LAST MINUTE TIPS

MERCANTILE LAW

LETTERS OF CREDIT

1. What are the three distinct and independent contracts in a letter of credit?

a. Sale between the seller and the buyer;

b. Contract of buyer with issuing bank; and
c. The letter of credit itself, wherein the bank promises to pay pursuant to the terms and
conditions of the letters of credit. (Keng Hua Paper Products Co., Inc. vs. Court of Appeals, G.R. No.
116863, 1998)

2. What is the independence principle in Letters of Credit?

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. The obligation
under the letter of credit is independent of the related and originating contract. In brief, the letter
of credit is separate and distinct from the underlying transaction. (PNB vs. San Miguel Corporation, G.R.
No. 186063, January 15, 2014)

3. What is Fraud Exception Principle in Letters of Credit?

It is an exception to the “Independence Principle,” and applies when there is fraud or forgery in
the underlying transaction or the tender documents. It is applicable when:

a. There is a clear proof of fraud;

b. Fraud constitutes fraudulent abuse of the independence purpose of the letter of credit and not
only fraud under the main agreement; or
c. Irreparable injury might follow if injunction is not granted or the recovery of damages would
be seriously undermined. (Transfield Philippines, Inc. vs. Luzon Hydro Corporation, G.R. No. 146717,
November 22, 2004)

4. What is the Doctrine of Strict Compliance in Letters of Credit?

The doctrine states that the Issuing Bank or the Confirming Bank, as the case may be, must
examine the Tender Documents (including Shipping Documents) and must make sure that the
terms and conditions of the Letter of Credit are strictly complied with. There is no discretion on
the part of the bank to waive any requirement. The tender documents must not only be complete
but they must on their faces be in compliance with the terms and conditions of the Credit.
Documents that are not stipulated need not be examined. (Feati Bank and Trust, Co. vs. CA, G.R. No.
94209, April 30, 1991)

5. When does a Letter of Credit becomes binding?

Letter of Credit becomes binding only when the Corresponding Bank pays or delivers to the
Beneficiary the amount authorized to be paid under the terms of the Letter of Credit. (Belman Inc.,
vs. Central Bank of the Philippines, G.R. No. L-10195, November 29, 1958)

6. Who are the parties in a letter of credit?

a. Buyer (Applicant) - procures the letter of credit and obliges himself to reimburse the Issuing
Bank upon receipt of the goods or documents of title;

b. Issuing Bank- undertakes to pay the Seller upon receipt of the draft and proper documents
of titles and to surrender the said documents to the buyer upon reimbursement; and

c. Seller (Beneficiary) - who in compliance with the terms of the sale, transports the goods to
Buyer and delivers the draft and other documents of title to the issuing bank to recover
payment. (Bank of America vs. CA, G.R. No. 105395, December 10, 1993)
 TRUST RECEIPTS LAW

7. What are the two obligations in a trust receipt transaction?

a. Money received under the obligation involving the duty to turn it over (entregarla) to the
owner of the merchandise sold;
b. Merchandise received under the obligation to “return” it (devolvera) to the owner. (Hur Tin Yang
vs People, G.R. No. 195117, August 14, 2013)

8. What are the remedies available to the entrustor in case of default of entrustee in their
trust receipt agreement?

a. Entrustor may file a criminal case for estafa against the entrustee under Article 315 of the
Revised Penal Code since failure of the entrustee to turn over the proceeds of the sale of the
goods covered by trust receipt constitutes the said crime (Section 13, PD 115); and
b. Civil Action to recover loan against the entrustee. (Abad vs. CA, G.R. No. L-42735, January 22, 1990)

9. Is it necessary that the entrustor cancel the trust and take possession of the goods to avail
of the remedies under the Trust Receipt Law?

No. In case of default by entrustee, it is not absolutely necessary that the entrustor cancel the
trust and take possession of the goods to be able to enforce his rights under the law.
Consequently, the entrustor has discretion to avail of such right or seek any alternative action
which it deems best to protect its rights, at any time upon default or failure of the entrustee to
comply with any of the terms and conditions of the trust agreement. (South City Homes vs. BA Finance,
G.R. No. 135462, December 7, 2001)

10. Can an entrustee be made liable for Estafa if the entruster knew beforehand that the goods
subject of the trust receipts were not intended to be sold?

No. When both parties enter into an agreement knowing fully well that the return of the goods
subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not
a trust receipt transaction. This transaction becomes a mere loan, where the borrower is
obligated to pay the bank the amount spent for the purchase of the goods. (Hur Tin Yang vs People,
G.R. No. 195117, August 14, 2013)

11. What is the nature of ownership of the entrustor over the goods covered under Trust
Receipt Agreement?

If under the trust receipt, entrustor (bank) is made to appear as owner of the goods covered
under it, it is but an artificial expedient, more of a legal fiction than fact, for if it were really so, it
could dispose of the goods in any manner it wants, which it cannot do, just to give consistency
with purpose of trust receipt of giving a stronger security for the loan obtained by the entrustee.
Thus, the entrustee-borrower cannot be relieved of his obligation to pay the loan simply by
abandoning the property with the entrustor. (Rosario Textile Mills vs. Home Bankers Savings, G.R. No.
137232, June 29, 2005)

NEGOTIABLE INSTRUMENTS LAW

12. Are electronic messages, giving authority to debit an account, a negotiable instrument?

No. Electronic messages are not negotiable instruments because they fail to comply with the
requisites under the Negotiable Instruments Law, inasmuch as (a) electronic messages are not
signed by its supposed drawer; (b) do not contain an unconditional order to pay a sum certain in
money; and (c) not payable to order or bearer. (HSBC vs. Commissioner of Internal Revenue, G.R. No.
166018, June 4, 2014)

13. What is the Fictitious Payee Rule?

In a fictitious-payee situation, the drawee bank is absolved from liability and the drawer bears the
loss. When faced with a check payable to a fictitious payee, it is treated as a bearer instrument
that can be negotiated by delivery. (PNB vs. Sps Rodriguez, G.R. No. 170325, September 26, 2008)

14. What is the nature of a cashier’s check?

A cashier’s check is a primary obligation of the of the issuing bank and accepted in advance by its
mere issuance. A cashier’s check is a primary obligation of the of the issuing bank and accepted
in advance by its mere issuance. A cashier’s check by its peculiar character and general use in
the commercial world, is regarded substantially to be as good as the money which it represents.
(Tan vs. CA, G.R. No. 108555, December 20, 1994)
15. Is a manager’s or certified check not a legal tender, and hence may be refused as
payment?

