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COMMERCIAL LAW

NEGOTIABLE INSTRUMENTS LAW

ELECTRONIC MESSAGE NOT NEGOTIABLE INSTRUMENT


Lack the feature of negotiability which is the ability to be transferred. (HSBC Ltd., Phil vs. CIR, G.R. No. 166018,
June 4, 2014)

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 thereto, can be acquired through or under such signature, unless the party against
whom it is sought to enforce such right is precluded from setting up the forgery or want of authority. (Section
23, NIL)

MATERIAL ALTERATION
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.

DRAWEE IS LIABLE ONLY FOR THE ORIGINAL TENOR OF ACCEPTANCE IF THE NEGOTIABLE INSTRUMENT IS
ALTERED BEFORE THE ACCEPTANCE.
In consonance of Sec. 124 of NIL which states that a material alteration avoids an instrument except as against
an assenting party and subsequent indorsers, but a holder in due course may enforce payment.

HOLDER IN DUE COURSE


1. Complete and Regular upon its face.
2. He became a holder of it before it was overdue and without notice that it has been previously
dishonored, it such was the fact.
3. He took it in good faith and for value.
4. At the time it was negotiated to him, he had no notice of any infirmity in the instrument or defect in the
title of the person negotiating it.

Holder in Due Course is free from personal but NOT from real defenses.

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. Since BA Finance is a holder in due course, petitioners cannot raise the defense of non-delivery of the
object and nullity of the sale against the corporation. The NIL considers every negotiable instrument prima facie
to have been issued for a valuable consideration. (Spouses Violago vs. BA Finance Corporation, G.R. No.
158262, July 21, 2008, decided by Justice Velasco Jr.)

1
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GENERAL RULE, a Holder Not in Due Course is subject to personal and real defenses.

EXCEPTION is when a holder who is not a holder a due course but derived his title from a holder in due course.

REAL DEFENSES PERSONAL DEFENSES


Minority Failure or absence of consideration
Forgery Illegal consideration
Non-delivery of Incomplete Instrument Non-delivery of complete instrument
Material Alteration Conditional delivery of complete instrument
Ultra Vires acts of a Corporation Fraud in inducement
Fraud in Factum Filling up blank not within authority
Illegality Duress or intimidation
Vicious force of violence Filling up blank beyond reasonable time
Want of authority Transfer in breach of faith
Prescription Mistake
Discharge in Insolvency Insertion of wrong date
Ante-dating or post-dating for illegal or fraudulent
purpose

FICTITIOUS PAYEE RULE


If the payee is not the intended recipient of the proceeds of the check, the payee is considered a fictitious payee
and the check is a bearer instrument. In a fictitious payee situation the drawee bank is absolved from the liability
and the drawer bears the loss. (PNB vs. Rodriguez et al., G.R. No. 170325, September 26, 2008)

COMMERCIAL BAD FAITH RULE An exception to fictitious payee rule

Allonge is a separate piece of paper, attached to the instrument, wherein an indorsement is made.

INSURANCE LAW

MATERIAL CONCEALMENT
Whether the insurer would have agreed to issue the policy had it known of the facts concealed or impose
additional terms or require higher premium. It is determined at any time before the policy becomes effective.

Good faith is not a defense in concealment because Sec.27 of the Insurance Code expressly provides that the
concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance.

INSURABLE INTEREST OF MORTGAGOR AND MORTGAGEE


Both the mortgagor and mortgagee have each separate and distinct insurable interest in the mortgaged
property and that they may take out separate policies with the same or different insurance companies.
Consequently, insurance taken by one on his own name only does not inure to the benefit of the other. Thus, a
mortgagor has an insurable interest equal to the value of the mortgaged property and a mortgagee, only to the
extent of the debt Secured by the mortgage.

INACTION OF INSURER ON INSURANCE APPLICATION AS IMPLIED APPROVAL


It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in
favor of the insured and strictly against the insurer in order to safeguard the latters interest.

The seemingly conflicting provisions must be harmonized to mean that upon a partys purchase of a memorial
lot on installment from Eternal, an insurance contract covering the lot purchaser is created and the same is
effective, valid, and binding until terminated by Philamlife by disapproving the insurance application. The second
sentence of Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory
condition which would lead to the cessation of the insurance contract. Moreover, the mere inaction of the
insurer on the insurance application must not work to prejudice the insured; it cannot be interpreted as a

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termination of the insurance contract. The termination of the insurance contract by the insurer must be explicit
and unambiguous. (Eternal Gardens vs. Philam Gen Life Insurance, G.R. No. 166245, April 9, 2008, J. Velasco)

INCONTESTABILITY CLAUSE
1. The insurance is a life insurance policy payable on the death of the insured.
2. It has been in force during the lifetime of the insured for at least two years from its date of issue or of its
last reinstatement. The period of two years may be shortened but cannot be extended by stipulation.
(Florendo vs. Philam Plans, G.R. No. 186983, February 22, 2012)

However, in the recent case of Sun Life of Canada vs. Ma. Daisy Sibya, et. al., G.R. no. 211212, June 8, 2016, if
the insured dies within the two year contestability period, the insurer is bound to make good its obligation
under the policy, regardless of the presence or lack of concealment or misrepresentation.

DEFENSES NOT BARRED BY INCONTESTABILITY CLAUSE:


1. The person taking the insurance lack insurable interest;
2. The cause of the death of the insured is an excepted risk;
3. Premiums have not been paid;
4. Fraud is of a particularly vicious type;
5. Beneficiary failed to furnish proof of death;
6. The action was not brought within the time specified.

