Green Notes 2015
Mercantile Law
100 SELECTED CONCEPTS THAT MAY BE
HELPFUL
LETTERS OF CREDIT:
1. A letter of credit is a financial device
developed by merchants as a convenient and
relatively safe mode of dealing with sales of
goods to satisfy the seemingly irreconcilable
interests of a seller who refuses to part with
his goods before he is paid, and a buyer, who
wants to have control of his goods before
paying.
2. The three contracts involved in a letter
of credit transaction are to be maintained in a
state of perpetual separation.
3. The Independence Doctrine maintains
that a bank, in determining compliance with
the terms of a letter of credit is required to
examine only the shipping documents
presented by the seller and is precluded from
determining whether the main contract is
actually accomplished or not.
4. The Strict Compliance Doctrine
maintains that the documents tendered by the
seller or beneficiary must strictly conform to
the terms of the letter of credit.
5. The Fraud Exception maintains that
despite the banks unconditional obligation to
pay the seller upon presentation of the
required documents, the issuing bank is not
bound to pay when there has been fraud by
the seller. The test is whether, standing in the
shoes of the paying bank at the time of
payment, the fraud was clear and obvious. If
[the] fraud was clear and obvious, the bank
pays the beneficiary at its own peril and it is
not entitled to reimbursement. But if [the] fraud
is not clear and obvious, then it is not for a
bank to question why the parties involved had
chosen to conduct their business in any
particular way.
TRUST RECEIPTS:
6. In all trust receipt transactions, both
obligations on the part of the (en)trustee exist
in the alternative- the return of the proceeds of
the sale or the return or recovery of the goods,
whether raw or processed. When both parties
enter into an agreement knowing that the
return of the goods subject of the trust receipt
is not possible even without any fault on the
part of the trustee, it is not a trust receipt
transaction; the only obligation actually agreed
upon by the parties would be the return of the
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proceeds of the sale transaction. This
transaction becomes a mere loan, where the
borrower is obligated to pay the bank the
amount spent for the purchase of the goods.
(Land Bank of the Philippines v. Lamberto C.
Perez, et.al., G.R. No. 166884, 672 SCRA
117, June 13, 2012)
7. The loan feature of a trust receipt
transaction lies in the manner it facilitates the
importation or purchase of merchandise by
the extension of credit. The security feature of
a trust receipt lies in the fact that the imported
or purchased merchandise will serve as
collateral for the credit extended and that the
obligation of the entrustee is to deliver the
proceeds of their sale or return them if not
sold.
NEGOTIABLE INSTRUMENTS LAW:
8. The requisites of a negotiable
instrument are: (a) It must be in writing, (b) It
must be signed by maker or drawer, (c) It
must contain an unconditional promise or
order to pay a sum certain in money, (d) It
must be payable on demand, or at a fixed or
determinable future time, (e) It must be
payable to order or to bearer, and (f) Where it
is a bill of exchange, drawee must be named
or otherwise indicated therein with reasonable
certainty.
9. The Fictitious Payee Rule applies
when the instrument is payable to the order of
a fictitious or non-existing person, the
instruments being payable to bearer depends
on the intention of the person making it so
payable. An actual, existing, and living payee
may also be fictitious if the drawer did not
intend for the payee in fact to receive the
proceeds of the check. If this is absent, the
effect is that the instrument cannot be
considered as payable to bearer.
10. Delivery means that the party
delivering did so for the purpose of giving
effect thereto. (San Miguel Corporation vs.
Puzon, Jr., 631 SCRA 48)
11. An accommodation party is one who
has signed the instrument as maker, drawer,
acceptor, or indorser, without receiving value
therefor, and for the purpose of lending his
name to some other person. Such a person is
liable on the instrument to a holder for value,
notwithstanding such holder, at the time of
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taking the instrument, knew him to be only an
accommodation party.
12. The effects of a forgery are: (a) The
instrument is not declared totally void nor are
the genuine signatures thereon rendered
inoperative. It is only the forged signature that
is declared inoperative. Hence: rights still exist
and may be enforced by virtue of the
instrument as between parties whose
signatures were not forged, and (b) A forged
instrument just prevents any subsequent party
from acquiring any rights as against any party
whose name appears prior to the forgery.
