Commercial Law Syllabus Based Reviewer

Syllabus-Based Reviewer in Commercial Law
The 2022 BAR Examination
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TABLE OF CONTENTS
INSURANCE (P.D. No. 162, as amended by R.A. No. 10607)
Basic concepts 8
What may be insured 9
Insurable interest 9
Double insurance and over insurance 12
No fault, suicide, and incontestability clauses 13
Perfection of the insurance contract 15
Rights and obligations of parties 15
Rescission of insurance contracts 16
TRANSPORTATION LAW
Common carriers 22
Concept 22
Common carrier vs. private carrier 23
Diligence required 24
Obligations and liabilities 26
Vigilance over goods 26
Safety of passengers 27
Defenses available to a common carrier 29
Proof of negligence 29
Due diligence in the selection and supervision ofemployees 30
Fortuitous event 31
Contributory negligence 31
Doctrine of last clear chance 32
Extent of liability 32
Recoverable damages 32
Stipulations limiting liability 32
Limitations under the Warsaw Convention 34
CORPORATION LAW
General principles 36
Nationality of corporations 36
Control Test 36
Grandfather rule 38
Doctrine of separate juridical personality 38
Doctrine of piercing the corporate veil 39
De facto corporations versus corporations by estoppel 41
Corporate Powers 42
How powers are exercised 42
Ultra vires doctrine 42
Trust fund doctrine 43
Board of directors and trustees 45
Basic principles 45
Doctrine of centralized management 45
Business judgment rule 46
Tenure and qualifications of directors or trustees 46
Election and removal of directors or trustees 48
Duties, responsibilities and liabilities for unlawful acts 51
Stockholders and members 54
Rights and obligations of stockholders and members 54
Doctrine of equality of shares 55
Participation in management 55
Proxy 55
Voting trust 55
Cases when stockholders’ action is required 56
By a majority vote 56
By a two-thirds vote 57
By cumulative voting 59
Proprietary rights 59
Right to dividends 59
Right to inspect 60
Pre-emptive right 60
Right of first refusal 61
Remedial rights 61
Intra-corporate disputes (individual vs. representative vs.derivative suits) 63
Capital structure 65
Shares of stock 65
Nature of shares of stock 65
Consideration for shares of stock 65
Watered stock 65
Situs of the shares of stock 66
Classes of shares of stock 66
Certificate of stock 69
Nature of the certificate 69
Uncertificated shares 69
Negotiability; requirements for valid transfer ofstocks 69
Issuance 70
Lost or destroyed certificates 70
Disposition and encumbrance of shares 70
Sale of shares 70
Allowable restrictions on the sale of shares 71
Requisites of a valid transfer 71
Involuntary dealings 72
Dissolution and liquidation 72
Modes of dissolution 73
Voluntary and involuntary dissolution 73
Methods of liquidation 76
Other corporations 77
Close corporations 77
Non-stock corporations 80
Foreign corporations 81
What constitutes “doing business” 82
Necessity of a license to do business 83
Requisites for issuance of a license 84
Resident agent 84
Personality to sue and suability 84
One-person corporations 85
Mergers and consolidations 87
Concept 87
Effects and limitations 88
INTELLECTUAL PROPERTY CODE

Patents 91
Patentable vs. non-patentable inventions 91
Ownership of a patent 92
Grounds for cancellation of a patent 93
Patent infringement 93
Trademarks 95
Marks vs. collective marks vs. trade names 95
Acquisition of ownership 95
Concept of actual use 95
Effect of registration 96
Well-known marks 96
Rights conferred by registration 97
Cancellation of registration 98
Trademark infringement 99
Unfair competition 103
Copyrights 104
Copyrightable works 104
Non-copyrightable works 105
Rights conferred by copyright 106
Ownership of a copyright 108
Limitations on copyright 109
Doctrine of fair use 110
Copyright infringement 111
ANTI-MONEY LAUNDERING ACT

Covered institutions and their obligations 113
Covered and suspicious transactions 114
Safe harbor provision 115
When is money laundering committed (including predicatecrimes) 115
Authority to inquire into bank deposits 118
Freezing and forfeiture 119
ELECTRONIC COMMERCE ACT

Legal recognition of electronic data messages, documents, andsignatures 123
Presumption relating to electronic signatures 124
Admissibility and evidential weight of electronic data messageor electronic 124
document
Obligation of confidentiality 125

FINANCIAL REHABILITATION INSOLVENCY ACT

Basic concepts 127
Rehabilitation 127
Insolvent 127
Liquidation 127
Suspension of payments 128
Modes of rehabilitation 128
Court-supervised rehabilitation 128
Voluntary vs. involuntary 128
Commencement order (including stay order) 129
Rehabilitation receiver and management committee 133
Determination of claims 134
Rehabilitation plan 135
Creditor approval and confirmation 137
Failure of rehabilitation 137
Pre-negotiated rehabilitation 138
How initiated 138
Period and effect of approval 138
Out-of-Court or Informal Restructuring Agreement orRehabilitation Plan 139
Minimum requirements 139
Standstill period 139
Cram down effect 139
Liquidation 140
Voluntary liquidation vs. involuntary liquidation vs.conversion 140
Procedure 141
Liquidation order; effects 141
Determination of claims 142
Suspension of payments; suspension of payment order 142


NOTE: This syllabus is an outline of the key topics that fall under the core subject
“Mercantile Law”. Accordingly, all Bar candidates should be guided that only laws, rules,
issuances, and jurisprudence pertinent to these topics as of June 30, 2021 are
examinable materials within the coverage of the 2022 Bar Examinations.
A. BASIC CONCEPTS
 A contract of insurance is an agreement whereby one undertakes for a

consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event.
o A contract of suretyship shall be deemed an insurance contract only if
made by a surety who or which, as such is doing an insurance
business as defined by the Insurance Code. [There is no premium
required for such undertaking. The assumption of risk made by the
surety in case the principal debtor does not perform his obligation is not
part of a general scheme to distribute actual losses among a large
group or substantial number of persons bearing a similar risk.]
o The subject agreement of the parties indubitably contemplates a surety
agreement, which is governed mainly by the Insurance Code, considering
that a contract of suretyship shall be deemed an insurance
contract within the contemplation of the Insurance Code if made
by a surety which is doing an insurance business. In this case, the
surety, i.e., respondent Country Bankers, is admittedly an insurance
company engaged in the business of insurance. In fact, the CA itself in its
assailed Decision mentioned that a contract of suretyship is defined and
covered by the Insurance Code. [INDUSTRIAL PERSONNEL
v. COUNTRY BANKERS INSURANCE, G.R. No. 194126, October 17,
2018, CAGUIOA]
 ELEMENTS; an insurance contract exists where the following elements concur:
1) The insured has an insurable interest;
2) The insured is subject to a risk of loss by the happening of the designated
peril;
3) The insurer assumes the risk;
4) 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
5) In consideration of the insurer's promise, the insured pays a premium.
 SOME CHARACTERISTICS OF INSURANCE:
1. CONTRACT OF ADHESION - Insurance contracts are already presented to
the insured in its printed form on a “take it or leave it” basis. The insured
merely has to agree to its terms. Such contracts of adhesion are valid.
2. It is UBERRIMAE FIDES CONTRACT, or one of perfect good faith;
3. CONTRACT OF INDEMNITY – Insurance other than that of life and accident
where the result is death, is a contract of indemnity by which is meant that
the party insured is entitled to compensation for such loss as has been
occasioned by the perils insured against, the right to recover being
commensurate with the loss sustained.
o Life insurance is not a contract of indemnity because life cannot be
subject of valuation.
 EXCEPTION: Life insurance taken by a creditor on the life of
the debtor.

1. WHAT MAY BE INSURED
 Any contingent or unknown event, whether past or future, which may cause
damage to the insurer, or create a liability against him, may be insured
against. [SEC 3]
 WAGERING CONTRACT; Insurance for or against the drawing of any lottery,
or for or against any chance or ticket in a lottery drawing a prize is NOT
allowed. [SEC 4]
 Anyone except a public enemy [A public enemy is a citizen or national of a country
with which the Philippines is at war] may be insured. [SEC 7]
 RULES ON MORTGAGE PROPERTY; when property is mortgage, the mortgagor
and the mortgagee may take out separate policies with same or different insurance
companies.
o MORTGAGOR – He may insure the property mortgaged to the full value of
such property;
o MORTGAGEE – He can insure the same only to the extent of the amount of
his credit.
2. INSURABLE INTEREST
 That interest which a person is deemed to have in the subject matter insured,
where he has a relation or connection with or concern in it, such that the person
will: (1) Derive pecuniary benefit or advantage from the preservation of the
subject matter insured; or/and (2) Suffer pecuniary loss or damage from its
destruction, termination, or injury by the happening of the event insured against.
 Absence of insurable interest renders the insurance contract void.
A. INSURABLE INTEREST IN LIFE INSURANCE
o Every person has an insurable interest in the life and health [if the insured takes
out an insurance policy on the life of another designating himself or third person
as beneficiary, insurable interest on the part of the insured is necessary]:
a) Of himself, of his spouse and of his children;
 With respect to the spouses, the insurable interest remains even if
they are separated.
b) Of any person on whom he depends wholly or in part for education
or support, or in whom he has a pecuniary interest;
 Support need not be based on legal obligation to support.
c) Of any person under a legal obligation to him for the payment of
money, or respecting property or services, of which death or illness
might delay or prevent the performance; and
d) Of any person upon whose life any estate or interest vested in him
depends. [Sec. 10]
o Insurable interest in life must be one in favor of the continuance of life and
not an interest in its loss or destruction.
o The expectation of benefit or advantage giving rise to insurable interest need
not be based upon a right which can be enforced in law or equity against the
person whom pecuniary benefit is expected.
o WHEN MUST EXIST – Insurable interest in life must exist at the time of the
effectivity of the policy and need not exist at the time of the death of the
insured, as life insurance is NOT a contract of indemnity.
 CONSEQUENTLY; where a life insurance policy is valid at its inception by
reason of the existence of insurable interest at that time, the subsequent
diminution or cessation of that interest does not invalidate the policy.
 EXCEPTION: Insurable interest of a creditor on the life of a debtor must
exist not only at the time the policy takes effect, but also at the time of
the debtor’s death, for such kind of insurance is still a contract of
indemnity.
o INSURABLE INTEREST OF BENEFICARY;
i. If the insured takes out an insurance policy on his own life, he can
designate anybody whether or not the beneficiary has insurable interest
over his life.
ii. If the insured takes out an insurance policy on the life of another
designating himself or third person as beneficiary, insurable interest on
the part of the insured is necessary.
 Section 12. The interest of a beneficiary in a life insurance
policy shall be forfeited when the beneficiary is the
principal, accomplice, or accessory in willfully bringing
about the death of the insured. In such a case, the share
forfeited shall pass on to the other beneficiaries, unless
otherwise disqualified. In the absence of other beneficiaries, the
proceeds shall be paid in accordance with the policy contract. If
the policy contract is silent, the proceeds shall be paid to the
estate of the insured.
o INSURABLE INTEREST ON DEBTOR’S LIFE – A creditor has an insurable
interest in the life of his debtor, at least to the extent of his indebtedness.
B. INSURABLE INTEREST IN PROPERTY
o The following are considered as insurable interest, provided that they are of
such nature that a contemplated peril might directly damnify the insured:
i. Every interest in real or personal property; or
 e.g., ownership
ii. Any relation thereto; or
 e.g., interest of a trustee or a commission agent
iii. Any liability in respect thereof. [Sec. 13]
 e.g., interest of a carrier or depository of goods
o An insurable interest in property may consist in:
i. An existing interest;
 e.g., Mortgagors over the property mortgaged, and lessor, lessee
and sub-lessee over the property leased.
ii. An inchoate interest founded on an existing interest; or
 e.g., The interest of stockholders with respect to dividends in case of
profits and shares in the assets
iii. An expectancy, coupled with an existing interest in that out of which the
expectancy arises. [Sec. 14]
 e.g., a farmer who planted crops has insurable interest over his
harvest which can be expected.
o A mere contingent or expectant interest in anything, not founded on an
actual right to the thing, nor upon any valid contract for it, is not
insurable. [Sec. 16]
o An owner whose property was levied upon by a judgment creditor, and who lost
the same in an execution sale retains insurable interest thereon during its
redemption period.
o TIME OF EXISTENCE - Interest in property insured must exist both at
inception and at time of loss, but not in the intervening period [Sec. 19].
o INSURABLE INTEREST OF BENEFICARY – in property insurance, the
beneficiary must have insurable interest over the property insured.

INSURABLE INTEREST
DIFFERENCE INSURABLE INTEREST IN LIFE
PROPERTY
 Unlimited (save in life
insurance effected by a
 Limited to actual value of
EXTENT creditor on the life of the
the interest thereon
debtor – amount of debt
only)
 Must exist when the
insurance takes effect and  Must exist at the time the
EXISTENCE when the loss occurs, BUT insurance takes effect, BUT
need not exist in the need not exist thereafter
meantime
 If the insured takes out an
insurance policy on his own
life, he can designate
anybody whether or not the
beneficiary has insurable
interest over his life.
INTEREST OF  Must have insurable interest
 If the insured takes out an
BENEFICIARY over the thing insured
insurance policy on the life
of another designating
himself or third person as
beneficiary, insurable interest
on the part of the insured is
necessary.
C. CHANGE OF INTEREST
o A transfer, assignment or conveyance of the property insured does not

transfer any right with respect to the insurance, unless insured makes an
express assignment thereof, with the insurer’s consent.
o A change of interest in the thing insured does not transfer the policy, but
suspends the insurance to an equivalent extent until the interest in the thing
and the interest in the insurance policy are vested in the same person. Thus, the
contract is not rendered void but is merely suspended. [Sec. 20]
o The change of interest contemplated by the law is an absolute transfer of the
insured’s entire interest in the property insured to one not previously
interested or insured.
o EXCEPTIONS;
i. Life, health, and accident insurance.
ii. A change of interest in the thing insured after the occurrence of an
injury which results in a loss does not affect the policy. [Sec. 21]
iii. A change in the interest in one or more of several things, separately
insured by one policy, such as a conveyance of one or more things,
does not affect the policy with respect to the others not so
conveyed. [Sec. 22]
iv. A change of interest by will or succession on the death of the insured.
His interest passes to his heir or legal representative who may continue
the insurance policy on the property by continuing paying premiums.
[Sec. 23]
v. A transfer of interest by one of several partners, joint owners, or owners
in common, who are jointly insured, to the others. This will avoid the
policy only as to the selling partners or co-owners, but not as to
others. [Sec. 24]
vi. Automatic transfers of interest in cases in which the policy is so
framed that it will inure to the benefit of whosoever may become
the owner of the interest insured during the circumstance of the
risk. [Sec. 57]
3. DOUBLE INSURANCE AND OVERINSURANCE
A. DOUBLE INSURANCE
o Double insurance exists where the same person is insured by several insurers
separately in respect to the same subject and interest. [Section 95]
o REQUISITES;
i. The person insured is the same;
ii. Two or more insurers insuring separately;
iii. There is identity of subject matter;
iv. There is identity of interest insured; and
v. There is identity of the risk or peril insured against.
o TEST; whether the insured, in case of the happening of the risk insured against,
can be directly benefited by recovering on both policies; if he can, there is double
insurance.
o EFFECT; Double insurance is not contrary to law and hence, in case of double
insurance, the insurers may still be made liable up to the extent of the
value of the thing insured but not to exceed the amount of the policies
issued.
o OTHER INSURANCE CLAUSE – A clause in the policy that provides that the policy
shall be void if the insured procures additional insurance without the consent of
the insurer.
o WAIVER; when the insurer, with the knowledge of the existence of other
insurances, which the insurer deemed a violation of the contract, preferred to
continue the policy, its action amounted to waiver of annulment of the
contract.
B. OVER-INSURANCE
o Over insurance occurs when the value of the insurance exceeds the value of
the insurable interest.
o Over insurance is not per se void, however:
i. Recovery is allowed only to the extent of the loss or damage incurred
by the insured;
ii. An insurer may cancel an insurance policy, other than life, based on a
“discovery of other insurance coverage that makes the total insurance in
excess of the value of the property insured”, subject to the requirement of
prior notice. [Sec. 64(f)]
iii. The insured is entitled to a ratable return of the premium,
proportioned to the amount by which the aggregate sum insured in all the
policies exceeds the insurable value of the thing at risk (in case of an over
insurance by several insurers other than life). [Sec. 83]
iv. If there is over-insurance and loss occurs, then the insurers will pay pro-
rata or in the order as stated in contract or excess clause.

DOUBLE INSURANCE OVER-INSURANCE
 Amount of insurance may or  Amount of insurance exceeds
may not exceed the value of the the value of the insured’s
insured’s insurable interest, insurable interest
 There are always several  There may be one or more
insurers insurers
C. RULES OF PAYMENT (DOUBLE INSURANCE & OVER-INSURANCE)
o Where the insured in a policy other than life is over insured by double insurance:
i. The insured, unless the policy otherwise provides, may claim payment from
the insurers in such order as he may select, up to the amount for which
the insurers are severally liable under their respective contracts;
ii. Each insurer is bound, as between himself and the other insurers, to
contribute ratably to the loss in proportion to the amount for which
he is liable under his contract. [Sec. 96]
 If the loss is greater than the sum total of all the policies issued, each
insurer is liable for the amount of his policy.
Rules for claiming payment under Valued Policies vs. Unvalued Policies
VALUED POLICY UNVALUED POLICY
Any sum received by him under any Any sum received by him under any
other policy shall be deducted from the policy shall be deducted against the full
value of the policy without regard to insurable value for any sum received
the actual value of the subject matter by him under any policy
insured
Where the insured receives any sum in excess of the valuation (for valued
policies), or of the insurable value (for unvalued policies), the insured must hold
such sum in trust for the insurers, according to their right of contribution
among themselves.
4. NO FAULT, SUICIDE, AND INCONTESTABILITY CLAUSES
A. NO FAULT CLAUSE (COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE)
o The injured party or passenger is given the option to file a claim for death or
injury without the necessity of proving fault or negligence of any kind.
[Section 391]
o PURPOSE; to guarantee compensation or indemnity to injured persons in motor
vehicle accidents
o The no-fault claim does not apply to property damage
o The no fault indemnity is without prejudice to the proper determination of the
property party at fault from the whom liability for damages may be demanded.
o LIMITATIONS OF NO-FAULT CLAIM
1) The total indemnity in respect of any person shall not exceed 15,000.00
2) Police report of accident and proof of injury or death (death certificate or
medical report), when submitted under oath, shall be sufficient evidence
to substantiate the claim;
3) No double recovery
i. In the case of an occupant of a vehicle, claim, shall lie against
the insurer of the vehicle in which the occupant is riding, mounting
or dismounting from.
ii. In any other case, claim shall lie against the insurer of the directly
offending vehicle.
 The claimant is not free to choose from which insurer he will
claim the no fault indemnity.
B. SUICIDE
o Insurer is liable in any of the following cases:

i. If committed after 2 years from the date of the policy’s issue or its
last reinstatement unless the policy provides for a shorter period.
ii. If committed in a state of insanity, regardless of the date of the
commission, unless suicide is an excepted peril. [Sec. 183]
C. INCONTESTABILITY CLAUSE
o After a policy of life insurance made payable on the death of the insured shall
have been in force during the lifetime of the insured for a period of two
(2) years from the date of its issue or of its last reinstatement, the insurer
cannot prove that the policy is void ab initio or is rescindable by reason of
fraudulent concealment or misrepresentation of the insured or his agent.
[par. 2, Section 48]
o PURPOSE; The purpose of the law is to give protection to the insured or his
beneficiary by limiting the rescinding of the contract of insurance on the
ground of fraudulent concealment or misrepresentation to a period of only two
(2) years from the issuance of the policy or its last reinstatement.
o REQUISITES;
a. It must be a life insurance policy;
b. It must be payable on the death of the insured;
c. It must have been in force during the lifetime of the insured for a period
of two years.
 NOTE: If the insured is already dead, the life insurance policy is
already incontestable even if less than two years had elapsed at
that time.
o DEFENSES NOT BARRED – Notwithstanding the incontestability of the policy,
the insurer may still raise the following defenses:
1) Non-payment of premium;
2) Lack of insurable interest;
3) Coverage such that the loss/damage did not arise from the risks covered;
4) Violation of military or naval service provisions of the policy (also an issue
of coverage);
5) Failure to commence action within reglementary period;
6) Failure to comply with conditions (proof of loss, etc.) subsequent to the
loss; or
7) The particular viciousness of the fraud employed by the insured to
procure the contract, such as where the policy was taken pursuant to a
scheme to murder the insured, or the insured substitutes himself with
another during the medical examination.

B. PERFECTION OF THE INSURANCE CONTRACT
 There can be no contract of insurance unless the minds of the parties have met in
agreement. Hence, it is only when the insurer accepts the application and
communicates the same to the applicant that the contract of insurance is
perfected.
 THEORY OF COGNITION; an acceptance made by letter shall not bind the person
making the offer, except from the time it came to his knowledge.
 DELAY IN ACCEPTANCE; Delay in acting on the application does not constitute
acceptance even though the insured has forwarded his first premium with his
application.
 PREMIUM PAYMENT; No insurance policy issued or renewal is valid and binding
until actual payment of the premium. Any agreement to the contrary is void.
[Sec. 77]
o EXCEPTIONS:
a. Whenever the grace period provision applies in the case of a life or
an industrial life policy. [Sec. 77]
 GRACE PERIODS; (i) In case of individual life insurance,
the policy holder is entitled a grace period of either 30 days or
one month within which payment of any premium after the
first may be made; (ii) In cases of industrial life insurance,
the grace period is four weeks, and where premiums are paid
monthly, either 30 days or one month. [Sec. 236]
b. Whenever under the broker and agency agreements with duly licensed
intermediaries, a 90-day credit extension is given.
 No credit extension to a duly licensed intermediary should
exceed 90 days from the date of issuance of the policy.
c. When there is an acknowledgment in the contract that the
premium has been paid;
 The insurer is bound by its agent’s acknowledgement of receipt
of payment of premium.
d. Agreement to grant payment of premium in installment basis and
partial payment has been made;
e. When parties are barred by Estoppel.
o PAYMENT OF POST-DATED CHECKS - The payment of premium by a
postdated check at a stated maturity subsequent to the loss is insufficient
to put the insurance into effect.
 But payment by a check bearing a date prior to the loss,
assuming availability of funds, would be sufficient, even if it
remains unencashed at the time of the loss. The subsequent
effects of encashment would retroact to the date of the
instrument and its acceptance by the creditor.
C. RIGHTS AND OBLIGATIONS OF PARTIES
i. INSURER – is the party who promises to pay in case loss results because the peril
insured against occurred
ii. INSURED – the insured is the owner of the policy whose property or life is insured
or who took out the insurance over the life of persons in whom he has insurable
interest
iii. BENEFICIARY – the beneficiary is the person in whose favor the insurance was
taken by the insured and who will receive the proceeds of the insurance in case of
loss. However, in strict legal sense, the beneficiary is not a party to the contract
unless he is insured himself.

D. RESCISSION OF INSURANCE CONTRACTS
1. CONCEALMENT
o Concealment is the failure to disclose facts which the applicant at the time of
application, knows or ought to know and are material to the insurance
applied for.
o RATIONALE; Insurance is a contract of utmost good faith.
o A concealment, whether intentional or unintentional, entitles the injured
party to rescind a contract of insurance. [Sec. 27]
 XPN: where the fact concealed proves or tends to prove the falsity of a
warranty, concealment must be intentional and fraudulent. [Section 29]
o REQUISITES;
a. A party knows a fact which he neglects to communicate or disclose to the
other;
 Concealment presupposes knowledge of the fact concealed on the
part of the party charge with concealment. Such knowledge must
be proven by the party claiming the existence of concealment.
 TIME OF KNWOWLEDGE; to be guilty of concealment, a party
must have knowledge of the fact concealed at the time of
effectivity of the policy. It need not disclose information acquired
AFTER the effectivity of the policy.
b. Such party concealing is duty bound to disclose such fact to the other;
 Each party to a contract of insurance must communicate to the
other, in good faith, all facts within his knowledge which are
material to the contract and as to which he makes no
warranty, and which the other has not the means of
ascertaining. [Section 28]
 An intentional or fraudulent omission, on the part of one
insured, to communicate information of matters proving or tending
to prove the falsity of a warranty, entitles the insurer to rescind.
[Sec. 29]
c. Such party concealing makes no warranty of the fact concealed;
 Where a fact is covered by a warranty, express or implied, it is
superfluous to require disclosure EXCEPT those matters proving or
tending to prove the falsity of a warranty.
d. The other party has not the means of ascertaining the fact concealed;
e. The fact concealed is material.
 Materiality is to be determined not by the event, but solely by the
probable and reasonable influence of the facts upon the
party to whom the communication is due, in forming his
estimate of the disadvantages of the proposed contract, or in
making his inquiries. [Section 31]
 A fact is material where the knowledge or ignorance of it will
naturally influence the judgment of the insurer in deciding whether
he will enter into the contract, or in estimating the degree and
character of the risk, or in fixing the rate of premium.
 CAUSAL CONNECTION NOT NECESSARY; The cause of death is
not important because it is well settled that the insured need not
die of the disease he had failed to disclose to the insurer. It
is sufficient that his nondisclosure misled the insurer in
forming his estimates of the risks of the proposed policy or
in making inquiries.

o MATTERS WHICH NEED NOT BE DISCLOSED

a) Matters already known to the insurer [Sec. 30(a)];
b) Matters which each party are bound to know [Sec. 30(b) and Sec. 32];
 Each party to a contract of insurance is bound to know all the
general causes which are open to his inquiry, equally with that
of the other, and which may affect the political or material perils
contemplated; and all general usages of trade. [Sec. 32]
c) Matters of which the insurer waives communication [Sec. 30(c) and Sec.
33];
 The right to information of material facts may be waived, either by
the terms of insurance or by neglect to make inquiry as to
such facts, where they are distinctly implied in other facts of
which information is communicated. [Sec. 33]
 Where an application for insurance is made in writing, and the
questions therein as to material facts are unanswered or
incompletely answered, and the insurer without further inquiry,
issues the policy, it thereby waives all the right to a
disclosure, and the policy cannot thereafter, in the absence of
clear proof of a fraudulent intention of suppression of fact, be
avoided on the ground of concealment.
 Waiver of medical examination of the applicant for life insurance (or
non-medical life insurance) should not be construed as a waiver of
material information.
d) Matters which prove or tend to prove the existence of a risk excluded by a
warranty and which are not otherwise material [Sec. 30(d)];
e) Matters which relate to a risk excepted in the policy, and which are not
otherwise material [Sec. 30(e)];
f) Information of the nature or amount of the interest of one insured unless
if inquired upon by the insurer, except if required by Sec. 51 [Sec. 34];
g) Matters of opinion. [Sec. 35]
 Where matters of opinion or judgment are called for, answers made
in good faith and without intent to deceive will not avoid the policy
even though they are untrue. Reason: The insurer cannot simply
rely on those statements. He must make further inquiry.
CONCEALMENT MISREPRESENTATION
Who may May be committed by
Committed only by insured
commit either insured or insurer
Insured withholds Insured makes erroneous
information of material statements of facts with
Act facts from the insurer; he the intent of inducing the
involved maintains silence when he insurer to enter into the
ought to speak (Passive insurance contract (active
form) form)
Injured party is entitled to rescind a contract of
EFFECT insurance on ground of concealment or false
representation, whether intentional or not.

2. MISREPRESENTATION/OMISSION
o REPRESENTATION – is an oral or written statement of fact or condition

affecting the risk made by the insured to the insurance company, tending to
induce the insurer to assume the risk.
o MISREPRESENTATION – is a statement of something as a fact which is
untrue and material to the risk, and which the insured states, knowing it to
be untrue in an attempt to deceive, or which he states positively as true
without knowing it to be true and which has a tendency to deceive.
o It must be made at the time of issuing the policy or before it.
 A representation may be altered or withdrawn before the insurance is
effected, but not afterwards. [Sec. 41]
 A representation must be presumed to refer to the date on which the
contract goes into effect. [Sec. 42]
o REQUISITES OF MISREPRESENTATION
i. The insured stated a fact which is untrue;
ii. Such fact was stated with knowledge that it is untrue and with intent to
deceive or which he states positively as true without knowing it to be true
and which has a tendency to mislead;
iii. Such fact in either case is material to the risk.
o EFFECT; the injured party is entitled to rescind from the time when the
representation becomes false. [Sec. 45]
 EXCEPTIONS:
a) Incontestability clause;
b) Misrepresentation after contract takes effect;
c) Waiver, made by acceptance of insurer of premium payments
despite knowledge of the ground for rescission [Sec. 45];
d) A representation of the expectation, belief, opinion, or judgment
of the insured, although false, and even if material to the risk;
e) Representation by insured based on information obtained
from third persons (not his agent), provided the insured: a)
Has no personal knowledge of the facts; b) Believes them to be
true; and c) Explains to the insurer that he does so on the
information of others [Sec. 43];
f) A misrepresentation as to age does not constitute a
ground for rescission. If the age of the insured was considered
in determining the premium and the benefits under the policy
and the age is misstated, the amount payable for the policy
shall be as if the policy was purchased at the correct age.
[Sec. 233(d);
BREACH OF
MISREPRESENTATION
WARRANTY
Nature Mere collateral inducement Part of the contract
May be written in the policy Written on the policy,

Form
or may be oral actually or by reference
Materiality Must be proved to be material Presumed material
Who may May be made by both the

Made by insured only
commit insured and insurer

3. BREACH OF WARRANTY
o A warranty is a statement or promise by the insured set forth in the policy

itself or incorporated in it by proper reference, whereby the insured expressly
contracts as to the existence of certain facts, circumstances, or conditions, the
literal truth of which is essential to the validity of the contract of insurance.
o KINDS OF WARRANTY
1) EXPRESS WARRANTY
 A statement in a policy, of a matter relating to the person or thing
insured, or to the risk, as fact, is an express warranty thereof.
[Sec. 71]
 Every express warranty, made at or before the execution of a
policy, must be contained in the policy itself, or in another
instrument signed by the insured and referred to in the policy as
making a part of it. [Sec 70]
• Thus, statements in the application or medical examination
are representations only and not warranties, if the
application or medical examination is NOT incorporated in
the policy or made a part of it by reference.
2) IMPLIED WARRANTY
o Deemed included in the contract although not expressly mentioned
(e.g., implied warranty of seaworthiness of the vessel in marine
insurance and implied warranty not to alter the circumstances of
the thing insured). This is only available for marine insurance.
3) AFFIRMATIVE WARRANTY
o One which relates to matters which exist at or before the
insurance policy.
4) PROMISSORY WARRANTY
o A statement in a policy, which imparts that it is intended to do or
not to do a thing which materially affects the risk, is a warranty
that such act or omission shall take place. [Sec 72]
o When, before the time arrives for the performance of a warranty
relating to the future, a loss insured against happens, or
performance becomes unlawful at the place of the contract, or
impossible, the omission to fulfill the warranty does not avoid
the policy. [Sec 73]
o EFFECT OF BREACH
 The violation of a material warranty, or other material provision of the
policy, on the part of either the insured or insurer, entitles the other to
rescind. [Sec. 74]
 A casual connection between the violation and the loss is
not necessary. Thus, even though the violation of material
warranty did not in any way contribute to the loss, the other party
may still rescind the policy.
 A warranty prohibiting the storage of hazardous or inflammable
materials is not violated by a deposit in small quantities in a
building for daily use. Neither is such warranty violated when the
inflammable or hazardous goods are incidental to the business of
the insured.
 Incontestability clause does not apply.
o IMMATERIAL WARRANTY - A policy may declare that a violation of specified
provisions thereof shall avoid it, otherwise the breach of an immaterial provision
does not avoid the policy. [Sec. 75]

o BREACH OF WARRANTY WITHOUT FRAUD
i. If fraud exists or is committed at the effectivity of the policy, it prevents
the policy from attaching to the risk, the insurer is not liable from the
beginning.
ii. Where breach occurs after the effectivity of the policy, the insurer is
exempted from liability for losses incurred after such breach. Accordingly,
where a loss is sustained before the breach of warranty, the insurer is still
liable for such loss.


A. COMMON CARRIERS
1. CONCEPT
 Article 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering their services to the
public.
 Art. 1732 makes no distinction:
a. Between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary
activity;
b. Between a person or enterprise offering transportation service on a regular
or scheduled basis and one offering such service on an occasional,
episodic, or unscheduled basis;
c. Between a carrier offering its services to the general public and one who
offers services or solicits business only from a narrow segment of the
general population;
d. Between a carrier that maintains terminals or issues tickets with fixed and
publicly known routes and one that does not.
 TEST; The true test for a common carrier is not the quantity or extent of the
business actually transacted, or the number and character of the conveyances used
in the activity, but whether the undertaking is a part of the activity engaged
in by the carrier that he has held out to the general public as his business
or occupation.
 OTHER TYPES OF COMMON CARRIER
1. PIPELINE OPERATORS - It is engaged in the business of transporting or
carrying goods, i.e., petroleum products, for hire as a public employment. It
undertakes to carry for all persons indifferently, that is, to all persons who
choose to employ its services, and transports the goods by land and for
compensation. The fact that the pipeline operator as a limited
clientele does not exclude it from the definition of a common carrier.
Moreover, the definition of “common carriers” in the Civil Code makes no
distinction as to the means of transporting, as long as it is by land,
water, or air. It does not provide that the transportation of the passengers
or goods should be by motor vehicle.
2. CUSTOM BROKER - Although its principal function is to prepare the correct
customs declaration and proper shipping documents as required by law, the
transportation of goods is, nevertheless, an integral part of a customs
broker, thus, the customs broker is also a common carrier.
3. TRUCKING COMPANY - A person is a common carrier if he is engaged in
the business of transporting goods by land, through his trucking service. His
services must not be exclusive to someone. [Despite being registered as a
private vehicle, the actual use of the vehicle and the clientele to whom ES
Trucking offers its services remain controlling. The failure to register the
vehicle as a public vehicle or a common carrier does not negate the true
nature of the vehicle.]
4. SCHOOL BUS OPERATOR - Persons engaged in the business of
transporting students from their respective residences to their school and
back are considered common carrier. Despite catering to a limited clientele,
they operate as common carriers because they hold themselves out as a
ready transportation indiscriminately to the students of a particular
school living within or near where they operate the service and for a fee.
5. ANGKAS – [It argues that "[its] technology [only] allows a biker willing to
give a ride and a passenger willing to pay the set price to meet and contract
with each other. Under this set-up, an Angkas biker does not offer his/her
service to an indefinite public.] Irrespective of the application's limited
market scope, i.e., Angkas users, it remains that, on the one hand, these
bikers offer transportation services to wiling public consumers, and on the
other hand, these services may be readily accessed by anyone who chooses
to download the Angkas app. As the Court observes, the genius behind
the Angkas app is that it removes the inconvenience of having to physically
hail for public transportation by creating a virtual system wherein practically
the same activity may now be done at the tip of one's fingers. As such, the
fact that its drivers are not physically hailed on the street does not
automatically render Angkas-accredited drivers as private carriers.
[Land Transportation Franchising and Regulatory Board (LTFRB) vs.
Valenzuela, G.R. No. 242860 March 11, 2019]
 NOT A COMMON CARRIER
1. ARRASTE OPERATOR - An arrastre operator is not common carrier. The
functions of an arrastre operator involve the handling of cargo deposited on
the wharf or between the establishment of the consignee or shipper and
the ship’s tackle. The obligation of the arrastre operator is akin to a
warehouseman.
2. TRAVEL AGENCY - A travel agency is not a common carrier. It is not an
entity engaged in the business of transporting either passengers or goods
and is therefore neither a private nor a common carrier. Its covenant with
its customers is simply to make travel arrangements on their behalf.
3. FREIGHT FORWARDER – A freight forwarder is not a common carrier.
It merely chooses or selects the common carrier. A freight forwarder’s
liability is limited to damages arising from its own negligence in choosing
the carrier; however, where the forwarder contracts to deliver goods to
their destination instead of merely arranging for their transportation, it
becomes liable as a common carrier for loss or damage to goods. A freight
forwarder assumes the responsibility of a carrier, which actually executes
the transport, even though the forwarder does not carry the merchandise
itself.
2. COMMON CARRIER VS. PRIVATE CARRIER
 PRIVATE CARRIER - A private carrier is one who, without making it his vocation
or holding himself out to the public as ready to act for all who desire his services,
undertakes, by special arrangement in a particular instance only, to
transport persons or property from one destination to another, either gratuitously
or for hire.
 TEST; Much of the distinction between a “common or public carrier” and a
“private or special carrier” lies in the character of the business, such that if the
undertaking is an isolated transaction, not a part of the business or
occupation, and the carrier does not hold itself out to carry the goods for
the general public or to a limited clientele, although involving the carriage of
goods for a fee, the person or corporation providing such service could very well
be just a private carrier.
 MAY A COMMON CARRIER BE CONVERTED TO PRIVATE CARRIER BY
STIPULATION?
 Yes. A common carrier may be converted to a private carrier in case of

bareboat or demise charter1, that is, the charterer mans the vessel
with his own people and becomes, in effect, the owner for the
voyage or services stipulated.
 The common carrier is NOT transformed into a private carrier if the
charter party is a contract of affreightment2 like a voyage party 3 or a time
charter4.
 It was held that a common carrier is exempt from the application of the
strict public policy governing common carriers where the carrier is not
acting as such but as a private carrier. Such strict public policy has
no force where the public at large is not involved, as when the carrier
charters its bus totally for the use of a single party.
DIFFERENCE BETWEEN COMMON CARRIER AND PRIVATE CARRIER

COMMON CARRIER PRIVATE CARRIER
AVAILABILITY
Holds himself out in common, that is, to Agrees in some special case with
all persons who choose to employ him, some private individual to carry for
as ready to carry for hire hire
BINDING EFFECT
Bound to carry all who offer and tender Not bound to carry for any reason,
reasonable compensation for carrying such goods as it is accustomed to
them carry, unless it enters into a special
agreement to do so
DILIGENCE REQUIRED
Extraordinary diligence Diligence of a good father of a
family
STIPULATION
A common carrier cannot stipulate that A private carrier may validly enter
it is exempt from liability on account of into such stipulation because the
the negligence of its employees. Such public is not involved.
stipulation is void for being contrary to
public policy.
WHAT GOVERNS
The rights and obligations of the parties The rights and obligations of the
are governed by law and the terms parties to a contract of private
of the contract of carriage. carriage are governed principally by
their stipulations
3. DILIGENCE REQUIRED
 Article 1733. Common carriers, from the nature of their business and for reasons
of public policy, are bound to observe extraordinary diligence in the vigilance
over the goods and for the safety of the passengers transported by them,
according to all the circumstances of each case.
 Thus, under Article 1735 of the same Code, in all cases other than those
mentioned in Article 1734 thereof, the common carrier shall be presumed to
have been at fault or to have acted negligently, in case of death or injury to
1
Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own people and becomes, in effect, the
owner for the voyage or service stipulated, subject to liability for damages caused by negligence.
2
a contract of affreightment is one by which the owner of a ship or other vessel lets the whole or part of her to a merchant or other
person for the conveyance of goods, on a particular voyage, in consideration of the payment of freight.
3
wherein the ship is leased for a single voyage
4
wherein the leased vessel is leased to the charterer for a fixed period of time

passengers or loss or damage to goods, unless it proves that it has observed
the extraordinary diligence required by law.
 Being an operator and owner of a common carrier, Sanico was required to
observe extraordinary diligence in safely transporting Colipano. When
Colipano’s leg was injured while she was a passenger in Sanico’s jeepney,
the presumption of fault or negligence on Sanico’s part arose and he had
the burden to prove that he exercised the extraordinary diligence required
of him. He failed to do this. Sanico failed to rebut the presumption of
fault or negligence under the Civil Code. More than this, the evidence
indubitably established Sanico’s negligence when Castro made Colipano sit
on an empty beer case at the edge of the rear entrance/exit of the jeepney
with her sleeping child on her lap, which put her and her child in greater
peril than the other passengers. Sanico’s attempt to evade liability by
arguing that he exercised extraordinary diligence when he hired Castro,
who was allegedly an experienced and time-tested driver, whom he had
even accompanied on a test-drive and in whom he was personally
convinced of the driving skills, are not enough to exonerate him from
liability — because the liability of common carriers does not cease
upon proof that they exercised all the diligence of a good father of
a family in the selection and supervision of their employees. This is
the express mandate of Article 1759 of the Civil Code. The only
defenses available to common carriers are (1) proof that they
observed extraordinary diligence as prescribed in Article 1756, and (2)
following Article 1174 of the Civil Code, proof that the injury or death was
brought about by an event which “could not be foreseen, or which, though
foreseen, were inevitable,” or a fortuitous event. The Court finds that
neither of these defenses obtain. Thus, Sanico is liable for damages to
Colipano because of the injury that Colipano suffered as a passenger of
Sanico’s jeepney. [Sanico vs. Colipano, G.R. No. 209969. September
27, 2017, CAGUIOA]
 Article 1735 of the Civil Code states that if the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed extraordinary
diligence as required in Article 1733. In turn, Article 1733 states that
common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance
over the goods and for the safety of the passengers transported by them,
according to all the circumstances of each case. Hence, jurisprudence holds
that a common carrier is presumed to have been negligent if it fails
to prove that it exercised extraordinary vigilance over the goods it
transported. When the goods shipped are either lost or arrived in
damaged condition, a presumption arises against the carrier of its failure to
observe that diligence, and there need not be an express finding of
negligence to hold it liable. To overcome the presumption of
negligence, the common carrier must establish by adequate proof
that it exercised extraordinary diligence over the goods. It must do
more than merely show that some other party could be responsible for the
damage. In the instant case, considering that it is undisputed that the
subject goods were severely damaged, the presumption of negligence on
the part of the common carrier, i.e., Unitrans, arose. Hence, it had to
discharge the burden, by way of adequate proof, that it exercised
extraordinary diligence over the goods; it is not enough to show that
some other party might have been responsible for the damage.
Unitrans failed to discharge this burden. Hence, it cannot escape liability.

