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COMMERCIAL LAW 2

2017 Bar Last Minute Lectures


71 Questions in Merc 2
SACP Rocille S. Aquino-Tambasacan1

INSURANCE CODE

Security Deposit

1. Can the deposits made by insurance companies with the


Insurance Commissioner be garnished by the court?
No. The securities required by the Insurance Code to be
deposited with the Insurance Commissioner are intended to
answer for the claims of all policy holders in the event that the
depositing insurance company becomes insolvent or otherwise
unable to satisfy their claims. The security deposit must be
ratably distributed among all the insured who are entitled to
their respective shares; it cannot be garnished or levied upon
by a single claimant, to the detriment of the others.
To allow the garnishment of that deposit would impair the
fund by decreasing it to less than the percentage of paid-up
capital that the law requires to be maintained. Further, this
move would create, in favor of respondent, a preference of
credit over the other policy holders and beneficiaries.
The right to claim against the security deposit is
dependent on the solvency of the insurance company, and is
subject to all other obligations of the insurance company arising
from its insurance contracts. Accordingly, the interest in the
security deposit could only be inchoate or a mere expectancy,
and thus had no attribute as property. Republic vs. Del Monte
Motors, 504 SCRA 53, Capital Insurance and Surety & Co. Inc. vs.
Del Monte Motor Works, Inc., December 9, 2015; J. Bersamin

2. What right, if any, did a creditor have in the security deposit?


The right to claim against the security deposit is
dependent on the solvency of the insurance company, and is
subject to all other obligations of the insurance company arising
from its insurance contracts. Accordingly, the interest in the
security deposit could only be inchoate or a mere expectancy,
and thus had no attribute as property. Republic vs. Del Monte


1The author of this material is a Senior Assistant City Prosecutor of the City of

Manila. She is also a Commercial Law Professor and Bar Reviewer at San
Sebastian College Recoletos-Manila, Polytechnic University of the Philippines,
Academicus Review Center and Albano Review Center. She also authored two
books in Commercial Law – Handbook in Insurance Law as well as Negotiable
Instruments in a Nutshell with Central Books. Her article “Disneyfication” vis-à-vis
Copyright: Original Stories Lost, appears in 795 SCRA 691.
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Motors, 504 SCRA 53, Capital Insurance and Surety & Co. Inc. vs.
Del Monte Motor Works, Inc., December 9, 2015; J. Bersamin

Ambiguity

3. When should the two-year period be reckoned to ascertain


whether the policy could still be contested?
Reinstatement of the insured's policy is to be reckoned
from the date when the application was processed and
approved by the insurer. Thus, it is settled that the
reinstatement of an insurance policy should be reckoned from
the date when the same was approved by the insurer.
The parties differ as to when the reinstatement was
actually approved. Insular Life claims that it approved the
reinstatement only on December 27, 1999. On the other hand,
the beneficiaries contend that it was on June 22, 1999 that the
reinstatement took effect as per Letter of Acceptance and
Endorsement.
Given the obscurity of the language, the construction
favorable to the insured will be adopted by the courts.
An insurance contract is a contract of adhesion which
must be construed liberally in favor of the insured and strictly
against the insurer in order to safeguard the latter's interest.
Insular Life Assurance Co., Ltd. vs. Khu, April 18, 2016, J. Del
Castillo

Disqualification of Beneficiary

4. When the beneficiaries of the insurance proceeds are the


illegitimate children and mistress, can the legitimate family
recover it?
No. The legal family are third parties to the insurance
contracts and, are not entitled to the proceeds thereof. The
revocation of the mistress as a beneficiary in one policy and her
disqualification as such in another are of no moment
considering that the designation of the illegitimate children as
beneficiaries in Loreto's insurance policies remains valid.
Because no legal proscription exists in naming as beneficiaries
the children of illicit relationships by the insured, the shares of
the mistress in the insurance proceeds must be awarded to the
said illegitimate children, the designated beneficiaries, to the
exclusion of the legal family. It is only in cases where the insured
has not designated any beneficiary, or when the designated
beneficiary is disqualified by law to receive the proceeds, that
the insurance policy proceeds shall redound to the benefit of
the estate of the insured. Heirs of Maramag vs. Maramag, 586
SCRA 774

Concealment

5. If it the wife who filled-up the life insurance policy of her


husband and failed to disclose the true state of health
(installation of pacemaker), is there concealment?
Yes. The responsibility for preparing the application
belonged to the insured. Nothing in it implies that someone else
may provide the information that the insurance company
needed. The insured cannot sign the application and disown
the responsibility for having it filled up. If he furnished the wife
the needed information and delegated to her the filling up of
the application, then she acted on his instruction, not on the
insurance company’s instruction.
The insured, being educated, could be expected to know
that one must read every document, especially if it creates
rights and obligations affecting him, before signing the same.
Florendo vs. Philam, G.R. No. 186983, February 22, 2012

Incontestability Clause

6. What do you mean by incontestability clause?


Under Section 48, an insurer is given 2 years — from the
effectivity of a life insurance contract and while the insured is
alive — to discover or prove that the policy is void ab initio or is
rescindible by reason of the fraudulent concealment or
misrepresentation of the insured or his agent. After the 2-year
period lapses, or when the insured dies within the period, the
insurer must make good on the policy, even though the policy
was obtained by fraud, concealment, or misrepresentation. This
is not to say that insurance fraud must be rewarded, but that
insurers who recklessly and indiscriminately solicit and obtain
business must be penalized, for such recklessness and lack of
discrimination ultimately work to the detriment of bona fide
takers of insurance and the public in general. Manila Bankers
Life Insurance vs. Aban, July 29, 2013