There is no right to retain the instrument, or to
give discharge or to enforce payment.
However, rights will exist and may be enforced
as between subsequent parties but no one
can acquire a right as against parties prior to
the forgery, who also have rights and may
enforce them as against each other.
13. A material alteration is any alteration
which changes: (a)The date (b)The sum
payable, either for principal or interest (c) The
time or place of payment (d) The number of
the relations of the parties (e)The medium or
currency in which payment is to be made (f)
Or which adds a place of payment where no
place of payment is specified, or any other
change or addition which alters the effect of
the instrument in any respect. Where a
negotiable instrument is materially altered
without the assent of all parties liable thereon,
it is avoided, except as against a party who
has himself made, authorized, or assented to
the alteration and subsequent indorsers.
14. A holder in due course is a holder who
has taken the instrument under the following
conditions:(a)That it is complete and regular
upon its face;(b)That he became the holder of
it before it was overdue, and without notice
that it had been previously dishonored, if such
was the fact; (c) That he took it in good faith
and for value; (d)That at the time it was
negotiated to him he had no notice of any
infirmity in the instrument or defect in the title
of the person negotiating it.
15. The Shelter Rule maintains that a
holder who is not a holder in due course, and
who himself is not a party to any fraud or
illegality affecting the instrument, has all the
rights of such former holder in respect of all
parties prior to the latter.
16. Clearing should not be confused with
acceptance. Managers and Cashiers checks
are still the subject of clearing to ensure that
the same have not been materially altered or
otherwise completely counterfeited.
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(Metropolitan Bank and Trust Company v.
Chiok, G.R. No. 175394, November 26, 2014)
17. The act of crossing a check serves as
a warning to the holder that the check has
been issued for a definite purpose so that the
holder thereof must inquire if he has received
the check pursuant to that purpose, otherwise,
he is not a holder in due course. (Dino vs.
Judal-Loot, 618 SCRA 393)
18. An instrument is discharged by: (a)
payment in due course by or behalf of the
principal debtor, (b) payment in due course by
the party accommodated, where the
instrument is made or accepted for his
accommodation, (c) by intentional cancellation
by the holder, (d) any other act that will
discharge a simple contract for the payment of
money, and (e) when the principal debtor
becomes the holder of the instrument at or
after maturity in his own right.
INSURANCE:
19. The concept of insurance is that the
premiums that are paid are accumulated in a
pool from which payment of claims are to be
obtained. As a basis, it is assumed that the
people contributing premiums are in excess of
those making claims resulting in a larger pool
of money than the amounts being claimed.
20. Insurable interest will exist when the
insured has such a relation or connection with,
or concern in, such subject matter that he will
derive pecuniary benefit or advantage from its
preservation or will suffer pecuniary loss or
damage from its destruction, termination, or
injury by the happening of the event insured
against.
21. Any unknown or contingent event,
whether past or future, which may damnify a
person having insurable interest or create a
liability against him may be insured against.
On the other hand, insurance for or against
the drawing of any lottery or for or against any
chance or ticket in a lottery drawing a prize
cannot be acquired.
22. The Incontestability Clause is a clause
in a life insurance policy that is (a)payable on
the death of the insured, and (b) which has
been in force during the lifetime of the insured
for a period of 2 years from the date of issue
or its last reinstatement that would prevent the
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insurer from proving that the policy is void ab
initio or is subject to rescission by reason of a
fraudulent concealment or misrepresentation
of the insured or his agent.
23. The right of subrogation is not
dependent upon, nor does it grow out of, any
privity of contract-it accrues simply upon
payment by the insurance company of the
insurance claim. (Keppel Cebu Shipyard, Inc.
vs. Pioneer Insurance and Surety Corporation,
601 SCRA 96)
24. There is no subrogation when: (a) the
insured by his own act releases the party at
fault from liability, (b) when the insurer pays
the insured without notifying the carrier who
has in good faith settled the insureds claim for
loss, (c) when the insurer pays for a loss
excepted from the policy, and (d) in life
insurance.
25. A CBA provision providing for an
MMPC obligation to pay for the medical
expenses of MMPSEU dependents was
considered as a non- life insurance contract
and interpreted as a contract of indemnity.
