I. INSURANCE (P.D. No. 162, as amended by R.A. No.

10607)

1. Distinguish Insurable Interest in Property from Insurable Interest in Life

INSURABLE INTEREST IN LIFE INSURABLE INTEREST IN PROPERTY
(Sec. 10, ICP) (Sec. 13, ICP)
Unlimited except if effected by a creditor on the life Limited to the actual value of the interest in property.
of the debtor.
Must exist at the time the policy takes effect and Must exist when the policy takes effect and when the
need not exist at the time of the loss. loss occurs.
Expectation of benefit need not have legal basis or Expectation benefits must have a legal basis.
need not be based on legally enforceable obligation.
Beneficiary need not have insurable interest over the Beneficiary must have insurable interest over the
life of the insured if the insured himself secured the thing insured in property insurance.
policy. However, if the life insurance was obtained
by the beneficiary, the latter must have insurable
interest over the life of the insured.
Can be transferred even without the consent of or It is necessary that the transferee has insurable
notice to the insurer. By express provision of Section interest over the thing insured.
184 of the Insurance Code, it is not necessary that
the transferee has insurable interest.

2. Distinguish double insurance from over-insurance

OVER-INSURANCE DOUBLE INSURANCE
Over-insurance exist if the insured takes out an Double insurance exists when the same person is
insurance over the property insured in an amount insured by several insurers separately in respect to
which is in excess of the value of his insurable interest. the same subject and interest.
May be one or more insurers involved. Always more than one insurers involved.
Amount of insurance is beyond the value of insurable There may be no over-insurance as when the sum
interest of the insured. total of the amounts of the policies issued does not
exceed the insurable interest of the insured.
(Aquino, Essentials of Insurance, 2018, p. 283)

3. What is reinsurance?
A contract of reinsurance is one by which an insurer (the “direct insurer” or “cedant”) procures a
third person (the “reinsurer”) to insure him against loss or liability by reason of such original
insurance. It is a separate and distinct arrangement from the original contract of insurance, whose
contracted risk is insured in the reinsurance agreement. (Communication and Information Systems Corporation
vs. Mark Sensing Australia Pty. Ltd., G.R. No. 192159. January 25, 2017)

4. What is the "no fault clause"?

It is when the injured third party or passenger is given the option to file a claim for death or injury
without the necessity of proving fault or negligence of any kind. (Sec. 391, ICP)

5. What is the cash and carry rule under the Insurance Code and its exceptions?
Under the cash and carry rule, an insurance policy is generally not binding unless the premium
thereof has been paid. Its exceptions are the following:
1. Issuance of cover notes (Sec. 52, ICP)
2. Acknowledgement of premium payment (Sec. 79, ICP)
3. There is an agreement allowing the insured to pay the premium in installments and partial
payment has been made at the time of loss (Makati Tuscany Condominium v. Court of Appeals,
G.R. No. 95546, 1992)
4. Credit extension (Sec. 77, ICP)
5. Acceptance by the obligee of the bond issued by the surety (Sec. 179, ICP)
6. Grace Period in life of industrial life policy (Sec. 77, ICP)
7. Estoppel - (UCPB General Insurance, Inc. v. Masagana Telemart, G.R. No. 137172, 1999)
NOTE: A notice of availability of a check by itself, does not produce the effect of payment of a
premium. (Gaisano v. Development Insurance and Surety Corporation, G.R. No. 190702, February 27, 2017)

6. What is the "incontestability clause"?

An insurer is given two years — from the effectivity of a life insurance contract and while the insured
is alive — to discover or prove that the policy is void ab initio or is rescindible by reason of the
fraudulent concealment or misrepresentation of the insured or his agent. After the two-year period
lapses, or when the insured dies within the period, the insurer must make good on the policy, even
though the policy was obtained by fraud, concealment, or misrepresentation (Sun Life of Canada
(Philippines), Inc. vs. Sibya, GR. No. 211212, 2016).

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7. When is the insurer liable in case of suicide?
1. If committed after 2 years from the date of the policy’s issuance or its last reinstatement
2. If committed after the lapse of a shorter period provided in the policy
3. If committed in a state of insanity regardless of the date of the commission unless suicide is
an excepted peril (Sec. 183, ICP)

8. What is the effect of paying premiums by post-dated checks?

The payment of a premium by a post-dated check at a stated maturity subsequent to the loss is
insufficient to put the insurance into effect if there is no credit agreement (Gaisano v. Development
Insurance and Surety Corp., February 27, 2017).

9. Are premiums paid by installments binding?

Yes. When there is an agreement allowing the insured to pay the premium in installments and partial
payment has been made at the time of loss (Makati Tuscany Condominium v. Court of Appeals, G.R. No.
95546, 1992)

10. What are the requisites of concealment?

a. A party knows the fact which he neglects to communicate or disclose to the other;
b. Such party concealing is duty bound to disclose such fact to the other;
c. Such party concealing makes no warranty of the fact concealed; and
d. The other party has not the means of ascertaining the fact concealed.
(Florendo vs. Philam Plans, Inc., G.R. No. 186983, February 22, 2012)

11. Distinguish “Subrogation” from “Assignment of Credit”

Subrogation Assignment of Credit
an agreement between all the parties concerning the consent of the debtor is not necessary in order
the substitution of the new creditor is necessary that the assignment may fully produce legal effects
(Henson, Jr. vs. UCPB General Insurance Co., Inc., 913 SCRA 431, G.R. No. 223134 August 14, 2019)

12. What is the Limited Liability Rule in maritime law?

Under the doctrine of limited liability in maritime law, the liability of the shipowner arising from the
operation of a ship is confined to the vessel, equipment, and freight, or insurance, if any, so that if
the shipowner abandoned the ship, equipment, and freight, his liability is extinguished. (Essentials of
Transportation and Public Utilities Law, Aquino and Hernando, 2020, p. 477)

13. What are the exceptions to the Limited Liability Rule (No Vessel, No Liability Rule)?
The limited liability rule is not absolute and is without exceptions. It does not apply in cases:
a. Where the injury or death to a passenger is due either to the fault of the shipowner, or to the
concurring negligence of the shipowner and the captain;
b. Where the vessel is insured; and
c. In workmen’s compensation claims.
(Phil-Nippon Kyoei, Corp. vs. Gudelosao, 796 SCRA 508, G.R. No. 181375 July 13, 2016)

14. What is the “Doctrine of Inscrutable Fault”?

Under the “doctrine of inscrutable fault”, where fault is established but it cannot be determined
which of the 2 vessels were at fault, both shall be deemed to have been at fault. (Art. 828 Code of
Commerce in relation to Art. 827 of Code of Commerce)

II. TRANSPORTATION LAW

15. Is extraordinary diligence required only in the transportation of passengers and carriage
of goods?
No. Common carriers are required to exercise extraordinary diligence in the performance of their
obligations under contracts of carriage. This extraordinary diligence must be observed not only in
the transportation of goods and services but also in the issuance of the contract of carriage, including
its ticketing operations. (Divina, Divina on Commercial Law A Comprehensive Guide, Vol. I, 2021, p. 201; Alfredo Manay,
Jr. v. Cebu Air, Inc., G.R. No. 210621, April 4, 2016)

16. Explain the doctrine of “Last Clear Chance”.

Under the doctrine of last clear chance, when both parties involved in the accident were both
negligent, the negligence of the party will not be considered the proximate cause if the other party
has the last clear chance of avoiding the injury. Thus, if the plaintiff has the last clear chance of
avoiding the injury, the defendant may no longer be held liable. In such a case, the negligence of
the plaintiff – which is not just contributory negligence – will be considered an efficient intervening
cause. (Aquino & Hernando, Essentials of Transportation and Public Utilities Law, 2020, p. 270)

17. What are the void stipulations in a contract of carriage of goods?

Any of the following or similar stipulations shall be considered unreasonable, unjust and contrary to
public policy:

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 1. That the goods are transported at the risk of the owner or shipper;
2. That the common carrier will not be liable for any loss, destruction, or deterioration of the goods;
3. That the common carriers need not observe any diligence in the custody of the goods;
4. That the common carrier shall exercise a degree of diligence less than that of a good father of a
family, or of a man of ordinary prudence in the vigilance over the movables transported;
5. That the common carrier shall not be responsible for the acts or omission of his or its employees;
6. That the common carrier's liability for acts committed by thieves, or of robbers who do not act
with grave or irresistible threat, violence or force, is dispensed with or diminished;
7. That the common carrier is not responsible for the loss, destruction, or deterioration of goods on
account of the defective condition of the car, vehicle, ship, airplane or other equipment used in
the contract of carriage. (Art. 1745, NCC)

