Commercial and Tax Law

Syllabus-based eReviewer for the 2023 Bar

Version 2 with Bar Chair Case Digests
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests

Table of Contents Tax Remedies Under the NIRC 200 1 General Provisions

a) Denition, Elements, and Characteristics

Business Organizations 2 Partnerships 2 Corporations 14 Local Taxation 218 Local Government Taxation 218 Real

Definition
Banking Laws 55 New Central Bank Act 55 General Banking Property Taxation 228 Judicial Remedies 234
By the contract of partnership

Law of 2000 58 Secrecy of Bank Deposits 64 Anti-Money 1. two or more persons bind themselves

Commercial Law 2. to contribute money, property, or industry

Laundering Act 66 Insurance Law 72 3. Dissolution and Winding Up 3. to a common fund,

4. with the intention of dividing the prots among themselves.

4. Limited Partnership
National Taxation 139 Income Tax 141 Value-Added Tax 183
Characteristic Elements
1) Consensual — perfected by mere consent;

2) Nominate — has a special name in law;

Transportation Law 87 I
Business Organizations 3) Bilateral — entered into by 2 or more persons with

Intellectual Property Code 94 Electronic Commerce Act 119 Foreign Investments Act 120 Public Service Act 123 General Principles in Taxation Law 125
 Partnerships

Corporations
A Partnerships

1. General Provisions

2. Rights and Obligations of Partnership and Partners

reciprocal rights and obligations;

4) Onerous — parties aspire to gain some benet;

5) Commutative — the undertaking of each of the partners is

considered as the equivalent of that of the others;

6) Principal — does not depend upon some other contracts; 7)

Preparatory — a means to an end.

Essential Features
1) There must be a valid contract;

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2) The parties have legal capacity to enter into the contract;
3) There must be a mutual contribution of money, property or
industry to a common fund;
4) The object must be lawful; and
5) The primary purpose is to carry on a business for prots and to
divide the same among the parties.
b) Rules to Determine Existence
1) Persons who are not partners as to each other are not partners as to
third persons except as provided by Article 1825 on partnership
by estoppel;
2) Co-ownership or co-possession does not of itself establish a
partnership, whether such co-owners or co-possessors do or do not
share any prots made by the use of the property;
3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns
are derived;
4) The receipt by a person of a share of the prots of a business is
prima facie evidence that he is a partner in the business, except if
such prots were received in payment as:
a) Debt by installments or otherwise;
b) Wages of an employee or rent to a landlord;
c) Annuity to a widow or representative of a deceased partner;
d) Interest on a loan, though the amount of payment vary
with the prots of the business;
eCodal+Pro by RGL 2 of 239
e) Consideration for the sale of a goodwill of a business or i) no time is specied and is not formed for a particular
other property by installments or otherwise. undertaking and which may be terminated anytime by
mutual agreement of the partners or by the will of one of
Incidents of a partnership
them; OR
1) Partners share in prots and losses. There is community of interest;
ii) one for a xed term or particular undertaking that is continued
(1767, 1797, 1798)
after the termination of such term or particular
2) They have equal rights in the management and conduct of the undertaking without any express agreement
business; (1803)
b) With a xed term — one in which the term is xed or agreed
3) Every partner is an agent of the partnership who binds the others for upon or formed for a particular undertaking, and upon
his acts for the purpose of its business; (1818) expiration of the term or completion of the undertaking, the
4) All partners are personally liable for the debts of the partnership with partnership is dissolved, unless continued by the partners.
their separate property (1816, 1822-1824) exc limited partners;
d) Partnership by Estoppel
(1843)
5) The books shall be kept at the principal place of business; (1805)
When does partnership liability result?
6) A duciary relation exists between partners; (1807)
Partnership by estoppel results if ALL the actual partners consented
7) A capitalist partner cannot carry on a competing business unless to the representation.
expressly allowed (1808), while an industrial partner is absolutely
When is liability pro rata?
prohibited from engaging in any other business; (1789)
a) When there is NO existing partnership, and all those represented as
8) The partnership is not terminated upon dissolution, but continues
partners consented; or
until the winding up is completed. (1828)
b) When there is an existing partnership, and not all of the partners
c) Partnership Term consented.
When is liability separate?
1) There is no time limitfor the existence of the partnership as this
a) When there is NO existing partnership, and only some of those
depends on the agreement of the parties.
represented consented; or
2) A partnership may be formed
b) When there is an existing partnership, and none of the partners
a) At will — consented.
eCodal+Pro by RGL 3 of 239
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Elements to establish liability as a partner on ground of estoppel
1) Proof by plainti that he was individually aware of the defendant’s
representations;
2) Reliance on such representation by the plainti; and
3) Lack of any denial or refutation of the statements by the defendant.
e) Partnership as Distinguished from Joint Venture
1) A joint venture is an association of persons or companies jointly
undertaking some commercial enterprise; generally,
a) all contribute assets and share risks which requires a
community of interest in the performance of the subject
matter,
b) a right to direct and govern the policy in connection
therewith, and
c) a duty, which may be altered by agreement to share both in
prot and losses.
2) Under Philippine law, a joint venture is a form of partnership and
should thus be governed by the law of partnerships.
3) Since a joint venture is a particular partnership, it would have the
following characteristics:
a) It would have a juridical personality separate and distinct
from that of each of the joint venturers.
b) Each of the co-venturers would be liable with their private
property to the creditors of the joint venture beyond
their contributions to the joint venture.
c) Even if a co-venturer transfers his interest to another, the
transferee does not become a co-venturer together with
the others in the joint venture unless all the other co-
venturers consent. This is in consonance with the
principle of delectus personarum.
d) Generally, the co-venturers acting on behalf of the joint
venturers are agents thereof with capacity to bind the
joint venture.
e) Death, retirement, insolvency, civil interdiction or
dissolution of any co-venturer dissolves the joint venture.
[Cesar L. Villanueva, Philippine Corporate Law]
Primelink Properties v. Lazatin-Magat
As a general rule, the relation of the parties in joint ventures is governed
by their agreement. When the agreement is silent on any particular issue,
the general principles of partnership may be resorted to.
An important distinction between these two business forms is that
although a corporation cannot enter into a partnership contract, it may,
however, engage in a joint venture with others.
citing Aurbach v. Sanitary Wares Manufacturing Corporation f)
Professional Partnership
General professional partnership. Two or more persons may also form
a partnership for the exercise of a profession.
eCodal+Pro by RGL 4 of 239
Saludo, Jr. v. PNB 2018
A partnership for the practice of law, constituted in accordance with the
Civil Code provisions on partnership, acquires juridical personality
by operation of law. Having a juridical personality distinct and separate
from its partners, such partnership is the real party-in-interest in a suit
brought in connection with a contract entered into in its name and by a
person authorized to act on its behalf.
g) Management
1) If ONE is appointed manager
May execute all acts of administration despite the opposition of
his partners, unless he should act in bad faith;
If appointed in articles of partnership, his power is irrevocable
without just or lawful cause. Thus, removal may be had only
a) For lawful cause of if there is bad faith; AND
b) Through the votes of the partners representing the
controlling interest.
If appointed after the partnership has been constituted, his power
may be revoked at any time by the vote of the partners
representing the controlling interest.
2) If TWO OR MORE are appointed managers a) without
specication of their respective duties, or
b) without a stipulation that one of them shall not act
without the consent of all the others,
 Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
each one may separately execute all acts of administration, but
if any of them should oppose the acts of the others, the decision
of the majority of the managers shall prevail.
In case of a tie, the matter shall be decided by the partners
owning the controlling interest.
In case UNANIMITY OF ACTION is stipulated, the
CONCURRENCE OF ALL shall be necessary for the validity of
the acts.
The absence or disability of any one of them cannot be alleged,
unless there is imminent danger of grave or irreparable
injury to the partnership.
3) When the manner of management has NOT been agreed upon, the
following rules shall be observed:
a) ALL the partners shall be considered agents and whatever
any one of them may do alone shall bind the partnership.
b) UNANIMOUS CONSENT is required in making any
important alteration in the immovable property of
the partnership, even if it may be useful to the
partnership.
But if the refusal of consent by the other partners is
manifestly prejudicial to the interest of the partnership,
the court's intervention may be sought.
GR: Partner NOT entitled to compensation.
EXC: The law may imply a contract for compensation.
2 Rights and Obligations of Partnership and
Partners
a) Rights and Obligations of the Partnership
1) Refund amounts disbursed by the partner in behalf of the b) To avail themselves of the benets which he may have
partnership plus the corresponding interest from the time the obtained;
expenses are made;
c) Plus right to damages in either case.
2) Answer for the obligations the partner may have contracted in good
2) Capitalist partner — Relative prohibition, only to any business
faith in the interest of the business; and
of the same kind, unless there is a stipulation to the contrary.
3) Answer for risks in consequence of its management. b) Sanctions for violating the prohibition include:
a) Bringing to the common funds any prots from the other
Obligations of Partners Among Themselves
business; and
b) Personally bearing the losses.
When does a partnership commence?
When is a capitalist partner obliged to sell his interest to others? 1)
GR: From the moment of the execution of the contract.
There is an imminent loss of the partnership business;
EXC: Unless otherwise stipulated.
2) The majority of the capitalist partners are of the opinion that an
Obligations of partners with respect additional contribution to the common fund would save the
to contribution of property business;
1) To contribute at the beginning of the partnership or at the 3) The capitalist partner refuses deliberately to contribute an
stipulated time the money, property, or industry which he may additional share to the capital; and
have promised to contribute;
4) There is no agreement that even in case of an imminent loss of the
2) To answer for eviction in case the partnership is deprived of the business, the partners are not obliged to contribute.
determinate property contributed;
Here, an industrial partner is exempt from contributing an additional
3) To answer for the fruits of the property the contribution of which share. He has already contributed his entire industry.
he delayed, from the date they should have been contributed up to
the time of actual delivery. Obligation of managing partner who collects debt
Where
Prohibition against engaging in business
1) Industrial partner — Absolutely prohibited, regardless of the
nature of the business whether of the same kind or not.
Unless expressly allowed, not merely by toleration. The remedies
of the other partners would be
a) To exclude the erring industrial partner from the rm; or

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1) There exists at least 2 debts, one where the collecting partner is
creditor, and the other, the partnership is the creditor;
2) Both debts are demandable; and
3) The collecting partner is authorized to manage and actually manages
the partnership, the RULE is as follows:
GR: The sum received is to be applied to the 2 credits in proportion to
their amounts.
EXC: If received, for the account of the partnership, shall be applied to
the partnership credit only.
EXC to EXC:
If credit to the collecting partner is more onerous, the debtor is
Obligation of partner who receives share of without deteriorating even if contributed only for use
partnership credit
A partner shall be obliged to bring to the partnership capital what he
received even though he may have given receipt for his share only, IF
1) He has received, in whole or in part, his share of a partnership
credit;
2) The other partners have not collected theirs; AND 3)
The partnership debtor has become insolvent.
Obligations of partner for damages to partnership GR: The
damages caused by a partner to the partnership CANNOT be oset by the
prots or benets which he may have earned for the partnership by his
industry.
Things contributed to be sold Partnership Things brought and
eCodal+Pro by RGL 5 of 239
given the right to prefer payment to the former.
EXC: If through the partner's extraordinary eorts in other activities of
the partnership, unusual prots have been realized, the courts
may equitably lessen this responsibility.
Risk of loss of things contributed
Who bears loss?
Specic and determinate things, which are not
fungible where only use is contributed Partner
Specic and determinate things the ownership
of which is transferred to the partnershipPartnership Fungibles or
Partnership
c) If there is also no prot-sharing stipulated, then losses
appraised in the inventory Partnership
Rules for distribution of profits and losses
1) Capital
a) According to agreement;
b) If no agreement, the share shall be equal;
c) In case of imminent loss of the business, additional shares may
be determined by the majority.
2) Prots
a) According to agreement;
b) If no agreement
things which cannot be kept
i) The share of the capitalist partner is in proportion to his
capital contribution.
ii) The industrial partner shall receive such share as may be just
and equitable, which must be satised rst before the
capitalist partners shall divide the prots.
This means the least amount that a capitalist partner gets.
3) Losses
a) According to agreement;
b) If no agreement, but the contract provides for a prot-sharing
scheme, the losses shall be in accordance with that scheme.
shall be borne in proportion to capital contribution.
In any case, the purely industrial partner shall not be liable
for the losses.
Can a third person be designated to determine share in profits or
losses?
YES. If the partners have agreed to intrust to a third person.
Such designation may be impugned only when it is manifestly
inequitable. In no case may a partner complain of such decision if he
1. Has begun to execute the decision of the third person, or
2. Has not impugned the same within a period of three months
from the time he had knowledge thereof,
The designation of losses and prots cannot be intrusted to one of the
partners.
 eCodal+Pro by RGL 6 of 239
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A stipulation which excludes one or more NOT be admitted into the partnership b) NOT assignable except in connection
Original capital Goodwill
partners from any share in the prots or losses is with the
A partner is co-owner with his partners. contribution + All
VOID.
property
Subpartnership subsequentlyAggregate of the individual contributions
a) Equal right to possess for partnership Assets
acquired made in+establishing or continuing the
Every partner may associate another person purposes, but not for any other purpose included
Partnership partnership
name +
with him in his share, but the associate shall without the consent of the other partners;

without the consent of ALL the other partners, even if the partner
having an associate should be a manager.
Right of partner to a formal account
GR: During the existence of the partnership, a partner is NOT entitled to
a formal account of partnership aairs since his right to know are
amply protected with regard to access to partnership books.
EXC: Action for accounting. Any partner shall have the right to a
formal account as to partnership aairs:
1) If he is wrongfully excluded from the partnership business or
possession of its property by his co-partners;
2) If the right exists under the terms of any agreement;
3) As provided by Article 1807 — Every partner must account to the
partnership for any benet, and hold as trustee for it any prots
derived by him without the consent of the other partners
from any transaction connected with the formation, conduct, or
liquidation of the partnership or from any use by him of its
property.
4) Whenever other circumstances render it just and reasonable. e.g. a
partner has been assigned abroad for a long time.
Property Rights of a Partner
1) His rights in specic partnership property; Assignment of partner’s whole interest
assignment of rights of all the partners in the same
This is permitted without causing dissolution. However, such assignment
property;
does NOT grant the assignee the right to:
c) NOT subject to attachment or execution except on a
a) Interfere in the management;
claim against the partnership;
b) Require any information or account; or
When partnership property is attached for a partnership
debt the partners, or any of them, or the representatives c) Inspect partnership books.
of a deceased partner, cannot claim any right under The only rights of the assignee are:
the homestead or exemption laws.
1) To receive the prots accruing to the assigning partner;
d) NOT subject to legal support.
2) To avail of usual remedies in the event of fraud in the management;
2) His interest in the partnership;
3) To receive assignor’s interest in case of dissolution;
Refers to his share of the prots and surplus. These may be
4) To require an account of partnership aairs, but only in case of
assigned.
dissolution.
A partner shall NOT be deprived of his right, if any, under the
Remedies of separate judgment creditor of a partner
exemption laws, as regards his interest in the partnership.
1) Application for a charging order after securing judgment on his
3) His right to participate in the management.
credit. However, claims of partnership creditors must be satised
Partnership Property Partnership Capital rst.
2) Other remedies may include
Changes
a) Receivership;
in valueVARIES CONSTANT
b) Sale of interest.
 eCodal+Pro by RGL 7 of 239
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The interest charged may be redeemed. A stipulation among partners contrary to the pro rata and 4) Confess a judgment;
subsidiary liability expressly imposed is VOID and of no eect as to
5) Enter into a compromise concerning a partnership claim
c) Obligations of Partnership/Partners to Third third persons.
or liability;
Persons
Such stipulation however is VALID and enforceable among the
6) Submit a partnership claim or liability to arbitration; 7)
partners.
Liability for inclusion of name in firm name Renounce a claim of the partnership.
Liability of partnership for acts of partners
Partners by estoppel. Persons who, being not partners, include their 3) Acts in contravention of a restriction on authority
names in the rm name 1) Acts for apparently carrying out the usual way of business of
the partnership a.k.a. Acts of administration GR: Partnership is NOT liable to third persons having actual or
1. DO NOT acquire the rights of a partner, presumptive knowledge of the restrictions.
GR: Every partner is an agent and may execute such acts with
2. but they shall be SUBJECT to the liability of a partner insofar EXC: Such persons not having such notice have a right to assume
binding eect.
as third persons without notice are concerned. that the authority of a partner is co-extensive with the
EXC: If the partner so acting business transacted by his rm.
Liability for contractual obligations of the partnership The general
a) Has in fact no authority; AND
rule is that a partner, who had actual or apparent Conveyance of real property owned by partnership
authority, has the right to make all partners liable for the Conveyance Liabilities = to third persons.
Partner’s
contracts he makes for the partnership in the name and for
in name of EFFECT Stipulation against liability name
the account of the partnership.
Passes title, but partnership can unless they have abandoned the business, one or more
The individual liability of partners to creditors is pro
recover if but less than all the partners have no authority to:
rata and subsidiary.
a) Conveyance was not in usual 1) Assign the partnership property in trust for creditors
1) Pro rata — based on the number of partners, and not
or on the assignee's promise to pay the debts of the
on the amount of contribution.
b) The third person KNOWS. partnership; Partnership
2) Subsidiary or secondary — only after all the way of business; or
2) Acts of strict dominion or ownership 2) Dispose of the goodwill of the business;
partnership assets have been exhausted. b) Buyer had knowledge that the partner-seller had no
GR: NOT binding; 3) Do any other act which would make it impossible to authority.
Industrial partners, although not liable for losses, are
carry on the ordinary business of a partnership;
personally liable for liabilities of the partnership to third
EXC: Unless authorized by the other partners. Partnership Partnership Buyer gets equitable interest of the partnership except if
persons.
Except when authorized by the other partners or a) Partnership is not engaged in buying and selling of
Losses = settlement of partnership aairs among partners; lands;
Title in name of
or
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b) Buyer had knowledge that person in trust for 1) Loss or injury caused to third persons —
All partners
the partner-seller had no partnership All Requisites for liability
authority. obligations.
Passes title, same as (1)
EXC: Unless there is a stipulation to the contrary.
One or 3. who reasonably could and should have communicated
2) Extends to his separate property for subsequent
it to the acting partner, obligations.
operate as notice to or knowledge of the partnership.
3 Dissolution and Winding Up
EXC: in the case of fraud on the partnership, committed Buyer gets equitable interest of the partnership, same as
Partner/s in (2)
by or with Three stages of ending a partnership:
whose the consent of that partner.
name the 1) Dissolution — is the change in the relation of the
Liability of incoming partner for partnership NB: Notice to any partner, under certain circumstances, partners caused by any partner ceasing to be associated in
title
obligations 1) Limited to his share in the partnership operates as notice to or knowledge to the partnership only. the carrying on of the business.
stands
property for existing obligations. Evidently, it does not provide for the reverse situation, or
2) Winding up — is the actual process of settling the
Partnership that notice to the partnership is notice to the partners.
GR: Not personally liable for existing partnership business
or partner (Guy v. Gacott 2016)
more
partners Liability arising from partner’s wrongful
act, omission, or breach of trust
The partners and partnership are SOLIDARILY liable
One or
for:
more or all partners or a third
2. then present to his mind, and received is misapplied by any partner while it is in the custody of
partnersPasses title.
the partnership.
the knowledge of any other partner
Admission by a partner a) Partner must be guilty of a wrongful act or omission; AND
or partnership aairs after dissolution, involving
An admission or representation made by any partner concerning b) He must be acting in the ordinary course of business, or a) The collection and distribution of partnership assets, b)
partnership aairs within the scope of his authority is evidence with the authority of his co-partners even if the act is
against the partnership. Payment of debts, and
unconnected with the business.

Notice to, or knowledge of, a partner
GR: Notice to any partner of any matter relating to partnership aairs, and
the knowledge of the partner acting in the particular matter,
1. acquired while a partner or
2) Loss where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it;
3) Loss where the partnership in the course of its business receives
money or property of a third person and the money or property so
c) Determination of the value of each partner’s interest in the
partnership.
3) Termination — point in time when all partnership aairs are
completely wound up and nally settled. It signies the end of the
partnership life.
 Causes of Dissolution
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b) Express will of any partner, who must act in good faith, when
no denite term or particular is specied;
c) Express will of ALL the partners who have not assigned their
interests or suffered them to be charged for their separate debts,
either before or after the termination of any specied term or
particular undertaking;
d) Expulsion of any partner from the business bona de in
accordance with such a power conferred by the agreement
between the partners;
2) Act of parties in violation of their agreement; 3)
Operation of law —
a) Any event which makes it unlawful for the business of the
partnership to be carried on or for the members to carry it
on in partnership;
b) Loss of specic thing — When a specic thing which a partner
had promised to contribute to the partnership, perishes before
the delivery;
c) Death of any partner;
d) Insolvency of any partner or of the partnership; e)
Civil interdiction of any partner;
4) Court decree — On application by or for a partner the court
shall decree a dissolution due to:
a) Insanity;
b) Incapacity;
1) Act of parties NOT in violation of their agreement —
eCodal+Pro by RGL 9 of 239
c) Misconduct;
d) Persistent breach of partnership agreement;
e) The business of the partnership can only be carried on at a
loss;
f) Other circumstances render a dissolution equitable. i)
Abandonment of the business;
ii) Fraud in the management of the business;
iii) Refusal without justiable cause to render accounting of
partnership aairs, etc.
On the application of the purchaser of a partner's interest:
a) After the termination of the specied term or particular
undertaking;
b) At any time if the partnership was a partnership at will when the
interest was assigned or when the charging order was issued.
Eect of dissolution on authority of partner GR: Upon
dissolution, a partnership ceases to be a going concern and the partner’s
power of representation is conned only to
1. acts incident to winding up or
2. completing transactions begun but not nished.
This rule is subject to qualications.
a) With respect to partners themselves —
i) If the dissolution is NOT caused by the act, insolvency or death
of a partner, the authority of any partner to bind the
partnership by a new contract is IMMEDIATELY terminated.
a) Termination of the denite term or particular undertaking
specied in the agreement;
ii) Otherwise, termination of authority depends upon WON the
partner had knowledge or notice of the dissolution —
GR: Each partner is liable to his co-partners for his share of
any liability created by any partner acting
for the partnership as if the partnership had not
been dissolved
EXC: Unless the partner acting for the partnership had
a) knowledge of the dissolution caused by act of any
partner; OR
b) knowledge or notice of the death or insolvency.
b) With respect to third persons —
i) As to prior or former dealers — persons who extended credit to
partnership prior to dissolution — must have knowledge or
actual notice of the dissolution to relieve partnership from
liability;
ii) As to persons who had known of partnership’s existence —
publication;
In both instances, the liability of a partner shall be satised out
of partnership assets alone when such partner had been prior
to dissolution:
1) Unknown as a partner to the person with whom the
contract is made; and
2) So far unknown and inactive in partnership aairs that the
business reputation of the partnership could not be said to
have been to any degree due to his connection with it.
iii) The partnership is in NO case bound by any act of a partner after
 dissolution:
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1) Unlawful to carry on the business, unless the act is
appropriate for winding up partnership aairs;
2) Insolvency of partner;
3) Partner has no authority to wind up partnership aairs;
except by a transaction with one who —
a) Is a former dealer and had no knowledge or notice of
his want of authority; or
b) Is not a former dealer, and, having no knowledge or
notice of his want of authority, the fact of his
want of authority has not been duly published.
Winding up; manner, persons authorized
Winding up may be done judicially or extrajudicially by 1)
The partners designated by the agreement;
2) In the absence of such agreement, by all partners who have not
wrongfully dissolved the partnership; OR
3) The legal representative of the last surviving partner, not insolvent;
OR
4) A court-appointed receiver.
Right of partner to application of partnership property on
dissolution
“Partner’s lien” is the right of every partner, on a dissolution,
against the other partners and persons claiming through them in
respect of their interests as partners, to have the partnership property
applied to discharge partnership liabilities and the surplus assets, if any,
distributed in cash to the respective partners, after deducting what may
eCodal+Pro by RGL 10 of 239
be due to the rm from them as partners.
1) If dissolution NOT in contravention of agreement — Partners
have the right to have
a) The partnership property applied to discharge the liabilities of
the partnership; AND
b) The surplus, if any, applied to pay in cash the net amount
owing to respective partners.
NO partner is liable for any loss sustained as a result of dissolution.
2) If dissolution in contravention of agreement — The rights of a
partner vary depending on his innocence.
a) If innocent —
i) To have partnership property applied for the payment of its
liabilities and to receive in cash his share of the surplus;
ii) To be indemnied for damages caused by the guilty partner;
iii) To continue the business in the same name during the
agreed term, by themselves or jointly with others; and
iv) To possess partnership property should they decide to
continue the business.
b) If guilty of wrongfully causing the dissolution —
i) If the business is NOT continued — To have partnership
property applied for the payment of its liabilities and to
receive in cash his share of the surplus less damages.
ii) If the business is continued
1) To have the value of his interest in the partnership at
the time of dissolution, less damages
ascertained and paid in cash or secured by bond
approved by the court; and
2) To be released from all existing and future liabilities of
the partnership.
In ascertaining the value of the partner's interest
the value of the goodwill of the business shall
NOT be considered.
Rights of injured partner where partnership contract rescinded
1) Right of a lien on, or retention of, the surplus of partnership
property after satisfying partnership liabilities for any sum of
money paid or contributed by him;
2) Right to subrogation in place of partnership creditors after
payment of partnership liabilities; and
3) Right of indemnication by the guilty partner against all debts
and liabilities of the partnership.
Rules in settling accounts between partners
1) Assets of the partnership. —
a) Partnership property + Goodwill; AND
b) Contributions of the partners necessary for the payment of all
liabilities.
2) Order of application of the assets. —
a) Those owing to partnership creditors;
b) Those owing to partners other than for capital and prots, such
as loans given by partners or advances for business expenses;
 eCodal+Pro by RGL 11 of 239
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c) Return of capital contribution of partners; purchaser. — When a retiring or deceased partner has sold his ✔
interest without a nal settlement with partnership creditors, such
d) Prots.
creditors have an equitable lien on the consideration paid to the Money, property
3) Right of a partner where assets insucient. — The following shall or industry
retiring or deceased partner by the purchaser.
have the right to enforce the contributions
The lien comes ahead of the separate creditors of said partner. To proceedings
a) Any partner or his legal representative, to the extent of the
Rights of retiring, or of estate of deceased, partner when business by or against the
amount which he has paid in excess of his share of the liability;
partnership
b) An assignee for the benet of creditors; or is continued

c) Any person appointed by the court 1) To have the value of the interest of the retiring or deceased partner in
the partnership ascertained as of the date of retirement or death;
4) Liability of deceased partner’s individual property. — shall be Does not make
AND
liable for his share of the contributions necessary to satisfy the assignee new
liabilities incurred while he was a partner. 2) To receive thereafter, as an ordinary creditor, an amount partner without
Denition and Requirements consent of others.
5) Priority to payment of partnership creditors/ partners’
creditors. — When partnership property and the individual A limited partnership is one formed by two or more persons, ✔
properties of the partners are in possession of a court for having as members
distribution Absolutely or
1. one or more general partners AND
relatively prohibited
a) partnership creditors shall have priority on
2. one or more limited partners.
Rights of creditors of dissolved partnership which is continued 1)
The limited partners as such shall not be bound by the obligations of the
Equal rights of dissolved and new partnership creditors. Management ✘ ContributionAt least money or property
partnership.
2) Liability of persons continuing the business. — shall be satised
As to General Limited
out of the partnership property only, unless there is a stipulation NO unless also a general
to the contrary. partner, or where the object
Liability Personally liableExtends only to capital contribution
3) Prior right of dissolved partnership creditors as against
partnership property; and b) with interest, partnership.

b) separate creditors on individual property. c) or, at his option, in lieu of interest, the prots
Proper Party Assignment of
This is otherwise known as the doctrine of the
marshalling of assets.

a) equal to the value of his share in the dissolved

partnership
is to enforce his right against, or liability to, the
6) Distribution of property of insolvent partner. — his individual partners by way of contribution.
interestFreely assignable
property shall be distributed as follows:
attributable to the use of his right.
a) To those owing separate creditors;
4 Limited Partnership Name in firm ✘ Other businessNo prohibition
b) To those owing to partnership creditors; and c) To those owing to

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dissolve a) Receive or hold as collateral security any partnership
✔ Dissolution property; or
6) To receive a share of the prots or other compensation
by way of income; b) Receive payment, conveyance or release from liability if
Statutory requirements it will prejudice the right of third persons.
7) To receive the return of his contribution provided
Retirement, death, insanity, insolvency DOES NOT there is a surplus.

