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2022 Commercial Law Syllabus-Based EREVIEWER
2022 Commercial Law Syllabus-Based EREVIEWER
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 20 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 50 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 60 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 71 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 4) Industrial Life — premiums are payable either monthly or c) Over the cargo
negate the existence of an insurance contract. oftener.
i) Trip or Single Risk Cargo Policy;
1 What may be insured 5) Variable Life or Variable Unit-Linked (VUL) Insurance
ii) Open Cargo Policy.
Contractor Policy — see §238(a) on Variable Contract.
Life d) Over freightage and income — cover loss of freightage
Accidental Death Benefit Clause
for failure to complete voyage or delivery of goods.
Every contract or undertaking for the payment of annuities
Gives bene ciaries additional bene ts if the death of the insured is
including contracts for the payment of lump sums under a e) Compulsory Passenger and Cargo Liability
through accidental means.
retirement program where a life insurance company manages Insurance — mandated by RA 9295. P200K for each
or acts as a trustee for such retirement program shall be Marine passenger imposed on shipowners. P50K each for
considered a life insurance contract. survivors of a maritime accident.
Includes policies that cover risks connected with navigation, to
GR: Not a contract of indemnity. The measure of indemnity is the which a ship, cargo, freightage, pro ts, or other insurable interest 2) Inland Marine — do not relate to navigation. Includes
sum xed in the policy. It is therefore a valued policy. in movable property, may be exposed during a certain voyage or a insurance over cargoes, infrastructure and oaters.
xed period of time. 3) Aviation — over aircrafts.
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
Risks Insured Against
debtor based on the value of indebtedness. 1) Ocean Marine — connected with navigation; they are 1) All Risk Policy — against ALL conceivable causes except
Kinds of Life Insurance insurance
a) As otherwise excepted, such as
1) Whole Life — o ers permanent protection. Further classi ed a) Over the vessel;
i) Free capture and seizure (FC&S) clause;
as to mode of payment of premium: b) Against liability
ii) Strikes, riots and civil commotion (SR&CC)
a) Single Premium; i) Running Down Clause — insures liability against clause; or
b) Continuous Premium or Ordinary Life; collision;
b) One due to fraud or intentional misconduct of insured.
c) Limited Payment Period. ii) Marine Protection and Indemnity Insurance;
2) Named Perils Policy
2) Term — Insurer pays proceeds if insured dies within a iii) Excess Protection and Indemnity Insurance —
speci ed period; insured gets nothing if he survives the period. covers damage or liability in excess of the value of the a) Perils of the sea or navigation — include only such
ship. It is an exception to the limited liability rule in losses as are of extraordinary nature or arise from some
3) Endowment Policy — proceeds shall be payable to the overwhelming power which cannot be guarded against by
maritime law. Includes cases when shipowner was
assured if he lives to a certain date; to the bene ciary if the the ordinary exertion of human skill or prudence.
negligent.
assured dies before said date.
iv) Water Pollution Liability. 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 3) Delay Clause — exempts insurer from liability if there was 3) Over freightage and income
the sea; delay in the voyage;
a) Shipowner and charterer - over the expected freightage,
ii) From ordinary wear and tear of the ship; and 4) Sue and Labor (S&L) Clause — requires the insured and his which arises:
representative to take all reasonable steps that are necessary to
iii) From the negligent failure of the ship’s owner to i) If there is a charter party — when the ship has
limit or reduce an imminent loss.
provide the vessel with the proper equipment to broken ground on the chartered voyage;
convey the cargo. 5) Protection and Indemnity (P&I) Clause — insures the
ii) In carriage of goods — when the goods are
shipowner from liability for damages caused by the ship to
c) Fire and Related Perils; actually on board or there is some contract for
wharves, piers and other harbor installations;
putting them on board, and both ship and goods
d) Jettison — goods are thrown overboard to save other
6) Institute War Clause (IWC) — covers risks covered by are ready for the speci ed voyage.
cargoes and/or the ship;
FC&S + capture, seizure, arrest, restraint or detainment,
b) One who has an interest in the thing from which
e) Barratry — act committed by the master or crew for including by civil authorities.
pro ts are expected to proceed has an insurable interest in
some unlawful or fraudulent purpose contrary to their
7) Memorandum Clause — provides for the list of goods for the pro ts. (§107)
duty;
which the insurer will be liable unless damage exceeds a stated
Concealment
f) Assailing Thieves — theft of cargo committed by force; percentage of total value.
g) All Other like Perils — to be interpreted as covering GR: In ordinary insurance, belief or expectation of third persons
Who has Insurable Interest
risks which are of like kind with particular risks which are are NOT material and need not be disclosed.
enumerated in the preceding part of the same clause, 1) Over the ship
EXC: In marine insurance, where information of the belief or
following ejusdem generis. a) Shipowner - up to the full value of the ship; expectation of a third person, in reference to a material fact, is
Clauses that Modify Coverage If ship also insured by charterer, the shipowner can material.
only recover the portion that he cannot recover from GR: Insurer may rescind contract even if the risk concealed is NOT
1) Inchmaree Clause — included in a hull policy to cover loss or
the charterer. the cause of the loss.
damage
b) Charterer - to the extent that he is liable to be damni ed EXC: In marine insurance, insurer is exonerated ONLY if the risk
a) through the bursting of the boiler, breaking of shafts
by its loss; concealed is the cause of the loss and relates to the:
or
c) Lender on Bottomry - up to the extent of the loan; 1) national character of the insured;
b) through the latent defects of the machinery and
equipment, hull or its appurtenances and d) Mortgagee. 2) liability of the thing insured to capture and detention;
c) faults or errors in the navigation or management of 2) Over cargo 3) liability to seizure from breach of foreign laws of trade;
the vessel.
a) Both the shipowner and shipper. 4) want of necessary documents; OR
2) Running Down Clause — insures liability against collision;
b) In Respondentia.
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5) use of false and simulated papers. a) Vessel has the requisite documents of nationality or i) Total destruction of the thing insured;
neutrality; and
Representation ii) The irretrievable loss of the thing by sinking, or by
b) Vessel will not carry documents that will cast reasonable being broken up;
1. If intentionally false in any material respect, or in respect of
suspicion on its nationality or neutrality if nationality or
any fact on which the character and nature of the risk iii) Any damage to the thing which renders it valueless
neutrality is expressly warranted. (§122)
depends, the insurer may rescind the entire contract. to the owner for the purpose for which he held it; or
3) Against improper deviation — Instances of deviation:
2. Expectations of insured are not material unless it will amount iv) Any other event which e ectively deprives the
to promissory representation. a) Departure from the course of sailing xed by mercantile owner of the possession, at the port of destination,
usage; of the thing insured.
3. The contract will be avoided only if there is fraud in
representing an expectation that turns out to be false (§114). b) Departure from the most natural, direct and b) Constructive, commercial, or conventional — gives to
advantageous route if not xed by mercantile usage; a person insured a right to abandon, under §141.
Implied Warranties
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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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Shall include insurance against loss by re, lightning, a ect other creditors of the insured. c. Medical expenses coverage.
windstorm, tornado or earthquake and other allied risks, 6. Other substantially similar kinds of insurance.
Casualty
when such risks are covered by extension to re insurance policies or
Insurance covering loss or liability arising from accident or mishap, 7. Criminal negligence is insurable, so long as it is not gross
under separate policies.
excluding those covered in re or marine insurance. It includes, but is amounting to willful misconduct.
NB: Insurer is liable only if there is hostile re and NOT friendly not limited to, Authorized Driver Clause — Insurer will be liable only if the driver
re.
1. Employer's liability insurance — usual exclusions: is an “authorized driver” at the time of accident.
1. Hostile re is one that is uncontrolled, or initially friendly
a. When there is serious or willful misconduct on the part of 1. Duly licensed, need not prove if insured is the driver; and
but passed outside the limits assigned to it.
insured; 2. Authorized by the owner of vehicle to drive.
2. Friendly re is one contained in its proper receptacle.
b. When the employee was hired in violation of law; Theft Clause — makes theft a risk insured against. Theft Is NOT
Alteration
c. When insured failed to comply with health and safety covered by the Malicious Damage Clause.
Will prevent recovery on the policy if the following requisites are regulations; and
present: Compulsory Motor Vehicle Liability
d. When the employer discharges, corces, or discriminates
1) The alteration is on the use or condition of the thing aka Compulsory Third Party Liability (CTPL)
against an employee.
insured; It shall be unlawful for any land transportation operator or owner of a
2. Motor vehicle liability insurance — third party victim may
2) The use or condition is limited in the policy; motor vehicle to operate the same in the public highways unless there is
proceed directly against the insurer for indemnity.
in force
3) It is without consent of the insurer; If direct liability to third party is provided for, a no action
1. a policy of insurance or
4) Within the control of the insured; AND clause is NOT allowed.
2. guaranty
5) It increases the risk. A no action clause disallows suit against insurer unless nal
judgment is obtained by a third party against the insured. a. in cash bond or
Option to Rebuild Clause — insurer may cause the repair,
rebuilding, or replacement of the buildings or structures wholly or 3. Plate glass insurance, b. surety bond
partially destroyed or damaged. 4. Burglary and theft insurance, to indemnify the death, bodily injury, and/or damage to property of a
Prohibitions third-party or passenger.
Excluded are those in the insured’s service and employment
§175. No policy of fire insurance shall be pledged, Coverage, Extent and Limit of Liability
5. Personal accident and health insurance as written by
hypothecated, or transferred to any person, rm or company non-life insurance companies — normally includes 1) Coverage — P100K (+ P100K if vehicle is for public utility);
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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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If the insured takes out an insurance over the property insured in If the insured dies within the two-year contestability period, the 2) Violation of the conditions of the policy relating to military or
an amount which is in excess of the value of the insurable insurer is bound to make good its obligation under the policy, naval service in times of war;
interest. regardless of the presence or lack of concealment or
3) Property insurance;
misrepresentation.
Collateral Source Rule 4) Absence of insurable interest;
After the two-year period lapses, OR when the insured dies within
Here, the defendant is prevented from bene ting from the the period, the insurer must make good on the policy, even 5) When VICIOUS fraud was employed in obtaining the policy,
plainti ’s receipt of money from other sources. though the policy was obtained by fraud, concealment, or i.e. fraudulent impersonation, scheme to murder insured;
Under this rule, if an injured person receives compensation for his misrepresentation. (Sun Life of Canada v. Sibya 2016) 6) The cause of the loss is an excepted risk;
injuries from a source wholly independent of the tortfeasor, the The insurer CANNOT prove that the policy is void ab initio or is 7) The bene ciary feloniously kills the insured;
payment should NOT be deducted from the damages which he rescindable by reason of the fraudulent concealment or
8) Bene ciary failed to comply with conditions subsequent, i.e.
would otherwise collect from the tortfeasor. misrepresentation of the insured or his agent:
failure to submit notice of loss; and
AQUINO: Applies in Life Insurance, but NOT in Property Insurance. After a policy of life insurance made payable on the death of the
9) The claim is barred by extinctive prescription.
insured shall have been in force during the lifetime of the
4 No fault, suicide, and incontestability clauses insured for a period of two (2) years from the date of its issue
or of its last reinstatement,
B Perfection of the insurance contract
No Fault Indemnity Clause — Proof of fault or negligence is NOT
The incontestability clause applies if the following requisites are
necessary for payment of any claim if the following are established:
present: O er and acceptance; consensuality
1) A claim may be made against ONE motor vehicle only;
1) The policy must be a Life Insurance policy; Cognition Theory — An insurance contract is perfected the moment
2) Total indemnity shall not exceed P15K; the o eror learns of the acceptance of his o er by the other party.
2) The policy is in force for 2 years from issue or last
3) Proofs of loss submitted under oath. reinstatement. (Manila Bankers Life Insurance Corp. v. Aban 1. The contract, to be binding from the date of application, must
Suicide Clause 2013) have been a completed contract. There can be no contract of
The insurer is liable in case of suicide when it is committed What if the insured dies during the two-year period? The death insurance unless the minds of the parties have met in
AFTER the policy has been in force for 2 years from date of issue of the insured within the two-year period will render the right of the agreement. (Steamship Mutual Underwriting Association
or last reinstatement. insurer to rescind nugatory. (Sun Life v. Sibya 2016) (Bermuda) Ltd. v. Sulpicio Lines 2017)
The insurer is still liable even before the two year period in any of NB: This rule is quite controversial as the prevailing rule had been to 2. An insurance contract can be entered into through an agent.
the following cases: allow the lapse of the 2-year period first before the For example, a bank is an agent of the insurer if it o ers a
incontestability clause can be invoked. special type of savings and insurance account whereby the
1) When a shorter period is provided for;
The clause CANNOT be invoked in the following cases: depositor has automatic insurance coverage for disability or
2) When the suicide was committed in a state of insanity.
death. (BPI v. Laingo 2016)
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3. However, there are cases when the insurer assumed the risk of 4) When there is an agreement that the premium shall be payable a) Insured must prove insurability; and
loss without approving the application. This includes cases on installment; (Makati Tuscany Condo Corp v. CA) and
b) Pay overdue premium.
when the buyer of a memorial lot is deemed insured the
5) When the equitable doctrine of estoppel applies.
moment it enters into a contract with the seller. (Eternal Non-default options in life insurance
Gardens Memorial Park v. Phil. American Life Insurance Effect of Non-payment
1) To prevent the lapse of life insurance policy, the insured may
Corp.) 1. The obligation of the insurer will NOT become valid and avail of:
Delay in acceptance. — Mere delay in acceptance of the insurance binding if the first premium has not been paid.
a) Grace period;
application will not result in a binding contract. However, in proper 2. If the subsequent premiums have not been paid, the policies
cases, the insurer may be liable for TORT. b) Automatic policy loan from the policy’s cash
issued will be deemed to have been lapsed. Thus, the insurer
surrender value;
Delivery of policy. — not necessary for perfection since an insurance has NO liability to indemnify.
contract is consensual. c) Application of dividend; and
3. It does NOT give the insurer the right to sue or demand
payment from the insured. d) Reinstatement clause.
Premium payment
4. Will not create the vinculum juris between the parties.
An insurer is entitled to payment of the premium as soon as the thing Reinstatement of a lapsed policy of life insurance
insured is exposed to the peril insured against. Devices to Prevent Lapse of Life Insurance Policy The stipulation in a life insurance policy giving the insured the
GR: Cash and carry principle. No policy or contract of 1) Grace Period; privilege to reinstate it upon written application does not give the
insurance issued by an insurance company is valid and binding insured absolute right to such reinstatement by the mere ling of
2) Automatic Policy Loan — Cash surrender value is the
unless and until the premium thereof has been paid, an application. The insurer has the right to deny the
amount of money the company agrees to pay to the
notwithstanding any agreement to the contrary. reinstatement if it is not satis ed as to the insurability of the
policyholder if he surrenders it and releases his claims upon it.
insured and if the latter does not pay all overdue premium and all
EXC: in the case of If at the end of the grace period the premium has not been other indebtedness to the insurer. After the death of the insured
1) A life or an industrial life policy whenever the grace period paid, a policy loan will automatically be made from the the insurance Company cannot be compelled to entertain an
provision applies; policy’s cash value to pay the premium. This is to prevent application for reinstatement of the policy because the
unintentional lapse of the policy. conditions precedent to reinstatement can no longer be
Applies only when the policy had already been in force.
3) Application of Dividend — in case of participating determined and satis ed. (Lalican v. The Insular Life Assurance)
2) Whenever under the broker and agency agreements with duly insurance policy, the insured is entitled to dividends that may The policyholder shall be entitled to have the policy reinstated at any
licensed intermediaries, a ninety (90)-day credit extension is be available. The dividend shall be applied to the premiums time within three (3) years from the date of default of premium
given, which is non-extendible; that are due or payable. payment unless the cash surrender value has been duly paid, or the
3) When there is an acknowledgment in the policy or receipt 4) Reinstatement Clause — at any time within 3 years from extension period has expired. There must be:
that the premium has been paid; date of default subject to conditions:
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a) upon production of evidence of insurability satisfactory to 3) The contract is rescindable or rendered void ab initio due to If the owner dies, the policy automatically vests in the
the company and the fraud of insured. insured, unless otherwise provided for in the policy.
b) payment of all overdue premiums and any indebtedness to 3. A third person is the bene ciary whose favor the insurance
the company upon said policy. (Sec 233[j] IC) Philam Insurance v. Parc Chateau Condominium 2019 was taken by the insured and who will receive the proceeds of
the insurance.
Refund of premiums WON Philam has NO right to recover the unpaid premium based on
void and ineffective insurance policies. GR: Designation of bene ciary is REVOCABLE.
Return of Premium
YES. The Jumbo Risk Provision clearly indicates that failure to pay EXC: Unless, expressly designated as IRREVOCABLE.
1) When the thing was not exposed to the peril insured against;
in full any of the scheduled installments on or before the due date Thus, an irrevocable bene ciary has VESTED rights over the
2) Time policy. When the policy is surrendered before the shall render the insurance policy void and ine ective as of 4 p.m. of policy.
expiration of the stipulated time. Refund is pro rata; 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, 4. If a bene ciary is disquali ed:
3) When the contract is voidable and subsequently annulled;
2003. Hence, there is no credit extension to consider as the Jumbo a. Forfeited share shall pass on to other bene ciaries;
4) The insurance contract is voidable due to the fraud or
Risk Provision itself expressly cuts o the inception of the insurance
misrepresentation of insurer or of his agent. b. If there are no other bene ciaries, or that they are also
policy in case of default.
DQed, look at the policy contract;
5) When the contract is annulled on account of
c. If the contract is silent, proceeds go to the estate of
a) fraud or misrepresentation of the insurer or his agent, or
the insured.
b) facts, or the existence of which the insured was ignorant of
C Rights and obligations of parties
5. Grounds for DQ
without his fault. 1. The insurer is the party who promises to pay in case of loss.
a. Those made between persons who were guilty of
6) When by any default of the insured other than actual fraud, 2. The insured is either adultery or concubinage at the time of donation;
the insurer never incurred liability under the policy; and
a. The owner of the policy whose life or property is Conviction, not necessary.
7) When there is overinsurance.
insured; b. Those made between persons found guilty of the
8) When rescission is granted due to the insurer’s breach of same criminal o ense, in consideration thereof;
Here, the insured and the owner of the policy is one
contract.
and the same. c. Those made to a public o cer or his wife,
When NOT recoverable descendants and ascendants, by reason of his o ce.
b. One who took out the insurance over the life of
1) The risk has already attached, is entire and indivisible; persons in whom he has insurable interest.
D Rescission of insurance contracts
2) In life insurance; Here, the owner of the policy is called the assured,
while the person whose life is insured is the insured. 1) When representation is false on material point whether
a rmative or promissory;
By RGL 12 of 83
Commercial Law Reviewer for the 2022 Bar
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.
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
By RGL 13 of 83
Commercial Law Reviewer for the 2022 Bar
b. Expressed in another instrument provided that such is 1) Promises or obligations regarding claims procedure that Proof of negligence
signed by the insured and referred to in the policy. are not fundamental to the validity of the contract; and Due diligence in the selection and supervision of
5. It may relate to the past, the present, the future, or to any or 2) Conditions conferring more rights to the insurer enlarging employees
all of these. or repeating the minimum rights provided by law.
Fortuitous event
6. Promissory warranty is a statement which imparts that it is May be either condition precedent like payment of premium or
intended to do or not to do a thing which materially a ects the Contributory negligence
condition subsequent like giving notice of loss.
risk. Doctrine of last clear chance
By RGL 14 of 83
Commercial Law Reviewer for the 2022 Bar
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 Warsaw 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,
By RGL 15 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 16 of 83
Commercial Law Reviewer for the 2022 Bar
a. is due to the acts of the guest, his family, servants or Void Stipulations The registered owner is deemed the employer of the driver and is
visitors, or thus vicariously liable under Article 2176 in relation with 2180 of
1. A stipulation limiting the liability of the carrier for the injuries
the Civil Code. (Filcar Transport Services v. Espinas 2012)
b. arises from the character of the things brought into to paying passengers is VOID.
the hotel. By Other Passengers and Strangers
2. The common carrier's responsibility pertaining to acts of its
5. The hotel-keeper cannot free himself from responsibility employees as well as to the safety of its passengers in general A common carrier is responsible for injuries su ered by a passenger
by posting notices to the e ect that he is not liable for the cannot be eliminated or limited by stipulation, by the posting on account of the wilful acts or negligence of other passengers
articles brought by the guest. of notices, by statements on the tickets or otherwise. or of strangers, if the common carrier's employees through the
exercise of the diligence of a good father of a family could have
Checked-in Baggage. The rules applicable to goods that are being Duration of Liability
prevented or stopped the act or omission.
shipped are applicable to baggage delivered to the custody of the carrier
Such duty of a common carrier to provide safety to its passengers
as an incident of a contract of carriage of passenger. In Pilapil v. CA, the Court clari ed that where the injury sustained
so obligates it not only during the course of the trip but for so
by the passenger was in no way due
Hand Carried Luggage. The rules on necessary deposit applies. long as the passengers are within its premises and where they
Thus, the passenger is duty bound to: ought to be in pursuance to the contract of carriage. The statutory 1) to any defect in the means of transport or in the method
provisions render a common carrier liable for death of or injury to of transporting, or
1) Give notice to the common carrier or its employees, of the
e ects brought by the passenger; AND passengers 2) to the negligent or willful acts of the common carrier's
a) through the negligence or wilful acts of its employees or employees with respect to the foregoing —
2) To take the precautions which the common carrier or their
substitutes advised relative to the care and vigilance of their b) on account of wilful acts or negligence of other passengers such as when the injury arises wholly from causes created by
e ects. or of strangers if the common carrier’s employees through strangers which the carrier had no control of or prior
the exercise of due diligence could have prevented or knowledge to prevent — there would be no issue regarding the
The law requires the common carrier to observe the same diligence as
stopped the act or omission. (LRTA v. Navidad) common carrier's negligence in its duty to provide safe and suitable
the hotel keepers in case the baggage remains with the passenger;
care, as well as competent employees in relation to its transport
otherwise, extraordinary diligence must be exercised. (Sulpicio Lines v. Liability for Acts of Others business; as such, the presumption of fault/negligence foisted
Sesante 2016)
Vicarious Liability under Article 1756 of the Civil Code should not apply. (G.V.
