Notes on Commercial Law

Bar Exam 2023

Atty. Bernardino T. Amago IV, CPA

I. Business Organizations

A. Partnerships

1. Definition:

Article 1767. By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.

2. Rules in Determining Existence

Article 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by article 1825, persons who are not partners as to each other
are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether
such-co-owners or co-possessors do or do not share any profits made by the use of
the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or
not the persons sharing them have a joint or common right or interest in any
property from which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie
evidence that he is a partner in the business, but no such inference shall be drawn if
such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits
of the business;
(e) As the consideration for the sale of a goodwill of a business or other
property by installments or otherwise.

3. Partnership by Estoppel

Article 1825. When a person, by words spoken or written or by conduct, represents

himself, or consents to another representing him to anyone, as a partner in an
existing partnership or with one or more persons not actual partners, he is liable to
any such persons to whom such representation has been made, who has, on the faith
of such representation, given credit to the actual or apparent partnership, and if he
has made such representation or consented to its being made in a public manner he
is liable to such person, whether the representation has or has not been made or
communicated to such person so giving credit by or with the knowledge of the
apparent partner making the representation or consenting to its being made:

(1) When a partnership liability results, he is liable as though he were an actual

member of the partnership;
(2) When no partnership liability results, he is liable pro rata with the other persons,
if any, so consenting to the contract or representation as to incur liability, otherwise
separately.

When a person has been thus represented to be a partner in an existing partnership,

or with one or more persons not actual partners, he is an agent of the persons
consenting to such representation to bind them to the same extent and in the same
manner as though he were a partner in fact, with respect to persons who rely upon
the representation. When all the members of the existing partnership consent to the
representation, a partnership act or obligation results; but in all other cases it is the
joint act or obligation of the person acting and the persons consenting to the
representation.

3. Joint Venture

The main distinction cited by most opinions in common law jurisdictions is that the
partnership contemplates a general business with some degree of continuity, while
the joint venture is formed for the execution of a single transaction, and is thus of a
temporary nature. x x x This observation is not entirely accurate in this jurisdiction,
since under the Civil Code, a partnership may be particular or universal, and a
particular partnership may have for its object a specific undertaking. x x x It would
seem therefore that under Philippine law, a joint venture is a form of partnership and
should be governed by the law of partnerships. (Valdes v. La Colina Development
Corp., G.R. No. 208140, July 12, 2021.)

4. Management

[P]ursuant to Article 1816 of the Civil Code, the general rule is that a partner's
obligation to third persons with respect to the partnership liability is pro rata or joint.
This means that a debtor is liable for the payment only of a proportionate part of the
debt. The exception to this is found in Article 1207, which states that there is solidary
liability when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity. [I]t is the act of a partner which caused loss or injury to
a third person that makes all other partners solidarily liable with the partnership.
[Bendecio v. Bautista, G.R. No. 242087, December 7, 2021.]

B. Corporations
1. Kinds
a. Stock Corporation – one which has a capital stock divided into shares and is
authorized to distribute dividends/allotments of surplus profits to the
holders of such shares based on the shares held
b. Non-Stock Corporation – one that does not have owners represented by
shares of stock
c. De Jure Corporation - one that was able to comply substantially with all the
requirements of the law for its incorporation (w/ Certificate of Incorporation)
d. De facto Corporation - one that was able to make colorable compliance of the
legal requirements for its incorporation; hence, it exists for all practical
purposes as a corporation (w/ Certificate of Incorporation)
e. Corporation by Estoppel – one that is not a de jure or de facto corporation but
is merely regarded as such between the persons misrepresenting themselves
as a corporation and the person who relied on their misrepresentation (w/o
Certificate of Incorporation)
 f. Corporation Sole – one organized for the purpose of administering and
managing, as trustee, the affairs, property and temporalities of any religious
denomination, sect or church, by the chief archbishop, bishop, priest,
minister, rabbi or other presiding elder of such religious denomination, sect
or church. (Non-Stock Corp.)
g. One Person Corporation - a corporation with a single stockholder, who can
only be a natural person (who must be of legal age), trust or estate. (Stock
Corp.)