1) Sign and swear to a certicate;
2) File for record the certicate in the Oce of the SEC.
A limited partnership is formed if there has been substantial
compliance in good faith with the foregoing requirements.
If there is no substantial compliance, the partnership becomes a
general partnership as far as third persons are concerned, in which
ALL members are liable as general partners.
When does a limited partner become liable as a general partner?
1. If his surname appears in rm name;
2. If he takes part in the control of the business.
Limited partner; specic rights
1) To require that the partnership books be kept at the principal place
of business;
2) To inspect and copy at a reasonable hour partnership books or any
of them;
3) To demand true and full information of all things aecting the
partnership;
4) To demand a formal account of partnership aairs whenever a) Grant loans to the partnership;
circumstances render it just and reasonable;
b) Transacting other business with it; and
5) To ask for dissolution and winding up by decree of court;
c) Receiving a pro rata share of the partnership assets with general
GR: Unless he is a general partner, a limited partner is NOT a proper
creditors if he is not also a general partner.
party to proceedings by or against a partnership
2) Prohibited transactions. —
EXC: Where the object is to enforce a limited partner's right against or IF at the time the assets of the partnership are not sucient to
liability to the partnership. discharge partnership liabilities to persons not claiming as
Status of person erroneously believing general or limited partners.
himself to be a limited partner
Any violation of the prohibition will give rise to the
A person who has contributed to a partnership erroneously believing that presumption that it has been made to defraud
he has become a limited partner, is NOT personally liable as a general partnership creditors.
partner, provided:
Return of contribution
a) On ascertaining the mistake he promptly renounces his interest in
GR: A limited partner only has the right to demand and receive CASH for
the prots of the business, or other compensation by way of
his contribution, whether he contributed money or property.
income;
EXC: When there is stipulation to the contrary in the certicate; or
b) His surname does NOT appear in the partnership name; and c)
Where ALL partners consent to the return other than in form of
He does NOT participate in the management of the business.
cash.
Transactions of limited partner with the partnership 1) Allowable
When may a limited partner have the partnership dissolved?
transactions.—
 Upon petition with the court:
a) When his demand for the return of his contribution is denied
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
Limited partner; liabilities
1) To the partnership —
a) For the dierence between his contribution as actually made
and that stated in the certicate as having been made, and
b) For any unpaid contribution which he agreed in the certicate
to make in the future at the time and on the conditions stated
in the certicate.
2) To partnership creditors and other partners — becomes liable
for partnership obligations when
a) He contributes services, instead of only money or property;
b) He allows his surname to appear in the rm name;
c) He fails to have a false statement in the certicate corrected,
knowing it to be false;
d) He takes part in the control of the business;
e) He receive partnership property as collateral security, payment,
conveyance, or release in fraud of partnership creditors; and
f) There is failure to substantially comply with the legal
requirements governing the formation of limited
partnerships.
3) To separate creditors — Charging order — The interest may be
redeemed with the separate property of any general partner,
but may NOT be redeemed with partnership property.
although he has a right to such return; or
b) When his contribution is not paid because the other liabilities of
the partnership have not been paid or the partnership property is
eCodal+Pro by RGL 13 of 239
The liabilities may be waived or compromised,
provided the waiver or compromise:
1) Is made with unanimous consent; and
2) Does not prejudice partnership creditors who extended credit or
whose claims arose before the cancellation or amendment of the
certicate.
Limited partner; assignee to substituted
A substituted limited partner is a person admitted to all the rights
of a limited partner who has died or has assigned his interest in a
partnership.
An assignee, who does NOT become a substituted limited partner, has 1.
NO right to
a. require any information or
b. account of the partnership transactions or
c. to inspect the partnership books;
2. He is only entitled to
a. receive the share of the prots or other compensation by way of
income, or
b. the return of his contribution, to which his assignor would
otherwise be entitled.
What are the requisites for an assignee to
become a substituted limited partner?
insucient for their payment.
Before seeking judicial redress, he may rst ask the other partners to have the
partnership dissolved.
1) Unanimous consent of all members; or if the limited partner is
empowered by the certicate, must give the assignee the right to
become a limited partner;
2) The certicate must be amended; and
3) The amended certicate must be registered in the SEC.
GR: A substituted limited partner is liable for all the liabilities of his
assignor;
EXC: Those of which he was ignorant at the time he became a limited
partner and which could not be ascertained from the certicate.
Limited Partnership; Dissolution
The partnership liabilities shall be settled in the following order: 1)
Those due to creditors, including limited partners,
except those on account of their contributions, in the order of
priority as provided by law;
2) Those to limited partners
a) in respect to their share of the prots and other compensation
by way of income on their contributions;
b) in respect to the capital of their contributions;
3) Those to general partners
a) other than for capital and prots;
b) in respect to prots;
 c) in respect to capital. (NB: in general partnership, capital enjoys
preference over prots)

B Corporations
Revised Corporation Code of the Philippines

Denition of Corporation

Classes of Corporations
 eCodal+Pro by RGL 14 of 239
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Nationality of Corporations 8. Stockholders and Members k) Personal Liabilities

l) Responsibility for Crimes
Corporate Juridical Entity a) Fundamental Rights of a Stockholder
b) Participation in Management m) Special Fact Doctrine
Capital Structure
c) Proprietary Rights n) Inside Information
Incorporation and Organization
d) Remedial Rights o) Contracts
a) Promoter
e) Obligations of a Stockholder 10. Capital Aairs
b) Subscription Contract
f) Meetings a) Certicate of Stock
c) Pre-Incorporation Subscription Agreements d) Consideration for
9. Board of Directors and Trustees b) Watered Stocks
Stocks
a) Repository of Corporate Powers c) Payment of Balance of Subscription d) Sale of Delinquent Shares
e) Articles of Incorporation
b) Tenure, Qualications, and Disqualications of Directors e) Alienation of Shares
f) Corporate Name and Limitations on its Use
c) Requirement of Independent Directors d) Elections f) Corporate Books and Records 11. Dissolution and
g) Registration, Incorporation, and Commencement of Corporate
e) Removal Liquidation a) Modes of Dissolution
Existence
f) Filling of Vacancies b) Methods of Liquidation
h) Election of Directors or Trustees
g) Compensation 12. Other Corporations
i) Adoption of By-Laws
h) Disloyalty a) Close Corporations
j) Eects of Non-Use of Corporate Charter
i) Business Judgment Rule b) Non-Stock Corporations
7. Corporate Powers
j) Solidary Liabilities for Damages c) Educational Corporations

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 d) Religious Corporations is designed to prevent injustice and unfairness. It private suit to which such corporations may be a party.
applies when persons assume to form a corporation and exercise
e) One Person Corporations corporate functions and enter into business relations with third Moreover, a corporation which has failed to le its by-laws within the
persons. prescribed period does not ipso facto lose its powers as such.
f) Foreign Corporations
All persons who assume to act as a corporation knowing it to be
13. Merger and Consolidation without authority to do so shall be liable as general partners for
Seventh Day Adventist Conference Church of Southern
all debts, liabilities and damages incurred or arising as a result
Phil. Inc. v. Northeastern Mindanao Mission of Seventh
thereof. (§20) Day Adventist, Inc.
1 Denition of Corporation
2. De facto Corporation. There are stringent requirements before The alleged donation to petitioners was void. The donation could not
A corporation is
one can qualify as a de facto corporation: have been made in favor of an entity yet inexistent at the time it was
1. an articial being a. the existence of a valid law under which it may be made. Nor could it have been accepted as there was yet no one to accept
2. created by operation of law, incorporated; it.

3. having the right of succession and b. an attempt in good faith to incorporate; and There are stringent requirements before one can qualify as a de facto
corporation. The ling of articles of incorporation and the issuance of the
4. the powers, attributes, and properties expressly authorized by law c. assumption of corporate powers.
certicate of incorporation are essential for the existence of a de facto
or incidental to its existence.
The due incorporation of any corporation claiming in good faith corporation.
to be a corporation, and its right to exercise corporate powers,
2 Classes of Corporations Corporate existence begins only from the moment a certicate of
shall not be inquired into collaterally in any private suit to
incorporation is issued. No such certicate was ever issued to petitioners
which such corporation may be a party. Such inquiry may be made
1. Stock corporations are those or their supposed predecessor-in-interest at the time of the donation.
by the Solicitor General in a quo warranto proceeding. (§19)
Petitioners obviously could not have claimed succession to an entity that
a. which have capital stock
never came to exist. Neither could the principle of separate juridical
b. divided into shares and Sawadjaan v. CA
personality apply since there was never any corporation to speak of.
c. are authorized to distribute to the holders of such shares, WON AIIBP had NO legal personality to dismiss Sawadjaan since it
dividends, or allotments of the surplus prots on the basis failed to file its by-laws within the designated 60 days from the effectivity
of the shares held. of Rep. Act No. 6848. Lozano v. De los Santos

2. All other corporations are nonstock corporations.
Other Classifications
1. Corporation by estoppel. Founded on principles of equity and
NO. At the very least, by its failure to submit its by-laws on time, the The doctrine of corporation by estoppel advanced by Anda cannot
AIIBP may be considered a de facto corporation whose right to override jurisdictional requirements. Jurisdiction is xed by law and is not
exercise corporate powers may not be inquired into collaterally in any subject to the agreement of the parties. It cannot be acquired through or
waived, enlarged or diminished by any act or omission of

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the parties, neither can it be conferred by the acquiescence of the court.
Corporation by estoppel is founded on principles of equity and is
designed to prevent injustice and unfairness. It applies when persons
assume to form a corporation and exercise corporate functions and enter
into business relations with third persons. Where there is no third person
involved and the conflict arises only among those assuming the form of a
corporation, who therefore know that it has not been registered, there is no
Jurisprudence dictates that the doctrine of corporation by estoppel
corporation by estoppel.
Macasaet v. Co, Jr. 2013
Abante Tonite is a corporation by estoppel as the result of its having
represented itself to the reading public as a corporation despite its not
being incorporated.
The non-incorporation of Abante Tonite with the SEC was of no
consequence, for, otherwise, whoever of the public who would suer any
damage from the publication of articles in the pages of its tabloids would
be left without recourse.
Missionary Sisters of Our Lady of Fatima v. Alzona 2018
WON petitioner has the legal capacity to accept the donation of
Purificacion.
YES, not in the capacity as a de facto corporation but as a corporation
by estoppel. It is the act of registration with SEC through the issuance of
a certicate of incorporation that marks the beginning of an entity's
corporate existence.
Petitioner led its AOI and by-laws on August 28. However, the
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SEC issued the corresponding Certicate of Incorporation only on
August 31, two (2) days after Puricacion executed a Deed of Donation
on August 29. Clearly, at the time the donation was made, the Petitioner
cannot be considered a corporation de facto.
Rather, a review of the attendant circumstances reveals that it calls for
the application of the doctrine of corporation by estoppel.
applies for as long as there is no fraud and when the existence of the
association is attacked for causes attendant at the time the contract or
dealing sought to be enforced was entered into, and not thereafter.
Here, Puricacion dealt with the petitioner as if it were a corporation.
This is evident from the fact that Puricacion executed two (2)
documents conveying her properties in favor of the petitioner.
Further, the subsequent act by Puricacion of re-conveying the property
in favor of the petitioner is a ratification by conduct of the otherwise
defective donation.
3 Nationality of Corporations
1. The term "capital" in Section 11, Article XII of the Constitution
refers only to shares of stock entitled to vote in the election of 4. If the Filipino has
directors, and thus, refers ONLY TO COMMON SHARES,
and NOT to the total outstanding capital stock comprising
both common and non-voting preferred shares.
Full benecial ownership of 60% of the outstanding capital
stock, coupled with 60% of the voting rights, is
required. (Gamboa v. Teves 2011 En Banc)
eCodal+Pro by RGL 17 of 239
2. Both the Voting Control Test and the Benecial Ownership Test
must be applied to determine whether a corporation is a
“Philippine national.”
The 60-40 ownership requirement in favor of Filipino
citizens must apply separately to each class of shares,
whether common, preferred non-voting, preferred voting or
any other class of shares. (Heirs of Gamboa v. Teves 2012 En
Banc Resolution)
3. The SEC suggested applying the Grandfather Rule on a.
two (2) levels of corporate relations for
i. publicly-held corporations or
ii. where the shares are traded in the stock exchanges,
and to
b. three (3) levels for
i. closely held corporations or
ii. the shares of which are not traded in the stock
exchanges. (Narra Nickel Mining v.
Redmont Consolidated Mines 2015
Resolution)
a. Political Rights — the voting power of the "specic
stock", i.e., he can vote the stock or direct another to vote
for him, or
b. Economic Rights — the investment power over the
"specic stock", i.e., he can dispose of the stock or direct
another to dispose of it for him, or
 c. both, i.e., he can vote and dispose of that "specic stock" or
direct another to vote or dispose it for him,
then such Filipino is the "benecial owner" of that "specic stock."
(Roy III v. Herbosa 2017 En Banc Resolution)
a) Control Test
Control Test nds initial application and "must govern in reckoning
foreign equity ownership in corporations engaged in nationalized
economic activities."
Where a corporation and its non-Filipino stockholders own stocks in a
SEC registered enterprise,
a. at least 60% of the capital stock outstanding and entitled to
vote of each of both corporations must be owned and held by
citizens of the Philippines; AND
b. at least 60% of the members of the Board of Directors of each
of both corporations must be citizens of the Philippines,
in order that the corporation shall be considered a Philippine national.
b) Grandfather Rule
The Grandfather Rule may be used as a supplement to the
Control Test, that is, as a further check to ensure that control and
benecial ownership of a corporation is in fact lodged in Filipinos.
The Grandfather Rule is the method by which the percentage of
Filipino equity in a corporation engaged in nationalized and/or partly
nationalized areas of activities is computed. A resort to the
Grandfather Rule is necessary if doubt exists as to the locus of the
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Esses and Tri-Star's corporate properties.
“benecial ownership” and “control.”
“Doubt” refers to various indicia that the “benecial ownership” and
“control” of the corporation do not in fact reside in Filipino
shareholders but in foreign stakeholders. These indicators are:
a. That the foreign investors provide practically all the funds for
the joint investment undertaken by these Filipino businessmen
and their foreign partner;
b. That the foreign investors undertake to provide practically all
the technological support for the joint venture;
c. That the foreign investors, while being minority stockholders,
manage the company and prepare all economic viability
studies. (Narra Nickel Mining v. Redmont Consolidated
Mines 2015 Resolution)
4 Corporate Juridical Entity
a) Doctrine of Separate Juridical Personality
A corporation has a personality separate and distinct from that of its
stockholders or members composing it, as well as from the directors,
trustees and ocers who act on its behalf.
Consequences
1. The property of the corporation is not the property of its
stockholders or members.
2. A corporation can incur obligations which should not be attributed
to its stockholders, directors and ocers.
3. Limited Liability Rule — A stockholder is personally liable for the
eCodal+Pro by RGL 18 of 239
b) Doctrine of Piercing the Corporate Veil
nancial obligations of the corporation to the extent of his unpaid
subscription.
Liability for tort and crimes
The corporation should alone be liable for its own corporate acts and
liabilities entered into by its authorized ocers.
Recovery of damages
GR: A corporation is not entitled to moral damages because, not being a
natural person, it cannot experience physical suering or sentiments
like wounded feelings, serious anxiety, mental anguish and moral
shock.
EXC: A juridical person can validly claim for libel or any other form of
defamation and claim moral damages.
Article 2219(7) of the Civil Code expressly authorizes the recovery
of moral damages in cases of libel, slander or any other form of
defamation. Article 2219(7) does not qualify whether the plaintiff
is a natural or juridical person.
Silverio Jr. v. Filipino Business Consultants Inc.
WON FBCI's acquisition of the "substantial and controlling shares of
stocks" of Esses and Tri-Star entitles it to the possession of the property owned
by the latter.
NO. Esses and Tri-Star, just like FBCI, are corporations. A corporation
has a personality distinct from that of its stockholders. Thus,
FBCI's alleged controlling shareholdings in Esses and Tri-Star merely
represent a proportionate or aliquot interest in the properties of the two
corporations. Such controlling shareholdings do not vest FBCI with any
legal right or title to any of
Under the doctrine of "piercing the veil of corporate fiction," the
 court looks at the corporation as a mere collection of individuals or an
aggregation of persons undertaking business as a group, disregarding
the separate juridical personality of the corporation unifying the group.
The procedure for the doctrine to be properly applied:
1) The court must first acquire jurisdiction over the corporation or
corporations involved before its or their separate personalities are
disregarded; and
2) The doctrine can only be raised during a full-blown trial over a cause
of action duly commenced involving parties duly brought under
the authority of the court by way of service of summons or what
passes as such service. (Kukan International v. Reyes 2010)
Stockholders of a corporation are liable for the debts of the corporation up
to the extent of their unpaid subscriptions. They cannot invoke the veil
of corporate identity as a shield from liability, because the veil may be
lifted to avoid defrauding corporate creditors. (Halley v. Printwell 2011)
The doctrine of piercing the corporate veil applies only in three (3) basic
areas, namely:
1) Defeat of public convenience as when the corporate ction is used
as a vehicle for the evasion of an existing obligation;
2) Fraud cases or when the corporate entity is used to justify a wrong,
protect fraud, or defend a crime; or
3) Alter ego cases, where a corporation is merely a farce since it is a
mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its aairs are so
conducted as to make it merely an instrumentality, agency,
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
the capital stocks of a corporation
is not by itself a sucient ground to
disregard the separate corporate
personality. The wrongdoing
conduit or adjunct of another corporation.
Case law lays down a three-pronged test to determine the application of
the alter ego theory, which is also known as the instrumentality theory,
namely:
1) Instrumentality or Control Test — Control, not mere majority
or complete stock control, but complete domination, not only of
nances but of policy and business practice in respect to the
transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its
own;
2) Fraud Test — Such control must have been used by the defendant
to commit fraud or wrong; and
3) Harm Test — The aforesaid control and breach of duty must have
proximately caused the injury or unjust loss complained of.
(DBP v. Hydro Resources Contractors 2013)
Gesolgon v. CyberOne PH 14 Oct 2020
1. While it is true that CyberOne AU owns majority of the shares of
CyberOne PH, this, nonetheless, does not warrant the
conclusion that CyberOne PH is a mere conduit of CyberOne
AU.
2. The doctrine of piercing the corporate veil applies only in three
basic instances, namely:
2.1. when the separate distinct corporate personality defeats
public convenience, as when the corporate
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must be clearly and convincingly
established.
The sale of the assets of New
ANJH to NH Oil was a
ction is used as a vehicle for the evasion of an
existing obligation;
2.2. in fraud cases, or when the corporate entity is used to
justify a wrong, protect a fraud, or defend a crime; or
2.3. is used in alter ego cases, i.e., where a corporation is
essentially a farce, since it is a mere alter ego or business
conduit of a person, or where the corporation is so
organized and controlled and its aairs conducted as to
make it merely an instrumentality, agency, conduit or
adjunct of another corporation.
3. Here, the application of the doctrine of piercing the corporate veil
is unwarranted.
3.1. no evidence was presented to prove that CyberOne PH
was organized for the purpose of defeating public
convenience or evading an existing obligation;
3.2. petitioners failed to allege any fraudulent acts committed
by CyberOne PH in order to justify a wrong, protect a
fraud, or defend a crime;
3.3. the mere fact that CyberOne PH's major stockholders are
CyberOne AU and respondent Mikrut does not prove
that CyberOne PH was organized and controlled and
its aairs conducted in a manner that made it merely an
instrumentality, agency, conduit or adjunct of
CyberOne AU.
See Labor Law Case Digest No. 48
circumvention of the employees'
security of tenure.
Santos used I/AME as a means to
defeat judicial processes and to
 Survey of Cases
evade his obligation to Litton. case.
Outsider reverse veil-piercing
Case CircumstanceApply
is applicable in the instant
Trading, Inc. v. Labayen
Parayday v. Shogun Shipping Co. 06 Jul 2020

1. Other than their bare allegations, petitioners could have presented before Piercing 2014
the labor tribunals Oceanview's amended
Kukan A corporation not impleaded in a
Articles of Incorporation No. 55 DBP v. Hydro Resources
indicating that it changed its suit cannot be subject to the
name to Shogun Ships. Reverse Piercing of the
court's process of piercing the
Corporate Veil
2. The doctrine of piercing the veil of its corporate ction.
The plainti seeks to reach the
veil of corporate entity can only The prevailing rule is that a
assets of a corporation to satisfy
be raised during a full-blown trial stockholder is personally liable
claims against a corporate insider.
over a cause of action duly for the nancial obligations of the
It has two (2) types:
commenced involving parties corporation to the extent of his
duly brought under the authorityOutsider reverse piercing unpaid subscription.
of the court by way of service of occurs when a party with a claim
summons or what passes as such against an individual or Goldkey was merely an adjunct
service. corporation attempts to be of Hammer and, as such, the
repaid with assets of a legal ction that it has a separate
2.1. Here, Oceanview was never
corporation owned or personality from that of Hammer
impleaded as a party respondent
substantially controlled by the should be brushed aside as they
and was never validly served with
are, undeniably, one and the
summons. International v. Reyes 2010 same.

While ownership by one

corporation of all or a great
Halley v.
majority of stocks of another
Printwell, Inc. 2011
corporation and their
interlocking directorates may serve
as indicia of control, by themselves
Heirs of Tan Uy v.
and without more, however, these
International Exchange
circumstances are insucient to
Bank 2013
establish an alter ego
relationship.
See Labor Law Case Digest
 The mere ownership by a single✔ Maricalum Mining Corp. v. G Holdings-being the majority ✔✔
Rosales Florentino 2018 and controlling stockholder-had
stockholder of even all or nearly all v. New A.N.J.H.
Enterprises 2015 been exercising signicant control
of
over Maricalum Mining.
International Academy of However, the fraud and harm
Management & Economics v. tests were not satised.
✘✔ Litton 2017
✘

defendant. WPM Incorporators are those stockholders or members mentioned in the

In contrast, in insider reverse piercing, the controlling members will
✘ Academy of Management & Economics v. Litton 2017)

attempt to ignore the corporate ction in order to take advantage of a benet 5 Capital Structure International✘
available to the corporation, such as an interest in a lawsuit or protection of AOI as originally forming and composing the corporation and who are
personal assets. (International a) Number and Qualications of Incorporators signatories thereof.
Contractors Corporation 2013

eCodal+Pro by RGL 20 of 239

Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests

1. Any person, partnership, association or residents. additional PUC of at least 6.25% of the
corporation for its
proposed increase.
corporation, 2. Singly or jointly with others; use.
b) Subscription Requirements
3. Not more than fteen (15) in number; The amount of
4. Incorporators who are natural persons must Type What It Is Practical Purpose capital which the The APIC also forms part
The aggregate
be of legal age; corporation
amount of premium In other words, at least 6.25% of the increase
already received
5. Each incorporator of a stock corporation buer fund against
from its has been paid up. c) Corporate Term
must own or be a subscriber to at least one (1) corporate losses.
subscribers
share of the capital stock.
(represents the paid The PUC is the reference point of the extent
Changes from BP 68 portion of the SCS)
GR: Perpetual existence, including those
of corporate earnings that the board may
already existing during the eectivity of the
6. No more prescribed minimum number of Paid-up Capital and the value of retain for use of the corporation.
assets that are RCC.
Whenever a corporation proposes to increase
incorporators; 7. Majority need not be PH
(PUC) available to the its ACS, it must establish that it has received EXC: Unless the AOI of newly established
corporations provide otherwise. stockholders representing a MAJORITY pursuant to its AOI. extend or shorten its term by amending its 1. An extension may be made earlier than the
of its outstanding capital stock, noties the SEC AOI within 3 years prior to the expiration of three (3) year
The existing corporation, upon a vote of its Corporations with a limited term may
that it elects to retain its specic corporate term the term.

Authorized Capital corporate creditors to assess the (APIC) dividend not be reclassied to 3. In case of extension of Action Taken Voting
The committed
Stock ability of the arising from capital stock absorb deciency except through corporate term, a dissenting Required
amount of capital
corporation to raise their subscriptions, donations an organizational stockholder may exercise the
which the
(ACS) prescribed capital without received, and shareholders’ restructuring approved by the right of appraisal.
corporation will
The minimum further approval from the SEC additional capital infusion SEC.
receive from its Corporations with expired
amount of capital and its stockholders. without corresponding shares of
existing subscribers. period only for justiable reasons. terms may apply for a revival of
which the stock to wipe out the
its corporate existence. The GR
corporation will The amount of SCS corporation 2. Such extension of the
and EXC apply.
receive when it issues all its decit. corporate term shall take eect
Information about the ACS only on the day following the
shares. Additional Paid-in
permits government of the corporate trust fund;
ACS = No. of Shares x Par Value original or subsequent expiry
regulators and major Capital thus, it may not be declared as
date.
Subscribed Capital considered as corporate trust fund. by special law. amount subscribed shall have been paid. Stockholders representing MAJORITY of
Stock Prospective creditors may rely on this amount OCS
However, if the corporation intends to
as their Opting out from the default regime of
increase its capital stock, at least 25% of the
(SCS) Stock corporations shall NOT BE Perpetual Existence Majority of Board +
increase in capital stock shall have been
REQUIRED to have a minimum capital Stockholders representing 2/3
represents the value of assets that are subscribed and that at least 25% of the Extending or Shortening the Corporate Term
stock, except as otherwise specically provided

