LETTERS OF CREDIT AND TRUST RECEIPTS

Q: Define a letter of credit.

A: It is an engagement by a bank or other person made at the request of a customer that the issuer will honor
drafts or other demands for payment upon compliance with the conditions specified in the credit. (Prudential
Bank vs. IAC, 1992)

Q: What is the Independence Principle?

A: 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. (PNB vs. San Miguel Corporation, 2014)

Q: Explain the Fraud Exception Rule.

A: Fraud or forgery is an exception to the doctrine of independence. 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 (Transfield Philippines vs. Luzon
Hydro Corp, 2004)

Q: Explain the Doctrine of Strict Compliance.

A: The issuing bank or the confirming bank must examine the tender documents and must make sure that the
terms and conditions of the letters of credit are strictly complied with. The bank has no discretion to waive the
requirement. Tender documents must not only be complete but they must on their faces be in compliance with
the terms of the credit. Documents that are not stipulated as tender documents will not be examined (Feati Bank
& Trust Co. vs. CA, 1991)

Q: Define a trust receipt transaction.

A: In general, a trust receipt transaction imposes upon the entrustee the obligation to deliver to the entruster
the price of the sale. If the merchandise is not sold, to return the same to the entruster.

Q: What is a warehouseman’s lien?

A: A warehouseman’s lien is a lien over the goods deposited with him as his security for the payment of lawful
charges, advances and other expenses in relation to such goods. (Sec. 27, Act No. 2137)

Q: How may lien be lost?

A: Lien may be lost by the following:
1. By surrendering possession of the goods;
2. By refusing to deliver the goods when a demand is made with which he is bound to comply (Sec. 29,
Act No. 2137)

NEGOTIABLE INSTRUMENTS LAW

Q: What are the requisites of negotiability?

A: It must be:
1. In writing;
2. Signed by the maker or drawer;
3. Must be payable on demand, or at a fixed or determinable future time;
4. It must payable to order or to bearer;
5. Where an instrument is addressed to a drawee, he must be named therein or otherwise indicated with
reasonable certainty

Q: What is the fictitious payee rule?

A: When the payee is fictitious or is not intended to be the true recipient of the proceeds, the negotiable
instrument is considered as a bearer instrument.

Q: What is the liability of the bank under the fictitious-payee rule?

A: The drawee bank is absolved from liability and the drawer bears the loss. The underlying theory is that one
cannot expect a fictitious payee to negotiate the check by placing his indorsement thereon. Since the drawer
knew this limitation, he must have intended for the instrument to be negotiated by mere delivery.

Q: Is there an exception to the non-liability of the drawee bank?

A: Yes. Under the Commercial Bad Faith exception, when the drawee bank acts dishonestly and when it is a party
to the fraud, it shall be held liable. (PNB v. Rodriguez, GR No. 170325, 2008)

Q: May the purchaser of a manager’s check (drawee bank) interpose personal defenses of the purchaser in
refusing to pay a manager’s check?
A: Yes. The drawee bank of a manager's check may interpose personal defenses of the purchaser of the manager's
check if the holder is not a holder in due course. While this Court has consistently held that a manager's check is
automatically accepted, a holder other than a holder in due course is still subject to defenses. (RCBC Savings Bank
vs. Orada, 2016)
Q: What is the extent or effect of Forgery under the Negotiable Instruments Law?
A:
1. Only the signature forged is the one inoperative, the instrument itself and the genuine signatures are
valid.
2. An instrument indorsed which on its face is payable to bearer may be enforced by the holder to whose
title over the instrument the forged signature is not necessary; and
3. An instrument can be enforced against those who are precluded from setting up the defense of forgery

Q: Who are persons precluded from setting up the defense of forgery?

A:
1. Those who warrant or admit the genuineness of the signature in question:
a. Indorsers – warrant that the instrument is genuine and in all respects what it purports to be.
(Sec. 65, NIL)
b. Persons negotiating an instrument by delivery – also warrant that the instrument is genuine
and in all respects what it purports to be. (Sec. 65, NIL)
c. Acceptors – by accepting the bill, the drawee admits the genuineness of the signature of the
drawer. (Sec. 62, NIL)
2. Those who, by their acts, silence or negligence, are estopped from setting up the defense of forgery

Q: What are the effects of material alteration?

A:
1. Instrument with material alteration if done without assent of all parties liable thereon; is avoided, except
as against the party who made, authorized or assented to the alteration and subsequent indorsers;
2. When the instrument materially altered is in the hands of holder in due course and not party to
alteration; may enforce payment thereof according to original tenor;
3. Drawee bank, is under strict liability to pay to the order of the payee in accordance with the drawer's
instructions as reflected on the face and by the terms of the check. Payment made under materially
altered instrument is not payment done in accordance with the instruction of the drawer. (Metrobank
vs. Cabilzo, 2006)

Q: What is the liability of a collecting bank if it presents a forged or materially altered check?
A: A collecting bank is an indorser, and is therefore liable for the warranties under Sec. 66 of the NIL. In check
transaction, the depositary/collecting bank or last endorser generally suffers the loss because it has the duty to
ascertain the genuineness of all prior endorsement considering that the act of presenting the check for payment
is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the
indorsements. (Metrobank & Trust Company v. BA Finance Corp., GR No. 179952, 2009)

Q: What are the requisites to be an accommodation party?

A:
1. Accommodation party must sign as maker, acceptor, indorser, or drawer;
2. No value is received by the accommodation party from the accommodated party; and
3. The purpose is to lend the name or credit to some other person.

Q: What is a Restrictive Indorsement?

A: The instrument is restrictive when:
1. Prohibits further negotiation of the instrument;
2. Indorsee as agent of indorser; or
3. Vests title in indorsee in trust for or for the use of some persons.

Note: Mere absence of the words implying power to negotiate does not make an indorsement restrictive. (Sec.
36, NIL)

Q: What does “acquisition in good faith” mean?

A: Taking without knowledge or notice of equities of any sort which could be set up against a prior holder of the
instrument. It means that he does not have any knowledge of fact which would render it dishonest for him to
take a negotiable paper. The absence of the defense, when the instrument was taken, is the essential element of
good faith. (Patrimonio vs. Gutierrez, 2014)

Q: What are the real defenses that may be raised by a holder in due course?
A:
1. Forgery [Sec. 23]
2. Fraud in factum
3. Execution between public enemies
4. Ultra vires acts of a corporation
5. Absence of delivery of incomplete instrument [Sec. 15]
6. Duress amounting to forgery
7. Minority (available only to the minor)
8. Material alteration (Secs. 124, 125)
9. Want of authority of agent
10. Illegality of contract
11. Want of marital consent
 12. Insanity

Q: What are the personal defenses that may be raised by holders?

A:
1. Absence or failure of consideration [Sec. 28]
2. Absence of delivery of complete instrument [Sec. 16]
3. Insertion of wrong date when date is necessary
4. Filling up blanks in excess of authority [Sec. 14]
5. Fraud in inducement
6. Acquisition of instrument by ordinary duress, force, or fear
7. Negotiation in breach of faith or under circumstances amounting to fraud [Sec. 55]
8. Conditional delivery or delivery for a special purpose of a complete instrument [Sec. 16]
9. Acquisition through unlawful means [Sec. 55]
10. Illegality of consideration
11. Ante-dating or post-dating a check for illegal or fraudulent purpose [Sec. 12]

Q: Explain the Shelter Rule.

A: A holder who derives his title through a holder in due course, and who is not himself a party to any fraud or
illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the
latter. (Sec. 58, NIL)

Q: What is the 24-Hour Clearing Rule?

A: The rule mandates that the checks be returned within twenty-four (24) hours after discovery of the forgery
but in no event beyond the period fixed by law for filing a legal action. The rationale of the rule is to give the
collecting bank (which indorsed the check) adequate opportunity to proceed against the forger. If prompt notice
is not given, the collecting bank may be prejudiced and lose the opportunity to go after its depositor. (Sec. 4 (c),
Central Bank Circular No. 580)

Q: What are the effects of a crossed check?