[UNITRANS INTERNATIONAL vs. INSURANCE COMPANY OF NORTH
AMERICA, G.R. No. 203865, March 13, 2019, CAGUIOA]
 Note however, a common carrier is not an insurer of the safety of its passengers
and is not bound absolutely and at all events to carry them safely and without
injury.
 This extraordinary diligence must be observed not only in the transportation of
goods and services but also in the issuance of the contract of carriage,
including its ticketing operations. The common carrier’s obligation to exercise
extraordinary diligence in the issuance of the contract of carriage is fulfilled,
however, by requiring a full review of the flight schedules to be given to a
prospective passenger before payment. Thus, even assuming that the ticketing
agent encoded the incorrect flight information, it is incumbent upon the purchaser
of the tickets to at least check if all the information is correct before making the
purchase. Once the ticket is paid for and printed, the purchaser is presumed to
have agreed to all its terms and conditions.
B. OBLIGATIONS AND LIABILITIES
1. VIGILANCE OVER GOODS
 PRESUMPTION OF NEGLIGENCE
 GENERAL RULE: Common carriers are responsible for the loss, destruction,
or deterioration of the goods.
 EXCEPTION: Common carriers are not liable when such loss, destruction, or
deterioration is due to any of the following causes only:
1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
o See discussion on fortuitous event
2) Act of the public enemy in war, whether international or civil;
o A public enemy is a citizen of another country against which the
Philippine government is at war.
3) Act of omission of the shipper or owner of the goods;
4) The character of the goods or defects in the packing or in the
containers;
o Where the fact of improper packing is known to the carrier or its
servants, or apparent upon ordinary observations, but the
carrier accepts the goods notwithstanding such conditions, it is
not relieved of liability for loss or injury resulting therefrom.
5) Order or act of competent public authority [Art. 1734, NCC].
o The carrier was not duty bound to obey the illegal order to
dump into the sea the scrap iron. Moreover, there is absence of
sufficient proof that the issuance of the same order was
attended with such force and intimidation as to completely
overpower the will of the carrier’s employees. The mere
difficulty in the fulfillment of the obligation is not considered
force majeure.
 The common carrier should have exercised due diligence to prevent, forestall or
lessen the loss, destruction, or deterioration of the goods, in order to be exempted
from liability on any of the ff. grounds: a. Natural Disaster/Calamity b. Act of Public
Enemy c. Character of the Goods [Art. 1739, 1742, NCC]
 DURATION OF LIABLITY - Instances when carrier has responsibility to exercise
extraordinary diligence:
i. Article 1736. The extraordinary responsibility of the common carrier lasts
from the time the goods are unconditionally placed in the possession of,
and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee,
or to the person who has a right to receive them;
o Delivery of the cargo to the customs authorities is not delivery
to the consignee or “to the person who has a right to receive
them” as contemplated in Art. 1736 because in such case the
goods are still in the hands of the government and the owner
cannot exercise dominion over them.
o Thus, part of the extraordinary responsibility of common carriers
is the duty to ensure that shipments are received by none but
‘the person who has a right to receive them.’ Common carriers
must ascertain the identity of the recipient. Failing to deliver
shipment to the designated recipient amounts to a failure to
deliver. The shipment shall then be considered lost, and liability
for this loss ensues.
ii. Article 1737. The common carrier's duty to observe extraordinary diligence
over the goods remains in full force and effect even when they are
temporarily unloaded or stored in transit, unless the shipper or owner
has made use of the right of stoppage in transit 5;
iii. The extraordinary liability of the common carrier continues to be operative
even during the time the goods are stored in a warehouse of the carrier at
the place of destination, until the consignee has been advised of the arrival
of the goods and has had reasonable opportunity thereafter to remove
them or otherwise dispose of them.
 PASSENGER’S BAGGAGES
 HAND-CARRIED BAGGAGE – Under this, the baggage in transit which is in
the personal custody of the passenger or his employee will be considered as
necessary deposits. The common carrier is liable as a depositary provided
that (a) notice was given to him or his employees; and (b) the passenger
took the necessary precautions which the carrier had advised relative to
the care and vigilance of the baggage.
 BAGGAGE IN THE CUSTODY OF CARRIER - the latter is obliged to observe
extraordinary diligence. The presumption of negligence applies against the
common carrier.
2. SAFETY OF PASSENGERS
 The liability of the common carrier with respect to the safety of passengers, in
general, are as follows: (1) A common carrier is bound to carry the passengers
safely as far as human care and foresight can provide, using the utmost diligence
of very cautious persons, with a due regard for all the circumstances [Art. 1755,
NCC]; (2) In case of death of or injuries to passengers, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove
that they observed extraordinary diligence [Art. 1756, NCC].
 Passengers do not contract merely for transportation. They have a right to be
treated by the carrier's employees with kindness, respect, courtesy and due
consideration. They are entitled to be protected against personal misconduct,
injurious language, indignities and abuses from such employees. So it is, that any
rule or discourteous conduct on the part of employees towards a
passenger gives the latter an action for damages against the carrier. In
requiring compliance with the standard of extraordinary diligence, a Standard which
is, in fact, that of the highest possible degree of diligence, from common carriers
5
Stoppage in transitu is the act by which the unpaid vendor of goods stops their progress and resumes possession of them
constructively, while they are in the course of transit from him to the purchaser and not yet actually delivered to the latter
and in creating a presumption of negligence against them, the law seeks to compel
them to control their employees, to tame their reckless instincts and to force them
to take adequate care of human beings and their property.
 DURATION OF LIABILITY
 The duty that the carrier of passengers owes to its patrons extends to
persons boarding the cars as well as those alighting therefrom.
 By stepping and standing on the platform of the bus, was already considered
a passenger and was entitled to all the rights and protection pertaining to a
contract of carriage.
o It is the duty of common carriers of passengers to stop their
conveyances at a reasonable length of time in order to afford
passengers an opportunity to board and enter.
o Carriers are liable for injuries suffered by boarding passengers
resulting from the sudden starting up or jerking of their
conveyances while they are doing so;
o However, a person boarding a moving car must be taken to assume
the risk of injury from boarding the car under the conditions open to
his view. Nonetheless, he cannot fairly be held to assume the risk
that the motorman, having the situation in view, will increase the
peril by accelerating the speed of the car before he is planted
safely on the platform.
 The carrier is bound to exercise utmost diligence with respect to passengers
from the moment the person who purchases the ticket from the carrier
presents himself at the proper place and in proper manner to be transported
with a bona fide intent to ride the coach.
 The relation of carrier and passenger does not cease at the moment the
passenger alights from the carrier’s vehicle at a place selected by the carrier
at the point of destination, but continues until the passenger has had a
reasonable time or a reasonable opportunity to leave the carrier’s
premises.
o A person who, after alighting from a train, walks along the station
platform is considered still a passenger;
o A passenger, who has alighted at his destination and is proceeding by
the usual way to leave the company’s premises, but before actually
doing so is halted by the report that his brother, a fellow passenger,
has been shot, and he in good faith, returns to relieve his brother, is
deemed reasonably and necessarily delayed and thus continues to be a
passenger entitled as such to the protection of the railroad and
company and its agents.
o In the case of a shipper, the passengers of vessels are allotted a
longer period of time to disembark from the ship than other common
carriers such as a passenger bus, since such vessels are capable of
accommodating a bigger volume of both passenger and baggage as
compared to the capacity of a regular commuter bus. Consequently, a
ship passenger will need at least an hour as is the usual practice, to
disembark from the vessel and claim his baggage.
 LIABILITY FOR ACTS OF OTHERS

 EMPLOYEES
o Article 1759. Common carriers are liable for the death of or
injuries to passengers through the negligence or willful acts of
the former's employees, although such employees may have acted
beyond the scope of their authority or in violation of the orders of the
common carriers. This liability of the common carriers does not cease:

i.
upon proof that they exercised all the diligence of a good father
of a family in the selection and supervision of their employees;
or
ii. By stipulation, by the posting of notices, nor by statements on
the tickets eliminating or limiting said liability.
 OTHER PASSENGERS AND STRANGERS
o GR: A common carrier is not liable for injuries inflicted by strangers or
co-passengers.
XPN: A common carrier is responsible for injuries suffered by a
passenger on account of the willful acts or negligence of other
passengers or of strangers, if the common carrier's employees,
through the exercise of the diligence of a good father of a family,
could have prevented or stopped the act or omission [Art. 1763,
NCC].
 Under Art. 1763, a tort committed by a stranger which causes
injury to a passenger does not accord the latter a cause of
action against the carrier. The negligence for which a common
carrier is held responsible is the negligent omission by the
carrier’s employees to prevent the tort from being committed
when the same could have been foreseen and prevented by
them through the exercise of the diligence of a good father of a
family.
o Article 1761. The passenger must observe the diligence of a good
father of a family to avoid injury to himself.
C. DEFENSES AVAILABLE TO A COMMON CARRIER
1. PROOF OF NEGLIGENCE
 The trial court is not required to make an express finding of the common carrier’s
fault or negligence. The presumption of negligence applies so long as there is
evidence showing that: (a) a contract exists between the passenger and the
common carrier; and (b) the injury or death took place during the existence
of such contract.
 When an airline issues a ticket to a passenger confirmed on a particular flight, on a
certain date, a contract of carriage arises, and the passenger has every right to
expect that he would fly on that flight and on that date. If that does not happen,
then the carrier opens itself to a suit for breach of contract of carriage. In an action
based on a breach of contract of carriage, the aggrieved party does not have to
prove that the common carrier was at fault or was negligent. All he has to
prove is the existence of the contract and the fact of its non-performance by
the carrier, through the latter’s failure to carry the passenger to its destination.
 Though it is true that common carriers are presumed to have been at fault or to
have acted negligently if the goods transported by them are lost, destroyed, or
deteriorated, and that the common carrier must prove that it exercised
extraordinary diligence in order to overcome the presumption, the plaintiff must
still, before the burden is shifted to the defendant, prove that the subject
shipment suffered actual shortage/damage.
 When the goods shipped are either lost or arrived in damaged condition, a
presumption arises against the carrier of its failure to observe that diligence, and
there need not be an express finding of negligence to hold it liable.
[UNITRANS INTERNATIONAL vs. INSURANCE COMPANY OF NORTH
AMERICA, G.R. No. 203865, March 13, 2019, CAGUIOA]

2. DUE DILIGENCE IN THE SELECTION AND SUPERVISION OF EMPLOYEES
 Due diligence in the selection and supervision of employees is a defense if the

cause of action is based on quasi delict (Article 2176 & 2180 applies);
otherwise, if the cause of action is contract of carriage, due diligence in the
selection and supervision of employees is not defense. The applicable provision is
Article 1759 of the Civil Code. [See METRO MANILA TRANSIT CORPORATION
vs. CA and Sanico vs. Colipano]
 CONTRACT OF CARRIAGE; Common carriers are liable for the death of or injuries
to passengers through the negligence or willful acts of the former's employees,
although such employees may have acted beyond the scope of their authority or in
violation of the orders of the common carriers. This liability of the common
carriers does not cease upon proof that they exercised all the diligence of a
good father of a family in the selection and supervision of their employees.
[Article 1759, Civil Code]
 Liability of common carriers does not cease upon proof that they
exercised all the diligence of a good father of a family in the
selection and supervision of their employees. This is the express
mandate of Article 1759 of the Civil Code. The only defenses
available to common carriers are (1) proof that they observed
extraordinary diligence as prescribed in Article 1756, and (2) following
Article 1174 of the Civil Code, proof that the injury or death was brought
about by an event which “could not be foreseen, or which, though
foreseen, were inevitable,” or a fortuitous event. [Sanico vs. Colipano,
G.R. No. 209969. September 27, 2017, CAGUIOA]
 Since the cause of action is based on a breach of a contract of
carriage, the liability of Sanico is direct as the contract is between
him and Colipano. Castro, being merely the driver of Sanico’s jeepney,
cannot be made liable as he is not a party to the contract of carriage.
In Soberano v. Manila Railroad Co., the Court ruled that a complaint for
breach of a contract of carriage is dismissible as against the employee
who was driving the bus because the parties to the contract of
carriage are only the passenger, the bus owner, and the operator.
Since Castro was not a party to the contract of carriage, Colipano had no
cause of action against him and the complaint against him should be
dismissed. Although he was driving the jeepney, he was a mere employee
of Sanico, who was the operator and owner of the jeepney. The obligation
to carry Colipano safely to her destination was with Sanico. In fact, the
elements of a contract of carriage existed between Colipano and Sanico:
consent, as shown when Castro, as employee of Sanico, accepted
Colipano as a passenger when he allowed Colipano to board the jeepney,
and as to Colipano, when she boarded the jeepney; cause or
consideration, when Colipano, for her part, paid her fare; and, object,
the transportation of Colipano from the place of departure to the place of
destination. [Sanico vs. Colipano, G.R. No. 209969. September 27,
2017, CAGUIOA]
 QUASI-DELICT - As a general rule, one is only responsible for his own act or
omission. The law, however, provides for exceptions when it makes certain persons
liable for the act or omission of another. One exception is an employer who is made
vicariously liable for the tort committed by his employee under paragraph 5 of
Article 2180. Here, although the employer is not the actual tortfeasor, the law
makes him vicariously liable on the basis of the civil law principle of pater
familias for failure to exercise due care and vigilance over the acts of one's
subordinates to prevent damage to another. It must be stressed, however, that the
above rule is applicable only if there is an employer-employee relationship.
This employer-employee relationship cannot be presumed but must be sufficiently
proven by the plaintiff. The plaintiff must also show that the employee was acting
within the scope of his assigned task when the tort complained of was
committed. It is only then that the defendant, as employer, may find it necessary
to interpose the defense of due diligence in the selection and supervision of
employees. To rebut the presumption of negligence, one must prove two things:
first, that it had exercised due diligence in the selection of its employees, and
second, that it had exercised due diligence in supervising them.
 In order that the owner of a vehicle may be considered as having exercised
all diligence of a good father of a family, he should not have been satisfied
with the mere possession of a professional driver's license; he should have
carefully examined the applicant for employment as to his qualifications,
his experience and record of service.
 In order that the defense of due diligence in the selection and supervision of
employees may be deemed sufficient and plausible, it is not enough to
emptily invoke the existence of said company guidelines and policies on
hiring and supervision. As the negligence of the employee gives rise to the
presumption of negligence on the part of the employer, the latter has the
burden of proving that it has been diligent not only in the selection
of employees but also in the actual supervision of their work. The
mere allegation of the existence of hiring procedures and supervisory
policies, without anything more, is decidedly not sufficient to overcome
presumption.
3. FORTUITOUS EVENT
 REQUISITES
i. The natural disaster is the proximate and only cause of the loss;
ii. The common carrier should have exercised due diligence to prevent or
minimize the loss before, during and after the occurrence of the natural
disaster;
iii. The common carrier should not incur in delay.
 Fire is not one of those enumerated under the above provision which exempts a
carrier from liability for loss or destruction of the goods. Since the peril of fire is not
comprehended within the exceptions in Article 1734, then the common carrier shall
be presumed to have been at fault or to have acted negligently, unless it proves
that it has observed the extraordinary diligence.
 Hijacking/robbery of goods is likewise not considered a force majeure.
Nevertheless, a common carrier may absolve itself of liability for a resulting loss
caused by robbery or hijacking if it is proven that the robbery or hijacking was
attended by grave or irresistible threat, violence or force.
4. CONTRIBUTORY NEGLIGENCE
 Article 1741. The liability of the common carrier shall be equitably reduced when
the loss, destruction, or deterioration of the goods when:
i. The negligence of the common carrier was the proximate cause thereof; and
ii. The shipper or owner merely contributed to such loss, destruction, or
deterioration.
 Article 1762. The contributory negligence of the passenger does not bar recovery of
damages for his death or injuries, if the proximate cause thereof is the negligence
of the common carrier, but the amount of damages shall be equitably reduced.

5. DOCTRINE OF LAST CLEAR CHANCE
 A person who has the last clear chance or opportunity of avoiding an accident,
notwithstanding the negligent acts of his opponent or that of a third person imputed
to the opponent is considered in law solely responsible for the consequences of
the accident.
 NOT APPLICABLE
i. Where the proximate cause of the injury has been established;
ii. In a case of culpa contractual6, where neither the contributory negligence
of the plaintiff nor his last clear chance to avoid the loss, would exonerate
the defendant from liability. Such contributory negligence or last clear chance
by the plaintiff merely serves to reduce the recovery of damages by the
plaintiff but does not exculpate the defendant from his breach of contract.
iii. The doctrine of last clear chance, applies in a suit between the owners and
drivers of colliding vehicles. It does not arise where a passenger
demands responsibility from the carrier to enforce its contractual
obligations. It will be inequitable to exempt the negligent driver of the
jeepney and its owners on the ground that the other driver was likewise
guilty of negligence
D. EXTENT OF LIABILITY
1. RECOVERABLE DAMAGES
 Article 1764 in relation to Article 2206 of the Civil Code, holds the common carrier
in breach of its contract of carriage for the death of a passenger, and it is liable to
pay the following: (1) indemnity for death, (2) indemnity for loss of earning
capacity, and (3) moral damages,
1. MORAL DAMAGES; The general rule is that moral damages are not
recoverable in an action based on breach of contract. The exception are: (1)
if the passenger died; and (2) if there is fraud, bad faith and gross
negligence.
o Inattention and lack of care on the part of the carrier, resulting in the
failure of the passenger to be accommodated in the class contracted
for, amounts to bad faith or fraud which entitles the passenger to the
award of moral damages in accordance with Art. 2220.
2. STIPULATIONS LIMITING LIABILITY
 VOID STIPULATIONS
a) That the goods are transported at the risk of the owner or shipper;
b) That the common carrier will not be liable for any loss, destruction, or
deterioration of the goods;
c) That the common carrier need not observe any diligence in the custody of
the goods;
d) That the common carrier shall exercise a degree of diligence less than that of
a good father of a family, or of a man of ordinary prudence in the vigilance
over the movables transported;
e) That the common carrier shall not be responsible for the acts or omission of
his or its employees;
f) That the common carrier's liability for acts committed by thieves, or of
6
The fault or negligence incident in the performance of an obligation which already-existed, and which increases the liability from
such already existing obligation.
robbers who do not act with grave or irresistible threat, violence or force, is
dispensed with or diminished;
g) That the common carrier is not responsible for the loss, destruction, or
deterioration of goods on account of the defective condition of the car,
vehicle, ship, airplane or other equipment used in the contract of carriage.
h) The responsibility of a common carrier for the safety of passengers as
required in articles 1733 and 1755 [EXTRAORDINARY DILIGENCE] cannot
be dispensed with or lessened by stipulation, by the posting of notices, by
statements on tickets, or otherwise
o XPN: When a passenger is carried gratuitously, a stipulation
limiting the common carrier’s liability for negligence is valid
o XPN TO XPN: Even when a passenger is carried gratuitously, a
stipulation limiting the common carrier’s liability for willful acts or
gross negligence is invalid.
 VALID STIPULATIONS
a) An agreement limiting the common carrier's liability for delay on account of
strikes or riots;
b) A stipulation that the common carrier's liability is limited to the value of the
goods appearing in the bill of lading, unless the shipper or owner declares a
greater value;
o THREE-FOLD CHARACTER OF A BILL OF LADING; (1) Receipt as
to the quantity and description of the goods shipped; (2) Contract to
transport and deliver the goods to the consignee or other person
therein designated, on the terms specified in such instrument; and (3)
Document of title, which makes it a symbol of the goods.
c) A contract fixing the sum that may be recovered by the owner or shipper for
the loss, destruction, or deterioration of the goods is valid, if it is
reasonable and just under the circumstances, and has been fairly and
freely agreed upon;
o The stipulation limiting the carrier’s liability up to a certain amount
“regardless of the actual value of such cargo, whether declared by its
shipper or otherwise,” is violative of the requirement of the Civil Code
that such limiting stipulations should be fairly and freely agreed upon.”
A stipulation that denies to the shipper the right to declare the actual
value of his cargoes and to recover, in case of loss or damage, on that
basis would be invalid.
d) When a passenger is carried gratuitously, a stipulation limiting the
common carrier's liability for negligence is valid, but not for willful acts or
gross negligence.
e) Article 1744. A stipulation between the common carrier and the shipper or
owner limiting the liability of the former for the loss, destruction, or
deterioration of the goods to a degree less than extraordinary diligence
shall be valid, provided it be: (1) In writing, signed by the shipper or
owner; (2) Supported by a valuable consideration other than the service
rendered by the common carrier; and (3) Reasonable, just and not contrary
to public policy.
 Even when there is an agreement limiting the liability of the common carrier in the
vigilance over the goods, the common carrier is disputably presumed to have been
negligent in case of their loss, destruction or deterioration.
 To uphold waivers taken from injured passengers who have no knowledge of their
entitlement under the law and the extent of liability of common carriers would
indeed dilute the extraordinary diligence required from common carriers, and
contravene a public policy reflected in the Civil Code. [SANICO VS. COLIPANO,

G.R. NO. 209969. SEPTEMBER 27, 2017, CAGUIOA]
3. LIMITATIONS UNDER MONTREAL CONVENTION
 The Montreal Convention 1999 changed the limits of liability in relation to delay,
baggage and cargo as follows:
i. In the case of damage caused by delay as specified in Article 19 in the
carriage of persons, the liability of the carrier for each passenger is limited to
4,150 Special Drawing Rights;
ii. In the carriage of baggage, the liability of the carrier in the case of
destruction, loss, damage or delay is limited to 1,000 Special Drawing Rights
for each passenger x x x;
iii. In the carriage of cargo, the liability of the carrier in the case of destruction,
loss, damage or delay is limited to a sum of 17 Special Drawing Rights per
kilogramme x x x [Art. 22, Montreal Convention].


A. GENERAL PRINCIPLES
 A Corporation is an artificial being created by operation of law, having the

right of succession and the powers, attributes, and properties expressly
authorized by law or incident to its existence. [Sec 2, RCC] Consequently:
i. ARTIFICIAL BEING – A corporation, upon coming into existence, is
invested by law with a personality separate and distinct from those persons
composing it as well as from any other legal entity to which it may be
related.
ii. CREATED BY OPERATION OF LAW - Mere consent of the parties to form a
corporation is not sufficient. The State must give its consent either through a
special law (in case of government corporations) or a general law (i.e.,
Revised Corporation Code in case of private corporations). A private
corporation comes into existence upon the issuance of the certificate of
incorporation [Sec 18, RCC]
iii. HAS THE RIGHT OF SUCCESSION – Since one of the attributes of a
corporation is that it is an artificial being with a distinct personality, the
corporation’s existence is unaffected by a change in the composition of
stockholders. Its existence is limited only by the Articles of Incorporation
(AOI), may be subject to Quo Warranto proceedings (Rule 66 of the Rules of
Court), and may be shortened by dissolution (Title XIV).
iv. HAS THE POWERS, ATTRIBUTES AND PROPERTIES EXPRESSLY
AUTHORIZED BY LAW OR INCIDENT TO ITS EXISTENCE – A corporation
has no power except those expressly conferred on it by the Revised
Corporation Code and by its articles of incorporation, those which may be
incidental to such conferred powers, those that are implied from its
existence, and those reasonably necessary to accomplish its purposes.
1. NATIONALITY OF CORPORATIONS
 Under the INCORPORATION THEORY, a corporation is a national of the country

under whose laws it is organized or incorporated.
i. DOMESTIC CORPORATIONS - organized and governed under and by
Philippine laws.
ii. FOREIGN CORPORATIONS - one formed, organized or existing under laws
other than those of the Philippines’ and whose laws allow Filipino citizens and
corporations to do business in its own country or State. [sec 140, RCC]
a. CONTROL TEST - The nationality of the private corporation is determined by the

citizenship of the controlling stockholders.
• Under the “liberal” Control Test, there is no need to further trace the ownership of
the 60% (or more) Filipino stockholdings of the Investing Corporation since a
corporation which is at least 60% Filipino-owned is considered as Filipino.
• CONTROL TEST, THE CONTROLLING TEST; In ending, the "control test" is still
the prevailing mode of determining whether or not a corporation is a Filipino
corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to
undertake the exploration, development and utilization of the natural resources of
the Philippines. When in the mind of the Court there is doubt, based on the
attendant facts and circumstances of the case, in the 60-40 Filipino-equity
ownership in the corporation, then it may apply the "grandfather rule."
i. EXPLOITATION OF NATURAL RESOURCES (60%) - Only Filipino citizens or

corporations whose capital stock is at least 60% owned by Filipinos can qualify to
exploit natural resources. [Sec. 2, Art. XII, Const.]
ii. PUBLIC UTILITIES (60%) - No franchise, certificate or any other form of
authorization for the operation of a public utility shall be granted, except to
citizens of the Philippines or to corporations or associations organized under the
laws of the Philippines at least 60% of whose capital is owned by such citizens.
[Sec. 11, Art. XII, Const.]
 The Supreme Court clarified that the Gamboa Decision already held, in no
uncertain terms, that what the Constitution requires is full and legal
beneficial ownership of 60% of the outstanding capital stock,
coupled with 60% of the voting rights must rest in the hands of Filipino
nationals. Thus, for purposes of determining compliance with the
constitutional or statutory ownership, the required percentage of Filipino
ownership shall be applied to both the (a) total number of outstanding
shares of stock entitled to vote in the election of directors; and (b) the
total number of outstanding shares of stock, whether or not entitled to
vote. [Roy III v. Herbosa, 2017, EN BANC - CAGUIOA]
 The term full beneficial ownership found in the Foreign Investment Act-
Implementing Rules and Regulations (FIA-IRR) is to be understood in the
context of the entire paragraph defining the term Philippine national. Mere
legal title is not enough to meet the required Filipino equity, which
means that it is not sufficient that a share is registered in the name of a
Filipino citizen or national, i.e., he should also have full beneficial
ownership of the share. If the voting right of a share held in the name of a
Filipino citizen or national is assigned or transferred to an alien, that share is
not to be counted in the determination of the required Filipino equity. In
the same vein, if the dividends and other fruits and accessions of the share
do not accrue to a Filipino citizen or national, then that share is also to be
excluded or not counted. [Roy III v. Herbosa, 2017, EN BANC -
CAGUIOA]
 If a “specific stock” is owned by a Filipino in the books of the corporation, but
the stock’s voting power or disposing power belongs to a foreigner, then that
“specific stock” will not be deemed as “beneficially owned” by a
Filipino. If the Filipino has the “specific stock’s” voting power (he can
vote the stock or direct another to vote for him), or the Filipino has the
investment power over the “specific stock” (he can dispose of the stock
or direct another to dispose it for him), or he has both, then such Filipino
is the “beneficial owner” of that “specific stock” and that “specific stock”
is considered (or counted) as part of the 60% Filipino ownership of the
corporation. In the end, all those “specific stocks” that are determined to be
Filipino (per definition of “beneficial owner” or “beneficial ownership” will be
added together and their sum must be equivalent to at least 60% of the
total outstanding shares of stock entitled to vote in the election of
directors and at least 60% of the total number of outstanding shares
of stock, whether or not entitled to vote in the election of directors.
[Roy III v. Herbosa, 2017, EN BANC - CAGUIOA]
 The “beneficial owner or beneficial ownership” definition in the SRC-
IRR is understood only in determining the respective nationalities of the
outstanding capital stock of a public utility corporation in order to
determine its compliance with the percentage of Filipino ownership required
by the Constitution. [ROY III V. HERBOSA, G.R. No. 207246. November
22, 2016, EN BANC - CAGUIOA]
iii. MASS MEDIA (100%) - “The ownership and management of mass media shall be
limited to citizens of the Philippines, or to corporations, cooperatives or
associations, wholly-owned and managed by such citizens.” [Sec. 11, Art. XVI,
Const.]

iv. ADVERTISING INDUSTRY (70%) – “Only Filipino citizens or corporations or
associations at least seventy per centum of the capital of which is owned by such
citizens shall be allowed to engage in the advertising industry.” [Sec. 11, Art. XVI,
Const.]
b. GRANDFATHER RULE
o The Grandfather Rule is a method of determining the nationality of a corporation,

which is owned in part by another corporation, by breaking down the equity
structure of the shareholder corporation.
o The Grandfather Rule, standing alone, should not be used to determine the Filipino
ownership and control in a corporation, as it could result in an otherwise foreign
corporation rendered qualified to perform nationalized or partly nationalized
activities. Hence, it is only when the Control Test is first complied with that
the Grandfather Rule may be applied. Put in another manner, if the subject
corporation’s Filipino equity falls below the threshold 60%, the corporation is
immediately considered foreign-owned, in which case, the need to resort to the
Grandfather Rule disappears.
o On the other hand, a corporation that complies with the 60-40 Filipino to foreign
equity requirement can be considered a Filipino corporation if there is no doubt as
to who has the "beneficial ownership" and "control" of the corporation. In that
instance, there is no need fora dissection or further inquiry on the ownership of the
corporate shareholders in both the investing and investee corporation or the
application of the Grandfather Rule. As a corollary rule, even if the 60-40 Filipino
to foreign equity ratio is apparently met by the subject or investee
corporation, a resort to the Grandfather Rule is necessary if doubt exists as
to the locus of the "beneficial ownership" and "control." In this case, a
further investigation as to the nationality of the personalities with the beneficial
ownership and control of the corporate shareholders in both the investing and
investee corporations is necessary.
o The Grandfather Rule applies only when the 60-40 Filipino foreign equity
ownership is in doubt. [Narra Nickel Mining and Dev. Corp v. Redmont
Consolidated Mines Corp., 2015]
 "Doubt" refers to various indicia that the "beneficial ownership" and
"control" of the corporation do not in fact reside in Filipino shareholders, but
in foreign stakeholders. The following are indicators of doubt:
i. That the foreign investors provide practically all the funds for the joint
investment undertaken by these Filipino businessmen and their foreign
partner;
ii. That the foreign investors undertake to provide practically all the
technological support for the joint venture;
iii. That the foreign investors, while being minority stockholders, manage
the company and prepare all economic viability studies.
2. DOCTRINE OF SEPARATE JURIDICAL PERSONALITY
 Under the doctrine of separate legal entity, a corporation is considered to have

a legal personality distinct and separate from people comprising it. By
virtue of that doctrine, stockholders of a corporation enjoy the principle of
limited liability: the corporate debt is not the debt of the stockholder. Thus, being
an officer or a stockholder of a corporation does not make one's property the
property also of the corporation.
 Due the corporation’s separate juridical personality, a stockholder may not be made

to answer for acts or liabilities of said corporation, and vice-versa.
 Being an entity with a separate juridical personality, a corporation can be held liable
for torts committed by its officers under express direction from the stockholders or
directors, acting as a body.
3. DOCTRINE OF PIERCING THE CORPORATE VEIL
 EFFECT; A corporation will be looked upon as a legal entity as a general rule, and
until sufficient reason to the contrary appears but when the notion of legal
entity is used to defeat public convenience, justify wrong, protect fraud or
defend crime, the law will regard the corporation as an association of
persons. Thus, the liability will directly attach to the stockholders or to the other
corporation. [Memorize, it already covers the general rule, exceptions and effect]
 SOME PRINCIPLES;
o It is the protection of the interest of innocent third persons dealing with
the corporate entity which the law aims to protect by this doctrine.
o It is essential that the corporate fiction is the very means by which to defeat
public convenience, justify wrong, protect fraud or defend crime.
o For the juridical personality of a corporation to be disregarded, the
wrongdoing must be clearly and convincingly established, and cannot be
presumed.
o Piercing of the veil of corporate fiction is a judicial remedy not available to
sheriff.
 Piercing the veil of corporate entity is an equitable remedy developed to address
situations where the separate corporate personality of a corporation is abused or
used for wrongful purposes.
o Being merely an equitable remedy, the application of the piercing doctrine is
a remedy of last resort and will not be applied, even in case of fraud, if
other remedies are available to parties.
o It cannot be resorted primarily to establish right or interest.
o Piercing application only has Res Judicata effect – the application of the
piercing doctrine does not attach to the person of the corporation, but merely
an equity remedy that pertains to the transaction in controversy.
 APPLICATION; The doctrine of piercing the corporate veil applies only in three (3)
basic areas, namely:
1) DEFEAT OF PUBLIC CONVENIENCE as when the corporate fiction 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 affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another corporation.
o GR: A subsidiary has an independent and separate juridical personality
distinct from that of its parent company and that any suit against the
latter does not bind the former and vice-versa. [Exception, if requisites
of alter ego doctrine is present]
o To summarize, piercing the corporate veil based on the ALTER
EGO THEORY requires the concurrence of three elements: control of
the corporation by the stockholder or Parent Corporation, fraud or
fundamental unfairness imposed on the plaintiff, and harm or
damage caused to the plaintiff by the fraudulent or unfair act of the
corporation. The absence of any of these elements prevents piercing
the corporate veil.
o HARM OR CASUAL CONNECTION TEST - In this connection, we
stress that the control necessary to invoke the instrumentality or alter
ego rule is not majority or even complete stock control but such
domination of finances, policies and practices that the controlled
corporation has, so to speak, no separate mind, will or existence
of its own, and is but a conduit for its principal. The control must
be shown to have been exercised at the time the acts complained of
took place. Moreover, the control and breach of
duty must proximately cause the injury or unjust loss for which
the complaint is made.
 INSTANCES WHEN THE VEIL WAS PIERCED
a) To defraud the government of taxes due it;
b) To evade payment of civil liability;
c) By a corporation which is merely a conduit or alter ego of another
corporation;
d) To evade compliance with contractual obligations;
e) To evade financial obligation to its employees;
f) To ward off a judgment credit;
g) To avoid inclusion of corporate assets as part of the estate of the
decedent; and
h) To cover up an otherwise blatant violation of the prohibition against
forum shopping.
 REVERSE PIERCING OF THE CORPORATE VEIL; in a traditional veil-piercing
action, a court disregards the existence of the corporate entity so a claimant can
reach the assets of a corporate insider. In a reverse piercing action, however, the
plaintiff seeks to reach the assets of a corporation to satisfy claims against
a corporate insider. [INTERNATIONAL ACADEMY OF MANAGEMENT AND
ECONOMICS (I/AME), vs. LITTON AND COMPANY, INC., December 13, 2017, G.R.
No. 191525]
o TWO TYPES; It has two (2) types: outsider reverse piercing and insider
reverse piercing. OUTSIDER REVERSE PIERCING occurs when a party with
a claim against an individual or corporation attempts to be repaid with assets
of a corporation owned or substantially controlled by the defendant. In
contrast, in INSIDER REVERSE PIERCING, the controlling members will
attempt to ignore the corporate fiction in order to take advantage of a benefit
available to the corporation, such as an interest in a lawsuit or protection of
personal assets.
 PROCEDURAL CONSIDERATIONS
o One cannot pierce the veil in order to acquire jurisdiction over a party.
 General Rule:
i. Both the individual sought to be held liable and the corporation
must be impleaded at the first instance;
ii. The court must first acquire jurisdiction over the corporation or
corporations involved before its or their separate personalities
are disregarded; and
iii. The doctrine of piercing the veil of corporate entity 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.
 XPN: When an aggrieved laborer is unable to attach the properties of
the corporation, the Labor Arbiter may thereafter “amend” its decision
by ordering that the individuals responsible be impleaded and their
properties levied.

