Commercia Law

Syllabus-based eReviewer for the 2022 Bar

Compiled by RGL
Commercial Law Reviewer for the 2022 Bar

Tabl of Content What may be insured d. Whereby the insured or his bene ciary su ers loss or
Insurable interest damage or is exposed to liability.
Insurance 3 4. The TEST to determine whether a contract is one of
Double insurance and overinsurance
insurance is whenever the assumption of risk and the
Transportation Law 14 No fault, suicide, and incontestability clauses
indemnification of loss is the principal object and
Perfection of the insurance contract purpose of the contract.
Corporation Law 21 Rights and obligations of parties 5. Applying the "principal object and purpose test," a
corporation, such as an HMO, whether or not organized for
Rescission of insurance contracts
Intellectual Property Code 51 pro t, whose main object is to provide the members of a
group with health services, is NOT engaged in the insurance
A Basic Concepts
Patents 52 business. (Philippine Health Care Providers v. CIR)
1. Definition. — A contract of insurance is an agreement 6. However, it does not follow that the contract that is entered
Trademarks 55 whereby into is not insurance; the nature of the contract will be
a. one undertakes for a consideration examined on a case-to-case basis. Thus, a health care
agreement may be construed as a non-life insurance if it is
Copyrights 61 b. to indemnify another
primarily a contract of indemnity. (Fortune Medicare v.
c. against loss, damage or liability Amorin 2014)
Anti-Money Laundering Act 66
d. arising from an unknown or contingent event. 7. Mutual Insurance Companies. A mutual insurance
company is a cooperative enterprise where the members are
Electronic Commerce Act 70 2. For regulatory purposes, a contract of suretyship shall be
both the insurer and insured.
deemed to be an insurance contract ONLY if made by a surety
Financial Rehabilitation, Insolvency, Liquidation who is doing an insurance business. Additionally, they provide three types of coverage, namely,
protection and indemnity, war risks, and defense costs.
3. Insurance is a contract whereby
and Suspension of Payments 72 8. Mutual Insurance Companies like P&I Clubs are
a. One party called the insurer undertakes for a
considered insurers. A protection and indemnity club, is
consideration
an association composed of shipowners generally formed for
Insurance b. To pay another party called the insured, or his
I bene ciary,
the speci c purpose of providing insurance cover against
The Insurance Code third-party liabilities of its members. (Steamship Mutual
c. Upon the happening of the peril insured against, Underwriting Association (Bermuda) Ltd. v. Sulpicio Lines
Basic Concepts 2017)

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9. Pro t not material — Absence of PROFIT does NOT
negate the existence of an insurance contract.
1 What may be insured
Life
Accidental Death Benefit Clause
Every contract or undertaking for the payment of annuities
including contracts for the payment of lump sums under a
retirement program where a life insurance company manages
or acts as a trustee for such retirement program shall be Marine
considered a life insurance contract.
GR: Not a contract of indemnity. The measure of indemnity is the
sum xed in the policy. It is therefore a valued policy.
EXC: Unless the interest of a person insured is susceptible of exact
pecuniary measurement, i.e. a creditor insures the life of his Different Types
debtor based on the value of indebtedness.
Kinds of Life Insurance
1) Whole Life — o ers permanent protection. Further classi ed
as to mode of payment of premium:
a) Single Premium;
b) Continuous Premium or Ordinary Life;
c) Limited Payment Period.
2) Term — Insurer pays proceeds if insured dies within a
speci ed period; insured gets nothing if he survives the period.
3) Endowment Policy — proceeds shall be payable to the
assured if he lives to a certain date; to the bene ciary if the
assured dies before said date.
4) Industrial Life — premiums are payable either monthly or
oftener.
5) Variable Life or Variable Unit-Linked (VUL) Insurance
Contractor Policy — see §238(a) on Variable Contract.
Gives bene ciaries additional bene ts if the death of the insured is
through accidental means.
Includes policies that cover risks connected with navigation, to
which a ship, cargo, freightage, pro ts, or other insurable interest
in movable property, may be exposed during a certain voyage or a
xed period of time.
Risks Insured Against
1) Ocean Marine — connected with navigation; they are
insurance
a) Over the vessel;
b) Against liability
i) Running Down Clause — insures liability against
collision;
ii) Marine Protection and Indemnity Insurance;
iii) Excess Protection and Indemnity Insurance —
covers damage or liability in excess of the value of the
ship. It is an exception to the limited liability rule in
maritime law. Includes cases when shipowner was
negligent.
iv) Water Pollution Liability.
c) Over the cargo
i) Trip or Single Risk Cargo Policy;
ii) Open Cargo Policy.
d) Over freightage and income — cover loss of freightage
for failure to complete voyage or delivery of goods.
e) Compulsory Passenger and Cargo Liability
Insurance — mandated by RA 9295. P200K for each
passenger imposed on shipowners. P50K each for
survivors of a maritime accident.
2) Inland Marine — do not relate to navigation. Includes
insurance over cargoes, infrastructure and oaters.
3) Aviation — over aircrafts.
1) All Risk Policy — against ALL conceivable causes except
a) As otherwise excepted, such as
i) Free capture and seizure (FC&S) clause;
ii) Strikes, riots and civil commotion (SR&CC)
clause; or
b) One due to fraud or intentional misconduct of insured.
2) Named Perils Policy
a) Perils of the sea or navigation — include only such
losses as are of extraordinary nature or arise from some
overwhelming power which cannot be guarded against by
the ordinary exertion of human skill or prudence.
b) Perils of the ship — a loss which in the ordinary course
of events, results:

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i) From the ordinary, natural, and inevitable action of
the sea;
ii) From ordinary wear and tear of the ship; and
iii) From the negligent failure of the ship’s owner to
provide the vessel with the proper equipment to
convey the cargo.
c) Fire and Related Perils;
d) Jettison — goods are thrown overboard to save other
cargoes and/or the ship;
e) Barratry — act committed by the master or crew for
some unlawful or fraudulent purpose contrary to their
duty;
f) Assailing Thieves — theft of cargo committed by force;
g) All Other like Perils — to be interpreted as covering
Who has Insurable Interest
risks which are of like kind with particular risks which are
enumerated in the preceding part of the same clause,
following ejusdem generis.
Clauses that Modify Coverage
1) Inchmaree Clause — included in a hull policy to cover loss or
damage
a) through the bursting of the boiler, breaking of shafts
or
b) through the latent defects of the machinery and
equipment, hull or its appurtenances and
c) faults or errors in the navigation or management of
the vessel.
2) Running Down Clause — insures liability against collision;
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3) Delay Clause — exempts insurer from liability if there was
delay in the voyage;
4) Sue and Labor (S&L) Clause — requires the insured and his
representative to take all reasonable steps that are necessary to
limit or reduce an imminent loss.
5) Protection and Indemnity (P&I) Clause — insures the
shipowner from liability for damages caused by the ship to
wharves, piers and other harbor installations;
6) Institute War Clause (IWC) — covers risks covered by
FC&S + capture, seizure, arrest, restraint or detainment,
including by civil authorities.
7) Memorandum Clause — provides for the list of goods for
which the insurer will be liable unless damage exceeds a stated
percentage of total value.
1) Over the ship
a) Shipowner - up to the full value of the ship;
If ship also insured by charterer, the shipowner can
only recover the portion that he cannot recover from
the charterer.
b) Charterer - to the extent that he is liable to be damni ed
by its loss;
c) Lender on Bottomry - up to the extent of the loan;
d) Mortgagee.
2) Over cargo
a) Both the shipowner and shipper.
b) In Respondentia.
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3) Over freightage and income
a) Shipowner and charterer - over the expected freightage,
which arises:
i) If there is a charter party — when the ship has
broken ground on the chartered voyage;
ii) In carriage of goods — when the goods are
actually on board or there is some contract for
putting them on board, and both ship and goods
are ready for the speci ed voyage.
b) One who has an interest in the thing from which
pro ts are expected to proceed has an insurable interest in
the pro ts. (§107)
Concealment
GR: In ordinary insurance, belief or expectation of third persons
are NOT material and need not be disclosed.
EXC: In marine insurance, where information of the belief or
expectation of a third person, in reference to a material fact, is
material.
GR: Insurer may rescind contract even if the risk concealed is NOT
the cause of the loss.
EXC: In marine insurance, insurer is exonerated ONLY if the risk
concealed is the cause of the loss and relates to the:
1) national character of the insured;
2) liability of the thing insured to capture and detention;
3) liability to seizure from breach of foreign laws of trade;
4) want of necessary documents; OR
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5) use of false and simulated papers.
Representation
1. If intentionally false in any material respect, or in respect of
any fact on which the character and nature of the risk
depends, the insurer may rescind the entire contract.
3) Against improper deviation — Instances of deviation:
2. Expectations of insured are not material unless it will amount
to promissory representation.
3. The contract will be avoided only if there is fraud in
representing an expectation that turns out to be false (§114).
Implied Warranties
a) Vessel has the requisite documents of nationality or
neutrality; and
b) Vessel will not carry documents that will cast reasonable
suspicion on its nationality or neutrality if nationality or
neutrality is expressly warranted. (§122)
a) Departure from the course of sailing xed by mercantile
usage;
b) Departure from the most natural, direct and
advantageous route if not xed by mercantile usage;
i) Total destruction of the thing insured;
ii) The irretrievable loss of the thing by sinking, or by
being broken up;
iii) Any damage to the thing which renders it valueless
to the owner for the purpose for which he held it; or
iv) Any other event which e ectively deprives the
owner of the possession, at the port of destination,
of the thing insured.
b) Constructive, commercial, or conventional — gives to
a person insured a right to abandon, under §141.

1) Seaworthiness — a ship is seaworthy if it is able to

c) Unreasonable delay in pursuing the voyage; or i) Actual loss of more than ¾ of its value;
withstand the rigors of the voyage and it has been d) Commencement of an entirely di erent voyage.
ii) Damage reducing the value of the vessel and cargo by
a) properly laden, A deviation is PROPER: more than ¾;
b) provided with competent crew and a) When caused by circumstances over which neither the
master nor the owner of the ship has any control;
iii) Expense of transshipment exceeds ¾ of the value of
c) equipped with the appropriate appurtenances and cargo.
equipment. b) When necessary to comply with a warranty, or to avoid
a peril, whether or not the peril is insured against; GR: Fact of actual loss must be established by su cient
GR: It is only at the commencement of the voyage that the evidence.
ship be seaworthy. There is no breach of warranty if c) When made in good faith, and upon reasonable grounds
the ship becomes unseaworthy afterwards. of belief in its necessity to avoid a peril; or EXC: There is presumed actual total loss if the following
requisites concur:
EXC: If there is unreasonable delay in repairing the d) When made in good faith, for the purpose of saving
defect when the ship becomes unseaworthy during human life or relieving another vessel in distress. a) Continued absence of the ship for a considerable
the voyage. The insurer is exonerated. (§120) length of time; and
Every other deviation, IMPROPER.
As to cargo owners, it is their responsibility to make sure the b) The vessel has not been heard of. (§134)
4) Legality of voyage.
carrier they choose to ship their goods is seaworthy. 2) PARTIAL — not total.
Loss
2) That the ship has the documents of neutrality or Reshipment
1) TOTAL
nationality —
a) Actual — caused by:

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Whenever the ship is prevented from completing its voyage because of a 3) Be neither partial nor conditional; Free from Particular Average (FPA) Clause — free from
peril insured against, the rules are as follows: PA only, and not GA.
4) Made within a reasonable time after receipt of reliable
1) If the goods are reshipped, the insurance over the goods information of the loss; 2) General or Gross — all damages and expenses which are
continue when they are thus reshipped; DELIBERATELY caused in order to save the vessel and/or its
5) Must be factual;
cargo at the same time, from real and known risk. The
2) The insurer may require the additional premium if the hazard
6) Made by giving notice thereof to the insurer orally or in requisites are:
is increased by this extension of liability;
writing; AND
a) There must be a common danger;
3) The marine insurer is bound to pay for damages, expenses,
7) The notice of abandonment must be explicit and must
extra freightage, etc. incurred in saving cargo reshipped, up to b) For the common safety, part of the vessel or of the
specify the particular cause.
the amount insured; and cargo or both is sacri ced deliberately;
Co-insurance
4) The marine insurer shall NOT be liable for any amount in c) From the expenses or damages caused follows the
excess of the insured value or, if there be none, of the insurable There is ALWAYS co-insurance in marine insurance. The requisites for successful saving of the vessel and cargo; and
value. its application are as follows:
d) The expenses and damages should have been incurred
Abandonment 1) There must be PARTIAL loss; and or in icted after taking proper legal steps and
2) There is UNDER insurance, or that the insurance coverage is authority.
The act of the insured by which, after a constructive total loss, he
declares the relinquishment to the insurer of his interest in the LESS than the value of the property insured. The formula for the determination of the general average
thing insured. 𝑆ℎ𝑎𝑟𝑒 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑒𝑟 =
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
𝑥 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐷𝑎𝑚𝑎𝑔𝑒 contribution of the insurer is:
𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑃𝑟𝑜𝑝𝑒𝑟𝑡𝑦
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
𝐴𝑚𝑜𝑢𝑛𝑡 = 𝑥 𝐺𝐴 𝑆ℎ𝑎𝑟𝑒 𝑜𝑓 𝐼𝑛𝑠𝑢𝑟𝑒𝑑
Abandonment in Maritime Law Marine Insurance Averages 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑃𝑟𝑜𝑝𝑒𝑟𝑡𝑦 𝐼𝑛𝑠𝑢𝑟𝑒𝑑

All extraordinary or accidental expenses which may be incurred during GR: The insured may either hold the insurer directly liable for the
Need for
constructive loss
✘ ✔ the voyage in order to preserve the vessel and/or cargo and any damage whole of the insured value of the property sacri ced for the
or deterioration which the vessel may su er. general bene t, subrogating him to his own right of
Persons whom the contribution from the other interested parties as soon as the
Made in favor of Insured 1) Simple or Particular — may be covered by the insurance
carrier is liable vessel arrives at her destination.
policy. They are all expenses and damages caused to the vessel
or to her cargo which have NOT inured to the bene t and EXC: The insured cannot claim in the following instances:
Abandonment shall be e ective if the following requisites are present:
pro t of ALL the persons interested. If not general, then it
1) There is already separation of interest liable to the
1) There must be an actual relinquishment by the person is particular.
contribution;
insured of his interest in the thing insured;
The owner of the goods which gave rise to the expense or
2) The insured neglects to claim contribution although he has
2) There must be constructive total loss; su ered the damage shall bear the simple averages.
the opportunity to enforce the same; and

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3) Insured waives his right to claim contribution.
Fire
Shall include insurance against loss by re, lightning,
windstorm, tornado or earthquake and other allied risks,
when such risks are covered by extension to re insurance policies or
under separate policies.
NB: Insurer is liable only if there is hostile re and NOT friendly
re.
1. Hostile re is one that is uncontrolled, or initially friendly
but passed outside the limits assigned to it.
2. Friendly re is one contained in its proper receptacle.
Alteration
Will prevent recovery on the policy if the following requisites are
present:
1) The alteration is on the use or condition of the thing
insured;
2) The use or condition is limited in the policy;
3) It is without consent of the insurer;
4) Within the control of the insured; AND
5) It increases the risk.
Option to Rebuild Clause — insurer may cause the repair,
rebuilding, or replacement of the buildings or structures wholly or
partially destroyed or damaged.
Prohibitions
§175. No policy of fire insurance shall be pledged,
hypothecated, or transferred to any person, rm or company
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who acts as agent for or otherwise represents the issuing
company, and any such pledge, hypothecation, or transfer
hereafter made shall be void and of no e ect insofar as it may
a ect other creditors of the insured.
Casualty
Insurance covering loss or liability arising from accident or mishap,
excluding those covered in re or marine insurance. It includes, but is
not limited to,
1. Employer's liability insurance — usual exclusions:
a. When there is serious or willful misconduct on the part of
insured;
b. When the employee was hired in violation of law;
c. When insured failed to comply with health and safety
regulations; and
d. When the employer discharges, corces, or discriminates
against an employee.
2. Motor vehicle liability insurance — third party victim may
proceed directly against the insurer for indemnity.
If direct liability to third party is provided for, a no action
clause is NOT allowed.
A no action clause disallows suit against insurer unless nal
judgment is obtained by a third party against the insured.
3. Plate glass insurance,
4. Burglary and theft insurance,
Excluded are those in the insured’s service and employment
5. Personal accident and health insurance as written by
non-life insurance companies — normally includes
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a. Income coverage;
b. Coverage for loss of life, sight or limb; or
c. Medical expenses coverage.
6. Other substantially similar kinds of insurance.
7. Criminal negligence is insurable, so long as it is not gross
amounting to willful misconduct.
Authorized Driver Clause — Insurer will be liable only if the driver
is an “authorized driver” at the time of accident.
1. Duly licensed, need not prove if insured is the driver; and
2. Authorized by the owner of vehicle to drive.
Theft Clause — makes theft a risk insured against. Theft Is NOT
covered by the Malicious Damage Clause.
Compulsory Motor Vehicle Liability
aka Compulsory Third Party Liability (CTPL)
It shall be unlawful for any land transportation operator or owner of a
motor vehicle to operate the same in the public highways unless there is
in force
1. a policy of insurance or
2. guaranty
a. in cash bond or
b. surety bond
to indemnify the death, bodily injury, and/or damage to property of a
third-party or passenger.
Coverage, Extent and Limit of Liability
1) Coverage — P100K (+ P100K if vehicle is for public utility);
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nature that a contemplated peril might directly damnify the

2) Death Indemnity — P70K + P30K funeral expenses;
3) Limit — P100K or P200K per person/injury.
No Fault Indemnity Clause — Proof of fault or negligence is NOT
necessary for payment of any claim if the following are established:
1) A claim may be made against ONE motor vehicle only;
2) Total indemnity shall not exceed P15K;
3) Proofs of loss submitted under oath.
Transfer of ownership DOES NOT suspend the policy. (§395)
Claims Settlement
1) File within 6 months from date of accident, otherwise, deemed
waived;
2) File in court or with the Commissioner within 1 year from
denial of claim, otherwise, claimant’s right of action shall have
prescribed.
2 Insurable interest
E ect of lack of insurable interest. — If the insured has no
insurable interest over the life or property he insures, the insurance
contract is UNENFORCEABLE.
If the contract is really a wager, then it is VOID for being against
public policy.
In Life Insurance
Every person has an insurable interest in the life and health:
a) Of himself, of his spouse and of his children;
b) Of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary
interest;
c) Of any person under a legal obligation to him for the
payment of money, or respecting property or services, of
which death or illness might delay or prevent the performance;
A creditor has an insurable interest over the life of his debtor,
but not the other way around.
insured, is an insurable interest.
§14. An insurable interest in property may consist in:
a) An existing interest;
b) An inchoate interest founded on an existing interest; or
c) An expectancy, coupled with an existing interest in
that out of which the expectancy arises.
§16. A mere contingent or expectant interest in any thing,
not founded on an actual right to the thing, nor upon any
valid contract for it, is NOT insurable.
§17. The measure of an insurable interest in property is the
extent to which the insured might be damni ed by loss or
injury thereof.
The TEST is whether one will
1. Derive pecuniary bene t or advantage from its preservation;
OR

d) Of any person upon whose life any estate or interest vested 2. Su er pecuniary loss or damage from its destruction,
⭐Such an interest, arising from the relation of the party
termination, injury by the happening of the event insured
in him depends. (Sec 10 IC)
obtaining the insurance, either as creditor of or surety for the
against.
assured, or from ties of blood or marriage to him, as will justify a For (b) - (d), the basis of insurable interest is NOT blood
reasonable expectation of advantage or benefit from the continuance relationship but PECUNIARY INTEREST. Kinds of Insurable Interest
of his life. 1) Existing —
In Property Insurance
Its presence has the following purposes: a) Owner;
§18. No contract or policy of insurance on property shall be
1) To reduce moral hazard — dishonesty or character defects in enforceable except for the bene t of some person having b) Lessee;
the individual that increases the chance of loss; and an insurable interest in the property insured.
c) Depositary;
2) Helps in measuring the loss of the insured. §13. Every interest in property, whether real or personal, or
d) Usufructuary;
any relation thereto, or liability in respect thereof, of such
e) Borrower in commodatum;

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f) Possessor holding the property without loss; Need not exist in 5) Transfer of interest from one partner to another partner of
consideration with the consent of owner; between interest over a property jointly insured; and
g) An unpaid seller, even if ownership had already been Expectation of Need not have legal basis or 6) Transfer of interest from one joint or co-owner to another of
transferred upon delivery; Need for the jointly or co-owned property insured.
bene t must have be based on legally
legal basis
h) Vendee, even while the goods are still in transit. legal basis enforceable obligation 7) When a policy is so framed that it will inure to the bene t of
whomsoever, during the continuance of the risk, may become
2) Inchoate, founded on an existing interest — If insured took out the the owner of the interest insured. (Sec 57 IC)
a) A shareholder over the properties of the policy on his own life and
Bene ciary MUST
designated another — NB: The policy is AVOIDED, and not merely suspended, if there
corporation; HAVE insurable
Beneficiary’s NOT necessary is an express prohibition to alienate but the insured breached
b) Purchaser of a property in a judicial sale subject to interest; otherwise,
interest the prohibition.
redemption. considered a
If one took out an
wagering contract
An heir has NO insurable interest over properties that he will insurance on the life of 3 Double insurance and overinsurance
inherit. another — MUST HAVE
Double Insurance
3) Expectancy, coupled with one existing out of which the Assignee’s
expectancy arises — MUST HAVE NOT necessary A double insurance exists where the same person is insured by several
interest
insurers separately in respect to the same subject and interest. Thus:
a) Interest over the pro ts that are to be earned by a
GR: A change of interest in any part of a thing insured 1) The same person is insured;
business;
unaccompanied by a corresponding change of interest in the
b) Future crops of farmers; 2) There are two or more insurers that insured the person
insurance, SUSPENDS the insurance to an equivalent extent,
separately;
c) Expected commission of agents; until the interest in the thing and the interest in the insurance
are vested in the same person. 3) Over the same subject;
d) Owner of a ship in expected freightage.
EXC: Will NOT suspend in the following cases: 4) Involving the same interest; and
Insurable Interest in Property vs. Life Insurance
1) In life, health, and accident insurance; 5) The same peril is insured against.
As to Property Life
2) If there is a change in interest in the thing insured after the GR: NOT PROHIBITED;
Unlimited, except if secured occurrence of the loss;
Extent Limited up to value EXC: Other Insurance Clause.
by creditor
3) If there is a change in interest in one or more of several things
Time when Perfection of contract Perfection of insurance that are separately insured;
it must exist AND at the time of contract 4) Change of interest through succession;

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Overinsurance
If the insured takes out an insurance over the property insured in
an amount which is in excess of the value of the insurable
interest.
Collateral Source Rule
Here, the defendant is prevented from bene ting from the
plainti ’s receipt of money from other sources.
Under this rule, if an injured person receives compensation for his
injuries from a source wholly independent of the tortfeasor, the
payment should NOT be deducted from the damages which he
would otherwise collect from the tortfeasor.
AQUINO: Applies in Life Insurance, but NOT in Property Insurance.
4 No fault, suicide, and incontestability clauses
No Fault Indemnity Clause — Proof of fault or negligence is NOT
necessary for payment of any claim if the following are established:
1) A claim may be made against ONE motor vehicle only;
2) Total indemnity shall not exceed P15K;
3) Proofs of loss submitted under oath.
Suicide Clause
The insurer is liable in case of suicide when it is committed
AFTER the policy has been in force for 2 years from date of issue
or last reinstatement.
The insurer is still liable even before the two year period in any of
the following cases:
1) When a shorter period is provided for;
2) When the suicide was committed in a state of insanity.
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Applicability of Incontestability Clause
If the insured dies within the two-year contestability period, the
insurer is bound to make good its obligation under the policy,
regardless of the presence or lack of concealment or
misrepresentation.
After the two-year period lapses, OR when the insured dies within
the period, the insurer must make good on the policy, even
though the policy was obtained by fraud, concealment, or
misrepresentation. (Sun Life of Canada v. Sibya 2016)
The insurer CANNOT prove that the policy is void ab initio or is
rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent:
After a policy of life insurance made payable on the death of the
insured shall have been in force during the lifetime of the
insured for a period of two (2) years from the date of its issue
or of its last reinstatement,
The incontestability clause applies if the following requisites are
present:
1) The policy must be a Life Insurance policy;
2) The policy is in force for 2 years from issue or last
reinstatement. (Manila Bankers Life Insurance Corp. v. Aban
2013)
What if the insured dies during the two-year period? The death
of the insured within the two-year period will render the right of the
insurer to rescind nugatory. (Sun Life v. Sibya 2016)
NB: This rule is quite controversial as the prevailing rule had been to
allow the lapse of the 2-year period first before the
incontestability clause can be invoked.
The clause CANNOT be invoked in the following cases:
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1) Non-payment of premium;
2) Violation of the conditions of the policy relating to military or
naval service in times of war;
3) Property insurance;
4) Absence of insurable interest;
5) When VICIOUS fraud was employed in obtaining the policy,
i.e. fraudulent impersonation, scheme to murder insured;
6) The cause of the loss is an excepted risk;
7) The bene ciary feloniously kills the insured;
8) Bene ciary failed to comply with conditions subsequent, i.e.
failure to submit notice of loss; and
9) The claim is barred by extinctive prescription.
B Perfection of the insurance contract
O er and acceptance; consensuality
Cognition Theory — An insurance contract is perfected the moment
the o eror learns of the acceptance of his o er by the other party.
1. The contract, to be binding from the date of application, must
have been a completed contract. There can be no contract of
insurance unless the minds of the parties have met in
agreement. (Steamship Mutual Underwriting Association
(Bermuda) Ltd. v. Sulpicio Lines 2017)
2. An insurance contract can be entered into through an agent.
For example, a bank is an agent of the insurer if it o ers a
special type of savings and insurance account whereby the
depositor has automatic insurance coverage for disability or
death. (BPI v. Laingo 2016)
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3. However, there are cases when the insurer assumed the risk of
loss without approving the application. This includes cases
when the buyer of a memorial lot is deemed insured the
moment it enters into a contract with the seller. (Eternal
Gardens Memorial Park v. Phil. American Life Insurance
Corp.)
Delay in acceptance. — Mere delay in acceptance of the insurance
application will not result in a binding contract. However, in proper
cases, the insurer may be liable for TORT.
Delivery of policy. — not necessary for perfection since an insurance
contract is consensual.
Premium payment
An insurer is entitled to payment of the premium as soon as the thing
insured is exposed to the peril insured against.
GR: Cash and carry principle. No policy or contract of
insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid,
notwithstanding any agreement to the contrary.
EXC: in the case of
1) A life or an industrial life policy whenever the grace period
provision applies;
Applies only when the policy had already been in force.
2) Whenever under the broker and agency agreements with duly
licensed intermediaries, a ninety (90)-day credit extension is
given, which is non-extendible;
3) When there is an acknowledgment in the policy or receipt
that the premium has been paid;
Reviewer
4) When there is an agreement that the premium shall be payable
on installment; (Makati Tuscany Condo Corp v. CA) and
5) When the equitable doctrine of estoppel applies.
Effect of Non-payment
1. The obligation of the insurer will NOT become valid and
binding if the first premium has not been paid.
2. If the subsequent premiums have not been paid, the policies
issued will be deemed to have been lapsed. Thus, the insurer
has NO liability to indemnify.
3. It does NOT give the insurer the right to sue or demand
payment from the insured.
4. Will not create the vinculum juris between the parties.
Devices to Prevent Lapse of Life Insurance Policy
1) Grace Period;
2) Automatic Policy Loan — Cash surrender value is the
amount of money the company agrees to pay to the
policyholder if he surrenders it and releases his claims upon it.
If at the end of the grace period the premium has not been
paid, a policy loan will automatically be made from the
policy’s cash value to pay the premium. This is to prevent
unintentional lapse of the policy.
3) Application of Dividend — in case of participating
insurance policy, the insured is entitled to dividends that may
be available. The dividend shall be applied to the premiums
that are due or payable.
4) Reinstatement Clause — at any time within 3 years from
date of default subject to conditions:
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a) Insured must prove insurability; and
b) Pay overdue premium.
Non-default options in life insurance
1) To prevent the lapse of life insurance policy, the insured may
avail of:
a) Grace period;
b) Automatic policy loan from the policy’s cash
surrender value;
c) Application of dividend; and
d) Reinstatement clause.
Reinstatement of a lapsed policy of life insurance
The stipulation in a life insurance policy giving the insured the
privilege to reinstate it upon written application does not give the
insured absolute right to such reinstatement by the mere ling of
an application. The insurer has the right to deny the
reinstatement if it is not satis ed as to the insurability of the
insured and if the latter does not pay all overdue premium and all
other indebtedness to the insurer. After the death of the insured
the insurance Company cannot be compelled to entertain an
application for reinstatement of the policy because the
conditions precedent to reinstatement can no longer be
determined and satis ed. (Lalican v. The Insular Life Assurance)
The policyholder shall be entitled to have the policy reinstated at any
time within three (3) years from the date of default of premium
payment unless the cash surrender value has been duly paid, or the
extension period has expired. There must be:
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a) upon production of evidence of insurability satisfactory to
the company and
b) payment of all overdue premiums and any indebtedness to
the company upon said policy. (Sec 233[j] IC)
Refund of premiums
Return of Premium
1) When the thing was not exposed to the peril insured against;
2) Time policy. When the policy is surrendered before the
expiration of the stipulated time. Refund is pro rata;
3) When the contract is voidable and subsequently annulled;
4) The insurance contract is voidable due to the fraud or
misrepresentation of insurer or of his agent.
5) When the contract is annulled on account of
a) fraud or misrepresentation of the insurer or his agent, or
b) facts, or the existence of which the insured was ignorant of
without his fault.
6) When by any default of the insured other than actual fraud,
the insurer never incurred liability under the policy; and
7) When there is overinsurance.
8) When rescission is granted due to the insurer’s breach of
contract.
When NOT recoverable
1) The risk has already attached, is entire and indivisible;
2) In life insurance;
Reviewer
3) The contract is rescindable or rendered void ab initio due to
the fraud of insured.
Philam Insurance v. Parc Chateau Condominium 2019
WON Philam has NO right to recover the unpaid premium based on
void and ineffective insurance policies.
YES. The Jumbo Risk Provision clearly indicates that failure to pay
in full any of the scheduled installments on or before the due date
shall render the insurance policy void and ine ective as of 4 p.m. of
such date. Parc Association's failure to pay on the rst due date,
resulted in a void and ine ective policy as of 4 p.m. of November 30,
2003. Hence, there is no credit extension to consider as the Jumbo
Risk Provision itself expressly cuts o the inception of the insurance
policy in case of default.
C Rights and obligations of parties
1. The insurer is the party who promises to pay in case of loss.
2. The insured is either
a. The owner of the policy whose life or property is
insured;
Here, the insured and the owner of the policy is one
and the same.
b. One who took out the insurance over the life of
persons in whom he has insurable interest.
D Rescission of insurance contracts
Here, the owner of the policy is called the assured,
while the person whose life is insured is the insured.
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If the owner dies, the policy automatically vests in the
insured, unless otherwise provided for in the policy.
3. A third person is the bene ciary whose favor the insurance
was taken by the insured and who will receive the proceeds of
the insurance.
GR: Designation of bene ciary is REVOCABLE.
EXC: Unless, expressly designated as IRREVOCABLE.
Thus, an irrevocable bene ciary has VESTED rights over the
policy.
4. If a bene ciary is disquali ed:
a. Forfeited share shall pass on to other bene ciaries;
b. If there are no other bene ciaries, or that they are also
DQed, look at the policy contract;
c. If the contract is silent, proceeds go to the estate of
the insured.
5. Grounds for DQ
a. Those made between persons who were guilty of
adultery or concubinage at the time of donation;
Conviction, not necessary.
b. Those made between persons found guilty of the
same criminal o ense, in consideration thereof;
c. Those made to a public o cer or his wife,
descendants and ascendants, by reason of his o ce.
1) When representation is false on material point whether
a rmative or promissory;
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2) Violation of material warranty on the part of either party or 1) The party involved must know, or ought to know, the
Devices to Ascertain and Control Risks
other material provisions of the policy; fact concealed;
1) Concealment;
3) Intentional or unintentional concealment; 2) The fact concealed must be material;
2) Representation;
4) Violation of a special provision of the policy where the policy 3) No warranty is extended by the party regarding the fact
3) Warranties;
declares that violation thereof shall avoid the policy; concealed; and
4) Conditions;
5) Intentional or fraudulent omission, on the part of one insured, 4) The other party does not have the means of
to communicate information of matters proving or tending to 5) Exception, Exclusion, or Exemption. ascertaining.
prove the falsity of a warranty; and
Concealment Representation
6) With respect to fire insurance,
§26. A neglect to communicate that which a party knows Statements made to give information to the insurer to induce him to
a) alteration in the use or condition of a thing insured from and ought to communicate, xxx. enter into the insurance contract.
that to which it is limited by the policy
§27. xxx whether intentional or unintentional entitles the 1. It is a collateral communication
b) made without the consent of the insurer, injured party to rescind a contract of insurance.
2. Made at the time of, or before, issuance of the policy, oral or
c) by means within the control of the insured, and Thus, good faith is NOT a defense. written.
d) increasing the risks. §28. Each party to a contract of insurance must communicate EXC: It may also be one that induces the party to modify
Other Defenses of Insured Against Revocation to the other, in good faith, all facts the contract.

