REGULATORY FRAMEWORK AND LEGAL

ISSUES IN BUSINESS
(RFB 301)

CONTRACT OF AGENCY,PLEDGE,
MORTGAGE AND ANTICHRESIS

Prepared by:
Atty. Ma. Pamela C. Castillo, CPA
 Notes on the Law on Pledge, Real Mortgage & Chattel
Mortgage

Common Provisions on Pledge and Mortgage

1. Essential Requisites common to both Pledge and Mortgage:

a. They are constituted to secure fulfillment of the principal obligation.
b. The pledgor or mortgagor is the absolute owner of the thing pledge or mortgage.
c. The person constituting the pledge or mortgage have free disposal of the their property
and in the absence thereof, that may be legally authorized for the purpose (Art. 2085);
and
d. The when the principal obligation becomes due, the things in which the pledge or
mortgage consists may be alienated for the payment of the creditor. (Art. 2087)

Note: a. Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property (Art. 2085).
b. Any kind of obligation whether pure or conditional, including natural, voidable and
unenforceable obligations may be secured by a contract of pledge and mortgage. (Art.
2091, 2052).

2. Meaning of PACTUM COMMISSORIUM

It is a stipulation authorizing the creditor to appropriate the things given by way of pledge
and mortgage or to dispose of them. It is declared null and void by law. (Art 2088). Reason : The
amount of the loan is ordinarily much less than the value of the security.

Note: The appropriation must be automatic without need of further act on the part of the debtor.
Hence, the prohibition does not apply to:
a. Subsequent voluntary act of the debtor of making cession of the property or;
b. A promise to assign or sell said property in payment of the debt.

3. Rules on the indivisibility of Pledge and Mortgage:

a. A pledge or mortgage is indivisible, even though the debt may be divided among the
successors in interest of the debtor or of the creditor;
b. Therefore, the debtor’s heirs who has paid of the debt cannot ask for the proportionate
extinguishments of the pledge or mortgage as long as the debt is not completely
satisfied;
c. Neither can the creditor’s heirs who received his share of the debt return the pledge
or cancel the mortgage, to the prejudice of the other heirs who have not been paid;
d. The above rules, however, do not apply where there being in several things given in
mortgage or pledge, each of them guarantees only a determinate portion of the credit.
In this case, the debtor shall have a right to the extinguishments of the pledge or
mortgage as the portion of the debt for each thing is especially answerable is satisfied.

Examples:
a. A borrowed from B P 10,000 and to guarantee payment, A pledge his diamond ring
worth P 4,000 and a pair of earnings worth P 6,000. if A pays P 4,000, he cannot ask
 for the return of the ring because both the ring and the earnings are given to secure
payment of the entire obligation of P 10,000. The same is true if A dies leaving W and
X as heirs and W pays P4,000 to B.

If the creditors are B and C, and A pays B P4, 000, B cannot return the ring to the
prejudice of C who has not received his share.

However, if it is agreed that the ring was given to secure the payment of P4,000 and
the earnings, the balance of P6,000 and A (or his heir W) pays P 4,000, A (or W) can
demand the return of the ring.
b. A and V are jointly liable to C in the sum of P9,000 secured by A’s ring worth P 5,000
and B’s watch worth P4,000. If A pays P5,000 he cannot demand the return of the
ring even if their liability is only joint or proportionate because pledge is indivisible.

4. Legal effect of a promise to constitute a pledge or mortgage:

It gives rise only to a personal right binding upon the parties but it creates no real right
in the property. (See Art. 2092).

PLEDGE
1. Meaning of Pledge
It is a contract by virtue of which the debtor delivers to the creditor or to the third person
a movable or instrument evidencing incorporeal rights for the purpose of securing the fulfillment
of a principal obligations is fulfilled the thing delivered shall be returned with all the fruits and
accessions.

2. Characteristics/Nature as a contract:
a. Real
b. Accessory
c. Unilateral
d. Subsidiary contracts because the obligation incurred does not arise until the fulfillment
of the principal obligation that is secured.
e. In addition to the common requisites of pledge and mortgage (Art 2085), it is
necessary in order to constitute the contract of pledge, that the thing pledged be
placed in the possession of the creditor, or of a third person by common agreement.
(Art 2093).

3. Cause or Consideration in PLEDGE

Insofar as the pledgor is concerned, it is the principal obligation. But if he is the debtor
(Art 2085), the cause is the compensation stipulated for the pledge or the mere liberality of the
pledgor.

4. What are the Kinds of pledge:

a. Voluntary or conventional – one which is created by agreement of the parties; or
b. Legal – one which is created by operation of law (Art 2121)

5. Additional requirements in order that pledge shall take effect against third parties:
a. The description of the thing pledge; and
 b. The date of pledge (Art 2076)

6. May thing pledge be alienated?

Yes, provided the pledgee consents to the sale. Ownership passes to the vendee but
subject to the rights of the pledgee. (Art 2097)

7. Enumerate the rights of the Pledgee;

a. To retain the thing in his possession or in that of a third person to whom it has
delivered, until the debt is paid (Art 2099).
b. To be reimbursed for the expenses incurred in its preservation (Art 2099).
c. To compensate (set – off) the fruits, income, dividends or interests earned or produced
by the thing pledged and received with those which are due to him (Art 2102).
d. To bring the actins which pertain to the owner of the thing pledged in order to recover
if from or defend it against a third person (Art 2103).
e. To sell the thing pledged at the public auction, if without his fault, there is danger of
destruction, impairment or diminution in the value of the thing (Art 2108).
f. To claim a substitute or demand immediate payment, if he is deceived on the
substance or quality of the thing pledged (Art 2109)
g. To sell the thing pledged at public auction if the obligation secured is not paid (Art
2112).
h. To bid at the public sale (Art 2114).
i. To collect the amount that become due on a credit pledged before such credit is
redeemed.
j. To choose which one of the several thing pledged shall be sold (Art 2119) .

8. Obligations of the pledgee:

a. To take care of the thing pledge with the diligence of a good father of the family (Art
2099).
b. To answer for its loss or deterioration in the proper case;
c. Not to deposit the thing pledge with a third person unless authorized (Art )
d. To be responsible for the acts of his agents or employees with respect to the thing
pledged (Art 2100);
e. Not to use the thing pledged unless authorized or its preservation so requires (Art
2104);
f. To advise the pledgor, without delay, of any danger to the thing pledged (Art 2107).
g. To promptly advise the pledgor or owner in case of sale at public auction of the result
thereof (Art 2116); and
h. To return the thing pledged when the principal obligation is paid.

9. Conditions required in an extra – judicial foreclosure sale of the thing pledged:

a. The debt is due and unpaid
b. The sale must be at a public auction
c. There must be notice to the pledgor and owner, stating the amount due; and
d. The sale must be made with the intervention of a notary public.

Note: The pledgee may appropriate the thing pledged if after the first and second auctions, the
thing is not sold. If the creditor appropriated the thing, it shall be considered as full payment for
his entire claim. He is thus obliged to give an acquittance for the same (Art. 2115).
 The sale must be made at the public auction with notification to the debtor and the owner
of the thing pledged in a proper case, stating the amount for which the public sale is to be held.

10. Rules on the proceeds after sale of the thing pledged:

a. Price of sale more than the amount due – The debtor is not entitled to the excess,
unless otherwise agreed; and
b. Price of sale less tan the amount due – The creditor is not entitled to recover any
deficiency, notwithstanding any stipulation to the contrary. (Art. 2115) Reason: To
compel the creditor to hold an honest public sale.

Note:
1. The creditor, however, may sue on the principal obligation instead of electing
to sell the thing pledged.
2. In pledge by operation of law, after payment of the debt and expense, the
remainder of the price shall be delivered to the obligor (Arts 2121, 2122)
3. Under the Chattel Mortgage Law, the mortgagor can also recover the excess
(Act. No. 1506, Sec 14).

11. Instances of Legal Pledges or Pledges by Operation of Law:

a. Possessor in good faith – for necessary and useful expenses incurred over the thing
(Art 546);
b. Usufructuary – for taxes and extraordinary expenses (Art 612) ;
c. Bailee – For damages suffered by reason of the flaws in the thing loaned. (Arts 1944,
1951);
d. Agent – for expenses advance and damages caused by the agency (Art 1914);
e. Depositary – for the payment of what may be due him by reason of the deposit (Art
1994); and
f. Hotel Keeper – for credits for lodging and supplies furnished (Art 2004); and
g. Independent contractor – he who has executed work upon a movable has a right to
retain it by way of pledge until he is paid. (Art 1731, see also Art 1701).

In case of pledge by operation of law, the proceeds shall be applied to the debt and
expenses, the remainder of the price of the sale shall be delivered to the obligor. (Art.
2121).