18. Distinguish common carrier from private carrier.

Common Carrier Private Carrier
As to definition A common carrier is defined as A private carrier is defined as one
persons, corporations, firms or who, without making the activity a
associations engaged in the vocation, or without holding himself
business of carrying or transporting or itself out to the public as ready to
passengers or goods or both, by act for all who may desire his or its,
land, water or air, for compensation, services, undertakes, by special
offering their services to the public. agreement in a particular instance
only, to transport goods or persons
from one place to another either
gratuitously or for hire.
As to passengers Holds himself out for all people Contracts with particular individuals
indiscriminately. or groups only.
As to required Requires extraordinary diligence. Requires only ordinary diligence.
diligence
As to stipulation on Parties may not agree on limiting the Parties may agree on limiting the
limiting liability carrier’s liability except when carrier’s liability, provided that such
provided by law. agreement is not contrary to law,
morals or good customs.
Presumption as to fault Presumption of fault or negligence No fault or negligence is presumed.
and negligence applies.
As to laws applicable Law on common carriers. Law on obligations and contracts.
on damages
(Sanico vs. Colipano, G.R. No. 209969. September 27, 2017, J. Caguioa)

19. What is the Doctrine of Continuing Offer?

It is the duty of the carriers of passengers to stop their conveyances for a reasonable length of time
in order to afford passengers an opportunity to board and enter, and they are liable for injuries
suffered by boarding passengers resulting from the sudden starting up or jerking of their
conveyances while they do so. (Dangwa Transportation Co., Inc. vs CA, G.R. No. 95582, October 7, 1991)

20. What is the theory of presumption of negligence?

Under this theory, a common carrier is presumed to have been negligent if it fails to prove that it
exercised extraordinary vigilance over the goods it transported. When the goods shipped are either
lost or arrived in damaged condition, a presumption arises against the carrier of its failure to observe
that diligence, and there need not be an express finding of negligence to hold it liable. To overcome
the presumption of negligence, the common carrier must establish by adequate proof that it
exercised extraordinary diligence over the goods. (Unitrans International Forwarders, Inc. v. Insurance Company
of North America, G.R. No. 203865, March 13, 2019, J. Caguioa)

III. CORPORATION LAW (Provisions of B.P. Blg. 68, as amended by R.A. No. 11232)

21. What is a corporation by estoppel?

Corporation by estoppel is a group of persons who holds itself out as a corporation and enters into
a contract with a third person on the strength of such appearance. Anyone who assumes an
obligation to an ostensible corporation as such cannot resist performance thereof on the ground that
there was in fact no corporation. (Sec. 20, RCC)

22. Who is a beneficial owner?

Any person who, directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares voting power (which includes the power to vote or direct the
voting of such security) and/or investment returns or power (which includes the power to dispose
of, or direct the disposition of such security). (Roy III vs. Herbosa, G.R. No. 207246, November 22, 2016, J.
Caguioa)

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23. How do you construe full beneficial ownership?
For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere legal
title is not enough to meet the required Filipino equity. Full beneficial ownership of the stocks,
coupled with appropriate voting rights is essential. Thus, stocks, the voting rights of which have been
assigned or transferred to aliens cannot be considered held by Philippine citizens or Philippine
nationals. (Roy III vs. Herbosa, G.R. No. 207246, November 22, 2016, J. Caguioa)

24. What are the three effects of corporation by estoppel?

Liability Defense of lack of Third Party
corporate personality
All persons who assume When such ostensible Anyone who assumes an obligation to an
to act as a corporation corporation is sued, it ostensible corporation as such cannot resist
knowing it to be without shall not be allowed to performance thereof on the ground that there
authority to do so shall use its lack of corporate was in fact no corporation. The doctrine of
be liable as general personality as a defense. estoppel applies to a third party only when he
partners for all debts, tries to escape liability on a contract from which
liabilities and damages he has benefited on the ground of defective
incurred or arising as a incorporation. It does not apply to a third party
result thereof. who is not trying to escape liability from the
contract, but rather is the one claiming from the
contract.
(International Express Travel v. CA, G.R. No. 119002, October 19, 2000)

25. Distinguish Control Test from Grandfather Rule.

Control Test Grandfather Rule
The mode of determining the nationality of a The percentage of Filipino equity in a corporation
corporation engaged in nationalized areas of engaged in nationalized and/or partly nationalized
activities, provided for under the Constitution areas of activities, provided for under the Constitution
and other applicable laws, where corporate and other applicable laws, is accurately computed, in
shareholders with foreign shareholdings are cases where corporate shareholders with foreign
present, by ascertaining the nationality of the shareholdings are present, by attributing the
controlling stockholder of the corporation. nationality of the second or even subsequent tier of
ownership to determine the nationality of the corporate
Shares belonging to corporations or shareholder.
partnerships at least 60% of the capital of
which is owned by Filipino citizens shall be When in the mind of the Court, there is doubt, based
considered as of Philippine nationality, but if on the attendant facts and circumstances of the case,
the percentage of Filipino ownership in the in the 60-40 Filipino equity ownership in the
corporation or partnership is less than 60%, corporation, then it may apply the "grandfather rule."
only the number of shares corresponding to — the Grandfather Rule is a "supplement" to the
such percentage shall be counted as of Control Test so that the intent underlying the averted
Philippine nationality. Sec. 2, Art. XII of the Constitution be given effect.
(Narra Nickel Mining and Development Corp vs Redmont Consolidated Mines Corp., G.R. 195580, Jan. 28, 2015)

26. To determine Filipino ownership, which shares should be considered?

True. In the case of Roy III vs. Herbosa, the Supreme Court held that the required percentage of
Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock
entitled to vote in the election of directors; AND (b) the total number of outstanding shares of stock,
whether or not entitled to vote in the election of directors. (Roy III vs. Herbosa, G.R. No. 207246, November
22, 2016)

27. The following is the composition of Sana Oil Company, a public utility company:

Outstanding Kind of Stock Filipino Shares

Stock
100 Common Shares 60
100 Class A Preferred Shares with right to elect directors 60
100 Class B Preferred Shares without right to elect directors 50

Is the company compliant with the 60-40 requirement under the Constitution?
No. To determine if a corporation is a “Philippine National,” the Voting Control Test and the
Beneficial Ownership Test must be applied.

Under the Voting Control Test, there should be at least 60% voting shares owned by Filipinos. For
Sana All Company, there should at least be a total of 120 of common shares and Class A preferred
shares (in any combination) owned and controlled by Filipinos for it to be compliant with the 60%

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 of the voting rights in favor of Filipinos requirement. Here, it has 60 common shares and 60 Class
A preferred shares (with right to elect directors). Thus, Sana All Company passed the Voting Control
Test.

However, under the Beneficial Ownership Test, at least 60% of all the outstanding capital stock
should be owned by Filipinos. For Sana All Company, there should be at least a total of 180 shares
of all the outstanding capital stock owned and controlled by Filipinos (provided that among those
180 shares a total of 120 of the common shares and Class A preferred shares (in any combination)
are owned and controlled by Filipinos). Here, there are only 170 shares owned by Filipinos out of
all the outstanding capital stock. (Roy III vs. Herbosa, G.R. No. 207246, November 22, 2016)

28. What are the instances when a corporation may acquire and redeem its own shares?
Purchase/acquire own shares May redeem its own share
A stock corporation shall have the 1. To redeem redeemable shares; (Sec. 8, RCC)
power to purchase or acquire its 2. To acquire treasury shares; (Sec. 9, RCC)
own shares for legitimate 3. To eliminate fractional shares arising out of stock dividends. (Sec.
corporate purposes, provided that 40(a), RCC)
the corporation has unrestricted 4. To collect or compromise an indebtedness to the corporation
retained earnings in its books to arising out of unpaid subscription in a delinquency sale, and to
cover the shares to be purchase delinquent shares sold during said sale; (Sec. 40(b), RCC)
purchased/acquired. The 5. To pay dissenting or withdrawing stockholders entitled to
requirements are: (a) The payment for their shares – in the exercise of appraisal right; (Sec.
40(c), RCC)
acquisition is for a legitimate
corporate purpose or purposes; 6. To effect a decrease of capital stock;
and (b) The corporation has 7. In close corporations, when there is a deadlock in the
unrestricted retained earnings in management of the business. (Sec. 103, RCC)
its books to cover the shares to be 8. In close corporations, a stockholder may compel the corporation
purchased or acquired (Sec. 40, RCC) to purchase his shares, for any reason, provided only that the
corporation has sufficient assets in its books to cover its debts
and liabilities exclusive of capital stock (Sec. 104, RCC)

29. What are the ways of increasing and decreasing the capital stock?
a. By decreasing the number of shares and retaining the par value
b. By decreasing the par value of existing shares without changing the number of shares
c. By decreasing the number of shares and decreasing the par value (Sec. 37, RCC)

30. What is the doctrine of equality of shares?

Each share shall be equal in all respects to every other share, except as otherwise provided in the
articles of incorporation and in the certificate of stock. All stocks issued by the corporation are
presumed equal with the same privileges and liabilities, provided that the Articles of Incorporation is
silent on such differences. (Commissioner of Internal Revenue vs. CA, et al., G.R. No. 108576, January 20, 1999)

31. Who are corporate officers?

a. The president who must be a director;
b. The treasurer who may or may not be a director;
c. The secretary who should be a resident and a citizen of the Philippines;
d. Such other officers as may be provided for in the by-laws; and
e. Compliance officer – if the corporation is vested with public interest. (Sec. 24, RCC)

As a general rule, a person may As an exception, a president As an exception to the

hold two (2) or more positions CANNOT serve as a secretary or exception, the president may
concurrently treasurer at the same time. serve as the secretary or
treasurer at the same time if the
RCC allows the same.
Note: The chairman of the board is not prohibited from being elected as treasurer or secretary.

