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2022 LAST MINUTE TIPS

AQUILA LEGIS FRATERNITY
COMMERCIAL LAW
2022 BAR OPERATIONS
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INSURANCE (P.D. No. 162, as amended by R.A. No. 10607)

Concept of Insurance / Basic Concepts

Q: What may be insured?
A: Any contingent or unknown event, whether past or future, which may damnify a person having an insurable
interest, or create a liability against him, may be insured against (Section 3, Insurance Code).
Note: The consent of the spouse is not necessary for the validity of an insurance policy taken out by a married
person on his or her life or that of his or her children (Section 3, Insurance Code).

Q: What are the void stipulations in an insurance contract?

A:
1. For the payment of loss whether the person insured has or has no interest in the property insured; or
2. That the policy shall be received as proof of such interest; and
3. Every policy executed by way of gaming or wagering (Section 25, Insurance Code).

Insurable Interest
Q: Compare and contrast insurable interest in Life Insurance vs. Insurable interest in Property Insurance
A:
Life Insurance Property Insurance

Extent GR: Unlimited insurable interest in his own life. Actual value of the property

EXC: Life insurance is taken out by a creditor on the

life of the debtor, insurable interest is limited to the
amount of the debt

Time when Must only exist at the time of the perfection of the 1. Time of the perfection of
insurable must insurance contract the contract; and
exist 2. Time of the loss

Beneficiary’s GR: Insurable interest is not necessary if the insured Beneficiary must have insurable
interest took out the policy on his own life and designated interest.
another.

EXC: Beneficiary must have insurable interest if one

took out an insurance on the life of another

Q: What are the insurable interests in life and health?

A: Every person has an insurable interest in the life and health:
1. Of himself, of his spouse, and of his children
2. Of any person on whom he depends wholly or in part of education or support, or in whom he has a
pecuniary interest
3. 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
4. Of any person upon whose life or interest vested in him depends (Section 10, Insurance Code).

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Q: What are the requisites of double insurance? (STRIP)

A:
1. Subject matter is the same
2. Two (2) or more insurers insuring separately
3. Risk or peril insured against is the same
4. Interest insured is the same; and
5. Person insured is the same

Q: X borrowed money from CCC Bank. As security, she mortgaged her house and lot in favor of the bank. X
then insured her house from fire. The bank also got the house insured.
a. Is there double insurance? Explain.
b. In case of damage, how much can X and CCC Bank recover, respectively?
A(a): No, there is no double insurance. Double insurance exists where the same person is insured by several
insurers separately with respect to the same subject and interest (Section 95, Insurance Code). In this case, the
insurable interest of X in the house is based on her ownership of said house while the insurable interest of the
bank is based on its interest as mortgagee of the property.

A(b): If X obtained an open policy then she could claim an amount corresponding to the extent of the damage
based on the value of the house determined as of the date the damaged occurred, but not to exceed the face
value of the insurance policy; however, if she obtained a valued policy then she could claim an amount
corresponding to the extent of the damage based on the agreed upon valuation of the house (Sections 60 & 61,
Insurance Code). As for CCC Bank, it could claim an amount corresponding to the extent of the damage but not to
exceed the amount of the loan it extended to X or so much thereof as may remain unpaid.

Q. On June 21, 2018, Ms. K took out a life insurance policy on her life in the amount of Php 10 million and
named her husband and her daughter as joint irrevocable beneficiaries. Before the policy was issued and
the premiums were paid, K underwent a medical checkup with a physician accredited by the insurer, and
the only notable observation was that she was suffering from high blood pressure. K was previously
diagnosed by a private physician of having breast cancer which she did not disclose to the insurer in her
application, nor to the insurer’s accredited physician because by then, she was told that she was already
cancer-free after undergoing surgery which removed both her breasts. She was later diagnosed with
psychotic tendency that graduated into extreme despondency. She was found dead hanging in her closet on
October 20, 2019. The police authorities declared it to be a case of suicide as they found a suicide note
written by K stating that she needed to stop the voices in her head who kept telling her she was ugly. The
policy did not include suicide as an excepted risk.
a. Can the insurer raise the issue of failure to disclose that K previously had cancer as a cause for
denying the claim of her husband and daughter?
b. Assuming that concealment was not proven, are the beneficiaries entitled to receive the proceeds
of the life insurance notwithstanding the fact that the cause of death was suicide within the 2-year
contestability period?
A(a): FIRST VIEW: Yes, considering that the insured died before the two-year period had lapsed, respondent
company is not barred from proving that the policy is void ab initio by reason of the insured’s fraudulent
concealment or misrepresentation (Emilio Tan, et al. v. CA, G.R. No. 48049, June 29, 1989).

SECOND VIEW: No ,the insurer is given two years from the effectivity of the life insurance, and while the insurer is
alive, to discover or prove that the policy is void due to concealment or misrepresentation. After the two-year
period, or when the insured dies within said period, the insurer must make good of the policy even if it was
obtained by fraud, concealment, or misrepresentation (Manila Bankers Life Insurance Corporation v. Aban, G.R.
No. 175666, July 29, 2013). Thus, upon the death of K, the insurer lost its right to rescind the policy (Sun Life of
Canada v. Ma. Daisy Sibya, G.R. No. 211212, June 8, 2016).

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Note: It is believed that the first view or the ruling in Emilio Tan, et al v. CA is the correct rule. It is believed that the
insurer can deny the claim on ground of concealment if the insured ides before the expiration of the two-year
period. It should be noted that the portion of the observation in Manila Bankers Life Insurance Corporation v.
Aban is a mere obiter because the policy involved had already been in force for more than three years (AQUINO,
Insurance Law).

A(b): Yes. In cases of suicide, the insurer is liable in the following instances:
1. If committed after 2 years from the date of the policy’s issuance or its last reinstatement;
2. If committed in a state of insanity regardless of the date of the commission unless suicide is an excepted
peril; or
3. If committed after the lapse of a shorter period provided in the policy (Section 183, Insurance Code).

Here, K committed suicide in a state of insanity and suicide is not an excepted peril. Thus, the claim must be paid.

Q: what are the defenses not barred by the incontestability clause?

A:
1. Lack of Insurable interest;
2. Premium was not paid;
3. The death was due to excepted risk, (like suicide);
4. The insured employed vicious fraud (as in another person took the physical exams for the insured);
5. Failure to comply with conditions imposed by the insurer; and
6. Time specified in the contract to make claims is not complied with.

Perfection of the Insurance Contract

Q: What is the effect of non-payment of premiums?
A: GR: No policy or contract of insurance issued by an insurance company is valid and binding unless and until
the premium thereof has been paid (Section 77, Insurance Code).

EXC:
1. Agreement allowing the insured to pay the premium in Installments and partial payment has been made
at the time of loss (Makati Tuscany Condominium Corp. v. CA, G.R. No. 95546, November 6, 1992).
2. Agreement to grant the insured Credit extension for the payment of the premium and loss occurs before
the expiration of the credit term (Article 1306, Civil Code; UCPB General Insurance v. Masagana Telemart,
G.R. No. 137172, April 4, 2001).
3. Estoppel
4. In case of life or industrial life policy whenever the Grace period provision applies, or whenever under the
broker and agency agreements with duly licensed intermediaries, a ninety (90)-day credit extension is
given. No credit extension to a duly licensed intermediary should exceed ninety (90) days from date of
issuance of the policy (Section 77, Insurance Code).
5. There is acknowledgement of a policy of a receipt of premium, which the law declares to be conclusive
evidence of payment, even if there is stipulation therein that it shall not be binding until the premium is
actually paid.
6. Public Interest, as determined by the Insurance Commissioner

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Rights and Obligations of Parties

Q: Copylandia was subrogated by UCPB to its rights against Henson on November 2, 2006. UCPB filed an
Amended Complaint in 2014. Henson alleges that the motion is barred by prescription arguing that since
UCPB’s claim is based on quasi-delict, it must be brought within 4 years from its accrual. Decide.
A: The action of UCPB is not yet barred by prescription due to the prospective application of the abandonment of
the Vector ruling.

The following are the guidelines relative to the application of Vector Shipping ruling and the Henson ruling:
1. For actions that have already been filed and are currently pending before the courts at the time of the
finality of Henson, the rules on prescription prevailing at the time the action is filed would apply.
Particularly:
a. For cases that were filed by the subrogee-insurer DURING the applicability of the Vector rule (i.e.
from Vector’s finality on August 15, 2013 up to the finality of Henson on August 14, 2019), the
prescriptive period is ten (10) years from the time of payment by the insurer to the insured,
which gave rise to an obligation created by law.
b. For cases that were filed by the subrogee-insurer PRIOR to the applicability of the Vector ruling
(i.e. before August 15, 2013), the prescriptive period is four (4) years from the time the tort is
committed against the insured by the wrongdoer
2. For actions of such nature that have NOT YET been filed at the time of the finality of Henson on August
14, 2019:
a. For cases where the tort was committed and the consequent loss/injury against the insured
occurred prior to the finality of Henson on August 14, 2019, the subrogee-insurer is given a
period not exceeding four (4) years from the time of the finality of this Decision to file the action
against the wrongdoer; provided, that in all instances, the total period to file such case shall not
exceed ten (10) years from the time the insurer is subrogated to the rights of the insured.
b. For cases where the tort was committed and the consequent loss/injury against the insured
occurred only upon or after the finality of Henson on August 14, 2019, the Vector doctrine would
hold no application. The prescriptive period is four (4) years from the time the tort is committed
against the insured by the wrongdoer.

Rescission of Insurance Contracts

Q: Compare and contrast the grounds for rescission of insurance contracts
A:
Concealment Misrepresentation

Requisites 1. A party knows the fact which neglects 1. Statement as a fact of something
to communicate or disclose to the which is untrue
other 2. Which the insured stated with
2. Party concealing is duty bound to knowledge that it is untrue AND
disclose such fact to the other with an intent to deceive, or
3. Party concealing makes no warranty of which he states positively as true
the fact concealed without knowing it to be true and
4. Other party has no means of which has a tendency to mislead
ascertaining the fact concealed 3. Where such fact in either case is
material to the risk.