1) Guaranteed Insurability Clause — statements that tend to 1. within his knowledge

Concealment Representation
show that the insured is uninsurable cannot be used against 2. which are material to the contract and
him in the following cases: Involves an omission — Involves a positive assertion or
3. as to which he makes no warranty, and
a) If the insurance has been in force prior to the contest non-disclosure a rmation
for a period of 2 years during the person’s lifetime; or 4. which the other has not the means of ascertaining.
Can pertain to the future, if
The test of materiality is the e ect which the knowledge of the fact Cannot refer to future acts
b) If the statement is not in writing and/or not signed by promissory
the insured. in question would have on the making of the contract. The fact need
not increase the risk or contribute to any loss or damage. It is Same test of materiality for both
2) Failure to invoke before commencement of action;
su cient if the knowledge of it would influence the parties in
3) Waiver; making the contract. Ground for rescission

4) Estoppel. The matter concealed NEED NOT be the cause of the loss. The Insurance Code dispenses with proof of fraudulent intent in
Requisites to rescind on ground of concealment cases of rescission due to concealment, but not so in cases of

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rescission due to false representations. (The Insular Life v. Heirs

GR: Rescission is available only if the breach is on a material An example is an “Other Insurance Clause” wherein it may be
of Alvarez 2018)
warranty. expressly provided as a condition that the insured must give notice
IOW: Fraudulent intent is required to rescind an insurance of the existence of another insurance coverage of the same
EXC: Even if the provision is immaterial, a policy may declare that a
contract due to false representations; but NOT if the property. Otherwise, the policy is null and void.
violation of such avoids the policy, thereby converting the
ground is concealment.
provision into a material one. Exception, Exclusion, or Exemption
When Rescission UNAVAILABLE
§76. A breach of warranty without fraud merely These should be expressed in the policy in clear and unmistakable
1) When there is waiver; exonerates an insurer from the time that it occurs, or where it language.
2) When an action has already been commenced on the is broken in its inception, prevents the policy from attaching
contract; and to the risk. Transportation Law
3) When the incontestability clause applies.
II
Warranty Representation New Civil Code Provisions on Common Carriers
Warranty
Not part of the contract but a Common Carriers
1. An a rmation of fact or a promise that forms part of the Part of the contract
collateral inducement
terms and conditions of the policy. Concept
Written on a policy or its rider May be oral or written
2. It is a statement or promise set forth in the policy, or by Common carrier vs. private carrier
reference incorporated therein, the untruth or non-ful llment, Must be established to be Diligence required
renders the policy voidable by the insurer. Presumed to be material
material
Obligations and liabilities
3. It is either expressed or implied.
There must be strict compliance Must be substantially true Vigilance over goods
4. A statement of a matter relating to the person or thing
insured, or to the risk, as fact, is an express warranty. Safety of passengers
Conditions
a. It must be contained in the policy; or Are in the nature of collateral terms. They include: Defenses available to a common carrier

b. Expressed in another instrument provided that such is
signed by the insured and referred to in the policy.
5. It may relate to the past, the present, the future, or to any or
all of these.
6. Promissory warranty is a statement which imparts that it is
intended to do or not to do a thing which materially a ects the
risk.
1) Promises or obligations regarding claims procedure that Proof of negligence
are not fundamental to the validity of the contract; and Due diligence in the selection and supervision of
2) Conditions conferring more rights to the insurer enlarging employees
or repeating the minimum rights provided by law.
Fortuitous event
May be either condition precedent like payment of premium or
Contributory negligence
condition subsequent like giving notice of loss.
Doctrine of last clear chance

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Extent of liability and one who does such carrying only as an ancillary activity,
Fee Gratuitous or for a fee Gratuitous or for a fee
or “sideline”.
Recoverable damages
2) Art 1732 makes no distinction as to the regularity of the Diligence That of a good father of
Extraordinary
Stipulations limiting liability o er of such service. required the family
Limitations under the Montreal Convention 3) Art 1732 does not distinguish between a carrier o ering its Presumption
services to the “general public”, and one to a narrow segment of negligence
✔ ✘
A Common Carriers of the general population.
Provisions on Common
4) No need to secure a Certi cate of Public Convenience.
1 Concept Governing Carriage of the NCC + Provisions on ordinary
5) Transportation may be by land, water or air. law Public Services Act + contracts of the NCC
Common carriers are Special Transpo Laws
6) Transportation need not be by motor vehicle.
1. persons, corporations, rms or associations
Thus, a pipeline operator is considered a common carrier. Exemption
2. engaged in the business of carrying or transporting passengers from CANNOT stipulate MAY stipulate
7) No need to have a xed and publicly known route, nor
or goods or both, Liability
maintain terminals and issue tickets.
3. by land, water, or air, a) Travel agent. Not an entity engaged in the business of
8) Need not be engaged in the business of public transportation.
4. for compensation, transporting either passengers or goods and is therefore,
9) Need not own the vehicle or vessel that he or she operates.
neither a private nor a common carrier. (Crisostomo v. CA)
5. o ering their services to the public.
NB: Under Sec 7 of RA 10668, foreign vessels engaging in
b) Pipeline operators are common carriers because
A common carrier is one that holds itself out as ready to engage in carriage conducted in accordance with the said law shall not
transportation need not be by motor vehicle.
the transportation of goods for hire as a public employment and not as be considered common carriers and are not o ering to the
a casual occupation. public. c) Customs brokers have been regarded as COMMON carriers
because transportation of goods is an integral part of their
The TRUE TEST for a common carrier is NOT the quantity or
2 Common carrier vs. private carrier business.
extent of business actually transacted, or the number and character of
the conveyances used in the activity, but whether the undertaking is d) Towage is the bringing of one vessel from a port to another.
a part of the activity engaged in by the carrier that he has held As to Common Carrier Private Carrier Here, there is NO transportation to speak of.
out to the general public as his business or occupation. e) Arrastre undertakes to transport goods from the ship's side to
Undertaking At least occasional Single transaction
Thus, the CHARACTERISTICS of a common carrier are the warehouse of the consignee. Such is NOT a common
determined following these principles: Part of general business carrier but the diligence required is still extraordinary.
Part of NOT part of general
or occupation; may also
1) Art 1732 makes no distinction between one whose principal business business or occupation
be ANCILLARY
business activity is the carrying of persons or goods or both,

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f) Stevedoring is the carriage of goods within the holds of the
vessel or from the ship’s tackle to the cargo hold. Also NOT a
common carrier.
Exempting Causes
g) Tramp service. — the operation of a contract carrier which
i) has no regular and xed routes and schedules
ii) but accepts cargo wherever and whenever the shipper
desires,
iii) Is hired on a contractual basis,
iv) Or chartered by any one or few shippers under
mutually agreed terms
v) And usually carries bulk or break bulk cargoes.
Those engaged in tramp services may also be considered
common carriers depending on the circumstances.
3 Diligence required
Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence
1. in the vigilance over the goods and
2. for the safety of the passengers
transported by them, according to all the circumstances of each case.
B Obligations and liabilities
1 Vigilance over goods
The consignee is the person to whom the goods are to be delivered.
1. He may be the shipper himself.
Reviewer for the 2022 Bar
failure to exercise extraordinary diligence when she neglected
2. He may also be a third person who is not a party to the
vetting her driver or providing security for the cargo and failing to
contract of carriage.
take out insurance on the shipment's value. (Tan v. Great Harvest
Enterprises 2019)
Common carriers are responsible for the loss, destruction, or
Duration of Liability
deterioration of the goods, unless the same is due to any of the
The extraordinary responsibility of the common carrier lasts
following causes only:
a) from the time the goods are unconditionally placed in the
1) Flood, storm, earthquake, lightning, or other natural
possession of, and received by the carrier for transportation
disaster or calamity;
b) until the same are delivered, actually or constructively, by the
2) Act of the public enemy in war, whether international or
carrier to the consignee, or to the person who has a right to
civil;
receive them. (Art 1736)
3) Act or omission of the shipper or owner of the goods;
4) The character of the goods or defects in the packing or in
Liability for Baggage of Passengers
the containers; The provisions of Articles 1733 to 1753 shall apply to the passenger's
baggage which is not in his personal custody or in that of his
5) Order or act of competent public authority.
employee. As to other baggage, the rules on deposit concerning the
Absence of delay. If the common carrier negligently incurs in responsibility of hotel-keepers shall be applicable.
delay in transporting the goods, a natural disaster shall not free
1. The keepers of hotels or inns shall be responsible for them as
such carrier from responsibility. (Art 1740)
depositaries, provided that notice was given to them and
Due diligence to prevent or lessen the loss. In order that the that the guests take the precautions relative to the care and
common carrier may be exempted from responsibility, the vigilance of their e ects.
natural disaster must have been the proximate and only
2. The responsibility shall include the loss of, or injury to the
cause of the loss.
personal property of the guests caused by the servants or
Under Art 1745 (6), a common carrier is held responsible — and employees of the keepers of hotels or inns as well as strangers;
will not be allowed to divest or to diminish such responsibility — but not that which may proceed from any force majeure.
even for acts of strangers like thieves or robbers, except where such
3. The act of a thief or robber, who has entered the hotel is not
thieves or robbers in fact acted "with grave or irresistible threat,
deemed force majeure, unless it is done with the use of
violence or force."
arms or through an irresistible force.
The loss here was not attended by grave or irresistible threat,
4. The hotel-keeper is NOT liable for compensation if the loss
violence, or force. Instead, it was brought about by petitioner's
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a. is due to the acts of the guest, his family, servants or
visitors, or
b. arises from the character of the things brought into
the hotel.
5. The hotel-keeper cannot free himself from responsibility
by posting notices to the e ect that he is not liable for the
articles brought by the guest.
Checked-in Baggage. The rules applicable to goods that are being
shipped are applicable to baggage delivered to the custody of the carrier
as an incident of a contract of carriage of passenger.
Hand Carried Luggage. The rules on necessary deposit applies.
Thus, the passenger is duty bound to:
1) Give notice to the common carrier or its employees, of the
e ects brought by the passenger; AND
2) To take the precautions which the common carrier or their
substitutes advised relative to the care and vigilance of their
e ects.
The law requires the common carrier to observe the same diligence as
the hotel keepers in case the baggage remains with the passenger;
otherwise, extraordinary diligence must be exercised. (Sulpicio Lines v.
Sesante 2016)
However, common carriers are still duty-bound to observe
extraordinary diligence even for hand carried luggage.
2 Safety of passengers
Under Article 1758 of the NCC, when a passenger is carried
gratuitously, a stipulation limiting the common carrier’s liability
is VALID.
Reviewer
Void Stipulations
1. A stipulation limiting the liability of the carrier for the injuries
to paying passengers is VOID.
2. The common carrier's responsibility pertaining to acts of its
employees as well as to the safety of its passengers in general
cannot be eliminated or limited by stipulation, by the posting
of notices, by statements on the tickets or otherwise.
Duration of Liability
Such duty of a common carrier to provide safety to its passengers
so obligates it not only during the course of the trip but for so
long as the passengers are within its premises and where they
ought to be in pursuance to the contract of carriage. The statutory
provisions render a common carrier liable for death of or injury to
passengers
a) through the negligence or wilful acts of its employees or
b) on account of wilful acts or negligence of other passengers
or of strangers if the common carrier’s employees through
the exercise of due diligence could have prevented or
stopped the act or omission. (LRTA v. Navidad)
Liability for Acts of Others
Vicarious Liability
Generally, when an injury is caused by the negligence of a servant
or employee, there instantly arises a presumption of law that there
was negligence on the part of the master or employer either in the
selection of the servant or employee or in the supervision over him
after the selection, or both. (Mendoza v. Sps Gomez 2014)
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The registered owner is deemed the employer of the driver and is
thus vicariously liable under Article 2176 in relation with 2180 of
the Civil Code. (Filcar Transport Services v. Espinas 2012)
By Other Passengers and Strangers
A common carrier is responsible for injuries su ered by a passenger
on account of the wilful acts or negligence of other passengers
or of strangers, if the common carrier's employees through the
exercise of the diligence of a good father of a family could have
prevented or stopped the act or omission.
In Pilapil v. CA, the Court clari ed that where the injury sustained
by the passenger was in no way due
1) to any defect in the means of transport or in the method
of transporting, or
2) to the negligent or willful acts of the common carrier's
employees with respect to the foregoing —
such as when the injury arises wholly from causes created by
strangers which the carrier had no control of or prior
knowledge to prevent — there would be no issue regarding the
common carrier's negligence in its duty to provide safe and suitable
care, as well as competent employees in relation to its transport
business; as such, the presumption of fault/negligence foisted
under Article 1756 of the Civil Code should not apply. (G.V.
Florida v. Heirs of Battung 2015)
Liability for
1) Delay in commencement of voyage
If the delay is legally inexcusable, the following result:
a) The carrier is still liable even if natural disaster caused
the damage; (Art 1740)
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b) The stipulation limiting the liability of the carrier is
inoperative; (Art 1747)
c) Carrier is liable for damages due to the delay; AND
d) Consignee may exercise his right to ABANDON
under Art 371 of the Code of Commerce.
2) Defects in equipment and facilities
The common carrier is NOT responsible for the loss,
destruction, or deterioration of goods on account of the
defective condition of the car, vehicle, ship, airplane or other
equipment used in the contract of carriage.
C Defenses available to a common carrier
1 Proof of negligence
The liability of the common carriers does NOT cease upon proof
that they exercised all the diligence of a good father of a family in
the selection and supervision of their employees as mandated by
Art 1759. The only defenses available to common carriers are
a) proof that they observed extraordinary diligence as
prescribed in Article 1756, and
b) following Article 1174 of the Civil Code, proof that the injury
or death was brought about by an event which "could not be
foreseen, or which, though foreseen, were inevitable," or a
fortuitous event.
Due diligence in the selection and supervision
2 proximate and only cause of the loss.
of employees
Reviewer
Common carriers are liable for the death of or injuries to
passengers through the negligence or wilful acts of the former's
employees, although such employees may have acted beyond the
scope of their authority or in violation of the orders of the
common carriers.
This liability of the common carriers does not cease upon proof
that they exercised all the diligence of a good father of a family in
the selection and supervision of their employees. (Travel & Tours
Advisers v. Cruz, Sr., et al 2016)
3 Fortuitous event
1) To be a valid defense, it must be the PROXIMATE CAUSE
of the loss. The following must be proven:
a) The cause of the unforeseen and unexpected
occurrence, or of the failure of obligor to comply with
his obligation, must be independent of the human
will;
b) It must be impossible to foresee, or if it can be
foreseen, it must be impossible to avoid;
c) The occurrence must be such as to render it
impossible for the obligor to ful ll his obligation in a
normal manner;
d) The obligor must be free from any participation in or
the aggravation of the injury resulting to the obligee.
2) In order that the common carrier may be exempted from
responsibility, the natural disaster must have been the
3) However, the common carrier must exercise due diligence to
prevent or minimize loss before, during and after the
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occurrence of ood, storm or other natural disaster in order
that the common carrier may be exempted from liability for
the loss, destruction, or deterioration of the goods. The same
duty is incumbent upon the common carrier in case of an act
of the public enemy referred to in Art 1734, No. 2. (Art 1739)
Tan v. Great Harvest Enterprises 2019 cf De Guzman v. CA
Petitioner's reliance on De Guzman v. CA is misplaced. There, the
common carrier was absolved of liability because the goods were
stolen by robbers who used "grave or irresistible threat, violence,
or force" to hijack the goods. De Guzman viewed the armed hijack
as a fortuitous event.
In contrast to De Guzman, the loss of the soya beans here was not
attended by grave or irresistible threat, violence, or force. Instead, it
was brought about by petitioner's failure to exercise extraordinary
diligence when she neglected vetting her driver or providing security
for the cargo and failing to take out insurance on the shipment's
value.
4 Contributory negligence
1) Contributory negligence is conduct on the part of the
plainti which falls below the standard to which he should
conform for his own protection and which is legally
contributing cause, cooperating with the negligence of the
defendant in bringing about the plainti 's harm.
2) Contributory negligence on the part of the shipper is NOT
a defense that will excuse the carrier from liability. It will only
MITIGATE such liability.
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3) For a common carrier to be absolved from liability in case of
force majeure, it is not enough that the accident was caused by
a fortuitous event. The common carrier must still prove that it
did not contribute to the occurrence of the incident due to its
own or its employees' negligence. (Sulpicio Lines v. Sesante
2016)
4) When there is NO contributory negligence. The
responsibility to avoid the collision with the front vehicle lies
with the driver of the rear vehicle. Consequently, no other
person was to blame but the victim himself since he was the
one who bumped his motorcycle into the rear of the Isuzu
truck. He had the last clear chance of avoiding the accident.
(Raynera v. Hiceta)
5) When there is contributory negligence. The proximate
cause of the death of the victim is the negligence of petitioner's
bus driver, with the contributory negligence of the driver and
owner of the jeepney. (Travel & Tours Advisers v. Cruz, Sr., et
al 2016)
6) The operator of a school bus service is a common carrier
in the eyes of the law. (Sps Perena v. Sps Zarate 2012)
5 Doctrine of last clear chance
1) For the doctrine to be applicable, it is necessary to show that
the person who allegedly had the last opportunity to avert the
accident was aware of the existence of the peril or should, with
exercise of due care, have been aware of it.
2) It can never apply where the party charged is required to act
instantaneously, and if the injury cannot be avoided by the
application of all means at hand after the peril is or should
have been discovered.
Reviewer
3) Where both parties are negligent but the negligent act of one is
appreciably later in point of time than that of the other, or
where it is impossible to determine whose fault or negligence
brought about the occurrence of the incident, the one who
had the last clear opportunity to avoid the impending harm
but failed to do so, is chargeable with the consequences arising
therefrom.
D Extent of liability
1 Recoverable damages
1) Actual and Consequential Damages
The passenger or his heirs can recover not only actual damages,
but also consequential or compensatory damages:
a) Loss of earning capacity — 2/3 x (80 – age at time
of death) x Net Earnings;
b) Straight death indemnity of P50K under Art 2206;
c) Moral damages + Attorney’s fees.
2) Moral Damages
Recoverable if the cases under Art 2219 of the NCC are the
proximate result of the breach of contract of carriage.
Recoverable only when
a) Death of passenger results; or
b) The carrier was guilty of fraud and bad faith even if
death does not result.
Without the award of moral damages, award of exemplary
damages and attorney’s fees is improper.
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3) Exemplary Damages
May be awarded only if the defendant had acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner.
4) Attorney’s Fees and Interest.
2 Stipulations limiting liability
A stipulation between the common carrier and the shipper or owner
limiting the liability of the former for the loss, destruction, or
deterioration of the goods to a degree less than extraordinary diligence
shall be VALID, provided it be:
1) In writing, signed by the shipper or owner;
2) Supported by a valuable consideration OTHER than the
service rendered by the common carrier; and
3) Reasonable, just and not contrary to public policy.
VOID Stipulations
Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy:
1) That the goods are transported at the risk of the owner or
shipper;
2) That the common carrier will not be liable for any loss,
destruction, or deterioration of the goods;
3) That the common carrier need not observe any diligence in
the custody of the goods;
4) That the common carrier shall not be responsible for the acts
or omission of his or its employees;
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5) That the common carrier's liability for acts committed by The carrier shall NOT be liable for damages to the extent that
thieves, or of robbers who do not act with grave or irresistible they exceed for each passenger 100,000 Special Drawing
threat, violence or force, is dispensed with or diminished; Rights if the carrier proves that:
6) That the common carrier is not responsible for the loss, a. such damage was not due to the negligence or other
destruction, or deterioration of goods on account of the wrongful act or omission of the carrier or its servants
defective condition of the car, vehicle, ship, airplane or other or agents; or
equipment used in the contract of carriage. b. such damage was solely due to the negligence or other
wrongful act or omission of a third party.
Fixed amount
2. In case of destruction or loss of, or of damage to, checked
A stipulation that the common carrier's liability is limited to the
baggage — the event that caused the destruction, loss or
value of the goods appearing in the bill of lading, unless the
damage took place
shipper or owner declares a greater value, is binding.
a. on board the aircraft or
A contract xing the sum that may be recovered by the owner or
shipper for the loss, destruction, or deterioration of the goods is b. during any period within which the checked baggage
VALID, if it was in the charge of the carrier.
1. is reasonable and just under the circumstances, and However, the carrier is NOT liable if and to the extent that the
damage resulted from the inherent defect, quality or vice of
2. has been fairly and freely agreed upon.
the baggage.
Limitations under the Montreal Convention The liability of the carrier is limited to 1,000 Special
3 Drawing Rights for each passenger unless the passenger has
Montreal Convention made, at the time when the checked baggage was handed over
to the carrier, a special declaration of interest in delivery at
1. In case of death or bodily injury of a passenger — the
destination and has paid a supplementary sum
accident which caused the death or injury took place
3. In the case of unchecked baggage — the carrier is liable if the
a. on board the aircraft or
damage resulted from its fault or that of its servants or agents.
b. in the course of any of the operations of embarking or
4. In the event of the destruction or loss of, or damage to, cargo
disembarking.
— the event which caused the damage so sustained took place
For damages not exceeding 100,000 Special Drawing
during the carriage by air. However, the carrier is NOT liable
Rights for each passenger, the carrier shall not be able to
if such event resulted from one or more of the following:
exclude or limit its liability.
a. inherent defect, quality or vice of that cargo;
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b. defective packing of that cargo performed by a person
other than the carrier or its servants or agents;
c. an act of war or an armed con ict;
d. an act of public authority carried out in connection
with the entry, exit or transit of the cargo.
The liability of the carrier is limited to a sum of 17 Special
Drawing Rights per kg, unless the consignor has made, at
the time when the package was handed over to the carrier, a
special declaration of interest in delivery at destination and
has paid a supplementary sum.
5. Delay. — The carrier is liable for damage occasioned by delay
in the carriage by air of passengers, baggage or cargo.
Nevertheless, the carrier shall NOT be liable for damage
occasioned by delay if it proves that it and its servants and
agents took all measures that could reasonably be required to
avoid the damage or that it was impossible for it or them to
take such measures.
In the carriage of persons, the liability of the carrier for each
passenger is limited to 4,150 Special Drawing Rights.
6. The Special Drawing Right (SDR) is an interest-bearing
international reserve asset created by the IMF. It is based on a
basket of international currencies comprising the U.S. dollar,
Japanese yen, euro, pound sterling and Chinese Renminbi. It
is not a currency, nor a claim on the IMF, but is potentially
a claim on freely usable currencies of IMF members. The value
of the SDR is set daily by the IMF on the basis of xed
currency amounts of the currencies included in the SDR
basket and the daily market exchange rates between the
currencies included in the SDR basket.
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7. A carrier may stipulate that the contract of carriage shall be Board of Directors and Trustees Intra-corporate disputes
subject to higher limits of liability than those provided for in Basic principles Capital Structure
this Convention or to no limits of liability whatsoever.
Doctrine of centralized management Shares of stock
8. Any provision tending to relieve the carrier of liability or to
x a lower limit than that which is laid down in this Business judgment rule Nature of shares of stock
Convention shall be NULL and VOID. Tenure and quali cations of directors or trustees Consideration for shares of stock
9. Prescription. — The right to damages shall be extinguished if Election and removal of directors or trustees Watered stock
an action is not brought within a period of two (2) years,
Duties, responsibilities and liabilities for unlawful acts Situs of the shares of stock
reckoned from the date of arrival at the destination, or from
the date on which the aircraft ought to have arrived, or from Stockholders and Members Classes of shares of stock
the date on which the carriage stopped.
Rights and obligations of stockholders and members Certi cate of stock

Doctrine of equality of shares Nature of the certi cate

Corporation Law
III Participation in management Uncerti cated shares
Revised Corporation Code of the Philippines
Proxy Negotiability; requirements for valid transfer of
General Principles Voting trust stocks

Nationality of corporations Cases when stockholders’ action is required Issuance

Control Test By a majority vote Lost or destroyed certi cates

Grandfather Rule By a two-thirds vote Disposition and encumbrance of shares

Doctrine of separate juridical personality By cumulative voting Sale of shares

Doctrine of piercing the corporate veil Proprietary rights Allowable restrictions on the sale of shares

De facto corporations vs. Corporations by estoppel Right to dividends Requisites of a valid transfer

Corporate Powers Right to inspect Involuntary dealings

How powers are exercised Pre-emptive right Dissolution and Liquidation

Ultra vires doctrine Right of rst refusal Modes of Dissolution

Trust fund doctrine Remedial Rights Voluntary and involuntary dissolution

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Methods of Liquidation a Control Test
Other Corporations
Control Test nds initial application and "must govern in
Close corporations reckoning foreign equity ownership in corporations engaged in
nationalized economic activities."
Non-stock corporations
Where a corporation and its non-Filipino stockholders own stocks
Foreign corporations
in a SEC registered enterprise,
What constitutes “doing business”
a. at least 60% of the capital stock outstanding and
Necessity of a license to do business entitled to vote of each of both corporations must be
Requisites for issuance of a license owned and held by citizens of the Philippines; AND
b. at least 60% of the members of the Board of Directors of
Resident agent
each of both corporations must be citizens of the
Personality to sue and suability Philippines,
One-person corporations in order that the corporation shall be considered a Philippine
Mergers and Consolidations national.
Concept
b Grandfather Rule
E ects and limitations
The Grandfather Rule may be used as a supplement to the
Control Test, that is, as a further check to ensure that control and
A General Principles
bene cial ownership of a corporation is in fact lodged in Filipinos.
A corporation is The Grandfather Rule is the method by which the percentage of
1. an arti cial being Filipino equity in a corporation engaged in nationalized and/or
partly nationalized areas of activities is computed. A resort to the
2. created by operation of law,
Grandfather Rule is necessary if doubt exists as to the locus of the
3. having the right of succession and “bene cial ownership” and “control.”
4. the powers, attributes, and properties expressly authorized “Doubt” refers to various indicia that the “bene cial ownership”
by law or incidental to its existence. and “control” of the corporation do not in fact reside in Filipino
shareholders but in foreign stakeholders. These indicators are:
1 Nationality of corporations
a. That the foreign investors provide practically all the
funds for the joint investment undertaken by these
Filipino businessmen and their foreign partner;
b. That the foreign investors undertake to provide
practically all the technological support for the joint
venture;
c. That the foreign investors, while being minority
stockholders, manage the company and prepare all
economic viability studies. (Narra Nickel Mining v.
Redmont Consolidated Mines 2015 Resolution)
Important Jurisprudential Points
1. The term "capital" in Section 11, Article XII of the
Constitution refers only to shares of stock entitled to vote
in the election of directors, and thus, refers ONLY TO
COMMON SHARES, and NOT to the total outstanding
capital stock comprising both common and non-voting
preferred shares.
Full bene cial ownership of 60% of the outstanding
capital stock, coupled with 60% of the voting rights, is
required. (Gamboa v. Teves 2011 En Banc)
2. Both the Voting Control Test and the Bene cial
Ownership Test must be applied to determine whether a
corporation is a “Philippine national.”
The 60-40 ownership requirement in favor of Filipino
citizens must apply separately to each class of shares,
whether common, preferred non-voting, preferred
voting or any other class of shares. (Heirs of Gamboa v.
Teves 2012 En Banc Resolution)
3. The SEC suggested applying the Grandfather Rule on

