San Beda College of Law 2016 CENTRALIZED BAR OPERATIONS CORPORATION LAW 1. The Control Test and the Grandtather Rule Thete are two acknowledged tests in determining the nationality of a corporation: the control test end the grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of the Constitution and other laws pertaining fo the controling interes's in enterprises engaged in the exploitation of natural resources owned by Filcino cliizens, provides: ‘Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationally, but Ifthe nationality of Flipino ownesship In the corporation or partnership is less than 60%, only the number of shares corresponcing fo such percentage shall be counted 05 of Philippine nationally." The fis! port of pardgraph 7, DO Opinion No. 020, stating "shares belonging to Coorations or partnerships at least 60% of the capital of which is owned by Flipino citizens shall be considered os of Philppine ntionaily." pertains to the control test or the liberal rule. On the other hand, the second port of the DOJ Opinion which provides, “it the percentage of the pine ownership in the corporation or artnesship is less than 60%, only the number of shares coresponding to such percentage shal be counted as of Priippine nationally,” pertains to the shicter, more stringent grandfather sule Under the liberal Conta Test, there Is no need fo further trace the ownership of the {60% [or more} Flipino stockholcings of the Investing Corporation since a corporation Which is at least 605 filipino-ownedis considered as Flipino. Under the Shict Rule or Grandfather Rule Proper, the combined totais in the Investing ‘Corporation and the investee Corporation must be traced {i "grandfathered!") 10 determine he total percentage of Mpino ownership. Moreover, the ultimate Filipino ownership of the shares mus! firs! be traced to the level of the investing Corporation, ‘and added to the shares directly owned in the investee Corporation, Which of the two tests must be oppled? A perusal of the deliberations in the Records of 1986 Constitutional Commission reveds that the grandfather ule must be. ‘oppliod in coses where corporate layering, os n this case, is present. When the 60-40 o-foreign a Yt Thus, fo establish the actual ownership, interest or participation of MBM in each of the comoration shuctures of Nora, Tesoro and MeArthut, they have to be “grandfathered.” Villa Cabrera, Antonto, Daz, Denosta, Chua, Encarnacion, Orla, Rosario, Martine Page‘San Beds College of Law 2016 CENTRALIZED BAR OPERATIONS, 1 MeAsthur Mining, inc [Name Nationally | Nomber of [Amount ‘AMOUNT PG | "| shores Subscribed, TE [Fipino 5397 | ®5997.000 | P895,500 ‘MBL ‘Canadian | 3998: 73,998,000 | P1.878,175 Others Fipino 5 5,000 5.000 Toi P1500 10,000,000 | P2,706.175 mmc Name Nationally [Nurnber of [Amount Arnouni Pa — 1 [shores subscribed | ‘oMbE Fino 6.563 —[r6,563,000 [70 = MBM ‘Canadian [3.331 3,331,000 | P2,803,900 ‘lhe filpino é 76,000. 6,000) t Tota 10000 P10.000,000 | P2.809.900 | MMC isa major investor of McArthur. MBMI is a major investor of McArthur. Further, ‘MBM! and OMDC established a joint venture, MBMI holds directly and indirectly an inilick {60% interest in the joint venture. Thus, a5 demonsitated in this fist comporation, McArthur, when It Is “grandfathered,” ‘company layering was ullized by MBMI fo gain control over McArthur. I is apparent that MBMI has more than 60% or more equily interest in McA‘thur, making the latter @ foreign corporation. Tesoro Mining and Development, Ine. Name Nationatily Number of [Amount “Amount Paid Shares Subscribed SMM [filipino 5997 5,997,000 | P85,000 ‘MBM ‘Canadian [3.998 3,998,000 | P1,878,175, ‘Othe fiping [5 5,000 5,000. Total 10,000, —[P10,000,000 | P2,708,175. SMM Name Nationally, (of | Amount ‘Amount Pais Subscribed OMDE pina. 6,463,000 [PO MEME ‘Canadian 3,331,000 | 2,803,900 Others Fiipino 6,000. 6,000 Total 10,000,000 [P2,809 500 The corporate structure of McArthur and Tetoso are‘similar. They have the same major ‘and nominal shareholders, except for SMM. MMBI is also @ major stockholder of SMM. ‘Another mojor player in SMM is OMDC, which isin ajoint venture agreement with MBMI. IVs clear that MBMI fs in control of Tesoro and owns 60% or more equity interest in Tesoro. It fs Cpparent that MBMI has more than 60% or mote equity interest in Tesoro, making the latter a foreign corporation. 