A:
1. that the check may not be encashed but only deposited in the bank;
2. that the check may be negotiated only once — to one who has an account with a bank; and
3. that the act of crossing the check serves as a warning to the holder that the check has been issued for a
definite purpose so that he must inquire if he has received the check pursuant to that purpose.

INSURANCE

Q: What are the elements of an Insurance contract?

A: An insurance contract must have the following elements to be valid:
1. Scheme to distribute losses;
2. Payment or premium;
3. Existence of insurable interest;
4. Assumption of Risk; and
5. Risk of loss.

Q: What is insurable interest?

A: A person is deemed to have an insurable interest in the subject matter where he has a relation or connection
with or concern in it that he will derive pecuniary or financial benefit or advantage from its preservation and will
suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured
against.

Q: Distinguish insurable interest in life insurance from insurable interest in property insurance.
A:
LIFE INSURANCE PROPERTY INSURANCE
Extent as to amount Unlimited, except in life insurance effected by Limited to the actual value of the interest on
the creditor on the life of the debtor to the the property.
extent of the debt.
Time when the At the time the policy takes effect only. At the time the policy takes effect and at the
insurable interest time of the loss but need not exist in the
must exist meantime.
Expectation of Need not have any legal basis. There must be a legal basis.
benefit to be
derived
Beneficiary’s Need not have insurable interest in the life of the Must have insurable interest over the
interest insured. property insured.

Q: What are insurable interests in a property?

A: Insurable interest in property may consist of:
1. An existing interest;
 2. An inchoate interest founded on an existing interest; and
3. An expectancy coupled with an existing interest in that out of which the expectancy arises. (Sec. 14, IC)

Note: In property insurance, an interest insured must exist when the insurance takes effect and when the loss
occurs but need not exist in the meantime. The measure of an insurable interest in property is the extent to
which the insured might be damnified by loss or injury thereof. (Sec. 19, ICP)

Q: Distinguish double insurance from reinsurance.

A:
DOUBLE INSURANCE REINSURANCE
Involves the same interest Involves different interest
Insurer remains in such capacity Insurer becomes the insured in relation to reinsurer
Insured is the party in interest in the 2 contracts Original insured has no interest in the reinsurance contract.
Subject of insurance is property Subject of insurance is the original insurer’s risk
Insured has to give his consent Insured’s consent not necessary

Q: What is a “no fault” indemnity clause?

A: It is a clause where the insurer is required to pay a third party injured or killed in an accident without the
necessity of proving fault or negligence on the part of the insured. There is a stipulated maximum amount to be
recovered.

Q: What is the liability of the insurer in case of suicide by the insured?

A:
General Rule: The insurer in a life insurance contract shall be liable in case of suicide only when it is committed
after the policy has been in force for a period of two (2) years from the date of its issue or of its last reinstatement.

Exception:The policy provides a shorter period;

Exception to the Exception: That suicide committed in the state of insanity shall be compensable regardless of
the date of commission.

Q: What is an incontestability clause?

A: It is found in Section 48 of the Insurance Code. The law provides that after a policy of life insurance made
payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two
(2) years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab
initio or is rescindible by reason of fraudulent concealment or misrepresentation of the insured or his agent.
Exceptions:
a. Non-Payment of Premium; and
b. Violation of the conditions of the policy relating to military or naval service in times of war.

Q: What is the rule on payment of premiums in relation to the insurance policy?

A: As a general rule, no insurance policy issued is valid and binding until actual payment of the premium. Any
agreement to the contrary is void. Parties may not agree expressly or impliedly on the extension of credit or time
to pay the premium and consider the policy binding after actual payment.
Exceptions:
1. Life and industrial life whenever the grace period applies; (Sec. 77, ICP)
2. Acknowledgment in the contract or policy of insurance that the premium had already been paid;
3. If parties have agreed to the payment of premium in installments and partial payment has been made at
the time of loss;
4. 60 - 90 day credit term for the payment of the premiums; and
5. Parties are barred by estoppel.

Q: What are the effects of non-payment of premiums?

A: Non-payment of the first premium unless waived, prevents the contract from becoming binding
notwithstanding the acceptance of the application or the issuance of the policy. Non-payment of the subsequent
premiums does not affect the validity of the contracts unless, by express stipulation, it is provided that the policy
shall in that event be suspended or shall lapse.

Q: Within what period shall the holder of the policy be entitled to reinstatement of the contract?
A: The law requires that the policy owner be permitted to reinstate the policy, subject to the violations specified,
any time within three (3) years from the date of default of premium payment. A longer period, being more
favorable to the insured, may be used.

Q: When is there no right of subrogation?

A:
1. Insured by his own act releases the wrongdoer/ third person liable for the loss;
2. Where the insurer pays the insured for a loss or risk not covered by the policy (Pan Malayan Insurance
Co. vs. CA, 1990);
 3. Life insurance;
4. Recovery of loss in excess of insurance coverage.

Q: What are the requisites for concealment to vitiate a contract of insurance?

A:
1. The matter concealed must be material; and
2. There must be an obligation of the insured to reveal the concealed matter to the insurer.

Q: What is the rule on notice of cancellation?

A: All notices of cancellation mentioned in the preceding Section 64 ICP shall be in writing, mailed or delivered
to the named insured at the address shown in the policy, and shall state: (a) which of the grounds set forth in the
abovementioned section is relied upon and (b) that, upon written request of the named insured, the insurer will
furnish the facts on which the cancellation is based. (Sec. 5, ICP)

Q: What is warranty?
A: A statement or promise set forth in the policy or by reference incorporated therein, the untruth or non-
fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such
untruth or non-fulfillment, renders the policy VOIDABLE by the insurer.

Q: What are the conditions before the insured may recover on the policy after the loss?
A:
1. The insured or some person entitled to the benefit of the insurance, without unnecessary delay, must
give written notice to the insurer (Sec. 90, ICP); and
2. When required by the policy, insured must present a preliminary proof of loss which is the best
evidence he has in his power at the same time. (Sec. 91, ICP)

TRANSPORTATION LAW

Q: Distinguish a common carrier from a private carrier.

A:
COMMON CARRIER PRIVATE CARRIER

As to the character of Holds himself out to the public An isolated transaction, not a part of the
business business or occupation, and the carrier
does not hold itself out to carry the goods
for the general public or to a limited
clientele, although involving the carriage
of goods for a fee, the person or
corporation

Diligence Required Extraordinary diligence Ordinary diligence

Law applicable New Civil Code provisions on Law on obligations and contracts
common carriers

Presumption of Fault There is a presumption of fault or No presumption of fault or negligence

negligence in case of loss,
destruction, deterioration of
goods or death, or injury of
passengers

Burden of Proof Burden to prove that Burden to prove that there was damage
extraordinary diligence lies with lies with the plaintiff
the defendant

Q: When does a common carrier become a private carrier?

A: A common carrier becomes a private carrier when it undertakes to carry a special cargo or chartered to a
special person only. (Malayan Insurance Co. Inc., vs. Philippines First Insurance Co., Inc., 2012)

Q: What are the instances where the Supreme Court held that a person, corporation, firm or association was
a common carrier?
A:
1. Oil pipelines are considered common carriers because it undertakes to carry the goods by land and for
compensation for all persons indifferently (First Philippine Industrial Corp v. CA, 1998)
2. A lighterage company which offers its barges to the public for the carrying or transporting of goods by
water for compensation, is a common carrier, even though the services are done on an irregular manner.
A common carrier need not have a fixed and publicly known routes, nor does it have to maintain
terminals or issue tickets (Asia Lighterage v CA, 2003)
3. Operators of school bus services are common carriers in that they are engaged in transporting
passengers generally as a business, not just as a casual occupation; (b) undertaking to carry passengers
 over established roads by the method by which the business was conducted; and (c) transporting
students for a fee. Despite catering to a limited clientèle, they operate as a common carrier because they
hold themselves out as a ready transportation indiscriminately to the students of a particular school
living within or near where they operated the service and for a fee. (Pereña v. Zarate, 2012)
4. A customs broker is a common carrier due to the transportation of goods being integral to the nature of
business (Calvo v. UCPB, 2002)
5. The operator of a beach resort that accepts clients by virtue of a tour package is a common carrier. Its
services are so intertwined with its main business as to be properly considered ancillary thereto (Cruz
v. Sun Holidays, 2010)

Q: What is the prescriptive period for filing an action for lost or damaged goods under the Carriage of Goods
by Sea Act (COGSA)?
A: The prescriptive period is one (1) year after the delivery of the goods or the date when goods should have been
delivered. Failure to comply with the notice requirement shall not affect or prejudice the right of the shipper to
bring suit (Philam Insurance Company, Inc. v. Heung-A Shipping Corporation, 2014).

