PATRICK

BANKING
(01 April 2020)
I. NATURE OF BUSINESS
A. Definition. Sec. 3.1 of GBL. Lending function and deposit function
B. Quasi bank. Sec. 4.6, GBL. Alternative way of getting funds from the public, i.e.
institutions which issue Promissory Notes to investors, but same count of
depositors to qualify as QBI
II. REQUIREMENTS TO SET UP A BANK / QB
A. Stock corporation
B. Funds are obtained from the public (20 or more)
C. Minimum capitalization requirements by MB
III. DEGREE OF CARE
A. Highest degree of care in conduct of business. Includes agents, employees,
officers. Covers all transactions, especially handling of deposits, etc.
B. EXAMPLE
1. Ocular inspection of property given as collaterals. Rule on reliance on
Torrens Title (in Civil Law) does not apply squarely to B/QB/FI because
more is expected of them
a) PNB v Vila: Banks are imbued with public interest. The highest
degree of diligence is expected, and high standards of integrity
and performance are required of it. Here, property was in the
possession of another person other than the one applying for the
loan + TCT no longer under the name of the Sps. Cornista.
b) Poole-Blunden v. Union Bank: Discrepancy in the size of the
condominium unit. Computation of the are should be based on the
Condominium Act, which the Bank should have known. “As-is-
where-is” stipulation does not apply when the law requires. The
rule on innocent purchasers for value does not apply to B/QB/FI
without first demonstrating the observance of the degree of
diligence required of the Bank (Always look at the arguments of
each party).
c) PhilBank v. Dy: When no amount of diligence on the conduct of
the ocular inspection could have led to the discovery of the
complicity between the ostensible mortgagors and the true
owners, the Bank has performed its duty and it will be protected
as an innocent mortgagee. The simulated nature of the contract is
a case of fraud which is a state of mind.
2. Clearing processes for checks
a) PNB v. Chong: A Bank which fails to follow its own internal rules
and circulars and/or performs its duty contrary to ordinary banking
practice is negligent. In normal cases, only the collecting bank is
made to suffer the loss. However, in this case, the depositor was
 also made to suffer loss because they were also negligent in
taking care of their business. (Take note of timelines because that
is important when applying the ruling to the facts)
3. Release of deposits
a) Citybank v. Sps. Cabamongan: Sps. opened a joint “and/or”
foreign currency time deposits in trust for their sons. Prior to
maturity, a person, claiming to be the depositor-wife, pre-
terminated the foreign currency time deposit, by presenting a
passport, a Bank of America Versatele Card, an ATM card, and a
Mabuhay Credit Card, including a photocopy of the Certificate of
Time Deposit. Bank employee did not check the Depositors'
record. After the interview, Bank employee accepted the Quitclaim
without requiring the notarization of the same, in violation of the
Bank’s policy. It was later found out that the true depositor-wife
was in the US and that weeks prior to the pre-termination, the
Depositor-Spouses were victims of a robbery. The Court held that
the bank was grossly negligent in handling the spouses’ deposit.
The Bank employee had many lapses — accepted photocopy, did
not check the records for comparison, did not require notarization,
glaring discrepancies between the signature on record and the
signature of the impostor.
4. Handling of foreign currency transactions
a) Sps. Carbonell v. Metrobank: Even the BSP was unable t oreadily
see the counterfeiting. Unique factual situation
IV. TWO MAIN PRODUCTS
A. Deposits
1. Receipt of money from the public with obligation of safely keeping it, and
returning the same
2. Governed by provisions on loan
3. Twenty or more depositors. QB institutions usually have limited clientele
for its deposit facilities, but still should be 20 or more.
4. Creditor-debtor relationship between depositor-bank in relation to the
bank’s deposit functions. Not the same property returned. Title to the
deposit is transferred to the bank.
a) Failure by the bank to pay the depositor is failure to pay a simple
loan, and not a breach of trust
b) Failure of the bank to return the amount deposited will NOT
constitute estafa through misappropriation. Will only give rise to
civil liability (Guingona, Jr. v. The City Fiscal of Manila).
B. Loans
1. Commensurate to project to be finances.
2. Terms and conditions should
a) always be aligned with BSP regulations
b) Be consistent with safe and sound banking practices.
 DEPOSITS

V. SECRECY OF BANK DEPOSITS

A. Rationale: To encourage people to have faith in the banking system so banks will
have money to circulate to the rest of the public.
B. Exceptions: (1-4 is really in the law itself; others are from cases and other laws)
1. Written permission of the depositor (Best practice is to have the written
permission to be notarized). The permission should be made by the
depositor himself because he is the one protected by the law.
2. Impeachment, regardless of permission by the depositor.
3. Bribery/dereliction of duty of public officers
a) Ejército v. Sandiganbayan: “Deposits,” for purposes of Bank
Secrecy, is to be broadly understood as any account which gives
rise to creditor-debtor relationship between depositor-bank. Trust
Accounts included. Plunder is analogous to bribery because
bribery and dereliction of duty are predicate acts to the crime of
plunder.
4. Deposits subject matter of litigation
5. XXX
6. XXX
7. Dormant accounts. For referral to OSG for escheat proceedings
8. AMLA (safe-harbour provisions under Sec. 9, AMLA)
a) Money Laundering: A crime whereby the proceeds of an unlawful
activity is transacted thereby making them appear to have
originated from legitimate sources.
b) As a general rule, AMLC can inquire into deposits upon court
order when there is probable cause that the deposits are related
to any unlawful activity. Exceptions (i.e. AMLC can determine that
the unlawful activity is closely related to these crimes and NO
COURT ORDER is required):
(1) Kidnapping for ransom
(2) Violation of CDDA of 2002
(3) VIolation of RA No. 6235
(4) Destructive arson
(5) Murder, including those perpetrated by terrorists
c) Reporting requirements. Reporting does not mean that there is
criminal liability. (When in doubt, might as well report)
(1) Covered transactions
(a) transactions in cash or other monetary instrument
in excess of P500,000 within one day
(b) a transaction exceeding P1,000,000 in cases of
jewelry dealers, dealers in precious metals, and
dealers in precious stones
 (2) Suspicious transaction
(a) No underlying legal or trade obligation, purpose, or
economic justification
(b) Client is not properly identified
(c) Amount involved is not commensurate with the
business or financial capacity of the client
(d) Transaction is structured in order to avoid being the
subject of reporting requirements
(e) Transaction deviates from the profile of the client
and/or the client’s past transactions
(f) In any way related to unlawful activity or any money
laundering activity of offense that is about to be
committed
(g) XXX
9. Human Security Act
a) Court of Appeals Special Court may authorize
10. Foreign Currency Deposit
a) Written permission of the depositor
b) Salvacion v. Central Bank
c) AMLA
d) HSA
C. Sanctions
1. Official or employee who discloses, imprisonment and fine
VI. PHILIPPINE DEPOSIT INSURANCE CORPORATION
A. Mandatory insurance coverage. PDIC is the statutory insurer of banks
B. Risk insured against is bank closure
C. Subject matter is the liability of the bank at the date of closure. Amount insured is
the amount deposited net of any obligation of the depositor to the bank as of
closure
D. Maximum coverage: P500,000 per bank regardless of the number of accounts
held (Branches DO NOT enjoy separate juridical personality). Joint accounts are
separately covered, provided however that the maximum amount of recovery for
all joint accounts is P500,000
E. EXAMPLE
1. Depositor has:
a) Savings = P500,000
b) Current = P500,000
c) Time = P500,000
Depositor will be able to get only P500,000. The remaining P1,000,000
will depend on what will happen during the liquidation proceedings
2. Depositor has:
a) Savings = P500,000
b) Current (joint account with Depositor B) = P500,000
c) Time = P500,000
 Depositor will be able to get P500,000 for his Savings and Time Deposits
and P250,000 from the Current Account, unless he can prove that his
share in the Current Account is not share-and-share alike
3. Depositor has
a) Joint Acct w/ Anna = P500,000
b) Joint Acct w. Annie = P500,000
c) Joint Acct w/ Alma = P500,000
d) Joint Acct w/ Allena = P500,000
e) Joint Acct w/ Ailyn = P500,000
Total of interest Depositor is P1,250,000. Depositor can claim only
P500,000. P750,000 will depend on liquidity
F. EXCLUSIONS
1. Deposit liabilities payable in foreign branches
2. Investment products (i.e. Trust Accounts)
3. Fictitious or fraudulent
4. Emanating from unsafe and unsound banking practices
5. AMLA
6. Splitting of deposits (Sec. 21(f)(5) RA No. 3591, as amended by RA No.
9576): 120 day period is important
a) So v. PDIC: PDIC exercises quasi-judicial powers, its decisions
are reviewable only by certiorari to the CA
G. CLAIM MUST BE FILED WITHIN 2 YRS
1. Sps. Chugani v. PDIC: Depositors were invited by the president of Rural
Bank to open a time deposit. Rural Bank was placed under receivership.
Depositors filed a claim with PDIC. Claim was rejected on the ground that
the deposit was not under their name, certificate of time deposit was fake.
Certificate of Time Deposit with PDIC is under the name of the Bank
President. Depositors have no personality to file claims with the PDIC.
For deposit to be legitimate:
a) Received by the bank as a deposit in the usual course of business
b) Recorded in the books of the bank as such
c) Opened in accordance with established forms and requirements of
the BSP and/or PDIC

LOANS
VII. AMORTIZATION
A. Amortization schedule - nature of the operations to be financed.
B. Those with maturities of more than five years, amortization payments must be
made at least annually
C. When the loan is used for purposes which do not initially produce revenues
adequate for regular amortization, payments therefrom, bank may permit the
initial amortization payment to be deferred until such time as said revenues are
sufficient for such purpose, but in no case shall the initial amortization date be
later than five years from the date on which the loan or other credit
 accommodation is granted (i.e. Project financing where the project itself is the
collateral)
1. Question: Can banks defer this in case of force majeure? A: Yes, banks
have the flexibility to defer the recoupment of credit.
VIII. PREPAYMENT
A. A borrower may, at any time prior to the agreed maturity date, prepay, in whole
or in part, the unpaid balance of any bank loan and other credit accommodation,
subject to such reasonable terms and conditions as may be agreed upon
between the bank and its borrower
B. Usual sanction is pre-termination penalty in the loan contract (Affects project
revenue)
IX. DOSRI RESTRICTIONS
A. Rationale: Limitation on these borrowers is to ensure that there will be no undue
advantage when DOSRI borrows from their B/QB/FI. Does not mean that the
DOSRI is not allowed to loan from the bank, it only means the necessity of
complying with reportorial requirements
B. Requisites
1. Borrower is
a) DIRECTOR
b) OFFICER
c) STOCKHOLDER OF THE BANK (holds at least 1% of the
outstanding capital stock) or
d) Their RELATED INTERESTS, defined by the BSP under CB Circ
423, s. 2004:
(1) Relatives (spouse and 1st degree relatives);
(2) Partnerships of which the DOS and relatives of the DOS
are general partners;
(3) Co-owner of collateral, i.e. X is not DOSRI of B Bank. X
filed loan application with B Bank, submitted as collateral is
a property co-owned by a DOSR, UNLESS what is being
offered as collateral is
(4) Certain corporations, associations, or firm where (there is
commonality of interest):
(a) DOSR is also a director or officer
(b) Any or group of DOSR holds at least 20% of the
capital stock
(c) It owns at least 20% of the capital stock of a
substantial stockholder of the lending bank or which
controls majority interest of the bank
(d) Lending bank owns 20% of the corporation or has
management contract with the lending bank
2. There is loan by the DOSRI (whether direct or indirect, including
guarantees and sureties)
 3. Loan is from their banks or bank subsidiary (or affiliate) or bank
controlling interest of which is the same as his bank
4. Amount of loan is in excess of 5% of capital surplus of the ending bank
C. DOSRI Requirements
1. Written approval of all the directors of the lending bank
2. Report to BSP
3. Arms length. The terms and conditions, including interest, should be at
par with what is being offered to the public or the market
4. Aggregate ceiling of DOSRI loans — 15% of the bank’s loan portfolio of
100% of combined capital accounts whichever is lower
5. Individual ceiling — encumbered deposit and book value of paid up
shares

CORPORATION LAW
(8 April 2020)
I. ATTRIBUTES OF A PRIVATE CORPORATION
A. Artificial being (see discussion on Corporate Personality)
B. Creature of law
1. Created under the law (Revised Corporation Code)
2. Constitutional Limitations (Art. XII, Sec. 16, 1987 Consti)
a) General law for the creation of private corporations. Should be a
law that applies to private corporations in general. Under the law,
all private corporations should be treated equally
b) Congress can create a corporation through a Special law if GOCC
(1) Public ownership
(2) Economic viability
(3) For the common good
3. Concession Theory: Corporate existence is granted by the State where
the corporation is incorporated (Issuance of Certificate of Incorporation). It
is the State that creates a corporation as legal fiction. In the PH, creation
is counted from the approval of the AOI or passage of bill.
C. Right of succession
1. Under RCC, the term for corporate existence is, generally, perpetual.
D. Limited capacity
1. Limitations found in statute, AOI, By-Laws (Sec. 44, RCC)
2. Generally, performance of corporate acts is by the BOD. There are
corporate acts which need to be ratified or consented to or done by the
stockholders
II. CLASSES OF CORPORATION
A. According to release of dividends
1. Stock
2. Non-Stock
B. According to place of incorporation
 1. Domestic
2. Foreign
C. According to status
1. De jure (Sec. 19, RCC)
2. De facto
a) To be a de facto corporation whose acts will produce legal
consequences, it must hold a certificate of incorporation, though
defective. There is colorable compliance. (Seventh Day Adventist
v Northeastern Mindanao)
b) Only the State may challenge its corporate existence through Quo
Warranto proceedings
c) A de facto corporation can perform corporate acts as longs as its
existence has not been challenged
d) Contra Doctrine of Corporation by estoppel where there is NO
corporation, but only representations of the existence of the
corporation. The doctrine protects parties who transacted with the
purported agents, officers, etc of the fake corporation for purposes
of making them liable (Sec. 20, CC). Pretenders’ liability is not
limited, they are personally liable, because the extent of liability is
that of a general partner.
(1) Lim Tong Lim: Estoppel goes beyond direct direct
participation in the purported corporation's transactions.
Having reaped the benefits of the contract entered into by
persons with whom he previously had an existing
relationship, he is deemed to be part of said association
and is covered by the scope of the doctrine of corporation
by estoppel
(2) Missionary Sisters v. Alzona: The doctrine of corporation
by estoppel applies for as long as there is no fraud and
when the existence of the association is attacked for
causes attendant at the time the contract or dealing sought
to be enforced was entered into, and not thereafter. Here,
donation was an act of pure liberality and the donor’s intent
is primary consideration. Further, the deficiency was
actually cured by the execution of a new deed of donation
after the COI was issued.
D. According to limitations as to share holdings
1. Open: Shareholdings is not limited
2. Close: Shares cannot be listed in the stock market and cannot freely
transfer shares unless the AOI is strictly adhered to
E. According to Control of or by Another Corporation
1. Parent: Controlling company
2. Subsidiary: Controlled company
 3. Affiliate: Describes the relationship between parent-subsidiary or
subsidiaries companies of the same parent corporation
III. NATIONALITY OF CORPORATIONS
A. Tests of nationality
1. Place of incorporation Test: Nationality is determined based on the state
where the corporation is incorporated, regardless of the nationality of the
shareholders
2. Control Test: Test in cases where the business is subject to capitalization
requirements under the law. Nationality is determined by ownership or
controlling interests. Nationality of stockholders is controlling. Generally, if
corporation is 60% owned by Filipinos, it is a Filipino corporation
3. Grandfather Rule: The method by which the percentage of Filipino equity
in a corporation engaged in nationalized and/or partly nationalized areas
of activities, provided for under the Constitution and other nationalization
laws, is computed, in cases where corporate shareholders are
present, by attributing the nationality of the second or even subsequent
tier of ownership to determine nationality
a) Done by tracing the direct and indirect shareholdings
b) Purpose is to look into citizenship of those who ultimately own and
control the corporation

X, Inc. is engaged in a Y, Inc. - 69% Foreign - 53%

nationalized industry
Filipino - 47%

Filipino Individuals -
31%
Thus, X, Inc. is a Filipino corporation because 47% Filipino-owned
component of the 69% in Y, Inc. is 32% of X, Inc. Therefore, X, Inc. is
63% owned by Filipinos.

X, Inc. is engaged in a Y, Inc. - 69% Foreign - 70%

nationalized industry
Filipino - 30%

Filipino Individuals -
31%
Thus, X, Inc. is NOT a Filipino corporation because the 30% Filipino-
owned component of the 69% in Y, Inc. is only 21% of X, Inc.. Therefore,
X, Inc. is only 52% owned by Filipinos.

