RFBT

Regulatory Framework for Business Transactions – :)(:, CPA, CTT, CMA
|All rights reserved, 2023| Page i
Table of Contents
Title I: Law on Obligations
Obligations in General ............................................................................................... 1
Basis of Obligations ................................................................................................. 1
Elements of Obligations ............................................................................................ 1
Sources of Obligations .............................................................................................. 1
Pure and Conditional Obligations & Obligations with a Period ............................................... 2
Kinds of Conditions: ................................................................................................ 2
Kinds of Periods ..................................................................................................... 2
Conjunctive, Alternative and Facultative Obligations ......................................................... 3
Solidary and Joint Obligations ..................................................................................... 3
Divisible and Indivisible Obligations .............................................................................. 4
Obligations with a Penal Clause ................................................................................... 5
Other Obligations ................................................................................................... 5
Nature and Effect of Obligations ................................................................................... 5
Remedies for Breach of Obligations .............................................................................. 6
Specific Circumstances Affecting Obligations ................................................................... 6
Payment or Performance ............................................................................................ 7
Dation in Payment .................................................................................................. 8
Application of Payments ........................................................................................... 8
Cession in Payment ................................................................................................. 8
Tender of Payment and Consignation ............................................................................ 9
Extinguishment of Obligations – Other Modes ................................................................... 9
Loss of the Specific Thing due ..................................................................................... 9
Condonation or Remission of Debts ............................................................................... 9
Confusion or Merger of Rights .................................................................................... 10
Compensation or Set-off .......................................................................................... 10
Novation ............................................................................................................. 10
Other Causes of Extinguishment: ................................................................................ 11
Title II: Law on Contracts
Contracts in General ............................................................................................... 12
Essential Elements of a Contract ................................................................................ 12
Other Essential Elements ......................................................................................... 14
Characteristics and Kinds of Contracts ......................................................................... 15
Consensuality ....................................................................................................... 15
Autonomy ........................................................................................................... 15
Mutuality ............................................................................................................ 15
Obligatory Force of Contracts .................................................................................... 15
Privity or Relativity ................................................................................................ 15
Classifications of Contracts ....................................................................................... 16
Interpretation of Contracts ....................................................................................... 16
Reformation of Instruments ...................................................................................... 16
Rescissible Contracts .............................................................................................. 16
Voidable Contracts ................................................................................................. 17
Unenforceable Contracts .......................................................................................... 17
Void Contracts ...................................................................................................... 18
Title III: Laws on Sales
The Sales Contract .................................................................................................. 19
Sales Contracts vs Other Similar Contracts/Transactions .................................................... 19
Kinds of Sale as to the Transfer of Ownership ................................................................. 19
Essential Elements ................................................................................................. 19
Perfection of Sales Contracts .................................................................................... 20
Installment Sales and the Condominium Act .................................................................. 21
Recto Law (Art. 1484 NCC) ....................................................................................... 21
Maceda Law (R.A. 6552)........................................................................................... 22
|All rights reserved, 2023| Page ii
Condominium Act (PD 957) ....................................................................................... 23

Obligations and Rights of the Vendor ........................................................................... 23
Consideration of Loss and Impairment .......................................................................... 23
Transferring Ownership over the Thing ......................................................................... 23
Delivery .............................................................................................................. 24
The Rights of the Unpaid Seller .................................................................................. 24
Possessory Lien ..................................................................................................... 24
Stoppage in Transitu ............................................................................................... 25
Right of Resale ..................................................................................................... 25
Recission............................................................................................................. 25
Double Sales ........................................................................................................ 25
Conditions and Warranties ........................................................................................ 26
Warranties under the Consumer Act RA 7394 .................................................................. 26
Warranty Against Eviction ........................................................................................ 26
Warranty against Hidden Defects ................................................................................ 27
Redhibitory Defects in Animals................................................................................... 27
Warranties against Non-apparent Encumbrances .............................................................. 27
Obligations of the Vendee......................................................................................... 28
To Pay the Price .................................................................................................... 28
To accept the Delivery ............................................................................................ 28
To notify the seller in their Breach of Warranty............................................................... 28
To notify the seller in case of Refusal .......................................................................... 28
Conventional Redemption ........................................................................................ 29
Legal Redemption .................................................................................................. 29
Assignment of Credits .............................................................................................. 30
Title IV: Laws on Credit Transactions
Common Requirements for Mortgages and Pledges .......................................................... 31
Pledges................................................................................................................ 31
Deposit of the Thing Pledged with a 3rd Person ................................................................ 31
Obligations of the Pledgor ........................................................................................ 32
Requirements for the Extinguishment of a Pledge ............................................................ 32
Foreclosure Sale or Auction Sale ................................................................................. 32
Other Rules on Pledge ............................................................................................. 32
Mortgages............................................................................................................. 33
Real Estate Mortgages ............................................................................................. 33
Foreclosure Sale .................................................................................................... 33
Redemption ......................................................................................................... 33
Chattel Mortgage ................................................................................................... 33
Antichresis ........................................................................................................... 34
Comparison of Credit Transactions: ............................................................................. 34
Title V: Laws on Negotiable Instruments
Negotiable Instruments in General .............................................................................. 35
Requisites of Negotiability (Sec. 1 NIL) ......................................................................... 36
Section 1 of the NIL and Negotiation ............................................................................ 36
In Writing and Signed by the Maker or Drawer ................................................................. 36
Unconditional Promise or Order to Pay a Sum, certain in money ........................................... 37
It must be Payable on Demand, or on a Fixed, Determinable Future Time ................................ 37
Payable to Order or Bearer ....................................................................................... 37
The Drawee must be Named with Reasonable Certainty ..................................................... 37
Omissions allowed on the Face of Instruments ................................................................ 37
Negotiation.......................................................................................................... 37
Assignment vs Negotiation ........................................................................................ 38
Negotiation of a Bearer Instrument ............................................................................. 38
Negotiation of an Order Instrument ............................................................................. 38
Defective Instruments ............................................................................................. 39
|All rights reserved, 2023| Page iii
Holders in Due Course ............................................................................................. 40

Rights of a Holder in due Course ................................................................................. 40
Liabilities of the Parties ........................................................................................... 41
Defenses .............................................................................................................. 41
Real Defenses ....................................................................................................... 42
Personal Defenses .................................................................................................. 42
Enforcement of Liabilities......................................................................................... 42
Primary Liabilities .................................................................................................. 42
Secondary Liabilities ............................................................................................... 42
Dishonor ............................................................................................................. 43
Forgery and Want of Authority ................................................................................... 43
Discharge ............................................................................................................. 44
Discharge of Persons Secondarily Liable ........................................................................ 44
Checks and Related Crimes ....................................................................................... 44
Kinds of Checks ..................................................................................................... 45
Collecting from a Check ........................................................................................... 45
Bouncing Checks Law (B.P. 22)................................................................................... 46
Estafa vs Anti-bouncing Checks .................................................................................. 46
Title VI: Insurance Law
Insurance Contracts in General .................................................................................. 47
Parties to the Contract ............................................................................................ 47
Objects of Insurance Contracts .................................................................................. 48
Characteristics of Insurance Contracts .......................................................................... 48
Insurable Interest in Persons ..................................................................................... 48
Insurable Interest in Properties .................................................................................. 49
Change of Interest of Insurance .................................................................................. 49
Representation ..................................................................................................... 50
Concealment and Recission ....................................................................................... 50
The Insurance Policy ............................................................................................... 51
Warranties .......................................................................................................... 53
Perfection of Insurance Contracts ............................................................................... 54
Liability of the Insurer upon Loss ................................................................................ 55
Reinsurance ......................................................................................................... 56
Double Insurance ................................................................................................... 56
Variable Contracts .................................................................................................. 57
Claims of Settlement and Subrogation .......................................................................... 59
Classes of Insurance ................................................................................................ 60
Life Insurance ....................................................................................................... 61
Non-life Insurance Products ...................................................................................... 62
Microinsurance ..................................................................................................... 63
Title VII: Law on Partnerships
Partnerships in General ........................................................................................... 64
Formal Requirements of Partnership Formation ............................................................... 64
Kinds of Partnerships .............................................................................................. 65
Kinds of Partners ................................................................................................... 65
Obligations of a Partner ........................................................................................... 65
Obligations to Third Parties ....................................................................................... 66
Conveyance ......................................................................................................... 67
Rights of the Partners .............................................................................................. 67
Management of the Partnership ................................................................................. 68
Limited Partnerships ............................................................................................... 68
Rights of the Limited Partner .................................................................................... 69
Dissolution and Winding-up of Limited Partnerships .......................................................... 69
Dissolution and Winding-up of Partnerships ................................................................... 69
Effects of Dissolution .............................................................................................. 70
|All rights reserved, 2023| Page iv
Liquidation and Winding-up ...................................................................................... 70

Title VIII: Law on Corporations
General Principles on Corporations ............................................................................. 71
Attributes ........................................................................................................... 71
Classes of Corporations............................................................................................ 72
Corporate Term ..................................................................................................... 74
Organization and Incorporation .................................................................................. 75
Articles of Incorporation .......................................................................................... 75
Grounds of Disapproval by the SEC .............................................................................. 76
Amendment of the Articles of Incorporation ................................................................... 76
Nationality Tests .................................................................................................... 76
The Board of Directors ............................................................................................. 77
Election of the Board Members .................................................................................. 77
Vacancies ............................................................................................................ 78
Director’s Threefold Duties ....................................................................................... 78
Committees ......................................................................................................... 79
Officers .............................................................................................................. 79
Shares of Stock ...................................................................................................... 79
Legal Capital and the Trust Fund Doctrine ..................................................................... 80
Subscribed Shares .................................................................................................. 80
Voting Shares ....................................................................................................... 81
Rights of a Stockholder ............................................................................................ 82
By-laws and Meetings .............................................................................................. 84
Other Amendments to Stockholders’ Meetings ................................................................ 84
Stock and Transfer Books ......................................................................................... 85
Reorganization, Merger, and Consolidation.................................................................... 85
Requirements and Procedure: .................................................................................... 85
Effects of Mergers and Consolidations: ......................................................................... 85
Other Kinds of Corporations ...................................................................................... 85
Non-stock Corporations ........................................................................................... 85
Close Corporations ................................................................................................. 86
One-Person Corporations .......................................................................................... 86
Foreign Corporations .............................................................................................. 87
Dissolution and Liquidation of Corporations ................................................................... 87
Expiration of Corporate Term .................................................................................... 87
Voluntary Dissolution .............................................................................................. 87
Revocation of Franchise ........................................................................................... 88
Revocation of Franchise with Escheat of Corporate Assets .................................................. 88
Liquidation .......................................................................................................... 88
Securities Regulation Code ....................................................................................... 88
Registration and Reportorial Requirements: ................................................................... 89
Securities Exempt from Registration ............................................................................ 89
Transactions Exempt from Registration ......................................................................... 89
Market Manipulations under the SRC ............................................................................ 90
Insider Trading ..................................................................................................... 90
Mandatory Tender Offer Rule .................................................................................... 90
Short-swing Profit Rule ............................................................................................ 91
Proxy Solicitation .................................................................................................. 91
The Revised Code of Corporate Governance ................................................................... 91
Title IX: Law on Cooperatives
Cooperatives in General ........................................................................................... 93
Organization and Registration .................................................................................... 93
Primary Cooperatives .............................................................................................. 93
Secondary and Tertiary Cooperatives ........................................................................... 94
Kinds of Cooperatives ............................................................................................. 95
|All rights reserved, 2023| Page v
Membership .......................................................................................................... 95
Termination of Membership ...................................................................................... 96
General Assembly ................................................................................................... 96
Meetings ............................................................................................................. 96
Summary of Voting Requirements ............................................................................... 97
The Board, Officers, and Committees .......................................................................... 98
Board Meeting and Quorum Requirements ..................................................................... 98
Officers .............................................................................................................. 98
Committees ......................................................................................................... 98
Compensation....................................................................................................... 98
Disloyalty of the Director ......................................................................................... 99
Records, Reports, and Auditing .................................................................................. 99
Annual Audit ........................................................................................................ 99
Members’ Rights to Examine Records ........................................................................... 99
Tax Exemptions and Privileges .................................................................................. 100
Capital Property and Funds ...................................................................................... 100
Net Surplus and Distribution ..................................................................................... 101
Allocation of the Net Surplus ................................................................................... 101
Dissolution and Liquidation of Cooperatives ................................................................. 102
Liquidation ........................................................................................................ 103
Appendix: Computation of Net Surplus ........................................................................ 103
Corporations vs. Cooperatives .................................................................................. 103
Title X: Financial Rehabilitation and Insolvency Act
Financial Rehabilitation Proceedings .......................................................................... 105
Court-Supervised Rehabilitation ............................................................................... 105
Pre-negotiated Rehabilitation .................................................................................. 106
Out-of-court or Informal Restructuring Agreements or Rehabilitation Plans ............................ 106
Liquidation Proceedings .......................................................................................... 109
Liquidation of Insolvent Juridical Debtors .................................................................... 109
Voluntary Liquidation of Juridical Debtors ................................................................... 109
Liquidation Order ................................................................................................ 109
Involuntary Liquidation of Juridical Debtors ................................................................. 109
Conversion by the Court from Rehabilitation into Liquidation Proceedings ............................. 110
Powers of the SEC ................................................................................................ 110
Insolvency of Individual Debtors ............................................................................... 110
Voluntary Liquidation of Natural Debtors..................................................................... 112
Involuntary Liquidation of Natural Debtors ................................................................... 112
Common Provisions .............................................................................................. 114
Rights of Secured Creditors ..................................................................................... 115
The Liquidator .................................................................................................... 116
Title XI: Banking Laws
Bank Secrecy Laws ................................................................................................ 118
Secrecy in Peso Deposits ........................................................................................ 118
Secrecy in Foreign Currency Deposits ......................................................................... 118
Garnishment ...................................................................................................... 118
Penalties for the Violation of the Bank Secrecy Law........................................................ 119
Unclaimed Balances Act .......................................................................................... 119
Philippine Deposit Insurance Commission Act ................................................................ 119
Accounts Not Covered by Deposit Insurance ................................................................. 120
Determination of the Amount Due ............................................................................. 120
Procedure for the PDIC .......................................................................................... 120
Truth in Lending Act .............................................................................................. 121
Scope and Coverage ............................................................................................. 121
Effect on Obligation in Case of Violations .................................................................... 122
Anti-Money Laundering Act ...................................................................................... 122
|All rights reserved, 2023| Page vi
Covered Entities .................................................................................................. 123

Obligations of Covered Entities ................................................................................ 123
The Anti-Money Laundering Council ........................................................................... 125
Title XII: Intellectual Property Laws
Law on Trademarks ............................................................................................... 126
Non-registrable Marks ........................................................................................... 126
Claims over Marks ................................................................................................ 126
Rights Conferred ................................................................................................. 127
Trademark Infringement ........................................................................................ 127
Law on Copyrights ................................................................................................. 128
Original Works .................................................................................................... 128
Rights of the Author ............................................................................................. 129
Terms of Protections ............................................................................................ 132
Copyright Infringement .......................................................................................... 132
Law on Patents ..................................................................................................... 133
Application of Patents ........................................................................................... 133
Right to a Patent ................................................................................................. 134
Patent Rights ..................................................................................................... 135
Patent Infringement ............................................................................................. 135
Title XIII: Laws of Modern Commerce
The Data Privacy Act .............................................................................................. 137
Scope of the Data Privacy Act .................................................................................. 137
The National Privacy Commission .............................................................................. 137
Processing of Personal Information ............................................................................ 138
Rights of the Data Subject ...................................................................................... 139
Security of Personal Information............................................................................... 139
Penalties and Crimes ............................................................................................ 140
E-Commerce Law .................................................................................................. 141
Legal Force of Electronic Documents ......................................................................... 141
Communication of E-data Messages and Documents ........................................................ 143
Electronic Commerce in Carriage of Goods .................................................................. 144
Electronic Transactions with the Government ............................................................... 144
Obligations under the E-Commerce Act ....................................................................... 144
Ease of Doing Business Act ....................................................................................... 145
The Anti-Red Tape Authority ................................................................................... 146
Citizens’ Charter ................................................................................................. 146
Zero-Contact Policy .............................................................................................. 146
Rules on Accessing Government Services ..................................................................... 147
Automatic Approval or Extension of License, Clearance, Permit, Certification or Authorization .... 148
Other Matters ..................................................................................................... 148
Procedures in LGUs .............................................................................................. 149
Philippine Competition Act ...................................................................................... 150
Coverage .......................................................................................................... 150
Anti-Competitive Agreements .................................................................................. 150
Abuse of Dominant Position .................................................................................... 150
Anti-Competitive Mergers and Acquisitions .................................................................. 151
Remedies .......................................................................................................... 153
Title XIV: Government Procurement Law
Government Procurement Law R.A. 9184 .................................................................... 154
Important Terms to Remember ................................................................................ 154
The Bidding Process.............................................................................................. 155
Pre-procurement Conference .................................................................................. 155
Advertisement or Posting the Invitation to Bid .............................................................. 155
Pre-Bid Conference .............................................................................................. 155
Submission and Receipt of Bids ................................................................................ 155
|All rights reserved, 2023| Page vii
Opening and Evaluation of the 1st Envelope .................................................................. 156

Opening of the Second Envelope ............................................................................... 158
Detailed Evaluation of Bids ..................................................................................... 158
Post-Qualification ................................................................................................ 158
Award of the Contract ........................................................................................... 159
Bidding for Consulting Services ................................................................................ 159
Bidding Process for Consultancy ............................................................................... 160
Alternative Modes of Procurement ............................................................................ 161
Title XV: Consumer Protection Act
Consumer Protection Act R.A. 7394 ........................................................................... 162
Product Quality and Safety ..................................................................................... 162
Deceptive Sales Acts ............................................................................................. 163
Unfair or Unconscionable Sales Acts or Practices ........................................................... 164
Other Prohibited Sales Acts and Practices .................................................................... 164
General Provisions on Weights and Measures ................................................................ 164
Product Services and Warranties............................................................................... 165
On Labelling and Fair Packaging ............................................................................... 166
General Consumer Rights ....................................................................................... 168
On the Price Tag ................................................................................................. 168
Lemon Laws ....................................................................................................... 168
Title XVI: Labor and Social Legislation
Labor Laws in General ............................................................................................ 169
Statutory Construction of Labor Laws ......................................................................... 169
Limitation of Labor Laws ........................................................................................ 170
The Contract of Labor ............................................................................................ 170
Pre-employment ................................................................................................... 172
Definition of Terms: ............................................................................................. 172
On Overseas Employment ....................................................................................... 172
Violations on Deployment and Placements ................................................................... 173
Other Provisions .................................................................................................. 173
Training and Employment of Special Workers................................................................ 173
Conditions of Employment ....................................................................................... 174
Test of Existence of Employment Contract ................................................................... 174
General Conditions of Employment ............................................................................ 174
Salaries and Wages ................................................................................................ 175
Payment of Wages ............................................................................................... 175
The Minimum Wage .............................................................................................. 176
Prohibitions on Wages ........................................................................................... 177
Employment of Women.......................................................................................... 177
Employment of Minors ........................................................................................... 179
Employment of House-helpers and Houseworkers ........................................................... 179
Computation of Salaries and Wages ........................................................................... 180
List of Holidays ................................................................................................... 181
Special Working Days ............................................................................................ 182
Social Security Laws ............................................................................................... 182
Definition of Terms .............................................................................................. 182
Scope and Applicability ......................................................................................... 184
Social Security under the Labor Code: ........................................................................ 185
Benefits .............................................................................................................. 186
Monthly Pension .................................................................................................. 186
Dependents' Pension ............................................................................................. 186
Death Benefits .................................................................................................... 186
Temporary Total Disability ..................................................................................... 187
Permanent Disability Benefits .................................................................................. 187
Compensability of Injury ........................................................................................ 188
|All rights reserved, 2023| Page viii
Funeral Benefit ................................................................................................... 190

Sickness Benefit .................................................................................................. 190
Maternity Leave Benefit. ........................................................................................ 191
Medical Benefits under the Labor Code ....................................................................... 191
Non-transferability of Benefits ................................................................................. 192
Exemption from Tax, Legal Process, and Lien. .............................................................. 192
Contributions and Remittances ................................................................................. 193
Remittances ....................................................................................................... 193
Deposit and Disbursements ..................................................................................... 194
Records, Reports, and the Penal Clause ....................................................................... 195
Penalties .......................................................................................................... 196
Records and Reports under the Labor Code: ................................................................. 197
|All rights reserved, 2023| Page 1
Title I: Law on Obligations

Obligations in General
Obligations are juridical necessities to give, to do and not to do
Obligation to Give Obligation to do Obligation to not do
Deliver a thing to another Perform an act for another To abstain an act for another
Basis of Obligations
• Natural Obligations (Moral Obligations) – unenforceable obligations under court of law
o If ever a natural obligation arises and its delivery or performance consummated, the
delivery or performance can longer be recovered
• Civil Obligations – Enforceable Obligations under court of law
Elements of Obligations
Active Subject – Creditor/Obligee Passive Subject – Debtor/Obligor
Prestation – the act to give/do/not do Vinculum Juris – Source of Obligation
**All rights arising from obligations are generally transmissible, except if the rights are by nature, not
transmissible; or if current laws and contractual stipulations prevent the transmission; these things
include those that are not in the commerce of man (political rights, rights of office, etc.)
Sources of Obligations
Laws – All obligations from the law must be clear and express. If the law mentions no obligation, then
no obligation can be inferred from it.
Contracts – Contracts are understood to have the force of law between the parties
Delicts – These are crimes; and give rise to two obligations: Criminal Obligations, and Civil Obligations
• Civil and Criminal obligations may be separated or combined in a case
• In case of acquittal of a crime, innocence will avoid both the criminal and civil obligation; while
reasonable doubt will avoid the criminal obligation, but not the civil obligation
• Civil Obligation is composed of: Restitution, Reparation, Indemnification from further damage
• Double Recovery – In case an obligation arises from multiple sources, there can be no recovery for
each instance. Only one source may claim the recovery
• Crime requires proof of evidence beyond reasonable doubt to acquit or to convict.
• Civil Liability requires merely a preponderance of evidence to prove an injury.
Quasi-delicts – Evils caused by negligence
• Requisites: Act or Omission; Negligence is present; Damage is caused; a Proximate Cause
• Vicarious Liability – A person becomes liable for the act of another (i.e., Fathers/Guardians are
vicariously liable for the acts of their children) In this case, if the person demonstrates due diligence
in ensuring the prevention of the injury, then the person is excused from liability.
**Subsidiary Liability – Employers are subsidiarily liable for the felonies of their employees. In a
case where the employee commits a crime, the employers may be held liable under breach of contract
(that is, for example, if a jeepney driver collides with a pedestrian, and causes injury to both the
pedestrian and his passengers:
• The employer may be held liable for breach of contract with the passengers through subsidiary
liability, in this case, the employer cannot use the defense of due diligence.
• The employee may still be held liable for delict or quasi-delict directly on both the action by the
passengers and the pedestrian; the employer is vicariously liable for the acts of his employee,
here, the defense of due diligence is available.
Quasi-contracts – Under the principles of equity, any form of unjust enrichment must be compensated;
if there is any tacit approval, there is no quasi contract; usually, there is only agency.
• Negotiorum Gestio – Management upon Absence
• Solutio Indebiti – Returning anything that is not owned
Pure and Conditional Obligations & Obligations with a Period

Pure Obligations – Demandable at once
Conditional Obligations – Demandable only upon the happening of a certain condition
• Effect of Fulfillment of Conditions – Upon the fulfillment of a condition, the obligation retroacts to
the day of the constitution of the obligation.
o Reciprocal Obligations – Retroaction will render fruits as mutually compensated
o Unilateral Obligations – The debtor will be entitled to the fruits unless a different intent
is apparent
o Obligation that Prescribes – The obligation will not retroact, and will instead count from
when the condition is fulfilled
Suspensive Obligation with a deadline – some event will certainly happen; the lapse thereof will
extinguish the obligation
Effect of Loss, Deterioration, or Improvement
Fault of Debtor Obligation Extinguished, no damages
Loss
Debtor no fault Obligation Extinguished, Debtor pays for damages
Creditor may demand either specific performance and damages or
Fault of Debtor
Deterioration recission and damages
Debtor no fault Impairment or Loss borne by Creditor
by nature/time Creditor’s benefit
Improvement Debtor is only a usufructuary of the improvement; debtor may remove
Cost of Debtor
improvement if it will not cause damage
Effect of the Happening of a Resolutory Condition – When the conditions resolve upon the happening
of an event, the parties must return to each other that which they have received
Kinds of Conditions:
As to Will of Performance
• Potestative – The will is left to one of the parties; if the will is upon the debtor the obligation is
void, if the will is upon the creditor or a third person, the will is valid
o If the either party prevents fulfillment, the obligation is deemed fulfilled
• Casual – Performance will depend on chance
• Mixed – Both Potestative and Casual
**Obligation to not do impossible acts is a valid condition;
As to partial performance
• Divisible – Can be performed in parts • Indivisible – Cannot be performed in parts
**A void partial condition will not avoid the other condition. In that case, the impossible divisible
performance will simply be ignored, and the rest complied with.
As to the number of composite obligations
Conjunctive Condition – All must be met Alternative Condition – Only one must be met
As to nature
Positive Condition – to do or give Negative Condition – to avoid
As to how it is made known
Express – The condition is explicit and clear Implied – the condition can be contextualized
As to fulfillment
Possible Impossible Condition
Kinds of Periods
Obligations with a Period – Unlike a condition, a period is certain to arrive, but it is not known when.
The obligation arises when that period arrives
• Definite Period – Specific dates are known • Judicial – those fixed by courts
• Indefinite Period – arrival of time certain • Ex Die – Suspensive Period
• Legal – those fixed by law • In Diem – Resolutory Period
• Voluntary – Agreed-upon by the parties
**The period is deemed to be affixed for the benefit of both the creditor and the debtor, hence the
debtor cannot be made to pay before the period arrives, and that the creditor cannot be made to accept
any payment before the period. Except if the tenor of the obligation appears to set the period for the
benefit of one of the parties
**If the obligation is one where the condition is when the debtor’s means permit him to do so, then the
courts shall fix the period. In such a case, the claim or action by the creditor must be raised to the
courts to decide what constitutes as a period for both of the debtor and creditor’s benefit.
A debtor loses the benefit of the period when:
• The obligation is contracted, the debtor becomes insolvent, having no security for the transaction
• The obligation is contracted, the debtor fails to furnish the securities he promises
• The debtor, by his own acts, impairs the securities he promises; or if these securities disappear due
to a fortuitous event. Unless he gives another security, equally satisfactory
• The debtor violates the contract
• The debtor attempts to abscond.
Conjunctive, Alternative and Facultative Obligations
Conjunctive obligations are denoted with the conjunction ‘and’, hence, all obligations must be
performed to extinguish the entirety. Alternative obligations are denoted with the conjunction ‘or’,
hence at least one obligation must be performed to extinguish the entirety.
Alternative Obligations
1. Where several objects are due, the fulfillment of one is enough
2. The right of choice belongs to the debtor, except
a. It is expressly stipulated to belong to the creditor
b. It is expressly stipulated to belong to a 3rd party
3. The right of choice is limited to possible and legal prestations
4. The right of choice is communicated in order to take effect (this is called concentration)
5. The choice cannot be partially choice a, and partially choice b, and so on
6. Where all other choices but one is practicable, the effect is the debtor loses the right of choice
Effect of Loss of Alternative Prestations
All were Fortuitous Event Extinguished
lost Fault of Debtor Value of the Last Object + Damages
Fortuitous Event/Fault
Right of Choice belongs Deliver the Remaining
of Debtor
to Debtor Some
Fault of Creditor Deliver the Remaining
were Lost
– but the loss of choice Recission + Damages
is lost Specific Performance + Damages
All were Fortuitous Event Extinguished
lost Fault of Debtor Value of Any + Damages
Right of Choice belongs
Fortuitous Event Demand the remaining available
to Creditor Some
Price of Lost Object + Damages OR
were Lost Fault of Debtor
Demand the remaining + Damages
Facultative Obligations – Only one prestation has been agreed upon, but the debtor may render another
to substitute what has been agreed upon. The Debtor always possess the right to make the substitution.
He cannot be compelled to make it.
Before substitution If Principal is lost Extinguished
If Substitute is lost Not Extinguished
After Substitution Principal is lost Not Extinguished
Substitute is lost Extinguished
Solidary and Joint Obligations
Solidary Obligations – one in which each debtor is liable for the entire obligation or each creditor is
entitled to the whole obligation (Generally the case, if silent)
• An obligation may be solidary when the contract so mentions, and when the law or by nature of
contract, requires it to be solidary (in solidum, jointly and severally)
• Some examples include: co-heirs upon the loss or damage of the devise, the principal and his agent
when the agent acts as though he had full powers, co-bailees to the same loan, persons liable under
quasi-delict are deemed solidarily liable
• Applies to Disjunctive Obligations (Debtor pays alternatively to more than one creditor)
Enforcement of Solidary Obligations – proceed to one of the co-parties; any demand expressed will
require one of the co-debtors to proceed directly to the creditor calling the demand.
• Extinguishing obligations made by one of the creditors will extinguish the whole obligation
o The creditor in so doing will be liable to his co-creditors for their share
o Remission of debt of one of the debtors will not release him from his duty to his co-debtors who
demand payment from him over their shares in the obligation
o Remission of the whole, solidary debt obtained by one will not entitle him to reimbursement from
his co-debtors
o Payment by one solidary debtor will extinguish the whole obligation, the one who shoulders the
payment may demand the proportionate reimbursement from his co-debtors
o Insolvency of one debtor will force the rest to absorb the insolvent co-debtor’s share
o A creditor may proceed against any one of the solidary debtors or some, or all. Demand may be
redirected to others
o Prescription or extinguishment of an obligation will not entitle a debtor to reimbursement if such
payment is made after the extinguishment or prescription
• A Solidary Debtor may avail himself of the real defenses of his co-debtors.
o Insolvency, Prescription or Minority of one of his co-debtors for instance, will reduce the entire
demandable obligation, thus reducing his share
Total Solidary Debts XX
If the defenses owned by the solidary co-
Partial Payment of A (XX)
debtor is merely personal, the defense
Minority of B’s share (XX)
will not be available, thus this increases
Remission of C’s Debt (XX)
the solvent debtor’s share; only in the
Prescription of D’s Debt (XX)
case of remission of personal debt any of
Collectable from E, F, G, etc.. XX
the co-debtors does the total solidary
Insolvency of G -
debt get reduced.
Claim against E or F XX
E and F become Joint Creditors of G
Joint Obligations – Each debt or credit is independent of each other (Pro-rata)
• The demand by one creditor upon one debtor binds only that debtor
• Interruption of prescription by judicial demand upon one debtor does not benefit the other creditors
for their own share
• The vices of each obligation are personal to each debtor and creditor
• The insolvency of one debtor is not absorbed by the others
• The total number of obligations will be the number of debtors times the number of creditors times
the number of obligations of each debtor.
A B C D E F G If the debtor’s party
Debts to X XX XX XX XX XX XX XX is solidary, but the
Debts to Y XX XX XX XX XX XX XX creditor’s party is
Total XY XY XY XY XY XY XY joint, treat the debts
Minority (XY) - - - - - - as mainly joint.
Insolvency - - - - - - - Hence, as to the
Partial Payment - (XY) - - - - - solidary party, there
Balance - - XY XY XY XY XY is only one debt.
Divisible and Indivisible Obligations
Obligations are deemed indivisible if:
• These are obligations to deliver definite things (even if these are conjunctive)
• Those not susceptible to partial performance
• If these are intended to be indivisible, even if they can naturally be divided
Obligations are deemed divisible if:
• The object is the execution of a number of days of work
• When the object is the accomplishment of metric units
• The purpose is to pay in installments
• The object is the accomplishment of work that can be partially performed
Joint and Indivisible Obligations – If the division is impossible, the right of the creditors may be
prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the
debtors. If one of the latter should be insolvent, the others will not absorb the deficiency.
• A creditor must proceed against all debts, and demand payment from all debtors
• If the entire obligation cannot be complied due to the insolvency or fault of one, the obligation
becomes an indemnity or it becomes monetary;
• The debtors become liable to their own shares of the obligation
• If one party is ready comply, but another is not ready to comply, the creditor is entitled to damages,
but only the non-compliant party will be liable
• If no party is ready to comply, all debtors may be liable for damages; however, the action against
each debtor is also joint (i.e., each creditor must institute claims against them separately.)
Solidary and Indivisible Obligations – Even an innocent debtor can be made liable for damages, but the
same innocent debtor can seek reimbursement from his co-debtor who was at fault. These obligations
treat the entire co-debtors as if they were a single debtor only.
• Assignment of Creditor’s Right – a solidary creditor cannot generally assign his rights to a 3 rd
person, and may only be done with the consent of his co-creditors. Not even a novation may
extinguish the obligation to which a solidary creditor has assigned his rights to a 3rd person.
Obligations with a Penal Clause
Any obligation that defines a penalty should a prohibitive condition be breached. The penalty will
substitute the indemnity for damages, and payment of interest in case of delinquency or non-compliance
• The penal clause does not cover other damages such as restitution, and payment for damages
• Except: if a contrary stipulation appears, the debtor refuses to pay the penalty, or if the debtor is
guilty of fraud in the fulfillment of the obligation
• As a rule, the debtor will not be exempt from the principal obligation by paying only the penalty,
except if this is allowed per contract. The creditor cannot demand the fulfillment of the obligation
and the payment of the penalty at the same time, unless this is allowed.
If the obligation becomes impossible without the creditor’s fault, the penal clause may be enforced
against the debtor.
Reduction of Penalties by the Courts
• The Principal is partially complied or Irregularly complied with
• The penalty is unconscionable/usurious
Other Obligations
• Real Obligations – Obligations to give
• Personal Obligations – Obligations to do or not to do
• Positive Obligations – Obligation to give or to do
• Negative Obligations – Obligations not to do
• Unilateral Obligations – Only one of the parties is bound to perform the obligation
• Bilateral Obligations – All parties are bound to perform their own duty to the obligation
Nature and Effect of Obligations
Concurrent Obligations to Give a Determinate Thing – Obligations to give a determinate thing are
attached to these other duties to ensure performance:
• The take care of the thing with due diligence
o Usual Diligence/ Due Care – Diligence of a good father of a family (Bonus pater familia)
o Another Standard of care – Extraordinary diligence (Banks with their deposits/dealings)
• To deliver the fruits of the thing from the time the obligation to deliver it arises. (A creditor will
not acquire the rights to the fruits until these are delivered to him)
Time of delivery may be from the perfection of the contract or upon the happening of a condition
o Natural Fruits – from the soil, or products of animals
o Industrial Fruits – those derived from human intervention such as labor
o Civil Fruits – those derived from juridical relations of parties (interest payments)
▪ Interest may be claimed from Obligations with Suspensive Conditions if there is
proof of Bad Faith
▪ Interest may be claimed from Obligations with Suspensive Periods regardless of good
or bad faith
The creditor has the right to the fruits from the time the obligation to deliver the thing arises;
o Personal Rights or jus ad personam – the creditor acquires a right of claim over the
fruits before the debtor delivers the fruits; this simply means that the creditor has the
right to proceed against only the debtor as to the fruits.
o Real Rights or jus in rem – the creditor acquires a real right upon the fruits, in other
words, all persons, including third parties, cannot appropriate for themselves, the right
acquired by the creditor (this means that the creditor has the right of ownership, rather
than merely a right of claim.)
• To deliver all accessions and accessories, even if these were not mentioned, to the creditor
o Accessions – additions or improvements; these are the more necessary than incidental.
E.g., Keys to a house, wheels to a car
o Accessories – Joined to or included in the principal for better use or enjoyment
**To deliver a generic thing, no concurrent duties exist.
Remedies for Breach of Obligations
• Determinate Things – Specific Performance if still possible; if impossible, only damages may be
collected
• Generic Things – Specific or Substitute Performance. The creditor can have another person to have
such kind of thing be delivered at the cost of the debtor plus damages
• Obligations to do – Substitute performance only; forcing the debtor to perform a thing he could no
longer do would violate the constitutional provision against involuntary servitude; or the cost of the
performance with another person, at the debtor’s expense plus damages.
• Obligations to not do – The creditor may have the things undone at the expense of the debtor
Recission as a remedy
• For Reciprocal Obligations - Resolution is a primary remedy where the cause of action is substantial
or fundamental breach or non-compliance; for Onerous contracts, it is called mutual restitution.
• Recission due to Lesion – A remedy of last resort for sales contracts that cause lesion or economic
injury.
Kinds of Damages:
• Moral – for mental and physical anguish
• Exemplary – corrective or to set examples
• Nominal – to vindicate a right when no other damages may be recovered (essentially, a when an
essential right is violated, and no such damages have been set in law to compensate its violation)
• Temperate – when the exact number of damages cannot be determined
• Actual – Actual losses are incurred, and is the only damages that requires proof
• Liquidated – predetermined damages
Specific Circumstances Affecting Obligations
• Fraud or Dolo – through insidious words or machinations of one of the contracting parties, the other
is induced to enter into a contract, which without those machinations, he would not have agreed to.
o All responsibilities arising from fraud is demandable in all obligations
o Any waiver of an action for future fraud is void
o Dolo Causante/ Causal Fraud – fraud where a contract would not have existed without fraud
o Dolo Incidente/ Incidental Fraud – fraud in the performance of an obligation. Does not affect
the validity of the contract
• Negligence or Culpa – consists of the omission of necessary diligence required by the nature of the
obligation, and corresponds with the circumstances of the persons, time and of the place
o Due diligence may that required by law or required by the contracting parties
o In the absence of the above, usual diligence, or that of a good father of a family
o Kinds of Negligence:
▪ Culpa Contractual – negligence from the breach of contract
▪ Culpa Aquiliana – Civil Negligence or Quasi-delict
▪ Culpa Criminal – Criminal negligence
o Negligence on the part of the creditor
▪ His negligence was the proximate cause of injury: the creditor has no recovery of
damages
▪ His negligence was only contributory: the creditor may still recover damages, but the
courts can mitigate and temper those same damages
• Delay or Mora
o Mora Solvendii – delay on the part of the debtor
▪ Mora Solvendi ex re – delay for real obligations
▪ Mora solvendi ex persona – delay for personal obligations
o Mora Accipiendi – delay on the part of the creditor
o Compensatio morae – delay on the part of both parties
o Default counts upon demand, being judicial or extra-judicial
▪ Except when there is a stipulation otherwise
▪ Except when there is a law declaring otherwise
▪ Except when the nature of the obligation requires time being of the essence
▪ Except when demand is useless
▪ In reciprocal obligations, performance must be simultaneously performed
• Any other manner of contravention (Counter-tenor) – In general, every debtor who fails in
performance of his obligations is bound to indemnify for the losses and damages caused thereby. This
includes any illicit act which impairs the strict and faithful fulfillment of the obligation or every kind
or defective performance
• Fortuitous Events – Extraordinary events not foreseeable or avoidable. It is not enough that the
event should not have been foreseen or anticipated; but it must also one that is impossible to avoid.
o Elements:
▪ Cause of the event is independent of human will
▪ Impossible to foresee the event; or impossible to avoid
▪ Occurrence will have the obligation impossible to render in a normal manner
▪ The debtor is free from any participation in the aggravation of the injury or loss
o General Rule: no person shall be responsible for these events
o Except:
▪ If declared otherwise by stipulation
▪ The nature of the obligation is aleatory (Insurance Contracts)
▪ Expressly specified by law
▪ When Negligence, Delay, or Fraud concurs with the Caso Fortuito
Payment or Performance
• Provisions as to the payor
Payment by a 3rd Person Consent of Debtor or 3rd person No Knowledge or Consent
has interest in fulfilling of Debtor
Compel debtor to accept payment Yes No
Subrogation of Creditor’s rights Yes No
Reimbursement Full Extent of Benefit
• Provisions as to the Payee – the payee may be:
Person in whose favor the obligation is arisen His successor in interest
Any person authorized to receive payment Any 3rd party if it redounds to Creditor’s benefit
o Benefit does not need to be proven if:
• After the payment the third person acquires creditor’s rights
• Creditor ratifies the payment
• Creditor’s conduct causes debtor to believe that such person holds authority
to receive payment
• Third party already possess the credits
o Payments to incapacitated persons – valid only if the person kept the thing delivered or
insofar as it was beneficial to him
Expromision with a Guarantor – the Guarantor is not subrogated Creditor’s rights, and is released from
guaranteeing the debtor.
• Thing to be paid or delivered

o Specific thing – the debtor cannot compel the creditor to receive a different one
o Generic thing – the creditor cannot demand a thing of superior quality; the debtor cannot
deliver a thing of inferior quality
o Obligations to do or not do – An act of forbearance cannot be substituted by another act
of forbearance against the debtor’s will (Involuntary servitude)
• Legal Tender – Payments of bills have no limit; Payments of coins are limited to: P1.00 coins legal
tender only below P1,000.00 Coins below P1.00 – legal tender only below P100.00
o Negotiable Instruments and Checks – not legal tender; extinguishes obligations only by
encashment or if its value becomes impaired
o Extraordinary Inflation or Deflation – value of the currency at the time of the
establishment should be the basis of the obligation, unless the contrary is provided
• Place of Payment
o Place designated in the obligation – no stipulation? Wherever the thing is situated – The
domicile of the debtor (Change of place? The debtor shoulders the expenses)
Dation in Payment
the delivery or transmission of ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of the obligation.
• It also covers both real such as properties and personal rights such as usufructs or credits
• It is governed by the law on sales
• There is first a novation, and then a payment by delivery of a thing
• Generally, the dation applies as far as agreed upon (i.e., value of the thing in dacion) except if the
parties consider the things in consideration as equivalents through express or implied agreement or
by silence (such as through Payment by Compensation)
Application of Payments
The designation of the debt which is being paid by a debtor who has several obligations of the same kind
in favor of the creditor whom the payment is made. It requires the following:
There is only one debtor The debts are of the same kind
There are several debts There is only one and the same creditor
Rights to Applying Payment
• Debtor has the right to decide which debts are paid first, subject to the following limitations:
o Creditor cannot be compelled to accept partial payment
o Debtor cannot apply payment to principal if the interest is not yet paid
o The debt must be liquidated, except when the parties agree otherwise
o The application cannot be made when the period has not arrived and such period was
constituted in favor of the creditor except with the creditor’s consent
o When there is agreement as to which debt must be paid first
• If the debtor does not designate the application, the creditor may choose any debt so long as the
debtor does not protest
• If neither creditor nor debtor designates
o If the debts are of different nature and burden then it is applied to the most onerous to the
debtor (In this order: Those with collateral, debts with interest, and then those coming due.)
o If the debts are the same, they are proportionately applied
Cession in Payment
When the debtor delivers to all his creditors his properties for the purpose of selling and applying the
proceeds to settle his obligations to them
• Voluntary Cession – under the Civil Code
• Involuntary Cession – under the Financial Rehabilitation and Insolvency Act (FRIA)
If properties are exempt from execution, they may not be ceded, except if debtor waives exemption.
Cession contemplates no transfer The obligation may not be fully extinguished
Involves multiple creditors Involves all the debtor’s properties
Supposes financial difficulty Supposes the universality of debtor’s properties
The proceeds may be distributed by way of stipulation or by preference of Credit.
Tender of Payment and Consignation

Tender of Payment The manifestation made by the debtor to the creditor of his desire to comply with
his obligation, with the offer of immediate performance. It is a preparatory act to consignation and in
itself does not extinguish the obligation
Consignation – The deposit of the object of the obligation in a competent court in accordance with rules
prescribed by law, after the tender of payment has been refused or because of circumstances which
render direct payment to the creditor impossible. It extinguishes the obligation.
• If a right instead is contemplated for the transaction (i.e., right of repurchase or right of
redemption), tender and consignation is not required.
Requisites:
• A valid debt exists and is due
• There is legal cause to consign, that is, there has been a valid tender of payment, in these cases:
Creditor is absent or unknown Creditor is incapacitated to receive payment
The creditor refuses to provide receipts Two or more persons claim the debt
Title to the Obligation is lost Unjust refusal by Creditor even without tender
• There is previous notice to consign to the persons having interest in the fulfillment of the obligation
• The amount or thing due is deposited with the courts
Withdrawal as a Right – If the debtor withdraws before acceptance by the creditor or before judicial
declaration of propriety of consignation, there is no extinguishment of the obligation. As such, no
revival of the obligation, since no obligation was extinguished. Otherwise, if the debtor withdraws the
thing after acceptance or declaration, it will only be allowed with the consent of the creditor. The
obligation is revived. Revival of the obligation, however:
• Releases co-debtors, guarantors, and sureties if they consented to withdrawal
• Creditor loses preference in credit upon consenting to withdrawal
Extinguishment of Obligations – Other Modes
Loss of the Specific Thing due
Loss – A thing has gone out of commerce, perishes, or disappears in such a way that its existence is
unknown or that it cannot be recovered.
Exceptions: The debtor is liable for damages upon the loss of the thing due
• Law or stipulation provides
• Nature of Obligation is aleatory
• The obligation arises from a criminal offense (unless the creditor is in mora accipiendi)
• Obligation to give a generic thing; except if the generic thing is limited
Partial Loss – The courts may test the obligation by determining whether or not the parties would have
entered into the obligation without the thing having been lost. In this case, the partial loss causes the
whole obligation to be extinguished
Presumption of fault – the debtor is generally presumed to be at fault if the thing was lost in his
possession unless there is evidence to the contrary, it does not apply for fortuitous events.
Court Action – if the performance is so difficult, it does not necessarily warrant extinguishment,
however, the debtor may go to court to release himself from obligation, but not to modify the contract
Right of the Creditor to go against third parties – the creditor shall have all rights of action which the
debtor may have against third persons by reason of the loss
Condonation or Remission of Debts
Condonation or Remission – an act of liberality, by virtue of which, without receiving any equivalent,
the creditor renounces the enforcement of the obligation which is extinguished in its entirety or in part
or aspect of the same to which the remission refers.
When it is not Gratuitous, a remission is actually a:
• Dacion en pago – when the creditor receives a thing different from the stipulation, but accepts it
• Novation – when the subject or principal conditions are changed
• Compromise – when the matter renounced is in litigation or dispute
It may be express (complies with the formalities of donations) or implied (voluntary destruction of
certificates or contracts, cancellation of evidence of credit, thing pledged is in pledgor’s possession)
It may be in the form of Inter-vivos or Mortis Causa
Confusion or Merger of Rights

Confusion or Merger – when the person of the debtor & person of the creditor becomes one & the same
• The principal creditor and debtor are involved, involving the same obligation in total
Compensation or Set-off
Set-off – a mode of extinguishment to the concurrent amount, obligations of those persons who in their
own right, are reciprocally creditors and debtors to each other
• Total – the obligations are equal
• Partial – the lower amount is set-off first
• Legal – taking effect by operation of law
• Facultative – claimed by one of the parties who, however, has the right to object to it
• Conventional – the parties agree to compensate their mutual obligations despite lacking in formality
• Judicial – decreed by court wherever there is a counter claim
Requisites:
• Each are bound to each other as principal debtor-creditors
• Consisting of a sum of money or consumable goods of the same quality
• The debts are due, liquidated and demandable
• Neither party has any retention or controversy commenced by 3 rd persons (No Liens on properties)
• Communication in due time to the debtor
Rescissible debts may be set-off before they are annulled or avoided.
If several debts can be set-off, the rules on application of payment apply.
Legal Compensation – takes effect by operation of law, and extinguishes both debts to the concurrent
amount, even though the creditors and debtors are not aware of the compensation
Set-off is not proper for:
Deposit Obligations with a depositary Bails in Commodatum with the Bailee
Obligation to give support Civil Obligation from Penal Offenses
Novation
Generally, these are changes in the contract. Its requisites are:
A Ratifiable/Valid Obligation Agreement among parties Extinguishment of old obligation
Validity of new obligation
If the New obligation is void, the old obligation survives, unless the old obligation is intended to be totally
extinguished; if the old obligation is voidable, then the obligation survives until it is novated.
• Revival of Obligation – If the new debtor turns out to be insolvent and his insolvency was known
by the debtor, or was of public knowledge already at the time of the novation.
Active Novation (Subrogation) – A third person is subrogated the rights of the creditor
• By express agreement, requiring the consent of the original parties and the third person
• By law (Legal Subrogation), e.g.,
Cr pays Dr’s Cr w/o consent 3rd person pays Dr’s dues w/o Any person interested in
consent discharge of obligation pays
• Effect of active subrogation – the subrogation transfers to the persons subrogated the credit with
all the rights thereto appertaining either against the debtor or against the third person, bet they
guarantors or possessors of mortgages, subject to stipulations and conventional subrogation.
• Preference of Original Creditor – A creditor, to whom partial payment has been made, may exercise
his right to the remainder, and he shall be preferred to the person who has been subrogated in his
place in virtue of the partial payment of the same credit
Passive Subrogation (Substitution) – If a third person is substituted to the person of the debtor, the
creditor and the old debtor should both be aware of the substitution
Kinds Reimbursement Liability of Old Debtor if New Debtor is insolvent:
Expromision - without Extent of The Old Debtor is released from his obligation
old debtor’s knowledge Benefit
Delegacion – with old Full The Old debtor may still be liable if the insolvency was
debtor’s consent Reimbursement already existing at the time of the delegacion and if it
was of public knowledge or known to the debtor
Objective or Real Novation

• Change in Object
• Change in the Principal Conditions of the Obligation can be Express or Implied*
*Implied – when the old and the new obligations are incompatible in every aspect.
▪ This requires clear and convincing proof of complete incompatibility between the two
obligations. The law requires no specific form for an effective implicatory novation
▪ Simply, if the two obligations cannot coexist, they are incompatible
Assignment vs Subrogation
Consent is needed in Subrogation Consent is not needed in Assignment
On Accessory Obligations
Generally, the Accessory Obligation to a Novated principal obligation are extinguished
If the original obligation was subject to suspensive or resolutory conditions, the new obligation shall
be under the same condition, unless it is otherwise stipulated
Other Causes of Extinguishment:
Annulment of Voidable Contracts Recission of Sales Contracts
Fulfillment of Resolutory Condition Prescription of Obligations
NB. Prescriptive Periods: (in years)
Quasi-contracts, Oral Recover movable – 8 Recover immovable – 30 Mortgage – 10 years
Contracts 6 years years years
Contracts, Law, Written Delict and Injury Claims – Defamation and forcible Others – 5 Years
judgments – 10 years 4 years entry – 1 year
There is no prescription for the right of way, and for abatement or action on public/private nuisance.
Title II: Law on Contracts

Contracts in General
Under the Civil Code, a contract is a meeting of minds between two persons, whereby one binds himself,
with respect to the other, to give something or to render some service
Criticisms:
• The definition does not cover negative obligations. Actually, Negative Obligations can most
certainly be the object of a contract, for example, a Non-competition agreement between two
corporations is embodied by a contract that obliges both parties to not enter into competition with
each other.
• The definition also does not contemplate bilateral obligations. The most apparent bilateral
obligation, in the form of a contract, are sales contracts
• The definition does not encompass multilateral contracts as it is limited only to two persons.
Partnership Contracts are an obvious example to the contrary.
• Neither does the definition accommodate the existence of Auto-contracts; where a person
perfects a contract acting in two capacities. One in behalf of himself, and another in behalf of, or
under the authority of some other third person
Stages of a Contract’s Life
• Negotiation/Preparation/Conception/Generacion – Where parties initiate an offer and bargain a
contract’s terms and conditions if applicable
• Perfection or Birth – the agreement of both parties to comply with the terms and conditions of the
contract; all the essential elements of a contract are present
• Consummation/Death/Termination – When the terms of the contract are performed, and the
accompanying obligations are extinguished.
Elements of a Contract:
• Essential Elements – absence of such will avoid the contract; some contracts have specific essential
elements. These are namely: Consent, Object, and Cause/Consideration
o Real Contracts require Delivery, while Solemn Contracts require compliance with form
• Natural Elements – these elements are generally attached to any contracts because the law deems
these elements to be written therein. The most common form of a natural element of contracts are
warranties against eviction and warranties against hidden defects in Sales Contracts
• Accidental Elements – These are provisions by the parties themselves. In other words, these are
valid stipulations allowed by law; usually these come in the form of the agreements as the fruits of
an obligation, the waivers of specific alienable rights, etc.
Essential Elements of a Contract
Consent
After Negotiation, the acceptance of an offer or counter-offer will be the Birth of a contract. However,
the acceptance of a contract is not necessarily the same as consenting to it. Consenting to a contract
means to acknowledge its existence, and to be free to act upon it without any vice; and not
necessarily to agree to its terms. This means that there may be consent, but there may not be a contract
at all.
1. Offer and Acceptance – Elements:
a. The offer must be certain
b. The acceptance must be absolute
c. In the case of a qualified acceptance, this shall constitute a counter offer
d. Acceptance may be express or implied
e. The Offeror may fix the time, place, and manner of acceptance as among the parties
2. Acceptance by the Offeree is connoted by the Cognition Theory; that is acceptance only takes
effect from the time the offer knows of the acceptance, and not when the offeree delivers it.
a. The Manifestation Theory is the exact inverse of the Cognition Theory.
3. Intervening Events on Acceptance – an offer becomes ineffective upon death, civil interdiction,
insanity, insolvency before an acceptance is made. In this case, no contract is perfected at all.
4. Consent of the Parties
a. If both parties, through themselves or agents, grant consent, the contract is valid
b. If the Contract is simulated:
i. An Absolute Simulation – neither party really intended to contract (Pretending)
ii. A Relative Simulation – both parties actually have a different intent compared to
what the contract reveals (A Donation instead of A Sale)
5. Capacity to Contract
a. Juridical Incapacity – A party is dead or dissolved; in this case the contract is void
b. Legal Incapacity
i. Absolute Incapacity – Individuals cannot Give Consent
Unemancipated Minors Insane/Demented Persons
Deaf-mutes that cannot read/write Drunks/Hypnotized outside lucid intervals
ii. Absolute Incapacity – Individuals are declared as Incompetent tot Contract by
Rules of Courts; these individuals may contract, but must be with the guidance
of a guardian
Those suffering Civil Interdiction Lepers
Prodigals Deaf or Dumbs who cannot read/write
Those of Unsound Minds Any Individuals under Guardianship
iii. Relative Incapacity – Prohibited to contract with respect to each other due to
prohibition by law
Aliens as buyers of domestic land If both parties are incapacitated (Unenforceable)
Husbands and Wives in onerous contracts among If consent is vitiated
each other
Vices of Consent – Any contract entered into with vice will render it voidable
• Mistake – Where the object, its principal conditions, identity and legal effect are not what the parties
intended, the contract is voidable
o The party causing the mistake will be the one to shoulder the costs of reforming the
contract
o In case the mistake causes ambiguity, the contract must be interpreted in favor of the
aggrieved party
• Violence – the use of irresistible forces or physical forces to induce a party to enter into a contract
• Undue Influence – any improper advantage over the other’s will; knowledge of the other’s ignorance
• Intimidation – Using any reasonable or well-grounded fear to induce the other to accept a contract
• Fraud (Causal Fraud only) – The use of misleading words and machinations without which, there
would be no contract at all
o There is no fraud if: A failure of disclosure is committed, but no duty to reveal it is
apparent; the unusual exaggerations of trade are used (caveat emptor); Expression of
opinions (except if these are expert opinions); Misrepresentation by a 3 rd person, and
Misrepresentation in Good faith
o If the Parties are in pari delicto, the courts will not entertain the case at all.
o Incidental Fraud will only oblige damages and will allow the contract to persist
Object
Delivery or rendering of which that creates and extinguishes the obligatory force of contracts.
It must be within the commerce of men It is not contrary to law, morals, etc., (licit)
It must be transmissible It is not impossible
It is determinate
Any delivery of future inheritances will render the contract void.
However, the delivery of future things will not avoid the contract. This is because a future inheritance
does not belong in the commerce of men until it is actually inherited.
Cause or Consideration
The impelling reason a party assumes an obligation
• For Onerous Contracts, the cause is the prestation to each other
• For Gratuitous Contracts, the cause is the liberality of the benefactor
• For Remuneratory Contracts, the cause is the benefit already rendered
Generally, the cause of the contract produces no effect on the contract. This is because the law presumes
that all contracts have for its perfection, a valid and lawful cause upon absence of its mention. The
exception is when a False Cause for a contract is STATED explicitly, which will render the contract void.
• This will mean that an unlawful cause for entering into a valid contract will have no effect
• This will also mean that the inadequacy of price, which is a cause for a sales contract, will also have
no effect unless:
Lesion is suffered by any party Recission is available Consent is vitiated
• If, however, an unlawful motive predominates the cause, the contract is void. i.e., A contract
entered into to defraud creditors
Other Essential Elements
• Formality or Compliance with the Statute of Frauds or other laws
Form (writing the contract) is required to:
Solemn Contracts Those under Statute of Frauds Form is needed for Convenience
Establish Validity – Solemn Allow Enforceability against 3rd Create Convenience – As a recourse,
Contracts require certain forms to parties – Some contracts cannot be this allows a party to compel the
be valid pursued (i.e., compelled to be execution of a public instrument to
executed) unless a form is complied prevent further complications, the
with contracts being consensual.
Donation of Real Property – Any agreement not to be performed Acts and Contracts made for
through a Public Instrument within a year transmission or change of real rights
Donation of Personal Property – Special Promise to Answer to debt, Cession of Rights as an heir
must exceed P5,000. Private Instr. default, or miscarriage
is sufficient
Stipulation to pay interest. Agreement to Marry or Any The power to administer property to
Private Instr. is sufficient Agreement in consideration of prejudice 3rd persons
marriage
Sale or Transfer of Large Cattle – Sales or transfer of personal Cession of Rights or acts appearing in
governed by special laws property of not less than P500 public instruments
Contribution of Real Property to a Agreement for Leasing more than 1
Partnership. An Inventory attaches year; Sale of Real Property or
to the Public Instrument interest therein
Any Will Representation of Credit of a 3rd
Person
Contract of Agency to Sell Real
Property
The Statute of Frauds creates the minimum case for enforceability of some contracts to prevent people
from executing contracts that are exposed to risk adverse legal effects after consummation of contracts.
In this case, private instruments are at least needed to caution the parties in the contract. Public
instruments are for mere convenience and for notice to the rest of the world, however, if law mentions
the need for this notice, contracts wanting of this form in particular are Solemn Contracts.
• Delivery – Real contracts are perfected by the delivery.
Depositum Pledge Commodatum Mutuum/ Simple Loan
Depositing a thing to a Delivering a thing to a A temporary loan or A consumable loan,
depositary with the pledgee, the thing lending of a thing to a with the understanding
expectation of having acting as a security for bailee; the same thing that a thing of the
the thing to be credit will be returned to the same kind and quantity
returned to the bailor at the same will be delivered back
Depositor, regardless state as it was lent to
of the changes to the him
thing after its use
Characteristics and Kinds of Contracts

Consensuality
Contracts in general, are perfected by mere consent.
• If an unauthorized person contracts in behalf of another, the contract is unenforceable, unless the
person mainly concerned ratifies the contract before the other party revokes the same
• Adhesion Contracts – These are contracts where the forms are final and complete, so that mere
consent would perfect the contract; waivers of rights are perfectly valid adhesion contracts
o Adhesion contracts cannot be contended to have or have not included waivers therein ab
initio
Autonomy
Essentially, it is the power of stipulation, or in other words, the law between the parties. Below listed
are void stipulations: (For autonomy, think of setting terms over the life of the contract)
Contrary to law:
• Waiving rights against future fraud
• Pactum Leonina – the exclusion of a partner to partnership profits
• Pactum Commissorium – a provision where the creditor appropriates the debtor’s collateral without
conveyance by the debtor
• Pactum Non-aliendo – Provision forbidding the owner from alienating a mortgage property
Contrary to Public Policy
• Refund of tuition fees during a student’s scholarship if such student transfers schools
• Prohibiting a losing candidate to run as an independent candidate
Morals and Norms
• Interest rate is unconscionable (Void or may be tempered by courts)
Mutuality
All contracts bind all parties thereto, and its perfection will never be let to only one single person (For
mutuality, think of performance of obligations)
• Revocation of a contract requires mutual consent
• Determination of Performance may be left to 3rd Persons
o The decision as to whether a contract is performed or not will not bind either party until
both come to know of the current state of performance
o Performance will not be obligatory if it is inequitable; the courts may determine whether
such performance is indeed equitable
• Escalation Clauses – Any stipulation to change the compensation of one of the parties; it is void when
let only to one party; it is valid if let to 3rd persons
o Contract of a Piece of Work will be valid even if it is based on a Consumer Price Index
(CPI) that changes
o A Contract of lease will still be valid if based on foreign currency that changes in value
Obligatory Force of Contracts
All contracts have the force of law between the parties, and must be complied with in good faith
Privity or Relativity
All contracts affect only the parties, their heirs, or their assigns
• Generally, 3rd parties are not affected by a contract, except if they are naturally bound to the
contract, either party have actions against the parties, the 3 rd party is liable to the contracting
parties, or if there is a Stipulation Pour Atrui
When 3rd Persons are Naturally Bound to the Contract
• Real Contracts – subject to Mortgage Law& Land Registration laws (Mortgages attach to properties)
• Collective Contracts – i.e., Employees under a Union and CBA contracting with an Employer
• Status Contracts – Generally binds 3rd persons because the status of the contracting parties attaches
to their identity after entering into such contract (Marriage Contracts)
When the 3rd Person Initiates action against the 3rd Parties of the Contracting parties
• Accion Pauliana – A Creditor Rescinds the contracts entered into by the Debtor to defraud the Cr.
o This recourse is only available if the creditor can no longer collect in any manner any debts
• Accion Directa – A Creditor is subrogated to the rights of a Debtor against the Debtor’s Debtors
o This recourse may not be available for: Valid, Voidable, and Unenforceable Contracts
When the 3rd Person is liable to the Contracting Parities
• Malicious Interference
Stipulation Pour Atrui
• 3rd persons are benefitted; and that there is a clear and deliberate conferment of favor to the 3 rd
person by the contracting parties
• Communication among all parties is required, whether impliedly or expressly
• Revocation must be mutual among all of the parties involved
Classifications of Contracts
• By Degree of Dependence – Principal, Accessory, Preparatory
• By Perfection – Consensual, Real, Formal
• By Parties Obliged – Bilateral, Unilateral, Multilateral
o Bilateral Contracts will mutually compensate the fruits of the obligation attached
o Bilateral Contracts allows Recission, Specific or Substitute Performance, and Damages as
a recourse for Breach
o Fruits in Unilateral Contracts will only inure to the benefit of the debtor
o Unilateral Contracts do not allow Recission, nor does it require Demand to reckon Delay
• By Cause – Onerous, Gratuitous, Remuneratory
• By Risk – Commutative (Real Fulfillment is necessary), Aleatory (Risk or Chance)
• By Name – Nominate, Innominate
o Innominate Contracts (do/des = give; facias/facio = act or perform)
Interpretation of Contracts
The primary consideration when interpreting contracts should be their primary consideration.
• If the provisions are clear and the intentions are in order, the contracts are interpreted according to
their literal meaning or according to the contemporaneous and subsequent acts of the parties, if
ever the intention of the parties do not match the contract in writing
Rules on Interpretation
• General terms are not understood to include their exceptions & those not in the scope of the intent
• Terms having several meanings will take that nearest to effect intended & possible for execution
• Contracts are understood in whole; ambiguous provisions are understood jointly with the contract
• Usage and customs are also taken into consideration
• The interpretations will never favor the party causing the confusion
o For Gratuitous contracts, the interpretation with the least effect to transmission is taken (least
effect to transmission of rights)
o For Onerous contracts, the interpretation with the most transmitted interest is taken
• If the Principal Object of the Contract is confusing, the contract is void.
Reformation of Instruments
Revising the form of written contracts to reflect the true intent of the parties
• For Solemn contracts, or those under the Statute of Frauds, in case of Mutual Mistake or Relative
Simulation a reformation is necessary.
o The party who asks for reformation may in case of mutual mistake can be either party,
otherwise, the injured party or his heirs or assigns may ask for reformation
o No reformation is allowed for Donations Inter-vivos and Mortis Causa (Wills), if the Real
Agreement was Void in the first place (in this case, a new contract is necessary), or if
the Injured party has already enforced the mistaken instrument
• Not available for oral contracts
Rescissible Contracts
• These are contracts that are valid until rescinded
• Guardians whose wards suffer lesion (1/4 of the value thereof)
• Those contracts entered into in representation of absentees
• Those taken to defraud creditors (only if there are no other means to collect dues from the debtor)
• Those under litigation, entered by a defendant without the knowledge of the litigants & authority
• Those Declared by Law
o Sales Contracts
o Delivery of a specific thing, perishing in diem (resolutory)
o Payments in insolvency whose payments could not be compelled at the time of effect
o Sale of Real Estate,
▪ where the sale is deficient by 1/10 of the measure; or
▪ The buyer would not have contracted had some facts been known upon sale
Recission vs Resolution
Recission – will render contracts ineffective if their execution causes damages to other relations (usually
economic prejudice or lesion)
Lesion – Economic Damage in the form of difference in value (1/4 of value thereof)
Resolution would be the appropriate term for the primary remedy which can be availed of by the parties
and does not require lesion as a ground, but instead, requires non-fulfillment of an obligation or when
there is substantial breach
Effects of Recission:
• Unlike Resolution, Recission is a remedy of last resort, and is a subsidiary option
• There is a recission only insofar as the extent of the damage sustained
• Restitution – Return to the Status Quo (includes returning even the fruits)
• Available only when he who demands Recission can return what he received
• It cannot be availed of when the objects in question are possessed by 3 rd Persons not in bad faith
o Instead, indemnity for damages may be claimed
• It is unavailable when Sales by Guardians or Absentee is court approved
Prescription is 4 years from either:
Termination of incapacity of Discovery of Absentee’s Time of registration to the
ward whereabouts Registry of Deeds
Voidable Contracts
Generally, any contract where there is an inability to render consent; but it may be ratified/annulled.
These are valid until annulled.
• Where Consent is vitiated
• It prescribes in 4 years from either:
When vices of consent cease Discovery of the mistake/fraud Guardianship ceases
Ratification – when a Voidable or unenforceable contract is made valid
Effected by a Guardian Cleanses the defect
May be express or implied Does not require concurrence of the party having
no right to annul the contract
Annulment - renders the contract void ab initio
• Restitution is required
• In case of the object being a service, only damages may be claimed
• The incapacitated person is not obliged to restitution, except insofar as they are benefitted
• If restitution is impossible due to loss, then the value of the thing lost, any interest from the date of
the loss, and the fruits must be compensated
• If restitution is not claimed, then there is no compelling the return of the thing delivered
• Creditors of the injured party cannot annul for the injured party
• Misrepresentations of age will not allow annulment as there is an estoppel
• Capacitated persons cannot allege incapacity of the other
• The Vices of Consent cannot be grounds to assert incapacity
• The Loss of a thing due extinguishes the contract; but the right of action based on incapacity will
prevail over the effect of loss in court unless there is fraud on the part of the incapacitated person.
Unenforceable Contracts
Generally, these are contracts that carry no effect until ratified.
• Contracts with a want of authority
• Those contracts that do not comply with the statute of frauds are unenforceable
• Those contracts where both parties are unable to provide consent

• There is no other legal remedy but to ratify the contract by complying with the law’s requirements.
Otherwise, the contract is left as is
The Statute of Frauds – Generally, it is a legal requirement for some contracts to be in writing in order
for these to be enforced. Execution of contracts is tolerated in the real world, but the courts cannot
resolve to have these done. This means that compliance is merely a precaution against the risk of acts
not having been set in writing for future reference.
o Executory Contracts; those that have been partially complied with or paid shall not apply SOF.
o This requirement may be waived by power of stipulation
o It is not assailable as a recourse by 3rd persons
o A deemed waiver of the statute consists of a non-objection of an oral promise
Void Contracts
Void contracts, also known as Illegal, Inexistent, or Illicit Contracts are as follows:
Those contrary to law, public policy, morals, etc… Absolutely simulated contracts
Those with neither cause nor object Contracts with illicit or inexistent object
The intent over the principal object is unknowable The law expresses the contract to be void
Void contracts do not prescribe, nor can anything illegal be waived out of it. As there is no contract,
there can be no ratification, nor can it give rise to other contracts.
• In case a void contract had been enforced, the money involved in enactment may be repudiated
• Any incapacitated person entering into a void contract may recover money paid for consideration
• If the consideration is not illegal, but merely prohibited, the plaintiff may recover payments it
delivered as consideration (e.g., alien acquiring lands in the Philippines)
• If a contract has void portions, the other valid portions may still be enforced
• Illegality of a void contract does not affect the parties who are privy to it
o In case of the presence of a Criminal Offense
In Pari Delicto Only One is culpable
Presence of Criminal Absence of Criminal Presence of Criminal Absence of Criminal
Offense Offense Offense Offense
• Both parties are • No party is prosecuted • Guilty party prosecuted • No recovery for the
prosecuted • All contracts stay in • Instruments guilty party
• Contracts are voided force confiscated • Only innocent can
• Innocent can recover recover
Title III: Laws on Sales

