ATENEO Blue Tips Commercial Law 2018 PDF

ATENEO CENTRAL
BAR OPERATIONS 2018 COMMERCIAL LAW BLUE TIPS

PRAYER FOR THE BAR EXAMINATIONS
O God, we come before You this day,

as we are preparing/studying for the bar examinations.
This is the most important event in our lives,

one full of consequences for our own future,
and for the hopes and expectations of many who love us and
are concerned for us: our parents and relatives, our friends,
our professors who have worked hard to prepare us for it.
We ask for help.

Make our memories ready to recall all the
knowledge we have stored in them by our study.
Help us to understand the full meaning of the questions and
to see the exact answers.
Give us the facility of expression to answer
clearly and accurately.
Give us peace of soul
that we may not get upset under the pressure of the task.
We do not ask this by our own merits.

We cannot point to our faithful service
in the past as deserving of this special help.
We have in fact been careless and disobedient.
We ask this from Your Fatherly mercy and compassion through

Your Son, our Lord Jesus Christ.
Listen to our prayers through the intercession of our Blessed Mother,
patroness of our University and of St. Thomas More,
patron of our Law School.
Amen.
THE BLUE TIPS ARE EXCLUSIVELY FOR THE USE OF ATENEO BAR TAKERS FOR THE 2018 BAR
EXAMINATIONS. UNAUTHORIZED USE AND REPRODUCTION OF THIS MATERIAL IS PROHIBITED.
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If you think you are having a difficult time with your exams,
just transport yourself back to your law school days.
Bank on your stock (corporation) knowledge, and

as added insurance, trust (receipts) your instincts
because you indeed have the intellectual properties
to succeed in commercial law.
Passing these exams is non-negotiable.
Special thanks to Dean Joey Hofileña, Atty. Jack Jimenez, Atty. Ferdinand Negre, Atty. Ronald Chua,
Atty. Norianne Tan, Atty. CJ Tan, Atty. Francis Lim, and Atty. Roel Refran.
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LETTERS OF CREDIT
Q: What are the three distinct and independent contracts in a letter of credit?
A:
1. The contract of sale between the buyer and the seller;
2. The contract of the buyer with issuing bank; and
3. The letter of credit proper in which the bank promises to pay the seller pursuant to the terms and
conditions stated therein. (Keng Hua Paper v. CA, 1998)
Q: What is a standby letter of credit? How does it differ from a commercial letter of credit?
A: Commercial letters of credit involve the payment of money under a contract of sale. Such credits become
payable upon the presentation by the seller-beneficiary of documents that show he has taken affirmative
steps to comply with the sales agreement. In standby letters of credit, the credit is payable upon certification
of a party’s nonperformance of the agreement. The beneficiary of a commercial credit must demonstrate
by documents that he has performed his contract. The beneficiary of the standby credit must certify that his
obligor has not performed the contract. (Transfield Philippines. v. Luzon Hydro, 2004)
Q: Distinguish the liability of a Confirming Bank from a Notifying Bank?
A: In case anything wrong happens to the letter of credit, a confirming bank incurs liability for the amount
of the letter of credit, while a notifying bank does not incur any liability. The Notifying Bank conveys to the
seller the existence of the letter of credit but it does not assure that the issuing bank will pay. The Confirming
Bank lends credence to the letter of credit issued by the Issuing Bank. The Confirming Bank is directly liable
to pay the seller – beneficiary. (Bank of America v CA, 1993)
Q: How does the independence principle apply to letters of credit?
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. Under this principle, banks assume no liability or responsibility for the form,
sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or
particular conditions stipulated in the documents or superimposed thereon, nor do they assume any liability
or responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or existence
of the goods represented by any documents, or for its good faith or acts and/or omissions, solvency,
performance or standing of the consignor, the carriers, or the insurers of the goods, or any other person
whomsoever. (Transfield Philippines Inc. v. Luzon Hydro Corporation, 2004)
Q: In letters of credit transactions, fraud is an exception to the Independence Principle. Fraud can
also justify the issuance of an injunction against payment under a letter of credit. What are the
requirements for such injunction to issue? (PAI)
A:
a. There is clear Proof of fraud;
b. The fraud constitutes fraudulent Abuse of the independent purpose of the letter of credit and not
only fraud under the main agreement; and
c. Irreparable Injury might follow if injunction is not granted or the recovery of damages would be
seriously damaged. (Transfield Philippines, Inc. v. Luzon Hydro Corporation, 2004)
Q: What is the doctrine of strict compliance?
A: The documents tendered by the seller or beneficiary must strictly conform to the terms of the letters of
credit, i.e. they must include all documents required by the letter of credit. Thus, a correspondent bank
which departs from what has been stipulated in the letter of credit, as when it accepts a faulty tender, acts
at its own risk and may not be able to recover from the buyer or the issuing bank, as the case may be, the
money paid to the beneficiary. (Feati Bank v. CA, 1991)
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TRUST RECEIPTS LAW
Q: What is a trust receipt transaction?
A: A trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster the
price of the sale, or if the merchandise is not sold, to return the merchandise to the entruster. (Hur Tin Yang
v. People, 2013)
Q: What are the obligations of the entrustee in a Trust Receipt transaction?
A: The entrustee is obliged to (1) hold the goods, documents or instruments in trust for the entruster and
shall dispose of them strictly in accordance with the terms and conditions of the trust receipt; (2) receive
the proceeds in trust for the entruster and turn over the same to the entruster to the extent of the amount
owed to the entruster or as appears on the trust receipt; (3) insure the goods for their total value against
loss from fire, theft, pilferage or other casualities; (4) keep said goods or the proceeds therefrom whether
in money or whatever form, separate and capable of identification as property of the entruster; (5) return
the goods, documents or instruments in the event of non-sale or upon demand of the entruster; and (6)
observe all other terms and conditions of the trust receipt not contrary to the provisions of the Trust Receipts
Law. (Metropolitan Bank v. Sec. Gonzales, et al., 2009)
Q: Can a “trust receipt” transaction involve goods which the parties know are (a) not returnable to
the trustor, and (b) not to be resold?
A:
(a) NO. When both parties enter into an agreement knowing that the return of the goods subject to
the “trust receipt” is not possible, it is NOT a trust receipt transaction. The transaction becomes a
mere loan where the supposed “trustee’s” only obligation is to return the proceeds of the sale of
the goods subject to the “trust receipts.” (Sps. Dela Cruz v. Planters Producers, Inc., 2013)
(b) NO. Similarly, a trust receipt signed for the purchase of materials which will not be resold but will
be used in the contraction business is a simple contract of law. (Hur Tin Yang v. People, 2013)
Q: Can the entruster pursue the purchaser of the goods in case the entrustee fails to apply the
proceeds of the sale to his obligation to the entruster?
A: Any purchaser of goods from an entrustee with right to sell, or of documents or instruments through their
customary form of transfer, who buys the goods, documents, or instruments for value and in good faith from
the entrustee, acquires said goods, documents or instruments free from the entruster's security interest.
(Sec. 11, TRL)
Q: A warehouse receipt reads: “The goods described herein are deliverable to bearer” and the
warehouseman stamped the words: NON-NEGOTIABLE. How may the receipt be negotiated?
A: The receipt may still be negotiated by delivery. The provision inserted by the warehouseman that the
receipt is non-negotiable shall be void and the negotiable character of the warehouse receipt as deliverable
to bearer, will not be affected. (Sec. 5, WRL)
Q: What is the effect of failure of the entrustee to turn over the proceeds of the sale of the goods
covered by the trust receipts to the entruster or to return the goods if they were not disposed of in
accordance with the terms of the trust receipts?
A: The mere failure to deliver the proceeds of the sale or the goods, if not sold, shall be punishable as
estafa under the Revised Penal Code. Likewise, the entrustee may also be liable for civil fraud in the non-
compliance with the trust receipts to warrant the issuance of a writ of preliminary attachment. In a civil case
involving a trust receipt, the entrustee's failure to comply with its obligations under the trust receipt constitute
as civil fraud provided that it is alleged, and substantiated with specificity, in the complaint, its attachments
and supporting evidence. (Security Bank v. Great Wall Commercial Press Company, 2017)
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Q: If the entrustee were to return the goods to the entruster as he was not able to sell them, would
the obligation secured by the trust receipt ipso facto be extinguished? Is a deficiency claim
available in a trust receipt transaction?
A: No. A trust receipt is a security agreement, pursuant to which a bank acquires a “security interest” in the
goods. The initial repossession by the bank of the goods subject of the trust receipt did not result in the full
satisfaction of the loan obligation. A claim for deficiency would thus be in order. (Landl & Company Inc. v.
Metropolitan Bank and Trust Company, 2004)
NEGOTIABLE INSTRUMENTS LAW
Q: When constitutes a material alteration?
A: Any alteration which changes:

1. The date
2. The sum payable, either for principal or interest;
3. The time or place of payment;
4. The number or the relations of the parties;
5. The medium or currency in which payment is to be made;
6. Or which adds a place of payment where no place of payment is specified, or any other change or
addition which alters the effect of the instrument in any respect, is a material alteration. (Sec. 125, NIL)
Q: What are the requisites to be a holder in due course?
A: A holder in due course is a holder who has taken the instrument under the following conditions:
1. That it is complete and regular upon its face;
2. That he became the holder of it before it was overdue, and without notice that it had been previously
dishonored, if such was the fact;
3. That he took it in good faith and for value;
4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect
in the title of the person negotiating it. (Sec. 52, NIL)
Q: What are the warranties of a general indorser?
A: Every indorser who indorses without qualification warrants, to all subsequent holders in due course:
1. That the instrument is genuine and in all respects what it purports to be;
2. That he has a good title to it;
3. That all prior parties had capacity to contract;
4. That the instrument is at the time of his indorsement valid and subsisting
And, in addition, he engages that 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. (Sec. 66, NIL)
Q: What is the effect of a forged signature?
A: When a signature is forged or made without the authority of the person whose signature it purports to
be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce
payment thereof against any party thereto, can be acquired through or under such signature, unless the
party against whom it is sought to enforce such right is precluded from setting up the forgery or want of
authority. (Sec. 23, NIL)
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Q: A entrusted blank checks to his business partner, B, to answer for expenses. A verbally
instructed B to get A’s prior authorization before filling up any check. B, without authority, used
one of the checks to secure a personal loan he garnered from C. May C claim that he is a holder-in-
due-course as according to him, B had prima facie authority to complete the blank check?
A: No. C is not a holder-in-due-course. While under the circumstances, B had a prima facie authority to
complete the check, such prima facie authority does not extend to its use once the check is completed. In
other words, only the authority to complete the check is presumed. (Patrimonio v. Gutierrez, 2014)
Q: What is the fictitious-payee rule and who should be liable under it?
A: Generally, if the negotiable instrument has a named payee, it is “payable to order.” Where, however, the
payee is fictitious or not intended to be the true recipient of the proceeds, it is “payable to bearer.” The
drawee bank is absolved from liability and the drawer bears the loss. But where the drawee bank acted
dishonestly and it is a party to the fraud, the drawee bank is liable. (PNB v. Rodriguez, 2008)
Q: T purchased jewelry from G, and paid via a foreign draft addressed to LBank and payable to G.
G deposited the foreign draft with FEBank, and the latter presented the check for clearing with
LBank. The check was cleared. Three weeks later, LBank informed FEBank that the foreign draft
was materially altered. FEBank demanded a refund from G, but G refused. Is G liable?
A: No. G, the acceptor, by accepting the instrument, engages that he will pay it according to the tenor of
his acceptance. This provision applies here, where LBank paid the bill without having previously accepted
it. His actual payment of the check implies not only his assent to the order of the drawer, but also a
recognition of his obligation to pay the sum. Furthermore, G was not a participant in the alteration of the
draft, was not negligent, and was a holder in due course. Having relied on the drawee bank's clearance
and payment of the draft and not being negligent, G is amply protected. (FEBTC v. Gold Palace, 2008)
Q: In case a negotiable instrument is altered before acceptance, is the drawee liable for the original
or the altered tenor of acceptance?
A: The original tenor. On one hand, Sec. 63 of the NIL provides that a drawee that accepts an instrument
engages that he will pay it according to the tenor of his acceptance. On the other hand, Sec. 124 of the NIL
provides that a material alteration avoids an instrument except as against an assenting party and
subsequent indorsers, but a holder in due course may enforce payment according to its original tenor. The
Court, in Areza, upheld the view that the acceptor/drawee is liable only to the extent of the bill prior to
alteration. (Areza v. Express Savings Bank, 2014)
Q: W was accused of estafa for using a bum check to defraud another person. The check he issued
was payable to cash. Can he be held liable for estafa?
A: No, since the check was made payable to cash. This check is payable to bearer and could be negotiated
by mere delivery. This made it highly probable that W issued the check not to the person allegedly
defrauded, but to somebody else, who then negotiated it to another. W cannot be guilty of estafa simply
because he had issued the check, which was then used to defraud a person. The proof of guilt must still
clearly show that it had been W, as the drawer, who had defrauded a person by means of the check. Absent
proof of this, W cannot be convicted for estafa. (People v. Wagas, 2013)
Q: Explain the Shelter Rule.
A: A holder who is not a holder in due course but 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: When the drawee bank pays a materially altered check, can it claim reimbursement from the
drawer?
A: General Rule: No. When the drawee bank pays a materially altered check, it violates the terms of the
check, as well as its duty to charge its client’s account only for bona fide disbursements he had made. Since
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the drawee bank did not pay according to the original tenor of the instrument, it has no right to claim
reimbursement from the drawer.
Exception: When the drawer made or authorized the alteration or when he failed to exercise reasonable
diligence to avoid it, the drawee bank can claim reimbursement. (Metrobank v. Cabilzo, 2006)
Q: Will discharge of the drawer from liability due to lack of protest operate to discharge him from
his letter of undertaking which he signed as additional security for the draft (bill of exchange)?
A: No. The drawer can still be made liable under the letter of undertaking even if he is discharged due to
failure to protest the non-acceptance of the drafts. His liability under the letter of undertaking is independent
from his liability under the sight draft. Liability subsists on it even if the sight draft was dishonored for non-
acceptance or non-payment. (Producers Banks v. Excelsa Industries, Inc., 2009)
INSURANCE
Q: What a Reinsurance Contract?
A: It is one by which an insurer (the direct insurer or cedant) procures a third person (the reinsurer) to insure
him against loss or liability by reason of such original insurance. (Sec. 95, IC) A reinsurance contract is a
separate arrangement from the original insurance contract, whose contracted risk is insured in the
reinsurance agreement. (Avon v. CA, 1997) The reinsurer’s contractual relationship is with the direct
insurer, not the original insured. The original insured has no interest in the reinsurance contract, because
its subject is not the risk assumed under the original policy. (Sec. 100, IC)
Q: VS agreed to transport Caltex’s petroleum cargo through M/T Vector. Caltex insured the
petroleum with AHA (insurer). In 1987, M/T Vector sank, leading to the loss of the petroleum. In 1988,
AHA indemnified Caltex for the loss. In 1992, AHA sued VS to recover the amount the former paid.
VS raised the defense of prescription. The RTC ruled that the action did not prescribe because the
action was based upon a breach of contract of affreightment. Was the RTC correct?
A: No. Art. 2207 of the Civil Code provides that upon payment of the insurance claim, AHA, the insurance
company shall be subrogated to the rights of Caltex, the insured, against VS, the wrongdoer or the person
who violated the contract. As subrogation occurs by provision of law, the action was based on an obligation
created by law under Art. 1144(2), and not by virtue of breach of contract under ARt. 1144(1). The 10-year
prescriptive period thus started from the time when AHA indemnified Caltex on its insurance claim in 1998,
and not from the breach of contract when the vessel sank in 1987. Since AHA filed the action in 1992, well
within the 10-year period, the action not prescribed. (Vector Shipping v. AHA, 2013)
Q: What is the No Fault Indemnity Clause?
A: Any claim for death or injury of any passenger or 3rd party shall be paid w/o the necessity of proving
fault or negligence of any kind. The indemnity in respect of any one person shall not exceed P5,000.00
provided they are under oath, the following proofs shall be sufficient:
1. Police report of the accident;
2. Death certificate and evidence sufficient to establish the proper payee;
3. 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, IC)
Q: What is an incontestability clause?
A: (DEL CASTILLO) It is a clause which 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 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
rescissible due to fraudulent concealment or misrepresentation of the insured or his agent. (Manila Bankers
v. Aban, 2013)
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Q: When does the incontestability period for insurance policies set in?
A: (DEL CASTILLO) Whichever is earlier, between:

1. Within 2 years from the date of issuance or its last reinstatement; or
2. Upon the insurer’s death (Insular Life Assurance Co. v. Khu, 2016; Sun Life v. Sibya, 2016)
Once the incontestability period sets in, the insurer must make good on the policy, even though the policy
was obtained by fraud, concealment, or misrepresentation.
Q: What are the available defenses for an insurer during the incontestability period?
A:
1. The person who obtained the policy lacked insurable interest;
2. The cause of the death is an excepted risk;
3. The premiums have not been paid;
4. The insured was called for military service because of the outbreak of war and died while engaged
in war (Vda. De Diaz v. Asia Life Insurance Company);
5. The policy was obtained pursuant to a scheme to murder the insured and collect the proceeds of
the policy (People v. Valerio, Jr., 1982);
6. The insured who had a serious ailment, substituted for him the medical examination. One of the
elements of a contract is the meeting of the minds of the parties as to its object. The person whom
the insurance agreed to insure is not the applicant (Art. 1318, Civil Code);
7. The beneficiary willfully brought about the death of the insured (Sec. 12, IC);
8. The beneficiaries failed to submit proof of death of the insured or comply with any condition imposed
in the policy (Sec. 248, IC);
9. The action was filed out of time (Sec. 63, IC).
Q: Can an insured change his beneficiary in a life insurance policy?
A: Yes, unless he expressly waived this right. However, in the event the insured does not change the
beneficiary during his lifetime, the designation shall be irrevocable. (Sec. 11, IC) It is only with the consent
of all the beneficiaries that any change or amendment in the policy concerning irrevocable beneficiaries
may be made. (Phil. Am. Insurance v. Pineda, 1989)
Q: When will the insurer be held liable in cases involving suicide?
A:
1. Suicide is committed after the policy has been in force for 2 years from its issue or last
reinstatement, unless the policy provides for a shorter period.
2. Suicide is committed in a state of insanity (regardless of the date of commission) (Sec. 183, IC)
Q: What are the exceptions to payment of premiums on time?
A:
1. In case of life or industrial life policy, whenever the grace period provision applies (Sec. 77, IC);
2. Where the insurer acknowledged in the policy or contract of insurance itself the receipt of
premium, even if premium has not been actually paid (Sec. 78, IC);
3. Where the parties agreed that premium payment shall be in installments and partial payment has
been made at the time of loss (Makati Tuscany v. CA, 1992);
4. Where the insurer granted the insured a credit term for the payment of the premium, and loss
occurs before the expiration of the term (Id.); and
5. Where the insurer is in estoppel as when it has consistently granted a credit term for the payment
of premiums. (Gaisano v. Development Insurance, 2017)
Q: When can concealment be a ground for rescission of an insurance contract?
A: Concealment, whether intentional or unintentional, entitles the injured party to rescind an insurance
contract. (Sec. 27, in relation to Secs. 28 & 31, IC) It is a neglect to communicate that which a party knows
and ought to communicate. (Sec. 26, IC)
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NOTE: A recent case by Justice Del Castillo states that the fraudulent intent on the part of the insured must
be established to entitle the insurer to rescind the contract although such ruling was based on the law prior
to the current Insurance Code. (Manulife Philippines v. Ybañez, 2016)
Q: Who is the proper insurer to claim from in compulsory third party motor vehicle insurance?
A:
1. In the case of an occupant of a vehicle, claim shall lie against the insurer of the vehicle in which the
occupant is riding, mounting or dismounting from.
2. If not an occupant, the claim shall lie against the insurer of the directly offending vehicle. (Perla
Compania de Seguros v. Ancheta, 1988)
Q: What are the relevant periods in claims settlement for third party motor vehicle insurance?
A: Notice of Claim: must be presented within six months from the date of the accident. Otherwise the claim
is deemed waived.
Bringing an Action or Suit: The action must be filed in court or with the Insurance Commissioner within 1
year from denial of the claim. Otherwise, the right of action shall prescribe. Prescription starts to run from
the insurance company’s denial of the claim. (Summit Guaranty and Insurance. v. Arnaldo, 1988)
TRANSPORTATION LAW
Q: A common carrier is responsible for the loss, destruction or deterioration of the goods in its
possession. What are the exceptions to this rule?
A: If the loss, destruction, or deterioration is due to any of the following causes:

1. Flood, storm, earthquake, lightning or other natural disaster or calamity;
2. Act of the public enemy in war, whether international or civil;
3. Act or omission of the shipper or owner of the goods;
4. The character of the goods or defects in the packing or in the containers; and
5. Order or act of competent public authority (Art. 1734, Civil Code)
Q: Is the acquittal of the accused-employee in a case of reckless imprudence proof of the exercise
of extraordinary diligence by the common carrier-employer?
A: (DEL CASTILLO) No. Article 31 of the Civil Code provides, “when the civil action is based on an obligation
not arising from the act or omission complained of as a felony, such civil action may proceed independently
of the criminal proceedings and regardless of the result of the latter. In this case, the action filed by petitioner
is an independent civil action based on different cause of action, i.e. culpa contractual. As this is not deemed
instituted in the criminal action, the ruling on the criminal liability of the offender will have no bearing on the
independent civil action. (Heirs of Jose Marcial Ochoa v. G&S Transport, 2011).
Q: What is the test to determine whether one is a common carrier of goods? (P-BET)
A: The test for determining whether a person is a common carrier of goods are:
1. Engagement in the business of carrying goods for others as a Public employment, holding himself
to engage in the transport of goods as a business and not as a casual endeavor;
2. Undertakes to carry goods of the kind which his Business supports;
3. Undertakes to carry the goods by an Established method and route; and
4. Transportation is for hire. A pipeline network for hire, carrying petroleum, is a common carrier. (First
Phil. Industrial v. CA, 1998)
Q: When can a common carrier become a private carrier?
A: It must be a bareboat or demise charter where the charterer mans the vessel with his own people. The
charterer becomes the owner for the particular voyage. (Loadstar Shipping. v. Pioneer Ins., 2006)
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Q: Is a common carrier who transports goods excused on account of the theft or robbery of the
goods it transports?
A: For cases other than those enumerated under Art. 1734, a common carrier is presumed to have been
at fault or to have acted negligently. The theft or the robbery of the goods is not a fortuitous event or a force
majeure. Nevertheless, a common carrier may absolve itself of liability: (1) if it proves that it exercised
extraordinary diligence in transporting and safekeeping the goods; or (2) if it stipulated to limit its liability for
the loss, destruction, or deterioration of the goods to a degree less than extraordinary diligence. (Torres-
Madrid Brokerage, Inc. v. FEB Mitsui Marine Insurance Co., Inc., 2016)
Q: Is tortious conduct of a common carrier’s personnel governed by the Warsaw Convention?
A: (DEL CASTILLO) Yes. The passenger’s action against the airline carrier arising from alleged
confrontational incident between passenger and flight attendant on international flight is governed
exclusively by the Warsaw Convention, even though the incident allegedly involved intentional misconduct
by the flight attendant. The Convention creates no exception for an injury suffered as a result of intentional
infliction of emotional distress. (Edna Diago Lhuillier v. British Airways, 2010)
Q: What are the rules governing the liabilities of parties in case of collision?
A:
1. One vessel at fault – The ship owner of such vessel shall be liable for all the resulting damages.
2. Both vessels at fault – Each vessel shall suffer their respective losses, but as regards the owners of
the cargos, both vessels shall be jointly and severally liable.
3. Vessel at fault not known – Each vessel shall suffer its own fault and both shall be solidarily liable for
losses or damages on the cargo. (Doctrine of Inscrutable Fault)
4. Fortuitous Event – Each shall bear its own damages.
5. Third vessel at fault – The third vessel shall be liable for the losses and damages sustained (Art. 826-
832, Code of Commerce)
Q: Respondent provides ferry services for its resort. Its boats (called coco beach boats) ferry resort
guests and crew members only and respondent does not charge a separate fee for this. Is the
respondent a common carrier?
A: Respondent is a common carrier. Its ferry services are so intertwined with its main business as to be
considered ancillary thereto. Its ferry services are available to the public because the tour packages it offers,
which includes the ferry services, may be availed of may be availed of by anyone who can afford to pay the
same. That Respondent does not charge a separate fee or fare for its ferry services is of no moment. It
would be imprudent to suppose that it provides said services at a loss. (Spouses Dante Cruz and Leonora
Cruz v. Sun Holidays, Inc., June 29, 2012)
Q: What are the exceptions to the “limited liability rule” in the Code of Commerce?
A: (AUW – DIRE)
1. Vessel is not Abandoned (when the ship owner does acts inconsistent with abandonment)
2. Ship owner agent/ agent allows his vessel to embark in an Unseaworthy condition.
3. Claims under Workmen’s compensation
4. Injury/Damage due to ship owner’s fault
5. Vessel is Insured
6. In case the voyage is not maritime but only in River or gulf
7. In case of the expenses for Equipping, repairing or provisioning the vessel before the loss of the
ship. (Chua Hek Yong v IAC, 1988)
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Q: A purchased airline tickets from an airline company, specifying that he wanted an afternoon
flight. A, however, missed his flight because he was issued one with a morning schedule. A sued
the airline company.
(a) The airline company contended that the extraordinary diligence required of it as a common
carrier commences only when the passenger boards the flight. Is it correct?
A: No. The obligation of the airline to exercise extraordinary diligence commences upon the issuance of
the contract of carriage. Ticketing, as the act of issuing the contract of carriage, is necessarily included in
the exercise of extraordinary diligence. (Manay, Jr. v. Cebu Air, Inc., 2016)
(b) The airline company explained all relevant information on the ticket to A. A argues that as a
paying passenger, he is not bound by any standard of diligence. Is A correct?
A: No. The duty of an airline to disclose all the necessary information in the contract of carriage does not
remove the correlative obligation of the passenger to exercise ordinary diligence in the conduct of his or
her affairs. The passenger is still expected to read through the flight information in the contract of carriage
before making his or her purchase. If he or she fails to exercise the ordinary diligence expected of
passengers, any resulting damage should be borne by the passenger. (Manay, Jr. v. Cebu Air, Inc., 2016)
Q: How can a Customs Broker be a Common Carrier?
A: A customs broker who delivers or undertakes to deliver the goods of its customers as part of its service
is a common carrier. (Westwind Shipping Corporation v. UCPB General Insurance Company, Inc., 2013)
When transportation of goods is an integral part of a business of a customs broker, he is a common carrier.
(Calvo v. UCBP Gen. Insurance Co., Inc., 2002)
Q: X "back-hauled" goods for merchants from Manila to Pangasinan. Such back-hauling was done
on a periodic or occasional rather than regular or scheduled manner. Can X be a common carrier?
A: Yes. There is no distinction between a person or enterprise offering transportation service on a regular
or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. (De
Guzman v. CA, 1988)
Q: Is a consignee, who is not a signatory to a bill of lading, bound by the stipulations therein absent
any proof that it consented thereto?
A: (DEL CASTILLO) No. However, once the bill of lading is received by the consignee who does not object
to any of its terms or stipulations, it constitutes an acceptance of the contract and of all of its terms and
conditions, of which the acceptor has actual or constructive notice. A consignee, although not a signatory,
may become a party to the contract by a) agency between the consignee and the shipper/consigner; b)
unequivocal acceptance of the bill of lading delivered to the consignee, with full knowledge of its contents,
or c) availment of the stipulation pour autrui. (MOF v. Shin Yang, 2009)
Q: Shipper shipped from Singapore to the Philippines 10 container vans. The shipment was insured
against all risks by respondent and consigned with MSC. The shipment arrived in the Philippines
allegedly in good condition with the safety seals in place and was discharged to the arrastre
operator. Upon receipt of the container vans at the consignee’s warehouse, the consignee issued
gate passes to the arrastre operation. However, the shipper subsequently discovered substantial
shortages. Is the arrastre operator liable for the loss?
A: (DEL CASTILLO) NO. The arrastre operator was given gate passes signed by the consignee’s
representatives upon delivery of the container vans. The gate passes serve as acknowledgment that:
issuance of the gate pass constitutes delivery to and receipt by the consignee of the goods as described
above in good order and condition. The signature of the consignee’s representative on the gate pass is
evidence of receipt of the shipment in good order and condition. (Marina Port v. American Home, 2015)
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Q: G purchased an Isuzu passenger jeepney from O, a holder of a certificate of public convenience
for the operation of a public utility vehicle. G continued to operate the public transport business
without transferring the registration to his name. The Isuzu got involved in a road mishap caused
by D, the driver of L's ten-wheeler-truck. D admitted responsibility for the accident. G filed a
complaint for damages against L and D. Does G, a new owner of a passenger jeepney who continued
to operate the same under the kabit system and in the course thereof met an accident, have the
legal personality to bring the action for damages against the erring vehicle?
A: Yes, it is apparent that the evil sought to be prevented in enjoining the kabit system does not exist.
1. Neither of the parties to the pernicious kabit system is being held liable for damages.
2. The case arose from the negligence of another vehicle in using the public road to whom no
representation, or misrepresentation, as regards the ownership and operation of the passenger
jeepney was made and to whom no such representation, or misrepresentation, was necessary.
Thus it cannot be said that private respondent Gonzales and the registered owner of the jeepney
were in estoppel for leading the public to believe that the jeepney belonged to the registered owner.
3. The riding public was not bothered nor inconvenienced at the very least by the illegal arrangement.
On the contrary, it was private respondent himself who had been wronged and was seeking
compensation for the damage done to him. (Lim v. CA, January 16, 2002)
CORPORATION LAW
Q: What is the grandfather rule? When do you apply it?
A: The 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.’ (Narra Nickel Mining. v. Redmont, 2015) When there is doubt in the minds of the court, based
on the attendant facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation,
it may apply the “grandfather rule.” (Narra Nickel Mining v. Redmont, 2014)
NOTE: Application of the “grandfather rule” does not eschew the “control test”, but that in fact is
supplements the control test, as implements the intent of the Filipinization provisions of the Constitution.
There should be a distinction between the “beneficial ownership” test from the “control test”.
Q: Is the owner of a corporation solidarily liable with the corporation for illegal dismissal of its
employee if they did not act in bad faith?
A: (DEL CASTILLO) General Rule: Only the employer-corporation, partnership or association or any other
entity, may be held liable for illegal dismissal of employees or for other wrongful acts.
Exception: Officers of the corporation are solidarily liable with the corporation for the illegal termination of
services of employees if they acted with malice or bad faith. (Lambert Pawnbrokers v. Binamira, 2010)
Q: Are corporations entitled to moral damages?
A: General rule: A corporation, being an artificial person and having existence only in legal contemplation
cannot recover moral damages as it cannot suffer physical suffering and mental anguish (Prime White
Cement v. IAC, 1993).
Exception: A corporation with a good reputation, if besmirched, may moral damages upon proof of
existence of factual basis of damage (actual injury) and its causal relation (Crystal v. BPI, 2008).
Q: When is a Director, Trustee, or Officer personally liable with the corporation?
A: General Rule: Corporate personality is a shield against personal liability of corporate officers.
(Consolidated Bank v. Court of Appeals, 2001)
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Exceptions: Personal liability of a corporate director, trustee or officer along (although not necessarily)
with the corporation may attach, as a rule, only when: (ABC-WAL) (Tramat Mercantile v. CA, 1994)
1. He Assents to a patently unlawful act of the corporation (Sec. 31, Corp Code);
2. Bad faith or gross negligence in directing its affairs (Sec. 31, Corp Code);
3. Conflict of interest resulting in damage to the corporation, its stockholders or other persons (Sec.
31 & 34, Corp Code);
4. He consents to the issuance of Watered stocks or, having knowledge thereof, he does not forthwith
file with the corporate secretary his written objection thereto (Sec. 65, Corp Code);
5. He Agrees to hold himself personally and solidarily liable with the corporation;
6. He is made personally liable by a specific provision of Law. (Sec. 144, Corp Code)
Q: What are the instances wherein you can apply the piercing of the veil doctrine?
A: Authorities are agreed on at least three (3) basic areas where piercing the veil, with which the law covers
and isolates the corporation from any other legal entity to which it may be related, is allowed. These are: 1)
defeat of public convenience, as when the corporation is used as vehicle for the evasion of existing
obligation; 2) fraud cases or when the corporate entity is used to justify wrong, protect fraud, or defend a
crime; or 3) alter ego cases, where the corporation is merely a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted
as to make it merely an instrumentality, agency, conduit or adjunct of another corporation. (General Credit
Corp. v. Alsons Dev. and Investment Corp., 2007)
Q: How is apparent authority ascertained?
A: Apparent authority may be ascertained through 1) the general manner in which the corporation holds
out an officer or agent as having the power to act; or 2) the acquiescence in his acts of a particular nature,
with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers.
(Associated Bank v. Pronstroller, 2008)
Q: FICCPI was registered on Nov. 24, 1951 with the SEC. Without applying for an extension of its
corporation term, FICCPI’s term expired on Nov. 24, 2001. On Jan. 20, 2005, Mr. M reserved the
corporate name FICCPI with SEC. The defunct FICCPI (now known as ICCPI) opposed Mr. M’s name
reservation. Can Mr. M use FICCPI given that the defunct FICCPI failed to extend its term?
A: Yes. When the term of existence of the defunct FICCPI expired on November 24, 2001, its corporate
name could not be used by other corporations within three years from that date, or until November 24,
2004. Mr. M reserved the name FICCPI on January 20, 2005, or beyond the three-year period. Thus, the
SEC was correct when it allowed Mr. M to use the reserved corporate name of FICCPI. (Indian Chamber
of Commerce Phils, Inc. v. Filipino Indian Chamber of Commerce in the Philippines, Inc., 2016)
Q: Differentiate the voting requirements for amendment of Articles of Incorporation (AOI) and By-
Laws (BL).
A: To amend the AOI, majority vote of the BOD/BOT is required with vote or written assent of the SH/M
representing at least 2/3 of the capital stock or the members. It cannot be delegated to the BOD/BOT. To
amend the BL, majority vote of BOD/BOT is required with vote of SH/M representing majority of the capital
stock or the members. It can be delegated to the BOD/BOT by 2/3 vote of the SH/M. The delegation can
be revoked by a majority vote of the SH/M. (Secs. 16 & 48, Corp. Code)
Q: What are the corporate acts which require the concurrence of at least 2/3 votes of the
stockholders of a corporation? (AIDS – I – SCAM)
A:
1. Amending the Articles of Incorporation (Sec. 16, Corp. Code)
2. Investment in another business or corporation (Sec. 42, Corp Code)
3. Increase and Decrease of capital stock (Sec. 38, Corp Code)
4. Sale, disposition or encumbrance of all or substantially all corporate assets (Sec. 40, Corp Code)
5. Incurring or increasing of bonded Indebtedness (Id.)
6. Declaration of Stock dividends (Sec. 43, Corp Code)
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7. Merger or Consolidation (Sec. 77, Corp Code)
8. Adoption, amendment and repeal of by-laws (Sec. 48, Corp Code)
9. Entering into Management contracts (Sec. 44, Corp Code)
Q: What are the duties of corporate directors?
A: Members of the Board of Directors have a three-fold duty: duty of obedience, duty of diligence, and the
duty of loyalty. Accordingly, [they] shall (1) shall direct the affairs of the corporation only in accordance with
the purpose for which it was organized; (2) shall not willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or act in bad faith or with gross negligence in directing the affairs of the
corporation; and (3) shall not acquire any personal or pecuniary interest in conflict with their duty as such
directors or trustees. (Strategic Alliance Dev. Corp. v. Radstock Securities Ltd., 2009)
Q: Under the trust fund doctrine, are creditors’ rights limited to requiring the payment of unpaid
subscriptions?
A: No. The trust fund doctrine is not limited to reaching the stockholders’ unpaid subscriptions. The scope
of the doctrine when the corporation is insolvent encompasses not only the capital stock, but also other
property and assets generally regarded in equity as a trust fund for the payment of corporate debts. (Halley
v. Printwell, Inc, 2011)
Q: Who are corporate officers and what is the value of this definition?
A: The President, Treasurer, Corporate Secretary, and those provided for in the By-Laws. Those created
by the Board of Directors only, but not found in the by-laws, even if the BOD is authorized to create such
positions, are not corporate officers. As a rule, the illegal dismissal of officers or other employee of a private
employer is properly cognizable by the Labor Arbiter. Where the complaint for illegal dismissal concerns a
corporate officer, however, the controversy falls under the jurisdiction of the [RTC as a Special Commercial
Court]. (Matling Industrial and Commercial Corporation v. Coros, 2010)
Q: What are the tests to determine whether a dispute is an intra-corporate controversy?
A: Under the relationship test, the existence of any of the following relationships makes the conflict intra-
corporate:
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.
Under the nature of the controversy test, the controversy must be rooted in the existence of an intra-
corporate relationship as well as 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.
(PHILCOMSAT v. SB, 2015)
Q: A complaint was filed against X, formerly President and Managing Director of Corporation A, and
Y, formerly a member of Corporation A’s Board of Directors, charging them with using their former
positions to sabotage Corporation A by orchestrating a mass resignation of its entire brokering
staff. Can a violation of director’s fiduciary duties under Sections 31 and 34 of the Corporation Code
make X and Y criminally liable under Section 144?
A: No. Sections 31 to 34 were intended to impose exacting standards of fidelity on corporate officers and
directors but without unduly impeding them in the discharge of their work with concerns of litigation. The
lack of specific language imposing criminal liability in Sections 31 and 34 shows legislative intent to limit
the consequences of their violation to the civil liabilities mentioned therein. Had it been the intention of the
drafters of the law to define Sections 31 and 34 as offenses, they could have easily included similar
language as that found in Section 74. (Ient v. Tullett Prebon (Philippines), Inc., 2017)
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Q: What are the Rights of the Stockholder? (PAD – DIVA)
A:
1. Preemptive right to shares (Sec. 39, Corp. Code)
2. Appraisal Right (Secs. 81 to 86 and 105, Corp. Code)
3. Right to Transfer or Dispose of Shareholdings (Sec. 63, Corp. Code)
4. Rights to Dividends (Sec. 43, Corp. Code)
5. Rights to Inspect and Copy Corporate Records (Sec. 74, Corp. Code)
6. Right to Vote (Secs. 6 and 89, Corp. Code)
7. Right to Proportionate Share of Remaining Assets Upon Dissolution (Sec. 122, Corp. Code)
Q: Compare a Proxy and a Voting Trust Agreement.
A:
PROXY (SECTION 58) VTA (SECTION 59)
Coverage Right to vote Right to vote (in person or by proxy) and
other rights pertaining to the shares
Requisites 1. In writing 1. In writing
2. Signed by the stockholder/member 2. Notarized
3. Filed before the scheduled meeting 3. Should specify the terms & conditions
with the corporate secretary thereof
4. A certified copy must be filed with the
corporation and with the SEC
Issuance of N/A The certificates of stock covered by the VTA
Stock shall be cancelled and new ones issued in
Certificates the name of the trustees
Validity Valid only for the meeting for which it is All rights granted shall automatically expire
intended, unless otherwise provided at the end of the agreed period
Exception: unless expressly renewed
Limitation Limit of 5 years Limit of 5 years
Exception: VTA specifically required as a
condition in a loan agreement, to expire upon
full payment of the loan
Revocability Essentially revocable Irrevocable for the period specified
Q: When is a Filipino considered a “beneficial owner” of a specific stock?
A: If the Filipino has the voting power of the "specific stock", (he can vote the stock or direct another to vote
for him), or the Filipino has the investment power over the "specific stock", (he can dispose of the stock or
direct another to dispose of it for him, or both), or he can vote and dispose of that "specific stock" or direct
another to vote or dispose it for him, then such Filipino is the "beneficial owner" of that "specific stock."
Thus, that "specific stock" is counted as part of the 60% Filipino ownership requirement under the
Constitution. The right to the dividends - a right emanating from ownership of that "specific stock"
necessarily accrues to its Filipino "beneficial owner." (Roy v. Herbosa, 2017)
Q: What is the right of appraisal and when may it be availed of?
A: The right of appraisal grants a stockholder who dissents from certain corporate actions a right to demand
payment of the fair value of his or her shares. It is available in the following instances: (VESOM)
1. Amendment of the AOI to change voting rights or privilege of shares;
2. Amendment of AOI to extend corporate term;
3. Sale, lease, exchange, mortgage, pledge of all or substantially all of the corporate property;
4. Investing funds outside of primary purpose; and
5. Merger or consolidation (Turner v. Lorenzo Shipping, 2010)
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Q: Can stockholders demand appraisal right if the corporation has no unrestricted retained
earnings? Would it matter if after the complaint therefor was filed, the corporation already had
unrestricted retained earnings?
A: No. Although dissenting stockholders have appraisal rights, no payment shall be made to any dissenting
stockholder unless the corporation has unrestricted retained earnings in its books to cover the payment.
Without unrestricted retained earnings, the stockholder has no cause of action against the corporation. The
subsequent existence of unrestricted retained earnings does not cure the lack of cause of action. (Turner
vs. Lorenzo Shipping Corporation, 2010)
Q: What are the instances when a stockholder is not entitled to exercise a pre-emptive right?
A:
1. When such right is denied by the Articles of Incorporation;
2. When the shares are issued to comply with laws requiring stock offerings or minimum stock
ownership by the public; and
3. When the shares are issued in good faith with the approval of the stockholders representing 2/3
of the outstanding capital stock in exchange for property needed for corporate purposes or in
payment of a previously contracted debt. (Sec 39, Corp. Code)
Q: What are the limitations to a stockholder’s right to inspect corporate records? (BIG)
A:
1. The right of inspection should be exercised at reasonable hours on business days;
2. The person demanding to examine the records has not improperly used any information secured
through any previous examination of the records of such corporation; and
3. The demand is made in good faith or for a legitimate purpose.
As regards the last two limitations, a corporation that wishes to set up these grounds as a defense in
refusing inspection bears the burden of proof. (Wee v. Wee, 2010)
Q: After the sale of A’s shares to B but before the share transfer could be registered in the stock
and transfer book, the President of Corporation XYZ issued a notice to all the stockholders of the
holding of a special stockholders’ meeting. Upon discovering that such stockholders’ meeting was
held, B challenged the validity of the calling of the meeting, asserting that he was not notified and
was thus unable to attend and vote. Is B correct?
A: No. A person who desires to be recognized as stockholder for the purpose of exercising stockholders'
right must secure standing by having his ownership of share recorded on the stock and transfer book. Thus,
only those whose ownership of shares are duly registered in the stock and transfer book are considered
stockholders of record and are entitled to all rights of a stockholder. (Guy v. Guy, 2016)
Q: Can a stockholder invoke the right to inspect the corporation’s records of the books of the
business transactions, minutes of the meetings, and financial statements, even after it has
dissolved?
A: Yes. Secs. 122 and 145 of the Corp. Code provide that the body corporate continues for for three years
after dissolution. The rights and remedies against, or liabilities of, the officers shall not be removed or
impaired due to dissolution. Thus, a stockholder's right to inspect corporate records subsists during the
period of liquidation. The corporation has the duty to allow said inspection. (Chua v. People, 2016)
Q: May a transferee of shares of stock, initiate an action for mandamus compelling a corporation to
record the transfer of shares in his favor in the corporation’s stock and transfer book?
A: Yes. The registration of a transfer of shares of stock is a ministerial duty on the part of the corporation.
Aggrieved parties may resort to the remedy of mandamus to compel corporations that wrongfully or
unjustifiably refuse to record the transfer or to issue new certificates of stock. This remedy is available even
upon the instance of a bona fide transferee who is able to establish a clear legal right to the registration of
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the transfer. This legal right flows from the transferee's established ownership of the stocks. (Andaya v.
Rural Bank of Cabadbaran, Inc. (Resolution), 2016)
Q: A subscribed to 100 shares of Corporation XYZ and, in accordance with the subscription
agreement, A paid 25% of the total subscription price. Subsequently, A transferred his subscription
to B who undertook to pay the balance of the subscription price. Considering that A did not yet
fully pay for his subscription, is the transaction between A and B valid?
A: Yes. The assignment of non-fully paid subscriptions is a form of novation by substitution of a new debtor
and which, under the Civil Code, required the consent of or notice to the corporation as the creditor (notice
alone suffices where the original subscription agreement authorizes the debtor to transfer his obligations to
a third person). In this case, the change of debtor took place when A assigned to B the Corporation XYZ
shares under the subscription agreement so that the latter became obliged to settle the 75% unpaid balance
on the subscription. (Interport Resources Corp. v. Securities Specialist, Inc., 2016)
Q: A was able to obtain a court order attaching B’s shares of stock in Corporation XYZ. A requested
the corporate secretary of Corporation XYZ to record the attachment in the stock and transfer book
of the corporation. The corporate secretary refused. Is he correct?
A: Yes. The corporate secretary is not liable in the absence of showing that he acted in bad faith. He has
no obligation to record the attachment of A, as it is not a transfer of ownership but merely a burden on the
owner’s title. Only absolute transfers of shares of stock are required to be recorded in the corporation's
stock and transfer book in order to be valid against 3rd persons. (Ferro Chemicals. v. Garcia, 2016)
Q: (a) Is a director, who baselessly refuses to allow a stockholder to inspect the stock and transfer
book, subject to criminal liability?
A: Yes. Sec. 74 in relation to Sec. 144 of the Corp. Code, penalizes a corporate officer who refuses to allow
any director, trustee, stockholder or member of the corporation to examine the corporation's records or
minutes. Sec. 144 penalizes "violations" of "any provision" of the Corporation Code "not otherwise
specifically penalized therein." While not expressly stated under Sec. 74, Sec. 144 applies to violations of
the right of a stockholder to inspect the stock and transfer book. (Yujuico v. Quiambao, 2014)
(b) Against whom may a criminal action, based on a violation of a stockholder’s right to inspection,
be filed?
A: It must be filed against the corporate officers or other persons acting on behalf of the corporation. (Id.)
(c) What if the corporate officer was acting pursuant to a Board resolution – who is/are liable?
A: Both the corporate officer and the Directors/Trustees who voted in favor of the resolution to deny
inspection. (Terelay Investment v. Yulo, 2015)
Q: What are the requirements of a derivative suit? (SEAN + N)
A:
1. Plaintiff was Stockholder/member at the time the questioned act/transaction subject to the action
occurred, as well as at the time the action was filed and remains as such during the pendency of
the action;
2. Plaintiff exercised all reasonable efforts and alleges with particularity in the complaint, to Exhaust
all remedies available, under the articles of incorporation, by-laws, or rules [of] the corporation;
3. No Appraisal right available for the acts complained of; and
4. Suit is not a Nuisance/harassment suit (Interim Rules of Procedure for Intra-Corporate
Controversies, Rule 8, Sec. 1).
Note: The fifth requisite for filing derivative suits, while not included in the enumeration, is implied in the
first paragraph of Rule 8, Section 1 of the Interim Rules: The action brought by the stockholder or member
must be “in the Name of [the] corporation or association. (Villamor Jr. v. Umale, 2014)
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Q: Certain members of the board of directors of Corp. A filed a Complaint for the Declaration of
Nullity of Elections with Prayers for the Issuance of Temporary Restraining Order and Writ of
Preliminary Injunction and Damages against other members of the board. The complaint was
amended to include Corp. A as plaintiff. Is the Complaint a proper derivative suit?
A: No. Since it is the corporation that is the real party-in-interest in a derivative suit, the reliefs prayed for
must be for the benefit or interest of the corporation. When the relief prayed for do not pertain to the
corporation, then it is an improper derivative suit. The right to vote is a personal right of a stockholder of a
corporation, such right can only be enforced through a direct action. (Legaspi Towers 300 v. Muer, 2012)
Q: Can redeemable shares be redeemed at all times?
A: No, while redeemable shares may be redeemed regardless of the existence of unrestricted retained
earnings, this is subject to the condition that the corporation has, after such redemption, assets in its books
to cover debts and liabilities inclusive of capital stock. Redemption, therefore, may not be made where the
corporation is insolvent or if such redemption will cause insolvency or inability of the corporation to meet its
debts as they mature. (Republic Planters Bank v. Agana, 1997)
Q: How is “capital” for the ownership requirement construed in Gamboa v. Teves (2011)?
A: The term capital in PHIL. CONST. art. XII, § 11, refers only to shares of stock that can vote in the election
of directors. (Gamboa v. Teves, 2011)
Q: Under the SEC MC. 8, series of 2013, how can a corporation comply with the constitutional or
statutory ownership requirement?
The required percentage of Filipino ownership shall be applied to BOTH:

(a) The total number of outstanding shares of stock entitled to vote in the election of directors; AND
(b) The total number of outstanding shares of stock, whether or not entitled to vote in the election of
directors. (SEC MC. 8, series of 2013)
NOTE: SEC MC No. 8, series of 2013 is not contrary to Court’s definition and interpretation of the term
“capital” in Gamboa v. Teves. (Roy v. Herbosa, 2016)
Q: Can a receiver appointed to carry out the rehabilitation plan deprive a corporation of the power
to recover its detained property?
A: (DEL CASTILLO) The interim rehabilitation receiver of the debtor corporation does not take over the
control and management of the debtor corporation. The rehabilitation receiver that will replace the interim
receiver is tasked only to monitor the successful implementation of the rehabilitation plan. Corporate
rehabilitation does not ipso facto deprive the Board of Directors and corporate officers of a debtor
corporation of control such that it can no longer enforce its right to recover its property from an errant lessee.
(Umale v. ASB Realty Corp., 2011)
Q: Explain the estoppel doctrine with respect to foreign corporations doing business in the
Philippines without a license.
A: Under the principle of estoppel, a foreign corporation doing business in the Philippines may sue in
Philippine courts even without license to do business against a Philippine citizen who had contracted with
said corporation, benefited from such contract, and knew that such foreign corporation did not have the
necessary license to do business in the Philippines. (Merrill Lynch v. CA, 1992)
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Q: Bank B (Bancommerce) entered into an agreement to acquire specific assets and liabilties of
Bank A (TRB). Shortly thereafter, in a different case, the court ordered Bank A to pay Corporation
C (RPN) damages. Failing to satisfy the judgment against Bank A, Corporation C filed a
supplemental motion for execution against Bank B arguing that Bank B is liable because there was
a de facto merger between Bank B and Bank A. Was there a de facto merger?
No. Under the Corporation Code, “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.” No de facto merger took place in the present case simply because the
TRB owners did not get in exchange for the bank’s assets and liabilities an equivalent value in
Bancommerce shares of stock. (Bank of Commerce v. RPN 9, 2014)
Q: (a) What is the Nell Doctrine and what are its exceptions?
As a general rule, contracts, including the rights and obligations arising therefrom, are valid and binding
only between the contracting parties and their successors-in-interest. The Nell Doctrine provides that since
the transferee corporation is not in privity with the contracts between the transferor corporation and its
creditors, the transfer of all the assets of a corporation to another shall not render the transferee liable for
the transferor’s liabilities, except:
1. Where the transferee expressly or impliedly agrees to assume such debts;
2. Where the transaction amounts to a consolidation or merger of the corporations;
3. Where the transferee corporation is merely a continuation of the transferor corporation; and
4. Where the transaction is entered into fraudulently in order to escape liability for such debts.
(b) What is the effect of a business-enterprise transfer on the liabilities of the transferor?
The business-enterprise transfer doctrine falls under the third exception stated above. In a business-
enterprise transfer (i.e. a transfer of all or substantially all assets pursuant to Sec. 40, Corp Code), the
transferee continues the business of the transferor corporation. Given that the transferee corporation
acquires not only the assets but also the business of the transferor corporation, then the liabilities of the
latter are inevitably assigned to the former. (Y-I Leisure Phils., Inc. v. Yu, 2015)
NOTE: Not every transfer of the entire corporate assets would qualify under Sec. 40. It does not apply (1)
if the sale of the entire property and assets is necessary in the usual and regular course of business of
corporation, or (2) if the proceeds of the sale or other disposition of such property and assets will be
appropriated for the conduct of its remaining business. (Id.)
SECURITIES REGULATION
Q: What is the definition of securities under the Securities Regulation Code?
A: Securities are shares, participation or interest in a corporation or in a commercial enterprise or profit-

making venture and evidenced by a certificate, contract, instrument, whether written or electronic in
character. (SRC, Sec 3.1)
Q: Can a check be considered a security under the Securities Regulation Code?
A: Yes. A check is a commercial paper evidencing indebtedness, which is one of the securities enumerated
by the SRC. Thus, where a company borrows funds from the public and it issues checks to the investor in
payment of the principal and interest, the checks are securities under the SRC, which should be registered
before they are issued to the public. (Betty Gabionza vs. CA, 2008)
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Q: What are the exempt securities under the SRC?
A: The requirement of registration under Subsection 8.1 shall not as a general rule apply to any of the
following classes of securities:
(a) Any security issued or guaranteed by the Government of the Philippines, or by any political
subdivision or agency thereof, or by any person controlled or supervised by, and acting as an
instrumentality of said Government.
(b) 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: Provided, That the Commission may require compliance with the form and
content for disclosures the Commission may prescribe.
(c) Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper
adjudicatory body.
(d) Any security or its derivatives the sale or transfer of which, by law, is under the supervision and
regulation of the Office of the Insurance Commission, Housing and Land Use Rule Regulatory
Board, or the Bureau of Internal Revenue.
(e) Any security issued by a bank except its own shares of stock. (SRC Code, Sec. 9.1)
Q: What is a public company under the Securities Regulation Code?
A: A public company under the SRC refers to:

a) Any corporation with a securities listed on an Exchange, or
b) Any corporation with assets exceeding P50M and has 200 or more holders each holding at least 100
shares of a class of its equity securities (2015 SRC Rules, Rule 3.1.16)
Q: PH Corp. is engaged in a multi-level marketing business. Its scheme requires an “investor,” to