eCodal+Pro by RGL 21 of 239

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of OCS
d) Classication of Shares
Scope of voting rights subject to classification
Common shareholders, as residual owners, have full voting rights.
Holders of other shares have similar rights, except when denied by the
corporation’s charter or in compliance with the provisions of the
constitution or the law.
Non-voting shares are merely prevented from electing directors and d) Incurring, creating, or increasing bonded indebtedness; e)
other matters presented to the shareholders in general for approval.
Increase or decrease of ACS;
Holders of nonvoting shares shall nevertheless be entitled to vote on the
f) Merger or consolidation of the corporation with another
following matters:
corporation or other corporations;
a) Amendment of the AOI;
g) Investment of corporate funds in another corporation or business;
b) Adoption and amendment of bylaws; and
c) Sale, lease, exchange, mortgage, pledge, or other disposition of all h) Dissolution of the corporation.
or substantially all of the corporate property; Preferred
 One which entitles the holder thereof to certain preferences over the
holders of common stock. The preferences are designed to induce
persons to subscribe for shares of a corporation. Preferred shares take a
multiplicity of forms. The most common forms may be classied into
two:
1. preferred shares as to assets;
gives the holder thereof preference in the distribution of the assets
of the corporation in case of liquidation.
2. preferred shares as to dividends.
the holder of which is entitled to receive dividends on said share to
the extent agreed upon before any dividends at all are paid to the
holders of common stock. There is no guaranty, however, that the
share will receive any dividends.
Republic Planters Bank v. Agana, Sr.
WON petitioner can be compelled to redeem the preferred shares issued to
the private respondent.
NO. Preferences granted to preferred stockholders do not give them a
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
unrestricted retained earnings on the books of the corporation. It
in eect qualies the general rule that the corporation cannot purchase its
own shares except out of current retained earnings.
However, while redeemable shares may be redeemed regardless of the
existence of unrestricted retained earnings, this is subject to the
condition that the corporation has, after such redemption,
assets in its books to cover debts and liabilities inclusive of
capital stock. Redemption, therefore, may not be made where
1. the corporation is insolvent or
Treasury
2. if such redemption will cause insolvency or inability of the
lien upon the property of the corporation nor make them creditors of
the corporation, the right of the former being always subordinate to the
latter. Dividends are thus payable only when there are prots earned by
the corporation and as a general rule, even if there are existing prots, the
BOD has the discretion to determine whether or not dividends
are to be declared.
In this case, while the stock certicate does allow redemption, the option
to do so was clearly vested in the petitioner bank. The redemption
therefore is clearly the type known as "optional". Thus,
except as otherwise provided in the stock certicate, the redemption rests
entirely with the corporation and the stockholder is without right to
either compel or refuse the redemption of its stock.
Common
Shares with no preferences. Holders of these shares are regarded as
residual owners, who assume all the risks but reap all the benets in
the aairs of the corporation. They may only receive dividends and/or
assets upon liquidation following the satisfaction of the stipulated
returns to other funders of the corporation, such as creditors or
preferred shareholders.
eCodal+Pro by RGL 22 of 239
corporation to meet its debts as they mature.
These may be issued by the corporation when expressly provided in
the AOI.
Mandatory Redemption
Corporations which have issued mandatory redeemable shares with
mandatory redemption features are required to set up and maintain a
sinking fund to be deposited in a trustee bank, and which shall not
be invested in risky or speculative ventures.
Founder's
Where the exclusive right to vote and be voted for in the election
of directors is granted, it must be for a limited period not to exceed ve
(5) years from the date of incorporation.
Such exclusive right shall not be allowed if its exercise will violate 1.
the “Anti-Dummy Law”;
2. the “Foreign Investments Act of 1991”; and
3. other pertinent laws.
Redeemable
Shares usually preferred, which by their terms are redeemable 1.
at a xed date, or
2. at the option of either issuing corporation, or the stockholder,
or both
at a certain redemption price. A redemption by the corporation of its
stock is, in a sense, a repurchase of it for cancellation.
Redemption of shares is allowed even if there are no
Shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation through purchase,
redemption, donation, or some other lawful means. Such shares may
again be disposed of for a reasonable price xed by the board of
directors.
The common shares after conversion and release from sequestration
become treasury stocks.
A treasury share or stock, which may be common or preferred, may be
used for a variety of corporate purposes, such as for a stock
bonus plan for management and employees or for acquiring another
company. It may be held indenitely, resold or retired. While held in the
 company's treasury, the stock earns no dividends and has no vote in
company aairs.
Instances giving rise to Treasury Shares
1) When the corporation redeems its shares pursuant to its contract
with shareholders;
2) When permitted or required by law, as when:
a) The corporation eliminates fractional shares arising out
of stock dividends;
b) The corporation collects or compromises on delinquency
subscription; or
c) The corporation pays a dissenting stockholder.
3) In close corporations, in case of:
a) Deadlock (§ 103); or
b) Withdrawal by a shareholder (§ 104).
6 Incorporation and Organization
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
Stocks shall not be issued for a consideration less than the par or issued
price thereof. Consideration for the issuance of stock may be:
a) Actual cash paid to the corporation;
b) Property, tangible or intangible, actually received by the
corporation and necessary or convenient for its use and lawful
purposes at a fair valuation equal to the par or issued value of the
stock issued;
c) Labor performed for or services actually rendered to the
corporation;
a) Promoter
A self-constituted organizer who nds an enterprise or venture and helps
to attract investors, forms a corporation and launches it in business, all
with a view to promoting prots.
(1) Liability of Promoter
1) The promoter is personally liable for contracts or agreements with
third persons contracted in behalf of the future corporation if the
latter does not ratify the same or unless the
agreement was expressly made subject to such approval or
ratication.
2) The promoter should remit to the corporation prots that he derived
that properly pertain to the corporation.
(2) Liability of Corporation for Promoter’s Contracts 1)
The corporation is NOT bound by the contract entered into by the
promoter before incorporation unless the contract is ratied.
b) Subscription Contract
eCodal+Pro by RGL 23 of 239
d) Previously incurred indebtedness of the corporation;
e) Amounts transferred from unrestricted retained earnings to stated
capital;
f) Outstanding shares exchanged for stocks in the event of
reclassication or conversion;
g) Shares of stock in another corporation; and/or
h) Other generally accepted form of consideration.
e) Articles of Incorporation
Any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed shall be deemed a
subscription, notwithstanding the fact that the parties refer to it as a
purchase or some other contract.
c) Pre-Incorporation Subscription Agreements
A subscription of shares in a corporation still to be formed shall be
irrevocable for a period of at least six (6) months from the date of
subscription, unless
1. all of the other subscribers consent to the revocation, or
2. the corporation fails to incorporate within the same period or
within a longer period stipulated in the contract of
subscription.
No pre-incorporation subscription may be revoked after the AOI are
submitted to the SEC.
d) Consideration for Stocks
(1) Contents
a) The name of the corporation;
b) The specic purpose or purposes for which the corporation is being
formed. Where a corporation has more than one stated purpose,
the AOI shall indicate the primary purpose and the secondary
purpose or purposes.
A nonstock corporation may not include a purpose which would
change or contradict its nature as such;
c) The place where the principal oce of the corporation is to be
 located, which must be within the Philippines;
d) The term for which the corporation is to exist, if the corporation
has not elected perpetual existence;
e) The names, nationalities, and residence addresses of the
incorporators;
f) The number of directors, which shall not be more than fteen (15)
or the number of trustees which may be more than fteen (15);
g) The names, nationalities, and residence addresses of persons who
shall act as directors or trustees until the rst regular directors or
trustees are duly elected and qualied;
h) If it be a stock corporation,
1) the amount of its authorized capital stock,
2) number of shares into which it is divided,
3) the par value of each, names,
4) nationalities, and residence addresses of the original
subscribers,
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
1. hold the corporation and its responsible directors or ocers in
contempt and/or
2. hold them administratively, civilly and/or criminally liable and/or
revoke the registration of the corporation.
g) Registration, Incorporation, and Commencement of
Corporate Existence
1. A person or group of persons desiring to incorporate shall submit
the intended corporate name to the SEC for verication.
5) amount subscribed and paid by each on the subscription, 5) the place and date of execution.
and
f) Corporate Name and Limitations on its Use
6) a statement that some or all of the shares are without par value,
if applicable;
No corporate name shall be allowed by the SEC
i) If it be a nonstock corporation,
1. if it is not distinguishable from that already reserved or registered
1) the amount of its capital, for the use of another corporation, or
2) the names, nationalities, and residence addresses of the 2. if such name is already protected by law, or
contributors, and
3. when its use is contrary to existing law, rules and regulations. The
3) amount contributed by each.
SEC
j) An arbitration agreement may be provided in the AOI pursuant
to Section 181. 1. may summarily order the corporation to immediately cease and
desist from using such name;
(2) Non-Amendable Items
2. may require the corporation to register a new one;
1) names of the incorporators,
3. shall cause the removal of all visible signages, marks, advertisements,
2) the rst set of directors and subscribers,
labels, prints and other eects bearing such corporate name.
3) the initial treasurer,
If the corporation fails to comply with the SEC’s order, the SEC may
4) their original subscription and
eCodal+Pro by RGL 24 of 239
2. If the Commission nds that the name is distinguishable, not SEC issues the certificate of incorporation.
protected by law and is not contrary to law, rules and regulations,
the name shall be reserved in favor of the incorporators. h) Election of Directors or Trustees
3. The incorporators shall then submit their AOI and bylaws to the
GR: Each stockholder or member shall have the right to nominate any
SEC.
director or trustee who possesses all of the qualications and none
4. If the SEC nds that the submitted documents and information are of the disqualications.
fully compliant, the SEC shall issue the certicate of EXC: When the exclusive right is reserved for holders of founders’ shares
incorporation. under Section 7.
A private corporation organized under the RCC commences its Within thirty (30) days after the election, the secretary, or any other
corporate existence and juridical personality from the date the
ocer of the corporation, shall submit to the SEC the names,
nationalities, shareholdings, and residence addresses of those elected.
The non-holding of elections and the reasons therefor shall be
reported to the SEC within thirty (30) days from the date of the
scheduled election. The report shall specify a new date for the election,
which shall not be later than sixty (60) days from the scheduled
date.
If no new date has been designated, or if the rescheduled election is
likewise not held, the SEC may, upon the application of a stockholder,
member, director or trustee, and after verication of the unjustied non-
holding of the election, summarily order that an election be held.
The SEC shall have the power to issue such orders as may be
appropriate, including orders directing the issuance of a notice stating
the time and place of the election, designated presiding ocer, and the
record date or dates for the determination of stockholders or members
entitled to vote.
f) The directors’ or trustees’
i) qualications, duties and responsibilities,
ii) the guidelines for setting the compensation of directors or
trustees and ocers, and
iii) the maximum number of other board representations that an
independent director or trustee may have which shall, in
no case, be more than the number prescribed by the SEC;
g) The time for holding the annual election of directors or trustees
and the mode or manner of giving notice thereof;
h) The manner of election or appointment and the term of oce of all
ocers other than directors or trustees;
i) The penalties for violation of the bylaws;
j) In the case of stock corporations, the manner of issuing stock
certicates; and

Should a director, trustee or ocer die, resign or in any manner

cease to hold office, the secretary, or the director, trustee or ocer of the
corporation, shall, within seven (7) days from knowledge thereof,
report in writing such fact to the SEC.

i) Adoption of By-Laws
(1) Contents of By-Laws
a) The time, place and manner of calling and conducting regular or
special meetings of the directors or trustees;

b) The time and manner of calling and conducting regular or special

meetings and mode of notifying the stockholders or
members thereof;

c) The required quorum in meetings of stockholders or members and

the manner of voting therein;

d) The modes by which a stockholder, member, director, or trustee

may attend meetings and cast their votes;

e) The form for proxies of stockholders and members and the

manner of voting them;

Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
k) Such other matters as may be necessary
i) for the proper or convenient transaction of its corporate aairs
ii) for the promotion of good governance and anti-graft and
corruption measures.
l) An arbitration agreement may be provided in the bylaws.
(2) Binding Effects
Bylaws shall be eective only upon the issuance by the SEC of a
certication that the bylaws are in accordance with the Code.
For the adoption of bylaws, the armative vote of the stockholders
representing at least a majority of the OCS, or of at least a majority of
the members in case of nonstock corporations, shall be necessary.
(3) Amendments
A majority of the board of directors or trustees, and the owners of at
least a majority of the OCS, or at least a majority of the members of a
nonstock corporation, at a regular or special meeting duly called for the
purpose, may amend or repeal the bylaws or adopt new bylaws.
Delegation to the Board — The owners of two-thirds (2/3) of the
OCS or two-thirds (2/3) of the members in a nonstock corporation
may delegate to the board of directors or trustees the power to
amend or repeal the bylaws or adopt new bylaws.
Revocation of the Delegation — Any power delegated to the board to
amend, repeal, or adopt new bylaws shall be considered as revoked
whenever stockholders owning or representing a majority of the OCS
or majority of the members shall so vote at a regular or special meeting.
The amended or new bylaws shall only be eective upon the issuance by
the SEC of a certication that the same is in accordance with this Code
eCodal+Pro by RGL 25 of 239
and other relevant laws.
j) Eects of Non-Use of Corporate Charter
1. If a corporation does not formally organize AND commence its
business within ve (5) years from the date of its incorporation, its
certicate of incorporation shall be deemed revoked as of the day
following the end of the ve (5)-year period.
2. However, if a corporation has commenced its business but
subsequently becomes inoperative for a period of at least ve (5)
consecutive years, the SEC may, after due notice and hearing, place the
corporation under delinquent status.
3. A delinquent corporation shall have a period of two (2) years to
resume operations and comply with all requirements that the SEC
shall prescribe.
4. Upon compliance by the corporation, the SEC shall issue an order
lifting the delinquent status.
5. Failure to comply with the requirements and resume operations
within the period given by the SEC shall cause the revocation of
the corporation’s certicate of incorporation.
6. The SEC shall give reasonable notice to, and coordinate with the
appropriate regulatory agency prior to the suspension or revocation
of the certicate of incorporation of companies under their special
regulatory jurisdiction.
7 Corporate Powers
a) General Powers; Theory of General Capacity
eCodal+Pro by RGL 26 of 239
a) To sue and be sued in its corporate name;
b) To have perpetual existence unless the certicate of incorporation
provides otherwise;
c) To adopt and use a corporate seal;
d) To amend its articles of incorporation;
e) To adopt bylaws, not contrary to law, morals or public policy, and to
amend or repeal the same;
f) In case of stock corporations, to issue or sell stocks to subscribers and
to sell treasury stocks; and to admit members to the corporation if it
be a nonstock corporation;
g) To purchase, receive, take or grant, hold, convey, sell, lease, pledge,
mortgage, and otherwise deal with such real and personal property,
including securities and bonds of other corporations, as the
transaction of the lawful business of the corporation may
reasonably and necessarily require, subject to the limitations
prescribed by law and the Constitution;
h) To enter into a partnership, joint venture, merger,
consolidation, or any other commercial agreement with
natural and juridical persons;
i) To make reasonable donations, including those for the public welfare
or for hospital, charitable, cultural, scientic, civic, or similar
purposes:
Provided, That no foreign corporation shall give donations in aid
of any political party or candidate or for purposes of partisan
political activity;
 Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
j) To establish pension, retirement, and other plans for the benet of its
directors, trustees, ocers, and employees; and
k) To exercise such other powers as may be essential or necessary to
carry out its purpose or purposes as stated in the articles of
incorporation.
b) Specic Powers; Theory of Specic Capacity
Theory of specific capacity — No corporation shall possess or exercise
any corporate powers except
1. those conferred by law, its AOI,
2. those implied from express powers and
3. those as are necessary or incidental to the exercise of the powers
so conferred.
The corporation’s capacity is limited to such express, implied and
incidental powers.
c) Power to Extend or Shorten Corporate Term
When approved by a majority vote of the board of directors or trustees,
and ratied at a meeting by the stockholders or members representing at
least two-thirds (2/3) of the OCS or of its members.
In case of extension of corporate term, a dissenting stockholder may
exercise the right of appraisal.
d) Power to Increase or Decrease Capital Stock or
Incur, Create, Increase Bonded Indebtedness
Needs to be approved by a majority vote of the board of directors and
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
by two-thirds (2/3) of the outstanding capital stock at a stockholders’
meeting duly called for the purpose.
A certicate must be signed by a majority of the directors of the
corporation and countersigned by the chairperson and secretary of the
stockholders’ meeting.
Prior approval of the SEC shall be required, and where appropriate,
of the PCC. The application with the SEC shall be made within six (6)
months from the date of approval of the BOD and stockholders, which
period may be extended for justiable reasons.
Eectivity is upon approval by the SEC and the issuance by the SEC of its
certicate of ling.
SEC shall not accept for ling any certicate of increase of capital stock
unless accompanied by a sworn statement of the treasurer of the
corporation lawfully holding oce at the time of the ling of the certicate,
showing that
1. at least 25% of the increase in capital stock has been subscribed
and
2. that at least 25% of the amount subscribed has been paid in actual
cash to the corporation or
3. that property, the valuation of which is equal to 25% of the
subscription, has been transferred to the corporation.
No decrease in capital stock shall be approved by the SEC if its effect
shall prejudice the rights of corporate creditors.
Metroplex Berhad and Paxell Investment Ltd v.
Sinophil Corp 28 Jun 2021
eCodal+Pro by RGL 27 of 239
1. A corporation can only decrease its capital stock if the following are
present:
1.1. Approval by a majority vote of the board of directors;
1.2. Written notice of the proposed diminution of the capital
stock, and of the time and place of a stockholders'
meeting duly called for the purpose, addressed to each
stockholder at his place of residence;
1.3. 2/3 of the outstanding capital stock voting favorably at the
said stockholders' meeting duly;
1.4. Certicate in duplicate, signed by majority of the directors
and countersigned by the chairman and secretary of the
stockholders' meeting stating that legal requirements
have been complied with;
1.5. Prior approval of the SEC; and
1.6. Eects do not prejudice the rights of corporate creditors.
2. SEC only has the ministerial duty to approve the decrease of a
corporation's authorized capital stock.
2.1. After a corporation faithfully complies with the
requirements laid down in Section 38, the SEC has
nothing more to do other than approve the same.
3. Ong Yang v. Tiu teaches that decreasing a corporation's authorized
capital stock, which is an amendment of the corporation's AOI,
is a decision that only the stockholders and the directors can
make.
4. Furthermore, the SEC is not vested by law with any power
 to interpret contracts and interfere in the determination of the
rights between and among a corporation's stockholders.
Neither can the SEC adjudicate on the contractual relations
among these same stockholders.
See Commercial Law Case Digest No. 5
e) Power to Deny Pre-Emptive Rights
Pre-emptive right under Sec 38 of the RCC refers to the right of a
stockholder of a stock corporation to subscribe to all issues or
disposition of shares of any class, in proportion to their respective
shareholdings.
The right may be restricted or denied under the articles of
incorporation, and subject to certain exceptions and limitations.
The stockholder must be given a reasonable time within which to
exercise their preemptive rights. Upon the expiration of said period,
any stockholder who has not exercised such right will be deemed to
have waived it.
Stock Transactions Covered
1) Increase in the ACS;
2) Opening for subscription of the unissued portion of existing capital
stock; and
3) Disposition of treasury shares.
2) Shares issued to comply with the prescribed stock Here, any dissenting stockholder may exercise the right in any other corporation, business, or for any purpose other Stockholders
oerings or minimum stock ownership by the public; of appraisal.
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
The board must evaluate whether the investment has a logical relation
to or is in direct and immediate furtherance of the corporation’s
When NOT Available
1) When denied by the AOI;
3) To acquire needed investment through property-for-share
exchange; and
4) To restructure the nances of the corporation through a debt to
equity conversion.
f) Power to Sell or Dispose Corporate Assets
A corporation may, by a majority vote of its board of directors or
trustees, sell, lease, exchange, mortgage, pledge, or otherwise dispose
of its property and assets, upon such terms and conditions and for
such consideration, which may be money, stocks, bonds, or other
instruments for the payment of money or other property or
consideration, as its board of directors or trustees may deem expedient.
a. If ordinary disposition = No need for authorization from
stockholders;
b. If it involves the sale of all or substantially all of the corporation’s
properties and assets, including its goodwill = must be authorized
by the vote of the stockholders representing at least 2/3 of the
OCS, or at least 2/3 of the members, in a stockholders’ or
members’ meeting duly called for the purpose.
When is the sale deemed a substantial disposition? If
the corporation would be rendered incapable of
than the primary purpose for which it was organized
eCodal+Pro by RGL 28 of 239
main business.
Ratication by stockholders or members must be in a meeting duly called
1. continuing the business or
2. accomplishing the purpose for which it was incorporated.
g) Power to Acquire Own Shares
Provided that the corporation has unrestricted retained earnings in
its books to cover the shares to be purchased or acquired, a stock
corporation shall have the power to purchase or acquire its own shares
for a legitimate corporate purpose, including the following cases:
a) To eliminate fractional shares arising out of stock dividends;
b) To collect or compromise an indebtedness to the corporation,
1) arising out of unpaid subscription,
2) in a delinquency sale, and
3) to purchase delinquent shares sold during said sale; and
c) To pay dissenting or withdrawing stockholders entitled to
payment for their shares under the provisions of this Code.
h) Power to Invest Corporate Funds in Another
Corporation or Business
Investment Voting Required
is reasonably necessary to accomplish its
primary purpose as stated in the AOIMajority of Board Majority of
Board +
representing 2/3 of OCS or 2/3 of members.
for the purpose.
Here, any dissenting stockholder may exercise the right of appraisal.
i) Power to Declare Dividends c) when it can be clearly shown that such retention is necessary under corporation, whether such contracts are called service contracts,
special circumstances obtaining in the corporation, such as when operating agreements or otherwise.
there is need for special reserve for probable contingencies.
The board of directors of a stock corporation may declare dividends out GR: No management contract shall be entered into for a period longer than
of the unrestricted retained earnings which shall be payable in ve (5) years for any one (1) term.
j) Power to Enter into Management Contract
1) cash, EXC: Such service contracts or operating agreements which relate to the
a) when justied by denite corporate expansion projects or programs Voting Required exploration, development, exploitation or utilization of natural
approved by the board; or resources may be entered into for such periods as may be provided
corporation also constitute a majority of the members of the board by the pertinent laws or regulations.
b) when the corporation is prohibited under any loan agreement
of directors of the managed corporation,
with nancial institutions or creditors, whether local or foreign, from A management contract amounts to a de facto merger when the
declaring dividends without their consent, and such consent has not Management Contract — contract whereby a corporation undertakes management relates to all or substantially all of the business of the
yet been secured; or to manage or operate all or substantially all of the business of another
2) property, or costs and expenses, while stock dividends shall be Stockholders representing 2/3 of OCS or 2/3 of members k) Doctrine of Individuality of Subscription
withheld from the delinquent of MANAGED corporation.
3) in stock
In interlocking ownership or management The law requires payment of the “full amount of
to ALL stockholders on the basis of outstanding stock Majority of Board +
subscription.”
held by them:
Stockholders representing majority of OCS or majority
A subscription covers all stipulated shares. The
Any cash dividends due on delinquent stock shall rst be otherwise of members.
corporation accepted partial payment on the premise that
applied to the unpaid balance on the subscription + Majority of Board + corporation. This does NOT trigger the exercise of
the nonpayment of
appraisal right.
stockholders until their unpaid subscription is fully paid. A subscription contract is indivisible. Consequently, where stocks

No stock dividend shall be issued without the approval of stockholders were subscribed and part of the subscription contract price was not
representing at least 2/3 of the OCS at a regular or special meeting duly paid, the whole subscription shall be considered delinquent and not
called for the purpose. only the shares which correspond to the amount not paid.

GR: Stock corporations are prohibited from retaining surplus prots in

excess of 100% of their paid-in capital stock.

EXC:
a) Interlocking ownership — where a stockholder or stockholders
representing the same interest of both the managing and the
managed corporations own or control more than one-third (1/3)
of the total OCS entitled to vote of the managing corporation; or

b) Interlocking management — where a majority of the members

of the board of directors of the managing
the balance renders all subscribed shares delinquent.
 eCodal+Pro by RGL 29 of 239
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l) Doctrine of Equality of Shares
Each share shall be equal in all respects to every other share, except as
otherwise provided in the AOI and in the certicate of stock.
A common stock represents the residual ownership interest in the
corporation. It is a basic class of stock ordinarily and usually issued
without extraordinary rights or privileges and entitles the shareholder to
a pro rata division of prots.
Preferred stocks are those which entitle the shareholder to some priority
on dividends and asset distribution.
Both shares are part of the corporation's capital stock. Both stockholders
are no dierent from ordinary investors who take on the same investment
risks. Preferred and common shareholders participate in the same
venture, willing to share in the prots and losses of the enterprise.
Moreover, under the doctrine of equality of shares — all stocks issued
by the corporation are presumed equal with the same privileges and
liabilities, provided that the AOI is silent on such dierences. (CIR v. CA)
some rules of public policy or public duty, and are, like similar Acts contrary to
transactions between individuals, VOID. They cannot serve as
basis of a court action, nor acquire validity by performance,
ratication, or estoppel.
2. Mere ultra vires acts, on the other hand, or those which are not
illegal and void ab initio, but are not merely within the scope of
the articles of incorporation, are merely VOIDABLE and may
become binding and enforceable when ratied by the
stockholders. (Bernas v. Cinco 2015)
The test to be applied is whether the act in question is in direct and
immediate furtherance of the corporation's business, fairly incidental to
the express powers and reasonably necessary to their exercise. If so, the
corporation has the power to do it; otherwise, not. (Magallanes
Watercraft Association v. Auguis 2016)
Ultra Vires Act Consequences
The resulting contract is void.
The contract is not subject to ratication.
incorporation enforcement and, if proper, institute a
derivative suit.
If the action has been implemented, the
members of the board shall be liable jointly and
severally for all damages resulting from the ultra
vires act.
University of Mindanao, Inc. v. BSP 2016 as to Sec 41
Acts of an ocer that are not authorized by the board of
directors/trustees do not bind the corporation unless the
corporation raties the acts or holds the ocer out as a person with
authority to transact on its behalf.
WON UM is bound by the real estate mortgage contracts executed by
Petalcorin.
NO. The mortgage contracts executed in favor of respondent do not
bind petitioner. They were executed without authority from petitioner.

m) Ultra Vires Doctrine
No corporation shall possess or exercise corporate powers
other than those conferred by this Code or by its AOI and
except as necessary or incidental to the exercise of the
powers conferred.
A distinction should be made between corporate acts or
contracts which are illegal and those which are merely
ultra vires.
1. An illegal act contemplates the doing of an act which
is contrary to law, morals, or public order, or contravene The rule on in pari delicto applies. human capital through formal instruction. It is not a
law, morals or public policy corporation engaged in the business of securing loans of
The act is unenforceable. others. Securing FISLAI's loans by mortgaging petitioner's
properties does not appear to have even the remotest
The act shall not prejudice third parties who acted in good
connection to the operations of petitioner as an
faith.
educational institution. Securing loans is not an adjunct of
Acts performed outside the scope of the powers
the educational institution's conduct of business. It does
granted to the corporation by its articles of Shareholders may ratify the action, prevent its
not appear that securing third-party loans was necessary to
The action or defense for the UM does not have the power to mortgage its
maintain petitioner's business of providing instruction to
declaration of its nullity does not properties in order to secure loans of other persons.
individuals.
prescribe. As an educational institution, it is limited to developing

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The relationship between a corporation and its representatives is
governed by the general principles of agency.
Unauthorized acts that are merely beyond the powers of the
corporation under its articles of incorporation are NOT void ab
initio. They may be ratied.
Here, it was not shown that petitioner issued a resolution ratifying the
execution of the mortgage contracts. It was not shown that it received
proceeds of the loans secured by the mortgage contracts. There was also
no showing that it received any consideration for the execution of the
mortgage contracts. It even appears that petitioner was unaware of the
mortgage contracts until respondent notied it of its desire to foreclose
the mortgaged properties.
The general rule is that knowledge of an ocer is considered
knowledge of the corporation.
However, even though the Sps Torres were ocers of both the thrift
banks and petitioner, their knowledge of the mortgage contracts cannot
be considered as knowledge of the corporation.
The rule that knowledge of an ocer is considered knowledge of the
corporation applies only when the officer is acting within the
authority given to him or her by the corporation. Thus, knowledge
should be actually communicated to the corporation through its
authorized representatives.
The doctrine of apparent authority does not go into the question of
the corporation's competence or power to do a particular act. It involves
the question of whether the ocer has the power or is clothed with the
appearance of having the power to act for the corporation. A nding that
there is apparent authority is not the same as a nding that the corporate
eCodal+Pro by RGL 30 of 239
act in question is within the corporation's limited powers.
n) Trust Fund Doctrine
Under the doctrine, the capital stock, property, and other assets of a
corporation are regarded as equity in trust for the payment of corporate
creditors, who are preferred in the distribution of corporate assets.
Thus, any disposition of corporate funds and assets to the prejudice of
creditors is null and void. (Turner v. Lorenzo Shipping 2010)
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.
This doctrine is the underlying principle in the procedure for the
distribution of capital assets, embodied in the Corporation Code,
which allows the distribution of corporate capital only in three
instances:
1) amendment of the AOI to reduce the ACS,
2) purchase of redeemable shares by the corporation, regardless
of the existence of unrestricted retained earnings, and
3) dissolution and eventual liquidation of the corporation. (Ong
Yong v. Tiu)
8 Stockholders and Members
a) Fundamental Rights of a Stockholder
1) Political;
2) Economic or Proprietary;
3) Remedial.
b) Participation in Management
Proxy
A proxy is a form of agency created in instances when a person is unable to
personally cast his or her vote; hence, the act of voting is delegated to
another person. There is NO requirement that the same be notarized.
Proxies shall be
1. in writing,
2. signed and led, by the stockholder or member,
3. in any form authorized in the bylaws and
4. received by the corporate secretary within a reasonable time before
the scheduled meeting.
Unless otherwise provided in the proxy form, it shall be valid only for the
meeting for which it is intended. No proxy shall be valid and eective for
a period longer than ve (5) years at any one time.
Voting trust
One or more stockholders of a stock corporation may create a voting
trust for the purpose of conferring upon a trustee or trustees the right to
vote and other rights pertaining to the shares.
GR: For a period not exceeding ve (5) years at any time.
EXC: In the case of a voting trust specically required as a condition in a
loan agreement, said voting trust may be for a period exceeding ve
(5) years but shall automatically expire upon full payment of
the loan.
 eCodal+Pro by RGL 31 of 239
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A voting trust agreement must be in writing and notarized, and shall
specify the terms and conditions thereof. A certied copy of such agreement
shall be led with the corporation and with the SEC; otherwise, the
agreement is ineective and unenforceable.
The certicate or certicates of stock covered by the VTA shall be cancelled
and new ones shall be issued in the name of the trustee or trustees, stating
that they are issued pursuant to said agreement. The books of the
corporation shall state that the transfer in the name of the trustee or
Unless expressly renewed, all rights granted in a VTA shall automatically 2) Calling a special meeting of the stockholders or members for the
expire at the end of the agreed period. The voting trust certicates as well as purpose of removing any director or trustee (§27);
the certicates of stock in the name of the trustee or trustees shall thereby be
3) Granting compensation to directors or trustees (including the
deemed cancelled and new certicates of stock shall be reissued in the name
amount thereof) (§);
of the trustors.
4) Concluding a management contract with another corporation
The voting trustee or trustees may vote by proxy or in any manner
(§43);
authorized under the bylaws unless the agreement provides otherwise.
5) Adoption of the by laws (§45);

trustees is made pursuant to the VTA. Proxy Voting Trust Agreement 6) Amendment, repeal, or adoption of a new bylaws (§47); 7)

The trustee or trustees shall execute and deliver to the transferors, voting Quorum in meetings (§51);
trust certicates, which shall be transferable in the same manner and with Legal title is NOT transferred Legal title to the shares
transferred to transferee 8) Fixing the issue price of no-par value shares (§61);
the same eect as certicates of stock.