The Sales Contract
A contract of sale is one whereby a party obligates himself to transfer ownership and to deliver a
determinate thing and the other party to pay therefor, a price certain in money or its equivalent.
• Sales contracts are generally consensual, onerous, bilateral, nominate, and commutative; that is,
a vendor offers to sell to a vendee a thing to which a vendee pays. So long as this relationship stands,
a sales contract is perfected.
o An exception would be for the sale of lotto tickets; instead of being a commutative contract, the
sales contract becomes aleatory since there is a sale of hope for winning a prize
Sales Contracts vs Other Similar Contracts/Transactions
Piece of Work There is Transfer and Payment The contract of a piece of work is a personal
contract; a sales contract is a real contract
Dacion en Pago There is a Transfer; A Dation has for its existence, a principal
both governed by Law on Sales obligation, whereas a sale has none
Barter There is a transfer, and both are The rules on interpretation of contracts apply.
onerous contracts In case a contract carries both a cash
consideration and a consideration in kind, the
values thereof will determine what sort of
contract is at question. Kind > Cash = Barter.
Cash > Kind = Sale
Consignment/ Both contracts demonstrate the A Contract to does not transfer any ownership
Agency to Sell need to deliver the thing to the to the consignee. The Contract to sell prepares
vendee the contract of sale from the consignor to the
true vendee.
Cession There is both delivery Like Dacion, a preexisting obligation exists,
however unlike a Dacion and a Sale, the
creditors do not become the owners of the thing
delivered
Kinds of Sale as to the Transfer of Ownership
Absolute Sale Conditional Sale Contract to Sell
The ownership transfers by mere The condition is usually the full It grants the buyer an equitable
delivery, even with at least payment of the contract price or right to have the seller execute
partial payment some future time/event a deed of sale; usually upon the
happening of a condition
Ownership passes upon delivery Ownership passes upon Ownership passes on some
fulfillment of a condition future time; usually upon
execution of Deed of Sale.
Obligation to deliver arises upon Obligation to deliver arises upon Obligation to delivery arises
perfection perfection upon exercise of Option
Principal Contract Principal Contract Preparatory Contract
Risk of Loss is with buyer Risk of Loss is with Buyer Risk of Loss is with Seller
Elements of a Contract of Sale
Essential Incidental Natural
Consent, Object, Consideration Contractual Stipulations Provided by way of law
Essential Elements
• Consent
o As with any other contract, the provisions on the law on contracts apply
o Sales to Unemancipated Minors are valid if these concern basic necessities such as food
o Sales between Husband and Wife are generally void, except if their properties are judicially
separated or are separated by prenup
o Generally, any apparent conflicts in interest will avoid a sales contract
• Cause – The Price

o Must be certain (Certain is if the price is in reference to another certain thing, or if it is
determined by an expert or by the courts, if for some reason the expert 3 rd person cannot
o Gross inadequacy of price shall have no effect on the sale, unless the contract is relatively
simulated (i.e., the true intent is actually a donation; a deed is not in effect – Void Contract)
o The prices of grains, liquids, and securities are considered certain if the price during any day is
definite; the price is in a particular exchange or market
▪ Any price above or below the market price is valid, so long as it can be made certain
o Fixing the price is never let to the will of any single party; the purchase of a thing is indicative
of an acceptance of the price of the thing
• Object
o If the consideration is a service, it is not a sales contract
o The thing must be licit
o The vendor has the right to transfer the object at the time of delivery
o It must be determinate (By physically segregating the same or is actually distinct from others)
o Sole owners may sell an undivided interest in the object
o Sales under a Resolutory Condition/ Sales ex die/Repurchase Contract – Valid Sale
o Sale of Fungible Goods – The sale of an undivided mass will have for its sale, a certain price
▪ If the mass is undetermined:
Buyer purchases X units and Buyer purchases X units, and Buyer purchases X units, and
receives X units; no issue receives less receives more
The payment may be reduced The excess may be returned or
proportionately The excess may be paid for
Or the Deficiency may be proportionately
delivered The sale may be rescinded
o Sale of Future Goods
Emptio rei speratae Emptio Spei Sale of Vain Hope
Must come to existence to be Sale of Hope is Valid, even if it Void
valid does not come to exist
Perfection of Sales Contracts
Absolute Sale Conditional Sales Contract to Sell
Perfected upon Consent Perfected on fulfillment of Perfected upon Payment of the
condition Option Price
Absolute ownership not needed Absolute Ownership needed to Absolute Ownership upon
to transfer transfer exercise needed to transfer
Sales by Auctions
• The sale is perfected by the fall of the hammer or by some other manner
• Prior to the fall of the hammer,
Bids may be retracted Goods may be retracted, unless otherwise reserved
• If the sale is by lot, each lot is a separate sale
• The Seller’s Right to Bid – Sellers generally cannot bid except if he reserves that right expressly,
and if he serves this notice to the bidders.
Options Agreements and Sales
• The Option Contract is a separate contract from the sale; as such, the option contract is a contract
where a promisor expresses his intent to purchase the thing within a specified period at a specific
exercise price. No sale will arise until the option is exercised
• The offer may be withdrawn anytime, even before expiration without damages
• If there is an option money or option premium, the period covered is that of the option contract and
will be binding upon the offeror
• In any case, if acceptance is conveyed, no withdrawal can be made
o The promisor is bound to pay an option premium in order to execute the option contract; upon
exercise, the promise to buy or sell is reciprocally demandable
• Earnest Money – Is considered part of the consideration to pay the sale; not a separate contract
Sales by Description or Sample Sale by Description and Sample

The contract may be rescinded if most of the If the contract is in this manner, it is not sufficient
goods delivered do not correspond with the that the bulk of the goods correspond with the
description or the sample sample if they also do not correspond with the
description.
In both instances, the buyer shall have a reasonable opportunity of comparing the bulk with the
description and or sample
Installment Sales and the Condominium Act
Recto Law (Art. 1484 NCC)
The Recto Law applies to a contract of sale of personal property whose price is payable in installments.
It also applies to contracts purporting to be leases of personal property with the option to buy at the end
of the lease term or when the lessor deprives the lessee of possession or enjoyment of the thing
o It does not apply to sales on credit or those whose balance is payable in lump-sum.
o Stipulations to allow availment of more than 1 recourse is void
The Recto Law provides alternative remedies of the seller of a personal property upon default of buyer
• Exact Fulfillment upon failure to pay
• Recission, should there be a failure to pay 2 consecutive installments
Forfeiture of the Installments in Case of Recission/Cancellation: This option would entail restitution
between the two parties;
Right of Retention – Generally, the seller would be allowed to retain a reasonable, but not all of the
purchase price already paid by the buyer as compensation for use of the thing. Except if there is a
forfeiture clause that entitles the seller to all of the installments already paid; as a further exception
to the exception, forfeiture clause shall not apply if retaining all installments would be unconscionable.
• Foreclosure of the Chattel Mortgage over the Thing Sold should there be a failure to pay 2
consecutive installments
In case of Deficiencies of the foreclosure sale over the thing sold, the seller may not recover any further
deficiency since recoveries of the entire price would follow the recourse of exact fulfillment; as the
recourses are mutually exclusive, recovery would be prohibited.
However, if the thing mortgaged is a property other than the thing sold, the seller may recover even the
deficiency since the proceeds from the foreclosure sale of a different property is in effect, the same as
exact fulfillment.
In case of Excess – the Mortgagor is entitled to the excess (See foreclosure sale of chattels)
Payment of the
Only One Year balance (Payments
equivalent of plus proceeds of
Exact Fulfillment
Installments or No other Mortgaged
Installments paid properties other than
thing sold)
Return payments
except those the
Recto Law applies to seller is entitled to
Personal Properties retain (this does not
Recission
under Installment apply if there is a
Sales foreclosure clause or
if it is unconscionable
to retain the amount)
Seller has a right to

execute a foreclosure
Foreclosure of
At least 2 Years of sale on thing sold, but
Chattel on the thing
Installments paid is not entitled to
sold itself
recover any deficits
through it.
Maceda Law (R.A. 6552)

The Maceda Law applies to Residential Realties exclusively; if the immovable is not a residential property
or condominiums, then the Maceda Law will not apply (industrial or commercial properties).
• It does not apply to sales on credit or those whose balance is payable in lump-sum.
• Stipulations to allow availment of more than 1 recourse is void
The Maceda Law provides protections for the buyer of residential realties in this manner or recourses:
• If the buyer has not yet paid the equivalent of 2 years in installment;
o He is entitled to a grace period of 60 days, ex-interest
o This grace period may only be availed of every 5 years by the buyer
o The buyer may sell or assign the interest to the realty or pay the entire balance
• If the buyer has paid the equivalent of 2 years in installment, he gains additional rights:
o He is entitled to an additional 1 month of grace for each year paid in installments
o Recission – the Landlord, Lessor, or Seller must pay the buyer a Cash Surrender Value
• The following stipulations are void:
o Interest clauses and Penal Clauses that reckon during the grace periods
o Forfeiture Clauses (as it defeats the purpose of paying the buyer a CSV)
o Automatic Recission upon default
Requirements for Recission under the Maceda Law
• The Buyer must issue a notice to desist payment to the seller
• The Seller’s payment of the CSV; after paying recission will only count 30 days therefrom
The Cash Surrender Value:
• Minimum of 50% of all payments after the 2nd Year of Installment Equivalents
• An additional 5% of the value will be added to the CSV after 5 years from the acquisition of the
additional protections of the buyer (in effect, will only start adding from the 7th year)
• The Cash Surrender Value cannot exceed 90% of the Value thereof; in other words, a seller would be
indifferent to recission upon 14 years of payment by the Buyer.
Grace Period Total CSV
1st Annual Installments, regardless of payment 2 Months 2 Months 0
2nd Annual Installments, regardless of payment 2 Months 2 Months 0
3rd Annual Installment Paid 1 Month 3 Months 50%
4th Annual Installment Paid 1 Month 4 Months 50%
5th Annual Installment Paid (First time the 1 Month 5 Months 50%
extended Grace period may be used)
… 14th Annual Installment Paid 1 Month 14 Months 90%
• If the installment payments say, for year 3 are not equivalent to that of a year’s worth, then the
rights availed are only as of year 2.
• The grace period prevents the seller from rescinding the contract, or from reckoning interests and
penalties so long as the accumulated grace is not exhausted.
• If the buyer fails to furnish to the seller a notice of intention to rescind; and if the seller fails to
pay the cash surrender value, the recission will not be proper, even if the grace period is totally
exhausted
• The cash surrender value includes the following amounts:
• Down payments, Installment Payments, Lease bonuses paid, property taxes and all fees assumed by
the buyer to acquire the property from the developer. It does not cover loan amortizations acquired
to cover the installment payment such as those from the banks and the PAG-IBIG Fund. (The bank
pays the developers, and the payment to the bank does not apply.)
• The buyer may instead sell or assign the property to another person by executing a deed of
assignment.
Condominium Act (PD 957)

• The Buyers of Condominiums are further empowered by this decree protecting their rights.
• Non-forfeiture of Payments
o The buyer, after due notice, may either:
▪ desist from further payment due to the developer’s failure to finish the
condominium within the time limit or does not develop the same according to plans
or both
▪ The buyer, at his option, may be reimbursed the total amount paid plus
amortization excluding delinquency interest
o If the buyer fails to pay, he is still protected by the force of the Maceda Law
Obligations and Rights of the Vendor
• to Take care of the thing after perfection and before delivery
• to Pay taxes and incidences thereon
• to Warrant the Thing Sold
• to Transfer Ownership
• to Deliver the Thing
Consideration of Loss and Impairment
• Loss Pending a delivery
o Absolute Loss – Sale is void
o Partial Loss – The buyer may ask for recission or may demand the remaining
o Deterioration without Seller’s Knowledge – The buyer may ask for recission or the
contract may still persist as to the remaining, and may be paid proportionately
• The Risk of Loss
o Res Perit Domino – Whosoever owns the goods bears its loss
o Except: by Stipulation, Security Title, or Delay
o Sale or Return – The Buyer’s risk upon delivery back to the seller
o Sales on Approval or Trial – The Seller’s Risk of Loss
▪ Since ownership passes once the buyer signifies acceptance expressly or impliedly;
until then, the seller bears loss of the thing sold
Transferring Ownership over the Thing
If the seller is not the sole owner over thing before sale, the sale may be valid if he is given authority
The buyer acquires no better title than the seller, generally, except:
• The seller is actually an agent
• The seller has a statutory authority or judicial authority to sell (Guardianship)
• Purchases from Merchants – Merchants acquiring things that are actually not acquired in good faith
or through good title pass on a better title by virtue of the sale happening in a market; this is so as
to not erode the trust of the public on the markets
• In case of Estoppel
o Estoppel in pais – by his conduct, he has led the buyer to believe that he is authorized to sell
o Estoppel by deed – even after a seller actually receives the appropriate title after his
misrepresented sale, the title passed to the buyer is the same as with the seller’s as though the
sale were valid
• Sales of an Apparent Owner – Where an apparent ownership exists, a buyer in good faith and for
value purchasing from such apparent owner will acquire a better title from the apparent owner, only
if a law from which apparent ownership may be had establishes it.
o PD 1529 – Dealing with registered land need not be inquired beyond title/ Mirror Principle
o Factor’s Act – 3rd persons need only to rely on the power of attorney as written, and no inquiry
is required into the limitations imposed by the principal to the agent
o Art. 1518 – Goods covered by Negotiable Instruments
Delivery
Delivery may be either Actual or Constructive
Constructive Delivery
• Traditio Longa Manu – Mere consent delivers the goods
• Traditio Brevi Manu – The buyer already possesses the goods, however, a manifestation by the seller
is required to perfect the delivery
• Traditio Symbolica – A Signification of delivery through the possession of something else conveyed
• Constitutum Possessorium – The Seller acquires ownership by acting in two capacities
• Execution of Deeds
• Quasi Traditio – Other proof of ownership other than through deeds such as certificates may qualify
as constructive delivery; or by the manifestation of the vendee’s use of his rights with the vendor’s
consent
Manner of Delivery
The time of delivery may be determined by stipulation or within a reasonable time
The place may be by stipulation, the goings of usual trade, the place of business of the seller, the
residence of the seller, or wheresoever the property is located
The seller has no obligation to deliver the goods if the buyer fails to pay the price of the thing or if
the buyer loses the benefit of the period to pay.
Quantity to Be Delivered
In the case of Mistake in the quantity delivered:
Personal Property Real Property
Less than More than Mixed Indivisible Less (Lacking Excess
Quality)
Accept
Accept what Demand Specific Accept
what is
Reject the is needed and performance if it is what is
needed and
Delivery Reject the possible needed and
reject the
Rest Reject rest
rest
Accept the
Accept and
whole thing
Reject the Pay at the
Accept the whole and pay at Accion Quanti Minoris
whole sale contract
amount if there the contract
rate
is bad faith; in rate Reject the
good faith, whole sale Recission if 1/10
Accion Quanti lacking or if the Applies also
Reject the
Minoris buyer would not have to Judicial
whole sale
contract due to Sales
deficiency
The Rights of the Unpaid Seller
An unpaid seller is any seller who is not tendered the whole price or is one who receives a negotiable
instrument under a conditional payment that had been dishonored or if the buyer becomes insolvent
Possessory Lien
The seller is allowed to retain or withhold the delivery of the thing
Grounds:
• The buyer’s credit terms have expired or if there is no credit term to begin with
• The buyer becomes insolvent
The Right of Lien is lost when:
A delivery occurs w/o the seller The buyer lawfully obtains title IF the seller waives the lien
reserving his rights to the thing to the things right
A Partial Lien will only entitle the seller to a partial right to retain goods
Stoppage in Transitu
The seller is allowed to stop the goods in transit
Requisites:
• Buyer is insolvent
• The seller parts with the goods, and the goods are in transit
o The goods are considered in transit if the goods are still with the carriers, or when no
party is willing to take possession of the thing while in transit
Things are NOT in Transit when:
▪ The buyer lawfully obtains title to the things
▪ The goods arrive at the destination and with the buyer’s knowledge
▪ The carrier refuses to deliver to the buyer
Exercise of Stoppage in Transitu
• The seller exercises Stoppage if the seller somehow acquires actual possession of the thing or
• The seller issues a notice of claim to the bailed carrier
o In this case, the carrier redelivers to the seller at the seller’s terms and costs; and the
original waybill is cancelled
Do note that the Right of Possessory Lien and Stoppage in Transitu are mutually exclusive
Buyer sells the thing before exercise of stoppage or lien – In case the buyer sells the thing before the
seller exercises either right, the seller loses neither. Except if the seller assents, or if the sale is covered
by a negotiable document of title sold to a buyer in good faith & for value. (in which case, the buyer
may pay the seller through its proceeds)
Right of Resale
The seller is allowed to resell to another buyer in good faith (such acquiring better title than the original)
Grounds:
• The goods are perishable in nature (If not perishable, a seller must furnish a notice of resale)
o Failure to give notice will not affect the entitlement to the right, however, the notice
becomes valuable evidence in trying the buyer’s default
• The seller expressly reserves the right of resale in case the buyer should make default
• Where the buyer has been in default for an unreasonable time
• The Seller has either right of lien or right of stoppage
In case the resale proceeds are less than the original sale, the seller can recover from the original
buyer the difference as damages due to breach of contract
In case the resale proceeds are more than the original sale, the seller is entitled to profit made
Recission
The seller may have the contract be cancelled when:
• The seller reserves the right of recission
• The buyer is in default
• The seller has the right of either lien or stoppage
The seller is not liable to the buyer upon the contract of sale, but may recover from the buyer damages
for any loss occasioned by the breach of contract
No notice is necessary for recission, but it becomes essential evidence for the buyer’s default
The buyer’s insolvency is not a requisite for a possessory lien; this means that if the buyer is not yet
insolvent, but his credit term has lapsed, the right may already be exercised, unlike in stoppage, the
insolvency must be established as a requisite along with the parting of the goods in order for its exercise
to take effect. In this case, the right of resale and recission may be exercised along with any, but not
both of lien and stoppage.
Double Sales
A Double sale occurs when a single property is sold under multiple sales contracts of sales; where two or
more different buyers hold conflicting rights over the property sold from the same seller; or if there are
two sellers to two different buyers
Movable Properties
• Whosoever buys and possesses the thing in good faith; which is reckoned at the time of registration,
and not the time of the sale’s perfection
• Knowledge of the prior sale – bad faith
• Both sales must be valid, or at least voidable or rescissible
Immovable Properties
• The first to register in good faith; even if the first to register is in bad faith
• In the absence of the above, the first to possess in good faith
• In the absence of both of the above, the one who possesses the oldest title to the property
Conditions and Warranties
Conditions – where the obligation of either party to a contract of sale is subject to any condition which
is not performed, such party may:
• Refuse to proceed with the contract
• Waive the performance of the condition
• Treat the non-performance as a breach of WARRANTY and ask for damages
Warranties – Any affirmation of fact or any promise by the seller relating to the thing is an express
warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the
same, and if the buyer purchases the thing relying on the warranty.
The Seller’s Opinion – Is not necessarily a warranty except if the seller is an expert on the matter, the
buyer relying thereupon.
Warranties under the Consumer Act RA 7394
• Applies to consumer goods in general, but not including drugs, cosmetics, and devices
• Requirements
o The terms of the warranty are in clear language
o The warranty identifies, in clear language, to whom the warranty applies
o The warranty states the products and parts covered
o The warrantor’s actions in case of return
o The consumer’s procedure to avail the warranty
o The stipulation of warranty period
▪ Not less than 60 days, or not more than 1 year from the time of sale
Warranty Against Eviction
Eviction – When the vendee is prevented from enjoying, in whole or in part, the thing purchased due to
a final judgment against the vendor, or if the vendor is summoned for an eviction suit at the instance of
the vendee.
The final judgment is based on the vendor’s rights prior to the sale, and acts imputable to the vendor
• This applies even without stipulation
• Vendee does not need to appeal in order for the vendor to be liable for eviction
• Adverse possession commences before the sale, but prescribes after transfer (Vendor is not liable)
• The judgment debtor may also be liable for eviction unless otherwise decreed by judgment
• IF the property is sold for non-payment of taxes due, not made known to the vendee, the vendor will
be liable for eviction
• The defendant vendee shall ask within the time fixed by the rules of court for answering the
complaint; the vendor will be the vendee’s co-defendant (in case the vendee sells to a 3 rd person)
Extent of Liability
• In bad faith – Value of the thing, interest, cost of the suit, expenses, damages
• In good faith – Value of thing, interest, cost of suit, expenses
• The buyer waives the warranty through:
Consciente – The buyer is not aware of eviction, then the vendor is only liable to the value of the thing
Intencionada – The buyer is aware of risk of eviction, then the vendor will not be liable for anything
Warranty against Hidden Defects

Hidden Defects -Renders the thing unfit for intended use or diminished fitness, in which, awareness
thereof would avoid the contract or reduce the price thereof
The Vendor is not liable for hidden defects if:
• The defects are apparent, patent, and visible such that the buyer would have been aware thereof
• The vendee as an expert, would have known of the defect
Warranty of Fitness
• Given if: the buyer informs his intention for the thing’s use or if buyer relies on seller’s knowledge
• Not given if: the specific thing does not warrant particular fitness
Warranty of Merchantable Quality
• When the goods are bought by description, seller warrants that those are of merchantable quality
• When the goods are bout from a specialized dealer, the goods are merchantable
• When by sale of samples, the seller is a dealer of that class of goods
Other Rules
• the vendor can be made liable even if he was not aware of the defect
• Implied warranties may be annexed by the usage of trade
Remedies against Breach of Warranty
• Withdrawal from the contract plus damages (Accion Redhibitoria)
• Accion Quanti Minoris plus damages
Loss of Defective Thing
• In Good Faith – the Price, Expenses of the contract, and interest may be claimed
• In Bad Faith -the Price, Expenses of the contract, and Damages
• Caso Fortuito – Refund of the price paid, and damages in case of bad faith
The warranty prescribes after 6 months from delivery
No Warranty
• Sale of secondhand items
• Sale by junk-shop operators
• Sales in auctions
Redhibitory Defects in Animals
Redhibitory Defects – are undetectable defects in animals, even with expert inspection; the
veterinarian’s ignorance or bad faith will make the same liable for damages should he fail to disclose any
defect.
• In the Sale of more than 1 animal – the defect of one is exclusive to it, except if the animals are
intended to be purchased as a team, yoke, or pair
• There is no warranty if animals are sold in fairs, public auctions, if stocks are sold as condemned
• Void sale of Animals
o Animals suffering from disease
o The animals are unfit for intended use as stated in the contract
• Other Rules
o The animal dies after 3 days from purchase, the vendor will be liable for it
o If the sale is rescinded, the animal must be returned in original condition
o The sale of large cattle is governed by special laws
• Remedies and Prescription
o Prescribes after 40 days from purchase or fixed period
o Same remedies as with the warranties against hidden defects
Warranties against Non-apparent Encumbrances
Encumbrances – an attachment on an immovable purchased, executed for the security or benefit of
another immovable (The property may have been mortgaged for another property)
• The encumbrance is considered non-apparent if there are no external indications for it
The warranty is activated when the encumbrance is not mentioned in the sale or agreement, or if the
sale is not registered in the register of deeds
• It is not applicable to sheriffs, auctioneers, mortgagees/pledgees/other persons professing to sell by
virtue of authority in fact or law, for sale of a thing in which a 3 rd person has legal/equitable interest
• Remedies and Prescription

o Recission, that counts from the execution of the deeds
o Demand damages counting from the discovery of the non-apparent encumbrance
o These remedies prescribe after 1 year from the execution of the deed or discovery,
whichever is earlier.
Obligations of the Vendee
To Pay the Price
• The buyer must pay the price in the manner assigned by the vendor
• To also pay for interest and fruits, reckoned from delivery to ultimate payment
o Any interest as stipulated counts from the delivery
o Any delinquency interest counts from the vendor’s demand (judicially or not)
• Suspension of payments
o Disturbed possession/Fear of disturbance by vindicatory mortgage/foreclosure
▪ If the seller gives a security for the return of the price
▪ Stipulations are given, notwithstanding contingencies
▪ Only a mere trespass caused the fear
• Vendor’s remedy on recission of Immovables
o Allowed only if there is non-payment for an immovable, with a reasonable fear of loss
o The vendor must return payments to vendee
o Even in automatic recission upon default, the vendee may still pay even after the
expiration of the period given as long as no demand for recission is executed; after which,
the courts will no longer grant another period
• Vendor’s remedy on recission of Movables
o The buyer appears to not have received the thing, the seller may rescind the contract
o The buyer should not have tendered the price, unless a longer period is stipulated
To accept the Delivery
• Delivery by installments
o The buyer is not bound to accept by installments unless agreed-upon
o Or if the seller makes defective deliveries in one or more attempts
o Or if the buyer refuses without just cause to accept in whole
• Breach of Contract for non-acceptance
o Material non-acceptance will result to breach
o Severable non-acceptance – just compensation or set-off is allowed
• Deemed acceptance
o The buyer intimates to the seller;
o acts in a manner inconsistent with the seller, or
o if there is a retention without rejection
To notify the seller in their Breach of Warranty
• Sellers are not discharged from warranty liability, except if there are stipulations to the contrary or
if the buyer fails to give a notice within the prescriptive period
To notify the seller in case of Refusal
• If the buyer volunteers to be a depositary despite refusing to take ownership of the thing, the buyer
will be liable as a depository
Buyer’s Right to Examine Goods
If the goods have been delivered The seller is bound, at the If the goods are not fully paid,
but not previously examined, buyer’s requires, to provide there can be no right to examine
then no acceptance can be time to examine the goods in the absence of any agreement
tendered without examination to the contrary
Vendee’s rights upon non-delivery
Specific performance & damages Action for Recission Action for Damages
Extinguishment of Sales Contracts

A sales contract can be extinguished like any other obligation, however, added to those modes are the
effects of Redemption
Conventional Redemption
It is also called the Right of Repurchase or Pacto de Recto Sales or a Sale with a Resolutory Condition
Sale involves payment of the Price, Cost of Contract, useful & necessary expenses, other stipulations
Fruits in a Resolutory Sale
At the time of Sale and of Redemption At the time of Redemption Only
If the purchaser pays for the fruits, he becomes The seller and the buyer prorate the fruits based
the owner of the fruits; otherwise, no on the time spent with the thing within the period
reimbursements as to fruits can be claimed
In case a contract is ambiguous in its construction or intent; these elements are apparent to an
equitable mortgage:
• Inadequate Price • The purchase retains some purchase price
• The vendor remains in possession as a lessee • The vendor pays for the taxes
• At or after the expiration, another instrument • And the Real Intent is actually to mortgage
extends the period the property itself
In which case, the remedy would be to reform the contract into that of a mortgage
Period to Exercise Repurchase Rights
• That agreed-upon not exceeding 10 years
• In the absence of an agreement, 4 years from the date of sale
• The Right of Return may be exercised within 30 days from final judgment; when the case at bar
decides if the sale is indeed a Retro-sale or an Equitable Mortgage
No Redemption can be made if:
• There is a consolidation of ownership; “the vendee owns the property absolutely”
o Real Property – No recording in the registry of property without judicial order, after the
vendor has been duly heard
o Personal Property – by operation of law, and the vendee consolidates the ownership
In case the Seller-a-retro sells to a third person:
• The vendor (buyer-a-retro) may bring all actions against every possessor who derives rights from the
buyer even if succeeding contracts make no mention of the sale-a-retro
o This is without prejudice to the mortgage law and land registration law
• The vendee is subrogated to the rights of the vendor
• Creditors of the vendor cannot make use of vendor’s right of repurchase until all the vendor’s
properties are exhausted
Repurchase Sales with Multiple Parties
• Sale of an undivided immovable – The vendee can compel the vendor to redeem the whole property;
in which case, a co-owner sells his interest in an immovable, the buyer can compel a whole
redemption
• Sale where co-owners execute jointly in one contract – the sellers may redeem only their share;
but the buyers can compel the whole redemption, and cannot be made to accept a partial redemption
• Co-owners sell separately in different contracts – Partial redemption is valid
Legal Redemption
The right to be subrogated, upon the same terms of contract, in the same place of one who acquires a
thing by purchase or dacion en pago, or any onerous transfer; this is done so as to not prejudice the
rights of persons with equitable interest over the thing sold. Effectively, an article of property will come
under the ownership of the one holding a better interest over the thing.
1. Legal redemption is available to Co-owners in their own shares of interest, when other co-
owners sell their interests over a property, whether movable or immovable
• The amount paid consists of the purchase price, except if the same is excessive, a
reasonable one is taken in place
• For multiple redemptioners, only that proportion that pertains to their own share of
interest of a thing in common
2. Owners of adjoining Lands

Rural Lands Urban Lands
• Must not exceed 1 hectare • The land must be so small,
• The owner’s land adjoins another rural • Cannot be practically useful;
land • Has been purchased only for speculation
• Not separated by brooks, rivers, ravines, • The redemptioner owns a land that
roads, and other servitudes adjoins the area in question
• The grantee owns no rural land • A preemptive right is available to that in
• In case of Multiple Redemptioners, prefer preference under the circumstance of
the one with the smaller area or multiple redemptioners (under the same
whosoever is the first to redeem preference for rural lands)
• The Redemption is deemed to be a
perfected sale
• Ultimately, the redemptioner who has the
best use for the land will be granted the
right of redemption
• For both cases above, the period to exercise the right of redemption will be 30 days
from the notice in writing by the prospective vendor.
Subject Redemption Price Multiple Redemptioners
Co-owners Real or Personal Purchase Price, unless All, pro-rata
Property if it is grossly excessive
Adjacent Owners Rural land Purchase Price only The smaller lot takes priority; if the
redemptioners’ lots are equal, the
one who redeems first
Adjacent Owners Urban Land Purchase Price The one whose use is best justified
Assignment of Credits
An assignment of credit is a contract whereby a person transfers his credit, right, or action against a
third person to another person for a consideration which is certain in money or its equivalent
• Assignment is a consensual contract perfected by mere consent. It may be entered to in any form,
whether written or oral; or of public or private instruments
o To bind 3rd persons, it must be in a public instrument
o Assignment of credits involving real property, it must be recorded in Registry of Property
• Vendors in good faith warrant the existence of credit and legality of the assignment upon sale
• The vendor or assignor of credit becomes liable for the insolvency of a debtor of credit
o When the assignor expressly warrants the solvency of the debtor
o The prescriptive period of warranty for solvency of the debtor in assignment of credit is 1
year from the maturity date of credit or date of assignment whichever is later
o When the assignor acted in bad faith because the insolvency of the debtor of the credit is
of public knowledge when he assigned the credit
Title IV: Laws on Credit Transactions

Common Requirements for Mortgages and Pledges
Credit transactions are established to make debt financing less risky & more viable for both DR & CR
Requisites:
• These must be constituted to secure a principal obligation
• There is an absolute ownership of the thing pledged or mortgaged
• The pledgor or mortgagor must have free disposal of the property; or at least, authority to dispose
Common Features:
• Mortgages and Pledges are accessory contracts
• Mortgages and Pledges may guarantee Valid, Voidable, & Unenforceable Contracts; but cannot
guarantee Void and Rescissible Contracts
• If the Principal is due, the thing pledged or mortgaged may be alienated for payment
• Both secure all kinds of obligations
• They are indivisible even if the debt or principal obligation is divisible
o Even if a co-debtor partially pays for the principal obligation, the mortgage/pledge is not
partially extinguished
o If a co-creditor receives payment partially, the mortgage/pledge is not partially extinguished
• 3rd persons may pledge or mortgage the credits of the debtor
• Pactum Commissorium is not allowed for both (VOID STIPULATION)
• In case several securities are mortgaged or pledged to a single obligation, the mortgage or pledge
may be partially extinguished depending on the debt assigned to that security
Pledges
Pledge – A debtor delivers to the creditor or 3 rd person movables or documents evidencing incorporeal
rights for the purpose of securing a principal obligation with the understanding that when the obligation
is fulfilled, the delivery shall be returned with all the fruits and accessions
Kinds of Pledges:
Voluntary or Conventional Pledge Legal Pledge
Cause of the pledge for the Parties
• Debtor-pledgor – The principal obligations performance or security for it
• Pledgor other than the debtor – Compensation or Gratuity
Characteristics:
• Real, Nominate, Accessory, Unilateral (Creditor obliged to return upon payment of principal),
Subsidiary (Arises along with the securing of the principal obligation)
Object:
• Movables or Incorporeal Rights evidenced by Negotiable Instruments, Bills of Lading, Stock
Certificates, Bonds, Warehouse Receipts, etc. These must be indorsed, are licit, or must return fruits
& accessions to the extent of what he is not owed
• In the absence of stipulations, the creditor is entitled to interest/earnings/fruits/offspring
• Unless the thing pledged is expropriated, the debtor continues to be the sole owners
• The creditor may bring actions on the thing pledged to recover it from 3 rd persons & defend rights
Deposit of the Thing Pledged with a 3rd Person
Valid if: Pledgee Deposits Per Stipulation
The Pledgee’s fault or negligence due to danger of loss/impairment
Valid if: Pledgor Deposits
Pledgee misuses the thing
• In case there is Fear or Loss without pledgee’s fault
o Pledger may demand the return of the thing, offering another with the same quality or
o The pledgee may cause the sale of thing pledged at an auction
▪ The proceeds of the auction to be used as a collateral
▪ The pledgee is obligated to advise the pledgor without delay of danger or fear
Pledges require no form

To affect 3rd persons, a public instrument must be executed, and must contain a description of the thing
pledged, and the date of the pledge
Alienation of the Thing Pledged to the Debtor or Transferor
• Allowed with the pledgee’s consent;
• Pledgee-creditor continues possession but the title passes to the transferor
Creditor-Pledgee’s Rights and Obligations:
• To take care of the thing pledged with due diligence
• Right of reimbursement over the expenses for preservation
• The Pledgee is responsible for the acts of his agents
• If the creditor is deceived of the substance of the pledged thing: he may claim another instead or
demand payment of the principal
Use of the Thing Pledged
• The creditor cannot use the thing pledged without authority of the owner or;
• If the preservation of the thing requires its use
• The use or misuse without the right required: Judicial or extrajudicial deposit of the thing pledged
Obligations of the Pledgor
• Advise the pledgee of flaws, failure to do so makes him liable for damages
• Cannot ask for return against the creditor’s will without paying the principal obligation & interest
Requirements for the Extinguishment of a Pledge
• Extinguishment of the Principal Obligation
• Return of the thing by the Pledgee to the owner
• Renunciation or abandonment by the pledgor
• There is a prima facie presumption that the pledge is extinguished if after perfection, the thing is
with the pledgor or owner; this still exists when the 3rd person to whom the pledge was given was in
possession of thing pledged at perfection
• There must be a statement in writing by the pledgee of the acceptance of or return to the pledgor-
owner needed for validity; in this case, the pledgee is now bound as a depositary
Foreclosure Sale or Auction Sale
• The pledgee, in due course, must proceed before a notary public to initiate a foreclosure sale
o The pledgor may also bid with better rights against the highest bidder
o The pledgee may also bid, his participation is invalid if he is the only bidder in auction
• With notice to the debtor-pledgor or owner stating the amount it shall be sold for
The Creditor’s Right to Appropriation (The creditor has preference over the highest bidder)
• If the thing is not sold in the first auction, another shall be held with the same formalities; if it still
cannot be sold the creditor may now appropriate the thing pledged
• The foreclosure sale extinguishes the pledge even if the proceeds return a deficit, but in any case,
the pledgee is not entitled to profits, only up to the costs incurred
Credits as the Thing Pledged
• If the credit becomes due before the pledgor can redeem the credit, the proceeds of the credit shall
inure to the pledgee; returning any excess of what is due to him if any to the pledgor
Other Rules on Pledge
• After a public auction, the pledgee must notify the pledgor the results thereof
• 3rd persons with the right in the thing pledged may pay for or satisfy the principal upon becoming
due & demandable
• If 2 or more things are pledged, the pledgee chooses which to be sold, unless otherwise is stipulated;
demanding only insofar as he is owed
• 3rd party secures an obligation with his own property (Contract of Guarantee)
o He is indemnified of principal, interest, expenses, damages due, etc.
o He is subrogated the creditor’s rights
o Not prejudiced by any waiver of defense by principal obligor
• Special Laws on Pawnshops/similar establishments contain additional provisions on laws on pledge
Mortgages
Real Estate Mortgages
•These cover immovable property • Must be recorded in the registry of property
•Alienable rights are attached to property • The Creditor-mortgagee has no other right
•It must be executed in public instruments to than to demand execution of the document in
bind 3rd persons which the mortgage is formalized
In General, Mortgages cover these considerations, upon due:
Accessions, Improvements, Growing Fruits, Rents/Income Accruing, Insurance, Expropriation proceeds
• The Principal Obligation is covered only to the extent of that stated in the deed, even if the value
of the thing actually exceeds the loan; except if it includes future advancements a.k.a. dragnet
clauses which technically cannot be determined at the time the deed is registered
Credit is transferrable – the thing may be alienated or assigned to 3 rd persons in whole or in part; in
other words, the mortgage attaches to the property or to the assignee
Pactum De Non-Aliendo –Stipulation that prohibits alienating mortgaged property is void
3rd party transferee of mortgaged property
• IF the property is mortgaged, the 3rd party is bound to a foreclosure sale if ever
• He is not bound to answer to the deficits in mortgage
• Unless there is an active novation
• If the mortgage is unregistered, the transfer is not affected by the mortgage
Foreclosure Sale
• Judicially by rules of court (ROC 68) – A Notice to the general public is required; 3 public spaces at
least 20 days prior to auction sale
• Extrajudicial (RA 3135)
o Proceeds are in excess – the mortgagor is entitled to excess (returned)
o Proceeds are deficient – the mortgagee is entitled to recover the deficit
▪ Recto Law does not apply to real properties
o This is because the mortgage is a separate contract from the sale
• Maximum Price/Upset Price or Tipo – Void stipulation in a foreclosure sale
Redemption
• Only for Real Estate Mortgages (No right of Redemption for Chattels)
Equity of Redemption Right of Redemption
A act before foreclosure An action after foreclosure
Judicial 90 to 120 Days from GR: Not allowed
Foreclosure judgment EXN: Mortgagee is a Bank as provided in the General Banking
Law
Extrajudicial Whatever grace period is GR: within 1 year from foreclosure
Foreclosure given (RA 3135) EXN: Mortgagee is a Bank and Mortgagor is a corp. – 3 months
Chattel Mortgage
• Mortgages applicable to personal property it attaches to
• Personal Property is recorded in the Personal Property Registers
o In this case, if delivered instead of record in the register the contract is actually a pledge
Affidavit of Good Faith:
• A Statement that declares that the mortgage is only for securing credit and for nothing else
o Absence of the affidavit does not affect the validity mortgage
o Absence will mean that the mortgage will not bind 3rd persons
o In case of property with the respective Registry or MARINA in case of vessels or LTO for vehicles
• Covers only the obligations stated in the Affidavit
o As such, subsequent obligations to the one in consideration of the affidavit are also covered
Disposal of Pending and Mortgaged Property – A criminal act as per Art. 319 in the Revised Penal Code
Only extrajudicial foreclosure is allowed; A Notice however is required (10 days before he foreclosure
sale, and in 2 public places)
Foreclosure of Chattels
A mortgagee may subject property to foreclosure sale to satisfy the principal obligation, or when there
is a violation of any condition, stipulation, or warranty by the mortgagor.
• 30 days is given from default to pay the obligation to prevent foreclosure
• In case of deficiency – Mortgagee can recover, except if Recto Law applies
• In case of excess – the mortgagor is entitled to the excess
Antichresis
Antichresis – a contract whereby a creditor acquires the right to receive the fruits of an immovable of
his debtor, with the obligation to pay the payment of the interest, if owing, and thereafter to the
principal of his credit. It is a formal contract perfected by the execution of the written instrument
containing the antichretic agreement together with the amount of the principal and interest.
Antichretic debtor – delivers land and fruits Antichretic creditor – receives the land and fruits
An Antichresis is generally: Accessory, Indivisible (creates a lien on the properties mortgaged),
Inseparable (Attaches to property), Formal, Nominate
Principles of Antichresis:
Valuation of Interest – FV of fruits Absence of stipulation, antichretic creditor must
pay incidental expenses to preserve property
Pactum commissorium applies Exact fulfilment to pursue obligation will waive
the security of Antichresis (Antichresis ceases)
Comparison of Credit Transactions:
Basis Pledge R. Estate Mortgage Chattel Mortgage Antichresis
As to perfection Real Consensual Formal Formal
Security Present Obligations Present Obligations Present Obligations Present
only unless Dragnet only unless Dragnet only; Affidavit of Good Obligations only
clause apply clause apply Faith prevents unless Dragnet
security of future debt clause apply
Binding 3rd person Public Instrument In the Registry With affidavit of GF In the Registry
Object Movables Immovables Movables Immovables
Pactum Commissorium Void Void Void Void
Indivisibility Yes Yes Yes Yes
Debtor Default Foreclosure Foreclosure Foreclosure Gather fruits of
land & apply to
interest then
principal
Foreclosure deficiency Not recovered Recoverable Recoverable unless Recoverable thru
Recto Law applies fruits
Excess Proceeds to Creditor-pledgee Debtor-mortgagor Debtor Mortgagor To owner of land
Appropriation Yes No No No, Yes to fruits
Sale during pendency Sale w/ consent Sale w/o consent Void Sale fruits w/o
consent
Sell w/ consent of Sell w/o consent Sell w/o consent Sell fruits w/o
Sale of property by pledgee consent
mortgagor/pledgor Thru Public sales GR: Public Sale GR: Public Sale Not Applicable
after pendency only EXN: Private sale if EXN: Private sale if (Creditor does not
stipulated stipulated own land)
Redemption No redemption Yes Yes Not Applicable
Other Credit Transactions
Commodatum Loan/Mutuum Deposit Lease
Description Literally borrowing a Take a fungible thing and Receive a non-fungible Borrowing a thing for
non-fungible thing replace with equivalent thing, return exactly a price
Object Consumable or not Consumable only Consumable or not Non-consumable
Characteristics Real Real Real Consensual
Gratuitous Onerous if w/ Interest Onerous if w/ Interest Onerous
Gratuitous if w/o Gratuitous if w/o
Title V: Laws on Negotiable

Instruments
Negotiable Instruments in General
Governing Laws – Act. 2031 for Negotiable Instruments; and B.P. 22 for Bounced Checks
Applicability – Only for Negotiable Instruments described under Sec. 1 of Negotiable Instruments Law
Definition – A written statement signed by a Maker or Drawer containing an unconditional promise to pay
or unconditional order to pay, a sum, certain in money, payable on demand or on a fixed determinable
future time, to Order or to Bearer
• Pay to Order – means to pay to whosoever the instrument is last named via indorsement; the ‘order’
in this case, is from the last person signing upon the instrument, instructing the drawee bank to pay
to the holder who chooses to draw cash from the bill, instead of negotiating the instrument further.
• Pay to Bearer – means to pay to whoever holds the negotiable document
Functions
• It is a Substitute for Money, but is not Legal Tender until it is drawn upon
• Media of Exchange – Generally, Negotiable Instruments are safer to keep in float than cash, since
the risk of loss can easily be mitigated by cancellation of the instrument as it is a mere representation
of the funds available for use; whereas the loss of cash is absolute.
• Medium of Credit Transactions/for Circulation of Credit – It is a useful tool to allow those with
undoubted credit to meet liquidity needs; them being solvent, but are nonetheless illiquid.
o Bills of Exchanges and Notes are used for Credit Transactions or are Credit Instruments
o Checks are Cash Substitutes or Cash Equivalents
Extinguishing Obligations
• As Negotiable Instruments are not legal tender, as per the laws on obligations and contracts, they
have the capability of extinguishing obligations only upon being drawn or if the value of the
obligations and thereby the instrument in consideration therefor, becomes impaired by the fault of
the creditor (undue acceptance of payment for instance)
Negotiability is determined:
• On the basis of the whole instrument
• On the facts laid in the face of the instrument
• And upon compliance with Section 1 of the Negotiable Instruments Law
o The ‘language of the law’ need not be followed for the sake of validity.
Characteristics of Negotiable Instruments
• Negotiability – It allows for the passing of title of credit to another
• Accumulation of Secondary Contracts – Indorsement or delivery before settlement or payment
Kinds of Negotiable Instruments
Promissory Notes – Unconditional promise in writing, to pay a sum to bearer or order; signified by maker
• Bills of Exchange – Unconditional order in writing, requiring the person to whom it is addressed, to
pay a sum to order or bearer, signified by the maker
Promissory Notes Bills of Exchange
Maker – Payee Drawer/Maker – Payee – Drawee
Unconditional Promise by maker to pay Unconditional order by drawer to the drawee to pay the Payee
Requires only a presentment for Requires presentment for acceptance first before presentment
payment without prior acceptance for payment
The Liability of the Maker is primary Liability of the Maker/Drawer is secondary and applies to the
and absolute extent of the Drawee’s tenor of acceptance
Bills are treated as Promissory Notes if:
• The Drawer and Drawee are the same person (An Order to yourself is, in effect a promiser)
• The Drawee is fictitious (Hence the order is impossible to execute)
• The Drawee is in no capacity to contract
• In the case of ambiguity, the holder may treat it as either a Bill or Note upon his election.
Requisites of Negotiability (Sec. 1 NIL)

1. It must be in writing and signed by the maker or drawer
2. It must contain an unconditional promise or order to pay a sum, certain in money
3. It must be payable on demand or on a fixed, determinable future time
4. If it is addressed to a drawee, he must be named or indicated therein within with reasonable
certainty
Non-negotiable Instruments
• Documents of Title – not payable in money
• Letters of Credit – these are in favor of a certain person, and not the holder’s order
• Treasury Warrants – these are paid out of a fund, and are actually conditional i.e., the payment can
only be done if cash is drawn upon only that fund
• Postal Money Orders – these are made conditional by law so as to prevent the post office from
negotiating instruments delivered to them, in the name of any person in that post office; thereby
absolving the post office of any warranty as to the instrument’s character
• Certificates of Stocks – Not payable in money
• Warehouse Receipt – Not payable in money
• Quedan – Not Money
• Now Accounts – This is in favor of a specific person (Revolving Credit, in contrast to letter of credit)
Negotiable Instrument Non-negotiable Instrument
Is what is described within Section 1 of NIL Does not fit into description within Section 1 of
NIL
Can be negotiated and assigned Can only be assigned
Holder in Due Course receives the instrument free The acquiree acquires no better right or title from
from defects the assignor
Even Real Defenses are tenable against the holder Both Real and Personal Defenses are tenable
in due course against the assignor
It is Governed by the NIL NIL applies only by analogy
Prior parties warrant the payment over the Prior parties warrant only the legal title to the
instrument instrument
Interpretation of Instruments
In case of Ambiguous construction of the instrument:
• Generally, the sum provided in words shall prevail over the sum in digits; upon ambiguity i.e., if the
sum in words remains to be confusing or unreadable, the digits will prevail
• If the instrument is undated
o The date is construed to be the date of the first negotiation (a.k.a. issuance)
o Interest, if any, reckons from the date of issuance
• Words in handwriting have more weight than words in print/ words by machine
• Ambiguity as to its kind; the holder may treat it as one of either upon his election
• If the signature is unclear as to what capacity, it shall be construed as to be in the capacity of an
indorser
• If two persons promise to pay upon a single instrument (X&Y), then they are jointly & severally liable
Section 1 of the NIL and Negotiation
In Writing and Signed by the Maker or Drawer
• The definition includes those written in print
• Any mark on the instrument supported by the intent to be bound is construed to be a signature
• Signatures are prima facie presumed to be valid; a person who challenges the validity of the signature
has the onus probandi of proving otherwise.
• No person is liable whose signature does not appear thereon, except:
o Those using a trade name, signing in the capacity of that trade name
o Principals, whose signature and vested authority, is signed by the agent
o In the case of Forgery (Sec. 23)
o Acceptance in a separate paper (i.e., an allonge)
o Written promise of acceptance is made before drawing upon the instrument
Unconditional Promise or Order to Pay a Sum, certain in money

• The promise or order must be unconditional
• Paying out of a particular fund – conditional, renders the instrument non-negotiable
o If the instrument instead provides for the reimbursement of the drawee from the funds
of the maker/drawer, the instrument is unconditional (Two separate orders are made;
one to pay the payee unconditionally, and to reimburse the drawer out of the maker’s
funds)
• Statement of the Consideration for payment – does not affect the negotiability of the instrument
• The sum, not directly stated, but can be computed with reasonability; are negotiable
o It may contain clauses to earn interest
o If it contains installments, the installment payments must be dated or can be determined
o It may contain Acceleration Clauses (the instrument becomes payable on demand upon
default); an Insecurity Clause (If no collateral or security is not provided or if the
securities therein sustain a significant loss, the instrument becomes payable on demand),
or an Extension Clause (allowing for grace)
o If the instrument declares that it be paid in Foreign Currency, the spot rate is applied
o If other fees are given or determined, the instrument remains to be negotiable; if these
cannot be reasonably determined the instrument becomes non-negotiable
(determinability of the amounts attached to the instrument is necessary)
It must be Payable on Demand, or on a Fixed, Determinable Future Time
• Payable on demand or on sight if no time is expressed or if the instrument is already overdue
• It may express a day certain (an event certain to occur in the future)
• It may express a date certain
• It may express a fixed period after the occurrence of an event certain to happen
Payable to Order or Bearer
• The order of Payee (in this case, the payee may order the payment to himself or anyone else with
liberality) is the same as pay to Payee or his order (distinctly manifesting payment directly to the
payee himself or some other person)
• The Payee in an order instrument may be the Maker, Drawer, Drawee, or 3rd Person, or any office in
a corporation so long as these are NAMED
• In case multiple payees are named; the instrument remains to be negotiable (P1 or P2; P1 & P2)
• Payable to the Bearer
o If the instrument expresses itself as such
o If the instrument pays to a specific person or the bearer
o If it is payable to a fictitious/inexistent person
o The Last indorsement on the instrument was blank
The Drawee must be Named with Reasonable Certainty
• For Bills of Exchange only;
• Requires presentment for Acceptance and Payment
• In case of multiple drawees, (D1 & D2 is valid; but D1 or D2 is invalid as the drawee is uncertain)
Omissions allowed on the Face of Instruments
• The Date
• The Consideration or Cause for negotiation
• The Place of Drawing or Payment
• The Seal of Office
• The Currency in which it is payable
Negotiation
Issuance – The first formal delivery of the instrument to whomever takes it as holder (It is not sufficient
that only indorsement is effected)
Delivery – the transfer of possession, actual/constructive from one to another
• In an order instrument, Indorsement and Delivery are required;
• for a bearer instrument only delivery
Assignment vs Negotiation
Law NIL NCC
Applicable
Rights Negotiation transfers a better title to a holder in due No better right is transferred
course from assignor to assignee
Defenses Only Real Defenses are tenable against a Holder in Due Both Real and personal
Course; if a Holder is not in due course, the Negotiation defenses are tenable against
transfers no better title the assignee
Negotiation of a Bearer Instrument
The negotiation of a bearer instrument requires only delivery; and as such, warrants both payment and
good title to the immediate transferee of credit
• Special Indorsements – an indorsement that specifically indicates the person to whom the indorser
intends to negotiate it to, making the indorser liable to the person in his favor as to the instrument’s
warranties.
o In the case of bearer instruments, the indorsement has no effect over the general
negotiability of the note, but will have an effect as to the liability of the parties.
o Any party specially indorsing will become liable as a general indorser, and as such,
subsequent indorsees will be construed to have derived title through the special
indorsement
o Any subsequent party receiving the instrument by mere delivery, despite deriving
title through a special indorsement, may strikeout the indorsements that are not
necessary to his title, freeing that party from warranting in the same capacity as an
indorser. This is because no indorsement may convert a bearer instrument into an order
instrument
Negotiation of an Order Instrument
The negotiation of an Order Instrument requires both indorsement and delivery.
Incomplete Negotiation:
• Delivery with no Indorsement:
o Renders the delivery as a mere assignment; as such, the transferee acquires no better
right than the assignor, but is nonetheless entitled to the right to have the instrument
be indorsed.
o The Negotiation only occurs upon the actual indorsement of the instrument
Indorsements – It is the writing of the name of the payee on the instrument with the intent to either
transfer title or to strengthen the security of the holder by assuming a contingent liability for its future
payment or both.
• Indorsement may be done on a separate sheet called the allonge, accompanying the instrument
• Applies for the entire amount, otherwise the indorsement will not take full effect, and will render
the transfer as a mere assignment
• It may still be negotiable if the partial payments to the credit are made, or if the final and current
payment of the instrument completes the negotiation
• If 2 or more indorsees sign severally, the indorsement renders the transaction as an assignment
• Kinds of Indorsements
o Blank Indorsements – The order instrument becomes a bearer instrument (since no
distinct order to a specific instrument, only the bearer could be determined.)
o Special Indorsements – In the case of order instrument, the special indorsement will be
required to negotiate an instrument with a blank indorsement further
▪ Writing over the name of the indorser signing in blank will supersede the blank
indorsement
o Qualified Indorsements – Added to the instrument ‘without recourse’;
▪ The instrument is still negotiable
▪ The person signing in this capacity will not be liable to subsequent holders except
in case of a breach of warranties, as such, those negotiating in this manner will
warrant the instrument as a bearer instrument
o Conditional Indorsements – Conditions are written beside the indorsement

▪ A Condition may be disregarded
▪ The Holder is subject to rights of the person indorsing conditionally (non-
fulfillment/fulfillment will prejudice the holder’s right to the proceeds)
• The fulfillment of the condition will allow the holder to keep entitlement
• The non-fulfillment of the condition will render the holder as a
depositary, and must return the proceeds to the payee
o Restrictive Indorsement
▪ Prohibits further negotiation
▪ Indorsees are the agents or trustee of their principals: The instrument may remain
to be negotiable, but the proceeds are limited for the purposes stated.
▪ Rights of Restrictive Indorsees:
• Receipt of Payment
• Bring forth an action a general indorser may bring
• Transfer rights as indorsee. Acquiring only the first indorsee’s title.
o Successive Indorsements – indorsements that are negotiated back to a prior party.
▪ All indorsements prior to it can be stricken-out
▪ Intervening parties cannot be pursued for payment
▪ All accumulated, secondary contracts prior to the successive indorsements are
extinguished by confusion or merger of rights
o Joint Indorsement – 2 or more payees or indorsees in a single indorsement
▪ All Payees or Indorsees must indorse upon the instrument except if they are partners
or if one indorses with authority from the others
o Irregular Indorsements – an indorsement from a party not privy to the instrument; in
this case, renders the irregular indorser liable as a general indorser or for the
accommodation of the payee
o Signature by Procuration – A notice by an agent of limited authority to sign; this binds
the principal only insofar as he authorizes the agent, so long as the name of the principal
is disclosed
o Stricken-Out indorsement – An indorsement that is no longer necessary for recourse or
title on negotiation. An indorsement is drawn a line across it.
Defective Instruments
Completeness Delivery Recourse
Incomplete But Delivered Personal Defense
Complete But Undelivered Personal Defense
Incomplete Undelivered Real Defense
Incomplete and delivered instruments
1. Wanting of any Material particular— the person in possession has prima facie authority to
complete or to fill up the instrument
2. Signatures on a blank paper— to bind third persons, a person in possession must be within
authority and must fill-in the necessary details within a reasonable time
3. Completion— upon negotiation to a holder in due course
Material alterations to the date, the sum payable, time or place of payment, number and relations of
parties, medium of exchange, and any other details without the assent of all the parties liable will render
the negotiation void. However, the assent of all the parties liable will render the negotiation valid only
to the extent of the assenting parties; Alterations, regardless of the assent of the parties, before the
negotiation to holders in due course will entitle the holder to payment as per the original tenor but only
against those who do not assent to the alteration.
Complete and Undelivered instruments— all instruments are considered revocable before delivery;
holders in due course, delivery by parties prior to him are conclusively presumed to be valid
Incomplete and Undelivered instruments— there is no valid contract, and the maker acquires a real
defense
Holders in Due Course

Holders— payees or indorsees in possession of the instrument, may sue in his own name
holders not in due course may still collect on the instrument, but may be subject to a personal defense
Holders in due course— a person that takes the instrument under these conditions:
• The instrument is complete and regular upon its face
• He is the holder before it was overdue and without notice of dishonor if ever dishonored
• He takes the instrument in good faith and for value
• At the time negotiated to him he had no notice of infirmity or defect in the title of the person holding
it
Any person who is not a holder, cannot negotiate instrument, thus there can be no negotiation without
a holder in due course
Presumption: all holders are prima facie holders in due course except
• if the prior person negotiating has a defect in the title, the current holder has the onus probandi
of proving the contrary
• this exception does not apply to parties before the defective title
Complete and Regular upon its face
• not wanting of any material particular = complete
• it has no material alterations = regular
• a holder must put into inquiry all visible alterations and deficiencies otherwise, personal defenses
are tenable against him
He has taken the instrument before it was overdue and before any notice of dishonor was given to
him
• In this case, the maturity must be indicated and fixed
• The notice of dishonor prevents the instrument from being accepted in good faith
For Good Faith and for Value
• the holder has a sufficient consideration to support the contract or a pre-existing debt
• good faith places the holder’s negotiation in inquiry: incomplete instruments, irregular
instruments on its face, crossed checks
No notice of infirmity or defect in title
• Infirmity may be a material alteration or apparent forgery
• Upon notice before full payment— the transferee before full payment received a notice of
defect is a holder in due course only in so far as he was already paid
Rights of a Holder in due Course
• To hold the instruments three from defect unless determined by facts to the contrary
• To enforce payment of the instrument for the full amount against all warrant its payment
Accommodation party— signs the instrument, without value, to lend reputation of credit to the holder;
he is liable to all holders for value regardless if such holders new the accommodation party's capacity
in signing.
corporations cannot be accommodation parties since this is considered an ultra vires act.
Shelter rule/ derivative holder in due course
General rule: Holder with the rises title through a holder in due course, has all the rights of such former
holder in respect of all parties prior to the latter
Exception: He himself is a party to any further illegality affecting the instrument
Bills in set— one bill is drawn in a set; there multiple copies of the same bill having only the effect of
one.
• Each copy is in reference to each other
• If the copies are negotiated to different holders in due course, the first one it accrues to becomes
the true holder of the bill. but this does not prejudice a person who presents a copy for payment
first
• Where the holder of a set indorses as two different persons, he is liable to all parts of it, and as
such all copies are treated as separately negotiated bills
• Acceptance may be written on any copy, but on only one of the sets
Liabilities of the Parties

Promissory Notes Maker is Primarily Liable General Indorses are Secondarily Liable
Bills of Exchange Acceptor, to the extent of his Drawer & General Indorsers are secondarily
tenor liable
Liability— Payment on the note or bill
Warranties— Breach of contract and damages
Effects of a breach
• The parties are liable to pay damages and is barred from asserting a defense
• Secondary liabilities require notices of dishonor to bind the party
• Warranties or breach thereof, maybe acted or pursued anytime (usually at the time of transfer
or negotiation)
Maker— Primary and unconditionally liable; warrants that:
• He will pay accordingly
• And he admits the payee’s existence and capacity to indorse
Drawer— Secondarily liable; warrants that:
• He will pay according to his own tenor of acceptance
• He admits drawee's existence, genuineness of a signature, capacity and authority to draw
• He admits payee's existence and capacity to indorse
• The drawer inserts an express stipulation in the instrument negating or limiting his own liability
as the holder
Drawer's relationship with:
• Drawee - has a prior contractual relation (Holds drawer's funds for trust or for credit)
• The Collecting bank - no relationship, the bank's relationship is privy to the holder-depositor only.
Indorsers— Secondarily liable; they are liable in the order of their indorsement or in the order they
agreed upon. in the case of joint endorsements, their liability is divided
Qualified Indorser General Indorser
The Instrument is genuine and what it purports to be in all respects
He acquired a good title to the instrument
All prior parties have the capacity to contract
He has no knowledge of any fact impairing the The instrument, upon his indorsement, is valid
validity of the instrument and subsisting
• A Person negotiating by delivery – warrants the same things as a qualified indorser, bot only to the
extent of the immediate transferee.
Good Title – There is no Forgery or Fraud
Capacity to Contract – The prior parties are not minors, not insane, and are not incapacitated in any
manner
No knowledge of any facts impairing validity – External facts or consideration for which the drawee
may accept the instrument (i.e., payee’s non-delivery of goods to the payee or death of the drawee.)
Defenses
Real Defenses – Raised against all holders (attaches to the instrument itself)
Personal Defenses – Cannot be raised against a holder in due course, brought out of conduct of persons
making imposition of payment inequitable (hence termed as personal defense)
Personal Defenses Real Defenses
Incomplete, Delivered Instrument Incomplete, Undelivered Instrument
Complete, Undelivered Instrument Minority
Insertion of a Wrong Date Ultra-vires acts of corporations
Ante-dated or Post-dated instruments Wanting of Authority (Apparent or Real)
Absence or Failure of Consideration Material Alteration, but only insofar as the original tenor
Illegal Acquisition of the instrument Prescription
Fraud in Inducement (Incidental Fraud) Fraud in Esse Contractus
Real Defenses
• Minority – only available to the minor
• Ultra Vires Acts – Satisfying want of authority by a corporation
o Since this is generally not allowed; any authority or want thereof passing from the
corporation will invalidate accumulating contracts thru negotiable instruments
o Negotiation is still valid, only the authority conferred is invalid; (especially if the
corporation acts as an accommodation party)
• Undelivered and Incomplete Instruments – There is no contract since there was no meeting of
minds
• Fraud in Factum or Fraud in esse contractus – A person is induced to sign, all the while is not
aware of the essence of the contract; in this case, a negotiable instrument.
• Forgery and Want of Authority – The forged signature is wholly inoperative, but the instrument
remains to be negotiable
o Since no one can gain title through a forged signature
o Prior parties to the forgery are not liable for forgery unless they are estopped from
claiming such a defense
o Forgery will not affect the negotiability of a bearer instrument
Personal Defenses
• Ante-dated and Post-dated Checks – These remain to be valid instruments unless these were done
for illegal reasons; title passes as of the date in the checks
• Insertion of a Wrong Date – These remain to be valid, but holders in due course can enforce the
same as of the wrong date
• Duress and or Intimidation – Can be a real defense if it amounts to forgery
• Illegality of Consideration – Generally unavailable against Holders in Due Course, except if a law
declares otherwise
• Fraud in Inducement – Similar to incidental fraud, the contract’s terms in themselves are not
misrepresenting, rather it is the performance of the obligation within that contract that is
defrauded.
Enforcement of Liabilities
Primary Liabilities
A Presentment for Payment is required to enforce a liability; either through the instrument’s tenor
(unless the presentment is excused) or the acceptor’s tenor
Secondary Liabilities
For Promissory Notes
• The Presentment for payment is sufficient; otherwise
• A notice of dishonor must be given to the immediate transferor
For Bills of Exchange
• Presentment for Acceptance
o The Acceptance must be in writing, signed by the drawee, and unconditional
o The Acceptance becomes required if: it is payable after sight or when presentment is
needed to fix the maturity of the instrument; the bill expresses the need for such, and
when the bill is payable other than residence or place of the business of the drawee
o Kinds of Acceptance – Conditional, Partial, Local, Qualified, Acceptance of some, one
or more drawees but not all
▪ Unqualified acceptance – The holder may refuse a qualified acceptance, treat
the qualified acceptance as a dishonor
▪ Qualified Acceptance – When a qualified acceptance is permitted by the holder,
the drawer and indorsers are discharged, except if:
• The Holder is authorized to take a qualified acceptance
• A notice of qualified acceptance is delivered for the holder within a
reasonable time
• A qualified acceptance may be treated as dishonor; in this case, the

holder must furnish the notice of dishonor to prior parties.
o Excusing a Presentment for Acceptance:
▪ The drawee is dead, absconds, or is fictitious/incapacitated
▪ Presentment cannot be made even with diligence
▪ There is an unreasonable or unjustified non-acceptance by the drawee
• Issuance of a Notice of Dishonor by Non-acceptance
• Presentment for Payment
o Not needed if the drawer has no right or reason to expect that the drawee will pay or if
the indorser is an accommodation party
o Excused if:
▪ Presentment is impossible or too difficult to be reasonably pursued
▪ The drawee is fictitious
▪ Waiver of Presentment is given expressly or impliedly
Dishonor
Dishonor may be given by:
• the Holder, his agent, heirs, assigns, etc. or
• those who have a right of reimbursement against whom the notice is given (creditors of the holder)
If the Dishonor is given by:
• Holder – It benefits all subsequent holders and all prior parties with recourse against the holder of
the notice
• Party compelled to pay the holder or reimburses from the holder’s credit – The Holder and all
parties after those to whom the notice was given will be benefitted by the notice
Waiver of the Notice
• Express Waiver – an actual effort to inform of the waiver is expressed
• Implied Waiver – no notice of dishonor was given that party
Notice not needed to be Given to the Drawer:
• Drawer and the Drawee are the same person
• The Drawee is fictitious or cannot contract
• Drawer is presented for payment
• The Drawer has no reason to expect that the drawee will accept or countermanded payment
Notice not needed to be Given to the Indorser
• The Drawee is fictitious or cannot contract or is in bad faith
• The Indorser was presented for payment
• The Indorser is an accommodation party
After dishonor, the holder may conduct a protest. A protest is a formal statement in writing by a notary
public at the instance of the holder declaring that the instrument has been presented for payment or
acceptance by t is dishonored. This is required when:
• A Foreign Bill is Dishonored
• A third party accepts the instrument for honor
• The Bill will be presented to the Acceptor for Honor
• The Bill is also dishonored by an Acceptor for Honor
Forgery and Want of Authority
Forgery of the Drawer’s Signature – Will never be liable because he was never a party to the instrument
as his signature was forged, i.e., he did not order anybody to pay upon the instrument.
Want of Authority - Simply stated, an instrument is lacking authority, preventing the instrument from
being ‘complete’ in the sense that it is not intended for issuance.
Forgery with a Collecting Bank – The collecting bank is generally estopped or barred by law by raising
the defense of forgery (By law, collecting banks guarantee all prior indorsements and the instrument
itself)
• Unless the issuance of the check was attended with negligence
• The Recourse of the collecting bank is to recover from the depositor who had not given value for
the money paid to it. A Drawer will not be liable on the instrument of wanting authority, and will
recover from the collecting bank if the check is to the order of the collecting bank.
• This is to further the notion that the Drawer and the Collecting Bank are not privy parties as there
is no contractual relation as among them; instead, the drawer whose signature was forged, must
proceed against his drawee bank; and the drawee bank must proceed against the interceding party
that causes the forgery.
Material Alteration – Since the bill can be enforced only on its original tenor, it is only a partial real
defense. No party can actually claim the full extent of the alteration without assent of the prior parties.
The prior parties have the defense of want of authority and or forgery, which are real defenses. As
against the forging party and those who warrant the instrument’s regularity, the holder in due course
may collect to the extent only of the original tenor.
Discharge
Discharge – the release from further liability or obligation or binding effect of the negotiable instrument
• The instrument itself becomes a mere piece of paper; since the contractual obligation is
extinguished
• The parties to the instrument are released (some or all of them from further obligation) even if
the instrument itself may not be discharged
Discharge is done by:
• Payment in due course by or on behalf of the principal debtor
• Payment in due course by the accommodated party
• Intentional cancellation by the holder
• Any other act which will discharge a simple contract for payment of money
• When the principal debtor becomes the holder at or after maturity (confusion or merger of rights)
Payment in due course – may be done at maturity or after, to the holder in good faith, and without
notices on the defects of title
• It may be made by:
o The Acceptor or Maker; Surety for the principal debtor; Agent of the Debtor
• Payment does not discharge the instrument if those only secondarily liable to the instrument pay,
except if the payment is done by the drawer himself or by the accommodated party (Payment
discharges the instrument as per the warranty of the accommodated party)
Payment by Intentional Cancellation
• Unconditional, absolute renunciation of the rights against the principal debtor made on, at, after
maturity; Intentional cancellation must be in writing unless the instrument is the object of a merger
• Does not affect the Holders in due Course, and all holders not given the notice of discharge
• Unintentional Cancellation is wholly inoperative if it is cancelled by an apparent cancellation of
the signature (the proof must come from those who assert the cancellation of the signature)
Discharge of Persons Secondarily Liable
• Any act discharging the instrument
• Intentional cancellation of the signature by the holder
• The Discharge of a prior party
• Valid tender of payment by a prior party
• Release of principal debtor unless the right of recourse against secondarily liable persons are
expressly reserved
• Agreements binding upon the holder to extend the time of payment or postpone the right to enforce
unless made with assent or right of recourse is expressly reserved
o Assent is secured from the persons secondarily liable
Checks and Related Crimes
Checks – bills of exchange drawn on a bank, payable on demand.
• Special Bills of Exchange
o The drawee is a bank
o Is Always payable on demand
o A presumption that the drawer has an account with the bank

o The death of the drawer, if known by the bank, is a valid ground to dishonor the check
Kinds of Checks
• Cashier’s Check – drawn by the bank upon itself’
• Certified Check – Drawn by the depositor upon his own account or bank credits the account,
certified by the proper bank officer
o A certified check is in effect, accepted in advance; and as such, all holders of the check
procure the certification; the drawer and all indorsers are discharged
• Crossed Check – a check that cannot be encashed and can only be deposited (2 parallels on the top
left); as such is negotiated only once; a warning against use for some other purpose
• Memorandum Check – signifies that the maker or drawer engages to pay bona fide holders
unconditionally upon presentment (a memo upon the check means that the check is as good as
paid)
• Traveler’s Check – purchase from banks usable as cash upon the second signature of the purchaser
Collecting from a Check
1. The holder presents the check to a drawee bank for either encashment /deposit to the holder’s
account
a. A Bank is called the Collecting Bank if the check is addressed to the same bank
b. A Bank is called the Drawee Bank if the check is addressed to some other bank
2. The Bank makes a provisional credit to the holder’s account in the amount at face
3. The Check goes through the clearinghouse, which is a meeting of banks and payors wherein they
settle accounts with each other on a daily basis.
4. After clearing, the credit is transferred from the provisional account to the actual amount of the
payee-depositor
5. Withdrawal from the account covered by the check is not allowed if it is still with the
clearinghouse
Bouncing Checks Law (B.P. 22)