Yes. A check, whether a manager’s check or a certified check, is not a legal tender, and an offer
of a check in payment of a debt is not valid tender of payment and may be refused receipt by the
obligee or creditor. (Roman Catholic Bishop of Malolos vs. IAC, G.R. No. 72110, November 16, 1990)

16. When is protest required?

Where a foreign bill appearing on its face to be such is dishonored by non-acceptance, it must be
duly protested for non-acceptance, and where such bill which has not previously been dishonored
by non-acceptance is dishonored by non-payment, it must be duly protested for non-payment. If it
is not so protested, the drawer and indorsers are discharged. (Section 152, NIL)

17. Who are primarily and secondarily liable in a negotiable instrument?

PRIMARILY LIABLE SECONDARILY LIABLE

a. Maker. The maker of a negotiable instrument, by
making it, engages that he will pay it according to
its tenor, and admits the existence of the payee
and his then capacity to indorse. (Section 60, NIL)
b. Acceptor. The acceptor, by accepting the
instrument, engages that he will pay it according
to the tenor of his acceptance; and admits: (i) The
existence of the drawer, the genuineness of his
signature, and his capacity and authority to draw
the instrument; and (ii) The existence of the payee
and his then capacity to indorse. (Section 62, NIL)
c. Accommodation Party. An accommodation party
is one who has signed the instrument as maker,
drawer, acceptor, or indorser, without receiving
value therefor, and for the purpose of lending his
name to some other person. Such a person is
liable on the instrument to a holder for value,
notwithstanding such holder, at the time of taking
the instrument, knew him to be only an
accommodation party. (Section 29, NIL)
a. Drawer. The drawer by drawing the
instrument admits the existence of the
payee and his then capacity to indorse;
and engages that, on due presentment, the
instrument will be accepted or paid, or
both, according to its tenor, and that if it be
dishonored and the necessary proceedings
on dishonor be duly taken, he will pay the
amount thereof to the holder or to any
subsequent indorser who may be
compelled to pay it. But the drawer may
insert in the instrument an express
stipulation negativing or limiting his own
liability to the holder. (Section 61, NIL)
b. Indorser – can either be (i) an irregular
indorser; (ii) qualified indorser); or (iii) a
general indorser. (Section 65 and 66, NIL)
c. Person negotiating an instrument by
delivery. (Section 65, NIL)

18. Distinguish Personal Defenses from Real Defenses. Provide examples.

PERSONAL (EQUITABLE DEFENSES) REAL DEFENSES

Those which are available only against a person Those that attach to the instrument itself and are
not a holder in due course or a subsequent holder available against all holders, whether in due course
who stands in privity with him, such as: or not, such as:

a. Failure or absence of consideration; a. Material alteration; (partial real defense)

b. Illegal consideration; b. Non-delivery of incomplete instrument;
c. Non-delivery of complete instrument; c. Forgery;
d. Conditional delivery of complete instrument; d. Fraud in factum or fraud in esse contractus;
e. Fraud in inducement; e. Minority (available only to the minor);
f. Filling up blank not within authority; f. Ultra vires acts of a corporation;
g. Duress or intimidation; g. Want of authority;
h. Filling up blank beyond reasonable time; h. Illegality – if declared void for any purpose;
i. Transfer in breach of faith; i. Vicious force or violence;
j. Mistake; j. Extinctive Prescription.
k. Insertion of wrong date;
l. Ante-dating or post-dating for illegal or (Sundiang, Reviewer on Commercial Law, 2014 Edition,
fraudulent purpose. pp. 40-41)

19. Discuss the different kind of checks.

a. Memorandum Check is a check where the word memorandum is written upon its face
signifying that the drawer engages to pay the bona fide holder absolutely and not upon a
condition to pay upon presentment at maturity and if due notice of the presentment and
nonpayment should be given.
b. Cashier’s Check is a check drawn by the bank on itself payable on demand to a payee.
c. Manager’s Check is one drawn by the bank manager upon the bank itself as the drawee,
promising to pay it upon demand.
 d. Traveler’s Check is one upon which the holder’s signature must appear twice. The first to be
affixed by him at issuance and the second, for counter-signature in the presence of the payee
before it is paid, otherwise it is incomplete.
e. Certified Check is a check that bears an agreement by the drawee-bank that it will be paid
upon presentation. That has been accepted by the drawee bank prior to presentment.
f. Crossed Check is one which bears across its face or corner two parallel lines and is meant to
be deposited to payee’s account only.

20. Distinguish the warranties by a qualified indorser from a general indorser.

QUALIFIED INDORSER GENERAL INDORSER

Every person negotiating an instrument by a
qualified indorsement warrants:
a. That the instrument is genuine and in all
respects what it purports to be;
b. That he has a good title to it;
c. That all prior parties had capacity to contract;
d. That he has no knowledge of any fact which
would impair the validity of the instrument or
render it valueless. (Section 65, NIL)
Every indorser who indorses without qualification,
warrants to all subsequent holders in due course:
a. The matters and things mentioned in
subdivisions (a), (b), and (c) of Section 65 if the
NIL; and
b. That the instrument is, at the time of his
indorsement, valid and subsisting;
c. On due presentment, it shall be accepted or
paid, or both, as the case may be, according to
its tenor, and that if it be dishonored and the
necessary proceedings on dishonor be duly
taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who may
be compelled to pay it. (Section 66, NIL)

21. In what instances is presentment for acceptance must be made?

a. Where the bill is payable after sight, or in any other case, where presentment for acceptance
is necessary in order to fix the maturity of the instrument;
b. Where the bill expressly stipulates that it shall be presented for acceptance; or
c. Where the bill is drawn payable elsewhere than at the residence or place of business of the
drawee. (Section 143, NIL)

INSURANCE CODE

22. State the “Cash and Carry Rule” and its exceptions.

No policy or contract of insurance issued by an insurance company is valid and binding unless
and until the premium thereof has been paid. The exceptions to this rule are the following:

a. In case of life and industrial life policy when the grace period provision applies (Sec. 77);
b. When there is an acknowledgement in the policy or receipt that the premium has been paid;
c. When there is an agreement that the premium shall be payable on installment and partial
payments have been made at the time of the loss;
d. When there is an agreement granting credit extension not exceeding 90 days;
e. Failure to pay was due to the wrongful conduct of the insurer;
f. When the equitable doctrine of estoppel bars the insurer from invoking non-payment of
premiums. (UCPB Insurance Co., Inc. vs. MasaganaTelemart, Inc., G.R. No. 137172, April 4, 2001)

23. Tom applied for life insurance with Star Life, which policy was issued on August 15, 2016.
On January 2, 2017, Tom died in a vehicular accident. Tom’s wife, Marie, filed with Star Life
a claim for death benefits, which Star Life denied on the ground of concealment of Tom’s
medical history. Star Life then filed a complaint for rescission of the insurance policy.

a. What is the incontestability clause?

An insurer is given two 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 two-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.

b. Is the complaint for rescission meritorious?

No. If the insured dies within the two-year contestability period, the insurer 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.
The insurer is bound to make good its obligation under the policy, regardless of the presence
or lack of concealment or misrepresentation. (Sunlife vs. Sibya, G.R. No. 211212, June 8, 2016)
24. Distinguish insurable interest in life insurance from insurable interest in property
insurance.

LIFE INSURANCE PROPERTY INSURANCE

Unlimited, except in life insurance
Amount effected by the creditor on the life of
the debtor to the extent of the debt.
Existence of At the time the policy takes effect.
Insurable Interest.
Expectation of the Need not have any legal basis.
Benefit to be derived.
Need not have insurable interest in
Beneficiary’s interest the life of the insured if the insured
himself secured the policy.
Limited to the actual value of the interest
on the property.
At the time the policy takes effect and at
the time of the loss but need not exist in
the meantime.
There must be a legal basis.
Must have insurable interest over the
property insured.

