PointersinCommercialLaw

2016BarExaminations
byProfessorVictoriaV.Loanzon
WithassistanceofAtty.GeraldCo,andAtty.C.LoanzonReyesIV

I. BankingLawsandRelatedLaws
Q. The authorized signatories of X company presigned checks so as not to disturb
businessoperationswhiletheywentabroad.Martigotholdofthecheckswroteamounts
on them and subsequently encashed them. The Bank allowed encashment without a
verificationcalldespitethelargeamountandirregularitiesonthefaceofthecheck.Isthe
banksolelyliableforallowingMartitoencashthechecks?
A.No.TheSCheldthatthedepositorsareguiltyofcontributorynegligence,hence,they
shouldbearapartoftheloss.
Q.Whatisamaterialalteration?Intheabsenceofsaidalteration,isabankstillduty
boundtoverifyacheckwithsomeirregularitiesonitsfacenotstrictlyalterationsunder
thelaw1?
A.AmaterialalterationisdefinedinSection125oftheNILtobeonewhichchangesthe
date,thesumpayable,thetimeorplaceofpayment,thenumberorrelationsoftheparties,
thecurrencyinwhichpaymentistobemadeoronewhichaddsaplaceofpaymentwhereno
placeofpaymentisspecified,oranyotherchangeoradditionwhichalterstheeffectofthe
instrumentinanyrespect.Withrespecttothechecksatissue,petitionerpointsoutthatthey
donotcontainanymaterialalteration.Abankstillhastoexerciseextraordinarydiligence
despitethelackofamaterialalteration.
Q.Howshouldtheliabilitybeapportioned?Why?
A.TheBankisliablefor60%andthedepositorshouldbeliablefor40%.TheSupreme
CourtusedtheDoctrineofLastClearChanceinrelationtothepublicinterestinvolvedin
bankingandtheextraordinarydiligencerequiredofbankstojustifytheliabilityofthebank
as it had the final opportunity to stop the fraudulent transaction. (Bank of America v.
PhilippineRacingClub,2009)
Q.Whataretherequirementsforregistrationofabank?
A.ArticlesofInc.,ByLaws,TreasurersAffidavit,BankCertificateofDepositonpaidup
capital,SECVerificationSliponavailabilityofcorporatename,LetterofUndertakingto
changenameifproposednameisalreadyadoptedbyanotherentity,CertificateofAuthority
fromtheMonetaryBoardortheBSP;andLetterauthorizingtheSECandtheMonetary
Boardoritsdulyauthorizedrepresentativetoexaminebankrecordsregardingthepaidup
capital.
Q.Whatisthedegreeofdiligencerequiredofabank?
A.Abankisexpectedtoexercisethehighestdegreeofdiligence,aswellastoobservethe
highstandardsofintegrityandperformanceinallitstransactionsbecauseitsbusinessis
imbued with public interest. The high standards were also necessary to ensure public
1 on the blank space of each check reserved for the payee, the following typewritten
words appear: "ONE HUNDRED TEN THOUSAND PESOS ONLY." Above the same is the
typewritten word, "CASH." On the blank reserved for the amount, the same amount of
One Hundred Ten Thousand Pesos was indicated with the use of a check writer. The
presence of these irregularities in each check should have alerted the petitioner to be
cautious before proceeding to encash them which it did not do. The SC said this is not a
material alteration.

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confidenceinthebankingsystem.(DevelopmentBankofthePhilippines(DBP)v.Guaria
AgriculturalandRealtyDevelopmentCorporation,G.R.No.160758.January15,2014)
Q.Whatisthenatureofbanksasabusinessundertaking?
A.Banks,theirbusinessbeingimpressedwithpublicinterest,areexpectedtoexercisemore
careandprudencethanprivateindividualsintheirdealings,eventhoseinvolvingregistered
lands.Therulethatpersonsdealingswithregisteredlandscanrelysolelyonthecertificateof
titledoesnotapplytobanks.(PhiltrustBankv.CA,G.R.No.150318,November22,2010)
Q.Canabankoutsourceitsfunctions?
A.Itdepends.FromtheverydefinitionofbanksasprovidedundertheGeneralBanking
Law,itcaneasilybediscernedthatbanksperformonlytwo(2)mainorbasicfunctions
depositandloanfunctions.Thus,cashiering,distributionandbookkeepingarebutancillary
functionswhoseoutsourcingissanctionedunderCBPCircularNo.1388aswellasD.O.No.
10.Banks cannot legally contract outits depositandloan functions as theyare directly
related or integral to the main business or operation of banks. The CBPs Manual of
Regulations has even categorically stated and emphasized on the prohibition against
outsourcinginherentbankingfunctions,whichrefertoanycontractbetweenthebankanda
serviceproviderforthelattertosupply,oranyactwherebythelattersupplies,themanpower
toservicethedeposittransactionsoftheformer.BPIEmployeesUnionDavaoCityFubu
(BPIEUDavaoCityFubu)v.BankofthePhilippineIslands(BPI),etal.,G.R.No.174912,
July24,2013).
Q.Mayanyofficerofthebankbindthecorporation?
A.Generally,no.AstheCourtruledinAFRealty&Development,Inc.v.DieselmanFreight
Services, Co.: Section 23 ofthe Corporation Codeexpressly provides that the corporate
powersofallcorporations shallbeexercisedbytheboardofdirectors.Justasanatural
personmayauthorizeanothertodocertainactsinhisbehalf,somaytheboardofdirectorsof
acorporationvalidlydelegatesomeofitsfunctionstoindividualofficersoragentsappointed
byit.Thus,contractsoractsofacorporationmustbemadeeitherbytheboardofdirectorsor
by a corporate agent duly authorized by the board. Absent such valid
delegation/authorization,theruleisthatthedeclarationsofanindividualdirectorrelatingto
theaffairsofthecorporation,butnotinthecourseof,orconnectedwith,theperformanceof
authorizeddutiesofsuchdirector,areheldnotbindingonthecorporation.(HeirsofFausto
C.Ignaciovs.HomeBankersSavingsandTrustCo.,etal.,G.R.No.177783.January23,
2013)
Q.Doesabranchofficeofabankhaveapersonalityseparateanddistinctfromitsparent
company?
A.Yes.ThePhilippinebranchofaforeignbankiswithoutaseparatelegalpersonalityfrom
its parent company because as its name implies, it is merely a branch, subject to the
supervisionandcontroloftheparentbank.Thus,beingoneandthesameentity,thefunds
placedbytheparentbankinitsbranchinthePhilippinesshouldnotbetreatedasdeposits
made by a third party subject to deposit insurance under the PDIC Charter. (Philippine
DepositInsuranceCorporation(PDIC)v.Citibank,G.R.170290,April11,2012)
Q.WhatisthenatureoftherelationshipoftheCreditCardIssuerandHolder?
A.Therelationshipbetweenthecreditcardissuerandthecreditcardholderisacontractual
onethatisgovernedbythetermsandconditionsfoundinthecardmembershipagreement.
Suchtermsandconditionsconstitutethelawbetweentheparties.Incaseoftheirbreach,
moraldamagesmayberecoveredwherethedefendantisshowntohaveactedfraudulentlyor
inbadfaith.Maliceorbadfaithimpliesaconsciousandintentionaldesigntodoawrongful
actforadishonestpurposeormoralobliquity.However,aconsciousorintentionaldesign
neednotalwaysbepresentbecausenegligencemayoccasionallybesogrossastoamountto
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maliceorbadfaith.Hence,badfaithinthecontextofArticle2220oftheCivilCodeincludes
grossnegligence.(BPIExpressCardCorporationv.Ma.AntoniaArmovit,G.R.No.163654,
October8,2014.)
Q.WhataretheModesofAssistancetoBanksinDistress?
A. Receivership (suspends authority to operate and prohibits officers to act on any
transaction as soon as proceedings are initiated), Conservatorship (restores viability of a
bank),andLiquidation(reviewsassetsofthebankandprioritizespaymenttocreditors
preferredclaims,Closure(permanentstoppageofoperations)
ReliefsavailabletoOwners,DepositorsandCreditors:Ownersmayfileactionincourtto
questiontheactionoftheBSP;DepositorsmayfileclaimwithPDICandCreditorsmayfile
respectiveclaimsinappropriateproceedings.
Q.WhatistheextentoftheMonetaryBoardspowertoputabankunderreceivership?
A.TheCourt,inseveralcases,upheldthepoweroftheMBtotakeoverbankswithoutneed
forpriorhearingunderR.A.7653.ItisnotnecessaryinasmuchasthelawentruststotheMB
theappreciationanddeterminationofwhetheranyorallofthestatutorygroundsforthe
closureandreceivershipoftheerringbankarepresent.TheMBcanimmediatelyimplement
its resolution prohibiting a banking institution to do business in the Philippines and,
thereafter,appointthePDICasreceiver.Itmaybelatersubjectedtoajudicialscrutinyviaa
petitionforcertioraritobefiledbythestockholdersofrecordofthebankrepresentinga
majorityofthecapitalstock.Obviously,thisprocedureisdesignedtoprotecttheinterestof
all concerned that is, the depositors, creditors and stockholders, the bank itself and the
general public. The protection afforded public interest warrants the exercise of a
summaryclosure. (Alfeo D. Vivas, on his behalf and on behalf of the Shareholders or
EurocreditCommunityBankv.TheMonetaryBoardoftheBangkoSentralngPilipinasand
thePhilippineDepositInsuranceCorporation,G.R.No.191424,August7,2013)
Q.MaytheBIRrequireataxclearancebeforethedistributionoftheassetsofabank
underliquidation?
A.No,theSCheldthelawexpresslyprovidesthatdebtsandliabilitiesofthebankunder
liquidationaretobepaidinaccordancewiththerulesonconcurrenceandpreferenceof
creditundertheCivilCode.Withreferencetotheotherrealandpersonalpropertyofthe
debtor,sometimesreferredtoasfreeproperty,thetaxesandassessmentsduetheNational
Government,otherthanthoseinArticles2241(1)and2242(1)oftheCivilCode,suchasthe
corporateincometax,willonlycomeintheninthplaceintheorderofpreference.Ifthe
BIRscontentionthatataxclearancebesecuredfirstbeforetheprojectofdistributionofthe
assetsofabankunderliquidationmaybeapproved,thenthetaxliabilitieswillbegiven
absolutepreferenceinallinstances,includingthosethatdonotfallunderArticles2241(1)
and2242(1)oftheCivilCode.(PDICv.BIR,G.R.172892,June13,2013)
Gooverdistinctionbetweenbankdepositsandbanksubstitutes;reasonswhybanksare
requiredtomaintainreservesagainstthem:controlofvolumeofmoneycreatedby
creditoperations(Sec.94oftheNewCentralBankAct);toansweranywithdrawal;
helpgovernmentfinanceitsoperationsandhelp governmentcontrolmoneysupply;
Central Bank will examine and look into deposits with Philippine banks in good
standing and will not apply to foreign currency deposits made by individuals or
juridical persons inbanks abroad (Sec.2,R.A.No.6426); Restriction on loansand
credit accommodations; Review provisions on DOSRI loans and exemptions allowed
undertherestriction.
Q.WhatistheobligationofacreditorbankundertheTruthinLendingAct?
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A.Itisthedutyofthebanktodisclosetothedebtorindetailtheinterests,chargesandother
figuresindicatingindetailthecostoftheloanandthebranchmanagerisnotgiventhesole
discretioninthedeterminationofsuchcosts.
Q.Isthereaceilingwhenitcomestointerestratestobeimposedondebts?
A.No.TheUsuryLawhadbeenrenderedlegallyineffectivebyResolutionNo.224dated3
December 1982of the Monetary Board ofthe Central Bank, andlater by Central Bank
CircularNo.905whichtookeffecton1January1983.Thelenderandtheborrowershould
agreeontheimposedrate,andsuchimposedrateshouldbeinwriting.
Here,thestipulations oninterestraterepricingarevalidbecause(1)thepartiesmutually
agreedonsaidstipulations;(2)repricingtakeseffectonlyuponthebankswrittennoticeto
theborrowerofthenewinterestrate;and(3)Borrowerhastheoptiontoprepayitsloanifit
andthebankdonotagreeonthenewinterestrate.Thephrasesirrevocablyauthorize,at
anytimeandadjustmentoftheinterestrateshallbeeffectivefromthedateindicatedinthe
writtennoticesenttousbythebank,orifnodateisindicated,fromthetimethenoticewas
sent. (Solidbank Corporation vs. Permanent Homes, Inc.,G.R. No. 171925, July 23,
2010.)
Q.Canabankunilaterallyincreasetheinterestratesonaloan?
A.No.itisaviolationofthemutualityofcontracts.Anymodificationinthecontract,suchas
theinterestrates,mustbemadewiththeconsentofthecontractingparties.Themindsofall
thepartiesmustmeetastotheproposedmodification,especiallywhenitaffectsanimportant
aspectoftheagreement. Inthecaseofloanagreements,therateofinterestisaprincipal
condition, ifnotthemostimportant component.Thus,anymodification thereof mustbe
mutuallyagreedupon;otherwise,ithasnobindingeffect.
TheSCannulledtheescalationclause,allowingtheunilateralincreaseofinterestatthewhim
ofthebank,andtheprincipalamountoftheloanwassubjectedtotheoriginalorstipulated
rateofinterest,and12%legalinterest.(SpousesSolisv.PNBGR181045July2,2014)
*PleasenotethattheMonetaryBoardissuedCircularNo.799,declaringthat,effective
July1,2013therateofinterestfortheloanorforbearanceofanymoney,goodsor
creditsandtherateallowedinjudgments,intheabsenceofanexpresscontractasto
such rate of interest, shall be 6 percent per annum.
Q.WhatistheruleonlegalinterestsbeginningJuly1,2013?
A.TheguidelineslaiddowninthecaseofEasternShippingLinesareaccordinglymodified
toembodyBSPMBCircularNo.799,asfollows:
1.Whenanobligation,regardlessofitssource,i.e.,law,contracts,quasicontracts,delictsor
quasidelictsisbreached,thecontravenorcanbeheldliablefordamages.
2.Withregardparticularlytoanawardofinterestintheconceptofactualandcompensatory
damages,therateofinterest,aswellastheaccrualthereof,isimposed,asfollows:
a.Whentheobligationisbreached,anditconsistsinthepaymentofasumofmoney,i.e.,a
loanorforbearanceofmoney,theinterestdueshouldbethatwhichmayhavebeenstipulated
inwriting.Furthermore,theinterestdueshallitselfearnlegalinterestfromthetimeitis
judiciallydemanded.Intheabsenceofstipulation,therateofinterestshallbe6%perannum
tobecomputedfromdefault,i.e.,fromjudicialorextrajudicialdemandunderandsubjectto
theprovisionsofArticle1169oftheCivilCode.
b.Whenanobligation,notconstitutingaloanorforbearanceofmoney,isbreached,an
interestontheamountofdamagesawardedmaybeimposedatthediscretionofthecourtat
therateof6%perannum.Nointerest,however,shallbeadjudgedonunliquidatedclaimsor
damages,exceptwhenoruntilthedemandcanbeestablishedwithreasonablecertainty.
c.Whenthejudgmentofthecourtawardingasumofmoneybecomesfinalandexecutory,
therateoflegalinterest,whetherthecasefallsunderparagraph1orparagraph2,above,shall
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be6%perannumfromsuchfinalityuntilitssatisfaction,thisinterimperiodbeingdeemedto
bebythenanequivalenttoaforbearanceofcredit.And,inadditiontotheabove,judgments
thathavebecomefinalandexecutorypriortoJuly1,2013,shallnotbedisturbedandshall
continue to be implemented applying the rate of interest fixed therein. (Dario Nacar v.
GalleryFramesand/orFelipeBordey,Jr.,G.R.No.189871,August13,2013.)
BankSecrecyLaw(R.A.No.1402)
SeeInstanceswhendepositsmaybelookedinto:UnderSec.2,R.A.No.1402with
writtenpermissionofdepositor,incasesofimpeachment,moneydepositedissubjectof
litigationanduponorderofacompetentcourtincasesofbriberyorderelictionofduty
ofpublicofficers;uponorderofthecourtforunexplainedwealthunderSec.8ofAnti
GraftandCorruptPracticesAct;uponorderoftheBIRCommissionerwithrespectto
bankdepositsofadecedenttodeterminegrossestateorwhentaxpayerapplies for
compromiseforhistaxliability;unclaimedbalances;withoutneedofcourtorderifthe
AntiMoneyLaunderingCouncildeterminesthatthesourceofdepositsaparticular
accountisrelatedtoanunlawfulactivity.
Q.WhataretherequirementsforaWaiverofConfidentialityofBankAccounts?
A.Theexistenceofawaivermustbepositivelydemonstratedsinceawaiverbyimplication
isnotnormallycountenanced.Thenormisthatawaivermustnotonlybevoluntary,but
musthavebeenmadeknowingly,intelligently,andwithsufficientawarenessoftherelevant
circumstancesandlikelyconsequences.(DonaAdelaExportInternational,Inc.v.Tradeand
InvestmentDevelopmentCorporationandBPI,G.R.No.201931,February11,2015.)
Q.DoestheForeignCurrencyDepositActprevailasanexceptiontotheBankSecrecy
Law?
A.Yes.RepublicActNo.1405wasenactedforthepurposeofgivingencouragementtothe
peopletodeposittheirmoneyinbankinginstitutionsandtodiscourageprivatehoardingso
thatthesamemaybeproperlyutilizedbybanksinauthorizedloanstoassistintheeconomic
developmentofthecountry.ItcoversallbankdepositsinthePhilippinesandnodistinction
was made between domestic and foreign deposits. Thus, Republic Act No. 1405 is
consideredalawofgeneralapplication. Ontheotherhand,RepublicActNo.6426was
intended to encourage deposits from foreign lenders and investors. It is a special law
designedespeciallyforforeigncurrencydepositsinthePhilippines.Agenerallawdoesnot
nullifyaspecificorspeciallaw.Generaliaspecialibusnonderogant.(GovernmentService
InsuranceSystemvs.CourtofAppeals,etal.,G.R.No.189206.June8,2011.)
Q.Whatisthenatureofabanksrelationshipwithdepositors?
A.Afiduciarynaturedoesnotconvertthecontractfromasimpleloantoatrustagreement;
bankmustobservehighstandardsofintegrityandperformance.Thefiduciaryrelationshipof
thedepositorandthebankdoesnotconvertthecontractbetweenthebankanditsdepositors
fromasimpleloantoatrustagreement,whetherexpressorimplied.Itsimplymeansthat
thebankisobligedtoobservehighstandardsofintegrityandperformanceincomplying
withitsobligationsunderthecontractofsimpleloan.PerArticle1980oftheCivilCode,a
creditordebtorrelationshipexistsbetweenthebankanditsdepositor.Thesavingsdeposit
agreement is between the bank and the depositor; by receiving the deposit, the bank
impliedlyagreestopayupondemandandonlyuponthedepositorsorder.JosephGoyanko,
Jr.,asadministratoroftheEstateofJosephGoyanko,Sr.vs.UnitedCoconutPlantersBank,
MangoAvenueBranch,G.R.No.179096.February6,2013
Q.Whatareconsidereddepositsunderthebanksecrecylaw?.
A.Thedepositscoveredbythelawonsecrecyofbankdepositsshouldnotbelimitedto
those creating a creditordebtor relationship; the law must be broad enough to include
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depositsofwhatevernaturewhichbanksmayuseforauthorizedloanstothirdpersons.
R.A.No.1405extendstofundsinvestedsuchasthoseplacedinatrustaccountwhichthe
bankmayuseforloansandsimilartransactions.(Ejercitov.Sandigandbayan,G.R.No.
15729495,2006).
Thelawonsecrecyofbankdepositscannotbeusedtoprecludethebankdepositsfrom
beinggarnishedforthesatisfactionofajudgment.ThereisnoviolationofR.A.No.1405
because the disclosure is purely incidental to the execution process and it was not the
intentionofthelegislaturetoplacebankdepositsbeyondthereachofthejudgmentcreditor.
(PCIBv.CA,G.R.84526,1991)

