5 Commercial Law

U.P.
LAW BOC COMMERCIAL LAW PRE-WEEK REVIEWER
LETTERS OF CREDIT
Q1: What is the nature of letters of credit?
A1: Letters of credit are those issued by one merchant to another, or for the purpose of attending to a commercial
transaction. [Art. 567, Code of Commerce]
A letter of credit is sui generis, but to understand it as a secured transaction, it is appropriately viewed as an
original undertaking by the issuer (usually a bank) to substitute its financial strength for that of another (the
applicant) with the undertaking to be conditioned on the presentation of a draft or a demand for payment by the
beneficiary. [Transfield Philippines, Inc. v. Luzon Hydo Corporation Australia, et al., G.R. No. 146717 (2004)]
Q2: What are the essential conditions of letters of credit?

A2: The essential conditions of letters of credit are:
1. To be issued in favor of a determined person and not to order.
2. To be limited to a fixed and specified amount, or to one or more undetermined amounts, but all within a
maximum the limit of which must be stated exactly.
Those which do not have one of these conditions shall be considered as mere letters of recommendation. [Art.
568, Code of Commerce]
NEGOTIABLE INSTRUMENTS
Q3: What are the requisites of a negotiable instrument?
A3: An instrument to be negotiable must conform to the following requirements:
1. It must be in writing and signed by the maker or drawer;
2. Must contain an unconditional promise or order to pay a sum certain in money;
3. Must be payable on demand, or at a fixed or determinable future time;
4. Must be payable to order or to bearer; and
5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty. [Sec. 1, Negotiable Instruments Law]
Q4: State and explain whether the following are negotiable instruments under the Negotiable Instruments
Law:
1) Postal Money Order;
2) A certificate of time deposit which states “This is to certify that bearer has deposited in this bank the sum of
FOUR THOUSAND PESOS (P4,000.00) only, repayable to the depositor 200 days after date.”
3) Letters of credit;
4) Warehouse receipts;
5) Treasury warrants payable from a specific fund.
A4:
1) Postal Money Order – Non-Negotiable as it is governed by postal rules and regulation which may be inconsistent
with the NIL and it can only be negotiated once.
2) A certificate of time deposit which states “This is to certify that bearer has deposited in this bank the sum of
FOUR THOUSAND PESOS (P4,000.00) only, repayable to the depositor 200 days after date.” – Non-Negotiable
as it does not comply with the requisites of Sec. 1 of NIL
3) Letters of credit - Non-Negotiable
4) Warehouse receipts - Non-Negotiable for the same as Bill of Lading it merely represents good, not money.
5) Treasury warrants payable from a specific fund - Non-Negotiable being payable out of a particular fund.
Q5: What constitutes a holder in due course?

A5: A holder in due course is a holder who has taken the instrument under the following conditions:
1. That it is complete and regular upon its face;
2. That he became the holder of it before it was overdue, and without notice that it had been previously dishonored,
is such was the fact;
3. That he took it in good faith and for value;
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U.P. LAW BOC COMMERCIAL LAW PRE-WEEK REVIEWER
4. That at the time it was negotiated to him he had no notice of any infirmity in the istrument or defect in the title
of the person negotiating it. [Sec. 52, NIL]
Q6: Who is deemed a holder in due course?

A6: Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any
person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some
person under whom he claims acquired the title as holder in due course. But the last mentioned rule does not
apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title. [Sec.
59, NIL]
Q7: What are the rights of a holder in due course?

A7: A holder in due course holds the instrument free from any defect of title of prior parties, and free from defences
available to prior parties among themselves, and may enforce payment of the instrument for the full amount
thereof against all parties liable thereon. [Sec.57, NIL]
In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same
defences as if it were non-negotiable. [Sec.58, NIL]
Q8: What is the effect of a forged signature?

A8: When a signature is forged or made without 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. [Sec. 23, NIL]
Section 23 does not avoid the instrument but only the forged signature. Rights and obligations may therefore exist
by virtue of such instrument. [Campos]
If payment is made, the drawee cannot charge it to the drawer’s account. The traditional justification for the result
is that the drawee is in a superior position to detect a forgery because he has the maker’s signature and is expected
to know and compare it. [Samsung Construction Company Philippines, Inc. v. Far East Bank and Trust Company and
CA, G.R. No. 129015 (2004)]
In cases involving a forged check, where the drawer’s signature is forged, the drawer can recover from the drawee
bank.
The drawee may recover from the recipient of payment, such as the collecting bank, under a forged indorsement.
[Associated Bank v. CA, G.R. No. 107382 (1996)]
Q9: Alex issued a negotiable PN (promissory note) payable to Benito or order in payment of certain goods.
Benito indorsed the PN to Celso in payment of an existing obligation. Later Alex found the goods to be
defective. While in Celso’s possession the PN was stolen by Dennis who forged Celso’s signature and
discounted it with Edgar, a money lender who did not make inquiries about the PN. Edgar indorsed the PN to
Felix, a holder in due course. When Felix demanded payment of the PN from Alex the latter refused to pay.
Dennis could no longer be located.
1. What are the rights of Felix, if any, against Alex, Benito, Celso and Edgar? Explain
2. Does Celso have any right against Alex, Benito and Felix? Explain.
A9: 1. Felix has no right to claim against Alex, Benito and Celso who are parties prior to the forgery of Celso’s
signature by Dennis. Parties to an instrument who are such prior to the forgery cannot be held liable by any party
who became such at or subsequent to the forgery. However, Edgar, who became a party to the instrument
subsequent to the forgery and who indorsed the same to Felix, can be held liable by the latter.
A9.2. Celso has the right to collect from Alex and Benito. Celso is a party subsequent to the two. However, Celso
has no right to claim against Felix who is a party subsequent to Celso [Sec 60 and 66 NIL]
Q10: What are the liabilities of a maker?

A10: The maker of a negotiable instrument, by making it, engages that he will pay it according to its tenor, and
admits the existence of a payee and his then capacity to indorse. [Sec. 60, NIL]
The liability of the maker is primary and unconditional. One who has signed an instrument as a maker is presumed
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to have acted with care and to have signed the instrument with full knowledge of its contents, unless there is fraud.
[Campos]
Q11: What is the liability of an accommodation party?

A11: An accommodation party is one who has signed the instrument as maker, drawer, acceptor, or indorser,
without receiving value therefor, and for the purpose of lending his name to some other person. Such a person is
liable on the instrument to a holder for value, notwithstanding such holder at the time of the taking of the
instrument knew him to be only an accommodation party. [Sec. 29, NIL]
Q12: What is the liability of an acceptor?

A12: The acceptor by accepting the instrument engages that he will pay it according to the tenor of his acceptance;
and admits:
1. The existence of the drawer, the genuineness of his signature and his capacity and authority to draw the
instrument, and
2. The existence of the payee and his then capacity to indorse.
Q13: When is notice of dishonor not required to be given to the drawer?

A13: Notice of dishonor is not required to be given to the drawer in any of the following cases:
a) Where the drawer and drawee are the same person;
b) When the drawee is a fictitious person or a person not having capacity to contract;
c) When the drawer is the person to whom the instrument is presented for payment;
d) Where the drawer has no right to expect or require that the drawee or acceptor will honor the instrument;
e) Where the drawer has countermanded payment [Sec 114 NIL]
Q14: What is a crossed check? What are the effects of crossing a check? Explain.
A14: A Crossed Check under accepted banking practice, crossing a check is done by writing two parallel lines
diagonally on the left top portion of the checks. The crossing is special where the name of the bank or a business
institution is written between the two parallel lines, which means that the drawee should pay only with the
intervention of that company.
Effects of Crossed Checks:
1) The check may not be encashed but only deposited in the bank.
2) The check may be negotiated only once—to one who has an account with a bank.
3) The act of crossing the check serves as a warning to the holder that the check has been issued for a definite
purpose, so that he must inquire if he has received the check pursuant to that purpose; otherwise, he is not a holder
in due course.
Q15: Mario Guzman issued to Honesto Santos a check for P50th as payment for a 2nd hand car. Without the
knowledge of Mario, Honesto changed the amount to P150th which alteration could not be detected by the
naked eye. Honesto deposited the altered check with Shure Bank which forwarded the same to Progressive
Bank for payment. Progressive Bank without noticing the alteration paid the check, debiting P150th from the
account of Mario. Honesto withdrew the amount of P15th from Shure Bank and disappeared. After receiving
his bank statement, Mario discovered the alteration and demanded restitution from Progressive Bank.
Discuss fully the rights and the liabilities of the parties concerned.
A15: The demand of Mario for restitution of the amount of P150,000 to his account is tenable. Progressive Bank
has no right to deduct said amount from Mario’s account since the order of Mario is different. Moreover,
Progressive Bank is liable for the negligence of its employees in not noticing the alteration which, though it cannot
be detected by the naked eye, could be detected by a magnifying instrument used by tellers.
As between Progressive Bank and Shure Bank, it is the former that should bear the loss. Progressive Bank failed
to notify Shure Bank that there was something wrong with the check within the clearing hour rule of 24 hours.
Q16: A check for P50,000.00 was drawn against drawee bank and made payable to XYZ Marketing or order.
The check was deposited with payee’s account at ABC Bank which then sent the check for clearing to drawee
bank. Drawee bank refused to honor the check on ground that the serial number thereof had been altered.
XYZ marketing sued drawee bank.
a. Is it proper for the drawee bank to dishonor the check for the reason that it had been altered? Explain.
b. In instant suit, drawee bank contended that XYZ Marketing as payee could not sue the drawee bank as
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there was no privity between then. Drawee theorized that there was no basis to make it liable for the check.
Is this contention correct? Explain.
A16:
a. No. The serial number is not a material particular of the check. Its alteration does not constitute material
alteration of the instrument. The serial number is not material to the negotiability of the instrument.
b. Yes. As a general rule, the drawee is not liable under the check because there is no privity of contract between
XYZ Marketing, as payee, and ABC Bank as the drawee bank. However, if the action taken by the bank is an abuse
of right which caused damage not only to the issuer of the check but also to the payee, the payee has a cause of
action under quasi-delict.
Q17: AX, a businessman, was preparing for a business trip abroad. As he usually did in the past, he signed
several checks in blank and entrusted them to his secretary with instruction to safeguard them and fill them
out only when required to pay accounts during his absence. OB, his secretary, filled out one of the checks by
placing her name as the payee. She filled out the amount, endorsed and delivered the check to KC, who
accepted it in good faith for payment of gems that KC sold to OB. Later, OB told AX of what she did with
regrets. AX timely directed the bank to dishonor the check. Could AX be held liable to KC? Answer and reason
briefly.
A17: Yes. AX could be held liable to KC. This is a case of an incomplete check, which has been delivered. Under
Section 14 of the Negotiable Instruments Law, KC, as a holder in due course, can enforce payment of the check as
if it had been filled up strictly in accordance with the authority given by AX to OB and within a reasonable time.
INSURANCE
Q18: C borrowed from XXX Bank. She mortgaged her house and lot in favor of the bank. C insured her house.
The bank also got the house insured. Is this double insurance? Explain your answer.
A18: No, there is no double insurance. Double insurance exists where the same person is insured by several
insurers separately with respect to the same subject and interest. [Sec. 93, Insurance Code]
Q19: Are the insurance contracts obtained in Q18 legally valid? Explain your answer.
A19: Yes. Both C and the bank can insure the house as they have different insurable interest in it. C, as the
borrower-mortgagor, has an insurable interest in the house being the owner thereof while XXX Bank, the lender,
also has an insurable interest in the house as a mortgagee.
Q20: In case of damage, can C and XXX Bank in Q18 separately claim for the insurance proceeds?
A20: If C obtained an open policy then she could claim an amount corresponding to the extent of the damage
based on the value of the house determined as of the date the damage occurred, but not to exceed the face value
of the insurance policy.
However, if she obtained a valued policy then she could claim an amount corresponding ot the extent of the
damage based on the agreed upon valuation of the house.
Q21: Does the law on life insurance prohibit double insurance?

