Pointers in Commercial Law

2016 Bar Examinations

by Professor Victoria V. Loanzon

With assistance of Atty. Gerald Co, and Atty. C. Loanzon Reyes IV

I. Banking Laws and Related Laws

Q. The authorized signatories of X company pre-signed checks so as not to disturb

business operations while they went abroad. Marti got hold of the checks wrote
amounts on them and subsequently encashed them. The Bank allowed encashment
without a verification call despite the large amount and irregularities on the face of
the check. Is the bank solely liable for allowing Marti to encash the checks?
A. No. The SC held that the depositors are guilty of contributory negligence, hence,
they should bear a part of the loss.

Q. What is a material alteration? In the absence of said alteration, is a bank still duty
bound to verify a check with some irregularities on its face not strictly alterations
under the law1?
A. A material alteration is defined in Section 125 of the NIL to be one which changes
the date, the sum payable, the time or place of payment, the number or relations of
the parties, the currency in which payment is to be made or one 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. With respect to the checks
at issue, petitioner points out that they do not contain any material alteration. A
bank still has to exercise extraordinary diligence despite the lack of a material
alteration.

Q. How should the liability be apportioned? Why?

A. The Bank is liable for 60% and the depositor should be liable for 40%. The
Supreme Court used the Doctrine of Last Clear Chance in relation to the public
interest involved in banking and the extraordinary diligence required of banks to
justify the liability of the bank as it had the final opportunity to stop the fraudulent
transaction. (Bank of America v. Philippine Racing Club, 2009)

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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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Q. What are the requirements for registration of a bank?
A. Articles of Inc., By-Laws, Treasurer’s Affidavit, Bank Certificate of Deposit on
paid-up capital, SEC Verification Slip on availability of corporate name, Letter of
Undertaking to change name if proposed name is already adopted by another entity,
Certificate of Authority from the Monetary Board or the BSP; and Letter authorizing
the SEC and the Monetary Board or its duly authorized representative to examine
bank records regarding the paid-up capital.

Q. What is the degree of diligence required of a bank?

A. A bank is expected to exercise the highest degree of diligence, as well as to
observe the high standards of integrity and performance in all its transactions
because its business is imbued with public interest. The high standards were also
necessary to ensure public confidence in the banking system. (Development Bank of
the Philippines (DBP) v. Guariña Agricultural and Realty Development
Corporation, G.R. No. 160758. January 15, 2014)

Q. What is the nature of banks as a business undertaking?

A. Banks, their business being impressed with public interest, are expected to
exercise more care and prudence than private individuals in their dealings, even
those involving registered lands. The rule that persons dealings with registered
lands can rely solely on the certificate of title does not apply to banks. (Philtrust
Bank v. CA, G.R. No. 150318, November 22, 2010)

Q. Can a bank outsource its functions?

A. It depends. From the very definition of banks as provided under the General
Banking Law, it can easily be discerned that banks perform only two (2) main or
basic functions deposit and loan functions. Thus, cashiering, distribution and
bookkeeping are but ancillary functions whose outsourcing is sanctioned under CBP
Circular No. 1388 as well as D.O. No. 10. Banks cannot legally contract out its
deposit and loan functions as they are directly related or integral to the main
business or operation of banks. The CBP’s Manual of Regulations has even
categorically stated and emphasized on the prohibition against outsourcing inherent
banking functions, which refer to any contract between the bank and a service
provider for the latter to supply, or any act whereby the latter supplies, the
manpower to service the deposit transactions of the former. BPI Employees
Union-Davao City-Fubu (BPIEU-Davao City-Fubu) v. Bank of the Philippine Islands
(BPI), et al., G.R. No. 174912, July 24, 2013).

Q. May any officer of the bank bind the corporation?

A. Generally, no. As the Court ruled in AF Realty & Development, Inc. v. Dieselman

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Freight Services, Co.: Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the board of directors.
Just as a natural person may authorize another to do certain acts in his behalf, so
may the board of directors of a corporation validly delegate some of its functions to
individual officers or agents appointed by it. Thus, contracts or acts of a corporation
must be made either by the board of directors or by a corporate agent duly
authorized by the board. Absent such valid delegation/authorization, the rule is that
the declarations of an individual director relating to the affairs of the corporation,
but not in the course of, or connected with, the performance of authorized duties of
such director, are held not binding on the corporation. (Heirs of Fausto C. Ignacio vs.
Home Bankers Savings and Trust Co., et al., G.R. No. 177783. January 23, 2013)

Q. Does a branch office of a bank have a personality separate and distinct from its
parent company?
A. Yes. The Philippine branch of a foreign bank is without a separate legal
personality from its parent company because as its name implies, it is merely a
branch, subject to the supervision and control of the parent bank. Thus, being one
and the same entity, the funds placed by the parent bank in its branch in the
Philippines should not be treated as deposits made by a third party subject to
deposit insurance under the PDIC Charter. (Philippine Deposit Insurance Corporation
(PDIC) v. Citibank, G.R. 170290, April 11, 2012)

Q. What is the nature of the relationship of the Credit Card Issuer and Holder?
A. The relationship between the credit card issuer and the credit card holder is a
contractual one that is governed by the terms and conditions found in the card
membership agreement. Such terms and conditions constitute the law between the
parties. In case of their breach, moral damages may be recovered where the
defendant is shown to have acted fraudulently or in bad faith. Malice or bad faith
implies a conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity. However, a conscious or intentional design need not
always be present because negligence may occasionally be so gross as to amount
to malice or bad faith. Hence, bad faith in the context of Article 2220 of the Civil
Code includes gross negligence. (BPI Express Card Corporation v. Ma. Antonia
Armovit, G.R. No. 163654, October 8, 2014.)

Q. What are the Modes of Assistance to Banks in Distress?

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), and Liquidation (reviews assets of the bank and prioritizes payment to
creditors preferred claims, Closure (permanent stoppage of operations)
Reliefs available to Owners, Depositors and Creditors: Owners may file action in
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court to question the action of the BSP; Depositors may file claim with PDIC and
Creditors may file respective claims in appropriate proceedings.

Q. What is the extent of the Monetary Board’s power to put a bank under
receivership?
A. The Court, in several cases, upheld the power of the MB to take over banks
without need for prior hearing under R.A. 7653. It is not necessary inasmuch as the
law entrusts to the MB the appreciation and determination of whether any or all of
the statutory grounds for the closure and receivership of the erring bank are present.
The MB can immediately implement its resolution prohibiting a banking institution
to do business in the Philippines and, thereafter, appoint the PDIC as receiver. It may
be later subjected to a judicial scrutiny via a petition for certiorari to be filed by the
stockholders of record of the bank representing a majority of the capital stock.
Obviously, this procedure is designed to protect the interest of 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 summary closure.
(Alfeo D. Vivas, on his behalf and on behalf of the Shareholders or Eurocredit
Community Bank v. The Monetary Board of the Bangko Sentral ng Pilipinas and the
Philippine Deposit Insurance Corporation, G.R. No. 191424, August 7, 2013)

Q. May the BIR require a tax clearance before the distribution of the assets of a bank
under liquidation?
A. No, the SC held the law expressly provides that debts and liabilities of the bank
under liquidation are to be paid in accordance with the rules on concurrence and
preference of credit under the Civil Code. With reference to the other real and
personal property of the debtor, sometimes referred to as free property, the taxes
and assessments due the National Government, other than those in Articles 2241
(1) and 2242 (1) of the Civil Code, such as the corporate income tax, will only come
in the ninth place in the order of preference. If the BIR’s contention that a tax
clearance be secured first before the project of distribution of the assets of a bank
under liquidation may be approved, then the tax liabilities will be given absolute
preference in all instances, including those that do not fall under Articles 2241 (1)
and 2242 (1) of the Civil Code. (PDIC v. BIR, G.R. 172892, June 13, 2013)

Go over distinction between bank deposits and bank substitutes; reasons why banks
are required to maintain reserves against them: control of volume of money created
by credit operations (Sec. 94 of the New Central Bank Act); to answer any
withdrawal; help government finance its operations and help government control
money supply; 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 in banks abroad (Sec. 2, R.A. No. 6426); Restriction

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on loans and credit accommodations; Review provisions on DOSRI loans and
exemptions allowed under the restriction.

Q. What is the obligation of a creditor bank under the Truth in Lending Act?
A. It is the duty of the bank to disclose to the debtor in detail the interests, charges
and other figures indicating in detail the cost of the loan and the branch manager is
not given the sole discretion in the determination of such costs.

Q.Is there a ceiling when it comes to interest rates to be imposed on debts? 

A. No. The Usury Law had been rendered legally ineffective by Resolution No. 224
dated 3 December 1982 of the Monetary Board of the Central Bank, and later by
Central Bank Circular No. 905 which took effect on 1 January 1983.  The lender and
the borrower should agree on the imposed rate, and such imposed rate should be in
writing.
Here, the stipulations on interest rate repricing are valid because (1) the parties
mutually agreed on said stipulations; (2) repricing takes effect only upon the bank’s
written notice to the borrower of the new interest rate; and (3) Borrower has the
option to prepay its loan if it and the bank do not agree on the new interest rate.  The
phrases irrevocably authorize, at any time and adjustment of the interest rate
shall be effective from the date indicated in the written notice sent to us by the bank,
or if no date is indicated, from the time the notice was sent.   (Solidbank
Corporation vs. Permanent Homes, Inc., G.R. No. 171925, July 23, 2010.)

Q. Can a bank unilaterally increase the interest rates on a loan?

A. No. it is a violation of the mutuality of contracts. Any modification in the contract,
such as the interest rates, must be made with the consent of the contracting parties.
The minds of all the parties must meet as to the proposed modification, especially
when it affects an important aspect of the agreement. In the case of loan
agreements, the rate of interest is a principal condition, if not the most important
component. Thus, any modification thereof must be mutually agreed upon;
otherwise, it has no binding effect.

The SC annulled the escalation clause, allowing the unilateral increase of interest at
the whim of the bank, and the principal amount of the loan was subjected to the
original or stipulated rate of interest, and 12% legal interest. (Spouses Solis v. PNB
GR 181045 July 2, 2014)

* Please note that the Monetary Board issued Circular No. 799, declaring that,
effective July 1, 2013 the rate of interest for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the absence of an express

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contract as to such rate of interest, shall be 6 percent per annum.

Q. What is the rule on legal interests beginning July 1, 2013?

A. The guidelines laid down in the case of Eastern Shipping Lines are accordingly
modified to embody BSP-MB Circular No. 799, as follows:
1. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
2. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
a. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 6% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
b. When an obligation, not constituting a loan or forbearance of money, is breached,
an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand can be
established with reasonable certainty.
c. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit. And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall continue to be
implemented applying the rate of interest fixed therein. (Dario Nacar v. Gallery
Frames and/or Felipe Bordey, Jr., G.R. No. 189871, August 13, 2013.)

Bank Secrecy Law (R.A. No. 1402)

See Instances when deposits may be looked into: Under Sec.2, R.A. No. 1402 with
written permission of depositor, in cases of impeachment, money deposited is
subject of litigation and upon order of a competent court in cases of bribery or
dereliction of duty of public officers; upon order of the court for unexplained wealth
under Sec. 8 of Anti-Graft and Corrupt Practices Act; upon order of the BIR
Commissioner with respect to bank deposits of a decedent to determine gross
estate or when taxpayer applies for compromise for his tax liability; unclaimed
balances; without need of court order if the Anti Money Laundering Council
determines that the source of deposits a particular account is related to an unlawful

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activity.

Q. What are the requirements for a Waiver of Confidentiality of Bank Accounts?

A. The existence of a waiver must be positively demonstrated since a waiver by
implication is not normally countenanced. The norm is that a waiver must not only
be voluntary, but must have been made knowingly, intelligently, and with sufficient
awareness of the relevant circumstances and likely consequences. (Dona Adela
Export International, Inc. v. Trade and Investment Development Corporation and BPI,
G.R. No. 201931, February 11, 2015.)

Q. Does the Foreign Currency Deposit Act prevail as an exception to the Bank
Secrecy Law?
A. Yes. Republic Act No. 1405 was enacted for the purpose of giving
encouragement to the people to deposit their money in banking institutions and to
discourage private hoarding so that the same may be properly utilized by banks in
authorized loans to assist in the economic development of the country.  It covers all
bank deposits in the Philippines and no distinction was made between domestic and
foreign deposits.  Thus, Republic Act No. 1405 is considered a law of general
application.  On the other hand, Republic Act No. 6426 was intended to encourage
deposits from foreign lenders and investors.  It is a special law designed especially
for foreign currency deposits in the Philippines.  A general law does not nullify a
specific or special law.  Generalia specialibus non derogant. (Government Service
Insurance System vs. Court of Appeals, et al., G.R. No. 189206. June 8, 2011.)

Q. What is the nature of a bank’s relationship with depositors?

A. A fiduciary nature does not convert the contract from a simple loan to a trust
agreement; bank must observe high standards of integrity and performance. The
fiduciary relationship of the depositor and the bank does not convert the contract
between the bank and its depositors from a simple loan to a trust agreement,
whether express or implied. It simply means that the bank is obliged to observe
high standards of integrity and performance in complying with its obligations
under the contract of simple loan. Per Article 1980 of the Civil Code, a
creditor-debtor relationship exists between the bank and its depositor. The savings
deposit agreement is between the bank and the depositor; by receiving the deposit,
the bank impliedly agrees to pay upon demand and only upon the depositor’s
order. Joseph Goyanko, Jr., as administrator of the Estate of Joseph Goyanko, Sr.
vs. United Coconut Planters Bank, Mango Avenue Branch, G.R. No. 179096. February
6, 2013

Q. What are considered deposits under the bank secrecy law?

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. A. The deposits covered by the law on secrecy of bank deposits should not be
limited to those creating a creditor-debtor relationship; the law must be broad
enough to include deposits of whatever nature which banks may use for
authorized loans to third persons. R.A. No. 1405 extends to funds invested such as
those placed in a trust account which the bank may use for loans and similar
transactions. (Ejercito v. Sandigandbayan, G.R. No. 157294-95, 2006).