7. Can the policy be contested considering that the insured died


3 months after issuance of the policy?
No more. Sun Life issued Atty. Jesus Jr.'s policy on
February 5, 2001. Thus, it has two years from its issuance, to
investigate and verify whether the policy was obtained by
fraud, concealment, or misrepresentation. Upon the death of
Atty. Jesus Jr., however, on May 11, 2001, or a mere three
months from the issuance of the policy, Sun Life loses its right to
rescind the policy. The death of the insured within the two-year
period will render the right of the insurer to rescind the policy
nugatory. As such, the incontestability period will now set in.
Sun Life of Canada (Phils.) Inc. vs. Sibya, June 8, 2016; J. Reyes
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Premium Payment

8. Is an insurance contract effective despite partial payment only


of premiums?
Yes. GSIS' defense that the non-payment of the last
reinsurance premium merely rendered the contract ineffective
is erroneous. Non-payment of subsequent installment premiums
would not prevent the insurance contract from taking effect;
that the parties intended to make the insurance contract valid
and binding is evinced from the fact that the insured paid —
and the insurer received — several reinsurance premiums due
thereon, although the former refused to pay the remaining
balance. The policy is valid even if the premiums were paid on
installments. GSIS vs. Prudential Guarantee and Assurance,
November 20, 2013

Insurance Claim

9. What is the effect of a fraudulent claim on an insurance policy?


Where a fire insurance policy provides that "if the claim be
in any respect fraudulent, or if any false declaration be made
or used in support thereof, or if any fraudulent means or devices
are used by the Insured or anyone acting on his behalf to
obtain any benefit under this Policy," and the evidence is
conclusive that the proof of claim which the insured submitted
was false and fraudulent both as to the kind, quality and
amount of the goods and their value destroyed by the fire, such
a proof of claim is a bar against the insured from recovering on
the policy even for the amount of his actual loss.
False and material statement made with an intent to
deceive or defraud voids an insurance policy. Here, the claim is
25 times the actual claim proved. United Merchants Corp. vs.
Country Bankers, G.R. No. 198588, July 11, 2012

Double Insurance

10. What do you mean by principle of contribution?


Principle of contribution provided under Section 94 (e) of
the Insurance Code, 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 vs. Philippines First Insurance,
G.R. No. 184300, July 11, 2012

11. What are the requisites for double insurance?

The requisites in order for double insurance to arise are as


follows:
a. The person insured is the same;
b. Two or more insurers insuring separately;
c. There is identity of subject matter;
d. There is identity of interest insured; and
e. There is identity of the risk or peril insured against.
Malayan Insurance vs. Philippines First Insurance, G.R. No.
184300, July 11, 2012

Rescission

12. When can an insurer exercise its right to rescind an insurance


contract pursuant to an alteration?
a. the policy limits the use or condition of the thing insured;
b. there is an alteration in said use or condition;
c. the alteration is without the consent of the insurer;
d. the alteration is made by means within the insured's
control;
e. the alteration increases the risk of loss. Malayan Insurance
vs. PAP Co., Ltd, August 7, 2013

Collateral Source Rule

13. Per CBA, the company is supposed to shoulder the


hospitalization expenses of the dependents of its covered
employees. However, the hospitalization expenses were
paid/shouldered by the dependent's own health insurance.
The employees then asked for another payment, this time from
Mitsubishi. Can this be done?
No. Under the collateral source rule, the defendant is
prevented from benefitting from the plaintiff's receipt of money
from other sources. If an injured person receives compensation
for his injuries from a source wholly independent of the
tortfeasor, the payment should not be deducted from the
damages which he would otherwise collect from the tortfeasor.
Its application is justified so that the wrongdoer should not
benefit from the expenditures made by the injured party or take
advantage of contracts or other relations that may exist
between the injured party and third persons.
However, it is not applicable to cases involving no-fault
insurances under which the insured is indemnified for losses by
insurance companies, regardless of who was at fault in the
incident generating the losses.
Mitsubishi is a no-fault insurer. Hence, it cannot be obliged
to pay the hospitalization expenses of the dependents of its
employees which had already been paid by separate health
insurance providers of said dependents. Mitsubishi Motors Phils.
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Salaried Employees Union vs. Mitsubishi Motors Phils, June 17,


2013

Microinsurance

14. What is microinsurance?


It is a financial product that meets the risk protection
needs of the poor, provided, the amount of daily contributions
does not exceed 7.5% of the current daily minimum wage rate
for non-agricultural workers in Metro Manila AND the maximum
sum of benefits is not more than 1,000 times the current daily
minimum wage.

INTELLECTUAL PROPERTY CODE

15. Regasco is refilling empty Shellane and Gasul cylinders with its
own product. What was committed?
There is unfair competition. It refers to passing off or
attempting to pass off upon the public of the goods or business
of one person as the goods or business of another with the end
and probable effect of deceiving the public.
Passing off (or palming off) takes place where the
defendant, by imitative devices on the general appearance of
the goods, misleads prospective purchasers into buying his
merchandise under the impression that they are buying that of
his competitors. Thus, the defendant gives his goods the general
appearance of the goods of his competitor with the intention of
deceiving the public that the goods are those of his competitor.
Republic Gas vs. Petron Corp., June 17, 2013, J. Peralta

16. What are the elements of trademark infringement?


They are:
a. The trademark being infringed is registered in the
Intellectual Property Office;
b. The trademark is reproduced, counterfeited, copied, or
colorably imitated by the infringer;
c. The infringing mark is used in connection with the sale,
offering for sale, or advertising of any goods, business or
services; or the infringing mark is applied to labels, signs,
prints, packages, wrappers, receptacles or
advertisements intended to be used upon or in
connection with such goods, business or services;
d. The use or application of the infringing mark is likely to
cause confusion or mistake or to deceive purchasers or
others as to the goods or services themselves or as to the
source or origin of such goods or services or the identity of
such business; and
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e. The use or application of the infringing mark is without the


consent of the trademark owner or the assignee thereof.
The likelihood of confusion is the gravamen of the offense
of trademark infringement. Diaz vs. People, February 18, 2013, J.
Bersamin