2. Composition/Membership of BOD
a. Qualifications
a.1 Must own at least one (1) share in his name, except if Trustee in a voting trust
a.2 Majority of corporate directors must be Philippine residents
a.3 Must not have been convicted by final judgment of an offense carrying an
imprisonment exceeding 6 years, or an offense constituting a violation of the
Code,5 years prior to his election or appointment

b. Cumulative Voting – mandatory for election of BOD in stock corporation

{[(Outstanding Shares*# of Desired Directors)+1]/# of Directors + 1}

c. Removal – with or without cause, 2/3 vote of OCS or members (with cause
only if representative of minority group)

d. Vacancy
a.4 Removal/Expiration of Term/Increase in the number of directors/Without
Quorom – election by stockholders
a.5 Other Causes – majority of remaining director if constituting a quorum;
otherwise, election by stockholders

e. Corporate Officers
a.6 President – must be a director
a.7 Treasurer – may or may not be a director, citizen, or resident of the
Philippines
a.8 Secretary – resident and Filipino citizen

3. Powers, Duties, and Prerogatives of BOD

a. Business Judgment Rule – Unless otherwise provided in the Code, all
corporate powers and prerogatives are vested directly in the Board of
Directors.

1. Exceptions:
a. When the Corporation Code expressly provides otherwise
b. When the BOD or officers acted with fraud, gross negligence, or in bad
faith; and
c. When BOD or officers act against the corporation in conflict of interest
situation.

b. Compensation – no compensation except for reasonable per diems; not to

exceed 10% of net income before tax of the preceeding year.

c. Duty of Obedience – Perform duties enjoined on them by law and by the by-
laws of the Corp.
 d. Duty of Diligence – Directors/Trustee who willfully and knowingly vote for,
or assent to patently unlawful acts of the corporation, or who are guilty of
gross negligence or bad faith in directing the affairs of the corporation, shall
be liable jointly and severally for all the damages resulting therefrom suffered
by the corporation, its stockholders/members, and other persons.

e. Duty of Loyalty – When a director/trustee/officer attempts to acquire, or

acquires, in violation of his duty, any interest adverse to the corporation with
respect to any matter which has been reposed in him in confidence, as to
which equity imposes a disability upon him to deal in his own behalf, he shall
be liable as a trustee for the corporation and must account for the profits
which otherwise would have accrued to the corporation.

f. Solidary Liability
6.1 Willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the
affairs of the corporation
6.2 They acquire any personal or pecuniary interest in conflict with their duty
as such directors or trustees

g. Dealings with Directors/Trustees/Officers

7.1 Voidable at the option of the corporation, unless all of the following
conditions are present:
a. Presence of such director or trustee in the Board meeting in which the
contract was approved was not necessary to constitute a quorum for such
meeting;
b. Vote of such director or trustee was not necessary for the approval of the
contract;
c. Contract is fair and reasonable under the circumstances; and
d. In case of an officer, the contract with officer has been previously
authorized by the BOD

N.B. If only the first two conditions are present, it may be ratified by 2/3 vote of
OCS/members; provided, full disclosure of adverse interest was made and
the contract is fair and reasonable.

7.2 With Interlocking Directors – Contract is valid so long as there is no fraud and
the contract is fair and reasonable;
- Contract is voidable if the director’s interest is nominal in one of the contracting
corporations (not exceeding 20% of OCS) and foregoing conditions (7.1) are
not complied with.

4. Powers, Duties, and Prerogatives of Shareholders

a. Right to Attend Shareholders’ Meetings

b. Right to Vote
2.1 Non-Voting Shares will still vote in the following corporate acts:
a. Amendment of Articles of Incorporation
b. Adoption and Amendment of By-laws
c. Sale, lease, or encumbrance of all or substantially all of the corporate
property
 d. Incurring/creating/increasing bonded indebtedness
e. Increase or decrease of capital stock
f. Merger or consolidation
g. Investment of corporate funds in another corporation or business
enterprise; and
h. Dissolution of the corporation

c. Pre-emptive Right – right to subscribe to all issues or disposition of shares of

any class in proportion to his present stockholdings, the purpose being to
enable the shareholder to retain his proportionate control in the corporation
and to retain his equity in the retained earnings, and also in the net assets in
the event of dissolution. [(1)Increase in the authorized capital stock; (2)
Opening for subscription the unissued portion of existing capital stock; and
(3) Disposition of treasury shares]

Exceptions:
3.1 Shares to be issued to comply with laws requiring stock offering or
minimum stock ownership by the public;
3.2. Shares issued in good faith in exchange for property needed for corporate
purposes;
3.3 Shares issued in payment of previously contracted debts; and
3.4 In case the right is denied in the articles of incorporation.