B. DE FACTO CORPORATIONS VERSUS CORPORATIONS BY ESTOPPEL
1. DE FACTO CORPORATIONS - A corporation where there exists a flaw in its

incorporation.
 The due incorporation of any corporation claiming in good faith to be a
corporation under this Code, and its right to exercise corporate powers, shall
not be inquired into collaterally in any private suit to which such corporation
may be a party. Such inquiry may be made by the Solicitor General in a quo
warranto proceeding. [Sec. 19, RCC]
 REQUISITES; But there are stringent requirements before one can qualify as
a de facto corporation: (i) the existence of a valid law under which it may be
incorporated; (ii) an attempt in good faith to incorporate; and (iii)
assumption of corporate powers.
 Jurisprudence settled that "[t]he filing of articles of
incorporation and the issuance of the certificate of incorporation
are essential for the existence of a de facto corporation." In fine, it is
the act of registration with SEC through the issuance of a certificate of
incorporation that marks the beginning of an entity's corporate
existence. We have held that an organization not registered with the
Securities and Exchange Commission (SEC) cannot be considered a
corporation in any concept, not even as a corporation de facto.
 An association of persons cannot claim to be a corporation if it
has not been issued a certificate of incorporation since that fact
belies the claim of good faith compliance with the requirements of the
law. [Hall v. Piccio, 1950] Otherwise stated, the issuance of the
certificate of incorporation by the SEC is the minimum requirement by
which such good faith may exist.
 Petitioner filed its Articles of Incorporation and by-laws on August 28,
2001. However, the SEC issued the corresponding Certificate of
Incorporation only on August 31, 2001, two (2) days after Purificacion
executed a Deed of Donation on August 29, 2001. Clearly, at the time
the donation was made, the Petitioner cannot be considered a
corporation de facto. [The Missionary Sisters of Our Lady of Fatima vs.
Amando V. Alzona, et al., August 6, 2018, G.R. No. 224307]
2. CORPORATIONS BY ESTOPPEL - Where a group of persons misrepresent

themselves as a corporation, they are subsequently estopped from claiming lack of
corporate life in order to avoid liability. Also, a third party who had dealt with an
unincorporated association as a corporation is precluded from denying its corporate
existence on a suit brought by the alleged corporation on the contract.
 All persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all debts, liabilities
and damages incurred or arising as a result thereof: Provided, however, That
when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as such, it
shall not be allowed to use its lack of corporate personality as a
defense. Anyone who assumes an obligation to an ostensible corporation as
such cannot resist performance thereof on the ground that there was in fact no
corporation. [sec. 20, RCC]
 RULES ON LIABILITY
i. One who knows a corporation not to exist would be liable not only with
what her purported to invest in the venture, but he could be liable to
all his properties, even those not actually invested or promised to be
invested in the purported corporate venture.
ii. One who acts for a purported corporation not knowing that it had no
authority to do so would be liable only to the extent of his
investment or promised investment in the purported corporate
venture (limited partner).
iii. In no fraud or no misrepresentation cases, the person acting in good
faith for the purported corporation would still be personally liable, but only
to the extent of their actual or promised investment in the corporate
venture.
iv. ACTIVE INVESTORS - when the partners had intended to be active
participants in the business of the corporation, then even those who did
not directly participate in the contract or transaction being sued upon, but
benefited therefrom may be held liable as general partners under the
corporation by estoppel doctrine.
v. PASSIVE INVESTORS – when the investors intended only to invest in a
corporate venture with no intention of participating in its corporate affairs,
and the corporation was not formed, no partnership relation is deemed
established by the failure to incorporate, and such investors cannot be
held liable for the contracts and transactions sued upon.
C. CORPORATE POWERS
 A corporation has:
i. EXPRESS POWERS – such powers as are expressly granted by law
and its articles of incorporation;
ii. IMPLIED POWERS – those reasonably necessary to accomplish its
purposes, as stated in its articles of incorporation; and
iii. INCIDENTAL POWERS – those which may be incident to its
existence as a juridical entity.
1. HOW POWERS ARE EXERCISED
a. ULTRA VIRES DOCTRINE
o Those acts which a corporation is not empowered to do or perform because they are
outside or beyond the express and implied powers conferred by its Articles of
Incorporation or by the Revised Corporation Code, or not necessary or incidental to
the exercise of the powers so conferred. [Sec. 44, RCC] The language of the Code
appears to confine the term ultra vires to an act outside or beyond express, implied
and incidental corporate powers. Nevertheless, the concept can also include those acts
that may ostensibly be within such powers but are, by general or special laws, either
proscribed or declared illegal.
o TEST; whether the act in question is in direct and immediate furtherance of the
corporation’s business, fairly incident to the express powers and reasonably necessary
to their exercise. If so, the corporation has the power to do it; otherwise not.
o TYPES OF ULTRA VIRES ACTS
1) Acts done beyond the powers of the corporation as provided in the law or its
articles of incorporation;
2) Ultra Vires acts of officers and not of the corporation
3) Acts or contracts, which are per se illegal as being contrary to law.
o KINDS OF ULTRA VIRES ACTS BY REASON; A distinction should be made between
corporate acts or contracts which are illegal and those which are merely ultra vires.
The former contemplates the doing of an act which are contrary to law, morals or
public policy or public duty, and are, like similar transactions between individuals,
void. They cannot serve as basis of a court action nor acquire validity by performance,
ratification or estoppel. Mere ultra vires acts, on the other hand, or those which are not
illegal or 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 ratified by the stockholders.
i. ULTRA VIRES ACTS - By reason of Lack of Authority

ii. ILLEGAL ACTS - By reason of Illegality
BASIS ULTRA VIRES ACT ILLEGAL ACTS

Lack of authority; Not Illegality; Unlawful;
necessarily unlawful, but against law, morals,
Lawfulness
outside the powers of the public policy, and
corporation public order
Ratification Can be ratified Cannot be ratified
Binding Can bind the parties if Cannot bind the
power wholly or partly executed parties
Voidable, and may be
Void and cannot be
Enforceability enforced by performance,
validated
ratification or estoppel
o CONSEQUENCES OF ULTRA VIRES ACTS WITH RESPECT TO CONTRACTS

i. Executed contract – courts will not set aside or interfere with such contracts;
ii. Executory contracts – no enforcement even at the suit of either party (void
and unenforceable);
iii. Partly executed and partly executory – principle of “no unjust enrichment
at expense of another” shall apply;
iv. Executory contracts apparently authorized but Ultra Vires – the principle
of estoppel shall apply.
b. TRUST FUND DOCTRINE
o The Trust Fund Doctrine states that the capital stock, properties and other assets of a
corporation are regarded as equity in trust for the payment of corporate
creditors.
o Under the trust fund doctrine, a corporation has no legal capacity to release an
original subscriber to its capital stock from the obligation of paying for his
shares, in whole or in part, without a valuable consideration, or fraudulently, to the
prejudice of creditors. The creditor is allowed to maintain an action upon any unpaid
subscriptions and thereby steps into the shoes of the corporation for the satisfaction of
its debt.
 The CAPITAL SUBSCRIBED is the total amount of the capital that persons
(subscribers or shareholders) have agreed to take and pay for, which
need not necessarily by, and can be more than, the par value of the shares. In
fine, it is the amount that the corporation receives, inclusive of the
premiums if any, in consideration of the original issuance of the shares.
 The "Trust Fund" doctrine considers this subscribed capital as a trust fund for the
payment of the debts of the corporation, to which the creditors may look for
satisfaction. Until the liquidation of the corporation, no part of the
subscribed capital may be returned or released to the stockholder
(except in the redemption of redeemable shares) without violating this
principle. Thus, dividends must never impair the subscribed capital;
subscription commitments cannot be condoned or remitted; nor can the
corporation buy its own shares using the subscribed capital as the
consideration therefor. Verily, if it were true that San Juan had unpaid
subscriptions, it was invalid for the Board of Directors to waive such
payment, for it would amount to a decrease in the corporation's capital stock
which could not be accomplished without the formalities under Section 38 of the
Corporation Code (Section 37 under the Revised Corporation Code) which
includes, among others, the prior approval of the SEC. [SALIDO, JR., VS.
ARAMAYWAN METALS DEVELOPMENT CORPORATION, G.R. No. 233857 ,
March 18, 2021, CAGUIOA]
o WHEN MAY BE INVOKED; A corporate creditor cannot immediately invoke the trust
fund doctrine to proceed against unpaid subscriptions of stockholders of the debtor
corporation without alleging and proving the corporation's insolvency or any of the
other acceptable grounds where the trust fund doctrine, theory or principle
has been applied. [ENANO-BOTE VS. ALVAREZ G.R. No. 223572, November 10,
2020, CAGUIOA]
 The observation that a corporation has the beneficial or equitable as well as the
legal title of its capital stock and is in business to make money for itself and its
stockholders and not for its creditors is well-taken. As well, the capital stock of
a corporation is a trust to be managed during its corporate life for the benefit of
stockholders. It is only in the event of its dissolution or insolvency, does the
capital stock become a trust fund for the benefit of its creditors. [ENANO-BOTE
VS. ALVAREZ G.R. No. 223572, November 10, 2020, CAGUIOA]
 Based on the Court's above pronouncements, Halley recognized two instances
when the creditor is allowed to maintain an action upon any unpaid
subscriptions based on the trust fund doctrine: (1) where the debtor
corporation released the subscriber to its capital stock from the obligation of
paying for their shares, in whole or in part, without a valuable consideration, or
fraudulently, to the prejudice of creditors; and (2) where the debtor corporation
is insolvent or has been dissolved without providing for the payment of its
creditors. It is the second which SBMA, as creditor, may invoke to collect from
CAIR's stockholders for their unpaid subscriptions and apply the same to CAIR's
unpaid rentals. But, as stressed in Halley: "To make out a prima facie case in
a suit against stockholders of an insolvent corporation to compel them
to contribute to the payment of its debts by making good unpaid
balances upon their subscriptions, it is only necessary to establish that
the stockholders have not in good faith paid the par value of the stocks
of the corporation. Unfortunately, SBMA has not even pleaded either
insolvency of CAIR or its dissolution. [ENANO-BOTE VS. ALVAREZG.R. No.
223572, November 10, 2020, CAGUIOA]
o EFFECTS OF THE TRUST FUND DOCTRINE
1) Dividends must never impair the subscribed capital stock and must only
be declared out of unrestricted retained earnings;
2) Subscription commitments cannot be condoned or remitted;
3) The corporation cannot buy its own shares using the subscribed capital as the
consideration therefore.
 EXCEPTIONS:
i. Redeemable shares may be acquired even without surplus profit
for as long as it will not result to the insolvency of the Corporation;
ii. In cases that the corporation conveys its stocks in payment of a
Debt;
iii. In a Close corporation, a stockholder may demand the payment
of the fair value of shares regardless of existence of retained
earnings for as long as it will not result to the insolvency of the
corporation;

o EXCEPTIONS TO THE TRUST FUND DOCTRINE - When Distribution of Corporate
Capital is Allowed:
1) Amendment of the Articles of Incorporation to reduce the authorized capital
stock;
2) Purchase of redeemable shares by the corporation, regardless of the existence
of unrestricted retained earnings;
3) Dissolution and eventual liquidation of the corporation.
• The rescission of the Pre-Subscription Agreement will effectively
result in the unauthorized distribution of the capital assets and
property of the corporation, thereby violating the Trust Fund
Doctrine and the Corporation Code, since rescission of a subscription
agreement is not one of the instances when distribution of capital assets
and property of the corporation is allowed.
o SCOPE OF THE TRUST FUND DOCTRINE
i. The trust fund doctrine is NOT limited to reaching the stockholder’s unpaid
subscriptions.
ii. A corporation has no legal capacity to release an original subscriber to its capital
stock from the obligation of paying for his shares, in whole or in part, without a
valuable consideration, or fraudulently, to the prejudice of creditors.
iii. The creditor is allowed to maintain an action upon any unpaid subscriptions
and thereby steps into the shoes of the corporation for the satisfaction of its
debt.
iv. The scope of the doctrine when the corporation is insolvent also encompasses
other property and assets generally regarded in equity as a trust fund for the
payment of corporate debts.
v. All assets and property belonging to the corporation held in trust for the benefit
of creditors that were distributed or in the possession of the stockholders,
regardless of full payment of their subscriptions, may be reached by the creditor
in satisfaction of its claim.
vi. To make out a prima facie case in a suit against stockholders of an insolvent
corporation to compel them to contribute to the payment of its debts by making
good unpaid balances upon their subscriptions, it is only necessary to establish
that the stockholders have not in good faith paid the par value of the stocks
of the corporation.
D. BOARD OF DIRECTORS AND TRUSTEES
1. BASIC PRINCIPLES
a. DOCTRINE OF CENTRALIZED MANAGEMENT
o Unless otherwise provided in this Code, the BOARD OF DIRECTORS OR TRUSTEES

shall exercise the corporate powers, conduct all business, and control all
properties of the corporation. [Sec. 22]
o RATIONALE; a corporation is artificial being whose juridical personality is only a
fiction created by law. It can only exercise its powers and transact its business through
the instrumentalities of its board of directors, and through its officers and agents,
when authorized by resolution or by its by-laws.
o DOCTRINE OF ESTOPPEL; the principle of estoppel precludes a corporation and its
Board of Directors from denying the validity of the transactions entered into by its
officer with a third party who in good faith, relied on the authority of the former as
manager to act on behalf of the corporation.
o DELEGATION; While the power and responsibility to decide whether the corporation
should enter into a contract that will bind the corporation is lodged in its board of
directors, subject to the articles of incorporation, by-laws, or relevant provisions of
law, yet, just as a natural person may authorize another to do certain acts for and on
his behalf, the board of directors may validly delegate some of its functions
and powers to officers, committees, or agents. The authority of such individuals
to bind the corporation is generally derived from law, corporate by-laws, or
authorization from the board, either expressly or impliedly by habit, custom, or
acquiescence in the general course of business.
o RATIFICATION; Even when the contract entered into in behalf of the corporation was
outside the usual powers of the corporate officer, the corporation’s ratification of the
contract and acceptance of benefits arising therefrom have made such contract binding
upon the corporation.
o DOCTRINE OF APPARENT AUTHORITY - if a corporation knowingly permits one
of its officers, or any other agent, to act within the scope of an apparent
authority, it holds him out to the public as possessing the power to do those
acts; and thus, the corporation will, as against anyone who has in good faith dealt
with it through such agent, be estopped from denying the agents authority.
 Apparent authority is determined by the acts of the principal and not by the
acts of the agent.
 Apparent authority, is derived not merely from practice. Its existence may be
ascertained through (1) the general manner in which the corporation holds out
an officer or agent as having the power to act or, in other words, the apparent
authority to act in general, with which it clothes him; or (2) the acquiescence
in his acts of a particular nature, with actual or constructive knowledge
thereof, whether within or beyond the scope of his ordinary powers.
 Doctrine of apparent authority cannot apply to benefit a party who deals with
the corporation aware of the corporate representative’s lack of authority.
b. BUSINESS JUDGMENT RULE
o Questions of policy or management are left solely to the honest decision of

officers and directors of a corporation and the courts are without authority to
substitute their judgment for the judgment of the board of directors.
o The board is the business manager of the corporation and so long as it acts in
good faith, its orders are not reviewable by the courts or the SEC.
o CONSEQUENCES OF THE BUSINESS JUDGMENT RULE
 The resolution, contracts and transactions of the board cannot be reversed
or set aside by the Courts even on the behest of stockholders or members,
under the principle that the business of the corporation has been left to the
hands of the board.
 Directors and duly authorized officers cannot be held personally liable for
acts or contracts done with the exercise of their business judgment.
 However, when directors or trustees violate their duties, they can be
held personally liable, such as when: (i) the director willfully and
knowingly vote for patently unlawful acts of the corporation; (ii) he is
guilty of gross negligence of bad faith in directing the affairs of the
corporation; and (iii) when he acquires any personal or pecuniary
interest in conflict with his duty as a director.

2. TENURE AND QUALIFICATIONS OF DIRECTORS OR TRUSTEES
A. TENURE OF DIRECTORS OR TRUSTEES
o DIRECTORS - Term of 1 year from among the holders of stocks registered in

the corporation’s books. [Sec. 22]
o TRUSTEES - Term not exceeding 3 years from among the members of the
corporation. [Sec. 22]
o HOLDOVER PRINCIPLE - Each director and trustee shall hold office until the
successor is elected and qualified. [Sec. 22]
 The holdover period – that time from the lapse of one year from a
member’s election to the Board and until his successor’s election and
qualification – is not part of the director’s original term of office,
nor is it a new term; the holdover period, however, constitutes
part of his tenure. Corollary, when an incumbent member of the board
of directors continues to serve in a holdover capacity, it implies that the
office has a fixed term, which has expired, and the incumbent is holding
the succeeding term.
 When remaining members of the VVCC Board elected Ramirez to replace
Makalintal, there was no more unexpired term to speak of, as
Makalintal’s one-year term had already expired. With the expiration of
Makalintal’s term of office, a vacancy resulted which, by the terms of
Section 28 of the Corporation Code, must be filled by the stockholders of
VVCC in a regular or special meeting called for the purpose. [VALLE
VERDE COUNTRY CLUB, INC., VS. AFRICA]
B. QUALIFICATIONS OF DIRECTORS OR TRUSTEES
a. QUALIFICATIONS
i. DIRECTOR - Must own at least one (1) share of stock.

ii. TRUSTEES - Must be a member of the corporation.
o 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.
[Sec. 22]
o In order to be eligible as a director, what is material is the legal title to,
not beneficial ownership of, the stock as appearing on the books of the
corporation.
o Other qualifications as may be prescribed in the by-laws of the
corporation. [Sec. 46] While additional qualifications may be prescribed,
this cannot be in conflict with the requirements as set by the RCC.
 An amendment to the corporation’s by-laws which renders a
stockholder ineligible to be a director, if he be also a director in a
corporation whose business is in competition with that of the other
corporation, has been sustained as valid.
o The RCC removed the requirement that majority of the directors or
trustees must be residents of the Philippines.
b. DISQUALIFICATIONS
o A person shall be disqualified from being a director, trustee, or

officer of any corporation if, within five (5) years prior to the
election or appointment as such, the person was:
a) Convicted by final judgment: (1) Of an offense punishable by

imprisonment for a period exceeding six (6) years; (2) For
violating this Code; and (3) For violating Republic Act No.
8799, otherwise known as “The Securities Regulation Code”;
b) Found administratively liable for any offense involving fraud
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. [Sec. 26]
3. ELECTION AND REMOVAL OF DIRECTORS OR TRUSTEES
A. ELECTION
 NUMBER OF DIRECTORS AND TRUSTEES

i. Directors: Not more than fifteen (15)
ii. Trustees: May be more than fifteen (15) [Sec. 13 and 91]
NOTE: The RCC removed the minimum number of directors which stood
at five (5) under the old code.
 WHEN ELECTIONS ARE HELD
o The time for holding the annual election of directors of trustees and the
mode or manner of giving notice thereof are provided in the by-laws.
[Sec. 49]
 NOMINATION
o Each stockholder or member shall have the right to nominate any director
or trustee who possesses all of the qualifications and none of the
disqualifications set forth in this Code.
 Exception: When the exclusive right to nominate directors or
trustees is reserved for holders of founders’ shares under Section 7
of the RCC. [Sec. 23]
 REQUIRED PARTICIPATION - At all elections of directors or trustees, there
must be present, either in person or through a representative authorized to act
by written proxy:
i. Stock Corporations: The owners of majority of the outstanding capital
stock;
ii. Non-Stock Corporations: A majority of the members entitled to vote.
[Sec. 23]
• It is necessary that there be a quorum. An election without quorum
is invalid. [For stock corporations, the quorum is based on the
number of outstanding voting stocks while for nonstock
corporations, only those who are actual, living members with voting
rights shall be counted in determining the existence of a quorum.]
 REMOTE COMMUNICATION OR IN ABSENTIA - The stockholders or
members may also vote through remote communication or in absentia: (i) By a
resolution of the majority of the board of directors; Provided, That the resolution
shall only be applicable for a particular meeting. (ii) Notwithstanding the
absence of a provision in the bylaws of the corporation [SEC Memorandum
Circular No. 6, s. 20]
o A stockholder or member who participates through remote communication
or in absentia, shall be deemed present for purposes of quorum.
 VOTING IN STOCK CORPORATIONS
o Stockholders entitled to vote shall have the right to vote the number of
shares of stock standing in their own names in the stock books of the
corporation at the time fixed in the bylaws, or where the bylaws are
silent, at the time of the election.

o The said stockholder may:
a) vote such number of shares for as many persons as there are
directors to be elected;
b) cumulate said shares and give one (1) candidate as many votes as
the number of directors to be elected multiplied by the number of
the shares owned; or
c) Distribute them on the same principle among as many candidates
as may be seen fit: Provided, That – (i) The total number of votes
cast shall not exceed the number of shares owned by the
stockholders as shown in the books of the corporation multiplied by
the whole number of directors to be elected (ii) No delinquent stock
shall be voted. [Sec. 23]
o Nominees for directors receiving the highest number of votes shall be
declared elected. They shall perform their duties as prescribed by law,
rules of good corporate governance, and bylaws of the corporation. [Sec.
23]
 METHODS OF VOTING
1) STRAIGHT VOTING - Every stockholder may vote such number of
shares for as many persons as there are directors to be elected. [Sec. 23]
2) CUMULATIVE VOTING FOR ONE CANDIDATE - A stockholder is
allowed to concentrate his votes and give one candidate as many votes as
the number of directors to be elected multiplied by the number of his
shares shall equal. [Sec. 23]
 If there are 5 directors to be elected and Pedro, as shareholder, has
100 shares, Pedro can give 500 (5 x 100 shares) votes to just one
candidate.
3) CUMULATIVE VOTING BY DISTRIBUTION - A stockholder is allowed to
concentrate his votes and give one candidate as many votes as the
number of directors to be elected multiplied by the number of his shares
shall equal. [Sec. 23]
 In the illustration above, Pedro instead may choose to give 100
votes to candidate 1, 100 votes to candidate 2, 100 votes to
candidate 3, 150 votes to candidate 4, and 50 votes to candidate 5.
 VOTING IN NON-STOCK CORPORATIONS
o Members of nonstock corporations may cast as many votes as there are
trustees to be elected but may not cast more than one (1) vote for one
(1) candidate. Unless otherwise provided in the articles of incorporation
or in the bylaws.
o Nominees for trustees receiving the highest number of votes shall be
declared elected.
 WHEN NO ELECTION IS HELD
o The meeting may be adjourned if: (1) If no election is held; or (2) The
owners of majority of the outstanding capital stock or majority of the
members entitled to vote are not present in person, by proxy, or through
remote communication or not voting in absentia at the meeting.
• After such adjournment, the non-holding of elections and the
reasons therefor shall be reported to the Commission within thirty
(30) days from the date of the scheduled election. [Sec. 25] The
report shall specify a new date for the election, which shall not be
later than sixty (60) days from the scheduled date.
• SEC ORDER TO HOLD ELECTION - If no new date has been
designated, or if the rescheduled election is likewise not held: (1)
The Commission may summarily order that an election be held.
a. Upon the application of a stockholder, member, director or

trustee; and b. After verification of the unjustified non-holding of
the election.
• The shares of stock or membership represented at such meeting
and entitled to vote shall constitute a quorum for purposes of
conducting an election under this section. Notwithstanding any
provision of the articles of incorporation or bylaws to the contrary.
B. REMOVAL OF DIRECTORS OR TRUSTEES
 GENERAL RULE: Any Director or Trustee of a corporation may be removed

from office, with or without cause. [Sec. 27]
 EXCEPTION: If the director was elected by the minority, there must be cause
for removal because the minority may not be deprived of the right to
representation to which they may be entitled to under Sec. 23 of the Code.
[Sec. 27]
 REQUISITES FOR REMOVAL:
1) It must take place either at a regular meeting or special meeting of the
stockholders or members called for the purpose;
2) A special meeting for the purpose of removing directors or trustees must
be called by:
a) The secretary, on order of the president; or
b) The secretary, upon written demand of the stockholders
representing or holding at least a MAJORITY of the capital stock or
a MAJORITY of the members entitled to vote;
3) There must be previous notice to the stockholders or members of the
intention to remove a director; and
4) There must be a vote of the stockholders representing 2/3 of
outstanding capital stock or in case of a nonstock corporation, 2/3
of members entitled to vote.
• The board has no power on its own to suspend, remove or
discipline any of its own members.
 NEW POWER OF THE SEC UNDER THE REVISED CORPORATION CODE
[SEC. 27]
o The Commission shall, motu proprio or upon verified complaint, and
after due notice and hearing, order the removal of a director or trustee
elected despite the disqualification, or whose disqualification arose or is
discovered subsequent to an election.
o The removal of a disqualified director shall be without prejudice to other
sanctions that the Commission may impose on the board of directors or
trustees who, with knowledge of the disqualification, failed to remove
such director or trustee.
 EMERGENCY BOARD [SEC 28]; when the vacancy prevents the remaining
directors from constituting a quorum and emergency action is required to
prevent grave, substantial, and irreparable loss or damage to the corporation,
the vacancy may be temporarily filled from among the officers of the
corporation by unanimous vote of the remaining directors or trustees.
The action by the designated director or trustee shall be limited to the
emergency action necessary, and the term shall cease within a reasonable time
form the termination of the emergency or upon election of the replacement
director or trustee, whichever comes earlier. The corporation must notify the
Commission within three (3) days from the creation of the emergency board,
stating therein the reason for its creation.

4. DUTIES, RESPONSIBILITIES AND LIABILITIES FOR UNLAWFUL ACTS
 THREE-FOLD DUTY
i. DUTY OF OBEDIENCE - shall direct the affairs of the corporation only in
accordance with the purposes for which it was organized;
ii. DUTY OF DILIGENCE - shall not willfully and knowingly vote for or assent to
patently unlawful acts of the corporation or act in bad faith or with gross
negligence in directing the affairs of the corporation; and
o For a wrongdoing to make a director personally liable for debts of the
corporation, the wrongdoing approved or assented to by the director must
be a patently unlawful act. Mere failure to comply with the notice
requirement of labor laws on company closure or dismissal of
employees does not amount to a patently unlawful act. Patently
unlawful acts are those declared unlawful by law which imposes
penalties for commission of such unlawful acts. There must be a law
declaring the act unlawful and penalizing the act.
iii. DUTY OF LOYALTY - shall not acquire any personal or pecuniary interest in
conflict with their duty as such directors or trustees.
o Where a director, by virtue of such office, acquires a business opportunity
which should belong to the corporation, thereby obtaining profits to the
prejudice of such corporation, the director must account for and
refund to the latter all such profits. Unless the act has been ratified
by a vote of the stockholders owning or representing at least two-
thirds (2/3) of the outstanding capital stock. [Sec. 33]
o A director, trustee, or officer shall be liable as a trustee for the
corporation and must account for the profits which otherwise would
have accrued to the corporation if: (1) He attempts to acquire, or acquire
any interest adverse to the corporation in respect of any matter which has
been reposed in them in confidence; and (2) Upon which, equity imposes
a disability upon themselves to deal in their own behalf. [Sec. 30]
• NOTE: Differences between Sec. 30 and Sec. 33: a) First, while both
involve the same subject matter (business opportunity) they concern
different personalities; Sec. 33 is applicable only to directors and
not to officers, whereas Sec. 30 applies to directors, trustees and
officers. b) Second, Sec. 33 allows a ratification of a transaction by
a self-dealing director by vote of stockholders representing at least
2/3 of the outstanding capital stock.
 SELF-DEALING DIRECTORS - A contract of the corporation with (1) one or more of
its directors, trustees, officers or their spouses and relatives within the fourth civil
degree of consanguinity or affinity is voidable, at the option of such corporation,
unless all the following conditions are present:
1) 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;
2) The vote of such director or trustee was not necessary for the approval of
the contract;
3) The contract is fair and reasonable under the circumstances; and
4) In case of corporations vested with public interest: Material contracts are
approved by at least two-thirds (2/3) of the entire membership of the board,
with at least a majority of the independent directors voting to approve the
material contract; and
5) In case of an officer: The contract has been previously authorized by the
BOD.
o In case of absence of the first two conditions above, contract may be

ratified if:
a) Stockholders representing at least 2/3 of the outstanding
capital stock or at least2/3 of the members in a meeting
called for the purpose voted to ratify the contract;
b) There is full disclosure of the adverse interest of the directors
or trustees involved is made at such meeting; AND
c) The contract is fair and reasonable under the circumstances.
[Sec. 31]
 BETWEEN CORPORATIONS WITH INTERLOCKING DIRECTORS - A contract
between two or more corporations having interlocking directors shall NOT be
invalidated on that ground alone. If contract is fraudulent or not fair and reasonable
under the circumstances, such contract is invalid.
 INTERLOCKING DIRECTOR WITH NOMINAL AND SUBSTANTIAL INTEREST
i. Nominal Interest – His stockholdings are 20% or less of the
Outstanding Capital Stock
ii. Substantial Interest – His stockholdings exceed 20% of the OCS
o If the interest of the interlocking director in one of the
corporations is substantial, while nominal in the other, the
contract shall be VALID, if the following conditions are met,
insofar as the latter corporation is concerned:
1) 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;
2) That the vote of such director or trustee was not
necessary for the approval of the contract; and
3) That the contract is fair and reasonable under the
circumstances.
• Where (1) and (2) are absent, the contract can be ratified by
the vote of the stockholders representing at least 2/3 of the
outstanding capital stock or at least 2/3 of the members in a
meeting called for the purpose voted to ratify the contract,
provided that: 1. Full disclosure of the adverse interest of the
directors/trustees involved is made on such meeting; 2. The
contract is fair and reasonable under the circumstances. [Sec.
31-32]
 LIABILITY OF DIRECTOR OR TRUSTEE - Personal liability of a corporate director,
trustee or officer along (although not necessarily) with the corporation may so validly
attach, as a rule, only when:
i. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith,
or gross negligence in directing its affairs, or (c) for conflict of interest, resulting
in damages to the corporation, its stockholders or other persons [Sec. 3, RCC];
 A corporation is a juridical entity with a legal personality separate and
distinct from those acting for and in its behalf and, in general, from the
people composing it. Thus, as a general rule, an officer may not be
held liable for the corporation’s labor obligations unless he acted
with evident malice and/or bad faith in dismissing an employee.
Section 31 of the Corporation Code [Sec. 3, RCC] is the governing law on
personal liability of officers for the debts of the corporation. To hold a
director or officer personally liable for corporate obligations, two
requisites must concur: (1) it must be alleged in the complaint that the
director or officer assented to patently unlawful acts of the
corporation or that the officer was guilty of gross negligence or bad
faith; and (2) there must be proof that the officer acted in bad faith.
The Court has repeatedly emphasized that the piercing of the veil of

corporate fiction is frowned upon and can only be done if it has been
clearly established that the separate and distinct personality of the
corporation is used to justify a wrong, protect fraud, or perpetrate a
deception. To disregard the separate juridical personality of a corporation,
the wrongdoing must be established clearly and convincingly. It cannot be
presumed. Here, there was no showing that Arcega, as President of
Symex, willingly and knowingly voted or assented to the unlawful
acts of the company. [Symex Security Services, Inc. vs. Rivera, Jr.,
G.R. No. 202613 November 8, 2017, CAGUIOA]
 Any violation of Section 31 [Sec. 30 of the RCC] of the Corporation Code
was not considered as a violation of any provision of such Code not
otherwise specifically penalized therein pursuant to Section 144 [Sec. 170
of the RCC]. In other words, Section 144 did not apply to or include
in its coverage Section 31 of the Corporation Code. With the
passage of the RCC, will the Court arrive at the same ruling on the first
issue as it did intent using the same legal framework? The answer will
depend upon the factual milieu of the proceeding before the Court
wherein the issue on the coverage or applicability of Section 170 to
Section 30 of the RCC will be resolved. However, it must be noted, that
under the RCC, there is now a provision on administrative sanctions
that the Securities and Exchange Commission (Commission) can
impose if, after due notice and hearing, it finds that any provision
of the RCC has been violated. [UCPB VS. SECRETARY OF JUSTICE,
G.R. No. 209601, January 12, 2021, CAGUIOA]
 PRESCRIPTION; The liability of the erring director, trustee or officer
under Section 31 [Sec. 30 of the RCC] of the Corporation Code being
purely civil, i.e., "all damages resulting [from its violation] suffered by the
corporation, its stockholders or members and other persons," the Court
holds that it is the Civil Code that is the controlling law. The Court thus
agrees with the CA that it is Article 1146 of the Civil Code which
determines the prescriptive period. It provides: ART. 1146. The following
actions must be instituted within four years: (1) Upon an injury to the
rights of the plaintiff; (2) Upon a quasi-delict. [UCPB VS. SECRETARY
OF JUSTICE, G.R. No. 209601, January 12, 2021, CAGUIOA]
ii. He consents to the issuance of watered stocks [issuance of stocks for a
consideration less than its par or issued value] or who, having knowledge
thereof, does not forthwith file with the corporate secretary his written objection
thereto;
iii. He agrees to hold himself personally and solidarily liable with the corporation;
or
iv. He is made, by a specific provision of law, to personally answer for his
corporate action.
 DOCTRINE OF CORPORATE OPPORTUNITY; Under Section 34 of the Corporation

Code (now Section 33 of the Revised Corporation Code), a director who acquires for
himself a business opportunity which should belong to the corporation and who obtains
profits to the prejudice of the corporation has the duty to refund to the
corporation the profits he derived from the opportunity, unless ratified by the
corporation.
 As it is now broadly understood, the doctrine of corporate opportunity governs
the legal responsibility of directors, officers and controlling shareholders in a
corporation, under the duty of loyalty, not to take such opportunities for
themselves, without first disclosing the opportunity to the board of directors of
the corporation and giving the board the option to decline the opportunity on

behalf of the corporation. If the procedure is violated and a corporate fiduciary
takes the corporate opportunity anyway, the fiduciary violates its duty of loyalty
and the corporation will be entitled to a constructive trust of all profits obtained
from the wrongful transaction.
 RATIONALE; In closing, it is well to recall that the doctrine of corporate
opportunity is not based on theoretical abstractions, but on human experience
that a person cannot serve two hostile masters without detriment to one
of them. Where a director is so employed in the service of a rival company, he
cannot serve both, but must betray one or the other. An officer of a corporation
cannot engage in a business in direct competition with that of the corporation
where he is a director by utilizing information he has received as such officer,
under the established law that a director or officer of a corporation may not
enter into a competing enterprise which cripples or injures the business of the
corporation of which he is an officer or director. It is also established that
corporate officers are not permitted to use their position of trust and confidence
to further their private interests. Where two corporations are competitive in a
substantial sense, it would seem improbable, if not impossible, for the director,
if he were to discharge effectively his duty, to satisfy his loyalty to both
corporations and place the performance of his corporation duties above his
personal concerns.
 REQUISITES; Thus, a claim of damages under Section 34 of the Corporation
Code (now Section 33 of the RCC) arises when a corporate officer or director
takes a business opportunity for his own, provided that it is sufficiently shown
by the claim ant that:
a. The corporation is financially able to exploit the opportunity
b. The opportunity is within the corporation’s line of business;
• Whether the opportunity is within the corporation's line of
business, the involved corporations must be shown to be in
competition with one another. They must be engaged in
related areas of businesses, producing the same products with
overlapping markets.
c. The corporation has an interest or expectancy in the opportunity; and
d. By taking the opportunity for his own, the corporate director, trustee,
or officer will consequently be placed in a position inimicable to his
duties to the corporation. [Total Office Products and Services
(TOPROS), Inc. vs. John Charles Chang, Jr., G.R. No. 200070-71.
December 7, 2021]
E. STOCKHOLDERS AND MEMBERS
1. RIGHTS AND OBLIGATIONS OF STOCKHOLDERS AND MEMBERS
o FUNDAMENTAL RIGHTS OF A STOCKHOLDER

1) Direct or indirect participation in management [Sec. 6]
2) Voting rights [Sec. 6]
3) Right to remove directors [Sec. 27]
4) Proprietary rights (a) Right to dividends [Sec. 42 and 70] (b) Appraisal rights
[Sec. 80] (c) Right to issuance of stock certificate for fully paid shares [Sec.
63] (d) Proportionate participation in the distribution of assets in liquidation
[Sec. 139] (e) Right to transfer of stocks in corporate books [Sec. 62] (f)
Pre-emptive right [Sec. 38]
5) Right to inspect books and records [Sec. 73]
6) Right to be furnished with the most recent financial statements/reports [Sec.
73]
7) Right to recover stocks unlawfully sold for delinquent payment of subscription
[Sec. 68]
8) Right to file individual suit, representative suit and derivative suits
o OBLIGATIONS OF A STOCKHOLDER; (a) Liability to the corporation for unpaid
subscriptions; (Sections 66 to 69, RCC); (b) Liability to the corporation for interest
on unpaid subscription if so required by the by-laws; (Section 65&66 RCC); (c)
Liability to the creditors of the corporation for unpaid subscription subject to limited
liability rule; (Section 59, RCC); (d) Liability for watered stocks; (Section 64, RCC);
(e) Liability for dividends unlawfully paid. (Section 70, RCC);
a. DOCTRINE OF EQUALITY OF SHARES
 Each share shall be EQUAL in ALL respects to every other share, except as
otherwise provided in the Articles of Incorporation and stated in the certificate of
stock. [Sec. 6, RCC]
 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 profits.
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 different from ordinary investors who take on the
same investment risks. Preferred and common shareholders participate in the same
venture, willing to share in the profits 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
Articles of Incorporation is silent on such differences.
2. PARTICIPATION IN MANAGEMENT
a. PROXY
 Stockholders and members may vote in person or by proxy in all meetings. [Sec.
57]
 REQUISITES; 1. It must be in writing; 2. Signed by the stockholder or member
of record; and 3. Filed with the corporation before the scheduled meeting with
the Corporate Secretary. [Sec. 57]
 PERIOD OF EFFECTIVITY - Unless otherwise provided in the proxy, it shall be
valid only for the meeting for which it is intended. If there is a stipulation for a
longer period of effectivity, no proxy shall be valid and effective for a period longer
than five (5) years at any one time. [Sec. 57]
b. VOTING TRUST
 An arrangement created by one or more stockholders: (a) For the purpose of

conferring upon a trustee or trustees the right to vote and other rights
pertaining to the shares; (b) For a period not exceeding 5 years at any time
[Sec. 58].
o EXCEPTION: Voting trust agreements may be for a period exceeding five
(5) years if it is specifically required as a condition in a loan
agreement. Such voting trust agreement conditioned upon a loan
agreement, however, shall automatically expire upon full payment of the
loan. [Sec. 58]

 Under a voting trust agreement, a stockholder of a stock corporation parts with the
naked or legal title, including the power to vote, of the shares and only retains the
beneficial ownership of the stock.
 REQUISITES; A voting trust agreement shall be ineffective and unenforceable
unless:
a) It is in writing and notarized;
b) It specifies the terms and conditions thereof; and
c) A certified copy of such agreement is filed with the corporation and
with the SEC. [Sec. 58]
 LIMITATIONS; No voting trust agreement shall be entered into for purposes of
circumventing the laws against anti-competitive agreements, abuse of dominant
position, anti-competitive mergers and acquisitions, violation of nationality and
capital requirements, or for the perpetuation of fraud. [Sec. 58]
PROXY TRUSTEE
Principal-agent Trustee-beneficiary
The only limit to authority is that the
Proxy cannot exceed delegated
act must be for the benefit of the
authority
trustor (fiduciary obligation)
Must be in writing Must be in writing and notarized
No transfer Transfer of legal title to trustee
Revocable at will in Irrevocable,
as long any manner, as no Irrevocable, as long as no misconduct
misconduct or EXCEPT if coupled or fraud
fraud with an interest
Proxy exercises voting rights Trustee exercises absolute voting rights
only for a specific meeting continuously, subject only to fiduciary
(unless otherwise provided) duty
c. CASES WHEN STOCKHOLDERS’ ACTION IS REQUIRED
i. BY A MAJORITY VOTE
a) POWER TO ENTER INTO MANAGEMENT CONTRACTS [SEC. 43]

o Requires approval by — a. Majority of the BOD/BOT; and b. Stockholders
owning at least the majority of the outstanding capital stock/majority of
members of both the managing and the managed corporation.
o In the ff. cases, at least 2/3 votes of the outstanding capital
stock/membership of the managed corporation is required. BUT only
majority vote is required for the managing corporation: a. Where a
stockholder/s representing the same interest of both the managing and the
managed corporations own or control more than one-third (1/3) of the total
outstanding capital stock entitled to vote of the managing corporation; or b.
Where a majority of the members of the managing corporation’s BOD also
constitute a majority of the managed corporation’s BOD.
b) AMENDMENTS TO BY-LAWS [SEC. 47]
o Requires approval by: (a) Majority of the BOD/BOT; and (b) Stockholders
owning at least the majority of the outstanding capital stock/majority of
members.
c) REVOCATION OF DELEGATION TO THE BOD OF THE POWER TO AMEND OR
REPEAL OR ADOPT BY-LAWS [SEC. 47]
o Any power delegated to the board of directors or trustees to amend or
repeal the by-laws or to adopt new by-laws shall be considered revoked
when stockholders representing a majority of the outstanding capital stock
or a majority of the members shall so vote at a regular or special meeting.
d) GRANTING COMPENSATION OTHER THAN PER DIEMS TO DIRECTORS
[SEC. 29]
o Compensation other than per diems may be granted to directors by the
vote of the stockholders representing at least a majority of the outstanding
capital stock.
e) FIXING THE CONSIDERATION FOR NO-PAR SHARES [SEC. 61]
o When the Articles of Incorporation or the BOD does not provide for the
value of no-par shares, the value of such shares shall be determined by the
stockholders representing at least majority of the outstanding capital
stock.
f) VOLUNTARY DISSOLUTION OF A CORPORATION WHERE NO CREDITORS
ARE AFFECTED [SEC. 134]
o If dissolution of a corporation DOES NOT prejudice the rights of any creditor
having a claim against it, the dissolution may be effected by: (a) Majority
vote of the BOD/BOT; and (b) A resolution adopted by the affirmative vote
of the stockholders owning at least majority of the outstanding capital
stock/membership.
g) CALLING A MEETING TO REMOVE DIRECTORS OR TRUSTEES [SEC. 27]
o A special meeting for the purpose of removing any director or trustee must
be called: (1) By the secretary on order of the president; or (2) Upon
written demand of stockholders representing or holding at least a majority
of the outstanding capital stock, or a majority of the members entitled to
vote. [Sec. 27]
ii. BY A TWO-THIRDS VOTE
a) REMOVAL OF DIRECTORS OR TRUSTEES [SEC. 27]

o Any director or trustee of a corporation may be removed from office by a
vote of — The stockholders holding or representing at least two-thirds (2/3)
of the outstanding capital stock; or At least two-thirds (2/3) of the
members entitled to vote in a non-stock corporation.
b) AMENDMENT OF AOI [SEC. 15]
o Amendment of the AOI may be made by: (a) A majority vote of the
BOD/BOT; and (b) The vote or written assent of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock, or
by the vote or written assent of at least two-thirds (2/3) of the members.
c) DELEGATING THE POWER TO AMEND OR REPEAL BY-LAWS OR ADOPT
NEW BY-LAWS [SEC. 47]
o Delegation to the BOD/BOT of the power to amend or repeal by-laws or
adopt newby-laws requires approval by at least 2/3 of the outstanding
capital stock/membership.
o Note: Revocation of the delegation requires only majority vote of the
outstanding capital stock/membership.
d) EXTENDING/SHORTENING CORPORATE TERM [SEC. 36]
o Requires approval by a majority vote of the BOD/BOT and approval by at
least 2/3 of the outstanding capital stock/membership.
e) INCREASING/DECREASING CAPITAL STOCK [SEC. 37]
o Requires approval by: a. A majority vote of the BOD; and b. At least 2/3
of the outstanding capital stock.
f) INCURRING, CREATING, INCREASING BONDED INDEBTEDNESS [SEC. 37]
o Requires approval by a majority vote of the BOD and approval by at least
2/3 of the outstanding capital stock. Includes all stockholders with or
without voting rights.
g) ISSUANCE OF SHARES NOT SUBJECT TO PRE-EMPTIVE RIGHT [SEC. 38]
o Shares in good faith in exchange for property or previously incurred
indebtedness with the approval of the stockholders representing 2/3 of the
outstanding capital stock are not subject to pre-emptive rights.
h) SALE/DISPOSITION OF ALL OR SUBSTANTIALLY ALL OF CORPORATE
ASSETS [SEC. 39]
o A sale of all or substantially all of the corporation’s properties and assets,
including its goodwill must be authorized by the vote of: (i) The
stockholders representing at least 2/3 of the outstanding capital stock; or
(ii) At least 2/3 of the members, in a stockholders’ or members’ meeting
duly called for the purpose.
o Note: In non-stock corporations where there are no members with voting
rights, the vote of at least a majority of the trustees in office will be
sufficient authorization.
i) INVESTMENT OF FUNDS IN ANOTHER BUSINESS [SEC. 41]
o Requires approval by: a. A majority vote of the BOD/BOT; and b. At least
2/3 of the outstanding capital stock/membership.
o However, where the investment by the corporation is reasonably necessary
to accomplish its primary purpose as stated in the articles of incorporation,
the approval of the stockholders or members shall not be necessary.
j) STOCK DIVIDEND DECLARATION [SEC. 42]
o Requires approval by: a. A majority vote of the BOD; and b. At least 2/3
of the outstanding capital stock.
o Note: Declaration of cash and property dividends only requires BOD/BOT
approval.
k) PLAN OF MERGER OR CONSOLIDATION [SEC. 76]
o Requires approval by: a. Majority of each of the BOD/BOT of the
constituent corporations of the plan of merger or consolidation; and b. At
least 2/3 of the outstanding capital stock/membership of each corporation
at separate corporate meetings duly called.
o Amendments to the plan of the merger or consolidation also requires
approval by majority vote of each of the BOD and 2/3 vote of the
outstanding capital stock/membership of each corporation voting
separately.
l) PLAN OF DISTRIBUTION OF ASSETS IN NON-STOCK CORPORATIONS
[SEC. 94]
o The BOT shall, by majority vote, adopt a resolution recommending a plan
of distribution which shall be approved by at least 2/3 of the members
with voting rights.
m) VOLUNTARY DISSOLUTION OF A CORPORATION WHERE CREDITORS ARE
AFFECTED [SEC. 135]
o If dissolution of a corporation may prejudice the rights of any creditor
having a claim against it, the dissolution may be effected by: a. Majority
vote of the BOD/BOT; and b. A resolution adopted by the affirmative vote
of the stockholders representing at least 2/3 of the outstanding capital
stock/membership.