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a. two (2) levels of corporate relations for
i. publicly-held corporations or
ii. where the shares are traded in the stock
exchanges, and to
b. three (3) levels for
i. closely held corporations or
ii. the shares of which are not traded in the
stock exchanges. (Narra Nickel Mining v.
Redmont Consolidated Mines 2015
Resolution)
4. If the Filipino has
a. Political Rights — the voting power of the
"speci c stock", i.e., he can vote the stock or direct
another to vote for him, or
b. Economic Rights — the investment power over the
"speci c stock", i.e., he can dispose of the stock or
direct another to dispose of it for him, or
c. both, i.e., he can vote and dispose of that "speci c
stock" or direct another to vote or dispose it for him,
then such Filipino is the "bene cial owner" of that "speci c
stock." (Roy III v. Herbosa 2017 En Banc Resolution)
2 Doctrine of separate juridical personality
A corporation has a personality separate and distinct from that of
its stockholders or members composing it, as well as from the
directors, trustees and o cers who act on its behalf.
Consequences
Reviewer
1. The property of the corporation is not the property of its
stockholders or members.
2. A corporation can incur obligations which should not be
attributed to its stockholders, directors and o cers.
3. Limited Liability Rule — A stockholder is personally liable
for the nancial obligations of the corporation to the extent of
his unpaid subscription.
Liability for tort and crimes
The corporation should alone be liable for its own corporate acts
and liabilities entered into by its authorized o cers.
Recovery of damages
GR: A corporation is not entitled to moral damages because, not
being a natural person, it cannot experience physical su ering
or sentiments like wounded feelings, serious anxiety, mental
anguish and moral shock.
EXC: A juridical person can validly claim for libel or any other form
of defamation and claim moral damages.
Article 2219(7) of the Civil Code expressly authorizes the
recovery of moral damages in cases of libel, slander or any
other form of defamation. Article 2219(7) does not qualify
whether the plaintiff is a natural or juridical person.
Silverio Jr. v. Filipino Business Consultants Inc.
WON FBCI's acquisition of the "substantial and controlling shares of
stocks" of Esses and Tri-Star entitles it to the possession of the property
owned by the latter.
NO. Esses and Tri-Star, just like FBCI, are corporations. A
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corporation has a personality distinct from that of its
stockholders. Thus, FBCI's alleged controlling shareholdings in
Esses and Tri-Star merely represent a proportionate or aliquot
interest in the properties of the two corporations. Such controlling
shareholdings do not vest FBCI with any legal right or title to any of
Esses and Tri-Star's corporate properties.
3 Doctrine of piercing the corporate veil
Under the doctrine of "piercing the veil of corporate fiction,"
the court looks at the corporation as a mere collection of
individuals or an aggregation of persons undertaking business as a
group, disregarding the separate juridical personality of the
corporation unifying the group.
The procedure for the doctrine to be properly applied:
1) The court must first acquire jurisdiction over the
corporation or corporations involved before its or their
separate personalities are disregarded; and
2) The doctrine can only be raised during a full-blown trial over a
cause of action duly commenced involving parties duly
brought under the authority of the court by way of service of
summons or what passes as such service. (Kukan International
v. Reyes 2010)
Stockholders of a corporation are liable for the debts of the corporation
up to the extent of their unpaid subscriptions. They cannot invoke
the veil of corporate identity as a shield from liability, because the veil
may be lifted to avoid defrauding corporate creditors. (Halley v.
Printwell 2011)
The doctrine of piercing the corporate veil applies only in three (3)
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basic areas, namely: assets of a corporation owned or substantially controlled by the

Corporation interlocking directorates may serve as
defendant.
1) Defeat of public convenience as when the corporate ction 2013 indicia of control, by themselves and
is used as a vehicle for the evasion of an existing obligation; In contrast, in insider reverse piercing, the controlling members without more, however, these
will attempt to ignore the corporate ction in order to take circumstances are insu cient to
2) Fraud cases or when the corporate entity is used to justify a
advantage of a bene t available to the corporation, such as an establish an alter ego relationship.
wrong, protect fraud, or defend a crime; or
interest in a lawsuit or protection of personal assets. (International
3) Alter ego cases, where a corporation is merely a farce since it is Academy of Management & Economics v. Litton 2017) The mere ownership by a single
a mere alter ego or business conduit of a person, or where the stockholder of even all or nearly all of
Survey of Cases WPM
corporation is so organized and controlled and its a airs are so the capital stocks of a corporation is
International
conducted as to make it merely an instrumentality, agency, Apply not by itself a su cient ground to
Case Circumstance
Piercing
Trading, Inc.
disregard the separate corporate
✘
conduit or adjunct of another corporation.
v. Labayen
personality. The wrongdoing must
Case law lays down a three-pronged test to determine the application A corporation not impleaded in a 2014
Kukan be clearly and convincingly
of the alter ego theory, which is also known as the instrumentality suit cannot be subject to the court's
theory, namely: International
process of piercing the veil of its
✘ established.
v. Reyes 2010
1) Instrumentality or Control Test — Control, not mere corporate ction. Rosales v. New
The sale of the assets of New ANJH
majority or complete stock control, but complete A.N.J.H.
The prevailing rule is that a Enterprises
to NH Oil was a circumvention of ✔
domination, not only of nances but of policy and business
Halley v. stockholder is personally liable for the employees' security of tenure.
practice in respect to the transaction attacked so that the 2015
corporate entity as to this transaction had at the time no Printwell, Inc. the nancial obligations of the ✔
2011 corporation to the extent of his International Santos used I/AME as a means to
separate mind, will or existence of its own;
unpaid subscription. Academy of defeat judicial processes and to evade
2) Fraud Test — Such control must have been used by the Management his obligation to Litton. ✔
defendant to commit fraud or wrong; and Goldkey was merely an adjunct of & Economics Outsider reverse veil-piercing is
Heirs of Tan
Hammer and, as such, the legal v. Litton 2017 applicable in the instant case.
3) Harm Test — The aforesaid control and breach of duty must Uy v.
ction that it has a separate
have proximately caused the injury or unjust loss International
personality from that of Hammer
✔ G Holdings-being the majority and
complained of. (DBP v. Hydro Resources Contractors 2013) Exchange
should be brushed aside as they are, Maricalum controlling stockholder-had been
Reverse Piercing of the Corporate Veil Bank 2013
undeniably, one and the same. Mining Corp. exercising signi cant control over
v. Florentino Maricalum Mining.
✘
The plainti seeks to reach the assets of a corporation to satisfy
DBP v. Hydro While ownership by one corporation 2018 However, the fraud and harm tests
claims against a corporate insider. It has two (2) types:
Resources of all or a great majority of stocks of ✘ were not satis ed.
Outsider reverse piercing occurs when a party with a claim Contractors another corporation and their
against an individual or corporation attempts to be repaid with

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De facto corporations vs. Corporations
B
by estoppel
1. Corporation by estoppel. All persons who assume to act
as a corporation knowing it to be without authority to do so
shall be liable as general partners for all debts, liabilities and
damages incurred or arising as a result thereof. (§20)
2. De facto Corporation.
a. the existence of a valid law under which it may be
incorporated;
b. an attempt in good faith to incorporate; and
c. assumption of corporate powers.
The due incorporation of any corporation shall not be
inquired into collaterally in any private suit. Such inquiry
may be made by the Solicitor General in a quo warranto
proceeding. (§19)
Sawadjaan v. CA
At the very least, by its failure to submit its by-laws on time, the
AIIBP may be considered a de facto corporation whose right to
exercise corporate powers may not be inquired into collaterally in
any private suit to which such corporations may be a party.
Seventh Day Adventist v. Northeastern
Mindanao Mission of Seventh Day Adventist
The alleged donation to petitioners was void. The donation could
not have been made in favor of an entity yet inexistent at the time it
was made. Nor could it have been accepted as there was yet no one
Reviewer
to accept it.
Corporate existence begins only from the moment a certi cate of
incorporation is issued. No such certi cate was ever issued to
petitioners or their supposed predecessor-in-interest at the time of
the donation. Petitioners obviously could not have claimed
succession to an entity that never came to exist. Neither could the
principle of separate juridical personality apply since there was never
any corporation to speak of.
Lozano v. De los Santos
Where there is no third person involved and the con ict arises only
among those assuming the form of a corporation, who therefore
know that it has not been registered, there is no corporation by
estoppel.
Macasaet v. Co, Jr. 2013
Abante Tonite is a corporation by estoppel as the result of its
having represented itself to the reading public as a corporation
despite its not being incorporated. Its non-incorporation with the
SEC was of no consequence.
Missionary Sisters of Our Lady of Fatima v. Alzona 2018
WON petitioner has the legal capacity to accept the donation of
Purificacion.
YES, not in the capacity as a de facto corporation but as a
corporation by estoppel. It is the act of registration with SEC
through the issuance of a certi cate of incorporation that marks the
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beginning of an entity's corporate existence. Here, Puri cacion dealt
with the petitioner as if it were a corporation. This is evident from
the fact that Puri cacion executed two (2) documents conveying her
properties in favor of the petitioner.
Further, the subsequent act by Puri cacion of re-conveying the
property in favor of the petitioner is a ratification by conduct of
the otherwise defective donation.
C Corporate Powers
1 How powers are exercised
General powers
Theory of general capacity
a) To sue and be sued in its corporate name;
b) To have perpetual existence unless the certi cate of
incorporation provides otherwise;
c) To adopt and use a corporate seal;
d) To amend its articles of incorporation;
e) To adopt bylaws;
f) In case of stock corporations, to issue or sell stocks to
subscribers and to sell treasury stocks; and to admit members
to the corporation if it be a nonstock corporation;
g) To purchase, receive, take or grant, hold, convey, sell, lease,
pledge, mortgage, and otherwise deal with such real and
personal property;
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h) To enter into a partnership, joint venture, merger,
consolidation, or any other commercial agreement with
natural and juridical persons;
i) To make reasonable donations, including those for the public
welfare or for hospital, charitable, cultural, scienti c, civic, or
similar purposes:
Provided, That no foreign corporation shall give donations in
aid of any political party or candidate or for purposes of
partisan political activity;
j) To establish pension, retirement, and other plans for the
bene t of its directors, trustees, o cers, and employees; and
k) To exercise such other powers as may be essential or
necessary to carry out its purpose or purposes as stated in the
articles of incorporation.
Speci c powers
Theory of specific capacity — No corporation shall possess or
exercise any corporate powers except
1. those conferred by law, its AOI,
2. those implied from express powers and
3. those as are necessary or incidental to the exercise of the
powers so conferred.
The corporation’s capacity is limited to such express, implied and
incidental powers.
Extend or shorten corporate term
When approved by a majority vote of the board of directors or
trustees, and rati ed at a meeting by the stockholders or members
Reviewer
representing at least two-thirds (2/3) of the OCS or of its
members.
In case of extension of corporate term, a dissenting stockholder
may exercise the right of appraisal.
Increase or decrease capital stock or incur,
create, increase bonded indebtedness
Needs to be approved by a majority vote of the board of directors
and by two-thirds (2/3) of the outstanding capital stock at a
stockholders’ meeting duly called for the purpose.
No decrease in capital stock shall be approved by the SEC if its
effect shall prejudice the rights of corporate creditors.
Deny pre-emptive rights
Pre-emptive right under Sec 38 of the RCC refers to the right
of a stockholder of a stock corporation to subscribe to all issues or
disposition of shares of any class, in proportion to their respective
shareholdings.
The right may be restricted or denied under the AOI, and
subject to certain exceptions and limitations.
Stock Transactions Covered
1) Increase in the ACS;
2) Opening for subscription of the unissued portion of existing
capital stock; and
3) Disposition of treasury shares.
When NOT Available
1) When denied by the AOI;
2) Shares issued to comply with the prescribed stock o erings or
minimum stock ownership by the public;
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3) To acquire needed investment through property-for-share
exchange; and
4) To restructure the nances of the corporation through a debt
to equity conversion.
Sell or dispose corporate assets
A corporation may, by a majority vote of its board, sell, lease,
exchange, mortgage, pledge, or otherwise dispose of its property
and assets.
a. If ordinary disposition = No need for authorization from
stockholders;
b. If it involves the sale of all or substantially all of the
corporation’s properties and assets, including its goodwill =
must be authorized by the vote of the stockholders
representing at least 2/3 of the OCS, or of the members, in a
stockholders’ or members’ meeting duly called for the purpose.
When is the sale deemed a substantial disposition?
If the corporation would be rendered incapable of
1. continuing the business or
2. accomplishing the purpose for which it was incorporated.
Here, any dissenting stockholder may exercise the right of
appraisal.
Acquire own shares
Provided that the corporation has unrestricted retained
earnings in its books to cover the shares to be purchased or
acquired, a stock corporation shall have the power to purchase or
acquire its own shares for a legitimate corporate purpose, including
the following cases:
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a) To eliminate fractional shares arising out of stock
dividends;
b) To collect or compromise an indebtedness to the
corporation,
1) arising out of unpaid subscription,
2) in a delinquency sale, and
3) to purchase delinquent shares sold during said sale;
and
c) To pay dissenting or withdrawing stockholders entitled to
payment for their shares under the provisions of this Code.
Invest corporate funds in another corporation or business
Investment Voting Required
is reasonably necessary to accomplish its
Majority of Board
primary purpose as stated in the AOI
Majority of Board +
in any other corporation, business, or for
Stockholders
any purpose other than the primary
representing 2/3 of OCS
purpose for which it was organized
or 2/3 of members.
The board must evaluate whether the investment has a logical
relation to or is in direct and immediate furtherance of the
corporation’s main business.
Rati cation by stockholders or members must be in a meeting duly
called for the purpose. Here, any dissenting stockholder may
exercise the right of appraisal.
Reviewer
Declare dividends
The board of directors of a stock corporation may declare
dividends out of the unrestricted retained earnings to ALL
stockholders on the basis of outstanding stock held by them.
Any cash dividends due on delinquent stock shall rst be applied
to the unpaid balance on the subscription + costs and expenses,
while stock dividends shall be withheld from the delinquent
stockholders until their unpaid subscription is fully paid.
No stock dividend shall be issued without the approval of
stockholders representing at least 2/3 of the OCS at a regular or
special meeting duly called for the purpose.
Enter into management contract
Voting Required
In interlocking Majority of Board +
ownership or Stockholders representing 2/3 of OCS or 2/3 of
management members of MANAGED corporation.
Majority of Board +
otherwise Stockholders representing majority of OCS or
majority of members.
a) Interlocking ownership — where a stockholder or
stockholders representing the same interest of both the
managing and the managed corporations own or control more
than one-third (1/3) of the total OCS entitled to vote of the
managing corporation; or
b) Interlocking management — where a majority of the
members of the board of directors of the managing
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corporation also constitute a majority of the members of the
board of directors of the managed corporation,
Management Contract — contract whereby a corporation
undertakes to manage or operate all or substantially all of the
business of another corporation, whether such contracts are called
service contracts, operating agreements or otherwise.
GR: No management contract shall be entered into for a period
longer than ve (5) years for any one (1) term.
EXC: Such service contracts or operating agreements which relate to
the exploration, development, exploitation or utilization of
natural resources may be entered into for such periods as
may be provided by the pertinent laws or regulations.
A management contract amounts to a de facto merger when the
management relates to all or substantially all of the business of the
corporation. This does NOT trigger the exercise of appraisal
right.
a Ultra vires doctrine
1. An illegal act contemplates the doing of an act which is
contrary to law, morals, or public order, or contravene
some rules of public policy or public duty, and are, like
similar transactions between individuals, VOID.
2. Mere ultra vires acts, on the other hand, or those which
are not illegal and void ab initio, but are not merely within
the scope of the articles of incorporation, are merely
VOIDABLE and may become binding and enforceable
when rati ed by the stockholders. (Bernas v. Cinco 2015)
The test to be applied is whether the act in question is in direct and
immediate furtherance of the corporation's business, fairly incidental
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to the express powers and reasonably necessary to their exercise. If so, corporate assets. Thus, any disposition of corporate funds and
person with authority to transact on its behalf.
the corporation has the power to do it; otherwise, not. assets to the prejudice of creditors is null and void. (Turner v.
(Magallanes Watercraft Association v. Auguis 2016) UM does not have the power to mortgage its properties in Lorenzo Shipping 2010)
order to secure loans of other persons. As an educational
Ultra Vires Act Consequences This doctrine is the underlying principle in the procedure for the
institution, it is limited to developing human capital through formal
distribution of capital assets which allows the distribution of
The resulting contract is void. instruction.
corporate capital only in three instances:
The relationship between a corporation and its representatives is
The contract is not subject to rati cation. 1) amendment of the AOI to reduce the ACS,
governed by the general principles of agency. Unauthorized acts
Acts contrary to
that are merely beyond the powers of the corporation under 2) purchase of redeemable shares by the corporation,
law, morals or The action or defense for the
its articles of incorporation are NOT void ab initio. They may regardless of the existence of unrestricted retained
public policy declaration of its nullity does not
be rati ed. Here, it was not shown that petitioner issued a resolution earnings, and
prescribe.
ratifying the execution of the mortgage contracts.
3) dissolution and eventual liquidation of the corporation.
The rule on in pari delicto applies. The general rule is that knowledge of an o cer is considered (Ong Yong v. Tiu)
knowledge of the corporation. However, even though the Sps
The act is unenforceable.
Torres were o cers of both the thrift banks and petitioner, their D Board of Directors and Trustees
The act shall not prejudice third parties who knowledge of the mortgage contracts cannot be considered as
Acts performed acted in good faith. knowledge of the corporation. The rule that knowledge of an o cer
1 Basic principles
outside the scope is considered knowledge of the corporation applies only when the
of the powers Shareholders may ratify the action, prevent its officer is acting within the authority given to him or her by The directors of a corporation must formally organize and elect:
granted to the enforcement and, if proper, institute a the corporation.
a) a president, who must be a director;
corporation by its derivative suit.
The doctrine of apparent authority does not go into the
articles of b) a treasurer, who must be a resident;
If the action has been implemented, the question of the corporation's competence or power to do a
incorporation c) a secretary, who must be a citizen and resident of the
members of the board shall be liable jointly and particular act. A nding that there is apparent authority is not the
severally for all damages resulting from the ultra same as a nding that the corporate act in question is within the Philippines; and
vires act. corporation's limited powers. d) such other o cers as may be provided in the bylaws.
If the corporation is vested with public interest, the board shall also
University of Mindanao, Inc. v. BSP 2016 as to Sec 41 elect a compliance o cer.
b Trust fund doctrine
The same person may hold two (2) or more positions concurrently,
Acts of an o cer that are not authorized by the board of
Under the doctrine, the capital stock, property, and other assets of except that no one shall act as
directors/trustees do not bind the corporation unless the
a corporation are regarded as equity in trust for the payment of
corporation rati es the acts or holds the o cer out as a 1. president and secretary or
corporate creditors, who are preferred in the distribution of

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2. president and treasurer at the same time.
a Doctrine of centralized management
Doctrine of Centralized Management or Principle of Board
Supremacy — The board of directors or trustees shall
1. exercise the corporate powers,
2. conduct all business, and
3. control all properties of the corporation.
b Business judgment rule
Contracts intra vires entered into by the board of directors are
binding upon the corporation and courts will not interfere unless
such contracts are so unconscionable and oppressive as to amount
to wanton destruction to the rights of the minority. (Ong Yong v.
Tiu)
The duty of diligence requires the members of the board to
a) take steps to su ciently inform themselves of relevant
information before making a decision (process due care) and
b) act in good faith and in the honest belief that their action is in
the best interest of the corporation (substantive due care).
1. The business judgment rule does not apply in process due care
(oversight cases).
2. There is gross negligence if there is sustained or systematic
failure of the board to exercise oversight.
3. The business judgment rule applies in the observance of
substantive due care (hindsight cases). The substantive due care
Reviewer for the 2022 Bar
standard depends on the actual abilities of the concerned director
1. Directors shall be elected for a term of one (1) year from
or trustee.
among the holders of stocks registered in the corporation’s
4. Under the substantive due care standard, there must be no books,
obvious corporate waste and the action must have a rational
2. While trustees shall be elected for a term not exceeding three
business purpose or actuated by legitimate business reasons.
(3) years from among the members of the corporation.
As a Defense
3. Each director and trustee shall hold o ce until the successor is
The law upholds board supremacy. Thus, the business judgment rule is elected and quali ed.
a defense when:
4. A director who ceases to own at least one (1) share of stock
a) the act is intra vires; or a trustee who ceases to be a member of the corporation shall
cease to be such.
b) the members of the board observed process due care; and
A person shall be disquali ed from being a director, trustee or o cer
c) the action has a rational business purpose, with no obvious
of any corporation if, within ve (5) years prior to the election or
corporate waste.
appointment as such, the person was:
Legal Effects
a) Convicted by nal judgment:
1. First Branch. The resolutions, contracts and transactions of
1) Of an o ense punishable by imprisonment for a
the board cannot be overturned by the stockholders or
period exceeding six (6) years;
members, and not even by the courts.
2) For violating this Code; and
2. Second Branch. Directors and authorized o cers cannot be
held personally liable for acts or contracts done with the 3) For violating the SRC;
exercises of their business judgment, except:
b) Found administratively liable for any o ense involving
a) When otherwise provided by law; fraudulent acts; and
b) When the directors or o cers acted with fraud, c) By a foreign court or equivalent foreign regulatory authority
gross negligence or in bad faith; and for acts, violations or misconduct similar to those enumerated
in paragraphs (a) and (b) above.
c) When directors or o cers act against the
corporation in conflict of interest situation.
3 Election and removal of directors or trustees
Tenure and quali cations of directors or
2
trustees
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 Commercial Law Reviewer for the 2022 Bar

Elections If there is no secretary, or if the secretary, despite demand, fails No later than the day of such
Expiration
or refuses to call the special meeting or to give notice thereof, expiration at a meeting called
Quorum of Term
the stockholder or member of the corporation signing for that purpose
Owners of majority of the outstanding capital stock must be the demand may call for the meeting by directly addressing
the stockholders or members. At a regular or at a special
present either in person, by proxy or in absentia.
meeting duly called for the
The law follows plurality voting. The nominees who received the 4. Removal may be WITH or WITHOUT cause. Increase in purpose, or in the same
highest number of votes shall be elected as members of the board. Removal without cause may NOT be used to deprive number meeting authorizing the
The election is generally done through minority stockholders or members of the right of increase if so stated in the notice
representation to which they may be entitled under Section of the meeting.
a) straight voting; or
23.
b) cumulative voting. If still
5. The SEC shall, motu proprio or upon veri ed complaint, and constituting a
Removal after due notice and hearing, order the removal of a director or quorum, by the
trustee No later than forty- ve (45)
1. Any director or trustee of a corporation may be removed from All other vote of at least a
days from the time the vacancy
o ce by a vote of the stockholders holding or representing at a. elected despite the disquali cation, or causes majority of the
arose
least two-thirds (2/3) of the OCS, or in a nonstock remaining;
b. whose disquali cation arose or is discovered
corporation, by a vote of at least two-thirds (2/3) of the otherwise, same as
subsequent to an election.
members entitled to vote. above
The removal of a disquali ed director shall be without
2. Such removal shall take place either at a regular meeting of prejudice to other sanctions that the SEC may impose on the Emergency Board: Matling Doctrine
the corporation or at a special meeting called for the purpose, board of directors or trustees who, with knowledge of the When applicable
and in either case, after previous notice to stockholders or disqualification, failed to remove such director or trustee.
members of the corporation of the intention to propose such 1. When the vacancy prevents the remaining directors from
removal at the meeting. Vacancies constituting a quorum and

3. A special meeting of the stockholders or members for the Reason Manner of Filling Period to Fill Up 2. Emergency action is required to prevent grave, substantial, and
purpose of removing any director or trustee must be called irreparable loss or damage to the corporation,
By the stockholders
a. by the secretary on order of the president, or or members in a On the same day of the The vacancy may be temporarily lled from among the o cers of the
Removal regular or special meeting authorizing the corporation by unanimous vote of the remaining directors or trustees.
b. upon written demand of the stockholders
representing or holding at least a majority of the meeting called for removal Scope — The action by the designated director or trustee shall be
OCS, or a majority of the members entitled to vote. the purpose limited to the emergency action necessary, and the term shall cease
within a reasonable time

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 Commercial Law
1. from the termination of the emergency or
2. upon election of the replacement director or trustee,
whichever comes earlier.
Notice to SEC — The corporation must notify the SEC within three
(3) days from the creation of the emergency board, stating therein the
reason for its creation.
Duties, responsibilities and liabilities for
4
unlawful acts
Three-Fold Duty
1. DUTY OF OBEDIENCE — shall direct the a airs of the
corporation only in accordance with the purposes for which it
was organized.
2. DUTY OF DILIGENCE — shall not willfully and
knowingly vote for or assent to patently unlawful acts of the
corporation or act in bad faith or with gross negligence in
directing the a airs of the corporation.
3. DUTY OF LOYALTY — shall not acquire any personal or
pecuniary interest in con ict with their duty as such directors
or trustees. (Strategic Alliance Development Corp. v. Radstock
Securities)
Disloyalty
Observance of the duty of loyalty is relevant when directors or
trustees enter in to a
1) contract with the corporation (self-dealing contracts),
2) negotiate on their compensation, and
3) personally acquire a corporate opportunity.
Reviewer
Where a director, by virtue of such o ce, acquires a business
opportunity which should belong to the corporation, thereby
obtaining pro ts to the prejudice of such corporation, the director
must account for and refund to the latter all such
pro ts.
Unless the act has been rati ed by a vote of the stockholders
owning or representing at least 2/3 of the OCS.
Material Related Party Transactions
1. “Material”. A transaction is material if its value is at least
10% of the corporation’s total assets, as provided in its latest
AFS.
2. “Related Party”. A party is regarded as related party if such
person is
a. a director, trustee, o cer, or a substantial shareholder
(one who is directly or indirectly a bene cial owner of
at least 10% of any class of equity security), and
b. his spouse or relative within the 4th CDCA.
3. Rule if no disinterested board. The law only requires the
approval of the shareholders or members if there is no
disinterested board that may approve the transaction.
4. Rule if disinterested board disapproves. Where the
disinterested board disapproves the self-dealing transaction,
the shareholders or members cannot override such decision
of the board, consistent with the principle of board
supremacy.
Doctrine of Corporate Opportunity
Corporate o cers "are not permitted to use their position of trust
and con dence to further their private interests."
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for the 2022 Bar
The doctrine of "corporate opportunity" is precisely a
recognition by the courts that the duciary standards could not be
upheld where the duciary was acting for two entities with
competing interests.
If there is presented to a corporate o cer or director a business
opportunity
1. which the corporation is nancially able to undertake,
2. is from its nature, in the line of the corporation's business
and is of practical advantage to it,
3. is one in which the corporation has an interest or a
reasonable expectancy, and
4. by embracing the opportunity, the self-interest of the
o cer or director will be brought into con ict with that
of his corporation, the law will not permit him to seize the
opportunity for himself.
And, if, in such circumstances, the interests of the corporation are
betrayed, the corporation may elect to claim all of the benefits
of the transaction for itself. (Gokongwei, Jr. v. SEC)
Solidary liabilities for damages
Directors or trustees who
1. willfully and knowingly vote for or assent to patently unlawful
acts of the corporation or
2. are guilty of gross negligence or bad faith in directing the
a airs of the corporation or
3. acquire any personal or pecuniary interest in con ict with
their duty as such directors or trustees
shall be liable jointly and severally for all damages.
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Solidary liability will only attach to the directors, o cers or
employees of the corporation in certain circumstances, such as:
1. When directors and trustees or, in appropriate cases, the
o cers of a corporation:
a) vote for or assent to patently unlawful acts of the
corporation;
b) act in bad faith or with gross negligence in
directing the corporate a airs; and
c) are guilty of con ict of interest to the prejudice of
the corporation, its stockholders or members, and
other persons;
2. When a director or o cer has consented to the issuance of
watered stocks or who, having knowledge thereof, did not
forthwith le with the corporate secretary his written
objection thereto;
3. When a director, trustee or o cer has contractually agreed
or stipulated to hold himself personally and solidarily liable
with the corporation; or
4. When a director, trustee or o cer is made, by speci c
provision of law, personally liable for his corporate action.
(Heirs of Tan Uy v. International Exchange Bank 2013)
Personal liabilities
A director, trustee, or o cer shall not attempt to acquire, or
acquire any interest adverse to the corporation
1. in respect of any matter which has been reposed in them in
con dence, and
2. upon which, equity imposes a disability upon themselves to
deal in their own behalf;
Reviewer
Otherwise he shall be liable as a trustee for the corporation and must
account for the pro ts which otherwise would have accrued to
the corporation. The following requisites must concur:
1) The complainant must allege in the complaint that the
director or o cer assented to patently unlawful acts of the
corporation, or that the o cer was guilty of gross negligence
or bad faith; AND
2) The complainant must clearly and convincingly prove such
unlawful acts, negligence or bad faith. (Heirs of Tan Uy v.
International Exchange Bank 2013)
Responsibility for Crimes
The following provisions of the RCC provide speci c penalties,
which render the non-application of the “other violations”
provision under Section 170:
1. Corporation by estoppel (§20);
2. E ects of non-use of corporate charter and continuous
inoperation of a corporation (§21);
3. Liability of directors, trustees or o cers (§30);
4. Disloyalty of a director (§33);
5. Liability of directors for watered stocks (§64);
6. Interest on unpaid subscriptions (§65);
7. Payment of balance of subscription (§66); and
8. Books to be kept (§73).
By RGL
for the 2022 Bar
Special Fact Doctrine
In the absence of special facts, any director, o cer or shareholder is
entitled to sell his stock to a third person for such price; and on
such terms as he may desire.
However, o cers, directors, and controlling stockholders of a
corporation owe a limited duciary duty toward minority
stockholders in the matter of sales of stock where there are special
facts which make it inequitable for them to act without regard to
the interests of other shareholders.
Under the law, what is required to be disclosed is a fact of “special
signi cance” which may be
a) a material fact which would be likely, on being made
generally available, to a ect the market price of a security to a
signi cant extent, or
b) one which a reasonable person would consider especially
important in determining his course of action with regard to
the shares of stock. (SEC v. Interport Resources)
Contracts
By self-dealing directors with the corporation
A contract of the corporation with
a. (1) one or more of its directors, trustees, o cers OR
b. their spouses and relatives within the fourth civil degree of
consanguinity or a nity
is voidable, at the option of such corporation, unless all the following
conditions are present:
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a) The presence of such director or trustee in the board meeting
in which the contract was approved was not necessary to
constitute a quorum for such meeting;
b) The vote of such director or trustee was not necessary for the
approval of the contract;
c) The contract is fair and reasonable under the circumstances;
d) In case of corporations vested with public interest, material
contracts are approved by
i) at least two-thirds (2/3) of the entire
membership of the board, with
ii) at least a majority of the independent directors
voting to approve the material contract; and
e) In case of an o cer, the contract has been previously
authorized by the board of directors.
Stockholdings exceeding twenty percent (20%) of the OCS shall 1. in writing,
be considered substantial for purposes of interlocking directors. 2. signed and led, by the stockholder or member,
3. in any form authorized in the bylaws and
E Stockholders and Members
4. received by the corporate secretary within a reasonable
time before the scheduled meeting.
Rights and obligations of stockholders and
1
members Unless otherwise provided in the proxy form, it shall be valid only
for the meeting for which it is intended. No proxy shall be
Corporators are those who compose a corporation, whether as valid and e ective for a period longer than ve (5) years at any one
1. stockholders or shareholders in a stock corporation or as time.
2. members in a nonstock corporation.
b Voting trust
Fundamental rights of a stockholder One or more stockholders of a stock corporation may create a
1) Political; voting trust for the purpose of conferring upon a trustee or
2) Economic or Proprietary; trustees the right to vote and other rights pertaining to the shares.