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Materiality Determined not by the event, but solely by the Same rule as concealment
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, Insurance
Code).

Note:
MATERIAL FACT: The fact concealed must be
material to entitle the other to rescind the
policy.

MATTERS SUBJECT OF SPECIAL INQUIRIES:

Matters subject of special inquiries are deemed
conclusively material, and failure of an
apparently complete answer to make full
disclosure will avoid the policy.

Fraud Fraudulent intent is not required There must be fraud

Effect Policy will be vitiated by the suppression of Insurance may be avoided where the
known material facts by a party, and the insurer insured made false statements as to
may rescind a policy on the ground of matters that are material to the risk for the
concealment. purpose of obtaining the insurance and
thereby induce the insurance company to
issue the policy. To constitute
misrepresentation, however, the
statement must be substantially untrue.
Thus, the policy cannot be avoided where
the statements are substantially true
although not strictly and literally true.

Q: What is the rule on materiality for warranties?

A: The breach of any provision which is NOT material WILL NOT avoid the policy. However, parties may expressly
stipulate that the violation of a particular provision, although immaterial in the policy, SHALL avoid it (Sections 74
& 75, Insurance Code).

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TRANSPORTATION LAW

Common carriers
Q: Who are considered as common carriers?
A: 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 (Article 1732, Civil Code)

Q: Are the following common carriers?

A:
1. Pipelines for transferring oils - YES (First Phil v. Court of Appeals G.R. No. 125948, December 29, 1998)
2. Customs broker with transportation as ancillary business - YES (Calvo v. UCPB G.R. No. 148496, March 19,
2002)
3. Operator of a beach resort that accepts clients by virtue of a tour package that includes transportation to
and from the resort - YES (Cruz v. Sun Holidays G.R. No. 186312, June 29 2010)
4. Bus service for school children - YES ( Fabre v. CA G.R. No. 11127, July 26, 1996)

Q: Is Angkas a common carrier?

A: Yes. The Supreme Court ruled that there is really no contractual discretion between the Angkas bikers and
would-be passengers because the app automatically pairs them up based on algorithmic procedures. Whether or
not the parties once paired with each other have the choice to freely accept, reject, or modify the terms of their
engagement based solely on their discretion is a matter which appears to have not yet been traversed in the
proceedings below. Verily, the absence of any true choice on these material contractual points apparently
contradicts the postulation that the Angkas app merely facilitates a purely private arrangement between the biker
and his passenger. Angkas is a common carrier. (LTFRB v. Valenzuela G.R. No. 242860, March 11, 2019)

Q: Is a Certificate of Public Convenience required to be considered as a common carrier?

A: No. It is not a requisite to incur liability under the Civil Code provision governing common carriers (De Guzman
v. CA G.R. No. L-47822, December 22, 1988).

Q: What are the differences between a common carrier and a private carrier?
A:
Common Carrier Private Carrier

Holds himself out for all people indiscriminately Contracts with particular individuals or group only

Extraordinary diligence Diligence of a good father of a family / ordinary

diligence

There is always a presumption of negligence or fault No presumption of fault or negligence

unless they prove that they exercised ordinary
diligence and Art. 1733 of the Civil Code

Parties may not agree on limiting the carrier’s liability Parties may limit the carrier’s liability, provided it is
except when provided by law. It cannot stipulate that not contrary to law, morals, or good customs. It can
it is exempt from liability for the negligence of its stipulate that it is exempt from liability for the
employees or agents, being contrary to public policy negligence of its employees or agents.
(Sps Pereña v. Zarate G.R. No. 157917, August 29, 2012)

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Q: What is the difference between a contract of affreightment and bareboat or demise?

A:
Contract of Affreightment Bareboat or Demise

Owner of the vessel leases part or all of its space to Charterer will be regarded as the owner of the voyage
haul goods for others. Owner of the vessel retains or service stipulated. The charterer mans the vessel
possession ,command, and navigation of the vessel. with his own people and becomes the owner pro hac
vice. Owner of the vessel completely relinquishes
possession, command, and navigation of the vessel.

Remains a common carrier Becomes a private carrier

(Coastwise Lighterage Corporation v. Court of Appeals G.R. No. 114167, July 12, 1995)

Q: What is the difference between the diligence required for goods and passengers?
A:
Goods Passengers

To transport with greatest skill and utmost foresight, To carry passengers safely as far as human care and
utmost vigilance of a very cautious person, according foresight can provide, using utmost diligence of a very
to all circumstances. cautious person, with due regard for all the
circumstances.

Liabilities of Common Carriers

Q: Is the driver of a common carrier liable for breach of contract of carriage?
A: No. A complaint for breach of 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
(Sanico v. Colipano G.R. No. 209969, September 27, 2017).

Obligations and Liabilities

Q: Is it enough to show that some other party might have been responsible for the damage to goods to
overcome the presumption of negligence?
A: No. To overcome the presumption of negligence, thGe common carrier must establish by adequate proof that it
exercised extraordinary diligence over the goods. It must do more than merely to show that some other party
could be responsible for the damage (Unitrans International Inc. v. Insurance Company of North America G.R. No.
203865, March 12, 2019).

Q: Are common carriers liable for the acts of other passengers or strangers?
A: Yes. A common carrier is responsible for death or injuries caused by wilful acts of other passengers or strangers,
only if the common carrier’s employees, through the exercise of the diligence of a good father of a family, could
have prevented the act (GV Florida Transport v. Heirs of Romeo Battung Jr. G.R. No. 208802, October 14, 2015).

Defenses Available to a Common Carrier

Q: When is the defense of proof of negligence of shipper or owner available to the common carrier?
A: The defense is available when (1) The negligence is the proximate cause of the damage in which case the
common carrier is exempted from liability (2) The negligence is considered as contributory in which case the
damages awarded to the injured party is mitigated.

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Q: In case of death or injury to a passenger, is the defense of the exercise of diligence of a good father of a
family in the selection and supervision of their employee available to a common carrier? When is this
defense available to a common carrier?
A: No. When the injured party is a passenger, the 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 employee
(Sanico v. Colipano G.R. No. 209969, September 27, 2017)

When the cause of action against the common carrier is based on quasi-delict, the exercise of due care and
diligence in the selection and supervision of their employee is available as a defense (Del Prado v. Manila Electric
Co G.R. No. 29462, March 7, 1929).

Q: What is the difference between a fortuitous event under Art. 1174 and events under Art. 1734?
A: The presumption of negligence does not attach to a common carrier when the event that caused the loss,
destruction or deterioration is under Art. 1734. On the other hand, the presumption of negligence attaches when
the loss, deterioration or destruction was caused by a fortuitous event.

Q: Are the following considered as fortuitous events?

A:
1. Fire - No, unless caused by lightning or by other natural disaster or calamity (Eastern Shipping Line v. IAC
G.R. No. 69044, May 29, 1987)
2. Heavy seas and rain - No (Eastern Shipping Line v. IAC G.R. No. 69044, May 29, 1987)
3. Mechanical defects - No, if it were discoverable by regular and adequate inspection (Necesito v. Paras
G.R. No. L-1065, June 20, 1958)
4. Tire blow-out - No, there are human factors involved in the situation (Yobido v. CA G.R. No. 113003,
October 17, 1997)
5. Hijacking - No, however common carriers are not held liable for the acts or events which cannot be
foreseen or are inevitable, provided they exercised extraordinary diligence (De Guzman v. CA G.R. No.
L-47822, December 2, 1988).

Q: Is the doctrine of last clear chance available in maritime law?

A: No. The doctrine of last clear chance and the concept of contributory negligence is inapplicable to collision of
vessels at sea. The case will be considered as if the collision is imputable to both vessels, each one of the vessels
shall suffer her own damage and both shall be solidarily liable for the damages occasion to their cargoes (Article
827, Code of Commerce).

Extent of Liability
Q: When may moral damages be awarded in a breach of contract of carriage?
A:
1. There is death of a passenger (Article 1764, Civil Code)
2. When there is fraud, bad faith, or death (Sps. Estrada v. Philippine Rabbit Bus Lines G.R. No. 203902,
2017)
3. Carrier was guilty of fraud or bad faith even if there is no death (Sulpicio Lines v. Curso, G.R. No. 157009)

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Q: What is the difference between a stipulation limiting the liability as to cargoes and as to passengers?
A:
Liability for cargo Liability for passengers

Degree of diligence GR: Extraordinary Diligence (Article 1733, Civil Extraordinary Diligence
Code)

EXC: Can be stipulated to a degree less than

extraordinary diligence, but not lower than
ordinary diligence (Article 1744, & 1745, Civil
Code).

Stipulations on Stipulation between common carrier and the GR: Responsibility cannot be
liability/ degree of shipper/owner limiting the degree of dispensed with or lessened by
diligence diligence is valid provided that: stipulation, posting of notices,
1. In writing, signed by shipper owner statement on tickets, or otherwise
2. Supported by a valuable
(Article 1757, Civil Code)
consideration other than the service
rendered by common carrier
3. Reasonable, just, and not contrary to EXC: Stipulation is valid if the
public policy. (Article 1744, Civil Code) passenger is carried gratuitously

Stipulation between common carrier and the EXC to EXC: Willful acts or gross
shipper/owner limiting the liability (amount negligence (Article 1758, Civil
that may be recovered) for loss is valid Code)
provided that:
1. Reasonable and just under the
circumstances
2. Fairly and freely agreed upon (Article
1750, Civil Code)

Q: Is the insurer bound by the stipulation limiting the liability of the common carrier?
A: Yes. The insurer, as successor-in-interest of the consignee, is likewise bound by the contract, upon taking
delivery of the cargo, a consignee and necessarily its successor-in-interest tacitly accepts the provisions of the
contract, including those which are intended to limit the liability of the contracting parties (Summa Insurance v.
CA G.R. No. 84680, February 5, 1996).