Q: What is the rule concerning the consignee in a Bill of Lading?

A: General Rule: a consignee is not a signatory to the contract of carriage between the shipper and the carrier
Exceptions: A consignee becomes a party when:
1. There is an agency relationship between consignee and the shipper/consignor
2. Unequivocal Acceptance of the bill of lading. Once the consignee received the bill without objecting to
its terms and stipulations, that is unequivocal acceptance.
3. Availment of stipulation pour atrui (consignee as third person demands the fulfillment of the stipulation
made for the consignee’s favor) (MOF Company vs. Shin Yang Brokerage, 2009)

Q: Is a common carrier an insurer of the absolute safety of its passengers?

A: No. As a rule, when a passenger boards a common carrier, he takes the risks incidental to the mode of travel
he has taken, since after all, a carrier is not an insurer of the safety of its passengers and is not bound absolutely
and at all events to carry them safely and without injury. However, when a passenger is injured or dies while
travelling, the law under Art. 1755 of the Civil Code presumes that the common carrier is negligent (Yobido v. CA,
1997)

Q: What is the liability of a common carrier for the acts of others?

A:
Acts of Employees: Common carriers are liable for the death of or injuries to passengers through the negligence
or willful acts of the carrier’s employees, although such employees may have acted beyond the scope of their
authority or in violation of the orders of the common carriers. The liability does not cease even upon proof that
they exercised diligence in the selection and supervision of their employees. (Art. 1759, NCC)

Acts of Other Passengers/Strangers: Carrier is responsible for injuries suffered by a passenger on account of the
willful acts or negligence of other passengers or of strangers, if the common carrier’s employees through the
exercise of the diligence of a good father of a family could have prevented or stopped the act or omission. (Art.
1763, NCC)

Q: Can the operator and driver be jointly and severally liable in a breach of contract of carriage?
A: No. Only the operator of the common carrier is liable because he is the only party to the contract of carriage.
Since the cause of action is based on a breach of a contract of carriage, the liability of the operator is direct as
the contract is between the operator and the passenger. The driver cannot be made liable because he is not a
party to the contract of carriage (Sanico v. Colipano, 2017)

Q: What is the “Registered Owner Rule”

A: If any accident happens, or that any damage or injury is caused by the vehicle on the public highways,
responsibility therefor can be fixed on a definite individual, the registered owner. (Caravan Travel and Tours
International, Inc. vs. Ermilinda R. Abejar, 2016)
Exception: In case of stolen vehicles, the owner may not be held liable (Duavit v CA, 1989)

Q: When can fortuitous events be a valid defense?

A:
1. The natural disaster was the proximate and only cause;
2. Exercise of diligence to prevent or minimize loss before, during and after the occurrence of the
natural disaster
3. The obligor is not yet in delay

Q: What are NOT considered fortuitous events?

A:
1. Fire may not be considered a natural disaster or calamity unless it is caused by lightning or by other
natural disasters (Eastern Shipping Lines v. IAC, 1987)
2. Heavy seas and rains are not considered fortuitous events because these are normal occurrences
which a vessel may encounter (Id.)
3. Mechanical defects if it were discoverable by regular and adequate inspections (Necesito v. Paras,
1958)
 4. A tire blowout is not a fortuitous event because there are human factors involved in the situation
(Yobido v. CA, 1997)
Q: When is the Doctrine of Last Clear Chance not applicable?
A:
1. It does not arise where a passenger demands responsibility from the carrier to enforce its
contractual obligations. (Philippine Rabbit Bus Lines v. IAC, 1990)
2. It is inapplicable in marine collisions. In maritime accidents, Art. 827 of the Code of Commerce
applies. (CB Williams v. Yangco, 1914)
3. When the negligence of plaintiff is concurrent with that of the defendant (in pari delicto)
4. Injury cannot be avoided despite the application at all the means to avoid the injury (after the peril
is or should have been discovered), at least in all instances where the previous negligence of the
party charged cannot be said to have contributed to the injury at all. (O'Mally vs. Eagan, 77 ALR 582)

Q: What are the requirements for a stipulation for the limitation of liability to be valid?
A:
1. It must be in writing, and signed by the shipper or owner;
2. Supported by a valuable consideration other than the service rendered by the common carrier; and
3. Reasonable, just and not contrary to public policy

Q: What is the Limited Liability Rule?

A: The liability of shipowner and ship agent is limited to the amount of interest in said vessel such that where
vessel is entirely lost, the obligation is extinguished.

Q: What are the exceptions to the Limited Liability Rule?

A:
1. Claims under Workmen’s Compensation (Abueg vs. San Diego, 1946);
2. Injury or damage due to shipowner or to the concurring negligence of the shipowner and the
captain;
3. The vessel is insured (Vasquez vs. CA, 1985);
4. Expenses for repair on vessel completed before loss;
5. In case there is no total loss and the vessel is not abandoned;
6. Collision between two negligent vessels.

Q: What is the meaning of “International Carriage?”

A: Any carriage in which, according to the agreement between the parties, the place of departure and the place
of destination, whether or not there be a break in the carriage or a transhipment, are situated either within the
territories of two States Parties, or within the territory of a single State Party if there is an agreed stopping place
within the territory of another State, even if that State is not a State Party. Carriage between two points within
the territory of a single State Party without an agreed stopping place within the territory of another State is not
international carriage for the purposes of this Convention. (Article 1(2), Warsaw Convention)

Q: When does the limitation of liability under the Warsaw Convention does not apply?
A:
1. Willful misconduct;
2. Default amounting to willful misconduct;
3. Accepting passengers without ticket;
4. Accepting goods without any airway bill or baggage without baggage check

Q: When is the right to file claims extinguished under the Warsaw Convention?
A: The right to damages shall be extinguished if an action is not brought within two (2) years which shall be
reckoned from the date of arrival at the destination, or from the date on which the aircraft ought to have arrived,
or from the date on which the transportation stopped. (Art. 29, Warsaw Convention).

However, the 2-year prescriptive period does not apply where the airline employed delaying tactics (United
Airlines v. Uy, 1999).

THE CORPORATION CODE

Q: What is the Control Test?

A: Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine nationality pertains to the control test or the liberal rule. (Narra
Nickel Mining Corporation vs. Redmont Consolidated Mines Corp., 2014)

Q: What is “Grandfather Rule”?

A: The Grandfather Rule is a method to determine the nationality of the corporation by making a reference to
the nationality of the stockholders of the investor corporation. The Grandfather Rule applies only when the 60-
40 Filipino-foreign equity ownership is in doubt Stated differently, where the 60-40 Filipino- foreign equity
ownership is not in doubt, the Grandfather Rule will not apply. (Narra Nickel Mining and Dev’t Corp. vs. Redmont
Consolidated Mines Corp., 2014)
Q: What is "beneficial owner" or "beneficial ownership"?
A: It is when “Any person who, directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares voting power (which includes the power to vote or direct the voting of
such security) and/or investment returns or power (which includes the power to dispose of, or direct the
disposition of such security)” (SRC-IRR)

Q: What are the requisites for the Application of the De Facto Doctrine?
A:
1. A valid law under which the corporation is organized;
2. An attempt in good faith to incorporate under such law - Issuance of a certificate of incorporation by
the SEC
3. Assumption of corporate powers

Q: What is a Corporation by Estoppel?