d. Right of First Refusal – arise only by means of contractual stipulation or when

it is provided in the articles of incorporation; by-laws provision will not
suffice.

e. Right to Receive Dividends – Stock corporations are prohibited from retaining

surplus profits in excess of 100% of their paid-in capital stock,
5.1 Exceptions
a. When justified by definite corporate expansion projects or programs
approved by the BOD;
b. When the corporation is prohibited under any loan agreement with any
financial institution or creditor, whether local or foreign, from declaring
dividends without its/his consent, and such consent has not yet been
secured; or
c. When it can be clearly shown that such retention is necessary under special
circumstances obtaining in the corporation, such as when there is a need
for special reserve for probable contingencies.

5.2 Cash/Property Dividends

a. Declared from Unrestricted Retained Earnings through Board Resolution
b. Payable to delinquent stockholders but to be applied first to the unpaid
balance and will be withheld until the shares have been fully paid
c. Revocable before announcement to the shareholders

5.3 Stock Dividends

a. Declared from Unrestricted Retained Earnings through Board Resolution
and 2/3 vote of OCS
b. May be revoked prior to actual issuance.

6. Right to Inspect and Copy Corporate Records

 a. During business hours on a business day
b. For good purpose (investigate management acts or financial conditions, fix
value of shares)
c. Within 10 days from receipt of a written request of any
stockholder/member, the corporation shall furnish him the most recent
financial statement, which shall include the balance sheet and the profit or
loss statement

7. Right to File Derivative Suits – a suit by a shareholder to enforce a corporate cause

of action
a. A shareholder as of the time of the act or transaction complained of;
b. Has exhausted intra-corporate remedies (i.e., demand on the BOD); and
c. Cause of action devolved on the corporation, the harm having caused to
the corporation and not to the particular stockholder bringing the suit

8. Appraisal Right
8.1 Grounds
a. Extend or shorten corporate term
b. Restriction of rights or privileges of shares through the amendment of the
articles of incorporation
c. Sale of all or substantially all corporate assets
d. Equity investment in non-primary purpose business enterprise
e. Merger or consolidation

9. Right to Receive Proportionately the Net Assets of the Corporation after

Dissolution

b. Incorporation
a. Articles of Incorporation (AOI) has been described as one that
defines the charter of the corporation and the contractual
relationship between the state and the corporation, the stockholders
and the State, and between the Corporation and its stockholder.
b. Amendment – Majority vote of BOD + 2/3 vote of OCS or members
(subject to Right of Appraisal if it involves diminishing of
substantial rights previously granted or creating a new set of shares
with priority rights)

c. By-laws
a. By-laws operate merely as internal rules among the stockholders,
they cannot affect or prejudice third persons who deal with the
corporation, unless they have knowledge of the same.

ii. Intra-corporate Dispute (concept)

To determine whether a case involves an intra-corporate controversy, and is to be
heard and decided by the branches of the RTC specifically designated by the
Court to try and decide such cases, two elements must concur: (a) the status or
relationship of the parties, and [b] the nature of the question that is the subject of
their controversy. Thus, to be considered as an intra-corporate dispute, the case:
(a) must arise out of intra-corporate or partnership relations, and (b) the nature of
the question subject of the controversy must be such that it is intrinsically
connected with the regulation of the corporation or the enforcement of the
parties’ rights and obligations under the Corporation Code and the internal
 regulatory rules of the corporation. So long as these two criteria are satisfied, the
dispute is intra-corporate and the RTC, acting as a special commercial court, has
jurisdiction over it. (Aguirres v. FQB+7, Inc., G.R. No. 170770, January 9, 2013)

II. Banking Laws

A. New Central Bank Act

1. Conservatorship
• There must be a report submitted by the Supervising or Examining Dept (SED) of the
BSP.
• Finding made by the MB that the bank is unable (involuntary) or unwilling
(intentionally) to maintain a condition of its liquidity deemed adequate to protect the
interest of depositors and creditors.
• The BSP will send an order/notice regarding its conservatorship to the Board of
Directors (BOD) of the bank in order to inform them. (Sec.30)
• Cannot Exceed 1 year

2. Receivership
• has notified the Bangko Sentral or publicly announced a unilateral closure, or has
been dormant for at least sixty (60) days or in any manner has suspended the
payment of its deposit/deposit substitute liabilities, or is unable to pay its liabilities
as they become due in the ordinary course of business
• has insufficient realizable assets, as determined by the Bangko Sentral, to meet its
liabilities
• cannot continue in business without involving probable losses to its depositors or
creditors
• has willfully violated a cease and desist order under Section 37 of this Act that has
become final, involving acts or transactions which amount to fraud or a dissipation
of the assets of the institution

