Mercantile Law Reviewer Bar2019docx Compress

MERCANTILE LAW REVIEWER | BAR2019 | Areño
LETTERS OF CREDIT
Letter of Credit
A written instrument whereby the writer
requests or authorizes the addressee to
pay money or deliver goods to a third
person and assumes responsibility for
payment of debt therefor to the addressee.
It shall be:
1. Issued in favor of a definite person
MERCANTILE LAW and not to order (thus, not a
negotiable instrument);
REVIEWER 2. Limited to a fixed and specified
amount or to one or more
Bar Exams 2019 undetermined amount but with
maximum limit stated exactly.
Parties
1. Buyer – procures the letter of
“If you remain in me and my credit and obliges himself to
words remain in you, ask reimburse the issuing bank
whatever you wish, and it will 2. Issuing Bank – the bank issuing
be given to you.” the letter of credit and undertakes
to pay the seller upon receipt of the
(John 15:7) draft and proper documents and to
surrender the documents to the
buyer upon reimbursement; the
liability of the issuing bank is
solidary with the buyer-applicant
3. Seller – in compliance with the
contract of sale, ships the goods to
Sources: the buyer and delivers the
documents of title and draft to the
Pre-Week Reviewer in issuing bank to recover payment
Commercial Law, Ed. 2018 Other Parties:
1. Advising or Notifying Bank
Justice J. Dimampao 2. Confirming Bank
Ella Dumlao-Escalante 3. Paying Bank
4. Negotiating Bank
Reviewer on Commercial Law,
Ed. 2017 Doctrine of Independence
The obligation of the issuing bank to pay
Jose R. Sundiang, Sr the beneficiary does not depend on the
Timoteo B. Aquino fulfillment or non-fulfillment of the
contract supporting the letter of credit.
Jurists Bar Review Lectures
In determining compliance with the letter
Atty. Manuel Riguera
of credit, the bank is obliged to examine
Atty. Sergio M. Ceniza only the shipping documents presented by
Atty. George O. Ortha the seller. It is precluded from determining
whether the main contract of sale has been
Quamto 2018 Doctrines strictly complied with. Banks only deal
with documents and not with goods,
services or obligations to which they
relate. The seller is assured of prompt
payment independent of any breach in the
Sources: Reviewer on Commercial Law 2017, Sundiang & Aguino; Pre-week Reviewer in Commercial Law 1
2018, J. Dimaampao
main contract. This may be invoked by the

seller and the issuing bank.
Fraud Exception Principle Correlate LC with TR

(Exception to the Doctrine of Independence) The bank extends a loan covered by the
When the beneficiary, for purposes of Letter of Credit with the Trust Receipt as
drawing on the credit, fraudulently security for the loan.
presents to the confirming bank, a
document that contain, expressly or by Parties and Obligations:
implication, material representations of 1. Entruster (Bank) – person holding
fact that to his knowledge are untrue or title of the goods, documents or
fraudulent, the bank may be enjoined from instruments subject of a trust
paying the draft. receipt;
2. Entrustee (Borrower) – person
Doctrine of Strict Compliance having or taking possession of
The rule presupposes that the documents goods, documents or instruments
tendered by the seller/beneficiary must under a trust receipt transaction
strictly conform with the terms of the
letter of credit. The bank that accepts a Currency in which a Trust Receipt may
faulty tender of the drafts by the be denominated (Sec. 6)
beneficiary acts at its own risk and may A trust receipt may be denominated in
not later recover from the buyer. Philippine currency or any foreign
currency acceptable and eligible as part of
TRUST RECEIPTS LAW international reserves of the Philippines.
PD No. 115 In case the trust receipts denominated in
foreign currency, payment shall be made
Trust Receipt Transaction in its equivalent in Philippine currency
Any transaction by and between the computed at the prevailing exchange rate:
entruster (bank) and the entrustee 1. On the date the proceeds of sale of
(borrower), whereby the entruster, who the goods are turned over to the
owns or hold security interests over entruster; or
certain specified goods, documents or 2. On the date stipulated in the trust
instruments, releases the same to the receipt.
possession of the entrustee upon the
latter’s execution and delivery to the Nature of Entruster’s Title
entruster of a signed document called a Entruster merely holds security interest
“Trust Receipt.” over the goods subject of the trust receipt
agreement. The entruster is made to
Trust Receipt vs. Simple Loan appear as the owner, but only as an
The transactions referred to in relation to artificial expedient, mere legal fiction
trust receipts, mainly involved sales, and If rather than fact because if he was actual
the entruster knew even before the owner, then he should have the right to
execution of the trust receipt that the dispose of the goods which the entruster
goods subject of the trust rreceipt were does not.
never intended by the entrustee for resale
or for the manufacture of items to be sold, Nature of Entrustee’s Title
the agreement is not a trust receipt but a The entrustee is still the owner of the
simple loan. Thus, the entrustee cannot be goods but he cannot mortgage the
held liable for estafa. (Ng v. People) property because he does not have free
disposal of the property. The entrustee
Where the execution of a trust receipt bears the loss of the goods after delivery to
agreement was made after the goods him.
covered by it had been purchased by and
delivered to the entrustee and the latter as Rights of a Purchaser of the goods from
a consequence acquired ownership to the the Entrustee (Sec. 11)
goods, the transaction does not involve a Any purchaser of goods, from an entrustee
trust receipt but a simple loan. (Colinares v. with right to sell, for value and in good
CA) faith, acquires said goods free from the
entruster’s security interest.
2018, J. Dimaampao
Rights of an Entruster (Sec. 7) Application of “Res Perit

1. Entitled to the proceeds from the Domino”/Liability of Entrustee for Loss
sale of the goods released to the (Sec. 10)
extent of the amount owing to him The risk of loss shall be borne by the
or as appears in the trust receipt; or entrustee. Loss of the goods, documents or
2. Return of the goods in case of non- instruments that are subject of a trust
sale; and receipt, pending their disposition,
3. Enforcement of all other rights irrespective of whether or not it was due
conferred on him in the trust to the fault or negligence of the entrustee,
receipt shall not extinguish his obligation to the
4. Cancel the trust and take entruster for the value thereof.
possession of the goods at any time
upon default or failure of the Novation of the Agreement
entrustee to comply with any of the The SC held that a Memorandum of
terms and conditions of the trust Agreement entered by the bank and the
receipt and may, on or after default, borrower extinguished the obligation
give notice to the entrustee of the under the existing trust receipt because
intention to sell the agreement did not only reschedule the
debts of the entrustee but it provided
Remedies of the Entruster: principal conditions which are
1. If goods are sold or disposed and incompatible with the trust agreement.
the entrustee did not remit the
proceeds: Penalty (Sec. 13)
a. File an estafa case Failure of the entrustee to turn over the
b. File a separate case to collect goods or to return the goods in case of non-
the proceeds sale shall constitute the crime of estafa. If
2. If goods are unsold and are still in the violation was committed by a
the entrustee’s possession: corporation partnership, association or
a. Cancel the trust and take other juridical entities, the penalty shall be
possession of the goods imposed upon the directors, officers,
b. After taking possession, sell the employees or other officials or persons
goods and apply the proceeds of therein responsible for the offense,
the sale to the expenses of sale without prejudice to the civil liabilities
c. File a case to collect arising from the criminal offense.
indebtedness secured by the
trust receipt (alternative to Lack of intent to defraud is immaterial. The
retaking and sale) mere failure to account or to return gives
rise to the crime which is malum
Obligations of the Entrustee (Sec. 9) prohibitum.
1. Hold the goods in trust and dispose
of them in accordance with the WAREHOUSMAN RECEIPTS LAWS
agreement Act No. 2137
2. Receive the proceeds in trust and
turn over the same to the entruster Non-negotiable Warehouse Receipt
to the extent of the amount owing (Sec. 4)
to him or as appears on the trust A receipt in which it is stated that the
receipt goods received will be delivered to the
3. Insure the goods for their total depositor or to any other specified person.
value against loss Failure to mark the receipt “non-
4. Keep said goods or proceeds negotiable,” the holder may treat such
separate and capable of receipt as imposing upon the
identification warehouseman the same liabilities he
5. Return the goods in the event of would have incurred had the receipt been
non-sale negotiable. (Sec. 7)
6. Observe all other terms and
conditions of the trust receipt
2018, J. Dimaampao
A non-negotiable warehouse receipt is

transferred through simple assignment.
Negotiable Warehouse Receipt (Sec. 5) NEGOTIABLE INSTRUMENTS LAW

A receipt in which it is stated that the Act No. 2031
goods received will be delivered to the February 3, 1911
bearer or to the order of any person
named in such receipt Negotiable Instrument
A written contract for the payment of
Obligation of Warehouseman to Deliver money which is intended as a substitute
(Sec. 8) for money and passes from one person to
A warehouseman is bound to deliver the another as money, in such a manner as to
goods upon demand made either rby the give a holder in due course the right to
holder of a receipt for the goods or by the hold the instrument free from defenses
depositor; if such demand is accompanied available to prior parties.
with:
1. An offer to satisfy the Functions of a Negotiable Instrument
warehouseman’s lien 1. Substitute for money
2. An offer to surrender the receipt, if 2. A means of creating and
negotiable, with such information transferring credit
as would be necessary for the 3. Medium of exchange
negotiation of the receipt 4. Increases the purchasing medium
3. A readiness and willingness to sign, in circulation
when the goods are delivered, an 5. Evidence of transaction
acknowledgment that they have
been delivered, if such signature is 2 Features of a Negotiable Instrument
requested by the warehouseman. 1. Negotiability – a bill or note may
pass from hand to hand similar to
Warehouseman’s Lien (Sec. 27) money, so as to give the holder in
A warehouseman shall have a lien on due course the right to hold the
goods deposited or on the proceeds instrument and to collect the sum
thereof in his hands, for all lawful charges payable for himself free from
for storage and preservation of goods; also defenses
for all lawful claims for money advanced 2. Accumulation of Secondary
and other charges and expenses in relation Contracts – secondary contracts
to such goods, also for all reasonable are picked up and carried along
charges and expenses for notice, and with them as they are negotiated
advertisements of sale, and for sale of the from one person to another, or in
goods where default had been made in the course of negotiation of a
satisfying the warehouseman’s lien. negotiable instrument, a series of
juridical ties between the parties
Levy or Attachment of Goods thereto arise either by law or by
Goods covered by a negotiable receipt privity; the indorsers become
cannot be attached or levied upon directly secondarily liable to the holder
by the creditor. The creditor must resort to
attaching or levying the receipt itself, not Legal Tender
the goods, while in the possession of the The kind of money that the law compels a
debtor. If it was already negotiated, the creditor to accept in payment of a debt
creditor cannot anymore attach or levy the when tendered by the debtor in the right
goods. (Quamto 2018) amount.
Interpleader Legal Tender Nature of Negotiable

The proper remedy of the warehouseman Instruments
when two or more persons claim title to It is not legal tender. Acceptance of a
the goods. (Quamto 2018) negotiable instrument as payment of a
debt is at the option of the creditor.
Requisites of Negotiability (Sec. 1)

WUOPA
2018, J. Dimaampao
1. It must be in writing and signed by Distinguish Negotiable and Non-

the maker negotiable Instruments
2. It must contain an unconditional NEGOTIABLE NON-
promise or order to pay a sum NEGOTIABLE
certain in money (Sec. 2, 3) Governed by the NIL is applicable
3. It must be payable to order or to NIL only by analogy
bearer (Sec. 8, 9) Transferred by Transferred only
4. It must be payable on demand (Sec. negotiation by assignment
7) or at a fixed or determinable May become a Can never be a
future time (Sec. 4) holder in due holder in due
5. When the instrument is addressed course course but
to a drawee, he must be named or remains to be an
otherwise indicated with assignee
reasonable certainty Acquires rights Transferee merely
better than that of steps into the
“Sum Certain in Money” (Sec. 2) ISSEC transferor shoes of the
The sum payable is a sum certain although transferor
it is to be paid: Personal defenses All defenses are
a. With interest may not be raised available
b. By stated installments against a HDC
c. By stated installments, with a
provision that, upon default in Kinds of Negotiable Instruments
payment of any installment, or 1. Promissory Note (Sec. 184) – an
interest, the whole shall become unconditional promise in writing
due (Acceleration Clause) made by the one person to another,
d. With exchange, whether at a fixed signed by the maker, engaging to
rate or at current rate pay on demand, or at a fixed or
e. With costs of collection or determinable future time, a sum
attorney’s fee, in case payment certain in money
shall not be made at maturity 2. Bill of Exchange (Sec. 126) – an
unconditional order in writing
When promise or order is addressed by one person to
unconditional (Sec. 3) another, signed by the person
An unqualified order or promise to pay is giving it, requiring the person to
unconditional though coupled with: whom it is addressed to pay on
1. An indication of a particular fund demand or at a fixed or
out of which reimbursement is to determinable future time a sum
be made or a particular account to certain in money
be debited with the amount;  Checks (Sec. 185) – a bill of
2. A statement of the transaction exchange drawn on a bank
which gives rise to the instrument payable on demand
 Payment from a Particular Fund - An
order or promise to pay out of a Bills in Set
particular fund is not unconditional One composed of several parts, each part
because, in effect, it is subject to the numbered and containing a reference to
condition that the fund is sufficient. the other parts, the whole of the parts
constituting but one bill.
Determinable Future Time (Sec. 4)
Promise to Pay “when able”, “as soon as I Instances when an Instrument may be
can”, etc. without specification of an treated as a BOE or PN at the option of
absolute date is not negotiable. the holder (Sec. 17e, 130): ASFIA
1. When the instrument is ambiguous
When does Negotiability end (Sec. 47) 2. The drawer and drawee are the
An instrument negotiable in its origin same person
continues to be negotiable until (1) it has 3. Drawee is a fictitious person
been restrictively indorsed or (2) 4. Drawee is a person incapacitated to
discharged by payment or otherwise contract
5. The bill is drawn on a person who
is legally absent
2018, J. Dimaampao
General Rule: Drawer is liable; collecting

PROMISSORY BILL OF bank and drawee bank is absolved from
NOTE EXCHANGE liability.
Unconditional Unconditional Exception: when there is commercial bad
promise order faith whereby the drawee bank acts
Involves 2 parties Involves 3 parties: dishonestly and is a party to the fraudulent
1. Maker 1. Drawer scheme.
2. Payee 2. Drawee
3. Payee Identification of the Drawee (Sec. 1e)
Maker is Drawer is The holder must know to whom he should
primarily liable secondarily liable; present the instrument for acceptance
Acceptor-drawee is and/or payment.
primarily liable
1 presentment Generally, 2 More than 1 Drawees (Sec. 128)
only: presentments: A bill may be addressed to more than 1
1. Payment 1. Acceptance drawee jointly, whether they are partners
2. Payment or not; but not to 2 or more drawees in the
alternative or in succession.
Payable to Order (Sec. 8) SPDMDJSH
Where it is drawn payable to the order of a Negotiation
specified person or to him or his order. It The transfer of an instrument from one
may be drawn payable to the order of: person to another in such a manner as to
1. A payee who is not maker, drawer constitute the transferee a holder thereof
or drawee
2. The drawer or maker NEGOTIATION ASSIGNMENT
3. The drawee Pertains to
Pertains to
4. Two or more payees jointly negotiable contracts in
5. One or more of several payees instruments general
6. The holder of an office for the time transferee is a Transferee is an
being holder assignee
Holder in due Assignee is
Payable to Bearer (Sec. 9) EPF-NO course is subject subject to both
Instrument is payable to bearer when: only to real
real and personal
1. Where it is expressed to be so defenses defenses
payable Holder in due Assignee merely
2. When it is payable to a person course may acquire steps into the
named therein or bearer a better right than a
shoes of the
3. When it is payable to the order of a prior party assignor
fictitious or non-existing person, General indorser Assignor does not
and such fact was known to the warrants the
warrant the
person making it so payable solvency of prior solvency of prior
4. When the name of the payee does parties parties unless
not purport to be the name of any stipulated
person Indorser is not Assignor is liable
5. When the only or last indorsement liable unless there even without
is an indorsement in blank is presentment and notice of dishonor
notice of dishonor
Fictitious-Payee Rule Governed by NIL Governed by Arts.
If an actual, existing and living payee is not 1624-1635 of NCC
the intended recipient of the proceeds of
the check, the payee is considered Methods of Negotiation
“Fictitious” and the check is a bearer 1. Bearer Instrument – negotiated
instrument. The theory is that the maker of by mere delivery
the check knew that the fictitious payee 2. Order Instrument – negotiated by
cannot indorse the instrument so that he indorsement completed by delivery
must have intended it to be negotiated by
mere delivery. INDORSEMENT
Rules on Indorsement:
2018, J. Dimaampao
1. Indorsement of a Bearer
Instrument (Sec. 40) – where an Kinds of Indorsement:
instrument, payable to bearer, is 1. Blank – no indorsee is specified
indorsed specially, it may and done by affixing the indorser’s
nevertheless be further negotiated signature only
by delivery; but any person 2. Special (Sec. 34) – designates the
indorsing specially is liable as indorsee
indorser to only such holders as 3. Qualified (Sec. 38) – constitutes
make title through his the indorser a mere assignor of the
indorsement; applies only to title to the instrument; it may be
originally a bearer instrument made by adding to the indorser’s
(Bearer Instrument is always a signature the words “without
bearer instrument) recourse”; it does not impair the
2. Indorsement must be placed: (1) negotiable character of the
on the instrument itself; or (2) a instrument; the purpose is to
separate piece of paper attached to transfer title without guaranteeing
the instrument called “Allonge” payment by the primary party;
(Sec. 31) effect is to merely limit his liability
3. Indorsement must be of the – liable for breach of warranties
entire instrument (exception: under Sec. 65
when there was previous partial 4. Conditional (Sec. 39) – right of the
payment; it may be indorsed as to indorsee is made to depend on the
the residue) happening of a contingent event;
4. Negotiation to 2 or more persons the party required to pay the
severally is not allowed but it may instrument may disregard the
be considered as an assignment condition and make payment to the
5. Transfer without Indorsement – indorsee or his transferee whether
transfer vests in the transferee the condition has been fulfilled or
such title as the transferor had not; but th person who received
(assignment); and the right to have payment will hold the proceeds
the indorsement of the transferor subject to the right of the
(applicable only to order conditional indorser
instruments) 5. Joint – indorsement of instrument
6. Striking out Indorsements – the payable to 2 or more persons; all
holder may at any time strike out must indorse to operate as a
any indorsement, which is not negotiation (exception: (1) payees
necessary to his title; indorsers or indorsees are partners; (2) payee
who are stuck out are relieved from or indorsee has authority to indorse
liability for others)
7. Negotiation by Prior Party (Sec. Example: Pay to X and Y (both
50) – where an instrument is must indorse); Pay to X or Y (any
negotiated back to a prior party, one may indorse)
such party may reissue and further 6. Irregular – a person who, not
negotiate the same; but he is not otherwise a party to an instrument,
entitled to enforce payment thereof places thereon his signature in
against any intervening party to blank before delivery
whom he was personally liable 7. Restrictive (Sec. 36) – when the
When prior party cannot further indorsement either:
negotiate: a. Prohibits further negotiation
a. Payable to the order of a 3rd b. Constitutes the indorsee as the
person and has been paid by the agent of the indorser
drawer c. Vests title in the indorsee in
b. made or accepted for trust for or to the use of some
accommodation and has been other persons
paid by the accommodated  All subsequent indorsees
party acquire only the title of the first
c. in other cases, where the indorsee under the restrictive
instrument is discharged when indorsement (Sec. 37).
acquired by a prior party
2018, J. Dimaampao
Rights of Restrictive Indorsee (Sec. 37) due course, transfers all his rights as
1. To receive payment of the holder to the latter, who thus acquires the
instrument right to enforce the instrument as if he was
2. To bring any action thereon that the holder in due course. (“Holder in due
the indorser could bring course by Subrogation”)
3. To transfer his rights as such
indorsee, where the form of the DEFENSES
indorsement authorizes him to do
so Real or Absolute Defenses
Those that attach to the instrument and
HOLDERS are available against all holders, even a
holder in due course, but only by the party
Holder (Sec. 39, 191) or parties entitled to raise them
The (Order Instrument) payee or
indorsee of a bill or not who is in Personal or Equitable Defenses
possession of it, or the (Bearer Available only against the holder who
Instrument) bearer thereof stands in privy with the party who is
entitled to set it up, or those who do not
Holder for Value have the rights of a holder in due course
One who has given a valuable
consideration for the instrument issued or Real and Personal Defenses
negotiated to him. REAL PERSONAL
3I2M2F2D-WUP 3F2I2C2A-MUN
Holder in Due Course (Sec. 52) 1. Minority 1. Failure or
A holder in due course is a holder who has Absence of
taken the instrument under the following Consideration
conditions: 2. Illegal
1. That it is complete and regular 2. Forgery Consideration
upon its face 3. Incomplete 3. Complete but
2. That he became the holder of it and Undelivered
before it was overdue, and without Undelivered Instrument
notice that it has been previously Instrument
dishonored, if such was the fact 4. Material 4. Conditional
3. That he took it in good faith and for Alteration Delivery of
value Complete
4. That at the time it was negotiated to Instrument
him, he had no notice of any 5. Ultra Vires 5. Ultra vires act
infirmity in the instrument or act of of corporation,
defect in the title of the person Corporation, where the
negotiating it where the corporation has
 Payment to a HIDC discharges the corporation the power to issue
instrument (Sec. 51) is absolutely a negotiable
 A payee may be a holder in due prohibited paper but the
course by charter issuance was no
or statute authorized
Rights of a Holder in Due Course from issuing
A holder in due course holds the any
instrument free from any defect of title of commercial
prior parties, and free from defenses paper
available to prior parties among 6. Fraud in 6. Filling up blank
themselves and may enforce payment of Factum or contrary to
the instrument for the full amount thereof Esse authority or not
against all parties liable thereon. Contractus within reasonable
1. Free from personal defenses time, where
2. Not free from real defenses instrument is
delivered
Shelter Rule (Sec. 58) 7. Illegality 7. Acquisition of
The holder in due course, by negotiating instrument by
the instrument to a party not a holder in
2018, J. Dimaampao
force, duress or 2. Those who ratified the forgery

