Commercial Law Notes March 12, 2022

 After last day of mock bar, few days only until candidates for graduation will be announced. (3days)

Air Transportation

 Article 349 of the Code of Commerce cover air transportation.

• YES. Although the said article only covers transportation on land and water, & has been held to cover
transportation through the air. (Mendoza v. PAL. 90 PM 836. 1961)
• Note: This is now covered under Article 1732 of the Civil Code.
  Nature of Airline's Business
• It is a contract of carriage imbued with public interest and as a common carrier, it is required to carry
passengers safely as far as human care and foresight can provide, using utmost diligence of very cautious
persons with due regard for all circumstances PAL Y CA. 226 SCRA 423. 1993)

  Liabilities of Airline Companies

• Employees' Malfeasance
o Moral damages based upon a breach of contract of carriage is recoverable only where (a) The mishap
results in the death of a passenger, and (b) It is proven that the carrier was guilty of fraud and bad faith even if
death does not result
• Non-conforming Entries in Passenger's Travel Documents
o Airline is not liable for the detention of a passenger by the Japanese immigration officials due to entries that
do not conform to the passenger's actual physical attributes. The duty of an airline to inspect whether its
passengers have the necessary travel documents does not extend to checking the veracity of every
entry in those documents, and has no duty to vouch for the authenticity of a passport and the
correctness of the entries therein (JAL V: Asuncion, 449 SCRA 544. 2005)

 Accommodations for Stranded Passengers due to Force Majeure

o Airline is not liable. When an airline is unable to fulfill its obligations because of force majeure, it cannot be
held liable for damages for non-performance, and whatever losses or damages in the form of hotel and meal
expenses the stranded passengers incurred, cannot be charged to the airline. (JAL . CA. 294 SCRA 19, 1998)

 • Overbooking
o Airlines liable Even where overbooking of passengers is allowed as a commercial practice, the airline
company would still be guilty of bad faith and still be liable for damages if it did not properly inform
passengers that it could breach the contract of carriage even if they were confirmed passengers.
(Zalamea v. CA, 228 SCRA 23, 1993)
o But, where the overbooking does not exceed 10% of the aircraft's seating capacity, it is not considered
deliberate and does not amount to bad faith (Cathay Pacific Airways Lid. v. Vasquez 399 SCRA 207, 2003)
 • Bumping Off Passengers to Higher Accommodations
o Airline is liable it is considered to have breached its contract carriage when it bumped off passengers who
refused to accept an upgrade. Passengers had every right to decline the upgrade and insist on the
accommodations they had booked for and which was designated in their boarding passes. They clearly
waived their priority or preference when they asked that other passengers be given the upgrade it should not
have been imposed on them over their vehement objection (Cathay Pacific Airways Sps. Vasquez, 399 SCRA
207, 2003)

• Delay in the Arrival of Bags Transported in Another Airline

o Airline is not liable. There is no willful misconduct on Airline Company in transporting baggage through
another airline, especially when it was done due to weight and balance restrictions and motivated by safety
measures. (Tan v NWA. 327 SCRA 263 2000)

  Liabilities of Airline Companies

• Subsisting Aircrafts Carriers Without Notice
o Airline is liable. A clause authorizing an airline to alter or omit stopping places shown on the ticket in case of
necessity does not authorize the airline to decide unilaterally to substitute an alternate carrier without so much
as a by-your-leave. Substituting aircrafts or carrier without notice is entirely different from changing stopping
places or connecting cities without notice. (NWA v. Savellano, 405 SCRA 416, 2003)
 • Damaged Caused by Hijacking
o Airline is liable for its failure to prevent a hijacking by frisking passengers and inspecting their baggage,
especially when it had received prior notice of such threat. (Fortune Express v. CA 305 SCRA 14, 1999)

• Security Measures Against Terrorism

o Airline's liability depends on the circumstances and the manner by which the passenger is treated.

 Matters Relating to Tickets

• Binding Terms of Tickets
o Purchase of tickets from an airline company instantaneously binds purchaser to the conditions of the
contract of carriage particularly the check-n time required.
o An airline cannot be held at fault and a passenger is deemed guilty of omission on negligence for his failure
to take the standard procedure for any passenger with a 2-day stopover in a foreign city to confirm the validity
of his tickets and the availability of a seat on his next flight out of that city (Sarwal S JAL 207 SCRA 359,
1992)

• Open-Dated Tickets
o Airline is liable for refusing to confirm a passenger's fight reservation based on an open dated ticket. A
round-trip ticket issued by the airline to the passenger is in itself a complete written contract by and between
the airline and the passenger and had all the elements of a complete written contract (Singsan v. CA 282
SCRA 149, 1997)

• Airline Pooling Arrangements

o A contract of international carriage by air, although performed by different carriers under a Series of airline
tickets constitutes a single operation Members of the International Air Transport Association (IATA) are
considered to be under a general pool partnership agreement wherein they act as agents of each other in the
issuance of tickets to contracted passengers. (American Airlines Y CA. 327 SCRA 482. 2000)

o An airline is liable even if only issued a ticket for a particular segment of the trip. Under a general pool
partnership agreement, ticket-issuing airline is the principal in a contract of carriage, while the endorsee-
airline is the agent. Thus, when the breach of contract occurs not on its own fight, but on that to another
airline, the principal ticket issuing airline is liable IF EXPRESSLY PROVIDED. In Montreal Convention, the
airline which the incident took place is liable, except when there’s a contrary stipulation. The liability of the
ticket-issuing airline remains and does not cease. regardless of the fact that another airline had undertaken to
carry the passengers to one of their destinations.

  Principle of Lex Loci Contractus

• The law of the place where a contract is made or entered into governs with respect to its nature and validity,
obligation and interpretation, and even though the place where the contract was made is different from the
place where it is to be performed.

• For air transportation purposes, the law of the place where the airline tickets are issued. (United Airlines v.
CA, 357 SCRA 99, 2001)
 That’s why it’s called STRICT LIABILITY for airlines. Automatically presumed liability.

