES. 316 A. State policy. 316 B. Definition of securities. 316 C. Kinds of securities amo A 1, Exempt securities. 2. Exempt transactions 3. Non-exempt transactions... Powers and functions of the Securities and Exchange Commission. Procedure for registration of securities... Prohibition on fraud, manipulation, and insider tradin Manipulation of security prices... es Short sales Option trading. Fraudulent transaction Insider trading. een Protection of shareholder interests 1. Tender offer rul 2. Rules on proxy solicitation THE NEW CENTRAL BANK ACT... cece State policies....... Creation ofthe Bangko Sentral ng Pilipinas . Responsibility and primary objective .. Corporate powers. Operations of the Bangko Sentral ng Pilipinas. 1, Authority to obtain data and information ii, Supervision and examination. iL Bank deposits and investments iv. Prohibition: v. Examination and fees. £ Monetary Board; powers and functions. g. How the Bangko Sentral ng Pilipinas handles banks in distres: i, Conservatorshi ii, Closure ii, Receivership.. iv. Liquidation h. Administrative sanctions on supervised entities 339 i. Rules on bank deposits and investments by directors, officers, stockholders and their related interests. 339 j. Supervision and regulation of bank operations... 339 pasek. Rate of exchange LAW IN SECRECY OF BANK DEPOSIT: 1. Loans and other credit accommodation: ii, Selective regulation.. (a) Margin requirements against letters of credit (b) Required security against bank loan: (c) Portfolio ceilings. (d) Minimum capital ratios 1 2. 3. Deposits covered .. 4. Exception: 5. Gamishment of deposits, including foreign deposits.. 6. Penalties for violation . GENERAL BANKING ACT.. 354 1. Definition and classification of banks.. 2. Distinction of banks from quasi-banks and trust entities 358 3. Bank powers and liabilities. 358 a. Corporate power: 358 b, Banking and incidental powers... 359 4. Diligence required of banks in view of fiduciary nature of banking sw... 361 5. Nature of bank funds and bank deposits 364 6. Grant of loans and security requirements. 367 a. Ratio of net worth to total risk assets eens 867 b. Single borrower's limit. 367 ¢. Restrictions on bank exposure to directors, officers, stockholders, and their related interests... 368 d. Prohibited acts of borrowers.. 368 e. Floating interest rates and escalation clauses. 368 7. Penalties for violations 369 a. Fine, imprisonment 369 b. Suspension or removal of director or officer. 369 ¢. Dissolution of bank. 369 ). PHILIPPINE DEPOSIT INSURANCE CORPORATION ACT. 1 Basic policy.. Powers and functions of the Philippine Deposit Insurance Corporation; prohibitions. Concept of insured deposits... Liability to depositors... - a, Deposit liabilities required to be insured with Philippine Deposit Insurance Corporation... ecenenenee 377 b, Commencement of liability.. ¢. Deposit accounts not entitled to payment... d. Extent ofliabilitye. Determination of insured deposits. 377 £. Calculation of liability . 377 i. Per depositor, per capacity rule. 377 ii, Joint accounts. 377 ii, Mode of payment. 378 iv. Effect of payment of insured deposits. 378 v. Payment of insured deposits as preferred credit 378 vi, Failure to settle claim of insured depositor. 378 vii, Failure of depositor to claim insured deposits, 378 (a) Examination of banks and deposit accounts. 378 (b) Prohibition against splitting of deposits en 379 (0) Prohibition against issuances of temporary restraining OTe nnn eee 379 5. Concept of bank resolutio 380 6. Role ofthe Philippine Deposit Insurance Corporation in relation to banks in distress. 381 a. Closure and takeover 381 b. Conservatorship 381 c. Receivership 382 d. Liquidatioi 382 VIL. INTELLECTUAL PROPERTY A. Intellectual property rights i 1. Intellectual property right: 2. Differences between copyright, trademarks, and patent: 3. Technology transfer arrangement. B. Patents 1. Patentable invention... 2. Non-patentable invention. 3. Ownership of a patent. a. Right to a patent. b. First-to-file rule... ¢. Invention created pursuant to a commission. d._ Right of priority es Grounds for cancellation of a patent Remedy of the true and actual inventor. Rights conferred by a patent. Limitations of patent rights.. a. Prior user. b. Use by the government 8. Patent infringement a. Tests in patent infringement. i, Literal infringement ii, Doctrine of equivalents. b. Civil and criminal action... eves 407 c. Prescriptive period sone. Defenses in action for infringement. 9. Licensing. a. Voluntary. b. Compulsory. 10. Assignment and transmission of rights.. C Trademarks... Definitions of marks, collective marks, and trade names. Acquisition of ownership of mark.. Acquisition of ownership of trade name. Non-registrable marks conn Prior use of mark as a requirement. Tests to determine confusing similarity between marks... 421 a. Dominancy test... b. Holistic test. c. Idem sonans Well-known marks Rights conferred by registratiot Use by third parties of names, ete. similar to registered mark. 0.Infringement and remedies a, Trademark infringement. b. Damage ¢. Requirement of notice .. d. Penaltie 111. Unfair competition 12. Registration of marks under the Madrid Protocol . Coverage PuawNE goes a. b. Rights conferred. 339 c. Requirements for registration 439 d. Term of protection nnn ne?) D. Copyright Basic principles 2 Copyrightable works. a. Original works b. Derivative works. Non-copyrightable wort Rights of copyright owner. Rules on ownership of copyright Limitations on copyright. a. Fairuse.. Copyright infringement a. Remedies... b. Criminal penaltie: avaw x Vill. SPECIAL LAWS... A. SECURED TRANSACTION.B. TRUTH IN LENDING. c 1. Bene Personal Property Securities Act. a. Definitions and scop. b. Asset-specific rules i, Future property. ii, Rights to proceeds and commingled fund: iii, Tangible assets commingled in a mas: iv. Accounts receivables Perfection of security interests. Registration Priority of security interests. Tangible assets; intangible assets... |) Enforcement of security interests .. Prior interests and the transitional period eee ATL Real Estate Mortgage Law a. Definition and characteristics. i. Obligations secured by real estate mortgag ii, Object of real estate mortgage... fi, —_Rightto alienate mortgage credit. iv. Rightto alienate collateral. b. Essential requisite Guaranty and Suretyshiy Letters of credit. a. Definition and purpose. b. Kinds of letters of credit. ¢. Rule of strict compliance d. Independence principle. 466 466 FE mp oo Purpose. Obligation of creditors to person to whom credit is extende Covered and excluded transactions Consequences of non-compliance with obligation . ANTI-MONEY LAUNDERING ACT. 516 1. Policy ofthe law. 516 2. Covered institutions and their obligations. 516 3. Covered and suspicious transaction: 518 4. Money laundering; how committed; unlawful activities or predicate crimes . 519 5. Anti-Money Laundering Council; function: 520 6. Safe harbor provision. 520 7. Application for freeze orders 521 a. Who may apply... 521 b. Erfectivity.. 522 ¢. Duties of covered institutions... ever 524 8. Authority to inquire into bank deposits. 524524 524 a. Forfeiture provisions b, Mutual assistance among states... D. FOREIGN INVESTMENT ACT. 527 527 527 527 527 1. Policy of the law. 2. Definition of term: a. Foreign investment. b. "Doing business" in the Philippines. ¢. Export enterpris 529 d. Domestic market enterprise... sevens 529 3. Registration of investments of non-Philippine nationals 529 4. Foreign investments in export enterprises eee 529 5. Foreign investments in domestic market enterprises 529 6. Foreign Investment Negative List. 529 E. INSOLVENCY LAW: 530 1. Concurrence and preference of credits. 530 a, Meaning of concurrence and preference. 530 b, Exempt properties 530 ¢. Classification of credit. 530 d. Order of preference of credits.. 532 2. Financial Rehabilitation and Insolvency Act of 2010. 533 a. Definition of insolvency 533 b. Suspension of payments 533 . Rehabilitation.. 534 ee venenee 584 ii. Commencement ord 537 iii, Stay or suspension order... eee BAT iv. Rehabilitation receiver S41 v. Management committee.. 542 vi. Rehabilitation plan 543 vii. Cram down effect. 545 4. Liquidation. 545 i, Types. 545 {i Conversion of rehabilitation to liquidation proceedings... 551 ii, Liquidation order 551 iv. Rights of secured creditors 552 v. Liquidator 552 vi. Determination of claim: 552 vii. Liquidation of plan.. 553 F. DATA PRIVACY ACT OF 201: 554 1. Definitions and scope.. 556 2. Extraterritorial application... eeeenenen SST 3. Processing of personal information... 557 a. General principles. 557 b. Sensitive and privileged information. 559Ix. ¢. Subcontracting d._ Privileged communication... 4. Rights of the data subject; exceptions /non-applicability . 5. Duties and responsibilities of personal information controlle! G. PHILIPPINE COMPETITION ACT. 566 1, Definitions and scope of application 2. Powers and functions of the Philippine Competition Commission 3. Prohibited acts a. Anti-competitive agreements... oveneerne STD i, Perse violations. ii, Notperse violations... eeenenennen STB b. Determining existence of anti-competitive conduct. ¢. Abuse of dominant position . Prohibited mergers and acquisitions. e. Exceptions. 4. Covered transaction: a, Thresholds for compulsory notification b. Notifying entity... ¢. Exceptions 5. Determining the relevant market. 6. Forbearance by the Philippine Competition Commission, OTHER LAWS. 597 A. NEGOTIABLE INSTRUMENTS LAW .. B. WAREHOUSE RECEIPTS LAW... penne 656 C. ELECTRONIC COMMERCE ACTCOMMERCIAL LAW INSURANCE CODE Jaws governing contracts of insurance in the Philippines 1. RA.10607 Guly 23,2012) 2. New Civil Code 3. Special Laws CONCEPT OF INSURANCE Contract of insurance It is an agreement whereby one undertakes for 2 consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. (IC, Sec. 2fa)] A contract of insurance, to be binding fram the date of application, must have been a completed contract. (Perez vs. CA, GR. Na, 112329, January 28, 2000) ‘Thus, it must have all the essential elements of a valid contract as enumerated in Art. 1318 of the ‘New Civil Code: (Sm-CoMe) 1. Subject matter in which the insurable interest; 2. Consideration, which is the premium paid by the insured, for the insurer's promise to indemnify the former upon the happening of the event or peril insured against; and 3. Meeting of the minds ofthe parties. red has an “Doing an insurance business” or “transacting an insurance business ‘The term “doing an insurance business’ or “transacting an insurance business" means: (ISRA) 1. Making or proposing to make, as Insurer, any insurance contract 2. Making or proposing to make, as Surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; 3. Doing any kind of business, including a Reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of the Insurance Code (10). 