Intimidation express or implied
8. Duress 8. Fraud in 3. Those who were negligent
amounting inducement Reason: They warrant that the instrument
to Forgery is genuine and in all respects what it
(when purports to be. Acceptors admit the
signature is genuineness of the drawer’s signature.
acquired by
duress) Doctrine of Double Intent
9. Want of 9. Negotiation in Double intent may arise:
Authority of breach of faith 1. The drawer intends to make the
agent note payable to the person before
10. Prescription 10. Mistake him (Physical Payee – first intent)
11. Discharge in 11. Insertion of 2. The drawer intends to make the
Insolvency Wrong Date instrument payable to the person
12. Insanity 12. Ante-dating or whom he believes to be a stranger
Post-dating for (Mental Payee – second intent)
illegal or The first intent controls, per
fraudulent jurisprudence.
purpose Exception:
1. When the payee was already
CONSIDERATION (Personal) (Sec. 24) known to the drawer
Every negotiable instrument is deemed 2. When the payee was particularly
prima facie to have been issued for a identified, described or designated
valuable consideration.
Cut-off Principle
Effect of want of consideration (Sec. 28) In order instrument, parties prior to the
 Absence of Consideration – total forgery are relieved (cut-off) of liability.
lack of any valid consideration for They cannot be held liable by any holder,
the contract including a holder in due course.
 Failure of Consideration – failure However, parties after the forgery are
or refusal of one party to do, liable because they warrant that they have
perform or comply with the good title to the instrument.
consideration agreed upon
Effects when a Bank honors a Forged
FORGERY Check
 Drawee Bank is liable – when the
Forged Signature (Real) (Sec. 23) drawer’s signature is forged
When a signature is forged or made Reason: The bank is bound to
without the authority of the person whose know the signature of its clients
signature it purports to be: and if it pays a forged check, it must
1. Such signature is wholly be considered as making the
inoperative (only the forged payment out of its own funds. The
signature not the whole bank, by accepting the instruments,
instrument) becomes the acceptor who admits
2. No right to retain the instrument or the genuineness of the drawer’s
to give a discharge signature.
3. No right to enforce payment  Drawee Bank is liable – when the
thereof against any party thereto payee’s signature is forged
Exception: Unless the party against whom Reason: The drawee bank owes to
it is sought to enforce such right is the drawer-depositor an absolute
precluded from setting up the forgery or and contractual duty to pay the
want of authority. check only to the person to whom it
is made payable.
Parties precluded from setting up the Exception: When the drawer is
defense of Forgery guilty of negligence, he should bear
1. Those who warrants like indorsers the loss.
and acceptors
2018, J. Dimaampao
 Drawee Bank bears the loss – purpose of transferring the

when the indorser’s signature is property in the instrument
forged c. If in the hands of a holder in due
Reason: The drawee bank is under course, valid delivery by all parties
strict liability to pay the check to prior to him so as to make them
the order of the payee. Payment liable to him is conclusively
under a forged instrument is not to presumed.
the drawer’s order.
Exception: When the drawer is Undated Instrument
guilty of negligence, he must bear The insertion of a wrong date will not
the loss. avoid the instrument in the hands of a
 Collecting Bank may be held subsequent holder in due course; but as to
liable – drawee bank may pass him, the date so inserted is to be regarded
liability to collecting bank when as the true date.
the indorser’s signature is forged
Reason: The collecting bank is an Material Alteration (Real) (Sec. 124,
indorser who warrants the 125)
instrument is genuine and in all Any alteration which changes the effect of
respects what it purports to be . the the instrument as to the:
collecting bank may recover from 1. Date
the forger. 2. Sum payable
3. Time or place of payment
READ AGAIN SUNDIANG-AQUINO 4. Number or relation of the parties
PROBLEMS ON PAGES 40-42 5. Medium or currency of payment
6. Adds a place of payment where
Incomplete but Delivered Instrument none is specified
a. Where the instrument is wanting
any material particular, the person Effect of Material Alteration
in possession thereof has prima When the instrument is material altered
facie authority to complete it by without the assent of all parties liable
filling up the blanks therein. thereon, it is avoided, EXCEPT as against a
b. A signature on a blank paper party who has himself made, authorized or
delivered by the person making the assented to the alteration and subsequent
signature in order that the paper indorsers.
may be converted into a negotiable When in the hands of a holder in due
instrument operates as prima facie course, who is not a party to the
authority to fill it up as such for any alteration, he may enforce payment
amount. thereof according to its original tenor.
c. It must be filled up strictly in
accordance with the authority Fraud in Execution (Fraud in factum or
given and within reasonable time. Fraud in esse contractus) (Real)
When a person is induced to sign an
Incomplete and Undelivered instrument not knowing its character as a
Instrument (Real) note or a bill. The person who signs the
An invalid contract in the hands of any instrument does not know that he is
holder, including a holder in due course. signing a negotiable instrument.
Complete but Undelivered Instrument Fraud in Inducement (Personal)

(Personal) The person who signs the instrument
a. Negotiable Instrument is revocable intends to sign the same as a negotiable
until delivery of the instrument instrument, but was induced to do so only
b. Between immediate parties and through fraud; his consent to issue a
remote parties (not HDC), delivery negotiable instrument was vitiated by
must be made either by or under fraud.
the authority of the party making,
drawing, accepting or indorsing Failure, Absence or Illicit Consideration
and delivery may be shown to have (Personal)
been conditional, or for a special These are only personal defenses.
purpose only and not for the However, with respect to illegality, the
2018, J. Dimaampao
exceptional case when it is a real defense taken, he

is if the statute declares the instrument will pay
void for any purpose. the
 Love and affection is not valuable amount
consideration thereof to
the holder
Minority, Incapacity or Want of or to any
Authority (Real) subsequen
Minority and incapacity may be invoked t indorser
by the minor or incapacitated as a real who may
defense. Other parties who are not be
incapacitate cannot invoke such defense. It compelled
is personal to the minor and incapacitated to pay it.
person. (Sec. 61)
Prescription (Real) QUALIFIED GENERAL ACCOMMO

The prescriptive period for the filing of a INDORSER & INDORSER DATION
claim based on a negotiable instrument is PERSONS PARTY
10 years from the time the cause of action NEGOTIA-
accrued. TING
BY DELIVERY
Liabilities and Warranties of Parties Warranties
MAKER DRAWER ACCEPTOR a. That the a. That the He is liable
Liability instrume instrument on the
Primary Secondary Primary nt is
is genuine instrument
Warranties genuine and in all to a holder
He By drawing He engages and in all respects for value,
engages the that he will respects what it notwithsta
that he instrument, pay it what it purports to nding such
will pay he: according to purports be holder, at
it 1. Admits the the tenor of to be b. That he has the time of
accordi existence his b. That he good title to taking the
ng to its of the acceptance, has good it instrument,
tenor. payee and and admits: title to it
c. That all knew him
his then 1. The c. That all prior parties to be only
He capacity to existence prior had capacity an
admits indorse; of the parties to contract accommod
the 2. Engages, drawer, had d. That the ation party.
existenc that on the capacity instrument (Sec. 29)
e of the due genuinen to is, at the time
payee presentme ess of his contract of his
and his nt, the signature, d. That he indorsement,
then instrumen and his has no
valid and
capacity t will be capacity knowledg subsisting
to accepted and e of any e. That on
indorse. or paid, or authority fact due
(Sec. both, to draw which presentment,
60) according the would it shall be
to its instrume impair accepted or
tenor; nt; the paid, or both,
3. That if it 2. The validity of
according to
be existence the its tenor and
dishonore of the instrume that if it be
d and the payee and nt or
dishonored
necessary his render it and the
proceedin capacity valueless.necessary
g on to proceedings
dishonor indorse. *Warranty of on dishonor
is duly (Sec. 62) persons is duly taken,
2018, J. Dimaampao
negotiating he will pay 1. Presentment must be made by the

by mere the amount holder
delivery thereof to the 2. Must be made at a reasonable time
extends in holder or to on a business date (“reasonable
favor of no any time” has been defined as so much
holder other subsequent time as is necessary under the
than the indorser who circumstances for a reasonable,
immediate may be prudent and diligent man to do,
transferee compelled to conveniently, what the contract or
(Sec. 65) pay it duty requires should be done,
(Sec. 66) having a regard for the rights and
possibility of loss, if any, to the
other party; as to checks – checks
Accommodation Party become stale after more than 6
One who has signed the instrument as months or 180 days
maker, drawer, acceptor or indorser, 3. Must be made at the proper place
without receiving value therefor, and for 4. Must be to the person primarily
the purpose of lending his name to some liable on the instrument, or if he is
other person. absent or inaccessible, to any
 A corporation may not act as an person found at the place where the
accommodation party. The issue or presentment is made
endorsement of negotiable 5. The person entitled to present the
instrument by a corporation instrument for payment must
without consideration and for the exhibit the instrument to the
accommodation of another is Ultra person from whom the payment is
Vires. The corporation incurs no demanded and upon payment must
liability. The officer who signed be delivered to the person paying it.
shall be personally liable.  Drawer is no longer liable to the holder
 Accommodation Party has a right to if presentment and notice of dishonor
recover from the accommodated was made after an unreasonable length
party if the former pays. The of time. However, the drawer may still
relation between the parties is in be liable to the holder if the latter is her
effect that of principal and surety. contracting party. Failure to present the
instrument on time does not totally
Presentment for Payment wipe out all liability based on contract.
General Rule: Presentment for Payment The drawer may not be liable on the
is not necessary to charge persons check but she may be liable on the
primarily liable. It is required only to contract.
charge persons secondarily liable.
Exceptions: Presentment for Acceptance
1. As to the drawer, where he has no Mandatory:
right to expect or require that the 1. Bill is payable after sight, or in any
drawee or acceptor will pay the other case, where presentment for
instrument acceptance is necessary in order to
2. As to the indorser, where the fix the maturity of the instrument
instrument was made or accepted 2. Bill expressly stipulates that it shall
for his accommodation and he has be presented for acceptance
no reason to expect that the 3. Bill is drawn payable elsewhere
instrument will be paid if presented than the residence or place of
3. It may be dispensed with, when: business of the drawee
a. After exercise of reasonable Excused:
diligence, presentment cannot 1. Drawee is dead, absconded or is a
be made fictitious person or a person not
b. Where the drawee is a fictitious having capacity to contract by bill
person 2. After exercise of reasonable
c. By waiver of presentment, diligence, presentment cannot be
express of implied made
Requisites:
2018, J. Dimaampao
3. Although presentment has been and that the acceptance or payment is

irregular, acceptance has been refused.
refused on some other ground
4. When delay is excused – what is Discharge of Negotiable Instrument
excused is the delay in presenting it 1. By payment in due course or by or
for payment caused by on behalf of the principal debtor
presentment for acceptance (Sec. 2. By payment in due course by the
147) party accommodated, where the
instrument is made or accepted for
Acceptance his accommodation
The signification by the drawee of his 3. By the intentional cancellation
assent to the order of the drawer. thereof by the holder
Requisites: 4. By any other act which will
1. Must be in writing discharge a simple contract for
2. Must be signed by the drawee payment of money
3. The drawee must assent to the 5. When the principal debtor
promise to pay in sum certain in becomes the holder of the
money, and not by any other means instrument at or after maturity in
4. Such acceptance must be his own right
communicated to the holder within
24 hours from presentment for Discharge of Parties Secondarily Liable
acceptance. 1. By any act which discharges the
instrument
Right to Unqualified Acceptance 2. By the intentional cancellation of
The holder may refuse to take a qualified his signature by the holder
acceptance and if he does not obtain an 3. By the discharge of a prior party
unqualified acceptance, he may treat the 4. By a valid tender of payment made
bill as dishonored by non-acceptance. by a prior party
Where a qualified acceptance is taken, the 5. By a release of the principal debtor
drawer and indorsers are discharged from unless the holder’s right of
liability on the bill unless they have recourse against he party
expressly or impliedly authorized the secondarily liable is expressly
holder to take a qualified acceptance or reserved
subsequently assent thereto. When the
drawer or indorser receives notice of a CHECKS (Sec. 185)
qualified acceptance, he must, within a A check is a bill of exchange drawn on a
reasonable time, express his dissent to the bank payable on demand.
holder or he will be deemed to have
assented thereto. Acceptance is presumed Kinds:
to be unqualified or absolute. 1. Manager’s/Cashier’s Check – a
bill of exchange drawn by a bank
Notice of Dishonor upon itself and is accepted by its
It is given when the instrument is issuance; it is a primary obligation
dishonored by non-acceptance or non- of the bank
payment. It may be given by the holder or 2. Memorandum Check – like an
his agent, or by or on behalf of any party to ordinary check with the word
the instrument who might be compelled to “memo” on its face signifying that
pay, and who would have a right to the drawer engages to pay the bona
reimbursement from the party to whom fide holder absolutely and not upon
the notice is given. The notice is given to a condition to pay upon
preserve the right of recourse against the presentment at maturity
party liable. It may given orally or in 3. Certified Check – one drawn by a
writing. depositor upon funds to his credit
in a bank which a proper officer of
Protest the bank certifies will be paid when
It is a formal declaration, drawn and duly presented for payment
signed by a notary, that the foreign bill has  Certification is equivalent to
been presented for acceptance or payment acceptance
2018, J. Dimaampao
4. Traveler’s Check – where the BILL OF CHECK

purchaser’s signature must appear EXCHANGE
twice – at the time he buys it and at Drawee need not Drawee is always a
the time he uses it; has the be a bank bank; necessary
characteristics of a cashier’s check that a check is
5. Stale Check – one which has not drawn on a bank
been presented for payment within deposit
a reasonable time after its issue Death of the Death of the drawer,
(according to BSP, checks become drawer, with with knowledge of
stale after 6 months) knowledge of the the bank, revokes
6. Crossed Check bank, does not the authority to pay
a. Generally Crossed – done by revoke the
writing 2 parallel lines authority to pay
diagonally on the left top May be presented Must be presented
portion of the check for payment for payment within
b. Specially Crossed – name of within a a reasonable time
the bank/company appears reasonable time after its issue
between the parallel lines; it after its last
means that payment should be negotiation
made only if with the May be payable Always payable on
intervention of that on demand or at a demand
bank/company fixed or
Effects: determinable
 The check may not be encashed future time
but only deposited in the bank Presentment for Need not be
 The check may be negotiated acceptance may presented for
only once be required acceptance
 Serves as a warning to the
holder that the check has been INSURANCE LAW
issued for a definite purpose so PD 612, as amended by RA No. 10607
that he must inquire if he has
received the check pursuant to Contract of Insurance (Sec. 2)
that purpose An agreement whereby one undertakes,
for a consideration, to indemnify another
Legal Tender Nature of Checks against loss, damage or liability arising
(Sec. 60, RA 7653) from an unknown or contingent event.
Checks do not have legal tender power and
their acceptance in the payment of debts, Doing an insurance business
both public and private, is at the option of A person is doing or transacting an
the creditor; Provided, however, that a insurance business if he performs any of
check which has been cleared and credited the following:
to the account of the creditor shall be a) Making or proposing to make as
equivalent to a delivery to the creditor of insurer, any insurance contract
cash in an amount equal to the amount b) Making or proposing to make, as
credited to his account. surety any contract of suretyship as
a vocation, not as a mere incident to
Iron Clad Rule any other legitimate business of a
Prohibits the countermanding of payment surety
of certified checks. c) Doing any insurance business like
 Payment of manager’s and reinsurance and similar acts
cashier’s checks is not subject to d) Doing or proposing to do any
the condition that payee should business equivalent to the above
comply with his obligations to the
purchaser of the check Bancassurance
 Purchaser of the M/C check has no The presentation and sale to bank
right to have the checks cancelled customers by an insurance company of its
by filing an action for rescission of insurance products within the premises of
its contract with the payee the head office of such bank duly licensed
by the BSP or any of its branches. The bank
2018, J. Dimaampao
itself will not engage in insurance business Elements of Insurance

because it is prohibited under the GBL to 1. Existence of insurable interest
engage in insurance business. 2. Insured is subject to a risk of loss
upon the happening of the
Nature and Characteristics designated peril
a. Risk-Distributing Device – risk of 3. Insurer assumes the risk of loss
economic loss is distributed among 4. Assumption of risk is part of a
a large group or substantial general scheme to distribute actual
number of persons bearing the losses among a large group or
same or similar risks; by paying a substantial number of persons
pre-determined amount into a bearing a similar risk
general fund out of which payment 5. Insured pays a premium which is
will be made for an economic loss his ratable contribution the general
of a defined type, each member insurance fund
contributes to a small degree
toward compensation for losses Perfection of Contract of Insurance
suffered by any member of the Consensual in nature. It is perfected the
group moment there is a meeting of minds.
b. Contract of Adhesion – most of the Cognition Theory
terms of the contract do not result Whereby the contract is perfected only
from mutual negotiations between when the applicant-insured has
the parties as they are prescribed knowledge of the acceptance and approval
by the insurer to which the insured by the insurer of his application. Generally,
may “adhere” if he chooses but the insured is the one making the offer by
which he cannot change (construed submitting an application to the insurer
strictly against the insurer and and the latter accepts the offer by
liberally in favor of the insured) approving the application.
c. Uberrimae Fides Contract –
contracts of utmost good faith; Cover note
insurer’s dominant bargaining It is a temporary insurance coverage. It
position carries with it stricter shall be deemed an insurance contract
responsibility; it requires the subject to the following rules:
parties to disclose conditions 1. Issued or renewed only upon prior
affecting the risk of which he is approval with the IC
aware, or material fact which the 2. Shall be valid and binding not more
applicant knows and those which than 60 days from date of issuance
he ought to know 3. No separate premium, apart from
d. Contract of Indemnity – insured is that paid on the policy, is required
entitled to recover only the amount for the issuance of the cover note
of total loss sustained, and the 4. May be cancelled by either party
burden is upon him to prove the upon prior notice to the other of at
amount of such loss (applicable least 7 days
only to property insurance except 5. The policy should be issued within
creditor insuring the life of the 60 days after the issuance of the
debtor) cover note
e. Synallagmatic – insured and 6. 60-day period may be extended
insurer have reciprocal obligations upon written approval of the IC
of equal value 7. Written approval of the IC may be
f. Aleatory – obligation of the insurer dispensed with upon Certification
to pay the proceeds arises only of the President, VP or GM of the
upon the happening of an event insurer that the risk involved have
which is uncertain or which is to not been determined and the
occur at an indeterminate time extension or renewal is not
g. Personal – the law presumes that contrary to the IC
the insurer considered the personal
qualifications of the insured in Policy
approving the insurance The written instrument where the terms
application and conditions of the contract of insurance
are set forth
2018, J. Dimaampao
both parties and is written on the

Rider face of the policy
An attachment to an insurance policy that 3. Running Policy – contemplates
modifies the conditions of the policy by successive insurances, and
expanding or restricting its benefits or provides that the object of the
excluding certain conditions from the policy may from time to time be
coverage. It is not binding on the insured defined
unless the descriptive title or name thereof
is mentioned and written on the blank Parties to an Insurance Contract
spaced provided in the policy. Insurance is a personal contract and just
like any other contract it takes effect only
Grounds for Cancellation of Non-life between the contracting parties, their
Policy (Sec. 64) heirs, successors and assignees, unless it
1. Non-payment of Premium contains a stipulation in favor of a third
2. Conviction of a crime arising out of person. (Sec. 1311, NCC and Sec. 53, ICP)
acts increasing the hazard insured 1. Insurer – the person who
against undertakes to indemnify another
3. Fraud or material (an individual natural person is no
misrepresentation longer allowed to be an insurer)
4. Willful or reckless acts or 2. Insured – whose loss is the
omissions increasing the risk occasion for the payment of
5. Physical changes in the property insurance proceeds by insurer
insured which result in the (must have capacity and must not
property becoming uninsurable be a public enemy)
6. Determination by the Insurance 3. Assured – the insured is also the
Commissioner that the policy assured when the proceeds are
would violate the Insurance Code payable to him
4. Beneficiary – the third person
Requisites for Valid Cancellation of designated by the insured to
Policy receive the proceeds
1. Prior notice of cancellation, is given
to the insured Beneficiary’s Insurable Interest
2. Notice must be in writing  Life of another – a person insures
3. Notice must be based on any of the the life of another making the
grounds mentioned in Sec. 64, IC proceeds payable to himself, he
4. Upon request of the insured, the must have insurable interest in the
insurer must furnish facts on which life of the person he is insuring
cancellation is based  One’s own life – when one insures
his own life, he may designate any
Types of Insurance Contracts person as his beneficiary, whether
1. Life Insurance or not the beneficiary has insurable
a. Individual interest in the life of the insured
b. Group
c. Industrial Life Limitation on Beneficiaries
2. Non-life Insurance Insured cannot appoint as beneficiary the
a. Property persons who are proscribed to become
b. Fire donees under Art. 739 of the Civil Code:
c. Marine 1. Persons in illicit relations –
d. Casualty adultery or concubinage
3. Microinsurance 2. Guilty of adultery or concubinage
3. Public officer or his wife,
Kinds of Property Insurance Policies descendants or ascendants
1. Open Policy – one whereby the Reason: Life insurance policy is no
value of the thing insured is not different from donation insofar as the
agreed upon but left to the beneficiary is concerned. Both are founded
ascertained at the time of loss on liberality.
2. Valued Policy – one whereby a
definite valuation is agreed upon by Minor as Beneficiary (Sec. 182)
2018, J. Dimaampao
In the absence of a judicial guardian, the 2. Any person on whom he depends

parents of any minor, who is an insured or wholly or in part for education or
beneficiary under an insurance contract, support, or in whom he has a
may exercise, in behalf of said minor, any pecuniary interest
right under the policy, without necessity of 3. Any person under a legal obligation
court authority, where the interest of the to him to pay money, to deliver
minor does not exceed P500,000. property or to render service
(creditor’s interest over the life of
Status of Contract if Beneficiary is the debtor ceases upon fully
disqualified payment)
Policy remains valid. Designation of 4. Any person upon whose life any
beneficiary is void. Proceeds shall be given estate or interest vested in him
to the insured’s estate. depends
Change in Designation of Beneficiary Test to Determine Insurable Interest in

Insured shall have the right to change the Life
beneficiary he designated unless he has Whether the person is interested in the
expressly waived this right in said policy. preservation of the insured life despite the
If he does not change the beneficiary insurance. In #1, relationship is sufficient
during his lifetime, the designation shall be while #2-4 requires pecuniary interest.
deemed irrevocable.
Insurable Interest on Property
Interest of Beneficiary Forfeited Any interest therein or any relation or
Interest of the beneficiary in a life liability in respect thereof, of such nature
insurance policy shall be forfeited when that a contemplated peril might directly
the beneficiary is the principal, damnify the insured. It may consist of:
accomplice, or accessory in willfully 1. An existing interest
bringing about the death of the insured. 2. An inchoate interest founded on an
The forfeited share shall pass to: existing interest
1. Other beneficiaries 3. An expectancy, coupled with an
2. Paid in accordance with policy existing interest in that out of
contract, if there are no which the expectancy arises
beneficiaries
3. Estate of the insured, if the policy is Insurable Interest of the following:
silent  Heir – an heir has no insurable interest
over properties that he will inherit
Revocability of Designation (Sec. 11)  Judgment Debtor – an owner whose
The designation is revocable unless the property was levied upon by a
right to revoke is expressly waived in the judgment creditor, and who lost the
policy. same in an execution sale, retains
insurable interest thereon during the
Irrevocable Designation redemption period
It gives the beneficiary a vested property  Buyer in an Execution Sale – the buyer
right over the policy of which he could not during the auction sale also has an
be deprived without his consent. Thus, the interest over the property subject to the
insured cannot assign the policy. If there is condition that the property will not be
no waiver of right to revoke, assignment of redeemed
the policy is deemed implied revocation.  Debtor insures his life with the
creditor as beneficiary – the insured
Insurable Interest took out an insurance policy over his
It is that interest which the law requires own life, he can designate any person as
the owner of an insurance policy to have in his beneficiary and such beneficiary can
the person or thing insured. recover the full amount not only up to
the amount of his debt to the creditor
Insurable Interest in Life  Carrier – the carrier has insurable
Interest which a person has in his life, or in interest over the goods that are being
the interest which he may have in the lives shipped
and health of:  Lessee – has insurable interest over the
1. Himself, his spouse and children property that is the object of the lease
2018, J. Dimaampao
 Buyer of goods after perfection but beneficiary WON over the thing
before delivery – has insurable he has insurable insured
interest; the perfected contract of sale, interest
even without delivery, vests in the If insures another
vendee an equitable title, an existing person,
interest over the goods sufficient to be beneficiary must
the subject of insurance have insurable
interest over the
Insurable Interest of the Mortgagor and life of the person
Mortgagee - The mortgagor and he insured
mortgagee have separate and distinct Basis
insurable interest in the same mortgaged Expectation of There must be a
property; they may take out separate benefit to be legal basis founded
policies at the same or separate times derived need not upon a valid
 Mortgagor – as owner, limited to have any legal contract or on an
the value of the property basis actual right to the
 Mortgagee – extends only to the thing insured
amount of debt secured; such
interest continues until the Change of Interest in the Thing Insured
mortgage debt is extinguished General Rule: The mere transfer of a thing
Standard Union Mortgage Clause insured before the loss does not transfer
The subsequent acts of the mortgagor the policy but suspends it until the same
cannot affect the rights of the mortgagee person become the owner of both the
Open or Loss Payable Mortgage Clause policy and the thing insured.
The mortgagor does not cease to be a party Exceptions:
to the contract 1. Life and health insurance
2. Change of interest after the
Test to Determine Insurable Interest in occurrence of an injury
Property 3. Change of interest in one or more of
The insured is situated with reference to several things, separately insured
the property that he would suffer a loss by one policy
should it be injured or destroyed by the 4. Change of interest by will or
peril against which it is insured. Pecuniary succession on the death of the
interest over the insured property is insured
always necessary. 5. Transfer of interest by one of
several partners, joint owners, or
Distinguish Insurable Interest in owners in common who are jointly
Property and Life Insurance insured to the other
LIFE INSURANCE PROPERTY 6. Policy is so framed that it will inure
INSURANCE to the benefit of whomsoever,
When it must exist during the continuance of the risk,
When the When the may become the owner of the
insurance takes insurance takes interest insured
effect and when effect and need not  When there is an express prohibition
the loss occurs; it exist at the time of against alienation of the policy, in case
need not exist in loss of alienation, the contract of insurance
the meantime is not merely suspended but avoided.
Extent
Unlimited; except Insurable interest Premium
in the case of a is limited to the It is the consideration paid to an insurer
creditor insuring actual value of the for undertaking to indemnify the insured
the life of his insured’s interest against a specified peril
debtor (limited to thereon
the amount of the Cash-and-Carry Rule
obligation) General Rule: Premium is an essential
Beneficiary’s Interest element for validity. No policy or contract
If it is the insured Must have of insurance is valid and binding unless
himself, he may insurable interest and until premium thereof has been paid.
designate any Exceptions:
2018, J. Dimaampao
1. Life or an Industrial Policy If premiums are paid out of conjugal funds,