25. Differentiate Double Insurance from Over Insurance.

DOUBLE INSURANCE OVER-INSURANCE

A double insurance exists where the same person When the amount of the insurance is beyond the
is insured by several insurers separately in respect value of the insured’s insurable interest.
to the same subject and interest.
There are always several insurers. There may only be one insurer involved.

26. What is “No Fault Clause”?

The injured third party or passenger is given the option to file a claim for death or injury without
the necessity of proving fault or negligence of any kind under the following conditions:
a. The total indemnity in respect of any person shall not exceed P15,000.00;
b. The following proofs of loss, when submitted under oath, shall be sufficient evidence to
substantiate the claim: (i) police report of accident; and (ii) death certificate or medical report
and evidence of medical, or hospital disbursement in respect of which refund is claimed.
Claim may be made against one motor vehicle only. (Sec. 391, ICP; Insurance Memo. Circular 4-2006)

27. Differentiate Concealment and Representation.

CONCEALMENT
A neglect to communicate that which a
party knows and ought to communicate.
It involves an omission.
Cannot refer to future acts.
REPRESENTATIONS
Statements made to the other party to induce him to enter into
the insurance contract either in writing or by word of mouth.
Involves a positive assertion or affirmation.
Can pertain to the future acts.

28. What is the test of materiality in concealment?

Materiality is determined not by the event, but solely by the probable and reasonable influence of
the facts upon the party to whom the communication is due, in forming his estimate of the
disadvantages of the proposed contract, or in making his inquiries or in fixing the premium rate.
(Section 31, ICP; Vda. de Canilang vs. CA, G.R. No. 92492, June 17, 1993)

TRANSPORTATION LAW

29. Can a brokerage firm be considered a common carrier?

Yes. A customs broker — whose principal business is the preparation of the correct customs
declaration and the proper shipping documents — is still considered a common carrier if it also
undertakes to deliver the goods for its customers. The law does not distinguish between one
whose principal business activity is the carrying of goods and one who undertakes this task only
as an ancillary activity. (Torres-Madrid Brokerage, Inc. vs. Feb Mitsui, G.R. No. 194121, July 11, 2016)

30. Who is a ship agent?

A ship agent is understood to be the person entrusted with the provisioning of a vessel, or who
represents her in the port in which she may be found. (Art. 586, Code of Commerce; Ace Navigation vs.
FGU Insurance Corporation, G.R. No. 171591, June 25, 2012, J. Perlas-Bernabe)

31. What is a bill of lading?

A bill of lading is an instrument in writing, signed by a carrier or his agent, describing the freight
so as to identify it, stating the name of the consignor, the terms of the contract for carriage, and
agreeing or directing that the freight to be delivered to the order or assigns of a specified person
at a specified place. It operates both as a receipt and as a contract. As a receipt, it recites the
date and place of shipment, describes the goods as to quantity, weight, dimensions, identification
 marks and condition, quality, and value. As a contract, it names the contracting parties, which
include the consignee, fixes the route, destination, and freight rates or charges, and stipulates the
rights and obligations assumed by the parties. As such, it shall only be binding upon the parties
who make them, their assigns and heirs. (Ace Navigation vs. FGU Insurance Corporation, G.R. No. 171591, 25
June 2012, J. Perlas-Bernabe)

32. Dino boarded a bus operated by BV Florida bound for Manila. While on their way, a man
who was seated at the fourth row of the bus stood up, shot Dino, which resulted to the his
death. The heirs of Dino contend that BV Florida and its employees are bound to observe
extraordinary diligence in ensuring the safety of passengers, and they are presumed to be
at fault in case of death on the part of a passenger, and, thus, responsible therefor. Are the
heirs of Dino correct?

No. Since the death was caused by a co-passenger, the applicable provision is Art. 1763 of the
Civil Code, which states that "a common 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." (GV Florida vs. Heirs of Battung, G.R. No. 208802,
October 14, 2015, J. Perlas-Bernabe)

33. What is the Boundary System?

A scheme by an owner/operator engaged in transporting passengers as a common carrier to

primarily govern the compensation of the driver, that is, the latter’s daily earnings are remitted
to the owner/operator less the excess of the boundary which represents the driver’s
compensation. Under this system, the owner/operator exercises control and supervision over the
driver. (Villamaria v. CA, G.R. No. 165, April 19, 2006)

34. What is a “Shipper’s Load and Count” arrangement?

It means that the shipper was solely responsible for the loading of the container, while the carrier
was oblivious to the contents of the shipment. Protection against pilferage of the shipment was
the consignee’s lookout. (Marina Port Services Inc. vs. American Home Assurance, G.R. No. 201822, August 12,
2015)

35. Is Stevedore a common carrier?

No. A stevedore is not a common carrier for it does not transport goods or passengers. The
loading and stowing of cargoes would not have a far reaching public ramification as that of a
common carrier. (Mindanao Terminal vs. Phoenix Assurance, G.R. No. 162467,May 8, 2009)

36. What is the Doctrine of Last Clear Chance or Doctrine of Supervening Negligence?

The doctrine of last clear chance provides that where both parties are negligent but the negligent
act of one is appreciably later in point of time than that of the other, or where it is impossible to
determine whose fault or negligence brought about the occurrence of the incident, the one who
had the last clear opportunity to avoid the impending harm but failed to do so, is chargeable with
the consequences arising therefrom. (PNR vs. Vizcara, G.R. No. 190022, February 15, 2012)

37. Discuss the zones of Maritime Collision.

First Zone: All time up to the moment when risk of collision begins. No rule is as yet applicable or
necessary.

Second Zone: Time between moment when risk of collision begins and moment it becomes a
practical certainty. It is in this period where conduct of the vessels must strictly observe nautical
rules, unless a departure therefrom becomes necessary to avoid imminent danger.

Third Zone: Covers the time of actual contact. (Aquino and Hernando, Essentials of Transportation and
Public Utilities Law, 2016, p. 643)

38. What is the limited liability rule in Maritime Law, and its exceptions?

The rule has been explained to be that of the real and hypothecary doctrine in maritime law
where the shipowner or ship agent’s liability is held as merely co-extensive with his interest in the
vessel such that a total loss thereof results in its extinction. Its exceptions are:

a) Where the injury or death to a passenger is due either to the fault of the ship owner, or to the
concurring negligence of the ship owner and the captain;
b) Where the vessel is insured; and
c) In workmen's compensation. (Chua Yek Hong vs. IAC, G.R. No. 74811 September 30, 1988)
 INTELLECTUAL PROPERTY LAW

39. Distinguish Patents, Copyright, and Trademarks.

PATENT COPYRIGHT TRADEMARK

Any technical solution of a
problem in any field of human
activity, which is new, involves
an inventive step and is
industrially applicable
Term of protection is 20 years
from the filing of application,
nonrenewable.
IP rights vest upon issuance of
letter of patents.
Confined to literary and artistic Any visible sign capable of
works which are original distinguishing the goods
intellectual creations in the (trademark) or services
literary and artistic domain (service mark) of an enterprise
protected from the moment of and shall include a stamped or
their creation. marked container of good
Generally, term of protection is Term of protection is 10 years
during the author’s lifetime and may be renewed
and 50 years after his death
IP rights vest from the moment IP rights vest upon
of creation. registration.