This interpretation barred the application of
the collateral source rule, which disallows a
wrongdoer from claiming a benefit arising from
a contract which the injured party may have
with third persons to lessen his liability. In this
case, MMPC is not the wrongdoer, rather, it is
a no-fault insurer. (Mitsubishi Motors
Philippines Salaried Employees Union v.
Mitsubishi Motors Philippines Corporation,
G.R. No. 175773, June 17, 2013)
26. Suicide is generally not compensable
unless committed after the policy has been in
force for a period of two years from date of
issue or last reinstatement or a shorter period
if provided, or if committed in a state of
insanity.
27. To prevent a life insurance policy from
lapsing, the following devices are used: (a)
grace period, (b) automatic policy loan, (c)
paid-up insurance, (d) reinstatement.
28. Double insurance exists where the
same person is insured by several insurers
separately in respect to same subject and
interest. Over insurance occurs when property
is insured for an amount in excess of its value.
29. A health care agreement is in the
nature of non-life insurance, which is primarily
a contract of indemnity. Once the member
incurs hospital, medical or any other expense
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arising from sickness, injury or other stipulated
contingent, the health care provider must pay
for the same to the extent agreed upon under
the contract. (Fortune Medicare, Inc. v. David
Robert U. Amorin, G.R. No. 195872, March
12, 2014)
TRANSPORTATION:
30. Since the business and operation of a
public utility is imbued with public interest, it
must submit to government regulation and
surrender certain business prerogatives,
including determining the amount of rates that
they can charge as the State must protect the
public whenever too much profits become the
priority of public utilities.
31. Certificate of Public Convenience
(CPC) and Certificate of Public Convenience
and Necessity (CPCN) are distinguished as
follows: A certificate of public convenience is
any authorization to operate public service
issued by the Public Service Commission for
which no franchise, either municipal or
legislative, is required by law. The certificate
of public convenience and necessity requires
a franchise issued by the legislative
department.
32. The Prior Operator Rule
contemplates that the first licensee will be
protected in his investment and will not be
subjected to ruinous competition. It is not
therefore, the policy of the law for the Public
Service Commission to issue a certificate of
public convenience to a second operator
when a prior operator is rendering sufficient,
adequate and satisfactory service, and who in
all things and respects is complying with the
rules and regulations of the Commission.
33. The Prior Applicant Rule contemplates
a situation where two interested persons apply
for a Certificate of Public Convenience in the
same locality over which no person has of yet
been granted a Certificate of Public
Convenience, if both applications being equal,
the one who first applied will be preferred
34. A contract of carriage of goods
commences from the time the goods are
unconditionally placed in the possession of,
and received by the carrier for transportation
until the same shall have been delivered
actually or constructively by the carrier to the
consignee who has the right to receive them.
35. A contract of carriage of passengers
commences from the time the person who
purchases the ticket from the carrier presents
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himself at the proper place and in a proper
manner to be transported. This is when the
contract of carriage is perfected. The
relationship will not terminate until the
passenger has, after reaching his destination,
safely alighted from the carriers conveyance
or has had a reasonable opportunity to leave
the carriers premises.
36. Loss of earning capacity may be
granted even if the deceased passenger may
only be an unemployed high school student at
the time of the accident. The basis of the
computation of the earning capacity of the
deceased was the minimum wage in effect at
the time of his death, not reckoned from his
age of 15 years at the time of death, but on 21
years, his age when he would have graduated
from college. (Spouses Teodoro and Nannette
Perena v. Spouses Nicolas and Teresita L.
Zarate, Philippine National Railways, and the
Court of Appeals, G.R. No. 157917, August
29, 2012)
37. Passengers Baggage is deemed to
include whatever articles a passenger usually
takes with him for his own personal use,
comfort and convenience according to the
habits or wants of the particular class to which
he belongs, either with reference to his
immediate necessities or the ultimate purpose
of his journey. Baggage may be hand-carried
or checked-in or is delivered to the carrier.
Check-in baggage is treated as cargo, while
hand-carried baggage is treated as necessary
deposit.
38. A bill of lading may be defined as a
written acknowledgment of the receipt of
goods and an agreement to transport and to
deliver them at a specified place to a person
named or on his order. It comprehends all
methods of transportation. The nature of a Bill
of Lading is that it: (a) is a contract in itself
and the parties are bound by its terms (b) is a
receipt (c) is a symbol of the goods covered
by it.