The VTA led with the corporation shall be subject to No VTA shall be entered into for purposes of Irrevocable for a denite and limited period of time 1) Amendment of the AOI;
examination by any stockholder of the corporation in the circumventing the laws against
2) Extending or shortening corporate term;
same manner as any other corporate book or record. Both NOT limited to any particular meeting
1. anti-competitive agreements,
the trustor and the trustee or trustees may exercise 3) Increasing or decreasing capital stock or incurring,
Revocable at any time, unless coupled with interest Can vote and exercise all rights of the transferor even
the right of inspection of all corporate books and creating or increasing bonded indebtedness;
when the latter is present.
records. Can only act at the specied meeting 4) Sale of all or substantially all of the corporation’s
Any other stockholder may transfer the shares to the same Must be notarized and led with SEC properties and assets, including its goodwill;
trustee or trustees upon the terms and conditions stated in Votes only in the absence of the owner of the stock 9) Voluntary dissolution where no creditors are aected
5) Approval of the plan of merger or consolidation (and
the VTA, and thereupon shall be bound by all the (§134). By a 2/3 vote any amendment thereto) (§76);
provisions of said agreement. Need NOT be notarized or a copy be led with SEC

2. abuse of dominant position, NO right of inspection HAS the right of inspection 6) Removal of director or trustees;

3. anti-competitive mergers and acquisitions, 4. violation of 7) Ratifying an act which amounts to disloyalty of a director
Cases when stockholders' action is required
(corporate business opportunity rule);
nationality and capital requirements, or 5. for the
By a majority vote
8) Approving property-for-share exchange and debt to equity
perpetuation of fraud.
1) Electing to retain specic corporate term indicated in the AOI (§11); conversion (§38);

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9) Investing funds in any other corporation, business, or for any
purpose other than the primary purpose for which the
corporation was organized (§41);
10) Issuing stock dividends (§42);
11) Approving the conclusion of a management contract where there
is interlocking ownership or interlocking management (§43);
12) Delegating to the board of directors or trustees the power to
amend or repeal the bylaws or adopt new bylaws (§47);
13) Approving a plan for the distribution of assets in non-stock
corporations (§94);
14) Voluntary dissolution (§135).
By cumulative voting
Manner of voting
Stockholders and members may vote in person or by proxy in all
meetings of stockholders or members.
When so authorized in the bylaws or by a majority of the board of directors,
the stockholders or members of corporations may also vote through
remote communication or in absentia: Provided, That the votes are
received before the corporation nishes the tally of votes.
c) Proprietary Rights
Right to Dividends
Dividends is the unrestricted retained earnings set apart from the general
mass of the funds of the corporation and distributed among the
stockholders in proportion to their shares or interest in the corporation, in
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eCodal+Pro by RGL 32 of 239
the form of cash, property or stocks.
Who may declare dividends?
1. BOD alone — for cash, property dividends;
2. BOD + stockholders representing not less than 2/3 of the OCS in
a meeting called for the purpose — for stock dividends.
Appraisal right
Any stockholder of a corporation shall have the right to dissent and
demand payment of the fair value of the shares in the following instances:
a) In case an amendment to the AOI has the eect of
i) changing or restricting the rights of any stockholder or class
of shares, or
ii) authorizing preferences in any respect superior to those of
outstanding shares of any class, or of
iii) extending or shortening the term of corporate existence;
b) In case of sale, lease, exchange, transfer, mortgage, pledge or other
disposition of all or substantially all of the corporate property
and assets;
c) In case of merger or consolidation; and
d) In case of investment of corporate funds for any purpose other
than the primary purpose of the corporation.
The Corporation Code denes how the right of appraisal is exercised, as
well as the implications of the right of appraisal, as follows:
1. Written Demand — The appraisal right is exercised by any
stockholder who has voted against the proposed corporate action
by making a written demand on the corporation
within 30 days after the date on which the vote was taken
eCodal+Pro by RGL 33 of 239
for the payment of the fair value of his shares. The failure to make
the demand within the period is deemed a waiver of the appraisal
right.
2. Appraisal Committee — If the withdrawing stockholder and the
corporation cannot agree on the fair value of the shares within a
period of 60 days from the date the stockholders approved
the corporate action, the fair value shall be determined and
appraised by three disinterested persons, one of whom shall be
named by the stockholder, another by the corporation, and the
third by the two thus chosen.
The ndings and award of the majority of the appraisers shall be
nal, and the corporation shall pay their award within 30 days
after the award is made. Upon payment by the corporation of
the agreed or awarded price, the stockholder shall forthwith
transfer his or her shares to the corporation.
3. Suspension of Rights — All rights accruing to the withdrawing
stockholder's shares, including voting and dividend rights,
shall be suspended from the time of demand for the payment
of the fair value of the shares until either
a. the abandonment of the corporate action involved or b.
the purchase of the shares by the corporation,
except the right of such stockholder to receive payment of the fair
value of the shares.
4. Surrender Certificate of Stocks for Notation — Within 10
days after demanding payment for his or her shares, a dissenting
stockholder shall submit to the corporation the certicates of stock
representing his shares for notation thereon that such shares are
dissenting shares.
 A failure to do so shall, at the option of the corporation, terminate
his appraisal rights.
5. Rights of Transferee — If shares represented by the certicates
bearing such notation are transferred, and the certicates are
consequently canceled, the appraisal rights of the transferor as a
dissenting stockholder shall cease and the transferee shall have all
the rights of a regular stockholder; and all dividend distributions
that would have accrued on such shares shall be paid to the
transferee.
6. Payment of Fair Value — If the proposed corporate action is
implemented or eected, the corporation shall pay to such
stockholder, upon the surrender of the certicates of stock
representing his shares, the fair value thereof as of the day prior to
the date on which the vote was taken, excluding any appreciation
or depreciation in anticipation of such corporate action.
7. Unrestricted Retained Earnings Required — No payment shall
be made to any dissenting stockholder unless the corporation has
unrestricted retained earnings in its books to cover the
payment. In case the corporation has no available unrestricted
retained earnings in its books, Section 82 of the RCC provides
that if the dissenting stockholder is not paid the value of his
shares within 30 days after the award, his voting and
dividend rights shall immediately be restored. (Turner v.
Lorenzo Shipping)
The right is regarded as sucient to redress a perceived wrong committed to
the corporation; thus, its availability precludes a shareholder from
instituting a derivative action against corporate controllers.
Right to inspect corporate books
Corporate records, regardless of the form in which they are stored, shall be
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The right of the shareholder to inspect the books and records of the
open to inspection by any director, trustee, stockholder or member of the
corporation in person or by a representative at reasonable hours on
business days, and a demand in writing may be made by such director,
trustee or stockholder at their expense, for copies of such records or
excerpts from said records. The inspecting or reproducing party shall
remain bound by condentiality rules under prevailing laws and the Rules of
Court.
A requesting party who is
1. not a stockholder or member of record, or
2. a competitor, director, ocer, controlling stockholder or otherwise
represents the interests of a competitor
shall have no right to inspect or demand reproduction of corporate
records.
Any stockholder who shall abuse such right shall be penalized under
Section 158, without prejudice to the provisions of the IPC and DPA.
Insigne v. Abra Valley Colleges, Inc. 2015
WON petitioners were entitled to demand the production of the STB of
Abra Valley
YES. A person becomes a stockholder of a corporation by acquiring a
share through either purchase or subscription. Considering that Abra
Valley’s STB was not in the possession of the petitioners, or at their
disposal, they could not be reasonably expected or justly compelled to
prove that their stock subscriptions and purchases were recorded
therein. This was precisely why they led their Motion for
Production/Inspection of Documents.
The only time when the demand to examine and copy the
eCodal+Pro by RGL 34 of 239
petitioner should not be made subject to the condition of a showing of
corporation's records and minutes could be refused is when the
corporation puts up as a defense to any action that:
1. the person demanding had improperly used any information;
2. secured through any prior examination of the records or minutes of
such corporation or of any other corporation, or
3. was not acting in good faith or for a legitimate purpose in making
his demand.
Among the purposes held to justify a demand for inspection are the
following:
1) To ascertain the nancial condition of the company or the
propriety of dividends;
2) the value of the shares of stock for sale or investment; 3)
whether there has been mismanagement;
4) in anticipation of shareholders' meetings to obtain a mailing list of
shareholders to solicit proxies or inuence voting;
5) to obtain information in aid of litigation with the corporation or its
ocers as to corporate transactions.
Among the improper purposes which may justify denial of the right of
inspection are:
1) Obtaining of information as to business secrets or to aid a
competitor;
2) to secure business "prospects" or investment or advertising lists;
3) to nd technical defects in corporate transactions in order to bring
"strike suits" for purposes of blackmail or extortion.
any particular dispute or of proving any mismanagement or other
 occasion rendering an examination proper. (Terelay Investment and
Development v. Yulo 2015)
A criminal action based on the violation of a stockholder's right to
examine or inspect the corporate records and the stock and transfer
book of a corporation under the second and fourth paragraphs of
Section 73 can only be maintained against corporate ocers or any
other persons acting on behalf of such corporation. Thus, the
provision can only be violated by a corporation. (Yujuico v.
Quiambao 2014)
Among the actions that may be led is
1. an action for specic performance,
NB: Thus, a corporation cannot preempt a stockholder from exercising his
2. damages,
3. petition for mandamus, or
4. for violation of Section 73, in relation to Section 158 of the RCC.
The corporation carries the burden of proving
a) that the stockholder has improperly used information before; b)
lack of good faith; or
c) lack of legitimate purpose. (Philippine Associated Smelting and
Refining Corp v. Lim 2016)
In order therefore for the penal provision to apply, the following elements
must be present:
1. First. A director, trustee, stockholder or member has made a prior
demand in writing;
2. Second. The demand was refused;
3. Third. If such refusal is made pursuant to a resolution or order of
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2) Representative or class suit — when the object is a denite class
the board, the liability shall be imposed upon the directors or
trustees who voted for such refusal; and,
4. Fourth. Where the defense that the person demanding has
improperly used any information secured through any prior
examination, or was not acting in good faith or for a legitimate
purpose, the contrary must be shown or proved. (Ang-Abaya v.
Ang)
Corporations may raise their objections to the right of inspection
through armative defense in an ordinary civil action for specic
performance or damages, or through a comment in a petition for
mandamus.
right to inspect corporate books by ling an action for injunction as
the exception to the right may only be raised as a defense.
Philippine Associated Smelting and Refining v. Lim 2016
WON a petition for injunction with prayer for writ of preliminary
injunction is proper to prevent stockholders from inspecting corporate
books.
NO. When the corporation, through its ocers, denies the stockholders
of such right, the latter could then go to court and enforce their rights.
It is then that the corporation could set up its defenses and the reasons
for the denial of such right.
Thus, the proper remedy is the writ of mandamus to be led by the
stockholders and not a petition for injunction led by the
corporation.
Preemptive right
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of stockholder and the remedy is specic to them.
Pre-emptive right refers to the right of a stockholder of a stock
corporation to subscribe to all issues or disposition of shares of any
class, in proportion to their respective shareholdings. (Lu Ym v. Lu
2018)
The preemptive right of stockholders in close corporations shall
extend to ALL stock to be issued, including reissuance of treasury
shares, whether for money, property or personal services, or in
payment of corporate debts, unless the AOI provides otherwise.
Right to vote
No share may be deprived of the right to vote except those classied and
issued as “preferred” or “redeemable” shares.
Non-voting shares are those that deprive their holders of the right to
elect directors and vote on other matters presented to the shareholders
in general for approval. Nonetheless, nonvoting shares may vote on
corporate actions that materially change the premises and
conditions when they subscribed to their shares.
d) Remedial Rights
Suits by stockholders or members of a corporation based on wrongful
or fraudulent acts of directors or other persons may be classied into
individual suits, class suits, and derivative suits.
Florete, Jr v. Florete 2016
The determination of the stockholder's appropriate remedy hinges on the
object of the wrong done.
1) Individual suit — when the object is a specic stockholder and
the remedy is specic to him.
3) Derivative suit — when the object of the wrong done is the
 corporation itself or the whole body of its stock and property
without any severance or distribution among individual
holders.
Individual suit
Where a stockholder or member is denied the right of inspection, his
suit would be individual because the wrong is done to him personally
and not to the other stockholders or the corporation.
Representative suit
Where the wrong is done to a group of stockholders, as where
preferred stockholders’ rights are violated, a class or representative
suit will be proper for the protection of all stockholders belonging to
the same group.
Derivative suit
A suit by a shareholder to enforce a corporate cause of action. It is the
corporation that is properly regarded as the REAL PARTY IN
INTEREST, while the relator-stockholder is merely a derivative suit for and on behalf of a corporation.
NOMINAL party. (Ang v. Sps Ang 2013)
Since the derivative suit is a remedy of last resort, it must be shown
that the board, to the detriment of the corporation and without a valid
business consideration, refuses to remedy a corporate wrong. A
derivative suit may only be instituted after such an omission. (Ago
Realty & Development Corp. v. Ago 2019)
The requisites are enumerated in the Interim Rules of Procedure
for Intra-Corporate Controversies:
1. He was a stockholder or member at the time the acts or
transactions subject of the action occurred and the time the
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3. if not so xed, on any date after April 15 of every year as
determined by the board.
action was led; 3) Liability to the creditors of the corporation for unpaid subscription
subject to the Limited Liability Rule;
2. He exerted all reasonable eorts, and alleges the same, to
exhaust all remedies available to obtain the relief he desires; 4) Liability for watered stock; (§64)
3. No appraisal rights are available for the acts or acts 5) Liability for dividends unlawfully paid; (§42)
complained of; and 6) Administrative, civil and criminal liability of a stockholder
4. The suit is not a nuisance or harassment suit; responsible for violation or for acts indispensable to the violation
of the RCC. (§171)
5. The action brought by the stockholder or member must be in
the name of the corporation or association. f) Meetings
Ching v. Subic Bay Golf and Country Club, Inc. 2014
A stockholders' or members' meeting must comply with the following
requisites to be valid:
WON the complaint filed by petitioners is a derivative suit and such is
NOT properly filed. 1. The meeting must be held on the date xed in the By Laws or in
accordance with law;
YES. Although the shareholdings of petitioners are indeed only two out
of the 409 alleged outstanding shares or 0.24%, the Court has held that 2. Prior written notice of such meeting must be sent to all
it is enough that a member or a minority of stockholders le a stockholders/members of record;
3. It must be called by the proper party;
With regard, however, to the second requisite, the Court nds that
4. It must be held at the proper place; and
petitioners failed to state with particularity in the Complaint
that they had exerted all reasonable eorts to exhaust all remedies 5. Quorum and voting requirements must be met. (Lim v. Moldex
available. Such failure allows the RTC to dismiss the Complaint, even Land 2017)
motu proprio, in accordance with the Interim Rules.
Regular
Regular meetings of stockholders or members shall be held 1.
e) Obligations of a Stockholder
1) Liability to the corporation for unpaid subscription; (§66-69) annually
2) Liability to the corporation for interest on unpaid subscription if so 2. on a date xed in the bylaws, or
required by the bylaws; (§65-66)
eCodal+Pro by RGL 36 of 239
Written notice of regular meetings shall be sent to all stockholders or regulation. Written notice of regular meetings may be sent through
members of record at least twenty-one (21) days prior to the email.
meeting, unless a dierent period is required in the bylaws, law, or
Special
Shall be held at any time deemed necessary or as provided in the
bylaws. At least one (1) week written notice shall be sent, unless a
dierent period is provided in the bylaws, law or regulation.
Notice
Notice of meetings shall be sent through the means of communication
provided in the bylaws, which shall state the time, place and purpose
of the meetings.
Each notice of meeting shall further be accompanied by the following: a)
The agenda for the meeting;
b) A proxy form which shall be submitted to the corporate secretary
within a reasonable time prior to the meeting;
c) When attendance, participation, and voting are allowed by remote
communication or in absentia, the requirements and procedures
to be followed when a stockholder or member elects either option;
and
d) When the meeting is for the election of directors or trustees, the
requirements and procedure for nomination and election.
Place and time
Meetings shall be held in
1. the principal oce of the corporation as set forth in the AOI, or, if
not practicable,
2. in the city or municipality where the principal oce of the
corporation is located.
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
2. While trustees shall be elected for a term not exceeding three (3)
years from among the members of the corporation.
Any city or municipality in Metropolitan areas shall be considered
a city or municipality.
Quorum
A quorum shall consist of the stockholders representing a majority of
the OCS or a majority of the members.
SEC Intervention
Whenever for any cause, there is no person authorized or the person
authorized unjustly refuses to call a meeting, the SEC, upon petition
of a stockholder or member on a showing of good cause therefor, may
issue an order directing the petitioning stockholder or member to call a
meeting of the corporation by giving proper notice.
The petitioning stockholder or member shall preside thereat until at
least a majority of the stockholders or members present have chosen
from among themselves, a presiding ocer.
Closing of Books
Unless the bylaws provide for a longer period, the stock and transfer
book or membership book shall be closed at least
1. 20 days for regular meetings and
2. 7 days for special meetings
before the scheduled date of the meeting.
9 Board of Directors and Trustees
The directors of a corporation must formally organize and elect: a)
a president, who must be a director;
eCodal+Pro by RGL 37 of 239
3. Each director and trustee shall hold oce until the successor is elected
and qualied.
b) a treasurer, who must be a resident;
c) a secretary, who must be a citizen and resident of the Philippines;
and
d) such other ocers as may be provided in the bylaws.
If the corporation is vested with public interest, the board shall also elect
a compliance ocer.
The same person may hold two (2) or more positions concurrently, except
that no one shall act as
1. president and secretary or
2. president and treasurer at the same time.
a) Repository of Corporate Powers
Doctrine of Centralized Management or Principle of Board
Supremacy — The board of directors or trustees shall
1. exercise the corporate powers,
2. conduct all business, and
3. control all properties of the corporation.
b) Tenure, Qualications, and Disqualications of
Directors
1. Directors shall be elected for a term of one (1) year from among
the holders of stocks registered in the corporation’s books,
4. A director who ceases to own at least one (1) share of stock or a
trustee who ceases to be a member of the corporation shall cease to
 be such.
A person shall be disqualied from being a director, trustee or ocer of any
corporation if, within ve (5) years prior to the election or appointment
as such, the person was:
a) Convicted by nal judgment:
1) Of an oense punishable by imprisonment for a period
exceeding six (6) years;
2) For violating this Code; and
3) For violating the SRC;
b) Found administratively liable for any oense involving fraudulent
acts; and
c) By a foreign court or equivalent foreign regulatory authority for
acts, violations or misconduct similar to those enumerated in
paragraphs (a) and (b) above.
c) Requirement of Independent Directors
An independent director is a person who, apart from
shareholdings and fees received from the corporation, is independent
of management and free from any business or other relationship.
The board of the following corporations vested with public interest
shall have independent directors constituting at least 20% of such
board:
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5. The SEC shall, motu proprio or upon veried b. whose disqualication arose or is discovered SEC may impose on the
complaint, and after due notice and hearing, subsequent to an election.
order the removal of a director or trustee
The removal of a disqualied director shall be
a. elected despite the disqualication, or without prejudice to other sanctions that the
a) Corporations covered by Section 17.2 of the SRC, namely those 1. Any director or trustee of a corporation may be removed from oce
by a vote of the stockholders holding or representing at least two-
i) whose securities are registered with the SEC,
thirds (2/3) of the OCS, or in a nonstock corporation, by a vote
ii) corporations listed with an exchange or with assets of at of at least two-thirds (2/3) of the members entitled to vote.
least P50M AND having 200 or more holders of
2. Such removal shall take place either at a regular meeting of the
shares, each holding at least 100 shares of a class of its
corporation or at a special meeting called for the purpose, and in
equity shares;
either case, after previous notice to stockholders or members of the
b) Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged corporation of the intention to propose such removal at the
in money service business, pre-need, trust and insurance meeting.
companies, and other nancial intermediaries; and
3. A special meeting of the stockholders or members for the purpose
c) Other corporations engaged in business vested with public of removing any director or trustee must be called
interest.
a. by the secretary on order of the president, or
d) Elections b. upon written demand of the stockholders representing or
holding at least a majority of the OCS, or a majority of
Quorum the members entitled to vote.
Owners of majority of the outstanding capital stock must be present If there is no secretary, or if the secretary, despite demand, fails or
either in person, by proxy or in absentia. refuses to call the special meeting or to give notice thereof, the
stockholder or member of the corporation signing the
The law follows plurality voting. The nominees who received the
demand may call for the meeting by directly addressing the
highest number of votes shall be elected as members of the board. stockholders or members.
The election is generally done through
4. Removal may be WITH or WITHOUT cause.
a) straight voting; or
Removal without cause may NOT be used to deprive
b) cumulative voting. minority stockholders or members of the right of
e) Removal representation to which they may be entitled under Section 23.
eCodal+Pro by RGL 38 of 239
All other causes otherwise, same as above
If still No later than forty-ve (45) days from the
constituting a quorum, by the vote of at time the vacancy arose
least a majority of the remaining; GR: In the absence of any provision in the
bylaws xing their compensation, the directors in their capacity as such, except for reasonable EXC: The stockholders representing at least a majority of the OCS or majority of the compensation and approve the amount
or trustees shall not receive any compensationper diems. members may grant directors or trustees with thereof at a regular or special meeting.

board of directors or trustees who, with knowledge of the Emergency Board: Matling Doctrine In no case shall the total yearly compensation of directors exceed
disqualification, failed to remove such director or trustee. When applicable ten (10%) percent of the net income before income tax of the
corporation during the preceding year.
f) Filling of Vacancies 1. When the vacancy prevents the remaining directors from
constituting a quorum and h) Disloyalty
Reason Manner of Filling Period to Fill Up On the same 2. Emergency action is required to prevent grave, substantial, and
irreparable loss or damage to the corporation, Observance of the duty of loyalty is relevant when directors or trustees
day of the enter in to a
The vacancy may be temporarily lled from among the ocers of the
Removal No later than the day of such expiration at a director or trustee shall be limited to the therein the reason for its creation. should belong to the corporation, thereby
meeting called for that purpose emergency action necessary, and the term shall obtaining prots to the prejudice of such
cease within a reasonable time g) Compensation
corporation, the director must account for
At a regular or at a special meeting duly called
Expiration of Term 1) contract with the corporation (self- and refund to the latter all such
for the purpose, or in the same meeting 1. from the termination of the emergency or

Increase in number
By the stockholders or members in a regular or remaining directors or trustees.
special meeting called for the purpose
meeting authorizing the removal
authorizing the increase if so stated in the
2. upon election of the replacement director or
notice of the meeting.
trustee, whichever comes earlier.
corporation by unanimous vote of the
Notice to SEC — The corporation must
notify the SEC within three (3) days from
Scope — The action by the designated
the creation of the emergency board, stating
dealing contracts), 2) negotiate on their prots.
compensation, and Unless the act has been ratied by a vote of
3) personally acquire a corporate opportunity. the stockholders owning or representing at
least 2/3 of the OCS.
Where a director, by virtue of such oce,
Material Related Party Transactions
acquires a business opportunity which

