Insurance Code

Business Law - Year 2, Sem 2

PRELIMINARY TITLE

Chapter I – THE CONTRACT OF INSURANCE

Presidential Decree No. 612 (Dec. 18, 1974)

📌 Purpose: To regulate insurance contracts and Title 1 - WHAT MAY BE INSURED

protect both insured and insurer.
Sec 3. Insurable events
GENERAL PROVISIONS
- Any unknown or contingent event that may
Sec 1. Name of Decree cause loss or liability
1. Married women:
- The Insurance Code - May insure own life or children
WITHOUT husband’s consent
Sec 2. Definition of Terms 2. Minors (18 and above):
- May take life/health/accident
(1) Contract of Insurance insurance
- Beneficiaries limited to close
- An agreement where one party (insurer) relatives
undertakes, for a consideration (premium),
to indemnify another against loss, damage,
or liability arising from an uncertain event. Rights vest in the minor upon death of original
owner
Key Elements
Sec 4 – Prohibited
1. Insurer (insurance company)
- NO INSURANCE
2. Insured (person who bught the insurance
- lotteries
policy)
- gambling chances (tickets)
3. Premium – consideration
4. Risk or contingent event
5. Indemnity Sec 5 – Scope
- Applies to all kinds of Insurance
Suretyship
- Considered insurance ONLY IF the surety is Title 2 - PARTIES TO THE CONTRACT
engaged in insurance business.
Indemnify (Latin indemnis) – “to make whole, Sec 6 – Insurer
unharmed” - every person
(2) Doing an Insurance Business - Partnership
- Issuing insurance contracts - Assocation
- Acting as surety as a vocation - Corporation duly authorized to transact
- Reinsurance
- Any scheme designed to evade the Code Sec 7. Who may be insured
- Even NO PROFIT it is still - Anyone EXCEPT a public enemy (nation at
considered insurance business war with Philippines)
(3) Commissioner = Insurance Commissioner

riona | 1
Sec 8 - 9 - Mortgagor & Mortgagee Sec 16.
- Interest is not insurable if not in
Insurance by mortgagor:
- Legal right of the thing or
● Still for mortgagor’s interest - Valid contract
● Mortgagor’s acts may void policy Sec. 17

- The value of insurable interest is equal to

the amount of loss the insured may suffer if
If insurer consents to transfer new contract, mortgagor’s acts no longer affect
the property is damaged or destroyed.

📌 The insured cannot recover more than the loss

Title 3 - INSURABLE INTEREST suffered.
Sec 10. Insurable interest in Life:
● One’s self Sec 18.
● Family
● Dependents - A property insurance policy is valid only if
● Creditors it benefits a person who has insurable
● Persons affecting one’s estate interest in the property.

Sec 19.
Sec 11.
For property insurance:
- Insured have the right to change
Insurable interest must exist:
beneficiary
● when the insurance takes effect, AND
- Unless expressly waived
●
when the loss occurs
Sec 12.
- Beneficiary who kills insured forfeits rights
For life or health insurance:
- Proceeds go to nearest relative
- Doctrine: No one should profit from his own Insurable interest must exist only at the beginning,
wrong
Sec 13. not required at the time of loss.
- A person has insurable interest in property if
📌 This explains why life insurance is transfera
he will suffer loss from its damage or
destruction. Sec 20.

- if there is a change of interest in the

Sec 14.
property but no change in the insurance, the
insurance is suspended to the extent of the
Insurable interest may be: change.
● Legal
📌 Suspension continues until:
● Equitable
● Beneficial - the interest in the property and
📌 It does not require ownership. - the interest in the insurance
are held by the same person.
Sec 15.
- the insurable interest is limited to the extent
of the possible loss.
📌 This rule does not apply to: Explanation:

The following are VOID:

- life
- accident
● Policies paying loss even without insurable
- health insurance
interest
● Policies treating the policy itself as proof of
interest
Sec 21. ● Wagering or gambling insurance contracts

- If the insured sells or transfers the property

📌 Reason:
AFTER the loss, the insured’s right to
recover is NOT affected. Insurance must protect against loss, not promote
- 📌 The right to indemnity is already fixed at gambling.
the time of loss
Title 4 - CONCEALMENT
Sec 22. Sec 26.
- Concealment
- If several distinct properties are insured
under one policy, a change of interest in - Party knows and aware and
one property: - Fails to communicate or disclose
- does NOT affect the insurance of the other when duty requires to
properties. Sec 27.

