Condensed Divina Notes

a) Commercial Law – 6 questions the special law prevails. 


(1) Established by original charter or through general
a. Corporations corporation law

(2) Vested with functions relating to public need w/er
i. Kinds of Corporations including
governmental or proprietary in nature

corporation sole;
(3) directly owned by govt or by its instrumentality, or govt owns
Classes of Corporations majority of outstanding capital stock

a. As to the Existence of Shares of Stock

ii. Private - governed by the RCC. The RCC is also the
governing law for non- chartered GOCC.

i. Stock Corporation: has a capital stock divided into shares

and is authorized to distribute to the holders of such shares e. As to Legal Status:

dividends or allotments of the surplus pro ts based on the

shares held.
i.
• BAR ’94: The articles of incorporation which only speci es
the amount of authorized capital stock, without stating the
number of shares by which it is divided, is not valid. Also,
De Jure - is one that has ful lled all the requirements
mandated by law and can successfully resist a suit by
the State to challenge its existence. De jure means “a
matter of law” that validates the corporation as a legal
entity.

the silence in the articles of incorporation and/or bylaws on

ii. De Facto - is one organized with colorable
the authority of the corporation to declare dividends does
compliance with the requirements of a valid law. Its
not make it a nonstock corporation. The provision of the
existence cannot be inquired into collaterally. Such
RCC on the power of the corporation to declare dividends
inquiry must be by a direct attack by the State through
should be deemed read into the articles of incorporation.
a quo warranto proceeding.

Similarly, the fact that the articles of incorporation

authorizes the stockholders of the corporation to distribute • What are the powers of a de facto corporation?

the assets to a nonstock non-pro t corporation does not

make it a nonstock corporation, provided that the twin
elements of a stock corporation are present, because at the
time of dissolution, the stockholders, not the corporation,
own the assets and determine their disposition.
only in a quo warranto proceeding. Thus, if a collection suit is
• Case: BCDA is neither a stock nor a nonstock corporation
but a governmental authority vested with corporate
powers. While it has an authorized capital of P100 Billion, it
is not divided into shares of stock. It has no voting shares.
A de facto corporation has all the powers and authority of a de
jure corporation until it is ousted of its corporate existence. Its
existence cannot be assailed collaterally in a private suit but
initiated by a de facto corporation, a motion to dismiss led on
the ground that the corporation has no power to sue, should
not prosper. A de facto corporation, like a de jure corporation,
may sue. The existence of such de facto corporation cannot be
questioned in a collateral proceeding like a collection suit.

There is likewise no provision which authorizes the

distribution of dividends and allotment of surplus pro ts to • What are the elements of a de facto corporation? 

BCDA stockholders. Hence, it is not a stock corporation. It 

does not qualify as a nonstock organization because it is (1) Existence of a valid law under which it may be
not organized for any of the purposes mentioned under incorporated; 

Section 87 of the RCC.
(2) Attempt in good faith to incorporate; and 

(3) Actual use or exercise in good faith of corporate powers.
ii. Nonstock Corporation: has no capital stock and/ or not
authorized to distribute dividends to its members.
- As such, if the law under which it is incorporated is
declared unconstitutional, there is neither de jure nor
• A nonstock corporation may be organized for any purposes de facto existence.

except for pro t and political ends.

- Case: The ling of articles of incorporation and the

b. As to Organizers:
 issuance of the certi cate of incorporation are essential

 for the existence of a de facto corporation. It is the act
i. Public: by the State only.
 of registration with the SEC through the issuance of a
ii. Private: by private persons alone or with the State.
certi cate of incorporation that marks the beginning of
an entity’s corporate existence. In the absence of a
c. As to Function:
 certi cate of registration, it cannot be said that there is

 bona de attempt to incorporate

i. Public: organized for the government of a portion of the

State. 
 iii. By Estoppel - It exists when two or more persons
ii. Private: usually organized for pro t.
assume to act as a corporation knowing it to be
without authority to do so. They are liable as general
d. As to Governing Law:
 partners for all debts, liabilities, and damages incurred

 or arising as a result thereof: Provided, however, that
i. Government-owned and -controlled corporation (“GOCC”): when any such ostensible corporation is sued on any
governed by the special law creating it and the provisions of the transaction entered by it as a corporation or on any
RCC suppletorily, to the extent applicable. In case of con ict, tort committed by it as such, it shall not be allowed to

ACA🐧 2022 BBE: Commercial Law 1

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 Condensed Divina Notes

use as a defense its lack of corporate personality. One g. As to Place of Incorporation:


who assumes an obligation to an ostensible 

corporation as such, cannot resist performance i. Domestic: formed, organized, or existing under Philippine
thereof on the ground that there was, in fact, no laws.

corporation.
ii. Foreign: formed, organized, or existing under any laws other
than those of the Philippines and whose laws allow Filipino
citizens and corporations to do business in its own country or
• What are the liabilities under the doctrine of
State.

corporation by estoppel? 

All persons who assume to act as a corporation knowing
it to be without authority to do so shall be liable as
general partners for all debts, liabilities, and damages
incurred or arising as a result thereof: Provided, however,
That when any such ostensible corporation is sued on
any transaction entered by it as a corporation or on any
tort committed by it as such, it shall not be allowed to
use its lack of corporate personality as a defense.
Anyone who assumes an obligation to an ostensible
h. Other Classi cations:



i. Closed Corporation: is one whose articles of incorporation
provides that all of the corporation’s issued stock of all classes,
exclusive of treasury shares, shall be held of record by not
more than a speci ed number of persons, not exceeding
twenty; subject to speci ed restrictions on transfers; and it shall
not list in any stock exchange or make any public o ering of its
stocks of any class.

corporation as such cannot resist performance thereof

on the ground that there was in fact no corporation. ii. Special Corporations: These include educational
Thus, the persons who illegally recruited workers for corporations and religious corporations. Religious corporations
overseas employment by representing themselves to be include corporation sole and religious societies.

o cers of a corporation which they knew had not been

incorporated are liable as general partners for all debts, iii. One-Person Corporation: A corporation wherein all of the
liabilities and damages incurred or arising as a result stocks are held directly or indirectly by one person. It is NOT
thereof.
necessarily illegal for as long as it follows and observes the law
throughout its existence and conducts its business a airs
iv. By Prescription - one which has exercised corporate lawfully, otherwise, the doctrine of piercing the veil may be
powers for an inde nite period without interference on applied in such a case.

the part of the sovereign power, e.g., Roman Catholic

Church.
• What are the characteristics of OPC? 

f. As to Relationship of Management and Control:
 a. It has a single stockholder.


i. Holding corporation: A corporation that holds stocks in
other companies for purposes of control rather than for mere
investment and “holding” them in a conglomerate or umbrella
structure along with other subsidiaries.
required by applicable laws or regulations. 

• Case: Mere ownership of all or nearly all of the capital
stock of the corporation is not enough reason to disregard
the separate personality of the holding company with the
subsidiary unless there is control not just in share
ownership but in nances and business practices; such
control was used to perpetuate fraud or violate a duty in
contravention of the plainti ’s right; and such control and
breach of duty are the proximate cause su ered by the
plainti .
corporation’s a airs.

ii. Subsidiary corporation: A company that is owned or
controlled by another company, called the parent company.
pierce to pierce the veil of corporate ction.
An OPC has the following characteristics:



b. It is not required to have a minimum authorized capital
stock except as otherwise provided by special law. Further,
no portion of the authorized capital is required to be paid
up at the time of the incorporation, unless otherwise
c. It is not required to submit and le corporate bylaws.

d. It is required to indicate the letters “OPC” either below or
at the end of its corporate name.

e. The single stockholder shall be the sole director and
president of the OPC.

f. The single stockholder is required to designate a nominee
and an alternate nominee who shall, in the event of the
single stockholder’s death or incapacity, take the place of
the single stockholder as director and shall manage the
g. The liability of the single stockholder shall be limited to
his subscription to the corporation unless there is ground to

iii. A liates: Two companies are a liates when one company • Distinguish an OPC from a sole proprietorship

owns less than the majority of the voting stock of the other.

1. An OPC has a separate legal personality from its sole

iv. Parent company: A corporation that owns enough voting stockholder,whereas the proprietor has no separate
stock in another company to control management and legal personality from the sole proprietorship

operation by in uencing or electing its board of directors.

Companies that operate under this management are deemed
subsidiaries of the parent company. 
 2.
The assets and liabilities of the OPC are separate from
those of the sole shareholder and vice-versa, whereas
the assets and liabilities of the sole proprietorship are
owned and assumed by the proprietor

ACA🐧 2022 BBE: Commercial Law 2

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 Condensed Divina Notes

3. An OPC is registered with the SEC whereas a sole DQ GROUNDS


proprietorship is registered with the DTI.