 Where do you bring the claim if there are successive carriers, like not successive flights. You bring it against
the carrier who performed the carriage when the accident resulted, except if the first carrier assumes liability
 under the contract.

 Code sharing: if for example PH Airlines has flight from Manila to NY. Cathay Pacific can use the same code
as PH airlines uses.

 The carrier may not be held liable if the damage resulted from its fault or that of its agent.
 For bar, focus would be when liability arises. During embarking, during the cargo is in possession of airlines.
  What’s international carriage
 Limits of liability.

TNCs and TNVS

 What is a "Transportation Network Company"?

An organization, whether a corporation, partnership, sole proprietor, or other form, that provides pre-
arranged transportation services for compensation using an internet-based application or digital platform
technology to connect passengers with drivers using their personal vehicles. (DOTC DO 2015-11)

 What is covered by the rule relating to TNCs?

Sedan, Asian Utility Vehicle, Sports Utility Vehicle, Van, Sport Utility Vehicle or other similar vehicles

 What is a "Transportation Network Vehicle Service"?

A PUV accredited with a TNC, which is granted authority or franchise by the LTFRB to run a public transport
service. (DOTC DO 2017-11)

 What is the classification of a TNC?

LTFRB declared a TNC as a transport provider whose accountability commences from the acceptance by its
TNVS while online. (LTFRB MC No. 2015-015-A) No jurisprudence yet. But this is what’s issued by the
LTFRB.

 Is a TNVS accountable as a common carrier? When does it attach?

 Yes. The accountability of the TNVS, as a common carrier, attaches from the time the TNVS is online and
offers its services to the riding public. (LTFRB MC No. 2015-018-A)
 The term "public service" under the PSA covers any person who owns, operates, manages, or controls in
the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or
accidental, and done for general business purposes, any common carrier. (LTFRB and DOTC, v. Hon.
Valenzuela, et al., G.R. No. 242860, March 11, 2019)
 The Civil Code defines “common carriers" as engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air for compensation, offering their services to the public.

 Is an Angkas operator engaged in the business of a common carrier?

 DBDOYC (respondent) argues, among others, that (a) it is not a public transportation provider since Angkas
app is a mere tool that connects the passenger and the motorcycle driver; (b) Angkas and its drivers are not
engaged in the delivery of a public service; (c) neither the LTFRB nor the DOT (now, DOTC) has jurisdiction
to regulate motorcyles for hire. That an Angkas biker does not offer his/her service to an indefinite public.
Since the application merely pairs an Angkas biker with a potential passenger under a fare scheme which
(DBDOYC) fixes for both, DBDOYC may not compen an Angkas driver to pick up a potential passenger even
after the latter confirms a booking because as between the biker and the passenger, there is but purely
private contractual arrangement. In other words, it is merely a booking agent, or at the very least, a third-party
liaison for its accredited bikers.

 YES. In De Guzman v. CA, the Court discussed the relation between Article 1732 of the Civil Code and
Section 13(b) of the PSA. So understood, the concept of "common carrier" under the Article 1731 may be
seen to coincide neatly with the notion of "public service". Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation service on a regular or scheduled
basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does
Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits business only from a narrow segment
of the general population. (LTFRB and DOTC, v. Hon. Valenzuela, et al., G.R. No. 242860, March 11, 2019)

 Obiter dictum: It appears that there is really no contractual discretion between the Angkas bikers and
would be passengers because the app automatically pairs them up based on algorithmic procedures. Xxx
Verily, the absence of any true choice on these material contractual points apparently contradicts the
postulation that the Angkas app merely facilitates a purely private arrangement between the biker and his
passenger.

 Points to consider
1) TNCs and TNVS are considered as common carriers for purposes of determining their liability and degree of
 diligence that must be observed in the course of transportation network services.
2) Art. 1732 makes no distinction between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity. (De Guzman)
3) Article 1732 also carefully avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service on an occasional,
episodic or unscheduled basis. (De Guzman)
4) Article 1732 does not distinguish between a carrier offering its services to the "general public," i.e., the
general community or population, and one who offers services or solicits business only from a narrow
segment of the general population. (De Guzman)
5) A certificate of public convenience is not a requisite for the incurring of liability under the Civil Code
provisions governing common carriers. (De Guzman)
6) The Civil Code makes no distinction as to the means of transporting, as long as it is by land, water or air.
(FPIC V. CA, G.R. No. 125948, December 29, 1988)
7) The Civil Code does not provide that the transportation should be by a motor vehicle. (FPIC vs. CA)
8) A person or entity may be a common carrier even if he has no fixed and publicly known route, maintains no
terminals, and issues no tickets. (Asia Lighterage and Shipping, G.R. No. 147246, August 19, 2003)
9) A person or entity need not be engaged in the business of public transportation for the provisions of the Civil
Code on common carriers to apply to them. (Fabre, Jr. v. CA, G.R. No. 111127, July 26, 1996)blic Services
Laws
  Public Services
Includes every person who may own, operate, manage, or control in the Philippines for hire or
compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for
general business purposes, any common carrier, railroad, street railway, traction railway, subway motor
vehicle, steamboat, or steamship line, ferries, and water craft, shipyard, ice-plant, electric light, heat and
power, or any other public utility. [Sec. 13(b)]
 When do you need a Certificate of Public Convenience?
GR: you operate a public service where no franchise is required by law, CPC is required. Lie you don’t need
to go to Congress. Just get a CPC. Example tansport, you’ll get franchise from the LTFRB. . . (Sec. 15)
A CPC is an authorization to operate public service for which no franchise, either municipal or legislative, is
required.
XPN: Unless exempt

 When do you need a Certificate of Public Convenience and Necessity?

GR: when you operate a public service where a prior franchise is required by law. (Sec. 15) A CPCN is
authorization which requires a legislative franchise.
XPN: Unless exempt
 Franchise
Includes authorizations issued directly from Congress in the form of a statute and those granted by
administrative agencies to which the power to grant franchises has been delegated by Congress. (MCWD v.
Adala, G.R. No. 168194, 2007).
 What is the nature of a (Legislative) Franchise?
 It is a mere privilege which may be reasonably burdened with some form of public service. [ABS-CBN v.
Phil. Multi-Media System 576 SCRA 262, 2009; citing Telecom & Broadcast Attys. of the Phil. v. COMELEC,
352 Phil. 153 (1998)]
 It is a legislative grant of a special privilege to a person. (ABS-CBN v. NTC, G.R. No. 252119, August 25,
2020)

 Is Legislative Franchise Always Required?