iii. BY CUMULATIVE VOTING
a) ELECTION OF DIRECTORS OR TRUSTEES [SEC. 23]

o Stockholders entitled to vote may:
i. Vote such number of shares for as many persons as there are
directors to be elected [Straight Voting];
ii. Cumulate said shares and give 1 candidate as many votes as the
number of directors to be elected multiplied by the number of the
shares owned [Cumulative Voting for 1 Candidate]; or
iii. Distribute them on the same principle among as many candidates as
may be seen fit [Cumulative Voting by Distribution].
o Members of a non-stock corporation may cast as many votes as there
are trustees to be elected, but may not cast more than 1 vote for 1
candidate.
3. PROPRIETARY RIGHTS
a. RIGHT TO DIVIDENDS
 NATURE; A dividend is that portion of the profits of the corporation set aside,
declared and ordered by the directors to be paid ratably to the stockholders on
demand or at a fixed time.
 The board of directors of a stock corporation may declare dividends out of the
unrestricted retained earnings [that portion which is free and can be declared
as dividends to stockholders] which shall be payable in cash, property, or in stock
to all stockholders on the basis of outstanding stock held by them. [Sec. 42]
 Such declaration is essentially within the business judgment of the board of
directors. The fact that profits have accrued in the prosecution of the corporate
business does not necessarily impose upon the directors the duty to declare them
as dividends.
 PROHIBITION AGAINST RETENTION OF EXCESS PROFITS - Stock
corporations are prohibited from retaining surplus profits in excess of 100% of
their paid-in capital stock.
o EXCEPTION: Stock corporations may retain surplus profits in excess of
100% of their paid-in capital stock:
i. When justified by definite corporate expansion projects or
programs approved by the board of directors; or
ii. When the corporation is prohibited under any loan agreement
with financial institutions or creditors, whether local or foreign, from
declaring dividends without their consent, and such consent has not
yet been secured; or
iii. When it can be clearly shown that such retention is necessary under
special circumstances obtaining in the corporation, such as
when there is need for special reserve for probable contingencies.
[Sec. 42]
 Right to dividends vests upon declaration so whoever owns the stock at such
time also owns the dividends. Subsequent transfer of stock would not carry with it
right to dividends UNLESS agreed upon by the parties.
 NO-PAR VALUE SHARES - In case of no-par value shares, the entire consideration
received by the corporation for its no-par value shares shall be treated as capital
and shall not be available for distribution as dividends.

b. RIGHT TO INSPECT
 BASIS; A stockholder’s right of inspection is based on his ownership of the assets

and property of the corporation. Therefore, it is an incident of ownership of the
corporate property.
 REQUIREMENTS FOR THE EXERCISE OF THE RIGHT OF INSPECTION [SEC.
73]
a) The records are open to inspection only by any director, trustee, stockholder
or member of the corporation in person or by a representative.
b) Must be done at reasonable hours on business days.
c) A demand in writing may be made by the director, trustee or stockholder
at their expense, for such records or excerpts from the records.
d) The inspecting or reproducing party shall remain bound by confidentiality
rules under prevailing laws such as: (i) Intellectual Property Code; (ii) Data
Privacy Act; (iii) Securities Regulation Code; (iv) Rules of Court.
 WHO MAY NOT EXERCISE; A requesting party who is not a stockholder or
member of record, or is a competitor, director, officer, controlling stockholder or
otherwise represents the interests of a competitor shall have no right to inspect or
demand reproduction of corporate records. [Sec. 73]
 VALID REFUSAL;
i. The person demanding to examine and copy excerpts from the corporation’s
records and minutes has improperly used any information secured through
any prior examination of the records or minutes of such corporation or of any
other corporation;
ii. The person was not acting in good faith;
iii. The person was not acting for a legitimate purpose in making the
demand to examine or reproduce corporate records;
iv. The person is a competitor, director, officer, controlling stockholder or
otherwise represents the interests of a competitor. [Sec. 73]
 REMEDY IN CASE OF REFUSAL; if the corporation denies or does not act on a
demand for inspection and/or reproduction, the aggrieved party may report such
to the Commission. Within five (5) days from receipt of such report, the
Commission shall conduct a summary investigation and issue an order directing
the inspection or reproduction of the requested records. [Sec. 73]
c. PRE-EMPTIVE RIGHT
 An option or privilege of an existing stockholder to subscribe to a proportionate part

of shares subsequently issued by the corporation before the same can be disposed
of in favor of others.
 All stockholders of a stock corporation shall enjoy preemptive right to subscribe
to all issues or disposition of shares of any class, in proportion to their
respective shareholdings, unless such right is denied by the articles of
incorporation or an amendment thereto. [Sec. 38]
 PURPOSE; the purpose is to enable the shareholder to retain his proportionate
control in the corporation and to retain his equity in the surplus.
 NATURE; It is a common law right and may be exercised by stockholders even
without legal provision.
 LIMITATIONS TO EXERCISE OF PRE-EMPTIVE RIGHT
i. Such pre-emptive right shall NOT extend to shares to be issued in
compliance with laws requiring stock offerings or minimum stock ownership
by the public;
ii. It shall also NOT extend to shares to be issued in good faith with the
approval of the stockholders representing 2/3 of the outstanding capital

stock, in exchange for property needed for corporate purposes or in payment
of a previously contracted debt;
iii. It shall not take effect if denied in the AOI or an amendment thereto;
iv. If one shareholder does not want to exercise his pre-emptive right, the other
shareholders are not entitled to purchase the corresponding shares of the
shareholder who declined. But if nobody purchased the same and later on the
board re-issued the shares, the pre-emptive right applies.
d. RIGHT OF FIRST REFUSAL
 Obligates a stockholder who may wish to sell or assign his shares to first offer the
shares to the corporation or to the other existing stockholders under terms
and conditions which are reasonable. Only when the corporation or the other
stockholders do not or fail to exercise their option, is the offering stockholder at
liberty to dispose of his shares to third parties.
 The right of first refusal is primarily an attribute of ownership, and consequently
can be effected only through a contractual commitment by the owner of the
shares.
o Consequently, the waiver of a right of first refusal when duly constituted
can be effected only by the registered owner.
 A transfer restriction should NOT amount to a deprivation of a stockholder’s right
to ultimately dispose of his shareholdings. An agreement entered into between the
two majority stockholders of a corporation, whereby they mutually agreed not to
sell, transfer, or otherwise dispose of any part of their shareholdings till after one
year from the date of the agreement is valid.
 CLOSE CORPORATION; Restrictions on the right to transfer shares must appear in
the articles of incorporation, in the by-laws, as well as in the certificate of stock;
otherwise, the same shall not be binding on any purchaser in good faith. Said
restrictions shall not be more onerous than granting the existing stockholders or
the corporation the option to purchase the shares of the transferring stockholder
with such reasonable terms, conditions or period stated. [Sec 97]
PRE-EMPTIVE RIGHT RIGHT OF FIRST REFUSAL

Grants stockholders the option to Grants the existing stockholders or the
subscribe to all issues or disposition of corporation the option to purchase the
shares of any class, in proportion to their shares of the transferring stockholder.
respective shareholdings. [Sec. 38] [Sec. 97]
All stockholders of a stock corporation Arises only by virtue of contract
shall enjoy the pre-emptive right to stipulations, by which the right is
subscribe to all issues or disposition of strictly construed against the right of
shares of any class, in proportion to their person to dispose or deal with their
respective shareholdings. [Sec. 38] property.
4. REMEDIAL RIGHTS
 INDIVIDUAL SUITS are filed when the cause of action belongs to the
stockholder personally, and not to the stockholders as a group, or to the
corporation, e.g., denial of right to inspection and denial of dividends to a
stockholder. If the cause of action belongs to a group of stockholders, such as
when the rights violated belong to preferred stockholders, a CLASS OR
REPRESENTATIVE SUIT may be filed to protect the stockholders in the group. A
DERIVATIVE SUIT, on the other hand, is one which is instituted by a
shareholder or a member of a corporation, for and in behalf of the
corporation for its protection from acts committed by directors, trustees,
corporate officers, and even third persons.
A. DERIVATIVE SUIT
o One of the powers expressly granted by law to corporations is the power to sue. As
with other corporate powers, the power to sue is lodged in the board of
directors, acting as a collegial body. Thus, in the absence of any clear authority
from the board, charter, or by-laws, no suit may be maintained on behalf of the
corporation. A case instituted by a corporation without authority from its board of
directors is subject to dismissal on the ground of failure to state a cause of
action. Nonetheless, an individual stockholder is permitted to institute a
derivative suit on behalf of the corporation wherein he holds stocks in order
to protect or vindicate corporate rights, whenever the officials of the
corporation refuse to sue, or are the ones to be sued, or hold the control of
the corporation. In such actions, the suing stockholder is regarded as a
nominal party, with the corporation as the real party in interest.
o NATURE; the stockholder’s right to institute a derivative suit is not based on any
express provision of The Corporation Code but is impliedly recognized when the law
makes corporate directors or officers liable for damages suffered by the corporation
and its stockholders for violation of their fiduciary duties.
o BUSINESS JUDGMENT RULE - As a general rule, when a wrong is committed
against a corporation, whether to bring the suit or not primarily lies within the
discretion and exercise of business judgment of the BOD.
 But where corporate directors are guilty of a breach of trust, not of mere
error of judgment or abuse of discretion, and intra-corporate remedy is
futile or useless, a shareholder may institute a derivative suit in behalf of
himself and other stockholders and for the benefit of the corporation.
 REQUISITES OF DERIVATIVE SUIT
1) The party bringing suit should be a shareholder as of the time of
the act or transaction complained of, the number of his shares not
being material;
 The action brought by the shareholder or member must be in
the name of the corporation or association.
2) He has tried to exhaust intra-corporate remedies, i.e., has made
a demand on the board of directors for the appropriate relief but the
latter has failed or refused to heed his plea; and
 EXCEPTION: while it is true that the complaining stockholder
must show to the satisfaction of the court that he has
exhausted all the means within his reach to attain within the
corporation itself the redress for his grievances, or actions in
conformity to his wishes, nonetheless, where the corporation
is under the complete control of the principal defendants,
there is no necessity of making a demand upon the
directors. The reason is obvious: a demand upon the board to
institute an action and prosecute the same effectively would
have been useless and an exercise in futility.
3) The cause of action actually devolves on the corporation, the
wrongdoing or harm having been, or being caused to the corporation
and not to the particular stockholder bringing the suit.
 Since it is the corporation that is the real party-in-interest in a
derivative suit, then the reliefs prayed for must be for the
benefit or interest of the corporation. When the reliefs

prayed for do not pertain to the corporation, then it is an
improper derivative suit.
 Petitioners’ complaint seek to nullify the said election, and to
protect and enforce their individual right to vote. The party-in-
interest are the petitioners as stockholders, who wield
such right to vote. The cause of action devolves on
petitioners, not the condominium corporation, which did not
have the right to vote. Hence, the complaint for nullification of
the election is a direct action by petitioners, who were the
members of the Board of Directors of the corporation before the
election, against respondents, who are the newly-elected Board
of Directors. Under the circumstances, the derivative suit filed
by petitioners in behalf of the condominium corporation in the
Second Amended Complaint is improper.
5. INTRA-CORPORATE DISPUTES (INDIVIDUAL VS. REPRESENTATIVE VS.

DERIVATIVE SUITS)
 TEST OF INTRA-CORPORATE DISPUTE; to determine whether or not a case

involves an intra-corporate dispute, two tests are applied — the relationship test
and the nature of the controversy test.
i. UNDER THE RELATIONSHIP TEST, there is an intra-corporate controversy
when the conflict is (1) between the corporation, partnership, or association
and the public; (2) between the corporation, partnership, or association and
the State insofar as its franchise, permit, or license to operate is concerned;
(3) between the corporation, partnership, or association and its stockholders,
partners, members, or officers; and (4) among the stockholders, partners, or
associates themselves.
ii. On the other hand, in accordance with the NATURE OF CONTROVERSY
TEST, an intra-corporate controversy arises when the controversy is not only
rooted in the existence of an intra-corporate relationship, but also in the
enforcement of the parties’ correlative rights and obligations under
the Corporation Code and the internal and intra-corporate regulatory
rules of the corporation.
 ESSENCE; JURISDICTION; While PD No. 902-A conferred original
and exclusive jurisdiction over intra-corporate disputes to the
Securities and Exchange Commission, this was transferred to the
appropriate RTC under RA No. 8799
 Based on the foregoing tests, it is clear that this case involves an
intra-corporate dispute. It is a conflict between a stockholder and the
corporation, which satisfies the relationship test, and it involves the
enforcement of the right of Ozamiz, as a stockholder, to inspect the
books of PHC and the obligation of the latter to allow its stockholder to
inspect its books. [San Jose vs. Ozamiz, G.R. No. 190590 July 12,
2017]
 In sum, what appears on record as the true nature of the controversy
is that of a shareholder seeking relief from the court to contest the
management's decision to: (1) post guards to secure the premises of
the corporate property; (2) padlock the premises; and (3) deny her
access to the same on May 28, 2007 due to her alleged default on the
provisions of the MOA. Thus, we agree with petitioners that while the
case purports to be one for forcible entry filed by Mariam against
BIRI's employees and contractors in their individual capacities, the
true nature of the controversy is an intra-corporate dispute between

BIRI and its shareholder, Mariam, regarding the management of, and
access to, the corporate property subject of the MOA. We therefore
find that the MCTC never acquired jurisdiction over the ejectment case
filed by Mariam. [Tumagan vs. Kairuz, G.R. No. 198124 September 12,
2018]
 CORPORATE OFFICER; As a rule, the illegal dismissal of an officer or
other employee of a private employer is properly cognizable by the
labor arbiter pursuant to Article 217 (a) of the Labor Code, as
amended. By way of exception, where the complaint for illegal
dismissal involves a corporate officer, the controversy falls
under the jurisdiction of the RTC, because the controversy arises
out of intra-corporate or partnership relations between and among
stockholders, members, or associates, or between any or all of them
and the corporation, partnership, or association of which they are
stockholders, members, or associates, respectively; and between such
corporation, partnership, or association and the State insofar as the
controversy concerns their individual franchise or right to exist as such
entity; or because the controversy involves the election or
appointment of a director, trustee, officer, or manager of such
corporation, partnership, or association. A position must be
expressly mentioned in the By-Laws in order to be considered
as a corporate office. Thus, the creation of an office pursuant to or
under a By-Law enabling provision is not enough to make a position a
corporate office. [Complaints for illegal dismissal filed by a
cooperative officer constitute an intra-cooperative controversy,
jurisdiction over which belongs to the regional trial courts.]
 INDIVIDUAL VS. REPRESENTATIVE VS. DERIVATIVE SUITS; Suits by

stockholders or members of a corporation based on wrongful or fraudulent acts of
directors or other persons may be classified into individual suits, class suits, and
derivative suits. 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. 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. But where the acts complained of
constitute a wrong to the corporation itself, the cause of action belongs to the
corporation and not to the individual stockholder or member. Although in most
every case of wrong to the corporation, each stockholder is necessarily affected
because the value of his interest therein would be impaired, this fact of itself is not
sufficient to give him an individual cause of action since the corporation is a person
distinct and separate from him, and can and should itself sue the wrongdoer.
Otherwise, not only would the theory of separate entity be violated, but there would
be multiplicity of suits as well as a violation of the priority rights of creditors.
Furthermore, there is the difficulty of determining the amount of damages that
should be paid to each individual stockholder. However, in cases of
mismanagement where the wrongful acts are committed by the directors or
trustees themselves, a stockholder or member may find that he has no redress
because the former are vested by law with the right to decide whether or not the
corporation should sue, and they will never be willing to sue themselves. The
corporation would thus be helpless to seek remedy. Because of the frequent
occurrence of such a situation, the common law gradually recognized the right of a
stockholder to sue on behalf of a corporation in what eventually became known as a
"DERIVATIVE SUIT." It has been proven to be an effective remedy of the

minority against the abuses of management. Thus, an individual stockholder is
permitted to institute a derivative suit on behalf of the corporation wherein
he holds stock in order to protect or vindicate corporate rights, whenever
officials of the corporation refuse to sue or are the ones to be sued or hold
the control of the corporation. In such actions, the suing stockholder is regarded
as the nominal party, with the corporation as the party in interest.
F. CAPITAL STRUCTURE
1. SHARES OF STOCK
a. NATURE OF SHARES OF STOCK
o Shares of stock are units into which the capital stock is divided. A share of stock
represents interest of the holder thereof to participate in the management of the
corporation, to share proportionally in the profits of the business and, upon
liquidation, to obtain an aliquot part of corporate assets after all corporate debts
have been paid. Share of stock, however, do not represent proprietary rights of
stockholders to the assets or properties of the corporation.
b. CONSIDERATION FOR SHARES OF STOCK
o 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, which must be: i. Actually received by the
corporation; and ii. Necessary or convenient for its use and lawful purposes
iii. 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;
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 reclassification or
conversion;
g) Shares of stock in another corporation; and/or
h) Other generally accepted form of consideration. [Sec. 61]
o Where the consideration is other than actual cash, or consists of intangible property
such as patents or copyrights, the valuation thereof shall initially be determined by
the stockholders or the board of directors, subject to the approval of the
Commission.
o INVALID CONSIDERATIONS; Shares of stock shall not be issued in exchange for
promissory notes or future service. [Sec. 61]
c. WATERED STOCK
o Shares issued as fully paid when in truth no consideration is paid, or the

consideration received is known to be less than the par value or issued value of the
shares. [Sec. 64]
o LIABILITY OF DIRECTORS OR OFFICERS - A director or officer 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 insufficient
consideration, does not file a written objection with the corporate secretary, shall

be liable to the corporation or its creditors, SOLIDARILY with the stockholder
concerned for the difference between the value received at the time of issuance of
the stock and the par or issued value of the same. [Sec. 64]
 Personal liability of corporate directors, trustees or officers attaches when
they consent to the issuance of watered down stocks or when, having
knowledge of such issuance, do not file with the corporate secretary their
written objection.
d. SITUS OF THE SHARES OF STOCK
o The situs of shares of stock is the country where the corporation is domiciled. It
is not the domicile of the owner of a certificate but the domicile of the corporation
which is decisive.
o The residence of the corporation is the place where the principal office of the
corporation is located as stated in its AOI, even though the corporation has closed
its office therein and relocated to another place.
e. CLASSES OF SHARES OF STOCK
o The shares in stock corporations may be divided into classes or series of shares, or
both. The rights, privileges, or restrictions, and the stated par value of the class or
series of shares must be indicated in the Articles of Incorporation. [Sec. 6]
o No share may be deprived of voting rights except those classified and issued as
“preferred” or “redeemable” shares, unless otherwise provided in this Code:
Provided, that there shall always be a class or series of shares with complete voting
rights. [Sec. 6]
o SCOPE OF VOTING RIGHTS SUBJECT TO CLASSIFICATION
 Only preferred and redeemable shares may be deprived of the right to
vote [Sec. 6], except as otherwise provided in the Revised Corporation Code.
 GR: Non-Voting Shares are not entitled to vote. The law only authorizes
the denial of voting rights in the case of redeemable shares and preferred
shares, provided that there shall always be a class or series of shares which
have complete voting rights. [Sec. 6]
• EXCEPTION: These redeemable and preferred shares, when such
voting rights are denied, shall nevertheless be entitled to vote on
the following fundamental matters: 1. Amendment of the Articles
of Incorporation 2. Adoption and amendment of by-laws 3. Sale, lease,
exchange, other disposition of all or substantially all of the corporate
property 4. Incurring, creating or increasing bonded indebtedness 5.
Increase or decrease of capital stock 6. Merger and consolidation 7.
Investment of corporate funds in another corporation or business 8.
Dissolution of the corporation. [Sec. 6]
i. PREFERRED SHARES VS. COMMON SHARES
 PREFERRED SHARES - A preferred share of stock, on one hand, is 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 may be issued only with a stated par value.
• KINDS OF PREFERRED SHARES; Preferred shares take a multiplicity
of forms. The most common forms may be classified into two:
a) Preferred shares as to assets - share which gives the holder
thereof preference in the distribution of the assets of the

corporation in case of liquidation;
b) Preferred shares as to dividends - share 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.
 COMMON SHARES - 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 profits.
ii. FOUNDERS’ SHARES
 Founders’ shares may be given certain rights and privileges not enjoyed by
the owners of other stocks. 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 five (5) years from the date of incorporation. [Sec. 7]
iii. REDEEMABLE SHARES
• Redeemable shares may be issued by the corporation when expressly

provided in the articles of incorporation. They are shares which may be
purchased by the corporation from the holders of such shares upon
the expiration of a fixed period, regardless of the existence of
unrestricted retained earnings in the books of the corporation, and
upon such other terms and conditions stated in the articles of incorporation
and the certificate of stock representing the shares [Sec. 8]
• A redemption by the corporation of its stock is, in a sense, a repurchase of it
for cancellation. The present Code allows redemption of shares even if there
are no unrestricted retained earnings on the books of the corporation. This is
a new provision which in effect qualifies 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 the corporation is insolvent or if such
redemption will cause insolvency or inability of the corporation to meet its
debts as they mature.
iv. TREASURY SHARES
 Treasury shares are 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 fixed by the board of
directors. [Sec. 9]
 Shares may be reacquired without impairing the corporate trust fund.
Reacquisition of shares is allowed, provided the corporation will use assets
up to the extent of its unrestricted retained earnings.
 While a corporation has the power to purchase or acquire its own
shares, the corporation must have unrestricted retained
earnings in its books to cover the shares to be purchased or
acquired. In addition, in cases where the reason for reacquiring the
shares is because of the unpaid subscription, the Corporation Code is

likewise explicit that the corporation must purchase the same
during a delinquency sale. [SALIDO, JR., VS. ARAMAYWAN
METALS DEVELOPMENT CORPORATION, G.R. No. 233857, March
18, 2021, CAGUIOA]
 It has no voting right as long as such shares remain in the Treasury. [Sec.
56]
 When treasury shares are sold below its par or issued value, there can be no
watering of stock because such watering of stock contemplates an
original issuance of shares.
 Treasury shares are treated as assets of the corporation. [Herbosa, 2019]
Since a treasury share is a fully paid share re-acquired by the corporation, it
is not outstanding and may be re-issued and resold. It cannot receive
dividends before the resale, because the corporation cannot grant
dividends to itself.
 POWER TO ACQUIRE OWN SHARES [ART. 40]; 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 or
purposes, including the following cases:
a. To eliminate fractional shares arising out of stock dividends;
b. To collect or compromise an indebtedness to the corporation,
arising out of unpaid subscription, in a delinquency sale, and 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.
v. PAR VALUE SHARES VS. NO-PAR VALUE SHARES
 PAR VALUE SHARES - These are shares with a stated or fixed value set out
in the Articles of Incorporation, which remains the same regardless of the
profitability of the corporation.
 NO PAR VALUE SHARE - These are shares without a stated value in the
AOI. They are without nominal value. They may be issued for the amount
stipulated in the AOI, or fixed by the Board. [Sec 61]
o LIMITATIONS ON NO PAR VALUE SHARES – (1) Cannot have an
issue price of less than P5.00 per share (2) Once issued, they shall be
deemed fully paid and non-assessable, and the holders of such shares
shall not be liable to the corporation or to its creditors in respect
thereto (3) Entire consideration received by the corporation
shall be treated as capital and shall not be available for distribution
as dividends (4) The AOI must state the fact that the corporation
issues no-par shares and the number of shares (5) Cannot be issued
as preferred stock (6) Cannot be issued by banks, insurance
companies, public utilities and building and loan associations (7)
Cannot be issued by all corporations authorized to obtain or access
funds from the “public”
vi. ESCROW SHARES – those held by a third person to be released only upon the
performance of a condition or the happening of a certain event contained in the
agreement.

2. CERTIFICATE OF STOCK
a. NATURE OF THE CERTIFICATE
 A certificate of stock is the (best) evidence of a holder's interest and status in

a corporation. It is a written instrument signed by the proper officer 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. [Lao v. Lao]
 A certificate of stock is the paper representative or tangible evidence of the stock
itself and of the various interests therein. The certificate is not stock in the
corporation but is merely evidence of the holder's interest and status in the
corporation, his ownership of the share represented thereby, but is not in law the
equivalent of such ownership. It expresses the contract between the corporation
and the stockholder, but is not essential to the existence of a share in stock or the
nation of the relation of shareholder to the corporation.
b. UNCERTIFICATED SHARES
 An uncertificated share is a subscription duly recorded in the corporate books, but

has no corresponding certificate of stock yet issued.
 STREET CERTIFICATE - When a stock certificate is endorsed in blank by the
owner thereof, it constitutes what is termed as street certificate.
c. NEGOTIABILITY; REQUIREMENTS FOR VALID TRANSFER OF STOCKS
o Although a stock certificate is sometimes regarded as quasi-negotiable, in the

sense that it may be transferred by delivery, it is well-settled that the instrument
is NON-NEGOTIABLE, because the holder thereof takes it without prejudice to
such rights or defenses as the registered owner or creditor may have under the
law except insofar as such rights or defenses are subject to the limitations
imposed by the principles governing estoppels.
• Certificates of stock are not negotiable instruments. Consequently — A
transferee under a forged assignment acquires no title which can be
asserted against the true owner, unless the latter’s negligence has been
such as to create an estoppel against him. If the owner of the certificate has
endorsed it in blank, and it is stolen from him, no title is acquired by on
innocent purchaser for value.
o REQUIREMENTS FOR VALID TRANSFER OF STOCKS - Under the provision,
certain minimum requisites must be complied with for there to be a valid transfer
of stocks, to wit:
a) there must be delivery of the stock certificate;
b) the certificate must be endorsed by the owner or his attorney-in-fact or
other persons legally authorized to make the transfer; and
c) to be valid against third parties, the transfer must be recorded in the
books of the corporation. [Sec. 62]
o The execution of a deed of sale does not necessarily make the transfer effective.
The delivery of the stock certificate duly indorsed by the owner is the
operative act that transfers the shares. The absence of delivery is a fatal defect
which is not cured by mere execution of a deed of assignment.
o The stock and transfer book is the basis for ascertaining the persons entitled to
the rights and subject to the liabilities of a stockholder. Where a transferee is not
yet recognized as a stockholder, the corporation is under no specific legal duty to

issue stock certificates in the transferee’s name.
o It is already settled jurisprudence that the registration of a transfer of shares
of stock is a ministerial duty on the part of the corporation. Aggrieved
parties may then resort to the remedy of mandamus to compel corporations that
wrongfully or unjustifiably refuse to record the transfer or to issue new certificates
of stock.
d. ISSUANCE
o No certificate of stock shall be issued to a subscriber until the full amount of his
subscription together with interest and expenses (in case of delinquent shares), if
any is due, has been paid [Sec. 63, RCC].
• XPN: Where it was the practice of the corporation since its inception to issue
certificates of stock to its individual stockholders for unpaid shares of stock
and to give full voting power to shares fully paid [Baltazar v. Lingayen Gulf
Electric Power Company, G.R. No. L-16236 (1965)].
e. LOST OR DESTROYED CERTIFICATES
o The following procedure shall be followed by a corporation in issuing new

certificates of stock in lieu of those which have been lost, stolen or destroyed:
i. Filing of an affidavit of loss with the corporation by the registered
owner.
ii. Verifying the affidavit and other information and evidence with the books
of the corporation by the corporation.
iii. The corporation shall publish a notice in a newspaper of general
circulation in the place where the corporation has its principal office, once
a week for three (3) consecutive weeks at the expense of the registered
owner of the certificate of stock which has been lost, stolen or destroyed.
iv. Cancellation of the certificate in the books of the corporation and issuance
of new certificates, after the expiration of 1 year from the date of
the last publication and there is no contest. The right to make such
contest shall be barred after the expiration of the one-year period.
v. Issuance by the corporation of new certificates before 1 year period if
the registered owner files a bond and there is no pending contest
regarding the ownership of said certificates. [Sec. 72, RCC]
3. DISPOSITION AND ENCUMBRANCE OF SHARES
a. SALE OF SHARES
 FREE TRANSFERABILITY OF SHARES - Shares of stock so issued are personal

property and may be transferred [Sec. 62].
i. SALE OF PARTIALLY PAID SHARES
 No shares of stock against which the corporation holds any unpaid
claim shall be transferable in the books of the corporation. [Sec. 62]
 A corporation may refuse to acknowledge and register a sale or
assignment of shares which are not fully paid, and may continue to
hold the original subscriber liable on the payment of the subscription.
 However, the above principle in Section 62 cannot be utilized by the
corporation to refuse to recognize ownership over pledged shares
purchased at public auction.

The term “unpaid claims” refers to “any unpaid claims arising from
unpaid subscription, and not to any indebtedness which a subscriber or
stockholder may owe the corporation arising from any other
transactions.
ii. SALE OF A PORTION OF SHARES NOT FULLY PAID
 The SEC has opined on several occasions that a stockholder who has
not paid the full amount of his subscription cannot transfer part of his
subscription in view of the indivisible nature of a subscription
contract.
iii. SALE OF ALL OF SHARES NOT FULLY PAID
 The SEC has opined that the entire subscription, although not yet fully
paid, may be transferred to a single transferee, who as a result of the
transfer must assume the unpaid balance. It is necessary, however, to
secure the consent of the corporation, since the transfer of
subscription rights and obligations contemplates a novation of contract
which under Article 1293 of the Civil Code cannot be made without the
consent if the creditor [Villanueva].
iv. SALE OF FULLY PAID SHARES
 Shares of stock so issued are personal property and may be
transferred by the delivery of the stock certificate or certificates,
indorsed by — (1) The owner; or (2) The owner’s attorney-in-fact; or
(3) Other person legally authorized to make the transfer. [Sec. 62]
b. ALLOWABLE RESTRICTIONS ON THE SALE OF SHARES
 Restrictions on the right to transfer shares must appear in the articles of

incorporation, in the by-laws, as well as in the certificate of stock; otherwise, the
same shall not be binding on any purchaser in good faith. Said restrictions shall not
be more onerous than granting the existing stockholders or the corporation the
option to purchase the shares of the transferring stockholder with such reasonable
terms, conditions or period stated. [Sec. 97]
 The application of [Section 97] on the validity of restrictions on transfer of
shares applies only to close corporations.
 VALID RESTRICTION – [RIGHT OF FIRST REFUSAL] Merely allows the
corporation or existing stockholders to accept the offer within the option period,
and thereafter, if no one accepts the offer, the stockholder is free to pledge or
mortgage his shares in favor of any third party.
 INVALID RESTRICTION - Absolutely prohibits the stockholders from pledging
or mortgaging their shares without the consent of the BOD.
c. REQUISITES OF A VALID TRANSFER
 Same as requirements for valid transfer of stocks: (i) there must be delivery of the
stock certificate; (ii) the certificate must be endorsed by the owner or his
attorney-in-fact or other persons legally authorized to make the transfer; and (iii)
to be valid against third parties, the transfer must be recorded in the books of the
corporation.
 Even if it could be assumed that the sale of shares of stock contained in
the photocopies had indeed transpired, such transfer is only valid as
to the parties thereto, but is not binding on the corporation if the
same is not recorded in the books of the corporation. Section 63 of
the Corporation Code of the Philippines provides that: “No transfer, x x x
shall be valid, except as between the parties, until the transfer is

recorded in the books of the corporation showing the names of the parties
to the transaction, the date of the transfer, the number of the certificate
or certificates and the number of shares transferred.” Here, the records
show that the purported transaction between Tee Ling Kiat and
Dewey Dee has never been recorded in VIP’s corporate books.
Thus, the transfer, not having been recorded in the corporate
books in accordance with law, is not valid or binding as to the
corporation or as to third persons. [Tee Ling Kiat vs. Ayala
Corporation, G.R. No. 192530. March 7, 2018, CAGUIOA]
d. INVOLUNTARY DEALINGS
 Shares of stock are personal property and the owner has an inherent right, as
incident of ownership to transfer the same at will, which would include the power to
encumber the shares.
 RIGHT TO VOTE OF SECURED CREDITORS AND ADMINISTRATORS.
o In case a stockholder grants security interest in his or her shares in stock
corporations, the stockholder-grantor shall have the right to attend and vote
at meetings of stockholders, unless the secured creditor is expressly given
by the stockholder-grantor such right in writing which is recorded in the
appropriate corporate books. [Sec. 54]
 Both the Revised Rules of Court and the Corporation Code do not require
annotation in the corporation's stock and transfer books for the attachment of
shares of stock to be valid and binding on the corporation and third party.
 A bona fide transfer of shares, not registered in the corporate books, is not valid
as against a subsequent lawful attachment of said shares, regardless of whether
the attaching creditor had actual notice of said transfer or not. All transfers not so
entered on the books of the corporation are absolutely void; not because they are
without notice or fraudulent in law or fact, but because they are made so void by
statute.
 NO NEED FOR REGISTRATION IN THE BOOK UNLIKE VOLUNTARY SALES;
Therefore, the chattel mortgage is not the transfer referred to in [section 62 of
RCC], which transfer should be entered and noted upon the books of a corporation
in order to be valid, and which, as has already been said, means the absolute and
unconditional conveyance of the title and ownership of a share of stock. In
accordance with said section, only the transfer or absolute conveyance of the
ownership of the title to a share need be entered and noted upon the
books of the corporation in order that such transfer may be valid,
therefore, inasmuch as a chattel mortgage of the aforesaid title is not a
complete and absolute alienation of the dominion and ownership thereof,
its entry and notation upon the books of the corporation is not necessary
requisite to its validity. [Monserrat v. Ceron]
G. DISSOLUTION AND LIQUIDATION
 DISSOLUTION of a corporation is the extinguishment of its franchise and the

termination of its corporate existence or business purpose. However, for the
purpose only of winding up its affairs and liquidating its assets, its corporate
existence continues for a period of 3 years from such dissolution [Sec. 139].
 LIQUIDATION is the process by which all the assets of the corporation are
converted into liquid assets (cash) in order to facilitate the payment of obligations
to creditors, and the remaining balance if any is to be distributed to the
stockholders.

1. MODES OF DISSOLUTION
a. VOLUNTARY DISSOLUTION
1) WHERE NO CREDITORS ARE AFFECTED
 PROCEDURE
i. Notice of the meeting should be given to the stockholders or
members by personal delivery, registered mail, or by any means
authorized under its by-laws at least 20 days prior to the meeting.
ii. The notice of meeting should also be published once prior to the
meeting
a. Notice shall contain the time, place and object of the meeting
b. In a newspaper published in the place where the principal office
of said corporation is located, or if no newspaper is published in
such place, then in a newspaper of general circulation in the
Philippines.
iii. The resolution to dissolve must be approved by the majority of the
BOD/T and approved by at least majority of the Outstanding
Capital Stock or majority of the members
iv. A verified request for dissolution shall be filed with the SEC stating:
(a) the reason for the dissolution; (b) the form, manner, and time
when the notices were given; (c) names of the stockholders and
directors or members and trustees who approved the dissolution; (d)
the date, place, and time of the meeting in which the vote was made;
and (e) details of publication.
v. The corporation shall submit the following to the Commission: (1) a
copy of the resolution authorizing the dissolution, certified by a
majority of the board of directors or trustees and countersigned by the
secretary of the corporation; (2) proof of publication; and (3)
favorable recommendation from the appropriate regulatory agency,
when necessary.
 WITHDRAWAL OF THE REQUEST - The Corporation may withdraw its
verified request for dissolution within 15 days from receipt by the SEC.
Otherwise, the SEC shall approve the request and issue the certificate of
dissolution.
 EFFECTIVIY - Dissolution shall take effect upon the issuance of the
certificate of dissolution by the SEC.
2) WHERE CREDITORS ARE AFFECTED [SEC. 135]
 PROCEDURE
i. A petition shall be filed with the SEC containing the following: (1)
signature by a majority of its BOD/T or other officers having
management of its affairs; (2) verified by its president, or secretary
or one of its director or trustees; (3) all claims and demands
against the corporation; and (4) resolved upon by affirmative vote
of the stockholders representing at least 2/3 of the Outstanding
Capital Stock or 2/3 of members;
ii. The corporation must submit the following to the SEC: (1) The
petition for dissolution stating the following: a. the reason for the
dissolution; b. the form, manner, and time when the notices were
given; c. the date, place and time of the meeting in which the vote
was made (2) A copy of the resolution authorizing the dissolution,

certified by the majority of the BOD/T and countersigned by
the secretary. (3) A list of all its creditors
iii. If the petition is sufficient in form and substance, the SEC shall issue
an order fixing the date on or before which objections to the
petition may be filed. Such date shall not be less than 30 days nor
more than 60 days after the entry of the order.
iv. A copy of the order shall be published at least once a week for 3
consecutive weeks in a newspaper of general circulation published in
the municipality or city of the corporation’s principal office. If none, in
a news paper of general circulation in the Philippines. A similar copy
shall be posted for 3 consecutive weeks in 3 public places in such
municipality or city.
v. A hearing of any issue or objections raised shall be conducted 5 days
after the lapse of the expiration of the time to file objections.
vi. If the objections are insufficient or the material facts in the petition are
true, judgment shall be rendered dissolving the corporation and
directing the disposition of assets. The judgment may include
appointment of a receiver.
 EFFECTIVITY- The dissolution shall take effect only upon the issuance by
the Commission of a certificate of dissolution.
3) BY SHORTENING OF CORPORATE TERM [SEC. 136]
 A voluntary dissolution may be effected by amending the articles of

incorporation to shorten the corporate term pursuant to the provisions of
this Code. A copy of the amended articles of incorporation shall be submitted
to the Commission in accordance with this Code.
 Upon the expiration of the shortened term, as stated in the approved
amended articles of incorporation, the corporation shall be deemed
dissolved without any further proceedings, subject to the provisions of
this Code on liquidation.
 In the case of expiration of corporate term, dissolution shall automatically
take effect on the day following the last day of the corporate term stated in
the articles of incorporation, without the need for the issuance by the
Commission of a certificate of dissolution.
b. INVOLUNTARY DISSOLUTION
1) BY EXPIRATION OF CORPORATE TERM
 The RCC provides that a corporation shall have perpetual existence. The
AOIs of existing corporations shall be deemed amended to reflect their
perpetual term. The exception is when the AOIs of corporations created
under the effectivity of this Code provide for a specific period [Sec 11].
 An existing corporation may opt out of the rule on perpetual existence by
notifying the Commission, provided it was approved by shareholders, and
without prejudice to the appraisal right of dissenting stockholders.
 When such term has expired, a petition for revival of corporate existence
may be filed.
2) LEGISLATIVE DISSOLUTION - The inherent power of Congress to make laws

carries with it the power to amend or repeal them. Involuntary corporate dissolution
may be effected through the amendment or repeal of the Revised Corporation Code
[implied from Sec. 184, DE LEON].

3) NON-USE OF CORPORATE CHARTER
 If a corporation fails to formally organize and commence the transaction of

its business or construction of its works within 5 years from the date of its
incorporation, its certificate of incorporation shall be deemed revoked, its
corporate powers shall cease and the corporation shall be deemed dissolved
[Sec. 21].
4) CONTINUOUS INOPERATION OF CORPORATION
 If a corporation commenced its business but fails to continue operations after

least 5 consecutive years, the corporation is first placed on delinquent
status, after due notice and hearing.
 The delinquent corporation is given 2 years to resume operations and
comply with all the requirements that the SEC shall prescribe. Otherwise, the
SEC will prescribe its dissolution. The corporation may have the revocation
reconsidered. Otherwise, the SEC may proceed to involuntary dissolution with
notice and hearing.
5) DISSOLUTION BY THE SEC ON GROUNDS UNDER THE CODE AND OTHER

EXISTING LAWS - A corporation may be dissolved by the Commission motu
proprio or upon filing of a verified complaint by any interested party. The
following may be grounds for dissolution of the corporation:
i. Non-use of corporate charter;
ii. Continuous inoperation of a corporation;
iii. Upon receipt of a lawful court order dissolving the corporation;
o The ground under (c) may involve or arise from a quo warranto
proceeding involving a de facto corporation (Sec 19, RCC) or a
liquidation proceeding involving an insolvent debtor under FRIA (infra).
iv. Upon finding by final judgment that the corporation procured its
incorporation through fraud;
v. Upon finding by final judgment that the corporation:
a. Was created for the purpose of committing, concealing or aiding the
commission of securities violations, smuggling, tax evasion, money
laundering, or graft and corrupt practices;
b. Committed or aided in the commission of securities violations,
smuggling, tax evasion, money laundering, or graft and corrupt
practices, and its stockholders knew; and
c. Repeatedly and knowingly tolerated the commission of graft and
corrupt practices or other fraudulent or illegal acts by its directors,
trustees, officers, or employees.
6) GROUNDS UNDER PD NO. 902-A - SEC may also suspend or revoke, after proper
notice and hearing, the certificate of registration of private corporations under any
of the following grounds: (a) Fraud in procuring its certificate of incorporation; (b)
Serious misrepresentation as to what the corporation can do or is doing to the
great prejudice of or damage to the general public; (c) Refusal to comply or
defiance of any lawful order of the SEC restraining commission of acts which
amount to a grave violation of its franchise; (d) Failure to file bylaws; (e) Failure
to file required reports in appropriate forms as determined by the SEC within the
prescribed period.