Elements of a Bounced Check
• Making, drawing, and issuance for account or for value
• Knowledge of maker, drawer, or issuer of the insufficient funds or credit with the drawee bank
• Dishonor by the drawee bank or failure to issue a stop-payment order before dishonor or facts would
have led the bank to dishonor the payment before an SPO would have been furnished
The presumption of knowledge of insufficiency of funds or credit
• If Presentment occurs within 90 days from the date of the check. (90 days is sufficient time to draw
or infuse funds into the account)
The Law shall likewise apply to any person, who, having sufficient funds in or in credit with the drawee
bank, that fails to keep sufficient funds or to maintain credits to cover the full amount of the check.
It also applies to corporations, however, those who actually sign on the check in behalf of the drawer
are liable
Checks covered in B.P. 22:
• DAIF Checks (Drawn Against Insufficient Funds)– A check whose face amount exceeds the actual funds
of the depositor with the bank, which have been attempted to be drawn with the bank.
• DAUD Checks (Drawn Against Uncollected Deposits) are not covered by B.P. 22, even if dishonored.
This usually means that the funds of the depositor with the drawee bank have not cleared yet. There
is also an attempt to drawn on the funds of the depositor.
• NSF Checks (No Sufficient Funds) – any check that does not have sufficient funds. These may either
be due to actual insufficient funds or uncollected deposits. The holder holds the bounced check, and
is given a notice of dishonor.
“A check dishonored for reasons of DAIF would expose a person to criminal prosecution for violation of
B.P. 22 while a check dishonored for DAUD would not.” G.R. 167750 BPI vs Suarez
No liability against the Holder if:
• There is payment by the maker or drawer to the holder
• The drawee arranges to pay within 5 banking days after the notice of dishonor is given
Duty of the Drawee
Upon dishonor, the drawee bank must provide the holder a notice of dishonor, and the reason therefor.
Provided that there were no sufficient funds in, or credits with the drawee bank.
• Credits mean an arrangement with or understanding with the bank for the payment of the check.
Acquittal from BP 22 does not extinguish the civil liability for dishonored checks (Estafa)
• An acquittal based on the lack of proof beyond reasonable doubt does not preclude award of damages.
Penalty for Violating BP 22
• Imprisonment of not more than 30 days OR not less than 1 year
• Fine: not less than, but not more than double the amount of the check; but also, not exceeding
P200,000.00
• Or Both at the court’s judgment
• The crime prescribes in 4 years from the commission of the offense or discovery thereof
Estafa vs Anti-bouncing Checks
• On Good Faith – For estafa, good faith is a tenable defense. In BP 22, good faith does not absolve the
crime of issuing a worthless check. The purpose of BP 22 is to prevent the circulation of worthless
checks, not the proliferation of fraud.
• On Obligations – In Estafa, there is a payment for a pre-existing obligation; so long as there is no
deceit, there is no estafa.
• Issuance and Making of Checks – Estafa may be committed by merely issuing a worthless check, while
BP 22 requires the accused to have drawn and issued a worthless check.
• Period of Liability –period to make good the check under Estafa is only 3 days; BP 22 for 5 Bank Days.
Also note, that an individual may be liable for both Estafa and Violation of BP 22.
Elements of Estafa under the RPC:
• Post-dated checks, and issuance for consideration and for value
• Deceit and Insufficient funds to cover the check
• Damages to the payee of the check
Title VI: Insurance Law

Insurance Contracts in General
Contract of Insurance – It is an agreement whereby one undertakes for a consideration to indemnify
another against the loss, damage or liability arising from an unknown or contingent event. In order to be
binding, it must be a completed contract; as such, these are the elements of an insurance contract:
• The Subject Matter in which the insured has an insurable interest
• A Consideration, which is the premium paid by the insured for the insurer’s promise to indemnify the
former upon the happening of the event or peril insured against; and
• The Meeting of Minds of the Parties
Contract of Suretyship – Deemed to be an insurance contract only if it is made by a surety who or which,
as such, is doing an insurance business, provided below:
• Making or proposing to make, as Insurer, any insurance contract;
• 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;
• Doing any kind of business, including a Reinsurance business, specifically recognized as
constituting the doing of an insurance business.
• Doing or proposing to do Any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of the Insurance Code
• Absence of profit from insurance is not deemed conclusive to show that the making thereof does
not constitute the doing or transacting of an insurance business. Essentially, what matters for a
contract to qualify as an insurance contract, is its intent to indemnify the insured
Parties to the Contract
• Insurer – Every corporation, partnership, or association, duly authorized to transact insurance
business may be an insurer
o A natural person is no longer allowed to be an insurer
o Professional Reinsurer – person that transacts solely and exclusively reinsurance business
in the Philippines
o Mutual Insurance Companies and Cooperatives are now allowed to be insurers
• Insured – Anyone except a public enemy may be insured; the party with the insurable interest
• 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 benefit the policy
is issued and to whom the loss is payable.
Assignment of Insurance
• Unless the policy otherwise provides, where a mortgagor of property effects insurance in his own
name providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance
to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not
cease to be a party to the original contract, and any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the same effect, although the property is in the hands
of the mortgagee, but any act which, under the contract of insurance, is to be performed by the
mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had
been performed by the mortgagor
o tl;dr – A mortgagor effects an insurance policy in his own name, and assigns the indemnity
to the mortgagee.
▪ The insurance is in the interest of the mortgagor; and any act of his prior to and
causing loss over the property will avoid the insurance even if the property is in
the hands of the mortgagee.
▪ Any act stated in the contract of insurance performed by the mortgagor may be
performed by the mortgagee as if the same had been performed by the
mortgagor
If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee, and, at the time
of his assent, imposes further obligations on the assignee-mortgagee, making a new contract with him,
the acts of the mortgagor cannot affect the rights of the said assignee
Objects of Insurance Contracts
• Any contingent or unknown event, whether past or future, which may damnify a person having
an insurable interest, or create a liability against him, may be insured against.
o The consent of the spouse is not necessary for the validity of an insurance policy taken
out by a married person on his or her life or that of his or her children
o 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 in the policy
o It does not authorize an insurance for or against the drawing of any lottery, or for or
against any chance or ticket in a lottery drawing a prize (Games of Chances cannot be
insured)
Characteristics of Insurance Contracts
• It is one of perfect good faith (Uberrimae fidei) for both the insurer and the insured, but more
so for the insurer as it requires the insured to provide and disclose in good faith, all facts material
to the contract
• These are usually in the form of Contracts of Adhesion, usually issued by corporations
o Insurance Contracts are not interpreted when the intent of the parties is clear; except
if in terms of ambiguity, the contract is understood to be in favor of the insured and
strictly against the insurer.
Peculiarities of Insurance Contracts
1. Personal – The insurer takes into account the character, credit, and conduct of the insured. In
case of change of ownership over an insured property, the coverage does not automatically
transfer to the new owner. The insurer has the option not to extend cover to the said insured
property if ever the new owner applies for a continuation of the existing insurance.
2. Unilateral – The terms and conditions of the insurance did not arise from the meeting of the
minds of the insurer and insured. The wordings are solely prepared by the former. It is the reason
why in case of doubt in the interpretation of the terms and conditions of the insurance contract,
it shall be construed in favor of the latter in case there is ambiguity.
3. Conditional – The obligation of the insurer to pay the insured is dependent upon the compliance
of the insured with the terms and conditions of the insurance contract such as payment of
premium, timely filing of a claim, and submission of proofs of loss, among others.
4. Aleatory – The obligation of the insurer to pay the insured is conditioned upon the happening of
the contingent event such as the perils of fire or flood.
5. Executory – Insofar as the insurer is concerned, the insurance contract is merely executory. It is
not executed until there is a loss on the part of the insured.
6. Consensual – A contract of insurance is a product of the meeting of the minds of the insured and
the insurer. The mere submission of the application without the corresponding approval of the
policy does not result in the perfection of the contract of insurance. (Great Pacific Life Assurance
Corp. vs. Court of Appeals, 89 SCRA 543)
Insurable Interest in Persons

Every person has an insurable interest in the life and health:
• Of himself, his spouse, and of his children
• Of any person on whom he depends wholly or in part for education or support, or in whom he has
a pecuniary interest
• Of any person under a legal obligation to him for the payment of money, or respecting property
or services, of which death or illness might delay or prevent performance; and
• Of any person upon whose life any estate or interest vested in him depends
Right to designate Beneficiary; when deemed irrevocable –The Insured has the right to change the
beneficiary he designated in the policy, unless the same right is waived; the designation is irrevocable
upon death of the insured.
Forfeited Interest in Beneficiary – The interest of a beneficiary in a life insurance policy shall be
forfeited when the beneficiary is the principal, accomplice, or accessory in willfully bringing about the
death of the insured. In such a case, the share forfeited shall pass on to the other beneficiaries, unless
otherwise disqualified. In the absence of other beneficiaries, the proceeds shall be paid in accordance
with the policy contract. If the policy contract is silent, the proceeds shall be paid to the estate of the
insured.
Insurable Interest in Properties
Every interest in property, real or personal, or any relation thereto, or liability in respect thereof of such
nature that a contemplated peril may damnify the insured, is an insurable interest.
It may consist in:
• An Existing Interest
• An Inchoate (still-forming) Interest founded on an existing interest or
• An expectancy, coupled with an existing interest in that out of which the expectancy arises
Extent of Insurance
• A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the
extent of his liability but not to exceed the value thereof
• A mere contingent or expectant interest in any thing, not founded on an actual right to the thing,
nor upon any valid contract for it, is not insurable
• The measure of an insurable interest is the extent to which the insured might be damnified by
loss or injury thereof
• No contract or policy of insurance on property shall be enforceable except for the benefit of
some person having an insurable interest in the property insured
Change of Interest of Insurance
• For Life, Accident, and Health Insurance, a change of interest in any part of a thing insured
unaccompanied by a corresponding change of interest in the insurance, suspends the insurance
to an equivalent extent, until the interest in the thing and the interest in the insurance are
vested in the same person (i.e., change in interest over the thing is not the same as interest over
the insurance over that thing, hence, it must follow that the portion of interest transferred will
suspend the interest over the insurance proportionately.)
• A change of interest in a thing insured, after the occurrence of an injury which results in a loss,
does not affect the right o the insured to indemnity for the loss
• A change in interest in one or more of several distinct things, separately insured by one policy,
does not avoid the insurance as to others
• A change of interest by will or succession, on the death of the insured, does not avoid an
insurance and his interest in the insurance passes to the person taking his interest in the thing
insured
• A transfer of interest by one of several partners, joint owners, or owners in common, who are
jointly insured, to the others, does not avoid an insurance even though it has been agreed that
the insurance shall cease upon an alienation of the thing insured.
• Every stipulation in a policy of insurance for the payment of loss whether the person insured has
or 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, is void.
Representation
Representation – A representation is a statement made in an application for insurance that the
prospective insured represents as being correct to the best of his or her knowledge.
Form of Representation
A representation may be:
• Oral or written and made at the time of, or before, issuance of the policy.
Effects and Interpretation of Representations
• The language of a representation is to be interpreted by the same rules as the language of
contracts in general.
• A representation as to the future is to be deemed a promise, unless it appears that it was merely
a statement of belief or expectation.
• A representation cannot qualify an express provision in a contract of insurance, but it may qualify
an implied warranty.
• A representation may be altered or withdrawn before the insurance is effected, but not
afterwards.
• A representation must be presumed to refer to the date on which the contract goes into effect.
• When a person insured has no personal knowledge of a fact, he may nevertheless repeat
information which he has upon the subject, and which he believes to be true, with the
explanation that he does so on the information of others; or he may submit the information, in
its whole extent, to the insurer; and in neither case is he responsible for its truth, unless it
proceeds from an agent of the insured, whose duty it is to give the information.
• A representation is to be deemed false when the facts fail to correspond with its assertions or
stipulations.
• If a representation is false in a material point, whether affirmative or promissory, the injured
party is entitled to rescind the contract from the time when the representation becomes false.
• The materiality of a representation is determined by the same rules as the materiality of a
concealment.
• Whenever a right to rescind a contract of insurance is given to the insurer by any provision in
this law, such right must be exercised previous to the commencement of an action on the
contract.
• After a policy of life insurance made payable on the death of the insured shall have been in force
during the lifetime of the insured for a period of two (2) years from the date of its issue or of its
last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by
reason of the fraudulent concealment or misrepresentation of the insured or his agent.
Concealment and Recission
Concealment – A neglect to communicate that which a party knows and ought to communicate, is called
a concealment. A concealment whether intentional or unintentional entitles the injured party to rescind
a contract of insurance.
Obligations of the Parties
Each party to a contract of insurance must communicate to the other, in good faith, all facts within his
knowledge which are material to the contract and as to which he makes no warranty, and which the
other has not the means of ascertaining.
• An intentional and fraudulent omission, on the part of one insured, to communicate information
of matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind.
• Neither party to a contract of insurance is bound to communicate information of the matters
following, except in answer to the inquiries of the other:
o Those which the other knows;
o Those which, in the exercise of ordinary care, the other ought to know, and of which the
former has no reason to suppose him ignorant;
o Those of which the other waives communication;

o Those which prove or tend to prove the existence of a risk excluded by a warranty, and
which are not otherwise material; and
o Those which relate to a risk excepted from the policy and which are not otherwise
material.
• Materiality is to be determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom the communication is due, in forming his estimate
of the disadvantages of the proposed contract, or in making his inquiries.
• Each party to a contract of insurance is bound to know all the general causes which are open to
his inquiry, equally with that of the other, and which may affect the political or material perils
contemplated; and all general usages of trade.
• The right to information of material facts may be waived, either by the terms of insurance or by
neglect to make inquiry as to such facts, where they are distinctly implied in other facts of which
information is communicated.
• Information of the nature or amount of the interest of one insured need not be communicated
unless in answer to an inquiry, except those required generally under the Insurance Policy:
o The parties between whom the contract is made;
o The amount to be insured except in the cases of open or running policies;
o The premium, or if the insurance is of a character where the exact premium is only
determinable upon the termination of the contract, a statement of the basis and rates
upon which the final premium is to be determined;
o The property or life insured;
o The interest of the insured in property insured, if he is not the absolute owner thereof;
o The risks insured against; and
o The period during which the insurance is to continue
• Neither party to a contract of insurance is bound to communicate, even upon inquiry, information
of his own judgment upon the matters in question.
The Insurance Policy

The Policy – The written instrument in which a contract of insurance is set forth, is called a policy of
insurance.
Form of the Policy
• The policy shall be in printed form which may contain blank spaces; and any word, phrase, clause,
mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance
shall be written on the blank spaces provided therein.
o Any rider, clause, warranty or endorsement purporting to be part of the contract of
insurance and which is pasted or attached to said policy is not binding on the insured,
unless the descriptive title or name of the rider, clause, warranty or endorsement is also
mentioned and written on the blank spaces provided in the policy.
o Unless applied for by the insured or owner, any rider, clause, warranty or
endorsement issued after the original policy shall be countersigned by the insured or
owner, which countersignature shall be taken as his agreement to the contents of such
rider, clause, warranty or endorsement.
o Notwithstanding the foregoing, the policy may be in electronic form subject to the
pertinent provisions of the ‘Electronic Commerce Act’ and to such rules and regulations
as may be prescribed by the Commissioner.
Information on the Policy – A policy of insurance must specify:

• The parties between whom the contract is made;
• The amount to be insured except in the cases of open or running policies;
• The premium, or if the insurance is of a character where the exact premium is only determinable
upon the termination of the contract, a statement of the basis and rates upon which the final
premium is to be determined;
• The property or life insured;
• The interest of the insured in property insured, if he is not the absolute owner thereof;
• The risks insured against; and
• The period during which the insurance is to continue.
Cover Notes – A cover note is a temporary document issued by an insurance company that provides proof
of insurance coverage until a final insurance policy can be issued. A cover note is different from a
certificate of insurance or an insurance policy document.
Cover notes may be issued to bind insurance temporarily pending the issuance of the policy. Within sixty
(60) days after issue of a cover note, a policy shall be issued in lieu thereof, including within its terms
the identical insurance bound under the cover note and the premium therefor.
• Cover notes may be extended or renewed beyond such sixty (60) days with the written approval
of the Commissioner if he determines that such extension is not contrary to and is not for the
purpose of violating any provisions of the law. The Commissioner may promulgate rules and
regulations governing such extensions for the purpose of preventing such violations and may by
such rules and regulations dispense with the requirement of written approval by him in the case
of extension in compliance with such rules and regulations.
Effects of the Policy

• The insurance proceeds shall be applied exclusively to the proper interest of the person in whose
name or for whose benefit it is made unless otherwise specified in the policy.
• A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance
of the risk, may become the owner of the interest insured.
• Proof of Ownership of the Policy – When the description of the insured in a policy is so general
that it may comprehend any person or any class of persons, only he who can show that it was
intended to include him, can claim the benefit of the policy.
• Execution on Agency or Trusts – When an insurance contract is executed with an agent or trustee
as the insured, the fact that his principal or beneficiary is the real party in interest may be
indicated by describing the insured as agent or trustee, or by other general words in the
policy.
• Execution on Partnerships and Co-ownerships – To render an insurance effected by one partner
or part-owner, applicable to the interest of his co-partners or other part-owners, it is necessary
that the terms of the policy should be such as are applicable to the joint or common interest.
• Transfer of the Thing Insured – The mere transfer of a thing insured does not transfer the policy,
but suspends it until the same person becomes the owner of both the policy and the thing insured.
• Period for Action – A condition, stipulation, or agreement in any policy of insurance, limiting
the time for commencing an action thereunder to a period of less than one (1) year from the
time when the cause of action accrues, is void.
Types of Policies
• Open Policy – An open policy is one in which the value of the thing insured is not agreed upon,
and the amount of the insurance merely represents the insurer’s maximum liability. The value
of such thing insured shall be ascertained at the time of the loss.
• Valued Policy – A valued policy is one which expresses on its face an agreement that the thing
insured shall be valued at a specific sum.
• Running Policy – A running policy is one which contemplates successive insurances, and which
provides that the object of the policy may be from time to time defined, especially as to the
subjects of insurance, by additional statements or indorsements.
Cancellation of Insurance, Grounds – No policy of insurance other than life shall be cancelled by the
insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective
unless it is based on the occurrence, after the effective date of the policy, of one or more of the
following:
• Nonpayment of premium;
• Conviction of a crime arising out of acts increasing the hazard insured against;
• Discovery of fraud or material misrepresentation;
• Discovery of willful or reckless acts or omissions increasing the hazard insured against;
• Physical changes in the property insured which result in the property becoming uninsurable;
• Discovery of other insurance coverage that makes the total insurance in excess of the value of
the property insured; or
• A determination by the Commissioner that the continuation of the policy would violate or would
place the insurer in violation of this Code.
Notice of Cancellation – All notices of cancellation shall be in writing, mailed or delivered to the named
insured at the address shown in the policy, or to his broker provided the broker is authorized in writing
by the policy owner to receive the notice of cancellation on his behalf, and shall state:
• Which of the grounds set forth in Section 64 is relied upon; and
• That, upon written request of the named insured, the insurer will furnish the facts on which the
cancellation is based.
Renewal of the Policy – In case of insurance other than life, unless the insurer at least forty-five (45)
days in advance of the end of the policy period mails or delivers to the named insured at the address
shown in the policy notice of its intention not to renew the policy or to condition its renewal upon
reduction of limits or elimination of coverages;
• The Named Insured shall be entitled to renew the policy upon payment of the premium due on
the effective date of the renewal.
o Term of Renewed Policy is shorter than 1 Year – Deemed to be for 1 year
o Term of Renewed Policy is longer than 1 Year – Deemed to be successive single years
Warranties
Warranties in the Context of Insurance – A statement of fact given to an insurer by
the insured concerning the insured risk which, if untrue, will void the policy.
Form of Warranties
• A warranty is either expressed or implied.
• A warranty may relate to the past, the present, the future, or to any or all of these.
• No particular form of words is necessary to create a warranty.
Requirements for Express Warranties

• Without prejudice to the Insurance Policy, every express warranty, made at or before the
execution of a policy, must be contained in the policy itself, or in another instrument signed by
the insured and referred to in the policy as making a part of it.
• A statement in a policy, of a matter relating to the person or thing insured, or to the risk, as
fact, is an express warranty thereof.
• A statement in a policy, which imparts that it is intended to do or not to do a thing which
materially affects the risk, is a warranty that such act or omission shall take place.
• When, before the time arrives for the performance of a warranty relating to the future, a loss
insured against happens, or performance becomes unlawful at the place of the contract, or
impossible, the omission to fulfill the warranty does not avoid the policy.
Effects of Warranties
• The violation of a material warranty, or other material provision of a policy, on the part of
either party thereto, entitles the other to rescind.
• A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the
breach of an immaterial provision does not avoid the policy.
• A breach of warranty without fraud merely exonerates (excuses) an insurer from the time
that it occurs, or where it is broken in its inception, prevents the policy from attaching to
the risk.
Perfection of Insurance Contracts

Right of the Insurer – An insurer is entitled to payment of the premium as soon as the thing insured is
exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or
contract of insurance issued by an insurance company is valid and binding unless and until the
premium thereof has been paid, Except:
• Grace Period Provision – In the case of a life or an industrial life policy whenever the grace
period provision applies, or whenever under the broker and agency agreements with duly licensed
intermediaries, a ninety (90)-day credit extension is given.
• Acknowledgement Receipts – An acknowledgment in a policy or contract of insurance or the
receipt of premium is conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until the premium is actually
paid.
• Payment in Installments – If the parties have agreed to the payment in installments of the
premium and partial payment has been made at the time of loss. (Makati Tuscany Condominium
vs. Court of Appeals, 215 SCRA 463)
• Insurance with a Right of Return of Premium – If the insurer has granted the insured a credit
term for the payment of the premium and loss occurs before the expiration of the term, recovery
on the policy should be allowed even though the premium is paid after the loss but within the
credit term. (Makati Tuscany Condominium vs. Court of Appeals, 215 SCRA 463.)
• Estoppel – It would be unjust and inequitable if recovery on the policy would not be permitted
against Insurer, which had consistently granted a 60- to 90-day credit term for the payment of
premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge under said
Section, since Insured relied in good faith on such practice. (UCPB General Insurance Co., Inc vs
Masagana Telamart, G.R. No. 137172 [April 4, 2001])
• Extension of Credit – Whenever under the broker and agency agreements with duly licensed
intermediaries, a ninety (90)-day credit extension is given. No credit extension to a duly licensed
intermediary should exceed ninety (90) days from date of issuance of the policy. (Insurance Code
of the Philippines, Section 77)
Employees of the Republic of the Philippines, including its political subdivisions and instrumentalities,
and government-owned or -controlled corporations, may pay their insurance premiums and loan
obligations through salary deduction: Provided,
• That the treasurer, cashier, paymaster or official of the entity employing the government
employee is authorized, notwithstanding the provisions of any existing law, rules and regulations
to the contrary, to make deductions from the salary, wage or income of the latter pursuant to
the agreement between the insurer and the government employee and to remit such deductions
to the insurer concerned, and collect such reasonable fee for its services.
Additional Fees – An insurer may contract and accept payments, in addition to regular premium, for the
purpose of paying future premiums on the policy or to increase the benefits thereof.
Right of Return on Premium – A person insured is entitled to a return of premium, as follows:
• To the whole premium if no part of his interest in the thing insured be exposed to any of the
perils insured against;
• Where the insurance is made for a definite period of time and the insured surrenders his policy,
to such portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless
a short period rate has been agreed upon and appears on the face of the policy, after deducting
from the whole premium any claim for loss or damage under the policy which has previously
accrued: Provided, That no holder of a life insurance policy may avail himself of the privileges
of this paragraph without sufficient cause as otherwise provided by law.
• A person insured is entitled to a return of the premium when the contract is voidable, and
subsequently annulled under the provisions of the Civil Code; or on account of the fraud or
misrepresentation of the insurer, or of his agent, or on account of facts, or the existence of
which the insured was ignorant of without his fault; or when by any default of the insured other
than actual fraud, the insurer never incurred any liability under the policy.
o A person insured is not entitled to a return of premium if the policy is annulled,
rescinded or if a claim is denied by reason of fraud.
• Over-insurance – In case of an over insurance by several insurers other than life, the insured is
entitled to a ratable return of the premium, proportioned to the amount by which the aggregate
sum insured in all the policies exceeds the insurable value of the thing at risk.
Expiration of Right of Return – If a peril insured against has existed, and the insurer has been liable for
any period, however short, the insured is not entitled to return of premiums, so far as that particular
risk is concerned.
Liability of the Insurer upon Loss
On Transfer of Claim – An agreement not to transfer the claim of the insured against the insurer after
the loss has happened, is void if made before the loss except as otherwise provided in the case of life
insurance.
Losses in General – Unless otherwise provided by the policy, an insurer is liable for a loss of which a peril
insured against was the proximate cause, although a peril not contemplated by the contract may have
been a remote cause of the loss; but he is not liable for a loss of which the peril insured against was only
a remote cause.
• idkwym: An insurer is liable where the thing insured is rescued from a peril it is insured against,
that would otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to
a peril not insured against, which permanently deprives the insured of its possession, in whole
or in part; or where a loss is caused by efforts to rescue the thing insured from a peril it is insured
against.
o Isdkwym: If in an attempt to rescue a thing pursuing the policy, the thing is exposed to
a peril it is not insured from, and subsequently deprives the insured of its possession, the
insurer is liable to the insured of the policy.
Fortuitous Events – Fortuitous events by definition are extraordinary events not foreseeable or
avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee
the happening is not impossibility to foresee the same. (Republic v. Luzon Stevedoring Corporation, 128
Phil. 313, 318 [1967])
Accidents –The words "accident" and "accidental" have never acquired any technical signification in law,
and when used in an insurance contract are to be construed and considered according to the ordinary
understanding and common usage and speech of people generally. In-substance, the courts are
practically agreed that the words "accident" and "accidental" mean that which happens by chance or
fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen.
Peril – It refers to the cause of the loss suffered by the insured. It refers to the specific fortuitous
event being covered an insurance policy. An insurable policy typically defines the perils they insure
against. For example, in the case of Fire Insurance, the main peril covered is losses due to fire and/or
lightning only. However, the insured has the option, subject to payment of additional premium, to extend
the cover to include earthquake, typhoon, flood, terrorism or Business Interruption.
On the other hand, the insurance market has developed "all risk" policies whereby any loss to the insured
property shall be covered unless specifically excluded in the policy. An example of which is Marine
Insurance under Institute Cargo Class A and Property All Risk Insurance.
Exception of Perils – Where a peril is especially excepted in a contract of insurance, a loss, which would
not have occurred but for such peril, is thereby excepted although the immediate cause of the loss was
a peril which was not excepted.
o This provision establishes to distinguish the loss from the peril. The Peril is the risk of
the loss, while the loss is the depravity of the right of the insured.
o If an indemnity is qualified as to peril but not loss, the loss following the qualified peril
is also excepted in the policy, despite the loss not proceeding from the same peril.
• An insurer is not liable for a loss caused by the willful act or through the connivance of the
insured; but he is not exonerated by the negligence of the insured, or of the insurance agents or
others.
Notice of Loss – A notice issued by the insured to the insurer of the loss sustained, which initiates the
claims for losses. The Effects of the Notice are listed below:
• In case of loss upon an insurance against fire, an insurer is exonerated (excused from liability),
if written notice thereof be not given to him by an insured, or some person entitled to the benefit
of the insurance, without unnecessary delay. For other non-life insurance, the Commissioner may
specify the period for the submission of the notice of loss.
• When a preliminary proof of loss is required by a policy, the insured is not bound to give such
proof as would be necessary in a court of justice; but it is sufficient for him to give the best
evidence which he has in his power at the time.
• All defects in a notice of loss, or in preliminary proof thereof, which the insured might remedy,
and which the insurer omits to specify to him, without unnecessary delay, as grounds of
objection, are waived.
• Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act
of him, or if he omits to take objection promptly and specifically upon that ground.
• If the policy requires, by way of preliminary proof of loss, the certificate or testimony of a person
other than the insured, it is sufficient for the insured to use reasonable diligence to procure it,
and in case of the refusal of such person to give it, then to furnish reasonable evidence to the
insurer that such refusal was not induced by any just grounds of disbelief in the facts necessary
to be certified or testified.
Reinsurance
Reinsurance Contract – A contract of reinsurance is one by which an insurer procures a third person to
insure him against loss or liability by reason of such original insurance.
• Where an insurer obtains reinsurance, except under automatic reinsurance treaties, he must
communicate all the representations of the original insured, and also all the knowledge and
information he possesses, whether previously or subsequently acquired, which are material to
the risk.
• A reinsurance is presumed to be a contract of indemnity against liability, and not merely against
damage.
• The original insured has no interest in a contract of reinsurance.
Double Insurance
Double Insurance – A double insurance exists where the same person is insured by several insurers
separately in respect to the same subject and interest.
Where the insured in a policy other than life is over insured by double insurance:
• The insured, unless the policy otherwise provides, may claim payment from the insurers in such
order as he may select, up to the amount for which the insurers are severally liable under their
respective contracts;
• Where the policy under which the insured claims is a valued policy, any sum received by him
under any other policy shall be deducted from the value of the policy without regard to the
actual value of the subject matter insured;
• Where the policy under which the insured claims is an unvalued policy, any sum received by him
under any policy shall be deducted against the full insurable value, for any sum received by him
under any policy;
• Where the insured receives any sum in excess of the valuation in the case of valued policies, or
of the insurable value in the case of unvalued policies, he must hold such sum in trust for the
insurers, according to their right of contribution among themselves;
• Each insurer is bound, as between himself and the other insurers, to contribute ratably to the
loss in proportion to the amount for which he is liable under his contract.
Variable Contracts
Variable Insurance Contracts – any policy or contract on either a group or on an individual basis issued
by an insurance company providing for benefits or other contractual payments or values thereunder
to vary so as to reflect investment results of any segregated portfolio of investments or of 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. This contract may also
provide benefits or values incidental thereto payable in fixed or variable amounts, or both. It shall not
be deemed to be a security or securities as defined in The Securities Act, as amended, or in the
Investment Company Act, as amended, nor subject to regulations under said Acts.
Authority to Transact – No insurance company authorized to transact business in the Philippines shall
issue, deliver, sell or use any variable contract in the Philippines, unless and until such company shall
have satisfied the Commissioner that its financial and general condition and its methods of operations,
including the issue and sale of variable contracts, are not and will not be hazardous to the public or to
its policy and contract owners. No foreign insurance company shall be authorized to issue, deliver or sell
any variable contract in the Philippines, unless it is likewise authorized to do so by the laws of its
domicile.
In determining the qualifications of a company requesting authority to issue, deliver, sell or use variable
contracts, the Commissioner shall always consider the following:
• The history, financial and general condition of the company: Provided, that such company, if a
foreign company, must have deposited with the Commissioner for the benefit and security of its
variable contract owners in the Philippines, securities satisfactory to the Commissioner consisting
of bonds of the Government of the Philippines or its instrumentalities with an actual market
value of Two million pesos (P2,000,000.00);
• The character, responsibility and fitness of the officers and directors of the company; and
• The law and regulation under which the company is authorized in the state of domicile to issue
such contracts.
If after notice and hearing, the Commissioner shall find that the company is qualified to issue, deliver,
sell or use variable contracts in accordance with this Code and the regulations and rules issued
thereunder, the corresponding order of authorization shall be issued. Any decision or order denying
authority to issue, deliver, sell or use variable contracts shall clearly and distinctly state the reasons and
grounds on which it is based.
Power to Issue – Any insurance company issuing variable contracts pursuant to this Code may in its
discretion issue contracts providing a combination of fixed amount and variable sum of benefits and for
option lump-sum payment of benefits.
• Every variable contract form delivered or issued for delivery in the Philippines, and every
certified form evidencing variable benefits issued pursuant to any such contract on a group basis,
and the application, rider and endorsement forms applicable thereto and used in connection
therewith, shall be subject to the prior approval of the Commissioner.
• Illustration of benefits payable under any variable contract shall not include or involve
projections of past investment experience into the future and shall conform with the rules and
regulations promulgated by the Commissioner.
Manner of Issuance
• Variable contracts may be issued on the industrial life basis, provided that the pertinent
provisions of this Code and of the rules and regulations of the Commissioner governing variable
contracts are complied with in connection with such contracts.
Accounting – Every life insurance company authorized under the provisions of this Code to issue, deliver,
sell or use variable contracts shall, in connection with the same, establish one or more separate
accounts to be known as separate variable accounts. All amounts received by the company in
connection with any such contracts which are required by the terms thereof, to be allocated or applied
to one or more designated separate variable accounts shall be placed in such designated account or
accounts.
• Separate Variable Accounts – The assets and liabilities of each such separate variable account
shall at all times be clearly identifiable and distinguishable from the assets and liabilities in all
other accounts of the company.
• Notwithstanding any provision of law to the contrary, the assets held in any such separate
variable account shall not be chargeable with liabilities arising out of any other business the
company may conduct but shall be held and applied exclusively for the benefit of the owners or
beneficiaries of the variable contracts applicable thereto. (Assets in the Separate Vehicle
cannot be applied to liabilities out of any other business transaction.)
• In the event of the insolvency of the company, the assets of each such separate variable account
shall be applied to the contractual claims of the owners or beneficiaries of the variable contracts
applicable thereto. (In corporate insolvency, the assets of each separate vehicle are applied
to the contractual claims of the owners)
• Except as otherwise specifically provided by the contract, no sale, exchange or other transfer
of assets may be made by a company, between any of its separate accounts or between any
other investment account and one or more of its separate accounts,
o Unless in the case of a transfer into a separate account, such transfer is made solely to
establish the account or to support the operation of the contracts with respect to the
separate account to which the transfer is made, or in case of a transfer from a separate
account,
o Such transfer would not cause the remaining assets of the account to become less than
the reserves and other contract liabilities with respect to such separate account.
o Such transfer, whether into or from a separate account, shall be made by a transfer of
cash, or by a transfer of securities having a valuation which could be readily determined
in the market:
▪ Provided, That such transfer of securities is approved by the Commissioner. The
Commissioner may authorize other transfers among such accounts, if, in his
opinion, such transfers would not be inequitable. All amounts and assets
allocated to any such separate variable account shall be owned by the company
and with respect to the same the company shall not be nor hold itself out to be
a trustee. (Transfers from the separate vehicle may only be made upon the
Insurance Commissioner’s approval)
Investments in the Separate Vehicle – Any insurance company which has established one or more
separate variable accounts may invest and reinvest all or any part of the assets allocated to any such
account in the securities and investments as authorized for any of the funds of an insurance company
in such amount or amounts as may be approved by the Commissioner.
• In addition, such company may also invest in common stocks or other equities which are listed
on or admitted to trading in a securities exchange located in the Philippines, or which are publicly
held and traded in the over-the-counter market as defined by the Commissioner and as to which
market quotations have been available:
• Provided, however, that no such company shall invest in excess of ten percent (10%) of the
assets of any such separate variable accounts in any one corporation issuing such common
stock. The assets and investments of such separate variable accounts shall not be taken into
account in applying the quantitative investment limitations applicable to other investments of
the company. In the purchase of common capital stock or other equities, the insurer shall
designate to the broker, or to the seller if the purchase is not made through a broker, the specific
variable account for which the investment is made.
Valuation of Assets Invested –. Assets allocated to any separate variable account shall be valued at their
market value on the date of any valuation, or if there is no readily available market value then in
accordance with the terms of the variable contract applicable to such assets, or if there are no such
contract terms then in such manner as may be prescribed by the rules and regulations of the
Commissioner.
Provision for Variable Contracts – The reserve liability for variable contracts shall be established in
accordance with actuarial procedures that recognize the variable nature of the benefits provided, and
shall be approved by the Commissioner. (See IFRS 4 or 17 Insurance Contracts, this is also called the
Liability Adequacy Test)
Claims of Settlement and Subrogation

No insurance company doing business in the Philippines shall refuse, without just cause, to pay or settle
claims arising under coverages provided by its policies, nor shall any such company engage in unfair claim
settlement practices.
Illegal Acts – Any of the following acts by an insurance company, if committed without just cause and
performed with such frequency as to indicate a general business practice, shall constitute unfair claim
settlement practices:
• Knowingly misrepresenting to claimants, the pertinent facts or policy provisions relating to
coverage at issue;
• Failing to acknowledge with reasonable promptness pertinent communications with respect to
claims arising under its policies;
• Failing to adopt and implement reasonable standards for the prompt investigation of claims
arising under its policies;
• Not attempting in good faith to effectuate prompt, fair and equitable settlement of claims
submitted in which liability has become reasonably clear; or
• Compelling policyholders to institute suits to recover amounts due under its policies by offering
without justifiable reason substantially less than the amounts ultimately recovered in suits
brought by them.
• Present or cause to be presented any fraudulent claim for the payment of a loss under a contract
of insurance; and (Sec. 251)
• Fraudulently prepare, make or subscribe any writing with intent to present or use the same, or
to allow it to be presented in support of any such claim. Any person who violates this section
shall be punished by a fine not exceeding twice the amount claimed or imprisonment of two (2)
years, or both, at the discretion of the court. (Sec. 251)
Admissibility of Evidence – Evidence as to numbers and types of valid and justifiable complaints to the
Commissioner against an insurance company, and the Commissioner’s complaint experience with other
insurance companies writing similar lines of insurance shall be admissible in evidence in an administrative
or judicial proceeding brought under this section.
If it is found, after notice and an opportunity to be heard, that an insurance company has violated this
section, each instance of noncompliance with the above may be treated as a separate violation of this
section and shall be considered sufficient cause for the suspension or revocation of the company’s
certificate of authority.
Payment of the Policy – The proceeds of a life insurance policy shall be paid immediately upon maturity
of the policy, unless such proceeds are made payable in installments or as an annuity, in which case the
installments, or annuities shall be paid as they become due: Provided, however, that in the case of a
policy maturing by the death of the insured, the proceeds thereof shall be paid within sixty (60) days
after presentation of the claim and filing of the proof of death of the insured.
• Refusal or failure to pay the claim within the time prescribed herein will entitle the beneficiary
to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice
the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on
the ground that the claim is fraudulent.
Valuation of Proceeds – The proceeds of the policy maturing by the death of the insured payable to the
beneficiary shall include the discounted value of all premiums paid in advance of their due dates, but
are not due and payable at maturity.
Period of the Obligation to Pay – The amount of any loss or damage for which an insurer may be liable,
under any policy other than life insurance policy, shall be paid within thirty (30) days after proof of
loss is received by the insurer and ascertainment of the loss or damage is made either by agreement
between the insured and the insurer or by arbitration;
• Ascertainment of loss – …but if such ascertainment is not had or made within sixty (60) days
after such receipt by the insurer of the proof of loss, then the loss or damage shall be paid
within ninety (90) days after such receipt. Refusal or failure to pay the loss or damage within
the time prescribed herein will entitle the assured to collect interest on the proceeds of the
policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary
Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent.
Litigation of Claims – In case of any litigation for the enforcement of any policy or contract of insurance,
it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to
whether the payment of the claim of the insured has been unreasonably denied or withheld; and in
the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of
attorney’s fees and other expenses incurred by the insured person by reason of such unreasonable
denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board
of the amount of the claim due the insured, from the date following the time prescribed in Section 248
or in Section 249 (Period of Obligation to Pay or Period of Ascertainment of Loss), as the case may be,
until the claim is fully satisfied:
• That failure to pay any such claim within the time prescribed in said sections shall be
considered prima facie evidence of unreasonable delay in payment.
Classes of Insurance
Life vs Non-Life Insurance
Sometimes referred to a General Insurance and Property and Casualty Insurance.
1. While both provides protection on the life and health of a person, life insurance can provide
cover whether death is due to accident or sickness while non-life insurance will only respond if
death is due to an accident.
2. The former is as a rule a valued policy, whereas the latter is generally an open policy. In the
former, the value of indemnity is pre-determined as at the inception of the policy. The total
sum insured and amount of indemnity is one and the same. In the latter, the value of indemnity
shall be determined at the time of the happening the loss. The total sum insured is only the
maximum amount of liability to be assumed by the insurer.
3. The former has an investment feature in the form of dividends, whereas the latter is purely an
indemnity contract. The former earns interests and/or dividends upon reaching the period of
maturity while no such feature is available to the latter.
First party versus third-party insurance.
1. In the former, the beneficiary is the named insured himself, whereas, in the latter, the
beneficiary is a person other than the insured.
2. In the former, what is being insured is the loss suffered by the insured himself or the property
he owns, whereas, the latter covers the insured’s liability vis-à-vis a third party.
3. In the former, a third party has no legal personality to file a claim against the insurer, whereas
in the latter, a third party may directly file a claim against the insurer.
First party insurance includes the following:
• Fire Insurance, Business Interruption Insurance, Motor Car Insurance insofar as Section III Own
Damage, Personal Accident Insurance, Liability insurance (Reinsurance)
Third party insurance includes:

• Commercial General Liability Insurance, Employers Liability Insurance, Sections I, II and IV of the
Motor Car Insurance.
Mandatory versus Optional Insurance.
1. In the former, the insured buys insurance because it is a required either by law or the contracting
party such a Compulsory Third Liability Insurance, Comprehensive General Liability Insurance
and Surety Bond. The latter, on the other hand, is not.
2. In the former, the beneficiary is generally a person other than the insured, whereas, in the latter,
the beneficiary is the named insured himself.
Life Insurance
Life insurance is insurance on human lives and insurance appertaining thereto or connected therewith.
Every contract or undertaking for the payment of annuities including contracts for the payment of lump
sums under a retirement program where a life insurance company manages or acts as a trustee for such
retirement program shall be considered a life insurance contract for purposes of this Code.
• An insurance upon life 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.
• Every contract or pledge for the payment of endowments or annuities shall be considered a life
insurance contract for purposes of this Code.
Beneficiaries who are Minors
• 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 exercise, in behalf of said minor, any right under the policy, without
necessity of court authority or the giving of a bond, where the interest of the minor in the
particular act involved does not exceed Five hundred thousand pesos (P500,000.00) 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 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.
Effect of Life Insurance:
• In case of Suicide – The insurer in a life insurance contract shall be liable in case of suicide only
when it is committed after the policy has been in force for a period of two (2) years from the
date of its issue or of its last reinstatement, unless the policy provides a shorter period: Provided,
however, That suicide committed in the state of insanity shall be compensable regardless of the
date of commission.
• Transfer of Policy – A policy of insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable interest or not, and such person may
recover upon it whatever the insured might have recovered.
o Notice of Transfer – Notice to an insurer of a transfer or bequest thereof is not necessary
to preserve the validity of a policy of insurance upon life or health, unless thereby
expressly required.
• Measure of Indemnity – Unless the interest of a person insured is susceptible of exact pecuniary
measurement, the measure of indemnity under a policy of insurance upon life or health is the
sum fixed in the policy.
Non-life Insurance Products

The following are the major classes of non-life insurance products as per the Insurance Commission:
1. Fire Insurance – Insurance against loss by fire and/or lightning on the insured's property. It may
extend to include acts of nature such earthquake, typhoon, flood, to name a few, subject to
payment of additional premium.
2. Suretyship or Surety Bond – 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 obligee. It includes official recognizances,
stipulations, bonds or undertakings issued by any company by virtue of and under the provisions
of Act No. 536, as amended by Act No. 2206. (Amended Insurance Code, Section 177)
3. Casualty Insurance – includes all other types of insurance that is not Fire
Insurance, Marine or Suretyship such as Motor Car; Personal Accident Insurance; Crime
Insurance; Liability Insurance policies such as Professional Liability Insurance, Directors and
Officers Liability Insurance, Comprehensive General, and Personal Liability Insurance;
Workmen’s Compensation Insurance.
4. Marine Insurance – Insurance against loss of or damage to:
▪ Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects,
disbursements, profits, moneys, securities, choses in action, instruments of debts,
valuable papers, bottomry, and respondentia interests and all other kinds of property
and interests therein, in respect to, appertaining to or in connection with any and all
risks or perils of navigation, transit or transportation, or while being assembled, packed,
crated, baled, compressed or similarly prepared for shipment or while
awaiting shipment, or during any delays, storage, transshipment, or reshipment incident
thereto, including war risks, marine builder’s risks, and all personal property floater
risks,
▪ Person or property in connection with or appertaining to a marine, inland marine, transit
or transportation insurance, including liability for loss of or damage arising out of or in
connection with the construction, repair, operation, maintenance or use of the subject
matter of such insurance (but not including life insurance or surety bonds nor insurance
against loss by reason of bodily injury to any person arising out of ownership,
maintenance, or use of automobiles);
▪ Precious stones, jewels, jewelry, precious metals, whether in course of transportation
or otherwise; and
▪ Bridges, tunnels and other instrumentalities of transportation and communication
(excluding buildings, their furniture and furnishings, fixed contents and supplies held in
storage); piers, wharves, docks and slips, and other aids to navigation and
transportation, including dry docks and marine railways, dams and appurtenant facilities
for the control of waterways. (Amended Insurance Code, Section 101)
Non-Life Insurance can be further classified into two (2) major categories:
1. Tariff Lines – this refers to a class of insurance products whose rates are subject to tariff and
regulation by the Insurance Commission (IC). Examples of which are as follows: (1) Fire Insurance,
(2) Motor Car Insurance, and (3) Surety Bonds. In addition, Tariff Lines’ policy terms and
conditions are uniform.
2. Non-Tariff Lines - this refers to a class of insurance products insurers are given the discretion to
impose the appropriate rate based on their underwriting procedures. Examples of which are as
follows: Personal Accident, Marine Insurance, Commercial General Liability, and Crime
Insurance.
Microinsurance
Microinsurance is a financial product or service that meets the risk protection needs of the poor where:
• The sum of contributions, premiums, fees or charges, computed on a daily basis, does not exceed
seven and a half percent (7.5%) of the current daily minimum wage rate for nonagricultural
workers in Metro Manila; and
• The maximum sum of guaranteed benefits is not more than one thousand (1,000) times of the
current daily minimum wage rate for nonagricultural workers in Metro Manila.
• No insurance company or mutual benefit association shall engage in the business of
microinsurance unless it possesses all the requirements as may be prescribed by the
Commissioner. The Commissioner shall issue such rules and regulations governing
microinsurance.
Title VII: Law on Partnerships

Partnerships in General
Partnerships – contracts whereby 2 or more parties bind themselves to contribute money, property, or
industry to a common fund with the intention of dividing profits among themselves, or in order to exercise
a profession.
Characteristics: Consensual, Bilateral, Nominate, Principal, Onerous, Preparatory
• Affectio Societatis – The desire to formulate an active union with people among whom there exists
a mutual confidence and trust
• Delectus Personae – The right to choose who to associate with
Purpose:
• To divide profits and or to exercise a profession; the purpose ultimately must be lawful, otherwise,
the partnership may be judicially dissolved and profits will be confiscated in favor of the state.
Doctrine of Separate Entity or Separate Juridical Personality – The partnership is separate and distinct
from the partners; as such, the partnership is a juridical person who can acquire and possess properties
of all kinds, incur obligations, bring civil or criminal actions, be adjusted insolvent even if the partners
themselves are solvent or insolvent.
Partnerships Corporations
Creation Voluntary agreement of parties Created by the state through
special character or enabling
law
Number of organizers 2 or more Not more than 15
Existence Indefinite Indefinite under the RCC
Liability of the Owners Unlimited Limited
Transferability of Interest All must consent to transfer No concurrence necessary
Ability of owners to bind A partner can sue another who A stockholder cannot sue a
mismanages director directly, it must be thru
a derivative suit in the name of
the corporation
Nationality Wherever it was established, Wherever it was established,
and depending on the under which country’s laws it is
percentage of ownership acknowledged, and depending
on the percentage of ownership
Legal Personality Upon perfection of the contract Upon issuance of the Certificate
of Registration
Succession A partnership does not succeed. A Corporation may succeed
Death, retirement, insolvency
and admission of a new partner
dissolves the partnership
Existence of Partnerships:
There is No Partnership if:
• The persons are not partners to each other, except in the case of estoppel
• Co-ownerships or co-possessions regardless of profit sharing
• Sharing gross returns regardless of joint / common interest in any property from which returns are
derived
• Payments to the partnership are made, but for some other consideration other than business.
There is a partnership if there is receipt, actual or constructive, of profits from business. Profits is
prima-facie evidence of partnership existence.
Formal Requirements of Partnership Formation
• Generally, there are no formal requirements to form a partnership, except if:
o The partnership involves an immovable property contributed; this requires taking
inventory, the same being signed and attached to a public instrument. Absence of this
requirement avoids the partnership
o If the capital contribution of the partnership exceeds P3,000.00 the partnership must
appear in a public instrument, recorded in the SEC
▪ This is a requirement merely to bind 3rd persons, and does not affect validity
Kinds of Partnerships
1. Universal Partnership of All Profits – the partners’ own property are not commonly owned. Only
the usufructs are commonly owned (this includes those from labor and industry). If the
partnership does not specify its own nature, it is construed to be a universal partnership of profits
2. Universal Partnership of all Present Property – all of the partners’ property are contributed to
the partnership; profits are also commonly owned; profits from other sources nay be commonly
owned only upon stipulation.
o Persons barred from forming universal partnerships:
▪ Husband and wife
▪ Those guilty of concubinage and their concubines
▪ Those guilty of adultery
▪ Those guilty of a common offense, if the partnership was entered in its
consideration
**This is because contributions to universal partnerships are technically donations.
3. Particular Partnerships – they have a specific undertaking for which they are established, or it is
for the exercise of a profession
4. General Partnerships – all the partners have unlimited liability
5. Limited Partnerships – at least one partner has limited liability, and there is at least one partner
with unlimited liability
6. Partnership with a fixed term or particular undertaking
7. Partnership at Will – partnerships with undetermined purpose
8. De Facto Partnership – partnership not in conformance with legal form (De jure would be its
opposite)
Kinds of Partners
• Capitalist Partners – those contributing only capital or properties
• Industrialist Partners – those only contributing labor
• Capitalist-industrial – those contributing both labor and property
• General Partner – those whom the creditors may lay claim over personal assets
• Limited Partners – those whom the creditors may lay claim over contributions to the partnership
• Silent Partner – does not participate in management
• Secret Partner – unknown to the public/3rd persons
• Dorman Partner – both silent and secret
• Ostensible – neither silent nor secret
• Managing Partner – has discretion over business decisions
• Liquidating Partner – in charge of distributing the partnership’s assets
• Incoming Partner – Thosepartners after dissolution
• Quasi-partner – A partner already retired, but maintains with the partnership his loan to it, entitling
him to interest
• Partner by Estoppel – A partner that is bound to be tried as a partner through his misrepresentation
to third persons
Obligations of a Partner
To the Partnership and the co-partners:
1. Give his Contribution
a. Per stipulation or as provided in the contract
b. In the absence of a stipulation, partners have equal capital ratios
c. Failure to give contribution will make the defaulting partner a debtor to the partnership,
liable for interest and damages; no demand is necessary
i. Partners are liable in the same manner as a vendor, thus the laws on sales apply
on the partner’s contributions (Warranties and Obligations thereof)
d. The risk of loss is borne by:
i. The Partner if: the thing is specific, not fungible; as provided by contract; or is
a usufruct proceeding from common property
ii. The Partnership if: the things are fungible, perishable, or is contributed to be
sold, or as per stipulations
2. Give additional Contribution in case of Loss
a. All the partners are required to do this except:
i. The Industrial partner, unless a contrary stipulation appears
ii. Any partner by stipulation
3. Prohibited to Engage in other Business
a. Industrial Partners are not allowed without the permission of capitalist partners
i. The capitalist partners may have him excluded in the firm, and may avail of the
benefits derived from his leaving the partnership
b. Capitalist Partners are not allowed if the other business is of the same industry, except
if a stipulation thereto permits the same or if the current partnership is already in the
liquidation stage; or general-capitalist partner is a limited partner in another venture,
i. The defecting partner must bring to the partnership his illegal profits,
ii. Will become personally liable for the losses of partnership due to his defection
iii. Will be ousted from the partnership
4. Credit to the firm the payment by a debtor to the partnership or Managing partner
a. If a managing partner collects from a common debtor (with the firm)
i. The payment is receipted in the name of the partnership – it applies to the
partnership’s credit
ii. The payment is receipted in the name of the managing partner – the credit is
applied proportionately (Except if the debtor exercises application of payments,
he may apply the payment to the more onerous debt)
5. Other Obligations
a. Not to convert partnership funds or property for personal use
b. To account for and hold as trustee, unauthorized or secret personal profits
c. Pay for the damages caused by his fault
d. Share with the co-partners share of partnership credit received from insolvent debtors
e. Keep partnership books in the principal office or someplace stipulated, and to allow co-
partners access, inspection, and copies of the same
f. To reimburse the partnership of damages suffered by it through his fault
i. This is not compensable with profit and capital share
ii. May be tempered by the courts through extraordinary efforts that result in
unusual profit
g. To inform co-partners of partnership matters
h. To observe due diligence in all dealings
i. To adhere to partnership agreements and decisions of the Managing Partner
Obligations to Third Parties
• Partners are liable thru the firm name or thru estoppel
• Liquidation Liabilities are allocated pro-rata or by some other stipulation
o Any stipulation absolving one partner as to 3 rd persons is void,
o Any stipulation absolving one partner as among themselves is valid (loss absorption)
• Partners are authorized to act in behalf of the partnership, and are thus agents of partnership
• Liabilities from Conveyance of Real Property
• Solidary Liability through Torts
• Solidary Liability for thru Quasi-contracts
Authority among partners may be express, implied or apparent; in this case, admission of facts by
partners within the scope of authority is a piece of evidence against the whole partnership
Notice to one partner is a notice to the whole partnership, except in the case of fraud committed
by such partner.
Consent of all the partners is necessary for these matters:

Assignment of partnership property Disposal of goodwill
Doing Ultra-vires acts Confess a judgement
Enter into compromise of partnership liability Submit a claim or liability to arbitration
Renounce liabilities to the partnership
Conveyance
Property is in Conveyance is
the name of: named after: Conveyor is: Effect:
Partnership Partnership Partner Valid conveyance, but If the transfer binds the firm
recovery is still or if transferee has a lack of
available except knowledge in the capacity of
the partner to convey
1 or more 1 or more 1 or more Valid conveyance, but If transfer binds the firm or if
partners partners partners recovery is still the transferee has a lack of
available except knowledge in the capacity of
partner to convey
Partnership 1 Partner 1 Partner Passes only an No interest transfers if the
equitable interest if partner is unauthorized to
the partner acts convey
within valid authority
All Partners All Partners All Partners A Valid Transfer, final No recovery available
There is a Solidary Liability for Quasi-contracts:
• If the partner is the receiver acting within his bounds of authority and misapplies the thing
• If the partnership is the receiver acting within the ordinary course of dealings, & misapplies it
Effects of Estoppel
• If the partnership consents to the misrepresentation, the partners and partnership are in solidum
• If the partnership does not consent, only the partners by estoppel become liable for
misrepresentation
Liability of Incoming Partners to 3rd Persons
• Up to his capital contribution only, if the liability accrues prior to admission
• Up to personal assets after admission
Rights of the Partners
Share in Profits
Profits Losses
To capitalist partners Per stipulation, if silent, extent Stipulation, if silent, extent of
of contribution profit, then contribution
To industrial partners Just and Equitable No share in losses
• Pactum Leonina – A stipulation preventing a partner from participating in profits is void
Property Rights
• Rights in specific partnership property
o Partners are co-owners with his partners in terms of specific property
o Co-partners have equal right to possess for partnership purposes only, but have no right
for using the same for any other purpose without consent of the other partners
o Right to possession for partnership use is not assignable, except if all interests allow for
assignment (The properties cannot be assigned to 3rd persons, not subject to legal
support)
o The same rights cannot be attached or executed except on a claim against the
partnership (The rights above cannot be used to support a credit, not subject to legal
support)
o Attached debts by the partnership will disable claims upon that same property by the
partners or by their representatives (as contributions to the partnership, the assets
cannot be claimed by the partners especially if partnership debts are attached, not
subject to legal support)
Rights to Interest in the Partnership, and Assignment thereof: (Profits and Surplus)
• Available only to partners, as such, these partners may convey interest to 3 rd parties
• Conveyance, in whole or in part, does not dissolve the partnership, hence the transferee does not
become a partner (he shall have no right to demand accounting and settlement, management, and
inspection of the partnership books)
• Rights of the Assignee/Transferee
Profits of Assigned Interest Avail usual remedies to fraud Receive interest at dissolution
• Interest may be subject to charge or attachment by courts
o Only interest in profits is attached
o Priority still belongs to external creditors
o Redeemable prior to foreclosure
▪ Upon foreclosure, Limited partners may only redeem to the extent of separate
general partners’ property contributed (not partnership property)
▪ All partnership property may be foreclosed; redemption may be done only with
the consent of all the partners
Right to Participate in Management; and
Other Rights:
• The Inspection and Copy of Partnership Books, and to Demand Formal Accounting
When wrongfully excluded from affairs Partnership affairs and other secret info
By stipulation Whenever just and reasonable
• To ask dissolution at the proper time and return of capital
• Compensation
• Reimbursement of loans to the partnership
Management of the Partnership
One Managing Partner
• Via articles of the partnership – all administrative acts in must be in good faith
o The acts may be revoked by just cause without a vote
o or a vote representing controlling interest;
There are Multiple Managing Partners
• Managing partners must act within the consent of all other managing partners
• If the duties are assigned, acts may be done independently as long as this is within their scope
• If there are no specific assignments or stipulations on management acts:
o Each may separately act independently
o In case of opposition, a vote may be held; first among the heads of managers, and then
among the partners, (represented by voting power)
There are No Managing Partners specified, but there is a stipulation of consent and support before
the execution of an act:
• A Unanimous consent is required, absence or disability cannot be alleged
• Except in the case of imminent danger or irreparable injury, a mere majority may be required
There is no agreement as to the Managing Affairs
• All the partners are agents to the partnership, as such, no ultra-vires acts are allowed except if
refusal of the act prejudices the partnership; the courts may intervene the affairs if ever.
Limited Partnerships
Requirements: (All must be in a certificate, signed and sword upon), filed with SEC
Partnership name, with limited or ltd. Character of the business
Adress of the principal place Name, address of each member, and kind of partner
Partnership term Cash and non-cash assets contributed at agreed value
Additional contributions by ltd partner Time when contribution is returned
Profit-sharing Right to assign interest and be substituted of his interest
Rights of continuing after dissolution Ltd partner’s right to have priority over general partners
Absence or lack of requirements will render partnership as a general partnership
Limited Partners
• have the right to demand the return of their contribution even in the absence of a stipulation, provided
that funds are available, 6 months prior notice is provided by the Limited partner, or upon dissolution
(no notice required)
Assignment of Interest by Limited Partners
• All partners must consent • A limited partner may transfer his interest
• The Assignee acquires the same rights to a substitute, usually an assignee, taking
• The Assignee is liable only to debts he is his place.
aware of or is determined by virtue of his • The assignee remains to be an assignee with
assignment the rights of a limited partner if he does not
• Substitution does not release the original take substitution, but he is not a limited
limited partner partner
The limited partner’s interest is redeemable, as such, he is allowed to:
Admit additional limited partners Continue Business
Have priority over other limited partners Demand property or cash for interest redeemed
Limited partners cannot be:
• Industrial Partners • Cannot appear in the partnership name
• Cannot take part in management (except if the partnership has a general
• If they partake in the above acts, they partner with the same surname or has
become liable as general partners as to 3 rd carried on prior to admission of the limited
persons partner)
Rights of the Limited Partner
• Have the partnership books be in the • Demand return of capital upon
principal place and be accessible o Dissolution or 6 months prior notice to
• Demand true and full information on acquire return of capital or some other
partnership affairs period specified
• Initiate dissolution • Written consent or ratification on execution
• Receive profits or compensation of other rights of the partners
o No full return of contribution until • To loan to the partnership
external creditors are satisfied, funds o Cannot hold collateral or receive
are available, all partners consent, and partnership property
if the certification of partnership is o NO payment, conveyance, release if
cancelled/amended the assets cannot cover liabilities to
external creditors
The General Limited Partner
• A partner holding both rights of limited and general partners
• They are valid kinds of partners as long as the type is stated in the certificate of partnership
Dissolution and Winding-up of Limited Partnerships
• The Acts, Insolvency, or Death of general partners dissolves the partnership; the A.I.D. of Limited
partners will not dissolve the partnership.
• Winding-up: Follows the same marshalling as any general partnership, except those limited
partners come first in all respects (i.e., debt, profit, and capital, in this order)
Dissolution and Winding-up of Partnerships
Dissolution – the change in relationship among the partners
Winding-up – Generally, preparing for the ceasing of the partnership operations
Termination – The consummation of the partnership contract
Extra-judicial Dissolution Judicial Dissolution
No violation of partnership agreement
- By termination of a period • A partner is declared insane
- Express will of one or all • A partner becomes incapable of carrying on duties
- Expulsion in accordance with of a partner
conferred powers
With violation: upon express will • A partner becomes guilty of conduct that
- Breach of trust and Confidence prejudices the partnership
By Operation of Law • Willful or persistent breach of obligations
- A partnership becomes a de facto • Partnership has no other choice but to carry on at
partnership a loss
- Specific thing to contribute and • Other equitable circumstances (trials may be
deliver perishes necessary)
- Death, insolvency, civil interdiction,
etc.
Effects of Dissolution
1. Termination of Mutual Agency – If the cause of the dissolution is not death, insolvency, or acts,
a notice of dissolution is required
2. Some acts are binding after dissolution
a. During Liquidation of the partnership where the Creditor has not had any notice of
liquidation, or
b. When the liquidation of the partnership is not yet of public knowledge
3. Continuation of the Partnership
a. As a General Partnership when there are no longer any Limited partners
b. As a Limited Partnership when new general partners are admitted into the Limited
Partnership
Liquidation and Winding-up
Liquidator – The liquidator may be any party not causing the wrongful dissolution; the legal
representative of the last surviving partner, if not insolvent himself; or the court, upon causes shown by
a partner or representative
Marshalling of Assets:
To External Creditors -> Internal Creditors ->Return of Capital -> Return on Capital;
For limited partnerships, the profits are distributed over capital first.
• In case of insufficiency, funds must be infused in order to satisfy all the claims for liquidation;
• Partners with debits become debtors to their co-partners, hence the co-partners are subrogated
the rights of the debtor partner
• In case of an insolvent partner: his personal creditors must be paid first, followed by partnership
creditors, and then the co-partners who absorbed the losses for him
Title VIII: Law on Corporations

General Principles on Corporations
Corporations – artificial beings created by operation of law, having the right of succession and the
powers, attributes, and properties expressly authorized by law or incident to its existence.
Attributes
Artificial Being – Thru Separate Juridical Entity
The Corporation and the Stockholders & Management are distinct persons from each other; the general
rule applicable to Corporations follows the Theory of Business Enterprise which provides that
corporations are not merely artificial beings with separate juridical personality, but rather more
importantly, an aggregation of persons engaged in doing business/any defined purpose in their articles.
• This theory sets-up the tool of the courts to Pierce the Veil of Corporate Fiction
Piercing the Veil of Corporate Fiction
• When corporate identity is used to conceal fraud or promote illegality, the distinction between the
separate entities of the corporation and the natural person may be suspended.
o In cases where the corporation is used to commit fraud
o Alter ego cases – where the corporation is a mere conduit or alter ego of its owners
o Defeat public convenience cases – where corporations may attempt to evade taxes,
justify wrongs, or defend a crime
o Equity Cases – in cases of labor disputes, so as to promote social justice
Limitations of Piercing the Corporate Veil:
• A remedy of last resort (it is an equitable remedy)
• It is a judicial power and cannot be assumed improvidently by a Sheriff
• It applies only to the particular transaction for which it was applied
• Cannot be invoked by a person who is not a Victim of the corporation’s alter ego
Applicability of PTV
• Control over policy and procedure within the corporation
• Breach – in this case, the control must be used to commit fraud/perpetuate violations, dishonesty
• Proximate Cause
Implications of Separate Juridical Personality
• A corporation is entitled to some constitutional rights, such as Equality of Law, Right to
Substantive Due Process, Rights Against unlawful search and seizure
• However, a corporation cannot be imprisoned, since it does not have the Right to self-incriminate.
In this regard, it will never be criminally liable, but may be required to pay damages in tort
cases
• However, directors and employees assenting to the illegal acts of the corporation are imprisoned
for some acts violating the code.
o Furthermore, a corporation cannot claim to be victims of anguish, anxieties, etc. but
may still claim moral damages for suffering from a tarnished reputation under the
Bedrock Rule.
Created by Operation of Law:
Through the Theory of Concession, which states that the state merely consents to the existence of the
corporation, as such: Corporate entity begins upon the issuance of the certificate of incorporation
• Except for Corporations by Estoppel, those created by Special Laws, and Corporation-Sole.
• Corporation-sole is simply an extension of rights to heads of minorities such as religious
groups, ethnic groups, etc. to enable consolidated representation before the law.
• Corporations created by special laws shall not fall under the nationality tests found
under the Revised Corporation Code
Corporations therefore, can only be created by declaration of law. It is good to note as well, that only
certain laws can apply to grant certain corporations with existence, as such:
General Laws Special Laws Corporations by Prescription