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

General Principles
Q: What are the tests used in determining the Nationality of Corporations? Discuss each.
A:
1. Place of Incorporation test - This test is applied if the corporation is not engaged in activities reserved,
in whole or in part, for Filipinos. Under this test, the nationality of the corporation is determined by the
state where a corporation is incorporated
2. Control test - With respect to a corporation engaged in nationalized areas of activities provided for
under the Constitution and other laws, this is the test that is to be used. Under the Control test, if the
capital of the investing Corporation is at least 60% owned by Filipinos, then the entire shareholdings of
the investing Corporation shall be recorded as Filipino-owned, thus making both the investing and the
investee-corporations Philippine nationals.

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a. In case there is doubt, the grandfather rule is applied as a supplement to the Control test. In
using the Grandfather rule, in order to arrive at the actual Filipino ownership and control in a
corporation, both the direct and indirect shareholdings in the corporation are determined.

Q: For purposes of determining compliance with the constitutional ownership under Section 11, Article XII
of the Constitution, what is the required percentage of Filipino ownership?
A: The Constitution requires full and legal beneficial ownership of 60% of the outstanding capital stock, coupled
with 60 percent of the voting rights must rest in the hands of Filipino nationals. The required percentage of
Filipino ownership shall be applied to both the total number of outstanding shares of stock entitled to vote in the
election of directors and the total number of outstanding shares of stock, whether or not entitled to vote (Roy III v.
Herbosa, G.R. No 207246. April 18, 2017, J. Caguioa).

Q: What are the instances where the Control Test is applied?

A:
Ownership Requirements

100% Filipino (Co-Fi-A-M-Ma-N-Co-Mi-Se-US$2.5M)

Owned 1. Cooperatives;
2. Manufacture of Firecrackers and other pyrotechnic devices;
3. Manufacture, repair, stockpiling and/or distribution of biological, chemical, and
radiological weapons and Anti-personnel mines;
4. Mass media, except recording;
5. Utilization of Marine Resources
6. Manufacture, repair, stockpiling and/or distribution of Nuclear weapons;
7. Cockpits;
8. Small-scale Mining;
9. Private Security agencies;
10. Retail trade enterprises with paid-up capital of less than US$2.5M

80% Filipino Owned (P-R-C)

1. Private Radio Communications network

75% Filipino Owned (Lo-R-D-F)

1. Contracts for the construction and repair of Locally-funded public works except:
a. infrastructure/development projects covered in R.A. No 7718; and
b. Projects which are foreign funded or assisted and required to undergo
international competitive bidding;
2. Private Recruitment, whether for local or overseas employment;
3. Contracts for the construction of Defense-related structures;
4. Under the Flag law, in the purchase of articles for the Government, preference
shall be given to materials and supplies produced, mande, or manufactured in
the Philippines, and to domestic entities.
a. “Domestic entity” means any citizen of the Philippines or commercial
company at least 75% of the capital of which is owned by citizens of the
Philippines.

70% Filipino Owned (Ad-Pawn)

1. Advertising; and
2. Corporations engaged in Pawnshop business.

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60% Filipino Owned (Go-L-E-A-R-N-C-U-P-I-D-Co)

1. Contracts for the supply of materials, goods, and commodities to GOCC, agency,
or municipal corporation;
2. Ownership of private Lands;
3. Ownership/establishment and administration of Educational institutions;
4. Adjustment Companies;
5. Culture, production, milling, processing, trading excepting retailing, of rice and
corn and acquiring, by barter, purchase or otherwise, Rice and corn and the
by-products thereof;
6. Exploration, development and utilization of Natural resources;
7. Ownership of Condominium units where the common areas in the condominium
projects are co-owned by the owners of the separate units or owned by a
corporation;
8. Operation and management of public Utilities;
9. Project Proponent and Facility Operator of a franchise;
10. Manufacture, repair, storage and/or distribution of products/Ingredients requiring
PNP clearance;
11. Operation of Deep-Sea commercial fishing vessel; and
12. Corporations engaged in Coastwise shipping.

40% Filipino Owned [F-I-(SEC)]

1. Financing companies regulated by the SEC
2. Investment houses regulated by the SEC

Corporate Juridical Personality

Q: Rodriguez Tan, doing business under the name and style of Yon Mitori, is a depositor maintaining a
Current Account with Union Bank. In said account, Tan deposited P420,000 through BPI Check drawn
against the account of Angli Lumber & Hardware, Inc, which is one of Tan's clients. The BPI Check was
entered in Tan's bank records. Tan withdrew from said account the amount of P480,000.00. Later that day,
however, the BPI Check was returned to Union Bank as the account against which it was drawn had been
closed. Union Bank discovered that Tan's account had been mistakenly credited so their branch manager
immediately called Tan to recover the funds mistakenly released but Tan refused. During Union Bank's
investigation, it was discovered that Tan previously deposited five BPI checks drawn by Angli Lumber
against the same BPI account, and these checks were all previously dishonored. Union Bank sent Tan a
letter demanding the reimbursement of P420,000, but Tan refused.

Union Bank then debited the available balance in Tan's account as a set-off, and thereafter instituted a
Complaint for Sum of Money for the recovery of the remaining balance. Tan argues that Union Bank should
not be allowed to recover the amount erroneously deposited in his account because of Union Bank's own
gross negligence. On an appeal before the CA, Tan named Yon Mitori as co-appellant. In appealing to the
Supreme Court, Yon Mitori was named as sole petitioner in the Petition. Is Yon Mitori a real party in
interest?

A: NO. Yon Mitori has no separate juridical personality. A single proprietorship is not considered a separate
juridical person under the Civil Code. The Petition should have been filed in Tan's name, the latter being the real
party in interest who possesses the legal standing to file this Petition. Nevertheless, the Court permits the
substitution of Tan as petitioner. Sec. 4, Rule 10 of the Rules of Court provides that "a defect in the designation of
the parties and other clearly clerical or typographical errors may be summarily corrected by the court at any stage
of the action, at its initiative or on motion, provided no prejudice is caused thereby to the adverse party." (Yon
Mitori International Industries v. Union Bank of the Philippines, G.R. No. 225538, October 14, 2020, J. Caguioa)

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Q: What is the effect of the doctrine of piercing the corporate veil? What are the grounds for its
application?
A:
The effects of piercing the corporate veil are:
1. The corporation will be treated merely as an association of persons, undertaking a business and the
liability will attach directly to the officers and stockholders.
2. Where there are 2 corporations, they will be merged into one, the one being merely regarded as the
instrumentality, agency, conduit, or adjunct of the other.
The grounds for its application are:
1. If the fiction is used to perpetrate fraud
2. If the complete control of one entity to another which perpetuated the wrong is the proximate cause of
the injury
3. If a certain corporation is only an adjunct or an extension of the personality of the corporation

Q: What are the requisites of a de facto corporation? (LAP)

A:
1. Organized under a valid Law
2. Bona fide Attempt in good faith to form a corporation according to the requirements of the law
a. Filing of the articles of incorporation
b. Issuance of the certificate of incorporation
3. Actual use of corporate Powers

Q: What is the rule on corporations by estoppel? When is it not applicable?

A: 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.

EXC: Where there is no third person involved and the conflict arises only among those assuming the form of a
corporation who know that the corporation has not been registered, there is NO corporation by estoppel (Lozano
v. Santos, G.R. No.125221, 19 June 1997).

Q: Mamuhunan was invited by his friends to invest in Avante Corp., a newly organized firm engaged in
money market and financing operations. Mamuhunan was elected as the firm’s president. Avante then
purchased a large number of computers, typewriters, and other equipment from Taktak Corp. on
installment basis. Two months later, Mamuhunan discovered that the Articles of Incorporation of Avante
had not been filed by his friends so he immediately filed the AOI with the SEC. The business did not do as
well as was expected though and before the SEC issued the certificate of incorporation, Avante Corp.
defaulted on its obligations to Tatak Corp. Upon being sued by Taktak Corporation in his personal capacity,
Mamuhunan raised the following defenses. Rule on each.

a. Since the SEC had not yet issued its certificate of incorporation, Avante was not a de jure
corporation and thus did not exist. Ergo, it cannot have entered into any enforceable contract.
Taktak countered by saying that since Mamuhunan already filed Avante’s AOI, it is at least a de
facto corporation pending the SEC’s issuance of its Certification of Incorporation.
b. Since the SEC’s registry of corporations is a matter of public record, Taktak should have known that
Avante was not duly incorporated, thus Taktak cannot be said to have been in good faith as to make
the doctrine of corporation by estoppel applicable.

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A(a): Mamuhunan is correct that Avante is not a de jure corporation since it was not properly incorporated in
accordance with law. However, it is also not a de facto corporation since its certificate of incorporation had not yet
been issued. Thus, there is no law under which it is organized (Seventh Day Adventist Conference Church of
Southern Phil. Inc. v. Northeastern Mindanao Mission of Seventh Day Adventist, Inc., G.R. No. 150416, July 21,
2006). Corporate existence, even a defective one, begins from the date the Certificate of Incorporation is issued.

Be that as it may, Avante may be considered as a corporation by estoppel with respect to contracts and
transactions where Mamuhunan and Avante’s other directors acted and dealt with third persons as a corporation
(Section, Revised Corporation Code, 21). Thus, Mamumuhunan and his friends may be held liable as general
partners for the contracts they entered in the name of Avante (Lim Tong Lim v. Philippine Fishing Gear Industries,
Inc., G.R. No. 136448, November 03, 1999).

A(b): The defense does not lie. For there to be a corporation by estoppel, it is sufficient that persons assumed to
act as a corporation knowing it to be without authority to do so, and enters into a transaction with a third person
who relies upon such appearance (Section 21, Revised Corporation Code). The doctrine only applies to a third
party when the latter tries to avoid liability on a contract from which he has benefited on the irrelevant ground of
defective incorporation. In this case, the petitioner is not trying to escape liability on a contract but is claiming
upon said contract. Hence, corporation by estoppel cannot be used as a shield against Taktak (International
Express Travel & Tour Services, Inc. v. CA, G.R. No. 119020, October 19, 2000).

