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JURISTS BAR REVIEW CENTER

2016 Bar Exam Reminders


Commercial Law
Atty. Maria Zarah R. Villanueva-Castro

INSURANCE
What is an Endowment Policy?
An endowment policy is one where the insurer binds himself to pay a fixed sum to the insured if the latter
survives for a specified period, or, if he dies within such period, to some other person indicated (Lalican v.
Insular Life Assurance Company Ltd., G.R. No. 183526, August 25, 2009).
What is a Casualty Insurance?
Casualty insurance is insurance covering loss or liability arising from accident or mishap, excluding certain
types of loss which by law or custom are considered as falling exclusively within the scope of other types of
insurance such as fire or marine. It includes, but is not limited to, employer's liability insurance, motor vehicle
liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance
as written by non-life insurance companies, and other substantially similar kinds of insurance. (R.A. 10607, Sec.
176)
Explain the concept and purpose of subrogation.
Under Art. 2207 of the Civil Code, subrogation is the substitution of one person in the place of another with
reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation
to a debt or claim, including its remedies or securities.
Subrogation is designed to promote and to accomplish justice and is the mode which equity adopts to compel
the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay. The payment
by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies which the
insured may have against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of any privity of contract or upon payment by the
insurance company of the insurance claim. It accrues simply upon payment by the insurance company of the
insurance claim. (Asian Terminals, Inc. v. First Lepanto-Taisho Insurance Corporation, G.R. No. 185964, June
16, 2014)
Is non-presentation of the insurance contract fatal to the claim of the insurer/subrogee for the proceeds of
insurance?
As a general rule, the marine insurance policy needs to be presented in evidence before the insurer may
recover the value of the lost/damaged cargo in the exercise of its subrogatory right since it is the legal basis of
the insurers 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.
Thus, where the Certificate of Insurance and the Release of Claim presented as evidence sufficiently
established the insurers right to collect reimbursement as the subrogee of the consignee. To strictly require
the presentation of the insurance contract will run counter to the principle of equity upon which the doctrine
of subrogation is premised. (Asian Terminals, Inc. v. First Lepanto-Taisho Insurance Corporation, G.R. No.
185964, June 16, 2014)

Explain the no fault clause.


The injured third party or passenger or heirs of the deceased can file a claim for death or injury without the
necessity of proving fault or negligence of any kind.
2016 Bar Exam Reminders in Commercial Law by Atty. Maria Zarah V. Castro for Jurists Bar Review Center. All rights reserved
2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to
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How does the no fault clause operate?


1. The total indemnity in respect of any person shall not exceed fifteen thousand pesos.
2. The following proofs of loss, when submitted under oath, shall be sufficient evidence to substantiate the
claim: (a) Police report of accident; and (b) Death certificate and evidence sufficient to establish the
proper payee; or, Medical report and evidence or medical or hospital disbursement in respect of which
refund is claimed.
6. Claim may be made against one motor vehicle only.
Section 10 of the General Conditions of the CAR Policies provides that if a claim is in any respect fraudulent,
or if any false declaration is made or used in support thereof, or if any fraudulent means or devices are used
by the insured or anyone acting on his behalf to obtain any benefit under the policy, or if a claim is made and
rejected and no action or suit is commenced within twelve months after such rejection or, in case of
arbitration taking place as provided herein, within twelve months after the Arbitrators have made their
award, all benefit under the policy shall be forfeited. When does the twelve month period commence?
Case law illumines that the prescriptive period for the insureds action for indemnity should be reckoned from
the "final rejection" of the claim.
Final rejection" simply means denial by the insurer of the claims of the insured and not the rejection or denial
by the insurer of the insureds motion or request for reconsideration. The rejection referred to should be
construed as the rejection in the first instance. (H.H. Hollero Construction Inc. v. Government Service
Insurance System and Pool of Machinery Insurers, G.R. No. 152334, September 24, 2014)
The insurer gave notice that it was rescinding the policy due to concealment and simultaneous thereto,
tendered refund of premium. Should compensatory interest be paid also? Why?
As a form of damages, compensatory interest is due only if the obligor is proven to have failed to comply with
his obligation.
Compensatory interest has no basis where simultaneous to its giving of notice to the insured that it was
rescinding the policy due to concealment, the Insurer tendered the refund of premium by attaching to the said
notice a check representing the amount of refund but which offer the insured refused to accept since they
were seeking for the release of the proceeds of the policy, compensatory interest has no basis. There is no
delay here or unjustified denial of the claim. (Sun Life of Canada (Philippines), Inc. v. Sandra Tan Kit and the
Estate of the Deceased Norberto Tan Kit, G.R. No. 183272, October 15, 2014)
Section III of the insurance policy states that the Insurer shall not be liable for any malicious damage caused
by the Insured, any member of his family or by a person in the Insureds service. It turned out that the Insurer
instructed her driver to bring the said vehicle to a nearby auto shop for tune up. However, her driver never
returned and despite diligent efforts of finding the vehicle, the same could not be found. Is the Insurer still
liable?
Yes. Section III refers to the liability of the Insurer for loss of or damage to the vehicle in the enumerated cases
which includes theft. The exception only pertains to any malicious damage caused by the Insured, any member
of his family or by a person in the Insureds service. The words loss and damage mean different things. The
word loss refers to act or fact of losing, while the word damage means deterioration or injury to property.
The exception clearly refers to malicious damage and does not contemplate loss of property. Theft
perpetrated by the driver is not an exception to the coverage of the policy. (Alpha Insurance v. Castor, 2
September 2013)
Can the insured change the beneficiary designated in the policy?
The insured shall have the right to change the beneficiary he designated in the policy, unless he has expressly
waived this right in said policy. Notwithstanding the foregoing, in the event the insured does not change the
beneficiary during his lifetime, the designation shall be deemed irrevocable. (Sec. 11, RA 10607)
2016 Bar Exam Reminders in Commercial Law by Atty. Maria Zarah V. Castro for Jurists Bar Review Center. All rights reserved
2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to
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In what instances is the insured entitled to a return of premium?


Return of premium is allowed under the following provisions of RA 10607:
SEC. 80. A person insured is entitled to a return of premium, as follows:
(a) To the whole premium if no part of his interest in the thing insured be exposed to any of the
perils insured against;
(b) Where the insurance is made for a definite period of time and the insured surrenders his policy,
to such portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless a
short period rate has been agreed upon and appears on the face of the policy, after deducting from
the whole premium any claim for loss or damage under the policy which has previously accrued:
Provided, That no holder of a life insurance policy may avail himself of the privileges of this
paragraph without sufficient cause as otherwise provided by law.
SEC. 81. If a peril insured against has existed, and the insurer has been liable for any period, however
short, the insured is not entitled to return of premiums, so far as that particular risk is concerned.
SEC. 82. A person insured is entitled to a return of the premium when the contract is voidable, and
subsequently annulled under the provisions of the Civil Code; or on account of the fraud or
misrepresentation of the insurer, or of his agent, or on account of facts, or the existence of which the
insured was ignorant of without his fault; or when by any default of the insured other than actual
fraud, the insurer never incurred any liability under the policy.
A person insured is not entitled to a return of premium if the policy is annulled, rescinded or if a
claim is denied by reason of fraud.
SEC. 83. In case of an over insurance by several insurers other than life, the insured is entitled to a
ratable return of the premium, proportioned to the amount by which the aggregate sum insured in
all the policies exceeds the insurable value of the thing at risk.

Explain the concept of Microinsurance.


