Loanzon 2016 Commercial Law Material

Pointers in Commercial Law 2016 Bar Examinations by Professor Victoria V. Loanzon With assistance of Atty. Gerald Co, and Atty. C. Loanzon Reyes IV

 I. Banking Laws and Related Laws Q. The aut author horiz ized ed sig signat natori ories es of X com compan panyy pre pre-si -signe gned d che checks cks so as no nott to dis distu turb rb  business operations while they went abroad. Marti got hold of the checks wrote amounts  on them and subsequentl subsequentlyy encashed them. The Bank allowed encashment without a verification call despite the large amount and irregularities on the face of the check. Is the  bank solely liable for allowing allowing Marti Marti to encash encash the checks? A. No. The SC held that the depositors are guilty of contributory negligence, hence, they should bear a part of the loss. Q. What is a material alteration? In the absence of said alteration, is a bank still duty  bound to verify a check with some irregulari irregularities ties on its face not strictl strictlyy alterati alterations ons under 1  the law ? A. A material alteration is defined in Section 125 of the NIL to be one which changes the date, the sum payable, the time or place of payment, the number or relations of the parties, the currency in which payment is to be made or one which adds a place of payment where no place of payment is specified, or any other change or addition which alters the effect of the instrument in any respect. With respect to the checks at issue, petitioner points out that they do not contain any material alteration. A bank still has to exercise extraordinary diligence despite the lack of a material alteration. Q. How should the liability be apportioned? Why? A. The Bank is liable for 60% and the depositor should be liable for 40%. The Supreme Court used the Doctrine of Last Clear Chance in relation to the public interest involved in banking and the extraordinary diligence required of banks to justify the liability of the bank  as it had the final opportunity to stop the fraudulent transaction. ( Bank of America v. Philippine Racing Club, 2009) Q. What are the requirements for registration of a bank ?  A. Articles of Inc., By-Laws, Treasurer’s Affidavit, Bank Certificate of Deposit on paid-up capital, SEC Verification Slip on availability of corporate name, Letter of Undertaking to change name if proposed name is already adopted by another entity, Certificate of Authority from the Monetary Board or the BSP; and Letter authorizing the SEC and the Monetary Board or its duly authorized representative to examine bank records regarding the paid-up capital. Q. What is the degree of diligence required of a bank?  A. A bank is expected to exercise the highest degree of diligence, as well as to observe the high standards of integrity and performance in all its transactions because its business is imbue im bued d wit with h pub publi licc int intere erest. st. The hig high h sta standa ndards rds wer weree al also so ne neces cessa sary ry to en ensur suree pub publi licc 1 on the blank space of each check reserved for the payee, the following typewritten words appear: "ONE "O NE HUNDED !EN !E N !HOU#ND !HOU#N D $EO ON%&'" #bove the t he sa(e is the typewritten word, ")#H'" On the blank reserved for the a(o*nt, the sa(e a(o*nt of One H*ndred !en !ho*sand $esos was indicated with the *se of a check writer' !he presence of these irreg*larities in each check sho*ld have alerted the petitioner to be ca*tio*s before proceeding proceeding to encash the( which it did not do' !he ) said this is not a (aterial alteration'

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confidence in the banking system. ( Development Bank of the Philippines (DBP) v. Guariña  Agricultural and Realty Realty Development Corporation, Corporation, G.R.  G.R. No. 160758. January 15, 2014 ) Q. What is the nature of banks as a business undertaking? A. Banks, their business being impressed impressed with public interest, interest, are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands. The rule that persons dealings with registered lands can rely solely on the certificate of  title does not apply to banks. ( Philtrust Bank v. CA, G.R. No. 150318, November 22, 2010) Q. Can a bank outsource its functions? functions? A. It depends. From the very definition of “banks” as provided under the General Banking Law, it can easily be discerned that banks perform only two (2) main or basic functions – deposit and loan functions. Thus, cashiering, distribution and bookkeeping are but ancillary functions whose outsourcing outsourcing is sanctione sanctioned d under CBP Circular No. 1388 as well as D.O. No. 10. Banks cannot legally contract out its deposit and loan functions as they are directly relat rel ated ed or int integr egral al to th thee ma main in bus busin iness ess or ope operat ration ion of ban banks. ks. The CBP CBP’s ’s Ma Manua nuall of  Regul Reg ulat ation ionss ha hass eve even n ca categ tegori orical cally ly sta state ted d and em empha phasiz sized ed on the pro prohib hibit ition ion aga agains instt outsourcing inherent banking functions, which refer to any contract between the bank and a service provider for the latter to supply, or any act whereby the latter supplies, the manpower to service the deposit transactions of the former. BPI Employees Union-Davao City-Fubu ( BPIEU-Davao  BPIEU-Davao City-Fubu) v. Bank of the Philippine Islands (BPI), et al., al., G.R.  G.R. No. 174912,  July 24, 2013). 2013). Q. May any officer of the bank bind the corporation? A. Generally, no. As the Court ruled in  AF Realty & Development, Inc. v. Dieselman Dieselman Freight  Services, Co.:   Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of  a corporation validly delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of  authorized duties of such director, are held not binding on the corporation. ( Heirs of Fausto C. Ignacio vs. Home Bankers Savings and Trust Co., et al., G.R. No. 177783. January 23, 2013)) 2013 Q. Does a branch office of a bank have a personality separate and distinct from its parent  company? A. Yes. The Philippine branch of a foreign bank is without a separate legal personality from itss par it parent ent company company bec becaus ausee as it itss na name me im impli plies, es, it is me merel rely y a bra branch nch,, sub subje ject ct to the supervision and control of the parent bank. Thus, being one and the same entity, the funds placed by the parent bank in its branch in the Philippines should not be treated as deposits made by a third party subject to deposit insurance under the PDIC Charter. ( Philippine  Deposit Insurance Corporation (PDIC) v. Citibank, Citibank, G.R. 170290, April April 11, 2012) Q. What is the nature of the relationship of the Credit Card Issuer and Holder? A. The relationship between the credit card issuer and the credit card holder is a contractual one that is governed by the terms and conditions found in the card membership agreement. Such terms and conditions constitute the law between the parties. In case of their breach, moral damages may be recovered where the defendant is shown to have acted fraudulently or in bad faith. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. However, a conscious or intentional design need not always be present because negligence negligence may occasionally be so gross as to amount to + | $ a g e

malice or bad faith. Hence, bad faith in the context of Article 2220 of the Civil Code includes gross negligence. ( BPI Express Card Corporation Corporation v. Ma. Antonia Armovit, G.R. No. 163654, 163654, October 8, 2014.)

Q. What are the Modes of Assistance to Banks in Distress? A. Rec Recei eiver vershi ship p (su (suspe spends nds aut author horit ity y to ope opera rate te and pro prohi hibit bitss off office icers rs to ac actt on an any y transaction as soon as proceedings are initiated), Conservatorship (restores viability of a bank), and Liquidation (reviews assets of the bank and prioritizes payment to creditors – preferred claims, Closure (permanent stoppage of operations)  Reliefs available to Owners, Depositors and Creditors : Owners may file action in court to question the action of the BSP; Depositors may file claim with PDIC and Creditors may file respective claims in appropriate proceedings. Q. What is the extent of the Monetary Board’s power to put a bank under receivership? A. The Court, in several cases, upheld the power of the MB to take over banks without need for prior hearing under R.A. 7653. It is not necessary inasmuch as the law entrusts to the MB the appreciation and determination of whether any or all of the statutory grounds for the closure and receivership of the erring bank are present. The MB can immedi immediately ately implement itss re it resol soluti ution on pro prohib hibit itin ing g a ban bankin king g in insti stitut tutio ion n to do bu busin siness ess in th thee Phi Phili lippi ppines nes and and,, thereafter, appoint the PDIC as receiver. It may be later subjected to a judicial scrutiny via a petition for certiorari to be filed by the stockholders of record of the bank representing a majority of the capital stock. Obviously, this procedure is designed to protect the interest of  all concerned that is, the depositors, creditors and stockholders, the bank itself and the gene ge nera rall pu publ blic ic.. Th Thee pr prot otec ecti tion on af affo ford rded ed pu publ blic ic in inte tere rest st wa warr rran ants ts th thee ex exer erci cise se of a summary closure. ( Alfeo D. Vivas, on his behalf and on behalf of the Shareholder Shareholderss or   Eurocredit Community Bank v. The Monetary Board of the Bangko Sentral ng Pilipinas and  the Philippine Deposit Insurance Corporatio n, n, G.R.  G.R. No. 191424, August 7, 2013) 2013) Q. May the BIR require a tax clearance before the distribution of the assets of a bank under liquidation? A. No, the SC held the law expressly provides that debts and liabilities of the bank under liquidation are to be paid in accordance with the rules on concurrence and preference of  credit under the Civil Code. With reference to the other real and personal property of the debtor, sometimes referred to as “free property,” the taxes and assessments due the National Government, other than those in Articles 2241 (1) and 2242 (1) of the Civil Code, such as the corporate income tax, will only come in the ninth place in the order of preference. If the BIR’s contention that a tax clearance be secured first before the project of distribut distribution ion of the assets of a bank under liquidation may be approved, then the tax liabilities will be given absolute preference in all instances, including those that do not fall under Articles 2241 (1) and 2242 (1) of the Civil Code. (PDIC  v. BIR, G.R. 172892, June 13, 2013) Go over distinction between bank deposits and bank substitutes ; reasons why banks are required to maintain reserves against them: control of volume of money created by credit operations (Sec. 94 of the New Central Bank Act); to answer any withdrawal; help government finance its operations and help government control money supply; Cent Ce ntral ral Ba Bank nk wi will ll exa exami mine ne an and d lo look ok in into to de depo posit sitss wi with th Ph Phil ilip ippi pine ne ba bank nkss in goo good d stand sta ndin ing g and wi will ll no nott ap appl ply y to for forei eign gn cu curr rren ency cy de depo posit sitss ma made de by in indi divid vidua uals ls or  juridical persons in banks abroad (Sec. 2, R.A. No. 6426);  Restricti  Restriction on on loans and   credit accommo accommodations dations; Review provisions on DOSRI loans and exemptions allowed under the restriction. Q. What is the obligation of a creditor bank under the Truth in Lending Act?

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A. It is the duty of the bank to disclose to the debtor in detail the interests, charges and other figures indicating in detail the cost of the loan and the branch manager is not given the sole discretion in the determination of such costs. Q.Is there a ceiling when it comes to interest rates to be imposed on debts? A. No. The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary Board of the Central Bank, and later by Central Bank  Circular No. 905 which took effect effect on 1 January 1983. The lender and the borrower borrower should agree on the imposed rate, and such imposed rate should be in writing. Here, the stipulations on interest rate repricing are valid because (1) the parties mutually agreed on said stipulations; (2) repricing takes effect only upon the bank’s written notice to the borrower of the new interest rate; and (3) Borrower has the option to prepay its loan if it and the bank do not agree on the new interest rate. The phrases “irrevocably “irrevocably authorize,” authorize,” “at any time” and “adjustment of the interest rate shall be effective from the date indicated in the written notice sent to us by the bank, or if no date is indicated, from the time the notice was sent se nt.” .” (Solid Solidbank bank Corp Corporat oration ion vs. Perma Permanent nent Home Homes, s, Inc., G.R G.R.. No. 171925, 171925, Jul Julyy 23, 2010.) 2010 .) Q. Can a bank unilaterally unilaterally increase the interest rates on a loan? A. No. it is a violation of the mutuality of contracts. Any modification in the contract, such as the interest rates, must be made with the consent of the contracting parties. The minds of all the parties must meet as to the proposed modification, modification, especially when it affects an importan importantt aspect aspe ct of the agreemen agreement. t. In the case of loan agreeme agreements, nts, the rate of int interes erestt is a principal principal condition, if not the most important component. Thus, any modification thereof must be mutually agreed upon; otherwise, it has no binding effect.

The SC annulled the escalation clause, allowing the unilateral increase of interest at the whim of the bank, and the principal amount of the loan was subjected to the original or stipulated rate of interest, and 12% legal interest. ( Spouses Solis v. PNB GR 181045 July 2, 2014) * Please note that the Monetary Board issued Circular No. 799, declaring that, effective July 1, 2013 “the rate of interest interest for the loan or forbearance forbearance of any money, money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such ra t e of interest, shall be 6 p e r ce n t per annum.”

Q. What is the rule on legal interests beginning July 1, 2013? A. The guidelines guidelines laid down in the case of Eastern Shipping Shipping Lines are accordingly accordingly modified modified to embody BSP-MB Circular No. 799, as follows: 1. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. 2. With regard particularly particularly to an award of interest in the concept of actual and compensatory compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: a. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is  judicially  judicial ly demanded. In the absence of stipulation, stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. b. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable certainty. c. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall - | $ a g e

be 6% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein. ( Dario Nacar v. ., G.R. No. 189871, August 13, 2013.) 2013.) Gallery Frames and/or Felipe Bordey, Jr ., G.R. Bank Secrecy Law (R.A. No. 1402) See Instances when deposits may be looked into: Under Sec.2, R.A. No. 1402 – with written permission of depositor, in cases of impeachment, money deposited is subject of  litigation and upon order of a competent court in cases of bribery or dereliction of duty of public officers; upon order of the court for unexplained wealth under Sec. 8 of AntiGraft and Corrupt Practices Act; upon order of the BIR Commissioner with respect to bank deposits of a decedent to determine gross estate or when taxpayer applies for compromise for his tax liability; unclaimed balances; without need of court order if the Anti Money Laundering Council determines that the source of deposits a particular account is related to an unlawful activity.

Q. What are the requirements for a Waiver of Confidentiality of Bank Accounts? A. The existence of a waiver must be positively demonstrated since a waiver by implication is not normally countenanced. The norm is that a waiver must not only be voluntary, but must have been made knowingly, intelligently, and with sufficient awareness of the relevant circumstances circumst ances and likely consequences. ( Dona Adela Export International, Inc. v. Trade and   Investment Development Development Corporation and BPI, G.R. No. 201931, 201931, February 11, 2015.) Q. Does the Foreign Currency Deposit Act prevail as an exception to the Bank Secrecy  Law? A. Yes. Republic Act No. 1405 was enacted for the purpose of giving encouragement to the people to deposit their money in banking institutions and to discourage private hoarding so that the same may be properly utilized by banks in authorized loans to assist in the economic development developm ent of the country. It covers all bank deposits deposits in the Philippines Philippines and no distinction wass ma wa made de be betw twee een n do dome mest stic ic an and d fo fore reig ign n de depo posi sits ts.. Th Thus us,, Re Repu publ blic ic Ac Actt No No.. 14 1405 05 is consider cons idered ed a law of gene general ral applicati application. on. On the othe otherr hand, Republic Republic Act No. 6426 was inten int ended ded to enc encour ourage age deposit depositss fr from om for forei eign gn le lende nders rs and in inves vesto tors. rs. It is a spe speci cial al la law w designed especially especially for foreign currency deposits deposits in the Philippines. A general law does not nullify a specific or special law. Generalia specialibus non derogant . (Government Service  Insurance System System vs. Court of Appeals, Appeals, et al., G.R. No. 189206. June 8, 2011.) 2011. ) Q. What is the nature of a bank’s relationship with depositors? A. A fiduciary nature does not convert the contract from a simple loan to a trust agreement; bank must observe high standards of integrity and performan performance. ce. The fiduciary relationship relationship of  the depositor and the bank does not “convert the contract between the bank and its deposito depositors rs from a simple loan to a trust agreement, whether express or implied.” It simply means that the bank is obliged to observe “high standards of integrity and performance” in complying with its obligations under the contract of simple loan. Per Article 1980 of the Civil Code, a creditor-debtor relationship exists between the bank and its depositor. The savings deposit agreem agr eement ent is bet betwee ween n the ba bank nk and the de depos posit itor; or; by rec receiv eiving ing th thee dep deposi osit, t, the bank  impliedly agrees to pay upon demand and only upon the depositor’s order.  Joseph Goyanko,  Jr., as administrator of the Estate of Joseph Goyanko, Goyanko, Sr. vs. United Coconut Planters Bank,  Mango Avenue Branch, Branch, G.R. No. 179096. February 6, 2013

. Q. What are considered deposits under the bank secrecy law? A. The “deposits” covered by the law on secrecy of bank deposits should not be limited to those creating a creditor-debtor relationship; the law must be broad enough to include . | $ a g e

“deposits of whatever nature” which banks may use for authorized loans to third persons. R.A. No. 1405 extends to funds invested such as those placed in a trust account which the bank may use for loans and similar transactions. ( Ejercito v. Sandigandbayan Sandigandbayan,, G.R. No. 157294-95, 2006).