📌 Insurance remains valid for the unaffected - Any concealment — whether deliberate or
properties. accidental — gives the injured party the
right to rescind the contract.
Sec 23.
Sec 28.
If the insured dies: - each party must disclose in good faith
- the insurance is not voided - material facts
- the insurance interest passes to the heir or - known to him
successor - not covered by warranty
📌 Applies to transfers by inheritance or succession - not known or discoverable by the
other party
Sec 24. Sec 29
- If the insured fraudulently hides information
- When jointly insured partners or co-owners
that would show a warranty is false, the
transfer their interest to each other, the
insurance remains valid.p insurer may rescind.
📌 This applies only to intentional and fraudulent
📌 Even if the policy states it ends upon alienation, concealment.
this transfer does not avoid the policy.
Sec 30.
- Disclosure is not required for:
- (a) Facts already known
- (b) Facts the other should know
- (c) Facts waived
- (d) Facts relating to excluded risks
- (e) Facts relating to excepted risks
📌 Unless the other party asks directly
Sec 25.
Sec 31.
 - Materiality depends on whether the fact
would influence the insurer’s decision, not Sec 38.
on whether loss actually occurred. - Representations are interpreted using
ordinary contract rules.
Sec 32. Sec 39.
Each party is presumed to know: - A representation about the future is
● general risks considered a promise, unless it is clearly
● general trade usages only a belief or expectation.
● public causes affecting risk Sec 40.
📌 Ignorance of common knowledge is not A representation:
excusable. ● cannot contradict an express policy
provision
Sec 33. ● may qualify an implied warranty
Explanation:
The right to disclosure may be waived by: Sec 41.
● policy terms, or - A representation may be changed or
● failure to ask questions when facts are withdrawn before the contract takes effect,
implied. but not after.
Sec 42.
Sec 34. - A representation refers to the date the
Explanation: contract becomes effective, unless stated
The insured need not disclose: otherwise.
● the nature or amount of his interest Sec 43.
unless: If the insured lacks personal knowledge, he may:
● asked by the insurer, or ● repeat information from others, OR
● required under Section 51. ● submit the information to the insurer
- He is not liable unless the
Sec 35. information came from his agent.
- Opinions, beliefs, or personal judgments Sec 44.
need not be disclosed, even when asked. - A representation is false if facts do not
📌 Only facts, not opinions, are required. match what was stated or promised.
Sec 45.
Title 5 - REPRESENTATION - If a representation is false and material, the
injured party may rescind.
Sec 36. - However, the insurer waives this
- rep may be right if it accepts premiums despite
- Oral knowing the ground for rescission.
- Written Sec 46.
- It is information or facts stated to - Materiality of representation follows the
persuade the other party to agree. same rules as concealment.
- Para ma convince, mapa sulod sa Sec 47.
insurance - These rules apply not only to original
- contracts but also to modifications.
Sec 37. Sec 48.
- A representation may be made before or at The insurer must rescind before filing suit.
the time the policy is issued. For life insurance:
 ● After 2 years, the insurer cannot void the
policy due to concealment or Sec 53.
misrepresentation. - Insurance proceeds must be applied only to
the interest of the person insured or
📌 Purpose: stability and protection of beneficiaries. benefited, unless the policy provides
otherwise.
Title 6 - THE POLICY 📌 No one may benefit beyond his insurable
interest.
Sec 49. Sec 54.
- policy of insurance - If the insured is an agent or trustee, the
- written document where the contract policy may state this fact.
of insurance is 📌 The real party in interest may still claim benefits.
- Contains all the terms and condition Sec 55.
of the insurance contract - Insurance taken by one partner applies to
Sec 50. co-partners only if the policy clearly covers
Insurance policies must: the joint or common interest.
● Be in printed form 📌 Otherwise, it covers only the one who insured.
● Allow blank spaces to complete details Sec 56.
Any rider, clause, warranty, or endorsement: - When the description of the insured is very
● Is NOT binding unless its title or name is general, only a person who proves he was
written in the policy intended to be covered may claim the policy
Riders issued after the policy: benefits.
● Must be countersigned by the insured, Sec 57.
unless applied for by him - A policy may be written so that it benefits
whoever becomes the owner of the insured
📌 Group insurance may be typewritten interest during the policy period.
📌 This is allowed if expressly stated.
Sec 51. Sec 58.
- A valid policy must state: Selling or transferring the insured property:
- Parties ● Does NOT transfer the policy
- Amount insured ● Suspends the policy until the same person
- Premium or basis of computation owns both property and policy
- Property or life insured
- Interest of insured (if not owner) Sec 59.
- Risks covered Insurance policies are classified as:
- Period of insurance ● Open
- 📌 Absence of required details may affect ● Valued
enforceability. ● Running
-
Sec 52. Sec 60.
- A cover note is a temporary insurance - An open policy does not fix the value of the
contract issued while waiting for the policy. insured property.
- Valid for 60 days - The value is determined only after loss
- occurs.
Extendible only with Commissioner’s approval
- 📌 It binds the insurer temporarily.
Sec 61. Sec 69.
- A valued policy states a fixed agreed value - No special words are required to create a
of the insured property. warranty.
📌 This value controls in case of loss. 📌 Intent controls.
Sec 62.
- A running policy covers successive risks Sec 70.
and is adjusted through later endorsements. An express warranty must:
📌 Common in marine insurance. ● Be in the policy, OR
Sec 63. ● In a signed document referred to in the
- Any policy clause limiting the time to sue to policy
less than one year is VOID.
📌 This protects the insured’s right to sue. Sec 71.
Sec 64. A statement of fact in a policy about:
- Non-life insurance may be cancelled only ● The insured
for specific grounds: ● The property
- Non-payment ● The risk
- Crime increasing risk is an express warranty.
- Fraud
- Willful risk increase Sec 72.
- Property becomes uninsurable - A promise to do or not do something
- Violation of the Code affecting risk is a warranty.
Sec 65.
Cancellation notice must: Sec 73.
● Be written Failure to perform a future warranty does not void
● State the ground the policy if:
● Inform insured of right to request facts ● Loss happens first
📌 Proper notice is mandatory. ● Performance becomes unlawful
● Performance becomes impossible
Sec 66.
If insurer fails to give 45-day notice of non-renewal: Sec 74.
● Insured has the right to renew Breach of a material warranty allows the other party
📌 Policies are legally treated as one-year terms. to rescind.