Where any of the rst three (3) conditions is absent, in the case of a 3) Remedial. GR: For a period not exceeding ve (5) years at any time.
contract with a director or trustee, such contract may be ratified
EXC: In the case of a voting trust speci cally required as a condition
by the vote of the stockholders representing at least 2/3 of the a Doctrine of equality of shares in a loan agreement, said voting trust may be for a period
OCS or of the members in a meeting called for the purpose.
All stocks issued by the corporation are presumed equal with the exceeding ve (5) years but shall automatically expire upon
Between corporations with interlocking directors same privileges and liabilities, provided that the AOI is silent on full payment of the loan.
Except in cases of fraud, and provided the contract is fair and such di erences. (CIR v. CA)
Proxy Voting Trust Agreement
reasonable under the circumstances, a contract between two (2) or
more corporations having interlocking directors shall not be 2 Participation in management
Legal title to the shares
invalidated on that ground alone. Legal title is NOT transferred
transferred to transferee
If the interest of the interlocking director in one (1) corporation is
a Proxy
substantial and the interest in the other corporation or Revocable at any time, unless Irrevocable for a de nite and
A proxy is a form of agency created in instances when a person is
corporations is merely nominal, the contract shall be subject to the coupled with interest limited period of time
unable to personally cast his or her vote; hence, the act of voting is
provisions regarding self-dealing directors insofar as the latter delegated to another person. There is NO requirement that the
corporation or corporations are concerned. same be notarized. Proxies shall be

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Commercial Law Reviewer for the 2022 Bar

Can only act at the speci ed
meeting
Votes only in the absence of the
owner of the stock
NOT limited to any particular
meeting
Can vote and exercise all rights
of the transferor even when the
latter is present.
9) Voluntary dissolution where no creditors are a ected (§134). 14) Voluntary dissolution (§135).
ii By a two-thirds vote iii By cumulative voting
1) Amendment of the AOI; Allows minority shareholders to bundle their votes together and
cast them in favor of one or some nominees.
2) Extending or shortening corporate term;

Need NOT be notarized or a Must be notarized and led with 3) Increasing or decreasing capital stock or incurring, creating or 3 Proprietary rights
copy be led with SEC SEC increasing bonded indebtedness;
4) Sale of all or substantially all of the corporation’s properties a Right to dividends
NO right of inspection HAS the right of inspection
and assets, including its goodwill;
Dividends is the unrestricted retained earnings set apart from the
5) Approval of the plan of merger or consolidation (and any general mass of the funds of the corporation and distributed
c Cases when stockholders’ action is required amendment thereto) (§76); among the stockholders in proportion to their shares or interest in
6) Removal of director or trustees; the corporation, in the form of cash, property or stocks.
i By a majority vote Who may declare dividends?
7) Ratifying an act which amounts to disloyalty of a director
1) Electing to retain speci c corporate term indicated in the AOI (corporate business opportunity rule); 1. BOD alone — for cash, property dividends;
(§11); 8) Approving property-for-share exchange and debt to equity 2. BOD + stockholders representing not less than 2/3 of the
2) Calling a special meeting of the stockholders or members for conversion (§38); OCS in a meeting called for the purpose — for stock
the purpose of removing any director or trustee (§27); 9) Investing funds in any other corporation, business, or for any dividends.
3) Granting compensation to directors or trustees (including the purpose other than the primary purpose for which the
amount thereof) (§); corporation was organized (§41); b Right to inspect

4) Concluding a management contract with another corporation
(§43);
5) Adoption of the by laws (§45);
6) Amendment, repeal, or adoption of a new bylaws (§47);
7) Quorum in meetings (§51);
8) Fixing the issue price of no-par value shares (§61);
10) Issuing stock dividends (§42); A requesting party who is
11) Approving the conclusion of a management contract where 1. not a stockholder or member of record, or
there is interlocking ownership or interlocking management
2. a competitor, director, o cer, controlling stockholder or
(§43);
otherwise represents the interests of a competitor
12) Delegating to the board of directors or trustees the power to
shall have no right to inspect or demand reproduction of
amend or repeal the bylaws or adopt new bylaws (§47);
corporate records.
13) Approving a plan for the distribution of assets in non-stock
corporations (§94); Insigne v. Abra Valley Colleges, Inc. 2015

By RGL 34 of 83
 Commercial Law
WON petitioners were entitled to demand the production of the STB
of Abra Valley
YES. A person becomes a stockholder of a corporation by acquiring
a share through either purchase or subscription. Considering that
Abra Valley’s STB was not in the possession of the petitioners, or at
their disposal, they could not be reasonably expected or justly
compelled to prove that their stock subscriptions and purchases
were recorded therein. This was precisely why they led their
Motion for Production/Inspection of Documents.
The only time when the demand to examine and copy the
corporation's records and minutes could be refused is when
the corporation puts up as a defense to any action that:
1. the person demanding had improperly used any
information;
2. secured through any prior examination of the records or
minutes of such corporation or of any other corporation,
or
3. was not acting in good faith or for a legitimate purpose in
making his demand.
Among the improper purposes which may justify denial of the right
of inspection are:
1) Obtaining of information as to business secrets or to aid a
competitor;
2) to secure business "prospects" or investment or advertising
lists;
3) to nd technical defects in corporate transactions in order to
bring "strike suits" for purposes of blackmail or extortion.
Reviewer
The right of the shareholder to inspect the books and records of
the petitioner should not be made subject to the condition of a
showing of any particular dispute or of proving any
mismanagement or other occasion rendering an examination
proper. (Terelay Investment and Development v. Yulo 2015)
A criminal action based on the violation of a stockholder's right to
examine or inspect the corporate records and the stock and transfer
book of a corporation under the second and fourth paragraphs of
Section 73 can only be maintained against corporate o cers or
any other persons acting on behalf of such corporation.
Thus, the provision can only be violated by a corporation.
(Yujuico v. Quiambao 2014)
Among the actions that may be led is
1. an action for speci c performance,
2. damages,
3. petition for mandamus, or
4. for violation of Section 73, in relation to Section 158 of the
RCC.
The corporation carries the burden of proving
a) that the stockholder has improperly used information before;
b) lack of good faith; or
c) lack of legitimate purpose. (Philippine Associated Smelting and
Refining Corp v. Lim 2016)
In order therefore for the penal provision to apply, the following
elements must be present:
1. First. A director, trustee, stockholder or member has made a
prior demand in writing;
By RGL
for the 2022 Bar
2. Second. The demand was refused;
3. Third. If such refusal is made pursuant to a resolution or
order of the board, the liability shall be imposed upon the
directors or trustees who voted for such refusal; and,
4. Fourth. Where the defense that the person demanding has
improperly used any information secured through any prior
examination, or was not acting in good faith or for a legitimate
purpose, the contrary must be shown or proved. (Ang-Abaya
v. Ang)
⭐Corporations may raise their objections to the right of
inspection through a rmative defense in an ordinary civil
action for speci c performance or damages, or through a comment
in a petition for mandamus.
NB: Thus, a corporation cannot preempt a stockholder from
exercising his right to inspect corporate books by ling an
action for injunction as the exception to the right may only
be raised as a defense.
2016
Philippine Associated Smelting and Refining v. Lim
WON a petition for injunction with prayer for writ of preliminary
injunction is proper to prevent stockholders from inspecting corporate
books.
NO. When the corporation, through its o cers, denies the
stockholders of such right, the latter could then go to court and
enforce their rights. It is then that the corporation could set up its
defenses and the reasons for the denial of such right.
Thus, the proper remedy is the writ of mandamus to be led by
the stockholders and not a petition for injunction led by the
corporation.
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c Pre-emptive right
Pre-emptive right refers to the right of a stockholder of a stock
corporation to subscribe to all issues or disposition of shares of any
class, in proportion to their respective shareholdings. (Lu Ym v. Lu
2018)
The preemptive right of stockholders in close corporations shall
extend to ALL stock to be issued, including reissuance of treasury
shares, whether for money, property or personal services, or in
payment of corporate debts, unless the AOI provides otherwise.
d Right of rst refusal
1) The corporation or the stockholders have the right of rst
refusal.
2) The stockholder who wants to sell his shares to any third
person must rst o er it either to the corporation or to the
other existing stockholders usually under the same terms and
conditions.
3) The right pertains to shares already issued to stockholders.
4) If the existing stockholders or the corporation fails to exercise
the option to purchase within the period stated, the
transferring stockholder may sell his shares to any third person.
5) The present policy of the SEC is to limit the period to one (1)
month which is deemed "su cient for the stockholders or for
the corporation to signify their desire to buy the shares of
stock being o ered for sale by any stockholder. (SEC Opinion,
13 Oct 1964)
Reviewer
6) An absolute restraint on transfer of stock unlimited in time is
invalid.
4 Remedial Rights
Suits by stockholders or members of a corporation based on
wrongful or fraudulent acts of directors or other persons may be
classi ed into individual suits, class suits, and derivative suits.
2016
Florete, Jr v. Florete
The determination of the stockholder's appropriate remedy hinges on
the object of the wrong done.
1) Individual suit — when the object is a speci c
stockholder and the remedy is speci c to him.
2) Representative or class suit — when the object is a
de nite class of stockholder and the remedy is speci c to
them.
3) Derivative suit — when the object of the wrong done is
the corporation itself or the whole body of its stock and
property without any severance or distribution among
individual holders.
5 Intra-corporate disputes
1) Understood as a suit arising from intra-corporate relations or
between or among stockholders or between any or all of them
and the corporation.
2) Following the relationship test, it includes the following
suits:
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a) between the corporation, partnership or association and
the public;
b) between the corporation, partnership or association and
its stockholders, partners, members, or o cers;
c) between the corporation, partnership or association and
the State insofar as its franchise, permit or license to
operate is concerned; and,
d) among the stockholders, partners or associates themselves.
3) Under the nature of the controversy test, the disagreement
must not only be rooted in the existence of an intra-corporate
relationship, but must as well pertain to the enforcement of
the parties' correlative rights and obligations under the
Corporation Code and the internal and intra-corporate
regulatory rules of the corporation.
4) Both tests must concur.
Belo Medical Group v. Santos 2017
The con ict is intra-corporate as it involves two (2) shareholders
although the ownership of stocks of one stockholder is questioned.
Unless Santos is adjudged as a stranger to the corporation because he
holds his shares only in trust for Belo, then both he and Belo, based
on o cial records, are stockholders of the corporation.
See also San Jose v. Ozamiz 2017
Corporate Officers. Matling Industrial and Commercial Corp v.
Coros 2010
Conformably with Section 25 of the Corporation Code, a position
must be expressly mentioned in the By-Laws in order to be
considered as a corporate o ce. Thus, the creation of an office
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pursuant to or under a By-Law enabling provision is not enough to
make a position a corporate office.
Whoever are the corporate o cers enumerated in the by-laws are the
exclusive O cers of the corporation and the Board has no power to
create other O ces without amending rst the corporate By-laws.
Real v. Sangu Phil 2011
When petitioner sought for reinstatement, he wanted to
recover his position as Manager, a position which has been
declared to be not a corporate position. The case is thus a
termination dispute and, consequently, falls under the jurisdiction
of the Labor Arbiter pursuant to Section 217 of the Labor Code.
Cacho v. Balagtas 2018
While a corporate o ce is created by an express provision either in
the Corporation Code or the By-laws, what makes one a corporate
o cer is his election or appointment thereto by the board of
directors.
It is clear that the termination complained of is intimately and
inevitably linked to Balagtas's role as North Star's EVP. Balagtas's
dismissal is an intra-corporate controversy, not a mere labor
dispute.
Ellao v. BATELEC 2018
Here, the position of General Manager is expressly provided for
under Article VI, Section 10 of BATELEC I's By-laws. It is therefore
beyond cavil that Ellao's position as General Manager is a
cooperative o ce. Accordingly, his complaint for illegal dismissal
partakes of the nature of an intra-cooperative controversy.
Reviewer
Individual suit
Where a stockholder or member is denied the right of inspection,
his suit would be individual because the wrong is done to him
personally and not to the other stockholders or the corporation.
Representative suit
Where the wrong is done to a group of stockholders, as where
preferred stockholders’ rights are violated, a class or
representative suit will be proper for the protection of all
stockholders belonging to the same group.
Derivative suit
A suit by a shareholder to enforce a corporate cause of action. It is
the corporation that is properly regarded as the REAL
PARTY IN INTEREST, while the relator-stockholder is
merely a NOMINAL party. (Ang v. Sps Ang 2013)
Since the derivative suit is a remedy of last resort, it must be
shown that the board, to the detriment of the corporation and
without a valid business consideration, refuses to remedy a
corporate wrong. A derivative suit may only be instituted after
such an omission. (Ago Realty & Development Corp. v. Ago 2019)
⭐The requisites are enumerated in the Interim Rules of
Procedure for Intra-Corporate Controversies:
1. He was a stockholder or member at the time the acts or
transactions subject of the action occurred and the time
the action was led;
2. He exerted all reasonable e orts, and alleges the same,
to exhaust all remedies available to obtain the relief he
desires;
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3. No appraisal rights are available for the acts or acts
complained of; and
4. The suit is not a nuisance or harassment suit;
5. The action brought by the stockholder or member must
be in the name of the corporation or association.
2014
Ching v. Subic Bay Golf and Country Club, Inc.
WON the complaint filed by petitioners is a derivative suit and such
is NOT properly filed.
YES. Although the shareholdings of petitioners are indeed only two
out of the 409 alleged outstanding shares or 0.24%, the Court has
held that it is enough that a member or a minority of
stockholders le a derivative suit for and on behalf of a
corporation.
With regard, however, to the second requisite, the Court nds that
petitioners failed to state with particularity in the Complaint
that they had exerted all reasonable e orts to exhaust all
remedies available. Such failure allows the RTC to dismiss the
Complaint, even motu proprio, in accordance with the Interim
Rules.
⭐Appraisal right
Any stockholder of a corporation shall have the right to dissent and
demand payment of the fair value of the shares in the following
instances:
a) In case an amendment to the AOI has the e ect of
1) changing or restricting the rights of any stockholder
or class of shares, or
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2) authorizing preferences in any respect superior to
those of outstanding shares of any class, or of
3) extending or shortening the term of corporate
existence;
b) In case of sale, lease, exchange, transfer, mortgage, pledge or
other disposition of all or substantially all of the corporate
property and assets;
c) In case of merger or consolidation; and
d) In case of investment of corporate funds for any purpose other
than the primary purpose of the corporation.
The Corporation Code de nes how the right of appraisal is
exercised as follows:
1. Written Demand — by making a written demand on the
corporation within 30 days after the date on which the
vote was taken.
2. Appraisal Committee — If the withdrawing stockholder
and the corporation cannot agree on the fair value of the
shares within a period of 60 days from the date the
stockholders approved the corporate action, the fair value
shall be determined and appraised by three disinterested
persons.
The ndings and award of the majority of the appraisers
shall be nal, and the corporation shall pay their award within
30 days after the award is made.
3. Suspension of Rights — All rights accruing to the
withdrawing stockholder's shares, including voting and
dividend rights, shall be suspended from the time of
Reviewer
demand for the payment of the fair value of the shares until
either
a. the abandonment of the corporate action involved or
b. the purchase of the shares by the corporation,
except the right of such stockholder to receive payment of the
fair value of the shares.
4. Surrender Certificate of Stocks for Notation — Within
10 days after demanding payment for his or her shares. A
failure to do so shall, at the option of the corporation,
terminate his appraisal rights.
5. Unrestricted Retained Earnings Required — No
payment shall be made to any dissenting stockholder unless
the corporation has unrestricted retained earnings in its
books to cover the payment.
In case the corporation has no available unrestricted retained
earnings in its books, Section 82 of the RCC provides that if
the dissenting stockholder is not paid the value of his shares
within 30 days after the award, his voting and dividend
rights shall immediately be restored. (Turner v. Lorenzo
Shipping)
The right is regarded as su cient to redress a perceived wrong
committed to the corporation; thus, its availability precludes a
shareholder from instituting a derivative action against
corporate controllers.
F Capital Structure
1 Shares of stock
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for the 2022 Bar
a Nature of shares of stock
1) The ownership of shares of stock confers no immediate legal
right or title to any of the property of the corporation. Each
share merely represents a distinct undivided share or interest in
the common property of the corporation.
2) Shares of stock constitute property distinct from the capital or
tangible property of the corporation and belong to the
di erent owners. Incorporeal in nature, the shares are personal
property.
3) They are in the nature of choses in action but are not such in
a strict sense. They do not constitute an indebtedness of the
corporation to the shareholder and are, therefore, not credits
as to make the stockholder a creditor of the corporation.
4) A share of stock only typi es a proportionate or aliquot part
of the corporation's property, or the right to share in its
proceeds to that extent when distributed according to law.
5) It does not represent property of a corporation.
b Consideration for shares of stock
Stocks shall not be issued for a consideration less than the par or
issued price thereof. Consideration for the issuance of stock may be:
a) Actual cash paid to the corporation;
b) Property, tangible or intangible, actually received by the
corporation and necessary or convenient for its use and lawful
purposes at a fair valuation equal to the par or issued value of
the stock issued;
c) Labor performed for or services actually rendered to the
corporation;
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d) Previously incurred indebtedness of the corporation;
e) Amounts transferred from unrestricted retained earnings to
stated capital;
f) Outstanding shares exchanged for stocks in the event of
reclassi cation or conversion;
g) Shares of stock in another corporation; and/or
h) Other generally accepted form of consideration.
c Watered stock
Are those issued not in exchange for its equivalent in cash,
property, share, stock dividends, or services. Such issuance is
prohibited.
Trust fund doctrine for liability for watered stocks — The
issuance of watered stocks constitutes fraud on creditors.
d Situs of the shares of stock
1) The situs of share of stock is deemed to be the State where the
corporation has its domicile which is ordinarily the State
under whose laws it was created.
2) The situs retains that of the issuing corporation, even though
the certi cate is without the State and is owned by a
nonresident.
3) For purposes of execution, attachment, and
garnishment. — The situs is the domicile or residence of the
corporation, which is the place where the principal o ce of
the corporation is located.
Reviewer
4) For purposes of registration of chattel mortgages on
shares of stock. — The situs is the province or city in which
the corporation has its principal o ce or place of business.
5) For purposes of property taxation. — The general rule is
that the situs of intangible property is at the domicile or
residence of the owner. However
a) Shares of stock in a domestic corporation of a
nonresident foreigner are taxable in the Philippines;
b) For purposes of the estate tax, the gross estate of a
resident decedent, whether citizen or alien, or a citizen
decedent, whether resident or nonresident, includes
his intangible personal property wherever situated.
e Classes of shares of stock
Scope of voting rights subject to classification
Common shareholders, as residual owners, have full voting
rights. Holders of other shares have similar rights, except when
denied by the corporation’s charter or in compliance with the
provisions of the constitution or the law.
Non-voting shares are merely prevented from electing directors
and other matters presented to the shareholders in general for
approval.
Holders of nonvoting shares shall nevertheless be entitled to vote on
the following matters:
a) Amendment of the AOI;
b) Adoption and amendment of bylaws;
c) Sale, lease, exchange, mortgage, pledge, or other disposition
of all or substantially all of the corporate property;
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for the 2022 Bar
d) Incurring, creating, or increasing bonded indebtedness;
e) Increase or decrease of ACS;
f) Merger or consolidation of the corporation with another
corporation or other corporations;
g) Investment of corporate funds in another corporation or
business; and
h) Dissolution of the corporation.
Preferred
One which entitles the holder thereof to certain preferences over
the holders of common stock. The most common forms may be
classi ed into two: preferred shares as to assets and as to
dividends.
Republic Planters Bank v. Agana, Sr.
WON petitioner can be compelled to redeem the preferred shares
issued to the private respondent.
NO. Preferences granted to preferred stockholders do not give
them a lien upon the property of the corporation nor make them
creditors of the corporation, the right of the former being always
subordinate to the latter. Dividends are thus payable only when
there are pro ts earned by the corporation and as a general rule, even
if there are existing pro ts, the BOD has the discretion to
determine whether or not dividends are to be declared.
In this case, while the stock certi cate does allow redemption, the
option to do so was clearly vested in the petitioner bank. Thus, the
redemption rests entirely with the corporation and the stockholder
is without right to either compel or refuse the redemption of its
stock.
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Common
Shares with no preferences. Holders of these shares are regarded as
residual owners, who assume all the risks but reap all the bene ts
in the a airs of the corporation. They may only receive dividends
and/or assets upon liquidation following the satisfaction of the
stipulated returns to other funders of the corporation, such as
creditors or preferred shareholders.
Founder's
Where the exclusive right to vote and be voted for in the
election of directors is granted, it must be for a limited period not
to exceed ve (5) years from the date of incorporation.
Redeemable
Instances giving rise to Treasury Shares
Shares usually preferred, which by their terms are redeemable
1. at a xed date, or
2. at the option of either issuing corporation, or the
stockholder, or both
at a certain redemption price. A redemption by the corporation of
its stock is, in a sense, a repurchase of it for cancellation.
Redemption of shares is allowed even if there are no
unrestricted retained earnings. However, this is subject to the
condition that the corporation has, after such redemption,
assets in its books to cover debts and liabilities inclusive of
capital stock. Redemption, therefore, may not be made where
1. the corporation is insolvent or
2. if such redemption will cause insolvency or inability of
the corporation to meet its debts as they mature.
These may be issued by the corporation when expressly provided
Reviewer
in the AOI.
Mandatory Redemption
Corporations which have issued mandatory redeemable shares
with mandatory redemption features are required to set up and
maintain a sinking fund to be deposited in a trustee bank, and
which shall not be invested in risky or speculative ventures.
Treasury
Shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation through
purchase, redemption, donation, or some other lawful means.
While held in the company's treasury, the stock earns no
dividends and has no vote in company a airs.
1) When the corporation redeems its shares pursuant to its
contract with shareholders;
2) When permitted or required by law, as when:
a) The corporation eliminates fractional shares
arising out of stock dividends;
b) The corporation collects or compromises on
delinquency subscription; or
c) The corporation pays a dissenting stockholder.
3) In close corporations, in case of:
a) Deadlock (§ 103); or
b) Withdrawal by a shareholder (§ 104).
2 Certi cate of stock
By RGL
for the 2022 Bar
a Nature of the certi cate
A certi cate of stock is a written instrument signed by the proper
o cer of a corporation stating or acknowledging that the person
named in the document is the owner of a designated number of
shares of its stock.
It is prima facie evidence that the holder is a shareholder of a
corporation. A certi cate, however, is merely a tangible
evidence of ownership of shares of stock. (Teng v. SEC 2016)
No transfer, shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation showing the
1. names of the parties to the transaction,
2. the date of the transfer,
3. the number of the certi cate or certi cates, and
4. the number of shares transferred.
No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the corporation.
Insigne v. Abra Valley Colleges, Inc. 2015
Is the presentation of a stock certificate a condition sine qua non for
proving one’s shareholding in a corporation?
NO. To establish their stock ownership, the petitioners adduced
competent proof showing that the respondents had allowed the
petitioners to become members of the Board of Directors.
Considering that Section 23 of the Corporation Code requires every
director to be the holder of at least one share of capital stock of the
corporation, the respondents would not have then allowed any of
the petitioners to be elected to sit in the Board unless they believed
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that the petitioners so elected were not disquali ed for lack of stock
ownership. Conformably with the doctrine of estoppel, the
respondents could no longer deny the petitioners’ status as
stockholders of Abra Valley.
b Uncerti cated shares
Uncerti cated shares are shares that are tracked and represented in
the books of a company. These shares are recorded in the company
as a “book entry” and are not represented with a paper certi cate.
The SEC may require corporations whose securities are traded in
trading markets and which can reasonably demonstrate their
capability to do so to issue their securities or shares of stocks in
uncerti cated or scripless form.
Negotiability; requirements for valid transfer of
c issued in the name of the transferee.
stocks
1) It is NOT a negotiable instrument.
2) Certi cates of stock may be issued only to registered owners of
stock. The issuance of "bearer" stock certi cates is not allowed
under the law.
F & S Velasco Co., Inc. v. Madrid 2015
WON the November 18, 2009 Meeting organized by Madrid is legal
and valid;
NO. Madrid's inheritance of Angela's shares of stock does not ipso
facto a ord him the rights accorded to such majority ownership of
FSVCI's shares of stock. Section 63 of the Corporation Code
governs the rule on transfers of shares of stock.
Reviewer
All transfers of shares of stock must be registered in the
corporate books in order to be binding on the corporation.
Speci cally, this refers to the Stock and Transfer Book, which is
described in Section 74.
Jurisprudence in Lao v. Lao is instructive on this matter, that the
mere inclusion as shareholder in the General Information
Sheet is insu cient proof that one is a shareholder of the
company.
Guy v. Guy 2016
Cheu was not a stockholder of record of GCI and was therefore
not entitled to any notice of meeting.
The corporation shall not consider any transfer e ective until the
indorsed certi cate is submitted for cancellation and a new one
d Issuance
No certi cate of stock shall be issued to a subscriber until the full
amount of the subscription together with interest and expenses, in
case of delinquent shares, if any is due, has been paid.
In Bitong v. CA, the Court outlined the procedure for the issuance
of NEW certi cates of stock in the name of a transferee:
1. First, the certi cates must be signed by the president or
vice-president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation,
2. Second, delivery of the certi cate is an essential element of
its issuance,
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for the 2022 Bar
3. Third, the par value, as to par value shares, or the full
subscription as to no par value shares, must rst be fully paid.
— Indivisibility of Subscription
4. Fourth, the original certi cate must be surrendered where
the person requesting the issuance of a certi cate is a transferee
from a stockholder.
The surrender of the original certificate of stock is necessary
before the issuance of a new one so that the old certificate may be
canceled. (Teng v. SEC 2016)
e Lost or destroyed certi cates
a) The registered owner or his legal representative shall le with
the corporation an a davit in triplicate; and
b) After verifying the a davit and other information and
evidence with the books of the corporation, the corporation
shall publish a notice in a newspaper of general circulation in
the place where the corporation has its principal o ce, once a
week for three (3) consecutive weeks at the expense of the
registered owner of the certi cate of stock which has been lost,
stolen or destroyed.
The notice shall state that after the expiration of one (1) year
from the date of the last publication, if no contest has been
presented to the corporation regarding the certi cate of stock,
the right to make such contest shall be barred and the
corporation shall cancel the lost, destroyed or stolen certi cate
of stock in its books.
A new certi cate may be issued even before the
expiration of the one (1) year period if the registered
owner les a bond.
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3 Disposition and encumbrance of shares
a Sale of shares
E ect of delinquency
Delinquency suspends the political and economic rights of the
subscriber, except the right to receive dividends.
Call by resolution of the board of directors — order the sale of
delinquent stock and shall speci cally state
1. the amount due on each subscription plus all accrued
interest, and
2. the date, time and place of the sale which shall not be
less than thirty (30) days nor more than sixty (60) days
from the date the stocks become delinquent.
Notice of sale — the same shall be published once a week for two
(2) consecutive weeks.
Auction sale
A delinquent stock shall be sold at a public auction to such bidder
who shall o er to pay
1. the full amount of the balance on the subscription
2. together with accrued interest,
3. costs of advertisement and
4. expenses of sale, for the smallest number of shares or
fraction of a share.
The remaining shares, if any, shall be credited in favor of the
delinquent stockholder who shall likewise be entitled to the
issuance of a certi cate of stock covering such shares.
Reviewer for the 2022 Bar
What happens when there’s no bidder who can fully pay?
The delivery contemplated in Section 62 (RCC), however, pertains
The corporation may bid for the same, and the total amount to the delivery of the certi cate of shares by the transferor to the
due shall be credited as fully paid in the books of the corporation. transferee. No transfer shall be valid, except as between the
Title shall be vested in the corporation as treasury shares. parties, until the transfer is recorded in the books of the
corporation.
b Allowable restrictions on the sale of shares
Allowable restrictions on the sale of shares — Deny d Involuntary dealings
recognition of share transfers. No shares of stock against which the
1) Involuntary dealing refers to such writ, order or process issued
corporation holds any unpaid claim shall be transferable in the
by a court of record a ecting shares of stocks which by law
books of the corporation.
should be registered to be e ective, and also to such
Sale of partially paid shares — The incomplete payment of the instruments which are not the willful acts of the registered
subscription does not preclude the subscriber from alienating his owner and which may have been executed even without his
shares of stock. knowledge or against his consent.
2) Involuntary dealings are required to be registered in the
c Requisites of a valid transfer
corporation’s STB.
Teng v. SEC 2016
G Dissolution and Liquidation
Certain minimum requisites must be complied with for there to be
a valid transfer of stocks, to wit: 1 Modes of Dissolution
a) there must be delivery of the stock certi cate;
b) the certi cate must be endorsed by the owner or his
a Voluntary and involuntary dissolution
attorney-in-fact or other persons legally authorized to make
Voluntary Dissolution
the transfer; and
Without Creditors With Creditors
c) to be valid against third parties, the transfer must be
recorded in the books of the corporation. What to Request for
Veri ed petition
It is the delivery of the certi cate, coupled with the endorsement by file dissolution
the owner or his duly authorized representative that is the operative
Vote Majority vote of the Petition signed by majority
act of transfer of shares from the original owner to the transferee.
required board + by a resolution vote of the board +
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adopted by at least a petition is resolved upon Hearing on the petition SEC of the request for order setting the
majority of the OCS by a rmative vote of at and trial on any issued dissolution. deadline for ling
least 2/3 of the OCS
Hearing ✘ raised in the objections objections to the petition
led, if any
1. Notice to the Involuntary Dissolution
stockholders; What is
Certi cate of dissolution A corporation may be dissolved by the SEC motu proprio or
2. the order of the SEC issued
upon ling of a veri ed complaint by any interested party. The
reciting the purpose
At least 20 days prior following may be grounds for dissolution of the corporation:
of the petition and By shortening of corporate term
Notice, to the meeting;
xing the deadline for 1. Upon the expiration of the shortened term, as stated in the a) Non-use of corporate charter as provided under
publication published once in a
ling objections shall approved amended AOI, the corporation shall be deemed Section 21;
and newspaper in the
be published once a dissolved without any further proceedings; b) Continuous inoperation of a corporation as provided
posting corporation’s principal
week for 3 consecutive under Section 21;
o ce 2. In the case of expiration of corporate term, dissolution shall
weeks;
automatically take e ect on the day following the last day of c) Upon receipt of a lawful court order dissolving the
3. order to be posted for
the corporate term stated in the AOI, without the need for corporation;
3 consecutive weeks in
the issuance by the SEC of a certi cate of dissolution.
3 public places d) Upon nding by nal judgment that the corporation
Withdrawal procured its incorporation through fraud;
1. copy of the resolution authorizing dissolution,
certi ed by a majority of the board of directors of Request of Petition e) Upon nding by nal judgment that the corporation:
or trustees and countersigned by the secretary 1) Was created for the purpose of committing,
In the form a veri ed
of the corporation; Form In writing and veri ed concealing or aiding the commission of securities
motion
violations, smuggling, tax evasion, money laundering,
2. proof of
Documents Petition signed by or graft and corrupt practices;
publication; and
to submit Majority vote of the majority vote of the
3. favorable 2) Committed or aided in the commission of
to SEC Vote board + by a resolution board + petition is
recommendation securities violations, smuggling, tax evasion, money
required adopted by at least a resolved upon by
from the 2. list of all its creditors. laundering, or graft and corrupt practices, and its
majority of the OCS a rmative vote of at least
appropriate stockholders knew; and
2/3 of the OCS
regulatory agency, 3) Repeatedly and knowingly tolerated the
when necessary Period to no later than fteen (15) led prior to commission of graft and corrupt practices or other
withdraw days from receipt by the publication of the