2. METHODS OF LIQUIDATION
1) BY THE CORPORATION ITSELF OR ITS BOARD OF DIRECTORS OR

TRUSTEES
• The liquidation and distribution of the assets of a dissolved corporation

is a matter of internal concern of the corporation and falls within the
power of the directors and stockholders or duly appointed liquidation
trustee.
• The termination of the life of a corporate entity does not by itself cause
the extinction or diminution of the rights and liabilities of such entity.
If the 3-year extended life has expired without a trustee or
receiver having been expressly designated by the corporation,
within that period, the BOD (or trustees) itself, may be
permitted to so continue as "trustees" by legal implication.
Such designation as “trustees” is for the purpose of completing the
corporate liquidation.
• When a corporation is liquidating pursuant to the statutory period of 3
years to liquidate, it is only allowed to continue for the purpose of final
closure of its business and no other purposes.
2) BY CONVEYANCE TO A TRUSTEE WITHIN A THREE-YEAR PERIOD
• Liquidation may also be placed in the hands of a trustee or assignee.

All the corporate assets are conveyed to such trustee or assignee by
a resolution of stockholders at any time during the 3-year period. [Sec.
139]
• In this method, the 3-year limitation DOES NOT apply, provided that
the designation of the trustees is made within the period.
• There is no time limit within which the trustee must finish the
liquidation, and he may sue and be sued as such even beyond the 3-
year period.
o The trustee of a dissolved corporation may commence a suit
which can proceed to final judgment even beyond the 3-year
period of liquidation.
o Unless the trusteeship is limited in its duration by the deed of
trust, there is no time limit within which the trustee must finish
liquidation
3) BY MANAGEMENT COMMITTEE OR REHABILITATION RECEIVER
o In SEC’s judgment dissolving the corporation and directing disposition

of its assets as justice requires, it may appoint a receiver to collect
such assets and pay the debts of the corporation [Sec. 135].
o When the liquidation of a dissolved corporation has been placed in the
hands of a receiver or assignee, the 3-year period prescribed by
law for liquidation cannot be made to apply, and the receiver or
trustee may institute all actions leading to the liquidation of the assets
of the corporation even after the expiration of said period.
4) BY LIQUIDATION AFTER THREE YEARS
 Under Sec. 139, after the expiration of the 3- year winding-up period,
pending actions by or against the corporation are abated. It should

not, however, be construed as to prevent a corporation from pursuing
activities which would complete the final liquidation of a dissolved
corporation.
 In this case, Northern Luzon Corporation Inc. which term has long
expired, was unable to dispose of its remaining assets even during the
3-year period granted it by Sec. 122 [now Sec. 139, RCC].
Accordingly, it should be allowed to continue liquidating its remaining
assets in order to complete the process of dissolving the corporation.
Likewise, it should be allowed to distribute the proceeds from said
disposition to its stockholders or creditors if any. A contrary
interpretation would have unjust and absurd results.
 A corporation’s BOD is not rendered functus officio by its dissolution.
Sec. 122 [now Sec 139] allows a corporation to continue its existence
for a limited purpose, necessarily there must be a board that will
continue acting for and on behalf of the dissolved corporation for that
purpose
 CONTINUATION OF PENDING SUITS
o The trustee of a corporation may continue to prosecute a case
commenced by the corporation within 3 years from its
dissolution until rendition of the final judgment, even if such
judgment is rendered beyond the 3-year period allowed by Sec
139, RCC
o However, an already defunct corporation is barred from
initiating a suit after the lapse of the said 3-year period.
o If a petition is filed after the corporate existence, the effect is
that petitioner lacks the capacity to sue as a corporation. To
allow such petition to prosper, on the ground that it is for the
sole purpose of liquidating the corporation’s assets, would be to
circumvent the provisions of Sec. 122 of the Corporation Code
H. OTHER CORPORATIONS
1. CLOSE CORPORATIONS
o A close corporation is –
1) One whose AOI provides that: (a) All the corporation’s issued stock of all
classes, exclusive of treasury shares, shall be held of record by not more
than a specified number of persons, not exceeding twenty (20); (b)
All the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and (c) The corporation shall
not list in any stock exchange or make any public offering of its stocks of any
class.
2) One where two-thirds (2/3) or more of its voting stock or voting rights is
NOT owned or controlled by another corporation, which is not a close
corporation within the meaning of this Code. [Sec. 95, RCC]
 A narrow distribution of ownership does not, by itself, make a close
corporation. When a corporation’s AOI does not contain the
provisions enumerated under Sec. 96 of the Code [now Sec.
95, RCC], such corporation is not a “close corporation”. It does
not become one either, just because only a few individuals owned
99.866% of its subscribed capital stock

o CORPORATIONS DISQUALIFED TO BE A CLOSE CORPORATION; Any
corporation may be incorporated as a close corporation, except mining or oil
companies, stock exchanges, banks, insurance companies, public utilities,
educational institutions and corporations declared to be vested with public interest.
o DIRECT MANAGEMENT BY STOCKHOLDERS - The AOI of a close corporation
may provide that the business of the corporation shall be managed by the
stockholders of the corporation rather than by a board of directors. [Sec. 96, RCC]
o Restrictions on the right to transfer shares must appear in the articles of
incorporation, in the by-laws, as well as in the certificate of stock; otherwise, the
same shall not be binding on any purchaser in good faith. Said restrictions shall not
be more onerous than granting the existing stockholders or the corporation the
option to purchase the shares of the transferring stockholder with such reasonable
terms, conditions or period stated. [Sec 97]
 A transfer restriction should NOT amount to a deprivation of a
stockholder’s right to ultimately dispose of his shareholdings.
o ISSUANCE OR TRANSFER OF STOCK IN BREACH OF QUALIFYING
CONDITIONS - Subject to certain requirements, the person to whom stock is
issued or transferred shall be conclusively presumed to have notice of the fact of
the breach of the ff. qualifying conditions:
a) Eligibility of Stockholder
• The transferee is conclusively presumed to have notice of the fact of
the ineligibility to be a stockholder: (1) If a stock of a close corporation
is issued or transferred to any person who is not eligible thereof under
any provision of the AOI; and (2) If the certificate for such stock
conspicuously shows the qualifications of the persons entitled to be
holders of record thereof. [Sec. 98(a), RCC]
b) Number of Stockholders of Record
• The transferee is conclusively presumed to have notice of the fact that
the issuance or transfer of stock to any person would cause the stock
to be held by more than the number stated in the AOI: (1) If the AOI
of a close corporation states the number of persons, not exceeding
twenty (20), who are entitled to be stockholders of record; and (2) If
the certificate for such stock conspicuously states such number; and
(3) The issuance or transfer of stock to any person would cause the
stock to be held by more than such number of person [Sec. 98(b),
RCC]
c) Stock Transfer Restrictions.
• The transferee is conclusively presumed to have notice of the fact that
the stock was acquired in violation of the transfer restriction: (1) If a
stock certificate of a close corporation conspicuously shows a
restriction on transfer of the corporation’s stock; and (2) The
transferee acquires the stock in violation of such restriction [Sec.
98(c), RCC]
o EFFECT OF CONCLUSIVE PRESUMPTION - Whenever a person to whom
stock of a close corporation has been issued or transferred is conclusively
presumed to have notice of the breach of qualifying conditions, the
corporation may, at its option, refuse to register the transfer in the
name of the transferee. [Sec. 98(d), RCC]
• EXCEPTION: (1) If the transfer of stock, though in breach of the
qualifying conditions, has been consented to by ALL the
stockholders of the close corporation; or (2) If the close
corporation has amended its articles of incorporation in
accordance with Title XII. [Sec. 98(e), RCC]
• OPTION TO RESCIND OR RECOVER - The provisions of Sec. 98 shall

not impair any right which the transferee may have to either: (a)
Rescind the transfer; or (b) Recover the stock under any express or
implied warranty. [Sec. 98(g), RCC]
o WHEN A BOARD MEETING IS UNNECESSARY OR IMPROPERLY HELD - Unless
the by-laws provide otherwise, any action taken by the directors of a close
corporation without a meeting called properly and with due notice shall
nevertheless be deemed valid if:
a) Before or after such action is taken, a written consent thereto is signed by
all the directors; or
b) All the stockholders have actual or implied knowledge of the action
and make no prompt objection in writing; or
c) The directors are accustomed to take informal action with the express or
implied acquiescence of all the stockholders; or
d) All the directors have express or implied knowledge of the action in
question and none of them makes a prompt objection in writing.
• An action within the corporate powers taken at a meeting held
without proper call or notice, is deemed ratified by a director who
failed to attend, unless after having knowledge thereof, the director
promptly files his written objection with the secretary of the
corporation. [Sec. 100]
o PREEMPTIVE RIGHT IN CLOSE CORPORATIONS - 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 articles of
incorporation provide otherwise. [sec. 101]
o DEADLOCK - A deadlock is a situation when the directors or stockholders are so
divided on the management of the corporation’s business and affairs that: (1) the
votes required for a corporate action cannot be obtained; (2) with the consequence
that the business and affairs of the corporation can no longer be conducted to the
advantage of the stockholders generally. [Sec. 103, RCC]
 EFFECT OF THE EXISTENCE OF A DEADLOCK - the SEC, upon written
petition by any stockholder, shall have the power to arbitrate the
dispute. In the exercise of such power, the Commission shall have authority
to make appropriate orders, such as:
a) Cancelling or altering any provision contained in the articles of
incorporation, bylaws, or any stockholder’s agreement;
b) Cancelling, altering or enjoining a resolution or act of the corporation
or its board of directors, stockholders, or officers;
c) Directing or prohibiting any act of the corporation or its board of
directors, stockholders, officers, or other persons party to the action;
d) [BUY-BACK ORDER] requiring the purchase at their fair value
of shares of any stockholder, either by the corporation
regardless of the availability of unrestricted retained earnings
in its books, or by the other stockholders;
 WITHDRAWAL OF STOCKHOLDER - The stockholder of a
close corporation has a counterpart right to compel the
corporation, for any reason, to purchase shares held at fair
value. Such purchase shall not be less than the par or issued
value. Such purchase shall take place only when the corporation
has sufficient assets in its books to cover its debts and liabilities
exclusive of capital stock. [Sec. 104, RCC]
e) Appointing a provisional director;
 A PROVISIONAL DIRECTOR shall be an impartial person who
is neither a stockholder nor a creditor of the corporation or any

of its subsidiaries or affiliates. A provisional director is not a
receiver of the corporation and does not have the title and
powers of a custodian or receiver. A provisional director shall
have all the rights and powers of a duly elected director,
including the right to be notified of and to vote at meetings of
directors until removed by order of the Commission or by all the
stockholders.
f) Dissolving the corporation; or
 The stockholder of a close corporation has a counterpart right to
compel the dissolution of such corporation by written
petition to the Commission: (1) Whenever any of acts of the
directors, officers, or those in control of the corporation is
illegal, fraudulent, dishonest, oppressive or unfairly prejudicial
to the corporation or any stockholder; or (2) Whenever
corporate assets are being misapplied or wasted. [Sec. 104,
RCC]
g) Granting such other relief as the circumstances may warrant.
2. NON-STOCK CORPORATIONS
o A non- stock corporation is one where no part of its income is distributable as

dividends to its members, trustees, or officers. [Sec. 86, RCC]
 Any profit which a non-stock 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 incurring of profit or losses does not determine whether an
activity is for profit or non-profit, what the courts will consider is: 1.
Whether dividends have been declared; or 2. Whether its profit was
ever used for personal or individual gain, and not for the purpose of
carrying out the objectives of the enterprise.
 PURPOSE; Non-stock corporations may be formed or organized for
charitable, religious, educational, professional, cultural, fraternal, literary,
scientific, social, civic service, or similar purposes, like trade, industry,
agricultural and like chambers, or any combination thereof. [Sec. 87] A non-
stock corporation may not include in its AOI a purpose which would change
or contradict its nature as such. [Sec. 13(b), RCC].
o ESSENCE OF A NON-STOCK CORPORATION - It is legally possible for a
corporation having capital stock to still be considered a non-stock corporation. For
this reason, the essence of a non-stock corporation is NOT the non-existence of
shares of stock, but that: a. Its primary purpose should be eleemosynary in
nature; and b. There is a prohibition in its AOI and by-laws that no part of
the income or any form of dividend is distributable to the members,
trustees, or officers of the corporation. [Villanueva]
o NON-TRANSFERABILITY OF MEMBERSHIP - Membership in a nonstock
corporation and all rights arising therefrom are personal and non-transferable,
unless the articles of incorporation or the bylaws otherwise provide. [sec. 89]
o TERMINATION OF MEMBERSHIP - Membership shall be terminated in the
manner and for the causes provided in the articles of incorporation or the
bylaws. Termination of membership shall extinguish all rights of a member in the
corporation or in its property, unless otherwise provided in the articles of
incorporation or the bylaws. [Sec. 90]
 May a non-stock corporation seize and dispose of the membership share of a
fully-paid member on account of its unpaid debts to the corporation when it

is authorized to do so under the corporate by-laws but not by the Articles of
Incorporation? Clearly, [Under Sec. 90] the right of a non-stock corporation
such as Valley Golf to expel a member through the forfeiture of the Golf
Share may be established in the by-laws alone, as is the situation in this
case. [Valley Golf and Country Club, Inc. vs. Vda. de Caram]
DIFFERENCE STOCK NON-STOCK

Stock corporations are those
which have capital stock
One where no part of its
divided into shares and are
income is distributable as
authorized to distribute to the
DEFINITION dividends to its members,
holders of such shares,
trustees or officers. [Sec. 87,
dividends, or allotments of the
RCC]
surplus profits on the basis of
the shares held. [Sec. 3, RCC]
Non-stock corporations may be
formed or organized for
charitable, religious,
educational, professional,
cultural, fraternal, literary,
Primarily to make profits for its
PURPOSE scientific, social, civic service,
shareholders.
or similar purposes, like trade,
industry, agricultural and like
chambers, or any combination
thereof. Profits is merely
incidental.
No part of its income is
DISTRIBUTION Profit is distributed to
distributable as dividends to its
OF PROFIT shareholders
members, trustees, or officers
Stockholders and members
VOTING BY may vote in person or by proxy May be denied by the AOI or
PROXY in all meetings of stockholders the by-laws [Sec. 88, RCC]
or members.
NUMBER OF May be denied by the AOI or
Not more than 15 directors
DIRECTORS the by-laws [Sec. 88, RCC]
3. FOREIGN CORPORATIONS
o A foreign corporation is one formed, organized or existing under laws other than
those of the Philippines’ and whose laws allow Filipino citizens and corporations to
do business in its own country or State. [Sec. 140]
o BASIS; Thus, a foreign corporation may be subjected to jurisdiction by reason of
consent, ownership of property within the State, or by reason of activities within or
having an effect within the state. [Villanueva citing Salonga]
o 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;
but such corporation may be sued or proceeded against before Philippine courts
or administrative tribunals on any valid cause of action recognized under Philippine
laws. [Sec 150]

a. WHAT CONSTITUTES “DOING BUSINESS”
 An unlicensed foreign corporation doing business in the Philippines cannot sue

before Philippine courts. On the other hand, an unlicensed foreign corporation not
doing business in the Philippines can sue before Philippine courts. [Eriks Pte., Ltd.
vs. Court of Appeals]
 The determination of whether a foreign corporation is doing business in the
Philippines must be based on the facts of each case.
o TWIN CHARACTERIZATION TEST
i. CONTINUITY TEST: Doing business implies a continuity of commercial
dealings and arrangements, or performance of acts normally incidental to the
purpose and object of the organization.
ii. SUBSTANCE TEST: Doing business implies that a foreign corporation is
continuing the body or substance of the enterprise of business for which it
was organized
o What is determinative of “doing business” is not really the number or the quantity
of the transactions, but more importantly, the intention of an entity to continue
the body of its business in the country. [Eriks Pte., Ltd. vs. Court of Appeals]
• The grant and extension of 90-day credit terms to private respondent for
every purchase made, unarguably shows an intention to continue
transacting with private respondent, since in the usual course of commercial
transactions, credit is extended only to customers in good standing or to
those on whom there is an intention to maintain long-term relationship.
[Eriks Pte., Ltd. vs. Court of Appeals]
o 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. [Eriks Pte., Ltd. vs. Court of Appeals]
• The sale by petitioner of the items covered by the receipts, which are part
and parcel of its main product line, was actually carried out in the
progressive prosecution of commercial gain and the pursuit of the
purpose and object of its business, pure and simple. [Eriks Pte., Ltd. vs.
Court of Appeals]
o An essential condition to be considered as “doing business” in the Philippines is the
actual performance of specific commercial acts within the territory of the
Philippines. [B. Van Zuiden Bros., Ltd. vs. GTVL Manufacturing Industries, Inc.]
• Here, there is no showing that petitioner performed within the Philippine
territory the specific acts of doing business mentioned in Section 3(d) of RA
7042. Petitioner did not also open an office here in the Philippines, appoint a
representative or distributor, or manage, supervise or control a local
business. While petitioner and respondent entered into a series of
transactions implying a continuity of commercial dealings, the perfection and
consummation of these transactions were done outside the Philippines. As
earlier stated, the series of transactions between petitioner and
respondent transpired and were consummated in Hong Kong. [B. Van
Zuiden Bros., Ltd. vs. GTVL Manufacturing Industries, Inc.]
• In the present case, petitioner is a foreign company merely importing
molasses from a Philipine exporter. A foreign company that merely imports
goods from a Philippine exporter, without opening an office or appointing an
agent in the Philippines, is not doing business in the Philippines. [Cargill, Inc.
vs. Intra Strata Assurance Corporation]
• Mere investment as a shareholder by a foreign corporation in a duly
registered domestic corporation shall not be deemed "doing
business" in the Philippines. It is clear then that the IGC's act of
subscribing shares of stocks from McCann, a duly registered domestic
corporation, maintaining investments therein, and deriving dividend income
therefrom, does not qualify as "doing business" contemplated under R.A. No.
7042. Hence, the IGC is not required to secure a license before it can
file a claim for tax refund. [Commissioner of Internal Revenue vs.
Interpublic Group of Companies, Inc., G.R. No. 207039, August 14,
2019, Caguioa, (Acting Chairperson)]
o Activities within Philippine jurisdiction that do not create earnings or profits to
the foreign corporation do not constitute doing business in the Philippines.
[Cargill, Inc. vs. Intra Strata Assurance Corporation]
• In this case, the contract between petitioner and NMC involved the purchase
of molasses by petitioner from NMC. It was NMC, the domestic corporation,
which derived income from the transaction and not petitioner. To constitute
“doing business,” the activity undertaken in the Philippines should involve
profit-making. [Cargill, Inc. vs. Intra Strata Assurance Corporation]
o The appointment of a distributor in the Philippines is not sufficient to
constitute “doing business” unless it is under the full control of foreign
corporation. On the other hand, if the distributor is an independent entity which
buys and distributes products, other than those of the foreign corporation, for its
own name and its own account, the latter cannot be considered to be doing
business in the Philippines. [Steelcase, Inc. vs. International Selections, Inc.]
o An off-line air carriers having general sales agents in the Philippines are engaged in
or doing business in the Philippines and that their income from sales of passage
documents here is income from within the Philippines. [SOUTH AFRICAN AIRWAYS
VS. CIR]
o Where a single act or transaction of a foreign corporation is not merely incidental or
casual but is of such character as distinctly to indicate a purpose on the part of the
foreign corporation to do other business in the state, such act will be considered as
constituting doing business. [Litton Mills, Inc. vs. Court of Appeals]
• In the case at bar, the trial court was certainly correct in holding that
Gelhaar’s act in purchasing soccer jerseys to be within the ordinary course of
business of the company considering that it was engaged in the manufacture
of uniforms. The acts noted above are of such a character as to indicate a
purpose to do business. [Litton Mills, Inc. vs. Court of Appeals]
• When the respondents entered into the disputed contracts with the
petitioner, they were carrying out the purposes for which they were created,
i.e. to manufacture and market welding products and equipment. The terms
and conditions of the contracts as well as the respondents’ conduct indicate
that they established within our country a continuous business, and not
merely one of a temporary character. [Top-Weld Manufacturing, Inc. vs.
ECED, S.A.]
b. NECESSITY OF A LICENSE TO DO BUSINESS
o It is not the absence of the prescribed license but “doing business” in the
Philippines without such license which debars the foreign corporation from access to
our courts. In other words, although a foreign corporation is without license to
transact business in the Philippines, it does not follow that it has no capacity to
bring an action. Such license is not necessary if it is not engaged in business in the
Philippines. [Columbia Pictures, Inc. vs. Court of Appeals]
o Upon issuance of the license, such foreign corporation may commence to transact
business in the Philippines and continue to do so for as long as it retains its
authority to act as a corporation under the laws of the country or State of its
incorporation, unless such license is sooner surrendered, revoked, suspended, or
annulled in accordance with this Code or other special laws. [Sec. 143]
c. REQUISITES FOR ISSUANCE OF A LICENSE
 A foreign corporation shall submit: 1. A copy of its articles of incorporation and

bylaws, certified in accordance with law, and 2. Their translation to an official
language of the Philippines, if necessary. [Sec 142, RCC]
 As a condition to the issuance of the license for a foreign corporation to
transact business in the Philippines, such corporation shall file with the
Commission a written power of attorney designating a person who must be a
resident of the Philippines, on whom summons and other legal processes may be
served in all actions or other legal proceedings against such corporation, and
consenting that service upon such resident agent shall be admitted and held as
valid as if served upon the duly authorized officers of the foreign corporation at its
home office.
d. RESIDENT AGENT
o A resident agent may be either an individual residing in the Philippines or a

domestic corporation lawfully transacting business in the Philippines.
• An individual resident agent must be of good moral character and of sound
financial standing. In case of a domestic corporation who will act as a
resident agent, it must likewise be of sound financial standing and must show
proof that it is in good standing as certified by the Commission.
e. PERSONALITY TO SUE AND SUABILITY
o 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;
but such corporation may be sued or proceeded against before Philippine courts
or administrative tribunals on any valid cause of action recognized under Philippine
laws. [Sec 150] Section 150 of the RCC bars a foreign corporation “transacting
business” in the Philippines without a license access to our courts. Thus, in order for
a foreign corporation to sue in Philippine courts, a license is necessary only if it
is “transacting or doing business” in the country. Conversely, if an
unlicensed foreign corporation is not transacting or doing business in the
Philippines, it can be permitted to bring an action even without such license.
Apparently, it is not the absence of the prescribed license, but the “doing of
business” in the Philippines without such license which debars the foreign
corporation from access to our courts. The operative phrase is “transacting or doing
business.” [Commissioner of Internal Revenue vs. Interpublic Group of
Companies, Inc., G.R. No. 207039, August 14, 2019, Caguioa, (Acting
Chairperson)]
• XPN: ISOLATED TRANSACTION - In an isolated transaction, there is no
intent on the part of the foreign corporation to engage in a progressive
pursuit of the purpose of a business transaction.
• While the law (presently the Revised Corporation Code or its predecessor, the
Corporation Code) grants to foreign corporations with Philippine license
the right to sue in the Philippines, the Court, however, in a long line of cases
under the regime of the Corporation Code has held that a foreign
corporation not engaged in business in the Philippines may not be denied
the right to file an action in the Philippine courts for an isolated
transaction. The right and capacity to sue, being, to a great extent, matters
of pleading and procedure, depend upon the sufficiency of the allegations in

the complaint. Thus, as to a foreign corporation, the qualifying
circumstance that if it is doing business in the Philippines, it is duly
licensed or if it is not, it is suing upon a singular and isolated
transaction, is an essential part of the element of the plaintiff’s
capacity to sue and must be affirmatively pleaded. In the case at bar,
[SCPL] alleged in its complaint that "it is a foreign corporation which operates
its business at the Star City Casino in Sydney, New South Wales, Australia;
that it is not doing business in the Philippines; and that it is suing upon a
singular and isolated transaction". [LLORENTE VS. STAR CITY PTY
LIMITED G.R. No. 212050 - January 15, 2020, CAGUIOA]
o PRINCIPLE OF ESTOPPEL; a foreign corporation doing business in the Philippines
without a license may still sue before the Philippine courts a Filipino or a Philippine
entity that had derived some benefit from their contractual arrangement because
the latter is considered to be estopped from challenging the personality of a
corporation after it had acknowledged the said corporation by entering into a
contract with it. [Steelcase, Inc. vs. International Selections, Inc.]
o Moreover, this Court has ruled that subsequent acquisition of the license will cure
the lack of capacity at the time of the execution of the contract.
4. ONE-PERSON CORPORATIONS
o A One Person Corporation is a corporation with a single stockholder. [Sec. 116]

o WHO MAY FORM AND MAY NOT; only a natural person, trust, or an estate may
form a One Person Corporation. Banks and quasi-banks, pre-need, trust, insurance,
public and publicly-listed companies, and non-chartered government owned and -
controlled corporations may not incorporate as One Person Corporations.
 A natural person who is licensed to exercise a profession may not organize
as a One Person Corporation for the purpose of exercising such profession
except as otherwise provided under special laws.
o CAPITAL STOCK REQUIREMENT - A One Person Corporation shall not be
required to have a minimum authorized capital stock, except as otherwise provided
by special law. [Sec. 117, RCC]
o BY-LAWS - The OPC is not required to submit and file corporate by-laws. [Sec.
119, RCC]
o CORPORATE STRUCTURE AND OFFICERS
 The single stockholder shall be the sole director and president of the One
Person Corporation. [Sec. 121, RCC]
 Within fifteen (15) days from the issuance of its certificate of incorporation,
the One Person Corporation shall appoint a treasurer, corporate
secretary, and other officers as it may deem necessary, and notify the
Commission thereof within five (5) days from appointment. The single
stockholder may not be appointed as the corporate secretary.
o NOMINEE - The single stockholder shall designate in the AOI a nominee and an
alternate nominee who shall, in the event of the single stockholder’s death or
incapacity: (1) Take the place of the single stockholder as director; and (2) Manage
the corporation’s affairs. [Sec. 124, RCC]
 The written consent of the nominee and alternate nominee shall be attached
to the AOI. Such consent may be withdrawn in writing any time before the
death or incapacity of the single stockholder. [Sec. 124, RCC]
 TERM OF NOMINEE
i. When the single stockholder is temporarily incapacitated: (1) The
nominee shall sit as director and manage the affairs of the OPC (2)
The nominee shall serve only until the stockholder, by self-
determination, regains the capacity to assume such duties. [Sec. 125,

RCC]
ii. In case of death or permanent incapacity of the single stockholder:
(1) The nominee shall sit as director and manage the affairs of the
OPC (2) The nominee shall serve until: a. The legal heirs of the single
stockholder have been lawfully determined; and b. The heirs have
designated one of them or have agreed that the estate shall be the
single stockholder of the OPC. [Sec. 125, RCC]
 TERM OF ALTERNATE NOMINEE - Term of Alternate Nominee In case of
the nominee’s inability, incapacity, death, or refusal to discharge the
functions as director and manager of the corporation: (1) The alternate
nominee shall sit as director and manage the One Person Corporation; and
(2) The alternate nominee shall serve only for the same term, and under the
same conditions applicable to the nominee. [Sec. 125, RCC]
 CHANGE OF NOMINEE OR ALTERNATE NOMINEE - The single
stockholder may, at any time, change its nominee and alternate nominee by
submitting to the Commission the names of the new nominees and their
corresponding written consent. For this purpose, the articles of incorporation
need not be amended. [Sec. 126]
o LIABILITY OF SINGLE SHAREHOLDER - A sole shareholder claiming limited
liability has the burden of affirmatively showing that the corporation was
adequately financed.
 Where the single stockholder cannot prove that the property of the One
Person Corporation is independent of the stockholder’s personal property, the
stockholder shall be jointly and severally liable for the debts and other
liabilities of the One Person Corporation.
 The principles of piercing the corporate veil applies with equal force to One
Person Corporations as with other corporations. [Sec. 130]
o CONVERSION OF CORPORATION TO ONE PERSON CORPORATIONS AND
VICE-VERSA
i. CONVERSION FROM AN ORDINARY CORPORATION TO A OPC - When a
single stockholder acquires ALL the stocks of an ordinary stock corporation,
the latter may apply for conversion into a One Person Corporation, subject to
the submission of such documents as the Commission may require.
 If the application for conversion is approved: (1) The
Commission shall issue certificate of filing of amended
articles of incorporation reflecting the conversion (2) The
OPC converted from an ordinary stock corporation shall succeed
the latter, and be legally responsible for all the latter’s
outstanding liabilities as of the date of conversion. [Sec. 131,
RCC]
ii. CONVERSION FROM A OPC TO AN ORDINARY STOCK CORPORATION -
A One Person Corporation may be converted into an ordinary stock
corporation after: (1) Due notice to the Commission of such fact and of the
circumstances leading to the conversion and such notice shall be filed with
the Commission within sixty (60) days from the occurrence of the
circumstances leading to the conversion into an ordinary stock corporation
(2) Compliance with all other requirements for stock corporations under this
Code and applicable rules.
 if all requirements have been complied with, the Commission
shall issue an amended certificate of incorporation reflecting the
conversion. [Sec. 132, RCC]

I. MERGERS AND CONSOLIDATIONS
1. CONCEPT
MERGER CONSOLIDATION
One or more corporations are
absorbed by another which Union of 2 or more corporations
survives and continues the to form a new corporation
combined business
One of the constituent
corporations 7
remains as an All constituents corporations
existing juridical person, whereas disappear with the emergence of
the other corporation shall cease a new corporate entity
to exist.
The surviving corporation shall The new corporate entity shall
acquire all the assets, rights of obtain all the assets of the
action, and assuming all the disappearing corporations, and
liabilities of the disappearing likewise shall assume all their
corporation/s. liabilities.
There is no liquidation of the assets of the dissolved corporation, all
rights, properties and franchises are acquired by the surviving/new
corporation.
 DE FACTO MERGER: “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. The acquiring
corporation would end up with the business enterprise of the target corporation;
whereas, the target corporation would end up with basically its only remaining
assets being the shares of stock of the acquiring corporation.
 PLAN OF MERGER OR CONSOLIDATION - Each of the constituent corporations
must draw up a Plan of Merger or Consolidation which shall set forth: a. Names
of the corporation involved; b. Terms and mode of carrying it to effect; c.
Statement of changes, if any, in the present articles of the surviving corporation to
be formed in the case of merger; and with respect to the consolidated corporation
in case of consolidation.
o The Plan must be approved by the board of directors or trustees of each
constituent corporation by majority vote.
o Upon approval by a majority vote of each of the board of directors or
trustees of the constituent corporations of the plan of merger or
consolidation, the same shall be submitted for approval by the
stockholders or members of each of such corporations at separate
corporate meetings duly called for the purpose.
o The affirmative vote of stockholders representing at least two-thirds (2/3)
of the outstanding capital stock of each corporation in the case of stock
corporations or at least two-thirds (2/3) of the members in the case of
non-stock corporations shall be necessary for the approval of such plan. Any
dissenting stockholder may exercise the right of appraisal in accordance
with this Code: Provided, That if after the approval by the stockholders of
such plan, the board of directors decides to abandon the plan, the right of
appraisal shall be extinguished. [Sec. 76]
 ARTICLES OF MERGER OR CONSOLIDATION - After the approval by the
stockholders or members as required by the preceding section, articles of merger
7
the parties to a merger or consolidation
or articles of consolidation shall be executed by each of the constituent
corporations, to be signed by the president or vice president and certified by the
secretary or assistant secretary of each corporation.
o The articles of merger or of consolidation, signed and certified as required by
this Code, shall be submitted to the Commission for its approval.
o In case of merger or consolidation of banks or banking institutions, loan
associations, trust companies, insurance companies, public utilities,
educational institutions, and other special corporations governed by special
laws, the favorable recommendation of the appropriate government
agency shall first be obtained.
 EFFECTIVITY - If the Commission is satisfied that the merger or consolidation of
the corporations concerned is consistent with the provisions of this Code and
existing laws, it shall issue a certificate approving the articles and plan of
merger or of consolidation, at which time the merger or consolidation shall
be effective.
o Merger or consolidation does not become effective by mere agreement of the
constituent corporations. The approval of the SEC is required.
2. EFFECTS AND LIMITATIONS
 The merger or consolidation shall have the following effects:

a) The constituent corporations shall become a single corporation which, in
case of merger, shall be the surviving corporation designated in the plan
of merger; and, in case of consolidation, shall be the consolidated
corporation designated in the plan of consolidation;
b) The separate existence of the constituent corporations shall cease, except
that of the surviving or the consolidated corporation;
c) The surviving or the consolidated corporation shall possess all the
rights, privileges, immunities, and powers and shall be subject to
all the duties and liabilities of a corporation organized under this
Code;
d) The surviving or the consolidated corporation shall possess all the rights,
privileges, immunities and franchises of each constituent corporation; and
all real or personal property, all receivables due on whatever account,
including subscriptions to shares and other choses in action, and every
other interest of, 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
e) The surviving or consolidated corporation shall be responsible for
all the liabilities and obligations of each constituent corporation
as though such surviving or consolidated corporation had itself
incurred such liabilities or obligations; and any pending claim, action
or proceeding brought by or against any constituent corporation may be
prosecuted by or against the surviving or consolidated corporation. The
rights of creditors or liens upon the property of such constituent
corporations shall not be impaired by the merger or consolidation. [Sec.
79]
 Although in a merger, there is dissolution of the absorbed corporations, there is no
winding up of their affairs, because the surviving corporation automatically
acquires all their rights, privileges, powers and liabilities.
 The issuance of the certificate of merger is crucial because not only does it bear out
SEC’s approval but it also marks the moment when the consequences of a merger
take place. By operation of law, upon the effectivity of the merger, the absorbed
corporation ceases to exist but its rights and properties, as well as liabilities, shall
be taken and deemed transferred to and vested in the surviving corporation.
 GR: A corporation that purchases the assets of another will not be liable for the
debts of the selling corporation, provided the former acted in good faith and paid
adequate consideration for such assets.
o XPN: NELL DOCTRINE - Generally, where one corporation sells or
otherwise transfers all of its assets to another corporation, the latter is not
liable for the debts and liabilities of the transferor, except:
1) Where the purchaser expressly or impliedly agrees to assume such
debts;
2) Where the transaction amounts to a consolidation or merger of the
corporations;
3) Where the purchasing corporation is merely a continuation of the
selling corporation; and
 Synthesizing Section 40 and the previous rulings of this Court, it
is apparent that the business-enterprise transfer rule
applies when two requisites concur: (a) the transferor
corporation sells all or substantially all of its assets to another
entity; and (b) the transferee corporation continues the
business of the transferor corporation.
4) Where the transaction is entered into fraudulently in order to escape
liability for such debts.
 The Nell Doctrine states the general rule that the transfer of all
the assets of a corporation to another shall not render the latter
liable to the liabilities of the transferor. If any of the above-cited
exceptions are present.
 EFFECT ON EMPLOYMENT CONTRACTS; employment contracts are automatically
assumed by the surviving corporation in a merger, even in the absence of an
express stipulation in the articles of merger or the merger plan.

OVERVIEW: Trademark, copyright and patents are different intellectual property rights
that cannot be interchanged with one another. A trademark is any visible sign capable
of distinguishing the goods (trademark) or services (service mark) of an enterprise and
shall include a stamped or marked container of goods. In relation thereto, a trade
name means the name or designation identifying or distinguishing an enterprise.
Meanwhile, the scope of a copyright is confined to literary and artistic works which are
original intellectual creations in the literary and artistic domain protected from the
moment of their creation. Patentable inventions, on the other hand, refer to any
technical solution of a problem in any field of human activity which is new, involves an
inventive step and is industrially applicable. [Kho vs. Ca]

A. PATENTS
 THREE-FOLD PURPOSE; The patent law has a three-fold purpose: "first, patent law
seeks to foster and reward invention; second, it promotes disclosures of inventions to
stimulate further innovation and to permit the public to practice the invention once the
patent expires; third, the stringent requirements for patent protection seek to ensure
that ideas in the public domain remain there for the free use of the public."
But the ultimate goal of a patent system is to bring new designs and technologies
into the public domain through disclosure.
1. PATENTABLE VS. NON-PATENTABLE INVENTIONS
A. PATENTABLE INVENTIONS
o PATENTABLE INVENTIONS - Any technical solution of a problem in any field of

human activity which is new, involves an inventive step and is industrially
applicable shall be Patentable. It may be, or may relate to, a product, or
process, or an improvement of any of the foregoing. [Sec 21]
o ELEMENTS OF PATENTABILITY
1) NOVELTY
 An invention shall not be considered new if it forms part of a prior
art. [Sec. 23]
 PRIOR ART;
i. Everything which has been made available to the public
anywhere in the world, before the filing date or the priority
date of the application claiming the invention; [Sec. 24.1]
ii. That which forms part of an application whether for
patent, utility model or industrial designed, effective in the
Philippines: Provided, that the inventor or applicants are not
the same and the contents of application are published in
accordance with the requirements of patent application rules
and the filing date of prior art is earlier.
 EXCEPTION; NON-PREJUDICIAL DISCLOSURE
• It provides that the disclosure of the information
contained in the application during the 12 months
preceding the filing date or the priority date of the
application shall not prejudice the applicant on the ground
of lack of novelty if such disclosure was made by: (a) The
inventor; (b) A patent office and the information was
contained (i) in another application filed by the inventor and
should not have been disclosed by the office, or (ii) in an
application filed without the knowledge or consent of the
inventor by a third party which obtained the information
directly or indirectly from the inventor; or (c) A third party
which obtained the information directly or indirectly from the
inventor. [Sec 25]
2) INVENTIVE STEP
 An invention involves an inventive step if, having regard to prior
art, it is not obvious to a person skilled in the art at the time
of the filing date or priority date of the application claiming the
invention. [Sec 26]
 In case of drugs and medicines, there is no inventive step if the
invention results from:
i.The mere discovery of a new form or new property of a
known substance which does not result in enhancement of
the known efficacy of that substance;
ii. The mere discovery of any new property or new use for a
known substance; or
iii. The mere use of a known process unless such known process
results in a new product that employs at least one new
reactant.
3) INDUSTRIAL APPLICABILITY
 An invention that can be produced and used in any industry shall
be industrially applicable. [Sec. 27]
B. NON-PATENTABLE INVENTIONS
o The following shall be excluded from patent protection:
a. Discoveries, scientific theories and mathematical methods, and

in the case of drugs and medicines, the mere discovery of a new
form or new property of a known substance which does not
result in the enhancement of the known efficacy of that
substance, or the mere discovery of any new property or new
use for a known substance, or the mere use of a known
process unless such known process results in a new product
that employs at least one new reactant. Salts, esters, ethers,
polymorphs, metabolites, pure form, particle size, isomers, mixtures
of isomers, complexes, combinations, and other derivatives of a
known substance shall be considered to be the same substance,
unless they differ significantly in properties with regard to efficacy;
[Sec. 22.1, RA 8293 as amended by RA 9502]
b. Schemes, rules and methods of performing mental acts, playing
games or doing business, and programs for computers; [Sec. 22.2,
RA 8293]
c. Methods for treatment of the human or animal body by surgery or
therapy and diagnostic methods practiced on the human or animal
body. This provision shall not apply to products and composition for
use in any of these methods; [Sec. 22.3, RA 8293]
d. Plant varieties or animal breeds or essentially biological process for
the production of plants or animals. This provision shall not apply to
microorganisms and non-biological and microbiological processes;
[Sec. 22.4, RA 8293]
e. Aesthetic creations; [Sec. 22.5, RA 8293]
f. Anything which is contrary to public order or morality. [Sec. 22.6,
RA 8293]
2. OWNERSHIP OF A PATENT
 The right to a patent belongs to the inventor, his heirs, or assigns. When two or
more persons have jointly made an invention, the right to a patent shall belong to
them jointly. [Sec. 28]
 TERM OF PROTECTION; a patent is valid for 20 years from filing of the application
for the grant of patent.
 INVENTIONS PURSUANT TO COMMISION OR EMPLOYMENT
1. COMMISSION - The person who commissions the work shall own the patent,
unless otherwise provided in the contract. [Sec. 30]
2. EMPLOYMENT - In case the employee made the invention in the course of his
employment contract, the patent shall belong to:
i. The employee, if the inventive activity is not a part of his regular
duties even if the employee uses the time, facilities and materials of the
employer.
ii. The employer, if the invention is the result of the performance of his
regularly-assigned duties, unless there is an agreement, express or
implied, to the contrary.
 FIRST TO FILE RULE - If two (2) or more persons have made the invention
separately and independently of each other, the right to the patent shall belong
to the person who filed an application for such invention, or where two or more
applications are filed for the same invention, to the applicant who has the earliest
filing date or, the earliest priority date. [ Sec. 29]
 RIGHT OF PRIORITY - An application for patent filed by any person who has
previously applied for the same invention in another country which by treaty,
convention, or law affords similar privileges to Filipino citizens, shall be
considered filed as of the date of filing the foreign application: Provided, That:
i. The local application expressly claims priority;
ii. It is filed within 12 months from the date the earliest foreign application
was filed; and
iii. A certified copy of the foreign application together with an English
translation is filed within 6 months from the date of filing in the Philippines.
[Sec. 31]
3. GROUNDS FOR CANCELLATION OF A PATENT
 Any interested person may petition to cancel the patent or any claim thereof, or parts
of the claim, on any of the following grounds:
1. That what is claimed as the invention is not new or patentable;
2. That the patent does not disclose the invention in a manner sufficiently
clear and complete for it to be carried out by any person skilled in the art; or
3. That the patent is contrary to public order or morality. [Sec. 61.1]
 Where the grounds for cancellation relate to some of the claims or parts
of the claim, cancellation may be effected to such extent only. [Sec.
61.2]
4. PATENT INFRINGEMENT
 The making, using, offering for sale, selling, or importing a patented product or a
product obtained directly or indirectly from a patented process, or the use of a
patented process without the authorization of the patentee constitutes patent
infringement: Provided, That, this shall not apply to instances covered by Sections
72.1 and 72.4 (Limitations of Patent Rights*); Section 74 (Use of Invention by
Government); Section 93.6 (Compulsory Licensing); and Section 93-A
(Procedures on Issuance of a Special Compulsory License under the TRIPS
Agreement) of this Code. [Sec. 76.1, RA 8293 as amended by R.A. 9502]
 TESTS IN PATENT INFRINGEMENT
1. LITERAL INFRINGEMENT - The test is satisfied if:
i. The item that is being sold, made or used conforms exactly to the patent
claim of another; or
ii. One makes, uses or sells an item that has all the elements of the patent
claim of another plus other elements
2. DOCTRINE OF EQUIVALENTS - Under the doctrine of equivalents, an
infringement occurs when a device: (1) Appropriates a prior invention by
incorporating its innovative concept, albeit with some modification and change,
(2) Performs substantially the same function in substantially the same
way, and (3) Achieves substantially the same result.
 The doctrine of equivalents thus requires satisfaction of the function-
means-and-result test, the patentee having the burden to show that
all three components of such equivalency test are met.
 *LIMITATIONS OF PATENT RIGHTS
o The owner of a patent has no right to prevent third parties from
performing, without his authorization, the acts referred to in Section 71
hereof in the following circumstances:
a. OWNER’S CONSENT:
i. National exhaustion - Using a patented product which has
been put on the market in the Philippines by the owner of the
product, or with his express consent, insofar as such use is
performed after that product has been so put on the said
market;
ii. International exhaustion (for drugs and medicines) - A drug
or medicine has been introduced anywhere else in the world by
the patent owner, or by any party authorized to use the
invention. [Sec. 72.1, RA 8293 as amended by RA 9502]
b. PARALLEL IMPORTATION: The right to import the drugs and
medicines shall be available to any government agency or any private
third party; [Sec. 72.1, RA 8293 as amended by RA 9502]
c. NON – COMMERCIAL: Where the act is done privately and on a non-
commercial scale or for a non-commercial purpose: Provided,
That it does not significantly prejudice the economic interests of the
owner of the patent; [Sec. 72.2, RA 8293 as amended by RA 9502]
d. EXPERIMENTAL USE: Where the act consists of making or using
exclusively for experimental use of the invention for scientific purposes
or educational purposes and such other activities directly related to
such scientific or educational experimental use; [Sec. 72.3, RA
8293 as amended by RA 9502]
e. DRUGS AND MEDICINE: In the case of drugs and medicines, where
the act includes testing, using, making or selling the invention
including any data related thereto, solely for purposes reasonably
related to the development and submission of information and
issuance of approvals by government regulatory agencies required
under any law of the Philippines or of another country that regulates
the manufacture, construction, use or sale of any product xxx.
f. DOCTRINE OF PRIOR USER - Any prior user, who, in good faith
was using the invention or has undertaken serious preparations to use
the invention in his enterprise or business, before the filing date or
priority date of the application on which a patent is granted,
shall have the right to continue the use thereof as envisaged in such
preparations within the territory where the patent produces its effect.
[Sec. 73.1, RA 8293] The right of the prior user may only be
transferred or assigned together with his enterprise or business,
or with that part of his enterprise or business in which the use or
preparations for use have been made. [Sec. 73.2, RA 8293]
 In other words, the prior user cannot assign the use of patented
product or process without giving up entirely his enterprise.