B. General Banking Law of 2000

1. A digital bank offers financial products and services that are processed end-to-end
through a digital platform and/or electronic channels with no physical branch/sub-
branch or branch-lite unit offering financial products and services. (1 Billion
Capitalization)

2. “Quasi-banks” (QB). The latter refer to entities engaged in the borrowing of funds
through the issuance, endorsement or assignment with recourse or acceptance of
deposit substitutes (as defined in Sec. 95 RA 7653, the New Central Bank Act) for
purposes of relending or purchasing of receivables and other obligations. (last part of
Sec. 4)

3. The fiduciary nature of banking requires a bank to assume a degree of diligence

higher than that of a good father of a family in the selection and supervision of
employees; deposit accounts of client; and dealings with real estate.

C. Secrecy of Bank Deposit

1. RA 1405 - All deposits of whatever nature with banks or banking institutions in the
Philippines including investments in bonds issued by the Government of the
Philippines, its political subdivisions and its instrumentalities, are hereby considered as
of an absolutely confidential nature and may not be examined, inquired or looked into
by any person, government official, bureau or office, except upon written permission of
the depositor, or in cases of impeachment, or upon order of a competent court in cases
of bribery or dereliction of duty of public officials, or in cases where the money
deposited or invested is the subject matter of the litigation.

2. RA 6426 - All foreign currency deposits authorized under this Act, as amended by PD
No. 1035, as well as foreign currency deposits authorized under PD No. 1034, are hereby
declared as and considered of an absolutely confidential nature and, except upon the
written permission of the depositor, in no instance shall foreign currency deposits be
examined, inquired or looked into by any person, government official, bureau or office
whether judicial or administrative or legislative, or any other entity whether public or
private; Provided, however, That said foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever.

D. Anti-Money Laundering Act

A. Covered Institutions and their obligations

1. The term ‘covered persons’ shall exclude lawyers and accountants acting
as independent legal professionals in relation to information concerning
their clients or where disclosure of information would compromise client
confidences or the attorney-client relationship: Provided, That these
lawyers and accountants are authorized to practice in the Philippines and
shall continue to be subject to the provisions of their respective codes of
conduct and/or professional responsibility or any of its amendments.

B. Suspicious transactions – transactions with “covered institutions”, regardless

of the amount involved, where certain circumstances exist (i.e. no underlying
legal or trade obligation, purpose or economic justification).

C. Money Laundering Crime - committed when the proceeds of an “Unlawful

Activity” are transacted to make them appear to have originated from
legitimate sources, by the following acts:
(i) Transacting or Attempting to Transact, with monetary instrument or
property, knowing it represents/involves/relates to proceeds of any
“unlawful activity”;
(ii) Facilitating money-laundering referred to in item (i) above, by knowingly
performing or failing to perform an act; or
(iii) Failing to Disclose and File Report with AMLC of any monetary
instrument or property as required under the Law.

D. Inquiry of Bank Deposits - AMLC on its own, and no court order required,
may examine bank deposit accounts in cases involving 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, 11, 12, 13, 14, 15 and 16 of Republic Act No. 9165,
otherwise known as the Comprehensive Dangerous Drugs Act of 2002;
3. Hijacking and other violations under Republic Act No. 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; and
4. Felonies or offenses of a nature similar to those mentioned in Section 3(i)
(1), (2) and (12) of the AMLA, as amended, which are punishable under
the penal laws of other countries, and terrorism and conspiracy to commit
terrorism as defined and penalized under Republic Act No. 9372.

E. 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, and
which shall not exceed six (6) months depending upon the circumstances of
the case: Provided, That if there is no case filed against a person whose
account has been frozen within the period determined by the court, the freeze
order shall be deemed ipso facto lifted:

F. Safe Harbor Provision - No administrative, criminal or civil proceedings shall

lie against any person for having made a covered transaction report or a
suspicious transaction report in the regular performance of his duties and in
good faith, whether or not such reporting results in any criminal prosecution
under this AMLA or any other Philippine law.