However, common carriers are still duty-bound to observe Florida v. Heirs of Battung 2015)
extraordinary diligence even for hand carried luggage. Generally, when an injury is caused by the negligence of a servant
or employee, there instantly arises a presumption of law that there Liability for
was negligence on the part of the master or employer either in the
2 Safety of passengers 1) Delay in commencement of voyage
selection of the servant or employee or in the supervision over him
Under Article 1758 of the NCC, when a passenger is carried after the selection, or both. (Mendoza v. Sps Gomez 2014) If the delay is legally inexcusable, the following result:
gratuitously, a stipulation limiting the common carrier’s liability a) The carrier is still liable even if natural disaster caused
is VALID. the damage; (Art 1740)
By RGL 17 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 18 of 83
Commercial Law Reviewer for the 2022 Bar
3) For a common carrier to be absolved from liability in case of 3) Where both parties are negligent but the negligent act of one is 3) Exemplary Damages
force majeure, it is not enough that the accident was caused by appreciably later in point of time than that of the other, or
May be awarded only if the defendant had acted in a wanton,
a fortuitous event. The common carrier must still prove that it where it is impossible to determine whose fault or negligence
fraudulent, reckless, oppressive or malevolent manner.
did not contribute to the occurrence of the incident due to its brought about the occurrence of the incident, the one who
own or its employees' negligence. (Sulpicio Lines v. Sesante had the last clear opportunity to avoid the impending harm 4) Attorney’s Fees and Interest.
2016) but failed to do so, is chargeable with the consequences arising
therefrom. 2 Stipulations limiting liability
4) When there is NO contributory negligence. The
responsibility to avoid the collision with the front vehicle lies A stipulation between the common carrier and the shipper or owner
with the driver of the rear vehicle. Consequently, no other D Extent of liability limiting the liability of the former for the loss, destruction, or
person was to blame but the victim himself since he was the deterioration of the goods to a degree less than extraordinary diligence
one who bumped his motorcycle into the rear of the Isuzu 1 Recoverable damages shall be VALID, provided it be:
truck. He had the last clear chance of avoiding the accident.
1) Actual and Consequential Damages 1) In writing, signed by the shipper or owner;
(Raynera v. Hiceta)
The passenger or his heirs can recover not only actual damages, 2) Supported by a valuable consideration OTHER than the
5) When there is contributory negligence. The proximate
but also consequential or compensatory damages: service rendered by the common carrier; and
cause of the death of the victim is the negligence of petitioner's
bus driver, with the contributory negligence of the driver and a) Loss of earning capacity — 2/3 x (80 – age at time 3) Reasonable, just and not contrary to public policy.
owner of the jeepney. (Travel & Tours Advisers v. Cruz, Sr., et of death) x Net Earnings;
VOID Stipulations
al 2016)
b) Straight death indemnity of P50K under Art 2206; Any of the following or similar stipulations shall be considered
6) The operator of a school bus service is a common carrier
c) Moral damages + Attorney’s fees. unreasonable, unjust and contrary to public policy:
in the eyes of the law. (Sps Perena v. Sps Zarate 2012)
2) Moral Damages 1) That the goods are transported at the risk of the owner or
5 Doctrine of last clear chance shipper;
Recoverable if the cases under Art 2219 of the NCC are the
proximate result of the breach of contract of carriage. 2) That the common carrier will not be liable for any loss,
1) For the doctrine to be applicable, it is necessary to show that
Recoverable only when destruction, or deterioration of the goods;
the person who allegedly had the last opportunity to avert the
accident was aware of the existence of the peril or should, with a) Death of passenger results; or 3) That the common carrier need not observe any diligence in
exercise of due care, have been aware of it. the custody of the goods;
b) The carrier was guilty of fraud and bad faith even if
2) It can never apply where the party charged is required to act death does not result. 4) That the common carrier shall not be responsible for the acts
instantaneously, and if the injury cannot be avoided by the or omission of his or its employees;
Without the award of moral damages, award of exemplary
application of all means at hand after the peril is or should damages and attorney’s fees is improper.
have been discovered.
By RGL 19 of 83
Commercial Law Reviewer for the 2022 Bar
5) That the common carrier's liability for acts committed by 1) By special contract, the parties may agree to a higher limit of a) within 3 days from the date of receipt in the case of
thieves, or of robbers who do not act with grave or irresistible liability; baggage and
threat, violence or force, is dispensed with or diminished;
2) The limit for passenger death or injury is $75K inclusive of b) 7 days from the date of receipt in the case of goods.
6) That the common carrier is not responsible for the loss, legal fees and costs where the US is the origin, destination, or
In case of delay the complaint must be made at the latest
destruction, or deterioration of goods on account of the stopping place.
within 14 days from the date on which the baggage or goods
defective condition of the car, vehicle, ship, airplane or other
For checked baggage — damage occurred during air transportation or have been placed at his disposal.
equipment used in the contract of carriage.
when there is delay. Exceptions:
3) Every complaint must be made in WRITING upon the
Fixed amount 1) If the passenger or consignor has made, at the time when the document of transportation or by separate notice in writing
A stipulation that the common carrier's liability is limited to the package was handed over to the carrier, a special declaration of dispatched within the times aforesaid.
value of the goods appearing in the bill of lading, unless the interest in delivery at destination and has paid a supplementary
4) Failing complaint within the times aforesaid, no action shall
shipper or owner declares a greater value, is binding. sum if the case so requires.
lie against the carrier, save in the case of fraud on his part.
A contract xing the sum that may be recovered by the owner or 2) In case the damage or loss was due to
shipper for the loss, destruction, or deterioration of the goods is a) wilful misconduct; or Corporation Law
VALID, if it III
b) gross negligence; Revised Corporation Code of the Philippines
1. is reasonable and just under the circumstances, and
3) Absence of a baggage check;
2. has been fairly and freely agreed upon. General Principles
4) The carrier did not issue a ticket; and
Nationality of corporations
Limitations under the Warsaw Convention 5) In case of waiver by the carrier.
3 Control Test
Warsaw Convention For hand-carried baggage — 5,000 francs per passenger.
Grandfather Rule
Notice of Claim and Prescription in Air Transportation. Art 26
To passengers — injury took place:
of the Warsaw Convention provides: Doctrine of separate juridical personality
1) On board the aircraft;
1) Receipt by the person entitled to the delivery of baggage or Doctrine of piercing the corporate veil
2) In the course of any of the operations of embarking; goods without complaint shall be prima facie evidence that the
De facto corporations vs. Corporations by estoppel
3) In the course of disembarking; OR same have been delivered in good condition and in accordance
with the document of transportation Corporate Powers
4) When there was or because of delay.
2) In case of damage, the person entitled to delivery must How powers are exercised
250,000 francs. Exceptions: complain to the carrier forthwith after the discovery of the
Ultra vires doctrine
damage, and, at the latest,
By RGL 20 of 83
Commercial Law Reviewer for the 2022 Bar
Tenure and quali cations of directors or trustees Consideration for shares of stock Foreign corporations
Election and removal of directors or trustees Watered stock What constitutes “doing business”
Duties, responsibilities and liabilities for unlawful acts Situs of the shares of stock Necessity of a license to do business
Stockholders and Members Classes of shares of stock Requisites for issuance of a license
Rights and obligations of stockholders and members Certi cate of stock Resident agent
Doctrine of equality of shares Nature of the certi cate Personality to sue and suability
By RGL 21 of 83
Commercial Law Reviewer for the 2022 Bar
a. That the foreign investors provide practically all the a. two (2) levels of corporate relations for
Control Test nds initial application and "must govern in
funds for the joint investment undertaken by these i. publicly-held corporations or
reckoning foreign equity ownership in corporations engaged in
Filipino businessmen and their foreign partner;
nationalized economic activities." ii. where the shares are traded in the stock
b. That the foreign investors undertake to provide exchanges, and to
Where a corporation and its non-Filipino stockholders own stocks
practically all the technological support for the joint
in a SEC registered enterprise, b. three (3) levels for
venture;
a. at least 60% of the capital stock outstanding and i. closely held corporations or
c. That the foreign investors, while being minority
entitled to vote of each of both corporations must be
stockholders, manage the company and prepare all ii. the shares of which are not traded in the
owned and held by citizens of the Philippines; AND
economic viability studies. (Narra Nickel Mining v. stock exchanges. (Narra Nickel Mining v.
b. at least 60% of the members of the Board of Directors of Redmont Consolidated Mines 2015 Resolution) Redmont Consolidated Mines 2015
each of both corporations must be citizens of the Resolution)
Important Jurisprudential Points
Philippines,
4. If the Filipino has
1. The term "capital" in Section 11, Article XII of the
in order that the corporation shall be considered a Philippine
Constitution refers only to shares of stock entitled to vote a. Political Rights — the voting power of the
national.
in the election of directors, and thus, refers ONLY TO "speci c stock", i.e., he can vote the stock or direct
COMMON SHARES, and NOT to the total outstanding another to vote for him, or
b Grandfather Rule
capital stock comprising both common and non-voting b. Economic Rights — the investment power over the
The Grandfather Rule may be used as a supplement to the preferred shares. "speci c stock", i.e., he can dispose of the stock or
Control Test, that is, as a further check to ensure that control and Full bene cial ownership of 60% of the outstanding direct another to dispose of it for him, or
bene cial ownership of a corporation is in fact lodged in Filipinos. capital stock, coupled with 60% of the voting rights, is c. both, i.e., he can vote and dispose of that "speci c
The Grandfather Rule is the method by which the percentage of required. (Gamboa v. Teves 2011 En Banc) stock" or direct another to vote or dispose it for him,
Filipino equity in a corporation engaged in nationalized and/or 2. Both the Voting Control Test and the Bene cial
partly nationalized areas of activities is computed. A resort to the then such Filipino is the "bene cial owner" of that "speci c
Ownership Test must be applied to determine whether a
Grandfather Rule is necessary if doubt exists as to the locus of the stock." (Roy III v. Herbosa 2017 En Banc Resolution)
corporation is a “Philippine national.”
“bene cial ownership” and “control.”
The 60-40 ownership requirement in favor of Filipino 2 Doctrine of separate juridical personality
citizens must apply separately to each class of shares,
whether common, preferred non-voting, preferred
By RGL 22 of 83
Commercial Law Reviewer for the 2022 Bar
the veil of corporate identity as a shield from liability, because the veil
A corporation has a personality separate and distinct from that of WON FBCI's acquisition of the "substantial and controlling shares of
may be lifted to avoid defrauding corporate creditors. (Halley v.
its stockholders or members composing it, as well as from the stocks" of Esses and Tri-Star entitles it to the possession of the property
Printwell 2011)
directors, trustees and o cers who act on its behalf. owned by the latter.
The doctrine of piercing the corporate veil applies only in three (3)
Consequences NO. Esses and Tri-Star, just like FBCI, are corporations. A
basic areas, namely:
1. The property of the corporation is not the property of its corporation has a personality distinct from that of its
stockholders. Thus, FBCI's alleged controlling shareholdings in 1) Defeat of public convenience as when the corporate ction
stockholders or members.
Esses and Tri-Star merely represent a proportionate or aliquot is used as a vehicle for the evasion of an existing obligation;
2. A corporation can incur obligations which should not be interest in the properties of the two corporations. Such controlling 2) Fraud cases or when the corporate entity is used to justify a
attributed to its stockholders, directors and o cers. shareholdings do not vest FBCI with any legal right or title to any of wrong, protect fraud, or defend a crime; or
3. Limited Liability Rule — A stockholder is personally liable Esses and Tri-Star's corporate properties.
3) Alter ego cases, where a corporation is merely a farce since it is
for the nancial obligations of the corporation to the extent of
a mere alter ego or business conduit of a person, or where the
his unpaid subscription.
corporation is so organized and controlled and its a airs are so
Liability for tort and crimes 3 Doctrine of piercing the corporate veil
conducted as to make it merely an instrumentality, agency,
The corporation should alone be liable for its own corporate acts Under the doctrine of "piercing the veil of corporate fiction," conduit or adjunct of another corporation.
and liabilities entered into by its authorized o cers. the court looks at the corporation as a mere collection of Case law lays down a three-pronged test to determine the application
Recovery of damages individuals or an aggregation of persons undertaking business as a of the alter ego theory, which is also known as the instrumentality
group, disregarding the separate juridical personality of the theory, namely:
GR: A corporation is not entitled to moral damages because, not corporation unifying the group.
being a natural person, it cannot experience physical su ering 1) Instrumentality or Control Test — Control, not mere
The procedure for the doctrine to be properly applied: majority or complete stock control, but complete
or sentiments like wounded feelings, serious anxiety, mental
anguish and moral shock. 1) The court must first acquire jurisdiction over the domination, not only of nances but of policy and business
corporation or corporations involved before its or their practice in respect to the transaction attacked so that the
EXC: A juridical person can validly claim for libel or any other form corporate entity as to this transaction had at the time no
separate personalities are disregarded; and
of defamation and claim moral damages. separate mind, will or existence of its own;
2) The doctrine can only be raised during a full-blown trial over a
Article 2219(7) of the Civil Code expressly authorizes the 2) Fraud Test — Such control must have been used by the
cause of action duly commenced involving parties duly
recovery of moral damages in cases of libel, slander or any defendant to commit fraud or wrong; and
brought under the authority of the court by way of service of
other form of defamation. Article 2219(7) does not qualify
summons or what passes as such service. (Kukan International 3) Harm Test — The aforesaid control and breach of duty must
whether the plaintiff is a natural or juridical person.
v. Reyes 2010) have proximately caused the injury or unjust loss
Stockholders of a corporation are liable for the debts of the corporation complained of. (DBP v. Hydro Resources Contractors 2013)
Silverio Jr. v. Filipino Business Consultants Inc.
up to the extent of their unpaid subscriptions. They cannot invoke Reverse Piercing of the Corporate Veil
By RGL 23 of 83
Commercial Law Reviewer for the 2022 Bar
The plainti seeks to reach the assets of a corporation to satisfy undeniably, one and the same. v. Florentino exercising signi cant control over
claims against a corporate insider. It has two (2) types: 2018 Maricalum Mining.
While ownership by one corporation However, the fraud and harm tests
Outsider reverse piercing occurs when a party with a claim of all or a great majority of stocks of
DBP v. Hydro were not satis ed.
against an individual or corporation attempts to be repaid with another corporation and their
assets of a corporation owned or substantially controlled by the Resources
interlocking directorates may serve as
defendant. Contractors
indicia of control, by themselves and
✘
Corporation De facto corporations vs. Corporations
In contrast, in insider reverse piercing, the controlling members without more, however, these B
2013
circumstances are insu cient to
by estoppel
will attempt to ignore the corporate ction in order to take
advantage of a bene t available to the corporation, such as an establish an alter ego relationship. 1. Corporation by estoppel. All persons who assume to act
interest in a lawsuit or protection of personal assets. (International as a corporation knowing it to be without authority to do so
Academy of Management & Economics v. Litton 2017) The mere ownership by a single
shall be liable as general partners for all debts, liabilities and
stockholder of even all or nearly all of
Survey of Cases WPM damages incurred or arising as a result thereof. (§20)
the capital stocks of a corporation is
International
Apply not by itself a su cient ground to 2. De facto Corporation.
Case Circumstance Trading, Inc.
disregard the separate corporate
✘
Piercing
v. Labayen a. the existence of a valid law under which it may be
personality. The wrongdoing must
2014 incorporated;
A corporation not impleaded in a be clearly and convincingly
Kukan
suit cannot be subject to the court's established. b. an attempt in good faith to incorporate; and
International
process of piercing the veil of its
✘
v. Reyes 2010 c. assumption of corporate powers.
corporate ction. Rosales v. New
The sale of the assets of New ANJH
A.N.J.H. The due incorporation of any corporation shall not be
The prevailing rule is that a Enterprises
to NH Oil was a circumvention of ✔ inquired into collaterally in any private suit. Such inquiry
Halley v. stockholder is personally liable for the employees' security of tenure.
2015 may be made by the Solicitor General in a quo warranto
Printwell, Inc. the nancial obligations of the ✔ proceeding. (§19)
2011 corporation to the extent of his International Santos used I/AME as a means to
unpaid subscription. Academy of defeat judicial processes and to evade Sawadjaan v. CA
Management his obligation to Litton. ✔
Heirs of Tan Goldkey was merely an adjunct of & Economics Outsider reverse veil-piercing is At the very least, by its failure to submit its by-laws on time, the
Uy v. Hammer and, as such, the legal v. Litton 2017 applicable in the instant case. AIIBP may be considered a de facto corporation whose right to
International ction that it has a separate ✔ exercise corporate powers may not be inquired into collaterally in
Exchange personality from that of Hammer Maricalum G Holdings-being the majority and any private suit to which such corporations may be a party.
Mining Corp. controlling stockholder-had been
✘
Bank 2013 should be brushed aside as they are,
By RGL 24 of 83
Commercial Law Reviewer for the 2022 Bar
Seventh Day Adventist v. Northeastern WON petitioner has the legal capacity to accept the donation of f) In case of stock corporations, to issue or sell stocks to
Mindanao Mission of Seventh Day Adventist Purificacion. subscribers and to sell treasury stocks; and to admit members
to the corporation if it be a nonstock corporation;
The alleged donation to petitioners was void. The donation could YES, not in the capacity as a de facto corporation but as a
not have been made in favor of an entity yet inexistent at the time it corporation by estoppel. It is the act of registration with SEC g) To purchase, receive, take or grant, hold, convey, sell, lease,
was made. Nor could it have been accepted as there was yet no one through the issuance of a certi cate of incorporation that marks the pledge, mortgage, and otherwise deal with such real and
to accept it. beginning of an entity's corporate existence. Here, Puri cacion dealt personal property;
with the petitioner as if it were a corporation. This is evident from h) To enter into a partnership, joint venture, merger,
Corporate existence begins only from the moment a certi cate of
the fact that Puri cacion executed two (2) documents conveying her consolidation, or any other commercial agreement with
incorporation is issued. No such certi cate was ever issued to
properties in favor of the petitioner. natural and juridical persons;
petitioners or their supposed predecessor-in-interest at the time of
the donation. Petitioners obviously could not have claimed Further, the subsequent act by Puri cacion of re-conveying the i) To make reasonable donations, including those for the public
succession to an entity that never came to exist. Neither could the property in favor of the petitioner is a ratification by conduct of welfare or for hospital, charitable, cultural, scienti c, civic, or
principle of separate juridical personality apply since there was never the otherwise defective donation. similar purposes:
any corporation to speak of.
Provided, That no foreign corporation shall give donations in
aid of any political party or candidate or for purposes of
Lozano v. De los Santos
C Corporate Powers partisan political activity;
Where there is no third person involved and the con ict arises only j) To establish pension, retirement, and other plans for the
1 How powers are exercised
among those assuming the form of a corporation, who therefore bene t of its directors, trustees, o cers, and employees; and
know that it has not been registered, there is no corporation by General powers k) To exercise such other powers as may be essential or
estoppel. necessary to carry out its purpose or purposes as stated in the
Theory of general capacity
articles of incorporation.
a) To sue and be sued in its corporate name;
Macasaet v. Co, Jr. 2013 Speci c powers
b) To have perpetual existence unless the certi cate of
Abante Tonite is a corporation by estoppel as the result of its incorporation provides otherwise; Theory of specific capacity — No corporation shall possess or
having represented itself to the reading public as a corporation exercise any corporate powers except
c) To adopt and use a corporate seal;
despite its not being incorporated. Its non-incorporation with the 1. those conferred by law, its AOI,
SEC was of no consequence. d) To amend its articles of incorporation;
2. those implied from express powers and
e) To adopt bylaws;
3. those as are necessary or incidental to the exercise of the
Missionary Sisters of Our Lady of Fatima v. Alzona 2018
powers so conferred.
By RGL 25 of 83
Commercial Law Reviewer for the 2022 Bar
The corporation’s capacity is limited to such express, implied and 3) Disposition of treasury shares. Acquire own shares
incidental powers.
When NOT Available Provided that the corporation has unrestricted retained
Extend or shorten corporate term 1) When denied by the AOI; earnings in its books to cover the shares to be purchased or
acquired, a stock corporation shall have the power to purchase or
When approved by a majority vote of the board of directors or 2) Shares issued to comply with the prescribed stock o erings or acquire its own shares for a legitimate corporate purpose, including
trustees, and rati ed at a meeting by the stockholders or members minimum stock ownership by the public; the following cases:
representing at least two-thirds (2/3) of the OCS or of its
members. 3) To acquire needed investment through property-for-share a) To eliminate fractional shares arising out of stock
exchange; and dividends;
In case of extension of corporate term, a dissenting stockholder
may exercise the right of appraisal. 4) To restructure the nances of the corporation through a debt b) To collect or compromise an indebtedness to the
to equity conversion. corporation,
Increase or decrease capital stock or incur,
Sell or dispose corporate assets 1) arising out of unpaid subscription,
create, increase bonded indebtedness
Needs to be approved by a majority vote of the board of directors A corporation may, by a majority vote of its board, sell, lease, 2) in a delinquency sale, and
and by two-thirds (2/3) of the outstanding capital stock at a exchange, mortgage, pledge, or otherwise dispose of its property
and assets. 3) to purchase delinquent shares sold during said sale;
stockholders’ meeting duly called for the purpose.
and
No decrease in capital stock shall be approved by the SEC if its a. If ordinary disposition = No need for authorization from
stockholders; c) To pay dissenting or withdrawing stockholders entitled to
effect shall prejudice the rights of corporate creditors.
payment for their shares under the provisions of this Code.
b. If it involves the sale of all or substantially all of the
Deny pre-emptive rights
corporation’s properties and assets, including its goodwill = Invest corporate funds in another corporation or business
Pre-emptive right under Sec 38 of the RCC refers to the right must be authorized by the vote of the stockholders Investment Voting Required
of a stockholder of a stock corporation to subscribe to all issues or representing at least 2/3 of the OCS, or of the members, in a
disposition of shares of any class, in proportion to their respective stockholders’ or members’ meeting duly called for the purpose. is reasonably necessary to accomplish its
Majority of Board
shareholdings. primary purpose as stated in the AOI
When is the sale deemed a substantial disposition?