17. What are the two tests to determine likelihood of confusion?


They are the dominancy test and the holistic test.
The dominancy test focuses on the similarity of the main,
prevalent or essential features of the competing trademarks
that might cause confusion. Infringement takes place when the
competing trademark contains the essential features of
another. Imitation or an effort to imitate is unnecessary. The
question is whether the use of the marks is likely to cause
confusion or deceive purchasers.
The holistic test considers the entirety of the marks,
including labels and packaging, in determining confusing
similarity. The focus is not only on the predominant words but
also on the other features appearing on the labels.
As to what test should be applied in a trademark
infringement case, no set rules can be deduced because each
case must be decided on its merits. In such cases, even more
than in any other litigation, precedent must be studied in the
light of the facts of the particular case. That is the reason why in
trademark cases, jurisprudential precedents should be applied
only to a case if they are specifically in point. Diaz vs. People,
February 18, 2013, J. Bersamin

18. Was there infringement here?


None. The holistic test is applicable here considering that
the criminal cases also involved trademark infringement in
relation to jeans products. The jeans trademarks of Levi's
Philippines and Diaz must be considered as a whole in
determining the likelihood of confusion between them. The
maong pants or jeans made and sold by Levi's Philippines,
which included LEVI'S 501, were very popular in the Philippines.
The consuming public knew that the original LEVI'S 501 jeans
were under a foreign brand and quite expensive. Such jeans
could be purchased only in malls or boutiques as ready-to-wear
items, and were not available in tailoring shops like those of
Diaz's as well as not acquired on a "made-to-order" basis. Under
the circumstances, the consuming public could easily discern if
the jeans were original or fake LEVI'S 501, or were manufactured
by other brands of jeans. Confusion and deception were
remote. Diaz vs. People, February 18, 2013, J. Bersamin

19. When can a trademark be susceptible to registration?

A trademark device is susceptible to registration if it is


crafted fancifully or arbitrarily and is capable of identifying and
distinguishing the goods of one manufacturer or seller from
those of another. Apart from its commercial utility, the
benchmark of trademark registrability is distinctiveness. Thus, a
generic figure, as that of a shark in this case, if employed and
designed in a distinctive manner, can be a registrable
trademark device.
A mark cannot be registered if it is identical with a
registered mark belonging to a different proprietor with an
earlier filing or priority date, with respect to the same or closely
related goods or services, or has a near resemblance to such
mark as to likely deceive or cause confusion. Great White
Shark vs. Caralde, November 21, 2012, J. Perlas-Bernabe

20. Was there infringement here?


None. Irrespective of both tests there is no confusing
similarity between the subject marks. While both marks use the
shape of a shark, there were distinct visual and aural
differences between them. In Great White Shark's "GREG
NORMAN LOGO," there is an outline of a shark formed with the
use of green, yellow, blue and red lines/strokes. In contrast, the
shark in Caralde's "SHARK & LOGO" mark is illustrated in letters
outlined in the form of a shark with the letter "S" forming the
head, the letter "H" forming the fins, the letters "A" and "R"
forming the body, and the letter "K" forming the tail. In addition,
the latter mark includes several more elements such as the
word "SHARK" in a different font underneath the shark outline,
layers of waves, and a tree on the right side, and liberally used
the color blue with some parts in red, yellow, green and white.
The whole design is enclosed in an elliptical shape with two
linings. The visual dissimilarities between the two marks are
evident and significant, negating the possibility of confusion in
the minds of the ordinary purchaser, especially considering the
distinct aural difference between the marks. Great White Shark
vs. Caralde, November 21, 2012, J. Perlas-Bernabe

21. What is a trademark?


A trademark as any distinctive word, name, symbol,
emblem, sign, or device, or any combination thereof, adopted
and used by a manufacturer or merchant on his goods to
identify and distinguish them from those manufactured, sold, or
dealt by others. It is an intellectual property deserving
protection by law. UFC Philippines, Inc. vs. Barrio Fiesta
Manufacturing Corp., January 22, 2016; J. Leonardo-de Castro

22. What are the rights of a trademark owner?

The owner of a registered mark shall have the exclusive


right to prevent all third parties not having the owner's consent
from using in the course of trade identical or similar signs or
containers for goods or services which are identical or similar to
those in respect of which the trademark is registered where
such use would result in a likelihood of confusion. A person who
has identified in the mind of the public the goods he
manufactures or deals in, his business or services from those of
others, whether or not a registered mark is employed, has a
property right in the goodwill of the said goods, business or
services so identified. UFC Philippines, Inc. vs. Barrio Fiesta
Manufacturing Corp., January 22, 2016; J. Leonardo-de Castro

23. What is the guideline in determining likelihood of confusion?


Presumption of Likelihood of Confusion - Likelihood of
confusion shall be presumed in case an identical sign or mark is
used for identical goods or services.
Likelihood of Confusion in Other Cases. — In determining
whether one trademark is confusingly similar to or is a colorable
imitation of another, the court must consider the general
impression of the ordinary purchaser, buying under the normally
prevalent conditions in trade and giving the attention such
purchasers usually give in buying that class of goods. Visual,
aural, connotative comparisons and overall impressions
engendered by the marks in controversy as they are
encountered in the realities of the marketplace must be taken
into account. Where there are both similarities and differences
in the marks, these must be weighed against one another to
see which predominates.
In determining likelihood of confusion between marks
used on non-identical goods or services, several factors may be
taken into account, such as, but not limited to:
a) the strength of plaintiff's mark;
b) the degree of similarity between the plaintiff's and the
defendant's marks;
c) the proximity of the products or services;
d) the likelihood that the plaintiff will bridge the gap;
e) evidence of actual confusion;
f) the defendant's good faith in adopting the mark;
g) the quality of defendant's product or service; and/or
h) the sophistication of the buyers.