4. Doing of proposing to do Any business substance equivalent to any of the foregoing in a manner designed to evade the provisions of the IC. NOTE: In the application of the provisions ofthe IC, the fact that no profitis derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefor, shall NOT be deemed condusive to show that the making thereof does not constitute the doing or transacting of an insurance business. 16 See.2 (6)} Q: The parties’ CBA contains the following provision, “The COMPANY shall obtain group hospitalization insurance coverage or assume under a self-insurance basis hospitalization for the dependents of regular _ employees". Eventually, three members of Mitsubishi Motors Philippines Salaried Employees Union (MMPSEU) filed daims for reimbursement of hospitalization expences of their dependents. In turn, Mitsubishi Motors Philippines Corporation (MMPC) paid only a portion of their hospitalization insurance claims, not the full amount. However, MMPSEU insists that MMPC is also liable for the amounts covered under other insurance policies; otherwise, MMPC will unjustly profit from the premiums the employees contribute through monthly salary deductions. Is MMPSEU's contention correct? ‘A: NO. Since the subject CBA provision is an Insurance contract, the rights and obligations of the parties must be determined in accordance with the general principles of insurance law. Being in the ature of a nomlife insurance contract and essentially a contract of indemnity, the CBA provision obligates MMPC to indemnify the covered employees’ medical expenses incurred by their dependents but only up to the extent of the expenses actually incurred. This is consistent with the principle of indemnity which proscribes the insured from recovering greater than the loss. (Mitsubishi Motors Pallippines Salaried Employees Union vs. Mitsubishi Motors Phil. Corp, G.R. No. 4175773, june 17, 2013 in Divina 2014) Insurance as an Uberrimae Fides contract (1993 The contract of insurance is one of perfect good. faith (uberrimae fidei) not for the insured alone, but equally so for the insurer; infact, itis more so for the later, since its dominant bargaining fm Unwwersiry oF Santo Tomas 2021 GoLpeN NoesINSURANCE LAW position carries with it stricter responsibility. (Qua (Ghee Gan vs. Law Union and Rock Insurance, Co. Lid, GR.No.L-4611, December 17, 1955) It requires the parties to the contract to ‘communicate that which a party knows and ought to communicate, that is, the duty to disclose in good faith all facts material to the contract. This doctrine is essential on account of the fact that the fall circumstances of the subject matter of Insurance are, as a rule, known to the insured only and the insurer, in deciding whether or not to accept a risk, ‘must rely primarily upon the information supplied to him by the applicant. (Sundiang Sr. & Aquino, 2014) Insurance as contracts of adhesion Rule) While generally stipulations in a contract come about after deliberate drafting by the parties thereto, there are certain contracts in which almost all the pravisions of which have been drafted only by one party, usually a corporation. Such contracts, are called contracts of adhesion because the only participation of the other party is the signing of his signature or his ‘adhesion’ thereto. Insurance contracts fall into this category. (Sweet Lines, Inc vs. Teves, GR No. L-37750, May 19, 1978) An illustration of a contract of adhesion is when the insurer used “fine print’ letters in conditions stated in aconcract of insurance. (Ibid) ‘Rules in the construction or interpretation of insurance contracts GR: If the terms of the contract clearly show the intention of the parties, there shall be no room for interpretation. XPN: If there are ambiguities in the terms of an insurance contract, they have to be resolved in favor of the insured and strictly against the insurer because an insurance contract being a contract of adhesion, most of its terms is not a product of ‘mutual negotiation between the parties as they are prepared by the insurance company in final printed forms. (DeLeon, 2014) Parties to the contract of insurance 1. Insurer = party who assumes or accepts the risk of loss and undertakes for a consideration to indemnify the insured on the happening of 2 specified contingency or event. 2. Insured ~ person in whose favor the contract is operative and who is indemnified against, or is toreceive a cervain sum upon the happening of a specified contingency or event. NOTE: The insured is not always the person to whom the proceeds are paid, Ascured/Beneficiary - a person designated by the terms of the policy to receive the proceeds of the insurance. He may be the insured or a third party in the contract for whose henefit the policy is issued and to whom the loss is payable. Every corporation, partnership, or association duly authorized to transact insurance business as cleewhere provided in the Insurance Code, may be an insurer: (1G, Sec. 6) ‘The term “insures” no longer include “individuals” under RA 10607. Hence, an individual natural person is no longer allowed to be an insurer. However, it includes the following: 1. Professional reinsurer - any person, partnership, association or corporation that lransacts solely and exclusively reinsurance business in the Philippines. 2. Mutual Insurance Companies - The law also provides for the procedure for mutualization of domestic stock life Insurance companies. A new provision on RA 10607 is on dematualization or conversion of mutual insurance companies into stock corporations. (IC, Sec. 280) 3. Cooperatives are now expressly included in the term “insurer” or “insurance company.” However, the cooperative must: (Su-Ca) Have sufficient capital and assets required under the Insurance Code and the pertinent regulations issued by the Commission. (1G Sec. 192) Have a certificate of authority to operate isaued by the Commission which should be renewed every year. (IC Sec. 193; Sundiang Sr. & Aquino, 2014) Q: Philippine Health Care Providers, Inc. is engaged in operating a prepaid group practice health care delivery system or a. health ‘maintenance organization (HMO) to take care ofthe sick and disabled persons enrolled in the health care plan. Individuals enrolled in its health care programs pay an annual VERSITY OF SANTO TOMAS FAcutty oF Civit LawCOMMERCIAL LAW membership fee and are entitled to various ‘medical services provided by its duly licensed physicians, specialists and other professional technical ‘staff participating in the group practice health delivery system at a hospital or clinic operated or accredited by it. Is Philippine Health Care Providers, Inc. an insurance ‘company or HMO? A: HMOs are not insurance businesses. One test, that they have applied is whether the assumption of risk and indemnification of loss ( elements of an insurance business) are the principal object and purpose of the organization or whether they are merely incidental to its business. If these are the principal objectives, the business is that of insurance. But if they are merely incidental and service is the principal purpose, then the business is not insurance. Philippine Health Care Providers appears to provide insurance-type benefits to its members (with respect to its curative medical services), but these are incidental to the principal activity of providing them medical care. The “insurance-ike” aspect of Philippine Health Care Providers’ bbusinas: ic miniseule compared to its noninsurance activities. Therefore, since it substantially provides health care services rather than insurance services, it cannot be considered as being in the insurance bbusinass. (Philippine Health Care Providers, In, v. GIR, GR. No. 167330, September 18, 2009) Persons who may be insured (2000 BAR) Anyone except a public enemy may be insured. (IC, $20.7) A public enemy is a nation at war with the Philippines and every citizen or subject of such nation, It does not include mobs, thieves or robbers, (Bouvier's Law Dictionary) If majority of the stockholders of the corporation were subjects who became an enemy corporstion ‘upon the outbreak of the war between two states, it stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy. Hence, any contingency which may occur during or after sald war cannot be indemnified under a policy issued before said war. However, elementary rules of justice and in the absence of specific provision in the Insurance Law require that the premium paid by the insured for the period covered by its policy should be returned, The purpose of war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent that one country should destroy its enemy's property and repay in insurance the value of what has been so destroyed. (Filipinas Comparia de Seguros v. Christern, Huenefeld and Co, Inc, GR No. L- 2294 May 25,1951) Subject matter of a contract of insurance Anything having an appreciable pecuniary value, which is subject to lass or deterioration, or of which one may be deprived so that his pecuniary Interest is or may be prejudiced. Eyentor peril insured against It is any contingent or unknown event, whether past or future, which may damnify a person having. fan incurable interest, or ereate a liability against him may be insured, subject to the provisions of Chapter | ofthe Insurance Code. (16, Sec. 3) Consent of spouse not necessary The consent of the spouse is not necessary for the validity of an insurance policy taken out by a ‘married person on his or her life or that of his or her children. (1C, Sec. 3) Consent of the person insured is not essential tothe validity of the policy. So long as it could be proved that the insured hae aan insurable Interest at the inception of the policy, the insurance is valid even without such consent. (1C See. 10) Effect of death of policy's original owner All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of the person insured shall ‘automatically vest in the latter upon the death of the original owner, unlese otherwise provided for nthe policy. (1C, See. 3) NOTE: Prior tothe effectivity ofthe Insurance Code of 2013, the term used was “minor” instead of “the person insured.” A minor cannot enter into any contract of insurance with any insurance company. Games of chances cannot be insured An insurance for or against the drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize is not authorized. (IC, Sec. 9 fg | UNivenstty oF Santo Tomas 2021 GoLoENNorESINSURANCE LAW Void stipulations inan insurance contract ‘The following are void stipulations in an insurance contract which pri 1. For the payment of loss whether the person insured has or has no interest in the property insured: or 2. That the policy shall he received as proof of such interest; and 