Title 7 - WARRANTIES Sec 75.

- Only violations declared in the policy to be
Sec 67. grounds for avoidance will avoid it.
- a warranty may be - 📌 Immaterial breaches do not avoid the
- Express policy.
- Implied
Sec 68. Sec 76.
A warranty may relate to: Breach without fraud:
● Past ● Releases insurer from time of breach
● Present ● Or prevents policy from attaching
● Future
events or conditions. Title 8 - PREMIUM

Sec 77.
 - No payment of premium = no binding Title 10 - NOTICE OF LOSS
insurance, Sec 88.
- EXCEPT for life insurance with a grace - Failure to give prompt notice of fire loss
period. exonerates insurer.
Sec 78. Sec 89.
- A premium receipt is conclusive proof of - Preliminary proof need not meet court
payment, even if the policy says otherwise. standards—best available evidence is
Sec 79. enough.
- The insured may recover premiums when: Sec 90.
- No risk attached - Defects not promptly objected to are
- Policy surrendered (subject to waived.
conditions) Sec 91.
Sec 80. - Delay is waived if caused by insurer or not
- If the insurer was liable even for a short promptly objected to.
time, no return of premium for that risk. Sec 92.
Sec 81. - If third-party proof is required, reasonable
Return of premium is allowed if: effort is sufficient
● Policy is voidable due to insurer’s fault Title 11 - DOUBLE INSURANCE
● Insurer never became liable Sec 93.
Double insurance exists when:
Sec 82. ● Same person
- In over-insurance, insured gets ratable ● Same interest
return of excess premiums. ● Same subject
● Multiple insurers
Title 9 - LOSS
Sec 83. Sec 94.
- Agreements preventing transfer of claims a. The insured may choose which insurer to
before loss are void, except in life claim from first, and in any order, but only
insurance. up to the amount each insurer is liable for
Sec 84. under its own policy.
- Insurer is liable if the insured peril is the b. If the policy claimed is a valued policy, any
proximate cause of loss. amount already received from another
Sec 85. policy must be deducted from the agreed
- Loss during rescue from insured peril is valuation, regardless of the actual value of
covered, even if another peril intervenes. the property.
c. If the policy is unvalued, any amount
Sec 86. received from another policy must be
- If a loss occurs due to an excepted peril, credited against the full insurable value, not
insurer is not liable even if another peril was the policy amount.
immediate. d. If the insured receives more than the
Sec 87. valuation or insurable value, the excess
Insurer is NOT liable for: must be held in trust for the insurers,
● Willful acts of insured according to their rights to contribution.
e. Each insurer must contribute proportionately
BUT IS liable for: to the loss based on the amount it insured,
● Negligence of insured regardless of who paid first.
Title 12 - REINSURANCE
Sec 95. ● Goods are loaded or ready under contract.
- Reinsurance is insurance taken by an
insurer to cover its own liability arising from Sec 105.
the original insurance - Anyone with an interest in property from
Sec 96. which profits are expected has an insurable
Explanation: interest in those profits.
The original insurer must disclose all material facts, Sec 106.
including: - A charterer has an insurable interest only to
● Representations of the insured the extent of his potential loss.
● All information it knows or later learns
except in automatic reinsurance treaties. Sec 107.
- Both parties must disclose all material facts
Sec 97. and tell the whole truth in marine insurance.
- Explanation: Sec 108.
- Reinsurance is presumed to cover liability, The belief or expectation of a third person about a
not merely actual damage. material fact is itself material.
Sec 98. Sec 109.
- The original insured has no rights under the - The insured is presumed to know of a prior
reinsurance contract. loss if the information could have reached
him in the ordinary course.
Chapter II - CLASSES OF INSURANCE Sec 110.
- Concealment of certain matters does not