2. An acknowledgment in a policy of the proceeds are considered conjugal.
the receipt of premium
3. There is an agreement allowing the Devices to Ascertain and Control Risks
insured to pay premium in and Losses
installments and partial payment 1. Concealment – neglect to
has been made at the time of loss communicate that which a party
4. There is an agreement to grant the knows and ought to communicate
insured credit extension for the 2. Representation – factual
payment of the premium and loss statement made by the insured at
occurs before the expiration of the the time of or prior to the issuance
credit term of the policy to give information to
5. Parties are barred by estoppel the insurer and otherwise induce
him to enter into the insurance
Credit Extensions (Sec. 77) contract
A 90-day credit extension may be given 3. Warranty – statements or
whenever credit extension is given under promises by the insured set forth in
the broker and agency agreements with the policy itself or incorporated in
duly licensed intermediaries. it by proper reference, the untruth
Requisites: or nonfulfillment of which in any
1. Credit extensions must be provided respect, and without reference to
for under broker and agency whether the insurer was in fact
agreements prejudiced by such untruth or
2. Credit extension to a duly licensed nonfulfillment render the policy
intermediary should not exceed 90 voidable by the insurer
days from date of issuance of policy 4. Conditions – insurer may protect
himself against fraudulent claims of
Payment through Post-dated Checks loss and attempts to do by inserting
A postdated check bearing a date prior to in the policy various conditions
the loss, which remains un-encashed at the which take the form of either
time of loss, constitutes valid payment of conditions precedent or
premium. But payment of premium by a subsequent
postdated check with a date subsequent to 5. Exceptions – make more definite
the loss is insufficient to put the insurance the coverage indicated by the
into effect. general description of the risk by
excluding certain specified risks
Insured is entitled to the return of the that otherwise would be included
premium under the general language
1. The thing insured was never describing the risks assumed
exposed to the risk insured against Effect: Injured party is entitled to rescind
2. Contract is voidable due to the the policy
fraud or misrepresentation of
insurer CONCEALMENT
3. Insurer never incurred liability Test of Materiality – determined not by
4. When the insurance is for a definite the event, but solely by the probable and
period and the insured surrenders reasonable influence of the facts upon the
his policy before the termination party to whom communication is due, in
thereof forming his estimate of the disadvantages
5. Contract is voidable of the proposed contract, or in making his
6. There is over insurance inquiries or in fixing the premium rate
 Answers of the applicant, who is
Refusal of Insured to Pay Premiums not a doctor, regarding the medical
If the insured refuses to pay the premiums, history of his wife largely depends
the designated irrevocable beneficiary on opinion rather than fact. Where
may continue the policy by paying matter of opinion or judgment are
premiums that are due. called for, answers made in good
faith and without intent to deceive
Payment of Premiums from Conjugal will not avoid the policy even
Funds though they are untrue
2018, J. Dimaampao
Effect of Concealment (Sec. 27): It 1. Loss occurs before the time of

vitiates the contract and entitles the performance of the warranty
insurer to rescind, even if the death or loss 2. The performance becomes
is due to a cause not related to the unlawful
concealed matter 3. Performance becomes impossible
 The fact that the concealed matter
had no bearing to the cause of death Other Insurance Clause
of the insured is not important A clause which provides that the policy
because it is well-settled that the shall be void if the insured procures
insured need not die of the disease additional insurance without the consent
he had failed to disclose to the of the insurer. The purpose thereof is to
insurer. It is sufficient that his non- prevent over insurance and to avert the
disclosure misled the insurer in possibility of perpetration of fraud.
forming his estimates of the risks of Waiver: Clause may be waived but it must
the proposed insurance policy or in either be express or implied from the
making inquiries conduct and clear intent to waive such
Good Faith is NOT a Defense right
Concealment whether intentional or
unintentional entitles the insurer to Incontestability Clause
rescind the contract of insurance After a policy of life insurance made
Estoppel payable on the death of the insured shall
The insurer may be deemed estopped have been in force during the lifetime of
from raising concealment as a defense if it the insured for a period of 2 years from the
accepts the premium payments and issued date of its issue or of its last reinstatement,
the policy even if the insured already the insurer cannot prove that the policy is
supplied the insurer such facts or void ab initio or is rescindable by reason of
information which could hardly be the fraudulent concealment or
overlooked in the application form misrepresentation of the insured or his
agent. In short, after 2 years, the defenses
REPRESENTATION of concealment or misrepresentation, no
Test of Materiality – determined by the matter how patent or well founded, will no
probable and reasonable influence of the longer lie.
facts on the party on whom Requisites:
communication is due, in forming his 1. Insurance is a life insurance policy
estimate of the contracts, risks and payable on the death of the insured
premium 2. It has been in force during the
Effect of Misrepresentation – injured lifetime of the insured or at least 2
party is entitled to rescind from the time years
when the representation becomes false.  The 2 year period may be shortened but
Estoppel may not be extended by stipulation
The insurer will not be estopped from Defenses not barred by Incontestability
rescinding the policy on the ground of Clause:
misrepresentation even if there has been 1. Person taking the insurance lacked
acceptance of premium. insurable interest
2. Cause of death of the insured is an
Test to determine whether excepted risk
concealment or misrepresentation is 3. Premiums have not been paid
material 4. Conditions of the policy relating to
If it would have definitely affected the military or naval service have been
insurer’s action on the application, either violated
by approving it with the corresponding 5. Fraud is of a particularly vicious
adjustment for a higher premium or type
rejecting the same 6. Beneficiary failed to furnish proof
of death or to comply with any
BREACH OF WARRANTIES condition imposed by the policy
Effect of Breach of Warranty after the loss has happened
It gives the insurer the right to rescind 7. The action was not brought within
Exceptions: the time specified
2018, J. Dimaampao
DOUBLE INSURANCE (Sec. 95) Insurer remains The insurer

Exists where the same person is insured in such capacity becomes the
by several insurers separately in respect to while the insured insured in relation
same subject and interest. It is not in the first to the insurer while
prohibited by law, but it may be prohibited contract is a the original insured
by “other insurance clause.” party-in-interest has no interest
Requisites: in the second whatsoever in the
1. The person insured is the same contract so that reinsurance
2. 2 or more insurers insuring he must give his contract for which
separately consent thereto his consent therein
3. Subject matter is the same is not necessary
4. Interest insured is also the same
5. Risk or peril insured against is READ SUNDIANG-AQUINO PROBLEMS
likewise the same AGAIN ON PAGE 122-123
Effects of Double Insurance and Over-
insurance: LOSS AND CLAIMS
The insured may claim payment from the The insurer is liable if:
insurers in such order as he may select, up 1. The loss, the proximate cause of
to the amount for which the insurers are which is the peril insured against
severally liable under their contracts 2. The loss, the immediate cause of
Nature of Liability of Several Insurers which is the peril insured against
in Double Insurance except where the proximate cause
Each insurer is bound to contribute is an excepted peril
ratably to the loss in proportion to the 3. Loss through negligence of insured
amount for which he is liable under his except where there was gross
contract. The insurers are bound only to negligence amounting to willful act
share the actual loss in the same 4. Loss caused by efforts to rescue the
proportion they share in the total thing from peril insured against – if
premium. during the course of rescue, the
thing is exposed to a peril not
REINSURANCE (Sec. 97) insured against, which
A contract through which the insurer permanently deprives the insured
procures a third person to insure him of its possession, in whole or in part
against loss to liability by reason of the The insurer is NOT liable if:
original insurance. 1. Loss by insured’s willful act or
General Rule: There is no privity between gross negligence
original insured and reinsurer. The 2. Loss due to connivance of the
original insured has no interest in a insured
contract of reinsurance. 3. Loss where the excepted peril is the
Exception: the original insured may be proximate cause
allowed to directly sure the reinsurer if the Liability of Insurer if Insured was
reinsurance policy contains a stipulation Committing a Felony
pour atrui in favor of the original insured. Liabilities arising out of acts of negligence,
which are also criminal, are also insurable
Distinguish Double Insurance from on the ground that such acts are
Reinsurance accidental. But liability consequences of
DOUBLE REINSURANCE deliberate criminal acts are not insurable.
INSURANCE
Insured procures The insurer obtains Prescription of Actions from Insurance
two or more a second insurance Contracts
insurance to protect himself Action arises from a written contract, it
policies involving from a risk that he prescribes in 10 years. However, parties
the same risk and may be held liable may validly agree on a shorter period
the same interest under the first provided it is not less than 1 year from the
insurance time the cause of action accrues. The cause
Same interests Different interests of action accrues from the final rejection of
over a property as the subject is the the claim of the insured and not from the
original insurer’s time of loss.
risk
2018, J. Dimaampao
Principle of Subrogation package contract that includes

Subrogation is the substitution of one transportation to and from the
person in the place of another with resort and the point of departure
reference to a lawful claim or right, so that 3. Pipeline operators in the business
he who is substituted succeeds to the of transporting oil and other
rights of the other in relation to a debt or petroleum products through its
claim, including its remedies or securities. pipes
It attaches upon payment by the insurer of 4. Customs Brokers
the insurance claims of the assured. As 5. Warehouseman
subrogee, the insurer steps into the shoes
of the assured and may exercise only those Private Carrier
rights that the assured may have against One who, without being engaged in the
the wrongdoer who caused the damage. business of carrying as a public
Cases when there is no right of employment, undertakes to deliver goods
subrogation: or passengers for compensation.
1. The insured by his own act releases
the wrongdoer/third person liable Common v. Private Carrier
for the loss Distinction is that if the undertaking is a
2. Where the insurer pays the insured single transaction, not part of a general
for a loss or risk not covered by the business or occupation, although involving
policy the carriage of the goods for a fee, the
3. Life insurance person or corporation is a private carrier.
4. Recovery of loss in excess of
insurance coverage COMMON PRIVATE
Who may employ them
LIFE INSURANCE Holds himself out Agrees in some
Insurance on human life and insurance to all person who special case with
appertaining thereto or connected choose to employ some individual to
therewith which includes every contract him as ready to carry for hire
or undertaking for the payment of carry for hire
endowments or annuities Refusal to enter into
Death of Insured through Suicide Contract of Carriage
The insurer shall be liable in case of suicide Bound to carry for Not bound to carry
by the insured if: all for any reason,
1. Suicide was committed after the unless bound by
policy has been in force for a period contract
of 2 years from date or issue or its Subject to Regulation
last reinstatement, unless if the Subject to It is not subject to
policy provides a shorter period regulation since it regulation
Suicide committed in a state of insanity; is engaged in
insurer is liable regardless of the date of public service
commission of suicide Exemption from Negligence
Cannot stipulate May validly enter
TRANSPORTATION LAW that it is exempt into such
from liability on stipulation
Common Carrier (Art. 1732, NCC) account of
A person engaged in the business of negligence of its
carrying or transporting passengers or employees
goods or both, by land, water, or air, for Degree of Diligence
compensation, offering services to the Extraordinary Diligence of a good
public. One that holds itself out as ready to diligence father of a family
engage in the transportation of goods for
hire as a public employment and not as a Tests to Determine a Common Carrier
casual occupation. 1. Engaged in the business of carrying
goods for others as a public
Examples of Common Carriers employment
1. School bus operator 2. Undertakes to carry goods of the
2. Operator of a beach resort that kind to which his business is
accepts clients by virtue of a tour confined
2018, J. Dimaampao
3. Undertake to carry by the method the possession of, and received by

by which his business is conducted the carrier for transportation until
and over his established routes the same are delivered, actually or
4. Transportation must be fore hire or constructively, by the carrier to the
compensation consignee or to the person who has
the right to receive them. It remains
Presumption of Negligence in force even when they are
1. In case of loss of effect of temporarily unloaded or stored in
passengers or death or injuries to transit unless the shipper or owner
passengers, the common carrier is has made us of the right of stoppage
presumed to be at fault or have in transitu.
acted negligently unless it had 2. Passengers – starts the moment
observed extraordinary diligence the person who purchases the
in the vigilance thereof. ticket from the carrier and presents
2. Mere proof of delivery of the goods himself at the proper place and in a
in good order to a common carrier proper manner to be transported
and their arrival in bad order at until the passenger has, after
their destination (or failure to reaching his destination, safely
transport the passenger safely) alighted from the carrier’s
constitutes a prima facie case of conveyance or has had a
fault or negligence against the reasonable opportunity to leave the
carrier. carrier’s premises.
 It is the duty of the carriers
Defenses of Common Carriers (Exclusive to stop for a reasonable
List) length of time in order to
1. Exercise of extraordinary diligence afford passengers an
and exempting causes opportunity to board and
2. Flood, storm, earthquake or other enter and they are liable for
natural disaster or calamity (fire is injuries suffered by
not considered a natural disaster) boarding passengers
3. Acts of the public enemy in war resulting from the sudden
4. Act or omission of the shipper or starting up or jerking of
owner of the goods their conveyances. (Dangwa
5. Character of the goods or defects in Transportation Co., Inc. v. CA)
packing or containers  A public utility, once it
6. Order or act of competent public stops, is in effect making a
authority continuous offer to riders.
 Contributory negligence will only  A person who, after
mitigate liability. alighting from a train, walks
 Common carriers are not absolved from along the station platform is
liability for acts committed by thieves considered still a
or robbers unless they acted with grave passenger.
or irresistible threat, violence or force
Governing Laws
Delay CONTRACT PRIMARY SUPPLET
In the absence of special contract, a carrier LAW ORY LAW
is not an insurer against delay in the Land Transportation
transportation of goods. Effects of delay: Common NCC Code of
1. Excusable delay merely suspends Commerce
and does not terminate the contract Private Code of NCC
2. Carrier shall be made liable Commerce
3. Duty to bound to exercise Object NCC
extraordinary diligence Air Transportation
4. Natural disaster shall not free the PH is NCC Code of
carrier from responsibility destination Commerce
PH is only Treaties, NCC
Duration of Liability one of the Int’l Agmts,
1. Goods – starts from the time the itineraries Warsaw
goods are unconditionally placed in Water Transportation
2018, J. Dimaampao
Coastwise NCC Code of exemption or degree less than

(Interisland) Commerce ordinary
PH is NCC Code of Requisites:
destination Commerce a. In writing, signed by both
/COGSA parties
Foreign port Law of the b. Supported by valuable
is country of consideration other than the
destination destination service of the common carrier
c. Stipulation must be reasonable,
Liability for: just and not contrary to law
 Willful Acts of Employees - liable 2. Carriage of Passengers –
for death or injuries to passengers responsibility cannot be dispensed
through the negligence or willful with or lessened by stipulation;
acts of the former’s employees, rule applies notwithstanding
although they may have acted reduction of fare
beyond the scope of their authority Exception: Stipulation limiting
or in violation of the orders of liability in case of passengers
common carriers carried gratuitously is valid except
 Acts of Employees Not on Duty - for willful acts or gross negligence
not liable for acts of the employee
not on duty or in the line of duty Registered Owner Rule (Primary and
 Willful Acts of other Passengers Vicarious Liability)
and Strangers - liable for injuries The person who is the registered owner of
suffered by a passenger on account a vehicle is liable for any damages caused
of willful acts or negligence of other by the negligent operation of the vehicle
passenger or of strangers if the although the same was already sold or
exercise of diligence of a good conveyed to another person at the time of
father of a family could have the accident. Registered owner is liable to
prevented it the injured party subject to his right of
 Baggages – recourse against the transferee or the
a. if baggage is in custody of the buyer.
carrier (checked-in), liable to Exceptions:
observe extraordinary 1. Stolen vehicles
diligence; 2. Vehicle as driven without his
b. if baggage is in the custody of knowledge or consent
the passenger (hand-carried),
carrier is liable as depositary Vehicles Sold, Encumbered or
provided that (1) notice was Transferred without transferring
given to carrier or to his Registration
employees; and (2) passenger The registered owner cannot exculpate
took the necessary precaution himself from vicarious liability by proving
which the carrier advised for who the supposed transferee or owner is.
care and vigilance (deemed as
necessary deposit; requires Kabit System
merely ordinary diligence) An arrangement whereby a person who
 Operation of Successive Carriers has been granted a certificate of public
– regarded as a single operation; convenience allows other persons who
liability of a mere ticket-issuing own motor vehicles to operate them under
agent remained regardless of the his license, sometimes for a fee or
fact that another airline had percentage of the earning. Recognized as
undertaken to carry the passengers being contrary to public policy and is
to one of their destinations therefore void and inexistent. The
registered owner rule is applicable
Stipulations Reducing Diligence or whenever the persons involved are
Limiting Liability engaged in the kabit system.
1. Carriage of Goods – may agree on Liability
observance of diligence less than The registered owner is directly and
extraordinary but not total primarily liable to the injured party for
damages. The public has the right to
2018, J. Dimaampao
assume that the registered owner is the 6. Attorney’s Fees

actual owner.
Ownership over vehicles Common Carrier’s Insurance Policy
The vehicle should be considered the An insurance against liability, and is a
property of the registered owner and thus, contract between the carrier and the
may be levied upon by the creditors of the insurer under which the insurer pays the
registered operator. carrier, whatever the latter is made to pay
to passengers or their heirs, for injuries or
Boundary System death, in the course of the carriage
A scheme by an operator engaged in
transporting passengers as a common Warsaw Convention
carrier to govern the compensation of the RA No. 9497
driver, that is, the latter’s daily earnings
are remitted to the operator less the Applicability
excess of the boundary which represents Applies to international transportation by
the driver’s compensation. Under this air. There is international transportation
system, the operator exercises supervision when:
and control over the driver. 1. Place of departure and place of
Relationship of Operator and Driver destination are within the
Employer-employee Relationship territories of two contracting states
Liability regardless if there is a break
Registered owner/Operator is liable for 2. Place of departure and place of
injuries or damages caused to passengers destination are within the territory
of a single contracting country if
Concurrent Causes of Action there is an agreed stopping place
 Culpa Contractual – basis of a within a territory subject to the
cause of action of a passenger or sovereignty of another power even
shipper against the common though the power is not a party to
carrier the Convention
Defense: Exercise of Extraordinary
Diligence Air Carrier is liable for damages for:
 Culpa Delictual/Acquiliana – 1. Death, wounding or other bodily
basis of liability on the part of the injury of a passenger if it is caused
driver since he himself has no on board the aircraft or in the
contractual relationship with the course of embarking or
passenger disembarking
 Quasi-Delict – negligence of third 2. Destruction or loss of, or damage
persons concurs with the breach of to, any registered luggage or goods
the carrier (ex. passenger was injured 3. Delay in the transportation by air of
because the carrier collided with another passengers, luggage or goods
vehicle)
Liability: Joint and Severally liable Limit of Liability
(common carrier, his driver and  Carriage of Persons – 250,000
operator of the other vehicle) francs; except: by special contract,
 Tort – extra-contractual negligence parties may agree to a higher limit
Defense: Exercise of diligence of a of liability
good father of a family in the  Carriage of Goods – 250
selection and supervision of his francs/kg; except: special
employees declaration has been made at the
time the package was handed over
Recoverable Damages: to the carrier and has paid a
1. Actual Damages supplementary sum
2. P50,000 for death of a passenger  Object which the passenger
3. Loss of Earning Capacity = life takes charge himself – 5,000
expectancy (x) gross annual income (–)
living expenses
francs/passenger
4. Moral Damages (death of a passenger, Denial of Availment of Limiting
carrier guilty of fraud, tort) Liability – if the damage is caused by
5. Exemplary Damages (when moral willful misconduct or by default on his part
damages are awarded)
2018, J. Dimaampao
or caused by any agent of the carrier acting Who may invoke

within the scope of his employment The shipowner. The charterer cannot
invoke the limited liability rule as a
Jurisdiction defense especially against the shipowner.
Plaintiff may bring an action for damages Abandonment
before the court where: The shipowner or ship agent may exempt
1. Carrier is domiciled themselves from liability by abandoning
2. Carrier has its principal place of the vessel with all her equipment and the
business freight it may have earned during the
3. Carrier has an establishment by voyage. If there is insurance, the vessel
which the contract has been made itself shall be abandoned in favor of the
4. Place of destination insurer.
How Claims are Satisfied
Prescriptive Periods All claims should be collated before they
 Damage to Passenger Baggage – 2 can be satisfied from what remains of the
years insurance proceeds and freightage at the
 Tort – 4 years time of loss. No claimant shall be given
preference. Execution of judgment even
Maritime Law those already final and executory must be
stayed pending completion of all cases
Doctrine of Limited Liability / Real and occasioned by the subject sinking.
Hypothecary Nature
Obligations are secured by the vessel. The Collision
security is real because the obligation Contact of two moving vessels.
follows the vessel. Rule where the liability
of the shipowner or ship agent arising Allision
from the transportation of goods and When one vessel is moving while the other
passengers is limited to their interest in is stationary.
the vessel. Thus, when the vessel, its
appurtenances, freightage, or insurance Rules on Liability
proceeds, if any, are abandoned by the  The vessel at fault shall indemnify
shipowner or ship agent, their liability the damages sustained or losses
would be extinguished. In the same way, if incurred and if both vessels were at
the vessel totally sinks or is a total loss, fault, each shall suffer its own
their liability is likewise extinguished. damages, and both shall be
(“No Vessel, No Liability”) solidarily liable to others for losses
Exceptions: and damages to cargoes.
1. Expenses for repairs contracted  Collision through fortuitous event –
before the vessel is lost each vessel shall bear its own
2. When the injury or death of the damage
passenger is due to the fault of the  Vessels collide through fault of a
shipowner, or the negligence of the third vessel – the third vessel shall
shipowner and the captain be liable for losses and damages
3. Claims of the crew under  Vessel properly anchored collides
Workmen’s Compensation Act with nearby vessels through storm
4. Vessel is insured; the liability of the or force majeure – vessel shall
shipowner or ship agent is limited suffer its own damage or expense
to the extent of the insurance
proceeds Doctrine of Inscrutable Fault
5. Vessel is not abandoned Where fault is established but it cannot be
6. Vessel is not seaworthy determined which of the two vessels were
When Applicable: at fault, both shall be deemed to have been
1. Civil liability for indemnities in at fault.
favor of third persons which arise
from the conduct of the captain in 3 Zones in Collision:
the care of the goods 1. First Zone – time up to the moment
2. Civil liability arising from collisions of collision begins
3. Unpaid wages of the captain and
crew
2018, J. Dimaampao
2. Second Zone – between moment 2. A portion of the vessel or some of

when risk of collision begins until it the cargoes or both are sacrificed
become a practical certainty deliberately for the common safety
3. Third Zone – time when collision is 3. Vessel or cargo is successfully
certain up to the time of impact saved
4. Expenses are incurred after taking
Doctrine of Error in Extremis the formalities under Art 813 and
If a vessel having a right of way suddenly 814 of the Code of Commerce
changes its course during the third zone, in  It is the safety of the property and not of
an effort to avoid an imminent collision the voyage which constitutes the true
due to the fault of another vessel, such act foundation of general average.
may be said to be done in extremis, and
even if wrong cannot create liability on the Particular or Simple Average
part of said vessel with the right of way. All expenses and damages caused to the
vessel or to her cargo which have not
Arrival under Stress inured to the benefit and common profit of
Arrival of the Bessel at the nearest and all persons interested in the vessel and her
most convenient port, if during the voyage cargo.
the vessel cannot continue to trip to the
port of destination due to: Charter Party
1. Lack of provisions A contract by which with the entire ship or
2. Well-founded fear of seizure, some principal part thereof is let by the
privateers or pirates owner to another person for a specified
3. By reason of any accident of the sea period of time or use.
disabling it to navigate Kinds of Charter Parties:
1. Contract of Affreightment –
Maritime Protest involves the use of shipping space
Written statement by the master of a leased by the owner in part or as a
vessel or any authorized officer, attested whole to carry goods for others; the
by proper officer or a notary to the effect ship owner retains possession and
that damages has been suffered by the command and navigation of the
ship. It must be formally lodged within 24 ship, the charterer or freighter
hours upon arrival at the nearest port, merely having use of the space in
failure of which bars recovery for loss of the vessel in return for his payment
damage. of the charter hire
Required when:  Time Charter – for a fixed period
1. Vessel makes an arrival under  Voyage Charter – leased for a
stress single voyage
2. Vessel is shipwrecked 2. Charter by Demise or Bareboat –
3. Vessel has gone through a the whole vessel is let to the
hurricane or the captain believes charterer which transfers to him its
that the cargo has suffered entire command and possession
damages or averages and consequent control over its
4. Maritime collisions navigation, including the master
 Lack of maritime protest will not and crew who are his servants;
prejudice the action to recover damage charterer is treated as owner pro
caused to persons or cargo whose hac vice; common carrier becomes
owners were not on board the vessel at a private carrier
the time of collision.
Loan on Bottomry
General Average A loan secured by the shipowner or ship
All damages and expenses which are agent guaranteed by the vessel itself and
deliberately caused in order to save the payable only upon arrival of vessel at
vessel, its cargo, or both at the same time destination
from real and known risk.
Requisites: Loan on Respondentia
1. Common danger to the ship and Loan secured by the owner of the cargo
cargo payable upon safe arrival of cargo at the
destination.
2018, J. Dimaampao
they are incapable of intent; the

