UP BOC Commercial Law LMT

LAST MINUTE TIPS: COMM U.P.
LAW BOC
LETTERS OF CREDIT
AND TRUST RECEIPT
LETTERS OF CREDIT
Q1: What is a letter of credit?

A1: A letter of credit is issued by one merchant to another, or for the purpose of attending to a commercial
transaction. [Code of Commerce (CoC) Art. 567] It is an instrument under which the issuer, at a customer’s request,
to honor a draft or other demand for payment made by a third party as long as the draft or demand complies with
specific conditions, regardless of whether any underlying obligation between the applicant and beneficiary is satisfied.
It must be issued in favor of a determined person, and not to order and it must be limited to a fixed and specified
amount, or if not, the maximum limit must be exactly stated. [CoC Art. 568]
Q2: What is the Independence Principle in the law on Letters of Credit?

A2: The Independence Principle in the law on letters of credit means that in transactions where the letter of credit
is payable on sight, the issuer must pay upon due presentment. This obligation is imbued with the character of
definiteness in that not even the defect or breach in the underlying transaction will affect the issuing bank's liability.
This is based on Art. 17 of UCP 400 and Art. 34 of UCP 600 which states that a bank assumes no liability or
responsibility "for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any document, or for
the general and/or particular conditions stipulated in the documents or superimposed thereon ... " Thus, as long as
the proper documents are presented, the issuing bank has an obligation to pay even if the buyer should later on
refuse payment. [HSBC, Ltd. v. National Steel Corporation, G.R. No. 183486, February 24, 2016.]
Q3: What if the applicant of the letter of credit instructs the bank not to pay the beneficiary?
A3: The applicant cannot instruct the bank not to pay the beneficiary on the basis of non-fulfillment or breach of
the main contract. The principle of independence assures the seller-beneficiary of prompt payment regardless or
independent of any breach of the main contract. By this principle, the issuing bank determines compliance with the
letter of credit only by examining the shipping documents presented; it is precluded from determining whether the
main contract is accomplished or not. [Bank of America v. CA, 1993]
The beneficiary of the letter of credit, can be rest assured of being empowered to call on the letter of credit as a
security in case the commercial transaction does not push through, or the applicant fails to perform his part of the
transaction. [Transfield Philippines v. Luzon Hydro, 2004]
Q4: What is the fraud exception principle?

A4: The “Fraud Exception Principle” is the exception to the Independence Principle. It provides that the
untruthfulness of a certificate accompanying a demand for payment under a standby letter of credit may qualify as
fraud sufficient to support an injunction against payment. Under the fraud exception principle, the beneficiary may
be enjoined from collecting on the letter of credit if the beneficiary committed fraud by substituting fraudulent
documents even if on their face the documents complied with the requirements. This principle refers to fraud in
relation with the independent purpose or character of the letter of credit and not only fraud in the performance of
the obligation or contract supporting the letter of credit [Transfield v. Luzon Hydro, 2004]
The remedy of injunction is available when the following requisites are present:
a. Clear proof of fraud,
b. The fraud constitutes fraudulent abuse of the independent purpose of the letter of credit and only fraud
under the main agreement, and
c. Irreparable injury might follow if injunction is not granted or the recovery of damages would be
seriously damaged. [Transfield v. Luzon Hydro, 2004]
Q5: What is the doctrine of strict compliance?

A5: This doctrine is a rule in commercial transactions involving letters of credit that the documents tendered by the
beneficiary (seller) must strictly conform to the terms of the letter of credit and must include all documents required
by the letter. A correspondent bank which departs from what has been stipulated under the letter of credit, as when
it accepts a faulty tender, acts on its own risks and it may not thereafter be able to recover or obtain reimbursement
PAGE 1
LAST MINUTE TIPS: COMM U.P. LAW BOC
from the applicant or the issuing bank, the money thus paid to the beneficiary [Feati Bank and Trust Company v.
CA, G.R. No. 940209, Apr. 30, 1991].
TRUST RECEIPT
Q6: Define a Trust Receipt.

A6: A Trust Receipt is a written or printed document signed by the entrustee in favor of the entruster containing
terms and conditions substantially complying with the provisions of the Trust Receipts Law, whereby the bank as
entruster releases the goods to the possession of the entrustee but retains ownership thereof while the entrustee may
sell the goods and apply the proceeds for the full payment of his liability to the bank [Sec. 3(j), Trust Receipts Law].
Note: A Trust Receipt is different from a mortgage document. There are two obligations in a trust receipt transaction:
the first refers to money received under the obligation involving the duty to turn it over to the owner of the
merchandise sold, while the second refers to the merchandise received under the obligation to "return" it to the
owner. Clearly, this concept of trust receipt is inconsistent with that of an assignment of credit where there is an
absolute conveyance of title that would have in effect given authority to BSP to foreclose the subject mortgage [BSP
v. Libo-on, G.R. No. 173864, Nov. 23, 2015]
Q7: Differentiate a trust receipt and a letter of credit.

A7: A trust receipt involves two parties: the entrustor and the entrustee. On the other hand, generally, a letter of
credit involves three parties: the issuer, the applicant, and the beneficiary; additional parties may be involved
depending on the need to engage a correspondent bank. In a letter of credit, the issuer, at the request of the applicant,
agrees to honor a draft or demand for payment of the beneficiary.
The failure of the account party to reimburse the issuing bank under a letter of credit will only give rise to civil
liability whereas the failure of the entrustee to deliver the proceeds of the sale of the goods under a trust receipt or
to return the same in case of non-sale will give rise to criminal liability.
Q8: What amounts are remitted to the entrustor by the entrustee in a trust receipt arrangement?
A8: The proceeds from the disposal of the goods, documents, or instruments to the extent of the amount owing to
the entruster OR as appears on the trust receipt. [Sec. 9, Trust Receipts Law]
Q9: What are the consequences for failure to remit the amounts stated in the trust receipt?
A9: Failure to remit the amounts stated in the trust receipts can give rise to both civil and criminal liabilities. Under
the Trust Receipts Law, the failure of an entrustee to turn over the proceeds of the sale of the goods, documents or
instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust
receipt shall constitute the crime of estafa, punishable under RPC 315, par. 1 (b). [Sec. 13, Trust Receipts Law]
Intent to defraud is presumed when (1) the entrustee fails to turn over the proceeds of the sale of goods covered by
the trust receipt to the entruster; or (2) when the entrustee fails to return the goods under trust, if they are not
disposed of in accordance with the terms of the trust receipts. [Land Bank of the Philippines v. Perez, G.R. No.
166884 (2012)]
Q10: Can the customer on a sale on credit/ installment who signs a trust receipt be charged under Art. 315?
A10: No. Under Sec. 4 of PD 115, the sale of goods, documents, instruments by the seller who has general property
rights over such sold against the buyer or who sells the same to the buyer on credit, retaining title or other interest
as security for payment of the purchase price does not constitute a trust receipt transaction and is outside the purview
and coverage of PD115 [Osental vs People, G.R. 225697 (2018)]. The agreement of parties are controlled by their
intention.
Note: In different cases, the SC considered the true intent of the parties and has ruled that the transaction is in reality
a loan even though denominated as a trust receipt.
In Ng v. People the SC held that considering that the goods in this case were never intended for sale but for use in
the fabrication of steel communication towers, the trial court erred in ruling that the agreement is a trust receipt
transaction (G.R. No. 173905, April 23, 2010)
PAGE 2
In Consolidated Bank and Trust Corporation v. CA, the SC held that since the construction materials was received
before the trust receipt transaction was entered into, the transaction was a simple loan, with the trust receipt merely
as a collateral or security for the loan. The transaction in this case is inconsistent with a trust receipt transaction
where the title/ ownership to the goods remains with the bank and the goods are released to the entrustee before
the loan is granted [356 SCRA 671 [2001] citing Colinares v. CA, G.R. No. 90828, 5 September 2000].
Q11: How does a warehouseman loses his lien?
A: A warehouseman loses his lien upon goods
(a) By surrounding possession thereof or

(b) By refusing to deliver the goods when a demand is made with which he is bound to comply [Sec. 29,
Warehouse Receipts Law]
PAGE 3
NEGOTIABLE INSTRUMENTS LAW
Q1: What are the requisites of a negotiable instrument?

A1: An instrument to be negotiable must conform to the following requirements:
a. It must be in writing and signed by the maker or drawer;
b. It must contain an unconditional promise or order to pay a sum certain in money;
c. It must be payable on demand, or at a fixed or determinable future time;
d. It must be payable to order or to bearer; and
e. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty. [Sec. 1, NIL.]
Note: The validity of the consideration is not one of the requisites of a negotiable instrument [Sec. 1, NIL]. It merely
constitutes a defect of title [Sec. 55, NIL] which can be raised as a defense against a holder in due course [Sec. 58,
NIL].
Q2: What are the effects of a forged signature in a negotiable instrument?

A2: General rule: When a signature is forged or made without the authority of the person, the signature is wholly
inoperative following the rule that “one whose signature does not appear on the instrument shall not be liable
thereon” [Sec. 18, NIL]. Note: only the signature is inoperative; the instrument remains valid.
Exception: The party against whom it is sought to be enforced is precluded from setting up the forgery or want of
authority as a defense [Sec. 23, NIL] such as:
1. Those who warrant or admit the genuineness of the signature in question (This includes indorsers and
acceptors).
2. Those who, by their acts, silence, or negligence, are estopped from setting up the defense of forgery.
(includes the forger and those with knowledge)
Q3: What is the effect of a material alteration?

A3: General Rule: A material alteration of a negotiable instrument without the assent of all parties liable thereon
avoids the entire instrument.
Exceptions: The negotiable instrument is not avoided

a) Against a party who has himself made, authorized, or assented to the alteration
b) Subsequent indorsers
Note: Holder in due course not party to the alteration may enforce payment thereof according to its original tenor.
Q4: What is the effect of a forged indorsement on the negotiable instrument?