Title 1 - MARINE INSURANCE
void the contract but only exonerates the
Sec 99.
insurer from losses caused by the
- Marine insurance covers loss or damage to
concealed risk.
vessels, cargo, freight, profits, and related
Sec 111.
interests due to navigation, transit, or
- An intentionally false material
transportation risks, including marine liability
representation allows the insurer to rescind
and war risks.
the entire contract.
Sec 100
Sec 112.
- The ship owner always has an insurable
- A representation about expectation that
interest, but the insurer is liable only for the
later turns out false does not avoid the
portion not recoverable from the charterer.
policy unless there is fraud.
Sec 101.
Sec 113.
- If a ship is pledged by bottomry, the owner’s
- There is an implied warranty that the ship is
insurable interest is only the excess value
seaworthy.
beyond the loan secured.
Sec 114.
Sec 102.
- A ship is seaworthy if it is reasonably fit to
- Freightage includes all earnings or benefits
face ordinary voyage perils.
from using the ship to carry goods
Sec 115.
Sec 103.
Seaworthiness must exist:
- The ship owner has an insurable interest in
● At the start of risk
freight he would normally earn but for an
● At the start of each voyage if time-based
insured peril.
● For each vessel in transshipment
Sec 104.
Insurable interest in freight arises when:
Sec 116.
● The ship begins the voyage, or
 - Seaworthiness includes crew, equipment, Sec 127.
supplies, and proper loading. - Loss may be total or partial.
Sec 117. Sec 128.
- The ship must be seaworthy at the start of - Any loss that is not total is considered
each voyage segment. partial.
Sec 118. Sec 129.
- Unreasonable delay in repairing - A total loss may be actual or constructive.
unseaworthiness releases the insurer from Sec 130.
liability. There is an actual total loss when:
Sec 119. ● The thing is totally destroyed;
- A ship may be seaworthy for itself but ● It is permanently lost (e.g., sunk);
unseaworthy for cargo. ● It becomes useless for its intended purpose;
Sec 120. or
- Warranty of nationality includes having ● The owner is deprived of possession at
proper documents and avoiding suspicious destination.
papers.
Sec 121. Sec 131.
- If the policy states only the starting point - A constructive total loss exists when the
and destination, the insured voyage is the insured gains the right to abandon the
usual route followed in trade between those property.
places. Sec 132.
Sec 122. - If a ship disappears and is unheard of for a
- If there is no established trade route, the long time, loss may be presumed,
insured voyage is the most natural, direct, depending on circumstances.
and advantageous route as chosen by a
competent ship master. Sec 133.
Sec 123. - If cargo is reshipped due to an insured peril,
Deviation means: the insurer remains liable, but may charge
● Leaving the proper route, additional premium if risk increases.
● Unreasonably delaying the voyage, or Sec 134.
● Starting an entirely different voyage. The insurer covers expenses like:
● Discharging,
Sec 124. ● Storage,
A deviation is allowed when: ● Reshipment,
● It is beyond control of the master or owner; ● Extra freight,
● It is needed to comply with a warranty or as long as it does not exceed the insured
avoid danger; value.
● It is done in good faith to avoid a peril; or
● It is done to save human life or help a ship Sec 135.
in distress. - For an actual total loss, payment is due
without notice of abandonment.
Sec 125.
- Any deviation not listed in Section 124 is
considered improper.
Sec 126. Sec 136.
- The insurer is not liable for losses occurring If the policy excludes particular average:
after an improper deviation. ● The insurer is not liable for partial loss,
 ● But is still liable for general average. Sec 146
- Abandonment transfers the insured’s entire
Sec 137. interest to the insurer.
- A policy covering only actual loss does not Sec 147.
cover constructive total loss, but covers loss - If the insurer pays as for total loss, he gets