The thing under pledge by operation of law may be sold only after demand of the
amount for which the thing is retained. The public auction shall take place within one
month after such demand. If, without just grounds, the creditor does not cause the
public sale to be held within such period, the debtor may require the return of thing.
(Art. 2122)

12. Rights of the Pledgor:

a. TO continue to be the owner of the thing pledged, until its sale, unless it is
expropriated (Art 2103) ;
b. To demand the deposit of the thing pledged should the creditor use it without
authority, or misuse it in any other was (Art 2104);
c. To substitute the thing pledged if it is endangered without fault of the pledgee without
prejudice to the pledgee’s right to have the thing sold at public sale (Art 2108).
 d. To bid and have preference at the foreclosure sale if he should offer the same terms
as the bidder (Art 2113) His offer is not valid however if he is the only bidder. All
bids shall offer to pay the purchase price in cash. If a bid other than for cash is
accepted, the pledgee is deemed to have received the purchase price in cash, as far
as the pledgor or owner is concerned. (Art. 2114). The sale of the thing pledged
extinguishes the principal obligation, whether or not the proceeds are equal to the
amount of the principal obligation, interest and expenses in proper case; and

e. To demand the return of the thing pledged upon the extinction of the principal
obligation. (Art 2085 (1))

Note: A statement in writing by the pledgee that he renounces or abandons the pledge
is sufficient to exinguish the pledge. For this purpose, neither the acceptance by the
pledgor or owner, nor the return of the thing pledged is necessary. The pledgee
becomes a depositary or bailee.

13. Obligations of the pledgor:

a. To notify the pledgee of any flaw or defect of the thing pledged known to him;
otherwise he answers for damages suffered by the pledgee (Art 2101);
b. To reimburse the pledgee for expenses made for its preservation (Art 2099); and
c. To fulfill his principal obligation (Art 2085)

14. Principles in Pledge:

1. As a general rule, the pledge extends to the interest and
earnings of the thing pledged, unless there is a stipulation to
the contrary. (Art. 2102)
2. Unless the pledge is expropriate, the debtor continues to be the
owner thereof. Nevertheless, the creditor may bring actions
which pertains to the owner of the thing pledged in order to
recover it from or defend it against third person. (Art. 2104)
3. The creditor cannot use the thing pledged without the consent
of the owner, and if he should do so, or should misuse t he
thing in any other way, the owner may ask the Court that it be
JUDICIALLY OR EXTRA-JUDICIALLY DESPOSITED. However,
when the preservation of the thing pledged requires its use, it
must be used by the creditor but only for that purpose. (Art.
2104)
4. The remedy of the pledgor should the thing pledgedd be in
danger of being lost or impaired through the negligence or
willful act of the pledgee is to require the thing to be deposited
with a third person. (Art. 2106)
5. The creditor who is deceived on the substance or quality of the
thing pledged may either (1) claim another thing instead; or
demand immediate payment of the principal obligation (Art.
2109).

15. Remedies should there be reasonable grounds to fear the destruction or impairment of the
thing pledged, without fault of the pledgee:
 - The pledgee is bound to advise the pledgor, without delay or danger to the thing
pledged.
- The pledgor, on the other hand, may demand the return of the thing, upon offering
another in pledge provided the latter is of the same kinf as the former and not of
inferior quality and without prejudice to the RIGHT OF THE PLEDGEE to cause the sale
of the thing pledged at public sale. The proceeds of the auction sale shall be security
for the principal obligation in the same manner as the thing originally pledged. (Arts.
2107; 2108). Between the right of the pledgor to demand the return of the thing
pledged and the right of the pledgee to cause it to be sold at public auction, the latter
prevails.

16. Causes for the extinguishments of the pledge:

a. Return of the thing pledged by the pledgee to the pledgor or owner, any stipulation
to the contrary being void (Art 2110);
b. Renunciation or abandonment executed in writing by the pledgee even without return
of the thing (Art 111)
c. Destruction or loss of the thing pledged;
d. Extinction of the principal obligation (by payment or sale of the thing pledged); and
e. Other causes of extinguishments or ordinary obligations (Art 1231)

SALIENT FEATURES OF PRESIDENTIAL DECREE NO. 114 otherwise known as

REGULATING THE ESTABLISHMENT AND OPERATION OF PAWNSHOPS
Background:
• Pawnshops provide an additional source of credit especially for small borrowers left
unserved by the banking and other financial institutions in the country;
• There is no specific law in the Philippines that governs pawnshop establishments,
particularly providing definite and uniform standards for their operation.
Declaration of Policy:

– It is hereby declared the policy of the State to regulate the establishment of

pawnshops and to place their operation on a sound and stable basis to derive the
optimum advantages from them as an additional source of credit;
- to prevent and mitigate, as far as practicable, practices prejudicial to public interest;
and to lay down the minimum requirements and standards under which they may be
established and do business. ( Sec. 2)

Definition of Terms:
• “Pawnshop” shall refer to a person or entity engaged in the business of lending money
on personal property delivered as security for loans and shall be synonymous, and may
be used interchangeably with pawnbroker or pawn brokerage.
• “Pawner” shall refer to the borrower from a pawnshop.
• “Pawnee” shall refer to the pawnshop or pawnbroker.
• “Pawn” is the personal property delivered by the pawner to the pawnee as security for a
loan.
• “Pawn ticket” is the pawnbrokers’ receipt for a pawn. It is neither a security nor a
printed evidence of indebtedness.
 • “Property” shall include only such personal property as may actually be delivered to the
control and possession of the pawnshop: Provided, however, That certain specified
chattels such as guns, knives and similar weapons whose reception in pawn is expressly
prohibited by other laws or regulations shall not be included.

A pawnshop may be established as a single proprietorship, partnership or corporation. (SEC. 4)

Any person or entity desiring to engage in the pawnshop business shall (a) register with the
Bureau of Commerce ( Department of Trade and Industries) in the case of single proprietorship
or the Securities and Exchange Commission in the case of a corporation or any other
association ( partnership) and (b) secure a license from the appropriate city or municipality
having territorial jurisdiction over the place of establishment and operation (business permit).

SEC. 6. Requirement of registration with the Central Bank. – Any individual, corporation, or
association duly registered and licensed to engage in the pawnshop business shall file
an information sheet, under oath, with the Central Bank before commencement of
actual operations: Provided, however, That pawnshops duly licensed and operating before the
approval of this Decree shall, within six months from the date of effectivity of the same, register
with the Central Bank. For this purpose, the Central Bank shall furnish pawnshops, upon request,
with necessary copies of the prescribed information sheet.

Requirement of registration with the Central Bank – Any individual, corporation, or association
duly registered and licensed to engage in the pawnshop business shall file an information sheet,
under oath, with the Central Bank before commencement of actual operations. (Sec. 6)

The minimum paid-in capital of any pawnshop which may be established after the effectivity
of this Decree shall be one hundred thousand pesos (P100,000.00):

Citizenship requirement. Upon the effectivity of this Decree, only Filipino citizens may establish
and own a pawnshop organized in the form of a single proprietorship: Provided, however, That
in the case of a partnership, at least seventy per cent (70%) of its capital shall be
owned by Filipino citizens: Provided, further That in the case of a corporation, at least
seventy per cent (70%) of the voting capital stock shall be owned by citizens of the
Philippines, or if there be no capital stock, at least seventy per cent (70%) of the
members entitled to vote, shall be citizens of the Philippines.

SEC. 9. Amount of loan. Pawnshops may grant such amount of loans as may be agreed upon
between the parties: Provided, That the amount of loan shall, in no case, be less than thirty
per cent (30%) of the appraised value of the security offered for the loan unless the pawner
manifests in writing the desire to borrow a lesser amount.

SEC. 10. Rates of interest. – No pawnshop shall directly or indirectly stipulate, charge, demand,
take or receive any higher rate or greater sum or value for any loan or forbearance than the
rate allowed by the Usury Law for such transactions. It shall be unlawful for a pawnshop to
divide the pawn offered by a pawner in order to collect greater interest and/or to require the
pawner to pay an additional charge as insurance premium for the safekeeping and conservation
of the article pawned. In addition to interest charges, pawnshops may impose a Maximum
service charge of five pesos (P5.00), but in no case to exceed one per cent (1%) of the
principal loan.

SEC. 13. Redemption. – The pawner who fails to pay his obligation on the date it falls due
may, within ninety days from the date of maturity of the obligation, redeem the pawn
by payment of the principal of the debt with interest: Provided, however, That for the purpose of
computing interest due after maturity of the obligation, the basis shall be the sum of the
principal obligation and interest earned at the time the obligation matured.

SEC. 14. Disposition of pawn on default of pawner. – In the event the pawner fails to redeem
the pawn within ninety days from the date of the maturity of the obligation in accordance with
the preceding section, the pawnbroker may sell or otherwise dispose of any article
taken or received by him in pawn: Provided, however, That the pawner shall be duly
notified of such sale on or before the termination of the ninety-day period, the
notice particularly stating the date, hour, and place of sale.