The RCC, and only the RCC can Special laws creating the Corporations deemed to have
be invoked to create a Private existence of Public Corporations existed long before the
Corporation. such as LGUs, GOCCs, and establishment of any law. E.g.,
Offices the Roman Catholic Church
***If a private corporation were to be created by Congress, it would violate other corporations’ right to
Equality under the law.
***Genosscenshaft Theory – That corporations are consensually made by the parties involved.
Corporate Right of Succession
Death, Incapacity, Civil Interdiction of Stockholders or Management does not dissolve the corporation
(This is a corporation’s manifestation of strong juridical personality).
Powers, Attributes, Properties of Corporations expressly Authorized by Law
• Express Powers (Those conferred by the Code)
General Powers Specific Powers
Under General Capacity, a corporation, once duly Under Specific Capacity, corporations deemed to
created, can exercise all necessary means to exercise these powers cannot exercise other
carry-out its specific powers. powers outside of what was conferred by law.
• To enter into mergers and consolidation, • To sue and be sued in its corporate name*
partnerships, or joint ventures • To have perpetual existence, unless otherwise
• To make reasonable donations for public provided in AOI
welfare, hospital, charitable, cultural, • To adopt and use corporate seal*
scientific, civil or similar purposes (not • To Amend the AOI
applicable to foreign corporations) • To adopt By-laws
• Establish pension, retirement, and other • To extend or shorten corporate term
plans for the benefit of its employees • To increase/decrease capital stock, or incur
• Other such powers reasonably necessary to or increase bonded indebtedness
carry-out its purpose (Implied Powers); in • To admit members (Non-stock Corporations)
other words, Dealings in Properties and • To deny preemptive rights
Operational Transactions (**) • To deal in or dispose of corporate assets,
• Other such powers indispensably necessary including securities and bonds**
to carry-out its purpose (Incidental Powers); • To acquire its own shares
those relating to corporate identity (*) • To invest corporate funds in another
corporation or business
• To declare dividends
• To enter into management contracts
Ultra-vires Acts – Any act not within those expressed, implied, or incidental to corporate existence may
be subject to collateral attack, questioning the corporate entity’s authority to enter into such endeavor.
These acts may cause the corporation’s suspension, revocation of franchise or certificate of
registration; derivative or individual suits from stockholders; & avoid contracts.
Classes of Corporations
Class of Corporation Description Remarks
Domestic Corporations A corporation created by PH Law It is no longer required to
(RCC). obtain a SEC license
Foreign Corporations A corporation created by Foreign Requires a SEC License
Laws, or is determined to be foreign Required to have a Resident
by some test of nationality. Agent to do business in PH
Stock Corporations Corporation whose capital stock is Non-stock corporations
divided into shares of stock and is cannot be come stock
authorized to declare dividends to corporation, but stock
stock holders corporations can convert
Non-stock Corporations A corporation that does not fall in into Non-stock
the above description corporations.
Open Corporations A corporation whose shares are Open Corporations may be

open to the public Closely-held or Publicly-
Close Corporations A corporation whose shares are held;
limited only to a few individuals
(less than 20) Close corporations can only
Closely-held Corporations A corporation whose shares ever be Closely-held
representing 51% are held by not
more than 20 persons Publicly-held corporations
Publicly-held Corporations A corporation whose shares can only ever be Open
representing 51% are publicly-
traded.
Corporation vested w/ Public Int. such as: Generally, any corporation:
• Banks/Quasi-banks
• Non-stock savings and Loans Associations • whose securities are registered with
• Pawnshops the SEC;
• Corporations in Money Businesses • is listed in the Stock Exchange;
• Pre-needs • has assets of at least P50M; with 200
• Trust and Insurance Companies Shareholders, each holding at least 100
• Other Financial Intermediaries Shares
Private Corporations such as: Established by Private Individuals Arising from General Law
Civil Corporations such as the RCC or other
Quasi-public (Public utilities) foreign laws.
Public Corporations, such as Established by the State Arising from Special Laws
Municipal Corporations – LGUs establishing these
GOCCs – Specific Special Laws corporations
Ecclesiastical Corporations Created for religious purposes These are actually
Lay/Eleemosynary Corporations Created other than for religion corporations established for
what they are intended for,
unlike the two below:
Aggregate Corporations A religious corporation governed by These corporations are
the Board of Trustees intended merely for
Corporation-sole A corporation established to representation purposes,
represent a religion/ancestral through which, a sect/tribe
tribe. may acquire corporate
• Has ‘no nationality’ powers (such as
• Acquired identity through perpetuity), where in their
prescription natural forms, are
• Existence reckons from impossible to acquire.
filing of Articles
De Facto Corporation A corporation attempting to -
incorporate in good faith, but
lacking in formal requirements
De Jure Corporation A corporation incorporated in good
faith with complete formal -
requirements
Corporation by Estoppel/ A false corporation that is deemed Established through
Ostensible Corporation to be a corporation by virtue of misrepresentation to third
estoppel in judicial proceedings persons as a corporation
One Person Corporations A corporation established by a Incorporated to aid in
single natural person, estate, or managing properties of an
trust individual
Holdings or Parent Corporation A corporation controlling another The definitions apply only in
Subsidiary Corporation A corporation under control of reference to each other.
another corporation
Affiliate Corporation A corporation belonging to a group

of companies
Associate Corporation A corporation under significant
influence by another
Sister Companies Co-subsidiaries in a group
Corporate Term
No Fixed Term of existence
• Under the RCC, corporations now enjoy indefinite corporate life, unless the AOI provide
otherwise.
Corporations that are Pre-RCC RCC Effective
Those corporations under the BP 68 (Old Corporation Code) All corporations
AOI has may choose to continue corporate existence under the incorporated during the
No fixed original term (whatever is remaining of 50 years) or to exist effectivity of the RCC are
term of in perpetuity by a majority vote of OCS. given perpetual existence
existence. by default
***Changes in corporate term does not prejudice appraisal right.
A corporate term or period may be extended or shortened Even in perpetual existence,
A fixed
by amending the articles of incorporation. No extension the corporation may extend
term is
may be made earlier than 3 years prior to original or shorten its existence by a
indicated
expiration dates; taking effect only on the original majority vote of OCS
in the AOI
expiration date.
A corporation whose term has expired may apply for revival of corporate existence. This
causes all duties, debts, rights, privileges, and obligations existing at the death to also
Lazarus be revived; unless application for its revival provides otherwise.
Provision
Banks, Quasi-banks, Pre-needs, Insurance and Trusts, Non-stock Savings and Loan Associations, Pawnshops,
Corporations in Money Businesses, and other Financial Intermediaries may be revived without favorable
recommendation by the appropriate Government Agency.
• Non-use of Corporate Charter
Failure to formally organize and Formally Organized, but subsequently is
commence Business inoperative
Effects: Certificate of incorporation is After due notice and hearing, the corporation
deemed revoked may be placed under delinquent status
Takes effect at 5 Years from incorporation date 5 consecutive Years from last day of operations
**A delinquent corporation shall have a period of 2 years to resume operations and comply with SEC
requirements. Compliance will lift the delinquent status; failure to comply will cause revocation of
certificate of incorporation.
Compliance status De Jure De Facto Corporation by Estoppel
Description Fully complied in Partially complied or Fully Fraudulent
form not in form
Corporate Identity Distinct Distinct Not Distinct
Direct Attack on Identity Not Applicable Yes, via quo warranto Yes, no quo warranto needed
Collateral Attack Not Applicable Not Applicable Yes, no quo warranto needed
• De Facto Corporations are incorporated under a Valid Law, with intent to incorporate under
said law, with an actual exercise in good faith of corporate powers. These 3 elements are NOT
present under a Corporation by Estoppel.
• Members of a corporation by estoppel are liable as general partners in partnerships. (solidary)
For context, a quo warranto proceeding is a proceeding performed to inquire into the person’s validity
over specific rights. Only the Solicitor General may inquire into the Corporation’s right to existence
because it proceeds from a general law, and may ask to have the corporation be dissolved.
Organization and Incorporation

Corporations begin with promotion, then proceed to incorporation, and finally, the commencement of
operations. In the promotion phase, there is no corporate entity yet, as such, promoters are liable in
their personal capacities that they enter into in behalf of the unborn corporation.
Articles of Incorporation
The articles of incorporation are akin to a natural person’s birth certificate. It represents the state’s
conference of its right to exist. It also provides the relationship between:
Corporation and the State Shareholders and the State Corporation and Shareholders
1. The Name of the Corporation
a. This is essential and typically permanent unless amended.
b. It must not be confusingly similar to some other name that is registered or reserved with
the SEC. Accordingly, the SEC may cause a cease-and-desist order for use of confusing
names, requiring the corporation in question to make use of a different name. In effect,
all insignia and marks or ads possessing confusing names are removed, and all
directors/officers responsible for the confusing name are held for contempt.
c. The SEC as such, can hold persons administratively, civilly, and criminally liable
d. Summarily, the SEC can revoke registration upon failure of compliance
2. The Purpose of Incorporation
a. May be Primary or Secondary (Secondary in the case of multiple purposes) so as to limit
the activities a corporation may enter into.
b. Purposes prohibited from engaging in peculiar activities include:
i. Educational, Religious, Non-stock Corporations
ii. Insurance Companies are prohibited to engage in banking
iii. Stock Brokers
3. Principal Location of the Corporation
a. (It is necessary to determine the place for legal proceedings)
4. The Corporate Term
a. An Extension for corporate term may be made no earlier than 3 years from the expiration
of the current corporate term
b. After expiration, a revival of a corporation is allowed (Lazarus Provision)
5. Names, nationalities, addresses of the Incorporators
a. Partnerships are now allowed to incorporate
b. Incorporators shall not be more than 15
c. Professionals and GPPs are not allowed to incorporate
d. 1 Incorporator = OPC
e. Natural persons of legal age must sign the Articles and By-laws
i. Minors may be shareholders/corporators, but NOT incorporators
6. Directors or Trustees
a. There may be no more than 15 Directors; As for trustees, there may be more than 15
b. Corporations vested with public interest must have Independent Directors consisting of
20% of such Board (These are those that do not participate in management)
7. The Names, Nationalities, Residences of Acting Directors/Trustees until the actual ones are
elected
a. These acting directors are in hold-over capacity
8. Authorized Capital Stock, No. of Shares, the Par or Stated Value
a. The Nationalities, Addresses, Names of the Original Subscribers are determined
b. Authorized Capital Stock is the maximum number of stocks allowed for issue
9. Names, Nationalities, Residences of Contributors and the amount contributed for Non-stock
Corporations; and
10. Other Such Matters
a. These should be indicated in the Articles and in the Stock Certificates
b. Failure of indication will not bind third persons
c. For Close Corporations, other matters must be indicated in the By-laws along with the
Articles and Stock Certificates
d. These Other Matters are:

i. Name of the Treasurer
ii. No Transfer Clauses (Non-reduction of PH Ownership to less than the
requirement)
iii. Execution Clause
iv. Treasurer’s Affidavit
v. Notarial Acknowledgement
vi. Arbitration Agreements
Grounds of Disapproval by the SEC
• If the articles are not in accordance with laws, regulation, morals, public policy, etc.
• The purposes of incorporation are unconstitutional
• The Treasurer’s Affidavit/Certificate is false
• The Absence of Favorable Recommendation by agencies concerned
Amendment of the Articles of Incorporation
• The Majority of the Board Members, the Written Assent of 2/3 of Capital Stock
Outstanding, and the Approval of the SEC; inaction by the SEC within 6 months from the
appeal to amend will have deemed the amendment approved.
Nationality Tests
• Incorporation Test – ‘under which country’s laws is the corporation incorporated?’
• Control Test – ‘what percentage of interest is controlled by Filipino Nationals?’
• Foreign Investments Act Test of PH National – A corporation should have 60% of OCS that
benefits Filipino Nationals
• DOJ-SEC Nationality Test – 60% of capital is actually owned by Filipino Nationals
• Grandfather Rule – A test to determine nationality through both direct and indirect holdings
of individuals
Corporations with Nationality Requirements
100% Filipino 60% Filipino
• Mass Media • Exploration, Development and Utilization of
• Professions Natural resources
• Retail Trade with paid-up capital below 2.5 • Ownership of private lands
million USD • Operation of Public Utilities
• Private Security Agencies • Educational Institutions other than those
• Small Scale Mining established by religious groups and mission
• Utilization of Marine Resources in boards
Archipelagic waters, territorial seas, EEZs, as • Culture, production, milling, processing,
well as small-scale utilization of natural trading except retailing rice and corn, and
resources in rivers, lakes, bays, and lagoons acquiring by barter, purchase, or otherwise,
• Ownership, operation, and management of rice and corn and the by-products thereof
cockpits • Contracts for the supply of materials, goods,
• Manufacture of Firecrackers and other and commodities to GOCCs, agencies or
pyrotechnic devices municipalities
75%-80% Filipino • Facility Operators of an infrastructure or a
• Private Radio Comms Network development facility requiring a public utility
75% Filipino franchise
• Private recruitment whether for local or • Operation of deep-sea commercial fishing
overseas recruitment vessel
• Contract for construction and repair of • Adjustment companies
locally funded public works • Ownership of Condominium units
• Contracts for the construction of defense • Manufacture, repair, storage, and/or
related structures distribution of products and or ingredients
70% Filipino requiring PNP Clearance
• Pawnshops • Manufacture, repair, storage and or
distribution requiring DND clearance
• Advertising Business Activities • Manufacture and distribution of dangerous

40% Filipino drugs
• Financing Companies • Sauna and steam bathhouses, massage clinics
• Investment Houses and like other activities
Business activities wherein foreigner’s • Domestic market enterprises with paid-in
ownership could be more than 40% and even up equity capital of less than 200k USD
to 100% (RFCs) • Domestic Market Enterprises which involve
• Export enterprises advanced tech or employ at least 50 direct
• Domestic Market Enterprises with paid—in EEs with paid-in equity capital or less than
equity capital of at least 200k USD the equivalent of 100k USD.
• Domestic Market Enterprises which involve
advanced technology or employ at least 50
direct employees with paid-in equity capital
of at least 100k USD.
The Board of Directors
The BOD – The Supreme Authority in corporations that handle management, regular and ordinary business
affairs. Their authority does not extend to fundamental changes in the corporate charter such as:
Amendments, Substantial Changes in corporate charter (Power of the Shareholders). The corporation will
be bound by the acts of its corporate officers for the exercise of Express, Implied, Apparent, Custom,
Emergency Powers.
Qualifications:
All Directors must own 1 Share, at least Majority of BOD are Residents (Citizen/Alien)
Disqualifications:
Permanent Disqualification Temporary Disqualification
Conviction by Final Judgment (SRC, Banking Laws) Refusal to disclose SRC and IRR
Crime involving Moral Turpitude Absence in more than 50% of all meetings/12
months unless the reasons are justified
Director becoming an Officer/Employee Conviction of a crime
consultant
Judicial Insolvency Equity owned exceeds 2% subscribed capital
Convicted by foreign courts of equivalent crimes Cases on permanent disqualification is not yet
final
Convicted of a crime imprisoning him for 6 years If these are not acted upon within 60 days, the
disqualification becomes permanent
Election of the Board Members
1. Majority of Outstanding Stock in person or proxy must be present at the election (Majority of
Voting members may adjourn in the absence of a quorum)
2. Election may be done by ballot or viva-voce
Reportorial Requirements
1. Non-holding of elections must be reported within 30 days to the SEC before actual election.
2. Placing thereon a new date that is not later than 60 days from the date of the cancelled
election.
3. Vacancies by death, resignation, incapacity of the secretary, director, trustee or officer shall be
filed within 7 days from knowledge thereof to the SEC
Methods of Voting
1. Straight Voting – The shareholders may vote per the shares they hold; or
2. Cumulative Voting – Shareholders may vote per share he has times the number of directors to
be elected. This is done to grant the minority vote a rightful representation
• This is not allowed for Non-stock corporations, unless allowed in the Articles or By-laws
Removal of the Board Members
• Based on the By-laws
• Directors representing the minority may not be removed except for some causes
• Director representing the non-minority may be removed without just-cause.
o The SEC may now remove the director or trustee moto-proprio and after due notice and
hearing despite disqualification; or if the disqualification arises after elections
Requirements for Valid Removal:
• The removal must take place in a general or special meeting called for that purpose
• It must be voted upon by the Shareholders representing 2/3 of OCS s or members in heads
• A prior notice to the shareholders must be provided
Vacancies
Cause Who to fill When is the Election Held?
Removal Shareholder Same day as the removal meeting
Expiration of Term Shareholder At a meeting called for the purpose or no
later than the day of expiration
Other Reasons (i.e., The BoD if it still forms a No later than 45 days the vacancy arose
resignation) quorum
The Shareholder if otherwise
Incr. in Number of Directors Shareholder In a meeting called for the purpose
Hold-over Directors – After term expiration, the director maintains his office since no election could be
held for some reason; upon his resignation, shareholders will take his place even if the directors are in
quorum. This is because the power of the board to replace a director is only limited to reasons other
than removal and expiration. Accordingly, a resignation before the expiration of the term is treated as
falling within the powers of the shareholders.
Emergency Boards – Vacancy may be temporarily filled among officers by unanimous vote of remaining
directors and trustees. The emergency board will cease within reasonable time and is limited to
emergency functions until the emergency ends or a replacement director is elected; whichever is earlier.
As such, the entity must notify the SEC within 3 days from creation of the emergency board.
Director’s Threefold Duties
Doctrine of Corporate Opportunity: A director cannot appropriate for himself opportunities, that in
fairness, belong to the corporation
• Business opportunities acquired by a director will have to be accounted for by him, unless
his act is ratified by 2/3 of ordinary stocks
• No ratification: an attempt to acquire in the director’s part, any interest adverse to the
corporation in any matter reposed to him in confidence is not ratifiable
Duty of Loyalty – Directors must maintain loyalty to the corporation.
Self-dealing Directors – These are directors that transact business with his corporation.
• All contracts are voidable at the option of the corporation, in view of corporate opportunity.
• Ratification can be made only if:
o The presence of the dealing director is not needed to make a quorum; nor is his vote
necessary for the approval of his own contract
o 2/3 of ordinary shares are in a meeting called for the purpose, with full disclosure of
adverse interest; that they shall nonetheless find fair and reasonable
▪ If the corporation is vested with public interest, a vote of a majority of the
independent directors are required as well
o The Director apparently owns all or substantially all ordinary stock (for close corps.)
• In the same manner, Self-dealing Officers will have their dealings voidable except if it was
authorized beforehand.
Interlocking Directors – A Director of 2 corporations, and deals with both; thus, having dual agency or
dual allegiance. Their contracts can be made valid, except if there is fraud or if the interlocking director
exceeds in 20% interest in one of his corporations, ratifiable or voided at the option of the corporation
with the nominal interest.
Interests held Only Nominal Only Substantial Both Nominal/Substantial
Contract Valid Valid Invalid
Duty of Obedience – The Board must follow the RCC and all its IRRs, and to not assent to illegal acts
Duty of Diligence – In all the director’s affairs, the diligence of a good father of a family is exercised
in making business judgements for the corporation.
Remedies against Erring Officers and Directors

Personal Action Representative Action Derivative Suit
Shareholder vs Director Shareholders vs Directors Corporation vs Directors
❖ Requisites of Derivative Suit: Shareholders have exhausted all intra-corporate remedies
and the cause of action devolves on the corporation. Done whenever the officials of the
corporation refuse to sue or are the ones to be sued or hold control of the corporation.
Committees
The By-laws may create an executive committee composed of not less than 3 board members. As such,
may act, by majority vote of all members within scope or delegation by the by-laws except:
Approvals where shareholder action is needed Filling vacancies
Amendment or Repeal of By-laws Amend or Repeal Board Resolutions
Cash Dividend Distribution
***No Executive Committee may be created without its express provision in the By-laws
The Board of Directors may create special committees of temporary or permanent nature.
Audit Committee Nomination Committee Remuneration Committee
Responsible to external and Responsible for Corporate Responsible for setting Key
internal audits Elections Management and Directors’
Compensation
Director’s Compensation - Generally, directors are not entitled to compensation, except if:
Reasonable Per diems Stated in the By-laws The directors perform employee
functions
• The Compensation cannot exceed 10% of the Earnings before Tax of the prior year.
• Directors can no longer participate in fixing their per diem or compensation (This is now a power
vested to shareholders at a vote of Majority of OCS in a special/regular meeting).
• Corporations vested with public interests are required to report directors earning compensation
Officers
The Board of Directors may elect officers. These are usually:
President Treasurer Secretary Compliance Officer
Must be a director Must be a Resident Must be a Required for corporations
Citizen or Alien Resident vested with Public Interest
Citizen
Cannot be a Can be a Can be a
Treasurer/Secretary director/secretary treasurer
The Act of the officers bind the corporation; the liabilities then will attach if:
• The officer assets to the act
• The officer consents to the issuance of watered stock
• He agrees to hold himself personally liable or is made liable by law or provision
Election of Officers require the majority vote of all members, and not just those present.
A Chairman and a Vice-chairman position cannot be concurrently held
Shares of Stock
Shares of stock are units of proprietary interest; represented by the Certificate of Stock, which are
instruments evidencing proprietary interest. The SEC may require corporations with instruments traded
in markets, and which can reasonably demonstrate their capability to trade to issue securities or shares
in uncertificated or scripless form in accordance with SEC rules.
Common Stocks Can vote, can earn dividends, but are without
preference
Founder’s Shares Issued to founders with certain rights and
privileges such as exclusive voting rights, not
exceeding 5 years
Preferred Stocks Generally, have no voting rights, in some cases,
• Can only be issued at par, stated in are allowed to vote, and are preferred as to
the stock certificate and the articles dividends. Their participation and cumulative
features must be stated in the stock certificates.
(absence will render these are

ordinary shares)
Par Value Shares – the Nominal Value of the share These can be issued even for less than 1 centavo.
is found in the stock certificate and in the • They are shares that can be
articles. subscribed and are not deemed fully
paid. As a result, these remain to be
assessable.
No Par Shares – the stated value is found only in These are considered fully issued if they are
the articles, but not in the stock certificate. deemed fully paid, not less than P5.00, not issued
Cannot be issued by the Following: as stock dividends, not a preferred share.
• Banks, • This means that once there is a
• Public Utilities subscription for a no-par value
• Insurance Companies share, the share is deemed fully
• Trust Companies paid, and are non-assessable i.e.,
• Building and Loans Associations final and cannot be followed-up with
• Pre-needs further payments to cover
• Other Corporations authorized to deficiencies.
access public funds, whether listed
publicly or not.
Watered Stocks The issue price is less than the par value. As such,
• Bonus Stocks – Those issued for free officers shall be liable for the issuance and must
• Discount Stocks – Issued for less than compensate the loss in capital
par
Redeemable Shares Grants the corporation a right to repurchase; no
mandatory appropriation of earnings is required
Treasury Shares These are shares reacquired by the corporation
These can be reissued or declared as dividends through lawful means. They have no right to vote
or to earn dividends
Legal Capital and the Trust Fund Doctrine
Consists of both Issued and Subscribed Capital (Mainly Subscribed Capital). This is the value that is
not allowed to be distributed as dividends; hence, under a no-par equity scheme, the entire issue price
becomes part of the legal capital which includes Issued Capital, Subscribed Capital, and
Issuance/Subscription Premiums.
• These are the shares, or actually, the value that is secured to creditors in the event of
liquidation. It is set-up in order to protect creditor’s rights to net assets, such that
shareholders are precluded from withdrawing capital interest as dividends. It has numerous
manifestations in accounting. (See Shareholders’ Equity – FS Audits and Assurance
Principles)
Subscribed Shares
Subscription Contracts – Acquisition of unissued stock in an existing corporation; Can be issued by
corporation still to be formed, notwithstanding its status as a sale or other contract.
• The Statute of Frauds DO NOT APPLY to these contracts
• These are Indivisible, Consensual Contracts
• Pre-incorporation Subscription – These are irrevocable for at least 6 months before
submission of the Articles to the SEC
o Except when all subscribers consent to revocation or if the incorporation fails within 6
months or longer (absolutely irrevocable)
o The subscription becomes irrevocable totally after the Articles are submitted
• Increased Subscription – Further subscriptions will now mandate the 25% of Amount
subscribed and 25% of Subscription payment
Requisites of Issuance of Stock Certificates
• It is signed by the President or Vice president and countersigned by the secretary or assistant
secretary
• It is sealed with the corporate seal

• The entire value paid (Interest or penalty is included)
• The shares are indivisible
o The Doctrine of Equality of Shares posits that all shares in the same class are equal
provided that the Articles are Silent on the matter.
Rights of a Subscriber: All rights of the stockholder except:
• To receive a stock certificate if declared delinquent
• The Appraisal Right
Delinquent Stocks
Unpaid within 30 days from the dates fixed in the subscription contract without need for call; or those
unpaid pursuant to a call
• Effect: Generally, the delinquent stock loses its voting right
• The Dividends are used to set-off the debt
o Cash dividends are set-off with the balance
o Stock dividends are withheld until fully paid
• The payment may be enforced by either board action or a collection case in court which
may be independently pursued
• Delinquency Sale – Includes the Balance due, any interest, cost of selling, cost of bidding;
sold to the highest bidder, who is willing to pay the highest price for the lease amount of
shares. In the absence of bidders, the delinquent shares are reacquired; or if the corporation
is not allowed to reacquire shares, it may construe the reacquisition as lost shares, placed
in reserves.
Rights of a Delinquent Subscriber
• Right to Receive Dividends only (for set-off of liabilities)
Consideration for Shares
• Goods, Past Services, Past Debts condoned Cash can be used for consideration
• Future Debts and Services cannot be used for consideration of shares
Voting Shares
These are shares that have complete voting rights
GR: Only Preferred Shares, Redeemable Shares, or Treasury Shares are deprived of voting rights
EXN: These are the cases where they may vote:
o Amendment of Articles o Investment of Corporate Funds in another
o Adoption and Amendment of by-laws Corporation or business except where the
o Sale, Lease, Exchange, Mortgage, Pledge, or investment by the corporation is reasonably
other disposition of all or substantially all of necessary to accomplish its primary purposes
corporate property as stated in the articles of incorporation
o Increase or Decrease of Capital Stock o Merger or Consolidation
o Incurring, creating or increasing bonded o Dissolution of the Corporation
indebtedness
• Therefore, if the vote contemplates the above scenarios, the quantity threshold considers
also voting shares. 1 Share = 1 Vote.
• Amendment of Articles – Requires written assent; there are cases where a meeting is
necessary to amend. Ordinary amendment of articles does not require written assent.
o If the amendment involves any provision in the corporation code, it requires written
assent
Transfer of Stocks
Though the transfer/sale of a share of stock (personal property) is consensual, it is not binding upon 3 rd
persons if the shares have not yet been recorded in the Stocks and Transfer books of the corporation, in
which only the Corporate Secretary may have access to log entries.
Rights of a Stockholder
To Participate in Management;
• To vote and be voted upon either personally or by proxy.
Majority Vote of the Board and 2/3 of OCS (Substantial management dealings that affect
financing, investing activities, and dissolution and going-concern issues)
Increase or Decrease Capital Stock Incur Debts
Sell, dispose, lease, encumber substantially all Invest in other corporations not in primary
assets purpose
Voluntary dissolution when no creditors are
Amend the articles
affected
Mergers and Acquisitions Change of Corporate Term
Declare stock dividends
Enter into management contracts –
Managing Corporation Managed Corporation
Majority of BOD, Majority of OCS* GR: Majority of BOD, Majority of OCS*
EXN: The Managed and Managing Corporation share Interlocking Directors, SH, and Employees
Only if the interlocked at 1/3 of all the common stock of the managing corporation, or where a
majority of the members of the board of the managing corporation also constitute a majority of the
board of the managed corporation; management contracts are limited to a term of 5 years. **
**Majority of BOD, 2/3 of OCS
Majority Vote of the Board and a Majority of OCS (Setting Governance and Management Policy)
Enter into a Management Contract in general
Adopt, Amend, or repeal the by-laws
cases*
No Board Resolution, but 2/3 of OCS required: (Established to Check and Balance the BOD)
Delegate to the board the power to amend the
Deny preemptive rights
BL
Ratify a Business Opportunity/Contracts of Self-
Remove a Board Member
dealing directors where his vote forms quorum
No Board Resolution, but Majority of OCS: (Established to initiate the Check and Balance of BOD)
Revoke the Delegated power to amend the By-
Fix Compensation
laws
Call Special Meetings to remove directors Fix the issue price of the stocks
Voluntary Dissolution where the creditors are involved
To Enter into Voting Trust Agreements;
VTAs – The Shareholders transfer shares to trustees, granting the latter rights and control; which is used
to enter into restructuring, resist hostile takeovers, etc. that detriment the corporate position of the
shareholders. In this case, the right to the shares is transferred to the trustee
Proxy Voting – Short-term and only for a specific purpose, which is simply having a representative for
the principal. In this case, no title passes
Voting Trust Agreement Proxy Voting
Must be in writing Must be in writing
Notarized Filed with the secretary before the meeting
Filed before the corporate secretary Signed by the shareholder concerned
As long as it is effective, the trustee validly holds It is only for the meeting which it was intended
the rights to the shares unless classified as continuing proxy
Can be elected as a director Cannot be elected as director
Irrevocable Revocable
GR: Cannot Exceed 5 Years Not Exceeding 5 years
EXN: Loan consideration for VTA exceeds 5 years,
follow Loan amortization period.
To Receive Dividends and Compel their Declaration if Warranted;
• The board can be compelled to declare dividends if the retained earnings is in excess of
100% of paid-up capital (SC+APIC), the BOD can still refuse if:
o The Retained Earnings are appropriated for justified reasons

o The Corporation is prohibited by the creditors to declare dividends without consent
o It is clearly shown that retention of earnings is needed
• Dividends cannot be declared out of capital except in times of liquidation or if the
corporation is a wasting asset corporation.
To Transfer Stocks subject to reasonable restrictions;
To Be Issued a Stock Certificate for fully paid shares;
To Exercise Preemptive Right
• Except: if the shares are issued to comply with laws requiring a minimum stock offer; the
shares issued are in consideration for properties in business use; share-based payments or
denial by the articles
• If one shareholder declines the exercise of preemptive right, the other shareholders cannot
exercise or purchase those rights owned by the declining shareholder
• If nobody purchases the preemptive rights, these are reissued, the preemptive right applies
(i.e., all shareholders must be furnished the same preemptive rights to avoid dilution of
interest)
• Denial of Preemptive Rights – Not allowed unless expressed in the Articles
Exercise Appraisal Rights;
• Appraisal rights are used to pay shareholders for the corporation taking shareholder property
• It prevents a shareholder’s property from being converted into another without consent; in this case,
the property pertained to may be shares of stocks. It is actually determining the fair value of the shares
by a court.
• It is exercised when a shareholder dissents to a corporate action. In essence, continuing with the
corporate action converts the shares into another property by virtue of the changes of rights his shares
are entitled to. As such, the shareholder may withdraw at the fair value of his shares. It may be
exercised when an Amendment to the articles change or restricts the share, substantial dealings in
properties are done, in a merger or consolidation, in an investment in another corporation, in the case
of close corporations, the unbridled right to compel not less than par or stated value with the same
having sufficient net assets.
• The corporation has 60 days to determine the fair value of the shares;
o Participated by 3 disinterested persons (one by the corporation, the dissenting
shareholder, and one appointed by the previous two appointees)
• The exercise of appraisal rights suspends other rights for up to 30 days.
To Institute a Derivative Suit;
• NB. The cost of the derivative suit is borne by the corporation
To Recover Shares of Stock unlawfully sold for delinquency;
To Inspect Corporate Books;
Specifications on the firm are provided Abuse of Inspection is punishable
The Act is bound by the IPL, DPA, SRC, and Rules The Corporation does not act on inspection
of Court request
Requesting party who is not a shareholder is not If the corporation does not act on the inspection
allowed to inspect the books request, the shareholder may report to the SEC
within 5 days and may initiate an investigation
The SEC may require the stock corporations which
transfer to secondary markets to have
independent transfer agents (Brokers)
Be Issued the latest Financial Statements;
• Certificates must be in accordance with RCC and SEC rules
• Alternative Certification is allowed only if the total assets or liabilities of the corporation is
less than P600,000.00 or such other amount as may be determined appropriate by the
department of finance; certified under oath by the treasurer and the president.
Be issued stock certificates when lost, destroyed, etc.;
To Initiate a Dissolution and Participate in winding-up;
Right of First Refusal
**Close Corporations – Petitions to the SEC to arbitrate a deadlock among the Shareholders;
**Close Corporations – Institute a Withdrawal and Share Appraisal;
By-laws and Meetings
By-laws are rules made by the corporation for its governance. They are effective upon the approval by
the SEC. (BP 68**)
• They may be made prior to incorporation (Along with the Articles) assented by all
Incorporators**
• When made after, submitted within 1 month after the receipt of the notice and approval of
the majority of the OCS. **
• Failure to set by-laws will be a ground for suspension **
• Amendment of the by-laws may be done by a majority of both Board and Shareholders; or
the Board alone if the power is delegated to it; this includes arbitration agreements. **
Meetings By Shareholders By the Board
Quorum Majority of Interest Majority of Heads
Date of Regular Annual as fixed/ any date after Monthly or as fixed in the by-laws
Meetings April 15
Date of Special Any time Any time
Meetings
Notice Required Regular meetings – 21 days prior Regular or Special – 2 days prior
Special Meetings – 1 week prior
By Shareholders By the Board
Place Principal Office, anywhere in the Anywhere (within or outside the PH)
city/municipality
Non-stock Corps – anywhere in the
Philippines
Proxies Allowed Not Allowed
Voting Requirement It Depends Generally, Majority of Heads present,
except for the election of officers – A
simple majority of all members present
or not; or any number fixed in the by-
laws
*Stockholders meetings may still be valid even if these are defective; so long as all shareholders are
present (proxied or not). No meeting for the purpose of business transactions is made to be
defective.
Other Amendments to Stockholders’ Meetings
• These may be delivered electronically (with agenda set out, proxy forms sent to the
secretary; an electronic attendance may be had, as such. participation, voting remotely or
in absentia is allowed)
• Stock and Transfer Book or Membership Books are closed at least
Regular Meetings 20 days prior Special Meetings 7 days prior or more
• Postponement is allowed so long as a prior notice is issued. It shall last no longer than 2
weeks
• Directors, Trustees, Shareholders or Members may propose other matters
• Shareholders voting in absentia are deemed present
• Waiver of Notice – GR: allowed. EXN: no waiver may be set in the Articles or By-laws.
• Attendance to a meeting is considered an implied waiver of notice if ever the person was not
furnished a notice in the first place
Amendments to Directors’ Meetings
• Videoconferencing is allowed
• A director or trustee who has a potential interest in any related party transaction must recuse
from voting on approval of the related party transaction without prejudice to compliance
with the requirements for Self-dealing directors.
Voting Convention and Decorum

• Either the President or the Chairman presides over the meetings
• An abstention is construed as an affirmative vote
GR: Quorum is counted as the EXN: The Election of Officers requires a quorum involving all the
majority of those present; members of the board, present and absent
Stock and Transfer Books

Stock and transfer Books refer to corporate books which contains the record of all stocks in the names
of the stockholders alphabetically arranged; the installment paid and unpaid on all stock for which
subscription has been made, and the payment of any installment; a statement of every alienation, sale,
or transfer of stock made, the date thereof, and by and to who made; and such other entries as the by-
laws may prescribe. It must be set up and registered by the Corporation with the SEC within 30 days
from receipt of its certificate of registration. All entries must be made only by the corporate secretary
in the absence of a stock and transfer agent employed by the corporation. If any entry is made by any
officer other than the corporate secretary, such entry is void.
Reorganization, Merger, and Consolidation
Reorganization – to place the company in financially sound basis, and avoid bankruptcy; and may be
effected notwithstanding current solvency.
Mergers – A Union between corporations; only one corporation succeeds
Consolidation – An amalgamation between corporations; both corporations will dissolve
Requirements and Procedure:
• Approval of merger plan by the Board
• Approval by Shareholders (2/3)
• Prior notice – 2 weeks to the SEC
• Execute articles of merger and consolidation; signed by the president, or vice president,
certified by the secretary or assistance secretary
• Submit the SEC the articles of merger or consolidation (The effectivity shall be the same
date)
o The Articles include among others already in the usual articles of incorporation:
o Carrying Amount and Fair Value of Assets and Liabilities
o Method of Accounting used to consolidate
o Other information
Effects of Mergers and Consolidations:
o Only one corporation succeeds (new corporation or acquirer corporation)
o Termination of corporate existence
o Consolidated Rights owned by new or surviving corporation
o Rights of Creditors or lien are not impaired
o No need to liquidate absorbed corporations if there are no assets to distribute (as it
belongs to the acquirer) and no liabilities to pay since the acquirer assumes the same
liabilities.
Other Kinds of Corporations
Non-stock Corporations
Non-stock – no income is distributable as dividends except on dissolution. (The income is used only to
further the purpose of the corporation.)
Stock Non-stock
Purpose Profits For charitable, religious, educational, professional,
cultural, scientific, social, civic, etc.
Dividends Allowed Not allowed
Term of Office 1 year until a successor is 3 years generally; 5 years for educational institutions
of Board elected
Voting Cumulative in person or in Straight Voting generally (In person or in absentia),

proxy Cumulative voting is only allowed if it is stated in the
By-laws or articles
Interest Transferrable Non-transferrable generally, except if allowed in the
Articles or By-laws
Director or At least 1 share Must be a Member, Independent Trustees do not
Trustee’s need to be Members
Requirements
Place of City or Municipality where the Any place in the Philippines
Meetings principal office is located
• Membership in Non-stock Corporations may be either Voting Membership or Non-voting membership; as
such, membership may be terminated in accordance with the By-laws or Articles.
• In case there are no provisions for termination, the weight of authority decides the course of action
Close Corporations
Close Corporations are corporations whose shares are held only by 1-20 people, and are thus restricted
as to transfer in any manner. This makes their shares unlisted or not in any IPO.
• Businesses with Public Interest cannot be close corporations (mining, oil, stock exchanges,
banks, insurance companies, public utilities, educational institutions)
• If 2/3 of stock is owned by an open corporation, the owned corporation is actually open
Close Corporation Ordinary Corporation
Shareholders must not exceed 20 persons Limitless
Stocks are restricted as to transfer No limit
Prohibition from listing No prohibition
Shareholders may be active in management Management only through the board
BOD can be 20 persons Up to 15 only
Cumulative Voting is limited No restriction
The Articles may appoint officers Officers elected by BOD
Transfer Restriction is indicated in AOI & Transfer indicated in the Articles & Stock
Certificates Certificate
Preemptive Rights are broader Preemptive Rights are limited
Appraisal Rights may be exercised on any ground, Appraisal Rights are limited
are limited only by the amount of assets available
One-Person Corporations
OPCs – are formed by a natural person, estate, or trust, who is sole stockholder thereof. The Corporate
Name must contain OPC in it.
Not Applicable to OPCs – Authorized Capital Stock, By-laws, and Minutes of Meetings in the Board
Purposes not Allowed to be OPCs – Banks, quasi-banks, pre-needs, trusts, insurance companies; Public
and Publicly Listed Corporations, Non-chartered GOCCs, Natural Persons in pursuit of Profession
Articles of Incorporation – It is the same as with any general corporation, sans the personality of the
person forming the OPC (Trust, Estate, etc.) the name, nationality, residence of the Nominee
Nominee – They take the place as the single stockholder upon the incorporator’s incapacity or death; an
Alternate Nominee on the other hand is another probable nominee who must express his consent in
writing as an alternate to the principal nominee. The term of the Nominee is actually temporary until
capacity is recovered; in the case of death, the Nominee shall continue the OPC indefinitely.
Corporate Officers in an OPC
• The Incorporator may be both the President and the Director of the OPC;
• Within 15 days from incorporation, the Corporate Secretary, Treasurer, and other Officers
must be appointed. Upon so doing, the SEC must be notified within 15 days from the date
of appointment
o The Corporate Secretary cannot be the President at the same time
o The Treasurer cannot be the President at the same time, however, the Treasurer may
be allowed to be president, provided that he gives to the SEC a Surety Bond
Liability of an OPC – Limited Liability, and warrants that the firm has adequate capacity to be in a going-
concern affirmatively
Conversion from Ordinary Corporation to OPC – If a single shareholder acquires all the stocks, he must
then apply as an OPC and amend the articles of incorporation reflecting the conversion.
Conversion from OPC to Ordinary Corporation
• After due notice to SEC (within 60 days from occurrence)
• The nominee shall transfer to duly designated legal heir the rights to the OPC within 7 days
from the receipt of affidavit of heirship or self-adjudication as sole heir. (The SEC decides
if the corporation liquidates or converts into an OPC)
Foreign Corporations
Corporations created by foreign laws; these require peculiarly:
• License to do Business
o Required to do business in the Philippines; Doing Business is tested through: (FIA of 1991)
▪ Continuity of Transactions,
▪ Substance of Enterprise in the Philippines,
▪ and the Actual Contracts entered into in PH
o The License does not cover isolated transactions
• A Resident Agent
o Foreign Corporations are required to designate a resident agent on whom it summons; all legal
proceedings may be served through it.
▪ Natural Individual – must be of Good Moral Conduct & sound financial standing
▪ Domestic Corp. – must be of sound financial standing & in good standing with SEC
• Legal Representation in the Philippines
Personality to Sue License to do business is required;
• for isolated transactions, license is not required to sue.
• For the following events, license is not required to sue:
Infringement Suits under the Estoppel
Paris Convention
RFC is a co-plaintiff with a domestic corporation
Personality to be sued License is not required
Dissolution and Liquidation of Corporations
Dissolution – Extinguishment of Corporate Franchise and Termination of Corporate Existence; must be
done within 3 years.
Expiration of Corporate Term
• If the corporation wishes to extend the corporate term, it should be made not earlier than 5 years
prior, otherwise, it is dissolved ipso facto
• Shortening of Term – is allowed and it takes effect on the day following the last day of the corporate
term
Voluntary Dissolution
• Formal Procedures:
o Majority Vote of the Board
o Notice is required 20 days prior the meeting on dissolution
o The notice must be published in a newspaper of general circulation
o The Resolution of the Majority of Ordinary Shareholders; the resolution must be verified
▪ Publication of Details ▪ Names
▪ Reasons ▪ Date
▪ Form
o Issuance of Certificate of Dissolution
• Withdrawal of request of dissolution: must be in writing, submitted no later than 15 days
from receipt by SEC of request to dissolve (The SEC will withhold action to dissolve)
Revocation of Franchise
• Upon Serious Misrepresentation
• Refusal to comply with Law and Order
• Continuous inoperation for 5 years
o This is a ground for suspension, and not revocation
o After hearings, the SEC places the corporation into delinquent status and allows it to
resume operation for 2 years; upon failure to comply within that time, a Revocation is
at hand
• On Commencement of Business – Must begin operations
o Non-use of corporate charter will result in failure to organize within 5 years; resulting
in automatic dissolution
Revocation of Franchise with Escheat of Corporate Assets
• Failure to file by-laws within the required period
• Failure to file required reports (Audited Financial Statements)
• Others:
o Violation of IRR
o Deadlocks for close corporations
o Abuse of corporate opportunity of Close Corporations
• Court Order
• Final Judgment (i.e., Incorporated thru fraud, violations of the SRC, AMLA, Corruption, etc.
Concealment of Frauds, Repeated toleration of graft and Corruption
Liquidation
• The RCC Excludes Liquidation of Banks which is now covered by the New Central Bank Act,
and the Philippine Deposit Insurance Commission Law
• If the Creditors cannot be determined or located, the assets they are entitled to are
escheated to the government
Securities Regulation Code
It is established to protect the investing public through a system of disclosure & provide punishment for
fraudulent practices:
• It requires full disclosure requirements for approval
• Regular submission thereof
• Close monitoring of securities
• Prohibition and Penalizing fraud
• Providing SEC POWERS and FUNCTIONS
Securities – Shares or interest in a commercial enterprise or profit ventures evidenced by certificate,
contract, instruments, either in writing or electronically generated.
• An investor purchases the same with the expectation of accumulating profits passively (Its
passive nature warrants its protection and freedom from abuse)
• It includes Debts, Equities, and Derivatives
• Investment Contracts – a person invests money to a common enterprise with an expectation
to return at a profit primarily from the efforts of others i.e., passively earned
Kinds of Securities in the SEC
• Shares of stock, bonds, debentures, notes, evidences of indebtedness, asset-backed securities;
• Investment contracts, certificates of interest or participation in a profit-sharing agreement,
certificates of deposit for a future subscription;
• Fractional undivided interests in oil, gas or other mineral rights;
• Derivatives like option and warrants;
• Certificates of assignments, certificates of participation, trust certificates, voting trust
certificates or similar instruments;
• Proprietary or non-proprietary membership certificates incorporations; &
• Other instruments as may in the future be determined by the Commission.
Registration and Reportorial Requirements:

No securities can be sold or issued without registration and approval with the SEC.
• Sworn Registration Statement: signed by the CEO, COO, CFO, Comptroller, Accounting,
Secretary, and with written consent of experts, as well as written certification of accuracy
of registration
• Payment of Filing Fees (which shall not exceed 1/10 of 1% of the aggregate selling price of
the security
• Publication of Notice of Filing Registration Statement in 2 newspapers of general circulation
• Within 45 days after filing or any such consented later date, the SEC issues an order either
effecting or rejecting the issuance
• A Prospectus under Oath that all requirements are satisfied
Securities Exempt from Registration
• Those Issued by the Philippine Government
• Those issued by Foreign Governments that the Philippines has diplomatic relations with
• Certificates issued by receiver or trustee in bankruptcy that is duly approved
• Securities or derivatives under supervision of the Insurance Commission, Housing and Land
Use Rule Regulatory Board, BIR
• Any security issued by Banks except shares of stocks
Transactions Exempt from Registration
• Broker’s Transaction on ay registered Exchange
• Isolated Transactions (not in the ordinary course of business)
• Issuance of Stock Dividends
• Shares or Bonds acquired through the exercise of Conversion Privileges (Provided that the
principal securities were originally registered or are exempt from registration)
• Exclusive Sale of Capital Stock to own Shareholders with no commission or remuneration
• Private Placement or sale of securities to less than 20 persons in the PH within 12 months
• Subscription contracts pre-incorporation (Increases in Authorized Stocks w/ no issue costs)
• Sale to Sophisticated Buyers (i.e., banks, registered investment business, insurance
companies, etc.)
• Mortgage-backed securities sold to a single purchaser at a single sale
• Judicial Sales of an entity in insolvency or bankruptcy
• By or for a pledgee or mortgagee of a lien to liquidate
• Exchange of Securities by Issuers with existing holders exclusively with no issue costs.
Other Transactions may be exempted at an Exemption fee of 1/10 of 1% of the Aggregate Selling Price
of the Security
• The complete set of financial statements certified by CPAs with Management Discussion & Analysis
• Others such as Interim reports, notes to financial statements, significant developments, etc.
• Applicable to Issuers:
o The class of securities sold or pursuant to registration
o With the securities traded in the PSE
o Assets of at least P50,000,000.00, of 200 holders, with each holding at least 100 shares
▪ The obligation terminates 90 days after notice to the SEC
Filing of GIS Filing of AFS
Within 30 days from: • Must be Received by BIR/Authorized Banks
• Calendar Year: according to the numerical
For Stock Corporations – Annual Meetings digit in registration number (on or before)
For Non-stock Corporations – Annual Meeting • Fiscal Year
For Foreign Corporations – At the date of GR: 120 days from end of year
issuance of SEC License EXN: Broker 110 days from end of year
Dealers
Listed & Public 105 days from end of year
Entities
Market Manipulations under the SRC

• Wash sales— transactions were security sold involves no change in beneficial ownership
• Matched order— sales and purchases that are simultaneous and are substantially the same size
The above two are not illegal but are fraudulent when resorted to actively
• Marking the close— placing an order near the close of a trading period in order to affect the
price of the day following
• Painting the tape— measuring normal hours, involving buying activity among nominee accounts
an increasingly higher or lower prices or causing fictitious reports to appear on the ticker tape
• Squeezing the float— abortion of issue is outstanding, but held by dealers with a view of reselling
for profit. this is in effect hoarding
• Boiler room operations— intensive selling campaigns through numerous salesmen by phone or
mail. sales are unfounded
• Hype and Dump – Shares are purchased at nominal interest, and then a Shell Corporation
undergoes a merger; after which, a reverse share split is done, allowing a reissuance to relatives
and associates. Broker dealers are hired to sell the shares to secondary markets at a hyped-up
momentum. Upon increase of share price, the holders bail out of shell corporation.
The above are considered illegal if:
o the Security’s prices are raised by controlling shareholders;
o the prices of the securities depress to induce the sale of controlled shares;
o The Marketing scheme is intensive
• Circulating information on share price movement
• Misleading statements
• Pegging or fixing the prices of a security
• Short sales— A short seller will buy securities via a repo from a pension fund out of debt for
instance, out of the anticipation that the share price of the pension fund will drop. Upon the
drop of price, the shorted stock will be resold to the pension fund for a price higher than issued
Insider Trading
Insider Trading – an insider in possession of material, non-public information transacts on the securities
the information pertains to
Material Non-public Information— affects the price of security or influences person in dealing, buying
selling or holding securities; despite not being intended for public circulation
An insider may be:
The issuer Director/Officers
Controlling Issuer Any person privy to the issuer
Any government employee/director Officer of an exchange having access to info
Any persons learning of MNPI from the foregoing
• Persons who can validly act of material nonpublic information— any person who can prove that
he did not get the same from insiders, or his source discloses to him the material non-public
information or has reason to believe that his source is also in possession of the same.
Presumption: the insider’s spouse or any relative by affinity or consanguinity of the second degree are
presumed to have transacted upon material nonpublic information if:
• the transaction takes place after such information came into existence
• but prior to the dissemination of such information to the public and the lapse of a reasonable
time for the market to absorb such information
Liability for Disclosure: It is unlawful to communicate MNPI to any person whom the insider has reason
to believe, will act on the MNPI regardless if the person whom the MNPI is communicated to is a trader
or not.
Mandatory Tender Offer Rule
The Mandatory Tender Offer Rule intends to protect minority interest and provide them with fair
bargaining prices for their share whenever a person/s intends to buy a sizable number of shares.
• The usual intention of any prospective buyer is to acquire control, which is pegged at 51%.
Purchasing minority interest at the fair value out of appraisal right will have lost the share
opportunity to be sold at the intrinsic value of the shares. The MTOR forces the buyer to offer to
buy minority interest at the same price it would have purchased the shares with infused control
versus if only the literal fair value of net assets were sold.
This applies to any person who intends to acquire at least 35% over a period of 12 months of any class of
equity securities of a listed corporation, or any qualified corporation (P50,000,000.00 in Assets, 200
shareholders holding 100 sh. each)
• This applies even if acquisition is less than 35% but will result in corporate control or more than
50% in all equity (i.e., Step Acquisitions within 1 year) applies also to indirect holdings.
Process
• An Offeror announces thru a newspaper in circulation,
• at least 2 days from the commencement of the Tender Offer, he shall:
o File SEC Form 19-1 and pay the fees
o Hand-deliver the copy to the target company’s office and exchanges
o Report the results by filing with the SEC not later than 10 days after termination of the
tender offer along with copies of the final amendments to the form if any
Exempt Transaction from the Mandatory Tender Offer Rule:
Any purchase not resulting to 50% of Equity Purchases in connection to Corporate
Any purchase from increase in authorized stocks Rehabilitation
Purchase out of foreclosure involving pledges Purchases in an open market at the prevailing rate
Privatization of GOCCs Merger and Consolidation
Insider Trading Mandatory Tender Offer

Material nonpublic information is acted upon by Material nonpublic information is acted upon by
insiders any person tendering to purchase securities
It would be unlawful if acted upon by insiders It would be unlawful if acting upon it are any
persons other than the offeror
Both are made to protect
The public The minority interest and the tender offeror
Short-swing Profit Rule
Profit realized by insiders within a period of 6 months, unless in good faith, inures to and is receivable
by issuer.
It is placed to prevent insiders from unfairly benefitting from MNPI and to ensure fair, honest markets
• It prevents the possibility of insider trading, as such, only profit is required to invoke such rule
and may be instituted before the regional trial court by the issuer
Proxy Solicitation
No broker or dealer shall give any proxy authorization in respect of any security not carried for the
account of a customer to a person other than the customer without express written authorization of the
customer. This consolidates votes into a proxy to unify corporate action of shareholders.
• A broker or dealer who holds the proxy of 10% of the OSC of the issuer submits a report to the
issuer, SEC, and the PSE.
The Revised Code of Corporate Governance
It applies to all corporations except Non-resident foreign corporations selling securities registered with
SEC, and to qualified corporations (50,200,100) or listed corporations or grantees secondary licenses
Corporate Governance – a system of stewardship adopting a “comply or explain” mechanism. It combines
voluntary compliance with mandatory disclosure. It is necessary for companies to have governance
reports
• Principles – are high-level, and applies to all companies
• Recommendations – are objective criteria, wherever principles are questionable
• Explanations – additional information to recommend the best practices
I. Governance Responsibilities:
a. Company is headed by competent working board
b. Fiduciary roles, responsibilities and accountability of the board is enforced
c. Set-up of board committees
d. Full commitment to the company
e. Objective and independent judgment

f. Consistent assessment practices
g. Board is bound by duty to apply high ethical standards
II. Disclosure and Transparency
a. Corporate disclosure policy is established
b. Establish standards of external auditor selection
c. Ensure that material & reportable information and sustainability issues are disclosed
d. Maintenance of Comprehensive and cost-efficient communication channel
III. Internal Control and Risk Management
a. Effective Internal Control Policies and Enterprise Risk Management Systems
IV. Synergy with Shareholders
a. All shareholders are treated equitable and fairly; protecting and upholding their rights
V. Duties to Shareholders
a. Rights of all shareholders must be respected (contractual and inherent)
b. Mechanism for employee participation is in place
c. Socially responsible dealings
Title IX: Law on Cooperatives

Cooperatives in General
Cooperatives – an autonomous and duly registered association of persons with a common bond of
interest, who have voluntarily joined together to achieve their social, economic, cultural needs, and
aspirations by making equitable contributions to the capital required, patronizing their products,
services, and accepting a fair share of the risks and benefits of undertaking in accordance with
Universally Accepted Cooperative Principles (UACP) under RA 9520 otherwise known as the
Cooperative Code of the Philippines.
Voluntary and Open Membership Any Filipino should be able to join voluntarily
Democratic Member Control Each member should have a say in governance
Member Economic Participation Members must participate through investment/patronage
Autonomy and Independence Cooperatives must remain in their nature as cooperatives,
free from external influence
Education, Training, and Information Cooperatives must foster education and growth
Cooperation among Cooperatives Cooperatives must cooperate among themselves
Concern for the Community Cooperatives are established for aiding the community
Cooperatives conduct their affairs with Filipino Culture, good values, and experience along with UACP.
Cooperatives, in like manner to Corporations have:
• A Separate Entity from its members
• A Limited Liability
• A Term of 50 years, renewable indefinitely
o No extension can be made earlier than 5 years prior to original expiration of term
Organization and Registration
The Articles of Cooperation is filed with the Cooperative Development Authority, signed by the
organizers and acknowledged by them before a notary public. The articles include:
• Name sans ‘cooperative’
• The purpose
• Area of Operation or Address
• Names, Nationality, and Address of Registrants
• Common Bond of Membership
• List of the Name of Directors
• Amount of Capital
o The Capital Contribution includes the name and residence of contributors
• Statement whether the cooperative is Primary, Secondary, Tertiary.
Along with the Articles, an Economic Survey is also submitted to the CDA; it is a general statement as
to the feasibility of establishing the cooperative. It shall include:
The area of operations The organizational structure
Size of Membership Other data in relation to economic stability
Primary Cooperatives
Primary Cooperatives are comprised of Filipino Citizens, all of legal age, and with a common bond of
interest, and are actually residing or working in the intended area of operations. A prospective
member must accomplish a Pre-membership Education Seminar
Purpose of the Cooperative
• Primary Cooperatives must comply with the minimum requirements for applying to be a Multi-
purpose cooperative to become one. Until then, they are merely of a Single Purpose
• Primary Cooperatives may only transform into multi-purpose after 2 years of operations
• Non-agricultural and Non-agrarian cooperatives may become multi-purpose only if:
o The Minimum Paid-up Capital of P100,000.00 is met or
o The Minimum amount required by the Feasibility Study (whichever is higher)
Other Rules on Incorporation of Cooperatives

• A Minimum Subscription of 25% of Authorized Stock and Minimum Paid-up Share Capital of 25% is
required; the Minimum Paid-up Share Capital must not be less than P15,000.00 (P100,000.00 for
Multi-Purpose Cooperatives)
• The CDA periodically assess the required paid-up capital and may increase the requirement every
5 years when necessary (with NEDA Consultation)
• Separate Personality counts from the Issuance of the Certification of Cooperation.
o Approval of Applications of Registration must be issued within a period of 60 days from
the date of filing. The application may be either approved or rejected
o After 60 days, the application is deemed approved if not acted upon by the CDA.
o Appeal in case of rejection is allowed, and must be sent to the office of the President of
the Philippines within 90 days from the receipt of the Denial (inaction is an approval)
• Cooperative Name
o Cooperative, Kooperatiba, Cooperativa is added to the name
o No similar, deceptive, or confusing names allowed
o “Development” and “Integrated” are discouraged
o “inc.”, “Co.” “Corp.” “Incorporation”, “Partnership” is not allowed
o “Federation” or “Union” is not allowed for Primary Cooperatives
o The Cooperative Name may not be written in All Caps, except if the Cooperative Name
stands for an acronym
Secondary and Tertiary Cooperatives
These are simply cooperatives of cooperatives. Emphasizing cooperation among cooperatives.
Number of Members Minimum Paid-up Capital
Secondary
Federation 10 Primary Cooperatives P500,000.00
Union 15 Primary Cooperatives Not Applicable
Tertiary
10 Secondary P5,000,000.00 or Feasibility Study Figure, whichever is higher
Federation
Cooperatives
15 Secondary Not Applicable
Union
Cooperatives
The main difference of Federations and Unions is simply what these are composed of. Federations are
composed of cooperatives under the same line of business or organization, while unions are composed of
any or all cooperatives in an area. They may or may not conform to the political subdivisions of the
country.
Function of Federations Function of Unions
To carry-on cooperation among cooperatives Represent member organizations
Carry-on, encourage, assist educational and advisory To acquire, analyze, share economic, statistical
work relating to its members and other information relating to its members
Render Services to encourage or simplify business Sponsor Studies on cooperation & publish results
Print/publish on newspapers in interest of members Promote Knowledge on cooperatives
Coordinate and facilitate activities of members Develop cooperative movements
Enter into Joint Ventures to further services Raise Funds
To perform other necessary functions Advising authorities on cooperative knowledge
Perform necessary, non-business functions
Registration Fee: 1/10 of 1% of Authorized Share Capital or CDA Prescription whichever is higher.
The Certificate of Registration: Issued nu the CDA with the official seal; (it shall serve as conclusive
evidence of registration)
Amendment of Articles and By-laws: A vote of 2/3 of all members with voting rights is required under
Primary, Secondary, and Tertiary Cooperatives.
Division of Cooperatives: cooperatives may subdivide, w/ a 3/4 vote of all heads present & in quorum
Merger and Consolidation: 3/4 vote of all voting heads, present and in quorum; which takes effect only
upon issuance of the certificate of Merger and Consolidation by the CDA.
Kinds of Cooperatives
Advocacy Cooperatives Promotes and advocates cooperativism
Dairy Cooperatives Production of milk and dairy products
Fishermen’s Cooperative Organized by marginalized fishermen
Multi-purpose Cooperatives Those with more than 1 business activity
Workers’ Cooperative Organized by workers and self-employed persons
to provide employment and business activity
Agriculture Cooperative Any activity involving the management of living
organisms from production
Agrarian Cooperative Organized by marginalized farmers who may be
agrarian reform beneficiaries
Consumers’ Cooperative Procure and distribute commodities /Finished
goods
Marketing Cooperatives Supply of production inputs or Raw Materials
Producers Cooperative Undertakes joint production in agricultural and
industrial inputs
Cooperative Bank Offers a wide range of financial services to client
cooperatives and its members; under the BSP’s
jurisdiction under the General Banking Law
Credit Cooperatives Saving and Lending services only to its members
under BSP
Financial Service Cooperatives Savings, Credit, etc. their range of services have
no specific limitation
Service Cooperatives Generally established by special laws:
(Electric Cooperative, Health Services, Housing,
Insurance, Transport, Education, Water Service)
Laboratory Cooperative Their general purpose is to teach the youth on
**must be affiliated w/ a registered cooperative cooperative training, thrift and savings
mobilization, values, principles, financial
discipline, business skill, Filipino social-cultural
values and ecological awareness
On Laboratory Cooperatives
The Laboratory cooperative is composed of students; and must be affiliated with a cooperative of its
own choice. The affiliated cooperative is also known as the Guardian Cooperative; it shall be named in
this manner: “Name of Lab Coop.” (Name of Guardian Cooperative)”
Rules
• The Certificate of Registration issued to the Laboratory Cooperative does not grant it a separate
legal entity. It shall function instead form part of the Guardian Cooperative.
• Dissolution of the Guardian Cooperative shall lead to the revocation of the laboratory
cooperative’s Certificate of Registration.
• The Guardian Cooperative shall be liable for violations of the Laboratory Cooperative
• Members of the Laboratory Cooperative can be members of the Guardian Cooperative by
signifying intent and complying with membership rules
• The Guardian Cooperative may supervise more than one laboratory cooperative
• A member of a lab cooperative, upon reaching the age of majority, shall be a cause for their
termination of membership
Membership
Regular Member Associate Member
Any person who has complied will all the Has no right to vote or be voted upon;
membership requirements
Allowed all the rights of a member Allowed only the rights in the by-laws
Requisite:
• Minimum Requirements met
• Continues to Patronize for 2 years

• Signifies his intent to be member
On Government Officers and Employees
• Officer or Employee of the CDA – are disqualified for election or appointment on any post except
for cooperatives organized by CDA Employees
• Elective Officers of the Government – are ineligible for officership in cooperatives except for
cooperatives organized by party-lists
• Any Government Employee or Officer – in discharge of his duties as cooperative member, are
allowed to use official time for cooperative activities provided that his office is not adversely
affected
Termination of Membership
• Valid Withdrawal – with a 60 days prior notice entitled to be refunded with the share capital
provided that there are net assets that can cover his share
• Death or Insanity – Terminates membership in primary, secondary, and tertiary cooperatives;
for agrarian cooperatives, the next of kin may take on the mantle of membership
• Insolvency – Terminates membership in secondary and tertiary cooperatives
• By vote of all Board Members
o Due to no patronage for unreasonable amounts of time, violation of by-laws, failure to
comply with obligations, any act or omission, injurious to the cooperative
o The member being tried must be notified in writing; this is appealable within 30 days
from the receipt of notice
The General Assembly may form an appeal and grievance committee service for 1 year to decide
matters on membership termination. Failure to act on appeal is a benefit to the member being tried.
General Assembly
The general assembly is composed of all members entitled to vote as vested by the Articles and By-laws.
It is akin to the Shareholders in Corporations.
The delegation of the General Assembly’s powers to smaller bodies are allowed upon a 3/4 vote of all
heads present and in quorum. However, some non-delegable powers are limited to the assembly:
• Amendment and Approval thereof of the Articles and By-laws
• Elect and Appoint a Board and Removal for Just-cause
o (Electric Cooperatives shall hold appointment, removal procedures according to By-laws)
• Approval of Development Plans of the Cooperative
Meetings
• Regular – are held annually as fixed in the By-laws or within 90 days after year-end
• Special – whenever necessary, through a majority Board vote as prescribed in the by-laws. A
notice shall be given 1 week prior to the meeting
Each member in a primary cooperative is entitled to only 1 vote; for secondary and tertiary cooperatives,
there may be incentive votes but not exceeding 5 votes in total.
Delegates – deemed as votes cast by the members thereof (Representative of juridical persons)
Proxy Votes – Allowed only if the By-laws provide; it is not allowed for Primary Cooperatives.
Other Means of Calling for Special meetings
• Board meeting after 1 month, after a request in writing from at least 10% of voting members
• Failure to hold special or regular meetings: 10% of all voting members must assent thereto
through a proper notice
• Newly-approved cooperatives – may hold meetings 90 days from the date of approval
• Call for a Special Meeting after examination or investigation of Cooperative Affairs
In all meetings, a quorum is considered to by 25% of voting members, except for:
• Cooperative Banks – 1/2 plus 1(Except for amendments of its by-laws, requiring 3/4)
• Electric Cooperative – 5% of All members or according to the by-laws
Summary of Voting Requirements