A21: No. The danger in double insurance is overinsuring. Such danger is not present in life insurance as insurable
interest in life is unlimited. Hence, the double insurance in the case of life insurance is allowed.
Q22: Sophia Towers, a condominium building, has a value of P50 Million. The owner, Sophia Turner, insured
the building against fire with three (3) insurance companies for the following amounts:
Habagat Insurance Corp – P20 Million
Amihan Insurance Corp – P30 Million
Lakambini Insurance Corp – P50 Million
Is Sophia Turner's taking of insurance for the building with three (3) insurers valid?
A22: Yes, it is valid. Taking out insurance covering the same property, the same insurable interest and the same
risk is double insurance, which is not prohibited by the Insurance Code. Furthmore, there is no indication that the
policy she has taken out contained “other insurance clause” that stipulates that non-disclosure of double
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insurance will avoid the policies.
Q23: What are the instances where the insured will be entitled to recover premiums or a portion thereof?
A23: The insured will be entitled to recover premiums already paid or a portion thereof:
(1) When no part of the thing insured has been exposed to any of the perisl insured against;
(2) When the insurance is for a definite period and the insured surrenders his policy before the termination thereof;
(3) When the contract is voidable because of fraude, misrepresentations of the insurer or his agent;
(4) When the contract is voidable because of the existence of facts of which the insured was ignorant without his
fault;
(5) When the insurer never incurred any laibility under the policy because of the default of the insured other than
actual fraud; and
(6) When there is over-insurance.
Q24: What are the instances where the insurer has the right to rescind a contract of life insurance?
A24: The insurer has the right to rescind a contract of life insurance when there is concealment or false
representation by the insured or the latter breaches the warranty.
Q25: Differentiate property insurance from life insurance.

A25: Property insurance differs from life insurance as to the extent of coverage, as to the time the insurable interest
must exist and as to the beneficiary's interest.
In property insurance, the extent of coverage is limited to the actual value of the interest thereon whereas in life
insurance, the extent coverage is unlimited. As to the time when insurable interest must exist, in property
insurance, it must exist when the insrance takes effect and when the loss occurs. It need not exist in the meantime.
On the other hand, in life insurance, it is sufficient that the insurable interest exists at the time the policy takes
effect and need not exist at the time of the loss. Lastly, in property insurance, the beneficiary must have insurable
interest over the thing insured. Whereas is in life insurance, the beneficiary need not have insurable interest over
th elife of the insured if the insured himself secured the policy.
Q26: Malay Insurance issued a car comprehensive policy in favor of Diane Suarez covering a jeep. The
insurance coverage was for "own damage" not to exceed P10,000 and "third party liability" amounting to
P20,000. While the policy was in effect, the jeep, driven by Ernest Chong (a San Leon Textile Mill employee),
collided with a bus operated by Puntranco. The collision caused damage to the insured jeep, injuries to the
drivers and passengers of both the bus and the jeep.
Vallega, one of the jeepney's passengers, filed an action for damages against Ernest Chong, Malay and
Puntranco.
Are Ernest Chong, Malay and Puntranco solidarily liable to Vallega?
A26: No, they are not solidarily liable. While it is true that where the insurance contract provides for indemnity
against liability to third persons, such third persons can directly sue the insurer, however, the direct liability of the
insurer under indemnity contracts against third party liability does not mean that the insurer can be held solidarily
liable with the insured and/or the other parties found at fault. The liability of the insurer is based on contract? that
of the insured is based on tort.
Thus, Malay Insurance is liable to Vallega but it cannot be made solidarily liable with the two principal tortfeasors
(i.e. Ernest Chong and San Leon Textile Mill). If Malay Insurance were made solidarily liable with the two principal
tortfeasors by reason of the indemnity contract against third party liability, under which an insurer can be directly
sued by a third party, it will result in a violation of the principles underlying solidary obligation and insurance
contracts. The liability of the insurer to the third party is based on the insurance contract and that of the insured is
based on tort.
Q27: Narcissa borrows P500,000 pesos from Mortimer. To secure the loan, she mortgages her house valued
at P1,000,000. Mortimer decides to take out an insurance policy for Narcissa's house. Does insurable interest
in property exist in the case of Mortimer?
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A27: It exists because Mortimer, as the mortgagee, has a concern in the preservation of the property and such a
relation to or connection with it as will necessarily ential a pecuniary loss in case of its injury or destruction.
Q28: Bob purchases office equipment from Office Storage House and arranged to have the equipment shipped
to his office in Cebu from Manila. Upon payment of the purchase price, Bob decides to take out an insurance
policy on the office equipment. The office equipment was docked safely in the Mactan Cebu Port but was
severely damaged while in transit to Bob's office. Does Bob have insurable interest even before the office
equipment was delivered to him?
A28: Yes, Bob has insurable interest over the office equipment even before the delivery. Bob has insurable interest
over the equipment when the contract of sale was already perfected. He acquired interest of his own even if the
equipment has yet to be delivered.
Q29: In maritime insurance, when is deviation proper?

A29: Deviation is proper in any of the following instances:
(1) When cause by circumstances over which neither the master nor the owner of the ship has any control;
(2) When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is insured against;
(3) When made in good faith, and upon reasonable grounds of belief in its necessity to avoid a peril; or
(4) When made in good faith, for the purpose of saving human life or relieving another vessel in distress.
Q30: What are the requisites for double insurance?

A30: The requisites for double insurance are the following:
(1) The person insured is the same;
(2) Two or more insurers insuring separately;
(3) The subject matter is the same;
(4) The interest insured is also the same and;
(5) The risk insured against is likewise the same.
TRANSPORTATION
Q31: What is a common carrier?
A31: Art 1732 of the New Civil Code defines common carriers as persons, corporations, firm or associations engaged
in the business of carrying, transporting passengers or goods or both, by land, water, or air, for compensation,
offering their services to the public.
The concept of common carriers contemplated under Article 1732 of the Civil Code and the fact that the said
concept corresponds to the concept of “public service” under the Public Service Act results in the application of
the following rules or principles:
(a) The provision makes no distinction between one whose principal business activity is the carrying of
persons or goods or both, and one who does such carrying only as an ancillary activity (in local Idiom
as “a sideline”).
(b) Article 1732 also carefully avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such service on an occasional,
episodic or unscheduled basis.
(c) Neither does Article 1732 distinguish between a carrier offering its services to the “general public”,
i.e., the general community or population, and one who offers services or solicits business only from
a narrow segment of the general population.
(d) A person or entity is a common carrier and has the obligations of the common carrier under the Civil
Code even if he did not secure a Certificate of Public Convenience [De Guzman vs. Court of Appeals,
G.R. No. L-47822 (1988)].
(e) The Civil Code does not provide that the transportation should be by motor vehicle [First Philippine
Industrial Corporation vs. Court of Appeals, G.R. No. 125948 (1998)]
(f) A person or entity may be a common carrier even if he has no fixed and publicly known route,
maintains no terminals, and issues no tickets [Asia Lighterage and Shipping Inc. vs. Court of Appeals,
G.R. No. 147246 (2003)]
(g) A person need not be engaged in the business of public transportation for the provision of the Civil
Code on common carriers to apply to them [Fabre Jr. vs. Court of Appeals, G.R. No. 111127 (1996)].
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(h) The carrier can also be a common carrier even if the operator does not own the vehicle or vessel that
he or she operates [Cebu Salvage Corporation vs. Philippine Home Assurance Corporation, G.R. No.
150403 (2007)].
The true test for a common carrier is not the quantity or extent of the business actually transacted, or the number
and character of the conveyances used in the activity, but whether the undertaking is a part of the activity engaged
in by the carrier that he has held out to the general public as his business or occupation. If the undertaking is a
single transaction, not a part of the general business or occupation engaged in, as advertised and held out to the
general public, the individual or the entity rendering such service is a private, not a common, carrier. The question
must be determined by the character of the business actually carried on by the carrier, not by any secret intention
or mental reservation it may entertain or assert when charged with the duties and obligations that the law imposes
[Spouses Perena vs. Spouses Nicolas, G.R. No. 157917 (2012)].”
Q32: What is the prescriptive period to file an action against the carrier for loss or damage as provided in the
Carriage of Goods by Sea Act?
A32: In cases of contracts of carriage of goods coming to or from Philippine ports in foregin trade, the prescriptive
period is one (1) year from date of delivery or the date when they should have been delivered. Prescription begins
when the goods are handed over to the arrastre service and applies only to such cases where the damage or loss
occurred in transit. An extra-judicial claim or demand from the recipient will not interrupt the prescriptive period.
The prescriptive period is interrupted by the following instances:

a) An action has been filed in court;
b) There is an express agreement that extra-jurdicial claims or demands for damages suspend the running of
the prescriptive period.
Q33: When is a common carrier liable for injuries inflicted by strangers or co-passengers?
A33: A common carrier is responsible for injuries suffered by a passenger on account of the willful acts or
negligence of other passengers or of strangers, if the common carrier's employees through the exercise of the
diligence of a good father of a family could have prevented or stopped the act or omission [Article 1763, Civil Code].
Q34: Is the defense of due diligence available to a common carrier?