c) When resorted to. The Control test is still the prevailing mode of
determining whether or not a corporation is a Filipino corporation
within the ambit of Sec. 2, Art. XII of the 1987 Consti. Entitled to
undertake the EDU of natural resources. Reliance on the
 Grandfather Rule should only be used when there is doubt as to
the compliance with the 60-40 requirement. It is only when the
Control Test is complied with may the Grandfather Rule be
applied.
(1) Doubt refers to various indications that the beneficial
ownership and control of the corporation do not in fact
reside in Filipino shareholders. (Narra Nickel v Redmont)
(a) Investment and funding
(b) Technical support
(c) Management
B. Important Cases
1. Gamboa v Teves: “Capital” in the Constitution refers only to shares of
stock entitled to vote in the election of directors, and not the total
outstanding capital stock
2. Roy III v Herbosa: Sec. 2 of SEC Memo. Circ. No 8 provides that capital
means (a) Total number of voting shares, AND (b) total number of
outstanding shares of stock, whether voting or non-voting. Thus, 60%
requirement is applied to voting shares AND total outstanding capital
stock, separately. Both control and economic rights must reside in Filipino
citizens. Full ownership up to 60% of a corporation engaged in a
nationalized industry must stay in Filipino hands. CONTROLLING
IV. CORPORATE JURIDICAL PERSONALITY
A. Doctrine of Separate Juridical Personality: A corporation is a distinct legal entity
to be considered as separate and apart from the individual stockholders or
members who compose it, and is not affected by the personal rights, obligations,
and transactions of its stockholders or members. It also has a separate
personality from that of any other entity to which it may be related (Sulo ng
Bayan, Inc. v Araneta, Inc.)
B. Contra Sole Proprietorship: Does not possess a juridical personality separate
and distinct from the owner. He has unlimited personal liability for all the debts
and obligations of the business (Alps Transport v Rodriguez)
C. Implications of Separate Personality
1. Rights and properties acquired by the corporation are owned by it.
Stockholders do not have personality to pursue remedies pertaining to the
properties of the corporation. Interests of shareholders on properties,
actions, and claims are inchoate, mere expectancy. Direct interest
belongs to the corporation itself.
a) Magsaysay-Labrador v CA: Shareholders are in no legal sense
the owners of corporate property which is owned by the
corporation as a distinct legal person. Their interest is indirect,
contingent, remote, conjectural, consequential, and collateral.
Direct interest in the properties of the corporation is through
sharing in the profits through dividends, or distribution upon
dissolution
 b) Tayatac: Cases for damage suffered by corporate properties
cannot be pursued by stockholders.
c) Bustos v Millians Shoe: Properties merely owned by stockholder
cannot be included in the inventory of corporations in preparation
for rehabilitation
2. Recovery of damages. As persons, corporations are entitled to be
indemnified according to the various bases for obligations.
a) Rule on Moral Damages. Generally, juridical entities are not
entitled to be awarded moral damages because they do not have
mental faculties and feelings, EXCEPT when the basis for the
claim of moral damages is BESMIRCHED REPUTATION (Coastal
Pacific Trading v. Southern Rolling Mills & Filipinas Broadcasting
Network v Ago Medical and Educational Center-Bicol)
3. Constitutional rights. Generally, corporations are entitled to rights afforded
to individuals, UNLESS the right is patently applicable only to a natural
person.
a) Due process (YES), except deprivation of liberty because a
corporation cannot be incarcerated
b) Equal protection (YES)
c) Right against unreasonable search and seizure (YES) (Stonehill v
Diokno)
d) Freedom to travel (NO)
e) Right against self-incrimination (NO) (BASECO v PCGG)
4. Liability for torts and crimes.
a) Crimes: Generally, Corporations cannot be held liable for a crime.
The fiction of corporate entity however CANNOT shield and
protect the individual actors in the criminal act for or on behalf of
the corporation they represent.
(1) If the crime is committed by a corporation or other juridical
entity, the directors, officers, employees, or other officers
thereof responsible for the offense shall be charged and
penalized for the crime. HOWEVER, A corporation may be
charged and prosecuted for a crime if the imposable
penalty is fine. Even if the statute prescribes both fine and
imprisonment as penalty, a corporation may be prosecuted
and, if found guilty, may be fined. (Ching v SOJ)
b) Torts: A corporation is civilly liable in the same manner as natural
persons for torts, because generally speaking, the rules governing
the liability of a principal or master for a tort committed by an
agent or servant are the same whether the principal or master be
a natural person or a corporation, and whether the servant or
agent be a natural or artificial person. A principal or master is
liable for every tort which he expressly directs or authorizes, and
 this is just as true of a corporation as of a natural person (PNB v
CA)
V. PIERCING THE VEIL
A. The court looks at the corporation as a mere collection of individuals or an
aggregation of persons undertaking business as a group, disregarding the
separate juridical personality of the corporation unifying the group.
B. When two business enterprises are owned, conducted, and controlled by the
same parties, both law and equity will, when necessary to protect the rights of
third parties, disregard the legal fiction that two corporations are distinct entities
and treat them as identical or as one and the same (Kukan International Corp. v
Reyes)
C. As a general rule, a corporation will be looked upon as a legal entity, unless and
until sufficient reason to the contrary appears. When the notion of legal entity is
used to defeat public convenience, justify wrong, protect fraud, or defend crime,
the law will regard the corporation as an association of persons. Also, the
corporate entity may be disregarded in the interest of justice in such cases as
fraud that may work inequities among members of the corporation internally,
involving no rights of the public or third persons. In both instances, there must
have been fraud and proof of it. For the separate juridical personality of a
corporation to be disregarded, the wrong-doing must be clearly and convincingly
established. It cannot be presumed (Suldao v. Cimech System Construction,
Inc.)
D. Cases of Piercing
1. Defeat public convenience — When the application of the separate
corporate personality would be inconsistent with the business purpose of
the legal fiction or would merely confuse legitimate issues, or when
piercing the corporate fiction is necessary to achieve justice or equity for
those who deal in good faith with the corporation.
2. Fraud cases — When corporate entity used to commit a crime, to
undertake fraud or do a wrong, or that the corporate veil is used as a
means to evade the consequences of one’s criminal or fraudulent acts
a) There must have been fraud or an evil motive in the affected
transaction, and the mere proof of control of the corporation by
itself would not authorize piercing;
b) Corporate fiction is used as a means to commit the fraud or avoid
the consequences thereof; and
c) The main action should seek for the enforcement of pecuniary
claims pertaining to the corporation against corporate officers or
stockholders.
3. Alter ego cases — When a corporate entity is merely a farce since the
corporation is merely the alter ego, business conduit, or instrumentality of
a person or another entity. Where a corporation is merely a farce since it
is a mere alter ego or business conduit of a person. Unlike in fraud
piercing, alter ego piercing does not require that evidence of fraud or
 wrongdoing be established, but only that the corporate personality has
been used as an instrumentality for the personal agenda of its controlling
stockholder. Instrumentality Rule: One company has dominion over the
finances, policy, and business practice with respect to business
a) Doctrine applies even in the absence of evil intent, because of the
direct violation of a central corporate law principle of separating
ownership from management;
b) Doctrine in such case is based on estoppel: if stockholders do not
respect the separate entity, others cannot also be expected to be
bound by the separate juridical entity;
c) Piercing in alter ego cases may prevail even when no monetary
claims are sought to be enforced against the stockholders or
officers of the corporation.
4. Other cases of piercing
a) Confuse relation of employer and employee
b) Tax evasion
c) Forum-shopping
d) IP rights
E. Legal consequence of piercing
1. When the corporate veil is pierced, the corporation and persons who are
normally treated as distinct from the corporation are treated as one
person, such that when the corporation is adjudged liable, these persons,
too, become liable as if they were the corporation.
F. Piercing Cases
1. Zambrano v. Philippine Carpet Manufacturing: Interlocking stockholder,
directors, or officers is not of itself sufficient ground to pierce.
2. WPM International Trading v Labayen: Concurrent positions held by one
person in two corporations alone is not determinative of absolute control.
3. California Manufacturing v. Advanced Technology System: Proof of
control over financial policies and business is necessary to justify
piercing.
4. Pioneer v. Morning Star: Piercing the corporate veil in order to hold
corporate officers personally liable for the corporation’s debts requires
that the bad faith or wrongdoing of the directors/ officers must be
established by clear and convincing evidence. Huge indebtedness per se
does not establish fraud on the part of the directors/officers. It is the
nature of businesses to take risks when making business judgments, and
this includes taking loans and incurring liabilities. Piercing cannot apply to
one who is not a party to the case (remedial aspect). Implead the
corporation sought to be made liable.
5. Vicmar Devt v. Elarcosa: Where it appears that business enterprises are
owned, conducted, and controlled by the same parties, law and equity will
disregard the legal fiction that these corporations are distinct entities and
shall treat them as one. Implication of piercing is that the corporations are
 one and the same for the purpose of the liability for the claim. This does
not mean that the companies involved will lose their juridical existence.
Moving forward, they can continue to enjoy their separate juridical status.
Piercing is res judicata only to the particular judicial proceeding where
they were both held liable.
6. Kukan International v. Reyes: Piercing has to be done with caution. It is
only applied to establish liability. The entities sought to be pierced must
be impleaded. Piercing cannot be raised by mere motion or for the first
time on appeal. Paid-up capital is merely seed money to start a
corporation or a business entity. Minimal paid-up capital is not an
indication to defraud creditors.
7. International Academy of Management & Economics: As a rule, the
corporation should be impleaded. Exception: If it is shown by clear and
convincing evidence that the separate and distinct personality of the
corporation was purposely employed to avoid obligations. A person can
be held liable under the alter ego theory if the evidence shows that the
person controlled the corporation. Control to the point of completely
disregarding the corporate form. Reverse veil-piercing — in traditional
veil-piercing, a court disregards the existence of the corporate entity so a
claimant can reach the assets of a corporate insider. In reverse veil-
piercing, the plaintiff seeks to reach the assets of a corporation to satisfy
claims against a corporate insider. It permits a creditor to pierce the veil to
satisfy the debts of an individual out of the corporation's assets.
VI. INCORPORATION
A. INCORPORATORS
1. Any person, partnership, association, or corporation, singly or jointly with
others bit not more than 15 in number
2. Not allowed — Natural persons, partnerships, and associations organized
for the practice of profession cannot incorporate
B. TERM OF EXISTENCE
1. Rule: Perpetual existence, unless AOI provides otherwise
2. Existing corporations are presumed to have perpetual existence unless
the corporation, upon a vote of its stockholders representing a majority of
its outstanding capital stock, notifies the SEC that it elects to retain its
specific term
3. Extension of term of corporations with limited corporate existence not
earlier than 3 years prior to the original or subsequent expiry date unless
there are justifiable reasons for an earlier extension as may be
determined by the SEC (i.e. new long-term projects)
4. Corporations whose term expired can seek revival of term. If the SEC
approves, the term is now deemed perpetual, unless the specific term is
requested in the revival application. Should be coterminous with the
winding up period
C. CORPORATE NAME
 1. Name should be distinguishable from that already reserved or registered
for the use of another corporation, or if such name is already protected by
law. Check SEC i-View. Ask for several names from client
2. Use should not be contrary to existing law, rules, and regulations
3. Words that cannot serve as “distinction”
a) “Corporation,” “Incorporated,” etc.
b) Punctuations
c) Generic, etc words can hardly serve to differentiate company
name. Words must be effective differentiating medium (Ang Mga
Kaanib v. Iglesia ng Dios Kay Cristo Jesus & Indian Chamber of
Commerce Phils v. Filipino Indian Chamber of Commerce of the
Phils). General Rule: General descriptive and geographic words
may be used but they cannot be appropriated. Exception: Doctrine
of Secondary Meaning — “use for so long and so exclusively”
4. If the SEC finds that the corporate name is not distinguishable from a
reserved name, one protected by law, contrary to law, the SEC can order
to immediately cease using the name. SEC can cause removal of
signanges, marks, advertisements, labels, and prints with such name.
Otherwise, contempt, civil, criminal, administrative liability
5. Name of a dissolved corporation cannot be used by another company for
5 years unless permitted by stockholders representing majority of the
capital stock
D. CAPITAL REQUIREMENT
1. Stock corporations shall not be required to have minimum authorized
capital stock UNLESS otherwise specifically provided by special law (i.e.
Insurance companies = P1B)
2. Non-stock corporation has no stock requirement, but must disclose
capital
3. Doctrine of equality of shares — Except as otherwise provided in the AOI
and stated in the COS, each share shall be equal in all respects to every
other share. Classification of shares
a) Preferred v Common
b) Voting v Non-voting. Only preferred and redeemable shares can
be deprived of voting rights, save for the cases stated under the
RCC (i.e. exclusive voting rights are with founders shares or when
common shares are delinquent). There should always be a
class/series of shares with complete voting rights. Non-voting
shares can vote on:
(1) Amendment of AOI
(2) Adoption and amendment of by-laws
(3) SLEMP
(4) Bonded indebtedness
(5) Increase or decrease of capital stock
(6) Merger or consolidation
 (7) Investment in secondary purpose
(8) Dissolution (exclusive list)
c) Founders shares. The exclusive right to vote/be voted upon is
subject to Anti-Dummy Law, FIA, and other pertinent laws
d) Redeemable
e) Treasury — Redeemed shares, shares that are bought back, kept
in the treasury of the company. They are available for re-issuance.
Not considered outstanding shares. Not counted for purposes of
quorum, voting, and dividends.
f) Par v No Par Value. Par value for a share refers to the stock value
stated in the corporate charter. No-par value stock is issued
without a par value. The value of no-par value stocks is the
amount investors are willing to pay on the open market. Issuance
of no-par value shares prohibited:
(1) Banks
(2) Trust
(3) Insurance
(4) Pre-need companies
(5) Public utilities
(6) Building and loan associations
(7) Corporations authorized to obtain access funds from the
public
VII. CONTROL AND MANAGEMENT
A. Levels of Corporate Control
1. Shareholders
2. Directors
3. Officers
B. Centralized Management
1. Exercise of corporate powers, conduct of business, and control of assets
and properties entrusted to the Board, except for acts reserved to
shareholders, and for OPCs and Sole Corporation
C. Business Judgment Rule: The questions of policy or management are left solely
to the honest decision of the officers and directors of a corporation and the courts
are without authority to substitute their judgment for the judgment of the BOD; the
board is the business manager of the corporation and so long as it acts in good
faith its orders are not reviewable by the courts or the SEC (Saber v CA)
D. How are BOD members chosen
1. Election process
2. Rule on counting of votes
a) Generally, one share/ one member = one vote. Except, when
count of votes is provided for in the AOI or by-laws. For election of
BOD or BOT members, the multiplier is the count of directors or
trustees to be elected based on the AOI (i.e. Number of shares x
Number of directors to be elected).
3. Cumulative voting
a) Stock corporation
b) Non-stock corporation, no cumulative voting
4. Methods of voting
a) Straight Vote — every stockholder may vote such number of
shares for as many persons as there are directors to be elected
b) Cumulative Vote for one candidate — a stockholder is allowed to
concentrate his votes and give one candidate as many votes as
the number of directors to be elected multiplied by the number of
his shares shall equal
c) Cumulative voting by distribution — a stockholder may cumulate
his shares by multiplying also the number of his shares by the
number of directors to be elected and distribute the same among
as many candidates as he shall fit

*D = this is provided for based on the Articles of Incorporation; even if the

by-laws provide for a different number
Authorized CS = the largest figure, because its shows the capacity that
the corporation can give out
Outstanding CS = the number of shares that are out in the market
(opposite: unissued capital stock); THIS DETERMINES OWNERSHIP
Subscribed CS = the stocks that have been issued (same as outstanding
CS for the sake of computing ownership)
Paid-Up CS = those paid for by the shareholders; HAS NOTHING TO DO
WITH OWNERSHIP (i.e., you could still owe money to the company, but
you already own the share)
(Subscribed) – (Paid-Up CS) = Subscription receivables
For purposes of cumulative power, it is OUTSTANDING CS THAT IS
RELEVANT.
EXAMPLE:
5 – Board of Directors
 ACS – 200,000
SCS – 100,000
PCS – 50,000
Computation will be = 100,000 x 5 = 500,000
*For the purpose of computing ownership, SCS = OCS
You are computing for D1!!!!

Sample problem:
• There are 5 total shares outstanding & voting.
• The total number of directors to be elected is 11.
• Bloc I wants to elect 7 directors.
Answer: Bloc I needs 3 votes to elect 7 directors.
Problems with Using the Cole Formula: NO STRATEGY POWER!
1. It yields erroneous results when the situations involves
only 2 competing blocs of stockholders
2. It ignores the possibility that it would be better for a bloc
to vote more directors than it is certain of electing,
addressing only the number of directors that a block can
be assured of voting
3. It may yield erroneous results when involving more than
2 competing blocs
Computing using the HONDT TABLE: Answers the question of whether a
bloc should vote for more candidates than it is certain of electing.
• Considers fractional voting
• The optimum spread of the votes that a bloc should vote
for to maximize voting power

STEPS:
1. Create a table, with the X-axis representing the number of directors
that will be voted for, &
the Y-axis containing the competing Blocs.
2. Use the ff. formula in order to compute for the contents of the table:
(No. of stockholders in the Bloc x no. of Directors to be Elected)
--------------------------------------------------------------------------------------
 (no. as specified in the Y-axis)
3. Encircle the 5 largest numbers (representing the number of directors to
be elected); the
smallest circled entry in the top column above is at column 3, which
means that Bloc I can
guarantee itself 3 seats.
4. The smallest circled entry for Bloc II is in column 2, which means Bloc
II can get 2 seats.
5. BUT Bloc I can safely nominate 4 candidates, because the first un-
circled entry in the top
row, 82.5, is LARGER than the first un-circled entry in the bottom row, 56
2/3.
6. Bloc I can also safely nominate 5 candidates, because its first un-
circled entry, 82.5, is still
larger than the second un-circled entry of Bloc II, which is 42.5.
7. GENERAL RULE: A bloc can safely vote for n directors if the nth entry
in that bloc’s row is
greater than the first un-circled entry in the competing bloc’s row.