INSURANCE PREMIUM
A policy issued at a time when no premium payment has yet been made is not valid and binding. Any agreement
to the contrary is void.

EXCEPTIONS:
1. In case of life and industrial life, whenever the grace period provision applies;
2. 90 day extension covered by broker or agency agreements with licensed intermediaries;
3. Estoppel;
4. Agreement to grant payment of premium in installment basis.

DEATH OF INSURED THROUGH SUICIDE IN LIFE INSURANCE


The insurer is still liable in case of suicide by insured if:
1. Suicide was committed after the policy has been in force for a period of two years from date of its issue
or last reinstatement, unless the policy provides shorter period;
2. Suicide was committed in a state of insanity.

THEFT CLAUSE
The taking of a vehicle by another person without the permission or authority from the owner thereof is
sufficient to place it within the ambit of the word theft as contemplated in the policy, and is therefore,
compensable.

AUTHORIZED DRIVER CLAUSE


The insurer indemnifies the insured owner against loss or damage to the car but limits the use of the insured
vehicle to the insured himself or any person who drives on his order of with his permission.

Where the motor vehicle is unlawfully and wrongfully taken without the owners consent or knowledge, such
taking constitutes theft, and therefore, it the theft clause and not authorized drivers clause that should apply.
The fact that the driver using the car before it was carnapped had an expired license is of no moment. (Perla
Compania de Seguros vs. CA)

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Rommel Casipe, Monica Evangelista, Kevin Foronda, Cheska Montes, Carol Ann Morales, Rowena Gallego,
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DOUBLE INSURANCE REINSURANCE


Involves the same interest Involves different interests
Insurer remains in such capacity Insurer becomes an insured in relation to the reinsurer
Insured in the first contract is a party in interest in the Original insured has no interest in reinsurance contract
second contract
Insured has to give consent Consent of original insured is not necessary
Subject of insurance is property Subject of insurance is the original insurers risk

SUBROGATION
A normal incident of indemnity property insurance as legal effect of payment, it inures to the insurer without
any formal assignment or any express stipulation to that effect in policy.
There is no right of subrogation:
1. The insured by his own act releases the wrongdoer/third person liable for loss.
2. Insurer pays the insured for a loss or risk not covered by the policy.
3. Life insurance.
4. Recovery of loss in excess of insurance coverage.

ALTERATION IN FIRE INSURANCE


An alteration in the use or condition of a thing insured from that to which it is limited by the policy made
without the consent of the insurer, by means within the control of the insured, and increasing the risks, entitled
the insurer to rescind a contract of fire insurance.

MARINE INSURANCE
PERILS OF SEA PERILS OF THE SHIP
Casualties due to unusual violence or extraordinary Loss which in the ordinary course of events, results:
causes connected with navigation. Losses that arise 1. From ordinary, natural and inevitable action of
from some overwhelming power which cannot be the sea.
guarded against by ordinary execution of human skill 2. Ordinary wear and tear
or prudence. 3. Negligent failure of the ships owner to
provide proper equipment to convey the cargo
under ordinary condition.

TRANSPORTATION LAW

TESTS OF COMMON CARRIER:


1. Must be engaged in the business of carrying goods for others as a public employment, and must hold
himself out as ready to engage in the transportation of goods or person generally as a business;
2. Must undertake to carry goods of the kind to which his business is confined;
3. Must undertake to carry by the method by which his business is conducted and over his established
roads;
4. Transportation must be for hire.

Travel agency is not a common carrier. It is not an entity engaged in the business of transporting either
passengers or goods and is therefore neither a private nor a common carrier. Its covenant with its customers is
simply to make travel arrangements on their behalf.

A stipulation limiting the diligence required of a common carrier in transporting goods is valid, provided:
1. In writing and signed by the shipper or owner
2. Supported by a valuable consideration
3. Reasonable

The rule also allows stipulation limiting the amount of liability of a common carrier in transporting goods.

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SALVAGE TOWAGE
A person preserves the goods or the ship which the Vessel is engaged to tow another vessel from one port
owner either abandoned in distress at sea or is unable to another for consideration.
to protect and secure.

The crew does not have any interest or rights with The crew is entitled to salvage and can look to the
remuneration pursuant to the contract. Only the salvage vessel for its share.
owner is entitled to remuneration.

REQUISITES OF A VALID SALVAGE CLAIM


1. Marine Peril;
2. Service voluntarily rendered when not required as an existing duty or from a special contract;
3. Success, in whole or in part, or that the service contributed to such success.

THREE FOLD CHARACTER OF A BILL OF LADING:


1. Receipt
2. Contract
3. Document of Title

ORDINARY LOAN LOAN ON BOTTOMRY AND RESPONDENTIA


Usury Loan is applicable Usury Law inapplicable
Right to recover from debtor is not extinguished if Right to recover is extinguished if the thing put up as
thing put up as security is lost or destroyed. security is lost or destroyed.

LOAN ON BOTTOMRY LOAN ON RESPONDENTIA


A contract in the nature of mortgage, the owner of the Made on the goods laden on board the ship and which
ship borrows money for the use, equipment and repair are to be sold or exchanged in the course of the
of the vessel and for a definite term and pledges the voyage.
ship as security for its repayment.
It being stipulated that if the ship were lost in the The borrowers personal responsibility being deemed
course of specific voyage or during the limited time, the principal security for the performance of the
the lender shall also lose his money. contract.