CORPORATION LAW directors, officers, employees or
BP 68 other officers responsible for the
offense shall be charged and
Corporation penalized for the crime
It is an artificial being created by operation  Moral Damages – it cannot be
of law having the right of succession and awarded in favor of corporations
the powers, attributes and properties because they do not have feelings
expressly authorized by law or incidental and mental state (exception: a
to its existence. corporation can recover moral
damages if it was the victim of any
Attributes of a Corporation: form of defamation)
1. An artificial being with separate  Nationality – The Control Test is
and distinct personality the primary test.
2. Created by operation of law  Place of Incorporation Test
3. Has the right to succession (Sec. 123) – Generally, the
4. Has the powers, attributes and corporation is considered a
properties conferred by law or national of the country where it
incident to its existence was incorporated regardless of
the nationality of the
ARTIFICIAL BEING WITH SEPARATE incorporators
AND DISTINCT PERSONALITY  Control Test – the nationality
 Properties – entitled to own of a corporation is determined
properties in its own name and its by the nationality of the
properties are not the properties of controlling stockholders
its stockholder, directors and  Foreign Investments Act
officers; the interest of the defines “Philippine National”
stockholders over the properties of as: (1) a corporation organized
the corporation is merely inchoate under Philippine laws of which
 Obligations – it can incur 60% of the capital stock
obligations and its obligations are outstanding and entitled to
not the obligations of its vote is owned and held by
stockholders, directors and officers Filipino citizens; and (2) a
and vice versa corporation organized abroad
 Limited Liability Rule – a and registered as doing
stockholder is personally liable business in the Philippines
for the financial obligations of under the CCP of which 100%
the corporation to the extent of of the capital stock entitled to
his unpaid subscription; the vote belong to Filipinos
unpaid subscriptions are assets  Grandfather Rule – the
of the corporation in the form method of determining the
of “receivables” that can be nationality of a corporation
made to answer for corporate which owns shares in another
obligations corporation by breaking down
 Rights – rights belonging to the the equity structure of the
corporation cannot be invoked by shareholders of the
the stockholders even I the latter corporation. The percentage of
owns substantial majority of the shares held by the second
shares (ex. Tax exemptions on the corporation in the first is
corporation cannot be invoked by multiplied by the latter’s own
its stockholders) Filipino equity and the product
 Torts – it is liable for tort; liable of these percentage is
when the act was committed by the determined to be the ultimate
officer or agent under express Filipino ownership of the
direction or authority from the subsidiary corporation. It
stockholder or members applies if:
 Criminal Liability – cannot be 1. The Filipino equity is less
criminally liable because there is no than 60% of the
law making them criminally liable; outstanding capital of a
2018, J. Dimaampao
corporation that owns corporate entity as to this transaction had

shares in a partly at the time no separate mind, will or
nationalized enterprise – at existence of its own
least 60% must be owned
by Philippine nationals How to Pierce the Veil of Corporate
2. There is an attempt to Fiction
circumvent the 1. Disregarding the separate
nationalization personality of the corporation
requirement or when there 2. By holding the corporate officer
is doubt as to the real liable for the corporate obligation
owners, as in the case 3. By regarding the corporation as an
where there is layering association of persons or in case of
 Corporation Sole – a corporation two corporations, treat them as one
sole has no nationality and hold them liable as such
Doctrine of Separate Juridical CREATED BY OPERATION OF LAW

Personality
A corporate has a personality separate and Concession Theory
distinct from the persons composing it, as A principle in the creation of corporations
well as from any other legal entity to which under which a corporation is an artificial
it may be related. It is not in fact and in creature without any existence until it has
reality a person but the law treats it as received the imprimatur of the State
though it were a person by process of according to law, through the SEC. The life
fiction. It is merely a legal fiction for of the corporation is a concession made by
purposes of convenience and to subserve the State.
the ends of justice.
How Created
Doctrine of Piercing the Veil of 1. General law – private corporations
Corporate Fiction are generally created under the
General Rule: Doctrine of Separate provisions of the CCP
Juridical Personality 2. Special Law – public corporations
Exception: When the veil of corporate are created through special laws
fiction is used in the following (exceptions: GOCCs are private
circumstances, this fiction shall be corporations created under special
disregarded and the individuals laws)
composing it will be treated identically:
1. To defeat public convenience as RIGHT OF SUCCESSION
when the corporate fiction is used It is the capacity to have continuity of
as a vehicle for the evasion of an existence despite the changes on the
existing obligation persons who compose it.
2. To justify a wrong, protect fraud or
defend a crime POWERS, ATTRIBUTES AND
3. In alter ego cases, where a PROPERTIES
corporation is merely a farce since
it is a mere alter ego or business Doctrine of Limited Capacity
conduit of a person, or where the No corporation, under the Code, shall
corporation is so organized and possess or exercise any corporate powers,
controlled and its affairs are so except those conferred by law, its Articles
conducted as to make it merely an of Incorporation, those implied from
instrumentality, agency, conduit or express powers and those as are necessary
adjunct of another corporation or incidental to the exercise of the powers
so conferred. T is limited to express,
Test: implied and incidental powers.
Instrumentality Rule/Control/Alter
Ego CLASSES OF CORPORATIONS
When there is complete domination – not
only of finances, but of policy and business As to Legal Status
practice in respect to the transaction
attacked and must have been such that the
2018, J. Dimaampao
1. De Jure Corporation – corporation All stockholders and members of a

organized in accordance with the corporation including the incorporators
requirements of law who are still stockholders.
2. De Facto Corporation – a
corporation where there exists a Stockholder and Members
flaw in its incorporation; may only Stockholders are persons who hold or own
be attached through a direct shares in a stock corporation while
proceeding by the State (Quo members are those who compose the non-
Warranto) stock corporation
Requisites:  Rule on Foreign Stockholders –
a. The existence of a valid law all stockholders in a corporation
under which it was may be foreigners except in fully or
incorporated partly nationalized corporations
b. An attempt in good faith to  No foreign stockholder is allowed
incorporate (issuance of in the following:
Certificate of Incorporation is a 1. Mass media
minimum requirement of good 2. Retail trade enterprises
faith) 3. Private security agencies
c. Use of corporate powers 4. Small scale mining
5. Utilization of natural resources
Corporation by Estoppel (Sec. 21) 6. Cockpits
A group f persons which holds itself out as 7. Manufacture, repair, stockpiling
a corporation and enters into a contract and distribution of nuclear
with a third person on the strength of such weapons
appearance cannot be permitted to deny 8. Manufacture of fire crackers
its existence in an action under said and other pyrotechnic devices
contract. CCP makes liable as a general
partner only those who assume o act as a Directors and Trustees
corporation knowing it to be without The Board of Directors is the governing
authority. body in a stock corporation while the
Board of Trustees is the governing body in
As to Existence of Stocks: a non-stock corporation. They exercise the
1. Stock Corporation – corporation powers of the corporation
in which capital stock is divided
into shares and is authorized to Corporate Officer
distribute to holders thereof of They are the officers identified as such in
such shares dividends or the CCP, the AoI or the By-Laws
allotments of the surplus profits on
the basis of the shares held (a Promoter
corporation with a statement of A self-constituted organizer who finds an
capital stock but does not intend to enterprise or venture and helps to attract
declare dividends is not a stock investors, forms a corporation and
corporation) launches it in business, all with a view to
2. Non-stock Corporation – a promotion profits
corporation which does not issue  Corporation is not bound by
stocks and does not distribute contract entered into by promoters
dividends to their members before incorporation unless
ratified
COMPONENTS OF A CORPORATION  Promoter is personally liable for
contracts with third persons
Incorporators contracted in behalf of the future
Those mentioned in the articles of corporation if the corporation does
incorporation as originally forming and not ratify the same
composing the corporation, having signed
the articles and acknowledged the same Qualifications of Incorporators and
before a notary public. Directors
INCORPORATORS DIRECTORS/
Corporators MEMBERS
2018, J. Dimaampao
Must be of legal Must be of legal age long as there is a binding subscription

age agreement
Each must own or Must own at least 1
subscribe to at share of the capital Amendment of AOI
least 1 share stock of the  Procedure – Majority vote of D/T +
corporation written assent of stockholders
Trustees must be representing 2/3 of outstanding
members capital or 2/3 of members of non-
Majority must be Majority must be stock corporations
residents residents  Effectivity – upon approval of SEC
Must be at least 5 Must not be or if not acted upon by SEC within 6
but not more than convicted by final months from date of filing provided
15 judgment of an that delay is not attributable to the
offense punishable corporation
by imprisonment for  Accomplished Fact Rule – there
a period exceeding 6 are entries in the AOI that cannot be
months or violation amended because they are
of the CCP accomplished facts. (ex. Names of
committed within 5 incorporators and original
years prior to the directors)
date of his election
or appointment Grounds for Suspension or Cancellation
Must be natural Must possess other of Certificate of Incorporation
persons qualifications stated 1. Fraud in procuring registration
in the by-laws 2. Serious misrepresentation as to
objectives of the corporation
FORMATION OF A CORPORATION 3. Refusal to comply with lawful order
The life of a corporation commences from of the SEC
the issuance of the Certificate of 4. Continuous inoperation for at least
Incorporation by the SEC upon filing of the 5 years
Articles of Incorporation and other 5. Failure to file by-laws within the
documents. required period
6. Failure to file reports
Maximum Term 7. Other similar grounds
A corporation has a maximum term of 50
years. It may be extended for a period not BY-LAWS
exceeding 50 years in any single instance. The rules and regulations or private laws
No extension can be made earlier than 5 enacted by the corporation to regulate,
years prior to the expiration of the term. govern and control its own actions, affairs
and concerns.
Authorized Capital Stock
The amount fixed in the AOI to be Requisites of By-Laws
subscribed and paid by the stockholder of 1. Consistent with the Corporation
the corporation Code, other laws and the Articles of
Incorporation (in case of conflict,
Subscribed Capital law and the AOI prevails over by-
That portion of the authorized capital laws)
stock that is covered by subscription 2. Must not disturb vested rights,
agreements whether fully paid or not impair contract or property rights
of stockholders or members
Paid-up Capital 3. Must be reasonable and not
Portion of the authorized capital stock arbitrary
which has been subscribed and actually 4. Duly approved by the SEC
paid
When to File
Outstanding Capital Stock  Original By-laws
Total shares of stock issued to subscribers 1. May accompany the AOI and
or stockholders, whether or not fully or SEC will approve it together
partially paid except treasury shares so with the AOI
2018, J. Dimaampao
2. File within 1 month from notice d. Amendment or repeal of

of issuance of Certificate of board resolution which
Incorporation; signed by by its terms cannot be
majority stockholders and a amended or repealed
copy must be filed with the SEC e. Distribution of cash
 Amended By-Laws dividends
1. Stockholders + BOD –
Stockholders holding majority Stockholders Vote necessary for
of the outstanding capital stock Exercise of Corporate Powers
+ Majority of the Board Majority of BOD + Majority of
2. Board ONLY as delegated by 2/3 Vote Stockholders
2/3 or outstanding capial stock 1 Extend or shorten Fixing of
or 2/3 of members corporate term compensation
of directors
POWERS OF THE CORPORATION 2 Increase or Adopt, amend
 Express Powers – those expressly decrease capital or repeal the
authorized by the CCP and other stock by-laws (with
laws, and its AOI or Charter Board
 Implied Powers – those that can Approval)
be inferred from or necessary for 3 Incur, create or Election of
the exercise of the express powers increase bonded directors or
 Incidental Powers – those that are indebtedness trustees
incidental to the existence of the 4 Sell, dispose, lease, Fixing the
corporation encumber all or issued price
substantially all of no-par
Ultra Vires Act corporate assets value shares
If the act of the corporation is not one of 5 Deny pre-emptive Filling of
those express, implied or incidental right vacancies in
powers, the act is ultra vires. These are the Board
merely voidable. They may be enforced by 6 Enter into Enter into
performance, ratification, or estoppel. Management management
Contracts if: contract if the
Who may Exercise a. Stockholder 2 instances
The Board of Directors exercises the representing the are absent
powers of the corporation. Generally, the same interest of (with Board
Board alone, without the concurrence of both managing Approval)
the stockholders may exercise the powers. and managed
The stockholders cannot overrule the corporations
directors in its exercise of corporate own or control
powers. more than 1/3 of
total outstanding
Acts not exercised by the Board capital entitled to
1. When there is a Management vote of the
Contract managing
2. The powers of the Board are corporation
delegated by majority vote (of the b. Majority of
Board) to an Executive Committee members of the
(composed of 3 members of the BOD of the
Board and created by the by-laws) managing
 Acts which cannot be corporation also
delegated to an Executive constitute
Committee: majority of the
a. Approval of action members of the
requiring concurrence of BOD of the
stockholders managed
b. Filing of vacancies in the corporation
Board 7 Invest in another
c. Adoption, amendment corporation or
or repeal of by-laws business other than
2018, J. Dimaampao
the primary
purpose Trust Fund Doctrine
8 Declare stock The capital stock, property and other
dividends assets of the corporation are regarded as
9 Amend the Articles equity in trust for the payment of the
of Incorporation corporate creditors. The subscribed
capital stock of the corporation is a trust
DIVIDENDS fund for the payment of the debts of the
corporation which creditors have the right
Who declares dividends to look into to satisfy their credits and
1. Board ONLY – cash or property which the corporation may not dissipate.
dividends Creditors may directly sue stockholders
2. BOD + 2/3 Stockholders - stock for the unpaid subscription.
dividends  Money received for subscription
of increase of authorized capital
Conditions to Declare Dividends stock are not covered by the trust
1. Unrestricted retained earnings fund doctrine prior to the
2. Resolution of the BOD or BOD + SH approval of such increase by the
SEC
Dividend Declaration is Discretionary Exceptions:
upon the Board 1. Amendment of AOI to reduce
The Board may not be compelled to authorized capital stock
declare dividends every year. Dividends 2. Purchase of redeemable shares by
are payable only when there are profits the corporation
earned by the corporation and even if 3. Dissolution and liquidation of the
there are profits, the Board has discretion corporation
to determine whether or not to declare 4. Dividends from investment in
dividends. wasting asset corporation
Exception: Stock corporations are 5. In close corporations, where there
prohibited from retaining surplus profits is a deadlock
in excess of 100% of their paid-in capital. 6. Purchase own shares of stock
Exception to the Exception: Even if 7. Payment of the fair value of the
surplus profits are in excess of 100% of shares of dissenting stockholders
paid in capital, Board may still refuse to Further, a corporation has no legal
declare dividends if: capacity to release an original subscriber
1. Justified by definite corporate from the obligation of paying for his shares
expansion projects or programs to the prejudice of creditors. The creditor
2. Corporation is prohibited under is allowed to maintain an action upon any
any loan agreement with any unpaid subscriptions and thereby steps
financial institution or creditor into the shoes of the corporation for the
without the latter’s consent satisfaction of its debt.
3. Clearly shown that such retention
is necessary under special SALE OF ALL OR SUBSTANTIALLY ALL
circumstances (ex. Reserve for PROPERTIES (Sec. 40)
probable contingencies) Requisites:
1. Approval of majority of the
Unrestricted Retained Earnings directors or trustees
Includes only the accumulated profits and 2. Assent of stockholder representing
gains realized out of the normal and 2/3 of outstanding capital or 2/3 of
continuous operations of the company members
after deducting therefrom distributions of 3. Must comply with the formalities of
stockholders and transfers to capital stock the Bulk Sales Law
or other accounts. It includes not only
earnings realize from the ordinary course Nell Doctrine
of business of the corporation but also Where one corporation sells or otherwise
those arising from transactions not transfers all of its assets to another
associated with but incidental to or corporation, the latter is not liable for the
necessary in keeping the business for debts and liabilities of the transfer, except:
which the corporation was organize.
2018, J. Dimaampao
1. Purchaser expressly or impliedly Requisites for Removal and Filling up

agrees to assume such debts Vacancies in the Board
2. Transaction amounts to a REMOVAL FILLING UP
consolidation or merger of the VACANCY
corporation Vote of stockholders Majority of the
3. Purchasing corporation is merely a holding at least 2/3 Board (if
continuation of the selling of the OCS or vote of remaining
corporation (Business-Enterprise at least 2/3 of directors still
Transfer) members constitute a
4. Transaction is entered into quorum) – cases
fraudulently to escape liability not reserved to
from debts stockholders or
members; applies
DIRECTORS AND OFFICERS only when
director resigns
Qualifications of Directors or Trustees before the
1. Majority must be residents of the expiration of his
Philippines term (Sec. 29)
2. Must not have been convicted by In a meeting held for Stockholders/Me
final judgment of an offense that purpose mbers – vacancy
punishable by imprisonment for a results because of:
period exceeding 6 years or 1. Removal
violation of the CCP, committed 2. Expiration of
within 5 years before the date of his Term
election 3. Other than
3. Must be of legal age removal or
4. Must possess other qualifications expiration of
as may be prescribed by the by- term where
laws BOD does not
5. Must own at least 1 share in the constitute a
capital stock of the corporation quorum
(Stock) or must be a member anymore
thereof (Non-stock) (death,
resignation or
Business Judgment Rule abandonment)
The Board of Directors is vested directly 4. Increase in
with the power and prerogative to manage number of
the corporation. The officer cannot be held directors
personal liable with the corporation, With or without
whether civilly or otherwise, for the cause, except if
consequences of his acts, if he acted for removal is to deprive
and in behalf of the corporation, within the minority
scope of his authority in good faith. representation
which must be for a
Quorum in Board Meetings cause
Majority of the number of directors or
trustees as fixed in the Articles of Hold-Over Directors
Incorporation, unless the AOI or the by- Directors must be replaced by the
laws provide for a greater majority. They stockholders or members in an election
cannot attend or vote by proxy. when their term of office expires.
However, if an election is not held, the
Methods of Voting directors whose term expired can
1. Straight Voting continue to function in a holdover
2. Cumulative Voting – not available capacity.
in non-stock corporations unless
provided in the by-laws Doctrine of Corporate Opportunity
3. Cumulative Voting by Distribution The doctrine disqualifies a director,
trustee, or officer from appropriating for
his personal benefit a transaction or
2018, J. Dimaampao
opportunity that pertains to the 3. Acquires shares from existing

corporation, and which under the duty of shareholders by sale or any other
loyalty he should first bring to the contract or by operation of law
corporation for its use and exploitation. If
he acquires for himself a business Kinds of Subscription Contracts
opportunity belonging to the corporation, 1. Pre-incorporation Subscription
he must account for and refund the profits – entered into before the
which would have otherwise accrued to incorporation and irrevocable for a
the corporation. period of 6 months from date of
Exception: Need not refund the profits if subscription unless all subscribers
his act is ratified by a vote of the consent or if the corporation failed
stockholders owning or representing at to materialize; it cannot be revoked
least 2/3 of the outstanding capital stock after the AOI has been filed with the
SEC
Interlocking Director 2. Post-incorporation Subscription
A director in two or more corporation. A – entered into after incorporation
contract entered between corporation
with interlocking directors shall not be Doctrine of Individuality and
invalidated on this ground alone, except in Indivisibility of Subscription
cases of fraud and provided the contract is A subscription is one, entire and
fair and reasonable. indivisible whole contract even if two or
Substantial Interest – stockholding more shares are covered. The subscriber is
exceed 20% of outstanding capital stock not entitled to the certificate for part or all
of certificates covered until full payment of
Contract entered into by a Corporation the subscription price.
with its Director/ Trustee or Officer
General Rule: Voidable Shares of Stock
Exceptions: (Valid if) Interest or right which an owner has in the
1. Presence of the DTO was not management of the corporation, and its
necessary to constitute a quorum surplus profits, and, on dissolution, in all of
for the meeting its assets remaining after the payment of
2. Vote of the DTO was not necessary his debt.
for approval of the contract
3. Contract is fair and reasonable Classification of Shares (Sec. 6)
 If the first 2 conditions are absent, 1. Common Shares – the most
it may be ratified by a vote of 2/3 of common type of shares which enjoy
the OCS no preference
2. Preferred Shares – par value
Corporate Officers shares which enjoy preference as to
A position must be expressly mentioned in dividends or assets upon
the By-laws in order to be considered as a dissolution as stated in the AOI
corporate office and the person elected to 3. Redeemable Shares – those which
such office a corporate officer. permit the issuing corporation to
redeem or purchase its own shares
STOCKHOLDERS AND SHARES 4. Treasury Shares – shares which
have been earlier issued as fully
Subscription Contract (Sec. 60) paid and have thereafter been
Any contract for the acquisition of acquired by the corporation by
unissued stock in an existing corporation purchase, donation, redemption or
or a corporation still to be formed. It is through some lawful means
considered as such notwithstanding the 5. Par value and no par value
fact that the parties refer to it as purchase shares – par value shares have
or some other contract. nominal value while no-par value
shares are those which do not have
How to become a Shareholder nominal value (no-par value shares
1. Enters into a subscription contract cannot have an issued price of less
with an existing corporation than P5)
2. Purchases treasury shares from the 6. Founders Shares – classified as
corporation such in the AOI which may be given
2018, J. Dimaampao
certain rights and privileges not 4. If not yet represented by a

enjoyed by other. certificate, transfer may be made
7. Escrow Shares – shares subjected by a deed of assignment and
to an agreement by virtue of which recording in the books of the
the shares are deposited by the corporation.
grantor or his agent with a third
person to be held by the latter until Mandamus
the performance of a certain A transfer of shares of stock not recorded
condition in the stock and transfer book of the
corporation is non-existent as far as the
Instances when non-voting shares may corporation is concerned. Without such
vote recording, the transferee may not be
1. Amendment to the AOI regarded by the corporation as one of its
2. Adoption and amendment of By- stockholder and the corporation may
laws legally refuse the issuance of stock
3. Increase or decrease of bonded certificates. Mandamus shall not issue to
indebtedness compel the secretary of the corporation to
4. Increase or decrease of capital make a transfer of the stock on the books
stock of the corporation unless it affirmatively
5. Sale or disposition of all or appears that he has failed or refused to do
substantially all of corporate so upon demand either of the person in
property whose name the stock is registered or of
6. Merger or consolidation of some person holding a power of attorney
corporation for the purpose from the registered owner
7. Investments of funds in another of the stock.
corporation or another business
purpose Prescription on Registration of
8. Corporate dissolution Transfer
The law does not prescribe a period within
Doctrine of Equality of Shares which the registration of the transfer of
Where the AOI do not provide for any shares should be effected. The action to
distinction of the shares of stock, all shares enforce the right does not accrue until
issued by the corporation are presumed to there has been a demand and a refusal
be equal and enjoy the same rights and concerning the transfer.
privileges and are also subject to the same
liabilities. RIGHTS OF STOCKHOLDERS
1. Direct or indirect participation in
Watered Stocks management
Those issued not in exchange for its 2. Voting rights
equivalent either in cash, property, share, 3. Right to remove directors
stock dividends or services; thus, the 4. Proprietary rights
issuance of such stocks are prohibited a. Right to dividends
b. Appraisal right
Certificate of Stock c. Pre-emptive right
The written evidence of the shares of stock d. Right to issuance of stock
but it is not the share itself. It is issued only certificate for fully paid shares
when the full amount of his subscription e. Right to transfer stocks in
together with interest and expenses if due corporate books
has been paid. f. Proportionate participation in
the distribution of assets in
TRANSFER OF SHARES liquidation
5. Right to inspect books and records
How 6. Right to be furnished with financial
1. Delivery of the certificate statements and reports
2. Indorsement by the owner 7. Right to recover stocks unlawfully
3. To be valid to third parties, the sold for delinquent payment of
transfer must be recorded in the subscription
books of the corporation
2018, J. Dimaampao
8. Right to file individual suit, control in the corporation or to retain his

representative suit and derivative equity in the surplus. Whenever capital
suits stock is increased and new shares of stock
are issued, the new issue must be offered
SUITS BY STOCKHOLDERS/MEMBERS first to the stockholders.
Stockholder’s Right to Sue RIGHT TO VOTE