Microinsurance is a financial product or service that meets the risk protection needs of the poor where:
a. The amount of contributions, premiums, fees or charges, computed on a daily basis, does not exceed
seven and a half percent (7.5%) of the current daily minimum wage rate for nonagricultural workers in
Metro Manila; and
b. The maximum sum of guaranteed benefits is not more than one thousand (1000) times of the current
daily minimum wage rate for nonagricultural workers in Metro Manila (R.A. 10607, Sec. 187).
What is an All-Risk Policy?
An All-Risk Policy insures against all causes of conceivable loss or damage except when otherwise excluded or
when the loss or damage was due to fraud or intentional misconduct committed by the insured. The policy
covers all losses during the voyage whether or not arising from a marine peril. (New World International
Development [Phils.], Inc. v. Nyk-FilJapan Shipping Corp., et al./New World International
Development[Phils.], Inc. v. Seaboard-Eastern Insurance Co., Inc., G.R. Nos. 171468/174241, August 24,
2011)

TRANSPORTATION
Respondent operates a beach resort. In connection with this business, it has boats which ferry resort guests
and crew members. Is the Respondent a common carrier?
Yes. The definition of a common carrier in Article 1732 of the Civil Code makes no distinction between one
whose principal business activity is the carrying of persons or goods or both, and one who does such carrying
2016 Bar Exam Reminders in Commercial Law by Atty. Maria Zarah V. Castro for Jurists Bar Review Center. All rights reserved
2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to
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only as an ancillary activity (in local idiom, as a sideline). Its ferry services are so intertwined with its main
business as to be properly considered ancillary thereto. The constancy of respondents ferry services in its
resort operations is underscored by its having its own Coco Beach boats. And the tour packages it offers,
which include the ferry services, may be availed of by anyone who can afford to pay the same. These services
are thus available to the public. That Respondent does not charge a separate fee or fare for its ferry services is
of no moment. It would be imprudent to suppose that it provides said services at a loss. The Court is aware of
the practice of beach resort operators offering tour packages to factor the transportation fee in arriving at the
tour package price. That guests who opt not to avail of respondents ferry services pay the same amount is
likewise inconsequential. These guests may only be deemed to have overpaid. (Spouses Dante Cruz and
Leonora Cruz v. Sun Holidays, Inc., G.R. No. 186312, June 29, 2012)

Where should the plaintiff file a claim for damages under the Warsaw Convention?
The plaintiff may bring the action for damages before:
a. the court where carrier is domiciled;
b. the court where the carrier has its principal place of business;
c. the court where the carrier has an establishment by which the contract has been made; or
d. the court of the place of destination (Lhuillier v. British Airways, G.R. No. 171092, March 15, 2010).

What is the limit of liability under the COGSA?


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.
Thus, where there is a loss/damage to goods covered by contracts of carriage from a foreign port to a
Philippine port and there is an absence of a shippers declaration of the value of the goods in the bill of lading,
the rule on package limitation liability of US$500 per package shall apply. (Philam Insurance Company, Inc. v.
Heung-A Shipping Corporation and Wallem Philippines Shipping, Inc., G.R. No. 187701, July 23, 2014)
What is the prescriptive period for filing an action for lost/damaged goods under the COGSA? Is failure to file
notice of claim fatal to such action?
The prescriptive period for filing an action for lost/damaged goods governed by contracts of sea to and from
Philippine ports in foreign trade is governed by 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 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. Thus, failure to
comply with the notice requirement shall not affect or prejudice the right of the shipper to bring suit within
one year after the delivery of the goods. (Philam Insurance Company, Inc. v. Heung-A Shipping Corporation
and Wallem Philippines Shipping, Inc., G.R. No. 187701, July 23, 2014)

What is the exception to the package limitation of liability under the COGSA?
Under Sec. 4(5) of the COGSA, an amount recoverable in case of loss or damage shall not exceed US$500 per
package or per customary freight unless the nature and value of such goods have been declared by the
shipper before shipment and inserted in the bill of lading. The bills of lading represent the formal expression
of the parties rights, duties, and obligations. It is the best evidence of the intention of the parties which is to
be deciphered from the language used in the contract, not from the unilateral post facto assertions of one of
the parties or third parties who are strangers to the contract. Thus, when the terms of an agreement have
been reduced to writing, it is deemed to contain all the terms agreed upon and there can be, between the
parties and their successors-in-interest, no evidence of such terms other than the contents of the written
2016 Bar Exam Reminders in Commercial Law by Atty. Maria Zarah V. Castro for Jurists Bar Review Center. All rights reserved
2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to
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agreement. (Eastern Shipping Lines, Inc. v. BPI/MS Insurance Corporation and Mitsui Sumitomo Insurance
Co., Ltd., G.R. No. 182864, January 12, 2015)
The carrier was found liable for the entire amount of damages sustained where all the needed details were in
the invoice which contained the itemized list of goods shipped to the buyer, stating quantities, prices, shipping
charges, and all other details. Compliance with the requirement under the COGSA was attained by
incorporating the invoice, by way of reference, to the bill of lading and the due admission in evidence of the
invoice containing the description of the nature, value, and/or payment of freight charges. Furthermore, it is
unjust for the carrier to invoke the limitation when it is informed that the shipper paid the freight charges
corresponding to the value of the goods. (ibid)

Explain the Doctrine of Limited Liability.


The real and hypothecary nature of maritime law means that the liability of the carrier in connection with
losses related to maritime contracts is confined to the vessel, which is hypothecated for such obligations or
which stands as the guaranty for their settlement (Aboitiz Shipping Co. v. General Accident Fire and Life
Assurance Corp., G.R. No. 100446, January 21, 1993).

What are the exceptions to the Limited Liability Rule?


The following are exceptions to the Limited Liability Rule:
a. Where the injury or death to a passenger is due either to the fault of the shipowner, or to the
concurring negligence of the shipowner and the captain;
b. Vessel is not abandoned or there was no total loss;
c. In workmen's compensation claims;
d. There is an actual finding of negligence on the part of the vessel owner or agent;
e. Collision between two negligent vessels;
f. Where the vessel is insured;
g. Expenses for repairing, provisioning and equipping the vessel (Aboitiz Shipping v. General Accident
Fire and Life Assurance Co., G.R. No. 100446, January 21, 1993).

PRIVATE CORPORATIONS
State the instances involving solidary liability of directors/trustees and officers of the corporation.
Solidary liability with the corporation will attach in the following instances:
a. The director or trustee willfully and knowingly voted for or assented to a patently unlawful corporate
act;
b. The director or trustee was guilty of gross negligence or bad faith in directing corporate affairs;
c. The director or trustee acquired personal or pecuniary interest in conflict with his or her duties as
director or trustee (Corporation Code, Sec. 31);
d. The 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;
e. The director, trustee or officer has contractually agreed or stipulated to hold himself personally and
solidarily liable with the corporation; and
f. The director, trustee or officer is made, by specific provision of law, personally liable for his corporate
action. (Lanuza v. BF Corporation, G.R. No. 174938, October 1, 2014)

Explain the Doctrine of Apparent Authority.

2016 Bar Exam Reminders in Commercial Law by Atty. Maria Zarah V. Castro for Jurists Bar Review Center. All rights reserved
2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to
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If a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an
apparent authority, it holds him out to the public as possessing the power to do those acts; and thus, the
corporation will, as against anyone who is in good faith dealt with it through such agent, be estopped from
denying the agents authority (Lapu-lapu Foundation Inc. v. CA, G.R. No 126006, January 29, 2004).
Explain the control test.
Under the liberal rule or the control test, shares belonging to corporations or partnerships at least 60% of the
capital of which is owned by Filipino citizens shall be considered as of Philippine nationality, but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality. (Narra Nickel Mining and
Development Corporation v. Redmont Consolidated Mines Corporation, G.R. No. 195580, April 21, 2014)

What is the grandfather rule and when does it apply?