The law on secrecy of bank deposits cannot be used to preclude the bank deposits from being garnished garnished for the satisfacti satisfaction on of a judgment. judgment. There is no violation violation of R.A. R.A. No. 1405 because the disclosure is purely incidental to the execution process and it was not the intention of the legislature to place bank deposits beyond the reach of the judgment creditor. (PCIB v. CA, G.R. 84526, 1991)

Anti-Money Laundering Law (R.A. No.9160, as amended by R.A. R.A. 9194) Q.What are the Predicate Crimes under the Anti-Money Laundering Law?

A. Kidnapping for ransom (Art. 267, RPC); proceeds from illegal transactions under the Dangerous Drug Act; prohibitions under the Anti-Graft and Corrupt Practices Act; Plunder Law, Robbery and Extortion under Arts. 294, 295, 296,299, 300, 301 and 302 of RPC;  jueteng and masiao under P.D. 1602; piracy piracy on the high seas under RPC as amended by P.D. No. 532; qualified theft under Art. 310 of RPC; swindling under Art.315 of RPC; smuggling under und er R.A R.A.. Nos Nos.. 455 and 1937; hijacki hijacking ng and other violati violations ons und under er R.A R.A.. No. 623 6235; 5; destruct dest ructive ive arson and murder, murder, as defi defined ned unde underr the RPC, incl includin uding g act actss perp perpetra etrated ted by terro te rroris rists ts aga again inst st non non-c -comb ombat atant ant pe perso rsons ns an and d sim simil ilar ar ta targe rgets; ts; and vi viola olati tions ons und under er the Electronic Commerce Law of 2000. ( Consider this also as a possible question in Criminal  Law.) Effect of Freeze Order; When it may be issued; Only  the Court of Appeals may issue Freeze Order over deposits in question; Defense of no prior criminal offense is not available;

Q.Is garnishment of a peso account a violation of the law on secrecy of bank deposits? Would your answer be the same if it was garnishment of a foreign currency deposit? A. No. Gar Garni nishm shment ent is al allow lowed ed if it is pa part rt of exe execut cutio ion n of ju judgm dgment ent bec becaus ausee mo money ney  judgment is consider considered ed money as subject of litigati litigation. on. ( China Banking Corp Corporat oration ion v. Ortega, 1973). It would be different if the account to be garnished is a deposit protected by Foreign Currency Deposit Act as Section 8 of said law expressly prohibits the garnishment of  such deposits.  Please take note of the AMLA amendments amendments annexed to this reviewer reviewer II. Letters of Credit, Negotiable Negotiable Instruments Law, Warehouse Receipts Law and Trust Receipts Q. What is a Letter of Credit? A. In commerc commercial ial transactions, a letter of credit is a financia financiall device developed by merchant merchantss as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying. (TPI v. Luzon HydroCorp, 2004) Q. What are the three distinct contractual relationships in letter of credit transaction ? A. The thre reee re rellation onsshi hip ps are: betw tweeen appl pliican ant/ t/bu buye yerr/i /im mpor orte terr and the benefic bene ficiary iary/sel /seller/ ler/expo exporter rter;; betw between een issu issuing ing bank and the bene benefici ficiary/ ary/sell seller/e er/export xporter er and between the issuing bank and the applicant/buyer/importer.

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Q. What are the important principles to remember in letter of credit transactions?  A. Doctrine of Independence (the three related but independent relations mentioned above. A controversy/ breach in one contract will not affect the performance of the other contracts). Where there was a meeting of the minds between the buyer and the seller regarding the sale of foundry pig iron to be paid for under a letter of credit, the failure of the buyer to open the letter of credit did not prevent the perfection of the contract and neither did such failure extinguish extinguis h the contract. The opening of the letter of credit was not a condition precedent precedent for the birth of obligation of the buyer to purchase the foundry pig iron from the seller. Where the buyer fails to open the letter of credit, as stipulated, the seller or exporter is entitled to claim damages for such breach. Damages for failure to open the letter of credit may include the loss of profit which the seller would have reasonably made had the transaction been carried out ( Reliance Commodities, Inc. v. Daewoo Industrial Co. Ltd, 228 SCRA 545, 1993). The issuing bank is not liable for damages even if the shipment did not conform to the specifications of the applicant. Under the “independence principle”, the obligation of the issuing bank to pay the beneficiary arises once the latter is able to submit the stipulated documentss under the letter of credit. document credit. Hence, the bank is not liable liable for damages damages even if the shipment did not conform to the specifications of the applicant . (LBP v. Monet’s Export   Manufacturing, 452 SCRA 173, 2005) Q. Is the Fraud Exception Rule always applied to letters of credit? A. No. It is only an exception to the doctrine of independence. independence. Professor Dolan in The Law of Let Lette ters rs of Cre Credi dit, t, Rev Revise ised d Ed. (20 (2000) 00).op .opine iness tha thatt the unt untru ruthf thfuln ulnes esss of a ce certi rtifi ficat catee accompanying a demand for payment under a standby credit may qualify as fraud sufficient to sup suppor portt an inj injunc uncti tion on aga again inst st pay payme ment. nt. xxx The rem remedy edy for fra fraudu udule lent nt abu abuse se is an injunction. However, injunction should not be granted unless: (a) there is clear proof of  fraud; (b) the fraud constitutes fraudulent abuse of the independent purpose of the letter of  credit and not only fraud under the main agreement; and (c) irreparable injury might follow if  injunction is not granted or the recovery of damages would be seriously damaged. ( TPI v.  Luzon HydroCorp, HydroCorp, 2004) Doctrinee of Strict Compliance Doctrin Compliance – The tender of documents by the beneficiary (seller) must

include all documents required by the letter. A correspondent bank which departs from what has been stipulated under the letter of credit, as when it accepts a faulty tender, acts on its own risks and it may not thereafter be able to recover from the buyer or the issuing bank, as the case may be, the money thus paid to the beneficiary Thus the rule of strict compliance. (Feati Bank v. CA, 1991) 1991 )

Q. What is a Negotiable Instrument? A. It is an unconditional promise to pay to order or to bearer on demand or at a fixed determinable future time. Q. What are the requisites of a Negotiable Instrument? A. This is frequently asked in the bar in the form of problem solving. This will help you not only identify whether the Instrument will be governed by NIL but it will also help you distinguish a Negotiable Instrument from other Commercial and non-commercial documents. Section 1. Form of negotiable instruments. -  An instrument to be negotiable must conform to the following requirements: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand, or at a fixed or determinable future time; (d) Must be payable to order or to bearer 0 | $ a g e

Distinguish Distingu ish (ex. Cert Certifi ificate cate of Time Deposit, Deposit, Chec Checks ks payable to orde order) r) from negotiable document (Postal Money Order, Treasury Warrants, and Warehouse Receipts) Q. Who is a holder in due course? A. (This is also a bar favorite.) Sec. 52. What constitutes a holder in due course. - A holder in due course is a holder who has taken the instrument under the following conditions: (a) That it is complete and regular upon its face;  (b) That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if such was the fact; (c) That he took it in good faith and for value; (d) That at the time it was negotiate negotiated d to him, he had no notice of any infirmi infirmity ty in the instrument or defect in the title of the person negotiating it. Q. Ma Mayy a ju juri ridi dica call pe pers rson on wh whos osee re regi gion onal al br bran anch ch ha had d no noti tice ce of th thee fa fail ilur uree of   consideration  considerat ion after the endorseme endorsement nt of a promissory note still be considered a holder in  due course?  A. Yes. As long as the holder accepted the note in good faith and for value and had no notice of the defect at the time t ime of endorsement, a holder may still sue on the basis of the promissory note as a holder in due course. A holder in due course holds the instrument free from any defect of title of prior parties and from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof. The defense of nondelivery of the object and nullity of the sale , for instance, cannot be raised against the corporation that is a holder in due course as the NIL considers every negotiable instrument   prima facie to have been issued for a valuable consideration. ( Spouses Violago v. BA Finance, 2008, J. Velasco)

Q. What is the rule on forgery of a signature found in a negotiable instrument? (Another  bar favorite) favorite) A. Sec. 23. When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party part y the thereto reto,, can be acqu acquired ired through or unde underr such signature, signature, unle unless ss the part party y against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. Note that this is a real defense available even against a holder in due course.

 If a bank orders payment on the basis of a check where the drawer’s signature signature was forged   by an expert who signed almost almost as if the true drawer drawer signed, who who will be ultimately ultimately liable? The Drawee bank. The forgery may be so near like the genuine as to defy detection by the depositor himself, and yet the bank is liable to the depositor if it pays the check. ( Samsung Construction v. FEBTC, 2004) Q. Is demand always necessary for the debtor to be considered in delay? A. Under Art. 1169 of the Civil Code, demand from the creditor is not necessary for the delay to exist when the obligation or the law expressly so declare. However, it is not sufficient that the law or obligation fixes a date for performance, but it must further state expressly that after the period lapses, default will commence. ( Rodrigo Rivera v. Spouses Chua, G.R. 184458, January 14, 2015)

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Q. Can a check be delivered without indorsement? A. Yes. The check delivere delivered d to was made payable to cash. Under the Negotiable Instruments Instruments Law, this type of check was payable to the bearer and could be negotiated by mere delivery without the need of an indorsement. People of the Philippines v. Gilbert Reyes Waga s, s, G.R.  G.R. No. 157943, September 4, 2013 . Q. What are crossed checks? A. A crossed check is one where two parallel lines are drawn across its face or across its corner. Based on jurisprudence, the crossing of a check has the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be negotiated only once — to the one who has an account with the bank; and (c) the act of crossing the check serves as a warning to the holder that the check has been issued for a definite purpose and he must inquire if he received the check pursuant to this purpose; otherwise, he is not a holder in due course. In other words, the crossing of a check is a warning that the check  should be deposited only in the account of the payee. When a check is crossed, it is the duty of the collecting bank to ascertain that the check is only deposited to the payee’s account. Philippine Commercial Bank vs. Antonio B. Balmaceda and Rolando N. Ramos, G.R. No. 158143, September 21, 2011. Q .Can a crossed check be encashed? A. No. The crossing of a check means that the check may not be encashed but only deposited in the bank. The issuance of a crossed check reflects management’s intention to safeguard the funds covered thereby, its special instruction to have the same deposited to another account and its rest restrict riction ion on its encashmen encashment. t. Wesleyan University Phils. V. Nowella Reyes, G.R.  No.208321, July 30, 2014 Q. Is an ele elect ctron ronic ic me messa ssage ge (kn (known own as SWI SWIFT FT – Soc Socie iety ty of Wo World rldwid widee Int Interb erbank ank  Financial Telecommunications) Telecommunications) sent to a bank with an order to pay certain persons upon  receipt of securitie securitiess a bill of exchange? exchange? A. No. the requisites under Sec. 1 of the NIL are not present. There is no sign from the drawer, no unconditional order to pay as the amounts are from specific funds (the client’s accounts) and they are not order or bearer instruments instruments because the payee is specified. (HSBA v. CIR, 2014)

Q. What is the liability of depositary/collecting bank in altered checks?

A. In check transactions, transactions, the depositary depositary/collecti /collecting ng bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuiness of the endorsements. If  any of the warranties made by the depositary/collecting bank turns out to be false, then the drawee bank may may recover from it it up to the amount of the the check. ( Cesar Areza and Lolita  Areza v. Savings Savings Bank, Inc and Michael Michael Potenciano, G.R. G.R. No. 176697, September September 10, 2014)

Q. What is the rule on liability under an incomplete but undelivered instrument? A. Under Section 14 of the NIL, if the maker or drawee delivers pre-signed blank paper to another person for the purpose of converting it into a negotiable instrument, that person is deeme dee med d to hav havee a pri prima ma fa facie cie authori authority ty to fi fill ll it up. In ord order er how howeve everr th that at any such instrument instrume nt when complete completed d may be enforced against any person who became a party thereto prior to its completion, two requisites must exist: (1) that the blank must be filled strictly in accordance with the authority given and (2) it must be filled up strictly in accordance with the authority given and within a reasonable time. The maker can set this up as a personal 2 | $ a g e

defense and avoid liability. ( Alvin Patrimonio v. Napoleon Gutierrez Gutierrez and Octavio Marasigan Marasigan  III, G.R. 187769, June June 4, 2014)

Promissory Note: parties, warranties, obligations and liabilities of parties; negotiability, transfer of rights under deed of assignment

Q. Will the alteration of a promissory note result in the extinguishment of the original   debt? A. No. While a promissory note is evidence of indebtedness, it is not the only evidence, for the existence of the obligation can be proven by other documentary evidence such as a written memorandum memorandum signed by the parties. A check may be considere considered d as an evidence of  indebtedness and is a veritable proof of an obligation. It can be used in lieu of and for the samee pur sam purpos posee as a pro promi misso ssory ry not notee and can th there erefor foree be pre prese sente nted d to est estab ablis lish h the existence of indebtedness. ( Leonardo Bognot v. RRI Lending Corporation, G.R. 180144, September 24, 2014) Q. Bong, a long time client, client, dollar account holder and grantee grantee of a credit line of Randy  Bank, helped his friends Jet and Michael get a loan from Randy Bank by signing as a co maker in a promisso promissory ry note. After receivi receiving ng the full sum of the loan from the Bank,  Michael and Jet failed failed to pay Randy Bank. Randy Bank is now going going after Bong who says  he should not be liable as he did not benefit from from the loan. Is Is Bong correct? correct?  A. No. By signing as borrower and co-borrower on the promissory notes with the proceeds of 

the loans going to Jet and Michael, Bong has extended an accommodation to said persons. As an accommodation party, Bong is solidarily liable with the Jet and Michael for the loans. n accommodation party is a person who has signs the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person. The relation between an accommodation party and the accommodated party is one of principal and surety, the accommodation party being the surety. (Gonzales v. PCIB, 2011. J. Velasco) Q. What is a trust receipt transaction?  A. A trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster the price of the sale, or if the merchandise is not sold, to return the merchandise to the entruster. There are, therefore, two obligations in a trust receipt transaction: the first refers to money received under the obligation involving the duty to turn it over (entregarla) to the owner of the merchandise sold, while the second refers to the merchandise received under the obli obligati gation on to “ret “return” urn” it (dev (devolve olvera) ra) to the owne owner. r. ( Hur Tin Yang v. People of the Philippines, s, G.R.  G.R. No. 195117, August 14, 2013) 2013) Q. When is there a simple loan despite the execution of a “trust receipt”? A. When both part parties ies enter into an agreement agreement knowing fully fully well that the return of the goods subject of the trust receipt is not possibl possiblee (when the goods are sued as construction materials materia ls see (Ng v. People, 2010 and LBP v. Perez, 2012) even without any fault on the part of the trustee, it is not a trust receipt transaction penalized under Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of the RPC, as the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower is obligate obligated d to pay the bank the amount spent for the purchase of the goods. ( Hur Tin Yang v. People of the Philippines 2013) Philippines , G.R. No. 195117, August 14, 2013)

Another situation where there is a simple loan only despite the signing of a trust receipt is when a debtor received the goods subject of the trust receipt before the trust receipt itself was entered into Colinares v. CA, 2000 13 | $ a g e