In a non-stock corporation, In a close corporation, they In case of a One Person

other corporate officers may be are to be elected by the Corporation (OPC), the single
elected, unless the articles and by- stockholders, unless otherwise stockholder may be self-
laws provide otherwise, directly by provided in the articles or by- appointed as treasurer but not as
the members. (Sec. 91, RCC) laws. (Sec. 96, RCC) corporate secretary. (Sec. 122, RCC)

32. Is fraud insofar as the Doctrine of Piercing the Veil be presumed?

No. The piercing of the veil of corporate fiction is frowned upon and can only be done if it has been
clearly established that the separate and distinct personality of the corporation is used to justify a
wrong, protect fraud, or perpetrate a deception. To disregard the separate juridical personality of a

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 corporation, the wrongdoing must be established clearly and convincingly. It cannot be presumed.
(Symex Security Services, Inc. V. Magdalino O. Rivera, Jr.. G.R. No. 202613, November 08, 2017, J. Caguioa)

33. Who is an interlocking director and a self-dealing director?

INTERLOCKING SELF-DEALING DIRECTOR
DIRECTOR
An interlocking director is a A self-dealing director is one who deals or transacts business with his own
director in one corporation corporation.
who deals or transacts with General rule: A contract of the corporation with one (1) or more of its
another corporation of directors, trustees, officers or their spouses and relatives within the fourth
which he is also a director civil degree of consanguinity or affinity is voidable, at the option of such
(or also known as arms- corporation
length transaction). In such Exception: when ALL the conditions laid down in Sec. 31 are met.
case, there may effectively a. The presence of such director or trustee in the board meeting in which
be a dual agency, a divided the contract was approved was not necessary to constitute a quorum
allegiance where allegiance for such meeting;
in one corporation may b. The vote of such director or trustee was not necessary for the
subordinated to the other. approval of the contract;
c. The contract is fair and reasonable under the circumstances
d. In case of corporations vested with public interest, material contracts
are approved by at least two-thirds (2/3) of the entire membership of
the board, with at least a majority of the independent directors voting
to approve the material contract; and
e. In the case of an officer, the contract has been previously authorized
by the board of directors.
Where any of the first three (3) conditions set forth in the preceding
paragraph is absent, in the case of a contract with a director or trustee,
such contract may be ratified by
1. the vote of the stockholders representing at least two-thirds (2/3) of
the outstanding capital stock or of at least two-thirds (2/3) of the
members in a meeting called for the purpose: an
2. full disclosure of the adverse interest of the directors or trustees
involved is made at such meeting and the contract is fair and
reasonable under the circumstances. (Sec. 31, RCC)

34. What are the kinds of piercing the corporate veil?

Traditional veil-piercing Reverse piercing action
a court disregards the flows in the opposite direction (of traditional corporate veil-piercing) and
existence of the corporate makes the corporation liable for the debt of the shareholders
entity so a claimant can Outside Reverse Piercing — Inside Reverse Piercing — in insider
reach the assets of a occurs when a party with a reverse piercing, the controlling
corporate insider claim against an individual or members will attempt to ignore the
corporation attempts to be corporate fiction in order to take
repaid with assets of a advantage of a benefit available to the
corporation owned or corporation, such as an interest in a
substantially controlled by the lawsuit or protection of personal assets.
defendant.
(Intl. Academy of Management and Economics vs. Litton and Company, G.R. No. 191525, Dec. 13, 2017)

35. What is the theory of specific capacity?

No corporation under the Corporation Code shall possess or exercise any corporate powers, except
those conferred by law, its articles of incorporation, those implied from express powers, and those
as are necessary or incidental to the exercise of the powers so conferred. (Sec. 44, RCC)

36. Discuss the rule on Ultra Vires Acts and distinguish from an Illegal Act.
General Rule: Corporate acts that are outside those express definitions under the law or articles of
incorporation or those committed outside the object for which a corporation is created are ultra vires.

Exception: When the acts are necessary and incidental to carry out a corporation’s purposes and
to the exercise of powers conferred by the Corporation Code and under a corporation’s article of
incorporation. (University of Mindanao, Inc. vs. Bangko Sentral ng Pilipinas, G.R. No. 194964-65, January 11, 2016)

The term "ultra vires" is "distinguished from an illegal act for the former is merely voidable which
may be enforced by performance, ratification, or estoppel, while the latter is void and cannot be
validated. (Atrium Management Corporation vs. Court of Appeals, G.R. No. 109491, February 28, 2001)

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37. Explain the “Trust Fund Doctrine”.
The trust fund doctrine provides that subscriptions to the capital stock of a corporation constitute a
fund to which the creditors have a right to look for the satisfaction of their claims. (Ong vs. Tiu, G.R.
Nos. 144476 and 144629, April 8, 2003)

38. When does a capital stock become a trust fund for the benefit of its creditors?
It is only in the event of its dissolution or insolvency, does the capital stock become a trust fund for
the benefit of its creditors. (Enano-Bote v. Alvarez, G.R. No. 223572, November 10, 2020)

39. Explain the “Doctrine of Apparent Authority”

When a corporation intentionally or negligently clothes its agent with apparent authority to act in its
behalf, it is estopped from denying its agent's apparent authority as to innocent third parties who
dealt with this agent in good faith. (Calubad vs Ricarcen Corporation, G.R. No. 202364, August 30, 2017)

40. Explain the “Business Judgment Rule”.

The Business Judgment Rule provides that the board of directors (or trustees, in case of non-stock
corporations) has the sole authority to determine policies, enter into contracts, and conduct the
ordinary business of the corporation within the scope of its charter. (Filipinas Port Services vs. Go G.R. No.
161886, March 16, 2007)

41. What is the “Holdover Principle”?

Under the Holdover Principle, directors serve for a term of one (1) year and until their successors
are elected and qualified. This means that if no election is conducted or no qualified candidate is
elected, the incumbent director shall continue to act as such in a hold-over capacity until an election
is held and qualified candidate is so elected. (Detective and Protective Bureau vs. Cloribel, G.R. No. L-23428,
November 29, 1968)

42. What is the Forbidden Profits Rule?

Directors and officers are fiduciary representatives of the corporation and as such, they are not
allowed to obtain any personal profit, commission, bonus or gain for their official actions. (Sec. 33,
RCC)

43. What is the Doctrine of Corporate Opportunity

If there is presented to a corporate officer or director a business opportunity, which the corporation
has an interest or a reasonable expectancy, the self-interest of the officer or director will be brought
into conflict with that of his corporation. The law does not permit him to seize the opportunity even
if he will use his own funds in the venture. If he seizes the opportunity thereby obtaining profits to
the expense of the corporation, he must account all the profits by refunding the same to the
corporation. (Sec. 33, RCC)

44. What are the fundamental rights of stockholders?

I. Control and Participation in Management Rights
1. Right to elect and remove directors (Secs. 23 and 27, RCC);
2. Right to adopt, amend, or repeal the by-laws or adopt a new by-laws (Secs. 45 and 47, RCC);
3. Right to attend and vote in person or by written proxy at stockholder’s meetings (Secs. 49 and 57,
RCC);
4. Right to compel the calling of meetings (Sec. 49, RCC);
5. Right to approve or ratify certain corporate actions (Sec. 50, RCC);
6. Right to enter into voting trust agreements (Sec. 58, RCC); and
7. Right to have the corporation voluntarily dissolved (Secs. 134 and 135, RCC)
II. Proprietary Rights
1. Right to pre-emption in the issuance of shares (Sec. 38, RCC);
2. Right to dividends when declared (Sec. 42, RCC);
3. Right to issuance of stock certificate for fully paid shares (Sec. 62, RCC);
4. Right to transfer of stocks in the corporate books (Sec. 62, RCC);
5. Right to exercise appraisal right (Sec. 80, RCC); and
6. Right to proportionate participation in the distribution of assets in liquidation (Secs. 134, 135, and
139, RCC)
III. Other Fundamental Rights
1. Right to demand payment in the exercise of appraisal right (Secs. 40 and 80, RCC);
2. Right to recover stocks unlawfully sold for delinquent payment of subscription (Sec. 68, RCC);
3. Right to inspect books and records (Sec. 73, RCC);
4. Right to be furnished with the most recent financial statements or reports (Sec. 74, RCC); and
5. Right to file individual, representative, and/or derivative suit.