3. Every policy executed by way of gaming or wagering. (IC Sec. 25) NOTE: The Insurance Cade provides that a policy ‘may declare that a violation of specified provisions thereof shall avoid it. Thus, in fire insurance policies, which contain provisions that if the daim be in any respect fraudulent or if any false declaration be made or used in support thereof, all, the benefits under the policy, shall be forfeited, a fraudulent discrepancy between the actual less and that claimed in the proof of loss voids the insurance policy. Mere filing of such a claim will ‘exonerate the insurer. (United Merchants Corp. v3. Country Bankers Insurance Corp, GR. No. 198588, Joly 11, 2012) ELEMENTS OF AN INSURANCE CONTRACT SPEAR: 1. Scheme to distribute losses ~ Such assumption of risk is part ofa general scheme to distribute actual losses among a large group or substantial number of persons bearing a similar risk. 2. Bayment of premium — As consideration for the insurer's promise, the insured makes a ratable contribution called "premium’ to a general nsurance fund, 3. Existence of insurable interest ~The insured possesses.an interest of some kind, susceptible fof pecuniary estimation known as “insurable interest” 4, Assumption of Risk ~The insurer assumes that risk of loss for'a consideration, Risk of loss - The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of the designated peril NOTE: ‘The inherent uncertainty of events is normally described in terms of risk. A contract, possessing only the last three elements enumerated above is a risk-shifting device, but NOT a contract, of insurance which isa risk-distributing de Leon, 2006) Moral ward Phenomenon Consequently, however, the existence of Insurance could have the perverse effect of increasing the probability of loss. This is when the insured, having, in mind the indemnification for loss or damage caused by the happening of the event insured against, would have reduced incentive to take steps, to protect himself or his property, subject of insurance. (Ibid) CHARACTERISTICS AND NATURE OF INSURANCE CONTRACTS The following are the characteristics and nature of an insurance contract: 1. Consensual It is perfected by the meeting of the minds of the parties as to the object, cause and consideration of the insurance contract. There should be acceptance of the application for insurance. 2. Voluntary GR: The parties may incorporate such terms and conditions as they may deem convenient: Provided they do not contravene any provision of law and are not opposed to public policy, law, morals, good customs, or public order. XPNs: Insurance contracts that may be required by law suchas a. For motor vehicles; b. Asa condition to granting a license to conduct business or calling affecting the public safety orwelfare; For employees; or d. Social insurance for members of the GSIS and for employees of the private sector covered by the SSS. 3. Aleatory ‘The Mability of the insurer depends upon some contingent event, the happening of an uncertain future event. Thus, itis not a contract of chance. In an insurance contract, each party takesa risk: VERSITY OF SANTO TOMAS FAcutty oF Civit LawCOMMERCIAL LAW a. For the insurer ~ risk of having to pay the indemnity ifthe contingentevent happens. b. For the insured ~ risk of paying the premium without receiving anything therefor if the contingent event does not happen except protection, which in itself is a valuable consideration. (De Leon, 2014) 4. Unilateral It imposes legal duties only on the insurer wate promises to indemnify the insured. It is executed as to the insured after payment of the premium, and executory on the part of the insurer in the sense that itis not executed until payment for a loss. (De Leon, 2014) 5. Conditional It is subject to conditions the principal one of which is the happening of the event insured against. 6. Contract of indemnity Recovery is commensurate with the amount of the loss suffered, GR: The insurer promises to make good only the loss of the insured. XPN: The prindple Is not applicable to life and accident insurance where the result is death because life is not eapable of pecuniary estimation, ‘The only situation where the principle of indemnity is applicable to life insurance is when the interest of a person insured is capable of exact, pecuniary measurement (eg. where a creditor insures the life of his debtor to the extent of the latter's debt). 7. Personal It is personal between the insurer and insured. Each party having in view the character, eredit and conduct of the other. NOTE: Since insurance is a contract, such is considered a property ia legal contemplation, However, unlike property policies, life insurance policies are generally assignable like any chose in action, (De Leon, 2014) CLASSES OF INSURANCE CONTRACTS Marine: Fire; Casualty; Suretyship: Life; Microinsurance; Compulsory motor vehicle liability surance; and Compulsory insurance coverage for agency- hired workers, CaN Marine Insurance includes: 1. Lossof or damage to: Vessels, cargo, frelghtage, profits, and all kinds of property and interests therein, in connection with any and all rise oF perils of navigation; b. Person or property appertalning to a marine, inland marine, transit or transportation insurance; «Precious stones, jewels, jewelry, precious metals, whether in the course of transportation or otherwise; and 4. Instrumentalities of transporta and communication, excluding buildings, aids to navigation and transportation, and appurtenant facilities for the control of waterways. UG Sec 104 (a)j 2. Marine protection and indemnity insurance against legal liability of the insured for loss, damage, or expense incident to ownership, operation, chartering, maintenance, _ use, repair, or construction of any vessel, craft or Instrumentality in use of ocean or Inland waterways, induding liability of the insured for perscnal injury, iliness or death or for loss of or damage to the property of another person. IC, Sec. 101 (b)} Two kinds of risks 1 Perils ofthe Sea; and 2. Perils of the Ship tr covers ] It cavers losses which, in casualties due to | the ordinary course of unusual violence | events, results from the or extraordinary | natural and inevitable causes connected | action of the sea, fram the with navigation, | ordinary wear and tear of the ship, fg | UNivenstty oF Santo Tomas 2021 GoLoENNorESINSURANCE LAW Tt covers losses | It covers losses which which cannot be | result from the negligent guarded against | failure of the ship's owner by prudence and | to provide the vessel with ordinary exertion | proper equipment to ofhuman skill. | convey the cargo under ordinary conditions, and can thus be guarded against by —_ordainry exertion of human skill. NOTE: The insurer undertakes to insure against perils of the sea and similar perils, not against, perils of the ship. In order to make the insurer liable. There must be some casualty, something which could not be foreseen as one of the necessary incidents of the adventure. (Isabela Roque v. IAC, GR. No. L-56935, November 11, 1985) ‘The purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen. (Ibid) Rule on All Risks Policy A marine insurance policy providing that the insurance was to be “against all risks" must be construed as creating a special insurance and extending to other risks than are usually contemplated, and covers all losses except such as ‘may arise from the fraud of the insured. ‘The burden of the insured, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted perils. (Filipino Merchants Insurance Co. Inc. v. CA, GR. No. 85141, November 28, 1989) PRN Fire insurance shall include insurance against loss by: 1. Fire, lightning, windstorm, tornado or earthquake; and 2. Otherallied risks, when such risks are covered by extension to fire insurance policies or under separate policies (IC, Sec. 169) Alterations in use or condition ‘An alteration in the use or condition of a thing insured from that to which it is limited by the policy: 1. Entitles an insurer to rescind a contract of fire insurance if such alteration: a. Increases the ris b. Was made without the consent of the insurer; and «Was made through the means within the control of the insured. (IC, Sec. 170) NOTE: The fire Insurance policy forbade the removal of the insured properties unless sanctioned by the insurer M: Any transfer effected by the insured, ‘without the insurer's consent, would free the latter from any liability. (Malayan Insurance Company Inc. v. PAP Co. LTD, GR. Na 200704, August 7, 2013) 2. Does not affect a contract of fire insurance if the alteration does not increase the risk. (IC, Sec. 171) NOTE: A contract of Fire insurance is not affected by any act of the insured subsequent to the execution of the policy, which does not violate its provisions, even though it increases the risk and is the cause of the loss. (IC, Sec. 172) Measure of indemnity. 1. If there is no valuation in the policy, the measure of indemnity in an insurance against fire is the expense it would be to the insured at the time of the commencement of the fire to replace the thing lost or injured in the condition in which it was at the time of the injury. (16 See. 173) 2. If there is a valuation In a polley of fre insurance, the effect shall be the same as in a policy of marine insurance where valuation is conclusive between the parties in adjusting the loss. (1G Sec. 158) JALTY INSURANC It is an insurance covering loss or liability arising from accident or mishap, excluding certain types of less which by law or custom are considered as falling exclusively within the scope of other types of insurance such as fire or marine. (IC, Sec. 176) Coverage of casualty insurance (Ps-EMo-BulHO) 1. Bersonal accident insurance - a form of inzurance which undertakes to indemnify the assured agalnst the expense, loss of time, and VERSITY OF SANTO TOMAS FAcutty oF Civit LawCOMMERCIAL LAW suffering resulting from accidents causing him physical injury, usually by payment at a fixed rate per week while the consequent disability lasts, and sometimes including the payment of a fixed sum to his heir: in case of his death by accident within the term of the policy. 2. Bublic utility insurance ~ indemnifies against ity on account of injuries to the person or property of another. It may extend to automobiles, elevators, fly wheels, libel, theaters, and vessels. 3. Blate glass insurance ~ an insurance against less from accidental breaking of plate-glass ‘windows, doors, showcases, etc. 4. Employer's liability and workmen's insurance ~ the risk insured against is the liability of the assured to make compensation or pay damages for an accident, injury, or death, occurring to a servant or other employee, in the course of his employment under statutes Imposing such lability on employers. 