Act Voting by Voting by Members Appraisal
Directors Right
Merger and Consolidation Not Required ¾ of members present and in quorum Yes
Amendment of articles Not required 2/3 of members with voting rights Yes
Amendment of by-laws Not required 2/3 of members with voting rights Yes
Division of cooperatives Not Required ¾ of all members present and in No
quorum
Voluntary Dissolution – Majority of all ¾ of all members present and in No
creditors not affected directors (Submit quorum
board resolution)
Voluntary Dissolution – Majority of all ¾ of all members present and in No
Creditors are affected directors (with quorum
filing of formal
petition & notice
of hearing)
Filling Vacancy in board Not Allowed Majority of all members with voting No
due to expiration of term rights present and in quorum
Filling Vacancy in board Majority of Majority of all members with voting No
other than term end remaining rights present and in quorum
directors if they
still form a
quorum OR
Allocation of interest on Majority of all Not Required No
share capital directors present
and in quorum
Deferment of Payment of Upon Majority of all members with voting No
Interest on Share Capital recommendation rights present and in quorum
of majority of
directors present
and in quorum
Removal of a member of Majority of all Not Required No
cooperative for just directors
cause
Delegation of power of Majority of all Not Required No
board to an exe-comm directors
Placing an elected Majority of all Not Required No
cooperative officer under directors
preventive suspension
pending resolution by
investigation committee
over removal
Filling vacancy in exe- Majority of all Not Required No
comm directors present
and in quorum
Recommending to the Majority of all Not Required (But approval of the Gen No
General Assembly the directors present Ass is necessary for the decision on
removal of an elected and in quorum removal
officer
Delegation of Delegable Not Required ¾ of all members present and in No
powers of the Gen. quorum
Assembly to Board
Ratification of Contracts Not Required ¾ of all members present and in No
with self-dealing quorum
directors, officers, or
exe-comm members
Ratification of disloyalty Not Required ¾ of all members present and in No
of directors quorum
Removal of an elected Not Required (but ¾ of all members present and in No
officer upon a quorum
recommendation of the recommendation
board by the board is
necessary prior to
vote the removal)
The Board, Officers, and Committees
The Board of Directors – is composed of not less than 5 members, but not more than 15 serving for a
term of 2 years.
Powers of the Board: Strategic Planning, Direction Setting, Policy Formation
• Any member having the right to vote, possessing all qualifications, absent of disqualifications in
the by-laws can be elected into the Board.
Special Directors
• May be appointed by any Financial Institution the cooperative sources its funds from, solely to
provide technical knowledge
• They do not need to be members of the cooperative they are assigned to
Limitations of the Board Member:
• Cannot hold other positions directly involved in the day-to-day of the cooperative
• Cannot be part of the Board if he is already engaged in similar businesses or generally has a
conflict of interest
Board Meeting and Quorum Requirements
Regular Meetings may be held once a month, Special Meetings may be held any time upon the call of the
chairperson or majority of the board with prior notice within 1 week from the meeting.
A Quorum requirement of a majority of heads accomplishes the meeting
Proxy voting is not allowed for board meetings
Vacancy Who fills the Vacancy?
Caused by Term Any member from the General Assembly done in a general meeting or special
Expiration meeting called for the purpose
Other Causes The Board if it is in quorum, otherwise, anyone from the General Assembly
may fill-in the vacancy
Officers
• The board elects among themselves the Chair and Vice-chair along with other officers which may
be elected or appointed
• All officers shall serve on good behavior and are not removed without cause and hearing
• Loss of Confidence is not a cause of removal unless there is sufficient evidence to support the
claim
• No 2 or more officers with a relationship of 3 rd degree are allowed to be appointed as officer; or
if there are clear conflicts of interest among them
Committees
• The Executive Committee is established according the By-laws; and is appointed by the Board
upon a majority vote
• The By-laws can to include: Audit, Election, and Mediation and Conciliation, Ethics, etc.
Committee
• The Committees elected by the General Assembly are the Audit and Election Committees
• All other Committees are appointed by the Board.
Compensation
Director’s Compensation – Generally, there is no compensation, except if the by-laws provide, or if a
majority vote in any meeting grants the same or, if these are actually reasonable per diems. (Reasonable
per diems are not allowed if the preceding year incurred a net loss, and if the dividend rate is less than
the inflation rate.)
• There can be no other forms of compensation other than per diems as well as those in by-laws.
• The Per diems may only be made if the General Assembly allows for its adoption
Compensation of Officers, Committee Members, and Employees – As provided in the By-laws or as
determined by the Board if the by-laws do not mention the same.
Self-dealing Directors: Contracts are voidable, but may be ratified if:
• The absence or presence of the Self-dealing director does not affect the quorum
• His vote is not needed for approval of the contract
• The Contract is fair and reasonable
• 3/4 of the vote of all present and in quorum along with full disclosure of adverse interest
For Self-dealing employees, officers, and committee members – the same rigor as with self-dealing
directors are applied, however, these shall remain to be valid contracts if the General Assembly or Board
had already authorized their entering into self-dealing contracts.
Disloyalty of the Director
The Director shall become liable for damages, and must account for double the profits he had made in
breach of loyalty, applicable even if the director uses his own funds;
The Use of Confidential Information – The director or employee shall be liable to compensate the
cooperative with the losses sustained due to the use of the same; accounted for any direct benefit inured
to the director or employee
Removal of Officers – A complaint to the Board is made to initiate a hearing. While the board adjourns,
the officer is suspended until a final deliberation is reached. If he is found guilty, a recommendation for
his removal is presented to the General Assembly, as such, the same officer may be heard by the assembly
in any meeting decided by a 3/4 vote.
Records, Reports, and Auditing
Rules on Records Maintain books, published annually, and kept in conspicuous space
• Disposed only by burning or complete destruction if the records are from 5 years ago, unless if
these files are used for civil, criminal, or administrative proceedings
Rules on Reports:
• Regular Activities – includes socio-civic undertakings and achievements
• These must be accessible to all members
• Filed with the CDA within 120 days from the end of the calendar year (April 1)
• Failure to file will lead to a penalty or revocation of certificate
• The Fiscal Year is allowed
• Failure to publish reports with the CDA, CDA will send a notice of fines within 15 days from due
Annual Audit
The annual audit includes the following:
• Financial Statements, Performance, and Social Audit conducted by CPAs (member of PICPA, BOA,
and CDA Accredited)
• Findings and Recommendations are submitted to the Board of Directors
• The CDA Maintains the Social Audits
• As such, the auditor is not liable for defamation; and is not allowed to maintain engagements
with the same cooperative for 5 consecutive years.
Members’ Rights to Examine Records
• Any member can examine the records of the cooperative at any reasonable hour, free of charge
• The refusal by the cooperative will result in damages and offense against RA 9520
o If the refusal is ordered by the Directors, the directors become liable
o A Director may raise the defense of bad faith in the member
• Members are NOT allowed to examine:
o Subsidiary Ledgers
o Records of Members other than their own personal records
All cooperatives are required to have their records safely kept in its principal office. It must take all the
necessary steps to prevent loss, destruction, and falsification.
Tax Exemptions and Privileges
1. Cooperatives that are duly-registered, not transacting with outsiders are tax-exempt
2. Cooperatives transacting with outsiders will be exempt as to transactions with members only
a. Cooperatives with Accumulated Reserves of not more than P10,000,000.00 are Exempt
i. All transactions should not inure to benefit any single person w/in 5 years
b. Cooperatives with Accumulated Reserves exceeding P10,000,000.00 are subject to all
national taxes
c. All Cooperatives are Exempt from Local Taxes and Taxes on transactions with Banks and
Insurance Companies
i. All Transactions with non-members are due for Percentage Tax
3. Deposits and valuable papers at the local treasury are free of charge (The custodian issues a trust
receipt under witness testimony)
4. Cooperatives by government employees enjoy free use of government facilities
5. Cooperatives using special facilities are secured of franchise (cold storage, electricity,
transportation)
6. Cooperatives have preferential right to supply grains, fish, meat, etc.
7. Cooperatives are preferred as to allocation of fertilizers
8. Cooperatives are preferred in allocation of bottomries of shipping vessel (cargo space)
9. Cooperatives are exclusively given preference over space in public markets (these spaces must
not be shared with any individuals)
10. Cooperatives enjoy loaning preference from DBP, Land Bank, and BSP
11. Cooperatives are preferred as to collateral and deposit with the PDIC
12. They have a preferential right to manage public terminals and acquisition and maintenance of
transportation equipment and vessels
13. Transactions with the PH Government are exempt from pre-qualification in terms of bidding
14. The Solicitor General holds a preference to cooperatives, and services to Coop are free of charge
15. Cooperatives by the teachers of a school are given premium over school Ancillary services
16. They are given a special window for financing housing projects undertaken by cooperatives
Capital Property and Funds
Cooperatives may source their funds from the following:
• Members’ Capital
• Debt Financing
• Revolving Capital – This is composed of patronage and interest on share capital
• Subsidies and Donations
o These are never transferred to any single individual’s fund
o Upon dissolution of the cooperative, these are escheated
Limitations on Capital Holdings
Capital holdings of members in primary cooperatives are limited to own up to only 10% of share capital;
in the event that a member dies, their heir takes the shares only if the heir qualifies as a member and
that the shares already held by the heir will not exceed 10%. Any excess/capital not paid back will be
reverted to Treasury.
Assignment of Capital Interest
This is generally not allowed, except if:
• The Interest has been held for not less than 1 year
• Assignment is made to the cooperative or with another member
• The Board approves of the assignment
Capital Build-up
This is required to increase funding for cooperative operations since cooperatives are generally not
established for profit.
• Continuing Subscription – The cooperative is required to adopt a policy on subscription, and to
execute the subscription upon admission of a member.
o Issuance of share certificates are done at least every year-end based on fully paid shares
• Cooperatives are not allowed to issue multiple classes of common shares
• Changing the par value of a share is prohibited even if this is done through the amendment of
the articles and or by-laws.
• The par value of each share may not exceed P1,000.00
• Fines may be issued against unpaid subscriptions
Investment of Capital
Funds are usually placed into shares of another entity, any reputable bank, government securities, real
estate for the use of members, any other manner as prescribed in by-laws
Revolving Capital
This is a long-standing appropriation used to fund activities ahead of their general appropriations. This
is usually done by entities with surpluses from prior periods and have currently enough funds to fill the
current year’s budget.
• the General Assembly may authorize the board to raise capital by deferring payments of
patronage refunds and interest (dividends on shares) or by authorized deduction of 1% of revenue
• The board shall issue revolving capital certificates
Net Surplus and Distribution
The Net Surplus of Cooperative is akin to a Corporation’s Net Income. However, only interest therein is
taxable as income, and the excess fund per se, is not taxable.
Allocation of the Net Surplus
Reserve Fund • Established for the stability of operations; the General Assembly may
• Consists of a minimum of decrease the allocation to it if the Reserve Fund is larger than Share
10% of the Net Surplus capital
• The First 5 Years of • Any sum amount recovered from items previously charged from the
Operations, the Reserve reserve fund is credited to the reserve fund
Fund Allocation should not • It is not used for investment unless allowed by the Code
be less than 50% of the Net • Upon dissolution, the reserve fund is distributed to the members; as
Surplus such, the General Assembly may resolve to establish a trust fund for
the benefit of any union or federation the cooperative belongs to or
donate the proceeds to the community
Education and Training • Certain Fees go into this fund (They follow the activity
Fund • 50% of fees from seminars go to this fund, the other half may be given
A Maximum of 10% of the to the Federation or Union the Cooperative belongs to.
Net Surplus • Remitting to the Federation or Union will require the Federation or
Union to submit to the CDA the list of cooperatives that availed of the
consultancy service and other activities
• Upon Dissolution, the undistributed fund will be remitted to the
Federation or Union
Community Development • The Community Development Fund shall be used for projects or
Fund activities that will benefit the community where the cooperative
Minimum of 3% of the Net operates
Surplus
Optional Fund • A fund established for other activities that the cooperative engages
Maximum 7% of the Net into. It is akin to appropriation of Retained Earnings for Plant
Surplus Expansion, Contingencies, Bond Sinking Funds, etc.
Remaining Surplus • This is Interest on Share Capital; The Remaining Surplus is actually
Must not exceed the Normal taxable income only if the Cooperative reports an Accumulated
ROI & Patronage Refunds. Reserve Fund of P10,000,000.00. Any amounts remaining after the
allowable interest and patronage refund shall be credited to the
reserve fund.
Interest on Share Capital – This is computed as:
Net Surplus less Statutory Reserves
Interest on Share Capital =
Total Average Share Month
• Required vote for allocation of interest on share capital – no allocation of interest on SC is

made without approval of the board (majority of those present and in quorum)
• Required vote for deferment of payment of interest on share capital – Payment of interest
must be made on the date provided in the board. The assembly may defer the payment including
the patronage refund to raise revolving capital. No cumulative interest shall be allowed for any
kind or class of share issued by the cooperative. Share capital shall receive a strictly limited
interest rate. It requires a vote of majority of all the members of the assembly present and in
quorum, but only upon recommendation by the board (majority of board present and in quorum)
Patronage Refunds
It is the sum allocated for return to patrons or those who availed of the goods or services of the
cooperative. It is distributed to Member Patrons and Non-member Patrons. It cannot be not less than
30% of Net Surplus after deducting the statutory reserves.
• Member Patrons - The refund is applied to paid-up capital as a dividend; and unpaid capital for
which the refund is applied against his outstanding credit
• Non-member Patrons
o An amount is set aside in a general fund and is applied to his prospective membership in
the cooperative (The minimum capital contribution requirement)
▪ The non-member may become a non-member upon meeting the minimum capital
requirement at any time specified in the by-laws and if he consents
▪ The refund may also go to the Reserve Fund or Education and Training Fund at
the cooperative’s option if there is any subscription balance outstanding or if the
non-member opts to no membership or fails to meet other requirements
o It is however, allocated only upon his request and presentation of evidence or receipts
of availment of services or goods
Dissolution and Liquidation of Cooperatives
Dissolution – Terminations the right of the Cooperative to conduct business and initiates liquidation. This
may be voluntary or involuntary
Voluntary Dissolution
No Creditors Affected Creditors are Affected
A vote of a Majority of the Board, and Resolved by A Petition is filed with the CDA by the creditors
¾ of the General Assembly
A Notice of dissolution, with the time, place, Signed by a majority of the Board or Officers,
object, published 3 consecutive weeks in a verified by the chair or secretary or directors,
newspaper setting forth the claims and voted upon by ¾ of
the assembly
Notice is sent to each member by mail or delivery The CDA issues an order and fixes a date not less
at least 30 days prior to the meeting than 30 nor more than 60 days after the petition
A copy of the board resolution authorizing the A Copy of the order is published at least once a
dissolution is provided week for 3 consecutive weeks in 3 public spaces
The Order of Dissolution by the CDA includes: There is a 5-day notice to file objections, he CDA
• Assets and Liabilities of the cooperative will proceed to hear and try the objections.
• Claims of the creditors The lapse and inaction over the 5-day period will
• Number of members initiate the order to dissolve the cooperative
• Nature and Extent of Interests
Involuntary Dissolution by Court Order
• Violation of any Law – the court serves the decision, and the CDA issues the order to proceed
with the dissolution
• Insolvency of the Cooperative.
Involuntary Dissolution by the CDA’s Order
• The Cooperative obtained registration by fraud • Willful failure to operate as a cooperative
• The cooperative exists for an illegal purpose • Failure to meet the required minimum number
• Willful violation despite notice by the CD of members
Dissolution by Failure to Organize
• When there is no operation within 2 years after the issuance of the Certificate of Registration
• When there is no business for 2 years
• As such, a show-cause order is issued by CDA; failure to respond to order will result to dissolution
Liquidation
• 3 years is allowed to realize the assets and settle the obligations; in any excess, the amount is
distributed among the members
• 3 years is allowed to convey to the trustee the liquidation process
o Conveyance results in the termination of full interest in the cooperative
• In case a creditor or member cannot be found, their interest is given to the union or federation
that the cooperative belongs in.
Appendix: Computation of Net Surplus
Non-
Member member
s s
Net Surplus from Non-members XX
Revenue from Operations XX XX
Interest on Members' Capital
Cost of Operations (XX) (XX)
(lower of):
Gross Surplus XX XX
Remaining Surplus per By-
Operating Expenses (XX) (XX)
laws
Operating Surplus XX XX
(MM*RS%) = RS
Non-operating Income XX XX
Normal ROI per By-laws
Net Surplus NS NS (Weighted Ave. Capital *
Reserve Fund Requirement (Minimum of 10% of NS) (XX) (XX) ROI) = ROI XX
Education and Training Fund (Maximum of 10% of
Total Taxable Surplus (Inc. Tax) XX
NS) (XX) -
RCIT Due (XX)
Community Development Fund (Minimum of 3% of
Net Surplus after Tax XX
NS) (XX) -
Optional Building Fund (Maximum of 7% of NS) (XX) -
Net Distributable Surplus MM** NM
Distributed as follows: Members Non-members ***Reconciliation from Financial Accounting
Interest on Members' Capital XX - Income occurs before the Net Surplus
Patronage Refunds, per by-laws** determination.
(Net Surplus Distributable * 50%) XX XX*
Returned to Reserve Funds (Squeezed) XX XX **Patronage Refunds are returned to patrons
Net Distributable Surplus XX XX for availment of services/goods.
*Surplus from Non-members may be set aside to pay for prospective membership; which can be reallocated either to RF or
ETF.
Corporations vs. Cooperatives

Item Corporation Cooperative
Number of Incorporators Stock – Not MORE than 15 Not LESS than 15 Natural Persons
Natural Persons
Non-Stock – more than 15
Residency of Incorporators Not Required All are Residents
Citizenship of Incorporators Not Required All are Citizens
Minimum Paid-up Capital Not Required Subject to 25% of Authorized
Stock Subscribed, and 25% of
Subscribed as Paid. Not less than
15,000; may increase every 5
years upon consultation w. Coop
Sector & NEDA
Name Corporation, Inc., OPC Coop., Cooperative, Kooperatib,
Kooperativa
Filing Articles of Incorporation To SEC To CDA
Voting Requirements for Maj BOD + 2/3 of OCS 2/3 of all Members w/ voting
Amendment of Articles rights
Effectivity Upon Approval by SEC; Upon approval by CDA or within
30 days from date of filing (no
retroactive effect)
failure by SEC to act within 6

months, effectivity will retroact
to date of filing.
Voting Requirement for Division Not Applicable ¾ of all members with voting
rights, present and in quorum
Voting Requirements for Maj. BOD + 2/3 of OCS ¾ of all members with voting
Merger/Consolidation rights, present and in quorum
Adoption of By-laws May be filed together w/ Filed at the same time as
Articles of Incorporation, or Articles of Cooperation
separately after filing Articles.
Amendment of By-laws Maj. of BOD and Maj. of OCS 2/3 of All members w/ voting
rights
Commencement of Juridical Upon issue of Certificate of Upon issue of Certificate of
Personality Incorporation by SEC Cooperation by CDA
Remedy to Denial of application Petition before the courts Appeal before Office of Pres.
Residency of Board of Directors Majority must be Residents All must be residents
owning at least 1 Share
Term of Office – Directors 1 year for directors of Stock 2 Years
3 years trustees in Non-Stock
5 Years for Non-Stock Educ.
Ratifying Self-dealing directors 2/3 of OCS; 2/3 of members ¾ of members w/ voting rights
Ratifying Interlocking directors 2/3 of OCS ¾ of members w/ voting rights
Vote count Based on Shares for Stock Corp. Based on Heads for each
Based on Heads for Non-Stock member
Filing of Amendments of Term Filed w/in 3 years before Filed w/in 5 years before
expiration expiration
Limited Liability Yes Yes
Term of Existence Indefinite 50 Years
Juridical Personality Yes Yes
Association of Persons Yes Yes
For Profit Generally, Yes No Profits (Analog is Surplus)
Nationality of Corporation Law in which it is incorporated, Always Filipino
(Tests in order) Control Test if needed
Grandfather rule if needed
Title X: Financial Rehabilitation and

Insolvency Act
Insolvency is the state of being insolvent, defined as the financial condition of a debtor that is generally
unable to pay its or his liabilities as they fall due in the ordinary course of business or has liabilities that
are greater than its or his assets.
Insolvency proceedings may cover:
• An individual debtor, referring to a natural person who is a resident and citizen of the Philippines
that has become insolvent as defined under Republic Act No. 10142; or
• A debtor, referring to, unless specifically excluded by a provision of Republic Act No. 10142, a sole
proprietorship duly registered with the Department of Trade and Industry (DTI), a partnership duly
registered with the Securities and Exchange Commission (SEC), a corporation duly organized and
existing under Philippine laws, or an individual debtor who has become insolvent as defined in
Republic Act No. 10142.
Suspension of Payments
Under FRIA, any individual debtor who has assets that exceed his liabilities but foresees the impossibility
of paying his debts when they respectfully fall due may file a verified petition in court for the suspension
of payments. Once this petition is filed, and if the court finds it to be sufficient in form and substance,
a "Suspension of Payments Order (SPO)" will be issued. This order prevents creditors from suing or
instituting collection proceedings against the debtor, among others, while the debtor, creditor/s,
and the Court all consider a plan for the debtor to settle his or her debts.
Financial Rehabilitation Proceedings
Rehabilitation – Rehabilitation refers to the restoration of the debtor to a condition of successful
operation and solvency, if it is shown that its continuance of operation is economically feasible and its
creditors can recover by way of the present value of payments projected in the plan, more if the debtor
continues as a going concern than if it is immediately liquidated.
There are three types of rehabilitation, namely:
1. Court-supervised rehabilitation
2. Pre-negotiated rehabilitation; and
3. Out-of-court/Formal Restructuring
Court-Supervised Rehabilitation
Court-supervised rehabilitation may be initiated through voluntary proceedings or involuntary
proceedings.
Voluntary Proceedings – Voluntary Proceedings may be initiated by an insolvent debtor through filing a
petition for rehabilitation with the court and on the grounds provided under the FRIA.
The filing of the petition for rehabilitation must be approved by the owner in case of a sole
proprietorship, or by a majority of the partners in case of a partnership, or in case of a corporation, by
a majority vote of the board of directors or trustees and authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock, or in case of nonstock corporation,
by the vote of at least two-thirds (2/3) of the members, in a stockholder’s or member’s meeting duly
called for the purpose.
A group of debtors may jointly file a petition for rehabilitation when one or more of its members
foresee the impossibility of meeting debts when they respectively fall due, and the financial distress
would likely adversely affect the financial condition and/or operations of the other members of the group
and/or the participation of the other members of the group is essential under the terms & conditions of
the proposed Rehabilitation Plan.
Rehabilitation Plan – shall refer to a plan by which the financial well-being and viability of an insolvent
debtor can be restored using various means including, but not limited to, debt forgiveness, debt
rescheduling, reorganization or quasi-reorganization, dacion en pago, debt-equity conversion and sale of
the business (or parts of it) as a going concern, or setting-up of new business entity, or other similar
arrangements as may be approved by the court or creditors.
Cram-down Effect – Cram-down is the power of the rehabilitation court to approve and implement a
rehabilitation plan notwithstanding the objection of the majority of creditors. As noted in the case
of Bank of the Philippine Islands vs. Sarabia Manor Hotel Corporation (G.R. No. 175844, 29 July 2013)
• It is necessary to curb the majority creditors’ natural tendency to dictate their own terms and
conditions to the rehabilitation, absent due regard to the greater long-term benefit of all
stakeholders. Otherwise stated, it forces the creditors to accept the terms and conditions of the
rehabilitation plan, preferring long-term viability over immediate but incomplete recovery
Affirmation of the Rehabilitation Plan by Cram-down
• The Rehabilitation Plan complies with the requirements specified in this Act.
• The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
• The shareholders, owners or partners of the juridical debtor lose at least their controlling interest
as a result of the Rehabilitation Plan; and
• The Rehabilitation Plan would likely provide the objecting class of creditors with compensation which
has a net present value greater than that which they would have received if the debtor were under
liquidation.
Involuntary Proceedings
Any creditor or group of creditors with a claim of, or the aggregate of whose claims is, at least One
Million Pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock or
partners’ contributions, whichever is higher, may initiate involuntary proceedings against the debtor by
filing a petition for rehabilitation with the court if:
• There is no genuine issue of fact on law on the claim/s of the petitioner/s, and that the due and
demandable payments thereon have not been made for at least sixty (60) days or that the debtor has
failed generally to meet its liabilities as they fall due; or
• A creditor, other than the petitioner/s, has initiated foreclosure proceedings against the debtor that
will prevent the debtor from paying its debts as they become due or will render it insolvent.
Pre-negotiated Rehabilitation
The second way of rehabilitation is the pre-negotiated. Under this preceding, an insolvent debtor, by
itself or jointly with any of its creditors, may file a verified petition with the court for the approval of a
pre-negotiated Rehabilitation Plan which has been endorsed or approved by creditors holding at least
two-thirds (2/3) of the total liabilities of the debtor, including secured creditors holding more than fifty
percent (50%) of the total secured claims of the debtor and unsecured creditors holding more than fifty
percent (50%) of the total unsecured claims of the debtor.
Out-of-court or Informal Restructuring Agreements or Rehabilitation Plans

For an out-of-court or informal restructuring/workout agreement or Rehabilitation Plan to qualify, it
must meet the following minimum requirements:
1. The debtor must agree to the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan;
2. It must be approved by creditors representing at least sixty-seven (67%) of the secured obligations
of the debtor;
3. It must be approved by creditors representing at least seventy-five percent (75%) of the
unsecured obligations of the debtor; and
4. It must be approved by creditors holding at least eighty-five percent (85%) of the total liabilities,
secured and unsecured, of the debtor.
Standstill Period – A standstill period, which does not exceed one hundred twenty (120) days from the
date of effectivity, is a period that may be agreed upon by the parties pending negotiation and
finalization of the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan.
The agreement must be approved by creditors representing more than fifty percent (50%) of the total
liabilities of the debtor and notice thereof is published in a newspaper of general circulation in the
Philippines once a week for two (2) consecutive weeks.
The standstill period shall be effective and enforceable not only against the contracting parties but also
against the other creditors.
Rehabilitation Receiver – A rehabilitation receiver shall refer to the person or persons, natural or
juridical, appointed as such by the court and which shall be entrusted with such powers and duties.
The rehabilitation receiver shall have the following minimum qualifications:
• A citizen of the Philippines or a resident of the Philippines in the six (6) months immediately
preceding his nomination;
• Of good moral character and with acknowledged integrity, impartiality and independence;
• Has the requisite knowledge of insolvency and other relevant commercial laws, rules and
procedures, as well as the relevant training and/or experience that may be necessary to enable
him to properly discharge the duties and obligations of a rehabilitation receiver; and
• Has no conflict of interest: Provided, that such conflict of interest may be waived, expressly or
impliedly, by a party who may be prejudiced thereby.
Management Committee – The management committee shall take the place of the management and the
governing body of the debtor and assume their rights and responsibilities.
The qualifications and disqualifications of the members of the management committee shall be set forth
in the procedural rules, taking into consideration the nature of the business of the debtor and the need
to protect the interest of all stakeholders concerned.
Commencement Order – Commencement Order is the order issued by the court which signifies the
beginning of the rehabilitation proceedings which shall retroact to the date of the filing of the petition.
It is issued by the court if it finds the petition for rehabilitation to be sufficient in form and substance
within five (5) working days from the filing of the petition.
Effects of Commencement Orders
• Vest the rehabilitation receiver with all the powers and functions provided under the FRIA, such as
the right to review and obtain all records to which the debtor’s management and directors have
access, including bank accounts of whatever nature of the debtor, subject to the approval by the
court of the performance bond filed by the rehabilitation receiver;
• Prohibit, or otherwise serve as the legal basis for rendering null and void the results of any
extrajudicial activity or process to seize property, sell encumbered property, or otherwise attempt
to collect on or enforce a claim against the debtor after the commencement date unless otherwise
allowed under the law;
• Serve as the legal basis for rendering null and void any set-off after the commencement date of
any debt owed to the debtor by any of the debtor’s creditors;
• Serve as the legal basis for rendering null and void the perfection of any lien against the debtor’s
property after the commencement date;
• Consolidate all legal proceedings by and against the debtor to the court, provided, however, that
the court may allow the continuation of cases in other courts where the debtor had initiated the
suit;
• Exempt the debtor from liability for taxes and fees, including penalties, interests and charges
thereof due to the national government or the LGU (Sec. 17, FRIA; Sec. 9, Rule 2, A.M. 12-12-11-
SC);
• Include Stay or Suspension Order (Sec. 16(q), FRIA); and
• Authorize the payment of Administrative Expenses as they become due. (Sec. 16(l), FRIA).
Stay/Suspend Order –shall refer to an order issued in conjunction with the commencement order that
shall:
• Suspend all actions or proceedings, in court or otherwise, for the enforcement of claims against the
debtor;
• Suspend all actions to enforce any judgment, attachment or other provisional remedies against the
debtor;
• Prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its
properties except in the ordinary course of business; and
• Prohibit the debtor from making any payment of its liabilities outstanding as of the commencement
date except in the ordinary course of business. (Sec. 16(q), FRIA; Sec. 5(r), Rule 1, A.M. 12-12-11-
SC)
Extent of Stay Orders – All pending actions, including the execution of the judgment against the
corporation, should be suspended pending termination of the rehabilitation proceedings. Jurisprudence
is settled that the suspension of proceedings referred to in the law uniformly applies to “all action for
claims” filed against a corporation, partnership or association under management or receivership,
without distinction, except only those expenses incurred in the ordinary course of business (Molina v.
Pacific Plans, Inc., G.R. No. 165476, August 15, 2011). No exception in favor of labor claims is mentioned
in the law (Lingkod Manggagawa sa Rubberworld v. Rubberworld [Phils.] Inc., G.R. No. 153882, January
29, 2007) or even maritime claims (Negros Navigation v. CA, G.R. No. 163156, December 10, 2008)
• No other action may be taken, including the rendition of judgment during the state of suspension. It
must be stressed that what are automatically stayed or suspended are the proceedings of a suit and
not just the payment of claims during the execution stage after the case had become final and
executory. (Garcia vs. Philippine Airlines, Inc., G.R. No. 164856, August 29, 2007)
• When a corporation is taken over by a rehabilitation receiver, all creditors stand on equal footing,
not anyone should be given preference by paying ahead of other creditors. This pertains to all claims
whether pecuniary or not. The Interim Rules on Corporate Rehabilitation defines a “claim” as
referring to all claims, demands of whatever nature or character against the debtor or its properties,
whether for money or otherwise. The definition is so encompassing, there are no distinctions or
exemptions. (Sobrejuanite v. ASB Development Corp., G.R. No. 165675, September 30, 2005)
Limitations of Stay Orders
1. To cases already pending appeal in the Supreme Court as of commencement date: Provided, that
any final and executory judgment arising from such appeal shall be referred to the rehabilitation
court for appropriate action;
2. Subject to the discretion of the court, to cases pending or filed at a specialized court or quasi-
judicial agency which, upon determination by the rehabilitation court upon motion made, is
capable of resolving the claim more quickly, fairly and efficiently than the court: Provided, that
any final and executory judgment of such court or agency shall be referred to the court and shall
be treated as a non-disputed claim
3. To the enforcement of claims against sureties and other persons solidarily liable with the debtor,
and third party or accommodation mortgagors as well as issuers of letters of credit, unless the
property subject of the third party or accommodation mortgage is necessary for the
rehabilitation of the debtor as determined by the court upon recommendation by the
rehabilitation receiver;
4. To any form of action of customers or clients of a securities market participant to recover or
otherwise claim moneys and securities entrusted to the latter in the ordinary course of the
latter’s business as well as any action of such securities market participant or the appropriate
regulatory agency or self-regulatory organization to pay or settle such claims or liabilities;
5. To the actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a
securities pledge or margin agreement for the settlement of securities transactions in accordance
with the provisions of the Securities Regulation Code and its implementing rules and regulations;
6. The clearing and settlement of financial transactions through the facilities of a clearing agency
or similar entities duly authorized, registered and/or recognized by the appropriate regulatory
agency like the Bangko Sentral ng Pilipinas (BSP) and the SEC as well as any form of actions of
such agencies or entities to reimburse themselves for any transactions settled for the debtor;
and
7. To any criminal action against the individual debtor or owner, partner, director or officer of a
debtor. The enforcement of the civil liability arising from the offense charged, deemed instituted
with the criminal action, shall be covered by the Stay Order. (Sec. 10, Rule 2, A.M. 12-12-11-SC)
The rehabilitation of the corporation is not a legal ground for the extinction of petitioners’ criminal
liabilities. There is no reason why criminal proceedings should be suspended during corporate
rehabilitation, more so, since the prime purpose of the criminal action is to punish the offender in order
to deter him and others from committing the same or similar offense, to isolate him from society, reform
and rehabilitate him or, in general, to maintain social order. It would be absurd for one who has engaged
in criminal conduct could escape punishment by the mere filing of a petition for rehabilitation by the
corporation of which he is an officer. The prosecution of the officers of the corporation has no bearing
on the pending rehabilitation of the corporation, especially since they are charged in their individual
capacities. (Panlilio v. RTC, G.R. No. 173846)
Liquidation Proceedings
Liquidation – is the process by which assets are converted to cash. A liquidator is a natural person or
juridical entity appointed as such by the court and entrusted with such powers and duties as set forth
under the FRIA. If the liquidator is a juridical entity, it must designate a natural person who possesses
all the qualifications and none of the disqualifications as its representative, it being understood that the
juridical entity and the representative are solidarity liable for all obligations and responsibilities of the
liquidator.
Liquidation of Insolvent Juridical Debtors
The liquidation of insolvent debtors, as opposed to individual debtors, may be voluntary or involuntary.
Voluntary liquidation proceedings are initiated by the debtor itself, while involuntary insolvency
proceedings are initiate by three or more creditors
Voluntary Liquidation of Juridical Debtors
An insolvent debtor may apply for liquidation by filing a petition for liquidation with the court. The
petition shall be verified, shall establish the insolvency of the debtor and shall contain, whether as an
attachment or as part of the body of the petition:
• a schedule of the debtor’s debts and liabilities including a list of creditors with their addresses,
amounts of claims and collaterals, or securities, if any;
• an inventory of all its assets including receivables and claims against third parties; and
• the names of at least three (3) nominees to the position of liquidator.
At any time during the pendency of court-supervised rehabilitation proceedings or pre-negotiated
rehabilitation proceedings, the debtor may also initiate liquidation proceedings by filing a motion in the
same court where the rehabilitation proceedings are pending to convert the rehabilitation proceedings
into liquidation proceedings. The motion shall be verified, shall contain or set forth the same matters
required in the preceding paragraph, and state that the debtor is seeking immediate dissolution and
termination of its corporate existence. If the petition or the motion, as the case may be, is sufficient in
form and substance, the court shall issue a Liquidation Order
Liquidation Order
The Liquidation Order has, for its effects,
• Declare the debtor insolvent;
• Order the liquidation of the debtor and, in the case of a juridical debtor, declare it as dissolved;
• Order the sheriff to take possession and control of all the property of the debtor, except those that
may be exempt from execution;
• Direct payments of any claims and conveyance of any property due the debtor to the liquidator;
• Prohibit payments by the debtor and the transfer of any property by the debtor;
• Direct all creditors to file their claims with the liquidator within the period set by the IRR
• Set the case for hearing for the election and appointment of the liquidator (FRIA, section 112).
Involuntary Liquidation of Juridical Debtors
Three (3) or more creditors the aggregate of whose claims is at least either One Million Pesos
(PhP1,000,000,00) or at least twenty-five percent (25%) of the subscribed capital stock or partner’s
contributions of the debtor, whichever is higher, may apply for and seek the liquidation of an insolvent
debtor by filing a petition for liquidation of the debtor with the court. The petition shall show that:
• there is no genuine issue of fact or law on the claim/s of the petitioner/s, and that the due and
demandable payments thereon have not been made for at least one hundred eighty (180) days or
that the debtor has failed generally to meet its liabilities as they fall due; and
• there is no substantial likelihood that the debtor may be rehabilitated.
At any time during the pendency of or after a court-supervised rehabilitation proceedings or pre-
negotiated rehabilitation proceedings, three (3) or more creditors whose claims is at least either One
Million Pesos (PhP1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital or
partner’s contributions of the debtor, whichever is higher, may also initiate liquidation proceedings by
filing a motion in the same court where the rehabilitation proceedings are pending to convert the
rehabilitation proceedings into liquidation proceedings. The motion shall be verified, shall contain or
set forth the same matters required in the preceding paragraph, and state that the movants are seeking
the immediate liquidation of the debtor.
If the petition or motion is sufficient in form and substance, the court shall issue an Order:
• directing the publication of the petition or motion in a newspaper of general circulation once a week
for two (2) consecutive weeks; and
• directing the debtor and all creditors who are not the petitioners to file their comment on the
petition or motion within fifteen (15) days from the date of last publication. If, after considering the
comments filed, the court determines that the petition or motion is meritorious, it shall issue the
Liquidation Order
Conversion by the Court from Rehabilitation into Liquidation Proceedings
During the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the court may
order the conversion of rehabilitation proceedings to liquidation proceedings pursuant to
• Findings of Insolvency, or absence of substantial likelihood of rehabilitation
• Absence of a Confirmed Rehabilitation Plan
• Discharge of the Rehabilitation Receiver and or Lifting of the Stay Order, such that there is a failure
of rehabilitation or dismissal of the petition thereof other than technical grounds
• Upon Voluntary Liquidation; or at any other time upon the recommendation of the rehabilitation
receiver that the rehabilitation of the debtor is not feasible. Court shall issue the Liquidation Order.
Powers of the SEC
The provisions regarding the liquidation of insolvent juridical debtors shall not affect the regulatory
powers of the Securities and Exchange Commission (SEC) under Section 6 of Presidential Decree No. 902-
A, as amended, with respect to any dissolution and liquidation proceeding initiated and heard before it.
Insolvency of Individual Debtors
Insolvent individual debtors have the following options:
• Suspension of payments;
• Voluntary liquidation; and
• Involuntary liquidation.
Petition – An individual debtor who, possessing sufficient property to cover all his debts but foreseeing
the impossibility of meeting them when they respectively fall due, may file a verified petition that he
be declared in the state of suspension of payments by the court of the province or city in which he has
resides for six (6) months prior to the filing of his petition.
He shall attach to his petition, as a minimum:
• a schedule of debts and liabilities;
• an inventory of assets; and
• a proposed agreement with his creditors
Action on the Petition – If the court finds the petition sufficient in form and substance, it shall, within
five (5) working days from the filing of the petition, issue an Order:
• calling a meeting of all the creditors named in the schedule of debts and liabilities at such time not
less than fifteen (15) days nor more than forty (40) days from the date of such Order and designating
the date, time and place of the meeting;
• directing such creditors to prepare and present written evidence of their claims before the scheduled
creditors’ meeting;
• directing the publication of the said order in a newspaper of general circulation published in the
province or city in which the petition is filed once a week for two (2) consecutive weeks, with the
first publication to be made within seven (7) days from the time of the issuance of the Order;
• directing the clerk of court to cause the sending of a copy of the Order by registered mail, postage
prepaid, to all creditors named in the schedule of debts and liabilities;
• forbidding the individual debtor from selling, transferring, encumbering or disposing in any manner
of his property, except those used in the ordinary operations of commerce or of industry in which
the petitioning individual debtor is engaged so long as the proceedings relative to the suspension of
payments are pending;
• prohibiting the individual debtor from making any payment outside of the necessary or legitimate
expenses of his business or industry, so long as the proceedings relative to the suspension of payments
are pending; and (g) appointing a commissioner to preside over the creditors’ meeting.
Actions suspended; Suspension Order – Upon motion filed by the individual debtor, the court may issue
an order suspending any pending execution against the individual debtor. Properties held as security by
secured creditors shall not be the subject of such suspension order. The suspension order shall lapse
when three (3) months shall have passed without the proposed agreement being accepted by the
creditors or as soon as such agreement is denied. No creditor shall sue or institute proceedings to collect
his claim from the debtor from the time of the filing of the petition for suspension of payments and for
as long as proceedings remain pending except:
• Those creditors having claims for personal labor, maintenance, expense of last illness and funeral
of the wife or children of the debtor incurred in the sixty (60) days immediately prior to the filing
of the petition; and
• Secured creditors.
Creditors’ Meeting – The presence of creditors holding claims amounting to at least three-fifths (3/5) of
the liabilities shall be necessary for holding a meeting. The commissioner appointed by the court shall
preside over the meeting and the clerk of court shall act as the secretary thereof, subject to the following
rules:
• The clerk shall record the creditors present and amount of their respective claims;
• The commissioner shall examine the written evidence of the claims. If the creditors present hold at
least three-fifths (3/5) of the liabilities of the individual debtor, the commissioner shall declare the
meeting open for business;
• The creditors and individual debtor shall discuss the propositions in the proposed agreement and put
them to a vote;
• To form a majority, it is necessary: (1) that two-thirds (2/3) of the creditors voting unite upon the
same proposition; and (2) that the claims represented by said majority vote amount to at least three-
fifths (3/5) of the total liabilities of the debtor mentioned in the petition; and
• After the result of the voting has been announced, all protests made against the majority vote shall
be drawn up, and the commissioner and the individual debtor together with all creditors taking part
in the voting shall sign the affirmed propositions. No creditor who incurred his credit within ninety
(90) days prior to the filing of the petition shall be entitled to vote.
Persons who may refrain from voting – Creditors who are unaffected by the Suspension Order may
refrain from attending the meeting and from voting therein. Such persons shall not be bound by any
agreement determined upon at such meeting, but if they should join in the voting, they shall be bound
in the same manner as are the other creditors.
Rejection of the proposed agreement – The proposed agreement shall be deemed rejected if the
number of creditors required for holding a meeting do not attend thereat, or if the two (2) majorities
mentioned in Section 97 hereof are not in favor thereof. In such instances, the proceeding shall be
terminated without recourse and the parties concerned shall be at liberty to enforce the rights which
may correspond to them.
Objections –If the proposal of the individual debtor, or any amendment thereof made during the
creditors’ meeting, is approved by the majority of creditors in accordance with Section 97 hereof, any
creditor who attended the meeting and who dissented from and protested against the vote of the
majority may file an objection with the court within ten (10) days from the date of the last creditors’
meeting. The causes for which objection may be made to the decision made by the majority during the
meeting shall be:
• Defects in the call for the meeting, in the holding thereof and in the deliberations had thereat which
prejudice the rights of the creditors;
• fraudulent connivance between one or more creditors and the individual debtor to vote in favor of
the proposed agreement; or
• fraudulent conveyance of claims for the purpose of obtaining a majority. The court shall hear and
pass upon such objection as soon as possible and in a summary manner. In case the decision of the
majority of creditors to approve the individual debtor’s proposal or any amendment thereof made
during the creditors’ meeting is annulled by the court, the court shall declare the proceedings
terminated and the creditors shall be at liberty to exercise the rights which may correspond to them.
Effects of approval of proposed agreement – If the decision of the majority of the creditors to approve
the proposed agreement or any amendment thereof made during the creditors’ meeting is uphold by the
court, or when no opposition or objection to said decision has been presented, the court shall order that
the agreement be carried out and all parties bound thereby to comply with its terms. The court may also
issue all orders which may be necessary or proper to enforce the agreement on motion of any affected
party. The Order confirming the approval of the proposed agreement or any amendment thereof made
during the creditors’ meeting shall be binding upon all creditors whose claims are included in the
schedule of debts and liabilities submitted by the individual debtor and who were properly summoned,
but not upon:
• those creditors having claims for personal labor, maintenance, expenses of last illness and
funeral of the wife or children of the debtor incurred in the sixty (60) days immediately prior to
the filing of the petition; and
• secured creditors who failed to attend the meeting or refrained from voting therein.
Failure of individual debtor to perform agreement – If the individual debtor fails, wholly or in part, to
perform the agreement decided upon at the meeting of the creditors, all the rights which the creditors
had against the individual debtor before the agreement shall revest in them. In such case the individual
debtor may be made subject to the insolvency proceedings in the manner established by this Act.
Voluntary Liquidation of Natural Debtors
Application – An individual debtor whose properties are not sufficient to cover his liabilities, and owing
debts exceeding Five hundred thousand pesos (Php500,000.00), may apply to be discharged from his
debts and liabilities by filing a verified petition with the court of the province or city in which he has
resided for six (6) months prior to the filing of such petition. He shall attach to his petition a schedule
of debts and liabilities and an inventory of assets. The filing of such petition shall be an act of insolvency.
Liquidation Order – If the court finds the petition sufficient in form and substance it shall, within five
(5) working days issue the Liquidation Order
Involuntary Liquidation of Natural Debtors
The Petition – Any creditor or group of creditors with a claim of, or with claims aggregating at least Five
hundred thousand pesos (Php500, 000.00) may file a verified petition for liquidation with the court of
the province or city in which the individual debtor resides.
Acts of Insolvency
The following shall be considered acts of insolvency, and the petition for liquidation shall set forth or
allege at least one of such acts:
• That such person is about to depart or has departed from the Republic of the Philippines, with intent
to defraud his creditors;
• That being absent from the Republic of the Philippines, with intent to defraud his creditors, he
remains absent;
• That he conceals himself to avoid the service of legal process for the purpose of hindering or delaying
the liquidation or of defrauding his creditors;
• That he conceals, or is removing, any of his property to avoid its being attached or taken on legal
process;
• That he has suffered his property to remain under attachment or legal process for three (3) days for
the purpose of hindering or delaying the liquidation or of defrauding his creditors;
• That he has confessed or offered to allow judgment in favor of any creditor or claimant for the
purpose of hindering or delaying the liquidation or of defrauding any creditors or claimant;
• That he has willfully suffered judgment to be taken against him by default for the purpose of
hindering or delaying the liquidation or of defrauding his creditors;
• That he has suffered or procured his property to be taken on legal process with intent to give a
preference to one or more of his creditors and thereby hinder or delay the liquidation or defraud any
one of his creditors;
• That he has made any assignment, gift, sale, conveyance or transfer of his estate, property, rights
or credits with intent to hinder or delay the liquidation or defraud his creditors;
• That he has, in contemplation of insolvency, made any payment, gift, grant, sale, conveyance or
transfer of his estate, property, rights or credits;
• That being a merchant or tradesman, he has generally defaulted in the payment of his current
obligations for a period of thirty (30) days;
• That for a period of thirty (30) days, he has failed, after demand, to pay any moneys deposited with
him or received by him in a fiduciary; and
• That an execution having been issued against him on final judgment for money, he shall have been
found to be without sufficient property subject to execution to satisfy the judgment. The petitioning
creditor/s shall post a bond in such as the court shall direct, conditioned that if the petition for
liquidation is dismissed by the court, or withdrawn by the petitioner, or if the debtor shall not be
declared an insolvent the petitioners will pay to the debtor all costs, expenses, damages occasioned
by the proceedings and attorney’s fees.
Order to Individual Debtor to Show Cause – Upon the filing of such creditors’ petition, the court shall
issue an Order requiring the individual debtor to show cause, at a time and place to be fixed by the said
court, why he should not be adjudged an insolvent. Upon good cause shown, the court may issue an Order
forbidding the individual debtor from making payments of any of his debts, and transferring any property
belonging to him. However, nothing contained herein shall affect or impair the rights of a secured
creditor to enforce his lien in accordance with its terms
Default – If the individual debtor shall default or if, after trial, the issues are found in favor of the
petitioning creditors the court shall issue the Liquidation Order.
Absent individual debtor – In all cases where the individual debtor resides out of the Republic of the
Philippines; or has departed therefrom; or cannot, after due diligence, be found therein; or conceals
himself to avoid service of the Order to show cause, or any other preliminary process or orders in the
matter, then the petitioning creditors, upon submitting the affidavits requisite to procedure an Order
of publication, and presenting a bond in double the amount of the aggregate sum of their claims
against the individual debtor, shall be entitled to an Order of the court directing the sheriff of the
province or city in which the matter is pending to take into his custody a sufficient amount of
property of the individual debtor to satisfy the demands of the petitioning creditors and the costs of
the proceedings. Upon receiving such Order of the court to take into custody of the property of the
individual debtor, it shall be the duty of the sheriff to take possession of the property and effects of the
individual debtor, not exempt from execution, to an extent sufficient to cover the amount provided for
and to prepare within three (3) days from the time of taking such possession, a complete inventory of all
the property so taken, and to return it to the court as soon as completed. The time for taking the
inventory and making return thereof may be extended for good cause shown to the court. The sheriff
shall also prepare a schedule of the names and residences of the creditors, and the amount due each,
from the books of the debtor, or from such other papers or data of the individual debtor available as
may come to his possession, and shall file such schedule or list of creditors and inventory with the clerk
of court.
The bonds to procure the order for custody of the property and effects of the individual debtor shall be
conditioned that if, upon final hearing of the petition in insolvency, the court shall find in favor of the
petitioners, such bonds and all of them shall be void; if the decision be in favor of the individual debtor,
the proceedings shall be dismissed, and the individual debtor, his heirs, administrators, executors or
assigns shall be entitled to recover such sum of money as shall be sufficient to cover the damages
sustained by him, not to exceed the amount of the respective bonds. Such damages shall be fixed and
allowed by the court.
All property held for all creditors; Appeal bonds; Exemptions to sureties – In all cases where
property is taken into custody by the sheriff, if it does not embrace all the property and effects of the
debtor not exempt from execution, any other creditor or creditors of the individual debtor, upon giving
bond to be approved by the court in double the amount of their claims, singly or jointly, shall be entitled
to similar orders and to like action, by the sheriff; until all claims be provided for, if there be sufficient
property or effects. All property taken into custody by the sheriff by virtue of the giving of any such
bonds shall be held by him for the benefit of all creditors of the individual debtor whose claims shall
be duly proved. The bonds to procure the order for custody of the property and effects of the individual
debtor shall be conditioned that if, upon final hearing of the petition in insolvency, the court shall find
in favor of the petitioners, such bonds and all of them shall be void; if the decision be in favor of the
individual debtor, the proceedings shall be dismissed, and the individual debtor, his heirs, administrators,
executors or assigns shall be entitled to recover such sum of money as shall be sufficient to cover the
damages sustained by him, not to exceed the amount of the respective bonds. Such damages shall be
fixed and allowed by the court. If either the petitioners or the debtor shall appeal from the decision of
the court, upon final hearing of the petition, the appellant shall be required to give bond to the successful
party in a sum double the amount of the value of the property in controversy, and for the costs of the
proceedings.
Any person interested in the estate may take exception to the sufficiency of the sureties on such bond
or bonds. When excepted to the petitioner’s sureties, upon notice to the person excepting of not less
than two (2) nor more than five (5) days, must justify as to their sufficiency; and upon failure to justify,
or of others in their place fail to justify at the time and place appointed the judge shall issue an Order
vacating the order to take the property of the individual debtor into the custody of the sheriff, or denying
the appeal, as the case may be.
Sale under execution – If, in any case, proper affidavits and bonds are presented to the court
or a judge thereof, asking for and obtaining an order of publication and an order for the custody of the
property of the individual debtor and thereafter the petitioners shall make it appear satisfactorily to the
court or a judge thereof that the interest of the parties to the proceedings will be subserved by a sale
thereof, the court may order such property to be sold in the same manner as property is sold under
execution, the proceeds to deposited in the court to abide by the result of the proceedings.
Common Provisions
In addition to the provisions on the Liquidation Order, Liquidation Plan and Liquidator, the following
provisions shall apply to liquidation in insolvency proceedings of both individual debtors and juridical
debtors:
Determination of Claims
Registry of Claims – Within twenty (20) days from his assumption into office the liquidator shall prepare
a preliminary registry of claims of secured and unsecured creditors. Secured creditors who have waived
their security or lien, or have fixed the value of the property subject of their security or lien by
agreement with the liquidator and is admitted as a creditor for the balance, shall be considered as
unsecured creditors. The liquidator shall make the registry available for public inspection and provide
publication notice to creditors, individual debtors/owners of the sole proprietorship-debtor, the partners
of the partnership-debtor and shareholders or members of the corporation-debtor, on where and when
they may inspect it. All claims must be duly proven before being paid.
Right of Set-off – If the debtor and creditor are mutually debtor and creditor of each other one debt
shall be set off against the other, and only the balance, if any shall be allowed in the liquidation
proceedings.
Opposition or Challenge to Claims – Within thirty (30) days from the expiration of the period for filing
of applications for recognition of claims, creditors, individual debtors, owner/s of the sole
proprietorship-debtor, partners of the partnership-debtor and shareholders or members of the
corporation -debtor and other interested parties may submit a challenge to claim or claims to the court,
serving a certified copy on the liquidator and the creditor holding the challenged claim. Upon the
expiration of the (30) day period, the rehabilitation receiver shall submit to the court the registry of
claims containing the undisputed claims that have not been subject to challenge. Such claims shall
become final upon the filling of the register and may be subsequently set aside only on grounds or fraud,
accident, mistake or inexcusable neglect.
Submission of Disputed to the Court – The liquidator shall resolve disputed claims and submit his findings
thereon to the court for final approval. The liquidator may disallow claims
Avoidance Proceedings – Any transaction occurring prior to the issuance of the Liquidation Order or, in
case of the conversion of the rehabilitation proceedings prior to the commencement date, entered into
by the debtor or involving its assets, may be rescinded or declared null and void on the ground that the
same was executed with intent to defraud a creditor or creditors or which constitute undue preference
of creditors. A disputable presumption of such intent shall arise if the transaction:
• provides unreasonably inadequate consideration to the debtor and is executed within ninety (90)
days prior to the commencement date;
• involves an accelerated payment of a claim to a creditor within ninety (90) days prior to the
commencement date;
• provides security or additional security executed within ninety (90) days prior to the commencement
date;
• involves creditors, where a creditor obtained, or received the benefit of, more than its pro rata share
in the assets of the debtor, executed at a time when the debtor was insolvent; or
• is intended to defeat, delay or hinder the ability of the creditors to collect claims where the effect
of the transaction is to put assets of the debtor beyond the reach of creditors or to otherwise
prejudice the interests of creditors.
The liquidator or, with his conformity, a creditor may initiate and prosecute any action to rescind, or
declare null and void any transaction described in the immediately preceding paragraph. If the liquidator
does not consent to the filling or prosecution of such action, any creditor may seek leave of the court to
commence said action.
If leave of court is granted, the liquidator shall assign and transfer to the creditor all rights, title and
interest in the chose in action or subject matter of the proceeding, including any document in support
thereof. Any benefit derived from the proceeding, to the extent of his claim and the costs, belongs
exclusively to the creditor instituting the proceeding, and the surplus, if any, belongs to the estate.
Where, before an order is made, the liquidator signifies to the court his readiness to the institute the
proceeding for the benefit of the creditors, the order shall fix the time within which he shall do so and,
in that case the benefit derived from the proceedings, if instituted within the time limits so fixed, belongs
to the estate.
Rights of Secured Creditors
Rights of Secured Creditors – The Liquidation Order shall not affect the right of a secured creditor to
enforce his lien in accordance with the applicable contract or law. A secured creditor may:
• Waive his rights under the security or lien, prove his claim in the liquidation proceedings and share
in the distribution of the assets of the debtor; or
• Maintain his rights under his security or lien.
If the secured creditor maintains his rights under the security or lien:
• the value of the property may be fixed in a manner agreed upon by the creditor and the liquidator.
When the value of the property is less than the claim it secures, the liquidator may convey the
property to the secured creditor and the latter will be admitted in the liquidation proceedings as a
creditor for the balance; if its value exceeds the claim secured, the liquidator may convey the
property to the creditor and waive the debtor’s right of redemption upon receiving the excess from
the creditor;
• the liquidator may sell the property and satisfy the secured creditor’s entire claim from the
proceeds of the sale; or
• the secured creditor may enforce the lien or foreclose on the property pursuant to applicable laws.
The Liquidator
Election of Liquidator – Only creditors who have filed their claims within the period set by the court,
and whose claims are not barred by the statute of limitations, will be allowed to vote in the election of
the liquidator. A secured creditor will not be allowed to vote, unless:
• he waives his security or lien; or
• has the value of the property subject of his security or lien fixed by agreement with the liquidator,
and is admitted for the balance of his claim.
The creditors entitled to vote will elect the liquidator in open court. The nominee receiving the highest
number of votes cast in terms of amount of claims, and who is qualified pursuant to Section 118
hereof, shall be appointed as the liquidator.
Court-Appointed Liquidator. – The court may appoint the liquidator if:
• on the date set for the election of the liquidator, the creditors do not attend;
• the creditors who attend, fail or refuse to elect a liquidator;
• after being elected, the liquidator fails to qualify; or
• a vacancy occurs for any reason whatsoever. In any of the cases provided herein, the court may
instead set another hearing for the election of the liquidator.
Provided, further, that nothing in this section shall be construed to prevent a rehabilitation receiver,
who was administering the debtor prior to the commencement of the liquidation, from being appointed
as a liquidator.
Oath and Bond of the Liquidator – Prior to entering upon his powers, duties and responsibilities, the
liquidator shall take an oath and file a bond, in such amount to be fixed by the court, conditioned upon
the proper and faithful discharge of his powers, duties and responsibilities.
Qualifications of the Liquidator. – The liquidator shall have the qualifications enumerated in Section
29 hereof. He may be removed at any time by the court for cause, either motu proprio or upon motion
of any creditor entitled to vote for the election of the liquidator.
Powers, Duties and Responsibilities of the Liquidator – The liquidator shall be deemed an
officer of the court with the principal duty of preserving and maximizing the value and recovering the
assets of the debtor, with the end of liquidating them and discharging to the extent possible all the
claims against the debtor. The powers, duties and responsibilities of the liquidator shall include, but
not be limited to:
• To sue and recover all the assets, debts and claims, belonging or due to the debtor;
• To take possession of all the property of the debtor except property exempt by law from execution;
• To sell, with the approval of the court, any debtor’s properties which has come into his possession/
control;
• To redeem all mortgages and pledges, and to satisfy any judgment which may be an encumbrance on
any property sold by him;
• To settle all accounts between the debtor and his creditors, subject to the approval of the court;
• To recover any property or its value, fraudulently conveyed by the debtor;
• To recommend to the court the creation of a creditors’ committee which will assist him in the
discharge of his functions and which shall have powers as the court deems just, reasonable and
necessary; and
• Upon approval of the court, to engage such professionals as may be necessary and reasonable to assist
him in the discharge of his duties.
In addition to the rights and duties of a rehabilitation receiver, the liquidator shall have the right and
duty to take all reasonable steps to manage and dispose of the debtor’s assets with a view towards
maximizing the proceedings therefrom, to pay creditors and stockholders, and to terminate the
debtor’s legal existence. Other duties of the liquidator in accordance with this section may be
established by procedural rules.
A liquidator shall be subject to removal pursuant to procedures for removing a rehabilitation receiver.
Compensation of the Liquidator – The liquidator and the persons and entities engaged or
employed by him to assist in the discharge of his powers and duties shall be entitled to such reasonable
compensation as may be determined by the liquidation court, which shall not exceed the maximum
amount as may be prescribed by the Supreme Court.
Reporting Requirements – The liquidator shall make and keep a record of all moneys received
and all disbursements made by him or under his authority as liquidator. He shall render a quarterly
report thereof to the court, which report shall be made available to all interested parties. The
liquidator shall also submit such reports as may be required by the court from time to time as well as a
final report at the end of the liquidation proceedings.
Discharge of Liquidator – In preparation for the final settlement of all the claims against the debtor,
the liquidator will notify all the creditors, either by publication in a newspaper of general circulation
or such other mode as the court may direct or allow, that he will apply with the court for the
settlement of his account and his discharge from liability as liquidator. The liquidator will file a final
accounting with the court, with proof of notice to all creditors. The accounting will be set for hearing.
If the court finds the same in order, the court will discharge the liquidator.
Title XI: Banking Laws

Bank Secrecy Laws
The Law is established to discourage the private hoarding of money and to grow trust towards banking
institutions so that the funds placed into them could be used to circulate money for demand growth. The
two laws concerned i.e., the Bank Secrecy Law R.A. 1405 covering Peso Deposits and the Foreign Currency
Deposits Act R.A. 6426 generally prohibit:
1. Banks from disclosing information concerning bank deposits of the depositors
2. Any person, including the Government, to inquire, examine, or look into bank deposits issued by
the government
Secrecy in Peso Deposits
The Deposits covered include all deposits of whatever nature with banks or banking institutions in the
Philippines, including Trust Accounts and Investments in Bonds issued by the Government of PH
• All deposits are characterized as being simple loans. Placing deposits into the bank creates a
creditor-debtor relationship. (The following are exceptions to Bank Secrecy Cases)
1. Written Permission from the Depositor
a. DOSRI Accounts where directors, officers, stockholders, and related interests who loan
or acquire financial accommodation with a bank are required to execute a written waiver
of bank secrecy deposits pursuant to the Central Bank Act
b. Taxpayer’s Application for Compromise where pleading taxpayer is required to execute
a waiver to execute his request for compromise on grounds of financial incapacity
2. Impeachment Cases
3. Order of a Competent Court in:
a. bribery or dereliction of duty, c. or those of unexplained wealth (Graft)
b. any case where the money deposited is d. those involving money laundering
the subject of ligation,
Inquiry of the BIR Commissioner
e. For determining the Gross Estate of the Decedent
f. Pursue requests for tax information of specific taxpayers made by a foreign tax authority
in pursuance to a tax treaty under Exchange of Information on Tax Matters Act of 2004
4. Order of the AMLC to investigate cases on money laundering
5. Reports concerning:
a. Disclosure to the Treasurer of the Philippines for Unclaimed Balances
b. Reports of Banks to the AMLC on covered and suspicious transactions
6. Ombudsman’s power of subpoena and subpoena duces tecum upon a:
a. Pending case in court
b. The account being clearly identified
c. Inspection is limited to the subject matter of the case pending
d. The bank personnel are notified to be present upon inspection
7. Order of the Court of Appeals in Terrorism Cases
8. Examinations made by the BSP, PDIC, COA, PCGG
9. Examinations made by Independent auditors hired by the bank to conduct audits
Secrecy in Foreign Currency Deposits
Foreign currencies are more stringently kept secret due to the state’s interest to honor jurisdictions on
intangible assets under international comity. A list of exceptions that allow state inquiry are as follows:
Written consent/waiver by depositor Those under probable cause in terrorism cases
Deposits under probable cause for investigation by Examinations by the BSP, PDIC, COA, PCGG
AMLC
Garnishment
Bank accounts may be frozen or garnished by the creditors of the depositor. In garnishment, there is no
violation of the bank secrecy law since the amount of the deposit is not disclosed. Some Deposits are
exempt from garnishment:
• Foreign Currency Deposits

• Those Exempt under the rules of court
Acts of garnishment that do not violate bank secrecy:
• Turn-over of deposits to the Commissioner of Internal Revenue of the amount in bank accounts
as sufficient to satisfy delinquent and outstanding tax obligations
• Submission of report, and turn-over to court for court cases supported by a writ of garnishment
in satisfaction of a judgment
Penalties for the Violation of the Bank Secrecy Law
Peso Deposits Foreign Currency Deposits
Imprisonment Not exceeding 5 years 1 to 5 years
Fines Not exceeding P20,000.00 P5,000.00 to P25,000.00
Unclaimed Balances Act
Unclaimed Balances – credits, deposits of money, bullion, securities, or other evidences of indebtedness
of any kind, and interest thereon with banks, buildings and loan associations, and trust corporations, in
favor of any person known to be dead or who has not made further deposits or withdrawals during
the preceding 10 years or more.
All banks are obliged to report, in a sworn statement, to the Treasurer of the Philippines information on
the unclaimed balances.
Unclaimed balances are escheated but are allowed to be reactivated
Escheat Proceedings Reactivation Procedure
Notice given to depositor at last known residence Letter of Request of Depositor Creditor to
or post office address reactivate, addressed to the Bureau of Treasury
Bank reports to the Treasurer of the PH Authentication and verification of request
Letter Request of the Covered institution by the
Report includes a sworn statement with details Bank to the Bureau of Treasury requesting to
on: Names and last known residence, amount and reactivate
the date of outstanding balance, date when the A deed of undertaking is executed by the
person died or when he made his last authorized officer of the bank ensuring the
withdrawal, and any interest due. Treasury Bureau and its officials are free from
liability upon reactivation
Posting of the sworn statement in conspicuous Letter of Authority to Reactivate is issued by the
place in the bank for 60 days from filing BTr
Copy of the complaint is served and in For Juridical persons, the request must be
publication of such summons accompanied with board resolutions and or
secretary’s certificate showing the request to be
After trial, and the balance is determined to be
fully authorized to transact with the BTr.
unclaimed, a judgment to escheat is given
Approving Authority to Reactivate Balances:
Division Chief or Head of Law and Litigation
Unclaimed balances are deposited with the Division Legal Service – not exceeding P100,000
treasurer of the PH, used by Congress Director, Legal Service – P101,000 – P500,000
Deputy Treasurer of the PH – P500k to P1M
Treasurer of the PH – All balances exceeding P1M
Philippine Deposit Insurance Commission Act
The PDIC is established to act as:
• Deposit Insurer
• Co-regulator of Banks – a Bank Police, so to speak
• Receiver and Liquidator of Closed Banks
Insured Deposits – The amount due to any bona fide depositor for legitimate deposits in an insured bank,
net of any obligation of the depositor to the insured bank as of the date of closure; not exceeding
P500,000.00. Examples of Insured Deposits included savings deposits, special savings, demand or checking
accounts, negotiable order of withdrawal, certificate of time deposits, and foreign currency deposits.
The law apparently only insures those deposit liabilities of entities engaged in the business of
receiving deposits.
Adjustment of Maximum Deposit Insurance – this is allowed provided, that the BSP determines there is
a condition that threatens monetary and financial stability of the banking system; there is a unanimous
approval of all the directors of the PDIC in a meeting called and chaired by the Finance Secretary; and
an Approval by the president of the Philippines
Accounts Not Covered by Deposit Insurance
1. Deposit Products that result from Splitting of Deposits
a. A deposit with an outstanding balance of more than P500,000 of persons or entities who
have no beneficial ownership in the transferred deposits
b. Done within 120 days immediately preceding or during a bank-declared holiday for
immediately preceding a closure issued by the BSP
c. Split for the purpose of availing the maximum deposit insurance
d. This is a crime punishable by imprisonment of not less than 6 years but not more than 12
years; or a fine of not less than P50,000 but not more than P10,000,000 or both the
court’s option
2. Deposit placements by the head office of a foreign bank in its Philippine branch (there is only
one foreign entity)
3. Deposits determined to be the proceeds of unlawful activities under the AMLA
4. Deposits Payable in a place outside the Philippines
5. Deposit accounts which are unfunded and are fictitious or fraudulent
6. Deposits proceeding from unsound banking practices determined by the PDIC
7. Investment products
Determination of the Amount Due
• There shall be a maximum insurance on a per bank basis.
• Each depositor is allowed in their personal capacity the maximum insurance.
o This means that a depositor owning multiple accounts in a single bank has his deposits
consolidated into one, securing only until P500,000.00
o By Accounts – X by Y; X is the Depositor
o ITF Accounts (In trust for) X ITF Y; Y is the Depositor
o FAO Accounts (For the Account of) X FAO Y; Y is the Depositor
• Joint Accounts are insured separately from any individually owned deposit account (and, or,
and/or)
o Both Naturals or Both Juridical persons; the Balance & Insurance applicable is divided
o Natural and Juridical; the balance and the insurance apply to the juridical person
This means that the insurance for having personal accounts along with joint accounts increase the deposit
insurance to P1,000,000 for each person having the same arrangement with the bank.
Procedure for the PDIC
• Determination of insured deposits commences upon the actual takeover of the closed bank
• The PDIC gives notices to the depositors of the closed bank of the insured deposits due to them
• This notice is published once a week for at least 3 consecutive weeks in a newspaper of general
circulation
Other Rules:
• No holder of certificates of deposits are recognized as depositor entitled to the rights in PDIC
Act unless his name is registered as the owner or holder in the books of the issuing bank.
• Claims are filed during the claims settlement operations period, as announced in the notice
issued.
Those required to file claims are as follows:
• Depositors with valid deposit accounts with balances of more than P100,000.00
• Depositors who have outstanding obligations with the closed bank regardless of deposit amounts
• Depositors with accounts of less than P100,000 who have no updated addresses in the bank
records or who have not updated their addresses through the Mailing address update form issued
by the PDIC
• Depositors who maintain their accounts under the name of business entities, regardless of type
of account or balance
• Depositors with accounts not eligible for early payment, regardless of type of account and
account balance
Those not required to file claims:
• Depositors with valid deposit accounts with balances of P100,000 and below are not required to
file claims provided they have no obligations with the closed bank, and have complete and
updated addresses in the bank records, or in the MAUF issued by the PDIC. Update of address
may be done before the start of the onsite claims settlement operations
Who should sign the insurance claim?
• Depositor himself – 18 y/o and above
• Parent if the depositor is a minor
• Agent in case of ‘By’ accounts
• Trustee in case of ‘ITF’ Accounts
• Each depositor for joint accounts
Takeover Period
The depositors have a period of 2 years from the actual takeover of the bank to file a claim, and
another 2 years to enforce the same claim. As such, the PDIC may require proof of claims to be filed
before paying the deposits.
If the depositor fails to file or enforce the claim within their 2-year periods, all their rights against the
PDIC will be barred by prescription, all rights against the closed bank will revert to the depositor (since
the PDIC is subrogated the rights of the depositor in the said periods above), and as such, the depositor
loses any claim, and shall discharge PDIC from any liability to the depositor’s insured deposit.
The Deposit insurance may be settled by cash or by transfer of deposits.
In the meantime, the PDIC may withhold payment on such portion of the insured deposit which is not
offset to obligations.
Preferences
All payments by the PDIC of insured deposits will partake in the nature of public funds, and as such, must
be considered a preferred credit similar to taxes due to the government.
The PDIC has a period of 6 months to settle the claim. Failure to settle the claim within the period
shall make the employee or officer of the PDIC be imposed a punishment of imprisonment for 6 months
to 1 year. The 6-month period shall not apply if the validity of the claim requires the resolution of issues
of facts and or law by another office, body, or agency.
Uninsured Claim
• If the closed bank is not rehabilitated or taken over, the amount is claimable thru final liquidation
of the remaining assets of the closed bank after those of preferred credit.
• Depositors > External Creditors
Truth in Lending Act

An act requiring the disclosure of finance charges in connection with the extension of credit. What is the
policy behind the Truth in Lending Act? The declared policy behind the law is to protect the people from
lack of awareness of the true cost of credit by assuring full disclosure of such cost, with a view of
preventing the uninformed use of credit to the detriment of the national economy.
The Board (Monetary Board of the BSP) shall prescribe such rules and regulations as may be necessary or
proper in carrying out the provisions of this Act.
Scope and Coverage

The law covers any creditor, which is defined as any person engaged in the business of extending credit
(including any person who as a regular business practice make loans or sells or rents property or services
on a time, credit, or installment basis, either as principal or as agent) who requires as an incident to the
extension of credit, the payment of a finance charge.
Effect on Obligation in Case of Violations

• Any creditor who violates the law is liable in the amount of P100 or in an amount equal to twice
the finance charged required by such creditor in connection with such transaction, whichever is
the greater, except that such liability shall not exceed P2,000 on any credit transaction. The
action must be brought within one year from the date of the occurrence of the violation.
• The creditor is also liable for reasonable attorney’s fees and court costs as determined by the
court.
Any person who willfully violates any provision of this law or any regulation issued thereunder shall
be fined by not less than P1,00 or more than P5,000 or imprisonment of not less than 6 months, nor
more than one year or both. However, no punishment or penalty under this law shall apply to the
Philippine Government or any agency or any political subdivision thereof.
Anti-Money Laundering Act

