vosauz/)8 LN O z=Facury oF Crvit. Law (1734) COMMERCIAL LAW 2021 GOLDEN NOTES FACULTY OF CIVIL LAW UNIVERSITY OF SANTO TOMAS MANILA‘The UST GOLDEN NOTES is the annual student-edited bar review material of the University of Santo Tomas, Faculty of Civil Law. Communications regarding the Notes should be addressed to the Academics Committee of the Team: Bar-Ops. Address: Academics Committee UST Bar Operations Faculty of Civil Law University of Santo Tomas Espaiia, Manila 1008 Tel.No: (02) 731-4027 (02) 406-1611 loc. 8578 Academics Committee Faculty of Civil Law University of Santo Tomas Espafia, Manila 1008 All rights reserved by the Academics Committee of the Faculty of Civil Law of the Pontifical and Royal University of Santo Tomas, the Catholic University of the Philippines. 2021 Edition No portion of this material may be copied or reproduced in books, pamphlets, outlines or notes, whether printed, mimeographed, typewritten, copied in different electronic devises or in any other form, for distribution or sale, without a written permission, A copy of this material without the corresponding code either proceeds from an illegal source or is in possession of one who has no authority to dispose the same. Released in the Philippines, 2021.ACADEMIC YEAR 2020-2021 CIVIL LAW STUDENT COUNCIL LYODYCHIE Q. CAMARAO PRESIDENT MARIA FRANCES FAYE R. GUTIERREZ VICE PRESIDENT INTERNAL ‘STEPHEN FLOYD A. GOPEZ VICE PRESIDENT EXTERNAL KRYSTAL GAYLE R. DIGAY ‘SECRETARY NATHAN RAPHAEL D.L AGUSTIN ‘TREASURER GIAN JUSTIN E. VERONA PUBLIC RELATIONS OFFICER IRIS ABIGAIL C. PORAQUE CHIEF-OF STAFF UST BAR-OPS [KRIZA NINA B. MALALUAN CHAIRPERSON ELISHA ELAINE D. BAYOT VICE-CHAIRPERSON INTERNAL JOSEPHINE GRACE W. ANG VICE CHAIRPERSON EXTERNAL MARINETTE M, SOBREVILLA SECRETARY SARAH ANGELA D. EVA HEAD, PUBLIC RELATIONS OFFICER REBECCA JOY M. MALITAO HEAD, FINANCE COMMITTEE JEDIDIAHR. PADUA HEAD, HOTEL ACCOMMODATIONS COMMITTEE SABINA MARIA H. MABUTAS ASST. HEAD, HOTEL ACCOMMODATIONS COMMITTEE JOEMARI MATHEW R. AGARIN HEAD, LOGISTICS COMMITTEE JOHN FREDERICK A. NOJARA LOGISTICS COMMITTEE KIER JOHN V. UY LOGISTics COMMITTEE CHRISTINE JOYCE P. ANDRES SENIOR MEMBER ELOUISA ANN D.C. CARREON ‘SENIOR MEMBER NICOLE MARIE A. CORTES SENIOR MEMBER PATRICIA MAE. GUILLERMO SENIOR MEMBER GLENN MATTHEW C. MANLAPID SENIOR MEMBER CIARIT, MENDOZA ‘SENIOR MEMBER MARYLOU RENZI M. OLOTEO SENIOR MEMBER LOUELLE JUDE B. QUE SENIOR MEMBER JAMES ROSS L. TAN SENIOR MEMBER ATTY. AL CONRAD B. ESPALDON ‘ADVISERACADEMICS COMMITTEE 2021 MARIA FRANCES PAYER. GUTIERREZ SECRETARY GENERAL NATHAN RAPHAEL D.L. AGUSTIN ASST. SECRETARY GENERAL JOHN EDWARD F. FRONDA EXECUTIVE COMMITTEE ‘ANGEL ISAHM. ROMERO EXECUTIVE COMMITTEE KIRBY ANNEC. RENIA EXECUTIVE COMMITTEE KAREN ABBIE C. ASPIRAS EXECUTIVE COMMITTEE JOSE CHRISTIAN ANTHONY I. PINZON EXECUTIVE COMMITTEE MARIA FRANCES FAYE R. GUTIERREZ LAYOUT ARTIST CIARIT. MENDOZA COVER DESIGN ARTIST COMMERCIAL LAW COMMITTEE 2021 ALLEN FREIDRICKB. ORODIO COMMERCIAL LAW COMMITTEE HEAD RONNELL.BELCA ASST. HEAD, INSURANCE LAW ENNAMAY H. HERMOSA ASST. HEAD, SPECIAL COMMERCIAL LAWS DAWN DESIREE |, DELA PENA ASST. HEAD, NEGOTIABLE INSTRUMENTS TAW MICHAEL DALE R. APAREJADO ASST. HEAD, CORPORATION LAW YHANNA PATRICIA Y. MARTINEZ ASST. HEAD, INTELLECTUAL PROPERTY LAW SARAH ANGELA. EVA ASST. HEAD, TRANSPORTATION LAW MEMBERS IANA YSABEL A, ABELEDA MARK JOSHUA C. AMANCIO. ANTHONY LUIGI. DE VERA EDSON A. YUZON MICHAELLA G. RAMIREZ JAZIELM, DULA SEAN REY H. PULGAR SYDNEY ELLEN G, DESERVA JOSEMARIA ENRIQUE T. BAUTISTA RIZA FLOR S. MOSQUERA JUDGE MARIA ELLA CECILIA D. ESCALANTE ATTY. MARIAN JOANNE K. CO-PUA. ATTY. AMADO E. TAYAG AdvisersACADEMICS COMMITTEE 2020 AYA DOMINIQUE S, CAPARAS SECRETARY GENERAL MARIA FRANCES FAYE R. GUTIERREZ ASST. SECRETARY GENERAL RUTH MAE G. SANVICTORES EXECUTIVE COMMITTEE NICOLE G. AMANTE EXECUTIVE COMMITTEE JAYSON GABRIEL R. SORIANO EXECUTIVE COMMITTE ‘CARA ANGELA N. FLORES EXECUTIVE COMMITTEE IANA CASSANDRA Y. ESMILE EXECUTIVE COMMITTEE AYA DOMINIQUE S. CAPARAS LAYOUT ARTIST CIARIT. MENDOZA COVER DESIGN ARTIST COMMERCIAL LAW COMMITTEE 2020 ‘MA. CLARISSA M. DELA CRUZ ‘COMMERCIAL LAW COMMITTEE HEAD. SHERISSA MARISSE M. BERNABE ASST. HEAD, INSURANCE LAW NICOLE ANN CRYSTA M. ROMERO ASST. HEAD, SPECIAL COMMERCIAL LAWS ALLEN FREIDRICK B. ORODIO ASST. HEAD, NEGOTIABLE INSTRUMENTS LAW KRISTELSAMSON ASST. HEAD, CORPORATION LAW LINCY JANE AGUSTIN ASST. HEAD, INTELLECTUAL PROPERTY LAW MICHAEL DALE R. APARE|ADO ASST. HEAD, TRANSPORTATION LAW MEMBERS (CLAUDETTE IRENE S, MANALASTAS JENLA RAS RONNEL LOPEZ BELGA PRECIOUS OBIEGBU GIO B. SEMENIANO GABRIEL ADORA SARAH ANGELAD. EVA RALPH RAFAEL CELINO ‘TEODULO N. CRUZ, JR. NATHAN ISAAC PUZON JAZIEL.M.DULA JUDGE MARIA ELLA CECILIA D. ESCALANTE ATTY. AMADO E. TAYAG AdvisersFACULTY OF CIVIL LAW UNIVERSITY OF SANTO TOMAS ACADEMIC OFFICIALS ATTY. NILO T. DIVINA REV. FR. ISIDRO C. ABANO, 0.P. DEAN REGENT ATTY. ARTHUR B. CAPILI FACULTY SECRETARY ATTY. ELGIN MICHAEL C. PEREZ LEGAL COUNSEL UST CHIEF JUSTICE ROBERTO CONCEPCION LEGAL AID CLINIC JUDGE PHILIP A. AGUINALDO SWDB COORDINATOR LENY G. GADIANA, R.G.C. GUIDANCE COUNSELOROUR DEEPEST APPRECIATION TO OUR MENTORS AND INSPIRATION DEAN NILO T. DIVINA, DEAN AMADO L. DIMAYUGA ATTY. JACINTO D. JIMENEZ ATTY. ALBERT R. PALACIOS ATTY. AMADO E. TAYAG ATTY. TEOFILO R. RAGADIO ATTY. ALLAN B. GEPTY JUSTICE GABRIEL T. ROBENIOL JUSTICE JAPAR B. DIMAAMPAO JUDGE MARIA ELLA CECILIA D. ESCALANTE ATTY. MARIAN JOANNE K. CO-PUA ATTY. FE T. BECINA - MACALINO For being our guideposts in understanding the intricate sphere of Mercantile Law. -Academics Committee 2021DISCLAIMER THE RISK OF USE OF THIS BAR REVIEW MATERIAL SHALL BE BORNE BY THE USERTable of Contents INSURANCE .. A. Concept of Insurance .. B. Elements ofan insurance contract. C. Characteristics and nature of insurance contracts. . Microinsurance. . Compulsory motor vehicle liability insurance. Compulsory insurance coverage for agency-hired workers E. Variable contracts. F. Insurable interest 1. Inlife/ health. 2. In property.. 3. Double insurance and over insurance... 4. Multiple or several interests on same propert G. Perfection of the contract of insurance 1, Offer and acceptance/ consensuality. a. Delay in acceptane b. Delivery of policy 2. Premium payment 3. Non-default options in life insurance 4. Reinstatement of a lapsed policy of life insuranc 5. Refund of premiums. H. Rescission of insurance contracts... 1. Concealment 2. Misrepresentation/ omissions 3. Breach of warranties. 1. Claims settlement and subrogation. 46 1. Notice and proof of loss.. 2. Guldelines on claims settlement. a, Unfair claims settlement; sanctions. b. Prescription of actio1ML. c. Subrogation J. Business of insurance; requirements. K. Insurance Commissioner and its powers. PRE-NEED A. Definition. 1. Pre-need plans . 2. Pre-need company oon sao B. Registration of pre-need plans C. Liscensing of sales counselor and general agent. D. Default and termination. E, Claims settlement TRANSPORTATION LAW A. COMMON CARRIERS. 1. Diligence required of common carriers. 2. Liabilities of common carriers.. 3. Classification of transport network vehicle services and transport network companies 66 B. VIGILANCE OVER GOODS 1. Exempting Causes. a. Requirement of absence of negligence. b, Absence of delay. ¢. Due diligence to prevent or lessen the loss 2. Contributory Negligence 3. Duration of liability. a. Delivery of goods to common carrie! b, Actual or constructive delivery. c. Temporary unloading or storage. 4. Stipulation for limitation of liability. a. Void stipulation... b, Limitation of liability to fixed amount... c. Limitation of liability in absence of declaration of greater value Liability for baggage of passengers.. a. Checked-in hageage... b, Baggage in possession of passenger a NAASPAANTAISSSSI Fs C. SAFETY OF PASSENGERS. 1. Void stipulation 2. Duration of liability a. Waiting for carrier or boarding of carr b, Arrival at destination. ier.3. Liability for acts of others a. Employees, b, Other passengers and strangers. 4. Liability for delay in commencement of voyage... 5. Liability for defects in equipment and facilities. 6. Extent of liability for damages... D. BILL OF LADING 1, Three-fold character 2. Delivery of goods... a. Period for delivery b. Delivery without surrender of bill of lading sires BB ¢. Refusal of consignee to take delivery. Period for filing claims 4. Period for filing actions 5. Effects of stipulation w E, MARITIME COMMERCE. 1. Charter parties.. a, Bareboat/demise charter. b, Time charter. c. Voyage/trip charter 2. Liability of shipowners and shipping agents. a. Liability for acts of captain. b, Exceptions to limited liability.. 3. Accidents and damages in maritime commerce. eee a. General average b. Collissionsand allisions... Seneca OB 4. Carriage of Goods by Sea Act. a. Application... b. Notice of loss or damage.. 9 ¢. Period of prescription 9 ._ Limitation of liability. 100 F. PUBLIC SERVICE ACT. 101 1. Definition of public utility... 2. Necessity for certificate of public convenience. a. Requisites. i. Citizenshi ii, Promotion of public interest ii, Financial capability.. b. Prior operator rule i, Meaning... fi, Exceptions ne eeenenee 102 Ruinous Competition. 102 3. Fixing of rate... 102 a, Rate ofreturn.. 102 101 102 1024 5. G. THE WARSAW CONVENTION... 1 2. 3. IV. _ BUSINESS ORGANIZATIONS.. A. PARTNERSHIP L 2. 3. 4 B. CORPORATION 1 2. 3. b, Exclusion of income tax as expense.. 103 Unlawful arrangements, a. Boundary System b. Kabit System, Approval of sale, encumbrance or lease of propert 104 Applicability. Limitation of liability. a. Liability to passengers... b. Liability for checked baggage. ¢. Liability for hand-carried baggage zones 108 Willful misconduct. General provisions. Definition.. Elements Characteristics Rules to determine existence Partnership term. Partnership by estoppel... Partnership as distinguished from joint ventur Professional partnership... Management, ree meep oe Rights and obligations of partnership and partners a. Rights and obligations of the partnership. - b. Obligations of partners among themselves. ¢. Obligations of partnership /partners to third persons Dissolution and winding up Limited Partnership .. Definition of corporation. Classes of corporations. Nationality of corporations. a. Control test. b. Grandfather rule Corporate juridical personality. a. Doctrine of separate juridical personality. i. Liability for tort and crimes ii, Recovery of damagesb, Doctrine of piercing the corporate veil i, Grounds for application of doctrine ii, Test in determining applicability. 5. Capital structure. i Number and qualifications of incorporators... Subscription requirements. Corporate term. Classification of shares peop i. Preferred shares versus common shares Scope of voting rights subject to classification... 161 Founder's shares iv. Redeemable shares... Saeeasuseee AOL v. Treasury share: 6. Incorporation and organization. a. Promote! i. Liability of promoter ii, __ Liability of corporation for promoter’s contract Subscription contra‘ Pre-incorporation subscription agreements... Consideration for stocks Articles of Incorporation. i. Contents.. ii, Non-amendable item: Corporate name; limitations on use of corporate name. Registration, incorporation and commencement of corporate existence paog Election of directors or trustees.. Adoption of by-laws... i, Contents of by-laws ii, Binding effects.. ii, Amendments j. Effects of non-use of corporate charter. es AS 7. Corporate powers.. 177 a. General powers; theory of general capacity. 179 b. Specific powers; theory of specific capacity. 181 ¢. Power to extend or shorten corporate term... 181 d. Power to increase or decrease capital stock or incur, create, increase bonded indebtednes: 182 ¢. Power to deny pre-emptive rights.. 184 £. Power to sell or dispose corporate assets. 186 g- Power to acquire own share: 187 h. Power to invest corporate funds in another corporation or business 188 i. Power to declare dividend: 189 j. Power to enter into management contract. 193 k. Limitations... 1941. Ultra vires acts (a) Applicability of ultra vires doctrin (b) Consequences of ultra vires acts 1. Doctrine of individuality of subscription.. m, Doctrine of equality of shares.. n, Trust fund doctrine i, How exercise (a) By the shareholders (b) By the board of directors. (0) By the officers: 8. Stockholders and members ... a. Fundamental rights of a stockholder. eee OOS b. Participation in management. Proxy. Voting trust Cases when stockholders’ action is required 210 (a) By a majority vor 210 (b) By a two-thirds vot 210 (c) By cumulative voting. ii, Appraisal right... 213 (a) When available 213 (b) Manner of exercise of right... 214 Right to inspec. 215 Preemptive right 218 v. — Rightto vot 219 vi Rightto dividends. esecnsesinee OOD d. Remedial rights... i, Individual suit. fi, Representative suit.. Derivative suit.. me Meeting i. Regular or special. ii, Notice of meetings fil, Place and time of meetings. iv. Quorum. v. Minutes and agenda of meeting: 9, Board of directors and trustees. 