A34: No. The liability of the common carriers for the death of or injuries to passengers through the negligence or
willful acts of the former's employees, although such employees may have acted beyond the scope of their
authority or in violation of the orders of the common carriers, does not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and supervision of their employees [Article 1759, Civil Code].
The reasons for this rule are: (1) the special undertaking of the carrier requires that it furnish its passenger that full
measure of protection afforded by the exercise of the high degree of care prescribed by the law, inter alia from
violence and insults at the hands of strangers and other passengers, but above all, from the acts of the carrier's
own servants charged with the passenger's safety; (2) said liability of the carrier for the servant's violation of duty
to passengers, is the result of the formers confiding in the servant's hands the performance of his contract to safely
transport the passenger, delegating therewith the duty of protecting the passenger with the utmost care
prescribed by law; and (3) as between the carrier and the passenger, the former must bear the risk of wrongful
acts or negligence of the carrier's employees against passengers, since it, and not the passengers, has power to
select and remove them [Maranan vs. Perez, G.R. No. L-22272 (1967)].
Q35: When is a common carrier presumed to be negligent?

A35:
(1) As to goods
If the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have
acted negligently, unless they prove that they observed extraordinary diligence required by law [Article 1735, Civil
Code]. However, the presumption of negligence does not attach when the loss, destruction, or deterioration of the
goods, is due to any of the following causes only: (a) flood, storm, earthquake, lightning, or other natural disaster
or calamity; (b) act of the public enemy in war, whether international or civil; (c) act of omission of the shipper or
owner of the goods; (d) the character of the goods or defects in the packing or in the containers; or (e) order or act
of competent public authority, [Article 1734, Civil Code].
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(2) As to passengers
If a passenger dies or is injured, common carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence [Article 1756, Civil Code].
Q36: Are stipulations limiting the liability of the common carrier valid?
A36:
(1) As to diligence required
Yes, subject to compliance with the following requisites [Article 1744, Civil Code]:
(a) Must be in writing and signed by the shipper or owner;
(b) Supported by a valuable consideration other than the service rendered by the common carrier; and
(c) Reasonable, just and not contrary to public policy.
What are considered unreasonable, unjust or contrary to public policy?

(a) Goods transported at risk of shipper;
(b) Complete exoneration from liability for any loss, damage or deterioration;
(c) Any level of diligence is dispensed with;
(d) Diligence lower than ordinary diligence;
(e) No responsibility for acts/omissions of employees;
(f) Dispensed with or diminished liability for acts of thieves or robbers without grave/irresistible threat,
violence or force; or
(g) No liability for loss on account of defective condition of vehicle or equipment used in contract of
carriage.
Note: The fact of absence of competitor in a line or route will be part of the test on reasonableness of stipulations
limiting liability [Art 1751, Civil Code]. Notwithstanding limitation of liability, presumption of negligence will still
hold.
(2) As to amount of liability

Only the following are allowed stipulations as limitation on amount of liability:
(a) Fixing of a sum that may be recovered if [Art 1750, Civil Code]:
i. Reasonable and just under the circumstances; and
ii. Fairly and freely agreed upon.
(b) Limitation of liability upon delay due to strikes or riots [Art 1748, Civil Code];
(c) Limitation of liability to amount in the bill of lading unless shipper declares a greater value and pays
a higher rate of freight [Art 1749, Civil Code].
(3) Factors that would render stipulation ineffective

(a) Common carrier refuses to carry the goods [Art 1746, Civil Code];
(b) Common carrier delays, without just cause, the transportation of the goods [Art 1747, Civil Code]
(c) Common carrier changes the stipulated or usual route [Id.].
Q37: What is the effect of carriage at a reduced rate of fare?

A37: The reduction of fare does not justify any limitation of the common carrier’s liability. However, when a
passenger is carried gratuitously, a stipulation limiting the common carrier’s liability for negligence is valid, but
not for willful acts or gross negligence [Art 1758, Civil Code]
Q38: What is the Doctrine of Limited Liability?

A38: The “Limited Liability Rule” provides that the liability of a shipowner for damages in case of loss is limited to
the value of the vessel involved. Other properties of the shipowner cannot be reached by the parties entitled to
damages. This includes the following:
a) Value of the vessel itself
b) Equipment
c) Freightage
d) Insurance proceeds
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Exceptions to the Limited Liability Rule:

a) Claims under the Workmen’s Compensation Act [Oching v San Diego, G.R. No. L-773 (1946)];
b) Injury or damage due to shipowner or the concurring negligence of the shipowner and the captain
[Aboitiz Shipping v CA, G.R. No. 84458 (2008)];
a) Insurance proceeds. If the vessel is insured, the proceeds will go to the persons entitled to claim from
the shipowner [Vasquez v CA, G.R. No. L-42926 (1985)];
b) Expenses for repair on vessel completed before loss [Art 586, Code of Commerce];
c) In case there is no total loss and the vessel is not abandoned;
d) Collision between two (2) negligent vessels.
Q39: What is a Bill of Lading?

Q39: A written acknowledgement, signed by the master of a vessel or other authorized agent of the carrier, that
he has received the described goods from the shipper, to be transported on the expressed terms to the described
place of destination, and to be delivered there to the designated consignee or parties [70 Am. Jur. 2d 924].
It is not, however, indispensable for the creation of a contract of carriage. [Cia. Maritima v. Ins. Co. of North America
(1964)].
In the absence of a bill of lading, disputes shall be determined by the legal proofs which the parties may present
in support of their respective claims, according to the general provisions established in the Code of Commerce for
commercial contracts [Art. 354, Code of Commerce].
Q40: Can a bill of lading be considered a contract, and hence subject to the Parol Evidence Rule?
A40: Yes, a bill of lading operates both as a receipt and as a contract. It is a receipt for the goods shipped and a
contract to transport and deliver the same as therein stipulated. As a contract, it names the parties, which includes
the consignee, fixes the route, destination, and freight rates or charges, and stipulates the rights and obligations
assumed by the parties. Being a contract, it is the law between the parties who are bound by its terms and
conditions provided that these are not contrary to law, morals, good customs, public order and public policy.
[Magellan Manufacturing Marketing Corp. v. CA, G.R. No. 95529 (1991)]
Q41: If two vessels coming from opposite directions which collided with each other due to fault imputable to
both, what are the liabilities of the two vessels with respect to the damage caused to them and their cargoes?
A41: If both vessels may be blamed for the collision, each one shall suffer its own damages, and both shall be
solidarily responsible for the losses and damages suffered by their cargoes [Art 827, Code of Commerce].
Q42: What are the types of averages in maritime commerce?