3, Bnearnacion, Orjal, Del Rosario, MartinezSan Beda College of Law it, Nama Nickel Mining and Development Corporation Name Nationally | Nomber of | Amount Rmaunl Paid Shores Subscribed PIMOS iiping 5997 5,997,000 | P&25,000 ‘MEME —Teanadian | 3.996 3,996,000 | P1,116,000, “Others Flipino 7 7,000 ~[P7.000_ Told 10,000, 10,000,500 | P2.800,000 PLDC. ‘Name Nationally [Nomber of [Amount [Amount Paid Shores Subscribed PASRDG Fiigine 6,596 6,596,000 | PO [mem ‘Canadian [3,396 2,796,000 ines, Filipino —{s 8,000 Total 10,600 2,804,000 ‘The corporate stucture and invesiors of Norra is substantially the same os McArthur and Tesoro. MMBI is a major stockholder In both Narra and PLM. Locking into the corporate structure of PLM Il may be seen that its major investor is Potawan Aloha. MBM! also ‘entered into a joint venture with Palawan Alpha, ond holds directly and incirectiy 60% interests in such venture. Therefore, McArthur, Tesoro and Nara Nickel are no! Flipino since MBMl, a 100% Canadian corpaxation, oWn 60% or more of their equity interests. The ownership of the layered” corporations bois down to MBMI exercising majority control over the corporations (Narra Nickel Mining v. Redmont Consolidated Mines Co., G.R. No. 195360, Apaii21, 2014). 2. Significant Indicators of the Dummy Status ‘a. That the foreign investors provide practically ail the funds for the join! investment Undericken by these Flipino businessmen and their foreign poriner 'b. That the foreign investors uridertake to provide practicaly al the technological suppor for the joint venture: and Cc. That the foreign investors, while being minatily stockholdes, manage the company and prepare oll economic viabily studies Ia 3. Definition of Merger Merger is a re-organization of wo or more corporations that resus in their Consolidating info asingle comporation, which is one of the conslivent corporations, ‘one disappecting or disoling and the other surviving. The cbsorbing corporation Cconlinues ils existence while the life of the other corporation is terminated (Bank of Commerce v. Radio Philippines Network, Inc., G.R. No. 195615, Apri 21, 2014), 4, Eleetivity of Merger ‘A merger does not become effective upon the mere agreement of the constituent corporations. All the requirements specified in the law must be complied with in order for merger to take effect and the merger shall be effective only upon the issuance by the Secutiies and Exchange Commission (SEC) of a certificate of metger [Bank of Commerce v. Radio Philppines Nefwork, Inc. GR. No. 195615, Apa! 21,2014). TS ‘Titanil Cabrera, Antonio, Diaz Denosts, Chun, Encarnacion, Orjalo,Del Resario, Martinez Paget j San Beda College of Lato 2916 CENTRALIZED BAR OPERATIONS 5. Liabillies of Surviving and Absorbed Corporation BANK OF THE PHILIPPINE ISLANDS v. BPI EMPLOYEES UNION-DAVAO CHAPTER: FEDERATION OF UNIONS IN BPI UNIBANK; G.R. No. 164301: October 19, 2011 LEONARDO-DE CASTRO, 1 Facts: Pursuant to the Alice and Plan of Merger, il the assets and liabilies of FEBTC were fransfered fo and absorbed by BPI as the surviving corporation. FEBIC employees, including those in its diferent branches across the country, were hited by petitioner as its own employees, with their stalus and tenure recognized and scfaries and benetis maintained. Respondent BPI Employees Union-Davac Chapter - Federation of Unions in BPI Uribank {hereinafier the Union, for brevity) isthe excissive bargaining agent of BPIs rank ond fle ‘employees in Davao City. The former FEBTC rank-andile employees in Davao City oid not belong to any labor union at the time of the merger. Prior fo the effectivity of the merger, respondent Union invited sald FEBTC employees to cd mesting regarding the Union Shop Clause (Article I, Section 2) of the exsting CBA between pelifioner BPI and respondent Union. Afiot the meeting called by the Union, some of the former FEBIC employees joined the Union, while others refused. Later, however, some of those who initially joned retracted their membestip. Respondent Union then sent notices fo the former FEBTC employees who refused fo join, Gs well a3 those who retracted thelr membership, and called them to @ hearing regarding the matter. When these former FEBTC employees