24. What is colorable imitation?


Colorable imitation denotes such a close or ingenious
imitation as to be calculated to deceive ordinary persons, or
such a resemblance to the original as to deceive an ordinary
purchaser giving such attention as a purchaser usually gives, as
to cause him to purchase the one supposing it to be the other.
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UFC Philippines, Inc. vs. Barrio Fiesta Manufacturing Corp.,


January 22, 2016; J. Leonardo-de Castro

25. What are the two types of confusion?


(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. UFC
Philippines, Inc. vs. Barrio Fiesta Manufacturing Corp., January
22, 2016; J. Leonardo-de Castro

26. What is the scope of protection afforded to registered


trademark owners?
It is not limited to protection from infringers with identical
goods. The scope of protection extends to protection from
infringers with related goods, and to market areas that are the
normal expansion of business of the registered trademark
owners. UFC Philippines, Inc. vs. Barrio Fiesta Manufacturing
Corp., January 22, 2016; J. Leonardo-de Castro

27. Is there trademark infringement with the use of “Papa”?


Yes. The word "PAPA" is the dominant feature of both
petitioner and respondent's marks. The word 'PAPA' is written on
top of and before the other words such that it is the first
word/figure that catches the eyes." The part of respondent's
mark which appears prominently to the eyes and ears is the
phrase "PAPA BOY" and that is what a purchaser of
respondent's product would immediately recall, not the smiling
hog. Confusion of goods and of business may likely result
considering that the products of both parties belong to the
same class and are closely related: Catsup and lechon sauce
or liver sauce are both gravy-like condiments used to spice up
dishes. Respondent's mark is related to a product, lechon
sauce, an everyday all-purpose condiment and sauce, that is
not subjected to great scrutiny and care by the casual
purchaser. UFC Philippines, Inc. vs. Barrio Fiesta Manufacturing
Corp., January 22, 2016; J. Leonardo-de Castro

Copyright

28. Are news footages copyrightable material?

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Yes. Works are protected by the sole fact of their


creation, irrespective of their mode or form of expression, as
well as of their content, quality and purpose. These include
audiovisual works and cinematographic works and works
produced by a process analogous to cinematography or any
process for making audio-visual recordings.
It is true that news of the day and other miscellaneous
facts having the character of mere items of press information
are considered unprotected subject matter. However,
expression of the news of the day, particularly when it
underwent a creative process, is entitled to protection. ABS-
CBN vs. Gozon, March 11, 2015, J. Leonen

29. What is fair use?


It is a privilege to use the copyrighted material in a
reasonable manner without the consent of the copyright owner
or as copying the theme or ideas rather than their expression.
Fair use is an exception to the copyright owner's monopoly of
the use of the work to avoid stifling the very creativity which
that law is designed to foster. ABS-CBN vs. Gozon, March 11,
2015, J. Leonen

30. What is the four-factor test?


These are the factors to determine if there was fair use of
a copyrighted work:
a. The purpose and character of the use, including whether
such use is of a commercial nature or is for non-profit
educational purposes;
b. The nature of the copyrighted work;
c. The amount and substantiality of the portion used in
relation to the copyrighted work as a whole; and
d. The effect of the use upon the potential market for or
value of the copyrighted work. ABS-CBN vs. Gozon,
March 11, 2015, J. Leonen

31. What do you mean by “transformative test??


The "transformative test" is generally used in reviewing the
purpose and character of the usage of the copyrighted work.
The court must look into whether the copy of the work adds
new expression, meaning or message to transform it into
something else. ABS-CBN vs. Gozon, March 11, 2015, J. Leonen

32. Is good faith a defense in copyright infringement?


No. The general rule is that acts punished under a special
law are malum prohibitum. An act which is declared malum
prohibitum, malice or criminal intent is completely immaterial.
ABS-CBN vs. Gozon, March 11, 2015, J. Leonen

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33. When is there copyright infringement?


When a person:
a. Directly commits an infringement;
b. Benefits from the infringing activity of another person who
commits an infringement if the person benefiting has
been given notice of the infringing activity and has the
right and ability to control the activities of the other
person;
c. With knowledge of infringing activity, induces, causes or
materially contributes to the infringing conduct of
another.

34. When is the award of damages doubled?


If the person:
a. Circumvents effective technological measures; or
b. Having reasonable grounds to know that it will induce,
enable, facilitate or conceal the infringement, remove or
alter any electronic rights management information from
a copy of a work, sound recording, or fixation of a
performance, or distribute, import for distribution,
broadcast, or communicate to the public works or copies
of works without authority, knowing that electronic rights
management information has been removed or altered
without authority

35. What are the factors considered for the award of statutory
damages?
a. The nature and purpose of the infringing act;
b. The flagrancy of the infringement;
c. Whether the defendant acted in bad faith;
d. The need for deterrence;
e. Any loss that the plaintiff has suffered or is likely to suffer by
reason of the infringement; and
f. Any benefit shown to have accrued to the defendant by
reason of the infringement.

BANKING LAW

AMLA

36. Aside from financial institutions, who else are covered now by
AMLA (as amended by RA 10365)?
a. jewelry dealers in precious metals and precious stones for
transactions in excess of P1M;
b. company service providers which, as a business, provide
any of the following services to third parties:
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(i) acting as a formation agent of juridical persons;


(ii) acting as (or arranging for another person to act as)
a director or corporate secretary of a company, a
partner of a partnership, or a similar position in
relation to other juridical persons;
(iii) providing a registered office, business address or
accommodation, correspondence or administrative
address for a company, a partnership or any other
legal person or arrangement; and
(iv) acting as (or arranging for another person to act as)
a nominee shareholder for another person; and
c. 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.