A42: The types of averages are particular and general [Art 808, Code of Commerce]. Particular averages include
all expenses and dames caused to the vessel or to the cargo which did not inure to the common benefit and profit
of all the persons interested in the vessel and the cargo [Art 809, Code of Commerce]. General averages include
all damages and expenses which are deliberately caused to save the vessel, its cargo, or both at the same time,
from a real and known risk [Art 811, Code of Commerce].
CORPORATION LAW
Q43: Who may be a resident agent under the Corporation Code? What is the role of a resident agent?
A43: A resident agent may be either an individual residing in the Philippines or a domestic corporation lawfully
transacting business in the Philippines: Provided, That in the case of an individual, he must be of good moral
character and of sound financial standing.
The Securities and Exchange Commission shall require as a condition precedent to the issuance of the license to
transact business in the Philippines by any foreign corporation that such corporation file with the Securities and
Exchange Commission a written power of attorney designating some person who must be a resident of the
Philippines, on whom any summons and other legal processes may be served in all actions or other legal
proceedings against such corporation, and consenting that service upon such resident agent shall be admitted
and held as valid as if served upon the duly authorized officers of the foreign corporation at its home office.
9
Q44: What is the definition of a Philippine national under the Foreign Investments Act of 1991? Company A is
a 100% Filipino-owned corporation incorporated under the laws of the United States. Is Company A
considered a Philippine citizen?
A44: “Philippine National” shall mean a citizen of the Philippines or a domestic partnership or association wholly
owned by citizens of the Philippines; or a corporation organized under the laws of the Philippines of which at least
sixty percent (60%) of the capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines or a corporation organized abroad and registered as doing business in the Philippine under the
Corporation Code of which one hundred percent (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 sixty percent (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 sixty percent (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 sixty percent (60%) of the members of the Board of Directors of each of both corporations must be
citizens of the Philippines, in order that the corporation shall be considered a Philippine national (as amended by
R.A. 8179).
NO. A license to do business in the Philippines is required, that is, it is registered to do business in the Philippines.
Q45: What is a close corporation? Can any corporation be incorporated as a close corporation?
A45: A close corporation is one whose articles of incorporation provide that: (1) All the corporation's issued stock
of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons,
not exceeding twenty (20); (2) all the issued stock of all classes shall be subject to one or more specified restrictions
on transfer permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any public
offering of any of its stock of any class. Notwithstanding the foregoing, a corporation shall not be deemed a close
corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another
corporation which is not a close corporation within the meaning of this Code.
As a GR, Any corporation may be incorporated as a close corporation, EXCEPT, mining or oil companies, stock
exchanges, banks, insurance companies, public utilities, educational institutions and corporations declared to be
vested with public interest in accordance with the provisions of this Code.
Q46: What is a foreign corporation? When will it have the right to transcat business in the Philippines?
A46: A foreign corporation is one formed, organized or existing under any laws other than those of the Philippines
and whose laws allow Filipino citizens and corporations to do business in its own country or state. It shall have the
right to transact business in the Philippines after it shall have obtained a license to transact business in this country
in accordance with this Code and a certificate of authority from the appropriate government agency.
Q47: The Spouses Unlucky own 35% of BOC, Inc. During a vacation in the pristine beaches of the West
Philippine Sea, the Chinese Navy conducted a live fire military drill near the area. Unfortunately, a wayward
missile went off its course and exploded on the island where the Spouses Unlucky were. The Spouses Unlucky
died due to the accident.
Immediately after the funeral, Lucky B, the adopted child and sole heir of Spouses Unlucky wrote BOC, Inc. a
letter requesting that he be allowed to look into the books and records of the corporation. Lucky B claimed
that as the sole heir of the Spouses Unlucky, he now owns 35% of BOC, Inc.
As the Corporate Secretary of BOC, Inc., will you grant Lucky B’s request?
A47: No, as Corporate Secretary of BOC, Inc., I would not grant Lucky B’s request to look into the books and records
of the corporation. Although Lucky B is the sole heir of the Spouses Unlucky, he is still yet to be a stockholder of
BOC, Inc. As such, he is not yet entitled to the right of a stockholder to look into the books and records of the
corporation.
In order to exercise such right, Lucky B should first transfer to his name the shares of stock which he inherited from
the Spouses Unlucky.
10
Q48: J’s Bakery, Inc. was established and incorporated by the five Tandez siblings (A, B, C, D, and E) in 2010.
They also elected themselves to be the members of the Board of Directors. The SEC issued the Certificate of
Incorporation on 10 March 2010.
According to the corporation’s Articles of Incorporation, the authorized capital is PhP 10,000,000.00 divided
in 1,000,000 shares of stock, The paid-up and subscribed capital was PhP 2,000,000.00 for the 250,000
shares of stock which was divided among the siblings as follows:
A: 50,000
B: 25,000
C: 75,000
D: 25,000
E: 75,000
In 2012, due to a planned expansion, the Board of Directors decided to raise some additional funds by issuing
some of the corporation’s unissued shares of stock. Up to how much shares of stock can the company issue?
Up to how much shares of stock can each of the siblings buy?
A48: J’s Bakery, Inc. can issue up to 750,000 shares of stock since only 250,000 shares of stock were initially
subscribed to when it was incorporated (i.e. J’s Bakery Inc.’s total unissued shares of stock is 750,000.).
Given that the siblings enjoy pre-emptive rights [Sec. 39, Corporation Code], they can buy up to such number of
shares of stock as to maintain their proportionate ownership. As such, if all the 750,000 unissued shares of stock
will be up for subscription, the siblings can subscribe as follows:
A: 150,000 (20%)
B: 75,000 (10%)
C: 225,000 (30%)
D: 75,000 (10%)
E: 225,000 (30%)
Q49. If the Board of Directors of J’s Bakery, Inc. decides to only issue 250,000 shares of stock from its unissued
shares of stock, how much shares of stock can each of the siblings subscribe to?
A49: Given that the siblings enjoy pre-emptive rights [Sec. 39, Corporation Code], they can buy up to such number
of shares of stock as to maintain their proportionate ownership. As such, if only 250,000 unissued shares of stock
will be up for subscription, the siblings can subscribe as follows:
A: 50,000 (20%)
B: 25,000 (10%)
C: 75,000 (30%)
D: 25,000 (10%)
E: 75,000 (30%)
Q50: Kips Industries, Inc. (KII) was involved in the manufacture of children’s toys. However, for some reasons,
their toys were not as appealing to children unlike before. Thus, in order to arrest its continued losses, KII
decided to sell all its assets and liabilities to its rival corporation, Marx Industries, Inc. (MII).
Will the sale of all assets and liabilities of KII to MII automatically dissolve or terminate the corporate
existence of KII?
A50: No, the sale of all assets and liabilities of KII to MII will not result in the automatic dissolution or termination
of the existence of KII. A decision to dissolve KII or to terminate its corporate existence would require a separate
approval by the majority of its Board of Directors and by its stockholders holding at least 2/3 of the total
outstanding capital stock.
Q51:. AA, Inc. held a stockholders’ meeting on December 2015 wherein the stockholders elected ten directors
to the board. The directors assumed their posts in January 2016. No stockholders’ meeting was held in 2016.
Hence, the ten directors served in a holdover capacity and continued to discharge their functions.
11
In March 2017, one of the ten directors suffered a heart attack and died. Two months later, or in May 2017,
two other directors resigned from the board. Being down to only seven directors, the remaining directors,
relying on Section 29 of the Corporation Code, elected three new directors to complete their ranks.
Was the election of the three new directors proper?

A51: No, the remaining directors cannot elect new directors to fill in the vacancies. The board of directors may fill
up vacancy within their ranks only if the ground is not due to expiration of term, removal, or increase in the number
of board seats.
In this case, the term of the three directors already expired after one year. They remained in office only in a holdover
capacity. The holdover period is not part of their term. The vacancies should be filled up by election by the
stockholders.
Q52: What officer positions must a corporation at least have?

A52: A corporation must have at least five directors [Sec. 14, Corporation Code], a president, a treasurer, and a
secretary [Sec. 25, Corporation Code].
Q53: What particular qualifications, if any, are these officers legally required to possess under the Corporation
Code?
A53: Every director must own at least one share of the capital stock of the corporation, which must be in his name
on the books of the corporation, and a majority of the directors must be residents of the Philippines. [Sec. 23,
Corporation Code]
The president must also be a director. [Sec. 25, Corporation Code]
The secretary must be a resident and citizen of the Philippines. [Sec. 25, Corporation Code]
Q54: What is the difference between a director and a trustee?