39. A claim for damage for goods covered
by a bill of lading should be brought within 24
hours following the receipt of the merchandise
on account of damage or average found
therein on opening the packages, provided
that the signs of the damage or average giving
rise to the claim may not be known from the
exterior part of the packages, and in case that
they may be so ascertained, said claim shall
only be admitted at the time of the receipt of
the packages.
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40. The Limited Liability Rule is based on
the real and hypothecary nature of maritime
law and its effect is that the vessel serves as
the guarantee for the settlement for
obligations under maritime contracts. Subject
to certain exceptions, if the vessel is lost or is
abandoned in favor of creditors, the
obligations of the ship captain and the ship
agent will be extinguished, as their liability is
limited to the res or the vessel.
41. The exceptions to the doctrine of
limited liability: (a) where the ship owner is at
fault or is due to the concurring negligence of
the ship owner and captain as the doctrine is
premised on the condition that the death or
injury to the passenger occurred by reason of
the fault or negligence of the captain only (b)
in cases of Workmens Compensation as such
compensation has nothing to do with maritime
commerce, it is an item in the cost of
production which must be included in the
budget of nay well-managed industry (c) when
the vessel is insured (d) Total destruction of
the vessel does not affect the liability of the
owner for repairs on the vessel completed
before its loss as owners of a vessel are liable
for necessary repairs and it shall remain
unaffected by the loss of the thing.
42. COGSA applies to all contracts for the
carriage of goods by sea to and from
Philippine in foreign trade. Note that the
transhipment of the cargo in the Philippines
via a domestic inter-island vessel will not
remove it from the application of COGSA. A
paramount clause will the allow the application
of COGSA even if the transportation is
domestic.
PRIVATE CORPORATIONS:
43. A corporation commences to have
existence from the issuance by the SEC of a
certificate of incorporation under its official
seal. The effect of which is to constitute its
stockholders or members and their
successors as a Body Politic and Corporate
under the name and for the term stated in the
Articles. It is said to have been given de jure
existence or can be said to be incorporated.
The exception is a Corporation Sole, which is
deemed incorporated upon filing of its Articles.
44. The general capacity theory maintains that
a corporation is said to hold such powers as
are not prohibited or withheld from it by
general law. The specific capacity theory
maintains that the corporation cannot exercise
powers except those expressly/impliedly

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given.
45. The Doctrine of Separate Legal Entity
holds that a corporation has a personality
separate and distinct from its individual
stockholders or members. This affects liability
for acts or contracts, right to bring actions,
acquisition of property, and changes in the
identity of stockholders or members.
46. Tort liability can be imposed on a
corporation because generally speaking, the
rules governing liability of a principal or master
for a tort committed by an agent or servant are
the same whether the principal or master be a
natural person or a corporation. Hence, when
a tortuous act is committed by an officer or
agent of a corporation under express direction
or authority of the corporation, it would be
liable.
47. As a general rule, nationality is
determined by place of incorporation. The
control test as a means of determining
nationality looks at the nationality of the
stockholders or members of the
corporation.The grandfather test as a means
of determining nationality looks at the
percentage of foreign holdings in a
corporation which is a stockholder in a Filipino
corporation to determine whether or not the
percentage requirement of Filipino ownership
has been met. Where the 60-40 Filipino-
foreign equity ownership is not in doubt, the
Grandfather Rule will not apply. (Narra Nickel
Mining and Development Corp., Tesoro Mining
and Development, Inc., and McArthur Mining,
Inc. vs. Redmont Consolidated Mines Corp.,
G.R. No. 195580, April 21, 2014)
48. The Business Judgment Rule maintains
that questions of policy or of management are
left solely to the honest decisions of officers
and directors of a corporation, and so long as
they are in good faith, their orders are not
reviewable by courts.
49. D i v i d e n d d e c l a r a t i o n i s g e n e r a l l y
discretionary but becomes mandatory when
its surplus profits are in excess of 100% of
paid in capital stock. However, the mandatory
character shall not obtain: (a) when justified
by definite corporate expansion projects or
programs approved by the Board (b) when it is
prohibited by a loan agreement with any
financial institution or creditor from declaring
dividends without its consent and the consent
is not yet obtained (c) when it can be shown
that such retention is necessary under special
circumstances obtaining in the corporation, as
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there is a need for a special reserve for
probable contingencies.