37. Are lawyers and accountants covered persons?


No. Covered persons 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.

38. What are the unlawful activities under AMLA?


Unlawful activity used to be only the following items:
1. Kidnapping for ransom;
2. Sections 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15 and 16 of RA9165,
of the Comprehensive Dangerous Drugs Act of 2002;
3. Section 3 paragraphs B, C, E, G, H and I of RA3019 or the
Anti-Graft and Corrupt Practices Act;
4. Plunder;
5. Robbery and extortion;
6. Jueteng and Masiao;
7. Piracy on the high seas;
8. Qualified theft;
9. Swindling;
10. Smuggling;
11. Violations of RA8792, or the Electronic Commerce Act of
2000;
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12. Hijacking and other violations under RA6235; destructive


arson and murder;
13. Fraudulent practices and other violations under RA8799 or
the Securities Regulation Code of 2000;
14. Felonies or offenses of a similar nature that are punishable
under the penal laws of other countries.

However, the following are additional unlawful activities:


1. Terrorism and conspiracy to commit terrorism;
2. Financing of terrorism under RA10168 or the Terrorism
Financing Prevention and Suppression Act of 2012;
3. Bribery and Corruption of Public Officers;
4. Frauds and Illegal Exactions and Transactions;
5. Malversation of Public Funds and Property;
6. Forgeries and Counterfeiting;
7. Violations of Sections 4 to 6 of RA9208, or Anti-Trafficking in
Persons Act of 2003;
8. Violations of Sections 78 to 79 of Chapter IV, of PD705, or
Revised Forestry Code of the Philippines;
9. Violations of Sections 86 to 106 of Chapter VI, of RA8550,
or the Philippine Fisheries Code of 1998;
10. Violations of Sections 101 to 107, and 110 of RA7942, or the
Philippine Mining Act of 1995;
11. Violations of Section 27(c), (e), (f), (g) and (i), of RA9147,
or the Wildlife Resources Conservation and Protection Act;
12. Violation of Section 7(b) of RA9072, or the National Caves
and Cave Resources Management Protection Act;
13. Violation of RA6539, or Anti-Carnapping Act of 2002;
14. Violations of Sections 1, 3 and 5 of PD1866;
15. Violation of PD1612, or the Anti-Fencing Law;
16. Violation of Section 6 of RA8042, or the Migrant Workers
and Overseas Filipinos Act of 1995, as amended by
RA10022;
17. Violation of RA8293, or the Intellectual Property Code of
the Philippines;
18. Violation of Section 4 of RA9995, or Anti-Photo and Video
Voyeurism Act of 2009;
19. Violation of Section 4 of RA9775, or Anti-Child
Pornography Act of 2009;
20. Violations of Sections 5, 7, 8, 9, 10(c), (d) and (e), 11, 12
and 14 of RA7610.

39. Is a court order required for for examination by AMLC of


deposits?
No. But per Sec. 11 of RA 10167 no court order shall be
required if the following are the predicate crimes:
1. Kidnapping for ransom;

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2. Sections 4, 5, 6, 8, 9, 10, 11, 12, 13, 14, 15 and 16 of RA9165,


of the Comprehensive Dangerous Drugs Act of 2002;
3. Hijacking and other violations under RA6235; destructive
arson and murder;
4. Terrorism and conspiracy to commit terrorism (also under
RA 10168)

40. What is money laundering?


It 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. performs or fails to perform any act as a result of which he
facilitates the offense of money laundering
c. any person knowing that any monetary instrument or
property is required to be disclosed and filed with the Anti-
Money Laundering Council, fails to do so.

The following are also additional instances:


a. converts, transfers, disposes of, moves, acquires, possesses
or uses said monetary instrument or property;
b. conceals or disguises the true nature, source, location,
disposition, movement or ownership of or rights with
respect to said monetary instrument or property;
c. attempts or conspires to commit money laundering
offenses;
d. aids, abets, assists in or counsels the commission of the
money laundering offenses

General Banking Law and New Central Bank Act

41. Can a bank outsource the cashiering (i.e., cash-delivery and


deposit pick-up) and accounting requirements including check
clearing, delivery of bank statements, fund transfers, card
production, operations accounting and control, and cash
servicing?
Yes. The subject functions were not related or not integral
to the main business or operation of the principal which is the
lending of funds obtained in the form of deposits. 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. BPI Employees Union
vs. BPI, July 24, 2013, J. Mendoza

42. Can a bank enter into two-year contracts of lease of properties


ceded to them through dacion en pago?
15

Yes. Section 52 gives banks 5 years to dispose of


properties conveyed to them in satisfaction of debts previously
contracted in the course of its dealings. Union Bank vs. Tiu, G.R.
No. 17309192, September 7, 2011

43. Banks are competing over the ownership of certain securities


bought by the BSP pursuant to its exercise of open market
operation. Can the BSP adjudicate its ownership?
No. When competing claims of ownership over the
proceeds of the securities it has issued are brought before it, the
law has not given the BSP the quasi-judicial power to resolve
these competing claims as part of its power to engage in open
market operations. Nothing in the BSP's charter confers on the
BSP the jurisdiction or authority to determine this kind of claims,
arising out of a subsequent transfer or assignment of evidence
of indebtedness — a matter that appropriately falls within the
competence of courts of general jurisdiction. Bank of
Commerce vs. Planters Development Bank, September 24, 2012

44. What is “open market operation”?


Open market operation is a monetary tool where the BSP
publicly buys or sells government securities from (or to) banks
and financial institutions in order to expand or contract the
supply of money. By controlling the money supply, the BSP is
able to exert some influence on the prices of goods and
services and achieve its inflation objectives. Bank of
Commerce vs. Planters Development Bank, September 24, 2012