40. Distinguish the Dominancy Test from Holistic/Totality Test.

DOMINANCY TEST HOLISTIC/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. (Ecole de
Cuisine Manille vs. Cointreau, G.R. No. 185830, June 5,
2013, J. Perlas-Bernabe)

41. What is Unfair Competition?

Unfair competition is defined as the 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. This takes place where 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. (Co vs. Yeung, G.R. No. 212705, September 10, 2014, J. Perlas Bernabe)

42. What is the “true test” of unfair competition?

The "true test" of unfair competition is "whether the acts of the defendant have the intent of
deceiving or are calculated to deceive the ordinary buyer making his purchases under the
ordinary conditions of the particular trade to which the controversy relates." (Shang Properties vs. St.
Francis, G.R. No. 190706, July 21, 2014, J. Perlas-Bernabe)

43. What are the essential elements of an action for unfair competition?

a. Confusing similarity in the general appearance of the goods; and

b. Intent to deceive the public and defraud a competitor.

The confusing similarity may or may not result from similarity in the marks, but may result from
other external factors in the packaging or presentation of the goods. The intent to deceive and
defraud may be inferred from the similarity of the appearance of the goods as offered for sale to
the public. Actual fraudulent intent need not be shown. (San Miguel Pure Foods Co., Inc. vs. Foodsphere,
Inc., June 20, 2018)

44. What are the requisites for a geographically-descriptive mark to acquire secondary
meaning?

a. The secondary meaning must have arisen as a result of substantial commercial use of a
mark in the Philippines;
b. Such use must result in the distinctiveness of the mark insofar as the goods or the products
are concerned; and
c. Proof of substantially exclusive and continuous commercial use in the Philippines for five (5)
years before the date on which the claim of distinctiveness is made. ((Shang Properties vs. St.
Francis, G.R. No. 190706, July 21, 2014, J. Perlas-Bernabe)

45. When is a trademark device 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. (Great White Shark Enterprises v. Caralde, G.R. No. 192294, 21 November 2012, J. Perlas-Bernabe)

46. Distinguish Trademark Infringement from Unfair Competition.

TRADEMARK INFRINGEMENT
Unauthorized use of a trademark.
Fraudulent intent is unnecessary.
Prior registration of the trademark is a pre-
requisite to the action.
UNFAIR COMPETITION
Passing off of one’s goods as those of another.
Fraudulent intent is essential.
Prior registration is not necessary. (Co vs. Yeung,
G.R. No. 212705, September 10, 2014, J. Perlas-Bernabe)

47. What is the 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 Corp. vs. Gozon, G.R.
No. 195956, March 11, 2015)

48. Differentiate Confusion of Goods from Confusion of Business.

CONFUSION OF GOODS CONFUSION OF BUSINESS

(PRODUCT CONFUSION)
Where the ordinarily prudent
purchaser would be induced
to purchase one product in
the belief that he was
purchasing the other. (Mang
Inasal vs. IFP Manufacturing, G.R.
No. 221717, June 19, 2017)
(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.

CORPORATION LAW

49. Discuss the Trust Fund Doctrine.

This doctrine states that subscriptions to the capital stock of a corporation constitute a fund to
which creditors have a right to look up to for satisfaction of their claims, and that the assignee in
insolvency can maintain an action upon any unpaid stock subscription in order to realize assets
for the payment of its debts. (Ong vs. CA, G.R. No. 119858, April 29, 2003)

50. What does the term “capital” in Section 11, Article XII of the Constitution mean? Is legal
title over the said capital sufficient?

The term “capital” in Section 11, Article XII of the Constitution refers only to shares of stock
entitled to vote in the election of directors. However, mere legal title is insufficient to meet the
sixty percent (60%) Filipino-owned “capital” required in the Constitution. Full beneficial ownership
of sixty percent (60%) of the outstanding capital stock, coupled with sixty percent (60%) of the
voting rights, is required. The legal and beneficial ownership of sixty percent (60%) of the
outstanding capital stock must rest in the hands of Filipino nationals in accordance with the
constitutional mandate. (Gamboa vs. Teves, G.R. No. 176579, June 2011)

51. What is the “Grandfather Rule”? When it is applicable?

Grandfather Rule is the method by which the percentage of Filipino equity in a corporation
engaged in nationalized and/or partly nationalized areas of activities, provided for under the
Constitution and other nationalization laws, is computed, in cases where corporate shareholders
are present, by attributing the nationality of the second or even subsequent tier of ownership to
determine the nationality of the corporate shareholder. It applies when:

a. The Filipino equity is less than 60% of the outstanding capital of a corporation that owns
shares in a partly nationalized enterprise;
b. There is attempt to circumvent the nationalization requirement or when there is doubt as to the
real owners, as in the case where there is layering; or
c. When in the mind of the Court there is doubt, based on the attendant facts and circumstances
of the case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the
Grandfather Rule. (Narra Nickel Mining and Development Corp. vs. Redmont Consolidated Mines Corp., G.R. No.
195580, January 2015)

52. What is the Doctrine of Separate Juridical Personality?

A corporation has a personality separate and distinct from its members. It has a personality
separate and distinct from the persons composing it as well as from that of any other entity to
which it may be related. (Secosa vs. Heirs of Erwin Suarez Francisco, G.R. No. 160039, January 2004)
53. What is the Doctrine of Piercing of the Veil of Corporate Entity?

Under the doctrine of “piercing the veil of corporate entity,” the legal fiction that a corporation is an
entity with a juridical personality separate and distinct from its members or stockholders may be
disregarded and the corporation will be considered as a mere association of persons, such that
liability will attach directly to the officers and the stockholders. (Vicmar Development Corporation vs.
Elarcosa, G.R. No. 202215, December 19, 2015)

54. What are the three-pronged test to determine the application of the alter-ego theory?

a. Control, not mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its
own;
b. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate
the violation of a statutory or other positive legal duty, or dishonest and unjust act in
contravention of plaintiffs legal right; and
c. The aforesaid control and breach of duty must have proximately caused the injury or unjust
loss complained of. (Virata vs. Ng Wee, G.R. No. 220926, July 5, 2017)

55. Discuss the concept of “Reverse Piercing”.

In a reverse piercing, plaintiff seeks to reach the assets of a corporation to satisfy claims against
a corporate insider, which has two types: (a) Outsider reverse piercing occurs when a party with a
claim against an individual or corporation attempts to be repaid with assets of a corporation
owned or substantially controlled by the defendant; and (b) Inside reverse piercing, where the
controlling members will attempt to ignore the corporate fiction in order to take advantage of a
benefit available to the corporation, such as an interest in a lawsuit or protection of personal
assets. (IAME vs. Litton, G.R. No. 191525, December 13, 2017)