50. Ultra Vires acts are acts that are in
violation of the Code as it provides that: no
corporation shall possess or exercise
corporate powers except those conferred by
the code, its Articles and except as such are
necessary or incidental to the exercise of the
powers so conferred.
51. The Trust Fund Doctrine maintains that
the subscribed capital stock of the corporation
is a trust fund for the payment of the debts of
the corporation which the creditors have the
right to look up to satisfy their credits, and
which the corporation may not dissipate.
52. A derivative suit is an action brought
by a stockholder on behalf of the corporation
to enforce corporate rights against the
corporations directors, officers or other
insiders. The directors or officers, as provided
under the by laws, have the right to decide
whether or not a corporation should sue.
Stockholders are permitted by law to bring an
action in the name of the corporation to hold
these directors and officers accountable. In
derivative suits, the real party in interest is the
corporation, while the stockholder is a mere
nominal party. (Juanito Ang, for and in behalf
of Sunrise Marketing (Bacolod), Inc. v. Sps.
Roberto and Rachel Ang, G.R. No. 201675,
June 19, 2013)
53. The requisites of a derivative suit are: (a)
the party bringing the suit should be a
shareholder as of the time of the act or
transaction complained of, the number of his
shares not being material, (b) he has tried to
exhaust intra-corporate remedies, and (c) the
cause of action actually devolves on the
corporation, the wrongdoing or harm having
been caused the corporation, and not the
particular stockholder bringing the suit.
54. Solidary liability is imposed on a director,
trustee or officer when: (a) He willfully and
knowingly votes for and assents to a patently
unlawful act of the corporation; (b) There is
gross negligence or bad faith in directing the
affairs of the corporation; (c) He acquires any
personal or pecuniary interest in conflict of
duty; (d) He agrees or stipulates in a contract
to hold himself liable with the corporation; or
(e) A specific provision of law requires it.
55. The Special Fact Doctrine maintains that
a corporate officer with superior knowledge
gained by virtue of being an insider owes a
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limited fiduciary duty to a shareholder in
transactions involving transfer of stock.
56. The Doctrine of Apparent Authority
maintains that a corporation will be estopped
from denying the agents authority if it
knowingly permits one of its officers or any
other agent to act within the scope of an
apparent authority, and it holds him out to the
public as possessing the power to do those
acts. The doctrine of apparent authority does
not apply if the principal did not commit any
acts or conduct which a third party knew and
relied upon in good faith as a result of the
exercise of reasonable prudence. Moreover,
the agents acts or conduct must have
produced a change of position to the third
partys detriment. (Advance Paper
Corporation v. Arma Traders Corporation,
Manuel Ting, et. al., G.R. No. 176897,
December 11, 2013)
57. In a sale of shares of stock, physical
delivery of a stock certificate is one of the
essential requisites for the transfer of
ownership of the stocks purchased. (Fil-Estate
Gold and Development, Inc., et. al. v. Vertex
Sales and Trading, Inc., G.R. No. 202079,
June 10, 2013)
58. The purpose of the law in requiring
that a foreign corporation doing business in
the Philippines to be licensed is to subject it to
the jurisdiction of the courts. The object is not
to prevent foreign corporation from performing
single acts but to prevent it from acquiring a
domicile for the purpose of business without
taking steps necessary to render it amenable
to suits in local courts.
59. An unlicensed foreign corporation that
is not transacting or doing business in the
Philippines, can sue under: (a)The isolated
business transaction rule, (b) A cause of
action that is independent of any business
transaction, (c) A cause of action that arises
out of a business transaction that is not
entered into in the Philippines, and (d) A
cause of action to protect its name, reputation
or goodwill subject to the rule on reciprocity
under the IPR.