On disquali cation, the RCC expanded and quali ed the
grounds such that a person shall be disquali ed from being a
iv. Corporation Sole: A corporation sole is one which is formed
director, trustee or o cer of any corporation if, within 5 years
by the chief archbishop, bishop, priest, minister, rabbi, or other
prior to the election or appointment as such, the person was:

presiding elder of a religious denomination, sect or church for

the purpose of administering and managing, as trustee, the
a airs, property and temporalities of such religious a. Convicted by nal judgment:

denomination, sect or church.
i. Of an o ense punishable by imprisonment for a
period exceeding six (6) years; ii. For violating the RCC;
ii. Composition of/membership in Board
and

iii. For violating Republic Act No. 8799, otherwise
of Directors;
known as “The Securities Regulation Code”;

What are the quali cations of directors or trustees?

b. Found administratively liable for any o ense involving

The directors and trustees must have all the quali cations fraudulent acts; and

provided under Section 22, in relation to Sections 10, 13, and

91, of the RCC as well as those provided under the bylaws, and c. By a foreign court or equivalent foreign regulatory
none of the disquali cations under Section 26 of the RCC and authority for acts, violations or misconduct similar to
the bylaws.
those enumerated in paragraphs (a) and (b) above.

Below are the quali cations for directors or trustees under the Assuming that the stockholder has enough votes to be
RCC:
 assured of a board seat, does such stockholder have any

 vested right to be elected as a director?

(a) Since any person, partnership, association or corporation,

singly or jointly with others but not more than 15 in number, No, because while he may have enough votes, he may not have
may now organize a corporation for any lawful purpose or the quali cations of a director or trustee under the law and
purposes, directors or trustees need not be natural persons. bylaws of the corporation. The bylaws, for instance, may
However, juridical persons, as directors, need to be provide as a ground for disquali cation being a director,
represented by their nominees.
stockholder, or a representative of a competing corporation.
Any person who buys stock in a corporation does so with the
(b) If the director or trustee is a natural person, he must be of knowledge that its a airs are dominated by a majority of the
legal age.
stockholders and that he impliedly contracts that the will of the
majority shall govern in all matters within the limits of the act of
(c) The director must own at least one (1) share of stock of the incorporation and lawfully enacted bylaws and not forbidden by
corporation and the trustee must be a member of the law. To this extent, therefore, the stockholder may be
corporation. 
 considered to have parted his personal right or privilege to

 regulate the disposition of his property which he has invested in
(d) Case: A provision in the bylaws which allots a permanent the capital stock of the corporation, and surrendered it to the
seat in the board to a non- member of the association is will of the majority of his fellow incorporators. John Gokongwei
contrary to law. Similarly, the fact that said permanent seat was v. Securities and Exchange Commission, G.R. No. L-45911,
held for 15 years cannot give rise to a vested right and estoppel April 11, 1979.

cannot forestall a challenge against an act that it is contrary to

law. Grace Christian High School v. Court of Appeals, et al., Who is an independent director?

G.R. No. 108905, October 23, 1997.

An independent director is a person who, apart from

(e) The number of directors shall not be more than 15 while the shareholdings and fees received from the corporation, is
number of trustees may be more than 15.
independent of management and free from any business or
other relationship which could or could reasonably be
perceived to materially interfere with the exercise of
(f) Except with respect to independent trustees of nonstock independent judgment in carrying out the responsibilities as a
corporations vested with public interest, only a member of the director. Independent directors must be elected by the
corporation shall be elected as trustee.
shareholders present or entitled to vote in absentia during the
election of directors. Independent directors shall be subject to
(g) Trustees of educational institutions organized as nonstock rules and regulations governing their quali cations,
corporations or religious societies shall not be less than ve (5) disquali cations, voting requirements, duration of term and
nor more than 15. However, with respect to educational term limit, the maximum number of board memberships, and
institutions, the number of trustees shall only be in multiples of other requirements that the SEC will prescribe to strengthen
ve (5).
their independence and align with international best practices.






ACA🐧 2022 BBE: Commercial Law 3

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What corporations are required to have independent Can the board of directors or trustees create positions or
directors in their Boards?
committees?

Independent directors are now explicitly required by RCC to Yes, the board has the power to create positions, committees,
constitute at least twenty percent (20%) of the Board of or o ces as may be necessary to conduct the business a airs
corporations vested with public interest.
of the corporation. This is covered by the business judgment
rule. It was held that the determination of the necessity for
Below are the corporations vested with public interest speci ed additional o ces and/or positions is a management prerogative
in the RCC:
 which courts are not wont to review in the absence of any proof
a. Public companies as described under the Securities that such prerogative was exercised in bad faith. Filipinas Port
Regulation Code (“SRC”);
 Services v. Victoriano Go, et al., G.R. No. 161886, March 16,
b. Banks and quasi-banks, NSSLAs, pawnshops, corporations 2007.

engaged in money service business, pre-need, trust and

insurance companies, and other nancial intermediaries; and
 What are the requisites to create an Emergency Board? 

c. Other corporations engaged in businesses vested with public 

interest similar to the above, as may be determined by the SEC.
a. The vacancy prevents the remaining directors from
constituting a quorum;

• A public company is any corporation with class of equity b. Emergency action is required to prevent grave, substantial,
securities listed for trading on an Exchange, or with assets in and irreparable loss or damage to the corporation;

excess of Fifty Million Pesos (Php50,000,000.00) and has 200 c. The vacancy may be temporarily lled from among the
or more holders, at least 200 of which hold at least 100 o cers of the corporation; 

shares each. This is also the de nition of a public company d. The appointment must be made by the unanimous vote of
for the purpose of electing independent directors.
the remaining directors or trustees; and

e. The action by the designated director or trustee shall be
iii. Power, duties, and prerogatives of limited to the emergency action necessary, and the term shall
Board of Directors cease within a reasonable time from the termination of the
emergency or upon the election of the replacement director or
What is the function of the board of directors or trustees in trustee, whichever comes earlier. 

terms of exercising the powers of the corporation and f. The corporation must notify the SEC within three (3) days
conducting its business?
from the creation of the emergency board, stating therein the
reason for its creation.
Unless otherwise provided in the RCC, the board of directors or
trustees shall exercise the corporate powers, conduct all Are directors, trustees, and o cers liable for action they
business, and control all properties of the corporation. Stated have taken on behalf of the corporation?

otherwise, corporate acts must be approved by the board of

directors, otherwise, such acts are generally not binding on the
corporation. They do not create rights nor impose obligations
upon the corporation. Thus, if a corporation will enter into
contracts, initiate legal action or perform any of the corporate
acts under the RCC, the same must be supported by a
resolution that the board has duly adopted authorizing such
acts and designating the person who will carry them out on
Case: A corporation, as a juridical entity, may act only through
its directors, o cers, and agents. Obligations incurred as a
result of the directors’ and o cers’ acts as corporate agents
are not their personal liability but the direct responsibility of the
corporation they represent. As such, as a general rule,
directors, or o cers are not liable for any action taken on behalf
of the corporation.

behalf of the corporation.

What are the instances when personal liability may attach

What is the doctrine of centralized management?
to directors, trustees, or o cers of the corporation?

It means that corporate powers are vested in a body, called A director, o cer, or trustee may be held personally liable in the
board of directors for a stock corporation and board of trustees following cases:

for a nonstock corporation. Except in those instances where 

stockholders’ or members’ approval is required for certain acts a. Knowingly voting for or assenting to patently unlawful acts of
under the RCC or the corporation’s bylaws, it is the board the corporation;

which exercises corporate powers. The stockholders or b. Gross negligence or bad faith in directing the a airs of the
members, regardless of number, will have to delegate the corporation;

power to manage the corporation to the board.
c. Acquiring any personal or pecuniary interest in con ict with
his duty as director or trustee or o cer resulting in damage to
What is the business judgment rule?
the corporation;

d. He consents to the issuance of watered stocks or who,
Case: Questions of policy and management are left to the having knowledge thereof, does not forthwith le with the
sound discretion and honest decision of the o cers and corporate secretary his written objection thereto; 

directors of a corporation, and the courts are without authority e. He agrees to hold himself personally liable with the
to substitute their judgment for the judgment of the board of corporation; and

directors. The board is the business manager of the f. He is made, by a speci c provision of law, to personally
corporation, and so long as it acts in good faith, its orders are answer for his corporate action.

not reviewable by the courts.