A: All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as
general partners for all debts, liabilities and damages incurred or arising thereof. [Sec. 21, Corporation Code]

Q: What is the Centralized Management Doctrine?

A: The corporate powers of all corporations formed under it shall be exercised, all business conducted and all
property of such corporations controlled and held by the board of directors or trustees (Sec.23, Corporation Code).

Q: What is the Business Judgment Rule?

A: Actions and contracts intra vires entered into by the board of directors are binding upon the corporation and
courts will not interfere unless such contracts are so unconscionable and oppressive as to amount to a wanton
destruction of the rights of the minority. (Gamboa vs. Victoriano, 1979)

Q: Compare self-dealing directors from interlocking directors

A:
Self-dealing Directors
A contract of the corporation with one or more of its
directors or trustees or officers is voidable, at the
option of such corporation, unless all the following
conditions are present:
Interlocking Directors
The contract entered into between 2 corporations shall
not be invalidated on the ground that the corporations
have interlocking directors provided that the contract
is fair.

1. That the presence of such director or trustee
in the board meeting in which the contract
was approved was not necessary to constitute
a quorum for such meeting;
2. That the vote of such director or trustee was
not necessary for the approval of the contract;
3. That the contract is fair and reasonable under
the circumstances; and
4. That in case of an officer, the contract has
been previously authorized by the board of
directors.
If the interest of the interlocking director in one
corporation is substantial (ownership of stockholdings
exceeding 20% of the outstanding capital stock) and
his interest in the other corporation is merely nominal,
he shall be subjected to provisions of Sec. 32 with
respect the corporation where he has nominal interest.
EXCEPTION: In cases of fraud.
(Sec 33)

Where any of the first two conditions set forth in the

preceding paragraph is absent, in the case of a contract
with a director or trustee, such contract may be
ratified by the vote of the stockholders representing at
least two-thirds (2/3) of the outstanding capital stock
or of at least twothirds (2/3) of the members in a
meeting called for the purpose: Provided, That full
disclosure of the adverse interest of the directors or
trustees involved is made at such meeting: Provided,
however, That the contract is fair and reasonable
under the circumstances. (n) (Sec. 32)

Q: What is the Doctrine of Equality of Shares?

A: Where the articles of incorporation do not provide for any distinction of the shares of stock, all shares issued
by the corporation are presumed to be equal and enjoy the same rights and privileges and are also subject to the
same liabilities. (Sec. 6)

Q: What are the instances which may justify the denial of the right to inspect the books and records of the
corporation?
A:
1. Obtaining of information as to business secrets or to aid a competitor;
2. to secure business "prospects" or investment or advertising lists;
 3. to find technical defects in corporate transactions in order to bring "strike suits" for purposes of
blackmail or extortion. (Terelay Investment and Development Corporation vs. Yulo, 2015)

Q: When is pre-emptive right unavailable?

A:
1. Shares to be issued are intended to comply with laws requiring stock offering or minimum stock
ownership by the public;
2. Shares issued in good faith in exchange for property needed for corporate purposes;
3. Shares issued in payment of previously contracted debts; and
4. Right is denied in the AOI.

Q: Distinguish the 3 kinds of suits Stockholders may file?

A: Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of directors or other
persons may be classified into individual suits, class suits, and derivative suits.

Individual Suit Class Suit Derivative Suit

Where a stockholder or member is
denied the right of inspection, his
suit would be individual because the
wrong is done to him personally and
not to the other stockholders or the
corporation.
(Ching vs. Subic Bay Golf and Country Club, Inc., 2014)
Where the wrong is done to a group
of stockholders, as where preferred
stockholders’ rights are violated, a
class or representative suit will be
proper for the protection of all
stockholders belonging to the same
group.
An individual stockholder is
permitted to institute a derivative
suit on behalf of the corporation
wherein he holds stock in order to
protect or vindicate corporate
rights, whenever officials of the
corporation refuse to sue or are the
ones to be sued or hold the control
of the corporation. In such actions,
the suing stockholder is regarded as
the nominal party, with the
corporation as the party in interest.

Q: What is an intra-corporate dispute?

A: It is a dispute between a stockholder and the corporation of which he is a stockholder, or between a
stockholder and another stockholder of the same corporation, where the subject of the dispute or controversy
arose out of such relationship. (Sunset View Condominium Corp. vs. Campos, Jr., 1981)

Q: What are the tests used in determining whether or not there is an intra-corporate dispute?
A:
1. Relationship test - There is an intra-corporate controversy when the conflict is (1) between the
corporation, partnership, or association and the public; (2) between the corporation, partnership, or
association and the State insofar 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.

2. Nature of controversy test- An intra-corporate controversy arises when the controversy is not only
rooted in the existence of an intra-corporate relationship, but also in the enforcement of the parties'
correlative rights and obligations under the Corporation Code and the internal and intra-corporate
regulatory rules of the corporation. (San Jose vs. Ozamiz, 2017)

Q: What are foreign corporations?

A: Foreign Corporation are those formed, organized, or existing under any laws other than those of the
Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state
(Sec. 123, Corporation Code)

Q: What is a Merger?
A: Merger is a reorganization of 2 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.
(Bank of Commerce vs. Radio Philippines Network Inc., 2014)

Q: Is mere agreement sufficient for a merger to become effective?

A: No. 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 the merger to take effect. (Bank of Commerce
vs. Radio Philippines Network, 2014)

Q: Does the transfer of assets include the transfer of debts and liabilities (Nell Doctrine)?
A: As a general rule, where one corporation sells or otherwise transfers all of its assets to another corporation,
the latter is not liable for the debts and liabilities of the transferor. (Edward J. Nell Company vs. Pacific Farms, Inc.,
1965)
Q: What are the exceptions to the Nell Doctrine?
A: The exceptions are:
1. Where the transferee corporation expressly or impliedly agrees to assume the transferor's debts, is
provided under Article 2047 of the Civil Code. When a person binds himself solidarity with the principal
debtor, then a contract of suretyship is produced. Necessarily, the corporation which expressly or
impliedly agrees to assume the transferor's debts shall be liable to the same.
2. As to the merger and consolidation of corporations, is well-established under Sections 76 to 80, Title X
of the Corporation Code. If the transfer of assets of one corporation to another amounts to a merger or
consolidation, then the transferee corporation must take over the liabilities of the transferor.
3. Where the sale of all corporate assets is entered into fraudulently to escape liability for transferor's
debts, can be found under Article 1388 of the Civil Code. It provides that whoever acquires in bad faith
the things alienated in fraud of creditors, shall indemnify the latter for damages suffered. Thus, if there
is fraud in the transfer of all the assets of the transferor corporation, its creditors can hold the transferee
liable.
4. Where the purchasing corporation is merely a continuation of the selling corporation, is challenging to
determine. The transferee purchases not only the assets of the transferor, but also its business. As a
result of the sale, the transferor is merely left with its juridical existence, devoid of its industry and
earning capacity. (Y-I Leisure Philippines, Inc. vs. Yu, 2015)

BANKING

Q: Conservatorship vs. Receivership vs. Liquidation

CONSERVATORSHIP RECEIVERSHIP LIQUIDATION

Defintion involves the appointment
of a conservator to
preserve the assets of the
bank when the latter is
illiquid, and take
measures. (New Central
Bank Act, Sec. 29)
a trustee is legally appointed to
act as the custodian of a
company's assets or business
operations.
those which constitute the
conversion of the assets of
the banking institution to
money or the sale,
assignment or disposition
of the same to creditors
and other parties for the
purpose of paying debts of
such institution (Banco
Filipino v. Central Bank,
G.R. No. 70054, December
11, 1991).