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fraudulent or illegal acts by its directors, trustees,
o cers, or employees.
2 Methods of Liquidation
By the corporation itself
Every corporation shall nevertheless remain as a body corporate for
three (3) years after the e ective date of dissolution, for the
purpose of
1. prosecuting and defending suits by or against it and
enabling it to settle and close its a airs,
2. dispose of and convey its property, and
3. distribute its assets,
4. BUT NOT for the purpose of continuing the business
for which it was established.
Conveyance to a trustee within a three-year period
The corporation is authorized and empowered to convey all of its
property to trustees for the bene t of stockholders, members,
creditors and other persons in interest. After any such conveyance,
all interest which the corporation had in the property terminates,
the legal interest vests in the trustees, and the bene cial interest
in the stockholders, members, creditors or other
persons-in-interest.
By management committee or rehabilitation receiver
Distribution of Assets
Upon the winding up of corporate a airs, any asset distributable to
any creditor or stockholder or member who is unknown or
Reviewer
cannot be found shall be escheated in favor of the national
government.
Winding up the affairs of the corporation means the collection
of all assets, the payment of all its creditors, and the distribution of
the remaining assets, if any among the stockholders thereof in
accordance with their contracts, or if there be no special contract,
on the basis of their respective interests. (Rich v. Paloma III 2018)
Intra-corporate disputes remain even
when the corporation is dissolved.
A corporation’s board of directors is not rendered functus officio by
its dissolution. Thus, a cause of action involving an intra-corporate
controversy remains and must be led as an intra-corporate dispute
despite the subsequent dissolution of the corporation. (Aguirre II
v. FQB+7, Inc. 2013)
Liquidation AFTER three years
1) If full liquidation can only be e ected after the three-year
period and there is no trustee, the directors may be permitted
to complete the liquidation by continuing as trustees by legal
implication.
2) The trustee of a corporation may continue to prosecute a case
commenced by the corporation until rendition of the nal
judgment, even if such judgment is rendered beyond the
three-year period.
However, an already defunct corporation is not allowed to
initiate a suit after the lapse of the said three-year period.
(Alabang Development Corp. v. Alabang Hills Village
Association 2014)
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for the 2022 Bar
3) There is a view to the e ect that the trustee or receiver CAN
maintain an action for the corporation even after the
three-year period. (Reyes v. Bancom Development 2018)
H Other Corporations
1 Close corporations
Characteristics
A close corporation is one whose AOI provide that:
1) All of the corporation’s issued stock of all classes, exclusive of
treasury shares, shall be held of record by not more than a
speci ed number of persons, not exceeding twenty (20);
2) All of the issued stock of all classes shall be subject to one or
more speci ed restrictions on transfer; and
3) The corporation shall not list in any stock exchange or make
any public o ering of any of its stock of any class.
A corporation shall be deemed NOT a close corporation when at least
two-thirds (2/3) of its voting stock or voting rights is owned or
controlled by another corporation which is not a close corporation.
(San Juan Structural and Steel Fabricators, Inc. v. CA)
GR: ANY corporation may be incorporated as a close corporation;
EXC:
1) mining or oil companies,
2) stock exchanges,
3) banks,
4) insurance companies,
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5) public utilities,
6) educational institutions and
7) corporations declared to be vested with public interest.
Restrictions on Transfer of Shares
MUST APPEAR in the AOI, in the bylaws, as well as in the
certi cate of stock; otherwise, the same shall not be binding on
any purchaser in good faith.
Said restrictions shall not be more onerous than granting the
existing stockholders or the corporation the option to purchase
the shares.
1. The law only permits restrictions based on quali cations
and conditions, and NOT on the personality of shareholders.
2. The most the restrictions may do is to give the remaining
stockholders the right of rst refusal—that is, to match the
o er of a third party meeting the prescribed quali cations.
Issuance or Transfer of Stock in
Breach of Qualifying Conditions
a) There is conclusive presumption of notice of fact if the
certi cate of stock conspicuously shows
i) a stock of a close corporation is issued or transferred
to any person who is not eligible to be a holder
thereof
ii) the AOI of a close corporation states the number of
persons, not exceeding twenty (20), who are entitled
to be stockholders of record
Reviewer
iii) a restriction on transfer of the corporation’s stock
and the transferee acquires the stock in violation of
such restriction.
When board meeting is unnecessary or improperly held
a) Before or after such action is taken, a written consent
thereto is signed by ALL the directors; or
b) ALL the stockholders have actual or implied
knowledge of the action and make no prompt objection
in writing; or
c) The directors are accustomed to take informal action
with the express or implied acquiescence of all the
stockholders; or
d) All the directors have express or implied knowledge of the
action in question and none of them makes a prompt
objection in writing.
An action within the corporate powers taken at a meeting held
without proper call or notice, is deemed rati ed by a director who
failed to attend, unless after having knowledge thereof, the
director promptly les his written objection with the secretary of
the corporation.
Preemptive Right
Extends to ALL stock to be issued, including reissuance of
treasury shares, whether for money, property or personal
services, or in payment of corporate debts, unless the AOI
provides otherwise.
Amendment of AOI
Shall require the a rmative vote of at least two-thirds (2/3) of
the OCS, whether with or without voting rights, or of such
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greater proportion of shares as may be speci cally provided in
the AOI.
Deadlocks
The SEC, upon written petition by any stockholder, shall have
the power to arbitrate the dispute. The SEC shall have authority
to make appropriate orders, such as:
a) canceling or altering any provision contained in the AOI,
bylaws, or any stockholder’s agreement;
b) canceling, altering or enjoining a resolution or act of the
corporation or its board of directors, stockholders, or
o cers;
c) directing or prohibiting any act of the corporation or its
board of directors, stockholders, o cers, or other persons
party to the action;
d) requiring the purchase at their fair value of shares of any
stockholder, either by the corporation regardless of the
availability of unrestricted retained earnings in its books,
or by the other stockholders;
e) appointing a provisional director;
f) dissolving the corporation; or
g) granting such other relief as the circumstances may
warrant.
Additional Remedies of Stockholder
Any stockholder of a close corporation may, for any reason, compel the
corporation
1. Withdraw as Stockholder — To purchase shares held at fair
value, which shall not be less than the par or issued value,
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when the corporation has su cient assets in its books to cover
its debts and liabilities exclusive of capital stock.
2. Petition the SEC to compel the dissolution of such
corporation whenever
a. any of acts of the directors, o cers, or those in
control of the corporation is illegal, fraudulent,
dishonest, oppressive or unfairly prejudicial to the
corporation or any stockholder, or
b. whenever corporate assets are being misapplied or
wasted.
Bustos v. Millians Shoe, Inc. 2017
WON the CA correctly considered the properties of Spouses Cruz
answerable for the obligations of MSI.
NO. Section 97 of the Corporation Code only speci es that "the
stockholders of the corporation shall be subject to all liabilities of
directors." Nowhere in that provision do we nd any inference that
stockholders of a close corporation are automatically liable for
corporate debts and obligations.
Given that the true owner of the subject property is not the
corporation, petitioner cannot be considered a creditor of MSI but a
holder of a claim against respondent spouses.
2 Non-stock corporations
De nition
A nonstock corporation is one where no part of its income is
distributable as dividends to its members, trustees, or o cers.
Reviewer for the 2022 Bar
Purposes b) Assets held by the corporation upon a condition requiring
return, transfer or conveyance, and which condition occurs by
May be formed or organized for
reason of the dissolution, shall be returned, transferred or
1) charitable, 6) fraternal, or similar purposes, like conveyed in accordance with such requirements;
2) religious, 7) literary, 11) trade, c) Assets received and held by the corporation subject to
limitations shall be transferred or conveyed to one (1) or
3) educational, 8) scienti c, 12) industry, more corporations, societies or organizations engaged in
4) professional, 9) social, 13) agricultural and like activities in the Philippines substantially similar to those of
chambers, the dissolving corporation according to a plan of
5) cultural, 10) civic service,
distribution adopted;
or any combination thereof.
d) Assets other than those mentioned in the preceding
Treatment of Pro ts paragraphs, if any, shall be distributed in accordance with the
Non-Diversion Rule provisions of the AOI or the bylaws; and
Any pro t which a nonstock corporation may obtain incidental to e) In any other case, assets may be distributed to such persons,
its operations shall, whenever necessary or proper, be used for the societies, organizations or corporations, whether or not
organized for pro t, as may be speci ed in a plan of
furtherance of the purpose or purposes for which the
distribution.
corporation was organized. The law strictly implements the
non-diversion rule by: A plan providing for the distribution of assets may be adopted by a
a) Forbidding distribution of pro ts; nonstock corporation in the process of dissolution in the following
manner:
b) Requiring immediate utilization of contributions for
intended purposes; and a) The BOT shall, by majority vote, adopt a resolution
recommending a plan of distribution; and
c) Limiting administrative expenses of certain eleemosynary
corporations. (of, relating to, or supported by charity) b) Such plan of distribution shall be adopted upon approval of
at least two-thirds (2/3) of the members having voting rights
Plan and Distribution of Assets upon dissolution present or represented by proxy at such meeting.
a) All liabilities and obligations of the corporation shall be paid,
satis ed and discharged, or adequate provision shall be made 3 Foreign corporations
therefor;
A foreign corporation is one formed, organized or existing under
laws other than those of the Philippines’ and whose laws allow
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Filipino citizens and corporations to do business in its own
country or State. It shall have the right to transact business in the
Philippines after obtaining
1. a license for that purpose; and
2. a certi cate of authority from the appropriate
government agency.
a What constitutes “doing business”
Mentholatum v. Mangaliman discussed the two general tests
to determine whether or not a foreign corporation can be
considered as “doing business” in the Philippines.
First, the substance test, whether the foreign corporation is
continuing the body of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned
it over to another.
Second, the continuity test, implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some of the
functions normally incident to, and in the progressive prosecution
of, the purpose and object of its organization.
The Contract Test of doing business, on the other hand
a) An essential condition to be considered as doing business in the
Philippines is actual performance of speci c commercial
acts within the PH territory for the plain reason that the
PH has no jurisdiction over commercial acts performed
elsewhere;
b) Activities within PH jurisdiction that do not create earnings
or pro ts to the foreign corporation do NOT constitute doing
business in PH.
Reviewer
c) A foreign company that merely imports goods from a PH
exporter without opening an o ce or appointing an agent in
PH is NOT doing business in PH.
d) A foreign corporation that exports products to PH, without
doing any speci c commercial act is NOT doing business in
PH.
e) The appointment of a distributor in the PH is not
su cient to constitute “doing business” unless it is under the
full control of the foreign corporation.
On the other hand, if the distributor is an independent entity
which buys and distributes products, other than those of the
foreign corporation, for its own name and its own account, the
latter cannot be considered to be doing business in the PH.
(Steel Case v. Design International Selections 2012)
b Necessity of a license to do business
A foreign corporation applying for a license to transact business
in the Philippines shall submit to the SEC a copy of its AOI and
bylaws, certi ed in accordance with law, and their translation to an
o cial language of the Philippines, if necessary.
The application shall be under oath and, unless already stated in
its AOI.
c Requisites for issuance of a license
1) Name and address of designated resident agent + an SPA;
2) An agreement that if it ceases to transact business or if there is
no more resident agent, summons shall then be served through
the SEC;
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3) Oath of the president or any authorized o cer that the
corporation is solvent and in sound nancial condition; and
4) Oath of Reciprocity. Certi cate under oath of the
authorized o cial of the foreign corporation’s country of
incorporation that the laws of said country allow Filipinos to
do business in said country and that the applicant is an existing
corporation in good standing therein.
Within sixty (60) days after the issuance of the license to transact
business in the Philippines, the licensee, except foreign banking or
insurance corporations, shall deposit with the SEC for the
bene t of present and future creditors, securities satisfactory to
the SEC, with an actual market value of at least P500K.
d Resident agent
A resident agent may be either
1. an individual residing in the Philippines or
2. a domestic corporation lawfully transacting business in
the Philippines.
e Personality to sue and suability
No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any court
or administrative agency of the Philippines.
Llorente v. Star City Pty Limited 2020
Compliance with the requirement of license, or the fact that the
suing corporation is exempt therefrom, as the case may be, cannot
be inferred from the mere fact that the party suing is a foreign
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corporation. The qualifying circumstance being an essential part of
the plainti ’s capacity to sue must be a rmatively pleaded. Hence,
the ultimate fact that a foreign corporation is not doing business in
the Philippines must rst be disclosed for it to be allowed to sue in
Philippine courts under the isolated transaction rule. Failing in his
requirement, the complaint led by plainti with the trial court, it
must be said, fails to show its legal capacity to sue.
Having pleaded these averments in the complaint su ciently
clothed SCPL the necessary legal capacity to sue before Philippine
courts.
Suability
The principles regarding the right of a foreign corporation to
bring suit in PH courts may be condensed in four statements:
1) if a foreign corporation does business in the Philippines
without a license, it cannot sue before the Philippine
courts;
2) if a foreign corporation is not doing business in the
Philippines, it needs no license to sue before Philippine
courts on an isolated transaction or on a cause of action
entirely independent of any business transaction;
3) if a foreign corporation does business in the Philippines
without a license, a Philippine citizen or entity which has
contracted with said corporation may be estopped from
challenging the foreign corporation’s corporate
personality in a suit brought before Philippine courts; and
4) if a foreign corporation does business in the Philippines
with the required license, it can sue before Philippine
courts on any transaction. (Agilent Technologies Singapore
v. Integrated Silicon Technology Phil. Corp)
4 One-person corporations
A One Person Corporation is a corporation with a single
stockholder. Only a natural person, trust, or an estate may form
an OPC.
Excepted Corporations
1) Banks and quasi-banks,
2) Pre-need,
3) Trust,
4) Insurance,
5) Public and publicly-listed companies, and
6) Non-chartered GOCCs
may not incorporate as an OPC
7) A natural person who is licensed to exercise a profession may
not organize as an OPC for the purpose of exercising such
profession except as otherwise provided under special laws.
Capital Stock Requirement
Shall not be required to have a minimum ACS except as
otherwise provided by special law.
AOI and Bylaws
Aside from the requirements set forth in Sec 14, the AOI of the
OPC shall likewise substantially contain the following:
a) If the single stockholder is a trust or an estate, the name,
nationality, and residence of the trustee, administrator,
executor, guardian, conservator, custodian, or other
person exercising duciary duties together with the
proof of such authority to act on behalf of the trust or
estate; and
b) Name, nationality, residence of the nominee and
alternate nominee, and the extent, coverage and
limitation of the authority.
Bylaws are NOT required to be submitted.
Corporate Name
The letters “OPC” shall be indicated either below or at the end of
its corporate name.
Corporate structure and o cers
The single stockholder shall be
1) The sole director and president of the OPC;
2) May NOT be appointed as the corporate secretary;
3) May likewise be the self-appointed treasurer.
Here, the single stockholder shall give a bond to the SEC in
such a sum as may be required, to be renewed every two (2)
years or as often as may be required.
Nominee
In the event of the single stockholder’s death or incapacity, the
nominee shall take the place of the single stockholder as director
and shall manage the corporation’s a airs.
The written consent of the nominee and alternate nominee shall
be attached to the application for incorporation. Such consent
may be withdrawn in writing any time before the death or
incapacity of the single stockholder.

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Minutes and Records
A minutes book shall be maintained which shall contain all
actions, decisions, and resolutions taken by the OPC.
When action is needed on any matter, it shall be su cient to
prepare a written resolution, signed and dated by the single
stockholder, and recorded in the minutes book. The date of
recording in the minutes book shall be deemed to be the date of
the meeting.
The OPC shall submit the following within such period as the
SEC may prescribe:
a) Annual nancial statements audited by an
independent CPA.
However, if the total assets or total liabilities of the
corporation are less than P600K, the nancial statements
shall be certi ed under oath by the corporation’s
treasurer and president.
b) A report containing explanations or comments by the
president on every quali cation, reservation, or adverse
remark or disclaimer made by the auditor in the latter’s
report;
c) A disclosure of all self-dealings and related party
transactions entered into between the OPC and the single
stockholder.
The SEC may place the corporation under delinquent status
should the corporation fail to submit the reportorial
requirements three (3) times, consecutively or intermittently,
within a period of ve (5) years.
Reviewer
Liability
A sole shareholder claiming limited liability has the burden of
a rmatively showing that the corporation was adequately
nanced.
The principles of piercing the corporate veil applies with equal
force to OPCs as with other corporations.
Conversion
1. From Ordinary to OPC
When a single stockholder acquires all the stocks of an
ordinary stock corporation, the latter may apply for
conversion into an OPC.
2. From OPC to Ordinary Stock
A notice shall be led with the SEC within sixty (60) days
from the occurrence of the circumstances leading to the
conversion into an ordinary stock corporation..
In case of death of the single stockholder, the nominee or
alternate nominee shall
a) transfer the shares to the duly designated legal heir or
estate within seven (7) days from receipt of either an
a davit of heirship or self-adjudication executed by a
sole heir, and
b) notify the SEC of the transfer.
Within sixty (60) days from the transfer of the shares, the
legal heirs shall notify the SEC of their decision to either
a) wind up and dissolve the OPC or
b) convert it into an ordinary stock corporation.
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I Mergers and Consolidations
1 Concept
There is merger when two or more corporations are folded into
one of the constituent corporations or a “surviving” corporation.
A + B = A or B
There is consolidation when two or more corporations are
folded into a new corporation or a “consolidated” corporation.
A+B=C
Statutory Merger
This refers to pooling with automatic dissolution, which requires
1. the execution of a plan,
2. the approval of the concerned shareholders,
3. the execution of the articles of merger or consolidation, and
4. the issuance of a certi cate or merger of consolidation.
De Facto Merger
Pooling of resources and business without automatic dissolution is
called de facto merger. It may involve
a) transfer of all or substantially all assets of one or more
corporations to the other corporation, OR
b) the management of one or more corporations by the
other corporation.
A de facto merger can be pursued by one corporation acquiring
all or substantially all of the properties of another corporation in
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exchange of shares of stock of the acquiring corporation.
2 E ects and limitations
A merger of two corporations produces, among others, the following
e ects:
1. The constituent corporations shall become a single
corporation;
2. The separate existence of the constituent corporation shall
cease, except that of the surviving or the consolidated
corporation;
3. The surviving or the consolidated corporation shall
thereupon and thereafter
a. possess all the rights, privileges, immunities and franchises
of each of the constituent corporations; and
b. all property, real or personal, and all receivables due on
whatever account, including subscriptions to shares and
other choses in action, and all and every other interest of,
or belonging to, or due to each constituent corporation,
shall be deemed transferred to and vested in such
surviving or consolidated corporation without further
act or deed; and
4. The surviving or consolidated corporation shall be responsible
and liable for
a. all the liabilities and obligations of each of the constituent
corporations in the same manner as if such surviving or
consolidated corporation had itself incurred such
liabilities or obligations; and
b. any pending claim, action or proceeding brought by or
against any of such constituent corporations may be
Reviewer
prosecuted by or against the surviving or consolidated
corporation.
The rights of creditors or liens upon the property of any
of such constituent corporations shall not be impaired by
such merger or consolidation. (BPI v. Lee 2012)
Pending cases. The surviving corporation in a merger e ectively
becomes a “virtual party” to the civil case involving the dissolved
constituent corporations. As such, it became bound by the orders
and processes issued by the trial court despite not having been
properly impleaded therein. (ibid.)
Surviving entity’s right to foreclosure. Pursuant to such
merger and consolidation, BPI’s right to foreclose the mortgage on
petitioner's property depends on the status of the contract and the
corresponding obligations of the parties originally involved, that is,
the agreement between its predecessor BSA and petitioner. (Spouses
Ong v. BPI Family Savings Bank 2018)
Effects on constituent employees. The merger of a corporation
with another does not operate to dismiss the employees of the
corporation absorbed by the surviving corporation. Although the
absorbed employees are retained as employees of the merged
corporation, the employer retains the right to terminate their
employment for a just or authorized cause. Likewise, the employees
are not precluded from severing their employment through
resignation or retirement. (Philippine Geothermal, Inc. Employees
Union v. Unocal Philippines 2016)
Free and Harmless Clause
In a business-enterprise transfer, the transferor and the
transferee may enter into a contractual stipulation stating that the
transferee shall not be liable for any or all debts arising from the
business which were contracted prior to the time of transfer. Such
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stipulations are valid, but only as to the transferor and the
transferee. These stipulations are not binding on the creditors of
the business enterprise who can still go after the transferee for the
enforcement of the liabilities. (Y-I Leisure Phils., Inc. v. Yu 2015
En Banc)
Y-I Leisure Phils., Inc. v. Yu 2015
WON fraud must exist in the transfer of all the corporate assets in
order for the transferee to assume the liabilities of the transferor.
NO. The Nell Doctrine pronounced the rule regarding the
transfer of all the assets of one corporation to another as follows:
GENERALLY, where one corporation sells or otherwise transfers
all of its assets to another corporation, the latter is not liable for the
debts and liabilities of the transferor, EXCEPT:
1. Where the purchaser expressly or impliedly agrees to
assume such debts;
2. Where the transaction amounts to a consolidation or
merger of the corporations;
3. Where the purchasing corporation is merely a
continuation of the selling corporation; and
4. Where the transaction is entered into fraudulently in
order to escape liability for such debts.
Section 40 suitably re ects the business-enterprise transfer
under the exception of the Nell Doctrine. It does not apply
1) if the sale of the entire property and assets is necessary in
the usual and regular course of business of corporation, or
2) if the proceeds of the sale or other disposition of such
property and assets will be appropriated for the conduct of
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its remaining business. Marks vs. collective marks vs. trade names f) Layout-Designs (Topographies) of Integrated Circuits; and
Thus, the litmus test to determine the applicability of Section 40 Acquisition of ownership g) Protection of Undisclosed Information
would be the capacity of the corporation to continue its Concept of actual use Copyright Patent Trademark
business after the sale of all or substantially all its assets.
E ect of registration
An evaluation of the relevant jurisprudence reveals that fraud is Literary and Any visible sign
Any technical
not an essential element for the application of the Well-known marks artistic works capable of
solution of a
business-enterprise transfer. which are distinguishing
Rights conferred by registration problem in any
original the goods or
WON petitioners became a continuation of MADCI's business. Cancellation of registration eld of human
intellectual services of an
activity which is
YES. The business-enterprise transfer rule applies when two Trademark infringement Scope creations in the enterprise and
new, involves an
requisites concur: literary and shall include a
Unfair competition inventive step,
artistic domains stamped or
a) the transferor corporation sells all or substantially all of its and is
Copyrights protected from marked
assets to another entity; and industrially
the moment of container of
b) the transferee corporation continues the business of the Copyrightable works applicable.
their creation. goods.
transferor corporation. Non-copyrightable works
Optional;
Both requisites are present in this case. Rights conferred by copyright Where to
National Library IPO IPO
register
Ownership of a copyright or IPO

Limitations on copyright
Intellectual Property Code Generally up to
20 years from
IV Doctrine of fair use Duration
50 years after
ling or priority 10 years
Intellectual Property Code of the Philippines the death of the
Copyright infringement date
author.
Patents
The term "intellectual property rights" consists of:
Exclusive Yes,
Patentable vs. non-patentable inventions No, National No, National
a) Copyright and Related Rights; Right to International
Exhaustion Exhaustion
Ownership of a patent b) Trademarks and Service Marks; Import Exhaustion

Grounds for cancellation of a patent c) Geographic Indications;

Patent infringement d) Industrial Designs; Ching v. Salinas, et. al.
Trademarks e) Patents;