eCodal+Pro by RGL 39 of 239

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1. “Material”. A transaction is material if its value is at least 10% of the
corporation’s total assets, as provided in its latest AFS.
2. “Related Party”. A party is regarded as related party if such person is
a. a director, trustee, ocer, or a substantial shareholder (one who
is directly or indirectly a benecial owner of at least 10% of
any class of equity security), and
b. his spouse or relative within the 4th CDCA.
3. Rule if no disinterested board. The law only requires the approval
of the shareholders or members if there is no disinterested board
that may approve the transaction.
4. Rule if disinterested board disapproves. Where the disinterested
board disapproves the self-dealing transaction, the shareholders or
members cannot override such decision of the board, consistent
with the principle of board supremacy.
Doctrine of Corporate Opportunity
Corporate ocers "are not permitted to use their position of trust and
condence to further their private interests."
The doctrine of "corporate opportunity" is precisely a recognition by
the courts that the duciary standards could not be upheld where the
duciary was acting for two entities with competing interests.
If there is presented to a corporate ocer or director a business
opportunity
1. which the corporation is nancially able to undertake,
2. is from its nature, in the line of the corporation's business and is
of practical advantage to it,
3. is one in which the corporation has an interest or a reasonable
expectancy, and
4. by embracing the opportunity, the self-interest of the ocer or
director will be brought into conict with that of his
corporation, the law will not permit him to seize the
opportunity for himself.
And, if, in such circumstances, the interests of the corporation are
betrayed, the corporation may elect to claim all of the benefits of
the transaction for itself. (Gokongwei, Jr. v. SEC)
i) Business Judgment Rule
Contracts intra vires entered into by the board of directors are binding
upon the corporation and courts will not interfere unless such contracts
are so unconscionable and oppressive as to amount to wanton
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j) Solidary Liabilities for Damages
Directors or trustees who
1. willfully and knowingly vote for or assent to patently unlawful acts
of the corporation or
2. are guilty of gross negligence or bad faith in directing the aairs of
the corporation or
3. acquire any personal or pecuniary interest in conict with their duty
destruction to the rights of the minority. (Ong Yong v. Tiu) defense when:
The duty of diligence requires the members of the board to a) the act is intra vires;
a) take steps to suciently inform themselves of relevant information b) the members of the board observed process due care; and
before making a decision (process due care) and
c) the action has a rational business purpose, with no obvious
b) act in good faith and in the honest belief that their action is in the corporate waste.
best interest of the corporation (substantive due care).
Legal Effects
1. The business judgment rule does not apply in process due care (oversight
1. First Branch. The resolutions, contracts and transactions of the
cases).
board cannot be overturned by the stockholders or members, and
2. There is gross negligence if there is sustained or systematic failure not even by the courts.
of the board to exercise oversight.
2. Second Branch. Directors and authorized ocers cannot be held
3. The business judgment rule applies in the observance of substantive due
personally liable for acts or contracts done with the exercises of
care (hindsight cases). The substantive due care standard depends on the
their business judgment, except:
actual abilities of the concerned director or trustee.
a) When otherwise provided by law;
4. Under the substantive due care standard, there must be no obvious
corporate waste and the action must have a rational business b) When the directors or ocers acted with fraud, gross
purpose or actuated by legitimate business reasons. negligence or in bad faith; and
c) When directors or ocers act against the corporation in
As a Defense
conflict of interest situation.
The law upholds board supremacy. Thus, the business judgment rule is a
eCodal+Pro by RGL 40 of 239
as such directors or trustees b) act in bad faith or with gross negligence in directing the
corporate aairs; and
shall be liable jointly and severally for all damages.
c) are guilty of conict of interest to the prejudice of the
Solidary liability will only attach to the directors, ocers or employees
corporation, its stockholders or members, and other
of the corporation in certain circumstances, such as:
persons;
1. When directors and trustees or, in appropriate cases, the ocers of a
2. When a director or ocer has consented to the issuance of watered
corporation:
stocks or who, having knowledge thereof, did not forthwith le
a) vote for or assent to patently unlawful acts of the with the corporate secretary his written objection thereto;
corporation;
 3. When a director, trustee or ocer has contractually agreed or
stipulated to hold himself personally and solidarily liable with the
corporation; or
4. When a director, trustee or ocer is made, by specic provision of
law, personally liable for his corporate action. (Heirs of Tan Uy v.
International Exchange Bank 2013)
Atienza v. Golden Ram Engineering Supplies
and Equipment 28 Jun 2021
1. Settled is the rule that a director or ocer shall only be personally
liable for the obligations of the corporation, if the following
conditions concur
1.1. the complainant alleged in the complaint that the director
or ocer assented to patently unlawful
acts of the corporation, or that the ocer was
guilty of gross negligence or bad faith; and
1.2. the complainant clearly and convincingly proved such
unlawful acts, negligence or bad faith.
2. Tramat Mercantile v. CA ruled that personal liability of a
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
2) The complainant must clearly and convincingly prove such unlawful
acts, negligence or bad faith. (Heirs of Tan Uy v. International
Exchange Bank 2013)
l) Responsibility for Crimes
The following provisions of the RCC provide specic penalties, which
render the non-application of the “other violations” provision
under Section 170:
1. Corporation by estoppel (§20);
corporate director, trustee or ocer along (although not
necessarily) with the corporation may so validly attach, as a
rule, only when:
2.1. He assents
2.1.1. to a patently unlawful act of the
corporation, or
2.1.2. for bad faith or gross negligence in
directing its aairs, or
2.1.3. for conict of interest, resulting in
damages to the corporation, its
stockholders or other persons;
2.2. He consents to the issuance of watered stocks or who,
having knowledge thereof, does not
forthwith le with the corporate secretary his
written objection thereto;
2.3. He agrees to hold himself personally and solidarily liable
with the corporation; or
2.4. He is made, by a specic provision of law, to personally
answer for his corporate action.
eCodal+Pro by RGL 41 of 239
2. Eects of non-use of corporate charter and continuous
inoperation of a corporation (§21);
3. Liability of directors, trustees or ocers (§30);
4. Disloyalty of a director (§33);
5. Liability of directors for watered stocks (§64);
6. Interest on unpaid subscriptions (§65);
7. Payment of balance of subscription (§66); and
8. Books to be kept (§73).
3. Here, Atienza established sucient and specic evidence to show that
Bartolome had acted in bad faith or gross negligence in the sale
of the defective vessel engine.
See Civil Law Case Digest No. 27
k) Personal Liabilities
A director, trustee, or ocer shall not attempt to acquire, or acquire any
interest adverse to the corporation
1. in respect of any matter which has been reposed in them in
condence, and
2. upon which, equity imposes a disability upon themselves to deal in
their own behalf;
Otherwise he shall be liable as a trustee for the corporation and must
account for the prots which otherwise would have accrued to the
corporation. The following requisites must concur:
1) The complainant must allege in the complaint that the director or
ocer assented to patently unlawful acts of the corporation, or that
the ocer was guilty of gross negligence or bad faith; AND
m) Special Fact Doctrine
In the absence of special facts, any director, ocer or shareholder is
entitled to sell his stock to a third person for such price; and on such
terms as he may desire.
However, ocers, directors, and controlling stockholders of a corporation
owe a limited duciary duty toward minority stockholders in the matter of
sales of stock where there are special facts which make it inequitable for
them to act without regard to the interests of other shareholders.
In determining whether such special facts exist that a duciary duty should
be imposed, the following circumstances may be considered:
a) The number of stockholders in the corporation;
b) WON a sale of all or almost all corporate stock appeared likely in the
immediate future;
c) WON the sale of stock involved a misuse of corporate oce or a breach
of duties owing to the corporation by the ocers, directors, or
controlling stockholders in question;
d) WON there was a partial disclosure of relevant facts by the ocers,
directors, or controlling stockholders which disclosure was not the
whole truth;
e) WON the corporation possessed a unique asset and WON a principal
objective of the purchaser of the corporate stock was to acquire that
asset;
f) Any other acts by the ocers, directors, or controlling stockholders in
question which tended to depreciate the value of the minority stock.
Under the law, what is required to be disclosed is a fact of “special
signicance” which may be
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Blackout Rule — The "blackout rule" prevents top ocials of a listed
company from trading on their own securities at specic periods prior
Material Nonpublic Information
to the public disclosure of any price-sensitive information.
Information is "material nonpublic" if:
Insiders are not allowed to deal in their own securities from the period
when a material non-public information is obtained up to two full
trading days after the price sensitive information is disclosed.
Material fact or information is any fact or information that
1. may result in a change in the market price or value of any of
the Issuer's securities, or
2. may potentially aect the investment decision of an investor.
a) a material fact which would be likely, on being made generally
available, to aect the market price of a security to a signicant extent,
or
b) one which a reasonable person would consider especially important
in determining his course of action with regard to the shares of
stock. (SEC v. Interport Resources)
n) Inside Information
Insider" means:
a) the issuer;
b) a director or ocer of, or a person controlling the issuer;
c) a person whose relationship or former relationship to the issuer gives
or gave him access to material information about the issuer or the
security that is not generally available to the public;
d) a government employee, or director, or ocer of an exchange, clearing
agency and/or self-regulatory organization who has access to
material information about an issuer or a security that is not
generally available to the public; or
eCodal+Pro by RGL 42 of 239
(Rule 3.1.12)
contract of the corporation with
a) It has not been generally disclosed to the public; or
b) would be considered by a reasonable person important under the
circumstances in determining his course of action whether to buy,
sell or hold a security.
o) Contracts
e) Tippee. — a person who learns such information by a
communication from any of the foregoing insiders.
It shall be unlawful for an insider to sell or buy a security of the issuer, while
in possession of material information with respect to the issuer or the
security that is not generally available to the public, unless:
a) The insider proves that the information was not gained from such
relationship; or
b) If the other party selling to or buying from the insider (or his agent) is
identied, the insider proves:
i) that he disclosed the information to the other party, or
ii) that he had reason to believe that the other party otherwise is
also in possession of the information.
A purchase or sale of a security of the issuer made by an insider, or such
insider's spouse or relatives by anity or consanguinity within the
second degree, legitimate or common-law, shall be presumed to have
been eected while in possession of material nonpublic information.
(1) By Self-Dealing Directors With the Corporation A
a. one or more of its directors, trustees, ocers OR
b. their spouses and relatives within the fourth civil degree of
consanguinity or anity
is voidable, at the option of such corporation, unless all the following
conditions are present:
a) The presence of such director or trustee in the board meeting in
which the contract was approved was not necessary to
 constitute a quorum for such meeting;
b) The vote of such director or trustee was not necessary for the
approval of the contract;
c) The contract is fair and reasonable under the circumstances;
d) In case of corporations vested with public interest, material
contracts are approved by
i) at least two-thirds (2/3) of the entire membership of the
board, with
ii) at least a majority of the independent directors voting to
approve the material contract; and
e) In case of an ocer, the contract has been previously authorized by
the board of directors.
Where any of the rst three (3) conditions is absent, in the case of a
contract with a director or trustee, such contract may be ratified by
the vote of the stockholders representing at least 2/3 of the OCS or of
the members in a meeting called for the purpose.
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proving one’s shareholding in a corporation?
NO. To establish their stock ownership, the petitioners adduced
competent proof showing that the respondents had allowed the
petitioners to become members of the Board of Directors. Considering
that Section 23 of the Corporation Code requires every director to be
the holder of at least one share of capital stock of the corporation, the
respondents would not have then allowed any of the petitioners to be
elected to sit in the Board unless they believed that the petitioners so
elected were not disqualied for lack of stock ownership. Conformably
with the doctrine of estoppel, the respondents could no longer deny the
petitioners’ status as stockholders of Abra Valley.
(2) Between Corporations With Interlocking Directors
Except in cases of fraud, and provided the contract is fair and
reasonable under the circumstances, a contract between two (2) or
more corporations having interlocking directors shall not be
invalidated on that ground alone.
If the interest of the interlocking director in one (1) corporation is
substantial and the interest in the other corporation or corporations
is merely nominal, the contract shall be subject to the
provisions regarding self-dealing directors insofar as the latter
corporation or corporations are concerned.
Stockholdings exceeding twenty percent (20%) of the OCS shall be
considered substantial for purposes of interlocking directors.
10 Capital Aairs
a) Certicate of Stock
(1) Nature of the Certificate
eCodal+Pro by RGL 43 of 239
(2) Uncertificated Shares
Uncerticated shares are shares that are tracked and represented in the
books of a company. These shares are recorded in the company as a
“book entry” and are not represented with a paper certicate.
The SEC may require corporations whose securities are traded in
trading markets and which can reasonably demonstrate their capability
to do so to issue their securities or shares of stocks in uncerticated or
scripless form.
(3) Negotiability; Requirements for Valid Transfer of
Stocks
A certicate of stock is a written instrument signed by the proper ocer
of a corporation stating or acknowledging that the person named in the
document is the owner of a designated number of shares of its stock.
It is prima facie evidence that the holder is a shareholder of a
corporation. A certicate, however, is merely a tangible evidence of
ownership of shares of stock. (Teng v. SEC 2016)
No transfer, shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation showing the
1. names of the parties to the transaction,
2. the date of the transfer,
3. the number of the certicate or certicates, and
4. the number of shares transferred.
No shares of stock against which the corporation holds any unpaid
claim shall be transferable in the books of the corporation.
Insigne v. Abra Valley Colleges, Inc. 2015
Is the presentation of a stock certificate a condition sine qua non for
1) It is NOT a negotiable instrument.
2) Certicates of stock may be issued only to registered owners of stock.
The issuance of "bearer" stock certicates is not allowed under the
law.
F & S Velasco Co., Inc. v. Madrid 2015
WON the November 18, 2009 Meeting organized by Madrid is legal
and valid;
NO. Madrid's inheritance of Angela's shares of stock does not ipso facto
aord him the rights accorded to such majority ownership of FSVCI's
shares of stock. Section 63 of the Corporation Code governs the
 rule on transfers of shares of stock.
All transfers of shares of stock must be registered in the corporate
books in order to be binding on the corporation. Specically, this refers
to the Stock and Transfer Book, which is described in Section 74.
Jurisprudence in Lao v. Lao is instructive on this matter, that the mere
inclusion as shareholder in the General Information Sheet is
insucient proof that one is a shareholder of the company.
Guy v. Guy 2016
Cheu was not a stockholder of record of GCI and was therefore not
entitled to any notice of meeting.
The corporation shall not consider any transfer eective until the
indorsed certicate is submitted for cancellation and a new one issued in
the name of the transferee.
(4) Issuance
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be open for inspection by any director or stockholder of the corporation
at reasonable hours on business days.
b) Who is authorized to make entries?
Only the corporate secretary. Entries made by the Chairman or
President are INVALID. (Torres, Jr. v. CA)
c) Stock transfer agent
A stock transfer agent or one engaged principally in the business of
registering transfers of stocks in behalf of a stock corporation shall be
allowed to operate in the Philippines upon
1. securing a license from the SEC and
2. the payment of a fee to be xed by the SEC, which shall be
No certicate of stock shall be issued to a subscriber until the full
amount of the subscription together with interest and expenses, in case
of delinquent shares, if any is due, has been paid.
In Bitong v. CA, the Court outlined the procedure for the issuance of
NEW certicates of stock in the name of a transferee:
1. First, the certicates must be signed by the president or vice-
president, countersigned by the secretary or assistant secretary,
and sealed with the seal of the corporation,
2. Second, delivery of the certicate is an essential element of its
issuance,
3. Third, the par value, as to par value shares, or the full subscription
as to no par value shares, must rst be fully paid. — Indivisibility
of Subscription
4. Fourth, the original certicate must be surrendered where the
person requesting the issuance of a certicate is a transferee from a
stockholder.
eCodal+Pro by RGL 44 of 239
renewable annually.
A stock corporation is not precluded from performing or making
transfers of its own stocks. The SEC may require stock corporations
which transfer and/or trade stocks in secondary markets to have an
independent transfer agent.
(6) Situs of the Shares of Stock
The place where the corporation is domiciled. (Wells Fargo v. CIR)
b) Watered Stocks
(1) Definition
Are those issued not in exchange for its equivalent in cash, property,
The surrender of the original certificate of stock is necessary before
the issuance of a new one so that the old certificate may be canceled.
(Teng v. SEC 2016)
(5) Stock and Transfer Book
a) Contents
Shall contain a record of
1. all stocks in the names of the stockholders alphabetically arranged;
2. the installments paid and unpaid on all stocks for which
subscription has been made, and the date of payment of any
installment;
3. a statement of every alienation, sale or transfer of stock made, the
date thereof, by and to whom made; and
4. such other entries as the bylaws may prescribe.
The stock and transfer book shall be kept in the principal oce of the
corporation or in the oce of its stock transfer agent and shall
share, stock dividends, or services. Such issuance is prohibited.
(2) Liability of Directors for Watered Stocks A
director or ocer of a corporation who:
a) consents to the issuance of stocks for a consideration less than its
par or issued value;
b) consents to the issuance of stocks for a consideration other than
cash, valued in excess of its fair value; or
c) having knowledge of the insucient consideration, does not le a
written objection with the corporate secretary,
shall be liable to the corporation or its creditors, solidarily with
the stockholder concerned for the dierence between the value received
at the time of issuance of the stock and the par or issued value of the
same.
(3) Trust Fund Doctrine for Liability for Watered
Stocks
The issuance of watered stocks constitutes fraud on creditors. It gives a
false impression that the corporation has a certain amount of assets
equivalent to the subscribed capital stock that creditors may rely on as a
buer against losses.
c) Payment of Balance of Subscription
(1) Call by Board of Directors
The board of directors may, at any time, declare due and payable to
the corporation unpaid subscriptions and may collect the same or such
percentage thereof, in either case, with accrued interest, if any, as it may
deem necessary.
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1. the amount due on each subscription plus all accrued interest,
and
2. the date, time and place of the sale which shall not be less
than thirty (30) days nor more than sixty (60) days from
the date the stocks become delinquent.
Notice of sale — with a copy of the resolution, shall be sent to every
delinquent stockholder either personally, by registered mail, or
through other means provided in the bylaws.
The same shall be published once a week for two (2) consecutive
weeks in a newspaper of general circulation in the province or city
where the principal oce of the corporation is located.
Payment of unpaid subscription or any percentage thereof, together
with any interest accrued shall be made on the date
1. specied in the subscription contract or
2. stated in the call made by the board.
Failure to pay on such date shall render the entire balance due and
payable and shall make the stockholder liable for interest at the legal
rate on such balance, unless a dierent interest rate is provided in the
subscription contract.
If no payment is made within thirty (30) days from the said date, all
stocks covered by the subscription shall thereupon become
delinquent and shall be subject to sale.
(2) Notice Requirement
1. Where call is necessary, notice must be given to the stockholder
concerned. A call without notice to the subscriber is practically no
call at all.
eCodal+Pro by RGL 45 of 239
Auction sale
A delinquent stock shall be sold at a public auction to such bidder who
shall oer to pay
1. the full amount of the balance on the subscription 2.
together with accrued interest,
3. costs of advertisement and
4. expenses of sale, for the smallest number of shares or
fraction of a share.
The remaining shares, if any, shall be credited in favor of the
delinquent stockholder who shall likewise be entitled to the issuance of
2. The notice is regarded as a condition precedent to the right of
recovery. In the absence of notice of call for the payment of unpaid
subscriptions, the same is not yet due and payable.
3. The right to notice of call, however, may be waived by the subscriber.
(De Leon and De Leon, Jr., The Corporation Code of the Philippines
2010)
d) Sale of Delinquent Shares
(1) Effect of Delinquency
Delinquency suspends the political and economic rights of the
subscriber, except the right to receive dividends. The dividends
corresponding to such shares, however, shall be applied against the
unpaid amount.
(2) Call by Resolution of the Board of Directors order
the sale of delinquent stock and shall specically state
a certicate of stock covering such shares.
What happens when there’s no bidder who can fully pay?
The corporation may bid for the same, and the total amount due
shall be credited as fully paid in the books of the corporation.
e) Alienation of Shares
(1) Allowable Restrictions on the Sale of Shares Allowable
restrictions on the sale of shares — Deny recognition of share
transfers. No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the corporation.
Sale of partially paid shares — The incomplete payment of the
 subscription does not preclude the subscriber from alienating his owner or his duly authorized representative that is the operative act of (2) Effect of Refusal to Inspect Corporate Records Any ocer
shares of stock. transfer of shares from the original owner to the transferee. or agent of the corporation who shall refuse to allow the inspection

The delivery contemplated in Section 62 (RCC), however, pertains to and/or reproduction of records shall be liable for damages, and in
(2) Requisites of a Valid Transfer
the delivery of the certicate of shares by the transferor to the addition, shall be guilty of an oense which shall be punishable under
Teng v. SEC 2016 Section 161 of this Code.
corporation.
If such refusal is made pursuant to a resolution or order of the
Certain minimum requisites must be complied with for there to be a
f) Corporate Books and Records board of directors or trustees, the liability shall be imposed upon the
valid transfer of stocks, to wit:
directors or trustees who voted for such refusal.
a) there must be delivery of the stock certicate;
(1) Right to Inspect Corporate Records
b) the certicate must be endorsed by the owner or his attorney-in- 11 Dissolution and Liquidation
fact or other persons legally authorized to make the transfer; Corporate records, regardless of the form in which they are stored,
and shall be open to inspection by any director, trustee, stockholder or a) Modes of Dissolution
member of the corporation in person or by a representative at
c) to be valid against third parties, the transfer must be recorded in
reasonable hours on business days, and a demand in writing may be
the books of the corporation. (1) Voluntary Dissolution
made at their expense, for copies of such records or excerpts from said
It is the delivery of the certicate, coupled with the endorsement by the records. Without Creditors With Creditors

Title shall be vested in the corporation astreasury transferee. No transfer shall be valid, except as between the Request for
shares. the parties, until the transfer is recorded in the books of What to file
dissolutionVeried petition

eCodal+Pro by RGL 46 of 239

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At least 20 days
Majority vote of the prior to the
Vote
board + by a meeting;
required
resolution adopted published once in a
by at least a Petition signed by majority
newspaper in the
of the OCS vote of the board +
corporation’s
petition is resolved upon by
principal oce
armative vote of at least 2/3
of the OCS

Hearing
 the objections led, if any no later than fteen (15) led prior to objections to the petition
✘ days from receipt by the publication of the order
Hearing on the petition and SEC of the request for setting the
trial on any issued raised in Period to withdraw dissolution. deadline for ling

Notice, 1. copy of the resolution authorizing dissolution, certied the need for the issuance by the SEC of a certicate of
Majority vote of the
publication and by a majority of the board of directors or trustees and dissolution.
board + by a
posting countersigned by the secretary of the corporation;
Withdrawal resolution adopted
2. proof of by at least a
of Request of Petition
publication; and majority of the OCS
3. favorable
recommendation
from the
appropriate Petition signed by
regulatory agency, majority vote of the
when necessary (2) Involuntary Dissolution
A corporation may be dissolved by the SEC motu
proprio or upon ling of a veried complaint by any
Documents to submit
What is interested party. The following may be grounds for
1. Notice to the
dissolution of the corporation:
stockholders; issued Certicate of dissolution
2. the order of the SEC
reciting the purpose
of the petition and
xing the deadline for
By shortening of corporate term
ling objections shall a) Non-use of corporate charter as provided under
1. Upon the expiration of the shortened term, as stated in Form In writing and veried In the form a veried motion
be published once a Section 21;
the approved amended AOI, the corporation shall be
week for 3 consecutive
deemed dissolved without any further proceedings; b) Continuous inoperation of a corporation as provided
weeks;
under Section 21;
3. order to be posted for 2. In the case of expiration of corporate term, dissolution
3 consecutive weeks in shall automatically take eect on the day following the c) Upon receipt of a lawful court order dissolving the
3 public places last day of the corporate term stated in the AOI, without corporation;
d) Upon nding by nal judgment that the corporation
procured its incorporation through fraud;
e) Upon nding by nal judgment that the corporation:
1) Was created for the purpose of committing, 2. list of all its creditors. securities violations, smuggling, tax evasion, money
concealing or aiding the commission of securities Vote laundering, or graft and corrupt practices, and its
violations, smuggling, tax evasion, money laundering, or required stockholders knew; and
board + petition is
graft and corrupt practices;
resolved upon by 3) Repeatedly and knowingly tolerated the
2) Committed or aided in the commission of armative vote of at least 2/3 of the OCS commission of graft and corrupt practices or other
to SEC

eCodal+Pro by RGL 47 of 239

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fraudulent or illegal acts by its directors, trustees, ocers, (3) By Management Committee or Rehabilitation 2) The trustee of a corporation may continue to prosecute a case
or employees. Receiver commenced by the corporation until rendition of the nal
Distribution of Assets judgment, even if such judgment is rendered beyond the three-
b) Methods of Liquidation year period.
Upon the winding up of corporate aairs, any asset distributable to any
creditor or stockholder or member who is unknown or However, an already defunct corporation is not allowed to
(1) By the Corporation Itself initiate a suit after the lapse of the said three-year period.
cannot be found shall be escheated in favor of the national
Every corporation shall nevertheless remain as a body corporate for government. (Alabang Development Corp. v. Alabang Hills Village Association
three (3) years after the eective date of dissolution, for the purpose 2014)
Winding up the affairs of the corporation means the collection of
of 3) There is a view to the eect that the trustee or receiver CAN maintain
all assets, the payment of all its creditors, and the distribution of the
1. prosecuting and defending suits by or against it and enabling it remaining assets, if any among the stockholders thereof in accordance an action for the corporation even after the three-year period.
to settle and close its aairs, with their contracts, or if there be no special contract, on the basis of (Reyes v. Bancom Development 2018)
their respective interests. (Rich v. Paloma III 2018)
2. dispose of and convey its property, and
Intra-corporate disputes remain even 12 Other Corporations
3. distribute its assets,
when the corporation is dissolved.
4. BUT NOT for the purpose of continuing the business for a) Close Corporations
A corporation’s board of directors is not rendered functus officio by its
which it was established. dissolution. Thus, a cause of action involving an intra-corporate
controversy remains and must be led as an intra-corporate dispute (1) Characteristics
(2) Conveyance to a Trustee Within a Three-Year
Period despite the subsequent dissolution of the corporation. (Aguirre II v.
A close corporation is one whose AOI provide that:
FQB+7, Inc. 2013)
The corporation is authorized and empowered to convey all of its
1) All of the corporation’s issued stock of all classes, exclusive of
property to trustees for the benet of stockholders, members, creditors (4) Liquidation after Three Years treasury shares, shall be held of record by not more than a specied
and other persons in interest. After any such conveyance, all interest
1) If full liquidation can only be eected after the three-year period and number of persons, not exceeding twenty (20);
which the corporation had in the property terminates, the legal
there is no trustee, the directors may be permitted to complete the 2) All of the issued stock of all classes shall be subject to one or more
interest vests in the trustees, and the benecial interest in the
liquidation by continuing as trustees by legal implication. specied restrictions on transfer; and
stockholders, members, creditors or other persons-in-interest.
 3) The corporation shall not list in any stock exchange or make any
public oering of any of its stock of any class.
A corporation shall be deemed NOT a close corporation when at least
two-thirds (2/3) of its voting stock or voting rights is owned or controlled
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
5) public utilities,
6) educational institutions and
7) corporations declared to be vested with public interest.
Bustos v. Millians Shoe, Inc. 2017
WON the CA correctly considered the properties of Spouses Cruz
answerable for the obligations of MSI.
NO. Section 97 of the Corporation Code only species that "the
stockholders of the corporation shall be subject to all liabilities of
directors." Nowhere in that provision do we nd any inference that
stockholders of a close corporation are automatically liable for corporate
debts and obligations.
Given that the true owner of the subject property is not the corporation,
petitioner cannot be considered a creditor of MSI but a holder of a claim
against respondent spouses.
(2) Validity of Restrictions on Transfer of Shares MUST
APPEAR in the AOI, in the bylaws, as well as in the
(3) Preemptive Right
Extends to ALL stock to be issued, including reissuance of treasury
shares, whether for money, property or personal services, or in
payment of corporate debts, unless the AOI provides otherwise.
(4) Amendment of Articles of Incorporation
by another corporation which is not a close corporation. (San Juan 1) mining or oil companies,
Structural and Steel Fabricators, Inc. v. CA)
2) stock exchanges,
GR: ANY corporation may be incorporated as a close corporation; 3) banks,
EXC: 4) insurance companies,
eCodal+Pro by RGL 48 of 239
Shall require the armative vote of at least two-thirds (2/3) of the The number of trustees shall be in multiples of ve (5).
OCS, whether with or without voting rights, or of such greater
Unless otherwise provided in the AOI or bylaws, the BOT shall, as
proportion of shares as may be specically provided in the AOI.
soon as organized, so classify themselves that the term of oce of
b) Non-Stock Corporations
(1) Definition
A nonstock corporation is one where no part of its income is
distributable as dividends to its members, trustees, or ocers.
May be formed or organized for
Any prot which a nonstock corporation may obtain incidental to its
operations shall, whenever necessary or proper, be used for the
furtherance of the purpose or purposes for which the corporation
was organized. The law strictly implements the non-diversion rule by:
a) Forbidding distribution of prots;
b) Requiring immediate utilization of contributions for intended
purposes; and
c) Limiting administrative expenses of certain eleemosynary
corporations. (of, relating to, or supported by charity)
c) Educational Corporations
The number of trustees of educational institutions organized as
nonstock corporations shall be between 5 and 15.
certicate of stock; otherwise, the same shall
not be binding on any purchaser in good
faith.
Said restrictions shall not be more onerous
than granting the existing stockholders or the 1) charitable, 2) religious, 3) educational, 4)
corporation the option to purchase the
shares. 6) fraternal, 7) literary, 13) agricultural and like chambers, term, shall hold oce only for the unexpired
period. Trustees elected thereafter to ll
1. The law only permits restrictions based on 8) scientic, 9) social, or any combination thereof.
one-fth (1/5) of their number shall expire vacancies caused by expiration of term shall
qualications and conditions, and NOT on
10) civic service, every year. hold oce for ve (5) years.
the personality of shareholders.
or similar purposes, like 11) trade,
Trustees thereafter elected to ll vacancies, A majority of the trustees shall constitute a
12) industry, occurring before the expiration of a particular quorum for the transaction of business.
professional, 5) cultural,

2. The most the restrictions may do is to give the remaining stockholders the prescribed qualications. d) Religious Corporations
right of rst refusal—that is, to match the oer of a third party meeting the (2) Treatment of Profits Non-Diversion Rule

eCodal+Pro by RGL 49 of 239

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(1) Corporation Sole (2) Religious Societies 3) Trust,

A corporation sole may be formed by the chief archbishop, bishop,
priest, minister, rabbi, or other presiding elder of such religious
denomination, sect, or church, for the purpose of administering and
managing, as trustee, the aairs, property and temporalities of such
religious denomination, sect or church.
A corporation aggregate formed for the same purpose, on the other
hand, consists of two or more persons. A corporation sole may be
converted into a corporation aggregate by mere amendment of
its AOI. The one member, with the concurrence of two-thirds of
the membership of the organization for whom he acts as trustee, can
self-will the amendment. (Iglesia Evangélica Metodista en las Islas
Filipinas v. Lazaro)
Effectivity — From and after ling with the SEC of the AOI, veried by
adavit or armation, and accompanied by the required documents.
DOES NOT require approval of the SEC in consonance with the
separation of church and state doctrine.
Any religious society, religious order, diocese, synod, or district 4) Insurance,
organization of any religious denomination, sect or church, may, upon
5) Public and publicly-listed companies, and
written consent and/or by an armative vote at a meeting called for the
purpose of at least two-thirds (2/3) of its membership, incorporate 6) Non-chartered GOCCs
for the administration of its temporalities or for the management of its may not incorporate as an OPC
aairs, properties, and estate by ling with the SEC, AOI veried by the
7) A natural person who is licensed to exercise a profession may not
adavit of the presiding elder, secretary, or clerk or other member of such
organize as an OPC for the purpose of exercising such profession
religious society.
except as otherwise provided under special laws.
e) One Person Corporations
(2) Capital Stock Requirement
Shall not be required to have a minimum ACS except as otherwise
A One Person Corporation is a corporation with a single stockholder.
provided by special law.
Only a natural person, trust, or an estate may form an OPC.
(3) Articles of Incorporation and By-Laws
(1) Excepted Corporations
Aside from the requirements set forth in Sec 14, the AOI of the OPC
1) Banks and quasi-banks,
shall likewise substantially contain the following:
2) Pre-need,
a) If the single stockholder is a trust or an estate, the name,
 nationality, and residence of the trustee, administrator,
executor, guardian, conservator, custodian, or other person
exercising duciary duties together with the
proof of such authority to act on behalf of the trust or estate;
and
b) Name, nationality, residence of the nominee and alternate
nominee, and the extent, coverage and limitation of the
authority.
Bylaws are NOT required to be submitted.
(4) Corporate Name
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(7) Liability
A sole shareholder claiming limited liability has the burden of
armatively showing that the corporation was adequately nanced.
The principles of piercing the corporate veil applies with equal force
to OPCs as with other corporations.
(8) Conversion of Corporation to One Person
Corporations and Vice-Versa
1. From Ordinary to OPC
When a single stockholder acquires all the stocks of an ordinary
stock corporation, the latter may apply for conversion into an
OPC.
2. From OPC to Ordinary Stock
A notice shall be led with the SEC within sixty (60) days from the
occurrence of the circumstances leading to the conversion into an
ordinary stock corporation..
The letters “OPC” shall be indicated either below or at the end of its
corporate name.
(5) Corporate Structure and Officers
The single stockholder shall be
1) The sole director and president of the OPC;
2) May NOT be appointed as the corporate secretary; 3)
May likewise be the self-appointed treasurer.
Here, the single stockholder shall give a bond to the SEC in such a
eCodal+Pro by RGL 50 of 239
In case of death of the single stockholder, the nominee or alternate
nominee shall
a) transfer the shares to the duly designated legal heir or estate
within seven (7) days from receipt of either an adavit of
heirship or self-adjudication executed by a sole heir, and
b) notify the SEC of the transfer.
Within sixty (60) days from the transfer of the shares, the legal
heirs shall notify the SEC of their decision to either
a) wind up and dissolve the OPC or
b) convert it into an ordinary stock corporation.
f) Foreign Corporations
(1) Bases of Authority Over Foreign Corporations
(a) Consent
A foreign corporation is one formed, organized or existing under laws
sum as may be required, to be renewed every two (2) years or as
often as may be required.
(6) Nominee
In the event of the single stockholder’s death or incapacity, the nominee
shall take the place of the single stockholder as director and shall manage
the corporation’s aairs.
The written consent of the nominee and alternate nominee shall be
attached to the application for incorporation. Such consent may be
withdrawn in writing any time before the death or incapacity of the
single stockholder.
other than those of the Philippines’ and whose laws allow Filipino
citizens and corporations to do business in its own country or State. It
shall have the right to transact business in the Philippines after obtaining
1. a license for that purpose; and
2. a certicate of authority from the appropriate government
agency.
(b) Doctrine of “Doing Business”
Mentholatum v. Mangaliman discussed the two general tests to
determine whether or not a foreign corporation can be considered as
“doing business” in the Philippines.
First, the substance test, whether the foreign corporation is
continuing the body of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it
over to another.
Second, the continuity test, implies a continuity of commercial
 dealings and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some of the functions
normally incident to, and in the progressive prosecution of, the purpose
and object of its organization.
The Contract Test of doing business, on the other hand
a) An essential condition to be considered as doing business in the
Philippines is actual performance of specic commercial acts
within the PH territory for the plain reason that the PH has no
jurisdiction over commercial acts performed elsewhere;
b) Activities within PH jurisdiction that do not create earnings or
prots to the foreign corporation do NOT constitute doing business
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(a) Resident Agent
A resident agent may be either
1. an individual residing in the Philippines or
2. a domestic corporation lawfully transacting business in the
Philippines.
(3) Personality to Sue
No foreign corporation transacting business in the Philippines
without a license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines.
Llorente v. Star City Pty Limited 2020
Compliance with the requirement of license, or the fact that the suing
corporation is exempt therefrom, as the case may be, cannot be inferred
from the mere fact that the party suing is a foreign corporation. The
qualifying circumstance being an essential part of the plainti’s capacity to
sue must be armatively pleaded. Hence, the ultimate fact that a foreign
in PH. buys and distributes products, other than those of the foreign
corporation, for its own name and its own account, the latter
c) A foreign company that merely imports goods from a PH exporter
cannot be considered to be doing business in the PH. (Steel Case v.
without opening an oce or appointing an agent in PH is NOT
Design International Selections 2012)
doing business in PH.
(2) Necessity of a License to Do Business
d) A foreign corporation that exports products to PH, without doing
any specic commercial act is NOT doing business in PH. A foreign corporation applying for a license to transact business in
the Philippines shall submit to the SEC a copy of its AOI and bylaws,
e) The appointment of a distributor in the PH is not sucient to
certied in accordance with law, and their translation to an ocial language
constitute “doing business” unless it is under the full control of the
of the Philippines, if necessary.
foreign corporation.
The application shall be under oath and, unless already stated in its
On the other hand, if the distributor is an independent entity which
AOI.
eCodal+Pro by RGL 51 of 239
corporation is not doing business in the Philippines must rst be disclosed with said corporation may be estopped from challenging the
for it to be allowed to sue in Philippine courts under the isolated foreign corporation’s corporate personality in a suit brought
transaction rule. Failing in his requirement, the complaint led by plainti before Philippine courts; and
with the trial court, it must be said, fails to show its legal capacity to sue.
4) if a foreign corporation does business in the Philippines with
Having pleaded these averments in the complaint suciently clothed the required license, it can sue before Philippine courts on any
SCPL the necessary legal capacity to sue before Philippine courts. transaction. (Agilent Technologies Singapore v. Integrated
Silicon Technology Phil. Corp)
(4) Suability of Foreign Corporations
(5) Instances When Unlicensed Foreign Corporations
The principles regarding the right of a foreign corporation to May be Allowed to Sue (Isolated Transactions)
bring suit in PH courts may be condensed in four statements:
Section 1 of the IRR of the FIA (as amended by RA 8179) provides that
1) if a foreign corporation does business in the Philippines without
the following shall NOT be deemed “doing business”:
a license, it cannot sue before the Philippine courts;
1) Mere investment as a shareholder by a foreign entity in domestic
2) if a foreign corporation is not doing business in the Philippines,
corporations duly registered to do business, and/or the exercise of
it needs no license to sue before Philippine courts on an
rights as such investor;
isolated transaction or on a cause of action entirely
independent of any business transaction; 2) Having a nominee director or ocer to represent its interest in such
corporation;
3) if a foreign corporation does business in the Philippines without
a license, a Philippine citizen or entity which has contracted 3) Appointing a representative or distributor domiciled in the
 Philippines which transacts business in the representative’s or
distributor’s own name and account;
4) The publication of a general advertisement through any print or
broadcast media;

5) Maintaining a stock of goods in the Philippines solely for the

purpose of having the same processed by another entity in the
Philippines;

6) Consignment by a foreign entity of equipment with a local

company to be used in the processing of products for export;

7) Collecting information in the Philippines; and

8) Performing services auxiliary to an existing isolated contract of sale

which are not on a continuing basis, such as installing in the
Philippines machinery it has manufactured or exported to the
Philippines, servicing the same, training domestic workers to
operate it, and similar incidental services.