The law on secrecy of bank deposits cannot be used to preclude the bank deposits
from being garnished for the satisfaction of a judgment. There is no violation of
R.A. No. 1405 because the disclosure is purely incidental to the execution process
and it was not the intention of the legislature to place bank deposits beyond the
reach of the judgment creditor. (PCIB v. CA, G.R. 84526, 1991)

Anti-Money Laundering Law (R.A. No.9160, as amended by R.A. 9194)

Q.What are the Predicate Crimes under the Anti-Money Laundering Law?
A. Kidnapping for ransom (Art. 267, RPC); proceeds from illegal transactions under
the Dangerous Drug Act; prohibitions under the Anti-Graft and Corrupt Practices Act;
Plunder Law, Robbery and Extortion under Arts. 294, 295, 296,299, 300, 301 and 302
of RPC; jueteng and masiao under P.D. 1602; piracy on the high seas under RPC as
amended by P.D. No. 532; qualified theft under Art. 310 of RPC; swindling under
Art.315 of RPC; 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 non-combatant persons and
similar targets; and violations under the Electronic Commerce Law of 2000.
(Consider this also as a possible question in Criminal Law.)

Effect of Freeze Order; When it may be issued; Only the Court of Appeals may issue
Freeze Order over deposits in question; Defense of no prior criminal offense is not
available;

Q.Is garnishment of a peso account a violation of the law on secrecy of bank

deposits? Would your answer be the same if it was garnishment of a foreign
currency deposit?
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). It would be different if the account to be garnished is a deposit
protected by Foreign Currency Deposit Act as Section 8 of said law expressly
prohibits the garnishment of such deposits.

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Please take note of the AMLA amendments annexed to this reviewer
II. Letters of Credit, Negotiable Instruments Law, Warehouse Receipts Law and Trust
Receipts

Q. What is a Letter of Credit?

A. In commercial transactions, 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 the goods
before paying. (TPI v. Luzon HydroCorp, 2004)

Q. What are the three distinct contractual relationships in letter of credit

transaction?
A. The three relationships are: between applicant/buyer/importer and the
beneficiary/seller/exporter; between issuing bank and the
beneficiary/seller/exporter and between the issuing bank and the
applicant/buyer/importer.

Q. What are the important principles to remember in letter of credit transactions?

A. Doctrine of Independence (the three related but independent relations mentioned
above. A controversy/ breach in one contract will not affect the performance of the
other contracts).

Where there was a meeting of the minds between the buyer and the seller
regarding the sale of foundry pig iron to be paid for under a letter of credit, the
failure of the buyer to open the letter of credit did not prevent the perfection of the
contract and neither did such failure extinguish the contract. The opening of the
letter of credit was not a condition precedent for the birth of obligation of the buyer
to purchase the foundry pig iron from the seller. Where the buyer fails to open the
letter of credit, as stipulated, the seller or exporter is entitled to claim damages for
such breach. Damages for failure to open the letter of credit may include the loss
of profit which the seller would have reasonably made had the transaction been
carried out (Reliance Commodities, Inc. v. Daewoo Industrial Co. Ltd, 228 SCRA
545, 1993).

The issuing bank is not liable for damages even if the shipment did not conform to
the specifications of the applicant. Under the independence principle , the
obligation of the issuing bank to pay the beneficiary arises once the latter is able to
submit the stipulated documents under the letter of credit. Hence, the bank is not
liable for damages even if the shipment did not conform to the specifications of
the applicant. (LBP v. Monet’s Export Manufacturing, 452 SCRA 173, 2005)

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Q. Is the Fraud Exception Rule always applied to letters of credit?
A. No. It is only an exception to the doctrine of independence.  Professor Dolan in
The Law of Letters of Credit, Revised Ed. (2000).opines that the untruthfulness of a
certificate accompanying a demand for payment under a standby credit may qualify
as fraud sufficient to support an injunction against payment. xxx The remedy for
fraudulent abuse is an injunction. However, injunction should not be granted unless:
(a) there is clear proof of fraud; (b) the fraud constitutes fraudulent abuse of the
independent purpose of the letter of credit and not only fraud under the main
agreement; and (c) irreparable injury might follow if injunction is not granted or the
recovery of damages would be seriously damaged. (TPI v. Luzon HydroCorp, 2004)

Doctrine of Strict Compliance The tender of documents by the beneficiary (seller)

must include all documents required by the letter. A correspondent bank which
departs from what has been stipulated under the letter of credit, as when it accepts
a faulty tender, acts on its own risks and it may not thereafter be able to recover
from the buyer or the issuing bank, as the case may be, the money thus paid to the
beneficiary Thus the rule of strict compliance. (Feati Bank v. CA, 1991)

Q. What is a Negotiable Instrument?

A. It is an unconditional promise to pay to order or to bearer on demand or at a fixed
determinable future time.

Q. What are the requisites of a Negotiable Instrument?

A. This is frequently asked in the bar in the form of problem solving. This will help
you not only identify whether the Instrument will be governed by NIL but it will also
help you distinguish a Negotiable Instrument from other Commercial and
non-commercial documents.
Section 1. Form of negotiable instruments. - An instrument to be
negotiable must conform to the following requirements:
(a) It must be in writing and signed by the maker or drawer; 
(b) Must contain an unconditional promise or order to pay a sum
certain in money; 
(c) Must be payable on demand, or at a fixed or determinable future
time; 
(d) Must be payable to order or to bearer

Distinguish (ex. Certificate of Time Deposit, Checks payable to order) from

negotiable document (Postal Money Order, Treasury Warrants, and Warehouse
Receipts)

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Q. Who is a holder in due course?
A. (This is also a bar favorite.)
Sec. 52. What constitutes a holder in due course. - 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 has 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.

Q. May a juridical person whose regional branch had notice of the

failure of consideration after the endorsement of a promissory note still
be considered a holder in due course?

A. Yes. As long as the holder accepted the note in good faith and for
value and had no notice of the defect at the time of endorsement, a
holder may still sue on the basis of the promissory note as a holder in
due course. A holder in due course holds the instrument free from any
defect of title of prior parties and from defenses available to prior
parties among themselves, and may enforce payment of the instrument
for the full amount thereof. The defense of non-delivery of the object
and nullity of the sale , for instance, cannot be raised against the
corporation that is a holder in due course as the NIL considers every
negotiable instrument prima facie to have been issued for a valuable
consideration. ( Spouses Violago v. BA Finance, 2008, J. Velasco)

Q. What is the rule on forgery of a signature found in a negotiable instrument?

(Another bar favorite)
A. Sec. 23. When a signature is forged or made without the authority of the
person whose signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge therefor, or to enforce
payment thereof against any party thereto, can be acquired through or under
such signature, unless the party against whom it is sought to enforce such
right is precluded from setting up the forgery or want of authority.
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Note that this is a real defense available even against a holder in due course.

If a bank orders payment on the basis of a check where the drawer’s signature was
forged by an expert who signed almost as if the true drawer signed, who will be
ultimately liable?
The Drawee bank. The forgery may be so near like the genuine as to defy detection
by the depositor himself, and yet the bank is liable to the depositor if it pays the
check. (Samsung Construction v. FEBTC, 2004)

Q. Is demand always necessary for the debtor to be considered in delay?

A. Under Art. 1169 of the Civil Code, demand from the creditor is not necessary for
the delay to exist when the obligation or the law expressly so declare. However, it is
not sufficient that the law or obligation fixes a date for performance, but it must
further state expressly that after the period lapses, default will commence. (Rodrigo
Rivera v. Spouses Chua, G.R. 184458, January 14, 2015)

Q. Can a check be delivered without indorsement?

A. Yes. The check delivered to was made payable to cash. Under the Negotiable
Instruments Law, this type of check was payable to the bearer and could be
negotiated by mere delivery without the need of an indorsement. People of the
Philippines v. Gilbert Reyes Wagas, G.R. No. 157943, September 4, 2013.

Q. What are crossed checks?  

A. A crossed check is one where two parallel lines are drawn across its face or
across its corner. Based on jurisprudence, the crossing of a check has the following
effects: (a) the check may not be encashed but only deposited in the bank; (b) the
check may be negotiated only once to the one who has an account with the bank;
and (c) the act of crossing the check serves as a warning to the holder that the
check has been issued for a definite purpose and he must inquire if he received the
check pursuant to this purpose; otherwise, he is not a holder in due course. In other
words, the crossing of a check is a warning that the check should be deposited only
in the account of the payee. When a check is crossed, it is the duty of the collecting
bank to ascertain that the check is only deposited to the payee’s account. Philippine
Commercial Bank vs. Antonio B. Balmaceda and Rolando N. Ramos, G.R. No.
158143, September 21, 2011.

Q .Can a crossed check be encashed?

A. No. The crossing of a check means that the check may not be encashed but only
deposited in the bank. The issuance of a crossed check reflects management’s
intention to safeguard the funds covered thereby, its special instruction to have the

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same deposited to another account and its restriction on its encashment. Wesleyan
University Phils. V. Nowella Reyes, G.R. No.208321, July 30, 2014

Q. Is an electronic message (known as SWIFT Society of Worldwide Interbank

Financial Telecommunications) sent to a bank with an order to pay certain persons
upon receipt of securities a bill of exchange?
A. No. the requisites under Sec. 1 of the NIL are not present. There is no sign from
the drawer, no unconditional order to pay as the amounts are from specific funds
(the client’s accounts) and they are not order or bearer instruments because the
payee is specified. (HSBA v. CIR, 2014)

Q. What is the liability of depositary/collecting bank in altered checks?

A. In check transactions, the depositary/collecting bank or last endorser generally

suffers the loss because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for payment to the
drawee is an assertion that the party making the presentment has done its duty to
ascertain the genuiness of the endorsements. If any of the warranties made by the
depositary/collecting bank turns out to be false, then the drawee bank may recover
from it up to the amount of the check. (Cesar Areza and Lolita Areza v. Savings
Bank, Inc and Michael Potenciano, G.R. No. 176697, September 10, 2014)

Q. What is the rule on liability under an incomplete but undelivered instrument?

A. Under Section 14 of the NIL, if the maker or drawee delivers pre-signed blank
paper to another person for the purpose of converting it into a negotiable
instrument, that person is deemed to have a prima facie authority to fill it up. In
order however that any such instrument when completed may be enforced against
any person who became a party thereto prior to its completion, two requisites must
exist: (1) that the blank must be filled strictly in accordance with the authority given
and (2) it must be filled up strictly in accordance with the authority given and within
a reasonable time. The maker can set this up as a personal defense and avoid
liability. (Alvin Patrimonio v. Napoleon Gutierrez and Octavio Marasigan III, G.R.
187769, June 4, 2014)

Promissory Note: parties, warranties, obligations and liabilities of parties;

negotiability, transfer of rights under deed of assignment

Q. Will the alteration of a promissory note result in the extinguishment of the original
13 | P a g e
debt?
A. No. While a promissory note is evidence of indebtedness, it is not the only
evidence, for the existence of the obligation can be proven by other documentary
evidence such as a written memorandum signed by the parties. A check may be
considered as an evidence of indebtedness and is a veritable proof of an
obligation. It can be used in lieu of and for the same purpose as a promissory
note and can therefore be presented to establish the existence of indebtedness.
(Leonardo Bognot v. RRI Lending Corporation, G.R. 180144, September 24, 2014)

Q. Bong, a long time client, dollar account holder and grantee of a credit
line of Randy Bank, helped his friends Jet and Michael get a loan from
Randy Bank by signing as a co-maker in a promissory note. After
receiving the full sum of the loan from the Bank, Michael and Jet failed
to pay Randy Bank. Randy Bank is now going after Bong who says he
should not be liable as he did not benefit from the loan. Is Bong correct?