SEC. 15. Public auction of pawned articles. No pawnbroker shall sell or otherwise dispose of any
article or thing taken or received in pawn or pledge except at (1) public auction in his place of
business as such pawnbroker or in any other public place within the territorial limits of the
municipality or city where the pawnshop has its place of business, (2) under the control and
direction of an auctioneer with license duly issued by the corresponding authorities, (3) nor shall
any such article or thing to be sold or disposed of unless said pawnbroker has published a notice
once in at least two daily newspapers printed in the city or municipality during the week preceding
the date of such sale.

In remote areas where newspapers are neither published nor circulated, notice by
newspaper publication shall be substituted by posting notices in conspicuous public
places within the territorial limits of the city or municipality where the pawnshop has
its place of business. Said notice, whether published or posted, shall be in English, and either
in Pilipino or in the local dialect, and shall contain the name of the pawnshop, its owner, address
of the establishment, hour, and the date of the auctions sale. (SEC.15)

Pawnshop business is under the regulatory power of the Central bank of the Philippines. (Sec.
17)

REAL MORTGAGE
1. Define mortgage:
Mortgage otherwise known as Real Estate mortgage or Real Mortgage is a contract
whereby the debtor secures to the creditor the fulfillment of the principal obligation, especially
subjecting to such security immovable property or real rights over immovable property in case
the principal obligation is not complied with at the time stipulated:

2. Characteristics as a Contract:
a. Real
b. Accessory
c. Unilateral; and
 d. Subsidiary contract

3. Distinguish Mortgage from Pledge

a. Pledge is constituted on movables (Art 2094), while mortgage on immovables (Art
2124);
b. In pledge, the property is delivered to the pledgee, or by common consent to third
person (Art 2093), while in mortgage, delivery is not necessary; and
c. Pledge is not valid against third persons unless a description of the thing pledged and
the date of the pledge appear on a public instrument (Art 2096), while mortgage is
not valid against third persons if not registered even if embodied in a public
instrument. (Art 2125).

Note: Both are extinguished by the fulfillment of the principal obligation and by the destruction
of the property pledged or mortgaged.

4. Cause or consideration in mortgage:

Its consideration is that the principal contract from which it receives its life, although the
obligation secured is incurred by a third person, that is, the principal debtor is other than the
mortgagor.

5. Kinds of Mortgage:
a. Voluntary – one which is agreed to between the parties or constituted by the will of
the owner of the property on which it is created (Art 138, Spanish Mortgage Law)
b. Legal – one required by law to be executed on favor of certain persons (Art 2125, par
2; see also Arts 2082, 2083)
c. Equitable – one which, although it lacks the proper formalities of a mortgage, show
the intention of the parties to make the property as a security for a debt.

6. Property which may be object of Mortgage:

a. immovables; and
b. Inalienable real rights in accordance with laws, imposed upon immovables (Art 2124)

WHAT CONSTITUTE IMMOVABLE?

Immovables
• The following are immovable property:
• Land, buildings, roads and construction of all kinds adhered to the soil.
• Trees, plants and growing fruits, while they are attached to the land or form an integral
part of an immovable.
• Everything attached to an immovable in fixed manner, in such a way that it cannot be
separated there from without breaking the material or deterioration of the object.
• Statues, reliefs, painting or other objects for use or ornamentation, placed in buildings
or on lands by the owner of the immovable in such a manner that it reveals the
intention to attach them permanently to the tenements.
• Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a piece of
land, and which tend directly to meet the needs of the said industry or works.
 • Animal houses, pigeon houses, beehives, fishponds or breeding places of similar nature,
in case their owner has placed them or preserves them with the intention to have them
permanently attached to the land, and forming a permanent part of it; the animals in
these places are included.
• Fertilizer actually used on a piece of land.
• Mines, quarries, slag dumps, while the manner thereof forms part of the bed, and
waters either running or stagnant.
• Docks and structures which, though floating, are intended by their nature and object to
remain at a fixed place on a river, lake or coast.
• Contracts for public works, and servitudes and other real rights over immovable
property. (Art. 415, Civil Code)

7. Effects of a Mortgage:
a. It creates a real right, i.e., it directly and immediately subjects the property upon
which it is imposed, whoever the possessor may be, to the fulfillment of the obligation
for whose security it was constituted (Art 2126);
b. The mortgage (creditor) may, therefore demand payment from any possessor of the
mortgaged property (Art 2129);
c. He may alienate or assign the mortgage credit (his right as mortgagee) to a third
person (Art 2128);
d. The mortgage does not extinguish the title of the mortgagor (debtor) who does not,
therefore, lose his right to dispose. Indeed, the law considers void any stipulation
forbidding the owner from alienating the property mortgaged. (Art 2130)

8. Scope of Mortgage:
It extends to and includes the following:
a. Natural accessions;
b. Improvements (even if subsequently made);
c. Growing fruits;
d. Rents or income (belonging to the mortgagor) not yet received when the obligation
becomes due;
e. Proceeds of insurance received or owing from insurance of the property;
f. Amounts received or owing in virtue of the expropriation of the properly for public sale
(Art 2127)

Note:
1. The above are deemed included in the mortgage unless expressly excluded;
2. But the mortgage does not extend to improvements made by a third person
subsequent to the mortgage and after the property has passed to him.

9. Define Foreclosure:
Foreclosure is a remedy available to the mortgagee by which he subject the mortgaged
property to the satisfaction of the obligation to secure which the mortgage was given through the
sale of the property at public auction and the application of the proceeds to the payment of his
claims.

10. Kinds of Foreclosure:

 a. Judicial Foreclosure – A mortgage may be foreclosed judicially by bringing an action
for that purpose in the Regional Trial Court of the province or city the real property is
located or any part thereof lies; and

b. Extra – judicial foreclosure – A mortgage may be foreclosed extra-judicially where

there is inserted in the contract a clause giving the mortgagee the prior upon default
of the debtor to foreclose the mortgage by an extra-judicial sale of the mortgaged
property (Sec 1, Art No. 3155 as amended by Act no 4148).

11. Define Redemption

Redemption may be defined as a transaction by which the mortgagor reacquires or buys

back the property, which may have been passed under the mortgage or divests the property of
the lien, which the mortgage may have created.

12. Kinds of Redemption:

a. Equity of Redemption – the right of the mortgagor to redeem the mortgaged property
after his default in the performance of the conditions of the mortgage but before the
sale of the mortgaged property. In judicial foreclosure, the mortgagor may exercise
his equity of redemption before and not after the sale is confirmed by the court; and

b. Right of Redemption – the right of the mortgagor to redeem the mortgaged property
with a certain period after it was sold for the satisfaction of the mortgaged debt. In
all cases of extra – judicial sale, the mortgagor may redeem the property at any time
within the term of one year from and after the date of the registration of the sale. In
judicial foreclosure, the general rule is that the mortgagor cannot exercise his right of
redemption after the sale is confirmed by an order of the Court.

Rules on Foreclosure

VALIDITY AND EFFECT OF FORECLOSURE

➢ The right to foreclose the mortgage and to have the
property seized and sold with a view to applying the proceeds to the payment of
the principal obligation

> A mortgage contract may contain an acceleration clause—

on occasion of the mortgagor’s default, the whole sum remaining unpaid automatically
becomes due and payable

> Essence of mortgage contract—property has been

identified and separated from a mass of the property of
the mortgagor to secure the payment of a principal obligation
>Once the proceeds have been applied to the payment of
the principal obligation, the debtor cannot anymore be asked to pay unless there is deficiency.
GROUNDS FOR FORECLOSURE
A. Failure to pay the principal obligation on maturity date.
B. Violation of any condition, stipulation or warranty of the mortgage contract by the
debtor/debtor
C. Kinds of Foreclosure:
D. Judicial Foreclosure – A mortgage may be foreclosed judicially by bringing an action for
that purpose in the Regional Trial Court of the province or city the real property is
located or any part thereof lies as outlined under Sections 4 and 70 of the Revised Rules
of Court. If there is deficiency in the public sale, the mortgagee can petition the court
for a deficiency judgment and collect the unpaid balance from the debtor.

A third person who owns the land mortgaged but merely secured the principal obligation shall
not be liable for the deficiency of the debtor. The latter shall be personally liable thereof.