AntiMoneyLaunderingLaw(R.A.No.9160,asamendedbyR.A.9194)
Q.WhatarethePredicateCrimesundertheAntiMoneyLaunderingLaw?
A.Kidnappingforransom(Art.267,RPC);proceeds fromillegal transactions underthe
DangerousDrugAct;prohibitionsundertheAntiGraftandCorruptPracticesAct;Plunder
Law, Robbery and Extortion under Arts.294, 295,296,299, 300,301 and 302of RPC;
juetengandmasiaounderP.D.1602;piracyonthehighseasunderRPCasamendedbyP.D.
No.532;qualifiedtheftunderArt.310ofRPC;swindlingunderArt.315ofRPC;smuggling
under R.A. Nos. 455 and 1937; hijacking and other violations under R.A. No. 6235;
destructive arson and murder, as defined under the RPC, including acts perpetrated by
terrorists against noncombatant persons and similar targets; and violations under the
ElectronicCommerceLawof2000.(ConsiderthisalsoasapossiblequestioninCriminal
Law.)
EffectofFreezeOrder;Whenitmaybeissued;Only theCourtofAppeals mayissue
Freeze Orderoverdepositsinquestion;Defenseofnopriorcriminal offenseisnot
available;
Q.Isgarnishmentofapesoaccountaviolationofthelawonsecrecyofbankdeposits?
Wouldyouranswerbethesameifitwasgarnishmentofaforeigncurrencydeposit?
A. No. Garnishment is allowed if it is part of execution of judgment because money
judgment is considered money as subject of litigation. (China Banking Corporation v.
Ortega,1973).Itwouldbedifferentiftheaccounttobegarnishedisadepositprotectedby
ForeignCurrencyDepositActasSection8ofsaidlawexpresslyprohibitsthegarnishmentof
suchdeposits.
PleasetakenoteoftheAMLAamendmentsannexedtothisreviewer
II.LettersofCredit,NegotiableInstrumentsLaw,WarehouseReceiptsLawandTrust
Receipts
Q.WhatisaLetterofCredit?
A.Incommercialtransactions,aletterofcreditisafinancialdevicedevelopedbymerchants
as a convenient and relatively safe mode of dealing with sales of goods to satisfy the
seeminglyirreconcilableinterestsofaseller,whorefusestopartwithhisgoodsbeforeheis
paid,andabuyer,whowantstohavecontrolofthegoodsbeforepaying.(TPIv.Luzon
HydroCorp,2004)
Q.Whatarethethreedistinctcontractualrelationshipsinletterofcredittransaction?
A. The three relationships are: between applicant/buyer/importer and the
beneficiary/seller/exporter; between issuing bank and the beneficiary/seller/exporter and
betweentheissuingbankandtheapplicant/buyer/importer.
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Q.Whataretheimportantprinciplestorememberinletterofcredittransactions?
A.DoctrineofIndependence(thethreerelatedbutindependentrelationsmentionedabove.A
controversy/breachinonecontractwillnotaffecttheperformanceoftheothercontracts).
Wheretherewasameetingofthemindsbetweenthebuyerandthesellerregardingthesale
offoundrypigirontobepaidforunderaletterofcredit,thefailureofthebuyertoopenthe
letterofcreditdidnotpreventtheperfectionofthecontractandneitherdidsuchfailure
extinguishthecontract.Theopeningoftheletterofcreditwasnotaconditionprecedentfor
thebirthofobligationofthebuyertopurchasethefoundrypigironfromtheseller.Where
thebuyerfailstoopentheletterofcredit,asstipulated,thesellerorexporterisentitledto
claimdamagesforsuchbreach.Damagesforfailuretoopentheletterofcreditmayinclude
thelossofprofitwhichthesellerwouldhavereasonablymadehadthetransactionbeen
carried out(Reliance Commodities, Inc.v.DaewooIndustrial Co.Ltd,228SCRA545,
1993).
Theissuingbankisnotliablefordamageseveniftheshipmentdidnotconformtothe
specificationsoftheapplicant.Undertheindependenceprinciple,theobligationofthe
issuingbanktopaythebeneficiaryarisesoncethelatterisabletosubmitthestipulated
documentsundertheletterofcredit.Hence,thebankisnotliablefordamagesevenifthe
shipmentdidnotconformtothespecificationsoftheapplicant.(LBPv.MonetsExport
Manufacturing,452SCRA173,2005)
Q.IstheFraudExceptionRulealwaysappliedtolettersofcredit?
A.No.Itisonlyanexceptiontothedoctrineofindependence.ProfessorDolaninTheLaw
of Letters of Credit, Revised Ed. (2000).opines that the untruthfulness of a certificate
accompanyingademandforpaymentunderastandbycreditmayqualifyasfraudsufficient
to support an injunction against payment. xxx The remedy for fraudulent abuse is an
injunction. However,injunction shouldnotbegrantedunless:(a)thereis clearproofof
fraud;(b)thefraudconstitutesfraudulentabuseoftheindependentpurposeoftheletterof
creditandnotonlyfraudunderthemainagreement;and(c)irreparableinjurymightfollowif
injunctionisnotgrantedortherecoveryofdamageswouldbeseriouslydamaged.(TPIv.
LuzonHydroCorp,2004)
DoctrineofStrictComplianceThetenderofdocumentsbythebeneficiary(seller)must
includealldocumentsrequiredbytheletter.Acorrespondentbankwhichdepartsfromwhat
hasbeenstipulatedundertheletterofcredit,aswhenitacceptsafaultytender,actsonits
ownrisksanditmaynotthereafterbeabletorecoverfromthebuyerortheissuingbank,as
thecasemaybe,themoneythuspaidtothebeneficiaryThustheruleofstrictcompliance.
(FeatiBankv.CA,1991)
Q.WhatisaNegotiableInstrument?
A.Itis an unconditional promise topay toorderortobearer ondemand orat afixed
determinablefuturetime.
Q.WhataretherequisitesofaNegotiableInstrument?
A.Thisisfrequentlyaskedinthebarintheformofproblemsolving.Thiswillhelpyounot
onlyidentify whethertheInstrumentwill begovernedbyNILbutitwillalsohelpyou
distinguishaNegotiableInstrumentfromotherCommercialandnoncommercialdocuments.
Section1.Formofnegotiableinstruments.Aninstrumenttobenegotiable
mustconformtothefollowingrequirements:
(a)Itmustbeinwritingandsignedbythemakerordrawer;
(b)Mustcontainanunconditionalpromiseorordertopayasumcertainin
money;
(c)Mustbepayableondemand,oratafixedordeterminablefuturetime;
(d)Mustbepayabletoorderortobearer
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Distinguish (ex. Certificate of Time Deposit, Checks payable to order) from negotiable
document(PostalMoneyOrder,TreasuryWarrants,andWarehouseReceipts)
Q.Whoisaholderinduecourse?
A.(Thisisalsoabarfavorite.)
Sec.52.Whatconstitutesaholderinduecourse.Aholderinduecourseisa
holderwhohastakentheinstrumentunderthefollowingconditions:
(a)Thatitiscompleteandregularuponitsface;
(b)Thathebecametheholderofitbeforeitwasoverdue,andwithoutnotice
thatithasbeenpreviouslydishonored,ifsuchwasthefact;
(c)Thathetookitingoodfaithandforvalue;
(d)Thatatthetimeitwasnegotiatedtohim,hehadnonoticeofanyinfirmity
intheinstrumentordefectinthetitleofthepersonnegotiatingit.
Q. May a juridical person whose regional branch had notice of the failure of
considerationaftertheendorsementofapromissorynotestillbeconsideredaholderin
duecourse?
A.Yes.Aslongastheholderacceptedthenoteingoodfaithandforvalueandhadnonotice
ofthedefectatthetimeofendorsement,aholdermaystillsueonthebasisofthepromissory
noteasaholderinduecourse.Aholderinduecourseholdstheinstrumentfreefromany
defectoftitleofpriorpartiesandfromdefensesavailabletopriorpartiesamongthemselves,
andmayenforcepaymentoftheinstrumentforthefullamountthereof.Thedefenseofnon
deliveryoftheobjectandnullityofthesale,forinstance,cannotberaisedagainstthe
corporationthatisaholderinduecourseastheNILconsiderseverynegotiableinstrument
prima facie to have been issued for a valuable consideration. ( Spouses Violago v. BA
Finance,2008,J.Velasco)

Q.Whatistheruleonforgeryofasignaturefoundinanegotiableinstrument?(Another
barfavorite)
A.Sec.23.Whenasignatureisforgedormadewithouttheauthorityoftheperson
whosesignatureitpurportstobe,itiswhollyinoperative,andnorighttoretainthe
instrument,ortogiveadischargetherefor,ortoenforcepaymentthereofagainstany
party thereto, canbe acquired through or under such signature, unless the party
against whomit is sought toenforce suchrightis precluded fromsetting upthe
forgeryorwantofauthority.
Notethatthisisarealdefenseavailableevenagainstaholderinduecourse.
Ifabankorderspaymentonthebasisofacheckwherethedrawerssignaturewasforged
byanexpertwhosignedalmostasifthetruedrawersigned,whowillbeultimatelyliable?
TheDraweebank.Theforgerymaybesonearlikethegenuineastodefydetectionbythe
depositorhimself,andyetthebankisliabletothedepositorifitpaysthecheck.(Samsung
Constructionv.FEBTC,2004)
Q.Isdemandalwaysnecessaryforthedebtortobeconsideredindelay?
A.UnderArt.1169oftheCivilCode,demandfromthecreditorisnotnecessaryforthe
delay to exist when the obligation or the law expressly so declare. However, it is not
sufficientthatthelaworobligationfixesadateforperformance,butitmustfurtherstate
expresslythataftertheperiodlapses,defaultwillcommence.(RodrigoRiverav.Spouses
Chua,G.R.184458,January14,2015)
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Q.Canacheckbedeliveredwithoutindorsement?
A.Yes.Thecheckdeliveredtowasmadepayabletocash.UndertheNegotiableInstruments
Law,thistypeofcheckwaspayabletothebearerandcouldbenegotiatedbymeredelivery
withouttheneedofanindorsement.PeopleofthePhilippinesv.GilbertReyesWagas,G.R.
No.157943,September4,2013.
Q.Whatarecrossedchecks?
A.Acrossedcheckisonewheretwoparallellinesaredrawnacrossitsfaceoracrossits
corner.Basedonjurisprudence,thecrossingofacheckhasthefollowingeffects:(a)the
checkmaynotbeencashedbutonlydepositedinthebank;(b)thecheckmaybenegotiated
onlyoncetotheonewhohasanaccountwiththebank;and(c)theactofcrossingthe
checkservesasawarningtotheholderthatthecheckhasbeenissuedforadefinitepurpose
andhemustinquireifhereceivedthecheckpursuanttothispurpose;otherwise,heisnota
holderinduecourse.Inotherwords,thecrossingofacheckisawarningthatthecheck
shouldbedepositedonlyintheaccountofthepayee.Whenacheckiscrossed,itistheduty
ofthecollectingbanktoascertainthatthecheckisonlydepositedtothepayeesaccount.
PhilippineCommercialBankvs.AntonioB.BalmacedaandRolandoN.Ramos,G.R.No.
158143,September21,2011.
Q.Canacrossedcheckbeencashed?
A.No.Thecrossingofacheckmeansthatthecheckmaynotbeencashedbutonlydeposited
inthebank.Theissuanceofacrossedcheckreflectsmanagementsintentiontosafeguardthe
fundscoveredthereby,itsspecialinstructiontohavethesamedepositedtoanotheraccount
anditsrestrictiononitsencashment. WesleyanUniversityPhils.V.NowellaReyes,G.R.
No.208321,July30,2014
Q. Is an electronic message (known as SWIFT Society of Worldwide Interbank
FinancialTelecommunications)senttoabankwithanordertopaycertainpersonsupon
receiptofsecuritiesabillofexchange?
A.No.therequisitesunderSec.1oftheNILarenotpresent.Thereisnosignfromthe
drawer,nounconditionalordertopayastheamountsarefromspecificfunds(theclients
accounts)andtheyarenotorderorbearerinstrumentsbecausethepayeeisspecified.(HSBA
v.CIR,2014)

Q.Whatistheliabilityofdepositary/collectingbankinalteredchecks?
A.Inchecktransactions,thedepositary/collectingbankorlastendorsergenerallysuffersthe
lossbecauseithasthedutytoascertainthegenuinenessofallpriorendorsementsconsidering
thattheactofpresentingthecheckforpaymenttothedraweeisanassertionthattheparty
makingthepresentmenthasdoneitsdutytoascertainthegenuinessoftheendorsements.If
anyofthewarrantiesmadebythedepositary/collectingbankturnsouttobefalse,thenthe
draweebankmayrecoverfromituptotheamountofthecheck.(CesarArezaandLolita
Arezav.SavingsBank,IncandMichaelPotenciano,G.R.No.176697,September10,2014)
Q.Whatistheruleonliabilityunderanincompletebutundeliveredinstrument?
A.UnderSection14oftheNIL,ifthemakerordraweedeliverspresignedblankpaperto
anotherpersonforthepurposeofconvertingitintoanegotiableinstrument,thatpersonis
deemed to have a prima facie authority to fill it up. In order however that any such
instrumentwhencompletedmaybeenforcedagainstanypersonwhobecameapartythereto
priortoitscompletion,tworequisitesmustexist:(1)thattheblankmustbefilledstrictlyin
accordancewiththeauthoritygivenand(2)itmustbefilledupstrictlyinaccordancewith
theauthoritygivenandwithinareasonabletime.Themakercansetthisupasapersonal
9 | Page

defenseandavoidliability.(AlvinPatrimoniov.NapoleonGutierrezandOctavioMarasigan
III,G.R.187769,June4,2014)
PromissoryNote:parties,warranties,obligationsandliabilitiesofparties;negotiability,
transferofrightsunderdeedofassignment
Q.Willthealterationofapromissorynoteresultintheextinguishmentoftheoriginal
debt?
A. No.Whileapromissorynoteisevidenceofindebtedness,itisnottheonlyevidence,for
theexistenceoftheobligationcanbeprovenbyotherdocumentaryevidencesuchasa
writtenmemorandumsignedbytheparties.Acheckmaybeconsideredasanevidenceof
indebtednessandisaveritableproofofanobligation.Itcanbeusedinlieuofandforthe
same purpose as a promissory note and can therefore be presented to establish the
existenceofindebtedness.(LeonardoBognotv.RRILendingCorporation,G.R.180144,
September24,2014)
Q.Bong,alongtimeclient,dollaraccountholderandgranteeofacreditlineofRandy
Bank,helpedhisfriendsJetandMichaelgetaloanfromRandyBankbysigningasaco
maker in apromissory note. After receiving the full sumof the loan from the Bank,
MichaelandJetfailedtopayRandyBank.RandyBankisnowgoingafterBongwhosays
heshouldnotbeliableashedidnotbenefitfromtheloan.IsBongcorrect?
A.No.Bysigningasborrowerandcoborroweronthepromissorynoteswiththeproceedsof
theloansgoingtoJetandMichael,Bonghasextendedanaccommodationtosaidpersons.As
anaccommodationparty,BongissolidarilyliablewiththeJetandMichaelfortheloans.n
accommodationpartyisapersonwhohassignstheinstrumentasmaker,drawer,acceptor,or
indorser,withoutreceivingvaluetherefor,andforthepurposeoflendinghisnametosome
otherperson.Therelationbetweenanaccommodationpartyandtheaccommodatedpartyis
oneofprincipalandsurety,theaccommodationpartybeingthesurety.(Gonzalesv.PCIB,
2011.J.Velasco)
Q.Whatisatrustreceipttransaction?
A.Atrustreceipttransactionisonewheretheentrusteehastheobligationtodelivertothe
entrusterthepriceofthesale,orifthemerchandiseisnotsold,toreturnthemerchandiseto
theentruster.Thereare,therefore,twoobligations inatrustreceipt transaction: thefirst
referstomoneyreceivedundertheobligationinvolvingthedutytoturnitover(entregarla)to
theownerofthemerchandisesold,whilethesecondreferstothemerchandisereceivedunder
the obligation to return it (devolvera) to the owner.(Hur Tin Yang v. People of the
Philippines,G.R.No.195117,August14,2013)
Q.Whenisthereasimpleloandespitetheexecutionofatrustreceipt?
A.Whenbothpartiesenterintoanagreementknowingfullywellthatthe returnofthe
goodssubjectofthetrustreceiptisnotpossible(whenthegoodsaresuedasconstruction
materialssee(Ngv.People,2010andLBPv.Perez,2012)evenwithoutanyfaultonthepart
ofthetrustee,itis notatrustreceipt transaction penalized underSec.13ofPD115in
relationtoArt.315,par.1(b)oftheRPC,astheonlyobligationactuallyagreeduponbythe
partieswouldbethereturnoftheproceedsofthesaletransaction.Thistransactionbecomesa
mereloan,wheretheborrowerisobligatedtopaythebanktheamountspentforthepurchase
ofthegoods.(HurTinYangv.PeopleofthePhilippines,G.R.No.195117,August14,2013)
Anothersituationwherethereisasimpleloanonlydespitethesigningofatrustreceiptis
whena debtorreceivedthegoodssubjectofthetrustreceiptbeforethetrustreceipt
itselfwasenteredintoColinaresv.CA,2000
10 | P a g e