A. No. By signing as borrower and co-borrower on the promissory notes

with the proceeds of the loans going to Jet and Michael, Bong has
extended an accommodation to said persons. As an accommodation
party, Bong is solidarily liable with the Jet and Michael for the loans. n
accommodation party is a person who has signs the instrument as
maker, drawer, acceptor, or indorser, without receiving value therefor,
and for the purpose of lending his name to some other person. The
relation between an accommodation party and the accommodated
party is one of principal and surety, the accommodation party being the
surety. (Gonzales v. PCIB, 2011. J. Velasco)

Q. What is a trust receipt transaction?

A. A trust receipt transaction is one where the entrustee has the obligation to
deliver to the entruster the price of the sale, or if the merchandise is not sold, to
return the merchandise to the entruster. There are, therefore, two obligations in a
trust receipt transaction: the first refers to money received under the obligation
involving the duty to turn it over (entregarla) to the owner of the merchandise sold,
while the second refers to the merchandise received under the obligation to return
it (devolvera) to the owner. (Hur Tin Yang v. People of the Philippines, G.R. No.
195117, August 14, 2013)

Q. When is there a simple loan despite the execution of a trust receipt ?

14 | P a g e
A. When both parties enter into an agreement knowing fully well that the return of
the goods subject of the trust receipt is not possible (when the goods are sued as
construction materials see (Ng v. People, 2010 and LBP v. Perez, 2012) even without
any fault on the part of the trustee, it is not a trust receipt transaction penalized
under Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of the RPC, as the only
obligation actually agreed upon by the parties would be the return of the 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. (Hur Tin
Yang v. People of the Philippines, G.R. No. 195117, August 14, 2013)

Another situation where there is a simple loan only despite the signing of a trust
receipt is when a debtor received the goods subject of the trust receipt before the
trust receipt itself was entered into Colinares v. CA, 2000

When the goods subject of the transaction, such as chemicals and metal plates,
were not intended for sale or resale but for use in the fabrication of steel
communication towers, the agreement cannot be considered a trust receipt
transaction but a simple loan. P.D. No. 115 punishes the entrustee for his failure to
deliver the price of the sale, or if the goods are not sold, to return them to the
entruster, which, in the present case, is absent and could not have been complied
with; therefore, the liability of the entrustee is only civil in nature. (Anthony L.Ng v.
People of the Philippines, G.R. No. 173905, 2010)

When both parties entered into an agreement knowing fully well 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 penalized under Sec. 13 of
PD 115 in relation to Art. 315, par. 1(b) of the RPC, as the only obligation actually
agreed upon by the parties would be the return of the 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. Hur Tin
Yang v. People of the Philippines, G.R.195117, 2013)

III. Bulk Sales Law

Q. When is the Bulk Sales Law applicable?
A. It applies only to retail merchants, traders and dealer involving the sale of all or
substantially all of the assets used in the business of the vendor; Conditions which
will allow a party to invoke the provisions of the Bulk Sales Law inability to meet
outstanding obligations in the course of business but vendor must secure the
approval of at least two-thirds of its stockholders and a majority vote of the
members of its board of directors; Affidavit of Sale must state the names of all its
creditors, their addresses, the amount of credits and their maturities; A sale and

15 | P a g e
transfer in bulk is made by a public officer, acting under judicial process, said sale or
transfer is not covered by the Bulk Sales Law; If sale of assets was made in defraud
of creditors, the latter may have contracts rescinded or file a petition for involuntary
insolvency and sue for damages as well to recover the value of the contract with the
vendor but secured loans, with leave of court, may filed; guarantors may also file
their claims.

IV. The Corporation Code, Securities Regulation Code, Insolvency and Foreign
Investments Act

A. The Corporation Code: Formalities of incorporation for stock and non-stock

corporations; distinction between stock and non-stock corporations; distinction
between public and private corporations; what is a corporate sole; resolution of
conflict involving inter-locking directors; when may doctrine of corporate
opportunity be availed; may a stock corporation be converted into a non-stock
corporation; may a non-stock corporation be converted into a stock corporation;
residency of incorporators and directors; what is a derivative suit (rights of minor
stockholders); ultra vires doctrine; definition of intra-corporate controversy (would
cover corporation, partnership or association registered with the SEC); RTC’s
jurisdiction over intra-corporate controversies; rehabilitation of a corporation; what
is a Stay Order in rehabilitation; what is the Trust Fund Doctrine; distinction between
stock and cash dividends; distinction between profit and cash dividends; when may
dividends be declared out of 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 corporations voluntary and involuntary.

Q. Are PLDT’s stock dividends subject to the NTC’s assessment of Supervision and
Regulation Fees?
A. Yes. Dividends, regardless of the form these are declared, that is, cash, property
or stocks, are valued at the amount of the declared dividend taken from the
unrestricted retained earnings of a corporation. Thus, the value of the declaration in
the case of a stock dividend is the actual value of the original issuance of said
stocks. In G.R. No. 127937 we said that "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 receives in consideration of the
original issuance of the shares." It is "the distribution of current or accumulated
earnings to the shareholders of a corporation pro rata based on the number of
shares owned." Such distribution in whatever form is valued at the declared amount
or monetary equivalent. Thus, it cannot be said that no consideration is involved in
the issuance of stock dividends. In fact, the declaration of stock dividends is akin to
a forced purchase of stocks. By declaring stock dividends, a corporation ploughs
16 | P a g e
back a portion of its entire unrestricted retained earnings either to its working
capital or for cap In essence, therefore, the stockholders by receiving stock
dividends are forced to exchange the monetary value of their dividend for capital
stock, and the monetary value they forego is considered the actual payment for the
original issuance of the stocks given as dividends. Therefore, stock dividends
acquired by shareholders for the monetary value they forego are under the coverage
of the SRF and the basis for the latter is such monetary value as declared by the
board of directors. ital asset acquisition or investments. It is simplistic to say that
the corporation did not receive any actual payment for these. When the dividend is
distributed, it ceases to be a property of the corporation as the entire or portion of
its unrestricted retained earnings is distributed pro rata to corporate shareholders.
(PLDT v. NTC, et.al. G.R. No. 152685, 2007 penned by J. Velasco)

Q. What are the instances when corporate veil may be pierced?

A. The corporate veil may be pierced when the separate corporate entity is used to
defeat public convenience, justify wrong, protect fraud or defend a crime, as a shield
to confuse legitimate issues; where corporation is a mere alter ego or business
conduit of a person; or where a corporation is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit,
adjunct of another corporation;
It has  long  been  settled  that  the  law  vests  a  corporation  with a personality
distinct and separate from its stockholders or members.  In the same vein, a
corporation, by legal fiction and convenience, is an entity shielded by a protective
mantle and imbued by law with a character alien to the persons comprising it. 
Circumstances might deny a claim for corporate personality, under the doctrine of
piercing the veil of corporate fiction.
Piercing the veil of corporate fiction is an equitable doctrine developed to address
situations where the separate corporate personality of a corporation is abused or
used for wrongful purposes. Under the doctrine, the corporate existence may be
disregarded where the entity is formed or used for non-legitimate purposes, such as
to evade a just and due obligation, or to 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 disregarded and the individuals
composing it and the two corporations will be treated as identical. (Eric Godfrey
Stanley Livesey v. Binswanger Philippines, Inc. and Keith Elliot, G.R. No. 177493,
March 19, 2014)

Any application of the doctrine of piercing the corporate veil should be done with
caution. A court should be mindful of the milieu where it is to be applied. It must be
certain that the corporate fiction was misused to such an extent that injustice, fraud,
or crime was committed against another, in disregard of its rights. The wrongdoing

17 | P a g e
must be clearly and convincingly established; it cannot be presumed. Otherwise, an
injustice that was never unintended may result from an erroneous
application. (Heirs of Fe Tan Uy (Represented by her heir, Manling Uy Lim) vs.
International Exchange Bank/Goldkey Development Corporation vs. International
Exchange Bank, (G.R. No. 166282/G.R. No. 166283, February 13, 2013)

The doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely: 1) defeat of public convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; 2) fraud cases or when the
corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3)
alter ego cases, where a corporation is merely a farce since it is a mere alter ego or
business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.  (Timoteo H. Sarona vs. National
Labor Relations Commission, Royale Security Agency, et al.,  G.R. No. 185280,
January 18, 2012).
Corporations; liability of corporate officers. As a general rule, the officer cannot be
held personally liable with the corporation, whether civilly or otherwise, for the
consequences his acts, if acted for and in behalf of the corporation, within the
scope of his authority and in good faith. (Rodolfo Laborte, et al. v. Pagsanjan
Tourism Consumers’ Cooperative, et al., G.R. No. 183860, January 15, 2014)

Q. What is the three pronged test?

A. Case law lays down a three-pronged test to determine the application of the alter
ego theory, which is also known as the instrumentality theory, namely:
(1) Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other positive legal duty,
or dishonest and unjust act in contravention of plaintiff’s legal right; and
(3) The aforesaid control and breach of duty must have proximately caused
the injury or unjust loss complained of.
The first prong is the "instrumentality" or "control" test. This test requires that the
subsidiary be completely under the control and domination of the parent. It
examines the parent corporation’s relationship with the subsidiary. It inquires
whether a subsidiary corporation is so organized and controlled and its affairs are
so conducted as to make it a mere instrumentality or agent of the parent
corporation such that its separate existence as a distinct corporate entity will be
18 | P a g e
ignored. It seeks to establish whether the subsidiary corporation has no autonomy
and the parent corporation, though acting through the subsidiary in form and
appearance, "is operating the business directly for itself."
The second prong is the "fraud" test. This test requires that the parent corporation’s
conduct in using the subsidiary corporation be unjust, fraudulent or wrongful. It
examines the relationship of the plaintiff to the corporation It recognizes that
piercing is appropriate only if the parent corporation uses the subsidiary in a way
that harms the plaintiff creditor. As such, it requires a showing of "an element of
injustice or fundamental unfairness."

The third prong is the "harm" test. This test requires the plaintiff to show that the
defendant’s control, exerted in a fraudulent, illegal or otherwise unfair manner
toward it, caused the harm suffered. A causal connection between the fraudulent
conduct committed through the instrumentality of the subsidiary and the injury
suffered or the damage incurred by the plaintiff should be established. The plaintiff
must prove that, unless the corporate veil is pierced, it will have been treated
unjustly by the defendant’s exercise of control and improper use of the corporate
form and, thereby, suffer damages.
To summarize, piercing the corporate veil based on the alter ego theory requires the
concurrence of three elements: control of the corporation by the stockholder or
parent corporation, fraud or fundamental unfairness imposed on the plaintiff, and
harm or damage caused to the plaintiff by the fraudulent or unfair act of the
corporation. The absence of any of these elements prevents piercing the corporate
veil. ( PNB V. Hydro Resources Contractor’s Corp, 2010)

Q. If a corporation is not impleaded in a suit, can such corporation be

subject to the piercing doctrine?
A. No. The principle of piercing the veil of corporate fiction, and the
resulting treatment of two-related corporations as one and the same
juridical person with respect to a given transaction, is basically applied
only to determine liability; it is not available to confer on the court
jurisdiction it has not acquired, in the first place, over a party not
impleaded in a case. (Kukan International Corporation v. Hon. Amor
Reyes, G.R. 182729, 2010, penned by J. Velasco)
Q. May a contract supposedly entered in to by a corporation before its
incorporation bind it?
A. No. The Court held that any contract executed prior to incorporation has no
binding effect on petitioner corporation. Logically, there is no corporation to speak
of prior to an entity’s incorporation.  And no contract entered into before

19 | P a g e
incorporation can bind the corporation.  (March II Marketing, Inc. and Lucila V.
Joson vs. Alfredo M. Joson, G.R. No. 171993, December 12, 2011)

Q. Randy sold Jet his shares of stock. Jet immediately exercised his rights as a
stockholder by requesting for a copy of the corporation’s financial statements which
the corporation allowed. Randy later on sold the same shares of stock to Eisel and
delivered the stock certificates to her. Who owns the shares of stock?
A. The latter. 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.  The enjoyment of the rights under the stock certificates cannot suffice
where the law, by its express terms, requires a specific form to transfer ownership.
 (Fil-Estate Gold and Development, Inc., et al. v. Vertex Sales and Trading, Inc., G.R.
No. 202079, June 10, 2013.)

Q. What is the prevailing test to determine whether a corporation is a Filipino

Corporation?
A. The control test is still the prevailing mode of determining whether or not a
corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987
Constitution, entitled to undertake the exploration, development and utilization of
the natural resources of the Philippines. When in the mind of the Court there is
doubt, based on the attendant facts and circumstances of the case, in the 60-40
Filipino-equity ownership in the corporation, then it may apply the grandfather rule.
(Narra Nickel Mining and Development Corp., et al. v. Redmont Consolidated
Mines,G.R. No. 195580, April 21, 2014)

Q. Does the control test exclude the application of the grandfather rule?
A. No. The control test’ can be applied jointly with the Grandfather Rule
to determine the observance of foreign ownership restriction in
nationalized economic activities. The Control Test and the Grandfather
Rule are not incompatible ownership-determinant methods that can only
be applied alternative to each other. Rather, these methods can, if
appropriate, be used cumulatively in the determination of the ownership
and control of corporations engaged in fully or partly nationalized
activities, as the mining operation involved in this case or the operation
of public utilities.

The Grandfather Rule, standing alone, should not be used to determine

the Filipino ownership and control in a corporation, as it could result in

20 | P a g e
an otherwise foreign corporation rendered qualified to perform
nationalized or partly nationalized activities. Hence, it is only when the
Control Test is first complied with that the Grandfather Rule may be
applied. Put in another manner, if the subject corporation’s Filipino
equity falls below the threshold 60%, the corporation is immediately
considered foreign-owned, in which case, the need to resort to the
Grandfather Rule disappears.

In this case, using the control test’, Narra, Tesoro and MacArthur
appear to have satisfied the 60-40 equity requirement. But the
nationality of these corporations and the foreign-owned common
investor that funds them was in doubt, hence, the need to apply the
Grandfather Rule. Narra Nickel Mining v. Redmont, G.R. 195580 (2014,
penned by J. Velasco)

Q. Who are corporate officers?

A. In the context of Presidential Decree No. 902-A, corporate officers are those
officers of a corporation who are given that character either by the Corporation
Code or by the corporation’s by-laws.  Section 25 of the Corporation Code
specifically enumerated who are these corporate officers, to wit: (1) president; (2)
secretary; (3) treasurer; and (4) such other officers as may be provided for in the
by-laws. The Court held that unless and until petitioner corporation’s by-laws is
amended for the inclusion of General Manager in the list of its corporate officers,
such position cannot be considered as a corporate office within the realm of
Section 25 of the Corporation Code.  March II Marketing, Inc. and Lucila V. Joson vs.
Alfredo M. Joson, G.R. No. 171993, December 12, 2011.

Q. Will a case be dismissed if a corporation used its former name in the

proceedings?
A. No. While the SC stands by in its pronouncement on the importance of the
corporate name to the very existence of corporations and the significance thereof in
the corporation’s right to sue, it shall not go so far as to dismiss a case filed by the
proper party using its former name when adequate identification is presented. NM
Rothschild & Sons Ltd. V. Lepanto Consolidated Mining, G.R. No. 175799, November
28, 2011.