45. What is the redemption period for a corporation?


Section 47 of RA 8791 provides that when a property of a
juridical person is sold pursuant to an extrajudicial foreclosure, it
"shall have the right to redeem the property in accordance with
this provision until, but not after, the registration of the
Certificate of foreclosure sale with the applicable Register of
Deeds which in no case shall be more than three (3) months
after foreclosure, whichever is earlier."
Grandwood had three months from the foreclosure or
before the certificate of foreclosure sale was registered to
redeem the foreclosed property. This holds true even when
Metrobank ceased to be the mortgagee in view of its
assignment to ARC of its credit, because the latter acquired all
the rights of the former under the mortgage contract —
including the shorter redemption period. White Marketing
Development Corp. vs. Grandwood Furniture and Woodwork,
Inc., November 23, 2016, J. Mendoza

46. What is the purpose in providing for a shorter redemption period


for juridical persons?
16

The difference in the treatment of juridical persons and


natural persons was based on the nature of the properties
foreclosed — whether these are used as residence, for which
the more liberal one-year redemption period is retained, or
used for industrial or commercial purposes, in which case a
shorter term is deemed necessary to reduce the period of
uncertainty in the ownership of property and enable
mortgagee-banks to dispose sooner of these acquired assets.
The General Banking Law of 2000, crafted in the aftermath of
the 1997 Southeast Asian financial crisis, sought to reform the
General Banking Act of 1949 by fashioning a legal framework
for maintaining a safe and sound banking system. In this
context, the amendment introduced by Section 47 embodied
one of such safe and sound practices aimed at ensuring the
solvency and liquidity of our banks. White Marketing
Development Corp. vs. Grandwood Furniture and Woodwork,
Inc., November 23, 2016, J. Mendoza

47. What is a deposit substitute?


It is an alternative form of obtaining funds from the public,
other than deposits, through the issuance, endorsement, or
acceptance of debt instruments for the borrower's own
account, for the purpose of relending or purchasing of
receivables and other obligations. Banco de Oro vs. Republic,
August 16, 2016, J. Leonen

48. Can a bank officer be held for DOSRI violation when the bank
officer did not secure a loan in his own name, but was alleged
to have used the name of another person in order to indirectly
secure a loan from the bank?
Yes. The prohibition in Section 83 is broad enough to
cover various modes of borrowing. It covers loans by a bank
director or officer (like herein petitioner) which are made either:
(1) directly, (2) indirectly, (3) for himself, (4) or as the
representative or agent of others. It applies even if the director
or officer is a mere guarantor, indorser or surety for someone
else's loan or is in any manner an obligor for money borrowed
from the bank or loaned by it. The covered transactions are
prohibited unless the approval, reportorial and ceiling
requirements under Section 83 are complied with. The
prohibition is intended to protect the public, especially the
depositors, from the overborrowing of bank funds by bank
officers, directors, stockholders and related interests, as such
overborrowing may lead to bank failures. Soriano vs. People,
February 1, 2010, J. Del Castillo

49. What is a direct vs. indirect borrowing?

17

A direct borrowing is obviously one that is made in the


name of the DOSRI himself or where the DOSRI is a named
party, while an indirect borrowing includes one that is made by
a third party, but the DOSRI has a stake in the transaction. The
latter type — indirect borrowing — applies here.
The broad interpretation of the prohibition in Section 83 is
justified by the fact that it even expressly covers loans to third
parties where the third parties are aware of the transaction
(such as principals represented by the DOSRI), and where the
DOSRI's interest does not appear to be beneficial but even
burdensome (such as in cases when the DOSRI acts as a mere
guarantor or surety). If the law finds it necessary to protect the
bank and the banking system in such situations, it will surely be
illogical for it to exclude a case like this where the DOSRI acted
for his own benefit, using the name of an unsuspecting person.
A contrary interpretation will effectively allow a DOSRI to use
dummies to circumvent the requirements of the law. Soriano
vs. People, February 1, 2010, J. Del Castillo

Secrecy of Bank Deposits

50. A father has a joint dollar account with his daughter in Citibank.
The daughter withdrew the funds and opened a new account
with China Bank. Can the father examine the same?
Yes. There is no issue as to the source of the funds. Mary
Margaret Dee declared the source to be Jose Gotianuy. There
is likewise no dispute that these funds in the form of Citibank US
dollar Checks are now deposited with China Bank. As the
owner of the funds unlawfully taken and which are undisputably
now deposited with China Bank, Jose Gotianuy has the right to
inquire into the said deposits. China Banking Corp vs. CA, 511
SCRA 110

Truth in Lending Act

51. The borrowers were given copies of the promissory notes after
their execution. Is there substantial compliance with the Truth in
Lending Act?
None. Section 4 of the Truth in Lending Act clearly
provides that the disclosure statement must be furnished prior to
the consummation of the transaction.
The rationale of this provision is to protect users of credit
from a lack of awareness of the true cost thereof, proceeding
from the experience that banks are able to conceal such true
cost by hidden charges, uncertainty of interest rates, deduction
of interests from the loaned amount. The law thereby seeks to
protect debtors by permitting them to fully appreciate the true
cost of their loan, to enable them to give full consent to the
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contract, and to properly evaluate their options in arriving at


business decisions. UCPB vs. Beluso, 530 SCRA 567

52. What happens to the loan when there is no compliance with


the Truth in Lending Act?
If the borrower is not duly informed of the data required
by the law prior to the consummation of the availment or
drawdown, the lender will have no right to collect such charge
or increases thereof, even if stipulated in the promissory note.
However, such failure shall not affect the validity or
enforceability of any contract or transaction.
Nonetheless, there is substantial compliance even if the
bank failed to disclose the requisite information in the disclosure
statement form authorized by the Central Bank, but did so in
the loan transaction documents between it and Arcilla. DBP
vs. Arcilla, 462 SCRA 599