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45. Distinguish Pre-Emptive Rights in Close and Ordinary Corporation.
Ordinary Stock Corporation Close Corporation
The shareholders of an ordinary stock In case of close corporation, if not denied by the provision
corporation cannot exercise their of AOI can exercise its preemptive right even for money,
preemptive right in case the shares are payment of indebtedness or property. Exceptions will not
to be issued in compliance with the laws apply to close corporation, unless provided in the AOI.
requiring minimum stock ownership or
shares issued in good faith with approval Any shareholder of a close corporation, may for any reason,
of ⅔ OCS for payment to the debts or compel the close corporation to buy shares which shall not
properties needed to be paid by the be less than the par or issued value, provided that the close
corporation. The treasury shares are corporation has the sufficient funds exclusive of outstanding
included (Note Sec. 38 uses the word “any”). capital stock.

46. Enumerate the instances and the limitations on the exercise of appraisal right.
Instances Limitations
1. In case an amendment to the 1. Any of the instances provided by law for the exercise of the
articles of incorporation has the right by a dissenting stockholder must be present.
effect of changing or restricting the 2. The dissenting stockholder must have voted against the
rights of any stockholder or class of proposed corporate action. The right is not available to a
shares, or of authorizing stockholder who was either absent at the meeting where
preferences in any respect superior the corporate action was approved, or was present at such
to those of outstanding shares of meeting but abstained from casting his vote.
any class, or of extending or 3. A written demand on the corporation for payment of his
shortening the term of corporate shares must be made by him within 30 days after the date
existence; the vote was taken. Failure to make the demand within
2. In case of sale, lease, exchange, such period shall be deemed a waiver of the appraisal right.
transfer, mortgage, pledge or other 4. The price must be based on the fair value of the shares as
disposition of all or substantially all of the day prior to the date on which the vote was taken.
of the corporate property and assets If the proposed corporate action is implemented or
as provided in the Code; effected, the payment shall be made upon surrender of the
3. In case of merger or consolidation; certificates of stock representing his shares.
and 5. Such fair value must be determined as provided in Sec. 82.
4. In case of investment of corporate The fair value shall exclude any appreciation or
funds for any purpose other than the depreciation in anticipation of such corporate action.
primary purpose of the corporation. 6. Payment of the shares must be made only out of the
(Sec. 80, RCC) unrestricted earnings of the corporation. No payment shall
5. In a close corporation, stockholder be made to any dissenting stockholder unless the
may, for any reason, compel the corporation has unrestricted retained earnings in its books
corporation to purchase shares held to cover the payment. The trust fund doctrine backstops
at fair value, which shall not be less the requirement of unrestricted retained earnings to fund
than the par or issued value, when the payment of the shares of stocks of the withdrawing
the corporation has sufficient assets stockholders (Philip Turner, et al., v. Lorenzo Shipping Corp., G.R. No.
in its books to cover its debts and 157479, November 24, 2010)
liabilities exclusive of capital stock. 7. Upon such payment, the stockholder must transfer his
(Sec. 104, RCC) shares to the corporation (Sections 81 and 42, RCC)

47. What is a Derivative Suit?

Derivative suit is an action brought by one or more stockholders or members in the name and on
behalf of the corporation to redress wrongs committed against it or to protect or vindicate corporate
rights, whenever the officials of the corporation refuse to sue or are the ones to be sued or hold
control of the corporation. (Ching vs. Subic Bay Golf & Country Club, Inc., GR No. 174353, September 10, 2014)
(Divina, Questions and Answers on the Revised Corporation Code, 2020 edition, p. 374)

48. When are “non-voting” shares entitled to vote?

1. Amendment of Articles of Incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange mortgage, pledge, or disposition of all to substantially all of corporate
property;
4. Incurring, creating, or increasing bonded indebtedness;
5. Increase of decrease of capital stock
6. Merger or consolidation
7. Investment of corporate funds in another corporation or another business purpose; and
8. Corporate dissolution (Sec. 6, RCC)

8
49. What are the limitations on the issuance of no-par value shares?
1. Cannot have an issued price of less than P5.00.
2. Entire consideration constitutes capital. No part of it should be Distributed as dividends.
3. Cannot be issued as Preferred stocks.
4. Cannot be issued by Banks, Building and loan association, Trust companies, Insurance companies,
and public utilities.
5. Articles of incorporation must state the fact that it issued no par value shares as well as the
number of said shares
6. Once issued, are deemed fully paid and non-assessable (Sec. 6, RCC)

50. What are the grounds for involuntary dissolution of the corporation?
a. Non-use of corporate charter as provided under Section 21 of the RCC;
b. Continuous inoperation of a corporation as provided under Section 21 of the RCC;
c. Upon receipt of a lawful court order dissolving the corporation;
d. Upon finding by final judgment that the corporation procured its incorporation through fraud;
e. Upon finding by final judgment that the corporation:
1. Was created for the purpose of committing, concealing or aiding the SEC of securities
violations, smuggling, tax evasion, money laundering, or graft and corrupt practices;
2. Committed or aided in the SEC of securities violations, smuggling, tax evasion, money
laundering, or graft and corrupt practices, and its stockholders knew of the same; and
3. Repeatedly and knowingly tolerated the SEC of graft and corrupt practices or other
fraudulent or illegal acts by its directors, trustees, officers, or employees. (Sec. 138, RCC)

51. What is a close corporation and its corresponding requisites?

A close corporation is one whose articles of incorporation provides that:
a. All the corporation’s issued stock of all classes, exclusive of treasury shares shall be held of
record by not more than a specified number of persons not exceeding twenty (20)
b. All the issued stock of all classes shall be subject to one (1) or more specified restrictions
restriction on transfer permitted by this Title;
c. The corporation shall not list in any stock exchange or make any public offering of its stocks of
any class; and
d. At least 2/3 of its voting stock or voting rights must not be owned or controlled by another
corporation which is not a close corporation. (Sec. 95, RCC)

52. When are unlicensed foreign corporations may be allowed to sue?

1. If the act or transaction involved is an isolated transaction or the corporation is not seeking to
enforce any legal or contractual rights arising from, or growing out of, any business which it has
transacted in the Philippines; (Western Supply vs. Reyes, G.R. No. L-27897, December 2, 1927)
2. If the purpose of the suit is to protect its trademark, trade name, corporate name, reputation or
goodwill; (Fredco Manufacturing vs. Harvard, G.R. No. 185917, June 1, 2011)
3. Where it is based on violation of the Revised Penal Code; (Time, Inc. vs. Reyes, G.R. No. L-28882, May 31,
1971)
4. If it is merely defending a suit filed against it; (Ibid)
5. Where the party is estopped to challenge the personality of the corporation by entering into a
contract with it. (Rimbunan Hijau vs. Oriental Wood, G.R. No. 152228, September 23, 2005)

53. What are the requisites for the limited liability of the single stockholder of a One Person
Corporation (OPC)?
A sole shareholder claiming limited liability has the burden of affirmatively showing that the
corporation was adequately financed. Where the single stockholder cannot prove that the property
of the OPC is independent of the stockholder’s personal property, the stockholder shall be jointly and
severally liable for the debts and other liabilities of the OPC. The principles of piercing the corporate
veil applies with equal force to OPC as with other corporations. (Sec. 130, RCC)

54. Who are the officers of a One Person Corporation (OPC)?

The single stockholder shall be the sole director and president of the OPC. Within fifteen (15) days
form the issuance of the certificate of incorporation, the OPC shall appoint the following:
1. Treasurer
2. Corporate Secretary; and
3. Other officers as it may deem necessary. (Sec. 121 and 122, RCC).

55. Distinguish merger from consolidation.

MERGER CONSOLIDATION
Uniting of two or more corporations by the transfer of property to Uniting or amalgamation of two or
one of them which continue in existence, the other or the others more existing corporations to form
being dissolved and merged therein. a new corporation.