A54: For stock corporations, the appropriate term is ‘director’. For non-stock corporations the appropriate term is
‘trustee’. However, in non-stock corporations, the trustees may be called by other than trustees (i.e. directors)
provided that the term used is identified as such in the Articles of Incorporation referring to trustees.
Q55: Mel was employed in DE, Inc. based in Baguio City. He subscribed to 3,000 shares of DE, Inc. at PhP
1000.00 per share. He made initial payment of PhP 1,000,000.00. He was subsequently appointed President
of DE, Inc. Because of irreconcilable difference with the other members of the Board of Directors of DE, Inc.,
Mel resigned as President and demanded payment of his unpaid salaries and other emoluments.
DE, Inc. admits that it owed Mel, PhP 1,500,000.00 but told him that this will be applied to the unpaid
balance of his subscription in the amount of PhP 2,000,000.00. There was no call or notice for the payment
of the unpaid subscription.
Mel questioned the set-off.
Can DE, Inc. set-off the unpaid subscription with Mel’s claim for unpaid salaries and other emoluments?
A55: No, DE, Inc. cannot set-off the unpaid subscription with Mel’s claim for unpaid salaries and other
emoluments. The unpaid subscription is not yet due as there was not call made yet.
Q56: Duterte Developers and Sub-dividers, Inc. (DDS, Inc.) is a stock corporation engaged in the real estate
business. Due to its success, it became one of the most admired and richest corporations in the country. Due
to the philanthropic vision and love for the poor of its President and CEO, the stockholders of DDS, Inc. decided
to convert DDS, Inc. into a charitable non-stock and non-profit association by amending its Articles of
Incorporation.
Could it be legally done?
12
A56: Yes, it can be legally done. In converting the stock corporation to a non-stock corporation by a mere
amendment of the Articles of Incorporation, the stock corporation is not distributing any of its assets to the
stockholders. On the contrary, the stockholders are deemed to have waived their right to share in the profits of the
corporation which is a gain and not a loss to the corporation.
Q57: In a stockholders meeting, X dissented from the corporate act converting preferred voting shares to non-
voting shares. Thereafter, X submitted his certificates of stock for notation that his shares are dissenting. The
next day, X transferred his shares are dissenting. The next day, X transferred his shares to Y to whom new
certificates were issued. Now, Y demands from the corporation the payment of the value of his shares.
What is the meaning of a stockholder’s appraisal right? Can Y exercise the right of appraisal? Reason briefly?
A57: Appraisal right is the right of stockholder, who dissents from a fundamental or extraordinary corporate
action, to demand payment of the fair value of his shares. It is the right of a stockholder to withdraw from the
corporation and demand payment of the fair value of his shares after dissenting form certain corporate acts
involving fundamental changes in the corporate structure (Section 81, Corporation Code).
No, Y cannot exercise the right of appraisal in this case. When X transferred his shares to Y and Y was issued new
stock certificates, the appraisal right of X ceased, and Y acquired all the rights of a regular stockholder. The
transfer of shares from X to Y constitutes an abandonment of the appraisal right of X. All the Y acquired from the
issuance of new stock certificated was the rights of a regular stockholders (Section 86, Corporation Code).
Q58: Your client Samuel approaches you for legal advice on putting up a medium-sized restaurant business
that will specialize in a novel type of cuisine. As Samuel feels that the business is a little risky, she wonders
whether he should use a corporation as the business vehicle, or just run it as a single proprietorship. He
already has an existing corporation that is producing meat products profitably and is also considering the
alternative of simply setting up the restaurant as a branch office of the existing corporation.
Briefly explain to your client what you see as the legal advantages and disadvantages of using a separate
corporation, a single proprietorship, or a branch of an existing corporation for the proposed restaurant
business.
A58: If Samuel will set up a separate corporation, his liability for its obligations and losses will be limited to the
amount of his subscription in the absence of showing that there is a ground to disregard its separate juridical
personality. If he were to operate a single proprietorship, his liability for its debts and losses will be unlimited. The
formation and the operation of a corporation require a great deal of paper work and record-keeping. This is not
the situation in the case of a single proprietorship. If Samuel will form a separate corporation, it can raise more
funds for the business than if he were to set up a single proprietorship.
If he were to set up the restaurant as a branch office an existing corporation, the corporation will have more funds
as capital than if he were to form a separate corporation. However, all the assets of the existing corporation will
be liable for the debts and losses of the restaurant business.
Q59: Isotope Producers Philippines, Inc. (IsoProPhil) is a public company, duly incorporated and registered
with the Securities and Exchange Commission. Its authorized capital stock consists of voting common shares
and non-voting preferred shares, with equal par values of P100.00/share. Currently, the issued and
outstanding capital stock of IsoProPhil consists only of common shares shared between Jack Alcaraz, a
Filipino with 60% of the issued common shares, and Nuh Kulls, a Ugandan, with 40%. To secure additional
working fund, IsoProPhil issued preferred shares to Nuh Kulls equivalent to the currently outstanding
common shares. A suit was filed questioning the corporate action on the ground that the foreign equity
holdings in the company would now exceed the 40% foreign equity limit allowed under the Constitution the
for public utilities. Rule on the legality of Nuh Kull’s current holdings.
A59: The holding of Nuh Kulls equivalent to the outstanding common shares is illegal. His holdings of preferred
shares should not exceed 40%. Since the constitutional requirement of 60% Filipino ownership of the capital of
public utilities applies not only to voting control but also to beneficial ownership of the corporation, it should also
apply to the preferred shares. Preferred shares are also entitled to vote in certain corporated matters. (Gamboa v.
Teves, 682 SCRA 397, 2012) The state shall develop a self-reliant and independent national economy effectively
13
controlled by Filipinos. (Articles II, Sec. 19, 1987 Constitution) The effective control here should be mirrored across
the board on all kinds of shares.
Q60: A, B, C, D, E are all duly elected members of the Board of Directors of XYZ Corporation. F, the general
manager, entered into a supply contract with a German firm. The contract was duly approved by the Board of
Directors. However, with the knowledge and consent of F, no deliveries were made to the German firm. As a
result of the non- delivery of the promised supplies, the German firm incurred damages. The German firm
would like to file a suit for damages. Can the German firm sue:
The members of the Board of Directors individually, because they approved the transaction?
A60: No. In approving the transaction, the directors were not acting their personal capacities but rather in behalf
of XYZ Corporation exercising the powers of the corporation and conduction its business (Sec. 23, Corporation
Code). The problem contains no facts that would indicate that the directors acted otherwise.
Q61. Fie was 70% of the subscribed capital stock of a company which owns an office building. Fie and Fofum
own the remaining stock equally between them. Fie also owns a security agency, a janitorial company and a
catering business. In behalf of the office building company, Fie engaged his companies to render their services
to the office building. Are the service contracts valid? Explain.
A61: The contracts of Fie, who owns 15% of the Outstanding Capital Stock of the office building company is
concerned if they were not approved by the Board of Directors and Fie was not designated to execute them on
behalf of said company. On the other hand, if the contracts were duly approved by the Board of Directors of the
office building company with Fie duly designated as company representative, they would nevertheless be voided
at the option of the company. Under Sec. 32 of the Corporation Code. “A contract of the corporation with one or
more of its directors or trustees or officers is voidable at the option of such corporation, unless all the following
conditions are present,” (a) if Fie as a director in the board meeting in which the contracts were approved was not
necessary to constitute a quorum for such meeting; (b) Fie’s vote at such meeting was not necessary for the
approval of the contracts; (c) Each of the contract are fair and reasonable under the circumstances. If condition (a)
or (b) is absent, Sec, 32 requires that the contracts must be ratified by the shareholders representing at least two-
thirds (2/3) of outstanding capital stock, provided that there was full disclosure of the adverse interest of Fie to
Fee.
Q62: 123 Corporation is a bank. The operations of 123 Corporation as a bank was not doing well. So, to avert
any bank run, 123 Corporation, with the approval of the Monetary Board, sold all its assets and liabilities to
XYZ Banking Corporation which includes all deposit accounts. In effect then, XYZ Corporation will service all
deposits of all depositors of 123 Corporation. (A) Will the sale of all assets and liabilities of 123 Corporation to
XYZ Banking Corporation automatically dissolve or terminate the corporate existence of 123 Corporation?
Explain your answer.
A62: No, the sale of all the assets and liabilities of 123 Corporation to XYZ Banking Corporation will not result in
the automatic dissolution of termination of the existence of the former. A decision to dissolve 123 Corporation or
to terminate its corporate existence would require a separate approval by a majority of the Board of Directors of
XYZ Corporation and its stockholders holding at least two thirds of the total outstanding capital stock, as well as
the separate approval by the Monetary Board.
Q63: What are the legal requirements in order that a corporation may be dissolved?
A63: A corporation may be dissolved voluntarily under Section 118 (where no creditors are affected) or under
Section 119 (where creditors are affected), or by shortening of the corporate term under Section 120, or involuntarily
by the SEC under Section 122, all of the Corporation Code. Dissolution under Section 118,119 and 120 require the
same corporate approvals stated in (a) above.
Note that the SEC also has the authority under Section 6 of PD 902-A to revoke the certificate of registration of a
corporation upon any of the grounds provided by law, including the aforementioned Section 6-A.
Q64: Since February 8, 1935, the legislature has not passed even a single law creating a private corporation.
What provision of the Constitution precludes the passage of such a law?
A64: Under Sec. 16, Art. XII of the 1987 Constitution, Congress cannot, except by general law, provide for the
formation, organization, or regulation of private corporations. It is only government owned or controlled
14
corporations that may be created or established through special charters. Consequently, it has been held that a
private corporation created pursuant to a special law is a nullity, and such special law is void for being in violation
of the Constitution (NDC v. Phil. Veterans Bank, G.R. Nos. 84132-33, 10 December 1990).
Q65. On September 15, 2007, ABC Corporation issued to Willy eight hundred preferred shares with the ff.
terms: The Preferred Shares shall have the ff. rights, preferences, qualifications, and limitations, to wit: (1)
The right to receive a quarterly dividend of One per Centum cumulative and participating; (2) These shares
may be redeemed, by drawing of lots, at any time after two years from date of issue, at the option of the
Corporation; xxx Today, Willy sues ABC Corporation for specific performance, for the payment of dividends
on, and to compel the redemption of , the preferred shares, under the terms and conditions provided in the
stock certificates. Will the suit prosper? Explain.
Q65: No. the suit will not prosper. Willy cannot compel ABC Corporation to pay dividends, which have to be
declared by the Board of Directors and the latter cannot do so, unless there are sufficient unrestricted retained
earnings. Otherwise, the corporation will be forced to use its capital to make said payments in violation of the trust
fund doctrine. Likewise, redemption of shares cannot be compelled. While the certificate allws such redemption,
the option and discretion to do so are clearly vested in the corporation (Republic Planters Bank v. Agana, 269
SCRA 1 [1997]).
Q66: What is a stock and transfer book?

A66: A Stock and transfer book is a book which records all stocks in the name of the stockholders alphabetically
arranged; the installments paid or unpaid on all stocks for which subscription has been made and the date of
payment of any installment, a statement of every alienation, sale or transfer of stock made, the date thereof, and
by and to whom made; and such other entries as the by-laws may prescribe (Section 74, Corporation Code).
Q67: In a stockholders meeting, James dissented from the corporate act converting preferred voting shares to
non-voting shares. Thereafter, James submitted his certificates of stock for notation that his shares are
dissenting. The next day, James transferred his shares to Felicia to whom new certificates were issued. Now,
Felicia demands from the corporation the payment of the value of her shares.
Can Felicia exercise the right of appraisal? Reason briefly?

A67: No, Felicia cannot exercise the right of appraisal in this case. When James transferred his shares to Felicia
and she was issued new stock certificates, the appraisal right of James ceased, and Felicia acquired all the rights
of a regular stockholder. The transfer of shares from James to Felicia constitutes an abandonment of the appraisal
right of James. All Felicia acquired from the issuance of new stock certificated was the rights of a regular
stockholder (Section 86, Corporation Code).
SECURITIES REGULATIONS CODE

Q68: What is an insider? What is meant by “material” information?
A68: An insider shall include:
1. The issuer;
2. A director or officer of, or person controlling, controlled by, or under common control with the issuer;
3. A 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. A 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;
5. A person who learns such information by a communication from any of the foregoing insiders. This is also
known as a “constructive” insider. [Sec 3.8, SRC]
“Material” if it will affect the price of the securities or influence a decision of a reasonable person to buy or sell
securities. Any information that will affect the price of securities like (merger, cash dividends, appointment of new
president, resignation of the incumbent president).
Q69: What are exempt securities? May the SEC add another kind of exempt security?
A69: The following are exempt securities:
15
1. Any security issued or guaranteed by the Government of the Philippines, or by any political subdivision or
agency thereof, or by any person controlled or supervised by, and acting as an instrumentality of said
Government;
2. Any security issued or guaranteed by the government of any country with which the Philippines maintains
diplomatic relations, or by any state, province or political subdivision thereof on the basis of reciprocity:
Provided, That the Commission may require compliance with the form and content of disclosures the
Commission may prescribe;
3. Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory
body;
4. Any security or its derivatives the sale or transfer of which, by law, is under the supervision and regulation
of the Office of the Insurance Commission, Housing and Land Use Regulatory Board, or the Bureau of
Internal Revenue;
5. Any security issued by a bank except its own shares of stock.
The SEC is empowered by the SRC, by rule or regulation, to add to the foregoing any class of securities if it finds
that the enforcement of this Code with respect to such securities is not necessary in the public interest and for the
protection of investors. [Sec 9, SRC]
Q70: What are examples of manipulation of security prices?