Unclaimed Balances Law

53. Must a bank issue individual notices upon depositors with


unclaimed balances?
No. As to depositors or other claimants of the unclaimed
balances, service is made by publication of a copy of the
summons in a newspaper of general circulation in the locality
where the institution is situated. Issuance of individual notices
upon depositors is not required.
In case the bank complies with the provisions of the law
and the unclaimed balances are eventually escheated to the
Republic, the bank "shall not thereafter be liable to any person
for the same and any action which may be brought by any
person against in any bank for unclaimed balances so
deposited shall be defended by the Solicitor General without
cost to such bank." RCBC vs. Hi-Tri Devt. Corp., June 13, 2012, J.
Sereno

PDIC

54. Citibank and Bank of America placed funds in their respective


branches in the Philippines. Should they be treated as deposits
made by third parties subject to deposit insurance under the
PDIC?
No. It is apparent that Citibank and BA did not
incorporate a separate domestic corporation to represent its
business interests in the Philippines. Their Philippine branches are
merely branches, without a separate legal personality from their
parent company, Citibank and BA. Thus, being one and the
same entity, the funds placed by the Citibank and BA in their
respective branches in the Philippines should not be treated as
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deposits made by third parties subject to deposit insurance


under the PDIC. PDIC vs. Citibank, April 11, 2012

55. What is “close now, hear later” doctrine?


The "close now, hear later" doctrine is justified as a
measure for the protection of the public interest. Swift action is
called for on the part of the BSP when it finds that a bank is in
dire straits.
Thus, MB may forbid a bank from doing business and
place it under receivership without prior notice and hearing.
RA 7653 provides, whenever, upon report of the head of the
supervising or examining department, the Monetary Board finds
that a bank or quasi-bank:
a. is unable to pay its liabilities as they become due in the
ordinary course of business: Provided, That this shall not
include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;
b. has insufficient realizable assets, as determined by the
BSP, to meet its liabilities; or
c. cannot continue in business without involving probable
losses to its depositors or creditors; or
d. has wilfully violated a cease and desist order under
Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of the
assets of the institution; in which cases, the Monetary
Board may summarily and without need for prior hearing
forbid the institution from doing business in the Phils and
designate the PDIC as receiver of the banking institution.
Vivas vs. Monetary Board, August 7, 2013, J. Mendoza

Trust Receipts Law

56. What is a trust receipt transaction?


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. Hur Tin Yang vs. People, August 14, 2013, J. Velasco

57. Is there a trust receipt transaction when the entruster knew that
the goods are not intended to be sold?
None. The fact that the entruster bank knew even before
the execution of the trust receipt agreements that the
construction materials covered were never intended by the
entrustee for resale or for the manufacture of items to be sold is
sufficient to prove that the transaction was a simple loan and
not a trust receipts transaction. Hur Tin Yang vs. People, August
14, 2013, J. Velasco

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58. Is there a trust receipt transaction when the money is intended


to be used for construction purposes?
None. The transaction was a secured loan and not a trust
receipt. The parties were aware that ACDC could not possibly
be obligated to reconvey to Land Bank the materials or the
end product for which they were used. Land Bank vs. Perez,
June 13, 2012

Letters of Credit

59. What is a letter of credit?


It is a written instrument whereby the writer requests or
authorizes the addressee to pay money or deliver goods to a
third person and assumes responsibility for payment of debt
therefor to the addressee. PNB vs. San Miguel, January 15, 2014
It 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.
Through a letter of credit, a buyer obtains the credit of a third
party, usually a bank, to provide assurance of payment. This, in
turn, convinces a seller to part with his or her goods even before
he or she is paid, as he or she is insured by the third party that
he or she will be paid as soon as he or she presents the
documents agreed upon. HSBC vs. National Steel Corp.,
February 24, 2016, J. Jardeleza

60. Can the issuing bak relieve itself of liability?


No, following the “independence principle”.
The engagement of the issuing bank is to pay the seller or
beneficiary of the credit once the draft and the required
documents are presented to it.
The "independence principle" assures the seller or the
beneficiary of prompt payment independent of any breach of
the main contract and precludes the issuing bank from
determining whether the main contract is actually
accomplished or not.
The independence principle liberates the issuing bank
from the duty of ascertaining compliance by the parties in the
main contract. As the principle's nomenclature clearly suggests,
the obligation under the letter of credit is independent of the
related and originating contract. The letter of credit is separate
and distinct from the underlying transaction. PNB vs. San
Miguel, January 15, 2014

61. Is there any exception to the independence principle?

21

Yes. Fraud is an exception. 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. 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. Transfield
vs. Luzon Hydro, November 22, 2004

62. What are the types of letters of credit?


These are commercial (for sale settings) and standby (for
non-sale settings).
There are three significant differences between them. First,
commercial credits involve the payment of money under a
contract of sale. Such credits become payable upon the
presentation by the seller-beneficiary of documents that show
he has taken affirmative steps to comply with the sales
agreement. In the standby type, the credit is payable upon
certification of a party's nonperformance of the agreement.
The documents that accompany the beneficiary's draft tend to
show that the applicant has not performed. The beneficiary of
a commercial credit must demonstrate by documents that he
has performed his contract. The beneficiary of the standby
credit must certify that his obligor has not performed the
contract. Transfield vs. Luzon Hydro, November 22, 2004