HYPOTHECARY RULE
The liability of the carrier in connection with losses related to maritime contracts is confined to the vessel, which
is hypothecated for such obligations or which stands as the guaranty for their settlement. (Aboitiz Shipping
Corp. v. General Accident Fire and Life Assurance Corp)

LIMITED LIABILITY RULE


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

EXCEPTIONS:
1. Injury or death of passenger is due either to the fault of the ship owner or to the concurring negligence
of the ship owner and the captain;
2. Vessel is insured
3. Workmens compensation case

Only the ship owner can invoke limited liability rule. The charterer cannot invoke the limited liability as a
defense especially against the ship owner.

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Rommel Casipe, Monica Evangelista, Kevin Foronda, Cheska Montes, Carol Ann Morales, Rowena Gallego,
Joshua Polido, Sanao Shiermaine, Joylyn Tria
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CARRIAGE OF GOODS BY THE SEA ACT


It governs all contracts of carriage of goods by sea between or to and from the Philippine ports. COGSA only
applies when the Civil Code has no provision dealing with the matter, or when the parties make COGSA
applicable.

Only applicable in case of non-delivery or damage and not to misdelivery or conversion of goods.

DOCTRINE OF INSCRUTABLE FAULT


That where the two vessels collided and there is no proof as to who caused the accident or who between the
two is at fault, the court should rule that neither party can maintain any action for compensation.

WARSAW CONVENTION
Applies to all international carriage of persons, luggage or goods performed by aircraft for reward. It applies
equally to gratuitous carriage by aircraft performed by an air transport undertaking.

The claim for damages must be brought within 2 years reckoned from the date of arrival at the destination or
from the date on which the aircraft ought to have arrived, or from the date on which the carriage stopped. This
period is inapplicable if delaying tactics were employed by the airline itself to deny passengers time to file his
complaint. (United Airlines vs. Uy, G.R. No. 127768, November 19, 1999)

Under Section 3(6), COGSA, a failure to file a notice of claim within three (3) days will not bar recovery if it is
nonetheless filed within one year. In the Warsaw Convention, as well as the Code of Commerce, the notice
requirement is a condition precedent for the right of action against the ship owner to accrue.

CORPORATION CODE

DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY


The doctrine of corporate veil applies only in three basic areas:
1. Defeat Public Convenience
2. Fraud Cases
3. Alter Ego Cases

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 perpetrate
fraud or to carry out similar or inequitable 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)

A corporation not impleaded in a suit cannot be subject to the courts process of piercing the veil of its
corporate fiction. In that situation, the court has not acquired jurisdiction over the corporation and, hence, any
proceedings taken against that corporation and its property would infringe on its right to due process.

The implication of the above comment is two-fold: (1) the court must first acquire jurisdiction over the
corporation or corporations involved before its or their separate personalities are disregarded; and (2) the
doctrine of piercing the veil of corporate entity can only be raised during a full-blown trial over a cause of action
duly commenced involving parties duly brought under the authority of the court by way of service of summons
or what passes as such service. (Kukan Intl Corporation vs. Reyes et al., G.R. No. 182729, September 29, 2010,
decided by Justice Velasco Jr.)

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Comm Tips: Bernadeth Yabon, Sharel Abad, Raponcel Abueg, Dave Bagsik, Nicole Bagtas, Jane Hanika Basilio,
Rommel Casipe, Monica Evangelista, Kevin Foronda, Cheska Montes, Carol Ann Morales, Rowena Gallego,
Joshua Polido, Sanao Shiermaine, Joylyn Tria
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THREE PRONGED TEST TO DETERMINE APPLICATION OF ALTER EGO THEORY:


1. Control Test requires that the subsidiary be completely under the control and domination of the
parent.
2. Fraud Test that the parent corporations conduct in using the subsidiary corporation be unjust,
fraudulent or wrongful
3. Harm Test that the defendants 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. (PNB vs. Hydro Resources Contractors Corp., 2010)

Where two banks foreclosed mortgages on certain properties of mining company and resumed business

MORAL DAMAGES
As a GENERAL RULE, a corporation is not entitled to moral damages because it has no feelings, no emotions, and
no senses. (ABS-CBN Broadcasting Corp. vs. CA, G.R. No. 128690, January 21, 1999)

EXCEPTIONS are:
1. Corporation may recover moral damages under Article 2219 in cases of libel, slander or any other form
of defamation without qualification whether the injured party is a natural or juridical person. (Filipinas
Broadcasting vs. AMEC BCCM, G.R. No. 141994, January 17, 2005)
2. Corporations reputation is debased. (Manila Electric Company vs. T.E.A.M Electronic Corporation et.al,
G.R. No. 131723, January 17, 2005)

TESTS IN DETERMINING NATIONALITY OF CORPORATIONS


1. Place of Incorporation Test corporation considered a national of the country where it was
incorporated
2. Control Test
3. Grandfather Rule

Hence, it is only when the Control Test is first complied with that the Grandfather Rule may be applied.
Put in another manner, if the subject corporations Filipino equity falls below the threshold 60%, the
corporation is immediately considered foreign-owned, in which case, the need to resort to the
Grandfather Rule disappears.