When the goods subject of the transaction, such as chemicals and metal plates, were not intended for sale or resale but for use in the fabrication fabrication of steel communication communication towers, the agreement cannot be considered a trust receipt transaction but a simple loan. P.D. No. 115 punishes the entrustee entrustee for for his failure failure to deliver the price price of the sale, sale, or if the goods are not sold, to return them them to the the entruster, entruster, which, in the present case, case, is absent absent and could not have been complied with; therefore, the liability of the entrustee is only civil in nature. ( Anthony  Anthony L.Ng v. People People of the Philippines, G.R. G.R. No. 173905, 2010) 2010) When both parties entered into an agreement knowing fully well that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt receipt transaction transaction penalized penalized under Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of the RPC, as the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of  the goods. Hur Tin Yang v. People of the Philippines, Philippines, G.R.195117, 2013) 2013) III. Bulk Sales Law Q. When is the Bulk Sales Law applicable? A. It appli applies es only only to retail merchants, traders and dealer involving the sale of all or  substantially all of the assets used in the business of the vendor; Conditions which will allow

a party to invoke the provisions of the Bulk Sales Law – inability to meet outstanding obligations in the course of business but vendor must secure the approval of at least twothirds of its stockholders and a majority vote of the members of its board of directors; Affidavit of Sale must state the names of all its creditors, their addresses, the amount of  credits and their maturities; A sale and transfer in bulk is made by a public officer, acting under judicial process, said sale or transfer is not covered by the Bulk Sales Law; If sale of  assets was made in defraud of creditors, the latter may have contracts rescinded or file a petition for involuntary insolvency  and sue for damages as well to recover the value of the contract with the vendor but secured loans, with leave of court, may filed; guarantors may also file their claims. IV. Th Thee Co Corp rpora oratio tion n Co Code de,, Se Secu curi riti ties es Re Regul gulati ation on Cod Code, e, In Insol solven vency cy an and d Fo Forei reign gn Investments Act A. Th Thee Co Corp rpora orati tion on Co Code de:: Fo Form rmali aliti ties es of in incor corpor porati ation on for sto stock ck an and d no non-s n-stoc tock k corpo cor porat ration ions; s; di disti stinc nctio tion n be betw twee een n sto stock ck an and d no nonn-sto stock ck cor corpor porati ation ons; s; di disti stinc nctio tion n between public and private corporations; what is a corporate sole; resolution of conflict involvi inv olving ng int inter-l er-locki ocking ng dir directo ectors; rs; whe when n may doct doctrin rinee of corp corporat oratee opp opportu ortunit nity y be availed; may a stock corporation be converted into a non-stock corporation; may a nonstock corporation be converted into a stock corporation; residency of incorporators and directors; what is a derivative suit (rights of minor stockholders ); ultra vires doctrine ; definition defini tion of intra-cor intra-corporate porate controversy controversy (would (would cover corporation, corporation, partnership partnership or ass sso oci cia ati tio on regi gist steered with the SEC);  RTC’s jurisdict jurisdiction ion over intra-corpo intra-corporate rate  controversies  controversi es; rehabilitation of a corporation; what is a Stay Order in rehabilitation; what is the Trus distinc inction tion between between stoc stock k and cash div divide idends nds;; Trustt Fund Doc Doctrin trine; e; dist distinction between profit and cash dividends; when may dividends be declared out of  unrestr unr estricte icted d reta retaine ined d earn earning ings; s; what is appraisal appraisal right, right, whe when n may it be exercised; exercised; insta in stanc nces es wh when en a cor corpor porati ation on ma may y bu buy y it itss ow own n sh share ares; s; mod modes es of di disso ssolu lutio tion n of  corporations – voluntary and involuntary. Q. Are PLD PLDT’s T’s sto stock ck div divide idends nds sub subjec jectt to the NTC NTC’s ’s ass asses essme sment nt of Sup Superv ervisi ision on and   Regulation Fees? 11 | $ a g e

 A. Yes. Dividends, Dividends, regardless of of the form these are declared, that is, cash, cash, property or or stocks, are valued at the amount of the declared dividend taken from the unrestricted retained  earnings of a corporation. Thus, the value of the declaration in the case of a stock dividend  is the actual value of the original issuance of said stocks. In G.R. No. 127937 we said that  "in the case of stock dividends, it is the amount that the corporation transfers from its surplus profit account to its capital account" or "it is the amount that the corporation receives in consideration of the original issuance of the shares." It is "the distribution of  current or accumulated earnings to the shareholders of a corporation pro rata based on the number of shares owned." Such distribution in whatever form is valued at the declared  amount or monetary equivalent. Thus, it cannot be said that no consideration consideration is involved in  the issuance of stock dividends dividends.. In fact, the declarati declaration on of stock dividends is akin to a  forced purchase of stocks. By declaring stock dividends dividends,, a corporatio corporation n ploughs back a  portion of its entire unrestrict unrestricted ed retained earnings either to its working capital or for cap  In essence, therefore, therefore, the stockholders stockholders by receiving receiving stock dividends are forced forced to exchange  the monetary value of their dividend for capital stock, and the monetary value they forego is considered the actual payment for the original issuance of the stocks given as dividends dividends.. Therefore, stock dividends acquired by shareholders for the monetary value they forego  are under the coverage of the SRF and the basis for the latter is such monetary value as  declared by the board of directors directors.. ital asset acquisition or investm investments. ents. It is simplistic to  say that the corporation did did not receive receive any actual payment payment for these. these. When the dividend dividend is  distributed,  distribut ed, it ceases to be a property of the corporation as the entire or portion of its unrestricted retained earnings is distributed pro rata to corporate shareholders. (PLDT v.  NTC, et.al. et.al. G.R. No. 152685, 152685, 2007 penned by by J. Velasco)

Q. What are the instances when corporate veil may be pierced? A. The corporate veil may be pierced when the separate corporate entity is used to defeat public convenience, justify wrong, protect fraud or defend a crime, as a shield to confuse legitimate issues; where corporation is a mere alter ego or business conduit of a person; or where a corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit, adjunct of another corporation; It has long been settled that the law vests a corporation with a personality distinct and separate from its stockholders stockholders or members. members. In the same vein, a corporation, corporation, by legal fiction and convenience, is an entity shielded by a protective mantle and imbued by law with a character alien to the persons comprising it. Circumstances might deny a claim for corporate personality, under the “doctrine of piercing the veil of corporate fiction.” Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. Under the doctrine, the corporate existence may be disregarded where the entity is formed or used for non-legitimate purposes, such as to evade a just and due obligation, or to  justify a wrong, to shield or perpetra perpetrate te fraud or to carry out similar or inequita inequitable ble considerations, other unjustifiable aims or intentions, in which case, the fiction will be disregarded and the individuals composing it and the two corporations will be treated as identical. ( Eric Godfrey Stanley Livesey v. Binswanger Philippines, Inc. and Keith  Elliot, G.R. No. 177493, March 19, 2014) 2014 )

Any application of the doctrine of piercing the corporate veil should be done with caution. A court should be mindful of the milieu where it is to be applied. It must be certain that the corporate fiction fiction was misused to such an extent that injustice, fraud, or crime was commit committed ted against another, in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that was never unintended may result from an erroneous application.  (Heirs of Fe Tan Uy (Represented by her heir, Manling

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Uy Li Lim) m) vs vs.. In Inte tern rnat atio iona nall Ex Exch chan ange ge Ba Bank nk/G /Gol oldk dkey ey De Deve velo lopm pmen entt Co Corp rpor orat atio ion n vs vs.. 2013)  International Exchange Exchange Bank , (G.R. No. 166282/G.R. No. 166283, February 13, 2013)

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so org organi anized zed and con contr troll olled ed and its aff affair airss are so con conduc ducte ted d as to ma make ke it me merel rely y an instrumentality, instrume ntality, agency, agency, conduit or adjunct of another corporation. corporation. ( Timoteo H. Sarona vs.  National Labor Relations Commission, Royale Security Agency, et al., G.R. No. 185280,  January 18, 2012). 2012).

Corporations; liability of corporate officers. As a general rule, the officer cannot be held personally personall y liable with the corporation, whether civilly or otherwise, for the consequenc consequences es his acts, if acted for and in behalf of the corporation, within the scope of his authority and in good fai faith th. (Ro (Rodol dolfo fo Lab Labort orte, e, et al. v. Pag Pagsan sanjan jan Tou Touris rism m Con Consu sumer mers’ s’ Coo Cooper perati ative, ve, et  2014) al., G.R. No. 183860, January 15, 2014) Q. What is the three pronged test? A. Case law lays down a three-pronged test to determine the application of the alter ego theory, which is also known as the instrumentality theory, namely: (1) Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; (2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal right; and (3) The aforesaid control and breach of duty must have proximately caused the injury or unjust loss complained of. The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be completely under the control and domination of the parent. It examines the parent corporation’s relationship with the subsidiary. It inquires whether a subsidiary corporation is so organized and controlled and its affairs are so conducted as to make it a mere instrumentality or agent of the parent corporation such that its separate existence as a distinct corporate entity will be ignored. It seeks to establish whether the subsidiary corporation has no autonomy and the parent corporation, though acting through the subsidiary in form and appearance, "is operating the business directly for itself." The second prong is the "fraud" test. This test requires that the parent corporation’s conduct in using the subsidiary corporation be unjust, fraudulent or wrongful. It examines the relationship of the plaintiff to the corporation It recognizes that piercing is appropriate only if  the parent corporation uses the subsidiary in a way that harms the plaintiff creditor. As such, it requires a showing of "an element of injustice or fundamental unfairness." The third prong is the "harm" test. This test requires the plaintiff to show that the defendant’s control, exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered. A causal connection between the fraudulent conduct committed through the instrumentality of the subsidiary and the injury suffered or the damage incurred by the plaintiff should be established. The plaintiff must prove that, unless the corporate veil is pierced, it will have been treated unjustly by the defendant’s exercise of control and improper use of the corporate form and, thereby, suffer damages. To summarize, piercing the corporate veil based on the alter ego theory requires the concurrence of three elements: control of the corporation by the stockholder or parent corporation, fraud or fundamental unfairness imposed on the plaintiff, and harm or damage caused to the plaintiff by the fraudulent or unfair act of the corporation. The absence of any 1 | $ a g e

of these elements prevents piercing the corporate veil. ( PNB V. Hydro Resources Contractor’s Corp, 2010) Q. If a corporation is not impleaded in a suit, can such corporation be subject to the  piercing doctrine? doctrine?  A. No. The principle principle of piercing piercing the veil of corporate corporate fiction, fiction, and the resulting resulting treatment treatment of   two-related  two-relate d corporations corporations as one and the the same juridical juridical person person with respect respect to a given given  transaction,  transacti on, is basically basically applied only to determine determine liability; liability; it is not available available to confer confer on  the court jurisdicti jurisdiction on it has not acquired, acquired, in the the first place, place, over a party party not impleaded impleaded in a  case. (Kukan Internatio International nal Corporation Corporation v. Hon. Amor Reyes, G.R. 182729, 2010,  penned  by J. Velasco) Q. May a contract supposedly entered in to by a “corporation” before its incorporation  bind it?

A. No. The Court held that any contract executed prior to incorporation has no binding effect on petitioner corporation. Logically, there is no corporation to speak of prior to an entity’s incorporation. incorpora tion. And no contract entered into before before incorporation incorporation can bind the corporation.  ( March  March II Marketing, Inc. and Lucila V. Joson vs. Alfredo M. Joson, Joson, G.R.  G.R. No. 171993,  December 12, 2011 2011))

Q. Randy sold Jet his shares of stock. Jet immediately immediately exercised his rights as a stockholder  by requesting for a copy of the corporati corporation’s on’s financial statements which the corporati corporation on  allowed. Randy later on sold the same shares of stock to Eisel and delivere delivered d the stock  certificates  certific ates to her. Who Who owns the shares shares of stock? stock? A. The latter. In a sale of shares of stock, physical delivery delivery of a stock certificate certificate is one of the essential requisites requisites for the transfer of ownership of the stocks purchased. purchased. The enjoyment of  the rights under the stock certificates cannot suffice where the law, by its express terms, requires a specific form to transfer ownership. ( Fil-Estate Gold and Development, Inc., et al. v. Vertex Sales and Trading, Inc ., G.R. No. 202079, June 10, 2013.) Q. Wh What at is th thee pr prev evai aili ling ng te test st to de dete term rmin inee wh whet ethe herr a co corp rpor orat atio ion n is a Fi Fili lipi pino no Corporation? A. The “control test” is still the prevailing mode of determi determining ning whether or not a corporation is a Filipino corporation, corporation, within the ambit of Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration, development and utilization of the natural resources of the Philippines. When in the mind of the Court there is doubt, based on the attendant facts and circumstances of the case, in the 60-40 Filipino-equity ownership in the corporation, then it may apply the “grandfather rule.” ( Narra Nickel Mining and Development Corp., et al. v.  Redmont Consolidated Consolidated Mines,G.R. Mines,G.R. No. 195580, April 21, 2014) 2014 ) Q. Does the control test exclude the application of the grandfather rule?  A. No. The ‘control test’ test’ can be applied jointly jointly with the Grandfather Grandfather Rule to determine determine the  observance of foreign ownership restrict restriction ion in nationali nationalized zed economic activiti activities. es. The Control Cont rol Test and the Gra Grandfat ndfather her Rule are not inco incompat mpatible ible owner ownership ship-det -determ erminan inantt  methods that can only be applied alternative alternative to each other. Rather, these methods can, if   appropriate,, be used cumulati  appropriate cumulatively vely in the determi determination nation of the ownership and control of   corporations  corporatio ns engaged in fully or partly nationaliz nationalized ed activiti activities, es, as the mining operation involved in this case or the operation of public utilities. The Grandfather Rule, standing alone, should not be used to determine the Filipino  ownership and control in a corporatio corporation, n, as it could result in an otherwise foreign  corporation  corporatio n rendered qualified to perform nationaliz nationalized ed or partly nationali nationalized zed activit activities. ies.  Hence, it is only when the Control Test is first complie complied d with that the Grandfath Grandfather er Rule  may be applied. Put in another manner, if the subject corporation’s Filipino equity falls 1- | $ a g e

 below the threshold 60%, the corporati corporation on is immedi immediately ately considered foreign-ow foreign-owned, ned, in which case, the need to resort to the Grandfather Rule disappears.  In this case, using the ‘control test’, Narra, Tesoro and MacArthur appear to have  satisfied the 60-40 equity requireme requirement. nt. But the nationality of these corporations and the  foreign-owned  foreign-own ed common investor that funds them was in doubt, hence, the need to apply  the Grandfather Rule. Narra Nickel Mining Mining v. Redmont, G.R. 195580 (2014, penned by J. Velasco)

Q. Who are corporate officers?  A. In the context of President Presidential ial Decree No. 902-A, corporate officers officers are those officers of a corp co rpor orat atio ion n wh who o ar aree gi give ven n th that at ch char arac acte terr ei eith ther er by th thee Co Corp rpor orat atio ion n Co Code de or by th thee corporation’s corporati on’s by-laws. Section 25 of the Corporation Corporation Code specifically specifically enumerated who are these corporate officers, to wit: (1) president; (2) secretary; (3) treasurer; and (4) such other offic off icers ers as ma may y be provide provided d for in the byby-la laws. ws. The Cou Court rt held that unless unless and until until petitioner corporation’s by-laws is amended for the inclusion of General Manager in the list of its corporate officers, such position cannot be considered as a corporate office within the realm of Section 25 of the Corporation Code.  March II Marketing, Inc. and Lucila V. Joson vs. Alfredo M. Joson, G.R. Joson,  G.R. No. 171993, December 12, 2011. Q. Will a case be dismissed if a corporation used its former name in the proceedings? A. No. While the SC stands by in its pronouncement on the importance of the corporate name to the very existence of corporations and the significance thereof in the corporati corporation’s on’s right to sue, it shall not go so far as to dismiss a case filed by the proper party using its former name when wh en ad adeq equa uate te id iden enti tifi fica cati tion on is pr pres esen ente ted. d.  NM Rothschild & Sons Ltd. V. Lepanto Consolidated Mining, G.R. No. 175799, November 28, 2011. Q. When are officers and directors of a corporation liable? A. Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. Following this principle, obligations incurred by the corporation, acting through its directors, officers and employees, are its sole liabilities. A director, officer or employee of a corporation is generally not held personally liable for obligations obligati ons incurred by the corporation. Nevertheless, this legal fiction may be disregarde disregarded d if  it is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse legitimate issues. Solidary liability liability will then attach to the directors, officers or employees of the corporati corporation on in certain circumstances, such as:

1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing the corporate affairs; and (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons; 2. When a director or officer has consented to the issuance of watered stocks or who, having know kn owle ledg dgee th ther ereo eof, f, di did d no nott fo fort rthw hwit ith h fi file le wi with th th thee co corp rpor orat atee se secr cret etar ary y hi hiss wr writ itte ten n objection thereto; 3. When a director, trustee or officer has contractually agreed or stipulated to hold himself  personally and solidarily liable with the corporation; or 4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action. Before a director or officer of a corporation can be held personally liable for corporate obligations, however, the following requisites must concur: (1) the complainant must allege in the co compl mplai aint nt tha thatt the di direc rector tor or off office icerr as assen sente ted d to pat patent ently ly unl unlawf awful ul act actss of the 1. | $ a g e

corporation, or that the officer was guilty of gross negligence or bad faith; and (2) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith. While it is true that the determination of the existence of any of the circumstances that would warrant the piercing of the veil of corporate fiction is a question of fact which cannot be the subject of a petition for review on certiorari under Rule 45, this Court can take cognizance of  factual issues if the findings of the lower court are not supported by the evidence on record or are based on a mis misappr apprehen ehension sion of fact facts. s. (Heirs of Fe Tan Uy (Represented by her heir,  Manling Uy Lim) vs. International Exchange Bank/Goldkey Development Corporation vs.  International Exchange Exchange Bank , G.R. No. 166282/G.R. No. 166283, February 13, 2013) 2013 )