230 a. Repository of corporate powers. 230 b. Tenure, qualifications and disqualifications of directors. 230 ¢. Requirement of independent directors. d. Elections.1. Cumulative voting. ii, Quorum. Removal. Filling of vacancies Compensation.. Disloyalty.. Business judgment rule. Solidary liabilities for damage: Personal liabilities. Responsibility for crimes. Special fact doctrine... neem spuerenan 36g, Inside information.. CERES eee ceases i. Bysself-dealing directors with the corporation ii, Between corporations with interlocking directors. p. Executive and other special committees... i Creation... fi, _Limitations on its powers q. Meeting i. Regular or special (a) When and where (b) Notice (o) Attendance in meetings. ii. Who presid ii, — Quorum iv. Rule on abstention PEE rare eRe 10.Capital affairs... a. Certificate of stock.. i. Nature of the certificate... esecasua OSD ii, Uncertificated shares. iii, Negotiability; requirements for valid transfer of stock. iv. Issuance... (a) Full payment (b) Payment pro-rata. v. Stock and transfer boo! (a) Contents. (b) Who may make valid entrie: (¢) Stock transfer agent vi. Lost or destroyed certificates vil. Situs of the shares of stock. b, Watered stocks. i. Definition ii. Liability of directors for watered stocks ii, Trust fund doctrine for liability for watered stocks. ¢. Payment of balance of subscription. i, Call by board of directors ii, Notice requirement. 258 259 259 260d. Sale of delinquent shares. i. Effect of delinquency Call by resolution of the board of directors... ii, Notice of sale iv. Auction sale. ¢. Alienation of shares. i, Alienation of shares ii, Sale of partially paid shares ii, Sale of a portion of shares not fully pai iv. Sale of all of shares not fully paid. v. Sale of fully paid shares ..... vii Requisites of a valid transfer. vii, Involuntary dealings... £. Corporate books and record: i. Records to be kept at principal office.. fi, _Rightto inspect corporate records iii, Effect of refusal to inspect corporate records. 11.Dissolution and liquidation a. Modes of dissolution. i. Voluntary dissolution (a) Where no creditors are affected. (b) Where creditors are affected... (c) By shortening of corporate term. (d) Withdrawal of dissolution. ii, Involuntary dissolution b. Methods of liquidation. i, By the corporation itsel.. ii, Conveyance toa trustee within a three-year period. iii By management committee or rehabilitation receiver.......... 275 iv. Liquidation after three years. 12.0ther corporations a. Close corporations. i. Characteristics of a close corporation ii, Validity of restrictions on transfer of share: {i Issuance or transfer of stock in breach of qualifying conditions iv. When board meeting is unnecessary or improperly held v. Preemptive right. vii Amendment of articles of incorporation. vii, Deadlocks b, Non-stock corporation: Definition ii, Purposes. ii, Treatment of profit iv. Plan and distribution of assets upon dissolution¢. Educational corporation: 289 . Religious corporations. 289 i. Corporation sole; nationality. 289 ii, Religious societies 292 e. One person corporations. 292 i, Excepted corporations.. 292 ii, Capital stock requirement 293 iii, Articles of incorporation and by-laws. 293 iv. Corporate nam 293 v. Corporate structure and officer: 293 i, Nominee... ss ee Minutes and records . 294 Liability aeeasces I Conversion of corporation to one person corporations and vice- versa 295 f. Foreign corporations 295 i.” Bases of authority over foreign corporations... 296 (a) Consent. 296 (b) Doctrine of "doing business’ 296 iL Necessity of a license to do busines: 298 (a) Requisites for issuance of a licens: 208 (b) Resident agent 299 (c) Amendment of license. 299 iii, Personality to sue. 300 iv. Suability of foreign corporations. 301 v. __ Instances when unlicensed foreign corporations may be allowed to sue (isolated transactions) 301 vii Grounds for revocation of license 302 13. Merger and consolidation. 303 a. Definition and concept... asec AOS b. Distinguish: constituent and consolidated corporation, 307 ¢. Plan of merger or consolidation. 307 d. Articles of merger or consolidation . 308 e. Procedure. 308 f. Bffectivity.. 309 g. Limitations 310 h. Effects. 310 14. Investigations, offenses, and penalties. 311 a. Authority of Commissionel aul i. Investigation and prosecution of offenses. 311 ii, Administration of oath and issuance of subpoena. 3 ii, Cease and desist power 312 iv. Contempt. 312 b. Sanctions for violation: 312 i, Administrative sanctions. 312 ii, Prohibited Acts. 312 iii, Penalties.. 312 iv. Who are liabl 314vi. SECURITIES. mmo BANKING. A ¢. Authority of the Securities and Exchange Commission. 1. Exempt securities 2. Exempt transactions 3. Non-exempt transactions Powers and functions of the Securities and Exchange Commission. Procedure for registration of securitie: Prohibition on fraud, manipulation, and insider trading 1. Manipulation of security prices 5 Short sales Option trading Fraudulent transaction. Insider trading... paeE Protection of shareholder interests... 1. Tender offer rul 2. Rules on proxy solicitation. 3. Disclosure rul ‘THE NEW CENTRAL BANK ACT..... State policies... - a vo b. Creation of the Bangko Sentral ng Pilipinas ¢. Responsibility and primary objective a. e |. Corporate powers .. Operations of the Bangko Sentral ng Pilipinas {Authority to obtain data and information. ii, Supervision and examination. fi, Bank deposits and investments Prohibitions. v. Examination and fee: £ Monetary Board; powers and functions. g. How the Bangko Sentral ng Pilipinas handles banks in distress.. i, Conservatorship. ii, Closure. ii, —_Receivership iv. Liquidation.. h, Administrative sanctions on supervised entities i. Rules on bank deposits and investments by directors, officers, stockholders and their related interests.. 339 j. Supervision and regulation of bank operations... 339B 1, Loans and other credit accommodations ii, Selective regulation.. a} Margin requirements against letters of credit (b) Required security against bank loan: (c) Portfolio ceilings. (@) Minimum capital ratios k. Rate ofexchange LAW IN SECRECY OF BANK DEPOSIT! 345 1. Purpose. epee sees UN 2. Prohibited act: 345 3. Deposits covered eee irae BAR 4. Exception: 346 5. Garnishment of deposits, including foreign deposits.. 353 6. Penalties for violation 353 GENERAL BANKING ACT sssnas 354 1. Definition and classification of banks.. 354 2. Distinction of banks from quasi-banks and trust entities 358 3, Bank powers and liabilities. 358 a. Corporate power: 358 b, Banking and incidental powers... 359 4. Diligence required of banks in view of fiduciary nature of banking... 361 5. Nature of bank funds and bank deposits 364 6. Grant of loans and security requirements... 367 a. Ratio of net worth to total risk assets secvcne 367 b. Single borrower's limit. 367 c. Restrictions on bank exposure to directors, officers, stockholders, and their related interests... 368 d. Prohibited acts of borrowers... 368 e. Floating interest rates and escalation clauses. 368 7. Penalties for violations 369 a. Fine, imprisonment 369 b, Suspension or removal of director or officer. 369 ¢. Dissolution of bank. 369 PHILIPPINE DEPOSIT INSURANCE CORPORATION ACT. 1. Basic policy. 2. Powers and functions of the Philippine Deposit Insurance Corporation; prohibitions. 3. Concept of insured deposits.. 4. Liability to depositors... 9 a. Deposit liabilities required to be insured with Philippine Deposit Insurance Corporation... oceneenee 3TT b, Commencement of liability.. ¢. Deposit accounts not entitled to payment d._ Extent of liabilitye. Determination of insured deposits. 377 f. Calculation of liability... 377 i. Perdepositor, per capacity rule. 377 ii, Joint accounts. 377 ii, Mode of payment.. 378 iv. Effect of payment of insured deposits. 378 v. Payment of insured deposits as preferred credit. 378 vi, Failure to settle claim of insured depositor 378 vii, Failure of depositor to claim insured deposits, 378 (a) Examination of banks and deposit accounts. 378 (b) Prohibition against splitting of deposits... eee 379 (© Prohibition against issuances of temporary restraining orders. saeeiesee TD 5. Concept of bank resolution. 380 6. Role ofthe Philippine Deposit Insurance Corporation in relation to banks in distress. 381 a. Closure and takeover. 381 b. Conservatorship 381 c. Receivership 382 4. Liquidation. Vil. INTELLECTUAL PROPERTY .. A. Intellectual property rights in general 1. Intellectual property rights. 2. Differences between copyright, trademarks, and patents 3. Technology transfer arrangement B. Patents 1. Patentable invention 2. Non-patentable inventio 3. Ownership of a patent.. a. Right toa patent. b. First-to-file rule... ¢. Invention created pursuant to a commission. d._ Right of priority... ci Grounds for cancellation of a patent Remedy of the true and actual inventor. Rights conferred by a patent. Limitations of patent rights a. Prior user. b. Use by the government. 8. Patent infringement a. Tests in patent infringement i, Literal infringement. ii, Doctrine of equivalents. b. Civil and criminal action... c. Prescriptive period soned. Defenses in action for infringement 9. Licensing. a. Voluntary.. b. Compulsory. 10. Assignment and transmission of rights.. © Trademarks sia Definitions of marks, collective marks, and trade name: Acquisition of ownership of mark Acquisition of ownership of trade name. Non-registrable marks o-oo Prior use of mark as a requirement. Tests to determine confusing similarity between marks nn 421 a. Dominancy test... b. Holistic test. c. Idem sonans Well-known marks. Rights conferred by registratiot Use by third parties of names, etc. similar to registered mark. 0. Infringement and remedies a, Trademark infringement. b, Damages. ¢. Requirement of notice .. d. Penaltie 11. Unfair competition 12. Registration of marks under the Madrid Protocol PA eeNE goes a. Coverag 439 b, Rights conferred. 339 c. Requirements for registration. 439 d. Term of protection enn esecasunen Al) D. Copyright Basic principles. 2 Copyrightable works. a. Original works b. Derivative works Non-copyrightable work Rights of copyright owner.. Rules on ownership of copyright Limitations on copyright. a. Fairuse.. Copyright infringement a. Remedies... b. Criminal penaltie: anew ~ VILL SPECIAL LAWS. A. SECURED TRANSACTION.465 466 1. Personal Property Securities Act. a. Definitions and scop. b, Asset-specific rules. i. Future property. ii, Rights to proceeds and commingled fund: iii, Tangible assets commingled in a mas: iv. Accounts receivables Perfection of security interests, Registration Priority of security interests. Tangible assets; intangible assets... epucrec ney AGD Enforcement of security interests .. Prior interests and the transitional period Seeasusseene WEL 2. Real Estate Mortgage Law 475 a. Definition and characteristic 466 466 466 re mean Obligations secured by real estate mortgagi 476 Object of real estate mortgag 476 fi, —_Rightto alienate mortgage credit. 478 iv. Rightto alienate collateral. 478 w 2 5 £ 1 E 4, Letters of credit. a. Definition and purpose. 496 b. Kinds of letters of credit. 497 ¢. Rule of strict compliance 500 d. Independence principle. 502 ‘TRUTH IN LENDING. eB 1. Purpose. eee S14 2. Obligation of creditors to person to whom credit is extende 514 3. Covered and excluded transactions .. 514 4. Consequences of non-compliance with obligation. 515 ANTI-MONEY LAUNDERING ACT. 516 1. Policy ofthe law 516 2. Covered institutions and their obligations. 516 3. Covered and suspicious transaction: 518 4, Money laundering; how committed; unlawful activities or predicate crimes E 519 5. Anti-Money Laundering Council; function: 520 6. Safe harbor provision. 520 7. Application for freeze orders S21 a. Who may apply... 521 b. Bffectivity. 522 . Duties of covered institutions... ET 8. Authority to inquire into bank deposits. 524a. Forfeiture provisions b, Mutual assistance among states D. FOREIGN INVESTMENT ACT... 527 1. Policy ofthe law 2. Definition of terms a. Foreign investment b. "Doing business" in the Philippines. c. Export enterpris d. Domestic market enterprise... eens 529 Registration of investments of non-Philippine nationals. Foreign investments in export enterprises eeu B90 Foreign investments in domestic market enterprises. Foreign Investment Negative List. anew E. INSOLVENCY LAW: 1, Concurrence and preference of credits. a, Meaning of concurrence and preference... b, Exempt properties c. Classification of credit. d. Order of preference of credits 2. Financial Rehabilitation and Insolvency Act of 2010... 530 533 a. Definition of insolvency. 