 NO, if there is no statute requiring the same. The law determines the requisite for the issuance of such
certification, and not the title indicating the certificate. Public convenience and necessity exists when the
proposed facility will meet a reasonable want of the public and supply a need which the existing facilities do not
adequately afford. It does not mean or require an actual physical necessity or an indispensable thing. (PAL v.
CAB, 270 SCRA 538,1997)
 Example: E.O. No. 30 does not require the PPA to secure a franchise to take over, manage, and operate
 the port complex.
 YES, if the pertinent law requires such legislative franchise.
 Example: P.D. No. 576-A requires a franchise for the operation of radio and television stations.
 Is a CPC considered Property? (means you can lease or sell it)
NO. Being neither a franchise nor a contract, it confers no vested or property right or interest on the holder.
But in its purely private aspect, it has value and to that extent, it may be considered a property and can be
levied upon.

 What is the "Prior or Old Operator Rule"?

It states that the first licensee will be protected in his investment and will not be subjected to ruinous
competition. Consequently, the second operator will not be issued a CPC when a prior (first) operator
is rendering sufficient, adequate, and satisfactory service, and who in all things and respects is
complying with the relevant rules and regulation.
This cannot prevail over convenience of the public.

 Is CPC required for Ferry Operations?

YES. A ferry operation requires the prior approval of the municipal government in whose jurisdiction it
operates and once approved, the operator must thereafter apply for a CPC. (Municipality of Echague v
Abellera, 146 SCRA 180, 1986)

 Do you need a CPC for the operation of a port or container terminal?

Even if the MICP (now, MICT) be considered a public utility, or a public service on the theory that it is a
"wharf' or a "dock" as contemplated under the PSA, its operation would not necessarily call for a franchise
from the Legislative Branch. Franchises issued by Congress are not required before each and every public
utility may operate. The law has granted certain administrative agencies the power to grant licenses for or to
authorize the operation of certain public utilities. (Albano v. Reyes, 176 SCRA 264, 1989)

 Grounds for Revocation of Certificate

1. The holder violates or contumaciously refuses to comply with any order, rule or regulation of the
commission.
2. The holder is a mere dummy.
 3. The holder ceases operations or abandons the service.

 When is Notice and Hearing Required?

1. Issuance of a CPC and CPCN
2. Fixing of standards and qualifications;
3. Fixing of standards for measuring quantity;
4. Establishment of rules to secure accuracy of all meters and all measuring appliances;
5. Order to compel operators to furnish proper service;
6. Allowing extension of facilities; and
7. Imposition of administrative fines for violation of the conditions of CPC under Sec. 21 of the PSA (GMA
Network, Inc. v. NTC, G.R. No. 196112, 2014)
* Note: Item 7 is regulatory and punitive in character

 When is Notice and Hearing NOT Required?

1. Investigation of public utility companies;
2. Valuation of properties of public utilities;
3. Examination and test of measuring appliances;
4. Grant of special permits to make extra or special trips in territories specified in the certificate;
5. Investigation of accidents; and
6. Compel compliance with the laws and regulations.

Public Utilities

 Public Utility
 A business or service engaged in regularly supplying the public with some commodity or service of public
consequence such as electricity, gas, water, transportation, telephone, or telegraph service. (MCWD)
 To be a public utility, the facility must be necessary for the maintenance of life and occupation of the
residents. But offering services or goods that promote public goods and service public interest does not
automatically make it a public utility. (JG Summit Holdings, Inc. v. CA, 412 SCRA 10, 2003)

 Distinction between Legislative Franchise and CPC

Legislative Franchise Certificate of Public Convenience

A grant or privilege from
the sovereign power.
A form of regulation through an administrative agency. (Associated
Communications & Wireless Services – UBN v. NTC, G.R. No. 144109, 2003,
citing RCP v. NTC, 150 SCRA 450, 1987)
agency. (Associated Communications & Wireless Services – UBN v. NTC,
G.R. No. 144109, 2003, citing RCP v. NTC, 150 SCRA 450, 1987)

 Is "public use" synonymous with "public interest?" What is the principal determinative characteristic of a
"public utility"?
 NO. The principal determinative characteristic of a public utility is that of service to, or readiness to serve, an
indefinite public or portion of the public as such which has a legal right to demand that use or service so long
as it is continued, with reasonable efficiency and under proper charges. Unlike a private enterprise, a public
utility holds out generally and may not refuse legitimate demand for service. (JG Summit Holdings)

 Basis/Reasons for Regulation of Public Utilities

 Regulation of public utilities is founded upon the police power of the State and statutes prescribing rules for the
control and regulation of public utilities are considered valid exercise thereof.
 To promote common good. (Republic v. Manila Electric Company, G.R. No. 141314, 2000)

 Relevant Constitutional Provisions

 Sec. 11, Art. XII (Equity Rule)-"No franchise, certificate, or any other form of authorization for the operation
of public utility shall be granted except to: (a) citizens of the Philippines; or (b) corporations or associations
organized under Philippines laws where at least 60% of the capital is owned by Filipino citizens."
  Sec. 19, Art. XII (Monopolies)- "The State shall regulate or prohibit monopolies when the public interest so
requires. No combination in restraint of trade or unfair competition shall be allowed."
 Sec. 17, Art. XII (Government Take-Over of Public Utilities)- "In times of national emergency, when the
public interest so requires, the State may, during the emergency and under reasonable terms, temporarily
take over or direct the operation of any privately owned public utility or business affected with public
interests."
 Sec. 18, Art. XII (Operation of Vital Industries)- The State may, in the interest of national welfare or defense,
establish and operate vital industries and upon payment of just compensation, transfer to public ownership
utilities and other private enterprises to be operated by the government.