Whenthegoodssubjectofthetransaction,suchaschemicalsandmetalplates,werenot
intendedforsaleorresalebutforuseinthefabricationofsteelcommunicationtowers,the
agreementcannotbeconsideredatrustreceipttransactionbutasimpleloan.P.D.No.115
punishestheentrusteeforhisfailuretodeliverthepriceofthesale,orifthegoodsarenot
sold,toreturnthemtotheentruster,which,inthepresentcase,isabsent and couldnot
havebeencompliedwith;therefore,theliabilityoftheentrusteeisonlycivilinnature.
(AnthonyL.Ngv.PeopleofthePhilippines,G.R.No.173905,2010)
Whenbothparties entered intoanagreement knowingfullywellthatthereturnofthe
goodssubjectofthetrustreceiptisnotpossibleevenwithoutanyfaultonthepartofthe
trustee,itisnotatrustreceipttransactionpenalizedunderSec.13ofPD115inrelationto
Art.315,par.1(b)oftheRPC,astheonlyobligationactuallyagreeduponbytheparties
wouldbethereturnoftheproceedsofthesaletransaction.Thistransactionbecomesamere
loan,wheretheborrowerisobligatedtopaythebanktheamountspentforthepurchaseof
thegoods.HurTinYangv.PeopleofthePhilippines,G.R.195117,2013)
III.BulkSalesLaw
Q.WhenistheBulkSalesLawapplicable?
A. It applies only to retail merchants, traders and dealer involving the sale of all or
substantiallyalloftheassetsusedinthebusinessofthevendor;Conditionswhichwillallow
a party to invoke the provisions of the Bulk Sales Law inability to meet outstanding
obligationsinthecourseofbusinessbutvendormustsecuretheapprovalofatleasttwo
thirds of its stockholders and a majority vote of the members of its board of directors;
AffidavitofSalemuststatethenamesofallitscreditors,theiraddresses,theamountof
creditsandtheirmaturities;Asaleandtransferinbulkismadebyapublicofficer,acting
underjudicialprocess,saidsaleortransferisnotcoveredbytheBulkSalesLaw;Ifsaleof
assetswasmadeindefraudofcreditors,thelattermayhavecontractsrescindedorfilea
petition forinvoluntaryinsolvencyandsuefordamagesaswelltorecoverthevalueofthe
contractwiththevendorbutsecuredloans,withleaveofcourt,mayfiled;guarantorsmay
alsofiletheirclaims.

IV. The Corporation Code, Securities Regulation Code, Insolvency and Foreign
InvestmentsAct
A. The Corporation Code: Formalities of incorporation for stock and nonstock
corporations; distinction between stock and nonstock corporations; distinction
betweenpublicandprivatecorporations;whatisacorporatesole;resolutionofconflict
involving interlocking directors; when may doctrine of corporate opportunity be
availed;mayastockcorporationbeconvertedintoanonstockcorporation;mayanon
stockcorporationbeconvertedintoastockcorporation;residencyofincorporatorsand
directors;whatisaderivativesuit(rightsofminorstockholders);ultraviresdoctrine;
definition of intracorporate controversy (would cover corporation, partnership or
association registered with the SEC); RTCs jurisdiction over intracorporate
controversies;rehabilitationofacorporation;whatisaStayOrderinrehabilitation;
what is the Trust Fund Doctrine; distinction between stock and cash dividends;
distinctionbetweenprofitandcashdividends;whenmaydividendsbedeclaredoutof
unrestricted retained earnings; what is appraisal right, when may it be exercised;
instances when a corporation may buy its own shares; modes of dissolution of
corporationsvoluntaryandinvoluntary.
Q. Are PLDTs stock dividends subject to the NTCs assessment of Supervision and
RegulationFees?
11 | P a g e

A.Yes.Dividends,regardlessoftheformthesearedeclared,thatis,cash,propertyorstocks,
are valued at the amount of the declared dividend taken from the unrestricted retained
earningsofacorporation.Thus,thevalueofthedeclarationinthecaseofastockdividend
istheactualvalueoftheoriginalissuanceofsaidstocks.InG.R.No.127937wesaidthat
"in the case of stock dividends, it is the amount that the corporation transfers from its
surplus profit account to its capital account" or "it is the amount that the corporation
receivesinconsiderationoftheoriginalissuanceoftheshares."Itis"thedistributionof
currentoraccumulatedearningstotheshareholdersofacorporationproratabasedonthe
number of shares owned." Such distribution in whatever form is valued at the declared
amountormonetaryequivalent.Thus,itcannotbesaidthatnoconsiderationisinvolvedin
theissuanceofstockdividends.Infact,thedeclarationofstockdividendsisakintoa
forcedpurchaseofstocks.Bydeclaringstockdividends,acorporationploughsbacka
portionofitsentireunrestrictedretainedearningseithertoitsworkingcapitalorforcap
Inessence,therefore,thestockholdersbyreceivingstockdividendsareforcedtoexchange
themonetaryvalueoftheirdividendforcapitalstock,andthemonetaryvaluetheyforego
isconsideredtheactualpaymentfortheoriginalissuanceofthestocksgivenasdividends.
Therefore,stockdividendsacquiredbyshareholdersforthemonetaryvaluetheyforego
areunderthecoverageoftheSRFandthebasisforthelatterissuchmonetaryvalueas
declaredbytheboardofdirectors.italassetacquisitionorinvestments.Itissimplisticto
saythatthecorporationdidnotreceiveanyactualpaymentforthese.Whenthedividendis
distributed,itceasestobeapropertyofthecorporationastheentireorportionofits
unrestrictedretainedearningsisdistributedproratatocorporateshareholders.(PLDTv.
NTC,et.al.G.R.No.152685,2007pennedbyJ.Velasco)
Q.Whataretheinstanceswhencorporateveilmaybepierced?
A.Thecorporateveilmaybepiercedwhentheseparatecorporateentityisusedtodefeat
publicconvenience,justifywrong,protectfraudordefendacrime,asashieldtoconfuse
legitimateissues;wherecorporationisamerealteregoorbusinessconduitofaperson;or
whereacorporationissoorganizedandcontrolledanditsaffairsaresoconductedastomake
itmerelyaninstrumentality,agency,conduit,adjunctofanothercorporation;
Ithaslongbeensettledthatthelawvestsacorporationwithapersonalitydistinctand
separatefromitsstockholdersormembers.Inthesamevein,acorporation,bylegalfiction
andconvenience,isanentityshieldedbyaprotectivemantleandimbuedbylawwitha
character alien to thepersonscomprising it.
Circumstancesmight
denyaclaimforcorporatepersonality,underthedoctrineofpiercingtheveilofcorporate
fiction.
Piercingtheveilofcorporatefictionisanequitabledoctrinedevelopedtoaddresssituations
wheretheseparatecorporatepersonalityofacorporationisabusedorusedforwrongful
purposes.Underthedoctrine,thecorporateexistencemaybedisregardedwheretheentityis
formedorusedfornonlegitimatepurposes,suchastoevadeajustanddueobligation,orto
justify a wrong, to shield or perpetrate fraud or to carry out similar or inequitable
considerations, other unjustifiable aims or intentions, in which case, the fiction will be
disregardedandtheindividuals composingitandthetwocorporations willbetreatedas
identical.(Eric Godfrey Stanley Livesey v. Binswanger Philippines, Inc. and Keith
Elliot,G.R.No.177493,March19,2014)
Anyapplicationofthedoctrineofpiercingthecorporateveilshouldbedonewithcaution.A
courtshouldbemindfulofthemilieuwhereitistobeapplied.Itmustbecertainthatthe
corporatefictionwasmisusedtosuchanextentthatinjustice,fraud,orcrimewascommitted
againstanother,indisregardofitsrights.Thewrongdoingmustbeclearlyandconvincingly
established;itcannotbepresumed.Otherwise,aninjusticethatwasneverunintendedmay
resultfromanerroneousapplication.(HeirsofFeTanUy(Representedbyherheir,Manling
12 | P a g e

Uy Lim) vs. International Exchange Bank/Goldkey Development Corporation vs.

InternationalExchangeBank,(G.R.No.166282/G.R.No.166283,February13,2013)
Thedoctrineofpiercingthecorporateveilappliesonlyinthree(3)basicareas,namely:1)
defeatofpublicconvenienceaswhenthecorporatefictionisusedasavehiclefortheevasion
ofanexistingobligation;2)fraudcasesorwhenthecorporateentityisusedtojustifya
wrong,protectfraud,ordefendacrime;or3)alteregocases,whereacorporationismerelya
farcesinceitisamerealteregoorbusinessconduitofaperson,orwherethecorporationis
so organized and controlled and its affairs are so conducted asto make it merely an
instrumentality,agency,conduitoradjunctofanothercorporation.(TimoteoH.Saronavs.
NationalLaborRelationsCommission,RoyaleSecurityAgency,etal., G.R.No.185280,
January18,2012).
Corporations;liabilityofcorporateofficers.Asageneralrule,theofficercannotbeheld
personallyliablewiththecorporation,whethercivillyorotherwise,fortheconsequenceshis
acts,ifactedforandinbehalfofthecorporation,withinthescopeofhisauthorityandin
good faith.(Rodolfo Laborte, et al. v. Pagsanjan Tourism Consumers Cooperative, et
al.,G.R.No.183860,January15,2014)
Q.Whatisthethreeprongedtest?
A.Caselawlaysdownathreeprongedtesttodeterminetheapplicationofthealterego
theory,whichisalsoknownastheinstrumentalitytheory,namely:
(1)Control,notmeremajorityorcompletestockcontrol,butcompletedomination,
notonlyoffinancesbutofpolicyandbusinesspracticeinrespecttothetransaction
attackedsothatthecorporateentityastothistransactionhadatthetimenoseparate
mind,willorexistenceofitsown;
(2)Suchcontrolmusthavebeenusedbythedefendanttocommitfraudorwrong,to
perpetuatetheviolationofastatutoryorotherpositivelegalduty,ordishonestand
unjustactincontraventionofplaintiffslegalright;and
(3)Theaforesaidcontrolandbreachofdutymusthaveproximatelycausedtheinjury
orunjustlosscomplainedof.
Thefirstprongisthe"instrumentality"or"control"test.Thistestrequiresthatthe
subsidiarybecompletelyunderthecontrolanddominationoftheparent.Itexaminesthe
parentcorporationsrelationshipwiththesubsidiary.Itinquireswhetherasubsidiary
corporationissoorganizedandcontrolledanditsaffairsaresoconductedastomakeita
mereinstrumentalityoragentoftheparentcorporationsuchthatitsseparateexistenceasa
distinctcorporateentitywillbeignored.Itseekstoestablishwhetherthesubsidiary
corporationhasnoautonomyandtheparentcorporation,thoughactingthroughthe
subsidiaryinformandappearance,"isoperatingthebusinessdirectlyforitself."
Thesecondprongisthe"fraud"test.Thistestrequiresthattheparentcorporationsconduct
inusingthesubsidiarycorporationbeunjust,fraudulentorwrongful.Itexaminesthe
relationshipoftheplaintifftothecorporationItrecognizesthatpiercingisappropriateonlyif
theparentcorporationusesthesubsidiaryinawaythatharmstheplaintiffcreditor.Assuch,
itrequiresashowingof"anelementofinjusticeorfundamentalunfairness."
Thethirdprongisthe"harm"test.Thistestrequirestheplaintifftoshowthatthe
defendantscontrol,exertedinafraudulent,illegalorotherwiseunfairmannertowardit,
causedtheharmsuffered.Acausalconnectionbetweenthefraudulentconductcommitted
throughtheinstrumentalityofthesubsidiaryandtheinjurysufferedorthedamageincurred
bytheplaintiffshouldbeestablished.Theplaintiffmustprovethat,unlessthecorporateveil
ispierced,itwillhavebeentreatedunjustlybythedefendantsexerciseofcontroland
improperuseofthecorporateformand,thereby,sufferdamages.
Tosummarize,piercingthecorporateveilbasedonthealteregotheoryrequiresthe
concurrenceofthreeelements:controlofthecorporationbythestockholderorparent
corporation,fraudorfundamentalunfairnessimposedontheplaintiff,andharmordamage
causedtotheplaintiffbythefraudulentorunfairactofthecorporation.Theabsenceofany
13 | P a g e

oftheseelementspreventspiercingthecorporateveil.(PNBV.HydroResources
ContractorsCorp,2010)
Q.Ifacorporationisnotimpleadedinasuit,cansuchcorporationbesubjecttothe
piercingdoctrine?
A.No.Theprincipleofpiercingtheveilofcorporatefiction,andtheresultingtreatmentof
tworelatedcorporationsasoneandthesamejuridicalpersonwithrespecttoagiven
transaction,isbasicallyappliedonlytodetermineliability;itisnotavailabletoconferon
thecourtjurisdictionithasnotacquired,inthefirstplace,overapartynotimpleadedina
case.(KukanInternationalCorporationv.Hon.AmorReyes,G.R.182729,2010,penned
byJ.Velasco)
Q.Mayacontractsupposedlyenteredintobyacorporationbeforeitsincorporation
bindit?
A.No.TheCourtheldthatanycontractexecutedpriortoincorporationhasnobindingeffect
onpetitionercorporation.Logically,thereisnocorporationtospeakofpriortoanentitys
incorporation. Andnocontractenteredintobeforeincorporationcanbindthecorporation.
(MarchIIMarketing, Inc.andLucilaV.Josonvs.AlfredoM.Joson,G.R.No.171993,
December12,2011)
Q.RandysoldJethissharesofstock.Jetimmediatelyexercisedhisrightsasastockholder
byrequestingforacopyofthecorporationsfinancialstatementswhichthecorporation
allowed.RandylateronsoldthesamesharesofstocktoEiselanddeliveredthestock
certificatestoher.Whoownsthesharesofstock?
A.Thelatter.Inasaleofsharesofstock,physicaldeliveryofastockcertificateisoneofthe
essentialrequisitesforthetransferofownershipofthestockspurchased.Theenjoymentof
therightsunderthestockcertificates cannotsufficewherethelaw,byitsexpressterms,
requiresaspecificformtotransferownership.(FilEstateGoldandDevelopment,Inc.,etal.
v.VertexSalesandTrading,Inc.,G.R.No.202079,June10,2013.)
Q. What is the prevailing test to determine whether a corporation is a Filipino
Corporation?
A.Thecontroltestisstilltheprevailingmodeofdeterminingwhetherornotacorporation
isaFilipinocorporation,withintheambitofSec.2,Art.IIofthe1987Constitution,entitled
to undertake theexploration, development andutilization ofthe natural resources ofthe
Philippines.WheninthemindoftheCourtthereisdoubt,basedontheattendantfactsand
circumstancesofthecase,inthe6040Filipinoequityownershipinthecorporation,thenit
mayapplythegrandfatherrule.(NarraNickelMiningandDevelopmentCorp.,etal.v.
RedmontConsolidatedMines,G.R.No.195580,April21,2014)
Q.Doesthecontroltestexcludetheapplicationofthegrandfatherrule?
A.No.ThecontroltestcanbeappliedjointlywiththeGrandfatherRuletodeterminethe
observance of foreign ownership restriction in nationalized economic activities. The
Control Test and the Grandfather Rule are not incompatible ownershipdeterminant
methodsthatcanonlybeappliedalternativetoeachother.Rather,thesemethodscan,if
appropriate,beusedcumulativelyinthedeterminationoftheownershipandcontrolof
corporationsengagedinfullyorpartlynationalizedactivities,astheminingoperation
involvedinthiscaseortheoperationofpublicutilities.
The Grandfather Rule, standing alone, should not be used to determine the Filipino
ownership and control in a corporation, as it could result in an otherwise foreign
corporationrenderedqualifiedtoperformnationalizedorpartlynationalizedactivities.
Hence,itisonlywhentheControlTestisfirstcompliedwiththattheGrandfatherRule
maybeapplied.Putinanothermanner,ifthesubjectcorporationsFilipinoequityfalls
14 | P a g e