Q. When are officers and directors of a corporation liable?

21 | P a g e
A. Basic is the rule in corporation law that a corporation is a juridical entity which is
vested with a legal personality separate and distinct from those acting for and in its
behalf and, in general, from the people comprising it. Following this principle,
obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities. A director, officer or employee of a corporation is
generally not held personally liable for obligations incurred by the corporation.
Nevertheless, this legal fiction may be disregarded if it is used as a means to
perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse legitimate issues.
Solidary liability will then attach to the directors, officers or employees of the
corporation in certain circumstances, such as:

1. When directors and trustees or, in appropriate cases, the officers of a

corporation: (a) vote for or assent to patently unlawful acts of the corporation; (b)
act in bad faith or with gross negligence in directing the corporate affairs; and (c)
are guilty of conflict of interest to the prejudice of the corporation, its stockholders
or members, and other persons;
2. When a director or officer has consented to the issuance of watered stocks or
who, having knowledge thereof, did not forthwith file with the corporate secretary
his written objection thereto;
3. When a director, trustee or officer has contractually agreed or stipulated to hold
himself personally and solidarily liable with the corporation; or
4. When a director, trustee or officer is made, by specific provision of law, personally
liable for his corporate action.
Before a director or officer of a corporation can be held personally liable for
corporate obligations, however, the following requisites must concur: (1) the
complainant must allege in the complaint that the director or officer assented to
patently unlawful acts of the corporation, or that the officer was guilty of gross
negligence or bad faith; and (2) the complainant must clearly and convincingly prove
such unlawful acts, negligence or bad faith.
While it is true that the determination of the existence of any of the circumstances
that would warrant the piercing of the veil of corporate fiction is a question of fact
which cannot be the subject of a petition for review on certiorari under Rule 45, this
Court can take cognizance of factual issues if the findings of the lower court are not
supported by the evidence on record or are based on a misapprehension of facts.
 (Heirs of Fe Tan Uy (Represented by her heir, Manling Uy Lim) vs. International
Exchange Bank/Goldkey Development Corporation vs. International Exchange
Bank, G.R. No. 166282/G.R. No. 166283, February 13, 2013)

Q. The NBI caused the filing of a complaint against Omni Corporation

22 | P a g e
and its directors for violation of BP. No. 33 which penalizes the
unauthorized use of LPG cylinders. Can the directors be held personally
liable?

A: Yes, as regards the President of the Corporation who manages the

business affairs of Omni, but No as regards to the other directors. Even
if the corporate powers of a corporation are reposed in it under the first
paragraph of Sec. 23 of the Corporation Code, the board of directors is
not directly charged with the running of the recurring business affairs of
the corporation and may not be held liable under BP 33. (Arnel U. Ty, et.
al vs. NBI Supervising Agent Marvin E. De Jemil, et. al., G.R. 182147
2010, penned by J. Velasco)

Q. Is prior approval of stockholders required of all corporate acts?

A. The general rule is that a corporation, through its board of directors, should act in
the manner and within the formalities, if any, prescribed by its charter or by the
general law. Thus, directors must act as a body in a meeting called pursuant to the
law or the corporation’s by laws, otherwise, any action taken therein maybe
questioned by any objecting director or shareholder. However, the actions taken in
such a meeting by the directors or trustees may be ratified expressly or impliedly.
Ratification means that the principal voluntarily adopts, confirms and gives sanction
to some unauthorized act of its agent on its behalf. It is this voluntary choice,
knowingly made, which amounts to a ratification of what was theretofore
unauthorized and becomes the authorized act of the 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 Asuncion
Lopez-Gonzales v. Sps. Tanjangco, G.R. 154291, November 12, 2014)

Q. Can a corporate officer not authorized by the board in writing bind the
corporation?
A. The Court reiterated its ruling in People’s Aircargo and Warehousing Co., Inc. v.
Court of Appeals:   Inasmuch as a corporate president is often given general
supervision and control over corporate operations, the strict rule that said officer
has no inherent power to act for the corporation is slowly giving way to the
realization that such officer has certain limited powers in the transaction of the
usual and ordinary business of the corporation.
In the absence of a charter or bylaw provision to the contrary, the president is
presumed to have the authority to act within the domain of the general objectives of
its business and within the scope of his or her usual duties. (Advance Paper

23 | P a g e
Corporation and George Haw, in his capacity as President of Advance Paper
Corporation v. Arma Traders Corporation, Manuel Ting, et al., G.R. No. 176897,
December 11, 2013)

Section 23 of the Corporation Code expressly provides that the corporate powers of
all corporations shall be exercised by the board of directors. The power and the
responsibility to decide whether the corporation should enter into a contract that
will bind the corporation are lodged in the board, subject to the articles of
incorporation, bylaws, or relevant provisions of law. In the absence of authority from
the board of directors, no person, not even its officers, can validly bind a
corporation.
The authority of a corporate officer or agent in dealing with third persons may be
actual or apparent. Actual authority is either express or implied. The extent of an
agent’s express authority is to be measured by the power delegated to him by the
corporation, while the extent of his implied authority is measured by his prior acts
which have been ratified or approved, or their benefits accepted by his principal. The
doctrine of apparent authority, on the other hand, with special reference to banks,
had long been recognized in this jurisdiction. The existence of apparent authority
may be ascertained through:
(1)      the general manner in which the corporation holds out an officer or agent as
having the power to act, or in other words, the apparent authority to act in general,
with which it clothes him; or
(2)      the acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, within or beyond the scope of his ordinary powers.  (Violeta
Tudtud Banate, et al. vs. Philippine Countryside Rural Bank (Liloan, Cebu), Inc. and
Teofilo Soon, Jr., G.R. No. 163825, July 13, 2010)

Q. Who may sign a certification against forum shopping in a suit filed by a

corporation?
A. The requirement of the certification of non-forum shopping is rooted in the
principle that a party-litigant 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, a President of a corporation, among other
enumerated corporate officers and employees, can sign the verification and
certification against non-forum shopping in behalf of the said corporation without
the benefit of a board resolution.
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) the President of a corporation, (3) the General Manager or Acting
24 | P a g e
General Manager, (4) Personnel Officer, and (5) an Employment Specialist in a labor
case.
While the above cases do not provide a complete listing of authorized signatories to
the verification and certification required by the rules, the determination of the
sufficiency of the authority was done on a case to case basis. The rationale applied
in the foregoing cases is to justify the authority of corporate officers or
representatives of the corporation to sign the 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. and Gauvain
Benzonan v. Hon. Patricia Sto. Tomas, et.al., G.R. 173326, December 15, 2010)

Q. What is an intra-corporate dispute?

A. An intra-corporate dispute is understood as a suit arising from intra-corporate
relations or between or among stockholders or between any or all of them and the
corporation.  Applying what has come to be known as the relationship test, it has
been held that the types of actions embraced by the foregoing definition include the
following suits: (a) between the corporation, partnership or association and the
public; (b) between the corporation, partnership or association and its stockholders,
partners, members, or officers; (c) between the corporation, partnership or
association and the State insofar as its franchise, permit or license to operate is
concerned; and, (d) among the stockholders, partners or associates themselves.  As
the definition is broad enough to cover all kinds of controversies between
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).

An intra-corporate controversy, which falls within the jurisdiction of regular courts,

has been 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) between the corporation, partnership or association and the state in
so far as its franchise, 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, partners or associates, themselves.
Applying the foregoing to the present case, the LA had the original jurisdiction over
the complaint for illegal dismissal because Cosare, although an officer of Broadcom
for being its AVP for Sales, was not a corporate officer as the term is defined by
law. (Raul C. Cosare v. Broadcom Asia, Inc., et al., G.R. No. 201298, February 5,
2014)

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Q. What are the tests to determine whether a person is a corporate officer?
A. There are two circumstances which must concur in order for an individual to be
considered a corporate officer, as against an ordinary employee or officer, namely:
(1) the creation of the position is under the corporation’s charter or by-laws; and (2)
the election of the officer is by the directors or stockholders. It is only when the
officer claiming to have been illegally dismissed is classified as such corporate
officer that the issue is deemed an intra-corporate dispute which falls within the
jurisdiction of the trial courts. Raul C. Cosare v. Broadcom Asia, Inc., et al., G.R. No.
201298, February 5, 2014.

Q. What is a derivative suit?

A. A derivative suit is an action brought by a stockholder on behalf of the
corporation to enforce corporate rights against the corporation’s directors, officers
or other insiders. Under Sections 23 and 36 of the Corporation Code, the directors or
officers, as provided under the by-laws, have the right to decide whether or not a
corporation should sue. Since these directors or officers will never be willing to sue
themselves, or impugn their wrongful or fraudulent decisions, 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.

Q. Can a corporation sole be converted to a corporation aggregate?

A. A corporation may change its character as a corporation sole into a corporation
aggregate by mere amendment of its articles of incorporation without first going
through the process of dissolution.  The amendment needs the concurrence of at
least two-thirds of its membership.  If such approval mechanism is made to operate
in a corporation sole, its one member in whom all the powers of the corporation
technically belongs, needs to get the concurrence of two-thirds of its membership.
 The one member, here the General Superintendent, is but a trustee, according to
Section 110 of the Corporation Code, of its membership.  Iglesia Evangelica
Metodista En Las Islas Filipinas (IEMELIF), Inc., et al. vs. Bishop Nathanael Lazaro,
et al., G.R. No. 184088, July 6, 2010.

Q. Can a corporation continue its regular business during the winding up period after
dissolution?
A. No. Section 122 of the Corporation Code prohibits a dissolved corporation from
continuing its business, but allows it to continue with a limited personality for a
period of three years from the time it would have been dissolved in order to settle
and close its affairs, including its complete liquidation but not for the purpose of

26 | P a g e
continuing the business for which it was established.
Vitaliano N. Aguirre II and Fidel N. Aguirre II and Fidel N. Aguirre vs. FQB+, Inc.,
Nathaniel D. Bocobo, Priscila Bocobo and Antonio De Villa, G.R. No. 170770.
January 9, 2013.

Q. Does the dissolution of a corporation mean the cessation of the board of

directors’ powers?
A. A corporation’s board of directors is not rendered functus officio by its
dissolution. Since Section 122 allows a corporation to continue its existence for a
limited purpose, necessarily there must be a board that will continue acting for and
on behalf of the dissolved corporation for that purpose. (Vitaliano N. Aguirre II and
Fidel N. Aguirre II and Fidel N. Aguirre vs. FQB+, Inc., Nathaniel D. Bocobo, Priscila
Bocobo and Antonio De Villa, G.R. No. 170770. January 9, 2013.

Q. Are property rights of stockholders affected by the dissolution of the

corporation?
A. A party’s stockholdings in a corporation, whether existing or dissolved, is a
property right which he may vindicate against another party who has deprived him
thereof. The corporation’s dissolution does not extinguish such property right.
Vitaliano N. Aguirre II and Fidel N. Aguirre II and Fidel N. Aguirre vs. FQB+, Inc.,
Nathaniel D. Bocobo, Priscila Bocobo and Antonio De Villa, G.R. No. 170770.
January 9, 2013.

Q. Are all corporations that are not GOCCs considered private corporations not
under Commission on Audit jurisdiction?
A. No. Not all corporations, which are not government owned or controlled, are ipso
facto to be considered private corporations as there exists another distinct class of
corporations or chartered institutions which are otherwise known as public
corporations. These corporations are treated by law as agencies or
instrumentalities of the government which are not subject to the tests of ownership
or control and economic viability but to different criteria relating to their public
purposes/interests or constitutional policies and objectives and their administrative
relationship to the government or any of its Department or Offices. The COA may,
thus, audit the finances of BSP. Boy Scouts of the Phils. V. COA. G.R. No. 177131,
June 7, 2011

Q. Is there a distinction between a case filed before and after the winding up period
of a corporation?
A. Yes. A dissolved corporation or any person representing it cannot file a case
beyond the three year winding up period even if the purpose of such suit is the
liquidation of the assets of the dissolved corporation as it has no more capacity to
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sue. To allow such suit would be to circumvent Section 122 of the Corporation
Code. (Alabang Development Corporation v. Alabang Hills Village Association and
Rafael Tinio, G.R. No. 187456, June 2, 2014.)

Q. Is the refusal to allow inspection of the stock and transfer book a criminal
offense?
A. Yes. Such refusal, when done in violation of Section 74(4) of the Corporation
Code, properly falls within the purview of Section 144 of the same code and thus
may be penalized as an offense.  (Aderito Z. Yujuico and Bonifacio C. Sumbilla v.
Cezar T. Quiambao and Eric C. Pilapil, G.R. No. 180416, June 2, 2014).

A criminal action based on the violation of the second or fourth paragraphs of

Section 74 can only be maintained against corporate officers or such other persons
that are acting on behalf of the corporation.

Violations of the second and fourth paragraphs of Section 74 contemplates a

situation wherein a corporation, acting thru one of its officers or agents, denies the
right of any of its stockholders to inspect the records, minutes and the stock and
transfer book of such corporation.

Q. Are corporate officers liable for the illegal dismissal of an employee of the
corporation?
A. No. A corporation has a personality separate and distinct from its officers and
the board of directors may only be held personally liable for damages if it is proven
that they acted with malice or bad faith in the dismissal of an employee. Absent any
evidence on record that petitioner Bautista acted maliciously or in bad faith in
effecting the termination of respondent, plus the apparent lack of allegation in the
pleadings of respondent that petitioner Bautista acted in such manner, the doctrine
of corporate fiction dictates that only petitioner corporation should be held liable for
the illegal dismissal of respondent. (Mirant (Philippines) Corporation, et al. v.
Joselito A. Caro, G.R. No. 181490, April 23, 2014)

Q. What is a merger?
A. Merger is a re-organization of two or more corporations that results in their
consolidating into a single corporation, which is one of the constituent corporations,
one disappearing or dissolving and the other surviving.  To put it another way,
merger is the absorption of one or more corporations by another existing
corporation, which retains its identity and takes over the rights, privileges,
franchises, properties, claims, liabilities and obligations of the absorbed
corporation(s).  The absorbing corporation continues its existence while the life or
lives of the other corporation(s) is or are terminated. 