A4: In relation to the liability of a drawee, “if the bank pays money on a forged check, no matter under what
circumstances of caution, or however honest the belief in its genuineness, if the depositor himself be free from blame
and has done nothing to mislead the bank, all the loss must be borne by the bank, for it acts at its peril because the
drawee is conclusively presumed to know, or is estopped to deny, the signature of the drawer.” (Price v. Neal)
In cases involving collecting banks, the chain of liability does not end with the drawee bank. The drawee bank may
not debit the account of the drawer but may generally pass liability back through the collection chain to the party
who took from the forger and, of course, to the forger himself, if available. The collecting bank or last endorser
generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering
that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment
had done its duty to ascertain the genuineness of the endorsements.
The drawee bank is not similarly situated as the collecting bank because the former makes no warranty as to the
genuineness of any indorsement. The drawee bank’s duty is but to verify the genuineness of the drawer’s signature
and not of the indorsement because the drawer is its client. Hence, the drawee bank can recover the amount paid on
the check bearing a forged indorsement from the collecting bank. [Associated Bank vs. Court of Appeals, 233 SCRA
137 [1996]]
PAGE 4
Q5: What is the effect of contributory negligence of the drawer in the encashment of negotiable
instruments?
A5: When both parties are guilty of negligence, the Court allocates the loss and the costs of arbitration proceedings
and litigation (on a 60-40 ratio) considering the parties comparative negligence [Bank of the Phil. Islands vs. Court
of Appeals, 216 SCRA 51 [1992]
Note: In BPI, the checks involved were crossed, however in Metrobank v. Junnel (2018), the crossed checks were
valid but stolen and then Bankcom (collecting bank) negligently accepted the subject checks for deposit under the
said account despite the fact that they are crossed checks and the designated payee does not own the concerned
account. Instead of applying the 60-40 rule, the Court ordered that the banks should have been should have been
ordered sequentially liable for the entire amount of the subject checks (reworded): JMC will claim the total amount
of the checks from Metrobank; Metrobank (drawee bank) can claim from Bankcom (collecting bank); and Bankcom
can claim from those who are guilty of the stolen checks but NOT Delizo who was an unwilling participant in the
scheme.
Q6: How does the “shelter principle” embodied in the Negotiable Instruments Law operate to give the
rights of a holder in due course to a holder who does not have the status of a holder in due course? Briefly
explain.
A6: The shelter principle, provides that a holder who does not qualify as a holder in due course can, nonetheless,
acquire the rights and privileges of a holder in due course if (1) he derives his title to the instrument through a holder
in due course and (2) is not a party to any fraud or illegality affecting the instrument [Sec. 58, NIL].
Q7: What is a stale check?

A7: A stale check is one which is not presented for payment within a reasonable time after its issue and hence, should
not be encashed by the banks. In determining what is a reasonable time, regard is to be had to the nature of the
instrument, the usage of trade of business with respect to such instrument and the facts of the particular case. The
test is whether the payee employed such diligence as a prudent man exercises in his own affairs [International
Corporate Bank vs. Spouses Gueco, G.R. No. 141968, Feb. 12, 2001]. In another case, the Supreme Court referred
to the banking practice which considers a check becoming stale after more than six months [Pacheco, et. al. vs. Court
of Appeals, et al., G.R. No. 126670, Dec. 02, 1999].
Under law and jurisprudence, failure to present the check on time does not totally wipe out the liability of the drawer.
The check is an evidence of indebtedness. Thus, the payee may request the drawer to issue a new and current check
in his favor to replace the stale check or, if the drawer refuses and there has been no prescription, the payee can
pursue a legal action to collect on the obligation of the drawer.
Note: If a check is more than 10 years from issuance, it’s not just stale, any proceeding is extinguished due to
prescription [Art. 1144, CC]
PAGE 5
INSURANCE
Q1: What are the conditions before the insured may recover on the policy after the loss?
A1: The insured or some person entitled to the benefit of the insurance, without unnecessary delay, must give written
notice to the insurer [Sec. 90, Insurance Code]. When required by the policy, the insured must present a preliminary
proof loss which is the best evidence he has in his power at the time [Sec. 91, Insurance Code (IC)]
Q2: What is the effect of a failure to give notice of loss?

A2: With respect to a fire insurance policy, failure to give notice defeats the right of the insured to recover. [Sec. 88,
IC]. But with respect to other types of insurance, such failure will not exonerate the insurer, unless there is a
stipulation in the policy requiring the insured to do so.
Q3: May the parties to a contract of insurance may validly agree that an action on the policy should be
brought within a limited period of time?
A3: Yes, provided such period is not less than 1 year from the time the cause of action accrues. If the period agreed
upon is less than 1 year from the time the cause of action accrues, such agreement is void [Sec. 63, Insurance Code].
Q4: Under the “cash-and-carry” principle, an insurer is entitled to payment of the premium as soon as the
thing insured is exposed to the peril insured against. What are the exceptions to this rule?
A4: The exceptions to the cash-and-carry rule are as follows:
(a) In the case of a life or an industrial life policy, whenever the grace period provision applies (Sec 77);
(b) Whenever under the broker and agency agreements with duly licensed intermediaries, a 90-day
extension is given (Sec 77);
(c) When there is an acknowledgment in a policy or contract of insurance of receipt of premium, which
would then constitute conclusive evidence of its payment (Sec 79);
(d) Agreement allowing the insured to pay the premium in installments, and partial payment has been made
at the time of the loss (Makati Tuscany v CA);
(e) Agreement to grant the insured credit extension for payment of premium and loss occurs before the
expiration of the credit term (Makati Tuscany v CA);
(f) Estoppel, as where the insurer consistently granted a 60 to 90-day credit term for the payment of
premiums [UCPB General Insurance v Masagana Telemart].
Q5: A broker agreed to give a 15-day credit within which to pay the insurance premium, however before
the period expired, loss occurred. Can the “insured”, who issued a postdated check, recover?
A5: Yes. It is valid to stipulate that the insured will be granted credit term for payment of premium. Payment by
means of a check which was accepted by the insurer, bearing a date prior to the loss, would be sufficient. The
subsequent effects of the encashment retroact to the date of the check [UCPB General Insurance Co., Inc. v.
Masagana Telemart, Inc. 356 SCRA 307 [p2001]].
Q6: If the immediate cause of loss was fire and the proximate cause of the fire was an explosion and there
is no excepted peril under the policy, can the insured recover?
A6: Yes, recovery under the insurance contract is allowed if the cause of the loss was either the proximate or
immediate cause as long as an expected peril, if any, was not the proximate cause of the loss [Sec. 86, IC].
Q7: Can an insured recover if the loss is due to his negligence?

A7: Yes, mere negligence on the part of the insured will not prevent recovery under the insurance policy. The law
merely prevents recovery when the cause of loss is the willful act of the insured, alone or in connivance with others
[Sec. 87, IC].
PAGE 6
TRANSPORTATION LAW
Q1: Distinguish a common carrier from a private carrier.

A1: The requisites to be considered a common carrier are: 1. Must be a Person, corporation, firm or association; 2.
Engaged in the Business of carrying or transporting passengers or goods or both; 3. The carriage or transport must
either be by Land, water or air; 4. The service is for a Fee; and 5. The service is offered to the Public [Art. 1732,
NCC]. 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.
A carrier which does not qualify under the requisites of a common carrier is deemed a private carrier [National Steel
Corporation v. CA, G.R. No. 112287, December 12, 1997]. A private carrier is one who, without making the activity
a vocation, or without holding himself or itself out to the public as ready to act for all who may desire his or its
services, undertakes, by special agreement in a particular instance only, to transport goods or persons from one place
to another either gratuitously or for hire [Sps Pereña v. Sps Zarate, supra].
Q2: Can a common carrier be anything other than a vehicle?

A2: Yes. The law does not distinguish as to the means by which transportation is carried out, as long as it is by land,
water, or air. Neither does the law require that transportation be through a motor vehicle. A pipeline operator who
carries oil and other petroleum products through pipes/pipelines is a common carrier. [First Phil. Industrial Corp.
v. CA, G.R. No. 125948, December 29, 1998].
Q3: What are the defenses available to a common carrier under a contract of carriage?
A3: The defenses available to a common carrier under a contract of carriage are: (1) Exercise of extraordinary
diligence, (2) Fortuitous event, (3) Contributory negligence of passengers though it does not bar recovery of damages
for death or injury if the proximate cause is the negligence of the common carrier but the amount of damages shall
be equitably reduced [NCC, Art. 1762], and (4) Doctrine of Last Clear Chance.
Q4: Can the driver of a private carrier be held liable for a breach of contract by the latter without the former’s
negligence?
A4: NO! In culpa contractual the mere proof of the existence of the contract and the failure of its compliance justify,
prima facie, a corresponding right of relief. A driver, without concrete proof of his negligence or fault, may not
himself be held liable. The driver, not being a party to the contract of carriage, may not be held liable under the
agreement. A contract can only bind the parties who have entered into it or their successors who have assumed their
personality or their juridical position. Consonantly with the axiom res inter alios acta aliis neque nocet prodest, such
contract can neither favor nor prejudice a third person. In such a case, civil action against the driver can only be
based on culpa aquiliana, which, unlike culpa contractual, would require the claimant for damages to prove negligence
or fault on the part of the defendant. [FGU Insurance Corp. v. G.P. Sarmiento Trucking Corp., G.R. No. 141910,
[August 6, 2002], 435 PHIL 333-345]
Q5: Can hijacking be considered a fortuitous event to exculpate the common carrier from liability for the
loss, destruction or deterioration of the goods to be transported?
A5: No. In De Guzman vs. Court of Appeals, the Supreme Court held that hijacking, not being included in the
provisions of Article 1734, must be dealt with under the provisions of Article 1735 and thus, the common carrier is
presumed to have been at fault or negligent. To exculpate the carrier from liability arising from hijacking, he must
prove that the robbers or the hijackers acted with grave or irresistible threat, violence, or force [Bascos v. CA, G.R.
No. 101089, April 7, 1993]
Q6: What is contributory negligence?

A6: Contributory negligence is the failure of a person who has been exposed to injury by the fault or negligence of
another, to use such degree of care for his safety and protection an ordinarily prudent man would use under the
circumstances [Martin, 1989, citing Rakes v. Atlantic Gulf Co., G.R. No. 1719, January 23, 1907].
Contributory negligence on the part of the passenger does not justify the common carrier’s exemption from liability;
it does not bar recovery of damages for his death or injuries, if the proximate cause thereof is the negligence of the
common carrier, but the amount of damages shall be equitably reduced [Art. 1762, NCC].
PAGE 7
Q7: What is the “doctrine of last clear chance”?

A7: The doctrine of last clear chance provides that where both parties are negligent but the negligent act of one is
appreciably later in point of time than that of the other, or where it is impossible to determine whose fault or
negligence brought about the occurrence of the incident, the one who had the last clear opportunity to avoid the
impending harm but failed to do so is chargeable with the consequences arising therefrom. Stated differently, the
rule is that the antecedent negligence of a person does not preclude recovery of damages caused by the supervening
negligence of the latter, who had the last fair chance to prevent the impending harm by the exercise of due diligence.
[Philippine National Railways Corporation v. Vizcara, GR No. 190022, February 15, 2012 citing Picart v. Smith, 37
Phil. 809, 814 (1915)].
Q8: When is the doctrine of last clear chance inapplicable?