B. TRADEMARKS
1. MARKS VS. COLLECTIVE MARKS VS. TRADE NAMES
 R.A. No. 8293 defines a "mark" as any visible sign capable of distinguishing the
goods (trademark) or services (service mark) of an enterprise and shall include a
stamped or marked container of goods. It also defines a "collective mark" as any
visible sign designated as such in the application for registration and capable of
distinguishing the origin or any other common characteristic, including the quality
of goods or services of different enterprises which use the sign under the control of
the registered owner of the collective mark. On the other hand, trade name refers
to name or designation identifying or distinguishing an enterprise.
2. ACQUISITION OF OWNERSHIP
 HOW MARKS ARE ACQUIRED - The rights in a mark shall be acquired through
registration made validly in accordance with the provisions of this law. [Sec 122]
o Trade names are protected even without registration.
o Prior use no longer determines the acquisition of ownership of a mark in
light of the adoption of the rule that ownership of a mark is acquired
through registration made validly in accordance with the provisions of the IP
Code. [ZUNECA PHARMACEUTICAL VS. NATRAPHARM, INC.,
September 2020, CAGUIOA]
o Even if the mark was previously used and not abandoned by another
person, a good faith applicant [one can have a registration in bad faith
only if he applied for the registration of the mark despite knowing that
someone else has created, used, or registered that mark] may still register
the same and thus become the owner thereof, and the prior user cannot ask
for the cancellation of the latter's registration. [ZUNECA
PHARMACEUTICAL VS. NATRAPHARM, INC., September, 2020,
CAGUIOA]
a. CONCEPT OF ACTUAL USE
o To repeat, after the IP Code became effective starting 1998, use was no
longer required in order to acquire or perfect ownership of the mark. In
this regard, the Court now rectifies the inaccurate statement in Berris that
"[t]he ownership of a trademark is acquired by its registration and its actual
use." The rectified statement should thus read: "Under the IP Code, the
ownership of a trademark is acquired by its registration." Any
pronouncement in Berris inconsistent herewith should be harmonized
accordingly. To clarify, while subsequent use of the mark and proof
thereof are required to prevent the removal or cancellation of a
registered mark or the refusal of a pending application under the IP
Code, this should not be taken to mean that actual use and proof
thereof are necessary before one can own the mark or exercise the
rights of a trademark owner. [ZUNECA PHARMACEUTICAL VS.
NATRAPHARM, INC., September, 2020, CAGUIOA]
o RA 8293 no longer requires prior use before filing the application (i.e., it shifted
to an intent to use system). However, the law still requires use of the mark
after filing.
o Certainly, while the IP Code and the Rules of the IPO mandate that the
applicant/registrant must prove continued actual use of the mark, it is the
considered view of the Court that this does not imply that actual use is still a
recognized mode of acquisition of ownership under the IP Code. Rather, these
must be understood as provisions that require actual use of the mark in
order for the registered owner of a mark to maintain his ownership
[Medina v. Global Quest Ventures, Inc., G.R. No. 213815, February 8,
2021]
b. EFFECT OF REGISTRATION
o The rights in a mark are acquired through registration made in accordance with
the Intellectual Property Code. Once registered, the certificate of registration
constitutes a prima facie evidence of the validity of the registration, the
registrant's ownership of the mark, and of the registrant's exclusive right to
use the same in connection with the goods or services and those that are
related thereto specified in the certificate. Here, the Court of Appeals
recognized the prima facie presumption accorded by petitioner's certificate of
registration. However, it noted that this presumption is not indefeasible
and may be overcome by evidence of prior use by another. Applying this
Court's pronouncement in Berris Agricultural Co., Inc. v. Abyadang, the Court
of Appeals decreed:. . . prima facie presumption brought about by the
registration of a mark may be challenged and overcome, in an appropriate
action, by proof of the nullity of the registration or of non-use of the mark,
except when excused. Moreover, the presumption may likewise be defeated by
evidence of prior use by another person, i.e., it will controvert a claim of legal
appropriation or of ownership based on registration by a subsequent user. This
is because a trademark is a creation of use and belongs to one who first used it
in trade or commerce. [Medina v. Global Quest Ventures, Inc., G.R. No.
213815, February 8, 2021]
o In the same vein, the prima facie nature of the certificate of registration is not
indicative of the fact that prior use is still a recognized mode of acquiring
ownership under the IP Code. Rather, it is meant to recognize the instances
when the certificate of registration is not reflective of ownership of the holder
thereof, such as when: [1] the first registrant has acquired ownership of the
mark through registration but subsequently lost the same due to non-use or
abandonment (e.g., failure to file the Declaration of Actual Use); [2] the
registration was done in bad faith; [3] the mark itself becomes generic; [4] the
mark was registered contrary to the IP Code (e.g., when a generic mark was
successfully registered for some reason); or [5] the registered mark is being
used by, or with the permission of, the registrant so as to misrepresent the
source of the goods or services on or in connection with which the mark is
used. [Medina v. Global Quest Ventures, Inc., G.R. No. 213815,
February 8, 2021]
3. WELL-KNOWN MARKS
 A well-known mark is a mark which a competent authority of the Philippines has

designated to be well-known internationally and in the Philippines. [Sec. 123.1(e),
RA 8293]
o "Competent authority" for purposes of determining whether a mark is well-
known, means the Court, the Director General, the Director of the Bureau of
Legal Affairs, or any administrative agency or office vested with quasi-
judicial or judicial jurisdiction to hear and adjudicate any action to enforce
the rights to a mark.
 The owner of a well-known mark has the right to be protected, whether or not
the mark is registered in the Philippines. [Sec. 123.1(e)]
 WHETHER REGISTERED OR NOT IN THE PHILIPPINES; A mark cannot be
registered if it is identical with, or confusingly similar to, or constitutes a
translation of an internationally well-known mark if used for identical or
similar goods or services. [Sec. 123.1(e)]
 REGISTERED IN THE PHILIPPINES; A mark cannot be registered if it is identical
with, or confusingly similar to, or constitutes a translation of an internationally well-
known mark even if it is used for goods or services which are NOT similar to
those with respect to which registration is applied. [Sec. 123.1(f)]
o Other persons or entities cannot use the registered well-known mark even
for unrelated goods, provided that:
i. The use of the mark in relation to those goods or services would
indicate a connection between those goods or services, and the owner
of the registered mark; and
ii. That the interests of the owner of the registered mark are likely to be
damaged by such use. [Sec. 123.1(f)]
4. RIGHTS CONFERRED BY REGISTRATION
 The owner of a registered mark shall have the exclusive right to prevent all
third parties not having the owner's consent from using in the course of trade:
(i) Identical or similar signs or containers, (ii) For goods or services which are
identical or similar to those in respect of which the trademark is registered, (iii)
Where such use would result in a likelihood of confusion.
 In case of the use of an identical sign for identical goods or services, a
likelihood of confusion shall be presumed.
 In cases of importation of drugs and medicines allowed under Section 72.1 of
this Act and of off-patent drugs and medicines, third parties can import the same
even without the owner’s consent, provided that:
i. Said drugs and medicines bear the registered marks;
ii. The registered marks have not been tampered, unlawfully modified, or
infringed upon [Sec. 147.1, RA 8293 as amended by RA 9502]
 DURATION - A certificate of registration shall remain in force for 10 years from
registration and may be renewed for periods of 10 years at its expiration upon
payment of the prescribed fee and upon filing of a request.
 LIMITATIONS ON SUCH RIGHTS
a. FAIR USE: The registration of the mark shall not confer on the registered
owner the right to preclude third parties from using bona fide their names,
addresses, pseudonyms, a geographical name, or exact indications
concerning the kind, quality, quantity, destination, value, place of origin, or
time of production or of supply, of their goods or services. Provided That:
i. Such use is confined to the purposes of mere identification or
information; and
ii. Such use cannot mislead the public as to the source of the
goods or services. [Sec. 148, RA 8293]
b. PRIOR USER: A registered mark shall have no effect against any person
who, in good faith, before the filing date or the priority date, was using the
mark for the purposes of his business or enterprise.
 A prior user in good faith may continue to use its mark even
after the registration of the mark by the first-to-file
registrant in good faith, subject to the condition that any transfer
or assignment of the mark by the prior user in good faith should be
made together with the enterprise or business or with that part of
his enterprise or business in which the mark is used. The mark
cannot be transferred independently of the enterprise and business
using it. [ZUNECA PHARMACEUTICAL VS. NATRAPHARM, INC.,
September, 2020, CAGUIOA]
c. NON-USE: The applicant or the registrant shall file a declaration of actual
use of the mark with evidence to that effect, as prescribed by the
Regulations within three (3) years from the filing date of the
application. Otherwise, the application shall be refused or the mark shall
be removed from the Register by the Director.
5. CANCELLATION OF REGISTRATION
 A petition to cancel a registration of a mark under this Act may be filed with the
Bureau of Legal Affairs by any person who believes that he is or will be damaged by
the registration of a mark within five (5) years from the date of the
registration of the mark; or
 AT ANY TIME if it is based on the following:
1) Registered mark becomes the generic name for the goods or
services, or a portion thereof, for which it is registered;
2) Mark has been abandoned;
3) Its registration was obtained fraudulently or contrary to the
provisions of this Act;
 One can have a registration in bad faith only if he applied
for the registration of the mark despite knowing that
someone else has created, used, or registered that mark.
In the same vein, an unregistrable mark which was mistakenly
allowed to be registered was already inherently unregistrable
even prior to its registration. Accordingly, because these marks
should not have been registered in the first place, the presence
of either of these grounds renders them void. Thus, even if
these marks subsequently became registered, the
registrations do not confer upon their owners the rights
under Section 147.1 of the IP Code because the marks were
registered contrary to the provisions of the same law. This
concept of bad faith, however, does not only exist in
registrations. To the mind of the Court, the definition of bad faith
as knowledge of prior creation, use and/or registration by
another of an identical or similar trademark is also applicable
in the use of trademarks without the benefit of
registration. [ZUNECA PHARMACEUTICAL VS.
NATRAPHARM, INC., September, 2020, CAGUIOA]
4) If the registered mark is being used by, or with the permission of, the
registrant so as to misrepresent the source of the goods or
services on or in connection with which the mark is used;
5) If the registered owner of the mark without legitimate reason fails to
use the mark within the Philippines, or to cause it to be used in the
Philippines by virtue of a license during an uninterrupted period of
three (3) years or longer.

6. TRADEMARK INFRINGEMENT
 ELEMENTS; To establish trademark infringement, the following elements must be

proven:
1) the trademark being infringed is registered in the IPO;
2) the trademark is reproduced, counterfeited, copied, or colorably imitated by
the infringer;
3) the infringing mark is used in connection with the sale, offering for sale, or
advertising of any goods, business, or services; or the infringing mark is
applied to labels, signs, prints, packages, wrappers, receptacles, or
advertisements intended to be used upon or in connection with such goods,
business, or services;
4) the use or application of the infringing mark is likely to cause confusion or
mistake or to deceive purchasers or others as to the goods or services
themselves or as to the source or origin of such goods or services or the
identity of such business; and
5) it is without the consent of the trademark owner or the assignee thereof.
 Of these, it is the element of likelihood of confusion that is the
gravamen of trademark infringement.
 Whether a trademark causes confusion and is likely to deceive the public
hinges on "colorable imitation" which has been defined as "such
similarity in form, content, words, sound, meaning, special arrangement
or general appearance of the trademark or trade name in their overall
presentation or in their essential and substantive and distinctive parts as
would likely mislead or confuse persons in the ordinary course of
purchasing the genuine article."
 TWO TYPES OF CONFUSION
1. Confusion of goods (product confusion) - where the ordinarily prudent
purchaser would be induced to purchase one product in the belief that he was
purchasing the other
2. Confusion of business (source or origin confusion) - where, although the
goods of the parties are different, the product, the mark of which registration is
applied for by one party, is such as might reasonably be assumed to originate
with the registrant of an earlier product, and the public would then be deceived
either into that belief or into the belief that there is some connection between
the two parties, though inexistent. [Mang Inasal vs. IFP MANUFACTURING
CORPORATION]
 Confusion, in either of its forms, is, thus, only possible when the goods
or services covered by allegedly similar marks are identical, similar or
related in some manner.
 The use of identical mark does not, by itself, lead to a legal conclusion that there is
trademark infringement if they are NOT used for identical, similar or related goods.
o Related goods and services are those that, though non-identical or non-
similar, are so logically connected to each other that they may
reasonably be assumed to originate from one manufacturer or from
economically-linked manufacturers.
 MULTIFACTOR TEST - In determining likelihood of confusion - which can manifest
in the form of "confusion of goods" and/or "confusion of business" - several factors
may be taken into account, such as: (a) the strength of plaintiffs mark; b) the
degree of similarity between the plaintiffs and the defendant's marks; c)
the proximity of the products or services; d) the likelihood that the plaintiff will
bridge the gap; e) evidence of actual confusion f) the defendant's good faith in
adopting the mark; g) the quality of defendant's product or service; and/or h) the
sophistication of the buyers.
o These criteria may be collectively referred to as the multifactor test. Out
of these criteria, there are two which are uniformly deemed significant
under the Trademark Law and the IP Code: the resemblance of marks
(the degree of similarity between the plaintiffs and the defendant's
marks) and the relatedness of goods or services (the proximity of
products or services). [Kolin v. Kolin, 2021, EN BANC, CAGUIOA]
o It is the Court's considered view that evidence of actual confusion
should be considered as strong evidence of likelihood of
confusion, especially when there are concurrent findings of resemblance
of marks and/or relatedness of the goods/services. [Kolin v. Kolin,
2021, EN BANC, CAGUIOA]
 DOCTRINE OF NATURAL EXPANSION OF BUSINESS - The protection to which
the owner of a trademark is entitled extends to cases in which the use of by a
junior appropriator of a trademark of trade name is likely to lead to a
confusion of source. As where prospective purchasers would be misled into
thinking that the complaining party has extended his business into the field or is in
any way connected with the activities of the infringer; or when it forestalls the
normal potential expansion of the business.
o The scope of protection afforded to registered trademark owners is not
limited to protection from infringers with identical goods. The scope of
protection extends to protection from infringers with related goods, and to
market areas that are the normal expansion of business of the
registered trademark owners. As stated above, the goods covered by
KOLIN and kolin are related. Therefore, it is likely that the goods covered by
kolin falls within the normal potential expansion of business of KECI. [Kolin
v. Kolin, 2021, EN BANC, CAGUIOA]
 NON-REGISTRABLE MARKS
a) Consists of immoral, deceptive or scandalous matter, or matter which
may disparage or falsely suggest a connection with persons, living or
dead, institutions, beliefs, or national symbols, or bring them into contempt
or disrepute; [Sec. 123.1(a), RA 8293]
 Fredco’s use of the mark "Harvard," coupled with its claimed origin
in Cambridge, Massachusetts, obviously suggests a false
connection with Harvard University. Indisputably, Fredco does not
have any affiliation or connection with Harvard University, or even
with Cambridge, Massachusetts.
b) Consists of flags, coat of arms or other insignia of the Philippines or any
foreign country; [Sec. 123.1(b), RA 8293]
c) Consists of a name, portrait or signature identifying a particular living
individual except by his written consent, or of a deceased President of the
Philippines, during the life of his widow, except by written consent of the
widow; [Sec. 123.1(c), RA 8293]
d) Is identical with a registered mark of another or a mark with an
earlier filing or priority date, in respect of: 1. The same goods or
services, or 2. Closely related goods or services, or 3. If it nearly resembles
such a mark as to be likely to deceive or cause confusion; [Sec. 123.1(d),
RA 8293]
e) Is identical with, or confusingly similar to, or constitutes a translation of a
well-known mark, whether or not registered in the Philippines, and used
for identical or similar goods or services; [Sec. 123.1(e), RA 8293]
f) Is identical with, or confusingly similar to, or constitutes a translation of a
well-known mark which is registered in the Philippines, and used for
goods or services which are not similar; [Sec. 123.1(f), RA 8293]
g) Likely to mislead the public, particularly as to the nature, quality,

characteristics or geographical origin of the goods or services; [Sec.
123.1(g), RA 8293]
h) Consists exclusively of signs that are generic for the goods or services that
they seek to identify; [Sec. 123.1(h), RA 8293]
 Lyceum is a generic in character as the word university.
i) Consists exclusively of signs or of indications that have become customary
or usual to designate the goods or services in everyday language or in a
bona fide and established trade practice; [Sec. 123.1(i), RA 8293]
j) (Descriptive) Consists exclusively of signs or of indications that may serve
in trade to designate the kind, quality, quantity, intended purpose, value,
geographical origin, time or production of the goods or rendering of the
services, or other characteristics of the goods or services; [Sec. 123.1(j),
RA 8293]
 "Ang Tibay" is not a descriptive term within the meaning of the
Trade-Mark Law but rather a fanciful or coined phrase which
may properly and legally be appropriated as a trade-mark or trade-
name.
k) Consists of shapes that may be necessitated by technical factors or by the
nature of the goods themselves or factors that affect their intrinsic value;
[Sec. 123.1(k), RA 8293]
l) Consists of color alone, unless defined by a given form; [Sec. 123.1(l), RA
8293]
m) Is contrary to public order or morality. [Sec. 123.1(m), RA 8293]
o DOCTRINE OF SECONDARY MEANING – A generic or descriptive mark may later

acquire the characteristic of distinctiveness and can later be registered if it acquires
a meaning which is different from its ordinary connotation. For this to happen,
there must be exclusive and continuous use for a period of at least 5 years.
o COMPOSITE MARKS – Although they cannot be registered themselves, generic and
descriptive marks, colors and shapes may be part of a composite mark but there
should be a disclaimer and the person who registers them as a part of mark will not
acquire ownership thereto.
o STRENGTH OF THE MARK - The factor on "strength of plaintiffs mark" pertains to
the degree of distinctiveness of marks, which can be divided into five categories
enumerated in decreasing order of strength below:
1) Coined or fanciful marks - invented words or signs that have no real meaning
(e.g., Google, Kodak). These marks are the strongest and have the greatest
chance of being registered.
 KECI's KOLIN mark is a fanciful or coined mark. Considering that it is
highly distinctive, confusion would be likely if someone else were to be
allowed to concurrently use such mark in commerce.
2) Arbitrary marks - words that have a meaning but have no logical relation to a
product (e.g., SUNNY as a mark covering mobile phones, APPLE in relation to
computers/phones).
3) Suggestive marks - marks that hint at the nature, quality or attributes of the
product, without describing these attributes (e.g., SUNNY for lamps, which
would hint that the product will bring light to homes). If not considered as
bordering on descriptive, this may be allowed.
4) Descriptive marks - describe the feature of the product such as quality, type,
efficacy, use, shape, etc. The registration of descriptive marks is generally not
allowed under the IP Code.
5) Generic marks - words or signs that name the species or object to which they
apply (e.g., CHAIR in relation to chairs). They are not eligible for protection
as marks under the IP Code. [Kolin v. Kolin, 2021, EN BANC, CAGUIOA]

 DOMINANCY TEST (CONTROLLING TEST)
o Considering the adoption of the Dominancy Test and the abandonment of the
Holistic Test, as confirmed by the provisions of the IP Code and the legislative
deliberations, the Court hereby makes it crystal clear that the use of the
Holistic Test in determining the resemblance of marks has been
abandoned. [Kolin vs. Kolin, 2021, ENBANC, CAGUIOA]
o Under the DOMINANCY TEST, courts give greater weight to the similarity of
the appearance of the product arising from the adoption of the
dominant features of the registered mark, disregarding minor
differences. Courts will consider more the aural and visual impressions
created by the marks in the public mind, giving little weight to factors like
prices, quality, sales outlets and market segments. [Kolin vs. Kolin, 2021,
ENBANC, CAGUIOA]
 Applying the Dominancy Test here, KPII's kolin mark resembles
KECI's KOLIN mark because the word "KOLIN" is the prevalent
feature of both marks. Phonetically or aurally, the marks are
exactly the same. Surely, the manner of pronouncing the word
"KOLIN" does not change just because KPII's mark is in lowercase and
contains an italicized orange letter "i". In terms of connotation and
overall impression, there seems to be no difference between the two
marks. The fact that KPII's trademark application possesses special
characteristics (e.g., the italicized orange letter "i") not present in
KECI's KOLIN word mark makes no difference in terms of appearance,
sound, connotation, or overall impression because the "KOLIN" word
itself is the subject of KECI's registration. [Kolin vs. Kolin, 2021,
ENBANC, CAGUIOA]
 From the foregoing, it is thus readily apparent that although petitioner's
and respondents' marks are neither spelled identically nor pronounced in
the same way, nor possess the same meaning, they both begin with the
same letter and are in the possessive form as denoted by the
apostrophe before the letter "S" at the end, with only the second and
fourth letters re-arranged. Simply put, respondents’ LIVE'S mark is but
a mere anagram of petitioner's "LEVI'S" marks. It would not be
farfetched to imagine that a buyer, when confronted with such striking
similarity would be led to confuse one over the other. Thus, by simply
applying the Dominancy Test, it can already be concluded that there is a
likelihood of confusion between petitioner's "LEVI'S" marks and
respondents' LIVE'S mark. [Levi Strauss & Co. v. Sevilla, G.R. No.
219744, March 1, 2021]
o Duplication or imitation is not necessary; nor is it necessary that the infringing
label should suggest an effort to imitate. The question is whether the use of the
marks involved is likely to cause confusion or mistake in the mind of the public
or deceive purchasers.
 NICE CLASSIFACTION (NCL)
o As astutely explained by Chief Justice Diosdado M. Peralta, the NCL serves
purely administrative purposes - merely a way for trademark offices worldwide
to organize the thousands of applications that are filed - and the classification
of products/services should not have been included as one of the factors in
determining relatedness because there was no legal basis for its inclusion. Also,
the Classes in the NCL undergo several changes each year. Considering the
foregoing discussion, the Court hereby abandons the use of product or
service classification as a factor in determining relatedness or non-
relatedness. [Kolin vs. Kolin, 2021, ENBANC, CAGUIOA]

 NOTICE; PRESUMPTION
o The owner of the registered mark shall not be entitled to recover profits or
damages unless the acts have been committed with knowledge that such
imitation is likely to cause confusion, or to cause mistake, or to deceive. Such
knowledge is presumed if: (i) The registrant gives notice that his mark is
registered by displaying with the mark the words '"Registered Mark" or the
letter R within a circle or (ii) The defendant had otherwise actual notice of the
registration.
7. UNFAIR COMPETITION
 UNFAIR COMPETITION has been defined as the passing off (or palming off) or
attempting to pass off upon the public of the goods or business of one person as the
goods or business of another with the end and probable effect of deceiving the
public. The essential elements of unfair competition are (1) confusing similarity in
the general appearance of the goods; and (2) intent to deceive the public and
defraud a competitor.
 The following shall be guilty of unfair competition, and shall be subject to an action
therefor:
i. Any person who shall employ deception or any other means contrary to good
faith, by which he shall pass off the goods manufactured by him or in which he
deals, or his business, or services for those of the one having established such
goodwill; or
 Passing off (or palming off) takes place where the defendant, by
imitative devices on the general appearance of the goods, misleads
prospective purchasers into buying his merchandise under the
impression that they are buying that of his competitors. Thus, the
defendant gives his goods the general appearance of the goods of his
competitor with the intention of deceiving the public that the
goods are those of his competitor.
ii. Any person who shall commit any acts calculated to produce said result. [Sec.
168.2, RA 8293]
 PARTICULAR ACTS OF UNFAIR COMPETITION:
a) Selling one’s goods and giving them the general appearance of goods of
another manufacturer or dealer, either:
i. As to the goods themselves or in the wrapping of the packages in which
they are contained, or the devices or words thereon; or
ii. In any other feature of their appearance, which would be likely to
influence purchasers to believe that the goods offered are those of a
manufacturer or dealer, other than the actual manufacturer or dealer.
b) Clothing one’s goods with such appearance as shall deceive the public and
defraud another of his legitimate trade, or any subsequent vendor of such
goods or any agent of any vendor engaged in selling such goods with a like
purpose. [Sec. 168.3(a), RA 8293]
c) Using any artifice, or device, or employing any other means calculated to
induce the false belief that such person is offering the services of another who
has identified such services in the mind of the public. [Sec. 168.3(b), RA 8293]
d) Catch-all phrase. Making any false statement in the course of trade or
committing any other act contrary to good faith of a nature calculated to
discredit the goods, business or services of another. [Sec. 168.3(c), RA 8293]
 TEST; whether the acts of the defendant have the intent of deceiving or are
calculated to deceive the ordinary buyer making his purchases under the ordinary
conditions of the particular trade to which the controversy relates. One of the
essential requisites in an action to restrain unfair competition is proof of fraud; the
intent to deceive, actual or probable must be shown before the right to recover can
exist.
 ELEMENTS;
1) Confusing similarity in the general appearance of the goods, and
2) Intent to deceive the public and defraud a competitor.
o The confusing similarity may or may not result from similarity in the
marks, but may result from other external factors in the packaging or
presentation of the goods. The intent to deceive and defraud may be
inferred from the similarity of the appearance of the goods as offered for
sale to the public. Actual fraudulent intent need not be shown.
o Unfair competition is broader than trademark infringement and includes
passing off goods with or without trademark infringement.
Trademark infringement is a form of unfair competition. Trademark
infringement constitutes unfair competition when there is not
merely likelihood of confusion, but also actual or probable
deception on the public because of the general appearance of the
goods. There can be trademark infringement without unfair competition as
when the infringer discloses on the labels containing the mark that he
manufactures the goods, thus preventing the public from being deceived
that the goods originate from the trademark owner.
DIFFERENCE TRADEMARK INFRINGEMENT UNFAIR COMPETITION

Unauthorized use of a trademark Passing off of one’s goods as
Nature
or trade name those of another
Intent Fraudulent intent is unnecessary Fraudulent intent is essential
Prior registration of the trademark
Registration Registration is not necessary
is a prerequisite to the action
C. COPYRIGHTS
 A copyright refers to the right granted by a statute to the proprietor of an

intellectual production to its exclusive use and enjoyment to the extent
specified in the statute.
 Copyright need not be registered to be protected. The law provides that
intellectual creations in the literary and artistic domain are protected from the
moment of its creation.
 Unlike a patent, a copyright gives no exclusive right to the art disclosed; protection
is given only to the expression of the idea — not the idea itself.
 TERM OF PROTECTION; Copyright is generally valid for 50 years.
1. COPYRIGHTABLE WORKS
 Literary and artistic works, hereinafter referred to as "works", are original

intellectual creations in the literary and artistic domain protected from the
moment of their creation and shall include in particular:
1) Books, pamphlets, articles and other writings;
2) Periodicals and newspapers;
3) Lectures, sermons, addresses, dissertations prepared for oral delivery,
whether or not reduced in writing or other material form;
4) Letters;
5) Dramatic or dramatico-musical compositions; choreographic works or
entertainment in dumb shows;
6) Musical compositions, with or without words;
7) Works of drawing, painting, architecture, sculpture, engraving,
lithography or other works of art; models or designs for works of art;
8) Original ornamental designs or models for articles of manufacture,
whether or not registrable as an industrial design, and other works of
applied art;
9) Illustrations, maps, plans, sketches, charts and three-dimensional works
relative to geography, topography, architecture or science;
10) Drawings or plastic works of a scientific or technical character;
11) Photographic works including works produced by a process analogous to
photography; lantern slides;
12) Audiovisual works and cinematographic works and works produced by a
process analogous to cinematography or any process for making audio-visual
recordings;
13) Pictorial illustrations and advertisements;
14) Computer programs; and
15) Other literary, scholarly, scientific and artistic works [Sec. 172.1, RA
8293]
o Hatch doors were not artistic works within the meaning of copyright
laws. A copyrightable work refers to literary and artistic works defined
as original intellectual creations on the literary and artistic domain. A
hatch door, by its nature is an object of utility.
 DERIVATIVE WORKS - The following derivative works shall also be protected by
copyright: Dramatizations, translations, adaptations, abridgments, arrangements,
and other alterations of literary or artistic works; and Collections of literary,
scholarly or artistic works, and compilations of data and other materials which are
original by reason of the selection or coordination or arrangement of their
contents. E.g., Harry potter is a derivative work based on the novel of the same
title. [Sec. 173.1, RA 8293]
o Derivative works are protected as new works, provided they shall not: (1)
Affect the force of any subsisting copyright upon the original works employed
or any part thereof; or (2) Be construed to imply any right to such use of the
original works, or to secure or extend copyright in such original works.
2. NON-COPYRIGHTABLE WORKS
1) Any idea, procedure, system method or operation, concept,

principle, discovery or mere data as such, even if they are expressed,
explained, illustrated or embodied in a work;
 The format or mechanics of a TV show is not copyrightable as
copyright does not extend to ideas, procedures, processes, systems,
methods of operation, concepts, principles or discoveries regardless of
the form in which they are described, explained, illustrated or embodied.
2) News of the day and other miscellaneous facts having the character of
mere items of press information;
 Television newscasts are subject to copyright. Although news or
the events themselves are not copyrightable, expression of the news
particularly when it underwent a creative process is entitled to copyright
protection.
 News as expressed in a video footage is entitled to copyright protection.
3) Any official text of a legislative, administrative or legal nature, as well as
any official translation thereof;
4) Pleadings;
5) Original decisions of courts and tribunals
 This pertains to the “original decisions” not the SCRA published volumes
since these are protected under derivative works under Sec. 173.1
 WORKS OF THE GOVERNMENT
o Work of the Government of the Philippines - A work created by an officer or
employee of the Philippine Government or any of its subdivisions and
instrumentalities, including government-owned or controlled corporations as
a part of his regularly prescribed official duties.
o GR: No copyright shall subsist in any work of the Government.
XPN: (1) When copyright is transferred by assignment or bequest in favor of
the government [Sec. 176.3]; (2) Author of speeches, lectures, sermons,
addresses and dissertations shall have exclusive right of making a collection
of his work.
 However, prior approval of the government agency or the office wherein
the work is created shall be necessary for the exploitation of such work
for profit.
 USEFUL ARTICLES - A “useful article” is defined as an article “having intrinsic
utilitarian function that is not merely to portray the appearance of the article or to
convey information” is excluded from copyright eligibility. The only instance
when a useful article may be the subject of copyright protection is when it
incorporates a design element that is physically or conceptually separable
from the underlying product.
3. RIGHTS CONFERRED BY COPYRIGHT
 Works are protected by the sole fact of their creation, irrespective of their
mode or form of expression, as well as of their content, quality and purpose.
 The issuance of the certificates of registration and deposit as provided by Sec. 2,
Rule 7 of the Copyright Safeguards and Regulations, are purely for recording the
date of registration and deposit of the work, and are not conclusive as to
copyright ownership (nor does it determine the time when copyright vests).
 COPYRIGHT OR ECONOMIC RIGHTS - Copyright or economic rights shall consist

of the exclusive right to carry out, authorize or prevent the following acts:
a) Reproduction of the work or substantial portion of the work;
b) Dramatization, translation, adaptation, abridgment, arrangement or other
transformation of the work;
c) The first public distribution of the original and each copy of the work by sale
or other forms of transfer of ownership;
d) Rental of the original or a copy of: a. An audiovisual or cinematographic
work, b. A work embodied in a sound recording, c. A computer program, d. A
compilation of data and other materials or a musical work in graphic form e.
Irrespective of the ownership ofthe original or the copy which is the subject
of the rental;
e) Public display of the original or a copy of the work;
f) Public performance of the work; and
g) Other communication to the public of the work. [Sec. 177, RA 8293]
 PUBLISHER’S COPYRIGHT - In addition to the right to publish granted by the
author, his heirs, or assigns, the publisher shall have a copyright consisting merely of
the right of reproduction of the typographical arrangement of the published
edition of the work.

 MORAL RIGHTS - The author of a work shall, independently of the economic rights
in Section 177 or the grant of an assignment or license with respect to such right,
have the right:
a) To require that the authorship of the works be attributed to him, in particular,
the right that his name, as far as practicable, be indicated in a prominent way
on the copies, and in connection with the public use of his work; [Sec. 193.1,
RA 8293]
b) To make any alterations of his work prior to, or to withhold it from publication;
[Sec. 193.2, RA 8293]
c) To object to any distortion, mutilation or other modification of, or other
derogatory action in relation to, his work which would be prejudicial to his
honor or reputation; [Sec. 193.3, RA 8293]
d) To restrain the use of his name with respect to any work not of his own
creation or in a distorted version of his work. [Sec. 193.4, RA 8293]
o While Moral Rights cannot be assigned or licensed, it can be waived.
 RELATED RIGHTS (NEIGHBORING RIGHTS)

1) PERFORMER’S RIGHT [SEC. 203]
i. As regards their performances, the right of authorizing: a) The
broadcasting and other communication to the public of their
performance; and b) The fixation of their unfixed performance. [Sec.
203.1, RA 8293] c) Such right shall be maintained and exercised 50
years after his death, by his heirs, and in default of heirs, the
government, where protection is claimed. [Sec. 204.2, RA 8293]
ii. The right of authorizing the direct or indirect reproduction of their
performances fixed in sound recordings, or audiovisual works or fixations
in any manner or form; [Sec. 203.2, RA 8293, as amended by 10372]
iii. The right of authorizing the first public distribution of the original and
copies of their performance fixed in the sound recording or audiovisual
works or fixations through sale or rental or other forms of transfer of
ownership; [Sec. 203.3, RA 8293, as amended by RA 10372] a) Subject
to the provisions of Section 206
iv. The right of authorizing the commercial rental to the public of the
original and copies of their performances fixed in sound recordings or
audiovisual works or fixations, even after distribution of them by, or
pursuant to the authorization by the performer; [Sec. 203.4, RA 8293,
as amended by RA 10372]
v. The right of authorizing the making available to the public of their
performances fixed in sound recordings or audiovisual works or fixations,
by wire or wireless means, in such a way that members of the public
may access them from a place and time individually chosen by them;
[Sec. 203.5, RA 8293, as amended by RA 10372]
vi. The right to claim to be identified as the performer of his performances,
and to object to any distortion, mutilation or other modification of his
performances that would be prejudicial to his reputation, as regards his
live aural performances or performances fixed in sound recordings or
audiovisual works or fixations; a) Exception: Where the omission is
dictated by the manner of the use of the performance. [Sec. 204.1, RA
8293,as amended by RA 10372]
vii. The right to an additional remuneration equivalent to at least five
percent (5%) of the original compensation he or she received for the
first communication or broadcast, in every communication to the public
or broadcast of a performance subsequent to the first communication or
broadcast thereof by the broadcasting organization. [Sec. 206, RA 8293]

a) Unless otherwise provided in the contract
2) PRODUCERS OF SOUND RECORDING [SEC. 208]
a) The right to authorize the direct or indirect reproduction of their sound
recordings, in any manner or form; the placing of these reproductions in
the market and the right of rental or lending; [Sec. 208.1, RA 8293]
b) The right to authorize the first public distribution of the original and
copies of their sound recordings through sale or rental or other forms of
transferring ownership; [Sec. 208.2, RA 8293]
c) The right to authorize the commercial rental to the public of the original
and copies of their sound recordings, even after distribution by them by
or pursuant to authorization by the producer. [Sec. 208.3, RA 8293]
3) SINGLE EQUITABLE REMUNERATION [Sec. 29] - The right to be paid a
single equitable remuneration by the user to be shared with the
performers equally, in the absence of any agreement, when a sound
recording published for commercial purposes, or a reproduction of such sound
recording, is: a. Used directly for broadcasting or b. Used for other
communication to the public; or c. Publicly performed with the intention of
making and enhancing profit. [Sec. 209, RA 8293]
o LIMITATIONS ON PROTECTION OF NEIGHBORING RIGHTS -
Sections 203, 208 and 209 shall not apply where the acts referred to in
those Sections are related to:
a. The use by a natural person exclusively for his own personal
purposes;
b. Using short excerpts for reporting current events;
c. Use solely for the purpose of teaching or for scientific
research; and
d. Fair use of the broadcast subject to certain conditions. [Sec.
212, RA 8293]
 RIGHTS OF BROADCASTING ORGANIZATIONS
i. The rebroadcasting of their broadcasts; [Sec. 211.1, RA 8293]
ii. The recording in any manner, including the making of films or the use of video
tape, of their broadcasts for the purpose of communication to the public of
television broadcasts of the same; [Sec. 211.2, RA 8293]
iii. The use of such records for fresh transmissions or for fresh recording. [Sec.
211.3, RA 8293]
o MUST-CARRY RULE - This rule prevents cable television companies
from excluding broadcasting organization especially in those places not
reached by signal. Also, the rule prevents cable television companies
from depriving viewers in far-flung areas the enjoyment of programs
available to city viewers.
4. OWNERSHIP OF A COPYRIGHT
1. SINGLE CREATOR OF AN ORIGINAL WORK - Belongs to the author of the work

2. WORKS OF JOINT AUTHORSHIP - Belongs of the co-authors; in the absence of
agreement, their rights shall be governed by the rules on co-ownership. However, if
the work consists of parts that can be used separately and identified, the author of
each part owns the copyright of the part he has created.
3. WORK CREATED DURING THE COURSE OF EMPLOYMENT
i. EMPLOYEE - if the creation is not a part of his regular duties, even if he
used the time, facilities and materials of the employer.
ii. EMPLOYER - if the work is in the performance of the employee’s regular
duties unless there is an agreement to the contrary.