belowthethreshold60%,thecorporation is immediately consideredforeignowned,in

whichcase,theneedtoresorttotheGrandfatherRuledisappears.
In this case, using the control test, Narra, Tesoro and MacArthur appear to have
satisfiedthe6040equityrequirement.Butthenationalityofthesecorporationsandthe
foreignownedcommoninvestorthatfundsthemwasindoubt,hence,theneedtoapply
theGrandfatherRule.NarraNickelMiningv.Redmont,G.R.195580(2014,pennedbyJ.
Velasco)
Q.Whoarecorporateofficers?
A.InthecontextofPresidentialDecreeNo.902A,corporateofficersarethoseofficersofa
corporation who are given that character either by the Corporation Code or by the
corporationsbylaws.Section25oftheCorporationCodespecificallyenumeratedwhoare
thesecorporateofficers,towit:(1)president;(2)secretary;(3)treasurer;and(4)suchother
officers as may be provided for in the bylaws. The Court held that unless and until
petitionercorporationsbylawsisamendedfortheinclusionofGeneralManagerinthelist
ofitscorporateofficers,suchpositioncannotbeconsideredasacorporateofficewithinthe
realmofSection25oftheCorporationCode.MarchIIMarketing,Inc.andLucilaV.Joson
vs.AlfredoM.Joson,G.R.No.171993,December12,2011.
Q.Willacasebedismissedifacorporationuseditsformernameintheproceedings?
A.No.WhiletheSCstandsbyinitspronouncementontheimportanceofthecorporatename
totheveryexistenceofcorporationsandthesignificancethereofinthecorporationsrightto
sue,itshallnotgosofarastodismissacasefiledbytheproperpartyusingitsformername
when adequate identification is presented. NM Rothschild & Sons Ltd. V. Lepanto
ConsolidatedMining,G.R.No.175799,November28,2011.
Q.Whenareofficersanddirectorsofacorporationliable?
A.Basicistheruleincorporationlawthatacorporationisajuridicalentitywhichisvested
withalegalpersonalityseparateanddistinctfromthoseactingforandinitsbehalfand,in
general,fromthepeoplecomprisingit.Followingthisprinciple,obligationsincurredbythe
corporation,actingthroughitsdirectors,officersandemployees,areitssoleliabilities.A
director, officer or employee ofa corporation is generally not held personally liable for
obligationsincurredbythecorporation.Nevertheless,thislegalfictionmaybedisregardedif
itisusedasameanstoperpetratefraudoranillegalact,orasavehiclefortheevasionofan
existingobligation,thecircumventionofstatutes,ortoconfuselegitimateissues.
Solidaryliabilitywillthenattachtothedirectors,officersoremployeesofthecorporationin
certaincircumstances,suchas:
1.Whendirectorsandtrusteesor,inappropriatecases,theofficersofacorporation:(a)vote
fororassenttopatentlyunlawfulactsofthecorporation;(b)actinbadfaithorwithgross
negligenceindirectingthecorporateaffairs;and(c)areguiltyofconflictofinteresttothe
prejudiceofthecorporation,itsstockholdersormembers,andotherpersons;
2.Whenadirectororofficerhasconsentedtotheissuanceofwateredstocksorwho,having
knowledge thereof, did not forthwith file with the corporate secretary his written
objectionthereto;
3.Whenadirector,trusteeorofficerhascontractuallyagreedorstipulatedtoholdhimself
personallyandsolidarilyliablewiththecorporation;or
4.Whenadirector,trusteeorofficerismade,byspecificprovisionoflaw,personallyliable
forhiscorporateaction.
Before a director or officer of a corporation can be held personally liable for corporate
obligations,however,thefollowingrequisitesmustconcur:(1)thecomplainantmustallege
in the complaint that the director or officer assented to patently unlawful acts of the
15 | P a g e

corporation, or that theofficer was guilty of gross negligence or bad faith; and (2) the
complainantmustclearlyandconvincinglyprovesuchunlawfulacts,negligenceorbadfaith.
Whileitistruethatthedeterminationoftheexistenceofanyofthecircumstancesthatwould
warrantthepiercingoftheveilofcorporatefictionisaquestionoffactwhichcannotbethe
subjectofapetitionforreviewoncertiorariunderRule45,thisCourtcantakecognizanceof
factualissuesifthefindingsofthelowercourtarenotsupportedbytheevidenceonrecordor
arebasedonamisapprehensionoffacts. (HeirsofFeTanUy(Representedbyherheir,
ManlingUyLim)vs.InternationalExchangeBank/GoldkeyDevelopmentCorporationvs.
InternationalExchangeBank,G.R.No.166282/G.R.No.166283,February13,2013)
Q.TheNBIcausedthefilingofacomplaintagainstOmniCorporationanditsdirectors
forviolationofBP.No.33whichpenalizestheunauthorizeduseofLPGcylinders.Can
thedirectorsbeheldpersonallyliable?
A:Yes,asregardsthePresidentoftheCorporationwhomanagesthebusinessaffairsof
Omni, but No as regards to the other directors. Even if the corporate powers of a
corporationarereposedinitunderthefirstparagraphofSec.23oftheCorporationCode,
theboardofdirectorsisnotdirectlychargedwiththerunningoftherecurringbusiness
affairsofthecorporationandmaynotbeheldliableunderBP33.(ArnelU.Ty,et.alvs.
NBI Supervising Agent Marvin E. De Jemil, et. al., G.R. 182147 2010, penned by J.
Velasco)
Q.Ispriorapprovalofstockholdersrequiredofallcorporateacts?
A.Thegeneralruleisthatacorporation,throughitsboardofdirectors,shouldactinthe
mannerandwithintheformalities,ifany,prescribedbyitscharterorbythegenerallaw.
Thus, directors must act as a body in a meeting called pursuant to the law or the
corporations by laws, otherwise, any action taken therein maybe questioned by any
objectingdirectororshareholder.However,theactionstakeninsuchameetingbythe
directorsortrusteesmayberatifiedexpresslyorimpliedly.Ratificationmeansthatthe
principalvoluntarilyadopts,confirmsandgivessanctiontosomeunauthorizedactofits
agent on its behalf. It is this voluntary choice, knowingly made, which amounts to a
ratificationofwhatwastheretoforeunauthorizedandbecomestheauthorizedactofthe
party so making the ratification. The substance of the doctrine is confirmation after
conduct, amounting to a substitute for a prior authority. (Lopez Realty, Inc. and
AsuncionLopezGonzalesv.Sps.Tanjangco,G.R.154291,November12,2014)
Q.Canacorporateofficernotauthorizedbytheboardinwritingbindthecorporation?
A.TheCourtreiterateditsrulinginPeoplesAircargoandWarehousingCo.,Inc.v.Court
ofAppeals: Inasmuch as a corporate president is often given general supervision and
controlovercorporateoperations,thestrictrulethatsaidofficerhasnoinherentpowertoact
forthecorporationisslowlygivingwaytotherealizationthatsuchofficerhascertainlimited
powersinthetransactionoftheusualandordinarybusinessofthecorporation.
Intheabsenceofacharterorbylawprovisiontothecontrary,thepresidentispresumedto
havetheauthoritytoactwithinthedomainofthegeneralobjectives ofitsbusinessand
withinthescopeofhisorherusualduties.(AdvancePaperCorporationandGeorgeHaw,in
his capacity as President of Advance Paper Corporation v. Arma Traders Corporation,
ManuelTing,etal.,G.R.No.176897,December11,2013)
Section 23 of the Corporation Code expressly provides that the corporate powers of all
corporationsshallbeexercisedbytheboardofdirectors.Thepowerandtheresponsibilityto
decidewhetherthecorporationshouldenterintoacontractthatwillbindthecorporationare
lodgedintheboard,subjecttothearticlesofincorporation,bylaws,orrelevantprovisionsof
16 | P a g e

law.Intheabsenceofauthorityfromtheboardofdirectors,noperson,notevenitsofficers,
canvalidlybindacorporation.
Theauthorityofacorporateofficeroragentindealingwiththirdpersonsmaybeactualor
apparent. Actualauthority iseither expressorimplied. Theextent ofanagents express
authorityistobemeasuredbythepowerdelegatedtohimbythecorporation,whilethe
extentofhisimpliedauthorityismeasuredbyhisprioractswhichhavebeenratifiedor
approved,ortheirbenefitsacceptedbyhisprincipal.Thedoctrineofapparentauthority,on
theotherhand,withspecialreferencetobanks,hadlongbeenrecognizedinthisjurisdiction.
Theexistenceofapparentauthoritymaybeascertainedthrough:
(1)thegeneralmannerinwhichthecorporationholdsoutanofficeroragentashavingthe
powertoact,orinotherwords,theapparentauthoritytoactingeneral,withwhichitclothes
him;or
(2) the acquiescence in his acts of a particular nature, with actual or constructive
knowledgethereof,withinorbeyondthescopeofhisordinarypowers. (Violeta Tudtud
Banate,etal.vs.PhilippineCountrysideRuralBank(Liloan,Cebu),Inc.andTeofiloSoon,
Jr.,G.R.No.163825,July13,2010)
Q.Whomaysignacertificationagainstforumshoppinginasuitfiledbyacorporation?
A.Therequirementofthecertificationofnonforumshoppingisrootedintheprinciplethata
partylitigant shall not be allowed to pursue simultaneous remedies in different fora.
However, the Court has relaxed, under justifiable circumstances, the rule requiring the
submission of such certification considering that, although it is obligatory, it is not
jurisdictional. Not being jurisdictional, it can be relaxed under the rule of substantial
compliance.Thus,aPresidentofacorporation,amongotherenumeratedcorporateofficers
andemployees,cansigntheverificationandcertificationagainstnonforumshoppingin
behalfofthesaidcorporationwithoutthebenefitofaboardresolution.
The following officials or employees of the company can sign the verification and
certification without need of a board resolution: (1) the Chairperson of the Board of
Directors,(2)thePresidentofacorporation,(3)theGeneralManagerorActingGeneral
Manager,(4)PersonnelOfficer,and(5)anEmploymentSpecialistinalaborcase.
Whiletheabovecasesdonotprovideacompletelistingofauthorizedsignatoriestothe
verificationandcertificationrequiredbytherules,thedeterminationofthesufficiencyofthe
authoritywasdoneonacasetocasebasis.Therationaleappliedintheforegoingcasesisto
justifytheauthorityofcorporateofficersorrepresentativesofthecorporationtosignthe
verification or certificate against forum shopping, being "in a position to verify the
truthfulness and correctness of the allegations in the petition. (South Cotabato
Communications Corp.andGauvainBenzonan v.Hon.Patricia Sto.Tomas,et.al., G.R.
173326,December15,2010)
Q.Whatisanintracorporatedispute?
A.Anintracorporatedisputeisunderstoodasasuitarisingfromintracorporaterelationsor
betweenoramongstockholdersorbetweenanyorallofthemandthecorporation.Applying
whathascometobeknownastherelationshiptest,ithasbeenheldthatthetypesofactions
embraced by the foregoing definition include the following suits: (a) between the
corporation, partnership or association and the public; (b) between the corporation,
partnershiporassociationanditsstockholders,partners,members,orofficers;(c)between
thecorporation,partnershiporassociationandtheStateinsofarasitsfranchise,permitor
license to operate is concerned; and, (d) among the stockholders, partners or associates
themselves. Asthedefinitionisbroadenoughtocoverallkindsofcontroversiesbetween
stockholders and corporations, the traditional interpretation was to the effect that the
relationship test brooked no distinction, qualification or any exemption whatsoever.
(Strategic Alliance Development Corporation vs. Star Infrastructure Development
Corporation, BEDE S. Tabalingcos, et al.,G.R. No. 187872, November 17, 2010).
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Anintracorporatecontroversy,whichfallswithinthejurisdictionofregularcourts,hasbeen
regarded in its broad sense to pertain to disputes that involve any of the following
relationships: (1) between the corporation, partnership or association and the public; (2)
betweenthecorporation,partnershiporassociationandthestateinsofarasitsfranchise,
permit or license to operate is concerned; (3) between the corporation, partnership or
association and its stockholders, partners, members or officers; and (4) among the
stockholders,partnersorassociates,themselves.Applyingtheforegoingtothepresentcase,
theLAhadtheoriginaljurisdictionoverthecomplaintforillegaldismissalbecauseCosare,
althoughanofficerofBroadcomforbeingitsAVPforSales,wasnotacorporateofficeras
thetermisdefinedbylaw.(RaulC.Cosarev.BroadcomAsia,Inc.,etal.,G.R.No.201298,
February5,2014)
Q.Whataretheteststodeterminewhetherapersonisacorporateofficer?
A. There are two circumstances which must concur in order for an individual to be
consideredacorporateofficer,asagainstanordinaryemployeeorofficer,namely:(1)the
creationofthepositionisunderthecorporationscharterorbylaws;and(2)theelectionof
theofficerisbythedirectorsorstockholders.Itisonlywhentheofficerclaimingtohave
beenillegallydismissedisclassifiedassuchcorporateofficerthattheissueisdeemedan
intracorporate dispute which falls within the jurisdiction of the trial courts.Raul C.
Cosarev.BroadcomAsia,Inc.,etal.,G.R.No.201298,February5,2014.
Q.Whatisaderivativesuit?
A.Aderivativesuitisanactionbroughtbyastockholderonbehalfofthecorporationto
enforcecorporaterightsagainstthecorporationsdirectors,officersorotherinsiders.Under
Sections23and36oftheCorporationCode,thedirectorsorofficers,asprovidedunderthe
bylaws, have the right to decide whether or not a corporation should sue. Since these
directorsorofficerswillneverbewillingtosuethemselves,orimpugntheirwrongfulor
fraudulentdecisions,stockholdersarepermittedbylawtobringanactioninthenameofthe
corporationtoholdthesedirectorsandofficersaccountable.Inderivativesuits,therealparty
ininterestisthecorporation,whilethestockholderisamerenominalparty.JuanitoAng,for
andinbehalfofSunriseMarketing(Bacolod),Inc.v.Sps.RobertoandRachelAng,G.R.No.
201675,June19,2013.
Q.Canacorporationsolebeconvertedtoacorporationaggregate?
A.Acorporationmaychangeitscharacterasacorporationsoleintoacorporationaggregate
bymereamendmentofitsarticlesofincorporationwithoutfirstgoingthroughtheprocessof
dissolution.Theamendmentneedstheconcurrenceofatleasttwothirdsofitsmembership.
Ifsuchapprovalmechanismismadetooperateinacorporationsole,itsonememberin
whomallthepowersofthecorporationtechnicallybelongs,needstogettheconcurrenceof
twothirdsofitsmembership. Theonemember,heretheGeneralSuperintendent,isbuta
trustee, according to Section 110 of the Corporation Code, of its membership. Iglesia
EvangelicaMetodistaEnLasIslasFilipinas(IEMELIF),Inc.,etal.vs.BishopNathanael
Lazaro,etal.,G.R.No.184088,July6,2010.
Q.Canacorporationcontinueitsregularbusinessduringthewindingupperiodafter
dissolution?
A. No. Section 122 of the Corporation Code prohibits a dissolved corporation from
continuingitsbusiness,butallowsittocontinuewithalimitedpersonalityforaperiodof
threeyearsfromthetimeitwouldhavebeendissolvedinordertosettleandcloseitsaffairs,
including its complete liquidationbut not for the purpose of continuing the business for
whichitwasestablished.
Vitaliano N. Aguirre II and Fidel N. Aguirre II and Fidel N. Aguirre vs.FQB+, Inc.,
NathanielD.Bocobo,PriscilaBocoboandAntonioDeVilla,G.R.No.170770.January9,
2013.
18 | P a g e