9
 There is no new corporation created. A single new corporation is created.
The other constituent corporations are dissolved except the All corporations are dissolved, but a
surviving corporation. new one is created.
The surviving corporation acquires all the assets, liabilities, and All assets, liabilities, and capital
capital stock of all constituent corporations. stock of all consolidated
corporation are transferred to the
Note: Such acquisition necessarily includes the rights and new corporation.
obligations of the absorbed corporation under its employment
contracts. The surviving corporation becomes bound by the
employment contracts entered into by the absorbed corporation.
Hence, the employment contracts are not terminated. They subsist
unless their termination is allowed by law.
(Aquino, The Philippine Corporate Law Compendium, 2014 Edition)

IV. INTELLECTUAL PROPERTY CODE

(R.A. No. 8293; exclude implementing rules and regulations)

56. Distinguish Patents vs. Trademark vs. Copyright

Patents Trademark Copyright
A patent refers to any technical A trademark is any visible sign A copyright is confined to literary
solution of a problem in any field capable of distinguishing the and artistic works which are
of human activity which is new, goods (trademark) or services original intellectual creations in
involves an inventive step, and is (service mark) of an enterprise the literary and artistic domain
industrially applicable. and shall include a stamped or protected from the moment of
marked container of goods. In their creation.
relation thereto, a trade name
means the name or designation
identifying or distinguishing an
enterprise.
(Pearl & Dean (Phil.), Incorporated vs. Shoemart, Incorporated, G.R. No. 148222 August 15, 2003)

57. What is the three-fold purpose of patent law?

The three-fold purpose of patent law consists of the following:
1. Patent law seeks to foster and reward invention;
2. It promotes disclosures of inventions to stimulate further innovation and to permit the public
to practice the invention once the patent expires;
3. The stringent requirements for patent protection seek to ensure that ideas in the public
domain remain there for the free use of the public. (E.I. Dupont De Nemours and Co. v. Francisco, G.R.
No. 174379, August 31, 2016)

58. X Pharmaceuticals, Inc. has been manufacturing the antibiotic ointment Marvelopis,
which is covered by a patent expiring in the year 2020. In January 2019, the company
filed an application for a new patent for Disilopis, which although constituting the same
substance as Marvelopis, is no longer treated as an antibiotic but is targeted and
marketed for a new use, i.e., skin whitening. Should X Pharmaceuticals, Inc.'s patent
application for Disilopis be granted? Explain.
No, the patent application for Disilopis should not be granted. The use of the existing patent although
for a different purpose will not satisfy the elements of novelty and inventive step. Furthermore,
under the law, there is no inventive step if the drug or medicine is just a result of a discovery of any
new property or new use for a known substance. (Section 26.2, Intellectual Property Code, as amended; Divina,
Bar Q & A in Commercial Law, 2022, pp. 393-394)

59. What are the grounds for cancellation of patents?

Any interested person may, upon payment of the required fee, petition to cancel the patent or any
claim thereof, or parts of the claim, on any of the following grounds:(D-ICON)
1. Patent does not disclose the invention in a manner sufficiently clear and complete for it to be
carried out by any person skilled in the art; or
2. Patent is found invalid in an action for infringement (Sec. 82, IPC); or
3. Patent is contrary to public order or morality. (Sec. 61.1, IPC)
4. Patent includes matters outside the scope of the disclosure contained in the application (Sec 21,
IPC; Sec. 1, Regulations on Inter Partes Proceeding).
5. What is claimed as the invention is not new or patentable;

60. Super Biology Corporation (Super Biology) invented and patented a miracle medicine for
the cure of AIDS. Being the sole manufacturer, Super Biology sold the medicine at an
exorbitant price. Because of the sudden prevalence of AIDS cases in Metro Manila and
other urban areas, the Department of Health (DOH) asked Super Biology for a license to

10
 produce and sell the AIDS medicine to the public at a substantially lower price. Super
Biology, citing the huge costs and expenses incurred for research and development,
refused. Assuming you are asked your opinion as the legal consultant of the DOH, discuss
how you will resolve the matter.
DOH may file a petition for compulsory license with the Director of Legal Affairs of the Intellectual
Property Office to exploit the patented medicine even without the agreement of the patent owner
on the ground of public interest, in particular, health and safety of the public. Once granted, the
DOH may then produce and sell the AIDS medicines for a cheaper price subject to payment of
reasonable royalties to Super Biology. (Sec. 193 of RA 8293, as amended)

61. When is the right of priority in patent application relevant?

The right of priority given to a patent applicant is only relevant when there are two or more conflicting
patent applications on the same invention. Because a right of priority does not automatically grant
letters patent to an applicant, possession of a right of priority does not confer any property rights on
the applicant in the absence of an actual patent. (E.I. Dupont de Nemours and Co. vs. Francisco,
G.R. No. 174379. August 31, 2016)

62. What constitutes patent infringement?

Infringement is the making, using, offering for sale, selling, or importing a patented product or a
product obtained directly or indirectly from a patented process, or the use of a patented process
without the authorization of the patentee. (Sec. 76.1, IPC)

63. What are two tests in Patent Infringement

Literal Infringement Doctrine of Equivalents
To determine whether the particular item falls It takes place when a device appropriates a prior
within the literal meaning of the patent claims, the invention by incorporating its innovative concept
court must juxtapose the claims of the patent and and, although with some modification and change,
the accused product within the overall context of performs substantially the same function in
the claims and specifications, to determine whether substantially the same way to achieve substantially
there is exact identity of all material elements. the same result. (Smith Kline Corporation vs. Court of
(Godines vs. Court of Appeals, G.R. No. 97343, September 13, Appeals, G. R. No. 126627, August 14, 2003, citing Godines vs.
1993) Court of Appeals, G.R. No. 97343, September 13, 1993)

64. Zuneca Pharmaceutical has been selling its carbamazepine under the brand name
"ZYNAPS", which is an anti-convulsant used to control all types of seizure disorders of
varied causes like epilepsy. Natrapharm, on the other hand, manufacture and sell its
citicoline under the trademark "ZYNAPSE", which is indicated for the treatment of
cerebrovascular disease or stroke. Natrapharm registered the trademark "ZYNAPSE"
with the IPO. It also filed with the RTC a Complaint against Zuneca for Trademark
Infringement. Zuneca claimed that it has been selling "ZYNAPS" prior to Natrapharm's
registration for trademark with IPO. Meanwile, Natrapharm contends that as the first-
filer in good faith it has trademark rights over "ZYNAPSE".

a) Is Natrapharm correct?
Yes. Having been the first to register in good faith, Natrapharm is the owner of the trademark
"ZYNAPSE" and it has the right to prevent others, including Zuneca, from registering and/or using a
confusingly similar mark. The language of the IP Code provisions clearly conveys the rule that
ownership of a mark is acquired through registration. (Zuneca Pharmaceutical Natrapharm, Inc., G.R. No 211850,
September 8, 2020, J. Caguioa)

b) Is the prior user, Zuneca, liable for trademark infringement?

No. Zuneca is not liable for trademark infringement under Section 15 9 .1 of the IP Code. Under this
provision, a prior user in good faith may continue to use its mark even after the registration of the
mark by the first-to-file registrant in good faith, subject to the condition that any transfer or
assignment of the mark by the prior user in good faith should be made together with the enterprise
or business or with that part of his enterprise or business in which the mark is used. The mark cannot
be transferred independently of the enterprise and business using it. (Zuneca Pharmaceutical Natrapharm,
Inc., G.R. No 211850, September 8, 2020, J. Caguioa)

65. What does the first-to-file rule prioritize?

While it is the fact of registration which confers ownership of the mark and enables the owner thereof
to exercise the rights expressed in the IP Code, the first-to-file rule nevertheless prioritizes the first
filer of the trademark application and operates to prevent any subsequent applicant from registering
the mark. (Divina, Divina on Commercial Law A Comprehensive Guide, Vol. II, 2021, pp. 251-252; Zuneca Pharmaceutical
Natrapharm, Inc., G.R. No 211850, September 8, 2020, J. Caguioa)

66. Can the Holistic Test still be used in in evaluating trademark resemblance?

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 No. The Supreme Court (SC) has abandoned the “holistic test” in evaluating trademark resemblance
and emphasized the adoption of the “dominancy test.” Citing legislative deliberations leading to the
enactment of the IP Code, the Supreme Court concluded that the exclusion of the Holistic Test was
intentional and that the Dominancy Test should be adopted to put an end to the debate, once and
for all. (Kolin Electronics Co. Inc. vs Kolin Phils. International Inc., G.R. No. 228165, Feb. 9, 2021, J. Caguioa)

67. Explain the Multi-factor Test

In determining likelihood of confusion - which can manifest in the form of "confusion of goods"
and/or "confusion of business" - several tests or factors are considered and it may be collectively
referred to as the multifactor test:
1. The strength of the plaintiff's mark
2. The degree of similarity between the plaintiffs and the defendant's mark
3. The proximity of the products or services
4. The likelihood that the plaintiff will bridge the gap
5. Evidence of actual confusion
6. The defendant's good faith in adopting the mark
7. The quality of defendant's product or service; and/or
8. The sophistication of the buyers. (Kolin Electronics Co. Inc. vs Kolin Phils. International Inc., G.R. No. 228165,
Feb. 9, 2021, J. Caguioa)