Rule 68 Rules of Court

1. The mortgagee should file a petition for judicial foreclosure in the court which has
jurisdiction over the area where the property is situated
2. The court will conduct a trial. If, after trial, the court finds merit in the petition, it will
render judgment ordering the mortgagor/debtor to pay the obligation within a period not
less than 90 nor more than 120 days from the
finality of judgment.
3. Within this 90 to 120 day period, the mortgagor has the chance to pay the obligation
to prevent his property from being sold. This is called the EQUITY OF REDEMPTION
PERIOD.
4. If mortgagor fails to pay within the 90-120 days given to him by the court, the property
shall be sold to the highest bidder at public auction to satisfy the judgment.
5. There will be a judicial confirmation of the sale.
After the confirmation of the sale, the purchaser shall be entitled to
the possession of the property, and all the rights of the
mortgagor with respect to the property are severed or terminated.
The equity of redemption period actually extends until the sale is confirmed. Even
after the lapse of the 90 to 120 day period, the mortgagor can still redeem the property, so
long as there has been no confirmation of the sale yet. Therefore, the equity of
redemption can be considered as the right of the mortgagor to redeem the property
BEFORE the confirmation of the sale.
a. After the confirmation of the sale, the mortgagor
does not have a right to redeem the property anymore. This is the general rule
in judicial foreclosures – there is no right of redemption after the sale is confirmed.

The proceeds of the sale of the property will be disposed as follows:

a. First, the costs of the sale will be deducted from the price at which the property was
sold
b. The amount of the principal obligation and interest will be deducted.
c. The junior encumbrances will be satisfied.
d. If there is still an excess, the excess will go back to the mortgagor. In mortgage, the
mortgagee
DOES NOT get the excess (unlike in pledge).

If there is a deficiency, the mortgagee can ask for a DEFICIENCY JUDGMENT which
can be imposed on other property of the mortgagor. The rule on extrajudicial
foreclosure is different. The mortgagee must go to court and file another action for the
collection of the deficiency.
The proceeds from the judicial sale of foreclosed property shall be applied as follows:
a. To the total amount of the debt.
b. To the costs of the sale.
c. To the claims of subsequent mortgagees.
If there is any excess from the proceeds of the sale, such will be returned to the
debtor/mortgagor.
Right of Redemption in Judicial Foreclosure
The right to redeem the mortgaged property is exercised by the judgment debtor or
mortgagor at anytime before the confirmation of the sale. Generally, the court is given a
period of ninety (90) days to confirm the sale. The generally rule is the mortgagor cannot
exercise his right of redemption after the sale is confirmed.

WHY ONE WOULD SHY AWAY FROM A JUDICIAL FORECLOSURE?

1. Judicial foreclosure is costly, since the parties would need to hire lawyers. But then
again, the present rules provide
that court fees are needed to be paid in extrajudicial proceedings also.

2. The parties have very little control over the sale because there is court
intervention.

3. More susceptible to stalling/dilatory tactics by the mortgagor, since he can file

all sorts of motions in court to prevent the sale.

4. It is more efficient to have extrajudicial proceedings since for judicial proceedings,

there is a minimum lapse of time of 6 years.

Extra –Judicial Foreclosure – A mortgage may be foreclosed extra-judicially where there is

inserted in the contract a clause giving the mortgagee the prior upon default of the
debtor to foreclose the mortgage by an extra-judicial sale of the mortgaged property (Sec
1, Art No. 3155 as amended by Act no 4118).
(UNDER ACT 3135/4118 AND SC ADMINISTRATIVE CIRCULAR)

WHERE SHOULD AN EXTRAJUDICIAL FORECLOSURE SALE BE DONE?

Sale cannot be made legally outside the city or province

wherein the property sold is situated. In case the place
has been stipulated, it shall be made in the
municipal building of the said place.

NOTICE OF THE SALE

1. POSTING of the notices of the sale FOR NOT LESS THAN 20 DAYS in at least 3
public places of the municipality or city where the property is situated.
2. IF THE PROPERTY IS WORTH MORE THAN P400, such notice shall also be
published once a week at least 3 consecutive weeks in a newspaper of general circulation
in the municipality or city.
(You don't need to count 6 days between publications.)
NOTE: there is jurisprudence, which held that
there is sufficient notice when there is publication

• PUBLIC AUCTION/SALE

1. Time shall be between 9AM and 4PM. It shall be made in

the direction of the sheriff of the province, the justice or auxiliary justice of the
peace of the municipality, or of the notary public
of the municipality, who shall be
compensated with P5 for each day of actual work or performance in addition to
his expenses.

2. Anyone may bid at the sale, unless there are stipulations in the agreement.

POSSESSION
> Upon foreclosure, if the mortgagor is in possession of the
property, he will retain possession during the redemption period—1 year from the date of
sale

> If the winning bidder wants possession during the redemption period, he may
execute a bond in the amount equivalent to the use of the property for 12 months, to
indemnify the debtor in case it be shown that the sale was made without violating the mortgage
or without complying with the requirements of the Act. Upon approval, a writ of possession will
be issued in his favor.

> If the winning bidder is able to secure possession, the mortgagor may petition that
the sale is set aside and the writ of possession be cancelled on the ground that he
wasn't in default or that the sale wasn't made in
accordance with Act 3135. This must be filed within 30 days from issuance of the writ of
possession.

RIGHT OF REDEMPTION

➢ The debtor, his successors-in-interest, or any judicial creditor or judgment creditor

of said debtor, or any person having a lien on the property subsequent to the mortgage
or deed of trust under which the property is sold, may
redeem the same at any time WITHIN THE TERM OF 1 YEAR FROM AND AFTER
THE DATE OF THE SALE and such will be governed by the Rules of Court. –registration
of the sale.

➢ When the property is redeemed after the purchaser has been given
possession, the redeemer is entitled to deduct
from the price of redemption any rentals that said purchaser may have
collected in case the property or any part thereof was rented. If the
property was used as his own dwelling, it being town property, or used it
gainfully, it being rural property, the redeemer may deduct from the price
the interest of 1% per month provided in the Rules of Court
CHATTEL MORTGAGE ( Act No. 1508, as amended).
1. Define Chattel Mortgage:
Chattel Mortgage is a contract by virtue of which personal property is recorded in the
Chattel Mortgage Register as a security for the performance of an obligation (Art 2140).

2. Characteristics as a Contract:
a. accessory
b. unilateral
c. formal contract
d. if the chattel mortgage (or real mortgage) is not recorded, the mortgagee acquires
the right to demand registration of the contract. (Art 2125)

3. Laws principally governing chattel mortgages:

a. Chattel Mortgage Law (Act No. 1508)
b. Civil Code
c. Revised Administrative Code; and
d. Revised Penal Code

4. Similarities between pledge and chattel mortgage:

a. both are executed to secure performance of a principal obligation;
b. both are constituted only on personal property;
c. both are indivisible
d. both are constitute a lien on the property
e. In both cases, the creditor cannot appropriate the property to himself in payment of
the debt;
f. In both cases, when the debtor defaults, the property must be sold for the payment
of the creditor; and
g. Both are extinguishments by the fulfillment of the principal obligation and by the
destruction of the property pledged or mortgaged.

5. Distinguish chattel mortgage from pledge:

a. In chattel mortgage, the delivery of the personal property to the mortgagee is not
necessary, while in pledge, such delivery is necessary;
b. In chattel mortgage, the registration of the same in the Chattel Mortgage Register is
necessary for its validity, while in pledge, registration in the Registry of Property is not
necessary.
 c. The procedure for the sale of the thing given as a security is different. In chattel
mortgage, the procedure is found in Section 14 of Act No. 1508, as amended, while
in pledge, it is found in Article 2112 of the Civil Code.
d. In chattel mortgage, the excess over the amount due after foreclosure goes to the
debtor (Art No. 1508, Section 14), while in pledge, if the property is sold, the debtor
is not entitled to the excess unless it is otherwise agreed (Art 2115) or except in the
case of a legal pledge (Art 2121) and;
e. In chattel mortgage, the creditor is entitled to recover any deficiency except if the
chattel mortgage is a security for the purchase of personal property in installments,
while in pledge, the creditor is not entitled, any stipulation to the contrary
notwithstanding (Art 2115).

6. Object of Chattel Mortgage Contract:

Only movable or personal properties such as:
a. Shares of stock (the mortgage to be registered both in Chattel Mortgage Registries of
the province where the mortgagor resides, and the province where the corporation
has its principal business);
b. Interest in business;
c. Growing crops;
d. Large cattles;
e. Vehicles (the mortgage to be registered also with the Land Transportation Office); and
f. Vessels (the mortgage to be registered with the Office of the Philippine Coast Guard
of the Port of Documentation of such vessels. (Pres. Decree No. 1521, Sec. 3 9a)).
g. House built on rented land but as between the parties only under the doctrine of
estoppel; and
h. House to be demolished and portable nipa huts for what are really mortgaged in this
case are the materials thereof and they are, therefore, personal property.

Note: Growing crops and large cattle are considered personal property under the Chattel
Mortgage Law (Art 1508 Sec 7). They cannot however, be the object of a contract of pledge
because they are considered immovable under the Civil Code, which principally governs pledge.