 Can foreign investors participate in the operation of a public utility?

YES. But their participation shall be limited to their proportionate share in the capital, and all the executive
and managing officers of such corporations or associations must be citizens of the Philippines.

 Does the Equlity Rule apply to Ownership of the Facilities?

 NO, The right to operate a public utility may exist independently and separately from the ownership of the
facilities thereof. Ownership of the assets only do not require 60% Filipino equity. (Tatad v. Garcia, Jr. 243
SCRA 436, 1995)

 Limitations on the Grant of a Franchise?

1. Equity Rule – 60-40
2. Term Limit – 25-25
3. Mandatory Condition-it subject to amendment, alteration, or repeal by Congress when the common good so
requires.

 Distinctions between Primary and Secondary Franchises

Primary Franchise Secondary Franchise

Also referred to as "general franchise" relates to
the right to exist as a corporation, by virtue of
duly approved articles of corporation, or a
charter pursuant to a special law creating the
corporation.
Right is vested in the individuals who compose
the corporation and not in the corporation itself.
Also known as "special franchise," refers to the right
or privileges conferred upon an existing corporation
such as the right to use the streets of a municipality
to lay pipes of track, erect poles or string wires.
Right is vested in the corporation and may ordinarily
be conveyed or mortgaged under a general power
granted to a corporation to dispose of its property,
except such secondary franchises charged with a
public use.

 Is operation of a shipyard considered a Public Utility?

NO. A shipyard is a place of enclosure where ships are built or repaired and its nature dictates that it serves
a limited clientele whom it may choose to serve at its discretion. It has no legal obligation to render services
sought by each and every client. The fact that it publicly offers its services does not give the pubic a legal
right to demand that such services be rendered. (JG Summit Holdings)

 Is refinement of petroleum from abroad considered a Public Utility? (when we buy petroleum from
abroad)
NO, It is not engaged in oil refining for hire and compensation to process the oil of other parties. The
activities considered as public utility under Sec. 7 of R.A. 387 (Petroleum Act of 1949) refer only to
petroleum which is indigenous to the Philippines. (Bagatsing v.Committee on Privatization, 246 SCRA 334,
1995)

 Acts Requiring Approval under the PSA – Just be familiar

1. Fixing of rates;
2. Establishment, maintenance, and operation of new units and extension of facilities or services
3. Abandonment of station;
4. Issuance of stocks, bonds and other evidence of indebtedness;
5. Sale, alienation, mortgage, encumbrance, lease, merger or consolidation of properties, franchises,
certificates, privileges, or rights or any part thereof; and
 6. Sale of shares that will make the transferee the owner of 40% of the subscribed capital. (Sec. 20)

 Constitutional Limitations Imposed on Public Utilities

1. Equity Rule
2. Non-Exclusivity
3. Time Limit
4. Mandatory Condition
5. Equity Participation by the General Public in Public Utilities
6. Limit on Participation of Foreign Investors in the Governing Body of any Public Utility Enterprise
7. Philippine Citizenship of all Executive and Managing officers of the Corporation (as opposed to directors
and governing body allowed under PD 715)
8. Government Take-Over in times of National Emergency
9. Operation of Vital Industries and Transfer to Public Ownership of Private Enterprises
10. Regulation or Prohibition of Monopolies when the Public Interest Requires
11. Prohibition of Combinations in Restraint of Trade or Unfair Competition

 Can a provisional rate increase be granted without prior evidentiary hearing?

 YES. An administrative agency may be empowered by law to approve provisionally. When demanded
by urgent public need, rates of public utilities without a hearing. Provisional rates are by their nature
temporary and subject to adjustment in conformity with the definitive rates approved after final hearing.
(Padua, et al, v. Hon. Ranada, G.R. No. 141949. 2002)

Mass Media
Constitutional Provision (came out sa bar)
 Sec. 11(1). Art XV - 'The ownership and management of mass media shall be limited to citizens of the
Philippines, or to corporations, cooperatives or associations, wholly owned and managed by such citizens.
The Congress shall regulate or prohibit monopolies in commercial mass media when the public interest so
requires. No combinations in restraint of trade or unfair competition therein shall be allowed."

Does "mass media include telecommunications facilities?

 NO. It does not include telecommunications facilities, stations or networks, and wire and radio communication
services. These are separate and distinct for purposes of the constitutional restrictions on foreign ownership
in equity. (DOC Opinion 163, S. 1973)

National Telecommunications Commission?

 The regulatory agency of the National Government with jurisdiction over all telecommunications entities.

Does transfer of shares of a public utility corporation require the Congressional approval?
 No. it only needs NTC approval.
RA 7925
(Public Telecommunications Policy Act)
Purpose:
 It generally mandates that no person shall be allowed to commence or conduct the business of being a public
telecommunication entity without having first obtained a franchise.

Does “mass media” include telecommunications facilities?

 No. It does not include telecommunications facilities, station or networks and wire and radio communication
services. These are separate and distinct purposes of the constitutional restrictions on foreign equity
ownership in equity. (DOC Opinion 163, S. 1973)
Coverage of "Telecommunications."
 Telephone service, inter-exchange carrier, international care, value-added service provider, mobile radio
services, radio paging services, and radio-telephony system.

Prohibition on Cross-Ownership
 No single franchise shall authorize an entity to engage in both telecommunications and broadcasting entities.
{Sec. 401

Public Offerings Requirement

 All telecommunications entities with regulated types of services shall make bona fide public offering through
the stock exchanges of at least 30% of aggregate common stocks within a period of 5 years from its effectivity
or the entity's first start of commercial operations, whichever is later

Scope of Republic Act No.8792 (Electronic Commerce Act)

 Provides for separate statutory governance between telecommunications from those value-added service
providers that use electronic optical and similar media technology.
 Classifies the physical infrastructure of cable and wireless systems for cable TV and broadcast as within the
ambit of telecommunications for purposes of electronic commerce

"Value Added Service"

 An entity which relying on the transmission, switching, and local distribution of facilities of the local exchange
and inter-exchange operators, and overseas carriers, offers enhanced services beyond those ordinarily
provided for by such carriers. (Sec 1(h)
 Example- internet services which do not fall under either telecommunications or mass media

Is "Internet business within the coverage of the constitutional limit on mass?