III. Insurance Law

A. INSURABLE INTEREST
1.1 As to property insurance, it must exist when the insurance takes effect
and when the loss occurs, but need not exist in the meantime.
1.1.1 Insurable Interest (Sec. 14) - An insurable interest in property
may consist in:
(a) An existing interest;
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that out of
which the expectancy arises.
I.2 As to life insurance, it must exist when the when the insurance takes
effect, but need not exist thereafter or when the loss occurs (except
that which is taken by a creditor on the life of his debtor).
1.2.1. Insurable Interest (Sec. 10) - Every person has an insurable
interest in the life and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary interest;
(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.

B. DOUBLE INSURANCE (Sec. 95) - A double insurance exists where the same
person is insured by several insurers separately in respect to the same subject
and interest.
C. OVERINSURANCE - occurs when property is insured for an amount in
excess of its value.

1.1 Section 96. Where the insured in a policy other than life is over insured by
double insurance:
(a) 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;

(b) Where the policy under which the insured claims is a valued policy, any
sum received by him under any other policy shall be deducted from the value
of the policy without regard to the actual value of the subject matter insured;

(c) Where the policy under which the insured claims is an unvalued policy,
any sum received by him under any policy shall be deducted against the full
insurable value, for any sum received by him under any policy;

(d) Where the insured receives any sum in excess of the valuation in the case
of valued policies, or of the insurable value in the case of unvalued policies,
he must hold such sum in trust for the insurers, according to their right of
contribution among themselves; and

(e) 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.

D. INCONTESTABILITY CLAUSE (Sec. 48) - 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 the fraudulent concealment or
misrepresentation of the insured or his agent.

E. SUICIDE (Sec. 183) - The insurer in a life insurance contract shall be liable in
case of suicide only when it is committed after the policy has been in force for
a period of two (2) years from the date of its issue or of its last reinstatement,
unless the policy provides a shorter period: Provided, however, That suicide
committed in the state of insanity shall be compensable regardless of the date
of commission.

F. NO FAULT INDEMNITY (Sec. 391) - Any claim for death or injury to any
passenger or third-party involving an insured vehicle (CMLVI/CTPL) shall
be paid without the necessity of proving fault or negligence of any kind. The
total indemnity is P15,000 per person and proof of loss includes (1) police
report of accident; and (2) death certificate and evidence sufficient to establish
the proper payee; or (3) Medical report and evidence of medical or hospital
disbursement in respect of which refund is claimed.

Claim may be made against one motor vehicle only. 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. In any other
case, claim shall lie against the insurer of the directly offending vehicle. In all
 cases, the right of the party paying the claim to recover against the owner of
the vehicle responsible for the accident shall be maintained.

G. PERFECTION OF INSURANCE CONTRACT - Being a consensual contract, it

is perfected by mere consent of the parties, as such, no formality is required
for its perfection.

A contract of insurance, like all other contracts, must be assented to by both

parties, either in person or through their agents and so long as an application
for insurance has not been either accepted or rejected, it is merely a proposal
or an offer to make a contract. The contract, to be binding from the date of
application, must have been a completed contract, one that leaves nothing to
be done, nothing to be completed, nothing to be passed upon, or determined,
before it shall take effect. There can be no contract of insurance unless the
minds of the parties have met in agreement. It is only when the applicant
pays the premium and receives and accepts the policy while he is in good
health that the contract of insurance is deemed to have been perfected. [Perez
vs. Court of Appeals, G.R. No. 112329, January 28, 2000.].

H. RESCISSION OF INSURANCE CONTRACT (Sec. 48) - Whenever a right to

rescind a contract of insurance is given to the insurer, such right must be
exercised prior to the commencement of an action on the contract. (If life
insurance, within the 2-year contestability period)

IV. Transportation Law

A. Common carrier is one that is 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. Examples: (i) pipeline
operators; (ii) charter party of private carrier under affreightment; (iii)
operator of beach resort offering tour package-contracts including
transportation to and from the resort.

B. Limited Liability Rule – the exclusively real and hypothecary nature of

maritime law operates to limit the liability of the shipowner to the value of
the vessel, earned freightage and proceeds of the insurance, if any.

C. In case of loss of effects of passengers or death or injuries to passengers, the

common carrier is presumed to be at fault or have acted negligently unless it
had observed extraordinary diligence in the vigilance thereof.