Corporate Powers
Q: The Salido Faction and the San Juan Faction agreed to form Aramaywan Corp. and Narra Mining Corp.
Cerlito San Juan was tasked to finance the initial operations of Aramaywan. In the Agreement to
Incorporate, it was stipulated that San Juan would advance the paid-up subscription for Aramaywan; in
exchange, he would own 55% of the stocks of Aramaywan and 35% of the stocks of Narra. In line with this,
San Juan advanced the paid-up subscription of Aramaywan. Later, in its Board Meeting, the Salido Faction
claimed that San Juan delivered an inadequate amount during the incorporation process and hence was in
breach of his undertaking. Salido then proposed to reduce San Juan's shares in Aramaywan from 55% to
15% which was confirmed in a Resolution. The San Juan Faction filed a complaint seeking to invalidate the
acts of the Salido Faction. Was there a valid reduction of San Juan’s shares?
A: NO. The Corporation Code clearly sets out the parameters when a corporation may reacquire its shares and
convert them into treasury shares. According to Section 9, “treasury shares are shares of stock which have been
issued and fully paid for, but subsequently reacquired through some lawful means, but that reacquisition of
shares requires that the corporation must have unrestricted retained earnings in its books to cover the shared 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. In this case, There was no showing that at the time the reduction of San Juan's shares
was made, Aramaywan had unrestricted retained earnings in its books. Neither was it shown that it did not have
creditors or that they were already paid before the agreement to release San Juan was made. San Juan's
subscriptions have already been fully paid by him; as such, Aramaywan cannot validly reduce his shares without
giving a corresponding return of his investment. His contribution is evidenced by a bank certificate indicating that
he holds the money in trust for Aramaywan (Salido Jr. v. Aramaywan Metals, G.R. No. 233857, J. Caguioa).

Q: What is the rule when a creditor seeks to maintain an action upon unpaid subscriptions?
A: A corporate creditor cannot immediately invoke the trust fund doctrine to proceed against unpaid
subscriptions of stockholders of the debtor corporation except in these two (2) instances when the creditor is
allowed to maintain an action upon any unpaid subscriptions based on the trust fund doctrine:

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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 (Enano-Bote v. Alvarez, G.R. No. 223572, November 10, 2020, J. Caguioa).

Board of Directors and Trustees

Q: What is the doctrine of centralized management? What are the exceptions?
A: The doctrine means that corporate powers are vested in a body, called board of directors for a stock
corporation and board of trustees for a nonstock corporation except in those instances where stockholders' or
members' approval is required for certain acts under the RCC or the corporation's bylaws, it is the board which
exercises corporate powers. The stockholders or members, regardless of number, will have to delegate the power
to manage the corporation to the board (Divina, 2020).
EXC: The doctrine is not applicable to the following instances
1. In case of delegation to the Executive Committee duly authorized in the by-laws (Section 34, Revised
Corporation Code).
2. Authorization pursuant to a contracted manager which may be an individual, a partnership, or another
corporation; and
3. In case of close corporations, the stockholders may manage the business of the corporation instead of a
board of directors, if the articles of incorporation so provides (Section 96, Revised Corporation Code).

Q: What is the business judgment rule? When is it not applicable?

A: Under the business judgment rule, 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. 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 (Montelibano v. Bacolod-Murcia Milling Co., C.R.
No. L-15092, 18 May 1962; Phil. Stock Exchange, Inc. v. CA, C.R. No. 125469, 27 Oct 1997).

However, in the following instances, the business judgment rule may not be invoked:
1. When the act is unconscionable and oppressive as to amount to wanton destruction to the rights of the
minority
2. Bad faith or gross negligence by the directors
3. To declare dividends when there is no surpor profit or to declare dividends out of re-appraisal surplus.

Q: Can an officer of a corporation be held solidarily liable with the corporation?

A: As a general rule, an officer may not be held liable for the corporation's obligations.
EXC: 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 he was guilty of gross negligence or bad faith; and
2. There must be proof that the officer acted in bad faith (Symex Security Services v. Rivera, G.R. No. 202613,
November 08, 2017, J. Caguioa).

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Stockholders and Members

Q: Distinguish voting by proxy and voting through a voting trust agreement
A:
Voting Trust Agreement Proxy

As to nature

The trustee votes as an owner. The proxy votes as a special agent.

As to form of instrument

The agreement must be notarized. Proxy need not be notarized.

As to legal title

Trustee acquires legal title to the shares of the Proxy has no legal title to the shares of the principle.
transferring stockholder; only beneficial title remains
with the stockholder.

As to manner of voting

The trustee must vote in person or by proxy unless the The proxy must vote in person.
agreement provides otherwise.

As to actions allowed

Trustee is not limited to act on any particular meeting. Proxy can only act at a specified stockholder’s
meeting (if not continuing).

As to Restrictions on Voting

A trustee can vote and exercise all the rights of the A proxy can only vote in the absence of the owners of
stockholder even when the latter is present. the stock.

As to Separability of Ownership and Voting Right

The voting right is divorced from ownership of stocks. The right to vote is inherent in or inseparable from the
right to ownership of the stock.

As to Revocability

GR: Irrevocable for five years. Revocable anytime, except if coupled with interest.

EXC: If specifically required as a condition in a loan

agreement, it may be for a period exceeding five
years, but shall automatically expire upon full
payment of the loan.

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Q: What are the different voting requirements under the RCC?

A:
Voting Requirements

Act Board Stockholders

Sec. 15 - Amendment of At least majority of the board At least of the outstanding

Articles of Incorporation capital stock

Sec. 23 - Election of At least majority of the outstanding

Directors capital stock

Sec. 24 - Appointment of At least majority of the board

Corporate Officers

Removal of Corporate At least majority of the board

Officers

Sec. 27 - Removal of At least of the outstanding

Directors/Trustees capital stock

Sec. 28 - Filling Vacancy If the ground is not expiration of term If the ground is expiration,
in the Board removal, increase in number of board seats removal, increase in number of
and the remaining directors constitute a directors; or If the ground is not
quorum - Majority of the remaining expiration, removal, increase in
directors/trustees number of board seats but the
remaining directors do not
constitute a quorum - at least a
majority of the outstanding capital
stock

Sec. 29 - Payment of At least majority of the outstanding

Compensation to capital stock
Directors

Sec. 34 - Appointment of Majority of the quorum

the members of the
Executive Committee

Sec. 34 - Creation of Majority of the quorum

Special Committees

Sec. 36 - At least majority of the board At least of the outstanding

Extension/Shortening of capital stock
the Term

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Sec. 37 - Incurring, At least majority of the board At least of the outstanding

Creating or Increasing capital stock
Bonded Indebtedness;
Increasing or Decreasing
Capital Stock

Incurring Debt in the Majority of the quorum

Ordinary Course of
Business

Sec. 39 - Sale or other In the Ordinary Course of Business -

Disposition of Assets Majority of the quorum

All or substantially all of corporate assets - At least of the outstanding

At least majority of the board capital stock

Sec. 41 - Invest Funds in Majority of the quorum

the Primary Purpose

Invest Funds to Majority of the quorum

Incidental Purpose for
which Corporation is
Created

Invest Funds in a At least majority of the board At least of the outstanding

Secondary Purpose or capital stock
another business

Sec. 42 - Declaration of Majority of the quorum

Cash Dividends

Sec. 42 - Declaration of Majority of the quorum At least of the outstanding

Stock Dividends capital stock

Sec. 43 - Enter into Majority of the quorum for both managed At least majority of the outstanding
Management Contract and managing corporation capital stock of each managed and
managing corporation (but at least
of the outstanding capital stock
is required from the managed
corporation in case interlocking
directors and stockholders)

Sec. 45 - Adoption of Majority of the outstanding capital

By-laws stock

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Sec. 46 - Amendment of At least majority of the board At least majority of the outstanding
By-laws capital stock. If authority to amend
will be delegated by stockholders
to the board at least of the
outstanding capital stock.
Revocation of the delegation made
to the Board - At least majority of
the outstanding capital stock.

Sec. 61 - Fixing the Issued Majority of the quorum (pursuant to Or At least majority of the
Vale of No Par Value authority conferred by Articles of outstanding capital stock
Shares (if not fixed in the Incorporation or the Bylaws)
Articles of Incorporation)

Sec. 75 - Merger or At least majority of the board At least of the outstanding

Consolidation capital stock

Sec. 102 - Amendment of At least of the outstanding

articles of incorporation capital stock
of a close corporation

Sec. 134 - Voluntary At least majority of the board At least majority of the outstanding
Dissolution Where No capital stock
Creditors are Affected

Sec. 135 - Voluntary At least majority of the board At least of the outstanding
Dissolution Where capital stock
Creditors are Affected

Q: Distinguish pre-emptive right from the right of first refusal

A:
Pre-emptive right Right of First Refusal

Definition Right to subscribe to all issuance or Right to purchase shares of a stockholder

dispositions of shares of the corporation
even to the subsequent sale of treasury
stocks.

To what does it Pertains to unsubscribed portion of the Pertains to the sale of the stocks already
pertain authorized capital stock. owned by another stockholder.

Against whom is it Right exercised against the corporation. Right exercised against a co-stockholder.
exercised

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Effect of the May be exercised even when there is no Can only be exercised when so provided in
absence of express express provision in the AOI or amendment the AOI, by-laws and printed in the stock
provision in the thereto. certificate.
AOI
Note: Pre-emptive right may be denied in
the AOI or any amendment in the AOI
(Section 38, Revised Corporation Code).