68. What are the elements of trademark infringement?

The elements of trademark infringement are:
1. The trademark being infringed is registered in the IPO;
2. The trademark is reproduced, counterfeited, copied, or colorably imitated by the infringer;
3. The infringing mark is used in connection with the sale, offering for sale, or advertising of any
goods, business, or services; or the infringing mark is applied to labels, signs, prints, packages,
wrappers, receptacles, or advertisements intended to be used upon or in connection with such
goods, business, or services;
4. The use or application of the infringing mark is likely to cause confusion or mistake or to
deceive purchasers or others as to the goods or services themselves or as to the source or
origin of such goods or services or the entity of such business; and
5. It is without the consent of the trademark owner or the assignee thereof. (Kolin Electronics Co.
Inc. vs Kolin Phils. International Inc., G.R. No. 228165, Feb. 9, 2021, J. Caguioa)

69. What are the requirements for a geographically descriptive mark to acquire secondary
meaning?
a. The secondary meaning must have arisen as a result of substantial commercial use of a mark in
the Philippines
b. Such use must result in the distinctiveness of the mark insofar as the goods are concerned, and;
c. Proof of substantially exclusive and continuous commercial use in the Philippines for five (5)
years before the date on which the claim of distinctiveness is made perceptibly disqualified from
trademark registration (Shang Properties Realty Co. and Shang Properties, Inc. v St. Francis Dev’t. C., GR No.
190706, July 21, 2014)

70. Distinguish Confusion of Goods and Business.

Confusion of Goods/Services Confusion of Business/Origin

Exists when the ordinary prudent purchaser would Exists when one party's product or service though
be induced to purchase one product or service different from that of another, is such as might
because of the similarity of the marks or trade reasonably be assumed to originate from the latter
names used on the same kind of product or service. and the public would then be deceived into the
belief that there is some connection between the
parties which in fact is absent.
(Skechers, U.S.A., Inc. v. Inter Pacific industrial Trading Corp et. al, GR No. 164321, March 23, 2011)

71. What is trademark dilution?

Trademark dilution is the lessening of the capacity of a famous mark to identify and distinguish goods
or services. To be eligible for the protection from dilution, there has to be a finding that: (1) the
trademark sought to be protected is famous and distinctive; (2) the use by another began after the
owner’s mark became famous; and (3) such subsequent use defames the owner’s mark. (Levi Strauss
& Co. vs. Clinton Apparelle, Inc., G.R. No. 138900, September 20, 2005)

72. Define unfair competition.

Unfair competition has been defined as the passing off (or palming off) or attempting to pass off
upon the public of the goods or business of one person as the goods or business of another with the
end and probable effect of deceiving the public. Passing off (or palming off) takes place where the

12
 defendant, by imitative devices on the general appearance of the goods, misleads prospective
purchasers into buying his merchandise under the impression that they are buying that of his
competitors. Thus, the defendant gives his goods the general appearance of the goods of his
competitor with the intention of deceiving the public that the goods are those of his competitor.
(Divina, Divina on Commercial Law A Comprehensive Guide, Vol. II, 2021, pp. 296; Republic Gas Corporation v. Petron
Corporation, G.R. No. 194062, June 17, 2013; Bar 2019)

73. What is fair use?

Fair use has been defined as a privilege to use the copyrighted material in a reasonable manner
without the consent of the copyrighted owner or as copying the theme or ideas rather than their
expression. xxx Commercial use of the copyrighted work can be weighed against fair use. (ABS-CBN
Corp. vs. Gozon, G.R. No. 195956, March 11, 2015)

ANTI-MONEY LAUNDERING ACT (R.A. No. 9160, as amended)

74. What is money laundering?

It is a crime whereby the proceeds of an unlawful activity are transacted, thereby making them
appear to have originated from legitimate sources. It is also committed by any covered person who,
knowing that a covered or suspicious transaction is required under this Act to be reported to the
AMLC, fails to do so. (Sec. 4, RA 9160).

75. Who are the covered institutions/persons under AMLA?

1. Supervised or regulated by the Bangko Sentral ng Pilipinas (BSP)
2. Supervised or regulated by the Insurance Commission (IC)
3. Supervised or regulated by the Securities and Exchange Commission
4. Jewelry dealers
5. Company service providers
6. Persons who provide for any of the following services:
a. Managing of client money, securities, or other assets;
b. Management of bank, savings, or securities account;
c. Organization or contribution for the creation, operation, or management of companies; and
d. Creation, operation or management of juridical persons or arrangements, and buying and
selling business entities. (Sec. 3(a), RA 9160, as amended by RA 10365)
7. Casinos, including internet and ship-based casinos
8. Real estate developers and brokers; (Sec. 2, RA 11521 amending Sec. 3(a) of RA 9160)
9. Offshore gaming

76. Who are professionals excluded from covered persons?

The term ‘covered persons’ shall exclude lawyers and accountants acting as independent legal
professionals in relation to information concerning their clients or where disclosure of information
would compromise client confidences or the attorney-client relationship: Provided, That these
lawyers and accountants are authorized to practice in the Philippines and shall continue to be subject
to the provisions of their respective codes of conduct and/or professional responsibility or any of its
amendments. (Sec. 3(a), RA No 9160)

77. What are the obligations of covered institutions?

1. Customer identification - (“Know Your Client” KYC) (Sec. 9 (a), RA No 9160)
2. Record keeping (Sec. 9 (b), RA No 9160)
3. Reporting of covered and suspicious transactions (Sec. 9(c), RA No 9160)

78. What is the distinction between a "covered transaction report" and a "suspicious
transaction report"?
A covered transaction report involves transaction/s in cash or other equivalent monetary instrument
involving a total amount in excess of P500,000.00 within one banking day while suspicion transaction
report involves transactions with covered institutions regardless of the amounts involved made under
any of the suspicious circumstances enumerated by law. (Divina, Bar Q & A in Commercial Law, 2022, pp. 290)

79. Explain the safe harbor provision.

The safe harbor provision is a statutory privilege which arises when reporting covered or suspicious
transactions to the AMLC, covered institutions and their officers and employees, shall not be deemed
to have violated the secrecy of bank deposits law and similar laws. (Rule 9.3.c., RIRR)

In fact, no administrative, criminal or civil proceedings shall lie against any person for having made
a covered or suspicious transaction report in the regular performance of his duties and in good faith,
whether or not such reporting results in any criminal prosecution under this Act or any other
Philippine law. (Rule 9.3.e, RIRR, in relation to Sec. 7, AMLC Regulatory Issuance A, B, and C No. 1 Series of 2021)

13
80. What is the basis of the authority of the Anti-Money Laundering Council to inquire into
deposits or funds without committing a violation of the law on secrecy of bank deposits?
The AMLC are respectively required to ascertain the existence of probable cause before any bank
inquiry order is issued. Section 11 of R.A. 9160, even with the allowance of an ex parte application
therefor, cannot be categorized as authorizing the issuance of a general warrant.

This is because a search warrant or warrant of arrest contemplates a direct object but the bank
inquiry order does not involve the seizure of persons or property. Lastly, the holder of a bank account
subject of a bank inquiry order issued ex parte is not without recourse. He has the opportunity to
question the issuance of the bank inquiry order after a freeze order is issued against the account.
He can then assail not only the finding of probable cause for the issuance of the freeze order, but
also the finding of probable cause for the issuance of the bank inquiry order. (Estrada v. Sandiganbayan,
AMLC, and People of the Philippines, G.R. 217682, July 17, 2018)

81. What are “covered transactions” and "suspicious transactions.”

COVERED TRANSACTIONS SUSPICIOUS TRANSACTIONS
1. General Covered Transactions – A “Suspicious transactions” are transactions with covered
transaction in Cash or other institutions, regardless of the amounts involved, where any of
equivalent monetary instrument the following circumstances exist:
exceeding ₱500,000 within one (1) 1. There is no underlying legal or trade obligation, purpose
banking day. or economic justification;
2. Transactions in cash or other 2. The client is not properly identified;
equivalent monetary instrument by 3. The amount involved is not commensurate with the
dealers of jewelry, precious metals, business or financial capacity of the client;
and precious stones in excess of 4. Taking into account all known circumstances, it may be
₱1,000,000 (Sec 3(a)(4), RA No perceived that the client’s transaction is structured in order
9160); and to avoid being the subject of reporting requirements under
3. Real estate single cash transactions Act;
involving an amount in excess of 5. Any circumstance relating to the transaction which is
₱7,500,000 or its equivalent in any observed to deviate from the profile of the client and/or
other currency. (Sec. 2, RA 11521 the client’s past transactions with the covered institution.
amending Sec. 3(a), RA No 9160) 6. The transactions is in anyway related to an unlawful
4. Single Casino cash transactions activity or offense under this Act that is about to be, is
including internet and ship-based being or has been committed; or
casinos involving an amount in 7. Any transaction that is similar or analogous to any of the
excess of ₱5,000,000 or its foregoing. (Sec. 3(b-1), RA 9160)
equivalent in any other currency.