D. Defenses of Common Carriers:

(i) Exercise of extraordinary dligence
(ii) Exempting causes (e.g., natural calamity; character of goods or defective
packaging; order of competent public authority)

E. Duration of Liability
(i) Goods – 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 the right to receive them.
 (ii) Passenger – the moment the person who purchases the ticket/token from
the carrier presents himself at the proper place and in a proper manner to be
transported until the passenger has, after reaching his destination, safely
alighted from the carrier’s conveyance or has had a reasonable opportunity to
leave the carrier’s premises.

F. Reduction of Diligence – at the very least, ordinary diligence of a good father

of a family but has to be in writing signed by both parties (carriage of goods
only).

G. Montreal Convention or MC99 - establishes rules governing liability arising

from international air carriage that includes liability arising from injuries and
deaths to persons, as well as damage to, or loss of, baggage and cargo, that
occur in connection with international air carriage.
1. Death and Injury of Passengers - The carrier is liable for damage
sustained in case of death or bodily injury of a passenger upon condition
only that the accident which caused the death or injury took place on
board the aircraft or in the course of any of the operations of embarking
or disembarking.
a. For damages up to 113,100 Special Drawing Rights – no exclusion or
limitation of liability is allowed
b. For damages in excess of 113,100 Special Drawing Rights – may
exclude or limit liability if carrier is able to prove that the damage was
not due to its negligence or wrongful act or omission, or that the
damage was solely due to the negligence or wrongful act or omission
of a third party.
2. Destruction, Loss, Damage, or Delay in carrying baggage, the carrier is
liable for 1,131 Special Drawing Rights for each passenger. The passenger
may only claim above the limit of 1,131 SDR if he has made a special
declaration of interest at the time of check-in, and has paid a
supplementary sum if the case so requires. In such case, the carrier will be
liable to pay a sum not exceeding the declared sum.
3. Notice of Complaints – In case of damage, 7 days from receipt of checked-
in baggage; 14 days from receipt of cargo; In case of delay, 21 days from
time the baggage or cargo have been placed at the passenger’s disposal.
4. Jurisdiction:
a. An action for damages must be brought, at the option of the plaintiff,
in the territory of one of the States Parties, either before the court of
the domicile of the carrier or of its principal place of business, or
where it has a place of business through which the contract has been
made or before the court at the place of destination.
b. In respect of damage resulting from the death or injury of a passenger,
an action may be brought before one of the courts mentioned letter
“a” , or in the territory of a State Party in which at the time of the
accident the passenger has his or her principal and permanent
residence and to or from which the carrier operates services for the
carriage of passengers by air, either on its own aircraft, or on another
carrier’s aircraft pursuant to a commercial agreement, and in which
that carrier conducts its business of carriage of passengers by air from
premises leased or owned by the carrier itself or by another carrier
with which it has a commercial agreement.
 5. Prescription - The right to damages shall be extinguished if an action is
not brought within a period of two years, reckoned from the date of
arrival at the destination, or from the date on which the aircraft ought to
have arrived, or from the date on which the carriage stopped.

V. Intellectual Property Code

A. Patents

1. Definition: Any technical solution of a problem in any field of human

activity which is:
(i) New/Novel – does not form part of a prior art
(ii) involves an Inventive Step – 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
(iii) Industrially Applicable – can be produced and used in any industry

2. Commissioned Work –The patent belongs to the person who commissions

the work unless provided in the contract

3.Terms : (i)Patent –20 yrs;

(ii)Utility model –7 yrs;
(iii)Industrial design –5 yrs

4. Grounds for cancellation of patent:

(i) That the invention is not new or patentable;
(ii) 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;
(iii) That the patent is contrary to public order or morality

5. 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.

6. Tests for Patent Infringement:

(i) Literal infringement test – determine whether there is exact identity if all
material elements by juxtaposing the claims of the patent and the accused
product within the context of the clams and specifications

(ii) Doctrine of equivalents – an alteration in a patented combination which

merely substitutes another old ingredient for one of the ingredients in the
patented combination is an infringement of the patent if the substitute
performs the same function and was well known at the date of the patent as a
proper substitute for the omitted ingredient.

B. Trademarks

1. Mark – 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.
 2. Trade Name – name or designation identifying or distinguishing an
enterprise

3. Ownership:
(i) Mark – solely through registration
(ii) Trade name – through adoption and use

4. Prior use is not a condition to filing but declaration of actual use of the
mark within 3 years from the filing date is required.