The first part of paragraph 7, DOJ Opinion No. 020, stating shares belonging to corporations or
partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of
Philippine nationality, pertains to the control test or the liberal rule. On the other hand, the second
part of the DOJ Opinion which provides, if the percentage of the Filipino ownership in the corporation
or partnership is less than 60%, only the number of shares corresponding to such percentage shall be
counted as Philippine nationality, pertains to the stricter, more stringent grandfather rule. The
grandfather rule or the second part applies only when the 60-40 Filipino-foreign equity ownership is in
doubt (i.e., in cases where the joint venture corporation with Filipino and foreign stockholders with less
than 60% Filipino stockholdings [or 59%] invests in other joint venture corporation which is either 60-
40% Filipino-alien or the 59% less Filipino). (Narra Nickel Mining et. al vs. Redmont Consolidated Mines
Corp., G.R. No. 195580, April 21, 2014 as decided by Justice Velasco Jr.,)

The term capital as used in Sec. 2 Art. XII of the Constitution does NOT refer merely to common
shares only
The Constitutional requirement of atleast 60% Filipino ownership applies not only to voting control of
the corporation, but also to full beneficial ownership of the corporation. Therefore, it is imperative that
such requirement apply UNIFORMLY and ACROSS THE BOARD to ALL CLASSES of shares, regardless of
nomenclature and category, comprising the capital of a corporation. (Heirs of Gamboa vs. Teves, G.R.
No. 176579, October 9, 2012, Motion for Reconsideration)

4. Domiciliary Test

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TRUST FUND DOCTRINE


The capital stock, property, and other assets of a corporation are regarded as equity in trust for the payment of
corporate creditors which are preferred over the stockholders in the distribution of corporate assets. The
distribution of corporate assets and property cannot be made to depend on the whims and caprices of the
stockholders, officers, or directors of the corporation unless the indispensable conditions and procedures for the
protection of corporate creditors are followed. (Yamamoto vs. Nishino, G.R. No. 150283, April 16, 2008)

BUSINESS JUDGMENT RULE OR MANAGEMENT PREROGATIVE RULE


Contracts intra vires entered into by the board of directors are binding upon the corporation and courts will not
interfere unless such contracts are so unconscionable and oppressive as to amount to wanton destruction to the
rights of the minority. (Ong Yong vs. Tiu, G.R. No. 1444476, April 8, 2003)

ULTRA VIRES ILLEGAL ACT


Not unlawful, merely outside the power of Against law, morals, public policy or public order
corporation.
May be ratified, merely voidable. Void, cannot be ratified
Contracts entered into may bind the parties. Cannot bind the parties

CRAM DOWN RULE


A rehabilitation plan may be approved even over the opposition of the creditors holding a majority of the
corporations total liabilities if there is a showing that rehabilitation is feasible and the opposition of the
creditors is manifestly unreasonable. This rule is necessary to curb the majority creditors natural tendency to
dictate their own terms and conditions to the rehabilitation, absent due regard to the greater long-term benefit
of all stakeholders. Otherwise stated, it forces the creditors to accept the terms and conditions of the
rehabilitation plan, preferring long-term viability over immediate but incomplete recovery. (BPI vs. Sarabia
Manor Hotel, G.R. no. 175844, July 29, 2013)

SELF-DEALING DIRECTORS
Those who personally contract with the corporation in which they are directors. It is discouraged because there
can be no real bargaining where the same is acting on both sides of the trade.

GENERAL RULE: A contract of the corporation with one or more of its directors or trustees or officers is voidable,
at the option of such corporation.

EXCEPTIONS:
1. The presence of such director or trustee in the board meeting in which the contract was approved was
not necessary to constitute a quorum for such meeting;
2. The vote of such director or trustee was not necessary for the approval of the contract;
3. The contract is fair and reasonable under the circumstances;
4. In case of an officer, the contract has been previously authorized by the board of directors

INTERLOCKING DIRECTORS
They are those who sit in the boards of two or more corporations that transact business with one another or
contract with each other whether on isolated or regular basis not only because one has big investments therein
but also because his services may have been proven to be valuable, competent and efficient.

ASSET SALES STOCK SALES


Corporate entity sells all or substantially all of its Individual or corporate shareholders sell a controlling
assets to another entity. block of stock to a new or existing shareholder.
The seller in good faith is authorized to dismiss the Notwithstanding the stock sale, the corporation
affected employees but liable for the payment of their continues to be the employer of its people.
claims.
(SME Bank vs. Gaspar, G.R. No. 186641, October 8, 2013)

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Comm Tips: Bernadeth Yabon, Sharel Abad, Raponcel Abueg, Dave Bagsik, Nicole Bagtas, Jane Hanika Basilio,
Rommel Casipe, Monica Evangelista, Kevin Foronda, Cheska Montes, Carol Ann Morales, Rowena Gallego,
Joshua Polido, Sanao Shiermaine, Joylyn Tria
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DOCTRINE OF APPARENT AUTHORITY


If a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent
authority, it holds him out to the public as possessing the power to do those acts; and thus, the corporation will,
as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agents
authority.

REMEDIAL RIGHTS
1. Individual Suit
A suit instituted by a shareholder for his own behalf against the corporation. This is an action filed in
court seeking redress of a wrong which is a direct violation of his rights as a stockholder, as when he is
denied the right to inspect corporate books and records, or he is denied the right to vote, or he is
deprived of his share in the dividends declared by the corporation.

2. Representative Suit
A suit filed by a shareholder for his own behalf and in behalf likewise of other stockholders similarly
situated and within a common cause against the corporation.

3. Derivate Suit
A suit filed in behalf of the corporation by its shareholders (not creditors whose remedies are merely
subsidiary such as accion subrogatoria and accion pauliana) upon a cause of action belonging to the
corporation, but not duly pursued by it, against any person or against the directors, officers and/or
controlling shareholders of the corporation.