A70:
1. Short Swing Transaction – The buying and selling or selling and buying of securities within the period of
6 months;
2. Over the Counter Transaction – The buying and selling outside the Stock Exchange or creating your own
market place.
3. Short Selling – buying and selling or selling and buying securities that you do not know or have within 6
months.
4. Wash Sale – selling of securities without change of beneficial ownership
5. Match Order – placing an order to buy knowing that there is a simultaneous order to sell securities for the
same price, terms and conditions.
6. Active Trading through Manipulative Devices and Schemes – transactions or series of transactions to
induce buying or selling of securities either by one person or in conspiracy with others in increasing or
decreasing the price of securities just to induce the buying or selling of securities.
7. Painting the Tape – painting a rosy picture of the issuer
8. Marking the Close – buying or selling at the end of trading
9. Hype and Dump – hype the shares so that price will increase and then dump it
10. Squeezing the Float – limits the supply of shares
Q71: Union Mines, Inc. has total assets of P60 Million with 210 stockholders holding at least 100 shared each.
The company has two principal stockholders, ABC which owns 60% of the shares of stock, and XYZ; which
owns 17%. ABC in turns is owned to the extent of 21.13% by Acme, Inc.; 29.69% by Golden Boy Inc.; 9% by
XYZ; and the rest by individual stockholders. None of the parties is a publicly-listed company. XYZ now
proposes to buy Acme’s and Golden Boy’s shares in ABC, which would give it, direct control of ABC and indirect
control of Union Mines. Is the proposal acquisition by XYZ subject to the mandatory tender offer rule? Why or
why not? What is tender offer and when is it mandatory?
A71: Yes, the proposed acquisition is subject to mandatory tender offer rule. A tender offer is publicly announced
intention of a person acting alone or in concert with other persons to acquire equity securities of a public company.
A tender offer is meant to protect minority stockholders against any scheme that dilutes the share value of their
investments. It gives them the chance to exit the company under the same terms offered to the majority
stockholders. Under the Securities Regulations Code and its implementing rules, a mandatory tender offer is
required (i) when at least 35% of the outstanding shares of a public company is to be acquired in one transaction
or a series of transaction during 12-month period, or (ii) even if any acquisition is less than 35% threshold but the
result thereof is the ownership of more than 51% of the total outstanding shares of a public company. [Cemco
Holding, Inc. v. National Life Insurance Company of the Philippines, Inc., G.R. No. 171815 (2007)].
In this case, Union Mines is clearly a public company, since it has total assets of P60 million pesos with 210
stockholders holding at least 100 shares each. A public company is defined as a corporation listed on the stock
exchange, or a corporation with assets exceeding 50 million pesos and with 200 or more stockholders at least
16
200 of them holding not less than 100 shares of such corporation XYZ’s acquisition of shares of Acme, Inc. and
Golden Boy, Inc., taken separately, does not reach 35% threshold. If taken collectively, the two acquisitions total
only 50%. However, when the acquisitions are added to XYZ’s existing shares in Union Mines, they meet the more-
than-51% thresholds for mandatory tender offer
Q72: What is the general for requirement of registration under the Securities Regulation Code?
A72: Securities shall not be sold or offered for sale or distribution to the public within the Philippine:
1. Without a registration statement duly filed with and approved by the SEC; and
2. Prior to such sale, information on the securities, in such form and with such substance as SEC may
prescribe, shall be made available to each prospective purchased
Public means 20 or more investors.
Q73: What damages may be awarded for a violation under the SRC?
A73:
1. Amount not exceeding triple the amount of the transaction plus actual damages
2. Exemplary damages may also be awarded in cases of bad faith, fraud, malevolence or wantonness in the
violation of this Code or the rules and regulations promulgated thereunder; and
3. Attorney’s fees not exceeding thirty percentum (30%) of the award. [Sec 63, SRC]
BANKING LAWS
Q74: Why is the Bangko Sentral Ng Pilipinas (BSP) considered as the “lender of last resort”? What are the
BSP’s primary objectives?
A74: The Bangko Sentral Ng Pilipinas (BSP) is considered the “lender of last resort” because it lends to bank and
similar institutions under financial distress when they have no other means to raise funds.
The primary objectives of the BSP are:
1. To maintain price stability conducive to a balanced and sustainable growth of the economy;
2. To promote and maintain the monetary stability and convertibility of the peso;
3. To provide policy directions in the areas of money, banking, and credit, with supervision over the
operations of banks and with regulatory powers over the operations of finance companies and non-
banking financial institutions performing quasi-banking functions [Sec 3, RA 7653]
Q75: Maharlikang Pilipino Banking Corporation (MPBC) operates several branches of Maharlikang Pilipino
Rural Bank in Eastern Visayas. Almost all the branch managers are close relatives of the members of the
Board of Directors of the corporation. Many undeserving relatives of the branch managers were granted loans.
In time, the branches could not settle their obligations to depositors and creditors.
Receiving reports of these irregularities, the Supervising and Examining Department (SED) of the Monetary
Board prepared a detailed report (SED Report) specifying the facts and the chronology of events relative to
the problems that beset MPBC rural bank branches. The report concluded that the bank branches were unable
to pay their liabilities as they fell due, and could not possibly continue in business without incurring
substantial losses to its depositors and creditors.
May the Monetary Board order the closure of the MPBC rural banks relying only on the SED Report, without
need of an examination? If you were hired as MBPC’s lawyer, what action will you institute?
A75: (1) Yes. Upon receipt of the report of the SED, the Monetary Board is authorized to take any of the actions
enumerated under Sec. 30, Republic Act No. 7653, otherwise known as the New Central Bank Act, leading to the
receivership and liquidation of a bank or quasi-bank. There is no requirement that an examination be first
conducted before a banking institution may be placed under receivership [Rural Bank of Buhi v. Court of Appeals,
G.R. No. L-61689 (1988)].
(2) The order of the Monetary Board may be questioned on a petition for certiorari on the ground that the action
taken was in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction. The
petition of certiorari may only be filed by the stockholders of record representing the majority of the capital stock
within ten (10) days from receipt by the board of directors of MPBC of the order directing receivership, liquidation
or conservatorship [Sec. 30, par. (2), R.A. No. 7653].
17
Q76: Differentiate “bank deposits” from “deposit substitutes”

A76:
Bank Deposits Deposit Substitutes
Funds obtained by a bank from the public which are Alternative forms of obtaining funds from the public,
relent by such bank to its own borrowers. other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for
the own account of the borrower, for the purpose of
relending or purchasing of receivables and other
obligations. These instruments may include, but need
not be limited to, banker’s acceptances, promissory
notes, participations, certificates of assignment and
similar instruments with recourse, and repurchase
agreements [Sec 95, RA 7653]
Q77: On December 4, 2003, XYZ Corporation executed a real estate mortgage in favor of ABC Bank. XYZ
Corporation defaulted in the payment of its loan. Consequently, on June 4, 2004, ABC Bank extra judicially
foreclosed the property. Being the highest bidder in the auction sale conducted, the Bank was issued a
Certificate of Sale which was registered on August 4, 2004.
Does XYZ Corporation still have the right to redeem the property as of September 14, 2007? Reason briefly.
A77: No, XYZ Corporation has lost its right to redeem the property. Juridical persons whose property is sold
pursuant to an extrajudicial foreclosure, shall have the right to redeem the property until registration of the
certificate of sale with the Register of Deeds, which shall in no case be more than three months after foreclosure,
whichever is earlier [Sec 47, RA 8791].
Q78: What are the classes of banks under the General Banking Act of 2000?
A78:
Universal Banks A commercial bank with two additional powers, namely: (1) the power of an
investment house; and (2) the power to invest in non-allied enterprises [Sec 29, RA
8791]
Commercial Bank A bank that can: (1) accept draft; (2) issue letters of credit; (3) discount and
negotiate promissory notes, drafts, bills of exchange, and other evidence of debt;
(4) accept or create demand deposits; (5) receive other types of deposits, as well as
deposit substitutes; (6) buy and sell foreign exchange, as well as gold or silver
bullion; (7) acquire market able bonds and other debt securities; and (8) extend
credit subject to such rules promulgated by the Monetary Board. [Sec 29, RA 8791]
Thrift Bank A bank established as savings and mortgage bank, a stock saving and loan
association, or a private development bank, for the purpose of:
(1) Accumulating the savings of depositors and investing them, together with
capital loans secured by bonds, mortgages in real estate and insured
improvements thereon, chattel mortgage, bonds and other forms of security or in
loans for personal or household finance, whether secured or unsecured, or in
financing for homebuilding and home development; in readily marketable and
debt securities; in commercial papers and accounts receivables, drafts, bills of
exchange, acceptances or notes arising out of commercial transactions; and in
such other investments and loans which the Monetary Board may determine as
necessary in the furtherance of national economic objectives;
(2) Providing short-term working capital, medium- and long-term financing, to
businesses engaged in agriculture, services, industry and housing; and
(3) Providing diversified financial and allied services for its chosen market and
constituencies especially for small and medium enterprises and individuals. [Sec
3(a), RA 7906 “Thrift Bank Act of 1995”]
Rural Bank A bank established to provide credit facilities to farmers and merchants or their
cooperatives, and in general, to the people of the rural communities [Sec 3, RA
7353, “The Rural Bank Act of 1993”]
18
Cooperative Bank A bank organized under the Cooperative Code to provide financial and credit
services to cooperatives. It may perform any or all the services offered by a rural
bank, including the operation of a Foreign Deposit Unit subject to a certain
condition [Sec 100, RA 6938, “The Cooperative Code of the Philippines”]
Q79: The Law on Secrecy of Bank Deposits, otherwise known as RA 1405, is intended to encourage people to
deposit their money in banking institutions and also to discourage private boarding so that the same may be
properly utilized by banks to assist the economic development of the country. Is a notice of garnishment
served on a bank at the instance of a creditor of a depositor covered by the said law? Explain.
A79: No. the notice of garnishment served on a bank at the instance of a creditor is not covered by the law on
Secrecy of Bank Deposits. Garnishment is just a part of the process of execution. The moment of a notice of
garnishment is served on a bank and there exists a deposit by the judgment debtor, the bank is directly
accountable to the sheriff, for the benefit of the judgment creditor, for the whole amount of the deposit. In such
event, the amount of the deposit becomes, in effect, a subject of the litigation
Q80: Under what circumstances may a bank deposit be inquired into?