E. Voting via Remote Means: When so authorized in the by-laws or by a majority of

the BOD, the stockholders, or members may also vote through remote comm or
in absentia. But right to vote through such modes may be exercised in
corporations vested with public interest, even if not in by-laws, authority to vote
via remote means is automatic.
F. Non holding of election: Reported to SEC within 30d from the date of the
scheduled election. The report shall specify a new date for the election, which
shall not be later than 60d from the scheduled date.
G. Term of office
1. Stock - 1 year. Re-election allowed
2. Non-stock - as specified in the by-laws, but not exceeding 3 years. Re-
election allowed
H. Qualifications
1. Elected from among the stockholders (Grace Christian v CA)
2. Delinquent shareholder not qualified
3. No longer necessary that the majority are residents of the PH. Foreigners,
non-residents may be voted in the Board, subject to Anti-Dummy law,
FIA, etc. Election of foreigners allowed but only in proportion to their
allowable participation
I. Independent Directors
1. An independent director is a person who is independent of management
and free from any business or other relationship which could, or could
reasonably be perceived to materially interfere with the exercise of
independent judgment in carrying out the responsibilities as a director.
2. 20% 0f the Board must be independent directors
 a) Public companies
(1) Securities listed with an exchange or
(2) 50M assets with 200 or more shareholders, each holding
at least 100 shares
b) Banks, quasi-banks, NSSLAs, pawnshops, engaged in money
service business, preneed, trust, and insurance and other financial
intermediaries
c) Companies vested with public interest (determined by SEC)
J. Disqualifications. In addition to those provided by AOI or by-laws, if within 5 years
prior to election (Apply also to officers)
1. Conviction by final judgment of violation of RCC
2. Conviction by final judgment of violation of SRC
3. Found administratively liable for any offense involving fraudulent acts,
regardless of whether forieign or domestic
K. Removal
1. Special meeting. Need ⅔ vote of the stockholders representing the
outstanding capital stock
2. With or without cause (except when the director is a minority director,
there should be cause)
3. Unlike for election, 1 share is 1 vote. Only shares with voting rights may
participate
L. SEC power to remove a director
1. Motu proprio or upon verified complaint despite disqualification, or whose
disqualification arose or is discovered subsequent to election
2. Removal is without prejudice to other penalties SEC may impose on the
directors or trustees who, with knowledge of the disqualification, failed to
remove such director or trustee
M. Board Vacancy
1. Vacancy due to term expiration — the election of a new director shall be
held no later than the day of such expiration at a meeting called for that
purpose
2. Removal by the stockholders or members — the same day of the meeting
authorizing the removal and this fact must be so stated in the agenda and
notice of said meeting (i.e. “Meeting for the Removal of XXX and election
of his replacement if sustained)
3. In all other cases — election must be held no later than 45d from the time
the vacancy arose. BUT, vacancy may be temporarily filled from among
the officers of the corporation by unanimous vote of the remaining
directors or trustees even when there is no more quorum and emergency
action is required to prevent grave, substantial, and irreparable loss or
damage to the corporation
N. Compensation
1. Compensation is allowed if by-laws allow, stockholders resolution,
provided that the total yearly compensation of directors exceed ten (10%)
 percent of the net income before income tax of the corporation during the
preceding year
2. Directors or trustees shall not participate in the determination of their own
per diems or compensation.
3. The board of directors may create special committees of temporary or
permanent nature and determine the members’ term, composition,
compensation, powers, and responsibilities
4. Corporations vested with public interest shall submit to their shareholders
and the SEC, an annual report of the total compensation of each of their
directors or trustees.
O. Board Meetings
1. Notice of regular or special meetings — 2 days
2. Directors or trustees who cannot physically attend or vote at board
meetings can participate and vote through remote communication even if
not specifically allowed in the AOI or By-Laws. Cannot attend by proxy.
CorSec must note attendance via remote means. Roll Call necessary to
confirm that he can clearly hear or see the others. Must specify the device
being used.
3. Presiding Officer — The chairman or the president, shall preside at all
meetings of directors or stockholders, unless the by-laws provide
otherwise
4. Quorum
a) General Rule: Majority of directors stated in the AOI
b) Exception: Greater majority is prescribed by the AOI or by-laws
c) Every decision reached by at least a majority of the directors
constituting a quorum, except for the election of officers which
shall require the vote of a majority of all the members of the board,
shall be valid as a corporate act. Basis of quorum is AOI, basis of
majority is attendance
5. When
a) Regular meetings — monthly, exc when by-laws provide
otherwise
b) Special meetings — any time upon the call of the president or as
provided in the By-Laws
6. Where: Anywhere in or outside the Ph, unless By-laws provide otherwise
7. Signing of minutes by all members is not legally required (Lopez Realty v
Sps Tanjangco). Must at least bear the signature of the CorSec. BEst
practice is to have the BOD members initial all pages and sign on the
signature page
8. Power to Ratify Board Acts lies in the stockholders (Lopez Realty v Sps
Tanjangco)
P. Executive Committee
1. Should be in the by-laws
2. At least 3 members should come from the Board
 3. Can act on matters delegated by the board
4. Decisions are final and does not require board confirmation (Filipinas Port
Services v Go)
5. Acts beyond the ExeCom’s power
a) Acts which require stockholders’ approval
b) Board vacancies
c) Amendment or repeal of By-Laws
d) Amendment of resolutions which are irrevocable
e) Cash dividends
Q. Corporate Officers
1. Corporate Office
a) Statutory
(1) President (Director)
(2) Treasurer (Resident)
(3) Secretary (Resident and Citizen)
(4) Compliance office for companies vested with public
interest
b) By-laws
2. Corporate officers are those officers of a corporation who are given that
character either by the Corporation Code or by the corporation’s by-laws.
The creation of an office pursuant to or under a by-law enabling
provisions is not enough to make a position a corporate office (Marc II
Marketing v Joson). If corporate office, intra-corporate controversy; if not
corporate office, then labor issue).
3. Executives of public utilities cannot be foreigners
4. Binding effect of acts of officers
a) General Rule — must be authorized by the Board or By-Laws
b) Exception ‚ Doctrine of apparent authority/ Ostensible agency/
Holding out Theory
c) Cases on binding effect of acts of officers
(1) DBP v Sta Ines Melale Forest Products Corporation
(2) Rodriguez v Ponferrada
(3) B. Sta Rita & Co v Gueco
(4) First Phil Holdings: Contract approved by a dummy board
is merely voidable
(5) Lapulapu Foundation v CA: If a corporation, knowingly
permits one of its officers , or any other agent, to act within
the scope of an apparent authority, it holds him out to the
public as possessing the power to do those acts; and thus,
the corporation will, as against anyone who has in good
faith dealt with it through such agent, be stopped from
denying the authority of the officer
(6) Calubad v Ricarcen Devt Co.: If a private corporation
intentionally or negligently clothes its officers or agents
 with apparent power to perform acts for it, the corporation
will be estopped to deny that such apparent authority is
real, as to innocent third persons dealing in good faith with
such officers or agents
(7) Peoples’ Air Cargo v CA: The corporation’s previous
conduct and the benefit it derived from the contract
entered into by the officer whose authority is questioned
may be an indication of apparent authority.
R. SELF-DEALING
1. EXAMPLE: X Company runs a hotel business and is looking for a tissue
supplier. Mr. Y, a director of X Company, runs a tissue-manufacturing
business. Can Mr. Y bid for the contract? Yes, the participation of Mr. Y is
not absolutely prohibited, except that Mr. Y is in a conflict of interest
situation faced with the challenge that the contract is, generally, voidable
if the requisites for validity are not complied with, and will allow X
Company to either proceed or terminate the contract, at its option. May be
subject to ratification of the stockholders
2. To be valid:
a) The presence of the self-dealing director is not necessary to
constitute a quorum in the Board Meeting where the contract is to
be tackled is the contract (without prejudice to internal rules
adopted by the Corporation)
b) The vote of the self-dealing director is not necessary for approval
(without prejudice to internal rules adopted by the Corporation)
c) Contract is fair and reasonable
d) Officer is authorized by the BOD, i.e. declare conflict of interest
3. Changes under the RCC
a) Self-dealing contracts now include
(1) Contracts with directors, trustees, or officers
(2) Contracts with the DTOs’ spouses and relatives within the
4th civil degree of consanguinity
b) In case of corporations vested with public interest:
(1) approval by at least ⅔ of the entire membership of the
Board
(2) with at least majority of the independent directors in favor
of it
S. INTERLOCKING DIRECTOR
1. EXAMPLE: Mr. Y is a director of X, Inc. owning 60% of X, Inc.’s stock and
is also a director of Z, Inc. owning 10% of Z, Inc.’s stock. As long as the
contract between X, Inc. and Z, Inc. is fair and there is no fraud, and the
only challenge is common directorship, the contract is valid.
2. Substantial interest means exceeding 20% of the outstanding capital
stock, Nominal interest means not exceeding 20%. If interest in both
corporations is either BOTH NOMINAL or BOTH SUBSTANTIAL, only fair
 & no-fraud requirements need to be complied with. If SUBSTANTIAL IN
ONE and NOMINAL IN ANOTHER, then to be valid:
a) The presence of the self-dealing director is not necessary to
constitute a quorum in the Board Meeting where the contract is to
be tackled is the contract (without prejudice to internal rules
adopted by the Corporation)
b) The vote of the self-dealing director is not necessary for approval
(without prejudice to internal rules adopted by the Corporation)
c) Contract is fair and reasonable
d) Officer is authorized by the BOD, i.e. declare conflict of interest
3. Interlocking directorship does not contemplate self-dealing because the
agreement will be entered into by two corporations, however, the law
treats it as analogous to self-dealing. The requirements must be complied
with by the corporation where the interlocking director has NOMINAL
INTEREST
4. SEC v Gokongwei: By-laws may prohibit directorship in a competing
corporation because duties of a director are fiduciary.
T. Corporate Opportunity Rule
1. A director of a corporation is prohibited from competing with the business
in which his corporation is engaged in as otherwise he would be guilty of
disloyalty where profits that he may realize will have to go to the
corporate funds, except if the disloyal act is ratified
2. James Ient v Tullet Prebon (Phils): There is no legislative intent to
criminalize acts under Secs. 30 & 33 of the RCC. The Code was intended
as a regulatory measure and not a penal statute. The provisions were
intended to impose exacting standards of fidelity on corporate directors
and officers. Penalties under Sec. 158 only apply when there is no
specific penalty. In Secs. 30 & 33, the penalty is the turnover of profits
U. Liability of Director or Officer.
1. GENERAL RULE: Acts of D/O partake of corporate acts if authorized or
ratified, or under the doctrine of apparent authority. They are not
personally liable.
2. EXCEPTIONS
a) Patently unlawful act
b) Gross negligence or bad faith
c) Conflict of interest
d) Issuance of watered stocks
e) When the contract stipulates solidary liability of the D/O (joint &
several)
f) When the statute specifically makes the D/O who allowed acts
personally liable for certain corporate acts
3. Basic requirements
 a) It must be alleged in the complaint that the D/O assented to
patently unlawful acts of the corporation or that the officer was
guilty of gross negligence or bad faith; and,
b) There must be proof that the D/O acted in bad faith (Dimson v
Chua)
4. Liability for dismissal
a) Lambert Pawnbrokers and Jewelry Corporation v Binamara: Lack
of authorized or just cause to terminate one’s employment and the
failure to observe due process do not ipso facto mean that the
D/O acted with malice or bad faith. It must be shown with clear
and convincing evidence that there was malice and bad faith
b) Ico v STI: To hold a D/O personally liable for corporate
obligations, two requisites must concur
(1) It must be alleged in the complaint that the D/O assented
to the patently unlawful acts of the corporation or that the
officer was guilty of gross negligence or bad faith
(2) There must be proof that the officer acted in bad faith
c) Montallana v La Consolacion College
d) Mactan Rock v Germo
e) Gotesco Properties v Fajardo
f) Abott Laboratories v Alcaraz
5. Liability under BP 33
a) Federated LPG Dealers Association v Del Rosario
6. Liability under BP 22
a) Pilipinas Shell v Duque
7. Liability for Illegal Trading of Securities
a) SEC v Price Richardson Corporation
(5 & 6 April 2020)