REQUISITES OF A DERIVATIVE SUIT:


1. He was a stockholder or member at the time the acts or transaction subject of the action occurred and
at the time the action was filed;
2. He exerted all reasonable efforts to exhaust all remedies available and alleges the same with
particularity in the complaint.
3. No appraisal rights are available for act/s complained
4. Suit is not a nuisance of harassment suit. (Section 1, Rule 8, Interim Rules of Procedure Governing Intra-
corporate Controversies)

TEST TO DETERMINE INTRA-CORPORATE CONTROVERSY:


1. Relationship test
2. Controversy test the dispute must be rooted in the existence of an intra-corporate relationship and
must refer to the enforcement of the parties correlative rights and obligations.

FOREIGN CORPORATION
Doing Business in the Philippines:
1. Continuity Test doing business implies continuity of commercial dealings or exercise of some functions
normally incident to and in progressive prosecution of, the purpose and object of its organization
2. Substance Test it is continuing the body or substance of the enterprise of business for which it was
organized.

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Rommel Casipe, Monica Evangelista, Kevin Foronda, Cheska Montes, Carol Ann Morales, Rowena Gallego,
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DOING BUSINESS UNDER THE FOREIGN


NOT DOING BUSINESS:
INVESTMENTS ACT OF 1991
1. Soliciting orders, service contracts, opening 1. mere investment as a shareholder by a foreign
offices, whether called liaison offices or entity in domestic corporations and/or the
branches; exercise of rights as such investor
2. Appointing representatives or distributors 2. having a nominee director to represent the
domiciled in the Philippines or who in any foreign entitees interests
calendar year stay in the country for a period 3. appointing a representative or distributor
or periods totaling one hundred eighty (180) domiciled in the Philippines which transacts
days or more; business in its own name and for its own
3. Participating in the management, supervision account.
or control of any domestic business, firm,
entity or corporation in the Philippines; or
4. Any other act or acts that imply a continuity of
commercial dealings or arrangements, and
contemplate to that extent the performance
of acts or works, or the exercise of some of the
functions normally incident to, and in
progressive prosecution of, commercial gain or
of the purpose or object of the business
organization.

WHO IS A PHILIPPINE NATIONAL


1. A citizen of the Philippines;
2. Of a domestic partnership;
3. Or a corporation organized under the laws of the Philippines of which at least 60% of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines
4. Or a corporation organized abroad and registered as doing business on the Philippines under the
Corporation Code of which 100% of the capital stock outstanding and entitled to vote is wholly owned
by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits,
where the trustee is a Philippine national and at least 60% of the fund will accrue to the benefit of
Philippine nationals;

Provided, that where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least 60% of the capital stock outstanding and entitled to vote of
each of both corporations must be owned and held by citizens of the Philippines and at least 60% of the
members of the Directors of each of both corporations must be citizens of the Philippines, in order that the
corporation.

TWO KINDS OF INSOLVENCY: Actual and Technical Insolvency


A corporation may have considerable assets but if it foresees the impossibility of meeting its obligations for
more than one year, it is considered as technically insolvent. Thus, at the first instance, a corporation may file a
petition for rehabilitationa remedy provided under Sec. 4-1. When Sec. 4-1 mentioned technical insolvency
under Sec. 3-12, it was referring to the definition of technical insolvency in the said section; it was not requiring
a previous filing of a petition for suspension of payments, which petitioners would have us believe.

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 is technically insolvent to
qualify for rehabilitation. The period referred to the corporations inability to pay its obligations; when such
inability extends beyond one year, the corporation is considered technically insolvent. Said inability may be
established from the start by way of a petition for rehabilitation, or it may be proved during the proceedings for
suspension of payments, if the latter was the first remedy chosen by the ailing corporation. If the corporation
opts for a direct petition for rehabilitation on the ground of technical insolvency, it should 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 vs. Court of Appeals, G.R. No. 165571, January 20, 2009, J. Velasco)
#HATAWTAMARAW 2016 BAR EXAMINATION 10
Comm Tips: Bernadeth Yabon, Sharel Abad, Raponcel Abueg, Dave Bagsik, Nicole Bagtas, Jane Hanika Basilio,
Rommel Casipe, Monica Evangelista, Kevin Foronda, Cheska Montes, Carol Ann Morales, Rowena Gallego,
Joshua Polido, Sanao Shiermaine, Joylyn Tria
BRAVERY TIPS COMMERCIAL LAW

SECURITIES REGULATION CODE

INSIDER TRADING
Insider + Material Non-Public Information = Insider Trading

WHO IS AN INSIDER:
1. the Issuer;
2. person who Learns such information by a communication from any of the foregoing insiders
(Constructive Insider)
3. person whose Relationship or former relationship to the issuer gives or gave him access to material
information about the issuer or the security that is not generally available to the public;
4. Officer or Director (or person performing similar functions) of, or a person controlling the issuer;
5. government employee, or director, or officer of an exchange, clearing agency and/or self-regulatory
organization who has Access to material information about an issuer or a security that is not generally
available to the public

GENERAL RULE: It shall be unlawful for an insider to sell or buy a security of the issuer, while in possession of
material non-public information.

EXCEPTIONS:
1. Insider proves that the information was not gained from such relationship
2. Of the other party selling or buying from the insider is identified and the insider proves that he disclosed
the information to other party upon a reasonable belief that the other party is also in possession of the
information

MATERIAL NON-PUBLIC INFORMATION


1. Not generally disclosed to the public
2. Would likely affect the market price of the security if disseminated
3. Would be considered by a reasonable person important under the circumstances in determining his
course of action whether to buy, sell or hold a security.