A80:
1. When there is written permission of the depositor or investor;
2. Impeachment cases;
3. Upon the order of a competent court in cases of bribery or dereliction of duty of public officials;
4. Upon the order of a competent court in cases where the money deposited or invested is the subject of
litigation;
5. Upon order of a competent court or tribunal in cases involving unexplained wealth under R.A. 3019;
6. Upon inquiry by the Commissioner of Internal Revenue for the purpose of determining the net estate of a
deceased depositor;
7. Upon the order of a competent court, by the AMLC where there is probable cause for money laundering
under Sec. 11 of the AMLC;
8. Examination by the AMLC without court order in the following cases: (a) Kidnapping, (b) Violation of the
Dangerous Drugs Act, (3) Terrorism and conspiracy to commit terrorism, (4) Hijacking, destructive arson,
and murder;
9. Disclosure to the Treasurer of the Philippines for dormant deposits under the Unclaimed Deposits Act;
10. Upon order by the CA, by law enforcement officers in terrorism cases under the Human Security Act;
11. Investigation where the AMLC is authorized to examine deposits and investments with any banking
institutions or non-bank financial institution and their subsidiaries and affiliates without a court order
(Sec. 10, R.A. No. 10169);
12. PDIC’s inquiry into and examination of deposit accounts and all information related thereto in case there
is a finding of unsound banking practice under Sec. 8(8) of R.A. No. 3591, as amended;
13. Examination by the PDIC in case there is a failure of prompt corrective action as declared by the Monetary
Board due to capital deficiency;
14. When there is waiver in case of DOSRI loans;
15. Disclosure to the BSP to ensure compliance with the AMLA.
Q81: The Ombudsman wants to investigate the bank deposits of Congressman Kipper after receiving a
complaint alleging the latter’s illicit bank deposits. May the Ombudsman order the bank concerned to allow
in camera inspection of bank records and documents in order to aid in its investigation?
A81: No. The Bank Secretary Law prohibits the inspection of a bank account unless the permission of the account
holder is obtained, or upon lawful order of the court or when the deposit is the subject of litigation. Investigation
by the Ombudsman is not considered as a pending litigation to allow the examination of the bank records and
documents [Marquez v. Desierto, G.R. No. 135882 (2001)].
Q82: KLM Corporation filed a complaint against five of its officers for violation of Sec 31 of the Corporation
code. The corporation claimed that the officers were guilty of advancing their personal interests to the
prejudice of the corporation, and that they were grossly negligent in handling its afffairs. Aside from
documents and contracts, the corporation also submitted in evidence records of the officers’ US Dollar
deposits in several banks overseas –
19
Was there a violation of the Secrecy of Bank Deposits Law (RA 1405) on the part of the Corporation?
A82: No, because the punitive provisions of the Secrecy of Bank Deposits Law (RA 1405) does not apply to Foreign
Currency Deposit Unit (FCDU) accounts, even when constituted locally [Intengan v CA, G.R. No. 128996 (2002)]
Q83: After many years of shopping in the Metro Manila area, ABC has developed a habit of making cash
purchases only, none on credit. In one shopping trip to Mega Mall, a salesperson refused to accept ABC’s coins
in payment for a purchase worth not more than 100 pesos. ABC was paying 70 pesos in 25-centavo coins and
25 pesos in 10 centavo coins. The salesperson refused on the ground that ABC’s coins were not “legal tender”.
Do you agree? Explain.
A83: No. The salesperson is in error, because coins are legal tender in amounts not exceeding fifty pesos for
denominations of five centavos and above, and in amounts no exceeding twenty pesos for denominations ten
centavos and less.
Q84: Distinguish between a conservator and a receiver

Q84:
Conservator Receiver
Is appointed for a period not exceeding a one year Is appointed to manage a bank or quasi bank that is
period, to take charge of the assets, liabilities, and unable to pay its liabilities in the ordinary course of
management of a bank or quasi bank in a state of business. The main purpose is to recommend the
continuing inability or unwillingness to maintain a rehabilitation or liquidation of the bank.
condition or liquidity deemed adequate to protect the
interest of the depositors and creditors
INTELLECTUAL PROPERTY LAW

Q85: Christopher and Marx are internationally renowned painters. Atty. Ignacio commissioned them to paint
a mural at the main lobby of his new office. Both agreed to collaborate for a total fee of 2 million pesos, to be
equally divided between them. It was also agreed that Atty. Ignacio had to provide all the materials for the
painting and pay for the wages of the laborers needed for the work.
Assume that the project is completed and both Christopher and Marx are fully paid. Under the law, who will
own the mural? Who will own the copyright in the mural? Why? Explain.
A85: Under Sec 178.4 of the Intellectual Property Code, in case of commissioned work, the creator owns the
copyright, but the work itself belongs to the person who commissioned its creation, unless there is a written
stipulation to the contrary. Accordingly, the mural belongs to Atty. Ignacio. However Christopher and Marx own
the copyright, since there is no stipulation to the contrary.
Q86: What intellectual properties are protected by the law on copyright?

A86:
Original Works Derivative Works
These are original intellectual creations in the literary The following derivative works shall also be protected
and artistic domain protected from the moment of by copyright:
their creation
(a)Dramatizations, translations, adaptations,
Shall include in particular: abridgments, arrangements, and other alterations of
literary or artistic works; and
(a)Books, pamphlets, articles and other writings;
(b)Periodicals and newspapers; (b)Collections of literary, scholarly or artistic works,
(c)Lectures, sermons, addresses, dissertations and compilations of data and other materials which
prepared for oral delivery, whether or not reduced in are original by reason of the selection or coordination
writing or other material form; or arrangement of their contents.
(d)Letters;
(e)Dramatic or dramatico-musical compositions; The works referred to above shall be protected as new
choreographic works or entertainment in dumb works: Provided however, That such new work shall
shows; not affect the force of any subsisting copyright upon
(f)Musical compositions, with or without words; the original works employed or any part thereof, or be
20
(g)Works of drawing, painting, architecture, sculpture, construed to imply any right to such use of the original
engraving, lithography or other works of art; models or works, or to secure or extend copyright in such original
designs for works of art; works.
(h)Original ornamental designs or models for articles
of manufacture, whether or not registrable as an
industrial design, and other works of applied art;
(i)Illustrations, maps, plans, sketches, charts and
three-dimensional works relative to geography,
topography, architecture or science;
(j)Drawings or plastic works of a scientific or technical
character;
(k)Photographic works including works produced by a
process analogous to photography; lantern slides;
(l)Audiovisual works and cinematographic works and
works produced by a process analogous to
cinematography or any process for making audio-
visual recordings;
(m)Pictorial illustrations and advertisements;
(n)Computer programs; and
(o)Other literary, scholarly, scientific and artistic
works.
Q87: Distinguish between Infringement and Unfair Competition.

A87: The distinction between infringement and unfair competition are as follows:
1. Infringement of trademark is the unauthorized use of trademark, whereas unfair competition is the
passing off of one’s goods as those of another;
2. Fraudulent intent is unnecessary in infringement of trademark, whereas fraudulent intent is essential in
unfair competition; and
3. The prior registration of the trademark is a prerequisite to an action for infringement of trademark,
whereas registration of the trademark is not necessary in unfair competition [Del Monte Corp v CA, G.R.
No. 78325 (1990)]
Q88: What contractual stipulations are required in all technology transfer agreements? What stipulations are
prohibited in technology transfer agreements?
A88:
Required Stipulations Prohibited Stipulations
1. The laws of the Philippines shall govern its 1. Those that contain restrictions regarding the
interpretation and in the event of litigation, the volume and structure of production;
venue shall be the proper court in the place where 2. Those that prohibit the use of competitive
the licensee has its principal office; technologies in a nonexclusive agreement; and
2. Continued access to improvements in techniques 3. Those that establish a full or partial purchase
and processes related to the technology shall be option in favor of the licensor [Subsections 87.3,
made available during the period of the 87.4 and 87.5, RA 8293 as amended by RA 9150]
technology transfer arrangement;
3. In case it shall provide for arbitration, the
Procedure of Arbitration of the Arbitration Law of
the Philippines or the Arbitration Rules of the
United Nations Commission on International
Trade Law or the Rules of Arbitration of the
International Chamber of Commerce (ICC) shall
apply and the venue of arbitration shall be the
Philippines or any neutral country;
4. The Philippine taxes on all payments relating to
the technology transfer agreement shall be borne
by the licensor [Sec 88, RA 8293 as amended by
RA 9150]
21
Q89: Dr. Marie Sison discovered a new method of treating ovarian cancer involving a special method of
diagnosing the disease, treating it with a new medicine that has been discovered after long experimentation
and field testing, and novel mental isometric exercises. She comes to you for advice on how she can have her
discoveries protected. Can she legally protect her new method of diagnosis, the new medicine, and the new
method of treatment? If no, why? If yes, how?
A89: Dr. Marie Sison can be protected by a patent for the new medicine as it falls within the scope of Sec. 21 of the
Intellectual Property Code [RA 8293 as amended by RA 9150]. But no protection can be legally extended to her
for the method of diagnosis and method of treatment which are expressly non-patentable [Sec. 22, RA 8293 as
amended by RA 9150].
Q90: Juliet is a fine arts student in a university. She stays in a boarding house with Alex as her roommate.
During her free time, Juliet would paint and leave her finished works lying around the boarding house. One
day, Juliet saw one of her paintings posted in the college cafe. The café owner explained that it was brought
from Alex, who represented herself as the painter and owner.
Juliet confronted Alex. Alex admitted that she did not own the painting, but alleged that the copyright is hers
because she had already registered it under her name in the National Library as required in the Intellectual
Property Code.
Who owns the copyright to the painting? Explain.

A90: Juliet owns the copyright to the painting because she was the one who actually created it. [Section 178.1, RA
8293 as amended by RA 9150]. Her rights existed from the moment of its creation [Section 17, RA 8293 as
amended by RA 9150]. The registration of the painting by Alex with the National Library did not confer copyright
upon her. The registration is merely for the purpose of completing the records of the National Library. [Section 191,
RA 8293 as amended by RA 9150].
SPECIAL LAWS
Q91: Jermaine is jobless but is reputed to be a jueteng operator. He has never been charged or convicted of
any crime. He maintains several bank accounts and has purchased several houses from Artiaga Realty, Inc.
Since he does not have any visible job, Realty Company reported his purchases to the Anti-Money Laundering
Council (AMLC). Thereafter, AMLC charged him with violation of the Anti-Money Laundering Law. Upon
request of the AMLC, the bank disclosed to it Jermaine’s bank deposits amounting to 200 million pesos.
Subsequently, he was charged in court.
To raise funds for his defense, Jermaine sold the houses and lots to a friend. Can Artiaga Realty, Inc. refused
to transfer to the buyer ownership of the houses and lots?
A91: No, Artiaga Realty, Inc. cannot refuse to transfer ownership of the houses. It is a real estate company, hence
it is not a covered institution under Sec 3, of the Anti-Money Laundering Act. Only banking institutions, insurance
companies, securities dealers and brokers, pre-need companies and other entities administering or otherwise
dealing in currency, commodities or financial derivatives are covered institutions. Hence, Artiaga Realty, Inc. may
not use the Anti-Money Laundering Act to refuse to transfer to the buyer ownership of the houses and lots.
Q92: What are covered institutions under the Anti-Money Laundering Act? What are their obligations?
A92:
Covered Institutions Obligations of Covered Institutions
1. Banks, non – banks, quasi – banks, trust entities 1. Establish and record, and maintain a system of
and all other institutions and their subsidiaries verifying the true identities of clients, including
and affiliates supervised or regulated by the BSP; legal existence and structure of a corporate client
2. Insurance companies and all other institutions and their representative based on their official
supervised or regulated by the Insurance documents
Commission; 2. All records of all transactions of covered
3. institutions shall be maintained and safely stored
i. Securities dealers, brokers, salesmen, for five (5) years from the dates of transactions.
investment houses and other similar
22
entities managing securities or rendering 3. Report covered transactions and suspicious

services as investment agent, advisor, or transaction to the Anti-Money Laundering
consultant, Council within 5 working days from occurrence,
ii. Mutual funds, close – end investment which shall not thereby violate the Secrecy of
companies, common trust funds, pre – Bank Deposits FCDU Law, and the General
need companies and other similar Banking Law of 2000. [Sec. 9, RA 9160]
entities,
iii. Foreign exchange corporations, money
changers, money payment, remittance
and transfer companies and other similar
entities, and
iv. Other entities administering or otherwise
dealing in currency, commodities or
financial derivatives based thereon,
valuable objects, cash substitutes and
other similar monetary instruments or
property supervised or regulated by the
Securities and Exchange Commission
(SEC)
Note: RA 10365 – amending RA 4160, approved