A8: The doctrine of last clear chance cannot apply if: (a) Negligence of the plaintiff is concurrent with that of the
defendant (in pari delicto); (b) Party charged is required to act instantaneously; (c) Injury cannot be avoided despite
the application at all times of all the means to avoid the injury (after the peril is or should have been discovered), at
least in all instances where the previous negligence of the party charged cannot be said to have contributed to the
injury at all. [Ong v. Metropolitan Water District 104 PHIL 397-406 (1982) citing O'Mally vs. Eagan, 77 ALR 582]
PAGE 8
CORPORATION LAW
Q1: When does the “piercing the corporate veil” doctrine apply?
A1: The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public
convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases
or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where
a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation
is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit
or adjunct of another corporation. [PNP v. Hydro Resources, G.R. No. 167530, March 13, 2013]
Q2: What is the doctrine of Reverse Piercing?

A2: In a Reverse Piercing Action, the plaintiff seeks to reach the assets of a corporation to satisfy claims against a
corporate insider.
A Reverse Piercing Action has 2 types: outsider reverse piercing and insider reverse piercing. Outsider reverse
piercing occurs when a party with a claim against an individual or corporation attempts to be repaid with assets of a
corporation owned or substantially controlled by the defendant. In contrast, in insider reverse piercing, the
controlling members will attempt to ignore the corporate fiction in order to take advantage of a benefit available to
the corporation, such as an interest in a lawsuit or protection of personal assets. [International Academy Of
Management And Economics vs. Litton And Company, Inc., G.R. No. 191525, December 13, 2017]
Q3: Will lack of notice for annual meeting necessarily invalidate the meeting? No.
A3: No. Lack of proper notice for annual meeting will not invalidate meeting if bylaws provide date and place of
meeting. Sec. 50 of the Corporation Code provides in effect that failure to give notice of the regular or annual
meetings, when the date thereof is fixed in the by-laws, will not affect the validity of the Annual Stockholders’
Meeting or the proceedings therein. [Corazon Ricafort, et al vs Honorable Isaias Dicdican, G.R. Nos. 202647-50,
March 09, 2016]
Q4: What are the voting and quorum requirements in non-stock corporations?
A4: The basis in determining the presence of quorum in non-stock corporations is the numerical equivalent of all
members who are entitled to vote, unless some other basis is provided by the By-Laws of the corporation. The
qualification "with voting rights" simply recognizes the power of a non-stock corporation to limit or deny the right
to vote of any of its members. [Mary E. Lim V. Moldex Land, Inc., Et Al., G.R. No. 206038. January 25, 2017]
Illustration:
1. Determination of quorum: majority of members

2. Determination of corporate act: majority of voting rights of members once quorum is established
Q5: Does the transferee need authority of the transferor to file a petition of mandamus against a corporation
to have the stock certificates registered under the former’s name?
A5: No. Transferees of shares of stock are real parties in interest having a cause of action for mandamus to compel
the registration of the transfer and the corresponding issuance of stock certificates. [Joseph Omar O. Andaya Vs.
Rural Bank Of Cabadbaran, Inc., G.R. No. 188769, August 3, 2016]
Q6: What is the definition of Capital?

A6: The term "capital" refers to controlling interest of a corporation, and the framers of the Constitution intended
public utilities to be majority Filipino-owned and controlled.xxx Mere legal title is insufficient to meet the 60 percent
Filipinoowned "capital" required in the Constitution. Full beneficial ownership of 60 percent of the outstanding
capital stock, coupled with 60 percent of the voting rights, is required. [Roy v Herbosa, G.R. No. 207246 November
22, 2016]
Q7: What is the difference between the Control test and the Grandfather Rule?
A7: There are two acknowledged tests in determining the nationality of a corporation: the control test and the
grandfather rule. Grandfather Rule is the method of attributing the shareholdings of a given corporate shareholder
to the second or even the subsequent tier of ownership to determine the ultimate ownership of a corporation. The
PAGE 9
control test or the liberal rule states that shares belonging to corporations at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine nationality. The Control Test is the primary test. The
Grandfather Rule applies if (1) the Filipino Equity is less than 60% of the outstanding capital of a corporation that
owns shares in a partly nationalized enterprise -- at least 60% must be owned by Philippine nationals; or (2) there is
an attempt to circumvent the nationalization requirement or when there is doubt as to the real owners (e.g. when
there is layering). [Narra Nickel Mining and Development Corporation v Redmont Consolidated Mines Corporation,
G.R. 195580 April 21,2014]
Q8: What are ultra vires acts of the corporation?

A8: Corporate acts that are outside those express definitions under the law or articles of incorporation or those
"committed outside the object for which a corporation is created" are ultra vires. The only exception to this rule is
when acts are necessary and incidental to carry out a corporation’s purposes, and to the exercise of powers conferred
by the Corporation Code and under a corporation’s articles of incorporation. [University of Mindanao, Inc. v Bangko
Sentral ng Pilipinas, G.R.194964-65 January 11, 2016]
Q9: What is the doctrine of Separate Juridical personality?

A9: The doctrine of separate juridical personality provides that a corporation has a legal personality separate and
distinct from that of people comprising it. By virtue of that doctrine, stockholders of a corporation enjoy the principle
of limited liability: the corporate debt is not the debt of the stockholder.Thus, being an officer or stockholder of a
corporation does not make one's property the property also of the corporation [Bustos v Millian’s Shoe Inc., G.R.
185024 April 4, 2017]
Note: Thus, before a director or officer of a corporation can be held personally liable for corporate obligations, the
following requisites must concur: (1) the complainant must allege in the complaint that the director or officer
assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith;
and (2) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith. [Mactan
Rock Industries, Inc. v Germo, G.R. 228799 January 10,2018]
Q10: What is the doctrine of Apparent Authority?

A10: The doctrine of apparent authority provides that a corporation will be estopped from denying the agent’s
authority if it knowingly permits one of its officers or any other agent to act within the scope of an apparent authority,
and it holds him out to the public as possessing the power to do those acts.The doctrine of apparent authority does
not apply if the principal did not commit any acts or conduct which a third party knew and relied upon in good faith
as a result of the exercise of reasonable prudence. Moreover, the agent’s acts or conduct must have produced a
change of position to the third party’s detriment (Advance Paper Corporation and Haw v. Arma Traders
Corporation, G.R. 176897 December 11, 2013)
Q11: What is the Short Swing Profit Rule?

A11: Any profit made by a director, an officer, or a 10% beneficial owner of a reporting company, in the purchase
and sale, or sale and purchase, of an equity security of such company, within any period of less than six months,
belongs to such company, as the issuer. [SEC-OGC Opinion 19-19]
Q12: What are de facto mergers?

A12: A de facto merger can be pursued by one corporation acquiring all or substantially all of the properties of
another corporation in exchange of shares of stock of the acquiring corporation. The acquiring corporation would
end up with the business enterprise of the target corporation; whereas, the target corporation would end up with
basically its only remaining assets being the shares of stock of the acquiring corporation.(Y-I Leisure Philippines,
inc. v. Yu, G.R. 207161, September 8, 2015)
Q13: What is the trust fund doctrine?

A13: The Trust Fund Doctrine means that the capital stock, properties and other assets of a corporation are regarded
as equity in trust for the payment of corporate creditors. Stated simply, the trust fund doctrine states that all funds
received by the corporation in payment of the shares of stock shall be held in trust for the corporate creditors and
other stockholders of the corporation. Under such doctrine, no fund shall be used to buy back the issued shares of
stock except only in instances specifically allowed by the Corporation Code (Boman Environmental Development
Corporation v. Court of Appeals, 167 SCRA 540 [1988]).
PAGE 10
Q14: What is the right of appraisal?

A15: Appraisal right is the right of a stockholder, who dissents from a fundamental or extraordinary corporation
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 from certain corporate acts involving
fundamental changes in the corporate structure (Section 81, Corporation Code).
However, the Code provides that no payment shall be made to any dissenting stockholder unless the corporation
has unrestricted retained earnings in its books to cover the payment. In case the corporation has no available
unrestricted retained earnings in its books, the Code provides that if the dissenting stockholder is not paid the value
of his shares within 30 days after the award, his voting and dividend rights shall immediately be restored. The trust
fund doctrine backstops the requirement of unrestricted retained earnings to fund the payment of the shares of
stocks of the withdrawing stockholders. (Turner vs. Lorenzo Shipping, G.R. No. 157479, November 24, 2010)
Note: The transfer of shares constitutes an abandonment of the appraisal right. All that transferee acquired from the
issuance of new stock certificates was the rights of a regular stockholder (Section 86, Corporation Code).
Q15: GSIS filed a complaint with the SEC seeking to declare invalid the proxies in the annual stockholders’
meeting of Meralco for failure to comply with the requirements on the validation of proxies under the SEC.
Meralco’s officers argued that it is the RTC which has jurisdiction over the case. Are Meralco’s officers
correct?
A15: Yes. The power of the SEC to investigate violations of its rules on proxy solicitation is unquestioned when the
proxies are obtained to vote on matters unrelated to the cases enumerated under Sec 5.2 of the SRC. However, when
proxies are solicited in relation to the election of corporate directors, the resulting controversy, even if it ostensibly
raised the violation of the SEC rules on proxy solicitation, should be properly seen as an election controversy within
the jurisdiction of the regular trial courts by virtue of Sec 5.2 of the SRC [GSIS v CA, 2009].
Q16: What are the tests in determining whether a case involves an intra-corporate controversy?
A16: To determine whether a case involves an intra-corporate controversy, two elements must concur: (1) the status
or relationship of the parties, and (2) the nature of the question that is subject of their controversy.
The first element (Relationship Test) requires that the controversy must arise out of intra-corporate or partnership
relations: (a) between stockholders, members or associates; (b) between any or all of them and the corporation,
partnership or association of which they form part; and (c) between such corporation, partnership or association and
the State insofar as it concerns their individual franchises. Meanwhile, the second element (Nature of the Controversy
Test) requires that the dispute among the parties be intrinsically connected with the regulation of the corporation. If
the nature of the controversy involves matters that are purely civil in character, the case does not involve an intra-
corporate dispute [Atwel v Concepcion Progressive Association, Inc., 2008].
Q17: What constitutes “doing business” for Foreign Corporations?