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WON the Utility Model, described as “Leaf Spring Eye Bushing for
Automobile” is copyrightable.
NO. Ownership of copyrighted material is shown by proof of
originality and copyrightability. A “work of applied art” is an
artistic creation with utilitarian functions or incorporated in
a useful article, whether made by hand or produced on an
industrial scale.
It bears stressing that the focus of copyright is the usefulness of the
artistic design, and not its marketability. The central inquiry is
Basic Patent Principles
whether the article is a work of art. Indeed, while works of
applied art, original intellectual, literary and artistic works are
copyrightable, useful articles and works of industrial design are
not. A useful article may be copyrightable only if and only to
the extent that such design incorporates pictorial, graphic, or
sculptural features that can be identi ed separately from, and
are capable of existing independently of the utilitarian aspects
of the article.
In this case, the petitioner’s models are not works of applied art, nor
artistic works. They are utility models, useful articles, albeit with
no artistic design or value.
Trademark, copyright and patents are di erent intellectual
Elements of Patentability
property rights that cannot be interchanged with one
another.
A trademark is any visible sign capable of distinguishing the goods
(trademark) or services (service mark) of an enterprise and shall
include a stamped or marked container of goods. In relation
thereto, a trade name means the name or designation identifying or
distinguishing an enterprise.
Meanwhile, the scope of a copyright is con ned to literary and
Reviewer
artistic works which are original intellectual creations in the literary
and artistic domain protected from the moment of their creation.
Patentable inventions, on the other hand, refer to any technical
solution of a problem in any eld of human activity which is new,
involves an inventive step and is industrially applicable.
A Patents
1. Territoriality — patents are only valid in the country or
region in which they have been granted;
2. First-to-File — applicant who les rst gets the patent;
3. Disclosure — applicant shall disclose the invention in a
manner su ciently clear and complete;
Quid pro quo – protection in exchange for disclosure;
4. Conditional — patents are granted only upon compliance
with the criteria of patentability;
5. Limited Rights.
1) Novelty — it must NOT form part of a prior art;
2) Inventive Step — if, having regard to prior art, it is not
obvious to a person skilled in the art at the time of the ling
date or priority date of the application claiming the invention.
Someone who is aware or presumed to have knowledge in the
specific industry where the invention is engaged in. Not
necessarily an expert.
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3) Industrial Applicability — can be produced and used in
any industry.
Prior Art
1) Everything which has been made available to the public
anywhere in the world, before the filing date or the priority date
of the application claiming the invention; and
2) The whole contents of an application for a patent, utility
model, or industrial design registration, published in
accordance with this Act, led or e ective in the Philippines,
with a ling or priority date that is earlier than the ling or
priority date of the application.
Non-Prejudicial Disclosure
The disclosure of information contained in the application during
the twelve (12) months preceding the ling date or the
priority date of the application shall NOT prejudice the
applicant on the ground of lack of novelty if such disclosure was
made by:
a) The inventor;
also means any person who, at the ling date of application,
had the right to the patent.
b) A patent o ce and the information was contained
i) in another application led by the inventor, or
ii) in an application led without the knowledge or
consent of the inventor by a third party which
obtained the information directly or indirectly from
the inventor; or
c) A third party which obtained the information directly or
indirectly from the inventor.
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Filing Date
The ling date of a patent application shall be the date of receipt
by the O ce of at least the following elements:
a) An express or implicit indication that a Philippine patent
is sought;
b) Information identifying the applicant; and
c) Description of the invention and one (1) or more claims
in Filipino or English.
If any of these elements is not submitted within the period set by
the Regulations, the application shall be considered withdrawn.
1 Patentable vs. non-patentable inventions
Patent refers to the right granted by statute in favor of the
inventor of a product or process referring to any technical
solution of a problem in any eld of human activity which
1. Is new,
2. involves an inventive step and
3. is industrially applicable.
A patentable invention may be, or may relate to, a product, or
process, or an improvement of any of the foregoing. (§21)
The patent law has a three-fold purpose:
1. first, it seeks to foster and reward invention;
2. second, it promotes disclosures of inventions;
3. third, seeks to ensure that ideas in the public domain
remain therefor the free use of the public.
Reviewer
Non-patentable invention
The following shall be excluded from patent protection:
1. Discoveries, scienti c theories and mathematical
methods, and
In the case of drugs and medicines,
a. the mere discovery of a new form or new property
of a known substance which does not result in the
enhancement of the known efficacy of that substance,
or
b. the mere discovery of any new property or new use
for a known substance, or
c. the mere use of a known process unless such known
process results in a new product that employs at least
one new reactant.
2. Schemes, rules and methods of performing mental acts,
playing games or doing business, and programs for computers;
3. Methods for treatment of the human or animal body by
surgery or therapy and diagnostic methods practiced on the
human or animal body.
4. Plant varieties or animal breeds or essentially biological process
for the production of plants or animals.
This provision shall not apply to micro-organisms and
non-biological and microbiological processes.
5. Aesthetic creations; and
6. Anything which is contrary to public order or morality.
2 Ownership of a patent
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Right to a patent
The right to a patent belongs to
1. The inventor, his heirs, or assigns;
2. When two (2) or more persons have jointly made an
invention, the right to a patent shall belong to them jointly.
3. If two (2) or more persons have made the invention separately
and independently of each other, the right to the patent shall
belong to the person who led an application for such
invention;
4. Where two or more applications are led for the same
invention, to the applicant who has the earliest filing date
or, the earliest priority date. (§28-29)
First-to- le rule
If two (2) or more persons have made the invention separately and
independently of each other, the right to the patent shall belong to
1. the person who led an application for such invention, OR
2. where two or more applications are led for the same
invention,
a. to the applicant who has the earliest ling date OR,
b. the earliest priority date. (§29)
Invention created pursuant to a commission
The person who commissions the work shall own the patent, unless
otherwise provided in the contract.
In case the employee made the invention in the course of his
employment contract, the patent shall belong to:
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a) The employee, if the inventive activity is NOT a part of his
regular duties even if the employee uses the time, facilities and
materials of the employer.
b) The employer, if the invention is the result of the
performance of his regularly-assigned duties, unless there is an
agreement, express or implied, to the contrary. (§30)
Right of priority
An application for patent led by any person who has previously
applied for the same invention in another country which by treaty,
convention, or law a ords similar privileges to Filipino citizens, shall be
considered as led as of the date of ling the foreign application:
Provided, That:
a) the local application expressly claims priority;
b) it is led within twelve (12) months from the date the
earliest foreign application was led; and
c) a certi ed copy of the foreign application together with an
English translation is led within six (6) months from the
date of ling in the Philippines. (§31)
E.I. Dupont de Nemours and Co. v. Francisco 2016
WON the CA erred in allowing the intervention of respondent
Therapharma, Inc. in petitioner's appeal.
NO. The mandatory disclosure requirement in the TRIPS
Agreement precipitated the shift from a rst-to-invent system to a
rst-to- le system in the new IPC. The patent application is
only confidential BEFORE its publication.
WON the abandoned patent application of petitioner may be revived
after 13 years.
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NO. The IPC provides for a shorter period of three (3) months
from abandonment within which to le for revival.
Petitioner's patent application, therefore, should NOT be
revived since it was led beyond the allowable period.
WON filing of a patent application vests petitioner the right to be
protected from becoming part of the public domain because of
convention priority under the Paris Convention for the Protection of
Industrial Property.
NO. The right of priority given to a patent applicant is only
relevant when there are two or more conflicting patent applications on
the same invention. Because a right of priority does not
automatically grant letters patent to an applicant, possession of a
right of priority does not confer any property rights on the
applicant in the absence of an actual patent.
A right of priority is not equivalent to a patent. After the lapse
of 20 years, the invention becomes part of the public domain and is
free for the public to use. In addition, a patent holder of inventions
relating to food or medicine does not enjoy absolute monopoly
over the patent. Both RA No. 165 and the IPC provide for
compulsory licensing. The patent holder's proprietary right over
the patent only lasts for three (3) years from the grant of the
patent, after which any person may be allowed to manufacture, use,
or sell the invention subject to the payment of royalties.
3 Grounds for cancellation of a patent
a) That what is claimed as the invention is not new or
patentable;
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b) That the patent does not disclose the invention in a manner
su ciently clear and complete for it to be carried out by any
person skilled in the art; or
c) That the patent is contrary to public order or morality.
(§61)
4 Patent infringement
Tests in patent infringement
Godines v. CA
Did petitioner's product infringe upon the patent of private
respondent?
YES. In using literal infringement as a test, resort must be had,
in the rst instance, to the words of the claim. The Court must
juxtapose the claims of the patent and the accused product within
the overall context of the claims and speci cations, to determine
whether there is exact identity of all material elements.
The trial court found that in appearance and form, both the
floating power tillers of the defendant and the turtle power
tiller of the plainti are virtually the same. The parts or
components thereof are virtually the same. In operation, the
oating power tiller of the defendant operates also in similar manner
as the turtle power tiller of plainti .
Next, courts have adopted the doctrine of equivalents which
recognizes that minor modi cations in a patented invention are
su cient to put the item beyond the scope of literal infringement.
According to this doctrine, an infringement also occurs when a
device appropriates a prior invention by incorporating its
innovative concept and, albeit with some modi cation and
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change, performs substantially the same function in
substantially the same way to achieve substantially the same
result.
Smith Kline Beckman v. CA
WON Tryco committed patent infringement to the prejudice of
Smith Kline.
NO. From a reading of the 9 claims of the Letters Patent in relation
to the other portions thereof, no mention is made of the
compound Albendazole.
As for the concept of divisional applications pro ered by
petitioner, it comes into play when two or more inventions are
claimed in a single application but are of such a nature that a single
patent may not be issued for them. The applicant thus is required
"to divide," that is, to limit the claims to whichever invention he may
elect, whereas those inventions not elected may be made the subject
of separate applications which are called "divisional applications."
What this only means is that petitioner's methyl 5
propylthio-2-benzimidazole carbamate is an invention distinct from
the other inventions claimed in the original application divided out,
Albendazole being one of those other inventions. Otherwise, methyl
5 propylthio-2- benzimidazole carbamate would not have been the
subject of a divisional application if a single patent could have been
issued for it as well as Albendazole.
Civil and criminal action
1. The making, using, o ering for sale, selling, or
importing a patented product or a product obtained directly
or indirectly from a patented process, or the use of a patented
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process without the authorization of the patentee constitutes
patent infringement.
2. Any patentee whose rights have been infringed, may bring a
civil action before a court of competent jurisdiction,
a. to recover from the infringer damages sustained,
b. plus attorney's fees and other expenses, and
c. to secure an injunction.
3. If the damages are inadequate or cannot be readily ascertained
with reasonable certainty, the court may award by way of
damages a sum equivalent to reasonable royalty.
4. The court may award damages in a sum above the amount
found as actual damages sustained: Provided, That the award
does not exceed three (3) times the amount of such actual
damages.
5. The court may, in its discretion, order that the infringing
goods be disposed of outside the channels of commerce or
destroyed, without compensation.
6. Anyone who actively induces the infringement of a patent or
provides the infringer with a component of a patented
product shall be liable as a contributory infringer and shall
be jointly and severally liable with the infringer. (§76)
If infringement is repeated after nality of the judgment of the
court against the infringer, the o enders shall be criminally liable.
Phil. Pharmawealth, Inc. v. Pfizer, Inc. 2010
Can an injunctive relief be issued based on an action of patent
infringement when the patent allegedly infringed has already lapsed?
NO. P zer no longer possess any right of monopoly after the patent
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expired on July 2004 and, as such, there is no more basis for the
issuance of a restraining order or injunction against petitioner
insofar as the disputed patent is concerned.
What tribunal has jurisdiction to review the decisions of the Director
of Legal Affairs of the Intellectual Property Office?
In this case, the CA. It is true that under Section 7(b) of RA
8293, the Director General of the IPO exercises exclusive appellate
jurisdiction over all decisions rendered by the Director of the
BLA-IPO. However, what is being questioned before the CA is not
a decision, but an interlocutory order of the BLA-IPO denying
respondents' motion to extend the life of the preliminary injunction
issued in their favor.
Prescriptive period
No damages can be recovered for acts of infringement committed
more than four (4) years before the institution of the action for
infringement. (§79)
The criminal action herein provided shall prescribe in three
(3) years from date of the commission of the crime. (§84)
Defenses in action for infringement
In an action for infringement, the defendant, in addition to other
defenses available to him, may show the invalidity of the patent,
or any claim thereof, on any of the grounds on which a petition of
cancellation can be brought. (§82)
B Trademarks
1 Marks vs. collective marks vs. trade names
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"Mark" is any visible sign capable of distinguishing the goods
(trademark) or services (service mark) of an enterprise.
"Collective Mark" is any visible sign designated as such in the
application for registration and capable of distinguishing the origin
or any other common characteristic, including the quality of goods
or services of di erent enterprises.
Trademark is any distinctive word, name, symbol, emblem, sign,
or device, or any combination thereof, adopted and used by a
manufacturer or merchant on his goods to identify and distinguish
them from those manufactured, sold, or dealt by others.
Trade Name means the name or designation identifying or
distinguishing an enterprise.
In Philippine jurisprudence, the function of a trademark is
1) to point out distinctly the origin or ownership of the goods;
2) to secure to him the fruit of his industry and skill;
3) to assure the public that they are procuring the genuine
article;
4) to protect the manufacturer against substitution and sale of
an inferior and di erent article as his product. (Mirpuri v. CA)
Trademarks perform three (3) distinct functions:
1) they indicate origin or ownership of the articles to which
they are attached;
2) they guarantee that those articles come up to a certain
standard of quality; and
3) they advertise the articles they symbolize. (W Land Holding,
Inc. v. Starwood Hotels and Resorts Worldwide, Inc. 2017)
There is also an underlying economic justification for the
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protection of trademarks: an e ective trademark system helps
bridge the information gap between producers and
consumers, and thus, lowers the costs incurred by consumers in
IOW, for a mark to be denied registration, it must both be:
searching for and deciding what products to purchase. (Citigroup,
Inc. v. Citystate Savings Bank, Inc. 2018)
GENERIC TERMS are commonly used as the name or description of
a kind of goods.
What is prohibited is not having a generic mark, but having such
generic mark being identi able to the good or service. (Kensonic,
Inc. v. Uni-Line Multi-Resources, Inc. 2018)
DESCRIPTIVE TERMS convey the characteristics, functions,
qualities or ingredients of a product to one who has never seen or does
not know that it exists.
SUGGESTIVE TERMS are those which require “imagination,
thought and perception to reach a conclusion as to the nature of the
goods" and are eligible for protection in the absence of secondary
meaning.
SECONDARY MEANING is established when a descriptive mark no
longer causes the public to associate the goods with a particular place,
but to associate the goods with a particular source.
What are the requirements to conclude that a
geographically-descriptive mark has acquired secondary
meaning?
a) the secondary meaning must have arisen as a result of
substantial commercial use of a mark in the Philippines;
b) such use must result in the distinctiveness of the mark
insofar as the goods or the products are concerned; and
c) proof of substantially exclusive and continuous commercial
use in the Philippines for ve (5) years before the date on
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which the claim of distinctiveness is made. (Shang Properties
Realty v. St. Francis Development 2014)
1. Geographically-descriptive; AND
2. That the public would make a goods/place association,
believing that the goods originate in that place.
2 Acquisition of ownership
a Concept of actual use
Zuneca Pharmaceutical v.
2020 En Banc Caguioa, J
Natrapharm
The current rule under the IP Code is thus in stark contrast to the
rule on acquisition of ownership under the Trademark Law, as
amended. At present, as expressed in the language of the provisions
of the IP Code, prior use no longer determines the acquisition
of ownership of a mark in light of the adoption of the rule that
ownership of a mark is acquired through registration made validly in
accordance with the provisions of the IP Code.
Fredco Manufacturing v. Harvard University 2011
WON Fredco can validly cancel the registration of Harvard
University. NO. There are two compelling reasons why Fredco's
petition must fail.
First, Fredco's registration of the mark "Harvard" and its
identi cation of origin as "Cambridge, Massachusetts" falsely
suggest that Fredco or its goods are connected with Harvard
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University. That should not have been allowed because Section 4(a)
of R.A. No. 166 prohibits the registration of a mark "which may
disparage or falsely suggest a connection with persons, living
or dead, institutions, beliefs x x x." This provision is intended to
protect the right of publicity of famous individuals and
institutions from commercial exploitation of their goodwill by
others. What Fredco has done is precisely to exploit commercially
the goodwill of Harvard University without the latter's consent.
Such violation is a ground for cancellation of Fredco's
registration of the mark "Harvard."
Second, the Philippines and the US are both signatories to the Paris
Convention for the Protection of Industrial Property. Thus,
under Philippine law, a trade name of a national of a State that is a
party to the Paris Convention, whether or not the trade name forms
part of a trademark, is protected "without the obligation of
ling or registration."
Indeed, Section 123.1(e) of R.A. No. 8293 now categorically states
that "a mark which is considered by the competent authority
of the Philippines to be well-known internationally and in
the Philippines, whether or not it is registered here," cannot
be registered by another in the Philippines.
W Land Holding v. Starwood Hotels 2017
The "use" which the law requires to maintain the registration of a
mark must be genuine, and not merely token. Genuine use may
be characterized as a bona fide use which results or tends to result, in
one way or another, into a commercial interaction or transaction
"in the ordinary course of trade."
The use of a registered mark representing the owner's goods
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or services by means of an interactive website may constitute
proof of actual use that is su cient to maintain the
registration of the same.
It must be emphasized, however, that the mere exhibition of
goods or services over the internet, without more, is not
enough to constitute actual use. It must be shown that the owner
has actually transacted. A showing of an actual commercial
link to the country is therefore imperative.
Thus, Starwood's use of its "W" mark through its interactive website
is intended to produce a discernible commercial e ect or activity
within the Philippines, or at the very least, seeks to establish
commercial interaction with local consumers. Accordingly,
Starwood's use of the "W" mark in its reservation services
through its website constitutes use of the mark su cient to
keep its registration in force.
b E ect of registration
The rights in a mark shall be acquired through registration.
Zuneca Pharmaceutical v.
2020 En Banc Caguioa, J
Natrapharm
How is ownership over a trademark acquired?
REGISTRATION. Under the IP Code, ownership of a mark is
acquired through registration. The prima facie nature of the
certi cate of registration is meant to recognize the instances when
the certi cate of registration is not re ective of ownership of the
holder thereof, such as when:
1) the rst registrant has acquired ownership of the mark
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through registration but subsequently lost the same due to
non-use or abandonment (e.g., failure to le the
Declaration of Actual Use);
2) the registration was done in bad faith;
3) the mark itself becomes generic;
4) the mark was registered contrary to the IP Code; or
5) the registered mark is being used by, or with the permission
of, the registrant so as to misrepresent the source of the
goods or services on or in connection with which the mark
is used.
Since Natrapharm was not shown to have been in bad faith, it is
thus considered to have acquired all the rights of a trademark owner
under the IP Code upon the registration of the "ZYNAPSE" mark.
Consequently, Zuneca's counterclaims against Natrapharm were
correctly dismissed by the lower courts. To be sure, Zuneca did not
have any right to prevent third parties, including Natrapharm, from
using marks confusingly similar to its unregistered "ZYNAPS" mark
because it is not an "owner of a registered mark" contemplated in
Section 147.1.
However, Zuneca, as a prior user in good faith, is protected by
Section 159.1 and cannot be prevented by Natrapharm from using
its ZYNAPS trademark.
Birkenstock Orthopaedie Gmbh and Co. Kg v.
2013
Philippine Shoe Expo Marketing
WON the subject marks should be allowed registration in the name of
petitioner.
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YES. It must be emphasized that registration of a trademark, by
itself, is not a mode of acquiring ownership. If the applicant is not
the owner of the trademark, he has no right to apply for its
registration. Registration merely creates a prima facie
presumption of the validity of the registration, of the
registrant’s ownership of the trademark, and of the exclusive right to
the use thereof. Such presumption, just like the presumptive
regularity in the performance of o cial functions, is rebuttable and
must give way to evidence to the contrary.
In the instant case, petitioner was able to establish that it is the
owner of the mark “BIRKENSTOCK.” It submitted evidence
relating to the origin and history of “BIRKENSTOCK” and its use
Criteria for determining whether a mark is well-known. — In
in commerce long before respondent was able to register the same
determining whether a mark is well-known, the following criteria or
here in the Philippines.
any combination thereof may be taken into account:
FC Philippines, Inc. v. Barrio Fiesta Manufacturing 2016
The ownership of a trademark is acquired by
1. its registration AND
2. its actual use
by the manufacturer or distributor of the goods made available to
the purchasing public.
A certi cate of registration of a mark, once issued, constitutes
prima facie evidence of
1. the validity of the registration,
2. the registrant's ownership of the mark, and
3. the registrant's exclusive right to use the same in connection
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with the goods or services and those that are related thereto
speci ed in the certi cate.
R.A. No. 8293, however, requires the applicant for registration or
the registrant to le a declaration of actual use (DAU) of the
mark, with evidence to that e ect, within three (3) years from the
ling of the application for registration; otherwise, the
application shall be refused or the mark shall be removed from the
register.
3 Well-known marks
a) the duration, extent and geographical area of any use of
the mark, in particular, the duration, extent and geographical
area of any promotion of the mark, including advertising or
publicity and the presentation, at fairs or exhibitions, of the
goods and/or services to which the mark applies;
b) the market share, in the Philippines and in other countries, of
the goods and/or services to which the mark applies;
c) the degree of the inherent or acquired distinction of the
mark;
d) the quality-image or reputation acquired by the mark;
e) the extent to which the mark has been registered in the
world;
f) the exclusivity of registration attained by the mark in the
world;
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g) the extent to which the mark has been used in the world;
h) the exclusivity of use attained by the mark in the world;
i) the commercial value attributed to the mark in the world;
j) the record of successful protection of the rights in the mark;
k) the outcome of litigations dealing with the issue of whether
the mark is a well-known mark; and
l) the presence or absence of identical or similar marks validly
registered.
4 Rights conferred by registration
The owner of a registered mark shall have the exclusive right to
prevent all third parties not having the owner's consent from
using in the course of trade identical or similar signs or containers
for goods or services which are identical or similar where such use
would result in a likelihood of confusion, which is presumed.
The exclusive right of the owner of a well-known mark which is
registered in the Philippines, shall extend to goods and services
which are not similar to those in respect of which the mark is
registered. (§147)
5 Cancellation of registration
Upon application of the registrant, the IPO may permit any
registration to be surrendered for cancellation, and upon
cancellation the appropriate entry shall be made in the records of
the O ce. (§140)
6 Trademark infringement
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The elements of trademark infringement under the IP Code are
the following:
1) REGISTRATION — the trademark being infringed is
registered in the IPO;
Registration is NOT required to protect the goodwill that
identi es in the mind of the public the goods he manufactures
or deals in.
Registration is NOT necessary for purposes of filing a case
for unfair competition or false designation of origin.
2) COLORABLE IMITATION — the trademark or trade
name is reproduced, counterfeited, copied, or colorably
imitated by the infringer;
3) USE — the infringing mark or trade name is used in
connection with the sale, o ering for sale, or advertising of any
goods, business or services; or the infringing mark or trade
name is applied to labels, signs, prints, packages, wrappers,
receptacles or advertisements intended to be used upon or in
connection with such goods, business or services;
4) CONFUSION CAUSED — the use or application of the
infringing mark or trade name is likely to cause confusion or
mistake or to deceive purchasers or others as to the goods or
services themselves or as to the source or origin of such goods
or services or the identity of such business; and
5) NO CONSENT — it is without the consent of the trademark
or trade name owner or the assignee thereof.
A certi cate of registration of a mark, once issued, constitutes
prima facie evidence of
1. the validity of the registration,
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2. the registrant's ownership of the mark, and
3. the registrant's exclusive right to use the same in connection
with the goods or services and those that are related thereto
speci ed in the certi cate.
Republic Gas, et. al. v. Petron, et. al. 2013
WON probable cause exists to hold petitioners liable for the crime of
trademark infringement.
YES. Reading Sec 155 of the IPC, the Court in a very similar case,
made it categorically clear that the mere unauthorized use of a
container bearing a registered trademark in connection with the sale,
distribution or advertising of goods or services which is likely to
cause confusion, mistake or deception among the buyers or
consumers can be considered as trademark infringement.
Shang Properties Realty v. St. Francis Development 2014
WON petitioners are guilty of unfair competition in using the marks
“THE ST. FRANCIS TOWERS” and “THE ST. FRANCIS
SHANGRI-LA PLACE.”
NO. It is essential to prove the existence of fraud, or the
intent to deceive, actual or probable. Here, records are bereft of
any showing that petitioners gave their goods/services the general
appearance that it was respondent which was o ering the same to
the public. Neither did petitioners employ any means to induce the
public towards a false belief that it was o ering respondent’s
goods/services. Nor did petitioners make any false statement or
commit acts tending to discredit the goods/services o ered by
respondent. Accordingly, the element of FRAUD which is the
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core of unfair competition had not been established.
Zuneca Pharmaceutical v.
2020 En Banc Caguioa, J
Natrapharm
Should Zuneca be held liable for trademark infringement?
NO. Even without Section 159.1 of the IP Code, a third party's
prior use of an unregistered mark, if said mark subsequently
becomes registered by another, could not be considered as
trademark infringement because there was no trademark registration
- a requirement for a trademark infringement action to prosper -
when the third party was using its mark.
Essentially, Section 159.1 is an exception to the rights of the
trademark owner in Section 147.1.
The Court declares ZUNECA as the prior user in good faith
of the "ZYNAPS" mark and accordingly protected under
Section 159.1.
Damages
1. The owner of a registered mark may recover damages from
any person who infringes his rights, and the measure of the
damages su ered shall be either
a. the reasonable pro t, or
b. a reasonable percentage based upon the amount
of gross sales of the defendant or the value of the
services in connection with which the mark or trade
name was used in the infringement of the rights of the
complaining party.
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2. On application of the complainant, the court may impound
during the pendency of the action, sales invoices and other
documents evidencing sales.
3. In cases where actual intent to mislead the public or to
defraud the complainant is shown, in the discretion of the
court, the damages may be doubled.
4. The complainant, upon proper showing, may also be granted
injunction.
Requirement of notice
In any suit for infringement, the owner of the registered mark shall
not be entitled to recover pro ts or damages unless the acts have
been committed with knowledge that such imitation is likely to
cause confusion, or to cause mistake, or to deceive.
Such knowledge is presumed if the registrant gives notice that his
mark is registered by displaying with the mark the words
'"Registered Mark" or ® or if the defendant had otherwise actual
notice of the registration. (§158)
Penalties
Independent of the civil and administrative sanctions imposed by
law, a criminal penalty of
a. imprisonment from two (2) years to ve (5) years and
b. a ne ranging from P50K - P200K,
shall be imposed on any person who is found guilty of committing
1. Trademark Infringement;
2. Unfair Competition;
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3. False Designations of Origin; False Description or
Representation.
Uyco v. Lo 2013 re False Designations of Origin
The law on trademarks and trade names precisely precludes a person
from pro ting from the business reputation built by another and
from deceiving the public as to the origins of products.
The argument that the words “Made in Portugal” and “Original
Portugal” refer to the origin of the design and not to the origin of
the goods does not negate the nding of probable cause; at the same
time, it is an argument that the petitioners are not barred by this
Resolution from raising as a defense during the hearing of the case.
7 Unfair competition
Republic Gas, et. al. v. Petron, et. al. 2013
WON probable cause exists to hold petitioners liable for the crime of
unfair competition.
YES. From jurisprudence, unfair competition has been de ned as
the passing o (or palming o ) or attempting to pass o upon the
public of the goods or business of one person as the goods or
business of another with the end and probable e ect of deceiving
the public.
Passing o (or palming o ) takes place where the defendant, by
imitative devices on the general appearance of the goods, misleads
prospective purchasers into buying his merchandise under the
impression that they are buying that of his competitors.
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San Miguel Pure Foods Co., Inc. v. Foodsphere, Inc. 2018
WON Foodsphere is liable for unfair competition.
YES. Thus, the essential elements of an action for unfair
competition are:
1) confusing similarity in the general appearance of the
goods; and
2) intent to deceive the public and defraud a competitor.
The confusing similarity may or may not result from similarity in
the marks, but may result from other external factors in the
packaging or presentation of the goods. The intent to deceive and
defraud may be inferred from the similarity of the appearance of
the goods as o ered for sale to the public. Actual fraudulent
intent need not be shown.
Foodsphere's intent to deceive the public, to defraud its competitor,
and to ride on the goodwill of SMPFCI's products is evidenced by
the fact that not only did Foodsphere switch from its old box
packaging to the same paper ham bag packaging as that used by
SMPFCI, it also used the same layout design printed on the same.
Asia Pacific Resources International v. Paperone 2018
WON Paperone is liable for unfair competition.
YES. Relative to the issue on confusion of marks and trade names,
jurisprudence has noted two types of confusion, viz.:
1) confusion of goods (product confusion), where the
ordinarily prudent purchaser would be induced to
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purchase one product in the belief that he was purchasing
the other; and
2) confusion of business (source or origin confusion),
where, although the goods of the parties are di erent, the
product, the mark of which registration is applied for by
one party, is such as might reasonably be assumed to
originate with the registrant of an earlier product; and the
public would then be deceived either into that belief or into
the belief that there is some connection between the two
parties, though inexistent.
Thus, while there is confusion of goods when the products are
competing, confusion of business exists when the products are
non-competing but related enough to produce confusion of
affiliation.
This case falls under the second type of confusion. The
element of intent to deceive and to defraud may be inferred
from the similarity of the appearance of the goods as o ered
for sale to the public. Contrary to the ruling of the CA, actual
fraudulent intent need not be shown. Factual circumstances were
established showing that respondent adopted PAPERONE in its
trade name even with the prior knowledge of the existence of
PAPER ONE as a trademark of petitioner.
C Copyrights
a. A copyright refers to "the right granted by a statute to the
proprietor of an intellectual production to its exclusive use and
enjoyment to the extent speci ed in the statute."
b. Rights over copyrights are conferred from the moment of
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creation.
1 Copyrightable works
1) Literary and Artistic Works;
2) Derivative Works;
3) Published Edition of Work.
Original works
§172. Literary and Artistic Works. — 172.1. Literary and
artistic works, hereinafter referred to as "works", are original
intellectual creations in the literary and artistic domain
protected from the moment of their creation xxxx.
172.2. Works are protected by the sole fact of their creation,
irrespective of their mode or form of expression, as well as of their
content, quality and purpose.
Derivative works
§173. Derivative Works. — 173.1. The following derivative
works shall also be protected by copyright:
a) Dramatizations, translations, adaptations, abridgments,
arrangements, and other alterations of literary or artistic
works; and
b) Collections of literary, scholarly or artistic works, and
compilations of data and other materials which are
original by reason of the selection or coordination or
arrangement of their contents.
173.2. Derivative works shall be protected as new works if such
new work shall not:
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a) a ect the force of any subsisting copyright upon the
original works employed or any part thereof, or
b) be construed to imply any right to such use of the original
works, or
c) to secure or extend copyright in such original works.
§174. Published Edition of Work. — In addition to the right
to publish granted by the author, his heirs, or assigns, the publisher
shall have a copyright consisting merely of the right of
reproduction of the typographical arrangement of the published
edition of the work.
ABS-CBN v. Gozon 2015
WON news footage is copyrightable under the law;
YES. It is true that under Section 175 of the IPC, "news of the day
and other miscellaneous facts having the character of mere items of
press information" are considered unprotected subject matter.
However, the Code does not state that expression of the news
of the day, particularly when it underwent a creative process,
is not entitled to protection.
News or the event itself is NOT copyrightable. However, an
event can be captured and presented in a speci c medium. As
recognized by this court in Joaquin v. Drilon, television "involves a
whole spectrum of visuals and e ects, video and audio." News
coverage in television involves framing shots, using images, graphics,
and sound e ects. It involves creative process and originality.
Television news footage is an expression of the news.
News as expressed in a video footage is entitled to copyright
protection. Broadcasting organizations have not only copyright
on but also neighboring rights over their broadcasts.
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Copyrightability of a work is di erent from fair use of a work for
purposes of news reporting.
Olaño v. Lim Eng Co 2016
WON the hatch doors of LEC fall within copyrightable works.
NO. It is clear that the hatch doors were NOT artistic works
within the meaning of copyright laws. A copyrightable work
refers to literary and artistic works defined as original intellectual
creations in the literary and artistic domain.
A hatch door, by its nature, is an object of utility. A "useful
article" de ned as an article "having an intrinsic utilitarian function
that is not merely to portray the appearance of the article or to
convey information" is excluded from copyright eligibility.
The only instance when a useful article may be the subject of
copyright protection is when it incorporates a design element
that is physically or conceptually separable from the underlying
product. This means that the utilitarian article can function
without the design element. In such an instance, the design
element is eligible for copyright protection.
2 Non-copyrightable works
§175. Unprotected Subject Matter. — Notwithstanding the
provisions of Sections 172 and 173, no protection shall extend,
under this law, to any
a) idea, procedure, system, method or operation, concept,
principle, discovery or mere data as such, even if they are
expressed, explained, illustrated or embodied in a work;
Reviewer
b) news of the day and other miscellaneous facts having the
character of mere items of press information; or
c) any o cial text of a legislative, administrative or legal
nature, as well as any o cial translation thereof.
Joaquin, Jr. v. Drilon, et. al.
To begin with, the format of a show is not copyrightable.
Petitioner BJPI’s copyright covers audio-visual recordings of each
3 Rights conferred by copyright
episode of Rhoda and Me.
The copyright does NOT extend to the general concept or
format of its dating game show. Accordingly, by the very nature
of the subject of petitioner BJPI’s copyright, the investigating
prosecutor should have the opportunity to compare the
videotapes of the two shows.
Mere description by words of the general format of the two dating
game shows is insu cient; the presentation of the master
videotape in evidence was indispensable to the determination of
the existence of probable cause.
§176. Works of the Government. — 176.1. No copyright shall
subsist in any work of the Government of the Philippines.
However, prior approval of the government agency or o ce
wherein the work is created shall be necessary for exploitation of
such work for profit. Such agency or o ce may, among other
things, impose as a condition the payment of royalties. No prior
approval or conditions shall be required for the use for any
purpose of
1. statutes,
2. rules and regulations, and
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3. speeches, lectures, sermons, addresses, and dissertations,
pronounced, read or rendered in courts of justice, before
administrative agencies, in deliberative assemblies and in
meetings of public character.
176.2. The author of speeches, lectures, sermons, addresses, and
dissertations shall have the exclusive right of making a
collection of his works.
§177. Copyright or Economic Rights. — Subject to the
provisions of Chapter VIII, copyright or economic rights shall
consist of the exclusive right to carry out, authorize or
prevent the following acts:
1. Reproduction of the work or substantial portion of the
work;
2. Dramatization, translation, adaptation, abridgment,
arrangement or other transformation of the work;
3. The first public distribution of the original and each
copy of the work by sale or other forms of transfer of
ownership;
4. Rental of the original or a copy irrespective of its
ownership;
5. Public display of the original or a copy of the work;
6. Public performance of the work; and
7. Other communication to the public of the work.
§193. Scope of Moral Rights. — The author of a work shall have
the right:
1. of Attribution;
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2. to Alter or Withhold Publication; Art

i) of xations, made without their consent, of their
3. to Object to Modi cation; and broadcasts; Photographic works If published – 50 years from publication;
4. Against the Use of Name in a Distorted Version of ii) of xations, made in accordance with the provisions of Audiovisual works Unpublished – 50 years from making.
Work. Article 15, of their broadcasts, if the reproduction is
made for purposes di erent from those referred to in Performances not 50 years from end of the year in which
§211. Scope of Right. — Subject to the provisions of Section 212, incorporated in performance took place
those provisions;
broadcasting organizations shall enjoy the exclusive right to recordings
carry out, authorize or prevent any of the following acts: d) the communication to the public of their television
broadcasts if such communication is made in places Sound recordings 50 years from end of the year in which
1. The rebroadcasting of their broadcasts;
accessible to the public against payment of an entrance fee; and performances recording took place
2. The recording in any manner, including the making of it shall be a matter for the domestic law of the State where incorporated therein
lms or the use of video tape, of their broadcasts for the protection of this right is claimed to determine the
purpose of communication to the public of television conditions under which it may be exercised.
broadcasts of the same; and
Rebroadcasting as de ned in Article 3(g) of the 1961 Rome 4 Ownership of a copyright
3. The use of such records for fresh transmissions or for fresh Convention is "the simultaneous broadcasting by one broadcasting
recording. organization of the broadcast of another broadcasting organization." Original Author
Literary and
§212. Limitations on Rights. — The provisions of Chapter VIII
Duration of Economic Rights Artistic Works
shall apply mutatis mutandis to the rights of performers,
producers of sound recordings and broadcasting organizations. Literary and Artistic Life of author +50 years after his death. Works of Joint GR: Co-authors, subject to agreement; or in
Works and Derivative Authorship the absence thereof, on rules on
ABS-CBN v. Gozon 2015 Works co-ownership;
Under Section 211 of the IPC broadcasting organizations are Works of Joint Life of the last surviving author +50 years EXC: if a work of joint authorship consists of
granted a more speci c set of rights called related or Authorship after his death parts that can be used separately and the
neighboring rights. author of each part can be identi ed, the
Anonymous or 50 years from date it is rst lawfully author of each part shall be the original
Broadcasting organizations shall enjoy the right to authorize or Pseudonymous published If before expiration of period, owner of the copyright in the part that
prohibit: Works identity is revealed or no longer in doubt, he has created.
a) the rebroadcasting of their broadcasts; the rule on Literary and Joint Authorship
applies Work in the a) EE — creation is NOT part of regular duty;
b) the xation of their broadcasts;
Course of
b) ER — result of the performance of his
c) the reproduction: Work of Applied 25 years from date of making Employment