Magna Ready Mix Concrete Corporation v.

Andersen Bjornstad Kane Jacobs, Inc. 20 Jan 2021

1. ANDERSEN has no legal capacity to sue for doing business in the

Philippines without procuring the necessary license.

1.1. It is not suing on an isolated transaction on the basis of the

contract it entered into with MAGNA.

1.2. However, MAGNA is already estopped from challenging

ANDERSEN's legal capacity when it
entered into a contract with it.

2. A foreign corporation that conducts business in the Philippines

must rst secure a license for it to be allowed to initiate or
intervene in any action in any court or administrative agency in
the Philippines.

Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
3. As an exception, a foreign corporation may sue without a license on
the basis of an isolated transaction.
3.1. Eriks Pte. Ltd. v. CA describes the concept of isolated
transaction as a transaction or series of transactions set
apart from the common business of a foreign enterprise
in the sense that there is no intention to engage in a
progressive pursuit of the purpose and object of the
business organization.
3.2. Whether a foreign corporation is "doing business" does not
necessarily depend upon the frequency of its
transactions, but more upon the nature and character
of the transactions.
4. Here, ANDERSEN's act of entering into a contract with MAGNA
does not fall into the category of isolated transactions.
4.1. It was performing acts that were in progressive pursuit of its
business purpose, which involved consultation and
design services.
4.2. In doing business without a license, ANDERSEN had no
legal capacity to sue in the Philippines.
5. However, MAGNA is already estopped from challenging
ANDERSEN's legal capacity to sue.
5.1. The doctrine of estoppel states that the other contracting
party may no longer challenge the foreign corporation's
personality after acknowledging the same by entering
into a contract with it.
5.2. A party cannot take undue advantage by
challenging the foreign corporation's personality or
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
eCodal+Pro by RGL 52 of 239
legal capacity to sue when the former already 13 Merger and Consolidation
acknowledged the same by entering into a contract
with the latter and deriving benets therefrom. a) Concept
See Commercial Law Case Digest No. 9
1) In a merger, a corporation absorbs another corporation and
(6) Grounds for Revocation of License remains in existence while the other is dissolved. It signies the
absorption of one corporation by another which retains its name
a) Failure to le its annual report or pay any fees;
and corporate identity with the added capital, franchises and
b) Failure to appoint and maintain a resident agent in the powers of a merged corporation.
Philippines;
2) In consolidation, a NEW corporation is created, and the
c) Failure, after change of its resident agent or address, to submit to the consolidating corporations are extinguished (Aquino, The
SEC a statement of such change; Philippine Corporate Law Compendium, 2014 Ed.)
d) Failure to submit to the SEC an authenticated copy of any
Statutory Merger
amendment to its AOI or bylaws or of any articles of merger or
consolidation within the time prescribed (within 60 days); This refers to pooling with automatic dissolution, which requires
e) A misrepresentation of any material matter in any application, 1. the execution of a plan,
report, adavit or other document submitted; 2. the approval of the concerned shareholders,
f) Failure to pay any and all taxes, imposts, assessments or penalties, if 3. the execution of the articles of merger or consolidation, and
any, lawfully due;
4. the issuance of a certicate or merger of consolidation.
g) Transacting business in the Philippines outside of the purpose or
purposes for which such corporation is authorized under its license; De Facto Merger
Pooling of resources and business without automatic dissolution is
h) Transacting business in the Philippines as agent of or acting on behalf
called de facto merger. It may involve
of any foreign corporation or entity not duly licensed to do
business in the Philippines; or a) transfer of all or substantially all assets of one or more
corporations to the other corporation, OR
i) Any other ground as would render it unt to transact business in the
Philippines. b) the management of one or more corporations by the other
corporation.
eCodal+Pro by RGL 53 of 239
 A de facto merger can be pursued by one corporation acquiring all or
substantially all of the properties of another corporation in exchange
of shares of stock of the acquiring corporation.
b) Constituent Corporation vs. Consolidated
Corporation
There is merger when two or more corporations are folded into one
of the constituent corporations or a “surviving” corporation.
A + B = A or B
There is consolidation when two or more corporations are folded
into a new corporation or a “consolidated” corporation.
A+B=C
c) Plan of Merger or Consolidation
The board of directors or trustees of each corporation, party to the merger
or consolidation, shall approve a plan of merger or consolidation setting
forth the following:
a) The names of the corporations proposing to merge or consolidate,
hereinafter referred to as the constituent corporations;
b) The terms of the merger or consolidation and the mode of carrying
the same into eect;
c) A statement of the changes, if any, in the AOI of the surviving
corporation in case of merger; and, in case of consolidation, all the
statements required to be set forth in the AOI; and
d) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or desirable.
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
court despite not having been properly impleaded therein. (ibid.)
d) Articles of Merger or Consolidation
Shall be executed by each of the constituent corporations, to be signed by
the president or vice president and certied by the secretary or assistant
secretary of each corporation setting forth:
a) The plan of the merger or the plan of consolidation;
b) As to stock corporations, the number of shares outstanding, or in
the case of nonstock corporations, the number of members;
c) As to each corporation, the number of shares or members voting
for or against such plan, respectively;
d) The carrying amounts and fair values of the assets and liabilities
of the respective companies as of the agreed cut-o date;
e) The method to be used in the merger or consolidation of accounts
of the companies;
f) The provisional or pro forma values, as merged or consolidated,
using the accounting method; and
g) Such other information as may be prescribed by the SEC. e)
Eects
A merger of two corporations produces, among others, the following
eects:
1. The constituent corporations shall become a single corporation;
2. The separate existence of the constituent corporation shall cease,
except that of the surviving or the consolidated
corporation;
eCodal+Pro by RGL 54 of 239
6. Surviving entity’s right to foreclosure. Pursuant to such merger
3. The surviving or the consolidated corporation shall thereupon
and thereafter
a. possess all the rights, privileges, immunities and franchises of
each of the constituent corporations; and
b. all property, real or personal, and all receivables due on
whatever account, including subscriptions to shares and other
choses in action, and all and every other interest of, or
belonging to, or due to each constituent corporation, shall be
deemed transferred to and vested in such surviving or
consolidated corporation without further act or deed; and
4. The surviving or consolidated corporation shall be responsible and
liable for
a. all the liabilities and obligations of each of the constituent
corporations in the same manner as if such surviving or
consolidated corporation had itself incurred such liabilities or
obligations; and
b. any pending claim, action or proceeding brought by or against
any of such constituent corporations may be prosecuted by or
against the surviving or consolidated corporation.
The rights of creditors or liens upon the property of any of
such constituent corporations shall not be impaired by such
merger or consolidation. (BPI v. Lee 2012)
5. Pending cases. The surviving corporation in a merger eectively
becomes a “virtual party” to the civil case involving the dissolved
constituent corporations. As such, it became bound by the orders
and processes issued by the trial
and consolidation, BPI’s right to foreclose the mortgage on
 petitioner's property depends on the status of the contract and the
corresponding obligations of the parties originally involved, that is,
the agreement between its predecessor BSA and petitioner.
(Spouses Ong v. BPI Family Savings Bank 2018)
7. Effects on constituent employees. The merger of a corporation
with another does not operate to dismiss the employees of the
corporation absorbed by the surviving corporation. Although the
absorbed employees are retained as employees of the merged
corporation, the employer retains the right to terminate their
employment for a just or authorized cause. Likewise, the
employees are not precluded from severing their employment
through resignation or retirement. (Philippine Geothermal, Inc.
Employees Union v. Unocal Philippines 2016)
Free and Harmless Clause
In a business-enterprise transfer, the transferor and the transferee
may enter into a contractual stipulation stating that the transferee shall
not be liable for any or all debts arising from the business which were
contracted prior to the time of transfer. Such stipulations are valid,
but only as to the transferor and the transferee. These
stipulations are not binding on the creditors of the business enterprise
who can still go after the transferee for the enforcement of the
liabilities. (Y-I Leisure Phils., Inc. v. Yu 2015 En Banc)
Y-I Leisure Phils., Inc. v. Yu 2015
WON fraud must exist in the transfer of all the corporate assets in order
for the transferee to assume the liabilities of the transferor.
NO. The Nell Doctrine pronounced the rule regarding the transfer
of all the assets of one corporation to another as follows:
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
GENERALLY, where one corporation sells or otherwise transfers all of YES. The business-enterprise transfer rule applies when two requisites
its assets to another corporation, the latter is not liable for the debts concur:
and liabilities of the transferor, EXCEPT:
a) the transferor corporation sells all or substantially all of its assets
1. Where the purchaser expressly or impliedly agrees to assume to another entity; and
such debts;
b) the transferee corporation continues the business of the
2. Where the transaction amounts to a consolidation or merger of transferor corporation.
the corporations;
Both requisites are present in this case.
3. Where the purchasing corporation is merely a continuation of
the selling corporation; and
II
4. Where the transaction is entered into fraudulently in order to
escape liability for such debts.
Banking Laws
Section 40 suitably reects the business-enterprise transfer under the
exception of the Nell Doctrine. It does not apply New Central Bank Act
1) if the sale of the entire property and assets is necessary in the
General Banking Law of 2000
usual and regular course of business of corporation, or
2) if the proceeds of the sale or other disposition of such property Secrecy of Bank Deposits
and assets will be appropriated for the conduct of its remaining
Anti-Money Laundering Act
business.
Thus, the litmus test to determine the applicability of Section 40 A New Central Bank Act
would be the capacity of the corporation to continue its business
R.A. No. 7653, as amended by R.A. No. 11211
after the sale of all or substantially all its assets.
An evaluation of the relevant jurisprudence reveals that fraud is
not an essential element for the application of the business- State Policies
enterprise transfer.
Monetary Board and its Powers and Functions
WON petitioners became a continuation of MADCI's business.
eCodal+Pro by RGL 55 of 239
 The Bangko Sentral ng Pilipinas and Banks in
Distress
a) Conservatorship
b) Closure
c) Receivership
d) Liquidation
1 State Policies
The State shall maintain a central monetary authority that shall
function and operate as an independent and accountable body
corporate in the discharge of its mandated responsibilities concerning
money, banking and credit.
The central monetary authority, while being a government-owned
corporation, shall enjoy fiscal and administrative autonomy.
2 Monetary Board and its Powers and Functions
1) Shall provide policy directions in the areas of money, banking, and
credit.
2) Shall have supervision over the operations of banks and exercise such
regulatory and examination powers over the quasi-banking
operations of non-bank nancial institutions.
3) As may be determined by the Monetary Board, it shall likewise
exercise regulatory and examination powers over money service
businesses, credit granting businesses, and payment system
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
operators. The Monetary Board is hereby a) any information of a condential nature, or
empowered to authorize entities or persons to engage in money b) any information on the discussions or resolutions of the
service businesses. Monetary Board, or
The primary objective of the BSP is to maintain price stability c) about the condential operations of the BSP,
conducive to a balanced and sustainable growth of the economy and
unless the disclosure is in connection with the performance of
employment. It shall also promote and maintain monetary stability and
ocial functions with the BSP, or is with prior authorization of
the convertibility of the peso.
the Monetary Board or the Governor; or
It shall promote nancial stability and closely work with the National
2) the use of such information for personal gain or to the
Government, including, but not limited to, the DOF, SEC, the IC, and
detriment of the Government, the BSP or third parties.
the PDIC.
It shall oversee the payment and settlement systems in the
Philippines, including critical nancial market infrastructures, in order to 3 The Bangko Sentral ng Pilipinas and Banks in
promote sound and prudent practices consistent with the maintenance Distress
of nancial stability.
a) Conservatorship
The powers and functions of the BSP shall be exercised by the BSP
Monetary Board composed of seven (7) members appointed by the
Conservatorship is a tool in restoring the viability of banks and
President for a term of six (6) years.
quasi-banks.
a) The Governor of the BSP, who shall be the Chairman of the
Whenever, on the basis of a report submitted by the appropriate
Monetary Board. His appointment shall be subject to
supervising or examining department, the Monetary Board nds that a
conrmation by the Commission on Appointments.
bank or a quasi-bank is in a state of continuing inability or
b) Member of the Cabinet to be designated by the President. unwillingness to maintain a condition of liquidity deemed
c) ve (5) members who shall come from the private sector, all of adequate to protect the interest of depositors and creditors, the
whom shall serve full-time. Monetary Board may appoint a conservator who shall have the power
to overrule or revoke the actions of the previous management and
No member of the Monetary Board may be reappointed more than once.
board of directors of the bank or quasi-bank;
Similar responsibility shall apply for:
The conservatorship shall NOT exceed one (1) year.
1) the disclosure of
The Monetary Board shall terminate the conservatorship
eCodal+Pro by RGL 56 of 239
 1. when it is satised that the institution can continue to operate on
its own and the conservatorship is no longer necessary.
2. if, on the basis of the report of the conservator or of its own
ndings, determine that the continuance in business of the
institution would involve probable loss to its depositors or
creditors, in which case receivership or liquidation shall
apply.
There are three requisites in placing an institution under
conservatorship:
1) There must be a report submitted by the appropriate
supervising or examining department of the BSP;
2) A nding by the Monetary Board that a bank or quasi-bank is in a
state of continuing inability or unwillingness to
maintain a condition of liquidity deemed adequate to
protect the interest of depositors and creditors; and
3) The BOD must be informed in writing of the order of the
Monetary Board directing conservatorship.
Liquidity is the ability to pay o obligations when they fall due. It
refers to that condition wherein a high percentage of the assets can be
quickly converted into cash without involving any considerable loss by
accepting sacrice prices.
The conservator merely takes the place of the BOD. What the said board
cannot do, the conservator cannot do either. His power is not unilateral
and he cannot simply repudiate valid obligations of the bank. (First
Philippine International Bank v. CA)
A conservator may be appointed without the need of rst declaring the
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
The period during which the bank cannot do business due to insolvency
bank insolvent. Nonetheless, the designation of a conservator is NOT a
precondition to the designation of a receiver.
b) Closure
Under the law, the sanction of closure could be imposed upon a bank by
the BSP even without notice and hearing.
Judicial review enters the picture only after the MB has taken action; it
cannot prevent such action by the MB. The threat of the imposition of
sanctions, even that of closure, does not violate their right to due
process, and cannot be the basis for a WPI. (BSP v. Antonio-Valenzuela)
The actions of the Monetary Board shall be nal and executory and may
not be restrained or set aside by the court except on petition for
certiorari. (Apex v. BSP 2017)
Under Section 30 of the NCBA, the following are the mandatory
requirements to be complied with before a bank found to be insolvent
is ordered closed and forbidden to do business in the Philippines:
1. Firstly, an examination shall be conducted by the head of the
appropriate supervising or examining department;
2. Secondly, it shall be disclosed in the examination
a. that the condition of the bank is one of insolvency, OR
b. that its continuance in business would involve probable loss to
its depositors or creditors;
3. Thirdly, the department head concerned shall inform the Monetary
Board in writing, of the facts; and
4. Lastly, the Monetary Board shall nd the statements of the department
eCodal+Pro by RGL 57 of 239
is NOT a fortuitous event, unless it is shown that the government's
head to be true.
The test of insolvency is measured by determining whether the
realizable assets of a bank are less than its liabilities.
Hence, a bank is solvent if the fair cash value of all its assets, realizable
within a reasonable time by a reasonably prudent person, would equal
or exceed its total liabilities exclusive of stock liability; but if such fair
cash value so realizable is not sucient to pay such liabilities within a
reasonable time, the bank is insolvent. (Banco Filipino v. Monetary
Board)
The obligation to pay interest on a deposit ceases from the moment the
operation of the bank is completely suspended by the Central Bank.
(General Bank and Trust v. Central Bank)
A deposit in a distressed bank already forbidden by the BSP to do
business does NOT become a preferred credit simply because
judgments were secured against the bank. (Central Bank v. Morfe, Vda
de Ballesteros v. Rural Bank of Canaman 2010)
c) Receivership
The appointment of a receiver operates to suspend the authority of the
bank over its property and eects, such authority being reposed in the
receiver, and in this respect, the receivership is equivalent to an
injunction to restrain the bank ocers from intermeddling with the
property of the bank in any way. (Abacus Real Estate Development v.
Manila Banking)
However, the receiver of the bank is in fact obliged to collect debts
owing to the bank, which debts form part of the assets of the bank.
(Sps Aguilar v. Manila Banking)
action to place a bank under receivership or liquidation proceedings is
tainted with arbitrariness, or that the regulatory body has acted without
jurisdiction. (Sps Poon v. Prime Savings Bank 2016)
Only stockholders representing the majority of capital stock of a bank
have the personality to le action for annulment of the MB resolution
placing the bank under receivership. The closed bank may sue and be
sued only through its receiver. The receiver does so as a representative
party. Any action filed by the closed bank without its receiver may be
dismissed. (Banco Filipino v. BSP 2018)
The execution and enforcement of a nal decision of a court other than
the liquidation court against the assets of a closed bank shall be stayed.
The prevailing party shall le the nal decision as a CLAIM with the
liquidation court and settled in accordance with the Rules on
Concurrence and Preference of Credits under the Civil Code or
other laws. (Cu v. Small Business Guarantee and Finance 2017)
The prescriptive period to institute foreclosure proceeding was legally
interrupted when the mortgagee-bank was placed under receivership
with express prohibition from transacting business, a circumstance
considered as force majeure. (Provident Savings v. CA)
The dissolution of a corporation by the SEC is a totally dierent
proceeding from the receivership and liquidation of a bank by the BSP.
(PDIC v. BIR)
d) Liquidation
A liquidation proceeding is a special proceeding involving the
administration and disposition, with judicial intervention, of an
insolvent's assets for the benet of its creditors. This proceeding is
cognizable by the RTC. (Consolidated Bank v. CA 2015)
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
Banks that have, in addition to the general powers incident to
It is basically a two-phased proceeding.
The first phase is concerned with the approval and disapproval of
Denition and Classication of Banks
claims. The claim shall be classied whether it is ordinary or preferred,
and thereafter included liquidated. In either case, the order allowing or Distinction of Banks from Quasi-Banks and Trust
disallowing a particular claim is a nal order, and may be appealed by
Entities
the party aggrieved thereby.
The second phase involves the approval by the Court of the Nature of Bank Funds and Bank Deposits
distribution plan prepared by the duly appointed liquidator. (Vda de
Ballesteros v. Rural Bank of Canaman 2010) Diligence Required of Banks
The insolvent bank's legal personality is not dissolved. A bank retains Prohibited Transactions by Bank Directors and
its juridical personality. (Balayan Bay Rural Bank v. National
Ocers
Livelihood Development 2015)
As a general rule, if there is a judicial liquidation of an insolvent bank, Stipulation on Interests
all claims against the bank should be led in the liquidation proceeding.
This, however, should NOT be applied if it would be "an exercise in
1 Denition and Classication of Banks
futility." In one case, the claimants were poor and the disputed parcel
of land was their only property, and the parties' claims and defenses were "Banks" shall refer to entities engaged in the lending of funds obtained in
properly ventilated in and considered by the judicial court. (Cudiamat the form of deposits. They shall be classied into:
v. Batangas Savings and Loan Bank 2010)
a) Universal banks (expanded commercial banks)
Section 52(C) of the NIRC is NOT applicable to banks ordered
Banks that have authority to exercise, in addition to the powers and
placed under liquidation by the Monetary Board, and a tax clearance is
functions of commercial banks, powers of an investment house
NOT a prerequisite to the approval of the project of distribution
and the power to invest in non-allied enterprises. (§23)
of the assets of a bank under liquidation by the PDIC. (PDIC v. BIR
2013) An investment house is any enterprise which engages in the
underwriting of securities of other corporations. (§2 PD 129)
B General Banking Law of 2000
b) Commercial banks
R.A. No. 8791
eCodal+Pro by RGL 58 of 239
corporations, all such powers as may be necessary to carry on the business of commercial banking. (§29)
 c) Thrift banks, composed of:
i) Savings and mortgage banks,
ii) Stock savings and loan associations, and
iii) Private development banks,
as dened in "Thrift Banks Act";
d) Rural banks, as dened in "Rural Banks Act"
Banks that are created to make needed credit available and readily
accessible in the rural areas for the purpose of promoting
comprehensive rural development.
e) Cooperative banks, as dened in "Cooperative Code"
Banks that primarily provide nancial, banking and credit services
to cooperative organizations and their members.
f) Islamic banks as dened in the "Charter of Al Amanah Islamic
Investment Bank of the Philippines."
Organization
The Monetary Board may authorize the organization of a bank or quasi-
bank subject to the following conditions:
1. That the entity is a stock corporation;
2. That its funds are obtained from the public, which shall mean
twenty (20) or more persons (2-Da); and
3. That the minimum capital requirements for each category of
banks are satised.
The SEC shall not register the articles of incorporation of any bank,
or any amendment thereto, unless accompanied by a certicate of
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
endorsement, or acceptance of debt instruments for the borrower's
own account. The source of funds are borrowings rather than
Elements of Quasi-Banking
authority issued by the Monetary Board.
The SEC shall not register the by-laws of any bank, or any
amendment thereto, unless accompanied by a certicate of authority
from the BSP.
No person or entity shall engage in banking operations or quasi-
banking functions without authority from the BSP. An entity
authorized by the BSP to perform universal or commercial banking
functions shall likewise have the authority to engage in quasi-banking
functions.
Shareholdings
1. Foreign — up to 40% of voting stock (Aggregate); 2.
Filipino — up to 40% of voting stock (Single);
3. Non-Voting — NO limit;
4. Par value.
Entry of Foreign Banks
1. by acquiring, purchasing or owning up to 100% of the voting stock
of an existing bank;
2. by investing in up to 100% of the voting stock of a new banking
subsidiary incorporated under the laws of the Philippines; or
3. by establishing branches with full banking authority.
Head Office Guarantee. — the head oce of such branches shall
fully guarantee the prompt payment of all liabilities of its PH
branch. (§75)
Residents and citizens of PH who are creditors of a branch in PH of a
foreign bank shall have preferential rights to the assets of such
eCodal+Pro by RGL 59 of 239
deposits.
branch in accordance with existing laws.
Bank Branches
Cross-Selling. A bank may, subject to prior approval of the Monetary
Board, use any or all of its branches as outlets for the presentation
and/or sale of the nancial products of its allied undertaking or of its
investment house units.
A bank authorized to establish branches or other oces shall be
responsible for all business conducted in such branches and oces to the
same extent and in the same manner as though such business had all
been conducted in the head oce. A bank and its branches and oces
shall be treated as ONE UNIT.
Full disclosure in all transactions with the bank is required:
1. Stockholdings of individuals related to each other within the
fourth degree of consanguinity or anity, legitimate or common-
law, considered family groups or related interests; (§12)
2. Two or more corporations owned or controlled by the same
family group or same group of persons considered related
interests. (§13)
2 Distinction of Banks from Quasi-Banks and
Trust Entities
Banks are required to be stock corporations and that their funds are
obtained from the public, which shall mean twenty (20) or more
persons.
“Deposit substitutes" is an alternative form of obtaining funds from
the public, other than deposits, through the issuance,
1) Borrow funds for own use;
2) From the public;
 3) Through deposit substitutes; Conspicuously absent in the enumerated additional powers of an borrowers, even though it be made under a loan accommodation
investment house, however, is the authority to perform quasi-banking scheme. RA 8791 only intended to cover loans by third persons and
4) With recourse;
functions. Wincorp engaged in practices that rendered the transactions those extended to DOSRI and does not automatically apply to loans to
5) For the purpose of relending or purchasing receivables or other to be "with recourse" and, consequently, within the ambit of quasi- bank employees. (HBILU v. HSBC 2018)
obligations. banking rules.
Kinds of Deposits
A “trust entity” is a stock corporation or a person duly authorized by
The deposit operations of a bank consist of the following:
the Monetary Board that has the power to:
3 Nature of Bank Funds and Bank Deposits 1. Demand Deposits — are deposits, subject to withdrawal either by
1. Act as trustee on any mortgage or bond issued by any
check or thru the ATMs which are otherwise known as current or
municipality, corporation, or any body politic; Bank deposits are in the nature of irregular deposits (Serrano v.
checking accounts.
2. Act under the order or appointment of any court as guardian, Central Bank). They are not true deposits but are simple loans. Banks
where monies are deposited are considered the owners (People v. Puig). 2. Savings Deposits — are interest-bearing deposits.
receiver, trustee, or depositary of the estate of any minor or
other incompetent person; Hence, the relationship between a depositor and a bank is that of 3. Negotiable Order of Withdrawal Accounts — are interest
creditor and debtor. Thus: bearing savings deposit which are withdrawable by means of
underwriting of securities of other corporations. Securities
1. The bank can make use as its own the money deposited. Negotiable Orders of Withdrawal. Savings + Checking.
underwriting, in turn, refers to the process by which underwriters raise
capital investments on behalf of the corporation issuing the securities. A bank is statutorily required to conduct a credit check on all of its 4. Time Deposits — are interest-bearing deposits with specic maturity
dates and evidenced by certicates issued by the bank.