Grounds 1. Continuing inability 1. Inability to pay liabilities as they 1. Insolvency

2. Unwillingness to fall due e.g bank run, rumors, 2. Bank cannot be
maintain condition of etc. rehabilitated
liquidity 2. Assets are less than its liabilities
3. Cannot continue business
without causing damage;
4. Violation of a cease and desis
order
5. “Bank Holiday” for more than 30
days (New Central Bank Act, Sec.
30)

Effects 1. Juridical personality is 1. Juridical personality is retained Same with

retained 2. Suspension of Conservatorship
2. Perfected transactions operation/stoppage of business
cannot be repudiated 3. Assets deemed in custodia legis
(Domingo v. NLRC, 2006)

Q: What is the rule on bank closure?

A: Banks closed by the Monetary Board shall not be rehabilitated. The Philippine Deposit Insurance Corporation
shall be designated as the receiver of said banks. (Sec. 12, RA 3591, as amended)

Q: Distinguish the rules on Secrecy and Garnishment with respect to peso deposits and foreign currency
deposits
Peso Deposits Foreign Currency Deposits

Secrecy All deposits of whatever nature with banks Absolutely confidential in nature except
or banking institutions in the Philippines when:
including investments in bonds issued by 1. The depositor dives written
the Government of the Philippines, its permission (RA No. 6426, as
political subdivisions and its amended, Sec. 8)
 instrumentalities are considered as an
absolute confidential nature and may not be
examined, inquired or looked into by any
person, government official, bureau or
office (Bank Secrecy Law, Sec. 2). (Sec. 2, RA
1405)
2. The examination or disclosure is
incidental to an exceptional case
where the garnishment of a foreign
currency deposit is allowed as a
matter of equity (Salvacion v. Central
Bank, 1997)

Exceptions: The confidentiality of foreign currency

a. Upon written consent of the depositor deposits may also be waived under other
b. Impeachment cases statutes or case law.
c. Court order in cases of bribery or
dereliction of duty of public officials
d. In cases where the money deposited or
invested is the subject matter of the
litigation (Bank Secrecy Law, Sec. 2)
e. Inquiry into illegally acquired amounts
under the plunder law (RA 7080)
f. Upon the order of competent court in
cases involving unexplained wealth
under the Anti-Graft and Corrupt
Practices Act (RA 3019)
g. In-Camera inspection by the
ombudsman under the Ombudsman
Act (RA 6770, Sec. 15(8))
h. Upon court order when there is
probable cause that the deposits or
investments involved are in any way
related to money laundering or
unlawful activity under the AMLA
(AMLA, SEc.11 )
i. BSP and PDIC may inquire into or
examine deposit accounts and all
information related thereto in case
there is unsafe or unsound banking
practice (PDIC Charter, as amended,
Sec. 8)
j. Inquiry by the Commissioner of
Internal REvenue under certain
circumstances (National Internal
Revenue Code, Sec. 6(f))
k. Upon written order of the Court of
Appeals under Sec. 27 of the Human
Security Act
l. Examination by an Independent auditor
hired by the bank (DOJ Opinion No. 243,
Series of 1957; Marquez v. Desierto,
2001)
m. BSP Inquiry into or examination of
deposits or investments with any bank,
when the inquiry or exam is made in the
court of BSP’s periodic or special exam
of said bank (AMLA, Sec. 11)

Garnishment Garnishment, attachment, levy, or As a general rule, foreign currency deposit

execution of peso denominated deposits is shall be exempt from attachment,
not prohibited by law but is subject to garnishment or any other order or process of
pertinent rules of execution such as the any court, legislative body, government
Rules of Court agency or any administrative body. (Sec. 8, RA
6426)

Exceptions:
1. The depositor has given his written
permission
2. The AMLC may inquire into or examine
any particular deposit or investment with
any banking institution or non-bank
financial institution upon order of any
competent court in cases of violation of
this Act when it has been established that
there is probable cause that the deposits
 or investments involved are in any way
related to a money laundering offense.
3. The exemption from court process of
foreign currency deposits under RA 6426
cannot be invoked by a foreign transient
who raped a minor, escaped and was held
liable for damages to the victim. The
garnishment of his foreign currency
deposit should be allowed to prevent an
injustice and for equitable grounds. The
law was enacted to encourage foreign
currency deposit and not to benefit a
wrongdoer (Salvacion v. Central Bank of
the Philippines, G.R. No. 94723, August 21,
1997).
4. PDIC and BSP may examine deposit
accounts and all information related to
them in case of a finding of unsafe or
unsound banking practices (RA 3591, as
amended, Sec. 8).

Note: garnishment of bank deposits of a

defendant does not involve examination or
inquiry into the deposit, but is merely done to
inform the court whether defendant has a
deposit in the bank, which may be garnished.
It does not violate the Bank Secrecy Act.

Q: Can the Monetary Board order the closure of the bank without prior notice and hearing?
A: Yes, the Monetary Board (MB) may forbid a bank from doing business and place it under receivership without
prior notice and hearing. The procedure for the involuntary closure of a bank is summary and expeditious in
nature. Such action of the MB shall be final and executory, but may be later subjected to a judicial scrutiny via a
petition for certiorari. (Alfeo Vivas, on his behalf and on behalf of the Shareholders of Eurocredit Community
Bank vs. the MB of the BSP and the PDIC, G.R. No. 191424, Aug. 7, 2013)

Q: What is the maximum deposit insurance coverage under R.A. 3591, as amended?
A: The maximum deposit insurance coverage is Five hundred thousand pesos P500,000.00 (Sec. 4, R. A. NO. 9576,
amending R.A. 3591)

SECURITIES REGULATION CODE

Q: Are securities required to be registered before they can be publicly traded?

A: Yes. As a general rule, securities shall not be sold, offered for sales/distribution within the Philippines without
a registration statement duly filed with and approved by SEC. (Sec. 8.1, SRC)

Q: What are Exempt Securities?

A:
1. Any security issued or guaranteed by the Government of the Philippines;
2. Any security issued or guaranteed by the government of any country with which the Philippines maintains
diplomatic relations, or by any state, province or political subdivision thereof on the basis of reciprocity;
3. Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory
body;
4. Any security or its derivatives the sale or transfer of which, by law, is under the supervision and regulation
of the IC, HLURB, or BIR; and
5. Any security issued by a bank, except its own shares of stock. (Sec. 9.1, SRC)
6. Any class of security with respect to which the SEC finds that registration is not necessary in the public
interest and for the protection of investors (Sec. 9.2, SRC)
7. The issue and delivery of any security in exchange for any other security of the same issuer pursuant to a
right

Q: What is the rule on manipulation of security prices?

A: It shall be unlawful for any person acting for himself or through a dealer or broker, directly or indirectly, to
perform any of the following acts:
1. To create a false or misleading appearance of active trading on any listed security traded:
a. Wash Sales - By effecting any transaction in such security which involves no change in the beneficial
ownership;
b. Matched Orders - By entering order(s) for the purchase or sale of such security with the knowledge
that a simultaneous order(s) of substantially the same size, time and price, for the sale or purchase
of any such security, has or will be entered by or for the same or different parties; or
 c. Market Rigging or Jiggling - By performing similar act where there is no change in beneficial
ownership.
2. To effect alone or with others a series of transactions, with the purpose of inducing the sale or purchase
of any security that:
a. Raises or depresses the price of a security to induce sale or purchase of such security; or
b. Creates active trading to induce such purchases or sale through manipulative devices;
3. By circulating or dissemination of information to the effect that the price of any such security will or is
likely to rise or fall because of market operations;
4. To make, regarding any security registered on an exchange, any statement which is false or misleading
with respect to any material fact, and which he knew or had reasonable ground to believe is false or is
misleading; or
5. To effect series of transactions for the purpose of pegging, fixing or stabilizing the price of security
trade in an exchange, unless otherwise allowed by the SRC or the SEC rules. (Sec. 24.1, SRC)

Q: Define insider trading.