82. What is a freeze order?

A Freeze Order or asset preservation order is a provisional remedy aimed at blocking or restraining
monetary instruments or properties in any way related to an unlawful activity, as herein defined,
from being transacted, withdrawn, deposited, transferred, removed, converted, concealed, or
otherwise moved or disposed without affecting the ownership thereof.(Rule 2, Sec. 1(mm) of 2018 IRR of
R.A. No. 9160)

83. Does the Anti-Money Laundering Council have the authority to freeze deposits? Explain.
No. The authority to freeze deposits is lodged with and based upon the order of the Court of Appeals.
(Section 10 of RA 9160, as amended; Divina, Bar Q & A in Commercial Law, 2022, pp. 290-191)

84. What are the three rules in mutual assistance among States under AMLA?
General Rule Where a foreign State makes an MLA request in the investigation or prosecution of a
ML/Terrorism Financing (TF) offense, the AMLC may execute the request or refuse
to execute the same and inform the foreign State of any valid reason for not executing
the request or for delaying the execution thereof.
Exception The AMLC may refuse to comply with any MLA request where the action sought in
the request:
1. Contravenes any provision of the Constitution; or
2. The execution of the request is likely to prejudice the national interest of the
Philippines.
Exception to There is a treaty between the Philippines and the requesting State relating to the
the exception provision of assistance in relation to ML/TF or associated unlawful activity. (Sec. 1, Rule
29, 2018 RIRR, RA 9160)

VI. ELECTRONIC COMMERCE ACT (R.A. No. 8792)

85. Explain the principle of equivalent compliance under the E-commerce Act.
Any legal requirement that a document be in writing is complied with by an electronic document if:

14
 a. It maintains its integrity and reliability; and
b. It can be authenticated, so as to be usable for subsequent reference, in that –
i. The electronic document has remained complete and unaltered, apart from the
addition of any endorsement and any authorized change, or any change which arises in
the normal course of communication, storage and display; and
ii. The electronic document is reliable in the light of the purpose for which it was
generated and in the light of all relevant circumstances. (Sec. 7 (a), R.A. 8792)

Equivalent compliance still applies whether the requirement therein is in the form of an obligation or
whether the law simply provides consequences for the document not being presented or retained in
its original form.

86. Distinguish Electronic Signature from Digital Signature

Electronic signature Digital signature
Refers to any distinctive mark, Refers to an electronic signature consisting of a transformation of
characteristic and/or sound in an electronic document or an electronic data message using an
electronic form, representing the asymmetric or public cryptosystem such that a person having the
identity of a person and attached initial untransformed electronic document and the signer's public
to or logically associated with the key can accurately determine:
electronic data message or i. whether the transformation was created using the private key
electronic document or any that corresponds to the signer's public key; and
methodology or procedures ii. whether the initial electronic document had been altered after
employed or adopted by a person the transformation was made.
and executed or adopted by such
person with the intention of Digitally signed
authenticating or approving an Refers to an electronic document or electronic data message
electronic data message or bearing a digital signature verified by the public key listed in a
electronic document. certificate.

87. What are the rules on the admissibility and manner of authentication of an Electronic
Signature or Electronic Document?
Electronic Documents
An electronic document is admissible in evidence if it
complies with the rules on admissibility prescribed by
the Rules of Court and related laws and is authenticated
in the manner prescribed by the Rules on Electronic
Evidence.
Before any private electronic document offered as
authentic is received in evidence, its authenticity must
be proved by any of the following means:
1. by evidence that it had been digitally signed by the
person purported to have signed the same;
2. by evidence that other appropriate security
procedures or devices as may be authorized by the
Supreme Court or by law for authentication of
electronic documents were applied to the document;
or
3. by other evidence showing its integrity and reliability
to the satisfaction of the judge.
Electronic Signatures
An electronic signature or a digital signature
authenticated in the manner prescribed by the
Rules on Electronic Evidence is admissible in
evidence as the functional equivalent of the
signature of a person on a written document.
An electronic signature may be authenticated
in any of the following manner:
1. By evidence that a method or process was
utilized to establish a digital signature and
verify the same;
2. By any other means provided by law; or
3. By any other means satisfactory to the
judge as establishing the genuineness of
the electronic signature. (Sec. 2, Rule 6, Rules
on Electronic Evidence)

88. What is the obligation of confidentiality under E-commerce Act?

GENERAL RULE EXCEPTION
Any person who obtained access to any electronic Except for the purposes authorized under this Act
key, electronic data message or electronic document, (Sec. 32, RA 8792) Electronic key refers to a
book, register, correspondence, information, or other secret code which secures and defends sensitive
material pursuant to any powers conferred under this information that crosses over public channels
Act, shall not convey to or share the same with into a form decipherable only with a matching
any other person. electronic key.

89. What are the prohibited acts under the Electronic Commerce Act?
1. Hacking or crackling: unauthorized access into or interference in a computer system/server or
information and communication system; or any access in order to corrupt, alter, steal, or destroy
using a computer or other similar information and communication devices, without the knowledge
and consent of the owner of the computer or information and communications system, including

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 the introduction of computer viruses and the like, resulting in the corruption, destruction,
alteration, theft or loss of electronic data messages or electronic documents.
2. Piracy or the unauthorized copying, reproduction, dissemination, or distribution, importation, use,
removal, alteration, substitution, modification, storage, uploading, downloading, communication,
making available to the public, or broadcasting of protected material, electronic signature or
copyrighted works including legally protected sound recordings or phonograms or information
material on protected works, through the use of telecommunication networks, such as, but not
limited to, the internet, in a manner that infringes intellectual property rights.
3. Violations of the Consumer Act of Republic Act No. 7394 and other relevant to pertinent laws
through transaction covered by or using electronic data messages or electronic documents.
4. Other violations of the provisions of the Act.
(Divina, Divina on Commercial Law A Comprehensive Guide, Vol. II, 2021, p.585, Sec. 33, R.A. 8792).

FINANCIAL REHABILITATION, INSOLVENCY, LIQUIDATION and SUSPENSION OF PAYMENTS

(R.A. No. 10142, FR Rules [A.M. No. 12-12-11-SC], and FLSP Rules [A.M. No.15-04-06-SC])

90. Distinguish Voluntary liquidation vs. Involuntary liquidation vs. Conversion

Voluntary liquidation Involuntary liquidation Conversion
Is a proceeding initiated and Is a proceeding is initiated by the Is the act whereby an insolvent
applied for by the insolvent creditors of the insolvent debtor debtor under court-supervised or
debtor himself. (Sec. 90, FRIA) after sufficient demonstration that pre-negotiated rehabilitation is
their claims are uncontested, due, ordered by the court to be liquidated
and demandable but the debtor is upon proper motion by the insolvent
unwilling or unable to pay all his debtor, his creditors, or the
outstanding debts. (Sec. 91, FRIA) rehabilitation receiver. (Sec. 92, FRIA)

91. Under the Financial Rehabilitation and Insolvency Act (FRIA), the filing of a petition for
voluntary rehabilitation must be approved by:
A majority vote of the Board of Directors and authorized by the vote of the stock- holders
representing at least 2/3 of the out- standing capital stock. (Divina, Bar Q & A in Commercial Law, 2022, pp.
234-235)

92. What is a commencement order, and what is the effect of its issuance? Explain your
answer.
Commencement Order shall refer to the order issued by the court under Section 16 of FRIA. (Sec. 4
(e), FRIA)
Unless otherwise provided for in FRIA, issuance of Commencement Order shall, in addition to the
effects of a Stay or Suspension Order contained therein, shall:
1) On Rehabilitation Receiver Vest Receiver with all the powers and functions provided for FRIA;
2) On Claims and Proceedings Against Debtor Outside of Proceedings: Prohibit or otherwise served
as the legal basis rendering null and void the following which have been obtained, achieved or
occurred after the commencement date:
a) Results of any extrajudicial activity or process to seize property, sell encumbered property,
or otherwise attempt to collect or enforce a claim against Debtor;
b) Any set-off of any debt owed to Debtor by any of the creditors;
c) Perfection of any lien against Debtor's property.
3) Consolidates the resolution of all legal proceedings by and against the debtor to the
rehabilitation court; Provided, rehabilitation court may allow continuation of cases on other
courts where the debtor had initiated the suit; Otherwise, attempts to seek legal or other
recourse against the debtor outside these proceedings shall be sufficient to support a finding of
indirect contempt of court. (New Frontier Sugar Corporation vs. RTC, Branch 39, Iloilo City, G.R. No. 165001,
January 31, 2007)
4) Waiver of Taxes and Fees: Imposition of all taxes and fees, penalties, interests and charges
thereof, both national and LGUs, shall be considered waived, and until approval of rehabilitation
plan or dismissal of petition, whichever is earlier. (Sec. 19, FRIA)
Note: FRIA provisions on effects of Commencement Order and Stay/ Suspension Order on the
suspension of rights to foreclose or otherwise pursue legal remedies shall apply to GFIs,
notwithstanding provisions in their charters or other laws to the contrary. (Sec. 20, FRIA)