Q. The NBI caused the filing of a complaint against Omni Corporation and its directors  for violation of BP. No. 33 which penalizes the unauthoriz unauthorized ed use of LPG cylinder cylinders. s. Can  the directors directors be held personally personally liable? liable?  A: Yes, as regards the President of the Corporation who manages the business affairs of  Omni Om ni,, but No as reg regard ardss to th thee oth other er di direc rector tors. s. Eve Even n if the corpora corporate te pow powers ers of a  corporation  corporatio n are reposed in it under under the first paragraph paragraph of Sec. 23 of the the Corporation Corporation Code,  the board of directors is not directl directlyy charged with the running of the recurring business  affairs of the corporation and may not be held liable under BP 33. ( Arnel U. Ty, et. al vs.  NBI Supervisi Supervising ng Agent Marvin E. De Jemil, et. al., G.R. 182147 2010, penned by J. Velasco) Q. Is prior approval of stockholders required of all corporate acts?  A. The general rule is that a corporati corporation, on, through its board of directors, should act in the  manner and within the formalities, if any, prescribe prescribed d by its charter or by the general law. Thus Th us,, di dire rect ctor orss mu must st ac actt as a bo body dy in a me meet etin ing g ca call lled ed pu purs rsua uant nt to th thee la law w or th thee  corporation’s  corporatio n’s by laws, otherwise, any action taken therein maybe questione questioned d by any  objecting  objectin g director or shareholder shareholder.. However, the actions taken in such a meeting by the  directors or trustees may be ratified expressly or implie impliedly. dly. Ratificat Ratification ion means that the  principal voluntarily adopts, confirms and gives sanction to some unauthorized act of its  agent on its behalf. It is this voluntary choice, knowingly made, which amounts to a  ratification  ratifica tion of what was theretofor theretoforee unauthorize unauthorized d and becomes the authorized act of the  party so making the ratificat ratification. ion. The substance of the doctrine is confirmat confirmation ion after (Lop opez ez Re Real alty, ty, In Inc. c. and  conduct, amounting to a substitut substitutee for a prior authority authority.. (L Asuncion Lopez-Gonzales v. Sps. Tanjangco, G.R. 154291, November 12, 2014) Q. Can a corporate officer officer not authorized by the board in writing bind the corporation? corporation? A. The Court reiterated its ruling in People’s Aircargo and Warehousing Co., Inc. v. Court  “Inasmu smuch ch as a corporate corporate preside president nt is often often given genera generall supervisi supervision on and of Appeals: “Ina control over corporate operations, operations, the strict rule that said officer has no inherent power to act for the corporation is slowly giving way to the realization that such officer has certain limited powers in the transaction of the usual and ordinary business of the corporation.” In the absence of a charter or bylaw provision to the contrary, the president is presumed to have the authority to act within the domain of the general objectives of its business and within the scope of his or her usual duties. ( Advance Paper Paper Corporation and George George Haw, in his capacity as President of Advance Paper Corporation v. Arma Traders Corporation, ., G.R.  G.R. No. 176897, December 11, 2013) 2013)  Manuel Ting, et al.,

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations corporati ons shall be exercised by the board of directors. The power and the responsibility responsibility to decide whether the corporation should enter into a contract that will bind the corporation are lodged in the board, subject to the articles of incorporation, incorporation, bylaws, or relevant provisions provisions of  1/ | $ a g e

law. In the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. The authority of a corporate officer or agent in dealing with third persons may be actual or apparent. Actual authority is either express or implied. The extent of an agent’s express authority is to be measured by the power delegated to him by the corporation, while the extent of his implied authority is measured by his prior acts which have been ratified or approved, or their benefits accepted by his principal. The doctrine of “apparent authority,” on the other hand, with special reference reference to banks, had long been recognize recognized d in this jurisdiction. jurisdiction. The existence of apparent authority may be ascertained through: (1) the general manner in which the corporation holds out an officer or agent as having the power to act, or in other words, the apparent authority to act in general, with which it clothes him; or (2) thee acquie th acquiesce scence nce in his his acts acts of a par parti ticul cular ar nature nature,, with actu actual al or constr construct uctive ive knowledge knowl edge thereof thereof,, within or beyond the scope of his ordinary ordinary powers. powers. ( Violeta Tudtud   Banate, et al. vs. Philippine Countryside Rural Bank (Liloan, Cebu), Inc. and Teofilo Soon,  Jr., G.R. No. 163825, July 13, 2010) 2010 )

Q. Who may sign a certification against forum shopping in a suit filed by a corporation? A. The requirement of the certification of non-forum shopping is rooted in the principle that a partypar ty-li liti tigan gantt sha shall ll not be al allow lowed ed to pur pursue sue sim simul ultan taneou eouss re reme medie diess in dif differ ferent ent for fora. a. However, Howev er, the Cour Courtt has rela relaxed, xed, unde underr just justifi ifiable able circumstanc circumstances, es, the rule requiring requiring the submi sub missi ssion on of suc such h ce certi rtifi ficat catio ion n con consid sider ering ing tha that, t, alt althou hough gh it is obl oblig igat atory ory,, it is not  jurisdictional.  jurisdic tional. Not being jurisdic jurisdictional, tional, it can be relaxed under the rule of substanti substantial al compliance. Thus, a President of a corporation, among other enumerated corporate officers and employees, can sign the verification and certification against non-forum shopping in behalf of the said corporation without the benefit of a board resolution. Thee fo Th foll llow owin ing g of offi fici cial alss or em empl ploy oyee eess of th thee co comp mpan any y ca can n si sign gn th thee ve veri rifi fica cati tion on an and d certi ce rtific ficati ation on wit withou houtt nee need d of a boa board rd re resol solut ution ion:: (1) th thee Cha Chair irper person son of the Boa Board rd of  Directors, (2) the President of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel Officer, and (5) an Employment Specialist in a labor case. While the above cases do not provide a complete listing of authorized signatories to the verification verificat ion and certifi certification cation required by the rules, the determi determination nation of the sufficiency of the authority was done on a case to case basis. The rationale applied in the foregoing cases is to  justify the authorit authority y of corporate officers or represent representatives atives of the corporati corporation on to sign the verif ver ifica icati tion on or ce certi rtific ficat atee aga agains instt for forum um sho shoppi pping, ng, bei being ng "i "in n a pos posit itio ion n to ver verify ify the (South uth Cot Cotaba abato to trut tr uthf hful ulne ness ss an and d co corr rrec ectn tnes esss of th thee al alle lega gati tion onss in th thee pe peti titi tion on.. (So Communications Corp. and Gauvain Benzonan v. Hon. Patricia Sto. Tomas, et.al., G.R. 173326, December 15, 2010) Q. What is an intra-corporate dispute? A. An intra-corp intra-corporate orate dispute is understood as a suit arising from intra-cor intra-corporate porate relations or between or among stockholders stockholders or between between any or all of them and the corporation. corporation. Applying what has come to be known as the relationship test, it has been held that the types of actions embr em brac aced ed by th thee fo fore rego goin ing g de defi fini niti tion on in incl clud udee th thee fo foll llow owin ing g su suit its: s: (a (a)) be betw twee een n th thee corpor cor porat atio ion, n, par partn tners ershi hip p or ass associ ociat ation ion an and d th thee pub publi lic; c; (b) bet betwee ween n th thee co corpo rpora ratio tion, n, partnership or association and its stockholders, partners, members, or officers; (c) between the corporation, partnership or association and the State insofar as its franchise, permit or license to operate is concerned; and, (d) among the stockholders, partners or associates themselves. themsel ves. As the definition is broad enough to cover all kinds of controversies controversies between stockh sto ckhol older derss and cor corpor porat atio ions, ns, the tr tradi aditio tional nal in inter terpre pretat tation ion was to the ef effec fectt th that at th thee relat rel ation ionshi ship p tes testt bro brooke oked d no dis disti tinct nctio ion, n, qua quali lific ficati ation on or any exe exempt mptio ion n wha whatso tsoeve ever. r. Strate ategic gic All Allian iance ce Dev Develo elopme pment nt Cor Corpor porati ation on vs. Sta Starr Inf Infras rastru tructu cture re Dev Develo elopme pment  nt  ( Str Corp Co rpor orat atio ion, n, BE BEDE DE S. Ta Taba bali ling ngco cos, s, et al al., ., G. G.R. R. No No.. 18 1878 7872 72,, No Nove vemb mber er 17 17,, 20 2010 10). ). 10 | $ a g e

An intra-corporate controversy, controversy, which falls within the jurisdiction of regular courts, has been rega re gard rded ed in it itss br broa oad d se sens nsee to pe pert rtai ain n to di disp sput utes es th that at in invo volv lvee an any y of th thee fo foll llow owin ing g relationships: (1) between the corporation, partnership or association and the public; (2) between the corporation, partnership or association and the state in so far as its franchise, permi per mitt or li licen cense se to ope opera rate te is con concer cerned ned;; (3) be betwe tween en the cor corpor porati ation, on, par partne tnersh rship ip or associ ass ociati ation on and it itss sto stock ckhol holde ders, rs, par partne tners, rs, me memb mbers ers or off offic icers ers;; and (4) am among ong the stockholders, partners or associates, themselves. Applying the foregoing to the present case, the LA had the original jurisdiction over the complaint for illegal dismissal because Cosare, although an officer of Broadcom for being its AVP for Sales, was not a “corporate officer” as the term is defined by law. ( Raul C. Cosare v. Broadcom Asia, Inc., et al., G.R. No. 201298, February 5, 2014) 2014 )

Q. What are the tests to determine whether a person is a corporate officer? A. Th Ther eree ar aree tw two o ci circ rcum umst stan ance cess wh whic ich h mu must st co conc ncur ur in or orde derr fo forr an in indi divi vidu dual al to be considered a corporate officer, as against an ordinary employee or officer, namely: (1) the creation of the position is under the corporation’s charter or by-laws; and (2) the election of  the officer is by the directors or stockholders. It is only when the officer claiming to have been illegally dismissed is classified as such corporate officer that the issue is deemed an intra int ra-co -corpo rpora rate te dis disput putee whi which ch fal falls ls wit withi hin n the jur jurisd isdict ictio ion n of the tri trial al cou courts rts..  Raul C. Cosare v. Broadcom Asia, Inc., et al., G.R. al.,  G.R. No. 201298, February 5, 2014. 2014 . Q. What is a derivative suit? A. A derivative suit is an action brought by a stockholder on behalf of the corporation to enforce corporate rights against the corporation’s directors, officers or other insiders. Under Sections 23 and 36 of the Corporation Code, the directors or officers, as provided under the by-laws, have the right to decide whether or not a corporation should sue. Since these directors or officers will never be willing to sue themselves, or impugn their wrongful or fraudulent decisions, stockholders are permitted by law to bring an action in the name of the corporation corporati on to hold these directors and officers accountable. In derivative suits, the real party in interest is the corporation, while the stockholder is a mere nominal party.  Juanito Ang, for  and in behalf of Sunrise Marketing (Bacolod), Inc. v. Sps. Roberto and Rachel Ang , G.R. No. 201675, June 19, 2013. Q. Can a corporation sole be converted to a corporation aggregate? A. A corporation may change its character as a corporation sole into a corporation aggregate by mere amendment of its articles of incorpora incorporation tion without first going through the process of  dissolution. dissoluti on. The amendment needs the concurrence concurrence of at least two-thirds of its membership. membership.  If such approval mechanism is made to operate in a corporation sole, its one member in whom all the powers of the corporation technically belongs, needs to get the concurrence of  two-thirdss of its membership. two-third membership. The one member, here the General General Superintendent, Superintendent, is but a trust tr ustee ee,, ac accor cordin ding g to Sec Secti tion on 110 of th thee Cor Corpor porati ation on Cod Code, e, of it itss me memb mbers ershi hip. p.  Iglesia  Evangelica Metodista En Las Islas Filipinas (IEMELIF), Inc., et al. vs. Bishop Nathanael  Lazaro, et al., G.R. No. 184088, July 6, 2010. 2010 . Q. Can a corporation continue its regular business during the winding up period after  dissolution?  dissoluti on? A. No. Sec Secti tion on 122 of the Cor Corpor porat ation ion Cod Codee pro prohib hibit itss a dis dissol solved ved cor corpor porati ation on fro from m continuing its business, but allows it to continue with a limited personality for a period of  three years from the time it would have been dissolved in order to settle and close its affairs, including its complete liquidation but not for the purpose of continuing the business for which it was established. Vitali Vit aliano ano N. Agu Aguirr irree II and Fidel Fidel N. Agu Aguirr irree II and Fidel Fidel N. Ag Aguir uirre re vs. FQB+, Inc., 170770. 70. January 9,  Nathaniel D. Bocobo, Priscila Bocobo and Antonio De Villa, G.R. No. 1707 2013.. 2013 1 | $ a g e

Q. Does the dissolution of a corporation mean the cessation of the board of directors’  powers? A. A corporation’s corporation’s board of directors directors is not rendered  functus officio by its dissoluti dissolution. on. Since Section 122 allows a corporation to continue its existence for a limited purpose, necessarily there must be a board that will continue acting for and on behalf of the dissolved corporation for that purpose. ( Vitaliano N. Aguirre II and Fidel N. Aguirre II and Fidel N. Aguirre vs. FQB+, Inc., Nathaniel D. Bocobo, Priscila Bocobo and Antonio De Villa, G.R. No. 170770. January 9, 2013. Q. Are property rights of stockholders affected by the dissolution of the corporation? A. A party’s stockholdings stockholdings in a corporation, whether existing or dissolved, is a property right whic wh ich h he ma may y vi vind ndic icat atee ag agai ains nstt an anot othe herr pa part rty y wh who o ha hass de depr priv ived ed hi him m th ther ereo eof. f. Th Thee corporation’s dissolution does not extinguish such property right. Vitaliano N. Aguirre II and  Fidel N. Aguirre II and Fidel N. Aguirre vs. FQB+, Inc., Nathaniel D. Bocobo, Priscila 2013 .  Bocobo and Antonio Antonio De Villa, G.R. No. 170770. January 9, 2013. corporationss that are not GOCCs considered private corporation corporationss not under Q.  Are all corporation Commission on Audit jurisdiction? A. No. Not all corporations, corporations, which are not governme government nt owned or controlle controlled, d, are ipso facto to be considered private corporations as there exists another distinct class of corporations or char ch arte tere red d in inst stit itut utio ions ns wh whic ich h ar aree ot othe herw rwis isee kn know own n as “p “pub ubli licc co corp rpor orat atio ions ns.” .” Th Thes esee corporations are treated by law as agencies or instrumentalities of the government which are not subject to the tests of ownership or control and economic viability but to different criteria relating to their public purposes/interests or constitutional policies and objectives and their administrative relationship to the government or any of its Department or Offices. The COA may,, thus may thus,, audit the finances finances of BSP.  Boy Scouts of the Phils. V. COA. G.R. No. 177131,  June 7, 2011

Q. Is there a distinction between a case filed before and after the winding up period of a  corporation?  corporatio n? A. Yes. A dissolved corporation or any person representing it cannot file a case beyond the three year winding up period even if the purpose of such suit is the liquidation of the assets of the dissolved corporation as it has no more capacity to sue. To allow such suit would be to circumvent Section 122 of the Corporation Code . ( Alabang Development Corporation v.  Alabang Hills Village Association Association and Rafael Tinio, G.R. No. 187456, June 2, 2014.) 2014.) Q. Is the refusal to allow inspection of the stock and transfer book a criminal offense ? A. Yes. Such refusal, when done in violation of Section 74(4) of the Corporation Code, properly falls within the purview of Section 144 of the same code and thus may be penalized as an offense. ( Aderito Z. Yujuico and and Bonifacio C. Sumbilla v. v. Cezar T. Quiambao Quiambao and Eric C. Pilapil, G.R. No. 180416, June 2, 2014).