5. Motor vehicle liability insurance ~ it is a contract of insurance against passenger and third-party liability for death or bodily injuries and damage to property arising from motor vehicle accidents. Aside from compulsory motor vehicle liability insurance, the Insurance Code contains 0 other provisions applicable to casualty insurance. Thorefors, such casualty insurance are governed by | thegeneral provisions applicable to all types of insurance, and outside of suchstatutory provisions, the rights andobligations of the parties must bedetermined by their contract, taking into consideration its purpose and always in accordance with the general principles of insurance law. 6 Burglary and theft insurance ~ an insurance against loss of property by the depredations of burglars and thieves. 7. Health insurance -an indemnity to persons for expense and loss of time occasioned by disease. NOTE: Health and accident insurance areeither covered under life (IC, Sec 180) co casualty insurance. IC Sec. 174) 8 Other substantially similar kinds of insurance. (Peres, 2006) ‘Two divisions of casualty insurance (HAT) 1. Accident or heolth insurance - Insurance against specified perils which may affect the person and/or property of the insured. (eg. personal accident, robbery/theft insurance) 2. Third party Yability insurance ~ Insurance against specified perils which may give rise to liability on the part of the insured of claims for injuries or damage to property of others. (De Leon, 2010) “Accidental” vs. “Intentional” as used in insurance ra CEN ‘The terms ‘accident | Intentional, as used in ‘and ‘accidental’ have | an accident policy been taken to mean | excepting intentional that which happens | injuries inflicted by the by chance or | insured or any other fortuitously, without | person, implies the intention or design, | exercise of the reasoning which is unexpected, | faculties, consciousness, unusual or | and volition. Where 2 unforeseen. The | provision of the policy term doesnot, | excludes intentional out injury, itis the intention qualification, exclude | of the person inflicting evenss resulting inf the injury thats damage or less due | controling. IF the to faut, recklessness | injuries cuffred by the negligence — of | inaured clearly resulted third patties | from the intentional act Gundiano Sr &| of a third person, the Aquino, 2014 citing | insurer is relieved from Pan Malayan | labilty as. stipulated. Insurance Corp. v. CA, | (Sundiang Sr. & Aquino, GR No 81026, Apri | 2014 citing Bingtan v 3.1990) The "Insular Life Ascurance Ca. Ltd, GR No. 125579, March 29, 1972) Rules on Third Party Liability (TPL) Insurance Insurable interest is based on the interest of the insured in the safety of the persons and their property, who may maintain an action against him in case of their injury or destruction respectively. (De Leon, 2010) 2. In a TPL insurance contract, the insurer assumes the obligation by paying the injured third party to whom the insured is liable. Prior payment by the insured to the injured third person is not necessary in order that the obligation of the insurer may arise. The fg | UNivenstty oF Santo Tomas 2021 GoLoENNorESINSURANCE LAW moment the insured becomes liable to third persons, the insured acquires an interest in the insurance contract which may be garnished any other credit. (Perla Compania de Seguros, ine vs. Ramolete, CR. No. 1-60887, November 13, 1991) 3. In burglary, robbery, and theft insurance, the opportunity to defraud the insurer (moral hazard) isso great that the insurer have found it necessary to fill up the policies with many restrictions designed to reduce the hazard. The purpose of the exception is to guard against liability should theft be committed by one having unrestricted access to the property. Gortune Insurance & Surety Co. vz. CA CR No. 115278, May 23, 1995) 4, The right of the person injured to sue the insurer of the party at fault (insured), depends fon whether the contract of insurance Is intended to benefit third persons also or only the insured. (Eulogio vs. Del Monte, GR No. L- 22042, August 17, 1967) If the contract provides for: a. Indemnity against third porty liability ~The third persons to whom the insured is lable can sue directly the insurer upon the occurrence of the injury or event upon ‘which the lisbility depends. The purpose is to protect the Injured person agalust the ssolvency of the insured who causes such jury and to give him a certain beneficial interest in the proceeds of the policy. It is fas if the injured person were especially named in the policy. (Shafer vs. RTC Judge. GR No. 78848, November 14, 1988, 1996 Bar) b. Indemnity against actual loss or payment ~ ‘The third persons cannot proceed against the insurer, the contract being solely to relmburse the insured for lability actually discharged by him through payment to third persons, said third person's recourse being thus limited to the insured alone. (Guingon vs. Del Monte, G.R. No. L-22042, August 17, 1967) Prior payment by the insured is necessary to give rise to the obligation of the insurer. insurance (1996, 2000 BAR) ‘The direct liability of the insurer under indemnity contract against third party liability does not mean that the insurer can be held solidarily liable with the insured. The insurer's liability is based on contract; that of the insured is based on tort (Figuracion via. De Maglana, et. al. v. Hon. Francisco Consolacion, GR. No 60506, August 6, 1992) Q: Lawrence, a boxer, is a holder of an accident insurance policy. In'a boxing match, he died after being knocked out by the opponent. Can his father who is a beneficiary under said Insurance policy successfully claim indemnity from the insurance company?(1990 BAR) A: YES, Clearly, the proximate cause of death was the boxing contest. Death sustained in a boxing contest is an accident. (De la Cruz v. Capital Insurance & Surety Co, GR. No. 21574, June 30, 1566) Liability of the insurer vs. Liability of the insured ST The lability i direct | Liability is direct and but the insurer cannor | can be held Uable with be held solidariy liable | all the parties at fault. with the insured and other parties at fault, Liability is based on | Liability is based on contract. tort, The third-party lability | The lability extends Is only up tothe extent | to the amount of of the insurance policy | actual and other and that required by | damages. (Heirs Poe v law. ‘Malayan Insurance, GAR. No, 156302, April 7.2009) Q: While driving his car along EDSA, Cesar sideswiped Roberto, causing injuries to the latter, Roberto sued Cesar and the third-party ability insurer for damages and/or insurance proceeds. The insurance company moved to dismiss the complaint, contending that the lability of Cesar has not yet been determined with finality. Is the contention of the insurer correct? (1996 BAR) A: NO. The contention of the insurer is not correct. There is no need to wait for the decision of the court determining Cesar’s liability with finality before the third-party liability insurer could be sued. The occurrence of the Injury to Roberto immediately gave rise to the liability of the insurer under its policy. Where an insurance policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of the VERsiTy oF Santo Tomas (24 Pacuery or civit Law WFCOMMERCIAL LAW injury or event upon which the liability depends (Shafer vs. RTC Judge, supra) Liability _of insurer if the insured was ‘committing a felony Liabilities arising out of acts of negligence, which are also criminal, are also insurable on the ground that such acts are accidental. Thus, a motor insurance policy covering the insured's liability for accidental injury caused by his negligence, even though gross and attended by criminal consequences such as homicide through reckless imprudence, will not be void 2s against public policy. But liability consequences of deliberate criminal acts are not insurable. (Sundiang Sr. & Aquing, 2014) *No action” clause It is a requirement in a policy of liability insurance which provides that suit and final judgment be first ‘obtained against the insured, that only thereafter can the person injured recover on the policy. It expressly disallows suing the insurer as co- defendant. (Guingon v. Del Monte, supra) ‘Ano action” clause must yleld to the provisions of the Rules of Court regarding multiplicity of suits. (Shafer v. RIC Judge, supra) Rules in accident insurance 1. Fordeath or injury to he covered by the policy, such should not be the natural or probable result of the insured’s voluntary act, or if something unforeseen occurs in the doing of the act which produces the injury, which may result to death. (Dela Cruz v. Capitol Insurance & Surety Co, supra) 2. Suicide and willful exposure to needless peril are in pari matere because they both signify 2 disregard for one’s life. Voluntary exposure to aknown danger is generally held to negate the accidental character of whatever followed from the known danger. (De Leon, 2010) 3. ‘The insured's beneficiary has the burden of proof in demonstrating that the cause of death is due to the covered peril. Once that fact is established, the burden shifts to the insurer to show any excepted peril that may have been stipulated by the parties. (Vda, De Gabriel v. CA, GR.No. 103883, November 14, 1996) Aa Contract of suretyship, It is an agreement whereby a party called the “surety” guarantees the performance by another party called the “principal or obligor” of an obligation or undertaking in favor of a third party called the “obliges”. It includes official recognizances, stipulations, bonds, or undertakings issued by any company by virtue of and under the provisions of Act No. 536, asamended by Act No. 2206, (IC, Sec. 177) ‘The extent of suroty's liability is determined by the language of the suretyship contract or bond itself, It cannot be extended by implications beyond the terms of the contract. Having accepted the bond, the creditor is bound by the recital in the surety. bond that the terms and conditions of distributorship contract be reduced in writing or at the very least communicated in writing to the surety. Such non-compliance by the creditor Impacts not on the validity or legality ofthe surety- contract but on the creditor's right to demand performance. (First Lepanto-Taisho Insurance Corporation vz. Chevron Philippines, GR. No. 4177839, January 18, 2012) Nature of liability of surety. The liability ofthe surety or sureties shall be: 1. Solidary ~ Joint and several with the obligor and 2. Limited or fixed ~ Limited to the amount of the bond (It cannotbe extended by implication). 