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Q. What is a de facto merger?
A. A de facto merger can be pursued by one corporation acquiring all or
substantially all of the properties of another corporation in exchange of shares of
stock of the acquiring corporation.  The acquiring corporation would end up with the
business enterprise of the target corporation; whereas, the target corporation would
end up with basically its only remaining assets being the shares of stock of the
acquiring corporation.
It is clear that no merger took place between Bank of Commerce and TRB as the
requirements and procedures for a merger were absent.  A merger does not become
effective upon the mere agreement of the constituent corporations.  All the
requirements specified in the law must be complied with in order for merger to take
effect.  Section 79 of the Corporation Code further provides that the merger shall be
effective only upon the issuance by the Securities and Exchange Commission (SEC)
of a certificate of merger. (Bank of Commerce v. Radio Philippines Netwcork, Inc., et
al., G.R. No. 195615, April 21, 2014)

Q. Is the Philippine National Red Cross a private corporation required to incorporate

under the Corporation Code?
A. No. PNRC is a sui generis entity that is neither public nor private. PNRC is a
government’s partner in the observance of its international commitments under the
Geneva Conventions. It is treated as an auxiliary of the State. (Liban v. Gordon,
2011)

B. Securities Regulation Law

Protection of public interest as primary purpose of the law; registration
requirements of stocks/ securities; what are exempt securities (Please read Section
9, Securities Regulation Code) and exempt transactions; registration of a company
with the SEC is a prerequisite before registration of securities in the stock market;
liabilities for fraud, manipulation of stock prices, insider trading, short sales; reason
behind margin trading rule; what are the minimum requirements for disclosure of
publicly-listed companies; what is a tender offer; what is a water down share;
remedies avail to parties under the law; penalties which may be imposed on
company, officers, stock brokers and individuals.

Q. How do you determine the existence of an investment contract?

A. For an investment contract to exist, the Howey Test comprising of the following
elements must concur: (1) a contract, transaction, or scheme; (2) an investment of
money; (3) investment is made in a common enterprise; (4) expectation of profits;
and (5) profits arising primarily from the effort of others. The Securities and
Regulation Code treats investment contracts as securities that have to be

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registered with the SEC before they can be distributed and sold. SEC v.
Prosperity.com, Inc., G.R.164197, January 25, 2012.

Q. Can the SEC issue a Cease and Desist Order without any complaint filed before
it?
A. Yes. Under Sec. 64 of the SRC, a cease and desist order maybe issued by the SEC
motu proprio, it being unnecessary that it results from a verified complaint from an
aggrieved party and even without a prior hearing whenever the Commission finds it
appropriate to issue a cease and desist order that aims to curtail fraud or grave or
irreparable injury to investors. There is good reason for this provision as any delay in
the restraint of acts that yield such results can only generate further injury to the
public that the SEC is obliged to protect. To equally protect individuals and
corporations from baseless and improvident issuances, the authority of the SEC is
also with defined limits. A cease and desist order may only be issued by the
Commission after proper investigation or verification and upon showing that the
acts sought to be restrained could result in injury or fraud to the investing public.
Primanila Plans, Inc. v. SEC, G.R. 193791, August 6, 2014

Q. What is the Jurisdiction of the RTC and the SEC over issues on validation of
proxies?
A. The power of the SEC to regulate proxies remains in place in instances when
stockholders vote on matters other than the election of directors. The test is
whether the controversy relates to such election. All matters affecting the manner
and conduct of the election of directors are properly cognizable by the regular
courts. Otherwise, these matters may be brought before the SEC for resolution
based on the regulatory powers it exercises over corporations, partnerships and
associations. SEC v. CA, G.R. 187702, October 22, 2014.

C. Insolvency Law -
Voluntary Insolvency is filed by the insolvent while Involuntary Insolvency is filed by
the creditors of the insolvent; Unsecured loans cannot be filed in any insolvency
proceeding provided they present proof that they paid the obligation of the creditor
of the insolvent and they substitute for the creditors; Preferred claims funeral
expenses of the debtor is the most preferred claim, debts due for personal services
rendered to the insolvent immediately preceding the commencement of insolvency
proceeding; obligations under Workmen’s Compensation Act, legal expenses and
expenses incurred in the administration of insolvent’s estate for the common
interest of creditors upon order of the court, debts, taxes and assessments due the

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national government, provincial government and local government units; remaining
non-preferred creditors shall be entitled pro rata in the balance of assets, without
priority or preference.

Q. What is the concept of technical insolvency?

A. There are 2 kinds of insolvency contemplated by law: actual
insolvency, i.e., the corporation’s assets are not enough to cover its
liabilities; and technical insolvency defined under Sec. 3-12, i.e., the
corporation has enough assets but it foresees its inability to pay its
obligations for more than one year. The period mentioned under Sec.
3-12, "longer than one year from the filing of the petition," does not refer
to a year-long waiting period when the SEC can finally say that the ailing
corporation is technically insolvent to qualify for rehabilitation. The
period referred to the corporation’s inability to pay its obligations; when
such inability extends beyond one year, the corporation is considered
technically insolvent. Said inability may be established from the start by
way of a petition for rehabilitation, or it may be proved during the
proceedings for suspension of payments, if the latter was the first
remedy chosen by the ailing corporation. If the corporation opts for a
direct petition for rehabilitation on the ground of technical insolvency, it
should show in its petition and later prove during the proceedings that it
will not be able to meet its obligations for longer than one year from the
filing of the petition.(PNB and Equitable PCI Bank v. CA, G.R. 165571, J.
Velasco)

Free Insolvency Act (FRIA)

Q. May FRIA be applied retroactively?

A. Sec. 146 of the FRIA, which makes it applicable to all further proceedings in
insolvency, suspension of payments and rehabilitation cases x x x except to the
extent that in the opinion 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 is applicable to all further proceedings. In no way could
it be made retrospectively applicable to the Stay Order issued by the rehabilitation
court back in 2002. Thus, it was beyond the jurisdiction of the rehabilitation court to
suspend foreclosure proceedings against properties of third-party
mortgagors.  (Situs Development Corporation, et al.  vs. Asia Trust Bank, et al, G.R.

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No. 180036, January 16, 2013)

Q. When is Rehabilitation appropriate?

A. Rehabilitation contemplates a continuance of corporate life and activities in an
effort to restore and reinstate the corporation to its former position of successful
operation and solvency.  The purpose of rehabilitation proceedings is to enable the
company to gain a new lease on life and thereby allow creditors to be paid their
claims from its earnings.  The rehabilitation of a financially distressed corporation
benefits its employees, creditors, stockholders and, in a larger sense, the general
public.
Rehabilitation proceedings in our jurisdiction, much like the bankruptcy laws of the
United States, have equitable and rehabilitative purposes. On one hand, they attempt
to provide for the efficient and equitable distribution of an insolvent debtor’s
remaining assets to its creditors; and on the other, to provide debtors with a fresh
start by relieving them of the weight of their outstanding debts and permitting them
to reorganize their affairs.  The rationale of Presidential Decree No. 902-A, as
amended, is to effect a feasible and viable rehabilitation.

Q. What is the Cram-down Power of Rehabilitation Courts?

A. The cram-down principle consists of two things: (1) approval despite
opposition and (2) binding effect of the approved plan. The Rehabilitation Rules
maintains that the court may approve a rehabilitation plan over the objection of the
creditors if, in its judgement, the rehabilitation of the debtors is feasible and the
opposition of the creditors is manifestly unreasonable. The required number of
creditors opposing such plan under the Interim Rules (i.e., those holding the majority
of the total liabilities of the debtor) was in fact, removed. Also, the Rehabilitation
Receiver has the duty and authority to recommend any modification of an approved
rehabilitation plan as he may deem appropriate and for the purpose of achieving the
desired targets or goals set forth therein and the Rehabilitation Rules allow the
modification and alteration of the rehabilitation plan precisely because of conditions
that may supervene or affect the implementation thereof subsequent to its approval.
(Marilyn Aquino v. Pacific Plans, G.R. 193108, December 10, 2014)

Q. Is Material Financial Commitment an indispensable requisite in corporate

rehabilitation?
A. Yes. SMMCI’s Rehabilitation Plan lacks a material financial commitment to
support the rehabilitation and accompanying liquidation analysis of the petitioning
debtor which are indispensable requisites in corporate rehabilitation proceedings
under Sec 18 of Rule 3 of the Interim Rules of corporate rehabilitation. (BPI Family
Savings Bank, Inc. v. St. Michael Medical Center, G.R. 205469, March 25, 2015)

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Q. Is the HLURB’s prior request for the appointment of a rehabilitation receiver is a
condition precedent before the trial court can give due course to a rehabilitation
petition?
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, construction and real estate companies, such as Lexber, under the
jurisdiction of the HLURB are allowed to file petitions for rehabilitation even without
prior request for the appointment of a receiver by HLURB. This is because the power
to appoint receivers is not found in HLURB’s charter unlike the BSP and the IC which
are specifically authorized to appoint a receiver in case a company under their
regulation is undergoing corporate rehabilitation. Lexber Inc v. Spouses Dalman GR
183587 April 20, 2015

Q. Will the lapse of the 180-day period for the approval of the rehabilitation plan
automatically result to the dismissal of the rehabilitation petition?
A. No. Rule 4, Section 11 of the Interim Rules states:
Section 11.Period of the Stay Order - The stay order shall be effective from the date
of its issuance until the dismissal of the petition or the termination of the
rehabilitation proceedings. The petition shall be dismissed if no rehabilitation plan is
approved by the court upon the lapse of one hundred eighty (180) days from the
date of the initial hearing. 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, shall the period for approving
or disapproving a rehabilitation plan exceed eighteen (18) months from the date of
filing of the petition.

Rule 2, Section 2 of the Interim Rules may be properly applied as it dictates the
courts to liberally construe the rehabilitation rules in order to carry out the
objectives of Sections 6(c) of PD 902-A, as amended, and to assist the parties in
obtaining a just, expeditious, and inexpensive determination of rehabilitation cases.
(Lexber Inc v. Spouses Dalman GR 183587 April 20, 2015)

D. Foreign Investments Act (R.A. No. 7042)

Q. What is doing business ?
A. The phrase "doing business" shall include soliciting orders, service contracts,
opening offices, whether called "liaison" offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any calendar
year stay in the country for a period or periods totaling one hundred eighty (180)
days or more; participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and any other act or
acts that imply a continuity of commercial dealings or arrangements, and

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contemplate to that extent the performance of acts or works, or the exercise of
some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization:
Provided, however, That the phrase "doing business: shall not be deemed to include
mere investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business, and/or the exercise of rights as such investor; nor having
a nominee director or officer to 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. Foreign
Investments Act.)

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 corporations known as the "Twin Characterization Test".
Under this test, a foreign corporation is considered to be "doing business" in the
Philippines when:

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 substantially retired from it and turned it over to another."

b) The foreign corporation is engaged in activities which necessarily imply "a

continuity of commercial dealings and arrangements, and contemplates, to that
extent, the performance of acts or works or the exercise of some of the functions
normally incidental to, and in progressive prosecution of, the purpose and object of
its organization. (SEC-OGC Opinion 10-22 s.2010)

Please note that aliens may be allowed to invest in companies involved in the
exploitation, development and utilization of natural resources provided 60% of the
shares is owned by Filipino citizens. Aliens may also register their companies and
enjoy tax incentives under the BOI and PEZA laws.

V. Insurance Code

Q. What is the effect of a contract of insurance being a contract of adhesion?

A. A contract of insurance is a contract of adhesion. When the terms of the
insurance contract contain limitations on liability, courts should construe them in
such a way as to preclude the insurer from non-compliance with his
obligation. Alpha Insurance and Surety Co. v. Arsenia Sonia Castor, G.R. No. 198174,
September 2, 2013.

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Q. How do you construe limitations on the liability of an insurer?
A. In Philamcare Health Systems, Inc. v. CA, we ruled that a health care agreement
is in the nature of a non-life insurance.  It is an established rule in insurance
contracts that when their terms contain limitations on liability, they should be
construed strictly against the insurer.  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,
March 12, 2014.

Q. When is there double insurance?

A. By the express provision of Section 93 of the Insurance Code, double insurance
exists where  the same person is insured by several insurers separately in respect to
the same subject and interest.  The requisites in order for double insurance to arise
are as follows:
1.  The person insured is the same;
2.  Two or more insurers insuring separately;
3.  There is identity of subject matter;
4.  There is identity of interest insured; and
5. There is identity of the risk or peril insured against. (Malayan Insurance Co., Inc.
vs. Philippine First Insurance, Co., Inc., et al., G.R. No. 184300, July 11, 2012).

Q. What is an additional insurance clause?

A. Section 5 is actually the  other insurance clause (also called additional
insurance and double insurance ), one akin to Condition No. 3 in issue in
Geagonia v. CA, which validity was upheld by the Court as a warranty that no other
insurance exists.  The Court ruled that Condition No. 3 is a condition which is not
proscribed by law as its incorporation in the policy is allowed by Section 75 of the
Insurance Code. It was also the Court’s finding that unlike the other insurance
clauses, Condition No. 3 does not absolutely declare void any violation thereof but
expressly provides that the condition shall not apply when the total 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, July 11, 2012).