A17: There are two tests referred to as the “Twin-Characterization Test”:
(a) Under the Continuity Test, doing business implies a continuity of commercial dealings and
arrangements, and contemplates to some extent the performance of acts or works or the exercise of
some functions normally incident to and in progressing prosecution of, the purpose and object of its
organization.
(b) Under the Substance Test, a foreign corporation is doing business in the country if it is continuing the
body or substance of the enterprise of business for which it was organized. [Mentholatum Co. v.
Mangaliman].
Q18: What acts do not constitute “doing business” under Foreign Investments Act?
A18: Under the Foreign Investments Act, the following shall not be deemed “doing business”:
a) Mere investment as a shareholder by a foreign entity in domestic corporations doing business;
b) Having a nominee director or officer to represent its interest in such corporation;
PAGE 11
c) Appointing a representative or distributor domiciled in the Philippines that transacts business in the
representative’s or distributor’s own name and account;
d) The Publication of a general advertisement;
e) Maintaining a stock of goods in the Philippines solely for the purpose of having the same processed by
another entity in the Philippines;
f) Consignment by a foreign entity of equipment with a local company to be used in the processing of
products for export;
g) Collecting information in the Philippines; and
h) Performing services auxiliary to an existing Isolated contract of sale which are not on a continuing basis.
Q19: What are the exceptions to the general rule that an unlicensed foreign corporation doing business in
the Philippines cannot sue before Philippine courts?
A19:
(a) Estoppel - a party is estopped to challenge the personality of a corporation after having acknowledged the
same by entering into a contract with it. The doctrine of estoppel to deny corporate existence applies to a
foreign as well as to domestic corporations [Merril Lynch Futures v CA, G.R. No. 97816, July 24,1992].
(b) In Pari Delicto – a party to a contract in pari delicto with a foreign corporation doing business in the
Philippines without a license is barred from questioning the personality of the foreign corporation to sue
[Top-Weld v ECED, G.R. No. L-44944, August 9, 1985].
PAGE 12
SECURITIES AND REGULATION CODE
Q1: Under the Securities and Regulation Code, “securities shall not be sold or offered for sale or distribution
within the Philippines, without a registration statement duly filed with and approved by the Commission”
[Sec. 8.1, SRC]. What are securities as defined under the SRC?
A1: Securities are shares, participation or interests in a corporation or in a commercial enterprise or profit-making
venture, and evidenced by a certificate, contract, instrument, whether written or electronic. It includes: (SIF-DCaPO)
(a) Shares of stock, bonds, debentures, notes, evidences of indebtedness, asset-backed securities;
(b) Investment contracts, certificates of interest or participation in a profit-sharing agreement, certificates
of deposit for a future subscription;
(c) Fractional undivided interests in oil, gas or other mineral rights;
(d) Derivatives like option and warrants;
(e) Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or
similar instruments;
(f) Proprietary or nonproprietary membership certificates in corporations; and
(g) Other instruments as may in the future be determined by the SEC.
Q2: Under the Howey Test, what elements must concur in order for an investment contract to exist?
A2: (1) A contract, transaction or scheme; (2) an investment of money; (3) investment is made in a common
enterprise; (4) expectation of profits; and (5) profits arising primarily from the efforts of others [SEC v
Prosperity.com, 2012].
Q3: What securities are exempt from the registration requirement?

A3: GD-RIBO
(a) Any security issued or guaranteed by the Government of the Philippines;
(b) 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;
(c) Certificates issued by a Receiver or by a Trustee in bankruptcy duly approved by the proper adjudicatory
body.
(d) 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 (OIC), Housing and Land Use Regulatory Board (HLURB), or
the Bureau of Internal Revenue (BIR).
(e) Any security issued by a Bank, except its own shares of stock.
(f) Other securities as determined by the SEC by rule or regulation, after public hearing.
Q4: What transactions involving the sale of any security are exempt from the registration requirement?
A4: JuDe—IsCaRIOTS—QB
(a) Any Judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in insolvency.
(b) Sale by a pledge holder, or mortgagee, in the ordinary course of business, to liquidate a bona fide debt, a
security pledged in good faith as security for such Debt;
(c) An Isolated transaction in which any security is sold or offered for sale by the owner thereof, for the
owner's account, such not being made in the course of repeated and successive transactions of a like
character, such owner not being the underwriter of such security;
(d) Distribution by a corporation of securities to its stockholders as a Stock dividend;
(e) Sale of Capital stock of a corporation to its own stockholders exclusively, where no commission or other
remuneration is paid for such sale;
(f) Issuance of bonds or notes secured by mortgage upon Real estate or tangible personal property, where
sold to a single purchaser at a single sale;
(g) Issue and delivery of any security in exchange for any other security of the same Issuer pursuant to a right
of conversion;
(h) Broker's transactions, executed upon customer's Orders, on any registered Exchange or other trading
market;
(i) The sale of securities by an issuer to fewer than Twenty (20) persons in the Philippines during any twelve-
month period;
PAGE 13
(j) Subscriptions for shares in capital stock of a corporation prior to the incorporation or in pursuance of an
increase in its authorized capital stock, when no expense is incurred, or no commission, compensation or
remuneration is paid or given in connection with such sale;
(k) Exchange of securities by the issuer with its existing security holders exclusively, where no commission or
other remuneration is paid for soliciting such exchange.
(l) The sale of securities to any number of the following Qualified Buyers:
a. Bank;
b. Registered investment house;
c. Insurance company;
d. Pension fund or retirement plan maintained by the Government or managed by a bank or other
persons authorized by the BSP to engage in trust functions;
e. Investment company; or
f. Other persons as the Commission may by rule determine as qualified buyers.
Q5: What is the rule on delayed and continuous offering and sale of securities (Shelf Registration)?
A5: Securities, which are intended to be issued in tranches at more than one instance after the registration statement
has been rendered effective by the SEC, may be registered for an offering to be made on a continuous or delayed
basis in the future, for a period not exceeding 3 years from the effective date of the registration statement under
which they are being offered or sold.
Securities offered after the initial tranche shall comply with the following requirements:
a) At least 5 business days prior to the offering or sale of the securities, it shall disclose to the SEC the required
information;
b) Filing fees;
c) Undertaking to pay the remaining registration fees not later than 30 business days prior to the expiry of the
3-year period reckoned from the effectivity of the registration statement.
Q6: What is the blackout rule?

A6: A director or principal officer of an issuer must not deal in the issuer’s securities during the period within which
a material non-public information is obtained and up to two (2) full trading days after the price-sensitive information
is disclosed [Sec 13.2, PSE Disclosure Rules].
Q7: What are the obligations, if any, if a person acquires 6% of the outstanding capital stock of a listed
company?
A7: Any person who acquires, directly or indirectly, the beneficial ownership of more than 5% of any class of equity
securities, shall, within 10 days after such acquisition or such reasonable time as fixed by the SEC, submit to the
Issuer, to the Exchange where the security is traded, and to the Commission a sworn statement containing the
information required under Sec 18.1 of the SRC.
Q8: Is there a presumption of manipulation?

A8: Yes. In considering whether an order violates Sec 24 of the SRC, Brokers or Dealers should consider the
following:
(a) Whether the order or execution of the order, would materially alter the market for, and/or the
price of, the securities;
(b) The date and time the order is entered or any instructions concerning the date and time of
entry of the order;
(c) Whether the person on whose behalf the order is placed may have an interest in creating a
false or misleading appearance of active trading in any security or with respect to the market
for, or the price of, any security;
(d) Whether the order is accompanied by unusual settlement, delivery or security arrangements;
(e) Whether the order appears to be a part of a series of orders, which when put together with
the other orders, the order or the series is unusual; and
(f) Whether there appears to be a legitimate commercial basis in placing the order, unrelated to
an intention to create a false or misleading appearance of active trading in or with respect to
the market for, or price of, any security
PAGE 14
Failure to consider these factors shall raise a presumption that the transactions are manipulative [Rule 24.1.4].
Q9: Who is an insider?

A9: An “insider” means:
a) The issuer;
b) A director or officer (or any person performing similar functions) of, or a person controlling the issuer;
c) 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;
d) A government employee, 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; or
e) A person who learns such information by a communication from any of the foregoing insiders [Sec. 3.8,
SRC]
Q10: What are the prohibited acts of an insider?

A10: An insider is prohibited from committing the following acts:
(A) To sell or buy a security of the issuer, while in possession of material information with respect to the issuer
or the security that is not generally available to the public [Sec. 27.1].
(B) To communicate material nonpublic information about the issuer or the security to any person, where the
insider communicating the information knows or has reason to believe that such person will likely buy or
sell a security of the issuer while in possession of such information [Sec. 27.3]
Q11: What are the rules on Tender Offer?

A11: Type of Tender Offer Requirements
1. Intends to acquire 15% of equity securities in a public company in one or more transactions within a period
of 12 months. They shall file a declaration to that effect with the SEC
2. Intends to acquire 35% or more of the outstanding voting shares or such outstanding voting shares that are
sufficient to gain control of the board in a public company in one or more transactions within a period of
12 months; They shall disclose such intention and contemporaneously make a tender offer for the
percentage sought to all holders of such securities within the said period.
3. Intends to acquire 35% or more of the outstanding voting shares or such outstanding voting shares that are
sufficient to gain control of the board in a public company directly from one or more stockholders;
They shall make a tender offer for all the outstanding voting shares.
4. Intends to acquire any number of shares that would result in ownership of over fifty percent (50%) of the
total outstanding equity securities of a public company. They shall make a tender offer for all
outstanding equity securities to all remaining stockholders of the company. The acquirer shall be required
to accept all securities tendered.
Q12: Does the mandatory tender offer rule apply only to direct acquisition of shares in a public company?
A12: No. The coverage of the mandatory tender offer rule covers not only direct acquisition but also indirect
acquisition. What is decisive is the determination of the power of control. Control may be effected through a direct
and indirect acquisition of stock, and when this takes place, irrespective of the means, a tender offer must occur
[CEMCO Holdings v National Life Insurance, 2007].
Q13: What are exempted from the mandatory offer requirement?

A13: The following are exempted from the mandatory offer requirement:
(a) Any purchase of securities from the unissued capital stock,
Provided, the acquisition will not result to a fifty percent (50%) or more ownership of securities by the
purchaser, or such percentage that is sufficient to gain control of the board;
(b) Any purchase of securities from an increase in authorized capital stock;
(c) Purchase in connection with foreclosure proceedings involving a duly constituted pledge or security
arrangement where the acquisition is made by the debtor or creditor;
(d) Purchases in connection with a privatization undertaken by the government of the Philippines;
(e) Purchases in connection with corporate rehabilitation under court supervision;
(f) Purchases in the open market at the prevailing market price; and
(g) Merger or consolidation
PAGE 15
Q14: What entities are covered by the reportorial requirements?