ACA🐧 2022 BBE: Commercial Law 4

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 Condensed Divina Notes

iv. Power, duties, and prerogatives of AAA Corp. sold all its assets and liabilities to BBB Banking
Stockholders Corp., which includes all deposit accounts with the
approval of the Monetary Board. In e ect, BBB Corp. will
What are the rights of a stockholder?
service all deposits of all depositors of AAA Corp. Will the
sale of all assets and liabilities of AAA Corporation to BBB
In exchange for his equity investment in a corporation, a Banking Corporation automatically dissolve or terminate
stockholder is entitled to the following rights:
the corporate existence of AAA Corporation? Explain.



a. Proprietary Rights – these rights pertain to certain economic No, the sale of all the assets and liabilities of AAA Corporation
bene ts that accrue to his shares, such as:
 to BBB Banking Corporation will not result in the automatic

 dissolution or termination of the existence of the former. Such
i. Right to receive dividends; and
 sale is not one of the modes of dissolution under the
ii. Right to participate in the assets of the corporation upon Corporation Code. Moreover, having assets is not a condition
dissolution and liquidation.
for the continuation of juridical existence.

b. Management Rights – these refer to participation in the Nell Doctrine


conduct of the business of the corporation exercised through 

the following:
Under the Nell Doctrine, the general rule is that where one
corporation sells or otherwise transfers all of its assets to
i. Right to vote on all corporate acts requiring stockholder’s another corporation, the latter is not liable for the debts and
approval; and
 liabilities of the transferor.

ii. Right to elect the directors of the corporation.

State the exceptions to the Nell Doctrine. 


c. Remedial Rights – these refer to remedies the stockholder 

may pursue depending on the issues involved, such as:
a. When the buyer expressly or impliedly assumes the liabilities
of the seller;

i. Appraisal right; 
 b. If the sale amounts to a merger or consolidation;

ii. Pre-emptive right;
 c. If the sale is entered into fraudulently or made in bad faith;
iii. Right to inspect;
 and

iv. Right to copy of the nancial statements of the d. If the buyer is merely a continuation of the personality of the
company; and 
 seller or the so-called business-enterprise transfer rule.
v. Right to le a derivative suit.

• Note that if the buyer corporation acquired not only the

Management rights
 assets but also the business of the seller corporation, the

 buyer shall be liable for the obligations of the seller-
What are the two (2) kinds of sale, encumbrance, or corporation. This is the business enterprise rule. Fraud is not
disposition of corporate assets that the corporation may an element of this rule. (Y-I Leisure Philippines v. James Yu:
undertake?
G.R. No 207161, September 8, 2015 en banc decision )

One is the sale, encumbrance or disposition (collectively What are the modes of voting in a stockholders’ or
referred to as “disposition”) of any of its property and assets if members’ meeting under the RCC?

the same is necessary for the usual and regular course of

business of the corporation or if the proceeds of the sale or The right to vote of stockholders or members may be exercised
other disposition of such property and assets shall be in person, through a proxy, or when so authorized in the
appropriated for the conduct of its remaining business. The bylaws, through remote communication or in absentia.

other is the disposition of all or substantially all of the properties

of the corporation.
The right to vote through remote communication or in absentia
may also be exercised in corporations vested with public
Disposition in the ordinary course of business requires only interest, notwithstanding the absence of a provision in the
board approval, meaning, majority of the quorum of the board.
bylaws of such corporations. A stockholder or member who
participates through remote communication or in absentia shall
The disposition of all or substantially all properties of the be deemed present for purposes of quorum.

corporation requires approval by at least majority of the board

and the a rmative votes of the stockholders representing at The board may also allow such mode of voting even if the
least two-thirds (2/3) of the voting power in the corporation in a bylaws are silent on such provision by the vote of the at least
meeting duly called for that purpose or at least 2/3 of the majority of its members. Should the board, however, resolve to
members for a nonstock corporation in a meeting called for the allow voting through remote communication or in absentia, it
purpose.
has to approve the guidelines and procedure therefor.

In nonstock corporations where there are no members with In other words, voting through remote communication or in
voting rights, the vote of at least a majority of the trustees in absentia may be allowed in the following cases : 

o ce will be su cient authorization for the corporation to enter 

into any transaction authorized by the foregoing rule.
a)  If authorized by the bylaws; 

b)   Even if not authorized by the bylaws, for corporations

ACA🐧 2022 BBE: Commercial Law 5

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vested with public 
 Is the stockholder’s possession of a stock certi cate a

interest; and, 
 condition precedent for the exercise of the right of
c)  If approved by at least majority of the entire board; provided inspection?

they approve the 


guidelines and procedure therefor.
No, a stockholder may exercise his right of inspection even
though he is not in the possession of a stock certi cate. A
Remedial rights
stock certi cate is prima facie evidence that the holder is a
shareholder of the corporation, but the possession of the
What is appraisal right?
certi cate is not the sole determining factor of one’s stock
ownership.

It is the right of the stockholder to demand the payment of the

fair value of his shares after dissenting against a proposed What are the limitations on the stockholder’s right of
corporate act in the cases speci ed by law. In practical terms, it inspection?

means the right to get out of the corporation and get back his
equity investment.
The right of inspection is not absolute. It is subject to the
following limitations:

What are the instances when appraisal right is available?

• It can only be exercised for a purpose germane to his

The appraisal right can be exercised by a dissenting interest as a stockholder;

stockholder in the following cases:

• He must be acting in good faith or for a legitimate

purpose in making the demand 

• In case an amendment to the articles of incorporation
to examine or reproduce corporate records;

has the e ect of changing or restricting the rights of

any stockholder or class of shares, or of authorizing • It must be exercised during reasonable hours on
preferences in any respect superior to those of business days;

outstanding shares of any class, or of extending or

shortening the term of corporate existence.
• Copies of corporate records or excerpts from said
records must be at the expense of 

• In case of sale, lease, exchange, transfer, mortgage, the requesting director, trustee, or stockholder; and

pledge or other disposition of all or substantially all of

the corporate property and assets.
• It is subject to other applicable laws.

• In case of merger or consolidation.

• It does not extend to trade secrets and proprietary
information

• In case of investment of corporate funds for any

purpose other than the primary 
 • Under the RCC, it may be denied if the stockholder
purpose of the corporation.
represents an interest adverse 

to the corporation.

• In a close corporation, a stockholder may, for any

reason, compel the said 
 Is the right of inspection extinguished by the dissolution of
corporation to purchase his shares at their fair value, the corporation?

which shall not be less than their par or issued value,

when the corporation has su cient assets in its books The termination of the life of a juridical entity does not, by itself,
to cover its debts and liabilities exclusive of capital cause the extinction or diminution of the rights and liabilities of
stock.
such entity nor those of its owners and creditors. Thus, the
revocation of the corporation’s registration does not
What is pre-emptive right?
automatically strip o the stockholder of his right to examine
pertinent documents and records of the corporation.
It is the right of stockholders to subscribe to all issues or Alejandro· D.C. Roque v. People of the Philippines, G.R. No.
disposition of shares of any class by the corporation, in 211108, June 7, 2017.

proportion to their respective shareholdings.323 In practical

terms, this means that the shares of stock of the corporation Right to le suits

should rst be o ered proportionately to the stockholders

before they can be issued or sold to nonstockholders.

What are the remedial rights available to stockholders

aggrieved by certain wrongful acts of the board and
Right to inspect
corporate o cers?

What is the nature of the stockholders’ right to inspect Certain wrongful acts on the part of the directors and corporate
corporate records?
o cers may give rise to certain rights and the corresponding
types or kinds of suit, to wit:

Every stockholder has the right to inspect the records of a

corporation. The stockholders’ right of inspection of the i. Individual Suit

corporation’s books and records is based upon their ownership

of the assets and property of the corporation.

An individual suit is led when the cause of action belongs to

the individual stockholder personally, and not to the

ACA🐧 2022 BBE: Commercial Law 6

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stockholders as a group or to the corporation (e.g., denial of iii. He is liable to the creditors of the corporation for unpaid
the right to inspection and denial of dividends to a stockholder).
subscription based on the trust fund doctrine;

In one case, it was held that the suit cannot be characterized as iv. He is liable for watered stocks;

derivative, because she was complaining only of the violation of 

her pre-emptive right and was merely praying that she be v. He is liable to return dividends unlawfully paid; and

allowed to subscribe to the additional issuances of stocks in

proportion to her shareholdings to enable her to preserve her vi. He is liable for claims against the corporation in cases where
percentage of ownership in the corporation. She was therefore the corporate veil is pierced.

not acting for the bene t of the corporation. Quite the contrary,
she was suing on her own behalf, out of a desire to protect and Power to remove

preserve her pre-emptive rights.

May a director or trustee be removed from o ce? If yes,

ii. Representative Suit
under what conditions?