A: It is the buying or selling of securities by an insider while in the possession of material non-public information
obtained during the performance of the insider’s duties at the corporation, or in breach of a fiduciary or other
relationship of trust and confidence.

Q: What are the exceptions to the prohibition on insider trading?

A:
1. When the insider proves that the information was not gained from such relationship; or
2. If the other party selling to or buying from the insider (his agent) is identified, the insider proves:
a. that he disclosed the information to the party; or
b. that he had reason to believe that the other party otherwise is also in possession of the information.
(Sec. 27, SRC)
Q: What is Material Non-Public Information?
A: Material non-public information is:
1. One that has not been generally disclosed to the public and would likely affect the market price of the
security after being disseminated to the public and the lapse of a reasonable time for the market to
absorb the information;
2. One which would be considered by a reasonable person important under the circumstances in
determining his course of action whether to buy, sell or hold a security. (Sec. 27.2, SRC)

Q: When is Tender Offer mandatory?

A: It is mandatory upon the following acquisitions by a person or group of persons:
1. 15% of equity securities in a public company in one or more transactions within a 12-month period;
2. 35% of the outstanding voting shares or such outstanding voting shares that are sufficient to gain control
of the board in a public company in one or more transactions within a 12-month period;
3. 35% of the outstanding voting shares or such outstanding voting shares sufficient to gain control of the
board in a public company directly from one or more stockholders;
4. Any acquisition that would result in ownership of over 50% of the total outstanding equity securities of
a public company. (Sec. 19.2, SRC IRR)

Q: What are exemptions to the mandatory tender offer requirement?

A:
1. Any purchase of securities from the unissued capital stock, provided, the acquisition will not result to a
fifty percent (50%) or more ownership of securities by the purchaser, or such percentage that is
sufficient to gain control of the board;
2. Any purchase of securities from an increase in authorized capital stock;
3. Purchase in connection with foreclosure proceedings involving a duly constituted pledge or security
arrangement where the acquisition is made by the debtor or creditor;
4. Purchases in connection with a privatization undertaken by the government of the Philippines;
5. Purchases in connection with corporate rehabilitation under court supervision;
6. Purchases in the open market at the prevailing market price; and
7. Merger or consolidation.

Q: What is the Disclosure Rule?

A: All companies, listed or applying for listing, are required to divulge truthfully and accurately, all material
information about themselves and the securities they sell, for the protection of the investing public, under the
pain of administrative, criminal and civil sanctions. (PSE v. CA, 1997)
 INTELLECTUAL PROPERTY CODE

Q: Differentiate trademark, copyright, and patent from each other.

A:
PATENT TRADEMARK COPYRIGHT

As to subject Technical solution (product, Any visible sign capable of Original Literary or artistic
matter or process, or an distinguishing the goods or work which are intellectual
improvement thereof) of a services of an enterprise creations.
problem which is new,
involves an inventive step Derivative Works
and is industrially applicable.

How acquired; Acquired through Acquired through Acquired from the moment of
Commencement application with the IPO registration and use creation

Term of right Twenty (20) years Ten (10) years Generally, up to fifty (50)
years after death of the
author
20 years for works of applied
art and broadcast

Q: Explain the rules on ownership of a patent.

A:
Solo Invention 1. Inventor;
2. His heirs; or
3. Assigns.

Joint Invention Patent shall be owned jointly by the inventors.

First-to-File Rule
If two or more persons invented separately and independently of each other, or
two or more persons have filed separate applications for patent, the ownership of
the patent shall be awarded to:
1. The person who filed an application;
2. The applicant who has the earliest filing date or the earliest priority date.

Commissioned Work General Rule: Person who commissioned the work

Exception: Otherwise provided in the contract

During the court of an Employee: if the incentive activity is not a part of his regular duties; or
employment contract Employer: if the invention is the result of the performance of his regularly-assigned
duties, unless there is an agreement to the contrary.

Q: What are the grounds for cancellation of a patent?

A:
1. What is claimed as an invention is not new nor patentable;
2. Patent does not disclose the invention in a manner sufficiently clear or complete for it to be carried out
by any person skilled in the art; or
3. Patent is contrary to public order or morality.

Q: What are the rights conferred by a Patent?

A:
When the subject matter is a product: Right to restrain, prohibit and prevent any unauthorized person or entity
from making, using, offering for sale, selling, or importing the product.

When the subject matter is a process: Right to restrain, prohibit, and prevent any unauthorized person or entity
from manufacturing, dealing in, using, offering for sale, selling or importing any product obtained directly or
indirectly from such process.

Q: What are the limitations on a Patent Holder’s Right?

A:
1. Owner’s Consent–using patent products which has been put on Philippine market by owner;
2. Non-Commercial/ Private Use;
3. Experimental Use;
4. Individual Preparation of Medicine;
5. Parallel importation of drugs;
6. Where invention is used for the needs of any ship, vessel, aircraft, or land vehicle of any other country
entering Philippine territory temporarily or accidentally.
Q: How is Patent Infringement Committed?
A: Patent Infringement is committed by the making, using, offering for sale, selling, or importing a patented
product, or a product obtained directly or indirectly from a patented process, or the use of a patented process
without the authorization of the patentee constitutes patent infringement.

Q: What are the two tests in determining patent infringement?

A:
Literal infringement where in courts must juxtapose the claims of patent and accused product within the overall
context of claims and specification, to determine whether there is exact identity of all material elements.
Doctrine of Equivalents wherein infringement also occurs when a device appropriates a prior invention by
incorporating its innovative concept and, albeit with some modification and change, performs substantially the
same function in substantially the same way to achieve substantially the same result (function-means-and-result
test).

Q: Differentiate a mark, collective mark, and trade name

A:
Mark (Trade mark/Service Collective Mark Trade Name
mark)

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. (Sec. 121.1, IPC,
as amended)
A collective mark is any visible A trade name is the name or
sign designated as such in the designation identifying or
application for registration and distinguishing an enterprise. (Sec.
capable of distinguishing the origin 121.3, IPC, as amended)
or any other common
characteristic, including the
quality of goods or services of
different enterprises which use
the sign under the control of the
registered owner of the collective
mark (Sec. 121.2, IPC, as amended)

Q: Is prior use of a mark still a requirement? What is Prior Use and Declaration of Actual Use?
A: No. The Intellectual Property Code has already dispensed with the requirement of prior actual use at the time
of registration. However, there must be actual use after registration. (Ecole de Cuisine Manille vs. Contreau & Cie,
2013)

The registrant shall file a declaration of actual use of the mark with evidence to that effect within 3 years from
the filing date of application or shall show valid reasons for non-use within one year from fifth anniversary date
of registration, otherwise it may be cancelled.

Q: What is the scope of protection afforded by a registered trademark?

A: The scope of protection afforded to registered trademark owners 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 Corporation, 2016).

Q: What is a geographically descriptive term?

A: A ‘geographically descriptive term’ is any noun or adjective that designates geographical location and would
tend to be regarded by buyers as descriptive of the geographic location of origin of the goods or services. (Shang
Properties Realty Corp., vs. St. Francis Development Corp, 2014).

Q: Can trademark registration be granted when both competing marks refer to one word but with differing
features?
A: Yes. It is hornbook doctrine that emphasis should be on the similarity of the products involved and not on the
arbitrary classification or general description of their properties or characteristics. The mere fact that one person
has adopted and used a trademark on his goods would not, without more, prevent the adoption and use of the
same trademark by others on unrelated articles of a different kind. (Taiwan Kolin Corp, LTD. vs. Kolin Electronics
Co., Inc., 2015)

Q: Is falling under the same classification in the Nice Classification (NCL) the sole determining factor to find
a violation of intellectual property right of a similar product?
A: No. Verily, whether or not the products covered by the trademark sought to be registered, and those covered
by the prior issued certificate of registration fall under the same categories in the NCL is not the sole and decisive
factor in determining a possible violation of intellectual property rights should a latter application be granted.
(Taiwan Kolin Corporation, LTD vs. Kolin Electronics Co., Inc., 2015)
Q: Explain the rule on Well-Known Marks.
A: As a general rule, the prohibition on subsequent registration does not include services and goods of different
nature or kind. However, there are exceptions to this rule, namely:
(1) Internationally well-known mark not registered in the Philippines - Application for registration
of a subsequent or similar mark can be rejected only if the goods or services are similar to those of the
internationally well-known mark. (Sec. 123.1(e), IPC, as amended)
(2) Those registered in the Philippines - Application for registration can be refused even if the goods
or services specified in the application are not identical or similar to those of the intentionally well-
known mark.