Money Laundering – A crime committed by any person knowing that any monetary instrument or property
represents, involves, or relates to the proceeds of any unlawful activity. It involves:
• Transactions or attempts to transact on ‘dirty money’
• Converts, transfers, disposes of, moves, acquires, possesses, or uses dirty money
• Conceals or disguises the true nature, source, location, disposition, movement, or ownership of
or rights to dirty money
• Attempts or conspires to commit money laundering
• Aids, abets, assists in or counsels the commission of money laundering
• Performs or fails to perform any act as a result of which he facilitates money laundering
• Those committed by failure to report to the AMLC by any covered person knowing that a covered
or suspicious transaction is required under the AMLL to be reported thereto.
Stages of Money Laundering
• Placement – an injection of dirty money into a legitimate financial institution
• Layering – involves sending money through various financial transactions to change its form and
make it more difficult to trace
• Integration – at this stage, the money reenters the mainstream economy in legitimate-looking
form, appearing to have come from a legitimate transaction
Unlawful Activities – Unlawful activities on money laundering will always involve the above three stages.
In a nutshell, any money proceeding from illegal acts and the attempt to collect and conceal the same,
will constitute money laundering. A simplified exhaustive list is provided:
1. Kidnapping for ransom
2. Some violations of the Comprehensive Dangerous Drugs Act
3. Some violations of the Anti-Graft and Corrupt Practices Act
4. Plunder
5. Robbery and Extortion (although the robbery must include violence and intimidation)
6. Jueteng and Masiao
7. Piracy on the high seas
8. Qualified Theft (theft of coconuts, fish, mail matter, vehicle or cattle, with abuse of
confidence)
9. Swindling or Estafa
10. Smuggling
11. Violations of the E-commerce act
12. Hijacking
13. Destructive arson and murder
14. Terrorism and conspiracy to commit terrorism
15. Financing Terrorism
16. Bribery and corruption of public officers
17. Frauds and Illegal exactions and transactions
18. Malversation of Public Funds and Property
19. Forgery and counterfeiting
20. Tax Evasion in excess of P25M per taxable year; involving fraud (AMLC cannot freeze BIR proceeds)
21. Human Trafficking
22. Violations of the following codes or acts:
a. Revised Forestry Code, Fisheries Coad, the Mining Act, Wildlife Resources Conservation
and Protection Act, National Caves and Cave Resources Management Act,
b. Carnapping Act, Illegal Possession Manufacture, Dealing, Acquisition or Disposition of
Firearms, Ammunition and Explosives; the Anti-fencing Law
c. The Migrant Workers’ Act, the Intellectual Property Code, Anti- Photo Video Voyeurism
Act, Anti- Child Pornography act, Special Protection of Children Against Abuse, the SRC
and violations in the penal laws of other countries of similar nature
Covered Entities
These are entities that are required to disclose and report on the various covered and suspicious
transactions under their administration.
1. Banks, OBUs, Quasi-banks, trusts, loan associations, pawnshops, etc. regulated by BSP
2. Other entities administering or otherwise dealing in currency, commodities, or financial
derivatives supervised & regulated by the SEC
3. Insurance companies, agents, brokers, etc. regulated by the Insurance Commission
4. Securities Dealers, brokers, etc.
5. Mutual Funds
6. Jewelry, precious metals and stones dealers that trade in transactions exceeding P1,000,000.00
7. Land Registration Authority and all of its Register of Deeds on all Real Estate Transactions
Exceeding P500,000.00
8. Foreign Exchange Corporations, money changers, money payment remittance, etc.
9. Casinos including internet and ship-based casinos with respect to their casino cash transactions
10. Company services providers to 3rd parties including CPAs and Lawyers (The CPAs and Lawyers are
employees of the companies)
11. Person providing advisory services and trusteeship including CPAs and Lawyers
Lawyers and accountants are not covered entities if they are in independent practice of profession.
Obligations of Covered Entities
KYC or Know Your Client or Customer Programs – Covered institutions shall establish and record the
true identity of its clients based on official documents through:
• Face-to-face Contact at the commencement of the relationship as reasonably practicable
• Minimum Customer Information and Identification Documents:
o Name, date and place of birth, name of beneficial owner if applicable, name of
beneficiary, present address, permanent addresses, contact information, nationality,
specimen signatures or biometrics, nature of work and name of employer or nature of
self-employment, sources of funds or property, TIN SSS, GSIS numbers if applicable
• Prohibited Accounts
o Anonymous Accounts and those under Fictitious names
o Numbered accounts (Accounts are merely identified by a number key) except non-
checking numbered accounts
Record Keeping – All records of transactions of covered transactions shall be maintained and safely
stored for 5 years form the date of the transactions
Safe Harbor Provisions – no administrative, criminal, or civil proceedings against covered persons are
done if the acts are in the regular performance of duties in good faith whether or not such results in
criminal prosecution under Philippine Laws
• Covered Transactions – reported to the AMLC within 5 working days from the occurrence or a
period not exceeding 15 working days
o These are transactions in cash or its equivalents involving an amount in excess of
P500,000 in a single day; for jewelers P1M; for Casinos, this is in EXCESS of P5M; Real
Estate Brokers in single cash transactions in excess of P7.5M
• Suspicious Transactions – reported within the next working day from the occurrence thereof
(this is the time the transaction is determined suspicious)
o Regardless of the amount involved, the transaction has no underlying trade or legal
obligations, purpose, or justification
o The Client is not properly identified or the transaction is related to an unlawful activity
o The amount is not commensurate with the business or the financial capacity of the client
or deviates from the profile of the client and his transactions
o The transaction is structured to avoid being subject of report requirements
o The transaction is related to unlawful activities
The Anti-Money Laundering Council

It is composed of:
• The BSP Governor as the Chairman of the Council
• The Commissioner of the Insurance Commission and the Chairman of the SEC as Members
Functions:
• To require and receive covered transaction reports from covered institutions
• To issue orders addressed to the appropriate supervising authority or instrument or property
subject of a covered transaction report or request for assistance from a foreign state, or believed
by the council on substantial evidence, to be proceeding from an unlawful activity
• Institute civil forfeiture proceedings and all other remedial proceedings through the Solicitor
General
• To cause the filing of complaints with the DOJ or Ombudsman for prosecution of money
laundering offenses
• To initiate investigations of covered transactions, money laundering activities and other
violations of RA 9160.
• TO freeze any monetary instrument or property alleged to be proceeds of any unlawful activity
• TO implement such measures as may be necessary and justified under RA 9160
• To receive and take action in respect of, any request from foreign states for assistance in their
own AML Operations
• To develop educational programs on the pernicious effects of money laundering, the methods
and techniques of money laundering, the viable means of preventing the act and effective ways
of prosecuting and punishing offenders
• To enlist the assistance of any branch, department, bureau, office, agency, or instrumentality
of the government, including GOCCs, in undertaking any and all AML operations including use of
personnel and facilities
• To Impose administrative sanctions
Freezing Money and Properties – the Court of Appeals, upon application ex parte by the AMLC, and after
determination of probable cause that exists; a freeze order may be issued effective immediately for a
period of 20 days unless extended by the court upon application by the AMLC. This includes the
Related Web of Accounts that the AMLC and the court finds with probable cause to be linked with the
unlawful activity.
Authority to inquire into Bank Deposits: Generally, the AMLC may inquire into deposits only upon
court order when there is probable cause that the deposits are related to the crime or unlawful
activities; here are the cases where the court order is not necessary:
• Kidnapping for Ransom
• Violations of the Dangerous Drugs Act
• Hijacking
• Destructive Arson and Murder
• Felonies or offenses punishable in foreign penal laws in the same nature of those mentioned in
the AMLA
• Terrorism and conspiracy to commit terrorism
• Financing of Terrorism
Inquiry of deposits may be availed of even in the absence of a pre-existing criminal case; the order
authorizing the bank inquiry cannot be issued ex parte. (Motion granted without awaiting response of the
other party)
On Civil Forfeiture – upon determination of existing probable cause, the AMLC shall file with the RTC
through the Solicitor General, a verified petition for Civil Forfeiture. No prior criminal charge, pendency
of or conviction for a money laundering offense is necessary. Upon conviction however, the court shall
issue a forfeiture in favor of the government with respect to the monetary instrument or property.
Title XII: Intellectual Property Laws

Law on Trademarks
Marks – Any visible sign capable of distinguishing the goods (trademark) or services (service marks) of an
enterprise and shall include a stamped or marked container of goods.
Collective Marks – any visible sign that stands for a collection of products or services under the registered
owner of the collective mark. It specifically distinguishes the origin or any other common characteristic
of those goods or services.
Tradename – the name or designation identifying or distinguishing the enterprise
Non-registrable Marks
• Immoral, deceptive, and scandalous marks that disparage or falsely suggest a connection with
anyone.
• Consists of the Flag or Coat of Arms or other insignia of the Philippines or of any foreign nation
• Consists of a name, portrait or signature identifying a living individual;
• Any mark identical with a registered mark
o Colorable Imitations – a close imitation calculated to deceive ordinary persons
• Is identical or confusingly similar to or constitutions a translation of a mark considered to be
well-known internationally; or registered in the Philippines
• Likely to mislead the public
• Consists exclusively of signs that become customary or usual to designate in everyday language
• Consists exclusively of signs that may serve in trade to designate
• Consists of shapes that may be necessitated by technical factors or by nature of goods themselves
or factors that affect intrinsic value
• Consists of color alone, unless defined by a given form
• Contrary to public order or morality
Generally, these non-registrable marks are either: too general, already registered, or are inappropriate.
Kinds of Terms
• Generic Terms – constitutes a common descriptive name of an article or substance; these are
too generic and natural for a thing to be allowed protection for exclusive use.
o E.g., the term ‘book’ cannot be exclusively owned.
• Descriptive Terms – conveys the characteristics, functions, qualities or ingredients of a product
to one who has never seen it and does not know what it is. These are terms that are intuited by
the user and are quite literally, the descriptions over a thing which cannot be protected as a
trademark.
o E.g., the term computer used to refer to a woman who did complex computations in
research. It now refers to the electronic device used today.
• Suggestive Terms – requires imagination thought and perception to reach a conclusion as to the
nature of the goods. There is an element of incongruity in terms of the thing and the mark that
represents it; in this case, the mark can be protected for exclusive use.
o Doctrine of Secondary Meaning – a word or phrase originally incapable of exclusive
appropriation with reference to an article in the market; however, because of
longstanding and exclusive use by one producer, the descriptive term is now used in
reference to his goods, the descriptive term become suggestive, and thus, are able to be
protected by the law.
o E.g., ‘Apple’ is a tech brand offering a suggestive meaning, although are actually generic.
Claims over Marks
Rights over a mark is acquired through registration.
The Certificate of Registration – is prima facie evidence of the validity of registration, the registrant’s
ownership of the mark, and the registrant’s exclusive right to use the same in connection with the goods
or services and those that are related thereto specified in the certificate
The Priority Claim – a local application of a trademark that was earlier filed for application abroad.
• It is filed within 6 months from filing the foreign application (a.k.a. priority application)
• The certified copy of priority application is issued within 3 months from filing date
• Failure to file is treated as a waiver of priority claim
Duration of Protection and Rights – Trademarks are valid 10 years from the registration, and are allowed
to be renewed for an additional 10 years upon payment of a prescribed fee, and upon filing a request at
any time within 6 months before expiration or within 6 months after expiration only upon payment of an
additional fee;
Declaration of Actual Use – represents the actual use of the trademark; as such, it shall be filed:
1. Within 3 years from filing date of application; extendible for another 6 months, otherwise it shall
be deemed an abandonment of the application
2. Alongside the prior Declaration, another must be made within 1 year from the 5 th anniversary of
the mark’s registration; otherwise, the mark shall be removed from the register by office
3. Finally, within 1 year from the date of renewal of the trademark registration.
4. Non-compliance will render the mark’s registration as cancelled or the application abandoned
Rights Conferred
• The owner of the mark has the exclusive right to prevent all third parties not having the owner’s
consent from using in the course of trade, identical or similar signs or containers for goods or
services which are identical or similar to those in respect of which the trademark is registered.
• Identical signs and use thereof, will lend the original mark a defense of confusion that is
presumed
• Theory of Dilution (Rights of an owner of a well-known mark) – the exclusive right shall extend
to goods and services which are not similar to those in respect of which the mark is registered in
the Philippines. (A manufacturer for gasoline and a manufacturer for hair products hold similar
marks) In this case, the exclusive right extends only if
o Use of the mark indicates a connection between the goods/services with the owner
o The interests of the owner are likely to be damaged (the association lends poor image)
o Registration of the mark does not confer on the registered owner the right to preclude
third parties from using bona fide information on their goods or services provided that
the use is confined to be the purposes of mere identification and cannot mislead the
public as to the source of the goods or services
Assignment and Transfer – must be recorded at the Office on Payment of the prescribed fees, assignment
and transfers of applications for registration shall on payment, be provisionally recorded, and the mark,
shall be in the name of the assignee or transferee.
• These have no effect against any third parties unless they are recorded at the Office
Cancellation of Registration – a petition to cancel a registration may be filed with the Bureau of Legal
Affairs by any person who believes that his is or will be damaged by the registration of the mark.
• The appeal must be done within 5 years from the date of the registration of the mark
• Except if: at any time, the owner with no legitimate reason fails to declare use or use the mark
within the Philippines
• The owner causes it to be used in the Philippines by virtue of a license during an uninterrupted
period of 3 years or longer
• At any time, if the registered mark becomes the generic name of goods or services
• In any action to enforce the mark, notwithstanding the foregoing
Trademark Infringement
• The mark is infringed when the mark is used or is intended for use in commerce without the
consent of the owner, and the use/reproduction/counterfeit/copy/colorable imitation likely
leads to confusion or mistake; or is deceptive.
Tests to determine infringement:
• The Holistic Test or Totality Test – judging trademarks as a whole, without dissecting its parts
• Dominancy test – judging the trademark based on the dominant features of the trademark
• In both, the intuition of an ordinary buyer is taken into consideration
Remedies for trademark owner:

1. Recovery of damages based on reasonable profits lost had the party not been a victim of
infringement; or a percentage based on gross sales if the damages cannot be ascertained
reasonably. This may be doubled in cases where there is an actual intent to mislead the public
or to defraud.
2. Seek Injunction (A restraining order to exercise use of rights)
3. Seek the Destruction of Infringing Materials without compensation
Prior User in Good Faith – a registered mark shall have no effect against any person who, in good faith,
before the filing date or the priority date, was using the mark for purposes of his business or enterprise.
Provided, that his right may only be transferred or assigned together with his enterprise, or business or
with that part of his enterprise or business in which the mark is used.
Unfair Competition
• Any person who in selling, gives them the general appearance of goods of another manufacturer or
dealer which would likely influence and deceive the public and defraud another of his legitimate trade.
• Any person who by any artifice, or device, employs any other calculated means to induce the false
belief that such person is offering the services of another who has identified such services in the mind
of the public
• Any person who shall make any false statement in the course or trade to discredit the business of
another
Unfair competition is broader than trademark infringement and includes the passing of goods with or
without trademark infringement. There can be one without the other.
Trademark Infringement Unfair Competition
Registration is required No registration necessary
No Fraud is required There is Fraud and a Passing-off element
Likely to confuse people The Sale is required
Penalty: Imprisonment for 2-5 years, a Fine of P50,000.00 to P200,000.00 or both
Law on Copyrights
Copyright – the right of literary property as recognized and sanctioned by positive law. It is an intangible,
incorporeal right granted by statute to the author or originator of certain literary or artistic productions,
whereby he is invested, for a specific period, with the sole and exclusive privilege of multiplying copies
of the same and publishing and selling them.
Author – the natural person who created the work
Collective Work – Created by more than 1 author; at the initiative of one, and under the direction of
another with the understanding that it will be disclosed by the latter under his own name and that
contributing natural persons will not be identified
Communicating with the Public
• Broadcasting, rebroadcasting, retransmitting by cable, satellite, or by wireless means
Public Lending – transfer of possession of the original or a copy of a work or sound recording for a limited
period, for non-profit purposes, by an institution the services of which are available to the public, such
as public libraries or archives
Published Works – works with the consent of the authors, are made available to the public by wire or
wireless means in such a way that members of the public may access these works from a place and time
individually chosen by them: Provided that availability of such copies has been such, as to satisfy the
reasonable requirements of the public, having regard to the nature of the work
Original Works
1. Books, pamphlets, articles and other writings
2. Periodicals and newspapers
3. Lectures, sermons, addresses, dissertations prepared for oral delivery, whether or not reduced in
writing or other material forms
4. Letters
5. Dramatic or dramatico-musical compositions; choreographic works or entertainment in dumb shows
6. Musical compositions with or without words
7. Works of drawing, painting, architecture, sculpture, engraving, lithography or other works of art;
models for articles of manufacture, whether or not registrable as an industrial design, other works
of applied art
8. Original ornamental designs or models for articles of manufacture, whether or not registrable as an
industrial design, and other works of applied art
9. Illustrations, maps, plans, sketches, charts and three-dimensional works relative to geography,
topography, architecture or science
10. Drawings or plastic works of a scientific or technical character
11. Photographic works including works produced by processes analogous to photography, lantern slides
12. Audiovisual works and cinematographic works and work produced by a process analogous to
cinematography or any process for making audio-visual recordings
13. Pictorial illustrations and advertisements
14. Computer programs
15. Other literary, scholarly, scientific, and artistic works.
Protection commences from the moment of creation, irrespective of the mode or form of expression,
as well as the content, quality or purpose.
Derivative Works – are works that derive value from original works. The law regards the following
derivative works as protected by copyright as new works, provided that these do not affect the force of
any subsisting copyright over the original or parts thereof.
• Dramatizations, translations, adaptations, abridgments, arrangements, and other alterations of
literary or artistic works; and
• Collections of literary, scholarly or artistic works, and compilations of data and other materials
which are original by reason of the selection or coordination or arrangement of their contents.
Rights of the Publisher – In addition to the right to publish granted by the author, his heirs or assigns,
the publisher shall have a copyright consisting merely of the right of reproduction of the typographical
arrangement of the published edition of the work.
• Reproduction is the making of one or more copies of a work or a sound recording in any
manner/form.
Works not Protected:
1. Ideas 6. Discoveries
2. Procedures 7. Mere data, even if expressed, explained, illustrated, or
3. System Methods or Operations embodied in a work
4. Concepts 8. News of the day and other miscellaneous facts having the
5. Principles character of mere items of press info
9. Any official text of a legislative, administrative or legal
nature, as well as any official translation
Works of the Government – no copyright subsists in any government work; prior approval for rights for
royalties however, is allowed for the office’s need for profit.
• No prior approval or conditions are required for the use of any purpose of:
o Statutes, Rules and Regulations,
o Speeches, lectures, sermons, addresses, dissertations pronounced, read or rendered in
courts of justice, before administrative agencies, in deliberative assemblies and in
meetings of public character; however, the author thereof holds an exclusive right to
the collections of such
The government is not precluded from receiving or holding copyrights assigned to it inter-vivos or mortis
causa. The assignment cannot be construed to cause an annulment of original right of author.
Rights of the Author
Economic Rights
• Dramatization, translation, adaptation, • Public Performance
abridgment, arrangement or other • Other Communication
transformation of the work • Reproduction
• The first public distribution • Rental
• Public Display
Ownership of the Copyright

Work Owner
Original works Author
Joint Authorship Generally, governed by co-ownership
Except if the parts can be specifically attributed
Works on Employment Employee if not within scope of duty
Employer if within scope of duty
Commissioned Work Copyright belongs to creator
Ownership of thing to commissioner
Audiovisual work The producer, author of the scenario, composer of the music, film
director, author of the work adapted; the producers can exercise
copyrights required for exhibition of the work; except collecting license
fees
Letter Writer
Anonymous or Generally, the publisher absent the consent of the pseudonymous
Pseudonymous works author; except if the author can be identified
Transfer and Assignment of Copyrights – The copyright may be assigned in whole or in part inter-vivos
only if there is a written indication of such intention.
• The submission of a literary, photographic, or artistic work to a newspaper, magazine, or
periodical for publication shall constitute only a license to make a single publication unless a
greater right is expressly granted
• Rights of the Assignee – within the scope of the assignment only; but generally, this includes all
the rights and remedies that the assignor already possesses
• Co-owned work: if two or more persons jointly own a copyright, neither shall be entitled to grant
licenses without the prior written consent of the other owners
• Copyright and the Material Object – the copyright is distinct from the object. The transfer of the
copyright does not mean the transfer of the object and vice versa.
• Filing of assignment of licenses – may be filed with the National Library upon payment of the
prescribed fee for registration. Upon record, a copy of the instrument shall be returned to the
sender with annotation of recording. It shall be published in the IPO Gazette
• Designation of Society – The owners of copyright and related rights or their heirs may designate
a society of artists, writers, etc. to collectively manage their economic or moral rights on their
behalf. Whoever first secures the accreditation from the IPO (Intellectual Property Office) gets
the designation
Limitations of Copyright
These are not construed as Infringement:
1. Transcribing works for the blind, visually-impaired, and reading-impaired persons if done on a non-
profit basis and indicating the copyright owner thereof
2. Recitation or performance of a work that is done privately and free of charge; for religious or
charitable contributions
3. Making quotations from a public work under the fair use doctrine, mentioning the author
4. Reproduction by mass media on news; indicating the sources for information
5. Reproduction and communication to the public of literary, scientific, or artistic work as part of
reports on current events
6. Inclusion of a work made by way of illustration for teaching purposes and is compatible with fair use
and the author is named
7. Recordings made in schools, provided that such recordings are deleted within a reasonable period
after broadcast further these works may not be made from audiovisual works being part of general
cinema
8. Making ephemeral recordings by a broadcasting organization by means of its own facilities
9. Use of work made by the National Government under its direction and control
10. Public performance where no admission fee is charged; for charity and education
11. Public display of the original copy of the work not made by means of a film, slide, television image,
etc.
12. Any use made of a work for the purpose of any judicial proceedings or for the giving of professional
advice
The above shall be interpreted in such a way as to allow the work to be used in a manner which does not
conflict with the normal exploitation of the work and does not unreasonably prejudice the right holder’s
legitimate interest.
Fair Use Doctrine
The fair use of a copyrighted work, published or not, for criticism, comment, news reporting, teaching
including limited number of copies for the classroom use, scholarship, research, and similar purposes is
not an infringement of copyright. Fair Use includes consideration of these factors:
• Purpose and character of use
• Nature of copyrighted work
• Amount and substantiality of the portion used in relation to the copyrighted work as a whole
• Effect of the use upon potential markets for or value of the copyrighted work
Works of Architecture: includes the right to control the erection of any building which reproduces the
whole or a substantial part of the work either in its original form or in any form recognizably derived
from the original; provided that the copyright in any such work shall not include the right to control the
reconstruction or rehabilitation in the same style as the original.
Reproduction of Published Work:
1. Only a Single Copy – permitted without authorization of the owner where:
a. The reproduction is by a natural person
b. Exclusively for research and private study
c. Except: the permission does not extend to:
i. A work of architecture
ii. An entire book or a substantial part thereof
iii. A compilation of data and other materials
iv. Any work in cases where reproduction would conflict with normal exploitation of
work or would prejudice the rights of the legitimate author
v. A computer program (A backup copy or adaptation by the owner is allowed for
reproduction that is necessary for continuing use and archival purposes)
2. Reproduction by Libraries – any library or archive whose activities are not for profit may,
without the authorization of the author of copyright owner, make a single copy of the work:
a. Work by reason of its fragile character or rarity cannot be lent to the user in its original
form
b. The works are isolated articles contained in composite works or brief portions of other
published works and the reproduction is necessary to supply them in expedience
c. Where the making of limited copies is in order to preserve the lost and destroyed original
copies.
It is not permissible to produce a volume of a work published in several volumes or to produce
missing tomes or pages of magazines or similar works unless such works are out of stock.
Moral Rights
The author has moral rights independent of his economic rights.
• To require that the authorship of the works be attributed to him: his name must be indicated in
a prominent way on the copies of his work
• To make any alterations of his work prior to, or to withhold it from publication
• To object any distortions, mutilations or other modifications of, etc. prejudicial to his reputation
• To restrain the use of his name with respect to any work not of his own creation
Waiver of Moral Rights: An author may waive his rights in a written instrument; the waiver is not valid if
the waiver is used to:
• To use the name of the author, or title of his work, or otherwise to make of his reputation with
respect to any version or adaptation of his work, that because of alterations, would injure the
name of another author
• Attribute the name of the author with respect to a work he did not create
Contribution to a Collective Work: When an author contributes to a collective work, his right to have his
contribution attributed to him is deemed waived unless he expressly reserves it.
Moral Rights of the Author shall last during his lifetime plus 50 years after his death (the 50 years counting
from the first day following the year of death); the same author is named in writing to be filed with the
National Library. In default, the enforcement falls upon the author’s heirs, and in default of heirs, the
Director of the National Library.
Rights to Proceeds in Subsequent Transfers: In every sale or lease of an original work, subsequent to the
first disposition thereof by the author, the author or his heirs shall have an inalienable right to participate
in the gross proceeds of the sale or lease to the extent of 5%. This is a moral right that the author is
entitled to.
• This does not apply to prints, etchings, engravings, works of applied art, or works of similar kinds
wherein the author primarily derives gain from proceeds of reproductions.
Terms of Protections
Generally, During the life of the author and for 50 years after his death (likewise applying
to post-humous work)
Joint Authorship The economic rights are protected during the lifetime of the last surviving author
and for 50 years thereafter
Anonymous or 50 years from the date which the work was first lawfully published: provided
Pseudonymous that before the expiration of the said period, the author’s identity is reveal. If
work such works have not been published, the 50 years count from the date of the
making
Works of Applied 25 Years from making the art
art
Photographic 50 years from publication and if unpublished, 50 years from making
Works
Audio-visual works 50 years from publication and if unpublished, 50 years from making
Performers and Not incorporated in recordings – 50 years from end of the year the performance
Producers of Sound took place
recordings Incorporated in recordings – 50 years from the end of the year the performance
took place
Broadcasts 20 years from the date the broadcast took place.
The term of protection subsequent to the death of the author shall run from the date of his death or of
publication, but such terms shall always be deemed to begin on the first day of January of the year
following the event which gave rise to them.
Copyright Infringement
• Directly commits infringements
• Benefits of the infringing activity of another person who commits an infringement if the person
benefitting has been giving notice of the infringing activity has the right and ability to control
the activities of the other person
• With knowledge of infringing activity induces, causes or materially contributes to the infringing
conduct of another.
Law on Patents
Patent – the grant issued by the government to an inventor, designer, or maker, the right to exclude
others from making, using, or selling his invention, design or utility model within the country for a specific
term, in exchange of his patentable disclosure.
Utility Model – a protection option, which is designed to protect innovations that are not sufficiently
inventive to meet the inventiveness threshold require for standard application of patents. Generally, any
useful machine or tool of practical utility, novelty, and industrial capability – entitled to 7 years of
protection from the date of filing with no possibility of renewal
Industrial Design – any composition of lines or colors or any 3D form. The composition gives a special
appearance to and can serve as a pattern for an industrial product or handicraft. It shall be valid for 5
years from filing date of the application; renewable for 2 consecutive periods of 5 years each by paying
a renewal fee.
Types of Patents Requisites

Invention Patents Novelty, Inventive Step, Industrial Applicability
Design Patents Novelty and Ornamentality
Utility Patents Novelty and Industrial Applicability
Patentable Inventions – Any technical solution of a problem in any field of human activity which is new,
involves an inventive step and is industrially applicable is patentable.
Non-patentable Inventions
• Discoveries, scientific theories and mathematical methods
• Schemes, rules and methods of performing mental acts, games, or doing business. And programs
for computers
• Methods for treatment of the human or animal body by surgery or therapy and diagnostic methods
practiced on the human or animal body.
• Plant Varieties or animal breeds or essentially biological processes for the production of plants
or animals. It does not apply to microorganisms and any biological or non-biological processes.
This does not preclude Congress to consider the enactment of a law providing sui generis protection of
plant varieties and animal breeds and a system of community intellectual rights protection
• Aesthetic creations
• Anything contrary to public order or morality
Elements of an Invention Patent:
• Novelty - Is not part or forms part of a prior art (anything already made or covered in an earlier
application for patent)
o Non-prejudicial disclosure – information disclosed in application during 12 months
preceding the filing date or the priority date does not prejudice the application on the
ground of novelty
▪ So long as the disclosure was made by the inventor
▪ A patent office made the disclosure, and the information was contained in
another application filed by the same inventor and should not have been
disclosed by the office or an application absent the inventor’s knowledge or
consent by a third party that obtains the information from the inventor (directly
or indirectly)
▪ A third party which obtained the information directly or indirectly from the
inventor
• Inventive Step – An inventive step is anything having regard to a prior art, not obvious to a person
skilled in the art at the time of filing date or priority date of the application claiming the
invention
• Industrial Applicability – An invention that can be produced and used in the industry it is
applicable
Application of Patents
1. Filing date requirements
2. Payment of fees
3. Formal examination
4. Search of prior art

5. 1st publication
a. Done within 18 months from filing, after the publication, any interested party may
inspect the documents; the publication may be prohibited or restricted if it would be
prejudicial to national security or national interest
b. After publication, the applicant acquires the rights of a patentee – i.e., to exclude
anyone from using the invention (if they have actual knowledge or written notice)
c. No action can be filed until the grant of the patent prescribes in 4 years from the
commission
6. Substantive Examination (done within 6 months from the first publication)
7. Publication of the Patent
Contents of the Application
• Request for the grant of the patent
• Description of the invention (sufficiently clear and complete)
• Drawings necessary for the understanding of the invention
• One or more claims over the protection of the patent
• An Abstract (a concise summary of the disclosure of the invention as contained in the description,
claims, and drawings in preferably not more than 150 words)
Unity of Invention – one application is to one invention (group of inventions forming a single general
inventive concept)
Divisional Application – may be allowed if there is more than one invention, either voluntarily or within
4 months from the recommendation of the director.
Grounds for Cancellation
• The invention is not novel or new
• The patent did not disclose the invention in a manner sufficiently clear and complete
• Contrary to public order or morality
Right to a Patent
The right to a patent belongs to the inventor, his heirs, or assigns.;
When 2 or more persons have jointly made an invention, the right to a patent shall belong to them
jointly.
First to file Rule: If two or more persons separately made the same invention, the priority is given to
the one who files first.
Right of Priority – Application made locally when an earlier application is filed abroad
• A claim of priority based on an earlier filing date abroad
• A local application is filed within 12 months from priority date (application date of foreign
application for patent)
• Certified copy of priority application and English translation thereof within 6 months from filing
date.
• The priority date is the date of filing of the Foreign Application for the same invention
Remedies of the Actual Inventor:
• If the application is still pending – he may file a court action to prove that he is the actual
inventor within 1 year from the first publication. Upon declaration of such: the pending
application shall be refused; but a new application is filed, however the filing date retroacts to
the original filing date
• If the patent is already granted – within 1 year from publication of the patent, he can either
o Be substituted as the patentee
o Or Seek cancellation of the granted patent
Commissioned Inventions – the person who commissions the work shall own the patent, unless the
contrary is provided in the contract.
• In case an employee makes the invention in the course of his employment, the patent
belongs to the employee if the inventive activity is not a part of his regular duties even if
the employee uses time, facilities, and materials of the employer
• If the invention is the result of the performance of his regularly-assigned duties, unless
there is an agreement, express or implied to the contrary, the patent belongs the employer
Term of Patent: the term of the Patent shall be 20 years from the date of filing of the application.
Patent Rights
A patent shall confer on its owner the following exclusive rights:
• Where the subject matter of a patent is a product, to restrain, prohibit and prevent unauthorized
persons from making using or offering for sale the product
• Where the subject matter of a patent is a process, to restrain, prevent or prohibit any
unauthorized person or entity from using the process
• The right to assign or transfer by succession
• Right to conclude licensing contracts for the same
Limitation of Patent Rights – the owner of a patent has no right to prevent 3rd parties from performing,
without authorization, acts mentioned above in the following circumstances:
1. Using a patented product which has been put on the market in the PH.
2. Where the act is done privately and on a non-commercial scale or for a non-commercial purpose
(no significant prejudice in economic interests)
3. Where the act consists of making or using exclusively for the purpose of experiments
4. Where the act consists of the preparation of individual case in a pharmacy or by a medical
professional in accord with medical prescription
5. Where the invention is used in any ship, vessel, aircraft, or land vehicle of any other country
entering PH territory temporarily or accidentally (invention is used exclusively for the needs of
the vessel and not for manufacturing)
Prior User – Notwithstanding the exclusivity of rights mentioned above, a prior user in good faith, was
using the invention or has undertaken preparations to use the invention in his enterprise or business,
before the filing date or priority date of the application on which patent is granted, shall have the right
to continue the use thereof within the territory where the patent takes effect.
• The right of the prior business may only be transferred or assigned together with his enterprise
or business, or with part of his enterprise.
Use of Invention by the Government – the government may use an invention without agreement with
the patent owner where:
• The public interest requires
• A judicial or administrative body has determined that the manner of use by the owner is anti-
competitive
Patent Infringement
The making, using, offering for sale, selling, or importing a patented product or a product obtained
directly or indirectly from a patented process, or the use of a patented process without the authorization
of the patentee constitutes patent infringement:
• Literal Infringement
o Exactness Rule – the item that is being sold, made or used conforms exactly to the patent
claim of another
o Addition Rule – one makes, uses or sells an item that has all the elements of the patent
claim of another plus other elements
• Doctrine of Equivalents – with some modifications and changes but are substantially the same:
o The Function, way, means, principle, mode of operation, result
o It requires satisfaction of the function-means- and result test to be a case of infringement;
o The patentee has the burden to show that all three components of such equivalency test
are met.
Remedies of a Patentee
• Civil action to recover damages plus attorney’s fees and other expenses of litigation or
reasonable royalty
• Injunction for the protection of rights
• The court may, in its discretion, order that the infringing goods, materials and implements
predominantly used in the infringement be disposed outside of commerce, without compensation
• Criminal action for Repetition of Infringement: If infringement is repeated by the Infringer or
anyone in connivance with him after final judgement
Penalties for Infringement:

Imprisonment of a period of not less than 6 months but not more than 3 years and or a fine of not less
than P100,000.00 but not more than P300,000.00 at the discretion of the court. The criminal action
herein provided shall prescribe in 3 years from the date of the commission of the crime
Notice to the Infringer: Damages cannot be recovered for acts of the infringement committed before
the infringer had known, or had reasonable grounds to know of the patent.
• A presumption against this notice would be the words placed in the container or packaging
“Philippine Patent” with the patent number
Voluntary Licensing
1. Jurisdiction of dispute – Philippines; the Venue would be the principal place of business of the
patentee
2. Continuous access to improvements in techniques and processes
3. If it includes Arbitration – the venue would be in the Philippines or other neutral countries, and
the following laws are applicable:
a. Arbitration Procedure under the Arbitration law
b. Arbitration Rules of the United Nations Commission on International Trade Law
c. The Rules of Conciliation and Arbitration of the International Chamber of Commerce
4. Taxes shall be borne by the licensor
Compulsory Licensing – the issuance of a license by the director general of the IPO to exploit a patented
invention without the permission of the patent holder, either by manufacture or through parallel
importation. Done on these grounds:
• National Emergency or extreme urgency
• Public interest so requires
• Use of the patent is anti-competitive
• Public non-commercial use without satisfactory reasons
• Invention is not being worked in the Philippines on a Commercial Scale without satisfactory
reasons
• Demand for patented drugs and medicine is not being met to an adequate extent and or
reasonable terms, as determined by the DOH.
Title XIII: Laws of Modern

Commerce
The Data Privacy Act
The Data Privacy Act is an act made to protect data privacy rights of individuals. It establishes the Data
Privacy Commission as well.
Consent of the Data Subject – any freely given, informed indication of will, that agrees to the collection
and processing of personal information about the individual. It is evidenced by written, electronic, or
recorded means. It may also be given in behalf of the data subject by an agent specifically authorized
by the data subject to do so.
The Data Subject – the individual whose personal information is processed
Direct Marketing – communication by whatever means of any advertising or marketing material which is
directed to particular individuals
Filing Systems – any system, electronic or manual, that compiles information and is used to profile
individuals which is readily accessible for use.
Information and Communications Systems – the system that is responsible for digitalizing a filing
system. The filing system is merely a part of the ICT System.
Personal Information Controller – the person who controls the collection, storage, or processing of
personal information; or someone who instructs another to conduct the same in his behalf.
• A person who performs the above functions, but is merely instructed to do so is not the PIC; he
is instead the PIP or Personal information processor (who may or may not be outsourced by the
PIC)
• Any person who processes personal information in connection with his personal affairs
Scope of the Data Privacy Act
It applies to all sorts of personal information relating to any person involved in processing, including
those not found in the Philippines (As long as there is any relation to being Filipino, the DPA applies.)
Non-applicability:
• Information already held out as public such as those details of employment with the Government,
and any discretionary financial benefit from the Government (including performing contracts
therefor)
• Information so crucial to state goals that preserving privacy is tantamount to protecting crime
or superseding public interest (those covered by the AMLA, and those necessary to carry out
authority)
• Information that does not belong under Philippine Jurisdiction (Foreign Residents and Aliens)
• Information processed for journalism, artistry, literature, and research
Protection of Journalists and their Sources: The Data Privacy Act expands the protection of journalists
by explicitly mentioning the right of journalists to be protected from being compelled to reveal the
sources of their news report relayed to them in confidence.
Extraterritorial Application: Applies to any entity that has a link with the Philippines; basically, any
person in contracts with, or is in establishment with the country
The National Privacy Commission
The National Privacy Commission – Has an array of powers. Generally, the NPC holds quasi-judicial
powers that enables a swifter movement of data privacy justice. It has also executive powers that allows
it to act on reports of data privacy breaches, and administrative powers to review and regulate privacy
codes of entities, applying territorial and extraterritorial jurisdiction. It may also enlist government
agencies to pursue its legal mandate. Furthermore, it may also suggest and inform the legislative on
future data privacy statutes.
On Confidentiality – the commission shall ensure at all the times the confidentiality of any personal
information that comes to its knowledge and possession
Organizational Structure – It is an attached agency to the DICT, headed by the Privacy Commissioner.
• The Privacy Commissioner is equivalent in rank to a Secretary
o He must be at least 35 years of age

o Of Good moral character, unquestionable integrity, and of known probity
o A recognized expert
• Assisted by 2 Deputy Commissioners (one for data processing systems, and the other for policy
and planning); equivalent in rank to an Undersecretary
o Must be recognized experts in the field
• Term and Vacancy – All the above are appointed by the President for a term of 3 years, and may
be reappointed for another 3-year term. Vacancies are filled in the original manner of
appointment
• Acts in good faith – All the above are not liable for civil liability in the ordinary course of their
duties, but may be liable for willfully negligent acts and omissions. In case his act is proven
lawful by the courts, he shall by reimbursed by the Commission for reasonable costs of litigation.
• The Secretariat – Majority of the members must have served for at least 5 years in any agency in
the government involved in the processing of personal information.
Processing of Personal Information
The term processing includes, but is not limited to: Collection, Recording, Organization, Storage,
Updating or Modification, Retrieval, Consultation, Use, Consolidation, Blocking, Erasure, or Destruction
of Data.
Principles of Privacy:
• Proportionality – processing is adequate, relevant, suitable, necessary, and not excessive in
relation to a purpose. In other words, details collected cannot be processed for more or less
what is needed
• Legitimate Purpose – A specific purpose grounds the reason for processing the data. It must
simply not be contrary to law, morals, or public policy
• Transparency – The Data Subject must be aware of the nature, purpose and extent of the
processing; aware also of the risks and safeguards involved in disclosing data, as well as their
rights to the data they provide; ALL IN CLEAR AND PLAIN LANGUAGE.
Personal Information – whether recorded or not, this pertains to those of the identity of the individual,
as such it is apparent, reasonably and directly ascertained as attributing to the individual, and upon
consolidation of pieces of information, could only be attributed to the individual. In order for it to be
processed, it must conform to the basic principles of privacy.
• Lawful processing of personal information – upon the grant of consent, a legitimate purpose for
processing the personal information grounds it. (I.e., fulfillment of a contract, compliance with
a legal obligation, protection of vitally important interests, comply with public order and safety,
and other legitimate interests.)
Privileged Information – refers to any form of data which under the Rules of Court, and other laws
constitute as such. These are relationships that, by virtue of statute, have the privilege of being
confidential to only privy parties. (i.e., attorney to client, CPA to client, Doctor-patient, etc.)
Sensitive Personal Information – This information refers to any pieces of further context to an individual,
this means that they paint humanity into the person the information refers to. (i.e., race, ethnicity,
religion, sexual orientation, marital status, age, color, religious or philosophical affiliations, health,
education, sexual life, criminal record, etc.)
• Interestingly, this also includes quite specific information for the purpose of identifying the
individual, such as the TIN, SSS/GSIS/etc. Numbers, health records, licenses and denials thereof,
tax returns, etc.
• Generally, the processing of Sensitive Personal Information is PROHIBITED Except in cases
where:
o The Individual grants his consent
o Processing is provided by laws
▪ That guarantee protection of sensitive and privileged information
▪ Consent is not required
o Processing is necessary to protect the life and health of the person or another relying on
his information (Organ Donors must disclose their lifestyles to be eligible for donation)
o For noncommercial objectives of public organizations (raising tax revenues for instance)
▪ Confined only to them

▪ No 3rd party gains access to it
The Personal Information Controller’s Responsibilities
• Ensure confidentiality of the processed information
• Prevents its use for unauthorized purposes
• Comply with the requirements of the DPA and other laws
In the same breadth, the Personal Information Processor is also responsible for the same, as the PIP is
merely subcontracted by the PIC.
• Personal Information Controllers may invoke the principle of privileged communication over
privileged information that they lawfully control or process. Subject to existing laws and
regulations, any evidence gathered on privileged information is inadmissible (not usable in court)
Rights of the Data Subject
1. Right to Informed Consent – the individual is given the right to be informed of what the processing
of his information entails for him. As such, the process, purpose, and the output of the data must
be explained clearly; furthermore, the data subject must be informed of his rights as being a
data subject.
2. Right to Object the Processing of their Data
3. Right to an Opportunity to Withhold Consent in case of Changes in terms
a. This includes the opportunity to withhold consent upon amendment of information or the
context for which the information will be used (e.g., changes in terms of use policies)
b. As such, due notice must be given
c. Some cases can change terms of use without prior notice such as: those pursuant to
subpoenas, or for other obvious purposes such as changes in employment
4. Right to Access Information Upon Demand
5. Right to Correction (Having access to both the retracted and new information, and a receipt of
change of information to that effect)
6. Right to Erasure (includes blocking, removal, destruction of information) of unauthorized or
unnecessary information (due notice to this effect is given to 3 rd parties relying on the
information)
7. Right to Damages and Indemnity for Damages on incorrect information or misuse thereof
8. Right to Data Portability – the data subject is entitled to a copy of his processed data
Transmissibility of Rights – the lawful heirs may invoke the rights of the data subject after the
death/incapacity of the subject.
Non-applicability of Rights – these rights do not apply for scientific and statistical research under strict
confidentiality.; and for the purpose of investigations relating to criminal, administrative, or tax
liabilities of the subject.
Security of Personal Information
Under the responsibility of the Personal Information Controller, he must implement reasonable measurers
to protect personal information:
• To prevent accidents, unlawful destruction, unauthorized alteration or disclosure, or unlawful
processing
• To establish Internal control to prevent damage from natural disasters or human dangers
• To use the appropriate level of security to further information security of data subjects
The measures must include Safeguards, a Security Policy, a Security Audit Procedure, and Monitoring
Policies
• To ensure that subcontractors ensure the same degree of rigor in protecting data privacy
• To ensure that employees under the him to operate on the information with strict confidentiality
those pieces of information not intended for public disclosure
• To provide due notice to the Commission in the event of a breach of the system
o The nature of the breach is described
o Sensitive and privileged personal information is possibly involved
o The measures taken to contain and address the breach
o The Commission shall nevertheless, qualify the notice taking into account the compliance
of the officer; or exempt them from notifying the Commission where the case involves
public interest; or postpone the notice where it involves a criminal investigation
• A prior period to report breaches that are likely to expose individuals to risk, the processor must
report breaches within 72 hours.
Accountability for Transfer of Personal Information – Each PIC shall be accountable for the transfer of
Personal Information, as such he is also accountable for complying with the requirements of the DPA
• The Data Protection Officer – The controller must designate individuals who are accountable for
the organization’s compliance with the DPA. His identity is made known to any data subject upon
request.
Security of Personal Information in Government Agencies – The head of each agency is responsible for
complying with the DPA, while the Commission must monitor compliance among them.
• On Online Access or On-site Access – no employee can access sensitive records unless they are
given a security clearance from the head of the agency
• Off-site Access - no employee can transport sensitive records to another location outside agency
premises unless the transfer of records is permitted by the head of the agency
o Approval or Disapproval must be given within 2 business days from the submission of the
request; inaction will render the request rejected
▪ Limitation to 1,000 records – approval is limited to access of only until 1,000
records
▪ Encryption is required for off-site access.
• On Government Contractors – if a transaction requires the processing of sensitive information of
1,000 individuals or more, the contractor and its employees are required to register with the
Commission.
Penalties and Crimes
• Concealment of Security breaches involving Sensitive personal information – any person obligated
to notify the commission, intentionally or negligently concealing such breach shall be met with a
penalty of imprisonment of 1.5 years to 5 years, and a fine of P500,000 to P1,000,000
• Malicious Disclosures – Any PIC or PIP or any of its officials, EEs, or agents, with malice and bad faith,
engages in unwarranted disclosure – Imprisonment of 1.5 years to 5 years & a fine of P500,000 to
P1,000,000
• Unauthorized Disclosure – Any PIC or PIP or any of its officials, EEs, or agents, not covered under
Malicious Disclosure shall have the following penalties depending on the information disclosed:
Personal Information Imprisonment 1-3 years, Fine of P500k to P1M
Sensitive Personal Imprisonment 3-5 years, Fine of P500k to P2M
Information
• Unauthorized Processing – any person processing personal information without consent, with or
without authority from the DPA or any existing laws
• Unauthorized Access – any person, due to negligence, provided access to personal information
without being authorized under DPA or any existing laws
Information
• Improper Disposal – any person knowingly or negligently disposes personal information accessible
to the public or has otherwise placed information in a trash collection
Personal Information Imprisonment 6 mos-2 yrs, Fine of P100k to P500k
Information
• Processing for Unauthorized Purposes – processing personal information for purposes not
authorized by the subject.
Information
• Unauthorized Access or Intentional Breach

Information
• Combination or Series of Acts – any combination of the above makes the person subject to
imprisonment of 3 to 6 years and a fine of P1,000,000 to P5,000,000
Extent of Liability
• Juridical Persons – a penalty befalls any responsible persons representing the juridical person;
if the offender is the juridical person, their rights under the DPA are suspended or revoked
• Aliens – they are immediately deported in addition to the above penalties
• Large-scale Offense – the maximum penalty is imposed when at least 100 persons or affected
• Public Official or Employee – in addition to the penalties above, shall suffer perpetual or
temporary absolute disqualification from office as the case may be
• Offense Committed by a Public Officer – an accessory penalty consisting in the disqualification
to occupy public office for a term double the term of criminal penalty is imposed
• Restitutions to any aggrieved party is governed by the New Civil Code
E-Commerce Law
The E-commerce Law is established to allow transactions, coursed electronically, to be as good as any
other formal transaction. It seeks to expedite the flow of transactions between and among business
entities, thus promoting the universal use of electronic transactions.
• It applies to any kind of electronic document used in the context of commercial and non-
commercial activities to include domestic and international dealings, transactions,
arrangements, agreements, contracts, exchanges, and storage of information.
For the purposes of this law,
• Computers – are any device that transmits and receives, stores, processes, and produces
electronic information, exhibiting all or at least one of these processes.
• Originators – person by whom, or whose behalf, the information comes from (generated by)
• Addressee – the person whom the originator intended to send the e-message
• Intermediary – a person who in behalf of another, and with respect to a message, processes
information and provides transmission and other services in respect of the e-message or
document
o Service Providers – Any entity engaged in providing online services or network access;
the necessary technical means by which the e-message is transmitted or made accessible
▪ They have no authority to modify or keep record of the transmitted information
▪ Or to retain or make an entry of the information
• Electronic Data Message – information generated, sent, received, or stored
• Electronic Signature – any distinctive mark, characteristic and or sound in electronic form,
representing the identity of a person
• Electronic Key – a secret code which secures and defends sensitive information
• Electronic Document – information or the representation of such, for which a right is established
or an obligation is extinguished or by which a fact ma be proved and affirmed.
Legal Force of Electronic Documents
Generally, any electronic data or message shall not be denied validity or enforceability based solely on
the ground that it is electronic.
Electronic Documents – remain to be valid and binding as if it were any ordinary written legal document,
so long as:
• The Electronic document remains to be complete and unaltered;
o This requires a reliable assurance as to the integrity of the document
o And the document is capable of being displayed to the person to whom it is presented
• or if altered, the alteration or change is endorsed and authorized
• The document is reliable in light of the purpose for which it was made
Electronic Signatures – Will have the same force as any written authentic signature if:
• Proved by a prescribed procedure, unalterable by the parties that establish the agreement for
which it is required
• A method for attributing the signature to the party exists, is reliable, and is appropriate for the
purpose
• It is necessary to bind the parties
• The other party is authorized and is enabled to verify the signature;
• The force of the e-signature is presumed as valid, to be that of the one it is attributed to, and
is affixed with an intent of signing or approving (except if there is a notice of defect or the
reliance over the signature is in doubt)
Original or Unaltered Documents in Electronic Form – A document is deemed to be in its original form
if:
• The integrity of the information from the time it is finalized is shown by evidence aliunde
(extrinsic to it, for example: editing logs on a file accessible to both parties) or
• It is capable of being displayed to the person to whom it is to be presented
• As an e-document, the rule of its validity is taken into consideration.
Authentication of Electronic Data messages and E-Documents
As the courts have no rules or procedures yet as for admitting electronic evidence, they are authenticated
by:
• Adopting security procedures that properly check the association of the signature with the person
it represents
• An E-data message or E-document shall be authenticated by proof that an appropriate security
procedure was adopted and employed for:
o Verifying the originator
o Detecting error or alteration
• The courts may adopt other authentication procedures such as electronic notarization systems
recognized and duly approved by certification authorities
The burden of proof over the authenticity of an e-document rests with that asserting the same.
In the absence of evidence to the contrary, the integrity of the system from which the data originates
from, may be established in a legal proceeding by evidence that:
• At all material times, the system operates in a manner that does not affect the integrity of the
document
• There are no other reasonable grounds for doubt of integrity
• The e-message or document is recorded/stored by the party who is adverse to the party relying
on it
• By showing that the data was recorded or stored in the usual course by a disinterested 3rd party
Admissibility as Evidence
• It cannot be denied validity by virtue of it being electronic
• On the ground that it is not in standard written form (any message complying with the Legal
Recognition of Electronic Data, Messages and Documents shall be the best evidence of agreement
and transaction)
• The reliability of evidence through electronic means is assessed through the manner in which it
is generated, stored, or communicated, the identity of its originator, and other relevant factors
• On Retention of EDM/EDD – only upon satisfaction of authenticity/originality, accessibility, and
reliability as to integrity; or upon the assurance service of a third party
• Proof by Affidavit – a presumption on the matters on admissibility and on presumption on
integrity is granted by an affidavit given to the best of the deponent’s knowledge, subject to the
rights of the parties in interest as defined in cross-examination
• Cross Examination – A deponent of an affidavit that has been introduced in evidence may be
cross-examined as of right by a party to the proceedings who is adverse in interest to the party
who has introduced the affidavit or has caused the affidavit to be introduced;
o Any party to the proceedings has the right to cross-examine a person who is not a party
to the proceedings; proving that the EDD or EDM was recorded or stored in the usual and
ordinary course of business
o In other words, a cross-examination may be done to any individual disinterested
(deponent) in the EDD or EDM to check the admissibility of the evidence presented,
testifying as to the regularity and integrity of the E-transaction)
Communication of E-data Messages and Documents

Validity of Electronically Generated Contracts – these follow the Cognition Theory of Contracts
• The Elements of a contract are apparent to the transactions
• Electronic Transactions made through networking among banks or linkages thereof
o Deemed consummated upon actual dispense of cash or debit of account with a
corresponding credit to the other
o The obligation of one bank, entity, or person situated to another is considered absolute
is not subject to the preference of credits (Application of Payments)
• Recognition by Parties of EDD/EDM – as between the originator and addressee, the declaration
of wills is not denied legal effect, validity, or enforceability on the sole ground that it is
electronically generated.
Attribution of an EDM
• A message is deemed coming from an originator if:
o It is actually sent by him
o It is sent by an authorized agent or by an information system that automatically
generates a response to the addressee
• A message is deemed to have been sent from the originator, as regards the addressee if:
o The addressee verifies through a commonly agreed-upon procedure with the originator
o A person with a relationship with the originator or the originator’s agent who the
originator enabled access to the procedure to check if it were his message
The above do not apply if:
• The originator informs the addressee that the message is not from the originator, with reasonable
time for the addressee to check upon
• Reasonable exercise by the addressee would have him to know that the message indeed does not
come from the originator
• The transmission resulted in error; and a separate message is issued to act on the error
• The rules above as to inapplicability of attribution does not apply to duplicates or spam
The addressee is entitled to regard any transmission in the means the originator had intended to send,
so long as he acts in good faith. (this, in case of error during transmission, or if the message was sent to
an information system not designated by the addressee)
Rules on Acknowledgement Receipts
• Acknowledgement Receipts are to be given by or through any communication by the Addressee,
automated or not, by the addressee’s conduct sufficient to indicate to the Originator that it has
been received if:
o Allowed when both originator and addressee agree to it being sent
o Or one of either requested for it to be sent
o The Originator disagrees with the Addressee that the acknowledgement be given in a
particular form or method
• The effect of the EDM or EDD is conditional upon receipt of the acknowledgement thereof, it
shall be treated as though it has never been sent until acknowledgement is received.
• When no condition is made by the originator, and acknowledgement is not yet received in the
time specified or within a reasonable time, then:
o Originator may notify the Addressee that acknowledgement must be received
o Treat the E-message as though it has never been sent, or exercise other rights in this
condition
Dispatch – Unless otherwise agreed between the Originator and Addressee, dispatch occurs when it enters
an information system outside the originator’s control or of the person acting in the originator’s behalf;
for analogy, when a message is sent, but not seen by the recipient in Messenger.
Receipt – Unless otherwise agreed-upon, receipt occurs:
• The Addressee designating an information system receives the message through that system,
hence the time of receipt is when it enters that system
• No designated Information System – receipt occurs upon entry in any of the Information Systems
of the Addressee
• The message passes through a system of the Addressee, not designated – Receipt occurs upon
retrieval
• Both originator and addressee belong to the same system – upon retrieval by the addressee
Place of Dispatch and Receipt
• Dispatched at the place of business of the Originator
• Received at the place of business of the Addressee
• The above are true even if either or both of the parties transmitted the same elsewhere
• In case there are multiple places of business, the dispatch and receipt are deemed to the places
which are closest to the underlying transaction; or if there is no underlying transaction, the most
principal place of business
• In the absence of a place of business – their habitual residence
• For juridical persons, wheresoever they are situated
Electronic Commerce in Carriage of Goods
In any of the following actions, where the law requires the same to be carried out in writing, the
requirement is met if the action is carried out by using electronic messages or documents. As such,
various documents coursed through electronic systems have the effect of being bound by law, such as:
• Invoices, Receipts, Waybills, Transmittals, Debit and Credit Memos, Receiving Reports, etc.
• Where one or more e-data messages or documents are used to effect a transaction, no paper
document used to the same effect is valid unless use of e-data message or e-document has been
terminated and replaced by use of paper documents, which shall contain a statement of such
termination (An electronic transaction prevails in case a paper proof of the same transaction
coexists with it. Only until the termination of the electronic document shall the paper document
be valid.)
• If a rule of law requires a transaction to be done through paper, the both the paper and the
electronic version are valid.
Electronic Transactions with the Government
Government use of Electronic Data Messages, Documents, and Signatures – Within 2 years from the
effectivity of the act, all departments, bureaus, offices and agencies, as well as GOCCs, shall align their
usual operations with the act.
Obligations under the E-Commerce Act
Liability of a Service Provider – Generally, no person or party shall be subject to any civil or criminal
liability in respect of the EDM or EDD which the person or party acting as a Service Provider that merely
provides access if such liability is founded on. This includes the cases where:
• The service provider, merely the means of transfer of material between originator and
addressee, having no knowledge or is not aware of the facts and circumstances from which it is
apparent. (the service provider, who propagates material that infringes subsisting rights, will not
be liable for the damage caused by propagating that material)
• The service provider does not knowingly receive a financial benefit directly attributable to the
unlawful or infringing activity
• The service provider does not directly commit infringement or any unlawful act and does not
cause another to commit infringement; and does not benefit financially
Except on:
• The obligations and liabilities of the parties under the electronic data message or electronic
document
• Any obligation founded on the contract
• The obligation of a service provider under a licensing or other regulatory regime established
• Any obligation imposed under law
• The civil liability of any party to the extent that such liability forms the basis for injunction
issued by a court under any law requiring that the service provider take or refrain from action
necessary to remove, block, or deny access to any material, or to preserve evidence of a violation
of law (cooperate in litigating any case as among the originator and addressee)
Lawful Access – only the person authorized and enforced in favor of the individual shall have the right
to the plaintext, e-signature, or file, solely for authorized purposes. The electronic key for identity or
integrity is NOT available to any person or party without the written consent of the individual or entity
in lawful possession of that key.
Obligation of Confidentiality – Except for purposes authorized in this Act, any person obtaining access
of the key, message, or document or other material shall not convey or share the same with other persons
Unlawful Acts and Penalties:
• Hacking or Cracking – unauthorized access into or interference in a computer system or server
or ICTS or any access in order to corrupt, alter, steal, or destroy using a computer or other similar
information and communication devices without the knowledge or consent of the owner of the
system (This includes introduction of viruses and the like) a Minimum Fine of P100,000 to Max
Damage Incurred, and Imprisonment of 6 months to 3 years.
• Piracy -unauthorized copying, reproduction, dissemination, importation, use, removal,
alteration, substitution, modification, storage, uploading, … copyrighted works including legally
protected works through telecommunication networks in a manner that infringes Intellectual
Property Rights a Minimum Fine of P100,000 to the Max Damage Incurred, and Imprisonment
of 6 months to 3-years
• Violations of the Consumer Act – The penalties in those laws
• Other Violations in the E-commerce Law – Maximum Fines of P1,000,000 and Maximum
Imprisonment of 6-years
Statutory Interpretation – Unless otherwise expressly provided for, the interpretation of the law gives
due regard to:
• The international origin and
• The need to promote uniformity in its application and the observance of good faith in
international trade relations
The generally accepted principles of international law and convention and e-commerce shall likewise be
considered.
Reciprocity – All benefits, privileges, advantages, or statutory rules established under the E-Commerce
Act, including those involving practice of Profession, shall be enjoyed only by parties whose country of
origin grants the same benefits and privileges or advantages to Filipino Citizens.
Ease of Doing Business Act
The Ease of Doing Business Act covers all government offices and agencies including LGUs, GOCCs, and
other government instrumentalities, whether located in the Philippines or abroad, the provide services
covering business and nonbusiness transactions.
Copied from the law itself, here are the Definition of Terms:
• Action— refers to the written approval or disapproval made by a government office or agency on
the application or request submitted by an applicant or requesting party for processing;
• Business-related transactions— a set of regulatory requirements that a
business entity must comply with to engage, operate or continue to operate a business, such
as, but not limited to, collection or preparation of a number of documents, submission to national
and local government authorities, approval of application submitted, and receipt of a formal
certificate or certificates, permits, licenses which include primary and secondary, clearances
and such similar authorization or documents which confer eligibility to operate or continue
to operate as a legitimate business;
• Complex transactions—applications or requests submitted by applicants or requesting parties of
a government office which necessitate evaluation in the resolution of complicated issues by an
officer or employee of said government office, such transactions to be determined by the office
concerned;
• Fixer—any individual whether or not officially involved in the operation of a government
office or agency who has access to people working therein, and whether or not in collusion with
them, facilitates speedy completion of transactions for pecuniary gain or any other advantage or
consideration;
• Government service—the process or transaction between applicants or requesting parties and
government offices or agencies involving applications for any privilege, right, reward, license,
clearance, permit or authorization, concession, or for any modification, renewal or extension
of the enumerated applications or requests which are acted upon in the ordinary course of
business of the agency or office concerned;
• Highly technical application—an application which requires the use of technical knowledge,
specialized skills and/or training in the processing and/or evaluation thereof;
• Nonbusiness transactions— all other government transactions not falling under Definition (2);
• Officer or employee—a person employed in a government office or agency required to perform
specific duties and responsibilities related to the application or request submitted by an
applicant or requesting party for processing;
• Processing time—the time consumed by an LGU or national government agency (NGA) from the
receipt of an application or request with complete requirements, accompanying documents and
payment of fees to the issuance of certification or such similar documents approving or
disapproving an application or request;
• Red tape—any regulation, rule, or administrative procedure or system that is ineffective or
detrimental in achieving its intended objectives and, as a result, produces slow, suboptimal, and
undesirable social outcomes;
• Regulation—any legal instrument that gives effect to a government policy intervention and
includes licensing, imposing information obligation, compliance to standards or payment of any
form of fee, levy, charge or any other statutory and regulatory requirements necessary to carry
out activity; and
• Simple transactions—applications or requests submitted by applicants or requesting parties of a
government office or agency which only require ministerial actions on the part of the public
officer or employee, or that which present only inconsequential issues for the resolution by an
officer or employee of said government office.”
• Business One Stop Shop— a single common site or location, or a single online website or portal
designated for the Business Permits and Licensing System of an LGU to receive and process
applications, receive payments, and issue approved licenses, clearances, permits, or
authorizations.
The Anti-Red Tape Authority
An agency attached to the Office of the President and that is entrusted to ensure the attainment of the
EODBA.
It is a go-to agency to file complaints in terms of transactions with the government. It prescribes reform
initiatives, reviews proposals, monitor agencies, provide technical assistance and implementations to
make the business environment friendly in terms of transactions with the government.
Reengineering of Systems and Procedures – All offices and agencies providing government services are
mandated to regularly undertake a cost compliance analysis, time and motion studies, undergo
evaluation and improvement of the transaction systems and procedures and reengineer the same if
deemed needed to reduce bureaucratic red tape and processing time.
Citizens’ Charter
All LGUs, agencies, and GOCCs are required to set up their respective and most current service standards
known as the Citizen’s Charter. This is done through billboards which are posted at the main entrance of
offices or at the most conspicuous place. The same is done in their websites and in the form of pub-mats
in English, Filipino, or the local language that detail the various procedures to a service, a checklist of
requirements, the max time to conduce a process, the amount of fees if needed, and procedure to file
complaints.
Zero-Contact Policy
Except during the preliminary assessment of the request and evaluation of sufficiency of submitted
requirements, no government officer or employee shall have any contact, in any manner, unless strictly
necessary with any requesting party concerning an application or request. (this is to avoid collusion).
The DICT prepares a web-based software registration system that will be the main course of transaction
upon establishment.
Rules on Accessing Government Services

Acceptance of Applications or Requests
1. All officers or employees shall accept written applications, requests, and or documents being
submitted by applicants or requesting parties of the offices or agencies
2. The receiving officer shall perform preliminary assessment of the application or request
submitted with its supporting documents to ensure a more expeditious action on the application
or request. The receiving officer shall inform the applicant or requesting party of any deficiency
in the accompanying requirements which shall be limited to those enumerated in the Citizens’
Charter (as such, all employees must be well-versed with the procedures of the agency)
3. The receiving officer or employee shall assign a unique identification number to an application
or request which shall be the identifying number for all subsequent transactions between the
government and the applicant or requesting party regarding such specific application or request
(to have a uniform queuing system among all the procedures for filing)
4. The receiving officer shall issue an acknowledgement receipt containing the seal of the agency,
the name of the responsible officer or employee, his or her unit and designation and the date
and time of the receipt of such application or request.
Actions of Officers
1. Prescribed period to process – All applications or requests submitted shall be acted upon by the
assigned officer or employee of the day within the prescribed processing time stated in the
Charter.
Type of Transaction Period to Process
Simple Transactions 3-working days from the date of receipt.
• Requires ministerial actions or
• Are quite inconsequential issues for resolution
Complex Transactions 7-working days from receipt
• These require evaluation in resolution of
complicated issues
Highly technical Application 20 working days or as determined by the
• A technical know-how or specialized skill is agency, whichever is shorter
required to process the transaction; or if
• The transactions involve activities which pose
danger to public health, public safety, morals
or policy
Application or Request for License, Clearance, Permit, The Sanggunian shall be given a period of 45
Certification, Authorization requiring the approval of days, extendable for 20 days; denial of
the Local Sanggunian application will have to cited upon request of
the applicant, detailing the application
requested, the reason for denial, and the
remedies available.
2. Extension – The maximum time prescribed above may be extended only once for the same
number of days, which shall be indicated in the Citizen’s Charter. Prior to lapse of the processing
time, the office or agency concerned shall notify the applicant or requesting party in writing of
the reason for the extension and the final date of release of the government service availed.
Such notice shall be signed by the applicant to serve as proof of notice.
3. Adjustment or Suspension of Period of Process – in case of force majeure, resulting to damage or
destruction of the documents or system failure, the prescribed processing times mandated shall
be suspended and appropriate adjustments shall be made.
**Identification Card – All employees transacting with the public shall be provided an official
identification card which shall be visibly worn during office hours.
**Establishment of Public Assistance/Complaints Desk – each office or agency must establish one
Automatic Approval or Extension of License, Clearance, Permit, Certification or

Authorization
• Failure by the agency to approve or disapprove an action within the prescribed processing time
will render the application deemed approved, provided that it has already been paid for, and
that all required documents are submitted
• The Acknowledgement receipt and Official receipt of payment and other fees are enough proof
as the issuance of the license, clearance, etc.
• If the agency fails to act on an application subject for renewal within the prescribed processing
time, such will automatically extend the license, authorization, etc. Provided:
o That the authority, in coordination with the: CSC, DTI, DILG, SEC, and others shall
provide a listing of simple, complex, highly technical applications, and activities that
pose danger to public health and safety, morals or policy
Other Matters
• Denial of Application or Request for access: is fully explained in writing, stating the name of
the person making the denial, and the grounds the denial is based upon. Denials are presumed
to have been made from the highest authority over the agency office concerned
• Limitations on Signatories: Max 3 Signatures representing officers directly supervising the
office, provided that in case of official leave, an alternate is designated. E-signatures may be
used.
• Electronic Versions of Licenses, Clearances, and Permits, etc. – all agencies re required to
develop electronic versions of licenses, clearances, etc.
• Adoption of Working Schedules to Service Applicants or Requesting Parties – This provision
provides for the no lunchbreak policies in government agencies. This also means that there shall
be employees designated to accommodate those that have reached the cut-off time (5:00 PM of
the day)
• Procedures for Issuing Safety and Security Clearances (Fire Safety Inspection Certificate,
Certification of Fire Incidents for Fire Insurance)
o Issuance of the FSIC and FSEC in no case be longer than 7 working days
o For new business permit application, FSIC already issued during the occupancy permit
stage shall be sufficient as basis for the issuance of the occupancy permit
o Renewal of Business Permit – within 3 working days from application, the entity shall
present the FSIC to the city/municipality either thru the copy of FSIC or the
negative/positive list, provided that the entity informs the BFP of renovations done or
alterations made to the original building structure 30 working days before expiration of
the business permit
o If the BFP fails to furnish the city/municipality with an FSIC or to inform the same through
a Positive/negative list (a compliance checklist), the FSIC is temporarily valid serving as
the basis for an automatic renewal of the business permit
o Issuance of the certification of fire incident for fire insurance in no case be longer than
20 working days, and may be extended only once for another 20 days
• Interconnectivity Infrastructure Development – This is the provision where the DICT provides
software development for LGUs, Agencies, etc. As such, approval for motions of clearances,
permits, certifications or authorizations for the installation and operation of telecommunication
broadcast towers, facilities, equipment and service shall be (is expected to be, due to the
expedited operations due to the efforts of the DICT):
o 7 working days for those issued by the Barangay
o 7 working days for those issued by the LGU
o 7 working days for those issued by NGA
o Failure to Approve or Disapprove an application for a license, etc. within prescribed
time, will deem the application approved. The approval of a local body necessary, a non-
extendable period of 20 days is prescribed.
o For community clearances, the officers of the homeowners’ association shall be given 10
working days to refer the application of the members; provided that a non-extendable
period of 30 days is granted to the association to give its consent or disapproval. Usual
procedures on disapproval within this act is observed.
• Central Business Portal – it shall serve as a central system to receive applications and capture
application data involving business-related transactions, including primary and secondary
licenses, and business clearances, permits, certifications, or authorizations issued by LGUs.
o The DICT, upon consultation with the National Privacy Commission (NPC), NGA, and LGU,
shall issue rules and guidelines on:
▪ Establishment, operation and maintenance of the CBP
▪ The use of electronic signatures
Procedures in LGUs
• A single or unified business application form is used in processing new applications for business
permits and business renewals which consolidates all the information of the applicant or
requesting party; it shall include, but is not limited to: Local taxes and clearances, building
clearance, sanitary permits, zoning clearance, fire clearance, and other specific requirements
as the case may be.
• The unified form shall be made available online, hardcopies must also be available
• The Establishment of the Business One-stop Shop (BOSS) for the city or municipality’s business
permitting and licensing system to receive and process manual and or electronic submission of
applications. Established within the Negosyo Centers
• There shall be a queueing mechanism in the BOSS; implementing a colocation of offices of the
treasury, business permits, and licensing office, zoning office, including the BFP, and other
relevant city or municipality offices.
• Cities or municipalities are mandated to automate their business permitting and licensing system
or set-up an electronic BOSS within a period of 3 years upon effectivity of the act
• Business permits must have electronic versions which are equally valid as their physical
counterparts; they are also given a validity of 1 year, renewable within the first month of the
year or anniversary of the issuance of the permit.
Philippine Competition Act