Treasury shares Included Not included

Q: What are the remedial rights available to stockholders and members, in case of a wrongful or
fraudulent acts of a director, officer or agent?
A: The remedial rights available to stockholders and members are:
1. Individual suit - involves direct injury to the rights of stockholders and members, such as denial of his
right to inspect corporate books and records or preemptive rights.
2. Representative or Class suit - A representative or class suit is one in which one or more members of a
class sue for themselves as a class or for all to whom the right was denied, either as an individual action
or a derivative suit.
3. Derivative suit - A derivative suit is an action based on injury to the corporation – to enforce a
corporate right – wherein the corporation itself is joined as a necessary party, and recovery is in favor of
and for the corporation. It is a suit granted to any stockholder to institute a case to remedy a wrong
done directly to the corporation and indirectly to stockholders

Capital Structure
Q: What are valid considerations for shares of stock?
A:
1. Actual cash paid to the corporation;
2. Property, tangible, or intangible (i.e. patents or copyrights), provided:
a. The property is actually received by the corporation
b. The property is necessary or convenient for its use and lawful purposes
c. It must be subject to a fair valuation equal to the par or issued value of the stock issued
3. Labor performed for or services actually rendered to the corporation.
4. Previously incurred indebtedness of the corporation.
5. Amounts transferred from unrestricted retained earnings to stated capital (in case of declaration of stock
dividends).
6. Outstanding shares exchanged for stocks in the event of reclassification or conversion.
7. Shares of stock in another corporation; and/or
8. Other generally accepted form of consideration (Section 61, Revised Corporation Code)
Note: Promissory notes or future services are not valid considerations.

Q: Janice rendered some consultancy work for XYZ Corporation. Her compensation included shares of stock
therein. Can XYZ Corporation issue shares of stock to pay for the service of Janice as its consultant? Discuss
your answer (2005 Bar).
A: The corporation can issue shares of stock to pay for actually performed services to the corporation, but not for
future services or services yet to be performed.

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Q: What is a watered stock? What is the effect of issuance of watered stocks?

A: A watered stock is a stock issued in exchange for cash, property, share, stock dividends, or services lesser than
its par value or issued value (no par value) or for a consideration other than cash, valued in excess of its fair value
(Section 64, Revised Corporation Code). It is prohibited because the issuance of watered stocks violates the trust
fund doctrine.

Disposition and Encumbrance of Shares

Q: What are the requisites for a valid transfer of stocks?
A: The following are the requirements for valid transfer of stocks:
1. If represented by a certificate, the following must be strictly complied with:
a. Delivery of the certificate or certificates;
b. Indorsed by the owner, his attorney-in-fact, or any other person legally authorized to make the
transfer;
c. No transfer, however, 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
(Section 62, Revised Corporation Code).
2. If NOT represented by a certificate (such as when the certificate has not yet been issued or where for
some reason is not in the possession of the stockholder):
a. By means of deed of assignment; and
b. Such is duly recorded in the books of the corporation

Dissolution and Liquidation

Q: What are the distinctions between voluntary dissolution where creditors are not affected and creditors
are affected?
A:
Creditors are NOT affected Creditors are affected

Adopted by? Majority of BOD/T and Majority OCS or Majority BOD and OCS or members in a
members in non-stock corporations meeting called for the purpose.

What is filed with Verified request for dissolution is filed with Verified petition for dissolution is filed
the SEC? the SEC stating: with the SEC, which must be signed by a
1. Reason for the dissolution majority of a corporation’s BOD/T, verified
2. Form, manner, and time when the by its president or secretary or one of its
notices were given directors or trustees, and shall set forth all
3. Names of the stockholders and claims and demands against it.
directors or members and trustees
who approved the dissolution
4. Date, place, and time of the
meeting in which the vote was
made
5. Details of publication

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Notice What is given to the stockholders or What is published is a copy of the order
members is written notice of the meeting. setting the date and time of the hearing on
Notice is given at least 20 days prior to the the petition. It shall be published at least
meeting and should be published once once a week for three consecutive weeks
prior to the date of the meeting in a in a newspaper of general circulation
newspaper published in the place where published in the municipality or city
the principal office of said corporation is where the principal office of the
located, or if no newspaper is published in corporation is situated, or if there be no
such place, in a newspaper of general such newspaper, then in a newspaper of
circulation in the Philippines. general circulation in the Philippines, and
a similar copy shall be posted for three
consecutive weeks in three public places
in such municipality or city.

Action by the SEC SEC should approve the request for SEC shall render judgment dissolving the
dissolution within 15 days from receipt of corporation only after hearing on the
the verified request for dissolution, and in petition and determination that the
the absence of any withdrawal within said material allegations in the petition are
period, the SEC shall approve the request true.
and issue the certificate of dissolution.

Q: Rich lent P1m to his brother, Estanislao, which secured by a REM over a 1000 sqm parcel of land. But
when Estanislao failed to make good on his obligations, Rich foreclosed the subject property, and was
declared the highest bidder, and subsequently, was issued a Certificate of sale. Without Rich’s knowledge,
however, prior to the foreclosure, it appears that Estanislao entered into an agreement with Maasin Traders
Lending Corporation (MTLC), where loans and advances amounting to P2.6M were secured by a REM over
the same property. Because of this, MTLC exercised equitable redemption after the foreclosure
proceedings. According to Rich, MTLC no longer has juridical personality to effect the equitable redemption
as it has already been dissolved by the SEC. Decide.

A: Once a corporation is dissolved, be it voluntarily or involuntarily, liquidation, which is the process of settling
the affairs of the corporation, will ensue. This consists of (1) collection of all that is due the corporation, (2) the
settlement and adjustment of claims against it, and (3) the payment of its debts. This is based on Section 130 of
the Corporation Code, which empowers every corporation whose corporate existence has been legally terminated
to continue as a body corporate for three (3) years after the time when it would have been dissolved. This
continued existence would only be for the purposes of "prosecuting and defending suits by or against it and
enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets. This
continuance of its legal existence for the purpose of enabling it to close up its business is necessary to enable the
corporation to collect the demands due it as well as to allow its creditors to assert the demands against it.

In addition, and as expressly mentioned by the Corporation Code, this extended authority necessarily excludes
the purpose of continuing the business for which it was established. The reason for this is simple: the dissolution
of the corporation carries with it the termination of the corporation's juridical personality. Any new business in
which the dissolved corporation would engage in, other than those for the purpose of liquidation, "will be a void
transaction because of the non-existence of the corporate party. In this case, MTLC has already been dissolved by
the SEC as early as September 2003, but the real estate mortgage between MTLC and Estanislao was entered into
only in January 2005. From the foregoing, it is clear that, by the time MTLC executed the real estate mortgage
agreement, its juridical personality has already ceased to exist. So, the agreement is void as MTLC could not have

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been a corporate party to the same. Further, a real estate mortgage is not part of the liquidation powers that could
have been extended to MTLC. In fact, it is a new business which MTLC no longer has any business pursuing (Rich v.
Paloma III, G.R. No. 210538, March 7, 2018).

Other Corporations
Q: What are the tests on whether a foreign corporation is doing business in the Philippines?
A:
1. Substance test - Whether the foreign corporation is maintaining or continuing in the Philippines the
body or substance of the business for which it was organized or whether it has substantially retired from
it and turned it over another; and
2. Continuity test – Whether there is continuity of commercial dealings and arrangements, contemplating
to some extent the performance of acts or works or the exercise of some functions normally incident to
and in progressive prosecution of, the purpose and object of its organization (Agilent Technologies
Singapore v. Integrated Silicon Technology Phil. Corp., G.R. No. 154618, April 14, 2004).

Q: What are the rules on the personality of a foreign corporation to sue?

A:
1. If a foreign corporation does business in the Philippines without a license, it cannot sue before the
Philippine courts;
2. If a foreign corporation is not doing business in the Philippines, it needs no license to sue before
Philippine courts on an isolated transaction or on a cause of action entirely independent of any business
transaction;
3. If a foreign corporation does business in the Philippines without a license, a Philippine citizen or entity
which has contracted with said corporation may be estopped from challenging the foreign corporation’s
corporate personality in a suit brought before Philippine courts; and
4. If a foreign corporation does business in the Philippines with the required license, it can sue before
Philippine courts on any transaction (Agilent Technologies Singapore v. Integrated Silicon Technology
Phill Corp., G.R. No. 154618, April 14, 2004).

Q: What is the rule when a foreign corporation not doing business in the Philippines is suing based on the
isolated transaction rule?
A: A foreign corporation that is not doing business in the Philippines must disclose such fact if it desires to sue in
Philippine courts under the "isolated transaction rule" because without such disclosure, the court may choose to
deny it the right to sue. 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 plaintiffs
capacity to sue and must be affirmatively pleaded. Otherwise, the court may choose to deny it the right to sue
(Llorente v. Star City PTY Limited, G.R. No. 212050, January 15, 2020, J. Caguioa).

Q: Who may not incorporate as an OPC?

A:
1. Banks and quasi-banks, pre-need, trust, insurance, public and publicly-listed companies, and
non-chartered government-owned and controlled corporations; and
2. A natural person who is licensed to exercise a profession may not organize an OPC for the purpose of
exercising such profession except as otherwise provided under special laws (Section 116, Revised
Corporation Code)

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Mergers and Consolidations

Q: What are the effects of merger or consolidation?
A:
1. The constituent corporations shall become a single corporation;
2. The separate existence of the constituent corporations shall cease, except that of the surviving or the
consolidated corporation;
3. 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 the RCC;
4. All real or personal property, all receivables due on whatever account 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;
5. The surviving or consolidated corporation shall be responsible for all the liabilities and obligations of
each constituent corporation; and
6. Any pending claim, action or proceeding brought by or against any constituent corporation may be
prosecuted by or against the surviving or consolidated corporation (Section 79, Revised Corporation
Code).

Q: Under the Nell Doctrine, so called because it was first pronounced by the Supreme Court in the 1965
ruling in Nell v. Pacific Farms, Inc. (15 SCRA 415), the general rule is that 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. State the exceptions to the Nell Doctrine.
A:
1. When the buyer expressly or impliedly assumes the liabilities of the seller.
2. If the sale amounts to a merger or consolidation.
3. If the sale is entered into fraudulently or made in bad faith.
4. If the buyer is merely a continuation of the personality of the seller or the so-called business - enterprise
transfer rule.