refused to attend the hearing, the presiden! of the Union requested BPI to implement the Union Shop Clause of the CBA and fo terminate their employment pursuant thereto. Whether oF not the former FEBTC employees thal were absorbved by petitioner upon the merger between FEBIC and BP! should be covered by the Union Shop Clause found in the existing CBA belween pefilioner and respondent Urion. Hele: ‘YES. By Upholding the automatic assumption of the non-suviving corporations existing employment contracts by the suwiving corporation in a merger, the Court strengthens judicial protectionof the right to security of tenure of employees affected by a merger ‘and avoid confusion regarding the status of their various benefis. However, it shall be noted thal nothing in the Resolution shal impair the right of an employer to terminate the employment of the absorbed employees for a lawful or authorized cause oF the . fight of such on employee to resign, relire or otherwise sever his employment, whether before or after the merger, subject to oxisting contractual obligations. ‘Although by vitue of the merger BPI steps into the shoes of FEBTC as a successor temployer os I the former had been the employer of the lalter's employees from the ‘beginning it must be emphasized that, in realty, the legal consequences of the merger only occur al a speciiic date..e.uponils effectivity whichis the date of approval of the ee TS Vii Ti Cabrera, Antonio, Dg Denosta, Chua, Encarnacion Orjlo, Del Rosario, Marcinez Page ®San Beda College of Law 2016 CENTRALIZED BAR OPERATIONS merger by the SEC. In other words, the obligation of BP 10 poy the soles ancl benef's ot the former FEBTC employees and its right of disciptne ond, control ever them only stose with the effectiviy of the merger. Concomitanty, the obligation of former FEBTC Gmployees lo render service to BPI and their righ! fo recelve benefits from the latter 350 rose upon the effectivity of the merger. What is materia! is that ail of these legs! Consequences of the merger 100k place during the life of an existing and valid CBA elwenn BPI and the Union wherein they have mutually consented to include a Union Shop Clouse, . {in legal portance, however, human beings are never embraced In the term, "ossels fond obits,” Moreover, BF1's absorption of former FEBIG employees was neither By Speration of law nor by lega consequence of contract, There was no goverment Feeulation of law that compalied the merger of the two banks or the absorption of Ihe ‘Grrployees of the dissolved corporation By the suniving corporation. Had there, beon guch tow oF regulation, the absorption of employees of the non suniving entiies of the merger would have been mandatary on the surviving corporation. In the presen! cose, the merger was voluntafly entered into by both banks presumably for some mutually tpecepiable consideration. in fact, the Corporation Code does not also roncdate the Gesorption of the employees of the nonsuviving corporation by the surviving comoration in the case of a merger] 6 Trust Fund Doctiine the property of @ corporation is a ts! fund for the payment of recdtors Subseiplions #0 the capital of a corporation consltute o fund to which creditors rave a right to look for satisfaction of their claims. (Halley v. Printwell inc, G.R, No. 157549, May 30, 2011). 7. Clawback Principle Traeiowback suit, the bankrupicy tustee or receiver will seck the recovery of Iilioy Heceenls and any fase profs that were paid fo investors in order to recistibute HeeeiGnds to investors thal fost the principal on their investment, Clowback Iigation nes rootsin several sectons ofthe US Bankruptcy Code. Pursuant fo Section Ru ot ihe US Bonkrupicy, the trustee, may avoid, as preferences the ful amount oF fensiers made within ninety (90) days preceding the fling of the bankruptcy fetifon, and if the ronsferee qualifies os on insider, within one year of the fing of Fe Setiton. Section 548 of the US Bonktupicy code provides that a inustes may ee raudient conveyances, whether based on actual or constructive fraud, that Wrote made within fwo yeors of the filng of the petition, ‘8. Application of the Clawback Principle Petting to his orchestration of o Pond scheme allegedly resulling in the loss of S68 Eilon Soler of clont funds, Bemard Madoff was