A criminal action based on the violation of the second or fourth paragraphs of Section 74 can only be maintained against corporate officers or such other persons that are acting on behalf  of the corporation. Violations Violati ons of the seco second nd and fourth para paragrap graphs hs of Sect Section ion 74 cont contempl emplates ates a situ situati ation on wherein a corporation, acting thru one of its officers or agents, denies the right of any of its stockh sto ckhol older derss to ins inspe pect ct the rec record ords, s, mi minut nutes es an and d th thee sto stock ck and tr trans ansfer fer boo book k of suc such h corporation. Q. Are corporate officers liable for the illegal dismissal of an employee of the corporation? 12 | $ a g e

A. No. A corporation has a personality separate and distinct from its officers and the board of  directors may only be held personally liable for damages if it is proven that they acted with malice or bad faith in the dismissal of an employee. Absent any evidence on record that petit pet ition ioner er Bau Bauti tista sta act acted ed ma mali licio ciousl usly y or in bad fa fait ith h in ef effec fecti ting ng th thee ter termi minat nation ion of  respondent,, plus the apparent lack of allegation in the pleadings of respondent that petitioner respondent Bautista acted in such manner, the doctrine of corporate fiction dictates that only petitioner corp co rpor orat atio ion n sh shou ould ld be he held ld li liab able le fo forr th thee il ille lega gall di dism smis issa sall of re resp spon onde dent nt.. ( Mirant  (Philippines) Corporation, et al. v. Joselito A. Caro, G.R. No. 181490, April 23, 2014) 2014 )

Q. What is a merger? A. Merger is a re-organization re-organization of two or more corporations corporations that results in their consolidating into a single corporation, which is one of the constituent corporations, one disappearing or dissolving and the the other surviving. To put it another way, merger merger is the absorption of one or more corporations by another existing corporation, which retains its identity and takes over the rights, privileges, franchises, properties, claims, liabilities and obligations of the absorbed corporation(s). corporati on(s). The absorbing corporation corporation continues its existence existence while the life or lives of  the other corporation(s) is or are terminated. Q. What is a de facto merger? A. A de facto merger can be pursued by one corporation acquiring all or substantially all of  the pro proper perti ties es of an anoth other er cor corpor porat ation ion in exc exchan hange ge of sha share ress of st stock ock of the acq acquir uiring ing corporat corp oration. ion. The acquiring acquiring corporati corporation on would end up with the business business ente enterpri rprise se of the target corporation; whereas, the target corporation would end up with basically its only remaining assets being the shares of stock of the acquiring corporation. It is cl clea earr th that at no me merg rger er to took ok pl plac acee be betw twee een n Ba Bank nk of Co Comm mmer erce ce an and d TR TRB B as th thee requirements requirem ents and procedures for a merger were absent. absent. A merger does not become effective effective upon the mere agreement agreement of the constituent constituent corporations. All the requirements requirements specified specified in thee la th law w mu must st be co comp mpli lied ed wi with th in or orde derr fo forr me merg rger er to ta take ke ef effe fect ct.. Se Sect ctio ion n 79 of th thee Corporation Code further provides that the merger shall be effective only upon the issuance by the Securities and Exchange Commission (SEC) of a certificate of merger. (  Bank of  Commerce v. Radio Philippines Netwcork, Inc., et al., G.R. No. 195615, April 21, 2014) 2014 ) Q. Is the Philippine National Red Cross a private corporation required to incorporate under the Corporation Code? A. No No.. PN PNRC RC is a sui enti tity ty th that at is ne neit ithe herr pu publ blic ic no norr pr priv ivat ate. e. PN PNRC RC is a sui gen gener eris is en government’s partner in the observance of its international commitments under the Geneva Gordon, 2011) Conventions. It is treated as an auxiliary of the State. ( Liban v. Gordon, B. Securities Regulation Law Protection of public interest as primary purpose of the law; registration requirements of st stock ocks/ s/ sec secur uriti ities; es; wh what at are exe exemp mptt sec secur urit ities ies (Pl (Please ease read Section 9, Secu Securiti rities es  Regulation Code) and exempt transactions; registration of a company with the SEC is a prerequisite before registration of securities in the stock market; liabilities for fraud, manipulation of stock prices, insider trading, short sales; reason behind margin trading rule; what are the minimum requirements for disclosure of publicly-listed companies; what is a tender offer; what is a water down share; remedies avail to partie partiess under the law;; pe law pena nalti lties es wh which ich ma may y be im impo posed sed on com compa pany, ny, off offic icers ers,, sto stock ck br brok okers ers an and d individuals.

Q. How do you determine the existence of an investment contract? A. For an investme investment nt contract to exist, the Howey Test comprising of the following elements must mu st con concur cur:: (1) a co contr ntract act,, tr trans ansac actio tion, n, or sch schem eme; e; (2) an inv inves estm tment ent of mo money ney;; (3) investment investme nt is made in a common enterprise; enterprise; (4) expectati expectation on of profits; and (5) profits arising primarily from the effort of others. The Securities and Regulation Code treats investment +3 | $ a g e

contract contra ctss as “se “secur curit ities ies”” th that at hav havee to be reg regist istere ered d wit with h th thee SEC be befor foree the they y can be distributed and sold. SEC v. Prosperity.com, Inc., G.R.164197, January 25, 2012. Q. Can the SEC issue a Cease and Desist Order without any complaint filed before it? A. Yes. Under Sec. 64 of the SRC, a cease and desist order maybe issued by the SEC motu proprio, it being unnecessary that it results from a verified complaint from an aggrieved party and even without a prior hearing whenever the Commission finds it appropriate to issue a cease and desist order that aims to curtail fraud or grave or irreparable injury to investors. There is good reason for this provision as any delay in the restraint of acts that yield such results can only generate further injury to the public that the SEC is obliged to protect. To equally protect individuals and corporations from baseless and improvident issuances, the authority authorit y of the SEC is also with defined limits. A cease and desist order may only be issued by the Commission after proper investigation or verification and upon showing that the acts sought soug ht to be restrained restrained could result result in injury or fraud to the investing investing public. public. Primanila Plans, Inc. v. SEC, G.R. 193791, August 6, 2014 Q. What is the Jurisdiction of the RTC and the SEC over issues on validation of proxies? A. The power of the SEC to regulate proxies remains in place in instances when stockholders vote on matters other than the election of directors. The test is whether the controversy relates to such election. All matters affecting the manner and conduct of the election of  directors are properly cognizable by the regular courts. Otherwise, these matters may be brought before the SEC for resolution based on the regulatory powers it exercises over corporations, partnerships and associations. SEC v. CA, G.R. 187702, October 22, 2014.

C. Insolvency Law Voluntary Insolvency is filed by the insolvent while Involuntary Insolvency is filed by thee cre th credi ditor torss of th thee in insol solve vent nt;; Un Unsec secur ured ed lo loan anss can cannot not be fi filed led in an any y in insol solven vency cy proceeding proceed ing provided they present proof that they paid the obligation of the creditor of  the insolvent and they substitute for the creditors; Preferred claims – funeral expenses expenses of the debtor is the most preferred claim, debts due for personal services rendered to the ins insolve olvent nt imm immedi ediatel ately y pre precedi ceding ng the comm commenc encemen ementt of ins insolve olvency ncy pro proceed ceeding ing;; obligations under Workmen’s Compensation Act, legal expenses and expenses incurred in the administration of insolvent’s estate for the common interest of creditors upon order ord er of th thee cou court rt,, de debt bts, s, tax taxes es an and d ass asses essme sment ntss du duee th thee na nati tiona onall gov gover ernm nmen ent, t, provincial provinc ial governme government nt and local governme government nt units; remaining non-preferred non-preferred creditors shall be entitled pro rata in the balance of assets, without priority or preference.

Q. What is the concept of technical insolvency?  A. There are 2 kinds of insolvency contempl contemplated ated by law: actual insolvenc insolvency, y, i.e., the  corporation’s  corporatio n’s assets are not enough to cover its liabilit liabilities; ies; and technical insolvency  defined under Sec. 3-12, i.e., the corporation has enough assets but it foresees its inability inability  to pay its obligati obligations ons for more than one year. The period mentioned under Sec. 3-12, "longer than one year from the filing of the petition," does not refer to a year-long waiting  period when the SEC can finally say that the ailing corporation corporation is technical technically ly insolvent to qualify for rehabilitation. The period referred to the corporation’s inability to pay its  obligations;  obligati ons; when such inabilit inabilityy extends beyond one year, the corporati corporation on is considered   technically  technical ly insolvent. Said inability may be establishe established d from the start by way of a petition  for rehabilitation, rehabilitation, or it may be proved during the proceedings for suspension of payments, payments, if the latter was the first remedy chosen by the ailing corporation. If the corporation opts  for a direct petition for rehabili rehabilitation tation on the ground of technical insolvenc insolvency, y, it should  +1 | $ a g e

 show in its petition and later prove during the proceedings that it will not be able to meet its obligations for longer than one year from the filing of the petition .(PNB and Equitable  PCI Bank v. CA, G.R. G.R. 165571, J. Velasco) Velasco)  Free Insolvency Insolvency Act (FRIA) Q. May FRIA be applied retroactively? A. Sec. 146 of the FRIA, which makes it applicable to “all further proceedings proceedings in insolvency insolvency,, suspension of payments and rehabilitation rehabilitation cases x x x except to the extent that in the opinion of th thee co cour urtt th thei eirr ap appl plic icat atio ion n wo woul uld d no nott be fe feas asib ible le or wo woul uld d wo work rk in inju just stic ice, e,”” st stil illl presup pre suppos poses es a pro prospe spect ctive ive app applic licati ation. on. The wor wordi ding ng of the law cl clear early ly sho shows ws tha thatt it is applicable to all further proceedings. In no way could it be made retrospectively applicable applicable to the Stay Order issued by the rehabilitation court back in 2002. Thus, it was beyond the  jurisdiction  jurisdic tion of the rehabilitation court to suspend foreclosure proceedings against properties of third-party mortgagors. (Situs Developme Development nt Corporation, Corporation, et al. vs. Asia Trust Bank, et  al, G.R. al,  G.R. No. 180036, January 16, 2013) 2013 ) Q. When is Rehabilitation appropriate? A. Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore rest ore and rein reinstat statee the corporation corporation to its former position position of succ successf essful ul oper operati ation on and solvency. The purpose of rehabilitation rehabilitation proceedings proceedings is to enable the company to gain a new leasee on lif leas lifee and ther thereby eby allow allow cred creditor itorss to be paid their claims claims from its earnings. earnings. The rehabili reha bilitati tation on of a fina financia ncially lly dist distress ressed ed corp corporat oration ion bene benefit fitss its emp employe loyees, es, cred creditor itors, s, stockholders and, in a larger sense, the general public. Rehabilitation proceedings in our jurisdiction, much like the bankruptcy laws of the United States, have equitable and rehabilitative purposes. On one hand, they attempt to provide for the effi efficien cientt and equi equitabl tablee dist distribu ribution tion of an inso insolven lventt debt debtor’s or’s remaining remaining asse assets ts to its creditors; and on the other, to provide debtors with a “fresh start” by relieving them of the weight weig ht of thei theirr outs outstand tanding ing debts and permitting permitting them to reor reorgani ganize ze their affairs. affairs. The rationale of Presidential Decree No. 902-A, as amended, is to “effect a feasible and viable rehabilitation. Q. What is the Cram-down Power of Rehabilitation Courts? A. The “cram-do “cram-down” wn” principle consists of two things: (1) approval despite opposition and (2) binding effect of the approved plan. The Rehabilitation Rules maintains that the court may approve a rehabilitation plan over the objection of the creditors if, in its judgement, the rehabilitation of the debtors is feasible and the opposition of the creditors is manifestly unreasonable. The required number of creditors opposing such plan under the Interim Rules (i.e., those holding the majority of the total liabilities of the debtor) was in fact, removed. Also, the Rehabilitation Receiver has the duty and authority to recommend any modification of an approved rehabilitation plan as he may deem appropriate and for the purpose of  achieving the desired targets or goals set forth therein and the Rehabilitation Rules allow the modification and alteration of the rehabilitation plan precisely because of conditions that may supervene or affect the implementation thereof subsequent to its approval. ( Marilyn Aquino v. Pacific Plans, G.R. 193108, December 10, 2014) Q. Is Ma Mate teri rial al Fi Fina nanc ncia iall Co Comm mmit itme ment nt an in indi disp spen ensa sabl blee re requ quis isit itee in co corp rpor orat atee  rehabilitation?  rehabilit ation? A. Yes. SMMCI’s Rehabilitation Plan lacks a material financial commitment to support the rehabilitation and accompanying liquidation analysis of the petitioning debtor which are indispensable indispensa ble requisites in corporate rehabilitation rehabilitation proceedings under Sec 18 of Rule 3 of the Interim Rules of corporate rehabilitation. ( BPI Family Savings Bank, Inc. v. St. Michael  Medical Center, G.R. 205469, March 25, 25, 2015) ++ | $ a g e

Q. Is the HLURB’s prior request for the appointment of a rehabilitation receiver is a  condition precedent precedent before before the trial trial court can give give due course course to a rehabilitatio rehabilitation n petition? A. No. Unl Unlik ikee ban banks ks and fi finan nanci cial al ins insti titu tuti tions ons und under er th thee ju juris risdic dicti tion on of th thee BSP BSP,, and insura ins urance nce com compan panies ies an and d sim simil ilar ar ins insti titu tuti tions ons und under er the jur jurisd isdict ictio ion n of the In Insur suranc ancee Commission, construction and real estate companies, such as Lexber, under the jurisdiction of the HLURB are allowed to file petitions for rehabilitation even without prior request for the appointment of a receiver by HLURB. This is because the power to appoint receivers is not found in HLURB’s charter unlike the BSP and the IC which are specifically authorized to appoin app ointt a rec recei eiver ver in ca case se a co compa mpany ny und under er th their eir re regul gulat ation ion is und under ergoi going ng cor corpor porat atee rehabilitation.  Lexber Inc v. Spouses Spouses Dalman GR 183587 183587 April 20, 2015 2015 Q. Wi Will ll the lapse lapse of the 180-day 180-day per perio iod d for the app approv roval al of the rehabil rehabilit itati ation on pla plan n  automatically  automati cally result to the dismissal dismissal of the rehabilit rehabilitation ation petition? petition? A. No. Rule 4, Section 11 of the Interim Rules states: Section 11.Period of the Stay Order - The stay order shall be effective from the date of its issu is suan ance ce un unti till th thee di dism smis issa sall of th thee pe peti titi tion on or th thee te term rmin inat atio ion n of th thee re reha habi bili lita tati tion on proceedings. proceedin gs. The petition shall be dismissed if no rehabili rehabilitation tation plan is approved by the court upon the lapse of one hundred eighty (180) days from the date of the initial hearing. The court may grant an extension beyond this period only if it appears by convincing and compell com pelling ing evid evidence ence that the debt debtor or may succ successf essfully ully be reha rehabili bilitate tated. d. In no inst instance ance,, however, shall the period for approving or disapproving a rehabilitation plan exceed eighteen (18) months from the date of filing of the petition.

Rule 2, Section 2 of the Interim Rules may be properly applied as it dictates the courts to liberally construe the rehabilitation rules in order to carry out the objectives of Sections 6(c) of PD 902-A, as amended, and to assist the parties in obtaining a just, expeditious, and inexpens inex pensive ive dete determi rminati nation on of reha rehabili bilitati tation on case cases. s. ( Lexber Inc v. Spouses Dalman GR 183587 April 20, 2015) D. Foreign Investments Act (R.A. No. 7042) Q. What is “doing business”?