A14: Under Sec 17.2 of the SRC, the following shall comply with the reportorial requirements in Sec 17.1:
(a) An Issuer which has sold a class of its securities pursuant to a registration under Sec 12 of the
SRC.
Note: But the requirement shall be suspended for any fiscal year after the year such registration
became effective if such issuer, as of the first day of any fiscal year, has less than 100 holders
of such class of securities and it notifies the Commission of such;
(b) An Issuer with a class of securities listed for trading on an Exchange; and
(c) An Issuer with assets of at least P50M and having 200 or more holders, each holding at least
100 shares of a class of its equity securities
Note: But the requirement shall be terminated 90 days after notification to the SEC by the
issuer that the number of its holders holding at least 100 shares is reduced to less than 100.
Q15: What reports are required to be filed under the reportorial requirements?
A15:
To the SEC:
(a) Annual report (including a balance sheet, profit and loss statement, statement of cash flows) within 135
days, after the end of the issuer’s fiscal year.
(b) Such other periodical reports for interim fiscal periods and current reports on significant developments
of the issuer as the SEC may prescribe [Sec 17.1].
To the equity holders:
(a) Annual report [17.5]
Note: This applies to every Issuer which has a class of equity securities satisfying any of the
requirements in Sec 17.2. The report shall be transmitted to such holders preceding the annual meeting
of the holders of such security.
To the Exchange:
(a) A copy of any report filed with the SEC [17.3]
Note: This applies to every Issuer of a security listed for trading on an Exchange.
Q16: What is a “public company” covered by the reportorial requirements under Sec 17.1?
A16: A public company is “any corporation with a class of equity securities listed on an Exchange OR with assets in
excess of P50M and having 200 or more holders, at least 200 of which are holding at least 100 shares of a class of
its equity securities [Rule 3.1.16].
A “public company” is not limited to a company whose shares of stock are publicly listed; even companies like a
bank, whose shares are offered to a specific group of people, are considered a public company, provided they meet
the requirements under Sec 17.2 [PVB v Callangan].
PAGE 16
BANKING
Q1: What are the requisites to assail the order of BSP appointing a receiver/conservator or closing a bank?
A1: The order of conservatorship (receivership or closure) may be assailed:
(a) By the stockholders representing at least a majority of the outstanding capital stock;
(b) Within ten days from receipt by the board of directors of the order;
(c) Thru a petition for certiorari with the CA on the ground that the action taken by BSP was in excess of
jurisdiction or with grave abuse of discretion as to amount to lack of jurisdiction.
RTC, acting as a liquidation court, has no power to overrule the findings of the MB. It can not pass upon the issue
of whether or not the order of closure is valid. In fact, the liquidation court’s authority is limited to adjudicating
disputed claims against the institution, assisting the enforcement of individual liabilities of the stockholders, directors
and officers and deciding on other issues to implement the liquidation plan. The exclusivity of the MB’s power is
highlighted by the absence of appeal from its actions under section 30 of RA 7653. MB’s actions are final and
executory and can only be set aside by filing a petition for certiorari within 10 days from receipt by the bank’s board
of directors of the MB’s order directing the receivership, liquidation or conservatorship (Yuseco vs PDIC, as the
statutory liquidator of the Unitrust Development Bank; GR No. 217899, September 28, 2016.)
Q2: Describe the power of the Monetary Board of the BSP in terms of ordering the closure of the banks.
A2: It is settled that the power and authority of the Monetary Board to close banks and liquidate them thereafter
when public interest so requires is an exercise of the police power of the State. Police power, however, is subject to
judicial inquiry. It may not be exercised arbitrarily or unreasonably. (Apex Bancrights Holdings, Inc. v. Bangko
Sentral ng Pilipinas Deposits Corp., GR No. G.R. No. 214866 Oct. 2, 2017)
Q3: Is the BSP required to make an independent determination of whether a bank may still be rehabilitated
before it proceeds with liquidation?
A3: No. There is nothing in Section 30 of RA 7653 requires the BSP, through the Monetary Board, to make an·
independent determination of whether a bank may still be rehabilitated or not. As expressly stated in the afore-cited
provision, once the receiver determines that rehabilitation is no longer feasible, the Monetary Board is simply
obligated to: (a) notify in writing the bank's board of directors of the same; and (b) direct the PDIC to proceed with
liquidation. (Apex Bancrights Holdings, Inc. v. Bangko Sentral ng Pilipinas Deposits Corp., GR No. G.R. No. 214866
Oct. 2, 2017)
Note: this decision was based on RA 7653, unamended yet by RA 11211. Under the amended law, Sec. 12 of the
PDIC Charter (RA 3591 as amended by RA 10856) provides that “Whenever a bank is ordered closed by the
Monetary Board, the Corporation [PDIC] shall be designated as receiver and it shall proceed with the takeover and
liquidation of the closed bank in accordance with this Act. For this purpose, banks closed by the Monetary Board
shall no longer be rehabilitated.”
Q4: What are prohibited acts under the Secrecy of Bank Deposits Law? And what are the exceptions?
A4: The Secrecy of Bank Deposits Law prohibits the examination or inquiry by any person, government official,
bureau or office of all deposits of whatever nature with banks or banking institutions in the Philippines including
investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities
[Sec. 2, Secrecy of Bank Deposits Law]. The law also declares unlawful for any official or employee of a banking
institution to disclose to any person other than those mentioned in Section two hereof any information concerning
said deposits [Sec. 3]
The exceptions are:

(1) Upon written permission of the depositor, or
(2) In cases of impeachment, or
(3) Upon order of a competent court
(a) in cases of bribery or dereliction of duty of public officials
(b) In prosecution of unexplained wealth [RA 3019 Sec. 8]
(c) In prosecution for violation of the anti-graft and corrupt practices act [RA 3019 Sec. 8]
(d) In case of a prima facie violation of the anti-money laundering law (to the council), (Anti-Money
Laundering Act Sec. 11)
PAGE 17
(4) In cases where the money deposited or invested is the subject matter of the litigation. [Sec. 2].
(5) The BIR may also inquire into bank deposits if there is an offer of compromise of tax liability on account
of financial incapacity to verify such representation of the taxpayer [NIRC Sec. 5(F)]
(6) The Revenue Commissioner to determine a decedent’s gross estate [TAX CODE, § 6(F)]
(7) The Revenue Commissioner pursuant to a request for the supply of tax information from a foreign tax
authority pursuant to an international convention or agreement on tax matters to which the Philippines is
a signatory or a party. [TAX CODE, § 6(F)]
(8) Under the Unclaimed Balances law, the bank may disclose to the National Treasurer information concerning
dormant deposits for the purpose of initiating escheat proceedings. [Sec. 3 of PD 679]
Q5: What is the rule on secrecy of Foreign Currency Deposits?

A5: All foreign currency deposits authorized under the law are declared absolutely confidential and, except upon the
written permission of the depositor, in no instance shall foreign currency deposits be examined. Moreover, that said
foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court,
legislative body, government agency or any administrative body whatsoever. However, jurisprudence provides an
exception for garnishment such that on grounds of equity, where a Filipino child was raped by a foreigner [Salvacion
v. CA, G.R. No. 94723 (1997)]; and where the party inquiring into the deposits is the co-payee of the check that was
used to fund and open the foreign currency deposit account. [China Banking v. CA, G.R. No. 140687 (2006)]. Note
that both decisions are pro hac vice.
Note: Other Exceptions:

(a) the Revenue Commissioner to determine a decedent’s gross estate (TAX CODE, § 6(F))
(b) the Revenue Commissioner pursuant to a request for the supply of tax information from a foreign tax
authority pursuant to an international convention or agreement on tax matters to which the Philippines is
a signatory or a party (TAX CODE, § 6(F))
(c) the AMLC, without a court order, investigating (a) any property or funds that are in any way related to
financing of terrorism or acts of terrorism; (b) property or funds of any person or persons in relation to
whom there is probable cause to believe that such person or persons are committing or attempting or
conspiring to commit, or participating in or facilitating the financing of terrorism or acts of terrorism as
defined herein. (Terrorism Financing Prevention and Suppression Act, § 10)
Q6: What are insured with the PDIC?

A6: Under the law, the deposit liabilities of any bank which is engaged in the business of receiving deposits or which
thereafter may engage in the business of receiving deposits, shall be insured with the PDIC (Sec. 6, RA 3591, as
amended by RA 10846).
Deposit means the unpaid balance of money or its equivalent received by a bank in the usual course of business and
for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account.
These does not include those which are not deposits and the following accounts or transactions:
1. Investment products such as bonds and securities, trust accounts, and other similar instruments;
2. Deposit accounts or transactions which are fictitious or fraudulent as determined by the Corporation;
3. Deposit accounts or transactions constituting, and/or emanating from, unsafe and unsound banking
practice/s, as determined by the PDIC, in consultation with the BSP; and
4. Deposits that are determined to be the proceeds of an unlawful activity as defined under the AMLA (RA
9160, as amended) (Sec. 5 (g), RA 3591 as amended)
Note: Any obligation of a bank which is payable at the office of the bank located outside of the Philippines shall not
be a deposit for any of the purposes of the law or included as part of the total deposits or of insured deposit. Subject
to the approval of the BOD, any insured bank which is incorporated under the laws of the Philippines which
maintains a branch outside the Philippines may elect to include for insurance its deposit obligations payable only at
such branch.
Note: Money market placements are not insured with the PDIC. This is because unlike deposits which require a
debtor-creditor relationship with the bank as debtor and the depositor as creditor, in a money market placement, the
bank only serves as the intermediary between person who needs the money and the person who has the money.
Q7: What is the maximum amount of insurance coverage under the PDIC?
PAGE 18
A7: According to the law, the deposit insured is the amount due to any bonafide depositor for legitimate deposits in
an insured bank as of the date of closure but not to exceed P500,000.00. In determining such amount due to any
depositor, there shall be added together all deposits in the bank maintained in the same right and capacity for his or
her benefit either in his or her own name or in the name of others. (Sec. 5 (j), RA 3591, as amended)
A joint account regardless of whether the conjunction ‘and’, ‘or’, ‘and/or’ is used, shall be insured separately from
any individually-owned deposit account. Provided:
1. If the account is held jointly by two or more natural persons, or by two or more juridical persons or entities,
the maximum insured deposit shall be divided into as many equal shares as there are individuals, juridical
persons or entities, unless a different sharing is stipulated in the document of deposit, and
2. If the account is held by a juridical person or entity jointly with one or more natural persons, the maximum
insured deposit shall be presumed to belong entirely to such juridical person or entity.
Q8: What is the meaning of the term splitting of deposits under the PDIC?
A8: Splitting of deposits occurs when a deposit account with an outstanding balance of more than P500,000 is broken
down and transferred into two or more accounts in the name/s of persons or entities who have no beneficial
ownership on transferred deposits in their names, within 120 days immediately preceding or during a bank-declared
bank holiday, or immediately preceding a closure order issued by the MB of the BSP, for the purpose of availing of
the maximum deposit insurance coverage. (Sec. 26 (f)(1)(e), RA No. 3591, as amended)
The law prohibits and punishes a director, officer, employee or agent of a bank from the splitting of deposits or
creation of fictitious or fraudulent loans or deposit accounts (Sec. 26 (f) RA No. 3591, as amended)
Q9: How are banks classified under the General Banking Act?
A9: Banks are classified as follows:
1. Universal banks
2. Commercial banks
3. Thrift Banks, composed of savings and mortgage banks, stocks savings and loan association, and private
development banks
4. Rural banks
5. Cooperative banks; and
6. Islamic banks. (Sec. 3.2, RA 8791)
Q10: What is a single borrower’s limit?