3. Contractual ~ It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. (IC, Sec. 178) Suretyship vs. Property Insurance — ong Ton Petes It isan accessory | The principal contract contract. itself, There are three parties: | There are only two the surety, | parties: insurer and obligor/debtor, and the | insured obligee /creditor More of a credit | Generally a contract of accommodation with | indemnity the surety assuming primary liability Surety is entitled to | No right of recovery far reimbursement from | the loss the insurer may. the principal and his | sustain except when the juarantors for the loss | insurer_is entitled to fg | UNivenstty oF Santo Tomas 2021 GoLoENNorESINSURANCE LAW it may sulfer under the | subrogation. contract, ‘A bond maybe May be cancelled cancelled by or with the | unilaterally either by consent of the obligee | the insured or by the or by the commissioner | insurer on grounds ‘or bythe court. provided by law. Requires acceptance of | Doss not need the oblige before it | acceptance of any third becomes valid and | party. enforceable, ‘A riskeshifting device, [A risk-distrbuting the premium paid being | device, the premium in the nature of a| paid being considered a service fee. ratable contribution to a common fund. (De Leon, 2010) ‘Types of surety bonds (CoFijud) 1. Contract bonds ~ These are connected with construction and supply contracts. It protects the owner against a possible default by the contractor of his possible failure to pay materials, men, laborers and sub-contractors The position of surety, therefore, is to answer for a failure of the principal to perform in accordance with the terms and specifications fof the contract There may he twa bonds: a. Performance bond - covers the faithful performance of the contract; and b. Payment bond - covers the Fayment of laborers and material men, 2. Eldelity bonds ~They pay an employer for loss growing out of a dishonest act of his employee. For the purposes of underwriting, they are classified as: a. Industrial bond - required by private employers to cover loss through dishonesty of employees; and b. Public official bond ~ required of public officers for the faithful performance of their duties and as a condition of entering upon the duties of their offices. 3. Indicial bonds — required in connection with judicial proceedings. (Ibid) Rules of paymentof premiums in suretyship 1. The premium becomes a debt as soon as the contract of suretyship or bond is perfected and delivered to the obligor (IC Sec. 77): 2. The contract of suretyship or bending shall not be valid and binding unless and until the premium therefor has been paid; 3. Where the oblige has accepted the bond, it shall be valid and enforceable notwithstanding that the premium has not been paid (Philippine Pryce Assurance Corp. v. CA, GRNo. 107062, February 21, 1994); 4. If the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only a reasonable amount: If the non-aeceptance ofthe bond be due to the fault or negligence of the surety, no service fee, stamps, or taxes imposed shall be collected by the surety; and 6. In the ease of continuing bond (for a term longer than one year or with no fixed expiration date), the obligor shall pay the subsequent annual premium ac it falls due until the contract Is canceled. (IC, Sec. 179; De Leon, 2010) NOTE: By law and by the specific contract involved In this case, the effectivity of the bond required for the obtention of 2 license to engage in the business of rcsiving rice for storage is determined not alone by the payment of premiums but principally by the Administrator of the NFA. A continuing bond, as in this case where, there is no fixed expiration date, may be cancelled only by the oblige, which is the NFA, by the Insurance Commissioner, and by the court. (Country Bankers Insurance Corporation vs. Lagman, GR. No. 165487, July 13,2011, in Divine, 2014) Q: Fumitechniks Corporation, represented by Ma. Lourdes Apostol, had applied for and was issued a surety bond by First Lepanto-Taisho Insurance Corporation (First Lepanto-Taisho) for the amount of P15,700,000.00. As stated in the attached rider, the bond was in compliance with the requirement for the grant of a credit line with the Chevron Philippines, Inc. (Chevron) to guarantee payment of the cost of fuel products withdrawn within the stipulated ume in accordance with the terms and conditions of agreement between Chevron and Fumitechniks. When Fumitechnike defaulted on its obligation, Chevron notified First Lepanto- Taisho of Fumitechniks’ unpaid purchases. First Lepanto-Taisho thereafter demanded to Fumitechniks the submission of a copy of the agreement secured by the bond, together with copies of documents such as delivery receipts. Fumitechniks, however, denied that it executed such an agreement with Chevron, thus no copy. ofsuch agreement could be submitted, Because of this, Chevron Philippines, Inc. sued First, Lepanto-Taisho for the payment of unpaid oil and petroleum purchases. made by To VERSITY OF SANTO TOMAS FAcutty oF Civit LawCOMMERCIAL LAW Fumitechniks. Is the surety liable to the creditor in absence of a written contract with the principal? A: NO, Section 176 of the Insurance Code is lear that a surety contract should be read and interpreted together with the contract entered into between the creditor and the pri contract is merely a collateral one, pprinelpal contract or undertaking which It secures. Necessarily, the stipulations in such principal agreement must at least he commanicated or made known to the surety. Having accepted the bond, Chevron as creditor must be held bound by the recital in the surety bond that the terms and conditions of its distributorship contract be n writing or at the very least communicated in writing to the surety. Such non- compliance by the Chevron impacts not on the validity or legality of the surety contract but on the creditor's right tw demand performance. (First Lepanto-Taisho Insurance v. Chevron Philippines, Inc, GR No, 177839, January 18,2012) reduced im 7 Ik is insurance on human liver and appertaining thereto or connected therewith. (IC Sec. 181) It includes every contract or pledge for the payment of endowments or annuities. It may be made payable on the death of the person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life (0 Sec. 182) NOTE: Every contract or undertaking for the payment of annuities including contracts for the payment of lump sums under retirement program where a life Insurance company manages fr acts as a trustee for such retirement program hall be considered a life insurance contract for purposes oftthe Insurance Code. (IC, Sec. 121) Who may exercise any right under the policy. In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the mother, of any minor, who is an insured or a beneficiary under a contract of life, health, or accident Insurance, may exerelse, In behalf of sald minor, any right under the policy, without necessity of ‘court authority or the giving of a band, where the interest of the minor in the particular act involved does net exceed Five hundred thousand pesos (500,000.00) or in such reasonable amount as may be determined by the Commissioner. Such right may include, but shall not be limited to, obtaining a policy loan, surrendering the policy, receiving the proceeds of the Policy, and giving the ‘minor's consent to any transaction on the minor's consent to any transaction on the poli In the absence oF in case of the incapacity of the father or mother, the grandparent, the eldest brother or sister atleast eighteen (18) years of age, or any relative who has actual custody of the minor Insured or beneficiary, shall act as a guardian without need of a court order or judicial appointment as such guardian, as long as such person is not otherwise disqualified or incapacitated. Payment made by the insurer pursuant to this section shall relieve such insurer of any liability under the contract. (IC Sec 182) Reasons why a life insurance is also a contract ofindemnity This is because of the following reasons: 1. The liability in life insurance is absolutely certain; Amount of life insurance generally is without lirat 3. The policy isa valued policy: and 4. There is no direct pecuniary lose required. (De Leon, 2010) Kinds of life insurance palicies (GO LITE}. Group Lye ~ Essentially a single insurance contract that provides coverage for many individuals Example: In favor of employees; morigage redemption Insurance. Ordinary life, general life or old-line policy ~ Insured is required to pay a certain fixed premium annually or at more frequent Intervals throughout his entire life and the beneficiary is entitled to receive payment lunder the policy only after the death of the insured. (De Leon, 2014) Limited paymene ~ Insured pays premium for a imited period. Ifhe dies within the period, his beneficiary is paid; if he outlives the period, he does not get anything, 4, Industrial lie ~ entitles the insured to pay premiums weekly, or where premiums are payable monthly or oftener Term insurance ~ Insured pays premlum only once, and be is insured for a specified period. If he dies within the period, his beneficiaries benefit. If he outlives the period, no person benefits from the insurance. 6 Endowment - insured pays premium for specified period. If he outlive: the period, the face value of the policy is paid to him; if not, his | UNIVERSITY OF SANTO TOMAS 2021 GoLoENNorES itINSURANCE LAW beneficiaries receive the benefit. (Sundiang Sr & Aquino, 2014) Contract oflife annuity. It is a contract to pay the insured, or a named person or persons, a sum or sums periodically during life or certain period. (Perez, 2006) ‘Measure of indemnity under a policy of insurance upon life or health GR: The measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. XPN: The interest of a person insured is susceptible of exact pecuniary measurement. (IC, Sec. 136) Liability of the insurer in case of suicide ‘The incurer shall be liable in case of suicide by the insured if (FISH) 1. The suicide is committed after the policy has been in force for a period of 2 years from the date ofits issue or ofits last reinstatement. 2, The suicide is committed within a shorter period as provided in the policy. 