INTELLECTUAL PROPERTY CODE

Patents
Q: What are the grounds for the cancellation of a patent?
A: Any interested person may, upon payment of the required fee, petition to cancel the patent or any claim
thereof, or parts of the claim, on any of the following grounds: 1) That 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 (Section 61.1,
Intellectual Property Code).

Q: What are the elements for patentability?

A:
1. Novelty
2. Inventive Step
3. Industrially applicable
Note: It may be, or may relate to, a product or process or an improvement of any of the foregoing (Section 21,
Intellectual Property Code).

Q: What is the term of a patent?

A: 20 years from the filing date of the application (Section 54, Intellectual Property Code)

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Q: What are the non-patentable inventions? (TrAPSAD2)

A:
1. 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;
2. Aesthetic creations;
3. Plant varieties or animal breeds or essentially biological process for the production of plants or animals.
This provision shall not apply to micro-organisms and non-biological and microbiological processes;
4. Schemes, rules and methods of performing mental acts, playing games or doing business, and programs
for computers;
5. Anything which is contrary to public order or morality;
6. In the case of Drugs and medicines, mere discovery of a new form or new property of a known substance
which does not result in the enhancement of the efficacy of that substance or the 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; and
7. Discoveries, scientific theories and mathematical methods (Section 22, IPC as amended by R.A. 9502).

Trademark
Q: Is the trademark owner required to declare actual use of a trademark?
A: Yes, in order to retain ownership of a previously registered mark. However, such declaration of actual use is not
anymore a recognized mode of acquisition of ownership (Zuneca Pharmaceutical v. Natrapharm, Inc. G.R. No.
211850, September 8, 2020).

Q: What is the significance of the certificate of registration of a trademark?

A: A certificate of registration of a mark shall be 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 and services and those that are related thereto specified in the certificate.
Note: The rule on the prima facie validity of a certificate of registration is merely meant to recognize the instances
when such certificate is not reflective of ownership such as when the registration was done contrary to the IP
Code.

Q: May prior use of a trademark be used to acquire ownership over a mark?

A: No, prior use no longer determines the acquisition of ownership over a mark. Ownership over a trademark is
acquired by its registration and its actual use by the manufacturer or distributor of the goods made available to
the purchasing public (Zuneca Pharmaceutical v. Natrapharm, Inc. G.R. No. 211850, September 8, 2020).

Q: What are the instances when the certificate of registration is not reflective of ownership of the holder,
which the prima facie nature of the certificate of registration reflects?
A:
1. The first registrant has acquired ownership of the mark through registration but subsequently lost the
same due to non-use or abandonment;
2. The registration was done in bad faith;
3. The mark itself becomes generic;
4. The mark was registered contrary to the Intellectual Property 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.

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Q: What is the Dominancy Test? What test is applied in determining confusing similarity between marks?
A: Only the dominancy test is incorporated in the IP Code in determining the semblance of similar marks. This is
found in Section 155.1 of the IPC which defines trademark infringement as the colorable imitation of a registered
mark or a dominant feature thereof. Based on the legislative deliberations leading to the enactment of the IPC,
the exclusion of the Holistic test was intentional and the dominancy test should be adopted. 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. The Dominancy Test focuses on the similarity of the
prevalent features. If the competing trademark contains the main, essential, or dominant features of another, and
confusion or deception is likely to result, then infringement takes place. In such cases, duplication is not
necessary; nor is it necessary that the infringing label should suggest an effort to imitate. To determine the
resemblance the appearance, sound, meaning, and overall impressions generated by the marks shall be
considered (Kolin Electronics Co., Inc. v. Kolin Philippines International, Inc., G.R. No. 228165, February 9, 2021).

Q: What are the grounds for the cancellation of collective marks?

A:
1. Only the registered owner uses the mark;
2. He uses or permits its use in contravention of the agreements referred to in Subsection 166.2; and
3. He uses or permits its use in a manner liable to deceive trade circles or the public as to the
4. origin or any other common characteristics of the goods or services concerned (Section. 167.3,
Intellectual Property Code).

Q: Distinguish Trademark from Trade Name

A:
Trademark/Service Trade Name
Mark

Basis of Ownership

Registration Prior Use in Philippine commerce

When Protected

Upon registration A trade name may be protected even if unregistered

Remedies

A trademark or service mark owner can avail of A trade name owner only has civil and administrative
administrative, civil, and criminal remedies remedies

Assignment

A trademark or service mark can be assigned A trade name can can be only assigned
independent of business with the business

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Q: Fredco Manufacturing Corp. (Fredco) filed before the IPO a Petition for Cancellation of Registration
issued to Harvard University for the mark “Harvard Veritas Shield Symbol”. Fredco claims that as early as
1982 the mark was already used in the Philippines by its predecessor-in-interest. Harvard University, on the
other hand, claimed that the name and mark “Harvard” was adopted in 1639 as the name of Harvard
College of Cambridge, Massachusetts, USA. The mark had been used in commerce since 1872 and was
registered in more than 50 countries. Decide.
A: “Harvard" is the trade name of the world-famous Harvard University, and it is also a trademark of Harvard
University. Under Article 8 of the Paris Convention, as well as Section 37 of R.A. No. 166, Harvard University is
entitled to protection in the Philippines of its trade name "Harvard" even without registration of such trade name
in the Philippines. This means that no educational entity in the Philippines can use the trade name "Harvard"
without the consent of Harvard University. Likewise, no entity in the Philippines can claim, expressly or impliedly
through the use of the name and mark "Harvard," that its products or services are authorized, approved, or
licensed by, or sourced from, Harvard University without the latter's consent (Fredco Manufacturing Corporation
v. President and Fellows of Harvard College, G.R. No. 185917, June 1, 2011).

Note: It is not required that the well-known mark be used in commerce in the Philippines but only that it be
well-known in the Philippines (Fredco Manufacturing Corporation v. President and Fellows of Harvard College,
G.R. No. 185917, June 1, 2011).

Unfair Competition
Q: Define Unfair Competition?
A: Unfair competition has been defined as the passing off or attempting to pass off upon the public of the goods
or business of one person as the goods or business of another with the end and probable effect of deceiving the
public. Passing off 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 he goods are those of his competitor (Republic Gas Corporation v.
Petron Corporation, G.R. No. 194062, June 27, 2013).

Q: What are the requisites for unfair competition?

A: The requisites for unfair competition are the following:
1. Confusing similarity in the general appearance of the goods and
2. Intent to deceive the public and defraud a competitor.
Note: 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 element of intent to deceive and to defraud
may be inferred from the similarity of the appearance of the goods as offered for sale to the public (Republic Gas
Corporation v. Petron Corporation, G.R. No. 194062, June 27, 2013).

Q: When is a person liable for unfair competition?

A: A person is liable for unfair competition when he/she 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 who shall commit any acts calculated to produce said
result (Section 168.2, Intellectual Property Code).
Note: Unfair competition is a transitory or continuing offense, hence search warrants may be applied for in any
court where any element of the alleged offense was committed.

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Copyrights
Q: When is the starting point of protection of a Copyright?
A: 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 (Section 172.2, Intellectual Property Code).

Q: What are the classifications of protected works?

A: There are two classifications of protected works which are:
1. Original and literary works; and
2. Derivative works.

Q: What are the factors to be considered in determining fair use? (PANE)

A:
1. Purpose and character of the use, including whether such use is of a commercial nature or is for
non-profit educational purpose;
2. Amount and substantiality of the portion used in relation to the copyrighted work as a whole;
3. Nature of the copyrighted work; and
4. Effect of the use upon the potential market for or value of the copyrighted work.

Q: A chapter of book was photocopied by a professor and was given to his students for class discussion. Can
the professor be made liable for copyright infringement?
A: No. Under the Doctrine of Fair Use, a person has the privilege to use the copyrighted material in a reasonable
manner without the consent of the copyright owner. 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 (ABS-CBN Corp. v. Gozon, et al., G.R. No. 195956, March 11, 2015).

Q: What are considered original literary and artistic works?

A:
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

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Q: What are derivative works?

A: The following are derivative works:
1. Dramatizations, translations, adaptations, abridgments, arrangements, and other alterations of literary
or artistic works; and
2. 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.

Q: What are the rules that govern copyright ownership of original literary and artistic works?
A: In the case of original literary and artistic works, copyright shall belong to the author of the work.

Q: What are the rules that govern copyright ownership of works of joint ownership?
A: In the case of works of joint authorship, the co-authors shall be the original owners of the copyright and in the
absence of agreement, their rights shall be governed by the rules on co-ownership. If, however, a work of joint
authorship consists of parts that can be used separately and the author of each part can be identified, the author
of each part shall be the original owner of the copyright in the part that he has created.

Q: What are the rules that govern copyright ownership of works created by an author during and in the
course of his employment?
A: In the case of work created by an author during and in the course of his employment, the copyright shall
belong to:
1. The employee, if the creation of the object of copyright is not a part of his regular duties even if the
employee uses the time, facilities and materials of the employer.
2. The employer, if the work is the result of the performance of his regularly assigned duties, unless there is
an agreement, express or implied, to the contrary.

Q: What are the rules that govern copyright ownership of works commissioned by a person other than an
employer of the author?
A: In the case of a work commissioned by a person other than an employer of the author, and who pays for it, and
the work is made in pursuance of the commission, the person who so commissioned the work shall have
ownership of the work, but the copyright thereto shall remain with the creator, unless there is a written
stipulation to the contrary.

Q: What are the rules that govern copyright ownership of audiovisual works?
A: In the case of audiovisual work, the copyright shall belong to the producer, the author of the scenario, the
composer of the music, the film director, and the author of the work so adapted. However, subject to contrary or
other stipulations among the creators, the producer shall exercise the copyright to an extent required for the
exhibition of the work in any manner, except for the right to collect performing license fees for the performance of
musical compositions, with or without words, which are incorporated into the work;

Q: What are the rules that govern copyright ownership of letters?

