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)
Q. What are the requirements for registration of a bank?
A. Articles of Inc., By-Laws, Treasurers 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.
1 on the blank space of each check reserved for the payee, the following typewritten
words appear: "ONE HUNDRED TEN THOUSAND PESOS ONLY." Above the same is the
typewritten word, "CASH." On the blank reserved for the amount, the same amount of
One Hundred Ten Thousand Pesos was indicated with the use of a check writer. The
presence of these irregularities in each check should have alerted the petitioner to be
cautious before proceeding to encash them which it did not do. The SC said this is not a
material alteration.

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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. Guaria
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 CBPs 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 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
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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 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 Boards 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
BIRs contention that a tax clearance be secured first before the project of distribution of the
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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 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 banks 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
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credits and the rate allowed in judgments, in the absence of an express 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 AntiGraft 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 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?
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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 banks 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 depositors 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?
.
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
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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.
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).
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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. Monets Export
Manufacturing, 452 SCRA 173, 2005)
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)
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:
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(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 nondelivery 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.
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 drawers 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
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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 payees 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 managements intention to safeguard the
funds covered thereby, its special instruction to have the 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 clients
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)
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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
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?

11 | P a g e

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?
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 twothirds 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 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
12 | P a g e

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 nonstock 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); RTCs 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 PLDTs stock dividends subject to the NTCs 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 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
13 | P a g e

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 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

14 | P a g e

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 plaintiffs 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 corporations 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 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 corporations 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
defendants 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 defendants 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
Contractors Corp, 2010)

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

to the piercing doctrine?
15 | P a g e

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 entitys
incorporation. And no contract entered into before 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 corporations 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.
16 | P a g e

The Grandfather Rule, standing alone, should not be used to determine the
Filipino ownership and control in a corporation, as it could result in an
otherwise foreign 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 corporations 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
corporations 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 corporations 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 corporations 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?
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:
17 | P a g e

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 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
corporations 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
18 | P a g e

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 Peoples 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 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 agents 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

19 | P a g e

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 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)
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 corporations 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
20 | P a g e

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 corporations 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 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 corporations 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.

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

A. A partys 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
corporations 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 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
22 | P a g e

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.
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
governments 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
23 | P a g e

primarily from the effort of others. The Securities and Regulation Code treats investment
contracts as securities that have to be 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 Workmens Compensation Act, legal expenses and expenses incurred
in the administration of insolvents estate for the common interest of creditors upon
order of the court, debts, taxes and assessments due the 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 corporations 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
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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 corporations 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. 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 debtors 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
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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. SMMCIs 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)
Q. Is the HLURBs 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 HLURBs 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)
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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 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.
Q. How do you construe limitations on the liability of an insurer?
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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 Courts 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 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
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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 companys
payment for indemnity of goods not existing at the time of the fire. This constitutes the socalled 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;
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 insureds 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
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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 LepantoTaisho 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
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 Insurances 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 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
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been executed between the insured and the insurer. (Asian Terminals, Inc. v. First LepantoTaisho 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 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 Marions 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 partys 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 of dispensing justice.
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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 oneyear 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
carriers liability in the absence of a shippers 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.
In light of the foregoing, petitioners 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 attorneys 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.

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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 breakbulk 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 forwarders 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 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 agents 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.

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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. 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-charterers people. With the
complete and exclusive relinquishment of possession, command and navigation of the vessel,
the charterer and later the sub-charterer became the vessels 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
34 | P a g e

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.
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 Intl., 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 McDonalds Corporation and McGeorge Food Industries, Inc. v. L.C. Big Mak Burger,
Inc., this Court held:
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To establish trademark infringement, the following elements must be shown: (1) the validity
of plaintiffs mark; (2) the plaintiffs 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 registrants ownership of the mark is prima facie
presumed. (Gemma Ong a.k.a. Ma. Theresa Gemma Catacutan vs. People of the
Philippines, G.R. No. 169440,. 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 petitioners stylized S is within an oval
design, to this Courts 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 that it used the same stylized S, the same being
the dominant feature of petitioners 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 plaintiffs ownership of the mark; and (3)
the use of the mark or its colorable imitation by the alleged infringer results in

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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 registrants 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 Gammas 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 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.)
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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 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 Kolins 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.
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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 casewhether or not the products
of the parties involved are relatedthe 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 products 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

AnnexA

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;
39 | P a g e

and (iv) acting as (or arranging for another person to act as) a nominee shareholder for
another person; and
(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 AntiTrafficking 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, 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;

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(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;
(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.

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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.
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
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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 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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