533 b. Suspension of payments c. Rehabilitation.. Bo TYPOS ceeeenerneenen eee 534 ii, Commencement order. iii, Stay or suspension order... secesscaesnnaes SAL iv. Rehabilitation recetver v. Management committee.. vi. Rehabilitation plan... vil. _ Cram down effect. a. Conversion of rehabilitation to liquidation proceedings .....551 ii, Liquidation order. iv. Rights of secured creditors v. Liquidator vi. Determination of claims.. vii, Liquidation of plan. F. DATA PRIVACY ACT OF 2012... 554 1. Definitions and scop 2. Extraterritorial application... eceeenee SST 3. Processing of personal information a. General principle: b, Sensitive and privileged information.¢. Subcontracting d._ Privileged communication... 4. Rights of the data subject; exceptions /non-applicability.. 5. Duties and responsibilities of personal information controlle! G. PHILIPPINE COMPETITION ACT. 566 1. Definitions and scope of application 2. Powers and functions of the Philippine Competition Commission 3. Prohibited acts... a. Anti-competitive agreements... eeesassene OD i, Perse violations. 572 ii, Notperse violations... erase TS b, Determining existence of anti-competitive conduct. ¢. Abuse of dominant position d. Prohibited mergers and acquisitions. .. Exceptions. 4. Covered transaction: a. Thresholds for compulsory notification b, Notifying entity. ¢. Exceptions... 5. Determining the relevant market. 6. Forbearance by the Philippine Competition Commission, OTHER LAWS. 597 A. NEGOTIABLE INSTRUMENTS LAW .. B. WAREHOUSE RECEIPTS LAW... peeve 656 C. ELECTRONIC COMMERCE ACTCOMMERCIAL LAW INSURANCE CODE Jaws governing contracts of insurance in the Philippines 1. RA 10607 (july 23, 2012) 2. New Civil Code 3. Special Laws CONCEPT OF INSURANCE Contract of insurance It is an agreement whereby one undertaker for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. [IC Sec. 2fa)] A contract of insurance, ta be binding fram the date of application, must have been a completed contract. (Perez vs. CA, GR. No, 112329, January 28, 2000) ‘Thus, it must have all the essential elements of a valid contract as enumerated in Art. 1318 of the ‘New Civil Code: (Sm-CoMe) 1. Subject matter in which the insured has an insurable interest; 2. Consideration, which is the premium paid by indemnify the former upon the happening of the event or peril insured against; and 3. Meeting of the minds ofthe parties. “Doing an insurance business” or “transacting an insurance busines: ‘The term “doing an insurance business’ or “transacting an insurance business" means: (ISRA) 1. Making or proposing to make, as Insurer, any insurance contract, 2. Making or proposing to make, as Surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; 3. Doing any kind of business, including a Reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of the Insurance Code (10). 4. Doing of proposing to do Any business substance equivalent to any of the foregoing in a manner designed to evade the provisions of the IC, NOTE: In the application of the provisions of the IC, the fact that no profitis derived from the making of insurance contracts, agreements or transactions or thatno separate or direct consideration is received therefor, shall NOT be deemed condusive to show that the making thereof does not constitute the doing or transacting of an insurance business [16 See.2 (6)} Q: The parties’ CBA contains the following provision, “The COMPANY shall obtain group hospitalization insurance coverage or assume under a self-insurance basis hospitalization for the dependents of regular _ employees". Eventually, three members of Mitsubishi Motors Philippines Salaried Employees Union (MMPSEU) filed daims for reimbursement of hospitalization expences of their dependents. In turn, Mitsubishi Motors Philippines Corporation (MMPC) paid only a portion of their hospitalization insurance claims, not the full amount However, MMPSEU insists that MMPC is also liable for the amounts covered under other insurance policies; otherwise, MMPC will unjustly profit from the premiums. the employees contribute through monthly salary deductions. Is MMPSEU's contention correct? ‘A: NO. Since the subject CBA provision is an Insurance contract, the rights and obligations of the parties must be determined in accordance with the general principles of insurance law. Being in the ature of a nonlife insurance contract and essentially a contract of indemnity, the CBA provision obligates. MMPC to indemnify the covered employees’ medical expenses incurred by their dependents but only up to the extent of the expenses actually incurred. This is consistent with the principle of indemnity which proscribes the insured from recovering greater than the loss. (Mitsubishi Motors Pallippines Salaried Employees Union vs. Mitsubishi Motors Pail. Corp, GR. No. 175773, june 17, 2013 in Divino 2014) Insurance as an Uberrimae Fides contract (1993 The contract of insurance is one of perfect good faith (uberrimae fidei) not for the insured alone, but equally go for the insurer; infact, itis more sa for the latter, since its dominant bargaining f™ Unwersiry oF Sanro Tomas 2024 GoLDeN NoesINSURANCE LAW position carries with it stricter responsibility. (Qua (Chee Gan vs. Law Union and Rock Insurance, Co. Lid, GR.No.L-4611, December 17, 1955) It requires the parties to the contract to ‘communicate that which a party knows and ought to communicate, that is, the duty to disclose in good faith all facts material to the contract. This doctrine is essential on account of the fact that the fall circumstances of the subject matter of Insurance are, as a rule, known to the insured only and the insurer, in deciding whether or not to accept a rick, ‘must rely primarily upon the information supplied to him by the applicant. (Sundiang Sr. & Aquino, 2014) Insurance as contracts of adhesion (Fine Print Rule) While generally stipulations in a contract come about after deliberate dratting by the parties thereto, there are certain contracts in which almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts, are called contracts of adhesion because the only participation of the other party is the signing of his signature or his ‘adhesion’ thereto. Insurance contracts fall Into this category. (Sweet Lines, Inc vs, Teves, GR No. L-37750, May 19, 1978) An illustration of a contract of adhesion is when the insurer used "fine print” letters in conditions stated in acontract of insurance. (Ibid) ‘Rules in the construction or interpretation of insurance contracts GR: If the terms of the contract clearly show the intention of the parties, there shall be no room for interpretation. XPN: If there are ambiguities in the terms of an insurance contract, they have to be resolved in favor of the insured and strictly against the insurer because an insurance contract being a contract of adhesion, most of its terms ie not 2 product of ‘mutual negotiation between the parties as they are prepared by the insurance company in final printed forms. (DeLeon, 2014) Parties to the contract of insurance 1. Insurer ~ party who assumes or accepts the tisk of loss and undertakes for a consideration to indemnify the insured on the happening of 2 specified contingency or event. 2. Insured ~ person in whose favor the contract is operative and who is indemnified against, or is toreceive a cervain sum upon the happening of a specified contingency or event. NOTE: The insured is not always the person to whom the proceeds are paid, 3, Assured/Beneficiary - a person designated by the terms of the policy to receive the proceeds of the insurance. He may be the insured or a third party in the contract for whose henefit the policy is issued and to whom the loss is payable, Every corporation, partnership, or association duly authorized to transact insurance business as tleewhere provided in the Insurance Code, may be aninsurer: (16, Sec. 6) ‘The term “insures” no longer include “individuals” under RA 10607. Hence, an individual natural person is no longer allowed to be an insurer. However, it includes the following: 1. Professional reinsurer - any _ person, partnership, association or corporation that lransacts solely and exclusively reinsurance business in the Philippines. 2. Mutual Insurance Companies - The law also provides for the procedure for mutualization of domestic stock life insurance companies. A new provision on RA 10607 is on Aematvalization or conversion of mutual insurance companies into stock corporations. (UC, Sec. 280) 3. Cooperatives are now expressly included in the term “insurer” or “insurance company.” However, the cooperative must: (Su-Ca) Have sutficient capital and assets required under the Insurance Code and the pertinent regulations issued by the Commission. (1G Sec. 192) Have a certificate of authority to operate issued by the Commission which should be renewed every year. (IC Sec. 193; Sundiang Sr. & Aquino, 2014) Q: Philippine Health Care Providers, Inc. is engaged In operating a prepaid group practice health care delivery system or a. health ‘maintenance organization (HMO) to take care of the sick and disabled persons enrolled in the health care plan. Individuals enrolled in its health care programe pay an annual UNIVERSITY OF SANTO TOMAS Facutty oF Civit LawCOMMERCIAL LAW membership fee and are entitled to various medical services provided by its duly licensed physicians, specialists and other professional technical ‘staff participating in the group practice health delivery system at a hospital or clinic operated or accredited by it. Is Philippine Health Care Providers, Inc. an insurance company or HMO? ‘A: HMOs are not insurance businesses. One test that they have applied is whether the assumption of rise 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 appears to provide insurance-type benefits to its members (with respect to its curative medical services), but these are incidental to the principal activity of providing them medical care. The “insurance-ike” aspect of Philippine Health Care Providers’ >husinas: ic miniscule compared tots noninsurance activities. Therefore, since it substantially provides health care services rather than insurance services, it cannot be considered as being in the insurance businass. (Philippine Health Care Providers, Inc, v. GIR, GR. No. 167330, September 18, 2009) Persons who may be insured (2000 BAR) Anyone except a public enemy may be insured. (IC, Se0.7) A public enemy is a nation at war with the Philippines and every citizen or subject of such ration, It does not include mobs, thieves or robbers, (Bouvier's Law Dietionary) If majority of the stockholders of the corporation were subjects who became an enemy corporation upon the outbreak of the war between two states, it stands to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy. Hence, any contingency which may occur during or after sald war cannot be indemnified under a policy issued before said war. However, elementary rules of justice and in the absence of specific provision in the Insurance Law require that the premium paid by the insured for the period covered by its policy should be returned, The purpose of war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent that one country should destroy its enemy's property and repay in insurance the value of what has been so destroyed. (Filipinas Compara de Seguros v. Christern, Huenefeld and Co, Inc, GR No. L- 2294 May 25,1951) Subject matter of a contract of insurance Anything having an appreciable pecuniary value, which is subject to lass or deterioration, or of which one may be deprived so that his pecuniary interest is or may be prejudiced. Eventor peril insured against It is any contingent or unknown event, whether past or future, which may damnify a person having, fan insurable interest, or ereate a liability against him may be insured, subject to the provisions of Chapter | ofthe Insurance Code. (1C, Sec. 3) Consent of spouse not necessary The consent of the spouse is not necessary for the validity of an insurance policy taken out by a ‘marvied person on his or her life or that of his or her children. (10, Sec. 3) Consent of the person insured is not essential tothe validity of the policy. So long as it could be raved that the insured has aan insurable Interest at the inception of the policy, the insurance is valid even without such consent. (6 See. 10) flect of death of policy's original owner All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of the person insured shall automatically vest in the latter upon the death of the original owner, unless otherwise provided for nthe policy. (16, See. 3) of 2013, the term used was “minor” instead of “the person insured.” A minor cannot enter into any contract of insurance with any insurance company. Games of chances cannot be insured An insurance for or against the drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize is not authorized. (IC, Sec 4) | Univenstty oF santo Tomas 2021 GoLoEN NotesINSURANCE LAW Void stipulations in an insurance contract ‘The following are void stipulations in an insurance contract which provid 1. For the payment of loss whether the person insured has or has no interest in the property