Under the strict rule or grandfather rule proper, if the percentage of the Filipino ownership in the corporation
or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted
as Philippine nationality. Thus, the combined totals in the investing corporation and the investee corporation
must be traced, i.e., "grandfathered", to determine the total percentage of Filipino ownership. The ultimate
Filipino ownership of the shares must first be traced to the level of the investing corporation and added to the
shares directly owned in the investee corporation.
The Grandfather Rule applies only when the 60-40 Filipino-foreign equity ownership is in doubt e.g. in cases
where the joint venture corporation with Filipino and foreign stockholders with less than 60% Filipino
stockholdings invests in other joint venture corporation which is either 60-40% Filipino-alien or the 59% less
Filipino. Thus, where the 60-40 Filipino-foreign equity ownership is not in doubt, the Grandfather Rule will not
apply. (Narra Nickel Mining and Development Corporation v. Redmont Consolidated Mines Corporation, G.R.
No. 195580, April 21, 2014)
When is there doubt in the 60-40 equity ownership and thus the Grandfather Rule will be resorted to?
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 of Art. XII of the 1987 Constitution entitled to undertake the
exploration, development, and utilization of the natural resources of the Philippines. The Grandfather Rule is
only resorted to when there exist a doubt in the 60-40 equity ownership in the corporation. Doubt refers
to various indicia that the beneficial ownership and control of the corporation do not in fact reside in
Filipino shareholders but in foreign stakeholders. Significant indicators of the dummy status are the following:
(1) that the foreign investors provide practically all the funds for the joint investment undertaken by these
Filipino businessmen and their foreign partner; (2) that the foreign investors undertake to provide practically
all the technological support for the joint venture; and (3) that the foreign investors, while being minority
stockholders, manage the company and prepare all economic viability studies. (Narra Nickel Mining and
Development Corporation v. Redmont Consolidated Mines Corporation, G.R. No. 195580, April 21, 2014)
Thus, non-payment by some subscribers of their shares in the partly nationalized company creates serious
doubt as to the true extent of control and ownership by Filipinos over the corporation. (ibid)
Does the Panel of Arbitrators (POA) of the DENR have jurisdiction to pass nationality of applications for
Mineral Production Sharing Agreement (MPSA)?
The POA has exclusive and original jurisdiction over any and all disputes involving rights to mining areas. One
such dispute is an MPSA application to which an adverse claim, protest or opposition is filed by another
interested applicant.
The same approach used in ejectment and unlawful detainer cases is applicable here. The jurisdiction of the
Municipal Trial Courts to make a preliminary adjudication regarding ownership of the real property involved is
allowed, but only for purposes of ruling on the determinative issue of material possession. (Narra Nickel
Mining and Development Corporation v. Redmont Consolidated Mines Corporation, G.R. No. 195580,
January 28, 2015)

2016 Bar Exam Reminders in Commercial Law by Atty. Maria Zarah V. Castro for Jurists Bar Review Center. All rights reserved
2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to
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Ola, Inc. offered a compromise agreement on its tax obligations to the CIR but this was rejected by the latter.
A final demand to pay was made to Ola and Olo with a warning that the Bureau of Customs would not issue
any clearance to Olo from the National Power Corporation unless Olos tax liability be first paid and a
performance bond be posted by Ola or Olo to secure the payment of any adjustments of the liabilities. This
thus shifted the imposition of the liability from Ola to Olo prompting the latter to formally protest the
assessment on the ground that it was not the party liable for the assessed deficiency taxes. It appears that
the main reason why Olo is being pursued by the CIR is because Ola and Olo had interlocking directors and
Ola was manifested to be 100% owned by Ola. Will the doctrine of piercing the veil of corporate entity apply
here?
In this case, the doctrine of piercing the corporate veil has no application because the Commissioner of
Customs did not establish that Olo had been set up to avoid the payment of taxes or duties or for purposes
that would defeat public convenience, justify wrong, protect fraud, defend crime, confuse legitimate legal or
judicial issues, perpetrate deception or otherwise circumvent the law. The Commissioner of Customs sought
to collect the deficiency taxes and duties from Ola and it was only when Ola offered a compromise when the
CIR sent the demand letter to both Ola and Olo. The failure of the CIR to pursue the remedies against Olo from
the outset manifested that its belated pursuit of Olo was only an afterthought. (Commissioner of Customs
v. Oilink International Corporation G.R. No. 161759, July 2, 2014)
What is the consequence of piercing the corporate veil?
When corporate veil is pierced, the corporation and persons who are normally treated as distinct from the
corporation are treated as one person, such that when the corporation is adjudged liable, these persons, too,
become liable as if they were the corporation. (Gerardo Lanuza, Jr. and Antonio Olbes v. BF Corporatio, G.R.
No. 174938, October 1, 2014)

What is a derivative suit?


A derivative suit is one filed by the stockholder on behalf of a corporation when the acts complained of
constitute a wrong to the corporation itself committed by the directors or trusteems themselves, a
stockholder, or member. Thus, an individual stockholder is permitted to institute a derivative suit on behalf of
the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever officials of
the corporation refuse to sue or are the ones to be sued or hold the control of the corporation. In such actions,
the suing stockholder is regarded as the nominal party, with the corporation as the party in interest. (Nestor
Ching and Andrew Wellington v. Subic Bay Golf and Country Club, Inc., G.R. No. 174353, September 10, 2014)
What are the requirements for derivative suits?
Under Sec. 1 of Rule 8 of the Interim Rules imposes the following requirements for derivative suits: (1) he was
a stockholder or member at the time the acts or transactions subject of the actions occurred and at the time
the action was filed; (2) he exerted all reasonable efforts and alleges the same with particularity in the
complaint, to exhaust all remedies available under the articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain the relief he desires; no appraisal rights are available for
the act or acts complaint of; and the suit is not a nuisance or harassment suit. (Nestor Ching and Andrew
Wellington v. Subic Bay Golf and Country Club, Inc., G.R. No. 174353, September 10, 2014)

What are the elements for piercing the corporate veil based on the alter ego theory?
Piercing the corporate veil based on the alter ego theory requires the concurrence of three elements, namely:
(a) control of finances, 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; (b) 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 plaintiffs legal right; and
(c) such control and breach of duty must have proximately caused the injury or unjust loss complained of.

2016 Bar Exam Reminders in Commercial Law by Atty. Maria Zarah V. Castro for Jurists Bar Review Center. All rights reserved
2016 by Jurists Review Center Inc. Unauthorized reproduction, use, or dissemination is strictly prohibited and shall be prosecuted to
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(WPM International Trading, Inc. and Warlito Manlapaz v. Fe Corazon Labayen, G.R. No. 182770, September
17, 2014)

When should a management committee/receiver be appointed?