3. The suicide is committed in the state of insanity regardless of the date of commission, (Sec. 183) NOTE: Any stipulation extending the 2-year period is null and void. : Sun Insurance Co. issued to Tan a life policy having this provision: “the company shall not be liable in respect of ‘bodily injury’ consequent upon the insured person who willfully exposes himself to needless peril except In an attempt to save human life". Tan designated his wife, Beverly as beneficiary. One ‘evening, Tan, while playing with his hand gun, suddenly stood in front of his secretary and Pointed the gun at her. Startled, she pushed the gun aside and said that it may be loaded. Thus, Tan, to assure her that it was not loaded, pointed it at his temple. The next moment, there was an explosion and Tan slumped to the floor lifeless. Beverly, then claimed the proceeds from Sun Insurance, but the latter ejected her claim on the ground that the death of Tan was not accidental. Beverly sued the insurer, Will Beverly's claim prosper? (1993, 1994 BAR) A: Beverly can recover the proceeds of the policy from the insurer. The death of the insured was not due to suicide or willful exposure to needless peril which are excepted risks. The insured’s act was purely an act of negligence which is covered by the policy and for whieh the insured got the insurance {or his protection. In fact, he removed the magazine from the gun and when he pointed the gun to his temple he did so because he thought that it was safe for him to do so. He did so to assure his sister that the gun was harmless. There is none in the policy that would reliove the insurer of liability for the death of the insured since the death was an accident. (Sun Insurance v CA, GR. Nos. 79937-38, February 13, 1989) Life Insurance vs. Fire/Marine Insurance FIR i |ARINE RANCE Pane Ie is a contract of investment not contact i 2, comact_ of of indemnity. ~ May. be tandiowed oF |The —tanaforse or assigned to any” person | assignee must have an even i he. has no | insurable interest n insurable interest the thing insured. The the insurer is not essential to the validity of the assignment of 2 life policy unless expressly consent of Consent, inthe absence of waiver by the insurer, is essential in the assignment of required. the policy Insurable interest in the | Incurable interest in life or health of the | the property insured person insured need not exist after the insurance takes effect oF when loss must exist not only when the insurance takes effect but also Insurable tuerest new | Msrable interest nothaveanylega basis. | "st have + lea Contingency — that contemplated is certain | rhe conangency event, the only | ingured against may or ticertainty being the ‘ time when it will take | ™Y™9t cur place, The labiliy of the insurer to make payment is certain, the only uncertain clement being whea such payment must bemade, Liability is uncertain because the happening of the peril insured against Is uncertain. 2 VERSITY OF SANTO TOMAS FAcutty oF Civit LawCOMMERCIAL LAW May he terminated by the insured but cannot be cancelled by the insurer and is usually a long- erm contract May be cancelled by either party and is usually for a term of one year The “loss” to the beneficiary caused by the death of the insured can seldom be measured accurately in terms of cash value ‘The generally true of the loss of property, ie, it is capable of pecuniary estimation. The insured ie submalt of his actual ary loss as a condition precedent to collecting the ‘The beneficiary is under no obligation to prove actual financial loss as a result of the death of the insured in order to collect the insurance, required to proof PN Microinsurance is a financial product or service that meets the risk protection needs of the poor where: 1. The amount of contributions, premiums, fees cor charges, computed on a daily basis, does not exceed 7.5% of the current daily minimum wage rate for nonagricultural workers in Metro Manila; and 2, The maximum sum of guaranteed benefits is not more than 1,000 times of the current daily minimum wage rate for nonagricaltural workers in Metro Manila (IG, Sec. 197) NOTE: No insurance company or mutual benefit association shall engage in the business of mlcrolnsurance unless it possesses all the requirements 2s may be prescribed by the Cornmissioner. (IC See. 188) rer pened Itisa protection coverage that will answer for legal liability for losses and damages for bodily injuries or property damage that may be sustained by another arising from the use and operation of a motor vehicle by its owner. (Compulsory Motor Vehicle Liability Insurance, prepared and distributed by the Insurance Commission) NOTE: It is the only compulsory ‘coverage under the Insurance Code. The Insurance Code makes it unlawful for any land transportation operator or owner of a motor vehicle to operate the same in public highways unless there is an insurance or guaranty to indemnify the death or bodily injury of a third party or passenger arising from the use thereof. (UC, Sec. 387) Registration of any vehicle will not be made or renewed without complying with the requirement. (IC, Sec. 269) Purpase of motor vehicle liability insurance To give immediate financial assistance to victims of ‘motor vehicle accidents and/or their dependents, especially if they are poor regardless of financial capability of motor vehicle owners or operators responsible for the accident sustained. (First Integrated Bonding Insurance Ca, Inc. v. Hernando, GR No, 1-5121, july 31, 1991) NOTE: The insurer's Hability accrues Immediately upon the occurrence of the injury or event upon which the liability depends, and does nat depend oon the recovery of judgment by the injured party against the insured. (Shafer v. judge, RTC, supra) Definitions 1, Motor vehicle Any vehicle propelled by any power other than ‘muscular power using the public highways, but excepting road rollers, trolleys cars, street sweepers, sprinklers, lawn mowers, bulldozers, graders, forklifts, amphibian trucks, and cranes If ‘hot used in public highways, vehicles which run only on rails or tracks, and tractors, trailers and traction engines of all kinds used exclusively for agricultural purposes. (Sec. [a] of RA 4136) NOTE: Trailers having any number of wheels, when propelled or intended to be propelled by attachment to 2 motor vehicle shall be classified as separate motor vehicle with no power rating. (Ibid) 2. Passenger Any fare-paying person being transported and conveyed in and by a motor vehicle for transportation of passengers for compensation, including persons expressly authorized by law or by the vehicle's operator or his agents to ride without fare, (IC, Sec. 385, [b]) 3. Third-party fg | UNivenstty oF Santo Tomas 7 2021 GoLoENNorESINSURANCE LAW Any person other than a passenger as defined in this section (Ibid) and shall also exclude a member Of the household, or a member of the family within the second degree of consanguinity or affinity, of a motor vehicle owner or land transportation operator, as likewise defined herein, or his employee in respect of death, bodily injury, or damage to property arising out of and in the course ‘of employment. (Sec. 286, [c, Ibid) 4, Owner or Motor vehicle owner (MVO) Actual legal owner of a motor vehicle, whose name such vehicle is duly registered with the Land ‘Transportation Office. (Sec. 386, [4 Ibid) 5, Land transportation operator (LTO) ‘The owner or owners of motor vehicles for transportation of passengers for compensation, ‘including school buses. (See. 386, (e], Ibid) Persons required to maintain a compulsory motor vehicle lability insurance (CMVLI) policy to operate motor vehicle/s in public highways. 1. Motor vehicle owner (MVO) 2, Land transporration operator (LTO). (Sec. 387, Ibid) ‘motor vehicle liability insurance 1. For MVOs, the coverage must be comprehensive agalust third party lability for death or bodily injuries. If the private motor vehicle is being used to transport passengers for compensation, the coverage shall indude passenger liability. 2. For LTOs, coverage must be comprehensive against oth passenger and third-party liabilities for death or bodily injuries. (Ins ‘Mema Cir. No. 3-81) ‘Substitutes for_a_compulsory motor vehicle Hability insurance policy. Instead of a CMVLI policy, MVOs or LTOs may cither: 1. Post a surety bond with the Insurance Commissioner who chall be made the obligee for crediter in the bond in such amount or amounts required as limits of indemnity to answer for the same losses sought to be covered by @ CMLVI policy; or 2. Make a cash deposit with the Insurance Commission in such amount or amounts required as limits of indemnity for the same purpose. (Sec. 390, Ibid) After the cash deposit or surety bond has been proceeded against by the Insurance Commissioner, such cash deposit shall be replenished or such surety bond shall be restored by the MVO or LTO in the right amount/s required as limit of lability within 60 days after impairment or expiry, otherwise, he shall secure a CMLVI required. (Ibid) Duties of _motor_vehide owner or lana transportation operator_in_contemplation_of the cancellation ofthe policy Contemplating the cancellation of the policy, the MVO or 170 shall: 1. Give to the insurance or surety company concerned a written notice of his intention to cancel; 2. Secure, before the insurance policy ar surety bond ceases to be effective, another similar policy or bond to replace that one canceled; 3. Without making any replacement, make a cash deposit in sufficient amount with the Insurance Commissioner and secure a certification from the Insurance Commissioner regarding the deposit made for presentation to and filing with the Land Transportation Office. (CMYLI, supra) (IC, Sec. 393-394) vehicle lability insurance over solicitation 1, No government office or agency having the duty of implementing the provisions of the Insurance Code on CMVLI shall act as agent in procuring the insurance policy or surety bond required: No official or employee of such office or agency shall similarly actas such agent; and The commission of an agent procuring the corresponding insurance policy or surety bond shall in no case exceed 10% of the amount of premiums therefore. (IC Sec. 400) Effects of the cancellation of the policy. GR: Upon receipt of the notice of such cancellation, the Land Transportation Office shall order the immediate confiscation of the plates of the motor vehicle concerned. XPNs: No confiscation will be ordered if said Office receives any ofthe following: T+ VERSITY OF SANTO TOMAS FAcutty oF Civit LawCOMMERCIAL LAW 1. An evidence or proof of a new and valid CMVLI cover which may be either an insurance policy or guaranty in cash or surety bond; 2. A signed duplicate of an endorsement or addendum issued by the insurance company concerned showing revival or continuance of the CMVLI cover; or 3. A certification issued by the Insurance Commissioner to the effect that a cash deposit in the amount required as Umit of indemnity hhas been made with him by the MYO or LTO. (CMULL supra, IC Sec 393) ‘Own damage” coverage It simply meant that the insurer had assumed to reimburse the costs for repairing the damage to the insured vehicle, as opposed to damage to third party vehicle/property. The phrase “own damage’ does nct mean damage to the insured car caused by the assured self, Instead, of third parties. (Pan ‘Maiayan Insurance Corporation v. Court of Appeals, supra) No! It Indemnity clause (1994 BAR) It is a clause where the insurer is required to