insured: or 2. That the policy shall be received as proof of such interest; and 3. Every policy executed by way of gaming or wagering. (IC Sec. 25) NOTE: The Insurance Cade provides that a policy ‘may declare that a violation of specified provisions thereof shall avoid it. Thus, in fire insurance policies, which contain provisions that if the daim be in any respect fraudulent or if any false declaration be made or used in support thereof, all, the benefits under the policy, chall be forfeited, 2 fraudulent discrepancy between the actual less and that claimed in the proof of loss voids the insurance policy. Mere filing of such a claim will exonerate the insurer. (United Merchants Corp. v3. Country Bankers Insurance Corp, GR. No. 198588, July 11, 2012) ELEMENTS OF AN INSURANCE CONTRACT SPEAR: 1. Scheme to distribute lesses ~ Such assumption of risk is part ofa general scheme to distribute actual losses among a large group or substantial number of persone bearing 2 similar risk. 2. Bayment of premium ~ As consideration for the insurer’s promise, the insured makes a ratable contribution called “premium’ to a general insurance fund. 3. Existence of insurable interest ~The insured possesses an interest of some kind, susceptible of pecuniary estimation known as “insurable Interest” 4. Assumption of Risk ~The insurer assumes that tisk of loss for'a consideration, Risk of loss - The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of the designated peri NOTE: ‘The inherent uncertainty of events is normally described in terms of risk. A contract, possessing only the last three elements enumerated above is a risk-shifting device, but NOT a contract, of insurance which isa risk-distributing device. (De Leon, 2006) Moral Hazard Phenomenon Consequently, however, the existence of insurance could have the perverse effect of increasing the probability of loss. This is when the insured, having, in mind the indemnification for loss or damage caused by the happening of the event insured against, would have reduced incentive to take steps to protect himself or his property, subject of insurance. (Ibid) CHARACTERISTICS AND NATURE OF INSURANCE CONTRACTS: The following are the characteristics and nature of aninsurance contract: 1. Consensual It is perfected hy the meeting of the minds of the parties as to the object, cause and consideration of the insurance contract. There should be acceptance of the application for insurance. 2. Voluntary GR: The parties may incorporate such terms and conditions as they may deem convenient: Provided they do not contravene any provision of law and are not opposed to public policy, law, morals, good customs, or public order. XPNs: Insurance contracts that may be required by law such as a. For motor vehicles; b, Asa condition to granting a license to conduct business or calling affecting the public safety orwelfare; For employees; or d. Social insurance for members of the GSIS and for employees of the private sector cavered by the SSS. 3. Aleatory ‘The lability of the insurer depends upon seme contingent event, the happening of an uncertain future event. Thus, itis not a contract of chance. In an insurance contract, each party takesa risk: UNIVERSITY OF SANTO TOMAS Facutty oF Civit LawCOMMERCIAL LAW a. For the insurer ~ risk of having to pay the indemnity ifthe contingentevent happens. b. For the insured ~ risk of paying the premium without receiving anything therefor if the contingent event does not happen except protection, which in itself is a valuable consideration. (De Leon, 2014) 4. Unilateral It imposes legal duties only on the insurer who promises to indemnify the insured. tis executed as to the insured after payment of the premium, and executory on the part of the insurer in the sense that itis not executed until payment for a loss. (De Leon, 2014) 5. Conditional It i subject to conditions the principal one of which is the happening of the eveat Insured against. 6. Contract of indemnity Recovery is commensurate with the amount of the loss suffered, GR: The insurer promises to make good only the loss of the insured. XPN: The prindple is not applicable to life and accident insurance where the result is death because life is not capable of pecuniary estimation, ‘The only situation where the principle of indemnity is applicable to life insurance is when the interest of a person insured is capable of exact, pecuniary measurement (eg. where a creditor insures the life of his debtor to the extent of the latter's debt). 7. Personal It is personal between the insurer and insured Each party having in view the character, credit and conduct of the other. NOTE: Since insurance is a contract, such is considered a property ia legal contemplation, However, unlike property policies, life insurance policies are generally assignable like any chose in action, (De Leon, 2014) CLASSES OF INSURANCE CONTRACTS Marine: Fire; Casualty; Suretyship; Life Microinsurance; Compulsory motor vehicle liability msurance; and Compulsory insurance coverage for agency hired workers. NTN Marine Insurance includes: Loss of or damage to: a Vessels, cargo, irelghtage, profits, and all kinds of property and interests therein, in connection with any and all rise or perils of navigation; Person or property appertaining to a marine, inland marine, transit or transportation insurance; © Precious stones, jewels, jewelry, precious metals, whether in the course of transportation or otherwise; and 4. Instrumentalities of transportation and communication, excluding buildings, aids to navigation and transportation, and appurtenant facilities for the control of waterways. (IG Sec 101 (a) 2. Marine pratection and indemnity insurance against legal liability of the insured for loss, damage, or expense incident to ownership, operation, chartering, maintenance, _use, repair, or construction of any vessel, craft or Instrumentality in use of ocean or Inland waterways, including liability of the insured for personal injury. iliness or death or For loss of or damage to the property of another person. IC, Sec. 101 (b)} Two kinds of risks 1 Perils ofthe Sea; and 2.Periis of the Ship It covers | It covers losses which, in casuslties due to| the ordinary course of unusual violence | events, results from the or extraordinary | natural and inevitable causes connected | action of the sea, fram the with navigation. | ordinary wear and tear of the ship, fg | UNIveRstTv oF Santo Tomas 2021 GoLoEN NotesINSURANCE LAW Tt cavers losses | covers Tosser which Which cannot be | result from the negligent guarded against | allure of the ship's owner by prudence and | to provide the vessel with ondinary exertion | proper equipment to ofhuman skill. | convey the cargo under ordinary conditions, and can thus be guarded against by —_ordainry exertion of human skill NOTE: The insurer undertakes to insure against perils of the sea and similar perils, not against, perils of the ship. In order to make the insurer liable. There must be some casualty, something which could not be foreseen as one of the necessary incidents of the adventure. (Isabela Roque v. AC, GR. No. L-56925, November 11, 1985) ‘The purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen. (Ibid.) Rule on All Risks Policy ‘A marine insurance policy providing that the insurance was to be “against all risks" must be construed as creating a special insurance and extending to other risks than are usually contemplated, and covers all losses except such as ‘may arise from the fraud of the insured. ‘The burden of the insured, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss was due to exeapted perils. (Filipino Merchants Insurance Co. Inc. v. CA, GR. No. 85141, November 28, 1989) Fire insurance shall include insurance against less by: 1. Fire, lightning, windstorm, tornado or earthquake; and 2. Otherallied risks, when such risks are covered by extension to fire insurance policies or under separate policies [C, Sec. 169) Alterations in use or condition ‘An alteration in the use or condition of a thing is limited by the 1, Entitles an insurer to rescind a contract of fire insurance if such alteration: a. Increases the ris 'b, Was made without the consent of the insurer; and «Was made through the means within the control of the insured. (IG Sec. 170) NOTE: The fire Insurance policy forbade the removal of the insured properties uunlese sanctioned by the insurer Malayan, Any transfer effected by the insured, ‘without the insurer's consent, would free the latter from any liability. (Malayan Insurance Company Inc. v. PAP Co. LTD, GR Na 200704, August 7, 2013) 2. Does not affect a contract of fire insurance if the alteration does not increase the risk. (IC, Sec. 171) NOTE: A contract of Fire insurance is not affected by any act of the insured subsequent to the execution of the policy, which does not violate its provisions, even though it increases the risk and is, the cause of the oss, IC, Sec. 172) Measure of indemnity 1. If there is no valuation in the poliey, the measure of indemnity in an insurance against fire is the expense it would be to the insured at the time of the commencement of the fire to replace the thing lost or injured in the condition in which it was at the time of the injury. (1C See. 173) If there is a valuation in a policy of fre insurance, the effect shall be the same as in a policy of marine insurance where valuation is conclusive between the parties in adjusting the loss. (1G, Sec. 158) NTN It is an insurance covering loss or liability arising from accident or mishap, excluding certain types of less which by law or custom are considered as falling exclusively within the scope of ether types of insurance such as fire or marine. (IC, Sec. 176) Coverage of casualty insurance (Ps-EMo-BullO) 1. Bersonal accident insurance - a form of insurance which undertakes to indemnify the assured against the expense, loss of time, and UNIVERSITY OF SANTO TOMAS Facutty oF Civit LawCOMMERCIAL LAW suffering resulting from accidents causing him physical injury, usually by payment at a fixed rate per week while the consequent disability lasts, and sometimes including the payment of 1 fixed cum to his heirs in case of his death by accident within the term of the policy. 2. Bublic welity insurance ~ indemnifies against ity on account of injuries to the person or property of another. It may extend to automobiles, elevators, fly wheels, libel, theaters, and vessels. 3. Blate glass insurance ~ an insurance against less from accidental breaking of plate-glass ‘windows, doors, showcases, etc. 4. Employer's lability and workmen's insurance ~ the risk insured against is the liability of the assured to make compensation or pay damages for an accident, injury, or death, occurring to a servant or other employee, in the course of his employment under statutes lunposing such lability on employers. 5, Motor vehicle liability insurance ~ it is a contract of insurance against passenger and third-party liability for death or bodily injuries and damage to property arising from motor vehicle accidents. Aside from compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions applicable to casualty insurance. Therefore, such casualty insurance are governed by ‘thegeneral provisions applicable to all types of insurance, and outside of suchstatutory provisions, the rights andobligations of the parties must hedetermined by their contract, taking into consideration its purpose and always in accordance with the general principles of insurance law. 6 Burglary and theft insurance ~ an insurance against loss of property by the depredations of burglars and thieves. 