The right may be restricted or denied under the AOI, and
If the corporation would be rendered incapable of Majority of Board +
subject to certain exceptions and limitations. in any other corporation, business, or for
Stockholders
1. continuing the business or any purpose other than the primary
Stock Transactions Covered representing 2/3 of OCS
purpose for which it was organized
2. accomplishing the purpose for which it was incorporated. or 2/3 of members.
1) Increase in the ACS;
Here, any dissenting stockholder may exercise the right of
2) Opening for subscription of the unissued portion of existing
appraisal.
capital stock; and
By RGL 26 of 83
Commercial Law Reviewer for the 2022 Bar
managing and the managed corporations own or control more the scope of the articles of incorporation, are merely
The board must evaluate whether the investment has a logical
than one-third (1/3) of the total OCS entitled to vote of the VOIDABLE and may become binding and enforceable
relation to or is in direct and immediate furtherance of the
managing corporation; or when rati ed by the stockholders. (Bernas v. Cinco 2015)
corporation’s main business.
b) Interlocking management — where a majority of the The test to be applied is whether the act in question is in direct and
Rati cation by stockholders or members must be in a meeting duly
members of the board of directors of the managing immediate furtherance of the corporation's business, fairly incidental
called for the purpose. Here, any dissenting stockholder may
corporation also constitute a majority of the members of the to the express powers and reasonably necessary to their exercise. If so,
exercise the right of appraisal.
board of directors of the managed corporation, the corporation has the power to do it; otherwise, not.
Declare dividends (Magallanes Watercraft Association v. Auguis 2016)
Management Contract — contract whereby a corporation
The board of directors of a stock corporation may declare undertakes to manage or operate all or substantially all of the Ultra Vires Act Consequences
dividends out of the unrestricted retained earnings to ALL business of another corporation, whether such contracts are called
stockholders on the basis of outstanding stock held by them. service contracts, operating agreements or otherwise. The resulting contract is void.
Any cash dividends due on delinquent stock shall rst be applied GR: No management contract shall be entered into for a period The contract is not subject to rati cation.
to the unpaid balance on the subscription + costs and expenses, longer than ve (5) years for any one (1) term. Acts contrary to
while stock dividends shall be withheld from the delinquent law, morals or The action or defense for the
stockholders until their unpaid subscription is fully paid. EXC: Such service contracts or operating agreements which relate to public policy declaration of its nullity does not
the exploration, development, exploitation or utilization of prescribe.
No stock dividend shall be issued without the approval of natural resources may be entered into for such periods as
stockholders representing at least 2/3 of the OCS at a regular or may be provided by the pertinent laws or regulations. The rule on in pari delicto applies.
special meeting duly called for the purpose.
A management contract amounts to a de facto merger when the The act is unenforceable.
Enter into management contract management relates to all or substantially all of the business of the
Voting Required corporation. This does NOT trigger the exercise of appraisal The act shall not prejudice third parties who
right. Acts performed acted in good faith.
In interlocking Majority of Board + outside the scope
ownership or Stockholders representing 2/3 of OCS or 2/3 of a Ultra vires doctrine of the powers Shareholders may ratify the action, prevent its
management members of MANAGED corporation. granted to the enforcement and, if proper, institute a
1. An illegal act contemplates the doing of an act which is corporation by its derivative suit.
Majority of Board + contrary to law, morals, or public order, or contravene articles of
otherwise Stockholders representing majority of OCS or some rules of public policy or public duty, and are, like If the action has been implemented, the
incorporation
majority of members. similar transactions between individuals, VOID. members of the board shall be liable jointly and
severally for all damages resulting from the ultra
a) Interlocking ownership — where a stockholder or 2. Mere ultra vires acts, on the other hand, or those which
vires act.
stockholders representing the same interest of both the are not illegal and void ab initio, but are not merely within
By RGL 27 of 83
Commercial Law Reviewer for the 2022 Bar
University of Mindanao, Inc. v. BSP 2016 as to Sec 41 b Trust fund doctrine If the corporation is vested with public interest, the board shall also
elect a compliance o cer.
Acts of an o cer that are not authorized by the board of Under the doctrine, the capital stock, property, and other assets of
directors/trustees do not bind the corporation unless the a corporation are regarded as equity in trust for the payment of The same person may hold two (2) or more positions concurrently,
corporation rati es the acts or holds the o cer out as a corporate creditors, who are preferred in the distribution of except that no one shall act as
person with authority to transact on its behalf. corporate assets. Thus, any disposition of corporate funds and 1. president and secretary or
assets to the prejudice of creditors is null and void. (Turner v.
UM does not have the power to mortgage its properties in 2. president and treasurer at the same time.
Lorenzo Shipping 2010)
order to secure loans of other persons. As an educational
institution, it is limited to developing human capital through formal This doctrine is the underlying principle in the procedure for the a Doctrine of centralized management
instruction. distribution of capital assets which allows the distribution of
corporate capital only in three instances: Doctrine of Centralized Management or Principle of Board
The relationship between a corporation and its representatives is
Supremacy — The board of directors or trustees shall
governed by the general principles of agency. Unauthorized acts 1) amendment of the AOI to reduce the ACS,
that are merely beyond the powers of the corporation under 1. exercise the corporate powers,
2) purchase of redeemable shares by the corporation,
its articles of incorporation are NOT void ab initio. They may 2. conduct all business, and
regardless of the existence of unrestricted retained
be rati ed. Here, it was not shown that petitioner issued a resolution
earnings, and 3. control all properties of the corporation.
ratifying the execution of the mortgage contracts.
3) dissolution and eventual liquidation of the corporation.
The general rule is that knowledge of an o cer is considered b Business judgment rule
(Ong Yong v. Tiu)
knowledge of the corporation. However, even though the Sps
Torres were o cers of both the thrift banks and petitioner, their Contracts intra vires entered into by the board of directors are
knowledge of the mortgage contracts cannot be considered as
D Board of Directors and Trustees binding upon the corporation and courts will not interfere unless
knowledge of the corporation. The rule that knowledge of an o cer such contracts are so unconscionable and oppressive as to amount
is considered knowledge of the corporation applies only when the 1 Basic principles to wanton destruction to the rights of the minority. (Ong Yong v.
officer is acting within the authority given to him or her by Tiu)
The directors of a corporation must formally organize and elect:
the corporation. The duty of diligence requires the members of the board to
a) a president, who must be a director;
The doctrine of apparent authority does not go into the a) take steps to su ciently inform themselves of relevant
question of the corporation's competence or power to do a b) a treasurer, who must be a resident; information before making a decision (process due care) and
particular act. A nding that there is apparent authority is not the c) a secretary, who must be a citizen and resident of the b) act in good faith and in the honest belief that their action is in
same as a nding that the corporate act in question is within the Philippines; and the best interest of the corporation (substantive due care).
corporation's limited powers.
d) such other o cers as may be provided in the bylaws. 1. The business judgment rule does not apply in process due care
(oversight cases).
By RGL 28 of 83
Commercial Law Reviewer for the 2022 Bar
2. There is gross negligence if there is sustained or systematic c) When directors or o cers act against the c) By a foreign court or equivalent foreign regulatory authority
failure of the board to exercise oversight. corporation in conflict of interest situation. for acts, violations or misconduct similar to those enumerated
in paragraphs (a) and (b) above.
3. The business judgment rule applies in the observance of
substantive due care (hindsight cases). The substantive due care Tenure and quali cations of directors or
2
standard depends on the actual abilities of the concerned director trustees 3 Election and removal of directors or trustees
or trustee. 1. Directors shall be elected for a term of one (1) year from Elections
4. Under the substantive due care standard, there must be no among the holders of stocks registered in the corporation’s
obvious corporate waste and the action must have a rational books, Quorum
business purpose or actuated by legitimate business reasons. 2. While trustees shall be elected for a term not exceeding three Owners of majority of the outstanding capital stock must be
As a Defense (3) years from among the members of the corporation. present either in person, by proxy or in absentia.
The law upholds board supremacy. Thus, the business judgment rule is 3. Each director and trustee shall hold o ce until the successor is The law follows plurality voting. The nominees who received the
a defense when: elected and quali ed. highest number of votes shall be elected as members of the board.
a) the act is intra vires; 4. A director who ceases to own at least one (1) share of stock The election is generally done through
or a trustee who ceases to be a member of the corporation shall a) straight voting; or
b) the members of the board observed process due care; and
cease to be such.
c) the action has a rational business purpose, with no obvious b) cumulative voting.
A person shall be disquali ed from being a director, trustee or o cer
corporate waste.
of any corporation if, within ve (5) years prior to the election or Removal
Legal Effects appointment as such, the person was: 1. Any director or trustee of a corporation may be removed from
1. First Branch. The resolutions, contracts and transactions of a) Convicted by nal judgment: o ce by a vote of the stockholders holding or representing at
the board cannot be overturned by the stockholders or least two-thirds (2/3) of the OCS, or in a nonstock
1) Of an o ense punishable by imprisonment for a
members, and not even by the courts. corporation, by a vote of at least two-thirds (2/3) of the
period exceeding six (6) years;
members entitled to vote.
2. Second Branch. Directors and authorized o cers cannot be
2) For violating this Code; and
held personally liable for acts or contracts done with the 2. Such removal shall take place either at a regular meeting of
exercises of their business judgment, except: 3) For violating the SRC; the corporation or at a special meeting called for the purpose,
b) Found administratively liable for any o ense involving and in either case, after previous notice to stockholders or
a) When otherwise provided by law;
fraudulent acts; and members of the corporation of the intention to propose such
b) When the directors or o cers acted with fraud, removal at the meeting.
gross negligence or in bad faith; and
3. A special meeting of the stockholders or members for the
purpose of removing any director or trustee must be called
By RGL 29 of 83
Commercial Law Reviewer for the 2022 Bar
a. by the secretary on order of the president, or On the same day of the Scope — The action by the designated director or trustee shall be
Removal meeting authorizing the limited to the emergency action necessary, and the term shall cease
b. upon written demand of the stockholders
removal within a reasonable time
representing or holding at least a majority of the
OCS, or a majority of the members entitled to vote. 1. from the termination of the emergency or
No later than the day of such
Expiration By the stockholders
If there is no secretary, or if the secretary, despite demand, fails expiration at a meeting called 2. upon election of the replacement director or trustee,
of Term or members in a
or refuses to call the special meeting or to give notice thereof, for that purpose
regular or special whichever comes earlier.
the stockholder or member of the corporation signing
meeting called for At a regular or at a special Notice to SEC — The corporation must notify the SEC within three
the demand may call for the meeting by directly addressing
the purpose meeting duly called for the (3) days from the creation of the emergency board, stating therein the
the stockholders or members.
Increase in purpose, or in the same reason for its creation.
4. Removal may be WITH or WITHOUT cause. number meeting authorizing the
Removal without cause may NOT be used to deprive increase if so stated in the notice Duties, responsibilities and liabilities for
4
minority stockholders or members of the right of of the meeting. unlawful acts
representation to which they may be entitled under Section
If still
23. Three-Fold Duty
constituting a
5. The SEC shall, motu proprio or upon veri ed complaint, and 1. DUTY OF OBEDIENCE — shall direct the a airs of the
quorum, by the
after due notice and hearing, order the removal of a director or No later than forty- ve (45) corporation only in accordance with the purposes for which it
All other vote of at least a
trustee days from the time the vacancy was organized.
causes majority of the
arose
a. elected despite the disquali cation, or remaining; 2. DUTY OF DILIGENCE — shall not willfully and
otherwise, same as knowingly vote for or assent to patently unlawful acts of the
b. whose disquali cation arose or is discovered
above corporation or act in bad faith or with gross negligence in
subsequent to an election.
directing the a airs of the corporation.
The removal of a disquali ed director shall be without Emergency Board: Matling Doctrine
3. DUTY OF LOYALTY — shall not acquire any personal or
prejudice to other sanctions that the SEC may impose on the When applicable pecuniary interest in con ict with their duty as such directors
board of directors or trustees who, with knowledge of the
1. When the vacancy prevents the remaining directors from or trustees. (Strategic Alliance Development Corp. v. Radstock
disqualification, failed to remove such director or trustee.
constituting a quorum and Securities)
Vacancies
2. Emergency action is required to prevent grave, substantial, and Disloyalty
Reason Manner of Filling Period to Fill Up irreparable loss or damage to the corporation,
Observance of the duty of loyalty is relevant when directors or
The vacancy may be temporarily lled from among the o cers of the trustees enter in to a
corporation by unanimous vote of the remaining directors or trustees.
By RGL 30 of 83
Commercial Law Reviewer for the 2022 Bar
1) contract with the corporation (self-dealing contracts), Doctrine of Corporate Opportunity 3. acquire any personal or pecuniary interest in con ict with
their duty as such directors or trustees
2) negotiate on their compensation, and Corporate o cers "are not permitted to use their position of trust
and con dence to further their private interests." shall be liable jointly and severally for all damages.
3) personally acquire a corporate opportunity.
The doctrine of "corporate opportunity" is precisely a Solidary liability will only attach to the directors, o cers or
Where a director, by virtue of such o ce, acquires a business
recognition by the courts that the duciary standards could not be employees of the corporation in certain circumstances, such as:
opportunity which should belong to the corporation, thereby
obtaining pro ts to the prejudice of such corporation, the director upheld where the duciary was acting for two entities with 1. When directors and trustees or, in appropriate cases, the
must account for and refund to the latter all such competing interests. o cers of a corporation:
pro ts. If there is presented to a corporate o cer or director a business a) vote for or assent to patently unlawful acts of the
opportunity corporation;
Unless the act has been rati ed by a vote of the stockholders
owning or representing at least 2/3 of the OCS. 1. which the corporation is nancially able to undertake, b) act in bad faith or with gross negligence in
Material Related Party Transactions 2. is from its nature, in the line of the corporation's business directing the corporate a airs; and
and is of practical advantage to it, c) are guilty of con ict of interest to the prejudice of
1. “Material”. A transaction is material if its value is at least
10% of the corporation’s total assets, as provided in its latest 3. is one in which the corporation has an interest or a the corporation, its stockholders or members, and
AFS. reasonable expectancy, and other persons;
2. “Related Party”. A party is regarded as related party if such 4. by embracing the opportunity, the self-interest of the 2. When a director or o cer has consented to the issuance of
person is o cer or director will be brought into con ict with that watered stocks or who, having knowledge thereof, did not
of his corporation, the law will not permit him to seize the forthwith le with the corporate secretary his written
a. a director, trustee, o cer, or a substantial shareholder objection thereto;
opportunity for himself.
(one who is directly or indirectly a bene cial owner of
at least 10% of any class of equity security), and And, if, in such circumstances, the interests of the corporation are 3. When a director, trustee or o cer has contractually agreed
betrayed, the corporation may elect to claim all of the benefits or stipulated to hold himself personally and solidarily liable
b. his spouse or relative within the 4th CDCA. with the corporation; or
of the transaction for itself. (Gokongwei, Jr. v. SEC)
3. Rule if no disinterested board. The law only requires the 4. When a director, trustee or o cer is made, by speci c
approval of the shareholders or members if there is no Solidary liabilities for damages
provision of law, personally liable for his corporate action.
disinterested board that may approve the transaction. Directors or trustees who (Heirs of Tan Uy v. International Exchange Bank 2013)
4. Rule if disinterested board disapproves. Where the 1. willfully and knowingly vote for or assent to patently unlawful
disinterested board disapproves the self-dealing transaction, acts of the corporation or
Personal liabilities
the shareholders or members cannot override such decision A director, trustee, or o cer shall not attempt to acquire, or
2. are guilty of gross negligence or bad faith in directing the
of the board, consistent with the principle of board acquire any interest adverse to the corporation
a airs of the corporation or
supremacy.
By RGL 31 of 83
Commercial Law Reviewer for the 2022 Bar
1. in respect of any matter which has been reposed in them in Special Fact Doctrine a) The presence of such director or trustee in the board meeting
con dence, and in which the contract was approved was not necessary to
In the absence of special facts, any director, o cer or shareholder is
constitute a quorum for such meeting;
2. upon which, equity imposes a disability upon themselves to entitled to sell his stock to a third person for such price; and on
deal in their own behalf; such terms as he may desire. b) The vote of such director or trustee was not necessary for the
approval of the contract;
Otherwise he shall be liable as a trustee for the corporation and must However, o cers, directors, and controlling stockholders of a
account for the pro ts which otherwise would have accrued to corporation owe a limited duciary duty toward minority c) The contract is fair and reasonable under the circumstances;
the corporation. The following requisites must concur: stockholders in the matter of sales of stock where there are special d) In case of corporations vested with public interest, material
1) The complainant must allege in the complaint that the facts which make it inequitable for them to act without regard to contracts are approved by
director or o cer assented to patently unlawful acts of the the interests of other shareholders.
i) at least two-thirds (2/3) of the entire
corporation, or that the o cer was guilty of gross negligence Under the law, what is required to be disclosed is a fact of “special membership of the board, with
or bad faith; AND signi cance” which may be
ii) at least a majority of the independent directors
2) The complainant must clearly and convincingly prove such a) a material fact which would be likely, on being made voting to approve the material contract; and
unlawful acts, negligence or bad faith. (Heirs of Tan Uy v. generally available, to a ect the market price of a security to a
International Exchange Bank 2013) e) In case of an o cer, the contract has been previously
signi cant extent, or
authorized by the board of directors.
Responsibility for Crimes b) one which a reasonable person would consider especially
Where any of the rst three (3) conditions is absent, in the case of a
important in determining his course of action with regard to
The following provisions of the RCC provide speci c penalties, contract with a director or trustee, such contract may be ratified
the shares of stock. (SEC v. Interport Resources)
which render the non-application of the “other violations” by the vote of the stockholders representing at least 2/3 of the
provision under Section 170: Contracts OCS or of the members in a meeting called for the purpose.
1. Corporation by estoppel (§20);
By self-dealing directors with the corporation Between corporations with interlocking directors
2. E ects of non-use of corporate charter and continuous A contract of the corporation with Except in cases of fraud, and provided the contract is fair and
inoperation of a corporation (§21); reasonable under the circumstances, a contract between two (2) or
a. (1) one or more of its directors, trustees, o cers OR
3. Liability of directors, trustees or o cers (§30); more corporations having interlocking directors shall not be
b. their spouses and relatives within the fourth civil degree of invalidated on that ground alone.
4. Disloyalty of a director (§33); consanguinity or a nity
If the interest of the interlocking director in one (1) corporation is
5. Liability of directors for watered stocks (§64); is voidable, at the option of such corporation, unless all the following substantial and the interest in the other corporation or
6. Interest on unpaid subscriptions (§65); conditions are present: corporations is merely nominal, the contract shall be subject to the
7. Payment of balance of subscription (§66); and provisions regarding self-dealing directors insofar as the latter
corporation or corporations are concerned.
8. Books to be kept (§73).
By RGL 32 of 83
Commercial Law Reviewer for the 2022 Bar
Stockholdings exceeding twenty percent (20%) of the OCS shall 1. in writing, Can only act at the speci ed NOT limited to any particular
be considered substantial for purposes of interlocking directors. meeting meeting
2. signed and led, by the stockholder or member,
3. in any form authorized in the bylaws and Can vote and exercise all rights
E Stockholders and Members Votes only in the absence of the
of the transferor even when the
4. received by the corporate secretary within a reasonable owner of the stock
latter is present.
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 Need NOT be notarized or a Must be notarized and led with
for the meeting for which it is intended. No proxy shall be copy be led with SEC SEC
Corporators are those who compose a corporation, whether as valid and e ective for a period longer than ve (5) years at any one
NO right of inspection HAS the right of inspection
1. stockholders or shareholders in a stock corporation or as time.
By RGL 33 of 83
Commercial Law Reviewer for the 2022 Bar
9) Voluntary dissolution where no creditors are a ected (§134). 14) Voluntary dissolution (§135). WON petitioners were entitled to demand the production of the STB
of Abra Valley
ii By a two-thirds vote iii By cumulative voting
YES. A person becomes a stockholder of a corporation by acquiring
1) Amendment of the AOI; Allows minority shareholders to bundle their votes together and a share through either purchase or subscription. Considering that
cast them in favor of one or some nominees. Abra Valley’s STB was not in the possession of the petitioners, or at
2) Extending or shortening corporate term;
their disposal, they could not be reasonably expected or justly
3) Increasing or decreasing capital stock or incurring, creating or 3 Proprietary rights compelled to prove that their stock subscriptions and purchases
increasing bonded indebtedness; were recorded therein. This was precisely why they led their
4) Sale of all or substantially all of the corporation’s properties a Right to dividends Motion for Production/Inspection of Documents.
and assets, including its goodwill;
Dividends is the unrestricted retained earnings set apart from the The only time when the demand to examine and copy the
5) Approval of the plan of merger or consolidation (and any general mass of the funds of the corporation and distributed corporation's records and minutes could be refused is when
amendment thereto) (§76); among the stockholders in proportion to their shares or interest in the corporation puts up as a defense to any action that:
6) Removal of director or trustees; the corporation, in the form of cash, property or stocks.
1. the person demanding had improperly used any
7) Ratifying an act which amounts to disloyalty of a director Who may declare dividends? information;
(corporate business opportunity rule); 1. BOD alone — for cash, property dividends; 2. secured through any prior examination of the records or
8) Approving property-for-share exchange and debt to equity 2. BOD + stockholders representing not less than 2/3 of the minutes of such corporation or of any other corporation,
conversion (§38); OCS in a meeting called for the purpose — for stock or
9) Investing funds in any other corporation, business, or for any dividends. 3. was not acting in good faith or for a legitimate purpose in
purpose other than the primary purpose for which the making his demand.
corporation was organized (§41); b Right to inspect
Among the improper purposes which may justify denial of the right
10) Issuing stock dividends (§42); A requesting party who is of inspection are:
11) Approving the conclusion of a management contract where 1. not a stockholder or member of record, or 1) Obtaining of information as to business secrets or to aid a
there is interlocking ownership or interlocking management competitor;
2. a competitor, director, o cer, controlling stockholder or
(§43); 2) to secure business "prospects" or investment or advertising
otherwise represents the interests of a competitor
12) Delegating to the board of directors or trustees the power to lists;
shall have no right to inspect or demand reproduction of
amend or repeal the bylaws or adopt new bylaws (§47); 3) to nd technical defects in corporate transactions in order to
corporate records.