pay 2 third party injured or killed in an accident without the necessity of proving fault or negligence on the part of the insured. There is a stipulated ‘maximum amount to be recovered. It is a clause that gives the victim (injured person for heirs of the deceased) an option to file a daim for death or injury without the necessity of proving fault or negligence of any kind to guarantee ‘compensation or indemnity to injured persons in motor vehicle accidents, Rules under the “no fault indemnity clause” 1. The total indemnity in respect of any one person shall not exceed P15,000 for all motor vehicles. (Ins. Memo. Circ. No. #2006) 2. Proofofless: a. Police report of accident b Death certificate and evidence s ‘establish proper payee Medical report and evidence of medical or hospital disbursement. (1C, Sec. 391 [3)) ficient to 3, Claim may be made against one motor vehicle only. (Sec. 391 [e} Ibid) 4, In case injury of an occupant of a vehicle, the claim shall lie against the insurer of the vehicle in which the occupant is riding. mounting or dismounting from. (Ibid) Inany other case (not an occupant), claim shall fe against the insurer ofthe directly offending vehicle, (Ibid) 6. Imall cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained. (Ibid) ‘The claimant is not free to choose from which insurer he will claim the "no fault indemnity," as the law, by using the word "shall, makes it mandatory that the claim be made against the Insurer of the vehicle In which the occupant is riding, mounting or dismounting from. That said vehicle might not be the one that caused the accident ic of no moment since the law itself provides that the party paying may recover against, the owner of the vehicle responsible for the accident. (Perla Compania de Seguros, Inc. v. Ancketa, GR. No. L-49599, August 8, 1988) This no-fault claim does NOT apply to property damage. Ifthe total indemnity claim exceeds P15, (000 anid there is controversy in respect thereto, the finding of fault may be availed of by the insurer only as to the excess. The first PLS. 000 shall be paid without regard to the fault. (CMVLI, supra) 0: X is a passenger of a jeepney for hire being driven by Y. The jeepney collided with another passenger jeepney being driven by Z who was driving recklessly. As a result of the collision, X suffered injuries. Both passenger jeepneys are covered by Comprehensive Motor Vehicular Insurance Coverage. If X wants to claim under the “no fault indemnity clause’, his claim lie against? (2012 BAR) ‘A: Against the Insurer of the passenger jeepney driven by Y because X was his passenger. The Insurance Code states that in the case of an occupant of a vehicle, the claim shall lie against the Insurer of the vehicle in which the occupant is riding, mounting or dismounting from. Authorized driver clause It indemnifies the incured owner against less or damage to the car but limits the use of the insured vehicle to 1. The insured himself or fg | UNivenstty oF Santo Tomas 2021 GoLoENNorES 15INSURANCE LAW The insured need not prove that he has a driver's license at the time of the accident if he vas the driver. (Sundiang Sr. & Aquino, 2014) 2. Any person who drives on his order or with his permission; provided, that the person driving is permitted to drive the motor vehicle in accordance the law, and is not disqualified. (Villacorta. y, Insurance Commissioner, GR No. 54171, October 28, 1980) ‘The main purpose of this clause is to require a person other than the insured, who drives the car on the insured’s order or his permission, to be duly licensed drivers and have no disqualification to drive a motor vehicle. NOTE: An Irish citizen whose 90-day tourist visa had expired, cannot recover on his car Insurance policy, not being authorized to drive a motor vehicle without a Philippine driver's license. (Stokes v. Malayan Insurance Co, Inc. GR. No. L- 34768, February 24, 1984) A driver with an expired Traffic Violation Receipt for expired Temporary Operator's permit Is not considered an authorized driver within the meaning of the incurance policy. The Traffic Violation Receipt is coterminous with a confiscated license under the Motor Vehicle Law. (Gutierrez v. Capital Insurance & Surety Co, Inc, GR No. L- 26827, June 29, 1984) ‘Theft clause It is that which includes theft as among the risks insured against. Where a car is unlawfully and wrongfully taken without the knowledge and consent of the owner, sich taking constitutes “theft” and itis the theft clause, not the authorized driver cause which should apply. (Perla Compania de Seguros, Inc. v. CA, supra) ‘The "Theft Clause” of a comprehensive motor vehicle insurance policy has been interpreted by the Court in several cases to cover situations like (1) when one takes the motor vehicle of another without the latter's consent even if the motor vehicle is later returned, there is theft- there being intent to gsin as the use of the thing unlawfully taken constitutes gain or (2) when there is taking of a vehice by another person without the permission or authority from the owner thereof. (Paramount Insurance vs. Spouses Remondeulaz, GR.No. 173773, November 28, 2012) Theft ‘There is theft if the vehicle Is taken with intent to gain without the consent of the insured-owner. Thus, there is theft eve 1. The vehicle is returned; 2. The vehicle was stolen by the driver of the inzured (Alpha Insurance and Surety Company v. Castor, GR. 198174, September 2, 2013); The vehicle was taken to the owner of a repair shop for the purpose of repair and in order to attach accessories. (Paramount Insurance ¥. Spouses Remondeulaz, GR. No. 173773, November 28, 2012) (Sundiang Sr. & Aquino, 2014) Q: On May 25, 2014, Jess insured with Jack Insurance (Jack) his 2014 Toyota Corolla sedan under a comprehensive motor vehicle Insurance policy for one year. On July 1, 2014, Jess’ car was unlawfully taken. Hence, he immediately reported the theft to the traffic Management Command (TMC) of the Philippine National Police (PNP), which made Jess accomplish a complaint sheet as part of its procedure, In the complaint sheet, Jess alleged thata certain Ric Silat (Silat) took possession of the subject vehicle to add accessories and improvements thereon. However, Silat failed to return the subject vehicle within the agreed three- day period. As a result, Jess notified Jack of his claim for reimbursement of the value of the lost vehicle under the insurance policy. Jack refused to pay claiming that there is no theft as Jess gave Silat lawful possession of the jack correct? (2014 BAR) A: NO. Jack Insurance Is not correct. Ric Silat was ‘merely given physical possession of the car. He did not have juridical possession over the same. It is also apparent that the taking by Silat of the car of Jess is without the consent or authority of the latter. Thus, the act of Silat in depriving less of his car, soon after the transfer of physical possession of the same to him, constitutes theft under the Insurance policy that is compensable. (Paramount Insurance x. Spouses Remondeulaz, GR. No. 173773, November 8, 2012) Q: On February 21, 2013, Barrack entered into a contract of insurance with Matino Insurance Company (Matino) involving a motor vehicle. ‘The policy obligates Matino to pay Barrack the amount of P600,000 in case of loss or damage to said vehicle during the period covered, 16 VERSITY OF SANTO TOMAS FAcutty oF Civit LawCOMMERCIAL LAW which is from February 26,2013 to February 26,2014. On April 16,2013, at about 9:00 am, Barrack instructed his driver, JJ, to bring the motor vehide to a nearby auto shop for tune-up. However, |J no longer despite and diligent efforts to locate the said vehicle, the efforts proved futile. Resultantly, Barracle promptly hotified Matino of the said loss and demanded payment of the insurance proceeds of 600,000. In aletter dated July 5.2013, Matino denied the daim, reasoning as stated in the contract that “the company shall not be liable for any malicious damage caused by the insured, any member of his family or by a person in the Insured’s service. Is Matino Correctin denying the daim? (2014 BAR) A: Matino Insurance is not correct in denying the claim. The loss of the motor vehicle Is not excluded under the insurance policy as the loss was due to theft, not malicious damage. The “malicious damage” clause under the policy is not applicable bbut rather the “theft” clause. Thus, the provision under the policy that "the company shall not be liable for any malicious damage caused by the insured, any member of his family or by a person in the insured’s service’ is not applicable. (Alpha Insurance and Surety Co. v. Castor, GR. No. 198174, September 22003) Q: When a passenger jeepney, insured but with an authorized driver’s clause and was driven by a driver who only holds a Traffic Violation Report (TVR) because his license was confiscated, met an accident, may the owner of the jeepney claim from the insurance company? (2003 BAR) A: YES. The fact that the driver was merely holding a TVR does not violate the condition that the driver should have a valid and existing driver's license. Besides, such a condition should be disregarded because what is involved is a passenger jeepney, and what is involved here is not own damage insurance but third party liability where the injured party is a third party not privy to the contract of insurance. MPULSORY INSURAN Thence ‘The Agency-Hired Overseas Filipina Workers (OFW) Compulsory Insurance or the Compulsory Insurance Coverage for Agency-Hired Migrant Workers is an Insurance mechanism made available by the law to insurance protection for the OFWs. provide Each migrant worker deployed by a recruitment or ‘manning agency shall be covered by a compulsory insurance policy which shall be secured at no cost tothe worker. (Sec. 1, Rule XVI of the Omnibus Rules and Regulations Implementing RA 8042 as amended) Policy coverage The insurance policy shall be effective for the duration of the migrant worker's employment contract and shall cover, at the minimum the following: ‘Accidental death; Natural death: Permanent total disablement; Repatriation cost; Subsistence allowance; Money claims Compassionate visi Medical evacuation; and Medical repatriation. (Sec. 2, Rule XVI of the Omnibus Rules and Regulations Implementing RA 8042 asamended) Qualifications to provide for the worker's insurance coverage In order to provide for the migrant worker's compulsory insurance coverage, the insurance company must: 1. Bea reputable private insurance company: Be duly registered with the Insurance Commission; 3. Be in existence and operational for at least five (5) years 4, Have a net worth of at least five hundred million pesas (Php 500,000,000.00); and 5. Have a current year certificate of authority. Disqualifications to provide for