Q.Doesthedissolutionofacorporationmeanthecessationoftheboardofdirectors
powers?
A.Acorporationsboardofdirectorsisnotrenderedfunctusofficiobyitsdissolution.Since
Section122allowsacorporationtocontinueitsexistenceforalimitedpurpose,necessarily
theremustbeaboardthatwillcontinueactingforandonbehalfofthedissolvedcorporation
for that purpose.(Vitaliano N. Aguirre IIand Fidel N. Aguirre IIand Fidel N. Aguirre
vs.FQB+, Inc., Nathaniel D. Bocobo, Priscila Bocobo and Antonio De Villa,G.R. No.
170770.January9,2013.
Q.Arepropertyrightsofstockholdersaffectedbythedissolutionofthecorporation?
A.Apartysstockholdingsinacorporation,whetherexistingordissolved,isapropertyright
which he may vindicate against another party who has deprived him thereof. The
corporationsdissolutiondoesnotextinguishsuchpropertyright.VitalianoN.AguirreIIand
FidelN.AguirreIIandFidelN.Aguirrevs.FQB+,Inc.,NathanielD.Bocobo,Priscila
BocoboandAntonioDeVilla,G.R.No.170770.January9,2013.
Q. AreallcorporationsthatarenotGOCCsconsideredprivatecorporationsnotunder
CommissiononAuditjurisdiction?
A.No.Notallcorporations,whicharenotgovernmentownedorcontrolled,areipsofactoto
beconsideredprivatecorporationsasthereexistsanotherdistinctclassofcorporationsor
chartered institutions which are otherwise known as public corporations. These
corporationsaretreatedbylawasagenciesorinstrumentalitiesofthegovernmentwhichare
notsubjecttothetestsofownershiporcontrolandeconomicviabilitybuttodifferentcriteria
relatingtotheirpublicpurposes/interestsorconstitutionalpoliciesandobjectivesandtheir
administrativerelationshiptothegovernmentoranyofitsDepartmentorOffices.TheCOA
may,thus,auditthefinancesofBSP. BoyScoutsofthePhils.V.COA.G.R.No.177131,
June7,2011
Q.Isthereadistinctionbetweenacasefiledbeforeandafterthewindingupperiodofa
corporation?
A.Yes.Adissolvedcorporationoranypersonrepresentingitcannotfileacasebeyondthe
threeyearwindingupperiodevenifthepurposeofsuchsuitistheliquidationoftheassets
ofthedissolvedcorporationasithasnomorecapacitytosue.Toallowsuchsuitwouldbeto
circumvent Section122oftheCorporationCode. (AlabangDevelopmentCorporationv.
AlabangHillsVillageAssociationandRafaelTinio,G.R.No.187456,June2,2014.)
Q.Istherefusaltoallowinspectionofthestockandtransferbookacriminaloffense?
A.Yes.Suchrefusal,whendoneinviolationofSection74(4)oftheCorporationCode,
properlyfallswithinthepurviewofSection144ofthesamecodeandthusmaybepenalized
asanoffense.(AderitoZ.YujuicoandBonifacioC.Sumbillav.CezarT.QuiambaoandEric
C.Pilapil,G.R.No.180416,June2,2014).
AcriminalactionbasedontheviolationofthesecondorfourthparagraphsofSection74can
onlybemaintainedagainstcorporateofficersorsuchotherpersonsthatareactingonbehalf
ofthecorporation.
Violations of the second and fourth paragraphs of Section 74 contemplates a situation
whereinacorporation,actingthruoneofitsofficersoragents,deniestherightofanyofits
stockholders to inspect the records, minutes and the stock and transfer book of such
corporation.
Q.Arecorporateofficersliablefortheillegaldismissalofanemployeeofthecorporation?
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A.No.Acorporationhasapersonalityseparateanddistinctfromitsofficersandtheboardof
directorsmayonlybeheldpersonallyliablefordamagesifitisproventhattheyactedwith
maliceorbadfaithinthedismissalofanemployee.Absentanyevidenceonrecordthat
petitioner Bautista acted maliciously or in bad faith in effecting the termination of
respondent,plustheapparentlackofallegationinthepleadingsofrespondentthatpetitioner
Bautistaactedinsuchmanner,thedoctrineofcorporatefictiondictatesthatonlypetitioner
corporation should be held liable for the illegal dismissal of respondent.(Mirant
(Philippines)Corporation,etal.v.JoselitoA.Caro,G.R.No.181490,April23,2014)
Q.Whatisamerger?
A.Mergerisareorganizationoftwoormorecorporationsthatresultsintheirconsolidating
intoasinglecorporation,whichisoneoftheconstituentcorporations,onedisappearingor
dissolvingandtheothersurviving.Toputitanotherway,mergeristheabsorptionofoneor
morecorporationsbyanotherexistingcorporation,whichretainsitsidentityandtakesover
therights,privileges,franchises,properties,claims,liabilitiesandobligationsoftheabsorbed
corporation(s). Theabsorbingcorporationcontinuesitsexistencewhilethelifeorlivesof
theothercorporation(s)isorareterminated.
Q.Whatisadefactomerger?
A.Adefactomergercanbepursuedbyonecorporationacquiringallorsubstantiallyallof
the properties of another corporation in exchange of shares of stock of the acquiring
corporation. Theacquiringcorporationwouldendupwiththebusinessenterpriseofthe
target corporation; whereas, the target corporation would end up with basically its only
remainingassetsbeingthesharesofstockoftheacquiringcorporation.
It is clear that no merger took place between Bank of Commerce and TRB as the
requirementsandproceduresforamergerwereabsent.Amergerdoesnotbecomeeffective
uponthemereagreementoftheconstituentcorporations.Alltherequirementsspecifiedin
the law must be complied with in order for merger to take effect. Section 79 of the
CorporationCodefurtherprovidesthatthemergershallbeeffectiveonlyupontheissuance
by the Securities andExchange Commission (SEC) ofa certificate ofmerger. (Bank of
Commercev.RadioPhilippinesNetwcork,Inc.,etal.,G.R.No.195615,April21,2014)
Q.Is thePhilippine NationalRedCrossaprivate corporation requiredtoincorporate
undertheCorporationCode?
A. No. PNRC is a sui generis entity that is neither public nor private. PNRC is a
governmentspartnerintheobservanceofitsinternationalcommitmentsundertheGeneva
Conventions.ItistreatedasanauxiliaryoftheState.(Libanv.Gordon,2011)
B.SecuritiesRegulationLaw
Protectionofpublicinterestasprimarypurposeofthelaw;registrationrequirements
of stocks/ securities; what are exempt securities (Please read Section 9, Securities
RegulationCode)andexempttransactions;registrationofacompanywiththeSECisa
prerequisitebeforeregistrationofsecuritiesinthestockmarket;liabilitiesforfraud,
manipulationofstockprices,insidertrading,shortsales;reasonbehindmargintrading
rule;whataretheminimumrequirementsfordisclosureofpubliclylistedcompanies;
whatisatenderoffer;whatisawaterdownshare;remediesavailtopartiesunderthe
law; penalties which may be imposed on company, officers, stock brokers and
individuals.
Q.Howdoyoudeterminetheexistenceofaninvestmentcontract?
A.Foraninvestmentcontracttoexist,theHoweyTestcomprisingofthefollowingelements
must concur: (1) a contract, transaction, or scheme; (2) an investment of money; (3)
investmentismadeinacommonenterprise;(4)expectationofprofits;and(5)profitsarising
primarilyfromtheeffortofothers.TheSecuritiesandRegulationCodetreatsinvestment
20 | P a g e

contracts as securities that have to be registered with the SEC before they can be
distributedandsold.SECv.Prosperity.com,Inc.,G.R.164197,January25,2012.
Q.CantheSECissueaCeaseandDesistOrderwithoutanycomplaintfiledbeforeit?
A.Yes.UnderSec.64oftheSRC,aceaseanddesistordermaybeissuedbytheSECmotu
proprio,itbeingunnecessarythatitresultsfromaverifiedcomplaintfromanaggrievedparty
andevenwithoutapriorhearingwhenevertheCommissionfindsitappropriatetoissuea
ceaseanddesistorderthataimstocurtailfraudorgraveorirreparableinjurytoinvestors.
Thereisgoodreasonforthisprovisionasanydelayintherestraintofactsthatyieldsuch
resultscanonlygeneratefurtherinjurytothepublicthattheSECisobligedtoprotect.To
equallyprotectindividualsandcorporationsfrombaselessandimprovidentissuances,the
authorityoftheSECisalsowithdefinedlimits.Aceaseanddesistordermayonlybeissued
bytheCommissionafterproperinvestigationorverificationanduponshowingthattheacts
soughttoberestrainedcouldresultininjuryorfraudtotheinvestingpublic. Primanila
Plans,Inc.v.SEC,G.R.193791,August6,2014
Q.WhatistheJurisdictionoftheRTCandtheSECoverissuesonvalidationofproxies?
A.ThepoweroftheSECtoregulateproxiesremainsinplaceininstanceswhenstockholders
vote onmatters other thanthe election ofdirectors.The test is whether the controversy
relates tosuchelection. Allmatters affecting themannerandconductoftheelection of
directors areproperlycognizablebytheregularcourts.Otherwise,thesematters maybe
brought before the SEC for resolution based on the regulatory powers it exercises over
corporations,partnershipsandassociations.SECv.CA,G.R.187702,October22,2014.

C.InsolvencyLaw
VoluntaryInsolvencyisfiledbytheinsolventwhileInvoluntaryInsolvencyisfiledby
the creditors of the insolvent; Unsecured loans cannot be filed in any insolvency
proceedingprovidedtheypresentproofthattheypaidtheobligationofthecreditorof
theinsolventandtheysubstituteforthecreditors;Preferredclaimsfuneralexpenses
ofthedebtoristhemostpreferredclaim,debtsdueforpersonalservicesrenderedto
the insolvent immediately preceding the commencement of insolvency proceeding;
obligationsunderWorkmensCompensationAct,legalexpensesandexpensesincurred
intheadministrationofinsolventsestateforthecommoninterestofcreditorsupon
order of the court, debts, taxes and assessments due the national government,
provincialgovernmentandlocalgovernmentunits;remainingnonpreferredcreditors
shallbeentitledproratainthebalanceofassets,withoutpriorityorpreference.
Q.Whatistheconceptoftechnicalinsolvency?
A. There are 2 kinds of insolvency contemplated by law: actual insolvency, i.e., the
corporations assets are not enough to cover its liabilities; and technical insolvency
definedunderSec.312,i.e.,thecorporationhasenoughassetsbutitforeseesitsinability
topayitsobligationsformorethanoneyear.TheperiodmentionedunderSec.312,
"longerthanoneyearfromthefilingofthepetition,"doesnotrefertoayearlongwaiting
periodwhentheSECcanfinallysaythattheailingcorporationistechnicallyinsolventto
qualify for rehabilitation. The period referred to the corporations inability to pay its
obligations;whensuchinabilityextendsbeyondoneyear,thecorporationisconsidered
technicallyinsolvent.Saidinabilitymaybeestablishedfromthestartbywayofapetition
forrehabilitation,oritmaybeprovedduringtheproceedingsforsuspensionofpayments,
ifthelatterwasthefirstremedychosenbytheailingcorporation.Ifthecorporationopts
foradirectpetition forrehabilitation onthegroundoftechnicalinsolvency,itshould
21 | P a g e

showinitspetitionandlaterproveduringtheproceedingsthatitwillnotbeabletomeet
itsobligationsforlongerthanoneyearfromthefilingofthepetition.(PNBandEquitable
PCIBankv.CA,G.R.165571,J.Velasco)
FreeInsolvencyAct(FRIA)
Q.MayFRIAbeappliedretroactively?
A.Sec.146oftheFRIA,whichmakesitapplicabletoallfurtherproceedingsininsolvency,
suspensionofpaymentsandrehabilitationcasesxxxexcepttotheextentthatintheopinion
of the court their application would not be feasible or would work injustice, still
presupposes a prospective application. The wording of the law clearly shows that it
isapplicabletoallfurtherproceedings.Innowaycoulditbemaderetrospectivelyapplicable
totheStayOrderissuedbytherehabilitationcourtbackin2002.Thus,itwasbeyondthe
jurisdictionoftherehabilitationcourttosuspendforeclosureproceedingsagainstproperties
ofthirdpartymortgagors.(SitusDevelopmentCorporation,etal. vs.AsiaTrustBank,et
al,G.R.No.180036,January16,2013)
Q.WhenisRehabilitationappropriate?
A.Rehabilitationcontemplatesacontinuanceofcorporatelifeandactivitiesinaneffortto
restore and reinstate the corporation to its former position of successful operation and
solvency.Thepurposeofrehabilitationproceedingsistoenablethecompanytogainanew
lease onlife andthereby allow creditors to bepaid their claims fromits earnings. The
rehabilitation of a financially distressed corporation benefits its employees, creditors,
stockholdersand,inalargersense,thegeneralpublic.
Rehabilitationproceedingsinourjurisdiction,muchlikethebankruptcylawsoftheUnited
States,haveequitableandrehabilitativepurposes.Ononehand,theyattempttoprovidefor
the efficient and equitable distribution of an insolvent debtors remaining assets to its
creditors;andontheother,toprovidedebtorswithafreshstartbyrelievingthemofthe
weight of their outstanding debts and permitting them to reorganize their affairs. The
rationaleofPresidentialDecreeNo.902A,asamended,istoeffectafeasibleandviable
rehabilitation.
Q.WhatistheCramdownPowerofRehabilitationCourts?
A.Thecramdownprincipleconsistsoftwothings:(1)approvaldespiteoppositionand(2)
bindingeffectoftheapprovedplan.TheRehabilitationRulesmaintainsthatthecourtmay
approvearehabilitation planovertheobjection ofthecreditors if,inits judgement, the
rehabilitation of the debtors is feasible and the opposition of the creditors is manifestly
unreasonable.TherequirednumberofcreditorsopposingsuchplanundertheInterimRules
(i.e.,thoseholdingthemajorityofthetotalliabilitiesofthedebtor)wasinfact,removed.
Also,theRehabilitationReceiverhasthedutyandauthoritytorecommendanymodification
of an approved rehabilitation plan as he may deem appropriate and for the purpose of
achievingthedesiredtargetsorgoalssetforththereinandtheRehabilitationRulesallowthe
modificationandalterationoftherehabilitationplanpreciselybecauseofconditionsthatmay
superveneoraffecttheimplementationthereofsubsequenttoitsapproval.(MarilynAquino
v.PacificPlans,G.R.193108,December10,2014)
Q. Is Material Financial Commitment an indispensable requisite in corporate
rehabilitation?
A.Yes.SMMCIsRehabilitationPlanlacksamaterialfinancialcommitmenttosupportthe
rehabilitation and accompanying liquidation analysis of the petitioning debtor which are
indispensablerequisitesincorporaterehabilitationproceedingsunderSec18ofRule3ofthe
Interim Rulesofcorporaterehabilitation. (BPIFamily Savings Bank,Inc.v.St.Michael
MedicalCenter,G.R.205469,March25,2015)
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Q.IstheHLURBspriorrequestfortheappointmentofarehabilitation receiver isa

conditionprecedentbeforethetrialcourtcangiveduecoursetoarehabilitationpetition?
A. No. Unlike banks and financial institutions under the jurisdiction of the BSP, and
insurance companies and similar institutions under the jurisdiction of the Insurance
Commission,constructionandrealestatecompanies,suchasLexber,underthejurisdiction
oftheHLURBareallowedtofilepetitionsforrehabilitationevenwithoutpriorrequestfor
theappointmentofareceiverbyHLURB.Thisisbecausethepowertoappointreceiversis
notfoundinHLURBscharterunliketheBSPandtheICwhicharespecificallyauthorizedto
appoint a receiver in case a company under their regulation is undergoing corporate
rehabilitation.LexberIncv.SpousesDalmanGR183587April20,2015
Q. Will the lapse of the 180day period for the approval of the rehabilitation plan
automaticallyresulttothedismissaloftherehabilitationpetition?
A.No.Rule4,Section11oftheInterimRulesstates:
Section11.PeriodoftheStayOrderThestayordershallbeeffectivefromthedateofits
issuance until the dismissal of the petition or the termination of the rehabilitation
proceedings.Thepetitionshallbedismissedifnorehabilitationplanisapprovedbythecourt
uponthelapseofonehundredeighty(180)daysfromthedateoftheinitialhearing.The
court may grant an extension beyond this period only if it appears by convincing and
compelling evidence that the debtor may successfully be rehabilitated. In no instance,
however,shalltheperiodforapprovingordisapprovingarehabilitationplanexceedeighteen
(18)monthsfromthedateoffilingofthepetition.
Rule2,Section2oftheInterimRulesmaybeproperlyappliedasitdictatesthecourtsto
liberallyconstruetherehabilitationrulesinordertocarryouttheobjectivesofSections6(c)
ofPD902A,as amended, andtoassisttheparties inobtainingajust,expeditious, and
inexpensive determination of rehabilitation cases. (Lexber Inc v. Spouses Dalman GR
183587April20,2015)
D.ForeignInvestmentsAct(R.A.No.7042)
Q.Whatisdoingbusiness?
A.Thephrase"doingbusiness"shallincludesolicitingorders,servicecontracts,opening
offices, whether called "liaison" offices or branches; appointing representatives or
distributorsdomiciledinthePhilippinesorwhoinanycalendaryearstayinthecountryfora
period or periods totaling one hundred eighty (180) days or more; participating in the
management,supervisionorcontrolofanydomesticbusiness,firm,entityorcorporationin
thePhilippines;andanyotheractoractsthatimplyacontinuityofcommercialdealingsor
arrangements, and contemplate to that extent the performance of acts or works, or the
exerciseofsomeofthefunctionsnormallyincidentto,andinprogressiveprosecutionof,
commercial gain or of the purpose and object of the business organization: Provided,
however,Thatthephrase"doingbusiness:shallnotbedeemedtoincludemereinvestmentas
ashareholderbyaforeignentityindomesticcorporationsdulyregisteredtodobusiness,
and/ortheexerciseofrightsassuchinvestor;norhavinganomineedirectororofficerto
represent its interests in such corporation; nor appointing a representative or distributor
domiciled in the Philippines which transacts business in its own name and for its own
account;(sec.3.d.ForeignInvestmentsAct.)
In Mentholatum Co., Inc. v.. Anacleto Mangaliman, the Supreme Court laid down the
jurisprudential test of what constitutes "doing business" in the Philippines for foreign
corporationsknownasthe"TwinCharacterizationTest".
Underthistest,aforeigncorporationisconsideredtobe"doingbusiness"inthePhilippines
when:

23 | P a g e

a) The foreign corporation is maintaining or continuing in the Philippines "the body or

substance of the business or enterprise for which it was organized or whether it has
substantiallyretiredfromitandturneditovertoanother."
b)Theforeigncorporationisengagedinactivitieswhichnecessarilyimply"acontinuityof
commercialdealingsandarrangements,andcontemplates,tothatextent,theperformanceof
acts or works or the exercise of some of the functions normally incidental to, and in
progressiveprosecutionof,thepurposeandobjectofitsorganization.(SECOGCOpinion
1022s.2010)
Pleasenotethataliensmaybeallowedtoinvestincompaniesinvolvedintheexploitation,
developmentandutilizationofnaturalresourcesprovided60%ofthesharesisownedby
Filipino citizens. Aliens may also register their companies and enjoy tax incentives
undertheBOIandPEZAlaws.
V.InsuranceCode
Q.Whatistheeffectofacontractofinsurancebeingacontractofadhesion?
A.Acontractofinsuranceisacontractofadhesion.Whenthetermsoftheinsurancecontract
containlimitationsonliability,courtsshouldconstruetheminsuchawayastoprecludethe
insurerfromnoncompliancewithhisobligation.AlphaInsuranceandSuretyCo.v.Arsenia
SoniaCastor,G.R.No.198174,September2,2013.
Q.Howdoyouconstruelimitationsontheliabilityofaninsurer?
A.InPhilamcareHealthSystems,Inc.v.CA,weruledthatahealthcareagreementisinthe
natureofanonlifeinsurance.Itisanestablishedruleininsurancecontractsthatwhentheir
termscontainlimitationsonliability,theyshouldbeconstruedstrictlyagainsttheinsurer.
These are contracts of adhesion the terms of which must be interpreted and enforced
stringently against the insurer which prepared the contract. This doctrine is equally
applicable to health care agreements.Fortune Medicare, Inc. v. David Robert U.
Amorin,G.R.No.195872,March12,2014.
Q.Whenistheredoubleinsurance?
A.BytheexpressprovisionofSection93oftheInsuranceCode,doubleinsuranceexists
where the same person is insured by several insurers separately in respect to the same
subjectandinterest.Therequisitesinorderfordoubleinsurancetoariseareasfollows:
1.Thepersoninsuredisthesame;
2.Twoormoreinsurersinsuringseparately;
3.Thereisidentityofsubjectmatter;
4.Thereisidentityofinterestinsured;and
5.Thereisidentityoftheriskorperilinsuredagainst.(MalayanInsuranceCo.,Inc.vs.
PhilippineFirstInsurance,Co.,Inc.,etal.,G.R.No.184300,July11,2012).
Q.Whatisanadditionalinsuranceclause?
A.Section5isactuallytheotherinsuranceclause(alsocalledadditionalinsuranceand
doubleinsurance),oneakintoConditionNo.3inissueinGeagoniav.CA,whichvalidity
wasupheldbytheCourtasawarrantythatnootherinsuranceexists.TheCourtruledthat
ConditionNo.3isaconditionwhichisnotproscribedbylawasitsincorporationinthe
policyisallowedbySection75oftheInsuranceCode.ItwasalsotheCourtsfindingthat
unliketheotherinsuranceclauses,ConditionNo.3doesnotabsolutelydeclarevoidany
violationthereofbutexpresslyprovidesthattheconditionshallnotapplywhenthetotal
insurance or insurances in force at the time of the loss or damage is not more than
P200,000.00.(Malayan Insurance Co., Inc. vs. Philippine First Insurance, Co., Inc., et
al.,G.R.No.184300,July11,2012).
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Q.Whatisanoverinsuranceclause?
A.Section 12of the SRPolicy, on the other hand, is the over insurance clause. More
particularly,itcoversthesituationwherethereisoverinsuranceduetodoubleinsurance.In
suchcase,Section15providesthatMalayanshallnotbeliabletopayorcontributemore
thanitsratableproportionofsuchlossordamage.Thisisinaccordwiththeprincipleof
contributionprovidedunderSection94(e)oftheInsuranceCode,whichstatesthatwhere
theinsuredisoverinsuredbydoubleinsurance,eachinsurerisbound,asbetweenhimself
andtheotherinsurers,tocontributeratablytothelossinproportiontotheamountforwhich
heisliableunderhiscontract.(MalayanInsuranceCo.,Inc.vs.PhilippineFirstInsurance,
Co.,Inc.,etal.,G.R.No.184300,July11,2012).
Q.Whatisthenatureofahealthcareagreement?
A.Forpurposesofdeterminingtheliabilityofahealthcareprovidertoitsmembers,
jurisprudenceholdsthatahealthcareagreementisinthenatureofnonlifeinsurance,
whichisprimarilyacontractofindemnity.Oncethememberincurshospital,medicalor
anyotherexpensearisingfromsickness,injuryorotherstipulatedcontingent,thehealthcare
provider must pay for the same to the extent agreed upon under the contract.(Fortune
Medicare,Inc.v.DavidRobertU.Amorin,G.R.No.195872,March12,2014).
Q.Whatistheeffectofafraudulentclaimininsurance?
A.Ithaslongbeensettledthatafalseandmaterialstatementmadewithanintenttodeceive
ordefraudvoidsaninsurancepolicy.InYuCuav.SouthBritishInsuranceCo.,theclaim
wasfourteentimesbiggerthantherealloss;inGoLuv.YorkshireInsuranceCo,eighttimes;
and inTuason v. North China Insurance Co.,six times. In the present case, the claim
istwentyfivetimestheactualclaimproved.
Themostliberalhumanjudgmentcannotattributesuchdifferencetomereinnocenterrorin
estimating or counting but to a deliberate intent to demand from insurance companys
paymentforindemnityofgoodsnotexistingatthetimeofthefire.Thisconstitutestheso
calledfraudulent claimwhich, by express agreement between the insurers and the
insured,isagroundfortheexemptionofinsurersfromcivilliability.
Whileitisacardinalprincipleofinsurancelawthatacontractofinsuranceistobeconstrued
liberally in favor of the insured and strictly against the insurer company,contracts of
insurance,likeothercontracts,aretobeconstruedaccordingtothesenseandmeaningofthe
termswhichthepartiesthemselveshaveused.Ifsuchtermsareclearandunambiguous,they
mustbetakenandunderstoodintheirplain, ordinaryandpopularsense.Courtsarenot
permittedtomakecontractsfortheparties;thefunctionanddutyofthecourtsissimplyto
enforce and carry out the contracts actually made. (United Merchants Corporation vs.
CountryBankersInsuranceCorporation,G.R.No.198588,July11,2012).
Q.Whenmayaninsurancecontractberescinded?
A.Accordingly,aninsurercanexerciseitsrighttorescindaninsurancecontractwhenthe
followingconditionsarepresent,towit:
1)thepolicylimitstheuseorconditionofthethinginsured;
2)thereisanalterationinsaiduseorcondition;
3)thealterationiswithouttheconsentoftheinsurer;
4)thealterationismadebymeanswithintheinsuredscontrol;and
5)thealterationincreasestheriskofloss.
Inthecaseatbench,allthesecircumstancesarepresent.Itwasclearlyestablishedthatthe
renewalpolicystipulatedthattheinsuredpropertieswerelocatedattheSanyofactory;that
PAPremovedthepropertieswithouttheconsentofMalayan;andthatthealterationofthe
location increased the risk of loss.(Malayan Insurance Company, Inc. v. PAP co., Ltd.
(PhilippineBranch),G.R.No.200784,August7,2013).
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Q.Whatisasuretyshipagreement?Whatistheliabilityofasurety?
A. Section 175 of the Insurance Code defines a suretyship as a contract or agreement
wherebyaparty,calledthesurety,guaranteestheperformancebyanotherparty,calledthe
principal orobligor,ofanobligation orundertakinginfavorofathirdparty,calledthe
obligee.Itincludesofficialrecognizances,stipulations,bondsorundertakingsissuedunder
Act536,asamended.Suretyshiparisesuponthesolidarybindingofapersondeemedthe
surety with the principal debtor, for the purpose of fulfilling an obligation. Such
undertakingmakesasuretyagreementanancillarycontractasitpresupposestheexistenceof
aprincipalcontract.Althoughthecontractofasuretyisinessencesecondaryonlytoavalid
principalobligation,thesuretybecomesliableforthedebtordutyofanotheralthoughit
possessesnodirectorpersonalinterestovertheobligationsnordoesitreceiveanybenefit
therefrom.Andnotwithstandingthefactthatthesuretycontractissecondarytotheprincipal
obligation,thesuretyassumesliabilityasaregularpartytotheundertaking.(FirstLepanto
Taisho Insurance Corporation (now known as FLT Prime Insurance Corporation) vs.
ChevronPhilippines,inc.(formerlyknownasCaltexPhilippines,Inc.),G.R.No.177839,
January18,2012).
Q.Whenisasuretyshipeffective?
A. Sec. 177 of the Insurance Code provides: The surety is entitled to payment of the
premium assoonasthecontract ofsuretyshiporbondisperfectedanddelivered tothe
obligor.Nocontractofsuretyshiporbondingshallbevalidandbindingunlessanduntil
thepremiumthereforhasbeenpaid,exceptwheretheobligeehasacceptedthebond,in
whichcasethebondbecomesvalidandenforceableirrespectiveofwhetherornotthe
premiumhasbeenpaidbytheobligortothesurety:Provided,Thatifthecontractof
suretyshiporbondisnotacceptedby,orfiledwiththeobligee,thesuretyshallcollectonly
reasonableamount,notexceedingfiftypercentumofthepremiumduethereonasservicefee
plusthecostofstampsorothertaxesimposedfortheissuanceofthecontractorbond:
Provided,however,Thatifthenonacceptanceofthebondbeduetothefaultornegligence
ofthesurety,nosuchservice fee,stamps ortaxes shallbecollected. (CountryBankers
InsuranceCorporationv.AntonioLagman,G.R.No.165487,July13,2011).
Q.Ifalossisallegedtobeanexceptiontotheinsurancecoverage,whohastheburdenof
provingsuchexception?
A.Aninsurerwhoseekstodefeataclaimbecauseofanexceptionorlimitationinthepolicy
hastheburdenofestablishingthatthelosscomeswithinthepurviewoftheexceptionor
limitation.Iflossisprovedapparentlywithinacontractofinsurance,theburdenisuponthe
insurertoestablishthatthelossarosefromacauseoflosswhichisexceptedorforwhichit
isnotliable,orfromacausewhichlimitsitsliability.Inthepresentcase,CBICfailedto
dischargeitsprimordialburdenofestablishingthatthedamageorlosswascausedbyarson,a
limitation in the policy.(United Merchants Corporation vs. Country Bankers Insurance
Corporation,G.R.No.198588,July11,2012)
Q.IfEiselInsurancepresentsasubrogation receipt in acasetorecover fromRandy
Lines,acommoncarrierthatcauseddamagetoEiselInsurancesclient,mayRandyLines
avoidliabilityifEiselInsurancefailstopresenttheInsurancepolicy?
A.No.Thepresentationinevidence ofthemarineinsurancepolicyisnotindispensable
beforetheinsurermayrecoverfromthecommoncarriertheinsuredvalueofthelostcargoin
the exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to
establishtheamountpaidtosettle theinsuranceclaim. Therightofsubrogationaccrues
simplyuponpaymentbytheinsurancecompanyoftheinsuranceclaim.(AsianTerminals,
Inc.v.MalayanInsurance,Co.,Inc.,G.R.No.171406,April4,2011).
Sameapplicationofthedoctrine:Asageneralrule,themarineinsurancepolicyneedstobe
presentedinevidencebeforetheinsurermayrecovertheinsuredvalueofthelost/damaged
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cargointheexerciseofitssubrogatoryrightsinceitisthelegalbasisoftheinsurersrightto
subrogation. Nevertheless, a marine insurance policy is dispensable evidence in
reimbursementclaims instituted bytheinsurerespeciallywhenasubrogationreceipthas
beenexecutedbetweentheinsuredandtheinsurer.(AsianTerminals,Inc.v.FirstLepanto
TaishoInsuranceCorporation,G.R.185964,June16,2014).
Q.Whatarethekindsofinterestforpremiumrefund?
A.Therearetwokindsofinterestmonetaryandcompensatory.Theformerreferstothe
compensationsetbythepartiesfortheuseorforbearanceofmoneyandshallnotbedue
unless it has been expressly stated in writing while the latter refers to the penalty of
indemnityfordamagesimposedbylaworbythecourts.TheinterestmentionedinArt2209
and 2212 of the Civil Code applies to compensatory interest. As a form of damages,
compensatoryinterestisdueonlyiftheobligorisproventohavefailedtocomplywithhis
obligation.(SunLifeofCanadav.SandraTanKitandEstateoftheDeceasedNorbertoTan
Kit,G.R.No183272,October15,2014)
Q.MarionimportedrarecollectibletoysfromEurope.Uponarrivaloftheshipcarrying
thegoods,itwasdiscoveredthatthecontainerofMarionsgoodsgotwetwithseawater.
The goods were not severely damaged but their individual boxes and packaging were
damaged.Marionclaims thatshecanstillsellthegoodsbutatalowerpricebecause
collectorsrequirethepackagingtobeintact.MayMarionrecoverevenifnoportionofthe
goodswerelost?
A.Yes.UnderArt365oftheCodeofCommerce,ifthegoodsarerendereduselessforsale,
consumption,orfortheintendedpurpose,theconsigneemayrejectthegoodsanddemand
thepaymentofsuchgoodsattheirmarketpriceonthatday.Incasethedamagedportionof
thegoodscanbesegregatedfromthosedeliveredingoodcondition,theconsigneemayreject
thoseindamagedconditionandacceptmerelythosewhichareingoodcondition.Butifthe
consigneeisabletoprovethatitisimpossibletousethosegoodswhichweredeliveredin
goodconditionwithouttheothers,thentheentireshipmentmayberejected.Thusthenature
of damage must be such that the goods are rendered useless for sale, consumption, or
intendedpurposefortheconsigneetobeabletovalidlyrejectthem.Ontheotherhand,under
Art364oftheCodeofCommerce,iftheeffectofdamageonthegoodsconsistedmerelyof
diminutioninvalue,thecarrierisboundtopayonlythedifferencebetweenitspriceonthat
dayanditsdepreciatedvalue.(LoadstarShippingCompany,Inc.andLoadstarInternational
ShippingCompany,Inc.v.MalayanInsuranceCompany,G.R.185565,November26,2014).
VI.TransportationLaw
Contractofcarriageasacontractoflease(transportofpersonsandgoodsbyland,air
and water) under Title V ofthe Civil Code; definition of contract ofcarriage ofa
commoncarrier;distinguishfromprivatecarrier;degreeofdiligencerequired;when
liabilitiesmayattachtocommoncarriersandwhenmayinjuredpartysclaimmaybe
reducedduetocontributorynegligence;definitionofproximatecause;liabilityunder
theWarsawConvention;liabilityunderCOGSA; whenmayjettisonberesortedto
(review the kinds of averages in maritime accidents) ;what is maritime protest;
prescription period within which to file claims; instances when insurer may be
subrogatedtotherightsofthepassengerand/orshipper;otherthanactualloss,what
otherdamagesmaybeawarded.
Q.WhatisthedualconceptofjurisdictionundertheWarsawconvention?
A.Jurisdictioestpotestasdepublicointroductacumnecessitatejurisdicendi.Jurisdictionis
apowerintroducedforthepublicgood,onaccountofthenecessityofdispensingjustice.
Under Article 28(1) of the Warsaw Convention, the plaintiff may bring the action for
damagesbefore
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1.thecourtwherethecarrierisdomiciled;
2.thecourtwherethecarrierhasitsprincipalplaceofbusiness;
3.thecourtwherethecarrierhasanestablishmentbywhichthecontracthasbeenmade;or
4.thecourtoftheplaceofdestination.ch
Inotherwords,wherethematterisgovernedbytheWarsawConvention,jurisdictiontakes
onadualconcept.Jurisdictionintheinternationalsensemustbeestablishedinaccordance
withArticle28(1)oftheWarsawConvention,followingwhichthejurisdictionofaparticular
courtmustbeestablishedpursuanttotheapplicabledomesticlaw.Onlyafterthequestionof
whichcourthasjurisdictionisdeterminedwilltheissueofvenuebetakenup.(Lluillierv.
BritishAirways,G.R.No.171092,March15,2010)
TakenotethattheWarsawConventionhasbeenamendedbytheMontrealAgreement.
Q.WhatistheprescriptiveperiodundertheCarriageofGoodsbySeaAct?
A.TheCOGSAistheapplicablelawforallcontractsforcarriageofgoodsbysea toand
fromPhilippineportsinforeigntrade;itisthusthelawthattheCourtshallconsiderinthe
presentcasesincethecargowastransportedfromBraziltothePhilippines.
UnderSection3(6)oftheCOGSA,thecarrierisdischargedfromliabilityforlossordamage
tothecargounlessthesuitisbroughtwithinoneyearafterdeliveryofthegoodsorthedate
when the goods should have been delivered. Jurisprudence, however, recognized the
validityofanagreementbetweenthecarrierandtheshipper/consigneeextendingtheone
yearperiodtofileaclaim.(BenjaminCua[CuaHianTek]v.WallemPhilippinesShipping,
Inc.andAdvanceShippingCorporation,G.R.No.171337.July11,2012)