56. What are the requisites before an officer or director can be held liable for the corporate
obligations?

a) The complainant must allege in the complaint that the director or officer assented to patently
unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith;
and
b) The complainant must clearly and convincingly prove such unlawful acts, negligence or bad
faith. (Mactan Rock Industries, Inc. vs. Germo, G.R. No. 228799, January 10, 2018, J. Perlas-Bernabe)

57. What is the Doctrine of Apparent Authority?

The doctrine of apparent authority provides that a corporation will be estopped from denying the
agent’s authority if it knowingly permits one of its officers or any other agent to act within the
scope of an apparent authority, and it holds him out to the public as possessing the power to do
those acts. (Advance Paper Corp. vs. ARMA Traders Corp., G.R. No. 176897, December 11, 2013)

58. When a person is considered a corporate officer?

The rule is that corporate officers are those officers of a corporation who are given that character
either by the Corporation Code or by the corporation’s by-laws. Sec. 25 of the Corporation Code
explicitly provides for the election of the corporation’s president, treasurer, secretary, and such
other officers as may be provided for in the by-laws. (Cacho vs. Balagtas, G.R. No. 202974, February 7,
2018)

59. What is a derivative suit?

A derivative action is a suit by a shareholder to enforce a corporate cause of action. The

corporation is a necessary party to the suit. And the relief which is granted is a judgment against
a third person in favor of the corporation. Similarly, if a corporation has a defense to an action
against it and is not asserting it, a stockholder may intervene and defend on behalf of the
corporation. (Chua vs. Court of Appeals, Hao, G.R. No. 150793, November 19, 2004)

60. What are the requirements for Derivative Suit?

a. The plaintiff was a stockholder or member at the time the acts or transactions subject of the
action occurred and at the time the action was filed;
b. He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to
exhaust all remedies available under the articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain the relief he desires;
c. No appraisal rights are available for the act or acts complained of; and
d. The suit is not a nuisance or harassment suit. (Ching vs. Subic Bay Golf and Country Club, Inc., G.R. No.
174353, September 10, 2014)
61. Voting requirements of stockholders representing the outstanding capital stock of a stock
corporation or members of a non-stock corporation.

2/3 VOTES MAJORITY VOTE

a. Amendment of AOI; (Sec. 16) a. Election of directors/trustees; (Sec. 24)
b. Removal of director or trustee; (Sec. 28) b. Written demand to call special meeting
c. Ratification of a contract of the corporation with its for the removal of a director or trustee;
directors, trustees, or officers (self-dealing); (Sec. 32) (Sec. 28) \
d. Ratification of a contract between two or more c. Grant of compensation of directors other
corporations having interlocking directors and the than per diems; (Sec. 30)
said director having a substantial interest in one d. Enter into management contract; (Sec. 44)
corporation and merely nominal on the other; (Sec. e. Adoption of by-laws; (Sec. 46)
33) f. Amend or repeal any by-laws or adopt
e. Ratification of acquisition of a director of a business new by-laws; (Sec. 48)
opportunity which should belong to the corporation; g. Revocation of powers delegated to the
(Sec. 34) board to amend or repeal any by-laws;
f. Extend or shorted corporate term; (Sec. 37) and (Sec. 48)
g. Increase or decrease in authorized capital stock; (Sec. h. Choosing one of the stockholders or
38) members to act as presiding officer in a
h. Incurring, creating, increasing bonded indebtedness; meeting called when there is no person
(Sec. 38)
authorized to call a meeting. (Sec. 50)
i. Shares to be issued in good faith in exchange of
property needed for corporate purposes or in
payment of a previously contracted debt; (Sec. 39)
j. Sale, lease, exchange, mortgage, pledge, or
otherwise dispose of all or substantially all corporate
property and assets; (Sec. 40)
k. Invest corporate funds in another corporation or
business or for any other purpose; (Sec. 42)
l. Declaration of stock dividends; (Sec. 43)
m. Enter into management contract, where:
i. A stockholder or stockholders representing the
same interest of both the managing and the
managed corporations own or control more than
1/3 of the total outstanding capital stock entitled
to vote of the managing corporation. and
ii. Majority of the members of the board of director
of the managing corporation also constitute a
majority of the members of the board of directors
of the managed corporation; (Sec. 44)
n. Delegation to BOD the power to amend or repeal any
by-laws or adopt new by-laws (Sec. 48)
o. Approval or amendment of plan of merger and
consolidation. (Sec. 77)
p. Amendment of removing any provision required
contents in the AOI of a close corporation (Sec. 103)
q. Amendment reducing quorum or voting requirements
in a close corporation (Sec. 103)
r. Incorporation of any religious society for
administration of its temporalities or management of
its affairs, properties and estate; and (Sec. 116)
s. Voluntary dissolution.

62. What are the tests to determine whether a case involves an intra-corporate dispute?

a. Relationship test - when the relationship between or among the disagreeing parties is any
one of the following: (i) between the corporation, partnership, or association and the public;
(ii) between the corporation, partnership, or association and its stockholders, partners,
members, or officers; (iii) between the corporation, partnership, or association and the State
as far as its franchise, permit or license to operate is concerned; and (iv) among the
stockholders, partners, or associates themselves. The incidents of their relationship must
also be considered.

b. Nature of the Controversy Test - the disagreement must not only be rooted in the existence
of an intracorporate relationship, but must as well pertain to the enforcement of the parties’
correlative rights and obligations under the Corporation Code and the internal and intra-
corporate regulatory rules of the corporation. (Cacho vs. Balagtas, G.R. No. 202974, February 7, 2018)

63. What is a Street Certificate?

Street certificate is a stock certificate indorsed in blank by the owner in blank in the possession of
another person, so that upon its face, the holder is entitled to demand its transfer his name from
the issuing corporation. (Guy vs. Guy, G.R. No. 189486, September 5, 2012)
64. Is a mere transfer of stock certificate from one person to another accord the latter the
rights of a stockholder?

No. All transfers of shares of stock must be registered in the corporate books in order to be
binding on the corporation. Any transfer not registered in the stock and transfer book does not
ipso facto accord the stockholder rights over said shares. (F&S Velasco Company, Inc. v. Madrid, G.R. No.
208844, November 10, 2015, J. Perlas-Bernabe)

65. What are the requisites for a valid transfer of stocks?

a. Delivery of the stock certificate;

b. Certificate must be endorsed by the owner or his attorney-in-fact or other persons legally
authorized to make the transfer; and
c. Recorded in the books of the corporation to be valid against third parties. (Sec. 63, Corporation
Code)

66. What is the remedy of the transferee in case the corporation refuses to record the
transfer?

Mandamus will lie to compel officers of the corporation to transfer stock in the books of the
corporation. The right of a transferee/assignee to have stocks transferred to his name is an
inherent right flowing from his ownership of the stocks. (Rural Bank of Salinas vs. CA, G.R. No. 96674 June
26, 1992)

67. When may the appraisal right of a stockholder be exercised?

a. Any amendment to the articles of incorporation has the effect of changing or restricting the
rights of any stockholder or class of shares, or of authorizing preferences in any respect
superior to those of outstanding shares of any class, or of extending or shortening the term of
corporate existence;
b. Sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially
all of the corporate property and assets as provided in the Code;
c. In case of merger or consolidation;
d. In case the corporation decides to invest its funds in another corporation or business for any
purpose other than its primary purpose; and
e. Any stockholder of a close corporation may, for any reason, compel said corporation to
purchase his shares at their fair value, which shall not be less than their par or issued value,
when the corporation has sufficient assets in its books to cover its debts and liabilities
exclusive of capital stock.