7. Health insurance ~an indemnity to persons for expense and loss of time occasioned by disea NOTE: Health and accident insurance areeither covered under life (IC Sec 180) for casualty insurance. (1G Sec. 174) 8 Other substantially similar kinds of insurance. (Peres, 2006) ‘Two divisions of casualty insurance (HAT) 1, Accident or heolth insurance - Insurance against specified perils which may affect the person and/or property of the insured. (eg. personal accident, robbery/theft insurance) 2. Third party Yability insurance ~ Insurance against specified perils which may give rise to liabulity on the part of the insured of claims for injuries or damage to property of others. (De Leon, 2010) “Accidental” vs. “Intentional” as used in insurance PORT CN ‘The terms ‘accident | Intentional, as used and ‘accidental’ have | an accident policy been taken to mean | excepting intentional that which happens | injuries inflicted by the by chance or | insured ar any ther fortuitously, without | person, implies the intention or design, | exercise of the reasoning ‘which is unexpected, | faculties. consciousness, unusual cof | and volition. Where 3 unforeseen. The | provision of the policy term doesnot, | excludes intentional without injury, itis the intention qualification, exclude | of the person inflicting events resulting in| the injury that Is damage or loss due controlling. If the to fault, recklessness | injuries suffered by the negligence of | insured clearly resulted third parties. | trom the intentional act (Sundiong Sr. &| of a third person, the Aquino, 2014 citing | insurer is relieved from Pan ‘Malayan | Yability as stipulated, Insurance Corp. v. CA, | (Sundiang Sr. & Aquino, GR Ne 81026, April| 2014 citing Biagtan v 3, 1990) The Insular Life Assurance Co. Ltd, GR No. 1-25579, March 29, 1972) Rules on Third Party Liability (TPL) Insurance Insurable interest is based on the interest of the insured in the safety of the persons and their property, who may maintain an action against him in case of their injury or destruction respectively. (De Leon, 2010) 2. In s TPL insurance contract, the insurer assumes the obligation by paying the injured third party to whom the insured is liable. Priar payment by the insured to the injured third person is not necessary in order that the obligation of the insurer may arise. The | Univenstty oF santo Tomas 2021 GoLoEN NotesINSURANCE LAW moment the insured becomes persons, the insured acquires a Insurance contract which may be garnished like any other credit (Perla Compania de Seguros, inc. vs. Ramolete, GR. Na, 1-60887, November 13, 1991) 3. In burglary, robbery, and theft insurance, the ‘opportunity to defraud the insurer (moral hazard) isso great that the insurer have found it necessary to fill up the policies with many restrictions designed to reduce the hazard. The purpose of the exception is to guard against liability should theft be committed by one having unrestricted access to the property. @ortune Insurance & Surety Co. vs. CA CR No. 115278, May 23, 1995) 4. The right of the person injured to sue the insurer of the party at fault (insured), depends on whether the contract of insurance Is intended to benefit third persons also or only the insured. (Fulogio vs. Del Monte, GR No. L- 22042, August 17, 1967) If the contract provides for: a. Indemnity against third porty liability ~The third persons to whom the insured is lable can sue directly the insurer upon the occurrence of the injury or event upon ‘which the lisblity depends. The purpose is to protect the Injured person agalnst the ssolvency of the insured who causes such jury and to give him a certain heneficial interest in the proceeds of the policy. It is as if the injured person were especially named in the policy. (Shafer ws. RTC Judge. GR No. 78848, November 14, 1988, 1996 Bar) b. Indemnity against actual loss or payment ~ ‘The third persons cannot proceed against the insurer, the contract being solely to relmburse the insured for lability actually discharged by him through payment to third persons, said third person's recourse being thus limited to the insured alone. (Guingon vs. Del Monte, G.R. No. L-22042, August 17, 1967) Prior payment by the insured is necersary to give rise to the obligation of theinsurer. Insurance (1996, 2000 BAR) ‘The direct liability of the insurer under indemnity contract against third party liability does not mean that the insurer can be held solidarily liable with the insured. The insurer's liability is based on contract; that of the insured is based on tort (Figuracion via. De Maglana, et al. v. Hon. Francisco Consolacion, GP. No 60506, August 6, 1992) Q: Lawrence, a boxer, is a holder of an accident insurance policy. In a boxing match, he died after being knocked out by the opponent. Can his father who is a beneficiary under said Insurance policy successfully claim indemalty from the insurance company?(1990 BAR) A: YES. Clearly, the proximate cause of death was the boxing contest. Death sustained in a boxing contest is an accident. (De la Cruz v. Capital Insurance & Surety Co, GR. No. 121574, June 30, 1966) Liability of the insurer vs Liability of the insured ST iS The lability ic direct | Liability is direct and bout the insurer cannot | can be held Hable with be held solidariy liable | all the parties at fault. with the insured and other parties at fault, Liability is based on | Liability is based on contract. tort The third-party lability | The Wability extends \sonly up tothe extent | to the amount of of the insurance policy | actual and other and that required by | damages. (Heirs Poe v law. ‘Malayan Insurance, GR. No. 156302, April 7.2009) Q: While driving his car along EDSA, Cesar sideswiped Roberto, causing injuries to the latter, Roberto sued Cesar and the third-party ability insurer for damages and/or insurance proceeds. The insurance company moved to dismiss the complaint, contending that the lability of Cesar has not yet been determined with finality. Is the contention of the insurer correct? (1996 BAR) A: NO. The contention of the insurer is not correct: There Is no need to wait for the dedsion of the court determining Cesar’s liability with finality before the third-party liability insurer could be sued. The occurrence of the injury to Roberto immediately gave rise to the liability of the insurer under its policy. Where an insurance policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of the UNIVERSITY OF SANTO TOMAS € Facutty oF Civit LawCOMMERCIAL LAW injury or event upon which the liability depends (Ghafer vs. RTC Judge, supra) Liability _of insurer_if_ the insured was ‘committing a felony Liabilities arising out of acts of negligence, which are also criminal, are alsa insurable on the ground that such acts are accidental. Thus, a motor insurance policy covering the insured's liability for accidental injury caused by his negligence, even though gross and attended by criminal consequences such as homicide through reckless imprudence, will not be void 2s against public policy. But liability consequences of deliberate criminal acts are not insurable. (Sundiang Sr. & Aquino, 2014) *No action” clause It sa requirement in a policy of liability insurance which provides that suit and final judgment be first ‘obtained against the insured, that only thereafter can the person injured recover on the policy. It expressly disallows suing the insurer as co- defendant. (Guingon v. Del Monte, supra) ‘Ano action” dause must yleld to the provisions of the Rules of Court regarding multiplicity of suits. (Ghafer v. RTC Judge, supra) Rules in accident insurance 1. Fordeath or injury to be covered by the policy, such should not be the natural or probable result of the insured’s voluntary act, or if something unforeseen occurs in the doing of the act which produces the injury, which may result to death. (Dela Cruz v. Copitol Insurance & Surety Co, supra) 2. Suicide and willful exposure to needless peril are in pari matere because they both signify 2 disregard for one’s life. Voluntary exposure to a known danger is generally held to negate the accidental character of whatever followed from the known danger. (De Leon, 2010) 3. The insured's beneficiary has the burden of proof in demonstrating that the cause of death is due to the covered peril. Once that fact is established, the burden shifts to the insurer to show any excepted peril that may have been stipulated by the parties. (Vda, De Gabriel v. CA, GR.No. 103883, November 14, 1996) SURETYSHIP Contract of suretyship, It is an agreement whereby a party called the “surety” guarantees the performance by another party called the “principal or obligor” of an obligation or undertaking in favor of a third party called the “obliges” It includes official recognizances, stipulations, bonds, or undertakings issued by any company by virtue of and under the provisions of Act No. 536, asamended by Act No. 2206, (IC, Sec. 177) ‘The extent of surety's liability is determined by the language of the suretyship contract or bond itself. It cannot be extended by implications beyond the terms of the contract. Having accepted the bond, the creditor is bound by the recital in the surety bond that the terms and conditions of distributorship contract be reduced in writing or at the very least communicated in writing to the surety, Such non-compliance by the creditor impacts not on the validity or legallty of the surety- contract but on the creditor's right to demand performance. (First Lepanto-Taisho Insurance Corporation vz. Chevron Philippines, GR No. 177839, january 18, 2012) Nature of liability ofsurety. The liability of the surety or sureties shall be: 1. Solidary ~ Joint and several with the obligor and 2. Limited or fixed ~ Limited to the amount of the bond (It cannotbe extended by implication). 3. Contractual ~ It is determined stricily by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. (IC, Sec. 178) Suretyship vs, Property Insurance . og To Bet Ie is an accessory | The principal contract contract, itself, There are three parties: | There are only two the surety, | parties: insurer and obligor/debtor, and the | insured obligee/creditor, More of a credit | Generally a contract of accommodation with | indemnity the surety assuming primary liability Surety. is entitled to | No right of recovery for reimbursement from | the loss the insurer may. the principal and his | sustain except when the guarantors for the loss | insurer is entitled to fg | UNIveRstTv oF Santo Tomas 2021 GoLoEN NotesINSURANCE LAW Te may sulfer under the contract. subrogation, ‘A bond may be cancelled by or with the consent of the obliges Maybe cancelled unilaterally either by the insured or by the or by the commissioner | insurer on grounds ‘or bythe court. provided by law. Requires acceptance of | Does not asad the obligee before it | acceptance of any third becomes valid and | party. enforceable, ‘A risleshifting device, [A vsk-distributing the premium paid being | device, the premium in the nature of a| paid being considered a service fee. ratable contribution to a commen fund. (De Leon, 2010) ‘Types of surety bonds (CoFijud) 1. Contract bonds ~ These are connected with construction and supply contracts. It protects the owner against a possible default by the contractor of his possible failure to pay materials, men, laborers and sub-contractors ‘The position of surety, therefore, is to answer for a failure of the principal to perform in accordance with the terms and specifications fof the contract. There may he twa bands: a. Performance bond - covers the faithful performance of the contract; and b. Payment bond - cavers the rayment of laborers and material men, 2. Eldelity bonds ~They pay an employer for loss growing out of a dishonest act of his employee. For the purposes of underwriting, they are classified as a. Industrial bond - required by private employers to cover loss through dishonesty of employees; and b. Public official bond ~ required of public officers for the faithful performance of their duties and as a condition of entering upon the duties of their offices. 3. Iudicial bonds ~ required in connection with judicial proceedings. (Ibid) Rules of paymentof premiums in suretyship 1. The premium becomes a debt as soon as the contract of suretyship or bond is perfected and delivered to the obligor (IC Sec. 77): 2. The contract of suretyship or bonding shall not be valid and binding unless and until the premium therefor has been paid; 3. Where the oblige has accepted the bond, it shall be valid and enforceable notwithstanding that the premium has not been paid (Philippine Pryce Assurance Corp. v. CA, GRNo. 107062, February 21, 1994); 4. If the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only a reasonable amount; 5. Ifthe non-acceptance of the bond he due to the fault or negligence of the surety, no service fee, stamps, or taxes imposed shall be collected by the surety; and 6. In the ease of continuing bond (for a term longer than one year or with no fixed expiration date), the obligor shall pay the subsequent annual premium ac it falls due until the contract Is canceled. (IC, Sec. 179; De Leon, 2010) NOTE: By law and by the specific contract involved in this case, the effectivity of the bond required for the obtention of a license to engage in the business of racaiving rice for storage is determined not alone by the payment of premiums but principally by the Administrator of the NFA. A continuing bond, as in this case where, there is no fixed expiration date, may be cancelled only by the obligee, which is the NFA, by the Insurance Commissioner, and by the court. (Country Bankers Insurance Corporation vs. Lagman, GR. No. 165487, July 13, 2011, in Divine, 2014) Q: Fumitechniks Corporation, represented by Ma. Lourdes Apostol, had applied for and was issued a surety bond by First Lepanto-Taisho Insurance Corporation (First Lepanto-Taisho) for the amount of P15,700,000.00. As stated in the attached rider, the bond was in compliance with the requirement for the grant of a credit line with the Chevron Philippines, Inc. (Chevron) to guarantee payment of the cost of fuel products withdrawn within the stipulated ume in accordance with the terms and conditions of agreement between Chevron