that completely deprives possession. whatever remains or is salvaged.
Sec 138. Sec 148.
- Abandonment is when the insured gives up - Acts done in good faith after loss are for the
his interest to the insurer after a insurer’s benefit and risk.
constructive total loss. Sec 149.
Sec 139. - The insured’s rights are not affected if the
Abandonment is allowed when: insurer refuses abandonment.
● More than ¾ is lost or repair costs exceed Sec 150.
¾; Acceptance may be:
● Value is reduced by more than ¾; ● Express; or
● Voyage cannot be completed without ● Implied by conduct or unreasonable silence.
extreme expense or risk;
● Cargo cannot be forwarded without similar Sec 151.
loss. - Acceptance is final and binding, confirming
Freightage cannot be abandoned unless the loss and abandonment.
the ship is abandoned. Sec 152.
- Once accepted, abandonment cannot be
Sec 140. revoked, unless ground is false.
- Abandonment must be entire and Sec 153.
unconditional. - Freight earned before loss goes to the
Sec 141. freight insurer;
- Abandonment must be made within a - freight earned after goes to the ship insurer.
reasonable time after receiving reliable Sec 154.
information. - If insurer refuses valid abandonment, he is
Sec 142. liable as for actual total loss, minus
Abandonment is ineffective if: proceeds received by insured.
● Information was wrong; or Sec 155.
● There was no total loss at the time. - If the insured does not abandon, he may still
recover actual loss.
Sec 143. Sec 156.
- Abandonment must be notified to the Policy valuation is binding if:
insurer orally or in writing. ● Insured has interest;
- Oral notice must be followed by written ● No fraud exists.
notice within 7 days.
Sec 144. Sec 157.
- Abandonment must be notified to the - Insurer pays only the proportionate part of
insurer orally or in writing. the loss.
- Oral notice must be followed by written Sec 158.
notice within 7 days. - Recovery of profits is proportional to the
Sec 145. value of property lost.
- Abandonment is valid only for the cause Sec 159.
stated in the notice.
 - Valuation applies only to the portion - If the insured changes the use or condition
exposed to risk. of the property,
Sec 160. - but the change does NOT increase the risk,
- Loss of property automatically means loss - the fire insurance contract remains valid.
of profits, as valued. Sec 170.
Sec 161. - Any act done by the insured after the policy
Value is based on: is issued
● Ship value at start; - does not affect the insurance,
● Cargo cost or market value; - as long as it does not violate the policy,
● Gross freight; - even if that act increases the risk and
● Plus insurance cost. causes the loss.
Sec 171.
Sec 162. - If the policy has NO valuation,
- Loss is measured by market value - the insurer pays the cost to replace or repair
comparison at destination. the property at the time the fire started.
Sec 163. - If the policy HAS a valuation,
Insurer pays expenses for: - the rule is the same as marine insurance—
● Repairs, the stated value controls.
● Salvage,
● Recovery efforts. Sec 172.
If the insured wants a fixed value stated in the fire
Sec 164. insurance policy:
- Insurer pays contribution for general ● The property must be examined by an
average, limited by policy value. independent appraiser
Sec 165. ● The insured pays for the appraisal
- Insurer may recover from others after ● The value must be written in the policy
paying the insured.
Sec 166. If there is no fraud and no unauthorized increase of
- Old materials are deducted; insurer pays ⅔ risk:
of remaining repair cost, except anchors. ●
Total loss insurer pays the full insured amount
Sec 167.
- Fire insurance is not limited to fire alone. ●
Partial loss insurer pays the full partial loss
- It also includes losses caused by lightning,
windstorm, tornado, earthquake, and other ●
similar risks if these are included in the If multiple policies exist insurers pay pro rata
policy either as extensions or separate