enroll in its referral program and pay an enrollment fee which entitles him to recruit two more
investors who likewise pay the said enrollment fees. Out of this amount, the investor receives a part
of the fees. The two investors each recruit two more investors, and the pyramid goes on. Once the
investor gets a total of 256 downlines, he will receive US$11,400 which will be used as payment for
the real property chosen by him. Is the scheme an investment contract that needs to be registered
with the SEC?
A: Yes. According to the Turner Test, an investment contract is a contract, transaction, or scheme whereby
a person, (ICE-P)
a) Makes an Investment of money,
b) In a Common enterprise,
c) With the Expectation of profits,
d) To be derived Primarily (i.e., does not have to be solely) from the efforts of others.
Here, the accumulated amount received by the investor comes primarily from the efforts of his recruits.
PH’s scheme, therefore, constitutes an investment contract that is a security under the SRC. Thus, it must
be registered with the SEC before its sale or distribution to the public. (Power Homes v. SEC, 2008)
Q: What is a tender offer?
A: It is a publicly announced intention by a person acting alone or in concert with other persons to acquire
equity securities of a public company. (SRC, Sec. 19)
Q: Under what circumstances is a tender offer mandatory?
A: A person is required under the following circumstances to make a tender offer for equity shares of a
public company in an amount equal to the number of shares that the person intends to acquire:
a) Where the person intends to acquire 35% or more of the equity shares of a public company in one
or more transactions within a period of 12 months (creeping acquisition); and
b) Acquisition of even less than 35% but would result in ownership of more than 50% of the total
outstanding equity securities of a public company (Rule 19.2; 2015 SRC Rules)
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Q: Which transactions are exempted from the mandatory tender offer rule? (UIP-FROM)
A: Purchases of securities:
i. From the Unissued capital stock; Provided, the acquisition will not result to a 50% or more
ownership of securities by the purchaser or such percentage that is sufficient to gain control
of the board;
ii. From an Increase in authorized capital stock;
iii. In connection with a Privatization undertaken by the Philippine government;
iv. In connection with Foreclosure proceedings involving a duly constituted pledge or security
arrangement where the acquisition is made by the debtor or creditor;
v. In connection with corporate Rehabilitation under court supervision;
vi. In the Open market at the prevailing market price; and
vii. Merger or consolidation.
Q: How much are the fees for tender offers and certain proxy solicitations?
A: For tender offers under Section 19 or 72.2 or proxy or consent solicitations under Section 20 of the
Securities Regulation Code, the Commission may require that the person making such filing pay a fee of
not more than one-tenth (1/10) of one percentum (1%) of:
1. The proposed aggregate purchase price in the case of a transaction under Section 20 or 72.2; or
2. The proposed payment in cash, and the value of any securities or property to be transferred in
the acquisition, merger or consolidation, or the cash and value of any securities proposed to be
received upon the sale or disposition of such assets in the case of a solicitation under Section 20
(Sec. 21, SRC)
Q: Which securities transactions are exempt from registration? (JPID-CSC-BEPA20-BI3PO)
A:
1. Judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in insolvency or
bankruptcy;
2. By or on account of a Pledge holder or mortgagee or any other similar lien holder;
3. Isolated transactions;
4. Distribution by corporation to its stockholders-as stock dividend or other distribution out of surplus;
5. Sale of Capital stock of a corporation to its own stockholders exclusively – stock which has
already been issued;
6. Issuance of bonds or notes Secured by mortgage upon real estate or tangible personal property;
7. Issue and delivery of any security in exchange for any other security of the same issuer pursuant
to a right of Conversion, provided the security so surrendered has been registered or was, when
sold, exempt from registration;
8. Broker’s transactions
9. Exchange of securities by issuer with its existing security holders exclusively, wherein the
securities exchanged are not from the same issuer;
10. Share subscriptions Prior to the incorporation or pursuant to an increase in Authorized capital
stock;
11. Sale by issuer to fewer than 20 persons during any 12-month period;
12. Sale to qualified buyers:
1. Banks,
2. Investment house,
3. Investment company,
4. Insurance company,
5. Pension fund/ retirement plan maintained by the Government,
6. Other person determined by the SEC as qualified buyers;
13. Other transactions exempt by the SEC.
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Q: X Bank, a publicly listed company, sought an opinion from the SEC as to whether the Full Material
Disclosure Rule applies to it. X Bank argues it does not, because its securities are exempt from
registration under the SRC. Is X Bank Correct?
A: No. While banks are exempt from the registration of their securities, this does not automatically mean
that they are exempt from the disclosure requirements under the SRC and its IRR. X Bank, as a listed
corporation, is still subject to the disclosure requirements of the SRC. (Union Bank v. SEC, 2001)
Q: What is a short sale?
A: It is sale of a security which the seller does not own OR any sale which is consummated by the delivery
of a security borrowed by the seller (or for his account) with the commitment of the seller or securities
borrower to return said securities (or their equivalent) to the lender on a determined or determinable future
date. (Rule 24.2-2.1, 2015 SRC IRR)
Q: What is the rule on short swing transactions?
A: It is a regulation which requires certain persons (owner of more than 10% of shares of a company, a
director or officer of such corporation) to return any profits made from the purchase and sale of company
stock if both transactions occur within a 6-month period. (SRC, Sec. 23.2)
Q: What is the Blackout rule in the Philippine Stock Exchange?
A: A Director or a Principal Officer of an Issuer must not deal in the Issuer’s securities during the period
within which material non-public information is obtained and up to 2 full trading days after the price sensitive
information is disclosed. (Sec. 13.2, PSE Disclosure Rules)
Q: What is manipulation?
A: It is an act, device or practice that is intended to artificially interfere with free operation of the stock
market normally done to create a false or misleading appearance of active trading in any listed security
or increase or depress their prices, such as but not limited to:
1. Wash sale – engaging in transactions where is no change of beneficial ownership of a security (wash
sales) creating a false or misleading appearance of active trading in any listed security.
2. Painting the tape - engaging in a series of transactions in securities that are reported publicly to
give the impression of activity or price movement in a security;
3. Marking the close - buying and selling securities at the close of the market in an effort to alter the
closing price of the security;
4. Hype and dump – engaging in buying activity at increasingly higher prices and then selling securities
in the market at the higher prices (hype and dump) or vice versa (i.e. selling activity at lower prices
and then buying at such lower prices). (Rule 24.1, 2015 SRC IRR)
Q: What is the Howie Test for determining the existence of an investment contract?
A: It requires a transaction, contract, or scheme whereby a person:

(1) makes an investment of money
(2) in a common enterprise
(3) with the expectation of profits
(4) to be derived solely from the efforts of others. (Power Homes Unlimited Corp. v. SEC (2008))
Q: When can a broker / dealer give any proxy / consent / authorization in respect of any security
carried for the account of the customer to a person other than his or her customer?
A: The broker / dealer may give any proxy / consent / authorization in respect of any security carried for the
account of the customer to a person other than his or her customer when there is written authorization of
such customer. (Sec. 20.4, SRC) This proxy executed by the broker shall be accompanied by a certification
under oath stating that before the proxy was given to the broker, he had duly obtained the written consent
of the persons in whose account the shares are held (Rule 20.11.2.18, 2015 Implementing Rules &
Regulations of the SRC).
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Q: What are fraudulent transactions?
A: It shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale of any
securities to:
1. Employ any device, scheme or artifice to defraud;
2. Obtain money or property by means of any untrue statement of a material fact or any omission to state
a material fact necessary in order to make the statements made, in the light of the circumstances under
which they were made, not misleading; or
3. Engage in any act, transaction, practice or course of business which operates or would operate as a
fraud of deceit upon any person. (Sec 26, SRC)
NOTE: Scienter is needed on all of the above.
Q: Can a detailed drug advertisement in sophisticated medical journals be statements made “in
connection with” a securities transaction?
A: Yes. Under the “cause and effect” test, detailed drug advertisements using technical jargon and
published in sophisticated medical journals can constitute statements made “in connection with” a securities
transaction. (Carter-Wallace Inc v. Securities Litigation, 1998)
Q: Who is an insider?
A: "Insider" means (a) the issuer; (b) a director or officer (or any person performing similar functions) of, or
a person controlling the issuer; gives or gave him access to material information about the issuer or the
security that is not generally available to the public; (d) A government employee, director, or officer of an
exchange, clearing agency and/or self-regulatory organization who has access to material information
about an issuer or a security that is not generally available to the public; or (e) a person who learns such
information by a communication from any forgoing insiders. (Section 3.8, SRC)
Q: What is Insider Trading?
A: It is the selling or buying of a security by an insider (under Sec. 3.8 of the SRC) while in possession of
material information with respect to the issuer or the security that is not generally available to the public,
unless: (a) The insider proves that the information was not gained from such relationship; or (b) If the other
party selling to or buying from the insider (or his agent) is identified, the insider proves: (I) that he disclosed
the information to the other party, or (ii) that he had reason to believe that the other party otherwise is also
in possession of the information. (Section 27.1, SRC)
Q: Can an insider’s common-law spouse also be considered an insider?
A: Yes. A purchase or sale of a security by an insider’s spouse, legitimate or common-law, shall be

presumed to have been effected while in possession of material non-public information if (1) transacted
after such information came into existence, (2) but prior to dissemination of such information to the public
and the lapse of a reasonable time for the market to absorb such information. (Sec. 27, SRC)
Q: What is material nonpublic information?
A: It is information that (a) 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; or (b) 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: Which Court has jurisdiction over an action for damages under the Code?
A: The Regional Trial Court shall have exclusive jurisdiction to hear and decide such suits. (Sec. 63.1,
SRC)
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BANKING LAWS
Q: (a) What is the degree of diligence banks must observe?
A: (DEL CASTILLO) The banking business is impressed with public trust. A higher degree of diligence is
imposed on banks relative to the handling of their affairs than that of an ordinary business enterprise. Thus,
the degree of responsibility, care and trustworthiness expected of their officials and employees is far greater
than those of ordinary officers and employees in other enterprises. (PNB v. F.F. Cruz, 2011)
(b) Is the extraordinary diligence required of banks also required of bank employees?
A: Yes. The extraordinary diligence required of banks also extends to its employees. (BPI v. CA, 1992)
(DEL CASTILLO) Any negligence in the exercise of a bank manager’s responsibilities can be sufficient
ground for loss of trust and confidence demanded by his position. As held in Etcuban Jr. v. Sulpicio Lines
Inc., “the mere exercise of a basis for believing that a managerial employee has breached the trust of his
employer would suffice for his dismissal. xxx Proof beyond reasonable doubt is not required. (Equitable PCI
Bank v. Castor A. Dompor, 2010)
Q: Distinguish banks from quasi-banks.
ENTITY DISTINCTION
BANK Entities engaged in the lending of funds obtained in the form of deposits. Its funds are
obtained from the public, which means 20 or more persons.
QUASI-BANK Entities engaged in the borrowing of funds through the issuance or acceptance of
deposit substitutes for the purpose of purchasing receivables or other obligations.
Q: Without conducting a prior hearing, the Monetary Board (MB) placed A Bank under receivership.
Its stockholders questioned the receivership on the ground that the MB immediately placed it under
receivership without placing it first under conservatorship. Are they correct?
A: No. Under the “close now, hear later policy”, a prior hearing is not a requisite for a bank to be placed
under a receivership. Neither it is a requirement that a bank be placed under conservatorship before it is
placed under receivership. (Sec. 30, New Central Bank Act)
Q: What are the exceptions to the rule on bank secrecy under R.A. No. 1405? (CICL)
A:
1. Upon written Consent of the depositor
2. Impeachment cases
3. Court order in cases of bribery or dereliction of duty of public officials
4. In cases where the money deposited or invested is the subject matter of the Litigation.
Q: Does garnishment of bank accounts violate the Law on Secrecy of Bank Deposits?
A: No. Bank accounts may be garnished by the creditors of the depositor. There is no violation of the Law
on Secrecy of Bank Deposits if the accounts are garnished. It was not the intention of the legislature to
place bank deposits beyond the reach of execution to satisfy a final judgment. Its purpose is merely to
secure information as to the name of the depositor and whether or not the defendant had a deposit in said
bank, only for purposes of garnishment. Any disclosure is purely incidental to the execution process. (China
Banking Corporation v. Ortega, 1973)
Q: Are trust accounts also protected under the Bank Secrecy Law (RA 1405)? May trust accounts
be examined in connection with a plunder case without violating the law?
A: Yes. RA 1405 is broad enough to cover trust accounts because the term “deposit” as used in RA 1405
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. If the money deposited under an account may be used by banks for
authorized loans to third persons, then such account, regardless of whether it creates a creditor-debtor
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relationship between the depositor and the bank, falls under the category of accounts which the law
precisely seeks to protect for the purpose of boosting the economic development of the country. (Ejercito
v. Sandiganbayan, 2006)
Q: How can an individual avoid violating the rule on DOSRI loans?
A: A Director or Officer in a bank must:

1. Obtain the written approval of the majority of the directors of the bank
2. Enter such approval into the corporate records, and
3. Transmit a copy of the approval to the BSP Supervising Department
4. Comply with the procedural, reportorial, and ceiling requirements prescribed by law. (Sec. 36[1], GBL)
For all of DOSRI (Directors, Officers, Stockholders, and Related Interests) the loans and other credit
accommodations and guarantees which a bank should not exceed an amount equivalent to their respective
unencumbered deposits and book value of their paid-in capital contribution in the bank. However:
1. Loans, credit accommodations and guarantees secured by assets considered as non-risk by the
Monetary Board shall be excluded from such amount; and
2. Loans, credit accommodations and advances to officers in the form of fringe benefits shall not be
subject to the individual limit (Sec. 36[4] GBL)
Q: CBank filed a case against its officers for violations of the Corporation Code. Bank records were
annexed to establish CBank’s case. Some of the documents pertained to the US dollar deposits of
Mr. I. As an incident of such documents, Mr. I filed a motion for exclusion contending that the
documents were shown in violation of RA No. 1405 (Secrecy of Bank Deposits). The CA dismissed
the motion stating that such was an exception to RA No. 1405 as it involved subject matter under
litigation. Is the CA correct?
A: No. The account in question is a U.S. dollar deposit; consequently, the applicable law is RA No. 6426,
known as the “Foreign Currency Deposit Act of the Philippines.” Under R.A. No. 6426 there is only a single
exception to the secrecy of foreign currency deposits - disclosure is allowed only upon the written
permission of the depositor. In this case there was no written permission. Therefore, the act of inquiring
into the foreign deposit was illegal. (Intengan v. CA, 2002)
Note: The AMLA provides for more exceptions to the secrecy laws contained in the Foreign Currency
Deposit Act. However, in this case, the violation was committed before the AMLA’s enforcement. (Id.)
Q: Are stipulations on floating interest rates the same as escalation clauses?
A: No. Stipulations on floating rate of interest differ from escalation clauses. Escalation clauses are
stipulations which allow for the increase (as well as the mandatory decrease) of the original fixed interest
rate. Meanwhile, floating rates of interest refer to the variable interest rate stated on a market-based
reference rate agreed upon by the parties. The former refers to the method by which fixed rates may be
increased, while the latter pertains to the interest rate itself that is not fixed. Nevertheless, both are
contractual provisions that entail adjustment of interest rates subject to the principle of mutuality of
contracts. The principles on mutuality of contracts equally apply to both. (Security Corporation v. Sps.
Rodrigo and Erlinda Mercado, 2018)
Q: What happens to banks which are closed by the Monetary Board?
A: Under the new PDIC Charter, banks closed by the Monetary Board shall no longer be rehabilitated.
The PDIC, as receiver, shall immediately proceed with the takeover and liquidation. (Sec. 12[a], New PDIC
Charter)
Q: What is the effect of bank liquidation on interest payments?
A: When a bank is ordered closed by the Monetary Board; PDIC is designated as the receiver which shall
then proceed with the takeover and liquidation of the closed bank. The placement of a bank under liquidation
has the following effect on interest payments: "The liability of a bank to pay interest on deposits and all
other obligations as of closure shall cease upon its closure by the Monetary Board without prejudice to the
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first paragraph of Section 85 of Republic Act No. 7653 (the New Central Bank Act)," and on final decisions
against the closed bank: "The execution and enforcement of a final decision of a court other than the
liquidation court against the assets of a closed bank shall be stayed. The prevailing party shall file the final
decision as a claim with the liquidation court and settled in accordance with the Rules on Concurrence and
Preference of Credits under the Civil Code or other laws." (Allan S. Cu v. Small Business Guarantee and
Finance Corporation through Mr. Hector M. Olmedillo, 2017)
Q: What are the modes of liquidation under the New PDIC Charter?
1. Conventional Liquidation (New PDIC Charter, Sec. 16)

The assets gathered by the receiver shall be evaluated and verified as to their existence, ownership,
condition, and other factors to determine their realizable value.
2. Purchase of Assets and/or Assumption of Liabilities (New PDIC Charter, Sec. 15)
The receiver shall have the authority to facilitate and implement the purchase of the assets of the closed
bank and the assumption of its liabilities by another insured bank, without need for approval of the
liquidation court. The exercise of this authority shall be in accordance with the Rules on Concurrence
and Preference of Credits under the Civil Code or other laws, subject to such terms and conditions as
the PDIC may prescribe. The disposition of the branch licenses and other bank licenses of the closed
bank shall be subject to the approval of the BSP.
INTELLECTUAL PROPERTY
Patents
Q: What are the requirements for the patentability of an invention? (TINA)
A: An inventor may register:

a. Any Technical solution of a problem in a field of human activity;
b. Which involves an Inventive step;
c. Which is new (Novelty); and
d. Which is industrially Applicable (Sec. 21, IP Code)
Q: What are non-patentable inventions? (DSM-MPC2-SURGE-BIO-AES)
A:
a. Discoveries, Scientific theories and Mathematical methods;
b. Schemes, rules and methods of performing Mental acts, Playing games or doing business, and
programs for Computers;
c. Anything which is Contrary to public order or morality
d. Methods for treatment of human or animal body by SURGEry or therapy, and diagnostic methods
practiced on the human body; BUT products and composition for use in any of these methods are
patentable;
e. Plant varieties or animal breeds or essentially BIOlogical process for the production of plants or
animals; BUT micro-organisms and non-biological and microbiological processes are patentable;
f. AESthetic creations (Sec. 22, IP Code)
Q: What is the First to File Rule?
A: It is the rule that applies when 2 or more persons have made the invention separately and independently
of each other. The right to the patent shall belong to the person who filed an application for such an
invention, or the applicant who has the earliest filing or priority date (Sec, 29, IP Code).
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Q: What are the tests used to determine if there was patent infringement? (LE)
A: In determining infringement of patent, two tests have been established:
a. LITERAL INFRINGEMENT: In using literal infringement, resort must be made to the words of the
claim. If the challenged matter clearly falls within the claim, literal infringement exists. To determine
whether the challenged matter falls within the literal meaning of the patent claim, the claims of the
patent and the challenged matter should be compared within the overall context of the claims and
specifications, to determine whether there is exact identity of all material elements.
b. DOCTRINE OF EQUIVALENTS: 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. (Smith Kline
Beckman Corp v. CA, 2003).
Q: (a) X Pharma owns 2 patents pertaining to Ampicillin 1. Without X’s knowledge, Y Pharma
submitted bids to supply Ampicillin 1 to hospitals. Thus, X Pharma filed a patent infringement case
for Patent No. 1 before the IPO with prayer for injunction, which was granted. After 90 days, the
injunction expired. X Pharma’s motion to extend was denied by the IPO. Assailing this denial, X
Pharma filed a certiorari before the CA. While the CA case was pending, X Pharma also filed a
complaint for infringement for Patent No. 2 with injunction before the RTC. Y Pharma assails that X
Pharma has committed forum shopping. Was there forum shopping?
A: Yes. It is clear from the foregoing that the ultimate objective which respondents seek to achieve in their
separate complaints filed with the RTC and the IPO, is to ask for damages for the alleged violation of their
right to exclusively sell Sulbactam Ampicillin products and to permanently prevent or prohibit petitioner from
selling said products to any entity. Owing to the substantial identity of parties, reliefs and issues in the IPO
and RTC cases, a decision in one case will necessarily amount to res judicata in the other action. Thus,
there is forum shopping.
(b) While the CA case was still pending, Y Pharma found out that X Pharma’s patent for Amicillin
had already expired. Has the case become moot and academic?
A: Yes. In this case, the patent, which is the basis for the issuance of an injunction, was no longer valid.
The term of the patent has already expired. Thus, any issue as to the propriety of extending the life of the
injunction was already rendered moot and academic. (Phil. Pharma Wealth v. Pfizer, 2010)
Q: In 1987, Company D filed a Patent Applicant for the treatment of hypertension and congestive
heart failure. In 2000, Company D’s new counsel sent IPO a request that action be taken on its Patent
Application. The IPO responded stating that it already took action and mailed notice on 1988 or 13
years earlier. The application was deemed abandoned for applicant’s failure to respond. In 2002,
Company D replied stating that its then counsel died in 1996. Company D’s counsel filed an
application for patent revival. IPO denied revival; on appeal, CA reversed on ground that lawyer’s
death was sufficient justification.  Upon reconsideration, the CA ruled that the public interest would
be prejudiced by the revival of Company D‘s application. Losartan was used to treat hypertension,
"a chronic ailment afflicting an estimated 12.6 million Filipinos," and noted that the presence of
competition lowered the price for Losartan products. Should the court allow the patent application
of Company to be revived?
A: No. A patent is granted to provide rights and protection to the inventor after an invention is disclosed to
the public. It also seeks to restrain and prevent unauthorized persons from unjustly profiting from a
protected invention. However, ideas not covered by a patent are free for the public to use and exploit. Thus,
there are procedural rules on the application and grant of patents established to protect against any
infringement. To balance the public interests involved, failure to comply with strict procedural rules will result
in the failure to obtain a patent. (E.I. Dupont v. IPO, 2016)
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Q: What is the three-fold purpose of patent law?
A:
(1) patent law seeks to foster and reward invention;
(2) it promotes disclosures of inventions to stimulate further innovation and to permit the public to practice
the invention once the patent expires;
(3) the stringent requirements for patent protection seek to ensure that ideas in the public domain remain
there for the free use of the public. (E.I. Dupont v. IPO, 2016)
Q: Is patent a monopoly?
A: Yes. A patent is a monopoly granted only for specific purposes and objectives. Thus, its procedures
must be complied with to attain its social objective. (E.I. Dupont De Nemours and Co. v. Francisco, 2016)
Q: What is the right of priority?
A: Under Section 31 of the IP Code, a right of priority is given to any patent applicant who has previously
applied for a patent in a country that grants the same privilege to Filipinos. The Philippine application shall
be considered as filed as of the date of filing the foreign application, provided it is filed within twelve (12)
months from the date the earliest foreign application was filed. Thus, a patent applicant with the right of
priority is given preference in the grant of a patent when there are two or more applicants for the same
invention, applying the first-to-file rule. (E.I. Dupont De Nemours and Co. v. Francisco, 2016)
Q: Y Corp. was hired as a designer for Manansala in Rockwell. It submitted sketches and drawings,
which included a specific design for certain “hatch doors.” Y Corp. was issued a Certificate of
Copyright for these drawings, which pertain to class work “I” under Sec. 172 of the IP Code. Later
on, Y Corp. was hired to manufacture and install said hatch doors for the 1st to 20th floors of
Manansala. Y Corp. discovered, however, that X was also hired to install the same hatch doors for
the 21st to 40th floors. Y Corp. contends that X committed copyright infringement when he
fabricated hatch doors identical to those installed by Y Corp. Is Y Corp. correct?
A: No. Copyright is purely a statutory right. Being a mere statutory grant, the rights are limited to what the
statute confers. Accordingly, it can cover only the works falling within the statutory enumeration or
description. Class work “I” refers only to “illustrations, maps, plans, sketches, charts and three-dimensional
works relative to geography, topography, architecture or science.” Thus, the hatch doors themselves cannot
fall under such enumeration. In short, what was copyrighted were their sketches/drawings only, and not the
actual hatch doors themselves. (Sison v. Olaño, 2016)
In any case, a hatch door, by its nature is an object of utility. It is intrinsically a useful article, which, as a
whole, is not eligible for copyright. (Sison v. Olaño, 2016)
Q: When may a useful article be the subject of copyright?
A: When it incorporates a design element that is physically or conceptually separable from the
underlying product. This means that the useful article can function without the design element. In such an
instance, the design element is eligible for copyright protection. The design of a useful article shall be
considered a pictorial, graphic, or sculptural work only if, and only to the extent that, such design
incorporates pictorial, graphic, or sculptural features that can be identified separately from, and are capable
of existing independently of, the utilitarian aspects of the article. In the present case, Y Corp.'s hatch doors
bore no design elements that are physically and conceptually separable, independent and distinguishable
from the hatch door itself. (Sison v. Olaño, 2016)
Trademark
Q: What is a trademark?
A: "Mark" means 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.
"Collective mark" means any visible sign designated as such in the application for registration and capable
of distinguishing the origin or any other common characteristic, including the quality of goods or services of
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different enterprises which use the sign under the control of the registered owner of the collective mark.
(Sec. 121, IP Code)
Q: What is a trade name?
A: The name or designation identifying or distinguishing an enterprise (Sec. 121, IP Code)
Q: Can a trade name be infringed even if the trade name is not registered with the IPO?
A: YES, The Court ruled that a trade name need not be registered with the IPO before an infringement suit
may be filed by its owner against the owner of an infringing trademark. All that is required is that the trade
name is previously used in trade or commerce in the Philippines. RA 8293 provides: SEC. 165.2 (a)
Notwithstanding any laws or regulations providing for any obligation to register trade names, such
names shall be protected, even prior to or without registration, against any unlawful act committed by
third parties. (Coffee Partners v. San Francisco Coffee, 2010.)
Q: What is Fair Use of a trademark?
A: Registration of the mark shall not confer on the registered owner the right to preclude third parties from
using bona fide their names, addresses, pseudonyms, a geographical name, or exact indications
concerning the kind, quality, quantity, destination, value, place of origin, or time of production or of supply,
of their goods or services: Provided, That such use is confined to the purposes of mere identification or
information and cannot mislead the public as to the source of the goods or services. (Sec. 148, IP Code)
Q: What is the difference between Trademark Infringement and Unfair Competition
TRADEMARK INFRINGEMENT UNFAIR COMPETITION