and Fumitechniks. When Fumitechnike defaulted on Its obligation, Chevron notified First Lepanto- Taisho of Fumitechniks’ unpaid purchases. First Lepanto-Taisho thereafter demanded to Fumitechniks the submission of a copy of the agreement secured by the bond, together with copies of documents such as delivery receipts. Fumitechniks, however, denied that it executed such an agreement with Chevron, thus no copy ofsuch agreement could be submitted, Because of this, Chevron Philippines, Inc. sued First Lepanto-Taisho for the payment of unpaid oil and petroleum purchases. made by. To UNIVERSITY OF SANTO TOMAS Facutty oF Civit LawCOMMERCIAL LAW Fumitechniks, Is the surety liable to the creditor in absence of a written contract with theprincipal? A: NO, Section 176 of the Insurance Code is clear that a surety contract should be read and interpreted together with the contract entered into between the creditor and the pri contract is merely a collateral one, pprinelpal contract or undertaking which It secures. Necessarily, the stipulations in such principal agreement must a least be commanicated or made known to the surety. Having accepted the bond, Chevron as creditor must be held bound by the recital in the surety bond that the terms and conditions of its distributorship contract be n writing or at the very least communicated in writing to the surety. Such non- compliance by the Chevron impacts not on the validity or legality of the surety contract but on the creditor's right tw demand performance. (First Lepante-Taisho Insurance v. Chevron Philippines, Inc, GR No, 177839, January 18,2012) PEN It is insurance on human live: and appertaining thereto or connected therewith. (IC Sec. 181) It includes every contract or pledge for the payment of endowments orannuities. It may be ‘made payable on the death of the person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life. (C,See. 182) reduced NOTE: Every contract or undertaking for the payment of annuities including contracts for the payment of lump sums under retirement program where a life Insurance company manages (or acis as a trustee for such retirement program shall be considered a life insurance contract for purposes ofthe Insurance Code. (IG, Sec. 181) Who may exercise any right under the policy. In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the mother, of any minor, who is an insured or a beneficiary under a contract of life, health, or accident Insurance, may exerelse, In behalf of sald minor, any right under the policy, without necessity of court authority or the giving of a band, where the interest of the minor in the particular act involved does not exceed Five hundred thousand pesos (500,000.00) or in such reasonable amount as may be determined by the Commissioner. Such right may include, but shall not be limited to, obtaining a policy loan, surrendering the policy, receiving the proceeds of the Policy, and giving the ‘minor's consent to any transaction on the minor's, consent to any transaction on the policy. In the absence or in case of the incapacity of the father or mother, the grandparent, the eldest brother or sister at least eighteen (18) years of age, or any relative who has actual custody of the minor Insured or beneficiary, shall act as a guardian without need of a court order or judicial appointment as such guardian, as long as such person is not otherwise disqualified or incapacitated. Payment made by the insurer pursuant to this section shall relieve such insurer of any liability under the contract. (IG Sec. 182) Reasons why a life insurance is also a contract, ofindemnity ‘This is because of the following reasons: 1. The liability in life insurance is absolutely certain; Amount of life insurance generally is without lint 3. The policy isa valued policy; and 4, There is no direct pecuniary lose required. (De Leon, 2010) Kinds of life insurance palicies (G0 LITE) 1. Group Lye ~ Essentially a single insurance contract that provides coverage for many individuals Example: In favor of employees; morigage redemption insurance. Ordinary life, general lfe or old-line policy ~ Insured is required to pay a certain fixed premium annually or at more frequent Imervals throughout his entire life and the beneficiary is entitled to receive payment lunder the policy only after the death of the insured. (De Leon, 2014) 3, Limited paymenc~ Insured pays premium for a limited period. If he dies within the period, his beneficiary is paid; if he outlives the period, he does not get anything, 4, Industrial lie ~ entitles the insured to pay premiums weekly, or where premiums are payable monthly or oftener 5, Term insurance ~ \nsured pays premium only nce, and be is insured for a specified period. IF he dies within the period, his beneficiaries benefit. If he outlives the period, no person benefits from the insurance. 6 Endowment ~ insured pays premium for specified period. If he outlives the period, the face value of the policy is pald to him; if mot, his | Univenstty oF santo Tomas 2021 GoLoEN Notes ihINSURANCE LAW beneficiaries rect & Aquino, 2014) the benefit. (Sundiang Sr. Contract offife annuity It is a contract to pay the insured, or a named person or persons, a sum or sums periodically during life or certain period. (Perez, 2006) ‘Measure of indemnity under a policy of insurance upon life or health GR: The measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. XPN: The interest of a person insured is susceptible of exact pecuniary measurement. (IC Sec. 136) Liability of the insurer in case of suicide ‘The insurer shall be liable in case of suicide by the insured if: (FISH) 1. The suicide is committed after the policy has been in foree for a period of 2 years from the date ofits issue or ofits last reinstatement. 2. The suicide is committed within a shorter period as provided in the policy. 3. The suicide is committed in the state of Insanity regardless of the date of commission. (AC Sec. 183) NOTE: Any stipulation extending che 2-year period isnulland void. Q; Sun Insurance Co. issued to Tan a life policy having this provision: “the company shall not be liable in respect of ‘bodily injury’ consequent upon the insured person who willfully exposes himself to needless peril except In an attempt to save human life". Tan designated his wife, Beverly as beneficiary. One evening, Tan, while playing with his hand gun, suddenly stood in front of his secretary and pointed the gun at her. Startled, she pushed the gun aside and said that it may he loaded. Thus, Tan, to assure her that it was not loaded, pointed it at his temple. The next moment, there was an explosion and Tan slumped to the floor lifeless. Beverly, then claimed the proceeds from Sun Insurance, but the latter Fejected her claim on the ground that the death of Tan was not accidental. Beverly sued the insurer. Will Beverly's claim prosper? (1993, 1994 BAR) A: Beverly can recover the proceeds of the policy from the insurer. The death of the insured was not due to suicide or willful exposure to needless peril which are excepted risks. The insured’s act was purely an act of negligence which ic covered by the policy and for whieh the insured got the insurance for his protection. Infact, he removed the magazine from the gun and when he pointed the gun to his temple he did so because he thought that it was safe for him to do so. He did so to assure his sister that the gun was harmless. There is none in the policy that would relieve the insarer of liability for the death of the insured since the death was an accident. (Sun Insurance v CA, GR. Nos. 79937-38, February 13, 1989) Life Insurance vs. Fire/Marine insurance er ra 1 is a contrat of investment not contract | [482 “mat of ofindemty. AYE eee * | Maybe open or valued May be tansfered or| The tarslerse or assigned to any person | assignee must have an even if he has no insurable interest in insurable interest the thing insured. The the Insurer is not essential to the validity of the assignment of 2 life policy unless expressly oto Consent, inthe absence of waiver by the insurer, is essential in the assignment of the policy. required. Insurable interest in the | Insurable Interest in fe or health of the | the property insured person insured need not exist after the insurance takes effect oF when loss must exist not only when the insurance takes effect but alsa Insurable interest need | MSUAbIE | intrest ncthaveanytegal bass. | must ave 2 Teel Contingency — that contemplated i ertain The comingen eee oy neing mY | insured agsnat may oF neertainy belng “the | mS: time when it will take | ™2¥n9toccur: place The Tbiliy of the insurer to make payment is certain, the only uncertain clement being whea such payment must bemade, Liability 1s uncertain ‘ecause the happening of the peril insured against ls uncertain, ry UNIVERSITY OF SANTO TOMAS Facutty oF Civit LawCOMMERCIAL LAW May he terminated by the insured but cannot be cancelled by the insurer and is usually a long- May be cancelled by either party and is usually for a term of erm contract. never The “loss” tothe beneficiary caused by the | TRE reverse is generally true of the loss of property, Le, it is capable of pecuniary death of the insured can seldom be measured accurately in terms of cash value, estimation: The insured ie The beneficiary is under | ied “to submit no obligation to prove actual Financial loss as a result of the death of the insured in order to collect the insurance. proof of his actual pecuniary loss as a condition precedent to collecting the PSTN Microinsurance is a financial product or service that meets the risk protection needs of the poor where: 1. The amount of contributions, premiums, fees co charges, computed on a daily basis, does not exceed 75% of the current daily minimum wage rate for nonagricultural workers in Metro Manila; and 2. The maximum sum of guaranteed benefits is not more than 1,000 times of the current daily minimum wage rate for nonagricultural workers in Metro Manila (IG Sec. 187) NOTE: No insurance company or mutual benefit association shall engage in the business of mlcroinsurance unless it possesses all the Tequirements 2s may be prescribed by the Commissioner. (IC Sec. 188) Itisa protection coverage that will answer for legal liability for losses and damages for bodily injuries or property damage that may be sustained by another arising from the use and operation of a motor vehicle by its owner. (Compulsory Motor Vehicle Liabiliy Insurance, prepared and distributed by the Insurance Commission) NOTE: It is the only compulsory insurance ‘coverage under the Insurance Code, ‘The Insurance Code makes it unlawful for any land transportation operator or owner of a motor vehicle to operate the same in public highways unless there is an insurance or guaranty to indemnify the death or bodily injury of a third party or passenger arising from the use thereof, (1G Sec. 387) Registration of any vehicle will not be made or renewed without complying with the requiroment. (IC, Sec. 289) Purpose of motor vehicle liability insurance To give immediate financial assistance to victims of ‘motor vehicle accidents and/or their dependents, especially if they are poor regardless of financial capability of motor vehicle owners or operators responsible for the accident sustained. (First Integrated Bonding Insurance Ca, Inc. v. Hernando, GR No, L-5121, july 31, 1991) NOTE: The insurer's lability accrues Immediately upon the occurrence of the injury or event upon which the liability depends, and does not depend ton the recovery of judgment by the injured party against the insured. (Shafer v. judge, RTC, supra) Definitions 1. Motor vehicle Any vehicle propelled by any power other than ‘muscular power using the public highways, but excepting road rollers, trolleys cars, street sweepers, sprinilers, lawn mowers, bulldozers, graders, forklifts, amphibian trucks, and cranes If not used in public highways, vehicles which run only on rails or tracks, and tractors, trailers and traction engines of all kinds used exclusively for agricultural purposes. (Sec. [a] of RA 4136) NOTE: Trailers having any number of wheels, when propelled or intended to be propelled by attachment to a motor vehicle shall be classified as separate mator vehicle with no power rating. (Ibid) 2. Passenger Any fare-paying person being transported and conveyed in and by a motor vehicle for transportation of passengers for compensation, including persons expressly authorized by law or by the vehicle's operator or his agents to ride without fare. (1C, Sec. 386, [b]) 3. Third-party fg | UNIveRstTv oF Santo Tomas 7 2021 GoLoEN NotesINSURANCE LAW ‘Any person other than a passenger as defined in this section (Ibid) and shall also exclude a member of the household, or a member of the family within the second degree of consanguinity or affinity, of 2 motor vehicle owner or land transportation operator, as likewise defined herein, or his employee in respect of death, bodily injury, or damage to property arising out of and in the course of employment. (Sec. 286, [c, Ibid) 4, Owner or Motor vehicle owner (MVO) Actual legal owner of a motor vehicle, whose name such vehicle is duly registered with the Land ‘Transportation Office. Sec. 386, {4}. Ibid) 5, Land transportation operator (LTO) ‘The owner or owners of motor vehicles for transportation of passengers for compensation, including school buses. (Sec. 386, e], Ibid) motor vehicle Hability insurance (Cl ol to operate motor vehicle/s in public highways 1. Motor vehicle owner (MVO) 2. Land transportation operator (L:TO). (Sec. 387, Ibid) ‘motor vehicle lability insurance 1. For MVOs, the coverage must be comprehensive agalust third party lability for death or bodily injuries. If the private motor vehicle is being used to transport passengers for compensation, the coverage shall indude passenger liability. 