 No. The rationale is because in Internet business, the Internet access provided merely serves a carrier for
transmitting messages. It does not create the messages/information nor transmit the messages/information to
the general public, as mass media do, and the publication of the messages /information or stories carried by
the Internet and transmitted to the computer owner, thru the access provider, is decided by the sender or the
inter-linked networks. ( DOJ. Opinion 40, Series of 1998)

Broadcasting Industry
 "Broadcasting"
 Covers the transmission of radio and television programs that are intended for general public reception, the
systematic dissemination of entertainment, information educational programming and other features
simultaneous reception by a broad audience with appropriate receiving apparatus. (Sec.3(C). RA 79251

 Who is tasked to regulate radio communications?

 NTC pursuant to Executive Order NO. 546, under which only a legislative franchise can operate and manage
a radio station.

Insurance Law
PD No. 1460, as amended by RA 10607
 Governing Laws
a) Insurance Code (PD 1460, as amended by R.A. 10607)
b) Civil Code, Article 2011, and other relevant articles
c) Family Code
d) Other special laws

 Contract of Insurance vs Contract of Suretyship

 When is a person considered doing an Insurance or transacting an Insurance business?
● If he performs any of the following:
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, not as a mere
incident to any other legitimate business of a surety:
3) doing any insurance business like reinsurance and similar acts; and
4) doing or proposing to do any business equivalent to the foregoing. (Sec. 2, par. 4).

 Are Mutual Insurance Companies considered "engaged in Insurance business”?

● YES. An entity owned by the policyholders that caters only to the insurance needs of the same
policyholders/members, has no capital stock, and where the contributions of members are the only sources
of funds to meet losses and expenses, is still engaged in Insurance business. (Republic v. Sunlife Ins. Co.,
G.R. NO. 158085, 2005)

 Is bancassurance offered at the premises of banks allowed?

- like kanang sa bank ba na mag sell sila insurance. Allowed na na.
YES. Bancassurance is cross-selling of insurance products within the premises of the head office of a bank
duly licensed by the Bangko Sentral ng Pilipinas or any of its branches. Under the relevant Rules issued by
the IC, the selling of insurance products, including variable life insurance products, within the premises of a
bank is only allowed after the Insurance Commission (IC) has approved the bancassurance agreement
entered into by and between the insurance company and the bank. Here, the bank itself will not engage in
insurance business because it is prohibited under the GBL to engage in insurance busine

 □ Characteristics of Insurance
1. Risk Distributing Device - it serves to distribute the risk of economic loss among as many as possible of
those who are subject to the same kind of risk.

2. Contract of Adhesion ("Fine Print Rule") - Most of the terms of the contract do not result from mutual
negotiations between the parties as they are prescribed by the insurer in printed form to which the Insured
may adhere if he chooses but which he cannot change. 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.
◦ Note: In case of doubt, the contract shall be interpreted strictly against the insurer and liberally in
favor of the insured. (Rizal Surety and Insurance Co. V. CA, 336 SCRA 12, 2000).

3. Aleatory- The obligation of the insurer to pay the proceeds of the Insurance arises only upon the happening
of an event which is uncertain, or which is to occur at any indeterminate time.

4. Commutative - To a certain extent; there is still exchange of equivalents, le., the amount paid by the
insurer is deemed the equivalent of the protection given by the insured based on the Insurance contract.

5. Contract of Indemnity -It is the basis of all property insurance, i.e., the insured who has Insurable interest
over a property is only entitled to recover the amount of actual loss sustained and the burden is upon him to
establish the amount of such loss.
◦ Note:
a) This applies ONLY to property Insurance, except creditor insuring the life of his debtor.
b) Life insurance is NOT a contract of indemnity. No over-insurance in life

6. Uberrimae Fidae Contract - traditionally considered as contracts of utmost good faith: one of perfect good
faith not for the insured alone, but equally so for the insurer. - Put simply; the term means that every party in
a contract must deal in good faith. 

7. Personal Contract - The law presumes that the insurer considered the personal qualifications of the insured
in approving the insurance application.
  Elements of Insurance:
a) existence of an insurable interest (Secs. 12-14):
b) risk of loss (Sec. 51. par. 9);
c) assumption of risks (Sec. 2):
d) scheme to distribute losses; and
e) payment of premiums (Seo. 77). (Phllamcare Health Systems, Inc. v. CA, G.R. No. 125678, 2002)

 What may be covered by an Insurance Contract?

● Any contingent or unknown event, whether past or future, which may damnify a person having an insurable
Interest, or create a liability against him.
 What cannot be covered by an Insurance Contract?
● Drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize.

 Problem: (Landmark case)

● X Health Care Providers Corporation maintains, conducts, and operates a prepaid group practice health
care delivery system or a health maintenance organization to take care of persons enrolled in the health care
plan. Individuals enrolled in its health care programs pay an annual membership fee and are entitled to
various preventive, diagnostic, and curative 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 owned, operated or accredited by it. The BIR assessed it for documentary stamps,
contending that the health care agreement was a contract of insurance subject to DST. Is the BIR correct?
○ NO. The HCA does not partake the nature of an insurance contract. Not all the necessary
elements of a contract are present. There is no loss, damage, or liability on the part of the member
that should be indemnified by the HMO. There is nothing in the agreement that gives rise to a
monetary liability on the part of the member to any third-party provider of medical services which
might in turn necessitate indemnification from the HMO. The Indemnity of the member was not the
focal point of the agreement, but the extension of medical services to the member at an affordable
cost. (Philippine Health Care Providers v. CIR, 600 SCRA 413)
- but recently the regulation thereof is transferred to Insurance commission but still not an insurance
contract.

● Are HMOs considered engaged in the insurance business?

○ NO. HMOs are not in the insurance business and are not part of the insurance industry. It is not
supervised by the Insurance Commission but by the DOH. (Philippine Health Care Providers)

□ Are the following considered Insurance Contracts?