Individ Represen Derivative
ual Suit tative Suit Suit Proxy
Stockhol Suit filed Suit brought by Stockholder and members may vote in
der’s suit by a one or more person or by proxy in all meetings. It must
brought stockholde stockholders/ be in writing, signed by the stockholder or
in his r in his members in the member and filed before the meeting with
own behalf and name and on the corporate secretary. Unless otherwise
name in behalf of behalf of the provided in the proxy, it should be valid
against the other corporation to only for the meeting intended. No proxy
the stockholde redress the shall be valid and effective for a longer
corporat r similarly wrong period than 5 years at any one time.
ion situated committed
and with a against it, or Voting Trust Agreement (Sec. 59)
common protect or A trustee under a voting trust agreement
cause vindicate becomes registered as a stockholder in the
against the corporate corporate books and as such he becomes
corporatio rights when the legal title holder or owner of the shares
n officials of the of stock transferee. He becomes eligible to
corporation run for a position in the Board. Duration
refuse to sue, or shall not exceed 5 years at any one time. If
are the ones to the voting trust, however, was a
be sued, or requirement for a loan agreement, period
have control of may exceed 5 years but shall automatically
the corporation expire upon full payment of the loan.
Requisites of Derivative Suit APPRAISAL RIGHT

Stockholder or member may bring an
action in the name of a corporation or Appraisal Right (Sec. 81)
association, provided that: The right of a stockholder to withdraw
1. Stockholder or member must make from the corporation and demand
a demand upon a corporation to payment of the fair value of this shares
sue following dissent on certain corporate
2. Stockholder or member has acts.
exhausted intra-corporate
remedies Corporate Acts where Appraisal Right
3. Stockholder or member must be may be exercised
such at the time of the 1. Amendment of the AOI which has
objectionable act the effect of hanging or restricting
4. Action must be brought in the name the rights of any stockholder
of the corporation; stockholder or 2. Extension or shortening the term of
member is merely a nominal party corporate existence
5. Suit is not a nuisance or 3. Sale, lease, exchange, transfer,
harassment suit mortgage, pledge or other
6. The corporation is impleaded as disposition of all or substantially all
plaintiff the corporate property
4. Merger or consolidation
Stockholder’s Pre-emptive Right 5. Investment in an enterprise
The right of a stockholder to subscribe to
all issues or disposition of shares of any Procedure for Exercise of Appraisal
class, in proportion to their respective Right
shareholdings so as to enable the 1. Stockholder must dissent against
stockholder to retain his proportionate the proposed corporate action
2018, J. Dimaampao
2. A written demand on the 2. Notice of call – SH are given notice

corporation within 30 days after of the Board Resolution
date of vote; failure to make the 3. If the SH concerned do not pay
demand within such period is within 30 days from the date
deemed a waiver of the appraisal specified in the contract of
right subscription or in the call, all the
3. Voting right and right to receive stocks covered by the subscription
dividends are suspended upon shall be declared delinquent and
making such demand shall be subject to sale under
4. If the proposed action is Section 68
implemented, the corporation shall 4. Notice of delinquency served on the
pay to the stockholder, upon subscribers either personally or
surrender of Certificates of Stock, registered mail and publication in a
the fair value thereof as of the day newspaper of general circulation
prior to the date on which the vote once a week for 2 consecutive
was taken weeks.
5. If within 60 days, the corporate 5. Sale – such number of shares as
action was approved by may be necessary to pay the
stockholders, the withdrawing amount due on subscription, plus
stockholder and the corporation interest and other amounts due,
cannot agree on the fair value of the will be sold at public auction.
shares, it shall be determined and  Highest bidder – the person
appraised by at least 3 offering to pay the full
disinterested persons amount of the balance of the
6. The findings of majority of the subscription and other
appraisers shall be final and the amount that are due for the
award must be paid by the smallest number of shares
corporation within 30 days after or fraction of a share
such award is made
7. No payment shall be made to any RIGHT OF STOCKHOLDER TO INSPECT
dissenting stockholder unless the BOOKS
corporation has unrestricted Requirements:
retained earnings 1. Must be exercised at reasonable
8. Upon payment, the stockholder hours on business days
shall transfer his shares to the 2. Stockholder has not improperly
corporation used any information he secured
through any previous examination
Appraisal Right is Extinguished 3. Demand is made in good faith and
1. Stockholder withdraws his demand for a legitimate purpose
with the corporation’s consent 4. Mandamus is a proper remedy if
2. Corporate action was abandoned the stockholder. Is being
3. The SEC disapproves or determines improperly deprived of his right to
that the stockholder is not entitled inspect.
to appraisal right
4. Non-existence of unrestricted MERGER AND CONSOLIDATION
retained earnings
5. Failure to make a demand within Merger (Sec. 76)
the 30 day period One where a corporation absorbs the
6. Transfer of the shares by dissenting other and remains in existence while the
shareholder others are dissolved
7. Failure to submit the stock
certificate within 10 days from Consolidation (Sec. 76)
demand One where a new corporation is created
and consolidating corporations are
DELINQUENCY SALE extinguished
Procedure
1. Call by the Board is mad whenever Merger or Consolidation does not
required become effective by mere agreement.
The approval of the SEC is required.
2018, J. Dimaampao
any action, suit or proceeding in any

De Facto Merger court or administrative agency.
This is not a merger contemplated under
the CCP. It can be pursued by one Suit Against a Foreign Corporation
corporation acquiring all or substantially Any foreign corporation transacting
all of the properties of another corporation business in the Philippines whether or not
in exchange of shares of stock of the with a license, may be sued
acquiring corporation. The acquiring against/before Philippine courts or
corporation would end up with the administrative tribunals on any valid
business enterprise of the target cause of action recognized under
corporation; whereas, the target Philippine laws.
corporation would end up with basically
its only remaining assets being the shares What constitutes “doing business” in
of stock of the acquiring corporation. the Philippines
A foreign corporation is deemed to be
Effects of Merger or Consolidation doing business in the Philippines if it is
1. The constituent corporations shall continuing the body or substance of the
become a single corporation business or enterprise for which it was
2. The separate existence shall cease organized. It is the intention of the entity
except that of the surviving to continue the body of its business in the
corporation (in merger) or the country
consolidated corporation (in
consolidation) Jurisprudential Tests to Determine
3. The surviving or consolidated Doing Business (Twin Characterization
corporation shall possess all the Test) (Sundiang-Aquino)
rights, privileges, immunities and 1. Substance Test – whether the
powers and shall be subject to all substance of the business or
duties and liabilities of a enterprise for which it was
corporation organized or whether it has
4. All liabilities of the constituents substantially retired from it and
shall pertain to the surviving or the turned it over to a stranger;
consolidated corporation 2. Continuity Test - implies
5. Employment contracts are continuity of commercial dealings
automatically assumed by the and arrangements contemplating
surviving corporation even in the the performance of acts or works or
absence of an express stipulation in the exercise of some functions
the articles of merger. However, normally incident to and in
such rule does not impair the right progressive prosecution of, the
of an employer to terminate the purpose of the enterprise of
employment of the absorbed business for which it was organized
employees for a lawful or
authorized cause or the right of Other Tests (Dimaampao)
such an employee to resign, retire 3. Contract Test – whether the
or sever his employment, whether contract entered into by the foreign
before or after the merger. corporation or by an agent is
consummated or perfected in the
FOREIGN CORPORATION (Sec. 123) Philippines
A corporation formed, organized or 4. Intention Test – whether there is
existing under any law other than those of intention to continue the body of its
the Philippines, and whose laws allow business in the country
Filipino citizens and corporations to do 5. Actual Performance Test –
business in its own country or state. whether there is actual
performance of specific
Suit by a Foreign Corporation commercial acts within the
The foreign corporation transacting territory of the Philippines
business in the Philippines without a
license to do business shall not be Isolated Transactions
permitted to maintain or intervene in If a single or isolated transaction is
incidental and casual transaction, it cannot
2018, J. Dimaampao
qualify as doing business since it lacks the Sale of Shares subject to Registration
element of continuity. However, where a Sale of shares shall commence within 10
single or isolated transaction is not merely business days from the date of effectivity
incidental or casual but indicated the of the registration statement and shall
foreign corporation’s intention to do other continue until the end of the offering
business in the Philippines, said single act period or until the sale is terminated by
or transaction constitutes doing business the Issuer. (Rule 8.1.1.5 SRC-IRR)
in the Philippines.
Cancellation of Registration Statement
“Doing Business” under the Foreign Registration Statement shall be cancelled
Investment Act of 1991 if the sale is not commenced within 10
1. Soliciting orders, service contracts, business days (Rule 8.1.1.5 SRC-IRR)
opening offices
2. Appointing representatives, Exempt Securities (Sec. 9) GFRIB
distributors domiciled in the The following securities may be sold
Philippines or who stay for a period without need of registration:
or period totaling 180 days or more 1. Issued or guaranteed by the
3. Participating in the management, Government, subdivision or
supervision or control of any instrumentalities
domestic business in the 2. Issued or guaranteed by Foreign
Philippines Governments with which the
4. Any act or acts that imply a Philippines maintains diplomatic
continuity of commercial dealings relations
or arrangements, and contemplate 3. Issued by a Receiver or by a Trustee
to some extent the performance of an insolvent approved by the court
acts or works or the exercise of 4. Security under the supervision and
some functions normally incident regulation of the Insurance
to and in progressive prosecution Commission, HLURB or the BIR
of, the purpose and object of its 5. Security issue by a bank except its
organization own shares of stock
The SEC may add to the foregoing class of
Not doing Business securities if it finds that the enforcement of
1. Mere investment as shareholder the Code with respect to such securities is
and exercise of rights as investor not necessary to the public interest and for
2. Having a nominee director or protection of investors.
officer to represent its interest in
the corporation Grounds for Revocation or Rejection of
3. Appointing a representative or Registration of Securities (Sec. 13) IRC
distributor which transact business 1. The issuer:
in its own name and for its own a. Judicially declared insolvent
account b. Violated any of the provisions of
this Code, rules promulgated or
SECURITIES REGULATION CODE order of the Commission
RA No. 8799 c. Has been or is engaged or is
July 19, 2000 about to engage in fraudulent
transactions
Securities d. Made any false or misleading
Shares, participation or interests in a representation of material facts
corporation or in a commercial enterprise e. Failed to comply with any
or profit-making venture and evidenced requirement that the
by a certificate, contract, instrument Commission may impose as a
whether written or electronic in character. condition for registration of
security
Registration Requirement (Sec. 8) 2. Registration Statement is on its face
All securities before being offered for incomplete or inaccurate in any
sale/sold to the public must first be material respect or omits or
registered with the SEC. Information on includes any untrue statement of a
the securities shall be made available to a material fact
prospective purchaser.
2018, J. Dimaampao
3. The issuer, any officer, director or same size, time and price, for
controlling person of the issuer, or the sale or purchase of any such
any underwriter has been security, has or will be entered
convicted, by competent judicial or by or for the same or different
administrative body, upon plea of (but colluding) parties
guilty or otherwise, of an offense c. Market Rigging or Jiggling –
involving moral turpitude and/or by performing similar act
fraud or is enjoined or restrained where there is no change in the
by the Commission for violations of beneficial ownership
securities, commodities and other 2. Other Manipulative Conducts:
related laws a. Painting the Tape
b. Marking the Close
Public Offering Rule (Rule 3.1.17 SRC-IRR) c. Hype and Dump
Any offering of securities to the public or d. Squeezing the Float
to anyone, whether solicited or e. Disseminating false or
unsolicited. misleading information
 Presumption. Any through media or any other
solicitation or means to move the price of a
presentation of security in a direction favorable
securities for sale to a position held or a
through any of the transaction
following modes shall be ---
presumed to be a public
offering: “Put,” “Call,” and “Straddle”
1. Publication in any newspaper 1. “Put” – a transferable option or
or printed reading material offer to deliver a given number of
which is distributed within the shares of stock at a stated price at
Philippines any given time during a stated
2. Presentation in any public or period
commercial place 2. “Call” – transferable option to buy
3. Advertisement or a specified number of shares at a
announcement on radio, stated price
television, electronic 3. “Straddle” – a combination of put
communications, or any other and call
form of communication
4. Distribution and/or making Short Sale
available flyers, brochures or Definition. Short sale includes the
any offering material in a public following:
or commercial place to 1. Any sale of a security which the
prospective purchasers seller does not own
2. Any sale which is consummated by
Prohibitions on Fraud, Manipulation the delivery of a security borrowed
and Insider Trading (Sec. 24) by or for the account of the seller
with the commitment of the seller
Devices and Practices on Manipulation or borrower to return or deliver
of Security Prices said securities or their equivalent
1. To create a false or misleading to the lender on a determined or
appearance of active trading in any determinable future time
listed security traded in an Prohibition. There is no absolute
Exchange or any toerh trading prohibition on short sale except in the
market or “Exchange”: following:
a. Wash Sale – by effecting any 1. Directors, officers or principal
transaction in such security shareholder in securities in which
which involves no change in the he is a director, officer or principal
beneficial ownership thereof shareholder
b. Matched Orders – by entering 2. Whenever the SEC prohibits short
an order or orders for the selling indefinitely or for such
purchase or sale of such period
security with the knowledge the
2018, J. Dimaampao
Insider Tender Offer means a publicly announced

An insider is the: intention by a person acting alone or in
1. Issuer; concert with others to acquire equity
2. Director or officer of, or a person securities of a public company.
controlling the issuer;
3. A person whose special Mandatory Tender Offer
relationship gives him access to 1. Person intends to acquire 15% or
material information about the more of the equity shares of a
issuer or the security that is public company
generally not available to the 2. Person intends to acquire 30% or
public; more of the equity shares of a
4. Government employee or director public company over a period of 12
or officer of an exchange who has months
access to material information 3. Person intends to acquire shares
about an issuer or a security not that would result in ownership of
generally available to the public; more than 50% of the equity shares
5. A person who learns such of a public company
information by a communication
from any of the foregoing insiders. Exemption from Mandatory Tender
Offer
Insider Trading 1. Any purchase of shares from
It is unlawful for an insider to buy or sell unissued capital stock provided
security of the issuer, while in possession that the acquisition will not result
of material information with respect to the to a 50% or more ownership of
issuer or the security, unless: shares
a. The insider proves that the 2. Any purchase of shares from an
information was not gained from increase in authorized capital stock
such relationship 3. Purchase in connection with
b. If the other party selling or buying foreclosure proceedings
from the insider is identified, the 4. Purchases in connection with
insider proves: that he disclosed privatization undertaken by the
the information to the other party, government of the Philippines
or he had reason to believe that the 5. Purchases in connection with
other party is also in possession of corporate rehabilitation under
the information court supervision
Presumption: A purchase or sale of 6. Purchases through an open market
security made by an insider or such at the prevailing market price
insider’s spouse or relatives by affinity or 7. Merger or consolidation
consanguinity within the 2nd degree,
legitimate or common law, shall be Proxy Solicitation
presumed to have been effected while in Any request for proxy or authorization;
possession of material non-public any request to execute or not execute, or to
information if transacted after such revoke, a proxy authorization. The issuer
information came into existence but prior must transmit to every security holder of
to dissemination of such information to the class entitled to vote at least 15 days
the public. Provided, that this prior to the meeting, the following:
presumption shall be rebutted upon 1. Information Statement
showing by the purchaser or seller that he 2. Proxy Form
was not aware of the material non-public 3. Management Report
information at the time of sale or purchase.
BANKING LAWS
Material Information – any fact or
information that may result in a change in GENERAL BANKING ACT OF 2000
the market price or value of the Issuer’s RA No. 8791
securities or may affect investment
decision of the investor Banks (Sec. 3.1)
Banks are entities engaged in the lending
Tender Offer of funds obtained in the form of deposits
from the public (20 or more persons).
2018, J. Dimaampao
They are required to be stock respect to the contents of the box is that of
corporations. bailor and bailee, the bailment being for
hire and mutual benefit. (Sia v. CA, 222 SCRA
Classifications 24)
1. Universal – banks that have
authority to exercise powers of an A stipulation in the contract for the use of
investment house, powers of a safety deposit box relieving the bank of
commercial banks and power to liability is null and void for being contrary
invest in non-allied enterprises to law and public policy. The renting out of
2. Commercial – banks that are given a safety deposit box is not independent
all power necessary to engage in from, but related to or in conjunction with
commercial banking in addition to the bank’s principal function. Thus, the
general corporate powers bank must exercise the same degree of
3. Thrift – include savings and diligence as to money deposits. (CA Agro-
mortgage banks, private Industrial Dev. Corp. v. CA)
development banks and stock
savings and loan associations Basic Functions of Banks
4. Rural – banks created to make 1. Deposit Function
needed credit available and 2. Loan Function
accessible in the rural areas
5. Cooperative – banks primarily Simple Loan
provide financial, banking and Fixed, savings and current deposits of
credit services to cooperative money in banks shall be governed by the
organizations and their members provisions on simple loan. Banks may
6. Islamic – banks whose business accept deposits and make use of the
dealings are subject to the basic money deposited as its own to finance its
rules of Islamic Shari’a various operations, unless such deposit is
7. Other classifications by the MB being held in trust for the depositor. The
relationship between the banks and
Investment Company engaged in depositor is akin to that of a creditor
Banking (depositor) and debtor (bank).
When an investment company loans out
the money of its customers, collects the Right to Compensation
interests, and charges a commission to The bank has the right to compensation. It
both lender and borrower, it is engaged in can set off the deposits with the
banking. (Republic v. Security Credit and indebtedness of the depositor that are due
Acceptance Corp. GR No. L-20583, 23 January and demandable. (Gullas v. PNB)
1967)
Prohibited Acts
Quasi-Banks (Sec. 4) 1. Engage in insurance business
These are entities engaged in the 2. Outsourcing of functions are
borrowing of funds through the issuance, generally prohibited. Ex: A bank
endorsement or assignment with recourse cannot hire another company to
or acceptance of deposit substitute for accept deposits.
purposes of re-lending or purchasing of
receivables and other obligations. They do Degree of Diligence Required of Banks
not accept deposits. Banking business is impressed with public
interest; of paramount importance is the
Deposit Substitutes (Sec. 95, NCBA) trust and confidence of the public in
These are alternative forms of obtaining general in the banking industry.
funds other than from the public, through Consequently, the diligence required of
the issuance, endorsement or acceptance banks is more than that of a good father of
of debt instruments for the purpose of a family. The highest degree of diligence is
relending or purchasing of receivables and expected. (Far East Bank & Trust Company v.
other obligations. Tentmakers Group, Inc.)
Safety Deposit Box Doctrine of Apparent Authority in