13) Approving a plan for the distribution of assets in non-stock bring "strike suits" for purposes of blackmail or extortion.
corporations (§94); Insigne v. Abra Valley Colleges, Inc. 2015
By RGL 34 of 83
Commercial Law Reviewer for the 2022 Bar
The right of the shareholder to inspect the books and records of 2. Second. The demand was refused;
the petitioner should not be made subject to the condition of a
3. Third. If such refusal is made pursuant to a resolution or c Pre-emptive right
showing of any particular dispute or of proving any
order of the board, the liability shall be imposed upon the
mismanagement or other occasion rendering an examination
directors or trustees who voted for such refusal; and, Pre-emptive right refers to the right of a stockholder of a stock
proper. (Terelay Investment and Development v. Yulo 2015) corporation to subscribe to all issues or disposition of shares of any
4. Fourth. Where the defense that the person demanding has class, in proportion to their respective shareholdings. (Lu Ym v. Lu
A criminal action based on the violation of a stockholder's right to
improperly used any information secured through any prior 2018)
examine or inspect the corporate records and the stock and transfer
examination, or was not acting in good faith or for a legitimate
book of a corporation under the second and fourth paragraphs of The preemptive right of stockholders in close corporations shall
purpose, the contrary must be shown or proved. (Ang-Abaya
Section 73 can only be maintained against corporate o cers or extend to ALL stock to be issued, including reissuance of treasury
v. Ang)
any other persons acting on behalf of such corporation. shares, whether for money, property or personal services, or in
Thus, the provision can only be violated by a corporation. ⭐Corporations may raise their objections to the right of payment of corporate debts, unless the AOI provides otherwise.
(Yujuico v. Quiambao 2014) inspection through a rmative defense in an ordinary civil
action for speci c performance or damages, or through a comment d Right of rst refusal
Among the actions that may be led is
in a petition for mandamus.
1. an action for speci c performance, 1) The corporation or the stockholders have the right of rst
NB: Thus, a corporation cannot preempt a stockholder from
refusal.
2. damages, exercising his right to inspect corporate books by ling an
action for injunction as the exception to the right may only 2) The stockholder who wants to sell his shares to any third
3. petition for mandamus, or
be raised as a defense. person must rst o er it either to the corporation or to the
4. for violation of Section 73, in relation to Section 158 of the other existing stockholders usually under the same terms and
RCC. 2016 conditions.
Philippine Associated Smelting and Refining v. Lim
The corporation carries the burden of proving 3) The right pertains to shares already issued to stockholders.
WON a petition for injunction with prayer for writ of preliminary
a) that the stockholder has improperly used information before; injunction is proper to prevent stockholders from inspecting corporate 4) If the existing stockholders or the corporation fails to exercise
b) lack of good faith; or books. the option to purchase within the period stated, the
transferring stockholder may sell his shares to any third person.
c) lack of legitimate purpose. (Philippine Associated Smelting and NO. When the corporation, through its o cers, denies the
Refining Corp v. Lim 2016) stockholders of such right, the latter could then go to court and 5) The present policy of the SEC is to limit the period to one (1)
enforce their rights. It is then that the corporation could set up its month which is deemed "su cient for the stockholders or for
In order therefore for the penal provision to apply, the following
defenses and the reasons for the denial of such right. the corporation to signify their desire to buy the shares of
elements must be present:
stock being o ered for sale by any stockholder. (SEC Opinion,
Thus, the proper remedy is the writ of mandamus to be led by
1. First. A director, trustee, stockholder or member has made a 13 Oct 1964)
the stockholders and not a petition for injunction led by the
prior demand in writing;
corporation.
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6) An absolute restraint on transfer of stock unlimited in time is a) between the corporation, partnership or association and pursuant to or under a By-Law enabling provision is not enough to
invalid. the public; make a position a corporate office.
b) between the corporation, partnership or association and Whoever are the corporate o cers enumerated in the by-laws are the
4 Remedial Rights its stockholders, partners, members, or o cers; exclusive O cers of the corporation and the Board has no power to
Suits by stockholders or members of a corporation based on create other O ces without amending rst the corporate By-laws.
c) between the corporation, partnership or association and
wrongful or fraudulent acts of directors or other persons may be the State insofar as its franchise, permit or license to Real v. Sangu Phil 2011
classi ed into individual suits, class suits, and derivative suits. operate is concerned; and,
When petitioner sought for reinstatement, he wanted to
2016 d) among the stockholders, partners or associates themselves. recover his position as Manager, a position which has been
Florete, Jr v. Florete
declared to be not a corporate position. The case is thus a
3) Under the nature of the controversy test, the disagreement
The determination of the stockholder's appropriate remedy hinges on termination dispute and, consequently, falls under the jurisdiction
must not only be rooted in the existence of an intra-corporate
the object of the wrong done. of the Labor Arbiter pursuant to Section 217 of the Labor Code.
relationship, but must as well pertain to the enforcement of
1) Individual suit — when the object is a speci c the parties' correlative rights and obligations under the Cacho v. Balagtas 2018
stockholder and the remedy is speci c to him. Corporation Code and the internal and intra-corporate
While a corporate o ce is created by an express provision either in
2) Representative or class suit — when the object is a regulatory rules of the corporation.
the Corporation Code or the By-laws, what makes one a corporate
de nite class of stockholder and the remedy is speci c to 4) Both tests must concur. o cer is his election or appointment thereto by the board of
them. directors.
3) Derivative suit — when the object of the wrong done is Belo Medical Group v. Santos 2017
It is clear that the termination complained of is intimately and
the corporation itself or the whole body of its stock and The con ict is intra-corporate as it involves two (2) shareholders inevitably linked to Balagtas's role as North Star's EVP. Balagtas's
property without any severance or distribution among although the ownership of stocks of one stockholder is questioned. dismissal is an intra-corporate controversy, not a mere labor
individual holders. Unless Santos is adjudged as a stranger to the corporation because he dispute.
holds his shares only in trust for Belo, then both he and Belo, based
Ellao v. BATELEC 2018
on o cial records, are stockholders of the corporation.
Here, the position of General Manager is expressly provided for
5 Intra-corporate disputes See also San Jose v. Ozamiz 2017
under Article VI, Section 10 of BATELEC I's By-laws. It is therefore
1) Understood as a suit arising from intra-corporate relations or Corporate Officers. Matling Industrial and Commercial Corp v. beyond cavil that Ellao's position as General Manager is a
between or among stockholders or between any or all of them Coros 2010 cooperative o ce. Accordingly, his complaint for illegal dismissal
and the corporation. partakes of the nature of an intra-cooperative controversy.
Conformably with Section 25 of the Corporation Code, a position
2) Following the relationship test, it includes the following must be expressly mentioned in the By-Laws in order to be
suits: considered as a corporate o ce. Thus, the creation of an office
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Individual suit 3. No appraisal rights are available for the acts or acts 2) authorizing preferences in any respect superior to
complained of; and those of outstanding shares of any class, or of
Where a stockholder or member is denied the right of inspection,
his suit would be individual because the wrong is done to him 4. The suit is not a nuisance or harassment suit; 3) extending or shortening the term of corporate
personally and not to the other stockholders or the corporation. existence;
5. The action brought by the stockholder or member must
be in the name of the corporation or association. b) In case of sale, lease, exchange, transfer, mortgage, pledge or
Representative suit
other disposition of all or substantially all of the corporate
Where the wrong is done to a group of stockholders, as where 2014 property and assets;
Ching v. Subic Bay Golf and Country Club, Inc.
preferred stockholders’ rights are violated, a class or
WON the complaint filed by petitioners is a derivative suit and such c) In case of merger or consolidation; and
representative suit will be proper for the protection of all
stockholders belonging to the same group. is NOT properly filed. d) In case of investment of corporate funds for any purpose other
than the primary purpose of the corporation.
Derivative suit YES. Although the shareholdings of petitioners are indeed only two
out of the 409 alleged outstanding shares or 0.24%, the Court has The Corporation Code de nes how the right of appraisal is
A suit by a shareholder to enforce a corporate cause of action. It is
held that it is enough that a member or a minority of exercised as follows:
the corporation that is properly regarded as the REAL
stockholders le a derivative suit for and on behalf of a 1. Written Demand — by making a written demand on the
PARTY IN INTEREST, while the relator-stockholder is
corporation.
merely a NOMINAL party. (Ang v. Sps Ang 2013) corporation within 30 days after the date on which the
With regard, however, to the second requisite, the Court nds that vote was taken.
Since the derivative suit is a remedy of last resort, it must be
petitioners failed to state with particularity in the Complaint
shown that the board, to the detriment of the corporation and 2. Appraisal Committee — If the withdrawing stockholder
that they had exerted all reasonable e orts to exhaust all
without a valid business consideration, refuses to remedy a and the corporation cannot agree on the fair value of the
remedies available. Such failure allows the RTC to dismiss the
corporate wrong. A derivative suit may only be instituted after shares within a period of 60 days from the date the
Complaint, even motu proprio, in accordance with the Interim
such an omission. (Ago Realty & Development Corp. v. Ago 2019) stockholders approved the corporate action, the fair value
Rules.
shall be determined and appraised by three disinterested
⭐The requisites are enumerated in the Interim Rules of
persons.
Procedure for Intra-Corporate Controversies: ⭐Appraisal right
1. He was a stockholder or member at the time the acts or Any stockholder of a corporation shall have the right to dissent and The ndings and award of the majority of the appraisers
transactions subject of the action occurred and the time demand payment of the fair value of the shares in the following shall be nal, and the corporation shall pay their award within
the action was led; instances: 30 days after the award is made.
2. He exerted all reasonable e orts, and alleges the same, a) In case an amendment to the AOI has the e ect of 3. Suspension of Rights — All rights accruing to the
to exhaust all remedies available to obtain the relief he withdrawing stockholder's shares, including voting and
1) changing or restricting the rights of any stockholder
desires; dividend rights, shall be suspended from the time of
or class of shares, or
By RGL 37 of 83
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demand for the payment of the fair value of the shares until
a Nature of shares of stock d) Previously incurred indebtedness of the corporation;
either
1) The ownership of shares of stock confers no immediate legal e) Amounts transferred from unrestricted retained earnings to
a. the abandonment of the corporate action involved or
right or title to any of the property of the corporation. Each stated capital;
b. the purchase of the shares by the corporation, share merely represents a distinct undivided share or interest in f) Outstanding shares exchanged for stocks in the event of
except the right of such stockholder to receive payment of the the common property of the corporation. reclassi cation or conversion;
fair value of the shares. 2) Shares of stock constitute property distinct from the capital or g) Shares of stock in another corporation; and/or
4. Surrender Certificate of Stocks for Notation — Within tangible property of the corporation and belong to the
h) Other generally accepted form of consideration.
10 days after demanding payment for his or her shares. A di erent owners. Incorporeal in nature, the shares are personal
failure to do so shall, at the option of the corporation, property.
c Watered stock
terminate his appraisal rights. 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 Are those issued not in exchange for its equivalent in cash,
5. Unrestricted Retained Earnings Required — No
corporation to the shareholder and are, therefore, not credits property, share, stock dividends, or services. Such issuance is
payment shall be made to any dissenting stockholder unless
as to make the stockholder a creditor of the corporation. prohibited.
the corporation has unrestricted retained earnings in its
books to cover the payment. 4) A share of stock only typi es a proportionate or aliquot part Trust fund doctrine for liability for watered stocks — The
of the corporation's property, or the right to share in its issuance of watered stocks constitutes fraud on creditors.
In case the corporation has no available unrestricted retained
earnings in its books, Section 82 of the RCC provides that if proceeds to that extent when distributed according to law.
d Situs of the shares of stock
the dissenting stockholder is not paid the value of his shares 5) It does not represent property of a corporation.
within 30 days after the award, his voting and dividend 1) The situs of share of stock is deemed to be the State where the
rights shall immediately be restored. (Turner v. Lorenzo b Consideration for shares of stock corporation has its domicile which is ordinarily the State
Shipping) under whose laws it was created.
Stocks shall not be issued for a consideration less than the par or
The right is regarded as su cient to redress a perceived wrong issued price thereof. Consideration for the issuance of stock may be: 2) The situs retains that of the issuing corporation, even though
committed to the corporation; thus, its availability precludes a the certi cate is without the State and is owned by a
shareholder from instituting a derivative action against a) Actual cash paid to the corporation;
nonresident.
corporate controllers. b) Property, tangible or intangible, actually received by the
3) For purposes of execution, attachment, and
corporation and necessary or convenient for its use and lawful
garnishment. — The situs is the domicile or residence of the
F Capital Structure purposes at a fair valuation equal to the par or issued value of
corporation, which is the place where the principal o ce of
the stock issued;
the corporation is located.
1 Shares of stock c) Labor performed for or services actually rendered to the
corporation;
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4) For purposes of registration of chattel mortgages on d) Incurring, creating, or increasing bonded indebtedness; Common
shares of stock. — The situs is the province or city in which
e) Increase or decrease of ACS; Shares with no preferences. Holders of these shares are regarded as
the corporation has its principal o ce or place of business.
f) Merger or consolidation of the corporation with another residual owners, who assume all the risks but reap all the bene ts
5) For purposes of property taxation. — The general rule is in the a airs of the corporation. They may only receive dividends
corporation or other corporations;
that the situs of intangible property is at the domicile or and/or assets upon liquidation following the satisfaction of the
residence of the owner. However g) Investment of corporate funds in another corporation or stipulated returns to other funders of the corporation, such as
business; and creditors or preferred shareholders.
a) Shares of stock in a domestic corporation of a
nonresident foreigner are taxable in the Philippines; h) Dissolution of the corporation.
Founder's
b) For purposes of the estate tax, the gross estate of a Preferred Where the exclusive right to vote and be voted for in the
resident decedent, whether citizen or alien, or a citizen One which entitles the holder thereof to certain preferences over election of directors is granted, it must be for a limited period not
decedent, whether resident or nonresident, includes the holders of common stock. The most common forms may be to exceed ve (5) years from the date of incorporation.
his intangible personal property wherever situated. classi ed into two: preferred shares as to assets and as to
Redeemable
dividends.
e Classes of shares of stock Shares usually preferred, which by their terms are redeemable
Scope of voting rights subject to classification Republic Planters Bank v. Agana, Sr. 1. at a xed date, or
Common shareholders, as residual owners, have full voting WON petitioner can be compelled to redeem the preferred shares 2. at the option of either issuing corporation, or the
rights. Holders of other shares have similar rights, except when issued to the private respondent. stockholder, or both
denied by the corporation’s charter or in compliance with the NO. Preferences granted to preferred stockholders do not give at a certain redemption price. A redemption by the corporation of
provisions of the constitution or the law. them a lien upon the property of the corporation nor make them its stock is, in a sense, a repurchase of it for cancellation.
Non-voting shares are merely prevented from electing directors creditors of the corporation, the right of the former being always Redemption of shares is allowed even if there are no
and other matters presented to the shareholders in general for subordinate to the latter. Dividends are thus payable only when unrestricted retained earnings. However, this is subject to the
approval. there are pro ts earned by the corporation and as a general rule, even condition that the corporation has, after such redemption,
if there are existing pro ts, the BOD has the discretion to assets in its books to cover debts and liabilities inclusive of
Holders of nonvoting shares shall nevertheless be entitled to vote on
determine whether or not dividends are to be declared. capital stock. Redemption, therefore, may not be made where
the following matters:
In this case, while the stock certi cate does allow redemption, the 1. the corporation is insolvent or
a) Amendment of the AOI;
option to do so was clearly vested in the petitioner bank. Thus, the
b) Adoption and amendment of bylaws; 2. if such redemption will cause insolvency or inability of
redemption rests entirely with the corporation and the stockholder
the corporation to meet its debts as they mature.
c) Sale, lease, exchange, mortgage, pledge, or other disposition is without right to either compel or refuse the redemption of its
of all or substantially all of the corporate property; stock. These may be issued by the corporation when expressly provided
By RGL 39 of 83
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in the AOI.
a Nature of the certi cate that the petitioners so elected were not disquali ed for lack of stock
Mandatory Redemption ownership. Conformably with the doctrine of estoppel, the
A certi cate of stock is a written instrument signed by the proper
respondents could no longer deny the petitioners’ status as
Corporations which have issued mandatory redeemable shares o cer of a corporation stating or acknowledging that the person
stockholders of Abra Valley.
with mandatory redemption features are required to set up and named in the document is the owner of a designated number of
maintain a sinking fund to be deposited in a trustee bank, and shares of its stock.
which shall not be invested in risky or speculative ventures. It is prima facie evidence that the holder is a shareholder of a b Uncerti cated shares
Treasury corporation. A certi cate, however, is merely a tangible
Shares of stock which have been issued and fully paid for, but evidence of ownership of shares of stock. (Teng v. SEC 2016) Uncerti cated shares are shares that are tracked and represented in
subsequently reacquired by the issuing corporation through the books of a company. These shares are recorded in the company
No transfer, shall be valid, except as between the parties, until the as a “book entry” and are not represented with a paper certi cate.
purchase, redemption, donation, or some other lawful means.
transfer is recorded in the books of the corporation showing the
While held in the company's treasury, the stock earns no The SEC may require corporations whose securities are traded in
dividends and has no vote in company a airs. 1. names of the parties to the transaction, trading markets and which can reasonably demonstrate their
Instances giving rise to Treasury Shares 2. the date of the transfer, capability to do so to issue their securities or shares of stocks in
uncerti cated or scripless form.
1) When the corporation redeems its shares pursuant to its 3. the number of the certi cate or certi cates, and
contract with shareholders; 4. the number of shares transferred. Negotiability; requirements for valid transfer of
c
2) When permitted or required by law, as when: No shares of stock against which the corporation holds any stocks
a) The corporation eliminates fractional shares unpaid claim shall be transferable in the books of the corporation. 1) It is NOT a negotiable instrument.
arising out of stock dividends;
Insigne v. Abra Valley Colleges, Inc. 2015 2) Certi cates of stock may be issued only to registered owners of
b) The corporation collects or compromises on stock. The issuance of "bearer" stock certi cates is not allowed
delinquency subscription; or Is the presentation of a stock certificate a condition sine qua non for under the law.
c) The corporation pays a dissenting stockholder. proving one’s shareholding in a corporation?
NO. To establish their stock ownership, the petitioners adduced F & S Velasco Co., Inc. v. Madrid 2015
3) In close corporations, in case of:
competent proof showing that the respondents had allowed the WON the November 18, 2009 Meeting organized by Madrid is legal
a) Deadlock (§ 103); or
petitioners to become members of the Board of Directors. and valid;
b) Withdrawal by a shareholder (§ 104). 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 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
2 Certi cate of stock corporation, the respondents would not have then allowed any of
the petitioners to be elected to sit in the Board unless they believed FSVCI's shares of stock. Section 63 of the Corporation Code
governs the rule on transfers of shares of stock.
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What happens when there’s no bidder who can fully pay? adopted by at least a petition is resolved upon
The delivery contemplated in Section 62 (RCC), however, pertains
majority of the OCS by a rmative vote of at
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
least 2/3 of the OCS
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 1. Notice to the
corporation. stockholders;
b Allowable restrictions on the sale of shares 2. the order of the SEC
d Involuntary dealings reciting the purpose
Allowable restrictions on the sale of shares — Deny At least 20 days prior
of the petition and
recognition of share transfers. No shares of stock against which the Notice, to the meeting;
1) Involuntary dealing refers to such writ, order or process issued xing the deadline for
corporation holds any unpaid claim shall be transferable in the publication published once in a
by a court of record a ecting shares of stocks which by law ling objections shall
books of the corporation. and newspaper in the
should be registered to be e ective, and also to such be published once a
Sale of partially paid shares — The incomplete payment of the posting corporation’s principal
instruments which are not the willful acts of the registered week for 3 consecutive
subscription does not preclude the subscriber from alienating his o ce
owner and which may have been executed even without his weeks;
shares of stock. knowledge or against his consent. 3. order to be posted for
2) Involuntary dealings are required to be registered in the 3 consecutive weeks in
c Requisites of a valid transfer 3 public places
corporation’s STB.