4. COMMISSIONED WORK - The person who commissioned the work and pays for it
holds ownership of the work per se, but copyright remains with the creator unless
there was a stipulation to the contrary.
5. AUDIO VISUAL WORKS - Belongs to the producer, author of the scenario,
composer of the music, film director, and author of the adapted work. However,
subject to stipulations, the producers shall exercise the copyright as may be
required for the exhibition of the work, except for the right to collect license fees for
the performance of musical compositions in the work.
6. LETTERS - Belongs to the writer, but the court may authorize their publication or
dissemination of the public good or interest of justice requires, pursuant to Art.
723, New Civil Code.
7. ANONYMOUS AND PSEUDONYMOUS WORKS - Publishers are deemed to
represent the authors, unless the contrary appears, the pseudonyms or adopted
names leave no doubt as to theauthor’s identity or if the author discloses his
identity.
8. COLLECTIVE WORKS - A contributor is deemed to have waived his right unless
he expressly reserves it.
 Ownership of copyrighted material is shown by proof of originality and

copyrightability. While it is true that where the complainant presents a copyright
certificate in support of the claim of infringement, the validity and ownership of
the copyright is presumed. This presumption however is rebuttable and cannot be
sustained where other evidence in the record casts doubt on the question of
ownership.
 TRANSFER OR ASSIGNMENT OF COPYRIGHT - The copyright may be assigned or
licensed in whole or in part.
i. The copyright is not deemed assigned or licensed inter vivos in whole or in part
unless there is a written indication of such intention.
ii. If two or more persons jointly own a copyright or any part thereof, neither of the
owners shall be entitled to grant licenses without the prior written consent of
the other owner or owners.
5. LIMITATIONS ON COPYRIGHT - The following shall NOT constitute infringement of

copyright:
a) Recitation or performance of a work once it has been made accessible to the public
if (1) privately done AND free of charge OR (2) strictly for a charitable or religious
institution; [Sec. 184.1(a), RA 8293]
b) Making of quotations from a published work: (1) compatible with fair use, (2)
extent is justified by the purpose, (3) source and name of the author, appearing on
work, must be mentioned; [Sec. 184.1(b), RA 8293]
c) Reproduction or communication to the public by mass media of articles on current
political, social, economic, scientific or religious topic, lectures, addresses and other
works, delivered in public: (1) for information purposes, (2) not expressly reserved,
and (3) source is already indicated; [Sec. 184.1(c), RA 8293]
d) Reproduction and communication to the public of literary, scientific or artistic works
as part of reports of current events by means of photography, cinematography or
broadcasting to the extent necessary for the purpose; [Sec. 184.1(d), RA 8293]
e) Inclusion of a work in a publication, broadcast or other communication to the
public, sound recording or film if made by way of illustration for teaching purposes
compatible with fair use and the source and the name of the author appearing on
work, must be mentioned; [Sec. 184.1(e), RA 8293]
f) Recording made in schools, universities, or educational institutions of a work
included in a broadcast for the use of schools, universities or educational
institutions. Such recording must be deleted within a reasonable period; such
recording maynot be made from audio-visual works which are part of the general
cinema, repertoire of feature films except of brief excerpts of the work; [Sec.
184.1(f), RA 8293]
g) Making of ephemeral recordings; (1) by a broadcasting organization, (2) by
meansof its work or facilities, (3) for use in its own broadcast; [Sec. 184.1(g), RA
8293]
h) Use made of a work by or under the direction or control of the government for
public interest compatible with fair use; [Sec. 184.1(h), RA 8293]
i) Public performance or the communication to the public of a work in a place where
no admission fee is charged by a club on institution for charitable or educational
purpose only and the aim is not profit making; [Sec. 184.1(i), RA 8293]
j) Public display of the original or a copy of the work not made by means of a film,
slide, television, image or otherwise on screen or by means of any other device or
process either the work has been published, sold, given away, or transferred to
another person by the author or his successor in title; [Sec. 184.1(j), RA 8293]
k) Use made of a work for the purpose of any judicial proceedings or for the giving of
professional advice by a legal practitioner. [Sec. 184.1(k), RA 8293]
l) The reproduction or distribution of published articles or materials in a specialized
format exclusively for the use of the blind, visually- and reading-impaired persons:
Provided, That such copies and distribution shall be made on a nonprofit basis and
shall indicate the copyright owner and the date of the original publication. [Sec.
184.1(l), RA 8293 as amended by RA 10372]
 REPRODUCTION OF PUBLISHED WORK - The private reproduction of a published
work in a single copy, where the reproduction is made by a natural person
exclusively for research and private study, shall be permitted, without the
authorization of the owner of copyright in the work.
o XPN: Such permission shall not extend to:
i. A work of architecture in the form of building or other
construction;
ii. An entire book, or a substantial part thereof, or of a musical work
in graphic form by reprographic means;
iii. A compilation of data and other materials;
iv. A computer program except as provided in Section 189; and
v. Any work in cases where reproduction would unreasonably conflict
with a normal exploitation of the work or would otherwise
unreasonably prejudice the legitimate interests of the author.
[187.2, RA 8293]
6. DOCTRINE OF FAIR USE
 Fair use as "privilege to use the copyrighted material in a reasonable manner

without the consent of the copyright owner or as copying the theme or ideas rather
than their expression."
 The fair use of a copyrighted work for criticism, comment, news reporting, teaching
including multiple copies for classroom use, scholarship, research, and similar
purposes is not an infringement of copyright.
 FACTORS TO CONSIDER IN DETERMINING FAIR USE
a) The purpose and character of the use, including whether such use is of a
commercial nature or is for non-profit educational purposes;
 First, the purpose and character of the use of the copyrighted material
must fall under those listed in Section 185, thus: "criticism, comment,
news reporting, teaching including multiple copies for classroom use,
scholarship, research, and similar purposes." Hence, commercial use of
the copyrighted work can be weighed against fair use.
b) The nature of the copyrighted work;
 If the nature of the work is more factual than creative, then fair use will
be weighed in favor of the user.
c) The amount and substantiality of the portion used in relation to the
copyrighted work as a whole; and
 An exact reproduction of a copyrighted work, compared to a small
portion of it, can result in the conclusion that its use is not fair.
d) The effect of the use upon the potential market for or value of the
copyrighted work.
 If this court finds that the use had or will have a negative impact on the
copyrighted work’s market, then the use is deemed unfair.
7. COPYRIGHT INFRINGEMENT
 A person infringes a right protected under this Act when one:

a. Directly commits an infringement;
b. Benefits from the infringing activity of another person who commits an
infringement if the person benefiting:
i. Has been given notice of the infringing activity; and
ii. Has the right and ability to control the activities of the other person;
c. With knowledge of infringing activity, induces, causes or materially
contributes to the infringing conduct of another. [Sec. 216, RA 8293 as
amended by RA 10372]
 Knowledge of infringement is material only when a person is charged
of aiding and abetting a copyright infringement. The liability for
copyright infringement is in the nature of strict liability. It does not
require mens rea or culpa.
 It also includes the act of any person who at the time when copyright subsists in
a work has in his possession an article which he known, or ought to know, to
be an infringing copy of the work for the purpose of:
a. Selling, letting for hire, or by way of trade offering or exposing for sale,
or hire, the article;
b. Distributing the article for purpose of trade, or for any other purpose to
an extent that will prejudice the rights of the copyright owner in the
work; or
c. Trade exhibit of the article in public. [Sec. 217.3, RA 8293]
 Copyright infringement is thus committed by any person who shall use original
literary or artistic works, or derivative works, without the copyright owner's
consent in such a manner as to violate the foregoing copy and economic rights.
For a claim of copyright infringement to prevail, the evidence on record must
demonstrate: (1) ownership of a validly copyrighted material by the
complainant; and (2) infringement of the copyright by the respondent.
 SUBSTANTIAL REPRODUCTION - It is not necessarily required that the entire
copyrighted work, or even a large portion of it, be copied. If so much is taken
that the value of the original work is substantially diminished, there is
an infringement of copyright and to an injurious extent, the work is
appropriated. In cases of infringement, copying alone is not what is
prohibited. The copying must produce an “injurious effect.”


 It is governed by RA 9160, as amended by RA 9194 (2003), RA 10167 (2012), RA

10365 (2013) and RA 10927 (2017), RA 11521 (2021).
 Money Laundering is a crime where the proceeds of an unlawful activity are
transacted, thereby making them appear to have originated from legitimate
sources.
A. COVERED INSTITUTIONS AND THEIR OBLIGATIONS
1) Banks, non-banks, quasi–banks, trust entities, foreign exchange dealers,

pawnshops, money changers, remittance and transfer companies and other similar
entities and all other persons and their subsidiaries and affiliates supervised or
regulated by the BSP;
2) Insurance companies, pre-need companies and all other persons supervised or
regulated by the Insurance Commission;
3) Those who are:
i. Securities dealers, brokers, salesmen, investment houses and other similar
entities managing securities or rendering services as investment agent,
advisor, or consultant,
ii. Mutual funds, close – end investment companies, common trust funds, pre –
need companies and other similar entities,
iii. Foreign exchange corporations, money changers, money payment,
remittance and transfer companies and other similar entities, and
iv. Other entities administering or otherwise dealing in currency, commodities or
financial derivatives based thereon, valuable objects, cash substitutes and
other similar monetary instruments or property supervised or regulated by
the Securities and Exchange Commission (SEC).
4) Jewelry dealers in precious metals, who, as a business, trade in precious metals, for
transactions in excess of Php1,000,000.
5) Company service providers which, as a business, provide any of the following
services to third parties:
i. Acting as a formation agent of juridical persons;
ii. 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;
iii. Providing a registered office, business address or accommodation,
correspondence or administrative address for a company, a partnership or
any other legal person or arrangement; and
iv. Acting as, or arranging for another person to act as, a nominee shareholder
for another person
6) Persons who provide any of the following services:
i. Managing of client money, securities or other assets;
ii. Management of bank, savings or securities accounts;
iii. Organization of contributions for the creation, operation or management of
companies; and
iv. Creation, operation or management of juridical persons or arrangements and
buying or selling business entities. [Sec. 1]
v. Casinos, including internet and ship-based casinos, with respect to their
casino cash transactions related to their gaming operations. [Sec. 1]
7) Real estate developers and brokers;
8) Casinos, including internet and ship-based casinos, with respect to their casino cash
transactiotus related to they gaming operations.
9) Offshore gaming operation, as well as their service providers, supervised,
accredited or regulated by the Philippine Amusement and Gaming Corporation
(PAGCOR) or any government agency.
 PROFESSIONALS EXCLUDED FROM “COVERED PERSON”
• The term ‘covered persons’ excludes 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
confidences or the attorney-client relationship. Provided, (1) that these
lawyers and accountants 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 or any of its amendments.
• Lawyers and accountant acting as independent legal professionals are not
required to report covered and suspicious transactions if the relevant
information was obtained in circumstances when they are subject to
professional secrecy or legal professional privilege.
 OBLIGATIONS OF COVERED INSTITUTIONS
i. CUSTOMER IDENTIFICATION
• Anonymous accounts, accounts under fictitious names, and all other
similar accounts shall be absolutely prohibited. Peso and foreign
currency non- checking numbered accounts shall be allowed. The BSP
may conduct annual testing solely limited to the determination of the
existence and true identity of the owners of such accounts. [Sec. 9]
ii. RECORD KEEPING
• All records of all transactions of covered institutions shall be
maintained and safely stored for five (5) years from the dates of
transactions.
• With respect to closed accounts, the records on customer
identification, account files and business correspondence, shall be
preserved and safely stored for at least five (5) years from the
dates when they were closed.
iii. REPORTING OF COVERED AND SUSPICIOUS TRANSACTIONS
• General Rule: Covered institutions shall report to the AMLC all
covered transactions and suspicious transactions within five (5)
working days from occurrences thereof, unless anti Money
Laundering Council (AMLC) prescribed a longer period not exceeding
fifteen (15) working days. "Should a transaction be determined to be
both a covered transaction and a suspicious transaction, the covered
institution shall be required to report the same as a suspicious
transaction.
• EXCEPTION; Lawyers and accountants acting as independent legal
professionals are not required to report covered and suspicious
transactions if the relevant information was obtained in circumstances
where they are subject to professional secrecy or legal professional
privilege.
B. COVERED AND SUSPICIOUS TRANSACTIONS
o Money laundering is also committed by any covered person who, knowing that a
covered or suspicious transaction is required under this Act to be reported to the
Anti-Money Laundering Council (AMLC), fails to do so. [Sec. 4, RA 10365]. A
COVERED TRANSACTION is a transaction in cash or other equivalent monetary
instrument involving a total amount in excess of Php 500,000 within one
banking day. [Sec. 3(b)] However, even though the amount of money or property
is P500,000.00 or less, if the transaction is suspicious the covered person such as
a bank has the obligation to report it to the AMLC. Failure to do so constitutes the
crime of money laundering.

• EXCEPTIONS:
i. For CASINOS or covered persons under Section 3(a)(8), a single casino
cash transaction involving an amount in excess of Five million pesos
(P5,000,000.00) or its equivalent in any other currency.
ii. For REAL ESTATE DEVELOPERS AND BROKERS or covered persons
under Section 3(a)(9) herein, a single cash transaction involving an
amount in excess of Seven million five hundred thousand pesos
(P7,500,000.00) or its equivalent in any other currency.
o SUSPICIOUS TRANSACTIONS - are transactions with covered persons, regardless
of the amounts involved, where any of the following circumstances exist:
1) There is no underlying legal or trade obligation, purpose or economic
justification;
2) The client is not properly identified;
3) The amount involved is not commensurate with the business or financial
capacity of the client;
4) Taking into account all known circumstances, it may be perceived that the
client's transaction is structured in order to avoid being the subject of
reporting requirements under the Act;
5) Any circumstance relating to the transaction which is observed to deviate
from the profile of the client and/or the client's past transactions with the
covered person;
6) The transaction is in any way related to an unlawful activity or offense under
this Act that is about to be, is being or has been committed; or
7) Any transaction that is similar or analogous to any of the foregoing.
C. SAFE HARBOR PROVISION
o The Safe Harbor Provision states that no administrative, criminal or civil

proceedings shall lie against any person for having made a covered transaction
report in the regular performance of his duties and in good faith, whether or
not such reporting results in any criminal prosecution under this Act or any other
Philippine law. [Sec. 9]
o Lawyers and accountants acting as independent legal professionals are not subject
to the reporting requirement if the relevant information was obtained in
circumstances subject to professional secrecy or legal professional privilege. [Sec.
9(c)]
D. WHEN IS MONEY LAUNDERING COMMITTED (INCLUDING PREDICATE CRIMES)
o MONEY LAUNDERING is a crime whereby the proceeds of an unlawful

activity are transacted, thereby making it appear to have originated from
legitimate sources.
• The unlawful activity can be committed by the money launder himself or
a third person.
• A finding of guilt for an unlawful activity is not an essential element of
criminal action for money laundering.
o To be held liable for money laundering, the offender must know that monetary
instrument or property, with which he was dealing or transacting, represents,
involves, or relates to the proceeds of any unlawful activity. Mere suspicion is not
enough. However, if the money launderer is the one, who committed the unlawful
activity, "knowledge of involvement of the property in unlawful activity" as
an element of money laundering is present.
o Money Laundering is committed by any person who, knowing that any monetary
instrument or property represents, involves, or relates to the proceeds of any
unlawful activity:
a) Transacts said monetary instrument or property;
b) Converts, transfers, disposes of, moves, acquires, possesses or uses said
monetary instrument or property;
c) Conceals or disguises the true nature, source, location, disposition,
movement or ownership of or rights with respect to said monetary
instrument or property;
d) Attempts or conspires to commit money laundering offenses referred to in
paragraphs (a), (b) or (c);
e) Aids, abets, assists in or counsels the commission of the money laundering
offenses referred to in paragraphs (a), (b) or (c) above; and
f) Performs or fails to perform any act as a result of which he facilitates the
offense of money laundering referred to in paragraphs (a), (b) or (c) above.
o UNLAWFUL ACTIVITY refers to any act or omission or series or combination
thereof involving or having direct relation to the following:
1) Kidnapping for ransom under Article 267 of Act No. 3815, otherwise
known as the Revised Penal Code, as amended;
2) Sections 4, 5, 6, 8, 9, 10, 12, 13, 14, 15, and 16 of RA 9165, otherwise
known as the Comprehensive Dangerous Drugs Act of 2002;
3) Section 3 paragraphs B, C, E, G, H and I of RA. 3019, as amended;
otherwise known as the Anti-Graft and Corrupt Practices Act;
4) Plunder under RA 7080, as amended;
5) Robbery and extortion under Articles 294, 295, 296, 299, 300, 301
and 302 of the Revised Penal Code, as amended;
6) Jueteng and Masiao punished as illegal gambling under Presidential
Decree No. 1602;
7) Piracy on the high seas under the Revised Penal Code, as amended and
Presidential Decree No. 532;
8) Qualified theft under Article 310 of the Revised Penal Code, as
amended;
9) Swindling under Article 315 of the Revised Penal Code, as amended;
10) Smuggling under RA Nos. 455 and 1937;
11) Violations under RA 8792, otherwise known as the Electronic
Commerce Act of 2000;
12) Hijacking and other violations under RA 6235; destructive arson and
murder, as defined under the Revised Penal Code, as amended, including
those perpetrated by terrorists against non-combatant persons and
similar targets;
13) Fraudulent practices and other violations under RA 8799, otherwise
known as the Securities Regulation Code of 2000;
14) Felonies or offenses of a similar nature that are punishable under the
penal laws of other countries. [Sec. 3 (i)]
15) Terrorism and conspiracy to commit terrorism as defined and
penalized under Sections 3 and 4 of RA No. 9372;
16) Financing of terrorism under Section 4 and offenses punishable under
Sections 5, 6, 7 and 8 of RA 10168, otherwise known as the Terrorism
Financing Prevention and Suppression Act of 2012;
17) Bribery under Articles 210, 211 and211-A of the Revised Penal Code, as
amended, and Corruption of Public Officers under Article 212 of the
Revised Penal Code, as amended;
18) Frauds and Illegal Exactions and Transactions under Articles 213,
214, 215 and 216 of the Revised Penal Code, as amended;
19) Malversation of Public Funds and Property under Articles 217 and
222 of the Revised Penal Code, as amended;

20) Forgeries and Counterfeiting under Articles 163, 166, 167, 168, 169
and 176 of the Revised Penal Code, as amended;
21) Violations of Sections 4 to 6 of RA 9208, otherwise known as the Anti-
Trafficking in Persons Act of 2003;
22) Violations of Sections 78 to 79 of Chapter IV, of Presidential Decree No.
705, otherwise known as the Revised Forestry Code of the
Philippines, as amended;
23) Violations of Sections 86 to 106 of Chapter VI, of RA 8550, otherwise
known as the Philippine Fisheries Code of 1998;
24) Violations of Sections 101 to 107, and 110 of RA 7942, otherwise known
as the Philippine Mining Act of 1995;
25) Violations of Section 27(c), (e), (f), (g) and (i), of RA 9147, otherwise
known as the Wildlife Resources Conservation and Protection Act;
26) Violation of Section 7(b) of RA 9072, otherwise known as the National
Caves and Cave Resources Management Protection Act;
27) Violation of RA 6539, otherwise known as the Anti-Carnapping Act of
2002, as amended;
28) Violations of Sections 1, 3 and 5 of PD 1866, as amended, otherwise
known as the decree Codifying the Laws on Illegal/Unlawful
Possession, Manufacture, Dealing In, Acquisition or Disposition of
Firearms, Ammunition or Explosives;
29) Violation of PD 1612, otherwise known as the Anti-Fencing Law;
30) Violation of Section 6 of RA 8042, otherwise known as the Migrant
Workers and Overseas Filipinos Act of 1995, as amended by RA
10022;
31) Violation of RA 8293, otherwise known as the Intellectual Property
Code of the Philippines;
32) Violation of Section 4 of RA 9995, otherwise known as the Anti-Photo
and Video Voyeurism Act of 2009;
33) Violation of Section 4 of RA 9775, otherwise known as the Anti-Child
Pornography Act of 2009;
34) Violations of Sections 5, 7, 8, 9, 10(c), (d) and (e), 11, 12 and 14 of RA
7610, otherwise known as the Special Protection of Children Against
Abuse, Exploitation and Discrimination.
35) Violation of Section 9 (a)(3) of Republic Act No. 10697, otherwise known
as the "Strategic Trade Management Act", in relation to the
proliferation of weapons of mass destruction and its financing
pursuant to United Nations Security Council Resolution Numbers 1718 of
2006 and 2231 of 2015";
36) Violation of Section 254 of Chapter II, Title X of the National Internal
Revenue Code of 1997, as amended, where the deficiency basic tax
due in the final assessment is in excess of Twenty-five million
pesos (P25,000,000.00) per taxable year, for each tax type
covered and there has been a finding of probable cause by the
competent authority: Provided, further, That there must be a finding of
fraud, willful misrepresenting or malicious intent on the part of the
taxpayer: Provided, finally, That in no case shall the AMLC institute
forfeiture proceedings to recover monetary instruments, property or
proceeds representing, involving, or relating to a tax crime, if the same
has already been recovered or collected by the Bureau of Internal
Revenue (BIR) in a separate proceeding;

E. AUTHORITY TO INQUIRE INTO BANK DEPOSITS
o General Rule: The AMLC may inquire into or examine any particular deposit or
investment, including related accounts [related accounts’ shall refer to accounts,
the funds and sources of which originated from and/or are materially linked to the
monetary instrument(s) or properties subject of the freeze orders], with any
banking institution or non-bank financial institution upon order of any competent
court in cases of violation of this Act when it has been established that there is
probable cause that the deposits or investments involved are related: 1) To an
unlawful activity as defined in Sec. 3(i); or 2) To any money laundering offense
under Sec.4. Upon the enactment of Republic Act (RA) No. 10167 on 18 June 2012,
Section 11 of RA No. 9160 was further amended to allow the Anti-Money
Laundering Council (AMLC) to file an ex parte application for an order allowing an
inquiry into bank deposits and investments.
 For the trial court to issue a bank inquiry order, it is necessary for the AMLC
to be able to show specific facts and circumstances that provide a link
between an unlawful activity or a money laundering offense, on the
one hand, and the account or monetary instrument or property
sought to be examined on the other hand.
 DUE PROCESS; The Court therein ruled that the AMLC's ex parte
application for a bank inquiry, which is allowed under Section 11 of R.A.
9160, does not violate substantive due process. There is no such violation,
because the physical seizure of the targeted corporeal property is not
contemplated in any form by the law. The AMLC may indeed be authorized
to apply ex parte for an inquiry into bank accounts, but only in pursuance of
its investigative functions akin to those of the National Bureau of
Investigation. As the AMLC does not exercise quasi-judicial functions, its
inquiry by court order into bank deposits or investments cannot be said to
violate any person's constitutional right to procedural due process.
 RIGHT TO PRIVACY; As regards the purported violation of the right to
privacy, the Court recalled the pronouncement in Eugenio that the source
of the right to privacy governing bank deposits is statutory, not
constitutional. The legislature may validly carve out exceptions to the rule
on the secrecy of bank deposits, and one such legislation is Section 11 of
R.A. 9160.
o EXCEPTION: No court order shall be required in the following cases:
1) Kidnapping for ransom under Article 267 of the RPC
2) Violations of Comprehensive Dangerous Drugs Act
3) Hijacking and other violations under RA No. 6235;
4) Destructive arson and murder;
5) Felonies or offenses of a nature similar nature as numbers (1) to (4)
which are punishable under penal laws of other countries ;
6) Terrorism and conspiracy to commit terrorism
o Inquiry into deposits under section 11 does not require a pre-existing criminal
case.
o Under Sections 7(13) and (14), the AMLC, in the conduct of its investigation, is
expressly allowed to “apply for the issuance of a search and seizure order” or a
“subpoena ad testificandum and/or subpoena duces tecum with any competent
court.” The AMLC is likewise given the power to “preserve, manage, or dispose
assets pursuant to a freeze order, asset preservation order, or judgment of
forfeiture.”

F. FREEZING AND FORFEITURE
o NATURE; A freeze order is an extraordinary and interim relief issued by the CA

to prevent the dissipation, removal, or disposal of properties that are
suspected to be the proceeds of, or related to, unlawful activities as defined in
Section 3(i) of RA No. 9160, as amended. The primary objective of a freeze order is
to temporarily preserve monetary instruments or property that are in any way
related to an unlawful activity or money laundering, by preventing the owner from
utilizing them during the duration of the freeze order. The relief is pre-emptive in
character, meant to prevent the owner from disposing his property and thwarting
the State’s effort in building its case and eventually filing civil forfeiture proceedings
and/or prosecuting the owner.
o Based on Section 10(A) of R.A. No. 9160, as amended, there are only two
requisites for the issuance of a freeze order: (1) the application ex-parte by the
AMLC and (2) the determination of probable cause by the CA. In resolving the
issue of whether probable cause exists, the CA's statutorily-guided determination's
focus is not on the probable commission of an unlawful activity (or money
laundering) that the OMB has already determined to exist, but on whether the bank
accounts, assets, or other monetary instruments sought to be frozen are in any way
related to any of the illegal activities enumerated under R.A. No. 9160, as
amended. Otherwise stated, probable cause refers to the sufficiency of the relation
between an unlawful activity and the property or monetary instrument which is the
focal point of Section 10 of R.A. No. 9160, as amended. [Yambao v. Republic,
G.R. No. 171054, January 26, 2021, J., Caguioa concurring]
A. POWER TO FREEZE ACCOUNTS
i. SECTION 10(A) OF AMLA - Upon a verified ex parte petition by the

AMLC and after determination that probable cause exists that any
monetary instrument or property is in any way related to an unlawful activity
as defined in Section 3(i) hereof, the Court of Appeals may issue a freeze
order which shall be effective immediately, for a period of twenty
(20) days.
 PROBABLE CAUSE refers to the sufficiency of the relation between
an unlawful activity and the property or monetary instrument
which is the focal point of Section 10 of RA No. 9160, as amended.
 The court should act on the petition to freeze within twenty-four (24)
hours from filing of the petition. If the application is filed a day
before a nonworking day, the computation of the twenty-four (24) hour
period shall exclude the nonworking days.
 Within the twenty (20) day period, the Court of Appeals shall conduct a
summary hearing, with notice to the parties, to determine whether or
not to modify or lift the freeze order, or extend its effectivity. The total
period of the freeze order issued by the Court of Appeals under
this provision shall not exceed six (6) months.
 If there is no case filed against a person whose account has been frozen
within the period determined by the Court of Appeals, not exceeding six
(6) months, the freeze order shall be deemed ipso facto lifted.
 REMEDY AGAINST FREEZE ORDER; A person whose account has been
frozen may file a motion to lift the freeze order and the court must
resolve this motion before the expiration of the freeze order.
 No court shall issue a temporary restraining order or a writ of injunction
against any freeze order, except the Supreme Court.

ii. SECTION 10(B) OF AMLA - For purposes of implementing targeted
financial sanctions in relation to proliferation of weapons of mass
destruction and its financing, as provided under Section 3(15), the AMLC
shall have the power to issue, ex parte, an order to freeze without delay.
 TARGETED FINANCIAL SANCTIONS refer to both asset freezing and
prohibition to prevent funds or other assets from being made
available, directly or indirectly, for the benefit of any individual,
natural or legal persons or entity designated pursuant to relevant
United Nations Security Council resolution and its designation
processes
 Based on Section 10 of AMLA, the AMLC has to apply for the freeze
order with the Court of Appeals if there is probable cause that any
monetary instrument or property is related to an unlawful activity; this
provision is still valid and effective even with the effectiveness of R.A.
11521. However, an exception is now provided in the new law as it
inserts a new Section 10(b) to AMLA and it provides that “for purposes
of implementing targeted financial sanctions in relation to proliferation
of weapons of mass destruction and its financing, the AMLC shall have
the power to issue, ex parte, an order to freeze without delay.” Thus,
if the purpose is to implement targeted financial sanctions in
relation to proliferation of weapons of mass destruction and its
financing, AMLC can now issue the freeze order itself without
needing to go to any court.
 The freeze order shall be effective until the basis for its
issuance shall have been lifted. During the effectivity of the freeze
order, the aggrieved party may, within twenty (20) days from
issuance, file with the Court of Appeals a petition to determine
the basis of the freeze order according to the principle of
effective judicial protection.
 Provided, That the person whose property or funds have been frozen
may withdraw such sums as the AMLC determines to be reasonably
needed for monthly family needs and sustenance including the
services of counsel and the family medical needs of such person.
 The AMLC, if circumstance warrant, may initiate civil forfeiture
proceedings to preserve the assets and to protect it from dissipation.
 No court shall issue a temporary restraining order or a writ of
injunction against the freeze order, except the Court of Appeals or
the Supreme Court.
B. FORFEITURE PROVISIONS
o Upon determination by the AMLC that probable cause exists that any
monetary instrument or property is in any way related to an unlawful activity
or a money laundering offense, the AMLC shall file with the appropriate court
(through the OSG) a verified ex parte petition for forfeiture.
o A criminal conviction for an unlawful activity is not a prerequisite for the
institution of a civil forfeiture proceeding—a finding of guilt for an unlawful
activity is not an essential element of civil forfeiture.
o WHAT IS COVERED BY THE FORFEITURE - The forfeiture shall include
those other monetary instrument or property having an equivalent value to
that of the monetary instrument or property found to be related in any
way to an unlawful activity or a money laundering offense, when:
a) with due diligence, the former cannot be located, or
b) it has been substantially altered, destroyed, diminished in value or

otherwise rendered worthless by any act or omission, or
c) it has been concealed, removed, converted, or otherwise
transferred, or
d) it is located outside the Philippines or has been placed or brought
outside the jurisdiction of the court, or
e) it has been commingled with other monetary instrument or property
belonging to either the offender himself or a third person or entity,
thereby rendering the same difficult to identify or be segregated for
purposes of forfeiture. [Sec. 12(a), as amended by RA 10365]
o CLAIM ON FORFEITED ASSETS - Where the court has issued an order of
forfeiture of the monetary instrument or property in a criminal prosecution
for any money laundering offense defined under Section 4 of this Act, the
offender or any other person claiming an interest therein may apply, by
verified petition, for a declaration that the same legitimately belongs
to him and for segregation or exclusion of the monetary instrument
or property corresponding thereto.
 It shall be filed with the court which rendered the judgment of
forfeiture within 15 days from the date of the finality of the
order of forfeiture, in default of which the said order shall become
final and executory.
 No court shall issue a temporary restraining order (TRO) or a writ of
injunction against any provisional asset preservation order or asset
preservation, except the Court of Appeals or the Supreme Court.
o PAYMENT IN LIEU OF FORFEITURE
 The court has issued an order of forfeiture of the monetary instrument
or property subject of a money laundering offense (defined under
Section 4), and 2) Said order cannot be enforced because:
a) Any particular monetary instrument or property cannot, with
due diligence, be located, or
b) It has been substantially altered, destroyed, diminished in
value or otherwise rendered worthless by any act or omission,
directly or indirectly, attributable to the offender, or
c) It has been concealed, removed, converted, or otherwise
transferred to prevent the same from being found or to avoid
forfeiture thereof, or
d) It is located outside the Philippines or has been placed or
brought outside the jurisdiction of the court, or
e) It has been commingled with other monetary instruments or
property belonging to either the offender himself or a third
person or entity, thereby rendering the same difficult to
identify or be segregated for purposes of forfeiture.
 Then the court may, instead of enforcing the order of
forfeiture of the monetary instrument or property or part
thereof or interest therein, accordingly order the
convicted offender to pay an amount equal to the value
of said monetary instrument or property.


A. LEGAL RECOGNITION OF ELECTRONIC DATA MESSAGES, DOCUMENTS, AND
SIGNATURES
o This Act aims to facilitate domestic and international dealings, transactions,

arrangements, agreements, contracts and exchanges and storage of information
through the utilization of electronic, optical and similar medium, mode,
instrumentality and technology to recognize the authenticity and reliability of
electronic documents related to such activities and to promote the universal
use of electronic transaction in the government and general public. [Sec. 3]
1. LEGAL RECOGNITION OF ELECTRONIC DATA MESSAGES - Information

shall not be denied legal effect, validity or enforceability solely on the
grounds that it is in the data message purporting to give rise to such legal
effect, or that it is merely referred to in that electronic data message. [Sec.
06]
2. LEGAL RECOGNITION OF ELECTRONIC DOCUMENTS - Electronic

documents shall have the legal effect, validity or enforceability as any other
document or legal writing, and:
i. AGREEMENT REQUIRED TO BE IN WRITING - Where the law
requires a document to be in writing, that requirement is met by an
electronic document if the said electronic document maintains its
integrity and reliability and can be authenticated so as to be usable
for subsequent reference, in that:
a) The electronic document has remained complete and
unaltered, apart from the addition of any endorsement and any
authorized change, or any change which arises in the normal
course of communication, storage and display; and
b) The electronic document is reliable in the light of the purpose
for which it was generated and in the light of all the relevant
circumstances.
 Electronic document meets the requirement that the
document is in writing whether the requirement therein
is in the form of an obligation or whether the law simply
provides consequences for the document not being
presented or retained in its original form.
ii. WHEN ORIGINAL IS REQUIRED - Where the law requires that a
document be presented or retained in its original form, that
requirement is met by an electronic document if:
a) There exists a reliable assurance as to the integrity of the
document from the time when it was first generated in its final
form; and
b) That document is capable of being displayed to the person to
whom it is to be presented: Provided, That no provision of this
Act shall apply to vary any and all requirements of existing
laws on formalities required in the execution of documents for
their validity.
 For evidentiary purposes, an electronic document shall be the
functional equivalent of a written document under existing laws.
3. LEGAL RECOGNITION OF ELECTRONIC SIGNATURES - An electronic
signature on the electronic document shall be equivalent to the signature of a
person on a written document if that signature is proved by showing that a
prescribed procedure, not alterable by the parties interested in the electronic
document, existed under which:

a) A method is used to identify the party sought to be bound and to
indicate said party’s access to the electronic document necessary for
his consent or approval through the electronic signature;
b) Said method is reliable and appropriate for the purpose for which the
electronic document was generated or communicated, in the light of all
the circumstances, including any relevant agreement;
c) It is necessary for the party sought to be bound, in order to proceed
further with the transaction, to have executed or provided the
electronic signature; and
d) The other party is authorized and enabled to verify the electronic
signature and to make the decision to proceed with the transaction
authenticated by the same.
B. PRESUMPTION RELATING TO ELECTRONIC SIGNATURES
o In any proceedings involving an electronic signature, it shall be presumed that:

i. The electronic signature is the signature of the person to whom it
correlates; and
ii. The electronic signature was affixed by that person with the intention of
signing or approving the electronic document unless the person relying on
the electronically signed electronic document knows or has notice of
defects in or unreliability of the signature or reliance on the electronic
signature is not reasonable under the circumstances. [Sec. 9]
C. ADMISSIBILITY AND EVIDENTIAL WEIGHT OF ELECTRONIC DATA MESSAGE OR

ELECTRONIC DOCUMENT
o In any legal proceedings, nothing in the application of the rules on evidence shall
deny the admissibility of an electronic data message or electronic document in
evidence:
a) On the sole ground that it is in electronic form; or
b) On the ground that it is not in the standard written form and electronic data
message or electronic document meeting, and complying with the
requirements under Sections 6 or 7 hereof shall be the best evidence of the
agreement and transaction contained therein. [Sec. 12]
o In assessing the evidential weight of an electronic data message or electronic
document, the reliability of the manner in which it was generated, stored or
communicated, the reliability of the manner in which its originator was identified,
and other relevant factors shall be given due regard. [Sec. 12]
o The presentation of electronic data message or electronic document is still subject
to the rules on admissibility under the Rules of Court. MANNER OF
AUTHENTICATION OF PRIVATE ELECTRONIC DOCUMENT OFFERED AS
AUTHENTIC
a. by evidence that it had been digitally signed by the person purported to
have signed the same;
b. by evidence that other appropriate security procedures or devices as may
be authorized by the Supreme Court or by law for authentication of
electronic documents were applied to the document; or
c. by other evidence showing its integrity and reliability to the satisfaction of
the judge. [Sec. 2, Rule 5, REE]
o "Electronic data message" and "electronic document," as defined under the
Electronic Commerce Act of 2000, do not include a facsimile transmission.
Accordingly, a facsimile transmission cannot be considered as electronic
evidence. It is not the functional equivalent of an original under the Best
Evidence Rule and is not admissible as electronic evidence. Since a facsimile
transmission is not an "electronic data message" or an "electronic document," and
cannot be considered as electronic evidence by the Court, with greater reason is a
photocopy of such a fax transmission not electronic evidence. [MCC INDUSTRIAL
SALES CORPORATION vs. SSANGYONG CORPORATION, G.R. NO. 170633 :
October 17, 2007]
o However, what differentiates an electronic document from a paper-based
document is the manner by which the information is processed; clearly, the
information contained in an electronic document is received, recorded,
transmitted, stored, processed, retrieved or produced electronically. A perusal of
the information contained in the photocopies submitted by petitioner will reveal
that not all of the contents therein, such as the signatures of the persons who
purportedly signed the documents, may be recorded or produced electronically. By
no stretch of the imagination can a person’s signature affixed manually be
considered as information electronically received, recorded, transmitted, stored,
processed, retrieved or produced. Hence, the argument of petitioner that since
these paper printouts were produced through an electronic process, then these
photocopies are electronic documents as defined in the Rules on Electronic
Evidence is obviously an erroneous, if not preposterous, interpretation of the law.
Having thus declared that the offered photocopies are not tantamount to
electronic documents, it is consequential that the same may not be
considered as the functional equivalent of their original as decreed in the
law. [National Power Corporation vs. Codilla]
D. OBLIGATION OF CONFIDENTIALITY
o Except for the purposes authorized under this Act, any person who obtained access
to any electronic key, electronic data message, or electronic document, book,
register, correspondence, information, or other material pursuant to any powers
conferred under this Act, shall not convey to or share the same with any
other person. [Sec. 32]
o LAWFUL ACCESS - Access to an electronic file, or an electronic signature of an
electronic data message or electronic document shall only be authorized and
enforced in favor of the individual or entity having a legal right to the
possession or the use of the plaintext, electronic signature or file and
solely for the authorized purposes. The electronic key for identity or integrity
shall not be made available to any person or party without the consent of the
individual or entity in lawful possession of that electronic key. [Sec. 31]


A. BASIC CONCEPTS
1. REHABILITATION
o CORPORATE REHABILITATION is a remedy for corporations, partnerships,

and associations "who [foresee] the impossibility of meeting [their] debts
when they respectively fall due." A corporation under rehabilitation continues
with its corporate life and activities to achieve solvency, or a position where
the corporation is able to pay its obligations as they fall due in the ordinary
course of business. Solvency is a state where the businesses’ liabilities are
less than its assets.
o REHABILITATION shall refer to the restoration of the debtor to a condition
of successful operation and solvency, if it is shown that its continuance of
operation is economically feasible and its creditors can recover by way of
the present value of payments projected in the plan, more if the debtor
continues as a going concern than if it is immediately liquidated [(Sec.
4(gg)]. When rehabilitation is not feasible, it is in the interest of the State to
facilitate a speedy and orderly liquidation of these debtors’ assets and the
settlement of their obligations.
o TWO PRONGED PURPOSE; (a) to efficiently and equitably distribute the
assets of the insolvent debtor to its creditors and (b) to provide the debtor a
fresh start. The inherent purpose of rehabilitation is to find ways and means
to minimize the expenses of the distressed corporation during the
rehabilitation period by providing the best possible framework for the
corporation to gradually regain or achieve a sustainable operating form.
o Rehabilitation available only to business already commenced. As there must
exists a viable business concern to be restored by rehabilitation. It is the
business concern, not the person pursuing it, which is being rehabilitated.
o NATURE; Rehabilitation proceedings are summary and non-adversarial in
nature, and do not contemplate adjudication of claims that must be
threshed out in ordinary court proceedings. Adversarial proceedings similar
to that in ordinary courts are inconsistent with the commercial nature of a
rehabilitation case. The latter must be resolved quickly and expeditiously for
the sake of the corporate debtor, its creditors and other interested parties.
[Due process dictates that creditors be impleaded to give them an
opportunity to protect the property owed to them. Creditors are
indispensable parties to a rehabilitation case, even if a rehabilitation case is
non-adversarial.]
2. INSOLVENT
o INSOLVENCY refers to the financial condition of a debtor that is: (i)

generally unable to pay liabilities as they fall due on the ordinary course of
business; or (ii) has liabilities that are greater than its or his assets. [Sec.
4(p)]
3. LIQUIDATION
o There are instances when corporate rehabilitation can no longer be achieved.