A. The phrase "doing business" shall include soliciting orders, service contracts, opening offic off ices, es, whe whethe therr cal calle led d "l "lia iaiso ison" n" off offic ices es or bra branch nches es;; app appoin ointin ting g re repre presen senta tativ tives es or distributors distribut ors domiciled in the Philippines or who in any calendar year stay in the country for a period per iod or per period iodss to total talin ing g one hun hundre dred d eig eighty hty (18 (180) 0) day dayss or mor more; e; par parti ticip cipat ating ing in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, and in progressive prosecution of, comme com merci rcial al ga gain in or of the pur purpo pose se and obj objec ectt of the bu busin siness ess org organi aniza zatio tion: n: Pro Provi vided ded,, however, That the phrase "doing business: shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a nominee director or officer to represent its interests in such corporation; nor appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account; (sec. 3.d. Foreign Investments Act.) In  Mentholatum Co., Inc. v.. Anacleto Mangaliman, the Supreme Court laid down the  jurisprudential  jurisprude ntial test of what constitut constitutes es "doing business" in the Philippin Philippines es for foreign corporations known as the "Twin Characterization Test".  Under this test, a foreign corporation is considered to be "doing business" in the Philippines when:

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a) The foreign corporation is maintaining or continuing in the Philippines "the body or subst sub stanc ancee of the business business or ent enterp erpris risee for which it was org organi anized zed or whe whethe therr it has substantially retired from it and turned it over to another." b) The foreign corporation is engaged in activities which necessarily imply "a continuity of  commercial dealings and arrangements, and contemplates, to that extent, the performance of  acts or works or the exercise of some of the functions normally incidental to, and in progressive prosecution of, the purpose and object of its organization. (SEC-OGC Opinion 10-22 s.2010)  Please note that aliens may be allowed to invest in companies involved in the exploitation, exploitation,  development  developm ent and utilization of natural resources provided 60% of the shares is owned by  Filipino citizens. Aliens may also register their companies and enjoy tax incentives under the BOI and PEZA laws. V. Insurance Code

Q. What is the effect of a contract of insurance being a contract of adhesion? A. A contract of insurance is a contract of adhesion. When the terms of the insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligati obligation. on.  Alpha Insurance and Surety Co. v. Arsenia 2013 . Sonia Castor , G.R. No. 198174, September 2, 2013. Q. How do you construe limitations on the liability of an insurer?  A. In Philamc Philamcare are Health Systems, Inc. v. CA, we ruled that a health care agreement agreement is in the nature of a non-life insurance. insurance. It is an established rule in insurance insurance contracts contracts that when their terms contain limitations on liability, they should be construed strictly against the insurer. These The se are con contr tract actss of adh adhesi esion on the ter terms ms of whi which ch mu must st be in inter terpre preted ted and enf enforc orced ed string str ingent ently ly aga agains instt the in insur surer er whi which ch pre prepa pared red the con contra tract ct.. Thi Thiss doc doctri trine ne is equ equall ally y appli app licab cable le to hea healt lth h car caree ag agree reeme ments nts.. Fo Fort rtun unee Me Medi dica care re,, In Inc. c. v. Da Davi vid d Ro Robe bert rt U.  Amorin, G.R. No. 195872, March 12, 2014 2014.. Q. When is there double insurance? A. By the express provision of Section 93 of the Insurance Code, double insurance exists wheree the same person is insured by seve wher several ral insurers insurers separately separately in resp respect ect to the same subject and interest. The requisites in order for double insurance to arise are as follows: 1. The person insured is the same; 2. Two or more insurers insuring separately; 3. There is identity of subject matter; 4. There is identity of interest insured; and 5. There is identity of the risk or peril insured against. ( Malayan Insurance Co., Inc. vs. Philippine First Insurance, Co., Inc., et al., G.R. No. 184300, July 11, 2012). Q. What is an additional insurance clause? A. Section 5 is is actually actually the other insurance insurance clause (also called called “additional “additional insurance” insurance” and “double insurance”), one akin to Condition No. 3 in issue in Geagonia v. CA, which validity was upheld by the Court as a warranty warranty that no other insurance insurance exists. The Court ruled that that Condition No. 3 is a condition which is not proscribed by law as its incorporation in the policy is allowed by Section 75 of the Insurance Code. It was also the Court’s finding that unlike the other insurance clauses, Condition No. 3 does not absolutely declare void any violation thereof but expressly provides that the condition “shall not apply when the total insu in sura ranc ncee or in insu sura ranc nces es in fo forc rcee at th thee ti time me of th thee lo loss ss or da dama mage ge is no nott mo more re th than an  Malayan Insurance Co., Inc. vs. Philippine First Insurance, Co., Inc., et  P200,000.00.” ( Malayan al., G.R. al.,  G.R. No. 184300, July 11, 2012). +- | $ a g e

Q. What is an over insurance clause? A. Sectio Section n 12 of th thee SR Policy, Policy, on th thee oth other er hand, hand, is the over insuran insurance ce clause. clause. Mor Moree particularly, particula rly, it covers the situation situation where there is over insurance due to double insurance. insurance. In such case, Section 15 provides that Malayan shall “not be liable to pay or contribute more than its ratable ratable proportion of such loss loss or damage.” This is in accord accord with the principle principle of  contribution provided under Section 94(e) of the Insurance Code, which states that “where the insured is over insured by double insurance, each insurer is bound, as between himself  and the other insurers, to contribut contributee ratably to the loss in proportion to the amount for which he is liable under his contract.” ( Malayan Insurance Co., Inc. vs. Philippine First Insurance, Co., Inc., et al., G.R. No. 184300, July 11, 2012). Q. What is the nature of a health care agreement? A. For purposes of determining the liability of a health care provider to its members,  jurisprudence  jurisprude nce holds that a health care agreement is in the nature  of non-life insurance, which is primari primarily ly a contract contract of indemnity. indemnity. Once the the member member incurs hospital hospital,, medical medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider prov ider must pay for the sam samee to the extent agreed upon under the contract. contract. ( Fortune  Medicare, Inc. v. David David Robert U. Amorin, Amorin, G.R. No. 195872, March 12, 2014). 2014 ). Q. What is the effect of a fraudulent claim in insurance? A. It has long been settled that a false and material material statement statement made with an intent to deceive or defraud voids an insurance insurance policy. In Yu Cua v. South British Insurance Co.,  the claim was fourteen times bigger than the real loss; in Go Lu v. Yorkshire Insurance Co , eight times; Tuason son v. Nor North th Chi China na Ins Insura urance nce Co. Co.,, six ti and in Tua time mes. s. In the pre presen sentt cas case, e, the cl clai aim m is twenty five times the actual claim proved. The most liberal human judgment cannot attribute such difference to mere innocent error in estimati esti mating ng or coun counting ting but to a deli delibera berate te inte intent nt to dem demand and from insurance insurance company’s company’s payment for indemnity of goods not existing at the time of the fire. This constitutes the so“fraudulent ulent claim” whi called “fraud which, ch, by exp expres resss agr agree eeme ment nt bet betwee ween n the in insur surers ers and th thee insured, is a ground for the exemption of insurers from civil liability. While it is a cardinal principle principle of insurance law that a contract of insurance is to be construed liber li berall ally y in fav favor or of th thee ins insure ured d and str strict ictly ly aga agains instt the in insur surer er com compan pany, y, con contra tract ctss of  insurance,, like other contracts, are to be construed according insurance according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguo unambiguous, us, they must be taken and understood in their plain, ordinary and popular sense. Courts are not permitted to make contracts for the parties; the function and duty of the courts is simply to enforc enf orcee and ca carry rry out the con contr tract actss ac actua tuall lly y ma made. de. ( Unite United d Merc Merchants hants Corp Corporati oration on vs. Country Bankers Insurance Corporation, G.R. No. 198588, July 11, 2012). Q. When may an insurance contract be rescinded? A. Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions are present, to wit: 1) the policy limits the use or condition of the thing insured; 2) there is an alteration in said use or condition; 3) the alteration is without the consent of the insurer; 4) the alteration is made by means within the insured’s control; and 5) the alteration increases the risk of loss. In the case at bench, all these circumstances are present. It was clearly established that the renewal policy stipulated that the insured properties were located at the Sanyo factory; that PAP removed the properties without the consent of Malayan; and that the alteration of the location increased the risk of loss.   (Malayan Insurance Company, Inc. v. PAP co., Ltd. (Philippine Branch), G.R. No. 200784, August 7, 2013). 2013). +. | $ a g e

Q. What is a suretyship agreement? What is the liability of a surety? A. Sec Secti tion on 175 of the Insuran Insurance ce Cod Codee def define iness a su suret retysh yship ip as a con contra tract ct or agr agreem eemen entt whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued under Act 536, as amended. amended. Suretyship arises arises upon the solidary solidary binding of a person – deemed deemed the sure su rety ty – wi with th th thee pr prin inci cipa pall de debt btor or,, fo forr th thee pu purp rpos osee of fu fulf lfil illi ling ng an ob obli liga gati tion on.. Su Such ch undertaking undertaki ng makes a surety agreement agreement an ancillar ancillary y contract as it presupposes the existence existence of  a principal contract. Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom.. And notwithstanding therefrom notwithstanding the fact that the surety contract is secondary secondary to the principal obligation, obligati on, the surety assumes liability liability as a regular regular party to the undertaking. undertaking. ( First LepantoTaisho Tai sho Ins Insura urance nce Cor Corpo porat ration ion (no (now w kno known wn as FLT Pri Prime me Ins Insura urance nce Co Corpo rporat ration ion)) vs. Chevron Philippines, inc. (formerly known as Caltex Philippines, Inc.), G.R. No. 177839,  January 18, 2012 2012)). Q. When is a suretyship effective?   A. Sec. 177 of the Insurance Code provides: The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor . No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety : Provided, That if the contract of  suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only reasonable amount, not exceeding fifty per centum of the premium due thereon as service fee plus the cost of stamps or other taxes imposed for the issuance of the contract or bond: Provided, however, That if the non-acceptance of the bond be due to the fault or negligence of the surety, no such service fee, stamps or taxes shall be collected. ( Country Bankers  Insurance Corporation Corporation v. Antonio Lagman, Lagman, G.R. No. 165487, July 13, 2011). 2011 ). Q. If a loss is alleged to be an exceptio exception n to the insurance coverage, coverage, who has the burden of   proving such exception? A. An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of establishing that the loss comes within the purview of the exception or limitation. If loss is proved apparently within a contract of insurance, the burden is upon the insurer to establish that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability. In the present case, CBIC failed to discharge its primordial burden of establishing that the damage or loss was caused by arson, a limitat lim itation ion in the poli policy. cy. ( Unite United d Merc Merchants hants Corpo Corporatio ration n vs. Coun Country try Bank Bankers ers Insur Insurance ance Corporation, G.R. No. 198588, July 11, 2012) Q. If Eisel Insurance presents a subrogation receipt in a case to recover from Randy  Lines, a common common carrier that that caused damage damage to Eisel Insurance’s Insurance’s client, client, may Randy Lines Lines  avoid liability liability if Eisel Eisel Insurance Insurance fails to present present the Insurance Insurance policy? policy? A. No. The presentation in evidence of the marine insurance policy is not indispensable before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise exercise of its subrogatory subrogatory right. The subro subrogati gation on rece receipt, ipt, by itse itself, lf, is suff sufficie icient nt to establish the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment payment by the insurance insurance company of the insurance insurance claim. claim. ( Asian Terminals,  Inc. v. Malayan Insurance, Insurance, Co., Inc., G.R. Inc., G.R. No. 171406, April 4, 2011).

Same application of the doctrine: As a general rule, the marine insurance policy needs to be presented in evidence before the insurer may recover the insured value of the lost/damaged +/ | $ a g e

cargo in the exercise of its subrogatory right since it is the legal basis of the insurer’s right to subr su brog ogat atio ion. n. Ne Neve vert rthe hele less ss,, a ma mari rine ne in insu sura ranc ncee po poli licy cy is di disp spen ensa sabl blee ev evid iden ence ce in reimbursement claims instituted by the insurer especially when a subrogation receipt has I nc. v. First Lepantobeen executed between the insured and the insurer. ( Asian Terminals, Inc. Taisho Insurance Corporation, G.R. 185964, June 16, 2014).

Q. What are the kinds of interest for premium refund? A. There are two kinds of interest – monetary and compensatory. The former refers to the compensation set by the parties for the use or forbearance of money and shall not be due unless unl ess it has been exp expre ressl ssly y sta state ted d in wri writi ting ng whi while le th thee lat latte terr ref refers ers to th thee pen penalt alty y of  indemnity for damages imposed by law or by the courts. The interest mentioned in Art 2209 and 221 2212 2 of the Civil Civil Cod Codee app appli lies es to com compen pensat satory ory int inter erest est.. As a for form m of dam damage ages, s, compensatory interest is due only if the obligor is proven to have failed to comply with his obligation. obligati on. (Sun Life of Canada v. Sandra Tan Kit and Estate of the Deceased Norberto Tan Kit, G.R. No 183272, October 15, 2014) Q. Marion imported rare collectible toys from Europe. Upon arrival of the ship carrying  the goods, it was discovere discovered d that the container of Marion’s goods got wet with seawater. The goods were not severely damaged but their individual boxes and packaging were  damaged. Marion claims that she can still sell the goods but at a lower price because  collectorss require the packaging  collector packaging to be intact. intact. May Marion Marion recover even even if no portion of the  goods were lost? lost? A. Yes. Under Art 365 of the Code of Commerce, if the goods are rendered useless for sale, consumption, or for the intended purpose, the consignee may reject the goods and demand the payment of such goods at their market price on that day. In case the damaged portion of  the goods can be segregated from those delivered in good condition, the consignee may reject those in damaged condition and accept merely those which are in good condition. But if the consignee is able to prove that it is impossible to use those goods which were delivered in good condition without the others, then the entire shipment may be rejected. Thus the nature of damage must be such that the goods are rendered useless for sale, consumption, or intended purpose for the consignee to be able to validly reject them. On the other hand, under Art 364 of the Code of Commerce, if the effect of damage on the goods consisted merely of  diminution in value, the carrier is bound to pay only the difference between its price on that day and its depreciated value. ( Loadstar Shipping Company, Inc. and Loadstar International International Shipping Company, Inc. v. Malayan Insurance Company, G.R. 185565, November 26, 2014). VI. Transportation Law Contract of carriage as a contract of lease ( transpor transportt of persons and goods by land, air and water) under Title V of the Civil Code; definition of contract of carriage of a common carrier; distinguish from private carrier; degree of diligence required; when liabilities liabil ities may attach to common carriers carriers and when may injured injured party’s claim may be reduced due to contributory negligence; definition of proximate cause; liability under the Warsaw Convention Convention;; liability under under COGSA; when may jettison jettison be resorted to ( review ;wha hatt is ma mari riti time me pr prot otes est; t;  review the kinds of   averages in maritim maritimee accidents) ;w presc pr escri ripti ption on pe peri riod od wi with thin in wh whic ich h to fil filee cla claim ims; s; in insta stanc nces es wh when en in insu surer rer ma may y be subrogated to the rights of the passenger and/or shipper; other than actual loss, what other damages may be awarded.

Q. What is the dual concept of jurisdiction under the Warsaw convention?  A. Jurisdictio est potestas de publico introducta cum necessitate juris dicendi. Jurisdiction is a power introduced for the public good, on account of the necessity of dispensing justice. Under Article 28(1) of the Warsaw Convention, the plaintiff may bring the action for damages before +0 | $ a g e

1. the court where the carrier is domiciled; 2. the court where the carrier has its principal place of business; 3. the court where the carrier has an establishment by which the contract has been made; or 4. the court of the place of destination.ch  In other words, where the matter is governed by the Warsaw Convention, jurisdiction takes on a  dual concept. Jurisdiction in the international sense must be established in accordance with Article 28(1) of the Warsaw Convention, following which the jurisdiction of a particular  court must be established pursuant to the applicable domestic law. Only after the question of  which court has jurisdiction jurisdiction is dete determine rmined d will the issue of venu venuee be taken up. (Lluil (Lluillier lier v.  British Airways, G.R. No. 171092, March March 15, 2010) Take note that the Warsaw Convention has been amended by the Montreal Agreement.

Q. What is the prescriptive period under the Carriage of Goods by Sea Act? A. The COGSA is the applicable law for all contracts for carriage of goods by sea to and from Philippine ports in foreign trade ; it is thus the law that the Court shall consider in the present case since the cargo was transported from Brazil to the Philippines. Under Section 3(6) of the COGSA, the carrier is discharge discharged d from liability for loss or damage to the cargo “unless the suit is brought within one year after delivery of the goods or the date when whe n the goo goods ds sho should uld hav havee bee been n del delive ivered red.” .” Jur Jurisp isprud rudenc ence, e, ho howev wever, er, re recog cogni nized zed the validity of an agreement between the carrier and the shipper/consignee extending the oneyear period to file a claim. ( Benjamin Cua [Cua Hian Tek] v. Wallem Philippines Shipping,  Inc. and Advance Advance Shipping Corporation, Corporation, G.R. No. 171337. July 11, 2012 )

Q. What is the liability of a common carrier under Carriage of Goods by Sea? A. It is to be noted that the Civil Code does not limit the liability of the common carrier to a fixed amount per package. In all matters not regulated by the Civil Code, the rights and obligations of common carriers are governed by the Code of Commerce and special laws. Thus, the COGSA supplements the Civil Code by establishing a provision limiting the carrier’s liability in the absence of a shipper’s declaration of a higher value in the bill of  lading. In the present case, the shipper did not declare a higher valuation of the goods to be shipped. In light of the foregoing, petitioner’s liability should be limited to $500 per steel drum. In this case, as there was only one drum lost, private respondent is entitled to receive only $500 as damages for the loss. In addition to said amount, as aptly held by the trial court, an interest rate of 6% per annum should also be imposed, plus 25% of the total sum as attorney’s fees.  (Unsworth Transportation International [Phils.], Inc. vs. Court of Appeals and Pioneer   Insurance and Surety Surety Corporation, Corporation, G.R. No. 166250, July 26, 2010). Q. What is the prescription for a claim under Carriage of Goods by Sea Act? A. Under Section 3 (6) of the Carriage of Goods by Sea Act, notice of loss or damages must be filed within three days of delivery. Admittedly, respondent did not comply with this provision. Under the same provision, however, a failure to file a notice of claim within three days will not bar recovery if a suit is nonetheless filed within one year from delivery of the goods or from the date when the goods should have been delivered. In Loadstar Shipping Co., Inc. v. Court of Appeals,  the Court ruled that a claim is not barred by pre prescr scrip ipti tion on as lo long ng as the one-yea one-yearr per perio iod d ha hass not lapsed. lapsed. Thus, in the words of  the ponente, Chief Justice Hilario G. Davide Jr.: “Inasmuch as neither the Civil Code nor the Code of Commerce states a specifi specificc prescriptive period on the matter matter,, the Carriage of Goods by Sea Act (COGSA) — which provides for a one-year period of limitation on claims for loss of, or damage to, cargoes sustained during transit — may be applied suppletorily to the + | $ a g e

case at bar.” Wallem Philippines Shipping, Inc. vs. S.R. Farms, Inc., G.R. No. 161849, July 9, 2010. 2010.