3. Act as the executor of any will; holding, management, and administration of garnishment. Interest rate
Savings Account DepositSSDA
any estate, real or personal, and the
4. Act as administrator of the estate of any 3. Bank ocers cannot be held liable for
deceased person; 2. Third persons who may have a right to the
estafa if they authorized the use of the money Regular savings Higher
money deposited cannot hold the bank
5. Accept and execute any trust for the deposited by the interest
responsible unless there is a court order or interest rateHigher interest rate
Time
rents, issues and prots thereof; and 4. The bank has the right of compensation. It can set o the
Passboo Certicate
deposits with the indebtedness of the depositor that are k
6. Establish and manage common trust funds. of Time
due and demandable.
Deposit
Virata v. Ng Wee 2017 5. Deposits are common preferred credits under Art 2244(9)
of the NCC.
An investment house is an enterprise that engages in the
Period Fixed Term Evidenced by Passbook
depositor. ✘ Fixed Term

eCodal+Pro by RGL 60 of 239

Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
Pre ✘ ✓
✘ With penalty With penalty 2.1. The savings deposit agreement between the bank
Banks are also expected to exercise the highest degree of
diligence
termination and the depositor is the contract that determines the in the selection and supervision of their employees. (PNB v.
rights and obligations of the parties as in a simple Raymundo 2016)
Holding
loan.
The bank is expected to ensure that the depositor's funds shall only be
Period ✓ Allowed provided the
3. Allied Bank cannot repudiate the resulting banking given to him or his authorized representative. Indeed, the bank

Withdrawal Allowed savings interest rate will apply. same funds it now claims as its own. should be solidarily liable with its employee property acquired through foreclosure because
Withdrawal amounts to pre-terminati on relationship with the Sps Mario Macam and for the damages committed to its depositor. it failed to dutifully ascertain the property's
4. A certicate of deposit is dened as a written
minimum amount to earn the higher interest the duciary nature thereof when it accepted acknowledgment by a bank or banker of the (Oliver v. Philippine Savings 2016) specications is grossly negligent as to
rate is maintained, otherwise, the regular the spouses' initial deposit of P1.59M, the very practically be in
receipt of a A bank that wrongly advertises the area of a

A document to be deemed a certicate of deposit requires no specic
form as long as there is some written memorandum that the bank
accepted a deposit of a sum of money from a depositor. (Philippine
Banking v. CIR)
Third parties with unveried claims against the deposit of another do
not have a better right over the deposit. The bank’s contractual
relations are with its depositor, not with the third party. (Sps Serfino v.
FEBTC 2012)
Allied Banking v. Sps Macam 01 Feb 2021
1. RA 8791 enshrines the duciary nature of banking that requires
high standards of integrity and performance.
1.1. All banks are charged with extraordinary diligence in the
handling and care of its deposits as well as
the highest degree of diligence in the selection and
supervision of its employees.
sum of money on deposit which the bank or banker promises
to pay to the depositor, to the order of the depositor, or to
some other person or his order, whereby the relation of debtor
and creditor between the bank and the depositor is created.
5. With its acceptance of the Sps Mario Macam's deposit and their
opening of an account with the bank's Pasong Tamo Branch,
Allied Bank explicitly recognized the spouses' ownership and
title over the P1.59M.
See Commercial Law Case Digest No. 8
4 Diligence Required of Banks
The General Banking Act of 2000 demands of banks the highest
standards of integrity and performance. As such, the banks are
under obligation to treat the accounts of their depositors with
meticulous care. (Sps Carbonell v. MBTC 2017)
can only encompass physical features that are readily perceptible by an
ordinary person possessing no specialized skills. (Poole-Blunden v.
Union Bank 2017 Leonen, J)
In loan transactions, banks have the particular obligation of ensuring
that clients comply with all the documentary requirements pertaining
to the approval of their loan applications and the subsequent release of
their proceeds. (Prudential Bank v. Rapanot 2017)
BPI and Gonzales v. Sps Quiaoit 2019
WON BPI failed to exercise due diligence in the transaction and is
therefore liable for damages to Sps Quiaoit.
YES. BPI had ample opportunity to prepare the dollar bills. BPI could
have listed down the serial numbers of the dollar bills and erased any
doubt as to whether the counterfeit bills came from it. Banks are
required to exercise the highest degree of diligence in its banking
transactions. In releasing the dollar bills without listing down their serial

bad faith in oering that property to prospective buyers. Any sale made numbers, BPI failed to exercise the highest degree
2. Here, there is a deposit agreement between Allied Bank and the Sps
Mario Macam. on this account is voidable for causal fraud. As-is-where-is stipulations

eCodal+Pro by RGL 61 of 239

 Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests

of care and diligence required of it. stockholder of the BSFI; 8) NGOs/foundations that are engaged in retail micronance
2) Partnership of which a director, ocer, or stockholder of a BSFI or operations which are incorporated by any of the stockholders
his spouse or relative within the rst degree of consanguinity or and/or directors and/or ocers or related BSFIs. (MORB, 2018)
anity, or relative by legal adoption, is a general partner;
The limit on loans, credit accommodations and guarantees shall not apply
5 Prohibited Transactions by Bank Directors and
3) Co-owner with the director, ocer, stockholder or his spouse or to loans, credit accommodations and guarantees extended by a cooperative
Ocers
relative within the rst degree of consanguinity or anity, or relative bank to its cooperative shareholders.
No director or ocer of any bank by legal adoption, of the property or interest or right mortgaged,
Requirements for Valid Insider Lending
pledged or assigned to secure the loans or other credit
1. shall, directly or indirectly, for himself or as the representative or
accommodations, 1) In the regular course of business;
agent of others, borrow from such bank nor
except when the mortgage, pledge or assignment covers only said 2) Upon terms not less favorable to the bank than those oered to
2. shall he become a guarantor, indorser or surety for loans from such
co-owner’s undivided interest; third parties;
bank to others, or
4) Corporation, association or rm of which any or a group of 3) There is a written approval of the majority of ALL the directors
3. in any manner be an obligor or incur any contractual liability to the
directors, ocers, stockholders of the BSFI and/or their spouses or of the bank, excluding the director concerned;
bank
relatives within the rst degree of consanguinity or anity, or relative This is NOT required where a fringe benet plan is granted to
except with the written approval of the majority of all the by legal adoption, hold or own at least twenty percent (20%) of ocers as approved by the BSP.
directors of the bank, excluding the director concerned: the subscribed capital of such corporation, or of the equity of such
4) The required approval
Provided, That such written approval shall not be required for association or rm;
loans, other credit accommodations and advances granted to ocers a) shall be entered upon the record of the bank and
5) Corporation, association or rm wholly or majority-owned or
under a fringe benet plan approved by the BSP. controlled by any related entity or a group of related entities b) a copy of such entry shall be transmitted forthwith to the

Dealings of a bank with any of its DOSRI shall be upon terms not less mentioned in Items “(2)” and “(4)” above; appropriate supervising and examining department of

favorable to the bank than those offered to others. the BSP; and
6) Corporation, association or rm which owns or controls directly or
After due notice to the board of directors of the bank, the oce of any bank indirectly whether singly or as part of a group of related interest at 5) Limited to an amount equivalent to the DOSRI borrower’s

director or ocer who violates the provisions of this Section may be declared least twenty percent (20%) of the subscribed capital of a unencumbered deposits and book value of his paid-in capital

vacant and the director or ocer shall be subject to the penal provisions of substantial stockholder of the BSFI or which controls majority contribution in the bank.

the NCBA. interest of the BSFI pursuant to Item “g” of Sec. 362;
In other words, three restrictions are imposed by law on DOSRI
7) Corporation, association or rm which has an existing management transactions, to wit:
Related interests shall refer to any of the following:
contract or any similar arrangement with the parent of the BSFI;
1. Approval Requirements — The transactions, which must be upon
1) Spouse or relative within the rst degree of consanguinity or and
terms not less favorable to the bank than those oered to
anity, or relative by legal adoption, of a director, ocer or

eCodal+Pro by RGL 62 of 239

 Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
others, must be with the written approval of the MAJORITY of
ALL directors of the bank excluding the director concerned;
2. Reportorial Requirements — The required approval shall be
entered upon the records of the bank and copy of such entry shall
be submitted to the BSP; and
3. Ceiling Requirements — Unless for these benets, the loan which a
bank may extend shall be limited to an amount equivalent to the
unencumbered deposit and book value of the borrower’s
paid-in capital contribution in the bank, unless the loan is
secured by non-risk assets. (§36 RA 8791)
Except with the prior approval of the MB the total outstanding
loans, other credit accommodations and guarantees to DOSRI
shall not exceed fteen percent (15%) of the total loan portfolio
of the bank or 100% of net worth whichever is lower:
Provided, That in no case shall the total unsecured loans, other
credit accommodations and guarantees to said DOSRI exceed
thirty percent (30%) of the aggregate ceiling or the outstanding
loans, other credit accommodations and guarantees, whichever is
lower. (§X331, MORB)
6 Stipulation on Interests
Vitug v. Abuda 2016
Voluntariness of stipulations on interest rates is not sucient to make the
interest rates valid. Thus, even if the parties voluntarily agree to an
interest rate, courts are given the discretionary power to equitably reduce
it if it is later found to be iniquitous or unconscionable. Courts
approximate what the prevailing market There may be instances wherein an interest rate scheme which does not
specically indicate a particular interest rate may be validly imposed. Such
rate would have been under the circumstances had the parties had equal
interest rate scheme refers to what is typically called a oating interest
bargaining power.
rate system.
An interest rate is not inherently conscionable or unconscionable.
In Security Bank Corp. v. Sps Mercado, the Court explained that oating
Interest rates become unconscionable in light of the context in which
rates of interest refer to the variable interest rates stated on a market-
they were imposed or applied.
based reference rate agreed upon by the parties. Stipulations on oating
rate of interest dier from escalation clauses. Escalation clauses are
stipulations which allow for the increase of the original xed interest rate.
Vasquez v. PNB 2019
In contrast, a oating rate of interest pertains to the interest rate itself
In Sps Silos v. PNB, PNB implemented an identical interest rate scheme, that is not xed as it is dependent on a market-based reference that was
wherein PNB imposed on the petitioners therein interest to be agreed upon by the parties. In order for the concept of a oating rate of
determined based on the "prime rate plus applicable spread in eect." interest to apply, it presupposes that a market-based reference rate is
The Court invalidated the imposition of interest as it found that such indicated in writing and agreed upon by the parties.
method of xing interest rates based on the "prime rate plus applicable
spread in eect" is based on a "one-sided, indeterminate, and subjective
criteria such as protability, cost of money, bank costs, etc., that is Villa Crista Monte Realty and
arbitrary for there is no xed standard or margin above or below these
Development v. Equitable PCI Bank 2018
considerations."
An escalation clause without a concomitant de-escalation clause is
Imposing the "prevailing lending rate" is not synonymous with the
void and ineectual for violating "The Usury Law," as well as the principle
usual banking practice of imposing the "prevailing market rate." The
of mutuality of contracts unless the established facts and circumstances,
Court explained that the latter is valid "because it cannot be said to be
as well as the admissions of the parties, indicate that the lender at times
dependent solely on the will of the bank as it is also dependent on the
lowered the interest rates, or, at least, allowed the borrower the discretion
prevailing market rates. The uctuation in the market rates is beyond the
to continue with the repriced rates.
control of the bank." However, when banks impose "prevailing lending
rates," such imposition is considered one-sided, arbitrary, and potestative The escalation clause is not void per se. Yet, the escalation clause that
as the bank is "still the one who determines its own prevailing lending "grants the creditor an unbridled right to adjust the interest
rate." independently and upwardly, completely depriving the debtor of the
right to assent to an important modication in the agreement" is
The nullity of PNB's unilateral determination of interest rates in the
instant case follows a long line of judicial precedent.
eCodal+Pro by RGL 63 of 239
 Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
VOID. Verily, the escalation clause, to be valid, should specically
provide:
1) that there can be an increase in interest rates if allowed by law or
by the Monetary Board; and
2) that there must be a stipulation for the reduction of the
stipulated interest rates in the event that the applicable
maximum rates of interest are reduced by law or by the
Monetary Board.
Goldwell Properties Tagaytay v. MBTC 12 May 2021
1. As a principal condition and an important component in contracts
of loan, interest rates are only allowed if agreed upon by express
stipulation of the parties, and only when reduced into writing.
Any change to it must be mutually agreed upon, or it produces
no binding eect.
2. The right to recover interest arises only either
2.1. by virtue of a contract (monetary interest) or
2.2. as damages for delay or failure to pay the principal loan on
which the interest is demanded
(compensatory interest).
3. As regards monetary interest, although the parties are "free to
stipulate their preferred rate," the courts are "allowed to
equitably temper interest rates that are found to be excessive,
iniquitous, unconscionable, and/or exorbitant."
4. Here, the interest rate of 14.25% per annum (or 1.1875%. per
month) upon the principal obligation should, in theory, be
considered as a fair rate. interest rate, thus being null and
void, 'only the interest rate imposed is nullied; hence, it is
5. Based on the Manual of Regulations of Banks (MORB) of the
deemed not written in the contract.
Bangko Sentral ng Pilipinas (BSP), banks and borrowers are
allowed to agree on a oating rate of interest, provided that it 10. The agreement on payment of interest on the principal loan
must be based on market-based reference rates. obligation remains.'
5.1. In order for the concept of a oating rate of interest to 10.1. The Court shall apply the applicable legal rate of interest,
apply, it presupposes that a market-based reference which refers to 'the prevailing rate at the
rate is indicated in writing and agreed upon by the time when the agreement was entered into.
parties.
See Civil Law Case Digest No. 29
6. Here, based on the DSAs, Metrobank had the authority to
unilaterally apply the "prevailing market rate" without C Secrecy of Bank Deposits
specifying the market-based reference and securing the written
R.A. No. 1405, as amended
assent of the petitioners, which is in violation of the principle of
R.A. No. 6426, as amended
mutuality of contracts.
6.1. Thus, the repriced monetary interest of 14.25% per
annum should be declared as VOID. Purpose
7. In addition, the debtor companies should not be required to pay
the 10% VAT as the borrower should not bear the burden of
Prohibited Acts
paying taxes on behalf of the bank.
Deposits Covered
7.1. Such part of the provision should also be struck down for
being invalid. Exceptions from Coverage
8. As to the penal/compensatory interest, considering the nullication Garnishment of Deposits, including Foreign
of the repriced monetary interest, the penalty interest rate of
Deposits
18% per annum stipulated in the DSAs should likewise be
reduced to 6%.
9. In a situation wherein the interest rate scheme imposed by the bank
1 Purpose
was struck down because the bank was allowed under the loan To give encouragement to the people to deposit their money in
agreement to unilaterally determine and Increase the imposable banking institutions and to discourage private hoarding so that the
 eCodal+Pro by RGL 64 of 239
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests

same may be properly utilized by banks in authorized loans to assist in
the economic development of the country.
2 Prohibited Acts
1) Bank deposits may not be examined, inquired or looked into by any
person, government ocial, bureau or oce;
2) Any ocial or employee of a bank may not disclose any information
concerning said deposits to any person other than those
mentioned in Section Two hereof, or
3) For an independent auditor hired by a bank to conduct its regular
audit to disclose to any person other than a bank director, ocial or
employee authorized by the bank any information concerning said
deposits.
upon written permission of the depositor, investments with any banking or NBFI and their subsidiaries and
aliates without a court order;
b) in cases of impeachment,
m) Inquiry and examination by the PDIC in case there is a nding of
c) upon order of a competent court in the case of bribery or
unsafe or unsound banking practice;
dereliction of duty of public ocials or,
n) Examination and inquiry into deposit records by the PDIC when
d) when the money deposited or invested is the subject matter of the
there is failure of prompt corrective action as declared by the
litigation;
Monetary Board due to capital deciency;
e) In cases involving unexplained wealth, even if placed in another
o) When there is a waiver in case of DOSRI loans;
person’s name;
p) Disclosure to the BSP in the course of examination to ensure
f) Upon inquiry of the CIR to determine the net estate of a deceased
compliance with the AMLA and testing of numbered accounts;
depositor;
q) Plunder (Ejercito v. SB)
g) Upon the order of a competent court, by the AMLC where there is
probable cause of money laundering; For FOREIGN currency deposits, the following are the exceptions: a)

3 Deposits Covered
All deposits of whatever nature with banks or banking institutions IN
the Philippines including investments in bonds issued by the
Government, are considered as of an absolutely condential nature and
may not be examined, inquired or looked into by any person,
government ocial, bureau or oce.
Trust accounts are covered by the term ‘deposits’. The use of the
term ‘deposits’ is to be understood broadly and not limited only to
accounts which give rise to creditor-debtor relationship between the
depositor and the bank. (Ejercito v. SB)
4 Exceptions from Coverage
A PESO bank deposit may be inquired into in the following cases: a)
A court order is NOT necessary in the following cases: i)
Kidnapping for ransom;
ii) RA 9165;
iii) Hijacking; destructive arson and murder.
h) Examination by the AMLC even without court order under Sec 11
of AMLA;
i) Disclosure to the Treasurer of the Philippines for dormant deposits
for at least 10 years under the Unclaimed Balances Act;
j) Report of banks to AMLC of covered and/or suspicious
transactions;
k) Upon order of the CA, examination by law enforcement ocers in
terrorism cases under the Human Security Act;
l) Investigation where AMLC is authorized to examine deposits and
When there is written consent of the depositor;
b) Under Sec 11 of AMLA;
c) Upon order of the CA, examination by law enforcement ocers in
terrorism cases under the Human Security Act;
d) Investigation where AMLC is authorized to examine deposits and
investments with any banking or NBFI and their subsidiaries and
aliates without a court order;
e) Examination and disclosure to the CIR under Sec 6(F) of the
NIRC;
f) Disclosure to the BSP in the course of examination to ensure
compliance with the AMLA and testing of numbered accounts;
and
g) Inquiry and examination by the PDIC in case there is a nding of
unsafe or unsound banking practice.

Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
The Real Bank, Inc. v. Maningas 16 Mar 2022
1. Real Bank contends that the RTC's action directing it to produce
the bank records of the impostor violates the law on secrecy of
bank deposits.
1.1. The Court agrees.
D Anti-Money Laundering Act
2. Union Bank of the Philippines v. CA noted that inquiry will be
allowed if the money deposited in the account is itself the
subject matter of litigation.
2.1. BSB Group, Inc. v. Go elaborated that the subject matter of
the action should be deduced from the
indictment and not from the evidence sought to be
admitted.
3. Here, Maningas' action was directed against the banks, and not
against the impostor.
3.1. The exception provided in the law is not present in this
case, thus, the inquiry ordered by the RTC is
improper.
See Commercial Law Case Digest No. 2
5 Garnishment of Deposits, including Foreign
Deposits
There is NO VIOLATION if the accounts are garnished. The amount
of deposit is not disclosed and the legislature did not intend to cover
garnishment.
However, foreign currency deposits are exempt from attachment,
eCodal+Pro by RGL 65 of 239
garnishment, or any other order or process of any court, legislative Court-Issued Freeze Order
body, government agency or any administrative
body whatsoever. (RA 6426) See the case of Salvacion v. Central Bank, AMLC-Issued Freeze Order
where the Court made an exception against a transient foreigner
1 Policy
charged with raping a minor.
a) To protect and preserve the integrity of the Philippine nancial
system, including the condentiality of bank accounts.
R.A. No. 9160, as last amended by R.A. No.
b) To ensure that the Philippines shall not be used as a money
11521 2018 Implementing Rules and Regulations laundering site for the proceeds of any unlawful activity.
c) To extend cooperation, consistent with Philippines' foreign policy,
in transnational investigations and prosecutions of persons
Policy involved in money laundering activities wherever committed.
Covered Institutions and Their Obligations d) To protect life, liberty and property from acts of terrorism and to
condemn terrorism and those who support and nance it; and to
Covered Transactions make the nancing of terrorism a crime against the Filipino
people, against humanity and against the law of nations.
Suspicious Transactions
e) To recognize and to adhere to international commitments to combat
Safe Harbor Provision the nancing of terrorism.
f) To reinforce the ght against terrorism by preventing and suppressing
Money Laundering the commission of said oenses through freezing and forfeiture of
property or funds while protecting human rights.
Anti-Money Laundering Council and its Functions
Authority to Inquire into Bank Deposits 2 Covered Institutions and Their Obligations
The following are the covered persons under the AMLA: a)
Bank Inquiry Order by the Court
The following financial institutions:
Bank Inquiry Order by the AMLC
1) Persons supervised and/or regulated by BSP, including their
Freezing of Monetary Instrument or Property subsidiaries and aliates, which are also covered persons, supervised
and/or regulated by the BSP.

Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
2) Persons supervised or regulated by IC.
3) Persons supervised or regulated by the SEC.
b) The following Designated Non-Financial Businesses and
Professions or DNFBPs:
1) Jewelry dealers.
2) Dealers in precious metals, and dealers in precious stones.
3) Company service providers, which, as a business, provide any of
the following services to third parties:
a) acting as a formation agent of juridical persons;
b) acting as (or arranging for another person to act as) i) a
director or corporate secretary of a company,
ii) a partner of a partnership, or
iii) a similar position in relation to other juridical persons;
c) providing a registered oce; business address or accommodation,
correspondence or administrative address for a company, a
partnership or any other juridical person or legal
arrangement; and
d) acting as (or arranging for another person to act as) a nominee
shareholder for another person.
4) Persons, including lawyers, accountants and other professionals,
who provide any of the following services:
a) Managing of client money, securities or other assets; b)
Management of bank, savings, securities or other assets;
c) Organization of contributions for the creation, operation or
management of companies; and
eCodal+Pro by RGL 66 of 239
d) Creation, operation or management of juridical persons or
arrangements, and buying and selling business entities.
5) Casinos, including internet-based casinos and ship-based
casinos, with respect to their casino cash transactions related to
their gaming operations.
6) Real estate developers and brokers;
7) Oshore gaming operation, as well as their service providers,
supervised, accredited or regulated by the PAGCOR or any
government agency;
The term 'covered persons' shall EXCLUDE lawyers and accountants
acting as independent legal professionals
1. in relation to information concerning their clients or
2. where disclosure of information would compromise client
condences or the attorney-client relationship:
Provided, That these lawyers and accountants
1. are authorized to practice in the Philippines and
2. shall continue to be subject to the provisions of their respective
codes of conduct and/or professional responsibility.
Obligations
a) Customer Identification. — Covered institutions shall establish
and record the true identity of its clients based on ocial
documents. They shall maintain a system of verifying the true
identity of their clients.
b) Record Keeping. — All records of all transactions of covered
institutions shall be maintained and safely stored for ve (5) years
from the dates of transactions.
With respect to closed accounts, for at least five (5) years from
the dates when they were closed.
c) Reporting of Covered and Suspicious Transactions. —
Covered persons shall report to the AMLC all covered
transactions and suspicious transactions within ve (5) working
days from occurrence thereof,
unless the AMLC prescribes a dierent period not exceeding
fteen (15) working days.
3 Covered Transactions
1) A transaction in cash or other equivalent monetary instrument
exceeding P500K within one (1) banking day;
2) A transaction with or involving jewelry dealers, dealers in
precious metals and dealers in precious stones in cash or other
equivalent monetary instrument exceeding P1M.
3) A casino cash transaction exceeding P5M or its equivalent in
other currency.
4) A single cash transaction by real estate developers and brokers
involving an amount in excess of P7.5M or its equivalent in any
other currency.
4 Suspicious Transactions
refers to a transaction, regardless of amount, where any of the suspicious
circumstances is determined, based on suspicion or, if available, reasonable
grounds, to be existing.
1) There is no underlying legal or trade obligation, purpose or
economic justication;
2) The client is not properly identied;

Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
3) The amount involved is not commensurate with the business or
nancial capacity of the client;
4) It may be perceived that the client’s transaction is structured in
order to avoid being the subject of reporting requirements;
5) Any circumstance relating to the transaction which is observed to
deviate from the prole of the client and/or the client’s past
transactions with the covered institution;
6) The transaction is in a way related to an unlawful activity or
oense that is about to be, is being, or has been committed;
7) Any analogous or similar transactions to the foregoing.
5 Safe Harbor Provision
NO administrative, criminal or civil proceedings shall lie against
any person
1. for having made a CTR or an STR
2. in the regular performance of his duties and
3. in good faith,
4. whether or not such reporting results in any criminal prosecution
under the AMLA or any other Philippine law.
6Money Laundering
How Committed; Unlawful Activities or Predicate Crimes
Money laundering is committed by:
a) Any person who, knowing that any monetary instrument or
property represents, involves, or relates to the proceeds of any
eCodal+Pro by RGL 67 of 239
unlawful activity:
1) transacts said monetary instrument or property;
2) converts, transfers, disposes of, moves, acquires, possesses or
uses said monetary instrument or property;
3) conceals or disguises the true nature, source, location,
disposition, movement or ownership of or rights with respect
to said monetary instrument or property;
4) attempts or conspires to commit ML oenses referred to in
(1), (2), or (3) above;
5) aids, abets, assists in, or counsels the commission of the ML
oenses referred to in (1), (2), or (3) above; and
6) performs or fails to perform any act as a result of which he
facilitates the oense of ML referred to in items (1), (2), or
(3) above.
b) Any covered person who, knowing that a covered or suspicious
transaction is required under the AMLA to be reported to the
AMLC, fails to do so.
Unlawful activities refer to any act or omission, or series or
combination thereof, involving or having direct relation, to the
following: (deleted for brevity; See Sec. 3[b-1])
Same Conduct Approach. — In determining whether or not a
felony or oense punishable under the penal laws of other countries is
"of a similar nature" so as to constitute an unlawful activity under the
AMLA, it is sucient that both the Philippines and the other
jurisdiction criminalize the conduct or activity underlying the
oense, regardless of whether both countries place the oense within the
same category, or denominate the oense under the same nomenclature.
eCodal+Pro by RGL 68 of 239
7 Anti-Money Laundering Council and its
Functions
The powers and functions of the AMLC shall be exercised by a Council
composed of the following persons:
a) Chairperson — Governor of the BSP;
b) Member — Chairperson of the SEC; and
c) Member — Commissioner of the IC.
The Council shall act unanimously in the discharge of its functions.
1) to require and receive covered or suspicious transaction reports
from covered institutions;
2) to issue orders addressed to the appropriate Supervising Authority or
the covered institution to determine the true identity of the
owner of any monetary instrument or property subject of a
covered transaction or suspicious transaction report or request for
assistance from a foreign State.
3) to institute civil forfeiture proceedings and all other remedial
proceedings through the OSG;
4) to cause the ling of complaints with the DOJ or the Ombudsman
for the prosecution of money laundering oenses;
5) to investigate suspicious transactions and covered transactions
deemed suspicious after an investigation by AMLC, money
laundering activities, and other violations;
6) to apply before the CA, ex parte, for the freezing of any monetary
instrument or property alleged to be laundered, proceeds from, or
instrumentalities used in or intended for use in any unlawful
activity;
 Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests

7) to implement such measures as may be necessary and justied to inquire into the related accounts. Rule 11, Section 2.1 (a), (b) and (c), which are punishable
counteract money laundering; under the penal laws of other countries;
3. No Prior Criminal Charge, Pendency of a Case, or
8) to receive and take action in respect of, any request from foreign Conviction Necessary. e) Terrorism and conspiracy to commit terrorism; and
states for assistance in their own anti-money laundering
4. Compliance with Article III, Sections 2 and 3 of the f) Financing of terrorism under Section 4 and oenses punishable
operations;
Constitution. under Sections 5, 6, 7 and 8 of the TFPSA.
9) xxxx
5. Period to Resolve Application. — 24 HOURS; 2. The relevant requirements for Bank Inquiry Order by the Court
10) to enlist the assistance of any branch, department, bureau, oce, shall apply to Bank Inquiry Order by the AMLC, including the
6. Bank Inquiry Order. — The AMLC may inquire into or
agency or instrumentality of the government, including GOCCs, procedure for inquiry into related accounts.
examine any particular deposit or investment account, including
in undertaking any and all anti-money laundering operations;
related accounts, with any banking institution or non-bank
11) to impose administrative sanctions for the violation of laws, nancial institution, upon order by the Court of Appeals based
9 Freezing of Monetary Instrument or Property
rules, regulations and orders and resolutions issued pursuant on an ex parte application in cases of violation of the AMLA when
The following requirements shall be observed in the issuance of freeze
thereto; and probable cause exists.
orders:
12) to require the Land Registration Authority and all its Registries of
Bank Inquiry Order by the AMLC a) NO prior criminal charge, pendency of a case, or conviction for
Deeds to submit to the AMLC, reports on all real estate
1. The AMLC shall issue an ex parte order authorizing the AMLC an unlawful activity or ML oense is necessary for the
transactions involving an amount in excess of P500K within
Secretariat to inquire into or examine any particular deposit or commencement or the resolution of a petition for freeze order.
fteen (15) days from the date of registration of the transaction.
investment account, including related accounts, with any b) No asset shall be frozen to the prejudice of a candidate for an
banking institution or non-bank nancial institution and electoral oce during an election period.
8 Authority to Inquire into Bank Deposits
their subsidiaries and aliates when it has been established that
c) No court shall issue a TRO or a writ of injunction against any freeze
probable cause exists that the deposits or investments involved,
Bank Inquiry Order by the Court order, except the Supreme Court.
including related accounts, are in any way related to any of the
1. Application for Issuance of Bank Inquiry Order. — By following unlawful activities: Court-Issued Freeze Order
authority of the Council, the AMLC Secretariat shall le before the
a) Kidnapping for ransom; 1. Ex Parte Petition for Issuance of Freeze Order. — By authority
CA, through the OSG, an Ex Parte Application for the Issuance of
Bank Inquiry Order to examine or inquire into any particular b) RA 9165; of the Council, the AMLC Secretariat shall le before the Court
deposit or investment account that is related to an unlawful of Appeals, through the OSG.
c) Hijacking and other violations under RA 6235; destructive
activity or ML oense. 2. Related Accounts. — The AMLC may include in its petition the
arson and murder;
2. Inquiry into or Examination of Related Accounts. — A
d) Felonies or oenses of a nature similar to those mentioned in freezing of related and materially-linked accounts.
court order ex parte must be obtained before the AMLC can

eCodal+Pro by RGL 69 of 239

 Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
3. Period to Resolve Petition. — The CA shall resolve within 24
hours from ling thereof.
4. Issuance. — Upon veried ex parte petition by the AMLC and after
determination that probable cause exists, the CA may issue a
freeze order, which shall be eective immediately, for a period of
20 days.
5. Coverage. — The freeze order shall be limited only to the amount
of cash or monetary instrument, or value of property that the
CA nds there is probable cause.
6. Summary Hearing and Extension. — Before the expiration of the
20-day freeze order, the CA shall conduct a summary hearing,
with notice to the parties, to determine whether or not to modify or
lift the freeze order, or to extend its eectivity. Pending resolution by
the CA, the freeze order shall remain eective.
7. Effectivity of Freeze Order. — Immediately and shall remain
eective for a total period not exceeding 6 months.
AMLC-Issued Freeze Order
8. Motion to Lift. — If a freeze order is imposed on an account,
including bank account, of a covered person that it uses for
payment of
a) salary,
b) rent,
c) suppliers, and/or
d) taxes
in the ordinary course of a legitimate business, the covered
person may apply with the court which issued the freeze order to
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
lift the same by submitting a bond or other
acceptable securities of equal value to the amount or value
subject of the freeze order.
The court must resolve the motion before the expiration of the
freeze order.
9. Lifting the Effects of the Freeze Order.
a) The freeze order shall be deemed ipso facto lifted after its
expiration, unless an ML complaint against the person whose
monetary instrument or property was frozen, or a Petition for
Civil Forfeiture against the frozen monetary instrument or
property, has been led, in which case the freeze order shall
remain eective until the ML case is terminated or an asset
preservation order is issued, respectively.
b) Before the expiration of the freeze order, the covered person shall
secure a written conrmation from the AMLC to ascertain if a
petition for civil forfeiture or an ML complaint has been led.
Freeze orders issued by the AMLC shall be governed by the TFPSA and
its IRR.
The AMLC, either upon its own initiative or at the request of the ATC,
is hereby authorized to issue, ex parte, an order to freeze without delay:
a) property or funds that are in any way related to nancing of
terrorism or terrorist acts; or
b) property or funds of any person, terrorist organization,
association or group of persons in relation to whom there is
probable cause to believe that they are committing or
eCodal+Pro by RGL 70 of 239
attempting or conspiring to commit, or participating in or
facilitating the commission of nancing of terrorism or terrorist
acts.
The freeze order shall be eective for a period not exceeding twenty (20)
days. Upon a petition led by the AMLC before the expiration of the
period, the eectivity of the freeze order may be extended up to a period
not exceeding six (6) months upon order of the Court of Appeals:
Provided, That the twenty-day period shall be tolled upon ling of a
petition to extend the eectivity of the freeze order.
Period of validity of a freeze order: may it be extended? YES for a
total period not exceeding six (6) months.
The following rules shall be observed in asset forfeiture proceedings:
a) No prior criminal charge, pendency of a case, or conviction for
an unlawful activity or ML oense is necessary for the
commencement or the resolution of a petition for civil
forfeiture.
b) No asset shall be attached or forfeited to the prejudice of a
candidate for an electoral oce during an election period.
Petition for Civil Forfeiture — Upon determination that probable
cause exists that any monetary instrument or property is in any way
related to an unlawful activity or ML oense, the AMLC shall le with the
RTC, through the OSG, a veried petition for civil forfeiture.
Equal Value Assets — Other monetary instrument or property of
equal value may be included in the Petition where the monetary
instrument or property that should be subject of forfeiture:
a) cannot be located despite due diligence;
 b) has been substantially altered, destroyed, diminished in value or
otherwise rendered worthless by any act or omission;
c) has been concealed, removed, converted, or otherwise
transferred;
d) is located outside the Philippines or has been placed or brought
outside the jurisdiction of the court; or
e) has been commingled with other monetary instruments or
property belonging to either the oender himself or a third
person or entity, thereby rendering the same dicult to identify
or be segregated for purposes of forfeiture.
Asset Preservation Order. — Upon veried petition by the AMLC,
with prayer for issuance of asset preservation order, and after
determination that probable cause exists that any monetary instrument
or property is in any way related to an unlawful activity, the RTC may
issue an asset preservation order which shall be eective immediately,
forbidding any transaction, withdrawal, deposit, transfer, removal,
conversion, concealment or other disposition of the subject monetary
instrument or property.
Motion to Discharge. — If an APO is imposed on an account of a
covered person that it uses for payment of
1. salary,
2. rent,
3. suppliers, and/or
4. taxes
in the ordinary course of a legitimate business, the covered person
may apply with the court which issued the APO to discharge the same
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
In a situation where a pre-approved client was issued a credit card, we
by submitting a bond or other acceptable
securities of equal value to the amount or value subject of the asset
preservation order.
Relevant Banking Law Jurisprudence
Goyanko, Jr v. UCPB 2013
UCPB did not become a trustee by the mere opening of the ACCOUNT.
While this may seem to be the case, by reason of the duciary nature of the
bank’s relationship with its depositors, this duciary relationship does not
“convert the contract between the bank and its depositors from a simple
loan to a trust agreement, whether express or implied.” It simply means
that the bank is obliged to observe “high standards of integrity and
performance” in complying with its obligations under the contract of
simple loan. Per Article 1980 of the Civil Code, a creditor-debtor
relationship exists between the bank and its depositor. The savings
deposit agreement is between the bank and the depositor; by receiving the
deposit, the bank impliedly agrees to pay upon demand and only upon the
depositor’s order.
Tan v. Rodriguez 2018
Here, there exists no survivorship agreement between Anita and
Reynaldo. Hence, it is rightful to determine their respective shares based
on evidence presented during trial.
Apique v. Fahnenstich 2015
eCodal+Pro by RGL 71 of 239
have held that such client accepted the credit card by signing a receipt
The common banking practice is that regardless of who puts the money
into the account, each of the named account holder has
an undivided right to the entire balance, and any of them may deposit
and/or withdraw, partially or wholly, the funds without the need or consent
of the other, during their lifetime. Here, while Dominador is a co-owner of
the subject account as far as the bank is concerned, Evangeline — as
between him and Evangeline, his authority to withdraw, as well as the
amount to be withdrawn, is circumscribed by the purpose for which
the subject account was opened.
Cabanting v. BPI Family Savings Bank 2016
Here, there is no proof that petitioners were disadvantaged, uneducated
or utterly inexperienced in dealing with nancial institutions; thus, there is
no reason for the court to step in and protect the interest of the supposed
weaker party. Verily, petitioners are bound by the aforementioned
stipulation in the Promissory Note with Chattel Mortgage waiving the
necessity of notice and demand to make the obligation due and payable.
Sps Yulo v. BPI 2019
When issuing a pre-screened or pre-approved credit card, the credit
card provider must prove that its client read and consented to the terms
and conditions governing the credit card's use. Failure to prove consent
means that the client cannot be bound by the provisions of the terms and
conditions, despite admitted use of the credit card.
BPI v. Sps Sarda 2019
and using the card to purchase goods and services. A contractual
relationship was thereby created between the cardholder and the credit liabilities may only be assailed before the Court of Appeals via a Insurable Interest
card issuer, governed by the terms and conditions found in the card Petition for Certiorari under Rule 65.
membership agreement. Double Insurance and Overinsurance
III Insurance Law
The submission of statements of account is not enough to No Fault, Suicide, and Incontestability Clause
establish that the cardholder incurred the obligation to pay the The Insurance Code
purchases appearing therein. Perfection of the Insurance Contract