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cannot be found shall be escheated in favor of the national 3) There is a view to the e ect that the trustee or receiver CAN 5) public utilities,
government. maintain an action for the corporation even after the
6) educational institutions and
Winding up the affairs of the corporation means the collection three-year period. (Reyes v. Bancom Development 2018)
7) corporations declared to be vested with public interest.
of all assets, the payment of all its creditors, and the distribution of
the remaining assets, if any among the stockholders thereof in H Other Corporations Restrictions on Transfer of Shares
accordance with their contracts, or if there be no special contract,
MUST APPEAR in the AOI, in the bylaws, as well as in the
on the basis of their respective interests. (Rich v. Paloma III 2018) 1 Close corporations certi cate of stock; otherwise, the same shall not be binding on
Intra-corporate disputes remain even any purchaser in good faith.
when the corporation is dissolved. Characteristics
Said restrictions shall not be more onerous than granting the
A corporation’s board of directors is not rendered functus officio by A close corporation is one whose AOI provide that:
existing stockholders or the corporation the option to purchase
its dissolution. Thus, a cause of action involving an intra-corporate
1) All of the corporation’s issued stock of all classes, exclusive of the shares.
controversy remains and must be led as an intra-corporate dispute
treasury shares, shall be held of record by not more than a 1. The law only permits restrictions based on quali cations
despite the subsequent dissolution of the corporation. (Aguirre II
speci ed number of persons, not exceeding twenty (20); and conditions, and NOT on the personality of shareholders.
v. FQB+7, Inc. 2013)
2) All of the issued stock of all classes shall be subject to one or 2. The most the restrictions may do is to give the remaining
Liquidation AFTER three years more speci ed restrictions on transfer; and stockholders the right of rst refusal—that is, to match the
1) If full liquidation can only be e ected after the three-year 3) The corporation shall not list in any stock exchange or make o er of a third party meeting the prescribed quali cations.
period and there is no trustee, the directors may be permitted any public o ering of any of its stock of any class.
to complete the liquidation by continuing as trustees by legal Issuance or Transfer of Stock in
implication. A corporation shall be deemed NOT a close corporation when at least Breach of Qualifying Conditions
two-thirds (2/3) of its voting stock or voting rights is owned or
2) The trustee of a corporation may continue to prosecute a case a) There is conclusive presumption of notice of fact if the
controlled by another corporation which is not a close corporation.
commenced by the corporation until rendition of the nal certi cate of stock conspicuously shows
(San Juan Structural and Steel Fabricators, Inc. v. CA)
judgment, even if such judgment is rendered beyond the i) a stock of a close corporation is issued or transferred
three-year period. GR: ANY corporation may be incorporated as a close corporation; to any person who is not eligible to be a holder
However, an already defunct corporation is not allowed to EXC: thereof
initiate a suit after the lapse of the said three-year period. 1) mining or oil companies, ii) the AOI of a close corporation states the number of
(Alabang Development Corp. v. Alabang Hills Village persons, not exceeding twenty (20), who are entitled
2) stock exchanges,
Association 2014) to be stockholders of record
3) banks,
4) insurance companies,
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greater proportion of shares as may be speci cally provided in when the corporation has su cient assets in its books to cover
iii) a restriction on transfer of the corporation’s stock
the AOI. its debts and liabilities exclusive of capital stock.
and the transferee acquires the stock in violation of
such restriction. Deadlocks 2. Petition the SEC to compel the dissolution of such
corporation whenever
When board meeting is unnecessary or improperly held The SEC, upon written petition by any stockholder, shall have
the power to arbitrate the dispute. The SEC shall have authority a. any of acts of the directors, o cers, or those in
a) Before or after such action is taken, a written consent
to make appropriate orders, such as: control of the corporation is illegal, fraudulent,
thereto is signed by ALL the directors; or
dishonest, oppressive or unfairly prejudicial to the
b) ALL the stockholders have actual or implied a) canceling or altering any provision contained in the AOI, corporation or any stockholder, or
knowledge of the action and make no prompt objection bylaws, or any stockholder’s agreement;
b. whenever corporate assets are being misapplied or
in writing; or b) canceling, altering or enjoining a resolution or act of the wasted.
c) The directors are accustomed to take informal action corporation or its board of directors, stockholders, or
with the express or implied acquiescence of all the o cers; 2017
Bustos v. Millians Shoe, Inc.
stockholders; or c) directing or prohibiting any act of the corporation or its
WON the CA correctly considered the properties of Spouses Cruz
d) All the directors have express or implied knowledge of the board of directors, stockholders, o cers, or other persons
answerable for the obligations of MSI.
action in question and none of them makes a prompt party to the action;
objection in writing. d) requiring the purchase at their fair value of shares of any
NO. Section 97 of the Corporation Code only speci es that "the
stockholder, either by the corporation regardless of the stockholders of the corporation shall be subject to all liabilities of
An action within the corporate powers taken at a meeting held
availability of unrestricted retained earnings in its books, directors." Nowhere in that provision do we nd any inference that
without proper call or notice, is deemed rati ed by a director who
or by the other stockholders; stockholders of a close corporation are automatically liable for
failed to attend, unless after having knowledge thereof, the
corporate debts and obligations.
director promptly les his written objection with the secretary of e) appointing a provisional director;
the corporation. Given that the true owner of the subject property is not the
f) dissolving the corporation; or corporation, petitioner cannot be considered a creditor of MSI but a
Preemptive Right g) granting such other relief as the circumstances may holder of a claim against respondent spouses.
Extends to ALL stock to be issued, including reissuance of warrant.
treasury shares, whether for money, property or personal
services, or in payment of corporate debts, unless the AOI Additional Remedies of Stockholder 2 Non-stock corporations
provides otherwise. Any stockholder of a close corporation may, for any reason, compel the
corporation De nition
Amendment of AOI
1. Withdraw as Stockholder — To purchase shares held at fair A nonstock corporation is one where no part of its income is
Shall require the a rmative vote of at least two-thirds (2/3) of
value, which shall not be less than the par or issued value, distributable as dividends to its members, trustees, or o cers.
the OCS, whether with or without voting rights, or of such
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2) religious, 7) literary, 11) trade, c) Assets received and held by the corporation subject to 2. a certi cate of authority from the appropriate
limitations shall be transferred or conveyed to one (1) or government agency.
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 a What constitutes “doing business”
chambers, the dissolving corporation according to a plan of
5) cultural, 10) civic service, Mentholatum v. Mangaliman discussed the two general tests
distribution adopted;
or any combination thereof. to determine whether or not a foreign corporation can be
d) Assets other than those mentioned in the preceding considered as “doing business” in the Philippines.
Treatment of Pro ts paragraphs, if any, shall be distributed in accordance with the
provisions of the AOI or the bylaws; and First, the substance test, whether the foreign corporation is
Non-Diversion Rule
continuing the body of the business or enterprise for which it was
Any pro t which a nonstock corporation may obtain incidental to e) In any other case, assets may be distributed to such persons, organized or whether it has substantially retired from it and turned
its operations shall, whenever necessary or proper, be used for the societies, organizations or corporations, whether or not it over to another.
furtherance of the purpose or purposes for which the organized for pro t, as may be speci ed in a plan of
distribution. Second, the continuity test, implies a continuity of commercial
corporation was organized. The law strictly implements the
dealings and arrangements, and contemplates, to that extent, the
non-diversion rule by: A plan providing for the distribution of assets may be adopted by a
performance of acts or works or the exercise of some of the
a) Forbidding distribution of pro ts; nonstock corporation in the process of dissolution in the following
functions normally incident to, and in the progressive prosecution
manner:
b) Requiring immediate utilization of contributions for of, the purpose and object of its organization.
intended purposes; and a) The BOT shall, by majority vote, adopt a resolution
The Contract Test of doing business, on the other hand
recommending a plan of distribution; and
c) Limiting administrative expenses of certain eleemosynary a) An essential condition to be considered as doing business in the
corporations. (of, relating to, or supported by charity) b) Such plan of distribution shall be adopted upon approval of
Philippines is actual performance of speci c commercial
at least two-thirds (2/3) of the members having voting rights
acts within the PH territory for the plain reason that the
Plan and Distribution of Assets upon dissolution present or represented by proxy at such meeting.
PH has no jurisdiction over commercial acts performed
a) All liabilities and obligations of the corporation shall be paid, elsewhere;
satis ed and discharged, or adequate provision shall be made 3 Foreign corporations
b) Activities within PH jurisdiction that do not create earnings
therefor;
A foreign corporation is one formed, organized or existing under or pro ts to the foreign corporation do NOT constitute doing
laws other than those of the Philippines’ and whose laws allow business in PH.
By RGL 46 of 83
Commercial Law Reviewer for the 2022 Bar
c) A foreign company that merely imports goods from a PH 3) Oath of the president or any authorized o cer that the corporation. The qualifying circumstance being an essential part of
exporter without opening an o ce or appointing an agent in corporation is solvent and in sound nancial condition; and the plainti ’s capacity to sue must be a rmatively pleaded. Hence,
PH is NOT doing business in PH. the ultimate fact that a foreign corporation is not doing business in
4) Oath of Reciprocity. Certi cate under oath of the
the Philippines must rst be disclosed for it to be allowed to sue in
d) A foreign corporation that exports products to PH, without authorized o cial of the foreign corporation’s country of
Philippine courts under the isolated transaction rule. Failing in his
doing any speci c commercial act is NOT doing business in incorporation that the laws of said country allow Filipinos to
requirement, the complaint led by plainti with the trial court, it
PH. do business in said country and that the applicant is an existing
must be said, fails to show its legal capacity to sue.
corporation in good standing therein.
e) The appointment of a distributor in the PH is not
Having pleaded these averments in the complaint su ciently
su cient to constitute “doing business” unless it is under the Within sixty (60) days after the issuance of the license to transact
clothed SCPL the necessary legal capacity to sue before Philippine
full control of the foreign corporation. business in the Philippines, the licensee, except foreign banking or
courts.
insurance corporations, shall deposit with the SEC for the
On the other hand, if the distributor is an independent entity
bene t of present and future creditors, securities satisfactory to
which buys and distributes products, other than those of the Suability
the SEC, with an actual market value of at least P500K.
foreign corporation, for its own name and its own account, the
The principles regarding the right of a foreign corporation to
latter cannot be considered to be doing business in the PH. d Resident agent
bring suit in PH courts may be condensed in four statements:
(Steel Case v. Design International Selections 2012)
A resident agent may be either 1) if a foreign corporation does business in the Philippines
b Necessity of a license to do business 1. an individual residing in the Philippines or without a license, it cannot sue before the Philippine
courts;
A foreign corporation applying for a license to transact business 2. a domestic corporation lawfully transacting business in
the Philippines. 2) if a foreign corporation is not doing business in the
in the Philippines shall submit to the SEC a copy of its AOI and
Philippines, it needs no license to sue before Philippine
bylaws, certi ed in accordance with law, and their translation to an
e Personality to sue and suability courts on an isolated transaction or on a cause of action
o cial language of the Philippines, if necessary.
entirely independent of any business transaction;
The application shall be under oath and, unless already stated in No foreign corporation transacting business in the Philippines
3) if a foreign corporation does business in the Philippines
its AOI. without a license, or its successors or assigns, shall be permitted to
without a license, a Philippine citizen or entity which has
maintain or intervene in any action, suit or proceeding in any court
c Requisites for issuance of a license contracted with said corporation may be estopped from
or administrative agency of the Philippines.
challenging the foreign corporation’s corporate
1) Name and address of designated resident agent + an SPA;
Llorente v. Star City Pty Limited 2020 personality in a suit brought before Philippine courts; and
2) An agreement that if it ceases to transact business or if there is
4) if a foreign corporation does business in the Philippines
no more resident agent, summons shall then be served through Compliance with the requirement of license, or the fact that the
with the required license, it can sue before Philippine
the SEC; suing corporation is exempt therefrom, as the case may be, cannot
courts on any transaction. (Agilent Technologies Singapore
be inferred from the mere fact that the party suing is a foreign
By RGL 47 of 83
Commercial Law Reviewer for the 2022 Bar
v. Integrated Silicon Technology Phil. Corp) person exercising duciary duties together with the
proof of such authority to act on behalf of the trust or Minutes and Records
4 One-person corporations estate; and A minutes book shall be maintained which shall contain all
b) Name, nationality, residence of the nominee and actions, decisions, and resolutions taken by the OPC.
A One Person Corporation is a corporation with a single
stockholder. Only a natural person, trust, or an estate may form alternate nominee, and the extent, coverage and When action is needed on any matter, it shall be su cient to
an OPC. limitation of the authority. prepare a written resolution, signed and dated by the single
Bylaws are NOT required to be submitted. stockholder, and recorded in the minutes book. The date of
Excepted Corporations recording in the minutes book shall be deemed to be the date of
1) Banks and quasi-banks, Corporate Name the meeting.
2) Pre-need, The letters “OPC” shall be indicated either below or at the end of The OPC shall submit the following within such period as the
its corporate name. SEC may prescribe:
3) Trust,
Corporate structure and o cers a) Annual nancial statements audited by an
4) Insurance,
independent CPA.
The single stockholder shall be
5) Public and publicly-listed companies, and
However, if the total assets or total liabilities of the
1) The sole director and president of the OPC;
6) Non-chartered GOCCs corporation are less than P600K, the nancial statements
2) May NOT be appointed as the corporate secretary; shall be certi ed under oath by the corporation’s
may not incorporate as an OPC
3) May likewise be the self-appointed treasurer. treasurer and president.
7) A natural person who is licensed to exercise a profession may
Here, the single stockholder shall give a bond to the SEC in b) A report containing explanations or comments by the
not organize as an OPC for the purpose of exercising such
such a sum as may be required, to be renewed every two (2) president on every quali cation, reservation, or adverse
profession except as otherwise provided under special laws.
years or as often as may be required. remark or disclaimer made by the auditor in the latter’s
Capital Stock Requirement report;
Nominee
Shall not be required to have a minimum ACS except as c) A disclosure of all self-dealings and related party
otherwise provided by special law. In the event of the single stockholder’s death or incapacity, the transactions entered into between the OPC and the single
nominee shall take the place of the single stockholder as director stockholder.
AOI and Bylaws and shall manage the corporation’s a airs.
The SEC may place the corporation under delinquent status
Aside from the requirements set forth in Sec 14, the AOI of the The written consent of the nominee and alternate nominee shall should the corporation fail to submit the reportorial
OPC shall likewise substantially contain the following: be attached to the application for incorporation. Such consent requirements three (3) times, consecutively or intermittently,
a) If the single stockholder is a trust or an estate, the name, may be withdrawn in writing any time before the death or within a period of ve (5) years.
nationality, and residence of the trustee, administrator, incapacity of the single stockholder.
executor, guardian, conservator, custodian, or other
By RGL 48 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 49 of 83
Commercial Law Reviewer for the 2022 Bar
prosecuted by or against the surviving or consolidated stipulations are valid, but only as to the transferor and the
its remaining business.
corporation. transferee. These stipulations are not binding on the creditors of
the business enterprise who can still go after the transferee for the Thus, the litmus test to determine the applicability of Section 40
The rights of creditors or liens upon the property of any
enforcement of the liabilities. (Y-I Leisure Phils., Inc. v. Yu 2015 would be the capacity of the corporation to continue its
of such constituent corporations shall not be impaired by
En Banc) business after the sale of all or substantially all its assets.
such merger or consolidation. (BPI v. Lee 2012)
An evaluation of the relevant jurisprudence reveals that fraud is
Pending cases. The surviving corporation in a merger e ectively Y-I Leisure Phils., Inc. v. Yu 2015 not an essential element for the application of the
becomes a “virtual party” to the civil case involving the dissolved
business-enterprise transfer.
constituent corporations. As such, it became bound by the orders WON fraud must exist in the transfer of all the corporate assets in
and processes issued by the trial court despite not having been order for the transferee to assume the liabilities of the transferor. WON petitioners became a continuation of MADCI's business.
properly impleaded therein. (ibid.) NO. The Nell Doctrine pronounced the rule regarding the YES. The business-enterprise transfer rule applies when two
Surviving entity’s right to foreclosure. Pursuant to such transfer of all the assets of one corporation to another as follows: requisites concur:
merger and consolidation, BPI’s right to foreclose the mortgage on GENERALLY, where one corporation sells or otherwise transfers a) the transferor corporation sells all or substantially all of its
petitioner's property depends on the status of the contract and the all of its assets to another corporation, the latter is not liable for the assets to another entity; and
corresponding obligations of the parties originally involved, that is, debts and liabilities of the transferor, EXCEPT: b) the transferee corporation continues the business of the
the agreement between its predecessor BSA and petitioner. (Spouses
1. Where the purchaser expressly or impliedly agrees to transferor corporation.
Ong v. BPI Family Savings Bank 2018)
assume such debts; Both requisites are present in this case.
Effects on constituent employees. The merger of a corporation
with another does not operate to dismiss the employees of the 2. Where the transaction amounts to a consolidation or
corporation absorbed by the surviving corporation. Although the merger of the corporations;
absorbed employees are retained as employees of the merged 3. Where the purchasing corporation is merely a Intellectual Property Code
corporation, the employer retains the right to terminate their continuation of the selling corporation; and IV
employment for a just or authorized cause. Likewise, the employees Intellectual Property Code of the Philippines
4. Where the transaction is entered into fraudulently in
are not precluded from severing their employment through
order to escape liability for such debts. Patents
resignation or retirement. (Philippine Geothermal, Inc. Employees
Union v. Unocal Philippines 2016) Section 40 suitably re ects the business-enterprise transfer Patentable vs. non-patentable inventions
under the exception of the Nell Doctrine. It does not apply
Free and Harmless Clause Ownership of a patent
1) if the sale of the entire property and assets is necessary in
In a business-enterprise transfer, the transferor and the the usual and regular course of business of corporation, or Grounds for cancellation of a patent
transferee may enter into a contractual stipulation stating that the
2) if the proceeds of the sale or other disposition of such Patent infringement
transferee shall not be liable for any or all debts arising from the
business which were contracted prior to the time of transfer. Such property and assets will be appropriated for the conduct of Trademarks
By RGL 50 of 83
Commercial Law Reviewer for the 2022 Bar
Marks vs. collective marks vs. trade names f) Layout-Designs (Topographies) of Integrated Circuits; and WON the Utility Model, described as “Leaf Spring Eye Bushing for
Acquisition of ownership Automobile” is copyrightable.
g) Protection of Undisclosed Information
Concept of actual use Copyright Patent Trademark NO. Ownership of copyrighted material is shown by proof of
originality and copyrightability. A “work of applied art” is an
E ect of registration
Literary and Any visible sign artistic creation with utilitarian functions or incorporated in
Any technical
Well-known marks artistic works capable of a useful article, whether made by hand or produced on an
solution of a
which are distinguishing industrial scale.
Rights conferred by registration problem in any
original the goods or It bears stressing that the focus of copyright is the usefulness of the
Cancellation of registration eld of human
intellectual services of an artistic design, and not its marketability. The central inquiry is
activity which is
Trademark infringement Scope creations in the enterprise and whether the article is a work of art. Indeed, while works of
new, involves an
literary and shall include a applied art, original intellectual, literary and artistic works are
Unfair competition inventive step,
artistic domains stamped or copyrightable, useful articles and works of industrial design are
and is
Copyrights protected from marked not. A useful article may be copyrightable only if and only to
industrially
the moment of container of the extent that such design incorporates pictorial, graphic, or
Copyrightable works applicable.
their creation. goods. sculptural features that can be identi ed separately from, and
Non-copyrightable works are capable of existing independently of the utilitarian aspects
Optional;
Rights conferred by copyright Where to of the article.
National Library IPO IPO
register
Ownership of a copyright or IPO In this case, the petitioner’s models are not works of applied art, nor
artistic works. They are utility models, useful articles, albeit with
Limitations on copyright Generally up to
20 years from no artistic design or value.
Doctrine of fair use 50 years after
Duration ling or priority 10 years Trademark, copyright and patents are di erent intellectual
the death of the
Copyright infringement date property rights that cannot be interchanged with one
author.
another.
The term "intellectual property rights" consists of:
Exclusive Yes, A trademark is any visible sign capable of distinguishing the goods
No, National No, National
a) Copyright and Related Rights; Right to International
Exhaustion Exhaustion (trademark) or services (service mark) of an enterprise and shall
b) Trademarks and Service Marks; Import Exhaustion
include a stamped or marked container of goods. In relation
c) Geographic Indications; thereto, a trade name means the name or designation identifying or
distinguishing an enterprise.
d) Industrial Designs; Ching v. Salinas, et. al.
Meanwhile, the scope of a copyright is con ned to literary and
e) Patents;
By RGL 51 of 83
Commercial Law Reviewer for the 2022 Bar
artistic works which are original intellectual creations in the literary 3) Industrial Applicability — can be produced and used in Filing Date
and artistic domain protected from the moment of their creation. any industry. The ling date of a patent application shall be the date of receipt
Patentable inventions, on the other hand, refer to any technical Prior Art by the O ce of at least the following elements:
solution of a problem in any eld of human activity which is new, a) An express or implicit indication that a Philippine patent
1) Everything which has been made available to the public
involves an inventive step and is industrially applicable. is sought;
anywhere in the world, before the filing date or the priority date
of the application claiming the invention; and b) Information identifying the applicant; and
2) The whole contents of an application for a patent, utility c) Description of the invention and one (1) or more claims
A Patents model, or industrial design registration, published in in Filipino or English.
Basic Patent Principles accordance with this Act, led or e ective in the Philippines,
with a ling or priority date that is earlier than the ling or If any of these elements is not submitted within the period set by
1. Territoriality — patents are only valid in the country or the Regulations, the application shall be considered withdrawn.
priority date of the application.
region in which they have been granted;
Non-Prejudicial Disclosure
2. First-to-File — applicant who les rst gets the patent; 1 Patentable vs. non-patentable inventions
The disclosure of information contained in the application during
3. Disclosure — applicant shall disclose the invention in a Patent refers to the right granted by statute in favor of the
the twelve (12) months preceding the ling date or the
manner su ciently clear and complete; inventor of a product or process referring to any technical
priority date of the application shall NOT prejudice the
Quid pro quo – protection in exchange for disclosure; applicant on the ground of lack of novelty if such disclosure was solution of a problem in any eld of human activity which
4. Conditional — patents are granted only upon compliance made by: 1. Is new,
with the criteria of patentability; a) The inventor; 2. involves an inventive step and
5. Limited Rights. also means any person who, at the ling date of application, 3. is industrially applicable.
Elements of Patentability had the right to the patent.
A patentable invention may be, or may relate to, a product, or
b) A patent o ce and the information was contained
1) Novelty — it must NOT form part of a prior art; process, or an improvement of any of the foregoing. (§21)
i) in another application led by the inventor, or
2) Inventive Step — if, having regard to prior art, it is not The patent law has a three-fold purpose:
obvious to a person skilled in the art at the time of the ling ii) in an application led without the knowledge or
1. first, it seeks to foster and reward invention;
date or priority date of the application claiming the invention. consent of the inventor by a third party which
obtained the information directly or indirectly from 2. second, it promotes disclosures of inventions;
Someone who is aware or presumed to have knowledge in the
the inventor; or 3. third, seeks to ensure that ideas in the public domain
specific industry where the invention is engaged in. Not
necessarily an expert. c) A third party which obtained the information directly or remain therefor the free use of the public.
indirectly from the inventor.
By RGL 52 of 83
Commercial Law Reviewer for the 2022 Bar
Non-patentable invention Right to a patent a) The employee, if the inventive activity is NOT a part of his
regular duties even if the employee uses the time, facilities and
The following shall be excluded from patent protection: The right to a patent belongs to
materials of the employer.