● Contracts of law firm with clients whereby in consideration of periodical payments, the law firm promises to
represent such clients in all suits for or against them.
○ NO. (Philippine Health Care Providers v. CIR, G.R. No. 167330. 2009)

● Contract by which a corporation, in consideration of a stipulated amount, agrees at its own expense to
defend a physician against all suits for damages for malpractice.
○ YES. (Philippine Health Care Providers)

● Provision in a CBA whereby the employer agreed to assume under a self-insurance basis, hospitalization
fixed expenses for the dependents of regular employees.
○ YES. (Mitsubishi Motors Philippines Salaried Employees Union v. MMPC, G. R. No. 175773, 2013)
● Nissan motor vehicle (cargoes) were loaded on board a carrier in Japan to be shipped to Manila. Upon
arrival in Manila. part of the shipment was missing and some items were broken. The insurer paid the insured
the value of the lost/damage and the insurer, in turn, sued the carrier for reimbursement. During trial, the
insurer presented a marine cargo risk note and a subrogation receipt, but not a copy of the insurance policy.
May the marine risk be considered an insurance contract?
○ NO. It is only an acknowledgment or declaration of the insurer confirming the specific shipment
covered by its marine open policy, the evaluation of the cargo and the chargeable premium. (Eastern
Shipping Lines v. Prudential Guarantee and Assurance Inc. 599 SCRA 565)

□ When is an Insurance Contract perfected?

● The moment there is a meeting of minds with respect to the object and the cause or consideration.
□ What theory is applied to Insurance contracts- Cognition or Manifestation?
● Cognition Theory. The contract is perfected from the moment the offeror (insured) learns about the
acceptance of his offer by the offeree (insurer). (Art. 1409, Civil Code)
● Who is the offeror?
○ INSURED
● Who is the offeree?
○ INSURER

□ What is the “Principal object and Purpose Test”?

● Whether the assumption of risk and indemnification of loss (which are 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)

□ Problem
● AB accomplished an application for Insurance and submitted the same to his agent. The agent held on to the
application without forwarding the same to the insurance company. AB figured in an accident and eventually died. His
heirs are now claiming the benefits against the insurance company. The insurance company argued that there was no
perfected contract of Insurance because it has not received and approved the policy. Is the insurance company
correct?
○ YES. Mere submission of the application without the corresponding approval of the policy
does not result in the perfection of the contract of insurance. (Great Pacific Life Assurance
Corp. v. CA, 89 SCRA 543) go back to cognition theory

● AB applied for a life insurance policy with TillDeath Insurance Co. AB submitted the application to the
branch manager of TilDeath and paid the required premium. The manager then forwarded the application to
the head office for approval. TINDeath's head office sent a notice of acceptance to AB. However, AB died
before receiving the notice of acceptance. AB's heirs now want to recover the premium that was paid. Can
they recover the PREMIUM?
○ YES. Although no insurance contract was perfect, the heirs may recover the premium because no
contract of Insurance was perfected. Art. 1319, CC provides that acceptance of an offer by letter
does not bind the offeror except from the time it came to his knowledge. AB did not receive the
notice of acceptance. But TuIDeath is bound to return the consideration that it received from AB.
(Enriquez v. Sun Life Assurance. 11. Phil. 289)

● XYZ Bank extended a loan in favor of AB secured by a real estate mortgage. One of the Bank's
requirements was for AB to obtain a MRI with the Bank MRI Pool, hence, AB filed the corresponding
application.

Although AB was more than 60 years of age at that time, the Bank accepted the application for the Pool,
without disclosing to AB the fact that it is authorized to accept an application for the Pool only if the applicant
is not more than 60 years. When the loan was released, the bank already deducted the premium from the
loan proceeds. The premium was credited to the savings account of the Bank and the Pool was advised
accordingly. No approval of the insurance application had been received by AB as of said date. AB died of
cardiac arrest 20 days thereafter. When the beneficiaries tried to recover from the Pool, the latter refused to
pay. The beneficiaries then sued the Pool and the Bank. Will the action prosper?
○ NO, against the Pool. The power to approve the insurance application rests with the Pool, who did
not approve the same, hence, no insurance contract was perfected.
○ YES, against the Bank. It was wearing two hats in the transactions- lender and insurance agent.
AB was made to believe that the approval is already impending although in truth no such approval
can be expected. Under the Civil Code, an agent is liable to third persons if they are unaware of the
limit of the authority of the agent and they have been deceived by the non-disclosure thereof by the
agent. (DBP v. CA, 231 SCRA 370)

□ How can you get protection even before the perfection of the Insurance contract? (means for the meantime
while waiting for perfection of the contract)
● By securing a Cover Note. – good for 60 days.
- A temporary document issued by an insurance company that provides insurance coverage until a final
Insurance policy can be issued. A cover note is different from a certificate of insurance or an insurance policy
document. The note features the name of the insured, the insurer, the coverage, and what is being covered by the
insurance.
● It is considered an insurance contract subject to certain rules.

□ Rules governing Cover Note

1.) Issued or renewed only upon prior approval of the Insurance Commission (IC);
2.) Valid and binding for not more than 60 days from the date of its issuance;
3.) No separate premium (separate from the policy or main contract) is required for the cover note (Pacific
Timber Export Corp. V. CA, 112 SCRA 199):
4.) May be cancelled by either party upon prior notice to the other of at least 7 days;
5.) Policy should be issued within 60 days after the issuance of the cover note;
6.) The 60-day period may be extended upon written approval of the IC; and
7.) Written approval of the IC is dispensed with upon the certification of the president, vice president or
general manager of the insurer that the risk involved, the value of such risks and premium therefor, have not
as yet been determined or established and the extension or renewal is not contrary to or is not for the purpose
of violation ICP or any rule. (Ins. Memo Circ. No. 3-75)

□ Policy of Insurance / Insurance Policy

● A written instrument where the terms and conditions of the contract of insurance are set forth. (Sec. 49)

□ Is the Policy necessary for the perfection of the Insurance contract?

● NO. But, no policy of insurance shall be issued or delivered unless in the form previously approved by the
IC. (Sec. 232)
● Note: The law does not provide for prescribed forms but requires instead certain = provisions to be included
in the policy.