A corporation may be placed under receivership, or management committees may be created to preserve
properties involved in a suit and to protect the rights of the parties under the control and supervision of the
court. Management committees and receivers are appointed when the corporation is in imminent danger of
(a) dissipation, loss, wastage or destruction of assets or other properties; and (b) paralysation of its business
operations that may be prejudicial to the interest of the minority stockholders, parties-litigants, or the general
public. (Alfredo Villamor, Jr. v. John Umale, G.R. No. 172843, September 24, 2014)

Does the Court of Appeals have the power to appoint a receiver or a management committee?
The Court of Appeals has no power to appoint a receiver or management committee. The Regional Trial Court
has original and exclusive jurisdiction to hear and decide intra-corporate controversies, including incidents of
such controversies. These incidents include applications for the appointment of receivers or management
committees. The receiver and members of the management committee are considered officers of the court
and shall be under its control and supervision. They are required to report tothe court on the status of the
corporation within sixty (60) days from their appointment and every three (3) months after. (Alfredo Villamor,
Jr. v. John Umale, G.R. No. 172843, September 24, 2014)

Wasabi Bank sold assets to Katsu Bank in consideration of the latters assumption of liabilities of Wasabi
Bank. Is this a case of merger?
No. 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. 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. Under Sec. 79 of the Corporation Code, the merger shall be effective only
upon the issuance by the Securities and Exchange Commission (SEC) of a certificate of merger.
In this case, there is no merger. Wasabi and Katsu remained separate corporations with distinct corporate
personalities. What happened is that Wasabi sold and Katsu purchased identified recorded assets of Wasabi in
consideration of Katsus assumption of identified recorded liabilities of Wasabi. (Bank of Commerce v. Radio
Philippines Network, Inc., G.R. No. 195615, April 23, 2014)

The RTC held that refusing to allow inspection of the stock and transfer book, as opposed to refusing
examination of other corporate records, is not punishable as an offense under the Corporation Code. Is this
correct?
Sec. 74 of the Corporation Code deals with the books a corporation is required to keep. Sec. 144 of the
Corporation Code is the general penal provision of the Corporation Code. While Sec. 74 expressly mentions the
application of Sec. 144 only in relation to the act of "refusing to allow any director, trustees, stockholder or
member of the corporation to examine and copy excerpts from the corporation's records or minutes, the
same does not mean that the latter section no longer applies to any other possible violations of the former
section. Sec. 144 already purports to penalize "violations" of "any provision" of the Corporation Code "not
otherwise specifically penalized therein". Thus, while Sec. 74 expressly mentions the application of Sec. 144
only to a specific act but not with respect to the other possible violations of the former section, there is an
unequivocal intent of the legislature to penalize violations of a parallel right, e.g. the right of a stockholder or
member to examine the other records and minutes of a corporation under Sec. 74(2). The refusal to allow
inspection of the stock and transfer book, when done in violation of Sec. 74(4), properly falls within the

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purview of Sec.144 and may be penalized as an offense. (Aderito Yujuico and Bonifacio Sumbilla v. Cezar
Quiambao and Eric Pilapil, G.R. No. 180416, June 2, 2014)
What is the Two-Tiered Test for the PCGGs right to vote sequestered shares?
The Two-Tiered Test provides:
a. There is prima facie evidence showing that the said shares are ill-gotten and thus belong to the State;
and
b. There is an imminent danger of dissipation, thus necessitating the continued sequestration of the
shares and authority to vote thereupon by the PCGG while the main issue is pending before the
Sandiganbayan (Trans Middle East v. Sandiganbayan, G.R. No. 172556, June 9, 2006).

What is the period to liquidate the assets of a dissolved corporation? Can it still sue and be sued after its
dissolution?
The time during which the corporation, through its own officers, may conduct the liquidation of its assets and
sue and be sued as a corporation is limited to three (3) years from the time the period of dissolution
commences; but there is no time limit within which the trustees must complete a liquidation placed in their
hands. It is provided only that the conveyance to the trustees must be made within the three (3) year period
(Alabang Devt Corp. v. Alabang Hills Village Association, G.R. No. 187456, June 2, 2014).

In what cases is the buyer of the assets liable for the debts of the selling company?
As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling
corporation, provided the former acted in good faith and paid adequate consideration for such assets, except
when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to
assume the debts; (2) where the transaction amounts to a consolidation or merger of the corporations; (3)
where the purchasing corporation is merely a continuation of the selling corporation; and (4) where the selling
corporation fraudulently enters into the transaction to escape liability for those debts. (Ma. Corina C. Jiao, et.
al. v. National Labor Relations Commission, Global Business Bank, Inc., et. al. , G.R. No. 182331, April 18,
2012)

SECURITIES REGULATIONS CODE


What are the cases that were transferred from the jurisdiction of the SEC to the RTC?
They are as follows:
a. Devices or schemes employed by, or any act of, the board of directors, business associates, its officers
or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of
the public and/or of the stockholders, partners, or members of associations registered with the
Commission;
b. Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members or associates; between any or all of them and the corporation, partnership or
association and the State insofar as it concerns their individual franchise or right as such entity;
c. Controversies in the election or appointment of directors, trustees, officers or managers of such
corporations, partnership or associations;
d. Petitioners of corporations, partnerships or associations to be declared in the state of suspension of
payment in cases where the corporation, partnership or association possesses sufficient property to
cover all its debts but foresees the impossibility of meeting them when they fall due or in cases where
the corporation, partnership or association has no sufficient assets to cover its liabilities but is under
the management of a rehabilitation receiver or management committee created pursuant to this
Decree (Yujuico v. Quiambao, G.R. No. 168639, January 29, 2007).

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Can the SEC issue a Cease and Desist Order even without prior notice or formal charge against the company?
Yes. Under Sec. 64 of the SRC, a cease and desist order may be issued by the SEC motu propio, 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. Securities and Exchange Commission, G.R. No. 193791,
August 6, 2014)
It was sufficient that the company was amply apprised of the results of the SEC investigation and then given
the reasonable opportunity to present its defense xxx. A formal trial or hearing is not necessary to comply with
the requirements of due process. Its essence is simply the opportunity to explain ones position. (ibid)
What are Pre-Need Plans?
Pre-Need Plans are contracts which provide for the performance of future services or the payment of future
monetary considerations at the time of actual need, for which planholders pay in cash or installment at stated
prices, with or without interest or insurance coverage and includes life, pension, education, interment, and
other plans which the Commission may from time to time approve. (Sec. 3.9, SRC)
What are the rules on Pre-Need Plans?
The Securities Regulation Code (SRC), particularly Section 16 reads:
Section 16. Pre-Need Plans. No person shall sell or offer for sale to the public any pre-need plan
except in accordance with rules and regulations which the Commission shall prescribe. Such rules
shall regulate the sale of pre-need plans by, among other things, requiring the registration of preneed plans, licensing persons involved in the sale of pre-need plans, requiring disclosures to
prospective plan holders, prescribing advertising guidelines, providing for uniform accounting
system, reports and record keeping with respect to such plans, imposing capital, bonding and other
financial responsibility and establishing trust funds for the payment of benefits under such plans.

Further, the New Rules on the Registration and Sale of Pre-Need Plans, specifically Rule Nos. 3 and 15 thereof,
provides:
Rule 3. Registration of Pre-Need Plans. No corporation shall issue, offer for sale, or sell PreNeedPlans unless such plans shall have been registered under Rule 4.
15.1. Any issuer selling its own Pre-Need Plans shall be deemed a dealer in securities and shall be
required to be registered as such and comply with all the provisions hereof; provided that the
issuer selling different types of Pre-Need Plans shall be required to be registered as dealer only
once for the different types of plans.

What is an uncertificated security?