Q.WhatistheliabilityofacommoncarrierunderCarriageofGoodsbySea?
A.ItistobenotedthattheCivilCodedoesnotlimittheliabilityofthecommoncarriertoa
fixedamountperpackage.InallmattersnotregulatedbytheCivilCode,therightsand
obligationsofcommoncarriersaregovernedbytheCodeofCommerceandspeciallaws.
Thus, the COGSA supplements the Civil Code by establishing a provision limiting the
carriersliabilityintheabsenceofashippersdeclarationofahighervalueinthebillof
lading.
Inthepresentcase,theshipperdidnotdeclareahighervaluationofthegoodstobeshipped.
Inlightoftheforegoing,petitionersliabilityshouldbelimitedto$500persteeldrum.Inthis
case,astherewasonlyonedrumlost,privaterespondentisentitledtoreceiveonly$500as
damagesfortheloss.Inadditiontosaidamount,asaptlyheldbythetrialcourt,aninterest
rateof6%perannumshouldalsobeimposed,plus25%ofthetotalsumasattorneysfees.
(Unsworth Transportation International [Phils.], Inc. vs. Court of Appeals and Pioneer
InsuranceandSuretyCorporation,G.R.No.166250,July26,2010).
Q.WhatistheprescriptionforaclaimunderCarriageofGoodsbySeaAct?
A.UnderSection3(6)oftheCarriageofGoodsbySeaAct,noticeoflossordamagesmust
be filed within three days of delivery. Admittedly, respondent did not comply with this
provision.
Underthesameprovision,however,afailuretofileanoticeofclaimwithinthreedayswill
notbarrecoveryifasuitisnonethelessfiledwithinoneyearfromdeliveryofthegoodsor
fromthedatewhenthegoodsshouldhavebeendelivered.
InLoadstarShippingCo.,Inc.v.CourtofAppeals,theCourtruledthataclaimisnotbarred
by prescription as long as the oneyear period has not lapsed. Thus, in the words of
theponente,ChiefJusticeHilarioG.DavideJr.:InasmuchasneithertheCivilCodenorthe
CodeofCommercestatesaspecificprescriptiveperiodonthematter,theCarriageofGoods
bySeaAct(COGSA)whichprovidesforaoneyearperiodoflimitationonclaimsfor
lossof,ordamageto,cargoessustainedduringtransitmaybeappliedsuppletorilytothe
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caseatbar.WallemPhilippinesShipping,Inc.vs.S.R.Farms,Inc.,G.R.No.161849,July
9,2010.
Q.Whatisafreightforwarder?
A.Thetermfreightforwarderreferstoafirmholdingitselfouttothegeneralpublic(other
thanasapipeline,rail,motor,orwatercarrier)toprovidetransportationofpropertyfor
compensationand,intheordinarycourseofitsbusiness,(1)toassembleandconsolidate,or
toprovideforassemblingandconsolidating,shipments,andtoperformorprovideforbreak
bulk and distribution operations of the shipments; (2) to assume responsibility for the
transportationofgoodsfromtheplaceofreceipttotheplaceofdestination;and(3)tousefor
any part of the transportation a carrier subject to the federal law pertaining to common
carriers. (Unsworth Transportation International (Phils.), Inc. vs. Court of Appeals and
PioneerInsuranceandSuretyCorporation,G.R.No.166250,July26,2010).
Q.WhatistheliabilityofaFreightforwarder?Afreightforwardersliabilityislimitedto
damages arising from its own negligence, including negligence in choosing the carrier;
however, where the forwarder contracts to deliver goods to their destination instead of
merelyarrangingfortheirtransportation,itbecomesliableasacommoncarrierforlossor
damagetogoods.Afreightforwarderassumestheresponsibilityofacarrier,whichactually
executes the transport, even though the forwarder does not carry the merchandise itself.
Unsworth Transportation International (Phils.), Inc. vs. Court of Appeals and Pioneer
InsuranceandSuretyCorporation,G.R.No.166250,July26,2010.
Q.WhomayavailofthedoctrineofLimitedLiability?
A.Theshipownermayavailofthedoctrineoflimitedliability.
With respect to petitioners position that the Limited Liability Rule under the Code of
Commerceshouldbeappliedtothem,theargumentismisplaced.Thesaidrulehasbeen
explained to be that of the real and hypothecary doctrine in maritime law where the
shipownerorshipagentsliabilityisheldasmerelycoextensivewithhisinterestinthe
vesselsuchthatatotallossthereofresultsinitsextinction.Inthisjurisdiction,thisruleis
providedinthreearticlesoftheCodeofCommerce.Theseare:
Art.587.Theshipagentshallalsobecivillyliablefortheindemnities infavorofthird
personswhichmayarisefromtheconductofthecaptaininthecareofthegoodswhichhe
loadedonthevessel;buthemayexempthimselftherefrombyabandoningthevesselwithall
herequipmentandthefreightitmayhaveearnedduringthevoyage.
Art.590.Thecoownersofthevesselshallbecivillyliableintheproportionoftheirinterests
inthecommonfundfortheresultsoftheactsofthecaptainreferredtoinArt.587.
Eachcoownermayexempthimselffromthisliabilitybytheabandonment,beforeanotary,
ofthepartofthevesselbelongingtohim.
Art.837.Thecivilliabilityincurredbyshipownersinthecaseprescribedinthissection,shall
beunderstoodaslimitedtothevalueofthevesselwithallitsappurtenancesandfreightage
servedduringthevoyage.
Article837specificallyappliestocasesinvolvingcollisionwhichisanecessaryconsequence
of the right to abandon the vessel given to the shipowner or ship agent under the first
provisionArticle587.Similarly,Article590isareiterationofArticle587,onlythistime
thesituationisthatthevesseliscoownedbyseveralpersons.Obviously,theforerunnerof
theLimitedLiabilityRuleundertheCodeofCommerceisArticle587.Now,thelatteris
quiteclearonwhichindemnitiesmaybeconfinedorrestrictedtothevalueofthevessel
pursuanttothesaidRule,andthesearetheindemnitiesinfavorofthirdpersonswhich
mayarisefromtheconductofthecaptaininthecareofthegoodswhichheloadedonthe
vessel.Thus,whatiscontemplatedistheliabilitytothirdpersonswhomayhavedealtwith
theshipowner,theagentoreventhechartererincaseofdemiseorbareboatcharter.
Theonlypersonwhocouldavailofthisistheshipowner,Concepcion.Heistheveryperson
whom the Limited Liability Rule has been conceived to protect. The petitioners cannot
29 | P a g e

invoke this as a defense. (Agustin P. Dela Torre v. The Hon. Court of Appeals, et
al./PhilippineTrigonShipyardCorporation,etal.v.CrisostomoG.Concepcion,etal.,G.R.
No.160088/G.R.No.160565,July13,2011)
Q.Whatistheliabilityofachartererandasubcharterer?
A.Inthepresentcase,thechartererandthesubchartererthroughtheirrespectivecontracts
ofagreement/charterparties,obtainedtheuseandserviceoftheentireLCTJosephine.The
vesselwaslikewisemannedbythechartererandlaterbythesubchartererspeople.Withthe
completeandexclusiverelinquishmentofpossession,commandandnavigationofthevessel,
thechartererandlaterthesubchartererbecamethevesselsownerprohacvice.Now,andin
theabsenceofanyshowingthatthevesseloranypartthereofwascommerciallyofferedfor
usetothepublic,theaboveagreements/charterpartiesarethatofaprivatecarriagewherethe
rightsofthecontractingpartiesareprimarilydefinedandgovernedbythestipulationsin
theircontract.
AlthoughcertainstatutoryrightsandobligationsofcharterpartiesarefoundintheCodeof
Commerce,theseprovisionsascorrectlypointedoutbytheRTC,arenotapplicableinthe
presentcase.Indeed,noneoftheprovisionsfoundintheCodeofCommercedealswiththe
specificrightsandobligationsbetweentherealshipownerandthechartererobtaininginthis
case.Necessarily,theCourtlookstotheNewCivilCodetosupplythedeficiency.Inany
case,allthreepetitionersareliableunderArticle1170oftheNewCivilCode.(AgustinP.
DelaTorrev.TheHon.CourtofAppeals,etal./PhilippineTrigonShipyardCorporation,et
al.v.CrisostomoG.Concepcion,etal.,G.R.No.160088/G.R.No.160565,July13,2011)
Q.WhatisthePackageLimitationLiabilityandPrescriptivePeriodunderCOGSA? Is
thereanexceptiontotheserules?
A.UnderSec.4(5)oftheCOGSA,whentheshipperfailstodeclarethevalueofthegoodsin
thebilloflading,neitherthecarriernortheshipshallinanyeventbeorbecomeliablefor
any loss or damage to or in connection with the transportation of goods in an amount
exceeding US$500perpackage.UnderSec.3(6)oftheCOGSAwhichprovides,among
others,thatthenoticeinwritingneednotbegivenifthestateofthegoodshasatthetimeof
theirreceiptbeenthesubjectofjointsurveyorinspection,andinanyeventthecarrierand
theshipshallbedischargedfromallliabilityinrespectoflossordamageunlesssuitis
broughtwithinone(1)yearafterdeliveryofthegoodsorthedatewhenthegoodsshould
havebeendelivered,providedthatifanoticeoflossordamage,eitherapparentorconcealed,
isnotgiven,thatfactshallnotaffectorprejudicetherightoftheshippertobringsuitwithin
one year after the delivery of the goods or the date when the goods should have been
delivered. PhilamInsuranceCompany,Inc.v.HeungAShippingCorporationandWallem
PhilippinesShipping,Inc.,G.R.No.187701,July23,2014.
Exception:Mereproofofthedeliveryofthegoodsingoodordertoacommoncarrierandof
their arrival in bad order at their destination constitutes a prima facie case of fault or
negligenceagainstthecarrier.Ifnoadequateexplanationisgivenastohowthedeterioration,
loss,ordestructionofthegoodshappened,thetransportershallbeheldresponsible.Eastern
Shipping,Inc.v.BPI/MSInsuranceCorporationandMitsuiSumitomoInsuranceCo.,Ltd.
G.R.193986,January15,2014
VII.IntellectualPropertyLaw
WhatmayprotectedundertheCopyrightLaw:(originalworksandderivativeworks;
limitationsdoctrineoffairuseandcopyrightinfringement);registrationoftrademark
(definitionofmarks,collectivemarks,tradenames;prioruseofmarkasrequirement;
teststodetermineconfusingorsimilarmarks:dominancytestandholistictest);whatmay
coveredbyapatent(firsttofileruleandlimitationsofpatentrightsprioruseranduse
by government); what are the requisites of a Technology Transfer Arrangements (ex.
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McDonaldsUSAhasaTechnologyTransferAgreementwithallFranchiseHoldersof
McDonaldsinthePhilippines);incaseofinfringement,whataretheavailableremedies
andwhatdamagesmaybeclaimed.
Q.Isatradenameprotectedevenwithoutregistration?
A. Under the Paris Convention, the Philippines is obligated to assure nationals of the
signatorycountriesthattheyareaffordedaneffectiveprotectionagainstviolationoftheir
intellectualpropertyrightsinthePhilippinesinthesamewaythattheirowncountriesare
obligatedtoaccordsimilarprotectiontoPhilippinenationals.Thus,underPhilippinelaw,a
tradenameofanationalofaStatethatisapartytotheParisConvention,whetherornotthe
trade name forms part of a trademark, is protected without the obligation of filing or
registration.
Thepresentlawontrademarks,RepublicActNo.8293,otherwiseknownastheIntellectual
PropertyCodeofthePhilippines,asamended,hasalreadydispensedwiththerequirementof
prioractualuseatthetimeofregistration.(ColeDeCuisineManille(CordonBleuofthe
Philippines),Inc.v.RenaudCointreau&CIEandLeCondronBleuIntl.,B.V.,G.R.No.
185830,June5,2013).
Q.WhatisaMarkforpurposesofaninfringementcase?
A.Amarkisanyvisiblesigncapableofdistinguishingthegoods(trademark)orservices
(servicemark)ofanenterpriseandshallincludeastampedormarkedcontainerofgoods.
InMcDonaldsCorporationandMcGeorgeFoodIndustries,Inc.v.L.C.BigMakBurger,
Inc.,thisCourtheld:
Toestablishtrademarkinfringement,thefollowingelementsmustbeshown:(1)thevalidity
ofplaintiffsmark;(2)theplaintiffsownershipofthemark;and(3)theuseofthemarkor
itscolorableimitationbytheallegedinfringerresultsinlikelihoodofconfusion.Ofthese,
itistheelementoflikelihoodofconfusionthatisthegravamenoftrademarkinfringement.
Amarkisvalidifitisdistinctiveandnotbarredfromregistration.Onceregistered,notonly
the marks validity, but also the registrants ownership of the mark is prima facie
presumed.(Gemma Ong a.k.a. Ma. Theresa Gemma Catacutan vs. People of the
Philippines,G.R.No.169440,.November23,2011).
Q.Whataretheelementsofinfringement?
A.TheessentialelementofinfringementunderR.A.No.8293isthattheinfringingmarkis
likely to cause confusion. In determining similarity and likelihood of confusion,
jurisprudencehasdevelopedteststheDominancyTestandtheHolisticorTotalityTest.The
Dominancy Test focuses on the similarity of the prevalent or dominant features of the
competingtrademarksthatmightcauseconfusion,mistake,anddeceptioninthemindofthe
purchasingpublic.Duplicationorimitationisnotnecessary;neitherisitrequiredthatthe
marksoughttoberegisteredsuggestsanefforttoimitate.Givenmoreconsiderationarethe
auralandvisualimpressionscreatedbythemarksonthebuyersofgoods,givinglittleweight
tofactorslikeprices,quality,salesoutlets,andmarketsegments.
Incontrast,theHolisticorTotalityTestnecessitatesaconsiderationoftheentiretyofthe
marks as applied to the products, including the labels and packaging, in determining
confusing similarity. The discerning eye of the observer must focus not only on the
predominant words, but also on the other features appearing on both labels so that the
observermaydrawconclusiononwhetheroneisconfusinglysimilartotheother.
Relativetothequestiononconfusionofmarksandtradenames,jurisprudencehasnotedtwo
(2)typesofconfusion,viz.:(1)confusionofgoods(productconfusion),wheretheordinarily
prudent purchaser would be induced to purchase one product in the belief that he was
purchasing theother; and (2)confusion ofbusiness (source ororiginconfusion),where,
althoughthegoodsofthepartiesaredifferent,theproduct,themarkofwhichregistrationis
applied for by one party, is such as might reasonably be assumed to originate with the
31 | P a g e