Q. What is a freight forwarder?  A. The term “freight forwarder” refers to a firm holding itself out to the general public (other than as a pipeline, rail, motor, or water carrier) to provide transportation of property for compensation compensat ion and, in the ordinary ordinary course of its business, business, (1) to assemble assemble and consolidate, consolidate, or to provide for assembling and consolidating, shipments, shipments, and to perform or provide for breakbulk and dist distribu ribution tion operations operations of the shi shipme pments; nts; (2) to assu assume me resp responsi onsibili bility ty for the transportation of goods from the place of receipt to the place of destination; and (3) to use for any part of the transportation a carrier subject to the federal law pertaining to common carri ca rriers ers.. ( Unsworth Transportation International (Phils.), Inc. vs. Court of Appeals and  Pioneer Insurance and Surety Corporation ,G.R. Corporation ,G.R. No. 166250, July July 26, 2010). Q. What is the liability of a Freight forwarder? A freight forwarder’s forwarder’s liability liability is limited limited to damages dam ages aris arising ing from its own negl negligen igence, ce, incl includin uding g negl negligen igence ce in choo choosing sing the carr carrier; ier; however, howe ver, where the for forward warder er cont contract ractss to deli deliver ver good goodss to thei theirr dest destinat ination ion inst instead ead of  merely arranging for their transportation, it becomes liable as a common carrier for loss or damage to goods. A freight forwarder assumes the responsibility of a carrier, which actually executes the transport, even though the forwarder does not carry the merchandise itself. Unsworth Unswo rth Tran Transpor sportatio tation n Inter Internatio national nal (Phil (Phils.), s.), Inc. vs. Cour Courtt of Appe Appeals als and Pioneer   Insurance and Surety Surety Corporation, Corporation, G.R. No. 166250, July 26, 2010. Q. Who may avail of the doctrine of Limited Liability? A. The shipowner may avail of the doctrine of limited liability. With respect to petitioners’ position that the Limited Liability Rule under the Code of  Commerce should be applied to them, the argument is misplaced. The said rule has been explai exp lained ned to be tha thatt of th thee re real al and hyp hypoth othec ecary ary doctrine doctrine in ma mari riti time me la law w whe where re th thee shipowner or ship agent’s liability is held as merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. In this jurisdiction, this rule is provided in three articles of the Code of Commerce. These are: Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all her equipment and the freight it may have earned during the voyage. Art. 590. The co-owners of the vessel shall be civilly liable in the proportion of their interests in the common fund for the results of the acts of the captain referred to in Art. 587. Each co-owner may exempt himself from this liability by the abandonment, before a notary, of the part of the vessel belonging to him. Art. 837. The civil liability incurred by shipowners in the case prescribed in this section, shall be understood as limited to the value of the vessel with all its appurtenances and freightage served during the voyage. Article 837 specifically applies to cases involving collision which is a necessary consequence of the right to abandon the vessel given to the shipowner or ship agent under the first provision – Article 587. Similarly, Article 590 is a reiteration of Article 587, only this time the situation is that the vessel is co-owned by several persons. Obviously, the forerunner of  the Limited Liability Rule under the Code of Commerce is Article 587. Now, the latter is quite clear on which indemnities may be confined or restricted to the value of the vessel pursuant to the said Rule, and these are the – “indemnities in favor of third persons which may arise from the conduct of the captain in the care of the goods which he loaded on the vessel.” Thus, what is contemplated is the liability to third persons who may have dealt with the shipowner, the agent or even the charterer in case of demise or bareboat charter. The only person who could avail of this is the shipowner, Concepcion. He is the very person whom the Limited Limited Liab Liabili ility ty Rule has been conceived conceived to prot protect ect.. The petitione petitioners rs cannot +2 | $ a g e

invo in voke ke this this as a de defe fens nse. e. ( Agustin P. Dela Torre v. The Hon. Court of Appeals, et  al./Philippine Trigon Shipyard Corporation, et al. v. Crisostomo G. Concepcion, et al., G.R.  No. 160088/G.R. No. 160565, July 13, 13, 2011) 2011 )

Q. What is the liability of a charterer and a sub-charterer? A. In the present case, the charterer and the sub-charterer through their respective contracts of agreement/charter parties, obtained the use and service of the entire LCT-Josephine. The vessel was likewise manned by the charterer and later by the sub-charterer’s sub-charterer’s people. With the complete and exclusive relinquishment of possession, command and navigation of the vessel, the charterer and later the sub-charterer became the vessel’s owner  pro hac vice. Now, and in the absence of any showing that the vessel or any part thereof was commercially offered for use to the public, the above agreements/charter parties are that of a private carriage where the rights of the contracting parties are primarily defined and governed by the stipulations in their contract. Although certain statutory rights and obligations of charter parties are found in the Code of  Commerce, these provisions as correctly pointed out by the RTC, are not applicable in the present case. Indeed, none of the provisions found in the Code of Commerce deals with the specific rights and obligations between the real shipowner and the charterer obtaining in this case. Necessarily, the Court looks to the New Civil Code to supply the deficiency. In any  Agustin P. case, all three petitioners are liable under Article 1170 of the New Civil Code. ( Agustin  Dela Torre v. The Hon. Court of Appeals, et al./Philippine Trigon Shipyard Corporation, et  al. v. Crisostomo G. Concepcion, et al., G.R. No. 160088/G.R. No. 160565, July 13, 2011) 2011 ) Q. What is the Package Limitation Liability and Prescriptive Period under COGSA?  Is there an exception to these rules? A. Under Sec. 4(5) of the COGSA, when the shipper fails to declare the value of the goods in the bill of lading, neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with the transportation of goods in an amount exceeding US$500 per package. Under Sec. 3(6) of the COGSA which provides, among others, that the notice in writing need not be given if the state of the goods has at the time of  their receipt been the subject of joint survey or inspection, and in any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one (1) year after delivery of the goods or the date when the goods should have been delivered, provided that if a notice of loss or damage, either apparent or concealed, is not given, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of the goods or the date when the goods should have been delivered. Philam Insurance Company, Inc. v. Heung-A Shipping Corporation and Wallem Philippines Shipping, Inc., G.R. No. 187701, July 23, 2014. Exception: Mere proof of the delivery of the goods in good order to a common carrier and of 

their arr their arriva ivall in bad order at the their ir des desti tinat natio ion n con consti stitut tutes es a pri prima ma fa facie cie ca case se of fa fault ult or negligence against the carrier. If no adequate explanation is given as to how the deterioration, loss, or destruction of the goods happened, the transporter shall be held responsible.  Eastern Shipping, Inc. v. BPI/MS Insurance Corporation and Mitsui Sumitomo Insurance Co., Ltd. G.R. 193986, January 15, 2014 VII. Intellectual Property Law What may protected under the Copyright Law: (original works and derivative works ; trademark rk limitations – doctrine of fair use and copyright infringement);  registration of tradema ( definition  definition of marks, collect collective ive marks, trade names; prior use of mark as requirem requirement; ent;  tests to determine determine confusing confusing or similar similar marks: dominancy test test and holistic holistic test) ; what may covered by a patent (first to file  rule and limitations of patent rights – prior user and use  by governm government); ent); what are the requisite requisitess of a Technology Transfer Arrangemen Arrangements ts   (ex. 3 | $ a g e

McDonalds USA has a Technology Transfer Agreement with all Franchise Holders of  McDonalds in the Philippines); in case of infringement, what are the available remedies and what damages may be claimed.

Q. Is a trade name protected even without registration? A. Und Under er th thee Par Paris is Con Conven venti tion, on, th thee Phi Phili lippi ppines nes is obl obliga igate ted d to as assur suree na nati tiona onals ls of th thee signatory-countries that they are afforded an effective protection against violation of their intellectual property rights in the Philippines in the same way that their own countries are obligated obligate d to accord similar protection to Philippi Philippine ne nationals. “Thus, under Philippine law, a trade name of a national of a State that is a party to the Paris Convention, whether or not the trade name forms part of a trademark, is protected “without the obligation of filing or registration.’” The present law on trademarks, Republic Act No. 8293, otherwise known as the Intellectual Property Code of the Philippines, as amended, has already dispensed with the requirement of  prior actual use at the time of registration.  (Cole De Cuisine Manille (Cordon Bleu of the Philippines), Inc. v. Renaud Cointreau & CIE and Le Condron Bleu Int’l., B.V.,  G.R. No. 185830, June 5, 2013). 2013 ). Q. What is a Mark for purposes of an infringement case?  A. A “mark” is any visible sign capable of distinguishing the goods (trademark) or services (service mark) of an enterprise and shall include a stamped or marked container of goods. In McDonald’s Corporation and McGeorge Food Industries, Inc. v. L.C. Big Mak Burger, Inc., this Court held: To establish trademark infringement, infringement, the following elements elements must be shown: (1) the validity of plaintiff’s mark; (2) the plaintiff’s ownership of the mark; and (3) the use of the mark or its colorable imitation imitation by the alleged infringer results results in “likelihood of confusion.” Of these, it is the element of likelihood of confusion that is the gravamen of trademark infringement. A mark is valid if it is distinctive and not barred from registratio registration. n. Once registered, registered, not only thee ma th mark rk’s ’s va vali lidi dity ty,, bu butt al also so th thee re regi gist stra rant nt’s ’s ow owne ners rshi hip p of th thee ma mark rk is pr prim imaa fa faci ciee presumed. (Ge Gemm mma a On Ong g a. a.k. k.a. a. Ma Ma.. Th Ther eres esa a Ge Gemm mma a Ca Cata tacu cuta tan n vs vs.. Pe Peop ople le of th thee Philippines, G.R. No. 169440,. November 23, 2011) 2011 ). Q. What are the elements of infringement? A. The essential element of infringement under R.A. No. 8293 is that the infringing mark is like li kely ly to ca caus usee co conf nfus usio ion. n. In de dete term rmin inin ing g si simi mila lari rity ty an and d li like keli liho hood od of co conf nfus usio ion, n,  jurisprudence  jurisprude nce has developed tests the Dominanc Dominancy y Test and the Holistic or Totalit Totality y Test. The Dominancy Test focuses on the similarity of the prevalent or dominant features of the competing trademarks that might cause confusion, mistake, and deception in the mind of the purchasing public. Duplication or imitation is not necessary; neither is it required that the mark sought to be registered suggests an effort to imitate. Given more consideration are the aural and visual impressions created by the marks on the buyers of goods, giving little weight to factors like prices, quality, sales outlets, and market segments. In contrast, the Holistic or Totality Test necessitates a consideration of the entirety of the marks ma rks as app appli lied ed to the pro produc ducts ts,, inc includ ludin ing g th thee la label belss and pa packa ckagin ging, g, in det deter ermi minin ning g confus con fusin ing g sim simil ilari arity. ty. The di disce scerni rning ng eye of th thee obs observ erver er mu must st foc focus us not onl only y on the predominant words, but also on the other features appearing on both labels so that the observer may draw conclusion on whether one is confusingly similar to the other. Relative to the question on confusion of marks and trade names, jurisprudence has noted two (2) types of confusio confusion, n, viz.: (1) confusion of goods (product confusion), confusion), where the ordinari ordinarily ly prudent purchaser would be induced to purchase one product in the belief that he was purchasing the other; and (2) confusion of business (source or origin confusion), where, although the goods of the parties are different, the product, the mark of which registration is applied for by one party, is such as might reasonably be assumed to originate with the 1 | $ a g e

registrant of an earlier product, and the public would then be deceived either into that belief  or into the belief that there is some connection between the two parties, though inexistent. Applying the Dominancy Test to the case at bar, this Court finds that the use of the stylized “S” by respondent in its Strong rubber shoes infringes on the mark already registered by petitionerr with the IPO. While it is undisputed that petitioner’s petitione petitioner’s stylized “S” is within an oval design, to this Court’s mind, the dominant feature of the trademark is the stylized “S,” as it is precisely precisel y the stylized “S” which catches catches the eye of the purchaser. purchaser. Thus, even if respondent respondent did not use an oval design, the mere fact that it used the same stylized “S”, the same being the dominant feature of petitioner’s trademark, already constitutes infringement under the Dominancy Test. ( Skechers, U.S.A., Inc. vs. Inter Pacific Industrial Trading Corp., et al., G.R. No. 164321, March 28, 2011. 2011.))

Q. Is selling counterfeit cigarettes a form of infringement? A. Yes. To establish trademark infringement, infringement, the following elements elements must be shown: (1) the validity of plaintiffs mark; (2) the plaintiff’s ownership of the mark; and (3) the use of the mark or its colorable imitation by the alleged infringer results in likelihood of confusion. Of these, it is the element of likelihood of confusion that is the gravamen of trademark infringement. A mark is valid if it is distinctive and not barred from registration. Once registered, not only the marks validity, but also the registrant’s ownership of the mark is  prima facie   presumed. The prosecution was able to establish that the trademark Marlboro was not only valid for being neither generic nor descriptive, it was also exclusively owned by PMPI, as evidenced by the certifi certificates cates of registration issued by the Intellectual Intellectual Property Office of the Department of Trade and Industry. Anent the element of confusion, both the RTC and the Court of  Appeals have correctly held that the counterfeit cigarettes seized from Gamma’s possession were intended to confuse and deceive the public as to the origin of the cigarettes intended to be sold, as they not only bore PMPIs mark, but they were also packaged almost exactly as PMPIs products. (Ong v. People, 2011) Q. What are the rights of patentees? A. It is clear from Section Section 37 of Republic Act No. 165 that the exclusive exclusive right of a patentee to make use and sell a patented product, article or process exists only during the term of the patent. In the instant case, Philippine Letters Patent No. 21116, which was the basis of  respondents in filing their complaint with the BLA-IPO, was issued on July 16, 1987. This fact was admitted by respondents themselves in their complaint. They also admitted that the validity of the said patent is until July 16, 2004, which is in conformity with Section 21 of  RA 165, providing that the term of a patent shall be seventeen (17) years from the date of  issuance thereof. Section 4, Rule 129 of the Rules of Court provides that an admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof and that the admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. In the present case, there is no dispute as to respondents’ admission that the term of their patent expired on July 16, 2004. Neither is there evidence to show that their admission was made through palpable mistake. Hence, contrary to the pronouncement of the CA, there is no longer any need to present evidence evid ence on the issue of expi expirat ration ion of resp responde ondents’ nts’ patent. patent. Phil Pharmawealth, Inc. vs. Pfizer, Inc and Pfizer (Phil.) Inc., G.R. No. 167715, November 17, 2010 . Q. Is an internationally well-known mark protected in this jurisdiction? A. Yes. There is no question then, and this Court so declares, that “Harvard” is a well-known namee and ma nam mark rk not only in the Uni United ted St State atess but als also o int intern ernati ationa onall lly, y, inc includ luding ing the Philippines. The mark “Harvard” is rated as one of the most famous marks in the world. It has been registered in at least 50 countries. It has been used and promoted extensively in numerous nume rous publ publicat ications ions worl worldwid dwide. e. It has est establi ablished shed a cons consider iderable able goodw goodwill ill worl worldwid dwidee since the founding of Harvard University more than 350 years ago. It is easily recognizable as the trade name and mark of Harvard University of Cambridge, Massachusetts, U.S.A., + | $ a g e

internationally known as one of the leading educational institutions in the world. As such, even eve n bef before ore Har Harvar vard d Uni Univer versit sity y app appli lied ed for re regis gistra trati tion on of th thee ma mark rk “Ha “Harva rvard rd”” in th thee Philippines, the mark was already protected under Article 6bis and Article 8 of the Paris Convention. Again, even without applying the Paris Convention, Harvard University can invoke Section 4(a) of R.A. No. 166 which prohibits the registration of a mark “which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs x x x.” ( Fred Fredco co Manuf Manufactu acturing ring Corp Corporat oration ion vs. Pres Presiden identt and Fello Fellows ws of Harv Harvard ard Colle College ge (Harvard University), G.R. No. 185917, June 1, 2011.) 2011. )