held gully 10 11 counts of fraud, Poy laundering, theft ond pefury. Madoft's scheme has created a fnoncict {foray for some inwestors who had redeemed thet nicl investments and may have ‘nade a profit, The redeerring investors perhaps thought they were able to gst out (hen they oid offer the truth come out. However. those same invostors wold foo eccome victims of Madoff's fraud though clawback ligation (US v. Meco, 626 F-Supp.2d 699 (SDNY 201 I). ee Te Jaa Cabrera, Antonio, Diaz, Denosts, Chua, Encarnacion, Orjalo, Del Rosario, MartinezSan Beda College of Law 2016 CENTRALIZED BAR OPERATIONS INSURANCE LAW 9. Petils insured in Marine Insurance Sy pars of the soa con be insured againsl unless pats ofthe ship are coverecl PY on alk policy 10, Peis of the sea vs. Pets of the ship cents of the sea refer fo cosualties due fo the unusual violence, extraordinary action ceiwind ond wave ond any other exiraordinory causes connected with novigaon Paste of Ine ship reters Io losses which in the orcinary course of events, resus fom fae natural ond inevitable action of the sea of ordinary wear and tear of the ship o° negligent tale of the ship's owner fo provide the vessel with proper equipment fo convey @arge under ordinary conéiions Loss in Matine Insurance ‘Complete physcal destruction of the subject matters! essential to consiiute Seer total oss Such loss may ext if the form and specie of the thing Is destroyed Gihough the materials of which it consisted sil ext (Pan Malayan Insurance Co. VS CA. GR. No. 95070, September 5, 1991) 12. Fire Insurance fhe keeping of hviornmable os on the premises, though prohibited by the Percy: sieec not void the policy f such keeping I incidental to the business (Bachrach ‘antsh American Assurance, G.R. No., December 20, 1910) TRANSPORTATION LAW 13. Kabit system abl System gement whereby a person who has been granted a cerlifcate of oe eco ‘slows another person who owns motors vehicles 10 operate une: soe schise for @ fee. Athough not oulighlly penalized os a esimincl offense, Ine Serco i invoridbly recognized os being contary to publ policy and Te ce oid ond existent under Article 1409 of the Cl Code ila Enterprises Meet Second Ci Cases Dision, IAC, G.R, NoL-64693, ApH 27, 1964), 14, Franchise Fosse is defined fo be a special priviege to do certain things confened by Aokemnment on an inclvidual or corporation, andiwihich doos not belond 19 Sass aver aiy of comenon git (LO v. Cy of Butuan, G2. No. 131512, January 20,2000). 15. Delegaied power/authosty to grant franchise Dreamin Section 11 of Afficie Xl recognizes Congress! control over any fronciisey aa eale oF cuihorly to operate a public uly. It doos not mean Congress nos Cease uthey fo sue the some. Franctises issued by Congress are no! recived Cee Sn ond every pubic Utlty may operate. In many inslances. Congress Nes befor ft 19 delegate ths function fo government agencies, specicized porlcsiony soe respective reds of pubIC service [PAL v. CAB, G.R. No. 119528, March 26 1997). 14 Franchise v. Cerfficate of Public Convenience sragtlave eanchise sa grant or pfviege trom the soveratan powor wile CESS 4 Faas ees ution through the administrative agencies (Radio Communication of the Philippines v. NIC, G.R. No. -68729, May 29, 1987). ene ord ‘Timmy Carers Anton, Diaz Donor, Chua, carnacion, Ojo, Del Kosar, MarinesSan Beda College of Law 2016 CENTRALIZED BAR OPERATIONS [NEGOTIABLE INSTRUMENTS LAW 17, Corporation Acting as Accommodation Parly is Not Uable A corporation is not fable of iis acts as an accommodation party. This is because the ue. ot indorsement of negotiable paper by a comporation without consideration and for the accommodation of another is ultra vires which may be faised even against a holder In due course [Crisologo-ose ¥. CA, G.R. No. 80599, September 15, 1989). ‘18, Elects of Crossing a Check She crossing of a check means that the same may hot be encashed, but only Goposied in the bonk. The issuance of a crossed check reflects management's Intention fo safeguard the funds covered thereby, its special instruction to have the rome deposiied lo,cnother account and is restriction on ils encashment. (Westeyan Universty of the Philippines v. Reyes, G.R. No. 208321, July 30. 