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regularly-assigned duties, unless there is an
agreement, express or implied, to the
contrary.
Commissioned a) Commissioner owns the work;
Work
b) Creator owns the copyright, unless there is
a written stipulation to the contrary.
5 Limitations on copyright
Audiovisual Shall belong to the producer, the author of the
Work scenario, the composer of the music, the lm
director, and the author of the work so adapted.
However, subject to contrary or other
stipulations among the creators, the producer
shall exercise the copyright to an extent
required for the exhibition of the work in any
manner,
except for the right to collect performing
license fees for the performance of musical
compositions, with or without words, which are
incorporated into the work.
Letters a) Writer owns copyright;
b) Recipient owns letter, but it cannot be
published or disseminated without the
consent of the writer or his heirs.
Anonymous Publishers shall be deemed to represent the
and authors of articles and other writings published
Pseudonymous unless
Works
1. the contrary appears, or
2. the pseudonyms or adopted name leaves
Reviewer
no doubt as to the author's identity, or
3. if the author of the anonymous works
discloses his identity.
§184. Limitations on Copyright. — 184.1. The following
acts shall NOT constitute infringement of copyright:
a) The recitation or performance of a work,
i) once it has been lawfully made accessible to the
public,
ii) if done privately and
iii) free of charge or if made strictly for a charitable or
religious institution or society;
b) The making of quotations from a published work if they are
compatible with fair use;
c) The reproduction or communication to the public by mass
media of articles on current political, social, economic,
scienti c or religious topic, lectures, addresses and other
works of the same nature;
d) The reproduction and communication to the public of
literary, scienti c or artistic works as part of reports of
current events;
e) The inclusion of a work in a publication, broadcast, or other
communication to the public, sound recording or lm, if such
inclusion is made by way of illustration for teaching
purposes and is compatible with fair use;
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f) The recording made in schools, universities, or
educational institutions of a work included in a broadcast:
Provided, That such recording must be deleted within a
reasonable period after they were rst broadcast;
g) The making of ephemeral recordings by a broadcasting
organization;
h) The use of a work by or under the direction or control of the
Government, by the National Library or by educational,
scienti c or professional institutions where such use is in
the public interest and is compatible with fair use;
i) The public performance or the communication to the public
of a work, in a place where no admission fee is charged, by a
club or institution for charitable or educational purpose only,
whose aim is not profit making;
j) Public display of the original or a copy of the work not made
by means of a lm, slide, television image or otherwise on
screen or by means of any other device or process;
k) Any use made of a work for the purpose of any judicial
proceedings or for the giving of professional advice by a legal
practitioner.
l) The reproduction or distribution of published articles or
materials in a specialized format exclusively for the use of the
blind, visually- and reading-impaired persons:
Provided, That such copies and distribution shall
1. be made on a nonpro t basis and
2. indicate the copyright owner and the date of the original
publication. (as amended by RA No 10372)
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6 Doctrine of fair use
§185. Fair Use of a Copyrighted Work. — 185.1. The fair
use of a copyrighted work for criticism, comment, news reporting,
teaching including limited number of copies for classroom use,
scholarship, research, and similar purposes is not an
infringement of copyright.
Decompilation, which is understood here to be the reproduction
of the code and translation of the forms of a computer program to
achieve the interoperability of an independently created
computer program with other programs may also constitute fair
use under the criteria established by this section, to the extent that
such decompilation is done for the purpose of obtaining the
information necessary to achieve such interoperability.
ABS-CBN v. Gozon 2015
FOUR-FACTOR TEST. In determining whether the use made of
a work in any particular case is FAIR USE, the factors to be
considered shall include:
a. The purpose and character of the use, including whether
such use is of a commercial nature or is for non-pro t
educational purposes;
b. The nature of the copyrighted work;
c. The amount and substantiality of the portion used in
relation to the copyrighted work as a whole; and
d. The e ect of the use upon the potential market for or
value of the copyrighted work.
GMA-7's rebroadcast of ABS-CBN's news footage without the
latter's consent is not an issue. The mere act of rebroadcasting
Reviewer
without authority from the owner of the broadcast gives rise to the
probability that a crime was committed under the IPC.
7 Copyright infringement
§216. Infringement. — A person infringes a right protected
under this Act when one:
a) Directly commits an infringement;
b) Bene ts from the infringing activity of another person
who commits an infringement if the person bene ting has
been given notice of the infringing activity and has the
right and ability to control the activities of the other
person;
c) With knowledge of infringing activity, induces, causes or
materially contributes to the infringing conduct of
another.
Remedies
216.1 Remedies for Infringement. — Any person infringing
a right protected under this law shall be liable:
a) To an injunction restraining such infringement.
b) To pay to the copyright proprietor or his assigns or heirs such
actual damages:
Provided, That the amount of damages to be awarded shall be
doubled against any person who:
i) Circumvents e ective technological measures; or
ii) Remove or alter any electronic rights management
information from a copy of a work, or distribute,
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import for distribution, broadcast, or communicate
to the public works or copies of works knowing that
electronic rights management information has been
removed or altered without authority. (aab RA No
10372)
c) Deliver under oath, for impounding, sales invoices and other
documents evidencing sales, all articles and their packaging
alleged to infringe a copyright and implements.
d) Deliver under oath for destruction without any
compensation all infringing copies or devices.
e) Such other terms and conditions, including the payment of
moral and exemplary damages.
Criminal penalties
Any person infringing any right secured by provisions of Part IV of
this Act or aiding or abetting such infringement shall be guilty.
The respective maximum penalty shall be imposed when the
infringement is committed by:
a) The circumvention of e ective technological measures;
b) The removal or alteration of any electronic rights
management information; or
c) The distribution of works or copies of works knowing
that electronic rights management information has been
removed or altered without authority.
Olaño v. Lim Eng Co 2016
For a claim of copyright infringement to prevail, the evidence on
record must demonstrate:
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1) ownership of a validly copyrighted material by the
complainant; and
2) infringement of the copyright by the respondent.
The respondent failed to substantiate the alleged reproduction of
the drawings/sketches of hatch doors copyrighted under the First
Certi cate of Registration. LEC's copyright protection
thereunder covered only the hatch door sketches/ drawings and
not the actual hatch door they depict. To constitute
infringement, the usurper must have copied or appropriated the
original work of an author or copyright proprietor; absent
copying, there can be no infringement of copyright.
Unlike a patent, a copyright gives no exclusive right to the art
disclosed; protection is given only to the expression of the idea
— not the idea itself.
Anent, LEC's Second Certi cate of Registration, the Court
nds that the ownership thereof was not established by the evidence
on record because the element of copyrightability is absent.
Here, evidence negating originality and copyrightability as
elements of copyright ownership was satisfactorily pro ered against
LEC's certi cate of registration.
Habana v. Robles
It does not necessarily require that the entire copyrighted work, or
even a large portion of it, be copied. If so much is taken that the
value of the original work is substantially diminished, there is
an infringement of copyright and to an injurious extent, the
work is appropriated.
A copy of a piracy is an infringement of the original, and it is
Reviewer
no defense that the pirate, in such cases, did not know
whether or not he was infringing any copyright; he at least
knew that what he was copying was not his, and he copied at his
peril.
In cases of infringement, copying alone is not what is
prohibited. The copying must produce an "injurious e ect".
For another to represent a work as her own is injury enough.
ABS-CBN v. Gozon 2015
WON lack of knowledge that a material is copyrighted is a defense
against copyright infringement and that good faith is a defense in a
criminal prosecution for violation of the IPC.
NO. Infringement under the IPC is malum prohibitum. The
IPC is a special law. The general rule is that acts punished under a
special law are malum prohibitum. The IPC requires strict
liability for copyright infringement whether for a civil action or a
criminal prosecution; it does not require mens rea or culpa.
WON GMA-7's officers and employees cannot be held liable for
infringement.
Only Dela Peña-Reyes and Manalastas should be implicated.
Section 217 states that "any person" may be found guilty of
infringement. The criminal liability of a corporation's o cers or
employees stems from their active participation in the
commission of the wrongful act.
Microsoft v. Manansala 2015
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WON the printing or copying is essential in the commission of the
crime of copyright infringement.
NO. The "gravamen of copyright infringement," according to
NBI-Microsoft Corporation v. Hwang is not merely the
unauthorized manufacturing of intellectual works but rather the
unauthorized performance of any of the acts covered by Sec 5.
The mere sale of the illicit copies of the software programs was
enough by itself to show the existence of probable cause for
copyright infringement. There was no need for the petitioner to still
prove who copied, replicated or reproduced the software programs.
Anti-Money Laundering Act
V Anti-Money Laundering Act of 2001 as last amended by
RA No 11521 and its 2018 IRR
Covered institutions and their obligations
Covered and suspicious transactions
Safe harbor provision
When is money laundering committed
Authority to inquire into bank deposits
Freezing and forfeiture
Covered institutions and their
A
obligations
The following are the covered persons under the AMLA:
a) The following financial institutions:
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1) Persons supervised and/or regulated by BSP, including
their subsidiaries and a liates, which are also covered persons,
supervised and/or regulated by the BSP.
2) Persons supervised or regulated by IC.
3) Persons supervised or regulated by SEC.
b) The following Designated Non-Financial Businesses and
Professions or DNFBPs:
1) Jewelry dealers.
2) Dealers in precious metals, and dealers in precious stones.
3) Company service providers, which, as a business, provide
any of the following services to third parties:
a) acting as a formation agent of juridical persons;
b) acting as (or arranging for another person to act as)
i) a director or corporate secretary of a company,
ii) a partner of a partnership, or
iii) a similar position in relation to other juridical
persons;
c) providing a registered o ce; business address or
accommodation, correspondence or administrative
address for a company, a partnership or any other juridical
person or legal arrangement; and
d) acting as (or arranging for another person to act as) a
nominee shareholder for another person.
4) Persons, including lawyers, accountants and other
professionals, who provide any of the following services:
a) Managing of client money, securities or other assets;
Reviewer
b) Management of bank, savings, securities or other assets;
c) Organization of contributions for the creation, operation
or management of companies; and
d) Creation, operation or management of juridical persons
or arrangements, and buying and selling business entities.
5) Casinos, including internet-based casinos and ship-based
casinos, with respect to their casino cash transactions related to
their gaming operations.
6) Real estate developers and brokers;
7) O shore gaming operation, as well as their service
providers, supervised, accredited or regulated by the PAGCOR
or any government agency;
The term 'covered persons' shall EXCLUDE lawyers and
accountants acting as independent legal professionals
1. in relation to information concerning their clients or
2. where disclosure of information would compromise client
con dences or the attorney-client relationship:
Provided, That these lawyers and accountants
1. are authorized to practice in the Philippines and
2. shall continue to be subject to the provisions of their
respective codes of conduct and/or professional responsibility.
Obligations
a) Customer Identification. — Covered institutions shall
establish and record the true identity of its clients based on
o cial documents. They shall maintain a system of verifying
the true identity of their clients.
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b) Record Keeping. — All records of all transactions of covered
institutions shall be maintained and safely stored for ve (5)
years from the dates of transactions.
With respect to closed accounts, for at least five (5) years
from the dates when they were closed.
c) Reporting of Covered and Suspicious Transactions. —
Covered persons shall report to the AMLC all covered
transactions and suspicious transactions within ve (5)
working days from occurrence thereof,
unless the AMLC prescribes a di erent period not exceeding
fteen (15) working days.
B Covered and suspicious transactions
"Covered Transaction" refers to:
1) A transaction in cash or other equivalent monetary instrument
exceeding P500K within one (1) banking day;
2) A transaction with or involving jewelry dealers, dealers in
precious metals and dealers in precious stones in cash or
other equivalent monetary instrument exceeding P1M.
3) A casino cash transaction exceeding P5M or its equivalent in
other currency.
4) A single cash transaction by real estate developers and
brokers involving an amount in excess of P7.5M or its
equivalent in any other currency.
"Suspicious Transaction" refers to a transaction, regardless of
amount, where any of the suspicious circumstances is determined,
based on suspicion or, if available, reasonable grounds, to be existing.
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1) There is no underlying legal or trade obligation, purpose
or economic justi cation;
2) The client is not properly identi ed;
3) The amount involved is not commensurate with the business
or nancial capacity of the client;
4) It may be perceived that the client’s transaction is
structured in order to avoid being the subject of reporting
requirements;
5) Any circumstance relating to the transaction which is observed
to deviate from the pro le of the client and/or the client’s
past transactions with the covered institution;
6) The transaction is in a way related to an unlawful activity
or o ense that is about to be, is being, or has been committed;
7) Any analogous or similar transactions to the foregoing.
C Safe harbor provision
NO administrative, criminal or civil proceedings shall lie
against any person
1. for having made a CTR or an STR
2. in the regular performance of his duties and
3. in good faith,
4. whether or not such reporting results in any criminal
prosecution under the AMLA or any other Philippine law.
D When is money laundering committed
Money laundering is committed by:
Reviewer
a) Any person who, knowing that any monetary instrument or
property represents, involves, or relates to the proceeds of any
unlawful activity:
1) transacts said monetary instrument or property;
2) converts, transfers, disposes of, moves, acquires, possesses
or uses said monetary instrument or property;
3) conceals or disguises the true nature, source, location,
disposition, movement or ownership of or rights with
respect to said monetary instrument or property;
4) attempts or conspires to commit ML o enses referred
to in (1), (2), or (3) above;
5) aids, abets, assists in, or counsels the commission of the
ML o enses referred to in (1), (2), or (3) above; and
6) performs or fails to perform any act as a result of which he
facilitates the o ense of ML referred to in items (1), (2),
or (3) above.
b) Any covered person who, knowing that a covered or suspicious
transaction is required under the AMLA to be reported to the
AMLC, fails to do so.
Unlawful activities refer to any act or omission, or series or
combination thereof, involving or having direct relation, to the
following: (deleted for brevity)
Same Conduct Approach. — In determining whether or not a
felony or o ense punishable under the penal laws of other
countries is "of a similar nature" so as to constitute an unlawful
activity under the AMLA, it is su cient that both the
Philippines and the other jurisdiction criminalize the
conduct or activity underlying the o ense, regardless of
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whether both countries place the o ense within the same category,
or denominate the o ense under the same nomenclature.
E Authority to inquire into bank deposits
Bank Inquiry Order by the Court
1. Application for Issuance of Bank Inquiry Order. — By
authority of the Council, the AMLC Secretariat shall le
before the CA, through the OSG, an Ex Parte Application for
the Issuance of Bank Inquiry Order to examine or inquire into
any particular deposit or investment account that is related to
an unlawful activity or ML o ense.
2. Inquiry into or Examination of Related Accounts. — A
court order ex parte must be obtained before the AMLC
can inquire into the related accounts.
3. No Prior Criminal Charge, Pendency of a Case, or
Conviction Necessary.
4. Compliance with Article III, Sections 2 and 3 of the
Constitution.
5. Period to Resolve Application. — 24 HOURS;
6. Bank Inquiry Order. — The AMLC may inquire into or
examine any particular deposit or investment account,
including related accounts, with any banking institution or
non-bank nancial institution, upon order by the Court
of Appeals based on an ex parte application in cases of
violation of the AMLA when probable cause exists.
Bank Inquiry Order by the AMLC
1. The AMLC shall issue an ex parte order authorizing the
AMLC Secretariat to inquire into or examine any particular
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deposit or investment account, including related accounts,
with any banking institution or non-bank nancial
institution and their subsidiaries and a liates when it
has been established that probable cause exists that the
deposits or investments involved, including related accounts,
are in any way related to any of the following unlawful
Court-Issued Freeze Order
activities:
a) Kidnapping for ransom;
b) RA 9165;
c) Hijacking and other violations under RA 6235;
destructive arson and murder;
d) Felonies or o enses of a nature similar to those mentioned
in Rule 11, Section 2.1 (a), (b) and (c), which are
punishable under the penal laws of other countries;
e) Terrorism and conspiracy to commit terrorism; and
f) Financing of terrorism under Section 4 and o enses
punishable under Sections 5, 6, 7 and 8 of the TFPSA.
2. The relevant requirements for Bank Inquiry Order by the
Court shall apply to Bank Inquiry Order by the AMLC,
including the procedure for inquiry into related accounts.
F Freezing and forfeiture
The following requirements shall be observed in the issuance of freeze
orders:
a) NO prior criminal charge, pendency of a case, or conviction
for an unlawful activity or ML o ense is necessary for the
commencement or the resolution of a petition for freeze order.
Reviewer
b) No asset shall be frozen to the prejudice of a candidate for an
electoral o ce during an election period.
c) No court shall issue a TRO or a writ of injunction against any
freeze order, except the Supreme Court.
1. Ex Parte Petition for Issuance of Freeze Order. — By
authority of the Council, the AMLC Secretariat shall le
before the Court of Appeals, through the OSG.
2. Related Accounts. — The AMLC may include in its petition
the freezing of related and materially-linked accounts.
3. Period to Resolve Petition. — The CA shall resolve within
24 hours from ling thereof.
4. Issuance. — Upon veri ed ex parte petition by the AMLC
and after determination that probable cause exists, the CA
may issue a freeze order, which shall be e ective
immediately, for a period of 20 days.
5. Coverage. — The freeze order shall be limited only to the
amount of cash or monetary instrument, or value of
property that the CA nds there is probable cause.
6. Summary Hearing and Extension. — Before the
expiration of the 20-day freeze order, the CA shall conduct a
summary hearing, with notice to the parties, to determine
whether or not to modify or lift the freeze order, or to extend
its e ectivity. Pending resolution by the CA, the freeze order
shall remain e ective.
7. Effectivity of Freeze Order. — Immediately and shall
remain e ective for a total period not exceeding 6 months.
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8. Motion to Lift. — If a freeze order is imposed on an account,
including bank account, of a covered person that it uses for
payment of
a) salary,
b) rent,
c) suppliers, and/or
d) taxes
in the ordinary course of a legitimate business, the
covered person may apply with the court which issued the
freeze order to lift the same by submitting a bond or other
acceptable securities of equal value to the amount or value
subject of the freeze order.
The court must resolve the motion before the expiration of
the freeze order.
9. Lifting the Effects of the Freeze Order.
a) The freeze order shall be deemed ipso facto lifted after
its expiration, unless an ML complaint against the
person whose monetary instrument or property was
frozen, or a Petition for Civil Forfeiture against the
frozen monetary instrument or property, has been led, in
which case the freeze order shall remain e ective until the
ML case is terminated or an asset preservation order is
issued, respectively.
b) Before the expiration of the freeze order, the covered
person shall secure a written con rmation from the
AMLC to ascertain if a petition for civil forfeiture or an
ML complaint has been led.
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AMLC-Issued Freeze Order
Freeze orders issued by the AMLC shall be governed by the
TFPSA and its IRR.
The AMLC, either upon its own initiative or at the request of the
ATC, is hereby authorized to issue, ex parte, an order to freeze
without delay:
a) property or funds that are in any way related to nancing
of terrorism or terrorist acts; or
b) property or funds of any person, terrorist organization,
association or group of persons in relation to whom there
is probable cause to believe that they are committing or
attempting or conspiring to commit, or participating in or
facilitating the commission of nancing of terrorism or
terrorist acts.
The freeze order shall be e ective for a period not exceeding
twenty (20) days. Upon a petition led by the AMLC before the
expiration of the period, the e ectivity of the freeze order may be
extended up to a period not exceeding six (6) months upon
order of the Court of Appeals:
Provided, That the twenty-day period shall be tolled upon ling of
a petition to extend the e ectivity of the freeze order.
Period of validity of a freeze order: may it be extended? YES
for a total period not exceeding six (6) months.
The following rules shall be observed in asset forfeiture
proceedings:
a) No prior criminal charge, pendency of a case, or
conviction for an unlawful activity or ML o ense is
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necessary for the commencement or the resolution of a
petition for civil forfeiture.
b) No asset shall be attached or forfeited to the prejudice of a
candidate for an electoral o ce during an election period.
Petition for Civil Forfeiture — Upon determination that
probable cause exists that any monetary instrument or property is
in any way related to an unlawful activity or ML o ense, the
AMLC shall le with the RTC, through the OSG, a veri ed
petition for civil forfeiture.
Equal Value Assets — Other monetary instrument or property of
equal value may be included in the Petition where the monetary
instrument or property that should be subject of forfeiture:
a) cannot be located despite due diligence;
b) has been substantially altered, destroyed, diminished in
value or otherwise rendered worthless by any act or
omission;
c) has been concealed, removed, converted, or otherwise
transferred;
d) is located outside the Philippines or has been placed or
brought outside the jurisdiction of the court; or
e) has been commingled with other monetary instruments
or property belonging to either the o ender himself or a
third person or entity, thereby rendering the same di cult
to identify or be segregated for purposes of forfeiture.
Asset Preservation Order. — Upon veri ed petition by the
AMLC, with prayer for issuance of asset preservation order, and
after determination that probable cause exists that any monetary
instrument or property is in any way related to an unlawful
activity, the RTC may issue an asset preservation order which shall
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be e ective immediately, forbidding any transaction, withdrawal,
deposit, transfer, removal, conversion, concealment or other
disposition of the subject monetary instrument or property.
Motion to Discharge. — If an APO is imposed on an account of
a covered person that it uses for payment of
1. salary,
2. rent,
3. suppliers, and/or
4. taxes
in the ordinary course of a legitimate business, the covered
person may apply with the court which issued the APO to
discharge the same by submitting a bond or other acceptable
securities of equal value to the amount or value subject of the asset
preservation order.
VI Electronic Commerce Act
Legal recognition of electronic data messages, documents,
and signatures
Presumption relating to electronic signatures
Admissibility and evidential weight of electronic data
message or electronic document
Obligation of con dentiality
Legal recognition of electronic data
A
messages, documents, and signatures
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1) Information shall not be denied validity or enforceability
solely on the ground that it is in the form of an electronic
data message purporting to give rise to such legal e ect, or
that it is merely incorporated by reference in that electronic
data message.
2) Electronic documents shall have the legal e ect, validity or
enforceability as any other document or legal writing, and —
a) Where the law requires a document to be in writing,
that requirement is met by an electronic document if
the said electronic document maintains its integrity
and reliability and can be authenticated so as to be
usable for subsequent reference, in that —
i) The electronic document has remained
complete and unaltered, apart from the
addition of any endorsement and any
authorized change, or any change which
arises in the normal course of
communication, storage and display; and
ii) The electronic document is reliable in the
light of the purpose for which it was
generated and in the light of all relevant
circumstances.
b) Paragraph (a) applies whether the requirement therein
is in the form of an obligation or whether the law
simply provides consequences for the document not
being presented or retained in its original form.
c) Where the law requires that a document be presented
or retained in its original form, that requirement is
met by an electronic document if —
Reviewer
i) There exist a reliable assurance as to the
integrity of the document from the time
when it was rst generated in its nal form;
and
ii) That document is capable of being displayed
to the person to whom it is to be presented:
Provided, That no provision of this Act shall
apply to vary any and all requirements of
existing laws on formalities required in the
execution of documents for their validity.
For evidentiary purposes, an electronic document shall be the
functional equivalent of a written document under existing
laws.
3) This Act does not modify any statutory rule relating to the
admissibility of electronic data messages or electronic
documents, except the rules relating to authentication and best
evidence.
4) An electronic signature on the electronic document shall
be equivalent to the signature of a person on a written
document if the signature is an electronic signature and
proved by showing that a prescribed procedure, not alterable
by the parties interested in the electronic document, existed
under which —
a) A method is used to identify the party sought to be
bound and to indicate said party's access to the
electronic document necessary for his consent or
approval through the electronic signature;
b) Said method is reliable and appropriate for the
purpose for which the electronic document was
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generated or communicated, in the light of all
circumstances, including any relevant agreement;
c) It is necessary for the party sought to be bound, in
order to proceed further with the transaction, to have
executed or provided the electronic signature; and
d) The other party is authorized and enabled to verify
the electronic signature and to make the decision to
proceed with the transaction authenticated by the
same.
Presumption relating to electronic
B
signatures
In any proceedings involving an electronic signature, it shall be
presumed that,
1) The electronic signature is the signature of the person to
whom it correlates; and
2) The electronic signature was a xed by that person with the
intention of signing or approving the electronic document
unless the person relying on the electronically signed electronic
document knows or has notice of defects in or unreliability of
the signature or reliance on the electronic signature is not
reasonable under the circumstances.
Admissibility and evidential weight of
C electronic data message or electronic
document
In any legal proceedings, nothing in the application of the rules on
evidence shall deny the admissibility of an electronic data message or
electronic document in evidence —
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1) On the sole ground that it is in electronic form; or Liquidation

Basic Concepts
2) On the ground that it is not in the standard written form, and Voluntary liquidation vs. Involuntary liquidation vs.
Rehabilitation
the electronic data message or electronic document meeting, Conversion
and complying with the requirements under Sections 6 or 7 Insolvent
Procedure
hereof shall be the best evidence of the agreement and Liquidation
transaction contained therein. Liquidation order; e ects
Suspension of payments
In assessing the evidential weight of an electronic data message or Determination of claims
electronic document, the reliability of the manner in which it was Modes of Rehabilitation
Suspension of payments; suspension of payment order
generated, stored or communicated, the reliability of the manner in Court-supervised rehabilitation
which its originator was identi ed, and other relevant factors shall be
Voluntary vs. involuntary A Basic Concepts
given due regard.
Commencement order The purpose of rehabilitation proceedings is not only to enable
D Obligation of confidentiality Rehabilitation receiver and management committee the company to gain a new lease on life, but also to allow creditors
to be paid their claims from its earnings when so rehabilitated.
Except for the purposes authorized under this Act, any person who Determination of claims (PAGTI v. Fastech Synergy 2016)
obtained access to any electronic key, electronic data message or
Rehabilitation plan The purpose of insolvency proceedings is to encourage debtors
electronic document, book, register, correspondence, information,
Creditor approval and con rmation and their creditors to collectively and realistically resolve and adjust
or other material pursuant to any powers conferred under this Act,
competing claims and property rights while
shall not convey to or share the same with any other person. Failure of rehabilitation
a) maintaining certainty and predictability in commercial
Pre-negotiated rehabilitation
Financial Rehabilitation, Insolvency, a airs,
Liquidation and Suspension of How initiated b) preserving and maximizing the value of the assets of these
Payments Period and e ect of approval debtors,

Financial Rehabilitation and Insolvency Act of 2010
VII
1. Financial Rehabilitation Rules of Procedure
(2013) ⭐
2. Financial Liquidation And Suspension of
Payments Rules of Procedure for Insolvent
Debtors
Out-of-Court or Informal Restructuring Agreement or c) recognizing creditor rights and respecting priority of
claims, and
Rehabilitation Plan
d) ensuring equitable treatment of creditors who are
Minimum requirements
similarly situated. MBTC v. SF Naguiat Enterprises 2015)
Standstill period
A corporate rehabilitation case is a special proceeding in rem
Cram down e ect wherein the petitioner seeks to establish the status of a party or
a particular fact, i.e., the inability of the corporate debtor to pay its

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debts when they fall due.
It is summary and non-adversarial in nature. Its end goal is to
secure the approval of a rehabilitation plan to facilitate the
successful recovery of the corporate debtor. It does not seek relief
from an injury caused by another party. (Golden Cane Furniture
Manufacturing v. Steelpro Philippines 2016, Allied Banking v.
Equitable PCI 2018)
Viva Shipping Lines v. Keppel Philippines Mining 2016
New Frontier Sugar v. RTC, Branch 39, Iloilo City doctrinally
requires compliance with the procedural rules for appealing
corporate rehabilitation decisions. Resort to liberal construction
must be rational and well-grounded, and its factual bases must be so
clear such that they outweigh the intent or purpose of an apparent
reading of the rules.
Due process dictates that creditors be impleaded to give them an
opportunity to protect the property owed to them. Creditors are
indispensable parties to a rehabilitation case, even if a
rehabilitation case is non-adversarial.
A corporate rehabilitation case cannot be decided without the
creditors' participation. The court's role is to balance the interests of
the corporation, the creditors, and the general public.
Liberality in corporate rehabilitation procedure only
generally refers to the trial court, NOT to the proceedings
before the appellate court. Thus, Rule 2, Section 2 of the Interim
Rules of Procedure on Corporate Rehabilitation, which refers to
liberal construction, is limited to the RTC.
dismissed petitioner's rehabilitation plan.
1 Rehabilitation
Rehabilitation — the restoration of the debtor to a condition
of successful operation and solvency, if it is shown that its
continuance of operation is economically feasible and its
creditors can recover by way of the present value of payments
projected in the plan, more if the debtor continues as a going
concern than if it is immediately liquidated.
In our jurisdiction, rehabilitation proceedings have a two-fold
purpose:
1. Equitable — Cram Down Principle. A rehabilitation plan
may be approved even over the opposition of the creditors
holding a majority of the corporation’s total liabilities if there is
a showing
a. that rehabilitation is feasible and
b. the opposition of the creditors is manifestly
unreasonable.
2. Rehabilitative —
a. May involve a reduction of liability.
b. The non-impairment clause may NOT be invoked
(Victorio-Aquino v. Pacific Plans 2014)
Two fundamental requirements that must be provided for in the
Rehabilitation Plan:
earnestness and good faith of the distressed corporation in
nancing the proposed rehabilitation plan.
2. Liquidation Analysis — It is intended to ascertain if
the distressed corporation’s creditors can recover by way
of the present value of payments projected in the plan, more
if the debtor continues as a going concern than if it is
immediately liquidated.
2 Insolvent
Insolvent — the nancial condition of a debtor that is generally
unable to pay its or his liabilities as they fall due in the ordinary
course of business or has liabilities that are greater than its or his
assets.
Philippine Bank of Communications v.
2014
Basic Polyprinters and Packaging
As to the issue of insolvency, it must be noted that liquidity is
NOT an issue in a petition for rehabilitation. Consequently,
the basic issues in rehabilitation proceedings concern the viability
and desirability of continuing the business operations of the
petitioning corporation.
Moreover, FRIA has de ned a corporate debtor as a corporation
duly organized and existing under Philippine laws that has become
insolvent. However, petitioner is correct in arguing that Basic
Polyprinters did not present any material nancial commitment in
the rehabilitation plan. Basic Polyprinters' nancial commitments
were insu cient for the purpose.