An uncertificated security is a security evidenced by electronic or similar records. (Sec. 3.14, SRC)
Who are insiders?
Insider means: (a) the issuer; (b) a director or officer (or person performing similar functions) of, or a person
controlling the issuer; (c) a person whose relationship or former relationship to the issuer gives or gave him
access to material information about the issuer or the security that is not generally available to the public; (d) a
government employee, or director, or officer of an exchange, clearing agency and/or self-regulatory
organization who has access to material information about an issuer or a security that is not generally available

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to the public; or (e) a person who learns such information by a communication from any of the foregoing
insiders. (Sec. 3.8, SRC)
Explain Insider Trading.
It shall be unlawful for an insider to sell or buy a security of the issuer, while in possession of material
information with respect to the issuer or the security that is not generally available to the public (SRC, Sec.
27.1).
Which body has jurisdiction over validation of proxies involving the existence of quorum for the election of
directors?
The Securities and Exchange Commission (SEC) has jurisdiction. 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. The conferment of original and exclusive jurisdiction on the regular courts over such
controversies in the election of corporate directors must be seen as intended to confine to one body the
adjudication of all related claims and controversy arising from the election of such directors. Thus, it is
indubitable that controversies as to the qualification of voting shares, or the validity of votes cast in favor of a
candidate for election to the board of directors are properly cognizable and adjudicable by the regular courts
exercising original and exclusive jurisdiction over election cases. (Securities and Exchange Commission v.
Court of Appeals, G.R. No. 187702, October 22, 2014)
Is is argued that the Sandiganbayan has jurisdiction over a stockholders suit to enforce its rights of
inspection under the Corporation Code where the company subject matter of the complaint is sequestered.
Decide.
It is the RTC and not the Sandiganbayan which has jurisdiction over cases which do not involve a sequestrationrelated incident but an intra-corporate controversy. (Roberto Abad v. Philippine Communications Satellite
Corporation, G.R. No. 200620, March 18, 2015)
Sec. 2 of E.O. 14 has no application simply because the subject matter involved was an intra-corporate
controversy, not any incidents arising from, incidental to, or related to any case involving assets whose nature
as ill-gotten wealth was yet to be determined. (ibid)

What are the elements of an Investment Contract under the Howey Test?
Under the Howey Test, the elements of an investment contract are:
a. A contract, transaction, or scheme;
b. An investment of money;
c. Investment is made in a common enterprise;
d. Expectation of profits; and
e. Profits arising primarily from the efforts of others (SEC v. Prosperity Com. Inc., G.R. No. 164197,
January 25, 2012).

BANKING
Is the Monetary Board (MB) empowered to forbid a bank from doing business and place it under receivership
without prior notice and hearing? Is its power limited only to supervision and management take-over of
banks and as such, the same does not cover receivership?
The MB may forbid a bank from doing business and place it under receivership without prior notice and
hearing as it is not necessary inasmuch as under Sec. 30 of R.A. No. 7653, the MB was entrusted with the

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appreciation and determination of whether any or all of the statutory grounds for the closure and receivership
of the erring bank are present.
This "close now, hear later" doctrine has already been justified as a measure for the protection of the public
interest. xxx placing a bank under receivership would effectively put a stop to the further draining of its assets.
(Vivas v. Monetary Board of the Bangko Sentral ng Pilipinas, 7 August 2013)

The creditors of Soba, Inc., a corporation which was declared insolvent signed a compromise agreement
which contains a waiver of confidentiality of Sobas bank accounts. Is the waiver valid?
No. 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.
There was no written consent given by Soba or its representative that Soba is waiving the confidentiality of its
bank deposits. Soba is not bound by the said provision since it was without the express consent of Soba who
was not a party and signatory to the said agreement. (Doa Adela Export International, Inc. v. Trade and
Investment Development Corporation and the Bank of the Philippine Islands, G.R. No. 201931, February 11,
2015)

Explain the Rule on Secrecy of Bank Deposits.


The general rule is that all deposits of whatever nature with banks or banking institutions in the Philippines
including investments in bonds issued by the Government of the Philippines, its political subdivisions and its
instrumentalities, are hereby considered as absolutely confidential in nature and may not be examined,
inquired, or looked into by any person, government official, bureau or office (LSB, Sec. 2).
The exceptions are:
a. When there is written permission of the depositor or investor (LSB, Sec. 2);
b. Impeachment cases (LSB, Sec. 2);
c. Upon the order of a competent court in cases of impeachment of the President, Vice President,
members of the Supreme Court, members of the Constitutional Commission and the Ombudsman for
culpable violation of the Constitution, treason, bribery, graft and corruption, other high crimes or
betrayal of public trust (LSB, Sec. 2);
d. Upon the order of a competent court in cases where the money deposited or invested is the subject of
litigation (LSB, Sec. 2);
e. In case of prosecution of unexplained wealth under the Anti-Graft and Corrupt Practices Act (RA 3019);
f. In case of inquiry of the BIR of bank accounts of a decedent for real estate tax purposes or in case of a
tax compromise (NIRC, Sec. 6 [f]);
g. Upon order of a competent court in cases of violation of the AMLA (RA 10167, Sec. 2)
h. Incidental disclosures of unclaimed balances under the Unclaimed Balances Law (RA 3696, Sec. 2);
i. DOSRI loans and periodic examinations by the BSP (R.A. 7653, Sec. 25);
j. Account of a foreign transient who raped a minor, escaped and was made liable for damages to the
victim (Salvacion v. Central Bank of the Philippines, G.R. No. 97423, August 21, 1997);
k. Upon order of the CA authorizing law enforcement officers to examine and gather information on the
deposits, placements, trust accounts, assets and records in a financial institution in connection with
anti-terrorism case under the Human Security Act (R.A. No. 9372).
l. Examination of deposits of persons charged with the crime of plunder (Ejercito v. Sandiganbayan, G.R.
No. 157294-95, Nov. 30, 2006).
What is the relationship between credit card issuer and credit card holder?
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

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shown to have acted fraudulently or in bad faith (BPI Express Card Co. v. Armovit, G.R. No. 163654, October 8,
2014).

Distinguish between: Equity of Redemption and Right of Redemption.


The right of redemption in relation to a mortgage exists only in the case of the extrajudicial foreclosure of the
mortgage. No such right is recognized in a judicial foreclosure except only where the mortgagee is bank or
banking institution. The period to exercise the right of redemption is within one year from the registration of
the sheriffs certificate of foreclosure sale.
Where no right of redemption exists in case of a judicial foreclosure because the mortgagee is not a bank or
banking institution, the foreclosure sale when confirmed by an order of the court shall operate to divest the
rights of all parties to the action and to vest their rights in the purchaser. There then exists only what is simply
known as the equity of redemption.
The equity of redemption is simply the right of the defendant mortgagor to extinguish the mortgage and retain
ownership of the property by paying the secured debt within the 90-day period after the judgment becomes
final, in accordance with Rule 68 of the Rules of Court, or even after the foreclosure sale, but prior to
confirmation (Huerta Alba Resort, Inc. vs. CA, September 1, 2000, G.R. No. 128567).