VIII. CORPORATE POWERS

A. Limited Capacity - only those allowed under Corporation Code and as provided
for in the purpose clauses of their AOIs. ALl powers must be exercised in
conformity with its business under the AOI. All necessary powers are deemed
included (See Rule on Implied Powers).
1. GENERAL RULE: Exercise of corporate powers is done by the
BOD/BOT.
2. EXCEPT as may be provided for in the RCC (i.e. reserved to
stockholders or members)
a) Power to elect corporate directors
b) Power to remove directors
c) Power to grant compensation to board members
d) Power to ratify self-dealing contracts
e) Power to ratify contracts where there is corporate opportunity to
stockholders
 f) Corporate acts that must be ratified by the stockholders or
members
g) Corporate acts that require the approval of immediate regulators,
i.e. Insurance Commission, BSP, DepEd/CHED
h) Corporate acts that require the approval of the SEC
B. Ultra Vires Rule - No corporation shall possess or exercise corporate powers
other than those conferred by the RCC or by its AOI, and except as necessary or
incidental to the exercise of the powers conferred (Sec. 44, RCC)
C. Express Powers (Sec. 35, RCC)
1. To sue and be sued
2. Perpetuate existence
3. Corporate seal
a) Zuellig: The mere change in the corporate name is not considered
under the law as the creation of a new corporation.
4. Amendment of AOI
5. Bonded indebtedness
6. Adoption and Amendment of By-Laws
a) Adoption of By-Laws
(1) May be prior to incorporation, subject to approval and
signing by all incorporators and Board members
b) Amendment of By-Laws
(1) Board majority and Majority of OCS
(2) ⅔ of OCS/members for delegation of power to amend or
repeal or adopt By-Laws to BOD
(3) Majority of OCS/members for revocation of delegated
power
c) Sawadjaan v CA: Corporation that fails to file its by-laws is not
automatically dissolved. Company without By-Laws is a de facto
corporation, corporate existence must be challenged by the state
d) Chinabank v CA: Third parties not generally bound by the by-laws.
In order to be bound, a third party must have acquired knowledge
of the pertinent by-laws at the time the transaction or agreement
between said third person and the shareholder was entered into.
7. Dividends
a) Forms
(1) Cash - issued in legal tender or negotiable instrument
(2) Stock - issued in Certificate of Stocks. Represents fully-
paid subscriptions in the books of the corporation.
(3) Property dividends
b) GENERALLY requires Board Approval, EXCEPT when
declaration of STOCK DIVIDENDS which requires ⅔ vote of OCS
c) Delinquent stockholders are entitled to cash dividends, but
corporations can apply the dividends to be paid to the corporation
as payment of delinquent shares (offset unpaid subscription).
 Entitled to stock dividends, but subject to payment of unpaid
subscription (no offsetting)
d) Unrestricted retained earnings necessary prior to the
declaration of dividends, i.e. unappropriated profits, subject further
to Trust Fund Doctrine. Necessary regardless of the kind of
dividends to be declared
e) Dividends should be declared where surplus profits in excess of
100% of paid-up capital stock, EXCEPT
(1) Expansion projects or programs
(2) Loan agreement, which restricts declaration of dividends
(3) Retention necessary, i.e. need for special reserve for
probable contingencies
8. Issuance of stocks
a) Lodged in the BOD and no SH meeting necessary because this
pertains to the issuance of unissued shares of stock consequent
to original incorporation or a prior approved increase in capital
stock.
b) Stockholders of Ruby Industrial Corp v Lin: Issuance of shares is
in the nature of securities offering. The corporation shall also file
the necessary application with the SEC to exempt these from the
registration requirements under the SRC
c) SH meeting necessary if the issuance of stock is necessary to
increase capitalization. In which case, the AOI must first be
amended to increase capital stocks preparatory to the issuance of
new shares of stocks
9. Deal in Properties
10. To enter into partnerships, joint ventures, mergers & consolidations
11. Donations (except foreign company, which are not allowed to donate for
political purposes)
12. Establishment of Pension or retirement funds
13. All powers reasonably necessary
D. Approval Requirements
1. Board
a) Generally, all corporate acts must be approved by the BOD or
BOT
2. Stockholders
a) Vote of stockholders representing ⅔ of outstanding capital stock
for stock corporations or ⅔ of members of non-stock, unless the
non-stock corporation’s AOI or BY-Laws provide for another
manner of counting. Does not include delinquent shares, unissued
shares, or treasury shares
(1) Amendment of AOI
(a) Majority vote of Board
(b) ⅔ vote of OCS/members
 (i) Taken up in meeting called for that purpose
(ii) May be ratified by way of giving written
assent or conformity to the resolution
(c) SEC (deemed approve if no action within 6 months)
(2) Sale, Lease, Exchange, Mortgage, or Pledge of all or
substantially all properties
(a) Subject to Philippine Competition Act and other
related laws
(b) “All or substantially all,” generally based on net
asset value. Should render the corporation
incapable of continuing the business or
accomplishing the purpose for which it was
incorporated
(c) Does not dissolve the corporation
(d) Y-I Leisure Philippines, Inc v Yu: In a business
enterprise transfer, the buyer acquires the good will
of the transferor. The transferor has no more
capability to earn. Thus, under a business
enterprise transfer, the transferee shall be made
accountable for the debts of the transferor, but only
if the debts arose from the business activities.
There is no need to establish fraud. The facts that
there was a business enterprise transfer AND the
debt arose from the business, then the transferor is
liable. Under the Nell Doctrine, generally when a
corporation sells its assets to another corporation,
the latter is not liable for the debts and liabilities of
the transferor, EXCEPT:
(i) Where the purchaser expressly or impliedly
agrees to assume such debts
(ii) Where the transaction amounts to a
consolidation or merger of the corporations
(iii) Where the purchasing corporation is merely
a continuation of the selling corporation
(alter ego)
(iv) Where the transaction is entered into
fraudulently in order to escape liability for
such debts
(e) Abandonment of sale
(i) Lopez Realty v Sps Tanjangco: BOD
changed its mind after the SHs gave its
approval. Is it necessary for the SHs to
approve the abandonment of the sale?
Abandonment of sale is NOT among those
 needing SHs approval. However, BOD must
respect vested rights.
(3) Bonded indebtedness
(4) Investment
(a) The investment must be
(i) in another corp or business
(ii) For any other purpose other than primary
purpose for which the corporation was
organized. Must be for either secondary or
standby purposes. CANNOT be totally alien
to purpose clauses, otherwise will be ultra
vires act because it will be outside corporate
powers, UNLESS entered into as an
amendment of the AOI.
(b) Requires
(i) Majority Board
(ii) ⅔ OCS/members
(5) Merger (A+B=B, one of the corporations will survive. Other
corporations are absorbed) and consolidation (A+B = C,
none of the participating corporations will retain their
corporate existence. The emergent corporation will absorb
the participants)
(a) Legal Requirements
(i) Board Approval
(ii) SH approval or ratification
(iii) SEC approval because corporate existence
affected
(iv) Subject to PCA
(a) Merger (Sec. 4, PCA)
(b) Acquisition (Sec. 4, PCA)
(c) Should not be anti-competitive (Sec.
20, PCA) Determined by the PCC
(d) Comply with compulsory notification.
PCC MC 18-001 (Rule 4, Sec. 3 of
IRR of RA10667, as amended) —
Size of person (P5 Billion) or Size
of transaction (P2 Billion)
(i) Each party shall submit a
notification
(ii) PCC has 15d from
submission to determine if
there is proper compliance
(iii) After notice of sufficiency,
PCC shall review within 30d.
 PCC is allowed to request for
supplementary documents
and is granted an additional
60d. The period shall not
exceed 90d
(iv) XXX
(e) Penalty provision (Sec. 17, PCA)
(i) M&A contract is void
(ii) Administrative fine of 1% to
5% of the value of the
transaction
(b) Effects on
(i) Legal personalities
(a) Merger: Only one of the participating
corporations will remain
(b) Consolidation: None of the
participating corporations will
remain. Absorbed by new
corporation
(ii) On properties, rights, claims, etc
(a) Acquired by operation of law by
surviving or consolidated
corporation, regardless of inclusion
in the merger or consolidation
documents
(iii) On liabilities
(a) Acquired by operation of law by
surviving or consolidated
corporation, regardless of inclusion
in the merger or consolidation
documents
(iv) Employment Contracts
(a) BPI v BPI Employees’ Union:
Automatically assumed by the
surviving corporation. However,
nothing prevents an employer from
terminating, as long as the Labor
Code is followed.
(c) Mindanao Savings and Loan Association, Inc v
Wilkom: It is the issuance of the certificate of
merger that is crucial because it marks the moment
when the consequences take effect. By operation
of law, upon the effectivity of the merger, the
absorbed corporation ceases to exist but its rights
 and properties, as well as liabilities, shall be taken
and deemed transferred to and vested on the
surviving corporation
(d) Merger & Consolidation v Sale of Assets
(i) M&C: Results in dissolution; Sale: does not
result to dissolution of the selling company
(ii) M&C: Allows the surviving entity to acquire
all assets of the absorbed corporation; Sale:
Limited to the assets contractually covered
(iii) M&C: Renders the surviving company liable
for the debts of the absorbed corporation;
Sale: Does not automatically render the
buyer-company liable for such debts
(6) Dissolution
(7) Capital increase/decrease
(8) Delegation of amendment of by-laws
(9) Ratification of self-dealing contracts
(10) Removal of directors
(11) Distribution of assets of non-stock
b) Vote of stockholders representing majority of outstanding capital
stock for stock corporations or majority of members of non-stock,
unless the non-stock corporation’s AOI or BY-Laws provide for
another manner of counting. Does not include delinquent shares,
unissued shares, or treasury shares,
(1) Amendment of By-Laws
(2) Management contract
(a) Manage or operate all or substantially all of the
service contract, operating agreement, etc
(b) Max. term of 5 years
(c) General Rule
(i) Majority of BOD
(ii) Majority of OCS
(3) Compensation to directors
(4) Revocation of delegation of authority to amend By-Laws
(5) Issued price of no-par value shares
c) Non-voting shares can vote on (EXCLUSIVE LISTING):
(1) Amendment of AOI
(2) Adoption and amendment of by-laws
(3) SLEMP of all or substantially all properties
(4) Bonded indebtedness
(5) Increase or decrease of Capital Stock
(6) Merger or consolidation
(7) Investment
(8) Dissolution
 3. SEC
IX. RIGHTS OF SHAREHOLDERS
A. Subscription Contract — Any contract for the acquisition of unissued stock in an
existing corporation or a corporation still to be formed shall be deemed a
subscription within the meaning of this Title, notwithstanding the fact that the
parties refer to it as a purchase or come other contract (Sec. 59, RCC)
1. Share Purchase and Purchase of Treasury shares are NOT subscription
contracts because the subject matter is different. In a subscription
contract, the subject matter of the contract are unissued shares
2. Can either be pre-incorporation and post-incorporation subscription.
a) If it is a pre-incorporation subscription contract, it involves the
original subscribers NOT with the corporation because the same
still has NO legal personality. Liability is to the original
subscribers. Irrevocable for six months from the ime the
subscription was made, UNLESS
(1) the incorporation does not materialize within six months, or
(2) All the other subscribers allow revocation
3. Interest on subscription. Subscribers to stocks shall be liable to the
corporation for interest on all unpaid subscriptions from the date of
subscription, if so required by and at the rate of interest fixed in the
subscription contract (Sec. 65, RCC)
4. Nature of subscription
a) Indivisibility. For purposes of subscription, the standby collateral
for the payment of the subscription are the shares to be
subscribed. If subscription unpaid
(1) Collection case
(2) Delinquency sale
b) No certificate of stock shall be issued to a subscriber until the full
amount of the subscription together with interest and expenses (in
case of delinquent shares), if any is due, has been paid (Sec. 63,
RCC)
c) Serves to secure payment of subscription
d) Price cannot be watered. Disallowed because it dilutes the capital
of the corporation. Cannot be lower than par-value or issued price
B. Trust Fund Doctrine
1. Provides that subscriptions to the capital stock of a corporation constitute
a fund to which the creditors have a right to look for the satisfaction of
their claims.
2. Generally, a stockholder is not personally liable for the debts of the
corporation by virtue of separate juridical personality, EXCEPT
a) Piercing the veil of corporate fiction
b) Cases where the directors and stockholders can be made liable in
their personal capacity
 c) Debtors can go against stockholders for the unpaid shares.
Stockholders can be made liable up to the extent of their unpaid
subscriptions because in the books of the corporation, such form
part of the receivables of the corporation and form part of
corporate properties (Donina)
3. Legal bases
a) Dividend declaration must ensure the retention of enough capital
for the creditors.
b) Acquisition of shares
c) Appraisal rights
d) Dissolution. Last priority are stockholders
C. Stockholders’ Rights
1. Right to attend meetings
a) Regular meetings — annually, as specified in the by-laws or any
date after April 15 (Sec. 49, RCC)
b) Notice of meeting
(1) Written notice of regular meetings via email or such other
manner as the SEC shall allow
(2) Notice of meetings
(a) Regular - 21d
(b) Special - 1 week
(3) Attendance is waiver of defect unless such appearance is
for the sole reason of questioning the call
(4) Contents of Notice
(a) Agenda
(b) Proxy submission
(c) Requirements for remote participation
(d) If agenda includes election, process for nomination
and election
(5) Guy v Guy: Law only requires sending or mailing of the
notice. It does not require actual receipt. Not similar to
filing or service under the ROC.
c) Call for meeting
(1) Stockholder or member authorized, unless unjustly refused
then SEC can call upon Petition
(2) Such stockholder or member can call a meeting subject to
proper notice required
(3) Bernas v Cinco: Meeting called by one unauthorized
produces no legal effect
d) Matters to be presented by BOD during Regular Meeting
(1) Minutes of recent stockholders meeting. Job of the
CorpSec
(a) Description of the voting and the vote tabulation
procedures used in the previous meeting
 (b) Opportunity to ask questions and record thereof the
questions asked and answers given
(c) Voting results
(d) Resolutions adopted
(e) List of attendees, including those who attended via
proxy or participated remotely
(f) Other matters to secure minority interest
(2) Assessment of the corporation’s performance
(3) Financial report
(4) Dividend policy
(5) Directors profile/attendance in meetings
(6) Performance appraisal of directors
(7) Compensation of directors
(8) Disclosure on self-dealing and related party contracts (Sec.
49, RCC)
e) Place of meeting
(1) Principal office of the corporation as set forth in the AOI
(2) Any city or municipality (XXX)
f) Presiding Officer
(1) Chairman
(2) Person provided for in the By-Laws
g) Quorum
(1) Majority of OCS/members
(2) EXCEPT, if the RCC (i.e. when RCC requires concurrence
of specific number of stockholders) or By-Laws provide a
different requirement for quorum, which need not be higher
than majority
(3) Que-Villonco v Que-Yabut: Only outstanding shares issued
shall be considered in the determination of quorum.There
is no distinction between disputed and undisputed shares.
(4) Shares of deceased stockholders
(a) In stock corporation: Shares of deceased
stockholders continue to be outstanding for
purposes of quorum and voting. The executor or
administrator is vested legal title to the stock and
entitled to vote it until settlement and division. If no
executor or administrator, heirs as co-owners can
authorize a representative
(b) In a non-stock corporation: Dead members are
NOT to be counted in determining the requisite vote
in corporate matters or the requisite quorum in the
members’ meeting, UNLESS AOI allows transfer
(Tan v Sycip)
(5) Lack of quorum
 (a) Any act or transaction made during a meeting
without quorum is rendered no force and effect and
can be repudiated by interested parties
2. Right to Vote
a) Presumption is all shares are voting. Preferred and redeemable
shares have limited voting rights if provided for in the AOI
b) Rules
(1) Delinquent shares — Suspended
(2) Unpaid shares — Subscribers allowed to attend and vote,
as long as no delinquency, unless Subscription Contract
provides that only upon full payment will the right to vote
be allowed (Conditional Subscription clause)
(3) Sequestered shares — Are still outstanding shares, but
must be voted on by the owner of shares on record NOT
PCGG because ownership still pertains to the stockholder.
Only in exceptional cases may government vote or
represent the shares, i.e. COCOFED v Republic or
BASECO v PCGG
(4) Pledged or mortgaged shares — Mortgagor or pledgor
owns the shares, unless provided for in the contract
(5) Shares of a deceased stockholder —
(a) In stock corporation: Shares of deceased
stockholders continue to be outstanding for
purposes of quorum and voting. The executor or
administrator is vested legal title to the stock and
entitled to vote it until settlement and division. If no
executor or administrator, heirs as co-owners can
authorize a representative
(b) In a non-stock corporation: Dead members are
NOT to be counted in determining the requisite vote
in corporate matters or the requisite quorum in the
members’ meeting, UNLESS AOI allows transfer
(Tan v Sycip)
(6) Deposit on Stock Subscription — Does not make one a
stockholder yet. Only an amount of money representing an
advance with a view of applying the same as payment for
additional issuance of shares in the future (CIR v First
Express Pawnshop)
c) Remote Voting
(1) Must be mentioned in the By-Laws or Board Approval
(2) SEC Memo. Circ. 6-2020 for company to adopt Internal
Procedure
(a) Mechanism to identify stockholder
 (b) Measure to ensure that everyone has opportunity to
participate
(c) Mechanism to vote
(d) Procedure for documentation
(e) Procedure for recording
(f) Other admin, logistical, and technical matters
d) Proxy
(1) Must be in writing and generally valid only for the meeting
intended
(2) If Continuing, maximum period is 5 years
(3) Revocable in general, unless coupled with interest (i.e. if
shares are used as collateral)
(4) If there is solicitation of proxy, SRC requires SEC
clearance
(5) Proxy is for Stockholders or Members Meetings. Board
Members in BOD meeting CANNOT attend thru proxy
e) Voting Trust Agreement
(1) Right to vote is transferred. Imperative that Trustee is
made a Stockholder since Stockholder loses legal title
(2) Max period is 5 years
(3) Certified copy of the VTA must be submitted to SEC,
otherwise it is ineffective or unenforceable
(4) Should not circumvent laws against
(a) Anti-competitive agreements
(b) Abuse of dominant position
(c) Anti-competitive M&As
(d) Violation of nationality and capital requirements
(e) Perpetuation of fraud
(5) Separation of the voting rights of a stockholder from his
other rights
(6) Distinguishing VTA from Proxies (Lee v CA)
(a) Xxx
3. Right of Inspection
a) Bound by confidentiality rules under prevailing laws, such as the
rules on trade secrets, IPC, DPA, SRC, ROC
b) Disqualified from inspecting Corporate books. Not entitled to:
(1) Non-stockholders or non-members
(2) Stockholder or member who is a competitor, or director,
officer, controlling stockholder, or otherwise represents the
interests of a competitor (Sec. 73, RCC)
c) Terelay Investment and Devt Corp v Yulo: No requirement on the
count of shares to inspect corporate books
 d) Roque v People: Revocation of company’s registration does not
automatically remove from members the right to inspect the
records
e) Philippine Associated Smelting and Refining Corp v Lim:
Inspection allows stockholders to actively participate during
meetings and to monitor their investments
4. Pre-Emptive Right
a) Allows the stockholder to prevent dilution of interest when new
shares are issued. Thus, when new shares are issued,
stockholders must be allowed the right of first refusal to subscribe
to the new issuance.
(1) Count of shares depend on percentage of shares vis-a-vis
total outstanding shares
b) Not available when
(1) Preemptive right is denied in the AOI
(2) Shares issued to comply with legal requirement re:
minimum public ownership
(3) Property acquisition
(4) Issuance for debt
5. Appraisal Right
a) Demand payment of the fair value of the shares (ROI) — can
demand within 30 days from corporate act
b) Available when stockholder dissents in
(1) AOI amendment which
(a) Restrict/change shareholder rights
(b) Superior preferences
(c) Extension or shortening of corporate term
(2) SLEMP of all or substantially all
(3) Merger or consolidation
(4) Investment (Sec. 80, RCC)
c) Turner v Lorenzo Shipping Corproation: Although dissenting
stockholder have the right of appraisal, the law provides taht no
payment shall be made to any dissenting stockholder unledd the
corporation has unrestricted retained earnings in its books to
cover the payment
d) Effect of exercise of appraisal rights is that the rights of
stockholders are suspended. If the act or transaction is
abandoned, appraisal right is likewise no longer available
6. Transfer of Shares
a) Price of sale of shares is not bound by par value
b) Interport Resources v Securities Specialist: Transfer must be
recorded in the books of the corporation to bind the corporation,
UNLESS there is unjustified refusal by the corporation to
 recognize the assignment of shares. Stock certificate must be
endorsed valid as between the parties.
c) Period to effect transfer of shares
(1) Exists from the time of the transfer and it is to the
transferee’s benefit that the right be exercised early. There
must be demand from the transferee
d) Anna Teng v SEC: Surrender of COS is not a condition sine qua
non prior to registration of the transfer. Stock certificate necessary
for the issuance of a new COS under the name of the transferee
e) Street Certificate
(1) Whoever holds the COS is entitled to demand transfer of
the shares in his name from the issuing corporation. COS
is NOT a negotiable instrument, but a quasi-negotiable
instrument. And endorsement in blank of the COS coupled
with its delivery, entitled the holder thereof to demand the
transfer of said COS in his name from the issuing
corporation. (Guy v Guy)(PAT WENT TO MASS)
f) FS Velasco:All transfer of shares of stocks must be registered in
the corporate books in order to be binding on the corporation.
Only upon recording in the STB can stockholders exercise the
rights of a stockholder. GIS is not conclusive as to the identities of
the registered stockholders of the corporation, as well as their
respective ownership of shares of stock, as the controlling
document is the STB.
X. DISPUTES
A. Winding Up
1. (PAT RETURNED FROM MASS)Dissolved Company
a) Rich v Paloma III: A dissolved corporation has residual or limited
corporate existence to have capacity to wind-up affairs, but not
continue its business or to enter into any other transaction
unrelated to winding up
XI. NON-STOCK CORPORATIONS
A. No part of its income is distributed as dividends. Created for eleemosynary
purposes.
B. Conversion into stock corporation
1. A non-stock corporation cannot be converted into a stock corporation by
mere amendment of its AOI.
2. Conversion amounts to a distribution of the assets of the non-stock
corporation to its members to make them stockholders
3. The organization should be dissolved first, then assets will be distributed,
such assets can then be used to incorporate the new stock corporation
C. Governance
1. Count of trustees — not to exceed 15
 2. Term of office of trustees — not to exceed 3 years. No prohibition on
reelection
3. Independent trustees of non-stock corporations vested with public interest
who do not need to be members
4. Members can directly elect officers, contra stock corporation where BOD
will elect the officers
D. Voting Rights
1. RIght to vote of members may be limited or denied in the AOI or By-Laws.
2. Proxy attendance is generally allowed, except when proxy attendance for
membership meetings is prohibited by AOI or By-Laws. Proxy attendance
is NOT ALLOWED for Board of Trustees meetings
E. Asset Distribution upon dissolution
1. Debts
2. Donated properties subject to reversion
3. Donated properties subject to transfer to similar institutions
4. Remaining assets — members according to the provisions of AOI or By-
Laws
5. If no provision in AOI or By-Laws, follow the Plan of distribution
XII. ONE PERSON CORPORATION
A. The OPC used to be limited only to religious corporations, where the chief
archbishop, rabbi, or presiding elder of the religious denomination, sect, or
church can apply for and become a Sole Corporation (Corporation Sole) and
manage the temporalities of the religious denomination, sect, or church. NOW,
any single proprietor (or even anyone with a non-profit endeavor) can become a
corporation. No need for other incorporators. No need for BOD (See SEC Memo.
Circ. 7-2019). No minimum authorized capital stock.
B. OPC is a corporation with a single stockholder. Only a natural person, trust, or an
estate may form an OPC (Sec. 116, RCC; SEC Memo Circ 7-2019)
1. For trust, administrator, executor, or guardians need proof of authority.
“Trust” refers to the subject matter being managed by a trustee,
administrator, executor, or guardian
2. NOT ALLOWED TO BE OPC
a) Banks and quasi-banks
b) Pre-need companies
c) Trust companies
d) Insurance companies
e) Public and publicly-listed companies
f) Non-chartered GOCCs
g) Natural person who is licensed to exercise a profession may not
organize as OPC for the purpose of exercising profession
C. Term of existence
1. Perpetual, except for trust or estate which is coterminous with the
existence of the trust or estate.
D. Only AOI is required, By-Laws not required
E. OPC Name
1. Indicate the letters “OPC” either below or at the end of its corporate name
F. The single stockholder shall be the sole director and president of the OPC
G. Appointment of Officers
1. Within 15d from the issuance of its COI, OPC shall appoint a treasurer,
CorpSec, and other officers
2. The single stockholder may not be appointed as the corporate secretary.
But the single stockholder may be treasurer, however he must post a
bond, to be renewed every two years. (See Sec 10, SEC Memo Circ 7-
2019)
H. Records in lieu of meetings
1. When action is needed on any matter, it shall be sufficient to prepare a
written resolution, signed and dated by the single stockholder, and
recorded in the minutes book of the OPC
2. The date or recording in the minutes book shall be deemed to be the date
of the meeting for all purposes under this Code.
I. A sole shareholder claiming limited liability has the burden of affirmatively
showing that the corporation was adequately financed. If he cannot prove that
the property of the OPC is separate, the stockholder shall be jointly and severally
liable for the debts and other liabilities of the OPC. The principles of piercing the
corporate veil applies with equal force.
J. Conversion
1. Ordinary Corp to OPC: When a single stockholder acquires all the stocks
of an ordinary stock corporation, the latter may apply for conversion into
an OPC, subject to the submission of such documents as the SEC may
require. Amendment of AOI is enough, no need to dissolve.
2. Ordinary Corp to OPC: An OPC may be converted into an ordinary stock
corporation after due notice to the SEC of such fact and of the first
circumstances leading to the conversion. Amendment of AOI is enough,
no need to dissolve.
3. Assumption of liabilities. The ordinary stock corporation converted from
an OPC shall succeed the latter and be legally responsible for all the
latter’s outstanding liabilities as of the date of conversion
K. Nominee/Alternate
1. Single stockholder shall designate a nominee and an alternate nominee
who shall, in the event of the single stockholder’s death or incapacity,
take the place of the single stockholder as director and shall manage the
corporation’s affairs (Sec. 124, RCC)
2. Requirements
a) Written consent appended to the application for registration
b) Consent may be withdrawn in writing any time before the death or
incapacity of the single stockholder
L. Death of Single Stockholder
 1. In case of death of the single stockholder, the nominee or alternate
nominee shall transfer the shares to the duly designated legal heir or
estate within seven days from receipt of wither an affidavit of heirship or
self-adjudication executed by a sole heir, or any other legal document
declaring the legal heirs of the single stockholder and notify the SEC
(Sec. 132, RCC)
2. Within 60d from transfer, the legal heirs shall notify the SEC of their
decision to either
a) Wind-up and dissolve
b) Convert it to an ordinary stock corporation
c) If sole heir, OPC can continue OPC
M. Foreign National
1. Can be OPC except when subject to applicable capitalization
requirements under constitution and statute
N. Compliance Requirements
1. Audited financial statements
2. Disclosure of self-dealing transactions
3. Other reports the SEC may require
O. Advantages of OPC compared to Sole Proprietorship
1. Liability
a) Sole Proprietorship: Personally liable for the risk of the business
b) OPC: Single stockholder enjoys limited liability as corporate
assets are generally treated separately
2. Succession over Licences
a) Sole Proprietorship: Assets passed on, but not licenses over the
business
b) OPC: Assets and business is transferred to nominee or alternate,
then heirs. Continuity of business
3. Tax exposure
a) Sole proprietorship: XXX
b) OPC: XXX
4. Conversion
a) Sole proprietorship: Change requires cessation of business
b) OPC: No need to disturb corporate life
XIII. FOREIGN CORPORATIONS
A. Doing Business
1. Substance Test: Whether the foreign corporation is continuing the body of
the business or enterprise for which it was organized or whether it has
substantially retired from it and turned it over to another
2. Continuity Test: Continuity of commercial dealings and arrangements,
and contemplates, to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in the
progressive prosecution of, the purpose and objective of its organization
3. CLV
 a) The nature or act of the transaction — Whether a foreign
corporation is maintaining or continuing in the Philippines "the
body or substance of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned
it over to another."
b) The existence of a continuing intent — Whether there was intent
on the part of the foreign corporation to undertake a continuity of
commercial dealings and arrangements in the Philippines, as to
distinguish it from an “isolated transaction”
c) Territoriality rule — The contract was neither negotiated,
perfected, nor consummated in Philippine territory.
4. Under FIA (RA No 7042)
a) Soliciting orders
b) Appointing representatives or distributors for 180 days or more
c) Participating in the management, supervision, or control in any
domestic business
d) Any other act of continuity of commercial dealings or
arrangements in progressive prosecution of commercial gain or of
the purpose and object of its corporate purpose
e) NOT Doing Business
(1) Mere investment
(2) Mere nominee director
(3) Appointment of representative or distributor which
transacts business in its own name and for its own account
(4) Publication of general advertisement through any print or
broadcast media
(5) Maintenance of stock of goods
(6) Consignment of equipments
(7) Collection of information
(8) Performance of auxiliary services (IRR of RA No 7042)
(9) CASES
(a) Exportation
(i) Cargil v Intra State Assurance: Importation
from the Philippines. To constitute doing
business, the activity undertaken in the
Philippines should involve profit-making in
the PH. A foreign company that merely
imports goods from a PH exporter, without
opening an office or appointing an agent, is
not doing business in the PH
(ii) Zuiden v GVTL: To be doing business, a
foreign corp must actually transact business
in the PH territory
(b) Maintaining Stock of Goods
 (i) Maintaining stock of goods and
consignment of equipment to a domestic
corporation is not doing business
(c) Distributor. The appointment of a distributor in the
PH is not sufficient to constitute doing business
unless it is under full control of the foreign
corporation.
5. Cases
a) Air Canada v CIR: Offline carrier is any foreign air carrier not
certified by the CAB, but who maintains office or who has
designated or appointed agents or employees in the PH who sells
or offers for any sale any air transportation on behalf of the air
carrier. Sale of tickets in the PH through the agent partakes of
doing business. An offline international air carrier selling passage
tickets in the Philippines, through a general sales agent, is a
resident foreign corporation doing business in the Philippines. As
such, it is taxable under Section 28(A)(1), and not Section 28(A)
(3) of the 1997 National Internal Revenue Code, subject to any
applicable tax treaty to which the Philippines is a signatory.
Pursuant to Article 8 of the Republic of the Philippines-Canada
Tax Treaty, Air Canada may only be imposed a maximum tax of 1
1/2% of its gross revenues earned from the sale of its tickets in
the Philippines.
b) CIR v JAL: Sale of tickets through a general sales agent and
opening of promotions office is enough basis to say that a
corporation is doing business
c) General Corp Phils v Union Insurance: Volume of transactions can
be made a basis of a corporation’s intent to continue commercial
presence
d) Eriks Pte v CA: Several transactions with a single client over a
period of time is doing business.
e) Hutchison v SBMA: Preparatory acts may be an indication of
intent to do business. Participation in the bidding process
constitutes doing business because it shows the coreign
corporation's intent to engage in business in the Philippines.
f) Pioneer International v Guadiz: Negotiating to employ a Filipinio
national to run a foreign company’s pre-mixed concrete operations
in the PH are managerial and operational acts
B. Rules to remember
1. If a foreign corp is doing business in the PH with the required license, it
can sue before PH Courts on any transaction
2. If a foreign corp is doing business in the PH without a license, it cannot
sue before the PH Courts, but it can be sued.
a) Under the Revised Rules, lack of capacity to sue is an affirmative
defense which the court must act on within 30 days from
submission.
b) Home Insurance v Eastern Shipping: Lack of capacity to sue by
foreign corp at the time of execution of contract can be cured by
its subsequent registration here. Ability to seek relief is subject to
being cured by subsequent registration. Nothing in RCC voids a
contract by a foreign corporation doing business in the PH without
a license
c) EXCEPTION:
(1) Unrelated Transaction
(2) Isolated Transaction
(a) Bulakhids v Navarro: A foreign corporation can sue
on an isolated transaction.
(3) Violation of IP Rights
(4) Estoppel
(a) Merrill Lynch Futures v CA: A foreign corp doing
business in the PH without license may sue in PH
courts against a citizen who contracted with and
has been benefited by said corporation. The rule is
that a party is estopped to challenge the personality
of a corporation after having acknowledged the
same by entering into a contract with it. And the
doctrine of estoppel to deny corporate existence
applies to foreign as well as to domestic
corporations; one who has dealt with a corporation
of foreign origin as a corporate entity is estopped to
deny its corporate existence and capacity. The
principle will be applied to prevent a person
contracting with a foreign corporation from later
taking advantage of its noncompliance with the
statutes, chiefly in cases where such person has
received the benefits of the contract, where such
person has acted as agent for the corporation and
has violated his fiduciary obligations as such, and
where the statute does not provide that the contract
shall be void, but merely fixes a special penalty for
violation of the statute.
(b) Global Business Holdings v Surecomp: A party is
estopped from challenging the personality of a
corporation after having acknowledged the same by
entering into a contract with it. The principle will be
applied to prevent a person contracting with a
foreign corporation from later taking advantage of
 its noncompliance with the statutes, chiefly in cases
where such person has received the benefits of the
contract
3. If a foreign corp is not doing business in the PH, it does not need license
to sue before PH courts on isolated transactions or a cause of action
entirely independent of any business transaction