60. The NLRC was held to have
jurisdiction over the dismissal of an AVP for
Sales, who was also a stockholder, as he is
not a corporate officer whose dismissal is
cognizable by the RTC. A corporate officer
was defined as one who meets the following:
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(a) the creation of the position is under the
corporations charter or by-laws; and (b) the
election of the officer is by the directors or the
stockholders. (Cosare v. Broadcom Asia, Inc,
G.R. No. 201298, February 5, 2014)
61. R e h a b i l i t a t i o n w a s d e fi n e d a s
restoration of the debtor to a position of
successful operation and solvency. A
successful rehabilitation depends on 2 factors:
(a) positive change in the business fortunes of
the debtor, and (b) the willingness of the
creditors and shareholders to arrive at a
compromise agreement on repayment and the
extent of dilution. (San Jose Timber
Corporation v. SEC, 667 SCRA 13)
SECURITIES REGULATION CODE:
62. In general, securities are evidences of
investment in a common enterprise made with
the expectation of deriving a profit solely from
the efforts of others who acquire control over
the fund invested. As defined by law, they are
Shares, Participation or Interest (SPI) in a
Corporation or in a Commercial enterprise or
Profit-making venture (CCP) and evidenced
by a Certificate, Contract; Instrument, whether
written or electronic in character (CCI).
63. A Tender Offer is a public offer to
purchase a specified number of shares from
shareholders usually at a premium in an
attempt to gain control of the issuing
company. Note that in some instances, the
premium is payable only if the offeror is able
to obtain the required number of shares.
64. A Proxy Solicitation is an action to
secure the right to vote of so much a number
of shares to ensure the approval of a
proposed corporate action.
65. Security price manipulation is an
artificial control of security prices. It is an
attempt to force securities to sell at prices
either above or below those which would exist
as a result of the normal operations of supply
and demand. The manipulator hopes to profit
by creating fictitious prices at the expense of
the general trading public.
66. A Wash Sale is a fictitious kind of
sale, disallowed on stock and other
exchanges, in which a broker who has
received orders from one person to buy and
from another person to sell a particular
amount of quantity of some particular stock or
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commodity simply transfers the stock or
commodity from one principal to the other and
pockets the difference, instead of executing
both orders separately to the best advantage
in each case, as is required by the rules of the
different exchanges. It may also be defined as
purchase or sale of securities which would
involve no change of ownership.
67. Insider Trading occurs when an insider
sells or buys a security of the issuer, while in
possession of material information with
respect to the issuer or the security that is not
generally available to the public.
CENTRAL BANK ACT:
68. Open Market Operations has been
defined as the act of the Bangko Sentral ng
Pilipinas in publicly buying or selling
government securities from (or to) banks and
financial institutions. The purpose is to
regulate the supply of money in the economy
to influence the timing, cost and availability of
money and credit. (Bank of Commerce v.
Planters Development Bank, 681 SCRA 521)
69. A bank in distress shall be placed in
conservatorship for a period not exceeding
one year when it is in a state of continuing
inability or unwillingness to maintain a
condition of liquidity deemed adequate to
protect the interest of depositors and
creditors.
70. Receivership is defined as the
summary closure of a bank without prior
notice and hearing after a finding that the
continuance in business will involve probable
loss to its depositors and creditors.
71. The Close Now, Hear Later policy
maintains that prior notice and hearing is not
required before placement of a bank under
receivership.
GENERAL BANKING ACT:
72. As to nature, all kinds of deposits
whether fixed or current are to be treated as
loans and are to be covered by the law on
loan.
73. A bank should exercise its functions
and treat the accounts of their clients not only
with the diligence of a good father of a family
but it should do so with the highest degree of
care considering the fiduciary nature of their
relationships with their depositors.
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74. Where the banks negligence is the
proximate cause of the loss and the depositor
is guilty of contributory negligence, damages
are allocated between the bank and depositor
on a 60-40 ratio. (PNB v. FF Cruz & Co., 654
SCRA 333)
75. Single Borrower Limit Rules regulate
the total amount of loans, credit
accommodations and guarantees that may be
extended by a bank to any person,
partnership, association, corporation or other
entity. The rules seek to protect a bank from
making excessive loans to a single borrower
by prohibiting it from lending beyond a
specified ceiling. The current limit is 25% of
the net worth of the bank concerned. The
ceiling is subject to possible increase by an
additional 10% provided the additional
liabilities of any borrower are adequately
secured by trust receipts, shipping
documents, warehouse receipts or other
similar documents transferring or securing title
covering readily marketable, non-perishable
goods which must be fully covered by
insurance.