ANTI-MONEY LAUNDERING
What is Money Laundering?
Money laundering is a crime whereby the proceeds of an unlawful activity are transacted, thereby making
them appear to have originated from legitimate sources. It is committed by the following:
(a) Any person knowing that any monetary instrument or property represents, involves, or relates to, the
proceeds of any unlawful activity, transacts or attempts to transact said monetary instrument or
property.
(b) Any person knowing that any monetary instrument or property involves the proceeds of any unlawful
activity, performs or fails to perform any act as a result of which he facilitates the offense of money
laundering referred to in paragraph (a) above.
(c) Any person knowing that any monetary instrument or property is required under this Act to be
disclosed and filed with the Anti-Money Laundering Council (AMLC), fails to do so. (Sec. 4, RA 9160)
What is a Covered Transaction?
"Covered Transaction" is a transaction in cash or other equivalent monetary instrument involving a total
amount in excess of five hundred thousand pesos (php500,000.00) within one (1) banking day. (Rule [3][b],
Revised IRR of RA 9160, as amended by R.A. No. 9194)
What are Suspicious Transactions?
Suspicious transactions are transactions, regardless of amount, where any of the following circumstances
exists:
1.
2.
3.
4.

there is no underlying legal or trade obligation, purpose or economic justification;


the client is not properly identified;
the amount involved is not commensurate with the business or financial capacity of the client;
taking into account all known circumstances, it may be perceived that the client's transaction is
structured in order to avoid being the subject of reporting requirements under the act;
5. any circumstance relating to the transaction which is observed to deviate from the profile of the client
and/or the client's past transactions with the covered institution;
6. the transaction is in any way related to an unlawful activity or any money laundering activity or offense
under this act that is about to be, is being or has been committed; or

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7. any transaction that is similar, analogous or identical to any of the foregoing. (Rule 3[b][1] Revised IRR
of RA 9160, as amended by R.A. No. 9194)
Explain the Safe Harbor Provision.
When reporting covered transactions to the AMLC, covered institutions and their officers, employees,
representatives, agents, advisors, consultants or associates shall not be deemed to have violated Republic Act
No. 1405, as amended; Republic Act No. 6426, as amended; Republic Act No. 8791 and other similar laws, but
are prohibited from communicating, directly or indirectly, in any manner or by any means, to any person the
fact that a covered transaction report was made, the contents thereof, or any other information in relation
thereto. (Sec. 9, RA 9160)
What are the requisites for the issuance of a freeze order?
There are only two requisites for the issuance of a freeze order: (1) the application ex parte by the AMLC and
(2) the determination of probable cause by the CA. The probable cause required for the issuance of a freeze
order differs from the probable cause required for the institution of a criminal action, and the latter was not an
issue before the CA nor is it an issue before us in this case.
In resolving the issue of whether probable cause exists, the CAs statutorily-guided determinations focus is not
on the probable commission of an unlawful activity (or money laundering) xxx, but on whether the bank
accounts, assets, or other monetary instruments sought to be frozen are in any way related to any of the illegal
activities enumerated under RA No. 9160, as amended.
Thus, a freeze order is not dependent on a separate criminal charge, much less does it depend on a conviction.
(Ligot vs. Republic, 6 March 2013)
What is the period of the freeze order?
Upon determination that probable cause exists that any deposit or similar account is in any way related to an
unlawful activity, the AMLC may issue a freeze order, which shall be effective immediately, on the account for
a period not exceeding fifteen (15) days. (Sec. 10, RA 9160)
Which court can issue a TRO or injunction against a freeze order issued by the AMLC?
No court shall issue a temporary restraining order or writ of injunction against any freeze order issued by the
AMLC except the Court of Appeals or the Supreme Court. (Sec. 10, RA 9160)

INTELLECTUAL PROPERTY
What is the doctrine of equivalents?
It means that despite some modification, a device infringes an invention if it performs substantially the same
function in substantially the same way to achieve substantially the same result. (Godines v. CA, 226 SCRA 338)

What is the term of registration of an industrial design? Is registration renewable?


The Intellectual Property Code provides:
The registration of an industrial design shall be for a period of five (5) years from the filing date of the
application. (Sec. 118, IPC) The registration of an industrial design may be renewed for not more than
two (2) consecutive periods of five (5) years each, by paying the renewal fee. (Sec. 118.2, IPC)

What are the rights of broadcasting organizations on their broadcasts?


Broadcasting organizations shall enjoy the exclusive right to carry out, authorize or prevent any of the
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following acts:
(1) The rebroadcasting of their broadcasts;
(2) The recording in any manner, including the making of films or the use of video tape, of their broadcasts for the
purpose of communication to the public of television broadcasts of the same; and
(3) The use of such records for fresh transmissions or for fresh recording. (Section 211, IPC)

Is a news report expressed in a video footage entitled to copyright protection?


News, as expressed in a video footage, is entitled to copyright protection. Broadcasting organizations have not
only copyright on but also neighboring rights over their broadcasts. Copyrightability of a work is different from
fair use of a work for purposes of news reporting (ABS-CBN Co. v. Gozon, G.R. No. 195956, March 11, 2015).

What are the mandatory provisions to be included in voluntary license contracts involving patents?
The following provisions shall be included in voluntary license contracts:
(1) That the laws of the Philippines shall govern the interpretation of the same and in the event of litigation, the
venue shall be the proper court in the place where the licensee has its principal office;
(2) Continued access to improvements in techniques and processes related to the technology shall be made
available during the period of the technology transfer arrangement;
(3) In the event the technology transfer arrangement shall provide for arbitration, the Procedure of Arbitration of
the Arbitration Law of the Philippines or the Arbitration Rules of the United Nations Commission on
International Trade Law (UNCITRAL) or the Rules of Conciliation and Arbitration of the International Chamber of
Commerce (ICC) shall apply and the venue of arbitration shall be the Philippines or any neutral country; and
(4) The Philippine taxes on all payments relating to the technology transfer arrangement shall be borne by the
licensor. (Sec. 88, IPC)

Is registration of a trademark a mode of acquiring ownership thereof?


Registration of a trademark, by itself, is not a mode of acquiring ownership. If the applicant is not the owner of
the trademark, he has no right to apply for its registration. Registration merely creates a prima facie
presumption of the validity of the registration, of the registrants ownership of the trademark, and of the
exclusive right to the use thereof.
What is the protection to foreign marks under the Paris Convention?
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.
(Ecole De Cuisine Manille [Cordon Bleu of the Philippines], Inc. v. Renaud Cointreau & CIE and Le Condron
Bleu Intl., B.V., 5 June 2013)
What does Right Management Information mean?
Rights management information means information which identifies the work, sound recording or
performance; the author of the work, producer of the sound recording or performer of the performance; the
owner of any right in the work, sound recording or performance; or information about the terms and
conditions of the use of the work, sound recording or performance; and any number or code that represent
such information, when any of these items is attached to a copy of the work, sound recording or fixation of
performance or appears in conjunction with the communication to the public of a work, sound recording or
performance. (Section 171.13, IPC, as amended)
What is the rule on assignment of copyright?
The Intellectual Property Code, as amended states that:
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Copyright and Material Object. the copyright is distinct from the property in the material object subject
to it. Consequently, the transfer, assignment or licensing of the copyright shall not itself constitute a
transfer of the material object. Nor shall a transfer or assignment of the sole copy or of one or several
copies of the work imply transfer, assignment or licensing of the copyright. (Sec. 181, IPC, as amended)

What is the term of moral right?