Q. What is an over insurance clause?

A. Section 12 of the SR Policy, on the other hand, is the over insurance clause.  More
particularly, it covers the situation where there is over insurance due to double
insurance.  In such case, Section 15 provides that Malayan shall not be liable to pay
or contribute more than its ratable proportion of such loss or damage.   This is in
accord with the principle of contribution provided under Section 94(e) of the

35 | P a g e
Insurance Code, which states that where the insured is over insured by double
insurance, each insurer is bound, as between himself and the other insurers, to
contribute ratably to the loss in proportion to the amount for which he is liable under
his contract.  (Malayan Insurance Co., Inc. vs. Philippine First Insurance, Co., Inc., et
al., G.R. No. 184300, July 11, 2012).

Q. What is the nature of a health care agreement?

A. For  purposes  of  determining  the  liability  of a health care provider to its
members, jurisprudence holds that 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 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).

Q. What is the effect of a fraudulent claim in insurance?

A.  It has long been settled that a false and material statement made with an intent
to deceive or defraud voids an insurance policy.  In Yu Cua v. South British Insurance
Co., the claim was fourteen times bigger than the real loss; in Go Lu v. Yorkshire
Insurance Co, eight times; and in Tuason v. North China Insurance Co., six times. In
the present case, the claim is twenty five times the actual claim proved.
The most liberal human judgment cannot attribute such difference to mere innocent
error in estimating or counting but to a deliberate intent to demand from insurance
company’s payment for indemnity of goods not existing at the time of the fire. This
constitutes the so-called  fraudulent claim  which, by express agreement between
the insurers and the insured, is a ground for the exemption of insurers from civil
liability.
While it is a cardinal principle of insurance law that a contract of insurance is to be
construed liberally in favor of the insured and strictly against the insurer
company, contracts of insurance, like other contracts, are to be construed according
to the sense and meaning of the terms which the parties themselves have used. If
such terms are clear and unambiguous, they must be taken and understood in their
plain, ordinary and popular sense. Courts are not permitted to make contracts for
the parties; the function and duty of the courts is simply to enforce and carry out the
contracts actually made. (United Merchants Corporation vs. Country Bankers
Insurance Corporation, G.R. No. 198588, July 11, 2012).

Q. When may an insurance contract be rescinded?

A. Accordingly, an insurer can exercise its right to rescind an insurance contract
when the following conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;

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2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insured’s control; and
5) the alteration increases the risk of loss.
In the case at bench, all these circumstances are present. It was clearly established
that the renewal policy stipulated that the insured properties were located at the
Sanyo factory; that PAP removed the properties without the consent of Malayan; and
that the alteration of the location increased the risk of loss. (Malayan Insurance
Company, Inc. v. PAP co., Ltd. (Philippine Branch), G.R. No. 200784, August 7, 2013).

Q. What is a suretyship agreement? What is the liability of a surety?

A.  Section 175 of the Insurance Code defines a suretyship as a contract or
agreement whereby a party, called the surety, guarantees the performance by
another party, called the principal or obligor, of an obligation or undertaking in favor
of a third party, called the obligee. It includes official recognizances, stipulations,
bonds or undertakings issued under Act 536, as amended.  Suretyship arises upon
the solidary binding of a person deemed the surety with the principal debtor, for
the purpose of fulfilling an obligation.  Such undertaking makes a surety agreement
an ancillary contract as it presupposes the existence of a principal contract.
Although the contract of a surety is in essence secondary only to a valid principal
obligation, the surety becomes liable for the debt or duty of another although it
possesses no direct or personal interest over the obligations nor does it receive any
benefit therefrom.  And notwithstanding the fact that the surety contract is
secondary to the principal obligation, the surety assumes liability as a regular party
to the undertaking.  (First Lepanto-Taisho Insurance Corporation (now known as FLT
Prime Insurance Corporation) vs. Chevron Philippines, inc. (formerly known as
Caltex Philippines, Inc.), G.R. No. 177839, January 18, 2012).

Q. When is a suretyship effective?

A. Sec. 177 of the Insurance Code provides: The surety is entitled to payment of the
premium as soon as the contract of suretyship or bond is perfected and delivered to
the obligor. No contract of suretyship or bonding shall be valid and binding unless
and until the premium therefor has been paid, except where the obligee has
accepted the bond, in which case the bond becomes valid and enforceable
irrespective of whether or not the premium has been paid by the obligor to the
surety: Provided, That if the contract of suretyship or bond is not accepted by, or
filed with the obligee, the surety shall collect only reasonable amount, not exceeding
fifty per centum of the premium due thereon as service fee plus the cost of stamps
or other taxes imposed for the issuance of the contract or bond: Provided, however,
That if the non-acceptance of the bond be due to the fault or negligence of the
surety, no such service fee, stamps or taxes shall be collected. (Country Bankers

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Insurance Corporation v. Antonio Lagman, G.R. No. 165487, July 13, 2011).

Q. If a loss is alleged to be an exception to the insurance coverage, who has the

burden of proving such exception?
A. An insurer who seeks to defeat a claim because of an exception or limitation in
the policy has the burden of establishing that the loss comes within the purview of
the exception or limitation. If loss is proved apparently within a contract
of insurance, the burden is upon the insurer to establish that the loss arose from a
cause of loss which is excepted or for which it is not liable, or from a cause which
limits its liability. In the present case, CBIC failed to discharge its primordial burden
of establishing that the damage or loss was caused by arson, a limitation in the
policy. (United Merchants Corporation vs. Country Bankers Insurance
Corporation, G.R. No. 198588, July 11, 2012)

Q. If Eisel Insurance presents a subrogation receipt in a case to recover from Randy

Lines, a common carrier that caused damage to Eisel Insurance’s client, may Randy
Lines avoid liability if Eisel Insurance fails to present the Insurance policy?
A. No. The presentation in evidence of the marine insurance policy is not
indispensable before the insurer may recover from the common carrier the insured
value of the lost cargo in the exercise of its subrogatory right. The subrogation
receipt, by itself, is sufficient to establish the amount paid to settle the insurance
claim. The right of subrogation accrues simply upon payment by the insurance
company of the insurance claim.  (Asian Terminals, Inc. v. Malayan Insurance, Co.,
Inc., G.R. No. 171406, April 4, 2011).

Same application of the doctrine: As a general rule, the marine insurance policy
needs to be presented in evidence before the insurer may recover the insured value
of the lost/damaged cargo in the exercise of its subrogatory right since it is the
legal basis of the insurer’s right to subrogation. Nevertheless, a marine insurance
policy is dispensable evidence in reimbursement claims instituted by the insurer
especially when a subrogation receipt has been executed between the insured and
the insurer. (Asian Terminals, Inc. v. First Lepanto-Taisho Insurance Corporation,
G.R. 185964, June 16, 2014).

Q. What are the kinds of interest for premium refund?

A. There are two kinds of interest monetary and compensatory. The former refers
to the compensation set by the parties for the use or forbearance of money and
shall not be due unless it has been expressly stated in writing while the latter refers
to the penalty of indemnity for damages imposed by law or by the courts. The
interest mentioned in Art 2209 and 2212 of the Civil Code applies to compensatory
interest. As a form of damages, compensatory interest is due only if the obligor is

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proven to have failed to comply with his obligation. (Sun Life of Canada v. Sandra
Tan Kit and Estate of the Deceased Norberto Tan Kit, G.R. No 183272, October 15,
2014)

Q. Marion imported rare collectible toys from Europe. Upon arrival of the ship
carrying the goods, it was discovered that the container of Marion’s goods got wet
with seawater. The goods were not severely damaged but their individual boxes and
packaging were damaged. Marion claims that she can still sell the goods but at a
lower price because collectors require the packaging to be intact. May Marion
recover even if no portion of the goods were lost?
A. Yes. Under Art 365 of the Code of Commerce, if the goods are rendered useless
for sale, consumption, or for the intended purpose, the consignee may reject the
goods and demand the payment of such goods at their market price on that day. In
case the damaged portion of the goods can be segregated from those delivered in
good condition, the consignee may reject those in damaged condition and accept
merely those which are in good condition. But if the consignee is able to prove that
it is impossible to use those goods which were delivered in good condition without
the others, then the entire shipment may be rejected. Thus the nature of damage
must be such that the goods are rendered useless for sale, consumption, or
intended purpose for the consignee to be able to validly reject them. On the other
hand, under Art 364 of the Code of Commerce, if the effect of damage on the goods
consisted merely of diminution in value, the carrier is bound to pay only the
difference between its price on that day and its depreciated value. (Loadstar
Shipping Company, Inc. and Loadstar International Shipping Company, Inc. v.
Malayan Insurance Company, G.R. 185565, November 26, 2014).

VI. Transportation Law

Contract of carriage as a contract of lease ( transport of persons and goods by land,
air and water) under Title V of the Civil Code; definition of contract of carriage of a
common carrier; distinguish from private carrier; degree of diligence required; when
liabilities may attach to common carriers and when may injured party’s claim may
be reduced due to contributory negligence; definition of proximate cause; liability
under the Warsaw Convention; liability under COGSA; when may jettison be resorted
to (review the kinds of averages in maritime accidents) ;what is maritime protest;
prescription period within which to file claims; instances when insurer may be
subrogated to the rights of the passenger and/or shipper; other than actual loss,
what other damages may be awarded.

Q. What is the dual concept of jurisdiction under the Warsaw convention?

A. Jurisdictio est potestas de publico introducta cum necessitate juris dicendi.
Jurisdiction is a power introduced for the public good, on account of the necessity

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of dispensing justice. Under Article 28(1) of the Warsaw Convention, the plaintiff
may bring the action for damages before
1. the court where the carrier is domiciled;
2. the court where the carrier has its principal place of business;
3. the court where the carrier has an establishment by which the contract has been
made; or
4. the court of the place of destination.ch
In other words, where the matter is governed by the Warsaw Convention, jurisdiction
takes on a dual concept. Jurisdiction in the international sense must be established
in accordance with Article 28(1) of the Warsaw Convention, following which the
jurisdiction of a particular court must be established pursuant to the applicable
domestic law. Only after the question of which court has jurisdiction is determined
will the issue of venue be taken up. (Lluillier v. British Airways, G.R. No. 171092,
March 15, 2010)
Take note that the Warsaw Convention has been amended by the Montreal
Agreement.

Q. What is the prescriptive period under the Carriage of Goods by Sea Act?
A. The COGSA is the applicable law for all contracts for carriage of goods by sea to
and from Philippine ports in foreign trade; it is thus the law that the Court shall
consider in the present case since the cargo was transported from Brazil to the
Philippines.
Under Section 3(6) of the COGSA, the carrier is discharged from liability for loss or
damage to the cargo unless the suit is brought within one year after delivery of the
goods or the date when the goods should have been delivered. Jurisprudence,
however, recognized the validity of an agreement between the carrier and the
shipper/consignee extending the one-year period to file a claim. (Benjamin Cua [Cua
Hian Tek] v. Wallem Philippines Shipping, Inc. and Advance Shipping
Corporation, G.R. No. 171337. July 11, 2012)

Q. What is the liability of a common carrier under Carriage of Goods by Sea?

A. It is to be noted that the Civil Code does not limit the liability of the common
carrier to a fixed amount per package. In all matters not regulated by the Civil Code,
the rights and obligations of common carriers are governed by the Code of
Commerce and special laws. Thus, the COGSA supplements the Civil Code by
establishing a provision limiting the carrier’s liability in the absence of a shipper’s
declaration of a higher value in the bill of lading.
In the present case, the shipper did not declare a higher valuation of the goods to be
shipped.

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In light of the foregoing, petitioner’s liability should be limited to $500 per steel
drum. In this case, as there was only one drum lost, private respondent is entitled to
receive only $500 as damages for the loss. In addition to said amount, as aptly held
by the trial court, an interest rate of 6% per annum should also be imposed, plus 25%
of the total sum as attorney’s fees.  (Unsworth Transportation International [Phils.],
Inc. vs. Court of Appeals and Pioneer Insurance and Surety Corporation, G.R. No.
166250, July 26, 2010).

Q. What is the prescription for a claim under Carriage of Goods by Sea Act?

A. Under Section 3 (6) of the Carriage of Goods by Sea Act, notice of loss or
damages must be filed within three days of delivery. Admittedly, respondent did not
comply with this provision.
Under the same provision, however, a failure to file a notice of claim within three
days will not bar recovery if a suit is nonetheless filed within one year from delivery
of the goods or from the date when the goods should have been delivered.
In Loadstar Shipping Co., Inc. v. Court of Appeals, the Court ruled that a claim is not
barred by prescription as long as the one-year period has not lapsed. Thus, in the
words of the ponente, Chief Justice Hilario G. Davide Jr.:   Inasmuch as neither the
Civil Code nor the Code of Commerce states a specific prescriptive period on the
matter, the Carriage of Goods by Sea Act (COGSA) which provides for a one-year
period of limitation on claims for loss of, or damage to, cargoes sustained during
transit may be applied suppletorily to the case at bar.  Wallem Philippines
Shipping, Inc. vs. S.R. Farms, Inc., G.R. No. 161849, July 9, 2010.

Q. What is a freight forwarder?

 A. The term freight forwarder refers to a firm holding itself out to the general
public (other than as a pipeline, rail, motor, or water carrier) to provide
transportation of property for compensation and, in the ordinary course  of  its
business, (1) to assemble and consolidate, or to provide for assembling and
consolidating, shipments, and to perform or provide for break-bulk and distribution
operations of the shipments; (2) to assume responsibility for the transportation of
goods from the place of receipt to the place of destination; and (3) to use for 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 Pioneer Insurance and Surety Corporation,G.R. No. 166250, July 26, 2010).