5. Tests to Determine Confusing Similarity

(i) Dominance Test – focusing not simply on similarities in size, form or color
but on the main or essential features of each mark taken together; if the
competing trademark contains the main or essential features of another and
confusion and deception is likely to result, infringement takes place
(ii) Holistic Test - considering the mark as a whole and not as dissected; if the
buyer is deceived, it is attributable to the marks as a totality, not usually to
any part of it.

6. Duration of registration – 10 years subject to renewal at 10 years each

within 6 months before or after the expiration of the registration

7. Infringement – a registered mark is used in commerce by a person without

the consent of the registered owner thereof.
(i) unauthorized use
(ii) fraudulent intent is unnecessary
(iii) prior registration is a prerequisite

8. Unfair Competition – use by a person of deception or any other means

contrary to good faith by which he passes off the goods manufactured by him
or in which he deals, or his business or service, for those of another person
who has established goodwill in the goods such person manufactures or deals
in, or his business or service, or who shall commit any acts calculated to
produce said result.
(i) passing off of one’s goods as those of another
(ii) fraudulent intent is essential
(iii) prior registration is not necessary

C. Copyrights

a. Owner of Copyright
a. Author/Co-authors – in original literary and artistic works
b. Employee – if creation of object of copyright is not a part of his
regular duties even if employee uses time, facilities, and materials of
employer
c. Employer – if work is result of performance of his regularly-
assigned duties
d. Creator – in case of commissioned work, unless there is a written
stipulation to the contrary
e. Producer/Author of Scenario/Composer/Film Director - in case of
audio-visual work
f. Publisher – in case of anonymous or pseudonymous work, except:
 6.1 the contrary appears;
6.2 Pseudonyms or adopted name leaves no doubt as to author’s
identity; or
6.3 If author of anonymous works discloses his identity.

b. Fair Use Principle

1. Purpose and character of the use – should not be commercial or for profit
2. Nature of the copyrighted work – the use of a substantially creative and
original work will not likely result into fair use
3. Amount and substantiality of the portions used – when the material
copied is the “heart” of the copyrighted work, regardless of the size of the
portion copied, it is not fair use
4. Effect of use upon the potential market of the copyrighted work – how
it affects the profits of the owner

c. Principle of automatic protection – under Berne Convention, the enjoyment

and exercise of copyright, including moral rights, shall not be the subject of
any formality.
d. Notice of copyright is no longer mandatory. Hence, defense of lack of
knowledge that the work is copyrighted would be untenable.

e. Transfer or assignment of the material object does not carry with it the
transfer or assignment of the copyright in such object, and vice versa.

VI. Electronic Commerce Act

A. Section 6. 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.

B. Section 7. Legal Recognition of Electronic Documents - Electronic documents

shall have the legal effect, validity or enforceability as any other document or
legal writing, and -

(a) 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 -

i. The electronic document has remained complete and unaltered, apart from
the addition of any endorsement and any authorized change, or any change
which arises in the normal course of communication, storage and display;
and

ii. The electronic document is reliable in the light of the purpose for which it
was generated and in the light of all relevant circumstances.

(b) Paragraph (a) applies whether the requirement therein is in the form of an
obligation or whether the law simply provides consequences for the
document not being presented or retained in its original from.
 (c) Where the law requires that a document be presented or retained in its
original form, that requirement is met by an electronic document if -

i. 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

ii. 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.

This Act does not modify any statutory rule relating to admissibility of
electronic data massages or electronic documents, except the rules relating to
authentication and best evidence.

A. Section 8. 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
circumstances, including any relevant agreement;

(c) It is necessary for the party sought to be bound, in or 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. Section 9. Presumption Relating to Electronic Signatures - In any proceedings

involving an electronic signature, it shall be presumed that -

(a) The electronic signature is the signature of the person to whom it

correlates; and

(b) 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 noticed of defects
in or unreliability of the signature or reliance on the electronic signature is not
reasonable under the circumstances.
 C. Section 12. Admissibility and Evidential Weight of Electronic Data Message or
Electronic Document. - 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 the
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.

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.

D. Section 32. Obligation of Confidentiality. - 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.

E. 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. (MCC Industrial Sales Corp. vs
Ssangyong Corp., GR 170633, 17 October 2007)

VII. Foreign Investment Act

A. Doing Business shall include:

a.) soliciting orders, service contracts, opening offices, whether called "liaison"
offices or branches;
b.) appointing representatives or distributors domiciled in the Philippines or who in
any calendar year stay in the country for a period or periods totalling one hundred
eighty (180) days or more;
c.)participating in the management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines; and
d.)any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works, or
the exercise of some of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of the business
organization.