registrantofanearlierproduct,andthepublicwouldthenbedeceivedeitherintothatbelief
orintothebeliefthatthereissomeconnectionbetweenthetwoparties,thoughinexistent.
ApplyingtheDominancyTesttothecaseatbar,thisCourtfindsthattheuseofthestylized
SbyrespondentinitsStrongrubbershoesinfringesonthemarkalreadyregisteredby
petitionerwiththeIPO.WhileitisundisputedthatpetitionersstylizedSiswithinanoval
design,tothisCourtsmind,thedominantfeatureofthetrademarkisthestylizedS,asitis
preciselythestylizedSwhichcatchestheeyeofthepurchaser.Thus,evenifrespondent
didnotuseanovaldesign,themerefactthatitusedthesamestylizedS,thesamebeing
thedominantfeatureofpetitionerstrademark,alreadyconstitutesinfringementunderthe
DominancyTest. (Skechers,U.S.A.,Inc.vs.InterPacificIndustrialTradingCorp.,etal.,
G.R.No.164321,March28,2011.)
Q.Issellingcounterfeitcigarettesaformofinfringement?
A.Yes.Toestablishtrademarkinfringement,thefollowingelementsmustbeshown:
(1)thevalidityofplaintiffsmark;(2)theplaintiffsownershipofthemark;and(3)
the use of the mark or its colorable imitation by the alleged infringer results in
likelihoodofconfusion.Ofthese,itistheelementoflikelihoodofconfusionthatis
thegravamenoftrademarkinfringement.
Amarkisvalidifitisdistinctiveandnotbarredfromregistration.Onceregistered,notonly
themarksvalidity,butalsotheregistrantsownershipofthemarkisprimafaciepresumed.
TheprosecutionwasabletoestablishthatthetrademarkMarlborowasnotonlyvalidfor
beingneithergenericnordescriptive,itwasalsoexclusivelyownedbyPMPI,asevidenced
bythecertificatesofregistrationissuedbytheIntellectualPropertyOfficeoftheDepartment
of Trade and Industry.Anent the element of confusion, both the RTC and the Court of
AppealshavecorrectlyheldthatthecounterfeitcigarettesseizedfromGammaspossession
wereintendedtoconfuseanddeceivethepublicastotheoriginofthecigarettesintendedto
besold,astheynotonlyborePMPIsmark,buttheywerealsopackagedalmostexactlyas
PMPIsproducts.(Ongv.People,2011)
Q.Whataretherightsofpatentees?
A.ItisclearfromSection37ofRepublicActNo.165thattheexclusiverightofapatentee
tomakeuseandsellapatentedproduct,articleorprocessexistsonlyduringthetermofthe
patent. In the instant case, Philippine Letters Patent No. 21116, which was the basis of
respondentsinfilingtheircomplaintwiththeBLAIPO,wasissuedonJuly16,1987.This
factwasadmittedbyrespondentsthemselvesintheircomplaint.Theyalsoadmittedthatthe
validityofthesaidpatentisuntilJuly16,2004,whichisinconformitywithSection21of
RA165,providingthatthetermofapatentshallbeseventeen(17)yearsfromthedateof
issuancethereof.Section4,Rule129oftheRulesofCourtprovidesthatanadmission,verbal
orwritten,madebyapartyinthecourseoftheproceedingsinthesamecase,doesnot
requireproofandthattheadmissionmaybecontradictedonlybyshowingthatitwasmade
throughpalpablemistakeorthatnosuchadmissionwasmade.Inthepresentcase,thereisno
disputeastorespondentsadmissionthatthetermoftheirpatentexpiredonJuly16,2004.
Neitheristhereevidencetoshowthattheiradmissionwasmadethroughpalpablemistake.
Hence,contrarytothepronouncementoftheCA,thereisnolongeranyneedtopresent
evidence ontheissueofexpiration ofrespondentspatent. Phil Pharmawealth, Inc.vs.
Pfizer,IncandPfizer(Phil.)Inc.,G.R.No.167715,November17,2010.
Q.Isaninternationallywellknownmarkprotectedinthisjurisdiction?
A.Yes.Thereisnoquestionthen,andthisCourtsodeclares,thatHarvardisawellknown
name and mark not only in the United States but also internationally, including the
Philippines.ThemarkHarvardisratedasoneofthemostfamousmarksintheworld.It
hasbeenregisteredinatleast50countries.Ithasbeenusedandpromotedextensivelyin
numerous publications worldwide. It has established a considerable goodwill worldwide
sincethefoundingofHarvardUniversitymorethan350yearsago.Itiseasilyrecognizable
asthetradenameandmarkofHarvardUniversityofCambridge,Massachusetts,U.S.A.,
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internationallyknownasoneoftheleadingeducationalinstitutionsintheworld.Assuch,
even before Harvard University applied for registration of the mark Harvard in the
Philippines,themarkwasalreadyprotectedunderArticle6bisandArticle8oftheParis
Convention. Again,evenwithoutapplyingtheParis Convention, HarvardUniversitycan
invokeSection4(a)ofR.A.No.166whichprohibitstheregistrationofamarkwhichmay
disparageorfalselysuggestaconnectionwithpersons,livingordead,institutions,beliefsxx
x. (Fredco Manufacturing Corporation vs. President and Fellows of Harvard College
(HarvardUniversity),G.R.No.185917,June1,2011.)
Q.EYISisadomesticcorporationengagedintheproduction,distributionandsaleofair
compressorsandotherindustrialtoolsandequipment.Ontheotherhand,ShenDarisa
Taiwanbased foreign manufacturer of air compressors. From 1997 to 2004, EYIS
imported air compressors from Shen Dar. Both of them sought to register the mark
VESPAforuseonaircompressors,butitwasShenDarwhofirstfiledtheapplicationon
June 1997. EYIS application was first granted on 2004, so Shen Dar sought for its
cancellationonthegroundofSec123oftheIntellectualPropertyCodewhichprovides
thattheregistrationofasimilarmarkispreventedwiththefilingofanearlierapplication
for registration. On the other hand, EYIS contended that Shen Dar is not entitled to
registerthemarkVESPAonitsproducts becauseEYIShasbeenusingitasthesole
assembleranddistributorofaircompressorssincethe1990s.EYISwasabletoprovesuch
fact.Whoisthetrueowner?
A.EYISisthetrueownerbecauseitisthepriorandcontinuoususerofthemarkVESPA.
Section123.1oftheIPCshouldnotbeinterpretedtomeanthatownershipisbasedupon
anearlierfilingdate.WhileRA8293removedthepreviousrequirementofproofofactual
usepriortothefilingofanapplication forregistrationofamark,proofofpriorand
continuoususeisnecessarytoestablishownershipofamark.Ownershipofamarkor
tradenamemaybeacquirednotnecessarilybyregistrationbutbyadoptionandusein
tradeorcommerce.Asbetweenactualuseofamarkwithoutregistration,andregistration
ofthemarkwithoutactualusethereof,theformerprevailsoverthelatter.Hence,EYISis
entitledtotheregistrationofthemarkinitsname.(E.YIndustrialSalesv.ShenDar,G.R.
184850,2010,pennedbyJ.Velasco)
Q.TaiwanKolinCorpsoughttoregisterthetrademarkKOLINforthearrayofgoodsit
offers which are audio visual equipment. However, Kolin Electronics opposed the
applicationonthegroundthat thetrademarkKOLINisidentical,ifnotconfusingly
similar,withitsregisteredtrademarkKOLINwhichalsocoversitsproductsthatfall
underthecategoryasdevicesforcontrollingthedistributionanduseofelectricity.Arethe
productscloselyrelated?
A.No,theproductsarenotrelatedandtheuseofthetrademarkKOLINonthemwould
notlikelycauseconfusion.Toconferexclusiveuseofatrademark,emphasisshouldbe
on the similarity or relatedness of the goods and/or services involved and not on the
arbitraryclassificationorgeneraldescriptionoftheirpropertiesorcharacteristics.
TaiwanKolinsgoodsarecategorizedasaudiovisualequipments,whileKolinElectronics
goodsfallunderdevicesforcontrollingthedistributionanduseofelectricity.Thus,itis
erroneoustoassumethatallelectronicproductsarecloselyrelatedandthatthecoverage
ofoneelectronicproductnecessarilyprecludestheregistrationofasimilarmarkover
another.
Second,theordinarilyintelligentbuyerisnotlikelytobeconfused.Thedistinctvisualand
auraldifferencesbetweenthetwotrademarksKOLIN,althoughappeartobeminimal,
are sufficient to distinguish between one brand or another. The casual buyer is
predisposed to be more cautious, discriminating, and would prefer to mull over his
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purchasebecausetheproductsinvolvedarevariouskindofelectronicproductswhichare
relativelyluxuryitemsandnotconsideredaffordable.Theyarenotordinarilyconsumable
itemssuchassoysauce,ketsuporsoapwhichareofminimalcost.Hence,confusionis
lesslikely.(TaiwanKolinv.KolinElectronics,G.R.209843,2015,VelascoJ.)
PLEASENOTEOFTHISPORTIONOFTHEDECISIONpennedbyJusticeVelascoon
infringement:
Inresolvingoneofthepivotalissuesinthiscasewhetherornottheproductsoftheparties
involvedarerelatedthedoctrineinMightyCorporationisauthoritative.There,theCourt
heldthatthegoodsshouldbetestedagainstseveralfactorsbeforearrivingatasound
conclusiononthequestionof
relatedness.Amongtheseare:
(a)thebusiness(anditslocation)towhichthegoodsbelong;
(b)theclassofproducttowhichthegoodsbelong
(c)theproductsquality,quantity,orsize,includingthenatureofthepackage,wrapperor
container;
(d)thenatureandcostofthearticles;
(e)thedescriptiveproperties,physicalattributesoressentialcharacteristicswithreferenceto
theirform,composition,textureorquality;
(f)thepurposeofthegoods;
(g)whetherthearticleisboughtforimmediateconsumption,thatis,daytodayhousehold
items;
(h)thefieldsofmanufacture;
(i)theconditionsunderwhichthearticleisusuallypurchased;and
(j)thechannelsoftradethroughwhichthegoodsflow,howtheyaredistributed,marketed,
displayedandsold.(TaiwanKolinCorporation,Ltd.v.KolinElectronicsCo.,Inc.G.R.No.
209843|March25,2015)
AMLAAMENDMENTS

AnnexA

Thefirstsectionoftheamendinglawaddedthefollowingtothelistofcoveredpersons
undertheAMLA.Theamendmentreads:
Section3(a).Coveredpersons,naturalorjuridical,referto:
(4) jewelry dealers in precious metals, who,as a business,trade inprecious metals, for
transactionsinexcessofOnemillionpesos(P1,000,000.00);
(5) jewelry dealers in precious stones, who, as a business, trade in precious stones, for
transactionsinexcessofOnemillionpesos(P1,000,000.00);
(6)companyserviceproviderswhich,asabusiness,provideanyofthefollowingservicesto
thirdparties:
(i)actingasaformationagentofjuridicalpersons;
(ii)actingas(orarrangingforanotherpersontoactas)adirectororcorporatesecretaryofa
company, a partner of a partnership, or a similar position in relation to other juridical
persons;
(iii)providingaregisteredoffice,businessaddressoraccommodation,correspondenceor
administrativeaddressforacompany,apartnershiporanyotherlegalpersonorarrangement;
and(iv)acting as(orarrangingforanotherpersontoactas)anominee shareholderfor
anotherperson;and
(7)personswhoprovideanyofthefollowingservices:
(i)managingofclientmoney,securitiesorotherassets;
(ii)managementofbank,savingsorsecuritiesaccounts;
(iii)organizationofcontributionsforthecreation,operationormanagementofcompanies;
and
(iv)creation,operationormanagementofjuridicalpersonsorarrangements,andbuyingand
sellingbusinessentities.
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Notwithstanding the foregoing, the term covered persons shall exclude lawyers and
accountantsactingasindependentlegalprofessionalsinrelationtoinformationconcerning
theirclientsorwheredisclosureofinformationwouldcompromiseclientconfidencesorthe
attorneyclientrelationship:Provided,Thattheselawyersandaccountantsareauthorizedto
practice in the Philippines and shall continue to be subject to the provisions of their
respectivecodesofconductand/orprofessionalresponsibilityoranyofitsamendments.
Thefollowingarethenewpredicatecrimes(from14to34):
Section 3(i). Unlawful activity refers to any act or omission or series or combination
thereofinvolvingorhavingdirectrelationtothefollowing:
(13)TerrorismandconspiracytocommitterrorismasdefinedandpenalizedunderSections3
and4ofRepublicActNo.9372;
(14)FinancingofterrorismunderSection4andoffensespunishableunderSections5,6,7
and8ofRepublicActNo.10168,otherwiseknownastheTerrorismFinancingPrevention
andSuppressionActof2012;
(15)BriberyunderArticles210,211and211AoftheRevisedPenalCode,asamended,and
CorruptionofPublicOfficersunderArticle212oftheRevisedPenalCode,asamended;
(16)FraudsandIllegalExactionsandTransactionsunderArticles213,214,215and216of
theRevisedPenalCode,asamended;
(17)MalversationofPublicFundsandPropertyunderArticles217and222oftheRevised
PenalCode,asamended;
(18)ForgeriesandCounterfeitingunderArticles163,166,167,168,169and176ofthe
RevisedPenalCode,asamended;
(19)ViolationsofSections4to6ofRepublicActNo.9208,otherwiseknownastheAnti
TraffickinginPersonsActof2003;
(20)ViolationsofSections78to79ofChapterIV,ofPresidentialDecreeNo.705,otherwise
knownastheRevisedForestryCodeofthePhilippines,asamended;
(21)ViolationsofSections86to106ofChapterVI,ofRepublicActNo.8550,otherwise
knownasthePhilippineFisheriesCodeof1998;
(22)ViolationsofSections101to107,and110ofRepublicActNo.7942,otherwiseknown
asthePhilippineMiningActof1995;
(23)ViolationsofSection27(c),(e),(f),(g)and(i),ofRepublicActNo.9147,otherwise
knownastheWildlifeResourcesConservationandProtectionAct;
(24)ViolationofSection7(b)ofRepublicActNo.9072,otherwiseknownastheNational
CavesandCaveResourcesManagementProtectionAct;
(25)ViolationofRepublicActNo.6539,otherwiseknownastheAntiCarnappingActof
2002,asamended;
(26) Violations of Sections 1, 3 and 5 of Presidential Decree No. 1866, as amended,
otherwise known as the decree Codifying the Laws on Illegal/Unlawful Possession,
Manufacture,DealingIn,AcquisitionorDispositionofFirearms,AmmunitionorExplosives;
(27)ViolationofPresidentialDecreeNo.1612,otherwiseknownastheAntiFencingLaw;
(28)Violation ofSection6ofRepublic ActNo.8042,otherwiseknownastheMigrant
WorkersandOverseasFilipinosActof1995,asamendedbyRepublicActNo.10022;
(29)ViolationofRepublicActNo.8293,otherwiseknownastheIntellectualPropertyCode
ofthePhilippines;
(30)ViolationofSection4ofRepublicActNo.9995,otherwiseknownastheAntiPhoto
andVideoVoyeurismActof2009;
(31)ViolationofSection4ofRepublicActNo.9775,otherwiseknownastheAntiChild
PornographyActof2009;
(32)ViolationsofSections5,7,8,9,10(c),(d)and(e),11,12and14ofRepublicActNo.
7610,otherwiseknownastheSpecialProtectionofChildrenAgainstAbuse,Exploitation
andDiscrimination;
(33) Fraudulent practices and other violations under Republic Act No. 8799, otherwise
knownastheSecuritiesRegulationCodeof2000;and
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(34)Feloniesoroffensesofasimilarnaturethatarepunishableunderthepenallawsofother
countries.
RepublicActNo.10365alsoamendedtheprovisionsoftheAMLAonthewaysbywhich
moneylaunderingmaybecommittedaswellasthemannerofitsprosecution.Firstly,
moneylaunderingmaynowbecommittedthroughthefollowing:
Section4.MoneyLaunderingOffense.Moneylaunderingiscommittedbyanyperson
who,knowingthatanymonetaryinstrumentorpropertyrepresents,involves,orrelatestothe
proceedsofanyunlawfulactivity:
(a)transactssaidmonetaryinstrumentorproperty;
(b) converts, transfers, disposes of, moves, acquires, possesses or uses said monetary
instrumentorproperty;
(c) conceals or disguises the true nature, source, location, disposition, movement or
ownershipoforrightswithrespecttosaidmonetaryinstrumentorproperty;
(d)attemptsorconspirestocommitmoneylaunderingoffensesreferredtoinparagraphs(a),
(b)or(c);
(e) aids, abets, assists in or counsels the commission of the money laundering offenses
referredtoinparagraphs(a),(b)or(c)above;and
(f)performsorfailstoperformanyactasaresultofwhichhefacilitatestheoffenseof
moneylaunderingreferredtoinparagraphs(a),(b)or(c)above.
Moneylaunderingisalsocommittedbyanycoveredpersonwho,knowingthatacoveredor
suspicious transaction is required under this Act to be reported to the AntiMoney
LaunderingCouncil(AMLC),failstodoso.
Parts(b),(c),(d),and(e)arenewadditionstothelaw.Hence,knowinglyconvertingor
concealing a monetary instrument, including an attempt thereof, and assisting in the
commissionofmoneylaunderingnowconstitutethecrime.Priortotheamendment,onlythe
act oftransacting themonetary instrument orpropertyis madecriminal inits attempted
stage.
Secondly, the prosecution for the crime of moneylaundering may now proceed
simultaneouslywiththecaserelatingtotheunlawfulactivity.Theamendinglawprovided
that both cases are now independent of each other. Prior to the amendment, the case
involvingtheunlawfulactivitywasgivenprecedence.
TheAntiMoneyLaunderingCouncil(AMLC)wasalsoagivennewfunctionunderthe
amendinglaw.Section7nowreads:
Section7.CreationofAntiMoneyLaunderingCouncil(AMLC).TheAMLCshallact
unanimouslyinthedischargeofitsfunctionsasdefinedhereunder:
(12)torequiretheLandRegistrationAuthorityandallitsRegistriesofDeedstosubmitto
theAMLC,reportsonallrealestatetransactions involvinganamountinexcessofFive
hundredthousandpesos(P500,000.00)withinfifteen(15)daysfromthedateofregistration
ofthetransaction,inaformtobeprescribedbytheAMLC.TheAMLCmayalsorequirethe
LandRegistration Authority andall its Registries ofDeeds tosubmit copies ofrelevant
documentsofallrealestatetransactions.
Inadditiontothis,thepoweroftheAMLCtoapplyforafreezeorderbeforetheCourtof
Appealsnowincludesmonetaryinstrumentsorpropertiesallegedtobelaunderedaswellas
instrumentalitiesusedinorintendedforuseinanyunlawfulactivity.Priortotheamendment,
theAMLCmayobtainafreezeorderonlyformonetaryinstrumentsorpropertiesallegedto
betheproceedsofanunlawfulactivity.
Moreonthefreezeorder,R.A.No.10365alsoextendeditsmaximumeffectivenessperiodto
sixmonthsprovidedthatifnocaseisfiledagainstthepersonwhoseaccounthasbeenfrozen
withintheperioddeterminedbythecourt,thefreezeorderwillbeautomaticallylifted.Note
thatthefreezeorderwaspreviouslyeffectiveonlyfor20daysunlessextendedbythecourt.
Thisnewrule,however,shallnotapplytocasesalreadypendingbeforethecourts.
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Section7
The provisions of the amending law on prevention of money laundering include the
followingamendments:
(1) CoveredpersonsmustreportcoveredandsuspicioustransactionstotheAMLAwithin
five working days from the occurrence thereof, unless the AMLC prescribes a different
periodnotexceeding15workingdays.Before,themaximumperiodprovidedbylawwas10
days.
(2)Lawyersandaccountantsactingasindependentlegalprofessionalsareexemptfromthe
reportingrequirementiftherelevantinformationwasobtainedincircumstanceswherethey
aresubjecttoprofessionalsecrecyorlegalprofessionalprivilege.Thisisanewprovision.
(3) Covered persons as well as their officers and employers are prohibited from
communicating to any personor entity including the media the transactions about to be
reportedtotheAMLC.Priortotheamendment,theconfidentialityclauseappliedonlyto
transactionsalreadyreportedtotheAMLC.
Withthenewamendments,othermonetaryinstrumentsorpropertieshavinganequivalent
value tothat ofthe monetaryinstrumentor propertyfoundtoberelated inanywayto
unlawfulactivityoramoneylaunderingoffensemaynowbeforfeitedasanalternative.This
arises when the latter, with due diligence, (1) cannot be located, or (2) it has been
substantiallyaltered,destroyed,diminishedinvalueorotherwiserenderedworthlessbyany
actoromission,or(3)ithasbeenconcealed,removed,convertedorotherwisetransferred,
or (4) it is located outside the Philippines or has been placed or brought outside the
jurisdictionofthecourt,or(5)ithasbeencommingledwithothermonetaryinstrumentor
property belonging to either the offender himself or a third person or entity, thereby
renderingthesamedifficulttoidentifyorbesegregatedforpurposesofforfeiture.
If no other monetary instrument or property may be located, the court can order the
convicted offender to pay an amount equal to the value of the monetary instrument or
property instead. The AMLC may promulgate rules on fines and penalties taking into
considerationtheattendantcircumstances,suchasthenatureandgravityoftheviolationor
irregularity.
Whiletheamendinglawdidnotincreasethepenaltiesalreadyprovidedforthecrimeof
money laundering, it nevertheless introduced penal sanctions for covered persons, its
directors,officersandpersonnelwhoknowinglyparticipated inthecommissionofthe
crime.Administrativesanctionsarenowalsoimposableuponpersonsresponsibleforthe
violationoftheAMLA.
Section11
ThelastprovisionofR.A.No.10365addedtwonewprovisionstotheAMLA:
Section. 20. Nonintervention in the Bureau of Internal Revenue (BIR) Operations.
NothingcontainedinthisActnorinrelatedantecedentlawsorexistingagreementsshallbe
construedtoallowtheAMLCtoparticipateinanymannerintheoperationsoftheBIR.
Section. 21. The authority to inquire into or examine the main account and the related
accountsshallcomplywiththerequirementsofArticleIII,Sections2and3ofthe1987
Constitution, which are hereby incorporated by reference. Likewise, the constitutional
injunction against ex post facto laws and bills of attainder shall be respected in the
implementationofthisAct.

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