Q. What is the liability of a Freight forwarder?  A freight forwarder’s liability is limited

to 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 merely arranging for their transportation, it becomes liable as a common
carrier for loss or damage to goods. A freight forwarder assumes the responsibility

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of a carrier, which actually executes the transport, even though the forwarder does
not carry the merchandise itself.  Unsworth Transportation International (Phils.), Inc.
vs. Court of Appeals and Pioneer Insurance and Surety Corporation, G.R. No.
166250, July 26, 2010.

Q. Who may avail of the doctrine of Limited Liability?

A. The shipowner may avail of the doctrine of limited liability.
With respect to petitioners’ position that the Limited Liability Rule under the Code of
Commerce should be applied to them, the argument is misplaced. The said rule has
been explained to be that of the real and hypothecary doctrine in maritime law
where the shipowner or ship agent’s liability is held as merely co-extensive with his
interest in the vessel such that a total loss thereof results in its extinction. In this
jurisdiction, this rule is provided in three articles of the Code of Commerce. These
are:
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third
persons which may arise from the conduct of the captain in the care of the goods
which he loaded on the vessel; but he may exempt himself therefrom by abandoning
the vessel with all her equipment and the freight it may have earned during the
voyage.
Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their
interests in the common fund for the results of the acts of the captain referred to in
Art. 587.
Each co-owner may exempt himself from this liability by the abandonment, before a
notary, of the part of the vessel belonging to him.
Art. 837. The civil liability incurred by shipowners in the case prescribed in this
section, shall be understood as limited to the value of the vessel with all its
appurtenances and freightage served during the voyage.
Article 837 specifically applies to cases involving collision which is a necessary
consequence of the right to abandon the vessel given to the shipowner or ship agent
under the first provision Article 587. Similarly, Article 590 is a reiteration of Article
587, only this time the situation is that the vessel is co-owned by several persons.
Obviously, the forerunner of the Limited Liability Rule under the Code of Commerce
is Article 587. Now, the latter is quite clear on which indemnities may be confined or
restricted to the value of the vessel pursuant to the said Rule, and these are the
indemnities in favor of third persons which may arise from the conduct of the
captain in the care of the goods which he loaded on the vessel. Thus, what is
contemplated is the liability to third persons who may have dealt with the shipowner,
the agent or even the charterer in case of demise or bareboat charter.
The only person who could avail of this is the shipowner, Concepcion. He is the very
person whom the Limited Liability Rule has been conceived to protect.  The
petitioners cannot invoke this as a defense.  (Agustin P. Dela Torre v. The Hon.

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Court of Appeals, et al./Philippine Trigon Shipyard Corporation, et al. v. Crisostomo
G. Concepcion, et al., G.R. No. 160088/G.R. No. 160565, July 13, 2011)

Q. What is the liability of a charterer and a sub-charterer?

A. In the present case, the charterer and the sub-charterer through their respective
contracts of agreement/charter parties, obtained the use and service of the entire
LCT-Josephine. The vessel was likewise manned by the charterer and later by the
sub-charterer’s people. With the complete and exclusive relinquishment of
possession, command and navigation of the vessel, the charterer and later the
sub-charterer became the vessel’s owner pro hac vice. Now, and in the absence of
any showing that the vessel or any part thereof was commercially offered for use to
the public, the above agreements/charter parties are that of a private carriage where
the rights of the contracting parties are primarily defined and governed by the
stipulations in their contract.
Although certain statutory rights and obligations of charter parties are found in the
Code of Commerce, these provisions as correctly pointed out by the RTC, are not
applicable in the present case. Indeed, none of the provisions found in the Code of
Commerce deals with the specific rights and obligations between the real
shipowner and the charterer obtaining in this case. Necessarily, the Court looks to
the New Civil Code to supply the deficiency. In any case, all three petitioners are
liable under Article 1170 of the New Civil Code. (Agustin P. Dela Torre v. The Hon.
Court of Appeals, et al./Philippine Trigon Shipyard Corporation, et al. v. Crisostomo
G. Concepcion, et al., G.R. No. 160088/G.R. No. 160565, July 13, 2011)

Q. What is the Package Limitation Liability and Prescriptive Period under COGSA? Is
there an exception to these rules?
A. Under Sec. 4(5) of the COGSA, when the shipper fails to declare the value of the
goods in the bill of lading, neither the carrier nor the ship shall in any event be or
become liable for any loss or damage to or in connection with the transportation of
goods in an amount exceeding US$500 per package. Under Sec. 3(6) of the COGSA
which provides, among others, that the notice in writing need not be given if the
state of the goods has at the time of their receipt been the subject of joint survey or
inspection, and in any event the carrier and the ship shall be discharged from all
liability in respect of loss or damage unless suit is brought within one (1) year after
delivery of the goods or the date when the goods should have been delivered,
provided that if a notice of loss or damage, either apparent or concealed, is not
given, that fact shall not affect or prejudice the right of the shipper to bring suit
within one year after the delivery of the goods or the date when the goods should
have been delivered. Philam Insurance Company, Inc. v. Heung-A Shipping
Corporation and Wallem Philippines Shipping, Inc., G.R. No. 187701, July 23, 2014.

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Exception: Mere proof of the delivery of the goods in good order to a common
carrier and of their arrival in bad order at their destination constitutes a prima facie
case of fault or negligence against the carrier. If no adequate explanation is given as
to how the deterioration, loss, or destruction of the goods happened, the transporter
shall be held responsible. Eastern Shipping, Inc. v. BPI/MS Insurance Corporation
and Mitsui Sumitomo Insurance Co., Ltd. G.R. 193986, January 15, 2014

VII. Intellectual Property Law

What may protected under the Copyright Law: (original works and derivative works ;
limitations doctrine of fair use and copyright infringement); registration of
trademark (definition of marks, collective marks, trade names; prior use of mark as
requirement; tests to determine confusing or similar marks: dominancy test and
holistic test) ; what may covered by a patent (first to file rule and limitations of
patent rights prior user and use by government); what are the requisites of a
Technology Transfer Arrangements (ex. McDonalds USA has a Technology Transfer
Agreement with all Franchise Holders of McDonalds in the Philippines); in case of
infringement, what are the available remedies and what damages may be claimed.

Q. Is a trade name protected even without registration?

A. Under the Paris Convention, the Philippines is obligated to assure nationals of the
signatory-countries that they are afforded an effective protection against violation
of their intellectual property rights in the Philippines in the same way that their own
countries are obligated to accord similar protection to Philippine nationals. Thus,
under Philippine law, a trade name of a national of a State that is a party to the Paris
Convention, whether or not the trade name forms part of a trademark, is protected
without the obligation of filing or registration.’
The present law on trademarks, Republic Act No. 8293, otherwise known as the
Intellectual Property Code of the Philippines, as amended, has already dispensed
with the requirement of prior actual use at the time of registration. (Cole De Cuisine
Manille (Cordon Bleu of the Philippines), Inc. v. Renaud Cointreau & CIE and Le
Condron Bleu Int’l., B.V., G.R. No. 185830, June 5, 2013).

Q. What is a Mark for purposes of an infringement case?

 A. A mark is any visible sign capable of distinguishing the goods (trademark) or
services (service mark) of an enterprise and shall include a stamped or marked
container of goods.
In McDonald’s Corporation and McGeorge Food Industries, Inc. v. L.C. Big Mak
Burger, Inc., this Court held:
To establish trademark infringement, the following elements must be shown: (1) the

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validity of plaintiff’s mark; (2) the plaintiff’s ownership of the mark; and (3) the use of
the mark or its colorable imitation by the alleged infringer results in likelihood of
confusion.  Of these, it is the element of likelihood of confusion that is the
gravamen of trademark infringement.
A mark is valid if it is distinctive and not barred from registration.  Once registered,
not only the mark’s validity, but also the registrant’s 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,. November 23, 2011).

Q. What are the elements of infringement?

A. The essential element of infringement under R.A. No. 8293 is that the infringing
mark is likely to cause confusion. In determining similarity and likelihood of
confusion, jurisprudence has developed tests the Dominancy Test and the Holistic
or Totality Test. The Dominancy Test focuses on the similarity of the prevalent or
dominant features of the competing trademarks that might cause confusion,
mistake, and deception in the mind of the purchasing public. Duplication or imitation
is not necessary; neither is it required that the mark sought to be registered
suggests an effort to imitate. Given more consideration are the aural and visual
impressions created by the marks on the buyers of goods, giving little weight to
factors like prices, quality, sales outlets, and market segments.
In contrast, the Holistic or Totality Test necessitates a consideration of the entirety
of the 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 observer may draw conclusion on whether one is confusingly
similar to the other.
Relative to the question on confusion of marks and trade names, jurisprudence has
noted two (2) types of confusion, viz.: (1) confusion of goods (product confusion),
where the ordinarily prudent purchaser would be induced to purchase one product in
the belief that he was purchasing the other; and (2) confusion of business (source or
origin confusion), where, although the goods of the parties are different, the product,
the mark of which registration is applied for by one party, is such as might
reasonably be assumed to originate with the registrant of an earlier product, and the
public would then be deceived either into that belief or into the belief that there is
some connection between the two parties, though inexistent.
Applying the Dominancy Test to the case at bar, this Court finds that the use of the
stylized S by respondent in its Strong rubber shoes infringes on the mark already
registered by petitioner with the IPO. While it is undisputed that petitioner’s stylized
S is within an oval design, to this Court’s mind, the dominant feature of the
trademark is the stylized S, as it is precisely the stylized S which catches the eye
of the purchaser.  Thus, even if respondent did not use an oval design, the mere fact

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that it used the same stylized S , the same being the dominant feature of
petitioner’s trademark, already constitutes infringement under the Dominancy Test.
 (Skechers, U.S.A., Inc. vs. Inter Pacific Industrial Trading Corp., et al.,  G.R. No.
164321, March 28, 2011.)

Q. Is selling counterfeit cigarettes a form of infringement?

A. Yes. To establish trademark infringement, the following elements must be
shown: (1) the validity of plaintiffs mark; (2) the plaintiff’s ownership of the
mark; and (3) the use of the mark or its colorable imitation by the alleged
infringer results in likelihood of confusion. Of these, it is the element of
likelihood of confusion that is the gravamen of trademark infringement.

A mark is valid if it is distinctive and not barred from registration. Once registered,
not only the marks validity, but also the registrant’s ownership of the mark is prima
facie presumed. The prosecution was able to establish that the trademark Marlboro
was not only valid for being neither generic nor descriptive, it was also exclusively
owned by PMPI, as evidenced by the certificates of registration issued by the
Intellectual Property Office of the Department of Trade and Industry. Anent the
element of confusion, both the RTC and the Court of Appeals have correctly held
that the counterfeit cigarettes seized from Gamma’s possession were intended to
confuse and deceive the public as to the origin of the cigarettes intended to be sold,
as they not only bore PMPIs mark, but they were also packaged almost exactly as
PMPIs products. (Ong v. People, 2011)
Q. What are the rights of patentees?
A.  It is clear from Section 37 of Republic Act No. 165 that the exclusive right of a
patentee to make use and sell a patented product, article or process exists only
during the term of the patent. In the instant case, Philippine Letters Patent No.
21116, which was the basis of respondents in filing their complaint with the
BLA-IPO, was issued on July 16, 1987. This fact was admitted by respondents
themselves in their complaint. They also admitted that the validity of the said patent
is until July 16, 2004, which is in conformity with Section 21 of RA 165, providing
that the term of a patent shall be seventeen (17) years from the date of issuance
thereof. Section 4, Rule 129 of the Rules of Court provides that an admission, verbal
or written, made by a party in the course of the proceedings in the same case, does
not require proof and that the admission may be contradicted only by showing that it
was made through palpable mistake or that no such admission was made. In the
present case, there is no dispute as to respondents’ admission that the term of their
patent expired on July 16, 2004. Neither is there evidence to show that their
admission was made through palpable mistake. Hence, contrary to the
pronouncement of the CA, there is no longer any need to present evidence on the
issue of expiration of respondents’ patent.  Phil Pharmawealth, Inc. vs. Pfizer, Inc

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and Pfizer (Phil.) Inc., G.R. No. 167715, November 17, 2010.

Q. Is an internationally well-known mark protected in this jurisdiction?

A. Yes. There is no question then, and this Court so declares, that Harvard is a
well-known name and mark not only in the United States but also internationally,
including the Philippines. The mark Harvard is rated as one of the most famous
marks in the world. It has been registered in at least 50 countries. It has been used
and promoted extensively in numerous publications worldwide. It has established a
considerable goodwill worldwide since the founding of Harvard University more than
350 years ago. It is easily recognizable as the trade name and mark of Harvard
University of Cambridge, Massachusetts, U.S.A., internationally known as one of the
leading educational institutions in the world. As such, even before Harvard
University applied for registration of the mark Harvard in the Philippines, the mark
was already protected under Article 6bis and Article 8 of the Paris Convention.
Again, even without applying the Paris Convention, Harvard University can invoke
Section 4(a) of R.A. No. 166 which prohibits the registration of a mark which may
disparage or falsely suggest a connection with persons, living or dead, institutions,
beliefs x x x. ( Fredco Manufacturing Corporation vs. President and Fellows of
Harvard College (Harvard University), G.R. No. 185917, June 1, 2011.)