The right of an author under Section 193.1 1 shall last during the lifetime of the author and in perpetuity after
his death while the rights under Sections 193.2,2 193.33 and 193.44 shall be coterminous with the economic
rights, the moral rights shall not be assignable or subject to license. (Sec. 198, IPC, as amended)
What does Unfair Competition mean?
Unfair competition is the passing off (or palming off) or attempting to pass off upon the public of the goods or
business of one person as the goods or business of another with the end and probable effect of deceiving the
public. Passing off (or palming off) takes place where the defendant, by imitative devices on the general
appearance of the goods, misleads prospective purchasers into buying his merchandise under the impression
that they are buying that of his competitors. The true test of unfair competition is whether the acts of the
defendant have the intent of deceiving or are calculated to deceive the ordinary buyer making his purchases
under the ordinary conditions of the particular trade to which the controversy relates. Thus, it is essential to
prove the existence of fraud, or the intent to deceive, actual or probable. (Shang Properties Realty
Corporation and Shang Properties, Inc. v. St. Francis Development Corporation, G.R. No. 190706, July 21,
2014)
Are descriptive geographical terms allowed to be exclusively used? When do they acquire secondary
meaning so as to allow the proponent exclusive right of use?
Descriptive geographical terms are in the public domain in the sense that every seller should have the right to
inform customers of the geographical origin of his goods. A geographically descriptive term is any noun or
adjective that designates geographical location and would tend to be regarded by buyers as descriptive of the
geographic location of origin of the goods or services. A geographically descriptive term can indicate any
geographic location on earth, such as continents, nations, regions, states, cities, streets and addresses, areas of
cities, rivers, and any other location referred to by a recognized name. In order to determine whether or not
the geographic term in question is descriptively used, the following question is relevant: Is the mark the name
of the place or region from which the goods actually come? If the answer is yes, then the geographic term is
probably used in a descriptive sense, and secondary meaning is required for protection. Under Sec. 123.2 of
the IP Code, specific requirements have to be met in order to conclude that a geographically-descriptive mark
has acquired secondary meaning, to wit: (a) the secondary meaning must have arisen as a result of substantial
commercial use of a mark in the Philippines; (b) such use must result in the distinctiveness of the mark insofar
as the goods or the products are concerned; and (c) proof of substantially exclusive and continuous
commercial use in the Philippines for five (5) years before the date on which the claim of distinctiveness is
made. Unless secondary meaning has been established, a geographically-descriptive mark, due to its general
public domain classification, is perceptibly disqualified from trademark registration. (Shang Properties Realty
Corporation and Shang Properties, Inc. v. St. Francis Development Corporation, G.R. No. 190706, July 21,
2014)
Distinguish between trademark infringement and unfair competition.
Trademark infringement and unfair competition are two distinct suits: (1) the former is the unauthorized use
of a trademark, whereas the latter is the passing of ones goods as those of another; (2) fraudulent intent is

193.1. To require that the authorship of the works be attributed to him, in particular, the right that his name, as far as practicable, be indicated in a
prominent way on the copies, and in connection with the public use of his work;
2 193.2. To make any alterations of his work prior to, or to withhold it from publication;
3
193.3. To object to any distortion, mutilation or other modification of, or other derogatory action in relation to, his work which would be prejudicial to
his honor or reputation;
4
193.4. To restrain the use of his name with respect to any work not of his own creation or in a distorted version of his work

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unnecessary in the former, while it is essential in the latter; and (c) in the former, prior registration of the
trademark is a pre-requisite to the action, while it is not necessary in the latter. Thus, the registration of the
trademark is essential in a trademark infringement case. (Roberto Co v. Keng Huan Jerry Yeung and Emma
Yeung, G.R. No. 212795, September 10, 2014)
On February 29, 1996, Taiwan Kolin Corporation (Taiwan Kolin) filed with the Intellectual Property Office
(IPO) a trademark application for the use of KOLIN on its television and DVD players which are a
combination of goods falling under Class 9 of the Nice Classification (NCL). On July 13, 2006, Kolin Electronics
Co. (Kolin Electronics) opposed the application alleging that the mark Taiwan Kolin seeks to register is
identical, if not confusingly similar, with its KOLIN mark previously registered on November 23, 2003
covering products e.g. automatic voltage regulator, converter, and the like which are also under Class 9 of
the NCL.
Yes. Taiwan Kolin is entitled to register the trademark KOLIN. The uniformity of categorization, by itself, does
not automatically preclude the registration of what appears to be an identical mark. Such circumstance does
not necessarily result in trademark infringement. Categorization in the NCL is not the sole and decisive factor
in determining a possible violation of intellectual property right. The Hornbook Doctrine states that emphasis
should be on the similarity of the products involved and not on the arbitrary classification or general
description of their properties or characteristics. The mere fact that one person has adopted and used a
trademark on his goods would not, without more, prevent the adoption and use of the same trademark by
others on unrelated articles of a different kind. (Taiwan Kolin Corporation, Ltd. v. Kolin Electronics Co., GR
No. 209843, March 25, 2015)
The Court was convinced that Taiwan Kolin's trademark registration not only covers unrelated good, but is also
incapable of deceiving the ordinary intelligent buyer. (ibid)

TRUST RECEIPTS
What is the liability of the entrustee for the loss of goods, documents or instruments covered by a trust
receipt?
The Trust Receipts Law provides:
The risk of loss shall be borne by the entrustee. Loss of goods, documents or instruments which are the subject
of a trust receipt, pending their disposition, irrespective of whether or not it was due to the fault or negligence
of the entrustee, shall not extinguish his obligation to the entruster for the value thereof. (Sec. 10, TRL)
What is the protection of the purchaser of goods from the entrustee as against the entrusters security
interest where such purchaser is in good faith and for value?
The Trust Receipts Law states: Any purchaser of goods from an entrustee with right to sell, or of documents or
instruments through their customary form of transfer, who buys the goods, documents, or instruments for
value and in good faith from the entrustee, acquires said goods, documents or instruments free from the
entruster's security interest. (Sec. 11, TRL)
Is the transaction covered by the Trust Receipts Law where the lender knew all along that the construction
materials subject matter of the trust receipt were not intended for resale but for the personal use of the
obligor?
The transaction will not be considered a trust receipt transaction but one of simple loan.
When both parties enter 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 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.
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In such a situation, the Trust Receipts Law and corresponding liability for estafa will not apply. (Hur Tin Yang v.
People of the Philippines, 14 August 2013)

LETTERS OF CREDIT
What are the basic principles governing Letters of Credit?
They are as follows:
1) Independence Principle
The Independence Principle assures the seller or the beneficiary of prompt payment independent of any
breach of the main contract and precludes the issuing bank from determining whether the main contract is
actually accomplished or not (Transfield Philippines, Inc. v. Luzon Hydro Co., G.R. No. 146717, November 22,
2004).
2) Exception: Fraud Exception Principle
Fraud Exception Principle exists when the beneficiary, for the purpose of drawing on the credit, fraudulently
presents to the confirming bank, documents that contain, expressly or by implication, material representations
of fact that to his knowledge are untrue (Transfield Philippines, Inc. v. Luzon Hydro Co., G.R. No. 146717,
November 22, 2004).
3) Rule of Strict Compliance
Documents tendered by the seller/ beneficiary must strictly conform with the terms of the Letter of Credit, i.e.
they must include all the documents required by the Letter of Credit (Feati Bank v. CA, GR No. 94209, April 30,
1991).