Contracts for the use of a safety deposit Banks
box is a special kind of deposit and the The bank is liable for wrongful acts of its
relationship of the parties therto, with officers done in the interests of the bank or
2018, J. Dimaampao
in the course of dealings of the officers in currency deposits; but the law
their representative capacity, but not for requires that necessary measures
acts outside the scope of their authority. be undertaken by the bank to
(Prudential Bank v. CA) record and establish the true
identity of the depositor
Fit and Proper Rule 2. Joint Accounts – may be an
The MB shall prescribe, pass upon and “and/or” account or an “and”
review the qualifications and account
disqualifications of individuals elected or 3. Survivorship Agreement –
appointed bank directors or officers and agreement where co-depositors
disqualify those found unfit. After due agree to permit either of them to
notice to the Board of the bank, the MB withdraw the whole deposit during
may disqualify, suspend or remove any their lifetime and transfer the
bank director or officer who commits or balance to the survivor upon the
omits an act which render him unfit for the death of either one of them
position.
Single Borrower’s Limit
Incorporation The total amount of loan that may be
 5 to 15 directors; 2 are independent. extended to any person, partnership,
An independent director is any association, corporation or other entity
person other than an officer or shall not exceed 25% of the net worth of
employee of the bank. the bank. The basis is the total credit
 Foreigners (natural or juridical) may commitment of the bank to the borrower.
own or control up to 40% of the The total amount of loans may be
voting stock of a domestic bank. increased by 10% of the net worth of such
Percentage of foreign-owned voting bank, provided additional liabilities are
stocks shall be determined by the adequately secured.
citizenship of individual
stockholders in that bank. DOSRI Accounts
Restrictions (not prohibitions) are
Kinds of Deposits imposed on borrowings and security
1. Demand/Current/Checking arrangement by directors, officers and
Deposits – all liabilities of a bank in stockholders of the bank directors,
Philippine currency and are subject officers, stockholders and their related
to payment in legal tender upon interests.
demand by presentation of checks Related Interests:
(a bank, other than universal and 1. Spouse, relative within 1st degree of
commercial banks, cannot accept affinity or consanguinity; relative
demand deposits except upon prior by adoption
approved by the MB) 2. Partnership of which dosri or his
2. Savings – the most common type relative or spouse is a general
and usually evidenced by a partner
passbook (presentation of 3. Co-owner with the dosri or his
passbook is a requirement; the spouse or relative of the property
bank is negligent if it allows the or interest mortgaged to secure the
withdrawal without requiring the loans, except when mortgage
presentation of a passbook) covers only said co-owner’s
3. Time Deposits – an account with a undivided interest
fixed term 4. Corporation, association or firm
4. Negotiable Order of Withdrawal which a dosri or his spouse or
(NOW) Accounts – interest- relative is also a dosri of such
bearing deposit account that corporation
combine the payable on demand 5. Corporations, associations or firms
feature of checks and investment of which any or a group of dosri of
feature of savings accounts. the lending bank and their spouses
or relatives, hold or own at least
Other Accounts: 20% of the subscribed capital of
1. Anonymous Accounts – they are such corporation
prohibited except in foreign
2018, J. Dimaampao
6. Corporation, association or firms 5. Individual Ceilings – limited to an

wholly or majority-owned or amount equivalent to their
controlled by any related entity respective encumbered deposits
7. Corporation, association or firms and book value of their pain-in
which owns or controls directly or capital contribution in the bank
indirectly whether singly or as part Restrictions under Sec. 26, NCBA:
of a group of related interest at 1. DOSRI Borrower shall be required
least 20% subscribed capital of a by the lending bank to waive the
substantial stockholder of the secrecy of his deposits of whatever
lending bank nature in all banks in the
8. Corporation, association or firms Philippines
which has an existing management 2. Accounts are subject to
contract or any similar examination but any information
arrangement with the parent of the obtained from an examination of
lending bank deposits shall be held strictly
Requisites: (Art. 26, NCBA) confidential and may be used by
1. The borrower is a DOSRI of a bank examiners only in an appropriate
2. He applies for a loan or financial legal action
accommodation
3. The loan is from: Foreclosure of Mortgage (Sec. 47)
a. His bank; or Redemption Period. In foreclosure of
b. A bank that is a subsidiary of a mortgage on real estate which is a security
bank holding company of which for the loan granted by the bank, the
both his bank and lending bank redemption period is:
are subsidiaries; or 1. Natural Person – 1 year from date
c. A bank in which the controlling of registration of certificate of sale
proportion of the shares is with the RD
owned by the same interest that 2. Juridical Person – 3 months from
owns the controlling foreclosure or before the
proportion of the shares of his registration of certificate of
bank foreclosure sale with RD,
d. The loan is in excess of 5% of whichever is earlier
the capital and surplus of the Redemption Price. Redemption may be
lending bank or in the exercised by paying the amount due under
maximum amount permitted by the mortgage deed, with interest thereon
law, whichever is lower at a rate specified in the mortgage, and all
Restrictions under the GBL: costs and expenses incurred by the bank
1. Procedural Requirements – the from sale and custody of the property.
account should be upon written Possession. The purchaser at the auction
approval of the majority of all sale whether judicial or extrajudicial shall
directors of the lending bank have the right to enter upon and take
excluding the director concerned possession of such property immediately
2. Arms Length Rule – upon terms after the date of the confirmation of the
not less favorable to the bank than auction sale.
those offered to others Injunction and Bond. Any petition in
3. Reportorial Requirements – court to enjoin or restrain the conduct of
resolution approving the loan shall foreclosure shall be given due course only
be entered in the records of the upon the filing by the petitioner of a bond
bank and a copy of the entry shall in an amount fixed by the court.
be submitted to the BSP
4. Aggregate Ceilings – MB may THE NEW CENTRAL BANK ACT
regulate the amount of loans, RA No. 7653, amended by RA No. 11211
accommodation and guarantees
that may be extended by a bank to Banko Sentral ng Pilipinas (BSP)
its DOSRI; the aggregate is 15% of  The central monetary authority of
the total loan portfolio of the bank the State
or 100% of the combined capital  Primary objective is to maintain
accounts whichever is lower price stability and the convertability
of the peso
2018, J. Dimaampao
 Has supervision over operations of Perfected Contracts during

all banks Conservatorship. The conservator may
 Exercise regulatory powers over not revoke a contract already perfected
non-bank institutions performing and enforceable at the time he was
quasi-banking functions appointed the only remedy is to file a case
 Sole power and authority to issue to revoke or nullify the contract.
currency within the territory of the Termination. When the MB is satisfied
Philippines that the bank can continue to operate on
 Power to investigate, make arrests its own. Otherwise, the bank shall be
and conduct searches and seizure placed under receivership.
 Acts as the banker of the government
 Acts as the financial advisor of the Receivership (Sec. 30)
government A bank may be placed under receivership
once the MB finds that:
Monetary Board 1. It is unable to pay its liabilities as
The powers of the BSP are exercised they fall due in the ordinary course
through the Monetary Board. of business
2. It has insufficient realizable assets
BSP as a “Lender of Last Resort” to meet its liabilities
The Central Bank is referred to as a 3. It cannot continue in business
“Lender of Last Resort” because it is a without involving probable losses
provider of emergency liquidity financing, to its depositors or creditors
pursuant to their function to achieve 4. It has violated a final cease and
monetary stability, maintain financial desist order that has become final
stability, and to provide financial support involving acts amounting to fraud
for their own government. or dissipation of assets
Duration. The bank may be placed under
Thus, the BSP may grant emergency loans receivership for a maximum period of 90
or advances in 2 instances: days from takeover. The receiver shall
1. Emergency or imminent financial determine within 90 days whether the
panic bank may still be rehabilitated or
2. Precarious financial conditions or permitted to resume business. If the
serious financial pressures receiver determines that the bank cannot
be rehabilitated or permitted to resume
BSP extends help to Banks in Distress business, the MB shall now proceed to
1. Granting emergency loans in an liquidation.
amount not exceeding 50% of its Duties of a Receiver:
total deposits and deposit 1. Gather and take charge of all the
substitutes assets and liabilities of the
2. Appointing a conservator institution
3. Appointing a receiver and order 2. Exercise the general powers of a
liquidation of the bank receiver under the ROC
3. Receiver may deposit or place the
Conservatorship (Sec. 29) funds in noon-speculative
A bank in distress or quasi-bank shall be investments
placed under conservatorship for a period 4. Receiver shall determine whether
not exceeding 1 year when it is in a state of the institution may be rehabilitated
continuing inability or unwillingness to or placed in a condition so that it
maintain a condition of liquidity deemed may be permitted to resume
adequate to protect the interest of business
depositors and creditors. 5. Receiver shall not pay or commit
Powers of a Conservator: any act that will involve the
1. Take charge and manage the assets transfer or disposition of any asset
and liabilities of the bank of the institution
2. Reorganize the management of the Close-Now-Hear-Later Scheme. No prior
bank hearing is necessary in appointing a
3. Collects all monies and debts due receiver. It is enough that subsequent
4. Exercises all powers to restore financial review is provided for.
viability
2018, J. Dimaampao
Liquidation (Sec. 30) Ground: Grave abuse of discretion as to

Winding up and distribution of assets to amount to lack or excess of jurisdiction
creditors. It is the process of reducing
assets to cash, discharging liabilities and LIQUIDATION FRAMEWORK FOR
dividing surplus or loss. BANKS ACT
Steps to Liquidate a Bank: RA No. 10846
1. Receiver shall file ex parte with the
RTC a petition for assistance in Notice of Closure
liquidation pursuant to a PDIC, as receiver of a closed bank, shall
liquidation plan serve a notice of closure to the highest
2. The court shall adjudicate disputed ranking officer of the bank present in the
claims against the institution, assist bank premises. In the absence of an officer,
the enforcement of individual post the notice in the bank premises or on
liabilities and decide on other its main entrance. Closure is deemed
issues effective upon service of notice of closure.
3. Receiver shall convert assets to Thereafter, the receiver shall take over the
money; dispose of the same to bank and exercise the powers of the
creditors to pay off debts in receiver.
accordance with rules on Modes of Liquidation of a Closed Bank:
preference of credit; institute 1. Conventional Liquidation
actions to collect and recover a. Asset Management and
accounts and assets or defend any Conversion
action against the institution  The receiver shall have the
Assets under Receivership or authority to represent the
Liquidation. They are deemed in custodia closed bank before the
legis in the hands of the receiver and shall appropriate officers;
be exempt from any order of garnishment, conduct physical or ocular
levy, attachment or execution. There will inspection of the properties
be no preference even if the claimant- of the closed bank through
depositor obtained a writ of preliminary bidding or negotiated sale;
attachment. The remedy is to intervene in and engage third parties to
the liquidation proceedings. assist in the liquidation
Effects: b. Petition for Assistance in the
 Banks retain their legal Liquidation of a Closed Bank
personality. The bank  Filed at the RTC having
can sue and be sued but jurisdiction over the
the case shall be principal office of the
initiated and prosecuted receiver
through the liquidator  Must aver the concomitant
 BSP may forbid the bank right of its creditors and the
from doing business order of payment of their
 An insolvent bank closed valid claims in the
by the BSP is not liable to disposition of its assets
pay interests on c. Winding up
deposits. Interests on  Creditors shall have 6
loans extended by the months from date of
BSP are still demandable publication of notice of the
approval by the court of the
Judicial Review final asset distribution plan
The actions of the MB taken under Sec. 29 of the closed bank within
or Sec. 30 shall be final and executory and which to claim payment of
may not be restrained or set aside by the principal obligations
court, except on a petition for certiorari. and surplus dividends;
Petition for Certiorari may only be filed by during the 6 month period,
the stockholders of record representing receiver shall hold as
the majority of the capital stock within 10 trustee the assets for said
days from receipt by the Board of the order creditors
directing conservatorship, receivership or 2. Purchase of Assets and
liquidation. Assumption of Liabilities
2018, J. Dimaampao
 Receiver shall the authority 9. Interest Payments – liability of a

to facilitate and implement bank to pay interest on deposits
the purchase of assets of the and all other obligations shall cease
closed bank and assumption
of its liabilities by another Amendments Made:
bank without need of court 1. There is no more 90-day
approval receivership period and the PDIC
 Action of receiver to can proceed directly to liquidation
determine whether bank court
may be subject of a purchase 2. Banks ordered closed by the MB
of assets and assumption of shall no longer be rehabilitated
liabilities transaction shall
be final and executory and LAW ON SECRECY OF BANK DEPOSITS
may not be set aside by the RA No. 1405 & RA No. 6426
court
Effects of Liquidation of a Closed Bank: Purpose
1. Corporate Existence – the bank To protect the confidentiality of bank
shall continue as a body corporate deposits, encourage the people to trust
until the termination of the banks so as to deter private hoarding.
winding-up period
2. Powers and Functions of DSO – Coverage (Sec. 2)
powers, voting rights, functions All deposits (Peso and Foreign) of
and duties, as well as allowances, whatever nature with banks or banking
remuneration and perquisites are institutions in the Philippines, including
terminated upon closure; they shall investments in bonds issued by the
be barred from interfering in any Government of the Philippines and its
way political subdivisions and
3. Assets – deemed in custodial egis instrumentalities are hereby considered
in the hands of the receiver; upon as of an absolutely confidential nature and
motion by the receiver, any may not be examined, inquired into, or
garnishment or attachment shall be looked into by any person government,
lifted or discharged official, bureau or office.
4. Labor Relations – employer-
employee relationships between Scope
the closed bank and its employees What the law prohibits is the disclosure of
shall be deemed terminated upon the amount of the deposit, not the name of
service of notice of closure the holder of the account.
5. Contractual Obligations –
receiver may cancel, terminate, Peso Deposit v. Foreign Deposit
rescind, or repudiate any contract PESO FOREIGN
of the closed bank that is not Prohibited Acts:
necessary for the orderly 1. Bank deposits
liquidation of the bank may not be
6. Pending Actions for or against examined,
the closed bank – upon motion by inquired or
the receiver, they shall be looked into by
suspended for a period not any person,
exceeding 180 days and referred to government
mandatory mediation; except: official, bureau
actions pending before the SC, any or office (camera
court or quasi-judicial body inspection of
7. Final Decisions against the bank deposit
closed bank – shall be stayed records is also
8. Liability for Penalty and not allowed);
Surcharges for Nonpayment of 2. Any official or
Taxes – the closed bank shall not employee of a
be liable banking
institution may
not disclose to
2018, J. Dimaampao
any person currency deposits of an

information American found guilty of
concerning said raping a 12 yr old girl
deposits 2. Those exempt under the Rules on
May be garnished May not be Civil Procedure (Sec. 13, Rule 39)
because the amount garnished,
is not actually attached or PHILIPPINE DEPOSIT INSURANCE
disclosed subject to any CORPORATION ACT
court process RA No. 3591, as amended
Exceptions: Exceptions:
1. Bribery or 1. Waiver/writt Coverage
dereliction of en All deposit liabilities of banks are insured
duty, uocc permission of with the Philippine Deposit Insurance
2. Anti-graft and the depositor Corporation or PDIC
corrupt 2. AMLC seeks
practices, uocc to examine Insured Deposit
3. Money suspicious It is the amount due to any bona fide
deposited is deposits or depositor for legitimate deposits in an
subject to uocc; or even insured bank as of the date of closure
litigated, uocc if without
4. Impeachment, court order, Maximum Deposit Insurance Coverage
uocc when there is Five Hundred Thousand Pesos (P500,000)
5. There is written probable
permission/wai cause of Can the maximum deposit insurance be
ver of the money adjusted? Yes, it may be adjusted in such
depositor or laundering amount, for such a period and/or for such
investor 3. American deposit products, provided, the following
6. AMLA cases, tourist found requisites are complied with:
uocc guilty of 1. MD has determined that there is a
7. Inquiry by the raping a 12 yr condition that threatens the
CIR for purpose old girl and monetary and financial stability of
of determining was held the banking system
gross estate of a liable to pay 2. Adjustments is approved by
deceased P1M; the unanimous vote of the Board of
depositor court allowed PDIC
8. Unexplained the foreign 3. Adjustments are approved by the
wealth under deposit to be President of the Philippines
Anti-graft and examined,
corrupt garnished Splitting of Deposits
Practices Act, and released This occurs whenever a deposit account
uocc to the victim with an outstanding balance of more than
9. Compromise tax (Salvacion v. P500,000 under the name of persons is
liability Central Bank) broken down and transferred to two or
10. Unclaimed more accounts in the name of persons or
Balances Act entities who have no beneficial ownership
(dormant in the transferred deposits within 120
deposits for at days immediately preceding or during a
least 10 years) bank-declared bank holiday or
immediately preceding a closure order
Garnishment issued by the MB. This is a criminal act and
Bank accounts may be garnished by the the deposits are not entitled to any
creditors of the depositor. The amount of insurance payment.
deposit is actually not disclosed and the
intent of the legislature does not cover When payment is made
garnishment. The proceeds of the insurance shall be
Exceptions: paid by the PDIC within 6 months to the
1. Foreign Currency Deposits depositor counted from the filing of the
 Exceptions: SC allowed claim whenever the insured bank is closed.
garnishment of foreign Otherwise, the concerned officer, director
2018, J. Dimaampao
or employee of PDIC is subject to criminal be governed by the rules on co-

liability if there is grave abuse of ownership (exception: work
discretion, gross negligence, bad faith or consists of parts that can be used
malice. separately and author of each part
can be identified)
Claim  Commissioned work – person
The claim must be filed within 3 years who commissioned the work;
from actual takeover by the receiver copyright is owned by the creator
(exception: contrary stipulation)
TRUTH IN LENDING ACT  Employee’s work during course
RA No. 3765 of employment – Employer: if
creation is not a part of his regular
Disclosure Requirement (Sec. 4) duties; Employee: if it is not part of
The law assures full disclosure by his duties
requiring the lender to give the borrower  Audiovisual Work - Producer,
all the details regarding the transaction. Author, Composer, Film Director
Any creditor shall furnish to each person  Addressee – copyright of letters
to whom credit is extended, prior to the (but it cannot be published w/o
consummation of the transaction, a clear consent of writer)
statement in writing setting forth, to the  Pseudonyms and Anonymous
extent applicable and in accordance with Works - Publishers deemed to
the rules and regulations prescribed by the represent authors
Board.
Duration of Copyright
INTELLECTUAL PROPERTY CODE During the lifetime of the author and 50
RA No. 8293 years after his death
Coverage Works covered by Copyright

1. Copyright 1. Literary and artistic works
2. Trademarks and service marks 2. Derivative Works
3. Patents
4. Geographic Indications Works which cannot be covered by
5. Layout Designs of Integrated Copyright
Circuits 1. Any idea, procedure, system,
6. Protection of Undisclosed method or operation, concept,
Information principle, discovery or mere data as
7. Industrial Designs such, even if they are expressed,
explained, illustrated or embodied
COPYRIGHT in a work
2. News of the day
Copyright 3. Any official text of a legislative,
It is the right to literary and artistic works administrative or legal nature, or
which are original intellectual creations in the official translation
the literary and artistic domain protected 4. Any work of the Government of the
from the moment of their creation Philippines
5. Statutes, rules and regulations
When Rights over Copyrights are 6. Speeches, lectures, sermons,
conferred addresses and dissertations,
Rights over copyrights are conferred from pronounced, read or rendered in
the moment of creation. The work is courts of justice, before
deemed created if something original is administrative agencies, in
expressed in a fixed manner. deliberative assemblies and in
meetings of public character
Ownership of Copyright
 One Creator – creator, his heirs or Rights of Copyright Owners
assigns 1. Economic Rights – exclusive right
 Joint Creation – co-authors shall to carry out, authorize or prevent
be the original owners; in the the following:
absence of agreement, rights shall a. Reproduction
2018, J. Dimaampao
b. Dramatization, translation, an independently created computer

adaptation, arrangement, program with other programs may also
transformation constitute fair use.
c. First public distribution of the
original and each copy of the Copyright Infringement or Piracy
work by sale It consists in the doing by any person,
d. Rental of the original or a copy without the consent of the owner of the
of an audiovisual or copyright, of anything the sole right to do
cinematographic work is conferred by statue on the owner of the
e. Public display of original or a copyright. It is a trespass on a private
copy domain owned and occupied by the owner
f. Public performance of the work of the copyright. Copying must produce
g. Other communication to the “injurious effect”
public How Made
2. Moral Rights – 1. Directly commits infringement
a. Right to Paternity and 2. Benefits from the infringing activity
Attribution - require that of another person who commits an
authorship be attributed to him infringement if the person
b. Right to Alteration or benefiting has been given notice of
Withhold Publication – make the infringing activity and has the
any alterations of his work or right and ability to control the
withhold from publication activities of the other person
c. Right to Integrity – object to 3. With knowledge of infringing
any distortion, mutilation or activity, induces, causes or
other modification or materially contributes to the
derogatory action in relation to infringing conduct of another
his work
d. Right to Non-attribution – Substantial Reproduction of a Book
restrain the use of his name The making of 1 or more copies of a work
with respect to any work not of or a sound recording in any manner or
his own creation or in a form. If so much is taken that the value of
distorted version the original is sensibly diminished, or the
 Moral rights may be waived labors of the original author are
through a written instrument substantially and to an injurious extent
appropriated by another, that is sufficient
Fair Use Doctrine in point of law to constitute piracy.
The fair use of a copyrighted work for
criticism, comment, new reporting, Remedies in Copyright Infringement
teaching, including multiple copies for 1. Injunction to restrain infringement
classroom use, scholarship, research and 2. Action for damages and loss of
similar purposes is not copyright profit (Filed within 4 years)
infringement. It is a privilege to use the 3. Issuance of court order to seize,
copyrighted material in a reasonable impound and destroy all infringing
manner without the consent of the copies
copyright owner or as copying the theme 4. Criminal liability
or ideas rather than their expression.
Factors to Consider to Determine Fair TRADEMARKS, SERVICE MARKS AND
Use: TRADE NAMES
1. Purpose and Character of the Use
2. Nature of the copyrighted work Trademark/Service mark
3. Amount and substantiality of the Any visible sign capable of distinguishing
portions used the goods or services of an enterprise an
4. Effect of the use upon the potential shall include a stamped or marked
market of the copyrighted work container of goods
Decompilation Trade name

The reproduction of the code and The name or designation identifying or
translation of the forms of the computer distinguishing an enterprise. There is no
program to achieve the interoperability of
2018, J. Dimaampao
need to register trade names to secure the day the application was first
protection for them. filed in the foreign country. But
there will be no registration in
Trade name refers to the business and the PH until registered in such
its goodwill; trademark refers to the foreign country
goods.
Rights of the Owner of a Trademark
Collective Mark 1. Use of the mark
Any visible sign designated as such in the 2. Prevent third parties from using,
application for registration and capable of without his consent, signs or
distinguishing the origin o any other containers which are identical or
common characteristic, including the similar to the registered trademark
quality of goods or services of different which would result in the
enterprises which use the sign under the likelihood of confusion
control of the registered owner of the 3. Right to the exclusive use of one’s
collective mark. already registered mark even for
goods or services into which one’s
3-fold Purpose: venture expands
1. Indicate origin or ownership
2. Guarantee that those article come Marks that cannot be registered:
up to a certain standard of quality 1. Immoral, deceptive or scandalous
3. Advertise the articles they matter
symbolized 2. Philippine or foreign flag or coat of
arms or other insignia of any
How Marks are Acquired political subdivision
1. Registration in the IPO 3. Name, portrait or signature
 Registration is necessary before identifying a particular living
one can file an action for individual except by his written
infringement consent
 Prior use is not required before 4. Name, portrait or signature of a
registration deceased Philippine President,
 Registrant must file a during the life of his widow, if any,
Declaration of Actual Use with except by written consent of the
evidence to that effect within 3 widow
years from filing date of 5. Mark which is identical with a
application otherwise it will be registered mark or a mark with an
cancelled. earlier filing or priority date
 Declaration of Actual Use or 6. Mark which is identical to a well-
show valid reasons for non-use known mark internationally and in
within 1 year from the 5th the Philippines, whether or not it is
Anniversary date of registration. registered here, and used for
 Certificate of Registration shall identical or similar goods or
be prima facie evidence of the services
validity of registration, 7. Mark, in accordance with #6, which
registrant’s ownership of the is registered in the Philippines with
mark and the registrant’s respect to goods or services which
exclusive right to use the same. are not similar to those with
 Registration not necessary to file respect to which registration is
a case for unfair competition or applied for
false designation of origin. 8. Marks likely to mislead the public
2. Right is acquired from filing date 9. Generic signs
of application 10. Customary signs
 Right may also be protected 11. Characteristics of goods
from priority date. Where the 12. Shapes
application is filed in the PH and 13. Color
the same applicant previously 14. Contrary to public order or
filed an application in countries morality
covered by the Reciprocity Rule,
application is deemed filed as of Limitations
2018, J. Dimaampao
1. Doctrine of Secondary Meaning – 2. Trademark is reproduced,

a generic or descriptive mark may counterfeited, copied, or colorably
later acquire the characteristic of imitated
distinctiveness and can later be 3. The infringing mark is used in
registered if it acquires a meaning connection with the sale, offering
which is different from its ordinary for sale or advertising of any goods,
connotation. There must be business or services; or the
continuous and exclusive use of at infringing mark is applied to labels,
least 5 years. signs, prints, packages, intended to
be used in connection with such
Opposition by Local Owner goods, business or services
The owner of a well-known mark in the 4. Use or application of the mark is
Philippines that is identical with, or likely to cause confusion, mistake
confusingly similar to, although not or to deceive purchasers or others
registered, may oppose the application of 5. Use of application of the mark is
a mark of foreign origin, or petition the without the consent of the
cancellation of its registration or sue for trademark owner or the assignee
unfair competition.
Types of Confusion:
1. Confusion of Goods - The ordinary
Paris Convention for Protection of prudent purchaser would be
Industrial Property induced to purchase one product in
Foreign marks which are not registered in the belief that he was purchasing
the Philippines are still accorded the other.
protection. The Philippines is obligated to 2. Confusion of Business - Though
assure nationals of the signatory-countries the goods of the parties are
that they are afforded an effective different, the defendant’s product
protection against violation of their is such as might reasonably be
intellectual property rights in the assumed to originate with the
Philippines in the same way that their own plaintiff and the public would then
countries are obligated to accord similar be deceived either into that belief
protection to Philippine nationals. or into the belief that there is some
connection between the plaintiff
Term of Trademark and defendant which in fact does
10 years, subject to indefinite renewals of not exist.
10 years each.
Jurisprudential Tests to Determine
Trademark Infringement Likelihood of Confusion or Colorable
When any person shall, without consent of Imitation
the owner of the registered mark: 1. Test of Dominancy (Sec. 155) –
1. Use in commerce focuses on the similarity of the
2. Reproduce, counterfeit, copy or main, prevalent or essential
colorably imitate a registered mark features of the competing
or a dominant feature thereof and trademarks that might cause
apply the same confusion
2. Holistic Test – it considers the
Infringement takes place at the moment entirety of the marks, including
any of the foregoing acts are committed labels and packaging, in
regardless of whether there is actual sale determining confusing similarity.
of goods or services. The likelihood of The focus is not only on the
confusion is the gravamen of the offense of predominant words but also on the
trademark infringement. other features appearing on the
labels
Elements of Trademark Infringement
1. Trademark is registered in the IPO Aural Effect/Idem Sonans Rule
(except infringement of trade The aural effects of the words and letters
name) contained in the marks should be
considered in determining the issue of
confusing similarity
2018, J. Dimaampao
Prior registration is Registration is not