1. Discoveries, scienti c theories and mathematical 1. The inventor, his heirs, or assigns;
b) The employer, if the invention is the result of the
methods, and
2. When two (2) or more persons have jointly made an performance of his regularly-assigned duties, unless there is an
In the case of drugs and medicines, invention, the right to a patent shall belong to them jointly. agreement, express or implied, to the contrary. (§30)
a. the mere discovery of a new form or new property 3. If two (2) or more persons have made the invention separately
Right of priority
of a known substance which does not result in the and independently of each other, the right to the patent shall
An application for patent led by any person who has previously
enhancement of the known efficacy of that substance, belong to the person who led an application for such
applied for the same invention in another country which by treaty,
or invention;
convention, or law a ords similar privileges to Filipino citizens, shall be
b. the mere discovery of any new property or new use 4. Where two or more applications are led for the same considered as led as of the date of ling the foreign application:
for a known substance, or invention, to the applicant who has the earliest filing date Provided, That:
or, the earliest priority date. (§28-29)
c. the mere use of a known process unless such known a) the local application expressly claims priority;
process results in a new product that employs at least First-to- le rule b) it is led within twelve (12) months from the date the
one new reactant.
If two (2) or more persons have made the invention separately and earliest foreign application was led; and
2. Schemes, rules and methods of performing mental acts, independently of each other, the right to the patent shall belong to
c) a certi ed copy of the foreign application together with an
playing games or doing business, and programs for computers;
1. the person who led an application for such invention, OR English translation is led within six (6) months from the
3. Methods for treatment of the human or animal body by date of ling in the Philippines. (§31)
2. where two or more applications are led for the same
surgery or therapy and diagnostic methods practiced on the
invention,
human or animal body. E.I. Dupont de Nemours and Co. v. Francisco 2016
a. to the applicant who has the earliest ling date OR,
4. Plant varieties or animal breeds or essentially biological process
WON the CA erred in allowing the intervention of respondent
for the production of plants or animals. b. the earliest priority date. (§29)
Therapharma, Inc. in petitioner's appeal.
This provision shall not apply to micro-organisms and Invention created pursuant to a commission NO. The mandatory disclosure requirement in the TRIPS
non-biological and microbiological processes.
The person who commissions the work shall own the patent, unless Agreement precipitated the shift from a rst-to-invent system to a
5. Aesthetic creations; and otherwise provided in the contract. rst-to- le system in the new IPC. The patent application is
6. Anything which is contrary to public order or morality. In case the employee made the invention in the course of his only confidential BEFORE its publication.
employment contract, the patent shall belong to: WON the abandoned patent application of petitioner may be revived
2 Ownership of a patent after 13 years.
By RGL 53 of 83
Commercial Law Reviewer for the 2022 Bar
b) That the patent does not disclose the invention in a manner change, performs substantially the same function in
NO. The IPC provides for a shorter period of three (3) months
su ciently clear and complete for it to be carried out by any substantially the same way to achieve substantially the same
from abandonment within which to le for revival.
person skilled in the art; or result.
Petitioner's patent application, therefore, should NOT be
c) That the patent is contrary to public order or morality.
revived since it was led beyond the allowable period.
(§61)
WON filing of a patent application vests petitioner the right to be Smith Kline Beckman v. CA
protected from becoming part of the public domain because of 4 Patent infringement WON Tryco committed patent infringement to the prejudice of
convention priority under the Paris Convention for the Protection of
Smith Kline.
Industrial Property. Tests in patent infringement
NO. From a reading of the 9 claims of the Letters Patent in relation
NO. The right of priority given to a patent applicant is only Godines v. CA
to the other portions thereof, no mention is made of the
relevant when there are two or more conflicting patent applications on
Did petitioner's product infringe upon the patent of private compound Albendazole.
the same invention. Because a right of priority does not
automatically grant letters patent to an applicant, possession of a respondent? As for the concept of divisional applications pro ered by
right of priority does not confer any property rights on the YES. In using literal infringement as a test, resort must be had, petitioner, it comes into play when two or more inventions are
applicant in the absence of an actual patent. in the rst instance, to the words of the claim. The Court must claimed in a single application but are of such a nature that a single
juxtapose the claims of the patent and the accused product within patent may not be issued for them. The applicant thus is required
A right of priority is not equivalent to a patent. After the lapse
the overall context of the claims and speci cations, to determine "to divide," that is, to limit the claims to whichever invention he may
of 20 years, the invention becomes part of the public domain and is
whether there is exact identity of all material elements. elect, whereas those inventions not elected may be made the subject
free for the public to use. In addition, a patent holder of inventions
of separate applications which are called "divisional applications."
relating to food or medicine does not enjoy absolute monopoly The trial court found that in appearance and form, both the
What this only means is that petitioner's methyl 5
over the patent. Both RA No. 165 and the IPC provide for floating power tillers of the defendant and the turtle power
propylthio-2-benzimidazole carbamate is an invention distinct from
compulsory licensing. The patent holder's proprietary right over tiller of the plainti are virtually the same. The parts or
the other inventions claimed in the original application divided out,
the patent only lasts for three (3) years from the grant of the components thereof are virtually the same. In operation, the
Albendazole being one of those other inventions. Otherwise, methyl
patent, after which any person may be allowed to manufacture, use, oating power tiller of the defendant operates also in similar manner
5 propylthio-2- benzimidazole carbamate would not have been the
or sell the invention subject to the payment of royalties. as the turtle power tiller of plainti .
subject of a divisional application if a single patent could have been
Next, courts have adopted the doctrine of equivalents which issued for it as well as Albendazole.
recognizes that minor modi cations in a patented invention are
3 Grounds for cancellation of a patent su cient to put the item beyond the scope of literal infringement. Civil and criminal action
a) That what is claimed as the invention is not new or According to this doctrine, an infringement also occurs when a 1. The making, using, o ering for sale, selling, or
patentable; device appropriates a prior invention by incorporating its importing a patented product or a product obtained directly
innovative concept and, albeit with some modi cation and or indirectly from a patented process, or the use of a patented
By RGL 54 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 55 of 83
Commercial Law Reviewer for the 2022 Bar
protection of trademarks: an e ective trademark system helps which the claim of distinctiveness is made. (Shang Properties
University. That should not have been allowed because Section 4(a)
bridge the information gap between producers and Realty v. St. Francis Development 2014)
of R.A. No. 166 prohibits the registration of a mark "which may
consumers, and thus, lowers the costs incurred by consumers in
IOW, for a mark to be denied registration, it must both be: disparage or falsely suggest a connection with persons, living
searching for and deciding what products to purchase. (Citigroup,
or dead, institutions, beliefs x x x." This provision is intended to
Inc. v. Citystate Savings Bank, Inc. 2018) 1. Geographically-descriptive; AND
protect the right of publicity of famous individuals and
GENERIC TERMS are commonly used as the name or description of 2. That the public would make a goods/place association, institutions from commercial exploitation of their goodwill by
a kind of goods. believing that the goods originate in that place. others. What Fredco has done is precisely to exploit commercially
What is prohibited is not having a generic mark, but having such 2 Acquisition of ownership the goodwill of Harvard University without the latter's consent.
generic mark being identi able to the good or service. (Kensonic, Such violation is a ground for cancellation of Fredco's
Inc. v. Uni-Line Multi-Resources, Inc. 2018) a Concept of actual use registration of the mark "Harvard."
DESCRIPTIVE TERMS convey the characteristics, functions, Second, the Philippines and the US are both signatories to the Paris
qualities or ingredients of a product to one who has never seen or does Zuneca Pharmaceutical v. Convention for the Protection of Industrial Property. Thus,
2020 En Banc Caguioa, J
not know that it exists. Natrapharm 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
SUGGESTIVE TERMS are those which require “imagination, The current rule under the IP Code is thus in stark contrast to the
part of a trademark, is protected "without the obligation of
thought and perception to reach a conclusion as to the nature of the rule on acquisition of ownership under the Trademark Law, as
ling or registration."
goods" and are eligible for protection in the absence of secondary amended. At present, as expressed in the language of the provisions
meaning. of the IP Code, prior use no longer determines the acquisition Indeed, Section 123.1(e) of R.A. No. 8293 now categorically states
of ownership of a mark in light of the adoption of the rule that that "a mark which is considered by the competent authority
SECONDARY MEANING is established when a descriptive mark no of the Philippines to be well-known internationally and in
ownership of a mark is acquired through registration made validly in
longer causes the public to associate the goods with a particular place, the Philippines, whether or not it is registered here," cannot
accordance with the provisions of the IP Code.
but to associate the goods with a particular source. be registered by another in the Philippines.
What are the requirements to conclude that a
geographically-descriptive mark has acquired secondary 2011
Fredco Manufacturing v. Harvard University
meaning? W Land Holding v. Starwood Hotels 2017
WON Fredco can validly cancel the registration of Harvard
a) the secondary meaning must have arisen as a result of The "use" which the law requires to maintain the registration of a
University. NO. There are two compelling reasons why Fredco's
substantial commercial use of a mark in the Philippines;
petition must fail. mark must be genuine, and not merely token. Genuine use may
b) such use must result in the distinctiveness of the mark be characterized as a bona fide use which results or tends to result, in
insofar as the goods or the products are concerned; and First, Fredco's registration of the mark "Harvard" and its
one way or another, into a commercial interaction or transaction
identi cation of origin as "Cambridge, Massachusetts" falsely
c) proof of substantially exclusive and continuous commercial "in the ordinary course of trade."
suggest that Fredco or its goods are connected with Harvard
use in the Philippines for ve (5) years before the date on The use of a registered mark representing the owner's goods
By RGL 56 of 83
Commercial Law Reviewer for the 2022 Bar
or services by means of an interactive website may constitute through registration but subsequently lost the same due to
YES. It must be emphasized that registration of a trademark, by
proof of actual use that is su cient to maintain the non-use or abandonment (e.g., failure to le the
itself, is not a mode of acquiring ownership. If the applicant is not
registration of the same. Declaration of Actual Use);
the owner of the trademark, he has no right to apply for its
It must be emphasized, however, that the mere exhibition of 2) the registration was done in bad faith; registration. Registration merely creates a prima facie
goods or services over the internet, without more, is not presumption of the validity of the registration, of the
3) the mark itself becomes generic;
enough to constitute actual use. It must be shown that the owner registrant’s ownership of the trademark, and of the exclusive right to
has actually transacted. A showing of an actual commercial 4) the mark was registered contrary to the IP Code; or the use thereof. Such presumption, just like the presumptive
link to the country is therefore imperative. 5) the registered mark is being used by, or with the permission regularity in the performance of o cial functions, is rebuttable and
Thus, Starwood's use of its "W" mark through its interactive website of, the registrant so as to misrepresent the source of the must give way to evidence to the contrary.
is intended to produce a discernible commercial e ect or activity goods or services on or in connection with which the mark In the instant case, petitioner was able to establish that it is the
within the Philippines, or at the very least, seeks to establish is used. owner of the mark “BIRKENSTOCK.” It submitted evidence
commercial interaction with local consumers. Accordingly, Since Natrapharm was not shown to have been in bad faith, it is relating to the origin and history of “BIRKENSTOCK” and its use
Starwood's use of the "W" mark in its reservation services thus considered to have acquired all the rights of a trademark owner in commerce long before respondent was able to register the same
through its website constitutes use of the mark su cient to under the IP Code upon the registration of the "ZYNAPSE" mark. here in the Philippines.
keep its registration in force.
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 FC Philippines, Inc. v. Barrio Fiesta Manufacturing 2016
b E ect of registration using marks confusingly similar to its unregistered "ZYNAPS" mark The ownership of a trademark is acquired by
The rights in a mark shall be acquired through registration. because it is not an "owner of a registered mark" contemplated in
Section 147.1. 1. its registration AND
Zuneca Pharmaceutical v. However, Zuneca, as a prior user in good faith, is protected by 2. its actual use
2020 En Banc Caguioa, J
Natrapharm
Section 159.1 and cannot be prevented by Natrapharm from using by the manufacturer or distributor of the goods made available to
How is ownership over a trademark acquired? its ZYNAPS trademark. the purchasing public.
REGISTRATION. Under the IP Code, ownership of a mark is A certi cate of registration of a mark, once issued, constitutes
acquired through registration. The prima facie nature of the prima facie evidence of
Birkenstock Orthopaedie Gmbh and Co. Kg v.
certi cate of registration is meant to recognize the instances when 2013 1. the validity of the registration,
Philippine Shoe Expo Marketing
the certi cate of registration is not re ective of ownership of the
2. the registrant's ownership of the mark, and
holder thereof, such as when: WON the subject marks should be allowed registration in the name of
petitioner. 3. the registrant's exclusive right to use the same in connection
1) the rst registrant has acquired ownership of the mark
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Commercial Law Reviewer for the 2022 Bar
with the goods or services and those that are related thereto g) the extent to which the mark has been used in the world; The elements of trademark infringement under the IP Code are
speci ed in the certi cate. the following:
h) the exclusivity of use attained by the mark in the world;
R.A. No. 8293, however, requires the applicant for registration or 1) REGISTRATION — the trademark being infringed is
i) the commercial value attributed to the mark in the world;
the registrant to le a declaration of actual use (DAU) of the registered in the IPO;
mark, with evidence to that e ect, within three (3) years from the j) the record of successful protection of the rights in the mark;
Registration is NOT required to protect the goodwill that
ling of the application for registration; otherwise, the k) the outcome of litigations dealing with the issue of whether identi es in the mind of the public the goods he manufactures
application shall be refused or the mark shall be removed from the the mark is a well-known mark; and or deals in.
register.
l) the presence or absence of identical or similar marks validly Registration is NOT necessary for purposes of filing a case
registered. for unfair competition or false designation of origin.
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2. the registrant's ownership of the mark, and core of unfair competition had not been established. 2. On application of the complainant, the court may impound
during the pendency of the action, sales invoices and other
3. the registrant's exclusive right to use the same in connection
documents evidencing sales.
with the goods or services and those that are related thereto
speci ed in the certi cate. Zuneca Pharmaceutical v. 3. In cases where actual intent to mislead the public or to
2020 En Banc Caguioa, J
Natrapharm defraud the complainant is shown, in the discretion of the
Republic Gas, et. al. v. Petron, et. al. 2013 Should Zuneca be held liable for trademark infringement? court, the damages may be doubled.
WON probable cause exists to hold petitioners liable for the crime of NO. Even without Section 159.1 of the IP Code, a third party's 4. The complainant, upon proper showing, may also be granted
trademark infringement. prior use of an unregistered mark, if said mark subsequently injunction.
YES. Reading Sec 155 of the IPC, the Court in a very similar case, becomes registered by another, could not be considered as
Requirement of notice
trademark infringement because there was no trademark registration
made it categorically clear that the mere unauthorized use of a In any suit for infringement, the owner of the registered mark shall
- a requirement for a trademark infringement action to prosper -
container bearing a registered trademark in connection with the sale, not be entitled to recover pro ts or damages unless the acts have
when the third party was using its mark.
distribution or advertising of goods or services which is likely to been committed with knowledge that such imitation is likely to
cause confusion, mistake or deception among the buyers or Essentially, Section 159.1 is an exception to the rights of the cause confusion, or to cause mistake, or to deceive.
consumers can be considered as trademark infringement. trademark owner in Section 147.1.
Such knowledge is presumed if the registrant gives notice that his
The Court declares ZUNECA as the prior user in good faith mark is registered by displaying with the mark the words
of the "ZYNAPS" mark and accordingly protected under
Shang Properties Realty v. St. Francis Development 2014 '"Registered Mark" or ® or if the defendant had otherwise actual
Section 159.1.
notice of the registration. (§158)
WON petitioners are guilty of unfair competition in using the marks
“THE ST. FRANCIS TOWERS” and “THE ST. FRANCIS Damages Penalties
SHANGRI-LA PLACE.” 1. The owner of a registered mark may recover damages from Independent of the civil and administrative sanctions imposed by
any person who infringes his rights, and the measure of the law, a criminal penalty of
NO. It is essential to prove the existence of fraud, or the
damages su ered shall be either
intent to deceive, actual or probable. Here, records are bereft of a. imprisonment from two (2) years to ve (5) years and
any showing that petitioners gave their goods/services the general a. the reasonable pro t, or
b. a ne ranging from P50K - P200K,
appearance that it was respondent which was o ering the same to b. a reasonable percentage based upon the amount
the public. Neither did petitioners employ any means to induce the shall be imposed on any person who is found guilty of committing
of gross sales of the defendant or the value of the
public towards a false belief that it was o ering respondent’s services in connection with which the mark or trade 1. Trademark Infringement;
goods/services. Nor did petitioners make any false statement or name was used in the infringement of the rights of the
2. Unfair Competition;
commit acts tending to discredit the goods/services o ered by complaining party.
respondent. Accordingly, the element of FRAUD which is the
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Commercial Law Reviewer for the 2022 Bar
3. False Designations of Origin; False Description or purchase one product in the belief that he was purchasing
Representation. the other; and
San Miguel Pure Foods Co., Inc. v. Foodsphere, Inc. 2018
2) confusion of business (source or origin confusion),
Uyco v. Lo 2013 re False Designations of Origin WON Foodsphere is liable for unfair competition.
where, although the goods of the parties are di erent, the
The law on trademarks and trade names precisely precludes a person YES. Thus, the essential elements of an action for unfair product, the mark of which registration is applied for by
from pro ting from the business reputation built by another and competition are: one party, is such as might reasonably be assumed to
from deceiving the public as to the origins of products. originate with the registrant of an earlier product; and the
1) confusing similarity in the general appearance of the
public would then be deceived either into that belief or into
The argument that the words “Made in Portugal” and “Original goods; and
the belief that there is some connection between the two
Portugal” refer to the origin of the design and not to the origin of 2) intent to deceive the public and defraud a competitor. parties, though inexistent.
the goods does not negate the nding of probable cause; at the same
The confusing similarity may or may not result from similarity in Thus, while there is confusion of goods when the products are
time, it is an argument that the petitioners are not barred by this
the marks, but may result from other external factors in the competing, confusion of business exists when the products are
Resolution from raising as a defense during the hearing of the case.
packaging or presentation of the goods. The intent to deceive and non-competing but related enough to produce confusion of
defraud may be inferred from the similarity of the appearance of affiliation.
the goods as o ered for sale to the public. Actual fraudulent
7 Unfair competition intent need not be shown.
This case falls under the second type of confusion. The
element of intent to deceive and to defraud may be inferred
Foodsphere's intent to deceive the public, to defraud its competitor, from the similarity of the appearance of the goods as o ered
Republic Gas, et. al. v. Petron, et. al. 2013
and to ride on the goodwill of SMPFCI's products is evidenced by for sale to the public. Contrary to the ruling of the CA, actual
WON probable cause exists to hold petitioners liable for the crime of the fact that not only did Foodsphere switch from its old box fraudulent intent need not be shown. Factual circumstances were
unfair competition. packaging to the same paper ham bag packaging as that used by established showing that respondent adopted PAPERONE in its
SMPFCI, it also used the same layout design printed on the same. trade name even with the prior knowledge of the existence of
YES. From jurisprudence, unfair competition has been de ned as
the passing o (or palming o ) or attempting to pass o upon the PAPER ONE as a trademark of petitioner.
public of the goods or business of one person as the goods or
Asia Pacific Resources International v. Paperone 2018
business of another with the end and probable e ect of deceiving
the public. WON Paperone is liable for unfair competition. C Copyrights
Passing o (or palming o ) takes place where the defendant, by YES. Relative to the issue on confusion of marks and trade names, a. A copyright refers to "the right granted by a statute to the
imitative devices on the general appearance of the goods, misleads jurisprudence has noted two types of confusion, viz.: proprietor of an intellectual production to its exclusive use and
prospective purchasers into buying his merchandise under the enjoyment to the extent speci ed in the statute."
impression that they are buying that of his competitors. 1) confusion of goods (product confusion), where the
ordinarily prudent purchaser would be induced to b. Rights over copyrights are conferred from the moment of
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Commercial Law Reviewer for the 2022 Bar
creation.
a) a ect the force of any subsisting copyright upon the Copyrightability of a work is di erent from fair use of a work for
original works employed or any part thereof, or purposes of news reporting.
1 Copyrightable works
b) be construed to imply any right to such use of the original
1) Literary and Artistic Works; works, or
Olaño v. Lim Eng Co 2016
2) Derivative Works; c) to secure or extend copyright in such original works.
3) Published Edition of Work. WON the hatch doors of LEC fall within copyrightable works.
§174. Published Edition of Work. — In addition to the right
to publish granted by the author, his heirs, or assigns, the publisher NO. It is clear that the hatch doors were NOT artistic works
Original works
shall have a copyright consisting merely of the right of within the meaning of copyright laws. A copyrightable work
§172. Literary and Artistic Works. — 172.1. Literary and reproduction of the typographical arrangement of the published refers to literary and artistic works defined as original intellectual
artistic works, hereinafter referred to as "works", are original edition of the work. creations in the literary and artistic domain.
intellectual creations in the literary and artistic domain
A hatch door, by its nature, is an object of utility. A "useful
protected from the moment of their creation xxxx. ABS-CBN v. Gozon 2015
article" de ned as an article "having an intrinsic utilitarian function
172.2. Works are protected by the sole fact of their creation, WON news footage is copyrightable under the law; that is not merely to portray the appearance of the article or to
irrespective of their mode or form of expression, as well as of their convey information" is excluded from copyright eligibility.
content, quality and purpose. 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 The only instance when a useful article may be the subject of
Derivative works press information" are considered unprotected subject matter. copyright protection is when it incorporates a design element
§173. Derivative Works. — 173.1. The following derivative However, the Code does not state that expression of the news that is physically or conceptually separable from the underlying
of the day, particularly when it underwent a creative process, product. This means that the utilitarian article can function
works shall also be protected by copyright:
is not entitled to protection. without the design element. In such an instance, the design
a) Dramatizations, translations, adaptations, abridgments, element is eligible for copyright protection.
arrangements, and other alterations of literary or artistic News or the event itself is NOT copyrightable. However, an
works; and event can be captured and presented in a speci c medium. As
recognized by this court in Joaquin v. Drilon, television "involves a
b) Collections of literary, scholarly or artistic works, and
whole spectrum of visuals and e ects, video and audio." News 2 Non-copyrightable works
compilations of data and other materials which are
coverage in television involves framing shots, using images, graphics, §175. Unprotected Subject Matter. — Notwithstanding the
original by reason of the selection or coordination or
and sound e ects. It involves creative process and originality. provisions of Sections 172 and 173, no protection shall extend,
arrangement of their contents.