7. Extent or scope of Chattel Mortgage:

It covers only property described in the contract, and excludes like or substituted property
thereafter acquired by the mortgagor, notwithstanding any thing in the contract to the contrary
(Art No. 1508 Sec 7). Exception: In this case of stock or merchandise contained in drugstores,
grocery stores, etc. which are constantly sold and substituted with new stock.

8. What is an Affidavit of Good Faith?

The Affidavit of Good Faith is an oath in a contra t of chattel mortgage wherein the parties
“severally swear that the mortgage is made for the purpose of securing the obligation specified
in the conditions thereof and for no other purpose and that the same is just and valid obligation
and one not entered into for the purpose of fraud. (Section 5)

Note: The absence of the affidavit vitiates a mortgage only as against third persons without
notice, like creditors and subsequent encumbrances.

9. Who may exercise right of redemption when condition of the chattel mortgage is broken:
 a. The mortgagor;
b. A person holding a subsequent mortgage;
c. A subsequent attaching creditor

The redemption is made by paying or delivering to the mortgage the amount due on such
mortgage and the costs and expenses incurred by such breach of condition before the sale
thereof. (Section 13).

10. Kinds of Foreclosure of Chattel Mortgage:

a. Judicial Foreclosure – the mortgagee institutes an action in court;
b. Extra-judicial Foreclosure – The sale is made by the mortgagee himself when
authorized by the Chattel mortgage contract or by special law.

11. How proceeds of the foreclosure be applied?

To the payment of the following in their order:
a. Costs and expenses of keeping and sale;
b. Payment of the obligation secured by the mortgage;
c. Claims of persons holding subsequent mortgages in their order; and
d. The balance, if any. Shall be paid to the mortgagor, or in person holding under him.

END
 FAQs on Copyrights

1. What is copyright?

2. Who can claim copyright?

3. What works are protected?

4. What is not protected by copyright?

5. Is registration and/or fixation necessary for copyright protection?

6. What is the procedure for registration of copyrights?

7. What is the duration of copyright protection?

8. Can a copyright be transferred or assigned?

9. What are the rights conferred to the author of a work?

10. What are other special laws which ensure protection of copyright owners of audio-
visual works?

11. Under Philippine laws, what are the rights conferred to performers?

12. What is the scope of moral rights of performers?

13. What is the scope of rights of producers of sound recordings?

14. What is the scope of rights afforded to broadcasting organizations?

15. What are the remedies for infringement of copyright?

 FAQs on Copyrights

1. What is copyright?

Copyright is an intangible incorporeal right to certain literary, scholarly, scientific

and artistic productions granted by statute to the author or creator of the work, and giving
him, his heirs and assigns copyright or economic rights, which shall consist of the
exclusive right to carry out, authorize or prevent the following acts:

a) Reproduction of the work or substantial portion of the work;

b) Dramatization, translation, adaptation, abridgment, arrangement or other

transformation of the work;

c) The first public distribution of the original and each copy of the work by sale or
other forms of transfer of ownership;

d) Rental of the original or a copy of an audiovisual or cinematographic work, a

work embodied in a sound recording, a computer program, a compilation of data
and other materials or a musical work in graphic form, irrespective of the
ownership of the original or the copy which is the subject of the rental;

e) Public display of the original or a copy of the work;

f) Public performance of the work; and

g) Other communication to the public of the work

2. Who can claim copyright?

In the case of original literary and artistic works, copyright shall belong to the
author of the work.

In the case of works of joint authorship, the co-authors shall be the original
owners of the copyright, and in the absence of agreement, their rights shall be governed
by the rules on co-ownership. If, however, a work of joint authorship consists of parts
that can be used separately and the author of each part can be identified, the author of
each part shall be the original owner of the copyright in the part that he has created;

In the case of work created by an author during and in the course of his
employment, the copyright shall belong to:

(a) The employee, if the creation of the object of copyright is not a part of his
regular duties even if the employee uses the time, facilities and materials of the
employer.
 (b) The employer, if the work is the result of the performance of his regularly-
assigned duties, unless there is an agreement, express or implied, to the contrary.

In the case of a work commissioned by a person other than an employer of the

author and who pays for it, and the work is made in pursuance of the commission, the
person who so commissioned the work shall have ownership of the work, but the
copyright thereto shall remain with the creator, unless there is a written stipulation to the
contrary;

In the case of audiovisual work, the copyright shall belong to the producer, the
author of the scenario, the composer of the music, the film director, and the author of the
work so adapted. However, subject to contrary or other stipulations among the creators,
the producers shall exercise the copyright to an extent required for the exhibition of the
work in any manner, except for the right to collect performing license fees for the
performance of musical compositions, with or without words, which are incorporated into
the work; and

In respect of letters, the copyright shall belong to the writer subject to the
provisions of the Civil Code of the Philippines.

3. What works are protected?

There are two classes of works that are protected, namely original and derivative.

a. Original work- Literary and artistic works, hereinafter referred to as "works",

are original intellectual creations in the literary and artistic domain protected from the
moment of their creation and shall include in particular:

i. Books, pamphlets, articles and other writings;

ii. Periodicals and newspapers;

iii. Lectures, sermons, addresses, dissertations prepared for oral delivery, whether
or not reduced in writing or other material form;

iv. Letters;

v. Dramatic or dramatico-musical compositions; choreographic works or

entertainment in dumb shows;

vi. Musical compositions, with or without words;

vii. Works of drawing, painting, architecture, sculpture, engraving, lithography or

other works of art; models or designs for works of art;
 viii. Original ornamental designs or models for articles of manufacture, whether
or not registrable as an industrial design, and other works of applied art;

ix. Illustrations, maps, plans, sketches, charts and three-dimensional works

relative to geography, topography, architecture or science;

x. Drawings or plastic works of a scientific or technical character;

xi. Photographic works including works produced by a process analogous to

photography; lantern slides;

xii. Audiovisual works and cinematographic works and works produced by a

process analogous to cinematography or any process for making audio-visual recordings;

xiii. Pictorial illustrations and advertisements;

xiv. Computer programs; and

xv. Other literary, scholarly, scientific and artistic works.

Works are protected by the sole fact of their creation, irrespective of their mode or
form of expression, as well as of their content, quality and purpose.

b. Derivative work- The following derivative works shall also be protected by

copyright:

i. Dramatizations, translations, adaptations, abridgments, arrangements, and other

alterations of literary or artistic works; and

ii. Collections of literary, scholarly or artistic works, and compilations of data and
other materials which are original by reason of the selection or coordination or
arrangement of their contents.

The works referred to in paragraphs (i) and (ii) of b shall be protected as new
works: Provided however, that such new work shall not affect the force of any subsisting
copyright upon the original works employed or any part thereof, or be construed to imply
any right to such use of the original works, or to secure or extend copyright in such
original works.

4. What is not protected by copyright?

No protection is extended to any idea, procedure, system method or operation,

concept, principle, discovery or mere data as such, even if they are expressed, explained,
illustrated or embodied in a work; news of the day and other miscellaneous facts having
the character of mere items of press information; or any official text of a legislative,
administrative or legal nature, as well as any official translation thereof.
 No copyright subsists in any work of the Government of the Philippines.
However, prior approval of the government agency or office wherein the work is created
is necessary for exploitation of such work for profit. Such agency or office may, among
other things, impose as a condition the payment of royalties. No prior approval or
conditions are required for the use of any purpose of statutes, rules and regulations, and
speeches, lectures, sermons, addresses, and dissertations, pronounced, read or rendered in
courts of justice, before administrative agencies, in deliberative assemblies and in
meetings of public character.

The Author of speeches, lectures, sermons, addresses, and dissertations mentioned

in the preceding paragraphs has the exclusive right of making a collection of his works.

Notwithstanding the foregoing, the Government is not precluded from receiving

and holding copyrights transferred to it by assignment, bequest or otherwise; nor shall
publication or republication by the Government in a public document of any work in
which copyright is subsisting be taken to cause any abridgment or annulment of the
copyright or to authorize any use or appropriation of such work without the consent of
the copyright owner.

5. Is registration and/or fixation necessary for copyright protection of works?

No. Works are protected from the moment of their creation by the sole fact of
such creation, irrespective of their mode or form of expression.

6. What is the procedure for registration of copyrights?

After the first public dissemination of performance by authority of the copyright

owner, there shall, for the purpose of completing the records of the National Library and
the Supreme Court Library, within three (3) weeks, be registered and deposited with it,
by personal delivery or by registered mail, two (2) complete copies or reproductions of
the work in such form as the directors of said libraries may prescribe. A certificate of
deposit shall be issued for which the prescribed fee shall be collected and within three (3)
weeks after receipt by the copyright owner of a written demand copyright owner shall be
exempt from making additional deposit of the works with the National Library and the
Supreme Court Library under other laws. If, within three (3) weeks after receipt by the
copyright owner of a written demand from the directors for such deposit, the required
copies or reproductions are not delivered and the fee is not paid, the copyright owner
shall be liable to pay a fine equivalent to the required fee per month of delay and to pay
to the National Library and the Supreme Court Library the amount of the retail price of
the best edition of the work. Only the above mentioned classes of work shall be accepted
for deposit by the National Library and the Supreme Court Library.