2014) 19, abillies of the Depositary /Collecting Bank for Encashing a Crossed Check it the depostery bank diows the check to be deposited in the account of a person other hen the payee and thereafter allows the depositer to withdraw the amount, the depositary bank con be made fable for damages to the payee bared on uas.deict and not based on the check which was never delivered fo the payee. ‘he ily of the bonk is solidery with the perpetrator of the conversion, thal fs, the person who deposited the crossed check fo his account that is payable to another {equitable Banking Corp. v. Special Steel Products, inc. G.R. No, 175350, June 13, 2012) BANKING LAWS [ANTI MONEY LAUNDERING ACT 20. Covered Transactions Covered trarsaction Is a transaction in cash or other equivalent monetary isttoment involving total amount In excess of Five hundred thousand pesos {500,000.00} within one {1) Banking day (Sec. I[b). RA. 9194). 21. Suspicious Transactions Transactions wih the covered institutions, regardless of the amounts involved, where ‘any of the folowing circumstances exis: 3. There ne undafyng legd or ade cbigaton, pupore o economic justification; bb. The clients not property identiied: ©. The omount involved is not commensurate with the business or financial opacity of the client; d. Taking info account ail known circumstances, Il, may be perceived that the Glens Hensaction is sinuctured in order 10 avoid being the subject of repating requirements uncer the Act: fe. Any ereumstance relating to the transaction which is observed to deviate {rom the profile of the client and/or the client's past transactions with the Ccoveredinstitulion: 1. the transdelion isin ony way related to an uniawiul activity or offense under this Act that s about to be. is being or has been committed: or ‘Any transaction that is similar or analogous fo ony of the foregoing (See.2(b- T.RA.9194). Te aE Tami, Cabrera, Antone, Diaz Denesta, hia, Encarnacion, Orjalo, el Rosario, Martinez Page”San Beda College of Law 2016 CENTRALIZED BAR OPERATIONS LAW ON INTELLECTUAL PROPERTY 22, Contusion of Goods/ Services v. Confusion of Business/ Origin ‘Confusion of Goods / Services Confusion of Business/ Ovgin xsls when the ordinary prudent | Bits when one pariy’s produc! or Purchaser would be induced to purchase _| service though different trom that of fone product of service because of the | another, Is such os might reasonably be similarity of the marks or trade noes | assumed 10 ofiginate from the latter used on the same kind of product or | and the public would then be service, deceived info the belief that there Is some connection between the parties, which in fact is absent. Confuiingly smilar marks are weed on the | Confusingly similar marks are employed same kinds of goods/services. in different. or non-competing E goods SPECIAL COMMERCIAL LAWS 23, nevocable Letter of Credit {An irevocable letler of credit cannot, is one which during its ifelime, be cancelled fof modified Without the express perrission of the beneficiary and the applicant [Philippine Virginia Tobacco Administration v. Judge Delos Santos, GR. No. |-27829, ‘August 19, 1988). 24, ttevocable Letter of Credit vs. Confirmed letter of Credit ompared to confirmed letler of credit which pertains to the kind of obligation ‘assumed by the coresponding bank which is giving absolute assurance fo the beneficiary that It wil underiake isuing bonk’s obligation. an irevocabie letter of credil pertains fo the duration of the leller of credit which the issuing bank cannot revoke Its undertaking without the consent of Iwo other parlies involved (Feat Bank ‘and Trust Company vs CA, G.R. No, 94209, April30, 1991) 25. Guarantee vs Inevocable Letter of Credit The quarantee theory destroys the independence of the bank's responstlty from the contract upon which it was opened and the nature of both contracts is mutualy, in conflict with each other. in contracts of guarantee, the guaranter's obligation is merely collateral and i arises only upon the default of the person primarily fable While In an irevocable letter of credit, the bank undertakes a primary obligation. Thus, on issuing bank In an LOC is not @ guarantor (Melropofian Waterworks and Sewerage System v. Hon, Reynaldo B, Daway, G.R. No. 160732, June 21, 2004) ‘Vilumil Cabrera, Antonio, Diez Denosta, Chua, Encarnacion, Orjalo, Del Rosaria, Man rages