coverage. The insurer cannot be required to pay more than
the stated amount.
Sec 168.
- If the insured changes the use or condition Sec 173.
of the insured property without the insurer’s - A fire insurance policy cannot be pledged,
consent, transferred, or mortgaged
- and this change increases the risk, - to an agent or representative of the issuing
- the insurer has the right to cancel (rescind) insurance company.
the fire insurance contract. - Any such transfer is void and has no legal
Sec 169. effect, especially against other creditors.
Sec 174.
Casualty insurance covers loss or liability due to ● And anything connected or related to it
accidents or mishaps.
It does not include losses already classified under Sec 180
fire or marine insurance. Life insurance may be payable:
Examples include: ● Upon death
● Employer’s liability ● Upon survival after a period
● Motor vehicle liability ● Or any condition related to life
● Burglary and theft
● Personal accident and health insurance Endowments and annuities are considered life
● Similar types of insurance insurance.
Parents may exercise rights under a minor’s policy
Sec 175. without court approval
Suretyship is a contract where: if the minor’s interest does not exceed ₱20,000.
● The surety guarantees
● The obligation of the principal Sec 180 A
● In favor of the obligee The insurer is liable for suicide only if:
● It happens after 2 years from policy
If the principal fails, the surety must perform the issuance or reinstatement
obligation.
Sec 176. Exception:
The surety’s liability: ● Suicide committed while insane is covered
● Is joint and several with the principal regardless of time
● Is limited to the amount stated in the bond
● Depends strictly on the terms of the Sec 181.
suretyship contract A life or health insurance policy:
● May be transferred by sale, will, or
Sec 177. inheritance
The surety is entitled to the premium once the bond ● Even to someone without insurable interest
is issued.
General rule: The transferee may collect what the insured could
- No premium paid = no valid bond have collected.
Exception: Sec 182.
- If the obligee accepts the bond, it is valid - The insurer does not need to be notified of a
even if unpaid transfer or bequest
If the bond is not accepted, the surety may collect: - unless the policy requires notice.
● Up to 50% of the premium as service fee -
● Plus taxes and stamp fees Sec 183.
- If the insured’s interest cannot be exactly
For continuing bonds, annual premiums must be valued in money,
paid until cancellation. - the insurer pays the amount fixed in the
Sec 178. policy.
- If the Insurance Code is silent,
- the Civil Code of the Philippines applies BATAS PAMBANSA BLG. 22 (Bouncing Checks
suppletorily to suretyship contracts. Law)
Sec 179
Life insurance covers: Section 1 – Checks without sufficient funds
● Human life
This section defines what acts are punishable.
A person commits a violation when: - Enough proof, but not final proof
● He issues a check for payment or value,
and Section 3 – Duty of drawee (bank); rules of
● He knows at the time of issuance that he evidence
has no sufficient funds or credit, and
This section explains the bank’s duty and
● The check is later dishonored due to
evidentiary rules.
insufficient funds or credit.
The drawee bank must:
● Clearly state the reason for dishonor on the
It also applies when:
check or in an attached notice.
● The drawer initially had sufficient funds, but
● He fails to maintain enough funds to cover
If dishonored due to insufficient funds:
the check if presented within 90 days, and
● The notice must explicitly say so.
● The check is dishonored for that reason.
In court:
Penalty:
● A dishonored check with the bank’s written
● Imprisonment of 30 days to 1 year, OR
reason is prima facie evidence of:
● Fine of up to double the amount of the
○ Issuance of the check
check (not exceeding ₱200,000), OR
○ Proper presentment
● Both, at the court’s discretion.
○ Dishonor for the stated reason