A: In respect of letters, the copyright shall belong to the writer subject to the provisions of Article 723 of the Civil
Code. The publishers shall be deemed to represent the authors of articles and other writings published without
the names of the authors or under pseudonyms, unless the contrary appears, or the pseudonyms or adopted
name leaves no doubt as to the author’s identity, or if the author of the anonymous works discloses his identity.

Q: What are the non-copyrightable works? (INOPDeGTVS2)

A:
1. Idea, procedure, system, method or operation, concept, principle, discovery, or mere data as such;
2. News of the day and other items of press information;
3. Any Official text of a legislative, administrative, or legal nature, as well as any official translation thereof;

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4. Pleadings;
5. Decisions of courts and tribunals – this refers to original decisions and not to annotated decisions such
as the SCRA or SCAD as these already fall under the classification of derivative works, hence
copyrightable;
6. Any work of the Government of the Philippines;
GR: Conditions imposed prior the approval of the government agency or office wherein the work is
created shall be necessary for exploitation of such work for profit. Such agency or office, may, among
other things, impose as condition the payment of royalties.
EXC: No prior approval or conditions shall be required for the use of any purpose of statutes, rules and
regulations, and speeches, lectures, sermons, addresses, and dissertations, pronounced, read, or
rendered in courts of justice, before administration agencies, in deliberative assemblies and in meetings
of public character (Section 176, IPC).
7. TV programs, format of TV programs; (Joaquin v. Drilon, G.R. No. 108946, 28 Jan. 1999)
8. Systems of bookkeeping; and
9. Statutes.

Q: Discuss the term of protection of copyrights.

A:
Term of Protection

Original and Derivative Works, as well as Posthumous Works

During the life of the author and for fifty (50) years after his death

Published Anonymous or Pseudonymous Works

Fifty (50) years from the date on which the work was first lawfully published

If the author’s identity is revealed or is no longer in doubt before the 50-year period, the provisions on original
and derivative works, as well as works of joint authorship shall apply

Unpublished Anonymous or Pseudonymous Works

Fifty (50) years counted from the making of the work

Work of Applied Art

Twenty-five (25) years from the time of the making

Photographic works

Fifty (50) years from publication of the work and, if unpublished, fifty (50) years from the making

Audio-visual works

Fifty (50) years from the date of publication and, if unpublished, from the date of the making

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Anti-Money Laundering Act (R.A. No. 9160, as amended)

Q: What are covered persons under AMLA?
A:
1. Banks, non-banks, quasi-banks, trust entities, and all other institutions and their subsidiaries and
affiliates supervised by the BSP;insurance companies and all other institutions supervised or regulated
by the Insurance Commission;
2. Securities dealers, brokers, salesmen, investment houses and other similar entities managing securities
or rendering services as, investment agent, advisor, or consultant
3. Mutual funds,close and investment companies, common trust funds, pre-need companies and other
similar entities;
4. Foreign exchange corporations, money changers, money payment, remittance, and transfer companies
and other similar entities, and
5. 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 SEC (Section 3[a], R.A. 9160).

Q: Who are excluded persons?

A: The law states that “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.” (Section 3[a], R.A. 9160).

Q: Which court has jurisdiction over violations of AMLA?

A: Section 5 of AMLA vests jurisdiction over all cases on money laundering with the Regional Trial Courts. Those
committed by public officers and private persons who are in conspiracy with such public officers shall be under
the jurisdiction of the Sandiganbayan.

Q: What are covered transactions?

A: ‘Covered transaction’ is a transaction in cash or other equivalent monetary instrument involving a total amount
in excess of Five hundred thousand pesos (500,000.00) within one (1) banking day; for covered persons under
Section 3(a)(8), a single casino transaction involving an amount in excess of Five million pesos (P5,000,000.00) or
its equivalent in any other currency (R.A. No. 10927, amended).

Q: What are suspicious transactions?

A: Suspicious transactions are transactions with covered institutions, 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 clients’ transaction is
structured in order to avoid being the subject of reporting requirements under the Act;
5. Any circumstances relating to the transaction which is observed to deviate from the profile o f the client
and/or the client's past transactions with the covered institution;
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.

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Q: What is the safe harbor provision?

A: No administrative, criminal or civil proceeding shall tie against any person for having made a covered
transaction report in the regular performance of his duties in good faith, whether or not such reporting results in
any criminal prosecution under the Anti-Money Laundering Act or any other
Philippine law (BSP Circular 7061201).

Q: What are the acts which constitute the crime of money laundering?
A: Section 4 of the AMLA enumerates the acts that constitute the crime of “Money Laundering." Section 4 of
AMLA, as implemented by Section X803(a) of the MORB states that: “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:
1. Transacts said monetary instrument or property;
2. Converts, transfers, disposes of, moves, acquires, possesses or uses said monetary instrument or
property;
3. Conceals or disguises the true nature, source, location, disposition, movement or ownership of or rights
with respect to said monetary instrument or property;
4. Attempts or conspires to commit money laundering offenses referred to in Items “(1),” “(2),” or “(3)”
above;
5. Aids, abets, assists in or counsels the commission of the money laundering offenses referred to in Items
“(1),” “(2),” or “(3)” above; and
6. Performs or fails to perform any act as a result of which he facilitates the offense of money laundering
referred to in Items “(1)," “(2),” or “(3)" above.

Failure to report. Money laundering is also committed by any covered person who, knowing that a covered or
suspicious transaction is required under AMLA, its implementing rules and regulations, or the MORB (Part Eight)
to be reported to the Anti Money Laundering Council (AMLC), fails to do so.

Q: What are predicate crimes to money laundering?

A:
1. Kidnapping for ransom;
2. Drug trafficking and other related offenses;
3. Graft and Corrupt practices;
4. Plunder,
5. Robbery and Extortion;
6. Jueteng and Masiao;
7. Piracy;
8. Qualified theft;
9. Swindling;
10. Smuggling;
11. Violations under the Electronic Commerce Act of 2000;
12. Hijacking;
13. Destructive arson;
14. Murder;
15. Including those perpetrated by terrorists against non-combatant persons and similar targets;
16. Fraudulent practices and other violations under the Securities Regulation Code of 2000;
17. Felonies or offenses of a similar nature that are punishable under the penal laws of other countries
(Section 3, R.A. 9160).

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Q: How may the AMLC conduct inquiries into bank deposits?

A: The AMLC may conduct inquiries in two ways:
1. With Court Order: The AMLC may inquire into or examine any particular deposit or investment,
including related accounts, with any banking institution or non-bank financial institution upon order of
any competent court based on an ex parte application in cases of violations of AMLA, when it has been
established that there is probable cause that the deposits or investments, including related accounts
involved, are related to an unlawful activity as defined in Section 3(i) hereof or a money laundering
offense under Section 4 of AMLA.

Whenever prior Court order is required, the Court receiving the application for inquiry order cannot
simply take the word of AMLA that probable cause exists that the deposits or investment are related to an
unlawful activity.

2. Without Court Order: AMLC may inquire or examine any particular deposit without court order in cases
involving (1) activities defined in Section 3(i)(l), (2), and (12) of AMLA; (2) felonies or offenses of a nature
similar to those mentioned in Section 3(i)(l),(2); and (12), which are punishable under the penal laws of
other countries; and (3) terrorism and conspiracy to commit terrorism as defined and penalized under
R.A. No. 9372.

Q: Can the BSP also inquire into bank deposits?

A: Section 11 of AMLA as amended by R.A. No. 10167 provides that to ensure compliance with AMLA, the Bangko
Sentral ng Pilipinas may, in the course of a periodic or special examination, check the compliance of a Covered
institution with the requirements of the AMLA and its implementing rules and regulations. This involves
disclosure of information regarding deposits to the BSP.

Q: Do such inquiries violate the law on secrecy of bank deposits?

A: No. The amended provisions of the Anti-Money Laundering Act provide for exceptions to the statutory rule on
secrecy of bank deposits. The exceptions cover even foreign currency deposits. There is also no violation of the
Bank Secrecy Act in reporting covered and suspicious transactions. There is also no violation when there is
examination of bank deposits under Section 11 of AMLA.

Q: What is the procedure for the issuance of freeze orders?

A: In summary, the steps to be undertaken in freezing monetary instrument or property are as follows:
1. A verified ex parte petition to freeze monetary instrument or property shall be filed by the AMLC before
the Court of Appeals;
2. The Court of Appeals shall determine if probable cause exists that any monetary instrument or property
is in any way related to an unlawful activity as defined in Section 3(i) of the law;
3. If there is probable cause, the Court of Appeals may issue a freeze order which shall be effective
immediately, for a period of twenty (20) days — note that Court should act on the petition to freeze
within twenty-four (24) hours from filing of the petition and if the application is filed a day before a no
working day, the computation of the twenty-four (24)-hour period shall exclude the non-working day/s;
4. 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;
5. 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 —
however, this rule shall not apply to pending cases in the courts

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Q: What are the requisites for civil forfeiture under AMLA?

A: In one case, the Supreme Court indicated two conditions that must be satisfied when applying for civil
forfeiture under R.A. No. 9160, as amended, and its implementing rules and regulations, viz.:
1. there is a suspicious transaction report or a covered transaction report deemed suspicious after
investigation by the AMLC; and
2. the court has, in a petition filed for the purpose, ordered the seizure of any monetary instrument or
property, in whole or in part, directly or indirectly, related to said report (Republic of the Philippines v.
Glasgow Credit and Collection Services, Inc., G.R. No. 170281, January 18, 2008.).

Q: Is a pending criminal case necessary before forfeiture proceedings may commence?

A: No. A criminal conviction for an unlawful activity is not a prerequisite for the institution of a civil forfeiture
proceeding. Stated otherwise, a finding of guilt for an unlawful activity is not an essential element of civil
forfeiture. Thus, regardless of the absence, pendency or outcome of a criminal prosecution for the unlawful
activity or for money laundering, an action for civil forfeiture may be separately and independently prosecuted
and resolved.