Case: If the cause of action belongs to a group of stockholders, Yes, a director or trustee may be removed from o ce. The
such as when the rights violated belong to preferred removal may be carried out by the stockholders or the SEC.

stockholders, or denial of the pre-emptive right to a group or

class of stockholders, a representative suit may be led to Within the corporation, only stockholders or members have the
protect the stockholders similarly situated. 
 power to remove the directors of trustees elected by them. The

 board of directors or trustees may remove an o cer but not a
What is a derivative suit?
director or trustee

A derivative suit is an action led by stockholder in the name Power to ll vacancy

and on behalf of the corporation to enforce a corporate right or

cause of action to set aside the wrongful acts of the What are the grounds or causes of vacancy in the position
corporation’s directors and o cers.
of board director or trustee?

What is the rationale of the derivative suit?

a. Vacancy in the position of director or trustee may be due to
expiration of term, removal or increase in the number of board
A derivative suit is an exception to the general rule that the seats; or,

corporation’s power to sue is exercised only by the board of

directors or trustees. Individual stockholders may be allowed to b. It may be due to resignation, retirement, withdrawal, death,
sue on behalf of the corporation whenever the directors or abandonment, or similar grounds, other than those stated in the
o cers of the corporation refuse to sue to vindicate the rights preceding paragraph.

of the corporation or are the ones to be sued and are in control

of the corporation.

Who may ll the vacancy?

“SECTION 1. Derivative action. – A stockholder or member may

The stockholders or the board of directors, depending on the
bring an action in the name of a corporation or association, as
circumstances may ll the vacancy.

the case may be, provided, that:

The stockholders have the sole power to ll the vacancy in the

following cases:

• He was a stockholder or member at the time the acts

or transactions subject of the action occurred and at
• The cause of the vacancy is the expiration of term,
the time the action was led;

removal of a director or increase in the number of

• He exerted all reasonable e orts, and alleges the board seats;

same with particularity in the complaint, to exhaust all

• The cause of the vacancy is not any of the three (3)
remedies available under the articles of incorporation,
grounds referred to above but the remaining directors
bylaws, laws or rules governing the corporation or
do not constitute a quorum; and

partnership to obtain the relief he desires;

• The cause of the vacancy is not any of the three (3)

• No appraisal rights is available for the act or acts
grounds referred to above, the remaining directors
complained of; and

constitute a quorum but the board of directors referred

• The suit is not a nuisance or harassment suit.”
the authority to ll the vacancy to the stockholders.

What are the obligations of a stockholder? 
 The board of directors may ll the vacancy if the following

 requisites are present:

i. To pay to the corporation unpaid subscription;

• The cause of the vacancy is due to any ground other
ii. To pay to the corporation interest on unpaid subscription if so than expiration of term, removal of a director or
required by the bylaws or in case of default;
increase in the number of board seats; and,

• The remaining directors constitute a quorum.

ACA🐧 2022 BBE: Commercial Law 7

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Who should ll the vacancy due to the resignation of a stated has been subscribed and that at least twenty-
hold-over director?
ve (25%) percent of the total subscription have been
paid as this double 25% requirement under the OCC
In the case of Valle Verde Country Club, Inc., et al. v. Africa, the has been deleted.

Supreme Court ruled the resignation as a hold-over director will

not change the nature of the cause of the vacancy which is due • There is a requirement of certi cation of receipt of the
to the expiration of director’s term. The term of a hold-over paid-up portion of subscription by the Corporate
director has expired. The hold-over period is not part of his Treasurer.

term. So, the cause of the vacancy is not resignation but the • Since the requirement of Treasurer’s A davit has
expiration of term. As such, the vacancy must be lled by the already been deleted under the RCC, the format for
stockholders in a regular or special meeting called for the the said a davit is omitted as well.

purpose pursuant to Section 29 of OCC. Valle Verde Country

Club, Inc., et al. v. Africa, G.R. No. 151969, September 4, Is there a need to amend the articles of incorporation of
2009.
corporations organized prior to the e ectivity of the RCC
for such corporations to have perpetual existence?

Are directors or trustees entitled to compensation for their

services rendered to the corporation in their capacity as No, corporations organized prior to the e ectivity of the RCC
such?
and which continue to exist shall be deemed to have perpetual
existence unless the corporation, by the vote of the
As a general rule, directors, or trustees are not entitled to stockholders representing at least majority of the outstanding
compensation in their capacity as such, because they are capital, noti es the SEC that it elects to retain its speci c
supposed to render their services to the corporation corporate term pursuant to its articles of incorporation. In other
gratuitously, and the return upon their shares adequately words, there is an automatic conversion from xed term to
furnishes the motives for service, without compensation. In perpetual existence without any further action on the part of the
other words, the directors presumably have signi cant equity corporation. (RCC Sec. 11)

stake in the corporation since one generally cannot be elected

to the board unless he has su cient number of shares. The NB. The period to elect retention of the speci c corporate term
return on their equity is su cient motive or consideration for expired last Feb 23, 2021.

their work.

What are the requisites to amend the articles of

The exceptions to this rule are as follows: (1) the bylaws incorporation of a private corporation?

authorize the said compensation, or, (2) the stockholders

representing at least a majority of the outstanding capital stock • Any provision stated in the articles of incorporation
or a majority of the members grant the directors or trustees may be amended provided there is no prohibition in
with compensation and approve the amount thereof at a regular the RCC or special law and the amendment must be
or special meeting.
for legitimate purposes.

v. Articles of incorporation • The amendment should be approved by at least a

majority vote of the board of directors or trustees and
What are the revisions under the RCC on the provision on the vote or written assent of the stockholders
articles of incorporation?
representing at least two-thirds (2/3) of the
outstanding capital stock. The articles of incorporation
• An arbitration agreement may be provided in the of a nonstock corporation may be amended by the
articles of incorporation.
vote or written assent of a majority of the trustees and
at least two-thirds (2/3) of its members.

• Filing of the articles of incorporation or amendments

thereto may be in the form of an electronic document • The original and amended articles together shall
in accordance with the rules on electronic ling of the contain all provisions required by law to be set out in
SEC.
the articles of incorporation. Amendments to the
articles shall be indicated by underscoring the change
• The articles of incorporation should include an or changes made, and a copy thereof duly certi ed
undertaking to change the corporate name under oath by the corporate secretary and a majority
immediately upon receipt of notice from the SEC that of the directors or trustees, with a statement that the
another corporation, partnership or person has amendments have been duly approved by the required
acquired a prior right to the use of such name, that the vote of the stockholders or members, shall be
name has been declared not distinguishable from a submitted to the SEC. 

name already registered or reserved for the use of If the amendments pertain to the increase of capital
another corporation, or that it is contrary to law, public 
 stock, the certi cate of amendments must contain the
morals, good customs or public policy.
matters set forth in Section 37 of the RCC.

• It provides that the corporation shall have perpetual • The amendments will take e ect upon approval of the
existence or a xed term as may be indicated in the SEC or from the date of ling with the SEC if not acted
articles of incorporation.
upon within six (6) months from the date of ling for a
cause not attributable to the corporation.

• There is no need to state that at least twenty- ve

(25%) percent of the authorized capital stock above

ACA🐧 2022 BBE: Commercial Law 8

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vi. By-laws • Devices or schemes employed by, or any act of, the
board of directors, business associates, o cers or
How are bylaws amended or revised?
partners, amounting to fraud or misrepresentation
which may be detrimental to the interest of the public
Under Section 47 of the RCC, bylaws may be amended by at and/or of the stockholders, partners, or members of
least majority of the board of directors or trustees and the any corporation, partnership, or association;

owners of at least majority of the outstanding capital stock in

case of a stock corporation or of the members in case of a non- • Controversies arising out of intra-corporate,
stock corporation, at a regular or special meeting duly called for partnership, or association relations, between and
the purpose.
among stockholders, members, or associates; and
between, any or all of them and the corporation,
Owners of two-thirds (2/3) of the outstanding capital stock of partnership, or association of which they are
stock corporations or two- thirds (2/3) of the members in a non- stockholders, members, or associates, respectively;

stock corporation can delegate to the board of directors or

• Controversies in the election or appointment of
trustees the power to amend or repeal the bylaws or adopt new
directors, trustees, o cers, or managers of
bylaws. This delegation is revoked by the vote of stockholders
corporations, partnerships, or associations;

owning or representing a majority of the outstanding capital

stock or a majority of the members at a regular or special • Derivative suits; and

meeting.

• Inspection of corporate books.

Whenever the bylaws are amended or new bylaws are adopted,

b. Intellectual Property
the corporation shall le with the SEC such amended or new
bylaws and, if applicable, the stockholders’ or members’ i. Copyright
resolution authorizing the delegation of the power to amend
and/or adopt new bylaws, duly certi ed under oath by the What is a copyright?

corporate secretary and a majority of the directors or trustees.