68. Discuss the concept of “de facto merger”

A de facto merger can be pursued by one corporation acquiring all or substantially all of the
properties of another corporation in exchange of shares of stock of the acquiring corporation. The
acquiring corporation would end up with the business enterprise of the target corporation;
whereas, the target corporation would end up with basically its only remaining assets being the
shares of stock of the acquiring corporation. (Bank of Commerce vs. RPN, Inc., G.R. No. 195615, April 21,
2014)

69. Distinguish Merger from Consolidation.

MERGER
There is a termination of the existence of the
constituent corporations, except the surviving
or absorbing corporation.
Results into a single surviving corporation.
CONSOLIDATION
There is termination of the existence of all
constituent corporations.
Results into a single consolidated corporation.

SECURITIES AND REGULATIONS CODE

70. What is the Howey Test?

For an investment contract to exist, the following elements must concur: (a) a contract,
transaction, or scheme; (b) an investment of money; (c) investment is made in a common
enterprise; (d expectation of profits; and (e) profits arising primarily from the efforts of others. (SEC
vs. Prosperity.Com Inc., G.R. No. 164197, January 25, 2012)

71. Discuss the Jurisdiction of SEC and Regular Courts over Proxy Solicitation.

The power of the SEC to investigate violations of its rules on proxy solicitation is unquestioned
when proxies are obtained to vote on matters unrelated to the cases enumerated under Section 5
of Presidential Decree No. 902-A. However, when proxies are solicited in relation to the election
of corporate directors, the resulting controversy, even if it ostensibly raised the violation of the
 SEC rules on proxy solicitation, should be properly seen as an election controversy within the
original and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in relation
to Section 5 (c) of Presidential Decree No. 902-A. (SEC v. CA, G.R. No. 187702, October 22, 2014)

72. In what corporations is there a need for independent directors?

a. Corporations with a class of equity securities listed for trading on an Exchange; and
b. Corporations with assets in excess P50,000,000.00 and having 200 or more holders, at least
of two hundred 200 of which are holding at least one hundred 100 shares of a class of its
equity securities or which has sold a class of equity securities to the public pursuant to an
effective registration statement in compliance with Section 12 of the SRC. (Section 38, SRC)

73. What is an Insider Trading?

Insider Trading is the selling or buying of a security of the issuer by an insider while in possession
of material information with respect to the issuer or the security that is not generally available to
the public. It means: (a) the issuer; (b) a director or officer; (c) a person with relationship to a
person with access; (d) a person who has access to material information about an issuer or a
security that is not generally available to the public; or (e) a person who learns such information
by a communication from any of the foregoing insiders. (Sec. 3.8, SRC)

74. What are the different kinds of manipulative/fraudulent practices?

a. Wash Sale – creating a false or misleading appearance of active trading in any listed security
in an Exchange or any other trading market: (i) To effect any transaction which involves no
change in beneficial ownership thereof; (ii) To enter order or orders with the knowledge that a
simultaneous order or orders of the same size, time and price has or will be entered by
different parties; and (iii) To perform similar acts where there is no change in beneficial
ownership
b. Marking the Close – buying and selling securities at the close of the market in an effort to
alter the closing price of the security
c. Painting the Tape – engaging in a series of transactions that are reported publicly to give the
impression of activity or price movement in a security
d. Squeezing the Float – taking advantage of a shortage of securities in the market by
controlling demand side, and exploiting market congestion during such shortages in a way as
to create artificial prices.
e. Hype and Dump – engaging in buying activity at increasingly higher prices and then selling
the securities in the market at higher prices.
f. Boiler Room Operations – a well-organized operation where in a room, there would be well-
trained salesmen operating over several phones and using high-pressure sales talk to get
investors to invest in securities offered.
g. Daisy Chain – a pattern of fictitious trading activity by a group of persons who lures innocent
people into the scheme.
h. Flipping – operated where one office buys a particular stock for customers, while another
office simultaneously recommends that its customers sell the stock, with the stock being
shifted from one office to another, and the firm makes a profit, and the brokers earn their
commissions. (Commercial Law Review, Villanueva, 2015)

BANKING LAWS

75. What are the classifications of banks?

Universal A universal bank shall have the authority to exercise, in addition to the powers
banks authorized for a commercial bank, the powers of an investment house as provided in
existing laws and the power to invest in non-allied enterprises as provided in the General
Banking Act. (Sec. 23, RA 8791)
Commercial A commercial bank is a bank that can: (1) accept drafts; (2) issue letters of credit:13]
banks discount and negotiate promissory notes, drafts, bills of exchange, and other evidence of
debt:(4) accept or create demand deposits; (5) receive other types of deposits, as well as
deposit substitutes; (6) buy and sell foreign exchange, as well as gold or silver bullion;
(7) acquire marketable bonds and other debts securities; and (8) extend credit, subject to
such rules promulgated by the Monetary Board. (Sec. 29, RA 8791)
Thrift Banks Thrift banks include savings and mortgage banks, private development banks, and stock
savings and loans associations organized under existing laws, and any banking
corporation organized for the purpose of: (1) accumulating the savings of depositors and
investing them in outlets determined by the Monetary Board as necessary in the
furtherance of national economic objectives; (2) providing short-term working capital,
medium and long-term financing, to businesses engaged in agriculture, services,
industry and housing; and (3) providing diversified financial and allied services for its
chosen market and constituencies specially for small and medium enterprises and
individuals. (Sec. 3(a), RA 7906)
Rural banks Rural banks are designed to make needed credit available and readily accessible in the
 rural areas on reasonable terms. (Sec. 2, RA 7353)
Cooperative A cooperative bank is one organized by the majority shares of which is owned and
banks controlled by cooperatives primarily to provide financial and credit services to
cooperatives. The term "cooperative bank" shall include cooperative rural banks. (Sec.
100, RA 6938)
Islamic banks Islamic Banks promote and accelerate the socio-economic development of the
Autonomous Region by performing banking, financing and investment operations and to
establish and participate in agricultural, commercial and industrial ventures based on the
Islamic concept of banking. (Sec. 3, RA 6848)

76. What is the effect on the legal personality of the bank and the power of its Board if a Bank
is placed under receivership?