Each copy of a work published or offered for sale may contain a notice bearing
the name of the copyright owner, and the year of its first publication, and, in copies
produced after the creator’s death, the year of such death.
7. What is the duration of copyright protection?

The copyright for original and derivative works shall be protected during the life
of the author and for fifty (50) years after his death. This rule also applies to posthumous
works.

In case of works of joint authorship, the economic rights shall be protected during
the life of the last surviving author and for fifty (50) years after his death.

In case of anonymous or pseudonymous works, the copyright shall be protected

for fifty (50) years from the date on which the work was first lawfully published:
Provided, That where, before the expiration of the said period, the author's identity is
revealed or is no longer in doubt, a specific provision of the Intellectual Property Code
shall apply, as the case may be: Provided, further, That such works if not published
before shall be protected for fifty (50) years counted from the making of the work.

In case of works of applied art, the protection shall be for a period of twenty-five
(25) years from the date of making.

In case of photographic works, the protection shall be for fifty (50) years from
publication of the work and, if unpublished, fifty (50) years from the making.

In case of audiovisual works including those produced by process analogous to

photography or any process for making audiovisual recordings, the term shall be fifty
(50) years from date of publication and, if unpublished, from the date of making.

The rights granted to performers and producers of sound recordings under the
Intellectual Property Code of the Philippines shall expire:

(a) For performances not incorporated in recordings, fifty (50) years from the end
of the year in which the performance took place; and

(b) For sound or image and sound recordings and for performances incorporated
therein, fifty (50) years from the end of the year in which the recording took
place.

In case of broadcasts, the term shall be twenty (20) years from the date the
broadcast took place. The extended term shall be applied only to old works with
subsisting protection under the prior law.

8. Can a copyright be transferred or assigned?

The copyright may be assigned in whole or in part. Within the scope of the
assignment, the assignee is entitled to all the rights and remedies which the assignor had
with respect to the copyright.
 The copyright is not deemed assigned inter vivos in whole or in part unless there
is a written indication of such intention.

The submission of a literary, photographic or artistic work to a newspaper,

magazine or periodical for publication shall constitute only a license to make a single
publication unless a greater right is expressly granted. If two (2) or more persons jointly
own a copyright or any part thereof, neither of the owners shall be entitled to grant
licenses without the prior written consent of the other owner or owners.

The copyright is distinct from the property in the material object subject to it.
Consequently, the transfer or assignment of the copyright shall not itself constitute a
transfer of the material object. Nor shall a transfer or assignment of the sole copy or of
one or several copies of the work imply transfer or assignment of the copyright.

An assignment or exclusive license may be filed in duplicate with the National

Library upon payment of the prescribed fee for registration in books and records kept for
the purpose. Upon recording, a copy of the instrument shall be returned to the sender with
a notation of the fact of record. Notice of the record shall be published in the IPO
Gazette.

The copyright owners or their heirs may designate a society of artists, writers or
composers to enforce their economic rights and moral rights on their behalf.

9. What are the rights conferred to the author of a work?

The copyright or economic rights of the owner of the work shall consist of the
exclusive right to carry out, authorize or prevent the following acts:

 Reproduction of the work or substantial portion of the work;

 Dramatization, translation, adaptation, abridgment, arrangement or other

transformation of the work;

 The first public distribution of the original and each copy of the work by sale or
other forms of transfer of ownership;

 Rental of the original or a copy of an audiovisual or cinematographic work, a

work embodied in a sound recording, a computer program, a compilation of data
and other materials or a musical work in graphic form, irrespective of the
ownership of the original or the copy which is the subject of the rental;

 Public display of the original or a copy of the work;

 Public performance of the work; and

 Other communication to the public of the work.

 The author of a work shall, independently of the economic rights or the grant of an
assignment or license with respect to such right, have the right:

 To require that the authorship of the works be attributed to him, in particular, the
right that his name, as far as practicable, be indicated in a prominent way on the
copies, and in connection with the public use of his work;

 To make any alterations of his work prior to, or to withhold it from publication;

 To object to any distortion, mutilation or other modification of, or other

derogatory action in relation to, his work which would be prejudicial to his honor
or reputation; and

 To restrain the use of his name with respect to any work not of his own creation
or in a distorted version of his work.

10. What are other special laws which ensure protection of copyright owners of audio-
visual works?

The Optical Media Act of 2003 regulates the manufacture, mastering,

replication, importation and exportation of optical media in which information, including
sounds and/or images, or software code, has been stored, either by mastering and/or
replication.

Any person, establishment or entity shall, prior to engaging in one or more of the
business or activities enumerated under the Optical Media Act of 2003, register with, and
secure the appropriate licenses from the Optical Media Board (OMB):

a. Importation, exportation, acquisition, sale or distribution of optical media,

manufacturing equipment, parts and accessories and manufacturing materials used
or intended for use in the mastering, manufacture or replication of optical media;
b. Possession or operation of manufacturing equipment, parts and accessories, or the
possession, acquisition, sale or use of manufacturing materials for the mastering,
manufacture or replication of optical media; and
c. The mastering, manufacture, replication, importation or exportation of optical
media.

With respect to the preceding paragraph (c), the licenses issued by the OMB are
conditions precedent for securing the necessary business permits, licenses, or registration
from the appropriate authorities, and shall also be necessary requirement for the release
of manufacturing equipment, parts and accessories, and materials intended for use in
mastering and/or manufacturing optical media, from customs or economic zones
exercising independent custom laws.

Those engaged or intending to engage in more than one of the above mentioned
activities and/or conduct or intend to conduct business in more than one location shall
separately register with and secure the license from the OMB for every business activity
at each place of business.

No business activity registered and licensed by the OMB for a specific place of
business shall be conducted in a place and/or location other than that indicated in the
license, without the prior written approval of the OMB. The registration and license
issued by the OMB shall be prominently displayed at the designated place of business.

11 .Under Philippine laws, what are the rights conferred to performers?

Subject to the provisions of the Intellectual Property Code of the Philippines,

performers shall enjoy the following exclusive rights:

a) The right of authorizing:

i) The broadcasting and other communication to the public of
their performance; and
ii) The fixation of their unfixed performance.

b) The right of authorizing the direct or indirect reproduction of their

performances fixed in sound recordings, in any manner or form; Subject
to the provisions of Section 206 of the IPC, the right of authorizing the
first public distribution of the original and copies of their performance
fixed in the sound recording through sale or rental or other forms of
transfer of ownership;

c) The right of authorizing the commercial rental to the public of the

original and copies of their performances fixed in sound recordings, even
after distribution of them by, or pursuant to the authorization by the
performer; and

d) The right of authorizing the making available to the public of their

performances fixed in sound recordings, by wire or wireless means, in
such a way that members of the public may access them from a place and
time individually chosen by them.

12. What is the scope of moral rights of performers?

Independently of a performer's economic rights, the performer, shall, as regards

his live aural performances or performances fixed in sound recordings, have the right to
claim to be identified as the performer of his performances, except where the omission is
dictated by the manner of the use of the performance, and to object to any distortion,
mutilation or other modification of his performances that would be prejudicial to his
reputation.
 The rights granted to a performer shall be maintained and exercised fifty (50)
years after his death, by his heirs, and in default of heirs, the government, where
protection is claimed.

13. What is the scope of rights of producers of sound recordings?

Producers of sound recordings shall enjoy the following exclusive rights:

 The right to authorize the direct or indirect reproduction of their sound recordings,
in any manner or form; the placing of these reproductions in the market and the
right of rental or lending;

 The right to authorize the first public distribution of the original and copies of
their sound recordings through sale or rental or other forms of transferring
ownership; and

 The right to authorize the commercial rental to the public of the original and
copies of their sound recordings, even after distribution by them by or pursuant to
authorization by the producer.

14. What is the scope of rights afforded to broadcasting organizations?

Broadcasting organizations shall enjoy the exclusive right to carry out, authorize or
prevent any of the following acts:

 The rebroadcasting of their broadcasts;

 The recording in any manner, including the making of films or the use of video
tape, of their broadcasts for the purpose of communication to the public of
television broadcasts of the same; and

 The use of such records for fresh transmissions or for fresh recording.