Q. EYIS is a domestic corporation engaged in the production,

distribution and sale of air compressors and other industrial tools and
equipment. On the other hand, Shen Dar is a Taiwan-based foreign
manufacturer of air compressors. From 1997 to 2004, EYIS imported air
compressors from Shen Dar. Both of them sought to register the mark
VESPA for use on air compressors, but it was Shen Dar who first filed
the application on June 1997. EYIS application was first granted on
2004, so Shen Dar sought for its cancellation on the ground of Sec 123
of the Intellectual Property Code which provides that the registration of
a similar mark is prevented with the filing of an earlier application for
registration. On the other hand, EYIS contended that Shen Dar is not
entitled to register the mark VESPA on its products because EYIS has
been using it as the sole assembler and distributor of air compressors
since the 1990s. EYIS was able to prove such fact. Who is the true
owner?
A. EYIS is the true owner because it is the prior and continuous user of
the mark VESPA. Section 123.1 of the IPC should not be interpreted to
mean that ownership is based upon an earlier filing date. While RA 8293
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removed the previous requirement of proof of actual use prior to the
filing of an application for registration of a mark, proof of prior and
continuous use is necessary to establish ownership of a mark.
Ownership of a mark or trade name may be acquired not necessarily by
registration but by adoption and use in trade or commerce. As between
actual use of a mark without registration, and registration of the mark
without actual use thereof, the former prevails over the latter. Hence,
EYIS is entitled to the registration of the mark in its name. (E.Y Industrial
Sales v. Shen Dar, G.R. 184850, 2010, penned by J. Velasco)

Q. Taiwan Kolin Corp sought to register the trademark KOLIN for the array of
goods it offers which are audio visual equipment. However, Kolin Electronics
opposed the application on the ground that  the trademark KOLIN is identical, if
not confusingly similar, with its registered trademark KOLIN which also covers its
products that fall under the category as devices for controlling the distribution and
use of electricity. Are the products closely related?
A. No, the products are not related and the use of the trademark KOLIN on them
would not likely cause confusion.  To confer exclusive use of a trademark, emphasis
should be on the similarity or relatedness of the goods and/or services involved and
not on the arbitrary classification or general description of their properties or
characteristics.
Taiwan Kolin’s goods are categorized as audio visual equipments, while Kolin
Electronics’ goods fall under devices for controlling the distribution and use of
electricity. Thus, it is erroneous to assume that all electronic products are closely
related and that the coverage of one electronic product necessarily precludes the
registration of a similar mark over another.
Second, the ordinarily intelligent buyer is not likely to be confused. The distinct
visual and aural differences between the two trademarks KOLIN , although appear
to be minimal, 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 purchase because the products involved are various kind of
electronic products which are relatively luxury items and not considered affordable.
They are not ordinarily consumable items such as soy sauce, ketsup or soap which
are of minimal cost. Hence, confusion is less likely. (Taiwan Kolin v. Kolin
Electronics, G.R. 209843, 2015, Velasco J.)
PLEASE NOTE OF THIS PORTION OF THE DECISION penned by Justice Velasco on
infringement:
In resolving one of the pivotal issues in this case whether or not the
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products of the parties involved are related the doctrine in Mighty
Corporation is authoritative. There, the Court held that the goods should
be tested against several factors before arriving at a sound conclusion
on the question of
relatedness. Among these are:
(a) the business (and its location) to which the goods belong;
(b) the class of product to which the goods belong
(c) the product’s quality, quantity, or size, including the nature of the
package, wrapper or container;
(d) the nature and cost of the articles;
(e) the descriptive properties, physical attributes or essential
characteristics with reference to their form, composition, texture or
quality;
(f) the purpose of the goods;
(g) whether the article is bought for immediate consumption, that is,
day-to-day household items;
(h) the fields of manufacture;
(i) the conditions under which the article is usually purchased; and
(j) the channels of trade through which the goods flow, how they are
distributed, marketed, displayed and sold. (Taiwan Kolin Corporation, Ltd. v.
Kolin Electronics Co., Inc. G.R. No. 209843 | March 25, 2015)

AMLA AMENDMENTS Annex A

The first section of the amending law added the following to the list of covered
persons under the AMLA. The amendment reads:
Section 3 (a). Covered persons’, natural or juridical, refer to:
(4) jewelry dealers in precious metals, who, as a business, trade in precious metals,
for transactions in excess of One million pesos (P1,000,000.00);
(5) jewelry dealers in precious stones, who, as a business, trade in precious stones,
for transactions in excess of One million pesos (P1,000,000.00);
(6) company service providers which, as a business, provide any of the following
services to third parties:
(i) acting as a formation agent of juridical persons;
(ii) acting as (or arranging for another person to act as) a director or corporate
secretary of a company, a partner of a partnership, or a similar position in relation to
other juridical persons;
(iii) providing a registered office, business address or accommodation,
correspondence or administrative address for a company, a partnership or any other
legal person or arrangement; and (iv) acting as (or arranging for another person to
act as) a nominee shareholder for another person; and

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(7) persons who provide any of the following services:
(i) managing of client money, securities or other assets;
(ii) management of bank, savings or securities accounts;
(iii) organization of contributions for the creation, operation or management of
companies; and
(iv) creation, operation or management of juridical persons or arrangements, and
buying and selling business entities.
Notwithstanding the foregoing, the term covered persons’ shall exclude lawyers
and accountants acting as independent legal professionals in relation to
information concerning their clients or where disclosure of information would
compromise client confidences or the attorney-client relationship: Provided, That
these lawyers and accountants are authorized to practice in the Philippines and
shall continue to be subject to the provisions of their respective codes of conduct
and/or professional responsibility or any of its amendments.

The following are the new predicate crimes (from 14 to 34):

Section 3(i). Unlawful activity’ refers to any act or omission or series or
combination thereof involving or having direct relation to the following:
(13) Terrorism and conspiracy to commit terrorism as defined and penalized under
Sections 3 and 4 of Republic Act No. 9372;
(14) Financing of terrorism under Section 4 and offenses punishable under Sections
5, 6, 7 and 8 of Republic Act No. 10168, otherwise known as the Terrorism Financing
Prevention and Suppression Act of 2012;
(15) Bribery under Articles 210, 211 and 211-A of the Revised Penal Code, as
amended, and Corruption of Public Officers under Article 212 of the Revised Penal
Code, as amended;
(16) Frauds and Illegal Exactions and Transactions under Articles 213, 214, 215 and
216 of the Revised Penal Code, as amended;
(17) Malversation of Public Funds and Property under Articles 217 and 222 of the
Revised Penal Code, as amended;
(18) Forgeries and Counterfeiting under Articles 163, 166, 167, 168, 169 and 176 of
the Revised Penal Code, as amended;
(19) Violations of Sections 4 to 6 of Republic Act No. 9208, otherwise known as the
Anti-Trafficking in Persons Act of 2003;
(20) Violations of Sections 78 to 79 of Chapter IV, of Presidential Decree No. 705,
otherwise known as the Revised Forestry Code of the Philippines, as amended;
(21) Violations of Sections 86 to 106 of Chapter VI, of Republic Act No. 8550,
otherwise known as the Philippine Fisheries Code of 1998;
(22) Violations of Sections 101 to 107, and 110 of Republic Act No. 7942, otherwise
known as the Philippine Mining Act of 1995;
(23) Violations of Section 27(c), (e), (f), (g) and (i), of Republic Act No. 9147,

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otherwise known as the Wildlife Resources Conservation and Protection Act;
(24) Violation of Section 7(b) of Republic Act No. 9072, otherwise known as the
National Caves and Cave Resources Management Protection Act;
(25) Violation of Republic Act No. 6539, otherwise known as the Anti-Carnapping
Act of 2002, as amended;
(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, Dealing In, Acquisition or Disposition of Firearms, Ammunition or
Explosives;
(27) Violation of Presidential Decree No. 1612, otherwise known as the Anti-Fencing
Law;
(28) Violation of Section 6 of Republic Act No. 8042, otherwise known as the
Migrant Workers and Overseas Filipinos Act of 1995, as amended by Republic Act
No. 10022;
(29) Violation of Republic Act No. 8293, otherwise known as the Intellectual
Property Code of the Philippines;
(30) Violation of Section 4 of Republic Act No. 9995, otherwise known as the
Anti-Photo and Video Voyeurism Act of 2009;
(31) Violation of Section 4 of Republic Act No. 9775, otherwise known as the
Anti-Child Pornography Act of 2009;
(32) Violations of Sections 5, 7, 8, 9, 10(c), (d) and (e), 11, 12 and 14 of Republic Act
No. 7610, otherwise known as the Special Protection of Children Against Abuse,
Exploitation and Discrimination;
(33) Fraudulent practices and other violations under Republic Act No. 8799,
otherwise known as the Securities Regulation Code of 2000; and
(34) Felonies or offenses of a similar nature that are punishable under the penal
laws of other countries.

Republic Act No. 10365 also amended the provisions of the AMLA on the ways by
which money laundering may be committed as well as the manner of its
prosecution. Firstly, money laundering may now be committed through the
following:

Section 4. Money Laundering Offense. Money laundering is committed by any

person who, knowing that any monetary instrument or property represents, involves,
or relates to the proceeds of any unlawful activity:
(a) transacts said monetary instrument or property;
(b) converts, transfers, disposes of, moves, acquires, possesses or uses said
monetary instrument or property;
(c) conceals or disguises the true nature, source, location, disposition, movement or
ownership of or rights with respect to said monetary instrument or property;

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(d) attempts or conspires to commit money laundering offenses referred to in
paragraphs (a), (b) or (c);
(e) aids, abets, assists in or counsels the commission of the money laundering
offenses referred to in paragraphs (a), (b) or (c) above; and
(f) performs or fails to perform any act as a result of which he facilitates the offense
of money laundering referred to in paragraphs (a), (b) or (c) above.
Money laundering is also committed by any covered person who, knowing that a
covered or suspicious transaction is required under this Act to be reported to the
Anti-Money Laundering Council (AMLC), fails to do so.
Parts (b), (c), (d), and (e) are new additions to the law. Hence, knowingly converting
or concealing a monetary instrument, including an attempt thereof, and assisting in
the commission of money-laundering now constitute the crime. Prior to the
amendment, only the act of transacting the monetary instrument or property is
made criminal in its attempted stage.
Secondly, the prosecution for the crime of money-laundering may now proceed
simultaneously with the case relating to the unlawful activity. The amending law
provided that both cases are now independent of each other.  Prior to the
amendment, the case involving the unlawful activity was given precedence.

The Anti-Money Laundering Council ( AMLC ) was also a given new function under
the amending law. Section 7 now reads:
Section 7. Creation of Anti-Money Laundering Council (AMLC). … The AMLC shall
act unanimously in the discharge of its functions as defined hereunder:
(12) to require the Land Registration Authority and all its Registries of Deeds to
submit to the AMLC, reports on all real estate transactions involving an amount in
excess of Five hundred thousand pesos (P500,000.00) within fifteen (15) days from
the date of registration of the transaction, in a form to be prescribed by the AMLC.
The AMLC may also require the Land Registration Authority and all its Registries of
Deeds to submit copies of relevant documents of all real estate transactions.
In addition to this, the power of the AMLC to apply for a freeze order before the
Court of Appeals now includes monetary instruments or properties alleged to be
laundered as well as instrumentalities used in or intended for use in any unlawful
activity. Prior to the amendment, the AMLC may obtain a freeze order only for
monetary instruments or properties alleged to be the proceeds of an unlawful
activity.
More on the freeze order, R.A. No. 10365 also extended its maximum effectiveness
period to six months provided that if no case is filed against the person whose
account has been frozen within the period determined by the court, the freeze order
will be automatically lifted. Note that the freeze order was previously effective only
for 20 days unless extended by the court. This new rule, however, shall not apply to
cases already pending before the courts.

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Section 7
The provisions of the amending law on prevention of money laundering include the
following amendments:
(1)  Covered persons must report covered and suspicious transactions to the AMLA
within five working days from the occurrence thereof, unless the AMLC prescribes a
different period not exceeding 15 working days. Before, the maximum period
provided by law was 10 days.
(2)  Lawyers and accountants acting as independent legal professionals are exempt
from the reporting requirement if the relevant information was obtained in
circumstances where they are subject to professional secrecy or legal professional
privilege. This is a new provision.
(3)  Covered persons as well as their officers and employers are prohibited from
communicating to any person or entity including the media the transactions about
to be reported to the AMLC. Prior to the amendment, the confidentiality clause
applied only to transactions already reported to the AMLC.
With the new amendments, other monetary instruments or properties having an
equivalent value to that of the monetary instrument or property found to be related
in any way to unlawful activity or a money laundering offense may now be forfeited
as an alternative. This arises when the latter, with due diligence, (1) cannot be
located, or (2) it has been substantially altered, destroyed, diminished in value or
otherwise rendered worthless by any act or omission, or (3) it has been concealed ,
removed, converted or otherwise transferred, or (4) it is located outside the
Philippines or has been placed or brought outside the jurisdiction of the court, or (5) 
it has been commingled with other monetary instrument or property belonging to
either the offender himself or a third person or entity, thereby rendering the same
difficult to identify or be segregated for purposes of forfeiture.
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 consideration the attendant circumstances, such as the nature and gravity of
the violation or irregularity.
While the amending law did not increase the penalties already provided for the
crime of money laundering, it nevertheless introduced penal sanctions for covered
persons, its directors, officers and personnel who knowingly participated in the
commission of the crime. Administrative sanctions are now also imposable upon
persons responsible for the violation of the AMLA.

Section 11
The last provision of R.A. No. 10365 added two new provisions to the AMLA:
Section. 20. Non-intervention in the Bureau of Internal Revenue (BIR) Operations.
Nothing contained in this Act nor in related antecedent laws or existing agreements

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shall be construed to allow the AMLC to participate in any manner in the operations
of the BIR.
Section. 21. The authority to inquire into or examine the main account and the
related accounts shall comply with the requirements of Article III, Sections 2 and 3
of the 1987 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 implementation of this Act.

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