February 15, 2013 and took effect on March 7, 2013 –
added the following persons:
1. Pawnshops;
2. Pre – need companies;
3. Jewelry dealers in precious metals and stones,
who, as a business, trade in precious metals and
stones, for transactions exceeding one million
pesos (P 1, 000, 000)
4. Company service providers which, as a business,
provide any of the following services to third
parties:
i. Acting as a formation agent of juridical
persons;
ii. Acting as, or arranging for another
person to act as:
a. A director or corporate secretary
of a company
b. A partner of a partnership, or
c. 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
5. 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;
23
iii. Organization of contributions for the

creation, operation or management of
companies; and
iv. Creation, operation or management of
juridical persons or arrangements and
buying or selling business entities.
Q93: Who are considered Philippine Nationals under the Foreign Investments Act (RA 7042 as amended by
RA 8179)?
A93: The term "Philippine national" shall mean:
1. A citizen of the Philippines or a domestic partnership or association wholly owned by citizens of the
Philippines;
2. A corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the capital
stock outstanding and entitled to vote is owned and held by citizens of the Philippines;
3. A trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a
Philippine national and at least sixty (60%) of the fund will accrue to the benefit of the Philippine national;
4. Corporation organized abroad and registered as doing business in the Philippines under the Corporation Code
of which 100% of the capital stock outstanding and entitled to vote is wholly owned by Filipinos
Q94: HK Corp. is incorporated under the laws of Hong Kong. On several occasions, PH Corp., a Filipino
corporation, would purchase products from HK Corp. According to their arrangement, HK Corp would deliver
the products purchased by PH Corp to Y Corp., another Hong Kong corporation. The goods are considered sold
as upon receipt by Y Corp., which would then have the obligation to deliver the goods to PH Corp.
For PH Corp.’s failure to pay for several transactions, HK Corp. filed a complaint before the Philippine courts.
PH Corp. alleges that HK Corp. has no capacity to sue, as it is doing business without the necessary license. Is
the contention of PH Corp. correct?
A94: No, PH Corp. is incorrect. The series of transactions between petitioner and respondent cannot be classified
as "doing business" in the Philippines under Section 3(d) of RA 7042. An essential condition to be considered as
"doing business" in the Philippines is the actual performance of specific commercial acts within the territory of the
Philippines for the plain reason that the Philippines has no jurisdiction over commercial acts performed in foreign
territories. Here, there is no showing that petitioner performed within the Philippine territory the specific acts of
doing business mentioned in Section 3(d) of RA 7042. Petitioner did not also open an office here in the Philippines,
appoint a representative or distributor, or manage, supervise or control a local business. While petitioner and
respondent entered into a series of transactions implying a continuity of commercial dealings, the perfection and
consummation of these transactions were done outside the Philippines.
Q95: What is the rule for legal recognition of electronic signatures under the E-commerce Act of 2000 (RA
8792)?
A95: An electronic signature on the electronic document shall be equivalent to the signature of a person on a
written document if that signature is proved by showing that a prescribed procedure, not alterable by the parties
interested in the electronic document, existed under which:
1. A method is used to identify the party sought to be bound and to indicate said party's access to the electronic
document necessary for his consent or approval through the electronic signature;
2. Said method is reliable and appropriate for the purpose for which the electronic document was generated or
communicated, in the light of all circumstances, including any relevant agreement;
3. It is necessary for the party sought to be bound, in or order to proceed further with the transaction, to have
executed or provided the electronic signature; and
4. The other party is authorized and enabled to verify the electronic signature and to make the decision to
proceed with the transaction authenticated by the same [Sec 8, RA 8792]
Q96: May a facsimile transmission be considered electronic evidence?

A96: No. The terms electronic data message and electronic document, as defined under the Electronic Commerce
Act of 2000, do not include a facsimile transmission. Accordingly, a facsimile transmission cannot be considered
as electronic evidence. It is not the functional equivalent of an original under the Best Evidence Rule and is not
24
admissible as electronic evidence. Since a facsimile transmission is not an electronic data message or an electronic
document, and cannot be considered as electronic evidence by the Court. [MCC Industrial Sales Corporation v
Ssangyong Corporation, G.R. No. 170633 (2007)]
Q97: What is the nature of a proceeding under the FRIA?

A97: The proceedings under the FRIA are in rem. Hence, jurisdiction is acquired upon publication of the notice of
the commencement of the proceedings in any newspaper of general circulation in the Philippines.
Q98: Mr. X is a private individual who does not own a sole proprietorship. His assets total Php 1 million, while
his liabilities amount to Php 1.5 million. Can he apply for suspension of payments under the FRIA? If not, what
proceeding can he initiate under the FRIA?
A98: No, Mr. X may not apply for suspension of payments. To be declared in a state of suspension of payments,
an individual debtor must possess sufficient property to cover all his debts but foresees the impossibility of
meeting them when they respectively fall due. In this case, Mr. X does not possess sufficient property, his liabilities
being greater than his assets. [Sec. 94, RA 10142]
Mr. X’s remedy under the FRIA is liquidation. Mr. X may voluntarily initiate liquidation provided that (1)
his properties are not sufficient to cover liabilities, and (2) his debts exceed Php 500,000. Both requisites
are present in this case. [Sec. 103, RA 10142]
Q99: Mr. X is a private individual who does not own a sole proprietorship. Can he initiate proceedings for
rehabilitation?
A99: No, he may not. Voluntary rehabilitation can only be initiated by:
1. Sole Proprietorship: When approved by the owner;
2. Partnership: When approved by a majority of the partners;
3. Stock Corporation: When approved by a majority vote of the BOD or trustees, and authorized by the
stockholders
4. Non – Stock Corporation: When approved by 2/3 of the members in a meeting called for the purpose.
An individual debtor who does not own a sole proprietorship may not apply for rehabilitation. His remedies are
either suspension of payments or liquidation. [Sec. 12, RA 10142]
TRUST RECEIPTS LAW

Q100: What is a trust receipt? What are the two features of a trust receipt?
A100: A trust receipt is a document of security pursuant to which a bank acquires a security interest in the goods
under trust receipt. Under a letter of credit-trust receipt arrangement, a bank extends a loan covered by a letter of
credit, with the trust receipt as a security for the loan. The transaction involves a loan feature represented by a
letter of credit, and a security feature which is in the covering trust receipt which secures an indebtedness.
Q101: What criminal liability attaches for failure of the entrustee to turn over either the proceeds of the sale of
the goods covered by a trust receipt or the goods unsold?
A101: The crime of estafa under Article 315, par. 1(b) of the Revised Penal Code. If the violation or offense is
committed by a corporation, the penalty shall be imposed upon the directors, officers, employees or other officials
or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal
offense. [Pilipinas Bank v Alfredo Ong, G.R. No. 133176, Aug 8 2002]
25

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U.P.

LAW BOC COMMERCIAL LAW PRE-WEEK REVIEWER

Q2: What are the essential conditions of letters of credit?

Q5: What constitutes a holder in due course?

Q6: Who is deemed a holder in due course?

Q7: What are the rights of a holder in due course?

Q8: What is the effect of a forged signature?

Q10: What are the liabilities of a maker?

Q11: What is the liability of an accommodation party?

Q12: What is the liability of an acceptor?

Q13: When is notice of dishonor not required to be given to the drawer?

Q21: Does the law on life insurance prohibit double insurance?

insurance will avoid the policies.

Q25: Differentiate property insurance from life insurance.

Are Ernest Chong, Malay and Puntranco solidarily liable to Vallega?

Q29: In maritime insurance, when is deviation proper?

Q30: What are the requisites for double insurance?

The prescriptive period is interrupted by the following instances:

Q34: Is the defense of due diligence available to a common carrier?

Q35: When is a common carrier presumed to be negligent?

What are considered unreasonable, unjust or contrary to public policy?

(2) As to amount of liability

(3) Factors that would render stipulation ineffective

Q37: What is the effect of carriage at a reduced rate of fare?

Q38: What is the Doctrine of Limited Liability?

Exceptions to the Limited Liability Rule:

Q39: What is a Bill of Lading?

Q42: What are the types of averages in maritime commerce?

Was the election of the three new directors proper?

Q52: What officer positions must a corporation at least have?

The president must also be a director. [Sec. 25, Corporation Code]

Q54: What is the difference between a director and a trustee?

Mel questioned the set-off.

Could it be legally done?

Q66: What is a stock and transfer book?

Can Felicia exercise the right of appraisal? Reason briefly?

SECURITIES REGULATIONS CODE

Q70: What are examples of manipulation of security prices?

Q76: Differentiate “bank deposits” from “deposit substitutes”

Q80: Under what circumstances may a bank deposit be inquired into?

Q84: Distinguish between a conservator and a receiver

INTELLECTUAL PROPERTY LAW

Q86: What intellectual properties are protected by the law on copyright?

Q87: Distinguish between Infringement and Unfair Competition.

Who owns the copyright to the painting? Explain.

entities managing securities or rendering 3. Report covered transactions and suspicious

Note: RA 10365 – amending RA 4160, approved

iii. Organization of contributions for the

Q96: May a facsimile transmission be considered electronic evidence?

Q97: What is the nature of a proceeding under the FRIA?

TRUST RECEIPTS LAW

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