Q. EYIS is a domestic corporation engaged in the production, distribution and sale of air  compressorss and other industria  compressor industriall tools and equipmen equipment. t. On the other hand, Shen Dar is a Taiwan Tai wan-ba -based sed for foreig eign n man manufa ufactu cturer rer of air com compre presso ssors. rs. Fro From m 199 1997 7 to 200 2004, 4, EYI EYIS S imported air compressors from Shen Dar. Both of them sought to register the mark VESPA for use on air compressors, but it was Shen Dar who first filed the application on  June 1997. EYIS applicati application on was first granted on 2004, so Shen Dar sought for its  cancellation  cancellat ion on the ground of Sec 123 of the Intelle Intellectual ctual Property Code which provides  that the registration registration of a similar mark is prevented with the filing filing of an earlier application  for registrati registration. on. On the other hand, EYIS contended that Shen Dar is not entitled to  register the mark VESPA on its products because EYIS has been using it as the sole  assemblerr and distributor of air  assemble air compressors since since the 1990s. EYIS was able to prove prove such  fact. Who is is the true owner? owner?  A. EYIS is the true owner because it is the prior and continuous continuous user of the mark VESPA. Section 123.1 of the IPC should not be interpreted to mean that ownership is based upon  an earlier filing date. date. While RA 8293 removed the previous requirement requirement of proof of actual  use prior to the filing of an application for registration of a mark, proof of prior and   continuous use is necessary to establis establish h ownership of a mark. Ownership of a mark or  trade name may be acquired not necessaril necessarilyy by registrat registration ion but by adoption and use in  trade or commerce. commerce. As between actual use of a mark without registration, registration, and registration  of the mark without actual use thereof, the former prevails over the latter. Hence, EYIS is entitled entitle d to the registration registration of the mark in its name. (E.Y Industrial Sales v. Shen Dar, G.R. 184850, 2010, penned by J. Velasco) Q. Taiwan Kolin Corp sought to register the trademark “KOLIN” for the array of goods it  offers which are audio visual equipment equipment.. However, Kolin Electroni Electronics cs opposed the  application  applicati on on the ground that the trademark “KOLIN” is identica identical, l, if not confusingly  similar, with its registere registered d trademark “KOLIN” which also covers its products that fall  under the category as devices for controlli controlling ng the distribut distribution ion and use of electricity. electricity. Are the  products closely closely related? related?  A. No, the products are not related and the use of the trademark KOLIN on them would   not likely cause confusion. To confer exclusiv exclusivee use of a trademark, emphasis should be  on the similari similarity ty or relatednes relatednesss of the goods and/or service servicess involved and not on the  arbitrary classific classification ation or general general description description of their properties or characteristics. characteristics. Taiwan Kolin’s goods are categorized as audio visual equipments, while Kolin Electronics’  goods fall under devices for controlli controlling ng the distribut distribution ion and use of electri electricity. city. Thus, it is erroneous to assume that all electronic products are closely related and that the coverage  of one electroni electronicc product necessari necessarily ly precludes the registrati registration on of a similar mark over  another. Second, the ordinarily intelligent intelligent buyer is not likely to be confused. The distinct visual and   aural differences between the two trademark trademarkss “KOLIN”, although appear to be minimal minimal,,  are sufficient to distingui distinguish sh between one brand or another. The casual buyer is  predisposed to be more cautious, discrimi discriminating, nating, and would prefer to mull over his  | $ a g e

 purchase because the products involved are various kind of electroni electronicc products which are  relativelyy luxury items and not considered affordable.  relativel affordable. They are not ordinarily consumable consumable items such as soy sauce, ketsup or soap which are of minimal cost. Hence, confusion is less likely. (Taiwan Kolin v. Kolin Electronics, G.R. 209843, 2015, Velasco J.)  PLEASE NOTE OF THIS PORTION PORTION OF THE DECISION penned by Justice Justice Velasco on infringement: In resolving one of the pivotal issues in this case––whether or not the products of the parties involved are related––the doctrine in Mighty Corporation is authoritative. There, the Court held that the goods should be tested against several factors before arriving at a sound conclusion conclusion on the question of  relatedness. Among these are: (a) the business (and its location) to which the goods belong; (b) the class of product to which the goods belong (c) the product’s quality, quantity, or size, including the nature of the package, wrapper or container; (d) the nature and cost of the articles; (e) the descriptive properties, physical attributes or essential characteristics with reference to their form, composition, texture or quality; (f) the purpose of the goods; (g) whether the article is bought for immediate consumption, that is, day-to-day household items; (h) the fields of manufacture; (i) the conditions under which the article is usually purchased; and (j) the channels of trade through which the goods flow, how they are distributed, marketed, displayed and sold. (Taiwan Kolin Corporation, Ltd. v. Kolin Electronics Electronics Co., Inc. G.R. No. 209843 | March 25, 2015)

AMLA AMENDMENTS

Annex”A”

The first section of the amending law added the following to the list of covered persons under the AMLA. The amendment reads: “Section 3 (a). ‘Covered persons’, natural or juridical, refer to: (4) jewelry dealers in precious metals, who, as a business, trade in precious metals, for transactions in excess of One million pesos (P1,000,000.00); (5) jewelry dealers in precious stones, who, as a business, trade in precious stones, for transactions in excess of One million pesos (P1,000,000.00); (6) company service providers which, as a business, provide any of the following services services to third parties: (i) acting as a formation agent of juridical persons; (ii) acting as (or arranging for another person to act as) a director or corporate secretary of a company, a partner of a partnership, or a similar position in relation to other juridical persons; (iii) providing a registered office, business address or accommodation, correspondence or administrative address for a company, a partnership or any other legal person or arrangement; and (iv) acting as (or arranging for another person to act as) a nominee shareholder for another person; and (7) persons who provide any of the following services: (i) managing of client money, securities or other assets; (ii) management of bank, savings or securities accounts; (iii) organization of contributions for the creation, operation or management of companies; and (iv) creation, operation or management of juridical persons or arrangem arrangements, ents, and buying and selling business entities. - | $ a g e

Notwit Not withst hstand anding ing the for forego egoin ing, g, th thee te term rm ‘co ‘cover vered ed per person sons’ s’ sha shall ll ex exclu clude de law lawyer yerss and  accountants acting as independent legal professionals in relation to information concerning information ion would compromise client confidences or the their clients or where disclosure  of informat

attorney-client relationship: Provided, That these lawyers and accountants are authorized to pract pra ctice ice in the Phi Phili lippi ppine ness and sha shall ll co conti ntinue nue to be sub subje ject ct to th thee pro provi visio sions ns of the their ir respective codes of conduct and/or professional responsibility or any of its amendments.” The following are the new predicate crimes (from 14 to 34 ): Section 3(i). ‘Unlawful activity’ refers to any act or omission or series or combination thereof involving or having direct relation to the following: (13) Terrorism and conspiracy to commit terrorism as defined and penalized under Sections 3 and 4 of Republic Act No. 9372; (14) Financing of terrorism under Section 4 and offenses punishable under Sections 5, 6, 7 and 8 of Republic Act No. 10168, otherwise known as the Terrorism Financing Prevention and Suppression Act of 2012; (15) Bribery under Articles Articles 210, 211 and 211-A of the Revised Penal Code, as amended, and Corruption of Public Officers under Article 212 of the Revised Penal Code, as amended; (16) Frauds and Illegal Exactions and Transactions under Articles 213, 214, 215 and 216 of  the Revised Penal Code, as amended; (17) Malversation of Public Funds and Property under Articles 217 and 222 of the Revised Penal Code, as amended; (18) Forgeries and Counterfeiting under Articles 163, 166, 167, 168, 169 and 176 of the Revised Penal Code, as amended; (19) Violations of Sections 4 to 6 of Republic Act No. 9208, otherwise known as the AntiTrafficking Traffick ing in Persons Act of 2003; (20) Violations of Sections 78 to 79 of Chapter IV, of President Presidential ial Decree No. 705, otherwise known as the Revised Forestry Code of the Philippines, as amended; (21) Violations of Sections 86 to 106 of Chapter VI, of Republic Act No. 8550, otherwise known as the Philippine Fisheries Code of 1998; (22) Violations of Sections 101 to 107, and 110 of Republic Act No. 7942, otherwise known as the Philippine Mining Act of 1995; (23) Violations of Section 27(c), (e), (f), (g) and (i), of Republic Act No. 9147, otherwise known as the Wildlife Resources Conservation and Protection Act; (24) Violation of Section 7(b) of Republic Act No. 9072, otherwise known as the National Caves and Cave Resources Management Protection Act; (25) Violation of Republic Act No. 6539, otherwise known as the Anti-Carnapping Act of  2002, as amended; (26)) Vio (26 Viola lati tions ons of Sec Secti tions ons 1, 3 and 5 of Pr Presi esiden denti tial al De Decre creee No. 186 1866, 6, as am amend ended, ed, otherw oth erwis isee kno known wn as the dec decre reee Cod Codif ifyin ying g the Law Lawss on Il Illeg legal/ al/Unl Unlawf awful ul Pos Posses sessio sion, n, Manufacture, Dealing In, Acquisition or Disposition of Firearms, Ammunition or Explosives; (27) Violation of Presidential Decree No. 1612, otherwise known as the Anti-Fencing Law; (28) Violation of Section 6 of Republic Act No. 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995, as amended by Republic Act No. 10022; (29) Violation of Republic Act No. 8293, otherwise known as the Intellec Intellectual tual Property Code of the Philippines; (30) Violation of Section 4 of Republic Act No. 9995, otherwise known as the Anti-Photo and Video Voyeurism Act of 2009; (31) Violation of Section 4 of Republic Act No. 9775, otherwise known as the Anti-Child Pornography Act of 2009; (32) Violations of Sections 5, 7, 8, 9, 10(c), (d) and (e), 11, 12 and 14 of Republic Act No. 7610, otherwise known as the Special Protection of Children Against Abuse, Exploitation and Discrimination; (33) Fraudulent Fraudulent prac practice ticess and othe otherr viol violati ations ons unde underr Repu Republic blic Act No. 8799 8799,, othe otherwis rwisee known as the Securities Regulation Code of 2000; and . | $ a g e

(34) Felonies or offenses of a similar nature that are punishable under the penal laws of other countries.”  Republic Act No. 10365 also amended the provisions of the AMLA on the ways by which  money laundering may be committ committed ed as well as the manner of its prosecution prosecution.. Firstly,  money laundering laundering may now now be committed committed through the following: following:

“Section 4. Money Laundering Offense. – Money laundering is committed by any person who, knowing that any monetary instrument instrument or property represents, involves, or relates to the proceeds of any unlawful activity: (a) transacts said monetary instrument or property; (b) con conver verts, ts, tr trans ansfe fers, rs, dis dispos poses es of, mov moves, es, acq acquir uires, es, pos posses sesse sess or use usess sai said d mo monet netary ary instrument or property; (c) con conce ceals als or di disgu sguise isess th thee tr true ue na natur ture, e, sou source rce,, loc locat ation ion,, di dispo sposit sition ion,, mov movem ement ent or ownership of or rights with respect to said monetary instrument or property; (d) attempts or conspires to commit money laundering offenses referred to in paragraphs (a), (b) or (c); (e) aids, abets, assists in or counsels the commission of the money laundering offenses referred to in paragraphs (a), (b) or (c) above; and (f) performs or fails to perform any act as a result of which he facilitates the offense of  money laundering referred to in paragraphs (a), (b) or (c) above. Money laundering is also committed by any covered person who, knowing that a covered or susp su spic icio ious us tr tran ansa sact ctio ion n is re requ quir ired ed un unde derr th this is Ac Actt to be re repo port rted ed to th thee An Anti ti-M -Mon oney ey Laundering Launderin g Council (AMLC), fails to do so.” Parts (b), (c), (d), and (e) are new additions to the law. Hence, knowingly converting or concea con ceali ling ng a mo monet netary ary ins instr trum ument ent,, in incl cludi uding ng an att attem empt pt the thereo reof, f, and as assis sisti ting ng in the commission commiss ion of money-laun money-laundering dering now constitute the crime. Prior to the amendme amendment, nt, only the act of transacting the monetary instrument or property is made criminal in its attempted stage. Seco Se cond ndly ly,, th thee pr pros osec ecut utio ion n fo forr th thee cr crim imee of mo mone neyy-la laun unde deri ring ng ma may y no now w pr proc ocee eed d simultaneously with the case relating to the unlawful activity. The amending law provided thatt bot tha both h cas cases es are now indepen independen dentt of eac each h oth other. er. Pri Prior or to th thee am amend endme ment nt,, th thee cas casee involving the unlawful activity was given precedence. The Anti-Money Laundering Laundering Council (“AMLC”) was also a given new function under the  amending law. law. Section 7 now now reads:  “Section 7. Creation of Anti-Money Laundering Council (AMLC). – … The AMLC shall act unanimously in the discharge of its functions as defined hereunder: (12) to require the Land Registration Authority and all its Registries of Deeds to submit to the AMLC, reports on all real estate transactions involving an amount in excess of Five hundred thousand pesos (P500,000.00) within fifteen (15) days from the date of registration of the transaction, in a form to be prescribed by the AMLC. The AMLC may also require the Land Registration Authority and all its Registries of Deeds to submit copies of relevant documents of all real estate transactions.” In addition to this, the power of the AMLC to apply for a freeze order before the Court of  Appeals now includes monetary instruments or properties alleged to be laundered as well as instrumentalities used in or intended for use in any unlawful activity. Prior to the amendment, the AMLC may obtain a freeze order only for monetary instruments or properties alleged to be the proceeds of an unlawful activity. More on the freeze order, R.A. No. 10365 also extended its maximum effectiveness effectiveness period to six months provided that if no case is filed against the person whose account has been frozen within the period determined by the court, the freeze order will be automatically lifted. Note that the freeze order was previously effective only for 20 days unless extended by the court. This new rule, however, shall not apply to cases already pending before the courts. / | $ a g e

Section 7

The pro provis visio ions ns of the am amen endin ding g la law w on pre preven ventio tion n of mo money ney la laund underi ering ng in inclu clude de the following amendments: (1) Covered persons persons must report covered and suspicious suspicious transactions transactions to the AMLA within five working days from the occurrence thereof, unless the AMLC prescribes a different period not exceeding 15 working days. Before, the maximum period provided by law was 10 days. (2) Lawyers and accountants accountants acting as independent legal professionals professionals are exempt from the reporting requirement if the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege. This is a new provision. (3)) Co (3 Cove vere red d pe pers rson onss as we well ll as th thei eirr of offi fice cers rs an and d em empl ploy oyer erss ar aree pr proh ohib ibit ited ed fr from om communicating to any person or entity including the media the transactions about to be reported to the AMLC. Prior to the amendment, the confidentiality clause applied only to transactions already reported to the AMLC. With the new amendments, other monetary instruments or properties having an equivalent  value to that of the monetary instrument or property found to be related in any way to unlawful activity or a money laundering offense may now be forfeited as an alternative. This aris ar ises es wh when en th thee la latt tter er,, wi with th du duee di dilig ligen ence ce,, (1 (1)) ca cann nnot ot be lo loca cate ted, d, or (2 (2)) it ha hass be been en substantially altered, destroyed, diminished in value or otherwise rendered worthless by any act or omission, or (3) it has been concealed , removed, converted or otherwise transferred, or (4) it is loc locate ated d out outsid sidee the Philippi Philippines nes or has been placed placed or bro brough ughtt out outsid sidee the  jurisdiction of the court, or (5) it has been commingled with other monetary instrument or   property belonging to either the offender himself or a third person or entity, thereby rendering the same difficult to identify or be segregated for purposes of forfeiture.  If no other monetary instrument or property may be located, the court can order the convicted offender to pay an amount equal to the value of the monetary instrument or   property instead. The AMLC may promulgate rules on fines and penalties taking into

consideration the attendant circumstances, such as the nature and gravity of the violation or irregularity. While the amending law did not increase the penalties already provided for the crime of   money laundering, it neverthel nevertheless ess introduce introduced d penal sanctions for covered persons, its  directors, officers and personnel who knowingly participat participated ed in the commis commission sion of the  crime. Administrative Administrative sanctions are now also imposable upon persons responsible for the violation of the AMLA. Section 11 The last provision of R.A. No. 10365 added two new provisions to the AMLA: “Section “Sec tion.. 20. NonNon-int interve erventio ntion n in the Bureau of Inte Internal rnal Revenue (BIR) Oper Operatio ations. ns. – Nothing contained in this Act nor in related antecedent laws or existing agreements shall be construed to allow the AMLC to participate in any manner in the operations of the BIR.” Section. 21. The authority to inquire into or examine the main account and the related accounts shall comply with the requirements of Article III, Sections 2 and 3 of the 1987 Constitu Cons titution tion,, whic which h are here hereby by inco incorpor rporate ated d by refe referenc rence. e. Like Likewise wise,, the cons constit titutio utional nal injunc inj uncti tion on aga agains instt ex pos postt fac facto to la laws ws and bi bill llss of att attai ainde nderr sha shall ll be res respec pecte ted d in the implementation of this Act.”

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