Q: What are the grounds for the cancellation of a Trademark?

A:
1. TM has become the generic name for the goods or services, or a portion thereof;
2. TM has been abandoned;
3. TM was obtained fraudulently or contrary to the IP Code.
4. TM is being used by, or with the permission of, the registrant so as to misrepresent the source of the
goods or services;
5. Non-Use of TM, without legitimate reason, for 3 years,
6. TM is confusingly similar to another trademark or trade name.

Q: How is Trademark Infringement Committed?

A: Trademark Infringement is committed through the use without consent of the trademark owner of any
reproduction, counterfeit, copy or colorable limitation of any registered mark or trade name. Such use is likely
to cause confusion or mistake or to deceive purchasers or others as to the source or origin of such goods or
services, or identity of such business.

Q: What are the tests used to determine similarity and likelihood of confusion.
A: The Dominancy Test, and the Holistic or Totality Test.

Dominancy Test Holistic or Totality Test

Focuses on the similarity of the dominant features of
the competing trademarks that might cause
confusion, mistake, and deception in the mind of the
ordinary purchaser, and gives more consideration to
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.
Considers the entirety of the marks as applied to the
products, including the labels and packaging, and
focuses not only on the predominant words but also
on the other features appearing on both labels to
determine whether one is confusingly similar to the
other as to mislead the ordinary purchaser. (Great
White Shark vs. Caralde, 2012)

Q: Differentiate between Trademark Infringement and Unfair Competition.

A:
Trademark Infringement Unfair Competition

There is unauthorized use of a trademark. Involves the passing off of one’s goods as those of another
and giving one’s goods the appearance as that of another.

Not necessary to establish fraudulent intent Necessary to establish fraudulent intent

Registration of TM is necessary for the filling of an Prior registration is not necessary

action for infringement

Q: Explain the rules on ownership of copyright.

A:
Solo work/Author Original literary and artistic works

Joint work/Co-authors 1. According to their agreement; or

2. In the absence of an agreement:
§ The rules on co-ownership
§ The author of each separable part, if the same can be identified.

In the course of an employment 1. If part of the employee’s regular duties: to the employer
contract 2. If not part of the employee’s regular duties: to the employee, even if he
uses the time and facilities of the employer.
Commissioned work 1. The work shall be owned by the one who commissioned it;
2. The copyright to the work shall remain with the creator.

Producer, the author of the Copyright of an audiovisual work. (Sec. 178.5, IPC, as amended)
scenario, the composer of the *Producers shall exercise the copyright to an extent required for the
music, the film director, and the exhibition of the work.
author of the work so adapted

Writer Letters. (Sec. 178.6, IPC, as amended)

Q: What are the rights conferred of a copyright?

A:
Economic Rights Exclusive right to (a) carry out, (b) authorize, or (c) prevent:
(1) Reproduction of the work or any substantial portion;
(2) Dramatization, translation, adaptation, abridgement;
(3) First public distribution of the original;
(4) Rental of the original or a copy of the audio-visual work;
(5) Public display of the original;
(6) Public performance of the work;
(7) Other communication to the public of the work.

Moral Rights (1) Right to Authorship and Attribution;

(2) Right to make alterations and withhold publication;
(3) Object to any distortion or mutilation;
(4) Restrain the use of his name with respect to any work not his own creation.

Neighboring Rights (1) Publisher’s Rights

a. Right to publish granted by the author
b. Copyright over the right of reproduction of the typographical
arrangement of the work;
c. Right to publish once materials sent by a writer, photographer, or
artist to the publisher.
(2) Performer’s Rights – right to authorize, in sound recording or audiovisual
work, the broadcast, reproduction, first public distribution, commercial rental of
the performance.

Follow up Rights or An inalienable right to receive to the extent of five percent (5%) of the gross proceeds
“Droite de Suite” of the sale or lease of a work of painting or sculpture or of the original manuscript of a
writer or composer, subsequent to its first disposition by the author. (Sec. 200, IPC, as
amended)
The following are the exceptions to this rule – Prints; Etchings; Engravings; Works of
applied art; or Works of similar kind wherein the author primarily derives gain from the
proceeds of reproductions.

Q: What is the fair use doctrine?

A: Fair use of a copyrighted work for criticism, comment, news reporting, teaching, including multiple copies for
classroom use, scholarship, research, and similar purposes, is not an infringement of copyright.

Q: Is mere sale of illicit copies of software programs enough to establish probable cause for copyright
infringement?
A: Yes. The mere sale of illicit copies of the software programs was enough by itself to show the existence of
probable cause for copyright infringement. There is no need to still prove who copied, replicated or reproduced
the software programs. (Microsoft Corporation vs. Manansala, 2015)

ANTI MONEY LAUNDERING ACT

Q: Who are exempted from the coverage of the term Covered Persons?
A: 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 are excluded from the term. Provided:
1. These lawyers and accountants are authorized to practice in the Philippines, and
2. Shall continue to be subject to the provisions of their respective codes of conduct and/or professional
responsibility or any of its amendments. (Sec. 3(a), RA 9160, as amended by RA 10365)

Q: What are the obligations of Covered Institutions?

A: Covered Institutions have the following obligations to prevent money laundering:
1. Customer identification;
2. Record keeping; and
3. Reporting of covered and suspicious transactions. (Sec. 9, RA 9160)
Q: What is a Covered Transaction?
A: A covered transaction is a transaction in cash or other equivalent in money instrument involving a total amount
in excess of Php 500,000.00 within 1 banking day. (Sec. 3(b), RA 9160, as amended by RA 9194)

Q: What are Suspicious Transactions?

A: Suspicious transactions are transactions with covered institutions, regardless of the amounts involved,
where any of the following circumstances exist:
1. There is no underlying legal or trade obligation, purpose or economic justification;
2. The client is not properly identified;
3. The amount involved is not commensurate with the business or financial capacity of the client;
4. Taking into account all known circumstances, it may be perceived that the client's transaction is
structured in order to avoid being the subject of reporting requirements under the Act;
5. Any circumstance relating to the transaction which is observed to deviate from the profile of the client
and/or the client's past transactions with the covered institution;
6. The transaction is in any way related to an unlawful activity or offense under this Act that is about to
be, is being or has been committed; or
7. Any transaction that is similar or analogous to any of the foregoing. (Sec. 3(b-1), RA 9160, as amended
by RA 9194)

Q: What is the Safe Harbour clause?

A: The Safe Harbor Provision provides that no administrative, criminal or civil proceedings, shall lie against any
person for having made a covered transaction report in the regular performance of his duties and in good faith,
whether or not such reporting results in any criminal prosecution under this Act or any other Philippine law.
(Sec. 9(c), RA 9160 as amended by RA 10365)

Q: When is Money Laundering committed?

A:
1. 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 ownershipof 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.
2. 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. (Sec. 4, RA 9160, as amended by RA 10365)

Q: Does the government have authority to inquire into bank deposits?