The legal personality of the bank is not ipso facto dissolved by insolvency; it is not divested of its
capacity to sue and be sued after it was ordered by the Monetary Board to cease operation. The
law mandated, however, that the action should be brought through its statutory liquidator/receiver
which is the PDIC. (Banco Filipino vs. BSP, G.R. No. 200678, June 04, 2018)

77. What are the grounds for Receivership?

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 Bangko Sentral, to meet its liabilities;
c. Cannot continue in business without involving probable losses to its depositors or creditors; or
d. Has willfully 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 Philippines and designate the PDIC as
receiver of the banking institution. (Section 30, General Banking Law)

78. What is the Close Now-Hear Later Rule?

There is no prior notice and hearing before the bank may be directed to stop operations and
placed under receivership. The purpose is to prevent unwarranted dissipation of the bank’s
assets and as a valid exercise of police power to protect the depositors, creditors, stockholders
and the general public. (Central Bank of the Philippines vs. CA, G.R. No. 76118, March 30, 1993)

79. What is the Fit and Proper Rule?

Monetary Board shall prescribe, pass upon and review the qualifications and disqualifications of
individuals elected or appointed bank directors or officers and disqualify those found unfit. After
due notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or
remove any bank director or officer who commits or omits an act which render him unfit for the
position. (Sec. 16, R.A. No. 8791)

80. Are Trust Accounts covered by the term deposits the Bank Secrecy Law?

Yes. The term "deposits" is to be understood broadly and not limited only to accounts which give
rise to a creditor-debtor relationship between the depositor and the bank. Money deposited under
an account may be used by bank for authorized loans to third persons, then such account,
regardless of whether it creates a creditor-debtor relationship between the depositor and the
bank, falls under the category of accounts which the law precisely seeks to protect. (People vs.
Estrada, G.R. Nos. 164368-69, April 2, 2009)

81. What is the nature and coverage of secrecy of foreign deposits under the Foreign
Currency Deposits Act?

All foreign currency deposits are considered of an absolutely confidential nature and shall be
exempt from attachment, garnishment, or any other order or process of any court, legislative
body, government agency or any administrative body. (Section 8, Foreign Currency Deposit Act)

82. What are the exceptions to Secrecy of Bank Deposits?

a. When there is written permission of the depositor or investor;

b. Impeachment cases;
c. Upon the order of a competent court in cases of bribery or dereliction of duty of public
officials;
d. Upon the order of a competent court in cases where the money deposited or invested is the
 subject of litigation;
e. Upon order of the competent court or tribunal in cases involving unexplained wealth under
Sec. 8 of the Anti-Graft and Corrupt Practices Act (R.A. 3019);
f. Upon inquiry by the Commissioner of Internal Revenue for the purpose of determining the
net estate of a deceased depositor;
g. In case the taxpayer compromised his tax liability by reason of financial incapacity.
h. Upon the order of a competent court or in proper cases by the Anti-Money Laundering
Council where there is probable cause of money laundering.
i. Disclosure of the Treasurer of the Philippines for dormant deposits for at least 10 years
under the Unclaimed Balances Act (R.A. 3936)

83. What is Conservatorship?

Conservatorship involves the appointment of a conservator to preserve the assets of the bank
when the latter is illiquid, and take measures for a period not more than 1 year. (Section 29, New
Central Bank Act)

ANTI-MONEY LAUNDERING ACT

84. What is Safe Harbor Provision?

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 the AMLA or any other Philippine law.
(Rule 3, Section 3, paragraph (e) of RA 9160)

85. Does Section 11 of the AMLA, providing for ex parte application and inquiry into certain
bank deposits, violate substantive due process?

No. Section 11 of the AMLA providing for ex parte application and inquiry by the AMLC into
certain bank deposits and investments does not violate substantive due process, there being no
physical seizure of property involved at that stage. This function of AMLC finds more resonance
with the investigative functions of the National Bureau of Investigation (NBI). (Subido Pagente Certeza
Mendoza and Binay Law Offices v. Court of Appeals, G.R. No. 216914, December 06, 2016)

86. Enumerate the covered transactions and suspicious transactions under AMLA.

COVERED TRANSACTIONS SUSPICIOUS TRANSACTIONS

a. Transaction in cash or other a. There is no underlying legal or trade obligation, purpose or
equivalent monetary instrument economic justification;
exceeding Five Hundred b. Client is not properly identified;
Thousand pesos c. Any circumstance relating to the transaction which is
(Php500,000.00); and observed to deviate from the profile and/or the client’s past
b. Transaction exceeding One Million transactions with the covered institution;
pesos (Php1,000,000.00) in cases d. Amount involved is not commensurate with the business of
of jewelry dealers, dealers in financial capacity of the client
precious metals and dealers in e. Taking into account all known circumstances, it may be
precious stones. perceived that the client’s transaction is structured in order
to avoid being the subject of reporting requirements under
the act;
f. 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
g. Analogous or similar transactions to any of the foregoing.
(RA No. 9160, as amended)

ELECTRONIC COMMERCE ACT

87. Is facsimile an Electronic Data Message?

No. Electronic data message excludes telexes or faxes, except computer-generated faxes, in
harmony with the Electronic Commerce Law's focus on "paperless" communications and the
"functional equivalent approach. Facsimile transmissions are not, in this sense, "paperless," but
verily are paper-based. (MCC Industrial vs. Ssangyong, G.R. No. 170633, October 17, 2007)

88. What is Electronic Data Message?

"Electronic Data Message" refers to information generated, sent, received or stored by electronic,
optical or similar means. (Sec. 5c, RA 8792)

89. What is an Electronic Document?

 "Electronic Document" 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 proved and affirmed,
which is received, recorded, transmitted, stored, processed, retrieved or produced electronically.
(Sec. 5f, RA 8792)

DATA PRIVACY ACT

90. What is the scope of coverage of the Data Privacy Act?

The law applies to the processing of all types of personal information and to any natural and
juridical person involved in personal information processing including those personal information
controllers and processors who, although not found or established in the Philippines, use
equipment that are located in the Philippines, or those who maintain an office, branch or agency
in the Philippines (Sec. 4, R. A. 10173).

91. Distinguish personal information from sensitive personal information.

PERSONAL SENSITIVE PERSONAL INFORMATION

INFORMATION
Any information whether
recorded in a material form
or not, from which the
identity of an individual is
apparent or can be
reasonably and directly
ascertained by the entity
holding the information, or
when put together with
other information would
directly and certainly
identify an individual. (Sec.
3(g), Data Privacy Act)
a. About an individual’s race, ethnic origin, marital status, age,
color, and religious, philosophical or political affiliations;
b. 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;
c. 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
d. Specifically established by an executive order or an act of
Congress to be kept classified. (Sec. 3(l), Data Privacy Act)

92. What is the right to data portability?

The data subject shall have the right, where personal information is processed by electronic
means and in a structured and commonly used format, to obtain from the personal information
controller a copy of data undergoing processing in an electronic or structured format, which is
commonly used and allows for further use by the data subject. (Sec. 18, Data Privacy Act)