Basic Concepts Oer and acceptance; consensuality

Fil-Agro Rural Bank v. Villaseñor, Jr 2020
Elements of an Insurance Contract Premium payment
Disputed claims covers all claims whether they be against the assets of
the insolvent bank, for specic performance, breach of contract, damages Characteristics/Nature of Insurance Contracts Non-default options in life insurance
or whatever. The term is dened in an all-encompassing and broad
Classes of Insurance Reinstatement of a lapsed policy of life insurance
manner so as to include any cause of action against the insolvent bank,
regardless of its nature or character, irrespective of whether the relief
a) Marine Refund of premiums
sought would directly aect the property of the bank under liquidation.
In fact, Section 30(2) of R.A. 7653 authorizes the receiver to defend any b) Fire Rights and Obligations of Parties
action against the insolvent bank.
c) Casualty Rescission of Insurance Contracts
Here, when Antonio led the complaint for annulment of the mortgages,
he is essentially assailing Fil-Agro's right to foreclose the mortgages
d) Suretyship Devices to Ascertain and Control Risks
constituted to secure the principal obligation, including the closed
bank's right to sell the property and apply the proceeds of the sale to the e) Life Concealment
satisfaction of the unpaid loan. Indubitably, the claim lodged by
Antonio is a disputed claim over which the RTC of Malolos City sitting f) Microinsurance Misrepresentation or Omissions
as liquidation court has jurisdiction.
Servo v. PDIC 2019 g) Compulsory Motor Vehicle Liability Insurance Breach of Warranties
h) Compulsory Insurance Coverage for
Section 5(g) of RA 3591, as amended by RA 10846, provides that the
A Basic Concepts
actions of PDIC on matters relating to insured deposits and deposit Agency-Hired Workers

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1. Definition. — A contract of insurance is an agreement b. to indemnify another 2. For regulatory purposes, a contract of suretyship shall be deemed to
whereby be an insurance contract ONLY if made by a surety who is doing an
c. against loss, damage or liability
insurance business.
a. one undertakes for a consideration d. arising from an unknown or contingent event.
3. Insurance is a contract whereby
 a. One party called the insurer undertakes for a consideration
b. To pay another party called the insured, or his beneciary,
c. Upon the happening of the peril insured against,
d. Whereby the insured or his beneciary suers loss or damage or is
exposed to liability.
4. The TEST to determine whether a contract is one of insurance is
whenever the assumption of risk and the indemnification of
loss is the principal object and purpose of the contract.
5. Applying the "principal object and purpose test," a corporation,
such as an HMO, whether or not organized for prot, whose main
object is to provide the members of a group with health services, is
NOT engaged in the insurance business. (Philippine Health Care
Providers v. CIR)
6. However, it does not follow that the contract that is entered into is not
insurance; the nature of the contract will be examined on a
case-to-case basis. Thus, a health care agreement may be construed
as a non-life insurance if it is primarily a contract of indemnity.
(Fortune Medicare v. Amorin 2014)
7. Mutual Insurance Companies. A mutual insurance company is a
cooperative enterprise where the members are both the insurer
and insured.
Additionally, they provide three types of coverage, namely,
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
2) Risk-Distributing Device;
3) Aleatory — the obligation of the insurer to pay arises only upon
the happening of an event, which is uncertain, or is to occur at an
indeterminate time.
4) Unilateral — upon payment of the premium, there is only one
protection and indemnity, war risks, and defense costs.
8. Mutual Insurance Companies like P&I Clubs are considered
insurers. A protection and indemnity club, is an association
composed of shipowners generally formed for the specic purpose of
providing insurance cover against third-party liabilities of its
members. (Steamship Mutual Underwriting Association (Bermuda)
Ltd. v. Sulpicio Lines 2017)
9. Prot not material — Absence of PROFIT does NOT negate the
existence of an insurance contract.
1 Elements of an Insurance Contract
a) The insured has an insurable interest;
b) The insured is subject to a risk of loss by the happening of the
designated peril;
c) The insurer assumes the risk;
d) Such assumption of risk is part of a general scheme to distribute
actual losses among a large group of persons bearing a similar risk;
and
e) In consideration of the insurer’s promise, the insured pays a
premium.
Risk
1. Any contingent or unknown event, whether past or future,
eCodal+Pro by RGL 73 of 239
party who has the obligation, the insurer’s obligation to pay the
proceeds of insurance in case of loss.
5) Personal — Each party enters into the contract in view of the
character, credit, and conduct of the other.
6) Consensual — perfected by mere consent.
Uncertainty is a feature in insurance contracts.
Past events that may be insured is peculiar to marine insurance.
2. Which may damnify a person having an insurable interest, or create
a liability against him.
Further, the risk must be INSURABLE, wherein:
1. There must be a large number of homogenous exposure units;
2. The loss must be accidental and unintentional;
3. The loss must be determinable and measurable; 4.
The loss should NOT be catastrophic;
Nevertheless, trivial losses are NOT insurable. De minimis non
curat lex.
5. The chance of loss must be calculable; and
6. The premium must be economically feasible.
Assumption of Risk — The insurer promises to pay the insured if the risk
insured against occurs.
2 Characteristics/Nature of Insurance Contracts
Insurance contracts are:
1) Contracts of Adhesion;
7) Uberrimae Fidae — one of perfect good faith. Parties must
avoid material concealment or misrepresentations.
8) Executory and Conditional — executory to the insurer and
subject to conditions, principal of which is the happening of the
event insured against.
 3 Classes of Insurance
a) Marine
Includes policies that cover risks connected with navigation, to which a
ship, cargo, freightage, prots, or other insurable interest in movable
property, may be exposed during a certain voyage or a xed period of
time.
Different Types
1) Ocean Marine — connected with navigation; they are insurance
a) Over the vessel;
b) Against liability
i) Running Down Clause — insures liability against collision;
Risks Insured Against
ii) Marine Protection and Indemnity Insurance;
iii) Excess Protection and Indemnity Insurance — covers
damage or liability in excess of the value of the ship. It is
an exception to the limited liability rule in maritime law.
Includes cases when shipowner was negligent.
iv) Water Pollution Liability.
c) Over the cargo
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
Clauses that Modify Coverage
1) Inchmaree Clause — included in a hull policy to cover loss or
damage
a) through the bursting of the boiler, breaking of shafts or
b) through the latent defects of the machinery and equipment,
hull or its appurtenances and
i) Trip or Single Risk Cargo Policy;
ii) Open Cargo Policy.
d) Over freightage and income — cover loss of freightage for
failure to complete voyage or delivery of goods.
e) Compulsory Passenger and Cargo Liability Insurance —
mandated by RA 9295. P200K for each passenger imposed
on shipowners. P50K each for survivors of a maritime
accident.
2) Inland Marine — do not relate to navigation. Includes
insurance over cargoes, infrastructure and oaters.
3) Aviation — over aircrafts.
1) All Risk Policy — against ALL conceivable causes except a)
As otherwise excepted, such as
i) Free capture and seizure (FC&S) clause;
ii) Strikes, riots and civil commotion (SR&CC) clause; or
b) One due to fraud or intentional misconduct of insured. 2)
Named Perils Policy
eCodal+Pro by RGL 74 of 239
c) faults or errors in the navigation or management of the
vessel.
2) Running Down Clause — insures liability against collision;
3) Delay Clause — exempts insurer from liability if there was delay in
the voyage;
4) Sue and Labor (S&L) Clause — requires the insured and his
representative to take all reasonable steps that are necessary to
a) Perils of the sea or navigation — include only such losses as
are of extraordinary nature or arise from some overwhelming
power which cannot be guarded against by the ordinary
exertion of human skill or prudence.
b) Perils of the ship — a loss which in the ordinary course of
events, results:
i) From the ordinary, natural, and inevitable action of the sea;
ii) From ordinary wear and tear of the ship; and
iii) From the negligent failure of the ship’s owner to provide the
vessel with the proper equipment to convey the cargo.
c) Fire and Related Perils;
d) Jettison — goods are thrown overboard to save other cargoes
and/or the ship;
e) Barratry — act committed by the master or crew for some
unlawful or fraudulent purpose contrary to their duty;
f) Assailing Thieves — theft of cargo committed by force;
g) All Other like Perils — to be interpreted as covering risks
which are of like kind with particular risks which are
enumerated in the preceding part of the same clause,
following ejusdem generis.
limit or reduce an imminent loss.
5) Protection and Indemnity (P&I) Clause — insures the
shipowner from liability for damages caused by the ship to
wharves, piers and other harbor installations;
6) Institute War Clause (IWC) — covers risks covered by FC&S +
capture, seizure, arrest, restraint or detainment, including by civil
authorities.
 7) Memorandum Clause — provides for the list of goods for which EXC: In marine insurance, where information of the belief or
the insurer will be liable unless damage exceeds a stated percentage expectation of a third person, in reference to a material fact, is
of total value. material.

Who has Insurable Interest GR: Insurer may rescind contract even if the risk concealed is NOT the
cause of the loss.
1) Over the ship
EXC: In marine insurance, insurer is exonerated ONLY if the risk
a) Shipowner - up to the full value of the ship;
If ship also insured by charterer, the shipowner can only concealed is the cause of the loss and relates to the:
recover the portion that he cannot recover from the 1) national character of the insured;
charterer.
2) liability of the thing insured to capture and detention; 3)
b) Charterer - to the extent that he is liable to be damnied by its
liability to seizure from breach of foreign laws of trade; 4)
loss;
want of necessary documents; OR
c) Lender on Bottomry - up to the extent of the loan; d)
5) use of false and simulated papers.
Mortgagee.
Representation
2) Over cargo
1. If intentionally false in any material respect, or in respect of any
a) Both the shipowner and shipper.
fact on which the character and nature of the risk depends, the
b) In Respondentia. insurer may rescind the entire contract.

3) Over freightage and income
a) Shipowner and charterer - over the expected freightage,
which arises:
i) If there is a charter party — when the ship has broken
ground on the chartered voyage;
ii) In carriage of goods — when the goods are actually on
board or there is some contract for
putting them on board, and both ship and goods
are ready for the specied voyage.
b) One who has an interest in the thing from which prots are
expected to proceed has an insurable interest in the prots.
(§107)
2. Expectations of insured are not material unless it will amount to
promissory representation.
3. The contract will be avoided only if there is fraud in representing
an expectation that turns out to be false (§114).
Implied Warranties
1) Seaworthiness — a ship is seaworthy if it is able to withstand the
rigors of the voyage and it has been
a) properly laden,
b) provided with competent crew and

Concealment

GR: In ordinary insurance, belief or expectation of third persons are NOT

material and need not be disclosed.
 eCodal+Pro by RGL 75 of 239
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c) equipped with the appropriate appurtenances and equipment.
GR: It is only at the commencement of the voyage that the ship be
seaworthy. There is no breach of warranty if the ship
becomes unseaworthy afterwards.
EXC: If there is unreasonable delay in repairing the defect
when the ship becomes unseaworthy during the voyage.
The insurer is exonerated. (§120)
nor the owner of the ship has any control;
b) When necessary to comply with a warranty, or to avoid a
peril, whether or not the peril is insured against;
c) When made in good faith, and upon reasonable grounds of
belief in its necessity to avoid a peril; or
d) When made in good faith, for the purpose of saving human
life or relieving another vessel in distress.
ii) Damage reducing the value of the vessel and cargo by more
than ¾;
iii) Expense of transshipment exceeds ¾ of the value of cargo.
GR: Fact of actual loss must be established by sucient evidence.
EXC: There is presumed actual total loss if the following
requisites concur:

As to cargo owners, it is their responsibility to make sure the
carrier they choose to ship their goods is seaworthy.
4) Legality of voyage.
2) That the ship has the documents of neutrality or nationality —
Loss
a) Vessel has the requisite documents of nationality or neutrality;
1) TOTAL
and
b) Vessel will not carry documents that will cast reasonable
suspicion on its nationality or neutrality if nationality or
neutrality is expressly warranted. (§122)
3) Against improper deviation — Instances of deviation:
a) Departure from the course of sailing xed by mercantile usage;
b) Departure from the most natural, direct and advantageous
route if not xed by mercantile usage;
c) Unreasonable delay in pursuing the voyage; or d)
Commencement of an entirely dierent voyage. A
deviation is PROPER:
a) When caused by circumstances over which neither the master
Every other deviation, IMPROPER. a) Continued absence of the ship for a considerable length of
time; and
b) The vessel has not been heard of. (§134)
2) PARTIAL — not total.
Reshipment
a) Actual — caused by:
Whenever the ship is prevented from completing its voyage because of a peril
i) Total destruction of the thing insured;
insured against, the rules are as follows:
ii) The irretrievable loss of the thing by sinking, or by being
1) If the goods are reshipped, the insurance over the goods continue
broken up;
when they are thus reshipped;
iii) Any damage to the thing which renders it valueless to the
2) The insurer may require the additional premium if the hazard is
owner for the purpose for which he held it; or
increased by this extension of liability;
iv) Any other event which eectively deprives the owner of the
3) The marine insurer is bound to pay for damages, expenses, extra
possession, at the port of destination, of the thing insured.
freightage, etc. incurred in saving cargo reshipped, up to the
b) Constructive, commercial, or conventional — gives to a amount insured; and
person insured a right to abandon, under §141.
4) The marine insurer shall NOT be liable for any amount in excess of
i) Actual loss of more than ¾of its value; the insured value or, if there be none, of the insurable value.
Abandonment

eCodal+Pro by RGL 76 of 239

 Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests

The act of the insured by which, after a constructive total loss, he
declares the relinquishment to the insurer of his interest in the thing
insured.
Abandonment in Maritime Law Marine Insurance
Co-insurance c) From the expenses or damages caused follows the
successful saving of the vessel and cargo; and
There is ALWAYS co-insurance in marine insurance. The requisites for its
d) The expenses and damages should have been incurred or
application are as follows:
inicted after taking proper legal steps and authority.
1) There must be PARTIAL loss; and
2) There is UNDER insurance, or that the insurance coverage is LESS The formula for the determination of the general average

Need for than the value of the property insured. contribution of the insurer is:

constructive loss✘ ✔ �ℎ��� �� ������� = ������ �� ��������� ������ = ������ �� ���������

����� �� �������� ������� � �� �ℎ��� ��
����� �� ��������� ����� �� ������
Persons whom �������
the carrier is Averages
GR: The insured may either hold the insurer directly liable for the whole
liable
All extraordinary or accidental expenses which may be incurred during the of the insured value of the property sacriced for the general benet,
voyage in order to preserve the vessel and/or cargo and any damage or subrogating him to his own right of contribution from the other
deterioration which the vessel may suer. interested parties as soon as the vessel arrives at her destination.
Made in favor of Insured
1) Simple or Particular — may be covered by the insurance policy. EXC: The insured cannot claim in the following instances:
They are all expenses and damages caused to the vessel or to her
Abandonment shall be eective if the following requisites are present: 1) There is already separation of interest liable to the contribution;
cargo which have NOT inured to the benet and prot of ALL the
1) There must be an actual relinquishment by the person insured of persons interested. If not general, then it is particular. 2) The insured neglects to claim contribution although he has the
his interest in the thing insured; opportunity to enforce the same; and
The owner of the goods which gave rise to the expense or suered
2) There must be constructive total loss; the damage shall bear the simple averages. 3) Insured waives his right to claim contribution.

3) Be neither partial nor conditional; Free from Particular Average (FPA) Clause — free from PA
only, and not GA.
4) Made within a reasonable time after receipt of reliable information b) Fire
of the loss; 2) General or Gross — all damages and expenses which are
Shall include insurance against loss by re, lightning, windstorm,
DELIBERATELY caused in order to save the vessel and/or its
5) Must be factual; tornado or earthquake and other allied risks, when such risks are
cargo at the same time, from real and known risk. The requisites
6) Made by giving notice thereof to the insurer orally or in writing; covered by extension to re insurance policies or under separate policies.
are:
AND NB: Insurer is liable only if there is hostile re and NOT friendly re.
a) There must be a common danger;
7) The notice of abandonment must be explicit and must specify the 1. Hostile re is one that is uncontrolled, or initially friendly but
b) For the common safety, part of the vessel or of the cargo or
particular cause. passed outside the limits assigned to it.
both is sacriced deliberately;

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 2. Friendly re is one contained in its proper receptacle.
Alteration
Will prevent recovery on the policy if the following requisites are present:
1) The alteration is on the use or condition of the thing insured;
2) The use or condition is limited in the policy;
3) It is without consent of the insurer;
4) Within the control of the insured; AND
5) It increases the risk.
Option to Rebuild Clause — insurer may cause the repair, rebuilding, or
replacement of the buildings or structures wholly or partially destroyed or
damaged.
Prohibitions
§175. No policy of fire insurance shall be pledged,
hypothecated, or transferred to any person, rm or company who
acts as agent for or otherwise represents the issuing company, and
any such pledge, hypothecation, or transfer hereafter made shall
be void and of no eect insofar as it may aect other creditors of the
insured.
Multi-Ware Manufacturing v. Cibeles Insurance 01
Feb 2021
1. Petitioner obtained re insurance policies from Cibeles Insurance
simultaneously with Western Guaranty and Prudential
Guarantee covering the same matter and the same risk, i.e., the
policies uniformly cover re losses of
petitioner's machinery and equipment.
Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests
Three parties: Principal,
2. American Home Assurance Company v. Chua held that where the
insurance policy species as a condition the disclosure of existing
co insurers, non-disclosure thereof is a violation that entitles
the insurer to avoid the policy.
3. It is apparent that Policy Condition No. 3, or the "other insurance
clause", was violated since petitioner failed to notify the
insurers of the re insurance policies it procured from the
dierent insurers covering the same subject and interest.
See Commercial Law Case Digest No. 7
c) Casualty
Insurance covering loss or liability arising from accident or mishap,
excluding those covered in re or marine insurance. It includes, but is not
limited to,
1. Employer's liability insurance — usual exclusions:
a. When there is serious or willful misconduct on the part of
insured;
b. When the employee was hired in violation of law;
c. When insured failed to comply with health and safety
regulations; and
d. When the employer discharges, coerces, or discriminates against
an employee.
2. Motor vehicle liability insurance — third party victim may
proceed directly against the insurer for indemnity.
If direct liability to third party is provided for, a no action clause
eCodal+Pro by RGL 78 of 239
is NOT allowed.
A no action clause disallows suit against insurer unless nal
judgment is obtained by a third party against the insured.
3. Plate glass insurance,
4. Burglary and theft insurance,
Excluded are those in the insured’s service and employment
5. Personal accident and health insurance as written by non-life
insurance companies — normally includes
a. Income coverage;
b. Coverage for loss of life, sight or limb; or
c. Medical expenses coverage.
6. Other substantially similar kinds of insurance.
7. Criminal negligence is insurable, so long as it is not gross amounting
to willful misconduct.
Authorized Driver Clause — Insurer will be liable only if the driver is an
“authorized driver” at the time of accident.
1. Duly licensed, need not prove if insured is the driver; and 2.
Authorized by the owner of vehicle to drive.
Theft Clause — makes theft a risk insured against. Theft Is NOT covered
by the Malicious Damage Clause.
d) Suretyship
Suretyship Insurance
 life insurance contract. f) Microinsurance
Obligee, SuretyTwo parties: Insurer and Insured
GR: Not a contract of indemnity. The measure of indemnity is the sum A nancial product or service that meets the risk protection needs of the poor
Surety, in theory, expects no loss xed in the policy. It is therefore a valued policy. where:

to occurLoss is expected to occur EXC: Unless the interest of a person insured is susceptible of exact a) The amount of contributions, premiums, fees or charges, computed
or acts as a trustee for such retirement program shall be considered a on a daily basis, does not exceed seven and a half
Surety has right of Insurer has NO such right from the insured 1) Whole Life — oers permanent protection. Further b) The maximum sum of guaranteed benets is not more
reimbursement against classied as to mode of payment of premium: than 1000x of the current daily minimum wage rate for
defaulting principal nonagricultural workers in Metro Manila. (§187)
Covers losses beyond the control of insured a) Single Premium;

Surety guarantees the qualities of the principal as to pecuniary measurement, i.e. a creditor insures the life of b) Continuous Premium or Ordinary Life;
Character, Capacity, and Capital (3C’s) his debtor based on the value of indebtedness. percent (7.5%) of the current daily minimum wage g) Compulsory Motor Vehicle Liability
Kinds of Life Insurance rate for nonagricultural workers in Metro Manila; and Insurance
Kinds of Bonds
1) Fidelity Bond — answers for the loss of an employer who is the where a life insurance company manages It shall be unlawful for any land transportation operator or owner of a
obligee, for the dishonesty of the employee; c) Limited Payment Period. motor vehicle to operate the same in the public highways unless there is in
force
2) Surety Bond. 2) Term — Insurer pays proceeds if insured dies within a specied
period; insured gets nothing if he survives the period. 1. a policy of insurance or
Fidelity Guaranty Insurance — a contract whereby one, for a
consideration, agrees to indemnify the assured against loss arising from the 3) Endowment Policy — proceeds shall be payable to the assured if 2. guaranty
want of integrity, delity, or honesty of employees or other persons holding he lives to a certain date; to the beneciary if the assured dies a. in cash bond or
positions of trusts. before said date.
b. surety bond
Continuing Surety — In the case of a continuing bond, the obligor shall 4) Industrial Life — premiums are payable either monthly or oftener.
pay the subsequent annual premium as it falls due until the contract of to indemnify the death, bodily injury, and/or damage to property of a
5) Variable Life or Variable Unit-Linked (VUL) Insurance third-party or passenger.
suretyship is cancelled.
Contractor Policy — see §238(a) on Variable Contract.
Coverage, Extent and Limit of Liability
Accidental Death Benefit Clause
1) Coverage — P100K (+ P100K if vehicle is for public utility); 2)
e) Life Gives beneciaries additional benets if the death of the insured is
Death Indemnity — P70K + P30K funeral expenses; 3) Limit —
Every contract or undertaking for the payment of annuities including through accidental means.
contracts for the payment of lump sums under a retirement program P100K or P200K per person/injury.
aka Compulsory Third Party Liability (CTPL)

eCodal+Pro by RGL 79 of 239

Commercial and Taxation Law v2 Syllabus-based Reviewer for the 2023 Bar with Bar Chair Case Digests

No Fault Indemnity Clause — Proof of fault or negligence is NOT 1) A claim may be made against ONE motor vehicle only; 2) 3) Proofs of loss submitted under oath.
necessary for payment of any claim if the following are established:
Total indemnity shall not exceed P15K; Transfer of ownership DOES NOT suspend the policy. (§395)
Claims Settlement
1) File within 6 months from date of accident, otherwise, deemed
waived;
2) File in court or with the Commissioner within 1 year from denial
of claim, otherwise, claimant’s right of action shall have prescribed.
Malayan Insurance v. Stronghold Insurance
28 Jun 2021
insured or an excess coverage provider. f) Money claims arising from employer's liability which may be
awarded or given to the worker in a judgment or settlement of his
See Commercial Law Case Digest No. 6 or her case in the NLRC. The insurance coverage for money
claims shall be equivalent to at least three (3) months for every year
h) Compulsory Insurance Coverage for Agency-Hired of the migrant worker's employment contract;
Workers
(Section 37–A of RA No. 8042, as amended by RA No. 10022)
Each migrant worker deployed by a recruitment or manning agency
shall be covered by a compulsory insurance policy which shall be secured
4 Insurable Interest
AT NO COST to said worker.

Such insurance policy shall be eective for the duration of the migrant
1. The purpose of CMVLI is to provide compensation for the death
worker's employment contract and shall cover, at the minimum:
or bodily injuries suered by innocent third parties or passengers
as a result of the negligent operation and use of motor vehicles.
2. Western Guaranty v. CA claries the applicability of the limits
provided in the Schedule of Indemnities to injuries listed
therein and allows claims for other kinds of damages not
otherwise indicated in the schedule against CMVLI policy
providers, as long as liability is established and the requisites for
the kind of damages claimed are present.
3. The limit of liability with regard to the items listed in the Schedule
of Indemnities is the amount provided therein; the limit of
liability with regard to other kinds of damages
not listed in the same Schedule of Indemnities is the total
amount of insurance coverage.
4. Thus, the amounts in excess of the limits of liability in the schedule
for items listed therein are not covered by the total coverage.
4.1. Such excess is already for the personal account of the
Such an interest, arising from the relation of the party obtaining the
insurance, either as creditor of or surety for the assured, or from ties of
blood or marriage to him, as will justify a reasonable expectation of
a) Accidental death, with at least US$15K survivor's benet payable to advantage or benefit from the continuance of his life.
the migrant worker's beneciaries;
Its presence has the following purposes:
b) Natural death, with at least US$10K survivor's benet payable to
1) To reduce moral hazard — dishonesty or character defects in the
the migrant worker's beneciaries;
individual that increases the chance of loss; and
c) Permanent total disablement, with at least US$7.5K disability
2) Helps in measuring the loss of the insured.
benet payable to the migrant worker;
Eect of lack of insurable interest. — If the insured has no insurable
d) Repatriation cost of the worker when his/her employment is
interest over the life or property he insures, the insurance contract is
terminated without any valid cause, including the transport of his
UNENFORCEABLE.
or her personal belongings. In case of death, the insurance provider
shall arrange and pay for the repatriation or return of the worker's If the contract is really a wager, then it is VOID for being against public
remains; policy.
e) Subsistence allowance benet, with at least US$100.00 per month
for a maximum of six (6) months for a migrant worker who is In Life Insurance
involved in a case or litigation for the protection of his/her rights Every person has an insurable interest in the life and health:
in the receiving country;

eCodal+Pro by RGL 80 of 239