SECURITIES REGULATION CODE

(03 May 2020)
I. BACKGROUND
A. Aims to regulate the issuance and trading of securities in the Philippines
B. Enacted on July 19, 2000 (amended in 2015). Superseded the Revised
Securities Act
C. Ensures the protection of investors and the Philippine securities market system
D. Among the important provisions is the transfer of SEC adjudicatory powers to the
RTC
II. DECLARATION OF STATE POLICY
A. State Policies
1. Socially aware and self-regulating free market
2. More participation in owning enterprise
3. Enhance democratization of wealth
4. Capital market’s development
5. Protection of investors
6. Full and fair disclosure of securities
7. Minimize or eliminate fraudulent activities
B. Objectives of the SRC
1. Protect investors, i.e. reportorial requirements
2. Prevent fly by night corporations/quick operators, i.e. registration and
reportorial requirements
3. Address problems on equality and access to material information, i.e.
professionalizing money market
4. Enhance the securities market
C. How achieved
1. Registration process, esp. Registration statement
2. Reportorial requirements
3. Anti-fraud provisions
4. Regulations on market participants
5. Sanctions against violators
III. SEC Jurisdiction
A. RTC Jurisdiction
1. Fraud or misrepresentation
2. Intra Corporate controversies
a) Relationship Test
 (1) Between and among stockholders, members, or
associates
(2) Between and among stockholders, members, or
associates and corporation
(3) Between the state and corporation
b) Nature of controversy test
(1) Is it something that can be resolved by the Corporation
Code or internal regulations of the Corporation?
3. Election or appointment controversy
4. Appointment of Rehabilitation Receiver or Management Committee
B. Cases
1. Yujuico v Quiambao: Questions arising from the propriety of the conduct
of elections is within the jurisdiction of the RTC, which includes the power
to call a special election. Election contests should be filed within 15 days
from the conduct of the election.
a) Q: X invested in MPG which is a generation company. During the
time of investment, the generation plant was still being
constructed, which was projected to be finished in 2 years. After 3
years, there is still no commencement of business. X wishes to
ask MPG to update investors of the progress. Where does X go?
SEC because there is no intra-corporate controversy, only a
demand to call a meeting.
2. GSIS v CA: Generally, It is the SEC empowered to decide issues
involving proxies. However, if the validity of the proxies is incidental to an
election contest, the RTC may decide the validity of proxies. If the proxies
are used in any other manner, not related to elections, the resulting
controversy is within SEC jurisdiction.
3. SEC v Subic Bay Golf and Country Club:
4. Roman, Jr. v. SEC
5. Intestate Estate of Alexander Ty v CA
6. SEC v Performance Foreign Exchange Corporation
IV. SECURITIES
A. Securities are shares, participation, or interests in a corporation or in a
commercial enterprise or profit-making venture and evidenced by a certificate,
contract, instruments, whether written or electronic character. They are shares or
interest that raise more capital for a profit-making business. It includes
1. Shares of stocks, bonds, debentures, notes evidece of indebtedness,
asset-backed securities
2. Investment contracts, certificates of interest of participation in a profit
sharing agreement, certificates of deposit (Sec. 3.1 SRC)
3. Fractional undivided interests in oil, gas or other mineral rights;
4. Derivatives like option and warrants;
5. Certificates of assignments, certificates of participation, trust certificates,
voting trust certificates or similar instruments
 6. Proprietary or nonproprietary membership certificates in corporations; and
7. Other instruments as may in the future be determined by the
Commission.
SEC v Prosperity.Com, Inc: Howey Test for Investment Contract
B. Two kinds
1. Equity, i.e. shares: Ownership right in a corporation
2. Debt securities: Require the issuer to repay the principal amount loaned
to it at maturity date and a stated rate of interest
C. Actors involved
1. Issuers create the securities
2. Brokers are agents who buy and sell securities for others, or dealers who
buy and sell securities under their own name
V. REGISTRATION
A. Generally
1. Issuers must register prior to offering
a) Offering may be done through any mode of publication, whether
printed or electronic, whether written or through conferences
informing the public of such offering. Public offering may be
presumed from:
(1) Publication in newspaper, magazine or any printed
material distributed within the Philippines
(2) Presentation on any public or commercial place
(3) Advertisement, announcement in any radio or television
(4) Distribution of flyers
(5) Brochures or any equivalent material, or mailing them to
prospective purchasers
b) If there are 19 or less prospective buyers, registration is not
required. If count exceeds 19, it is considered a public offering
already
2. Information on the securities
3. Prospectus for the terms and conditions
B. Documentary Requirements
1. SEC Form 12-1
2. Signed and notarized statement of management responsibilities on the
AFS
3. Consolidated/Audited/Interim FS
4. Additional components of the AFS
5. Material contracts
6. Exhibits
7. Payment Assessment Form
8. Other documents required by the SEC on a case-to-case basis
C. Registration Statement
 1. Signed by the issuer’s executive officer, its principal operating officer, its
principal financial officer, its comptroller, its principal accounting officer, its
corporate secretary, or persons performing similar functions
a) Representation that the statements made are accurate
2. Accompanied by a duly verified resolution of the board of the directors of
the issuer corporation. Affirms the accuracy and reliability.
D. Exempt Securities
1. Government
2. Foreign government
3. Trustee/receiver
4. Regulated entities
5. Bank (except its own shares)
E. Exempt Transactions
1. Judicial sale
2. Sale of foreclosed securities
3. Isolated transaction
4. Stock dividends
5. Sale to own stockholders
6. Issuance to single purchaser
7. Conversion of shares
8. Brokers transaction
9. Pre-incorporation/capital increase subscription
10. Exchange of securities
11. Private placement (19 persons within 12 month period)
12. Sale to qualified buyers - banks, investment houses, pension funds,
retirement plans by govt, insurance companies, trust companies, other
persons. Qualified buyers are experts in the field of securities and are
unlikely to be defrauded.
13. Catch all, i.e. limited character of offering, transaction is done pursuant to
law, buyers are adequately protected
F. Rejection or Revocation
1. Issuer has been judicially declared insolvent
2. Issuer has violated any of the provisions of this Code and rules
3. Issuer has been or is engaged or is about to engage in fraudulent
transactions
4. Issuer has made any false or misleading representation of material facts
in any prospectus concerning the issuer or its securities
5. Issuer failed to comply with an requirement of the SEC for registration
6. RS is incomplete or inaccurate or contains untrue statement
7. Conviction for an offense involving moral turpitude
VI. REPORTORIAL REQUIREMENTS
A. Applies to:
1. Companies whose shares have been the subject of public offering
2. Those whose shares are listed on an exchange
 3. An issuer with assets of at least Fifty million pesos (50,000,000.00) or
such other amount as the Commission shall prescribe, and having two
hundred (200) or more holder each holding at least one hundred (100)
share of a class of its equity securities: Provided, however, That the
obligation of such issuer to file report shall be terminate ninety (90) days
after notification to the Commission by the issuer that the number of its
holders holding at least one hundred (100) share reduced to less than
one hundred (100).
B. Reports include
1. Annual report
2. Beneficial ownership report
3. Other disclosures
a) Change in control of issuer
b) Filing of case by or against the issuer (claim 10% or more of total
assets)
c) Case against DO
d) Resignation, removal of DO
e) Change of purpose/activities
f) Extraordinary investments
g) Losses or potential losses (10%)
h) Dissolution
i) Licensing, franchising agreement
j) Delay in payment of debts
k) Mortgage, pledge on assets (10%)
l) Purchase of stocks of other companies (10%)
m) Sale of assets
n) Suspension, cancellation, authorization, or listing of securities
o) Fines of more than P50K
p) Merger or consolidation
q) Modification of shareholders’ rights
r) Dividend declaration
s) Change in fiscal year
t) Joint venture
u) Capitalization issues
v) Change of address
w) Change in auditors
x) Change n subsidiaries
y) Receivership
z) Borrowing not in the ordinary course of business
aa) Receivership
bb) New product or discovery
cc) Disputes with contractors or suppliers
C. Tender Offer
 1. Applies to listed company with P50M or more assets and at least 200
stockholders with at least 100 shares each (CEMCO Holdings v. National
Life Insurance Company)
2. Tender offer is a publicly announced intention by a person acting alone or
in concert with other persons to acquire equity securities
a) Made publicly and shareholders are invited to sell their shares for
a specified price and within a particular period
b) The existing stockholders are invited to tender or sell
c) Conditional offer to buy
d) Price is typically higher than current price of shares
3. Thresholds
4. Remedies available in case tender offer rule is not complied with:
Invalidate the sale and then require compliance
5. When Tender Offer is not applicable
a) Purchase from unissued capital stock not resulting to 50% or more
acquisition
b) Purchase from increase in capital stock
c) Foreclosure sale
d) Privatization by government
e) Corporate rehabilitation
f) Open market at prevailing market price
g) Merger or consolidation
D. Insider Trading
1. Insider
a) Issuer
b) Director or officer
c) 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) Government employee, director, or officer of an exchange,
clearing agency, and/or self-regulatory organization who has
access to material information
e) A person who learns such information by a communication from
any of the foregoing insiders
2. Material Nonpublic from the perspective of a reasonable person
a) It has not been generally disclosed to the public and would likely
affect the market price of the security after being disseminated to
the public and the lapse of reasonable time for the market to
absorb the information
b) Would be considered by a reasonable person important under the
circumstances in determining his course of action whether to buy,
sell, or hold a security
3. SEC v Interport: insider's misuse of nonpublic and undisclosed
information is the gravamen of illegal conduct. The intent of the law is the
 protection of investors against fraud, committed when an insider, using
secret information, takes advantage of an uninformed investor. Insiders
are obligated to disclose material information to the other party or abstain
from trading the shares of his corporation. This duty to disclose or abstain
is based on two factors: first, the existence of a relationship giving
access, directly or indirectly, to information intended to be available only
for a corporate purpose and not for the personal benefit of anyone; and
second, the inherent unfairness involved when a party takes advantage of
such information knowing it is unavailable to those with whom he is
dealing.
4. Broker-Director Rule (Sec. 30, SRC): Brokers are prohibited from buying
or selling shares of any listed corporation in which they hold positions.
They cannot trade securities to companies they are associated with
E. Proxy Solicitation
1. Solicitation includes
a) Any request for proxy or authorization
b) Any request to execute or not to execute, or to revoke, a proxy
authorization
c) Furnishing of a form of proxy or other communication to security
holder under a circumstance reasonably calculated to result in the
procurement, withholding, or revocation of a proxy
2. Prohibitions
a) No solicitation for undated or postdated proxy or any proxy which
provides that it shall be deemed dated as of any date subsequent
to the date on which it is signed by the security holder
b) Proxies solicited are restricted for use only in a particular meeting
or for voting on a particular proposal
3. Not solicitation where it is made on behalf of the issuer where the total
number of persons solicited is not more than nineteen
4. Proxy Form
a) Indicate in bold face on whose behalf the solicitation is being
made
b) Provide a specifically designated blank space for dating the proxy
form
c) Identify clearly and impartially each separate matter intended to
be acted upon
d) Be in writing, signed by the stockholder or his duly authorized
representative
e) Filed with the corporate secretary before the scheduled meeting
F. Essentials of Options Trading
 1. Regulation of Option Trading: No member of an exchange shall, directly
or indirectly, endorse or guarantee
G. Security Prices Manipulation
1. False or misleading appearance of active trading
2. Circulate information that the price of any security listed will or is likely to
rise or fall
3. False or misleading statement that can induce purchase of sale or
security

LETTERS OF CREDIT
(05 May 2020)
I. DEFINITION & PURPOSE
A. Letters of credit are issued by one merchant to another or for the purpose of
attending to a commercial transaction
B. A financial device developed by merchants as a convenient and relatively safe
mode of dealing with sales of goods to satisfy the seemingly irreconcilable
interests of a seller, who refuses to part with his goods before he is paid, and a
buyer, who wants to have control of the goods before paying. Immediate
payment is assured.
C. Governing law
 1. Code of Commerce (Arts. 567-572)
2. Uniform Customs and Practice for Documentary Credits, issued by the
International Chamber of Commerce
D. LOC Mechanics
1. Once the credit is established, the seller ships the goods to the buyer and
in the process, secures the required shipping documents or documents of
title, which is stated in the L/C and which the seller must strictly comply
with
2. To get paid, the seller executes a draft and presents it together with the
required documents to the issuing bank
3. The issuing bank redeems the draft and pays cash to the seller it it finds
that the documents submitted by the seller conform with what the L/C
requires
4. The bank then obtains possession of the documents upon paying the
seller
5. The transaction is completed when the buyer reimburses the issuing bank
and acquires the documents entitling him to the goods
6. Under this arrangement, the seller gets paid only if he delivers the
documents of title over the goods, while the buyer acquires said
documents and control over the goods only after reimbursing the bank
E. The functions assumed by a correspondent bank are classified according to the
obligations taken up by it:
1. In the case of a notifying bank, the correspondent bank assumes no
liability except to notify and/or transmit to the beneficiary the existence of
the L/C.
2. A negotiating bank is a correspondent bank which buys or discounts a
draft under the L/C. Its liability is dependent upon the stage of the
negotiation. If before negotiation, it has no liability with respect to the
seller but after negotiation, a contractual relationship will then prevail
between the negotiating bank and the seller.
3. A confirming bank is a correspondent bank which assumes a direct
obligation to the seller and its liability is a primary one as if the
correspondent bank itself had issued the L/C.
II. KINDS OF LETTERS OF CREDIT
A. Irrevocable Letter of Credit – is a definite undertaking on the part of the issuing
bank and constitutes the engagement of that bank to the beneficiary and bona
fide holders of drafts drawn and or documents presented thereunder, that the
provisions for payment, acceptance or negotiation contained in the credit will be
duly fulfilled, provided that all the terms and conditions of the credit are complied
with.
B. Confirmed Letter of Credit – whenever the beneficiary stipulates that the
obligation of the opening bank shall also be made the obligation of another bank
(also bank that notifies) to himself.
 C. Standby Letter of Credit – a security arrangement for the performance of certain
obligations. It can be drawn against only if another business transaction is not
performed. It may also be issued in lieu of a performance bond.
1. This type of letter of credit involves an obligation to do.
2. Transfield v Luzon: The SC held that Luzon can ran after the Letter of
Credit despite the pending arbitration of before the Commission because
of the independence principle.
3. Commercial v. Standby L/C
a) The beneficiary of a commercial credit must demonstrate that he
has performed his contract
b) The beneficiary of a standby credit must certify that his obligor is
in default.
D. Revolving Letter of Credit – one that provides for renewed credit to become
available as soon as the opening bank has advised that the negotiating or paying
bank that the drafts already drawn by the beneficiary have been reimbursed to
the opening bank by the buyer.
E. Back-to-Back Letter of Credit – a credit with identical documentary requirements
and covering the same merchandise as another letter of credit, except for a
difference in the price of the merchandise as shown by the invoice and the draft.
The second letter of credit can be negotiated only after the first is negotiated.
III. RULE OF STRICT COMPLIANCE
A. The beneficiary should strictly abide by the terms of the L/C/ Otherwise, he
cannot claim from the bank
B. Substantial compliance is not enough
C. The buyer and the seller agree on what documents are to be presented for
payment, but ordinarily they are documents of title evidencing or attesting to the
shipment of he goods to the buyer
D. The documents tendered must strictly conform to the terms of the L/C
E. The tender of documents by the beneficiary must include all documents required
by the L/C
F. A correspondent bank which departs from what has been stipulated under the
L/C, as when it accepts a faulty tender, acts on its own risks and it may not
thereafter be able to recover from the buyer or the issuing bank, as the case may
be, the money thus paid to the beneficiary.
G. An issuing bank which paid the beneficiary of an expired L/C can recover
payment from the applicant which obtained the goods from the beneficiary to
prevent unjust enrichment (Rodzssen Supply Company v Far East Bank and
Trust)
IV. INDEPENDENCE PRINCIPLE:
A. The three contracts entered into in this transaction, the contracts are: 1. Contract
of sale between the buyer and seller; 2. Contract of the buyer with the issuing
bank; and 3. Letter of Credit proper, are separate from each other thus any
infirmity from one contract does not affect the other contracts.
 B. The contracts involved in a L/C arrangement are to be maintained in a state of
perpetual separation
C. The independence principle thus liberates the issuing bank from the duty of
ascertaining compliance by the parties in the main contract
D. The obligation under the L/C is independent of the related and originating
contract
E. Assures the seller of prompt payment, independent of any breach of the main
sales contract
F. Where there was a meeting of the minds between the buyer and the seller
regarding the sale of goods to be paid for under a L/C did not prevent the
perfection of the contract, neither did such failure extinguish the obligation
(Reliance Commodities v Daewoo Industrial)
G. FRAUD EXCEPTION: Exists when the beneficiary, for the purpose of drawing in
the credit, fraudulently presents to the confirming bank, documents that contain,
expressly or impliedly, material representations of fact that to his knowledge are
untrue