A10: A bank may lend to any borrower only up to a certain extent. (BSP Circular No. 1026) Non-Stock Savings and
Loan Associations may grant loans but shall not exceed the member's deposits and capital contributions, plus 12
months of his regular salary as the NSSLA may allow or up to 70% of the FMV of any property acceptable as
collateral on first mortgage that he may offer as security. (Subsection 43035.1 of the MORNBF)
Q11: Until when can a juridical person, whose property is sold pursuant to an extrajudicial sale by a bank,
redeem its property?
A11: 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 (Section 47, General Banking Law).
PAGE 19
INTELLECTUAL PROPERTY CODE
Q1: Distinguish patent, trademark and copyright.

A1: A trademark is any visible sign capable of distinguishing the goods (trademark) or services (service mark) of an
enterprise and shall include a stamped or marked container of goods. In relation thereto, a trade name means the
name or designation identifying or distinguishing an enterprise.
The scope of a copyright is confined to literary and artistic works which are original intellectual creations in the
literary and artistic domain protected from the moment of their creation.
Patentable inventions, refer to any technical solution of a problem in any field of human activity which is new,
involves an inventive step and is industrially applicable. (Kho vs. CA GR 115758 Mar 11, 2002)
PATENTS
Q2: What is the doctrine of equivalents?

A2: The doctrine of equivalents provides that an infringement also takes place when a device appropriates a prior
invention by incorporating its innovative concept and, although with some modification and change, performs
substantially the same function in substantially the same way to achieve substantially the same result. (Smith Kline
vs. CA GR 126627, Aug 14, 2003)
TRADEMARKS
Q3: Is it necessary for a trade name to be registered with the IPO before a trademark infringement suit
may be filed?
A3: No. A trade name need not be registered with the IPO before an infringement suit may be filed by its owner
against the owner of an infringing trademark. All that is required is that the trade name is previously used in trade or
commerce in the Philippines. (Coffee Partners Inc vs. San Francisco Coffee and Roastery Inc. GR 169504 Mar 3,
2010)
Q4: Does the registration of a trademark vest ownership?

A4: No. It is not the application or registration of a trademark that vests ownership thereof, but it is the ownership
of a trademark that confers the right to register the same. A trademark is an industrial property over which its owner
is entitled to property rights which cannot be appropriated by unscrupulous entities that, in one way or another,
happen to register such trademark ahead of its true and lawful owner. The presumption of ownership accorded to a
registrant must then necessarily yield to superior evidence of actual and real ownership of a trademark (Birkenstock
Orthopaedie GMBH and Co. KG v. Philippine Shoe Expo Marketing Corporation G.R. No. 194307, November 20,
2013)
Note: A trademark device is susceptible to registration if it is crafted fancifully or arbitrarily and is capable of
identifying and distinguishing the goods of one manufacturer or seller from those of another. Apart from its
commercial utility, the benchmark of trademark registrability is distinctiveness. Thus, a generic figure as that of a
shark, if employed and designed in a distinctive manner, can be a registrable trademark device, subject to the
provisions of the IP Code (Great White Shark Enterprises, Inc. v. Danilo M. Caralde, Jr., G.R. No. 192294,
November 21, 2012).
Q5: What are the effects of registration of a trademark?

A5: Except in cases of importation of drugs and medicines allowed under Section 72.1 of this Act and of off-patent
drugs and medicines, the owner of a registered mark shall have the exclusive right to prevent all third parties not
having the owner's consent from using in the course of trade identical or similar signs or containers for goods or
services which are identical or similar to those in respect of which the trademark is registered where such use would
result in a likelihood of confusion. In case of the use of an identical sign for identical goods or services, a likelihood
of confusion shall be presumed. [Sec. 147.1, RA 8293 as amended by RA 9502]
Q6: What is the concept of prior actual use in the acquisition of ownership on the law of trademarks?
PAGE 20
A6: Under the old law on trademarks [Sec. 2 of R.A. No. 166], in order to register a trademark, one must be the
owner thereof and must have actually used the mark in commerce in the Philippines for two months prior to the
application for registration. Under Section 2-A, it is clear that actual use in commerce is also the test of ownership
but the provision went further by saying that the mark must not have been so appropriated by another. It does not
require that the actual use of a trademark must be within the Philippines.
In any case, the present law on trademarks, RA 8293 (Intellectual Property Code of the Philippines, as amended),
has already dispensed with the requirement of prior actual use at the time of registration. Thus, there is more
reason to allow the registration of the subject mark under the name of Cointreau as its true and lawful owner. [Ecole
De Cuisine Manille Inc. v. Renaud Cointreau & Cie and Le Condron Bleu Int’l B.V., GR 185830, June 5, 2013]
Q7: What are the grounds of the cancellation of registration of trademarks?

A7: A petition to cancel the registration of a mark under this Act may be filed with the Bureau of Legal Affairs by
any person who believes that he is or will be damaged by the registration of a mark under this Act as follows:
(a) Within five (5) years from the date of the registration of the mark under this Act.
(b) At any time:
(i) if the registered mark becomes the generic name for the goods or services, or a portion thereof,
for which it is registered,
(ii) or has been abandoned,
(iii) or its registration was obtained fraudulently or contrary to the provisions of this Act,
(iv) or if the registered mark is being used by, or with the permission of, the registrant so as to
misrepresent the source of the goods or services on or in connection with which the mark is used.
(c) At any time, if the registered owner of the mark without legitimate reason fails to use the mark within the
Philippines, or to cause it to be used in the Philippines by virtue of a license during an uninterrupted period
of three (3) years or longer. (IP Code, Sec. 151.1)
Q8: What are the two types of confusion in trademark infringement?

A8: The first is "confusion of goods" when an otherwise prudent purchaser is induced to purchase one product in
the belief that he is purchasing another, in which case defendant's goods are then bought as the plaintiffs and its
poor quality reflects badly on the plaintiffs reputation.
The other is "confusion of business" wherein the goods of the parties are different but the defendant's product can
reasonably (though mistakenly) be assumed to originate from the plaintiff, thus deceiving the public into believing
that there is some connection between the plaintiff and defendant which, in fact, does not exist. (Seri
Somboonsakdikal vs. Orlane SA, GR 188996, Feb 1, 2017)
Q9: What are the two tests in determining colorable imitation?

A9: There are 2 kinds of tests in determining colorable imitation:
a) The test of dominancy focuses on the similarity of the prevalent features of the competing trademarks
which might cause confusion or deception and thus constitutes infringement.
b) The holistic test mandates that the entirety of the marks in question must be considered in determining
confusing similarity. (EMERALD GARMENT MANUFACTURING CORPORATION vs. CA, G.R. No.
100098, December 29, 1995)
Q10: What are the elements of unfair competition?

A10: The essential elements of an action for unfair competition are:
(a) confusing similarity in the general appearance of the goods; and
(b) intent to deceive the public and defraud a competitor.
The confusing similarity may or may not result from similarity in the marks, but may result from other external
factors in the packaging or presentation of the goods. The intent to deceive and defraud may be inferred from the
similarity of the appearance of the goods as offered for sale to the public. Actual fraudulent intent need not be
shown. (Asia Pacific Resources vs. Paperone, GR No. 213365-66, Dec 10, 2018)
Q11: What is the true test of unfair competition?
PAGE 21
A11: The true test of unfair competition is whether the acts of the defendant have the intent of deceiving or are
calculated to deceive the ordinary buyer making his purchases under the ordinary conditions o the particular trade
to which the controversy relates. One of the essential requisite is proof of fraud, intent to deceive. (Superior Comm
Enterprises v Kunman Enterprises Ltd GR 169974 Apr 20, 2010)
COPYRIGHTS
Q12: Is the remedy of unfair competition available under the law on copyrights?
A12: No. There can be no unfair competition under the law on copyrights although it is applicable to disputes over
the use of trademarks. (Pearl & Dean v Shoemart Inc et al, GR 148222 Aug 15, 2003)
Q13: Can the mere sale of illicit copies of software show probable cause for an action for copyright
infringement?
A13: Yes. The mere sale of the illicit copies of the software programs was enough by itself to show the existence of
probable cause for copyright infringement. Presidential Decree No. 49 already acknowledged the existence of
computer programs as works or creations protected by copyright. (Microsoft vs. Manansala Gr 166391 Oct 21, 2015)
Q14: Are live audio recordings of presidential and vice-presidential debates subject to copyright protection?
A14: No. Once the conditions imposed under Section 184.1(c) of the IPC are complied with, the information - in
this case the live audio of the debates now forms part of the public domain. The conditions are if such use is for
information purposes and has not been expressly reserved: Provided, that the source is clearly indicated.
There is now freedom of the press to report or publicly disseminate the live audio of the debates. Which can no
longer be infringed or subject to prior restraint. Such freedom of the press to report and disseminate the live audio
of the debates is now protected and guaranteed under Section 4, Article III of the Constitution, which provides that
"[N]o law shall be passed abridging the freedom x x x of the press." The presidential and vice-presidential debates
are held primarily for the benefit of the electorate to assist the electorate in making informed choices on election
day. (Rappler vs. Bautista GR 222702; Apr 5, 2016)
Q15: Distinguish trademark infringement from unfair competition.

A15: The following distinguish trademark infringement from unfair competition:
(a) Infringement of trademark is the unauthorized use of a trademark, whereas unfair competition is the passing off of
one's goods as those of another.
(b) In infringement of trademark fraudulent intent is unnecessary whereas in unfair competition fraudulent intent is
essential.
(c) In infringement of trademark the prior registration of the trademark is a prerequisite to the action, whereas in
unfair competition registration is not necessary. (Del Monte Corp vs. CA, GR No. 78325 Jan 25, 1990)
Q16: What is plagiarism?

A16: Plagiarism means the theft of another persons language, thoughts, or ideas. The passing off of the work of
another as ones own is thus an indispensable element of plagiarism (In re: Del Castillo AM No 10-7-17 SC Oct 12,
2010)
PAGE 22
ANTI-MONEY LAUNDERING
Q1: What is anti-money laundering?

A1: Money laundering is a crime where the proceeds of an unlawful activity are transacted, thereby making them
appear to have originated from legitimate sources. (Rep. Act No. 9160, Sec. 4)
Q2: Define the Safe Harbor Provision under the Anti Money Laundering Act.
A2: The Safe Harbor provision provides that no administrative, criminal, or civil proceedings shall lie against any
person for having made a covered transaction report in the regular performance of his duties and in good faith,
whether or not such reporting results in any criminal prosecution under this Act or any other Philippine Law. (Rep.
Act No. 9160, Sec. 9)
Q3: What is the composition of the AMLC?