It is an intangible, incorporeal right granted by statute to the

b. Intra-corporate dispute (concept)
When is a dispute considered intra-corporate in nature?
sole and exclusive privilege of multiplying copies of the same
A dispute is considered intra-corporate in nature if it satis es
the relationship test and nature of the controversy test. The two
tests must concur. 



Under the relationship test, the parties in dispute must be any
author or originator of certain literary or artistic productions,
whereby he or she is invested, for a speci c period, with the
and publishing and selling them. 



What are the 2 kinds of classi cations of protected works? 



(1) Original and literary works; and 

(2) Derivative works.

one of the following: 



 What are considered original literary and artistic works?

(a) between the corporation, partnership, or association and the

public; 

Literary and artistic works are original intellectual creations in
(b) between the corporation, partnership, or association and its
the literary and artistic domain protected from the moment of
stockholders, partners, members, or o cers; 

their creation and shall include in particular:

(c) between the corporation, partnership, or association and the

State as far as its franchise, permit or license to operate is
a. Books, pamphlets, articles and other writings;

concerned; and 

(d) among the stockholders, partners, or associates
themselves.
b. Periodicals and newspapers;

Under the nature of the controversy test, the disagreement c. Lectures, sermons, addresses, dissertations prepared for
must not only be rooted in the existence of an intra-corporate oral delivery, whether or 

relationship, but must pertain to the enforcement of the parties' not reduced in writing or other material form; BAR 2011.

correlative rights and obligations under the Corporation Code

and the internal and intra-corporate regulatory rules of the d. Letters;

corporation. If the relationship and its incidents are merely

incidental to the controversy or if there will still be con ict even e. D r a m a t i c o r d r a m a t i c o - m u s i c a l c o m p o s i t i o n s ;
if the relationship does not exist, then no intra-corporate choreographic works or entertainment in shows;

controversy exists.

f. Musical compositions, with or without words;

What are the cases falling under the rules on intra-

corporate controversy?
g. Works of drawing, painting, architecture, sculpture,
engraving, lithography or other 

The following cases are governed by the Supreme Court-issued works of art; models or designs for works of art;

“Interim Rules of Procedure for Intra-Corporate Controversies":

h. Original ornamental designs or models for articles of

manufacture, whether or not 


ACA🐧 2022 BBE: Commercial Law 9

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registrable as an industrial design, and other works of 6. Idea, procedure, system, method or operation, concept,
applied art;
principle, discovery or mere data as such, even if they are
expressed, explained, illustrated or embodied in such work.

i. Illustrations, maps, plans, sketches, charts and three-

dimensional works relative to 
 • The format or mechanics of a television show is not
geography, topography, architecture or science;
included in the list of protected works in Section 2 of P.D.
No. 49, which is substantially the same as Section 172 of
the Intellectual Property Code (R.A. No. 8293). The subject
j. Drawings or plastic works of a scienti c or technical
of copyright refers to nished works and not to concepts.
character;

For this reason, the protection a orded by the law cannot

be extended to cover format or mechanics of a television
k. Photographic works including works produced by a process
show. The audio-visual recording of the show, however, is
analogous to 

copyrightable. Francisco Joaquin, Jr. v. Franklin Drilon,
photography; lantern slides;

et al., G.R. No. 108946, January 28, 1999.

l. Audiovisual works and cinematographic works and works NOTE: While an idea is not copyrightable, the expression of an
produced by a process 
 idea is protected by copyright. Thus, there can be a copyright
analogous to cinematography or any process for making of a book which expounded on a new accounting system the
audio-visual recordings;
author had developed but the system itself is not copyrightable.

m. Pictorial illustrations and advertisements;

What is the scope of protection of a copyright?

n. Computer programs; and

It is immediate. The aforementioned literary and artistic works
are protected from the moment of their creation. Works are
o. Other literary, scholarly, scienti c, and artistic works.
protected by the sole fact of their creation, irrespective of their
mode or form of expression, as well as of their content, quality
What are derivative works and are protected by copyright? 
 and purpose. Ownership of copyrighted material is shown by

 proof of originality and copyrightability.

a. Dramatizations, translations, adaptations, abridgments,

arrangements, and other alterations of literary or artistic works; 1. Fair use principle
and

b. Collections of literary, scholarly or artistic works, and What is fair use?

compilations of data and other materials which are original by

reason of the selection or coordination or arrangement of their ABS-CBN Case: Fair use is “a privilege to use the copyrighted
contents. material in a reasonable manner without the consent of the
copyright owner or as copying the theme or ideas rather than
What are considered as unprotected subject matter or non- their expression.” Fair use is an exception to the copyright
copyrightable work?
owner›s monopoly of the use of the work to avoid sti ing “the
very creativity which that law is designed to foster”. 

1. Idea, procedure, system, method or operation, concept, 

principle, discovery or mere data as such, even if they are Four-factor Test to determine fair use

expressed, explained, illustrated or embodied in a work;


Determining fair use requires application of the four-factor test.
2. News of the day and other miscellaneous facts having the Section 185 of the Intellectual Property Code lists four (4)
character of mere items 
 factors to determine if there was fair use of a copyrighted work:

of press information;

1. The purpose and character of the use, including whether

3. Any o cial text of a legislative, administrative or legal such use is of a commercial nature or is for non-pro t
nature, as well as any o cial 
 educational purposes;

translation thereof;

2. The nature of the copyrighted work;

4. Any work of the Government of the Philippines. However,

prior approval of the 
 3. The amount and substantiality of the portion used in relation
government agency or o ce wherein the work is created to the copyrighted 

shall be necessary for exploitation of such work for pro t. work as a whole; and

Such agency or o ce may, among other things, impose as

a condition the payment of royalties;
4. The e ect of the use upon the potential market for or value
of the copyrighted work.

5. Statutes, rules and regulations, and speeches, lectures,

sermons, addresses, and dissertations, pronounced, read 2. Moral rights
or rendered in courts of justice, before administrative
What are the so-called moral rights of a copyright holder?

agencies, in deliberative assemblies and in meetings of

public character. 

However, the author of speeches, lectures, sermons, The author of a work shall, independently of the economic
addresses, and dissertations of these works shall have the rights or the grant of an assignment or license with respect to
exclusive right of making a collection of his works.
such right, have the following moral rights:

ACA🐧 2022 BBE: Commercial Law 10

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1. To require that the authorship of the works be attributed to this case can be anyone, such as a distant relative or a friend,
him, in particular, the right that his name, as far as who need not have any insurable interest in the life of the
practicable, be indicated in a prominent way on the copies, insured.

and in connection with the public use of his work; (“Right of

attribution”)
Who are the persons speci ed in Article 739 and as such,
cannot be designated bene ciary of the insured?

2. To make any alterations of his work prior to, or to withhold it

from publication;
The persons speci ed in Article 739 of the Civil Code are:

a. persons in illicit relations –– adultery or concubinage (no
need for conviction);

3. To object to any distortion, mutilation or other modi cation b. persons found guilty of adultery or concubinage;

of, or other derogatory action in relation to, his work which c. public o cer or his wife, descendants, or ascendants.

would be prejudicial to his honor or reputation; 


(“Right of integrity”) and
If any person, other than those disquali ed to receive
donation under Article 739 of the Civil Code, is designated
4. To restrain the use of his name with respect to any work not bene ciary can the lawful spouse and legitimate children of
of his own creation or in a distorted version of his work. the insured complain of denial of their legitime?

(“Right against false attribution”)

The lawful spouse and legitimate children cannot complain of

d. Insurance
denial of their legitime because the proceeds of the life
insurance policy do not form part of the estate of the insured.
i. What can be insured Neither can they claim the insurance proceeds because they
are not privy to the contract.

What can be insured?
Moreover, under Section 53 of the Insurance Code, the
insurance proceeds shall be applied exclusively to the proper
1. Life or health
interest of the person in whose name or for whose bene t it is
made unless otherwise speci ed in the policy.

2. Property

What are the e ects of the revocable designation of the

3. Loss or damage in marine insurance

bene ciary?

4. Casualty or liability to third party

The insured may change the bene ciary during his lifetime, add
5. Non-performance by the principal debtor of his obligation to a bene ciary or exclude a bene ciary in case of joint
the creditor
designation of bene ciaries.

What may be insured against?

The same rule applies in case the policy is silent on the nature
of the designation, for in such case, the designation is deemed
Any contingent or unknown event, whether past or future,
to be revocable.

which may damnify a person having an insurable interest, or

create a liability against him, may be insured against, subject to
To whom will the proceeds of the life insurance policy be
the relevant provisions of the Insurance Code.

payable?