76. DOSRI Rules are rules promulgated
by the BSP, upon the authority of Section 36
of the GBL, which regulate the amount of
credit accommodations that a bank may
extend to its directors, officers, stockholders
and their related interests, thus the term,
D O S R I . G e n e r a l l y, a b a n k s c r e d i t
accommodations to its DOSRI must be in the
regular course of business and on terms not
less favorable to the bank than those offered
to non-DOSRI borrowers.
LAW ON BANK SECRECY:
77. The prohibited acts are: (a) The
examination or inquiry or looking into all
deposits of whatever nature with banks or
banking institutions in the Philippines,
including investment in bonds issued by the
government or its political subdivisions and
instrumentalities by any person, government
official, bureau or office, and (b) The
disclosure by any official or employee of any
banking institution to any unauthorized person
of any information concerning said deposit.
78. If the money deposited under an
account may be used by the bank for
authorized loans to third persons, then such
account, regardless of whether it creates a
creditor-debtor relationship between the
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Mercantile Law
depositor and the bank, the account would be
covered the law on bank secrecy.
79. The Supreme Court recognized that
the demands of justice correct a wrong
committed to a girl of tender years were above
the need for the foreign offender's dollars,
allowing the looking into, and in fact
garnishing the foreign currency deposit of the
transient foreigner, to enforce payment of the
indemnity due. (Salvacion v. Central Bank, GR
No. 94723, August 18, 1997)
80. The Supreme Court also allowed an
inquiry into a foreign currency deposit to settle
the real ownership of the funds. Though pro
hac vice or this one particular reason, the
ruling was clear that the "allowance of the
inquiry would be in accord with the rudiments
of fair play and the upholding of fairness in our
judicial system." (China Banking Corp. v.
Court of Appeals, GR No. 140487, December
18, 2006)
INTELLECTUAL PROPERTY:
81. Copyrights, trademarks and patents
are completely distinct and separate from one
another and the protection afforded by one
cannot be used interchangeably to cover
items or works that exclusively pertain to the
others. (Pearl & Dean Phils. Inc. v. Shoemart,
Inc., 409 SCRA 231)
82. While the Intellectual Property Code
does not explicitly provide for the No
Formality Rule, we follow the mandate of
Article 5 (2) of the Berne Convention which
provides that: The enjoyment and the
exercise of these rights shall not be subject to
any formality.A formality is any condition on
which the existence or exercise of the right
depends. While registration, fees and deposit
of copies are formalities, they will be
considered as such only when the existence
of the copyright or exercise of attendant rights
depends on compliance.
83. Copyright is the protection afforded
literary and artistic works which are original
intellectual creations in the literary and artistic
domain from the moment of their creation.
84. Ideas are not entitled to copyright
protection, what is entitled to protection is the
expression of the idea. This means that the
copyright does not preclude others: (a) from
using information revealed in the authors
work, or (b) creating works based on the same
underlying idea.
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85. Fair Use is a privilege granted
enjoyed by one other than the owner of the
copyright to use the copyrighted material in a
reasonable manner without his consent,
notwithstanding the monopoly of the owner of
the copyright.
86. A patent is the protection afforded to
an invention. For the invention to be
patentable, it must refer to a technical solution
of a problem in any field of human activity,
which is new, involves an inventive step and is
industrially applicable.
87. An industrial design is any
composition of lines or colors or any three-
dimensional form, whether or not associated
with lines or colors provided that such
composition or forms gives a special
appearance to and can serve as pattern for an
industrial product or handicraft. This is purely
ornamental or aesthetic in nature as opposed
to useful or functional. If it is an industrial
design, the patent duration is 5 years from the
filing date of the application, renewable for not
more than 2 consecutive periods of 5 years
each.
88. A utility model is a technical solution to
a problem in any field of human activity which
is new and industrially applicable. It may be or
may relate to, a product, of process, or an
improvement. Essentially, a utility model refers
to an invention in the mechanical field that has
some type of usefulness. If it is utility model,
the patent duration is 7 years from date of the
filing of the application without renewal.
89. The Doctrine of Equivalents
maintains that an infringement also takes
place when a device appropriates a prior
invention by incorporating its innovative
concept and, although with some modification
and change, performs substantially the same
function in substantially the same way to
achieve substantially the same result. In other
words, the principle or mode of operation must
be the same or substantially the same.