If the check is issued by a corporation, the

Even if the drawer issued a stop payment order, the
signatory/signatories of the check are the ones
bank must still state insufficient funds if that is the
personally liable. (Signs the docu = legally bound
real reason.
by it)

Section 4 – Credit construed

Section 2 – Evidence of knowledge of
insufficient funds This section defines “credit”.
“Credit” means:
This section explains how knowledge is proven.
● A prior arrangement or agreement with the
If:
bank
● A check is dishonored due to insufficient
● Allowing the bank to honor the check even
funds, and
without sufficient funds
● It is presented within 90 days from the date
of the check,
Without such agreement, there is no credit.
Then this becomes prima facie evidence that the
drawer knew he had insufficient funds. Section 5 – Liability under the Revised Penal
However, this presumption is removed if: Code
● The drawer (issues the check) pays the This section clarifies additional liability.
holder (possess the check), or Being prosecuted under BP 22:
● Makes arrangements for full payment, ● Does not prevent prosecution under the
● Within 5 banking days after receiving notice Revised Penal Code (e.g., estafa),
of dishonor. ● If the facts justify it.

Prima facie evidence Section 6 – Separability clause

- Evidence that is enough to prove a fact at
This section ensures the law remains effective.
first glance,
If:
- Unless it is disproved by the other party
 ● Any part of BP 22 is declared
unconstitutional,

Then:
● The remaining provisions stay valid.

Section 7 – Effectivity
This section states when the law took effect.
BP 22 became effective:
● 15 days after publication in the Official
Gazette.