NEGOTIABLE INSTRUMENTS
Bento bought a managers check payable to the order of cash from Porki Bank. Orient bank overlooked that
the account which Bento asked the bank to debit to pay for the managers check was already closed. Bento
used the check immediately to buy a watch. When the seller presented the managers check for payment, it
refused to pay him because Bento had no money any more with the bank. Is this correct?
No. A managers check is primary, absolute and unconditional obligation of the bank which issued it. It cannot
revoke for want of consideration as a defense for refusing to pay for it. (Security Bank and Trust Company v.
Rizal Commercial Banking Corporation, G.R. 170987, January 30, 2009)
Who is an accommodation party? What is his liability to the holder?
An accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the
instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he
must sign for the purpose of lending his name or credit to some other person. An accommodation party lends
his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the
consideration for the instrument but assumes liability to the other party/ies thereto. The accommodation
party is liable on the instrument to a holder for value even though the holder, at the time of taking the
instrument, knew him or her to be merely an accommodation party, as if the contract was not for
accommodation. (Eusebio Gonzales v. Philippine Commercial & International Bank, et al., G.R. No.
180257, February 23, 2011)

Jo Cla pre-signed several checks, which had no payees name, date or amount, to answer for the expenses of
his business. The blank checks were entrusted to his business partner, Paulo Co, with the specific instruction
not to fill them out without previous notification to and approval by Jo Cla. Paulo Co however went to Marti
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Llo to secure a loan stating that Jo Cla needed the money for the construction of his house. Marti Llo
believed the request and gave Paolo Co P2,000,000.00. In exchange, Paolo Co simultaneously delivered to
Marti Llo one of the blank checks Jo Cla pre-signed with the blank portions filled out with the words Cash,
Two Million Pesos Only and dated 23 May 2014. When Marti Llo deposited the check, it was dishonored
for the reason Account Closed. When Marti Llo demanded payment from Jo Cla, the latter denied
authorizing the loan or the checks negotiation and asserted that he was not a privy to the loan agreement.
Decide whether Jo Cla is liable to Marti Llo.
No. Jo Cla is not liable. Under Section 14 of the Negotiable Instruments Law, if the maker or drawer delivers a
pre-signed blank paper to another person for the purpose of converting it into a negotiable instrument, that
person is deemed to have 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 within a reasonable time. If it was proven that the instrument had not been 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.
In this case, Paolo Co exceeded his authority to fill up the blanks and use the check which was limited to the
use of the checks for the operation of their business and on the condition that Jo Clas prior approvable be first
secured. While Paolo Co had a prima facie authority to complete the check, such prima facie authority does
not extend to its use, i.e. subsequent transfer or negotiation, once the check is completed. Thus, only the
authority to complete the check is presumed. There is no evidence that Paolo Co ever secured prior approval
from Jo Cla to fill up the blank or to use the check.
In addition, Marti Llos knowledge that Jo Cla is not a party or a privy to the contract of loan and
correspondingly had no obligation or liability to him renders him dishonest, hence, in bad faith and therefore
not a holder in due course. Accordingly, the defense of incomplete but delivered instrument under Section 14
of the Negotiable Instruments law will lie against him. (Alvin Patrimonio v. Napoleon Gutierrez and Octavio
Marasigan III, G.R. No. 187769, June 4, 2014)
Are Electronic Messages giving authority to debit an account negotiable instruments?
Electronic messages, such as instructions given through electronic messages giving authority to debit a certain
account, are not negotiable instruments as they do not comply with the requisites of negotiability under Sec.
1(a,b,d) of the NIL (HSBC v. CIR, G.R. No. 166018, June 4, 2014).
Chow and King received a check from Machang as payment for motor vehicles. Chow and King deposited the
check to the Pigue Bank. Pigue Bank, in turn, presented the check to the drawee bank, Porki Bank, where the
check was honored. As a result, the amount of check was credited by Pigue Bank to the savings account of
Chow and King. It then turned out the check was materially altered from P4,000.00 to P200,000. What is the
liability of Pigue Bank as depository/collecting bank in this case?

A collecting bank is any bank handling an item for collection except the bank on which the check is drawn. A
depositary/collecting bank, where a check is deposited and which endorses the same upon presentment with
the drawee bank, is an endorser. Under Section 66 of the Negotiable Instruments Law, an endorser warrants
that the instrument is genuine and in all respects what it purports to be; that he has good title to it; that all
prior parties had capacity to contract; and that the instrument is at the time of his endorsement valid and
subsisting. 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 genuineness 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. Express Savings Bank, Inc. and Michael Potenciano, G.R. No.
176697, September 10, 2014)

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The payee admitted that while it did not dispute the fact of alteration, it denied that the alteration was
done without Makers consent and that part of its company practice is to rubber stamp or make a
superimposition through a rubber stamp the old promissory note which has been renewed to make it appear
that there is a new obligation. The Maker did not rebut the same. Will the alteration of the promissory note
here effectively relieve him of liability?
No. the alteration of the note did not relieve the Maker of his liability. While a promissory note is evidence of
an 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, for one, that was issued to secure the note 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. No. 180144, September 24, 2014)
When is the instrument materially altered?
The instrument is materially altered when there is any alteration which changes the:
a. Date;
b. Sum payable, either for principal or interest;
c. Time or place of payment;
d. Number or relations of the parties;
e. Medium or currency in which payment is to be made;
f. That which adds a place of payment where no place of payment is specified; and
g. Any other change or addition which alters the effect of the instrument in any respect (NIL, Sec. 125).
It is already already settled that a serial number of a check is an item which is not an essential requisite for
negotiability under Sec. 1, NIL, and which does not affect the rights of the parties, hence its alteration is not
material. (International Corporate Bank v. CA, G.R. No. 129910, September 5, 2006)
Explain the Iron Clad Rule.
A cashiers check (having the same legal effects of a certified check) is not subject to countermand by the
payee after indorsement. (Republic v. PNB, G.R. No. L-16106)

CORPORATE REHABILITATION/SUSPENSION OF PAYMENT


Under what conditions may the court allow a claim to be excluded from its stay order?
The Interim Rules on Corporate Rehabilitation provides:
SEC. 12. Relief from, Modification, or Termination of Stay Order. The court may, on motion or motu proprio,
terminate, modify, or set conditions for the continuance of the stay order, or relieve a claim from the coverage
thereof upon showing that (a) any of the allegations in the petition, or any of the contents of any attachment, or
the verification thereof has ceased to be true; (b) a creditor does not have adequate protection over property
securing its claim; or (c) the debtors secured obligation is more than the fair market value of the property subject
of the stay and such property is not necessary for the rehabilitation of the debtor.
For purposes of this section, the creditor shall lack adequate protection if it can be shown that:
a. the debtor fails or refuses to honor a pre-existing agreement with the creditor to keep the property insured;
b. the debtor fails or refuses to take commercially reasonable steps to maintain the property; or
c. the property has depreciated to an extent that the creditor is undersecured.

It is contented that rehabilitation becomes inappropriate because of the perceived insolvency of the
company. Is this correct?
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The basic issues in rehabilitation proceedings concern the viability and desirability of continuing the business
operations of the petitioning corporation. The determination of such issues was to be carried out by the courtappointed rehabilitation receiver xxx. Moreover, Republic Act No. 10142 (Financial Rehabilitation and
Insolvency Act (FRIA) of 2010), a law that is applicable hereto, has defined a corporate debtor as a corporation
duly organized and existing under Philippine laws that has become insolvent.The term insolvent is defined in
Republic Act No. 10142 as "the financial condition of a debtor that is generally unable to pay its or his liabilities
as they fall due in the ordinary course of business or has liabilities that are greater than its or his assets.
As such, the contention that rehabilitation becomes inappropriate because of the perceived insolvency of the
company is incorrect. (Philippine Bank of Communications v. Basic Polyprinters and Packaging Corporation,
G.R. No. 187581, October 20, 2014)

Is a material financial commitment required under the rehabilitation plan?


A material financial commitment is significant in a rehabilitation plan.
A material financial commitment becomes significant in gauging the resolve, determination, earnestness and
good faith of the distressed corporation in financing the proposed rehabilitation plan. This commitment may
include the voluntary undertakings of the stockholders or the would-be investors of the debtor-corporation
indicating their readiness, willingness and ability to contribute funds or property to guarantee the continued
successful operation of the debtor corporation during the period of rehabilitation. (Philippine Bank of
Communications v. Basic Polyprinters and Packaging Corporation, G.R. No. 187581, October 20, 2014)

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