93. What are the criteria for lawful processing of personal information?

The processing of personal information shall be permitted only if not otherwise prohibited by law,
and when at least one of the following conditions exists:

a. The data subject has given his or her consent;

b. The processing of personal information is necessary and is related to the fulfillment of a
contract with the data subject or in order to take steps at the request of the data subject prior
to entering into a contract;
c. The processing is necessary for compliance with a legal obligation to which the personal
information controller is subject;
d. The processing is necessary to protect vitally important interests of the data subject, including
life and health;
e. The processing is necessary in order to respond to national emergency, to comply with the
requirements of public order and safety, or to fulfill functions of public authority which
necessarily includes the processing of personal data for the fulfillment of its mandate; or
f. The processing is necessary for the purposes of the legitimate interests pursued by the
personal information controller or by a third party or parties to whom the data is disclosed,
except where such interests are overridden by fundamental rights and freedoms of the data
subject which require protection under the Philippine Constitution. (Sec. 12, Data Privacy Act)

FINANCIAL REHABILITATION, INSOLVENCY, LIQUIDATION

AND SUSPENSION OF PAYMENTS

94. Distinguish Rehabilitation from Liquidation.

REHABILITATION LIQUIDATION
Applies to business organizations Can cover individual debtors
The rules on concurrence and preference of The rules on concurrence and preference of
 credit do not apply credit apply
claim of, or the aggregate of claims against The claim should not be less than is not less
the debtor is at least PHP 1,000,000.00 or at than PHP 500,000.00
least 25% of the subscribed capital stock or
partners’ contributions, whichever is higher

95. What is Rehabilitation?

Rehabilitation is the restoration of the debtor to a 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. (Sec. 4(gg), R.A. No. 10142)

96. What are the contents of a rehabilitation plan?

a. The desired business targets or goals and the duration and coverage of the rehabilitation;
b. The terms and conditions of such rehabilitation which shall include the manner of its
implementation, giving due regard to the interests of secured creditors such as, but not
limited, to the non-impairment of their security liens or interests;
c. The material financial commitments to support the rehabilitation plan; (d) the means for the
execution of the rehabilitation plan, which may include debt to equity conversion,
restructuring of the debts, dacion en pago or sale exchange or any disposition of assets or of
the interest of shareholders, partners or members;
d. A liquidation analysis setting out for each creditor that the present value of payments it would
receive under the plan is more than that which it would receive if the assets of the debtor
were sold by a liquidator within a six-month period from the estimated date of filing of the
petition; and
e. Such other relevant information to enable a reasonable investor to make an informed
decision on the feasibility of the rehabilitation plan. (Sec.18, Rule 3 of A.M. No. 00-8-10-SC)

97. What actions are suspended by a stay order during rehabilitation?

a) Suspend all actions or proceedings, in court or otherwise, for the enforcement of claims
against the debtor;
b) Suspend all actions to enforce any judgment, attachment or other provisional remedies
against the debtor;
c) Prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of
its properties except in the ordinary course of business; and
d) Prohibit the debtor from making any payment of its liabilities outstanding as of the
commencement date except as may be provided herein. (Section 16, RA No. 10142)

98. Does the stay order covers the suspension of claims of the government?

Yes. Upon the issuance of a Commencement Order - which includes a Stay or Suspension Order
- all actions or proceedings, in court or otherwise, for the enforcement of "claims" against the
distressed company shall be suspended. Under the same law, claim "shall refer to all claims or
demands of whatever nature or character against the debtor or its property, whether for money or
otherwise, liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or
undisputed, including, but not limited to: all claims of the government, whether national or local,
including taxes, tariffs and customs duties. (BIR vs. Lepanto Ceramic, Inc., G.R. No. 224764, April 24, 2017, J.
Perlas-Bernabe)

99. When does the Stay/Suspension Order does not apply?

a) Cases already pending appeal in the Supreme Court as of commencement date;

b) Cases pending or filed at a specialized court or quasi-judicial agency which, upon
determination by the court is capable of resolving the claim more quickly, fairly and efficiently
than the court;
c) The enforcement of claims against sureties and other persons solidarily liable with the debtor,
and third party or accommodation mortgagors as well as issuers of letters of credit, unless the
property subject of the third party or accommodation mortgage is necessary for the
rehabilitation of the debtor as determined by the court upon recommendation by the
rehabilitation receiver;
d) Any form of action of customers or clients of a securities market participant to recover or
otherwise claim moneys and securities entrusted to the latter in the ordinary course of the
latter's business as well as any action of such securities market participant or the appropriate
regulatory agency or self-regulatory organization to pay or settle such claims or liabilities;
e) The actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a
securities pledge or margin agreement for the settlement of securities transactions in
 accordance with the provisions of the Securities Regulation Code and its implementing rules
and regulations;
f) The clearing and settlement of financial transactions through the facilities of a clearing agency
or similar entities duly authorized, registered and/or recognized by the BSP and the SEC as
well as any form of actions of such agencies or entities to reimburse themselves for any
transactions settled for the debtor; and
g) Any criminal action against individual debtor or owner, partner, director or officer of a debtor
shall not be affected by any proceeding commend under FRIA (Section 18, RA No. 10142).

100. What are the two-pronged purpose of rehabilitation proceedings?

Rehabilitation proceedings have a two-pronged purpose, namely: (a) to efficiently and equitably
distribute the assets of the insolvent debtor to its creditors; and (b) to provide the debtor with a
fresh start, by relieving them of the weight of their outstanding debts and permitting them to
reorganize their affairs. The purpose of rehabilitation proceedings is to enable the company to
gain a new lease on life and thereby allow creditors to be paid their claims from its earnings.
(Philippine Bank of Communications vs. Basic Polyprinters and Packaging Corporation, G.R. No. 187581, October 20,
2014)

101. What is the Cram Down power of a court in rehabilitation proceedings?

Rehabilitation courts have the cram down power to approve rehabilitation plans even over the
objections of creditors, which cram down power shall nonetheless bind the latter. The court may
approve a rehabilitation plan even over the opposition of creditors holding a majority of the total
liabilities of the debtor if, in its judgment, the rehabilitation of the debtor is feasible and the
opposition of the creditors is manifestly unreasonable. (Victorio-Aquino vs. Pacific Plans, Inc., G.R. No.
193108, December 10, 2014)

102. What is the standstill period?

It is a period that may be agreed upon by the parties pending negotiation and finalization of the
out-of-court or informal restructuring/workout agreement or Rehabilitation Plan contemplated
herein shall be effective and enforceable not only against the contracting parties but also against
the other creditors: Provided, That (a) such agreement is approved by creditors representing
more than fifty percent (50%) of the total liabilities of the debtor; (b) notice thereof is publishing in
a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks;
and (c) the standstill period does not exceed one hundred twenty (120) days from the date of
effectivity. The notice must invite creditors to participate in the negotiation for out-of-court
rehabilitation or restructuring agreement and notify them that said agreement will be binding on all
creditors if the required majority votes prescribed in Section 84 of FRIA are met. (Sec. 85, RA 10142)

103. What are the minimum requirements to qualify as an out-of-court or informal

restructuring/workout agreement?

(a) The debtor must agree to the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan;
(b) It must be approved by creditors representing at least sixty-seven (67%) of the secured
obligations of the debtor;
(c) It must be approved by creditors representing at least seventy-five percent (75%) of the
unsecured obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent (85%) of the total
liabilities, secured and unsecured, of the debtor. (Sec. 84, RA 10142)

HAIL TO THE CHIEFS!!!!!