LIFE
The proceeds of the life insurance policy are payable as
follows:

Upon whose life or health does a person have insurable

interest in?

• In case a bene ciary is unlawfully designated, the

proceeds shall payable to the estate of the insured
Every person has an insurable interest in the life and health:

(not only to the lawful spouse of the insured although

she has a share in the estate of the insured). It is
“(a) Of himself, of his spouse, and of his children;
 because the policy remains valid. Only the designation
“(b) Of any person on whom he depends wholly or in part for is void.

education or support, or in whom he has a pecuniary interest;


“(c) Of any person under a legal obligation to him for the • In case of joint designation of bene ciaries, the share
payment of money, or respecting property or services, of which of the unlawfully designated bene ciary shall form
death or illness might delay or prevent the performance; and
 additional part of the share of the lawfully designated
“(d) Of any person upon whose life any estate or interest vested bene ciary. Thus, the share of the common law
in him depends.
spouse shall be forfeited in favor of the designated
illegitimate children.

If a person procures insurance on his own life, who may be

his bene ciary?
• In case of joint designation of lawfully designated
bene ciaries, proceeds shall be divided based on
A person can take insurance on his own life and designate terms of policy. If the policy is silent, the proceeds
anyone as bene ciary except those disquali ed to receive shall be divided equally between or among the
donation under Article 739 of the Civil Code. The bene ciary in bene ciaries.

ACA🐧 2022 BBE: Commercial Law 11

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• In case a bene ciary is lawfully designated and the occurs but need not exist in the meantime. In life
insured dies ahead of the bene ciary, the proceeds are insurance, it is enough that insurable interest exists at
payable to the bene ciary unless he is the principal, the time when the contract is made but it need not
accessory or accomplice in willfully bringing about the exist at the time of loss.

death of the insured.

• The bene ciary in property insurance must have

• In such a case, interest of the bene ciary shall be
forfeited and the share forfeited shall pass on to the
other bene ciaries, unless otherwise disquali ed. In
the absence of other bene ciaries, the proceeds shall
be paid in accordance with the policy contract. If the
policy contract is silent, the proceeds shall be paid to
the estate of the insured.33 Note that the insurer is still
insurable interest over the property insured and such
insurable interest must be covered by the insurance
policy. In life insurance, if the insured procured
insurance on his own life, he can designate anyone as
bene ciary (except those disquali ed to receive
donation) even though the latter has no insurable
interest in the life of the insured. Bar 2002

liable. 

What are the di erent kinds of insurance policy?

• In case the bene ciary predeceases the insured, make A policy is either open, valued or running.

a distinction between irrevocable and revocable

bene ciary. If irrevocable, the proceeds shall inure to An open policy is one in which the value of the thing insured is
the bene t of the legal representatives of the not agreed upon, and the amount of the insurance merely
bene ciary. If revocable, the proceeds shall inure to represents the insurer’s maximum liability. The value of such
the estate of the insured. If the is silent as to whether thing insured shall be ascertained at the time of the loss.

designation is irrevocable or revocable, the proceeds

shall inure to the estate of the insured because the A valued policy is one which expresses on its face an
designation is revocable unless otherwise speci ed in agreement that the thing insured shall be valued at a speci c
the policy. 
 sum.

PROPERTY A running policy is one which contemplates successive

insurances, and which provides that the object of the policy
may be from time to time de ned, especially as to the subjects
What does insurable interest in property consist of?

of insurance, by additional statements or indorsements.

Every interest in property, whether real or personal, or any

What is the “no fault indemnity provision” in the Insurance
relation thereto, or liability in respect thereof, of such nature
Code?

that a contemplated peril might directly damnify the insured, is

an insurable interest.

It provides that any claim for death or injury to a passenger or

to a third party should be paid without the necessity of proving
An insurable interest in property may consist in:

fault or negligence of any kind, subject to the following rules:

“(a) An existing interest;


A) The total indemnity in respect of any person shall not be less
“(b) An inchoate interest founded on an existing interest; or

than Php 15,000; 

“(c) An expectancy, coupled with an existing interest in that out


of which the expectancy arises.

B) The following proofs of loss, when submitted under oath

shall be su cient evidence to substantiate the claim

• A mere contingent or expectant interest in anything, not

founded on an actual right to the thing, nor upon any valid
I. Police report of accident; and

contract for it, is not insurable.

II. Death certi cate and evidence of medical or hospital

• The measure of an insurable interest in property is the extent disbursement in 

to which the insured might be damni ed by loss or injury respect of which refund is claimed; or

thereof.

III. Medical report and evidence or hospital disbursement

Distinguish insurable interest in property insurance from in respect of which 

insurable interest in life insurance.
refund is claimed

C) Claims may be made against one motor vehicle only. In the

• In property insurance, the actual value of the interest
case of an occupant of a vehicle, claim shall lie against the
therein is the limit of the insurance that can validly be
insurer of the vehicle in which the occupant is riding, mounting
placed thereon. In life insurance, there is no limit to the
or dismounting from. In any other case, claim shall lie against
amount of insurance that may be taken upon life
the insurer of the directly o ending vehicle. In all cases, the
except in case of a creditor securing the life of the
right of the party paying the claim to recover against the owner
debtor in which case the insurance should be limited
of the vehicle responsible for the accident shall be maintained.

to the amount of the debt.

• In property insurance, an interest insured must exist 


when the insurance takes e ect and when the loss

ACA🐧 2022 BBE: Commercial Law 12

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ii. Claims for life insurance When is a representation deemed false?

What are the common defenses available to the insurer to A representation is to be deemed false when the facts fail to
deny claims for life insurance?
correspond with its assertions or stipulations.

• Lack of insurable interest

What is the e ect of false representation?

• Concealment

• Misrepresentation
If a representation is false in a material point, whether
a rmative or promissory, the injured party is entitled to rescind
• Incontestability clause has not set in
the contract from the time when the representation becomes
• Non-payment of premium 
 false.

What is concealment?
A representation as to the future is to be deemed a promise,
unless it appears that it was merely a statement of belief or
The neglect to communicate that which a party knows and expectation.

ought to communicate is called a concealment.

Explain the Incontestability Clause.

What is the e ect of concealment?

The incontestability clause in life insurance policy is based on

A concealment, whether intentional or unintentional, entitles the Section 48 of the Insurance Code: 

injured party to rescind a contract of insurance.


“Whenever a right to rescind a contract of insurance is given to
the insurer by any provision of this chapter, such right must be
The basis of the rule vitiating the contract in cases of
exercised previous to the commencement of an action on the
concealment is that it misleads or deceives the insurer into
contract.
accepting the risk, or accepting it at the rate of premium agreed
upon; The insurer, relying upon the belief that the assured will After a policy of life insurance made payable on the death of the
disclose every material fact within his actual or presumed insured shall have been in force during the lifetime of the
knowledge, is misled into a belief that the circumstance insured for a period of two years from the date of its issue or of
withheld does not exist, and he is thereby induced to estimate its last reinstatement, the insurer cannot prove that the policy is
the risk upon a false basis that it does not exist.
void ab initio or is rescindable by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.”
What is the test of materiality?

It means that after two years from date of issuance of the policy
Materiality is to be determined not by the event, but solely by or its last reinstatement, the insurer must make good on the
the probable and reasonable in uence of the facts upon the policy, even though the policy was obtained by fraud,
party to whom the communication is due, in forming his concealment, or misrepresentation. It basically precludes the
estimate of the disadvantages of the proposed contract, or in insurer from rescinding the policy on account of concealment
making his inquiries.
or misrepresentation. Sunlife of Canada (Philippines), Inc. v.
Sibya, et al., G.R. No. 211212, June 8, 2016; BAR 2012.

Should the fact/s concealed be the proximate cause of the

loss in order to constitute concealment?
What are the requisites of the incontestability clause?

No, the facts concealed need not be the proximate cause of the The requisites are:

loss in order to constitute concealment. Materiality is to be

determined not by the event, but solely by the probable and a. The insurance is a life insurance payable on the death of the
reasonable in uence of the facts upon the party to whom the insured.

communication is due, in forming his estimate of the

disadvantages of the proposed contract, or in making his • The clause is therefore not applicable to annuity because the
inquiries. The test is whether the matters concealed would have annuitant pays lump sum to the insurer and gets a certain
de nitely a ected the insurer’s action on the application of the amount from the insurer every year until the annuitant/insured
insured, either by approving it with the corresponding dies.

adjustment for a higher premium or rejecting the same.

b. The policy is in force for at least 2 years from its date of issue
What is representation in the context of insurance laws?
as appearing in the policy or of its last reinstatement.