A: Yes. The AMLC may inquire into or examine any particular deposit or investment with any banking institution
or non-bank financial institution upon order of any competent court in cases of violation of this Act when it has
been established that there is probable cause that the deposits or investments involved are in any way related to
(1) an unlawful activity as defined in Sec. 3(i), or (2) to a money laundering offense under Sec. 4. (Sec. 11, RA 9160,
as amended by RA 10365)

Q: What are the exceptions to the rule that there must be a court order before bank deposits may be
inquired into?
A:
1. Kidnapping
2. Violations of the Comprehensive Dangerous Drugs Act of 2002
3. Hijacking and other violations under RA No. 6235
4. Destructive arson and murder under the RPC
5. Felonies or offenses of a nature similar to those mentioned above, which are punishable under the
penal laws of other countries
6. Terrorism
7. Conspiracy to commit terrorism (Sec. 11, RA 9160, as amended by RA 10365)

Q: Does the AMLC have the authority to issue a freeze order?

A: No, it is solely the Court of Appeals that can issue freeze orders upon ex parte application by the AMLC and
after a determination that probable cause exists that a monetary instrument or property is related to an
unlawful activity as defined in Sec. 3(i). (Sec. 3, RA 9160, as amended by RA 10365)
 ELECTRONIC COMMERCE ACT

Q: What is an electronic data message?

A: It refers to information generated, sent, received or stored by electronic, optical or similar means (R.A. No.
8792, Sec. 5(c)]

Q: What is an electronic document?

A: It refers to information or the representation of information, data , figures, symbols or other modes of
written expression, described or however represented, by which a right is established or an obligation
extinguished, or by which a fact may be prove and affirmed, which is receive, recorded, transmitted, stores,
processed, retrieved or produced electronically. (R. A. No. 8792, Sec. 5[f])

Q: What is an electronic signature?

A: It refers to any distinctive mark, characteristic and/or sound in electronic form, representing the identity of
a person and attached to or logically associated with the electronic data message or electronic document or
any methodology or procedures employed or adopted by a person and executed or adopted by such person
with the intention of authenticating or approving an electronic data message or electronic document (R.A . No.
8792, Sec. 5[e])

Q: What is the exception to the presumption in e-signatures?

A: The person relying on the electronically signed electronic document knows or has noticed of defects in or
unreliability of the signature or reliance on the electronic signature is not reasonable under the circumstances.
[Sec. 9, R.A. No. 8792]

Q: What is the scope and coverage of the Rules on Electronic Evidence?

A: These Rules shall apply to all civil actions and proceedings, as well as quasi-judicial and administrative cases
(REE. Rule 1 Sec. 2)

Q: When is an electronic document admissible as evidence?

A: An electronic document is admissible in evidence if;
a. It complies with the rules on admissibility prescribed by the Rules of Court and related laws; and
b. It is authenticated in the manner prescribed by these Rules. (REE, Rule 3, Sec. 2)

Q: What is the rule on obligation of confidentiality?

A: General Rule:, Any person who obtained access to any electronic key, electronic data message or electronic
document, book, register, correspondence, information, or other material pursuant to any powers conferred
under the Act, shall not convey to or share the same with any other person. The exception is when the act
authorizes so.

DATA PRIVACY ACT

Q: What is Sensitive Personal Information?

A:
1. About an individual’s race, ethnic origin, marital status, age, color, and religious, philosophical or
political affiliations;
2. About an individual’s health, education, genetic or sexual life of a person, or to any proceeding for any
offense committed or alleged to have been committed by such person, the disposal of such
proceedings, or the sentence of any court in such proceedings;
3. Issued by government agencies peculiar to an individual which includes, but not limited to, social
security numbers, previous or current health records, licenses or its denials, suspension or revocation,
and tax returns; and
4. Specifically established by an executive order or an act of Congress to be kept classified. [Data Privacy
Act of 2012]

Q: Is processing of sensitive personal information a privileged information?

A: Yes. Except in the following cases:
1. The data subject has given his or her consent, specific to the purpose prior to the processing, or in the
case of privileged information, all parties to the exchange have given their consent prior to processing;
2. The processing of the same is provided for by existing laws and regulations: Provided, That such
regulatory enactments guarantee the protection of the sensitive personal information and the
privileged information: Provided, further, That the consent of the data subjects are not required by law
or regulation permitting the processing of the sensitive personal information or the privileged
information;
3. The processing is necessary to protect the life and health of the data subject or another person, and
the data subject is not legally or physically able to express his or her consent prior to the processing;
4. The processing is necessary to achieve the lawful and noncommercial objectives of public
organizations and their associations: Provided, That such processing is only confined and related to
the bona fide members of these organizations or their associations: Provided, further, That the
sensitive personal information are not transferred to third parties: Provided, finally, That consent of
the data subject was obtained prior to processing;
 5. The processing is necessary for purposes of medical treatment, is carried out by a medical practitioner
or a medical treatment institution, and an adequate level of protection of personal information is
ensured; or
6. The processing concerns such personal information as is necessary for the protection of lawful rights
and interests of natural or legal persons in court proceedings, or the establishment, exercise or
defense of legal claims, or when provided to government or public authority.

FINANCIAL REHABILITATION INSOLVENCY LIQUIDATION AND SUSPENSION OF PAYMENTS

Q: What is Rehabilitation?
A: Rehabilitiation refers to a restoration of the debtor to condition of successful operation and solvency, if it is
shown that its continuance of operation is economically feasible and its creditors can recover by way of the
present value of payments projected in the plan, more if the debtor continues as a going concern than if it is
immediately liquidated. (Pacific Wide Realty v. Puerto Azul Land, G.R. No. 178768, November 25, 2009)

Q: What is Liquidation?
A: It is the process of settling the affairs of a corporation, which consists of adjusting the debts and claims, that
is, collecting all that is due to the corporation, the settlement, and adjustment of claims against it and payment
of its just debts. (Yu v. Yukayguan, et al., G.R. No. 177549, June 18, 2009)

Q: What is Suspension of Payments?

A: It is a judicial insolvency proceeding by which an individual debtor submits, for approval by his creditors, a
proposed agreement containing propositions delaying or extending the time of payment of his debts.

Q: What is a commencement order?

A: A Commencement Order is issued by the Rehabilitation Court within 5 days from the filing of a petition for
rehabilitation, if such petition is sufficient in form and substance. It will declare that the debtor is under
rehabilitation and shall include and order the following:
1. Appointment of a rehabilitation receiver.
2. Summarize the requirements and deadlines for the creditors to establish their claims against the
debtor.
3. Prohibit the debtor’s suppliers of goods and services from withholding the supply of goods and
services in the ordinary course of business for as long as the debtor makes payments for the services
or goods supplied after the issuance of the commencement order.
4. Include a Stay or Suspension Order. (Sec. 16, FRIA)

Q: What is a stay/suspension order?

A: A Stay or Suspension Order is included in a Commencement Order and has the following purposes under
Sec. 16:
1. Suspend all actions or proceedings, in court or otherwise, for the enforcement of claims against the
debtor;
2. Suspend all actions to enforce any judgment, attachment or other provisional remedies against the
debtor;
3. Prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its
properties except in the ordinary course of business; and
4. Prohibit the debtor from making any payment of its liabilities outstanding as of the commencement
date except as may be provided herein.

Q: What are the characteristics of an economically feasible rehabilitation plan?

A:
1. The debtor has assets that can generate more cash if used in its daily operations than if sold.
2. Liquidity issues can be addressed by a practicable business plan that will generate enough cash to
sustain daily operations.
3. The debtor has a definite source of financing for the proper and full implementation of a Rehabilitation
Plan that is anchored on realistic assumptions and goals. (Viva Shipping Lines, Inc. vs. Keppel
Philippines Mining, Inc., 2016)

Q: What is the cram-down clause and its effects?

A: Section 23, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules), also known
as the "cram-down" clause, states that a rehabilitation plan may be approved even over the opposition of the
creditors holding a majority of the corporation’s total liabilities if there is a showing that rehabilitation is
feasible and the opposition of the creditors is manifestly unreasonable. It forces the creditors to accept the
terms and conditions of the rehabilitation plan, preferring long-term viability over immediate but incomplete
recovery. (BPI vs. Sarabia Manor Hotel Corporation, 2013)