2, For LTOs, coverage must be comprehensive against hoth passenger and third-party liabilities for death or bodily injuries. (Ins ‘Mema Cir. No. 3-81) ‘Substitutes for_a_compulsory motor vehicle Hability insurance policy. Instead of a CMVLI policy, MVOs or LTOs may cither: 1. Post a surety bond with the Insurance Commissioner who chall be made the obligee for crediter in the bond in such amount or amounts required as limits of indemnity to answer for the same losses sought to be covered by 2 CMLVI policy; or 2. Make a cash deposit with the Insurance Commission in such amount of amounts required as limits of indemnity for the same purpose. (Sec. 390, Ibid) After the cash deposit or surety bond has been proceeded against by the Insurance Commissioner, such cash deposit shall be replenished or such surety bond shall be restored by the MVO or LTO in, the right amount/s required as limit of Habilty within 60 days after impairment or expiry, otherwise, he shall secure a CMLVI required. (Ibid) Duties of _motor_vehide owner or_tana transportation operator_in contemplation of the cancellation ofthe policy Contemplating the cancellation of the policy, the MVO or 170 shall: 1. Give to the insurance or surety company concemed a written notice of his intention to cancel; 2. Secure, before the insurance policy ar surety bond ceases to be effective, another similar policy ar bond to replace that one canceled; 3. Without making any replacement, make a cash deposit in sufficient amount with the Insurance Commissioner and secure a certification from the Insurance Commissioner regarding the deposit made for presentation to and filing with the Land Transportation Office, (CMYLI, supra) (16, Sec. 393-394) vehicle lability insurance over solicitation 1, No government office or agency having the duty of implementing the provisions of the Insurance Code on CMVLI shall act as agent in procuring the insurance policy or surety bond required: 2. No official or employce of such office or agency shall similarly actas such agent; and 3. The commission of an agent procuring the corresponding insurance policy or surety bond shall in no case exceed 109% of the amount of premiums therefore. (IC, Sec. 400) Effects of the cancellation of the policy. GR: Upon receipt ofthe notice of such cancellation, the Land Transportation Office shall order the immediate confiscation of the plates of the motor vehicle concerned. XPNs: No confiscation will be ordered if said Office receives any ofthe following: Tt UNIVERSITY OF SANTO TOMAS Facutty oF Civit LawCOMMERCIAL LAW 1. An evidence or proof of a new and valid CMVLI cover which may be either an insurance policy (or guaranty in cash or surety bond; 2. A signed duplicate of an endorsement or addendum issued by the insurance company concerned showing revival or continuance of the CMVLI cover; or 3. A certification issued by the Insurance Commissioner to the effect that a cash deposit in the amount required as Umit of indemnity hhas been made with him by the MYO or LTO. (CMLL supra, IC Sec 393) “Own damage” coverage 1 simply meant that the insurer had assumed to reimburse the costs for repairing the damage to the insured vehicle, as opposed to damage to third party vehicle/property. The phrase “own damage" does act mean damage to the insured car caused by the assured lself, Instead, of thlrd partes. (Pan Malayan Insurance Corporation v, Court of Appecls, supra) ‘No fault Indemnity clause (1994 BAR) tic a clause where the insurer is required to pay 2 third party injured or killed in an accident without the necessity of proving fault or negligence on the part of the insured. There is a stipulated ‘maximum amount to be recovered. It is a cause that gives the victim (injured person co heirs of the deceased) an option to fle 2 daim for death or injury without the necessity of proving fault or negligence of any kind to guarantee ‘compensation or indemnity to injured persons in ‘motor vehicle accidents Rules under the “no fault indemnity clause” 1. The total indemnity in respect of any one person shall not exceed P15,000 for all motor vehicles. (Ins. Memo. Circ. No. 4-206) 2. Proofofless: a. Police report of accident b. Death certificate and evidence s ‘establish proper payee Medical report and evidence of medical or hospital disbursement. (1C, Sec. 391 [3)) ficient to 3, Claim may be made against one motor vehicle only. (Sec. 391 [¢} Ibid) 4. In case injury of an occupant of a vehicle, the claim shall lie against the insurer ofthe vehicle in which the occupant is riding. mounting or dismounting from. (Ibid) 5. Inany other case (notan occupant), claim shall lie against the insurer ofthe directly offending vehicle. (Ibid) 6. Imall cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained. (Ibid) The claimant is not free to choose from which insurer he will claim the "no fault indemnity," as the law, by using the word "shall, makes it mandatory that the claim be made against the Insurer of the vehicle In which the occupant is riding, mounting or dismounting from. That said vehicle might not be the one that caused the accident is of no moment since the law itself provides that the party paying may recover against, the owner of the vehicle responsible for the accident. (Perla Compania de Seguros, Inc. v. Ancheta, G.R. No. L-49599, August 8, 1958) This no-fault claim does NOT apply to property damage. If the total indemnity claim exceeds P15, (000 arid there is controversy in respect thereto, the finding of fault may be availed of by the insurer only as to the excess. The first PIS, 000 shall be paid without regard to the fault, (CMVL, supra) O: X is a passenger of a jeepney for hire being driven by ¥. The jeepney collided with another passenger jeepney being driven by Z whe was driving recklessly. As a result of the collision, X suffered injuries. Both passenger jeepneys are covered by Comprehensive Motor Vehicular Insurance Coverage. If X wants to claim under the “no fault indemnity clause’, his claim lie against? (2012 BAR) A: Against the Insurer of the passenger jeepney driven by Y because X was his passenger. The Inturance Code states that in the case of an ‘occupant of a vehicle the claim shall lie against the Insurer of the vehicle in which the occupant is riding, mounting or dismounting from. Authorized driver clause It indemnifies the insured owner against less or damage to the car but limits the use of the insured vehicle to: 1. The insured himself or | Univenstty oF santo Tomas 2021 GoLoEN Notes 15INSURANCE LAW ‘The insured need not prove that he has a driver's license at the time of the accident if he vas the driver. (Sundiang Sr. & Aquino, 2014) 2. Any person who drives on his order or with his permission; provided, that the person driving is permitted to drive the motor vehicle in accordance the law, and is not disqualified. (Villacorta. y. Insurance Commissioner, GR No. 54171, October 28, 1980) ‘The main purpose of this clause is to require a person other than the insured, who drives the car on the insured’s order or his permission, to be duly licensed drivers and have no disqualification to drive a motor vehicle. NOTE: An Irish citizen whose 90-day tourist visa hhad expired, cannot recover on hls car Insurance policy, not being authorized to drive a motor vehicle without a Philippine driver's license. (Stokes v, Malayan Insurance Co, Inc. GR. No. L- 34768, February 24, 1984) A driver with an expired Traffic Violation Receipt for expired Temporary Operator's permit is not considered an authorized driver within the meaning of the incurance policy. The Traffic Violation Receipt is coterminous with a confiscated license under the Motor Vehicle Law. (Gutierrez v. Capital Insurance & Surety Co, Inc, GR No. L- 26827, June 29, 1984) ‘Theft clause It is that which includes theft as among the risks insured against. Where a car is unlawfully and wrongfully taken without the knowledge and consent of the owner, such taking constitutes “theft” and itis the theft clause, not the authorized driver cause which should apply. (Perla Compania de Seguros, nc v. CA, supra) ‘The "Theft Clause” of a comprehensive motor vehicle insurance policy has been interpreted by the Court in several cases to cover situations like (1) when one takes the motor vehicle of another without the latter's consent even if the motor vehicle is later returned, there is theft- there being intent to gain as the use of the thing unlawfully taken constitutes gain or (2) when there is taking of a vehice by another person without the permission or authority from the owner thereof (Paramount Insurance vs. Spouses Remondeulaz, GR.No. 173773, November 26, 2012) Thett ‘There is theft if the vehice is taken with intent to gain without the consent of the insured-owner. Thus, there is theft eve 1. The vehicle is returned; 2. The vehicle was stolen by the driver of the inzured (Alpha Insurance and Surety Company v. Castor, GR. 198174, September Z, 2013); 3, The vehicle was taken to the owner of a repair shop for the purpose of repair and in order to attach accessories. (Paramount Insurance v. Spouses Remondeulaz, GR. No. 173773, November 28, 2012) (Sundiang Sr. & Aquino, 2014) Q: On May 26, 2014, Jess insured with Jack Insurance (Jack) his 2014 Toyota Corolla sedan under a comprehensive motor vehicle insurance policy for one year. On July 1, 2014, Jess’ car was unlawfully taken. Hence, he immediately reported the theft to the traffic Management Command (TMC) of the Philippine National Police (PNP), which made Jess accomplish a complaint sheet as part of its procedure, In the complaint sheet, Jess alleged that a certain Ric Silat (Silat) took possession of the subject vehicle to add accessories and improvements thereon. However, Silat failed to return the subject vehicle within the agreed three- day period. As a result, Jess notified Jack of his claim for reimbursement of the value of the lest vehicle under the insurance policy. Jack refused to pay claiming that there is no theft as Jess gave Silat lawful possession of the car. Is Jack correct? (2014 BAR) A: NO. Jack Insurance Is not correct. Ric Silat was ‘merely given physical possession of the car. He did rot have juridical possession over the same. It is also apparent that the taking by Silat of the car of Jess 1s without the consent or authority of the latter. Thus, the act of Silat in depriving less of his, car, soon after the transfer of physical possession of the same to him, constitutes theft under the Insurance policy that is compensable. (Paramount Insurance v. Spouses Remondeulaz, GR. No. 173773, November 8, 2012) Q: On February 21, 2013, Barrack entered into a contract of insurance with Matino Insurance Company (Matino) involving a motor vehicle. ‘The policy obligates Matino to pay Barrack the amount of P600,000 in case of loss or damage to said vehicle during the period covered, Ts UNIVERSITY OF SANTO TOMAS Facutty oF Civit LawCOMMERCIAL LAW which is from February 26,2013 to February 26,2014. On April 16,2013, at about 9:00 am, Barrack Instructed his driver, JJ, to bring the motor vehide to a nearby auto shop for tune-up. However, |} no longer despite and diligent efforts to locate the said vehicle, the efforts proved futile. Resultantly, Barracle promptly hotified Matino of the said toss and demanded payment of the insurance proceeds of 600,000. In a letter dated July 5.2013, Matino denied the daim, reasoning as stated in the Contract that “the company shall not be liable for any malicious damage caused by the insured, any member of his family or by a person In the Insured’s service, Is Matino Correctin denying the claim? (2014 BAR) ‘A: Matino Insurance is not correct in denying the Claim. The loss of the motor vehicle Is not excluded under the insurance policy as the loss was due to theft, not malicious damage. The “malicious damage" clause under the policy is nat applicable bbut rather the “theft” clause. Thus, the provision under the policy that “the company shall not be ble for any malicious damage caused