Expansion of Business Rule prerequisite to the necessary
The protection is not limited to guarding action
his goods or business from actual market
competition with identical or similar Theory of Trademark Dilution
products of the parties, but extends to all It is the lessening of the capacity of a
cases in which the use by an appropriator famous mark to identify and distinguish
of a trade mark is likely to lead to goods or services, regardless of the
confusion of source, as where prospective presence or absence of:
purchasers would be misled into thinking 1. Competition between the owner of
that the complaining party has extended the famous mark and other parties
his business into the filed or is any way 2. Likelihood of confusion, mistake or
connected with the activities of the deception
infringer; or when it forestalls the normal
potential expansion of his business. Inter Partes Cases
These are contested cases filed before the
Use of Identical Marks NOT Necessarily IPO. It includes:
Prohibited. 1. Opposition against the registration
The use of identical marks does not, by of a mark published for opposition
itself, lead to a legal conclusion that there 2. Petition to cancel the registration of
is trademark infringement if they are NOT a mark
used for identical, similar or related goods.
PATENTS
Unfair Competition
It is the passing off or attempting to pass Patent
off upon the public of the goods or Any inventive solution of a problem in any
business of one person as the goods or field of human activity which is new,
business of another with the end and involves an inventive step and is
probable effect of deceiving the public. industrially applicable
Elements of Unfair Competition Requisites:

1. Confusing similarity in the general 1. Technical solution of a problem in
appearance of the goods any field of human activity
2. Fraud or intent to deceive the 2. Novel invention
public and defraud a competitor 3. Industrially applicable
Test of Unfair Competition 3-fold Purpose:

Whether the acts of the defendant have the 1. Foster and reward invention
intent of deceiving or are calculated to 2. Promotes disclosures of inventions
deceive the ordinary buyer 3. Ensure that ideas in the public
domain remain for free use of the
“Palming off” or “Passing off” public
Takes place where the defendant, by
imitative devices on the general Term of Patent
appearance of the goods, misleads 20 years from filing date of application
prospective purchasers into buying his  The exclusive right of a patentee to
merchandise under the impression that make, use and sell a patented
they are buying that of his competitors product, article or process exists
only during the term of the patent
Distinctions between Trademark  Upon expiration of the period, the
Infringement and Unfair Competition knowledge of the invention inures
TRADEMARK UNFAIR to the people, who are thus enabled
INFRINGEMENT COMPETITION to practice it and profit by its use
Unauthorized use Passing off of
of trademark one’s goods as Inventions that are not patentable
those of another 1. Discoveries, scientific theories and
Fraudulent intent is Fraudulent intent mathematical methods
not necessary is essential 2. Rules and methods of performing
mental acts, playing games or doing
2018, J. Dimaampao
business, and programs for 2. Where 2 or more applications were

computers filed for the same invention, to the
3. Methods for treatment of human or applicant who has the earliest filing
animal bodies date or, the earliest priority date.
4. Plant varieties or animal breeds or
biological process for production of Doctrine of Right of Priority
plants or animals A patent filed by any person who has
5. Aesthetic creations previously applied for the same invention
6. Anything contrary to public order in another country which by treaty
or morality convention, or law affords similar
7. In case of drugs and medicines, privileges to Filipino citizens, shall be
considered as filed as of the date of filing
Universally Accessible Cheaper and the foreign application, Provided:
Quality Medicines Act of 2008, 1. Local application expressly claims
amended the IPC priority
“The patent owner has no right to prevent 2. Filed within 12 months from the
any government agency or any private date the earliest foreign application
third party from importing patented drugs was filed
and medicines, after these have been 3. Certified copy of the foreign
introduced in the Philippines or anywhere application with an English
else in the world by the patent owner, or translation is filed within 6 months
by any party authorized to use the from date of filing in the Philippines
invention.”
Remedies of True Inventor
Who has the right to the patent 1. Petition the Court for cancellation
1. Inventor of the Patent
2. His heirs and assigns 2. Substitution as Patentee
3. When 2 or more persons jointly 3. Award of Damages
made an invention, the right shall
belong to them jointly Doctrine of Prejudicial Disclosure
 Right to Patent arises from If the inventor voluntarily discloses his
application date. creation, such as by offering it for sale, the
world is free to copy and use it without
Commissioned Work impunity. Ideas, once disclosed to the
Person who commissioned the work owns public without the protection of a valid
the patent, unless otherwise provided. patent, are subject to appropriation
without significant restraint.
Employer-Employee Rule on
Inventions Non-Prejudicial Disclosure
An employee made an invention in the The disclosure of information contained in
court of an employer-employee contract, the application during the 12 months
patent shall belong to: preceding the filing date or priority date
1. Employee – if the inventive activity shall not prejudice the applicant on the
is not a part of his regular duties ground of lack of novelty if such disclosure
(even if time, facilities and was made by:
materials used are that of the 1. The inventor
employer) 2. Patent office; and the information
2. Employer – if the invention is the was contained in:
result of the performance of his a. Another application filed by the
regularly-assigned duties, unless inventor
there is agreement to the contrary b. An application filed, without the
knowledge or consent of the
First to File Rule inventor, by a third party who
1. If 2 or more persons have made the obtained information directly
invention separately and from the inventor
independently of each other, the 3. Third party who obtained the
right to the patent shall belong to information directly or indirectly
the person who filed an application. from the inventor
2018, J. Dimaampao
Patent Infringement material relating to the patented product

The making, using, offering for sale, selling or process, contained the words
or importing a patented product or a “Philippine Patent” with number of the
product obtained directly or indirectly patent.
from a patented process, or the use of a
patented process without the Comparative Rules
authorization of the patentee constitutes TRADE PATENT COPY
patent infringement. MARK RIGHT
 Intent to infringe is not an element Subject Matter
Any visible Technical Literary and
Tests to determine Patent Infringement sign solution of a artistic
capable of problem in works
1. Literal Infringement – the
distinguish any field of
patented product and the infringed ing the human
product must be placed side by side goods or activity which
(juxtaposed) to determine whether services of is new and
there is exact identity of all material an industrially
elements enterprise. applicable.
2. Doctrine of Equivalents – when a Term
device appropriates a prior 10 years, 20 years from Author’s
invention by incorporating its subject to the filing date lifetime, and
innovative concept and, although renewal of application 50 years
with some modification and for period after his
change, performs substantially the of 10 years death
same function in substantially the each
same way to achieve substantially Specific Rules
the same result (Function-Means- a. Declara Prejudicial Royalties – if
Result Test) tion of Disclosure sold/transfer
 Exact duplication is not necessary Actual red, heirs are
Use entitled to
b. Proof of 5% of
Remedies of Patentee for Infringement Actual royalties
1. Sue for Patent Infringement Use
2. Secure an injunction for protection Cannot be Registered
of his rights 1. Generic 1. Scientific 1. Method
3. Recover damages, attorney’s fees terms theories 2. Idea
and other expenses of litigation 2. Charact and 3. Procedure
4. May also ask that the items used in eristics discoveries 4. Principle
the infringement be disposed of or 3. Custom 2. Contrary to 5. Operation
destroyed without compensation ary sign public 6. System
4. Color order or
Defenses that may be invoked in morality
3. Aesthetic
Infringement suit:
creations
1. Patent is valid 4. Methods
2. Patent is not new or patentable for
3. Patent does not disclose the treatment
invention in a manner sufficiently of human
clear and complete body
4. Patent was issued to one who was 5. Plant
not the true and actual inventor varieties
Doctrines
Presumption of Validity a. Test of a. First to File Fair Use
A patent, once issued by the IPO, raises a Domina Rule Principle
presumption that the article is patentable, ncy b. Doctrine of
b. Holistic Equivalent
unless shown otherwise.
Test s
c. Idem
Presumption of Notice Sonans
The infringer is presumed to have notice Test
or knowledge of the existence of the patent Remedies
if the patented product, or the container or 1. Sue for 1. Injunction
package thereof, or the advertising Patent to restrain
2018, J. Dimaampao
Infringeme infringem Laundering Law to be reported

nt ent thereto
2. Secure an 2. Action for
injunction damages Covered Institutions
for and loss of Banks, non-banks, quasi-banks, trust
protection profit
entities, foreign exchange dealers,
of his rights 3. Issuance
3. Recover of court pawnshops, money changers, remittance
damages, order to and transfer companies and other similar
attorney’s seize, entities and all other persons and their
fees and impound subsidiaries and affiliates supervised or
other and regulated by the BSP, insurance
expenses of destroy all companies, pre-need companies,
litigation infringing securities dealers, brokers, salesmen,
4. May also copies investment houses, jewelry dealers in
ask that the 4. Criminal precious metals/stones, for transactions
items used liability in excess of P1,000,000
in the
infringeme
nt be Obligations of Covered Institutions
disposed of 1. Customer Identification –
or establish and record the true
destroyed identity of its clients based on
without official documents
compensati 2. Record Keeping – all records of
on transactions shall be maintained
and safely stored for 5 years from
the dates of transactions; as to
ANTI-MONEY LAUNDERTING ACT closed accounts, 5 years from
RA No. 9160 closure
3. Reporting of Covered and
Money Laundering Suspicious Transactions – they
A crime committed by any person who shall report to the MLC all covered
knowing that nay monetary instrument or or suspicious transactions within 5
property represents, involves, or related working days from occurrence
to the proceeds of any unlawful activity: thereof, unless AMLC prescribes a
1. Transacts said monetary longer period not exceeding 15
instrument or property working days; conviction is not
2. Converts, transfers, disposes of, necessary before report is made
moves, acquires, possesses or uses
said monetary instrument or Covered Transactions
property Transactions in cash or other equivalent
3. Conceals or disguises the true monetary instrument involving a total
nature, source, location, amount in excess of P500,000 within 1
disposition, movement or banking day
ownership of or rights with respect
to said monetary instrument or Suspicious Transactions
property Transactions with covered institutions,
4. Attempts or conspires to commit regardless of the amounts involved, where
money laundering offenses any of the following circumstances exist:
5. Aids, abets, assists in or counsels 1. No underlying legal or trade
the omission of the money obligation, purpose or economic
laundering offenses justification
6. Performs or fails to perform any act 2. Client is not properly identified
as a result of which he facilitates 3. Amount involved is not
the offense of money laundering commensurate with the business
7. Failure to report to the AMLC by or financial capacity of the client
any covered person knowing that a 4. Taking into account all known
covered or suspicious transaction circumstances, it may be perceived
is required under the Anti-Money that the client’s transaction is
structured in order to avoid being
2018, J. Dimaampao
the subject or reporting  CA should act on the Petition to Freeze

requirements within 24 hours from filing of the
5. Any circumstances relating to the petition
transaction which is observed to  A person whose account was frozen
deviate from the profile of the client may file a motion to lift the freeze
and/or the client’s past order and the court must resolve this
transactions with the covered motion before expiration of the freeze
institution order
6. Transaction is in any way related to  No court shall issue a temporary
an unlawful activity or offense restraining order or writ of injunction
under this At that is about to be, is against any freeze order except the SC
being or has been committed
7. Any transaction that is similar or Predicate Crimes / Unlawful Activities
analogous to any of the foregoing 1. Kidnapping for Ransom
2. Violations of Comprehensive
Authority to Inquire into Bank Deposits Dangerous Drugs Act
The Anti-Money Laundering Council 3. Violations of Anti-Graft and
(AMLC) may inquire into deposits upon Corrupt Practices Act
order of the court when there is probable 4. Plunder
cause that the deposits are related to the 5. Robbery and Extortion
crime of unlawful activities. A court order 6. Jueteng and Masiao
is not necessary when the offense or 7. Piracy on the high seas
unlawful activity is any of the following: 8. Qualified theft
1. Kidnapping for Ransom 9. Swindling
2. Violations under the 10. Smuggling
Comprehensive Dangerous Drugs 11. Violations of E-Commerce Act
Act 12. Destructive arson and murder
3. Hijacking, arson, murder, including 13. Hijacking
those perpetrated by terrorists 14. Fraudulent Practices and
Violations of the SRC
Safe Harbor Provision 15. Terrorism
No administrative, criminal or civil 16. Financing of terrorism
proceedings shall lie against any person 17. Bribery and corruption of public
for having made a covered or suspicious officers
transaction report in the regular 18. Frauds an illegal exactions
performance of his duties in good faith, 19. Malversation of public funds and
whether or not reporting results in any property
criminal prosecution under this Act or any 20. Forgery and counterfeiting
other law. Exception: Lawyers and 21. Violations of anti-trafficking in
accountants are not required to report persons
covered and suspicious transactions if the 22. Violations of Revised Forestry Code
information was obtained through of the Philippines
professional secrecy or legal professional 23. Violations of Philippine Fisheries
privilege. Code
24. Violations of Philippine Mining Act
Freezing of Monetary Instrument or 25. Violations of Wildlife Resources
Property Conservation and Protection Act
The CA may issue a Freeze Order under the 26. Violation of National Caves and
following conditions: Cave Resources Management
1. Verified ex parte petition by the Protetion Act
AMLC 27. Violation of Anti-Carnapping Act
2. CA must determine that probable 28. Violations of Illegal/Unlawful
cause exists that any monetary Possession of Firearms
instrument or property is related to 29. Violation of Anti-Fencing Law
an unlawful activity 30. Violation of Migrant Workers and
3. Freeze order shall be effective Overseas Filipinos Act
immediately 31. Violation of Intellectual Property
4. Freeze order shall be for a period Code
not exceeding 6 months
2018, J. Dimaampao
32. Violation of Anti-Photo and Video stored, processed, retrieved or

Voyeurism Act produced electronically
33. Violation of Anti-Child  3 Kinds of E-Documents
Pornography Act under ECA:
34. Violation of Special Protection of 1. Electronic Writings
Children against Abuse, 2. Electronic Signatures
Exploitation and Discrimination 3. Originals
35. Felonies or offenses of a similar  5 Categories of E-
nature Documents: CWEST
1. Computer-
ELECTRONIC COMMERCE ACT stored/generated docs
RA No. 8792 2. Website data
June 19, 2000 3. Emails
4. Social media
Objective communications and
To facilitate domestic and international postings
dealings, to recognize the authenticity 5. Text messages
and reliability of electronic documents
related to such activities and to promote Legal Recognition of the following:
universal use of electronic transactions in  Electronic Data Messages (Sec. 6)
the government and by the general public.  Information shall not be denied
legal effect, validity or
Scope of Application (Sec. 4) enforceability solely on the
Applies to any kind of data message and grounds that it is in the data
electronic document used in commercial message purporting to give rise to
and non-commercial activities to include such legal effect, or that it is
domestic and international dealings and merely referred to in that
transactions. electronic data message
 “Principle of Non-
Definitions (Sec. 5) Discrimination” (Sec. 6) - E-
1. Electronic Data Message – refers Documents should not be
to information generated, sent, discriminated against but should
received or stored by electronic, be given the same legal status as
optical or similar means their paper-based counterparts.
2. Electronic Signature – any
distinctive mark, character  Electronic Documents (Sec. 7)
and/or sound in electronic form,  “Parity Rule” - Electronic
representing the identity of a documents shall have legal effect,
person and attached to or validity or enforceability as any
logically associated with the other document or legal writing,
electronic data message or and:
electronic document or any a. When the law requires a
methodology or procedures document to be IN WRITING:
employed or adopted by a person (IRA) the requirement is met by
and executed or adopted by such an electronic document if the
person with the intention of said electronic document
authenticating or approving an maintains its integrity and
electronic data message or reliability and can be
electronic document authenticated so as to be
3. Electronic Document – refers to usable for subsequent
information or the representation reference, in that: (1) the
of information, data, figures, document has remained
symbols or other modes of written complete and unaltered; (2) the
expression, described or however electronic document is reliable
represented, by which a right is in the purpose for which it was
established or an obligation is generated
extinguished, or by which a fact b. When the law requires that a
may be proved and affirmed, which document to be presented or
is received, recorded, transmitted, retained in its ORIGINAL
2018, J. Dimaampao
FORM: (IC) the requirement is 1. The electronic signature is the

met if (1) there exists reliable signature of the person to whom it
assurance as to the integrity correlates
of the document from the time it 2. The electronic signature was
was first generated in its final affixed by that person with the
form and (2) the document is intention of signing or approving
capable of being displayed to the electronic document unless the
the person to whom it is to be person relying on the electronically
presented signed electronic document knows
c. For EVIDENTIARY PURPOSES, or has notice of defects in or
an electronic document shall be unreliability of the signature or
the functional equivalent of a reliance on the electronic signature
written document under is not reasonable under the
existing laws. circumstances
 Whenever a rule of evidence
refers to the term writing, Methods of Authentication of E-Data
document, record, instrument, Messages and E-Documents (Sec. 11)
memorandum, or any other form Until the SC by appropriate rules shall
of writing, such term shall be have so provided, e-documents and e-data
deemed to include an electronic messages shall be authenticated by: DSO-
document. CSRR
1. Evidence that it has been digitally
 Electronic Signatures (Sec. 8) signed by the purported signer
 An electronic signature on the 2. Appropriate security procedures or
electronic document shall be devices as may be authorized by
equivalent to the signature of a law or the rules have been applied
person on a written document on the document
(manual signature) if the 3. Other evidence showing its
signature is proved by showing reliability and integrity to the
that a prescribed procedure, not satisfaction of the judge
alterable by the parties interested 4. Authentication by circumstantial
in the electronic document, evidence – where there is no
existed under which: IRBV eyewitness to the execution or
a. A method is used to identify the writing of a document or evidence
party sought to be bound and concerning the genuineness of the
indicate said party’s access to the maker’s signature or handwriting,
electronic document the document may still be
b. Said method is reliable and authenticated using circumstantial
appropriate for the purpose for evidence
which the electronic document 5. Self-authenticated documents –
was generated or communicated where the information in the
c. It is necessary for the party sought writing could only have been
to be bound, in order to proceed known by the writer or the parties
further with the transaction, to thereto (ex. Use of codes or other
have executed or provided the details known only to participants)
electronic signature 6. Reply-Authenticated Letter –
d. The other party is authorized and where the reply of the adverse
enabled to verify the electronic party refers to and affirms the
signature and to make the sending to him and his receipt of
decision to proceed with the the letter in question
transaction authenticated by the 7. Reply-Letter Rule – where a reply
same letter indicates a correspondence
between the two, the reply itself is
Presumption Relating to Electronic also deemed authenticated
Signatures (Sec. 9) (SI) (evidence that an email is a timely
In any proceeding involving an electronic response to an earlier message
signature, is shall be presumed that: addressed to the purported sender)
Authentication of E-Signature MLJ
2018, J. Dimaampao
1. Evidence that a method or process 2. On the ground that it is not in the

was utilized to establish a digital standard written form
signature and verify the same The electronic data message or electronic
2. Any other means provided by law document meeting and complying with the
3. Other means satisfactory to the requirements under Sec. 6 or 7 shall be the
judge as establishing the BEST EVIDENCE of the agreement and
genuineness of the electronic transaction contained therein.
signature
Evidential Weight of Electronic Data or
Digital Signature (Rule 2, Sec. 1, REE) Electronic Document (Sec. 12)
Digital signatures are a particular form of Factors in assessing the evidential weight
electronic signature. It is an e-signature of an e-date message or e-document: GIO
consisting of the encryption of an e- 1. The reliability of the manner in
document such that the relying party can which it was generated, stored or
safely rely on the identity of the digital communicated,
signer and the authenticity of the e- 2. the reliability of the manner in
document which its originator was identified,
and
Advantages of a Digital Signature: IRA 3. other relevant factors
A valid digital signature gives the recipient
a reason to believe that: Retention of E-Data Message and E-
1. The message was created by a Documents (Sec. 13)
known sender (Identification) The requirement in any provision of law
2. The sender cannot deny having that certain documents be retained in their
sent the message (Non- original form is satisfied by retaining them
repudiation) in the form of an electronic data message
3. The message was not altered in or electronic document which: AFI
transit (Non-alteration) 1. Remains accessible for reference
2. Retained in the format it was
Digital Certificate generated, sent or received
An e-document issued by a certification 3. Enables the identification of its
authority to support a digital signature originator, addressee and date and
which purports to confirm the identity of time it was sent or received
the digital signer and his association to a
public key. Proof by Affidavit (Sec. 14)
Disputable Presumptions: (Rule 6, Sec. Those referred to in Sec. 12, on
4, REE) CIRI admissibility and Sec. 9, on presumption of
1. The information contained in the integrity, may be presumed to have been
digital certificate is correct established by an affidavit given to the
2. The digital certificate had been best of the deponent’s knowledge subject
issued by the certification authority to the rights of parties in interest.
indicated therein
3. There is no cause for the Formation and Validity of Electronic
invalidation or revocation of the Contracts (Sec. 16)
certificate Except as otherwise agreed by the parties,
Hearsay Exception – the digital an offer, the acceptance of an offer and
certificate is an additional exception to the such other elements required under
hearsay rule existing laws for the formation of contracts
may be expressed in, demonstrated and
Admissibility of Electronic Data proved by means of an electronic
Message or Electronic Document document. No contract shall be denied
(Sec. 12) validity or enforceability on the sole
In any legal proceeding, nothing in the ground that it is in the form of an
application of the rules on evidence shall electronic document or that any or all of
deny the admissibility of an electronic data the elements required under existing laws
message or electronic document in for the formation of contracts is expressed,
evidence: demonstrated and proved by means of an
1. On the sole ground that it is in electronic document.
electronic form
2018, J. Dimaampao
Liability of Service Providers (Sec. 30)