SHORT SWING RULE


Any profit realized by or any sale or purchase, of any equity security of such issuer within any beneficial owner,
director or officer by reason of his relationship to the issuer period of less than (6) months shall inure to and be
recoverable by the issuer, irrespective of any intention of holding the security purchased or of not repurchasing
the security sold for a period exceeding six (6) months.

Recovery shall be instituted in the RTC by the issuer or owner of any security in behalf of the issuer but not be
brought more than two years after the date such profit was realized.

EXCEPTION:
The security was acquired in good faith in connection with a debt previously contracted.

INVESTMENT CONTRACTS
A contract, transaction or scheme, whereby a person invests his money in a common enterprise and is led to
expect profits primarily from the efforts of others.

HOWEY TEST
Requisites of investment contracts:
1. An investment of money
2. In a common enterprise
3. Expectation of profit
4. Primary from efforts of others

#HATAWTAMARAW 2016 BAR EXAMINATION 11


Comm Tips: Bernadeth Yabon, Sharel Abad, Raponcel Abueg, Dave Bagsik, Nicole Bagtas, Jane Hanika Basilio,
Rommel Casipe, Monica Evangelista, Kevin Foronda, Cheska Montes, Carol Ann Morales, Rowena Gallego,
Joshua Polido, Sanao Shiermaine, Joylyn Tria
BRAVERY TIPS COMMERCIAL LAW

INTELLECTUAL PROPERTY LAW

FAIR USE DOCTRINE


Fair use of a copyrighted work for criticism, comment, news reporting, teaching including multiple copies for
classroom use, scholarship, research and similar purposes is not an infringement of copyright (Sec. 185, IPC)

DENICOLA TEST
It is in the language of conceptual separability, if design elements reflect a merger of aesthetic and functional
considerations, the artistic aspects of a work cannot be said to be conceptually separable from the utilitarian
elements. Conversely, where design elements can be identified as reflecting the designer's artistic judgment
exercised independently of functional influences, conceptual separability exists. (Brandir International Inc., vs
Cascade Pacific Lumber Co., 834 F.2d 1142 2d Cir. 1987)

NEWS FOOTAGE IS COPYRIGHTABLE


News or event itself is not copyrightable. However, can event can be captured and presented in a specific
medium. As recognized by this court in Joaquin, television involves a whole spectrum of visuals and effects,
video and audio. News coverage in television involves framing shorts, using images, graphics and sound effects.
It involves creative process and originality. Television news footage is an expression of the news. (ABS-CBN Corp.
vs. Gozon, G.R. No. 195956, March 11, 2015)

UNFAIR COMPETITION
1. Confusing similarity in the general appearance of the goods
2. Intent to deceive the public (Fraud)
3. Intent to defraud a competitor

CONFUSION OF GOODS CONFUSION OF BUSINESS


An otherwise prudent purchaser is induced to The goods of the parties are different but the
purchase on product in the belief that he is purchasing defendants product can reasonably be assumed to
another. originate from the plaintiff, thus deceiving the public
into believing that there is some connection between
the plaintiff and defendant, which in fact does not
exist.

ELEMENTS OF TRADEMARK INFRINGEMENT


1. Validity of plaintiffs mark
2. Plaintiffs ownership of the mark
3. Use of the mark or its colorable imitation by the alleged infringer results in the likelihood of confusion

TEST IN DETERMINING LIKELIHOOD OR CONFUSION OF MARKS


DOMINANCY TEST HOLISTIC TEST
Focuses on similarity of prevalent features of the Considers the entirety of marks in questions.
competing trademarks, which might cause confusion Comparison of words is not the only determining
or deception, and thus infringement. factor.

Duplication or imitation is not necessary; nor is it The disconcerning eye of the observer must focus not
necessary that the infringing label should suggest an only on the predominant words but also on the other
effort to imitate. features appearing in both labels in order that he may
draw conclusion whether one is confusingly similar to
the other.

DOCTRINE OF SECONDARY MEANING


A generic or descriptive mark may later acquire the characteristic of distinctiveness and can later be registered if
it acquires a meaning which is different from its ordinary connotation. For this to happen, there must be
exclusive and continuous use for a period of at least five years. (Sec. 132.2, IPL)

#HATAWTAMARAW 2016 BAR EXAMINATION 12


Comm Tips: Bernadeth Yabon, Sharel Abad, Raponcel Abueg, Dave Bagsik, Nicole Bagtas, Jane Hanika Basilio,
Rommel Casipe, Monica Evangelista, Kevin Foronda, Cheska Montes, Carol Ann Morales, Rowena Gallego,
Joshua Polido, Sanao Shiermaine, Joylyn Tria
BRAVERY TIPS COMMERCIAL LAW

DOCTRINE OF EQUIVALENTS
Infringement also takes place when a device appropriates a prior invention by incorporating its innovative
concept and, although with some modification and change, performs substantially the same function in
substantially the same way to achieve substantially the same result.

In trademark registration, while both competing marks refer to the word KOLIN written in upper case letters
and in bold font, but one is italicized and colored black while the other is white in pantone red color background
and there are differing features between the two, registration of the said mark could be granted. It is hornbook
doctrine that emphasis should be on the similarity of the products involved and not on the arbitrary
classification or general description of their properties or characteristics. The mere fact that one person has
adopted and used a trademark on his goods would not, without more, prevent the adoption and use of the
same trademark by others on unrelated articles of a different kind. (Taiwan Kolin Corporation LTD. Vs Kolin
Electronics Co., Inc., G.R No. 209483, March 25, 2015, J. Velasco Jr.)