Representation is a statement of fact or condition relating to the • The two-year period is not reckoned from date of receipt but
risk which induced the insurer to enter into a contract. from issuance of the policy or last reinstatement.

Representation is the statement made in compliance with the

duty to disclose. 
 What is the rationale of the incontestability clause?



The incontestability clause regulates both the actions of the
insurers and prospective takers of life insurance. It gives
insurers enough time to inquire whether the policy was

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obtained by fraud, concealment, or misrepresentation; on the The following are EXCLUDED from the above de nition:

other hand, it forewarns scheming individuals that their 

attempts at insurance fraud would be timely uncovered — thus i. A person or organization who performs such functions as
deterring them from venturing into such nefarious enterprise.
instructed by another

What are the defenses not barred by the incontestability person or organization; and

clause?

ii. An individual who collects, holds, processes, or uses

These defenses are not barred by the incontestability clause:
personal information in connection with the individual’s
personal, family, or household a airs.

a. Lack of Insurable interest;


b. Premium was not paid;
 Example: The head of a household who collects personal
c. The death was due to excepted risk, (like suicide);
 information of family helpers.

d. The insured employed vicious fraud (as in another person

took the physical exams for the insured);
 b. Personal Information Processors (“PIP”) refer to any
e. Failure to comply with conditions imposed by the insurer; natural or juridical person to whom a personal information
and
 controller may outsource the processing of personal data
f. Time speci ed in the contract to make claims is not complied pertaining to a data subject.

with

Examples are business processing o ces and testing centers.

May a life insurance policy be assigned?

What is processing?

A policy of insurance upon life or health may pass by transfer,

will or succession to any person, whether he has an insurable
interest or not, and such person may recover upon it whatever
the insured might have recovered. The assignee need not have
insurable interest in the life of the insured. This is because in life
insurance, insurable interest must exist only at the time of the
Processing refers to any operation or any set of operations
performed upon personal information including, but not limited
to, the collection, recording, organization, storage, updating or
modi cation, retrieval, consultation, use, consolidation,
blocking, erasure, or destruction of data.

issuance of the policy. The only exception is to circumvent the

rule on insurable interest as when assignment is made in favor What is the scope of application of the DPA?

of a person who cannot be designated bene ciary of the

insured.
The DPA applies to the processing of all types of personal
information, and to any natural and juridical person involved in
e. Data Privacy Act of 2012 (R.A. 10173) personal information processing, including those personal
information controllers and processors who, although not found
Which government agency is responsible for the
or established in the Philippines, use equipment that are
implementation of the DPA?

located in the Philippines, or those who maintain an o ce,

branch or agency in the Philippines.

The National Privacy Commission (“NPC”) is an independent

body mandated to administer and implement the DPA, and to
The DPA and its IRR explicitly state that they apply to the
monitor and ensure compliance of the country with
processing of personal data, even if the act or practice is
international standards set for personal data protection.

performed outside of the country, provided that the personal

data relates to a Filipino citizen or a resident of the Philippines,
Who is a data subject?

and/or the personal information controller or personal

information processor has an established link to the Philippines.
Data subject refers to an individual whose personal Thus, as long as any of the foregoing conditions are met,
information is processed.3 Data subject is the party sought to processing of personal data, whether or not involving a cross-
be protected by the DPA.
border dimension, will be covered by the DPA, the IRR, and
other applicable issuances by the NPC.

Who are the parties required to comply with the rules on

data processing under the DPA?
What is personal information?

a. Personal Information Controllers (“PIC”) refer to a person
or organization who control the collection, holding, processing
or use of personal information, including a person or
organization who instructs another person or organization to
collect, hold, process, use, transfer, or disclose personal
information on his or her behalf.
identify an individual.
Personal information refers to any information, whether
recorded in a material form or not, from which the identity of
the individual is apparent or can reasonably and directly
ascertained by the entity holding the information, or when put
together with other information would directly and certainly

Examples are schools, o ces, whether government or private, What is sensitive personal information?

law rms, hospitals, HMOs, search engine operators, like

Google, or social media platforms, like Facebook and Twitter.

Sensitive personal information refers to the following

personal information:




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a. An individual’s race, ethnic origin, marital status, age, color, controller is subject; 

and religious, philosophical or political a liations;
Example: Dormant bank accounts may be reported to
the national treasurer for the purpose of initiating
b. An individual’s health, education, genetic or sexual life of a escheat proceedings.

person, or to any 

proceeding for any o ense committed or alleged to have been • The processing is necessary to protect vitally
committed by such person, the disposal of such proceedings, important interests of the data subject, including life
or the sentence of any court in such proceedings;
and health; 

Example: Health Maintenance Organizations may
process personal information of their members for the
c. Issued by government agencies peculiar to an individual
purpose of providing health and medical services.

which includes, but not limited to, social security numbers,

previous or current health records, licenses or its denials, • The processing is necessary in order to respond to
suspension or revocation, and tax returns; and
national emergency, to comply with the requirements
of public order and safety, or to ful ll functions of
d. Those speci cally established by an executive order or an public authority which necessarily includes the
act of Congress to be kept classi ed. 
 processing of personal data for the ful llment of its
mandate;

What are the general data privacy principles that govern • The processing is necessary for the purposes of the
the processing of personal information?
legitimate interests pursued by the personal
information controller or by a third party or parties to
The processing of personal information shall be allowed, whom the data is disclosed, except where such
subject to compliance with the requirements of the DPA and interests are overridden by fundamental rights and
other laws allowing disclosure of information to the public, and freedoms of the data subject which require protection
adherence to the following principles:
under the Philippine Constitution.

• Transparency – The data subject must be aware of the
nature, purpose, and extent of the processing of his or
her personal data, including the risks and safeguards
involved, the identity of personal information controller,
his or her rights as a data subject, and how these can
be exercised. Any information and communication
Three-Part Test



In order to rely on legitimate interests as basis for lawful
processing, the personal information controller must be able to
satisfy the key elements which can be broken down into the
following three-part tests:

relating and understand, using clear and plain

language.

1. Purpose test: Are you pursuing a legitimate interest?


• Legitimate Purpose – The processing of information
shall be compatible with a declared and speci ed
purpose which must not be contrary to law, morals, or
public policy.
• Proportionality – The processing of information shall


2. Necessity test: Is the processing necessary for that
purpose?

3. Balancing test: Do the individual’s interests override the
legitimate interest?

be adequate, relevant, suitable, necessary, and not

excessive in relation to a declared and speci ed What are the criteria for processing sensitive personal
purpose. Personal data shall be processed only if the information and privileged information?

purpose of the processing could not reasonably be

ful lled by other means.
The processing of sensitive personal information and privileged
information shall be prohibited, except in the following cases:

What are the criteria for the lawful processing of personal

information?

a. The data subject has given his or her consent, speci c to

the purpose prior to the processing, or in the case of
The processing of personal information shall be permitted only
privileged information, all parties to the exchange have
if not otherwise prohibited by law, and when at least one of the
given their consent prior to processing;

following conditions exists:

b. The processing of the same is provided for by existing

• The data subject has given his or her consent;
laws and regulations: Provided, That such regulatory
enactments guarantee the protection of the sensitive
• The processing of personal information is necessary personal information and the privileged information:
and is related to the ful llment of a contract with the Provided, further, That the consent of the data subjects are
data subject or in order to take steps at the request of not required by law or regulation permitting the processing
the data subject prior to entering into a contract; 
 of the sensitive personal information or the privileged
Example: An employer may process the personal information;

information of a job applicant preparatory to the

execution of an employment contract.
c. The processing is necessary to protect the life and health
of the data subject or another person, and the data subject
• The processing is necessary for compliance with a
legal obligation to which the personal information

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is not legally or physically able to express his or her consent b. Right to object.
prior to the processing;

d. The processing is necessary to achieve the lawful and
noncommercial objectives of public organizations and their
associations: Provided, that such processing is only
con ned and related to the bona de members of these
organizations or their associations: Provided, further, that
the sensitive personal information are not transferred to
The data subject shall have the right to object to the processing
of his or her personal data, including processing for direct
marketing, automated processing or pro ling. The data subject
shall also be noti ed and given an opportunity to withhold
consent to the processing in case of changes or any
amendment to the information supplied or declared to the data
subject in the preceding section.

third parties: Provided, nally, that consent of the data

subject was obtained prior to processing;

When a data subject objects or withholds consent, the personal

e. The processing is necessary for purposes of medical information controller shall no longer process the personal data,
treatment, is carried out by a medical practitioner or a unless:

medical treatment institution, and an adequate level of

protection of personal information is ensured; or
i. The personal data is needed pursuant to a subpoena;

f. The processing concerns such personal information as is ii. The collection and processing are for obvious
necessary for the protection of lawful rights and interests of purposes, including, when it is 

natural or legal persons in court proceedings, or the necessary for the performance of or in relation to a
establishment, exercise or defense of legal claims, or when contract or service to which the data subject is a party,
provided to government or public authority. 
 or when necessary or desirable in the context of an
Note: A person subpoenaed as a witness may testify as to employer- employee relationship between the collector
what he knows about a criminal o ense committed by the and the data subject; or

accused. 

iii. The information is being collected and processed as a
result of a legal obligation.