90. A trademark is any visible sign
capable of distinguishing the goods or
services of an enterprise and shall include a
stamped or marked container of goods.
91. A tradename refers to the name or
designation identifying an enterprise.
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Mercantile Law
92. The Doctrine of Secondary Meaning
maintains that a word or phrase incapable of
exclusive appropriation with reference to an
article in the market because it is merely
geographical or descriptive, might
nevertheless have been used so long and so
exclusively by one producer with reference to
his article that, in that trade and to that branch
of the purchasing public, the word or the
phrase has come to mean his product.
93. Infringement and Unfair competition is
distinguished as follows: (a) infringement is
the unauthorized use of a trademark,
whereas unfair competition is the passing off
of ones goods as those of another, (b) In
infringement, fraudulent intent is unnecessary,
whereas in unfair competition, fraudulent
intent is essential, and (c) In infringement,
prior registration is a prerequisite to an action,
whereas in unfair competition, registration is
not necessary.
ANTI-MONEY LAUNDERING LAW:
94. Money Laundering is the process by
which a person conceals the existence of
unlawfully obtained money and makes it
appear to have originated from lawful sources.
95. A Covered Institution refers to (a)
Banks, Non-Banks, Quasi-Banks, Trust
Entities, and all other institutions and their
subsidiaries and affiliates supervised by the
BSP (b) Insurance Companies and all other
institutions supervised by the Insurance
Commission (c) Security Dealers, brokers,
salesmen, investment houses and other
similar entities managing securities or
rendering services as an investment agent,
advisor, or consultant supervised or regulated
by the SEC (d) mutual funds, closed end
investment companies, common trust funds,
pre-need companies, and other similar entities
(e) foreign exchange corporations, money
changers, money payment, remittance and
transfer companies and other similar entities,
and (f) other entities administering or
otherwise dealing in currency, commodities, or
financial derivatives based thereon, valuable
objects, cash substitutes and other similar
monetary instruments or properties
supervised or regulated by the SEC.
96. A covered transaction is a transaction
in cash or other equivalent monetary
instrument involving a total amount in excess
of Five Hundred Thousand Pesos
(PHP500,000.00) within one banking day.
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97. A Suspicious transaction is a
transaction with a covered institution,
regardless of the amounts involved, where
any of the following circumstances exist:
(a)There is no underlying legal or trade
obligation, purpose or economic justification,
(b)The client is not properly identified, (c) The
amount involved is not commensurate with the
business or financial capacity of the client, (d)
Taking into account all known circumstances,
it may be perceived that the clients
transaction is structured in order to avoid
being the subject of reporting requirements
under the Act, (e) Any circumstance relating to
the transaction which is observed to deviate
from the profile of the client and/or the clients
past transactions with the covered institution,
(f) The transaction is in any way related to an
unlawful activity or offense under this Act that
is about to be, is being or has been
committed, or (g) Any transaction that is
similar or analogous to any of the foregoing.
FOREIGN INVESTMENTS ACT:
98. A foreign investment is an equity
investment made by non-Philippine national in
the form of foreign exchange and/or other
assets actually transferred to the Philippines
and duly registered with the Central Bank
which shall assess and appraise the value of
such assets other than foreign exchange.
99. A foreign investment can be put in: (a)
An export enterprise which is an enterprise
wherein a manufacturer, processor or service
(including tourism) enterprise exports sixty
percent (60%) or more of its output, or
wherein a trader purchase products
domestically and exports sixty percent (60%)
or more of such purchases, or (b) A
domestic market enterprise which is an
enterprise which produces goods for sale, or
renders services to the domestic market
entirely or if exporting a portion of its output
fails to consistency export at least 60%
thereof.
100. Any non-Philippine national or entity
may do business in the Philippines up to
100% of its capital provided: (a) It is
doing business as a domestic market
enterprise outside the Negative List (b) It is
doing business as an export enterprise whose
products or services do not fall within
Negative Lists A and B, except for defense-
related activities, which may be approved or
 Green Notes 2015
Mercantile Law
Prepared by: Atty. Renato S. Rondez

authorized, and (c) Provided further that, as

required by existing laws, the country or state
of the applicant must allow Filipino citizens
and corporations to do business therein.

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