We also note that among those seized by the NBI are 16 LPG cylinders bearing the embossed brand names of
Shellane, Gasul and Totalgaz but were marked as Omnigas. Evidently, this pernicious practice of tampering or
changing the appearance of a branded LPG cylinder to look like another brand violates the brand owners
property rights as infringement under Sec. 155.1 of RA 8293. (TY vs. De Jemil, G.R. No. 182147, December 15,
2012, J. Velaso Jr.)

The registration of a mark is prevented with the filing of an earlier application for registration. This must not,
however, be interpreted to mean that ownership should be based upon an earlier filing date. While RA 8293
removed the previous 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 establish ownership of a mark. Such ownership
constitutes sufficient evidence to oppose the registration of a mark.

Notably, the Court has ruled that the prior and continuous use of a mark may even overcome the presumptive
ownership of the registrant and be held as the owner of the mark. (E.Y. Industrial Sales Inc., vs. Shen Dar
Electricity, G.R. No. 184850, October 20, 2010, J. Velcaso Jr.,)

BANKING LAW

TYPES OF BANKS
1. Universal Banks powers and functions of a Commercial Banks and Power to Invest in non-
allied enterprises.
2. Commercial Banks powers necessary to engage in commercial banking in addition to general
corporate powers
3. Rural Banks created to make needed credit available and readily accessible in the rural areas for the
purpose of promoting comprehensive rural development
4. Thrift Banks savings and mortage banks, private development banks and stock savings and loan
associations
5. Cooperative Banks that primarily provide financial, banking and credit services to cooperative
organizations and their members

Other classification of banks as determined by the MB of the BSP

#HATAWTAMARAW 2016 BAR EXAMINATION 13


Comm Tips: Bernadeth Yabon, Sharel Abad, Raponcel Abueg, Dave Bagsik, Nicole Bagtas, Jane Hanika Basilio,
Rommel Casipe, Monica Evangelista, Kevin Foronda, Cheska Montes, Carol Ann Morales, Rowena Gallego,
Joshua Polido, Sanao Shiermaine, Joylyn Tria
BRAVERY TIPS COMMERCIAL LAW

SECRECY OF BANK DEPOSITS


GENERAL RULE, all deposits of whatever nature with banks or banking institutions in the Philippines including
investments in bonds issued by the government are considered absolutely confidential and may not be
examined, inquired or looked into.

EXCEPTIONS:
1. Written permission of depositor or investor
2. Impeachment cases
3. Order of competent court in cases of bribery of dereliction of duty or public officials
4. Anti-Graft and Corrupt Practices Act
5. Inquiry of CIR in determining the net estate of deceased depositor
6. AMLC
7. Order of Court of Appeals, in terrorism cases under the Human Security Act of 2007.

The above enumeration is inapplicable to Foreign Currency deposits except upon written consent of depositor
or in AMLA.

Banks, their business being impressed with public interest, are expected to exercise more care and prudence
than private individuals in their dealings, even those involving registered lands. The rule that persons dealing
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)

DEPOSITS UNDER BANKING LAW


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 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, G.R. No. 157294-95, 2006).

SINGLE BORROWERS LIMIT


The total amount of loans, credit accommodations and guarantees that may be extended by a bank to any
person, partnership, association, corporation or entity shall at no time exceed 25% of the net worth of such
bank. It may only be increased in an additional 10% provided adequately secured by trust receipts or other
security documents.

DOSRI ACCOUNTS
Restrictions are imposed on borrowing and security arrangement by directors, officers and stockholders of the
bank directors, officer, stockholders and their related interests.

FOREIGN BANKS ARE NOT SUBJECT TO 40% LIMITATION PRESCRIBED BY THE GENERAL BANKING LAWS. The
law allows 100% foreign bank equity. (R.A. No. 10641)

SEC 2 OF RA 10641: MODES OF ENTRY


1. By acquiring, purchasing or owning up to 100% of the voting stock of an existing bank;
2. By investing up to 100% of the voting stock of a new banking subsidiary incorporated under the laws of
the Philippines; or
3. By establishing branches with full banking authority

#HATAWTAMARAW 2016 BAR EXAMINATION 14


Comm Tips: Bernadeth Yabon, Sharel Abad, Raponcel Abueg, Dave Bagsik, Nicole Bagtas, Jane Hanika Basilio,
Rommel Casipe, Monica Evangelista, Kevin Foronda, Cheska Montes, Carol Ann Morales, Rowena Gallego,
Joshua Polido, Sanao Shiermaine, Joylyn Tria
BRAVERY TIPS COMMERCIAL LAW

SEC 3. OF RA 10641: GUIDELINES FOR APPROVAL


In approving application of foreign banks, the Monetary Board shall:
1. Ensure geographic representation and complementation;
2. Consider strategic trade and investment relationships between the Philippines and the country of
incorporation of the foreign bank
3. Study the demonstrated capacity, global reputation for financial innovations and stability in a
competitive environment of the applicant;
4. See to it that reciprocity rights are enjoyed by Philippine banks in the applicants country; and
5. Consider willingness to fully share their technology.

Only established, reputable and financially sound foreign banks shall be allowed entry accordance with Sec. 2 of
this Act. The foreign bank applicant must be widely-owned and publicly-listed in its country of origin, unless the
foreign bank applicant is owned and controlled by the government of its country of origin.

In the exercise of this authority, the Monetary Board shall adopt such measures as may be necessary to ensure
that the control of at least 60% of the resources or assets of the entire banking system is held by domestic banks
which are majority-owned by Filipinos.