by the insured, any member of his family or by a person in the insured's service" is not applicable. (Alpha Insurance and Surety Co. v. Castor, (.R No. 198174, September 2.2003) Q: When a passenger jeepney, insured but with an authorized driver’s clause and was driven by a driver who only holds a Traffic Violation Report (TVR) because his license was confiscated, met an accident, may the owner of the jeepney claim from the insurance company? (2003 BAR) ‘A: YES. The fact that the driver was merely holding a TVR does not violate the condition that the driver should have a valid and existing driver's license. Besides, such a condition should be disregarded hhecause what is involved is a passenger jeepney, and what is involved here is not own damage ‘insurance but third party liability where the injured party is a third party not privy to the contract of insurance. ‘The Agency-Hired Overseas Hilipina Workers (OFW) Compulsory Insurance or the Compulsory Insurance Coverage for Agency-Hired Migrant Workers is an insurance mechanism made available by the law to insurance protection for the OFWs. provide Each migrant worker deployed by a recruitment or ‘manning agency shall be covered by a compulsory insurance policy which shall be secured at no cost tothe worker. (Sec. 1, Rule XVI of the Omnibus Rules and Regulations Implementing RA 8042 as amended) Policy coverage The insurance policy shall be effective for the duration of the migrant worker's employment contract and shall cover, at the minimum the following: Accidental death; Natural death: Permanent total disablement; Repatriation cost; Subsistence allowance; Money claims; Compassionate visit; Medical evacuation; and Medical repatriation. (Sec. 2, Rule XVI of the Omnibus Rules and Regulations Implementing RA 8042 usamended) Qualifications to_provide far the worker's insurance coverage In order to provide for the migrant worker's compulsory insurance coverage, the insurance company must: 1. Bea reputable private insurance company; Be duly registered with the Insurance Commission; 3. Be in existence and operational for at least five (5) years; 4, Have a net worth of at least five hundred million pesos (Php 500,000,000.00); and 5. Have a current year certificate of authority. Disqualifications to provide for the worker's insurance coverage Insurance companies whe have directors, partners, officers, employees or agents with relatives within the fourth civil degree of consanguinity or affinity, who work ar have interest in any of the licensed recruitment/manning agencies or in any of the government agencies involved in the overseas employment program shall be disqualified from providing this worker's insurance coverage. (Sec 4, fg | UNIveRstTv oF Santo Tomas 2021 GoLoEN Notes 7INSURANCE LAW Rule XVI of the Omnibus Rules and Regulations Implementing RA 8042 asamended) NOTE: It shall be the duty of the said directors, partners, officers, employees or agents to disclose any such interest to the IC and POEA, Optional coverage For migrant workers classified as rehires, name hires or direct hires, they may opt to be covered by this insurance coverage by requesting their foreign employers to pay for the cost of the insurance coverage or they may pay for the premium themselves. To protect the rights of these workers, the DOLE and POEA shall provide them adequate legal assistance, inclusing conciliation and mediation services, whether at home or abroad. (Sec. 14 Rule XVI of the Omnibus Rules and ‘Regulations Implementing RA 8042 as amended) VARIABLE CONTRACTS Variable contract, Itmeans any policy or contract on either a group or on an individual basis issued by an insurance company providing: 1. Benefits or other contractual payments or values thereunder to vary, so as to reflect investment results of ‘a. Any segregated —portfollo of investments; or bb A. designated separate account in which amounts received, in connection with such contracts shall have been placed and accounted for separately and apart from other investments and accounts; and/or 2. Benefits or values incidental thereto payable in fixed or variable amounts, or both. [IC Sec. 238 @} Insurance company on variable contracts GR: No insurance company authorized to transact business in the Philippines shall issue, deliver, sell ‘oF use any variable contract in the Philippines XPN: Unless and until such company shall have satisfied the Commissioner that its financial and general condition and methods of operations, including the issue and sale of variable contracts are not and will not be hazardous to the public or toits policy and contract owners [IC Sec. 228 (a)] NOTE: No foreign insurance company shall be authorized to issue, deliver, oF sell any variable contract in the Philippines, unless it is likewise authorized to do so by the laws ofits domicile. /C, See. 238(a)} 1g the qualifications of a company requesting authority to issue, deliver, sell, or use variable contracts, the Commissioner shall always consider the following: The history, financial and general condition of the company: Provided, That such company, ifa foreign company, must have deposited with the Commissioner for the benefit and security of its variable contract owners in the Philippines, securities satisfactory to the Commissioner of bonds of the Government of the Philippines or its instrumentalites with an actual market value of Two million pesos (Php 2,000,000.00); The character, responsibility and fitness of the officers and directors of the company; and 3. The law and regulation under which the company is autherized in the state of domicile tolssue such contracts. [IC Sec. 238 (C)] INSURABLE INTEREST ‘An insurable interest is that interest which a person is deemed to have in the subject matter insured, where he has a relation or connection with or concern in it, such that the person will derive pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer pecuniary loss or damage from ite destruction, termination, or injury by the happening ofthe event insured against. NOTE: The existence of insurable interest is a ‘matter of public policy and is not susceptible to the principle of estoppel. The existence of an insurable Interest gives a person the legal right to insure the subject matter of the policy of insurance. (Violeta R Lalican vs. The Insular Life Assurance Ca. Ltd, No, 183526 August 25, 2009) Mere hope or expectancy js not insurable Ta UNIVERSITY OF SANTO TOMAS Facutty oF Civit LawCOMMERCIAL LAW ‘A mere contingent or expectant interest in anything, not founded on an actual right to the thing, nor upon any valid contract for it, Is not insurable. (IC, See. 16) When does a person have insurable interest? GR: A person is deemed to have an insurable interest in the subject matter insured when a person has a relation or connection with or concern in the subject matter, such that he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary less from its destruction or injury by the happening of the event insured against. However, in some cases, expectation of benefit from the continued life of that person need not necessarily be of pecuniary nature to have an insurable interest in the life of a person. (De Leon, 2010) Q: Carlo and Bianca met in the La Boracay festivities, Immediately, they fell in love with each other and got married soon after. They have been cohabiting blissfully as husband and wife, but they did not have any offspring. As the years passed by, Carlo decided to take out insurance on Bianca's life for P1 million with him as sole beneficiary, given that he did not have a steady source of income and he always depended on Bianca both emotionally and financially. During the term of the insurance, Bianca died of what appeared to be a mysterious cause so that which led Carlo to immediately requested for an autopsy to be conducted. It was established that Bianca was transgender all along ~ a fact unknown to Carlo, Can Carlo claim the Insurance benefit? (2014 BAR) A: YES. Carlo can claim the insurance benefit. He had insurable interest on Bianca's life under Section 10(b) ofthe Insurance Code as the problem States that Carlo “slways depended on Bianca both emotionally and financially." The insurable interest upon the life of another under the aforesaid provision need not be based on kinship for legal obligation to give support. The fact that their marriage may be void is irrelevant. Insurable interest in life insurance vs GR: Every person has ‘an unlimited insurable imterest in his own life. XPN: Where life Insurance is taken out by a creditor on the life of the debtor, insurable interest is limited to the amount of debt. Limited to the actual value of the property. When must insurable interest exist Must exist at the time the policy takes effect and need not exist thereafter. (IC See. 19) GR: Must exist twice, Le, both at the time the policy takes effect and the time of loss, but need not exist in the period in between. (IC, Sec. 19) XP: IC, Secs. 21-24; 25, 87. 1. A change in interest in a thing insured, after the occurrence of an injury which results ina loss, does not affect the right of the insured to indemnity for the loss. (iG See. 24) 2. A change of interest in one or more several distinct things, separately insured by one policy, does not avoid the insurance ae to the others (IG Sec 22) 3. A change on interest, by wil or succession, on the death of the insured, does not avoid an insurance; and his, interest in the insurance passes to the person taking his interest in the thing insured. (1G Sec 23) 4, A transfer of interest by one of several partners, joint owners, who are jointly insured, to the others, does not fg | UNIveRstTv oF Santo Tomas 2021 GoLoEN Notes Fc}INSURANCE LAW avoid an insurance even though it has been agreed thatthe insurance shall cease lapon an alienation of the thing Insured. (IC Sec. 24) 5. Every stipulation in a policy of insurance for the payment of less whether the person sured has oF has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, 's vold. (1G, Sec. 25) ‘As to the beneficiary's interest GR: The beneficiary need not have insurable interest over the life of The beneficiary must have insurable Interest over the thing insured. the insured if the insured himself secured | NOTE: Insurable the policy. interest isan indispensable XPN: However, if the | requirement. fe insurance was obtained by _ the beneficiary, the latter must have insurable interest over the life of the insured. Property insurance For both life and property insurance, the insurable intorest is required to exist at the time of perfection of the policy. For property tusurance, the insurable interest must also exist at the time of loss, insurable interest need to exist only at the time of perfection and not thereafter. (1G, Sec. 19) however, in case of life insurance, the Change of beneficiary GR: The insured shall have the right to change the beneficiary he designated in the policy. XPN: If the insured expressly waived this right in the said policy. Notwithstanding the foregoing, in the event the insured does not change the beneficiary during his lifetime, the designation shall be deemed irrevocable. (IC, Sec. 11) NOTE: Under Sec. 64 of the Family Code, the imnacent spouse is allowed to revoke the designation of the other spouse as irrevocable beneficiary after legal separation. 1. The insured cannot assign the policy if the designation of the beneficiary is irrevocable. The irrevocadle beneficiary has a vested right. (2005 BAR: Sundiang Sr & Aquino, 2014) 2. The beneficiary designated in a life insurance contract cannot be changed without the consent of the beneficiary. (Gercio v. Sun Life Assurance of Canada, 48 Phil. $3, 28 September 1925) 3. A new beneficlary cannot be added w the irrevocably designated beneficiary for this would in effect reduce the latter's vested rights. (Gov. Redfera, 72 Phil. 71, 25 April 1941) 4, The irrevocably designated beneficiary may obtain a policy loan to the extent stated in the schedule of value: attached to the policy. (Gercio v, Sun Life Assurance of Canada, 48 Phi. 53, 28 September 1925) 5, The insured cannot take the cash surrender value assign or even borrow on said policy without the consent of the beneficiary. TIA ‘Two general classes of life policies 1. Insurance upon one's life - are those taken out by the insured upon his own life for the benefit of: (HET) a 2 Himself; b. His estate, in case it matures only at his death; or © Third person who may be designated 2s beneficiary. The question of insurable interest is immaterial where the policy is procured by the person whose life is Insured. A person who Insures his own life can designate any person as his beneficiary, whether or not the beneficiary has an insurable interest in the life of the insured subject to the limits under Article 2012 in relation to Article 739 of the New Civil Code. (De Leon, 2010) 20 UNIVERSITY OF SANTO TOMAS Facutty oF Civit Law