93. What does a Commencement Order contain? (RSSM)

a) Appointing a Rehabilitation Receiver and fixing his bond;
b) Staying enforcement of all claims, whether for money or otherwise and whether such
enforcement is by court action or otherwise, against the debtor, its guarantors and sureties not
solidarity liable with the debtor;
c) Prohibiting the debtor from selling, encumbering, transferring, or disposing in any manner any of
its properties except in the ordinary course of business;

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 d) Prohibiting the debtor from making any payment of its liabilities outstanding as at the date of
filing of the petition. (Dela Torre vs. Primetown Property Group, Inc., G.R. No. 221932 February 14, 2018)

94. What is Stay or Suspension Order?

Stay or Suspension Order shall refer to an order issued in conjunction with the commencement order
that shall suspend all actions or proceedings, in court or otherwise, for the enforcement of claims
against the debtor; suspend all actions to enforce any judgment, attachment or other provisional
remedies against the debtor; prohibit the debtor from selling, encumbering, transferring or disposing
in any manner any of its properties except in the ordinary course of business; and prohibit the debtor
from making any payment of its liabilities outstanding as of the commencement date except as may
be provided herein. (Sec. 5, Rule 1, FRR)

95. When may rehabilitation proceedings be converted to liquidation proceedings?

a. At any other time upon the recommendation of the rehabilitation receiver that the rehabilitation
of the debtor is not feasible;
b. After the receipt of the report of the rehabilitation receiver in court-supervised rehabilitation
proceedings, the court finds that: (1) the debtor is insolvent; and (2) there is no substantial
likelihood for the debtor to be successfully rehabilitated;
c. If no Rehabilitation Plan is confirmed within the maximum one-year period;
d. In court-supervised rehabilitation proceedings, if the termination of proceedings is due to failure
of rehabilitation or dismissal of the petition for reasons other than technical grounds;
e. At any time during the pendency of court-supervised or pre-negotiated rehabilitation proceedings
by the by way of motion.

96. Does a Stay Order apply against persons solidarily liable with the Debtor?
No. A stay order shall not apply "to the enforcement of claims against sureties and other persons
solidarily liable with the debtor, and third party or accommodation mortgagors as well as issuers of
letters of credit." (Trade and Investment Development Corporation of the Philippines (TIDCORP) v. Philippine Veterans
Bank, G.R. No. 233850, July 1, 2019, J. Caguioa)

97. What is a standstill period?

Standstill period shall refer to the period agreed upon by the debtor and its creditors to enable them
to negotiate and enter into an out-of-court or informal restructuring/workout agreement or
rehabilitation plan pursuant to Rule 4 of these Rules. The standstill agreement may include provisions
identical with or similar to the legal effects of a commencement order under Section 9, Rule 2 of
these Rules. (Sec. 4 (q), Rule 1, FRR)

98. What is the purpose of rehabilitation?

Corporate rehabilitation contemplates a continuance of corporate life and activities in an effort to
restore and reinstate the corporation to its former position of successful operation and solvency, the
purpose being to enable the company to gain a new lease on life and aloe its creditors to be paid
their claims out of its earnings. (Landbank of the Philippines vs Fastech Synerfy Phils., G.R. No. 206150, August 09,
2017)

99. In what instance will the remedy of rehabilitation should be denied?

The remedy of rehabilitation should be denied to corporations whose insolvency appears to be
irreversible and whose sole purpose is to delay the enforcement of any of the rights of the creditors.
(Landbank of the Philippines vs Fastech Synerfy Phils., G.R. No. 206150, August 09, 2017)

100. What are the minimum requirements for an out-of-court rehabilitation agreement
(OCRA)?
For an out-of-court or informal restructuring/ workout agreement/ rehabilitation plan (OCRA) to
qualify under Chapter III, it must meet the following minimum requirements:
a) Debtor must agree to the out-of-court or informal restructuring/ workout
agreement/rehabilitation plan;
b) It must be approved by creditors holding at least 85% of the total liabilities of the Debtor
representing:
i. At least 67% of the secured obligations of Debtor;
ii. At least 75% of the unsecured obligations of Debtor.
c) Publication of the notice of the OCRA once a week for at least 3- consecutive weeks on a
newspaper of general circulation. (Sec. 1, Rule 4, FRR)

101. Who may file for involuntary rehabilitation proceedings?

Any creditor or group of creditors with a claim of, or the aggregate of whose claims is, whichever
of is higher of:
i. At least P1,000,000; or
ii. At least 25% of the subscribed capital stock or partners' contributions (Sec. 4, Rule 2, FRR)

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102. Distinguish Actual from Technical Insolvency.
In case of actual insolvency, the corporation’s assets are not enough to cover its liabilities whereas
in technical insolvency, the corporation has enough assets but it foresees its inability to pay its
obligations for more than one year. (Philippine National Bank v. Court of Appeals, G.R. No. 165571, January 20,
2009)

103. Explain the principle of equality of equity.

Under the principle of equality of equity, during rehabilitation receivership, the assets are held in
trust for the equal benefit of all creditors to preclude one from obtaining an advantage or preference
over another by the expediency of an attachment, execution or otherwise. When a corporation
threatened by bankruptcy is taken over by a receiver, all the creditors stand on equal footing. (New
Frontier Sugar Corporation vs. RTC, G.R. No. 165001, January 31,2007)

104. Explain conversion specific to involuntary liquidation

Creditors' Petition or Motion for Involuntary Liquidation
Juridical Debtor Individual Debtor
If the petition or motion is sufficient in form and substance, the court shall Any creditor or group of
issue an Order: creditors with a claim of, or
directing the publication of the petition or motion in a newspaper of general with claims aggregating at
circulation once a week for two (2) consecutive weeks; and least Php500,000.00 may
directing the debtor and all creditors who are not the petitioners to file file a verified petition for
their comment on the petition or motion within fifteen (15) days from the liquidation with the court of
date of last publication. the province or city in
If, after considering the comments filed, the court determines that the which the individual debtor
petition or motion is meritorious, it shall issue a Liquidation Order (Sec. 91, resides. (Sec. 13, Rule 3,
FRIA). FLSPR)

105. Explain the following briefly:

Technical Insolvency Supervening Insolvency
Under technical insolvency is Under Supervening Insolvency, if at any time during the pendency of the
the inability of the petitioning proceedings, the petitioner has become or is shown to be insolvent,
corporation to pay although whether actual or technical, or it has violated any of the conditions of
temporarily, for a period the suspension order or has failed to make payments on its obligations
longer than one year from in accordance with the approved Repayment Schedule, the SEC (now
the filing of the petition. Special Commercial Courts) shall terminate the proceedings and dismiss
the petition. Instead of terminating the proceedings, however, the SEC
(now Special Commercial Courts) may upon motion, treat the petition as
one for rehabilitation of the debtor.
Union Bank of the Philippines vs. ASB Development Corporation, G.R. 172895, July 20,2008)

106. Explain the "cram-down” principle.

The "cram-down” principle consists of two things.
1) Binding effect of the approved plan on the debtor, and
2) Power of Court to approve plan despite opposition of creditors.
The “cram-down” clause is necessary to curb the majority creditors’ natural tendency to dictate their
own terms and conditions to the rehabilitation, absent due regard to the greater long-term benefit
of all stakeholders. Otherwise stated, it forces the creditors to accept the terms and conditions of the
rehabilitation plan, preferring long-term viability over immediate but incomplete recovery. (Bank of the
Philippine Islands vs. Sarabia Manor Hotel Corporation, GR No. 175844, 2013)

107. What is suspension of payments?

Suspension of payments is a remedy available to an individual debtor who, although possessing
sufficient property to cover all his debts, foresees the impossibility of meeting them when they
respectively fall due. Suspension of Payments is only available when the debtor is an individual or
he/she foresees a cash-flow insolvency. (Sec. 94, FRIA)

HAIL TO THE CHIEFS!

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