□ Basic Contents of a Policy

□ What is a "Rider”?
● An attachment to an insurance policy that modifies the conditions of the policy by expanding or restricting its
benefits or excluding certain conditions from the coverage.

□ Are riders and other attachments (e.g. clause, warranty, and endorsement) binding on the Insured?
● NO, unless the descriptive title or name thereof is mentioned and written on the blank spaces provided in
the policy. (Sec. 50)

□ Does a rider need to be countersigned by the Insured or owner?

●NO, unless he was the one who applied for the rider, clause, warranty, etc. (Sec. 50)

□ Is a Rider containing an "automatic Increase clause" (Increases the coverage subject to the attainment of a
certain age of the Insured) considered a separate contract?
● NO. When the requirements for a rider are complied with, it is considered part of the policy. It is part of the
original policy which is in the nature of a conditional obligation. (CIR V. Lincoln Philippine Life Insurance
Company, G.R. No. 119176. 2002)

□ Grounds for Cancellation of Non-Life Policy (marine, fire, casualty, suretyship etc)
1) non-payment of premium;
2) conviction of a crime out of acts increasing the hazard Insured against;
3) fraud or material misrepresentation;
4) willful or reckless acts or omissions increasing the risk Insured against;
5) physical changes in the property Insured making it uninsurable;
6) discovery of other insurance coverage that makes the total insurance in excess of the value of the property
insured; and
7) determination by the IC that the policy would violate the ICP. (Sec. 64)

□ Requisites for Cancellation

a) prior notice of cancellation to insured
b) notice must be based on the occurrence after effective date of the policy of one or more of the grounds
mentioned:
c) notice must be in writing and mailed, or delivered to the named insured at the address shown in the policy
 or his broker, provided, that the broker is authorized in writing by the policy owner to receive the notice on his
behalf; and
d) notice must state the grounds relied upon provided in Sec. 64, ICP and upon request of insured, to furnish
facts on which the cancellation is based. (Sec. 65, ICP: PhilAmCare Health Systems v. CA, G.R. No. 125678,
2002).

□ Kinds of Policies
● Open Policy - value of the thing insured is not agreed upon, but the value is left to be ascertained at time of
loss (usually sa fire insurance ngani gyud). The amount of the insurance merely represents the insurer's
maximum liability. (Sec. 60)
● Valued Policy - definite valuation is agreed by both parties, and written on the face of policy. (Sec.61)
● Running Policy - contemplates successive Insurances and which provides that the subject of the policy may
from time to time be defined. (Sec. 62) (example McDonalds, Tim Hortons – naay maximum but whenever
there is an inventory, it will be increased.
q Does a Reinstatement Clause give the Insured the right to such reinstatement by the  mere filing of an
application? 
 NO. Such stipulation in a life insurance policy giving the insured the privilege to reinstatement does not give
him or her absolute right to such reinstatement by mere filing of an application. The insurer has the right to
deny the reinstatement. After the death of the insured, the insurance company cannot be compelled to
entertain an application for reinstatement of the policy because the conditions precedent to reinstatement can
no longer be determined and satisfied. (Lalican v. The Insurance Life Assurance Co., G.R. No. 183526,
2009) 

q Types of Insurance Contracts Life Insurance.

 Life Insurance
1) Individual Life - insurance on human lives and insurance appertaining thereto or connected therewith
(Sec. 181)
2) Group Life - a blanket policy covering a number of individuals. Most common form is life or health
insurance coverage for the employees of a single employer. 
o Note: 
a) Policy need not be in printed form and may be in electronic form (Sec. 50) but must comply still
with the contents prescribed by law (Sec. 234)
b) Must contain a provision that if the group policy terminates or is amended so as to terminate the
insurance of any class of insured persons, every person insured at termination date whose
insurance terminates and who has been insured for 5 years prior to such termination shall be
entitled to have issued to him by the insurer an Individual life Insurance policy, but the group
policy may provide that the amount of such individual policy shall not exceed the amount of
the person's life insurance protection ceasing. (Sec. 234)
3) Industrial Life - form of life insurance where premiums are payable either monthly or oftener, if the face
amount of insurance provided in any policy is not more than 500 times that of the current statutory
minimum daily wage in the City of Manila and if the words "industrial policy are printed upon the policy as
part of the descriptive matter. (Sec. 235) 

q Types of Insurance Contracts Non-Life Insurance 

 Non-Life Insurance
1) Marine - policies that cover risks connected with navigation, to which a ship, cargo, freightage,
profits, or other insurable movable property, may be exposed during a certain voyage or a fixed
period of time. It also includes inland marine insurance. (See Sec. 99 for complete definition).
2) Fire - a contract of indemnity by which the insurer for a consideration agrees to Indemnify the insured
against loss of, or damage to property by fire, but may include loss by lightning, windstorm, tornado
or earthquake and other allied risks, when such risks are covered by extension to fire Insurance
policies or under separate policies. (Sec. 167).
3) Casualty - an insurance covering loss or liability arising from accident of mishap excluding those
falling under other types of insurance as fire or marine. (Sec. 174)

 Contract of Suretyship – See definition in earlier slide.