Essence Unauthorized use of a mark. Passing off one’s goods as that of another.
Intent Fraudulent intent is not necessary. Fraudulent intent is essential.
Registration Prior registration of mark alleged to be Prior registration is not necessary.
infringed is required.
Class of Same class of goods or services must be Different classes of goods or services may
goods involved be involved
Scope Limited scope Wider scope
Q: What is the doctrine of secondary meaning?
A: Secondary meaning is established when a descriptive mark no longer causes the public to associate the
goods with a particular place, but to associate the goods with a particular source.
Under Section 123.2 of the IP Code, specific requirements have to be met in order to conclude that a
geographically-descriptive mark has acquired secondary meaning, to wit:
(a) the secondary meaning must have arisen as a result of substantial commercial use of a mark in the
Philippines;
(b) such use must result in the distinctiveness of the mark insofar as the goods or the products are
concerned; and
(c) proof of substantially exclusive and continuous commercial use in the Philippines for five (5) years before
the date on which the claim of distinctiveness is made. (Shang Properties Realty Corp. v. St. Francis
Development Corp., 2014)
Q: IFP contends that Mang Inasal cannot prevent the application of the word "INASAL" in the OK
Hotdog Inasal mark because no person or entity can claim exclusive right to use the word "INASAL"
because it is merely a generic or descriptive word that means barbeque or barbeque products. Is
Mang Inasal entitled to copyright protection?
A: Yes. T the dominant element "INASAL," as stylized in the Mang Inasal mark, is different from the term
"inasal' per se. The term "inasal" per se is a descriptive term that cannot be appropriated. However, the
dominant element "INASAL," as stylized in the Mang Inasal mark, is not. Mang Inasal, as the registered
owner of the Mang Inasal mark, can claim exclusive use of such element. (Mang Inasal v. IFP Mfg., 2017.)
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Q: In a test buy, Lo purchased from Uyco kerosene burners with the subject marks and the
designations "Made in Portugal" and "Original Portugal" in the wrappers. The evidence shows that
Uyco placed the words "Made in Portugal" and "Original Portugal" with the disputed marks knowing
that these were the marks used in the products of Casa Hipolito S.A. Portugal. The products sold
were however produced in the Philippines, with no authority from Casa Hipolito S.A. Portugal. Uyco
argued that the words "Made in Portugal" and "Original Portugal" refer to the origin of the design
and not to the origin of the goods. Lo filed a complaint against Uyco for violation of the IPC. Will
Lo’s complaint prosper?
A: YES. The argument that the words "Made in Portugal" and "Original Portugal" refer to the origin of the
design and not to the origin of the goods does not negate the finding of probable cause. There is probable
cause to charge the Uyco with false designation of origin, in violation of Section 169.1, in relation with
Section 170 of the IPC.
The evidence shows that Uyco placed the words "Made in Portugal" and "Original Portugal" with the
disputed marks knowing fully well that the products sold were produced in the Philippines, with no authority
from Casa Hipolito S.A. Portugal. (Uyco v. Lo, 2013.)
Q: In 2006, B filed an application for the mark of “PAPA BOY & DEVICE” for goods under Class 30
specifically for lechon Sauce. N opposed the application on the ground that they have filed an
application to register the said mark, “PAPA,” for use on Banana Catsup, etc. in 1983. BLA rejected
B’s application which the IPS upheld. However, CA reversed their decision by applying the holistic
test rather than the dominancy test.
(a) What is the difference between the holistic test and the dominancy test?
A: The Dominancy Test focuses on the similarity of the prevalent or dominant features of the competing
trademarks. Duplication or imitation is not necessary. What is given more consideration is the aural and
visual impressions created by the marks on the buyers of the goods. Under this test, confusion is classified
into two types: product confusion and source or origin of confusion.
1. Product Confusion is where ordinarily prudent purchaser would be induced to purchase one
product in the belief that he was purchasing the other.
2. Source or origin confusion is 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.
The Holistic Test or the totality test only relies on visual comparison between two trademarks whereas the
dominancy test relies not only on the visual by also on the aural and connotative comparisons and overall
impressions between the two trademarks. (UFC Philippines v Barrio Fiesta, 2016)
(b) What test should have been applied?
A: Dominancy Test. The word PAPA is the dominant feature of N’s mark as the work KETSARAP is merely
descriptive of the product. Also, the word PAPA is the dominant feature of B’s PAPA BOY & DEVICE mark
subject of application as the word PAPA is written on top of and before the other words such that it is the
first word/figure that catches the eye. (Id.)
Q: In determining likelihood of confusion, which test is proper, Holistic Test or Dominancy Test?
A: The dominancy test is more in line with the basic rule in trademarks that confusing similarity is
determined by the aural, visual and connotative and overall impressions created by the marks. (Seri
Somboonsakdikul v. Orlane SA, 2017, beyond cut-off) In fact, the law itself has adopted the dominancy test
for determining whether or not a trademark infringes a registered trademark. (IP Code, Sec. 155;
McDonalds Corp. v. Big Mak Burger, 2004)
Note: In People vs. Diaz (2013), the Supreme Court, through J. Bersamin, ruled that Holistic Test is more
appropriate in a criminal case where jeans products are involved, given the price and the consumers
normally scrutinize and try (fit in) the jeans on before buying.
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Copyright
Q: What is the idea/expression dichotomy?
A: An idea must be distinguished from the expression of that idea. Ideas can be either abstract or concrete.
It is the concrete ideas that are generally referred to as expression. It is the expression that is copyrightable
and not the idea. Thus, news are facts which are not copyrightable but when expressed in the form of a
video footage, it becomes entitled to copyrightable protection. (ABS-CBN v. Gozon, 2015)
Q: Is good faith a defense in copyright infringement?
A: No. Good faith is not a defense in copyright infringement. Copyright is a strict liability law. (ABS-CBN v.
Gozon, 2015)
Q: What is fair use and what are its elements?
A: The fair use of copyrighted work for criticism, news reporting, teaching (including multiple copies for
classroom use), research, and similar purposes is not an infringement of copyright.  The elements are:
(PuCha – NaCo - ASuE) 
1. Purpose & Character of the use 
2. Nature of the Copyrighted work  
3. Amount & Substantiality of the portion used in relation to the whole thing as a whole  
4. Effect of the use: on the potential market or the value of the copyrighted work  
The fact that a work is unpublished shall not by itself bar a finding of fair use if such finding is made
upon consideration of all the above factors (Sec. 185, IP Code)
Q: What is transformative use?
A: The "transformative test" is generally used in reviewing the purpose and character of the usage of the
copyrighted work. Under this test, it is determined whether the copy of the work adds "new expression,
meaning or message" to transform it into something else. (ABS-CBN v. Gozon, 2015)
Q: Who is an author?
A: "Author" is the natural person who has created the work (Sec. 171.1, IP Code). So, an animal or robot
cannot be an author and cannot own copyright.
Q: What are literary or artistic works?
A: These are original intellectual creations in the literary and artistic domain protected from the moment of
their creation. (Sec 172, IP Code) Unlike patents and trademarks, registration is not a requirement.
Q: What are the works not subject to copyright?
A: No protection shall extend to:

1. Any idea, procedure, system, method or operation, concept, principle, discovery or mere data as
such, even if they are expressed, explained, illustrated or embodied in a work;
2. News of the day and other miscellaneous facts having the character of mere items of press
information; or
3. Any official text of a legislative, administrative or legal nature, as well as any official translation
thereof. (Sec. 175, IP Code)
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Q: What is a derivative work?
A: The following derivative works shall also be protected by copyright:

1. Dramatizations, translations, adaptations, abridgments,  arrangements, and other alterations of
literary or artistic works;  and  
2. Collections of literary, scholarly or artistic works, and compilations  of data and other materials
which are original by reason of the selection or coordination or arrangement of their contents  
(Sec. 173, IP Code)
Q: What are the rights of a copyright owner?
A: The copyright or economic rights of an author shall consist of the exclusive right to carry out, authorize
or prevent the following acts: (RETRANS - FIRE - DPPR - OTHER) 
1. Reproduction of the work or substantial portion of the work; 
2. Transformation of the work; 
3. First public distribution of the original and each copy of the work by sale or other forms
4. of transfer of ownership; 
5. Dramatization, translation, adaptation, abridgment, arrangement or other transformation of the
work; 
6. Public display of the original or a copy of the work; 
7. Public performance of the work; 
8. Rental of the original or a copy of an audiovisual or cinematographic work, a work embodied in a
sound recording, a computer program, a compilation of data and other materials or a musical
work in graphic form, irrespective of the ownership of the original or the copy which is the subject
of the rental; and
9. Other communication to the public of the work. (Sec. 177, IP Code)
Q: Are works by the government copyrightable?
A: No. The law provides that no copyright shall subsist in any work of the Government of the Philippines.
However, prior approval – which may include payment of royalties - of the government agency or office
wherein the work is created shall be necessary for exploitation of such work for profit.
But the Government is not precluded from receiving and holding copyrights transferred to it by assignment,
bequest or otherwise. (Sec. 176, IP Code)
Q: X bought a painting from A. Does X now own the copyright over the painting?
A: No. The copyright is distinct from the property in the material object subject to it. Consequently, the
transfer or assignment of the copyright shall not itself constitute a transfer of the material object. Nor shall
a transfer or assignment of the sole copy or of one or several copies of the work imply transfer or assignment
of the copyright. (Sec. 181, IP Code)
Q: Are works by the government copyrightable?
A: No. The use made of a work by or under the direction or control of the Government, by the National
Library or by educational, scientific or professional institutions where such use is in the public interest and
is compatible with fair use does not constitute copyright infringement (Sec. 184, IP Code). However, an
exception to this is when the work is assigned to the government.
Q: When is a person vicariously liable for copyright infringement?
A: When a person benefits from the infringing activity of another person who commits an infringement if the
person benefiting has been given notice of the infringing activity and has the right and ability to control the
activities of the other person (Sec 216, IP Code).
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Q: When is a person liable for contributory infringement?
A: When, with knowledge of an infringing activity, induces, causes or materially contributes to the infringing
conduct of another (Sec. 216, IP Code).
Q: Before the 2016 Presidential Elections, COMELEC entered into a MOA with 6 Lead Networks in
order to cover the PiliPinas Debates. The MOA permitted the live streaming of these events online,
“subject to copyright conditions.” Rappler was not allowed to provide online streaming services
concerning the debates. Is the act of streaming the debates considered an infringement of
copyright?
A: NO. “Copyright conditions” under the MOA refer to the limitations on copyright under Section 184.1(c)
of the IP Code. Section 184.1(c) provides that “the reproduction or communication to the public by mass
media of articles on current political, addresses and other works of the same nature, if used for information
purposes and has not been expressly reserved provided that the source is clearly indicated.” In this case,
the debates fall under “addresses and other works of the same nature.”
Thus, the copyright conditions for the debates are:

1. The reproduction or communication to the public by mass media of the debates is for information
purposes;
2. The debates have not been expressly reserved by the Lead Networks (copyright holders); and
3. The source is clearly indicated.
All the conditions are complied with because the live streaming is for information purposes, the MOA
expressly allows the debates to be shown or streamed on other websites, and Rappler will indicate and
acknowledge the source of the debates as one or more of the Lead Networks. (Rappler v. Bautista, 2016)
SPECIAL LAWS
Anti-Money Laundering Act

Q: Differentiate a Bank Deposit Inquiry Order from a Freeze Order.
A: A bank inquiry order does not necessitate any form of physical seizure of property of the account holder.
What the bank inquiry order authorizes is the examination of the particular deposits or investments in
banking institutions on particular details such as the account holder’s record of deposits and transactions.
Unlike the assets subject of the freeze order, the records to be inspected under a bank inquiry order cannot
be physically seized or hidden by the account holder, but these are in the possession of the bank and
therefore cannot be destroyed at the instance of the account holder alone as that would require the
extraordinary cooperation and devotion of the bank. (Sec 10 & 11, AMLA)
Q: Can the Bangko Sentral ng Pilipinas, in the course of its regular annual examination, inspect an
account without court order?
A: YES. The Bangko Sentral ng Pilipinas is authorized to examine all deposits with any bank in the course
of its periodic or special examination of the bank provided that such examination is done to ensure
compliance with the Anti-Money Laundering Act. (Sec 11, AMLA)
Q: Under what circumstances may AMLC apply for an ex-parte bank inquiry with our courts, and if
so, with which court in particular should it file such application?
A: The AMLC may inquire into bank deposits upon order of the court when there is probable cause that the
bank deposits are related to the crime or unlawful activities defined in Section 3(1) and 4 of the AMLA.
Jurisdiction for such application is vested upon the Court of Appeals. (Sec. 11, AMLA)
Q: When can a trial court issue a bank inquiry order in favor of the AMLC?
A: For the trial court to issue a bank inquiry order, it is necessary for the AMLC to be able to show specific
facts and circumstances that provide a link between an unlawful activity or a money laundering offense, on
the one hand, and the account or monetary instrument or property sought to be examined on the other
hand. (Republic v. Bolante, 2017)
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Q: Does the ex parte application by the AMLC violate due process?
A: No. The AMLC is authorized to apply ex parte for an inquiry into bank accounts only in pursuance of its
investigative functions. As the AMLC does not exercise quasi-judicial functions, its inquiry by court order
into bank deposits or investments does not violate procedural due process. Further, the ex parte application
does not violate substantive due process because the physical seizure of the targeted corporeal property
is not contemplated in any form by the law. (Republic v. Bolante, 2017)
Q: What is the remedy of the account holder of an account subject of a bank inquiry order?
A: The holder of a bank account that is the subject of a bank inquiry order issued ex parte has the
opportunity to question the issuance of such an order after a freeze order has been issued against the
account. The account holder can then question not only the finding of probable cause for the issuance of
the freeze order, but also the finding of probable cause for the issuance of the bank inquiry order. (Republic
v. Bolante, 2017)
Foreign Investments Act