the worker's insurance coverage Insurance companies whe have directors, partners, officers, employees or agents with relatives within the fourth civil degree of consanguinity or affinity, who work ar have interest in any of the licenced recruitment/manning agencies or in any of the government agencies involved in the overseas employment program shall be disqualified from providing thie worker's insurance coverage. (Sec. 4, fg | UNivenstty oF Santo Tomas 2021 GoLoENNorES 7INSURANCE LAW Rule XVI of the Omnibus Rules and Regulations Implementing RA 9042 asamended) NOTE: It shall be the duty of the said directors, partners, officers, employees or agents to disclose any such interest to the IC and POEA, Optional coverage For migrant workers classified as rehires, name hires or direct hires, they may opt to be covered by this insurance coverage by requesting their foreign employers to pay for the cost of the insurance coverage or they may pay for the premium themselves. To protect the rights of these workers, the DOLE and POEA shall provide them adequate legal assistance, inclusing conciliation and mediation services, whether at home or abroad (Sec. 14 Rule XVI of the Omnibus Rules and Regulations Implementing RA 8042 as amended) ‘VARIABLE CONTRACTS Variable contract Itmeans any policy or contract on either a group or on an individual basis issued by an insurance company providing: 1. Benefits or other contractual payments or values thereunder to vary, so as to reflect investment results of ‘a Any segregated investments; or b. A. designated separate account which amounts received, in connection with such contracts shall have been placed and accounted for separately and apart from other investments and accounts; and/or portfollo of 2, Benefits or values incidental thereto payable in fixed or variable amounts, or both. [IC Sec. 238 oy} Insurance company on variable contracts GR: No insurance company authorized to transact business in the Philippines shall issue, deliver, sell ‘oF use any variable contract in the Philippines XPN: Unless and until such company shall have satisfied the Commissioner that its financial and general condition and methods of operations, Including the issue and sale of variable contracts are not and will not be hazardous to the public or toits policy and contract owners IC, Sec. 228 (a)] NOTE: No foreign insurance company shall be authorized to issue, deliver, or sell any variable contract in the Philippines, unless it is likewise authorized to do so by the laws ofits domicile. /C, See. 238(a)} Determining qualifications to issue variable contracts In determining the qualifications of a company requesting authority to issue, deliver, sell, or use variable contracts, the Commissioner shall always consider the following: The history, financial and general condition of the company: Provided, That such company, ifa foreign company, must have deposited with the Commissioner for the benefit and security of its variable contract owners in the Philippines, securities satisfactory to the Commissioner consisting of bonds of the Government of the Philippines or its instrumentalities with an actual market value of Two million pesos (Php 2,000,000.00), The character, responsibility and ftness of the officers and directors of the company, and The law and regulation under which the company is authrized in the state of domicile toissue such contracts. {IC Sec. 238 (c)] INSURABLE INTEREST ‘An insurable interest is that interest which a person is deemed to have in the subject matter insured, where he has a relation or connection with or concern in it, such that the person will derive pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer pecuniary loss or damage from ite destruction, termination, or injury by the happening ofthe event insured against. NOTE: The existence of insurable interest is a ‘matter of public policy and is not susceptible to the principle of estoppel. The existence of an insurable interest gives a person the legal right to insure the subject matter of the policy of insurance. (Violeta Lalican vs. The Insular Life Assurance Co. Ltd, G.R No, 183526 August 25, 2009) Mere hope or expectancy is not insurable 7 VERSITY OF SANTO TOMAS FAcutty oF Civit LawCOMMERCIAL LAW ‘A mere contingent or expectant interest in anything, not founded on an actual right to the thing, nor upon any valid contract for it, Is not insurable. (IC, See. 16) When does a person have insurable interest? GR: A person is deemed to have an insurable interest in the subject matter insured when a person has a relation or connection with or concern in the subject matter, such that he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary loss from its destruction or injury by the happening of the event insured against. However, in some cases, expectation of benefit from the continued life of that person need not necessarily be of pecuniary nature to have an insurable interest in the life of a person. (De Leon, 2010) Q: Carlo and Bianca met in the La Boracay festivities, Immediately, they fell in love with each other and got married soon after. They have been cohabiting blissfully as husband and wife, but they did not have any offspring. As the years passed by, Carlo decided to take out insurance on Bianca's life for P1 million with him as sole beneficiary, given that he did not have a steady source of income and he always depended on Bianca both emotionally and financially. During the term of the insurance, Bianca died of what appeared to be a mysterious cause so that which led Carlo to immediately requested for an autopsy to be conducted. It was established that Bianca was transgender all along - a fact unknown to Carlo. Can Carlo claim the Insurance benefit? (2014 BAR) A: YES. Carlo can claim the insurance benefit. He had insurable interest on Bianca's life under Section 10(b) of the Insurance Codeas the problem states that Carlo “always depended on Bianca both emotionally and financially.” The insurable interest upon the life of another under the aforesaid provision need not be based on kinship ‘or legal obligation to give support, The fact that thelr marriage may be Void is relevant. Insurable interest in life insurance _vs GR: Every person has an unlimited insurable Interest in his own life. XPN: Where life Insurance Is taken out by a creditor on the life of the debtor, insurable interest is limited to the amount of debt. Limited to the actual value of the property. ‘When must insurable interest exist Must exist at the time the policy takes effect and need not exist thoreaiter. (IC Sec. 19) GR: Must exist twice, Le, both at the time the policy takes effect and the time of loss, but need not exist in the period in between. (IC, Sec. 19) XP IC, Secs. 21-24; 25, 87. 1. A change in interest in a thing insured, after, the occurrence of an injury which results ina less, does not affect the right of the insured to indemnity for the loss. (iC See. 21) 2. A change of interest in one or more several distinct things, separately insured by one policy, does not avoid the insurance as to the others (1G, Sec. 2) 3. A change on interest, by will or succession, on the death of the insured, does not avoid an insurance; and his interest in the insurance passes to the person taking his interest in the thing insured. (1G Sec 23) 4A transfer of interest by one of several partners, joint owners, who are jointly insured, to the others, does not fg | UNivenstty oF Santo Tomas 2021 GoLoENNorES 9INSURANCE LAW avoid an insurance even though it has been agreed thatthe insurance shall cease upon an alienation of the thing insured. (1 Sec. 24) 5. Every stipulation in a policy of insurance for the “payment of loss whether the person sured has or has not any interest in the property insured, or that the policy shall be recelved as proof of such interest, and every policy executed by way of gaming or wagering 1s void, (IC Sec. 25) ‘As to the beneficiary’ interest GR: The beneficiary need not have insurable interest over the life of The beneficiary must have insurable Interest over the thing insured. the insured if the insured himself secured | NOTE: Insurable the policy. interest isan indispensable XPN: However, if the | requirement. le insurance was obtained by the beneficiary the latter must have insurable interest over the life of the insured. Property insurance For both life and property insurance, the insurable interest is required to exist at the time of perfection of the policy. For property insurance, the insurable interest must also exist at the time of loss, in case of life incurance, the insurable interest need to exist only at the time of perfection and not thereafter. (IC, Sec. 19) however, Change of benefidary GR: The insured shall have the right to change the beneficiary he designated in the policy. XPN: If the insured expressly waived this right in the said policy. Notwithstanding the foregoing, in the event the insured does not change the beneficiary during his lifetime, the designation shall be deemed irrevocable. (IC, Sec. 11) NOTE: Under Sec. 64 of the Family Code, the innocent spouse is allowed to revoke the designation of the other spouse as irrevocable beneficiary after legal separation. 1. The insured cannot assign the policy if the Uesignation of the beneficiary is irrevocable. The irrevocable beneficiary has a vested right. (2005 BAR: Sundiang Sr & Aquino, 2014) 2, The beneficiary designated in a life insurance contract cannot be changed without the consent of the beneficiary. (Gercio v. Sun Life Assurance of Canada, 48 Phil. 53. 28 September 1925) 3, A new beneficiary cannot be added w the irrevocably designated beneficiary for this would in effect reduce the latter's vested rights. (Gov. Redfera, 72 Phil. 71, 25 April 1941) 4, The irrevocably designated beneficiary may obtain a policy loan to the extent stated in the schedule of values attached to the policy. (Gercio v, Sun Life Assurance of Canada, 48 Phi. 53, 28 September 1925) The insured cannot take the cash surrender value assign or even borrow on said policy without the consent of the beneficiary. IAT ‘Two general classes of life policies 1. Insurance upon one's life - are those taken out by the insured upon his own life for the benefit of: (HET) a7 a. Himself; b. His estate, in case it matures only at his death; or © Third person who may be designated as beneficiary. The question of insurable interest is immaterial where the policy is procured by the person whose life is Insured. A person who Insures his own life can designate any person as his beneficiary, whether or not the beneficiary has an insurable interest in the life of the insured subject to the limits under Article 2012 in relation to Article 739 of the New Civil Code. (De Leon, 2010) 20 VERSITY OF SANTO TOMAS FAcutty oF Civit Law