The Philippine Competition Act (Republic Act 10667 or the “Act”) defines, prohibits and penalizes three
types of anti-competitive conduct: anti-competitive agreements, abuse of dominant position, and
anti-competitive mergers and acquisitions. It also creates the Philippine Competition Commission
(“PCC”), which will have the original and primary authority to conduct inquiries or investigations and to
hear and decide cases involving violations of the Act. The Act seeks to
(i) Enhance economic efficiency and promote free and fair competition in trade, industry and all
commercial activities;
(ii) Prevent economic concentration that will control production, distribution or trade, which will unduly
stifle competition or lessen, manipulate or construct the discipline of free markets; and
(iii) Penalize all forms of anti-competitive conduct with the object of protecting consumer welfare and
advancing domestic and international trade and economic development.
Coverage
The Act covers any person or entity engaged in trade, industry and commerce in the Philippines. The Act
also applies to international trade having direct, substantial, and reasonably foreseeable effects in the
Philippine trade industry or commerce, including those resulting from acts done outside of the
Philippines. The Act, however, excludes combinations or activities of workers or employees as well as
agreements or arrangements with employers when designed solely to facilitate collective bargaining in
respect of conditions of employment
Anti-Competitive Agreements
The Act covers both horizontal and vertical agreements and include
• Agreements that are per se violative of the Act, i.e., agreements between competitors that (i)
restrict competition, as to the price or components thereof, or as to other terms of trade; or (ii)
fix the price at an auction or in any form of bidding, including cover bidding, bid suppression,
bid rotation, market allocation and other analogous practices of bid manipulations; and
• Agreements that are prohibited if shown to have the object or effect of substantially preventing,
restricting or restricting competition, e.g., setting, limiting or controlling production, markets,
technical development, or investment, dividing or sharing the market (whether by volume of
sales or purchases, territory, type of goods and services, buyers or sellers or any other means).
For this purpose, entities that have control over or are under common control with another entity
are not deemed competitors. Control is defined under the Act as the ability to substantially
influence or direct the actions or decisions of an entity.
• Those not specified are also prohibited
• Those entities under common control are not considered competitors for the purpose of this act
Abuse of Dominant Position
This refers to conduct that would substantially prevent, restrict or lessen competition and includes,
among others, predatory pricing, imposing barriers to entry, discrimination in price or other terms, tying
and bundling. There is a rebuttable presumption that an entity is in a “market dominant position” if the
market share of such entity in the relevant market is at least fifty percent (50%), unless the PCC
determines a new market share threshold for a particular sector.
Acts prohibited under this Section:
• Selling goods or services below cost with the object of driving competition out of the relevant
market: Provided, that in the Commission’s evaluation of this fact, it shall consider whether the
entity or entities have no such object and the price established was in good faith to meet or compete
with the lower price of a competitor in the same market selling the same or comparable product or
service of like quality;
• Imposing barriers to entry or committing acts that prevent competitors from growing within the
market in an anti-competitive manner except those that develop in the market as a result of or
arising from a superior product or process, business acumen, or legal rights or laws;
• Making a transaction subject to acceptance by the other parties of other obligations which, by
their nature or according to commercial usage, have no connection with the transaction;
• Setting prices or other terms or conditions that discriminate unreasonably between customers or
sellers of the same goods or services, where such customers or sellers are contemporaneously trading
on similar terms and conditions, where the effect may be to lessen competition substantially:
Provided, That the following shall be considered Permissible Price Differentials:
o Socialized pricing for the less fortunate sector of the economy;
o Price differential which reasonably or approximately reflect differences in the cost of
manufacture, sale, or delivery resulting from differing methods, technical conditions, or
quantities in which the goods or services are sold or delivered to the buyers or sellers;
o Price differential or terms of sale offered in response to the competitive price of
payments, services or changes in the facilities furnished by a competitor; and
o Price changes in response to changing market conditions, marketability of goods or
services, or volume;
• Imposing restrictions on the lease or contract for sale or trade of goods or services concerning
where, to whom, or in what forms goods or services may be sold or traded, such as fixing prices,
giving preferential discounts or rebate upon such price, or imposing conditions not to deal with
competing entities, where the object or effect of the restrictions is to prevent, restrict or lessen
competition substantially: Provided, That nothing contained in this Act shall prohibit or render
unlawful (Not Prohibited):
o Permissible franchising, licensing, exclusive merchandising or exclusive distributorship
agreements such as those which give each party the right to unilaterally terminate the
agreement;
o Agreements protecting intellectual property rights, confidential information, or trade
secrets;
• Making supply of particular goods or services dependent upon the purchase of other goods or
services from the supplier which have no direct connection with the main goods or services to be
supplied;
• Directly or indirectly imposing unfairly low purchase prices for the goods or services of, among
others, marginalized agricultural producers, fisherfolk, micro-, small-, medium-scale enterprises,
and other marginalized service providers and producers;
• Directly or indirectly imposing unfair purchase or selling price on their competitors, customers,
suppliers or consumers, provided that prices that develop in the market as a result of or due to a
superior product or process, business acumen or legal rights or laws shall not be considered unfair
prices; and
▪ Limiting production, markets or technical development to the prejudice of
consumers
Anti-Competitive Mergers and Acquisitions
These refer to those mergers and acquisitions that substantially prevent, restrict or lessen competition.
By way of exception, the PCC may exempt mergers and acquisitions if the parties are able to prove that:
1. The concentration has brought about or is likely to bring about gains in efficiencies that are greater
than the effect of any limitation on competition that result or likely to result from the merger or
acquisition; or
2. A party thereto is faced with actual or imminent financial failure and the agreement represents the
least anti-competitive alternative among the known alternative uses for the failing entity’s assets.
Further, under the Act, parties to mergers or acquisitions, the transaction value of which exceeds
Php1 Billion are prohibited from consummating the same until thirty (30) days after the PCC has been
notified thereof in the form and containing the information specified in the regulations to be issued
by the PCC. Failure to comply with such notification requirement renders the merger or acquisition
void and the parties thereto liable to pay an administrative fine equivalent to 1%-5% of the
transaction value.
Compulsory Notification – Parties to the merger or acquisition agreement referred to in the preceding
section wherein the value of the transaction exceeds one billion pesos (P1,000,000,000.00) are
prohibited from consummating their agreement until thirty (30) days after providing notification to
the Commission in the form and containing the information specified in the regulations issued by the
Commission: Provided, That the Commission shall promulgate other criteria, such as increased market
share in the relevant market in excess of minimum thresholds, that may be applied specifically to a
sector, or across some or all sectors, in determining whether parties to a merger or acquisition shall
notify the Commission under this Chapter.
• Administrative Fine – An agreement consummated in violation of this requirement to notify
the Commission shall be considered void and subject the parties to an administrative fine of one
percent (1%) to five percent (5%) of the value of the transaction.
• Further Inquiry on Merger – Should the Commission deem it necessary, it may request further
information that are reasonably necessary and directly relevant to the prohibition under Section
20 hereof from the parties to the agreement before the expiration of the thirty (30)-day period
referred.
• Effect of Inquiry – The issuance of such a request has the effect of extending the period within
which the agreement may not be consummated for an additional sixty (60) days, beginning on
the day after the request for information is received by the parties: Provided, That, in no case
shall the total period for review by the Commission of the subject agreement exceed ninety (90)
days from initial notification by the parties. When the above periods have expired and no decision
has been promulgated for whatever reason, the merger or acquisition shall be deemed approved
and the parties may proceed to implement or consummate it.
• Confidentiality Rule – All notices, documents and information provided to or emanating from
the Commission under this section shall be subject to confidentiality rule under Section 34 of
this Act except when the release of information contained therein is with the consent of the
notifying entity or is mandatorily required to be disclosed by law or by a valid order of a court
of competent jurisdiction, or of a government or regulatory agency, including an exchange.
• Mergers of Financial Institutions – In the case of the merger or acquisition of banks, banking
institutions, building and loan associations, trust companies, insurance companies, public
utilities, educational institutions and other special corporations governed by special laws, a
favorable or no-objection ruling by the Commission shall not be construed as dispensing of the
requirement for a favorable recommendation by the appropriate government agency under
Section 79 of the Corporation Code of the Philippines. A favorable recommendation by a
governmental agency with a competition mandate shall give rise to a disputable presumption
that the proposed merger or acquisition is not violative of this Act.
Effect of Notification — If within the relevant periods stipulated in the preceding section, the
Commission determines that such agreement is prohibited under Section 20 and does not qualify for
exemption under Section 21 of this Chapter, the Commission may:
• Prohibit the implementation of the agreement uncategorically;
• Prohibit the implementation of the agreement unless and until it is modified by changes specified
by the Commission.
• Prohibit the implementation of the agreement unless and until the pertinent party or parties enter
into legally enforceable agreements specified by the Commission.
Notification Threshold. – The Commission shall, from time to time, adopt and publish regulations
stipulating:
• The transaction value threshold and such other criteria subject to the notification requirement of
M&A’s
• The information that must be supplied for notified merger or acquisition;
• Exceptions or exemptions from the notification requirement; and
• Other rules relating to the notification procedures.
Exemptions from Prohibited. Mergers and Acquisitions. – Merger or acquisition agreement prohibited
under Section 20 of this Chapter may, nonetheless, be exempt from prohibition by the Commission when
the parties establish either of the following:
• The concentration has brought about or is likely to bring about gains in efficiencies that are greater
than the effects of any limitation on competition that result or likely to result from the M&A
agreement; or
• A party to the merger or acquisition agreement is faced with actual or imminent financial failure,
and the agreement represents the least anti-competitive arrangement among the known alternative
uses for the failing entity’s assets:
o Provided, that an entity shall not be prohibited from continuing to own and hold the stock
or other share capital or assets of another corporation which it acquired prior to the approval
of this Act or acquiring or maintaining its market share in a relevant market through such
means without violating the provisions of this Act:
o Provided, further, that the acquisition of the stock or other share capital of one or more
corporations solely for investment and not used for voting or exercising control and not to
otherwise bring about, or attempt to bring about the prevention, restriction, or lessening of
competition in the relevant market shall not be prohibited.
Burden of Proof – The burden of proof lies with the parties seeking the exemption. A party seeking to
rely on the exemption must demonstrate that if the agreement were not implemented, significant
efficiency gains would not be realized.
Finality of Rulings on Mergers and Acquisitions. – Merger or acquisition agreements that have received
a favorable ruling from the Commission, except when such ruling was obtained on the basis of fraud or
false material information, may not be challenged under this Act.
Remedies
• The Act mandates the PCC to develop a Leniency Program where entities that violate the prohibition
against anti-competitive agreements but voluntarily disclose information to the PCC may be granted
immunity from suit or reduction of fines under certain conditions enumerated in the Act.
• Where no prior complaint or investigation has been initiated, an entity that is in doubt as to whether
a contemplated act, course of conduct, agreement or decision, is in compliance with, is exempt from,
or is in violation of any of the provisions of the Act or other competition laws, may request the PCC to
render a binding ruling thereon.
• An entity criminally charged with a violation of the prohibition against anti-competitive agreements
may enter a plea of Nolo Contendere, wherein the entity, without admitting responsibility for the acts
charged, agrees to accept punishment as if it had pleaded guilty. The plea is inadmissible in evidence
to prove liability against the entity in a civil case arising from the same acts charged in the criminal
case.
• An entity under administrative inquiry may, without admitting responsibility for the imputed acts,
submit to the PCC a written proposal for the entry of a consent order. The proposal should include,
among others, provisions for the payment of fines and damages to third persons who may have suffered
injury. The proposal, including all the information contained therein or subsequently disclosed by the
entity, the evidence presented, and the judgment thereon, are inadmissible in evidence to prove the
liability of such entity in a criminal proceeding involving the same acts.
On interest – To allow affected parties time to renegotiate agreements or restructure their business to
comply with the provisions of the Act, an existing business structure, conduct or practice or any act that
may be in violation of the Act shall be subject to administrative, civil and criminal penalties only if it is
not cured or is continuing upon the expiration of two (2) years after the effectivity of the Act. This shall,
however, not apply to those administrative, civil and criminal proceedings already initiated prior to the
effectivity of the Act.
Title XIV: Government

Procurement Law
Government Procurement Law R.A. 9184
Governing Principles on Government Procurement – All procurement of the national government, its
departments, bureaus, offices and agencies, including state universities and colleges, government-owned
and/or -controlled corporations, government financial institutions and local government units, shall, in
all cases, be governed by these principles:
• Transparency in the procurement process and in the implementation of procurement contracts.
• Competitiveness by extending equal opportunity to enable private contracting parties who are
eligible and qualified to participate in public bidding.
• Streamlined procurement process that will uniformly apply to all government procurement. The
procurement process shall be simple and made adaptable to advances in modern technology in order
to ensure an effective and efficient method.
• System of accountability where both the public officials directly or indirectly involved in the
procurement process as well as in the implementation of procurement contracts and the private
parties that deal with government are, when warranted by circumstances, investigated and held
liable for their actions relative thereto.
• Public monitoring of the procurement process and the implementation of awarded contracts with
the end in view of guaranteeing that these contracts are awarded pursuant to the provisions of this
Act and its implementing rules and regulations, and that all these contracts are performed strictly
according to specifications.
Scope and Application. – This Act shall apply to the Procurement of Infrastructure Projects, Goods, and
Consulting Services, regardless of source of funds, whether local or foreign, by all branches and
instrumentalities of government, its departments, offices and agencies, including government-owned
and/or -controlled corporations and local government units, subject to the provisions of Commonwealth
Act No. 138. Any treaty or international or executive agreement affecting the subject matter of this Act
to which the Philippine government is a signatory shall be observed.
There are 2 main ways for conducting bids; (1) Competitive Bidding (2) Alternative Procurements
It is mainly done through the PhilGEPS or Philippine Government Electronic Procurement System,
which is managed by the DBM, and is required to be used in common among all government agencies.
Important Terms to Remember
• Approved Budget for the Contract (ABC) – refers to the budget for the contract duly approved by
the Head of the Procuring Entity, as provided for in the General Appropriations Act and/or continuing
appropriations, in the case of National Government Agencies; the Corporate Budget for the contract
approved by the governing Boards, pursuant to E.O. No. 518, series of 1979, in the case of
Government-Owned and/or - Controlled Corporations, Government Financial Institutions and State
Universities and Colleges; and the Budget for the contract approved by the respective Sanggunian,
in the case of Local Government Units
• Bids and Awards Committee – A committee established by the Procuring Entity to oversee the
bidding process, and to make sure that the process is legitimately complied with. In no case shall
any member of the BAC be part of the approving bid.
• Competitive Bidding – refers to a method of procurement which is open to participation by any
interested party and which consists of the following processes: advertisement, pre-bid conference,
eligibility screening of prospective bidders, receipt and opening of bids, evaluation of bids, post-
qualification, and award of contract, the specific requirements and mechanics of which shall be
defined in the IRR to be promulgated under
• Procurement - refers to the acquisition of Goods, Consulting Services, and the contracting for
Infrastructure Projects by the Procuring Entity. Procurement shall also include the lease of goods
and real estate. With respect to real property, its procurement shall be governed by the provisions
of Republic Act No. 8974, entitled “An Act to Facilitate the Acquisition of Right-of-Way Site or
Location for National Government Infrastructure Projects and for Other Purposes”, and other
applicable laws, rules and regulations.
The Bidding Process
• Pre-procurement Conference
• Advertisement or Posting the Invitation to Bid
• Pre-Bid Conference
• Opening of the 1st Envelope – On documents and technical proposal
• Opening of the 2nd Envelope – Financial Proposal
• Submission of Bids
• Bid Evaluation and Ranking
• Post-qualification
• Award of the Contract
Pre-procurement Conference
This is to determine the readiness of the procurement, and is mandatory for projects with an Approved
Budget for the Contract (ABC) for goods of P2,000,000.00 and infrastructure projects of P5,000,000.00.
It is attended by the Bids and Awards Committee and its Secretariats (BAC), Consultants, End-users, and
the Technical Working Group (TWG).
• In no case shall any procurement be based on reference to brand names; relevant characteristics
such as functionality and performance requirements are taken into consideration. Except if the
object of the bid specifically requires a brand for use for maintaining the performance and useful
life of equipment.
Advertisement or Posting the Invitation to Bid
This is done to signal the start of the bidding process, as well as the availability of bidding documents to
the prospective bidders. It is posted at least once in one newspaper of general nationwide circulation,
and regularly established for at least 2 years before the advertisement. It must also be posted
continuously for 7 calendar days in the PhilGEPS, PE Website, IFI Website, or at any conspicuous place
of the PE (Procuring Entity)
Pre-Bid Conference
This is a forum where the Pes and bidders discuss the different aspects of the projects. It is open to all
prospective bidders, but attendance is not mandatory. It may be done face-to-face or through
videoconferences
Attendance becomes mandatory for: ABCs of P1,000,000.00 or more; it is discretionary for those below
P1,000,000.00. It is held at least 12 calendar days before the deadline for bid submission, but not earlier
than 7 days from the PhilGEPS posting of advertisement; it may be held at least 30 days before the
deadline for the submission and receipt of bids considering the nature and complexity of the contract,
as well as international participation.
• Clarification of Bidding Documents are issued by the BAC to answer requests for clarifications (the
query should be submitted 10 cal. Days before the deadline.) upon BAC’s initiative to clarify or
modify any provision of Bidding Documents (done at least 7 calendar days before deadline for bids)
• Bidders who have submitted bids before issuance of Supplemental/Bid Bulletin must be informed in
writing and allowed to modify or withdraw their bids
Submission and Receipt of Bids
Category Maximum Period
Goods 45 Cal. Days
Infrastructure of P50,000,000.00 and below 50 Cal. Days
Infrastructure above P50,000,000.00 65 Cal. Days
Rescheduling of bid openings for justifiable reasons will mandate the BAC to take custody of the bids
submitted and reschedule the opening of bids on the next working day or soonest possible time by issuing
a Notice of Postponement through the PhilGEPS.
Opening and Evaluation of the 1st Envelope
The 1st Envelope contains the Eligibility requirements of the bid, any Bid Securities, the Technical
Specifications of the Goods or Projects, and the Omnibus Sworn Statement.
Eligibility Requirements
Goods Infrastructure Projects
DTI/SEC/CDA Registration DTI/SEC/CDA Registration
Mayor’s Permit or Equivalent for PEZA Mayor’s Permit or Equivalent for PEZA
Tax Clearance Tax Clearance
Statement of On-going Contracts Statement of On-going Contracts
Audited Financial Statements PCAB License and Registration
NFCC Computation or CLC NFCC Computation
For Joint Ventures, JVA or notarized statement JVA, entered into by the parties
from partners that they will enter into a JV if
awarded the contract, or a JVA if there is already
one
• Credit Line Commitment (CLC) – applies only to Goods to be bid. A bidder may opt to submit a
committed line of credit in lieu of its NFCC Computation; it is equal to 10% of the ABC, confirmed
and authenticated by the Local or Universal Bank Creditor.
• NFCC (Net Financial Contracting Capacity) – This is for goods and infrastructure projects; the NFCC
will be fixed at 15, based on the Audited Financial Statements.
• Statement of On-going and Completed Contracts – This includes all contracts awarded, but not yet
started regardless of similarity to the bid; this is accompanied by a statement showing the bidder’s
single largest completed contract similar to the bid within the relevant period provided.
• PCAB License – Should be valid at the time of the deadline for the submission of the bids; its invalidity
may be a ground for disqualification from bidding.
• Eligibility for Foreign Bidders – Documents must be in English, or if not, must be accompanied by
an English translation; it shall be authenticated by a PH Foreign Service/Establishment or Post, only
then can the BAC resolve the foreign documents
• Eligibility of Government Corporate Entities – GOCCs are allowed to bid only if they are legally and
financially autonomous, under commercial law, and are not attached agencies of the procuring
entity.
Legal Eligibility
Goods Infrastructure
Generally: 60% Filipino owned 75% Filipino-owned
Foreign Bidders are allowed if it is: Foreign Bidders are allowed if it is:
• Stated in an international or executive • Stated in an international or executive
agreement agreement
• National of a country offering reciprocity
rights to Filipinos
If the entity is a JV, less than 75% is allowed if the
• Goods not available as local supplies Structures to be built require techniques not
• To prevent situations that defeat competition possessed by the 75% of Filipinos in the project
or restrain trade and that the project is not less than 25% Filipino.
Technical Eligibility for Goods

General Rule If it follows the Exceptions, Then
1.Expendable Supplies (25% of If, at the outset and after At least 2 similar contracts are
ABC) marketing research, applying aggregated to the required %.
2.Services and Non-expendables the General rule wile likely The largest of the similar
(50% of ABC) result to failure of bidding or contracts must amt to at least
monopoly 50% of the required %
Technical Eligibility for Infrastructure Projects
• The Previous Contract Exceptions: If Contractors under Small A
• Any contract similar to the Bid and B categories without similar experience
• 50% of the ABC on the contract bid at the cost not more
Any other track record for Foreign Funded than the Allowable Range of Contract Cost
Procurement
Financial Eligibility
• The Audited Financial Statements showing Total Current Assets and Liabilities
• NFCC at least equal to ABC
𝐍𝐅𝐂𝐂 = 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 ∗ 𝐊(% 𝐨𝐟 𝐨𝐮𝐭𝐬𝐚𝐧𝐭𝐢𝐧𝐠 𝐮𝐧𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐝 𝐜𝐨𝐧𝐭𝐫𝐚𝐜𝐭𝐬
+ 𝐜𝐨𝐧𝐭𝐫𝐚𝐜𝐭𝐬 𝐚𝐰𝐚𝐫𝐝𝐞𝐝 𝐛𝐮𝐭 𝐧𝐨𝐭 𝐬𝐭𝐚𝐫𝐭𝐞𝐝)
K = 10 if contract is 1 year or less; 15 = if 1-2 years, 20 if more than 2 years
Bid Security
• Bank issued securities must be issued by a universal or commercial bank; however, in biddings by
LGUs, securities may be issued by banks certified by the BSP authorized to issue said instruments
(Municipal Bonds, notes, etc.)
• Surety Bonds must be accompanied by certification by the Insurance Commission that the Issuer is
authorized to issue that class of security
• Bidders have the option to choose their preferred from of security
• Bid Securities shall be returned only after the bidder with the lowest calculated Responsive Bid has
signed the contract and furnished the performance security, except to those declared by the BAC
as failed or post disqualified in accordance with the IRR, upon submission of a waiver of right to
file reconsideration and or protest
Bid Security Amount
Cash or Cashier’s Check 2%
Bank Guarantee or Draft or Irrevocable Letter of Credit 2%
Surety Bond Callable upon Demand 5%
Bid Securing Declaration -
• Bid Securing Declaration – is an additional form of bid security and is a document or undertaking
signed by the bidder committing to pay the corresponding fine and be suspended for a period of
time from being qualified to participate in any government activity in the event of violation of any
of the conditions stated therein as required by the GPPB Guidelines.
• Forfeiture of Bid security:
Failure to enter into a JV Failure to enter into a contract with the PE
Failure to submit post-qualification requirements Administrative Sanction
on time or finding false statements
• Bid Validity Period – Buds and their securities shall be valid for a reasonable period as determined
by the Head of Procuring Entity as indicated in the Bidding Documents; which shall not exceed 120
days, extension may be provided so long as the PE shall request in writing all those who submitted
bids for such extension before the expiration date (Bidders may exercise right to refuse extension
without risk of forfeiting bid security)
Disclosure of Relations – Relatives within the 3rd civil degree are disqualified:
• Head of PE, Members of BAC, Secretariate, TWG, Head of End-user unit or Project Management
Office, or Implementing Office, and Project Consultants
Opening of the Second Envelope
This involves the Financial Bid Form (Including the Bid Prices, Bill of Quantities, as well as the Applicable
price Schedules); in the case of Goods, a Certification from the DTI if claiming preference as a domestic
bidder, and other requirements required.
Detailed Evaluation of Bids
This is done to determine the Lowest Calculated Bid (LCB) and a non-discretionary criterion is also used
considering Completeness of Bids and Minor Arithmetical Corrections. This Phase requires all bidders to
follow a No Contact Rule until a decision is made by the BAC.
There is a Domestic Preference for Bidding – This is applicable only for Goods, and applies where the
lowest bidder has a foreign component and the next lowest bid has a domestic component. This requires
a procuring entity to give preference to domestic bidders provided that:
• The lowest foreign Bid is increased by 15%; (Bid*1.15) and
• The lowest domestic bidder matches the lowest bid of the foreign bidder
Post-Qualification
This process may be conducted up to 12 ca. days or up to 45 cal. Days in exceptional cases. In case most
of post-disqualification of the LCB, the BAC shall be given the same fresh period to conduct the post-
qualification of the next lowest calculated bid.
• The BAC will notify the bidder with the lowest calculated Bid that it was determined as such.
• This is within 5 calendar days form the receipt of the Notice;
o They must submit the Latest Income and Business Tax Returns as well as other appropriate
licenses and permits require by law and stated in the bidding documents
o Failure to submit on time or finding false statements shall disqualify the bidder for award.
Disqualification Criteria
Goods Infrastructure
Delay in partial delivery of goods amounting to Negative slippage of at least 15% of any one
10% project or at least 10% in each of 2 or more
contracts
Failure to perform in any or all goods or services Failure to repair works on on-going contracts
amounting to 10% of the contract price
Unsatisfactory performance upon inspection Failure to commence repair works on contracts
with pending certificates of acceptance
Negligence or Fault Substandard quality of work
Recommendation of Award
• The BAC shall recommend award of contract to the lowest calculated and responsive bid (LCRB) at
submitted price or calculated price, whichever is lower
o Approval by the Head of PE, notice of award is immediately issued
o The HOPE has 15 cal. Days to decide whether or not to give the notice of award (NoA)
o When required, the approving higher authority for the contract shall be given a max 20 cal.
Days from receipt thereof to approve or disapprove.
o In case of GOCCs, the concerned board shall be given 30 cal. Days from receipt to approve
or deny.
Failure of Bidding
Grounds Effects
No bids received or, no bid eligible, all bids fail to Mandatory review by BAC, Revise terms and
post qualify, or a bidder post-qualifies but refuses conditions, adjust ABC, Rebid and Readvertise.
without just cause
Reservation Clause – The Head of the PE reserves the right to reject any and all bids, declare a failure
of bidding, and not award the contract on these grounds:
• Prima facie evidence of collusion
• BAC is found to have failed in following bidding procedures
• For justifiable reasons, the award of the contract will not redound to the benefit of the Government
o Physical and Economic conditions changed;
o Project is no longer necessary
o Source of Funds are withdrawn or reduced
Award of the Contract
The contract is awarded to the LCRB or total Calculated Bid price, whichever is lower.
The NOA is given by Head of PE to: NGA’s and LGUs 15 days; GOCCs and GFI – 30 days
The NOA is subject to the following conditions:
• JV requires a submitted JVA
• Foreign funded – PCAB License
• Posting of Performance Security within 10 days
• Signing of Contract within 10 days
• Approval by higher authority if so required.
The Entire Procurement Process must not exceed 3 months
Performance Security – Posted by the winning bidder upon signing of contract to guarantee performance
of the obligation, in such form and amount specified in the Bidding Documents.
Effects of Failure to Post
Ground for disqualification Next-ranked LCB shall undertake post-
qualification
Bid security shall be forfeited without prejudice
to imposition of sanctions
Bid Security Goods Infrastructure

Cash or Cashier’s Check 5% 10%
Bank Guarantee or Draft or Irrevocable Letter of Credit 5% 10%
Surety Bond Callable upon Demand 30% 30%
Notice to Proceed – The concerned PE shall issue the Notice to Proceed together with a copy or copies
of the approved contract to the successful bidder within 7 days from the date of approval of the contract
by the appropriate government approving authority
Retention Money – For goods, retention money is reduced from 10% to at least 1%; for Infrastructure
Projects, the retention Rate is 10%
Liquidated Damages – Once the cumulative amount of liquidated damages reaches 10% of the amount of
the contract, the PE may rescind or terminate the contract without prejudice to other courses of action
and remedies available under the circumstances.
Bidding for Consulting Services
Consulting Services – these are services for infrastructure projects and other types of projects or
activities requiring adequate external technical and professional expertise that are beyond the capability
and or capacity of the GoP to undertake. Such as:
Advisory and Review Pre-investment and Feasibility Studies
Designs Construction Supervision
Management and Related Services Other technical services and special studies
Requirements:
• Filipino First Policy • Technology and knowledge transfer – the
• Consultant’s Professional Independence procuring entity shall be required in the
• Prohibition on Conflict of Interest provision of consulting services where
• Based on proven expertise, experience, capability applicable.
Bidding Process for Consultancy

1. Pre-procurement Conference
2. Advertisements 7 days
a. Provide a Request for Expression of Interest
Fees for Bidding Documents:
ABC Maximum Cost of Bidding Documents
500,000.00 and below P500.00
P500,000.00 to P1,000,000 P1,000.00
P1,000,000 to P5,000,000 P5,000.00
P5,000,000.00 to P10,000,000.00 P10,000.00
P10,000,000.00 to P50,000,000.00 P25,000.00
P50,000,000.00 to P500,000,000.00 P50,000.00
More than P500,000,000.00 P75,000.00
3. Submission of Eligibility Requirements; eligibility check and short listing not more than 20 days
o DTI/SEC/CDA Registration o Financial Documents – Audited
o Mayor’s Permit Financial Statements received by the
o Tax Clearance BIR or tis duly accredited institution
o Technical Documents – Statement of for the preceding calendar year which
Completed and On-going Projects, should not be earlier than 2 years
consultant’s statement of nationality from the date of bid submission
and key personnel as registered o Joint Venture Agreements and
professionals (Curriculum Vitae) Notarized Statements
4. Pre-bid conference at least 12 or 30 days as needed

5. Submission of proposals Not exceeding 21 days
6. Negotiation and Post-qualification
a. These shall cover the discussion and clarification of the TOR and the Scope of Services
b. Discussions and finalization of the Procedural Requirements and Work program
c. In No case can Key personnel be replaced except for meritorious reasons
d. Negotiation should not exceed 10 days PQ not more than 7-30 days as needed
7. Contract Awarding
a.Variation Orders – no additional payments for variation orders if any, is allowed
b. Variations may be done by the PE
c. Advanced payments – allowed for those below 15% of the total contract price; made upon
submission to PE’s acceptance of irrevocable standby letter of credit; recovered by
deducting from progress payments; consultants may reduce standby LC by the amounts
refunded in the advance payment
d. Subcontracting
i. Must not exceed 20% of the iv. PE’s consent is necessary
total project cost v. PE’s consent will not relieve
ii. Exclude material or main contractor from
significant portions of the liability
project
iii. Materials are specified
8. Contract Implementation
Alternative Modes of Procurement

Alternative modes of procurement are resorted only on highly exceptional cases, and to promote
economy and efficiency, as well as the conditions surrounding the procurement are justified
Limited Source Bidding – or otherwise known as selective bidding, is a method of procurement of goods
and consulting services that involves direct invitation to bid by the concerned entity of all pre-selected
suppliers or consultants with known experience or proven capability on the requirements of the particular
contract. The pre-selected suppliers or consultants shall be all those appearing in the list maintained by
the relevant Government authority (e.g., Bureau of Food and Drugs for medicines, National
Telecommunications Commission for telecommunication equipment, etc.) that has expertise and
experience in the type of procurement concerned, which list should have been submitted to, maintained
and updated with, the GPPB. For highly specialized goods and consulting services, where no such list is
being maintained by a relevant Government authority, competitive bidding shall be conducted. It is noted
that the purpose of the list is to regulate the quality of goods being offered and the qualifications of
consultants in the particular field of expertise.
Conditions for mode use:
• Highly-specialized types of contracts where few bidders are known or available
• Major Plant components beneficial to limit bidding to known qualified bidders
• Pre-selection is based on capability to perform the contract
• Applicable to Goods and Consultancy
Direct Contracting or single source procurement is a method of procurement of goods that does not
require elaborate bidding documents. The supplier is simply asked to submit a price quotation or a pro-
forma invoice together with the conditions of sale. The offer may be accepted immediately or after some
negotiations.
• There is only a single source
• Applicable only to goods
• Items are of proprietary nature (copyrights, patents, etc.)
• These are for critical components
Repeat Order is a method of procurement of goods from the previous winning bidder, whenever there
is a need to replenish goods procured under a contract previously awarded through Competitive
Bidding.
• Same or lower unit prices in the original contract
• No splitting contracts, requisitions or purchase orders
• Availed of within 6 months from the contract effectivity
• Not exceeding 25% of the quantity of each item
• Original contract is awarded through competitive bidding
Shopping is a method of procurement of goods whereby the Procuring Entity simply requests for the
submission of price quotations for readily available off-the-shelf goods or ordinary/regular equipment
to be procured directly from suppliers of known qualifications.
• There is an unforeseen contingency required immediate purchases
• Amount does not exceed threshold
• Procurement of ordinary and regular supplies and equipment not available in personnel services -
disbursement
Negotiated procurement is a method of procurement of goods, infrastructure projects and consulting
services, whereby the Procuring Entity directly negotiates a contract with a technically, legally and
financially capable supplier, contractor, consultant or, where allowed, an individual consultant.
Conditions for mode use
• Procurement does not fall under Shopping
• Posting is required if the amount is P50,000.00
Title XV: Consumer Protection Act

Consumer Protection Act R.A. 7394
The Consumer Protection Act is established to
• Develop and provide safety and quality standards for quality products, including performance or use-
oriented standards, codes of practice and methods of tests;
• Assist the consumer in evaluating quality, safety, performance, & comparative utility of consumer
products
• Protect the public against unreasonable risks of injury associated with consumer products;
• Undertake research on quality improvement of products and investigation into causes and prevention
of product related deaths, illness and injuries;
• Assure the public of the consistency of standardized products.
• The Act is enforced by DOH, DA, and DTI.
Product Quality and Safety
Standards for Consumer Products are set up by the act; product and quality standards consist of the
following:
• Requirements to performance, composition, contents, design, construction, finish, packaging of
a consumer product;
• Requirements as to kind, class, grade, dimensions, weights, material;
• Requirements as to the methods of sampling, tests and codes used to check the quality of the
products;
• Requirements as to precautions in storage, transporting and packaging;
• Requirements that a consumer product be marked with or accompanied by clear and adequate
safety warnings or instructions, or requirements respecting the form of warnings or instructions.
The Implementing Agency adopts existing standards, except in cases where special standards are needed.
A technical committee is established composed of representatives from Government, Business, and
Consumer sectors to formulate new standards. The committee may adopt existing private standards
already in use in the private sector.
• Upon promulgation of the standards, it shall be published in 2 newspapers of general circulation
at least once a week for a period of not less than 1 month. Information Campaigns may also be
held.
• New rules shall take effect within 90 days from date of promulgation, unless some other date is
more equitable.
o During this period, the implementing agency may prohibit stockpiling the new product
so as to prevent the manufacturer from circumventing the law
On Unsafe Products – If the departments find injurious, dangerous, or unsafe products, either by their
own initiative or petition of a consumer, it shall after due notice and hearing, make appropriate orders
for recall, prohibition, or seizure from public sale or distribution. The Manufacturer shall be given 48-
hours to attend a hearing from the issuance of the order.
• The Manufacturer, after due notice and hearing, found to have been producing substandard or
materially defective goods, must give notice to the public and the distributors of the failure to
comply
• Any person in injury due to the goods can bring the product into conformity with existing
standards, and to repair the defect in the same; have it be replaced with another or an
equivalent; refund the purchase price; and to have damages be paid.
• Imported Goods are not admitted into the country if these are found to not have complied with
product standards. The consignee/owner/importer of the goods shall be the person in question
for hearing.
o Although, the goods may be modified to qualify for consumption. In this case, the
department may defer final examinations for admission not exceeding 10 days from
landing. Subject to further supervision.
o All Expenses concerning the tests, storage, labor, cartage and admission, are borne by
the owner/consignee; default constitutes a lien over the imported goods
o Upon qualified acceptance, the consignee or owner must manifest under surety bond
that none of the grounds for non-admission exists.
o These goods may not be further exported, even after qualified admission.
On Certification of Conformity – The consumer products before having established conformity, may only
be distributed in commerce after inspection and certification of its quality and safety standards. The
Manufacturer shall avail the Philippine Standard Certification Mark which the department grants after
determining compliance.
Generally, product quality and safety are determined by following standards set in law. If these are not
complied with, these are deemed adulterated if mishandled, substandard, or unfit for consumption.
• On Food – There are clear quantitative thresholds that foods must comply with. For example,
foods must not contain alcohol or non-nutritive articles or substances above 4/10 of 1% of natural
gum and pectin.
• On Unprocessed Food – Provincial, Municipal, and City Governments shall regulate the
preparation and sale of meat, fresh fruit, poultry, milk, fish, vegetables, and other foodstuffs
for public consumption, pursuant to the Local Government Code.
• Poisonous Ingredients in Food may be tolerated if and only if it is required in the processing or
cannot be avoided in production.
• Unsafe Food Additives – are deemed unsafe unless experts investigate its use and allow it for
consumption, or if its use is within the standards set.
• Regulation of Food Additives may be filed with the concerned department, disclosing conditions
for safe use, manner of use, and labelling requirements.
• On Drugs and Devices – these must undergo Licensing and Registration before distribution. A
period of 180-days is allowed for filing an application with the concerned department, and may
be given a chance to participate in a hearing if necessary.
o Antibiotics require further certification.
• Factory Inspections are conducted by the concerned departments
o Upon adverse findings of contaminations or violations of safety and quality standards,
the owner or operators in charge are furnished of the result and its analysis.
• Provisional Permits – may be given for goods, already in commerce and is distributed, and whose
safety and quality profile cannot be adequately determined. The same may be suspended and
revoked.
Deceptive Sales Acts
The Law considers any act or practice as deceptive if:
• A consumer product or service has the sponsorship, approval, performance, characteristics,
ingredients, accessories, uses, or benefits it does not have;
• A consumer product or service is of a particular standard, quality, grade, style, or model when in
fact it is not;
• A consumer product is new, original or unused, when in fact, it is in a deteriorated, altered,
reconditioned, reclaimed or second-hand state;
• A consumer product or service is available to consumer for a reason that is different from the fact;
• A consumer product or service has been supplied in accordance with the previous representation
when in fact it is not;
• A consumer product or service can be supplied in a quantity greater than the supplier intends;
• A service, or repair of a consumer product is needed when in fact it is not;
• A specific price advantage of a consumer product exists when in fact it does not;
• The sales act or practice involves or does not involve a warranty, a disclaimer of warranties,
particular warranty terms or other rights, remedies or obligations if the indication is false; and
• The seller or supplier has a sponsorship, approval, or affiliation he does not have
• And others as per declaration.
Unfair or Unconscionable Sales Acts or Practices
In contrast with deceptive sales acts, unfair or unconscionable sales acts exploit the consumer’s physical
or mental infirmity, ignorance, illiteracy, lack of time or the general conditions of the environment or
surroundings, induces the consumer to enter into a sales or lease transaction grossly inimical to the
interests of the consumer or grossly one-sided in favor of the producer, manufacturer, distributor,
supplier or seller.
The following circumstances are considered:
• That the producer, manufacturer, distributor, supplier or seller took advantage of the inability of
the consumer to reasonably protect his interest because of his inability to understand the language
of an agreement, or similar factors;
• That when the consumer transaction was entered into, the price grossly exceeded the price at which
similar products or services were readily obtainable in similar transaction by like consumers;
• That when the consumer transaction was entered into, the consumer was unable to receive a
substantial benefit from the subject of the transaction;
• That when the consumer was entered into, the seller or supplier was aware that there was no
reasonable probability or payment of the obligation in full by the consumer; and
• That the transaction that the seller or supplier induced the consumer to enter into was excessively
one-sided in favor of the seller or supplier.
Other Prohibited Sales Acts and Practices
Chain Distribution Plans or Pyramid Sales Schemes. – Chain distribution plans or pyramid sales schemes
shall not be employed in the sale of consumer products.
Home Solicitation Sales. – No business entity shall conduct any home solicitation sale of any consumer
product or service without first obtaining a permit from the Department. Such permit may be denied
suspended or revoked upon cause as provided in the rules and regulations promulgated by the
Department, after due notice and hearing.
• Home solicitation sales may be conducted only between the hours of nine o'clock in the morning and
seven o'clock in the evening of each working day: Provided, that solicitation sales may be made at a
time other than the prescribed hours where the person solicited has previously agreed to the same.
• Home solicitation sales shall only be conducted by a person who has the proper identification and
authority from his principal to make such solicitations.
• Sales generated from home solicitation sales shall be properly receipted as per existing laws, rules
and regulations on sale transactions.
Prohibited Representations. – A home solicitation sale shall not represent that:
• the buyer has been specially selected;
• a survey, test or research is being conducted; or
• the seller is making a special offer to a few persons only for a limited period of time.
Referral Sales. – Referral selling plans shall not be used in the sale of consumer products unless the seller
executes in favor of the buyer a written undertaking that will grant a specified compensation or other
benefit to said buyer in return for each and every transaction consummated by said seller with the
persons referred by said buyer or for subsequent sales that said buyers has helped the seller enter into.
General Provisions on Weights and Measures
• The LGUs are generally responsible for strictly enforcing the fairness of weights and measures for
consumer protection
• All weights and measures are tested, calibrated, and sealed every 6 months by an official sealer upon
payment of fees
• Only the metric system shall be used to weigh or measure commodities in commercial transactions.
• The DTI adopts standard measurements for garments, shoes, and other similar products
Product Services and Warranties

It is worth to note that provisions on the Civil Code fortify the regulations herein described.
Terms of Express Warranty. – Any seller or manufacturer who gives an express warranty shall:
• Set forth the terms of warranty in clear and readily understandable language and clearly identify
himself as the warrantor;
• Identify the party to whom the warranty is extended;
• State the products or parts covered;
• State what the warrantor will do in the event of a defect, malfunction of failure to conform to the
written warranty and at whose expense;
• State what the consumer must do to avail of the rights which accrue to the warranty; and
• Stipulate the period within which, after notice of defect, malfunction or failure to conform to the
warranty, the warrantor will perform any obligation under the warranty.
Express Warranty – operative from moment of sale; all written warranties or guarantees issued by a
manufacturer, producer, or importer shall be operative from the moment of sale.
• Sales Report. – All sales made by distributors of products covered by shall be reported to the
manufacturer, producer, or importer of the product sold within thirty (30) days from date of
purchase, unless otherwise agreed upon. The report shall contain, among others, the date of
purchase, model of the product bought, its serial number, name and address of the buyer. The report
made in accordance with this provision shall be equivalent to a warranty registration with the
manufacturer, producer, or importer. Such registration is sufficient to hold the manufacturer,
producer, or importer liable, in appropriate cases, under its warranty.
o Failure to make or send report. – Failure of the distributor to make the report or send them
the form required by the manufacturer, producer, or importer shall relieve the latter of its
liability under the warranty: Provided, however, That the distributor who failed to comply
with its obligation to send the sales reports shall be personally liable under the warranty.
For this purpose, the manufacturer shall be obligated to make good the warranty at the
expense of the distributor.
• Retail. – The retailer shall be subsidiarily liable under the warranty in case of failure of both the
manufacturer and distributor to honor the warranty. In such case, the retailer shall shoulder the
expenses and costs necessary to honor the warranty. Nothing therein shall prevent the retailer from
proceeding against the distributor or manufacturer.
• Enforcement of warranty or guarantee. – The warranty rights can be enforced by presentment of a
claim. To this end, the purchaser needs only to present to the immediate seller either the
warranty card of the official receipt along with the product to be serviced or returned to the
immediate seller. No other documentary requirement shall be demanded from the purchaser. If the
immediate seller is the manufacturer's factory or showroom, the warranty shall immediately be
honored. If the product was purchased from a distributor, the distributor shall likewise immediately
honor the warranty. In the case of a retailer other than the distributor, the former shall take
responsibility without cost to the buyer of presenting the warranty claim to the distributor in the
consumer's behalf.
• Record of purchases. – Distributors and retailers covered by this Article shall keep a record of all
purchases covered by a warranty or guarantee for such period of time corresponding to the lifetime
of the product's respective warranties or guarantees.
• Contrary stipulations – null and void; all covenants, stipulations or agreements contrary to the
provisions of this Article shall be without legal effect.
Designation of Warranties. – A written warranty shall clearly and conspicuously designate such warranty
as:
1) "Full warranty" if the written warranty meets the minimum requirements; or
2) "Limited warranty" if the written warranty does not meet such minimum requirements.
Minimum Standards for Warranties – For the warrantor of a consumer product to meet the minimum
standards for warranty, he shall:
• Remedy such consumer product within a reasonable time and without charge in case of a defect,
malfunction or failure to conform to such written warranty;
• Permit the consumer to elect whether to ask for a refund or replacement without charge of such
product or part, as the case may be, where after reasonable number of attempts to remedy the
defect or malfunction, the product continues to have the defect or to malfunction.
• The warrantor will not be required to perform the above duties if he can show that the defect,
malfunction or failure to conform to a written warranty was caused by damage due to unreasonable
use thereof.
Duration of Warranty – The seller and the consumer may stipulate the period within which the express
warranty shall be enforceable. If the implied warranty on merchantability accompanies an express
warranty, both will be of equal duration.
Any other implied warranty shall endure not less than sixty (60) days nor more than one (1) year following
the sale of new consumer products.
Breach of Warranties
• In case of breach of express warranty, the consumer may elect to have the goods repaired or its
purchase price refunded by the warrantor. In case the repair of the product in whole or in part is
elected, the warranty work must be made to conform to the express warranty within thirty (30) days
by either the warrantor or his representative. The thirty-day period, however, may be extended by
conditions which are beyond the control of the warrantor or his representative. In case the refund
of the purchase price is elected, the amount directly attributable to the use of the consumer prior
to the discovery of the non-conformity shall be deducted.
• In case of breach of implied warranty, the consumer may retain in the goods and recover damages,
or reject the goods, cancel and contract and recover from the seller so much of the purchase price
as has been paid, including damages.
Warranties in Supply of Services
• In every contract for the supply of services to a consumer made by a seller in the course of a business,
there is an implied warranty that the service will be rendered with due care and skill and that
any material supplied in connection with such services will be reasonably fit for the purpose for
which it is supplied.
• Where a seller supplies consumer services in the course of a business and the consumer, expressly or
by implication, makes known to the seller the particular purpose for which the services are required,
there is an implied warranty that the services supplied under the contract and any material
supplied in connection therewith will be reasonably fit for that purpose or are of such a nature
or quality that they might reasonably be expected to achieve that result, unless the circumstances
show that the consumer does not rely or that it is unreasonable for him to rely, on the seller's skill
or judgment.
Professional Services – The provision of this Act on warranty shall not apply to professional services of
certified public accountants, architects, engineers, lawyers, veterinarians, optometrists, pharmacists,
nurses, nutritionists, dietitians, physical therapists, salesmen, medical and dental practitioners and other
professionals engaged in their respective professional endeavors.
Guaranty of Service Firms – Service firms shall guarantee workmanship and replacement of spare parts
for a period not less than ninety (90) days which shall be indicated in the pertinent invoices.
On Labelling and Fair Packaging
It shall be unlawful for any person, either as principal or agent, engaged in the labeling or packaging of
any consumer product, to display or distribute or to cause to be displayed or distributed in commerce
any consumer product whose package or label does not conform to this law.
The prohibition in this Chapter shall not apply to persons engaged in the business of wholesale or retail
distributors of consumer products except to the extent that such persons:
• Are engaged in the packaging or labeling of such products;
• Prescribe or specify by any means the manner in which such products are packaged or labeled; or
• Having knowledge, refuse to disclose the source of the mislabeled or mispackaged products.
Minimum Labelling on Consumer Products
• Correct and registered trade name or brand name;

• Duly registered trademark;
• Duly registered business name;
• Address of the manufacturer, importer, repacker of the consumer product in the Philippines;
• General make or active ingredients;
• Net quality of contents, in terms of weight, measure or numerical count rounded of to at least the
nearest tenths in the metric system;
• Country of manufacture, if imported; and
• If a consumer product is manufactured, refilled or repacked under license from a principal, the label
shall so state the fact.
• Those required by Other Laws
o Whether it is flammable or inflammable;
o Directions for use, if necessary;
o Warning of toxicity;
o Wattage, voltage or amperes; or
o Process of manufacture used if necessary
• The Label may contain the Philippine Product Standard Mark if it is certified to have passed the
consumer product standard prescribed
Special Labelling may be required for the protection of children if the department finds that the degree
or nature of the hazard to children in the availability of such product, by reason of its packaging, may
cause injury or serious illness resulting from the handling of the product.
Additional Labelling for:
Food Cosmetic Goods Drugs Hazardous Substance
a) Expiry or expiration a) expiry or expiration For Drugs, the Generics The Common Name,
date, where date; Act shall apply. or Chemical Name of
applicable; b) whether or not it may the Substance
b) Whether the be an irritant; It must provide The Signal Word
consumer product is c) precautions or contra- adequate directions for “Danger”
semi-processed, fully indications; and use and adequate Clear statement of
processed, ready-to- warnings against use in Possible Injury
cook, ready-to-eat, d) such other labeling pathology
prepared food or just requirements as the Precautionary
plain mixture; concerned department measures to be taken
may deem necessary and Instructions for First
c) Nutritive value, if reasonable.
any; Aid
d) Whether the The Word “Poison”
ingredients used are Special Storage
natural or synthetic, as Instructions
the case may be; “Keep Out of Reach
e) Such other labeling of Children”
requirements as the
concerned department
may deem necessary
and reasonable
General Consumer Rights

• The Right to Basic Needs. The right that guarantees survival, adequate food, clothing, shelter,
health care, education and sanitation. This includes the availability of basic and prime
commodities to consumers at affordable prices and of good quality.
• The Right to Safety. The right to be protected against the marketing of goods or the provision
of services that are hazardous to health and life. This includes: (1) manufacturers of consumer
products to undertake extensive safety and performance testing before selling their products in
the market, and (2) labels which contain the proper information as regards the product, its use
and how to operate it, if the need arises, and also precautions or warning signs.
• The Right to Information. The right to be protected against fraudulent/dishonest or misleading
advertising/labelling/promotion and the right to be given the facts and information needed to
make an informed choice. You may look forward to complete information about the product to
be purchased, including its use, ingredients/chemical contents, precautions, if any, limitations
and expiry date.
• The Right to Choose. The right to choose products at competitive prices with an assurance of
satisfactory quality. This includes: a wide array of goods and services which are offered in the
market with diverse brands, sizes, shapes and colors with differences in the price, quality, use.
• The Right to Representation. The right to express consumer interests in the making and
execution of government policies. This includes: legislators who would propose laws that would
ensure that consumers have the chance to live a better life by getting the best value for their
hard-earned peso.
• The Right to Redress. The right to be compensated for misrepresentation, shoddy goods or
unsatisfactory services. This includes: manufacturers/storeowners that would be replacing
defective goods pursuant to the provision “No Return, No Exchange” provided in the DTI’s
Implementing Rules and Regulations of Republic Act 7349, otherwise known as the Consumer Act
of the Philippines.
• The Right to Consumer Education. The right to acquire the knowledge and skills necessary to
be an informed consumer.
• The Right to a Healthy Environment. The right to live and work in an environment which is
neither threatening nor dangerous, and which permits a life of dignity and well-being.
On the Price Tag
It shall be unlawful to offer any consumer product for retail sale to the public without an appropriate
price tag, label or marking publicly displayed to indicate the price of each article and said products
shall not be sold at a price higher than that stated therein and without discrimination to all buyers
• Provided, that lumber sold, displayed or offered for sale to the public shall be tagged or labeled
by indicating thereon the price and the corresponding official name of the wood
• Provided, further, that if consumer products for sale are too small or the nature of which makes
it impractical to place a price tag thereon price list placed at the nearest point where the
products are displayed indicating the retail price of the same may suffice
Manner of Placing Price Tags – Price tags, labels or markings must be written clearly, indicating the
price of the consumer product per unit in pesos and centavos.
Regulations for Price Tag Placement – The concerned department shall prescribe rules and regulations
for the visible placement of price tags for specific consumer products and services. There shall be no
erasures or alterations of any sort of price tags, labels or markings.
Lemon Laws
Lemon Laws are a general term for laws established to ensure that consumer rights are upheld. They
provide repair and recourse mechanisms for consumers to pursue. It does not only apply to the purchase
of motor vehicles as so named.
Invoking the Lemon Law requires the consumer to:
• Accurately report any and all concerns
• Keep all documentations regarding the purchase at hand
• Pursue the claim in the soonest
• Seek expert legal advice
Title XVI: Labor and Social

Legislation
Labor Laws in General
Labor – The exertion by human beings of physical or mental efforts, or both, towards the production of
goods and service. The State affirms labor as a primary social economic force. It shall protect the
rights of workers and promote the welfare
Labor Law – The law that governs the rights and duties of the Employer and the Employees with
respect to:
• Terms and conditions of Employment
• Labor Disputes arising from Collective Bargaining or other concerted activity respecting such
terms and conditions
Labor Legislation – It consists of statutes, regulations and jurisprudence governing the relations
between capital and labor, by providing for certain employment standards and a legal framework for
negotiating, adjusting, and administering those standards and other incidents of employment
Labor legislations are classified into labor standards and labor relations
• Labor standards set out minimum terms, conditions and benefits of employment that
employers must provide or comply with and to which employees are entitled as a matter of
legal right
• Labor Relations define the status, rights and duties, as well as the institutional mechanisms
that govern the individual and collective interactions between employees and employers,
their representatives. Unionization, negotiation, and dispute settlement are under LR.
Social Legislation – All laws passed by the State to promote public welfare. Laws that provide
particular kinds of protection or benefits to society or segments thereof in furtherance of social justice
Labor Legislation Social Legislation
Directly affects employment Governs effects of employment such as
compensation for injury
Refers to Labor Statutes like Labor Relations Law Refers to Social Security Laws (SSS Law, GSIS
and Labor Standards Law Law, Philhealth Benefits Laws, Agrarian Laws)
Focuses on the rights of the worker in the Focuses on the particular part of society or
workplace segment thereof
Labor Laws are Social Legislation, but not all social legislations are labor laws. Social Legislation is
broader in terms of scope compared to Labor Legislation.
Sources of Labor Laws
• The Constitution
• The Labor Code and other related pieces of Special Legislation
• Contracts
• Collective Bargaining Agreements (Norm of conduct between EE and ER)
• Company Practices and Company Policies
o Voluntary Institution by the employer without legal compulsion
o Done over a long period of time
o Shown to have been consistent or deliberate
o No passage of time is required for a company policy to be a source of labor law
Statutory Construction of Labor Laws
All doubts in the implementation and interpretation of the provisions of the laws are resolved in favor
of labor; furthermore, these are also construed in favor of the safety and decent living for the laborer.
Protection is balanced to Labor – It is a time-honored rule that in controversies between a laborer and
his master, doubts reasonably arising from the evidence, or in the interpretation of agreements and
writing, should be resolved in the former’s favor. The policy is to extend the doctrine to a greater number
of employees who can avail themselves of the benefits under the law, which is in consonance with the
avowed policy of the State to give maximum aid and protection to labor. (Lepanto Consolidated Mining
Co. v. Moreno Dumapis, et. Al G.R. No. 163210)
Compassionate Justice – The social justice policy mandates a compassionate attitude toward the working
class in relation to management. In calling for protection to labor, the Constitution does not condone
wrong doing by the employee. However, it urges a moderation of the sanctions that may be applied to
him in the light of the many disadvantages that weigh heavily on him like an albatross on his neck.
• The Law must protect labor, at least to the extent of raising him to equal footing in bargaining
relations with capital and to shield him from abuses brought about by the necessity for survival.
• Social Justice, the Mandate of the Labor Laws, is humanization of laws and the equalization of
social and economic forces by the State so that justice, in its rational and objectively secular
conception may at least be approximated. It is the promotion of the welfare of the people.
o Therefore, the Police Power of the State is justified to enforce it.
Seven Basic Rights of Workers:
• Right to Organize • Right to a Living Wage
• Right to Collective Bargaining Agreements • Right to Participate in Policy-making and
• Right to Engage in peaceful, concerted activities Decision-making that concerns their rights and
• Right to Enjoy Security of Tenure benefits
• Right to Work under Humane working Conditions
Equal Work Opportunities – are afforded to anyone, regardless of allegiance, sex, race, and or creed.
Limitation of Labor Laws
Limitation on Protection of Labor
1. Rights of Management – The law also recognizes that management has rights which are also
entitled to respect and enforcement in the interest of Fair Play
2. Principle of Non-oppression – Neither capital nor labor shall act oppressively against the other,
or impair the interest or convenience of the public.
When the law tilts the scale of justice in favor of labor, it is but a recognition of the inherent economic
inequality between labor and management. The intent is to balance the scale of justice; to put the two
parties on relatively equal position. There may be cases where the circumstances warrant favoring labor
over the interests of management, but never should the scale be so tilted that the result is an injustice
to the employer. Justitia nemini neganda est.
Limitations in Invoking the Principle of Social Justice
1. Social justice does not champion division of property or equality of economic status. It should
not tolerate usurpation of property, public or private
2. It may only protect the laborers who come to court with clean hands, and their motives,
blameless
3. It may never result in an injustice or oppression of the employer
4. If it is used to shield wrongdoings, it cannot be permitted to be the refuge of scoundrels
5. In case of conflict with the Equal Protection clause of the Constitution, Social Justice may be
used by the courts in sympathy with the working man as it is bound by the same source to afford
full protection thereto, so long as it is not used to shield any wrongdoing.
The Contract of Labor
It is a consensual, nominate, principal, and commutative contract, whereby one person (ER) compensates
another (EE) for the latter’s service. It is a relationship impressed with public interest in keeping with
constitutional policy of social justice.
• The Labor Contract is subject to the State’s Policy Power – The supremacy of the law over
nomenclature of the contract and the stipulations contained therein is to bring to life the policy
enshrined in the Constitution to afford full protection to labor. Labor Contracts are placed on a
higher plane than ordinary contracts; as these are imbued with public interest.
• Prohibitions:
o No law impairing the obligation of contracts
o No involuntary servitude shall in any form exist except as a punishment for a crime
whereof the party shall have been duly convicted
o No contract which practically amounts to involuntary servitude, under any guise, is valid
Management Prerogatives – power to manage the affairs that necessitate the job of the employee
o Hiring o Supervision of Workers
o Work Assignments o Working Regulations
o Working Methods o Transfer of Employees
o Time o Lay-off of workers
o Place o Disciplining
o Manner of Work o Dismissal
o Tools to be used o Recall of Workers
o Processes to be Followed
Rights of the Employer – The Management Prerogative, however
• The Management is not Absolute in that the Courts have interpreted the instances where Labor
and Capital collide, Labor is given the benefit of the doubt
• Prerogative is limited by Contract, Special Laws, and Basic principles of Equality and Fair Play
Fundamental Management Rights

• Right to Return of Investments • Right to Select Employees
• Right to Prescribe Rules • Right to Transfer or Discharge Employees
Limitations of Management Rights
• Law, Contracts (Individual or Collective), General Principles of Fair Play and Justice
In employment bargaining, there is no doubt that the employer stands on higher footing than the
employee. The law must protect labor, at least, to the extent of raising him to equal footing in bargaining
relations with capital and to shield him from abuses brought about by the necessity for survival. Yet the
Constitution has not overlooked the Rights of Capital. The State is mandated to regulate the relations
between workers and employers. While Labor is entitled to a Just Share in the fruits of production, the
enterprise has an equally important right not only to reasonable returns on investments, but also to
expansion and growth.
Applicability of the Labor Code
GR:All rights and benefits granted to worker sunder the LC shall apply alike to all workers, whether
agricultural or non-agricultural
XPNs:
1. Government employees
2. Employees of government-owned and -controlled corporations created by special or original
charter
3. Foreign governments
4. International agencies
NOTE: International organizations and intergovernmental bodies are not covered by the Philippines
Labor Laws. The remedy of the aggrieved employee is to file a complaint before the Department of
Foreign Affairs (DFA) (Duka, Labor Laws and Social Legislation, A Barrister’s Companion, 2016, p.
18).
5. Corporate officers/ intra-corporate disputes which fall under P.D. 902-A and now fall under the
jurisdiction of the regular courts pursuant to the Securities Regulation Code.
6. Local water district except where NLRC’s jurisdiction is invoked.
7. As may otherwise be provided by the Labor Code
Pre-employment
Definition of Terms:
• Worker – means any member of the labor force, whether employed or unemployed
• Recruitment and placement – refer to any act of canvassing, enlisting, contracting, transporting,
utilizing, hiring or procuring workers, and includes referrals, contract services, promising or advertising
for employment, locally or abroad, whether for profit or not: Provided, that any person or entity which,
in any manner, offers or promises for a fee, employment to two or more persons shall be deemed
engaged in recruitment and placement
• Private fee-charging employment agency – means any person or entity engaged in recruitment and
placement of workers for a fee is charged, directly or indirectly, from workers / employers or both
• License – means a document issued by the Department of Labor authorizing a person or entity to
operate a private employment agency
• Private recruitment entity – means any person or association engaged in the recruitment and
placement of workers, locally or overseas, without charging, directly or indirectly, any fee from the
workers / employers.
• Authority – means a document issued by the Department of Labor authorizing a person or association
to engage in recruitment and placement activities as a private recruitment entity.
• Seaman – means any person employed in a vessel engaged in maritime navigation.
• Overseas employment – means employment of a worker outside the Philippines.
• Emigrant – means any person, worker or otherwise, who emigrates to a foreign country by virtue of an
immigrant visa or resident permit or its equivalent in the country of destination.
On Overseas Employment
Overseas Employment – The State generally does not promote overseas employment as a means to
sustain economic growth and national development; instead, the state favors local employment;
otherwise, overseas employment should be secured by protection of workers abroad before deployment
• Multi-national agreements have to be in place in order to accept OFWs
• OFWs may be documented or undocumented, legal or illegal
• OFW are required to Remit 50-80% of basic salaries with respect to the type of job
Generally, only Public entities may employ, but as an exception, Private entities may employ on the
grounds that they have the authority to do so provided by the DOLE.
Ban on Direct Hiring – Direct-hiring is banned except through the Boards & entities authorized by DOLE
• Exempted herein are diplomatic corps, international organizations, and those allowed by DOLE
• Travel Agencies are prohibited from recruitment based on conflicts of interest in the state to
uphold local over overseas employment
Potential Employer’s Requirements
• Only Filipino Citizens are permitted to participate in recruitment or placement
***at least 75% of corporate participating stocks are required for capitalization
• All companies must have sufficient capital to pay compensations
• Agencies will be liable in solidum with Employers if neither are able to pay employee’s compensation
• Surety Bonds are placed in instances where neither agency nor employers are able to provide
compensation to the employees
• Licenses cannot be transferred. The effort placed into the undertaking of the license cannot be
replicated exactly by the recipient of the transferred license
• Only duly approved Registration Fees are exclusively collectible from employees in pre-employment.
o Visa o Documentation Costs
o Airfare ▪ Passport ▪ Medicare
o POEA Reg. Fee ▪ NBI Clearances ▪ Trade Test
o OWWA ▪ Authentication ▪ Inoculation
Membership ▪ Birth Certificate ▪ Medical Exams
• Foreigners may be employed only if they hold permits from DOLE Sec. and that if no local employee
has taken the position (Favor local over domestic
Violations on Deployment and Placements