CONSERVATOR RECEIVER
Appointed if the bank is illiquid or when its assets are Appointed if the bank is insolvent. Insolvency means
not in cash. that assets are less than the liabilities.
If the banks are in the state of inability or A bank is insolvent if:
unwillingness to maintain a condition of liquidity to a. There is inability to pay debt when it falls due
protect its depositors or creditors. b. Banks violate a cease and desist order by the
BSP
Bank cannot continue business without probable loss.
No power of dominion, only acts of administration. No power of dominion, only acts of administration.
Therefore, they cannot sell properties of banks or Therefore, they cannot sell properties of banks or
approve option to purchase properties. approve option to purchase properties.
The conservatorship shall not exceed one year The receiver shall act upon and determine within 90
days from the takeover whether the institution may be
rehabilitated or permitted to resume business or
closure.

CLOSE NOW HEAR LATER SCHEME DOCTRINE


No prior hearing is necessary in appointing a receiver and in closing the bank. It is enough that a subsequent
judicial review is provided for. To require previous hearing would not only be impractical but would tend to
defeat the very purpose of the law when it invested the Monetary Board with such authority.

ANTI MONEY LAUNDERING ACT


Only the Court of Appeals may issue a freeze order under the following conditions:
1. A verified ex parte petition
2. CA must determine probable cause
3. Freeze order shall be effective immediately
4. Freeze order shall be for a period not exceeding 6 months.

LETTERS OF CREDIT

INDEPENDENCE PRINCIPLE
The obligation of the issuing bank to pay the beneficiary does not depend on the fulfillment or non-fulfillment of
the contract supporting the letter of credit. The obligation of the issuing bank to pay the beneficiary is not
affected by any breach of contract by the seller to the buyer because the contract between the issuing bank and
beneficiary is separate and distinct from the contract between the buyer and seller.

The owner of the bank is not a subject of the sale between but rather the contract of letter of credit.
#HATAWTAMARAW 2016 BAR EXAMINATION 15
Comm Tips: Bernadeth Yabon, Sharel Abad, Raponcel Abueg, Dave Bagsik, Nicole Bagtas, Jane Hanika Basilio,
Rommel Casipe, Monica Evangelista, Kevin Foronda, Cheska Montes, Carol Ann Morales, Rowena Gallego,
Joshua Polido, Sanao Shiermaine, Joylyn Tria
BRAVERY TIPS COMMERCIAL LAW

EXCEPTION: Fraud or forgery in the transaction.


Independence Principle is still applicable notwithstanding the lack of knowledge on the part of the bank that the
goods loaded aboard the ship for delivery do not conform with that described in the letter of credit. The bank
has no duty to verify the goods that were loaded. (Transfield Phils vs. Luzon Hydro Corporation 443 SCRA 307,
2004)

DOCTINE OF STRICT COMPLIANCE


The issuing or confirming bank must examine the Tender Documents and must make sure that the terms and
conditions of the Letter of Credit are strictly complied with. There is not discretion on the part of the bank to
waive any requirement. Documents that are not stipulated as tender documents will not be examined.

TRUST RECEIPTS LAW

Trust Receipt is any transaction between the entruster and entrustee. Whereby the entruster who owns or
holds absolute title or security interest over goods, documents or instruments releases the same to the
possession of the entrustee, who in turn, binds himself with the obligation to turn over the proceeds to the
entrustor to the extent of entrustees obligation to him, or if unsold to return it to the entruster.

If the parties are aware that the return of the goods subject of the trust receipt is no longer possible even before
the transaction was effected, there is NO violation of the trust receipt law as provided under Section 13 of P.D.
115.

REMEDIES OF THE ENTRUSTER


1. If the goods are sold or disposed by the entrustee and the latter did not remit the proceeds:
a. File estafa case against the entrustee
b. File a separate case to collect the proceeds or the money obligation secured by the trust receipt
2. If the goods are unsold and are still with the entrustee:
a. Cancel the trust and take possession of the goods, documents or instruments subject of the
trust
b. After taking possession, sell the goods and apply the proceeds of the sale to the expenses of sale
and retaking of the goods and indebtedness
c. Alternative to retaking possession and sale, the entruster can file a case to collect the
indebtedness secured by the trust receipt.

TRUST RECEIPT AND PROSECUTION FOR ESTAFA


A case involving trust receipts may be validly prosecuted for estafa under Article 315, paragraph 1(b) of the
Revised Penal Code, in relation with Section 13 of the Trust Receipt Law, the following elemnets must be
established:
1. They received the subject goods in trust or under the obligation to sell the same and to remit the
proceeds thereof to [the trustor], or to return the goods if nor solf;
2. They misappropriated or converted the goods and/or the proceeds of the sale;
3. They performed such acts with abuse of confidence to the damage and prejudice of Metrobank;
4. Demand was made on them by [the trustor] for the remittance of the proceeds or the return of the
unsold goods. (Metropolitan Bank and Trust Company v. Go, G.R. No. 155647, November 23, 2007)

#HATAWTAMARAW 2016 BAR EXAMINATION 16


Comm Tips: Bernadeth Yabon, Sharel Abad, Raponcel Abueg, Dave Bagsik, Nicole Bagtas, Jane Hanika Basilio,
Rommel Casipe, Monica Evangelista, Kevin Foronda, Cheska Montes, Carol Ann Morales, Rowena Gallego,
Joshua Polido, Sanao Shiermaine, Joylyn Tria