The RTC found that petitioner's assets were non-performing. a) The commitment to add P10M working capital appeared
1. Material Financial Commitment — becomes
Petitioner admitted this in its Amended Petition when it stated that to be doubtful considering that the insurance claim from
signi cant in gauging the resolve, determination,
its vessels were no longer serviceable. The RTC thus correctly which said working capital would be sourced had already

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been written-o . A claim that has been written-o is
considered a bad debt or a worthless asset, and cannot be
deemed a material financial commitment for purposes of
rehabilitation.
b) The conversion of all deposits for future subscriptions to
common stock and the treatment of all payables to o cers
and stockholders as trade payables was hardly constituting
material nancial commitments.
Basic Polyprinters’s proposal to enter into the dacion en pago to
create a source of “fresh capital” was not feasible because the object
thereof would not be its own property but one belonging to its
a liate, TOL Realty and Development Corporation, a corporation
also undergoing rehabilitation.
3 Liquidation
4 Suspension of payments In voluntary proceedings, a group of debtors may jointly le a
petition for rehabilitation
1) An individual debtor who, possessing sufficient property to
cover all his debts but foreseeing the impossibility of 1. when one or more of its members foresee the impossibility of
meeting them when they respectively fall due, may le a meeting debts when they respectively fall due, and
veri ed petition that he be declared in the state of suspension 2. the nancial distress would likely adversely a ect
of payments by the court of the province or city in which he
a. the nancial condition,
has resided for six (6) months prior to the ling of his petition.
b. operations of the other members of the group, and/or
2) The petitioner shall attach to his/her petition, as a minimum:
c. the participation of the other members of the group is
a) a schedule of debts and liabilities;
essential under the terms and conditions of the proposed
b) an inventory of assets; and Rehabilitation Plan.
c) a proposed agreement with his creditors. In involuntary proceedings, creditors le a petition for rehabilitation
with the court if:
B Modes of Rehabilitation 1. there is no genuine issue of fact or law on the claim/s of
the petitioner/s, AND
1 Court-supervised rehabilitation
that the due and demandable payments thereon have not
been made for at least sixty (60) days OR
a Voluntary vs. involuntary
that the debtor has failed generally to meet its liabilities as
they fall due; OR
Voluntary Involuntary
2. a creditor, other than the petitioner/s, has initiated
Debtor Creditors foreclosure proceedings against the debtor that will prevent
- Owner of Sole Proprietorship; Any creditor or group of the debtor from paying its debts as they become due or will
creditors with a claim of at render it insolvent.
- Majority of Partners; or
least P1M or 25% of the SCS,
- Majority of the Board + at least whichever is higher. Metrobank v. Fortuna Paper Mill & Packaging 2018
⅔ of the OCS or Members in
WON Fortuna is qualified to file a petition for rehabilitation under
case of Corporation
the Interim Rules.

YES. This Court need not distinguish whether the claim has

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already matured or not. What is essential in case of
rehabilitation is the inability of the debtor corporation to pay
its dues as they fall due. In the case herein, accepting MBTC's
proposition that debtor companies already in default are unquali ed
to le a petition for corporate rehabilitation not only contradicts the
purpose of the law, as stated, but also advocates a limiting bar that is
not found under the pertinent provisions.
b Commencement order
The rehabilitation proceedings shall commence upon the issuance
of the Commencement Order. It shall be deemed to have
commenced from the DATE OF FILING of the petition,
which is also termed the commencement date.
The commencement order primarily contains:
1. a declaration that the debtor is under rehabilitation,
2. the appointment of a rehabilitation receiver,
3. a directive for all creditors to le their veri ed notices of claim,
and
4. an order staying claims against the debtor.
The e ects of the court's issuance of a Commencement Order shall
retroact to the date of the filing of the petition and shall:
a) vest the rehabilitation receiver with all the powers and
functions, such as
i) the right of access, and
ii) the right to review and obtain records to which the
debtor's management and directors have access,
Reviewer
including bank accounts of whatever nature of the
debtor,
b) prohibit or otherwise serve as the legal basis for rendering null
and void the results of any extrajudicial activity or process to
i) seize property,
ii) sell encumbered property, or
iii) otherwise attempt to collect on or enforce a claim
against the debtor after the commencement date
unless otherwise allowed;
c) serve as the legal basis for rendering null and void
i) any set-o after the commencement date of any debt
owed to the debtor by any of the debtor's creditors;
ii) the perfection of any lien against the debtor's
property after the commencement date;
d) consolidate all legal proceedings by and against the debtor to
the court; and
e) exempt the debtor from liability for taxes and fees, including
penalties, interests and charges thereof due to the national
government or the LGU as provided in Section 19 of the Act.
2019
LBP v. Polillo Paradise Island Corp.
WON the Commencement Order issued by the RTC has the effect of
rendering void the foreclosure sale of the subject properties and the
effects thereof.
NO. The ownership of the subject properties was vested upon the
petitioner before the ling of the petition for corporate
rehabilitation.
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Here, the Commencement Order was issued on January 11, 2013.
As to the date of the ling of the petition, it was actually led on
August 22, 2012 as evidenced by the rubber stamp of the RTC.
Be that as it may, petitioner still erred in considering August 2012 as
the reckoning point. It was the October 18, 2012 amended
petition which was granted by the RTC and initiated the
rehabilitation proceedings. Thus the commencement date is
reckoned on October 18, 2012.
The Certi cate of Sale was issued and registered on August 22,
2011. As such, the last day of the redemption period is on August
22, 2012. Corollary, petitioner is no longer considered as
respondent's creditor.
Attempts to seek legal or other recourse against the debtor outside
these proceedings shall be su cient to support a nding of indirect
contempt of court. (§17, last par.)
The Commencement Order shall be e ective for the duration of
the rehabilitation proceedings, unless
a) earlier lifted by the court,
b) the rehabilitation plan is seasonably con rmed or approved, or
c) the rehabilitation proceedings are ordered terminated by the
court pursuant to Section 73 of this Rule.
BIR v. Lepanto Ceramics, Inc. 2017
WON the RTC Br. 35 correctly found Misajon, et al. to have defied
the Commencement Order and, accordingly, cited them for indirect
contempt.
YES. Creditors of the distressed corporation are not without
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remedy as they may still submit their claims to the
rehabilitation court for proper consideration so that they may
participate in the proceedings. Any attempts to seek legal or other
recourse against the distressed corporation shall be su cient to
support a nding of indirect contempt of court.
Here, the acts of sending a notice of informal conference and a
Formal Letter of Demand are part and parcel of the entire process
for the assessment and collection of de ciency taxes from a
delinquent taxpayer — an action or proceeding for the enforcement
of a claim which should have been suspended pursuant to the
Commencement Order. Unmistakably, Misajon, et al.'s foregoing
acts are in clear de ance of the Commencement Order.
Stay or suspension order
1) suspend all actions or proceedings, in court or otherwise, for
the enforcement of claims against the debtor;
2) suspend all actions to enforce any judgment, attachment or
other provisional remedies against the debtor;
3) prohibit the debtor from selling, encumbering,
transferring or disposing in any manner any of its properties
except in the ordinary course of business; and
4) prohibit the debtor from making any payment of its
liabilities outstanding as of the commencement date
except as may be provided herein.
⭐The Stay or Suspension Order shall NOT apply:
a) to cases already pending appeal in the SC as of
commencement date;
Reviewer
b) subject to the discretion of the court, to cases pending or
led at a specialized court or quasi-judicial agency which,
upon determination by the court, is capable of resolving the
claim more quickly, fairly and e ciently than the court:
Provided, That any nal and executory judgment of such
court or agency shall be referred to the court and shall be
treated as a non-disputed claim;
c) ⭐to the enforcement of claims against sureties and other
persons solidarily liable with the debtor, and third party or
accommodation mortgagors as well as issuers of letters of
credit,
unless the property subject of the third party or
accommodation mortgage is necessary for the
rehabilitation of the debtor as determined by the court upon
recommendation by the rehabilitation receiver;
d) to any form of action of customers or clients of a securities
market participant;
e) to the actions of a licensed broker or dealer to sell pledged
securities of a debtor pursuant to a securities pledge or margin
agreement for the settlement of securities transactions;
f) the clearing and settlement of nancial transactions
through the facilities of a clearing agency or similar entities as
well as any form of actions of such agencies or entities to
reimburse themselves for any transactions settled for the
debtor; and
g) any criminal action against the individual debtor or owner,
partner, director or o cer of a debtor shall not be a ected by
any proceeding commenced under the FRIA. (§18)
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TIDCORP v. PVB 2019 Caguioa, J
WON the Stay Order of the Rehabilitation Court divested the RTC's
jurisdiction to hear and decide PVB's Complaint.
NO. The Stay Order issued by the Rehabilitation Court did not
preclude the RTC from hearing and deciding respondent PVB's
Complaint. Section 18(c) of the FRIA explicitly states that a stay
order shall not apply "to the enforcement of claims against sureties
and other persons solidarily liable with the debtor, and third party
or accommodation mortgagors as well as issuers of letters of credit.
In Situs Dev’t v. Asiatrust Bank, the Court held that when a stay
order is issued, the rehabilitation court is only empowered to
suspend claims against the debtor, its guarantors, and sureties
who are NOT solidarily liable with the debtor. Hence, the
making of claims against sureties and other persons solidarily liable
with the debtor is not barred by a stay order.
c Rehabilitation receiver and management
committee
The rehabilitation receiver shall be deemed an o cer of the court
with the principal duty of
1. preserving and maximizing the value of the assets of the
debtor during the rehabilitation proceedings,
2. determining the viability of the rehabilitation of the
debtor,
3. preparing and recommending a Rehabilitation Plan to
the court, and
4. implementing the approved Rehabilitation Plan.
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Management committee
In addition, upon motion of any interested party, the court may
appoint and direct the rehabilitation receiver to
1. assume the powers of management of the debtor, OR
2. appoint a management committee that will undertake the
management of the debtor,
upon clear and convincing evidence of any of the following
circumstances:
a) Actual or imminent danger of dissipation, loss, wastage or
destruction of the debtor's assets or other properties;
b) Paralyzation of the business operations of the debtor; or
c) Gross mismanagement of the debtor, or fraud or other
wrongful conduct on the part of, or gross or willful violation
of this Act by, existing management of the debtor or the
owner, partner, director, o cer or representative/s in
management of the debtor.
The management committee may overrule or revoke the actions
of the previous management or the governing body of the debtor.
(§33 Rule 2, 2013 Rules)
d Determination of claims
1) Within twenty (20) days from his assumption into o ce, the
rehabilitation receiver shall establish a preliminary registry
of claims.
Feasibility
2) He shall give notice to the debtor, creditors and stakeholders
on where and when they may inspect the registry by causing
the publication of the place and date of inspection in a
newspaper of general circulation in the Philippines once every
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week for two (2) consecutive weeks. The period of
inspection shall not exceed fteen (15) days from the last
publication.
3) Within thirty (30) days from the expiration of the period to
inspect the registry, opposition or challenge to the claims as
listed in the registry may be led in court.
4) Upon the expiration of the thirty (30)-day period, the
rehabilitation receiver shall submit to the court the registry of
claims which shall include the following lists of
a) claims that have not been subject to challenge;
b) claims resolved by the rehabilitation receiver after
these have been challenged; and
c) disputed but unresolved claims.
5) Any decision of the rehabilitation receiver regarding a claim
may be appealed to the court by ling a motion within ve
(5) days from receipt of the rehabilitation receiver's assailed
decision.
e Rehabilitation plan
The court shall have a maximum period of one (1) year from the
date of the filing of the petition to con rm a Rehabilitation Plan.
If no Rehabilitation Plan is con rmed within the said period, the
proceedings may, upon motion or motu proprio, be converted
into one for the liquidation of the debtor.
In Phil. Asset Growth Two, Inc., et al. v. Fastech Synergy Phils., Inc.,
et al., the Court took note of the characteristics of a feasible
rehabilitation plan as opposed to an infeasible rehabilitation plan.
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The speci c characteristics of an economically feasible
rehabilitation plan are:
a. The debtor has assets that can generate more cash if
used in its daily operations than if sold.
b. Liquidity issues can be addressed by a practicable
business plan that will generate enough cash to sustain
daily operations.
c. The debtor has a de nite source of nancing for the
proper and full implementation of a Rehabilitation Plan
that is anchored on realistic assumptions and goals.
On the other hand, the characteristics of a rehabilitation plan that
is infeasible:
a. the absence of a sound and workable business plan;
b. baseless and unexplained assumptions, targets and goals;
c. speculative capital infusion or complete lack thereof for
the execution of the business plan;
d. cash ow cannot sustain daily operations; and
e. negative net worth and the assets are near full
depreciation or fully depreciated.
In addition to the tests of economic feasibility, FRIA emphasizes
on rehabilitation that provides for better present value
recovery for its creditors. Present value of the credit takes into
account the interest that the amount of money would have earned
if the creditor were paid on time.
BPI Family Savings v. St. Michael Medical Center 2015
WON the CA correctly affirmed SMMCI’s Rehabilitation Plan as
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approved by the RTC.
NO. Rehabilitation shall refer to the restoration of the debtor to
a condition of successful operation and solvency. Restoration is the
central idea behind the remedy of corporate rehabilitation. In
common parlance, to “restore” means “to bring back to or put back
into a former or original state.”
In this case, it cannot be said that the petitioning corporation,
SMMCI, had been in a position of successful operation and
solvency at the time the Rehabilitation Petition was led. While it
had indeed “commenced business” through the preparatory act of
opening a credit line with BPI Family, SMMCI itself admits that it
has not formally operated nor earned any income since its
incorporation. This simply means that there exists no viable
business concern to be restored. Perforce, the remedy of corporate
rehabilitation is improper, thus rendering the dispositions of the
courts a quo in rm.
Aside from the harped on merger of St. Michael Hospital with
SMMCI, the only proposed source of revenue the Rehabilitation
Plan suggests is the capital which would come from SMMCI’s
potential investors, which negotiations are merely pending. As case
law intimates, nothing short of legally binding investment
commitment/s from third parties is required to qualify as a
material nancial commitment. SMMCI likewise failed to include
any liquidation analysis in its Rehabilitation Plan.
f Creditor approval and con rmation
The rehabilitation receiver shall convene the creditors, either as a
whole or per class, for purposes of voting on the approval of the
Plan.
Reviewer
The Plan shall be deemed rejected unless approved by ALL
classes of creditors whose rights are adversely modi ed or a ected
by the Plan.
Approval — The Plan is deemed to have been approved by a class
of creditors if members of the said class holding more than fty
percent (50%) of the total claims of the said class vote in favor of
the Plan.
Notwithstanding the rejection of the Rehabilitation Plan, the
court may con rm the Rehabilitation Plan if all of the
following circumstances are present:
a) The Rehabilitation Plan complies with the requirements
speci ed in this Act;
b) The rehabilitation receiver recommends the con rmation
of the Rehabilitation Plan;
c) The shareholders, owners or partners of the juridical
debtor lose at least their controlling interest as a result of
the Rehabilitation Plan; and
d) The Rehabilitation Plan would likely provide the
objecting class of creditors with compensation which has a
net present value greater than that which they would have
received if the debtor were under liquidation.
Confirmation — If no objections are led within the relevant
period or, if objections are led, the court nds them lacking in
merit, or determines that the basis for the objection has been
cured, or determines that the debtor has complied with an order to
cure the objection, the court shall issue an order con rming the
Rehabilitation Plan.
g Failure of rehabilitation
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The rehabilitation proceedings shall, upon motion by any
stakeholder or the rehabilitation receiver, be terminated by order of
the court either declaring a successful implementation of the
Rehabilitation Plan or a failure of rehabilitation.
There is failure of rehabilitation in the following cases:
a) Dismissal of the petition by the court;
b) Failure to submit a Rehabilitation Plan;
c) A Rehabilitation Plan is not con rmed by the court;
d) Under the Rehabilitation Plan submitted by the debtor, there
is no substantial likelihood that the debtor can be rehabilitated
within a reasonable period;
e) The Rehabilitation Plan or its amendment is approved by the
court but in the implementation thereof,
i) the debtor fails to perform its obligations thereunder
or
ii) there is a failure to realize the objectives, targets or
goals set forth therein, including the timelines and
conditions for the settlement of the obligations due to
the creditors and other claimants;
f) Determination that the Rehabilitation Plan may no longer be
implemented in accordance with its terms, conditions,
restrictions, or assumptions;
g) There is a nding that fraud was committed in securing the
approval of the Rehabilitation Plan or its amendment;
h) In cases falling under Section 65 of this Rule, where, after
nding merit in the objection/s raised against the con rmation
of the Rehabilitation Plan,
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i) the defect is not cured within such time as the court
may order, or
ii) if the court determines that the debtor acted in bad
faith, or
iii) that it is not feasible to cure the defect; and
i) Failure of the debtor to comply with these Rules, the Rules of
Court, or any order of the court.
Upon a breach of, or upon a failure of the Rehabilitation Plan, the
court, upon motion by an a ected party, may:
1) issue an order directing that the breach be cured within a
speci ed period of time, failing which the proceedings may be
converted to a liquidation;
2) issue an order converting the proceedings to a liquidation;
3) allow the debtor or rehabilitation receiver to submit
amendments to the Rehabilitation Plan;
4) issue any other order to remedy the breach consistent with
the best interests of the creditors; or
5) enforce the applicable provisions of the Rehabilitation Plan
through a writ of execution.
2 Pre-negotiated rehabilitation
a How initiated
An insolvent debtor,
1. by itself OR
2. jointly with any of its creditors,
Reviewer
may le a veri ed petition with the court for the approval of a
Pre-negotiated Rehabilitation Plan which has been endorsed or
approved
1. by creditors holding at least two-thirds (2/3) of the
total liabilities of the debtor,
2. including secured creditors holding more than fty
percent (50%) of the total secured claims of the debtor
AND
3. unsecured creditors holding more than fty percent
(50%) of the total unsecured claims of the debtor.
Within ve (5) working days from the date of ling the petition,
if the court determines that the petition is su cient in form and
substance, it shall issue an Order.
b Period and e ect of approval
The Order shall have the same effects as a Commencement Order. It
shall retroact to the date of the ling of the petition and shall be
e ective for one hundred twenty (120) days from the ling of
the petition unless earlier lifted by the court on account of
a) the approval of the Pre-Negotiated Rehabilitation Plan, or
b) the termination of the rehabilitation proceedings.
The court shall have a maximum period of one hundred
twenty (120) days from the date of the ling of the petition to
approve the Rehabilitation Plan. If the court fails to act within the
said period, the Rehabilitation Plan shall be deemed
APPROVED.
Out-of-Court or Informal Restructuring
3
Agreement or Rehabilitation Plan
By RGL
for the 2022 Bar
a Minimum requirements
An OCRA shall comply with both requirements:
a) Approval by the:
1) debtor;
2) creditors representing at least sixty-seven percent (67%)
of the secured obligations of the debtor;
3) creditors representing at least seventy- ve percent (75%)
of the unsecured obligations of the debtor; and
4) creditors holding at least eighty- ve percent (85%) of
the total liabilities of the debtor; AND
b) Publication of the notice of the OCRA once a week for at
least three (3) consecutive weeks in a newspaper of general
circulation in the Philippines.
b Standstill period
Standstill Period. — May be agreed upon by the parties and shall be
e ective and enforceable not only against the contracting parties but
also against the other creditors provided it complies with the following
conditions:
a) approval of the agreement for a standstill period by creditors
representing more than fty percent (50%) of the total
liabilities of the debtor;
b) publication of the notice of the agreement in a newspaper of
general circulation in the Philippines, once a week for two (2)
consecutive weeks; and
c) the standstill period shall NOT exceed one hundred
twenty (120) days from the date of e ectivity.
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The standstill period shall expire upon
1) the lapse of 120 days from the e ectivity of the standstill
agreement,
2) the e ectivity of the OCRA, or
3) the termination of the negotiations for the OCRA as
declared by creditors representing more than fty percent
(50%) of the total liabilities of the debtor,
whichever comes first.
c Cram down e ect
Cram Down Effect. — An OCRA that is approved shall have the
same legal e ect as the con rmation of a rehabilitation plan under
a court-supervised rehabilitation.
BPI v. Sarabia Manor Hotel 2013
WON the CA correctly affirmed Sarabia’s rehabilitation plan as
approved by the RTC, with the modification on the reinstatement of
the surety obligations of Sarabia’s stockholders.
YES. Section 23, Rule 4 of the Interim Rules of Procedure on
Corporate Rehabilitation (Interim Rules) states that a
rehabilitation plan may be approved even over the opposition of the
creditors holding a majority of the corporation’s total liabilities if
there is a showing that rehabilitation is feasible and the
opposition of the creditors is manifestly unreasonable.
Also known as the “cram-down” clause, it forces the creditors to
accept the terms and conditions of the rehabilitation plan,
preferring long-term viability over immediate but incomplete
recovery.
Reviewer for the 2022 Bar
Of Juridical Debtor
If the results of the nancial examination and analysis clearly
indicate that there lies no reasonable probability that the distressed In involuntary liquidation, the creditors seeking liquidation of an
corporation could be revived and that liquidation would, in fact, insolvent debtor must show in the petition that:
better subserve the interests of its stakeholders, then it may be said
a) there is no genuine issue of fact or law on the claim/s of
that a rehabilitation would NOT be feasible. In such case, the
the petitioner/s, and
rehabilitation court may convert the proceedings into one for
liquidation. that the due and demandable payments thereon have not been
made for at least one hundred eighty (180) days or
Manifest unreasonableness of BPI ’s opposition
that the debtor has failed generally to meet its liabilities as they
The opposition of a distressed corporation’s majority creditor is
fall due; and
manifestly unreasonable if it counter-proposes unrealistic
payment terms and conditions which would, more likely than b) there is no substantial likelihood that the debtor may be
not, impede rather than aid its rehabilitation. The rehabilitated.
unreasonableness becomes further manifest if the rehabilitation
plan, in fact, provides for adequate safeguards to ful ll the majority Involuntary Rehabilitation Involuntary Liquidation
creditor’s claims, and yet the latter persists on speculative or
unfounded assumptions that his credit would remain unful lled. One (1) creditor enough At least Three (3) creditors
Oppositions which push for high interest rates are generally there is no genuine issue of fact or law on the claims
frowned upon in rehabilitation proceedings given that the inherent
purpose of a rehabilitation is to nd ways and means to minimize AND that the due and demandable payments thereon have not
the expenses of the distressed corporation during the rehabilitation been made for at least:
period.
sixty (60) days one hundred eighty (180)
days
C Liquidation OR that the debtor has failed generally to meet its liabilities as they
fall due AND
1 Voluntary liquidation vs. Involuntary a creditor, other than the there is no substantial likelihood
liquidation vs. Conversion petitioner, has initiated that the debtor may be
foreclosure proceedings against rehabilitated
the debtor that will prevent the
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debtor from paying its debts as
they become due or will render it
insolvent
Of Individual Debtor
The following are the acts of insolvency of the debtor:
a) about to depart or has departed from PH, with intent to
defraud his creditors;
b) being absent from PH, with intent to defraud his creditors, he
remains absent;
c) conceals, or is removing, any of his property to avoid its
being attached or taken on legal process;
d) conceals himself to avoid the service of legal process;
e) has allowed his property to remain under attachment or legal
process for three (3) days;
f) has confessed or o ered to allow judgment in favor of any
creditor;
g) has wilfully allowed judgment to be taken against him by
default;
(d-g) for the purpose of hindering or delaying the liquidation or
of defrauding any creditor;
h) has su ered or procured his property to be taken on legal
process with intent to give a preference to one or more of his
creditors and thereby hinder or delay the liquidation or
defraud any one of his creditors;
i) has made any assignment, gift, sale, conveyance or transfer of
his estate, property, rights or credits with intent to hinder or
delay the liquidation or defraud his creditors;
Reviewer
j) has, in contemplation of insolvency, made any payment, gift,
grant, sale, conveyance or transfer of his estate, property, rights
or credits;
k) being a merchant or tradesman, the debtor has generally
defaulted in the payment of his current obligations for a
period of thirty (30) days;
l) for a period of thirty (30) days, the debtor has failed, after
demand, to pay any moneys deposited with him or received by
him in a fiduciary capacity; or
m) an execution having been issued against him on nal judgment
for money, the debtor shall have been found to be without
su cient property subject to execution to satisfy the
judgment.
Absent Individual Debtor. — In all cases where the individual
debtor
1. resides out of PH; or
2. has departed therefrom; or
3. cannot, after due diligence, be found therein; or
4. conceals himself to avoid service of the Order to show cause, or
any other preliminary process or orders in the matter,
then the petitioning creditors,
1. upon submitting the a davits requisite to procure an Order
of publication, and
2. presenting a bond in double the amount of the aggregate
sum of their claims against the individual debtor,
shall be entitled to an Order of the court directing the sheri of the
province or city in which the matter is pending to take into his
By RGL
for the 2022 Bar
custody a su cient amount of property of the individual debtor to
satisfy
1. the demands of the petitioning creditors and
2. the costs of the proceedings.
Conversion of rehabilitation to liquidation proceedings
During the pendency of court-supervised or pre-negotiated
rehabilitation proceedings, the court may order the conversion of
rehabilitation proceedings to liquidation proceedings at any other
time upon the recommendation of the rehabilitation receiver
that the rehabilitation of the debtor is not feasible. Thereupon, the
court shall issue the Liquidation Order.
2 Procedure
a Liquidation order; e ects
Effects of the Liquidation Order. — Upon the issuance of the
Liquidation Order:
a) the juridical debtor shall be deemed dissolved and its
corporate or juridical existence terminated;
b) legal title to and control of all the assets of the debtor, except
those that may be exempt from execution, shall be deemed
vested in the liquidator or, pending his election or
appointment, with the court;
c) all contracts of the debtor shall be deemed terminated
and/or breached,
unless the liquidator, within ninety (90) days from the date
of his assumption of o ce, declares otherwise and the
contracting party agrees;
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d) no separate action for the collection of an unsecured
claim shall be allowed.
Such actions already pending will be transferred to the
Liquidator for him to accept and settle or contest. If the
liquidator contests or disputes the claim, the court shall allow,
hear and resolve such contest except when the case is already on
appeal. In such a case, the suit may proceed to judgment, and
any nal and executory judgment therein for a claim against
the debtor shall be led and allowed in court; and
e) no foreclosure proceeding shall be allowed for a period of
180 days.
Rights of secured creditors
⭐The Liquidation Order shall NOT a ect the right of a secured
creditor to enforce his lien. He may:
a) waive his rights under the security or lien, prove his claim
in the liquidation proceedings and share in the distribution
of the assets of the debtor; or
b) maintain his rights under his security or lien.
If the secured creditor maintains his rights under the
security or lien:
1) the value of the property may be xed in a manner agreed
upon by the creditor and the liquidator.
2) the liquidator may sell the property and satisfy the
secured creditor's entire claim from the proceeds of the
sale; or
3) the secured creditor may enforce the lien or foreclose on
the property pursuant to applicable laws.
Reviewer
However, these rights are subject to the temporary stay of
foreclosure proceedings for a period of 180 days, upon the
issuance of the Liquidation Order. (MBTC v. S.F. Naguiat)
Yngson, Jr. v. PNB 2012
WON PNB, as a secured creditor, can foreclose on the mortgaged
properties of a corporation under liquidation without the knowledge
and prior approval of the liquidator or the SEC.
YES. PNB was not barred from foreclosing on the mortgages.
Under Sec 114 of RA 10142, the right of a secured creditor to
enforce his lien during liquidation proceedings is retained.
As to petitioner's argument on the right of rst preference as regards
unpaid wages, the Court has elucidated in the case of Development
Bank of the Philippines v. NLRC that a distinction should be
made between a preference of credit and a lien.
A preference applies only to claims which do not attach to speci c
properties. A lien creates a charge on a particular property. The
right of first preference as regards unpaid wages recognized by Article
110 of the Labor Code, does NOT constitute a lien on the property of
the insolvent debtor in favor of workers. It is but a preference of
credit in their favor, a preference in application. Consequently, the
right of rst preference for unpaid wages may not be invoked in this
case to nullify the foreclosure sales conducted pursuant to PNB's
right as a secured creditor to enforce its lien on speci c properties of
its debtor, ARCAM.
3 Determination of claims
By RGL
for the 2022 Bar
1) Within twenty (20) days from his assumption into o ce, the
liquidator shall establish a preliminary registry of claims of
secured and unsecured creditors.
Secured creditors who have
1. waived their security or lien, or
2. have xed the value of the property subject of their
security or lien by agreement with the liquidator and
is admitted as a creditor for the balance,
shall be considered as unsecured creditors.
2) Right of Set-off. — If the debtor and a creditor are mutually
debtor and creditor of each other, one debt shall be set o
against the other, and only the balance, if any, shall be allowed
in the liquidation proceedings.
3) Within thirty (30) days from the expiration of the period for
ling of applications for recognition of claims, interested
parties may submit a challenge to a claim or claims to the
court, serving a certi ed copy on the liquidator and the
creditor holding the challenged claim.
4) Upon the expiration of the thirty (30)-day period, the
rehabilitation receiver shall submit to the court the registry of
claims containing the undisputed claims that have not
been subject to challenge.
Such claims shall become nal upon the ling of the register
and may be subsequently set aside only on grounds of fraud,
accident, mistake or inexcusable neglect.
5) The liquidator shall resolve disputed claims and submit his
ndings thereon to the court for nal approval. The
liquidator may disallow claims.
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Suspension of payments; suspension of except those used in the ordinary operations of commerce or
D
payment order of industry in which the petitioner is engaged as long as the
proceedings are pending;
An individual debtor who
c) prohibiting the petitioner from making any payment outside
1. has assets that exceed his liabilities BUT of the necessary or legitimate expenses of his business or
2. foresees the impossibility of paying his debts when they industry, as long as the proceedings are pending; and
respectively fall due d) appointing a commissioner.
may le a verified petition for suspension of payments in the
Motion to Suspend Pending Execution
court having jurisdiction over the province or city where he has
resided for six (6) months prior to the ling. Property held as security by secured creditors shall not be subject
to such suspension order.
Individual debtor shall refer to a natural person who is a resident
AND citizen of the Philippines that has become insolvent. The order suspending execution shall lapse when three (3)
months shall have passed without the proposed agreement being
If the Court nds the petition su cient in form and substance, it shall
accepted by the creditors or as soon as such proposed agreement is
issue a Suspension of Payments Order:
rejected.
a) prohibiting creditors from suing or instituting proceedings for
collection against the debtor, except:
i) creditors having claims for
1) personal labor,
2) maintenance,
3) expense of last illness and
4) funeral of the wife or children of the debtor
incurred within sixty (60) days immediately prior to the
ling of the petition; and
ii) secured creditors;
b) prohibiting the petitioner from selling, transferring,
encumbering or disposing his property,

By RGL 83 of 83