15. What are the remedies for infringement of copyright?

Any person infringing a right protected under the Intellectual Property Code of
the Philippines (RA 8293) shall be liable:

(a) To an injunction restraining such infringement. The court may also order the
defendant to desist from an infringement, among others, to prevent the entry into the
channels of commerce of imported goods that involve an infringement, immediately after
customs clearance of such goods;

(b) Pay to the copyright proprietor or his assigns or heirs such actual damages,
including legal costs and other expenses, as he may have incurred due to the infringement
as well as the profits the infringer may have made due to such infringement, and in
proving profits the plaintiff shall be required to prove sales only and the defendant shall
be required to prove every element of cost which he claims, or, in lieu of actual damages
and profits, such damages which to the court shall appear to be just and shall not be
regarded as penalty;

(c) Deliver under oath, for impounding during the pendency of the action, upon
such terms and conditions as the court may prescribe, sales invoices and other documents
evidencing sales, all articles and their packaging alleged to infringe a copyright and
implements for making them;

(d) Deliver under oath for destruction without any compensation all infringing
copies or devices, as well as all plates, molds, or other means for making such infringing
copies as the court may order; and

(e) Such other terms and conditions, including the payment of moral and
exemplary damages, which the court may deem proper, wise and equitable and the
destruction of infringing copies of the work even in the event of acquittal in a criminal
case.

In an infringement action, the court shall also have the power to order the seizure
and impounding of any article which may serve as evidence in the court proceedings.
 INTELLECTUAL PROPERTY CODE OF THE PHILIPPINES
[Republic Act No. 8293]

AN ACT PRESCRIBING THE INTELLECTUAL PROPERTY CODE

AND ESTABLISHING THE INTELLECTUAL PROPERTY OFFICE,
PROVIDING FOR ITS POWERS AND FUNCTIONS, AND FOR OTHER PURPOSES

PART I
THE INTELLECTUAL PROPERTY OFFICE

Section 1. Title. - This Act shall be known as the "Intellectual Property Code of the
Philippines."

Sec. 2. Declaration of State Policy. - The State recognizes that an effective

intellectual and industrial property system is vital to the development of domestic
and creative activity, facilitates transfer of technology, attracts foreign investments,
and ensures market access for our products. It shall protect and secure the exclusive
rights of scientists, inventors, artists and other gifted citizens to their intellectual
property and creations, particularly when beneficial to the people, for such periods as
provided in this Act.

The use of intellectual property bears a social function. To this end, the State shall
promote the diffusion of knowledge and information for the promotion of national
development and progress and the common good.

It is also the policy of the State to streamline administrative procedures of

registering patents, trademarks and copyright, to liberalize the registration on the
transfer of technology, and to enhance the enforcement of intellectual property
rights in the Philippines.

Sec. 3. International Conventions and Reciprocity. - Any person who is a national or

who is domiciled or has a real and effective industrial establishment in a country
which is a party to any convention, treaty or agreement relating to intellectual
property rights or the repression of unfair competition, to which the Philippines is
also a party, or extends reciprocal rights to nationals of the Philippines by law, shall
be entitled to benefits to the extent necessary to give effect to any provision of such
convention, treaty or reciprocal law, in addition to the rights to which any owner of
an intellectual property right is otherwise entitled by this Act.

Sec. 4. Definitions. -

4.1. The term "intellectual property rights" consists of:

[a] Copyright and Related Rights;

[b] Trademarks and Service Marks;

[c] Geographic Indications;

[d] Industrial Designs;

[e] Patents;
 [f] Layout-Designs (Topographies) of Integrated Circuits; and

[g] Protection of Undisclosed Information (n) [TRIPS].

4.2. The term "technology transfer arrangements" refers to contracts or

agreements involving the transfer of systematic knowledge for the
manufacture of a product, the application of a process, or rendering of a
service including management contracts; and the transfer, assignment or
licensing of all forms of intellectual property rights, including licensing of
computer software except computer software developed for mass market.

4.3. The term "Office" refers to the Intellectual Property Office created by this
Act.

4.4 The term "IPO Gazette" refers to the gazette published by the Office
under this Act. (n)

Sec. 5. Functions of the Intellectual Property Office (IPO). -

5.1. To administer and implement the State policies declared in this Act,
there is hereby created
the Intellectual Property Office (IPO) which shall have the following
functions:
[a] Examine applications for grant of letters patent for inventions and
register utility models
and industrial designs;

[b] Examine applications for the registration of marks, geographic

indication, integrated
circuits;

[c] Register technology transfer arrangements and settle disputes

involving technology
transfer payments covered by the provisions of Part II, Chapter IX
on Voluntary
Licensing and develop and implement strategies to promote and
facilitate technology
transfer;

[d] Promote the use of patent information as a tool for technology

development;

[e] Publish regularly in its own publication the patents, marks, utility
models and industrial
designs, issued and approved, and the technology transfer
arrangements registered;

[f] Administratively adjudicate contested proceedings affecting

intellectual property rights;
and
 [g] Coordinate with other government agencies and the private sector
efforts to formulate and implement plans and policies to strengthen
the protection of intellectual property rights in the country.

5.2. The Office shall have custody of all records, books, drawings,
specifications, documents, and other papers and things relating to intellectual
property rights applications filed with the Office.

Sec. 6. The Organizational Structure of the IPO. - 6.1. The Office shall be headed by
a Director General who shall be assisted by two (2) Deputies Director General.
6.2. The Office shall be divided into six (6) Bureaus, each of which shall be
headed by a Director and assisted by an Assistant Director. These Bureaus
are:

[a] The Bureau of Patents;

[b] The Bureau of Trademarks;

[c] The Bureau of Legal Affairs;

[d] The Documentation, Information and Technology Transfer Bureau;

[e] The Management Information System and EDP Bureau; and

[f] The Administrative, Financial and Personnel Services Bureau.

6.3. The Director General, Deputies Director General, Directors and Assistant
Directors shall be appointed by the President, and the other officers and
employees of the Office by the Secretary of Trade and Industry, conformably
with and under the Civil Service Law.

Sec. 7. The Director General and Deputies Director General. -

7.1. Functions. - The Director General shall exercise the following powers and
functions:
[a] Manage and direct all functions and activities of the Office,
including the promulgation of rules and regulations to implement the
objectives, policies, plans, programs and projects of the Office:
Provided, That in the exercise of the authority to propose policies and
standards in relation to the following: (1) the effective, efficient, and
economical operations of the Office requiring statutory enactment; (2)
coordination with other agencies of government in relation to the
enforcement of intellectual property rights; (3) the recognition of
attorneys, agents, or other persons representing applicants or other
parties before the Office; and (4) the establishment of fees for the
filing and processing of an application for a patent, utility model or
industrial design or mark or a collective mark, geographic indication
and other marks of ownership, and for all other services performed
and materials furnished by the Office, the Director General shall be
subject to the supervision of the Secretary of Trade and Industry;

[b] Exercise exclusive appellate jurisdiction over all decisions rendered

by the Director of Legal Affairs, the Director of Patents, the Director of
 Trademarks, and the Director of the Documentation, Information and
Technology Transfer Bureau. The decisions of the Director General in
the exercise of his appellate jurisdiction in respect of the decisions of
the Director of Patents, and the Director of Trademarks shall be
appealable to the Court of Appeals in accordance with the Rules of
Court; and those in respect of the decisions of the Director of
Documentation, Information and Technology Transfer Bureau shall be
appealable to the Secretary of Trade and Industry; and

[c] Exercise original jurisdiction to resolve disputes relating to the

terms of a license involving the author’s right to public performance or
other communication of his work. The decisions of the Director General
in these cases shall be appealable to the Secretary of Trade and
Industry.

7.2. Qualifications. - The Director General and the Deputies Director General
must be natural
born citizens of the Philippines, at least thirty-five (35) years of age on
the day of their
appointment, holders of a college degree, and of proven competence,
integrity, probity and
independence: Provided, That the Director General and at least one (1)
Deputy Director
General shall be members of the Philippine Bar who have engaged in the
practice of law for
at least ten (10) years: Provided further, That in the selection of the
Director General and the
Deputies Director General, consideration shall be given to such
qualifications as would result,
as far as practicable, in the balanced representation in the Directorate
General of the various
fields of intellectual property.
7.3. Term of Office. - The Director General and the Deputies Director General
shall be appointed
by the President for a term of five (5) years and shall be eligible for
reappointment only once:
Provided, That the first Director General shall have a first term of seven
(7) years.
Appointment to any vacancy shall be only for the unexpired term of the
predecessor.
7.4. The Office of the Director General. - The Office of the Director General
shall consist of the
Director General and the Deputies Director General, their immediate
staff and such Offices
and Services that the Director General will set up to support directly the
Office of the Director
General.

Sec. 8. The Bureau of Patents. - The Bureau of Patents shall have the following
functions:
8.1 Search and examination of patent applications and the grant of patents;
8.2 Registration of utility models, industrial designs, and integrated circuits;
and
 8.3 Conduct studies and researches in the field of patents in order to assist
the Director General
in formulating policies on the administration and examination of patents.