No person or party shall be subject to any Fascimile or Fax Machine
civil or criminal liability in respect of the e- An original print out of a fax transmission
documents for which the person or party via fax machine is not considered an
acting as a service provider merely electronic data message. The term
provides access if such liability is founded electronic data message excludes telexes
on: of faxes except computer-generated faxes.
1. Obligations and liabilities of the This is in harmony with the Electronic
parties under the e-document Commerce Law’s focus on “paperless”
2. The making or dissemination of communications and the “functional
such material, including possible equivalent approach.” Facsimile
infringement of any right in such transmissions are not, in this sense,
material (Liability for “paperless,” but verily are paper-based.
Infringement) (MCC Industrial Sales Corp. v. Ssangyong Corp.
Provided that: KFC-I 536 SCRA 408)
1. The service provider does not have
actual knowledge or is not aware DATA PRIVACY ACT
that the making or dissemination of RA No. 10173
such material is unlawful or August 15, 2012
infringes any rights
2. Service provider does not Definitions (Sec. 3)
knowingly receive a financial 1. Personal Information – any
benefit information whether recorded in a
3. Service provider does not directly material form or not, from which
commit any infringement or the identity of an individual is
unlawful act and does not induce or apparent or can be reasonably and
cause another person to commit directly ascertained by the entity
holding the information, or when
Lawful Access (Privacy of E-files) (Sec. put together with other
31) information would directly and
Access to an electronic file or an e- certainly identify an individual
signature of an e-document shall only be 2. Sensitive Personal Information –
authorized and enforced in favor of the refers to information: RHGO
individual or entity having a legal right to a. Individual’s race, ethnic origin,
the possession or use of the file and solely marital status, age, color, and
for the authorized purposes. The e-key for religious, philosophical or
identity and integrity shall not be made political affiliations
available to any person without the b. Individual’s health, education,
consent of the individual or entity in lawful genetic or sexual life, or to any
possession of that e-key. proceeding for any offense
committed or alleged to have
Obligation of Confidentiality (Sec. 32) been committed by such
Except for the purposes authorized under person, the disposal of such
this Act, any person who obtained access to proceedings or the sentence of
any electronic key, electronic data any court;
message or electronic document, book, c. Issued by government
register, correspondence, information, or agencies to an individual which
other material pursuant to any powers includes social security
conferred under this Act, shall not convey numbers, previous or cm-rent
to or share the same with any other health records, licenses or its
person. denials, suspension or
revocation and tax returns;
Acts Punishable (Sec. 33) d. Established by an executive
1. Hacking or Crackling order or an act of Congress to
2. Piracy be kept classified.
3. Violations of the Consumer Act and
other relevant to pertinent laws Scope (Sec. 4)
4. Other violations of the provisions Applies to processing of all types of
of this Act personal information and to any natural
2018, J. Dimaampao
and juridical person involved in personal 4. Retained only for as long as

information processing including those necessary for the fulfillment of the
personal information controllers and purpose for which the data was
processors who, although not found or obtained
established in the Philippines, use 5. Kept in a form which permits
equipment that are located in the identification of data subject for no
Philippines, or those who maintain an longer than is necessary for the
office, branch or agency in the Philippines, purposes for which the data were
Provided, that the requirements of Sec. 5 collected and processed
are complied with.
Criteria for Lawful Processing of
The Act does not apply to the following: Personal Information (Sec. 12)
GSBJFBF Processing of personal information shall
a. Information about any individual be permitted only if not otherwise
who is or was an officer or prohibited by law, and when at least one of
employee of a government the following conditions exists: CCOPRL
institution that relates to the 1. Data subject has given consent
position or functions of an 2. Processing of personal information
individual is necessary and related to the
b. Individual who is or was fulfillment of a contract with the
performing service under contract data subject
for a government institution 3. Necessary for compliance with a
c. Any discretionary benefit of legal obligation of a personal
financial nature such as the information controller
granting of a license or permit 4. Necessary to protect vitally
given by the government to an important interests of the data
individual subject, including life and health
d. Personal information processed for 5. Necessary in order to respond to
journalistic, artistic, literary or national emergency, comply with
research purposes public order and safety or fulfill
e. Information necessary in order to functions of public authority
carry out the functions of public 6. Necessary for the purposes of the
authority legitimate interests pursued by the
f. Information necessary for banks personal information controller or
and other financial institutions by a third party
under the jurisdiction of the BSP to
comply with AMLA Processing of Sensitive Personal
g. Personal information collected Information and Privileged
from residents of foreign Information (Sec. 13)
jurisdictions in accordance with the The processing of sensitive personal
laws of those foreign jurisdictions information and privileged information
shall be prohibited, EXCEPT: CLPAMP
Processing of Personal Information 1. Data subject has given consent
(Chapter 3) specific to the purpose prior to the
processing; in case of privileged
General Data Privacy Principles (Sec. 11) information, all parties to the
The processing of personal information exchange have given their consent
shall be allowed, subject to compliance prior to processing;
with the requirements of this Act and 2. Processing is provided for by
other laws allowing disclosure of existing laws and regulations
information to the public 3. Necessary to protect life and health
of the data subject or another
Personal information must be: PPARF person and their consent is not
1. Collected for specified and physically able to be expressed
legitimate purpose 4. Necessary to achieve the lawful and
2. Processed fairly and lawfully non-commercial objectives of
3. Accurate, relevant and necessary public organizations and their
for which it is to be used associations
2018, J. Dimaampao
5. Necessary for purposes of medical h. Existence of their rights, i.e. to

treatment access, correction, right to lodge
6. Processing concerns such personal a complaint
information as is necessary for the 3. Reasonable access upon demand:
protection of lawful rights and a. Contents of the processed
interests of natural or legal persons personal information
in court proceedings b. Sources
c. Name and addressed of
Subcontract of Personal Information recipients
(Sec. 14) d. Manner by which the data was
A personal information controller may processed
subcontract the processing of personal e. Reasons for disclosure to
information, Provided: That the personal recipients
information controller shall be f. Information on automated
responsible for ensuring that proper processed
safeguards are in place to ensure the g. Date when the personal
confidentiality of the personal information information were last accessed
processed, prevent its use for and modified
unauthorized purposes and generally, h. Designation, name, identity and
comply with the requirements of this Act address of the personal
and other laws for processing of personal information controller
information. 4. Dispute the inaccuracy or error in
the personal information and have
Extension of Privileged Communication them corrected immediately
(Sec. 15) 5. Suspend, withdraw or order the
Personal information controllers may blocking, removal or destruction of
invoke the Principle of Privileged the personal information from the
Communication over privileged personal information controller’s
information that they lawfully control or filing system upon discovery that
process. Any evidence gathered on such was incomplete, outdated,
privileged information is inadmissible. false or unlawfully obtained or
used for unauthorized purposes
Rights of the Data Subject (Sec. 16) 6. Be indemnified for damages
IFADSD
1. Be informed whether personal Transmissibility of Rights (Sec. 17)
information pertaining to him or The lawful heirs and assigns of the data
her shall be, are being or have been subject may invoke the rights of the data
processed subject at any time after the death of the
2. Be furnished the information data subject or when the data subject is
indicated hereunder before the incapacitated or incapable of exercising
entry of his or her personal the rights as enumerated
information into the processing
system of the personal information Right to Data Portability (Sec. 18)
controller, or at the next practical Data subject shall have the right, where
opportunity: personal information is processed by
a. Description of the Personal electronic means, to obtain from the
Information to be entered personal information controller a copy of
b. Purposes data undergoing processing in an
c. Scope and method of processing electronic or structured format, which is
d. Recipients to whom they may commonly used and allows for further use
be disclosed by the data subject.
e. Methods utilized for automated
access and the extent of access Non-Applicability (Sec. 19)
f. Identity and contact details of The immediately preceding sections are
the personal information not applicable if the processed personal
controller information are used only for the needs of
g. Period for which the scientific and statistical research and, on
information will be stored the basis of such, no activities are carried
out and no decisions are taken regarding
2018, J. Dimaampao
the data subject. Likewise, it is not Rehabilitation

applicable to processing for the purpose of Refers to the restoration of the debtor to a
investigations in relation to any criminal, condition of successful operation and
administrative or tax liabilities of the data solvency, if it is shown that its continuance
subject. of operation is economically feasible and is
creditors can recover by way of the
Principle of Accountability (Sec. 21) present value of payments projected in the
Each personal information controller is plan, more if the debtor continues as a
responsible for personal information going concern than if it is immediately
under its control or custody, including liquidated.
information that have been transferred to  Nature of Rehabilitation
a third party for processing, whether Proceedings - in rem. Summary and
domestically or internationally, subject to adversarial. Jurisdiction over all
cross-border arrangement and persons affected by the proceedings
cooperation. is acquired upon publication of the
notice of the commencement of the
Penalties (Ch. 8) proceedings and the commencement
1. Unauthorized Processing of order in 1 newspaper of general
Personal and Sensitive Personal circulation in the Philippines for 2
Information consecutive weeks.
2. Accessing Personal and Sensitive
Personal Information due to Liquidation
Negligence It is equivalent to the winding up, that is,
3. Improper Disposal the comprehensive process of settling
4. Processing for Unauthorized accounts, ascertaining and adjusting debts,
Purposes collecting assets and paying off claims. It is
5. Unauthorized Access or Intentional a declaration by the court of the
Breach corporation’s insolvency.
6. Concealment of Security Breaches
involving Sensitive Personal Suspension of Payments
Information
7. Malicious Disclosure MODES OF REHABILITATION
8. Unauthorized Disclosure 1. Court-Supervised
9. Combination or Series of Acts 2. Pre-negotiated Rehabilitation
3. Out-of-Court or Informal
FINANCIAL REHABILITATION Restructuring Agreement or
AND INSOLVENCY ACT OF 2010 Rehabilitation Plan (OCRA)
RA No 10142
July 18, 2010 Court-Supervised Proceedings
(repealed the Insolvency Law) 1. Voluntary Proceedings
2. Involuntary Proceedings – may
Debtor be initiated by any creditor or
Includes: group of creditors with a claim of,
1. A sole proprietorship registered or aggregate of whose claim is at
under the DTI least P1,000,000 or at least 25% of
2. Partnership registered with the the subscribed capital stock or
SEC partner’s contributions, whichever
3. Corporation organized and existing is higher.
under PH laws
4. Individual debtor who has become VOLUNTARY INVOLUNTARY
insolvent Initiated by
1. Insolvent 1. Creditor
Insolvent debtor 2. Group of
The financial condition of a debtor that is 2. Group of creditors
generally unable to pay its or his liabilities debtors
as they fall due in the ordinary course of Grounds
business or has liabilities that are greater 1. Insolvency of 1. No genuine
than its or his assets the debtor issue of fact or
law on the
2018, J. Dimaampao
2. Viability of claim/s of the all persons who may be affected by it,

rehabilitation petitioner/s including creditors, whether or not such
and that the persons have anticipated in the
due and proceedings, opposed the Plan or whether
demandable or not their claims have been scheduled.
payments
thereon have Jurisprudential Test of Feasibility
not been made Examination and analysis of the distressed
for at least 60 corporation’s financial data must be
days or that the conducted. If the results of the
debtor has examination and analysis show that there
failed generally is a real opportunity to rehabilitate the
to meet its corporation in view of the assumption
liabilities as made and financial goals stated in the
they fall due proposed rehabilitation plan, then it may
2. A creditor, be said that a rehabilitation is feasible.
other than
petitioner/s, Commencement Order
has initiated The order issued by the court in
foreclosure rehabilitation proceedings. It retroacts to
proceedings the date of filing of the petition for
against the voluntary or involuntary proceedings. It
debtor that will includes a stay or suspension order.
prevent the
debtor from Stay or Suspension Order (Sec. 16)
paying his The Stay or Suspension Order shall:
debts as they 1. Suspend all actions for
become due or enforcement of all claims against
will render it the debtor
insolvent 2. Suspend all actions to enforce any
judgment against the debtor or
other provisional remedies against
the debtor
3. Prohibit the debtor from selling,
Rehabilitation Plan (Sec. 62) encumbering, transferring or
A plan by which the financial well-being disposing any of its properties;
and viability of an insolvent debtor can be Except in the ordinary course of
restored using various means including, business
but not limited to, debt forgiveness, debt 4. Prohibit the debtor from making
rescheduling, reorganization or quasi- any payment of its outstanding
reorganization, dacion en pago, debt- liabilities
equity conversion and sale of the business
(or parts of it) as a going concern, or  The Commencement Order and the Stay
setting up of new business entity, or other Order shall be effective for the entire
similar arrangements as may be approved duration of the rehabilitation
by the court or creditors. (must be proceedings
attached to the Petition)  The Order may be lifted if there is no
Approved by: substantial likelihood for the debtor to
1. Creditors representing 50% of the be successfully rehabilitated
total claims (Sec. 64)
2. Confirmed by the court after Exceptions to the Stay Order
approval of the creditors or even 1. Cases pending in the Supreme
without such approval or even over Court
the objection of the creditors (Sec. 2. Cases pending or filed with a
68) specialized court or quasi-judicial
agency
Cram Down Effect (Secs. 69, 82, 86) 3. Claims against sureties and other
The Rehabilitation Plan confirmed by the persons solidarily liable with the
Court shall be binding upon the debtor and debtor
2018, J. Dimaampao
4. Acts of customers or clients of a COURT REQUIRED COURT

securities market participant ACTION FINDINGS
5. Actions of a licensed broker or Give Due 1. Debtor is
dealer to sell pledged securities of a Course to insolvent
debtor the Petition 2. There is
6. Transactions through the facilities substantial
of a clearing agency or similar likelihood for the
activities debtor to be
7. Any criminal action against successfully
individual debtor or owner, rehabilitated
partner, director or officer of a Dismiss the 1. Debtor is not
debtor; also the civil liability Petition insolvent
arising from the offense charged 2. Petition is a sham
filing intended
Rehabilitation Receiver only to delay the
Refers to the person or persons, natural or enforcement of
juridical appointed as such by the court rights of the
and which shall be entrusted with such creditors
powers and duties set forth in RA 10142. If 3. The petition, the
the receiver is a juridical entity, it includes rehab plan, and
the entity’s designated representatives. the attachments
contain materially
Powers, duties and functions of a false or
Rehabilitation Receiver: W2E4R4P2A3 misleading
1. With the approval of the court: statements
a. Sue and recover all amounts 4. Debtor has
and properties pertaining to the committed acts of
debtor misrepresentation
b. Employ specialized or fraud of
professionals and other experts creditor
2. Evaluate, examine, Evaluate, Convert the 1. Debtor is
Exercise proceeding insolvent; and
3. Report, Recommend, to 2. There is no
4. Prohibit, Prohibit Liquidation substantial
5. Attend, Apply Proceeding likelihood for the
debtor to be
Management Committee successfully
It shall take the place of the management rehabilitated
and governing body of the debtor, and
assume their powers, rights and PRE-NEGOTIATED REHABILITATION
responsibilities under the law. It is An insolvent debtor, by itself or jointly
composed of persons, natural or juridical, with any of its creditors, may file a verified
appointed by the court that will undertake Petition with the court for the approval of
the management of the debtor, upon clear Pre-negotiated Rehabilitation Plan.
and convincing evidence of any of the
following circumstances: OUT OF COURT REHABILITATION
1. Actual or imminent danger of loss (OCRA)
or destruction of debtor’s assets or Out-of-court or informal restructuring
properties agreement or rehabilitation plan
2. Paralyzation of the business
operations of the debtor Minimum Requirements (Sec. 84):
3. Gross mismanagement of the 1. Approval of the following:
debtor, fraud or other wrongful a. Debtor
conduct by the existing b. Creditors with 67% of secured
management of the debtor or obligations
owner c. Creditors with 75% unsecured
obligations
Court Action on Petition for
Rehabilitation (Sec. 25)
2018, J. Dimaampao
d. Creditors with 85% of total PAYMENTS

liabilities, secured and Debtor is not Debtor is insolvent
unsecured insolvent
2. Publication of the notice once a Payment of Obligations are
week for 3 consecutive weeks obligations is discharged
stayed
Standstill Period (Sec. 85) Applies only to Can cover juridical
Standstill period may be agreed upon by individual debtors persons or
the parties and shall be effective and individual debtor
enforceable not only against the May be filed by the May be initiated by
contracting parties but also against the debtor debtor or creditor
other creditors, provided the following No minimum Required that the
conditions: amount of debt of the
1. Approval of creditors of 50% of the liabilities individual debtor
total liabilities prescribed is not less than
2. Publication of notice once a week P500,000
for 2 consecutive weeks Rules on Rules on
3. Period shall not exceed 120 days concurrence and concurrence and
from date of effectivity preference of preference of
 Cram Down Rule applies upon credits under NCC credits under NCC
publication of the notice of the out- does not apply apply
of-court approved rehabilitation
plan (Sec. 86) SUSPENSION OF REHABILITATION
PAYMENTS
SUSPENSION OF PAYMENTS Applies to Applies to business
 Debtor has sufficient properties to individual debtor organizations
cover all his debts but foresees the Debtor has Debtor is insolvent
impossibility of meeting his debts sufficient assets to
when they respectively fall due cover liabilities
 The purpose is to suspend or delay Secured debtors Secured debtors
the payment of debts are no affected are affected by a
 Amount of indebtedness is not stay order
affected (not reduced or Filed by the debtor Initiated by the
discharged) debtor or creditor
 Number of creditors is immaterial No minimum The claim of, or the
amount of aggregate of claims
Rules on Suspension of Payments liabilities against the debtor
1. Filed by an individual debtor who prescribed is at least P1Million
has assets that exceed his liabilities or at least 25% of
but foresees the impossibility of the subscribed
paying his debts capital stock of
2. Petition for Suspension shall be partners’
filed with the RTC where Petitioner contributions,
has resided for 6 months prior to whichever is
filing higher
3. Contain the names of at least 3 Rules on Rules on
nominees to the position of concurrence and concurrence and
liquidator preference of preference of
4. Schedule of debts and liabilities credits under NCC credits under NCC
5. Inventory of all debtor’s assets does not apply apply
6. Schedule of current income and
expenditures Suspension of Payment Order (Sec. 96)
7. Income tax return  Upon motion filed by the individual
8. List of acquired properties debtor, the court may issue an
9. Sold or donated properties order suspending any pending
10. Schedule of the debtor’s executory execution against the individual
contracts and unexpired leases debtor
SUSPENSION OF LIQUIDATION
2018, J. Dimaampao
 Properties held a security by (resides outside the

secured creditors shall not be PH, cannot be
subject of the order found or conceals
 Order shall lapse when 3 months himself)
have passed without the proposed Posting o bond by Posting of bond is
agreement being accepted by the creditors is not required (Sec.
creditors or as soon as the required 105)
agreement is denied (Sec. 96) Liquidation order Liquidation order
 No creditor shall sue or institute is issued without is issued after trial
proceedings to collect his claim trial (Sec. 104) (Sec. 107)
from the time of filing the petition
and for as long as proceedings INVOLUNTARY INVOLUNTARY
remain pending (Sec. 96) (Individual (Business
Exceptions: Creditors not affected by Debtor) Organizations)
the Stay Order (Sec. 96) At least 3 creditors Can be 1 or more
1. Creditors having claims for are required creditors
personal labor, maintenance, Debts must at least Debt or aggregate
expense of last illness and funeral be P500,000 of debts must be at
of wife or children of the debtor least P1Million or
incurred in 60 days immediately equivalent to 25%
prior to the filing of the petition of subscribed
2. Secured creditors capital or partners’
 These creditors are not affected unless contribution
they participated and voted in the whichever is
creditors’ meeting (Sec. 98) higher
Individual can Business
Prohibited Acts (Sec. 95) continue his organization will
The individual debtor is prohibited from: business be dissolved
1. Selling, transferring, encumbering There must be an Act of insolvency is
or disposing in any manner of his act of insolvency not required
property, except those used in the
ordinary operations of commerce Liquidation Process
or of industry in which the The proceeding where claims are filed and
petitioning individual debtor is the assets of the insolvent debtor are
engaged disposed and the proceeds are divided
2. Making any payment outside of the among the creditors. (applies to individual
necessary or legitimate expenses of debtors or business organizations)
his business or industry
Liquidation Order
LIQUIDATION It is an order issued by the court in
liquidation proceedings involving
INDIVIDUAL DEBTORS individual and juridical debtors.
May be: Effects:
1. Voluntary 1. Juridical debtor shall be deemed
2. Involuntary dissolved
2. Legal title and control of all assets
VOLUNTARY INVOLUNTARY shall be vested in the liquidator
Debtor is insolventDebtor is insolvent 3. All contracts of the debtor shall be
Acts of insolvency Creditors must deemed terminated or breached,
need not be
prove acts of unless the liquidator, within 90
alleged and proved insolvency days from assumption of office,
Debts must be at Debts must be at declares otherwise and the
least P500,000 least P500,000 contracting party agrees
Individual debtor Creditor or group 4. No separate action for the
files the Petition of creditors files collection of an unsecured claim
the Petition shall be allowed
Debtor is not Applies even in the 5. No foreclosure proceeding shall be
absent as he files case of absent allowed for a period of 180 days
the Petition debtor (Sec. 108) from date of order
2018, J. Dimaampao
Rules on Conversion of Rehabilitation

Rights of Secured Creditors (Sec. 114) into Liquidation Proceedings
1. Waive his right under the security Rehabilitation Proceedings may be
or lien, prove his claim in the converted into liquidation proceedings at
liquidation proceedings and share any time upon Motion or Order of the
in the distribution of assets of the Court in the following instances:
debtor 1. Debtor is insolvent
2. Maintain his rights under the 2. No substantial likelihood for debtor
security of the lien to be rehabilitated
 Even if the secured creditor 3. No rehabilitation plan is confirmed
will maintain his rights over within 1 year
the security or lien, the right 4. Termination of rehab proceedings
is subject to the temporary is due to failure of rehabilitation or
stay of foreclosure dismissal of the petitions
proceedings for a period of 5. Debtor or creditor supporting the
18 days upon issuance of the Rehabilitation Plan acted in bad
Liquidation Order faith of that the objection is non-
curable
Powers and Duties of the Liquidator 6. Anytime during pendency of Court-
R2E2S2T2 supervised or Pre-negotiated
Rehabilitation Proceedings, the
Rules on Determination of Claims debtor may file a motion in the
1. Right of Set-off same court to convert the
2. Opposition or Challenge to Claims proceedings
3. Submission of Disputed Claims to 7. Anytime during pendency of Court-
the Court supervised or Pre-negotiated
Rehabilitation Proceedings, upon
Voluntary Liquidation recommendation of the
JURIDICAL INDIVIDUAL rehabilitation receiver that the
DEBTOR DEBTOR rehabilitation of the debtor is not
Venue: RTC of Venue: RTC of feasible
principal office’s residence 6
location months prior
Filed by: Majority Filed by: individual
of members of the debtor whose
BOD and liabilities exceed
authorized by 2/3 his assets and
majority whose debts
stockholders or exceed P500,000
2/3 members
Involuntary Liquidation
JURIDICAL INDIVIDUAL
DEBTOR DEBTOR
Venue: RTC of Venue: RTC of
principal office residence
according to AOI or
partnership’s
location
Filed by: 3 or more Filed by: Any
creditors the creditor or
aggregate of creditors with a
whose claims is at claim of the
least P1M or at aggregate of
least 25% of whose claims is at
subscribed capital least P500,000
stock
2018, J. Dimaampao

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MERCANTILE LAW REVIEWER | BAR2019 | Areño

main contract. This may be invoked by the

Fraud Exception Principle Correlate LC with TR

Rights of an Entruster (Sec. 7) Application of “Res Perit

A non-negotiable warehouse receipt is

Negotiable Warehouse Receipt (Sec. 5) NEGOTIABLE INSTRUMENTS LAW

Interpleader Legal Tender Nature of Negotiable

Requisites of Negotiability (Sec. 1)

1. It must be in writing and signed by Distinguish Negotiable and Non-

General Rule: Drawer is liable; collecting

force, duress or 2. Those who ratified the forgery

 Drawee Bank bears the loss – purpose of transferring the

Complete but Undelivered Instrument Fraud in Inducement (Personal)

exceptional case when it is a real defense taken, he

Prescription (Real) QUALIFIED GENERAL ACCOMMO

negotiating he will pay 1. Presentment must be made by the

3. Although presentment has been and that the acceptance or payment is

4. Traveler’s Check – where the BILL OF CHECK

itself will not engage in insurance business Elements of Insurance

both parties and is written on the

In the absence of a judicial guardian, the 2. Any person on whom he depends

Change in Designation of Beneficiary Test to Determine Insurable Interest in

1. Life or an Industrial Policy If premiums are paid out of conjugal funds,

Effect of Concealment (Sec. 27): It 1. Loss occurs before the time of

DOUBLE INSURANCE (Sec. 95) Insurer remains The insurer

Principle of Subrogation package contract that includes

3. Undertake to carry by the method the possession of, and received by

Coastwise NCC Code of exemption or degree less than

assume that the registered owner is the 6. Attorney’s Fees

or caused by any agent of the carrier acting Who may invoke

2. Second Zone – between moment 2. A portion of the vessel or some of

they are incapable of intent; the

corporation that owns corporate entity as to this transaction had

Doctrine of Separate Juridical CREATED BY OPERATION OF LAW

1. De Jure Corporation – corporation All stockholders and members of a

Must be of legal Must be of legal age long as there is a binding subscription

2. File within 1 month from notice d. Amendment or repeal of

1. Purchaser expressly or impliedly Requisites for Removal and Filling up

opportunity that pertains to the 3. Acquires shares from existing

certain rights and privileges not 4. If not yet represented by a

8. Right to file individual suit, control in the corporation or to retain his

Stockholder’s Right to Sue RIGHT TO VOTE

Requisites of Derivative Suit APPRAISAL RIGHT

2. A written demand on the 2. Notice of call – SH are given notice

any action, suit or proceeding in any

Insider Tender Offer means a publicly announced

Safety Deposit Box Doctrine of Apparent Authority in

6. Corporation, association or firms 5. Individual Ceilings – limited to an

 Has supervision over operations of Perfected Contracts during

Liquidation (Sec. 30) Ground: Grave abuse of discretion as to

 Receiver shall the authority 9. Interest Payments – liability of a

any person currency deposits of an

or employee of PDIC is subject to criminal be governed by the rules on co-

Coverage Works covered by Copyright

b. Dramatization, translation, an independently created computer

Decompilation Trade name

1. Doctrine of Secondary Meaning – 2. Trademark is reproduced,

Prior registration is Registration is not

Elements of Unfair Competition Requisites:

Test of Unfair Competition 3-fold Purpose:

business, and programs for 2. Where 2 or more applications were

Patent Infringement material relating to the patented product

Infringeme infringem Laundering Law to be reported

the subject or reporting  CA should act on the Petition to Freeze