Television news footage is an expression of the news. under this law, to any
173.2. Derivative works shall be protected as new works if such
News as expressed in a video footage is entitled to copyright a) idea, procedure, system, method or operation, concept,
new work shall not:
protection. Broadcasting organizations have not only copyright principle, discovery or mere data as such, even if they are
on but also neighboring rights over their broadcasts. expressed, explained, illustrated or embodied in a work;
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Commercial Law Reviewer for the 2022 Bar
b) news of the day and other miscellaneous facts having the 3. speeches, lectures, sermons, addresses, and dissertations, 2. to Alter or Withhold Publication;
character of mere items of press information; or pronounced, read or rendered in courts of justice, before
3. to Object to Modi cation; and
administrative agencies, in deliberative assemblies and in
c) any o cial text of a legislative, administrative or legal
meetings of public character. 4. Against the Use of Name in a Distorted Version of
nature, as well as any o cial translation thereof.
Work.
176.2. The author of speeches, lectures, sermons, addresses, and
Joaquin, Jr. v. Drilon, et. al. dissertations shall have the exclusive right of making a §211. Scope of Right. — Subject to the provisions of Section 212,
collection of his works. broadcasting organizations shall enjoy the exclusive right to
To begin with, the format of a show is not copyrightable. carry out, authorize or prevent any of the following acts:
Petitioner BJPI’s copyright covers audio-visual recordings of each
3 Rights conferred by copyright 1. The rebroadcasting of their broadcasts;
episode of Rhoda and Me.
§177. Copyright or Economic Rights. — Subject to the 2. The recording in any manner, including the making of
The copyright does NOT extend to the general concept or
provisions of Chapter VIII, copyright or economic rights shall lms or the use of video tape, of their broadcasts for the
format of its dating game show. Accordingly, by the very nature
consist of the exclusive right to carry out, authorize or purpose of communication to the public of television
of the subject of petitioner BJPI’s copyright, the investigating
prevent the following acts: broadcasts of the same; and
prosecutor should have the opportunity to compare the
videotapes of the two shows. 1. Reproduction of the work or substantial portion of the 3. The use of such records for fresh transmissions or for fresh
work; recording.
Mere description by words of the general format of the two dating
game shows is insu cient; the presentation of the master 2. Dramatization, translation, adaptation, abridgment, §212. Limitations on Rights. — The provisions of Chapter VIII
videotape in evidence was indispensable to the determination of arrangement or other transformation of the work; shall apply mutatis mutandis to the rights of performers,
the existence of probable cause. producers of sound recordings and broadcasting organizations.
3. The first public distribution of the original and each
§176. Works of the Government. — 176.1. No copyright shall copy of the work by sale or other forms of transfer of
ABS-CBN v. Gozon 2015
subsist in any work of the Government of the Philippines. ownership;
4. Rental of the original or a copy irrespective of its Under Section 211 of the IPC broadcasting organizations are
However, prior approval of the government agency or o ce
ownership; granted a more speci c set of rights called related or
wherein the work is created shall be necessary for exploitation of
neighboring rights.
such work for profit. Such agency or o ce may, among other 5. Public display of the original or a copy of the work;
things, impose as a condition the payment of royalties. No prior Broadcasting organizations shall enjoy the right to authorize or
6. Public performance of the work; and
approval or conditions shall be required for the use for any prohibit:
purpose of 7. Other communication to the public of the work.
a) the rebroadcasting of their broadcasts;
1. statutes, §193. Scope of Moral Rights. — The author of a work shall have
b) the xation of their broadcasts;
the right:
2. rules and regulations, and c) the reproduction:
1. of Attribution;
By RGL 62 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 63 of 83
Commercial Law Reviewer for the 2022 Bar
no doubt as to the author's identity, or f) The recording made in schools, universities, or 6 Doctrine of fair use
educational institutions of a work included in a broadcast:
3. if the author of the anonymous works
§185. Fair Use of a Copyrighted Work. — 185.1. The fair
discloses his identity. Provided, That such recording must be deleted within a
use of a copyrighted work for criticism, comment, news reporting,
reasonable period after they were rst broadcast;
teaching including limited number of copies for classroom use,
g) The making of ephemeral recordings by a broadcasting scholarship, research, and similar purposes is not an
5 Limitations on copyright organization; infringement of copyright.
§184. Limitations on Copyright. — 184.1. The following h) The use of a work by or under the direction or control of the Decompilation, which is understood here to be the reproduction
acts shall NOT constitute infringement of copyright: Government, by the National Library or by educational, of the code and translation of the forms of a computer program to
scienti c or professional institutions where such use is in achieve the interoperability of an independently created
a) The recitation or performance of a work, the public interest and is compatible with fair use; computer program with other programs may also constitute fair
i) once it has been lawfully made accessible to the i) The public performance or the communication to the public use under the criteria established by this section, to the extent that
public, of a work, in a place where no admission fee is charged, by a such decompilation is done for the purpose of obtaining the
club or institution for charitable or educational purpose only, information necessary to achieve such interoperability.
ii) if done privately and
whose aim is not profit making;
iii) free of charge or if made strictly for a charitable or ABS-CBN v. Gozon 2015
religious institution or society; 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 FOUR-FACTOR TEST. In determining whether the use made of
b) The making of quotations from a published work if they are
screen or by means of any other device or process; a work in any particular case is FAIR USE, the factors to be
compatible with fair use;
considered shall include:
k) Any use made of a work for the purpose of any judicial
c) The reproduction or communication to the public by mass
proceedings or for the giving of professional advice by a legal a. The purpose and character of the use, including whether
media of articles on current political, social, economic,
practitioner. such use is of a commercial nature or is for non-pro t
scienti c or religious topic, lectures, addresses and other
educational purposes;
works of the same nature; l) The reproduction or distribution of published articles or
materials in a specialized format exclusively for the use of the b. The nature of the copyrighted work;
d) The reproduction and communication to the public of
blind, visually- and reading-impaired persons: c. The amount and substantiality of the portion used in
literary, scienti c or artistic works as part of reports of
current events; Provided, That such copies and distribution shall relation to the copyrighted work as a whole; and
e) The inclusion of a work in a publication, broadcast, or other 1. be made on a nonpro t basis and d. The e ect of the use upon the potential market for or
communication to the public, sound recording or lm, if such value of the copyrighted work.
2. indicate the copyright owner and the date of the original
inclusion is made by way of illustration for teaching publication. (as amended by RA No 10372) GMA-7's rebroadcast of ABS-CBN's news footage without the
purposes and is compatible with fair use; latter's consent is not an issue. The mere act of rebroadcasting
By RGL 64 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 65 of 83
Commercial Law Reviewer for the 2022 Bar
no defense that the pirate, in such cases, did not know WON the printing or copying is essential in the commission of the 1) Persons supervised and/or regulated by BSP, including
whether or not he was infringing any copyright; he at least crime of copyright infringement. their subsidiaries and a liates, which are also covered persons,
knew that what he was copying was not his, and he copied at his supervised and/or regulated by the BSP.
NO. The "gravamen of copyright infringement," according to
peril.
NBI-Microsoft Corporation v. Hwang is not merely the 2) Persons supervised or regulated by IC.
In cases of infringement, copying alone is not what is unauthorized manufacturing of intellectual works but rather the 3) Persons supervised or regulated by SEC.
prohibited. The copying must produce an "injurious e ect". unauthorized performance of any of the acts covered by Sec 5.
b) The following Designated Non-Financial Businesses and
For another to represent a work as her own is injury enough.
The mere sale of the illicit copies of the software programs was Professions or DNFBPs:
enough by itself to show the existence of probable cause for
copyright infringement. There was no need for the petitioner to still 1) Jewelry dealers.
ABS-CBN v. Gozon 2015 prove who copied, replicated or reproduced the software programs. 2) Dealers in precious metals, and dealers in precious stones.
WON lack of knowledge that a material is copyrighted is a defense 3) Company service providers, which, as a business, provide
against copyright infringement and that good faith is a defense in a any of the following services to third parties:
criminal prosecution for violation of the IPC. Anti-Money Laundering Act
a) acting as a formation agent of juridical persons;
NO. Infringement under the IPC is malum prohibitum. The V Anti-Money Laundering Act of 2001 as last amended by
b) acting as (or arranging for another person to act as)
IPC is a special law. The general rule is that acts punished under a RA No 11521 and its 2018 IRR
special law are malum prohibitum. The IPC requires strict i) a director or corporate secretary of a company,
liability for copyright infringement whether for a civil action or a Covered institutions and their obligations ii) a partner of a partnership, or
criminal prosecution; it does not require mens rea or culpa.
Covered and suspicious transactions iii) a similar position in relation to other juridical
WON GMA-7's officers and employees cannot be held liable for persons;
Safe harbor provision
infringement.
c) providing a registered o ce; business address or
When is money laundering committed
Only Dela Peña-Reyes and Manalastas should be implicated. accommodation, correspondence or administrative
Section 217 states that "any person" may be found guilty of Authority to inquire into bank deposits address for a company, a partnership or any other juridical
infringement. The criminal liability of a corporation's o cers or person or legal arrangement; and
Freezing and forfeiture
employees stems from their active participation in the
d) acting as (or arranging for another person to act as) a
commission of the wrongful act.
Covered institutions and their nominee shareholder for another person.
A
obligations 4) Persons, including lawyers, accountants and other
Microsoft v. Manansala 2015 The following are the covered persons under the AMLA: professionals, who provide any of the following services:
a) The following financial institutions: a) Managing of client money, securities or other assets;
By RGL 66 of 83
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b) Management of bank, savings, securities or other assets; b) Record Keeping. — All records of all transactions of covered 1) There is no underlying legal or trade obligation, purpose
c) Organization of contributions for the creation, operation institutions shall be maintained and safely stored for ve (5) or economic justi cation;
or management of companies; and years from the dates of transactions. 2) The client is not properly identi ed;
d) Creation, operation or management of juridical persons With respect to closed accounts, for at least five (5) years 3) The amount involved is not commensurate with the business
or arrangements, and buying and selling business entities. from the dates when they were closed. or nancial capacity of the client;
5) Casinos, including internet-based casinos and ship-based c) Reporting of Covered and Suspicious Transactions. — 4) It may be perceived that the client’s transaction is
casinos, with respect to their casino cash transactions related to Covered persons shall report to the AMLC all covered structured in order to avoid being the subject of reporting
their gaming operations. transactions and suspicious transactions within ve (5) requirements;
working days from occurrence thereof,
6) Real estate developers and brokers; 5) Any circumstance relating to the transaction which is observed
unless the AMLC prescribes a di erent period not exceeding to deviate from the pro le of the client and/or the client’s
7) O shore gaming operation, as well as their service fteen (15) working days. past transactions with the covered institution;
providers, supervised, accredited or regulated by the PAGCOR
or any government agency; 6) The transaction is in a way related to an unlawful activity
B Covered and suspicious transactions or o ense that is about to be, is being, or has been committed;
The term 'covered persons' shall EXCLUDE lawyers and
accountants acting as independent legal professionals "Covered Transaction" refers to: 7) Any analogous or similar transactions to the foregoing.
1. in relation to information concerning their clients or 1) A transaction in cash or other equivalent monetary instrument
exceeding P500K within one (1) banking day; C Safe harbor provision
2. where disclosure of information would compromise client
con dences or the attorney-client relationship: 2) A transaction with or involving jewelry dealers, dealers in NO administrative, criminal or civil proceedings shall lie
precious metals and dealers in precious stones in cash or against any person
Provided, That these lawyers and accountants
other equivalent monetary instrument exceeding P1M.
1. for having made a CTR or an STR
1. are authorized to practice in the Philippines and
3) A casino cash transaction exceeding P5M or its equivalent in
2. in the regular performance of his duties and
2. shall continue to be subject to the provisions of their other currency.
respective codes of conduct and/or professional responsibility. 3. in good faith,
4) A single cash transaction by real estate developers and
brokers involving an amount in excess of P7.5M or its 4. whether or not such reporting results in any criminal
Obligations
equivalent in any other currency. prosecution under the AMLA or any other Philippine law.
a) Customer Identification. — Covered institutions shall
establish and record the true identity of its clients based on "Suspicious Transaction" refers to a transaction, regardless of
amount, where any of the suspicious circumstances is determined,
D When is money laundering committed
o cial documents. They shall maintain a system of verifying
the true identity of their clients. based on suspicion or, if available, reasonable grounds, to be existing. Money laundering is committed by:
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Commercial Law Reviewer for the 2022 Bar
whether both countries place the o ense within the same category, deposit or investment account, including related accounts,
a) Any person who, knowing that any monetary instrument or
or denominate the o ense under the same nomenclature. with any banking institution or non-bank nancial
property represents, involves, or relates to the proceeds of any
institution and their subsidiaries and a liates when it
unlawful activity:
E Authority to inquire into bank deposits has been established that probable cause exists that the
1) transacts said monetary instrument or property; deposits or investments involved, including related accounts,
2) converts, transfers, disposes of, moves, acquires, possesses Bank Inquiry Order by the Court are in any way related to any of the following unlawful
or uses said monetary instrument or property; activities:
1. Application for Issuance of Bank Inquiry Order. — By
3) conceals or disguises the true nature, source, location, authority of the Council, the AMLC Secretariat shall le a) Kidnapping for ransom;
disposition, movement or ownership of or rights with before the CA, through the OSG, an Ex Parte Application for b) RA 9165;
respect to said monetary instrument or property; the Issuance of Bank Inquiry Order to examine or inquire into
any particular deposit or investment account that is related to c) Hijacking and other violations under RA 6235;
4) attempts or conspires to commit ML o enses referred destructive arson and murder;
an unlawful activity or ML o ense.
to in (1), (2), or (3) above;
2. Inquiry into or Examination of Related Accounts. — A d) Felonies or o enses of a nature similar to those mentioned
5) aids, abets, assists in, or counsels the commission of the in Rule 11, Section 2.1 (a), (b) and (c), which are
court order ex parte must be obtained before the AMLC
ML o enses referred to in (1), (2), or (3) above; and punishable under the penal laws of other countries;
can inquire into the related accounts.
6) performs or fails to perform any act as a result of which he e) Terrorism and conspiracy to commit terrorism; and
3. No Prior Criminal Charge, Pendency of a Case, or
facilitates the o ense of ML referred to in items (1), (2),
Conviction Necessary. f) Financing of terrorism under Section 4 and o enses
or (3) above.
4. Compliance with Article III, Sections 2 and 3 of the punishable under Sections 5, 6, 7 and 8 of the TFPSA.
b) Any covered person who, knowing that a covered or suspicious
Constitution. 2. The relevant requirements for Bank Inquiry Order by the
transaction is required under the AMLA to be reported to the
5. Period to Resolve Application. — 24 HOURS; Court shall apply to Bank Inquiry Order by the AMLC,
AMLC, fails to do so.
including the procedure for inquiry into related accounts.
Unlawful activities refer to any act or omission, or series or 6. Bank Inquiry Order. — The AMLC may inquire into or
combination thereof, involving or having direct relation, to the examine any particular deposit or investment account,
F Freezing and forfeiture
following: (deleted for brevity) including related accounts, with any banking institution or
non-bank nancial institution, upon order by the Court The following requirements shall be observed in the issuance of freeze
Same Conduct Approach. — In determining whether or not a
of Appeals based on an ex parte application in cases of orders:
felony or o ense punishable under the penal laws of other
violation of the AMLA when probable cause exists.
countries is "of a similar nature" so as to constitute an unlawful a) NO prior criminal charge, pendency of a case, or conviction
activity under the AMLA, it is su cient that both the Bank Inquiry Order by the AMLC for an unlawful activity or ML o ense is necessary for the
Philippines and the other jurisdiction criminalize the commencement or the resolution of a petition for freeze order.
1. The AMLC shall issue an ex parte order authorizing the
conduct or activity underlying the o ense, regardless of
AMLC Secretariat to inquire into or examine any particular
By RGL 68 of 83
Commercial Law Reviewer for the 2022 Bar
b) No asset shall be frozen to the prejudice of a candidate for an 8. Motion to Lift. — If a freeze order is imposed on an account,
AMLC-Issued Freeze Order
electoral o ce during an election period. including bank account, of a covered person that it uses for
Freeze orders issued by the AMLC shall be governed by the
payment of
c) No court shall issue a TRO or a writ of injunction against any TFPSA and its IRR.
freeze order, except the Supreme Court. a) salary,
The AMLC, either upon its own initiative or at the request of the
b) rent, ATC, is hereby authorized to issue, ex parte, an order to freeze
Court-Issued Freeze Order
c) suppliers, and/or without delay:
1. Ex Parte Petition for Issuance of Freeze Order. — By
authority of the Council, the AMLC Secretariat shall le d) taxes a) property or funds that are in any way related to nancing
before the Court of Appeals, through the OSG. of terrorism or terrorist acts; or
in the ordinary course of a legitimate business, the
2. Related Accounts. — The AMLC may include in its petition covered person may apply with the court which issued the b) property or funds of any person, terrorist organization,
the freezing of related and materially-linked accounts. freeze order to lift the same by submitting a bond or other association or group of persons in relation to whom there
acceptable securities of equal value to the amount or value is probable cause to believe that they are committing or
3. Period to Resolve Petition. — The CA shall resolve within
subject of the freeze order. attempting or conspiring to commit, or participating in or
24 hours from ling thereof.
facilitating the commission of nancing of terrorism or
The court must resolve the motion before the expiration of
4. Issuance. — Upon veri ed ex parte petition by the AMLC terrorist acts.
the freeze order.
and after determination that probable cause exists, the CA
The freeze order shall be e ective for a period not exceeding
may issue a freeze order, which shall be e ective 9. Lifting the Effects of the Freeze Order.
twenty (20) days. Upon a petition led by the AMLC before the
immediately, for a period of 20 days. a) The freeze order shall be deemed ipso facto lifted after expiration of the period, the e ectivity of the freeze order may be
5. Coverage. — The freeze order shall be limited only to the its expiration, unless an ML complaint against the extended up to a period not exceeding six (6) months upon
amount of cash or monetary instrument, or value of person whose monetary instrument or property was order of the Court of Appeals:
property that the CA nds there is probable cause. frozen, or a Petition for Civil Forfeiture against the
Provided, That the twenty-day period shall be tolled upon ling of
frozen monetary instrument or property, has been led, in
6. Summary Hearing and Extension. — Before the a petition to extend the e ectivity of the freeze order.
which case the freeze order shall remain e ective until the
expiration of the 20-day freeze order, the CA shall conduct a Period of validity of a freeze order: may it be extended? YES
ML case is terminated or an asset preservation order is
summary hearing, with notice to the parties, to determine for a total period not exceeding six (6) months.
issued, respectively.
whether or not to modify or lift the freeze order, or to extend
its e ectivity. Pending resolution by the CA, the freeze order b) Before the expiration of the freeze order, the covered The following rules shall be observed in asset forfeiture
shall remain e ective. person shall secure a written con rmation from the proceedings:
AMLC to ascertain if a petition for civil forfeiture or an a) No prior criminal charge, pendency of a case, or
7. Effectivity of Freeze Order. — Immediately and shall
ML complaint has been led. conviction for an unlawful activity or ML o ense is
remain e ective for a total period not exceeding 6 months.
By RGL 69 of 83
Commercial Law Reviewer for the 2022 Bar
necessary for the commencement or the resolution of a be e ective immediately, forbidding any transaction, withdrawal,
1) Information shall not be denied validity or enforceability
petition for civil forfeiture. deposit, transfer, removal, conversion, concealment or other
solely on the ground that it is in the form of an electronic
disposition of the subject monetary instrument or property.
b) No asset shall be attached or forfeited to the prejudice of a data message purporting to give rise to such legal e ect, or
candidate for an electoral o ce during an election period. Motion to Discharge. — If an APO is imposed on an account of that it is merely incorporated by reference in that electronic
a covered person that it uses for payment of data message.
Petition for Civil Forfeiture — Upon determination that
probable cause exists that any monetary instrument or property is 1. salary, 2) Electronic documents shall have the legal e ect, validity or
in any way related to an unlawful activity or ML o ense, the enforceability as any other document or legal writing, and —
2. rent,
AMLC shall le with the RTC, through the OSG, a veri ed
3. suppliers, and/or a) Where the law requires a document to be in writing,
petition for civil forfeiture.
that requirement is met by an electronic document if
Equal Value Assets — Other monetary instrument or property of 4. taxes the said electronic document maintains its integrity
equal value may be included in the Petition where the monetary in the ordinary course of a legitimate business, the covered and reliability and can be authenticated so as to be
instrument or property that should be subject of forfeiture: person may apply with the court which issued the APO to usable for subsequent reference, in that —
a) cannot be located despite due diligence; discharge the same by submitting a bond or other acceptable i) The electronic document has remained
securities of equal value to the amount or value subject of the asset complete and unaltered, apart from the
b) has been substantially altered, destroyed, diminished in
preservation order. addition of any endorsement and any
value or otherwise rendered worthless by any act or
authorized change, or any change which
omission;
VI Electronic Commerce Act arises in the normal course of
c) has been concealed, removed, converted, or otherwise communication, storage and display; and
transferred; Legal recognition of electronic data messages, documents,
ii) The electronic document is reliable in the
d) is located outside the Philippines or has been placed or and signatures light of the purpose for which it was
brought outside the jurisdiction of the court; or generated and in the light of all relevant
Presumption relating to electronic signatures
e) has been commingled with other monetary instruments circumstances.
Admissibility and evidential weight of electronic data
or property belonging to either the o ender himself or a b) Paragraph (a) applies whether the requirement therein
third person or entity, thereby rendering the same di cult message or electronic document
is in the form of an obligation or whether the law
to identify or be segregated for purposes of forfeiture. Obligation of con dentiality simply provides consequences for the document not
Asset Preservation Order. — Upon veri ed petition by the being presented or retained in its original form.