Electronic Commerce Act (R.A. No. 8792)

Q: Do electronic documents have legal effect?
A: Yes. The E-Commerce Act provides that Information shall not be denied legal effect, validity, or enforceability
solely on the grounds that it is in the data message form.

It is likewise provided that electronic documents shall have the legal effect, validity or enforceability as any
other document or legal writing.

Q: Where the law requires that a document be in writing, may an electronic document be submitted
instead?
A: Yes. So long as said electronic message maintains its integrity and reliability and can be authenticated so as
to be usable for subsequent reference.

Integrity: 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.

Reliability: The electronic document is reliable in the light of the purpose for which it was generated and in the
light of all relevant circumstances, e.g., trustworthiness as a full and accurate representation of the transactions,
activities, or facts to which it attests.

Q: What are the presumptions relating to electronic signatures?

A: In any proceedings involving an electronic signature, it shall be presumed that -
1. The electronic signature is the signature of the person to whom it correlates; and
2. 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

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Q: Are electronic documents admissible in evidence?

A: Yes. An electronic document is admissible in evidence if it complies with the rules on admissibility and is
authenticated in the manner prescribed by the rules of court and relevant laws. Evidence is admissible when it is
relevant to the issue (relevance) and not excluded by the Constitution, the law or the Rules of Court
(competence).

Q: How may electronic evidence be authenticated?

A: The person seeking to introduce an electronic document in any legal proceeding has the burden of proving its
authenticity.

The authenticity may be proved by the following:

1. By evidence that it had been digitally signed by the person purported to have signed the same;
2. By evidence of other appropriate security procedures or devices as may be authorized by the rules or by
law for authentication; or
3. By other evidence showing its integrity and reliability to the satisfaction of the judge

Q: What are the factors to consider in assessing the evidential weight of electronic documents?
A: In assessing the evidential weight of an electronic data message or electronic document, the following factors
may be considered:
1. The reliability of the manner in which it was generated, stored or communicated;
2. The reliability of the manner in which its originator was identified;
3. The integrity of the information and communication system in which it is recorded or stored, including
but not limited to the hardware and computer programs or software used as well as programming
errors.

Q: What is the obligation of confidentiality under the E-Commerce Act?

A: Any person who obtained access to any electronic data message or electronic document, book, register,
correspondence, information, or other material pursuant to any powers conferred under the Electronic
Commerce Act, shall not convey to or share the same with any other person.

Financial Rehabilitation, Insolvency, Liquidation And Suspension Of

Payments (R.A. No. 10142, Fr Rules [A.M. No. 12-12-11-Sc], And Flsp Rules
[A.M. No.15-04-06-Sc]
Q: ABC Finance Corp granted Bank X a credit line for re-lending to MSMEs as sub-borrowers. Bank X’s
Board of Directors authorized any of two of its officers to act as signatories to loan documents. Various
drawdowns were made, and each was covered by a postdated check. Bank X was then placed under
receivership by the PDIC hence its deposit accounts with other banks were closed.

Upon maturity of the postdated checks, ABC Finance deposited the same to its account but were
dishonored for the reason of "Account Closed" hence it filed a complaint for violation of BP 22 against
Bank X and Officers Y and Z (signatories).

Y and Z argued that the checks could not be paid because the bank was placed under receivership. Is this
contention correct? What is the effect of liquidation proceedings on the bank’s obligations?
A: Yes, the contention is correct. When a bank is placed under liquidation, its liability to pay interest on deposits
and all other obligations as of closure shall be stayed. The same applies even to the execution and enforcement

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of a final decision of a court other than the liquidation court against the assets of a closed bank. As a recourse,
the prevailing party/judgment creditor shall file the final decision as a claim with the liquidation court and
settled in accordance with the Rules on Concurrence and Preference of Credits under the Civil Code or other
laws (Allan S. Cu vs Small Business Guarantee and Finance Corporation, G.R. No. 211222 August 7, 2017, J.
Caguioa).

Q: Bank Z, together with other banking institutions, entered into a Five-Year Floating Rate Note Facility
Agreement (NFA) with ABC Company. DEF Corp and bound itself to guarantee the obligation of ABC
Company for up to 90% of the total amount of the loan, and waived its right of excussion.

ABC Company underwent rehabilitation proceedings. Consequently, the rehabilitation court issued a Stay
Order.

Bank Z sought to recover from DEF Corp but the latter refused contending that the Stay Order covered the
Guarantee Agreement. Bank Z countered that DEF Corp is solidarily liable with ABC Corp citing Rule 4,
Section 6 of A.M. No. 00-8-10-SC or the Interim Rules of Procedure on Corporate Rehabilitation, which
provides that a stay order has the effect of staying enforcement
only with respect to claims made against the debtor, its guarantors and persons not solidarily liable with
the debtor. Decide.
A: Bank Z may recover from DEF Corp. Upon entering the guaranty agreement, DEF Corp. waived its right of
excussion. In doing so, it bound itself solidarily with ABC Corp. Pursuant to A.M. No. 00-8-10-SC, the stay order in
favor of debtors placed under receivership does not apply to persons solidarily liable with the former. Therefore,
DEF cannot invoke the ABC’s receivership status to exempt itself from liability (Trade and Investment
Development Corporation of the Philippines v. Philippine Veterans Bank G.R. No. 233850; July 01, 2019).

Types or Modes of Rehabilitation

Q: Distinguish voluntary and involuntary rehabilitation
A:
Voluntary
When approved by the owner in case of a sole proprietorship, or by a majority of the partners in case of a
partnership, or, in case of a corporation, by a majority vote of the board of directors or trustees and authorized by
the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of
nonstock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholder’s or member’s
meeting duly called for the purpose, an insolvent debtor may initiate voluntary proceedings by filing a petition for
rehabilitation with the court and on the grounds hereinafter specifically provided

Involuntary
Any creditor or group of creditors with a claim of, or the aggregate of whose claims is, at least One million pesos
(Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock or partners’ contributions,
whichever is higher, may initiate involuntary proceedings against the debtor by filing a petition for rehabilitation
with the court if:

(a) There is no genuine issue of fact or law on the claim/s of the petitioner/s, and that the due and
demandable payments thereon have not been made for at least sixty (60) days or that the debtor has
failed generally to meet its liabilities as they fall due; or
(b) A creditor, other than the petitioner/s, has initiated foreclosure proceedings against the debtor that will
prevent the debtor from paying its debts as they become due or will render it insolvent.

Q: What are the qualifications of a qualification receiver?

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A:
1. A citizen of the Philippines or a resident of the Philippines in the six (6) months immediately preceding
his nomination;
2. Of good moral character and with acknowledged integrity, impartiality and independence;
3. Has the requisite knowledge of insolvency and other relevant commercial laws, rules and procedures, as
well as the relevant training and/or experience that may be necessary to enable him to properly
discharge the duties and obligations of a rehabilitation receiver; and
4. Has no conflict of interest.
EXC: Such conflict of interest may be waived, expressly or impliedly, by a party who may be prejudiced
thereby

Q: What is a rehabilitation plan?

A: Refers 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 as prescribed in Section 62, or other similar arrangements as may be
approved by the court or creditors.

Q: When is the rehabilitation plan deemed approved?

A: The 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. The votes of the creditors
shall be based solely on the amount of their respective claims based on the registry of claims submitted by the
rehabilitation receiver pursuant to Section 44.

Q: When is the plan deemed rejected?

A: The Plan shall be deemed rejected unless approved by all classes of creditors whose rights are adversely
modified or affected by the Plan.

Q: What are the circumstances where there is failure or rehabilitation?

A: There is failure of rehabilitation in the following cases:
1. Dismissal of the petition by the court;
2. The debtor fails to submit a Rehabilitation Plan;
3. Under the Rehabilitation Plan submitted by the debtor, there is no substantial likelihood that the debtor
can be rehabilitated within a reasonable period;
4. The Rehabilitation Plan or its amendment is approved by the court but in the implementation thereof,
the debtor fails to perform its obligations thereunder, or there is a failure to realize the objectives, targets
or goals set forth therein, including the timelines and conditions for the settlement of the obligations due
to the creditors and other claimants;
5. The commission of fraud in securing the approval of the Rehabilitation Plan or its amendment; and
6. Other analogous circumstances as may be defined by the rules of procedure

An insolvent debtor may apply for liquidation by filing a petition for liquidation with the court. The petition shall
be verified, shall establish the insolvency of the debtor and shall contain, whether as an attachment or as part of
the body of the petition:
1. A schedule of the debtor’s debts and liabilities including a list of creditors with their addresses,
amounts of claims and collaterals, or securities, if any;
2. An inventory of all its assets including receivables and claims against third parties; and
3. The names of at least three (3) nominees to the position of liquidator

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At any time during the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the debtor
may also initiate liquidation proceedings by filing a motion in the same court where the rehabilitation
proceedings are pending to convert the rehabilitation proceedings into liquidation proceedings. The motion
shall be verified, shall contain or set forth the same matters required in the preceding paragraph, and state that
the debtor is seeking immediate dissolution and termination of its corporate existence

Involuntary Liquidation
Three (3) or more creditors the aggregate of whose claims is at least either One million pesos (Php 1,000,000.00)
or at least twenty-five percent (25%) of the subscribed capital stock or partner’s contributions of the debtor,
whichever is higher, may apply for and seek the liquidation of an insolvent debtor by filing a petition for
liquidation of the debtor with the court. The petition shall show that:
1. there is no genuine issue of fact or law on the claim/s of the petitioner/s, and that the due and
demandable payments thereon have not been made for at least one hundred eighty (180) days or that
the debtor has failed generally to meet its liabilities as they fall due; and
2. there is no substantial likelihood that the debtor may be rehabilitated

Q: What are the effects of a liquidation order?

A: Upon the issuance of the Liquidation Order:
1. The juridical debtor shall be deemed dissolved and its corporate or juridical existence terminated;
2. 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;
3. 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;
4. 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 executory
judgment therein for a claim against the debtor shall be filed and allowed in court; and
5. No foreclosure proceeding shall be allowed for a period of one hundred eighty (180) days.

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