Q: Who is a Philippine National under the Foreign Investment Act? (CP-DOMFOR)
a. Filipino Citizen
b. Domestic Partnership or association wholly owned by Filipino citizens
c. DOMestic corporation at least 60% of the capital stock outstanding and entitled to vote is owned and
held by Filipino citizens, or
d. FOReign corporaiton regisetred as doing business in the Philippines under the Corporation Code of
which 100% of the capital stock outstanding and entitled to vote is wholly owned by:
i. Filipinos, or
ii. A trustee of funds for pension or other employee retirement or separation benefits, where
trustee is a Philippine national and at least 60% of the fund will accrue to the benefit of
Philippine nationals;
Provided, where a corporation and its non-Filipino stockholders own stocks in a SEC-registered
enterprise
1. At least 60% of the capital stock outstanding and entitled to vote of each
corporation must be owned and held by Filipino citizens; and
2. At least 60% of the members of the BOD of each corporation must be Filipino
citizens (Sec. 3[a], FIA, as amended)
Q: A Co., a corporation organized under the laws of New York, has been importing sugar regularly
from the Philippines for several years. It has no license to do business in the Philippines. It
purchased sugar from B Trading. A Co. sued B Trading for damages because it failed to deliver the
sugar. B Trading argued that the case should be dismissed because A Co. was doing business in
the Philippines without a license. Decide.
A: A Co. is not doing business in the Philippines. To constitute doing business, the activity concerned
should involve profit-making. Under the Foreign Investment Act, solicitation for purchase has been deleted
from the activities which constitute doing business. (Cargill, Inc. vs. Intra-Strata, 2010)
Q: What is the Foreign Investments Negative List?
A: “Foreign Investments Negative List” refers to the list of areas of economic activity whose foreign
ownership is limited to a maximum of 40% of the equity capital of the enterprise engaged therein. (Sec 3(g),
FIA)
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Electronic Commerce Act and Rules on Electronic Evidence
Q: During trial of a case, an email printout was presented as evidence in court. This e-mail printout
contains advice from a bank informing another bank that the specific check was dishonored. The
opposing party to the case argued that the same should not be admitted by the court for lack of
proper authentication. On the other hand, the other party countered that it was merely corroborative
evidence, and lack of authentication did not diminish its value. Should the same be admitted?
A: Yes. While the said e-mail may not have been property authenticated in accordance with the Rules on
Electronic Evidence, the same was merely corroborative evidence, and thus, its admissibility or
inadmissibility should not diminish the probative value of the other evidence presented during the trial.
Likewise, despite like of authentication, there appears to be no objection on the part of the other party when
the same was presented, it is well-settled that evidence not objected to is deemed admitted and may validly
be considered by the court in arriving at its judgment. (Bank of the Philippine Islands v. Mendoza, 2017)
Q: Is an electronic Bill of Lading acceptable as a form of contract?
A: Yes. Electronic documents may be used in furnishing the marks, number and weight of goods; in stating
or declaring the nature or value of goods; issuing a receipt for goods; confirming the loading of goods;
claiming delivery of goods; authorizing release of goods; giving notice of loss of, or damage to goods;
undertaking to deliver the goods to a named person or a person authorized to claim delivery; granting,
acquiring, renouncing, surrendering, transferring or negotiating rights in goods. (Sec. 25, E-Com)
Q: Are electronic messages considered as negotiable instruments?
A: No. Electronic messages cannot be considered negotiable instruments as they lack the feature of
negotiability. The instructions given through electronic messages are not negotiable instruments as they do
not comply with the requisites of negotiability under Sec. 1, NIL.
The electronic messages are not signed by the investor-clients as supposed drawers of a bill of exchange;
they do not contain an unconditional order to pay a sum certain of money as the payment is supposed to
come from a specific fund or account of the investor-clients; and, they are not payable to order or bearer
but to a specifically designated third party. Thus, the electronic messages are not bills of exchange. (HSBC
v. CIR, 2014)
Financial Rehabilitation and Insolvency Act

Q: What is rehabilitation?
A: Rehabilitation is statutorily 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 continued as a going
concern than if it is immediately liquidated. The purpose of Rehabilitation is to enable the company to gain
a new lease on life and to allow its creditors to be paid their claims out of its earnings. (Philippine Asset
Growth Two,. v. Fastech Synergy, Inc. 2016)
Q: What is Insolvency?
A: Insolvency refers to the financial condition of a debtor that is generally unable to pay its or his liabilities
as they fall due in the ordinary course of business or has liabilities that are greater than its or his assets.
(Sec 4(p), FRIA)
Q: What are the minimum requirements of a Rehabilitation Plan?
A: A Rehabilitation Plan must comply with the following:

1. the desired business targets or goals and the duration and coverage of the rehabilitation
2. the terms and conditions of such rehabilitation which shall include the manner of its
implementation;
3. the material financial commitments to support the rehabilitation plan;
4. the means for the execution of the rehabilitation plan; and
5. a liquidation analysis. (Philippine Asset Growth Two. v. Fastech Synergy, Inc., 2016)
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Q: (a) What is the responsibility of a Rehabilitation Receiver?
A: The rehabilitation receiver’s duty prior to the court’s approval of the plan is to study the best way to
rehabilitate the debtor, and to ensure that the value of the debtor’s properties is reasonably maintained;
and after approval, to implement the rehabilitation plan. (Philippine Asset Growth Two. v. Fastech Synergy,
Inc., 2016)
(b) Who determines the feasibility of the Rehabilitation Plan?
A: Notwithstanding the credentials of the court-appointed rehabilitation receiver, the duty to determine the
feasibility of the rehabilitation of the debtor rests with the court. (Philippine Asset Growth Two. v. Fastech
Synergy, Inc., 2016)
NOTE:
ECONOMICALLY FEASIBLE REHAB PLAN NOT ECONOMICALLY FEASIBLE REHAB PLAN
Debtor has assets that can generate more cash if Absence of a sound and workable business plan
used in its daily operations than if sold
Liquidity issues can be addressed by a practicable Baseless and unexplained assumptions, targets
business plan that will generate enough cash to and goals
sustain daily operations
Debtor has a definite source of financing for the Speculative capital infusion or complete lack
proper and full implementation of a Rehabilitation thereof for the execution of the business plan
Plan anchored on realistic assumptions and goals
Cash flow cannot sustain daily operations; and
Negative net worth and the assets are near full
depreciation or fully depreciated
Q: When should the remedy of Rehabilitation be denied?
A: The remedy of rehabilitation should be denied to corporations whose insolvency appears to be

irreversible and whose sole purpose is to delay the enforcement of any of the rights of the creditors, which
is rendered obvious by:
1. the absence of a sound and workable business plan;
2. baseless and unexplained assumptions, targets, and goals; and
3. speculative capital infusion or complete lack thereof for the execution of the business plan, as in
this case.
Rehabilitation must be accorded only after a judicious regard of all stakeholders’ interests. (Philippine Asset
Growth Two. v. Fastech Synergy, Inc., 2016)
Q: Explain the Standstill Period.
A: It is the period agreed upon by the debtor and its creditors to enable them to negotiate and enter into an
out-of- court or informal restructuring/workout agreement or Rehabilitation Plan pursuant to Rule 4 of these
Rules. The standstill agreement may include provisions identical with or similar to the legal effects of a
commencement order under Section 9, Rule 2 of these Rules (Rule 1, Sec. 5[q], A.M. 12-12-11-SC).
It may be agreed upon by the parties and shall be effective not only to the contracting parties but also
against the other creditors provided that it complies with the following conditions:
1. Approval of the agreement by creditors representing more than fifty percent (50%) of the total
liabilities of the creditor;
2. Publication of the notice of the agreement in a newspaper of general circulation in the
Philippines, once a week for two (2) consecutive weeks; and
3. The standstill period shall not exceed one hundred twenty (120) days from the date of its
effectivity (Rule 4, Sec. 2, A.M. 12-12-11-SC).
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Q: What is the Cram Down Power of the Rehabilitation Court?
A: The Cram Down Power allows the rehabilitation court to 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. The
Cram Down Power is necessary to curb the majority creditors’ natural tendency to dictate their own terms
and conditions to the rehabilitation, absent due regard to the greater long-term benefit of all stakeholders.
Otherwise stated, it forces the creditors to accept the terms and conditions of the rehabilitation plan.
(Victorio-Aquino v. Pacific Plans, 2014)
Q: What are the effects of stay or suspension order? (CJDP)
A:
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 court 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. (Sec 16(q), FRIA)
Q: What are the exceptions to a stay or suspension order? (S4BCC)
A:
1. Cases already pending appeal in the Supreme Court as of commencement date Provided, That
any final and executory judgment arising from such appeal shall be referred to the court for
appropriate action;
2. Subject to the discretion of the court, to 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: Provided, That any final and executory judgment of
such court or agency shall be referred to the court and shall be treated as a non-disputed claim;
3. 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;
4. 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;
5. 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;
6. Clearing and settlement of financial transactions through the facilities of a clearing agency or
similar entities duly authorized, registered and/or recognized by the appropriate regulatory agency
like the Bangko Sentral ng Pilipinas (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
7. Any criminal action against individual debtor or owner, partner, director or officer of a debtor
shall not be affected by any proceeding commend under this Act. (Rule 2, Sec. 10, FR Rules)
Q: Does the stay or suspension order cover non-monetary claims against the debtor-corporation?
A: Yes. A stay or suspension order shall suspend all actions or proceedings in court or otherwise, for the
enforcement of all claims against the debtor. The term “claims” is not limited to monetary claims but includes
claims of whatever nature and kind against the debtor. (Panlilio v. RTC, 2011)
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Q: X Corp is under Rehabilitation. There is a pending criminal case for violation of the Bouncing
Checks Law filed against the President of X Corp by the creditor as some checks issued by X Corp
through the President bounced. Should the criminal case be suspended?
A: No. One of the exceptions of the Stay or Suspension Order is a criminal case against the individual
debtor or owner, director or officer (like the President) of the debtor under rehabilitation. (Sec. 18[g], FRIA;
Panlilio v. RTC, 2011)
Q: Will a Stay or Suspension Order affect claims against sureties and other persons solidarily liable
to the debtor, third party or accommodation mortgagers, or issuers of letters of credit?
A: No, 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.
(Sec. 18[c], FRIA)
Q: X Corp has bank deposits with BankCo. At the same time, X Corp is indebted to BankCo. After X
Corp filed a petition for Rehabilitation, BankCo set off the bank deposit against the unpaid loan
obligation of X Corp. A Commencement Order was subsequently issued pursuant to the Corporate
Rehabilitation of X Corp. Is the set-off affected by the Commencement Order?
A: Yes. A Commencement Order serves as the legal basis for rendering null and void any set off after the
commencement date of any debt owed to the debtor by any of the debtor’s creditors. The commencement
date refers to the date on which the court issued the Commencement Order, which shall be retroactive to
the date of the filling of the petition. (Sec 4[d] & 17[c], FRIA)
Q: What is the Pari Passu Rule?
A: During rehabilitation receivership, the assets are held in trust for the equal benefit of all creditors to
preclude one from obtaining an advantage or preference over another by the expediency of an attachment,
execution or otherwise. (Alemar’s Sibal & Sons Inc v. Judge Elbinias, 1990)
As between the creditors, the key phrase is “equality is equity.” When a corporation threatened by
bankruptcy is taken over by a receiver, all the creditors should stand on equal footing. Not anyone of them
should be given any preference by paying one or more of them ahead of the others. (Alemar’s Sibal & Sons
Inc v. Judge Elbinias, 1990)
The commitment embodied in the pari passu principle only goes so far as to ensure that the assets of the
distressed corporation are held in trust for the equal benefit of all creditors. It does not espouse absolute
equality in all aspects of the debt restructuring. (Express Investments III Private Ltd. and Export
Development Canada v. Bayantel, 2012)
In legal parlance, pari passu is used especially of creditors who, in marshalling assets, are entitled to receive
out of the same fund without any precedence over each other. (Black’s Law Dictionary 1004, 1979)
PAGE 38 OF 38

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ATENEO CENTRAL

BAR OPERATIONS 2018 COMMERCIAL LAW BLUE TIPS

PRAYER FOR THE BAR EXAMINATIONS

O God, we come before You this day,

This is the most important event in our lives,

We ask for help.

We do not ask this by our own merits.

We ask this from Your Fatherly mercy and compassion through

Bank on your stock (corporation) knowledge, and

Passing these exams is non-negotiable.

Q: Distinguish the liability of a Confirming Bank from a Notifying Bank?

Q: How does the independence principle apply to letters of credit?

Q: What is the doctrine of strict compliance?

Q: What is a trust receipt transaction?

Q: What are the obligations of the entrustee in a Trust Receipt transaction?

NEGOTIABLE INSTRUMENTS LAW

Q: When constitutes a material alteration?

A: Any alteration which changes:

Q: What are the requisites to be a holder in due course?

Q: What are the warranties of a general indorser?

Q: What is the effect of a forged signature?

Q: Explain the Shelter Rule.

Q: What a Reinsurance Contract?

Q: What is the No Fault Indemnity Clause?

Q: What is an incontestability clause?

A: (DEL CASTILLO) Whichever is earlier, between:

Q: Can an insured change his beneficiary in a life insurance policy?

Q: When will the insurer be held liable in cases involving suicide?

Q: What are the exceptions to payment of premiums on time?

Q: When can concealment be a ground for rescission of an insurance contract?

A: If the loss, destruction, or deterioration is due to any of the following causes:

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

Q: Is tortious conduct of a common carrier’s personnel governed by the Warsaw Convention?

Q: How can a Customs Broker be a Common Carrier?

Q: What is the grandfather rule? When do you apply it?

Q: Are corporations entitled to moral damages?

Q: When is a Director, Trustee, or Officer personally liable with the corporation?

Q: How is apparent authority ascertained?

Q: What are the duties of corporate directors?

Q: What are the tests to determine whether a dispute is an intra-corporate controversy?

Q: Compare a Proxy and a Voting Trust Agreement.

Q: When is a Filipino considered a “beneficial owner” of a specific stock?

Q: What is the right of appraisal and when may it be availed of?

Q: What are the requirements of a derivative suit? (SEAN + N)

Q: Can redeemable shares be redeemed at all times?

The required percentage of Filipino ownership shall be applied to BOTH:

Q: What is the definition of securities under the Securities Regulation Code?

A: Securities are shares, participation or interest in a corporation or in a commercial enterprise or profit-

Q: Can a check be considered a security under the Securities Regulation Code?

Q: What is a public company under the Securities Regulation Code?

A: A public company under the SRC refers to:

Q: PH Corp. is engaged in a multi-level marketing business. Its scheme requires an “investor,” to

Q: What is a tender offer?

Q: Under what circumstances is a tender offer mandatory?

Q: Which securities transactions are exempt from registration? (JPID-CSC-BEPA20-BI3PO)

Q: What is a short sale?

Q: What is the rule on short swing transactions?

Q: What is the Blackout rule in the Philippine Stock Exchange?

A: It requires a transaction, contract, or scheme whereby a person:

NOTE: Scienter is needed on all of the above.

Q: What is Insider Trading?

Q: Can an insider’s common-law spouse also be considered an insider?

A: Yes. A purchase or sale of a security by an insider’s spouse, legitimate or common-law, shall be