B. The following acts shall not be deemed "doing business" in the Philippines:
a) Mere investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business, and/or the exercise of rights as such investor;
b) Having a nominee director or officer to represent its interest in such corporation;
c) Appointing a representative or distributor domiciled in the Philippines which
transacts business in the representative's or distributor's own name and account;
d) The publication of a general advertisement through any print or broadcast media;
 e) Maintaining a stock of goods in the Philippines solely for the purpose of having the
same processed by another entity in the Philippines;
f) Consignment by a foreign entity of equipment with a local company to be used in
the processing of products for export;
g) Collecting information in the Philippines; and
h) Performing services auxiliary to an existing isolated contract of sale which are not
on a continuing basis, such as installing in the Philippines machinery it has
manufactured or exported to the Philippines, servicing the same, training domestic
workers to operate it, and similar incidental services.

Failure to secure the necessary license shall bar the foreign corporation, its successors or
assigns, from maintaining or intervening 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 Philippines laws. (Sections 126 & 133, Corp. Code)

VIII. Public Service Act

a. Critical Infrastructure

A. Definition - any public service which owns, uses, or operates systems and assets,
whether physical or virtual, so vital to the Republic of the Philippines that the incapacity or
destruction of such systems or assets would have a detrimental impact on national security,
including telecommunications and other such vital services as may be declared by the
President of the Philippines.

B. A public service engaged in the provision of telecommunication services is critical

infrastructure. No other public service shall be considered critical infrastructure unless
declared by the President through an issuance of an executive order and will be applicable
prospectively.
b. Foreign-state Owned Enterprise

A. Definition - an entity in which a foreign state:

i. directly or indirectly owns more than fifty percent (50%) of the capital taking
into account both the voting rights and beneficial ownership;
ii. controls, through ownership interests, the exercise of more than fifty percent
(50%) of the voting rights; or
iii. holds the power to appoint a majority of members of the board of directors or
any other equivalent management body.

In the case of a subsidiary enterprise, the aforementioned criteria shall apply with the
additional official documents covering, but not limited to, the mode of acquisition of
the holding or parent enterprise.

c. Public Utility refers to a public service that operates, manages, or controls for public use
any of the following:

a. Distribution of Electricity;
b. Transmission of Electricity;
c. Petroleum and Petroleum Products Pipeline Transmission Systems;
d. Water Pipeline Distribution Systems and Wastewater Pipeline Systems, including
sewerage pipeline systems;
 e. Seaports; and
f. Public Utility Vehicles.

d. Section 23. Powers of the President to Suspend or Prohibit Transaction or Investment. - In

the interest of national security, the President, after review, evaluation and recommendation
of the relevant government department or Administrative Agency, may, within sixty (60)
days from the receipt of such recommendation, suspend or prohibit any proposed merger or
acquisition transaction, or any investment in a public service that effectively results in the
grant of control, whether direct or indirect, to a foreigner or a foreign corporation.

e. The following are prohibited from making any investment or owning capital in any public
service classified as public utility or critical infrastructure:

i. foreign government or foreign state-owned enterprises;

ii. an entity controlled by a foreign government or foreign state-owned enterprises; or
iii. an entity acting on behalf of a foreign government or foreign state-owned enterprises. An
entity is considered to be acting on behalf of a foreign government or foreign state-owned
enterprise if the foreign government or foreign state-owned enterprise has the ability to
intervene in the management, operation, administration or control of an entity.

b. Sovereign Wealth Funds (SWF) and independent pension funds of each state may
collectively own up to thirty percent (30%) of the capital of such public utility entity or
public service entity classified as critical infrastructure: Provided, that the cumulative
investment of such funds in the public service classified as a public utility or critical
infrastructure, regardless of source of fund, shall not exceed thirty percent (30%)investment.
Provided further, that the administrative agencies shall require the SWF to submit proof of
its adherence to international best practices and generally accepted principles of SWF
management.

f. Section 25. Reciprocity Clause. - Foreign nationals shall not be allowed to own more than
fifty percent (50%) of the capital of entities engaged in the operation and management of
critical infrastructure unless the country of such foreign national accords reciprocity to
Philippine Nationals as may be provided by foreign law, treaty or international agreement.
Reciprocity may be satisfied by according rights of similar value in other economic sectors.
The NEDA shall promulgate rules and regulations for this purpose.