What are the rights of a data subject?

The right to object is most speci cally applicable when

organizations or personal information controllers are processing
Mnemonic: IBAROP CD (Informed; Block; Access; Rectify;
data without consent of the data subject for the following
Object; Portability; Complaint; Damages)

purposes:

a. Right to be informed.
i. Direct marketing purposes. When business organizations give
sales materials about products and services, they must
i. The data subject has a right to be informed whether personal explicitly inform or remind the data subject of his right to
data pertaining to him or her shall be, are being, or have been object. If the data subject feels uncomfortable to being target of
processed, including the existence of automated decision- a direct marketing campaign, he must be able to easily invoke
making and pro ling.
his right to object.

ii. The data subject shall be noti ed and furnished with ii. Pro ling purposes. Businesses customarily resort to pro ling,
information indicated hereunder before the entry of his or her or the creation of pro les of individual customers and clients
personal data into the processing system of the personal without their consent. This is done either for marketing or
information controller, or at the next practical opportunity:
customer care purposes. The cross-referencing of customer
information to product marketing brings about practical
a) Description of the personal data to be entered into the advantages to both the buyer and seller in any potential
system;
 business transaction. Under DPA, however, pro ling of this
b) Purposes for which they are being or will be processed, requires consent of the data subject as customer, or else the
including processing for direct marketing, pro ling or historical, data subject is justi ed in invoking his right to object. The right
statistical or scienti c purpose;
 of state agents to do pro ling for law enforcement purposes,
c) Basis of processing, when processing is not based on the however, may override the right to object.

consent of the data subject;


d) Scope and method of the personal data processing;
 iii. Automated processing purposes. In technology-driven
e) The recipients or classes of recipients to whom the personal industries, such as banking and nance, many decisions
data are or may be disclosed;
 a ecting individuals are arrived at electronically via automatic
f) Methods utilized for automated access, if the same is allowed data processing systems based on personal information stored
by the data subject, and the extent to which such access is in computerized data les. This reduces the business
authorized, including meaningful information about the logic transaction process down to a few seconds and facilitates a
involved, as well as the signi cance and the envisaged speedy exchange of economic value. Potentially, however, it
consequences of such processing for the data subject; 
 may also inadvertently arrive at decisions prejudicial to the
g) The identity and contact details of the personal data interests of data subject and lead to the weakening of his
controller or its representative; 
 position as a transacting party. As such, organizations are
h) The period for which the information will be stored; and
 required to notify the data subject whether his personal data
i) The existence of their rights as data subjects, including the will undergo automatic processing, and inform him that he has
right to access, correction, and object to the processing, as a right to object.

well as the right to lodge complaint before the NPC.

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c. Right to access. v. The personal data concerns private information that is

prejudicial to data subject, unless justi ed by freedom
The data subject has the right to reasonable access to, upon of speech, of expression, or of the press or otherwise
demand, the following: 
 authorized;

i. Contents of his or her personal data that were processed; 


ii. Sources from which personal data were obtained;
 vi. The processing is unlawful;

iii. Names and addresses of recipients of the personal data; 
 vii. The personal information controller or personal
iv. Manner by which such data were processed; 
 information processor violated the 

v. Reasons for the disclosure of the personal data to recipients, rights of the data subject.

if any; 

vi. Information on automated processes where the data will, or The personal information controller may notify third parties who
is likely to, be made as the sole basis for any decision that have previously received such processed personal information.

signi cantly a ects or will a ect the data subject; 


vii. Date when his or her personal data concerning the data f. The right to damages.
subject were last accessed and modi ed; and 

viii. The designation, name or identity, and address of the The data subject shall be indemni ed for any damages
personal information controller.
sustained due to such inaccurate, incomplete, outdated, false,
unlawfully obtained or unauthorized use of personal data,
Some exceptions may disallow the exercise of an individual’s taking into account any violation of his or her rights and
right to access to balance the right to privacy of an individual freedoms as data subject.

versus the needs of civil society. Here are some examples:

g. The right to le a complaint

i. A criminal suspect is not allowed access to the
personal data held about him by law enforcement 1. This right is subject to exhaustion of remedies.
agencies as it may impede investigation.
Otherwise, the complaint is dismissible. Thus, no
complaint shall be entertained unless:

ii. A person is not allowed access to information about
The complainant must have rst informed, in writing,
himself as contained in communications between a
the personal information controller or concerned entity
lawyer and his or her client, if such communication is
of the privacy violation or personal data breach to
subject to legal privilege in court. 

allow for appropriate action on the same; AND 



d. Right to recti cation.

2. The personal information controller or concerned

The data subject has the right to dispute the inaccuracy or error
entity did not take timely or appropriate action on the
in the personal data and have the personal information
claimed privacy violation or personal data breach, or
controller correct it immediately and accordingly, unless the
there is no response from the personal information
request is vexatious or otherwise unreasonable. If the personal
controller within 15 days from receipt of information
data has been corrected, the personal information controller
from the complaint; AND 

shall ensure the accessibility of both the new and the retracted
information and the simultaneous receipt of the new and the
retracted information by the intended recipients thereof: 3. The complaint is led within six (6) months from the
Provided, That recipients or third parties who have previously occurrence of the claimed privacy violation or personal
received such processed personal data shall be informed of its data breach, or 30 days from the last communiqué
inaccuracy and its recti cation, upon reasonable request of the with the personal information controller or concerned
data subject.
entity, whichever is earlier. 



e. Right to erasure or blocking. h. Right to data portability.

The data subject shall have the right to suspend, withdraw or This right gives data subjects the mechanism to obtain their
order the blocking, removal or destruction of his or her personal personal data in an electronic or structured format from
data from the personal information controller’s ling system.
 personal information controllers if such personal data is being
This right may be exercised upon discovery and substantial processed through electronic means, and enables the further
proof of any of the following:
use of such personal data by the data subjects.

i. The personal data is incomplete, outdated, false, or Note: Congress recently enacted the Mobile Number Portability
unlawfully obtained;
Act (RA 11202) which allows a mobile or prepaid subscriber of
mobile phone services to retain their existing mobile number
ii. The personal data is being used for purpose not even if they move from one service provider to another and
authorized by the data subject;
even if they change their subscription from postpaid to prepaid,
or vice versa, provided the subscriber has no existing nancial
iii. The personal data is no longer necessary for the obligations to his/her current service provider. 

purposes for which they were collected;


iv. The data subject withdraws consent or objects to the 

processing, and there is no other legal ground or
overriding legitimate interest for the processing;

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What are the limitations to the rights of a data subject?

The rights of a data subject shall not be applicable if the

processed personal data are used only for the needs of
scienti c and statistical research and, on the basis of such, no
activities are carried out and no decisions are taken regarding
the data subject: Provided, that the personal data shall be held
under strict con dentiality and shall be used only for the
declared purpose. The said sections are also not applicable to
the processing of personal data gathered for the purpose of
investigations in relation to any criminal, administrative or tax
liabilities of a data subject. Any limitations on the rights of the
data subject shall only be to the minimum extent necessary to
achieve the purpose of said research or investigation.

i. Right to be forgotten.

The right to be forgotten is a right recognized by the Court of

Justice of the European Union (“CJEU”) allowing a data subject
to request a search engine operator (such as Google), which is
a data controller, to have the particular information about him
(which appears when his name is searched via the search
engine) “no longer be linked to his name by a list of results
displayed following a search made on the basis of his name” on
the ground “that information appears, having regard to all the
circumstances of the case, to be inadequate, irrelevant or no
longer relevant, or excessive in relation to the purposes of the
processing at issue carried out by the operator of the search
engine.” The CJEU ordered that the information and links
concerned in the list of results must be erased.

The right to be forgotten is recognized in the form of “right of

erasure or blocking” under the DPA in that the data subject may
“suspend, withdraw or order the blocking, removal or
destruction of his or her personal information from the personal
information controller’s ling system upon discovery and
substantial proof that the personal information are incomplete,
outdated, false, unlawfully obtained, used for unauthorized
purposes or are no longer necessary for the purposes for which
they were collected.”

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