A3: The Anti Money Laundering Council shall be composed of:
1. The Governor of the Bangko Sentral ng Pilipinas as Chairman;
2. The Commissioner of the Insurance Commission as member; and
3. The Chairman of the Securities and Exchange Commission as member. [Sec. 7, RA 9160 as amended by
RA 9194]
Q4: Define the Freeze Order issued by the Court under the Anti-Money Laundering Act.
A4: A Freeze Order is an extraordinary and interim relief issued by the Court of Appeals to prevent the dissipation,
removal, or disposal of properties that are suspected to be the proceeds of, or related to unlawful activities as defined
in Sec. 3(i) of Rep. Act No. 9160, as amended. The primary objective of a freeze order is to temporarily preserve
monetary instruments or property that are in any way related to an unlawful activity or money laundering, by
preventing the owner from utilizing them during the duration of the freeze order. (Ligot v. Republic) As a rule, the
effectivity of a freeze order may be extended by the Court of Appeals for a period not exceeding six months.
Q5: Discuss forfeiture under the Anti-Money Laundering Act

A5: Sec. 12 of RA 9160, as amended by RA 10365, provides that upon determination by the AMLC that probable
cause exists that any monetary instrument or property is in any way related to an unlawful activity or a money
laundering offense, the AMLC shall file with the appropriate court (through the OSG) a verified ex parte petition
for forfeiture. The provisions of the Rules of Court on civil forfeiture shall apply.
The forfeiture shall include those other monetary instrument or property having an equivalent value to that of the
monetary instrument or property found to be related in any way to an unlawful activity or a money laundering
offense, when:
1. With due diligence, the former cannot be located, or
2. It has been substantially altered, destroyed, diminished in value, or otherwise rendered worthless
3. It has been concealed, removed, converted, or otherwise transferred, or
4. It is located outside the Philippines or has been placed or brought outside the jurisdiction of the court, or
5. It has been commingled with other monetary instrument or property belonging to either the offender
himself or a third person or entity, thereby rendering the same difficult to identify or be segregated for
purposes of forfeiture.
Q6: What are the predicate crimes to money laundering?

A6: The predicate crimes or unlawful activities of money laundering refer to any act or omission or series or
combination involving/ having direct relation to:
1) Kidnapping for ransom

2) Certain sections of RA 9165, otherwise known as the Comprehensive Dangerous Drugs Act of 2002;
3) Certain sections of the Anti-Graft and Corrupt Practices Act;
4) Plunder under RA 7080.
5) Robbery and extortion under the RPC.
6) Jueteng and Masiao punished as illegal gambling under PD 1602;
7) Piracy on the high seas under the RPC and PD. 532;
8) Qualified theft under Art. 310 of the RPC
PAGE 23
9) Swindling under Art. 315 of the RPC;

10) Smuggling under RA Nos. 455 and 1937;
11) Violations under the Electronic Commerce Act of 2000;
12) Hijacking and other violations under RA 6235; destructive arson and murder, as defined under the RPC
including those perpetrated by terrorists against non-combatant persons and similar targets;
13) Fraudulent practices and other violations under the SRC;
14) Felonies or offenses of a similar nature that are punishable under the penal laws of other countries. [Sec.
3 (i)]
RA 10365 further added the following:

1) Terrorism and conspiracy to commit terrorism (Sec. 3-4 of RA 9372)
2) Financing of terrorism under Section 4 and offenses punishable under Sec. 5, 6, 7 and 8 of RA 10168,
otherwise known as the Terrorism Financing Prevention and Suppression Act of 2012:
3) Bribery and Corruption of Public Officers under the RPC
4) Frauds and Illegal Exactions and Transactions under the RPC;
5) Malversation of Public Funds and Property under the RPC;
6) Forgeries and Counterfeiting under the RPC;
7) Violations of Sec. 4-6 of Anti-Trafficking in Persons Act of 2003;
8) Violations of Sec. 78-79 of Chapter IV of the Revised Forestry Code of the Philippines;
9) Violations of Sec. 86-106 of Chapter VI, of the Philippine Fisheries Code of 1998;
10) Violations of Sec. 101-107, 110 of the Philippine Mining Act of 1995;
11) Violations of Sec. 27(c), (e), (f), (g) and (i), of the Wildlife Resources Conservation and Protection Act;
12) Violation of Sec. 7(b) of the National Caves and Cave Resources Management Protection Act;
13) Violation of the Anti-Carnapping Act of 2002;
14) Violations of Sections 1, 3 and 5 of the Decree Codifying the Laws on Illegal/Unlawful Possession,
Manufacture, Dealing In, Acquisition or Disposition of Firearms, Ammunition or Explosives;
15) Violation of the Anti-Fencing Law;
16) Violation of the Migrant Workers and Overseas Filipinos Act of 1995, as amended by RA 10022;
17) Violation of the Intellectual Property Code of the Philippines;
18) Violation of Sec, 4 of the Anti-Photo and Video Voyeurism Act of 2009;
19) Violation of Sec. 4 of the Anti-Child Pornography Act of 2009;
20) Violations of Sec. 5, 7, 8, 9, 10(c), (d) and (e), 11, 12 and 14 of the Special Protection of Children Against
Abuse, Exploitation and Discrimination
PAGE 24
DATA PRIVACY ACT
Q1: What is processing as defined under the Data Privacy Act?

A1: Processing refers to any operation performed upon personal information including, but not limited to, the
collection, recording, organization, storage, updating or modification, retrieval, consultation, use, consolidation,
blocking, erasure or destruction of data [Sec. 3(j), Data Privacy Act].
The Data Privacy Act applies to the processing of all types of personal information and to any natural and juridical
person involved in personal information processing. [Sec. 4, Data Privacy Act]
Q2: What is personal information?

A2: It is any information whether recorded in a material form or not, from which the identity of an individual is
apparent or can be reasonably and directly ascertained by the entity holding the information, or when put together
with other information would directly and certainly identify an individual (Section 3(g), Data Privacy Act).
Hence, the image of a person recorded by a camera constitutes personal data (Rynes v. Urda, CJEU 11 December
2014).
Q3: What is sensitive personal information?

A3: Sensitive personal information refers to personal information:
(a) About an individual’s race, ethnic origin, marital status, age, color, and religious, philosophical or political
affiliations;
(b) About an individual’s health, education, genetic or sexual life of a person, or to any proceeding for any
offense committed or alleged to have been committed by such person, the disposal of such proceedings, or
the sentence of any court in such proceedings;
(c) Issued by government agencies peculiar to an individual which includes, but not limited to, social security
numbers, previous or current health records, licenses or its denials, suspension or revocation, and tax
returns; and
(d) Specifically established by an executive order or an act of Congress to be kept classified. [Sec. 3(l), Data
Privacy Act]
Q4: What is the right to be forgotten? Is this right recognized under the DPA?
A4: The right to be forgotten is a right recognized by the Court of Justice of the European Union (CJEU) allowing
a data subject to request a search engine operator (such as Google), as a data controller, to have the particular
information about him (which appears when his name is searched via the search engine) “no longer be linked to his
name by a list of results displayed following a search made on the basis of his name” on the ground “that information
appears, having regard to all the circumstances of the case, to be inadequate, irrelevant or no longer relevant, or
excessive in relation to the purposes of the processing at issue carried out by the operator of the search engine, the
information and links concerned in the list of results must be erased.” (Google Spain SL, Google Inc. v Agencia
Española de Protección de Datos (AEPD), Mario Costeja González, 2014)
The right to be forgotten is recognized in the form of the right of erasure or blocking under the Data Privacy such
that the data subject is entitled to suspend, withdraw or order the blocking, removal or destruction of his or her
personal information from the personal information controller’s filing system upon discovery and substantial proof
that the personal information are incomplete, outdated, false, unlawfully obtained, used for unauthorized purposes
or are no longer necessary for the purposes for which they were collected. . (Sec. 16(e), Data Privacy Act)
PAGE 25
FRIA
IN GENERAL
Q1: When is a debtor is insolvent?

A1: A debtor is insolvent when his financial condition is such that:
1. He is generally unable to pay its or his liabilities as they fall due in the ordinary course of business (illiquidity
concept) or
2. He has liabilities that are greater than its or his assets (balance sheet concept) [Sec. 4, FRIA]
REHABILITATION
Q2: What is rehabilitation and when can it be availed of?
A2: Under the FRIA, rehabilitation refers to the restoration of the debtor to a condition of successful operation
and solvency. To be entitled to rehabilitation, two conditions must be present:
a. The continuance of operation is economically feasible and
b. Its creditors can recover by way of the present value of payments projected in the plan, more if the debtor
continues as a going concern than if it is immediately liquidated.
Case law explains that corporate rehabilitation contemplates a continuance of corporate life and activities in an effort
to restore and reinstate the corporation to its former position of successful operation and solvency, the purpose
being to enable the company to gain a new lease on life and allow its creditors to be paid their claims out of its
earnings. [BPI Family Savings Bank, Inc. vs. ST. Michael Medical Center, Inc., G.R. No. 205469, March 25, 2015]
Q3: What is the effect of the lack of or absence of a liquidation analysis in a Rehabilitation Proceeding?
A3: The absence of a liquidation analysis can be used to argue against the rehabilitation. Without the showing of the
total liquidation assets and the estimated liquidation return to the creditors, as well as the fair market value vis-a-vis
the forced liquidation value of the fixed assets, the Court could not ascertain if the petitioning debtor's creditors can
recover by way of the present value of payments projected in the plan, more if the debtor continues as a going
concern than if it were immediately liquidated. This is a crucial factor in a corporate rehabilitation case. [Philippine
Asset Growth Two, Inc. v. Fastech Synergy Phils. Inc., G.R. 206528 (2016)].
Q4: When is rehabilitation economically feasible?

A4: The Supreme Court has explained that to determine the feasibility of rehabilitation, a thorough examination and
analysis of the debtor’s financial data be conducted. If the results indicate that there is a real opportunity to
rehabilitate the debtor based on the assumptions made and financial goals stated in the proposed Rehabilitation Plan,
then rehabilitation is feasible [BPI v. Sarabia Manor Hotel Corp. GR No. 175844].
Rehabilitation is economically feasible if:

(a) The debtor has assets that can generate more cash if used in its daily operations than if sold;
(b) Liquidity issues can be addressed by a practicable business plan that will generate enough cash to sustain
daily operations; and
(c) The debtor has a definite source of financing for the proper and full implementation of a Rehabilitation
Plan that is anchored on realistic assumptions and goals [Somera]
Q5: What is a material financial commitment?