When rehabilitation will not result in a better present value recovery for the
creditors, the more appropriate remedy is liquidation. LIQUIDATION allows
the corporation to wind up its affairs and equitably distribute its assets
among its creditors. Liquidation is diametrically opposed to rehabilitation.
Both cannot be undertaken at the same time. In rehabilitation, corporations
have to maintain their assets to continue business operations. In liquidation,
on the other hand, corporations preserve their assets in order to sell
them. Without these assets, business operations are effectively
discontinued. The proceeds of the sale are distributed equitably among
creditors, and surplus is divided or losses are re-allocated.
4. SUSPENSION OF PAYMENTS
o A remedy where an individual debtor who, possessing sufficient property to

cover all his debts but foreseeing the impossibility of meeting them when
they respectively fall due.
o The objective of suspension of payments is the deferment of the
payment of debts until such time as the debtor, which possesses sufficient
property to cover all its debts, is able to convert such assets into cash or
otherwise acquires the cash necessary to pay its debts. On the other hand,
the objective in insolvency proceedings is "to effect an equitable
distribution of the bankrupt's properties among his creditors and to benefit
the debtor by discharging him from his liabilities and enabling him to start
afresh with the property set apart for him as exempt."
B. MODES OF REHABILITATION
REMEDIES OF AN INSOLVENT BUSINESS

Pre-Negotiated Rehabilitation
REHABILITATION Court Supervised Rehabilitation
Out of Court Rehabilitation
SUSPENSION OF PAYMENTS (individual debtor only)
LIQUIDATION
1. COURT-SUPERVISED REHABILITATION
a. VOLUNTARY VS. INVOLUNTARY
VOLUNTARY REHABILITATION INVOLUNTARY REHABILITATION

As to who i. the owner, in case of a Any creditor or group of creditors
may file sole proprietorship; with a claim of, or the aggregate of
whose claims is:
ii. a majority of the i. at least One Million Pesos
partners, in case of a (P1,000,000.00);
partnership; or
ii. at least twenty-five percent
iii. a majority vote of the (25%) of the subscribed
board of directors or capital stock or partners'
trustees and authorized contributions,
by the vote of the
stockholders representing whichever is higher
at least two-thirds (2/3) of
the outstanding capital
stock or at least two-thirds
(2/3) of the members in a
non-stock corporation, in
case of a corporation.

As to INDIVIDIUAL DEBTOR i. there is no genuine issue of
grounds of • Foresight of inability to meet fact or law on the claim/s of
filing debts when they respectively the petitioner/s, and that the
fall due due and demandable
payments thereon have not
GROUP OF DEBTORS been made for at least sixty
i. one or more of its members (60) days; or
foresee the impossibility of
meeting debts when they ii. the debtor has failed generally
respectively fall due; and to meet its liabilities as they
fall due; or
ii. the financial distress would
likely adversely affect the iii. At least one creditor, other
financial condition and/or than the petitioner/s, has
operations of the other initiated foreclosure
members of the group or the proceedings against the
participation of the other debtor that will prevent the
members of the group is debtor from paying its debts
essential under the terms as they become due or will
and conditions of the render it insolvent.
proposed Rehabilitation Plan
b. COMMENCEMENT ORDER (INCLUDING STAY ORDER)
o ACTION ON THE PETITION FOR REHABILITATION;

1. If the court finds the petition for rehabilitation to be sufficient in form
and substance, it shall, within five (5) working days from the filing of
the petition, issue a Commencement Order;
2. If found deficient, within the same period, the court may give another
five working days from the receipt of notice of order to satisfy the
deficiency;
3. The court shall dismiss the petition if the deficiency is not complied
within the extended five (5)-day period.
o CONTENTS OF THE ORDER; If the RTC finds the petition to be sufficient in
form and substance, it shall issue, not later than five (5) days from the filing
of the petition, an Order as follows:
a) appointing a Rehabilitation Receiver and fixing his bond;
b) staying enforcement of all claims, whether for money or otherwise
and whether such enforcement is by court action or otherwise, against
the debtor, its guarantors and sureties not solidarily liable with the
debtor;
c) prohibiting the debtor from selling, encumbering, transferring, or
disposing in any manner any of its properties except in the ordinary
course of business;
d) prohibiting the debtor from making any payment of its liabilities
outstanding as at the date of filing of the petition.
o RETROACTIVE EFFECT - The effects of the court's issuance of a
Commencement Order shall retroact to the date of the filing of the petition.
 The FRIA provides that the effects of the Commencement Order
shall be reckoned from the date of the filing of the petition for
corporate rehabilitation, be it voluntary or involuntary. As it is
settled that the acquisition of absolute ownership by respondent
over the subject properties on August 22, 2012 is antecedent to
the commencement date or the filing of the petition for
corporate rehabilitation on October 18, 2012, the sale of the
subject properties is valid. Corollary, petitioner is no longer
considered as respondent's creditor. LAND BANK OF THE
PHILIPPINES, PETITIONER, V. POLILLO PARADISE ISLAND
CORPORATION, G.R. No. 211537, December 10, 2019
 Under the same Rules, the effects of such commencement order
shall retroact to the date that the petition was filed, and renders
void any attempt to collect on or enforce a claim against the debtor
or to set off any debt by the debtor’s creditors, after the
commencement date.
o EFFECTIVITY; The Commencement Order shall be effective for the duration
of the rehabilitation proceedings, unless (a) earlier lifted by the court, (b)
the rehabilitation plan is seasonably confirmed or approved, or (c) the
rehabilitation proceedings are ordered terminated by the court.
o EFFECT OF COMMENCEMENT ORDER
i. Vest the rehabilitation receiver with all the powers and functions
provided under the FRIA subject to the approval by the court of the
performance bond posted by the rehabilitation receiver;
ii. prohibit or otherwise serve as the legal basis for rendering null and
void the results of any extrajudicial activity or process to seize
property, sell encumbered property, or otherwise attempt to collect on
or enforce a claim against the debtor after the commencement date
unless otherwise allowed under these Rules;
iii. serve as the legal basis for rendering null and void any set-off after
the commencement date of any debt owed to the debtor by any of the
debtor's creditors;
iv. serve as the legal basis for rendering null and void the perfection of
any lien against the debtor's property after the commencement date;
v. consolidate all legal proceedings by and against the debtor to
the court: Provided, however, That the court may allow the
continuation of cases in other courts where the debtor had initiated the
suit
vi. exempt the debtor from liability for taxes and fees, including
penalties, interests and charges thereof due to the government.
o CLAIMS BARRED BY COMMENCEMENT ORDER - shall refer to all claims
or demands of whatever nature or character against the debtor or its
property, whether for money or otherwise, liquidated or unliquidated, fixed
or contingent, matured or unmatured, disputed or undisputed, including, but
not limited to; (1) all claims of the government, whether national or local,
including taxes, tariffs and customs duties; and (2) claims against directors
and officers of the debtor arising from acts done in the discharge of their
functions falling within the scope of their authority: Provided, That, this
inclusion does not prohibit the creditors or third parties from filing cases
against the directors and officers acting in their personal capacities.
o USE, PRESERVATION AND DISPOSAL OF ASSETS AND TREATMENT OF
ASSETS AND CLAIMS AFTER COMMENCEMENT DATE - no funds or
property of the debtor shall be used or disposed of except in the ordinary
course of business of the debtor, or unless necessary to finance the
administrative expenses of the rehabilitation proceedings.
• XPN: upon a showing that the property, by its nature or because of any
other circumstance, is (a) perishable; (b) costly to maintain; (c)
susceptible to devaluation; or (d) otherwise in jeopardy.

o PROHIBITED ACTS – the following are prohibited acts, once the
commencement order had been issued, if done willfully:
i. dispose or cause to be disposed of any property of the debtor
other than in the ordinary course of business or authorize or approve any
transaction in fraud of creditors or in a manner grossly disadvantageous
to the debtor and/or creditors; or
ii. conceal or authorize or approve the concealment, from the
creditors, or embezzles or misappropriates, any property of the debtor.
 PENALTY: Individual debtor, owner of a sole proprietorship,
partners in a partnership, or directors and officers of a debtor shall
be liable for double the value of the property sold,
embezzled or disposed of or double the amount of the
transaction involved, whichever is higher to be recovered for
benefit of the debtor and the creditors.
c. STAY OR SUSPENSION ORDER
o An order included in the Commencement Order that has the following

effects:
i. Suspending all actions or proceedings, in court or otherwise, for the
enforcement of claims against the debtor;
 Claim shall refer to all claims or demands of whatever
nature or character against the debtor or its property,
whether for money or otherwise, liquidated or
unliquidated, fixed or contingent, matured or unmatured,
disputed or undisputed, including, but not limited to; (1) all
claims of the government, whether national or local, including
taxes, tariffs and customs duties; and (2) claims against
directors and officers of the debtor arising from acts done in
the discharge of their functions falling within the scope of their
authority: Provided, That, this inclusion does not prohibit
the creditors or third parties from filing cases against
the directors and officers acting in their personal
capacities. [Sec 4c, FRIA]
ii. Suspending all actions to enforce any judgment, attachment or
provisional remedies against the debtor;
iii. Prohibiting the debtor from selling, encumbering, transferring or
disposing in any manner any of its properties except in the ordinary
course of business; and
 To repeat, properties merely owned by stockholders
cannot be included in the inventory of assets of a corporation
under rehabilitation. Given that the true owner the subject
property is not the corporation, petitioner cannot be
considered a creditor of MSI but a holder of a claim against
respondent spouses.
iv. Prohibiting the debtor from making any payment of its liabilities
outstanding as of the commencement date except as may be provided
under FRIA.
o PURPOSE OF SUSPENSION; the purpose for the suspension of the
proceedings is to prevent a creditor from obtaining an advantage or
preference over another and to protect and preserve the rights of party
litigants as well as the interest of the investing public or creditors. Such
suspension is intended to give enough breathing space for the management
committee or rehabilitation receiver to make the business viable again,
without having to divert attention and resources to litigations in
various fora. The suspension would enable the management committee or
rehabilitation receiver to effectively exercise its/his corporation instead of
being directed toward its restructuring and rehabilitation.
o LACK OF ADEQUATE PROTECTION - The court, on motion or motu
proprio, may terminate, modify or set conditions for the continuance of
suspension of payment, or relieve a claim from the coverage thereof, upon
showing that:
a) a creditor does not have adequate protection over property securing
its claim; or
b) the value of a claim secured by a lien on property which is not
necessary for rehabilitation of the debtor exceeds the fair market
value of the said property.
• Upon showing of a lack of protection, the court shall order the
debtor or the rehabilitation receiver to make arrangements to
provide for the insurance or maintenance of the property; or to
make payments or otherwise provide additional or replacement
security such that the obligation is fully secured. If such
arrangements are not feasible, the court may modify the Stay
Order to allow the secured creditor lacking adequate protection
to enforce its security claim against the debtor.
o NO DIMINUTION OF SECURED CREDITOR RIGHTS - the issuance of the
Commencement Order and the Suspension or Stay Order, and any other
provision of the Act, shall not in any way diminish or impair the security or
lien of a secured creditor, or the value of his lien or security, except that his
right to enforce the security or lien may be suspended during the
term of the Stay Order.
o EXCEPTIONS TO THE STAY OR SUSPENSION ORDER
1) Cases already pending appeal in the Supreme Court as of
commencement date;
2) Cases pending or filed at a specialized court or quasi-judicial
agency which, upon determination by the court is capable of resolving
the claim more quickly, fairly and efficiently than the court: Provided,
That any final and executory judgment of such court or agency shall
be referred to the court and shall be treated as a non-disputed
claim;
3) To the enforcement of claims against sureties and other persons
solidarily liable with the debtor, and third party or
accommodation mortgagors as well as issuers of letters of
credit, unless the property subject of the third party or
accommodation mortgage is necessary for the rehabilitation of the
debtor as determined by the court upon recommendation by the
rehabilitation receiver.
• When a stay order is issued, the rehabilitation court is only
empowered to suspend claims against the debtor, its
guarantors, and surties, who are NOT solidarily liable with
debtor. Hence, the making of claims against sureties and other
persons solidarily liable with the debtor is not barred by a stay
order.
• The stay order issued by the rehabilitation court does not
apply to the beneficiary of the letter of credit against the
banks that issued it because the prohibition on the
enforcement of claims against the debtor, guarantors, or
sureties of the debtors does not extend to the claims against the

issuing bank in a letter of credit. Letters of credit are primary
obligations and not accessory contracts and while they are
security arrangements, they are not thereby converted into
contracts of guaranty.
4) Action of customers or the SEC against a securities market participant
to recover moneys and securities entrusted to the latter;
5) Actions of a licensed broker or dealer to sell pledged securities of a
debtor pursuant to a securities pledge or margin agreement;
6) The clearing and settlement of financial transactions through the
facilities of a clearing agency or similar entities;
7) Any criminal action against individual debtor or owner, partner,
director, or officer of debtor.
 The collection case instituted by the creditor against the principal
debtor and its surety may proceed despite a stay order issued by
the rehabilitation court. The issuance of a stay order does
not affect the right to commence actions or proceedings
insofar as it is necessary to preserve a claim against the
debtor. Regardless of the date the petition for rehabilitation was
initiated, the issuance of a stay order no longer bars the court
from making a determination of rights and liabilities in a
collection case involving distressed corporations. What Section
7, Rule 3 of the 2008 Rehabilitation Rules and Section 8,
Rule 2 of the 2013 FRIA Rules disallow is the enforcement
of claims against the distressed corporation through the
execution of money judgment which will undermine
efforts to preserve its assets and restore its economic
viability. It is apparent that the Court, in formulating the 2008
Rehabilitation Rules and the 2013 FRIA Rules, did not intend to
bar creditors from filing actions and instituting proceedings
necessary to preserve their claim against distressed corporations
and to toll the running of the prescriptive period. [PHILIPPINE
WIRELESS, INC. VS. PTIMUM DEVELOPMENT BANK, G.R.
No. 208251, November 10, 2020, J., Caguioa concur]
 Thus, like any other contingent claim, the employee may
prosecute his case before the labor tribunals, and exhaust other
remedies, until he or she obtains a final and executory
judgment. Assuming the employee obtains a favorable money
judgment, the execution will be stayed following Section 60 of
the Insolvency Act because, as will be discussed below, the
insolvency proceedings is the only proceeding where all creditors
of the employer may establish their claims. [KARJ GLOBAL
MARKETING NETWORK, INC., VS. MARA, G.R. No. 190654,
July 28, 2020, CAGUIOA]
d. REHABILITATION RECEIVER AND MANAGEMENT COMMITTEE
o REHABILITATION RECEIVER shall refer to the person or persons, natural

or juridical, appointed as such by the court pursuant to FRIA and which
shall be entrusted with such powers, duties, and responsibilities as set forth
herein. Where the rehabilitation receiver is a juridical entity, the term
includes the juridical entity's designated representative.
 PRINCIPAL DUTIES - The rehabilitation receiver shall be
deemed an officer of the court with the principal duty of
preserving and maximizing the value of the assets of the debtor
during the rehabilitation proceedings, determining the viability of
the rehabilitation of the debtor, preparing and recommending a
Rehabilitation Plan to the court, and implementing the approved
Rehabilitation Plan.
o COMPOSITION OF MANAGEMENT COMMITTEE - The management
committee shall be composed of three (3) qualified members appointed by
the court, as follows: (i) the first member shall be nominated by the debtor;
(ii) the second member shall be nominated by the creditor/s holding more
than fifty percent (50%) of the total obligations of the debtor; and (iii) the
third member, who shall act as chairman of the management committee,
shall be nominated by the first and second members within ten (10)
days from the appointment. In case of disagreement between the first and
second members, or failure to nominate, the court shall appoint the third
member.
 POWERS AND DUTIES – The management committee shall have the
power to take custody of and control all assets and properties owned
or possessed by the debtor. It shall take the place of the
management and governing body of the debtor, and assume their
powers, rights and responsibilities.
 NON-DISPLACEMENT OF EXISTING MANAGEMENT – Being
placed under corporate rehabilitation and having a receiver appointed
to carry out the rehabilitation plan do not ipso facto deprive a
corporation and its corporate officers of the power to recover its
unlawfully detained property. This means that the debtor corporation
(the corporation undergoing rehabilitation), through its Board of
Directors and corporate officers, remains in control of its business
and properties, subject only to the monitoring of the appointed
rehabilitation receiver. [Umale vs. ASB Realty Corporation]
o The following are subject to the approval of the receiver or the court: 1.
Disbursements affecting title or interest in the property; 2. Payments
affecting title or interest in property; 3. Sale, disposal, assignment, transfer
or encumbrance of property; or 4. Any other act affecting title or interest in
property.
o IMMUNITY FROM SUIT - The rehabilitation receiver, the members of the
management committee, and all persons they engage shall not be subject to
any action, claim or demand for any act or omission in good faith in the
exercise of their powers and functions.
e. DETERMINATION OF CLAIMS
o REGISTRY OF CLAIMS - Within twenty (20) days from his assumption into
office, the rehabilitation receiver shall establish a preliminary registry of
claims based on the schedule of debts and liabilities provided in the petition.
o NOTICE OF CLAIM - Every creditor of the debtor or any interested party
whose claim is not yet listed in the schedule of debts and liabilities shall file
his verified notice of claim not later than five (5) days before the first initial
hearing date fixed in the Commencement Order. If a creditor files a belated
claim, he shall not be entitled to participate in the proceedings but shall be
entitled to receive distributions arising therefrom if recommended and
approved by the rehabilitation receiver, and approved by the court.
o OPPOSITION OR CHALLENGE OF CLAIMS - Within thirty (30) days from
the expiration of the period to inspect the registry of claims, the debtor,
creditors, stakeholders and other interested parties may submit to the court
a challenge to the claim/s. Upon the expiration of the thirty (30)-day period,
the rehabilitation receiver shall submit to the court the registry of claims.
o APPEAL - The aggrieved party may seek the review of the decision of the
rehabilitation receiver on a claim by filing a motion with the
rehabilitation court within five (5) days from receipt of the rehabilitation
receiver's assailed decision.
o TREATMENT OF EMPLOYEES’ CLAIM - The claims for separation pay and
salary of employees for months worked prior to the commencement date
shall be considered a pre-commencement claims. Otherwise, the claims shall
be considered administrative expense.
o TREATMENT OF CONTRACTS – All valid and subsisting contracts of the
debtor with creditors and other third parties as of the commencement date
shall continue to be in force; Provided, That within ninety (90) days
following the issuance of the Commencement Order, the debtor, with the
written consent of the rehabilitation receiver, shall send a written notice to
each contractual counter-party stating that it is confirming the particular
contract. Contractual obligations of the debtor arising or performed
during this period, and afterwards for confirmed contracts, shall be
considered administrative expenses. Contracts not confirmed within the
90-day deadline shall be considered automatically terminated.
f. REHABILITATION PLAN
o shall refer to a plan by which the financial well-being and viability of an

insolvent debtor can be restored using various means including, but not
limited to, debt forgiveness, debt rescheduling, reorganization or quasi-
reorganization, dacion en pago, debt-equity conversion and sale of the
business (or parts of it) as a going concern, or setting-up of new business
entity, or other similar arrangements as may be approved by the court or
creditors.
o EFFECTS OF CONFIRMATION OF REHABILITATION PLAN - The
confirmation of the Rehabilitation Plan by the court shall result in the
following: (i) the Plan and its provisions shall bind the debtor and all
persons who may be affected thereby, including the creditors,
whether or not such persons have participated in the proceedings or opposed
the Plan or whether or not their claims have been scheduled; (ii) the debtor
shall comply with the provisions of the Plan and shall take all actions
necessary to carry them out; (iii) payments shall be made to the creditors in
accordance with the provisions of the Plan; (iv) contracts and other
arrangements between the debtor and its creditors shall remain valid and
continue to apply to the extent that they do not conflict with the provisions of
the Plan; (v) any compromises on amounts or rescheduling of timing of
payments by the debtor shall be binding on the creditors regardless of
whether or not the Plan is successfully implemented; and (vi) claims arising
after the approval of the Plan that are otherwise not treated by the Plan are
not subject to any Suspension Order.
o TEST OF FEASIBILITY - In order to determine the feasibility of a proposed
rehabilitation plan, it is imperative that a thorough examination and analysis
of the distressed corporation’s financial data must be conducted. If the
results of such examination and analysis show that there is a real opportunity
to rehabilitate the corporation in view of the assumptions made and financial
goals stated in the proposed rehabilitation plan, then it may be said that a
rehabilitation is feasible. In this accord, the rehabilitation court should not
hesitate to allow the corporation to operate as an on-going concern, albeit
under the terms and conditions stated in the approved rehabilitation plan. On
the other hand, if the results of the financial examination and analysis clearly
indicate that there lies no reasonable probability that the distressed
corporation could be revived and that liquidation would, in fact, better
subserve the interests of its stakeholders, then it may be said that a
rehabilitation would not be feasible. In such case, the rehabilitation
court may convert the proceedings into one for liquidation.
o MATERIAL FINANCIAL COMMITMENTS – The Rehabilitation Plan, as a
minimum requirement, shall include material financial undertakings or
commitments to support the Rehabilitation Plan.
 A material financial commitment becomes significant in gauging the
resolve, determination, earnestness and good faith of the distressed
corporation in financing the proposed rehabilitation plan. This
commitment may include the voluntary undertakings of the
stockholders or the would-be investors of the debtor-corporation
indicating their readiness, willingness and ability to contribute funds
or property to guarantee the continued successful operation of the
debtor corporation during the period of rehabilitation.
 Where the only proposed source of revenue the Rehabilitation Plan
suggests is the capital which would come potential investors, with
whom negotiations are merely pending, such Plan is bereft of any
material financial commitment which would inspire confidence
that the rehabilitation would turn out to be successful.
 [T]he conversion of all deposits for future subscriptions to common
stock and the treatment of all payables to officers and stockholders as
trade payables was hardly constituting material financial
commitments. Such “conversion” of cash advances to trade payables
was, in fact, a mere re-classification of the liability entry and had no
effect on the shareholders’ deficit.
o LIQUIDATION ANALYSIS - As one of the required contents of a
Rehabilitation Plan, a liquidation analysis sets out for each creditor or each
class of creditor, as applicable, the amounts they expect to receive under the
Rehabilitation Plan and those that they will receive if liquidation ensues within
one hundred twenty (120) days after the filing of the petition.
 The total liquidation assets and the estimated liquidation return to the
creditors, as well as the fair market value vis-a-vis the forced
liquidation value of the fixed assets were not shown. As such, the
Court could not ascertain if the petitioning debtor's creditors can
recover by way of the present value of payments projected in the plan,
more if the debtor continues as a going concern than if it is
immediately liquidated.
 EFFECT - The failure of the Rehabilitation Plan to state any material
financial commitment to support rehabilitation, as well as to include
a liquidation analysis, renders the CA's considerations for approving
the same as actually unsubstantiated, and hence, insufficient to
decree the feasibility of respondents' rehabilitation. It is well to
emphasize that the remedy of rehabilitation should be denied to
corporations that do not qualify under the Rules. Neither should it be
allowed to corporations whose sole purpose is to delay the enforcement
of any of the rights of the creditors.
o DENIAL OF REHABILITATION PLAN - Thus, the remedy of rehabilitation
should be denied to corporations whose insolvency appears to be
irreversible and whose sole purpose is to delay the enforcement of
any of the rights of the creditors, which is rendered obvious by: (a) the
absence of a sound and workable business plan; (b) baseless and unexplained

assumptions, targets, and goals; and (c) speculative capital infusion or
complete lack thereof for the execution of the business plan.
g. CREDITOR APPROVAL AND CONFIRMATION
i. Upon completing the rehabilitation plan, the rehabilitation receiver

shall notify the creditors and stakeholders that the Rehabilitation
Plan is ready for their examination.
ii. Within twenty (20) days from the date of the notification, the
rehabilitation receiver shall convene the creditors, either as a whole
or per class, for purposes of voting on the approval of the
Rehabilitation Plan. The Rehabilitation Plan shall be deemed rejected
unless approved by all classes of creditors whose rights are adversely
modified or affected by the Plan.
iii. The Rehabilitation Plan is deemed to have been approved by a class of
creditors if members of the said class holding more than fifty percent
(50%) of the total claims of the said class vote in favor of the Plan.
iv. The rehabilitation receiver shall notify the court, the creditors or
creditors' committee and the stakeholders of the approval or rejection
of the Rehabilitation Plan within five (5) days from the date of such
voting.
 Notwithstanding the rejection of the Rehabilitation Plan, the
court may, motu proprio or upon motion of any interested party
within ten (10) days from notice of the rejection of the
Rehabilitation Plan, confirm the Plan if all of the following
circumstances are present: (i) the Rehabilitation Plan complies
with the requirements specified in the Act and these Rules; (ii)
the rehabilitation receiver recommends the confirmation of the
Rehabilitation Plan; (iii) the shareholders, owners or partners of
the juridical debtor lose at least their controlling interest as a
result of the Rehabilitation Plan; and (iv) the Rehabilitation Plan
would likely provide the objecting class of creditors with
compensation, which has a net present value greater than that
which they would have received if the debtor were under
liquidation.
h. FAILURE OF REHABILITATION
o TERMINATION OF PROCEEDINGS - At any time from the filing of the

petition, any interested party or the rehabilitation receiver may file a motion
for the termination of the proceedings. After hearing the motion, the court
may order the proceedings terminated by either declaring a successful
implementation of the Rehabilitation Plan or a failure of rehabilitation.
• EFFECTS OF TERMINATION - Termination of the proceedings shall
result in the following: (i) the discharge of the rehabilitation
receiver subject to his submission of a final accounting; and (ii) the
lifting of the Stay Order and any other court order holding in
abeyance any action for the enforcement of a claim against the
debtor.
• If the termination of proceedings is due to failure of rehabilitation or
dismissal of the petition for reasons other than technical grounds,
the proceedings shall be immediately converted to
liquidation.

o CASES OF FAILURE OF REHABILITATION
1) Dismissal of the petition by the court;
2) Failure to submit a Rehabilitation Plan;
3) A Rehabilitation Plan is not confirmed by the court
a. Where after finding merit in the objections raised against the
confirmation of the Rehabilitation Plan:
i. The defect is not cured within such time as the court may
order;
ii. The debtor acted in bad faith;
iii. That it is not feasible to cure the defect.
b. Under the Rehabilitation Plan submitted by the debtor, there is
no substantial likelihood that the debtor can be rehabilitated
4) Failure of debtor to comply, conform, or achieve the objectives of the
approved rehabilitation plan;
5) Determination that the Rehabilitation Plan may no longer be
implemented in accordance with its terms, conditions, restrictions, or
assumptions;
6) There is a finding that fraud was committed in securing the approval of
the Rehabilitation Plan or its amendment;
7) Failure of the debtor to comply with these Rules, the Rules of Court, or
any order of the court.
2. PRE-NEGOTIATED REHABILITATION
a. HOW INITIATED
o An insolvent debtor, by itself or jointly with any of its creditors, may file a
verified petition with the court for the approval of a Pre-Negotiated
Rehabilitation Plan.
o It must be supported by an affidavit showing the written approval or
endorsement of creditors holding at least two-thirds (2/3) of the total
liabilities of the debtor, including secured creditors holding more than fifty
percent (50%) of the total secured claims of the debtor and unsecured
creditors holding more than fifty percent (50%) of the total unsecured claims
of the debtor.
b. PERIOD AND EFFECT OF APPROVAL
o PERIOD - Within five (5) working days from the date of filing the petition, if
the court determines that the petition is sufficient in form and substance, it
shall issue an Order. The Order shall have the same effects as a
Commencement Order under Section 9, Rule 2 of these Rules. It shall retroact
to the date of the filing of the petition and shall be effective for one
hundred twenty (120) days from the filing of the petition UNLESS
earlier lifted by the court on account of (a) the approval of the Pre-Negotiated
Rehabilitation Plan, or (b) the termination of the rehabilitation proceedings.
o EFFECT - Approval of a Plan has the same legal effect as confirmation of a
Plan in Court-Supervised Rehabilitation. It also results in a cram down, as it
binds not only the debtor but also all persons affected by it.

3. OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENT OR
REHABILITATION PLAN
a. MINIMUM REQUIREMENTS
o An out-of-court or informal restructuring/workout agreement or rehabilitation

plan (OCRA) under the Act shall comply with both requirements:
a) Approval by the: 1. debtor; 2. creditors representing at least sixty-
seven percent (67%) of the secured obligations of the debtor; 3.
creditors representing at least seventy-five percent (75%) of the
unsecured obligations of the debtor; and, 4. creditors holding at least
eighty-five percent (85%) of the total liabilities, secured and
unsecured, of the debtor; and
b) Publication of the notice of the OCRA once a week for at least three
(3) consecutive weeks in a newspaper of general circulation in the
Philippines.
b. STANDSTILL PERIOD
o The period agreed upon by the debtor and its creditors to enable them to
negotiate and enter into an out-of-court or agreement or rehabilitation plan.
o DURATION - The standstill period shall expire upon (1) the lapse of 120
days from the effectivity of the standstill agreement, (2) the effectivity of the
OCRA, or (3) the termination of the negotiations for the OCRA as declared by
creditors representing more than fifty percent (50%) of the total liabilities of
the debtor, whichever comes first.
o BINDING EFFECT - A standstill period may be agreed upon by the parties
and shall be effective and enforceable not only against the contracting
parties but also against the other creditors provided it complies with the
following conditions:
i. approval of the agreement for a standstill period by creditors
representing more than fifty percent (50%) of the total liabilities of the
debtor;
ii. publication of the notice of the agreement in a newspaper of general
circulation in the Philippines, once a week for two (2) consecutive
weeks; and
iii. the standstill period shall not exceed one hundred twenty (120) days
from the date of effectivity.
c. CRAM DOWN EFFECT
o The court may approve a rehabilitation plan over the objection of the
creditors if, in its judgment, the rehabilitation of the debtors is feasible and
the opposition of the creditors is manifestly unreasonable.
o Also known as the “cram-down” clause, this provision, which is currently
incorporated in the FRIA, is necessary to curb the majority creditors’ natural
tendency to dictate their own terms and conditions to the rehabilitation,
absent due regard to the greater long-term benefit of all stakeholders.
Otherwise stated, it forces the creditors to accept the terms and conditions of
the rehabilitation plan, preferring long-term viability over immediate but
incomplete recovery. xxx The cram-down principle consists of two things: (i)
approval despite opposition and (ii) binding effect of the approved plan.
o REQUISITES; Notwithstanding the rejection of the Rehabilitation Plan, the
court may confirm the Rehabilitation Plan if all of the following circumstances
are present:
i. The Rehabilitation Plan complies with the requirements specified under
FRIA;
ii. The rehabilitation receiver recommends the confirmation of the
Rehabilitation Plan;
iii. The shareholders, owners or partners of the juridical debtor lose at
least their controlling interest as a result of the Rehabilitation Plan;
and
iv. The Rehabilitation Plan would likely provide the objecting class of
creditors with compensation which has a net present value greater
than that which they would have received if the debtor were under
liquidation.
C. LIQUIDATION
1. VOLUNTARY LIQUIDATION VS. INVOLUNTARY LIQUIDATION VS.

CONVERSION
DEBTOR PROCEEDING REQUIREMENTS

o • Possesses sufficient property to cover
SUSPENSION
o debts but foresees the impossibility of
OF PAYMENTS
o meeting them as they fall due
o VOLUNTARY • Properties are not sufficient to cover
o [Instituted by liabilities; and Owing debts exceeding
oINDIVIDUAL the debtor] Php 500,000
o INVOLUNTARY
o [Instituted by a • Creditor(s) have claim(s) aggregating
o creditor or a at least Php 500,000; and An act of
o group of insolvency alleged in the petition
o creditors]
VOLUNTARY • Insolvent: Either unable to pay
[Instituted by liabilities as they fall due or assets
the debtor] are insufficient to pay for liabilities
INVOLUNTARY • At least three creditors; and With
JURIDICAL
[Instituted by a aggregate claims at least either Php
creditor or a 1,000,000 or at least 25% of
group of subscribed capital stock or partner’s
creditors] contributions, whichever is higher
o Conversion: When the court-supervised or pre-negotiated rehabilitation

proceeding is converted by the court into liquidation proceedings.
• Under the FRIA, court-supervised or pre-negotiated rehabilitation
proceedings may be converted in the following instances:
i. Within 10 days from receipt of the receiver’s report, a court finding
that the debtor is insolvent and there is no substantial likelihood
of substantial rehabilitation; [Sec. 25(c)]
ii. If no Rehabilitation Plan is confirmed within 1 year from filing the
petition to confirm the Plan; [Sec. 72]
iii. If termination is due to failure or rehabilitation or dismissal of
the petition for reasons other than technical grounds [Sec. 75]; or
iv. Motion filed by the insolvent debtor for conversion into liquidation
proceedings. [Sec. 90]

2. PROCEDURE
a. LIQUIDATION ORDER; EFFECTS
• Such order results in the dissolution of a juridical debtor, however, the

individual debtor is only discharged upon termination of the proceedings.
• The Liquidation Order shall:
1) Declare the debtor insolvent;
2) Order the liquidation of the debtor and, in the case of a juridical
debtor, declare it as dissolved;
3) Order the sheriff to take possession and control of all the property of
the debtor, except those that may be exempt from execution;
4) Order the publication of the petition or motion in a newspaper of
general circulation once a week for two (2) consecutive weeks;
5) Direct payments of any claims and conveyance of any property due
the debtor to the liquidator;
6) Prohibit payments by the debtor and the transfer of any property by
the debtor;
7) Direct all creditors to file their claims with the liquidator within the
period set by the rules of procedure;
8) Authorize the payment of administrative expenses as they become
due;
9) State that the debtor and creditors who are not petitioner/s may
submit the names of other nominees to the position of liquidator;
and
10) Set the case for hearing for the election and appointment of the
liquidator, which date shall not be less than thirty (30) days nor
more than forty-five (45) days from the date of the last publication.
 EFFECTS OF THE LIQUIDATION ORDER;
a) The juridical debtor shall be deemed dissolved and its corporate
or juridical existence terminated;
b) Legal title to and control of all the assets of the debtor, except those
that may be exempt from execution, shall be deemed vested in the
liquidator or, pending his election or appointment, with the court;
c) All contracts of the debtor shall be deemed terminated and/or
breached, unless the liquidator, within ninety (90) days from the
date of his assumption of office, declares otherwise and the
contracting party agrees;
d) No separate action for the collection of an unsecured claim
shall be allowed. Such actions already pending will be transferred
to the Liquidator for him to accept and settle or contest. If the
liquidator contests or disputes the claim, the court shall allow, hear
and resolve such contest except when the case is already on appeal.
In such a case, the suit may proceed to judgment, and any final and
executor judgment therein for a claim against the debtor shall be
filed and allowed in court; and
e) No foreclosure proceeding shall be allowed for a period of one
hundred eighty (180) days.
 Exception: However, the Liquidation Order shall not affect the
right of a secured creditor to enforce his lien.

3. DETERMINATION OF CLAIMS
o The rules on the determination of claims are as follows:

i. All claims must be duly proven before being paid.
ii. Within 20 days from assuming office, the liquidator shall prepare a
preliminary registry of claims.
iii. Secured creditors who have waived their security or have fixed the value of
the property subject of the security shall be considered unsecured.
iv. The registry shall be available for public inspection and publication notice
shall be provided to stakeholders. [Sec. 123]
v. The debtor and the creditor have the right to set off their debts against
each other; only the balance, if any, shall be allowed in the proceedings.
[Sec. 124]
vi. Within 30 days from expiration of the period for filing of applications for
recognition of claims, interested parties may challenge claims to the court.
vii. Upon the expiration of the 30-day period, the liquidator shall submit the
registry of claims containing the claims not subject to challenge.
viii. Such claims shall become final upon filing of the register.
ix. Claims that have become final may be set aside only on grounds of fraud,
accident, mistake or inexcusable neglect. [Sec. 125]
x. The liquidator shall submit disputed claims to court for final approval. [Sec.
126]
o TREATMENT OF CONTRACTS - General Rule: All contracts are deemed
terminated and/or breached.
• Exception: When the liquidator, within 90 days from assumption of office,
declares otherwise and the contracting party agrees.
D. SUSPENSION OF PAYMENTS; SUSPENSION OF PAYMENT ORDER
o A remedy where an individual debtor who, possessing sufficient property to cover

all his debts but foreseeing the impossibility of meeting them when they
respectively fall due.
o HOW INITIATED - Illiquid debtor files a duly verified petition that he be
declared in the state of suspension of payments by the court of the province/city in
which he has resided for 6 months prior to the filing of the petition.
o MINIMUM REQUIREMENTS FOR PETITION - (1) Schedule of debts and liabilities
(2) Inventory of assets (3) Proposed agreement with his creditors
o SUSPENSION OF PAYMENTS ORDER
• WHEN ISSUED - Within 5 working days if the court finds the petition
sufficient in form and substance. Remains effective from the time of the filing
of the petition until the termination of the proceedings.
• CONTENTS OF THE ORDER – xxx (e) forbidding the individual debtor
from selling, transferring, encumbering or disposing in any manner of his
property, except those used in the ordinary operations of commerce or of
industry in which the petitioning individual debtor is engaged so long as the
proceedings relative to the suspension of payments are pending; (f)
prohibiting the individual debtor from making any payment outside of the
necessary or legitimate expenses of his business or industry, so long as the
proceedings relative to the suspension of payments are pending
• ACTIONS SUSPENDED - No creditor except those exempt shall institute
proceedings to collect its claim from the time of filing until the termination of
the proceedings.
o XPN: (i) Claims for personal labor; (ii) Expenses of last illness and
funeral of the wife or children of debtor incurred within 60 days
immediately prior to the filing of petition; (iii) Secured creditors.
 SUSPENSION OF PENDING EXECUTIONS – the court may also issue an
order suspending any pending executions against a debtor upon motion
of such debtor.
o The order shall not apply to the foreclosure of mortgages or pledge
held by SECURED DEBTORS.
- NOTHING FOLLOWS –
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#Red-Gelo Notes - Page 1 of 143

CAVEAT: The author reserves

Due to financial constraints, the author decided to make

Hence, should you avail a copy of this material directly

Though the author has no means of ensuring the

Should you wish to have copy of this material (guilt-free-

You may avail a free copy of the comprehensive syllabus-

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INSURANCE (P.D. No. 162, as amended by R.A. No. 10607)

INTELLECTUAL PROPERTY CODE

ANTI-MONEY LAUNDERING ACT

ELECTRONIC COMMERCE ACT

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FINANCIAL REHABILITATION INSOLVENCY ACT

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 A contract of insurance is an agreement whereby one undertakes for a

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A. INSURABLE INTEREST IN LIFE INSURANCE

B. INSURABLE INTEREST IN PROPERTY

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o A transfer, assignment or conveyance of the property insured does not

3. DOUBLE INSURANCE AND OVERINSURANCE

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C. RULES OF PAYMENT (DOUBLE INSURANCE & OVER-INSURANCE)

4. NO FAULT, SUICIDE, AND INCONTESTABILITY CLAUSES

A. NO FAULT CLAUSE (COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE)

o Insurer is liable in any of the following cases:

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C. RIGHTS AND OBLIGATIONS OF PARTIES

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D. RESCISSION OF INSURANCE CONTRACTS

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o MATTERS WHICH NEED NOT BE DISCLOSED

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o REPRESENTATION – is an oral or written statement of fact or condition

Nature Mere collateral inducement Part of the contract

May be written in the policy Written on the policy,

Materiality Must be proved to be material Presumed material

Who may May be made by both the

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o A warranty is a statement or promise by the insured set forth in the policy

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 Article 1732. Common carriers are persons, corporations, firms or associations

2. COMMON CARRIER VS. PRIVATE CARRIER

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DIFFERENCE BETWEEN COMMON CARRIER AND PRIVATE CARRIER

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B. OBLIGATIONS AND LIABILITIES

1. VIGILANCE OVER GOODS

 LIABILITY FOR ACTS OF OTHERS

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C. DEFENSES AVAILABLE TO A COMMON CARRIER

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 Due diligence in the selection and supervision of employees is a defense if the

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2. STIPULATIONS LIMITING LIABILITY

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