PRE-NEED CODE
(05 May 2020)
I. DEFINITION
A. Pre-need plans: Contracts, agreements, deeds or plans for the benefit of the
planholders which provide for the performance of future service/s, payment of
monetary considerations or delivery of other benefits at the time of actual need or
agreed maturity date, as specified therein, in exchange for cash or installment
amounts with or without interest or insurance coverage and includes life,
pension, education, interment and other plans, instruments contracts or deeds as
may in the future he determined by the Commission. Financial program designed
to help people prepare for their future.
B. Pre-need Companies: Any corporation registered with the Commission and
authorized/licensed to sell or offer to sell pre-need plans. The term "pre-need
company" also refers to schools, memorial chapels, banks, nonbank financial
institutions and other entities which have also been authorized/licensed to sell or
offer to sell pre-need plans insofar as their pre-need activities or business are
concerned.
C. State Policy: To regulate the establishment of pre-need companies and to place
their operation on sound, efficient and stable basis to derive the optimum
advantage from them in the mobilization of savings and to prevent and mitigate,
as far as practicable, practices prejudicial to public interest and the protection of
planholders.
D. Regulation on Pre-need Plans
1. Registration of pre-need plans
2. Licensing persons involved in the sale of pre-need plans
3. Disclosures to prospective plan holders
 4. Imposition of capital, bonding, and other financial responsibility
5. Establishing trust funds for the payment of benefits
E. Incorporation
1. Favorable recommendation of the IC
2. SEC registration
3. Foreign corporation must comply with requirements
4. Capital Requirement: Minimum paid up capital of P100M
F. License
1. Expires 1 yr from registration and renewed annually
2. Deemed approved is not acted upon 30d from the time of filing
II. REGISTRATION OF PRE-NEED PLANS
A. Within 45d after grant of license and for every pre-need plan
III. LICENSING OF SALES COUNSELOR AND GENERAL AGENT
IV. DEFAULT AND TERMINATION OF PLAN
V. CLAIMS SETTLEMENT

INTELLECTUAL PROPERTY
(15 May 2020)
I. CONSTITUTIONAL AND LEGAL SOURCE
A. Art. XIV, §13 of the 1987 Constitution: Protect and secure the exclusive rights of
scientists, inventors, artists, and other gifted citizens to their intellectual property
B. Art. 712, NCC: Ownership is acquired … by intellectual creation
C. Intellectual Property Code
II. Intellectual Property Code
A. State policy
1. Development of domestic and creative activity, facilitate transfer of
technology, attract foreign investment, ensure market access
2. Protection of exclusive rights of scientists, inventors, artists, and other
gifted citizens
3. Use of intellectual property bears a social function
4. Streamline administrative process
B. IPR is separate from the output: The transfer or assignment of the intellectual
property will not necessarily constitute a conveyance of the thing it covers, nor
would conveyance of the latter imply the transfer or assignment of the intellectual
right (Distilleria Washington v. CA)
C. IP Consists of
1. Patents (invention): Any technical solution of a problem of a problem in
any field of human activity which is new, involves an inventive step and is
industrially applicable
2. Copyright and related rights: literary and artistic works which are original
creations and protected from the moment of creation. The law does not
require copyright registration to be protected. They are protected at the
 moment of creation. Only the EXPRESSION of an idea is protected by
copyright, not the idea itself (Pearl & Dean v. SM)
3. Trademarks and Service Marks (identifiers): Any visible sign capable of
distinguishing the goods or services. Concepts of copyright, trademark,
and patent are different intellectual property rights (Kho v. CA). Concepts
must be taken separately (Pearl & Dean v. SM).
4. Geographic indications
5. Layout Designs of integrated circuits
6. Undisclosed Information
7. Industrial Design
D. Basic Functions of the IPO
1. Examine application for grants of letters of patent for inventions and
register utility models
2. Examine applications for registration of marks, geographical indications,
integrated circuits, etc.
3. Register technological transfer arrangements; settle disputes
III. COPYRIGHT
A. Exclusive right to publish, sell, license, exploit any literary work or artwork
B. Deposit of coupes
1. National library and the Supreme Court Library
2. At any time during the subsistence of the copyright — register and
deposit with them, by personal delivery or by registered mail, 2 complete
copies or reproductions of the work in such form as the Directors of the
said libraries may prescribe in accordance with regulations; Provided, that
only works in the field of law shall be deposited with the SC Library
3. Such registration and deposit is not a condition of copyright protection.
There must be a perceivable expression of the work to be protected
C. Works covered by Copyright
1. Original work
a) Literary and artistic works
(1) Books, articles
(2) Periodicals, newspapers (BUT News is not per se
protected by copyright. Anyone can make their own
interpretation. See ABS-CBN v. Gozon)
(3) Lectures, sermons, addresses
(4) Letters
(5) Musical/literary compositions
(6) Painting, architecture, sculpture, and other works of art
(7) Illustrations, maps, plans, sketches
(8) Phots
(9) Audio-visual
(10) Pictorial illustrations, advertisements
(11) Computer programs
2. Derivative work
 a) Based on one or more pre-existing work
b) Selection, arrangement, presentation
D. Ownership of Copyright
1. Author (and heirs)
2. Joint Authorship
3. Created during employment - Generally, employer, unless otherwise
stipulated
4. Commissioned Work - Generally Copyright is retained, unless waived.
Attribution right is retained regardless.
5. Audio Visual - Generally, producer
6. Letters and other communications - Recipient but needs the consent of
the sender
7. Anonymous & Pseudonymous works - Publisher considered as agent of
author for purposes of copyright protection
E. Deposit of Copies
1. National library and the SC Library (For works in the field of law)
2. At any time during the subsistence of the copyright — register and
deposit, by personal delivery or registered mail, 2 complete copies or
reproductions of the work
3. Registration and deposit is not a condition of copyright protection; only
administrative convenience (Sec. 191)
F. Rights of the Author
1. Economic Rights (remuneration) — control reproduction, dramatization,
first public distribution (i.e. first transfer of ownership), rental right (Audio
visual/cinematographic), public display, public performance, other
communication to the public.
2. Resale Right — In every sale or lease of an original work subsequent to
the first disposition thereof by the author, the author or his heirs shall
have an inalienable right to participate in the gross proceeds of the sale
or lease to the extent of five percent (5%). The right shall exist during the
lifetime of the author and for fifty years after his death
3. Moral rights — Attribution of authorship is perpetual and non-assignable.
Right to object to alteration or distortion. Right to restrain the use of his
name
4. Copyright transfer
a) Not deemed assigned or licensed inter vivos unless there is a
WRITTEN INDICATION of such intention
b) The copyright is distinct from the property in the material object
subject to it. Consequently, the transfer, assignment, or licensing
of the copyright shall not itself constitute a transfer or assignment
of the sole copy or one or several copies of the work imply
transfer, assignment, or licensing of the copyright
5. Architecture
 a) Shall include the right to control the erection of any building which
reproduces the whole or substantial part of the work either in its
original form or in any form recognizably derived from the original
b) BUT, shall not include the right to control the reconstruction or
rehabilitation in the same style as the original of a building to
which that copyright relates
6. Term of protection
a) Literary, artistic, derivative works: Lifetime + 50 years
b) Joint Authorship: Lifetime of last surviving author + 50 years
c) Anonymous or Pseudonymous
(1) 50 years from publication
(2) 50 years from creation
d) Photographic works: Same
e) Audio-visual works: same
f) Sound/image recordings: 50 years from the end of the year when
recording took place
g) Broadcast: 20 years from broadcast
G. Infringement
1. In cases of infringement, copying alone is not what is prohibited. The
copying must produce injurious effects.
2. Quotations from a published work if they are compatible with fair use and
only to the extent justified by the purpose are allowed provided that the
source and the name of the author are mentioned
3. Acts that do not constitute infringement
a) Private performance, private/personal use and free of charge
b) Charitable/religious (even if public and/or free)
c) Doctrine of fair use — For criticism, commentary, news, teaching,
scholarship, research
d) Library and reprographic reproduction
e) Reproduction of computer programs for back-up
f) Works in the public domain
g) Reproduction or distribution or published articles or materials in
specialized format exclusively for the use of the blind, visually-
and-reading-impaired persons made on a non-profit basis and
shall indicate the copyright owner and the date of the original
publication
IV. TRADEMARKS
A. Trademark: Visible sign capable of distinguishing goods or services of an
enterprise. Functions: distinction, origin, etc
B. Require registration with the IPO to claim exclusive right
1. Certificate of registration
a) Prima facie evidence that registration is valid
b) Shows ownership
 c) Provides exclusive right to use the same in connection with the
goods or services provided therein
2. Marks that cannot be registered
a) Immoral, scandalous, deceptive
b) Flag or coat of arms, insignia of the Philippines
c) Name, portrait, signature of individual (except written consent) or
that of a deceased President, during the lifetime of the widow, if
any, except by written consent of the widow
d) Any mark identical with a registered mark in respect of
(1) Same goods or services
(2) Closely related goods
(3) Nearly resembles a mark as to cause confusion
e) Well-known mark
f) Trademark dilution
g) Misleading as to nature, quality, character, origin
h) Generic terms
C. Period of protection: 10 years
D. Doctrines
1. Holistic Test / Totality Rule
2. Test of Dominancy (McDonald’s Corporation v. LC Big Mak).
3. Related Goods Principle (Mighty Corporation v. Gallo & Esso Standard v.
CA) — In resolving whether goods are related, several factors come into
play:
a) Business and its o=location
b) Classification
c) Quality
d) Packaging
e) Nature and Cost
f) Descriptive attributes
g) Purpose of goods
h) Whether the articles is for immediate consumption
i) Fields of manufacture
j) Conditions under which they are distributed
k) Channels of trade
4. Doctrine of Dilution (Levi Strauss)
E. Form of Marks
1. Collective mark — Signs which distinguish the origin, material, mode of
manufacture, i.e. Magnolia, Nestle, etc.
2. Geographic indications — signs used on products that have a specific
geographical origin. Must be able to identify that product as originating
from a particular place.
F. Trademark infringement
 1. Use in commerce for production, counterfeit, copy, or colorable imitation
of a registered mark or the same container without consent to deceive
consumers
2. Reproduce, counterfeit, copy, or colorably imitate a registered mark or a
dominant feature in packaging or advertising likely to cause confusion
3. Trademark infringement v Unfair competition (Co v. Leung)

TRADEMARK INFRINGEMENT UNFAIR COMPETITION

Unauthorized use of TM Passing off one’s goods as those of another

Fraudulent intent NOT necessary Fraudulent intent is necessary

Prior registration is required Registration is NOT required

4. Failure to file declaration of actual use results in discontinuance of

exclusive use
5. Use of mark in the website can prove actual use
6. Generic, geographic incapable of appropriation EXCEPT under rule of
secondary meaning:
a) Substantial commercial use of a mark in the Philippines
b) Distinctiveness of the mark insofar as the goods and products are
concerned
c) Proof of substantially exclusive and continuous commercial use in
the Philippines for five years before the date on which the claim of
distinctiveness is made
V. PATENT
A. Application — Applies to technical solution of a problem of human activity, which
is new, involves an INVENTIVE step and is industrially applicable. May relate to
product, process, or improvement.
1. Elements:
a) New: Novelty, no prior art, or disclosure. Novelty is not prejudiced
by a disclosure made during the 12-month period preceding the
filing date if made by (a) the inventor; (b) patent office; (c) third
person from inventor. Not part of a prior art. Prior art is:
(1) Everything which has been made available to the public
anywhere in the world, before the filing date or the priority
date
(2) Earlier published application
b) Inventive Step: Not obvious
c) Industrial applicability
2. Not patentable
a) Discoveries, scientific theories, mathematical methods
b) Schemes, rules, and methods of performing mental acts, playing
games, or doing business, and programs for computers
 c) Anything contrary to public order or morality
d) Methods for treatment of the human/animal body by surgery or
therapy and diagnostic methods
e) Plant varieties/ animal breeds/ biological processes for animal or
plant production
B. Period — Non-renewable period of 20 years
C. First to File Rule
1. When two or more persons have made the same invention separately
and independently of each other. Patents goes to the applicant with
earliest filing date, or earliest priority date
2. Patent disclosure is encouraged
D. Ownership of Right to patent
1. Belongs to the inventor. Jointly made inventions belong to them jointly
2. Inventions created pursuant to commission belong to party who
commissions, unless stipulated in contract
E. Grant of Patent
1. Protection against indiscriminate use
2. Mandatory publication also has the correlative effect of bringing new
ideas into the public consciousness
3. After the lapse of 20 years, the invention becomes part of the public
domain and is free to use
F. Rights Conferred
1. PRODUCT: To restrain, prohibit, and prevent any unauthorized person or
entity from making, using, offering for sale, selling, or importing that
product
2. PROCESS: to restrain, prevent, or prohibit any unauthorized person or
entity from using the process, and from manufacturing, dealing in, using,
selling, or offering for sale, or importing any product obtained directly or
indirectly from such process
3. Patent owners shall also have the right to assign or transfer by
succession the patent, and to conclude licensing contracts for the same
4. Rights after publication
a) Applicant has all the rights of a patentee against any person who
infringes his rights, as if a patient had been granted for that
invention
(1) Actual knowledge of infringer that the invention was
subject matter of a published application
(2) Received writer notice that the invention was subject
matter of a published application
(3) BUT, the action may not be filed until after the grant of a
patent on the published application and within four years
from the commission of the acts complained of
5. Revival of abandoned patent
 a) An abandoned patent application may only be revived within four
months from the date of abandonment
b) Count is from mailing of notice (not receipt)
6. Right of Priority on patent
a) RElevant only when there are two or more conflicting patent
applications on the same invention
b) Right of priority does not automatically grant letters patent to an
applicant, possession of a right of priority does not confer any
property rights on the applicant in the absence of an actual patent
7. Exploitation
a) Voluntary Licensing
(1) In the event the tech transfer arrangement shall provide for
arbitration, the procedure of the UNCITRAL or the Rules of
Conciliation and Arbitration of the ICC shall apply and the
venue shall be the PH or any neutral country
(2) Philippine taxes on all payments relating to the tech
transfer shall be borne by the licensor
b) Compulsory Licensing
(1) Grant of license to exploit a patented invention, even
without the agreement of the patent owner
(2) Public interest (safety, nutrition, health)
(3) Judicial order (anti-competitive use)
(4) drugs/medicines (national emergency, demand is not met)
G. Patent Infringement
1. Literal Infringement — The extent of protection conferred by the patent
shall be determined by the claims, which are to be interpreted in the light
of the description and drawings
2. Doctrine of Equivalents — Account shall be taken of elements which are
equivalent to the elements expressed in the claims, so that a claim shall
be considered to cover not only all the elements as expressed therein, but
also equivalents
a) An infringement occurs when a device appropriates a prior
invention by incorporating its innovative concept and, despite
some modification and change, performs substantially the same
function in substantially the same way to achieve substantially the
same results
b) Requires satisfaction of the function means and result test, the
patentee having the burden to show that all three components of
such equivalency test are met
H. Utility Model
1. Refers to any useful machine, implement, tool, product, composition,
process, improvement. Industrial property right that allows small or less
complex protection that an patent for a limited period of time (7 years, no
renewal)
 2. Improvement on something that has already been patented
3. Prohibition against filing of Parallel Applications — applicant may not file
two applications for the same subject, one for patent and the other for
utility model
I. Industrial Design
1. Refers to any composition of lines or colors or any three-dimensional
model
2. Protection for 5 years, subject to renewal for not more than 2 consecutive
5 year periods
J. Integrated Circuits
1. Protected for 10 years