Violation Violator Victim
Receiving Fees in Excess ER EE
Creating False notices of Employment ER/Ag EE
To misrepresent for securing licenses EE ER/Agcy
To induce termination 3rd EE/ER
Influence not to employ worker not applied for employment Agcy EE/ER
Engage in recruitment harmful to public health ER/Agcy 3rd/EE
To obstruct inspection ER DOLE
Fail filing of reports ER DOLE
Altercation of Employment contracts beyond jurisdiction of DOLE EE/ER/Agcy DOLE
To become officer or Board Member engaged in travel ER/Agcy DOLE
Withholding travel documents ER/Agcy/EE DOLE
Failure to deploy ER/Agcy EE/ER
Failure to reimburse expenses in failing to deploy ER/Agcy EE
Allowing foreigners to manage recruitment ER/Agcy DOLE
Other Provisions
Regulatory power – The Secretary of Labor shall have the power to restrict and regulate the recruitment
and placement activities of all agencies within the coverage of this Title and is hereby authorized to
issue orders and promulgate rules and regulations to carry out the objectives and implement the
provisions of this Title.
Visitorial Power – The Secretary of Labor or his duly authorized representatives may, at any time, inspect
the premises, books of accounts and records of any person or entity covered by this Title, require it to
submit reports regularly on prescribed forms, and act on violation of any provisions of this Title.
On Illegal Recruitment:
• Any recruitment activities, including the prohibited practices enumerated under Article 34 of
this Code, to be undertaken by non-licensees or non-holders of authority, shall be deemed illegal
and punishable under the penalties of this Code. The Department of Labor and Employment or
any law enforcement officer may initiate complaints under this Article.
• Illegal recruitment when committed by a syndicate or in large scale shall be considered an
offense involving economic sabotage and shall be penalized in accordance with Article 39 hereof.
Illegal recruitment is deemed committed by a syndicate if carried out by a group of three (3) or
more persons conspiring and/or confederating with one another in carrying out any unlawful or
illegal transaction, enterprise or scheme defined under the first paragraph hereof. Illegal
recruitment is deemed committed in large scale if committed against three (3) or more
persons individually or as a group.
• The Secretary of Labor and Employment or his duly authorized representatives shall have
the power to cause the arrest and detention of such non-licensee or non-holder of authority
if after investigation it is determined that his activities constitute a danger to national security
and public order or will lead to further exploitation of job-seekers. The Secretary shall order the
search of the office or premises and seizure of documents, paraphernalia, properties and other
implements used in illegal recruitment activities and the closure of companies, establishments
and entities found to be engaged in the recruitment of workers for overseas employment, without
having been licensed or authorized to do so
Training and Employment of Special Workers
TESDA – Technical Education and Skills Development Authority
o Hands-on practice o More hands on than theoretical in academia
o Takes 6 months to get TESDA certificate
Apprenticeships
o Minimum 3 months training and instruction o Vocational aptitude and test qualifications
o Apprenticeship Agreement = contract o Primary education skills
o At least 14 years old
Learnerships
o Hired semi-skilled workers, not apprentices o Termination of learnership that endures 2
o Max 3 months months are deemed regular employees
o May be hired when no workers available o Piece-work jobs will entitle learners to full
o Entitled to generally 75% of Min Wage piece work labor wage
Handicapped
o Earning capacity is impaired by physical, o Employable when employment is necessary to
mental deficiency or injury prevent wastage in employment opportunities,
o Disability ≠ handicapped, since disability does no unfair competition in labor costs
not impair earning capacity o May be employed as apprentices or learners
o Get 75% of minimum wage
Adult education – Every employer shall render assistance in the establishment and operation of adult
education programs for their workers and employees as prescribed by regulations jointly approved by
the Department of Labor and Employment and the Department of Education, Culture and Sports.
Conditions of Employment
Test of Existence of Employment Contract
EE-ER relationship – Essentially Remunerative
4-fold test to check the existence of the relationship:
• Selection and engagement of EE
• Payment of Wages
• Power of Dismissal
• Power to control with respect to means and methods as to how work is accomplished
o Implication of control
Inconclusive determinants of Employment
a. Contract – Substance is tested in preference over Form
b. Pay basis – Questionability of “contractorship” and “employeeship”
c. Nature and Kind of Work – Nature does not imply control by the Management
d. Place of Work
e. Length of Service
Contractor – hirer has no control over work performance of employee (No control over behavior or
approach towards work of worker)
General Conditions of Employment
Applicability – The General Conditions of Employment applies to all employees for profit, not for
profit, except:
• Government Employees – Covered by special laws, different wages
• Managerial Employees – management prerogatives, they are not allowed to OT
• Field Personnel – Nature of work prevents inspection
• Members of the Family of ER – dependence for support is compensated by work done
• Domestic Helpers – Kasambahay law applies
• Persons in service of another – special laws
• Workers paid in piece-work – Quotas have to be complied in any terms the EE chooses. Lack of
standardized supervision
General Working Conditions
• Normal Hours of Work – Not exceed 8 hours a day, for 6 days
• Hours worked defined by all time required and all time suffered
• Included as worked are the 60 min. meal break and 20 min. rest period
• Night Shifts are compensated by an increase of 10% in normal wages for hours worked beyond
10 PM and before 6 AM
• Overtime is work performed beyond 8 hours a day. Employees are entitled an increase of 25%
in their regular wages, on rest days, 30%
• Undertime must not be offset by overtime – this defeats the purpose for which the employee
engages in overtime for pay. As Overtime is time suffered for wages.
• Compressed work weeks are allowed
• Emergency Overtime allowed
o In times of war, or state of calamities or emergencies declared by NA or CE
o Necessary to prevent loss of life or property of ER or general public
o Urgent system upgrades or repairs necessary for the conduct of work
o Prevent Wastage or loss of perishable goods
o Any time beyond 8th hour of a work day is needed for preventing the obstruction of ER’s
Operations
• Regular Wages include cash wages only – For purposes of computing overtime and other
additional remuneration as required by this Chapter, the “regular wage” of an employee shall
include the cash wage only, without deduction on account of facilities provided by the
employer
• When Required to work on a Rest Day:
o In case of actual or impending emergencies caused by serious accident, fire, flood,
typhoon, earthquake, epidemic or other disaster or calamity to prevent loss of life and
property, or imminent danger to public safety;
o In cases of urgent work to be performed on the machinery, equipment, or installation, to
avoid serious loss which the employer would otherwise suffer;
o In the event of abnormal pressure of work due to special circumstances, where the
employer cannot ordinarily be expected to resort to other measures;
o To prevent loss or damage to perishable goods;
o Where the nature of the work requires continuous operations and the stoppage of work
may result in irreparable injury or loss to the employer; and
o Under other circumstances analogous or similar to the foregoing as determined by the
Secretary of Labor and Employment.
Salaries and Wages
Wages – “Wage” paid to any employee shall mean the remuneration or earnings, however designated,
capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or
commission basis, or other method of calculating the same, which is payable by an employer to an
employee under a written or unwritten contract of employment for work done or to be done, or for
services rendered or to be rendered and includes the fair and reasonable value, as determined by the
Secretary of Labor and Employment, of board, lodging, or other facilities customarily furnished by the
employer to the employee. “Fair and reasonable value” shall not include any profit to the employer, or
to any person affiliated with the employer.
N.B. Salaries are paid by the period, while wages are paid by the hour; though the law does not
distinguish between the two.
Payment of Wages
Legal Tender – Wages may only be paid through legal tender. Anything other than Legal Tender cannot
be considered wages. However, Money Orders and Wages paid through Checks can be used to pay
wages.
Time of Payment - Wages shall be paid at least once every two (2) weeks or twice a month at intervals
not exceeding sixteen (16) days.
• On Force Majeure – If on account of force majeure or circumstances beyond the employer’s
control, payment of wages on or within the time herein provided cannot be made, the employer
shall pay the wages immediately after such force majeure or circumstances have ceased. No
employer shall make payment with less frequency than once a month.
Task beyond 2-weeks – The payment of wages of employees engaged to perform a task which cannot be
completed in two (2) weeks shall be subject to the following conditions, in the absence of a collective
bargaining agreement or arbitration award:
1. That payments are made at intervals not exceeding sixteen (16) days, in proportion to the amount
of work completed;
2. That final settlement is made upon completion of the work.
Place of Payment – Payment of wages shall be made at or near the place of undertaking, except as
otherwise provided by such regulations as the Secretary of Labor and Employment may prescribe under
conditions to ensure greater protection of wages.
When Direct Payment is not Possible – Direct payment of wages. Wages shall be paid directly to the
workers to whom they are due, except:
a. Force Majeure, where the only means to accept payment is through another person with the
employee’s written authority
b. Where the worker has died, in which case, the employer may pay the wages of the deceased
worker to the heirs of the latter without the necessity of intestate proceedings. The
claimants, if they are all of age, shall execute an affidavit attesting to their relationship to the
deceased and the fact that they are his heirs, to the exclusion of all other persons. If any of the
heirs is a minor, the affidavit shall be executed on his behalf by his natural guardian or next-of-
kin. The affidavit shall be presented to the employer who shall make payment through the
Secretary of Labor and Employment or his representative. The representative of the Secretary
of Labor and Employment shall act as referee in dividing the amount paid among the heirs. The
payment of wages under this Article shall absolve the employer of any further liability with
respect to the amount paid.
Contractors and Sub-contractors– Whenever an employer contracts with another person for the
performance of the former’s work, the employees of the contractor and of the latter’s subcontractor, if
any, shall be paid in accordance with the provisions of this Code.
• Failure to Pay Wage – shall render the contractor/sub-contractor and the employer severally
liable for non-payment
• In the Case of Labor-only contracting, the employee is merely an agent of the contractor, hence
any dues in remuneration to the employee of the contractor are solely demandable from the
contractor.
• Surety Bond – An employer or indirect employer may require the contractor or subcontractor to
furnish a bond equal to the cost of labor under contract, on condition that the bond will answer
for the wages due the employees should the contractor or subcontractor fail to pay the same.
Indirect Employment – Whenever an employer enters into a contract with another person for the
performance of the former’s work, the employees of the contractor and of the latter’s subcontractor, if
any, shall be paid in accordance with the provisions of this Code.
In case of Bankruptcy - in the event of bankruptcy or liquidation of an employer’s business, his workers
shall enjoy first preference as regards their wages and other monetary claims, any provisions of law to
the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before claims
of the government and other creditors may be paid.
On Attorney’s Fees
• In cases of unlawful withholding of wages, the culpable party may be assessed attorney’s fees
equivalent to ten percent of the sum of wages recovered.
• It shall be unlawful for any person to demand or accept, in any judicial or administrative proceedings
for the recovery of wages, attorney’s fees which exceed ten percent of the sum of wages recovered.
The Minimum Wage
• Regional minimum wages – The minimum wage rates for agricultural and non-agricultural employees
and workers in each and every region of the country shall be those prescribed by the Regional
Tripartite Wages and Productivity Boards
• Prohibition against elimination or diminution of benefits – Nothing in this Book shall be construed
to eliminate or in any way diminish supplements, or other employee benefits being enjoyed
• Payment by results – The Secretary of Labor and Employment shall regulate the payment of wages
by results, including pakyao, piecework, and other non-time work, in order to ensure the payment
of fair and reasonable wage rates, preferably through time and motion studies or in consultation with
representatives of workers’ and employers’ organizations.
Prohibitions on Wages
Non-interference in disposal of wages – No employer shall limit or otherwise interfere with the freedom
of any employee to dispose of his wages.
Wage deduction, when allowed – No employer, in his own behalf or in behalf of any person, shall make
any deduction from the wages of his employees, except for Withholdings on Insurance & Union Dues:
a. In cases where the worker is insured with his consent by the employer, and the deduction is to
recompense the employer for the amount paid by him as premium on the insurance;
b. For union dues, in cases where the right of the worker or his union to check-off has been
recognized by the employer or authorized in writing by the individual worker concerned; and
c. In cases where the employer is authorized by law or regulations issued by the Secretary of Labor
and Employment (SSS, Pag-IBIG, PhilHealth, Withholding Tax on Compensation).
Deposits for loss or damage not allowed – No employer shall require his worker to make deposits
from which deductions shall be made for the reimbursement of loss of or damage to tools, materials, or
equipment supplied by the employer, except when the employer is engaged in such trades, occupations
or business where the practice of making deductions or requiring deposits is a recognized one, or is
necessary or desirable as determined by the Secretary of Labor and Employment in appropriate rules
and regulations.
• Limitation – No deduction from the deposits of an employee for the actual amount of the loss or
damage shall be made unless the employee has been heard thereon, and his responsibility has been
clearly shown.
Withholding of wages and kickbacks prohibited – It shall be unlawful for any person, directly or
indirectly, to withhold any amount from the wages of a worker or induce him to give up any part of his
wages by force, stealth, intimidation, threat or by any other means whatsoever without the worker’s
consent.
Deduction to ensure employment – It shall be unlawful to make any deduction from the wages of any
employee for the benefit of the employer or his representative or intermediary as consideration of a
promise of employment or retention in employment.
Retaliatory measures – It shall be unlawful for an employer to refuse to pay or reduce the wages and
benefits, discharge or in any manner discriminate against any employee who has filed any complaint or
instituted any proceeding under this Title or has testified or is about to testify in such proceedings.
False reporting – It shall be unlawful for any person to make any statement, report, or record filed or
kept pursuant to the provisions of this Code knowing such statement, report / record to be false in any
material respect.
Employment of Women
Nightwork prohibition. No woman, regardless of age, shall be employed or permitted or suffered to
work, with or without compensation:
• In any industrial undertaking or branch thereof between 10 PM and 6 AM of the following day;
or
• In any commercial or non-industrial undertaking or branch thereof, other than agricultural,
between 12 AM and 6 AM in the morning of the following day; or
• In any agricultural undertaking at nighttime unless she is given a period of rest of not less than
nine (9) consecutive hours.
• Exceptions. The prohibitions prescribed by the preceding Article shall not apply in any of the
following cases:
a. Where the woman employee holds a responsible position of managerial or technical nature,
or where the woman employee has been engaged to provide health and welfare services;
b. Where the nature of the work requires the manual skill and dexterity of women workers
and the same cannot be performed with equal efficiency by male workers;
c. Where the women employees are immediate members of the family operating the
establishment or undertaking; and
d. Under other analogous cases exempted by the Secretary of Labor and Employment in
appropriate regulations.
e. Those special cases as with any other employee so require (force majeure, preventable
significant losses, perishable goods, etc.)
Facilities for women – Employers are required to:
a. Provide seats proper for women and permit them to use such seats when they are free from
work and during working hours, provided they can perform their duties in this position without
detriment to efficiency; (Resting Lounges)
b. To establish separate toilet rooms and lavatories for men and women and provide at least a
dressing room for women;
c. To establish a nursery in a workplace for the benefit of the women employees therein; and
d. To determine appropriate minimum age and other standards for retirement or termination
in special occupations such as those of flight attendants and the like.
Maternity leave benefits
a. Employment with the employer requires at least an aggregate of 6 months for the last 12
months of employment
b. A Maternity Leave of at least 2 weeks prior to expected delivery and another 4 weeks after
normal delivery or abortion with full-pay based on her regular or average weekly wages. A
medical certificate may be required by the employer proving that the date of the delivery may
be within 2 weeks.
c. The maternity leave shall be extended without pay on account of illness medically certified to
arise out of the pregnancy, delivery, abortion or miscarriage, which renders the woman unfit
for work, unless she has earned unused leave credits from which such extended leave may be
charged.
d. The maternity leave provided in this Article shall be paid by the employer only for the first four
(4) deliveries by a woman employee after the effectivity of this Code.
e. Married, Unmarried, and Solo-parent women are allowed Maternity Leave Benefits
Family planning services; incentives for family planning
a. Establishments which are required by law to maintain a clinic or infirmary shall provide free
family planning services to their employees which shall include, but not be limited to, the
application or use of contraceptive pills and intrauterine devices
b. In coordination with other agencies of the government engaged in the promotion of family
planning, the Department of Labor and Employment shall develop and prescribe incentive
bonus schemes to encourage family planning among female workers in any establishment or
enterprise.
Discrimination prohibited. It shall be unlawful for any employer to discriminate against any woman
employee with respect to terms and conditions of employment solely on account of her sex.
Acts of Discrimination:
a. Payment of a lesser compensation, including wage, salary or other form of remuneration and
fringe benefits, to a female employee as against a male employee, for work of equal value; and
b. Favoring a male employee over a female employee with respect to promotion, training
opportunities, study and scholarship grants solely on account of their sexes.
Stipulation against marriage – It shall be unlawful for an employer to require as a condition of
employment or continuation of employment that a woman employee shall not get married, or to stipulate
expressly or tacitly that upon getting married, a woman employee shall be deemed resigned or separated,
or to actually dismiss, discharge, discriminate or otherwise prejudice a woman employee merely by
reason of her marriage.
Prohibited acts.
It shall be unlawful for any employer:
1. To deny any woman employee the benefits provided for in this Chapter or to discharge
any woman employed by him for the purpose of preventing her from enjoying any of
the benefits provided under this Code.
2. To discharge such woman on account of her pregnancy, or while on leave or in

confinement due to her pregnancy;
3. To discharge or refuse the admission of such woman upon returning to her work for
fear that she may again be pregnant.
Women Workers in Night Clubs, Cocktail lounges, massage clinics, bars, etc. – Any woman who is
permitted or suffered to work, with or without compensation, in any night club, cocktail lounge,
massage clinic, bar or similar establishments under the effective control or supervision of the employer
for a substantial period of time as determined by the Secretary of Labor and Employment, shall be
considered as an employee of such establishment for purposes of labor and social legislation.
Employment of Minors
Minimum employable age
a. No child below fifteen (15) years of age shall be employed, except when he works directly under
the sole responsibility of his parents or guardian, and his employment does not in any way
interfere with his schooling.
b. Any person between fifteen (15) and eighteen (18) years of age may be employed for such number
of hours and such periods of the day as determined by the Secretary of Labor and Employment
in appropriate regulations.
c. The foregoing provisions shall in no case allow the employment of a person below eighteen (18)
years of age in an undertaking which is hazardous or deleterious in nature as determined by the
Secretary of Labor and Employment.
Prohibition against child discrimination. No employer shall discriminate against any person in respect
to terms and conditions of employment on account of his age.
Employment of House-helpers and Houseworkers
Domestic or household service – shall mean service in the employer’s home which is usually necessary
or desirable for the maintenance and enjoyment thereof and includes ministering to the personal comfort
and convenience of the members of the employer’s household, including services of family drivers.
Contract of domestic service. The original contract of domestic service shall not last for more than two
(2) years but it may be renewed for such periods as may be agreed upon by the parties.
The Minimum wage.
• Househelpers shall be paid the following minimum wage rates:
a. P800.00 a month for househelpers in Manila, Quezon, Pasay, and Caloocan cities and
municipalities of Makati, San Juan, Mandaluyong, Muntinlupa, Navotas, Malabon,
Parañaque, Las Piñas, Pasig, Marikina, Valenzuela, Taguig and Pateros in Metro Manila
and in highly urbanized cities;
b. P650.00 a month for those in other chartered cities and first-class municipalities; and
c. P550.00 a month for those in other municipalities.
Provided, That the employers shall review the employment contracts of their househelpers
every three (3) years with the end in view of improving the terms and conditions thereof.
Provided, further, that those househelpers who are receiving at least One thousand pesos
(P1,000.00) shall be covered by the Social Security System (SSS) and be entitled to all the benefits
provided thereunder. (As amended by Republic Act No. 7655, August 19, 1993)
• Minimum cash wage – The minimum wage rates prescribed under this Chapter shall be the
basic cash wages which shall be paid to the househelpers in addition to lodging, food and
medical attendance.
Assignment to non-household work – No househelper shall be assigned to work in a commercial,
industrial or agricultural enterprise at a wage or salary rate lower than that provided for agricultural or
non-agricultural workers as prescribed herein. (i.e., a separate wage for each separate case of
employment)
Opportunity for education – If the househelper is under the age of eighteen (18) years, the employer
shall give him or her an opportunity for at least elementary education. The cost of education shall be
part of the househelper’s compensation, unless there is a stipulation to the contrary.
Treatment of househelpers – The employer shall treat the househelper in a just and humane manner.
In no case shall physical violence be used upon the househelper.
Board, lodging, and medical attendance – The employer shall furnish the househelper, free of charge,
suitable and sanitary living quarters as well as adequate food and medical attendance.
Indemnity for unjust termination of services – If the period of household service is fixed, neither the
employer nor the househelper may terminate the contract before the expiration of the term, except
for a just cause. If the househelper is unjustly dismissed, he or she shall be paid the compensation already
earned plus that for fifteen (15) days by way of indemnity.
If the househelper leaves without justifiable reason, he or she shall forfeit any unpaid salary due him or
her not exceeding fifteen (15) days.
Service of termination notice – If the duration of the household service is not determined either in
stipulation or by the nature of the service, the employer or the househelper may give notice to put an
end to the relationship five (5) days before the intended termination of the service.
Employment certification – Upon the severance of the household service relation, the employer shall
give the househelper a written statement of the nature and duration of the service and his or her
efficiency and conduct as househelper.
Employment record – The employer may keep such records as he may deem necessary to reflect the
actual terms and conditions of employment of his househelper, which the latter shall authenticate by
signature or thumbmark upon request of the employer.
Employment of Housework vs Househelp
The law provides the distinction in terms of the nature of the work provided. Houseworkers are actually
personnel assigned in the field, or are actually equivalents of field personnel in any job. Househelp, on
the other hand, is not considered merely in field work. In this regard, housework is merely any
employment arrangement that requires the employee to report to work in the domicile of the employer,
which may include more than just househelp duties. It may include industrial and or commercial duties
that the househelp is not scoped to provide.
Regulation of industrial homeworkers – The employment of industrial homeworkers and field
personnel shall be regulated by the government through the appropriate regulations issued by the
Secretary of Labor and Employment to ensure the general welfare and protection of homeworkers and
field personnel and the industries employing them.
Regulations of Secretary of Labor – The regulations or orders to be issued pursuant to this Chapter
shall be designed to assure the minimum terms and conditions of employment applicable to the
industrial homeworkers or field personnel involved.
Distribution of homework – For purposes of this Chapter, the “employer” of homeworkers includes any
person, natural or artificial who, for his account or benefit, or on behalf of any person residing outside
the country, directly or indirectly, or through an employee, agent contractor, sub-contractor or any
other person:
• Delivers, or causes to be delivered, any goods, articles or materials to be processed or fabricated in
or about a home and thereafter to be returned or to be disposed of or distributed in accordance
with his directions; or
• Sells any goods, articles or materials to be processed or fabricated in or about a home and then
rebuys them after such processing or fabrication, either by himself or through some other person
Computation of Salaries and Wages
• Cash wages are generally acceptable, Wages in kind are included as basis for the computation for
OT& NSD
• Holiday, rest day pay, etc.
• Rest Periods – 4 rest days decided by ER and EE equally
• Work on rest day is subject to same standards to OT
• Working on scheduled rest day, Sunday, or Special Holidays (30%)
• Right to Service Incentive Leaves (Government and Private Employees) are entitled to sick leave,
Vacation Leave is not mandatory to private employees
• Battered Women Leaves are mandatory to women who suffered physical, sexual, psychological
abuse/violence
• Maternity Leave – Out of magna carta of women, married or unmarried
• Paternity Leave – only for married men
Service charges. All service charges collected by hotels, restaurants and similar establishments shall
be distributed at the rate of eighty-five percent (85%) for all covered employees and fifteen percent
(15%) for management. The share of the employees shall be equally distributed among them. In case
the service charge is abolished, the share of the covered employees shall be considered integrated in
their wages.
• Only Service establishments are allowed to demand service charges (Hotels and restaurants)
Parental Leave for Solo Parent – Republic Act No. 8972 grants parental leave of seven (7) work days
with full pay every year, in addition to leave privileges under existing laws, to solo parents.
Applicability – Parental leave for solo parents is granted to any solo parent or individual who is left
alone with the responsibility of parenthood due to:
1. Giving birth as a result of rape or, as used by the law, other crimes against chastity;
2. Death of spouse;
3. Spouse is detained or is serving sentence for a criminal conviction for at least one (1) year;
4. Physical and/or mental incapacity of spouse as certified by a public medical practitioner;
5. Legal separation or de facto separation from spouse for at least one (1) year:
a. Provided that he/she is entrusted with the custody of the children;
6. Declaration of nullity or annulment of marriage as decreed by a court or by a church:
a. Provided, that he/she is entrusted with the custody of the children;
7. Abandonment of spouse for at least one (1) year;
8. Unmarried father/mother who has preferred to keep and rear his/her child/children, instead
of having others care for them or give them up to a welfare institution;
9. Any other person who solely provides parental care and support to a child or children:
a. Provided, that he/she is duly licensed as a foster parent by the Department of Social
Welfare and Development (DSWD) or duly appointed legal guardian by the court; and
10. Any family member who assumes the responsibility of head of family as a result of the death,
abandonment, disappearance, or prolonged absence of the parents or solo parent: Provided,
that such abandonment, disappearance, or prolonged absence lasts for at least one (1) year.
Requirements – In order to be entitled to the leave, a solo parent employee should:
• Have rendered at least one (1) year of service, whether continuous or broken.
• In addition, the employee should notify his or her employer that he or she will avail of the
leave within a reasonable period of time.
• Finally, the solo parent employee must present to the employer his or her Solo Parent
Identification Card. Such card which may be obtained from the Department of Social Welfare
and Development (DSWD) located in the city where the employee resides.
• In the event that the parental leave is not availed of, it shall not be convertible to cash.
13th Month Pay – Only to the extent of basic salary, excluding OT, NSD, Service Incentive Leaves,
Holiday Pay, COLA, Profit-sharing bonuses, others not part of the basic salary
• Moreover, an employer is given the prerogative to release the 13th month pay in installments
of two (2) to whichever number that is convenient to satisfy the condition that the mandatory
benefit be given before December 24 every year. By practice, many companies maintain two
installments, first in May and then in December, where the first fifty percent (50%) is given as
an aid for employees to prepare for the opening of the regular school year in June.
List of Holidays
National Regular Holidays List for
• New Year’s Day • National Heroes’ Day
• Maundy Thursday • Bonifacio Day
• Good Friday • Christmas Day

• Araw ng Kagitingan • Rizal Day
• Labor Day • Eid’l Fitr
• Independence Day • Eid’l Adha
•
*Note: Official announcement from the Office of the President for the specific dates for Eid’l Fitr and
Eid’l Adha will be issued after approximate dates of these Islamic holidays have been determined (in
accordance with the Islamic calendar Hjira, the lunar calendar or upon Islamic astronomical calculations,
whichever is possible or convenient)
Compensation for National Regular Holidays
a. If it is an employee’s regular workday
• If unworked, employee shall be paid 100% of his/her daily rate – (Daily Rate x 100%)
• If worked, employee shall be paid 200% of his/her daily rate for the 8 hours – (Daily Rate x 200%)
• Excess of 8 hours – plus 30% of hourly rate on said day
b. If it is an employee rest day
• If unworked – 100%
• If worked – 1st 8 hours – plus 30% of 200%
• Excess of 8 hours – plus 30% of hourly rate on said day
Nationwide Special (Non-Working) Holidays List
Special (Non-Working) Holidays:
• Chinese New Year • All Saints’ Day
• EDSA Revolution Anniversary • Feast of the Immaculate Conception of
• Black Saturday Mary
• Ninoy Aquino Day • Last Day of the Year
Special Working Days

• All Souls’ Day
• Christmas Eve
Compensation for National Special Holidays
For declared special days such as Special Non-working Day, Special Public Holiday, Special National
Holiday, in addition to the two national special days, November 1 (All Saints Day) and December 31 (Last
Day of the Year), the following rules shall apply:
a. If unworked
• No pay, unless there is a favorable company policy, practice or collective bargaining agreement
(CBA) granting payment of wages on special days even if unworked
b. If worked
• First eight (8) hours – plus 30% of the daily rate of 100%
• Excess of eight (8) hours – plus 30% of hourly rate on said day
c. Falling on the employee’s rest day and if worked
• First eight (8) hours – plus 50% of the daily rate of 100%
• Excess of eight (8) hours – plus 30% of hourly rate on said day
Special Working Holidays
For work performed, an employee in the Philippines is entitled only to his basic rate. No premium pay is
required since work performed on said days is considered work on ordinary working days.
Social Security Laws
N.B. Some Provisions in the Post-employment section of the Labor Code are actually included in the
Social Security Law, and are appended to include a wider scope of benefits.
Definition of Terms
• SSS — The Social Security System created by this Act
• Commission — The Social Security Commission as herein created.
• Employer — Any person, natural or juridical, domestic or foreign, who carries on in the
Philippines any trade, business, industry, undertaking, or activity of any kind and uses the
services of another person who is under his orders as regards the employment, except the
Government and any of its political subdivisions, branches or instrumentalities, including
corporations owned or controlled by the Government: Provided, That a self-employed
professional shall be both employee and employer at the same time.
• Employee — Any person who performs services for an employer in which either or both mental
and physical efforts are used and who receives compensation for such services, where there is
an employer-employee relationship: Provided, that a self-employed professional shall be both
employee and employer at the same time
• Dependent — The legitimate, legitimated or legally adopted child who is unmarried, not
gainfully employed, and not over twenty-one years of age, or over twenty-one years of age,
provided that he is congenitally incapacitated and incapable of self-support, physically or
mentally; the legitimate spouse dependent for support upon the employee; and the legitimate
parents wholly dependent upon the covered employee for regular support.
• Compensation — All actual remuneration for employment, including the mandated cost of living
allowance, as well as the cash value of any remuneration paid in any medium other than cash
except that part of the remuneration in excess of three thousand pesos received during the
month.
• Monthly salary credit — The compensation base for contributions and benefits as indicated in
the schedule provided (must be given by the examiner for the board exam).
• Monthly — The period from one end of the last payroll period of the preceding month to the end
of the last payroll period of the current month if compensation is on hourly, daily or weekly
basis; if on any other basis, "monthly" shall mean a period of one month.
• Contribution — The amount paid to the SSS by the employee and by his employer in accordance
with section eighteen of this Act.
• Employment. — Any service performed by an employee for his employer, except —
• Agricultural labor when performed by a share or leasehold tenant or worker who is not paid any
regular daily wage or base pay and who does not work for an uninterrupted period of at least six
months in a year;
o Domestic service in a private home;
o Employment purely casual and not for the purposes of occupation or business of the
employer;
o Service performed by an individual in the employ of his son, daughter, or spouse, and
service performed by a child under the age of twenty-one years in the employ of his
parents;
o Service performed on or in connection with an alien vessel by an employee if he is
employed when such vessel is outside the Philippines;
o Service performed in the employ of the Philippine Government or an instrumentality or
agency thereof;
o Service performed in the employ of a foreign government or international organization,
or their wholly-owned instrumentality: Provided, however, That his exemption
notwithstanding, any foreign government, international organization, or their wholly-
owned instrumentality employing workers in the Philippines or employing Filipinos
outside of the Philippines may enter into an agreement with the Philippine Government
for the inclusion of such employees in the SSS except those already covered by their
respective civil service retirement systems: Provided, further, That the terms of such
agreement shall conform with the provisions of this Act on coverage and amount of
payment of contributions and benefits: Provided, finally, That the provisions of this Act
shall be supplementary to any such agreement.
o Such other services performed by temporary employees who may be excluded by

regulation of the Commission. Employees of bona fide independent contractors shall not
be deemed employees of the employer engaging the services of said contractors.
• Beneficiaries — The dependent spouse until he remarries and dependent children, who shall be
the primary beneficiaries. In their absence, the dependent parents and, subject to the
restrictions imposed on dependent children, the legitimate descendants and illegitimate children
who shall be the secondary beneficiaries. In the absence of any of the foregoing, any other person
designated by the covered employee as secondary beneficiary.
• Contingency — The retirement, death, permanent disability, injury or sickness of the covered
employee
• Average monthly salary credit — The result obtained by dividing the sum of the monthly salary
credits in the sixty-month period immediately preceding the semester of contingency by the
number of months of coverage in the same period, or the result obtained by dividing the sum of
all the monthly salary credits paid prior to the semester of contingency by the number of calendar
months of coverage in the same period, whichever is greater: except where the month of
contingency falls within eighteen months from the month of coverage, in which case it is the
result obtained by dividing the sum of all monthly salary credits paid prior to the month of
contingency by the total number of calendar months of coverage in the same period: Provided,
That the injury or sickness which caused the disability shall be deemed as the permanent
disability for the purpose of computing the average monthly salary credit.
• Average daily salary credit — The result obtained by dividing the sum of the six highest monthly
salary credits in the twelve-month period immediately preceding the semester of contingency by
one hundred eighty.
• Semester — A period of two consecutive quarters ending in the quarter of contingency.
• Quarter — A period of three consecutive calendar months ending on the last day of March, June,
September and December
• Replacement ratio — The sum of twenty per cent and the quotient obtained by dividing three
hundred by the sum of three hundred forty and the average monthly salary credit.
• Credited years of service — For a member covered prior to January 1975, nineteen hundred
seventy-five minus the calendar year of coverage plus the number of calendar years in which six
or more contributions have been paid from January 1975 up to the calendar year containing the
semester prior to the contingency. For a member covered in or after January 1975, the number
of calendar years in which six or more contributions have been paid from the year of coverage
up to the calendar year containing the semester prior to the contingency
Scope and Applicability
The Social Security Law applies compulsory coverage upon:
• All employees not over 60 years of age, and their employers; provided
o That any benefit already earned by employees under private benefit plans existing at
the time of the approval of this Act shall not be discontinued, reduced or otherwise
impaired
o Private plans existing and in force at the time of coverage are integrated with the SSS;
▪ Any excess contribution by the employer in the employee’s plan over that
required of the employer by law; he shall pay to the SSS only the contribution
required of him and he shall continue his contribution to such private plan less
his contribution to the SSS so that the employer's total contribution to his private
benefit plan and to the Social Security System shall be the same as his
contribution to his private benefit plan before the compulsory coverage
o That any changes, adjustments, modifications, eliminations or improvements in the
benefits to be available under the remaining private plan, which may be necessary to
adopt by reason of the reduced contribution thereto as a result of the integration, shall
be subject to agreements between the employers and employees concerned
o That the private benefit plan which the employer shall continue for his employees
shall remain under the employer's management and control unless there is an existing
agreement to the contrary
o That nothing in this Act shall be construed as a limitation on the right of employers
and employees to agree on and adopt benefits which are over and above those provided
• Filipinos recruited in the Philippines by foreign-based employers for employment abroad may
be covered by the SSS on a voluntary basis.
• Compulsory Coverage takes effect on the first day of operations for the employer and that
of the employee on the day of his employment
The Social Security Law also applies compulsory coverage upon the Self-employed. – Coverage in the SSS
shall also be compulsory upon all self-employed persons earning P1,800 or more per annum:
• Provided, That the effectivity of coverage of certain groups of self-employed shall be determined
by the Commission under such rules and regulations it may prescribe:
• Provided, further, That the effectivity of the coverage of the following self-employed
individuals shall take effect on the first day of January following the calendar year.
o All self-employed professionals licensed by the Professional Regulations Commission or
those licensed to practice law.
o Partners and single proprietors of businesses.
o Actors and actresses, directors, scriptwriters and news correspondents who do not fall
within the definition of the term "employee"
o Professionals, athletes, coaches, trainers licensed by the Games and Amusement Board
as well as jockeys and trainers licensed by the Philippine Racing Commission.
Unless otherwise specified herein, all provisions of the SSS Law applicable to covered employees shall
also be applicable to the covered self-employed persons.
Upon Separation from Employment – When an employee under compulsory coverage is separated from
employment, his employer's contribution on his account and his obligation to pay contributions arising
from that employment shall cease at the end of the month of separation, but said employee shall be
credited with all contributions paid on his behalf and entitled to benefits according to the provisions of
this Act. He may, however, continue to pay the total contributions to maintain his right to full
benefit.
Effect of Interruption of Business or Professional Income – If the self-employed realizes no net
professional or business income in any calendar year, he shall not be required to pay contributions
for the succeeding year. He may, however, be allowed to continue paying contributions under the same
rules and regulations applicable to separated covered employees.
Social Security under the Labor Code:
Foreign employment – The Commission shall ensure adequate coverage of Filipino employees employed
abroad, subject to regulations as it may prescribe.
Limitation of liability – The State Insurance Fund shall be liable for compensation to the employee or his
dependents, except when the disability or death was occasioned by the employee’s intoxication, willful
intention to injure or kill himself or another, notorious negligence, or otherwise provided
Extent of liability – Unless otherwise provided, the liability of the State Insurance Fund under this Title
shall be exclusive and in place of all other liabilities of the employer to the employee, his dependents
or anyone otherwise entitled to receive damages on behalf of the employee or his dependents. The
payment of compensation under this Title shall not bar the recovery of benefits from:
• Rendering of Service by Civil Servants,
• Those from the Old Social Security Act
• Those mentioned in the Police Act
• And other laws whose benefits are administered by the System or by other agencies of the
government.
Liability of third-parties.
a. When the disability or death is caused by circumstances creating a legal liability against a third
party, the disabled employee or the dependents, in case of his death, shall be paid by the System.
In case benefit is paid under this Title, the System shall be subrogated to the rights of the
disabled employee or the dependents, in case of his death, in accordance with the general law.
b. Where the System recovers from such third-party damages in excess of those paid or allowed
under this Title, such excess shall be delivered to the disabled employee or other persons entitled
thereto, after deducting the cost of proceedings and expenses of the System.
Deprivation of the benefits – Except as otherwise provided under this Title, no contract, regulation or
device whatsoever shall operate to deprive the employee or his dependents of any part of the income
benefits and medical or related services granted. Existing medical services being provided by the
employer shall be maintained and continued to be enjoyed by their employees.
Benefits
Monthly Pension
The monthly pension shall be the sum of the following:
• The average monthly salary credit multiplied by the replacement ratio; and
• One and a half per cent of the average monthly salary credit for each credited year of service in
excess
The monthly pension shall in no case be less than two hundred pesos nor paid in an aggregate amount of
less than sixty times the monthly pension except to a secondary beneficiary: Provided, That the monthly
pension of surviving pensioners as of December 31, 1986 shall be increased by twenty per cent.
Dependents' Pension
The dependents' pension shall be equivalent to ten per cent of the monthly pension for each dependent
child but not exceeding five, beginning with the youngest and without substitution.
Entitlement for Monthly Pension, Requirements:
• A covered employee who has paid at least one hundred twenty monthly contributions prior to
the semester of retirement
• Has reached the age of 60 years and is not receiving monthly compensation of at least three
hundred pesos or has reached the age of 65 years, shall be entitled for as long as he lives to the
monthly pension
• And, that his dependents born before his retirement of a marriage subsisting when he was fifty-
seven years old shall be entitled to the dependents' pension
If not Qualified for Monthly Pension – The covered individual shall be:
• Entitled to a lump sum benefit equal to the total contributions paid by him and on his behalf
• Provided, that he is separated from employment and is not continuing payment of contributions
to the SSS on his own.
Upon Re-employment – The monthly pension shall be reduced upon the re-employment of a retired
employee who is less than sixty-five years old by an amount equivalent to one-half his earnings over
P300.00. He and his employer shall again be required to pay contributions.
Upon the death of the retired employee pensioner – His primary beneficiaries as of the date of his
retirement shall be entitled to 80%t of the monthly pension and his dependents to the dependents'
pension:
• Provided, that if he has no primary beneficiaries and he dies within sixty months from the
start of his monthly pension, his secondary beneficiaries shall be entitled to a lump sum benefit
equivalent to the larger of (1) twenty times the monthly pension or (2) the difference of sixty
times the monthly pension and the total monthly pensions paid by the SSS excluding the
dependents' pension.
Death Benefits
Upon the covered employee's death, his primary beneficiaries shall be entitled to the monthly pension
and his dependents to the dependents' pension:
• Only if that he has paid at least 36-monthly contributions prior to the semester of death:
• Otherwise, if the foregoing condition is not satisfied, his primary beneficiaries shall be entitled
to a lump-sum benefit equivalent to thirty-five times the monthly pension:
1. If he has no primary beneficiaries, his secondary beneficiaries shall be entitled to a lump
sum benefit equivalent to twenty times the monthly pension:
2. The minimum death benefit shall not be less than the total contributions paid by him
and his employer on his behalf nor less than 1,000.00
3. Minimum Benefit – The beneficiaries of the covered employee who dies without having
paid at least three-monthly contributions shall be entitled to the minimum benefit.
Temporary Total Disability

Any employee who sustains an injury or contracts sickness resulting in temporary total disability shall,
for each day of such a disability or fraction thereof, be paid by the System an income benefit equivalent
to 90% of his average daily salary credit, subject to the following conditions:
• The Daily Income Benefit shall not be less than P10.00 nor more than P90.00, nor paid for a
continuous period longer than 120 days, except as otherwise provided for in the Rules
• And the System shall be notified of the injury or sickness.
Permanent Disability Benefits
Any employee who suffers permanent total disability and has paid of at least 36 monthly contributions
prior to the semester of disability
Effects
• The Individual shall be entitled to the monthly pension and
• His dependents to the dependents' Pension:
• If the individual does not meet the minimum contribution requirement, the same effect on death
benefits shall apply
• Upon re-employment after having received the lump-sum benefit not earlier than 1 year from
the date of disability shall be subject to compulsory coverage
Upon Re-employment – The same effect applicable to those availing of the monthly pension applies
here, furthermore:
• The monthly pension and dependents' pension shall be suspended upon his recovery from the
permanent total disability, or his failure to present himself for examination at least once a year
upon notice by the SSS.
• Upon death of the permanently disabled, the same rules applicable to those availing of the
monthly pension shall apply.
Permanent and Total Disabilities:
• Complete loss of sight of both eyes;
• Loss of two limbs at or above the ankle or wrists;
• Permanent complete paralysis of two limbs;
• Brain injury resulting to incurable imbecility or insanity; and,
• Such cases as determined and approved by the SSS.
Permanent and Partial Disabilities – If the disability is permanent partial and such disability occurs after
thirty-six monthly contributions have been paid prior to the semester of disability, the benefit shall be
the monthly pension for permanent total disability payable not longer than the period designated in the
following:
Complete and permanent loss of use Number of Months
of:
One thumb 10
One index finger 8
One middle finger 6
One right finger 5

One little finger 3
One big toe 6
One hand 39
One arm 50
One foot 31
One leg 46
One ear 10
Both ears 20
Hearing of one ear 10
Hearing of both ears 20
Sight of one eye 25
If the disability is permanent partial, and such disability occurs before thirty-six monthly contributions
have been paid prior to the semester of disability, the benefit shall be such percentage of the lump
sum benefit described in the preceding paragraph with due regard to the degree of disability as the
Commission may determine.
The percentage degree of disability, which is equivalent to the ratio that the designated number of
months of compensability bears to seventy-five, rounded to the next higher integer, shall not be
additive for distinct, separate and unrelated permanent partial disabilities, but shall be additive for
deteriorating and related permanent partial disabilities, to a maximum of one hundred per cent, in
which case the employee shall be deemed as permanently totally disabled
Compensability of Injury
Injury – Any harmful change in the human organism from any accident arising out of and in the course of
employment
24-hour Doctrine – Members of the national police are, by the nature of their functions, technically on
duty 24 hours a day because policemen are subject to call at any time and may be asked by their superiors
or by any distressed citizen to assist in maintaining the peace and security of the community (Employees’
Compensation Commission v. CA, G.R. No. 115858. June 28, 1996).
“Street Peril” or “Going to/ Coming from work” – In the absence of special circumstances, an EE injured
while going to or coming from his place of work is excluded from the benefits of Workmen’s Compensation
Act.
XPNs:
1. Where the EE is proceeding to or from his work on the premises of the ER;
2. Proximity Rule—where the EE is about to enter or about to leave the premises of his ER by way
of exclusive or customary means of ingress and egress;
3. EE is charged, while on his way to or from his place of employment or at his home, or during this
employment with some duty or special errand connected with his employment; and
4. Where the ER as an incident of the employment provides the means of transportation to and
from the place of employment.
N.B. The act of going to or coming from the workplace must be a continuing act; EE had not been diverted
therefrom; EE did not deviate or departed from his usual route to or from his workplace; and with
regard to an EE on a special errand, the latter must have been official and in connection with his work
(Azucena, 2013).
Acts of ministration/Personal comfort doctrine – Acts performed by an Ee within the time and space
limits of his employment, to minister personal comfort, such as satisfaction of his thirst, hunger,or other
physical demands, or to protect him from excessive cold, shall be deemed incidental to his employment
and injuries suffered in the performance of such act shall be considered compensable and arising out of
and in the course of employment.
• Rest or refreshment – of EE during a break for rest or refreshment are compensable.

o XPN: When the nature of EE’s work requires him to remain awake (Azucena, 2013).
• Lunch period – Injuries of an EE is compensable although they occurred during lunch period
where eating of lunch was within ER’s consent or knowledge, express or implied.
o XPN: Not work connected and occurred in a place where he had no right to be (Azucena,
2013).
• Union meeting Injuries suffered at a union meeting during lunch period are not compensable
if not recognized by the Er in the CBA (Azucena, 2013).
• Extra-premises / Shuttle Bus Rule Injuries suffered by the EE, while on board a means of
transportation provided by the ER in going to or coming from work, are compensable (Azucena,
2013).
• While living, boarding or lodging on Er’s premises or at the workplace: Injuries suffered, while
living, boarding or lodging on Er’s premises or at the workplace
a. pursuant to an express or implied requirement contract of hiring; or
b. reasonably attributable or incidental to the nature of employment or conditions under
which he lives in the performance of his duties, are to be considered as having arisen out
of and in the course of employment.
XPNs:
1. When the residence of EE in ER’s premises is merely permissive and not required.
2. Injury suffered results from a risk or danger which is not reasonably incidental to the
employment (Azucena, 2013).
• While travelling Compensability depends on:
1. Whether the injury results from a risk which is inherent in the nature of employment or
reasonably incidental thereto or to which the EE is specially exposed; and
2. Whether the EE was engaged in the exercise of some functions or duties reasonably
necessary or incidental to the performance of the contract of his employment; or
3. If not actively engaged, whether EE was at the place where he was authorized or required
by such contract to be (Azucena, 2013).
NOTE: Authorized deviation from route, schedule, or travel is compensable (Azucena, 2013).
• Dual Purpose Doctrine – This doctrine considers as compensable the injury that an EE sustains
while on a trip undertaken for the benefit of the ER even if in the course of such business trip
the EE pursues a personal purpose (Azucena, 2013).
• ER sponsored activities – Injuries suffered by an EE during recreational activities and other ER
sponsored activities are compensable if such activities were for the Er’s exclusive benefit or
when the ER had some interest in those activities.
• Acts of force majeure: Not compensable when the EE has not been exposed to a greater danger
than usual.
XPN: “Positional and local risks doctrine” whereby the EE, because of his duties, was exposed to
a special or peculiar danger from the elements, that is, one which is greater than that to which
other persons in the community are exposed. The unexpected injury sustained by reason of such
elements is considered as arising out of and in the course of employment (Azucena, 2013).
• Presumptive compensability – Applicable when the victims are police officers and military
men. Their injuries and death are compensable under the doctrine of “presumptive
compensability”. It has been observed lately that policemen and military personnel were killed
for no other reason than the fact that they are military personnel and policemen (Quebec v.
GSIS, ECC Case No. 4310, November 9, 1988).
• Defenses that may be interposed by the state insurance fund against a claim for
compensation made by a covered EE or his dependents. The following defenses may be set up:
a. Injury is not work-connected or the sickness is not occupational
b. Disability or death was occasioned by the EE’s intoxication, willful intention to injure or
kill himself or another, or his notorious negligence (LC, Art. 172).
c. No notice of sickness, injury or death was given to the Er (LC, Art. 206).
d. Claim was filed beyond 3 years from the time the cause of action accrued (LC, Art. 201
as amended by P.D. 1921).
N.B. Notorious negligence is equivalent to gross negligence; it is something more than mere carelessness
or lack of foresight.
Funeral Benefit
A funeral grant of P2,000.00 pesos shall be paid to help defray the cost of funeral expenses upon the
death of a covered member, permanently totally disabled employee or retiree.
Sickness Benefit
A covered employee who:
• Has paid at least 3 monthly contributions in the 12-month period immediately preceding the
semester of sickness
• Is confined for more than 3 days in a hospital or elsewhere with the Commission's approval, shall,
for each day of compensable confinement or fraction thereof, be paid by his employer, or
the SSS, if such person is unemployed, an allowance equivalent to 90% of his average daily
salary credit, subject to the following conditions:
• Daily allowance cannot be less than P7.50 and more than P75.00;
• Cannot be paid longer than 120-days in one calendar year
• The unused portion thereof cannot be carried forward
• No employee shall be paid any sickness benefit for more than 240 days on account of the
same confinement;
• Notice to Employer and SSS – 5-calendar days after the start of confinement
o If the person is confined in the Hospital, notice to the SSS is not necessary
o If the Employee sustains the sickness at the premises of the Employer at work,
no notice is necessary
o Self-employed/Unemployed – In cases where notification is necessary, the
confinement shall be deemed to have started not earlier than the fifth day
immediately preceding the date of notification.
Payment of Allowance – The compensable confinement shall begin on the first day of sickness, and the
payment of such allowances shall be promptly made by the employer
• Made every regular payday or on the 15 and last day of each month, and similarly in the case of
direct payment by the SSS, for as long as such allowances are due and payable
• Provided, that such allowance shall begin only after all sick leaves of absence with full pay to
the credit of the employee shall have been exhausted.
Reimbursement of Benefits –100% of the daily benefits paid by the employer is reimbursed by the SSS
upon receipt of proof of payment and legality.
• That the employer has notified the SSS of the confinement within 5 calendar days after receipt
of the notification from the employee:
• If the notice from the employer is not given to the SSS after receipt of the notice from the
employee, Reimbursement applies only for each day of confinement starting from the 10 th
calendar day from receipt of notice by the SSS.
• On Self-employed and Unemployed Individuals – The SSS shall reimburse the employer or pay
the unemployed member only for confinement within the 1-year period immediately preceding
the date the claim for benefit or reimbursement is received by the SSS, except confinement in
a hospital in which case the claim for benefit or reimbursement must be filed within 1 year from
the last day of confinement
If the employee gives due notice to the Employer but not SSS, or if the Employee fails to file a claim for
reimbursement within 1 year, the employer will have no right to recover what he pays the employee in
sickness benefits.
Adjustment of claim – The claim of reimbursement shall be adjudicated by the SSS within a period of 2
months from receipt thereof;
• Provided, that should no payment be received by the employer within one month after the period
prescribed herein for adjudication the reimbursement shall thereafter earn simple interest of 1%
per month until paid.
Maternity Leave Benefit.
A covered female employee who has paid at least 3 monthly maternity contributions in the 12-month
period preceding the semester of her childbirth, abortion, or miscarriage and who is currently
employed shall be paid a daily maternity benefit equivalent to 100% of her present basic salary,
allowances and other benefits or the cash equivalents of such benefits for sixty days subject to the
following conditions:
• That the employee shall have notified her employer of her pregnancy and the probable date of
her childbirth which notice shall be transmitted to the SSS in accordance with the rules and
regulations it may provide;
• That the payment shall be advanced by the employer in two equal installments within 30 days
from the filing of the maternity leave application;
• That in case of caesarian delivery, the employees shall be paid the daily maternity benefit for
78 days;
• That payment of daily maternity benefits shall be a bar to the recovery of sickness benefits
provided by this Act for the same compensable period of 60 days for the same childbirth,
abortion, or miscarriage;
• That the SSS shall immediately reimburse the employer of 100% of the amount of maternity
benefits advanced to the employee by the employer upon receipt of satisfactory proof of such
payment and legality
• That if an employee should give birth or suffer abortion or miscarriage without the required
contributions having been remitted for her by her employer to the SSS, or without the latter
having been previously notified by the employer of time of the pregnancy, the employer shall
pay to the SSS damages equivalent to the benefits which said employee would otherwise
have been entitled to, and the SSS shall in turn pay such amount to the employee concerned.
Medical Benefits under the Labor Code
Medical services – Immediately after an employee contracts sickness or sustains an injury, he shall be
provided by the System during the subsequent period of his disability with such medical services and
appliances as the nature of his sickness or injury and progress of his recovery may require, subject to the
expense limitation prescribed by the Commission.
Liability – The System shall have the authority to choose or order a change of physician, hospital or
rehabilitation facility for the employee, and shall not be liable for compensation for any aggravation of
the employee’s injury or sickness resulting from unauthorized changes by the employee of medical
services, appliances, supplies, hospitals, rehabilitation facilities or physicians.
Attending physician – Any physician attending an injured or sick employee shall comply with all the
regulations of the System and submit reports in prescribed forms at such time as may be required
concerning his condition or treatment. All medical information relevant to the particular injury or
sickness shall, on demand, be made available to the employee or the System. No information developed
in connection with treatment or examination for which compensation is sought shall be considered as
privileged communication.
Refusal of examination or treatment – If the employee unreasonably refuses to submit to medical
examination or treatment, the System shall stop the payment of further compensation during such
time as such refusal continues. What constitutes an unreasonable refusal shall be determined by the
System which may, on its own initiative, determine the necessity, character and sufficiency of any
medical services furnished or to be furnished.
Fees and other charges All fees and other charges for hospital services, medical care and appliances,
including professional fees, shall not be higher than those prevailing in wards of hospitals for similar
services to injured or sick persons in general and shall be subject to the regulations of the Commission.
Professional fees shall only be appreciably higher than those prescribed under Republic Act Numbered
sixty-one hundred eleven, as amended, otherwise known as the Philippine Medical Care Act of 1969.
Rehabilitation services
a. The System shall, as soon as practicable, establish a continuing program, for the rehabilitation
of injured and handicapped employees who shall be entitled to rehabilitation services, which
shall consist of medical, surgical or hospital treatment, including appliances if they have been
handicapped by the injury, to help them become physically independent.
b. As soon as practicable, the System shall establish centers equipped and staffed to provide a
balanced program of remedial treatment, vocational assessment and preparation designed to
meet the individual needs of each handicapped employee to restore him to suitable employment,
including assistance as may be within its resources, to help each rehabilitee to develop his
mental, vocational or social potential.
Non-transferability of Benefits
The SSS shall pay the benefits provided for in this Act to such persons as may be entitled thereto in
accordance with the provisions of this Act:
• A Foreign national whose patriate country is not under reciprocity with the Philippines
o Unless the SSS otherwise sees fit, without regard to nationaility
• A recipient minor will be assigned a representative by the SSS if they cannot handle their own
affairs
o Appointment is not necessary in case the recipient is under custody of, or living with,
the parents or spouse of the employee in which case the benefits are payable to.
o Such benefits are not transferrable and no power of attorney or other document
executed by those entitled thereto shall be recognized except when it is physically
impossible to claim.
• Death benefits, if no beneficiary qualifies under this Act, said benefits shall be paid to the legal
heirs in accordance with the law of succession:
• The payment of benefits under this Act shall bar the recovery of similar benefits under Title II
of Book IV of the Labor Code of the Philippines, as amended, during the period of such payment
for the same contingency, and conversely.
Exemption from Tax, Legal Process, and Lien.

The SSS enjoys exemption from all taxes; furthermore, it is also never liable for attachments,
garnishments, levies, or seizures under any legal or equitable process, either before or after the receipt
by the person entitled.
• Except in the case where SSS must pay any debt of covered employee
• No assessments or levies upon SSS are valid
• SSS may waive the exemption as it sees fit
Fee of Agents, Attorneys, etc. – No agent, attorney or other person in charge of the preparation, filing
or pursuing any claim for benefit under this Act shall demand or charge for his services any fee, and any
stipulation to the contrary shall be null and void.
The retention or deduction of any amount from any benefit granted under this Act for the payment of
fees for such services is prohibited:
Except for any member of the Philippine Bar who appears as counsel in any case heard by the Social
Security Commission shall be entitled to attorney's fees not exceeding 10% of the benefits awarded by
the Commission, which fees shall not be payable before the actual payment of the benefits, and any
stipulation to the contrary shall be null and void.
Any violation of the provisions of this Section shall be punished by a fine of not less than P500.00 nor
more than P5,000.00, or imprisonment for not less than 6 months nor more than 1 year, or both, at the
discretion of the court.
Contributions and Remittances

Employee's Contribution – Beginning as of the last day of the calendar month when an employee's
compulsory coverage takes effect and every month thereafter during his employment, the employer shall
deduct and withhold from such employee's monthly salary, wage, compensation or earnings, the
employee's contribution in an amount corresponding to his salary, wage, compensation or earnings during
the month in accordance with the issued schedule by the SSS
The maximum covered earnings or compensation of all SSS members shall be limited to three thousand
pesos per month as provided in the foregoing schedules unless otherwise provided by the Social Security
Commission through rules and regulations taking into consideration actual calculations and rate of
benefits. (As amended by Sec. 10, R.A. 1792; Sec. 11, R.A. 2658; Sec. 10, P.D. No. 24, S-1972; and Sec.
9, P.D. No. 1202, S-1986)
• Every employer shall issue a receipt for all contributions deducted from the employee's
compensation or shall indicate such deductions on the employee's pay envelopes.
Employer's Contributions – Beginning as of the last day of the month when an employee's compulsory
coverage takes effect and every month thereafter during his employment, his employer shall pay, with
respect to such covered employee, the employer's contribution in accordance with the schedule.
Notwithstanding any contract to the contrary, an employer shall not deduct, directly or indirectly, from
the compensation of his employees covered by the SSS or otherwise recover from them the employer's
contributions with respect to such employees.
• The remittance of such contributions by the employer shall be supported by a quarterly
collection list to be submitted to the SSS at the end of each calendar quarter indicating the
correct ID number of the employer, the correct names and SS numbers of the employees and the
total contributions paid for their account during the quarter
Contributions of the Self-employed – The contributions to the SSS of the self-employed shall be
determined in the same manner as those who are employed:
• Provided, That the average monthly net earnings declared by the self-employed at the time of
his registration with the SSS shall be considered as his monthly compensation and he shall pay
both the employer and employee contributions.
• Furthermore, it shall also be considered to be the basis of his monthly salary credit, unless he
makes a new declaration for the current year
Net earnings as understood under this section shall be the net income from his business or profession as
reflected in the income tax return for the immediately preceding year, excluding:
• rental income, dividend, interest investments and the like or all types of incomes which are not
derived from his business registered with the SSS or from the practice of his profession.
Government Contribution – As the contribution of the Government to the operation of the System, the
Congress shall annually appropriate out of any funds in the National Treasury not otherwise
appropriated, the necessary sum or sums to meet the estimated expenses of the System for each ensuing
year. In addition to this contribution, the Congress shall appropriate from time to time such sum or sums
as may be needed to assure the maintenance of an adequate working balance of the funds of the System
as disclosed by suitable periodic actuarial studies to be made of the operations of the System.
Government Guarantee – The benefits prescribed in this Act shall not be diminished and to guarantee
said benefits the Government of the Republic of the Philippines accepts general responsibility for the
solvency of the System.
Remittances
Remittance of Contributions – The contribution is required to be remitted to the SSS within the first 7
days of the calendar month following the month applicable, or within any month prescribed by the
commission.
• Every employer required to deduct and to remit such contributions shall be liable for their
payment and if any contribution is not paid to the SSS,
• he shall pay besides the contribution a penalty thereon 3% per month from the date the
contribution falls due until paid. If deemed expedient and advisable by the Commission, the
collection and remittance of contributions shall be made quarterly or semi-annually in advance,
the contributions payable by the employees to be advanced by their respective employers.
o However, the same balance due can be paid within 6 months from due without the
penalty.
o After the 6-month grace period, the penalty shall become due from the first time the
contribution was actually due.
• Upon separation of an employee, any contribution so paid in advance but not due shall be
credited or refunded to his employer.
Neglect or Refusal to Pay – The contributions payable under this Act in cases where an employer refuses
or neglects to pay the same shall be collected by the SSS in the same manner as taxes are made collectible
under the National Internal Revenue Code, as amended.
• Failure or refusal of the employer to pay or remit the contributions herein prescribed shall not
prejudice the right of the covered employee to the benefits of the coverage.
• The right to institute the necessary action against the employer may be commenced within 20
years from the time the delinquency is known or the assessment is made by the SSS, or from the
time the benefit accrues, as the case may be
Enforcement of Collection Should any person, natural or juridical, default in any payment of
contributions, the Commission may also collect the same in either of the following ways:
• Court Action or by Issuing a warrant to the sheriff commanding the same to levy any real or
personal property subject to the Rules of Court
Determining the Remittance – The last complete record of monthly contributions paid by the employer
or the average of the monthly contributions paid during the past 3 years as of the date of filing of the
action for collection shall be presumed to be the monthly contributions payable by and due from the
employer to the SSS for each of the unpaid month, unless contradicted and overcome by other evidence:
• The SSS is not barred from knowing and collecting the true contribution, even after full payment
of the estimated remittance.
Remittance of Contributions of Self-employed – Self-employed members shall remit their monthly
contributions quarterly on such dates and schedules, as the Commission may specify through rules and
regulations. The penalty of 3% per month for late payments, as well as the manner of submitting other
requirements apply to self-employed individuals in the same manner as those who are employed.
Mode of Payment and Collection – The SSS shall require a complete and proper collection and payment
of contributions and proper identification of the employer and the employee. Payment may be made in
cash, checks, stamp, coupons, tickets, or other reasonable devices that the Commission may adopt.
Deposit and Disbursements
All moneys paid to or collected by the SSS every year under this Act, and all accruals thereto shall be
deposited, administered and disbursed in the same manner and under the same conditions and
requirements as provided by law for other public special funds.
• Not more than 12% of the total yearly contributions plus 3% of other revenues shall be disbursed
for salaries and wages, purchases of office equipment and materials, operational expenses and
the maintenance of regional offices of the SSS
• If the expenses in any year are less than the maximum amount permissible, the difference shall
not be availed of as additional expenses in the following years
Investments of Reserve Funds – All revenues of the SSS that are not needed to meet the current
administrative and operational expenses incidental to the carrying out of this Act shall be accumulated
in a fund to be known as the 'Reserve Fund'.
• Such portions of the Reserve Fund as are not needed to meet the current benefit obligations
thereof shall be invested to earn an average annual income of at least 9% and shall be known
as the 'Investment Reserve Fund'.
Records, Reports, and the Penal Clause

Employment Records and Reports – Each employer shall immediately report to the SSS the names, ages,
civil status, occupations, salaries and dependents of all his employees who are subject to compulsory
coverage, and are able to claim the pension
Misrepresentation by the Employer – Should the employer misrepresent the true date of employment
of his employees or remit to the SSS contributions which are less than those required in this Act, resulting
in a reduction of benefits, the employer shall pay to the SSS damages to the extent of such reduction.
• In addition, the employer shall also be liable for the payment of the corresponding unremitted
contributions and penalties thereon.
Confidentiality – The records and reports duly accomplished and submitted to the SSS by the employee
or the employer, as the case may be, shall be kept confidential by the SSS. Except in compliance with a
subpoena duces tecum issued by the Courts
Effects:
• Information cannot be divulged without consent of administrator
• Records are presumed correct as to data and other matters stated therein unless the necessary
corrections to such records and reports have been properly made by the parties concerned before
the right to the benefit being claimed accrues, and shall be made the basis for the adjudication
of the claim.
• If as a result of such adjudication the SSS in good faith pays a monthly pension to a beneficiary
who is inferior in right to another beneficiary or with whom another beneficiary is entitled to
share, such payments shall discharge the SSS from liability, unless and until such other
beneficiary notifies the SSS of his claim prior to the payments.
Truthfulness – Every employer shall keep true and accurate work records for such period and containing
such information as the Commission may prescribe, in addition to an "Annual Register of New and
Separated Employees" which shall be secured from the SSS wherein the employer shall enter on the first
day of employment or on the effective date of separation, the names of the persons employed or
separated from employment, their SSS numbers, and such other data that the Commission may require
and said annual register shall be submitted to the SSS in the month of January of each year. Such records
shall be open for inspection by the SSS or its authorized representatives quarterly or as often as the SSS
may require.
The SSS may also require each employer to submit, with respect to the persons in his employ, reports
needed for the effective administration of this Act.
Registration Number – Effective July 1, 1973, each employer shall require as a condition to employment,
the presentation of a registration number secured by the prospective employee from the SSS in
accordance with such procedure as the SSS may adopt: Provided, That in case of employees who have
earlier been assigned registration numbers by virtue of a previous employment, such numbers originally
assigned to them should be used
• The issuance of such registration numbers by the SSS shall not exempt the employer from
complying
Copies of Records – Notwithstanding any law to the contrary, microfilm copies of original SSS records
and reports, duly certified by the official custodian thereof, shall have evidentiary value as the originals
and be admissible as evidence in all legal proceedings.
Report and Registration of the Self-employed – Each covered self-employed person shall, within 30 days
from the effective date of coverage, report to the SSS his name, age, civil status, and occupation,
average monthly net income and his dependents:
• If after said period of thirty days, he should die or become sick, or disabled or reach the age of
sixty without the SSS having previously received such report, the SSS shall not pay him the
corresponding benefit.
The Administrator – The administrator shall keep and cause to be kept, records of operations, of the
funds of the System and of disbursements thereof and all accounts of payments made out of said funds.
• During the month of January of each year, the Administrator shall prepare for submission to the
President and to the Congress of the Philippines a report of operations of the System during the
preceding year including statistical data on the number of persons covered and benefited, their
occupations and employment status, the duration and amount of benefits paid, the finances of
the System at the close of the said year, and recommendations.
• He shall also cause to be published in two newspapers of general circulation in the Philippines a
synopsis of the annual report, showing in particular the status of the finances of the System and
the benefits administered.
Penalties
• Whoever, for the purpose of causing any payment to be made under this Act, or under an agreement
thereunder, where none is authorized to be paid, shall make or cause to be made any false statement
or representation as to any compensation paid or received or whoever makes or causes to be made
any false statement of a material fact in any claim for any benefit payable under this Act, or
application for loan with the SSS, or whoever makes or causes to be made any false statement,
representation, affidavit, or document in connection with such claim or loan, shall suffer the
penalties provided for in Art. one hundred seventy-two of the Revised Penal Code.
• Whoever shall obtain or receive any money or check under this Act or any agreement thereunder,
without being entitled thereto with intent to defraud any covered employee, employer or the SSS,
shall be fined not less than five hundred pesos nor more than five thousand pesos and imprisoned for
not less than six months nor more than one year.
• Whoever buys, sells, offers for sale, uses, transfers, takes or gives in exchange, or pledges or gives
in pledge, except as authorized in this Act or in regulations made pursuant thereto, any stamp,
coupon, ticket, book or other device, prescribed pursuant to section twenty-three hereof by the
Commission for the collection or payment of contributions required herein, shall be fined not less
than five hundred pesos nor more than five thousand pesos, or imprisoned for not less than six months
nor more than one year, or both, at the discretion of the court.
• Whoever, with intent to defraud, alters, forges, makes or counterfeits any stamp, coupon, ticket,
book or other device prescribed by the Commission for the collection or payment of any contribution
required herein, or uses, sells, lends, or has in his possession any such altered, forged, or
counterfeited materials or makes, uses, sells, or has in his possession any such altered, forged
material in imitation of the material used in the manufacture of such stamp, coupon, ticket, book,
or other device, shall be fined not less than one thousand pesos nor more than ten thousand pesos
or imprisoned for not less than one year nor more than five years, or both, at the discretion of the
court.
• Whoever fails or refuses to comply with the provisions of this Act or with the rules and regulations
promulgated by the Commission, shall be punished by a fine of not less than five hundred pesos nor
more than five thousand pesos, imprisonment for not less than six months nor more than one year,
or both, at the discretion of the court: Provided, That where the violation consists in failure or
refusal to register employees or himself, in case of the covered self-employed or to deduct
contributions from employee's compensation and remit the same to the SSS, the penalty shall be a
fine of not less than five hundred pesos nor more than five thousand pesos and imprisonment for not
less than six months nor more than one year.
• If the act or omission penalized by this Act be committed by an association, partnership, corporation
or any other institution, its managing head, directors or partners shall be liable to the penalties
provided in this Act for the offense.
• Any employee of the System who receives or keeps funds or property belonging, payable or
deliverable to the System and who shall appropriate the same, or shall take or misappropriate or
shall consent, or through abandonment or negligence shall permit any other person to take such
property or funds, wholly or partially, or shall otherwise be guilty of misappropriation of such funds
or property, shall suffer the penalties provided in Art. two hundred seventeen of the Revised Penal
Code.
• Any employer who after deducting the monthly contributions or loan amortizations from his
employee's compensation; fails to remit the said deductions to the SSS within thirty days from the
date they became due shall be presumed to have misappropriated such contributions or loan
amortizations and shall suffer the penalties provided in Art. three hundred fifteen of the Revised
Penal Code.
• Criminal action arising from a violation of the provisions of this Act may be commenced by the SSS
or the employee concerned either under this Act or in appropriate cases under the Revised Penal
Code: Provided, that such criminal action may be filed by the SSS in the city or municipality where
the SSS provincial or regional office is located if the violation was committed within its territorial
jurisdiction or in Metro Manila, at the option of the SSS.
Records and Reports under the Labor Code:
Record of death or disability
a. All employers shall keep a logbook to record chronologically the sickness, injury or death of their
employees, setting forth therein their names, dates and places of the contingency, nature of the
contingency and absences. Entries in the logbook shall be made within five days from notice or
knowledge of the occurrence of the contingency. Within five days after entry in the logbook, the
employer shall report to the System only those contingencies he deems to be work-connected.
b. All entries in the employer’s logbook shall be made by the employer or any of his authorized
official after verification of the contingencies or the employees’ absences for a period of a day
or more. Upon request by the System, the employer shall furnish the necessary certificate
regarding information about any contingency appearing in the logbook, citing the entry number,
page number and date. Such logbook shall be made available for inspection to the duly authorized
representative of the System.
c. Should any employer fail to record in the logbook an actual sickness, injury or death of any of
his employees within the period prescribed herein, give false information or withhold material
information already in his possession, he shall be held liable for fifty percent of the lump sum
equivalent of the income benefit to which the employee may be found to be entitled, the
payment of which shall accrue to the State Insurance Fund.
d. In case of payment of benefits for any claim which is later determined to be fraudulent and the
employer is found to be a party to the fraud, such employer shall reimburse the System the full
amount of the compensation paid.
Notice of sickness, injury or death – Notice of sickness, injury or death shall be given to the employer
by the employee or by his dependents or anybody on his behalf within five days from the occurrence of
the contingency. No notice to the employer shall be required if the contingency is known to the employer
or his agents or representatives.
Nothing Follows

RFBT

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

RFBT

Uploaded by

Copyright:

Available Formats

Regulatory Framework for Business Transactions – :)(:, CPA, CTT, CMA

|All rights reserved, 2023| Page i

Condominium Act (PD 957) ....................................................................................... 23

Holders in Due Course ............................................................................................. 40

Liquidation and Winding-up ...................................................................................... 70

Covered Entities .................................................................................................. 123

Opening and Evaluation of the 1st Envelope .................................................................. 156

Funeral Benefit ................................................................................................... 190

Title I: Law on Obligations

Pure and Conditional Obligations & Obligations with a Period

• Thing to be paid or delivered

Tender of Payment and Consignation

Confusion or Merger of Rights

Objective or Real Novation

Title II: Law on Contracts

Characteristics and Kinds of Contracts

• Those contracts where both parties are unable to provide consent

Title III: Laws on Sales

• Cause – The Price

Sales by Description or Sample Sale by Description and Sample

Seller has a right to

Maceda Law (R.A. 6552)

Condominium Act (PD 957)

Warranty against Hidden Defects

• Remedies and Prescription

Extinguishment of Sales Contracts

2. Owners of adjoining Lands

Title IV: Laws on Credit Transactions

Pledges require no form

Title V: Laws on Negotiable

Requisites of Negotiability (Sec. 1 NIL)

Unconditional Promise or Order to Pay a Sum, certain in money

o Conditional Indorsements – Conditions are written beside the indorsement

Holders in Due Course

Liabilities of the Parties

• A qualified acceptance may be treated as dishonor; in this case, the

o A presumption that the drawer has an account with the bank

Bouncing Checks Law (B.P. 22)

Title VI: Insurance Law

Insurable Interest in Persons

o Those of which the other waives communication;

The Insurance Policy

Information on the Policy – A policy of insurance must specify:

Effects of the Policy

Requirements for Express Warranties

Perfection of Insurance Contracts

Claims of Settlement and Subrogation

Third party insurance includes:

Non-life Insurance Products

Title VII: Law on Partnerships

Consent of all the partners is necessary for these matters:

Title VIII: Law on Corporations

General Laws Special Laws Corporations by Prescription

Open Corporations A corporation whose shares are Open Corporations may be

Affiliate Corporation A corporation belonging to a group

Organization and Incorporation

d. These Other Matters are:

• Advertising Business Activities • Manufacture and distribution of dangerous

Remedies against Erring Officers and Directors

(absence will render these are

• It is sealed with the corporate seal

o The Retained Earnings are appropriated for justified reasons

Voting Convention and Decorum

Stock and Transfer Books