63. Can the bank refuse payment because it will not be able to
collect from the buyer?
No. Under the Independence Principle, an issuing bank
assumes no liability or responsibility "for the form, sufficiency,
accuracy, genuineness, falsification or legal effect of any
documents, or for the general and/or particular conditions
stipulated in the documents or superimposed thereon". Thus, as
long as the proper documents are presented, the issuing bank
has an obligation to pay even if the buyer should later on refuse
payment. Hence, Klockner's refusal to pay carries no effect
whatsoever on HSBC's obligation to pay under the Letter of
Credit. To allow HSBC to refuse to honor the Letter of Credit
simply because it could not collect first from Klockner is to
countenance a breach of the Independence Principle. HSBC
vs. National Steel Corp., February 24, 2016, J. Jardeleza

64. What are the three transactions and three parties in a letter of
credit?

22

The first transaction, which constitutes the underlying


transaction in a letter of credit, is a contract of sale between
the buyer and the seller. The contract may require that the
buyer obtain a letter of credit from a third party acceptable to
the seller. The obligations of the parties under this contract are
governed by our law on sales.
The second transaction is the issuance of a letter of credit
between the buyer and the issuing bank. The buyer requests
the issuing bank to issue a letter of credit naming the seller as
the beneficiary. In this transaction, the issuing bank undertakes
to pay the seller upon presentation of the documents identified
in the letter of credit. The buyer, on the other hand, obliges
himself or herself to reimburse the issuing bank for the payment
made.
The third transaction takes place between the seller and
the issuing bank. The issuing bank issues the letter of credit for
the benefit of the seller. The seller may agree to ship the goods
to the buyer even before actual payment provided that the
issuing bank informs him or her that a letter of credit has been
issued for his or her benefit. This means that the seller can draw
drafts from the issuing bank upon presentation of certain
documents identified in the letter of credit. HSBC vs. National
Steel Corp., February 24, 2016, J. Jardeleza

65. What are the roles of the correspondent bank, notifying bank,
negotiating bank or confirming bank in a letter of credit?
A correspondent bank facilitates the ease of completing
the transactions. A correspondent bank may be a notifying
bank, a negotiating bank or a confirming bank depending on
the nature of the obligations assumed.
A notifying bank undertakes to inform the seller-
beneficiary that a letter of credit exists. It may also have the
duty of transmitting the letter of credit. As its obligation is limited
to this duty, it assumes no liability to pay under the letter of
credit.
A negotiating bank, on the other hand, purchases drafts
at a discount from the seller-beneficiary and presents them to
the issuing bank for payment. Prior to negotiation, a negotiating
bank has no obligation. A contractual relationship between the
negotiating bank and the seller-beneficiary arises only after the
negotiating bank purchases or discounts the drafts.
A confirming bank may honor the letter of credit issued by
another bank or confirms that the letter of credit will be
honored by the issuing bank. A confirming bank essentially
insures that the credit will be paid in accordance with the terms
of the letter of credit. It therefore assumes a direct obligation to
the seller-beneficiary. HSBC vs. National Steel Corp., February
24, 2016, J. Jardeleza
23

Financial Rehabilitation and Insolvency Act

66. What is “cram down” doctrine?


It means that courts have the power to approve a
rehabilitation plan over the objection of creditors and even
when such proposed rehabilitation plan involves the
impairment of contractual obligations. Victorino-Aquino vs.
Pacific Plans, December 10, 2014, J. Peralta

67. Can an insolvent corporation qualify for rehabilitation?


Yes. Republic Act No. 10142 (Financial Rehabilitation and
Insolvency Act (FRIA), rehabilitation proceedings covers a
corporate debtor. The latter is defined as a corporation duly
organized and existing under Philippine laws that has become
insolvent - the financial condition of a debtor that is generally
unable to pay its or his liabilities as they fall due in the ordinary
course of business or has liabilities that are greater than its or his
assets. As such, the contention that rehabilitation becomes
inappropriate because of the perceived insolvency of Basic
Polyprinters was incorrect. PBCom vs. Basic Polyprinters,
October 20, 2014, J. Bersamin

68. What is a corporate rehabilitation case?


It is a special proceeding in rem wherein the petitioner
seeks to establish the status of a party or a particular fact, i.e.,
the inability of the corporate debtor to pay its debts when they
fall due. It is summary and non-adversarial in nature. Its end
goal is to secure the approval of a rehabilitation plan to
facilitate the successful recovery of the corporate debtor. It
does not seek relief from an injury caused by another party.
Golden Cane Furniture Manufacturing Corp. vs. Steelpro Phils.,
Inc., April 4, 2016, J. Brion

69. Who has jurisdiction over corporate rehabilitation cases?


This originally fell within the jurisdiction of the Securities and
Exchange Commission but with the enactment of the Securities
Regulation Code in 2000, this jurisdiction was transferred to the
Regional Trial Courts. Golden Cane Furniture Manufacturing
Corp. vs. Steelpro Phils., Inc., April 4, 2016, J. Brion

70. What is the purpose behind rehabilitation?


Restoration is the central idea behind the remedy of
corporate rehabilitation. In common parlance, to "restore"
means "to bring back to or put back into a former or original
state." Corporate 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
24

and solvency, the purpose being to enable the company to


gain a new lease on life and allow its creditors to be paid their
claims out of its earnings. BPI Family Savings Bank vs. St.
Michael Medical Center, March 25, 2015, J. Perlas-Bernabe

71. What is the significance of a material financial commitment in


rehabilitation?
It is significant in gauging the resolve, determination,
earnestness and good faith of the distressed corporation in
financing the proposed rehabilitation plan. This commitment
may include the voluntary undertakings of the stockholders or
the would-be investors of the debtor-corporation indicating
their readiness, willingness and ability to contribute funds or
property to guarantee the continued successful operation of
the debtor corporation during the period of rehabilitation. BPI
Family Savings Bank vs. St. Michael Medical Center, March 25,
2015, J. Perlas-Bernabe

25