PHILIPPINE COMPETITION ACT

(31 May 2020)
I. Background
A. PCA was enacted on July 21, 2015 and took effect on August 8, 2015
B. First comprehensive competition or antitrust law in the country
C. Created the PCC and was organized in February 2016
D. More competition = More choices for consumers = Higher quality of products and
services and lower prices; efficiency; differentiation/innovation; small businesses
can compete; customer-centric
II. In general
A. Defines, prohibits, and penalizes anti-competitive practices so as to enhance
efficiency of the economy, and promote free and fair competition in trade,
industry, and other commercial activities
B. Declaration of policy
1. Enhance economic efficiency and promote free and fair competition
2. Establish a national competition policy
3. Prevent economic concentration
4. Penalize all forms of anti-competitive agreements, abuse of dominant
position and anti-competitive mergers and acquisitions
III. Scope of PCA
A. Applies to
1. Any person or entity engaged in any trade, industry, and commerce in the
PH
2. International trade having direct, substantial, and reasonable foreseeable
effects in trade, industry, or commerce
3. Government corporations engage in economic activity
B. Does not apply to
1. Agreements to facilitate CBAs in respect of conditions of employment
2. is a Management Contract subject also to PCA compulsory notification
when the threshold is reached? No. Only mergers and acquisitions are
subject to the compulsory notification requirements.
IV. Key Provisions
A. Prohibitions
1. Anti-Competitive Agreements (Sec. 14) —
a) Agreements: Any type or form of contract, arrangement,
understanding, collective recommendation, or concerted action,
whether formal or informal, explicit or tacit, written or oral;
b) Prohibitions
(1) The following agreements, between or among competitors,
are per se prohibited:
(a) Restricting competition as to price, or components
thereof, or other terms of trade;
(b) Fixing price at an auction or in any form of bidding
including cover bidding, bid suppression, bid
rotation and market allocation and other analogous
practices of bid manipulation;
(2) The following agreements, between or among competitors
which have the object or effect of substantially preventing,
restricting or lessening competition shall be prohibited:
(a) Setting, Kmiting, or controlling production, markets,
technical development, or investment;
(b) Dividing or sharing the market, whether by volume
of sales or purchases, territory, type of goods or
services, buyers or sellers or any other means;
(3) Agreements other than those specified in (a) and (b) of this
section which have the object or effect of substantially
preventing, restricting or lessening competition shall also
be prohibited: Provided, Those which contribute to
improving the production or distribution of goods and
services or to promoting technical or economic progress,
while allowing consumers a fair share of the resulting
benefits, may not necessarily be deemed a violation of this
Act.
(4) An entity that controls, is controlled by, or is under
common control with another entity or entities, have
common economic interests, and are not otherwise able to
decide or act independently of each other, shall not be
considered competitors for purposes of this section.
2. Abuse of Dominant Position (Sec. 15)
a) Dominant position: a position of economic strength that an entity
or entities hold which makes it capable of controlling the relevant
market independently from any or a combination of the following:
competitors, customers, suppliers, or consumers
b) Prohibitions:
(1) It shall be prohibited for one or more entities to abuse their
dominant position by engaging in conduct that would
substantially prevent, restrict or lessen competition:
(a) Selling goods or services below cost with the object
of driving competition out of the relevant market:
Provided, That in the Commission’s evaluation of
this fact, it shall consider whether the entity or
entities have no such object and the price
established was in good faith to meet or compete
with the lower price of a competitor in the same
market selling the same or comparable product or
service of like quality;
(b) Imposing barriers to entry or committing acts that
prevent competitors from growing within the market
in an anti-competitive manner except those that
develop in the market as a result of or arising from
a superior product or process, business acumen, or
legal rights or laws;
(c) Making a transaction subject to acceptance by the
other parties of other obligations which, by their
nature or according to commercial usage, have no
connection with the transaction;
(d) Setting prices or other terms or conditions that
discriminate unreasonably between customers or
sellers of the same goods or services, where such
customers or sellers are contemporaneously
trading on similar terms and conditions, where the
effect may be to lessen competition substantially:
Provided, That the following shall be considered
permissible price differentials:
(i) Socialized pricing for the less fortunate
sector of the economy;
(ii) Price differential which reasonably or
approximately reflect differences in the cost
of manufacture, sale, or delivery resulting
from differing methods, technical conditions,
or quantities in which the goods or services
are sold or delivered to the buyers or
sellers;
(iii) Price differential or terms of sale offered in
response to the competitive price of
payments, services or changes in the
facilities furnished by a competitor; and
 (iv) Price changes in response to changing
market conditions, marketability of goods or
services, or volume;
(e) Imposing restrictions on the lease or contract for
sale or trade of goods or services concerning
where, to whom, or in what forms goods or services
may be sold or traded, such as fixing prices, giving
preferential discounts or rebate upon such price, or
imposing conditions not to deal with competing
entities, where the object or effect of the restrictions
is to prevent, restrict or lessen competition
substantially: Provided, That nothing contained in
this Act shall prohibit or render unlawful:
(i) Permissible franchising, licensing, exclusive
merchandising or exclusive distributorship
agreements such as those which give each
party the right to unilaterally terminate the
agreement; or
(ii) Agreements protecting intellectual property
rights, confidential information, or trade
secrets;
(f) Making supply of particular goods or services
dependent upon the purchase of other goods or
services from the supplier which have no direct
connection with the main goods or services to be
supplied;
(g) Directly or indirectly imposing unfairly low purchase
prices for the goods or services of, among others,
marginalized agricultural producers, fisherfolk,
micro-, small-, medium-scale enterprises, and other
marginalized service providers and producers;
(h) Directly or indirectly imposing unfair purchase or
selling price on their competitors, customers,
suppliers or consumers, provided that prices that
develop in the market as a result of or due to a
superior product or process, business acumen or
legal rights or laws shall not be considered unfair
prices; and
(i) Limiting production, markets or technical
development to the prejudice of consumers,
provided that limitations that develop in the market
as a result of or due to a superior product or
process, business acumen or legal rights or laws
shall not be a violation of this Act:
 (2) Provided, That nothing in this Act shall be construed or
interpreted as a prohibition on having a dominant position
in a relevant market or on acquiring, maintaining and
increasing market share through legitimate means that do
not substantially prevent, restrict or lessen
competition:
(3) Provided, further, That any conduct which contributes to
improving production or distribution of goods or services
within the relevant market, or promoting technical and
economic progress while allowing consumers a fair share
of the resulting benefit may not necessarily be considered
an abuse of dominant position:
(4) Provided, finally, That the foregoing shall not constrain the
Commission or the relevant regulator from pursuing
measures that would promote fair competition or more
competition as provided in this Act.
3. Prohibited Mergers and Acquisitions (Sec. 16-23)
a) Merger: the joining of two (2) or more entities into an existing
entity or to form a new entity
b) Acquisition: the purchase of securities or assets, through contract
or other means, for the purpose of obtaining control by:
(1) One (1) entity of the whole or part of another;
(2) Two (2) or more entities over another; or
(3) One (1) or more entities over one (1) or more entities;
c) Compulsory Notification
(1) Coverage — Parties to the merger or acquisition
agreement referred to in the preceding section wherein
(a) SIZE OF TRANSACTION: the value of the
transaction exceeds P2,400,000,000.00. See
acquired entity’s assets or gross annual income
(i) In the case of the merger or acquisition of
banks, banking institutions, building and
loan associations, trust companies,
insurance companies, public utilities,
educational institutions and other special
corporations governed by special laws, A
favorable recommendation by a
governmental agency with a competition
mandate shall give rise to a disputable
presumption that the proposed merger or
acquisition is not violative of this Act.
(ii) Share acquisition:
(a) Value of assets (other than shares)
or income > P2.4B; AND,
 (b) Due to acquisition, Acquiring entity
would control
(i) 35% of the acquired entity’s
voting shares
(ii) 50% of the acquired entity’s
voting shares if there are
existing shares
(b) SIZE OF PARTY: An aggregate annual gross
revenues in, into, or from the PH or value of the
assets in the Philippines of the ULTIMATE
PARENT ENTITY of at least one of the acquiring or
acquired entities exceeds of Six Billion
(P6,000,000,000). See assets or income in the PH
(2) Notification
(a) Each party to M&A shall submit a notification
(b) Submission — 30d from signing of definitive
agreement re M&A
(c) PCC has 15d from submission to determine if the
form and other requirements have been completed
(d) Period fore review by PCC is 90d. Deemed
approved after expiry.
(3) Prohibition — Parties are prohibited from consummating
their agreement until thirty (30) days after providing
notification to the Commission in the form and containing
the information specified in the regulations issued by the
Commission
(4) Consequences — An agreement consummated in violation
of this requirement to notify the Commission shall be
considered void and subject the parties to an
administrative fine of one percent (1%) to five percent (5%)
of the value of the transaction.
(5) Effect of Notification — Commission may
(a) Prohibit the implementation of the agreement;
(b) Prohibit the implementation of the agreement
unless and until it is modified by changes specified
by the Commission.
(c) Prohibit the implementation of the agreement
unless and until the pertinent party or parties enter
into legally enforceable agreements specified by
the Commission.
d) Prohibited mergers and acquisitions — Merger or acquisition
agreements that substantially prevent, restrict or lessen
competition in the relevant market or in the market for goods or
 services as may be determined by the Commission shall be
prohibited.
e) Exemptions — when the parties establish either of the following:
(1) The concentration has brought about or is likely to bring
about gains in efficiencies that are greater than the effects
of any limitation on competition that result or likely to result
from the merger or acquisition agreement; or
(2) A party to the merger or acquisition agreement is faced
with actual or imminent financial failure, and the agreement
represents the least anti-competitive arrangement among
the known alternative uses for the failing entity’s assets:
(3) Provided, That an entity shall not be prohibited from
continuing to own and hold the stock or other share capital
or assets of another corporation which it acquired prior to
the approval of this Act or acquiring or maintaining its
market share in a relevant market through such means
without violating the provisions of this Act:
(4) Provided, further, That the acquisition of the stock or other
share capital of one or more corporations solely for
investment and not used for voting or exercising control
and not to otherwise bring about, or attempt to bring about
the prevention, restriction, or lessening of competition in
the relevant market shall not be prohibited.
V. PCC
A. Composition
1. Chairperson and four (4) Commissioners appointed by the President
2. Qualifications
a) shall be citizens and residents of the Philippines, of good moral
character, of recognized probity and independence and must have
distinguished themselves professionally in public, civic or
academic service in any of the following fields: economics, law,
finance, commerce or engineering.
b) in the active practice of their professions for at least ten (10)
years, and
c) must not have been candidates for any elective national or local
office in the immediately preceding elections, whether regular or
special:
d) Provided, That at least one (1) shall be a member of the Philippine
Bar with at least ten (10) years of experience in the active practice
of law, and at least one (1) shall be an economist.
3. Term of Office: 7 years without reappointment
B. Powers and functions
1. Conduct inquiry, investigate
2. Hear and decide cases
3. Review mergers and acquisition
4. Monitor compliance
5. A private party suffering from violations of the PCA cannot separately file
or initiate civil case in court, until after the PCC has completed preliminary
inquiry
MAYUMI

BANKING LAW

Bank - entities engaged in the lending of funds obtained in the form of deposits (Sec. 3.1, GBL)

Quasi banks - engaged in the borrowing of funds through the issuance, endorsement, or assignment with
recourse or acceptance of deposit substitutes as defined in Section 95 of RA No. 7653 (NCBA) for
purposes of resending or purchasing of receivables and other obligations (Sec. 4.6)

● They perform selective banking functions like lending and deposits function, but they do not have
all the facilities of a banking institution

Requirements to set up a bank/Quasibank (Sec. 8,GBL)

1. Stock corporation
1. Needs a favourable endorsement from the BSP
2. Funds are obtained from the public (20 or more)
3. Minimum capital requirements prescribed by the Monetary board for each category of banks are
satisfied
1. In RCC now, no minimum capitalisation requirement UNLESS there’s a law stating
otherwise. (Example: Insurance companies - 1 Billion pesos).

Degree of Care

● Banks are expected to observe the highest degree of care in the conduct of their business (Alano
v. Planter’s Development Bank)
● This is true in processing of loans and of bank accounts
● Employees, agents, and officials must observe utmost care in dealing with the clients
● Ocular inspection of property (PNB v. Villa)
● Case Summary: Sps. Cornista defaulted in the payment of their loan, so their property
was foreclosed, with Villa as the highest bidder.
● Ruling: PNB failed to ascertain ownership of the property. It failed to exert extraordinary
diligence. PNB merely relied on the TCT, but there was no ocular inspection was done
which could have allowed PNB to determine that someone else has a right or claim to the
property. In fact, even the taxes were being paid by Villa.
● Discrepancy in the size of the condo unit (Union Bank)
● Case Summary: Union bank advertised a property to have an area of 95sqm which Mr.
Poole-Blunden bid and was the highest bidder. Later on he discovered the property was
less then 95sqm. Union bank avers that the 95sqm includes the common areas and
terrace.
 ● Ruling: Union bank new that the unit’s area’s computation should not include common
areas in accordance with the Condonomium Act. Moreover, the as-is-where-is stipulation
can only be _____.
● A ban that wrongly advertises the area of a property that it acquired through foreclosure
is grossly negligent as to practically equate to bad faith.
● Bank as mortgagee (Philippine Banking Corp v. D)
● Case summary:
● Ruling: Ciprirana, et al were parties to the simulated sale in favor of the Days which was
intended to mislead PhilBank into granting the loan application. No amount of diligence
in the conduct of the ocular inspection could have led to the discovery of the complicity
between the ostensible mortgagors (Dys) and the true owners (Cipriana). Even if PNB
did not conduct an ocular inspection, it ______.
● PNB v. SPOUSES CHEA CHEE CHONG AND OFELIA CAMACHO CHEA
● Case Summary: Foreign check would take 15 days, but PNB temporarily credited the
amount within 10 days, so Ofelia withdrew the amount. Then before the 15 day period
was finished, Philadelphia bank gave a memo to PNB main office saying that the check
was not cleared. Now PNB is trying to get the money back from Sps. Cheah. Sps. Cheah
claim that the proximate cause of PNB’s injury was its own negligence in paying a US
dollar check without waiting for the 15 day period.
● Ruling: Both parties were negligent. Therefore they should equally suffer the loss
■ Bank is at fault - payment of the amount of check without previously clearing
them with the drawee bank especially where the drawee bank is a foreign bank
and the amounts involved were large is contrary to ordinary banking practice. A
bank is expected to be an ___
■ Ofelia - negligence on her part because of the full trust she accorded to a
complete stranger. She was also aware that it would take 15 days to clear. Before
withdrawing the money, she should have verified the _____.
● Citybank v. Sps. Cabamongan
● Case summary: Opened a joint “and/or” foreign currency time deposit in trust for their
sons in Citibank, Makati. Before the maturity of the time deposit, a person claiming to be
Carmelita pre-terminated the foreign currency time deposit by presenting a passport, a
bank of America Versatele Card, an ATM card, and a Mabuhay Credit Card. Note, during
the interview, Yeye (Bank employee) relied on the ID and did not check the records of
the bank. Yeye asked the certificate of time deposit, “Carmelita presented a photocopy
which Yeye allowed. As for the quitclaim, Yeye accepted the quitclaim without having
the alleged Carmelita notarised. But apparently all this time, the real Carmelita was in the
US. Apparently beforehand, someone stole the jewellery box of Carmelita and that
contained the following documents that the fake Carmelita presented the bank.
● Ruling: Citibank was negligent through its employee.
■ Yeye did not present the certificate of time deposit
■ Yeye didn’t validate the photograph in the IDs and the records they had on hand
■ Yeye accepted the quitclaim without being notarised
■ Even the signature on record and the fake Carmelita had discrepancies
● Carbonell
 ● Counterfeit USD
● Ruling: The counterfeit were near perfect. Even the BSP itself found it difficult to
identify the counterfeit.

Two main products/functionalities of Banking Institutions

● Deposit
● Loan

Deposit

● Allows bans to receive money from the public with the obligation of safely keeping it, and
returning the same
● Fixed, savings, and current deposits of money in banks and similar institutions shall be governed
by the provisions concerning simple loan (Art. 1980, CC)
● For quasi-banks, the element of “public” is lacking. The clientele is specific. Example: members
only
● Relationship: Creditor — debtor
● Creditor: depositor
● Debtor: banking institution
● Title to the money deposited is transferred to the bank.
● Failure of the bank to return the amount deposited will NOT constitute estafa through
misappropriation under Art. 315 (1)(b_ of the RPC, but it will give rise to civil liability.
● This rule applies irrespective of the kind of deposit
● Secrecy of Bank Deposits
● Rationale (RA 1405)
● EXC
■ Written permission of depositor — the law doesn’t say that it has to be notarized
(but Atty says as a lawyer, you should recommend that it should be notarised so
that it would be hard to repudiate the permission later on)
■ Impeachment
■ Bribery/dereliction of duty — analogously, plunder
■ Deposit is the subject matter of litigation
■ Additional exceptions by special law:
● Anti-Graft & corrupt practices
● BIR net estate determination
● PDIC and/or BSP examination - unsafe/unsound banking practice
● Dormant accounts
● AMLA (Safe harbour provision) - AMLC can inquire into deposits upon
court order when there is a probable cause that the deposits are related
to any unlawful activity.
● BUT court order is NOT required if examination is in connection
with: (1) kidnapping for ransom; (2) violation of the CDDA; (3)
 violation of Civil Aviation law; (4) destructive arson; (5) murder,
including those perpetrated by terrorists.
● Note: under AMLA banking institutions must report to the
AMLC “transitions in cash or other monetary instrument in
excess of 500K within one banking day”. What is 500k and
below? If there is a suspicions transaction, the bank should
report.
■ No underlying legal or trade obligation, purpose or
economic justification
■ Client is not properly identified
■ Amount involved is not commensurate with the business
or financial capacity of the client
■ Transaction is structured in order to avoid being the
subject of reporting requirements
■ Transaction deviates from the profile of the client and/or
the client’s past transactions
■ In any way related to an unlawful activity or any money
laundering activity or offense
■ xxxx
● Safe harbor provision - protection against exposure to secrecy
law (Sec. 9, AMLA).
■ The one reporting is PROHIBITED from
communicating, directly or indirectly, in any manner or
by any means, to any person, the fact that a covered
transaction report was made. 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.
● Human Security Law
● CASE: the depositor/debtor has a lot of debts. So the creditors forged and signed a compromise
agreement. One of the provisions of the agreement said that the confidentiality of the bank
accounts of the debtor is hereby waived. Is this valid? NO because the one who signed the waiver
was NOT the debtor/depositor but the creditors (3rd person).
● Ejercito case
● Ejercito: covered by bank secrecy!
● People: the bank secrecy only involves “deposits” NOT trust account (Which is an
investment, where you let the bank manage your account)
● Ruling: Expanded the term “deposits”. It involved trust accounts. BUT NOTE that since
it is covered by bank secrecy, the same exceptions apply.
■ Plunder is analogous to bribery. Bribery is essentially included among these
criminal acts. Thus, the exception in cases of bribery must also apply to cases of
plunder
● Foreign currency deposit
● Examination is only upon written permission of the depositor
 ● EXC: Salvation v. Central Bank
■ Case summary: A civil and criminal case was filed against Greg for raping
Salvacion. Greg fled. Salvacion went after ChinaBank in order to execute on the
Greg’s dollar deposit because the Court ruled in favor of Salvacion in the civil
case.
■ Ruling: The foreign currency deposit is designated to draw deposits from foreign
lenders and investors. Obviously, the foreign currency deposit made by a
transient or a tourist is not the kind of deposit encouraged by PD Nos. 1034 and
1035 and given incentives and protection by said laws because such depositors
stays only for a few days in the country and, therefore, will maintain his deposit
in the bank only for a short time.

PDIC

● Mandatory insurance coverage

● Risk insured against bank closure
● Subject matter - deposit liability (liability of the bank to its depositors)
● Amount insured - amount deposited NET of any obligation of the depositor to the bank of closure
● Maximum coverage: 500,000 per bank regardless of the number of accounts held
● Joint accounts are separately covered
● Example:
● Savings: 1 Million less loan of 200,000.
■ Thus he can get insurance of 500,000. What about the remaining 300k? He can
line up to the receiver or liquidator to try to get the remainder.
● Savings: 500k + Current 500k + Time deposit 500k
■ Thus, can only get 500k from the PDIC.
● Joint account with Ann 500k + personal account of 500k + time deposit of 500k
■ He can get 500k from PDIC for his personal account, and then he can also get for
his joint account his share of 250K (because it is assumed that the share is equal
unless there is a stipulation to the contrary) = 750k from PDIC
● Joint account with 5 different people, 500K each.
■ He can get from PDIC only 500,000 because joint accounts whether with the
same or different joint depositors shall be limited to 500k.
● Note: if the co-depositor is a company, the presumption os that the company owns the
deposit, unless the individual depositor can prove otherwise.
● Excluded from PDIC coverage
● Deposit liabilities payable in foreign branches - unless the bank adds it in the coverage
● Investment products (i.e. securities and trust accounts)
■ Thus, while trust accounts are within the coverage of BANK SECRECY, it is
OUTSIDE the coverage of PDIC.
● Fictitious or fraudulent
● Deposits emanating from unsafe and unsound banking practices
● AMLA
● Splitting of deposits - Sec 21(f)(5), RA
 ● Time frame:
● PDIC is a quasi-judicial agency
● Hence, certiorari must be brought to the CA.
● Also there is no abuse of discretion

Loan Function

● Terms and conditions must always be aligned to the regulations of the BSP
● Amortization
● Amortization schedule - correspond to the nature of the operations to be financed.
● Those with maturities of more than 5 years, amortization payments must be made at least
annually (Sec. 44, GBL)
● Pre-payment
● A borrower may at any time prior to the agreed maturity date prepay, in whole or in
part, the unpaid balance of any bank loan and other credit accommodation, subject to
such reasonable terms and conditions as may be agreed upon between the bank and its
borrower. (Sec. 45, GBL)

DOSRI Restriction

● Rationale: DOSRI is connected to the bank — a director, stockholder, or officer. Thus, because of
their connection to the bank, it would be very easy for them, they have the leverage over the
terms and conditions of the bank. Hence, this DOSRI restriction was put in place.
● However, they are not prohibited from getting loans from the bank. Rather, there are certain
restrictions
● Requisites of who are covered by the DOSRI Restriction:
● Borrower must be the director, officer, stockholder of the bank (at least 1% of the
outstanding capital stock), or their related interests
■ Related interests because they could influence the bank via their DOSR, such as
● Relatives (spouses and 1st degree relatives)
● Partnership (of which the DOS or a relative of the DOS is a general
partner)
● Example: partnership X and bank Y. Then the articles of
partnership of X, one of the general partners is a director,
official, shareholder, or relative of bank the DOS of bank Y)
● Co-owner of the collateral
● Certain corporations, association or firm where:
● DOS or relative is also a director or officer
● Any or group of DOS or relative holds at least 20% of the capital
stock
● It owns at least 20% of the capital stock of a substantial
stockholder of the lending bank or which controls majority
interest of the bank
 ● Lending bank owns 20% of the corporation or has management
contract with the lending bank (CB Circular 423, 4004)
● There is a loan
● From his bank or bank subsidiary (of affiliate) or bank controlling interest of which is the
same as his bank
● Amount of loan in excess of 5% of capital surpluses of the lending bank
● DOSRI Requirements
● Written approval of all the directors of the lending bank
● Report to BSP
● Arms length
● Aggregate ceiling of DOSRI loans -15% of the bank’s loan portfolio or 100% of
combined capital accounts whichever is lower
● Individual ceiling - encumbered deposit and book value of paid up shares
PAUL

BANKING

NATURE OF BUSINESS
- Banks – engaged in the lending of funds obtained in the form of deposits.
o 2 important products – deposit and lending.
- Quasi-banks – engaged in the borrowing of funds through the issuance,
endorsement, or assignment with recourse or acceptance of deposit substitutes as
defined in Sec. 95 of NCBA for purposes of relending or purchasing of receivables
and other oblis.
o “Sort of like” a bank.
o There are institutions which issue PNs, and not time deposit receipts.
o They perform some banking functions, but not all facilities to qualify them as a
banking institution.