A5: A material financial commitment is a required content of a Rehabilitation Plan [FR Rules, Rule 2, Sec.61 (Y)]. It
is significant in gauging the resolve, determination, earnestness and good faith of the distressed corporation in
financing the proposed rehabilitation plan. This commitment may include the voluntary undertakings of the
stockholders or the would-be investors of the debtor-corporation indicating their willingness and ability to contribute
funds or property to guarantee the continued successful operation of the debtor corporation during the period of
rehabilitation [Philippine Bank of Communications v. Basic Polyprinters and Packaging Corporation, G.R. No.
187581 (2014)].
In the case of BPI Family Savings Bank, Inc. v. St. Michael Medical Center, Inc., G.R. 205469 (2015), the Court found that
since the only proposed source of revenue the Rehabilitation Plan suggests is the capital which would come from
SMMCI’s potential investors, which negotiations are merely pending, such is speculative and hardly fit the description
PAGE 26
of a material financial commitment which would inspire confidence that the rehabilitation would turn out to be
successful.
Q6: What is a Cram Down under Court-supervised rehabilitation? When is it permitted?

A6: Cram down refers to the confirmation by the rehabilitation court of a Rehabilitation Plan over the objections of
the creditors. The effect of a cram down binds not only the insolvent debtor but also all persons affected by it,
including creditors.
A cram down is only permitted if all of the following circumstances are present:
(i) The Rehabilitation Plan complies with the requirements specified under the FRIA;
(ii) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
(iii) The shareholders, owners, or partners of the juridical debtor lose at least their controlling interest
as a result of the Rehabilitation Plan; and
(iv) The Rehabilitation Plan would likely provide the objecting class of creditors with compensation
that has a net present value greater than that which they would have received if the debtor were
under liquidation. [Sec. 64, FRIA]
Q7: What is the rationale behind the Stay or Suspension Order issued by the Rehabilitation Court and what
are its effects?
A7: The Stay or Suspension Order, which is included in the Commencement Order, is an interlocutory order. The
reason for the stay of all actions and proceedings is to enable the receiver to effectively exercise its powers free from
any judicial or extrajudicial interference that might unduly hinder or prevent the rescue of the debtor.
It contains two distinct orders:

(a) A stay order as against the creditors (a) To suspend all actions or proceedings in court or otherwise for
the enforcement of claims against the debtor and (b) To suspend all actions to enforce any judgment,
attachment or other provisional remedies against the debtor;
(b) An injunction against the debtor (c) to prohibit the sale, encumbrance, transfer or disposal in any manner
of any of its properties, except in the ordinary course of business; (d) and to prohibit any payment of its
liabilities outstanding as of the commencement date except as provided under the FRIA [Sec. 16(q), FRIA]
Q8: What is a Pre-negotiated Rehabilitation?

A8: Pre-negotiated Rehabilitation is an insolvency proceeding that commences as an extra-judicial proceeding but
terminates as a judicial one. It involves the negotiation and eventual approval of a Pre-negotiated Rehabilitation Plan,
that is a consensual contract between an insolvent debtor and its creditors that modifies the terms of the debtor’s
claims. It implies that the insolvent creditor has been able to obtain the endorsement or approval of its creditors
[Somera].
Q9: What is a standstill agreement under the Out-of-Court Rehabilitation? When is it effective and
enforceable to non-contracting creditors?
A9: A standstill agreement is a consensual contract between the insolvent debtor and its creditors that allows the
debtor not to pay its liabilities as they fall due and prevents the creditors from taking further action or enforcing its
claims against the debtor. Standstill agreements generally bind only the contracting parties.
The standstill period agreed upon pending negotiation and finalization of the out-of- court Rehabilitation Plan shall
be effective and enforceable not only against contracting parties but also against other creditors, provided that:
(a) Such agreement is approved by creditors representing more than 50% of the total liabilities of the
debtor;
(b) Notice of the standstill agreement is published in a newspaper of general circulation in the Philippines once
a week for two consecutive weeks; and
(c) The standstill period does not exceed 120 days from the date of effectivity [Sec. 85, FRIA]
LIQUIDATION
Q10: What is liquidation and when can it be availed of?
PAGE 27
A10: Liquidation is a judicial insolvency proceeding by which the assets of an insolvent debtor are recovered and
their value preserved and maximized for the purpose of converting the same into money, and discharging to the
extent possible, all the claims against the insolvent debtor [Sections 119, 131, FRIA].
Liquidation can be availed of when the rehabilitation of the juridical debtor is not economically feasible or does not
result in a better present value recovery for the creditors.
Q11: Distinguish voluntary from involuntary liquidation of individual debtors?

A11: Voluntary liquidation is a judicial insolvency proceeding instituted by a debtor that is insolvent. The filing of
the insolvent debtor of a petition for voluntary insolvency is an act of insolvency. In the case of an individual
debtor, it must be insolvent under the balance sheet concept and must meet the value requirement (i.e., debts exceeds
P500K). [Sec. 103, FRIA] In the case of a juridical debtor, it must be insolvent under the illiquidity or equity
concept, that is, the juridical debtor is illiquid, possessing sufficient property to cover all its debts but foreseeing the
impossibility of meeting them when they respectively fall due, or the balance sheet concept, that is, the assets of the
debtor are insufficient to cover its liabilities.
Involuntary liquidation is a judicial insolvency proceeding instituted by a creditor or group of creditors against
an insolvent debtor, provided the requirements of the law on the number of creditors (i.e., at least three) and the
value of the claims (i.e., at least P1 million or at least 25% of the subscribed capital stock or partner’s contribution)
or both, is met, and provided an act of insolvency is alleged and thereafter established [Sec. 105, FRIA]
Q12: What are the remedies of the secured creditor in liquidation proceedings?
A12: Under the FRIA, the Liquidation Order shall not affect the right of a secured creditor to enforce his lien in
accordance with the applicable contract or law. A secured creditor may:
(i) Waive its right under the security or lien, prove its claim and share in the distribution of the assets, in which
case it will be admitted as an unsecured creditor; or (ii) Maintain its rights under the security of lien, in which
case:
a. The value of the property may be fixed in a manner agreed upon by the creditor and liquidator
b. The liquidator may sell the property and satisfy the creditor’s entire claim from the proceeds or
c. The secured creditor may enforce the lien or foreclose the property.
The Financial Liquidation and Suspension of Payments Rules of Procedure for Insolvent Debtors require a secured
creditor, at any time prior to the election of the liquidator, to manifest in writing to the court its option. If a secured
creditor fails to file the manifestation, it will be deemed to have opted to maintain its rights under the security of lien
[Sec. 114, FRIA].
SUSPENSION OF PAYMENTS
Q13: What is suspension of payments and when can it be availed of?

A13: Suspension of payments is a judicial insolvency proceeding by which an individual debtor, submits, for approval
by his creditors, a proposed agreement containing propositions delaying or extending the time of payment of his
debts. It is a statutory device allowing a distressed debtor to defer payment of his debts by presenting a plan to repay
creditors over time. [Somera]
Under the FRIA, it can only be voluntarily availed of by an individual debtor who, possessing sufficient property to
cover all his debts, foresees the impossibility of meeting them when they respectively fall due [Sec. 94, FRIA]. In
other words, he is an individual debtor insolvent under the illiquidity or equity concept.
Q14: What are the exceptions to the Stay and Suspension Order issued by the court in a Suspension of
Payments proceeding?
A14: Under the FRIA, no creditor shall sue or institute proceedings to collect his claim from the debtor from the
time of the filing of the petition for suspension of payments and for as long as proceedings remain pending except:
(a) Exempt claims or those creditors having claims for:
(i) Personal labor,
(ii) Maintenance,
PAGE 28
(iii) Expense of last illness and funeral of the wife or children of the debtor incurred in the 60 days
immediately prior to the filing of the petition; and
(b) Secured creditors or a creditor with a claim that is secured by a statutory or contractual claim or
judicial charge on real or personal property that legally entitles a creditor to resort to said property for
payment of the claim or debt secure by such lien [Sec. 96, FRIA]
Q15: What is the difference between suspension of payments and liquidation?

A15: To be declared in a state of suspension of payments, an individual debtor must be insolvent under the illiquidity
or equity concept. If the individual debtor is insolvent under the balance sheet concept (i.e., his liabilities are greater
than his assets), his only course of action is to file for liquidation.
PAGE 29

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LAST MINUTE TIPS: COMM U.P.

Q1: What is a letter of credit?

Q2: What is the Independence Principle in the law on Letters of Credit?

Q4: What is the fraud exception principle?

Q5: What is the doctrine of strict compliance?

Q6: Define a Trust Receipt.

Q7: Differentiate a trust receipt and a letter of credit.

Q11: How does a warehouseman loses his lien?

A: A warehouseman loses his lien upon goods

(a) By surrounding possession thereof or

NEGOTIABLE INSTRUMENTS LAW

Q1: What are the requisites of a negotiable instrument?

Q2: What are the effects of a forged signature in a negotiable instrument?

Q3: What is the effect of a material alteration?

Exceptions: The negotiable instrument is not avoided

Q4: What is the effect of a forged indorsement on the negotiable instrument?

Q7: What is a stale check?

Q2: What is the effect of a failure to give notice of loss?

Q7: Can an insured recover if the loss is due to his negligence?

Q1: Distinguish a common carrier from a private carrier.

Q2: Can a common carrier be anything other than a vehicle?

Q6: What is contributory negligence?

Q7: What is the “doctrine of last clear chance”?

Q8: When is the doctrine of last clear chance inapplicable?

Q2: What is the doctrine of Reverse Piercing?

1. Determination of quorum: majority of members

Q6: What is the definition of Capital?

Q8: What are ultra vires acts of the corporation?

Q9: What is the doctrine of Separate Juridical personality?

Q10: What is the doctrine of Apparent Authority?

Q11: What is the Short Swing Profit Rule?

Q12: What are de facto mergers?

Q13: What is the trust fund doctrine?

Q14: What is the right of appraisal?

Q17: What constitutes “doing business” for Foreign Corporations?

SECURITIES AND REGULATION CODE

Q3: What securities are exempt from the registration requirement?

Q6: What is the blackout rule?

Q8: Is there a presumption of manipulation?

Q9: Who is an insider?

Q10: What are the prohibited acts of an insider?

Q11: What are the rules on Tender Offer?

Q13: What are exempted from the mandatory offer requirement?

Q14: What entities are covered by the reportorial requirements?

The exceptions are:

Q5: What is the rule on secrecy of Foreign Currency Deposits?

Note: Other Exceptions:

Q6: What are insured with the PDIC?

Q10: What is a single borrower’s limit?

INTELLECTUAL PROPERTY CODE

Q1: Distinguish patent, trademark and copyright.

Q2: What is the doctrine of equivalents?

Q4: Does the registration of a trademark vest ownership?

Q5: What are the effects of registration of a trademark?

Q7: What are the grounds of the cancellation of registration of trademarks?

Q8: What are the two types of confusion in trademark infringement?

Q9: What are the two tests in determining colorable imitation?

Q10: What are the elements of unfair competition?

Q11: What is the true test of unfair competition?

Q15: Distinguish trademark infringement from unfair competition.