AMLC, with prayer for issuance of asset preservation order, and
Legal recognition of electronic data c) Where the law requires that a document be presented
after determination that probable cause exists that any monetary A
messages, documents, and signatures or retained in its original form, that requirement is
instrument or property is in any way related to an unlawful met by an electronic document if —
activity, the RTC may issue an asset preservation order which shall
By RGL 70 of 83
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By RGL 71 of 83
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By RGL 72 of 83
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By RGL 73 of 83
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4 Suspension of payments In voluntary proceedings, a group of debtors may jointly le a already matured or not. What is essential in case of
petition for rehabilitation rehabilitation is the inability of the debtor corporation to pay
1) An individual debtor who, possessing sufficient property to its dues as they fall due. In the case herein, accepting MBTC's
cover all his debts but foreseeing the impossibility of 1. when one or more of its members foresee the impossibility of
proposition that debtor companies already in default are unquali ed
meeting them when they respectively fall due, may le a meeting debts when they respectively fall due, and
to le a petition for corporate rehabilitation not only contradicts the
veri ed petition that he be declared in the state of suspension 2. the nancial distress would likely adversely a ect purpose of the law, as stated, but also advocates a limiting bar that is
of payments by the court of the province or city in which he not found under the pertinent provisions.
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 b Commencement order
a) a schedule of debts and liabilities;
essential under the terms and conditions of the proposed
b) an inventory of assets; and Rehabilitation Plan. The rehabilitation proceedings shall commence upon the issuance
of the Commencement Order. It shall be deemed to have
c) a proposed agreement with his creditors. In involuntary proceedings, creditors le a petition for rehabilitation
commenced from the DATE OF FILING of the petition,
with the court if:
which is also termed the commencement date.
B Modes of Rehabilitation 1. there is no genuine issue of fact or law on the claim/s of
The commencement order primarily contains:
the petitioner/s, AND
1 Court-supervised rehabilitation 1. a declaration that the debtor is under rehabilitation,
that the due and demandable payments thereon have not
been made for at least sixty (60) days OR 2. the appointment of a rehabilitation receiver,
a Voluntary vs. involuntary 3. a directive for all creditors to le their veri ed notices of claim,
that the debtor has failed generally to meet its liabilities as
they fall due; OR and
Voluntary Involuntary
2. a creditor, other than the petitioner/s, has initiated 4. an order staying claims against the debtor.
Debtor Creditors foreclosure proceedings against the debtor that will prevent The e ects of the court's issuance of a Commencement Order shall
- Owner of Sole Proprietorship; Any creditor or group of the debtor from paying its debts as they become due or will retroact to the date of the filing of the petition and shall:
creditors with a claim of at render it insolvent.
- Majority of Partners; or a) vest the rehabilitation receiver with all the powers and
least P1M or 25% of the SCS, functions, such as
- Majority of the Board + at least whichever is higher. Metrobank v. Fortuna Paper Mill & Packaging 2018
⅔ of the OCS or Members in i) the right of access, and
WON Fortuna is qualified to file a petition for rehabilitation under
case of Corporation ii) the right to review and obtain records to which the
the Interim Rules.
debtor's management and directors have access,
YES. This Court need not distinguish whether the claim has
By RGL 74 of 83
Commercial Law Reviewer for the 2022 Bar
d) consolidate all legal proceedings by and against the debtor to The Commencement Order shall be e ective for the duration of 2) suspend all actions to enforce any judgment, attachment or
the court; and the rehabilitation proceedings, unless other provisional remedies against the debtor;
e) exempt the debtor from liability for taxes and fees, including a) earlier lifted by the court, 3) prohibit the debtor from selling, encumbering,
penalties, interests and charges thereof due to the national transferring or disposing in any manner any of its properties
b) the rehabilitation plan is seasonably con rmed or approved, or
government or the LGU as provided in Section 19 of the Act. except in the ordinary course of business; and
c) the rehabilitation proceedings are ordered terminated by the
LBP v. Polillo Paradise Island Corp. 2019 court pursuant to Section 73 of this Rule. 4) prohibit the debtor from making any payment of its
liabilities outstanding as of the commencement date
WON the Commencement Order issued by the RTC has the effect of
BIR v. Lepanto Ceramics, Inc. 2017 except as may be provided herein.
rendering void the foreclosure sale of the subject properties and the
effects thereof. WON the RTC Br. 35 correctly found Misajon, et al. to have defied ⭐The Stay or Suspension Order shall NOT apply:
the Commencement Order and, accordingly, cited them for indirect a) to cases already pending appeal in the SC as of
NO. The ownership of the subject properties was vested upon the
contempt. commencement date;
petitioner before the ling of the petition for corporate
rehabilitation. YES. Creditors of the distressed corporation are not without
By RGL 75 of 83
Commercial Law Reviewer for the 2022 Bar
b) subject to the discretion of the court, to cases pending or TIDCORP v. PVB 2019 Caguioa, J Management committee
led at a specialized court or quasi-judicial agency which,
WON the Stay Order of the Rehabilitation Court divested the RTC's In addition, upon motion of any interested party, the court may
upon determination by the court, is capable of resolving the
jurisdiction to hear and decide PVB's Complaint. appoint and direct the rehabilitation receiver to
claim more quickly, fairly and e ciently than the court:
NO. The Stay Order issued by the Rehabilitation Court did not 1. assume the powers of management of the debtor, OR
Provided, That any nal and executory judgment of such
court or agency shall be referred to the court and shall be preclude the RTC from hearing and deciding respondent PVB's 2. appoint a management committee that will undertake the
treated as a non-disputed claim; Complaint. Section 18(c) of the FRIA explicitly states that a stay management of the debtor,
order shall not apply "to the enforcement of claims against sureties
c) ⭐to the enforcement of claims against sureties and other and other persons solidarily liable with the debtor, and third party
upon clear and convincing evidence of any of the following
persons solidarily liable with the debtor, and third party or circumstances:
or accommodation mortgagors as well as issuers of letters of credit.
accommodation mortgagors as well as issuers of letters of a) Actual or imminent danger of dissipation, loss, wastage or
credit, In Situs Dev’t v. Asiatrust Bank, the Court held that when a stay
destruction of the debtor's assets or other properties;
order is issued, the rehabilitation court is only empowered to
unless the property subject of the third party or suspend claims against the debtor, its guarantors, and sureties b) Paralyzation of the business operations of the debtor; or
accommodation mortgage is necessary for the who are NOT solidarily liable with the debtor. Hence, the c) Gross mismanagement of the debtor, or fraud or other
rehabilitation of the debtor as determined by the court upon making of claims against sureties and other persons solidarily liable wrongful conduct on the part of, or gross or willful violation
recommendation by the rehabilitation receiver; with the debtor is not barred by a stay order. of this Act by, existing management of the debtor or the
d) to any form of action of customers or clients of a securities owner, partner, director, o cer or representative/s in
market participant; management of the debtor.
e) to the actions of a licensed broker or dealer to sell pledged c Rehabilitation receiver and management
The management committee may overrule or revoke the actions
securities of a debtor pursuant to a securities pledge or margin
committee
of the previous management or the governing body of the debtor.
agreement for the settlement of securities transactions; The rehabilitation receiver shall be deemed an o cer of the court (§33 Rule 2, 2013 Rules)
f) the clearing and settlement of nancial transactions with the principal duty of
through the facilities of a clearing agency or similar entities as 1. preserving and maximizing the value of the assets of the
d Determination of claims
well as any form of actions of such agencies or entities to debtor during the rehabilitation proceedings, 1) Within twenty (20) days from his assumption into o ce, the
reimburse themselves for any transactions settled for the
2. determining the viability of the rehabilitation of the rehabilitation receiver shall establish a preliminary registry
debtor; and
debtor, of claims.
g) any criminal action against the individual debtor or owner,
3. preparing and recommending a Rehabilitation Plan to 2) He shall give notice to the debtor, creditors and stakeholders
partner, director or o cer of a debtor shall not be a ected by
the court, and on where and when they may inspect the registry by causing
any proceeding commenced under the FRIA. (§18)
the publication of the place and date of inspection in a
4. implementing the approved Rehabilitation Plan.
newspaper of general circulation in the Philippines once every
By RGL 76 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 77 of 83
Commercial Law Reviewer for the 2022 Bar
The Plan shall be deemed rejected unless approved by ALL The rehabilitation proceedings shall, upon motion by any i) the defect is not cured within such time as the court
classes of creditors whose rights are adversely modi ed or a ected stakeholder or the rehabilitation receiver, be terminated by order of may order, or
by the Plan. the court either declaring a successful implementation of the
ii) if the court determines that the debtor acted in bad
Rehabilitation Plan or a failure of rehabilitation.
Approval — The Plan is deemed to have been approved by a class faith, or
of creditors if members of the said class holding more than fty There is failure of rehabilitation in the following cases:
iii) that it is not feasible to cure the defect; and
percent (50%) of the total claims of the said class vote in favor of
a) Dismissal of the petition by the court;
the Plan. i) Failure of the debtor to comply with these Rules, the Rules of
b) Failure to submit a Rehabilitation Plan; Court, or any order of the court.
Notwithstanding the rejection of the Rehabilitation Plan, the
court may con rm the Rehabilitation Plan if all of the c) A Rehabilitation Plan is not con rmed by the court; Upon a breach of, or upon a failure of the Rehabilitation Plan, the
following circumstances are present: court, upon motion by an a ected party, may:
d) Under the Rehabilitation Plan submitted by the debtor, there
a) The Rehabilitation Plan complies with the requirements is no substantial likelihood that the debtor can be rehabilitated 1) issue an order directing that the breach be cured within a
speci ed in this Act; within a reasonable period; speci ed period of time, failing which the proceedings may be
converted to a liquidation;
b) The rehabilitation receiver recommends the con rmation e) The Rehabilitation Plan or its amendment is approved by the
of the Rehabilitation Plan; court but in the implementation thereof, 2) issue an order converting the proceedings to a liquidation;
c) The shareholders, owners or partners of the juridical i) the debtor fails to perform its obligations thereunder 3) allow the debtor or rehabilitation receiver to submit
debtor lose at least their controlling interest as a result of or amendments to the Rehabilitation Plan;
the Rehabilitation Plan; and ii) there is a failure to realize the objectives, targets or 4) issue any other order to remedy the breach consistent with
d) The Rehabilitation Plan would likely provide the goals set forth therein, including the timelines and the best interests of the creditors; or
objecting class of creditors with compensation which has a conditions for the settlement of the obligations due to
5) enforce the applicable provisions of the Rehabilitation Plan
net present value greater than that which they would have the creditors and other claimants;
through a writ of execution.
received if the debtor were under liquidation. f) Determination that the Rehabilitation Plan may no longer be
Confirmation — If no objections are led within the relevant implemented in accordance with its terms, conditions, 2 Pre-negotiated rehabilitation
period or, if objections are led, the court nds them lacking in restrictions, or assumptions;
merit, or determines that the basis for the objection has been g) There is a nding that fraud was committed in securing the a How initiated
cured, or determines that the debtor has complied with an order to approval of the Rehabilitation Plan or its amendment;
cure the objection, the court shall issue an order con rming the An insolvent debtor,
h) In cases falling under Section 65 of this Rule, where, after
Rehabilitation Plan. 1. by itself OR
nding merit in the objection/s raised against the con rmation
g Failure of rehabilitation of the Rehabilitation Plan, 2. jointly with any of its creditors,
By RGL 78 of 83
Commercial Law Reviewer for the 2022 Bar
may le a veri ed petition with the court for the approval of a Out-of-Court or Informal Restructuring c) the standstill period shall NOT exceed one hundred
3
Pre-negotiated Rehabilitation Plan which has been endorsed or Agreement or Rehabilitation Plan twenty (120) days from the date of e ectivity.
approved
The standstill period shall expire upon
1. by creditors holding at least two-thirds (2/3) of the a Minimum requirements
1) the lapse of 120 days from the e ectivity of the standstill
total liabilities of the debtor,
An OCRA shall comply with both requirements: agreement,
2. including secured creditors holding more than fty
a) Approval by the: 2) the e ectivity of the OCRA, or
percent (50%) of the total secured claims of the debtor
AND 1) debtor; 3) the termination of the negotiations for the OCRA as
declared by creditors representing more than fty percent
3. unsecured creditors holding more than fty percent 2) creditors representing at least sixty-seven percent (67%)
(50%) of the total liabilities of the debtor,
(50%) of the total unsecured claims of the debtor. of the secured obligations of the debtor;
whichever comes first.
Within ve (5) working days from the date of ling the petition, 3) creditors representing at least seventy- ve percent (75%)
if the court determines that the petition is su cient in form and of the unsecured obligations of the debtor; and
c Cram down e ect
substance, it shall issue an Order. 4) creditors holding at least eighty- ve percent (85%) of
the total liabilities of the debtor; AND Cram Down Effect. — An OCRA that is approved shall have the
b Period and e ect of approval same legal e ect as the con rmation of a rehabilitation plan under
b) Publication of the notice of the OCRA once a week for at a court-supervised rehabilitation.
The Order shall have the same effects as a Commencement Order. It least three (3) consecutive weeks in a newspaper of general
shall retroact to the date of the ling of the petition and shall be circulation in the Philippines. BPI v. Sarabia Manor Hotel 2013
e ective for one hundred twenty (120) days from the ling of
the petition unless earlier lifted by the court on account of b Standstill period WON the CA correctly affirmed Sarabia’s rehabilitation plan as
approved by the RTC, with the modification on the reinstatement of
a) the approval of the Pre-Negotiated Rehabilitation Plan, or Standstill Period. — May be agreed upon by the parties and shall be the surety obligations of Sarabia’s stockholders.
b) the termination of the rehabilitation proceedings. e ective and enforceable not only against the contracting parties but
YES. Section 23, Rule 4 of the Interim Rules of Procedure on
also against the other creditors provided it complies with the following
The court shall have a maximum period of one hundred Corporate Rehabilitation (Interim Rules) states that a
conditions:
twenty (120) days from the date of the ling of the petition to rehabilitation plan may be approved even over the opposition of the
approve the Rehabilitation Plan. If the court fails to act within the a) approval of the agreement for a standstill period by creditors creditors holding a majority of the corporation’s total liabilities if
said period, the Rehabilitation Plan shall be deemed representing more than fty percent (50%) of the total there is a showing that rehabilitation is feasible and the
APPROVED. liabilities of the debtor; opposition of the creditors is manifestly unreasonable.
b) publication of the notice of the agreement in a newspaper of Also known as the “cram-down” clause, it forces the creditors to
general circulation in the Philippines, once a week for two (2) accept the terms and conditions of the rehabilitation plan,
consecutive weeks; and
By RGL 79 of 83
Commercial Law Reviewer for the 2022 Bar
preferring long-term viability over immediate but incomplete Of Juridical Debtor debtor from paying its debts as
recovery. they become due or will render it
In involuntary liquidation, the creditors seeking liquidation of an
insolvent
If the results of the nancial examination and analysis clearly insolvent debtor must show in the petition that:
indicate that there lies no reasonable probability that the distressed
a) there is no genuine issue of fact or law on the claim/s of Of Individual Debtor
corporation could be revived and that liquidation would, in fact,
the petitioner/s, and
better subserve the interests of its stakeholders, then it may be said The following are the acts of insolvency of the debtor:
that a rehabilitation would NOT be feasible. In such case, the that the due and demandable payments thereon have not been
a) about to depart or has departed from PH, with intent to
rehabilitation court may convert the proceedings into one for made for at least one hundred eighty (180) days or
defraud his creditors;
liquidation. that the debtor has failed generally to meet its liabilities as they
b) being absent from PH, with intent to defraud his creditors, he
Manifest unreasonableness of BPI ’s opposition fall due; and
remains absent;
The opposition of a distressed corporation’s majority creditor is b) there is no substantial likelihood that the debtor may be
c) conceals, or is removing, any of his property to avoid its
manifestly unreasonable if it counter-proposes unrealistic rehabilitated.
being attached or taken on legal process;
payment terms and conditions which would, more likely than
not, impede rather than aid its rehabilitation. The Involuntary Rehabilitation Involuntary Liquidation d) conceals himself to avoid the service of legal process;
unreasonableness becomes further manifest if the rehabilitation e) has allowed his property to remain under attachment or legal
plan, in fact, provides for adequate safeguards to ful ll the majority One (1) creditor enough At least Three (3) creditors
process for three (3) days;
creditor’s claims, and yet the latter persists on speculative or
there is no genuine issue of fact or law on the claims f) has confessed or o ered to allow judgment in favor of any
unfounded assumptions that his credit would remain unful lled.
creditor;
Oppositions which push for high interest rates are generally AND that the due and demandable payments thereon have not
been made for at least: g) has wilfully allowed judgment to be taken against him by
frowned upon in rehabilitation proceedings given that the inherent
default;
purpose of a rehabilitation is to nd ways and means to minimize
sixty (60) days one hundred eighty (180)
the expenses of the distressed corporation during the rehabilitation (d-g) for the purpose of hindering or delaying the liquidation or
days
period. of defrauding any creditor;
OR that the debtor has failed generally to meet its liabilities as they h) has su ered or procured his property to be taken on legal
fall due AND process with intent to give a preference to one or more of his
C Liquidation creditors and thereby hinder or delay the liquidation or
a creditor, other than the there is no substantial likelihood
defraud any one of his creditors;
petitioner, has initiated that the debtor may be
1 Voluntary liquidation vs. Involuntary foreclosure proceedings against rehabilitated i) has made any assignment, gift, sale, conveyance or transfer of
liquidation vs. Conversion the debtor that will prevent the his estate, property, rights or credits with intent to hinder or
delay the liquidation or defraud his creditors;
By RGL 80 of 83
Commercial Law Reviewer for the 2022 Bar
3. cannot, after due diligence, be found therein; or a) the juridical debtor shall be deemed dissolved and its b) maintain his rights under his security or lien.
corporate or juridical existence terminated; If the secured creditor maintains his rights under the
4. conceals himself to avoid service of the Order to show cause, or
any other preliminary process or orders in the matter, b) legal title to and control of all the assets of the debtor, except security or lien:
those that may be exempt from execution, shall be deemed 1) the value of the property may be xed in a manner agreed
then the petitioning creditors,
vested in the liquidator or, pending his election or upon by the creditor and the liquidator.
1. upon submitting the a davits requisite to procure an Order appointment, with the court;
of publication, and 2) the liquidator may sell the property and satisfy the
c) all contracts of the debtor shall be deemed terminated secured creditor's entire claim from the proceeds of the
2. presenting a bond in double the amount of the aggregate and/or breached, sale; or
sum of their claims against the individual debtor,
unless the liquidator, within ninety (90) days from the date 3) the secured creditor may enforce the lien or foreclose on
shall be entitled to an Order of the court directing the sheri of the of his assumption of o ce, declares otherwise and the the property pursuant to applicable laws.
province or city in which the matter is pending to take into his contracting party agrees;
By RGL 81 of 83
Commercial Law Reviewer for the 2022 Bar
However, these rights are subject to the temporary stay of 1) Within twenty (20) days from his assumption into o ce, the Suspension of payments; suspension of
D
foreclosure proceedings for a period of 180 days, upon the liquidator shall establish a preliminary registry of claims of payment order
issuance of the Liquidation Order. (MBTC v. S.F. Naguiat) secured and unsecured creditors.
An individual debtor who
Secured creditors who have
Yngson, Jr. v. PNB 2012 1. has assets that exceed his liabilities BUT
1. waived their security or lien, or
WON PNB, as a secured creditor, can foreclose on the mortgaged 2. foresees the impossibility of paying his debts when they
2. have xed the value of the property subject of their
properties of a corporation under liquidation without the knowledge respectively fall due
security or lien by agreement with the liquidator and
and prior approval of the liquidator or the SEC.
is admitted as a creditor for the balance, may le a verified petition for suspension of payments in the
YES. PNB was not barred from foreclosing on the mortgages. court having jurisdiction over the province or city where he has
shall be considered as unsecured creditors.
Under Sec 114 of RA 10142, the right of a secured creditor to resided for six (6) months prior to the ling.
enforce his lien during liquidation proceedings is retained. 2) Right of Set-off. — If the debtor and a creditor are mutually
Individual debtor shall refer to a natural person who is a resident
debtor and creditor of each other, one debt shall be set o
As to petitioner's argument on the right of rst preference as regards AND citizen of the Philippines that has become insolvent.
against the other, and only the balance, if any, shall be allowed
unpaid wages, the Court has elucidated in the case of Development If the Court nds the petition su cient in form and substance, it shall
in the liquidation proceedings.
Bank of the Philippines v. NLRC that a distinction should be issue a Suspension of Payments Order:
made between a preference of credit and a lien. 3) Within thirty (30) days from the expiration of the period for
ling of applications for recognition of claims, interested a) prohibiting creditors from suing or instituting proceedings for
A preference applies only to claims which do not attach to speci c collection against the debtor, except:
parties may submit a challenge to a claim or claims to the
properties. A lien creates a charge on a particular property. The
court, serving a certi ed copy on the liquidator and the i) creditors having claims for
right of first preference as regards unpaid wages recognized by Article
creditor holding the challenged claim.
110 of the Labor Code, does NOT constitute a lien on the property of 1) personal labor,
the insolvent debtor in favor of workers. It is but a preference of 4) Upon the expiration of the thirty (30)-day period, the
2) maintenance,
credit in their favor, a preference in application. Consequently, the rehabilitation receiver shall submit to the court the registry of
right of rst preference for unpaid wages may not be invoked in this claims containing the undisputed claims that have not 3) expense of last illness and
case to nullify the foreclosure sales conducted pursuant to PNB's been subject to challenge.
4) funeral of the wife or children of the debtor
right as a secured creditor to enforce its lien on speci c properties of Such claims shall become nal upon the ling of the register
incurred within sixty (60) days immediately prior to the
its debtor, ARCAM. and may be subsequently set aside only on grounds of fraud,
ling of the petition; and
accident, mistake or inexcusable neglect.
ii) secured creditors;
5) The liquidator shall resolve disputed claims and submit his
3 Determination of claims ndings thereon to the court for nal approval. The b) prohibiting the petitioner from selling, transferring,
liquidator may disallow claims. encumbering or disposing his property,
By RGL 82 of 83
Commercial Law Reviewer for the 2022 Bar
By RGL 83 of 83