REQS TO SET-UP A BANK/QBANK

- Stock Corp
o They need a favorable endorsement from BSP
- Funds obtained from the public – 20 or more
- Min. cap. reqs. prescribed by MB for each category of banks are satisfied
o Generally, corps do not have a min cap required. Banks are an exception.

DEGREE OF CARE
- Highest degree of care in the conduct of their business.
o Processing of loans, handling of bank accounts.
o Covers employees, agents, officers, directors, etc.

OCULAR INSPECTION
- Sps. Cornista – loan from TRB; collateral – lot, which was foreclosed due to non-
payment of loan.
- Vila – highest bidder; period to redeem lapsed but Cornistas allowed to redeem.
- Vila sought nullification of the redemption.
- Vila won but could not execute as property was used by Cornistas as collateral to
PNB loan and was also foreclosed.
- Generally, mortgagees can rely on a clean Torrens title. This does not apply to
banking institutions.
- They need to conduct an ocular inspection! Can’t merely rely on TCT.
- Banks need to ascertain ownership of the property to ensure that the public is
protected.
- They must exert utmost diligence in ascertaining status of property.
- Here, property was in possession of another person other than the one applying for
the loan.
 - Taxes were also not paid in the name of the borrower. It was Vila, not borrowing
spouses, who paid them.
DISCREPANCY IN THE SIZE OF CONDO UNIT
- Union Bank foreclosed a condo unit which Poole-Blunden Acquired.
- Ad: 95 sqm but Poole-Blunden discovered that the area was only 70 sqm.
- Defense of Union: The area of 95 sqm includes common areas and terrace.
- SC: Union bank is wrong! Condo act says common areas not included.
- As-is-where-is stipulation only pertains to readily perceptible physical state of the
object.
- Cannot apply when specialized scrutiny is needed.
- A bank that wrongly advertises the area which it acquired via foreclosure is grossly
negligent and is in bad faith.
- When the purchaser is a bank, the rule on innocent purchaser for value is applied
more strictly.
- REMEMBER: PUBLIC INTEREST – EXTRAORDINARY DILIGENCE.

BANK AS MORTGAGEE
- Sps. sold lot in Cebu; buyer is Cecilia. Cecilia to give balance when deed of sale is
ready.
- Ready to pay but sps. refused to give deed. Apparently, the property was already
sold to Dy who also mortgaged it to Philbank.
- Sale of Sps. and Dy was simulated to allow latter to borrow and property is collateral.
- Is Philbank a mortgagee in good faith because the title here was actually defective
due to the simulated sale?
- SC: Sps were parties to the simulation. This then mislead Philbank into granting the
loan application.
- No amount of diligence in the conduct of the ocular inspection could have led to
the discovery of the complicitybetween Dys and the Sps.
- The misrepresentation was a state of mind.
- Philbank cannot be considered negligent because the defective title was caused by
the simulation of the sale.

PNB v. Cheah Chee Chong

- Ofelia and Adelina
- Filipina, friend of Adelina, asked if she can have her dollar check cleared and
encashed with commission of 2.5%.
- Drawee: Bank of America.
- Ofelia had a dollar account and she agreed to have the check proceeds deposited in
her account.
- So clearing process should take 15 days as per PNB.
- Check deposited with PNB, then sent to Philly Bank.
- Before clearing period ended, Philly informed PNB said that proceeds have been
temporarily credited to the latter’s account.
- Ofelia withdrew the amount then gave money to Filipina.
 - Debit advice from Philly to return check for insufficient funds.
- Cheah sps. claim that the proximate cause of PNB’s injury was its own negligence of
paying the amount without waiting for the 15-day clearing period, in violation of
its bank practice as mandated by its own circular.
- SC: Both parties were negligent!
- Payment without waiting for clearing period to lapse, especially when the amount is
so large – contrary to normal or ordinary banking practice.
- Banks are expected to be experts in banking procedures and it has the necessary
means to ascertain whether a check is sufficiently funded.
- Ofelia’s negligence – accommodating a complete stranger and the amount was
again so large!
- A bank officer called her to inform her that the check was cleared earlier than the 15-
day clearing period. She should’ve verified again.
- Parties equally suffer the loss.

ACCOUNT OFFICER
- Sps. Cabamongan opened a joint foreign currency time deposit in trust for their sons.
- 180-day time deposit – if you pre-terminate, you lose interest and comes with penalty.
- Prior to maturity, a person claiming to be “Carmetlita” pre-terminated the time deposit
by presenting a passport, a Bank of America Versatele Card, an ATM card, and a
Mabuhay Credit Card.
- The bank employee merely relied on these documents but did not check the bank
documents they had in their branch.
- “Carmelita” showed the photocopy. Employee accepted the quitclaim but without
requiring “Carmelita” to have it notarized.
- So “Carmelita” was able to get the money, to the prejudice of Sps. Cabamongan.
“Carmelita” left some documents in the bank.
- When employee called to inform that “Carmelita” left her IDs, employee was informed
that real Carmelita was in the U.S.
- Apparently, a few weeks ago, the house of Sps. was ransacked that’s why “Carmelita”
was able to present the documents.
- SC: Citibank had so many lapses.
- Photograph was not even validated and compared with bank records!
- Employee accepted quitclaim without notarization.
- Signature was clearly forged if only bank documents were checked.
- Did not present certificate of deposit as well.

FAKE DOLLAR
- Sps. Carbonell – case against Metrobank for damages.
- Sps. went to Thailand. Tried to pay for jewelry using dollars from Metrobank. They
were called cheaters because dollars were fake.
- SC: Metrobank NOT LIABLE.
- Here, BSP itself said that the counterfeits were near perfect and could only be
detected with extreme difficulty.
 - There was no lapse on the part of Metrobank.

Two Main Products

- Deposit
o Allows banks to receive money from the public with the obligation of safely
keeping it, and returning the same.
o Fixed, savings, and current deposits of money in banks and similar institutions
shall be governed by provisions of simple loan.
o Remember – 20 or more depositors.
o Quasi-banks also have deposit functions because e.g. savings and loan assoc,
only employees. So “publicity” is usually not present.
o Failure by bank to pay depositor is failure to pay simple loan, not breach of
trust.
o Relationship between depositor and bank – creditor and debtor in relation to
bank’s deposit functions. NOT DEPOSITOR AND DEPOSITARY.
§ If deposit kasi, kailangan exact same thing has to be returned.
Safekeeping, preservation, storage. This is not the case of bank
deposits.
o Title to the money is transferred to the bank. Therefore, failure of bank to
return money will not constitution estafa through misappropriation punishable
under Art. 315, par. 1(b).
§ Civil liability only.
- Loan

SECRECY OF BANK DEPOSITS

- Rationale: Faith in the banking system. Discourage private hoarding. Let banks allow
the use money and let it go around.
- Exceptions:
o Written permission of depositor;
§ No need to be notarized, etc.
§ But to be prudent, make sure it’s notarized so it’s not easy to
disclaim/repudiate.
o Impeachment;
o Bribery/dereliction of duty;
o Deposit is subject matter of litigation.
§ Without this, losing parties can easily evade obligations by citing
secrecy.
- There was case: Depositor/debtor had a financial problem which led his creditors to
agree among themselves to make a compromise agreement between them.
o Signatories are all creditors.
o There is a provision: Confidentiality of debtor’s bank accounts is waived.
- SC: Waiver invalid.
- The permission must come from the debtor-depositor, not a 3rd person like a creditor.
 - Waiver does not bind debtor-depositor here.

EJERCITO CASE
- “Deposits” – understood broadly and not limited to accounts which give rise to a
creditor-debtor relationship between depositor and bank.
o Here, trust accounts are covered.
- If the money deposited under an account which may be used for authorized loans to
third persons, then the account falls under the category of accounts which the law
seeks to protect.
o This is regardless of whether it creates a creditor-debtor relationship. Again,
policy is to boost economic development of the country.
- But subject ot examination!
o Plunder analogous to bribery.
o Bribery is essentially included among criminal acts.
o The exception of bribery equally applies to plunder because the elements are
really analogous. The magnitude of the latter is even more serious.
o Subject matter of litigation not only limited to bank accounts under Estrafa’s
name. Includes account which are purported to have money plundered.
- More exceptions to bank secrecy:
o Anti-graft and corrupt practices
o BIR Net estate determination
o PDIC and/or BSP examination – unsafe/unsound banking practice.
o Dormant accounts
§ Escheat proceedings via OSG.
o AMLA (safe harbor provision)
o Human Security Law.
§ Terrorism
- Sanction
o Unlawful for an official/employee of a bank to disclose other than those in the
exemptions. Imprisonment of not more than 5 years, fine of not more than
20k, or both.

AMLA
- Money Laundering – a crime whereby the proceeds of an unlawful activity is
transacted thereby making them appear to have originated from legitimate sources.
- AMLC can inquire into deposits upon court order when there is a probable cause
that the deposits are related to any unlawful activity.
o Generally, kailangan ng court order.
- No more court order required if:
o Kidnapping for ransom;
o Violation of CDDA
o Violation of Civil Aviation Law
o Destructive Arson
 o Murder, including those done by terrorists.
- Technically, sobrang daming penal laws can lead to money laundering.
- Covered Transaction: Transaction in case or other monetary instrument in excess of
Php 500k within 1 banking day.
o A transaction exceeding Php 1M in cases of jewelry dealers, dealers in
precious metals, and dealers in precious stones.
- Suspicious Transactions (usually if below Php 500k):
o No underlying legal/trade obligation, purpose or economic justification;
o Client is not properly identified;
o Amt involved no commensurate with the business or financial capacity of the
client;
§ Usually based on historical record of client.
o Transaction structured to avoid being subject of reporting requirements;
§ So they break down the amount para ‘di lumampas ng 500k in one
instance. There is usually a pattern.
o Transaction deviates from the profile of the client and/or the client’s past
transactions.
o In any way related to an unlawful activity or any money laundering
activity/offense about to be committed, is being committed, has been
committed.
o Ma’am: In case of doubt, just report. No automatic liability anyway.
- Safe Harbor:
o Protection against exposure to secrecy laws.
o One reporting is prohibited from communicating, directly or indirectly, in any
manner or by any means, to any person, the fact that a covered transaction
report was made.
§ Aka bawal pag-chismisan ‘yung nireport nila.
§ Violating this takes them out of the safe harbor protection.
o No admin, crim, civil, shall lie against any person having made a covered
transaction report in the regular performance of duties and in good faith.
- Human Security Act
o Terrorism in its generic sense.
o CA (special court) may authorize in writing any police or law enforcement
officer and the members of his/her team duly authorized in writing by the anti-
terrorism council to:
§ Examine, or cause the examination of, the deposits, placements, trust
accounts, assets and records in a bank or financial institution.
- Foreign Currency Deposits
o Examination only upon written permission of depositor.
o But take note: Salvacion v. Central Bank
§ Karen, a 12-year-old girl, was lured by Bartelli to come to his house.
§ Upon arriving there, Karen was repeatedly raped for 4 days until she
got help.
 § Bartelli jumped bail.
§ The only account they can garnish is a dollar account in China Bank.
§ China Bank didn’t want to comply with the preliminary attachment
because of FCD secrecy law.
§ SC: Motivation behind the law – promote foreign lending/investments in
the country by way of FCD. That’s why the privacy was granted to
them.
· These are the deposits that deserve absolute secrecy – FROM
FOREIGN LENDERS AND INVESTORS.
· Here, Bartelli was not a lender nor an investor. He is a mere
transient. This means that his deposit only stays here for a
short time.
· He cannot benefit from the protection of the law – utmost
injustice if we allow him to get away with what he did.
· Art. 10 NCC – in case of doubt in the interpretation or application
of laws, presumed that the lawmakers intended right and
justice to prevail.

PDIC
- Mandatory Insurance Coverage
- Risk insured against (bank closure)
- Amount insured – amount deposited net of any obligation of the depositor to the bank
as of closure
- Max coverage – Php 500k per bank, regardless of the number of the accounts held
- Joint accounts separately covered.
- Dom’s example 1 – account of 1M in deposits, loaned 200k. Coverage is only up to
500k. So he gets Php 500k even if he actually has Php 800k in the bank.
o What is loan is Php 800k? He only gets Php 200k upon closure.
o What happens to the money beyond 500k? You file a claim. Try to get
something more to else. But this is subject to the receivership/liquidation
process.
- Example 2 – Savings 500k; current 500k; time 500k. Total 1.5M. Will only get 500k
upon closure, depending on liquidation/rehab.
o What if same bank but the three accounts are in different branches? Will it
matter? It won’t matter – 500k pa rin. 500k is PER BANK, NOT BRANCH.
- Example 3 – Joint acct with Anna – 500k.
o Is this covered by PDIC? Yes.
o What if in Example 2, the current account is joint with Anna?
§ Joint account has separate coverage! For joint, he gets 250k.
Presumption is equal sharing. Unless he can prove a different division
for sharing.
§ Personally account – 1M total, he gets 500k.
§ His total recovery: Php 750k.
- Example 4
 o 5 accounts, all joint, each with 5 different people, all 500k so 2.5 total.
§ So half, Php 1.25M Joint accounts enjoy separate PDIC coverage,
right? Does he get Php 1.25M?
§ Law limits recovery for joint accounts up to 500k as well.
§ So basically, at most 1M – 500k personal, 500k joint.
- If the co-depositor is a juridical company, presumption is that company owns deposit.
Unless, natural person can prove otherwise.
- Exclusions:
o Deposit liabilities payable in foreign branches;
o Investment products;
§ Trust accounts are outside coverage of PDIC.
o Fictitious or fraudulent;
o Deposits emanating from unsafe and unsound banking practices;
o AMLA
o Splitting of deposits.
§ Deposit account is broken down and transferred to 2 or more accounts
in the names of others who have no beneficial ownership within 120
days immediately preeding or during bank-declared bank holiday, or
immediately preceding a closure order issued by MB of BSP for
purpose of availing maximum coverage.
- Filing of claims: 2 years from actual take over.
- Remedy for amounts in excess of 500k – liquidation/rehab proceedings.

PDC IS QUASI-JUDICIAL ENTITY

- So opened account. Claim denied by PDIC because of splitting. Filed case in RTC
- SC: RTC has no jurisdiction – has to be CA.
- PDIC is a quasi-judicial entity – exercises judicial discretion and judgment in
determining whether claimant id entitled to a deposit insurance claim.
- Therefore, a petition under rule 65 from a PDIC ruling must be filed in CA, NOT THE
RTC.

CHUGANI CASE
- Sps. Chugani had a time deposit with Rural Bank of Mawab because they were invited
by pres of bank (Garan) to do so.
- Bank was placed under receivership.
- Chugani’s claim with PDIC rejected as their deposit does not form part of bank’s
deposit liabilities, their certificate of time deposit was fraudulent, placed under the
personal acct. of Garan.
o So in short, ‘yung pera ng Sps. were put in the name of Garan.
- PDIC denied. RTC denied for lack of jurisdiction.
- SC: RTC again has no jurisdiction!
- PDIC – quasi-judicial. Raise to CA.
- No error on denial of PDIC.
- For deposit to be legitimate:
 o Received by bank as deposit in usual course of business;
o Recorded in the books of thank as such;
o Opened in accordance with establish forms and requirements of the BSP
and/or the PDIC.

LOAN FUNCTION
- Loan and other credit accommodations should be in the amounts and for the periods
of time essential for the effective completion of the operations to be financed.
- Such grant of loans and credit accommodations shall be consistent and with safe and
sounds banking practices
- Amortization schedule – nature of operations to be financed
o Those with maturities of more than 5 years, amortization payments must be
made at least annually.
o When loan is used for purposes which do not initially produce revenues
adequate for regular amortization payments therefrom, bank may permit
initial amortization payment to be deferred until such time as said revenues
are sufficient for such purposes, but in no case shall the initial amortization
date be later than 5 years from the date on which the loan or other credit
accommodation is granted.
§ E.g. project financing contracts. In this instance, ‘yung ipapambayad,
kukunin din sa operations mismo.
§ If there is FE, banks have the flexibility to defer amortizations until
revenues are sufficient for paying them.
§ Usually dagdag interest ‘cause higher cost of money.
§ Max deferral – 5 yrs.
- Pre-Payment
o A borrower may at any time prior to maturity, repay the balance of a loan and
other credit accommodation, subject to such reasonable terms and conditions
as may be agreed upon between bank and brrower.
o Usual sanction is pre-termination penalty in the loan contract.

DOSRI RESTRICTIONS
- Rationale: To ensure that there is no undue advantage for these people whenever
they borrow from their bank. These people are connected with the bank.
- Requisites:
o Borrower – director, officer, stockholder of bank or related interests;
§ Both direct and indirect interest
§ “Related interest” – e.g. relatives (spouse, and 1st degree relatives),
partnership (of which the DOSR is a general partner – e.g. partnership
is itself a stockholder), co-owner of collateral.
· E.g. 1: Partnership – if a DOS/relative of DOS is a general
partner. Kunwari uutang si Partnership XYZ. Lender is X
bank. If you check XYZ docs – a general partner here is a
 DOS/relative of X bank as well. Then XYZ partnership is then
a related interest.
· E.g. 2: Borrower is Dom, bank is X bank. Dom is not DOS in
bank. When loan was being process, security was land in the
name of Dom but co-owned by a DOSR(elative of DOS). Dom
is now a related interest.
o Loan;
o From his bank or bank subsidiary/affiliate or bank controlling interest of which
is the same as his bank.
- TAKE NOTE: THEY ARE NOT PROHIBITED FROM BORROWING. MAY EXTRA
REQUIREMENTS LANG.
- Again, more examples:
o DOS/R also a director/officer;
§ E.g. 1: Castro is a director at X bank but also a director at Castro Corp.
Borrower Castro Company is now a related interest.
o Any/group of DOS or relative holds at least 20% of the capital stock;
o It owns at least 20% of the capital stock of a substantial stockholder of the
lending bank or which controls majority interest of the bank;
§ Borrower Castro Corp owner owns the at least 20%,
o Lending bank owns 20% of the corp or has management cont. with bank.
- Basta if may interest si bank kay borrower OR VICE-VERSA.
- DOSRI Requirements:
o Written approval of all directors of the lending bank;
o Report to BSP;
o Arms length;
§ Tapos dapat same market rates for DOSRI.
o Aggregate celing of DOSRI loans – 15% of the bank’s loan portfolio or 100% of
combined capital accounts whichever is lower;
o Individual ceiling – encumbered deposit and book value of paid up shares.
- Remember that for most corps, these requirements need not be met. 7-11 example
with Von.