 Micro-insurance - a financial product or service that meets the risk protection needs of the poor where: 
1) the amount of contributions, premiums, fees or charges, computed on a daily basis, does not exceed
7.5% of the current daily minimum wage rate for non-agricultural 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 for non-agricultural workers in Metro Manila. (Sec. 187. amended by R.A. No. 10607) 

q Parties to an Insurance Contract 

 Insurer- person who undertakes to indemnify another; may be partnerships, associations or corporations who
are duly authorized by the IC to engage in Insurance business. (Secs. 190 193) 
o does not include Individuals or natural persons. (under R.A. 10607 – take note), BUT includes: 
1) Professional re-insurer - any person, partnership, association, or corporation that transacts
solely and exclusively reinsurance business in the Philippines.
2) Mutual Insurance Companies (Sec. 280)
3) Cooperatives - subject to these conditions:
(i) must have sufficient capital and assets required under the Insurance Code and the
regulations; and
(ii) (ii) must have a certificate of authority to operate issued by the IC which should be
renewed annually. (Sec. 193)
o Are foreign Insurance corporations allowed to do Insurance business in the Philippines? 
 YES. They may be authorized by the IC subject to the following requirements: 
1) appointment of a resident in the Philippines as resident agent for service of notice and
summons purposes;
2) must possess paid-up unimpaired assets or capital and reserve not less than PhP1 Billion;
3) must deposit for the benefit and security of the policyholders, securities satisfactory to the IC; and
4) its Investments should not exceed 20% of the net worth of the foreign corporation or 20% of the
capital of the registered enterprise
5)

q Parties to an Insurance Contract 

 Insurer 
o What certificate must be procured by the Insurer to validly engage in Insurance  business?
 Certificate of Authority, which is obtained from the IC. It is valid for 3 years and expires on the last day
of December, three years following its date of issuance. (Sec. 193)

 Insured- the person with capacity to contract and having an insurable Interest in the life or property of the insured: 
o Can a public enemy be insured? 
 NO. (Sec. 7) express provision

o What Is a Public Enemy? 

 A nation, Including its citizens or subjects, with whom the Philippines is at war.

o How do you determine the nationality with respect to corporation for purposes of Public Enemy? 
 By the controlling stockholders Irrespective of the place of incorporation.

o Effect of property Insurance entered into before the war when an Insurer becomes a public enemy? 
 It automatically loses its binding effect the moment the insurer becomes a public enemy.

o Can minors enter into an Insurance contract?

 YES. But under the Civil Code, the insurance contract is considered voidable. 

 Important: insurable interest is required for the property or person insured; but as to the beneficiary, there is
no need for insurable interest.
Exmple: I ensured my wife, then I designate myself as the beneficiary. Na mao na sa US pamatyon na mga
asawa. So, if you obtain an insurance for someone and designate yourself as a beneficiary, you need to have
an insurable interest over the insured. But if you are not the one who obtain insurance or if not a beneficiary,
then insurable interest is not required.
  Who may NOT be designated as beneficiary? 
1) Those made between persons who were guilty of adultery or concubinage at the time of donation; 
O Note: Conviction Is NOT necessary.
2) Those made between persons found guilty of the same criminal offense, in 
consideration thereof;
3) Those made to a public officer or his wife, descendants or ascendants by reason of his office. (Art.
799.Civil Code)

q Parties to an Insurance Contract 

 Beneficiary –
o Is life insurance akin to a donation Insofar as the beneficiary is concerned?

o When is the interest of a beneficiary in a life insurance policy forfeited? 

 When the beneficiary is the principal, accomplice, or accessory in willfully bringing about the death of
the insured.
o In such a case, to whom shall the forfeited share pass on? 
1) Other beneficiaries, unless otherwise disqualified: or
2) In the absence of other beneficiaries— paid in accordance with the policy contract; or
3) If the policy is silent-paid to the estate of the insured

o What is the requirement of a person who will insure the life of another with the proceeds payable to
himself?
 He must have an insurable Interest on the life of the person whose life he is insuring. 

o How about when a person Insures a property? 

 The beneficiary must have insurable interest on the property.

o Is the designation of the beneficiary generally revocable? In other words, has the Insured the right to
change the beneficiary in the policy secured by him? 
 YES. Unless the right to revoke is expressly waived in the policy. (Sec. 11) 
 Note: Under the Family Code, the innocent spouse may revoke the designation of the other spouses as
irrevocable after legal separation.

o Can the insured assign the policy If the designation is Irrevocable? 

 NO. In such a case, the beneficiary has a vested right.

o What Is the effect if there is no waiver of the right to revoke? 

 The assignment of the policy may be deemed as implied revocation.

o What is the effect If the insured refuses to pay the premiums? 

 The designated irrevocable beneficiary may continue the policy by paying premiums that are due.

o What is the effect If premiums are paid out of the conjugal funds? 
 The proceeds are considered conjugal. If the beneficiary is other than the insured's estate, the source of
premiums would not be relevant. (Del Val V. Del Val, 29 Phil. 534; BPI V. Posadas, 56 Phil. 215) 

o Rule in case the insured or beneficiary in a life, health, or accident Insurance is a Minor 
 In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the mother, may
exercise, in behalf of said minor any right under the policy without necessity of court authority or the
giving of a bond, where the interest of the minor in the particular act involved does not exceed
PhP500,000 or in such reasonable amount as may be determined by the IC. (Sec. 182)

o What are the rights Included appertaining to the rule involving minors?
a) Obtaining a policy loan
b) Surrendering the policy
c) Receiving the proceeds of the policy 
d) Giving the minor's consent to any transaction on the policy. (Sec. 182)

o Rule in case parents are incapacitated? 

 The grandparent, the eldest brother or sister at least 18 years of age, or any relative who has actual
custody of the minor insured or beneficiary shall act as guardian without need of a court order or judicial
appointment as long as such person is not otherwise disqualified or incapacitated. Payment made by the
insurer shall relieve such insurer of any liability under the contract. (Sec. 182) 

o Rule in case illegitimate children are designated as beneficiaries in the deceased father’s insurance policy?
 The policy is valid. No legal proscription exists in naming as beneficiaries the children of illicit
relationships by the insured. (Heirs of Marawag vs. Marawag, GR 181132, 2009)
q Insurable Interest 
 Life Insurance –  
o Every person has an Insurable interest in the life and health: 
1) of himself, of his spouse, and of his children;
2) of any person on whom he depends wholly or in part for education or support, or in whom he has a
pecuniary interest;
3) of any person under a legal obligation to him for the payment of money, or  respecting property or
services,
4) of which death or illness might delay or prevent the performance; and of any person upon whose life any
estate or interest vested in him depends. (Sec. 10)

o What is the test? 

 Whether the person is interested in the preservation of the insured despite the insurance.

o Do you need a pecuniary interest in the above enumeration? 

 NO, with respect to item 1. YES, with respect to items 2, 3 and 4. 
 Start here sa study