Sec. 9. The Bureau of Trademarks. - The Bureau of Trademarks shall have the
following functions:
9.1 Search and examination of the applications for the registration of marks,
geographic
indications and other marks of ownership and the issuance of the
certificates of registration;
and
9.2 Conduct studies and researches in the field of trademarks in order to
assist the Director
General in formulating policies on the administration and examination of
trademarks. (n)

Sec. 10. The Bureau of Legal Affairs. - The Bureau of Legal Affairs shall have the
following functions:
10.1. Hear and decide opposition to the application for registration of marks;
cancellation of trademarks; subject to the provisions of Section 64,
cancellation of patents, utility models, and industrial designs; and petitions
for compulsory licensing of patents;
10.2. (a) Exercise original jurisdiction in administrative complaints for
violations of laws involving intellectual property rights: Provided, That its
jurisdiction is limited to complaints where the total damages claimed are not
less than Two hundred thousand pesos (P200,000): Provided, further, That
availment of the provisional remedies may be granted in accordance with the
Rules of Court. The Director of Legal Affairs shall have the power to hold and
punish for contempt all those who disregard orders or writs issued in the
course of the proceedings. (n)
(b) After formal investigation, the Director for Legal Affairs may impose one
(1) or more of the following administrative penalties:

(i) The issuance of a cease and desist order which shall specify the
acts that the respondent shall cease and desist from and shall require
him to submit a compliance report within a reasonable time which shall
be fixed in the order;
(ii) The acceptance of a voluntary assurance of compliance or
discontinuance as may be imposed. Such voluntary assurance may
include one or more of the following:
(1) An assurance to comply with the provisions of the
intellectual property law violated;
(2) An assurance to refrain from engaging in unlawful and
unfair acts and practices subject of the formal investigation;
(3) An assurance to recall, replace, repair, or refund the money
value of defective goods distributed in commerce; and
(4) An assurance to reimburse the complainant the expenses
and costs incurred in prosecuting the case in the Bureau of
Legal Affairs.
The Director of Legal Affairs may also require the respondent to
submit periodic compliance reports and file a bond to guarantee
compliance of his undertaking;
 (iii) The condemnation or seizure of products which are subject of the
offense. The goods seized hereunder shall be disposed of in such
manner as may be deemed appropriate by the Director of Legal
Affairs, such as by sale, donation to distressed local governments or to
charitable or relief institutions, exportation, recycling into other goods,
or any combination thereof, under such guidelines as he may provide;
(iv) The forfeiture of paraphernalia and all real and personal properties
which have been used in the commission of the offense;
(v) The imposition of administrative fines in such amount as deemed
reasonable by the Director of Legal Affairs, which shall in no case be
less than Five thousand pesos (P5,000) nor more than One hundred
fifty thousand pesos (P150,000). In addition, an additional fine of not
more than One thousand pesos (P1,000) shall be imposed for each day
of continuing violation;
(vi) The cancellation of any permit, license, authority, or registration
which may have been granted by the Office, or the suspension of the
validity thereof for such period of time as the Director of Legal Affairs
may deem reasonable which shall not exceed one (1) year;
(vii) The withholding of any permit, license, authority, or registration
which is being secured by the respondent from the Office;
(viii) The assessment of damages;
(ix) Censure; and
(x) Other analogous penalties or sanctions. (Secs. 6, 7, 8, and 9,
Executive Order No. 913 [1983]a)
10.3. The Director General may by Regulations establish the procedure to
govern the implementation of this Section. (n)

Sec. 11. The Documentation, Information and Technology Transfer Bureau. - The
Documentation, Information and Technology Transfer Bureau shall have the following
functions:
11.1. Support the search and examination activities of the Office through the
following activities:
(a) Maintain and upkeep classification systems whether they be
national or international such as the International Patent Classification
(IPC) system;
(b) Provide advisory services for the determination of search patterns;
(c) Maintain search files and search rooms and reference libraries; and
(d) Adapt and package industrial property information.
11.2. Establish networks or intermediaries or regional representatives;
11.3. Educate the public and build awareness on intellectual property through
the conduct of seminars and lectures, and other similar activities;
11.4. Establish working relations with research and development institutions
as well as with local and international intellectual property professional groups
and the like;
11.5 Perform state-of-the-art searches;
11.6 Promote the use of patent information as an effective tool to facilitate
the development of technology in the country;
11.7. Provide technical, advisory, and other services relating to the licensing
and promotion of technology, and carry out an efficient and effective program
for technology transfer; and
11.8. Register technology transfer arrangements, and settle disputes
involving technology transfer payments. (n)
Sec. 12. The Management Information Services and EDP Bureau. - The Management
Information Services and EDP Bureau shall:
12.1. Conduct automation planning, research and development, testing of
systems, contracts with firms, contracting, purchase and maintenance of
equipment, design and maintenance of systems, user consultation, and the
like; and
12.2. Provide management information support and service to the Office. (n)

Sec. 13. The Administrative, Financial and Human Resource Development Service
Bureau. -
13.1. The Administrative Service shall:
(a) Provide services relative to procurement and allocation of supplies
and equipment, transportation, messengerial work, cashiering,
payment of salaries and other Office's obligations, office maintenance,
proper safety and security, and other utility services; and comply with
government regulatory requirements in the areas of performance
appraisal, compensation and benefits, employment records and
reports;
(b) Receive all applications filed with the Office and collect fees
therefor; and
(c) Publish patent applications and grants, trademark applications, and
registration of marks, industrial designs, utility models, geographic
indication, and lay-out designs of integrated circuits registrations.
13.2. The Patent and Trademark Administration Services shall perform the
following functions among others:
(a) Maintain registers of assignments, mergings, licenses, and
bibliographic on patents and trademarks;
(b) Collect maintenance fees, issue certified copies of documents in its
custody and perform similar other activities; and
(c) Hold in custody all the applications filed with the office, and all
patent grants, certificate of registrations issued by the office, and the
like.
13.3. The Financial Service shall formulate and manage a financial program to
ensure availability and proper utilization of funds; provide for an effective
monitoring system of the financial operations of the Office; and
13.4. The Human Resource Development Service shall design and implement
human resource development plans and programs for the personnel of the
Office; provide for present and future manpower needs of the organization;
maintain high morale and favorable employee attitudes towards the
organization through the continuing design and implementation of employee
development programs.

Sec. 14. Use of Intellectual Property Rights Fees by the IPO. -

14.1. For a more effective and expeditious implementation of this Act, the
Director General shall be authorized to retain, without need of a separate
approval from any government agency, and subject only to the existing
accounting and auditing rules and regulations, all the fees, fines, royalties and
other charges, collected by the Office under this Act and the other laws that
the Office will be mandated to administer, for use in its operations, like
upgrading of its facilities, equipment outlay, human resource development,
and the acquisition of the appropriate office space, among others, to improve
the delivery of its services to the public. This amount, which shall be in
addition to the Office's annual budget, shall be deposited and maintained in a
 separate account or fund, which may be used or disbursed directly by the
Director General.
14.2. After five (5) years from the coming into force of this Act, the Director
General shall, subject to the approval of the Secretary of Trade and Industry,
determine if the fees and charges mentioned in Subsection 14.1 hereof that
the Office shall collect are sufficient to meet its budgetary requirements. If so,
it shall retain all the fees and charges it shall collect under the same
conditions indicated in said Subsection 14.1 but shall forthwith, cease to
receive any funds from the annual budget of the National Government; if not,
the provisions of said Subsection 14.1 shall continue to apply until such time
when the Director General, subject to the approval of the Secretary of Trade
and Industry, certifies that the above-stated fees and charges the Office shall
collect are enough to fund its operations.

Sec. 15. Special Technical and Scientific Assistance. - The Director General is
empowered to obtain the assistance of technical, scientific or other qualified officers
and employees of other departments, bureaus, offices, agencies and
instrumentalities of the Government, including corporations owned, controlled or
operated by the Government, when deemed necessary in the consideration of any
matter submitted to the Office relative to the enforcement of the provisions of this
Act. (Sec. 3, R. A. No. 165a)

Sec. 16. Seal of Office. - The Office shall have a seal, the form and design of which
shall be approved by the Director General. (Sec. 4, R. A. No. 165a)

Sec. 17. Publication of Laws and Regulations. - The Director General shall cause to
be printed and make available for distribution, pamphlet copies of this Act, other
pertinent laws, executive orders and information circulars relating to matters within
the jurisdiction of the Office. (Sec. 5, R. A. No. 165a)

Sec. 18. The IPO Gazette. - All matters required to be published under this Act shall
be published in the Office's own publication to be known as the IPO Gazette.

Sec. 19. Disqualification of Officers and Employees of the Office. - All officers and
employees of the Office shall not apply or act as an attorney or patent agent of an
application for a grant of patent, for the registration of a utility model, industrial
design or mark nor acquire, except by hereditary succession, any patent or utility
model, design registration, or mark or any right, title or interest therein during their
employment and for one (1) year thereafter. (Sec. 77, R. A. No. 165a)